LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020; filed February 16, 2021. The interim financial statements are unaudited. The filing identifies the registrant as LiveXLive Media, Inc. (NASDAQ: LIVX).
Business context and reporting period
LiveXLive operates a livestream and on-demand audio, video, and podcast platform, alongside live-event and merchandise businesses. During fiscal 2021 it added PodcastOne, acquired July 1, 2020, and Custom Personalization Solutions (CPS), acquired December 22, 2020; React Presents, acquired in February 2020, also contributed to results. These acquisitions make year-over-year comparisons less comparable: PodcastOne contributed six months of results, CPS ten days, and React Presents was not included in the prior-year periods.
Key financial metrics
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $19.1 million | $9.7 million | $44.2 million | $28.8 million |
| Gross profit (revenue less cost of sales) | $4.6 million | $2.1 million | $11.7 million | $3.7 million |
| Gross margin | 23.8% | 21.2% | 26.4% | 12.8% |
| Operating loss | $(7.6) million | $(7.9) million | $(20.5) million | $(28.1) million |
| Net loss | $(8.7) million | $(8.8) million | $(26.5) million | $(30.4) million |
| Basic and diluted loss per share | $(0.12) | $(0.15) | $(0.40) | $(0.55) |
Quarterly revenue nearly doubled, principally from PodcastOne advertising, new sponsorship and licensing, and CPS merchandise; subscription revenue declined. For the nine months, management reported non-GAAP adjusted operating income of $0.4 million, versus adjusted operating loss of $6.9 million a year earlier. This measure excludes specified items and is not a GAAP substitute.
Revenue mix, quarter: subscriptions $8.3 million, advertising $7.7 million, sponsorship and licensing $2.1 million, merchandise $0.8 million, and ticket/event revenue $0.2 million. Subscription revenue declined 8% year over year, partly because subscribers involved in a contractual dispute were not generating recognized revenue. Advertising growth primarily reflected PodcastOne.
Cash flow and liquidity: At December 31, cash and cash equivalents were $17.4 million and restricted cash was $0.2 million. Current assets were $39.4 million and current liabilities $47.6 million, implying a working-capital deficit of about $8.2 million. The cash-flow statement reports $9.1 million used in operating activities for the nine months; MD&A reports $8.7 million. Investing activities provided $0.2 million, and financing activities provided $14.1 million in the financial statements. Cash, cash equivalents, and restricted cash rose by $5.2 million to $17.6 million.
Debt: The company reported approximately $23.4 million of consolidated indebtedness, net of fees and discounts, in MD&A. It issued $15.0 million of 8.5% senior secured convertible notes in September 2020, due September 2022, secured by substantially all company and subsidiary assets. The notes require at least $10.0 million in aggregate cash deposits to be maintained and restrict, among other things, share repurchases and additional secured debt. The company said it was in compliance with the covenants at quarter-end. It repaid its prior senior secured convertible debentures in August, recording a $1.5 million extinguishment loss, including a $0.7 million prepayment penalty.
Material changes versus the prior comparable period
- Nine-month revenue increased 54%, while operating loss narrowed by $7.6 million and net loss narrowed by $3.9 million. Acquisitions and digital-event activity materially affected the comparison.
- Nine-month subscription revenue fell 6% to $24.9 million; advertising revenue rose to $13.5 million from $1.8 million, mainly due to PodcastOne. Sponsorship and licensing increased to $3.5 million, while ticket/event revenue was $1.5 million and merchandise revenue $0.8 million.
- Cash and cash equivalents increased from $5.7 million at March 31, 2020, while restricted cash declined from $6.7 million, primarily following repayment of the former secured debentures.
- Goodwill rose from $9.7 million to $24.1 million, largely from the PodcastOne and CPS acquisitions. Common shares outstanding increased from 59.0 million at March 31 to 75.3 million at December 31; additional shares may be issued under acquisitions, equity awards, and convertible debt.
Management commentary, outlook, risks, and unusual items
- Going concern: Management states that recurring losses, the $8.2 million working-capital deficit, and other factors raise substantial doubt about the company’s ability to continue as a going concern within one year from issuance of the statements. It is seeking additional equity and/or debt financing; availability and terms are uncertain.
- COVID-19 and outlook: In-person festivals and events were postponed or suspended, and advertising demand and rates were affected. The company shifted toward digital livestreamed events and PPV, reporting 52 events, 28.4 million live views, 323 artists, and 231 programming hours in the quarter. Management expects digital-event monetization to grow, but provided no numerical financial guidance. It also anticipates higher sales and marketing, product development, and general and administrative spending as the business expands.
- Users and customer concentration: Management reported approximately 1.006 million paid music subscribers, up 23% year over year, and approximately 0.9 million monthly active users. Some reported subscribers are subject to a contractual dispute and are not generating recognized revenue. Tesla represented 38% of nine-month revenue, versus 58% in the prior-year period, leaving significant customer-concentration risk.
- Debt and financing contingencies: The senior secured notes impose cash-reserve and other restrictive covenants. A January 11, 2021 amendment extended related-party Trinad notes to May 31, 2022, raised their interest rate to 8.5%, and provided for 280,000 common shares. The company’s $2.5 million of PPP loans had not been forgiven; forgiveness was uncertain and applications were pending lender acceptance.
- Commitments and litigation: Content-related minimum guarantees were approximately $18.9 million. A New York lawsuit includes a claim for approximately $10 million; management said a loss was not probable but that the uncertain outcome could materially affect the company. The company also disclosed a past-due promissory note with judgments and liens, and other legal matters.
- Controls and unusual items: Management concluded disclosure controls were not effective, citing an additional material weakness in accounting for business combinations, in addition to weaknesses previously reported. Acquisition accounting remained provisional. The board authorized repurchases of up to 2 million shares, but purchases were discretionary and could reduce cash; none were reported during the quarter.
Important facts for investors to verify
- Reconcile operating cash use of $9.1 million in the cash-flow statement with $8.7 million in MD&A, and financing cash flow of $14.1 million in the statements with $13.7 million in MD&A.
- Confirm the number of livestreamed events: the filing reports 52 in its quarterly highlights but elsewhere cites 62 for the quarter.
- Monitor the going-concern assessment, additional financing plans, working-capital deficit, and the $10 million cash-deposit requirement under the secured notes.
- Track Tesla revenue and subscriber concentration, the contractual dispute over certain subscribers, and whether reported subscriber growth converts into recognized revenue.
- Review the final purchase-price allocations and contingent consideration for PodcastOne and CPS, and progress in remediating the material weakness in acquisition accounting.
- Assess the status and potential exposure of the $10 million lawsuit, the past-due judgment debt, PPP-loan forgiveness, content guarantees, and any planned share repurchases or further equity issuance.