FUBO - NYSE

Ladies and gentlemen, thank you for standing by. My name is Desiray, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fubo's Third Quarter 2024 Earnings 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. [Operator Instructions] I would now like to turn the conference over to Ameet Padte, SVP, Investor Relations. You may begin.

Thank you for joining us to discuss Fubo's third-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 are discussed in our SEC filings, including risks related to our antitrust lawsuit against Disney, Fox, and Warner Brothers Discovery and the potential impact of their proposed joint venture. 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 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 Q3 2024 earnings shareholder letter, which is available on our website at ir.fubo.tv. Similar to last quarter, the company will not address any questions related to ongoing litigations during Q&A. With that, I will turn the call over to David.

Thank you, Ameet. Good morning, and thank you all for joining us today to discuss Fubo's Third Quarter 2024 Results. Our third quarter was marked by continued growth on the top line and notable improvements on the bottom line. In North America, we exceeded revenue guidance closing the quarter with $377 million in total revenue, up 21% year-over-year. Subscriber growth was strong and we achieved our goal of 1,613,000 paid subscribers, up 9% year-over-year. Our 2025 profitability target remains a priority. I'm pleased to report that we delivered a nearly $100 million year-over-year improvement in adjusted EBITDA over the trailing 12 months. This includes a $33.8 million improvement in Q3 2024 compared to Q3 2023. We also posted meaningful year-over-year improvements for Q3 2024 in net loss, adjusted earnings per share loss, net cash used in operating activities, and free cash flow. John will provide more details shortly. Advertising revenue in North America declined 11% year-over-year due to a tough comp in Q3 2023 as well as adjustments to our content portfolio. Looking to Q4, we are encouraged by a record upfront season. And in the coming weeks, we plan to add gamification, enabling brands to embed polls or themed trivia games into video without interrupting the live stream to our growing lineup of interactive ad offerings. We continue to be encouraged by a quickly maturing streaming market and our ability to deliver on consumer needs. Today, there are nearly 50 million households in the United States that still subscribe to Legacy pay-TV, a decline of more than 50% compared to the 105 million Cable TV subscribers recorded in 2010. As Legacy customers turn to streaming, nearly 30% have subscribed to virtual MVPDs over the trailing 12 months, according to a recent MoffettNathanson report. It's clear that consumers are looking for an alternative to traditional Legacy pay-TV services. Media companies have been recently challenged by big tech competitors. In our view, licensing their programming to pay-TV increasingly virtual is their most profitable path forward. Similar to the way we called out rebundling years ago, we believe that the industry will come to the same conclusion. Legacy business model economics can survive and thrive simply by shifting focus to the virtual MVPD space. We believe this shift to virtual MVPDs is necessary to offset the decline of traditional pay-TV and will also enable media companies to grow their revenue and profits. Therefore, we believe we are well positioned over the long term despite some bumpiness and disruption in the short to medium term. As we continue to emphasize product quality and user experience, we believe consumers seeking a frictionless streaming product will increasingly choose Fubo. We are also committed to offering consumers' choice. Our mission to provide consumers with an aggregated content experience that lets them choose the content they want was further realized with our recent introduction of standalone subscriptions. Now, Fubo users can subscribe to select live and VOD content without purchasing the main Fubo product, choosing the content that's right for them. With standalone subscriptions, our Fubo Free Tier and of course, our signature sports-first virtual MVPD, we seek to offer consumers multiple competitively priced options within the Fubo ecosystem free of friction. In August, we won a preliminary injunction against the sports streaming joint venture from Disney, Fox, and Warner Brothers Discovery. In the ruling in joining the JV's launch, the federal court granted our injunction because, as it stated, quote, Fubo is likely to succeed on its claims against the JV because it would, quote, substantially lessen competition and restrain trade. We are confident in the merits of our claims and believe the preliminary injunction will remain in place despite the defendant's pending appeal. Our fight against the JV is only our first step in helping create a fair streaming marketplace. Our goal is to rectify what we see as years-long efforts from these vertically integrated media companies to systematically stifle and suppress the growth of our sports streaming service. We believe these anti-competitive practices have inflicted billions of dollars of damage on Fubo. We look forward to the opportunity to prove our claims when our antitrust suit is presented at trial in October of 2025. In closing, the third quarter was highlighted by meaningful revenue and subscriber expansion balanced by cost controls critical to reaching our 2025 profitability target. And we continue to fight for a fair streaming marketplace as we believe competition will benefit the entire ecosystem. 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. I am pleased with the results for the third quarter and even more so with the continued progress we have made across just about every metric and in relation to our profitability goals. These strong results build on our momentum from previous quarters and further demonstrate that our initiatives and strategies are positively influencing our earnings potential and positioning Fubo to succeed in an ever-changing operating environment. Taking a look at the results for the quarter, we continue to see healthy top line and subscriber growth with North America revenue growth of 21% and Rest of World revenue growth of 6%. The main drivers behind the continued top-line growth has been our ability to monetize, retain, and attract subscribers. I am pleased to report North America subscriber growth of 9%, ending the quarter with over 1.61 million, and Rest of World subscribers to over 378,000. As has been evident in previous quarters, our commitment to enhancing efficiency while simultaneously expanding our market presence is not solely reflected in our robust revenue and subscriber growth, it is also having a positive impact on our profitability metrics. In Q3, net loss was $54.7 million, a marked improvement compared to a net loss of $84.4 million in Q3 2023. This led to a per-share loss of $0.17, a significant improvement compared to a loss of $0.29 in the third quarter of 2023. Adjusted EBITDA loss was $27.6 million compared favorably to a loss of $61.4 million in the third quarter of 2023. Adjusted EPS loss was $0.08, an improvement compared to an adjusted EPS loss of $0.22 in Q3 2023. In summary, our financial results continue to showcase the substantial progress we're making across the business. We believe the company's current trajectory reflects both its potential and resilience, placing us in a strong position to reach our profitability goals. Moving to the balance sheet and cash flow. We ended the quarter with $152.3 million of cash, cash equivalents, and restricted cash. In addition, our ongoing efforts to identify efficiencies and maximize leverage across the business resulted in a $31 million improvement in free cash flow with just over $1 million shy of achieving positive free cash flow for the quarter. This reflects our ongoing commitment to maintaining rigor and discipline in managing our company-wide costs, and we are pleased with the progress we've made this quarter. Turning now to guidance. Our fourth quarter North America subscriber guidance is 1.665 million to 1.705 million subscribers, representing 4% year-over-year growth at the midpoint. While our fourth quarter revenue guidance projects $426 million to $446 million, representing 9% year-over-year growth at the midpoint. On a full year basis, our guidance for 2024 North America subscribers is now for between 1.665 million to 1.705 million subscribers, representing 4% year-over-year growth at the midpoint. And for full year 2024 North America revenue, our guidance is for $1.58 billion to $1.60 billion, representing 19% year-over-year growth at the midpoint. And for Rest of World, we expect 345,000 to 355,000 subscribers in the fourth quarter, representing a 14% year-over-year decline at the midpoint, while our revenue guidance projects $8 million to $9 million, representing 0% year-over-year growth at the midpoint for the quarter. This leads to guidance of 345,000 to 355,000 subscribers for the full year 2024, representing a 14% year-over-year decline at the midpoint, and full year 2024 revenue guidance of $33 million to $35 million, representing 4% year-over-year growth at the midpoint. This guidance reflects our current expected exposure to potential industry volatility and our commitment to maintaining discipline in subscriber acquisition costs relative to monetization. In closing, I am pleased with our results. Even in a challenging market, we have posted strong revenue and subscriber growth. We have stayed true to our principles and thoughtfully evolved our strategy to better leverage our resources. While we recognize there's still much work to be done to capture the best opportunities we see in front of us, we remain completely committed to our business and our partners. We believe our culture focused on innovation and relentless execution continues to enhance our capabilities, operational muscle, and executional discipline, driving forward our action plan and making progress against our profitability goals. I would now like to turn the call over to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Laura Martin with Needham. Your line is open.

Hi there. Good numbers, you guys. Congratulations. I have two for David. One is, David, I would love it if you would explain to me why Fubo Free, especially now that you've -- and now you've added the pay channels, why that isn't available to everybody, and why it's only available to lower churn to prior and current Fubo subscribers? I don't understand why that's better economics for you. And then my second one is, you made the point, I think in your prepared remarks that we now have cable subscribers of 50 million and I think you said 30% sort of subscribe to virtual MVPDs. My question is, over time, do you think that the virtual MVPD tier is actually a long-term structural business because eventually cable subscribers are going to go to zero, and as sports moves to streamers, why is it anybody should be a virtual MVPD subscriber? Those are my two questions. Thanks.

Thank you, Laura. So just on your first question, I think it's a very good question. It's something that we thought long and hard about. I think what we attempted to do is one because it's a new product, we wanted to make sure that we are able to manage the free tier as best as we can and sort of learn a little bit more about what consumers are looking for and what their behaviors are. The concern of putting it in front of the paywall is, we didn't want that to impact the funnel because people basically are coming into Fubo today for sports programming. And so by putting that Free Tier in front immediately, we just didn't want to have an impact on conversion rates, which obviously would drive up subscriber acquisition costs as just sort of one potential outcome. So as we get better on managing and retaining customers and bringing them back into the ecosystem, we want to maintain them in the ecosystem. So, right now, we've been focused on creating features like upselling customers that are on that free tier. But I think eventually you're correct, we will put that free tier in front of the virtual MVPD paywall. John, I don't know if you have anything to add to that.

No, nothing to add there, I think.

Yeah. And then, Laura, on your second question, look, I think what we've attempted to communicate to the street is that we're very focused on offering consumers a plethora of services. And our goal is really to engage -- attract and engage consumers across the demand curve. So we think that the virtual MVPD product is a solid product. I think as I'm sure you know, lots of people are complaining about the number of services that they subscribe to, the inability to find anything. But again, there are people that will really enjoy a package that has everything. Even if they don't watch a lot of the channels, they want to make -- I'll give you an example, like for instance, if you never watched the weather channel and there is a -- in a climate event in a region that you care about, or you may have family in, you want to make sure that, that channel is available to you. So you don't have to scramble for it. So again, I think it's just a matter of making sure that we offer a wide range of products that are flexible and offer people solutions that they're looking for.

Our next question comes from the line of Alicia Reese with Wedbush. Your line is open.

Hey, guys. Good morning. I'm just looking at the -- I’m just wondering if you could talk a little bit more about what were the dynamics in the quarter with regard specifically to political advertising.

Alicia, I couldn't quite hear the first part of the question. Was it just specific to ads?

Yeah. I'm just wondering if you could talk about the dynamics that occurred in the quarter with regard to ad ARPU, political advertising, what was driving the ad ARPU? Why political didn't perhaps push it a little higher?

Sure. Okay. Yeah, sure. I'll take that one. So on the political front, what I've said, I think now for the past couple of quarters was that I think like others, we expect to have -- and expect it to have a record political year, which we did. And so I think it more or less came on top of our budget for the year, which was somewhere, call it in the mid-single-digit millions and that was up, call it, around 20%, or so from last year. In terms of the ARPU there, look, it's not a -- from a third quarter perspective, it's not a -- as significant as a percentage, let's say, what a broadcaster would have. And so the inflationary impact, if you will, in ad ARPU is somewhat more limited. But I'd say that the biggest impact in terms of the ad ARPU was the drop of the Discovery Scripts content earlier in the year.

Our next question…

In terms of that -- in terms of 4Q we expect improvement sequentially and a year-over-year basis in terms of ad ARPU.

Thank you. Our next question comes from the line of Darren Aftahi with ROTH. Your line is open.

Hey, good morning. Two questions, if I may. Just following up on the ad ARPU, the commentary, John. Like is there anything beyond Discovery that's a headwind that isn't making this business grow faster than it is? That's my first question. And then as it pertains to your standalone premium packages relative to the virtual MVPD, can you just speak to kind of the relative profitability of the products and then thoughts on any potential cannibalization? Thanks.

Yeah, sure. All right. So on the third quarter ads, let me kind of take a step back a little bit. And so look, we had a year-over-year decline in terms of the reported number. I would say there are a couple of things to think about. Look, I think that I'm very pleased in general in terms of what the team is doing. But the first point is that we didn't have the Discovery Scripts content following our drop during the second quarter, whereas we had them in the third quarter of last year. So obviously, that was a headwind. On the second point, and I think I may have referenced this on our call last quarter, we were up against a 34% comp to last year. So if we take a step back, our two-year stack comp was, call it, somewhere in the 7%-ish range plus or minus for the first and second quarters. And even with what we did in the third quarter, we had an acceleration the two-year comp is 11%. So I'd say, again, we obviously want to grow, but I'd say from a two-year basis, we're pretty happy with the growth there. And again, in terms of fourth quarter, not that you asked it directly, but I would say we expect to see improvement and we're seeing sizes of improvement sequentially from 4Q relative to -- in 4Q relative to 3Q. In terms of your question around the offerings, what I would tell you is that we announced this, I think a few weeks ago around some more premium offerings. The -- what I can tell you there is that they will be accretive as it relates to margin dollars. I think in many cases, they'll be actually similar in terms of overall margin. And so I don't expect any kind of degradation as it relates to the margin of the business. In fact, I think over time, it will be overall improve our margin dollars.