Fubotv Inc. Form 10-Q Summary
Business context and reporting period
Reporting period ended September 30, 2020; filed November 16, 2020. Following the April 1, 2020 merger with fuboTV Pre-Merger, the company primarily operated a direct-to-consumer live TV streaming platform focused on sports, news and entertainment. The 2020 results are not directly comparable with 2019 because fuboTV was consolidated only after the merger, Nexway was deconsolidated on March 31, 2020, and FaceBank AG was sold during the third quarter.
Financial performance and position
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Total revenue | $61.2 million | $112.7 million |
| Subscription revenue | $53.4 million | $92.9 million |
| Advertising revenue | $7.5 million | $11.8 million |
| Operating loss | $(302.2) million | $(387.6) million |
| Net loss | $(274.1) million | $(404.1) million |
| Net loss attributable to common stockholders | $(274.1) million | $(402.5) million |
| Basic and diluted loss per share | $(6.20) | $(11.00) |
- Subscriber-related expenses were $61.2 million in the third quarter and $114.3 million for the nine-month period, exceeding subscription and advertising revenue for the nine months before other operating costs.
- Operating margin was approximately negative 494% for the quarter and negative 344% for the nine months. Net margin was approximately negative 448% and negative 359%, respectively. These margins were heavily affected by a $236.7 million non-cash impairment charge.
- Third-quarter impairment consisted of $148.6 million for goodwill and $88.1 million for intangible assets related to the legacy FaceBank reporting unit. The impairment followed management changes, including John Textor’s departure from the Board and resignation as Head of Studio effective October 30, 2020.
- Other income was $12.0 million in the quarter, including a $7.6 million gain on the sale of FaceBank AG and Nexway-related assets, a $4.5 million warrant-liability fair-value gain and a $1.3 million gain on debt extinguishment.
- Cash and cash equivalents were $38.9 million at September 30, 2020; cash, cash equivalents and restricted cash totaled $40.1 million. Working capital deficiency was $189.1 million and accumulated deficit was $458.6 million.
- Net cash used in operating activities was $72.5 million for the nine months, compared with $1.3 million of cash provided in the prior-year period. Net cash provided by financing activities was $106.3 million, primarily from equity and debt financings.
- Total liabilities were $290.4 million. Reported borrowings included the AMC term loan, PPP loan and other notes; the company disclosed approximately $30.5 million of indebtedness at September 30, 2020, excluding Access Road and Century Venture borrowings repaid in October.
Material changes versus the prior comparable period
- Revenue increased from $5.8 million to $61.2 million for the quarter and from $5.8 million to $112.7 million for the nine months, principally reflecting the post-merger fuboTV business. The comparison is not meaningful on a like-for-like basis.
- Operating expenses increased to $363.4 million for the quarter and $500.2 million for the nine months from $12.8 million and $24.9 million, respectively, driven by streaming content costs, marketing, personnel, amortization and the impairment charge.
- Sales and marketing expense rose to $22.3 million for the quarter and $33.5 million for the nine months, reflecting customer acquisition initiatives. Technology and development expense was $10.7 million for the quarter and $20.3 million for the nine months.
- Stock-based compensation was $6.3 million in the quarter and $24.1 million for the nine months, compared with none reported in the 2019 periods.
- The company issued significant equity and warrants during 2020, ending September with 47.5 million common shares outstanding and 9.5 million warrants outstanding. Series AA preferred shares outstanding were convertible into approximately 64.6 million common shares, subject to the stated conditions.
- Nexway software-license revenue ceased after deconsolidation on March 31, 2020. The company also sold FaceBank AG and its Nexway investment during the third quarter.
Guidance, outlook, risks and unusual items
- No quantitative revenue, profitability or subscriber guidance is provided in the filing. Management expects substantial losses and negative operating cash flow to continue while the platform is scaled.
- Management stated that the October 2020 public offering raised approximately $183 million net of offering expenses, providing liquidity to continue as a going concern for at least one year from issuance of the financial statements. The filing nevertheless describes substantial doubt regarding the company’s longer-term ability to continue as a going concern and continued dependence on capital raising and operating growth.
- In October, the company sold 18.3 million shares at $10.00 per share for $170.2 million net proceeds, followed by an additional 1.4 million shares generating $13.1 million net proceeds after the underwriters exercised their option.
- The company was not in compliance with payment obligations under a significant number of content agreements and was negotiating extensions, waivers or revised terms. Termination of these agreements could reduce content availability and impair subscriber acquisition and retention.
- Key risks include intense streaming competition, fixed or minimum-guarantee content commitments, subscriber churn, dependence on live sports, advertising monetization, COVID-19-related disruption, dependence on Google Cloud Platform and Amazon Web Services, cybersecurity and privacy regulation, and the need for additional capital.
- Disclosure controls and procedures were not effective as of September 30, 2020 because of previously identified material weaknesses in internal control over financial reporting. Remediation efforts were ongoing and had not yet been validated through sustained testing.
- The $4.7 million PPP loan may be forgiven only if applicable requirements are satisfied; otherwise repayment and penalties may be required. The filing also discloses a $4.4 million EAI note in default, although holders had agreed to forbear while negotiations continued.
- A New York lawsuit filed by Andrew Kriss and Eric Lerner seeks damages of at least $6.0 million. In the Scott Meide matter, the federal securities-fraud claim was dismissed with prejudice, while state-law claims could be reasserted and sanctions proceedings remained pending.
Most important facts for investors to verify
- Whether the October equity offering proceeds and subsequent cash usage materially extend liquidity beyond the period stated by management.
- The pace of operating cash burn, subscriber growth, churn, advertising monetization and progress toward positive contribution margins.
- The status and payment terms of delinquent content obligations, including any waivers, amendments or termination rights.
- The outstanding balance, covenant compliance and maturity profile of the AMC term loan, PPP loan, EAI note and other borrowings.
- Whether the material weaknesses in internal controls are remediated and whether the new independent accounting firm identifies any need to restate prior financial statements.
- The final purchase-price allocation for the fuboTV merger and any further impairment or measurement-period adjustments.
- The outcome of PPP-loan forgiveness review and the pending Kriss and Lerner litigation.