Business Context and Reporting Period
This Form 10-Q was filed by FaceBank Group, Inc. for the quarter ended March 31, 2020. The filing was submitted late under the SEC’s COVID-19 filing extension. At quarter-end, the company primarily reflected FaceBank’s legacy operations and had not yet consolidated fuboTV’s post-merger results.
On April 1, 2020, FaceBank acquired fuboTV Inc. in a merger. fuboTV became a wholly owned subsidiary, and the combined company began operating under the fuboTV name; the trading symbol changed to FUBO on May 1, 2020. The reported quarter therefore is not representative of the company’s post-merger operating profile.
Key Financial Metrics
| Metric | Three months ended March 31, 2020 | Prior comparable period |
|---|---|---|
| Revenue | $7.3 million | $0 |
| Operating loss | $18.1 million | $6.2 million |
| Net loss | $5.2 million | $2.9 million |
| Net loss attributable to common stockholders | $4.5 million | $3.5 million |
| Loss per share | $0.15 | $0.27 |
| Net cash used in operating activities | $7.5 million | $0.6 million |
| Net cash used in investing activities | $2.4 million | $0.8 million |
| Net cash provided by financing activities | $2.4 million | $1.7 million |
| Cash at March 31 | $0.1 million | $0.3 million |
Revenue consisted of software-license sales, rather than the subscription and advertising revenue associated with fuboTV’s later consolidated business. The reported operating margin was approximately negative 248%, and the net margin was approximately negative 71%.
General and administrative expense increased to $20.2 million from $1.0 million, primarily due to $9.2 million of compensation, $3.6 million of marketing and advertising, and $6.2 million of other expenses related to 2019 acquisitions. Amortization expense was $5.2 million in both periods.
At March 31, 2020, total assets were $274.1 million, total liabilities were $125.4 million, and stockholders’ equity was $148.3 million. Current assets were $10.2 million versus current liabilities of $41.6 million, resulting in a working-capital deficit of approximately $31.4 million. The accumulated deficit was $140.1 million.
Material Changes and Unusual Items
- The company deconsolidated Nexway on March 31, 2020 after its voting interest declined to 37.6%. This generated a $39.2 million gain and reduced reported assets and liabilities.
- The company recorded a $24.1 million loss on the issuance of notes, bonds and warrants, including a $12.9 million loss related to the senior notes and a reported $11.1 million loss on extinguishment associated with the FBNK Finance bonds.
- Stock-based compensation was approximately $9.1 million for the quarter.
- On March 19, 2020, the company issued $10.05 million of senior secured notes, receiving approximately $7.4 million net of discounts. The notes carried a 17.39% interest rate and were secured by substantially all relevant borrower assets. The notes were repaid in full on July 3, 2020.
- FBNK Finance issued €50 million of bonds, reported at approximately $55.1 million at March 31, 2020, bearing fixed interest of 4.5% and maturing in February 2023.
- The company established a $100 million secured revolving credit facility, but reported no borrowings under it as of July 6, 2020 and stated that it did not intend to draw on the facility.
- The April 1 fuboTV merger had a preliminary purchase price of approximately $596.1 million. The purchase-price allocation was incomplete at the filing date, so the quarter’s financial statements do not include the full post-merger fuboTV operating results.
Liquidity, Outlook, Risks and Controls
Management stated that the company expects to continue incurring losses and will need additional capital to fund operations, satisfy obligations and execute its business plan. Cash was only $0.1 million at March 31, 2020, and the filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern within one year of issuance. Management was seeking additional equity and debt financing, but provided no assurance that financing would be available or available on acceptable terms.
The filing identifies competition in live television streaming, subscriber retention and acquisition, content costs and availability, technology development, integration of fuboTV, access to capital, dilution, litigation, intellectual-property protection and COVID-19 as significant risks. Management did not expect a material long-term impact from COVID-19 based on its assessment at filing, but acknowledged operational disruption, remote work, delayed access to records and continuing uncertainty.
The company disclosed material weaknesses in internal control over financial reporting and concluded that disclosure controls and procedures were not effective as of March 31, 2020. COVID-19-related remote work and disrupted processes could increase control risks.
No formal financial guidance was provided. Management indicated that future results would be markedly different following the fuboTV acquisition.
Important Facts for Investors to Verify
- Verify the final purchase-price allocation and the extent to which fuboTV’s revenue, losses, cash burn and debt were incorporated in subsequent filings.
- Reconcile liquidity after the merger, including the repayment of the $10.05 million senior notes, borrowings under the AMC agreement, FBNK Finance bonds and other secured or convertible debt.
- Assess the company’s ability to raise capital and the potential dilution from subsequent equity issuances, Series AA preferred stock, options and warrants.
- Review the going-concern disclosure and whether subsequent financing eliminated or merely deferred the liquidity risk.
- Reconcile the cash-flow discussion: the consolidated cash-flow statement reports $7.5 million of operating cash use, while one MD&A narrative passage refers to approximately $9.9 million.
- Monitor remediation of the disclosed material weaknesses and the effect of COVID-19 on financial reporting controls.
- Evaluate the recurring economics of fuboTV’s subscription and advertising business separately from the quarter’s non-recurring software-license revenue and accounting gains or losses.