LiveXLive Media, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended March 31, 2019, compared with the year ended March 31, 2018. Although the request refers to 2018 Q4, this filing reports full fiscal years, not a standalone quarter. Financial figures below are in U.S. dollars.
Business context
LiveXLive operated live-music streaming and Slacker Radio, with revenue primarily from audio subscriptions and, to a lesser extent, advertising and licensing. Slacker was acquired on December 29, 2017, so FY2019 includes a full year of Slacker results while FY2018 includes only 92 days; year-over-year comparisons are therefore not fully comparable. In May 2019, the company combined the services in a unified app.
Financial and operating results
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $33.7 million | $7.2 million |
| Subscription revenue | $30.4 million | $6.5 million |
| Advertising and licensing revenue | $3.3 million | $0.7 million |
| Cost of sales | $31.2 million | $6.7 million |
| Gross profit / margin | $2.5 million / 7.5% | $0.5 million / 7.0% |
| Operating loss | $(33.9) million | $(14.9) million |
| Net loss | $(37.8) million | $(23.3) million |
| Operating cash flow | $(5.8) million | $(9.3) million |
- Revenue rose 368%, primarily because FY2019 included Slacker for the full year. Paid subscribers increased about 51%, from approximately 450,000 to 680,000. The filing reports 1.3 million audio-service monthly active users during the year and 1.4 million “today”; these are stated at different points in time.
- LiveXLive streamed 24 festivals and events versus five in FY2018, generating more than 50 million views and 350 hours of live programming. Production costs increased to $8.3 million from $1.3 million.
- Operating expenses totaled $67.6 million, nearly twice revenue. Higher sales and marketing, product development, general and administrative, and acquired-intangible amortization contributed to the larger operating loss. Stock-based compensation was $12.8 million, up from $6.2 million.
- Net loss widened despite improved gross margin; FY2018 also included a $4.3 million loss from discontinued LXL Tickets operations, including a $2.8 million asset impairment.
- Cash and cash equivalents were $13.7 million at year-end, with $0.2 million restricted; accounts receivable were $4.3 million. Current assets of $19.6 million were below current liabilities of $34.2 million, resulting in a $14.6 million working-capital deficit. Total liabilities were $49.4 million.
- Gross debt principal was approximately $18.5 million, including $13.1 million of secured convertible debentures and $4.8 million of related-party unsecured convertible notes. The debentures bear 12.75% interest, are secured by substantially all assets, and include monthly redemption rights. Contractual debt obligations were concentrated in FY2022, with $18.2 million scheduled then.
Outlook, risks and unusual items
- Liquidity and going concern: The auditor’s financial-statement opinion was unqualified but included a going-concern explanatory paragraph. Management said available funds were expected to support operations through the first half of FY2020; the filing also says internal forecasts indicate liquidity may be insufficient for at least the next 12 months and that additional financing is needed. No assurance is given that financing will be available. Failure to obtain funding could trigger debt covenant defaults.
- Management outlook: The company expected advertising to represent a larger share of revenue beginning in FY2020, while continuing substantial investment in product and engineering over the following 12–24 months. Sales and marketing, product development, and G&A expenses were expected to increase. The filing provides no numerical revenue or earnings guidance.
- Revenue concentration: One customer, identified in risk disclosures as Tesla, contributed 41% of FY2019 revenue, up from 24% in FY2018. The customer relationship and service agreement are material to results.
- Content commitments: Contractual obligations included $8.5 million in content and festival fees and guarantees, with $4.0 million due within one year. Certain agreements require revenue sharing, and subscriber or advertising growth may not cover fixed guarantees.
- Controls and accounting: Management found disclosure controls and internal control over financial reporting ineffective. The auditor issued an adverse opinion on internal controls, citing weaknesses in accounting for significant transactions and debt modifications, and in revenue and royalty accounting. Management described remediation efforts but could not estimate when remediation would be complete.
- Legal and other exposures: The company disclosed ongoing Wantickets-related litigation seeking approximately $26.7 million; it stated the outcome was uncertain and a loss could materially affect the business. Slacker had accrued $9.9 million in royalties at year-end. Sales-tax collection requirements following the Wayfair decision and music-rights licensing obligations also pose risks.
- Financing and dilution: Monthly debenture redemptions may require cash or, subject to conditions, shares; share settlement could dilute holders. Debenture covenants restrict certain acquisitions, borrowing, asset sales and other actions. The company had a $150 million shelf registration statement available, but this does not ensure it can raise capital.
- Unusual acquisition accounting: Final Slacker purchase accounting reduced the fair value assigned to equity consideration by $5.7 million and increased goodwill by $4.3 million; final valuation adjustments reduced FY2019 amortization expense by $1.9 million in the third quarter.
Important facts for investors to verify
- Current cash runway, financing progress, and compliance with minimum-cash and other debenture covenants.
- Debenture redemption activity, cash-versus-share settlement, potential dilution, interest costs, and FY2022 refinancing or repayment plans.
- Renewal and economics of major content agreements, minimum guarantees, royalty accruals, and whether live-streaming growth can achieve sustainable margins.
- Customer concentration and the status, renewal terms, and termination rights of the major OEM/Tesla agreement.
- Progress toward remediating material weaknesses and whether revenue, royalty, acquisition, and debt accounting controls are operating effectively.
- Developments in the Wantickets litigation, potential exposure, and any related indemnification recovery.