LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended December 31, 2018 (fiscal third quarter of FY2019). Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. LiveXLive is a digital media company focused on live entertainment, music streaming and related content. Comparisons with 2017 are limited because Slacker was acquired on December 29, 2017, and LXL Tickets was discontinued.
Financial performance and position
| Metric | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | $8.964 | $24.522 | $0; $0.080, respectively |
| Gross profit / margin | $1.393 / 15.5% | $0.380 / 1.5% | Not meaningfully comparable |
| Operating loss / margin | $(5.748) / (64)% | $(25.367) / (103)% | Operating losses of $(2.707) and $(7.639) |
| Net loss / diluted loss per share | $(6.563) / $(0.13) | $(27.656) / $(0.53) | Net losses of $(6.718) and $(13.836) |
| Adjusted operating loss (non-GAAP) | $(2.588) | $(10.704) | $(0.485) and $(3.702) |
- Quarter revenue comprised $8.108 million subscription, $0.772 million advertising and $0.084 million licensing. Nine-month revenue comprised $21.973 million subscription, $2.300 million advertising and $0.249 million licensing.
- Operating cash use was $3.818 million for the nine months, versus $3.281 million in 2017. Investing cash use was $1.714 million, primarily for internally developed software. Financing provided $6.091 million, principally from the June 2018 debenture financing, partly offset by bank-debt repayment.
- At December 31, cash and cash equivalents were $14.294 million; restricted cash was $0.235 million. Current assets were $19.367 million and current liabilities $37.014 million, a working-capital deficit of approximately $17.6 million. Total liabilities were $45.104 million and stockholders’ equity $14.741 million.
- Debt included $10.640 million principal under 12.75% senior secured convertible debentures and approximately $4.7 million of related-party unsecured convertible notes, largely due May 2019. A $0.308 million promissory note was past due. The filing reports total indebtedness of $14.6 million net of fees in its risk discussion.
Material changes and operating developments
- Slacker contributed $8.8 million of quarter revenue and $24.2 million for the nine months. The prior-year periods included only three days of Slacker results, so the sharp reported revenue increase is primarily acquisition-driven, not a like-for-like growth comparison.
- Management reported approximately 643,000 paid music subscribers at December 31, up from 549,000 at September 30, and more than 1.3 million monthly active Slacker users. The OEM customer accounted for 45% of quarterly revenue and 37% of nine-month revenue; it also represented 41% of receivables at quarter-end.
- The company streamed six festivals and events in the quarter and 19 in the nine months, generating more than 44 million views across the nine-month period. It had 27 festivals under agreement at December 31.
- Operating costs expanded with Slacker, event production, product development and corporate growth. Nine-month stock-based compensation was $8.7 million. The quarter’s intangible amortization included a $2.5 million reversal from finalizing Slacker purchase accounting; reported amortization was a credit of $0.117 million for the quarter.
- Management shut down LXL Tickets in December 2017. The prior-year nine-month net loss included $3.9 million of discontinued-operation losses, including a $2.8 million disposal loss; there was no discontinued-operation loss in the current period.
Liquidity, outlook, risks and unusual items
- Going concern: The filing states that forecasts may not provide sufficient liquidity for at least the next 12 months and that the $27.7 million nine-month net loss, $3.8 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, attaining profitable operations and obtaining adequate financing; success is not assured.
- Financing after quarter-end: On February 11, 2019, the company issued additional 12.75% secured convertible debentures with $3.2 million principal for $3.0 million cash proceeds, before $0.1 million issuance costs. The amendment changed liquidity covenants and increased the monthly redemption allowance to $221,000. Holders had submitted monthly redemption notices; the company reported repayments of $0.3 million in January and $0.2 million in February 2019.
- Debt and dilution exposure: Debentures are secured by substantially all company and guarantor assets, bear 12.75% interest, and permit monthly redemptions and conversion into stock, subject to terms. Redemptions, conversions or future financing may require cash or dilute shareholders. The filing describes restrictive covenants and prepayment premiums.
- Covenant disclosure discrepancy: The debt note says the company was not in compliance with a financial covenant at December 31 and that the February 11 amendment removed the breach. The MD&A separately says the company was in full compliance as of December 31. The filing does not reconcile these statements.
- Outlook: Management expects continued investment in product development over the next 12–18 months and anticipated higher sales and marketing, product development and general and administrative expenses in FY2019. It plans to expand subscriber growth, content, advertising and sponsorships, and international licensing; it provides no quantified revenue or earnings guidance.
- Contingencies: A New York lawsuit by Wantickets-related parties seeks approximately $26.7 million plus other relief; the company is defending and has filed counterclaims, and says the outcome could materially affect its business and financial condition. A Wynn-related claim exceeding $0.6 million remains pending; the company says an unfavorable judgment is remote but the possible loss could be material. Other disclosed claims include a $0.2 million arbitration award against LXL Tickets and a $0.2 million promissory-note lawsuit.
- Controls: Management concluded disclosure controls were not effective because of material weaknesses identified in the prior annual report. Remediation work continued, including consolidating general-ledger systems and documenting controls.
- The company reported an accumulated deficit of $79.1 million and unrecognized stock-based compensation of approximately $8.5 million. It also disclosed a February 2019 increase of 5 million shares available under its equity incentive plan.
Important facts for investors to verify
- Whether cash, the February 2019 financing and other available funding are sufficient to address the stated going-concern doubt and upcoming debt maturities and redemptions.
- The status of the debenture covenant breach, the amended covenant requirements and compliance after the February financing.
- Subscriber retention and growth, revenue and margin contribution from Slacker, and the company’s dependence on its major OEM customer.
- Cash requirements and expected returns from music rights, festival commitments, production costs and planned technology investment.
- Developments and potential exposure in the $26.7 million lawsuit, Wynn claim and other legal matters, and progress in remediating material weaknesses in internal controls.
- Potential dilution from convertible debt, monthly redemptions, equity-plan awards and further capital raising.