NTN Buzztime, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The supplied filing identifies the registrant as NTN Buzztime, Inc., not Ernexa Therapeutics Inc. Unless stated otherwise, amounts below are U.S. dollars in thousands.
Business context
NTN Buzztime provides interactive entertainment and technology to venues, primarily bars and restaurants. At September 30, 2018, 2,666 venues subscribed to its network, approximately 84% using its tablet platform. Buffalo Wild Wings and its franchisees were a major customer group.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $6,004 | $5,198 | $17,416 | $15,978 |
| Gross margin | $3,889; 65% | $3,659; 70% | $11,397; 65% | $10,965; 69% |
| Operating income (loss) | $370 | $(53) | $30 | $(913) |
| Net income (loss) | $222 | $(184) | $(311) | $(438) |
| Basic and diluted EPS | $0.08 | $(0.07) | $(0.12) | $(0.18) |
| EBITDA, non-GAAP | $1,082 | $517 | $2,098 | $1,687 |
- Q3 revenue rose 16%; nine-month revenue rose 9%. Hardware revenue increased sharply, mainly from a tablet sale to a third party serving local jails. Subscription revenue declined 6% in Q3 and 5% year to date, attributed to lower average venue counts and revenue per venue.
- Gross margin percentage fell by five percentage points in both comparisons, principally reflecting higher equipment costs and depreciation associated with higher hardware and sales-type lease revenue.
- SG&A decreased 5% in Q3 and 4% year to date. For the nine-month period, other expense was $305 versus other income of $496 in 2017, when the company received a one-time supplier payment.
- Operating cash flow was $739 for the first nine months, versus $1,056 in 2017. Investing cash use was $1,192, including $690 of capitalized software development. Financing provided $181; cash decreased $300 to $3,078.
Financial position and liquidity
- Working capital was $2,987 at September 30, 2018, compared with negative working capital of $1,109 at December 31, 2017. Current assets were $8,529 and current liabilities $5,542.
- Cash and cash equivalents were $3,078. Shareholders’ equity was $6,896, up from $5,536 at year-end 2017.
- In September, the company refinanced its East West Bank borrowing with a $4,000 Avidbank term loan, maturing September 30, 2022. The loan bears interest at prime plus 1.75%, requires monthly principal payments of approximately $83,000 beginning October 2018, and is secured by substantially all personal property. An additional $104 was outstanding under equipment financing. Avidbank covenants require at least $1,000 of trailing six-month EBITDA and at least $2,000 of unrestricted cash held in Avidbank accounts. The company reported compliance at quarter-end.
- Management stated it believed cash would cover operating needs and debt obligations for at least 12 months after issuance, while continuing to evaluate additional financing. The filing cautions that further funding may not be available on acceptable terms or at all.
Material developments, outlook and risks
- In October 2018, after the quarter-end, Buffalo Wild Wings decided not to roll out the company’s order, payment and guest-insights functionality following a 31-location pilot. Existing agreements were stated to run through November 2019. Buffalo Wild Wings and franchisees generated 41% of nine-month 2018 revenue; without renewal or replacement customers, the company expects subscription revenue to materially decrease beginning in Q1 2020.
- Management expected hardware revenue under sales-type lease arrangements to rise in Q4 2018 and Q1 2019, but said future arrangements were uncertain and that the jail-related equipment sale was not expected to recur quarterly or even annually.
- The company was developing a smaller, lower-cost site hub, with commercial availability targeted for Q1 2019, as well as mobile trivia products and additional internally developed single-player games. These plans are forward-looking and may not be achieved.
- A new Carlsbad office lease runs from December 2018 through April 2026, with $4,486 of minimum rent payments disclosed and a required $250 letter of credit backed by restricted cash. The filing anticipated the deposit in Q4 2018. The company expected adoption of lease accounting standards to add a right-of-use asset and lease liability.
- The company remained under an NYSE American compliance plan through March 20, 2019, after falling below the listing equity standard. It said equity of at least $6,000 for two consecutive quarters was required to regain compliance; delisting remained a risk.
- Other key risks include dependence on a sole tablet-equipment supplier, limited borrowing flexibility under the Avidbank agreement, covenant compliance, and the possibility that cash generation will not cover capital and operating needs. No pending material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether NTN Buzztime met NYSE American’s equity test for two consecutive quarters and maintained its listing plan milestones.
- Whether it continues to meet Avidbank’s EBITDA and unrestricted-cash covenants, particularly as the Buffalo Wild Wings agreements approach expiration.
- Whether replacement customers or renewed agreements offset Buffalo Wild Wings exposure after November 2019.
- Whether anticipated Q4 2018 and Q1 2019 hardware and sales-type lease revenue occurred, and how much was nonrecurring.
- Actual cash impact of the new office lease, restricted-cash letter of credit, and ongoing product-development spending.