LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2019, the first quarter of fiscal 2020. The unaudited consolidated results include LiveXLive and Slacker. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Quarter ended June 30, 2019 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $9.50 million | $7.59 million | Up 25% |
| Operating loss | $10.26 million | $10.10 million | Loss widened $0.16 million |
| Net loss | $10.97 million | $10.77 million | Loss widened $0.20 million |
| Basic and diluted loss per share | $0.21 | $0.21 | Unchanged |
| Cash used in operating activities | $2.53 million | $3.51 million | Use reduced $0.98 million |
- Subscription revenue was $8.57 million, up 29%; advertising was $0.68 million, down from $0.80 million; licensing was $0.26 million, up from $0.17 million. The company reported approximately 733,000 paid subscribers, up 50% year over year.
- Cost of sales was $9.01 million, or about 95% of revenue, leaving approximately $0.49 million in contribution before other operating expenses. Operating expenses totaled $19.76 million. Operating loss was about 108% of revenue, compared with about 133% in the prior-year quarter.
- Interest expense, net, was $0.87 million versus $0.62 million. Other income was $0.17 million, compared with other expense of $0.05 million; the filing attributes a gain to changes in the fair value of embedded debt derivatives.
- Investing activities used $0.50 million, primarily for internally developed software. Financing activities used $0.66 million for debenture repayments. Cash, cash equivalents and restricted cash fell $3.69 million to $10.25 million during the quarter.
- At June 30, cash was $10.02 million; current assets were $16.02 million and current liabilities $37.20 million, producing a $21.18 million working-capital deficit. Total liabilities were $52.14 million and stockholders’ equity was $1.80 million.
- Debt included 12.75% senior secured convertible debentures with $12.6 million principal, unsecured related-party convertible notes with approximately $4.9 million principal, and a $0.3 million note payable. The balance sheet reports $11.72 million of net debentures, $4.83 million of net unsecured notes and $0.32 million of note payable. The filing separately describes total indebtedness as approximately $17.3 million, net of fees.
Changes and business developments
- Revenue growth was driven principally by subscription growth and a major OEM customer: OEM revenue rose to $5.0 million from $2.2 million. One customer represented 52% of quarterly revenue, versus 29% a year earlier.
- Sales and marketing expense rose 87% to $1.71 million, product development rose 32% to approximately $2.42 million, and general and administrative expense rose 18% to $4.83 million. Intangible amortization declined 26% to $1.79 million.
- LiveXLive combined Slacker audio and its live-music video services into a single platform in May 2019. During the quarter it produced 11 events and livestreamed nine major festivals or events, reporting over 22 million views, 92 livestreamed artists and 124 hours of live programming.
- The company adopted the new lease standard in the quarter and recorded approximately $0.2 million of operating lease right-of-use assets and liabilities.
Outlook, liquidity, risks and unusual items
- Going concern: The filing says the company’s history of losses, $11.0 million quarterly net loss, $2.5 million operating cash use and $21.2 million working-capital deficit raise substantial doubt about its ability to continue as a going concern within one year. Management said it believed available liquidity could fund operations for at least 12 months, but emphasized that additional financing and execution of its business plan are important and not assured.
- Subsequent financing: On July 30, 2019, the company sold 5.0 million shares for $10.5 million gross proceeds and approximately $9.5 million net proceeds. It planned to use proceeds for debenture repayment, working capital and general corporate purposes. The company said after the offering it expected existing cash and operating cash flows to fund at least 12 months.
- Debt covenants and redemptions: The company was out of compliance with a debenture financial covenant at June 30; a July 25 amendment, retroactive to quarter-end, removed the breach. Debenture holders had issued monthly redemption notices, and the company had made scheduled principal repayments. The debentures carry 12.75% interest, are secured by substantially all company assets and permit monthly redemptions, subject to terms; repayment in shares could dilute shareholders.
- Operating outlook: Management expected continued investment in product and engineering, with significant development spending over the following 12–24 months. It anticipated sales and marketing, product development and general and administrative expenses to rise or fluctuate in fiscal 2020. It also planned to expand advertising and sponsorship monetization and grow subscribers and live-event content. No specific revenue or earnings guidance was provided.
- Legal matters and commitments: A New York lawsuit seeks approximately $26.7 million plus other relief; the company disputes the claims, but says the uncertain potential loss could materially affect results. A separate Manatt note was past due, and a $317,211 judgment was entered August 5, 2019, with interest continuing to accrue. Content agreements included $5.9 million of future minimum guarantees; the filing also identifies guaranteed contractual payments of $2.1 million for fiscal 2020 and $0.9 million thereafter.
- Controls: Management concluded disclosure controls and procedures were not effective at quarter-end because of material weaknesses identified in the prior annual report. Remediation was ongoing; no material change in internal control over financial reporting during the quarter was reported.
Important facts for investors to verify
- Whether the post-quarter $9.5 million net offering proceeds, cash generation and planned debt repayments are sufficient to address the working-capital deficit and going-concern uncertainty.
- Current debenture principal, redemption amounts, covenant compliance and any further amendments or financing needs.
- The status and potential financial exposure of the $26.7 million lawsuit and the overdue Manatt judgment.
- Whether subscription and OEM revenue growth can continue, and how the company will manage its reliance on one customer for 52% of revenue.
- Progress in remediating material weaknesses and any further shareholder dilution from equity issuance, convertibles, redemptions or equity awards.