LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019; interim financial statements are unaudited. The filing identifies the registrant as LiveXLive Media, Inc.
Business context
LiveXLive operates a digital music and live-entertainment platform, with revenue primarily from subscriptions and, to a lesser extent, advertising and licensing. It reported one operating segment. The company had approximately 820,000 paid subscribers at quarter-end, up 28% from approximately 643,000 a year earlier, and livestreamed nine major events during the quarter.
Financial results and liquidity
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue, 2019 | $9.7 million | $28.8 million |
| Revenue, 2018 | $9.0 million | $24.5 million |
| Operating loss, 2019 | $7.9 million | $28.1 million |
| Operating loss, 2018 | $5.7 million | $25.4 million |
| Net loss, 2019 | $8.8 million | $30.4 million |
| Net loss, 2018 | $6.6 million | $27.7 million |
| Operating cash flow, 2019 | Not separately stated | $(5.4) million |
| Operating cash flow, 2018 | Not separately stated | $(3.8) million |
- Quarter revenue rose 8%; nine-month revenue rose 17%. Subscription revenue increased 12% for the quarter and 21% for the nine months. Advertising and licensing revenue declined 32% and 17%, respectively.
- Cost of sales was $7.6 million for the quarter and $25.1 million for the nine months. Revenue less cost of sales was $2.1 million and $3.7 million, respectively; these amounts are not GAAP operating profit.
- Operating expenses rose to $17.6 million for the quarter from $14.7 million, principally reflecting higher product development, sales and marketing, and intangible amortization. Nine-month expenses increased to $56.9 million from $49.9 million.
- Adjusted Operating Loss, a company-defined non-GAAP measure, was $2.1 million for the quarter versus $2.6 million, and $10.4 million for the nine months versus $10.7 million.
- Cash and cash equivalents were $14.0 million at December 31, 2019. Current assets of $19.5 million compared with current liabilities of $41.3 million, a $21.9 million working-capital deficit. Total liabilities were $56.9 million; stockholders’ equity was a deficit of $1.9 million.
- Reported debt included approximately $11.1 million principal on 12.75% senior secured convertible debentures, $5.1 million principal and accrued interest on related-party unsecured convertible notes, and a $0.3 million past-due note. Debt carrying amounts are reduced by discounts; the filing’s reported net balances imply approximately $15.8 million of debt.
- For the nine months, investing activities used $1.8 million and financing activities provided $7.4 million, including $9.5 million net proceeds from a stock offering and $2.0 million of debenture repayments. Cash, cash equivalents and restricted cash increased $0.3 million.
Changes versus prior periods
- Subscriber growth drove revenue gains, but losses widened: quarterly net loss increased by $2.2 million and nine-month net loss by $2.7 million.
- Quarterly operating loss increased to $7.9 million from $5.7 million. Nine-month operating loss increased to $28.1 million from $25.4 million, despite higher revenue and improved cost-of-sales ratio.
- Management attributed higher spending to growth initiatives, marketing, product development, personnel and non-cash depreciation and stock compensation. Nine-month general and administrative expense also included approximately $1.2 million of increased legal costs.
- Operating cash use increased by $1.6 million year over year for the nine-month period. The company raised $10.5 million gross, or $9.5 million net, in a July 2019 registered stock offering.
Outlook, risks and unusual items
- Going concern: Despite management’s belief that available sources could fund operations for at least 12 months, the filing says the history of losses, $30.4 million nine-month net loss, $5.4 million operating cash use and working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Additional financing, revenue growth and cost reductions are important; financing availability and terms are not assured.
- Concentration: Tesla accounted for 58% of nine-month consolidated revenue, according to the risk disclosures. The company says Tesla may terminate its agreement for convenience, and some subscription revenue is subsidized by Tesla. The filing also reports one OEM customer generated $16.6 million of nine-month revenue.
- Debt and dilution: Debentures bear 12.75% interest, are secured by substantially all company assets and permit monthly redemptions. The company was out of compliance with a financial covenant at December 31, but a January 31, 2020 amendment retroactively removed the breach. Convertible debt repayment, refinancing, covenant compliance and potential share issuance remain risks.
- Other liabilities and commitments: Music licensors had $8.7 million due after payment-term extensions, including $5.8 million classified current. Future content minimum guarantees were reported at $4.4 million. A separate $0.3 million note was past due and subject to judgments and a lien.
- Litigation: A pending lawsuit related to the Wantickets asset acquisition seeks approximately $26.7 million, and the company says the potential loss could materially adversely affect it. The company disputes the claims. It also describes other claims, including Wynn’s claim exceeding $0.6 million, which it said had a nonmaterial potential loss range at period-end.
- Management outlook: Management expected continued investment in product development and sales and marketing. It planned to expand live-event ticketing, sponsorship and promotion revenue and develop its festival and broadcasting portfolio; it provided no quantified earnings or revenue guidance in the text provided.
- Subsequent events: In February 2020, the company acquired React Presents, a live-event promoter, for $2.0 million of subordinated convertible debt bearing 8% interest, convertible at $4.50 per share and due in two years. The filing expects ticketing, sponsorship and promotion-related revenue from this acquisition.
- Controls: Management concluded disclosure controls and procedures were not effective at quarter-end due to material weaknesses previously identified in the company’s 2019 Form 10-K. Remediation was ongoing.
Important facts for investors to verify
- Whether the company can secure sufficient financing and improve cash generation to address the stated going-concern doubt and working-capital deficit.
- Tesla’s share of revenue, agreement terms, customer subsidies and the impact of any change in the relationship.
- Current debenture principal, redemption requirements, covenant status and potential dilution from conversions or equity financing.
- The outcome and possible financial exposure from the Wantickets-related litigation and the past-due note judgments.
- Whether React Presents can generate the expected event revenue and how its costs and margins affect consolidated results.
- Progress in remediating the disclosed material weaknesses in internal control and disclosure controls.