Chris Savage

Chris Savage of Bell Potter Securities questioned why Q2 adjusted EBITDA significantly beat prior expectations, even though the previously flagged increase in marketing spend materialized as planned.

Answer

CFO Russell Burke attributed the outperformance to two main factors. First, subscription revenue growth was stronger than anticipated, which improved the revenue mix and drove very strong gross margins. Second, the company realized some savings in other areas of operating expenses.

Asked about the timing and drivers for the proposed U.S. IPO, whether the year-end cash guidance includes the Hubble investment, the timing of that investment, and for clarification on the advertising revenue assumptions for the year.

Answer

Executives could not comment on specific IPO timing or drivers but reiterated they want to be prepared and are sensitive to dilution. The year-end cash guidance of $80-90M does not include the small Hubble investment, which is expected to be made this year. The company's expectations for advertising revenue contribution this year have not changed.

Requested qualitative comments on the UK tiered membership launch, confirmed the timing of the Australia/New Zealand launch, and asked about the timeline for the aspirational $1 billion revenue target. Also sought clarification on whether advertising revenue could eventually match subscription revenue.

Answer

The UK launch is proceeding as expected, with predictable patterns similar to the U.S. launch. The Australia/New Zealand launch is confirmed for Q2 2024, which is slightly ahead of schedule, and will be the only international launch for the year. The $1 billion revenue target is viewed as a 5-year plan, a milestone rather than a terminal goal. The company confirmed that, at some stage, advertising revenue could indeed match subscription revenue.

Asked why total revenue guidance was unchanged despite a hardware revenue upgrade, about the implied Q4 EBITDA step-down, and for an update on user conversion rates.

Answer

The revenue guidance mix shifted, with stronger hardware performance offsetting slightly more back-half-loaded subscription revenue, leading to the same total outlook. The Q4 EBITDA will be lower than prior quarters due to a deliberate choice to reinvest in growth. The company stated that conversion rate is no longer a simple metric due to pricing and product changes, and they now focus on LTV per user, which is trending positively.