LiveXLive Media, Inc. — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2018; comparative period is the year ended March 31, 2017. This is an annual report, not a standalone 2017 fourth-quarter filing. The company included Slacker’s results only from its December 29, 2017 acquisition through year-end (92 days), so comparisons are substantially affected by the acquisition.
Business context
LiveXLive operates live-music streaming and music-related content services, alongside Slacker Radio, acquired in December 2017. It reports one operating segment. Revenue is primarily from subscriptions and advertising, with additional live-content licensing. By March 31, 2018, the company reported rights to stream more than 25 festivals and approximately 450,000 paid subscriptions and 1.4 million users. Its Insomniac agreement provides exclusive global digital broadcast rights for up to 20 major festivals and more than 100 events annually.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $7.195 million | $0.225 million |
| Subscription revenue | $6.459 million | None reported |
| Advertising and licensing revenue | $0.736 million | $0.225 million |
| Gross profit | $0.501 million | $(0.505) million |
| Operating loss | $(14.877) million | $(5.485) million |
| Loss from continuing operations | $(19.020) million | $(14.250) million |
| Net loss | $(23.336) million | $(14.250) million |
| Net cash used in operating activities | $(9.261) million | $(3.123) million |
- Gross margin was approximately 7%; operating margin was approximately negative 207%, and net margin approximately negative 324%.
- About 90% of FY2018 revenue was subscriptions and about 10% advertising and licensing. Tesla, which provides Slacker service in its new vehicles, contributed $1.8 million, or 24% of revenue.
- Cash and cash equivalents were $10.285 million; restricted cash was $3.685 million. Current assets were $18.719 million versus current liabilities of $25.682 million, a working-capital deficit of approximately $6.963 million.
- Total liabilities were $29.630 million. At year-end, the company had $3.5 million of bank debt secured by $3.5 million of restricted cash, $4.916 million of net unsecured convertible notes, and a $0.294 million note payable described as past due.
- Investing activities used $2.461 million; financing activities provided $20.530 million, primarily from the public offering. The offering generated $18.5 million net proceeds.
- Cost of sales was $6.694 million, or approximately 93% of revenue. It included $5.401 million in subscription and advertising costs and $1.293 million in production costs. Stock-based compensation was $6.178 million.
Material changes and unusual items
- The Slacker acquisition had a stated purchase price of approximately $55.9 million, including stock, $2.5 million cash, and assumed liabilities. Slacker contributed $7.1 million revenue and a reported $4.1 million loss for the period included after acquisition. Purchase-price allocations were provisional.
- The company discontinued LXL Tickets in December 2017 after the Wantickets asset acquisition. FY2018 discontinued operations recorded a $4.316 million loss, including a $2.786 million asset-disposal loss.
- Revenue rose sharply from the small FY2017 base, chiefly because of Slacker; this does not represent organic year-over-year growth on a comparable full-year basis. Operating losses increased, while the reported improvement in gross margin reflects both the acquired subscription business and the very small prior-year base.
- Interest expense increased to $3.922 million from $0.512 million, including debt-discount amortization. The smaller overall other expense versus FY2017 reflected lower warrant-related expense and the absence of a prior-year investment-sale loss.
- The company raised $18.5 million net in its December 2017 public offering and issued approximately 8.0 million shares in connection with the Slacker acquisition. Common shares outstanding were 51.4 million at March 31, 2018; the filing reports 50.6 million at June 25, 2018.
Outlook, risks and contingencies
- Management expected advertising across LiveXLive live-event streams to begin in the second half of FY2019 and forecast a higher advertising mix from mid-FY2019. It planned continued investment in product development, engineering, sales and marketing, and anticipated higher FY2019 expenses. No revenue, earnings or cash-flow guidance range is provided.
- Management stated that the company expected ongoing losses and negative operating cash flow over the next 12–24 months. The filing identifies substantial doubt about the company’s ability to continue as a going concern based on year-end conditions; management cited a subsequent financing as mitigation and concluded it expected sufficient liquidity for at least 12 months after issuance of the statements.
- In June 2018, after year-end, the company entered a three-year, $10.6 million JGB facility, expecting $9.6 million net proceeds. It bears 12.75% interest, is convertible at $10 per share as defined, includes financial covenants including a $5 million minimum cash balance, and was intended to repay the SVB line and release restricted cash. Verify actual funding, repayment, and covenant compliance.
- Content and festival commitments were significant: the contractual-obligations table reports $8.611 million of content and festival fees and guarantees, including $3.189 million due within one year. The filing separately estimates $6.6 million of future upfront and minimum-guarantee commitments in its risk discussion; the amounts may reflect different scopes or definitions.
- Material risks include dependence on music rights and partners, minimum-guarantee obligations, customer and subscriber concentration, competition, integration of Slacker, and the ability to monetize live events. The filing reports substantial doubt and highlights the company’s history of losses and potential need for additional financing.
- Management concluded internal control over financial reporting and disclosure controls were ineffective at March 31, 2018 because of multiple material weaknesses, including financial close, IT controls, accounting staffing, business combinations, treasury, taxes, payroll and contingencies. Remediation had begun, but timing was not estimated. The financial-statement audit opinion was unqualified; the auditor did not opine on internal-control effectiveness.
- Legal matters include Wantickets-related claims and a post-year-end lawsuit by Schnaier and related parties seeking approximately $26.7 million plus other relief. The company disputes the allegations; the outcome is uncertain and could materially adversely affect the business. A separate Blink TV claim was settled in June 2018 for an amount described as not material.
- The company reported $7.667 million of accrued royalties at year-end and significant dependence on accurate royalty and rights-holder data. It also disclosed that Slacker’s licensing rates and rights could change, potentially affecting costs and content availability.
Most important facts for investors to verify
- Post-year-end cash, remaining liquidity, and performance under the JGB facility, including its cash minimum and other covenants.
- Whether subscription growth, advertising launches and festival monetization can cover content costs, royalties and minimum guarantees.
- Full-year Slacker performance and integration costs, given that only 92 days are included in FY2018 reported results.
- Progress remediating the material weaknesses and whether future filings report effective controls.
- Exposure to the Schnaier lawsuit and other Wantickets-related disputes, and any resulting accruals or settlements.
- Debt maturities, related-party convertible notes, dilution from equity awards and conversions, and the reconciliation of year-end contractual commitments to the separate minimum-guarantee estimate.