Executive Summary / Key Takeaways

• Falcons Beyond Global ($FBYD) operates at the intersection of content, technology, and experiences, aiming to create immersive entertainment through three divisions: Creative Group (FCG), Destinations (FBD), and Brands (FBB), with a strategy centered on IP and technological innovation.
• The recent acquisition of Oceaneering Entertainment Systems (OES) strengthens the FBB division by adding patented technologies and manufacturing capabilities for advanced ride and show systems, positioning FBYD to potentially capture market share in this niche.
• Despite strategic growth initiatives and a $48.5 million contracted pipeline for FCG, the company faces significant financial challenges, reporting a $8.1 million Adjusted EBITDA loss in Q1 2025 and a working capital deficiency of $39.1 million, raising substantial doubt about its ability to continue as a going concern.
• Liquidity is a critical concern, with only $1.1 million in cash and $0.9 million available credit as of March 31, 2025, and significant accrued liabilities ($22.6 million in transaction fees, $11.1 million related to litigation) and maturing debt ($10.4 million within 12 months).
• The company's ability to execute its strategy and address liquidity issues is heavily reliant on securing additional external financing, the availability and terms of which are uncertain, and successfully remediating identified material weaknesses in internal controls.

Setting the Scene: Crafting Immersive Experiences in a Competitive Arena

Falcons Beyond Global ($FBYD) positions itself as a visionary leader in the burgeoning market for immersive entertainment, operating at the dynamic intersection of content, technology, and physical experiences. The company's strategic ambition is to engage, inspire, and entertain audiences by weaving together compelling narratives with innovative technological and experiential design. This is executed through three core divisions: Falcons Creative Group (FCG), focused on design and production; Falcons Beyond Destinations (FBD), developing location-based entertainment; and Falcons Beyond Brands (FBB), leveraging IP through various channels.

The company's journey includes the foundational work of FCG, which has been innovating in themed entertainment for 25 years, and the significant structural shift brought about by the Business Combination in October 2023, which established FBYD as a public entity. Within the broader entertainment landscape, FBYD competes with industry giants like The Walt Disney Company (DIS), Comcast Corporation (CMCSA) (for Universal Studios), Warner Bros. Discovery (WBD), and regional players such as Six Flags Entertainment Corporation (SIX). While these larger competitors command significant market share (e.g., Disney with 40-50%, Universal with 20-30%), leveraging vast IP libraries and integrated ecosystems, FBYD seeks to carve out its niche through specialized services and technological differentiation. The company's estimated aggregate market share is smaller, likely in the 1-5% range, with a growth trajectory that needs acceleration to keep pace with larger, more diversified rivals.

A cornerstone of FBYD's strategic positioning, particularly within the FBB division, is its focus on technological innovation in attraction systems. The recent acquisition of Oceaneering Entertainment Systems (OES) on May 9, 2025, is a significant step in this direction, bringing a portfolio of patented technologies, proprietary engineering, and manufacturing processes for advanced ride and show systems under the Falcons Beyond umbrella. While specific quantitative performance metrics for these acquired technologies are not detailed, the strategic intent is clear: to enhance FBYD's capabilities in developing and selling sophisticated attraction hardware, potentially offering differentiation in areas like system reliability, integration speed, or unique guest experiences. This technological focus is intended to bolster FBB's revenue streams and provide a competitive edge against rivals who may rely more heavily on third-party suppliers for complex ride systems.

Recent Performance: Strategic Shifts and Financial Headwinds

The first quarter of 2025 provided a snapshot of Falcons Beyond's operational activities and the financial realities following recent strategic adjustments. Consolidated revenue saw a modest increase of $0.2 million, rising to $1.7 million for the three months ended March 31, 2025, compared to $1.5 million in the prior-year period. This growth was primarily driven by a $0.1 million increase in shared services provided to FCG and the addition of $0.1 million from a new attractions maintenance contract within the FBB segment.

Operating expenses saw notable shifts. Selling, general, and administrative (SG&A) expenses decreased by $0.5 million to $6.3 million, largely due to a $1.8 million reduction in audit and professional fees, although this was partially offset by a $0.9 million increase in payroll costs for shared services supporting business expansion. Transaction expenses of $1.5 million were incurred in Q1 2025 related to an uncompleted proposed underwritten offering, highlighting ongoing efforts to raise capital. Research and development (R&D) expense increased to $0.1 million, reflecting investment in developing a location-based entertainment experience.

Segment performance revealed divergent trends. FCG, now accounted for as an equity method investment, saw its segment loss increase significantly to $2.5 million in Q1 2025 from an income of $1.9 million in Q1 2024. This deterioration was primarily attributed to a substantial 58% decrease in FCG's revenues, falling by $8.6 million, and a decline in gross margins on certain long-term contracts, including lower revenue recognition from the Dragon Ball consultancy agreement with QIC ($4.7 million in Q1 2025 vs. $9.8 million in Q1 2024) due to contract timing. Despite this, FCG maintains a contracted pipeline of $48.5 million as of March 31, 2025, suggesting potential for future revenue. The FBB segment also saw its loss from operations increase by $0.7 million to $1.4 million, mainly due to increased payroll costs aimed at developing the Destinations Operations division. The PDP segment, an equity method investment, showed consistent income contribution, while Destinations Operations' segment loss remained relatively stable.

The consolidated net loss before taxes was significantly impacted by non-operating items. Share of loss from equity method investments increased sharply by $5.3 million, resulting in a $4.1 million loss in Q1 2025, primarily driven by the share of net loss from FCG. Interest expense rose by $1.0 million to $1.3 million due to increased debt levels and higher interest rates. Changes in the fair value of warrant liabilities resulted in a $2.9 million gain in Q1 2025, reflecting a decrease in market value before their reclassification to equity. The absence of a gain from earnout liability changes in Q1 2025 (compared to a large gain in Q1 2024) also contributed to the wider net loss, as these liabilities were reclassified to equity in late 2024. Overall, the company reported an Adjusted EBITDA loss of $8.1 million for the three months ended March 31, 2025, compared to a $4.5 million loss in the prior-year period, reflecting the increased operational and equity method losses.

Liquidity, Capital Needs, and Strategic Outlook

Falcons Beyond faces a critical juncture regarding its financial stability and future growth funding. As of March 31, 2025, the company's liquidity position was constrained, with cash and cash equivalents totaling $1.1 million and only $0.9 million available under existing credit lines. This is set against a significant working capital deficiency of $39.1 million (excluding debt maturing within 12 months) and an additional $10.4 million in debt obligations coming due within the next year.

The company carries substantial accrued liabilities, including $22.6 million in transaction and professional fees related to the Business Combination and $11.1 million specifically accrued in connection with the Guggenheim lawsuit, although the company intends to vigorously contest this amount. Unfunded commitments to the Karnival joint venture in China stand at $2.4 million (HKD 18.7 million). These obligations, coupled with operational losses and accumulated deficits, have led management to conclude that there is substantial doubt about the company's ability to continue as a going concern for the next twelve months.

Funding future development plans, investments, and working capital needs is heavily reliant on obtaining additional financing through debt or equity raises from stockholders and third parties. There is no assurance that such financing will be available on acceptable terms, if at all. The company anticipates that capital expenditures and working capital requirements will increase materially in the near future as it pursues growth initiatives.

Despite the liquidity challenges, the strategic outlook includes leveraging the recent OES acquisition to bolster the FBB division's capabilities in ride and technology sales. The acquisition, which cost $1.5 million initially with an option for an additional $7.5 million in vehicle inventory and lifting assets, is intended to provide in-house R&D, manufacturing, and integration capabilities. The company also continues to pursue location-based entertainment developments through joint ventures like Karnival and licensing commitments with partners like Hershey (HSY) and KIDS Licensing, which require future investment and royalty payments. The successful execution of these initiatives and the realization of their revenue potential are contingent on securing the necessary capital.

Risks and Challenges

The investment narrative for Falcons Beyond is significantly overshadowed by a confluence of material risks and challenges. The most immediate and pressing concern is the substantial doubt regarding the company's ability to continue as a going concern due to its current liquidity position and operational losses. The reliance on external financing to meet working capital needs, contractual commitments, and expansion plans introduces significant uncertainty, as there is no guarantee that additional capital will be available on favorable terms or at all.

The company faces significant financial liabilities, including substantial accrued transaction expenses from the Business Combination and the ongoing litigation with Guggenheim Securities for $11.1 million. The outcome of this lawsuit and the settlement of other accrued expenses could materially impact the company's financial condition. Furthermore, the company has identified material weaknesses in its internal controls over financial reporting, which could affect the accuracy and timeliness of financial reporting and potentially impair access to capital markets if not effectively remediated.

Operational risks include a concentration of revenue with a few key customers, particularly within the FCG segment, making the company vulnerable to the loss or reduction of business from these clients. The company's involvement in international operations and joint ventures exposes it to geopolitical, economic, and partnership-specific risks, as evidenced by challenges faced in the Sierra Parima joint venture. Dependence on key management and employees, potential failures in IT systems and cybersecurity, and the adequacy of insurance coverage also pose ongoing risks. As a holding company, FBYD's ability to make payments (including under the Tax Receivable Agreement) is dependent on distributions from its subsidiaries and equity method investments.

Competitive Dynamics and Strategic Response

In the competitive landscape of themed entertainment, Falcons Beyond operates against players with significantly greater scale, financial resources, and established IP portfolios. While direct quantitative comparisons across all metrics are complex, analysis of publicly available data for competitors like Disney, Comcast (Universal), WBD, and Six Flags highlights key differences. Larger players typically exhibit more stable, higher revenue growth rates (e.g., Disney 10-15%, Comcast 5-10%) and generally stronger profitability margins (e.g., Disney gross margins 30-35%, Comcast gross margins 50-60%) compared to FBYD's recent performance. Their superior scale often translates to better operating efficiency and higher returns on invested capital (e.g., Comcast ROIC 10%, Disney ROIC 7% vs. FBYD's recent negative ROIC).

FBYD's strategic response centers on leveraging its creative expertise and technological capabilities, particularly those enhanced by the OES acquisition. While specific quantifiable advantages of the acquired technology are not detailed, the intent is to offer differentiated ride and show systems that could appeal to clients seeking bespoke, high-tech attractions. This focus on specialized technology and custom project execution aims to provide a competitive moat in niche areas where larger competitors might be less agile or focused. The company also seeks to differentiate through its integrated approach across creative, destinations, and brands, aiming for synergistic growth, although the financial benefits of this synergy are not yet clearly evident in consolidated results.

The reliance on third-party IP partnerships (like Hershey and KIDS Licensing) is another strategic lever, allowing FBYD to develop themed experiences without owning the underlying brands, potentially capturing market share in segments tied to popular consumer IP. However, this also introduces dependency on licensing terms and the success of the partner's brand. Compared to competitors like Six Flags, which relies more on cost leadership and regional parks, FBYD's strategy is more focused on premium, IP-driven, and technologically advanced experiences, positioning it at a different point on the competitive spectrum. The company's ability to effectively integrate the OES assets, execute on its contracted pipeline, and secure necessary funding will be critical in determining its competitive trajectory and ability to challenge larger players in specific market segments.

Conclusion

Falcons Beyond Global stands as an ambitious player in the experiential entertainment sector, armed with creative talent, a multi-divisional strategy, and recently enhanced technological capabilities through the OES acquisition. The company's vision of creating immersive, IP-driven experiences is compelling, and its contracted pipeline suggests potential for future revenue generation. However, the narrative is currently dominated by significant financial challenges, most notably the substantial doubt about its ability to continue as a going concern due to pressing liquidity needs, operational losses, and substantial accrued liabilities.

For investors, the immediate focus must be on the company's ability to secure additional financing and effectively manage its cash position and maturing obligations. Successful remediation of internal control weaknesses and favorable outcomes in ongoing litigation are also critical factors to monitor. While the strategic initiatives, including the integration of OES and the development of new location-based entertainment projects, offer long-term potential, their success is contingent on overcoming the near-term financial hurdles. The competitive landscape remains challenging, requiring FBYD to effectively leverage its technological differentiation and niche market focus to drive profitable growth and build a more sustainable financial foundation.