fuboTV Inc. (NYSE:FUBO) Q4 2022 Earnings Call Transcript

fuboTV Inc. (NYSE:FUBO) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the FuboTV Fourth Quarter and Full Year 2022 Earnings Conference Call. Thank you. Alison Sternberg, Senior Vice President, Investor Relations, you may begin your conference.

Alison Sternberg: Thank you for joining us to discuss Fubo’s fourth quarter and full year 2022. 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 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 I am going to turn the call over to the analysts for Q&A. Before we begin, 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, including quarterly and annual guidance and cash flow and adjusted EBITDA targets, our business strategy and plans, expectations regarding innovation, growth and profitability, consumer industry and advertising trends, the integration of Malta, planned launch of the Unified platform and expected synergies and market opportunity.

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 can be found in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2022 to be filed with the Securities and Exchange Commission and other periodic filings with the SEC. These statements reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. 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 are accounted for as discontinued operations.

During the call, we also refer to non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q4 2022 earnings shareholder letter, which is available on our website at ir.fubo.tv. With that, I will turn the call over to David.

David Gandler: Thank you, Alison and good morning everyone. We appreciate you joining us today. I am proud to report that Fubo’s global streaming business achieved record highs in the fourth quarter and full year 2022 across several KPIs. We delivered over $1 billion in total global annual revenue. We exceeded over $100 million in annual ad revenue in North America. And at the same time, we achieved positive gross profit in Q4. We also closed the year with 1,445,000 subscribers in North America, an increase of 29% year-over-year and 420,000 subscribers in our Rest of World streaming business, an increase of 117% year-over-year. 2022 was an inflection point for our business. Our goal is to continue on this trajectory by expanding unit economics and generating positive free cash flow in 2025.

My confidence and enthusiasm are not just based on our results, but on the dynamics and trends across the media and consumer landscape at large. Friction and fragmentation continue to persist in streaming, frustrating customers and creating a challenging path to sustainability for media companies. As a result, we continue to see the aggregation model and bundling as a massive opportunity. Our service empowers consumers to seamlessly access all of their favorite content via a single app from anywhere in the house and on any device or operating system. Fubo plays an important role in the media ecosystem. Our customers already spend over 100 hours on our platform every month on average, reflecting the value we provide to media companies, content creators and advertisers.

And as an aggregator and distributor of content, we will continue to work to advance on our vision and that is to give customers a gateway to all television, surprising and delighting them with a personalized and seamless user experience. U.S. consumers are already supporting our vision. We are extremely proud to rank number one in J.D. Power’s 2022 customer satisfaction survey among live TV streaming providers. We believe this proves that consumers understand the value of an aggregated multichannel streaming platform, and in particular, Fubo’s differentiated sports-first offering. On the content front, it’s becoming clear that we have more leverage than we expected due to the certain content drops that historically have had almost no impact on subscriber growth and retention.

As we optimize our content portfolio through our first-party data, we plan to selectively carry content that will drive subscribers and leverage our increased scale. As a result, we expect to drive leverage on the subscriber-related expense line on a year-over-year basis going forward. Before John dives into our subscriber guidance, I wanted to give you added context. Fubo has always punched above its weight class. We have recently increased prices of our U.S. based plans by $5. Additionally, we priced up against the recently added Valley’s RSNs from $11 to $14 to be able to offer these in all RSNs in our base plan and to the widest number of consumers. In aggregate, this is a major price up of $16 to $19, our biggest increase and the first time we raised prices in Q1, which is typically lighter on sports content.

The price up and its timing, coupled with the World Cup cohort and typical Q1 seasonality is why we are delivering a conservative sub guide. That being said, we are still very excited about our growth prospects in 2023 and beyond. Following these moves in Q1, we have been very pleased with our early retention metrics and are monitoring closely. Excluding the estimated impact of the 2022 World Cup, we believe we will maintain double-digit subscriber growth in 2023. We also remain committed to super serving sports fans, which is at the core of our brand DNA. Fubo is the home for local sports coverage as evidenced by our carriage of approximately 35 regional sports networks. Our RSN portfolio gives us leading coverage of baseball when notably a large virtual MVPD recently reduced their coverage significantly.

Fubo now delivers at least one RSN to nearly every U.S. subscriber and is the lowest cost streaming option for local teams. FAST channels are a growing component of our margin expansion strategy as it relates to the leverage in our subscriber-related expenses. SaaS channels help us achieve two goals. They provide a wide range of content, creating more fungibility and negotiating leverage with content partners. They also provide us with significantly more ad inventory relative to our current cable network deals. As a reminder, we do not have any inventory with broadcast networks. The 80-plus FAST channels on our platform generated 5% of total ad revenue in 2022, significantly up from 1% in 2021. That’s why we are working to improve discovery of our SaaS channels to deliver even more ad inventory.

In general, our advertising business continues to outperform, growing 30% in Q4 on a year-over-year basis, despite a very difficult quarter that impacted the entire industry. Our largest advertisers from 2021 increased total spend with us in 2022 by 85% and we added a record number of new brands. While we are excited about our success last year, we still have much to do. This includes improving our ad tech, integrating more data products and packaging up our inventory. On the product front, Fubo has historically been first to market among virtual MVPDs with new features and capabilities from 4K streams to multi-viewing. Our internally built tech stack has enabled us to be ahead of the innovation curve. We see AI and computer vision products as a natural evolution of our commitment to interactivity.

In December 2021, we acquired a company called edison.ai, anticipating the power of artificial intelligence and computer vision to evolve the consumer experience and augment our advertising capabilities. With this technology, we can programmatically understand what happens in each frame of a live stream in real time. We are now focused on building product features that can allow Sports fans to lean forward and choose to engage on a per play basis, not just on a per game basis. Additionally, we can leverage this tech to reduce costs, maximize the value of our FAST channels, introduce new ad products and optimize subscriber growth. We currently have multiple patents pending with this technology. We are excited about the initial results of our new capabilities, and we’ll also continue to explore opportunities with certain cloud providers about implementation on a B2B basis.

We look forward to sharing more on our progress in the quarters to come. And finally, the fourth quarter also marked the 1-year anniversary of our Molotov acquisition. The acquisition has been a success, delivering strong growth of our rest of world streaming business, more than doubling subscribers and achieving meaningful revenue growth, all with a modest marketing budget. Molotov’s freemium model has proven to be effective and efficient, something we continue to evaluate as we think about the future of our business. I could not be more excited for 2023. There are still more than 62 million traditional pay-TV consumers here in the United States and a disproportionate number of cable customers who are cutting the cord continue to choose Fubo over many of our competitors.

In summary, we are very pleased with our record Q4 and full year 2022 results. We are continuing to prioritize profitable growth and remain confident of our mission to deliver a leading global live TV streaming platform differentiated by the greatest breadth of premium content and interactivity. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John?

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John Janedis: Thank you, David, and good morning, everyone. We had a strong quarter across our KPIs, including subscribers’ total revenue and ad revenue and delivered results well above our forecast. For the full year, total revenue was $1 billion, a 58% increase versus $638 million in 2021. This includes North America streaming revenue of $984 million and Rest of World streaming revenue of $24 million. Within the fourth quarter, North America subscription revenue was $278 million, representing 36% growth year-over-year. This was driven by subscriber growth as well as total ARPU, which was $72.50, representing 4% growth year-over-year. In the fourth quarter, North America advertising revenue was $33.6 million, representing 30% growth year-over-year.

We added a record number of new advertisers completely sold out our World Cup ad inventory and had a record-breaking political season. This reflects our efforts and success to continue to expand our relationships with our largest advertisers. Now moving to Rest of World, revenue in the fourth quarter was $7.2 million. While our focus is primarily on integration, we are pleased with the performance of Malta, particularly as subscriber growth and cash flow has continued to trend ahead of our expectations. Turning to our path to profitability, as we announced in October, we ceased operation of our sports book in 4Q in support of this. As a result, to allow for a meaningful assessment of our streaming business, the following results are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations.

On our subscriber relative expense line, we reported modest operating leverage in the quarter. Importantly, we expect deleverage in SRE to accelerate meaningfully in 2023 as we remain focused on improving operating leverage across all of our key cost buckets. Importantly, we also achieved positive gross profit of $3 million for 4Q and while we expect typical seasonal patterns in our business, we believe gross profit and all our key operating metrics will continue to improve on a year-over-year basis in 2023. Moving down the income statement, net loss in the fourth quarter was $95.9 million. This led to a fourth quarter 2022 earnings per share loss of $0.48 inclusive of a $0.02 impact from operating expenses associated with the Malta business acquired in 4Q €˜21 compared to a loss of $0.64 in the fourth quarter of 2021.

Fourth quarter adjusted EBITDA loss came in at $75.4 million compared to a loss of $73.4 million in the fourth quarter of 2021 and adjusted EBITDA margin was minus 24% an 814 basis point improvement year-over-year. Adjusted EPS in the fourth quarter of 2022 was a loss of $0.39 but note that adjusted EPS excludes the impact of stock-based compensation, amortization of intangibles, amortization of debt discount and other non-cash items. In the fourth quarter, we achieved cash usage of approximately $24 million, including $3 million related to the closure of our gaming segment and our most favorable in our time as a public company. Our expectation continues to be that operating cash flow losses will moderate meaningfully in 2023. On a full year basis, 2022 adjusted EBITDA was negative $323 million.

We believe 2022 represents peak losses for our business, and both adjusted EBITDA and cash usage will improve on a year-over-year basis going forward. From a capital structure standpoint, we remain highly disciplined to afford Fubo TV the financial flexibility to fund measured and disciplined growth initiatives. As of December 31, 2022, we had 209.7 million shares of common stock issued and outstanding. As it relates to our balance sheet, we ended the quarter with $343.2 million of cash, cash equivalents and restricted cash. This includes $63.2 million of net proceeds from securities sales pursuant to our at-the-market program. Now moving on to our guidance. Our Q1 2023 guidance reflects our continued emphasis on ARPU and unit economic expansion.

In projecting 1Q, we took into account the impact of seasonality, the strong benefit from the World Cup in 4Q 2022, our recently announced price increases and our announced content portfolio optimization. Our North America 1Q guidance calls for subscribers of $1.140 million to $1.160 million and net revenue of $295 million to $300 million. While the 1Q subscriber guidance represents 9% growth year-over-year at the midpoint, the revenue guidance represents 26% growth year-over-year at the midpoint. This reflects our emphasis on ARPU expansion and strengthened unit economics with revenue growing at roughly 3x forecasted subscriber growth. For the full year, our expectation is for subscribers of $1.510 million to $1.530 million representing 5% year-over-year growth at the midpoint and revenue of $1.195 billion to $1.225 billion, representing 23% year-over-year growth at the midpoint.

This again reflects our emphasis on ARPU and unit economic expansion with revenue growing at roughly 4 to 5x forecasted subscriber growth. Within our rest of all segment our expectation is for 1Q 2023 revenue of $5.5 million to $6.5 million and subscribers of 368,000 to 373,000 and full year 2023 revenue of $24.5 million to $28.5 million and subscribers of $395,000 to $415,000. In closing, Fubo delivered record fourth quarter and full year results across a number of key financial and operational metrics. As we look ahead to 2023 and beyond, we remain focused on the unit economics of our streaming business, margin expansion, gross profit and cash usage as we track towards our previously stated goal of achieving positive cash flow in 2025.

Operator:

David Gandler: Operator, excuse me. I’d just like to quickly make an announcement. John and I are thrilled to announce that we raised gross proceeds of approximately $68.1 million this morning in block trains at a negotiated discount to Friday’s closing price under our ATM program. This helps fortify our balance sheet and advances us on our path to achieving our positive free cash flow target in 2025. More importantly, we believe this financing demonstrates our continued ability to access capital as needed. Thank you.

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Q&A Session

Operator: Your first question comes from the line of Shweta Khajuria from Evercore ISI. Your line is open.

Shweta Khajuria: Oaky, thank you for taking my question. Could you please talk about the early impacts you’ve seen from the price increase on churn? I understand the guidance and the combination of ARPU and sub growth. But what have you seen on churn and retention rates from price increase? And could you please also remind us the timing of when the price increase actually went into effect? Thank you.

John Janedis: Hi, Shweta, this is John. I’ll start. Thanks for the question. Yes. So for a reminder, we announced the price increase on January 6 for new subscribers and then it kicked in on February 6 or so for existing subscribers. The price increase was $5, and then there was another increase on top of that for the RSN subscribers. I would tell you that to date, if we look at the cohort of existing subscribers starting from February 6, we only have, call it, 2 to 3 weeks of data. I would tell you, we expected elevated churn, but I would say that the churn that we’re witnessing actually has come in below what we would have expected. And I’d also tell you that our marketing team is doing a great job in terms of coming up a different ways to reach potential subscribers. And we’re also seeing, I would say, better trials, if you will, to start the year. David, anything else want to add or

David Gandler: No, I think you hit the nail on head. Shweta, I would also say that the guidance that we provided was relatively conservative just because the price up. The size of the price sub was pretty significant. The $5 base price plus the $11 to $14 in the RSN was pretty significant. And so if you think about that, plus the timing of the price that we typically price customers up in the third quarter. So this was our first time pricing up customers in the first quarter. And then you have €“ you add on top of that the regular seasonality plus some other noise such as the CBS affiliates, and we felt we would err to the side of conservatism on this. But as John said, we’ve been very happy with retention, albeit it’s only been about 3 to 4 weeks at the moment, but things are looking very good, and we’re very confident about continuing to drive growth, double digits ex World Cup for 2023.

Shweta Khajuria: Okay. Thank you, David. Thanks, John. A quick follow-up. When was €“ is this the first price increase ever? Or if not, when was the last one you did, how much was it? And what was the impact and that’s it for me? Thank you.

David Gandler: Yes, sure, Shweta. I would just say to your question, we did announce the price up of $5. I think it was on April 2 of last year. And again, that was for new subscribers for the Pro and Elite package. And then it was for existing subscribers 30 days later, so call it around May second of last year. I would note just to continue that theme, if you will, that we saw a little bit less churn than we would have expected in the second quarter as well. I know that some investors had concerns around would there be a tail, if you will, through the summer. And as a reminder, I’d say that we saw the lowest churn ever for the company in the third quarter of last year.

Operator: Your next question comes from the line of Laura Martin from Needham & Company. Your line is open.