Q1 2023 Fubotv Inc Earnings Call
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Good morning, My name is Chris and I'll be your conference operator today at this.
This time I would like to welcome everyone to the Q1 2023 earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
In the interest of time, we ask you. Please limit yourself to one question and one follow up.
Thank you Alison Sternberg SVP of Investor Relations.
Again.
Thank you for joining us to discuss <unk> first quarter 2023 with me today is David Gambler, co founder and CEO of Tivo and John Geneva CFO Isabelle.
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 Docs Blue bottle got 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 for both strategy and John will cover the financials and guidance.
Then I'm 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 and anticipated financial performance anticipated cash requirements and our ATM program, our business strategy and plans can see.
[noise] behavior and expectations regarding profitability.
These forward looking statements are subject to certain risks uncertainties and assumptions.
Factors that could cause actual results to differ materially from forward. Looking statements include those discussed in our annual report on Form 10-K for the year ended December 31, 2022, and other 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.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q1 2023 earnings shareholder letter, which is available on our website at IR docs blue bottle Dot TV.
With that I will turn the call over to David.
Thank you Allison and good morning, everyone I'm pleased to update you on for both strong first quarter results.
Who both north American streaming business exceeded guidance posting double digit year over year growth in total revenue and paid subscribers.
We closed the quarter with $316 $5 million in revenue.
Up 34% year over year, and 1.285 million subscribers up 22% year over year.
Our rest of World business, which includes our French streaming service Molotov also posted double digit growth in total revenue and paid subscribers during the quarter.
We delivered a healthy seven $8 million in revenue up over 40% year over year, and 379000 paid subscribers up 24% year over year.
Our North American AD sales business delivered $22 $5 million in Q1 revenue remaining flat year over year. Despite continued pressure on the advertising market.
We expect a reacceleration of growth in the second quarter.
We announced at our 2022 Investor day that we are targeting positive cash flow in 2025, and I am very pleased to report that we continued to meaningfully advance towards that goal.
In the first quarter, we reduced our adjusted EBITDA loss by $36 million year over year, and improved free cash flow by $40 million year over year.
This is our largest absolute dollar improvement and a profitability metric since we've been a publicly traded company and represents a key milestone.
From a cash usage perspective, we anticipate continued significant year over year improvement in 2023, similar to our seasonal trajectory in 2022.
<unk> continues to focus on efficiently allocating capital through a measured and disciplined approach in particular on controlling cash usage. We believe that our current cash balance of $364 8 million is sufficient to fund our operating plan until we achieve positive cash flow in 2025.
During the quarter, we raised $117 2 million in net proceeds from our aftermarket program of which $106 1 million settled in the first quarter.
And based on our current outlook, we have no further plans to sell under the ATM program.
Customers continue to demonstrate their preference for crew both content aggregation model delivered through a premium user experience all through a single app or growing market share coupled with the over 100 hours users spend on our platform every month on average support why football ranks number one in customer.
Hatice faction among live TV streaming providers by J D power.
Turning to content, we're continuing to double down on our brand proposition by adding more sports.
<unk> is now the streaming leader in professional baseball coverage strengthened by our expanded partnership with major League baseball.
This is the same popular content that was recently dropped by a competing virtual mvpds and underscores through both solid differentiation for sports fans.
We're also continuing to make smart investments with our product with one eye towards delivering a personalized product experience for every customer.
<unk> proprietary tech stack has enabled us to continuously push the boundaries of live TV streaming.
We were the first virtual mvpds to launch for K and multi year and we did both years ahead of our peers.
Continuing to set the standard for innovation in our industry. We are harnessing our proprietary AI and computer vision technology acquired through the 2021 purchase of Edison AI.
We plan to transform how users engage with streaming video and traditional DVR, we look forward to sharing more details in the coming months.
With our sports first differentiation and premium user experience optimized for live sports.
And TV comes pricing power.
In early Q1 as a result of recent content additions, we raised prices on our channel plans. These increases had negligible churn impact supporting our thesis that consumers will pay more for a premium service and underscoring our brand and value proposition.
In closing, we had a stronger than expected first quarter growing double digits. Despite ongoing challenges in the marketplace.
We continue to invest in customer experiences and engagement levers with the ultimate goal of optimizing monetization.
And our focus is always on our path to profitability. We believe our track record the momentum we continue to see across our key operational metrics and the strength of our balance sheet clearly demonstrate our continued advancement towards our 2025 positive cash flow goal.
I will now turn the call over to John <unk> CFO to discuss our financial results in greater detail John .
Thank you David and good morning, everyone. Our first quarter results reflect market progress against many of our goals and key operating metrics more importantly, we expect this trend to continue.
Total revenue for the quarter increased 34% to a record $324 4 million driven by 34% revenue growth across North America, and 41% revenue growth from rest of world.
Our topline growth continues to be driven by healthy increases in subscribers, including a 22% increase in north American subscribers to one point to $85 million, along with a 24% increase in rest of world subscribers to 379000.
We are pleased with our progress on the monetization front with North America, <unk> expansion of 8% to $76 79.
And despite the headwinds across overall advertising budgets, we were able to deliver $22 5 million and advertising revenue across North America remaining relatively flat year over year.
We're also pleased with the progress we have made on the operating and cost out of the business, including a positive gross profit and a 1075 basis point improvement in gross margin versus Q1 2022.
This resulted in a net loss of $83 4 million, a $45 million reduction year over year, and a net loss margin of negative 26% favorably compared to a negative 53% net loss margin in the prior year period.
This led to a first quarter 2023 loss per share of <unk> 37.
Compared to a loss of <unk> 81.
In the first quarter of 2022.
First quarter adjusted EBITDA loss improved to a loss of $58 9 million compared to a loss of $95 3 million in the first quarter of 2022.
And adjusted EBITDA margin was minus 18, 2% an improvement from minus 39, 3% in the prior year period.
This resulted in an adjusted EPS loss of 27.
An improvement compared to an adjusted EPS loss of <unk> 62, and.
In Q1 2022.
Turning to our path to profitability, we are pleased with our ongoing efforts to identify efficiencies and maximize leverage across each operating expense category. For example, we demonstrated greater leverage over our subscriber related expenses, which decreased from 101% to 93% of revenue.
And Q1 2023 versus the prior year period.
We expect this year over year trend to continue as we work towards meaningfully growing subscribers optimizing our pricing and further improving our mix of premium plans.
Turning to cash flow, we were pleased to improve free cash flow by $40 million year over year.
Accordingly, our expectation continues to be that both adjusted EBITDA and free cash flow will improve on a year over year basis. As we believe 2022 represented peak losses for our business.
As it relates to our balance sheet, we ended the quarter with $364 8 million of cash cash equivalents and restricted cash.
During the quarter, we raised $117 2 million in net proceeds from our aftermarket or ATM program $106 1 million of which settled in Q1 and the remainder are settled in Q2.
From a capital structure standpoint.
We remain highly disciplined in our investments and deployment of cash while also affording <unk> the financial flexibility to fund measured and disciplined growth initiatives.
Importantly, given our cash position and planned expense and investments we are confident that our cash balance is sufficient to achieve positive cash flow in 2025 based on our current operating plan.
Moving to guidance, we are guiding North America second quarter 2023 subscribers of 1.12 to 114 million, representing 19% year over year growth at the midpoint.
And we expect revenue of 292, five to 297 5 million, representing 36% year over year growth at the midpoint.
For the full year 2023, we are raising our previous guidance for North America, and now expect full year 2023 subscribers of 155 to one $5 $7 million, representing 8% year over year growth at the midpoint and full year 2023 revenue of $1 billion.
$235 million to $1 billion $265 million, representing 27% year over year growth at the midpoint.
For rest of World. Our Q2, 2023 guidance projects 377500 to 382500 to subscribers, representing 10% year over year growth at the midpoint and revenue of $6 nine to $7 9 million representing 27%.
Year over year growth at the midpoint.
Our full year 2023 rest of our guidance projects 395000 to 415000 subscribers, representing a 4% year over year decline at the midpoint and revenue of 28, six to $32 6 million, representing 26% year over year growth at the midpoint.
Note that the fourth quarter 2022 subscriber number was impacted by the World Cup.
Our Q2 2023 guidance reflects our ongoing emphasis on expanding our pool and improving unit economics with revenue growing at more than three acts forecast the subscriber growth.
In summary, our performance in the quarter reflects our continued focus on the unit economics of our streaming versus margin expansion gross profit and cash usage and we are very pleased with our recent results and remain confident in our ability to achieve our goal of positive cash flow in 2025.
That I would now like to turn the call over to the operator for the question and answer session operator.
Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad and please limit yourself to one question with one follow up.
First question is from Laura Martin with Needham Your line is open.
Good morning, Great numbers, you guys, David let's start with the <unk>.
This increase you guys did it.
Starting with aggressive price increase in January can you talk about up to date, what's going on with that Sharon you said.
Excellent I wouldn't get inspected Turner.
Yeah.
Yes, well first of all thank you very much Lauren and I look forward to see you in a couple of weeks.
Think that one of the things that we were really focused on during the last earnings call was the fact that we did we had to price ups with a $5 price up and then in addition, there was the I would say I think it was within 30 days were 35 days we had.
An additional increase of $12 and so going into the earnings call without really.
Understanding sort of the fate of the <unk>, we had a sense of what happened.
We were a little bit more conservative, but I think the two cohorts that we were most concerned about that we mentioned on the last call was the World Cup cohort and the NFL cohort, which typically.
We would've expected them to churn off significantly greater pace, but I think the fact that we did have the <unk> allowed us to.
Give an option to those people to stay.
The crossover into the <unk> was actually much stronger.
Than we anticipated and that resulted in stronger subscriber.
Yes, Laura maybe I'd add a couple of things as well this is John .
For Q1 year over year, we saw churn up very modestly so to David's point, it was up less than 100 basis points, but we thought it actually could attract a little bit higher and for <unk>. We're obviously, we're always looking at is how potentially in terms of a churn impact call. It a couple of months or a quarter or two out.
And what I can say as of now leases that quarter to date churn is actually down year over year.
Yes.
And I want to ask my advertising question, but I will let you follow up on your rsum comment can you tell US now I know you guys paid a lot of money for that and can you tell us what's going on with all these headlines we're reading about.
Teams pulling out of the RSA can you tell.
Let's just status of your rights and your payment obligations.
Yes.
Apart from our rights point of view thank you.
Good question.
So first of all we have.
<unk> had set of <unk> now I think for the last few years, we've had the greatest number of independent our sense as well and so as we've seen in other regions such as Boston and Nesson. Many of these services.
Are either have a direct to consumer service or planning to launch a direct to consumer service it hasnt really.
Impacted us to the same degree and.
I think folks just need to remember that these markets are very small and it's very difficult to generate a significant amount of money in small markets and so I think that our relationship.
<unk> to strengthen with not only diamond sports with individual teams as you saw in Boston Red Sox.
Sure. There are other deals that are on the way, but we don't see that there is really any impact as it relates to the deal that we have in place right now obviously I can't talk about the deal itself, but there are provisions in there.
That allow us to reduce payments should certain events occur so from that perspective, we've been very happy with our relationship and major League Baseball has also done a great job I think the one other thing Thats really worked in our favor is the change in rules, particularly around pitching.
The pitching clock and serve all of these things combined have led to some strong results, but the last thing I'll say.
In terms of the other price ups I think the goal that we had initially was to reduce the cost of entry and create.
Attractive user economics and.
Given what we've been able to deliver from a free cash flow improvement.
That really we've achieved the goal that we've set outflow.
Thank you very much.
The next question is from Mitch with Progeria with Evercore ISI. Your line is open.
Okay. Thanks for taking my question.
Could you. Please talk about just the overall demand trends.
Referring specifically to connected TV advertising demand was flat year over year. Despite what we're hearing in the environment, but Lee.
It's also the new front season. So what have you heard what is top of mind for people and anything in particular that jumps out whether it is pick.
Specific categories or verticals that you can call out thank you.
Yeah sure so I'll start with that and so when we looked at our Q1 results to your point, we came in about flat on a revenue from a monthly perspective, let me just talk you through that and then I'll also go through <unk> and some of the categories.
March was better than February which was better than January and I'd say, if I sort of give you. Some of the numbers around that January was down slightly February call. It flattish in that March was up a bit maybe call. It mid singles and then we're seeing further acceleration now into April and <unk> and so far April Essex finished up in the double digits. So we're encouraged.
But what we're seeing in terms of some of the trends.
From a category perspective, I would say in the first quarter, we saw strength in financials CPE.
CPG travel and competitive.
And then on the software side, we saw some weakness in pharma.
Pharma auto and retail and then for the second quarter.
Montana visibility a bit limited, but as of now we're seeing strength in retail and pharma travel <unk> and then as you may expect a little bit of weakness in financials and insurance and then also in the telecom space.
One thing on the new France, you had asked also I would say look it's obviously still early I'd say encouraging from when I talk to our AD sales team and so we've added a lot of initial dialogue and incoming from agencies, but nothing to report yet I'm sure.
I'll have more on our second quarter call.
The next question is from Darren <unk> with Roth and Kim Your line is open.
Hey, guys. Good morning, Thanks for taking my questions.
Following up on advertising can you just kind of speak to kind of your direct AD sales efforts kind of progress there.
What is direct in like Q1, as a percentage of total mix.
Yes, well this is an area that we said we're going to be focused on.
And so we started building out the team it's still relatively small and direct this is why I am excited about the advertising business.
Still a dramatically small component of our overall advertising sales.
I can't give a number but it's extremely small which gives me a lot of comfort in our ability to continue to drive revenue Theres. A few factors in that that are also going to be quite helpful. We've seen at <unk> increased by about 30% year over year.
Despite viewership trends that are relatively flat.
As I said.
In my opening comments that were over 100 hours of viewing so that and that comes from again, adding more our sensor we're diluting the number of hours people watching on broadcast.
Towards hours watching the <unk> and and that is creating more inventory given the fact that we don't have inventory in the broadcast net the other component, which is really working in our favor is the SaaS channels as.
As you know we have a 50, 50% split in most cases.
With our fast channel partners.
It is more than twice the amount of inventory, we get from the cable nets.
And that viewership despite being sub 5%.
Is providing.
It's a 7% or 8% in terms of avail. So theres a lot of opportunity there.
We just.
<unk> yesterday I think it was no sorry may three at the new fronts and Theres a lot of buzz a lot of interest in.
In our capabilities and.
We're very focused on continuing to develop those in.
Ensure that our sales team will be out in market with strong products and sponsorship opportunities, but still very early in that process, which is why given where our numbers are today I'm very comfortable that we'll continue to see growth not only from now but through 2025, ensuring we achieve our profitability targets.
I would just add one thing on that in terms of direct as a percentage just pure direct that number I think.
Year over year growth percentage was triple digits, and I would say, we would assume that that are more trends in the double digits over the next a couple to a couple of quarters or beyond into 'twenty four.
And just so everyone understands the importance of that is the CPM are typically between 20 and 50% above programmatic CPM. So it's a very important component for.
For us going forward and an area of focus.
Thanks, if I could follow up on one more thing.
Content costs I know you guys have been pretty.
<unk> focused on reducing this and looking at line items by line items and Rois I guess kind of where are we in that in that game of evaluation, what inning and I guess how much more.
What is there to shop on your SRA kpis. Thanks.
Well Darren.
That's a great question I think look again, I keep water I'm going to start talking more about history of <unk> because it is very telling story of what we could potentially do you've seen us dropped content in the past and continue.
Two to grow our market share we are going to continue to make some very bold moves.
And going into 2025, we feel that Theres a lot of room, there on that SRV line as you know.
We've improved that line from 101% of revenue to now 93%, we're going to continue to focus on that we think there's some good wood to chop there and we're starting to see deals where we're getting volume discounts as well.
Given the trend in cable couple.
Coupled with the complexity of achieving profitability in streaming we think this is the right space.
That we're in similar to theatrical where a lot of the major media companies have decided that they didn't want to be in theatrical they wanted to go right to streaming and now back to theatrical theres, a tremendous amount of value created for.
For our media partners with a product like ours. So we're very confident that we'll be able to have some sort of positive impact between now and our profitability target.
We're very focused.
Again, Thats star one if you'd like to ask a question. The next question is from Nicholas <unk> with Stephens. Your line is open.
Okay.
Hey, guys. This is dean on for Nick Congrats on the quarter. We were just noticing in the new fronts and emphasis on interactive ads Schobul ads on CTV platforms contextual targeting could you just remind us or give any color around the roadmap for unique.
Units, one through Boe or maybe just what the appetite is.
Yes. So obviously, we're looking at this very closely.
A lot of this stuff is really early stages and isn't scalable.
But right now we're focused on a couple of elements one is.
We've realized the value of display advertising in the platform, which we have right now, we're just serving sort of internal.
Internal messages, but when we look at Roku and the sellout levels of Roku is display ads versus video it seems to us to be quite appealing as sort of the next opportunity for us which by the way doesn't impact.
Any of our video inventory nor does it require incremental.
Video viewership so that's an area, where we will focus first.
Then obviously, we're also focused on data integrations, and then potentially selling our data obviously under an anonymous basis, but beyond that I think we're going to begin to leverage our computer vision technology.
With our acquisition of Edison, AI, where we'll look to read whats available on screen what people are watching on a frame by frame basis, and then be able to.
Pull in advertisers that believe that its contextually relevant we think that that will probably have a greater impact in.
In terms of.
Brand value.
Direct sales of products and so we'll be focused there I think before <unk> the problem with live TV.
And shop level ads is that you'd have to stop the stream in order for somebody to interact with the video I am not sure that that's a very good experience but.
All my career at AD sales I've seen a lot of different products and second screen opportunities that looks really cool, but really didn't perform for advertisers were very lucky we have a very strong marketing team here. So as we think about our advertising capabilities we.
Typically talk through opportunities with our marketing team to make sure that we're going to create value for our advertising partners.
Youll see from us over the next six to 12 months.
Sort of a greater move into being able to provide.
Greater breadth.
<unk>.
Our AD products and better packaging to drive sales and brand awareness for our.
Our brand partners.
Got it thanks.
Okay.
We have no further questions by phone alternate over to Alison Sternberg.
Thank you operator.
Last quarter, we are going to take a handful of questions that came in through our safe technology portal from investors.
And David I'm going to address these to you actually think that there related both of these questions. So I'm going to combine them into one.
Which is what are your plans for long term growth and sort of related to that can you discuss any new product launches are updates that are on the horizon.
Yes. These are questions. We think about I would say daily the first and most important thing is that.
We have.
Set a goal for ourselves.
To be breakeven in 2025 that is our ultimate goal.
We need to reduce our cash burn and so areas that were I would say in the short term we're looking at.
One is we're continuing to work through our unified platform, which we've talked about I think now on several calls that unified platform is very important because it provides the foundation to be able to scale a business out globally at some point again, we are not planning to do that at the moment where.
Acutely focused on.
Hitting our profitability target, but in the short term what Youll see is youll see fresh apps sometime in the fall that's tied to that unified.
Platform and that's all driven by new backend infrastructure and a new design system. So we're very excited about that and obviously that would also help.
Our French business Molotov.
Shortly after.
Last year in the United States from an AI perspective, we're starting to sync data.
And our first opportunity will be sinking our fans new data with what's on screen.
Sounds relatively simple, but thinking about having multiple data sources coming in in either your video is behind where the data is behind and you want to make sure that those are coming in for a better.
At the same time for a better consumer experience.
We're also working on instant highlights.
Think about condensed games within your DVR.
Where we will be leveraging all of our AI opportunities there and then as part of that when Youre watching games you might also received some type of alert that theirs.
Again thats on that might also have some very compelling moments to watch and those will also be part of your DVR instant highlight opportunities. If you could just go into that view and actually see.
From players and all of that obviously is powered by our own AI platform, which we've been working on now for about eight to 12 months and then one of the other pieces, we're working on it in the short term as our on Prem.
Data Center, where we're moving all of our video processing.
The cloud to our own data center, and Thats going to happen in Q2 very important.
Move for us because it sort of solves many problems.
Problem is one cost.
So we believe that there'll be material savings over the next several years.
And then on the on the consumer side think of this as our ability to have greater control over our video quality.
Potentially latency.
Just as well as just.
A higher.
Higher fidelity product. So all of those things are in the short term looking way forward again don't hold me to this of the product team is not paying close attention.
So what I'm, saying, but we're going to double down on improving our core products.
Again, while we don't have the most performance.
Platform.
Which as you know right now we ranked number one.
For customer satisfaction.
In the live TV streaming category.
By J D power and so we'll be really focused on fluidity higher quality performance and then I think right. After that again. This is not a five year plan is sort of I would say in the next year or so.
Our advanced DVR, so instant highlights sort of something thats coming out.
Say very soon.
We believe that the upgrade that we will.
<unk> over the next year and a half is probably the greatest.
Upgrade.
That anyone has seen since the advent of the cloud DVR.
That's saying a lot, but it is going to be a pretty flower powerful tool that will index your whole DVR at will.
Allow us to index actors teams and plays in all kinds of things companies. If youre following companies like <unk> or other companies in your in your portfolio that will give you a chance and then obviously deeper personalization.
Leveraging our AI to improve our recommendations and discovery. So we have a lot going on and I guess, if you want to just throw something out even further I don't think we can deny conversational UI as something that.
Is all of our lives, but again all of this is sort of further out but our goal is to continue to set the standard for innovation in our industry.
As we have with four K multi view and a number of other features that I think are extremely exciting so.
All great things as long as you focus on profitability I think to come.
Thank you David.
Over to you operator.
Thank you ladies and gentlemen, this will conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
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