NTN Buzztime, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2015; comparative results are for the three and nine months ended September 30, 2014. The supplied metadata names Ernexa Therapeutics Inc., but the filing itself identifies the registrant as NTN Buzztime, Inc.
Business context
NTN Buzztime provides interactive games and dining technology to bars and restaurants in North America. It reported 2,952 subscribing venues at quarter-end, of which 56% used its BEOND platform. The filing describes subscription services, equipment leasing, live trivia, advertising and premium content as revenue sources.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $6.079 million | $6.005 million | $17.998 million | $19.296 million |
| Gross margin | $2.883 million (47%) | $3.749 million (62%) | $8.774 million (49%) | $11.704 million (61%) |
| Operating loss | $1.314 million | $1.275 million | $5.992 million | $3.229 million |
| Net loss | $1.348 million | $1.315 million | $6.236 million | $3.312 million |
| Net loss per share | $0.01 | $0.01 | $0.07 | $0.04 |
Q3 revenue rose 1%, while nine-month revenue declined 7%. Subscription revenue fell 4% for Q3 and 7% for the nine-month period, attributed mainly to lower average site counts and revenue per site. Equipment lease revenue increased 11% in Q3 but declined 14% year to date; other revenue increased 20% and 8%, respectively. EBITDA, a non-GAAP measure, was a loss of $0.526 million in Q3 and $3.681 million year to date, versus losses of $0.528 million and $1.079 million in the comparable 2014 periods.
Cash and cash equivalents were $4.678 million at September 30, 2015, down from $7.185 million at December 31, 2014. Working capital was $3.962 million, versus $7.779 million at year-end. For the first nine months, operating cash outflow was $2.304 million, investing outflow $1.292 million and financing inflow $1.204 million. Total debt on the balance sheet was $6.561 million, comprising $0.882 million current and $5.679 million long-term; capital lease obligations were additional.
Material changes and unusual items
- Nine-month gross margin fell to 49% from 61%, reflecting obsolete tablet-component write-offs, scrap, higher repair and production costs, and lower revenue per site.
- The company recorded $0.680 million of expense for obsolete BEOND tablet components and approximately $0.604 million of repair expense associated with its second-generation tablet hardware during the first three quarters. Management said related costs were expected to continue in upcoming quarters.
- Nine-month software impairment was $0.295 million, compared with $0.661 million in 2014. No impairment was recorded in either Q3 period.
- SG&A decreased by $0.787 million in Q3, primarily due to restructuring-related lower payroll and fewer consultants; nine-month SG&A increased by $0.298 million.
- In April, the company entered into an East West Bank revolving facility and had borrowed $4.5 million by quarter-end. It used approximately $3.381 million of the borrowing to pay down existing equipment debt, accrued interest and a prepayment fee. The bank facility matures April 14, 2018 and has borrowing-base and financial covenants; the company reported meeting its targets at quarter-end.
- Buffalo Wild Wings corporate-owned restaurants and franchisees accounted for 45% of Q3 revenue and 44% of nine-month revenue.
Outlook, risks and controls
Management stated that cash and available credit facilities should cover operating requirements and debt obligations for at least the next 12 months, but warned that additional financing might be needed if resources prove insufficient and may not be available on acceptable terms. The company began deploying its third-generation BEOND tablet platform in Q4 2015 after outsourcing supply-chain management and manufacturing; the new platform includes EMV payment functionality. Management noted that moving chain customers from pilots to brand-standard deployments takes time and is not assured.
Key risks include customer concentration, competition and technology changes, reliance on limited tablet and equipment suppliers, execution of BEOND growth plans, and the need for future capital. The filing added NYSE MKT listing risk: stockholders’ equity declined to $4.8 million, and the company reported losses in each of its five most recent fiscal years; its shares had traded below $1 for an extended period. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. No legal proceedings were reported.
Important facts for investors to verify
- Whether third-generation BEOND deployments reduce repair, scrap and production costs as management expects.
- Trends in subscription revenue, average revenue per site, site count and conversion of customers to BEOND.
- Liquidity, borrowing-base availability, covenant compliance and the ability to meet debt obligations as cash declines.
- Customer and supplier concentration, including the company’s dependence on Buffalo Wild Wings-related revenue and limited tablet supply alternatives.
- NYSE MKT continued-listing status and any subsequent equity or financing developments.