LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2018, the company’s fiscal first quarter of fiscal 2019. The filing was signed August 20, 2018. Amounts below are in U.S. dollars.
Business context and comparability
LiveXLive operates a digital live-entertainment and music-streaming business, including Slacker, acquired in December 2017. Results include Slacker for the full quarter; the prior-year quarter did not. The prior-year continuing-operations revenue was zero, so the reported revenue increase is principally acquisition-driven and is not a like-for-like growth comparison. LXL Tickets, acquired assets of Wantickets, had been shut down and is presented as discontinued operations.
Financial results and liquidity
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $7.59 million | $0 |
| Cost of sales | $8.44 million | $0.41 million |
| Operating loss | $10.10 million | $1.87 million |
| Net loss | $10.77 million | $2.82 million |
| Operating cash flow | $(3.51) million | $(1.46) million |
- Revenue comprised $6.62 million from subscriptions, $0.80 million from advertising and $0.17 million from licensing. Cost of sales exceeded revenue by $0.85 million, a gross margin of approximately negative 11%.
- Net loss per share was $0.21, versus $0.08; weighted-average shares rose to 51.5 million from 35.5 million.
- At June 30, cash and cash equivalents were $15.9 million, plus $0.2 million restricted cash. Current assets were $21.0 million and current liabilities $27.1 million, yielding a $6.1 million working-capital deficit. Total assets were $68.4 million and total liabilities $36.7 million.
- Debt included $10.64 million principal of senior secured convertible debentures (reported net of costs at $9.61 million), approximately $4.6 million principal of unsecured convertible notes, and a $0.3 million past-due note. The prior $3.5 million bank line was repaid with debenture proceeds.
- Financing cash flow was $6.09 million, including $9.6 million net proceeds from the debenture financing and repayment of the $3.5 million bank line. Cash, cash equivalents and restricted cash increased $2.07 million during the quarter.
Material changes and operating developments
- Slacker contributed approximately $7.4 million of quarterly revenue and a $2.6 million net loss. Its acquisition accounts for the major change in the consolidated revenue base.
- Paid subscribers increased to approximately 489,000 from 447,000 at March 31, 2018. The company produced and streamed five festivals during the quarter.
- Operating costs rose with Slacker’s inclusion, higher festival production, $2.4 million of intangible amortization and increased stock-based compensation. Total stock-based compensation was $2.85 million.
- On June 29, the company issued $10.64 million face value of 12.75% senior secured convertible debentures for $10.0 million gross cash proceeds, with $9.6 million reported net proceeds after issuance costs. The debt is secured by substantially all company and guarantor assets, matures June 2021, and is convertible at $10 per share. Holder redemption rights begin in December 2018; the filing describes monthly redemptions of up to $0.2 million in the debt note and $170,000 in a risk-factor disclosure.
Outlook, risks and unusual items
- Going concern: The filing states that internal forecasts may show insufficient liquidity for at least the next 12 months. The $10.8 million quarterly net loss, $3.5 million operating cash use and working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Management says continued viability depends on growing revenue, reducing costs and obtaining adequate financing; success is not assured. Elsewhere, management says existing cash and expected operating cash flows are expected to fund operations for 12–24 months, a statement to assess against the disclosed substantial doubt.
- Management outlook: Management expected continued investment in product development over the next 12–18 months, and anticipated increases in sales and marketing, product development, general and administrative, and stock-compensation expenses. It planned to expand advertising and licensing tied to live content and pursue additional festival rights; no numerical revenue or earnings guidance was provided.
- Debt and dilution: The debentures carry restrictive covenants, minimum liquidity requirements, financial targets and default/acceleration provisions. Monthly redemptions may require cash or, subject to conditions and approvals, shares, potentially diluting shareholders. The company reported compliance with covenants at quarter-end.
- Legal matters: A New York lawsuit brought by Wantickets-related parties seeks approximately $26.7 million plus other relief; the company disputes the claims, but says the outcome is uncertain and could materially affect its business and financial condition. Other pending disputes include claims connected with former LXL Tickets/Wantickets operations. The Bestival dispute was settled for an amount described as not material, with dismissal entered in July 2018.
- Controls: Management concluded disclosure controls and procedures were not effective at quarter-end because of material weaknesses identified in the 2018 Form 10-K; remediation was in progress.
- Topic 606 adoption had no material impact on reported revenue or other financial-statement line items. The quarter included approximately $0.4 million of legal settlement expense. Content agreements carried $7.2 million of future minimum-guarantee commitments, with $1.5 million payable in fiscal 2019.
Investor verification priorities
- Verify cash runway, forecast assumptions and the company’s plans to address the disclosed going-concern uncertainty and working-capital deficit.
- Review debenture covenants, minimum-liquidity requirements, redemption terms and the discrepancy between the disclosed $0.2 million and $170,000 monthly redemption caps.
- Assess Slacker’s subscriber, revenue and margin contribution separately from live-event operations; confirm whether revenue growth is sustainable and less acquisition-dependent.
- Monitor the $26.7 million lawsuit and other contingencies for changes in estimated exposure or outcome.
- Track remediation of material weaknesses, stock-based compensation and potential share dilution from conversions, redemptions and equity awards.