Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand by thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Chicken soup fiscal Q4 in fiscal year 2019 conference call. At this time all participants are in listen only mode. After the speakers prepared remarks, there will be a question answer session to ask a question. During the session. You want me to press Star then one on your touched on telephone.
Please be advised that today's conference is being recorded.
Sure acquire any further assistance during the call Presplit, starting zero when you're touched on telephone.
I'd now like to have the conference over to you're speaking to date. That's just what you got from electricity IR. Thank you. Please go ahead.
Thank you and welcome with me on the call today are William J., Rihanna, Chairman and Chief Executive Officer, and Chris Mitchell Chief Financial Officer to review the results for the fourth quarter and full year 2019, as well as part of business update you ended up they don't Crackle plus.
Following this discussion there will be a moderated QNX session up into the participants on the call.
During this call management will make forward looking statements forward looking statements include but are not limited to statements regarding expectations intentions and strategies regarding the future.
Quicker than these risks are forward looking statements based on management's current expectations and assumptions and are subject to known and unknown risks uncertainties and other factors that could cause actual results could differ materially for projected results.
Given these uncertainties listeners are cautioned not to place undue reliance on any forward looking statements contained in this conference call.
Please refer to the cautionary attached regarding forward looking statements contained in the earnings release, which also applies to the concept of it's called the.
Additional risk disclosures can be found in the company's filings with the FCC.
As a reminder, on May 14 2019.
You could see principal entertainment created a subsidiary with Sony Pictures television watching critical plus.
Today's call management will make comments from certain got page and dog got pro forma financial information of the combined company that includes crackles financial results for the relevant periods. Prior to the closing date as if the acquisition occurred on January 1st 2080.
Non-GAAP financial measure the company uses in its adjusted EBITDA.
Management believes that adjusted EBITDA provides useful information and that it excludes amounts that are not indicative of the company's core operating results and ongoing operations and provides more consistent basis for comparison between periods.
The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which was the most directly comparable GAAP measures.
Please refer to the company's filed amendment number one to the current report on form 8-K filed with Securities Exchange Commission on July Thirtyth 29 team.
Further details relating to historical financial statements with Crackle, Inc. and pro forma financial information of Crackle plus.
If you had not had the chance to review this form 8-K now would be a good tied to retreat.
We also refer you to our interim report on form 10-K for the year ended 2019, which was being filed with the FCC today.
I would now like turn the call Albert you don't recall that chairman and CEO Bill. Please go ahead.
Thank you Jeff I'm good afternoon, everybody. Thank you for joining us.
The headline for today is that our business is gaining momentum.
We delivered on our objectives in the fourth quarter and we expect to report strong first quarter.
Of course, the world is a very different place today for all of us.
So in addition to covering the results I'll share our thoughts on cobot 19.
Some perspective on how it maybe impacting our business and industry.
And then I'll turn it over to Chris who will go through our financials in more detail.
Let me start by saying I'm very pleased.
That we delivered record fourth quarter net revenue of 24.4 million.
Which was up 45% and change over Q3 and above analyst consensus.
Gross revenue for all of 2018, you May recall was just under $28 million. So we've demonstrated the transformation that we've engineered over the past year.
Our growth was driven by continued outperformance from our crackle plus networks.
Including continued contributions from our original content library and in particular are going from broke series.
Our distribution and production business was also strong contributor as we implemented our new model and approach to this part of our business.
For the full year ended December 31st 2019, we delivered record net revenue of 55.4 million more than double 2018.
Adjusted EBITDA was 5.8 million for the fourth quarter and approximately 6 million for the full year also ahead of analyst consensus.
As I look back on <unk> on 2019, we certainly accomplished a great deal.
We completed several important partnerships and transactions, including the most important wanted our company's history, the Sony Crackle deal.
We integrated Crackle, a business that was losing over $50 million a year and put it on track for sustained profitable.
For a sustained profitable growth.
Under a year, while growing viewers over 55% for made in December.
We launched landmark studio group with industry veteran David hours, or an example of our new distribution.
Perfusion and production model.
We continued to build our valuable screen media library.
The acquisition.
The foresight media film Library, and the creation of a new international partnership remark Damon.
We produced and distributed about successful piece original content in the company's history with going from broke.
We signed new AD sales partnerships in Q4 with crunchy roll sumo and Joe Good media.
And a bubble we delivered record revenue and established a platform for adjusted EBITDA growth.
So we've done a lot of heavy lifting and with our fourth quarter results. We now have an early illustration of what we're capable of under our new business model.
It's important to note, we have a solid balance sheet and modest debt.
We've taken determine steps over the past years to ensure that we manage our capital base effectively while also building and flexibility to capitalize on growth opportunities.
On that point I'd like to spend a moment addressing the recent high profile transaction activity in the Avon and aside marketplaces.
Both rubert at announced.
As soon as Comcast made the announcement about peacock industry peers realize they needed and Avon strategy, along with a restaurant initiatives.
So then it becomes a question of build or buy.
The reason you're seeing so many acquisitions is that it takes several years to build to successfully Vod platform.
Rights to content and and selling machine.
Which would give bucket and then add selling machine, including relationships with the resellers that provide access to local AD demand are only a few of the considerations.
The combination of these attributes equates to speed to market, which would give the buyers essentially a multi year lead.
Well crackle plus we've assembled all of this into what is today, a leading independent platform with a strong brand rapidly growing reach.
Differentiated original content strategy and more than 70000 hours of content in our library.
So we believe we're in a strong position to capitalize on all the activity happening in the industry and as the global Escalade Wars play out we believe there will continue to be enormous value created in the box space.
In recent weeks, we've heard questions for many of our shareholders analysts trying to understand how to value our company.
Relative to transactions that have recently been announced that they bought space.
Given our capital structure and the economics of Crackle plus.
It's difficult for investors to calculate how these transactions would translate into per share value for our company.
Looking at the asked at the economics of the to be transaction, which we think is the best proxy.
The math leads to a number of approximately in the mid twentys per share.
We believe our results show that we're well on the way it is creating tremendous value in our business.
This is becoming visible and possibly even accelerating in light of the current environment.
We're closely monitoring the co that 19 situation.
And how it is impacting our company in industry.
Of course, our biggest concern is the health and safety of him our employees and their families.
And ensuring that they have the resources and tools to do their jobs from home in a safe environment.
We've also thankfully not thankfully not seen any significant impact on our ability to conduct normal operations in most parts of our business.
Beyond that obviously, it's a very uncertain time with most of us homebound for the foreseeable future.
This is clearly an opportunity for our existing viewers to spend more time with us and for new viewers to discover us.
In fact, we are seeing both.
Viewership on Crackle and popcorn flicks increase between 20, and <unk> and 25% in just the last couple of weeks.
New registered you viewers per week have also jumped nearly 47% since a week of March 15.
Registered viewers are important as they are usually a good indicator of future increases in streaming hours growth.
Growth in viewers at a pace like this accelerates our efforts to build a large audience and leaves me encouraged that we could emerge from the global crisis with a stronger business.
Of course, our business is about selling advertising against us grow our audit growing audience.
While magna part of IP Jane.
Has revised industry forecasts to a drop of 4% in total AD spending in 2020.
It's important to understand that OTI t. as a rapidly growing space.
Magnus revised estimates for digital video advertising spend still shows growth of roughly 8% for this year.
We therefore believe that vo de platform operators, especially ones like us who out offer a vast and varied library of streaming content.
Remain well positioned to outperform.
Obviously this is unfolding situation.
I'm pleased to report that so far our AD revenue has held up well.
In fact better than expected.
For perspective, we were already performing well coming into 2020.
In Q4, we sold out more than 90% of our available AD inventory and in December we achieved a record high in AD impressions up to that time.
In the first quarter, we again sold through more than 90% of inventory above our usual mid eightys target.
But clearly the environment is fluid and things could change the pandemic has disrupted traditionally strong AD categories like travel and tourism for example.
Yet other categories of increase.
Professional, especially those that offer products or services that can be purchased and conns used or consume from home.
Additionally.
A significant portion of the most valuable and supply.
Live sports programming has been removed from the market, which makes our audience more attractive to certain advertisers.
As we look at these factors.
We believe we're in a good position to navigate the uncertainty because we're in a fast growing space.
And we also bring to advertisers and attractive demographics that is over 50% mail and strong in the 18 to 34 demographic.
In our distribution and production business, there are some positives and negatives.
Vod and DVD are doing well because people are at home.
Theatrical a very small part of our business is not.
And it's too early to tell with our international business.
We should also note we didn't have any shows in production when covert 19 locked down began.
While there will be some delays in production activity on future content. We believe it presence that we will be able to complete productions. Currently planned for this year and we are trying our best to keep on pace by continuing preproduction work remotely.
So while it's too early to tell how cobot 19 will impact our overall business. We do believe that much of the impact will be relatively short term in nature.
And that we're in a strengthening position for the long term.
Looking beyond covet 19 impacts I'm very pleased to see how our strategy is bearing just bearing fruit and distribution in production.
You will recall that after we announced the crackle transaction.
Hit pause on our television in short form video production activities as we've developed a new model that emphasized co production partnerships with high quality producers that increased our access to IP reduced our capital investments.
Thereby enabling us to build a bigger more predictable and less risky business.
Previously production was contributing approximately 12 million a very high rent high margin revenue annually.
So by pulling it back it negatively impacted our revenue and margins in the second half of last year in particular.
With that continued expansion of crude screen media's capabilities and the launch of landmark studios, our new distribution and production strategy is now an operation and beginning to show results, which can be seen in Q4.
We believe we're just getting started under our new model and that you'll see that improved revenue and margins in 2020.
All this sets the stage for what's ahead.
I've already shared viewership in advertising insights on Q1.
And I also want to share our content in programming highlights.
Overall, we've increased our total programming by nearly 22000 hours on our networks.
We are currently hitting all time highs in AD impressions on a daily basis.
Exclusive original going from broke series continues to outperform or expectations that is one of our top streaming shows.
Our new exclusive on coins, which premiered in February was a number one title for the first quarter with more than 7 million streams, and we have many more originals and exclusive to the pipeline for the coming quarters.
We received the Synopsis award for being added a parents' choice award for animal tails.
We premiered several other new and notable series, including 85, the Untold story of the greatest football in history.
And the Emmy Award, winning every day Edison's.
And finally, we expanded screen media through the acquisition of the Foresight Library, and the addition of Mark Damon, which expanded our international distribution capabilities.
By the way, we have a unique opportunity with one of the films we acquired through the fore sight film Library acquisition last full measure.
Which tells the riveting true story of Vietnam War here William Pitsenbarger.
It will be released on TV, Peabody Vo, D. and cable the L.D. on April 24th.
Film has gotten great reviews on Rotten Tomatoes, carrying a 96% fresh reviewer rating and will be available that at a time that industry observers believe will be especially good for these markets.
Please watch it.
As further evidence of our of how our distribution and production activity support our online networks over the next couple of bonds.
We will be releasing many new and exclusives on our crackle Clecs networks, including wonders of the C featuring Arnold Schwarzenegger as narrator.
And Grand aisle, starting Nicholas Cage, Nicholas Cage, and Kelsey Grammer.
Importantly, as each of these new titles go lives they will carry minimum net investment from us.
Wrapping up my comments, we're executing well on our Avon networks and distribution and production strategies. We're in an excellent position to capitalize in the exciting growth in the Avon network space.
And an ordinary times, we'd be celebrating the successes and planning to take aggressively take advantage ever.
But these are anything bought ordinary times and we are of course mindful of the unfolding economic uncertainty.
As a result, we will be managing investments cautiously in there in the near term.
But we believe we have the right strategy, a valuable brand significant and growing reach a differentiated programming model and a long term sustainable way of doing business.
We are beginning to see the financial results materialize and we look forward to keeping you posted on our progress.
I want to thank all of our investors partners customers for their support, especially during these difficult times.
I hope everyone is staying healthy and say.
And I, especially want to call out the tremendous efforts of our employees.
As we work through the challenges that the current environment places on all of us.
I invited our employees onto this call is part of our efforts to get them fully informed on the state of our business and the progress we are making.
I'm now going to turn it over to Chris.
Thank you Bill.
Our financial results for the fourth quarter full year 2019 reflect the successful execution of our online networks and distribution in production business strategies.
Bill has already discussed the overall highlights and current trends that are most relevant to our business.
I will focus on a review.
Of our results and balance sheet.
As well as a couple of disclosure housekeeping items.
Starting first with the results.
We delivered on our expectations to significantly increase revenue in the fourth quarter.
Net revenue for Q4, 2019 was 24.4 million.
Paired to 11.6 million in the year ago period.
An increase of 52.5%.
Online networks, which is now clinical plus.
Generated 14.9 million in revenue in Q4, 2019, compared to 1.1 million into year ago period.
Which was prior to the acquisition of Crackle.
Please note that our Q4 online networks revenue.
Includes approximately 5.6 million of had rep revenue related to our partnership with Sony's Playstation Vue.
Which we'll talk about more in a few minutes.
Television and film distribution in Q4 generated gross revenue of 9.9 million.
Paired to 5.4 million in a year ago period, an increase of 45.5%.
Television and short form video production generated gross revenue of 0.1 million in Q4, 2019 compared to 5.4 million in the year ago period.
As bill discussed upon establishing practical plus we discontinued our internal production activities in anticipation of growing our distribution capability and launching our co venture production model.
This negatively impacted both production revenue and our overall gross margins and adjusted EBITDA margins last year.
But the expanded capabilities of screen media and our first production co venture.
Mark Studios group are now gaining momentum.
We will begin seeking revenues and margin increases in 2020, as our new production model gains momentum.
Gross profit for the quarter ended December 30, Onest 2019 was 7.6 million.
31% of net revenue.
Compared to 6.6 million for 57.2% of net revenue for the year ago period.
An increase of 13.2%.
Excluding 6.7 million of non cash amortization of the film library in the company's traditional distribution business, which is required by GAAP to be included in cost of revenue. The gross profit would have been 14.3 million.
Which is well in excess of last year.
Comparable gross profit for last year's fourth quarter, excluding noncash amortization of the film Library was 9.4 million.
Operating loss for the quarter ended December 30, Onest 2019 was 10.9 million compared to an operating income of 2.1 billion for the year ago period.
Adjusted EBITDA for Q4, 2019 was approximately 5.8 million compared to 5.2 million last year, an increase of 10.3%.
Summarizing the full year 2019 results gross revenue was 55.4 million compared to $26.9 million into full year 2018.
An increase of 106%.
Online networks generated 40 million in revenue compared to 4.4 million in the year ago period.
Collecting the addition of crackle to our company.
Television and film distribution in 2019 generated gross revenue of 16.0 million compared to 13.2 million in 2018 for an increase of 21.1%.
Television and short form video production generating gross revenue a zero point sixmillion down from 10.2 million in 2018.
The decrease reflects the discontinuation of production activities ahead of launching our co venture model as I noted earlier.
Gross profit for the 12 months ended December 30, Onest 2019 was 14.9 million or 27% of net revenue.
Compared to 14.5 million or 54% of net revenue for the year ago period.
Excluding 10.2 million of noncash amortization of the film library in the company's traditional distribution business.
Gross profit would've been 25.1 million.
Comparable gross profit for 2018, excluding noncash amortization of the film Library was 21 million.
Operating loss for the 12 months ended December 30, Onest 2019 was 26.1 million compared to operating income of 0.8 million for the year ago period.
Without film Library amortization expense the operating loss would have been 15.4 million.
Adjusted EBITDA for the full year 2019 was 6.0 million compared to 10.0 million last year.
To help the investment community better understand our business, we are providing pro forma 2019 view of our results as if we had owned crackle for the full year.
For the full year 2019 on a pro forma basis.
Total revenue was 79.3 million.
Gross profit was 24.0 million.
30.2% of revenue.
And adjusted EBITDA was 10.5 million or 13.2% of revenue.
These strong pro forma results include the elimination of nearly 10 million in very high margin production revenue as we shifted to our new model.
The other housekeeping item relates to our distribution and production activity.
We mentioned on our call last quarter that we were planning to begin reporting distribution and production.
As a single business area.
Reflective manner in which we are now managing the business.
We now have an improved production and distribution business.
Is poised to grow meaningfully while supporting our primary online networks business.
This new reporting regime will take effect with our Q1 2020 results. So that we started off at the beginning of a new fiscal year.
I'll wrap up with an update on our balance sheet and liquidity position.
As of December 30, Onest 2019, the company had cash and cash equivalents of 6.4 million compared to 6.2 million at the end of the third quarter and 7.2 million at December 30, Onest 2018.
As of today, we had approximately 6.8 million in cash on hand.
We had outstanding debt of 20 million at year end with no significant maturities for several years.
When looking ahead to our first quarter results I wanted to offer a few insights on how the positive changes in our business are rolling through the numbers.
Given the trends shared on the call today.
It's fair to say our online networks business is outperforming our plans in Q1 has crackle plus and our internal AD sales effort gain momentum.
However, because we're still scaling this business.
Our address partnerships contribute a higher proportion of online networks revenue than they will in the future.
2019, the primary contributor to that revenue was Sony's Playstation Vue.
As discussed in our third quarter 10-Q, Tony decided to shutdown PS view and that took effect early this year.
Revenues from P.S. view, we're running at roughly 6 million per quarter.
But the margins were extremely low so the EBITDA impact is minimal.
We struck new AD rep relationships with more favorable economics to replace a portion of that revenue and they add more.
We will see some mitigating impact as the year progressive.
But as you will see from our growing reach and AD impressions concurrent strong demand from our whole genome networks, which are our focus.
The loss of DSD revenue, because as short term phenomenon, and especially and essentially a non factor.
Our adjusted EBITDA.
On the distribution and production side, we're excited about our new model and the momentum that we are building.
In the 2019 first quarter distribution in production combined generated just over 1 million in revenue.
You can expect to see this business ramp up significantly in Q1 of this year. When we report results to you in a few weeks.
The net impact of these factors and the normal seasonality of our business will be a downtick in sequential revenue comparisons.
It into Q4.
A tremendous growth year over year.
In both sides of the business.
In short.
Our strategy is unfolding has plans and we are getting stronger with healthier revenues and margins.
Wrapping up as Bill mentioned, we are focused on navigating the code at 19 situation and managing the business through the current period of uncertainty.
With crackle results improving.
Combined with our always disciplined expense management.
During the good position.
However, we also recognize an uncertain economic times lie ahead.
And while our business continues to perform well we are movie proactively to ensure we are managing.
And we're managing our p. at Pinedale and cash flows prudently.
While also evaluating options to further enhance the flexibility we enjoy with our balance sheet.
Including reviewing how we might benefit from the stimulus package.
Thank you for joining.
Marketing economic uncertainty notwithstanding we're excited about the business trends, we're seeing as the fruits for our strategy began to materialize.
I'll now turn it over to the operator to begin to come in a period.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your Touchtone telephone to withdraw your question press the pound key.
Please standby will be compiled the culinary roster.
My first question comes from Dan Kurnos with benchmark. Your line is now open.
Great. Thanks, good afternoon.
Phil It must fill nice to say ahead of consensus I I want to get just look we're all obviously focused on the world is it falls apart around us at the moment, although you know duration unknown and I guess sort of stress testing you just understanding that you guys are in a unique position.
Since everybody's stuck at home now and watching TV in streaming.
Maybe just some color on categories AD categories that you guys are are exposed to.
And I know that you said that you wanted to.
Market more aggressively or the the products, but I wonder if there's an opportunity for you to potentially not need to be as aggressive since users might be coming to you. So what you see from a customer acquisition perspective, and whether or not there is any margin uplift just from it.
Benefit you get due to the circumstances.
Hi, Dan.
If you're doing okay.
I think.
The best way to answer that question is in those couple of pieces to it obviously, but let me start with the do we need to keep marketing as aggressively I think the answers on a clinically now.
Definitely do not need to market as aggressively as we have in the past.
Whereas we were planning to.
We've got lots and lots of traffic.
And frankly, we have more traffic that and then we can actually monetize right now fully.
So I think that.
That really does argue that we can cut certain costs.
But you know we've never been profligate spenders when it comes to.
To marketing.
So I think Theres, a limited amount of upside in that.
Categories of advertising I had a list here somewhere which I can't find that had the various advertising categories that grew in the last months there were eight or 10 of them.
And it would be easier just to tell you what they were if I can find them, but I can't so.
While some obvious categories have have gotten smaller like travel.
Others had been growing, especially things where people stay at home Oh, Here's the categories. So last week, just or from 316 to 322.
Beer wine and liquor adds increased 27% you guys can make your own judgment about that.
Computers and off Aucs office supplies adds up 21.4% soap and cleansers up 18.1%. It goes on retail building at home improvement household and claim and cleaning surprise drugs remedies in fitness toiletries et cetera, so their entire categories.
Got you know if you think about it for a minute makes sense that they would be increasing based on people staying at home versus the things that are not increasing.
Which are pretty obvious as well like the travel category.
And so far that's the way, it's playing out I think and that's what we're seeing or that's what we're expecting to continue to say.
And in particular in our case, we also have the advantage I'd say of.
Having a rich audience of 18 to 34 year old males and there is not a lot.
Sports advertisers are struggling with how to reach that group. So I think that's also an AD at advantage that we have Dan.
Net net when you look at dollar overall advertising business.
Even with most everybody predicting downturns and AD revenue there almost all saying digital video ads are likely to.
Digital video AD revenues still likely to go up.
So that's that's the best I can do is give you the overall of the industry right now too many uncertainties to be sure. How this all plays out.
No. That's that's really helpful color. Thanks, Bill and then obviously you guys have been.
Acquisitive in the past its part of sort of adding to the portfolio given I just curious how you're viewing the balance between maintaining the balance sheet and ample liquidity versus.
You know finding that there are probably a ton more bargains in this market because a lot of other guys are struggling even worse.
Yeah, I guess, you've been around us for a while so you know my nature that question is a great.
Great indication of that.
I think as as much as this is a distressing time in so many ways for business people. It's also at a time of opportunity.
We are definitely looking at other things and then we do think that there may be some good opportunities right now for us to grow the business, but.
We're not going up we're not going to pull any traeger without it being clear that it's safe that we've got increasing liquidity from whatever we're doing.
It's definitely a balancing act.
And really I think theres kind of.
Given what's going on in the industry in general.
And the strategic stuff that we talked about that I talked about in my script.
You know, we will try our best to capitalize on this one way or another and.
There may be there are three different ways. We could go right. We could acquire we may be able to partner with somebody because of the great deal of.
Interest that bigger media companies have in our area.
There's always the option of.
Following everybody else.
Selling out to one of the big guys, but.
There's definitely a time great interest today Vod, we are still very interested in growing the business through acquisition. So I think the answer is we think we can maybe able to do that so.
Great. Thanks for all the color appreciate it.
Thank you Dan.
Thank you. Our next question comes from Thomas Forte with D.A. Davidson. Your line is now open.
Great. Thanks for taking my questions. So as to the first one is with the outbreak, causing significant economic pressure on local businesses have you seen any change demands for local advertising.
Yeah that there's we we have a fair amount of local advertising as you know.
That we do through a whole series of resellers six eight resellers.
And that people like TEGNA or.
Our.
Larry or Nexstar or Sinclair.
For France, which part of Comcast as a whole series of them Nexstar.
Media I mean, there's a series of these people.
Yes, there is definitely a drop in demand Tom.
The only reason that doesn't make me that's caused spare is because we had wait too much.
Demand for what we could supply.
So right now.
It's a very large amount of demand that existed and it's coming down, but it's still equal to or exceeding what we what we can actually service.
I can't tell whether that's going to go on death indefinitely, but were somewhat insulated by the fact that.
If you look at the map.
There are concentrated areas, where the country is clearly out of business, but they're all bunch areas, where it's still not.
And we do cover the entire country in terms of of our selling of local advertising.
And so when there is local markets that are still operating we're not seeing the drop in those markets that we're seeing and some where there's literally nobody's doing anything right.
Now, it's a whole country shuts down obviously, that's going to change.
But for the moment.
It hasn't.
Good Alright, and then my second question.
With movie theaters closed at least temporarily our content producers approaching you looking for opportunities to distribute their product on your platform immediately.
Set of the movie theater.
No.
Not yet, but the the closing of the theaters has obviously created an opportunity for us to accelerate our TV side.
And.
DVD businesses, and we are taking advantage of that like everybody else and we are seeing an uptick in the t. by business, which makes sense because people are home.
And here's the interesting thing to me.
Some of the movies that we were planning to do small theatrical releases for we no longer have too because the t. Vod.
And Vo de providers cable via the providers are now, saying it give us the movies.
Now.
What needs to do.
Any kind of theatrical at all.
So because it's impossible, obviously, so I think in some ways, where we're going to benefit from that phenomena it'll bring forward. Some of the revenue that we thought we'd have a little later in the year.
So that's kind of it the we have sort of a portfolio you know Tom when you think about it.
Businesses that we are in.
We at some of which are benefiting in a few of which are not from this thing obviously the growth in viewers on our a buy businesses.
As a benefit the growth of T. Vod and the growth of DVD sales because Walmart stayed open is also a benefit Walmart and target. So a lot of Dvds, they're still open because they are effectively considered grocery stores.
So there's a fair amount of activity in the DVD space that we didn't have before.
The theatrical business a shot so but that was such a tiny part of our business it really didnt matter vonage.
So I think if you look across the platform of stuff, we have the portfolio stuff we have.
Probably more benefited then hurt by this but but I don't think anybody gets through this without some hurt for sure.
Great.
Thanks for taking my questions, though.
Thank you Tom.
Thank you what our next question comes from Allen Klee with National Securities.
Your line is now open.
Good afternoon, you talked about around 12 million of profitable revenue that had fallen off as the result of lower risk model that you're moving towards and that that new model is expected to.
Improved throughout the year to do you think that you'll be able to replace about 12 million in 2020.
More than do that Alan without a doubt.
As expected to be able to replace a multiple of that revenue.
And I think as you will see.
We've been we haven't exactly tried to hide the fact that we feel okay about the first quarter here because we feel it's important to bring you all up to date in these circumstances, especially since we're at the end of.
Quarter anyway.
You will see in the first quarter that Theres, a multiple expansion in that in the distribution in production line compared to last year.
And we expect that to continue throughout the year with the possible.
Cap with the caveat that if.
This goes on indefinitely and productions cannot start at some point, we will lose some of the revenue we expect it in that side of the business, but I will tell you with what we already have in house, we will clearly be bigger than we were last year in that line no matter what.
By a meaningful amount so.
So yes, we can replace it and we will.
Okay and can you just I know your business is pretty seasonal can you.
Maybe help us a little bit and if we look at 2020 is there.
Anything different in terms of how we should think about the seasonality just given everything that's going on.
Well, usually its Q1 is your weakest quarter and then it gets a little stronger throughout the year.
I don't know what Q2 will look like compared to Q1 at this point.
Because of the situation but.
Usually the seasonality as we as we know we have a great leaves the fourth quarter is big and then we drop in the first quarter as people reassess and then to go through the year AD revenue arises.
I would have expected it to look very much like that.
Subject to whatever this.
Virus does.
And how long it lasts but.
Right now I'd say.
It probably will look like any other year, but I'm not sure.
Im just not sure yet.
Okay and my last question is I don't know if you're able to provide this detail but is there a way to look at for the fourth quarter. How have your viewership was on a pro forma basis.
Year over year, and kind of where your cpms were.
So cpms held in the fourth quarter ended the first quarter.
So far are holding in the second quarter as we're selling in advance so.
So that one's easy.
Im not sure exactly how to get what you're driving at with the pro forma of Q4.
Help me understand what you're trying to that or what you're going for maybe even Chris can help me answer the question.
You gave some you said you gave some.
Anecdotal information of viewership increasing for a few weeks.
I was wondering if we looked at <unk> for all of fourth quarter, how your views looked.
Okay. So now I understand better the view, the 20% to 25% viewer increase that I discussed in my part of it was.
The last two weeks.
It's been this very big spike over the prior periods.
And I don't know how long that will go on for I don't think have gone indefinitely, but but for now it's an upward trend.
In the fourth quarter, we had.
Record.
Each month was a record over the prior month, we had continually increasing.
You are is.
In each month.
October November December.
So.
I don't know what I mean, that's that's that was the that's the answer the questions. They were there were a record since every one of them.
Thank you.
Welcome.
Thank you and our next question comes from Micron, All with Northland Securities. Your line is now open.
Yeah. Thanks Bill.
I know, there's a follow up to the last question.
Earlier in your prepared remarks, you said something about crackle since March 15th I thought I heard like a 47% increase in viewership and then where are you, saying it was more like 20% to 25%.
Okay. So you are listening.
But I was talking to quickly. So let me go back and try to explain what actually set.
So the viewership increase between 20 and 25% in the last couple of weeks.
But a separate number the new the new registered viewers per week has jumped nearly 47% and a week over week analysis.
So what's happening I guess, Mike I guess people have more time.
And they are they are coming to our network and signing up is registered viewers.
At a much faster pace than we've ever seen before.
It's a bit surprising because we've done nothing different.
But there are registering.
So.
So you're right about both numbers they were just they covered two different things.
Got it no that's that's helpful.
And then.
I think you guys had a pro forma crackle revenue number of like.
79 point Threemillion, if you would have owned it for the whole year 2019.
With P.S. view and it sounds like 6 million a quarter going away.
Do we have to be ducs that from the 79.3 million for sort of four quarters to kind of get to a new run rate if you will.
Oh Boy now.
The 6 million has to come off of the online network side of the equation and get angry at replaced over the course of the year.
By new reseller arrangements and the growth of the Ono business.
But.
You can I ask you have to combine that Mike with what I said, a few minutes ago about the growth of the distribution in production business.
So in looking at the entire company for 2020, if you adjust deducted the 6 billion you'd be.
You'd be heading in the wrong direction.
The other thing to remember about the.
The Playstation Vue business. It was a very low margin business for us and we've already completely replace the EBITDA hit that was associated with it.
And our own network is growing.
Right that the as Chris pointed out the biggest part of our business. Most important part of our network business. The Ono part is growing.
Got it got it and then Chris could you just repeat what you said when you were talking about the first quarter I think you combined distribution in production.
In gave a number how that was trending.
Well I think what we what I said was that.
Those businesses generated just over a million dollars last year that we were going to significantly ramp up.
And.
This in 2020.
That what you're referring to.
Yeah, I thought you said something about a million, but may maybe you were referring to the one Q 19, a combined revenue it just okay.
Okay. Okay.
Thanks, guys.
You're welcome Mike.
Thank you at our next question comes from Lisa Thompson with acts investment. Your line is now open.
Hi, guys.
Okay.
Okay.
I wanted to ask you about.
First off operating expenses I know you had some one time stuff.
I guess in Q4, what does it look like going forward like what's the baseline number.
Going into Q1.
Yeah.
Yes.
A lot of second Lisa Rinna trying into any answer right. This minute.
Excellent.
Hello, everyone.
Yes.
Can't give you the exact number because obviously, we are ready to right right right too wide number, but if if you're if you're looking at it compared to that Q4 numbers.
They will come down a bit.
Just a bit is there like onetime stuff in Q4, though.
There's been onetime stuff all year and those numbers or no.
Transitioning off of.
Transitioning off of a lot of it historical cost, but the crackled crackle business had.
Okay.
And so you said that you're going to be down sequentially. In Q1 is that in both categories.
Oh no no no no we said, we'll be out significantly in production and distribution.
Okay.
Overall numbers down.
Driven by two things seasonality anti station do.
Okay. Good.
And then could you just talk about giving your do model like what is the difference in gross margins between.
Distribution.
Yes, I'm online business.
We don't usually break that out that way Lisa.
Right.
I think let's put it this way the overall gross margin.
Yes.
It's got to continue to go up because distribution as a higher margin business distribution of production as a higher margin business and it will have a proportionately higher share of the overall revenue this year.
Both both the distribution business and the production business are considerably higher margin businesses and the crackle plus.
Business.
So as the production business.
Largely comes back and then exceed last year and then as the distribution business continues to ramp up.
We'll see a return of gross margins.
Improvement in gross margins.
That.
Would be higher than what we've experienced this year.
One thing to root for everybody to remember because as we talk about these as two separate businesses, we really see them as one.
And the way we run the company as you all know is.
Crackle plus pays a revenue share to both Sony and to us.
Which.
Which revenue share goes into our production and distribution side of the equation, we reduced the amount. We report is crackle plus revenue.
By that payment to our production and distribution side and put that revenue into our distribution and production side.
The reason for that of course is that the 49% ownership of net profits that Sony would have.
The partners of the partners of the venture Sony and Weve agreed that we should each get a percentage of.
The revenue as as a payment.
And that has the impact of making the.
Crackle plus side of our.
Business.
Not profitable these are the the partners. So there is no.
Distribution at the bottom level at the bottom line level.
I am embracing this lease because I remember reading one of your reports and user and you quite correctly said there was very little visibility into how to estimate how much of the EBITDA would go to Saudi from that.
49, 51% split.
I get I can give you the answer.
Zero.
Because the net effect of the Rev share, our 5% management fee and the amortization that you see in our income statement, which all isn't the crackle plus side means that net income for the foreseeable future in that particular unit will be zero.
So 100% of the EBITDA of the company will be the companies.
Okay.
Okay.
Well, it where it makes it that way for a variety of reasons not the least of which is that we.
Wanted to be able to profit from the creation and delivery of original programming to the venture.
Sony's profit motive was partially its use of its product and partially the ultimate growth of that unit, but in the near term.
The way those numbers work out.
Both partners make money on their content.
And we don't make money.
On the net income line of Crackle plus.
We make money from the 5% management fee, we make money from the Rev share.
And that and we make a considerable amount of money because that all flows to the bottom line is for ends up as EBITDA in the production and distribution side of the business.
Okay. So my last question, it's been like or something like last full measure.
What did you book, 100% of those revenues the box office in stock or is that at that number also.
Box office, we never know whenever bird ever a well I guess to theaters.
You know report the growth.
We report on that number after theater share and distributor share and a whole bunch of other things, but you are the distributor no no somebody on a case roadside roadside is distributing that movie.
Okay.
Okay. So you've got the net number on that but then you'll have the gross number on the when you put it on online.
Yes for Crackle plus for sure.
Right right.
Okay. Okay. Thank you that's all my questions.
Alright, well that seems to be at.
I want to thank you all for coming today.
Spending time with us in a very strange moment in our history.
Hopefully the next time, we speak things will be coming back to normal or at least we'll see a path to normal.
We look forward to talking again thanks.
Yeah.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.
[music].