Business context and reporting period
This is NTN Buzztime, Inc.’s audited Form 10-K for the fiscal year ended December 31, 2016, filed March 9, 2017. The filing describes a provider of interactive entertainment and dining technology for North American bars and restaurants, including its BEOND tablet platform and legacy Classic service. The company reported 2,814 subscribing venues at year-end, down from 2,960 a year earlier; approximately 71% used BEOND. The supplied request metadata names a different company and period; the filing itself identifies NTN Buzztime and covers fiscal 2016, not a standalone 2016 fourth quarter.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $22.312 million | $24.519 million |
| Gross profit / margin | $14.602 million / 65.4% | $11.949 million / 48.7% |
| Operating loss | $2.278 million | $6.895 million |
| Net loss | $2.923 million | $7.226 million |
| EBITDA (non-GAAP) | $0.578 million | $(3.629) million |
| Operating cash flow | $0.023 million | $(4.180) million |
| Cash and cash equivalents at year-end | $5.686 million | $3.223 million |
Subscription revenue rose 2.4% to $17.463 million, while sales-type lease revenue fell 69.9% to $1.266 million; other revenue increased 10.1% to $3.583 million. Direct costs declined substantially, mainly due to fewer equipment installations and lower equipment, scrap and repair costs, lifting gross margin. SG&A decreased to $16.458 million, primarily due to lower headcount and related payroll costs. Interest expense increased, and total other expense was $0.607 million.
Working capital was $4.019 million, compared with $3.988 million at year-end 2015. Total assets were $16.695 million; total liabilities were $12.627 million; and shareholders’ equity was $4.068 million. Long-term debt totaled $8.111 million, plus $0.414 million of capital lease obligations. Debt included $6.5 million outstanding under the East West Bank (EWB) facility and $1.611 million under an equipment financing arrangement. The filing lists $2.988 million of debt principal due in 2017 and $5.115 million in 2018. Only $97,000 was available under the EWB borrowing base at year-end.
Material changes versus the prior year
- Revenue declined 9.0%, primarily reflecting lower sales-type equipment lease revenue; subscription revenue increased modestly despite fewer venues.
- Gross margin improved 16.7 percentage points, while net loss narrowed by $4.303 million. Management attributed much of the improvement to lower equipment costs and reduced repair and scrap expense, as well as lower operating expenses.
- Operating cash flow improved by $4.203 million to near breakeven. Financing activities provided $3.256 million, including $2.692 million of net proceeds from a November 2016 common-stock offering.
- Buffalo Wild Wings and its franchisees accounted for 40% of 2016 revenue ($8.913 million), down from 44% ($10.889 million) in 2015.
- The company completed a 1-for-100 reverse split followed immediately by a 2-for-1 forward split in June 2016. The November equity offering issued 412,071 shares.
Outlook, management commentary, risks and unusual items
Management said it believed available cash would cover operating requirements and debt obligations for at least 12 months from issuance of the financial statements, while also evaluating additional financing. It gave no quantified revenue, earnings or cash-flow guidance. Strategic priorities included expanding digital menus, ordering and payments; growing independent and chain venue counts; monetizing premium games and advertising; and improving hardware cost and supply control. In March 2017, Buffalo Wild Wings selected the company as its digital menu, order and payment provider; rollout was identified as a 2017 focus. Management expected continued deployment of pay-to-play games during 2017.
The EWB facility was amended after year-end. The February 2017 amendment extended the $2 million sublimit period to June 15, 2017, set 2017 adjusted EBITDA covenants, changed churn covenant testing, and increased interest-rate margins by 0.50 percentage points. The filing also says substantially all borrowing capacity under existing credit facilities had been used and the EWB agreement generally restricts borrowing from other lenders. At the June 15, 2017 sublimit date, the company could have to repay any advances exceeding the then-permitted borrowing base; a 100% deposit requirement tied to outstanding advances also applies at that date or earlier repayment of the sublimit.
Key risks include continued losses and an accumulated deficit of $128.026 million; dependence on Buffalo Wild Wings; reliance on a sole third-party manufacturer for BEOND tablets and related equipment; competition and technology changes; financing availability and potential shareholder dilution; and NYSE MKT listing noncompliance. The company reported equity of $4.068 million at year-end but said it remained out of compliance with listing standards and had until May 13, 2017 to regain compliance under its plan, with delisting proceedings possible. Other disclosed exposures include cybersecurity and payment-card compliance, gaming and tax regulation, equipment repairs, and the potential limited use or expiration of tax-loss carryforwards. A previously recorded $25,000 sales-tax contingency was resolved in 2016; approximately $175,000 remained accrued for potential tablet-case repairs. No material litigation was pending or threatened, according to the filing.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2016. The company reported no material software impairment in 2016; it had recorded a $295,000 software impairment in 2015.
Important facts for investors to verify
- Whether the company met NYSE MKT listing requirements by the May 13, 2017 deadline, and whether it needed further equity financing.
- Available liquidity, EWB borrowing-base capacity, covenant compliance, deposit requirements and debt maturities—especially the 2017 repayment exposure.
- Whether Buffalo Wild Wings’ selection translated into a successful rollout, revenue growth and reduced customer concentration.
- Venue retention and subscription trends, including the effect of declining site count on recurring revenue.
- Reliability, quality and cost of the sole-source tablet and equipment supply, and any additional repair or inventory charges.
- Whether improved gross margin and near-breakeven operating cash flow were sustainable without further financing.