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 on Form 10-Q and our audited
financial statements and related notes and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K/A for the year ended December 31, 2019, as filed with the
Securities and Exchange Commission (the "SEC") on August 10, 2020 (the "Annual
Report").
The results of our operations for the three and six months ended June 30, 2020
are not readily comparable against the results of our operations in the
comparable prior year three and six month period ended June 30, 2019 as a result
of our acquisitions of fuboTV Pre-Merger and Facebank AG, and our acquisition of
and then deconsolidation of Nexway AG and its subsidiaries.
Incorporation
fuboTV Inc. ("fuboTV" or the "Company") was incorporated under the laws of the
State of Florida in February 2009 under the name York Entertainment, Inc. The
Company changed its name to FaceBank Group, Inc. on September 30, 2019. On
August 10, 2020, the Company changed its name to fuboTV Inc. (the "Name Change")
and as of May 1, 2020, the Company's trading symbol was changed to "FUBO." The
Company has filed a Notice of Corporate Action (the "Action") with FINRA
regarding the Name Change. The Action is pending FINRA approval at this time.
Unless the context otherwise requires, "fuboTV," "we," "us," "our," and the
"Company" refers to fuboTV and its subsidiaries on a consolidated basis, and
"fuboTV Pre-Merger" refers to fuboTV Inc., a Delaware corporation, prior to the
Merger, and "fuboTV Sub" refers to fuboTV Inc., a Delaware corporation, and the
Company's wholly-owned subsidiary following the Merger. "FaceBank Pre-Merger"
refers to FaceBank Group, Inc. prior to the Merger and its subsidiaries prior to
the closing of the Merger.
Merger with fuboTV Inc Pre-Merger
On April 1, 2020, fuboTV Acquisition Corp., a Delaware corporation and our
wholly-owned subsidiary ("Merger Sub") merged with and into fuboTV Pre-Merger,
whereby fuboTV Pre-Merger continued as the surviving corporation and became our
wholly-owned subsidiary pursuant to the terms of the Agreement and Plan of
Merger and Reorganization dated as of March 19, 2020, by and among us, Merger
Sub and fuboTV Pre-Merger (the "Merger Agreement" and such transaction, the
"Merger").
In accordance with the terms of the Merger Agreement, at the effective time of
the Merger (the "Effective Time"), all of the capital stock of fuboTV Pre-Merger
was converted into the right to receive shares of our newly-created class of
Series AA Convertible Preferred Stock, par value $0.0001 per share (the "Series
AA Preferred Stock"). Each share of Series AA Preferred Stock is entitled to 0.8
votes per share and shall only be convertible immediately following the sale of
such shares on an arms'-length basis either pursuant to an exemption from
registration under Rule 144 promulgated under the Securities Act or pursuant to
an effective registration statement under the Securities Act. Until the time we
are able to uplist to a national securities exchange, the Series AA Preferred
Stock benefits from certain protective provisions that would require us to
obtain the approval of a majority of the shares of outstanding Series AA
Preferred Stock, voting as a separate class, before undertaking certain matters.
Prior to the Merger, the Company was, and after the Merger continues to be, a
character-based virtual entertainment company, and a leading developer of
digital human likeness for celebrities and consumers, focused on applications in
traditional entertainment, sports entertainment, live events, social networking,
mixed reality (AR/VR) and artificial intelligence. As a result of the Merger,
fuboTV Pre-Merger, a leading live TV streaming platform for sports, news, and
entertainment, became a wholly-owned subsidiary of the Company.
In connection with the Merger, on March 11, 2020, the Company and HLEE Finance
S.a r.l. ("HLEE") entered into a Credit Agreement, dated as of March 11, 2020,
pursuant to which HLEE provided the Company with a $100.0 million revolving line
of credit (the "Credit Facility"). The Credit Facility is secured by
substantially all the assets of the Company. On July 8, 2020, the Company
entered into a Termination and Release Agreement with HLEE Finance to terminate
the Credit Agreement. The Company did not draw down on the Credit Agreement
during its term. See Notes Payable footnote for more information about the
Credit Facility.
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On March 19, 2020, FaceBank Pre-Merger, Merger Sub, Evolution AI Corporation
("EAI") and Pulse Evolution Corporation ("PEC" and collectively with EAI, Merger
Sub and FaceBank Pre-Merger, the "Initial Borrower") and FB Loan Series I, LLC
("FB Loan") entered into a Note Purchase Agreement (the "Note Purchase
Agreement"), pursuant to which the Initial Borrower sold to FB Loan senior
secured promissory notes in an aggregate principal amount of $10.1 million (the
"Senior Notes"). The Company received proceeds of $7.4 million, net of an
original issue discount of $2.7 million. In connection with the FB Loan,
FaceBank Pre-Merger, fuboTV Pre-Merger and certain of their respective
subsidiaries granted a lien on substantially of their assets to secure the
obligations under the Senior Notes. The Company made a $7.5 million payment on
the Note Purchase Agreement on May 28, 2020 and paid the remaining balance of
$2.6 million on July 3, 2020.
Prior to the Merger, fuboTV Pre-Merger and its subsidiaries were party to a
Credit and Guaranty Agreement, dated as of April 6, 2018 (the "AMC Agreement"),
with AMC Networks Ventures LLC as lender, administrative agent and collateral
agent ("AMC Networks Ventures"). fuboTV Pre-Merger previously granted AMC
Networks Ventures a lien on substantially all of its assets to secure its
obligations thereunder. The AMC Agreement survived the Merger and, as of the
Effective Time, there was $23.8 million outstanding under the AMC Agreement. In
connection with the Merger, the Company guaranteed the obligations of fuboTV
Pre-Merger under the AMC Agreement on an unsecured basis. The liens of AMC
Networks Ventures on the assets of fuboTV Pre-Merger are senior to the liens in
favor of FB Loan and the Company securing the Senior Notes.
Nature of Business
The Company is a leading digital entertainment company, combining fuboTV
Pre-Merger's direct-to-consumer live TV streaming, or vMVPD, platform with
FaceBank Pre-Merger's technology-driven IP in sports, movies and live
performances. We expect that this business combination will create a content
delivery platform for traditional and future-form IP. We plan to leverage
FaceBank Pre-Merger's IP sharing relationships with leading celebrities and
other digital technologies to enhance its already robust sports and
entertainment offerings.
Since the Merger, while we continue our previous business operations, we are
principally focused on offering consumers a leading live TV streaming platform
for sports, news and entertainment through fuboTV. The Company's revenues are
almost entirely derived from the sale of subscription services and the sale of
advertisements in the United States, though the Company has started to assess
expansion opportunities into international markets, with operations in Canada
and the launch in late 2018 of its first ex-North America offering of streaming
entertainment, to consumers in Spain.
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. The fuboTV platform provides, what we believe to be, a superior viewer
experience, with a broad suite of unique features and personalization tools such
as multi-channel viewing capabilities, favorites lists and a dynamic
recommendation engine as well as 4K streaming and Cloud DVR offerings.
Corporate Information
Our headquarters are located at 1330 Avenue of the Americas, New York, NY 10019,
and our telephone number is (212) 672-0055. You can access our websites,
including historical financial information pertaining to fuboTV Pre-Merger, at
https://fubo.tv, https://ir.fubo.tv, https://facebankgroup.com and
https://ir.facebankgroup.com. Information contained on our websites is not part
of this Quarterly Report on Form 10-Q and is not incorporated by reference in
this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenues, net
Subscription
Subscription revenues consist primarily of subscription plans sold through the
Company's website and third-party app stores.
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Advertisements
Advertisement revenue consist primarily of fees charged to advertisers who want
to display ads ('impressions") within the streamed content.
Software licenses, net
Software license revenue consists of revenue generated from the sale of software
licenses at one of our subsidiaries, Nexway eCommerce Solutions.
Other
Other revenue consists of a contract to sub-license rights to broadcast certain
international sporting events to a third party.
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 issuance gains/losses and the
change in fair value of financial instruments, interest expense and financing
costs on our outstanding borrowings, unrealized gains/losses on equity method
investments, and the loss recorded on the deconsolidation of a subsidiary.
46
Income tax benefit
The Company's deferred tax liability and income tax benefit relates to our
amortizable of finite-lived intangible assets.
Results of Operations for the three and six months ended June 30, 2020 and 2019
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenues, net
Subscriptions $ 39,511 $ - $ 39,511 $ -
Advertisements 4,323 - 4,323 $ -
Software licenses, net - - 7,295 $ -
Other 338 - 338 -
Total Revenues $ 44,172 $ - $ 51,467 $ -
Operating expenses:
Subscriber related expenses 53,087 - 53,087 -
Broadcasting and transmission 9,492 - 9,492 -
Sales and marketing 7,577 111 11,256 324
Technology and development 9,551 - 9,551 -
General and administrative 17,338 693 33,862 1,517
Depreciation and amortization 14,417 5,158 19,637 10,316
Total operating expenses 111,462 5,962 136,885 12,157
Operating loss (67,290 ) (5,962 ) (85,418 ) (12,157 )
Other income (expense):
Interest expense and financing
costs (13,325 ) (454 ) (15,906 ) (900 )
Loss on deconsolidation of Nexway - - (11,919 ) -
Loss on issuance of notes, bonds
and warrants (26,753 ) - (50,806 ) -
Change in fair value of warrant
liability 4,966 - 4,600 -
Change in fair value of subsidiary
warranty liability 18 1,124 3 3,601
Change in fair value of shares
settled liability (1,485 ) - (1,665 ) -
Change in fair value of derivative
liability (823 ) 890 (526 ) 1,018
Change in fair value of Panda
interests (148 ) - (148 ) -
Unrealized gain on equity method
investment 2,614 - 2,614 -
Other expense (1,010 ) - (1,446 ) -
Total other income (expense) (35,946 ) 1,560 (75,199 ) 3,719
Loss before income taxes (103,236 ) (4,402 ) (160,617 ) (8,438 )
Income tax benefit 3,481 1,037 4,519 2,206
Net loss $ (99,755 ) $ (3,365 ) $ (156,098 ) $ (6,232 )
Subsequent to June 30, 2019, the Company acquired Facebank AG, Nexway and fuboTV
Pre-Merger. The results of our operations for the three and six months ended
June 30, 2020 include the results of operations of those entities and also
include the effects of the deconsolidation of Nexway as of March 31, 2020.
Because of this, the results of operations for the three and six months ended
June 30, 2020 are not comparable to the results of operations for the three and
six months ended June 30, 2019.
Revenue, net
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, we recognized revenues of $44.2
million, primarily related to $39.5 million of subscription revenue, $4.3
million of advertising revenue and $0.3 million in other revenue. These revenues
were generated entirely by fuboTV post-Merger which occurred on April 1, 2020
and there are no comparable results in the prior year.
47
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, we recognized revenues of $51.5
million, primarily related to $39.5 million of subscription revenue and $4.3
million of advertising revenue in connection with the second quarter acquisition
of fuboTV Pre-Merger. These revenues were generated entirely by fuboTV
post-Merger which occurred on April 1, 2020 and there are no comparable results
in the prior year. In addition, we generated $7.3 million related to the sale of
software licenses from our acquisition of Facebank AG.
Subscriber related expenses
Three and Six Months Ended June 30, 2020 and 2019
During the three and six months ended June 30, 2020, we recognized subscriber
related expenses of $53.1 million due to affiliate distribution rights and other
distribution costs in connection with the streaming revenue generated from the
Merger on April 1, 2020.
There were no subscriber related expenses recognized during the three and six
months ended June 30, 2019.
Broadcasting and transmission
Three and Six Months Ended June 30, 2020 and 2019
During the three and six months ended June 30, 2020, we recognized broadcasting
and transmission expenses of $9.5 million primarily related to transmissions of
our services in connection with the streaming revenue generated from the Merger
on April 1, 2020.
There were no broadcasting and transmission expenses recognized during the three
and six months ended June 30, 2019.
Sales and marketing
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, we recognized sales and marketing
expenses of $7.6 million as compared to $0.1 million during the three months
ended June 30, 2019. The increase in sales and marketing expenses were incurred
to acquire new customers to our streaming platform after the Merger on April 1,
2020.
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, we recognized sales and marketing
expenses of $11.3 million as compared to $0.3 million during the six months
ended June 30, 2019. The increase of $11.0 million is primarily related to the
$7.5 million of sales and marketing expenses incurred to acquire new customers
to our streaming platform after the Merger on April 1, 2020. The remaining
increase in sales and marketing expenses were related to the costs incurred to
acquire new customers of Nexway resulting from our 2019 acquisitions of Facebank
AG and Nexway.
Technology and development
Three and Six Months Ended June 30, 2020 and 2019
During the three and six months ended June 30, 2020, we recognized technology
and development expenses of $9.6 million in connection with the development of
our streaming platform after the Merger on April 1, 2020.
There were no technology and development expenses recognized during the three
and six months ended June 30, 2019.
General and Administrative
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, general and administrative expenses
totaled $17.3 million, compared to $0.7 million for the three months ended June
30, 2019. The increase of $16.6 million was primarily related to $8.4 million of
incremental general and administrative expenses as a result of the acquisition
of fuboTV Pre-Merger and $6.8 million of professional services due to additional
financing and acquisition activities.
48
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, general and administrative expenses
totaled $33.9 million, compared to $1.5 million for the six months ended June
30, 2019. The increase of $32.4 million was primarily related to $9.2 million
compensation expenses and $6.2 million other general and administrative expenses
resulting from our 2019 acquisitions of Facebank AG and Nexway. In addition, we
incurred an additional $8.4 million of incremental general and administrative
expenses as a result of the acquisition of fuboTV Pre-Merger and $6.8 million of
professional services due to additional financing and acquisition activities.
Depreciation and amortization
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, we recognized depreciation and
amortization expenses of $14.4 million compared to $5.2 million during the three
months ended June 30, 2019. The increase of $9.2 million is primarily related to
the amortization expenses recognized on the intangible assets acquired as part
of the Merger on April 1, 2020 of $9.1 million.
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, we recognized depreciation and
amortization expenses of $19.6 million compared to $10.3 million during the six
months ended June 30, 2019. The increase of $9.3 million is primarily related to
$9.1 of amortization expense recorded for the intangible assets acquired in
connection with the Merger on April 1, 2020.
Other Income (Expense)
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, we recognized $35.9 million of
other expense (net), compared to $1.6 million of other income (net) during the
three months ended June 30, 2019. The $35.9 million of other expense (net)
recognized during the three months ended June 30, 2020 was primarily related to
a $26.8 million loss on the issuance of warrants and $13.3 million of interest
expense on our outstanding borrowings. These expenses were partially offset by a
$5.0 million gain in the fair value of warrant liabilities and $2.6 million
unrealized gain on our equity method investment in Nexway. For the three months
ended June 30, 2019, we recognized $1.6 million of other income (net) primarily
related to $2.0 million of gains from the change in fair value of financial
instruments, offset by $0.4 million of interest expense on our outstanding
borrowings. The increase in other expenses are primarily due to the new
financings which resulted in loss on issuances of financial instruments, and
additional interest expenses incurred on outstanding borrowings.
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, we recognized $75.2 million of other
expense (net), compared to $3.7 million of other income (net) during the six
months ended June 30, 2019. The $75.2 million of other expense (net) recognized
during the six months ended June 30, 2020 was primarily related to a $50.8
million loss on issuance of convertible notes, bonds and warrants, a $15.9
million of interest expense on our outstanding borrowings, and an $11.9 million
loss on the deconsolidation of Nexway. These expenses were partially offset by a
$4.6 million gain in the fair value of warrant liabilities and $2.6 million
unrealized gain on our equity method investment in Nexway. For the six months
ended June 30, 2019, we recognized $3.7 million of other income (net) related to
a $3.6 million gain in fair value of subsidiary warrant liability and $1.0
million gain in the fair value of derivative liabilities, partially offset by
$0.9 million of interest expense. The increase in other expenses are primarily
due new financings which resulted in loss on issuances of financial instruments,
additional interest expenses incurred on outstanding borrowings and the loss on
the deconsolidation of Nexway.
Income tax benefit
Three Months Ended June 30, 2020 and 2019
During the three months ended June 30, 2020, we recognized an income tax benefit
of $3.5 million, compared to $1.0 million during the three months ended June 30,
2019. The increase in income tax benefits for the three months ended June 30,
2020 was related to the amortization of the deferred tax liability established
in connection with the Merger with fuboTV Pre-Merger on April 1, 2020.
49
Six Months Ended June 30, 2020 and 2019
During the six months ended June 30, 2020, we recognized an income tax benefit
of $4.5 million, compared to $2.2 million during the six months ended June 30,
2019. The increase for the six months ended June 30, 2020 was related to the
amortization of the deferred tax liability established in connection with the
Merger with fuboTV Pre-Merger on April 1, 2020.
Liquidity and Going Concern
The accompanying 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 of $7.4 million, a working capital
deficiency of $258.3 million and an accumulated deficit of $210.5 million as at
June 30, 2020. The Company incurred a $156.1 million net loss for the six months
ended June 30, 2020. The Company expects to continue incurring losses in the
foreseeable future and will need to raise additional capital to fund its
operations, meet its obligations in the ordinary course of business and execute
its longer-term business plan. These factors raise substantial doubt about the
Company's ability to continue as a going concern within one year from the date
that those financial statements are issued. The condensed consolidated financial
statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including its 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 its product and service offerings.
Management believes that the Company has access to capital resources through
potential issuances of debt and equity securities. The ability of the Company to
continue as a going concern is dependent on the Company's ability to execute its
strategy and raise additional funds. Management is currently seeking additional
funds, primarily through the issuance of equity securities for cash, to operate
its business. No assurance can be given that any future financing will be
available or, if available, that it will be on terms that are satisfactory to
the Company. Even if the Company is able to obtain additional financing, it may
contain undue restrictions on our operations, in the case of debt financing or
cause substantial dilution for our stockholders, in the case of an equity
financing. In addition to the foregoing, based on the Company's current
assessment, the Company does not expect any material impact on its long-term
development timeline and its liquidity due to the worldwide spread of a novel
strain of coronavirus ("COVID 19"). However, the Company is continuing to assess
the effect on its operations by monitoring the spread of COVID-19 and the
actions implemented to combat the virus throughout the world. Given the daily
evolution of the COVID-19 outbreak and the global response to curb its spread,
COVID-19 may affect the Company's results of operations, financial condition or
liquidity.
Cash Flows (in thousands)
Six Months Ended June 30,
2020 2019
Net cash used in operating activities (42,314 ) (1,548 )
Net cash used in investing activities (697 ) (374 )
Net cash provided by financing activities 44,073 2,042
Net increase in cash and cash equivalents 1,062 120
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Operating Activities
For the six months ended June 30, 2020, net cash used in operating activities
was $42.3 million, which consisted of our net loss of $156.1 million, adjusted
for non-cash movements of $102.0 million. The non-cash movements included $50.8
million of losses on issuance of convertible notes, bonds and warrants, $19.6
million of depreciation and amortization expenses primarily related to
intangible assets, $17.8 million stock-based compensation, $11.0 million of
amortization of debt discounts, $8.6 million loss on deconsolidation of Nexway
partially offset by $4.6 million of change in fair value of warrant liability
and $4.5 million of deferred income tax benefits. Changes in operating assets
and liabilities resulted in cash inflows of approximately $11.8 million,
primarily due to a net increase in accounts payable, accrued expenses and other
current liabilities of $11.7 million due to timing of payments.
For the six months ended June 30, 2019, net cash used in operating activities
was $1.5 million, which consisted of our net loss of $6.2 million, adjusted for
non-cash movements of $4.3 million. The non-cash movements included $10.3
million of depreciation and amortization expenses primarily related to
intangible assets, $0.5 million of amortization of debt discounts and $0.3
million of accrued interest expense related to our notes payable, partially
offset by $4.6 million related to the change in fair value of our financial
instruments and $2.2 million of deferred income tax benefits. Changes in
operating assets and liabilities resulted in cash inflows of approximately $0.4
million, primarily consisted of increases in accounts payable and accrued
expenses of $0.5 million due to timing of payments.
Investing Activities
For the six months ended June 30, 2020, net cash used in investing activities
was $0.7 million, which consisted of a $10.0 million advance to fuboTV
Pre-Merger, offset by net cash paid of $9.4 million for the acquisition of
fuboTV Pre-Merger and $0.1 million of capital expenditures.
For the six months ended June 30, 2019, net cash used in investing activities
was $0.4 million, which primarily consisted of our $1.0 million payment for our
investment in Panda Productions (HK) Limited ("Panda"), offset by $0.7 million
received from accredited investors for an interest in Panda.
Financing Activities
For the six months ended June 30, 2020, net cash provided by financing
activities was $44.1 million. The net cash provided is primarily related to
$28.9 million of proceeds received from the sale of our common stock, $23.6
million of proceeds received in connection with short-term and long-term
borrowings and $3.0 million of proceeds received from the issuance of
convertible notes. These proceeds were partially offset by repayments of $7.5
million in connection with the Note Purchase Agreement, $1.3 million in
connection with our loan with AMC Networks Ventures, LLC, $1.1 million in
connection with convertible notes and $0.9 million in connection with our
Revenue Participation Agreement.
For the six months ended June 30, 2019, net cash provided by financing
activities was $2.0 million. The net cash provided is primarily related to $2.2
million of proceeds received from the sale of our common stock and warrants and
0.4 million of proceeds from related parties. These proceeds were partially
offset by repayments of $0.5 million of our convertible notes.
Off-Balance Sheet Arrangements
As of June 30, 2020, there were no off-balance sheet arrangements.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these condensed 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. Actual results could differ from those estimates. Those
estimates and assumptions include revenue recognition, allocating the fair value
of purchase consideration issued in business acquisitions, investments,
depreciable lives of property and equipment, analysis of impairments of recorded
goodwill and other long-term assets, accruals for potential liabilities,
assumptions made in valuing derivative liabilities, assumptions made when
estimating the fair value of equity instruments issued in share-based payment
arrangements and deferred income taxes and related valuation allowance.
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There have been no material changes to our critical accounting policies from
those disclosed in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Annual Report.
Revenue from Customers
We recognize revenue from contracts with customers under ASC 606, Revenue from
Contracts with Customers (the
"revenue standard"). The core principle of the revenue standard is that a
company should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. A good
or service is transferred to a customer when, or as, the customer obtains
control of that good or service.
The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the
contract
Step 5: Recognize revenue when the company satisfies a performance obligation
Subscription revenue is recognized at a point in time when we satisfy a
performance obligation by transferring control of the promised services to the
customers. Advertising revenue is recognized at a point in time when we satisfy
a performance obligation by transferring control of the promised services to the
advertiser, which generally is when the advertisement has been displayed.
Recently Issued Accounting Pronouncements
See Note 3 in the accompanying condensed consolidated financial statements for a
discussion of recent accounting policies.
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