LiveXLive Media, Inc. — Form 10-Q Summary
Business context and period. This filing covers the quarter and six months ended September 30, 2018, the second quarter of LiveXLive’s fiscal 2019. The company is a digital live-entertainment and music-streaming business; its results include Slacker, acquired in December 2017. Prior-year comparisons are not directly comparable because Slacker was not included in 2017, while the discontinued LXL Tickets business was.
Financial performance and position
- Revenue: Second-quarter revenue was $8.0 million versus $0.08 million a year earlier; six-month revenue was $15.6 million versus $0.08 million. Subscription revenue was $7.2 million for the quarter and $13.9 million for six months; advertising and licensing contributed $0.7 million and $1.7 million, respectively. The increase was principally attributable to Slacker.
- Profitability and margins: Second-quarter operating loss was $9.5 million and net loss was $10.3 million ($0.20 per share), compared with net loss of $4.3 million ($0.12 per share) a year earlier. Six-month operating loss was $19.6 million and net loss was $21.1 million ($0.41 per share), versus net loss of $7.1 million ($0.20 per share). Cost of sales exceeded revenue by $0.2 million in the quarter and $1.0 million for six months; operating margin was negative 119% and negative 126%, respectively. The company’s non-GAAP Adjusted Operating Loss was $3.6 million for the quarter and $8.1 million for six months.
- Cash flow: Six-month operating cash use was $4.7 million, compared with $2.5 million in 2017. Investing cash use was $1.1 million, primarily for internally developed software; financing provided $6.1 million, mainly from the new debentures, net of bank-debt repayment. Cash, cash equivalents and restricted cash increased $0.3 million to $14.2 million; unrestricted cash was $14.1 million at September 30.
- Liquidity and debt: Current assets were $19.2 million and current liabilities $31.8 million, a reported working-capital deficiency of $12.6 million. Total liabilities were $40.3 million. Debt included $10.6 million principal on 12.75% senior secured convertible debentures due 2021, approximately $4.6 million principal and accrued interest on related-party unsecured convertible notes due May 2019, and a $0.3 million past-due promissory note. The company repaid its $3.5 million bank line using debenture proceeds. Debentures are secured by substantially all company and guarantor assets and include financial and other covenants; the company reported compliance at quarter-end.
- Other notable metrics: The company reported approximately 549,000 paid subscribers at September 30, up from 489,000 at June 30, and more than 1 million Slacker monthly active users. An OEM customer generated $2.9 million of quarterly and $5.1 million of six-month revenue; one customer represented 37% and 33% of revenue for those periods.
Material changes and management outlook
- Revenue growth reflects Slacker’s inclusion, while operating costs rose with the acquisition, festival production, product development, stock-based compensation and $4.8 million of six-month intangible-asset amortization. The company streamed eight festivals in the quarter and thirteen in the six-month period.
- Management reported 27 festival agreements as of September 30, including a five-year Insomniac agreement, and described plans to expand live-event broadcasting, advertising, sponsorship and licensing. It expects advertising and licensing to represent a higher revenue mix in the second half of fiscal 2019. No specific financial revenue or earnings guidance was provided.
- Management expects significant product-development investment over the next 12–18 months and anticipates sales and marketing, product development and general and administrative expenses to increase. It stated that additional financing may be needed to fund growth, operations and potential acquisitions.
- Going concern: The filing says forecasts may indicate insufficient liquidity for the next 12 months and that the $21.1 million six-month net loss, $4.7 million operating cash use and working-capital deficiency raise substantial doubt about the company’s ability to continue as a going concern. Management’s ability to continue depends on revenue growth, cost reductions, profitable operations and additional suitable financing; success is not assured. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Risks and contingencies: Debenture holders may require monthly redemptions beginning in December 2018, payable in cash or, subject to conditions and approvals, shares; share settlement could dilute shareholders. The company also faces refinancing, covenant, customer concentration, content-cost and execution risks. A New York lawsuit seeks approximately $26.7 million and could materially affect results, although the company disputes the claims. A separate Wynn matter had a potentially material range of loss, which management assessed as remote. The Light Nightclub dispute was settled on November 8, 2018, without company payment, subject to anticipated court approval. The filing also reports a $0.2 million Exodus arbitration award against LXL Tickets.
- Controls: Management concluded disclosure controls were not effective because of material weaknesses identified in the prior annual report. Remediation was underway; the company also reported it would be subject to an auditor attestation requirement for fiscal 2019.
Important facts for investors to verify
- Whether operating cash burn, losses and the working-capital deficit improve enough to resolve the disclosed going-concern uncertainty, and whether additional financing is obtained.
- Debenture redemption, interest and covenant terms, including liquidity requirements, and the company’s ability to meet payments without default or material dilution.
- Slacker subscriber retention, OEM dependence and customer concentration, and whether growth in subscription and live-event revenue can improve gross margins.
- Outcomes and potential exposure from the $26.7 million New York claim, Wynn litigation, the Exodus award and other legal matters; confirm the court’s approval of the Light settlement.
- Progress in remediating internal-control weaknesses and the timing and cost of auditor attestation.