Business

LiveXLive Earnings Show 'Contractual Dispute' With Tesla and Restrictions On Half Its Cash

Robert Ellin
Joshua Blanchard/Getty Images for LiveXLive

Robert Ellin and A.CHAL attend The LiveXLive 2019 Holiday Showcase at The Peppermint Club on Dec. 10, 2019 in Los Angeles.

The streaming media service also disclosed an additional $650,000 in PPP and small business loans.

Streaming media company LiveXLive has been in a "contractual dispute" with Tesla dating back to June, company officials announced during Monday’s mid-year earnings call. Tesla is LiveXLive's largest client, accounting for two-thirds of the West Hollywood company's consolidated revenue, and the dispute has already impacted $2.1 million in revenue chairman and chief executive Rob Ellin explained during the Q2 2021 call with analysts, staff and board members.

An accompanying earnings report released during the call revealed that LiveXLive missed analysts’ consensus on earnings and revenue for the second quarter by double digit percentages, and noted that executives at the company only had access to half of the cash on its balance sheet because of restrictions by its senior creditors. The company's stock closed at $1.88 per share the day after the report was released, down 8.3% from the previous day.

Despite the earnings miss and modest progress with its ticketing initiatives, a bright spot this quarter was LiveXLive’s new subsidiary PodcastOne, providing significant revenue growth for the quarter for a combined revenue of $14.6 million. LiveXLive ended the quarter with $10.2 million loss at 15 cents per share and raised its guidance for the year from $63.5 to $69.5 million.

CONTRACTUAL DISPUTE WITH TESLA

The automaker has been LiveXLive’s most reliable revenue generator since LiveXLive acquired Slacker Radio at the end of 2017. Tesla includes a LiveXLive on-demand music streaming subscription with every car it sells, but a dispute with the automaker that began in June has cost the company $1.6 million for the first half of the year and has yet to be resolved.

It was unclear how many of the company’s 166,000 new subscribers for the quarter were affected by the dispute. Officials with Tesla did not respond to a request for comment for this story, although the automaker’s own quarterly report did show that Tesla had delivered 139,000 cars to customers over the same time period.

"Under this contract, we've had some differences of view on the definition of certain terms," explained LiveXLive chief financial officer Jerome Gold. "This is the second time we've been through it. And the first time we were able to resolve it very favorably."

Gold added that LiveXLive’s chief executive and chairman Rob Ellin was working on a new global agreement with Tesla and had recently added new content to its streaming platform with the purchase of PodcastOne, the Los Angeles-based media company launched by Westwood One founder Norman Pattiz.

"We will come to a resolution and we're very confident in our position," Gold said. "We have a great relationship with Tesla and we had hoped to get it done faster, but negotiations take a while."

LIVE-STREAMING BOOST IS FIZZLING OUT

Investors had big hopes for LiveXLive at the start of the COVID-19 pandemic as a possible leader in the livestream concert space thanks to the infrastructure it had developed since going public in 2017. Investor excitement about capturing a piece of the $25 billion concert business quadrupled the share price of LiveXLive from a March low of $1.08 per share to a high of $4.59 in early July.

But growth has been modest and competition with industry veterans has made it difficult to stand out. Many of the top tier artists are using competing platforms like Driift, which produced concerts by Kylie Minogue and Niall Horan on the same weekend, as well as Veeps, which is organizing a concert series for Liam Payne.

Last quarter LiveXLive generated $1.4 million in ticket sales and pay-per-view revenue from concerts including a Monsta X performance broadcasted live from Seoul and attended by Ellin, who says the current quarter's slate of shows are trending the right way, despite some postponements.

"A couple of our major pay-per-views including Pitbull were delayed until October and November," said Ellin, who also noted upcoming shows by Wiz Khalifa, Nelly, and Jeremih this quarter.

REDOING RIGHTS HOLDER CONTRACTS

LiveXLive has struggled to keep up with royalty payments due to the major labels it pays for the rights to stream music on the Slacker Radio app. The company was blocked from accessing Universal Music Group's catalog for four days in February after missing a $6.8 million payment, according to a lawsuit UMG filed against Slacker Radio in Los Angeles County.

By late April, LiveXLive owed UMG more than $7.7 million and negotiated a settlement through a stock issuance of 2.4 million LiveXLive shares worth $10 million at the time, according to the company’s recent quarterly report. From July 17 to Sept. 30, the label sold off the shares and was promised the difference between whatever revenue UMG was able to receive for selling the shares on the open market and the $10 million the company was owed.

As UMG sold off its shares of LiveXLive, the share price fell from $4.30 to $2.60 per share, ultimately netting UMG $6.9 million in cash, leaving LiveXLive with a $3.1 million accrued liability owed to UMG, according to the quarterly report, which included no timeline for how LiveXLive would settle its bill with UMG.

PPP AND SBA LOANS

In April, company officials disclosed that it had accepted a $2 million loan from the Small Business Administration's Paycheck Protection Program, created as part of the CARES Act passed March 27 to help small businesses during the early days of the COVID-19 pandemic. A month after accepting the loan, LiveXLive announced plans to acquire PodcastOne in an $18 million all stock deal (later reduced to $14.5 million).

In Monday’s report, company officials disclosed that one month after announcing the PodcastOne deal, LiveXLive received a second loan from the SBA worth $150,000 at a 3.75% interest over a 30-year period. Officials also disclosed that Podcast One had applied for and accepted a $500,000 PPP loan on April 26, less than two weeks before the LiveXLive acquisition was announced.

"The (c)ompany intends to apply for the forgiveness of the loans," from the PPP program, valued at a total of $2.5 million, according to the annual report.

LiveXLive also faces a number of ongoing legal battles, according to its quarterly report, including a $600,000 breach of contract dispute with Wynn hotels, a $300,000 judgement lien from LiveXLive’s attorney regarding an unpaid legal bill, and a $560,000 default judgement entered against the company on Oct. 26 from legal data discovery firm Xcellence over unpaid services. Since going public at the end of 2017, LiveXLive and its subsidiaries have been sued 14 times, including seven lawsuits in 2020, according to court records compiled by Billboard. On Nov. 9, the company was sued by California software company Maestro Interactive over an unpaid bill to license Maestro's software that had been previously negotiated by the two companies. Maestro is demanding $58,000 in cash and 41,000 shares of the company’s stock.

CASH FLOW AND DEBT

While LiveXLive’s balance sheet shows $20.7 million in cash and equivalents, the company only has access to about $10 million because of restrictions put in place by its senior secured lender, according to its quarterly report.

In September, LiveXLive sold $15 million worth of convertible notes to San Francisco-based hedge fund manager Jeff Osher with No Street Capital. According to the terms of the financing agreement, LiveXLive is only able to access $4.8 million in capital and is required to keep $10 million of the loan in a deposit account until the loan is repaid, according to the company’s quarterly report.

The loan was made in the form of a two-year convertible note that included an 8.5% interest rate, $160,000 to cover Osher’s closing costs including $75,000 for Osher’s outside counsel (deducted from the principal amount) and a one-time issuance of 800,000 shares of LiveXLive valued at $2.1 million, that is not applied to the principal of the loan. Ellin is not allowed to sell any of his shares in LiveXLive until after the loan is repaid.

The cash crunch has led LiveXLive to find creative means to cover its payables and acquisitions. During the quarter, LiveXLive issued more than 8 million shares of company stock company to finance the $14.5 million acquisition of PodcastOne and to settle millions in outstanding bills. That includes the Mani Brothers, LiveXLive’s landlords at 9200 Sunset, the same building as the famed SoHo House. The Mani Brothers were issued 95,436 shares worth $395,000 to cover bank rent on a 12th floor 5,200-square-feet $40,000-a-month office for LiveXLive.

The company's next quarterly report is expected in mid-February.