fuboTV Inc.

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Thank you for joining us to discuss FuboTV's second quarter 2021. With me today is David Gandler, CEO and co-founder of Fubo, and Simone Nardi, CFO of Fubo. Full details of our results and additional management commentary are available on 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 Fubo's strategy, and Simone will cover the financials and guidance. Then I'm going to turn the call over to the analyst to dig into Q&A. Before we begin, I'd like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including statements regarding our financial condition, anticipated financial performance, market opportunity, business strategy and plans, and the expected launch of free-to-play gaming, FanView, and Fubo Sportsbook. 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 quarterly report on Form 10Q for the quarterly period ended March 31, 2021, filed with the Securities and Exchange Commission on May 13, 2021. Our quarterly report on Form 10-Q for the quarterly period ended June 30, 2021, to be filed with the SEC and our 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. 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 Q2 2021 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 Allison and thank you all for joining us today. I'm very excited to discuss our Q2 2021 results and to give you an update on how we are executing on the opportunity in front of us. Our second quarter results demonstrate continued strong execution and meaningful advancement towards our long-term growth and margin targets and we are once again raising our full year guidance. We achieved meaningful traction across all of our key growth initiatives in the quarter, while also capitalizing on favorable trends we are seeing in the industry. This drove our performance on revenue, which grew by 196% to $130.9 million. Advertising revenue, which increased by 281% to $16.5 million. Paid subscribers, which grew by 138% to over 681,700. And content hours streamed, which increased by 148% to over 245 million, each compared to the second quarter of 2020. As we've cited previously, our strategy is rooted in the intersection of three megatrends. The secular decline of traditional television, the shift of TV ad dollars to connected devices, and online sports wagering, a market opportunity which we believe complements our sports-first live TV streaming platform. We are laser focused on staying ahead of these trends. Our vision is to activate a streaming platform that transcends the industry's current virtual MVPD model and transforms passive viewers into active participants. Importantly, we achieved these results while also making significant progress towards our path to profitability. With adjusted contribution margin at 8.3%, that's up 316 basis points year over year and 301 basis points sequentially. This growth was driven by ARPU expansion in our advertising and subscription businesses and is a result of strong execution associated with upsells and packaging. It's also evidenced by the 1.5 million attachments sold at the end of the quarter. We have repeatedly asserted that there will be a major shift back to aggregation and bundling as the proliferation of S-WOD services becomes increasingly burdensome and costly for consumers. The industry now echoes this view, recently pointing to consumer fatigue as a consequence of actively managing numerous subscriptions and disparate sources of content. We believe that the delivery of a unified, personalized, and interactive streaming experience is the future of the space and the key to capturing market share. And consumers agree. As they continue to cut the cord and go virtual, they are increasingly choosing Fubo over more expensive legacy paid TV services due to our innovative product experience and customer-friendly approach, and all for an affordable price. This dynamic, along with a heavy sports calendar, drove a healthy 91,291 net subscriber additions in the quarter compared to a decline of approximately 1,000 in the same period last year. We have added approximately 396,000 net subscribers since the second quarter of 2020, resulting in subscriber growth of 138% year over year. compared to just 31% growth for the entire virtual MVPD market over the same period. Equally noteworthy, we drove strong subscriber growth with efficient deployment of sales and marketing dollars in the quarter, which came in at only 16% of revenue, down from 18% in the first quarter of 2021. We also improved churn by 203 basis points year over year. Our investment in product enhancements and content personalization are driving year-over-year lifts in underlying retention. These investments, along with improvements to our technology and platform infrastructure, increase total viewership hour stream to 148% year-over-year. And our monthly active users watch an amazing 134 hours per month on average in the quarter. Our impressive engagement metrics, particularly the number of hours viewed, indicate that consumers prefer a holistic content bundle with a wide assortment of premium content. In our view, we are still in the early days for virtual MVPDs, and our category will continue to gain popularity. The second quarter was also record-breaking for our advertising business as we delivered the strongest ad sales quarter in our history. Ad revenue reached $16.5 million and grew 281% year-over-year. Advertising ARPU was up 62% year-over-year to $8.70 and increased 22% sequentially, driving us closer to our goal of more than doubling our advertising revenue this year. This growth demonstrates the strength of our advertising model, offering brands the engagement and premium live content augmented by the efficiencies and addressable targeting capabilities of a connected TV platform. In the second quarter, our recurring advertiser base of Fortune 500 companies and blue chip national brands continue to rapidly expand. Advertisers are drawn to our platform's differentiated and highly engaged premium paying audience. As I said at the top of the presentation, FuboTV is laser focused on activating our vision of an immersive sports entertainment experience. Recent partnerships between gaming and distribution companies further validates the demand for a convergent offering. The market is moving in our direction and we are staying at the head of the curve. The launch of our own Sportsbook is an important driver of the strategy as we aim to develop a flywheel, turning passive viewers into active participants, defining a new category of interactive sports entertainment television. Fubo Sportsbook will represent an industry-first live sync integration between video and the Sportsbook, We are building Fubo Sportsbook to be a holistic and hyper-personalized betting experience, reflecting what the user is watching on Fubo TV at that very moment. And for the first time, I am really excited to share a preview of this particular integration. It's the first of many to come.

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You can see how the app immediately updates with relevant bets in real time based on what the user is watching, even as they change the channel to a new game. This seamless connection between streaming video and our mobile betting app is a feature we believe only FuboTV can bring to market. As we scale our team, we expect to accelerate a rollout of product features to enhance and differentiate the customer experience. In July, we announced a market access agreement for Pennsylvania through a partnership with the Cordish Companies, our fourth state, following previous agreements for Iowa, as well as Indiana and New Jersey. We believe we are in the early innings of a massive opportunity. And while these launches are subject to obtaining requisite regulatory approval, we are extremely pleased with our progress thus far. I'm also excited about the launch of predictive free-to-play games. Free gaming serves to educate and train our customers, which we believe will ultimately reduce the learning curve and drive greater levels of adoption of our sportsbook. We believe this will have a positive impact on retention, engagement, and advertising sales, strengthening unit economics over time. In summary, it was a spectacular quarter, and we believe our Sports First cable TV replacement product is very well positioned for a strong second half of the year. The second quarter represents continued advancement towards our plans to build and scale a new category of interactive sports entertainment. We believe that our evolving sports wagering integration, our talented team, distinctive partnerships, and nimble technology stack position us well to build a category-defining company. I look forward to updating you on our progress and will be available on Twitter later this evening to interact with shareholders. And now I'll pass it over to Simone to discuss our Q2 financial highlights and raised guidance for 2021. Simone, please go ahead.

Thank you, David, and good afternoon, everyone. Echoing David's comment, I'm very pleased with our operating performance this quarter as we exceeded our outlook and made significant operational and financial progress in delivering top-line growth and margin improvements. These results reflect our ongoing investment in people, content, product, data, and technology, and position us to continue delivering revenue growth while tracking towards our long-term path to profitability and the generation of positive free cash flow. The growth rates of both subscription and advertising revenue accelerated from their already strong Q1 levels, taking overall revenue up 196% year-on-year to $131 million in the second quarter of 2021, up 9% sequentially over the first quarter. Q2 2021 was our strongest quarter on revenue to date. Unpacking the performance, subscription revenue increased 189% year-over-year to $114 million, driven by strong growth in both subscribers number and ARPU. We ended the quarter with 682,000 subscribers, an increase of 138% or 396,000 net additions when compared to Q2 2020. We delivered this robust growth through acquisition efficiency as well as improvements in retention, resulting from our interactive product and curated content offering. Subscription ARPU expanded by 30% year-over-year to $71.43, propelled by investments in product, packaging, and upsell tactics. Advertising is a key component of our growth and monetization strategy, and we saw continuous strength on this front in the quarter. Advertising revenue surged 281% year-over-year to $16.5 million and accounted for 13% of total revenue in the quarter, compared to 10% a year prior. Advertising ARPO grew 62% year-over-year to $8.70, making Q2 2021 our strongest advertising quarter to date. As David alluded to earlier, this continuous strength exceeds our robust subscriber growth and is built on enhanced monetization as we continue to extend our differentiated value proposition to advertisers by providing them access to our platform's highly engaged premium-paying audience. On the profitability side, we think you too, we also made significant traction towards our long-term goals, delivering adjusted contribution margin of 8.3%, up 316 basis points year-over-year, and up 301 basis points sequentially. This was driven by a 62% increase year-over-year in advertising ARPU and a 30% increase in total ARPU, as well as continued optimization of our content offering. These position us well to continue making deliberate strategic investment in content, technology, and infrastructure to optimize our market position and grow shares, while also driving margin expansion on a year-over-year basis. Accordingly, as we lay this foundation for future growth, we expect expenses to increase in absolute dollars year over year, but significantly less than our expected revenue growth. Operating expenses as percentage of revenue in the second quarter improved 97 percentage points from 252% in Q2 2020 to 155% into Q 2021, underscoring our continuous focus on driving operating leverage in the business. Within expenses, it is worth noting that subscriber-related expenses, which primarily consist of content cost, accounted for 92% of total revenue in the quarter, an improvement of 28 percentage points compared to the year prior. And our sales and marketing expenses as a percentage of revenue went down sequentially from 18% in the first quarter to 16% in the second quarter of 2021, showcasing our increased efficiency in growing our subscriber base. As a result, we achieved a meaningful year-over-year improvement in adjusted EBITDA margin from minus 95% to minus 36%. Net loss in Q2 was $94.9 million and included approximately $44 million non-cash expenses in stock-based compensation, remeasurement of warrant liabilities, amortization of intangibles, and of debt discount. EPS in the quarter was negative 68 cents compared to a loss of $2.08 in the second quarter of 2020. Adjusted EPS in the second quarter of 2021 was a loss of 38 cents, excluding the impacts of stock-based compensation, remeasurement of warrants liabilities, and amortization of intangibles and of the debt discount related to our 2026 convertible notes. Expenses incurred for the launch of our wagering business impacted EPS and adjusted EPS by two cents in the quarter.

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Now turning to the balance sheet, we ended the quarter with $412 million in cash, cash equivalent and restricted cash. This includes the $18 million impact in Q2 of the full repayment of the senior secured loan to AMC Networks. As part of our ongoing capital structure optimization, it is resulting in a strengthened balance sheet and a significant reduction in our cost of debt. Operating cash flow in the quarter was negative $33.6 million, improving $20 million compared to the first quarter of 2021, and inclusive of $4.3 million negative impact from payment associated with the buildup of our wagering business. Moving now to our outlook, given our strong performance in the first half of 2021, continued industry tailwinds, and confidence in our growth trajectory, we are once again increasing our full-year 2021 revenue guidance to $565 million at the midpoint, representing a 116% increase year-over-year and up from an increase of 101% reflected in our prior guidance. Similarly, we're increasing our end-of-the-year subscriber guidance to 915,000 at the midpoint, up 67% year-over-year. This subscriber outlook implies full-year 2021 net additions of at least 367,000, 58% higher than our full-year 2020 net additions of 232,000. Turning to the third quarter, we estimate revenue to grow to $142 million at the midpoint of the guidance, up 132% year over year. We estimate end-of-period subscribers to come in at 815,000 at the midpoint, a growth of 79% year over year. I would also like to highlight that our guidance does not include any revenue contribution from our sport wagering business. While we are very pleased with the progress we are making, both in securing market access licenses in the United States and building up our sport books, we are still in the early innings of this opportunity. And as we approach our expected new market launches in the second half of the year, we plan to increase our investment and estimate between $35 and $45 million of wagering expenses to hit the P&L in the second half of the year. These expenses will be largely driven by the operating and marketing investment associated with our planned launches. Again, we are pleased with our execution on our wagering plans and look forward to providing more details on launch dates as well as target markets in the ensuing weeks as the regulatory review process continues. In closing, we are very pleased with our performance in the first half of 2021 as we continue to efficiently drive robust growth and operating leverage. We believe that we are well positioned to continue to execute in our long-term growth strategy in video and wagering while delivering a differentiated and world-class experience to the consumer. Thank you for joining for our call today. We will now take your questions. Alison?

Thank you, Simone. Thank you, David. We're now turning to the Q&A portion of our call. I would ask that everyone please restrict their questions to two, just in the interest of time. Our first question comes from Laura Martin with Needham & Company. Laura, it's great to see you, and please go ahead.

Okay, my first question is, David, your additions were 90,000 subs. We thought they were going to be 12. I would like some more granularity on what are you getting better at. Is it the churn is down 203 basis points? Is that what's improving these ad numbers? Or are you doing something on the customer acquisition side so much better now than when you were at the IPO date eight months ago?

Yeah. Well, first of all, Laura, it's great to have you here with us again. And, you know, obviously, churn is very important. I think this is our 10th quarter now sequentially year over year that we've improved our churn numbers. The team is getting better. at leveraging the data. My co-founder, Alberto Horiguela, his team is just doing a phenomenal job from an acquisitions perspective. We continue to really focus on all the channels that we've always discussed with you. I think this quarter in particular, we've been able to really have more efficient acquisition costs, and that acquisition cost is allowing us to really excel in terms of subscriber growth. So we're very happy with the quarter from an acquisitions perspective.

And then my second question would be on this amazing advertising number. You just blew fast Roku, and they're an AVOD platform. You're supposed to be an SVOD platform, and you're doing a lot more ad revenue and growing a lot faster your ad revenue. So could you go into the components of what's driving your ad revenue growth, especially on the CPM side, but also is it sustainable?

Yeah, well, first of all, yes, on all of those. It is very sustainable. We're very excited about our advertising business. As you know, there are three components to driving advertising sales at Fubo. The first, obviously, is the fill rate. The second is the CPM, which we'll talk about shortly. And the third is just the number of hours that people are watching. People continue to watch more and more on FuboTV. We're actually taking more share of the market, 245 million hours in the quarter. But, you know, with respect to sustainability. If you think about it, our goal is to hit $35 CPMs, and we're currently still in the low 20s. So putting 50% to 70% on that component in and of itself will actually push us to $13 to $14 of ad offers. So we're very excited about the ad piece. And I think the other component is that we're really focused on mails. We skew heavily mail. Forty-two years old, that's significantly younger than the male viewer on cable. Household income is $85,000. That's also driving more advertiser interest. And we continue to leverage our first-party data. So we're very excited about advertising, and we think that we'll continue to be able to drive growth in AdOper.

Thanks very much for taking my questions, and excellent numbers. Congratulations, you guys.

Thank you.

Great. Thank you, Laura. Great questions. Our next question comes from Jed Kelly with Oppenheimer. Jed, good to see you, and feel free to ask your question.

Yeah, great, great. Thanks, David. Thanks, Moni. Yeah, my first question, just on how do you think about measured growth? It seems like you're leveraging your subscriber-related expenses, advertising and insurance. is contributing to that. So how do you, David, view subscriber growth? Because it seems like you're doing well, but how should we look at it over the next 12 to 18 months?

Yeah, well, Jed, thank you, first of all, for joining us today. You look great. Thanks. You know, look, we have said and told you this, I think, and told the street that we are very focused on subscriber growth, and we've actually pulled forward You know, our subscriber number for 2022 to 2021. So 915,000 subscribers at the midpoint is our goal for the end of the year. But we're again, we're on track. We feel good about our, you know, our ability to be able to drive growth. We've been a leader in subscriber net additions for the last few quarters. That's not only relative to the traditional ecosystem, but also with respect to the virtual space.

anything on that yeah i would just add that you know we do that with a very close eye to efficiencies we have been increasing our overall subscriber by 58 in terms of net addition compared to 2020 in our you know latest guidance and we do that with decreasing sales and marketing expenses you know now in the quarter 16 of revenue down from 18 the prior quarter in a first quarter 2021 as well as been eye on suck you know going back to the original question that you know i mentioned earlier asked earlier as well, you know, our target is to maintain SAC, you know, within a certain parameters. And even in the second quarter, like we did in the first quarter, we were below, you know, that range. That's our target range. So we continue to see efficiencies, and we continue to kind of push when we see the efficiency stays. Got it.

And then just on gaming, where do you want the product to be in terms of when you really start to – aggressively market it to your subscribers. And can you give us any sense on what you're thinking about in terms of stimulating demand?

Well, it's a good question. Hopefully you had a chance to see the product preview of a LiveSync opportunity. I think this is going to be a phenomenal product. I'm extremely bullish on the integration of two services. As you know, the flywheel effect is actually critical to our ability to really drive overall growth. The three goals that we've set for ourselves is, one, is to reduce the cost of entry into the gaming business by leveraging our subscriber base. um you know that's the sort of the first thing and we we uh we're also looking uh to be able to uh deliver a product that we think consumers are going to uh enjoy and right now i think the key is to get the market access deals done uh we're very happy with the way things are going the product team and also uh you know obviously sam ratner and uh scott butera with my other co-founder sung ho are doing an excellent job sort of preparing that product and we've gone You know, pretty far, you know, with many of the regulators, and we're excited to get the product launched. We think that, you know, the opportunity is actually pretty sizable. Fifty percent gross margins will be our long-term target. We'll also look to target about $10 to $15 of advertising ARPU based on that 50 percent margin. So, you know, again, we're looking, you know, really good in terms of our launch timing around fourth quarter.

Thank you.

Thank you, Jed. Great questions. Our next question comes from Jim Goss at Barrington. Jim, please go ahead.

Right. Thanks very much. I was wondering, as you have pursued this process, are you finding that there are certain sports that are key to maintaining your customer acquisition and retention? And conversely, any non-sports programming that you think are going to be very important to what is the same attributes? And how is this influencing your program? You know, mix, would you say?

Yeah. Thank you, Jim. You know, at the end of the day, Fubo is a sports first cable TV replacement service. So entertainment obviously being an important part of our retention strategy. But the entertainment side of our business is really fungible. And I think this quarter we've demonstrated our ability to continue to acquire customers at a relatively efficient rate. We had a big quarter in terms of sports. We had the CONMEBOL matches, which were live on the FUBO Sports Network exclusively. We also had the EuroCup. as well as a number of the U.S. and Mexican national games. So we had a really solid quarter, and going into third quarter, which as you know, NFL being a key component, a key driver of growth for the company. So we're very excited with respect to the back half of the year, given our performance in the first half of the year, which are giving us comfort in terms of raising our guidance for the future.

And my other question would be related to the access points. I believe you did a recent deal with Vizio. I wonder if you might discuss that at all. Sure. And talk about how many other sort of similar sort of deals you have in process.

Yeah, well, as you know, we launched our partnership with LG in the second quarter. We've just announced our partnership with Vizio on their amazing Smartcast platform. We'll look to continue to proliferate the number of connected TV devices. And as you know, 94% of our viewership is on connected devices. So the more connected devices or smart TVs that we're on, the better we'll be able to monetize our offering. So there's a number of other services and platforms that we're talking to, and we'll look to provide you with more visibility in the coming quarters. All right. Thank you very much. Yeah. Thank you, Jim.

Thank you, Jim. Our next question is from Shweta Kajuria from Evercore. Shweta, it's good to see you again. Please proceed with your question. Nice to see you.

You too, Alison, and thank you. Let me try one first, please. You talk about what drove engagement on your platform in the quarter. Was it mostly sports that's coming back? Was it product improvements? Because we are entering a reopening economy, and yet engagement on your platform was very strong. So could you please talk about that? And then I have a follow-up, please.

Thanks. Shweta, thank you. You know, we're super excited about our product. I mean, we have done a lot. You know, I want to talk about the acquisitions that we've made, Balto in particular. You know, that group brought a significant amount of knowledge. to the company. We've launched a free-to-play product, which you're aware of in beta in Q2. We also launched a fan view, which also generated about 25% to 37% engagement improvements on the content that we had. And that's very important because it really highlights the fact that we're focused on really developing a sports-first that allows us to really create more interactivity and engagement on the platform. So that has worked really well. We're excited about the upcoming product improvements as we get into Q3. But we also had acquired the rights to Convobol, as you know. And we've taken on some new skill sets around production. that we didn't previously have. So we're really looking forward to being able to develop more products around some of the content that we've acquired, and we're looking to do more from a product perspective. So we believe that engagement will continue to improve over time. In fact, just one interesting tidbit, When you look at 2020, in terms of daily viewership, we were averaging about 7.2 hours per day. Again, that's during shelter-in-place, which was in effect for, I would say, the majority of March through June. This year, year-to-date, we're averaging about seven hours. So you can imagine how strong engagement is going into the back half of the year. So again, lots going on from a product perspective, platform perspective.