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 filed with the Securities and Exchange Commission (the "SEC") on
May 29, 2020, as amended on Form 10-K/A, filed with the SEC on August 11, 2020
for the year ended December 31, 2019.
The results of our operations for the three and nine months ended September 30,
2020 are not readily comparable against the results of our operations in the
comparable prior year three and nine month period ended September 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. and as of May 1,
2020, the Company's trading symbol was changed from "FBNK" to "FUBO."
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 Media 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 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. Prior to our
uplist to the NYSE, the Series AA Preferred Stock benefited 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, in
part, a character-based virtual entertainment business, and a developer of
digital human likeness for celebrities, 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 was 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.
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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 all 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
(excluding issuance costs). 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
capabilities such as multi-channel viewing capabilities, favorites lists and a
dynamic recommendation engine as well as 4K streaming and Cloud DVR offerings.
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.
Advertisements
Advertisement revenue consists 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 former subsidiaries, Nexway eCommerce Solutions. As a
result of the deconsolidation of Nexway AG, which was effective as of March 31,
2020, the Company no longer generates revenue from software licenses.
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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.
Income tax benefit
The Company's deferred tax liability and income tax benefit relates to our book
and tax basis differences in identifiable intangible assets and the current tax
impact of the amortization of finite-lived intangible assets. These intangible
assets are not deductible for tax purposes and the deferred tax liability has
been established for the amount of such temporary differences expected to
reverse in periods where net operating loss carryforwards will not be available
to offset the taxable income generated from these reversals.
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Results of Operations for the three and nine months ended September 30, 2020 and
2019 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Revenues, net
Subscriptions $ 53,433 $ - $ 92,945 $ -
Advertisements 7,520 - 11,843 $ -
Software licenses, net - 5,834 7,295 $ 5,834
Other 249 - 586 -
Total Revenues $ 61,202 $ 5,834 $ 112,669 $ 5,834
Operating expenses:
Subscriber related expenses 61,228 - 114,315 -
Broadcasting and transmission 9,778 - 19,270 -
Sales and marketing 22,269 93 33,526 417
Technology and development 10,727 5,222 20,277 5,222
General and administrative 8,270 2,171 42,130 3,688
Depreciation and amortization 14,413 5,273 34,050 15,589
Impairment of goodwill and
intangible assets 236,681 - 236,681 -
Total operating expenses 363,366 12,759 500,249 24,916
Operating loss (302,164 ) (6,925 ) (387,580 ) (19,082 )
Other income (expense):
Interest expense and financing
costs, net (2,203 ) (1,094) (18,109 ) (1,994)
Interest income - 482 482
Loss on deconsolidation of Nexway - - (11,919 ) -
Gain (loss) on extinguishment of
debt 1,321 - (9,827 ) -
Loss on issuance of common stock
and warrants - - (13,507) -
Change in fair value of warrant
liability 4,543 - 9,143 -
Change in fair value of subsidiary
warranty liability - 831 3 4,432
Change in fair value of shares
settled liability - - (1,665 ) -
Change in fair value of derivative
liability 101 (1 ) (426 ) 1,017
Change in fair value of Panda
interests - - (148 ) -
Unrealized gain on equity method
investment - - 2,614 -
Gain on sale of assets 7,631 - 7,631 -
Foreign currency exchange loss - - (1,010 ) -
Other income (expense) 583 (1,230 ) 147 (1,230 )
Total other income (expense) 11,976 (1,012 ) (37,073 ) 2,707
Loss before income taxes (290,188 ) (7,937 ) (424,653 ) (16,375 )
Income tax benefit (16,071 ) (1,028 ) (20,589) (3,234 )
Net loss $ (274,117 ) $ (6,909 ) $ (404,064 ) $ (13,141 )
On September 19, 2019, the Company acquired Facebank AG, Nexway and on April
1,2020 fuboTV Pre-Merger. The results of our operations for the three and nine
months ended September 30, 2020 include the results of operations of Facebank AG
and Nexway and also include the effects of the deconsolidation of Nexway as of
March 31, 2020 and the sale of Facebank AG in the three months ended September
30, 2020. The results of our operations for the three and nine months ended
September 30, 2020 also include the results of operations of fuboTV post-Merger.
Because of this, the results of operations for the three and nine months ended
September 30, 2020 are not comparable to the results of operations for the three
and nine months ended September 30, 2019.
44
Revenue, net
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, we recognized revenues of
$61.2 million, primarily related to $53.3 million of subscription revenue, $7.5
million of advertising revenue and $0.2 million in other revenue. These revenues
were generated entirely by fuboTV post-Merger which Merger occurred on April 1,
2020, and there are no comparable results in the prior year.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, we recognized revenues of
$112.7 million, primarily related to $92.9 million of subscription revenue,
$11.8 million of advertising revenue and $0.6 million in other revenue in
connection with the second quarter acquisition of fuboTV Pre-Merger. These
revenues were generated entirely by the fuboTV business which we acquired
through the Merger that closed 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 Months Ended September 30, 2020 and 2019
During the three and nine months ended September 30, 2020, we recognized
subscriber related expenses of $61.2 million and 114.3 million, respectively due
to affiliate distribution rights and other distribution costs in connection with
the streaming revenue generated from the fuboTV business, which we acquired
through the Merger that closed on April 1, 2020.
There were no subscriber related expenses recognized during the three and nine
months ended September 30, 2019.
Broadcasting and transmission
Three Months Ended September 30, 2020 and 2019
During the three and nine months ended September 30, 2020, we recognized
broadcasting and transmission expenses of $9.8 million and $19.3 million,
respectively primarily related to transmissions of our services in connection
with the streaming revenue generated from the fuboTV business, which we acquired
through the Merger that closed on April 1, 2020.
There were no broadcasting and transmission expenses recognized during the three
and nine months ended September 30, 2019.
Sales and marketing
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, we recognized sales and
marketing expenses of $22.3 million as compared to $0.1 million during the three
months ended September 30, 2019. The increase in sales and marketing expenses
were primarily related to marketing expenses incurred to acquire new customers
to our streaming platform after the Merger on April 1, 2020.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, we recognized sales and
marketing expenses of $33.5 million as compared to $0.4 million during the nine
months ended September 30, 2019. The increase in sales and marketing expense is
primarily related to 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 Nine Months Ended September 30, 2020 and 2019
During the three and nine months ended September 30, 2020, we recognized
technology and development expenses of $10.7 million and $20.3 million in
connection with the development of our streaming platform after the Merger on
April 1, 2020.
Technology and development expenses incurred during the three and nine months
ended September 30, 2019 relate entirely to the consolidation of Nexway.
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General and Administrative
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, general and administrative
expenses totaled $8.3 million, compared to $2.2 million for the three months
ended September 30, 2019. The increase of $6.1 million was primarily related to
$6.9 million of incremental general and administrative expenses as a result of
the acquisition of fuboTV Pre-Merger offset by a $0.8 million reduction of
expenses due to the deconsolidation of Nexway.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, general and administrative
expenses totaled $42.1 million, compared to $3.7 million for the nine months
ended September 30, 2019. The increase of $38.4 million was primarily related to
$24.1 million of stock compensation expense, $9.6 million of incremental
expenses as a result of the acquisition of fubo TV Pre-Merger and $6.2 million
of professional services due to additional financing and acquisition activities,
offset in part by a $0.8 million reduction of expenses due to the
deconsolidation of Nexway.
Depreciation and amortization
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, we recognized depreciation and
amortization expenses of $14.4 million compared to $5.3 million during the three
months ended September 30, 2019. The increase of $9.2 million is primarily
related to $9.1 million of amortization expenses recognized on the intangible
assets acquired as part of the Merger on April 1, 2020.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, we recognized depreciation and
amortization expenses of $34 million compared to $15.6 million during the nine
months ended September 30, 2019. The increase of $18.4 million is primarily
related to $18.1 million of amortization expense recorded for the intangible
assets acquired in connection with the Merger on April 1, 2020.
Impairment of intangible assets and goodwill
During the three months and nine months ended September 30, 2020, we recognized
an impairment of Facebank Pre-Merger intangible assets and goodwill of $236.7
million.
Other Income (Expense)
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, we recognized $12 million of
other income (net), compared to $1 million of other expense (net) during the
three months ended September 30, 2019. The increase of $13 million was primarily
related to a $7.6 million gain on the sale of the Facebank AG and Nexway assets,
$4.5 million related to the change in fair value of warrant liabilities and $1.3
million gain on the extinguishment of debt.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, we recognized $37.1 million of
other expense (net), compared to $2.7 million of other income (net) during the
nine months ended September 30, 2019. The increase of $39.8 million of other
expense (net) was primarily related to $16.6 million of incremental net interest
expense on our outstanding borrowings, $9.8 million loss on extinguishment of
debt, a $11.9 million loss on the deconsolidation of Nexway, $13.5 million loss
on issuance of common stock and warrants and $1.7 million change in fair value
of change in shares settled liability. These expenses were partially offset by a
$7.6 million gain on the sale of the Facebank AG and Nexway assets, $9.1 million
gain related to the change in fair value of warrant liabilities and a $2.6
million unrealized gain on our equity method investment in Nexway. For the nine
months ended September 30, 2019, we recognized $4.4 million of other income
(net) related to a change in fair value of subsidiary warrant liability.
46
Income tax benefit
Three Months Ended September 30, 2020 and 2019
During the three months ended September 30, 2020, we recognized an income tax
benefit of $16.1 million, compared to $1.0 million during the three months ended
September 30, 2019. The $15.1 million increase in income tax benefits was
related primarily to the impairment of Facebank Pre-Merger intangible assets.
Nine Months Ended September 30, 2020 and 2019
During the nine months ended September 30, 2020, we recognized an income tax
benefit of $20.6 million, compared to $3.2 million during the nine months ended
September 30, 2019. The $17.4 million increase was primarily related to the
impairment of Facebank Pre-Merger intangible assets.
Liquidity and Going Concern
The accompanying condensed 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.
We had cash and cash equivalents of $38.9 million, a working capital deficiency
of $189.1 million and an accumulated deficit of $458.6 million at September 30,
2020. We incurred a $404.1 million net loss for the nine months ended September
30, 2020. While we expect to continue incurring losses in the foreseeable
future, we successfully raised $183 million in October 2020, net of offering
expenses, through a public offering of our common stock. The proceeds from this
offering provide us with the necessary liquidity to continue to as a going
concern for a period of at least one year from the date these financial
statements are issued.
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.
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 spread of a novel strain of coronavirus ("COVID 19"). 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 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 our results of operations,
financial condition or liquidity.
Cash Flows (in thousands)
Nine Months Ended September 30,
2020 2019
Net cash provided by (used in) operating activities (72,450 ) 1,257
Net cash provided by used in investing activities (1,349 ) 1,625
Net cash provided by financing activities 106,314 2,983
Net increase in cash and cash equivalents 32,515 5,865
Operating Activities
For the nine months ended September 30, 2020, net cash used in operating
activities was $72.5 million, which consisted of our net loss of $404.1 million,
adjusted for non-cash movements of $305.1 million. The non-cash movements
included $236.7 impairment of Facebank Pre-Merger intangible assets and
goodwill, $34 million of depreciation and amortization expenses primarily
related to intangible assets, $24.1 million of stock-based compensation, $13.5
million of loss on issuance of common stock and warrants, $12.3 million of
amortization of debt discounts, $9.8 million loss on extinguishment of debt,
$8.6 million loss on deconsolidation of Nexway, $1.7 million of change in fair
value of shares settled liability and $1 million of loss on foreign currency
exchange, partially offset by $20.6 million of deferred income tax benefit, $9.1
million of change in fair value of warrant liability, $7.6 million gain on the
sale of assets and $2.6 million of unrealized gain on investments. Changes in
operating assets and liabilities resulted in cash inflows of approximately $52.6
million, primarily due to a net increase in accounts payable, accrued expenses
and other current liabilities of $32.9 million due to timing of payments, a net
decrease in prepaid expenses and other current assets of $10.6 million and a net
increase in deferred revenue of $6.6 million.
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For the nine months ended September 30, 2019, net cash provided by operating
activities was $1.3 million, which consisted of our net loss of $13.1 million,
adjusted for non-cash movements of $7.5 million. The non-cash movements included
$15.6 million of depreciation and amortization expenses primarily related to
intangible assets, $0.5 million of amortization of debt discounts and $0.6
million of accrued interest expense related to our notes payable, partially
offset by $4.4 million related to the change in fair value of subsidiary warrant
liability, $3.2 million of deferred income tax benefits, $1 million of change in
fair value of derivative liability and $0.6 million of other adjustments.
Changes in operating assets and liabilities resulted in cash outflows of
approximately $0.1 million, primarily consisted of increases in accounts
receivable of $3.6 million offset by increases in accounts payable and accrued
expenses of $3.4 million due to timing of payments.
Investing Activities
For the nine months ended September 30, 2020, net cash used in investing
activities was $1.3 million, which consisted of a $10.0 million advance to
fuboTV Pre-Merger, $0.6 million cash paid as part of the disposition of Facebank
AG and $0.1 million of capital expenditures, offset by $9.4 million of net cash
acquired in the acquisition of fuboTV Pre-Merger.
For the nine months ended September 30, 2019, net cash provided by investing
activities was $1.6 million, which primarily consisted of our $2.3 million
acquisition of Facebank AG and Nexway, $0.7 million sale of profits interest in
our investment in Panda Productions (HK) Limited ("Panda"), partially offset by
a $1.1 million payment for our investment in Panda and $0.3 million for the
purchase of intangible assets.
Financing Activities
For the nine months ended September 30, 2020, net cash provided by financing
activities was $106.3 million. The net cash provided is primarily related to
$97.1 million of proceeds received from the sale of our common stock, $33.6
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 $11.6
million in connection with the Note Purchase Agreement, $8.4 million of notes
payable, $3.9 million in connection with convertible notes, $2.5 million in
connection with our loan with AMC Networks Ventures, LLC, and $0.9 million in
connection with the redemption of Series D preferred stock.
For the nine months ended September 30, 2019, net cash provided by financing
activities was $3.0 million. The net cash provided is primarily related to $2.9
million of proceeds received from the sale of our common stock and warrants,
$0.5 million from the sale of preferred stock and $0.4 million of proceeds from
related parties. These proceeds were partially offset by repayments of $0.5
million of our convertible notes and repayments of $0.3 million of our notes
payable.
Off-Balance Sheet Arrangements
As of September 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, but are not limited to, fair value of
stock-based awards, fair value of equity instruments, impairment of goodwill and
intangible assets, allocating the fair value of purchase consideration issued in
business acquisitions, and accounting for income taxes, including the valuation
allowance on deferred tax assets.
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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 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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