LiveOne, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2023 (the company’s fiscal 2024 first quarter); year-over-year comparisons are with the three months ended June 30, 2022. Amounts below are in U.S. dollars unless noted.
Business context
LiveOne operates a music, entertainment and technology platform spanning memberships, podcasting, advertising, merchandising and live events. Its Audio Group comprises Slacker and PodcastOne; its Media Group includes the remaining subsidiaries. The filing reports approximately 2.3 million paid music-platform members, up 42% from approximately 1.594 million a year earlier. Some reported members are subject to a contractual dispute, and LiveOne is not recognizing revenue for them.
Key financial results
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $27.8 million | $23.2 million |
| Operating income (loss) | ($0.3 million) | $0.2 million |
| Net income (loss) | ($0.5 million) | $1.3 million |
| Operating cash flow | $1.2 million | ($0.03 million) |
| Investing cash flow | ($0.6 million) | ($0.8 million) |
| Financing cash flow | ($4.0 million) | ($1.0 million) |
- Revenue and mix: Revenue grew 20%. Membership services rose 26% to $15.2 million and advertising rose 21% to $10.8 million. Merchandising fell 6% to $1.7 million; sponsorship/licensing and ticket/event revenue were minimal at approximately $29,000 and $3,000, respectively.
- Margins and expenses: Cost of sales increased 27% to $19.6 million, approximately 70% of revenue. Gross profit was approximately $8.2 million (about 30% of revenue) using the filing’s contribution-margin presentation. Operating expenses were $28.0 million, and operating margin was approximately negative 1%. General and administrative expense increased 129% to $5.1 million, primarily due to higher legal and public-company costs; lower intangible amortization partly offset the increase.
- Segment performance: Audio Group revenue was $25.7 million and operating income was $3.3 million. Media Group revenue was $2.1 million and operating loss was $1.3 million. Corporate operating loss was $2.2 million. Company-reported adjusted EBITDA, a non-GAAP measure, was $2.2 million versus $2.0 million a year earlier.
- Cash, working capital and debt: Cash and cash equivalents were $5.0 million ($5.2 million including restricted cash), down from $8.4 million in cash at March 31, 2023. Working capital deficiency was $24.0 million. Current assets were $26.8 million and current liabilities $50.9 million. Debt included a $7.0 million secured revolver, approximately $2.7 million net PodcastOne bridge-loan balance, and $0.2 million of notes payable; the filing reports total consolidated indebtedness of $9.9 million net of fees and discounts.
- Equity: Stockholders’ deficit was $2.3 million. Series A preferred stock carries a 12% annual dividend and conversion rights; the filing states that conversion could dilute common shareholders.
Material changes and management commentary
- Membership growth, principally through the largest OEM customer, and PodcastOne advertising drove revenue growth. The OEM contributed $13.3 million of revenue and 48% of consolidated revenue, versus $10.0 million and 43% a year earlier. It also represented 29% of accounts receivable at quarter-end.
- Live-event activity was lower than in the prior-year quarter, contributing to sharp declines in ticket/event and sponsorship/licensing revenue. Merchandising revenue also declined amid weaker retail-partner and direct-to-consumer demand.
- Management expects to continue investing in product and engineering during fiscal 2024 and over the next 12–24 months. It says it expects contribution margins and adjusted EBITDA margins to improve as the platform matures, but provides no quantified company-wide financial guidance.
- Management says it expects to fund operations through improved results, spending rationalization and potential equity or debt financing. The company has an effective shelf registration statement permitting offerings of up to $150 million, but states that financing availability and terms are uncertain.
Liquidity, risks, contingencies and unusual items
- Going concern: The filing states that the history of losses, $0.5 million quarterly net loss and $24.0 million working-capital deficiency raise substantial doubt about the company’s ability to continue as a going concern within one year of filing. Management’s plans depend on growth, cost reductions and additional financing; success is not assured.
- Credit-facility covenant: LiveOne was not in compliance with a financial covenant on its $7.0 million secured revolving facility and was seeking a waiver. The revolver bears a variable rate; the stated rate at June 30, 2023 was 11%, and maturity was extended to June 2024.
- PodcastOne bridge-loan dispute: A noteholder agent alleged an event of default after a redemption payment was received two days after the agent’s asserted deadline, declared amounts due and demanded payment. LiveOne and PodcastOne dispute the alleged default and contend the payment was timely. The notes carry a 10% stated interest rate, with the agent asserting a 16% default rate.
- Customer concentration: The largest customer is Tesla, which may terminate its agreement for convenience. A loss, renegotiation or reduction in service or customer subsidies could materially affect membership revenue and results.
- Royalty obligations: The company disclosed $16.9 million in aggregate royalties owed to performing-rights organizations and contractual content-provider guarantees of $8.6 million for the remainder of fiscal 2024, $1.6 million for fiscal 2025 and $0.3 million for fiscal 2026.
- Legal matters: In a long-running lawsuit, a May 2023 jury awarded damages to both LiveOne’s subsidiary and plaintiffs; neither award was considered material, and plaintiffs indicated they intended to appeal. The company said a potential loss was not probable, while noting the outcome remained uncertain and the possible range could materially affect results.
- Control weakness: Management concluded disclosure controls and procedures were not effective at quarter-end because of material weaknesses identified in the 2023 Form 10-K. Remediation efforts were ongoing.
- Subsequent events: In August 2023, the company borrowed $1.7 million from Capchase at 9% interest, repayable in monthly installments through February 2026. A proposed PodcastOne spin-out and special dividend remained subject to approvals and listing requirements. A proposed $3.5 million Guru Fantasy Reports acquisition had not closed as of August 14, 2023.
Most important facts for investors to verify
- Whether LiveOne obtained the East West Bank covenant waiver and resolved the PodcastOne noteholders’ default dispute, including any resulting payment or interest obligations.
- Whether liquidity and financing plans are sufficient to address the going-concern uncertainty, working-capital shortfall and upcoming debt and royalty obligations.
- How dependent future revenue remains on Tesla, whether disputed paid members generate recognized revenue, and whether customer concentration changes.
- Whether the proposed PodcastOne spin-out and distribution to shareholders proceed, and the resulting ownership, dilution, approvals and liquidity implications.
- Progress in remediating internal-control weaknesses and any subsequent changes to the company’s financial outlook or reported results.