FuboTV Q2 2023 Earnings Call Transcript

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August 4, 2023

There are 7 speakers on the call.

Operator

You for standing by, and welcome to the Fuboy Q2 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I will now hand today's call over to Alison Sternberg.

Operator

Please go ahead.

Speaker 1

Thank you for joining us to discuss Fubo's Q2 2023. With me today is David Gandler, Co Founder and CEO of Fubo and John Janidis, CFO of Fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir. Fubo. Tv.

Speaker 1

Before we begin, Let me quickly review the format of today's presentation. David is going to start with some brief remarks on the quarter and full year and Fubo's strategy, And John will cover the financials and guidance. Then we will turn the call over to the analysts for Q and A. I would like to remind everyone that the following discussion may contain forward looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, anticipated financial performance, business strategy and plans and expectations regarding profitability. These forward looking statements are subject to certain risks, uncertainties and assumptions.

Speaker 1

Important factors that could cause actual results to differ materially from forward looking statements include those discussed in our filings with the SEC. Except if otherwise noted, the results and guidance we are presenting today are on a continuing operations basis excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non GAAP financial measures. Reconciliations of these non GAAP measures to the most directly comparable GAAP measures are also available in our Q2 2023 earnings shareholder letter, which is available on our website at ir. Fubo.

Speaker 1

Tv. With that, I will turn the call over to David.

Speaker 2

Thank you, Alison, and good morning, everyone. Thank you for joining us today to discuss Fubo's Q2 2023 results. In the Q2, Fubo exceeded targets for revenue and subscribers in North America, delivering $305,000,000 in total revenue, Up 41% year over year and 1,167,000 paid subscribers, up 23% year over year. We are very confident our momentum will continue in the back half of the year, and therefore, we have raised our previously stated full year guidance in North America. Turning to our ad sales business.

Speaker 2

Fubo posted North America ad revenue of $22,800,000 in the 2nd quarter. That's up 5% year over year despite a challenging ad market in the first half of twenty twenty three. We are very encouraged as green shoots in July indicate an advertising rebound and a sizable ad recovery for the back half of the year. We meaningfully reduced net loss by $41,000,000 year over year And ended the quarter with $300,000,000 in cash, cash equivalents and restricted cash. We are confident that this provides us with sufficient liquidity fund our operating plan as we target positive free cash flow in 2025.

Speaker 2

While there appears to be improvement in the ad market, The media and streaming industry is as tumultuous as ever. Even with recent consolidation among streaming plus services, which we have long predicted, Content fragmentation continues to be a major consumer problem and frustrated consumers are forced to subscribe to multiple and expensive streaming services. Fubo is benefiting from the industry upheaval as consumers seek a single app to watch all of the content they love. Frugalow has maintained stability, continuing to show operating leverage while building value for shareholders. The primacy of sports and particularly The primacy of local sports is more apparent than ever.

Speaker 2

Fubo's aggregated content offering led by our leading local sports package Remain sought after by consumers. And given our focus on live sports, we expect that FUBA will remain largely insulated from the Hollywood union strikes. This summer marks the year since we held our 1st Investor Day, during which we laid out our 2025 positive free cash flow goal. Our 5 pronged approach to executing our long term plan included driving increased leverage of our content acquisition costs, Increasing the efficiency of our subscriber acquisition efforts, furthering our investments in our advertising, ad technology and ad infrastructure, Enacting ARPU expansion tactics designed to strengthen unit economics and maintaining our rigor around enterprise wide cost discipline. I am pleased to report that we are making significant progress towards achieving positive free cash flow as we meaningfully advance on each of these five initiatives.

Speaker 2

First, we continue to drive increased leverage of our content acquisition costs. As a reminder, our subscriber related expenses Significantly impacts these costs and have the greatest ability to influence our operating leverage. We have made marked progress in optimizing these costs. This is reflected in our 1193 basis point reduction in SRE to 87% of revenue in the 2nd quarter compared to 99% in the prior year period. We also continuously examine and adjust our channel Add on offerings to optimize consumer value while driving healthy contribution margins.

Speaker 2

2nd, We continue to increase the efficiency of our subscriber acquisition efforts. For the first time ever, we landed below our target range of 1 to 1.5x 1st month's revenue per user or ARPU. Total sales and marketing as a percentage of revenue declined in the 2nd quarter from roughly 13% to roughly 11% year over year. 3rd, we believe our investments in our ad team technology and infrastructure have enabled our ad sales business to remain healthy despite pressure on the market. We have successfully implemented initiatives to accelerate our direct sales business, offsetting expensive 3rd party programmatic costs while also optimizing our programmatic supply chain routes.

Speaker 2

As a result, We expect to increase ad ARPU on a year over year basis through the back half of twenty twenty three and beyond. Fubo is the home for local sports. The ad inventory provided by our leading local sports coverage offers brands targeted reach both nationally and regionally. Our targeting capabilities also strongly position Fubo to leverage the upcoming political season, which is expected to top $11,000,000,000 in total ad spend across the industry in 2024. 4th, we continue to enact tactics designed to expand ARPU.

Speaker 2

Our progress here was demonstrated in the 2nd quarter by a 13% year over year ARPU expansion to $81.62 for our North American streaming business. This is an all time record. Finally, we continue to focus on maintaining rigor around our enterprise wide cost discipline. Collectively, these initiatives helped Fubo achieve a 1380 basis point year over year improvement And gross margin to 7% during the Q2, making this the 5th consecutive quarter of gross margin expansion. In closing, we are very encouraged by our strong second quarter results and our progress towards our long term plan.

Speaker 2

We continue to believe Fubo is well positioned to benefit from expected streaming and advertising trends. Fubo's sports first offering continues to meaningfully appeal to consumers, And we are confident that our momentum will continue as we approach our 2025 positive cash flow goal. I will now turn the call over to John Janitas, CFO, to discuss our financial results in greater detail. John?

Speaker 3

Thank you, David, and good morning, everyone. The Q2 furthered the momentum we experienced over the past few quarters, including healthy top line and subscriber growth, resulting in meaningful improvements across many of our KPIs and providing us with added confidence in our ability to achieve profitability. Total revenue for the quarter increased 41 percent to $312,700,000 driven by 41% revenue growth across North America and 40% revenue growth from rest of world. This represents 3% upside Against the midpoint of our Q2 revenue guidance. We ended the 2nd quarter with 1,167,000 subscribers in North America, Representing 23% growth year over year and over 394,000 subscribers in the rest of world, representing 14% growth year over year.

Speaker 3

On the monetization front, ARPU in North America reached $81.62 An all time high, while rest of world ARPU was $6.91 Expansion in subscribers and ARPU Allowed us to exceed the midpoint of our Q2 guidance. Turning to advertising. Despite the continued challenges Many advertising businesses are facing. I am pleased with our ability to deliver $22,800,000 And advertising revenue across North America, a 5% increase versus the prior year period. And since the closing of the Q2, we have seen a significant uptick in advertising revenue with July posting strong sequential improvement from the Q2.

Speaker 3

Though only onethree of the way through the Q3, it bodes well for the second half of the year and reflects the positive impact of the strategic work we are doing to improve our performance in this area. Importantly, we made material progress on the operational side of the business, Lowering expenses and bringing added effectiveness and efficiency across a greater share of the business. These efforts resulted in a 1380 basis point improvement in gross margin to 7%. The top line growth and improvements across the income statement led to a $40,800,000 year over year reduction in net loss To a loss of $54,200,000 resulting in a net loss margin improvement to negative 17.3 percent, Favorably comparing to a negative 42.8 percent net loss margin in the prior year period, demonstrating that we are making meaningful progress towards our goal of becoming profitable. This led to a second quarter 20.23 per share loss of $0.19 A significant improvement compared to a loss of $0.51 in the Q2 of 2022.

Speaker 3

2nd quarter adjusted EBITDA loss also improved to a loss of $30,500,000 compared to a loss of $70,100,000 In the Q2 of 2022, while adjusted EBITDA margin was minus 9.8%, a significant improvement from minus 31.6 percent in the prior year period. This resulted in an adjusted EPS loss of $0.12 An improvement compared to an adjusted EPS loss of $0.39 in Q2 2022. As it relates to our balance sheet, we are confident that we continue to have the necessary liquidity to invest in the business And support our path to profitability, ending the quarter with $299,700,000 of cash, cash equivalents and restricted cash. In addition, our ongoing efforts to identify efficiencies And maximized leverage across the business resulted in a $9,000,000 improvement in free cash flow. Further, as David mentioned, these results demonstrate the noteworthy progress we have made across our operating expenses, All of which have come down as a percentage of revenue and in some cases on a dollar basis as well as we remain disciplined in our investments and deployment of cash.

Speaker 3

As we continue to grow subscribers and optimize our pricing, we expect to see continued leverage on the SRE line, Which decreased from 99% to 87% of revenue in Q2 2023 versus the prior year period. Regarding our outlook, we are guiding to North America 3rd quarter 2023 subscribers of 1.33 to $1,350,000 representing 9% year over year growth at the midpoint. And we expect revenue of $272,500,000 to $277,500,000 representing 25% year over year growth at the midpoint. Before moving on to full year guidance, I want to point out that our Q3 guidance reflects the typical seasonality In which the subscriber growth is highly back end loaded, resulting in a meaningful increase in subscribers, but a smaller increase in revenue, which is largely recognized in the following quarter. For the full year 2023, we are once again Raising our guidance for North America and now expect full year 2023 subscribers of 1.565 to 1.585000000, Representing 9% year over year growth at the midpoint and full year 2023 revenue of 1.26 To $1,280,000,000 representing 29% year over year growth at the midpoint.

Speaker 3

This fiscal year 2023 revenue guidance implies $648,000,000 of revenue at the midpoint in the second half of the year, more than $10,000,000 higher than as implied by our prior guidance. For rest of world, our Q3 2023 guidance now projects 382,500 To 387,500 subscribers, representing 7% year over year growth at the midpoint And revenue increases to $7,200,000 to $8,200,000 representing 34% year over year growth at the midpoint. Our full year 2023 Rest of World guidance now projects 380,000 to 400,000 subscribers, Representing a 7% year over year decline at the midpoint and revenue of $29,400,000 to 33,400,000 Representing 29% year over year growth at the midpoint. Note that our fiscal 2022 subscriber count Was positively impacted by the 2022 World Cup. In summary, our Q2 results provide further evidence That the operational and go to market initiatives we have enacted over the past few quarters are gaining momentum and transforming our business.

Speaker 3

These actions are driving improving trends, and we are confident Fubo has the foundation necessary to further grow and improve across every facet of our business and position us to deliver enhanced value to shareholders. I would now like to open the call to questions. Operator?

Operator

Thank Your first question is from the line of Laura Martin with Needham.

Speaker 4

Good morning, you guys. What excellent numbers these are. So as I think forward towards the NFL this season, if the strikes continue into the Q4, Shouldn't we expect to see record sign ups for the NFL since sports will be sort of the only new content on air by the December quarter?

Speaker 2

Laura, hi, this is David. Thanks for joining. Well, expectations are always high at Fubo. So, We're obviously monitoring the strikes very closely and putting together our plan should things continue the way they are. So As always, we're looking forward to the fall sports calendar with the beginning of seasons for the NFL, college football, Many of the soccer leagues and much, much more.

Speaker 2

So we're super excited. And then we also get into the sort of towards the end of the baseball season as well. So Hopefully, there'll be some strong games and an excellent narrative for consumers to stay engaged with our complete lineup.

Speaker 3

Laura, this is John. I would add on the advertising side. I had recent conversations with our team and I would tell you that we are getting incremental incoming calls to place advertising against both the NFL and other sporting events For the back half of the year. Right. Because there's

Speaker 4

going to be no new contact. These gross margins are outstanding. A 7% gross margin, I think that might be the highest since you guys Public. My question to you is, is this being driven by structurally or are you benefiting from sort of the drama On at the RSN, so maybe your margins are high short term, but eventually you need to start paying for all that RSN stuff, and the disruption will get sorted out in theory. So could you talk about the sustainability of the outstanding gross margins you just reported?

Speaker 3

Yes, sure. Hi, Laura. I'll start with that one. Yes, so you are correct. From a gross margin perspective, it's by far the biggest number we've had since we've been public, Frankly, going back probably forever since the company was formed.

Speaker 3

I would tell you, I wouldn't necessarily overplay, if you will, The impact from the RSNs, I would say it's really a company wide culture in terms of focusing on cost growth. And so I'd say that the RSN's health, I'd say a little bit. I'd say on a going forward basis, that will not be an incremental Or a larger driver, if you will, of margin going forward. I would just say it's part of the overall company focus.

Operator

Your next question is from the line of Darren Aftahi with Roth MKM.

Speaker 5

Hey, guys. Good morning. Nice progress here. 2, if I may. So your comments about Advertising, not necessarily about 2Q, but the July commentary, I think, David, you said about green shoots and kind of confidence in the second half of the year.

Speaker 5

Is that something that's sort of FUBA specific and progress you're making on direct or do you think that's more of an industry wide phenomenon?

Speaker 2

Yes. Darren, thank you for the question. I think that the industry basically between June July has hit a trough. I think at Fubo, we were dealing with something that is, I would say, more specific. As you know, about 6 months ago, we set out to change the way we were doing things.

Speaker 2

And direct has become a greater part of the overall mix between programmatic, Direct response and direct sales. So we're starting to see the benefits of that. We saw a little bit of that at the end of June, but what was really nice to see that it was sustained well into July with some really robust numbers, Which gives us confidence that the Q3 and potentially the Q4 again with local sports with the NBA And the NHL starting up, I think, will allow us to continue to drive CPMs, again, just given the fact that we're sports first. We feel pretty good about it, so far and the team is performing quite well. And the last area I think that we've been focused on, which I don't believe we focused Last year, many companies haven't focused on it.

Speaker 2

It's really the supply chain routes. As you know, The VIG that some of these ad tech partners take is quite significant. And so we've gone back to start reviewing our deals. Just given the high quality inventory that we provide, we feel we should be getting much better terms than what we have been getting. And so we're doing, I would say, a little bit of everything To get those numbers up, but again, we haven't seen this level of improvement since maybe 2020.

Speaker 2

So We're excited about that. Of course, we're cautiously optimistic and our views are based off of what we're able to See today, obviously, if market conditions deteriorate quickly, that would change it. But as of now, we feel pretty good about Q3 ad revenue.

Speaker 3

And Darrin, maybe I could add a couple of things in there for you. With more granularity on the direct front, what I could tell you is that on a year over year basis For July, we're seeing pretty dramatic growth and we saw very dramatic growth. And then I would tell you on top of that for August, the money on the books, Call it 4 days in for the month is already larger than what we did for the month of July. So we feel good on that front. Secondly, I would say The visibility that we have has improved.

Speaker 3

So call it 3Q visibility starting today versus the visibility in May is better. And then I would say just more broadly, you know this, but I want to put a bit of an exclamation point on it because we have the dual pronged tailwind of secular growth within CTV and then also subscriber And I would just add that the upheaval in linear TV has given us access to talent that we maybe would not have had, just a year or 2 ago.

Speaker 2

That's helpful. And just one more.

Speaker 5

The synthesization of costs You've kind of made over the last, call it, year. Like where are we with that? Are we closer to the 9th inning? Are we Still kind of in early innings. But I guess said another way, like how much more cost can you kind of strip out of the business?

Speaker 5

Or do you feel like most of that work has kind of been done? Thanks.

Speaker 3

Yes. I would say that I think we have a significant amount of cost savings to go. From an inning, I'd say kind of early ish to maybe mid, but somewhere in that range. I would tell you that I'd say on a weekly basis, we go out to the teams and they come back and actually add to the existing cost savings. So I feel very, very good that we have significant to go from here over the next couple of years at least.

Operator

Your next question is from the line of Nick Zangler with Stephens.

Speaker 5

Yes. Hey, guys. So obviously strong Subscriber number for 2Q despite the price hikes on the plan and the incremental RSN fees. So maybe If you could just talk about the upside that you had in the quarter relative to your expectations set in that guide. Just curious if the stronger Result was due to new customer growth or just maybe less churn that you might have expected in that initial guide and thought?

Speaker 2

Yes. Look, I think, Nick, as you know, we've raised prices in the beginning of this year materially. So we were somewhat conservative, I think, at the beginning of the year. But what we have demonstrated is that the true pricing power of our brand and our product. And so I think that we are well positioned In terms of being able to bring in new customers, but at the same time, I think we've done a really solid job Reactivating customers back to the platform despite the price up.

Speaker 2

So I would say it's a combination of that. Just thinking about the sports viewership and news, again, just wanting to briefly mention the strikes. We've seen a pretty significant bump Year over year in sports viewership, as well as news viewership up by about 14%. And that might be headline related, of course. But I think those 2 coupled with our work with our current database of customers, I think has really been the key driver To maintain a pretty, I would say, strong retention rate.

Speaker 5

And then obviously on that point, if you're seeing Higher news viewership and obviously sports always strong that would potentially suggest that political ad spend Would be favorable for you guys, at least the opportunity is there. So just any thoughts on whether you've actually seen political ad spend Start to flow through. I know it's early, but the talk is that political ad spend campaigns can start far earlier. So curious if you're seeing any flow through yet on the advertising From political? And then just thoughts on the back half of twenty twenty three for political.

Speaker 5

Obviously, most of that flows in through 2024, but Again, expectations are that maybe we could see some earlier recognition. So, again, just overall thoughts on political and what you're seeing so far? Thanks.

Speaker 3

Nick, maybe I'll start with that. I would say just to bring it back for a second as a reminder, last year, we did call it somewhere in the $4,000,000 to $5,000,000 range in political for the year. I can tell you at this point, it's been a significant focus for the team starting, I'd say call it in April or May. I'd say over the past couple of weeks, there's been incremental interest, if you will, on the political advertising side. I think maybe there's some small money on the books, but I would say that The team is very, very optimistic in terms of where we can go with that.

Speaker 3

And the sales team, I'd say, is focused much earlier this season versus the prior season. Yes.

Speaker 2

And Nick, just to add a couple of comments there why I'm super excited about political because this is a real opportunity For Fubo to drive rate on that side and we've been sort of doing the rounds. Think about it, elections are won and lost by a couple of 1,000 votes. So There's no way you can overlook a platform like ours with elections decided with such slim margins. So we're Well prepared for political and the teams have this on focus. And the goal will obviously be to take advantage of Some of these really tight races.

Speaker 2

And let's not forget, given our local programming capabilities, we think we're going to have a pretty strong opportunity Within our local sports coverage to be able to really drive political business.

Operator

Your next question is from the line of Jim Goss with Barrington Research.

Speaker 6

Good morning. Thanks for taking the question. This is Pat on for Jim. I just wanted to ask about On subscriber acquisition costs, which you said was kind of below your target range, I was just wondering what some of the drivers of that were and It's like the kind of a softer ad market might make that a little less sustainable as the market improves.

Speaker 2

Yes. I think look, I think historically if you look back, we've always been hyper focused On efficiency, just given our budgets versus budgets of other players, whether they're traditional or virtual. And so I think what you're really seeing is continued efficiencies on the digital advertising front. Of course, some of the CPMs And other tactics that we typically deploy have Sorry, I got cut off there. Typically, just again, Focused on efficiency and so we typically move dollars in and out of inefficient areas on a regular basis, frankly, almost in real time.

Speaker 2

So We're super excited about that. And just to kind of give you a sense of how important that number is. I mean, if you think about other companies that or similar companies that have Recently reported, we've seen sales and marketing lines anywhere from at some of the most efficient companies at 13% 25% Companies like Roku. So coming in, in terms of subscriber growth, subscriber revenue with Such an efficient marketing spend is a real pleasure for us and we'll continue to focus on that, which is part of our focus For the back half of the year.

Speaker 3

Yes, Pat, I would add a couple of things to that as well. I think one is that there's certainly, I'd say, increased Recognition in terms of the Fubo brand, which has helped. And then I'd say secondly, I would just want you to remember that in terms of TV, which arguably is where The pressure is in terms of CPMs downward. That's a very small portion of our overall ad budget.

Speaker 4

Okay. Thank you.

Operator

Thank you. I will now hand today's call back over to Alison Sternberg.

Speaker 4

Thank you. So David, we have a I'm

Speaker 1

going to combine it into one question, but we have some questions from investors via our SAID technology platform. Again, there are 2 questions, but they're sort of similar thematically. So I'll combine them into 1. The first is, what makes Fubo different from the rest of the Streaming services, so calling out 10,000 feet, what differentiates the offering? And as somewhat of an extension of that, What are some of the things that will be implemented in the future in order to maintain that competitive advantage relative to other streaming platforms?

Speaker 2

Yes. So, as always, we've been focused in 3 areas. One is, I think we differentiate on brand. We always have. We are known To be the sports brand, that is evident still today.

Speaker 2

As you look at opening day or any other start of any sports season, you'll see Organic downloads really grow significantly. The second piece is content. We continue to differentiate on Most recently, we have become the home for local sports. We have relationships now with a multitude of teams, Including our recent announcement with our partnership with Sky. So we're continuing to build on those locally and that creates a lot of goodwill with customers.

Speaker 2

And then 3rd is really a focus on product. As everyone knows, we've been Historically focused on being first to market with key sports features. And today, we've already launched a couple New capabilities that are in beta and we're continuing to test, all of which are related to our video AI Capabilities are proprietary technology stack that we've continued to develop. And we've tested a new AI feature with the NBA Finals, which allow viewers to relive the most exciting moments, allowing us to really index in real time A lot of these capabilities. So you'll start to see more and more on the advanced DVR front and all of our work with our video AI.

Speaker 2

Once we have launched our unified platform, which I think we'll start to roll that out this month very conservatively, we'll be able To open up more resources to really focus on driving greater feature sets for our enthusiastic sports audience.

Speaker 1

Excellent. Thank you, David. Back to you, operator.

Operator

Thank you. This does conclude today's call. You may now disconnect your line.

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