Business context and reporting period
This is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019; the filing does not identify “Ernexa Therapeutics Inc.” as the registrant. NTN Buzztime provides interactive entertainment, games, tablets, and advertising services to venues. It reported 2,565 subscribed venues in the U.S. and Canada at quarter-end.
Financial results and position
Dollar amounts below are in millions, except per-share data and where noted.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $4.580 | $6.004 | $14.638 | $17.416 |
| Gross margin | $3.236 (71%) | $3.889 (65%) | $10.093 (69%) | $11.397 (65%) |
| Operating income (loss) | $(0.316) | $0.370 | $(0.535) | $0.030 |
| Net income (loss) | $(0.351) | $0.222 | $(0.754) | $(0.311) |
| Net income (loss) per diluted share | $(0.12) | $0.08 | $(0.27) | $(0.12) |
| Operating cash flow | Not separately stated | Not separately stated | $1.761 | $0.528 |
At September 30, 2019, cash and cash equivalents were $2.533 million, with restricted cash of $0.251 million; working capital was $2.015 million. Total assets were $14.919 million and total liabilities were $8.574 million. Avidbank term debt outstanding was $3.000 million, comprising $1.000 million current and $2.000 million long-term, before applicable debt issuance-cost accounting. The company also reported $3.404 million of operating lease liabilities. It was in compliance with its debt covenants at quarter-end.
Changes versus the prior comparable period
- Revenue declined 24% in Q3 and 16% in the first nine months. Subscription revenue fell 7% and 6%, respectively, while hardware revenue fell 99% and 67%, largely because the prior-year periods included a hardware sale that did not recur.
- Q3 gross margin percentage improved to 71% from 65%, but gross margin dollars fell 17%. For nine months, margin percentage also rose to 69% from 65%, while gross margin dollars declined 11%; the company attributed the percentage improvement partly to revenue mix, as hardware generally carries lower margins.
- SG&A was nearly unchanged in Q3 and decreased 7% for nine months. Lower payroll and professional fees contributed to the nine-month reduction.
- Nine-month operating cash flow increased to $1.761 million from $0.528 million. Investing cash outflow was $0.964 million; financing cash outflow was $0.826 million. Cash, cash equivalents, and restricted cash were nearly flat from year-end 2018 at $2.784 million.
- Venue count declined to 2,565 from 2,666 a year earlier. Buffalo Wild Wings (“BWW”) venues represented approximately 47% of subscribers at September 30.
Outlook, commentary, and key risks
- Existing agreements with BWW corporate-owned restaurants and franchisees were scheduled to terminate November 15, 2019. Management did not expect the corporate relationship or most franchisee relationships to continue. BWW contributed $5.891 million, or 40% of nine-month 2019 revenue; management warned subscription revenue could materially decrease beginning in Q1 2020 unless other subscribers offset the loss.
- Management stated it believed available cash was sufficient for operating needs and debt obligations for at least 12 months after issuance of the statements, while also exploring equity and alternative debt financing. It warned that additional capital might not be available on acceptable terms, and cost reductions might not cover funding shortfalls.
- The Avidbank agreement requires at least $1.0 million of adjusted EBITDA for the trailing six months at each quarter-end and at least $2.0 million of unrestricted cash held at Avidbank at all times. Failure to comply could trigger default and acceleration. The filing says the company was compliant at September 30, but identifies post-BWW revenue loss as a potential covenant risk.
- Management expected 2019 SG&A below $13.5 million. A follow-on hardware contract of approximately $3 million was signed in Q3, with deliveries expected from Q4 2019 through 2020. Initial Spendgo tablet orders were anticipated in Q4 2019 and Q1 2020; a pilot with a food-service provider began after quarter-end.
- Buzztime Basic was deployed in approximately 120 locations, with management anticipating approximately 200 by year-end. The mobile app remained in open beta. The board continued to evaluate strategic alternatives without a timetable or decision; no outcome was assured.
- No material pending legal proceedings were reported. The filing states disclosure controls were effective and that there were no off-balance-sheet arrangements with a material current or expected effect.
Important facts for investors to verify
- Whether BWW corporate and franchisee relationships ended as expected, what revenue and cash-flow impact followed, and how many venues were retained or replaced.
- Whether the company maintained Avidbank’s unrestricted-cash and adjusted-EBITDA covenants after BWW contract termination, and whether financing or covenant amendments were obtained.
- Delivery timing, customer acceptance, collections, and margins for the approximately $3 million hardware order, as well as the actual pace of Spendgo and Buzztime Basic deployments.
- Actual 2019 SG&A against management’s below-$13.5-million expectation and subsequent liquidity, debt-service, and capital requirements.
- Any developments in the board’s strategic-alternatives process and any resulting financing, transaction, or shareholder dilution.