Australia-based music streaming service Guvera is making a last-gasp attempt to beat Spotify to the stock market – despite owing its key suppliers millions of dollars after being rescued from collapse at the end of 2015.
The company has filed a prospectus for an IPO in its homeland – and, just as we saw with Deezer last year, it reveals a number of details about Guvera’s financial health.
According to the filing (which you can read in full through here), Guvera now has 14 million users in ten countries worldwide, with licensing agreements securing a catalogue of more than 30m songs.
The firm is aiming to float on Australia’s ASX exchange on Monday, July 18 at AUS $1 (US $0.73) per share – a total market value of between AUS $40m (US $29m) and AUS $80m (US $58m).
However, it reserves the right to accept a further AUS $20m (US $14.5m) in share subscriptions above this top-end.
One of the biggest revelations in the prospectus arrives when Guvera admits that in April 2015, it attempted to raise AUS $100m (US $78m) in private equity funds from a US bank – but the deal fell through.
As a result, it then turned to its existing key investor, AMMA, for more cash to prevent it going under.
AMMA pumped a further AUS $40.8m (US $30m) into the business, but by December 31 last year, Guvera still found itself short of money to cover its debts.
“Should guvera be unable to raise sufficient capital under the IPO prospectus, there is a significant uncertainty whether it will be able to continue as a going concern.”
As a result, Guvera, entered into a repayment programme with “major suppliers and key creditors” to “ensure it was able to continue to operate while a pre-IPO capital raising progressed”.
The total amount of the liabilities in this repayment programme was AUS $19.5m (US $14m), including a liability to the Australian Taxation Office of approximately AUS $0.8 million and a superannuation liability of AUS $0.3 million.
If Guvera’s IPO attempt fails, it admits it could mean curtains for its business – an eventuality which would leave it unable to pay suppliers the money it owes.
The document reads: “Should Guvera be unable to raise sufficient capital under the Prospectus, there is a significant uncertainty whether [it]will be able to continue as a going concern and therefore, whether it will be able to pay its debts as and when they become due and payable and to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the statutory historical and pro forma historical consolidated statements of financial position.
“In the Director’s opinion there are reasonable grounds to believe that, individually or in combination, the funding required by Guvera will be achieved, the support of creditors and lenders will be received and a sufficient level of positive operating cash flow will be achieved.”
“If guvera requires, but is unable to obtain, additional debt or equity funding in the future, it may become unable to pay its debts.”
It adds: “Guvera has previously relied on the support of its shareholders to provide equity funding to support its activities. Depending on Guvera’s ability to generate income from its operations, Guvera may require further funding to operate or expand its business.
“If Guvera is unable to obtain additional funding as needed, it may not be able to maintain the competitiveness of its technology, pursue business opportunities, service Users or attract and retain advertising customers, each of which could inhibit the implementation of Guvera’s business plan and strategic objectives.”
And in a stark warning to potential investors, the prospectus admits: “There is a risk that if Guvera requires, but is unable to obtain, additional debt or equity funding in the future, [it] may become unable to pay its debts as and when they fall due and payable.
“In such circumstances, an administrator, receiver and manager or liquidator may be appointed and, in such a case, there is a significant risk that Shareholders will not be able to realise any value in their Shares.”
Guvera points out to prospective shareholders that it has raised more than AUS $180m (US $131m) to develop its business over the past seven years.
It’s not hard to work out where that money’s gone: in the first three months of this year alone, Guvera says it recorded a net loss of AUS $25.5 million (US $19m).
That’s around US $1.6m every week – although the figure does include one-off money burned as part of the setup for the IPO process.
Thanks to the Australian business press, we know that Guvera posted an AU$81.1m (US$61.2m) net loss in its latest fiscal year to end of July 2015 – and recently upgraded its FY 2014 net loss to AU$29.4m (US $22.4m).
Says the prospectus: “Guvera has a history of operating losses and expects operating losses and negative operating cash flow to continue in the future as it continues to increase investment in its businesses. Guvera may experience increases in operating and other expenses without a corresponding increase in revenue.
“Increases may be due to costs associated with Guvera’s international expansion strategy, advertising costs, key contract costs and exchange rate pressures from various counterparties.
“Further, there is a risk that if Guvera’s future growth and operating performance fails to meet investor or analyst expectations, or if Guvera has future negative operating cash flow or operating losses, this could detrimentally affect Guvera’s business, financial performance and future prospects.”
In the intro to the document, Guvera Chairman Phil Quatararo (pictured inset) says: “The music industry’s revenues have declined from USD$36 billion in 2000 to USD$15 billion in 2014. The Directors and I believe that Guvera must be the company that changes this for the better, and that introducing brands into the equation is the answer.
“When I first heard of the Guvera story, what caught my eye was that it was giving everyone what they wanted – brands received focused advertising, consumers received better access to more music and Guvera pays fees through agreements with music labels and publishers.
“Primarily focused on mobile digital advertising, today Guvera’s revenue model replicates that of a major social media company. Guvera commenced applications for initial advertising patents and intellectual property in 2008, as the Directors believed that brand-funded music was the future of the digital advertising industry.
“These patents are now more relevant than ever, as Guvera’s competitors are adopting similar hybrid-model approaches. Guvera’s ‘Brand Channel’ advertising solution allows brands to engage with specific audiences and at the same time presents Guvera’s Users with a wide variety of content and music that they can enjoy in a minimally-disruptive way.
“The provision of music is a mass-market service, and the Directors and I believe Guvera is the best positioned music company to take advantage of this mobile advertising explosion.”
Guvera was founded by Claes Loberg, Darren Herft and Brad Christiansen in 2008, on the Gold Coast, Australia.
It was officially launched in 2010 as a digital music platform and began as a web-based download service available in Australia.
In 2013 Guvera transitioned to become a cloud-based streaming platform and, in 2014, expanded its operations to encompass 20 live markets around the world.
Guvera currently operates in 10 countries, and has provided brands with access to users via sponsored ‘Brand Channels’ since 2010.Music Business Worldwide