FuboTV Inc. Q2 FY2024 Earnings Call

Thank you for joining us. I would like to welcome everyone to the fuboTV Second Quarter 2024 Earnings Conference Call. All lines have been muted to minimize background noise. Following the speaker's comments, we will have a question-and-answer session. I will now hand the call over to Amit Patte, Senior Vice President of FP&A, Corporate Developments and Investor Relations. Amit, the floor is yours.

Thank you for joining us to discuss fubo’s second quarter 2024 results. With me today is David Gandler, Co-Founder and CEO of fubo, and John Janedis, 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. Before we begin, let me quickly review the format of today's call. David is going to start with some brief remarks on the quarter and our business, and John will cover the financials and guidance. Then we will turn the call over to the analysts for Q&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, industry and consumer trends, anti-competitive practices among our competitors, and our response plan, including our antitrust lawsuit and expectations regarding profitability. These forward-looking statements are subject to certain risks, uncertainties, and assumptions. Important factors that could cause actual results to differ materially from forward-looking statements include those discussed in our filings with the SEC. Except as 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 we are accounting for as discontinued operations. In addition, our guidance and other commentary with respect to fubo’s financial condition and our anticipated financial performance in future periods do not reflect any potential impact of the launch of the sports streaming joint venture between The Walt Disney Company, Fox Corp., and Warner Bros. Discovery, including the outcome of our antitrust lawsuit. Risks related to this joint venture and the litigation are described in further detail in the company's SEC filings. During Q&A, the company will not address any questions related to ongoing litigations, including this matter. During the call, we may also refer to certain non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q2 2024 earnings shareholder letter, which is available on our website at ir.fubo.tv. With that, I will turn the call over to David.

Thank you, Amit, and good morning, everyone. We appreciate that you joined us today to discuss fubo's second quarter 2024 results. Our second quarter continued our strong start to 2024 and the momentum we have achieved since becoming a publicly traded company in 2020. The second quarter marked our sixth consecutive quarter of global year-over-year improvement in our profitability metrics, while in North America, we exceeded expectations. In North America, we closed the second quarter with double-digit year-over-year growth, posting $382.7 million in total revenue, an increase of 26% year-over-year, and 1.45 million paid subscribers, up 24% year-over-year. Our ad business also remains strong, ending the quarter with $25.8 million in revenue, an increase of 14% year-over-year. Alongside this growth, we are making great strides on our path to profitability with meaningful year-over-year improvements in net loss, adjusted EBITDA, and free cash flow, which John will discuss in more detail. This progress gives us continued confidence in our ability to execute, with all teams at fubo operating at the highest levels. Note that our profitability goals exclude the potential impact of the sports streaming joint venture. In addition to our robust operational execution, we were agile and opportunistic in managing our balance sheet. In Q2, 2024, we repurchased $46.9 million of convertible debt at an average price of 56.6% of par value. To fund these repurchases, we issued stock at $1.28 under our ATM program, achieving an impressive net effective issuance price of $2.26. That's an outstanding 77% premium. This strategic move not only enhanced shareholder value by reducing outstanding debt, but also boosted our financial flexibility and mitigated dilution. These actions further underscore our confidence in our go-forward plan, as well as our commitment to driving business growth and shareholder value. fubo is focused on delivering value and expanding our relevancy to consumers in a fast-changing environment. Consumers benefit from a market with healthy competitive dynamics. We continue to fight for competition and better prices in a market in disruption, contrasting with the Walt Disney Company, Fox Corporation, and Warner Bros. Discovery. Their joint venture attempts to circumvent the need for regulatory approval while still giving these partners control of 80% of the premium sports market. The joint venture claims to solve the issue of bulky cable bundles, but we believe its primary goal is to limit competition, boosting partners' profits artificially and leading to steep price hikes for consumers, similar to those seen with their SVOD services. Consumers are passionate about sports content but frustrated with high prices and inflexible bundles; they need multiple streaming options with competitive pricing. fubo, like all distributors, has the right to compete fairly in the sports streaming market. A fair market would force the joint venture partners to compete against each other in the licensing of sports channels to pay-TV platforms, both virtual and traditional, as well as with other market participants further downstream in the distribution space. This will foster competition, benefiting customers with better prices and choices. Our preliminary injunction hearing to prevent the joint venture's launch goes before the U.S. District Court, Southern District of New York, starting today. We appreciate the support we have received from various stakeholders. We continue to be encouraged by earlier reports that the Department of Justice is looking into the joint venture. An increasing number of high-profile Capitol Hill lawmakers, public interest groups, and other content distributors are alarmed and have weighed in on the negative impact that the joint venture would have on consumers. We strongly believe in the merits of our case and look forward to presenting it to the judge this week. Meanwhile, we remain focused on delighting our consumers with a seamless and innovative product that aggregates a portfolio of programming at compelling price points. In recent months, we've seen media companies increasingly turn their streaming services into app stores, requiring consumers to log into different apps and stream from multiple interfaces to access content. While these companies characterize this approach as consumer-friendly, users are still feeling the same pain point—friction. Therefore, we have every indication that our super aggregation strategy is the right one. We believe the best consumer experience is frictionless, with multiple bundles, from skinny to fat, to choose from. As a super aggregator, our vision is to offer users the premium content they love all within the fubo ecosystem, differentiating our service from the so-called soft bundles on the market. In the second quarter, we launched the fubo Free tier, the first layer in our super aggregation model. fubo Free offers nearly 200 free ad-supported streaming television, or FAST channels, and is currently available to certain former fubo paid and free trial subscribers. fubo Free users can reactivate their paid subscriptions at any time, which they may choose to do as their favorite sports seasons return to play. Early results are encouraging, and we may expand fubo Free to other cohorts in the future. We plan to further build out our tiered offering with stand-alone content that does not require the purchase of the main fubo product. This content can range from SVOD to pay-per-view and TVOD to skinny bundles. We look forward to sharing more in the weeks and months ahead. In closing, the second quarter continued to demonstrate how fubo has grown efficiently as we balance our profitability goals while strategically investing in our business. We remain focused on bringing consumers an aggregated sports entertainment offering that delivers premium content and innovative product features at the right price for them. And as I said last quarter, we remain committed to a competitive streaming landscape that offers consumers choice, fair pricing, and innovation. This is the vision upon which fubo was founded and is only achievable in a truly competitive market. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John?

Thank you, David, and good morning everyone. The second quarter saw a continuation of strong results and progress across just about every metric in relation to our profitability goals. These excellent results build on our strong momentum from prior quarters and provide added proof that the initiatives and strategies we have implemented are having a positive impact on the earnings power of our business, which we believe positions fubo for success in what remains a dynamic operating environment. Taking a look at the results for the quarter, we continue to see healthy top-line and subscriber growth, with global revenue growing by over 25% year-over-year to $391 million, driven by 26% growth in North America and 2% growth in the rest of the world. The primary driver behind this continued top-line growth has been the ongoing robust increase in subscribers. I am pleased to report overall subscriber growth of 24% year-over-year, bringing North American subscribers to over 1.45 million and rest of world subscribers to over 399,000. As it relates to some of our key revenue drivers and areas of the business, ad revenue during the second quarter totaled $26.3 million, representing a 14% increase versus the prior year period. Turning to the operational side of the business, our actions around lowering expenses and increasing efficiency are impacting the business positively. Starting with gross margin, we saw a 511 basis point year-over-year improvement in gross margin to 13%, marking our seventh consecutive quarter of positive gross margin. The progress we're making across our operational and expense line items led to a Q2 net loss of $25.8 million, a significant improvement compared to a net loss of $54.2 million in Q2 2023. These improvements resulted in a per share loss of $0.08, an improvement compared to a loss of $0.19 in the second quarter of 2023. In Q2, adjusted EPS loss was $0.04, an improvement compared to an adjusted EPS loss of $0.12 in Q2 2023. Adjusted EBITDA was negative $11 million, an improvement of $19.6 million compared to the second quarter of 2023, while adjusted EBITDA margin was negative 2.8%, a significant improvement from negative 9.8% in the prior year period. In summary, our results for this quarter, as well as recent quarters, highlight the significant progress we're making throughout the business. Notably, we believe that the current trajectory of our company demonstrates both its potential and resilience, putting us in a strong position to achieve our profitability objectives. Our ongoing efforts to identify efficiencies and maximize leverage across the business resulted in a $40.5 million year-over-year improvement in free cash flow. We remain dedicated to maintaining rigor and discipline in managing our company-wide costs and are pleased with the progress we have achieved throughout the quarter. Moving to the balance sheet, we ended the quarter with $161.3 million in cash, cash equivalents, and restricted cash. We are confident that our liquidity will be adequate to invest in the business under our current operating plan while maintaining our trajectory toward profitability. Note that this excludes the potential impact of the ongoing antitrust litigation, including the launch of the sports streaming joint venture. We have also taken proactive steps to optimize our capital structure. In Q2, we repurchased $46.9 million in face value of our 2026 convertible notes at prices significantly below par value, with $19.9 million of that having settled in July. Since the fourth quarter of 2023, we have reduced our level of debt outstanding by $80.2 million while also eliminating the potential dilution associated with the repurchased convertible notes. Turning to our guidance, our third-quarter North America subscriber guidance is 1.605 million to 1.625 million subscribers, representing 9% year-over-year growth at the midpoint. While our third-quarter revenue guidance projects $360 million to $370 million, representing 17% year-over-year growth at the midpoint. On a full-year basis, our guidance for 2024 North America subscribers is 1.725 million to 1.745 million, representing 7% year-over-year growth at the midpoint. Our full-year 2024 North American revenue guidance is for $1.570 billion to $1.590 billion, representing 18% year-over-year growth at the midpoint. Both our full-year subscriber and revenue guidance figures represent upward revisions to our previously shared full-year guidance. This guidance reflects our current exposure to potential industry volatility and our commitment to maintaining discipline in subscriber acquisition costs relative to monetization. However, it does not account for any potential impact from the joint venture. For the rest of the world, we expect 397,000 to 402,000 subscribers in the third quarter, representing a 3% year-over-year decline at the midpoint, while our revenue guidance projects $8 million to $9 million, representing 1% year-over-year growth at the midpoint for the third quarter. This leads to guidance of 395,000 to 405,000 subscribers for the full year 2024, representing a 2% year-over-year decline at the midpoint and a full-year 2024 revenue guidance of $33 million to $35 million, representing 4% year-over-year growth at the midpoint. As a reminder, given the many unknowns related to the potential launch of the joint venture, including the outcome of our lawsuit and the DOJ's investigation, our guidance and other commentary regarding fubo’s financial condition and anticipated financial performance in future periods do not reflect any potential impact of the joint venture on our business. In closing, I am pleased with our ability to post strong top-line results and equally strong subscriber growth. While we recognize there's still much work to be done to capture the vast opportunities we see in front of us, we're encouraged by our ability to improve just about every aspect of how we do business. It is clear that our strategies to maximize revenue and improve operating efficiencies are working, providing us with added confidence in our ability to deliver long-term value to our employees, partners, and shareholders. I would now like to turn the call over to the operator for Q&A.

Thank you. Our first question today comes from Laura Martin with Needham. Laura, please go ahead.

Good morning. My first question is about ads. Could you provide an update on what's happening with cost per thousand and also share your thoughts on the recent slowdown in growth to 14% year-over-year? What's the general outlook in the ad market for your company?

Yes. Sure, Laura. Hey, this is John. I'd say a couple things. So, to your point on the ad side, we posted about 13% to 14% growth. That was off of, I'd say, a several percentage point tougher comparison relative to last year. And so, if you look at a two-year stack comparison basis, overall it's kind of the same growth rate on a two-year basis for both Q1 and Q2. So I'd start with that. I'd also remind you that we have a 34% comparison in the third quarter. From a CPM perspective, a couple things. One is that I'm sure you've talked a lot about this around what CPMs look like across the marketplace. What I can tell you for us is that we continue to see strength in CPMs in the sports marketplace. We're quite happy there. As you know, we're skewed more towards sports than I think most. On the entertainment front, particularly traditional entertainment, there's a little bit of a CPM pressure that we're seeing currently.

All right. Thanks, Laura. And our next question comes from the line of Alicia Reese with Wedbush. Alicia, please go ahead.

Hi, guys. Thanks for the question. If you could talk a little bit about your advertising performance in the quarter and also the subscription retention that you expect to see in the third quarter around the Olympics. I'd appreciate that.

Yes, sure. Hi, Alicia. So, look, on the advertising side, we're very pleased with the quarter. Maybe to give you a little bit more flavor, just as a reminder, we built out the sales team that completed its anniversary about a year or so ago, and so the team has actually been running since. On a categorical basis, I would say the good news here is that our top five categories in terms of dollars also outperformed the overall portfolio, meaning, they're all above 14%. Among those in terms of strength, we saw that within auto, e-commerce, financial services, food and beverage, among others. I'd say a little bit on the softer side included travel, tourism, entertainment, and pharma. As it relates to the Olympics in general, what I would tell you is that we tend to do one-off events that are short in nature, for example, the Olympics or say the Super Bowl. Those subscribers or cohorts tend to have less retention value, and so our marketing team doesn't aggressively pursue them.

All right. Thanks, Alicia. And our next question comes from the line of Jian Li with Evercore ISI. Jian, please go ahead.

Great, thanks for the time. I want to kind of ask about the Free tier service. Can you just give us a bit more detail on the learnings so far? Are you seeing it actually move the needle on your churn or retention profile? And is that driving part of the North America subscriber performance this quarter? And also, if you can just expand on your plans to roll this out into more cohorts? Thanks a lot.

Yes, sure. So, I think on the FAST, I'll roll in the premium discussion as well. I think as you suggested, we launched our premium platform mid to late way through the second quarter. At this time, it's really for those who are churning out as a way to try to retain them. I'd say, at this point, it's extraordinarily early. We're pleased in terms of the amount of trials or uses we're getting on the freemium side. It's too soon to call what it means in terms of retention. More broadly speaking, we're seeing increasing ad growth month-to-month and week-to-week, so we're happy with what we're seeing there, although it's also from a small base. Regarding FAST, I would say that we're over 175 FAST channels. We continue to see strong growth in both viewership and advertising growth specific to the FAST business.

Yes, I'll just add one piece on that: With respect to the specific way in which we've rolled out our Free service, we're really focused on the customers that are churning out. Early indications show some strong reactivation, but at the same time, there's more work that has to be done around A/B testing to better understand how to drive more volume back into that funnel. We will be working on that for now, but again, early indications seem very compelling. We will likely put more resources behind that soon and see if it makes sense to begin to expand that out to other cohorts.

All right, thanks for the question, John. And our next question comes from the line of David Joyce with Seaport Research. David, please go ahead.

Thank you. Congratulations on the balance sheet management, first of all. But second, if you could please drill down on the strength of the net ads in North America. What were some real, I guess, content drivers there? There were some other streamers, obviously, not virtual MVPDs, that had some issues in the quarter, but timing-wise, I was just wondering what the drivers were.

Yes, so David, I'd highlight a couple of things. We had some significant sporting events that drove both trials and also conversions later in the quarter. So, that was one thing I would say. The second thing was that, we dropped the Warner Bros. Discovery content earlier in the quarter. I would say we didn't see as big an impact as we would have expected there. The third thing, I guess, as a result we also saw better-than-expected churn for the quarter too. Finally, I would say, we talked about our range in terms of SAC, and SAC came in a bit below our target as well.

I would just add that it was a very strong sports calendar, generally speaking. We had two major soccer events, and at the same time, I think we've done a really nice job marketing our cricket championship, as well as adding Yes Network and ensuring that there was continuity concerning some of the other regional sports networks' performances, with baseball seasons proving stronger this year than last for us.

All right. Thank you. And our next question comes from the line of Jim Goss with Barrington Research. Jim, please go ahead.

I wonder if you might comment on the potential impact of connected TV options on your total addressable market. Vizio, Walmart, TiVo, and proprietary OEM efforts provide options for consumers to get into some of the services without using anything else. How do you view that as a competitive threat?

David, do you want to take that one?

Yes. Sorry, Jim. I'm not sure I understood. It sounded like you were asking how we compete with some of these other FAST services. Could you please clarify?

Yeah. Well, that's the fact that if you buy certain televisions, you'll have the opportunity to gain access to much of the programming, including a lot of the same sort of FAST channels without having a service at all. I'm just wondering if that satisfies the needs of enough individuals that it poses a competitive threat to you.

Well, the FAST business for us is really complementary. About 7% of our viewership comes from FAST within the paid service. So, if a consumer churns out, they'll still have access to free channels. We have millions of people that come through the platform organically each year. For us, it's just more incremental opportunities to engage consumers and highlight the capabilities, the features, and the premium programming that we have, as well as the abundance of different connected devices. The interesting aspect of fubo relative to all these OEMs is that most people who have multiple televisions in their homes, typically have different OEMs in different rooms. Thus, having that seamless way in which you can use fubo across devices is extremely appealing. Therefore, at this moment, I see them more as potential business development partners versus direct competitors.

All right. Thanks, Jim. And our next question comes from the line of Nikhil Aluru from JP Morgan. Nikhil, please go ahead.

Yes. Hi, thank you. David, you touched on the sporting events. I was wondering if you could potentially comment on what the retention effort looked like after that for those subscribers, given that those events ended before the end of the quarter. I mean, as you head into Q3, what the retention of those customers might be looking like? And then second, just on the balance sheet, obviously great job with the opportunistic management. Is there anything you can tell us about further expectations for capital? Do you still feel confident you have the runway to break even without any additional capital raises? Thank you.

Why don't I start on the…

Yes, John, why don't I close out on the first part, and then you can take the second question. Yes, so just on the retention piece: look, these are large-scale events that drive a lot of viewers. The service provider's job is to deliver that viewer the experience they're looking for, and that job is typically achieved. We've seen this for many years, starting with the World Cup in 2018. This is why we wanted to add the free service that becomes available to churned customers, to ensure we can continue to learn more about their viewing behavior and really focus on what it would take to re-engage them and have them reactivate their services. I do think it's important that these customers will come back for Liga MX and a lot of the soccer programming that will return. The team is doing their best to retain them. It's still somewhat early to know, but I don't think there’s a strong overlap between the soccer viewer, the hardcore soccer fan, and the Olympics. So, it's early to say, but we expect that there could be some slight churn associated with those events, given the size of the cohort that came in.

And Nik, on the capital—on the capital question, what I would say there is, as you'd expect, I can't comment on what we may or may not do as it relates to the capital structure. What I can say is that we believe we are funded to execute on our operating plan, excluding the potential impact of the joint venture, and I would say that we are very sensitive to shareholder dilution.

All right. Thanks for the question, Nik. And our next question comes from the line of Darren Aftahi with ROTH. Darren, please go ahead.

Hey, good morning. Thanks for taking my question. Just curious, your marketing approach in the second half. Does anything change in light of a competitive landscape changing? And then I guess as a dovetail question of that, what kind of pricing power do you feel like you have given you've raised prices in the past? Is that a strategy you think you'll employ going forward? Thanks.

On the pricing side, I want to highlight that the team has performed exceptionally well. We've increased prices by $5 this year, and the response has been in line with our expectations, possibly even better. We still believe we have some pricing power in the business. Regarding the marketing tactics, the team has also done a remarkable job in the first and second quarters. They plan to make some adjustments for the third quarter to drive subscriber growth. I won't go into that today, but we will share more details in the next quarter's earnings call.

All right. Thank you, Darren. And our final question today comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Hi, guys. Thanks for taking my question. Maybe on the sequential improvement in subscriber-related expenses, could you quantify how much of that came from removing Warner Bros. content off the platform or if there are other factors at play there?

Yes, so on the subscriber-related expense, right to your point, as you noted, we saw several hundred basis points improvements year-over-year. We also saw even greater improvement from the first quarter to the second quarter. No, we don't provide specifics, as you know, concerning any specific piece of content. But what I can tell you is, consistent with what I've said before, we will continue to see improvement in that line item going forward. So, expect to see that again in the third quarter and fourth quarter. But again, I can't get more specific than that.

Yes, I would just add one more thing. And I just don't want you to think that it's just about the Discovery drop. This is a combination of other activities and content negotiations that have transpired and just some mix-shift opportunities as well that have come up, driving customers into different types of packaging. So, I think it's a culmination of things but certainly not specific to Warner Bros. alone.

All right, thanks for the question, Brett. That concludes today's call. Thank you all for joining, and you may now disconnect.