FuboTV Inc 10-Q, filed Nov 7, 2022
FuboTV Inc. (FUBO)
10-Q
2022-11-07
For: 2022-09-30
View Original
Added on
April 10, 2026
About this 10-Q
FuboTV Inc filed this 10-Q on November 7, 2022, covering the quarter ended September 30, 2022.
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $224.81M
- up 43.5% from $156.69M a year earlier
- Net loss
- $152.65M
- compared with a net loss of $105.85M a year earlier
- Diluted EPS
- -$0.82
- compared with -$0.74 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _____________ to _____________
Commission File Number: 001-39590
fuboTV Inc.
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(212 ) 672-0055
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | |||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2022, there were 195,323,071 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
1
fuboTV Inc.
TABLE OF CONTENTS
| Page | ||||||||
i
BASIS OF PRESENTATION
As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless expressly indicated or the context otherwise requires, references to “fuboTV Inc.,” “FuboTV,” “we,” “us,” “our,” “the Company,” and similar references refer to fuboTV Inc., a Florida corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements, which are subject to a number of risks, uncertainties, and assumptions, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “target,” “project,” “contemplate,” or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions, or projections. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements regarding our future results of operations and financial position, industry and business trends, stock-based compensation, revenue recognition, business strategy, plans and market growth, and our objectives for future operations, including related to investment in our technologies and data capabilities, and strategies with respect to subscriber acquisition, impacts of the dissolution of our gaming business, and our international operations.
We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors” of this Quarterly Report. These risks are not exhaustive. Other sections of this Quarterly Report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.
In addition, forward-looking statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. You should read this Quarterly Report in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022 (the “Annual Report”).
ii
RISK FACTORS SUMMARY
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. Material risks that may affect our business, operating results and financial condition include, but are not limited to, the following:
•Our actual operating results may differ significantly from our guidance.
•We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
•We may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be available on acceptable terms or at all.
•Our revenue is subject to seasonality, and if subscriber behavior during certain seasons falls below our expectations, our business may be harmed.
•Our operating results may fluctuate, which makes our results difficult to predict.
•If we fail to effectively manage our growth, our business, operating results, and financial condition may suffer.
•If our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
•Our agreements with certain distribution partners may contain parity obligations which limit our ability to pursue unique partnerships.
•If content providers refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely affected.
•Our content providers impose a number of restrictions on how we distribute and market our products and services, which can adversely affect our business.
•We rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of our service, and any disruption of or interference with our use of Google Cloud Platform and/or Amazon Web Services would impact our operations and our business would be adversely impacted.
•If we fail to comply with the reporting obligations of the Exchange Act, our business, financial condition, and results of operations, and investors’ confidence in us, could be materially and adversely affected.
•Our key metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business.
•TV streaming is highly competitive and many companies, including large technology and entertainment companies, TV brands, and service operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies, it will be difficult for us to attract or retain subscribers and our business will be harmed.
•If the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results of operation could be adversely impacted.
•If government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we conduct our business and we may incur greater operating expenses.
•We may be unable to successfully expand our international operations and our international expansion plans, if implemented, will subject us to a variety of economic, political, regulatory and other risks arising from our international operations.
iii
•We are subject to a number of legal requirements and other obligations regarding privacy, security, and data protection, and any actual or perceived failure to comply with these requirements or obligations could have an adverse effect on our reputation, business, financial condition and operating results.
•Any significant interruptions, delays or discontinuations in service or disruptions in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized disclosure of data, including subscriber and corporate information, or theft of intellectual property, including digital content assets, which could adversely impact our business.
•We are subject to taxation-related risks in multiple jurisdictions.
•We could be subject to claims or have liability based on defects with respect to certain historical corporate transactions that were not properly authorized or documented.
•Legal proceedings could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.
•The impact of worldwide economic conditions may adversely affect our business, operating results, and financial condition.
iv
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1
fuboTV Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share information)
| September 30, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Cash reserved for users | |||||||||||
| Short-term investments | |||||||||||
| Accounts receivable, net | |||||||||||
| Prepaid sports rights | |||||||||||
| Prepaid and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Restricted cash | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Right-of-use assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Notes payable | |||||||||||
| Deferred revenue | |||||||||||
| Warrant liabilities | |||||||||||
| Long-term borrowings - current portion | |||||||||||
| Current portion of lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Convertible notes, net of discount | |||||||||||
| Deferred income taxes | |||||||||||
| Lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | |||||||||||
| Redeemable non-controlling interest | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Non-controlling interest | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total stockholders’ equity | $ | $ | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
fuboTV Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Subscription | $ | $ | $ | $ | |||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| Wagering | ( | ( | |||||||||||||||||||||
| Other | — | ||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Subscriber related expenses | |||||||||||||||||||||||
| Broadcasting and transmission | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Impairment of goodwill, intangible assets and other long-lived assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest expense (net) and financing costs | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of debt discount | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ||||||||||||||||||||||
| Change in fair value of warrant liabilities | ( | ( | |||||||||||||||||||||
| Other income (expense) | ( | ( | |||||||||||||||||||||
| Total other income (expense) | ( | ( | ( | ( | |||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax benefit | |||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Less: Net loss attributable to non-controlling interest | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share attributable to common stockholders | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
fuboTV Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(in thousands, except share and per share amounts)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Non-controlling Interest | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-Market offering, net of offering costs | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delivery of common stock underlying restricted stock units | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 (Unaudited) | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-Market offering, net of offering costs | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delivery of common stock underlying restricted stock units | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 (Unaudited) | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
fuboTV Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(in thousands, except share and per share amounts)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Non-controlling Interest | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-Market offering, net of offering costs | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delivery of common stock underlying restricted stock units | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 (Unaudited) | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
fuboTV Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(in thousands, except share and per share amounts)
| Preferred stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series AA Preferred Stock | ( | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of debt discount on 2026 Convertible Notes | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock in connection with acquisition | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 (Unaudited) | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of debt discount on 2026 Convertible Notes | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 (Unaudited) | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
fuboTV Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(in thousands, except share and per share amounts)
| Preferred stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-Market offering, net of offering costs | — | — | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delivery of common stock underlying restricted stock units | — | — | — | — | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | — | — | — | — | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 (Unaudited) | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
fuboTV Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands, except share and per share amounts)
For the Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of gaming licenses and market access fees | |||||||||||
| Stock-based compensation | |||||||||||
| Impairment of goodwill, intangible assets and other long-lived assets | |||||||||||
| Amortization of debt discount | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Deferred income tax benefit | ( | ( | |||||||||
| Change in fair value of warrant liabilities | |||||||||||
| Amortization of right-of-use assets | |||||||||||
| Other adjustments | |||||||||||
| Changes in operating assets and liabilities of business, net of acquisitions: | |||||||||||
| Cash reserved for users | ( | ||||||||||
| Accounts receivable, net | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Prepaid sports rights | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | ( | ||||||||||
| Deferred revenue | |||||||||||
| Lease liabilities | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Cash portion paid for acquisition | ( | ||||||||||
| Purchase of short-term investments | ( | ||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capitalization of internal use software | ( | ||||||||||
| Purchase of intangible assets - gaming | ( | ||||||||||
| Payments for market access and license fee deposits | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
fuboTV Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands, except share and per share amounts)
For the Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from the issuance of common stock / At-the-Market offering, net of offering costs | |||||||||||
| Proceeds from convertible note, net of issuance costs | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Proceeds from the exercise of warrants | |||||||||||
| Repayments of notes payable and long-term borrowings | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flows information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | $ | $ | |||||||||
| Non-cash financing and investing activities: | |||||||||||
| Conversion of Series AA preferred stock to common stock | $ | $ | |||||||||
| Issuance of treasury stock in connection with acquisition | $ | $ | |||||||||
| Reclassification of the equity components of the 2026 Convertible Notes to liability upon adoption of ASU 2020-06 | $ | $ | |||||||||
| Cashless exercise of warrants | $ | $ | |||||||||
| Accrued expenses - At-the-Market offering | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
Note 1 - Organization and Nature of Business
Incorporation
fuboTV Inc. (“FuboTV” or the “Company”) was incorporated under the laws of the State of Florida in February 2009 under the name York Entertainment, Inc. The Company changed its name to FaceBank Group, Inc. on September 30, 2019. On August 10, 2020, the Company changed its name to fuboTV Inc. and as of May 1, 2020, the Company’s trading symbol was changed from “FBNK” to “FUBO.” The Company’s common stock was approved for listing on the New York Stock Exchange (“NYSE”) in connection with a public offering in October 2020 and commenced trading on the NYSE on October 8, 2020.
Unless the context otherwise requires, “FuboTV,” “we,” “us,” “our,” and the “Company” refers to FuboTV and its subsidiaries on a consolidated basis.
Nature of Business
The Company is principally focused on offering consumers a leading live TV streaming platform for sports, news, and entertainment. The Company’s revenues are primarily derived from the sale of subscription services and the sale of advertisements in the United States.
The Company’s subscription-based streaming services are offered to consumers who can sign-up for accounts through which the Company provides plans with the flexibility for consumers to purchase incremental features that include additional content or enhanced functionality (“Attachments”) best suited for them. Besides the website, consumers can also sign-up via some TV-connected devices. The FuboTV platform provides a broad suite of unique features and personalization tools such as multi-channel viewing capabilities, favorites lists and a dynamic recommendation engine, as well as 4K streaming and Cloud DVR offerings.
Note 2 - Liquidity, Going Concern and Management Plans
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company had cash and cash equivalents and restricted cash of $207.4 million, short-term investments in time deposits of $100.0 million that mature in December 2022, working capital of $38.5 million and an accumulated deficit of $1.4 billion as of September 30, 2022. The Company incurred a net loss of $152.7 million and $409.8 million for the three and nine months ended September 30, 2022, respectively. Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to incur substantial losses in the future.
9
As discussed further in Note 13, during the nine months ended September 30, 2022, the Company received net proceeds of approximately $229.0 million (after deducting $4.9 million in commissions and expenses) from sales of 31,658,931 shares of its common stock, at a weighted average gross sales price of $7.39 per share pursuant to At-the-Market Sales Agreements with its sales agents.
The Company believes that its current cash and cash equivalents and short-term investments will provide it with the necessary liquidity to continue as a going concern for at least one year from the date of issuance of these financial statements.
In addition to the foregoing, the Company cannot predict the long-term impact on its development timelines, revenue levels and its liquidity due to the worldwide spread of COVID-19 and other macroeconomic factors, including inflationary cost pressures and potential recession indicators. Based upon the Company’s current assessment, it does not expect the impact of the COVID-19 pandemic and other macroeconomic factors to materially impact the Company’s operations. However, the Company is continuing to assess the impact that the spread of COVID-19 and other macroeconomic factors may have on its operations.
Note 3 - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The results for the unaudited condensed consolidated statement of operations and comprehensive loss are not necessarily indicative of results to be expected for the year ending December 31, 2022 or for any future interim period. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Those estimates and assumptions include allocating the fair value of purchase consideration to assets acquired and liabilities assumed in business acquisitions, useful lives of property and equipment and intangible assets, recoverability of goodwill and intangible assets, accruals for contingent liabilities, equity instruments issued in share-based payment arrangements, and accounting for income taxes, including the valuation allowance on deferred tax assets.
10
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with remaining maturities at the date of purchase of three months or less to be cash equivalents, including balances held in the Company’s money market account and time-based deposits. Restricted cash primarily represents cash on deposit with financial institutions in support of a letter of credit outstanding in favor of the Company’s landlord for office space. The restricted cash balance has been excluded from the cash balance and is classified as restricted cash on the condensed consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets that sum to the total of the same on the condensed consolidated statement of cash flows (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Cash Reserved for Users
On June 27, 2022, the Company entered into a time-based deposit totaling $100.0 million which accrues interest monthly at a rate of 2.54 % and matures on December 27, 2022 and is included in short-term investments on the accompanying condensed consolidated balance sheet as of September 30, 2022. No interest is paid until the settlement date of December 27, 2022.
At September 30, 2022, the Company had $100.0 million of short-term investments classified as held-to-maturity.
Certain Risks and Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of demand deposits, time-based deposits and accounts receivable. The Company maintains cash deposits with financial institutions that at times exceed applicable insurance limits.
The majority of the Company’s software and computer systems utilize data processing, storage capabilities and other services provided by Google Cloud Platform and Amazon Web Services, which cannot be easily switched to another cloud service provider. As such, any disruption of the Company’s interference with Google Cloud Platform and Amazon Web Services could adversely impact the Company’s operations and business.
Segment and Reporting Unit Information
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is determined to be the CODM. The Company has two operating segments as of September 30, 2022 and December 31, 2021: streaming and wagering.
11
Significant Accounting Policies
For a detailed discussion of the Company’s significant accounting policies, see Note 3 to the consolidated financial statements for the year ended December 31, 2021, included in the Company’s Annual Report. Except for the accounting for the 2026 Convertible Notes discussed in Note 10 and Licensed Content below, there were no significant changes to the Company’s accounting policies during the nine months ended September 30, 2022.
Licensed Content
During the nine months ended September 30, 2022, the Company entered into various license agreements to obtain rights to certain live sports events. Costs incurred in acquiring certain rights to live sporting events are accounted for in accordance with ASC 920, Entertainment—Broadcasters (“ASC 920”). These program rights are expensed in a manner consistent with how it expects to monetize the licensed content, which is primarily based on subscription revenue.
Cash flows for licensed content are presented within operating activities in the condensed consolidated statements of cash flows.
Foreign Currency
The Company’s reporting currency is the U.S. dollar while the functional currency of each non-U.S. subsidiary is determined based on the primary economic environment in which such subsidiary operates. The financial statements of non-U.S. subsidiaries are translated into United States dollars in accordance with ASC 830, Foreign Currency Matters, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining other comprehensive income (loss).
Impairment Testing of Long-Lived Assets
Annually, or upon the identification of a triggering event, management is required to perform an evaluation of the recoverability of long-lived assets. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Goodwill
Annually, or upon the identification of a triggering event, management is required to perform an evaluation of the recoverability of goodwill. Triggering events potentially warranting an interim goodwill impairment test include, among other factors, declines in historical or projected revenue, operating income or cash flows, and sustained declines in the Company’s stock price or market capitalization, considered both in absolute terms and relative to peers. We measure recoverability of goodwill at the reporting unit level.
12
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except shares and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Basic loss per share: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: net loss attributable to non-controlling interest | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Shares used in computation: | |||||||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Basic and diluted loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The following common share equivalents are excluded from the calculation of weighted average common shares outstanding because their inclusion would have been anti-dilutive:
| September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Warrants to purchase common stock | |||||||||||
| Stock options | |||||||||||
| Unvested restricted stock units | |||||||||||
| Convertible notes variable settlement feature | |||||||||||
| Total | |||||||||||
Recently Adopted Accounting Standards
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by eliminating the requirement to separately account for an embedded conversion feature as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception.
The Company adopted the ASU 2020-06 on January 1, 2022 using the modified retrospective method. Upon adoption at January 1, 2022, the Company made certain adjustments in its condensed consolidated balance sheets as related to the 2026 Convertible Notes (see Note 10) which consists of an increase of $75.3 million in Convertible notes, net of discount, a net decrease of $87.9 million in Additional paid-in capital and a net decrease of $12.7 million in Accumulated deficit. Additionally, from January 1, 2022, as related to the 2026 Convertible Notes (see Note 10) we will no longer incur non-cash interest expense for the amortization of debt discount related to the previously separated equity component.
13
After adoption, the Company accounts for the 2026 Convertible Notes as single liability measured at amortized cost. The Company did not elect the fair value option. The Company will apply the if converted methodology in computing diluted earnings per share if and when profitability is achieved.
The following table summarizes the adjustments made to the Company’s condensed consolidated balance sheet as of January 1, 2022 as a result of applying the modified retrospective method in adopting ASU 2020-06 (in thousands):
As Reported December 31, 2021 | ASU 2020-06 Adjustments | As Adjusted January 1, 2022 | |||||||||||||||
| 2026 Convertible Notes | $ | $ | $ | ||||||||||||||
| Additional paid-in capital | $ | $ | ( | $ | |||||||||||||
| Accumulated deficit | $ | ( | $ | $ | ( | ||||||||||||
Under the modified retrospective method, the Company does not need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 1, 2022 in accordance with guidance under ASC 470-20, Debt: Debt with Conversion and Other Options (ASC 470-20). The adoption did not impact previously reported amounts in the Company’s condensed consolidated statements of operations and comprehensive loss, cash flows and the basic and diluted net loss per share amounts.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The ASU sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU in January 2022 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
In March 2019, the FASB issued ASU 2019-02, Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. The amendments also require that an entity reassess estimates of the use of a film for a film in a film group and account for any changes prospectively. In addition, this guidance requires an entity to test for impairment a film or license agreement within the scope of ASC 920-350 at the film group level, when the film or license agreement is predominantly monetized with other films and/or licensed agreements. The Company adopted this ASU in January 2022, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change.
Note 4 – Acquisitions
Molotov S.A.S
On December 6, 2021, the Company acquired approximately 98.5 % of the equity interests in Molotov S.A.S (“Molotov”), a television streaming platform located in France, for €101.7 million or $115.0 million (“Molotov Acquisition”). The consideration paid in cash totaled €14.4 million or $16.3 million, and the issuance of 5.7 million shares of the Company’s common stock with a fair value of approximately $98.8 million. Molotov is included in the streaming segment.
14
The Molotov Acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires recognition of assets acquired and liabilities assumed at their respective fair values on the date of acquisition.
During the nine months ended September 30, 2022, the Company finalized its purchase price allocation of the assets acquired and liabilities assumed in the December 6, 2021 acquisition of Molotov based on new information obtained about facts and circumstances that existed as of the acquisition date. During the nine months ended September 30, 2022, the Company recorded measurement period adjustments to its acquisition date goodwill to record the non-controlling interest of $1.8 million for the remaining 1.5 % of Molotov’s equity interest and adjustments to right of use assets, lease liabilities, accounts payable, and accrued expenses based on additional information obtained about conditions that existed as of the acquisition date. The following table presents the allocation of the purchase price to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill (in thousands):
| Assets acquired: | |||||
| Cash | $ | ||||
| Accounts receivable, net | |||||
| Prepaid and other current assets | |||||
| Property and equipment, net | |||||
| Other non-current assets | |||||
| Intangible assets | |||||
| Goodwill | |||||
| Right-of-use assets | |||||
| Total assets acquired | |||||
| Liabilities assumed: | |||||
| Accounts payable | |||||
| Accrued expenses and other current liabilities | |||||
| Deferred revenue | |||||
| Long-term borrowings - current portion | |||||
| Lease liabilities | |||||
| Total liabilities assumed | |||||
| Redeemable non-controlling interest | |||||
| Net assets acquired | $ | ||||
Goodwill, which is not deductible for tax purposes, primarily represents the benefits expected to result from the assembled workforce of Molotov. The Company allocated the goodwill to its streaming reporting unit.
The estimated useful lives and fair value of the intangible assets acquired are as follows (in thousands):
| Estimated Useful Lives (Years) | Fair Value | |||||||
| Customer relationships | $ | |||||||
| Trade names | $ | |||||||
| Software and technology | $ | |||||||
| Total | $ | |||||||
15
Note 5 - Revenue from Contracts with Customers
Disaggregated revenue
The following table presents the Company’s revenues disaggregated into categories based on the nature of such revenues (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Subscription | $ | $ | $ | $ | |||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| Wagering | ( | ( | |||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
The following tables summarize subscription revenue and advertising revenue by region for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Subscription
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| United States and Canada (North America) | $ | $ | $ | $ | |||||||||||||||||||
| Rest of world | |||||||||||||||||||||||
| Total subscription revenues | $ | $ | $ | $ | |||||||||||||||||||
Advertising
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| United States and Canada (North America) | $ | $ | $ | $ | |||||||||||||||||||
| Rest of world | |||||||||||||||||||||||
| Total advertising revenues | $ | $ | $ | $ | |||||||||||||||||||
Contract balances
There were no losses recognized related to any receivables arising from the Company’s contracts with customers for the nine months ended September 30, 2022 and 2021.
For the three and nine months ended September 30, 2022 and 2021, the Company did not recognize material bad-debt expense and there were no material contract assets recorded on the accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.
The Company’s contract liabilities primarily relate to upfront payments and consideration received from customers for subscription services. As of September 30, 2022, and December 31, 2021, the Company’s contract liabilities totaled approximately $58.7 million and $44.3 million, respectively, and are recorded as deferred revenue on the accompanying condensed consolidated balance sheets.
16
Transaction price allocated to remaining performance obligations
The Company does not disclose the transaction price allocated to remaining performance obligations since subscription and advertising contracts have an original expected term of one year or less.
Note 6 – Property and equipment, net
Property and equipment, net, is comprised of the following (in thousands):
| Useful Life (Years) | September 30, 2022 | December 31, 2021 | |||||||||||||||
| Buildings | $ | $ | |||||||||||||||
| Furniture and fixtures | |||||||||||||||||
| Computer equipment | |||||||||||||||||
| Leasehold improvements | Term of lease | ||||||||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||||||||
| Total property and equipment, net | $ | $ | |||||||||||||||
Depreciation expense totaled approximately $0.5 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense totaled approximately $1.3 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively.
For the three and nine months ended September 30, 2022, the Company recognized an impairment charge of approximately $0.3
Note 7 – Intangible Assets and Goodwill
Intangible Assets
The table below summarizes the Company’s intangible assets at September 30, 2022 and December 31, 2021 (in thousands):
| Useful Life (Years) | Weighted Average Remaining Life (Years) | September 30, 2022 | |||||||||||||||||||||||||||
| Intangible Assets | Accumulated Amortization | Net Balance | |||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||||||||
| Trade names | ( | ||||||||||||||||||||||||||||
| Software and technology | ( | ||||||||||||||||||||||||||||
| Gaming licenses and market access fees | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||||||||
17
| Useful Lives (Years) | Weighted Average Remaining Life (Years) | December 31, 2021 | |||||||||||||||||||||||||||
| Intangible Assets | Accumulated Amortization | Net Balance | |||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||||||||
| Trade names | ( | ||||||||||||||||||||||||||||
| Software and technology | ( | ||||||||||||||||||||||||||||
| Gaming licenses and market access fees | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||||||||
The intangible assets are being amortized over their respective original useful lives, which range from to ten years . The Company recorded amortization expense related to the above intangible assets of approximately $9.2 million and $9.1 million for the three months ended September 30, 2022 and 2021, respectively. The Company recorded amortization expense related to the above intangible assets of approximately $30.2 million and $27.3 million for the nine months ended September 30, 2022 and 2021, respectively.
For the three and nine months ended September 30, 2022, in connection with the Company's Online Sportsbook, the Company recorded an impairment charge of approximately $0.2
The estimated future amortization expense associated with intangible assets, net is as follows (in thousands):
| Year ended December 31, | Future Amortization | ||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
Prepaid Market Access Agreements
During the nine months ended September 30, 2022, the Company paid $3.5 million, respectively, for gaming licenses pursuant to market access agreements in states where the market access is pending regulatory approval as of September 30, 2022. The $3.5 million is included in other non-current assets on the accompanying condensed consolidated balance sheet as of September 30, 2022.
For the three and nine months ended September 30, 2022, the Company recorded an impairment charge of approximately $35.0 million relating to prepaid market access fees. The expense is recorded in impairment of goodwill, intangible assets, and other long-lived assets in the wagering segment on the accompanying condensed consolidated statements of operations and comprehensive loss. As of September 30, 2022 and December 31, 2021, the balance of prepaid market access agreements was $8.2 million and $39.8 million, respectively.
18
Goodwill
The following table is a summary of the changes to goodwill for the nine months ended September 30, 2022 (in thousands):
| Streaming | Wagering | Total | |||||||||||||||
Balance - December 31, 2021 | $ | $ | $ | ||||||||||||||
| Molotov purchase accounting adjustment | ( | ( | |||||||||||||||
| Impairment | ( | $ | ( | ||||||||||||||
| Foreign currency translation adjustment | ( | $ | ( | ||||||||||||||
Balance - September 30, 2022 | $ | $ | $ | ||||||||||||||
As a result of sustained decreases in the Company’s stock price and market capitalization, the Company conducted an interim impairment test of its goodwill and long-lived assets as of June 30, 2022. The Company recorded a non-cash goodwill impairment charge of $10.7 million during the six months ended June 30, 2022 for the wagering segment due to changes in operating conditions, including temporary delays of launches in new markets. The impairment charge represents all of the goodwill in the wagering segment.
The results of the impairment test also showed that the fair value of the streaming segment as a percentage of its carrying value was 101.7 %, with the carrying value including approximately $607.2 million of goodwill. Therefore, no impairment charge was recorded during the interim impairment test.
While management cannot predict if or when additional future goodwill impairments may occur, additional goodwill impairments could have material adverse effects on the Company’s operating income, net assets, and/or the Company’s cost of, or access to, capital.
Goodwill includes an accumulated impairment charge of $148.1 million related to the historical Facebank reporting unit included in the streaming segment and $10.7 million in the wagering segment.
Note 8 – Accounts Payable, Accrued Expenses, and Other Liabilities
Accounts payable, accrued expenses, and other liabilities are presented below (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Affiliate fees | $ | $ | |||||||||
| Broadcasting and transmission | |||||||||||
| Selling and marketing | |||||||||||
| Accrued compensation | |||||||||||
| Legal and professional fees | |||||||||||
| Sales tax | |||||||||||
| Deferred royalty | |||||||||||
| Accrued interest | |||||||||||
| Subscriber related | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
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Note 9 – Income Taxes
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
The Company’s effective tax rates were lower than the U.S. statutory rate of 21% primarily due to a valuation allowance recorded against the Company’s deferred tax assets in these periods.
The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carrybacks and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative losses in recent years, as a significant piece of negative evidence to overcome. At September 30, 2022 and December 31, 2021, the Company continued to maintain that a portion of its deferred tax assets do not meet the more likely than not realization threshold. Therefore, the Company continued to maintain a valuation allowance against such assets.
Note 10 – Notes Payable, Long-Term Borrowing, and Convertible Notes
Notes payable, long-term borrowing, and convertible notes as of September 30, 2022 and December 31, 2021 consist of the following (in thousands):
| Note | Stated Interest Rate | Principal Balance | Capitalized Interest | Debt Discount | September 30, 2022 | ||||||||||||||||||||||||||||||
| 2026 Convertible Notes | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Note payable | |||||||||||||||||||||||||||||||||||
| Bpi France | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
| Note | Stated Interest Rate | Principal Balance | Capitalized Interest | Debt Discount | December 31, 2021 | ||||||||||||||||||||||||||||||
| 2026 Convertible Notes | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Note payable | $ | ||||||||||||||||||||||||||||||||||
| Bpi France | $ | ||||||||||||||||||||||||||||||||||
Société Générale | $ | ||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
2026 Convertible Notes
On February 2, 2021, the Company issued $402.5 million of convertible notes (“2026 Convertible Notes.”) The 2026 Convertible Notes bear interest from February 2, 2021, at a rate of 3.25 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. The 2026 Convertible Notes will mature on February 15, 2026, unless earlier converted, redeemed, or repurchased. The net proceeds from this offering were approximately $389.4 million, after deducting a discount and offering expenses of approximately $13.1 million.
20
The initial equivalent conversion price of the 2026 Convertible Notes was $57.78 per share of the Company’s common stock. Holders may convert their 2026 Convertible Notes on or after November 15, 2025, until the close of business on the second business day preceding the maturity date or prior to November 15, 2025 under certain circumstances including:
(i)during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ended on March 31, 2021, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;
(ii)during the five -business day period after any five consecutive trading day period in which the trading price for each trading day of such five consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
(iii)if the Company calls any or all of the 2026 Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
(iv)upon the occurrence of specified corporate events.
The Company may also redeem all or any portion of the 2026 Convertible Notes after February 20, 2024 if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon conversion, the Company can elect to deliver cash or shares or a combination of cash or shares.
As discussed in Note 3, the Company adopted ASU 2020-06 and the portion of the debt discount allocated to equity was reclassified to long-term debt. The remaining unamortized debt issuance costs will be amortized as non-cash interest expense through the scheduled maturity of the 2026 Convertible Notes.
During the three and nine months ended September 30, 2022, the Company paid approximately $6.9 million and $13.4 million, respectively, of interest expense in connection with the 2026 Convertible Notes and recorded amortization expense of $0.6 million and $1.8 million, respectively, included in amortization of debt discount in the condensed consolidated statements of operations and comprehensive loss. The fair value (Level 2) of the 2026 Convertible Notes was $191.4 million as of September 30, 2022.
Note payable
The Company has recognized, through the consolidation of its subsidiary Evolution AI Corporation (“EAI”), a $2.7 million note payable bearing interest at the rate of 10 % per annum that was due on October 1, 2018 (“CAM Digital Note”). The cumulative accrued interest on the CAM Digital Note amounts to $2.5 million. The CAM Digital Note is currently in a default condition due to non-payment of principal and interest. On June 6, 2022, Cam Digital, LLC filed a lawsuit against Pulse Evolution Corporation (“Pulse Evolution”), a subsidiary of EAI, seeking payment of principal and interest under the Cam Digital Note from Pulse Evolution. The outstanding balance as of September 30, 2022, including interest and penalties, is $5.5 million and is included in notes payable on the accompanying condensed consolidated balance sheet.
Other
The Company assumed, through the consolidation of its subsidiary EAI, a $30,000 note payable due to a relative of the former Chief Executive Officer, John Textor bearing interest at the rate of 4.0 % per annum. As of September 30, 2022, the principal balance and accrued interest totaled approximately $37,000 and is included in notes payable on the accompanying condensed consolidated balance sheet.
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Note 11 – Segments
Prior to the third quarter of 2021, the Company operated its business and reported its results through a single reportable segment. As a result of the launch of the Company’s Online Sportsbook, the Company began to operate its business and report its results through two
Operating segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the CODM, who is the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The CODM assesses a combination of metrics such as revenue and adjusted operating expenses to evaluate the performance of each operating and reportable segment.
The following tables set forth our financial performance by reportable segment for the three and nine months ended September 30, 2022 (in thousands). Comparable information for the three and nine months ended September 30, 2021 is not presented because the Online Sportsbook had not commenced operations during the three and nine months ended September 30, 2021.
| Three Months Ended September 30, 2022 | |||||||||||||||||
| Streaming | Wagering | Total | |||||||||||||||
| Revenue | $ | $ | ( | $ | |||||||||||||
| Adjusted operating expenses | |||||||||||||||||
| Subscriber related expenses | |||||||||||||||||
| Broadcasting and transmission | |||||||||||||||||
| Sales and marketing | |||||||||||||||||
| Technology and development | |||||||||||||||||
| General and administrative | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Impairment of goodwill, intangible assets and other long-lived assets | |||||||||||||||||
| Total adjusted operating expenses | |||||||||||||||||
| Stock-based compensation | |||||||||||||||||
| Other expense | |||||||||||||||||
| Loss before income taxes | $ | ( | $ | ( | $ | ( | |||||||||||
22
| Nine Months Ended September 30, 2022 | |||||||||||||||||
| Streaming | Wagering | Total | |||||||||||||||
| Revenue | $ | $ | ( | $ | |||||||||||||
| Adjusted operating expenses | |||||||||||||||||
| Subscriber related expenses | |||||||||||||||||
| Broadcasting and transmission | |||||||||||||||||
| Sales and marketing | |||||||||||||||||
| Technology and development | |||||||||||||||||
| General and administrative | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Impairment of goodwill, intangible assets and other long-lived assets | |||||||||||||||||
| Total adjusted operating expenses | |||||||||||||||||
| Stock-based compensation | |||||||||||||||||
| Other expense | |||||||||||||||||
| Loss before income taxes | $ | ( | $ | ( | $ | ( | |||||||||||
| September 30, 2022 | |||||||||||||||||
| Streaming | Wagering | Total | |||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||
| Total Goodwill | $ | $ | $ | ||||||||||||||
| Total Intangibles, net | $ | $ | $ | ||||||||||||||
The following tables set forth our financial performance by geographical location (in thousands):
| Total Revenue | Total Assets | ||||||||||||||||
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | September 30, 2022 | |||||||||||||||
| United States | $ | $ | $ | ||||||||||||||
| Rest of world | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
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Note 12 – Fair Value Measurements
The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of September 30, 2022, and December 31, 2021 (in thousands):
| Fair value measured at September 30, 2022 | |||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| Assets at fair value: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Short-term investments | $ | $ | $ | $ | |||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair value measured at December 31, 2021 | |||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| Assets at fair value: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities at fair value: | |||||||||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
The Company's cash and cash equivalents, and time-based deposits are recorded at carrying value, which generally approximates fair value based on Level 1 measurements. These instruments are valued using quoted market prices for identical unrestricted instruments in active markets. As of September 30, 2022, the Company held $50.0 million in a money market account classified as cash and cash equivalents and $100.0 million of time-based deposits classified as short-term investments in the condensed consolidated balance sheet. There were no time-based deposits as of December 31, 2021. See Note 3 for further discussion of the Company’s accounting policies relating to its money market accounts and time-based deposits.
Certain of the Company’s warrants are classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) in the condensed consolidated statements of operations and comprehensive loss. As of September 30, 2022, there were no warrant liabilities outstanding.
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The following table presents changes in Level 3 liabilities measured at fair value (in thousands) for the nine months ended September 30, 2022. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
| Warrant liabilities | |||||
Fair value at December 31, 2021 | $ | ||||
| Change in fair value | |||||
| Redemption | ( | ||||
Fair value at September 30, 2022 | $ | ||||
Note 13 – Stockholders’ Equity
At-the-Market Sales Agreements
2021 ATM Offering
On August 13, 2021, the Company entered into an At-the-Market Sales Agreement (the "2021 Sales Agreement") with Evercore Group L.L.C., Needham & Company, LLC and Oppenheimer & Co. Inc., as sales agents (each, a “prior manager” and together, the “prior managers”), pursuant to which the Company, from time to time, sold shares of its common stock having an aggregate offering price of up to $500.0 million through the prior managers. The Company paid the prior managers a commission of up to 3.0 % of the aggregate gross proceeds the Company received from all sales of the Company’s common stock under the 2021 ATM Offering. Effective August 4, 2022, the Company terminated the 2021 ATM Offering.
2022 ATM Offering
On August 4, 2022, the Company entered into an At-the Market Sales Agreement (the "2022 Sales Agreement," and, together with the 2021 Sales Agreement, the "ATM Sales Agreements") with Evercore Group L.L.C., Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and Needham & Company, LLC, as sales agents (each, a “manager” and together, the “managers”) pursuant to which the Company may, from time to time, sell shares of its common stock, having an aggregate offering price of up to $350.0 million through the managers (the “2022 ATM Offering”).
Upon delivery of a placement notice and subject to the terms and conditions of the 2022 Sales Agreement, the managers may sell the shares by methods deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Subject to the terms and conditions of the 2022 Sales Agreement, each manager will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon the Company’s instructions. The Company will pay the managers a commission for their services in acting as agents in the sale of common stock at a commission rate of up to 3 % of the gross sales price of the shares of the Company’s common stock sold through them pursuant to the 2022 Sales Agreement. The Company is not obligated to, and cannot provide any assurances that it will, make any sales of the shares under the 2022 Sales Agreement. The offering of shares of common stock pursuant to the 2022 Sales Agreement will terminate upon the earlier of (i) the sale of all common stock subject to the 2022 Sales Agreement or (ii) termination of the 2022 Sales Agreement in accordance with its terms.
During the nine months ended September 30, 2022, the Company received net proceeds of approximately $229.0 million (after deducting $4.9 million in commissions and expenses) from sales of 31,658,931 shares of its common stock, at a weighted average gross sales price of $7.39 per share pursuant to the ATM Sales Agreements. As of September 30, 2022, there was $340.8 million of common stock remaining available for sale under the 2022 Sales Agreement.
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Framework Agreement with MEP FTV
On August 2, 2022 (the "Effective Date"), Fubo Studios Inc. (formerly known as Fubo Entertainment Inc.), a subsidiary of the Company, entered into a binding framework agreement (the “Framework Agreement”) with MEP FTV Holdings, LLC (“MEP FTV”) and Maximum Effort Productions, Inc. (“MEP” and, together with MEP FTV, “Maximum Effort”), memorializing the parties’ collaboration on a forthcoming Maximum Effort linear channel and original programming for launch on FuboTV. Maximum Effort is a premiere entertainment production company led by Ryan Reynolds and George Dewey. Pursuant to the Framework Agreement, the Company and Maximum Effort desire to work together to (1) develop scripted and unscripted television programs intended for initial distribution on Fubo’s platform (the “Projects”) and (2) create a new television channel with unique content, features and functionality (the “Network”).
In connection with the Framework Agreement, as consideration for Maximum Effort’s participation in the collaboration, the Company entered into a Restricted Stock Award Agreement dated August 12, 2022 (the “RSA Agreement”) pursuant to which it has agreed to issue to MEP FTV(i) 2,000,000 shares of restricted common stock, par value $0.0001 (“Common Stock”), of the Company, within 10 business days after the Effective Date (“First Closing Date”) (“Tranche 1”); (ii) a number of shares of Common Stock determined by dividing $10.0 million by the 30 -day volume weighted average closing price of Common Stock for the 30 trading days preceding the first anniversary of the Effective Date, within 10 business days after the first anniversary of the Effective Date (“Second Closing Date”) (“Tranche 2”); and (iii) a number of shares of Common Stock determined by dividing $10.0 million by the 30 -day volume weighted average closing price of Common Stock for the 30 trading days preceding the second anniversary of the Effective Date, within 10 business days after the second anniversary of the Effective Date (“Third Closing Date”) (“Tranche 3”) (collectively, the “Shares”). The Shares will be subject to transfer restrictions until various time- and performance-based milestones are met, and, during this restricted period, will be subject to potential forfeiture if the Framework Agreement is terminated under certain conditions. The Parties agree that 80 % of the equity grant shall be allocated as consideration for the Projects and 20 % of the equity grant shall be allocated as consideration for the Network.
Because shares of the Company’s common stock will be issued as consideration for the Framework Agreement, the Company accounted for the RSA Agreement pursuant to the non-employee guidance in ASC 718, Compensation – Stock Compensation.
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Warrants
Pursuant to the Framework Agreement, on August 12, 2022, the Company issued MEP FTV a warrant to acquire 166,667 shares of the Company’s common stock with an exercise price of $15.00 per share. The warrant is exercisable on or prior to August 2, 2032, provided that the price per share of the Company’s common stock equals or exceeds a 30 -trading day volume weighted average closing price of $30.00 at any time prior to third anniversary of the grant date. The fair value of the warrant was measured on August 12, 2022, using the Monte Carlo valuation model, and the fair value totaled approximately $0.4 million. The derived service period was determined to be 1.7 years. As of September 30, 2022, the unrecognized stock-based compensation totaled $0.4 million.
A summary of the Company’s outstanding warrants as of September 30, 2022, are presented below (in thousands, except share and exercise price):
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | $ | ||||||||||||||||||||||||
| Granted | $ | |||||||||||||||||||||||||
| Exercised | ( | $ | - | |||||||||||||||||||||||
| Expired | ( | $ | ||||||||||||||||||||||||
Outstanding and exercisable as of September 30, 2022 | $ | $ | ||||||||||||||||||||||||
| Dividend yield | |||||
| Expected price volatility | |||||
| Risk free interest rate | |||||
| Expected term (years) | |||||
Stock-based compensation
During the three and nine months ended September 30, 2022 and 2021 the Company recognized stock-based compensation expense as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Subscriber related | $ | $ | $ | $ | |||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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Options
The Company provides option grants to employees, directors, and consultants under the fuboTV Inc. 2020 Equity Incentive Plan, as amended (the "2020 Plan"). The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has lacked sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based primarily on the historical volatility of a publicly-traded set of peer companies with consideration of the volatility of its own traded stock price. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. The simplified method was used because the Company does not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.
Stock Options
A summary of stock option activity for the nine months ended September 30, 2022, is as follows (in thousands, except share and per share amounts):
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | $ | |||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Forfeited or expired | ( | $ | |||||||||||||||||||||
Outstanding as of September 30, 2022 | $ | $ | |||||||||||||||||||||
Options vested and exercisable as of September 30, 2022 | $ | $ | |||||||||||||||||||||
There were no
During the nine months ended September 30, 2021, the Company granted options to purchase 220,099 shares of common stock with an aggregate fair value of $3.2 million.
As of September 30, 2022, the estimated value of unrecognized stock-based compensation expense related to unvested options was approximately $11.7 million to be recognized over a period of 1.5 years. As of September 30, 2021, the estimated value of unrecognized stock-based compensation expense related to unvested options was approximately $31.1 million to be recognized over a period of 2.4 years.
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Market and Service Condition Based Stock Options
A summary of activity under the 2020 Plan for market and service-based stock options for the nine months ended September 30, 2022 is as follows (in thousands, except share and per share amounts):
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | $ | |||||||||||||||||||||
Outstanding as of September 30, 2022 | $ | $ | |||||||||||||||||||||
Options vested and exercisable as of September 30, 2022 | $ | $ | |||||||||||||||||||||
There were no market and service-based options granted during the nine months ended September 30, 2022. The Company granted 1,375,000 market and service-based options during the nine months ended September 30, 2021.
As of September 30, 2022, there was $5.6 million of unrecognized stock-based compensation expense for market and service-based stock options. As of September 30, 2021, there was $14.9 million of unrecognized stock-based compensation expense for market and service-based stock options.
Performance-Based Stock Options
On October 8, 2020, the Company awarded the CEO an option which vests based upon the achievement of certain predetermined goals for each of the five years in the performance period related to stock price, revenue, gross margin, an increase in the number of subscribers, the launch of new markets and, commencing in 2023, creation of new revenue streams. The Company's board of directors (the "Board") will review attainment of such goals annually from 2021 through 2025 warranted on a given “Determination Date” (subsequent to the Company’s calendar year end) to determine if any vesting is warranted. The Board may determine vesting at, above, or below 20% of the shares subject to the performance option on a given Determination Date. All shares may be eligible for vesting until the Determination Date following the 2025 calendar year. Any such vesting is subject to the CEO’s continuation in service with the Company through the applicable Determination Date. Because the number of shares to be earned on each Determination Date is subject to the discretion of the Board, the compensation expense is adjusted each reporting period for changes in fair value prorated for the portion of the requisite service period rendered and based on the number of shares expected to be earned. During the nine months ended September 30, 2022, the Board determined that the option would vest with respect to 820,000 shares for the 2021 calendar year. Upon each subsequent Determination Date in 2023, 2024, 2025, and 2026 stock-based compensation expense will be remeasured and adjusted to reflect the grant date fair value.
Modification of Options
During the nine months ended September 30, 2022, the Board approved the acceleration of vesting and extended the post-termination exercisability of certain employee stock options and restricted stock units. The Company reported $2.2 million of expense during the nine months ended September 30, 2022 as a result of the accelerated vesting of stock options and restricted stock units.
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Service-based Restricted Stock Awards
Framework Agreement - Project Restricted Stock Awards
In connection with the Framework Agreement, stock-based compensation cost for Project restricted stock awards (the "Project RSAs") totaling approximately $23.0 million is measured as the fair value of the 1,600,000 shares issued for the first tranche issued on August 12, 2022, $7.0 million, plus the fixed monetary amount of $8.0 million, settleable in shares on August 2, 2023, and the fixed monetary amount of $8.0 million, settleable in shares on August 2, 2024. Compensation cost will be recognized on a straight-line basis over the term of the three-year service period as if the Company paid cash for the services. The second two tranches are liability classified because they are a fixed monetary amount, settleable in shares. As compensation cost is recognized for these tranches, a corresponding credit to share-based liabilities will be recorded and reclassified to equity upon issuance of the related shares.
In connection with the Project RSAs, as of September 30, 2022, the unrecognized stock-based compensation totaled $21.9 million, and $0.7 million of shares liability in accrued expenses and other current liabilities and other long-term liabilities was recorded on the condensed consolidated balance sheet.
Performance-based Restricted Stock Awards
Framework Agreement - Network Restricted Stock Awards
The restricted stock awards allocated as consideration for the Network (“Network RSAs”) are performance-based RSAs. The performance condition consists of creating a new television channel with unique content, features and functionality. Compensation cost is measured on the grant date for shares that vest based upon the achievement of the performance condition are recognized when probable over the requisite service period, that is the implicit service period over which the performance conditions are probable of achievement.
Stock-based compensation cost for the Network RSAs totaling approximately $5.7 million is measured as the fair value of the 400,000 shares issued for the first tranche issued on August 12, 2022, $1.7 million, plus the fixed monetary amount of $2.0 million, settleable in shares on August 2, 2023, plus the fixed monetary amount of $2.0 million, settleable in shares on August 2, 2024. The Network RSAs are subject to forfeiture until launch of the Network. The Company determined the that it is probable that the Network will be launched by the end of the two-year service agreement. The Company will recognize the total fair value of $5.7 million ratably over the two-year period. Should the performance condition not be achieved, the Company will reverse any stock-based compensation cost recognized for the Network RSAs.
In connection with the Network RSAs, as of September 30, 2022, the unrecognized stock-based compensation totaled $5.3 million, and $0.3 million of shares liability in accrued expenses and other current liabilities and other long-term liabilities was recorded on the condensed consolidated balance sheet.
Time-Based Restricted Stock Units
A summary of the Company’s time-based restricted stock unit activity during the nine months ended September 30, 2022 is as follows:
| Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||
Unvested at December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
Unvested at September 30, 2022 | $ | ||||||||||
30
As of September 30, 2022, the unrecognized stock-based compensation related to restricted stock units totaled $56.6 million, had an aggregate intrinsic value of approximately $18.6 million, and a weighted average remaining contractual term of 3.1 years. As of September 30, 2021, the estimated value of unrecognized stock-based compensation related to restricted stock units totaled $35.0 million, and had an aggregate intrinsic value of $32.1 million and a weighted average remaining contractual term of 3.2 years.
Performance-Based Restricted Stock Units
A summary of the Company’s performance-based restricted stock unit activity during the nine months ended September 30, 2022 is as follows:
| Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at December 31, 2021 | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Unvested at September 30, 2022 | $ | ||||||||||
On November 3, 2021, the Company granted 1.9 million performance-based restricted stock units (“PRSUs”) to an employee of the Company. The PRSUs will vest over a period of 5 -calendar years through 2025, subject to the achievement of certain established performance metrics including revenue targets, subscriber targets, and the launching of new markets (and, with respect to 2023, the creation of one or more new revenue streams). The determination of the actual number of PRSUs that will vest each year during the five-year performance period will be determined upon the achievement of the predetermined performance targets. Any such vesting is subject to the employee’s continuation in service with the Company through the applicable vesting date. At each reporting period, the Company will make a determination of the most likely outcome for achievement of each performance metric. This may result in a cumulative catch-up as the Company assessments are evaluated. The fair value of the PRSUs is measured based on their grant date fair value which totaled $64.4 million.
During the nine months ended September 30, 2022, the Company issued 280,000 shares of its common stock in connection with the vesting of PRSUs. During the nine months ended September 30, 2022 the Company recognized $14.4 million of stock-based compensation. As of September 30, 2022, the unrecognized stock-based compensation related to PRSUs totaled $44.4 million.
Note 14 – Commitments and Contingencies
Leases
The components of lease expense were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating leases | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Other lease cost | |||||||||||||||||||||||
| Operating lease expense | |||||||||||||||||||||||
| Short-term lease rent expense | |||||||||||||||||||||||
| Total rent expense | $ | $ | $ | $ | |||||||||||||||||||
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Supplemental cash flow information related to leases were as follows (in thousands, except term and discount rate):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Right of use assets exchanged for operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average remaining lease term - operating leases | |||||||||||||||||||||||
| Weighted average remaining discount rate - operating leases | % | % | % | % | |||||||||||||||||||
As of September 30, 2022, future minimum payments for the operating leases are as follows (in thousands):
| Year Ended December 31, 2022 | $ | ||||
| Year Ended December 31, 2023 | |||||
| Year Ended December 31, 2024 | |||||
| Year Ended December 31, 2025 | |||||
| Year Ended December 31, 2026 | |||||
| Thereafter | |||||
| Total | |||||
| Less present value discount | ( | ||||
| Operating lease liabilities | $ | ||||
Other Contractual Obligations
The Company is a party to several non-cancelable contracts with vendors and licensors for marketing and other strategic partnership related agreements where the Company is obligated to make future minimum payments under the non-cancelable terms of these contracts as follows (in thousands):
Market Access Agreements
| Year Ended December 31, 2022 | $ | ||||
| Year Ended December 31, 2023 | |||||
| Year Ended December 31, 2024 | |||||
| Year Ended December 31, 2025 | |||||
| Year Ended December 31, 2026 | |||||
| Thereafter | |||||
| Subtotal | |||||
| Less present value discount | ( | ||||
| Total | $ | ||||
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Annual Sponsorship Agreements
| Year Ended December 31, 2022 | $ | ||||
| Year Ended December 31, 2023 | |||||
| Year Ended December 31, 2024 | |||||
| Year Ended December 31, 2025 | |||||
| Year Ended December 31, 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
Sports Rights Agreements
The Company entered into various sports right agreements to obtain programming rights to certain live sporting events.
Future payments under these agreements are as follows:
| Year Ended December 31, 2022 | $ | ||||
| Year Ended December 31, 2023 | |||||
| Year Ended December 31, 2024 | |||||
| Year Ended December 31, 2025 | |||||
| Year Ended December 31, 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
During the nine months ended September 30, 2022, the Company made upfront payments totaling approximately $42.9 million, which are recorded in prepaid and other current assets on the condensed consolidated balance sheet.
Contingencies
The Company is subject to certain legal proceedings and claims that arise from time to time in the ordinary course of its business, including relating to business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the financial statements taken as a whole. When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can reasonably be made. Legal expenses associated with any contingency are expensed as incurred.
The Company is engaged in discussions with certain third parties regarding patent licensing matters. The Company is not able to reasonably estimate whether it will be able to reach an agreement with these parties or the amount of potential licensing fees, if any, it may agree to pay in connection with these discussions, but it is possible that any such amount could be material.
Following the dissolution of Fubo Gaming in October 2022, the Company has received communications from several commercial partners of Fubo Gaming, alleging breach by Fubo Gaming of applicable agreements. Additional allegations, or litigation, may arise against Fubo Gaming or the Company in the future related to the dissolution of Fubo Gaming, including potential breach of contract claims by other commercial partners of Fubo Gaming or claims related to guarantees by the Company of Fubo Gaming’s contractual obligations.
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From time to time, we enter into business arrangements with vendors for technology services in the ordinary course of business. We are currently engaged in discussions with a vendor surrounding the scope of the parties’ relationship and underlying obligations under the terms of their contract. This includes, among other things, the type and range of services to be provided by this vendor to the Company, the corresponding expenditures by the Company payable under the agreement, and the vendor’s compliance with its good faith express and implied obligations under the contract. Accordingly, we are not able to reasonably estimate the amount of the Company’s potential expenditures, if any, under our arrangement with this vendor, but it is possible that the amounts that the Company may pay for services under the contract could be material.
Legal Proceedings
The Company is and may in the future be involved in various legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, currently, the Company believes that the likelihood of any material adverse impact on the Company’s consolidated results of operations, cash flows or our financial position for any such litigation or claims is remote. Regardless of the outcome, litigation can have an adverse impact on the Company because of the costs to defend lawsuits, diversion of management resources and other factors.
Said-Ibrahim v. fuboTV Inc., David Gandler , Edgar M. Bronfman Jr., & Simone Nardi , Case No. 21-cv-01412 (S.D.N.Y) & Lee v. fuboTV, Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01641 (S.D.N.Y.) (consolidated as In re fuboTV Inc. Securities Litigation, No. 21-cv-01412 (S.D.N.Y.))
On February 17, 2021, putative shareholders Wafa Said-Ibrahim and Adhid Ibrahim filed a class action lawsuit against the Company, co-founder and CEO David Gandler, Executive Chairman Edgar M. Bronfman Jr., and CFO Simone Nardi (collectively, the “Class Action Defendants”). Plaintiffs allege that Class Action Defendants violated federal securities laws by disseminating false and misleading statements regarding the Company’s financial health and operating condition, including the Company’s ability to grow subscription levels, prospects, future profitability, seasonality factors, cost escalations, ability to generate advertising revenue, valuation, and entering the online sports wagering market. The Plaintiffs allege that Class Action Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, as well as Section 20(a) of the Exchange Act, and seek damages and other relief.
On February 24, 2021, putative shareholder Steven Lee filed a nearly identical class action lawsuit against the same Defendants.
On April 29, 2021, the court consolidated Said-Ibrahim v. fuboTV Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01412 (S.D.N.Y) and Lee v. fuboTV, Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01641 (S.D.N.Y.) under In re FuboTV Inc. Securities Litigation, No. 1:21-cv-01412 (S.D.N.Y.). The court also appointed putative shareholder Nordine Aamchoune as lead plaintiff.
On July 12, 2021, Lead Plaintiff filed an Amended Class Action Complaint. Lead Plaintiff seeks to pursue this claim on behalf of himself as well as all other persons who purchased or otherwise acquired Company securities publicly traded on the New York Stock Exchange (“NYSE”) between March 23, 2020 and January 4, 2021, inclusive, and who were allegedly damaged thereby.
The Class Action Defendants filed a motion to dismiss the Amended Class Action Complaint on September 10, 2021. Lead Plaintiff filed an opposition on November 9, 2021. Class Action Defendants’ filed their reply in support of the motion to dismiss on December 9, 2021. The Company believes the claims alleged in both lawsuits are without merit and intends to vigorously defend these litigations.
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Andrew Kriss and Eric Lerner vs. FaceBank Group, Inc. et. al. (Index No. 605474/20 Supreme Court of the State of New York.
On June 8, 2020, Andrew Kriss and Eric Lerner filed a Summons with Notice in the Supreme Court of the State of New York, Nassau County naming as defendants the Company, PEC, John Textor and Frank Patterson, among others. On November 12, 2020, plaintiffs filed a Complaint, which asserts claims for breach of express contract and implied duties, fraud in the inducement, unjust enrichment, conversion, declaratory relief, fraud, and fraudulent conveyance. The claims arise from an alleged relationship between Plaintiffs and defendant PEC. Plaintiffs seek monetary damages in an amount to be proven at trial, but not less than six million dollars ($6,000,000 ). The Company believes the claims are without merit and intends to vigorously defend this litigation and on January 19, 2021, the Company filed a motion to dismiss all claims asserted against it. A court conference was held on November 15, 2021, and the court confirmed that the motion to dismiss was fully submitted. On August 18, 2022, the Court issued an order dismissing all claims against the Company.
Note 15 – Subsequent events
On October 17, 2022, the Company filed a Certificate of Dissolution with the Secretary of State of the State of Delaware to dissolve its wholly owned subsidiary, Fubo Gaming. As previously announced, the Company had placed its interactive wagering business under strategic review following the Board’s decision not to move forward with the business without a strategic partner. In connection with the dissolution of Fubo Gaming, the Company concurrently ceased operation of its Online Sportsbook.
The Company expects to incur certain immaterial charges in connection with these matters, primarily related to severance and other employee-related costs; however, the Company may also incur further charges, the amount and timing of which cannot be estimated at this time. In addition, the Company expects to incur certain additional non-cash impairment charges of intangible assets and other assets of up to approximately $34.0 million in the fourth quarter of 2022, primarily relating to market access agreements, as well as to incur certain cash charges for the termination of certain contracts, the amount and timing of which cannot be estimated at this time.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying related notes included in this Quarterly Report and our audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Our business motto is “come for the sports, stay for the entertainment.”
First, we leverage sporting events to acquire subscribers at lower acquisition costs, given the built-in demand for sports. We then leverage our technology and data to drive higher engagement and induce retentive behaviors such as favoriting channels, recording shows, and increasing discovery through our proprietary machine learning recommendations engine. Next, we look to monetize our growing base of highly engaged subscribers by driving higher average revenue per user.
We drive our business model with three core strategies:
•Grow our paid subscriber base
•Optimize engagement and retention
•Increase monetization.
Recent Developments — Fubo Gaming Dissolution
On October 17, 2022, we filed a Certificate of Dissolution with the Secretary of State of the State of Delaware to dissolve our wholly owned subsidiary, fubo Gaming Inc. (“Fubo Gaming”). As previously announced, we had placed our interactive wagering business under strategic review following the decision by our Board of Directors (the "Board") not to move forward with the business without a strategic partner. In connection with the dissolution of Fubo Gaming, we concurrently ceased operation of Fubo Sportsbook (as defined below).
Nature of Business
We are a leading live TV streaming platform for sports, news, and entertainment. Our revenues are almost entirely derived from the sale of subscription services and the sale of advertisements in the United States, though we have expanded into several international markets, with operations in Canada, Spain and France.
Our subscription-based services are offered to consumers who can sign-up for accounts at https://fubo.tv, through which we provide basic plans with the flexibility for consumers to purchase the add-ons and features best suited for them. Besides the website, consumers can also sign-up via some TV-connected devices. Our platform provides, what we believe to be, a superior viewer experience, with a broad suite of unique features and personalization capabilities such as multi-channel viewing capabilities, favorites lists and a dynamic recommendation engine as well as 4K streaming and Cloud DVR offerings.
We launched a business-to-consumer online mobile sportsbook (“Fubo Sportsbook”) in the states of Iowa and Arizona in the fourth quarter of 2021 and in New Jersey during the third quarter of 2022. During the nine months ended September 30, 2022, we entered into market access agreements with third parties in various states and paid $6.2 million under those market access agreements. See Note 7 in the accompanying unaudited condensed consolidated financial statements. On October 17, 2022, we ceased operation of Fubo Sportsbook in connection with the dissolution of Fubo Gaming. See "—Recent Developments—Fubo Gaming Dissolution."
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Segments
Prior to the third quarter of 2021, we operated our business and reported our results through a single reportable segment. As a result of the launch of our wagering business in the fourth quarter of 2021, we began to operate our business and report our results through two operating and reportable segments: streaming and wagering. These segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the Chief Operating Decision Maker (“CODM”). Revenue and adjusted operating expenses are the metrics reported to the Company’s CODM for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Adjusted operating expenses is calculated as operating expenses, excluding stock-based compensation expense.
During the fourth quarter of 2022, we ceased operation of Fubo Sportsbook in connection with the dissolution of Fubo Gaming. As a result, we expect to present discontinued operations disclosures in our consolidated financial statements for the fiscal year ending December 31, 2022 and will begin to report our results through a single reportable segment effective in the first quarter of 2023.
Key Factors and Trends Impacting Performance
Our financial condition and results of operations have been, and may in the future be, affected by a number of factors and trends, such as those described in Part II, Item 1A, “Risk Factors” and the following:
Brand Awareness
Building and maintaining a strong brand is important to our ability to attract and retain subscribers, as potential subscribers have a number of pay TV choices. We and our competitors must seek to attract a greater proportion of new subscribers from each other’s existing subscriber bases rather than from first-time purchasers of pay TV services. As a result, we continue to experience increased competition, including from larger companies with greater resources to promote their brands through traditional forms of advertising, such as print media and TV commercials, as well as Internet advertising and website product placement. We primarily rely on paid marketing channels (such as social media, search advertising, display advertising, radio, out of home and television) to grow our brand and reach new subscribers. If these channels become less efficient our growth could be adversely affected.
Subscriber Acquisition, Retention and Engagement
Our long-term growth will depend in part on our ability to grow and retain our subscriber base, as well as increase engagement by our subscribers. The relative service levels, content offerings, pricing and product experience of our platform will impact our ability to attract and retain subscribers versus our competitors. If consumers perceive a reduction in the value of our platform because, for example, we introduce new or adjust existing features, adjust pricing or platform offerings, or change the mix of content in a manner that is not favorably received by them, we may not be able to attract and retain subscribers. To the extent that our competition pursues aggressive promotional campaigns, our value proposition may also be adversely impacted.
Acceleration or Deceleration of Cord-Cutting
In recent years, including as a result of the ongoing COVID-19 pandemic, we and other streaming services have experienced rapid growth in adoption as consumers engage with streaming video and audio through a variety of devices, including connected TVs, mobile phones, and tablets. Although traditional pay TV currently accounts for the majority of TV viewing hours for U.S. households; the proportion has declined in recent years as customers cut the cord. While we believe consumers are increasingly favoring the streaming services based on, among other factors, customer experience and pricing considerations, these positive trends for our business may not continue during future periods.
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Shift of Advertising Dollar Spend from Traditional Pay TV to Connected TV
Our business model depends on our ability to grow ad inventory on our platform and sell it to advertisers. We operate in a highly competitive advertising industry and we compete for revenue from advertising with other streaming platforms and services, as well as traditional media, such as radio, broadcast, cable and satellite TV, and satellite and internet radio. Many advertisers devote a substantial portion of their advertising budgets to traditional media, and we expect advertisers may do so in the future. Although traditional TV advertisers have shown a growing interest in over-the-top (“OTT”) advertising, we cannot be certain that their interest will increase in the future. If advertisers do not perceive meaningful benefits of OTT advertising, the market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business. In addition, advertising spend is affected by broader macroeconomic conditions, and therefore economic downturns and recessionary fears may also negatively impact our ability to capture advertising dollars.
Content Acquisition and Renewal
Our ability to compete successfully will depend, among other things, on our ability to obtain desirable content and deliver it to our subscribers at competitive prices. The addition or loss of popular content or channels, including our ability to enter into new content deals or negotiate renewals with our content providers on terms that are favorable to us, or at all, could affect our results and our ability to grow our business. Content costs represent the majority of our “Subscriber related expenses” and the largest component of our total operating expenses. We have seen an increase in these costs in recent periods, and we expect further increases in the future. Moreover, the renewal of long-term content contracts may be on less favorable pricing terms in the future. As a result, our margins may face pressure if we are unable to renew our long-term content contracts on acceptable pricing and other economic terms or if we are unable to pass these increased programming costs on to our subscribers. In addition, as content providers bring to market their own direct-to-consumer streaming services, the differentiated value proposition offered by our content mix may diminish.
Seasonality
We generate significantly higher levels of revenue and subscriber additions in the third and fourth quarters of the year. This seasonality is driven primarily by sports leagues, specifically the National Football League. In addition, we typically see subscribers on our platform decline from the fourth quarter of the previous year through the first and second quarter of the following year.
COVID-19 and Other Macroeconomic Factors
The widespread global impact from the outbreak and spread of the COVID-19 pandemic continued throughout the third quarter of 2022. In response to the COVID-19 pandemic, we took a number of precautionary measures to protect the health and safety of our employees, including by transitioning our workforce to remote working as we temporarily closed our offices beginning in March 2020. We have subsequently reopened our offices; however, most of our employees continue to work remotely, and, in the long term, we expect some personnel to continue to do so on a regular basis.
The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption. In addition, mounting inflationary cost pressures and potential recession indicators have negatively impacted the global economy. We continue to monitor the effects of the pandemic and macroeconomic environment and take appropriate steps to mitigate the impact on our business; however, the nature and extent of this impact in future periods remains difficult to predict due to numerous uncertainties outside our control.
Components of Results of Operations
Revenues
Subscription
Subscription revenue consists primarily of subscription plans sold through the Company’s website and third-party app stores.
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Advertising
Advertising revenue consists primarily of fees charged to advertisers who want to display ads (“impressions”) within the streamed content.
Wagering
Wagering revenue is generated from users’ wagers net of payouts made on users’ winning wagers and incentives awarded to users.
Other
Other revenue is generated from commissions earned on sales through channel distribution platform.
Subscriber Related Expenses
Subscriber related expenses consist primarily of affiliate distribution rights and other distribution costs related to content streaming.
Broadcasting and Transmission
Broadcasting and transmission expenses consist primarily of the cost to acquire a signal, transcode, store, and retransmit it to the subscribers.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related costs, benefits, rent and utilities, stock-based compensation, agency costs, advertising campaigns and branding initiatives.
Technology and Development
Technology and development expenses consist primarily of payroll and related costs, benefits, rent and utilities, stock-based compensation, technical services, software expenses, and hosting expenses.
General and Administrative
General and administrative expenses consist primarily of payroll and related costs, benefits, rent and utilities, stock-based compensation, corporate insurance, office expenses, professional fees, as well as travel, meals, and entertainment costs.
Depreciation and Amortization
Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets.
Other Income (expense)
Other income (expense) primarily consists of the change in fair value of financial instruments, interest expense and financing costs on our outstanding borrowings and amortization of debt discount.
Income Tax Benefit
The income tax benefit is driven by the change in deferred tax assets and liabilities and resulting change in valuation allowance.
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Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Subscription | $ | 201,911 | $ | 138,119 | $ | 621,022 | $ | 359,601 | |||||||||||||||
| Advertising | 22,714 | 18,570 | 67,886 | 47,642 | |||||||||||||||||||
| Wagering | (176) | — | (659) | — | |||||||||||||||||||
| Other | 364 | 1 | 473 | — | 51 | ||||||||||||||||||
| Total revenues | 224,813 | 156,690 | 688,722 | 407,294 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Subscriber related expenses | 214,466 | 143,370 | 679,027 | 377,177 | |||||||||||||||||||
| Broadcasting and transmission | 16,608 | 14,320 | 54,062 | 37,266 | |||||||||||||||||||
| Sales and marketing | 57,975 | 50,381 | 134,950 | 94,038 | |||||||||||||||||||
| Technology and development | 20,129 | 15,257 | 62,477 | 46,696 | |||||||||||||||||||
| General and administrative | 21,989 | 27,288 | 81,663 | 73,735 | |||||||||||||||||||
| Depreciation and amortization | 8,521 | 9,332 | 28,502 | 27,788 | |||||||||||||||||||
| Impairment of goodwill, intangible assets and other long-lived assets | 35,454 | — | 46,136 | — | |||||||||||||||||||
| Total operating expenses | 375,142 | 259,948 | 1,086,817 | 656,700 | |||||||||||||||||||
| Operating loss | (150,329) | (103,258) | (398,095) | (249,406) | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest expense (net) and financing costs | (2,792) | (3,402) | (10,242) | (10,031) | |||||||||||||||||||
| Amortization of debt discount | (625) | (4,138) | (1,844) | (10,693) | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | (380) | |||||||||||||||||||
| Change in fair value of warrant liabilities | — | 4,490 | (1,701) | (2,114) | |||||||||||||||||||
| Other income (expense) | 608 | (72) | 895 | (90) | |||||||||||||||||||
| Total other income (expense) | (2,809) | (3,122) | (12,892) | (23,308) | |||||||||||||||||||
| Loss before income taxes | (153,138) | (106,380) | (410,987) | (272,714) | |||||||||||||||||||
| Income tax benefit | 392 | 515 | 1,150 | 1,733 | |||||||||||||||||||
| Net loss | $ | (152,746) | $ | (105,865) | $ | (409,837) | $ | (270,981) | |||||||||||||||
Revenue
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized revenues of $224.8 million compared to $156.7 million during the three months ended September 30, 2021. The increase of $68.1 million is primarily due to an increase in subscription revenue of $63.8 million, comprising $52.5 million from increases in our subscriber base, $5.7 million from increases in attachments sold and $5.6 million from the acquisition of Molotov S.A.S. ("Molotov") in December 2021. Advertising revenue increased $4.1 million due to an increase in the number of impressions sold.
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Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized revenues of $688.7 million compared to $407.3 million during the nine months ended September 30, 2021. The increase of $281.4 million was primarily due to an increase in subscription revenue of $261.4 million, comprising $224.8 million from increases in our subscriber base, $20.5 million from increases in attachments sold and subscription package prices and $16.1 million from the acquisition of Molotov. Advertising revenue increased $20.2 million, comprising $19.3 million primarily due to an increase in the number of impressions sold and $0.9 million in advertising revenue from the acquisition of Molotov.
Subscriber related expenses
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized subscriber related expenses of $214.5 million compared to $143.4 million during the three months ended September 30, 2021. The increase of $71.1 million was primarily due to an increase of $67.1 million in affiliate distribution rights and other distribution costs primarily resulting from an increase in subscribers and $4.0 million due to the acquisition of Molotov in December 2021.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized subscriber related expenses of $679.0 million compared to $377.2 million during the nine months ended September 30, 2021. The increase of $301.9 million was primarily due to an increase of $288.3 million in affiliate distribution rights and other distribution costs resulting from an increase in subscribers and an increase in affiliate agreement rates and $13.6 million due the acquisition of Molotov in December 2021.
Broadcasting and transmission
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized broadcasting and transmission expenses of $16.6 million compared to $14.3 million during the three months ended September 30, 2021. The increase of $2.3 million was primarily due to higher linear feeds due to additional channel launches and an increase in subscribers.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized broadcasting and transmission expenses of $54.1 million compared to $37.3 million during the nine months ended September 30, 2021. The increase of $16.8 million was primarily due to an increase of $14.7 million from higher number of linear feeds due to additional channel launches and an increase in subscribers and $2.1 million due to the acquisition of Molotov in December 2021.
Sales and marketing
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized sales and marketing expenses of $58.0 million compared to $50.4 million during the three months ended September 30, 2021. The increase of $7.6 million was primarily due to a $4.6 million increase in stock-based compensation, $1.4 million increase in marketing expenses to acquire new customers for both the streaming and wagering segments, and a $1.9 million increase in payroll expense due to staff additions in the streaming and wagering segments.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized sales and marketing expenses of $135.0 million compared to $94.0 million during the nine months ended September 30, 2021. The increase of $40.9 million was primarily due to a $16.2 million increase in stock-based compensation, $15.8 million increase in marketing expenses to acquire new customers for both the streaming and wagering segments, a $6.4 million increase in payroll expense due to staff additions in the streaming and wagering segments and $0.7 million increase in software expense.
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Technology and development
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized technology and development expenses of $20.1 million compared to $15.3 million during the three months ended September 30, 2021. The increase of $4.9 million was primarily due to a $2.6 million increase in payroll expense due to staff additions in the streaming and wagering segments, an increase of $1.0 million in stock-based compensation, an increase of $0.7 million in software and contractor expenses and $0.6 million of expenses due to the acquisitions of Molotov and Edisn in December 2021.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized technology and development expenses of $62.5 million compared to $46.7 million during the nine months ended September 30, 2021. The increase of $15.8 million was primarily due to an increase of $11.2 million in payroll expense due to staff additions in the streaming and wagering segments, $3.4 million in software and contractor expenses, $3.2 million of expenses due to the acquisitions of Molotov and Edisn in December, and $1.9 million related to allocation of rent expense partially offset by a decrease of $4.0 million in stock-based compensation.
General and Administrative
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, general and administrative expenses totaled $22.0 million compared to $27.3 million for the three months ended September 30, 2021. The decrease of $5.3 million was primarily due to a $6.7 million decrease in sales tax accrual, $4.7 million decrease in stock-based compensation and $2.5 million decrease in professional fees partially offset by an increase of $4.6 million due to the acquisitions of Molotov and Edisn, $1.8 million in player related expenses in the wagering segment and $1.2 million in payroll expenses due to staff additions in the streaming and wagering segments.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, general and administrative expenses totaled $81.7 million compared to $73.7 million for the nine months ended September 30, 2021. The increase of $7.9 million was primarily due to increases of $15.5 million due to the acquisitions of Molotov and Edisn, $4.8 million in player related expenses in the wagering segment, $6.2 million in payroll expenses due to staff additions in the streaming and wagering segments and $0.6 million increase in software expense partially offset by a $11.5 million decrease in stock-based compensation, $6.1 million decrease in sales tax accrual and $2.5 million decrease in professional fees.
Depreciation and amortization
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized depreciation and amortization expenses of $8.5 million compared to $9.3 million during the three months ended September 30, 2021. The decrease of $0.8 million was primarily due to the full amortization of the customer list in the streaming segment offset by an increase in amortization of intangible assets from the acquisitions of Molotov and Edisn.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized depreciation and amortization expenses of $28.5 million compared to $27.8 million during the nine months ended September 30, 2021. The increase of $0.7 million is primarily related to $5.9 million reduction of amortization expense related to the customer list in the streaming segment partially offset by an increase of $4.9 million in amortization of intangible assets from the acquisitions of Molotov and Edisn and $1.2 million in amortization of capitalized software engineering costs.
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Impairment of goodwill, intangible, and other long-lived assets
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized an impairment expense of $35.5 million relating to the wagering segment as a result of the dissolution of Fubo Gaming. There were no impairments taken during the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized impairment expense of $46.1 million comprised of $10.7 million on goodwill due to changes in operating conditions, including temporary delays of launches in new markets, and $35.5 million on intangible assets, prepaid market access fees, and property, and equipment as a result of the dissolution of Fubo Gaming. There were no impairments taken during the nine months ended September 30, 2021.
The results of the goodwill impairment test performed as of June 30, 2022 also showed that the fair value of the streaming segment as a percentage of its carrying value was 101.7%, with the carrying value including approximately $607.2 million of goodwill. Therefore no impairment charge was recorded in the streaming segment during the nine months ended September 30, 2022.
Other Income (Expense)
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized $2.8 million of other expense (net), compared to $3.1 million of other expense (net) during the three months ended September 30, 2021. The decrease of $0.3 million was primarily due to a $4.5 million decrease in the change in fair value of warrant liabilities relating to warrants which have been exercised or expired and a reduction of $3.5 million in amortization of debt discount.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized $12.9 million of other expense (net), compared to $23.3 million of other expense during the nine months ended September 30, 2021. The decrease of $10.4 million was primarily related to a reduction of $8.8 million in amortization of debt discount and $0.4 million decrease in the change in fair value of warrant liabilities relating to warrants which have been exercised or expired offset by an increase in other expense of $1.0 million .
Income tax benefit
Three Months Ended September 30, 2022 and 2021
During the three months ended September 30, 2022, we recognized an income tax benefit of $0.4 million compared to $0.5 million during the three months ended September 30, 2021. The decrease of $0.1 million in the income tax benefit was primarily due to a decline in our ability to recognize the tax benefits related to our losses.
Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, we recognized an income tax benefit of $1.2 million compared to $1.7 million during the nine months ended September 30, 2021. The decrease of $0.6 million in the income tax benefit was primarily due to a decline in our ability to recognize the tax benefits related to our losses.
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Key Performance Metrics
We use certain key performance metrics to monitor and manage our business, including to measure our operating performance, identify trends affecting our business and make strategic decisions. We believe these key performance metrics provide useful information to investors in evaluating our operating results in the same manner management does. Comparable information for the three months ended September 30, 2021 is not presented for Rest of World (as defined below) metrics because until our acquisition of our French streaming service, Molotov, in December 2021, we primarily operated in North America and therefore we believe such a comparison would not provide useful information for investors in evaluating our business.
Paid Subscribers
We believe the number of paid subscribers is a relevant measure to gauge the size of our user base. Paid subscribers are total subscribers that have completed registration with FuboTV, have activated a payment method (only reflects one paying user per plan), from which FuboTV has collected payment in the month ending the relevant period. Users who are on a free (trial) period are not included in this metric.
We had 1.2 million and 0.9 million paid subscribers in the United States and Canada ("North America" or "NA") as of September 30, 2022 and 2021, respectively, and 0.4 million paid subscribers in the remaining territories in which the Company operates ("Rest of World" or "ROW") as of September 30, 2022.
Average Revenue Per User
Beginning in the third quarter of 2022, Average Revenue Per User (“ARPU”) is calculated using GAAP Subscription revenue and GAAP Advertising revenue. Previously, ARPU was calculated using Platform Bookings, which consisted of GAAP Subscription revenue and GAAP Advertising revenue, adjusted for deferred revenue.
We believe ARPU provides useful information for investors to gauge the revenue generated per subscriber on a monthly basis. ARPU, with respect to a given period, is defined as total Subscription revenue and Advertising revenue recognized in such period, divided by the average daily paid subscribers in such period, divided by the number of months in such period. Advertising revenue, like Subscription revenue, is primarily driven by the number of subscribers to our platform and per-subscriber viewership such as the type of, and duration of, content watched on platform. We believe ARPU is an important metric for both management and investors to evaluate the Company’s core operating performance and measure our subscriber monetization, as well as evaluate unit economics, payback on subscriber acquisition cost and lifetime value per subscriber. In addition, we believe that presenting a geographic breakdown for North America ARPU and ROW ARPU allows for a more meaningful assessment of the business because of the significant differences in both Subscription revenue and Advertising revenue generated on a per subscriber basis in North America when compared to ROW due to our current subscription pricing models and advertising monetization in the two geographic regions.
Our NA ARPU was $71.52 and $70.19 for the three months ended September 30, 2022 and 2021, respectively, and our ROW ARPU was $5.46 for the three months ended September 30, 2022.
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The tables below provide a reconciliation of NA ARPU and ROW ARPU to GAAP Subscription and Advertising Revenue (in thousands, except average subscribers and average per user amounts):.
Reconciliation of GAAP Subscription and Advertising Revenue to North America ARPU
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| As-Reported | As-Reported | ||||||||||||||||||||||
| Subscription Revenue (GAAP) | $ | 201,911 | $ | 138,119 | |||||||||||||||||||
| Advertising Revenue (GAAP) | 22,714 | 18,570 | |||||||||||||||||||||
| (Subtract): | |||||||||||||||||||||||
| ROW Subscription Revenue | (5,613) | (98) | |||||||||||||||||||||
| ROW Advertising Revenue | (172) | — | |||||||||||||||||||||
| Total | 218,840 | 156,591 | |||||||||||||||||||||
| Divide: | |||||||||||||||||||||||
| Average Subscribers (North America) | 1,020,045 | 743,603 | |||||||||||||||||||||
| Months in Period | 3 | 3 | |||||||||||||||||||||
| North America Monthly Average Revenue per User (NA ARPU) | $ | 71.52 | $ | 70.19 | |||||||||||||||||||
Reconciliation of GAAP Subscription and Advertising Revenue to ROW ARPU:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||
| As-Reported | |||||||||||||||||||||||
| Subscription Revenue (GAAP) | $ | 201,911 | |||||||||||||||||||||
| Advertising Revenue (GAAP) | 22,714 | ||||||||||||||||||||||
| (Subtract): | |||||||||||||||||||||||
| North America Subscription Revenue | (196,298) | ||||||||||||||||||||||
| North America Advertising Revenue | (22,542) | ||||||||||||||||||||||
| Total | 5,785 | ||||||||||||||||||||||
| Divide: | |||||||||||||||||||||||
| Average Subscribers (ROW) | 352,722 | ||||||||||||||||||||||
| Months in Period | 3 | ||||||||||||||||||||||
| ROW Monthly Average Revenue per User (ROW ARPU) | $ | 5.46 | |||||||||||||||||||||
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. See Note 14 in the accompanying unaudited condensed consolidated financial statements for a further discussion of our cash commitments and contractual obligations as of September 30, 2022, including lease obligations, market access agreements and sponsorship agreements, in addition to our discussion below regarding the dissolution of Fubo Gaming in October 2022.
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Our primary sources of cash are receipts from subscribers and advertising revenue as well as proceeds from equity and debt financings. Our primary uses of cash are content and programming license fees and operating expenses, including payroll-related, marketing, technology and professional fees. In addition, prior to the dissolution of our subsidiary, Fubo Gaming, on October 17, 2022 and the concurrent termination of operations of Fubo Sportsbook, as previously announced, our primary uses of cash included expenses related to the launch and operations of our wagering business.
We successfully raised $389.4 million, net of offering expenses, through the sale of 3.25% senior convertible notes in February 2021. We currently have an effective shelf registration statement on Form S-3 (No. 333-258428) initially filed with the SEC on August 4, 2021, as amended (the “2021 Form S-3”) pursuant to which we may offer, from time to time, in one or more offerings any combination of common stock, preferred stock, debt securities, warrants, purchase contracts and units of up to $750.0 million in the aggregate. We also have an additional effective shelf registration statement on Form S-3 (No 333-266557) under which we may offer, from time to time, in one or more offerings any combination of common stock, preferred stock, debt securities, warrants, purchase contracts and units of up to $750.0 million in the aggregate.
On August 13, 2021, we entered into a sales agreement with Evercore Group L.L.C., Needham & Company, LLC and Oppenheimer & Co. Inc., as sales agents, under which the Company may, from time to time, sell shares of our common stock having an aggregate offering price of up to $500.0 million through the sales agents (the “2021 ATM Program”) under our 2021 Form S-3. On August 4, 2022, we terminated the 2021 ATM Program, and entered into a sales agreement with Evercore Group L.L.C., Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and Needham & Company, LLC, as sales agents pursuant to which the Company may, from time to time, sell shares of our common stock having an aggregate offering price of up to $350.0 million through the sales agents (the "2022 ATM Program") under our 2021 Form S-3.
During the nine months ended September 30, 2022, we sold 31,658,931 shares of our common stock in At-the-Market offerings pursuant to the 2021 Form S-3 and the 2021 ATM Program and 2022 ATM Program, resulting in net proceeds of approximately $229.0 million, after deducting agent commissions and issuance costs. As of September 30, 2022, we had cash, cash equivalents, and restricted cash of $207.4 million and short-term investments consisting of time-based deposits of $100.0 million that will mature in December 2022.
As a result of the dissolution of Fubo Gaming and termination of Fubo Sportsbook operations, we expect that our planned cash outlay over the next twelve months will be reduced, which we believe will allow us to allocate additional funds to our streaming segment. We expect to incur immaterial charges for severance and other employee-related costs. We also expect to incur other cash charges, including in connection with market access agreements and sponsorship agreements, the amount and timing of which cannot be estimated at this time.
We may be required to seek additional capital, including in the event we engage in repurchases of our debt or equity securities in the future. In the future, we expect to obtain financing or to further increase our capital resources by issuing additional shares of our capital stock or offering additional debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock. Issuing additional shares of our capital stock, other equity securities, or additional securities convertible into equity may dilute the economic and voting rights of our existing stockholders, reduce the market price of our common stock, or both. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. As a result, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their percentage ownership. If we are unable to raise additional capital due to unfavorable market conditions, including rising interest rates, or otherwise, or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.
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Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully attract and retain subscribers, develop new technologies that can compete in a rapidly changing market with many competitors and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings. We believe our existing cash, cash equivalents, and short-term investments consisting of time-based deposits, will provide us with the necessary liquidity to continue as a going concern for at least the next twelve months.
In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term development timeline and our liquidity due to the worldwide COVID-19 pandemic. However, we are continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the pandemic throughout the world. Although the number of people who have been vaccinated has been increasing, the duration and severity of this pandemic is unknown and the potential future impact on our results of operations, financial condition or liquidity depends on factors beyond our knowledge and control. See Note 10 in the accompanying unaudited consolidated financial statements for further discussion regarding our outstanding indebtedness.
Cash Flows (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash used in operating activities | $ | (294,464) | $ | (143,030) | |||||||
| Net cash used in investing activities | (110,827) | (35,673) | |||||||||
| Net cash provided by financing activities | 233,237 | 441,014 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | (172,054) | $ | 262,311 | |||||||
Operating Activities
For the nine months ended September 30, 2022, net cash used in operating activities was $294.5 million, which primarily consisted of our net loss of $409.8 million, adjusted for non-cash movements of $131.8 million. The non-cash movements primarily include $28.5 million of depreciation and amortization primarily related to intangible assets, $47.3 million of stock-based compensation, $46.1 million impairment expense on goodwill, intangible assets, and other long-lived assets, $1.7 million change in fair value of warrant liabilities, $3.0 million of amortization of gaming licenses and market access fees, and $2.9 million of amortization of right of use assets. Change in operating assets and liabilities resulted in cash outflows of approximately $16.4 million primarily due to an increase in prepaid expenses and other current and long-term assets of $9.9 million, an increase in prepaid sports rights of $31.0 million, an increase in accounts payable and accrued expenses and other current and long-term liabilities of $9.9 million and increase in deferred revenue of $14.4 million.
For the nine months ended September 30, 2021, net cash used in operating activities was $143.0 million, which primarily consisted of our net loss of $271.0 million, adjusted for non-cash movements of $87.1 million. The non-cash movements included $27.8 million of depreciation and amortization expenses primarily related to intangible assets, $46.5 million of stock-based compensation, $10.7 million of amortization of debt discount and $2.1 million of change in fair value warrant liabilities partially offset by $1.7 million of deferred income tax benefit. Changes in operating assets and liabilities resulted in cash outflows of approximately $40.8 million, primarily due to an increase in accounts receivable and prepaid expenses and other current and long-term assets of $19.2 million, a net increase in accounts payable, accrued expenses and other current and long-term liabilities of $41.6 million due to timing of payments and an increase in deferred revenue of $18.5 million.
Investing Activities
For the nine months ended September 30, 2022, net cash used in investing activities was $110.8 million, which primarily consisted of purchase of short-term investments of $100.0 million, payments for market access and license fees of $6.2 million, capitalization of internally generated software of $3.5 million and $1.1 million of capital expenditures.
For the nine months ended September 30, 2021, net cash used in investing activities was $35.7 million, which primarily consisted of a $1.7 million for merger and acquisition activity, $3.9 million of capital expenditures, and $30.1 million for payments for market access and license fees.
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Financing Activities
For the nine months ended September 30, 2022, net cash provided by financing activities was $233.2 million. The net cash provided is primarily related to $229.0 million of net proceeds received from the “At-the Market” offering and $5.7 million of proceeds received from the exercise of stock options and warrants. These proceeds were offset by repayments of $1.5 million of outstanding debt.
For the nine months ended September 30, 2021, net cash provided by financing activities was $441.0 million. The net cash provided is primarily related to $389.4 million of proceeds received from the issuance of senior convertible notes, $70.0 million of net proceeds received from the “at-the market” offering and $6.3 million of proceeds received from the exercise of stock options and warrants. These proceeds were offset by repayments of $24.7 million of outstanding debt.
Off-Balance Sheet Arrangements
As of September 30, 2022, there were no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”). The preparation of these consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and assumptions include, but are not limited to, allocating the fair value of purchase consideration issued in business acquisitions, recoverability of goodwill and intangible assets, valuation of warrants, and equity instruments and accounting for income taxes, including the valuation allowance on deferred tax assets.
We test goodwill for impairment on an annual basis during the fourth quarter of each calendar year or earlier when circumstances dictate. We measure recoverability of goodwill at the reporting unit level. The process of determining the fair value of a reporting unit is highly subjective and involves the use of significant estimates and assumptions. In performing our annual assessment, we can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or we can directly perform a quantitative assessment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is, more-likely-than-not, less than its carrying amount, then the quantitative assessment is performed. Any excess of the reporting unit’s carrying amount over its fair value will be recorded as an impairment loss.
We identify intangible assets acquired in a business combination and determine their fair value. The determination involves certain judgments and estimates. We amortize purchased-intangible assets on a straight-line basis over the estimated useful life of the assets. We review purchased-intangible assets whenever events or changes in circumstances indicate that the useful life is shorter than we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances indicate an asset’s carrying amount may not be recoverable, we assess the recoverability of purchased-intangible assets by comparing the projected undiscounted net cash flows associated with the asset group against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of these asset groups. If the useful life of the asset is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.
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Due to the previously announced strategic review of the wagering segment, during the third quarter of 2022, we tested our long-lived assets for impairment, including amortizing intangibles and other non-current assets, as there were indicators that their carrying value might not be recoverable. We compared the carrying value to the forecasted undiscounted cash flows for each asset or asset group, and because this evaluation indicated that the carrying value of our long-lived assets was not recoverable, we performed an impairment test of these assets. Based on these analyses, we recognized a non-cash impairment charge of $35.5 million during the third quarter of 2022 to reduce the carrying amounts of the asset or asset group to their fair values. The determination of the fair value of the asset groups within the wagering reporting unit was predominately based on an income approach that considered the discounted cash flows of each asset group. The total fair value of the asset groups was then compared to the fair value of the wagering unit as a whole which was determined based on a combination of a market approach that considers benchmark company market multiples and market multiples derived from the value of recent transactions, and an income approach that utilizes discounted cash flows for the reporting unit, with equal weighting applied to each of the approaches. We believe the assumptions utilized in the valuations reflect those that would be utilized by a hypothetical market participant. See Note 6 and Note 7 in the accompanying unaudited condensed consolidated financial statements for further discussion of impairment charges recognized with respect to property and equipment, and intangible assets and other long-lived assets, respectively.
There have been no other material changes to our critical accounting policies and estimates from those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report.
Recently Issued Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting policies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business, including risks relating to changes in interest rates and foreign currency The following discussion provides additional information regarding these risks.
Interest Rate Risk
As of September 30, 2022, we had cash, cash equivalents, and restricted cash of $207.4 million and short-term investments in time deposits of $100.0 million that mature in December 2022. Our cash equivalents are generally invested in money market funds and time deposits. Interest paid on such funds fluctuates with the prevailing interest rate. In addition, as of September 30, 2022, we had $409.9 million of outstanding indebtedness on a consolidated basis which included $402.5 million of convertible notes and other notes outstanding with an aggregate principal of approximately $7.4 million. Our indebtedness bears interest at a fixed rate. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of September 30, 2022, a hypothetical 10% change in interest rates would not have resulted in a material impact on our consolidated financial statements.
Foreign Currency Risk
Revenues denominated in currencies other than the U.S. dollar account for approximately 2.6% and 2.5% of the consolidated amount for the three and nine months ended September 30, 2022, respectively. We therefore have foreign currency risk with the euro and Canadian dollar, however, as of September 30, 2022, a hypothetical 10% weakening of the euro relative to the U.S. dollar would not materially affect our revenue and operating income.
Item 4. Controls and Procedures
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource
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constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are, and may in the future, be involved in various legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, currently, the Company believes that the likelihood of any material adverse impact on the Company’s consolidated results of operations, cash flows or our financial position for any such litigation or claims is remote. Regardless of the outcome, litigation can have an adverse impact on the Company because of the costs to defend lawsuits, diversion of management resources and other factors.
Said-Ibrahim v. fuboTV Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01412 (S.D.N.Y) & Lee v. fuboTV, Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01641 (S.D.N.Y.) (consolidated as In re fuboTV Inc. Securities Litigation, No. 21-cv-01412 (S.D.N.Y.))
On February 17, 2021, putative shareholders Wafa Said-Ibrahim and Adhid Ibrahim filed a class action lawsuit against the Company, co-founder and CEO David Gandler, Executive Chairman Edgar M. Bronfman Jr., and former CFO Simone Nardi (collectively, the “Class Action Defendants”). Plaintiffs allege that Class Action Defendants violated federal securities laws by disseminating false and misleading statements regarding the Company’s financial health and operating condition, including the Company’s ability to grow subscription levels, prospects, future profitability, seasonality factors, cost escalations, ability to generate advertising revenue, valuation, and entering the online sports wagering market. The Plaintiffs allege that Class Action Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, as well as Section 20(a) of the Exchange Act, and seek damages and other relief.
On February 24, 2021, putative shareholder Steven Lee filed a nearly identical class action lawsuit against the same Defendants.
On April 29, 2021, the court consolidated Said-Ibrahim v. fuboTV Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01412 (S.D.N.Y) and Lee v. fuboTV, Inc., David Gandler, Edgar M. Bronfman Jr., & Simone Nardi, Case No. 21-cv-01641 (S.D.N.Y.) under In re FuboTV Inc. Securities Litigation, No. 1:21-cv-01412 (S.D.N.Y.). The court also appointed putative shareholder Nordine Aamchoune as lead plaintiff.
On July 12, 2021, Lead Plaintiff filed an Amended Class Action Complaint. Lead Plaintiff seeks to pursue this claim on behalf of himself as well as all other persons who purchased or otherwise acquired Company securities publicly traded on the New York Stock Exchange (“NYSE”) between March 23, 2020 and January 4, 2021, inclusive, and who were allegedly damaged thereby.
The Class Action Defendants filed a motion to dismiss the Amended Class Action Complaint on September 10, 2021. Lead Plaintiff filed an opposition on November 9, 2021. Class Action Defendants’ filed their reply in support of the motion to dismiss on December 9, 2021. The Company believes the claims alleged in both lawsuits are without merit and intends to vigorously defend these litigations.
Andrew Kriss and Eric Lerner vs. FaceBank Group, Inc. et. al. (Index No. 605474/20 Supreme Court of the State of New York.
On June 8, 2020, Andrew Kriss and Eric Lerner filed a Summons with Notice in the Supreme Court of the State of New York, Nassau County naming as defendants the Company, PEC, John Textor and Frank Patterson, among others. On November 12, 2020, plaintiffs filed a Complaint, which asserts claims for breach of express contract and implied duties, fraud in the inducement, unjust enrichment, conversion, declaratory relief, fraud, and fraudulent conveyance. The claims arise from an alleged relationship between Plaintiffs and defendant PEC. Plaintiffs seek monetary damages in an amount to be proven at trial, but not less than six million dollars ($6,000,000). The Company believes the claims are without merit and intends to vigorously defend this litigation and on January 19, 2021, the Company filed a motion to dismiss all claims asserted against it. A court conference was held on November 15, 2021, and the court confirmed that the motion to dismiss was fully submitted. On August 18, 2022, the Court issued an order dismissing all claims against the Company.
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Item 1A. Risk Factors
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report, including our condensed consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
Risks Related to Our Financial Position and Capital Needs
We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We have incurred losses since inception. Our net loss for the nine months ended September 30, 2022 was $409.8 million. We expect that expanding our operations will cause our future operating expenses to increase. If our revenue does not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability. A number of our operating expenses, including expenses related to streaming content obligations, are fixed. If we are not able to either reduce these fixed obligations or other expenses or maintain or grow our revenue, our near-term operating losses may increase. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other factors that may result in losses in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.
We may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be available on acceptable terms or at all.
We have made, and intend in the future to make, significant investments to support planned business growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing platform, products and services, expand into additional markets around the world, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, including pursuant to our shelf registration statements on Form S-3, our then existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we were to violate the restrictive covenants, we could incur penalties, increased expenses and an acceleration of the payment terms of our outstanding debt, which could in turn harm our business.
We may not be able to obtain additional financing on terms favorable to us, if at all, due to unfavorable market conditions, including rising interest rates, or otherwise. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
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Our revenue is subject to seasonality, and if subscriber behavior during certain seasons falls below our expectations, our business may be harmed.
Seasonal variations in subscriber and marketing behavior significantly affect our business. We have previously experienced, and expect to continue to experience, effects of seasonal trends in subscriber behavior due to the seasonal nature of sports. We generate significantly higher levels of revenue and subscriber additions in the third and fourth quarters of the year, driven primarily by sports leagues, specifically the National Football League. Our operating results may also be affected by the scheduling of major sporting events that do not occur annually, such as the World Cup or Olympic Games, or the cancellation or postponement of sporting events and races. We also typically experience higher advertising sales during the fourth quarter of each calendar year due to greater advertiser demand during the holiday season, but, on the other hand, also typically incur greater marketing expenses as we attempt to attract new subscribers to our platform. In addition, expenditures by advertisers tend to be cyclical and are often discretionary in nature, reflecting overall economic conditions, the economic prospects of specific advertisers or industries, budgeting constraints and buying patterns, and a variety of other factors, many of which are outside our control.
Accordingly, given the seasonal nature of our business, accurate forecasting is critical to our operations. We anticipate that this seasonal impact on revenue is likely to continue, and any shortfall in expected revenue due to macroeconomic conditions, a decline in the effectiveness of our promotional activities, actions by our competitors, or for any other reason, would cause our results of operations to suffer significantly. A substantial portion of our expenses are personnel-related and include salaries, stock-based compensation and benefits that are not seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on margins, at least in the short term, and our business would be harmed.
We might not be able to utilize a significant portion of our net operating loss carryforwards.
As of December 31, 2021, we had federal net operating loss carryforwards of approximately $811.3 million, a portion of which will expire at various dates if not used prior to such dates. Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, as modified by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses in tax years beginning after December 31, 2020 is limited. Other limitations may apply for state tax purposes.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change income may be limited. We have experienced ownership changes in the past, and therefore a portion of our net operating loss carryforwards are subject to an annual limitation under Section 382 of the Code. In addition, we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, including as a result of conversions of the 2026 Convertible Notes, some of which may be outside of our control. A past or future ownership change that materially limits our ability to use our historical net operating loss and tax credit carryforwards may harm our future operating results by effectively increasing our future tax obligations.
Our financial condition and results of operations could be adversely affected if we do not effectively manage our current or future debt.
As of September 30, 2022, we had $409.9 million of outstanding indebtedness on a consolidated basis which included $402.5 million of convertible notes and other notes outstanding with an aggregate principal of approximately $7.4 million.
Our obligations related to our outstanding or any future indebtedness could adversely affect our ability to take advantage of corporate opportunities, which could adversely affect our business, financial condition, and results of operations, including, but not limited to, the following:
•our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes may be limited, or financing may be unavailable;
•a substantial portion of our cash flows must be dedicated to the payment of principal and interest on our indebtedness and other obligations and will not be available for use in our business;
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•lack of liquidity could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;
•our debt obligations will make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby making it more difficult for us to satisfy our obligations; and
•if we fail to make required debt payments or to comply with other covenants in our debt agreements, we would be in default under the terms of these agreements, which could permit our creditors to accelerate repayment of the debt and could cause cross-defaults under other debt agreements.
We may also incur additional indebtedness to meet future financing needs. If we incur any additional debt, the related risks that we and our subsidiaries face could intensify.
Finally, we may in the future be in non-compliance with the terms of certain of our other debt instruments. To the extent we are in non-compliance with the terms of such debt instruments, we may be required to make payments to the holders of such instruments, those holders may be entitled to the issuance of stock by us, and the holders of such stock may be entitled to registration or other investor rights.
Servicing our indebtedness will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial indebtedness.
Our ability to make scheduled payments of the principal and interest when due, or to refinance our borrowings under our debt agreements, will depend on our future performance and our ability to raise further equity financing, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to both (i) satisfy our existing and future obligations to our creditors and (ii) allow us to make necessary capital expenditures. If we are unable to generate such cash flow or raise further equity financing, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. We may need or desire to refinance our existing indebtedness, and there can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all. Our ability to refinance existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our current or future debt agreements.
Our operating results may fluctuate, which makes our results difficult to predict.
Our revenue and operating results could vary significantly from quarter-to-quarter and year-to-year because of a variety of factors, many of which are outside of our control and may not fully reflect the underlying performance of our business. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition to other risk factors discussed herein, factors that may contribute to the variability of our quarterly and annual results include:
•our ability to retain and grow our subscriber base, as well as increase engagement among new and existing subscribers;
•our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors, such as inflation or increased taxes;
•the addition or loss of popular content or channels, including our ability to enter into new content deals or negotiate renewals with our content providers on terms that are favorable to us, or at all;
•our ability to effectively manage our growth;
•our ability to attract and retain existing advertisers;
•seasonal, cyclical or other shifts in revenue and expenses;
•our revenue mix;
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•the entrance of new competitors or competitive products or services, whether by established or new companies;
•our ability to keep pace with changes in technology and our competitors, and the timing of the launch of new or updated products, content or features;
•interruptions in service, whether or not we are responsible for such interruptions, and any related impact on our reputation;
•our ability to pursue and appropriately time our entry into new geographic or content markets and, if pursued, our management of this expansion;
•costs associated with defending any litigation, including intellectual property infringement litigation;
•the impact of general economic conditions on our revenue and expenses; and
•changes in regulations affecting our business.
This variability makes it difficult to forecast our future results with precision and to assess accurately whether increases or decreases are likely to cause quarterly or annual results to exceed or fall short of previously issued guidance. While we assess our quarterly and annual guidance and update such guidance when we think it is appropriate, unanticipated future volatility can cause actual results to vary significantly from our guidance, even where that guidance reflects a range of possible results.
If we fail to effectively manage our growth, our business, operating results, and financial condition may suffer.
Our rapid growth has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. In order to attain and maintain profitability, we will need to recruit, integrate, and retain skilled and experienced personnel who can demonstrate our value proposition to subscribers, advertisers, and business partners and who can increase the monetization of our platform. Continued growth could also strain our ability to maintain reliable service levels for our customers, effectively monetize the content streamed, develop and improve our operational and financial controls, and recruit, train, and retain highly skilled personnel. If our systems do not evolve to meet the increased demands placed on us by an increasing number of advertisers, we also may be unable to meet our obligations under advertising agreements with respect to the delivery of advertising or other performance obligations. As our operations grow in size, scope, and complexity, we will need to improve and upgrade our systems and infrastructure, which will require significant expenditures and allocation of valuable technical and management resources. If we fail to maintain efficiency and allocate limited resources effectively in our organization as it grows, our business, operating results, and financial condition may suffer.
We have been expanding our operations internationally, and as our international offering evolves, we are managing and adjusting our business to address varied content offerings, consumer customs and practices, in particular those dealing with e-commerce and streaming video, as well as differing legal and regulatory environments.
We have experienced rapid growth rates in both the number of subscribers on our platform and revenue over the last few years. As we grow larger and increase our subscriber base and usage, we expect it will become increasingly difficult to maintain the rate of growth we currently experience.
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Risks Related to Our Relationships with Content Providers, Customers and Other Third Parties
The long-term nature of certain of our content commitments may limit our operating flexibility and could adversely affect our liquidity and results of operations.
In connection with licensing streaming content, we typically enter into multi-year agreements with content providers. These agreements have sometimes required us to pay minimum license fees for content that are not tied to subscriber usage or the size of our subscriber base. Given the multiple-year duration and sometimes fixed cost nature of content commitments, if subscriber acquisition and retention do not meet our expectations, our margins may be adversely impacted, and we may not be in a position to make the minimum guarantee payments required under certain content licenses. In the past, we have failed to make minimum guarantee payments to certain key programmers and may not be in a position to make similar payments in the future. If we do not make these payments, then we may lose access to such content, which in turn may further depress subscriber acquisition or retention, cause other programmers to exercise termination rights due to the content mix available through our service, or impact our ability to obtain content from other programmers.
We also enter into multi-year commitments for content that we produce, either directly or through third parties, including elements associated with these productions such as non-cancelable commitments under talent agreements. Payment terms for certain content commitments, such as content we directly produce, will typically require more up-front cash payments than other content licenses or arrangements whereby we do not fund the production of such content.
To the extent subscriber and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely affected as a result of content commitments and payment requirements of certain agreements. In addition, the long-term and fixed cost nature of certain of our commitments may limit our flexibility in planning for or reacting to changes in our business and the market segments in which we operate. If we license and/or produce content that is not favorably received by consumers in a territory, or is unable to be shown in a territory, acquisition and retention may be adversely impacted and given the long-term and fixed cost nature of certain of our content commitments, we may not be able to adjust our content offering quickly and our results of operations may be adversely impacted.
Our results may be adversely affected if long-term content contracts are not renewed on sufficiently favorable terms.
We enter into long-term contracts for both the acquisition and the distribution of media content, including contracts for the acquisition of content rights for sporting events and other programs. As these contracts expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms, we may lose content rights or distribution rights. Even if these contracts are renewed, the cost of obtaining content rights may increase (or increase at faster rates than our historical experience). Moreover, our ability to renew these contracts on favorable terms may be affected by consolidation in the market for content distribution, the entrance of new participants in the market for distribution of content on digital platforms and the impacts of COVID-19. With respect to the acquisition of content rights, particularly sports content rights, the impact of these long-term contracts on our results over the term of the contracts depends on a number of factors, including the strength of advertising markets, subscription levels and rates for content, effectiveness of marketing efforts and the size of viewer audiences. There can be no assurance that revenues from content based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the content.
If we fail to obtain or maintain popular content, we may fail to retain existing subscribers and attract new subscribers.
We have invested a significant amount of time to cultivate relationships with our content providers; however, such relationships may not continue to grow or yield further financial results. We must continuously maintain existing relationships and identify and establish new relationships with content providers to provide popular content. In order to remain competitive, we must consistently meet customer demand for popular streaming channels and content, particularly as we enter new markets, including international markets. If we are not successful in maintaining channels on our platform that attract and retain a significant number of subscribers, or if we are not able to do so in a cost-effective manner, our business will be harmed.
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We enter into agreements with our content providers, which have varying terms and conditions, including expiration dates. Upon expiration of these agreements, we are required to re-negotiate and renew them in order to continue providing content from these providers on our streaming platform. We have in the past been unable, and in the future may not be able, to reach a satisfactory agreement with certain content providers before our existing agreements have expired. If we are unable to renew such agreements on a timely basis on mutually agreeable terms, we may be required to temporarily or permanently remove certain channels from our streaming platform. The loss of such channels from our streaming platform for any period of time may harm our business. More broadly, if we fail to maintain our relationships with the content providers on terms favorable to us, or at all, or if these content providers face problems in delivering their content across our platform, we may lose channel partners or subscribers and our business may be harmed.
If our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
We have experienced significant subscriber growth over the past several years. Our ability to continue to attract subscribers will depend in part on our ability to consistently provide our subscribers with compelling content choices and effectively market our platform. Furthermore, the relative service levels, content offerings, pricing and related features of our competitors may adversely impact our ability to attract and retain subscribers. In addition, many of our subscribers re-join our platform or originate from word-of-mouth referrals from existing subscribers. If our efforts to satisfy our existing subscribers are not successful, we may not be able to attract subscribers, and as a result, our ability to maintain and/or grow our business will be adversely affected.
If consumers perceive a reduction in the value of our platform because, for example, we introduce new or adjust existing features, adjust pricing or platform offerings, or change the mix of content in a manner that is not favorably received by them, we may not be able to attract and retain subscribers. Subscribers cancel their subscription for many reasons, including due to a perception that they do not use the platform sufficiently, the need to cut household expenses, availability of content is unsatisfactory, competitive services provide a better value or experience and customer service issues are not satisfactorily resolved. We must continually add new subscriptions both to replace cancelled subscriptions and to grow our business beyond our current subscription base. While we permit multiple subscribers within the same household to share a single account for non-commercial purposes, if account sharing is abused, our ability to add new subscribers may be hindered and our results of operations may be adversely impacted. If we do not grow as expected, given, in particular, that our content costs are largely fixed in nature and contracted over several years, we may not be able to adjust our expenditures or increase our (per subscriber) revenues commensurate with the lowered growth rate such that our margins, liquidity and results of operations may be adversely impacted. If we are unable to successfully compete with current and new competitors in both retaining our existing subscribers and attracting new subscribers, our business will be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate replacing these subscribers with new subscribers.
Our agreements with certain distribution partners may contain parity obligations which limit our ability to pursue unique partnerships.
Our agreements with certain distribution partners contain obligations which require us to offer them the same technical features, content, pricing and packages that we make available to our other distribution partners and also require us to provide parity in the marketing of the availability of our application across our distribution partners. These parity obligations may limit our ability to pursue technological innovation or partnerships with individual distribution partners and may limit our capacity to negotiate favorable transactions with different partners or otherwise provide improved products and services. As our technical feature developments progress at varying speeds and at different times with different distribution partners, we currently offer some enhanced technical features on distribution platforms that we do not make available on other distribution platforms, which limits the quality and uniformity of our offering to all consumers across our distribution platforms. In addition, delays in technical developments across our distribution partners puts us at risk of breaching our parity obligations with such distribution platforms, which threatens the certainty of our agreements with distribution partners.
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If we are unable to maintain an adequate supply of ad inventory on our platform, our business may be harmed.
We may fail to attract content providers that generate sufficient ad content hours on our platform and continue to grow our video ad inventory. Our business model depends on our ability to grow video ad inventory on our platform and sell it to advertisers. We grow ad inventory by adding and retaining content providers on our platform with ad-supported channels that we can monetize. If we are unable to grow and maintain a sufficient supply of quality video advertising inventory at reasonable costs to keep up with demand, our business may be harmed.
We operate in a highly competitive industry, and we compete for advertising revenue with other internet streaming platforms and services, as well as traditional media, such as radio, broadcast, cable and satellite TV and satellite and Internet radio. We may not be successful in maintaining or improving our fill-rates or cost per thousand (“CPMs”).
Our competitors offer content and other advertising mediums that may be more attractive to advertisers than our TV streaming platform. These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue from advertising. If we are unable to increase our advertising revenue by, among other things, continuing to improve our platform’s data capabilities to further optimize and measure advertisers’ campaigns, increase our advertising inventory and expand our advertising sales team and programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends, which would harm our ability to grow our advertising revenue and harm our business.
If content providers refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely affected.
Our ability to provide our subscribers with content they can watch depends on content providers and other rights holders licensing rights, including distribution rights, to such content and certain related elements thereof, such as the public performance of music contained within the content we distribute. The license periods and the terms and conditions of such licenses vary, and we may be operating outside the terms of some of our current licenses. As content providers develop their own streaming services, they may be unwilling to provide us with access to certain content, including popular series or movies. If the content providers and other rights holders are not or are no longer willing or able to license us content upon terms acceptable to us, our ability to stream content to our subscribers may be adversely affected and/or our costs could increase. Because of these provisions as well as other actions we may take, content available through our service can be withdrawn on short notice. As competition increases, we see the cost of certain programming increase.
Further, if we do not maintain a compelling mix of content, our subscriber acquisition and retention may be adversely affected.
Our content providers impose a number of restrictions on how we distribute and market our products and services, which can adversely affect our business.
A number of our major content partners impose significant restrictions on how we can distribute and market our products and services. For example, our content partners may prevent us from partnering with third party distributors and manufacturers to exploit new market opportunities or prevent us from bundling or reselling our products with third party products and services, or otherwise restrict how we might brand or market our products and services. Our content partners also impose restrictions on the content and composition of the packages we can make available to our customers and restrictions on how we might make some or all of our content available to customers (such as on a standalone basis, length of free trials or access modified or shorter form content). These restrictions may prevent us from responding dynamically to changing customer expectations or market demands or exploiting lucrative partnership opportunities. Content providers may also restrict the advertising that may be made available in connection with their content, including restrictions on the content and timing of such advertising, and restrictions on how advertising may be sold (such as a limit to sale on an aggregated, non-content specific basis only), which limits our opportunity to exploit potentially lucrative revenue streams.
Content providers may also only provide their content on a service that includes a minimum number of channels from other providers or require that we only provide their content in specific service tiers that include a specific mix of programming. Certain provisions in these agreements could become a challenge to comply with if we were to lose rights under agreements with key programmers.
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In addition, our content partners generally impose requirements on us to treat them at least as favorably as other major providers in various ways, such as equal treatment with respect to content recommendations, displays on user interfaces, the marketing and promotion of content and streaming quality standards. This may materially restrict the functionality and performance of our technology, particularly our proprietary recommendation engine. This may also prevent us from offering commercial benefits to certain content providers, limiting our capacity to negotiate favorable transactions and overall limiting our ability to provide improved products and services.
Our agreements with content providers are complex, with various rights restrictions and favorability obligations which impose onerous compliance obligations.
The content rights granted to us are complex and multi-layered and differ substantially across different content and content providers. We may be able to make certain content available on a video-on-demand basis or on certain devices but may be restricted from doing the same with other content, sometimes even with the same content provider. We are often not able to make certain content available at certain times or in certain geographical regions. In addition, our obligations to provide equality in the treatment between certain content providers require us to continuously monitor and assess treatment of content providers and content across our products and services.
These complex restrictions and requirements impose a significant compliance burden which is costly and challenging to maintain. A failure to maintain these obligations places us at risk of breaching our agreements with content providers, which could lead to loss of content and damages claims, which would have a negative impact on our products and service and our financial position.
We face risks, such as unforeseen costs and potential liability in connection with content we acquire, produce, license and/or distribute through our service.
As a producer and distributor of content, we face potential liability for negligence, copyright and trademark infringement, or other claims based on the nature and content of materials that we acquire, produce, license and/or distribute. We also may face potential liability for content used in promoting our service, including marketing materials. We are devoting more resources toward the development, production, marketing and distribution of original programming, including Fubo Sports Network and mobile games. We believe that original and exclusive programming can help differentiate our service from other offerings, enhance our brand and otherwise attract and retain subscribers. To the extent our programming does not meet our expectations, in particular, in terms of costs, viewing and popularity, our business, including our brand and results of operations may be adversely impacted. As we have expanded our original programming, we have become responsible for production costs and other expenses, such as ongoing guild payments. We also take on risks associated with production, such as completion and key talent risk, which risks have been heightened during COVID-19. Further, negotiations or renewals related to entertainment industry collective bargaining agreements could negatively impact timing and costs associated with our productions. We contract with third parties related to the development, production, marketing and distribution of our original programming. We may face potential liability or may suffer significant losses in connection with these arrangements, including but not limited to if such third parties violate applicable law, become insolvent or engage in fraudulent behavior. To the extent we create and sell physical or digital merchandise relating to our programming, and/or license such rights to third parties, we could become subject to product liability, intellectual property or other claims related to such merchandise. We may decide to remove content from our service, not to place licensed or produced content on our service or discontinue or alter production of original content if we believe such content might not be well-received by our current or potential subscribers, or could be damaging to our brand or business.
To the extent we do not accurately anticipate costs or mitigate risks, including for content that we obtain but ultimately does not appear on or is removed from our service, or if we become liable for content we acquire, produce, license and/or distribute, our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising.
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If our efforts to build a strong brand and to maintain customer satisfaction and loyalty are not successful, we may not be able to attract or retain subscribers, and our business may be harmed.
Building and maintaining a strong brand is important to our ability to attract and retain subscribers, as potential subscribers have a number of TV streaming choices. Successfully building a brand is a time-consuming and comprehensive endeavor and can be positively and negatively impacted by any number of factors. Some of these factors, such as the quality or pricing of our platform or our customer service, are within our control. Other factors, such as the quality of the content that our content publishers provide, may be out of our control, yet subscribers may nonetheless attribute those factors to us. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. Many of our competitors are larger companies and promote their brands through traditional forms of advertising, such as print media and TV commercials, and have substantial resources to devote to such efforts. Our competitors may also have greater resources to utilize Internet advertising or website product placement more effectively than we can. If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and platform from our competitors in the marketplace; therefore, our ability to attract and retain subscribers may be adversely affected and our business may be harmed.
We rely upon a number of partners to make our service available on their devices.
We currently offer subscribers the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes and mobile devices. Some of our agreements with key distribution partners give distribution partners the ability to terminate their carriage of our service at any time. If we are not successful in maintaining existing and creating new relationships, or if we encounter technological, content licensing, regulatory, business or other impediments to delivering our streaming content to our subscribers via these devices, our ability to retain subscribers and grow our business could be adversely impacted.
Our business could be adversely affected if a number of our partners do not continue to provide access to our service or are unwilling to do so on terms acceptable to us, which terms may include the degree of accessibility and prominence of our service. Furthermore, devices are manufactured and sold by entities other than FuboTV, and while these entities should be responsible for the devices’ performance, the connection between these devices and FuboTV may nonetheless result in consumer dissatisfaction toward FuboTV and such dissatisfaction could result in claims against us or otherwise adversely impact our business. In addition, technology changes to our streaming functionality may require that partners update their devices or may lead us to stop supporting the delivery of our service on certain legacy devices. If partners do not update or otherwise modify their devices, or if we discontinue support for certain devices, our service and our subscribers’ use and enjoyment could be negatively impacted.
We rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of our service, and any disruption of or interference with our use of Google Cloud Platform and/or Amazon Web Services would impact our operations and our business would be adversely impacted.
Each of Google Cloud Platform (“GCP”) and Amazon Web Services (“AWS”) provides a distributed computing infrastructure platform for business operations, or what is commonly referred to as a “cloud” computing service. We have architected our software and computer systems so as to utilize data processing, storage capabilities and other services provided by both GCP and AWS. Currently, we run the vast majority of our computing on GCP with some key components running on AWS. Given this, along with the fact that we cannot easily switch what is specifically running now on GCP and/or AWS to another cloud provider, any disruption of or interference with our use of GCP and/or AWS would impact our operations, and our business would be adversely impacted. Google (through YouTube TV) and, to a lesser extent, Amazon (through Amazon Prime) compete with us and, if Google or Amazon were to use GCP or AWS, respectively, in such a manner as to gain competitive advantage against our service, it could harm our business.
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Risks Related to Our Financial Reporting and Disclosure
We identified material weaknesses in our internal control over financial reporting in 2019 and 2020. We may identify material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which could lead investors to lose confidence in the accuracy and completeness of our financial reports.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting.
We identified material weaknesses in our internal control over financial reporting. Those material weaknesses have been remediated as of December 31, 2021, however, the process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act is time-consuming, costly, and complicated. If during the evaluation and testing process we identify one or more other material weaknesses in our internal control over financial reporting, our management will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If we fail to comply with the reporting obligations of the Exchange Act, our business, financial condition, and results of operations, and investors’ confidence in us, could be materially and adversely affected.
As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports, quarterly reports, and current reports. In the past, prior to our merger with fuboTV Media Inc. (formerly known as fuboTV Inc.) in 2020, we failed to prepare and disclose this information in a timely manner. Our failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety could subject us to penalties under federal securities laws and regulations of the exchange we are listed on, expose us to lawsuits, and restrict our ability to access financing on favorable terms, or at all. We have experienced significant growth in the number of our employees and the scope of our operations to date and expect continued growth over the long term. As we expand, as a result of previously maintaining a limited staff, we may later determine that certain related party transactions were not properly identified, reviewed and approved prior to us entering into them with such related parties.
Going forward, we will need to implement and improve our managerial, operational and financial systems, expand our facilities and recruit and train additional qualified personnel. Due to our limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert or stretch our management and business development resources in a way that we may not anticipate. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
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We will need to improve our operational and financial systems to support our expected long term growth, along with increasingly complex business arrangements, and rules governing revenue and expense recognition, and any inability to do so could adversely affect our billing services and financial reporting.
We have increasingly complex business arrangements with our content publishers and licensees, and the rules that govern revenue and expense recognition in our business are increasingly complex. To manage the expected growth of our operations over the long term and increasing complexity, we will need to improve our operational and financial systems, procedures and controls and further increase systems automation to reduce reliance on manual operations. Any inability to do so will negatively affect our billing services and financial reporting. Our current and planned systems, procedures and controls may not be adequate to support our complex arrangements and the rules governing revenue and expense recognition for our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational and financial systems and controls could adversely affect our relationships with our subscribers, content publishers or licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.
Our key metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business.
We regularly review key metrics related to the operation of our business, including, but not limited to average revenue per user, and number of subscribers, to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates of our subscriber base for the applicable period of measurement, there are inherent challenges in measuring how our platform is used across large populations.
Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of subscribers were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of subscribers to satisfy our growth strategies.
In addition, advertisers generally rely on third-party measurement services to calculate our metrics, and these third-party measurement services may not reflect our true audience. If advertisers, partners, or investors do not perceive our subscriber, geographic, or other demographic metrics to be accurate representations of our subscriber base, or if we discover material inaccuracies in our subscriber, geographic, or other demographic metrics, our reputation may be seriously harmed, and our business and operating results could be materially and adversely affected.
Preparing and forecasting our financial results requires us to make judgments and estimates which may differ materially from actual results, and if our operating and financial performance does not meet the guidance that we provide to the public, the market price of our common stock may decline.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. We base such estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, but actual results may differ from these estimates. Using such estimates has the potential to negatively impact the results we report which could negatively impact our stock price.
In addition, from time to time, we release guidance regarding our future performance. Such guidance is based upon a number of assumptions and estimates that, although presented with numerical specificity, are inherently subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. Any such guidance will be composed of forward-looking statements subject to the risks and uncertainties described in this Quarterly Report and in our other public filings and public statements. Our actual results may not always be in line with or exceed, and could differ materially from, any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of our common stock may decline.
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Impairment in the carrying value of goodwill or long-lived assets could negatively affect our operating results.
We have a significant amount of goodwill and long-lived assets on our condensed consolidated balance sheet. Under generally accepted accounting principles, annually, and upon the identification of a triggering event, management is required to perform an evaluation of the recoverability of goodwill and long-lived assets. Triggering events potentially warranting an interim goodwill impairment test include, among other factors, declines in historical or projected revenue, operating income or cash flows, and sustained declines in the Company’s stock price or market capitalization, considered both in absolute terms and relative to peers. If business conditions or other factors cause profitability and cash flows to decline, we may be required to record non-cash impairment charges. If the carrying value of our reporting units exceeds their current fair value as determined based on the discounted future cash flows of the related business, the goodwill is considered impaired and is reduced to fair value by a non-cash charge to earnings. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made
As a result of sustained decreases in the Company’s stock price and market capitalization, the Company conducted an impairment test of its goodwill and long-lived assets as of June 30, 2022. As a result of this testing, the Company recorded a non-cash goodwill impairment charge of $10.7 million for the wagering segment during the nine months ended September 30, 2022. No goodwill impairment was recorded for the streaming segment. No impairments were recorded to long-lived assets in either segment.
In addition, the Company determined that the Company’s initiation of a strategic review of its interactive wagering business in August 2022 constituted a triggering event, in that there will be a significant change in the extent and manner in which the long-lived assets of Fubo Sportsbook will be used, and there is an expectation that the assets will be sold or otherwise disposed of. For the three months ended September 30, 2022, the Company determined the carrying value of the asset groups, within Fubo Sportsbook, did not exceed future undiscounted cash flows. The Company then calculated the fair value of the asset groups as the present value of the estimated future cash flows and determined that the carrying value exceeded the fair value in certain instances. Based on this analysis, the Company recognized an aggregate non-cash impairment charge of $35.5 million on intangible assets, prepaid market access agreements and property and equipment.
While management cannot predict if or when additional future goodwill or long-lived asset impairments may occur, additional impairments could have material adverse effects on the Company’s operating income, net assets, and/or the Company’s cost of, or access to, capital.
Risks Related to Our Products and Technologies
TV streaming is highly competitive and many companies, including large technology and entertainment companies, TV brands, and service operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies, it will be difficult for us to attract or retain subscribers and our business will be harmed.
TV streaming is increasingly competitive and global. Our success depends in part on attracting and retaining subscribers on, and effective monetization of, our platform. To attract and retain subscribers, we need to be able to respond efficiently to changes in consumer tastes and preferences and to further increase the type and number of content offerings. Effective monetization requires us to continue to update the features and functionality of our streaming platform for subscribers and advertisers.
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Companies such as AT&T, Comcast, Cablevision, Cox and Altice, along with virtual multichannel video programming distributors, such as YouTube TV, Hulu Live and Sling TV offer TV streaming products that compete with our platform. In many cases, these competitors have the financial resources to subsidize the cost of their streaming devices in order to promote their other products and services making it harder for us to acquire new subscribers and increase hours streamed. Similarly, some service operators, such as Comcast and Cablevision, offer TV streaming applications as part of their cable service plans and can leverage their existing consumer bases, installation networks, broadband delivery networks and name recognition to gain traction in the TV streaming market. Some of these companies also promote their brands through traditional forms of advertising, such as TV commercials, as well as Internet advertising or website product placement, and have greater resources than us to devote to such efforts.
In addition, many TV brands, such as LG, Samsung Electronics Co., Ltd. and VIZIO, Inc., offer their own TV streaming solutions within their TVs. Other devices, such as Microsoft’s Xbox and Sony’s PlayStation game consoles and many DVD and Blu-ray players, also incorporate TV streaming functionality.
We expect competition in TV streaming from the large technology companies and service operators described above, as well as new and growing companies, to increase in the future. This increased competition could result in pricing pressure, lower revenue or the failure of our platform to gain or maintain broad market acceptance. To remain competitive, we need to continuously invest in product development and marketing. We may not have sufficient resources to make additional investments needed to maintain our competitive position. In addition, many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than us, which provide them with advantages in developing, marketing or servicing new products and offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources to the development, promotion and sales of their products or the distribution of their content, and influence market acceptance of their products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost. New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our competitors may enter into business combinations or alliances that strengthen their competitive positions. Increased competition could reduce our market share, revenue and operating margins, increase our operating costs, harm our competitive position and otherwise harm our business.
If the advertisements and audience development campaigns and other promotional advertising on our platform are not relevant or not engaging to our subscribers, our growth in subscribers, advertisers and hours streamed may be adversely impacted.
We have made, and are continuing to make, investments to enable advertisers to deliver relevant advertising content to subscribers on our platform. Existing and prospective advertisers may not be successful in serving ads and audience development campaigns and sponsoring other promotional advertising that lead to and maintain user engagement. Those ads may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives of our subscribers and advertisers with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues to attract and retain subscribers and advertisers. If we do not introduce relevant advertisements, audience development campaigns and other promotional advertising or such advertisements, audience development campaigns and other promotional advertising are overly intrusive and impede the use of our TV streaming platform, our subscribers may stop using our platform which will harm our business.
Our future growth depends on the acceptance and growth of OTT advertising and OTT advertising platforms.
We operate in a highly competitive advertising industry and we compete for revenue from advertising with other streaming platforms and services, as well as traditional media, such as radio, broadcast, cable and satellite TV, and satellite and internet radio. These competitors offer content and other advertising mediums that may be more attractive to advertisers than our streaming platform. These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue from advertising. If we are unable to increase our revenue from advertising by, among other things, continuing to improve our platform’s capabilities to further optimize and measure advertisers’ campaigns, increase our advertising inventory and expand our advertising sales team and programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends, which would harm our ability to grow our advertising revenue and harm our business.
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Many advertisers continue to devote a substantial portion of their advertising budgets to traditional advertising, such as linear TV, radio and print. The future growth of our business depends on the growth of OTT advertising, and on advertisers increasing their spend on advertising on our platform. Although traditional TV advertisers have showed growing interest in OTT advertising, we cannot be certain that their interest will continue to increase or that they will not revert to traditional TV advertising, especially if our customers no longer stream TV or significantly reduce the amount of TV they stream either as a result of the end of the COVID-19 pandemic or for other reasons. If advertisers, or their agency relationships, do not perceive meaningful benefits of OTT advertising, the market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.
We may not be successful at expanding our content to areas outside our current content offering and even if we are able to expand into other content areas and sustain such expansion, we may not be successful in overcoming our reputation as primarily a live sports streaming service.
We currently have a reputation as primarily a live sports streaming service. We are making efforts to expand our content offerings outside live sports streaming, and currently offer a wide selection of news and entertainment content. However, we may not be successful at expanding our content to areas outside our current content offering, or maintaining content from our current content offering, and even if we are able to expand into other content areas and sustain such expansion, we may not be successful in overcoming our reputation as primarily a live sports streaming service.
If TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our future growth depends in part on the growth of TV streaming advertising.
TV streaming is a relatively new and rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and profitability of this industry and the level of demand and market acceptance for our platform are subject to a high degree of uncertainty.
We believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband Internet service, the quality of broadband content delivery, the quality and reliability of new devices and technology, the cost for subscribers relative to other sources of content, as well as the quality and breadth of content that is delivered across streaming platforms. These technologies, products and content offerings continue to emerge and evolve. Subscribers, content publishers or advertisers may find TV streaming platforms to be less attractive than traditional TV, which would harm our business. In addition, many advertisers continue to devote a substantial portion of their advertising budgets to traditional advertising, such as TV, radio and print. The future growth of our business depends in part on the growth of TV streaming advertising, and on advertisers increasing spend on such advertising. We cannot be certain that they will do so. If advertisers do not perceive meaningful benefits of TV streaming advertising, then this market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.
Changes in competitive offerings for entertainment video, including the potential rapid adoption of piracy-based video offerings, could adversely impact our business.
The market for entertainment video is intensely competitive and subject to rapid change. Through new and existing distribution channels, consumers have increasing options to access entertainment video. The various economic models underlying these channels include subscription, transactional, ad-supported, and piracy-based models. All of these have the potential to capture meaningful segments of the entertainment video market. Piracy in particular, threatens to damage our business, as its fundamental proposition to consumers is so compelling and difficult to compete against: virtually all content for free. Furthermore, in light of the compelling consumer proposition, piracy services are subject to rapid global growth. Traditional providers of entertainment video, including broadcasters and cable network operators, as well as Internet based e-commerce or entertainment video providers are increasing their streaming video offerings.
Several of these competitors have long operating histories, large customer bases, strong brand recognition, exclusive rights to certain content and significant financial, marketing and other resources. They may secure better terms from suppliers, adopt more aggressive pricing and devote more resources to product development, technology, infrastructure, content acquisitions and marketing. New entrants may enter the market or existing providers may adjust their services with unique offerings or approaches to providing entertainment video. Companies also may enter into business combinations or alliances that strengthen their competitive positions. If we are unable to successfully compete with current and new competitors, our business will be adversely affected, and we may not be able to increase or maintain market share or revenues.
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Our products and services related to sports wagering subjected our business to a variety of related gaming laws, many of which are unsettled and still developing, and which could subject us to claims or otherwise harm our business. The violation of any such laws, any adverse change in any such laws or their interpretation, or the regulatory climate applicable to these products and services, could have a material adverse effect on our financial condition and results of operations.
We launched our Fubo Sportsbook app in Iowa and Arizona during the fourth quarter of 2021, and in New Jersey during the third quarter of 2022. Expansion of our business into sports wagering, including through third-party partnerships, has generally subjected us to the laws and regulations of the jurisdictions in which we conducted our business or in some circumstances, of those jurisdictions in which our services were offered or were available, as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information, tax and consumer protection and, potentially, any additional laws and regulations that may impact our business partners. These laws and regulations vary from one jurisdiction to another. While we have dissolved Fubo Gaming and ceased operation of Fubo Sportsbook as of the date of this Quarterly Report on Form 10-Q, we may to some extent remain subject to these laws and regulations as a result of our prior operation of Fubo Sportsbook or, if, and to the extent, we were to engage in gaming operations or otherwise partner with a third party subject to these laws and regulations in the future.
In connection with the foregoing, future legislative and regulatory action, and court decisions or other governmental action, may have a material adverse impact on our operations and financial results. Governmental authorities could view us as having violated applicable laws, despite efforts to obtain all applicable licenses or approvals and otherwise comply with such laws. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent monopoly providers, or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, advertisers and others involved in the sports wagering industry who partnered with, serviced or worked with or for us. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us or our licensees or other business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business, financial condition, results of operations, and prospects, as well as impact our reputation.
Our sports wagering business depended on the support of payment processors, the quality and cost of which may be variable in certain jurisdictions.
Our sports wagering business depended on payment processing providers to facilitate the movement of funds between our sportsbook and our customer base. As a result of our recent decision to cease operations, we will no longer accept wagers or deposits, however sportsbook customers can withdraw funds, which have been deposited into their accounts, but not yet wagered, as well as any winnings from wagers. Anything that could interfere with or otherwise harm the relationships with payment service providers could have a material adverse effect on our businesses. Our ability to facilitate withdrawals by them may be restricted by any introduction of legislation or regulations restricting financial transactions with online or mobile sports wagering operators or prohibiting the use of credit cards and other banking instruments for online or mobile sports wagering transactions, or by any other increase in the stringency of regulation of financial transactions, whether in general or in relation to the gambling industry in particular.
Stricter money laundering regulations may also affect the quickness and accessibility of payment processing systems, resulting in added inconvenience to customers. Card issuers and acquirers may dictate how transactions and products need to be coded and treated which could also make an impact on acceptance rates. Card issuers, acquirers, payment processors and banks may also cease to process transactions relating to the online or mobile sports wagering industry as a whole or as to certain operators. This would be due to reputational and/or regulatory reasons or in light of increased compliance standards of such third parties that seek to limit their business relationships with certain industry sectors considered as “high risk” sectors. Any such developments may have a material and adverse effect on our future financial position.
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If the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results of operation could be adversely impacted.
We utilize a combination of proprietary and third-party technology to operate our business. This includes the technology that we have developed to recommend and merchandise content to our consumers as well as enable fast and efficient delivery of content to our subscribers and their various consumer electronic devices. For example, as part of the content delivery systems, we use third-party content delivery networks (“CDNs”). To the extent Internet Service Providers (“ISPs”) do not interconnect with our CDN or charge us to access their networks, or if we experience difficulties in our CDN’s operation, our ability to efficiently and effectively deliver our streaming content to our subscribers could be adversely impacted and our business and results of operation could be adversely affected.
Likewise, our system for predicting subscriber content preferences is based on advanced data analytics systems and our proprietary algorithms. We have invested, and plan to continue to invest, significant resources in refining these technologies; however, we cannot assure you that such investments will yield an attractive return or that such refinements will be effective. The effectiveness of our ability to predict subscriber content preferences depends in part on our ability to gather and effectively analyze large amounts of subscriber data. Our ability to predict content that our subscribers enjoy is critical to the perceived value of our platform among subscribers and failure to make accurate predictions could materially adversely affect our ability to adequately attract and retain subscribers and sell advertising to meet investor expectations for growth or to generate revenue. We also utilize third-party technology to help market our service, process payments, and otherwise manage the daily operations of our business. If our technology or that of third parties we utilize in our operations fails or otherwise operates improperly, including as a result of “bugs” in our development and deployment of software, our ability to operate our service, retain existing subscribers and add new subscribers may be impaired. Any harm to our subscribers’ personal computers or other devices caused by software used in our operations could have an adverse effect on our business, results of operations and financial condition.
We rely on third-party providers to validate the identity and identify the location of our users, and if such providers fail to perform adequately, provide accurate information or we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
There is no guarantee that the third-party geolocation and identity verification systems that we rely on will perform adequately or be effective. We rely on our geolocation and identity verification systems to ensure we are in compliance with certain laws and regulations, and any service disruption to those systems would prohibit us from operating our offerings and would adversely affect our business. Additionally, incorrect or misleading geolocation and identity verification data with respect to current or potential users received from third-party service providers may result in us inadvertently allowing access to our offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our offerings, in each case based on inaccurate identity or geographic location determination. Our third-party geolocation services provider relies on its ability to obtain information necessary to determine geolocation from mobile devices, operating systems, and other sources. Changes, disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their inability to accurately determine the location of our users. Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations. If any of these risks materializes, we may be subject to disciplinary action, fines, lawsuits, and our business, financial condition and results of operations could be adversely affected.
Risks Related to Regulation
The gaming industry is heavily regulated and our failure to comply with applicable requirements could adversely affect our operations.
In October 2022, we ceased operating our sportsbook. As a result of our previous gaming operations, we and our officers, directors, major shareholders, key employees, and business partners have generally been subject to the laws and regulations relating to wagering of the jurisdictions in which we conducted such business.
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The jurisdictions where we operated each have their own regulatory framework, which required us to receive a license. Each jurisdiction typically required us to make detailed and extensive disclosures as to their beneficial ownership, their source of funds, the suitability and integrity of certain persons associated with the applicant, the applicant’s management competence, structure, and business plans, the applicant’s proposed geographical territories of operation, and the applicant’s ability to operate a gaming business in a socially responsible manner in compliance with regulation. Such jurisdictions also impose ongoing reporting and disclosure obligations, both on a periodic and ad hoc basis in response to material issues affecting the business. Our gaming-related technology was also subject to testing and certification, generally designed to confirm matters such as the fairness of the gaming products offered by the business, their compliance with applicable law and regulation, their ability to accurately generate settlement instructions, and recover from outages.
Non-compliance with any such law or regulations could expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may have a material adverse effect on our business, financial condition, and results of operations.
We will be subject to regulatory investigations, which could cause us to incur substantial costs or require us to change our business practices in a materially adverse manner.
We expect to receive formal and informal inquiries from government authorities and regulators from time to time, including securities authorities, tax authorities and, potentially, gaming regulators, regarding our compliance with laws and other matters. We expect to continue to be the subject of investigations and audits in the future as we continue to grow and expand our operations. Violation of existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties providing a negative effect on our financial condition and results of operations. In addition, there is a possibility that future orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities may cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties, or require us to change our business practices that may have materially adverse effects to our business.
Our shareholders may be subject to extensive governmental oversight, and if a shareholder is found unsuitable by a gaming authority, that shareholder may not be able to beneficially own, directly or indirectly, certain of our securities.
While we have dissolved Fubo Gaming and ceased operation of Fubo Sportsbook as of the date of this Quarterly Report on Form 10-Q, our shareholders may to some extent remain subject to these laws and regulations as a result of our prior operation of Fubo Sportsbook or, if, and to the extent, we were to engage in gaming operations or otherwise partner with a third party subject to these laws and regulations in the future. A number of jurisdictions’ gaming laws have, and may in the future, require certain of our shareholders to file an application, be investigated, and qualify or have his, her, or its suitability determined by gaming authorities. Gaming authorities have very broad discretion when ruling on whether an applicant should be deemed suitable or not. Subject to certain administrative proceeding requirements, the gaming authorities have the authority to deny any application or limit, condition, revoke or suspend any gaming license, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.
Any person found unsuitable by a gaming authority may not hold directly or indirectly ownership of any voting security or the beneficial or record ownership of any nonvoting security or any debt security of any company that is licensed with the relevant gaming authority beyond the time prescribed by the relevant gaming authority. A finding of unsuitability by a particular gaming authority impacts that person’s ability to associate or affiliate with gaming licenses in that specific jurisdiction and could impact the person’s ability to associate or affiliate with gaming license holders in other jurisdictions.
Many jurisdictions also require any person who obtains a beneficial ownership of more than a certain percentage, most typically 5%, of voting securities of a publicly-traded gaming company or parent company thereof and, in some jurisdictions, non-voting securities to report the acquisition to gaming authorities. Gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only. Other jurisdictions may also limit the number of gaming licenses with which a person may be associated.
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In connection with our prior operation of Fubo Sportsbook, we sought shareholder approval at our 2022 annual meeting of shareholders to adopt an amendment to our articles of incorporation to facilitate compliance with applicable gaming regulations and to otherwise operate in a manner consistent with best industry practices. This amendment, which was approved by our shareholders and subsequently adopted provides us with the right, subject to certain conditions set forth in the amendment to our articles of incorporation, to redeem shares held by an unsuitable person (a “Disqualified Holder”). Any redemption would be made at the per share purchase price equal to the average closing sale price of the shares as reported during the 30 trading days prior to the date upon which the company informs the shareholder of his, her or its status as a Disqualified Holder or, if the shares are not publicly traded at that time, the fair value of the shares as determined by the Board in accordance with the provisions of the amendment. Such redemption rights may negatively affect the trading price and/or liquidity of our shares. The utilization of such redemption rights may also negatively impact our cash flows and financial condition.
If government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we conduct our business and we may incur greater operating expenses.
We are subject to general business regulations and laws, as well as regulations and laws specific to the Internet, which may include laws and regulations related to user privacy, data protection, information security, consumer protection, payment processing, taxation, intellectual property, electronic contracts, Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the laws and regulations governing issues such as privacy, payment processing, taxation and consumer protection related to the Internet continue to develop.
As our service and others like us gain traction in international markets, governments are increasingly looking to introduce new or extend legacy regulations to these services, in particular those related to broadcast media and tax. For example, European law enables individual member states to impose levies and other financial obligations on media operators located outside their jurisdiction. Several jurisdictions have and others may, over time, impose financial and regulatory obligations on us. In addition, the continued growth and development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our business model.
Laws relating to the liability of providers of online services for activities of their subscribers and other third parties have been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the advertisements posted, or the content provided by subscribers. In some instances, we have certain protections against claims related to such subscriber generated content, including or defamatory content. Specifically, Section 230 of the Communications Decency Act (the “CDA”) provides immunity from liability for providers of an interactive computer service who publish defamatory information provided by users of the service. Immunity under the CDA has been well-established through case law. Specifically, Section 230 of the Communications Act of 1934, which codifies the Communications Decency Act, provides immunity from civil liability for providers of an interactive computer service with respect to content provided by users of the service. Immunity under Section 230 for defamation and related claims has been well-established through case law. On a regular basis, however, parties in litigation seek to limit the scope of immunity under Section 230, and government officials and others propose to eliminate or reduce existing liability protections via legislation. Any such changes could affect our ability to claim protection under Section 230.
Moreover, as Internet commerce and advertising continues to evolve, increasing regulation by federal, state and foreign regulatory authorities becomes more likely. For example, California’s Automatic Renewal Law requires companies to adhere to enhanced disclosure requirements when entering into automatically renewing contracts with consumers. Other states have enacted similar laws in recent years. As a result, a wave of consumer class action lawsuits has been brought against companies that offer online products and services on a subscription or recurring basis, and we have received a letter alleging that we may have violated such a law. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, lost business, and proceedings or actions against us by governmental entities or others, which could impact our operating results. As we improve our TV streaming platform, we may also be subject to new laws and regulations specific to such technologies.
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We are subject to payment processing risk.
Acceptance and processing of payments are subject to certain rules and regulations, including additional authentication and security requirements for certain payment methods, and require payment of interchange and other fees. To the extent there are increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment processors, changes to rules or regulations concerning payments, loss of payment partners and/or disruptions or failures in the operations or security of our payment processing systems, partner systems or payment products, including products we use to update payment information, our revenue, operating expenses and results of operation could be adversely impacted.
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We may be subject to fines or other penalties imposed by the Internal Revenue Service and other tax authorities.
Certain of our subsidiaries are currently delinquent in filing annual tax returns with the Internal Revenue Service and several states. We are in the process of working with our subsidiaries to remedy this issue by filing these delinquent tax returns. Although we do not believe taxes are due, we may be subject to penalties and interest by the tax authorities because of the late tax returns. There can be no assurance that we will remedy our delinquent filings sufficiently, and we may face penalties and fees which would adversely affect our operating results and investors’ confidence in our internal operations.
We could be required to collect additional sales and other similar taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our subscriptions and adversely affect our operating results.
Sales, value-added, goods and services, and similar tax laws are complicated and vary greatly by jurisdiction. Although the vast majority of states have considered or adopted laws that impose collection obligations on out-of-state companies for such taxes, there is significant uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and surcharges for sales made over the internet, as well as whether our subscriptions are subject to tax in various jurisdictions. Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et. al. (Wayfair) that online sellers can be required to collect sales tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may enforce laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We have not always collected sales and other similar taxes in all jurisdictions in which we are required to. We may be obligated to collect and remit sales tax in jurisdictions in which we have not previously collected and remitted sales tax. A successful assertion by one or more states requiring us to collect taxes where we historically have not or presently do not do so could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us and decrease our future sales, which could adversely affect our business and operating results.
We are subject to taxation-related risks in multiple jurisdictions.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Judgment is required in determining our global provision for income taxes, value added and other similar taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. It is possible that our tax positions may be challenged by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes.
Tax laws are being re-examined and evaluated globally. New laws and interpretations of the law are taken into account for financial statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the tax positions of multinational companies. If U.S. or other foreign tax authorities change applicable tax laws, our overall liability could increase, and our business, financial condition or results of operations may be adversely impacted. In addition, the U.S. government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate Furthermore, governmental agencies in domestic and international jurisdictions in which we and our affiliates do business, as well as the Organization for Economic Cooperation and Development, have recently focused on issues related to the taxation of multinational corporations (such as “base erosion and profit shifting”) and proposed potential changes to existing legislation (such as the imposition of minimum taxes). We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.
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Risks Related to Our Operations
The COVID-19 pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise additional capital.
The global spread of COVID-19 and the various attempts to contain it created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and employee concerns, we have altered certain aspects of our operations. Since early 2020, sports content has continued to be impacted by COVID-19 due to travel restrictions and numerous professional and college sports leagues cancelling or altering seasons and events. As a result, our broadcasting partners had and are having to substitute other content in the place of previously scheduled live sporting events. While professional sports are returning in the United States, there is no guarantee that those seasons continue uninterrupted or at all. The potential further delay or cancellation of professional and college sports may cause us to temporarily have less popular content available on our platform, which could negatively impact consumer demand for and subscription retention to our platform and our number of paid subscribers.
The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the actions of professional and college sports leagues; the availability and cost to access the capital markets; the effect on our subscribers and subscriber demand for and ability to pay for our platform; disruptions or restrictions on our employees’ ability to work and travel; and interruptions or restrictions related to the provision of streaming services over the internet, including impacts on CDNs and streaming quality. During the COVID-19 pandemic, we may not be able to provide the same level of customer service that our subscribers are used to, which could negatively impact their perception of our platform resulting in an increase in cancellations. There can be no assurance that financing may be available on attractive terms, if at all. Our workforce currently spends a significant amount of time working from home, which may impact their productivity. Such limitations caused by the pandemic have also resulted in us seeking extensions for our current and periodic filings with the SEC. We will continue to actively monitor the issues raised by the COVID-19 pandemic, including the spread of variants, and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, subscribers and shareholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our subscribers, or on our financial results.
We could be subject to claims or have liability based on defects with respect to certain historical corporate transactions that were not properly authorized or documented.
We have determined that there have been defects with respect to certain historical corporate transactions relating to FaceBank Group, Inc., including transactions that were not or may not have been properly approved by our board of directors, transactions that may have breached our organizational documents, or transactions that may not have been adequately documented.
While we have attempted to narrow potential future claims by taking certain remedial corporate actions, the scope of liability with respect to such defects is uncertain and we cannot be sure that these actions will entirely remediate these defects or that we will not receive claims in the future from other persons asserting rights to shares of our capital stock, to stock options, or to amounts owed under other equity or debt instruments or investment contracts. To the extent any such claims are successful, the claims could result in dilution to existing shareholders, payments by us to note holders or security holders, us having to comply with registration or other investor rights, which could have a material adverse effect on our business, financial condition and results of operations.
Legal proceedings could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.
From time to time, we may be subject to litigation or claims that could negatively affect our business operations and financial position. We may face allegations or litigation related to our acquisitions, securities issuances, business practices or other strategic decisions. For example, putative class action lawsuits have been filed by certain of our shareholders against us and certain of our officers and directors alleging certain violations of the federal securities laws in connection with certain statements we have made regarding our business and financial condition. In addition, certain of our shareholders have filed related derivative lawsuits against certain of our officers and directors alleging certain federal securities law violations and that the officers and directors breached their fiduciary duties and committed corporate waste.
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The securities class action litigations described above remain pending; however, the derivative lawsuits were dismissed with prejudice in June 2021. Further, following the dissolution of Fubo Gaming in October 2022, we have received communications from several commercial partners of Fubo Gaming, alleging breach by Fubo Gaming of applicable agreements. Additional allegations, or litigation, may arise in the future related to the dissolution of Fubo Gaming, including potential breach of contract claims by other commercial partners of Fubo Gaming or claims related to guarantees by fuboTV Inc. of Fubo Gaming’s contractual obligations.
Litigation disputes, including the disputes we are currently facing, could cause us to incur unforeseen expenses, result in content unavailability, and otherwise occupy a significant amount of our management’s time and attention, any of which could negatively affect our business operations and financial position. While the ultimate outcome of investigations, inquiries, information requests and related legal proceedings is difficult to predict, such matters can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, reputational harm or costs and significant payments, any of which could negatively affect our business operations and financial position.
The quality of our customer support is important to our subscribers, and if we fail to provide adequate levels of customer support, we could lose subscribers, which would harm our business.
Our subscribers depend on our customer support organization to resolve any issues relating to our platform. A high level of support is critical for the successful marketing of our platform. Providing high-level support is further challenging during the COVID-19 pandemic and resulting remote work environment. If we do not effectively train, update and manage our customer support organization that assists our subscribers in using our platform, and if that support organization does not succeed in helping them quickly resolve any issues or provide effective ongoing support, it could adversely affect our ability to sell subscriptions to our platform and harm our reputation with potential new subscribers.
We may be unable to successfully expand our international operations and our international expansion plans, if implemented, will subject us to a variety of economic, political, regulatory and other risks.
We currently generate the vast majority of our revenue in the United States and have limited experience marketing, selling, licensing, running or monetizing our platform outside the United States. In addition, we have limited experience managing the administrative aspects of a global organization.
Outside of the United States, we operate in Canada, Spain, and, through our acquisition of Molotov, France. We also have offices and employees based in India through our acquisition of Edisn Inc. in December 2021. While we intend to explore additional opportunities to expand our business in international markets in which we see compelling opportunities, we may not be able to create or maintain international market demand for our platform.
Operating in international markets requires significant resources and management attention and subjects us to economic, political, regulatory and other risks that may be different from or incremental to those in the United States. In addition to the risks that we face in the United States, our international operations involve risks that could adversely affect our business, including:
•differing legal and regulatory requirements, including country-specific data privacy and security laws and regulations, consumer protection laws and regulations, tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties on cross-border movements of goods or data flows, extension of limits on TV advertising minutes to OTT advertising, local content requirements, data or data processing localization requirements, or other trade restrictions;
•slower adoption and acceptance of streaming services in other countries;
•the need to adapt our content and user interfaces for specific cultural and language differences, including delivering support and training documentation in languages other than English;
•our ability to deliver or provide access to popular streaming channels or content to users in certain international markets;
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•different or unique competitive pressures as a result of, among other things, the presence of local consumer electronics companies and the greater availability of free content on over-the-air channels in certain countries, such as France;
•challenges inherent in efficiently staffing and managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits, and compliance programs;
•political or social unrest, including the ongoing war between Russia and Ukraine, and economic instability;
•compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, export controls and economic sanctions, and local laws prohibiting corrupt payments to government officials;
•compliance with various privacy, data transfer, data protection, accessibility, consumer protection and child protection laws in the European Union and other international markets that we operate in;
•difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions, including local ownership requirements for streaming content providers and laws and regulations relating to privacy, data protection and information security, and the risks and costs of non-compliance with such laws, regulations and customs;
•regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, that results in disruption or non-availability of our service or particular content in the applicable jurisdiction;
•adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations, and the related application of judgment in determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities given the ultimate tax determination is uncertain;
•differing legal and court systems, including limited or unfavorable intellectual property protection;
•fluctuations in currency exchange rates could impact our revenue and expenses of our international operations and expose us to foreign currency exchange rate risk;
•profit repatriation and other restrictions on the transfer of funds;
•differing payment processing systems;
•working capital constraints; and
•new and different sources of competition.
If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed. Our failure to manage any of these risks successfully could harm our international operations and our overall business and results of our operations.
Our operations outside the U.S. may be adversely affected by the operation of laws in those jurisdictions.
Our operations in non-U.S. jurisdictions are in many cases subject to the laws of the jurisdictions in which they operate rather than U.S. law. Laws in some jurisdictions differ in significant respects from those in the U.S. These differences can affect our ability to react to changes in our business, and our rights or ability to enforce rights may be different than would be expected under U.S. law. Moreover, enforcement of laws in some overseas jurisdictions can be inconsistent and unpredictable, which can affect both our ability to enforce our rights and to undertake activities that we believe are beneficial to our business. In addition, the business and political climate in some jurisdictions may encourage corruption, which could reduce our ability to compete successfully in those jurisdictions while remaining in compliance with local laws or U.S. anti-corruption laws applicable to our businesses. As a result, our ability to generate revenue and our expenses in non-U.S. jurisdictions may differ from what would be expected if U.S. law governed these operations.
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We depend on highly skilled key personnel to operate our business, and if we are unable to attract, retain, and motivate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe that our future success is highly dependent on the talents and contributions of Edgar Bronfman, our Executive Chairman, David Gandler, our Co-Founder and Chief Executive Officer, other members of our executive team, and other key employees, such as engineering, finance, legal, research and development, marketing, and sales personnel. Our future success depends on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. All of our employees, including our senior management, are free to terminate their employment relationship with us at any time, and their knowledge of our business and industry may be difficult to replace. Qualified individuals are in high demand, particularly in the digital media industry, and we may incur significant costs to attract them. We use equity awards to attract talented employees, but if the value of our common stock declines significantly and remains depressed, that may prevent us from recruiting and retaining qualified employees. If we are unable to attract and retain our senior management and key employees, we may not be able to achieve our strategic objectives, and our business could be harmed. In addition, we believe that our key executives have developed highly successful and effective working relationships. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If one or more of these individuals leave, we may not be able to fully integrate new executives or replicate the current dynamic and working relationships that have developed among our senior management and other key personnel, and our operations could suffer.
The impact of worldwide economic conditions may adversely affect our business, operating results, and financial condition.
Our financial performance is subject to worldwide economic conditions, including rising levels of inflation, and their impact on levels of advertising spending. Expenditures by advertisers generally tend to reflect overall economic conditions, and to the extent that the economy continues to stagnate, reductions in spending by advertisers could have a material adverse impact on our business. Historically, economic downturns have resulted in overall reductions in advertising spending.
Economic conditions may adversely impact levels of consumer spending, which could adversely impact the number of subscribers to our platform. Consumer purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income is adversely affected. To the extent that overall economic conditions continue to reduce spending on discretionary activities, our ability to retain current and obtain new subscribers could be hindered, which could reduce our revenue and negatively impact our business.
Changes in how we market our service could adversely affect our marketing expenses and subscription levels may be adversely affected.
We utilize a broad mix of marketing and public relations programs, including social media sites, to promote our service and content to existing and potential new subscribers. We may limit or discontinue use or support of certain marketing sources or activities if advertising rates increase or if we become concerned that subscribers or potential subscribers deem certain marketing platforms or practices intrusive or damaging to our brand. If the available marketing channels are curtailed, our ability to engage subscribers and attract new subscribers may be adversely affected.
Companies that promote our service may decide that we negatively impact their business or may make business decisions that in turn negatively impact us. For example, if they decide that they want to compete more directly with us, enter a similar business or exclusively support our competitors, we may no longer have access to their marketing channels. We also acquire a number of subscribers who re-join our service having previously canceled their subscription. If we are unable to maintain or replace our sources of subscribers with similarly effective sources, or if the cost of our existing sources increases, our subscription levels and marketing expenses may be adversely affected.
We utilize marketing to promote our content, drive conversation about our content and service, and drive viewing by our subscribers. To the extent we promote our content inefficiently or ineffectively, we may not obtain the expected acquisition and retention benefits and our business may be adversely affected.
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We have pursued and may in the future engage in strategic acquisitions and investments, which involve a number of risks, and if we are unable to address and resolve these risks successfully, such acquisitions and investments could harm our business.
From time to time, we acquire or invest in businesses, products or technologies to expand our offerings and capabilities, subscriber base and business. The risks associated with such acquisitions or investments include: the difficulty of integrating solutions, operations, and personnel; inheriting liabilities and exposure to litigation; failure to realize anticipated benefits and expected synergies; and diversion of management’s time and attention, among other risks related to strategic transactions. We have evaluated, and expect in the future to evaluate, a wide array of potential strategic transactions. Any acquisition could be material to our financial condition and results of operations. Also, any anticipated benefits from a given acquisition, including, but not limited to, the acquisition of Vigtory, Inc. in February 2021 and Edisn Inc. and Molotov in December 2021, may never materialize. In addition, the process of integrating any businesses, products or technologies acquired by us may create unforeseen operating difficulties and expenditures and we may have difficulties retaining key employees. Acquisitions in international markets, including Edisn Inc. and Molotov, involve additional risks, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We may not be successful in overcoming such risks, and such acquisitions and investments may negatively impact our business. In addition, if we do not complete an announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated. Acquisitions and investments may contribute to fluctuations in our quarterly financial results. These fluctuations could arise from transaction-related costs and charges associated with eliminating redundant expenses or write-offs of impaired assets recorded in connection with acquisitions and investments and could negatively impact our financial results.
Risks Related to Privacy and Cybersecurity
We are subject to a number of legal requirements and other obligations regarding privacy, security, and data protection, and any actual or perceived failure to comply with these requirements or obligations could have an adverse effect on our reputation, business, financial condition and operating results.
Various international, federal, and state laws and regulations govern the processing of personal information, including the collection, use, retention, transfer, sharing and security of the data we receive from and about our subscribers and other individuals. The regulatory environment for the collection and processing of data relating to individuals, including subscriber and other consumer data, by online service providers, content distributors, advertisers and publishers is unsettled in the United States and internationally. Privacy groups and government bodies, including the Federal Trade Commission, increasingly have scrutinized issues relating to the use, collection, storage, disclosure, and other processing of data, including data that is associated with personal identities or devices, and we expect such scrutiny to continue to increase. Various federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations limiting, or laws and regulations covering the processing, collection, distribution, use, disclosure, storage, transfer and security of certain types of information. In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or facilitate compliance by content publishers, advertisers, or others with such standards.
For example, the California Consumer Privacy Act (“CCPA”), became operative on January 1, 2020. The CCPA requires covered businesses to provide new disclosures to California consumers, and to afford such consumers the ability to access and delete their personal information, opt out of certain personal information activities, and receive details about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. California voters also approved a modification of the CCPA, the California Privacy Rights Act, or CPRA, in the November 2020 election. The CPRA significantly expands the rights under the CCPA. The CCPA and CPRA may increase our compliance costs and exposure to liability. Similarly, Virginia recently adopted the Virginia Consumer Data Protection Act, or VCDPA, which will go into effect on January 1, 2023. The VCDPA will grant Virginia residents certain rights with respect to their personal data, has notice obligations, requires consent in some circumstances, among other things. While there is no private right of action, the VCDPA empowers the Attorney General to enforce the law. As with the CCPA and the CPRA, the VCDPA may increase our compliance costs and exposure to liability. Other U.S. states are considering adopting similar laws.
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Additionally, our use of subscriber data to deliver relevant advertising on our platform places us and our content publishers at risk for claims under a number of other unsettled laws, including the Video Privacy Protection Act, or VPPA. Some content publishers have been engaged in litigation over alleged violations of the VPPA relating to activities on online platforms in connection with advertising provided by unrelated third parties. The Federal Trade Commission has also revised its rules implementing the Children’s Online Privacy Protection Act, or COPPA Rules, broadening the applicability of the COPPA Rules, including by expanding the types of information that are subject to these regulations. The COPPA Rules could effectively apply to limit the information that we and, our content publishers and advertisers collect and use, the content of advertisements and certain channel partner content. We and our content publishers and advertisers could be at risk for violation or alleged violation of these and other laws, regulations, and other standards and contractual obligations relating to privacy, data protection, and information security.
In the European Union (“EU”) and its member states, the EU General Data Protection Regulation 2016/679, or the GDPR, which has been in effect since May 25, 2018, imposes stringent obligations relating to data protection and security. Further, the departure of the United Kingdom (“UK”) from the EU has created a separate regime with similarly onerous obligations. The GDPR, and UK data protection law, each authorizes authorize regulators to impose sanctions, including changes to data processing, and each allow for fines of up to 4% of global annual revenue or €20 million (£17.5 million), whichever is greater, for certain violations.
Additionally, we may incur expenses, costs, and other operational losses under the GDPR and the privacy laws of applicable EU Member States and the UK in connection with any measures we take to comply with such laws.
Although certain legal mechanisms have been designed to allow for the transfer of personal data from the UK, EEA and Switzerland to the United States, uncertainty about compliance with such data protection laws remains and such mechanisms may not be available or applicable with respect to the personal data processing activities necessary to research, develop and market our products. In particular in July 2020, the Court of Justice of the European Union (“CJEU”) limited how organizations could lawfully transfer personal data from the EU/EEA to the United States by invalidating the Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses (“SCCs”). The European Commission issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The new SCCs apply only to the transfer of personal data outside of the EEA and not the United Kingdom; the UK’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021 and laid its proposal before Parliament, with the UK SCCs expected to come into force in March 2022, with a grace period. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As authorities issue further guidance on data transfer mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
In recent years, European lawmakers and regulators have expressed concern over electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. In the EEA and the U.K., under national laws derived from the ePrivacy Directive, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent for cookies, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. The current national laws that implement the ePrivacy Directive are highly likely to be replaced across the EEA (but not directly in the UK) by the ePrivacy Regulation which will significantly increase fines for non-compliance. In addition, recent European court decisions and regulatory guidance are driving increased attention to cookies and tracking technologies. For example, in December 2020 the French data protection regulator (the CNIL) imposed fines of EUR 100 million and EUR 35 million respectively against certain entities for alleged breaches of cookies consent and transparency requirements; and in December 2021, the CNIL imposed fines of EUR 150 million and EUR 60 million against certain entities for alleged failures to allow users to easily reject cookies.
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Complying with the GDPR, CCPA, VCDPA, and other laws, regulations, and other obligations relating to privacy, data protection, data localization or security may cause us to incur substantial operational costs or require us to modify our data handling practices. We also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection and information security, and we cannot yet determine the impact such future laws, regulations and standards, or amendments to, expansions of or re-interpretations of, existing laws and regulations, industry standards, or other obligations may have on our business. New laws and regulations, amendments to, expansions of or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations may require us to incur additional costs and restrict our business operations.
Furthermore, the interpretation and application of laws, regulations, standards, contractual obligations and other obligations relating to privacy, data processing and protection, and information security are uncertain, and these laws, standards, and contractual and other obligations (including, without limitation, the Payment Card Industry Data Security Standard) may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management and processing practices, our policies or procedures, or the features of our platform. We may face claims or allegations that we are in violation of these laws, regulations, standards, or contractual or other obligations. We could be required to fundamentally change our business activities and practices or modify our platform or practices to address laws, regulations, or other obligations relating to privacy, data protection, or information security, or claims or allegations that we have failed to comply with any of the foregoing, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new features could be limited.
Increased regulation of data collection, use and distribution practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws and regulations, all could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm our business. Additionally, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of content publishers and advertisers may limit their use and adoption of, and reduce the overall demand for, our platform and advertising on our platform, and content publishers and advertisers may be at risk for violation or alleged violation of laws, regulations, and other standards relating to privacy, data protection, and information security relating to their activities on our platform. More generally, privacy, data protection, and information security concerns, whether or not valid, may inhibit market adoption of our platform, particularly in certain countries.
Any actual or perceived inability to adequately address privacy, data protection or security-related concerns, even if unfounded, or to successfully negotiate privacy, data protection or security-related contractual terms with content publishers, card associations, advertisers, or others, or to comply with applicable laws, regulations and other obligations relating to privacy, data protection, and security, could result in additional cost and liability to us. We may face regulatory investigations and proceedings, claims and litigation by governmental entities and private parties, damages for contract breach, damage to our reputation, restrictions on the use of our platform by advertisers and sales of subscriptions to our platform, and additional liabilities as a result, all of which could harm our business, reputation, financial condition, and results of operations.
Any significant interruptions, delays or discontinuations in service or disruptions in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized disclosure of data, including subscriber and corporate information, or theft of intellectual property, including digital content assets, which could adversely impact our business.
Our reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance and security of our computer systems and those of third parties that we utilize in our operations. These systems may be subject to damage or interruption from, among other things, earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, rogue employees, employees who are inattentive or careless and cause security vulnerabilities, power loss, telecommunications failures, and cybersecurity risks. Interruptions in these systems, or with the Internet in general, could make our service unavailable or degraded or otherwise hinder our ability to deliver our service. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our subscription to existing and potential subscribers.
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Our computer systems and those of third parties we use in our operations are subject to cybersecurity threats, including cyber-attacks such as computer viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. These systems periodically experience directed attacks intended to lead to interruptions and delays in our service and operations as well as loss, misuse or theft of personal information and other data, content, confidential information, trade secrets or intellectual property. Additionally, outside parties may attempt to induce employees or subscribers to disclose sensitive or confidential information in order to gain access to data. Any attempt by hackers to obtain our data (including subscriber and corporate information) or intellectual property (including digital content assets), disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive to remedy and damage our reputation.
We use third-party cloud computing services in connection with our business operations. We also use third-party content delivery networks to help us stream content to our subscribers over the Internet. Problems faced by us or our third-party cloud computing or other network providers, including technological or business-related disruptions, as well as cybersecurity threats and regulatory interference, could adversely impact the experience of our users.
We have implemented certain systems and processes designed to thwart hackers and protect our data and systems, but the techniques used to gain unauthorized access to data, systems, and software are constantly evolving, and we may be unable to anticipate or prevent unauthorized access, and we may be delayed in detecting unauthorized access or other security breaches and other incidents. There is no assurance that hackers may not have a material impact on our service or systems in the future or that security breaches or other incidents may not occur due to these or other causes. Efforts and technologies to prevent disruptions to our service and unauthorized access to our systems are expensive to develop, implement and maintain. These efforts require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated and may limit the functionality of or otherwise negatively impact our service offering and systems. Additionally, disruption to our service and data security breaches and other incidents may occur as a result of employee or contractor error. Any significant disruption to our service or access to our systems or any data that we or those who provide services for us maintain or otherwise process, or the perception that any of these have occurred, could result in a loss of subscriptions, harm to our reputation, and adversely affect our business and results of operations. Further, a penetration of our systems or a third-party’s systems on which we depend or any loss of or unauthorized access to, use, alteration, destruction, or disclosure of personal information or other data could subject us to business, regulatory, contractual, litigation and reputation risk, which could have a negative effect on our business, financial condition and results of operations. With the increase in remote work during the current COVID-19 pandemic, we and the third parties we use in our operations face increased risks to the security of infrastructure and data, and we cannot guarantee that our or their security measures will prevent security breaches. We also may face increased costs relating to maintaining and securing our infrastructure and data that we maintain and otherwise process.
Additionally, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
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Risks Related to Our Intellectual Property
We could become subject to litigation regarding intellectual property rights that could be costly and harm our business.
Third parties have previously asserted, and may in the future assert, that we have infringed, misappropriated, or otherwise violated their intellectual property rights. While the existence of our patent portfolio may deter some plaintiffs from asserting claims against us, from time to time we have faced, and expect in the future to face, allegations from “non-practicing entities.” Because these non-practicing entities have no relevant product revenue, and they exist primarily for the purpose of monetizing their patent portfolio through licensing and litigation, they may not be deterred by our own issued patents and pending patent applications in bringing intellectual property rights claims against us. Defending ourselves against intellectual property infringement claims, whether or not they have merit, could be costly and could result in the diversion of resources and management time and attention, even if we are ultimately successful in the defending the claim. If a claim is successfully asserted against us, in addition to being liable for damages, our ability to use our current streaming technology and market our service could be restricted. We may also have to remove content from our service, or marketing materials. As a result of a dispute, we may have to develop non-infringing technology, enter into royalty or licensing agreements, adjust our content, or marketing activities or take other actions to resolve the claims. Some of our competitors may be better able to sustain the costs of such litigation or proceedings because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing risks could harm our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we have previously chosen to, and may in the future choose or be required to, seek licenses from third parties. These licenses may not be available on commercially reasonable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees, royalties or other consideration, and the rights granted to us might be nonexclusive, with the potential for our competitors to gain access to the same intellectual property. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property. We may also be required to cease making, licensing or using technologies that are alleged to infringe or misappropriate the intellectual property of others, and as a result may need to expend additional development resources to redesign our solutions; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and other third parties.
An inability to obtain licenses for our streaming content from suppliers or other rights holders could be costly and harm our business.
We rely on our content suppliers to secure the rights to publicly perform and display the musical works and sound recordings embodied in any programming provided to or through our platform. If our content suppliers have not secured public performance or communication to the public licenses on a through to the viewer basis, then we could be liable to copyright owners or their agents copyright infringement. If our content suppliers are unable to secure such rights from copyright owners, then we may have to secure licenses in our own name.
We cannot guarantee that our content providers or we have or will be able to obtain all of the licenses we need to stream our content, as the process of obtaining such licenses involves many rights holders, some of whom are unknown, and myriad complex legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. Additionally, rights holders, creators, performers, writers and their agents, or societies, unions, guilds, or legislative or regulatory bodies have created and may in the future create or attempt to create new rights or regulations that could require our content providers or us to enter into license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.
We cannot guarantee that the licenses currently held by our content providers or by us will be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that our content providers or we are required to pay pursuant to them, may change as a result of changes in our bargaining power, the industry, laws and regulations, or for other reasons. Increases in royalty rates or changes to other terms of these licenses could have an impact on how much our content providers charge us, and accordingly they may materially impact our business, operating results, and financial condition.
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Additionally, our content suppliers may develop their own streaming services and may be unwilling to provide us with access to certain content. If we do not maintain a compelling mix of content, our customer acquisition and retention may be adversely affected. The occurrence of any of the foregoing risks could harm our business.
If our technology, trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
The success of our business depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyrights, and all of our other intellectual property rights, including the intellectual property rights underlying our Service. We attempt to protect our intellectual property under patent, trade secret, trademark, and copyright law through a combination of intellectual property registration, employee, third-party assignment and nondisclosure agreements, other contractual restrictions, technological measures, and other methods. We also generally enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. However, these agreements may not have been properly entered into on every occasion with the applicable counterparty, and such agreements may not always have been effective when entered into in granting ownership of, controlling access to and distribution of our proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our platform.
We have filed and we expect to file from time to time for trademark and patent applications. Nevertheless, these applications may not be approved, or if approved, they may be limited in scope and might not provide us with a meaningful competitive advantage. Furthermore, third parties may oppose our applications, or challenge the validity or enforceability of any patents or other intellectual property issued or registered to, or otherwise held by us. Third parties may also knowingly or unknowingly infringe our intellectual property rights, and litigation or proceedings before governmental authorities and administrative bodies may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trademarks, trade secrets, and domain names and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources and management time, each of which could substantially harm our operating results. Additionally, changes in law may be implemented, or changes in interpretation of such laws may occur, that may affect our ability to protect and enforce our patents and other intellectual property. If the protection of our intellectual property rights is inadequate to prevent use or misappropriation by third parties, the value of our brand, content, and other intangible assets may be diminished. Furthermore, failure to protect our domain names could also adversely affect our reputation and brand and make it more difficult for subscribers to find our website and our service. We may be unable, without significant cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
Our use of open-source software could impose limitations on our ability to commercialize our platform.
We incorporate open-source software in our platform. From time to time, companies that incorporate open-source software into their products have faced claims challenging the ownership of open-source software and/or compliance with open-source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open-source software or non-compliance with open-source licensing terms. Use and distribution of open source software may also entail greater risks than that of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, certain open source licenses require that source code for software programs that are subject to the license be made available to the public and that any modifications or derivative works to such open source software continue to be licensed under potentially unfavorable terms or at no or minimal cost.
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Although we monitor our use of open-source software in an effort both to comply with the terms of the applicable open source licenses and to avoid subjecting our software to conditions we do not intend, the terms of many open-source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our platform. By the terms of certain open source licenses, we could be required to release the source code of our software and to make our software available under open source licenses, if we combine or distribute or link our software with open source software in certain manners. In the event that portions of our software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all, or a portion of, that software or otherwise be limited in the licensing of our software, each of which could negatively impact the value of our platform. While we are selective in our use of open source software and we have taken precautions to reduce the risk of subjecting our software to problematic “copyleft” open source license terms, many of the of the risks associated with usage of open source software cannot be eliminated, and could negatively affect our business, results of operations and financial condition.
If we are unable to obtain necessary or desirable third-party technology licenses, our ability to develop platform enhancements may be impaired.
We utilize commercially available off-the-shelf technology in the development of our platform. As we introduce new features or improvements to our platform, we may be required to license additional technologies from third parties. These third-party licenses may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain necessary third-party licenses, we may be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of which could harm the competitiveness of our platform and our business.
Risks Related to the 2026 Convertible Notes
We may not have the ability to raise the funds necessary to settle conversions of the 2026 Convertible Notes in cash or to repurchase the 2026 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2026 Convertible Notes.
Holders of the 2026 Convertible Notes will have the right to require us to repurchase all or a portion of the 2026 Convertible Notes upon the occurrence of a fundamental change before the maturity date at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the 2026 Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. Moreover, we will be required to repay the 2026 Convertible Notes in cash at their maturity unless earlier converted, redeemed, or repurchased. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of all or a portion of the 2026 Convertible Notes surrendered therefor or pay cash with respect to notes being converted or at their maturity.
In addition, our ability to repurchase the 2026 Convertible Notes or to pay cash upon conversions of all or a portion of the 2026 Convertible Notes or at their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase all or a portion of the 2026 Convertible Notes at a time when the repurchase is required by the indenture or to pay cash upon conversions of all or a portion of the 2026 Convertible Notes or at their maturity as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitute an event of default under any such agreement. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof.
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The conditional conversion feature of all or a portion of the 2026 Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of any or all of the 2026 Convertible Notes is triggered, holders of the 2026 Convertible Notes will be entitled to convert their 2026 Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert 2026 Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders of the 2026 Convertible Notes do not elect to convert their 2026 Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The accounting method for convertible debt securities that may be settled in cash, such as the 2026 Convertible Notes, could have a material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2026 Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2026 Convertible Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our condensed consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the liability component of the 2026 Convertible Notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the accretion to the carrying value of the 2026 Convertible Notes to their face amount over the term of the 2026 Convertible Notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the instrument’s nonconvertible coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the 2026 Convertible Notes.
In addition, under certain circumstances, convertible debt instruments (such as the 2026 Convertible Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the 2026 Convertible Notes, then our diluted earnings per share could be adversely affected.
In August 2020, the Financial Accounting Standards Board published an Accounting Standards Update (“ASU”) 2020-06, which amends these accounting standards by reducing the number of accounting models for convertible instruments and limiting instances of separate accounting for the debt and equity or a derivative component of the convertible debt instruments. ASU 2020-06 no longer allows the use of the treasury stock method for convertible instruments and instead requires application of the “if-converted” method. Under that method, diluted earnings per share will generally be calculated assuming that all the 2026 Convertible Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per share. The Company adopted the ASU on January 1, 2022.
Provisions in the indenture for the 2026 Convertible Notes may deter or prevent a business combination that may be favorable to you.
If a fundamental change occurs prior to the maturity date of the 2026 Convertible Notes, holders of the 2026 Convertible Notes will have the right, at their option, to require us to repurchase all or a portion of their 2026 Convertible Notes. In addition, if a make-whole fundamental change occurs prior the maturity date, we will in some cases be required to increase the conversion rate for a holder that elects to convert all or a portion of their 2026 Convertible Notes in connection with such make-whole fundamental change. Furthermore, the indenture for the 2026 Convertible Notes will prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2026 Convertible Notes. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to you.
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Risks Related to Ownership of our Common Stock
Our stock price is volatile.
The market price of our common stock is subject to wide price fluctuations in response to various factors, many of which are beyond our control. The factors include:
•the impact on global and regional economies as a result of the COVID-19 pandemic;
•variations in our operating results;
•variations between our actual operating results and the expectations of securities analysts, investors and the financial community;
•announcements of developments affecting our business, systems or expansion plans by us or others;
•technical factors in the public trading market for our stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies;
•competition, including the introduction of new competitors, their pricing strategies and services;
•announcements regarding stock repurchases and sales of our equity and debt securities;
•market volatility in general;
•the level of demand for our stock, including the amount of short interest in our stock; and
•the operating results of our competitors.
In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.
If our existing shareholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our existing shareholders might sell shares of common stock could also depress our market price. Our executive officers and directors and certain of our shareholders were in the past subject to certain lock-up agreements and the Rule 144 holding period requirements that have since expired. Now that these lock-up periods have expired and the holding periods have elapsed, additional shares are eligible for sale in the public market. The market price of shares of our common stock may drop significantly if our existing holders sell substantial amounts of our common stock in the public market. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
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We also filed a Form S-8 registration statement to register shares reserved for future issuance under our equity compensation plans. As a result, subject to the satisfaction of applicable exercise periods, the shares issued upon exercise of outstanding stock options will be available for immediate resale in the United States in the open market. Further, we have filed two effective shelf registration statements on Form S-3 under each of which we may offer from time to time in one or more offerings any combination of common and preferred stock, debt securities, warrants, purchase contracts and units of up to $750.0 million in the aggregate.
Additionally, certain of our employees, executive officers, and directors have already entered into, or may in the future enter into Rule 10b5-1 trading plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 trading plan, a broker executes trades pursuant to parameters established by the employee, director, or officer when entering into the plan, without further direction from the employee, officer, or director. A Rule 10b5-1 trading plan may be amended or terminated in some circumstances. Our employees, executive officers, and directors also may buy or sell additional shares outside of a Rule 10b5-1 trading plan when they are not in possession of material, nonpublic information, subject to the expiration of the lock-up agreements and Rule 144 requirements referred to above.
General Risk Factors
We have no plans to declare any cash dividends on our common stock in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur to realize future gains on their investment.
Future sales and issuances of our capital stock could reduce our stock price and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
We may issue additional shares of capital stock in the future, including shares issuable pursuant to securities that are convertible into or exchangeable for, or that represent a right to receive, capital stock. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time, including pursuant to our shelf registration statements on Form S-3, which could result in substantial dilution to our existing shareholders. New investors in such future transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
If few securities or industry analysts publish research or reports, or if they publish adverse or misleading research or reports, regarding us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us, our business or our market. If few securities or industry analysts commence coverage of us, the stock price would be negatively impacted. Additionally, if any of the analysts who currently cover us or initiate coverage on us in the future issue adverse or misleading research or reports regarding us, our business model, our intellectual property, our stock performance or our market, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Our insurance may not provide adequate levels of coverage against claims.
We maintain insurance that we believe is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. Such losses could adversely affect our business prospects, results of operations, cash flows and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit Number | Description | Incorporated by Reference | Furnished/Filed Herewith | |||||||||||||||||||||||||||||||||||
| Form | File No. | Exhibit | Filing Date | |||||||||||||||||||||||||||||||||||
| 2.1 | 8-K | 000-55353 | 2.1 | 03/23/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(a) | S-1 | 333-176093 | 3.1(i) | 08/05/2011 | ||||||||||||||||||||||||||||||||||
| 3.1(b) | S-1 | 333-176093 | 3.1(ii) | 08/05/2011 | ||||||||||||||||||||||||||||||||||
| 3.1(c) | 10-K | 000-55353 | 3.1(iii) | 03/31/2015 | ||||||||||||||||||||||||||||||||||
| 3.1(d) | 8-K | 000-55353 | 3.1 | 01/29/2016 | ||||||||||||||||||||||||||||||||||
| 3.1(e) | 8-K | 000-55353 | 4.1 | 06/28/2016 | ||||||||||||||||||||||||||||||||||
| 3.1(f) | 8-K | 000-55353 | 4.2 | 06/28/2016 | ||||||||||||||||||||||||||||||||||
| 3.1(g) | 8-K | 000-55353 | 4.1 | 07/26/2016 | ||||||||||||||||||||||||||||||||||
| 3.1(h) | 8-K | 000-55353 | 3.1 | 03/06/2017 | ||||||||||||||||||||||||||||||||||
| 3.1(i) | 8-K | 000-55353 | 3.1 | 12/05/2017 | ||||||||||||||||||||||||||||||||||
| 3.1(j) | 8-K | 000-55353 | 3.1 | 08/06/2018 | ||||||||||||||||||||||||||||||||||
| 3.1(k) | 8-K | 000-55353 | 3.1 | 09/11/2019 | ||||||||||||||||||||||||||||||||||
| 3.1(l) | 8-K | 000-55353 | 3.1 | 03/23/2020 | ||||||||||||||||||||||||||||||||||
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| 3.1(m) | 8-K | 000-55353 | 3.2 | 03/23/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(n) | 10-Q | 000-55353 | 3.1(n) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(o) | 10-Q | 000-55353 | 3.1(o) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(p) | 10-Q | 000-55353 | 3.1(p) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(q) | 10-Q | 000-55353 | 3.1(q) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(r) | 10-Q | 000-55353 | 3.1(r) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(s) | 10-Q | 000-55353 | 3.1(s) | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(t) | 8-K | 000-55353 | 3.1 | 08/13/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(u) | S-1 | 333-249783 | 3.1(u) | 10/30/2020 | ||||||||||||||||||||||||||||||||||
| 3.1(v) | S-3 | 333-266557 | 3.1(v) | 08/05/2022 | ||||||||||||||||||||||||||||||||||
| 3.2 | 8-K | 001-39590 | 3.1 | 03/02/2022 | ||||||||||||||||||||||||||||||||||
| 4.1 | 10-K | 001-39590 | 4.1 | 03/25/2021 | ||||||||||||||||||||||||||||||||||
| 4.2 | 10-Q | 000-55353 | 4.5 | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 4.3 | 8-K | 001-39590 | 4.1 | 02/02/2021 | ||||||||||||||||||||||||||||||||||
| 4.4 | 8-K | 001-39590 | 4.2 | 02/02/2021 | ||||||||||||||||||||||||||||||||||
| 10.1 | 10-Q | 001-39590 | 10.1 | 08/08/2022 | ||||||||||||||||||||||||||||||||||
| 10.2 | 10-Q | 001-39590 | 10.2 | 08/08/2022 | ||||||||||||||||||||||||||||||||||
| 10.3 | 10-Q | 001-39590 | 10.3 | 08/08/2022 | ||||||||||||||||||||||||||||||||||
| 10.4 | 10-Q | 001-39590 | 10.4 | 08/08/2022 | * | |||||||||||||||||||||||||||||||||
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| 31.1 | * | |||||||||||||||||||||||||||||||||||||
| 31.2 | * | |||||||||||||||||||||||||||||||||||||
| 32.1 | * | |||||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||||||||||||||
| 0.1 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||||||||||||||||||||||||||||||
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FUBOTV INC. | ||||||||
Date: November 7, 2022 | By: | /s/ David Gandler | ||||||
| David Gandler | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
| FUBOTV INC. | ||||||||
Date: November 7, 2022 | By: | /s/ John Janedis | ||||||
| John Janedis | ||||||||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||||
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Exhibit 31.1
CERTIFICATION
I, David Gandler, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 of fuboTV Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 7, 2022 | /s/ David Gandler | ||||
| David Gandler | |||||
| Chief Executive Officer | |||||
| (principal executive officer) | |||||
Exhibit 31.2
CERTIFICATION
I, John Janedis, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 of fuboTV Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 7, 2022 | /s/ John Janedis | ||||
| John Janedis | |||||
| Chief Financial Officer | |||||
| (principal financial officer and principal accounting officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of fuboTV Inc. (the “Company”) for the fiscal quarter ended September 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, David Gandler, Chief Executive Officer, and I, John Janedis, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| November 7, 2022 | /s/ David Gandler | ||||
| David Gandler | |||||
| Chief Executive Officer | |||||
| (principal executive officer) | |||||
| November 7, 2022 | /s/ John Janedis | ||||
| John Janedis | |||||
| Chief Financial Officer | |||||
| (principal financial officer and principal accounting officer) | |||||
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.