Business context and reporting period
Falcon’s Beyond Global, Inc. filed its first annual report as a public company for the fiscal year ended December 31, 2023. The company operates across content, technology and location-based entertainment through Falcon’s Creative Group (FCG), Falcon’s Beyond Destinations (FBD) and Falcon’s Beyond Brands (FBB).
The company completed its de-SPAC business combination with FAST Acquisition Corp. II on October 6, 2023, and began trading on Nasdaq under FBYD on October 6, 2023. The 2023 results are not fully comparable with 2022 because FCG was deconsolidated on July 27, 2023 after Qiddiya Investment Company invested $30.0 million for preferred units and obtained substantive consent and participation rights. Approximately seven months of FCG activity is consolidated in 2023; thereafter FCG is accounted for under the equity method.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change or observation |
|---|---|---|---|
| Revenue | $18.2 million | $16.0 million | Up approximately 14.4% |
| Loss from operations | $(57.2) million | $(17.3) million | Operating margin approximately (313.4)% versus (108.7)% |
| Net loss | $(430.9) million | $(17.4) million | Includes $345.4 million non-cash earnout fair-value loss |
| Net loss attributable to common stockholders | $(47.6) million | Not clearly comparable | Basic and diluted loss per share was $6.71 |
| Adjusted EBITDA | $(34.6) million | $(17.8) million | Non-GAAP loss increased by $16.8 million |
| Cash used in operating activities | $(23.4) million | $(19.3) million | Operating cash burn increased |
| Cash from investing activities | $0.3 million | $(26.3) million | Lower joint-venture funding needs and FCG deconsolidation inflow |
| Cash from financing activities | $15.1 million | $50.9 million | Primarily related-party borrowings and warrant proceeds |
| Cash and cash equivalents at year-end | $0.7 million | $8.4 million | Material decline |
| Total indebtedness | $29.6 million | $33.1 million | $6.7 million due within 12 months |
Revenue growth reflected higher shared-services revenue from FCG after deconsolidation, higher QIC-related contracts, a $1.3 million digital-media license with Sierra Parima and increased management fees. Revenue was partly offset by completed or near-completed Sierra Parima contracts and other declines.
Operating expenses totaled $75.4 million, including $28.1 million of selling, general and administrative expense, $26.0 million of business-combination transaction expenses, $6.0 million of credit-loss expense related primarily to Sierra Parima receivables, and $2.4 million of impairment of ride-media content. The company reported a working-capital deficiency of $28.9 million excluding the non-cash current earnout liability, unrestricted cash of approximately $0.7 million and $3.2 million of available borrowing capacity at December 31, 2023.
Total liabilities were $552.4 million, including $488.6 million of earnout liabilities and $3.9 million of warrant liabilities. Total equity was negative $489.0 million, largely because of the earnout liability and losses.
Material changes versus the prior comparable period
- Revenue increased to $18.2 million from $16.0 million, but operating loss expanded to $57.2 million from $17.3 million.
- Equity-method losses increased to $52.5 million from a $1.5 million gain. Sierra Parima accounted for $43.1 million of the 2023 loss, including the company’s share of a $46.7 million fixed-asset impairment and a separate $14.1 million impairment of Falcon’s investment, which was reduced to zero.
- FCG was deconsolidated and recorded as an equity-method investment with a December 31, 2023 carrying value of $30.9 million. The company recognized a $27.4 million gain on deconsolidation.
- SG&A increased by approximately $9.5 million, primarily because of audit, professional-services and public-company readiness costs.
- Transaction expenses of $26.0 million were recorded in 2023, with approximately $22.1 million of business-combination transaction costs still accrued at year-end and expected to be settled over approximately 24 months.
- The fair value of earnout liabilities increased by $345.4 million and generated a corresponding non-cash loss. Earnout liabilities totaled $488.6 million at year-end.
- Katmandu Park Punta Cana in the Dominican Republic opened in 2023 but experienced financial, operational and infrastructure challenges and was closed to visitors in March 2024. Sierra Parima’s investment was fully impaired at December 31, 2023.
Guidance, outlook, commentary and risks
Management is shifting FBD toward an asset-efficient model that relies more heavily on strategic partners and existing commercial infrastructure. Management is also prioritizing FCG growth and FBB licensing, media, gaming, merchandising and ride-technology opportunities.
- FCG entered into a January 2024 consultancy agreement with QIC for potential contract value of up to approximately $83.1 million if all available opportunities are bid on and won. The agreement relates to design, technology and construction services for the Dragon Ball theme park and other Qiddiya projects; the filing does not state that the full amount is committed revenue.
- QIC released the remaining $12.0 million of its $30.0 million FCG investment in April 2024 after establishment of an employee incentive plan. Those funds are restricted to FCG and cannot fund other segments.
- FCG’s cash distributions are restricted for five years after the strategic investment, except for tax distributions, and QIC has a 9% compounded preferred return, priority rights, consent rights and preemptive rights.
- The company states that substantial doubt exists about its ability to continue as a going concern for the twelve months following issuance of the financial statements. Management expects additional debt or equity financing will be needed, but availability and terms are uncertain.
- The company had an unfunded $2.4 million commitment to Karnival for development of Vquarium entertainment centers in China and stated that it did not currently have liquidity to fund the commitment.
- On April 9, 2024, related parties provided new term loans totaling approximately $8.5 million at 8.88%, maturing March 31, 2025; approximately $5.4 million was used to repay part of the Infinite Acquisitions revolving facility.
- Guggenheim Securities asserted claims for $9.6 million of transaction fees and expenses plus $1.5 million of alleged anticipatory repudiation damages. The company accrued $11.1 million as of December 31, 2023.
- The company identified material weaknesses in risk assessment, control activities, monitoring, control environment, and information and communication. Disclosure controls were deemed ineffective as of year-end, and remediation remains in early stages.
- FCG revenue is highly concentrated: QIC generated approximately 81% of FCG revenue in 2023, and the company expects QIC to remain a significant majority of FCG revenue in 2024. International, Saudi Arabia, joint-venture, customer-concentration, cybersecurity, intellectual-property, execution and capital-raising risks are significant.
Most important facts for investors to verify
- Confirm the company’s current cash balance, borrowing capacity, debt maturities and financing needs after the April 2024 related-party loans.
- Assess the going-concern disclosure, including whether additional capital has been obtained on terms sufficient to fund operations and commitments.
- Review the status, valuation and cash restrictions of the FCG investment and the QIC preferred-unit redemption, distribution and consent rights.
- Verify the economic impact, closure status, potential liquidation or sale outcomes and remaining liabilities of Katmandu Park Punta Cana and Sierra Parima.
- Track QIC concentration, active contracts, termination provisions and the portion of the potential $83.1 million consultancy value that has actually been awarded and recognized.
- Evaluate the $488.6 million earnout liability and potential future non-cash fair-value volatility, as well as possible dilution if earnout shares or warrants are issued.
- Review accrued business-combination costs, the $11.1 million Guggenheim claim and any other unresolved legal or contingent obligations.
- Monitor remediation of the material weaknesses and the company’s ability to produce timely, reliable financial reporting.