Business context and reporting period
LiveXLive Media, Inc. operates a livestream and on-demand audio, video and podcast platform, with music subscriptions as its core business and advertising, licensing, sponsorship and event revenue also contributing. This Form 10-Q covers the three months ended June 30, 2020, the first quarter of fiscal 2021 (fiscal year ending March 31, 2021); comparisons are with the three months ended June 30, 2019. The quarter includes React Presents, acquired in February 2020. PodcastOne was acquired on July 1, 2020, after quarter-end, for 5,363,636 shares; its accounting and pro forma results were not yet available when the filing was made.
Financial results and liquidity
| Metric | Quarter ended June 30, 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $10.5 million | $9.5 million |
| Cost of sales | $7.7 million | $9.0 million |
| Contribution margin (revenue less cost of sales) | $2.8 million; 27% | $0.5 million; 5% |
| Operating loss | $5.8 million | $10.3 million |
| Net loss | $7.5 million; $0.13 per share | $11.0 million; $0.21 per share |
| Net cash from (used in) operating activities | $4.4 million | $(2.5) million |
Revenue rose 11%. Subscription services generated approximately $8.9 million; advertising, licensing and sponsorship approximately $1.4 million; and ticket/event revenue approximately $0.2 million. The filing’s revenue detail tables show small differences in category amounts, while consolidated revenue is consistently reported as $10.507 million. GAAP operating margin improved to approximately negative 55% from negative 108%. Interest expense increased to $2.1 million from $0.9 million, partly offsetting the lower operating loss. No positive net margin was achieved.
Cash, cash equivalents and restricted cash totaled $17.1 million at June 30, including $6.7 million restricted, principally in connection with lender and letter-of-credit requirements; unrestricted cash was $10.4 million. The company reported a $43.4 million working-capital deficiency, $68.9 million in total liabilities and an accumulated deficit of $135.7 million. Debt and notes payable had a reported net carrying amount of approximately $17.4 million, including $8.0 million of current senior secured convertible debentures, $6.9 million of unsecured convertible notes and $2.5 million of notes payable. Operating cash inflow was substantially supported by a $6.3 million increase in accounts payable and accrued liabilities; it should not be read as evidence that operations were profitable. Investing cash outflow was $0.7 million, mainly software investment; financing cash inflow was $1.0 million, reflecting PPP and SBA loan proceeds net of debenture repayments.
Material changes versus the prior comparable period
- Revenue increased by $1.0 million, led by higher sponsorship and licensing revenue and paid-subscriber growth. Subscription revenue grew about 4%; advertising, licensing and sponsorship revenue rose 53%, while programmatic advertising was pressured by COVID-19.
- Cost of sales fell 15%, with production costs down 42%, reflecting digital production efficiencies and lower event costs. The company reported contribution margin of 27%, versus 5% a year earlier.
- Operating expenses declined 17%, including lower sales and marketing, product development, general and administrative, and intangible amortization costs. Cost controls included temporary salary reductions and reduced discretionary spending.
- Net loss narrowed by $3.4 million, although interest expense and other financing costs increased. Weighted-average common shares rose to 59.2 million from 52.3 million.
- The company reported approximately 878,000 paid music subscribers, up 20% year over year, and approximately 0.8 million monthly active users.
Outlook, risks, contingencies and unusual items
Going concern and financing: Management stated that recurring losses and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern within one year of filing. It was seeking additional debt or equity financing and gave no assurance that financing would be available on acceptable terms. The company was in compliance with its senior debenture financial covenants at June 30, 2020. On July 31, it notified the senior lender of its intention to repay the debentures in full by August 31, 2020.
COVID-19 and outlook: In-person festivals and events were postponed or canceled, and the company said it did not expect near-term on-premise event revenue to resume until conditions improved. Programmatic advertising demand and rates also weakened. Management pivoted to digital events and reported increased livestream activity, viewership and sponsorship monetization; it expected a higher advertising mix during the rest of fiscal 2021, partly reflecting PodcastOne, and anticipated higher product-development, marketing, general and administrative, and amortization costs. These are qualitative expectations, not quantified earnings or revenue guidance. The pandemic’s duration and financial impact remained uncertain.
Subsequent transactions and dilution: In July, the company sold 1.82 million shares for approximately $7.5 million gross proceeds and issued 2.42 million shares to settle a $10.0 million music-licensor obligation. The licensor could receive an additional cash payment if the shares’ value at September 30 fell below the agreed threshold. The company also agreed, subject to closing conditions, to issue a $15.0 million subordinated secured convertible note and 800,000 shares; the transaction required repayment of the senior secured debentures. PodcastOne was acquired for stock. These transactions may affect liquidity, leverage and existing shareholders’ ownership.
Customer and content concentration: Tesla represented 58% of quarterly revenue, compared with 52% a year earlier; the filing also reports the OEM customer generated $6.1 million of revenue. The company warned that termination, renegotiation or reduced use of the service by this customer could materially affect results. Content royalties and minimum guarantees are significant obligations; the filing cites $5.1 million of estimated future minimum guarantees in its risk discussion. A music licensor had sued over approximately $7.7 million in unpaid license payments; the obligation was accrued, and the complaint was withdrawn without prejudice after the company issued shares to satisfy a $10.0 million payment obligation in July.
Legal and controls: A New York lawsuit seeks approximately $26.7 million plus other relief; the company said a loss was not probable but acknowledged the possible loss could materially affect the business. Other matters include a Wynn claim (potential loss described as not material) and a past-due attorney note with judgments and a lien. Management concluded disclosure controls and procedures were not effective because of material weaknesses identified in the prior annual report; remediation was ongoing, with no material change to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the planned senior-debenture payoff and proposed subordinated financing closed, on what terms, and how they changed cash, debt service and covenant requirements.
- Cash availability after excluding restricted cash, the timing of major payables and royalty obligations, and the company’s progress in addressing the going-concern uncertainty.
- Whether Tesla remains a major customer, whether the relationship or service terms change, and whether PodcastOne meaningfully diversifies revenue after acquisition.
- Whether digital events, sponsorship, pay-per-view and advertising growth can offset lost in-person event revenue and weaker programmatic advertising, while sustaining improved contribution margins.
- The final PodcastOne purchase accounting and operating contribution; the value and potential dilution from post-quarter share issuances, convertibles and other equity awards.
- Developments in the material litigation, licensor disputes and claims, including any cash settlement exposure, and progress remediating disclosure-control weaknesses.