Falcon’s Beyond Global, Inc. — 2024 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024. Amounts are in thousands of U.S. dollars unless otherwise stated. The company operates across creative services, destination-based entertainment, and brands/IP. Falcon’s Creative Group (FCG) was deconsolidated on July 27, 2023 and is now accounted for as an equity-method investment, significantly affecting comparability with the prior period.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,516 | $9,194 | Down $7,678 |
| Operating loss | $(5,313) | $(8,902) | Improved $3,589 |
| Share of equity-method gains (losses) | $1,154 | $(1,279) | Improved $2,433 |
| Net income | $114,024 | $(9,850) | Improved $123,874 |
| Net income attributable to common stockholders | $17,169 | Not applicable | Prior-period allocation not presented |
| Adjusted EBITDA | $(4,514) | $(7,986) | Improved $3,472 |
| Operating cash flow | $(3,768) | $(6,498) | Used $2,730 less cash |
| Cash flow from investing | $(2,096) | $(133) | More cash used |
| Cash flow from financing | $6,231 | $(178) | Improved $6,409 |
| Cash and equivalents at period-end | $1,050 | $1,551 | Compared with prior-year quarter-end |
Reported operating margin was approximately (350)%, compared with approximately (97)% in Q1 2023. The reported net margin was approximately 7,521%, but this is not economically representative because net income includes a non-cash $118,615 gain from remeasurement of earnout liabilities.
- FCG generated $14,927 of revenue and $1,803 of net income in Q1 2024 at the investee level; Falcon’s recorded a $533 equity-method gain after preferred-return and basis-amortization adjustments.
- PDP generated $7,455 of revenue and $954 of net income; Falcon’s recognized a $534 share of gain.
- FCG’s $9,800 Dragon Ball consultancy revenue was a significant driver of its quarterly results.
- Assets totaled $67,783, including $61,292 of investments and advances to equity-method investments.
- Total liabilities were $442,089, including $370,026 of earnout liabilities and $35,607 of debt.
- Total equity was negative $374,306; equity attributable to common stockholders was negative $61,720.
Material changes versus the prior comparable period
- Revenue declined 83% primarily because FCG’s project revenue was consolidated in Q1 2023 but is excluded following its deconsolidation. Q1 2024 revenue consisted primarily of $1,516 of shared-services revenue, including revenue from FCG.
- Operating expenses declined to $6,829 from $18,096, reflecting the FCG deconsolidation, lower professional fees, no project design and build expense, and substantially lower depreciation and amortization.
- Equity-method results improved from a $1,279 loss to a $1,154 gain, driven by FCG and PDP results and the absence of losses from the fully impaired Sierra Parima investment.
- Katmandu Park DR in the Dominican Republic closed to visitors on March 7, 2024 after visitor levels remained below expectations. The company is evaluating liquidation or sale alternatives for Sierra Parima.
- The earnout liability declined from $488,641 at December 31, 2023 to $370,026 at March 31, 2024, producing a $118,615 non-cash fair-value gain. The change was primarily driven by a decline in the company’s stock price.
- Debt increased from $29,616 at December 31, 2023 to $35,607 at March 31, 2024. New one-year term loans included $7,221 from Katmandu Ventures and $1,250 from Universal Kat, both bearing interest at 8.875% and maturing March 31, 2025.
- The company exchanged 2.0 million Class B shares and related Opco units for 2.0 million Class A shares and converted warrants into Class A shares during the quarter.
Liquidity, outlook, risks, and unusual items
Liquidity and going concern: Management stated that the company does not currently have sufficient cash or liquidity to pay liabilities owed or maturing. The company reported a working-capital deficiency of approximately $36.2 million excluding the non-cash current earnout liability, $15.1 million of debt maturing within 12 months, $1.1 million of unrestricted cash, and $3.9 million of unused revolving-credit capacity. The filing concludes that substantial doubt exists regarding the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements.
- The company expects to rely on additional debt or equity financing, existing investors, and asset or portfolio actions. There is no assurance that financing will be available on acceptable terms.
- QIC released the remaining $12.0 million of its $30.0 million investment into FCG in April 2024. Those funds are restricted to FCG operations and growth and cannot satisfy obligations of other segments.
- The company has a $2.4 million unfunded commitment to Karnival for development of Vquarium Entertainment Centers in Hong Kong.
- Business-combination transaction costs of approximately $22.1 million remained unsettled at March 31, 2024 and are subject to ongoing negotiations.
- Guggenheim Securities alleges that $11.1 million is owed for Business Combination services. The company had accrued $11.1 million and intends to contest the claim.
- FCG revenue is concentrated in QIC, and consolidated accounts receivable of $1,794 were entirely attributable to one customer at March 31, 2024.
- The company disclosed material weaknesses in risk assessment, control activities, monitoring, control environment, information and communication, segregation of duties, period-end close, and financial reporting processes. Remediation efforts include hiring personnel, redesigning controls, and using a third-party consulting firm.
- The filing provides no formal revenue or earnings guidance. Management expects capital expenditures and working-capital requirements to increase and anticipates continued reliance on external financing until the operating segments generate sufficient cash.
Most important facts for investors to verify
- Whether the company can obtain sufficient financing to address the going-concern uncertainty and the $15.1 million of debt maturing within twelve months.
- The terms, enforceability, and settlement timing of the approximately $22.1 million of unsettled Business Combination costs and the $11.1 million Guggenheim claim.
- The sustainability and cash conversion of FCG’s reported growth, including its dependence on QIC and the Dragon Ball consultancy agreement.
- The financial and operational consequences of closing Katmandu Park DR and the potential liquidation or sale of Sierra Parima.
- The future fair value and settlement of the $370.0 million earnout liability, which can create significant non-cash gains or losses based on stock price and operating forecasts.
- Progress in remediating the disclosed material weaknesses in internal control over financial reporting.
- The company’s ability to fund the $2.4 million Karnival commitment and other expansion obligations without additional dilution or restrictive debt.