FUBOTV INC. 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 inDecember 2022 , working capital of$38.5 million and an accumulated deficit of$1.4 billion as ofSeptember 30, 2022 . The Company incurred a net loss of$152.7 million and$409.8 million for the three and nine months endedSeptember 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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 Company's condensed consolidated financial statements include the accounts of the Company and the accounts of the Company's wholly-owned subsidiaries and non-wholly owned subsidiaries where the Company has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted inthe United States of America ("GAAP" or "U.S. GAAP") for interim financial information and pursuant to the instructions to Form 10-Q. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of such interim results. 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 endingDecember 31, 2022 or for any future interim period. The condensed consolidated balance sheet as ofDecember 31, 2021 has been derived from the audited financial statements; however, it does not include all of the information and notes required byU.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 endedDecember 31, 2021 and notes thereto included in the Company's Annual Report.
Use of Estimates
The preparation of financial statements in conformity withU.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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 $ 201,221 $ 374,294
Restricted cash 6,131 5,112Total cash, cash equivalents and restricted cash $ 207,352
$ 379,406 Cash Reserved for Users
The Company maintains separate bank accounts to segregate users' funds from
operational funds. As of
Short-term investments The Company classifies its time-based deposits as cash and cash equivalents or short-term investments if it had a term at inception of greater or less than 90 days in accordance with ASC 320, Investments - Debt and Equity Securities. The Company reassesses the appropriateness of the classification of its investments at the end of each reporting period. OnJune 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 onDecember 27, 2022 and is included in short-term investments on the accompanying condensed consolidated balance sheet as ofSeptember 30, 2022 . No interest is paid until the settlement date ofDecember 27, 2022 .
At
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 byAmazon Web Services , which cannot be easily switched to another cloud service provider. As such, any disruption of the Company's interference withAmazon 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.
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 endedDecember 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 endedSeptember 30, 2022 .
Licensed Content
During the nine months endedSeptember 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 theU.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 intoUnited 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 intoU.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. InAugust 2022 the Company initiated a strategic review of the Online Sportsbook, exploring a possible sale or partnership transaction, or possible dissolution. This represented a triggering event in that there will be a significant change in the extent and manner in which the long-lived assets of the Online Sportsbook will be used, and there is an expectation that the assets will be sold or otherwise disposed of. For the three months endedSeptember 30, 2022 , the Company determined the carrying value of the asset groups, within the Online Sportsbook, exceeded 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 (see Notes 6 and Note 7).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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Basic loss per share:
Net loss $ (152,746) $
(105,865)
98 14 341 105
Net loss attributable to common stockholders
Shares used in computation: Weighted-average common shares outstanding 186,750,504 142,529,770 176,503,992 133,941,485 Basic and diluted loss per share$ (0.82) $
(0.74)
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 166,670 893,266
Stock options 15,655,673 16,131,605
Unvested restricted stock units 6,859,083 1,331,380
Convertible notes variable settlement feature 6,966,078 6,966,078
Total 29,647,504 25,322,329
Recently Adopted Accounting Standards
InAugust 2020 , theFinancial 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 onJanuary 1, 2022 using the modified retrospective method. Upon adoption atJanuary 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, fromJanuary 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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 ASU 2020-06 As Adjusted
December 31, 2021 Adjustments January 1, 2022
2026 Convertible Notes $ 316,354 $ 75,264 $ 391,618
Additional paid-in capital $ 1,691,206 $ (87,946) $ 1,603,260
Accumulated deficit $ (1,009,293) $ 12,682 $ (996,611)
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
OnDecember 6, 2021 , the Company acquired approximately 98.5% of the equity interests in Molotov S.A.S ("Molotov"), a television streaming platform located inFrance , 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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 endedSeptember 30, 2022 , the Company finalized its purchase price allocation of the assets acquired and liabilities assumed in theDecember 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 endedSeptember 30, 2022 , the Company recorded measurement period adjustments to its acquisition date goodwill to record the non-controlling interest of$1.8 million for the remaining 1.5% of Molotov's equity interest and adjustments to right of use assets, lease liabilities, accounts payable, and accrued expenses based on additional information obtained about conditions that existed as of the acquisition date. The following table presents the allocation of the purchase price to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill (in thousands): Assets acquired: Cash$ 818 Accounts receivable, net 1,752 Prepaid and other current assets 6,273 Property and equipment, net 738 Other non-current assets 2,643 Intangible assets 18,429 Goodwill 127,971 Right-of-use assets 4,566 Total assets acquired 163,190 Liabilities assumed: Accounts payable 15,724 Accrued expenses and other current liabilities 21,628 Deferred revenue 812 Long-term borrowings - current portion 3,662 Lease liabilities 4,566 Total liabilities assumed 46,392 Redeemable non-controlling interest 1,752 Net assets acquired$ 115,046 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 2$ 9,271 Trade names 2$ 679 Software and technology 6$ 8,479 Total$ 18,429 15
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
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
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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
United States and Canada (North America) $ 196,298 $ 138,021 $ 604,707 $ 359,291
Rest of world 5,613 98 16,315 310
Total subscription revenues $ 201,911 $ 138,119 $ 621,022 $ 359,601
Advertising
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
United States and Canada (North America) $ 22,542 $ 18,570 $ 67,029 $ 47,642
Rest of world 172 - 857 -
Total advertising revenues $ 22,714 $ 18,570 $ 67,886 $ 47,642
Contract balances
There were no losses recognized related to any receivables arising from the
Company's contracts with customers for the nine months ended
For the three and nine months endedSeptember 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 ofSeptember 30, 2022 andDecember 31, 2021 . The Company's contract liabilities primarily relate to upfront payments and consideration received from customers for subscription services. As ofSeptember 30, 2022 , andDecember 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
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 20 $ 424 $ 732
Furniture and fixtures 5 429 361
Computer equipment 3-5 3,989 3,856
Leasehold improvements Term of lease 5,196 4,495
10,038 9,444
Less: Accumulated depreciation (3,731) (2,627)
Total property and equipment, net $ 6,307 $ 6,817
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 $0.3 million relating to a building owned
in connection with the Company's Online Sportsbook. The expense is recorded in
impairment of goodwill, intangible assets, and other long-lived assets in the
wagering segment on the accompanying condensed consolidated statements of
operations and comprehensive loss.
Note 7 - Intangible Assets and
Intangible Assets
The table below summarizes the Company's intangible assets at
Weighted
Average September 30, 2022
Useful Remaining
Life Life Intangible Accumulated
(Years) (Years) Assets Amortization Net BalanceCustomer relationships 2 1.2$ 31,659 $ (27,003) $ 4,656 Trade names 2 - 9 6.5 38,781 (10,854) 27,927 Software and technology 3 - 9 6.1 198,176 (53,051) 145,125 Gaming licenses and market access fees 2 - 10 6.6 28,507 (3,283) 25,224 Total$ 297,123 $ (94,191) $ 202,932 17
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Weighted
Average December 31, 2021
Useful Remaining
Lives Life Intangible Accumulated
(Years) (Years) Assets Amortization Net BalanceCustomer relationships 2 2.2$ 32,965 $ (21,105) $ 11,860 Trade names 2 - 9 7.2 38,876 (7,455) 31,421 Software and technology 3 - 9 8.7 195,852 (35,572) 160,280 Gaming licenses and market access fees 2 - 5 4.8 14,951 (326) 14,625 Total$ 282,644 $ (64,458) $ 218,186 The intangible assets are being amortized over their respective original useful lives, which range from two 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 endedSeptember 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 endedSeptember 30, 2022 and 2021, respectively. For the three and nine months endedSeptember 30, 2022 , in connection with the Company's Online Sportsbook, the Company recorded an impairment charge of approximately$0.2 million relating to gaming licenses and 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.
The estimated future amortization expense associated with intangible assets, net is as follows (in thousands):
Year ended December 31, Future Amortization
2022 $ 12,221
2023 37,190
2024 32,797
2025 29,421
2026 28,557
Thereafter 62,746
Total $ 202,932
Prepaid Market Access Agreements
During the nine months endedSeptember 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 ofSeptember 30, 2022 . The$3.5 million is included in other non-current assets on the accompanying condensed consolidated balance sheet as ofSeptember 30, 2022 . For the three and nine months endedSeptember 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 ofSeptember 30, 2022 andDecember 31, 2021 , the balance of prepaid market access agreements was$8.2 million and$39.8 million , respectively. 18
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Goodwill The following table is a summary of the changes to goodwill for the nine months
ended
Streaming Wagering Total
Balance - December 31, 2021 $ 619,587 $ 10,682 $ 630,269
Molotov purchase accounting adjustment (497) - (497)
Impairment - (10,682) $ (10,682)
Foreign currency translation adjustment (11,867) - $ (11,867)
Balance - September 30, 2022 $ 607,223 $ - $ 607,223
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 $ 162,901 $ 177,692
Broadcasting and transmission 13,067 15,179
Selling and marketing 36,275 17,750
Accrued compensation 14,432 12,107
Legal and professional fees 5,418 7,316
Sales tax 33,995 27,316
Deferred royalty 21,902 10,510
Accrued interest 1,490 5,057
Subscriber related 2,830 3,601
Other 10,283 8,197
Total $ 302,593 $ 284,725
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 9 - Income Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Provision for income taxes 392 515 1,150 1,733
Effective tax rate 0.26 % 0.49 % 0.28 % 0.64 %
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
Principal Capitalized September 30,
Note Stated Interest Rate Balance Interest Debt Discount 2022
2026 Convertible Notes 3.25% $ 402,500 $ - $ (9,038) $ 393,462
Note payable 10.0% 2,700 2,802 - 5,502
Bpi France 2.25% 1,887 - - 1,887
Other 4.0% 30 7 - 37
$ 407,117 $ 2,809 $ (9,038) $ 400,888
Principal Capitalized December 31,
Note Stated Interest Rate Balance Interest Debt Discount 2021
2026 Convertible Notes 3.25% $ 402,500 $ - $ (86,146) $ 316,354
Note payable 10.0% 2,700 2,377 - $ 5,077
Bpi France 2.25% 2,422 - - $ 2,422
Société Générale 0.25% 1,246 - - $ 1,246
Other 4.0% 30 6 - 36
$ 408,898 $ 2,383 $ (86,146) $ 325,135
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 .
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 afterFebruary 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 endedSeptember 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 ofSeptember 30, 2022 .
Note payable
The Company has recognized, through the consolidation of its subsidiaryEvolution AI Corporation ("EAI"), a$2.7 million note payable bearing interest at the rate of 10% per annum that was due onOctober 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. OnJune 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 ofSeptember 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 ofSeptember 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. 21
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The Company assumed through the acquisition of Molotov, $3.7 million in notes
bearing interest rates between 0.25% - 2.25% per annum. During the nine months
ended September 30, 2022 , the Company repaid principal and interest of
approximately $1.5 million . As of September 30, 2022 , the principal balance
totaled approximately $1.9 million and is included in long-term
borrowings-current portion on the accompanying condensed consolidated balance
sheet.
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 and reportable segments:
streaming and wagering. During the fourth quarter of 2022, the Company ceased
operation of its Online Sportsbook in connection with the dissolution of Fubo
Gaming . As a result, the Company expects it will begin to report its results
through a single reportable segment effective in the first quarter of 2023.
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 $ 224,989 $ (176) $ 224,813
Adjusted operating expenses
Subscriber related expenses 214,450 - 214,450
Broadcasting and transmission 16,608 - 16,608
Sales and marketing 49,857 2,684 52,541
Technology and development 15,249 2,303 17,552
General and administrative 11,783 4,597 16,380
Depreciation and amortization 8,408 113 8,521
Impairment of goodwill, intangible
assets and other long-lived assets - 35,454 35,454
Total adjusted operating expenses 316,355 45,151 361,506
Stock-based compensation 13,636
Other expense 2,809
Loss before income taxes $ (91,366) $
(45,327)
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended September 30, 2022
Streaming Wagering Total
Revenue $ 689,381 $ (659) $ 688,722
Adjusted operating expenses
Subscriber related expenses 678,935 - 678,935
Broadcasting and transmission 54,062 - 54,062
Sales and marketing 107,501 8,883 116,384
Technology and development 46,896 7,414 54,310
General and administrative 49,228 11,966 61,194
Depreciation and amortization 28,174 328 28,502
Impairment of goodwill, intangible
assets and other long-lived assets - 46,136 46,136
Total adjusted operating expenses 964,796 74,727 1,039,523
Stock-based compensation 47,294
Other expense 12,892
Loss before income taxes $ (275,415) $ (75,386)$ (410,987) September 30, 2022 Streaming Wagering Total Total Assets$ 1,224,711 $ 43,316 $ 1,268,027 Total Goodwill$ 607,223 $ -$ 607,223 Total Intangibles, net$ 177,708 $ 25,224 $ 202,932
The following tables set forth our financial performance by geographical location (in thousands):
Total Revenue Total Assets
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2022 September 30, 2022
United States $ 214,245 $ 665,493 $ 1,224,711
Rest of world 10,568 23,229 43,316
Total $ 224,813 $ 688,722 $ 1,268,027
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 12 - Fair Value Measurements
The Company's assets and liabilities measured at fair value on a recurring basis consisted of the following as ofSeptember 30, 2022 , andDecember 31, 2021 (in thousands): Fair value
measured at
Quoted Significant
prices in other Significant
active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
Assets at fair value:
Cash and cash equivalents $ 201,221 $ - $ - $ 201,221
Short-term investments $ 100,000 $ - $ - $ 100,000
Total assets at fair value $ 301,221 $ - $ - $ 301,221
Fair value
measured at
Quoted Significant
prices in other Significant
active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
Assets at fair value:
Cash and cash equivalents $ 374,294 $ - $ 374,294
Total assets at fair value $ 374,294 $ - $ - $ 374,294
Liabilities at fair value:
Warrant liabilities $ - $ - $ 3,548 $ 3,548
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 ofSeptember 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 ofDecember 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 ofSeptember 30, 2022 , there were no warrant liabilities outstanding. 24
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 $ 3,548
Change in fair value 1,701
Redemption (5,249)
Fair value at September 30, 2022 $ -
Note 13 - Stockholders' Equity
At-the-Market Sales Agreements
2021 ATM Offering
OnAugust 13, 2021 , the Company entered into an At-the-Market Sales Agreement (the "2021 Sales Agreement") withEvercore Group L.L.C., Needham & Company, LLC andOppenheimer & 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. EffectiveAugust 4, 2022 , the Company terminated the 2021 ATM Offering.
2022 ATM Offering
OnAugust 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") withEvercore Group L.L.C. ,Citigroup Global Markets Inc. ,Morgan Stanley & Co. LLC andNeedham & 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 endedSeptember 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 ofSeptember 30, 2022 , there was$340.8 million of common stock remaining available for sale under the 2022 Sales Agreement. 25
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Framework Agreement with MEP FTV
OnAugust 2, 2022 (the "Effective Date"),Fubo Studios Inc. (formerly known asFubo Entertainment Inc. ), a subsidiary of the Company, entered into a binding framework agreement (the "Framework Agreement") withMEP FTV Holdings, LLC ("MEP FTV") andMaximum 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 onFuboTV . Maximum Effort is a premiere entertainment production company led byRyan Reynolds andGeorge 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 datedAugust 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. 26
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Warrants
Pursuant to the Framework Agreement, onAugust 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 toAugust 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 onAugust 12, 2022 , using theMonte Carlo valuation model, and the fair value totaled approximately$0.4 million . The derived service period was determined to be 1.7 years. As ofSeptember 30, 2022 , the unrecognized stock-based compensation totaled$0.4 million .
A summary of the Company's outstanding warrants as of
Weighted Average Remaining
Weighted Average Total Intrinsic Contractual Life
Number of Shares Exercise Price Value (in years)
Outstanding as of December 31, 2021 565,544 $ 9.96 $ 3,546 0.1
Granted 166,667 $ 15.00
Exercised (540,541) $ 9.25 -
Expired (25,000) $ 9.25
Outstanding and exercisable as of
September 30, 2022 166,670 $ 17.40 $ - 9.8
The Company estimated the fair value of the warrants granted during the three
and nine months ended September 30, 2022 using the Monte Carlo valuation model
as follows:
Dividend yield -
Expected price volatility 107.0%
Risk free interest rate 2.8%
Expected term (years) 10.0
Stock-based compensation
During the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Subscriber related $ 15 $ 13 $ 91 $ 43
Sales and marketing 5,432 821 18,565 2,324
Technology and development 2,575 1,535 8,164 12,156
General and administrative 5,614 10,298 20,474 31,949
$ 13,636 $ 12,667 $ 47,294 $ 46,472
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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
Weighted Total Weighted Average Remaining
Average Intrinsic Contractual Life
Number of Shares Exercise Price Value (Years)
Outstanding as of December 31, 2021 11,454,890 $ 6.40 $ 70,231 7.4
Exercised (565,022) $ 1.33
Forfeited or expired (507,492) $ 10.95
Outstanding as of September 30, 2022 10,382,376 $ 6.46 $ 7,975 6.2
Options vested and exercisable as of
September 30, 2022 7,816,011 $ 5.63 $ 7,854 5.8
There were no options granted during the three and nine months ended
During the nine months endedSeptember 30, 2021 , the Company granted options to purchase 220,099 shares of common stock with an aggregate fair value of$3.2 million . As ofSeptember 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 ofSeptember 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. 28
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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
Weighted Total Weighted Average Remaining
Average Intrinsic Contractual Life
Number of Shares Exercise Price Value (Years)
Outstanding as of December 31, 2021 4,453,297 $ 12.75 $ 17,933 5.7
Outstanding as of September 30, 2022 4,453,297 $ 12.75 $ - 4.9
Options vested and exercisable as of
September 30, 2022 3,536,630 $ 10.98 $ - 4.7
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
Performance-Based Stock Options
OnOctober 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 as a result of the accelerated vesting of stock options and restricted stock units. 29
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 onAugust 12, 2022 ,$7.0 million , plus the fixed monetary amount of$8.0 million , settleable in shares onAugust 2, 2023 , and the fixed monetary amount of$8.0 million , settleable in shares onAugust 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 ofSeptember 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
Weighted Average Grant-Date
Number of Shares Fair Value
Unvested at December 31, 2021 2,785,800 $ 25.73
Granted 3,512,728 $ 5.70
Vested (350,635) $ 26.93
Forfeited (708,810) $ 14.59
Unvested at September 30, 2022 5,239,083 $ 13.73
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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
Weighted Average Grant-Date
Number of Shares Fair Value
Unvested at December 31, 2021 1,900,000 $ 33.87 Vested (280,000) $ 33.87 Unvested at September 30, 2022 1,620,000 $ 33.87 OnNovember 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 endedSeptember 30, 2022 , the Company issued 280,000 shares of its common stock in connection with the vesting of PRSUs. During the nine months endedSeptember 30, 2022 the Company recognized$14.4 million of stock-based compensation. As ofSeptember 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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Operating leases
Operating lease cost $ 1,648 $ 469 $ 4,946 $ 1,248
Other lease cost 85 178 230 178
Operating lease expense 1,733 647 5,176 1,426
Short-term lease rent expense 38 41
141 41
Total rent expense $ 1,771 $ 688 $ 5,317 $ 1,467
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Supplemental cash flow information related to leases were as follows (in thousands, except term and discount rate):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Operating cash flows from operating
leases $ 667 $ 462 $ 1,644 $ 1,136
Right of use assets exchanged for
operating lease liabilities $ - $ - $ 3,931 $ 3,522
Weighted average remaining lease term -
operating leases 11.2 5.0 11.2 5.0
Weighted average remaining discount rate
- operating leases 7.3 % 5.7 % 7.3 % 5.7 %
As of
Year Ended December 31, 2022 $ 660
Year Ended December 31, 2023 5,692
Year Ended December 31, 2024 6,822
Year Ended December 31, 2025 6,504
Year Ended December 31, 2026 5,833
Thereafter 40,980
Total 66,491
Less present value discount (23,444)
Operating lease liabilities $ 43,047 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 $ 2,853
Year Ended December 31, 2023 4,000
Year Ended December 31, 2024 4,000
Year Ended December 31, 2025 4,000
Year Ended December 31, 2026 3,875
Thereafter 8,500
Subtotal 27,228
Less present value discount (5,326)
Total $ 21,902
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Annual Sponsorship Agreements
Year Ended December 31, 2022 $ 2,405
Year Ended December 31, 2023 6,581
Year Ended December 31, 2024 6,830
Year Ended December 31, 2025 7,010
Year Ended December 31, 2026 3,325
Thereafter 19,675
Total $ 45,826
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 $ 10,622
Year Ended December 31, 2023 41,687
Year Ended December 31, 2024 26,065
Year Ended December 31, 2025 13,748
Year Ended December 31, 2026 13,748
Thereafter 18,330
Total $ 124,200 During the nine months ended
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 ofFubo Gaming inOctober 2022 , the Company has received communications from several commercial partners ofFubo Gaming , alleging breach byFubo Gaming of applicable agreements. Additional allegations, or litigation, may arise againstFubo Gaming or the Company in the future related to the dissolution ofFubo Gaming , including potential breach of contract claims by other commercial partners ofFubo Gaming or claims related to guarantees by the Company ofFubo Gaming's contractual obligations. 33
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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.)) OnFebruary 17, 2021 , putative shareholdersWafa Said-Ibrahim and Adhid Ibrahim filed a class action lawsuit against the Company, co-founder and CEODavid Gandler , Executive ChairmanEdgar M. Bronfman Jr ., and CFOSimone 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
OnApril 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 reFuboTV Inc. Securities Litigation, No. 1:21-cv-01412 (S.D.N.Y.). The court also appointed putative shareholder Nordine Aamchoune as lead plaintiff. OnJuly 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 theNew York Stock Exchange ("NYSE") betweenMarch 23, 2020 andJanuary 4, 2021 , inclusive, and who were allegedly damaged thereby. The Class Action Defendants filed a motion to dismiss the Amended Class Action Complaint onSeptember 10, 2021 . Lead Plaintiff filed an opposition onNovember 9, 2021 . Class Action Defendants' filed their reply in support of the motion to dismiss onDecember 9, 2021 . The Company believes the claims alleged in both lawsuits are without merit and intends to vigorously defend these litigations. 34
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fuboTV Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
OnJune 8, 2020 ,Andrew Kriss andEric Lerner filed a Summons with Notice in theSupreme Court of the State of New York ,Nassau County naming as defendants the Company, PEC,John Textor andFrank Patterson , among others. OnNovember 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 thansix million dollars ($6,000,000 ). The Company believes the claims are without merit and intends to vigorously defend this litigation and onJanuary 19, 2021 , the Company filed a motion to dismiss all claims asserted against it. A court conference was held onNovember 15, 2021 , and the court confirmed that the motion to dismiss was fully submitted. OnAugust 18, 2022 , the Court issued an order dismissing all claims against the Company.
Note 15 - Subsequent events
OnOctober 17, 2022 , the Company filed a Certificate of Dissolution with the Secretary of State of theState 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 ofFubo 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. 35
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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
OnOctober 17, 2022 , we filed a Certificate of Dissolution with the Secretary of State of theState of Delaware to dissolve our wholly owned subsidiary, fuboGaming 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 ofFubo 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 inthe United States , though we have expanded into several international markets, with operations inCanada ,Spain andFrance . 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 ofIowa andArizona in the fourth quarter of 2021 and inNew Jersey during the third quarter of 2022. During the nine months endedSeptember 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. OnOctober 17, 2022 , we ceased operation of Fubo Sportsbook in connection with the dissolution ofFubo Gaming . See "-Recent Developments-Fubo Gaming Dissolution." 36
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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 forU.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. 37
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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 theNational 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 inMarch 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 EndedSeptember 30, 2022 and 2021 (in thousands): For the Three Months Ended For the Nine Months Ended September 30, 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
During the three months endedSeptember 30, 2022 , we recognized revenues of$224.8 million compared to$156.7 million during the three months endedSeptember 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") inDecember 2021 . Advertising revenue increased$4.1 million due to an increase in the number of impressions sold. 40
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Nine Months Ended
During the nine months endedSeptember 30, 2022 , we recognized revenues of$688.7 million compared to$407.3 million during the nine months endedSeptember 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
During the three months endedSeptember 30, 2022 , we recognized subscriber related expenses of$214.5 million compared to$143.4 million during the three months endedSeptember 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 inDecember 2021 .
Nine Months Ended
During the nine months endedSeptember 30, 2022 , we recognized subscriber related expenses of$679.0 million compared to$377.2 million during the nine months endedSeptember 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 inDecember 2021 .
Broadcasting and transmission
Three Months Ended
During the three months endedSeptember 30, 2022 , we recognized broadcasting and transmission expenses of$16.6 million compared to$14.3 million during the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , we recognized broadcasting and transmission expenses of$54.1 million compared to$37.3 million during the nine months endedSeptember 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 inDecember 2021 .
Sales and marketing
Three Months Ended
During the three months endedSeptember 30, 2022 , we recognized sales and marketing expenses of$58.0 million compared to$50.4 million during the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , we recognized sales and marketing expenses of$135.0 million compared to$94.0 million during the nine months endedSeptember 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. 41
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Technology and development
Three Months Ended
During the three months endedSeptember 30, 2022 , we recognized technology and development expenses of$20.1 million compared to$15.3 million during the three months endedSeptember 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 inDecember 2021 .
Nine Months Ended
During the nine months endedSeptember 30, 2022 , we recognized technology and development expenses of$62.5 million compared to$46.7 million during the nine months endedSeptember 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
During the three months endedSeptember 30, 2022 , general and administrative expenses totaled$22.0 million compared to$27.3 million for the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , general and administrative expenses totaled$81.7 million compared to$73.7 million for the nine months endedSeptember 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
During the three months endedSeptember 30, 2022 , we recognized depreciation and amortization expenses of$8.5 million compared to$9.3 million during the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , we recognized depreciation and amortization expenses of$28.5 million compared to$27.8 million during the nine months endedSeptember 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. 42
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Impairment of goodwill, intangible, and other long-lived assets
Three Months Ended
During the three months endedSeptember 30, 2022 , we recognized an impairment expense of$35.5 million relating to the wagering segment as a result of the dissolution ofFubo Gaming . There were no impairments taken during the three months endedSeptember 30, 2021 .
Nine Months Ended
During the nine months endedSeptember 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 ofFubo Gaming . There were no impairments taken during the nine months endedSeptember 30, 2021 . The results of the goodwill impairment test performed as ofJune 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 endedSeptember 30, 2022 .
Other Income (Expense)
Three Months Ended
During the three months endedSeptember 30, 2022 , we recognized$2.8 million of other expense (net), compared to$3.1 million of other expense (net) during the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , we recognized$12.9 million of other expense (net), compared to$23.3 million of other expense during the nine months endedSeptember 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
During the three months endedSeptember 30, 2022 , we recognized an income tax benefit of$0.4 million compared to$0.5 million during the three months endedSeptember 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
During the nine months endedSeptember 30, 2022 , we recognized an income tax benefit of$1.2 million compared to$1.7 million during the nine months endedSeptember 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. 43
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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 endedSeptember 30, 2021 is not presented for Rest of World (as defined below) metrics because until our acquisition of our French streaming service, Molotov, inDecember 2021 , we primarily operated inNorth 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 withFuboTV , have activated a payment method (only reflects one paying user per plan), from whichFuboTV 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 inthe United States andCanada ("North America" or "NA") as ofSeptember 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 ofSeptember 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 toNorth 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 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 ofSeptember 30, 2022 , including lease obligations, market access agreements and sponsorship agreements, in addition to our discussion below regarding the dissolution ofFubo Gaming inOctober 2022 . 45
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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 , onOctober 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 inFebruary 2021 . We currently have an effective shelf registration statement on Form S-3 (No. 333-258428) initially filed with theSEC onAugust 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. OnAugust 13, 2021 , we entered into a sales agreement withEvercore Group L.L.C., Needham & Company, LLC andOppenheimer & 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. OnAugust 4, 2022 , we terminated the 2021 ATM Program, and entered into a sales agreement withEvercore Group L.L.C. ,Citigroup Global Markets Inc. ,Morgan Stanley & Co. LLC andNeedham & 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 endedSeptember 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 ofSeptember 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 inDecember 2022 . As a result of the dissolution ofFubo 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. 46
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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
Operating Activities
For the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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. 47
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Financing Activities
For the nine months endedSeptember 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 endedSeptember 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
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 inthe 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. 48
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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.
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