LiveOne, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2022 (fiscal second quarter and first half of fiscal 2023). The company operates a music, entertainment and technology platform spanning memberships, advertising, podcasts, merchandising, and live events. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended Sept. 30, 2022 | Six months ended Sept. 30, 2022 |
|---|---|---|
| Revenue | $23.5 million, up 7% year over year | $46.8 million, down 23% |
| Operating loss | $1.0 million | $0.8 million |
| Net loss | $3.4 million; $0.04 per share | $2.1 million; $0.02 per share |
| Operating cash flow | Not separately provided for the quarter | $(6.8) million |
| Investing cash flow | Not separately provided for the quarter | $(1.3) million |
| Financing cash flow | Not separately provided for the quarter | $2.3 million |
- For the quarter, gross profit was $9.8 million (approximately 42% of revenue), compared with $5.9 million (27%) a year earlier. For the first half, gross profit was $17.6 million (approximately 38%), versus $13.7 million (23%). These figures use revenue less cost of sales, before the company’s separate contribution-margin adjustment.
- Quarterly revenue growth reflected membership services rising 29% to $12.8 million; advertising was nearly flat at $8.7 million. Merchandising fell 38% to $1.8 million and ticket/event revenue fell to $13,000.
- First-half membership revenue increased 31% to $24.9 million and advertising increased 5% to $17.6 million. Merchandising declined 44% to $3.7 million; sponsorship and licensing fell 94% to $0.3 million; ticket/event revenue fell 98% to $0.2 million. The prior-year comparison included the Social Gloves event, with no comparable event in the current period.
- Cash, cash equivalents and restricted cash were $7.4 million at September 30, down from $13.2 million at March 31. Current assets were $25.4 million versus current liabilities of $44.8 million, a $19.4 million working-capital deficit. Total assets were $66.1 million and total liabilities $76.2 million.
- Debt included $15.0 million principal of senior secured convertible notes, $7.0 million drawn on the secured revolving facility, approximately $6.0 million principal of related-party unsecured convertible notes, and PodcastOne bridge financing. The balance sheet also reported current notes payable and a $2.6 million current bridge-loan carrying amount. Debt terms and carrying values vary with discounts, derivatives and consolidation; see investor verification items below.
- Shares issued and outstanding were reported as 85.6 million at September 30 on the balance sheet; 2.0 million shares were held in treasury following $1.9 million of repurchases. The cover page reports 87.5 million shares issued and outstanding as of November 15.
Changes, outlook and material matters
- Audio drove improved results: second-quarter Audio revenue was $21.2 million, up 13%, while Media revenue was $2.4 million, down 27%. The company reported positive Audio operating income and negative Media operating income. First-half revenue weakness was concentrated in Media, reflecting the prior-year event comparison and lower merchandising demand.
- The company reported approximately 1.75 million paid music-platform members, up 10% from approximately 1.59 million a year earlier. Some members are subject to a contractual dispute; LiveOne says it is not recognizing revenue for those members.
- Management cited cost reductions, lower stock compensation, reduced staffing and vendor settlements as contributors to lower expenses. For the first half, adjusted EBITDA, a non-GAAP measure, was $6.4 million versus a loss of $3.8 million a year earlier. Management expects contribution margins and adjusted EBITDA margins to improve as the platform matures, but provided no quantified full-year guidance.
- The company plans to continue investing in product and engineering over the next 12–24 months. It said it expected to increase on-premise live music activity as pandemic impacts eased, but also delayed new tentpole and pay-per-view events until fiscal 2024. COVID-19-related impacts were expected to remain modest through fiscal 2023.
- PodcastOne raised financing in July 2022 through convertible notes with 10% original issue discount and 10% annual interest. LiveOne said it intended to spin out PodcastOne and distribute a portion of its equity to stockholders, subject to approvals, listing requirements and other conditions; the proposed dividend was described as 5%–10% in the risk-factor discussion. Completion and timing were not assured.
- The company disclosed substantial doubt about its ability to continue as a going concern within one year, citing recurring losses, $7.4 million of cash and a $19.4 million working-capital deficit. Management expects to rely on improved results, spending reductions and additional financing; its effective shelf registration permits offers of up to $150 million, but financing availability and terms are uncertain.
- After quarter-end, SoundExchange obtained a default judgment and judgment for approximately $9.8 million against the company and Slacker. LiveOne sought to set aside the judgment and said it was negotiating and believed its recorded reserve was adequate. The matter could also affect debt-default risk if not resolved or stayed within applicable periods. A separate lawsuit seeks approximately $10 million; the company says loss was not probable at September 30, but the outcome is uncertain.
- LiveOne said it was in compliance with debt covenants at September 30. Debt amendments extended maturities, but include cash requirements and potential conversion-price reductions and share issuances if specified repayments are not met. The revolving facility’s rate was Prime plus 2.5%; its reported rate at quarter-end was 8.75%.
- Management concluded disclosure controls and procedures were not effective at period-end because of material weaknesses identified in the prior annual report; remediation was ongoing. The company recorded a $1.4 million impairment of React Presents-related intangible assets after reducing events and stopping marketing of the brand.
Most important facts for investors to verify
- Liquidity runway and financing needs, including the going-concern warning, working-capital deficit, cash burn and access to the $150 million shelf.
- Debt balances, maturities, covenants and required cash levels, including the Harvest notes’ conditional conversion-price and equity-issuance provisions and PodcastOne bridge-loan terms.
- SoundExchange judgment status, adequacy of the recorded royalty reserve, and any resulting lender default or acceleration implications; the filing also reports $13.4 million owed in aggregate royalty payments to performing-rights organizations.
- Revenue concentration: an OEM customer generated 44% of first-half revenue in the revenue and segment disclosures, while the risk discussion identifies Tesla at 43%. Confirm the customer attribution and the terms, continuation and economics of the relationship.
- PodcastOne spin-out and dividend feasibility, including lender and investor consents, valuation and listing conditions, final distribution eligibility and timing.
- Progress in remediating material weaknesses, and the effect of dilution from stock awards, debt conversions, share settlements and any future capital raises.