Q4 2020 Curiositystream Inc. Earnings Call
Yes.
Okay.
Ladies and gentlemen.
Thank you for standing by and welcome to the curiosity stream Q4 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your Speaker today, Denise Garcia Investor Relations. Thank you. Please go ahead ma'am.
Thanks, David welcome to curiosity strains discussion of its fourth quarter and full year 2020 financial results, leading the discussion.
Cash and today, our Clinton Stinchcomb curiosity stream, Chief Executive Officer, and Jason Eustace curiosity streams, Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.
During this call we may make statements related to our business that are forward.
Any statements under federal Securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks uncertainties and assumptions our actual results could differ materially from expectations reflected in any forward looking statements. Please be aware that any forward looking statements reflect management's current views.
He has only and the company undertakes no obligation to revise or update these statements nor to make additional forward looking statements in the future.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC website and on our.
Investor Relations website as well as the risks and other important factors discussed in today's press release additional information will also be set forth in our annual report on form 10-K for the year ended December 31, 2020. When filed in addition reference will be made to non-GAAP financial measures now.
To call over to Clint.
Thank you Denise I'd like to thank everyone for joining our fourth quarter and full year 2020 earnings call.
I'm delighted to have with us today, our COO and general counsel of <unk>.
Our CFO, Jason Eustace, and our chief product officer, and EVP of content strategy debt.
Alternative.
After my comments I will turn the call over to our CFO, Jason used us to review the financials net.
Close Adjacencies review, we will open up the call for questions.
Curiosity streams mission is to provide premium factual entertainment that informs and chance and inspires.
<unk> as a pure play streaming service, we are capitalizing on current and emerging worldwide trends favoring on demand content.
Our sturdy and robust business model with multiple avenues of content monetization and our differentiated content offering provides us with several key competitive advantages.
And our focus on factual content, which.
Which has longevity and engaging appeal across multiple demographics and geographies is key to our success.
Let me talk about our success in 2020.
I am pleased to report that we had a record in to the year and fourth quarter.
Our year end 2020 revenue was more than double our 2019 annual revenue.
And more than four times, our 2018 annual revenue.
Revenue in the fourth quarter grew 70% year over year to $11 4 million driven by continued strength in direct subscription revenue with program sales and sponsorship also contributing to our success in the quarter.
Our team produced these results.
Through a pandemic.
We'll also crossing several milestones during the year and I couldnt be prouder of what we've accomplished I will start with the fourth quarter.
On a year over year basis paying subscribers grew 50% to approximately $15 million with continued strength in subscribers on annual plans and international subscribers, we continue to build up our content library and <unk>.
Our distribution partnerships worldwide.
I'll share more details about each of these highlights starting with growth in subscribers.
A couple of factors contributed to these results first Q.
Q4 is typically our most active time for new subscribers, which in turn can produce a high churn rate, but this year, we reduced our already low monthly churn by more than 20.
25% year over year with.
We attribute this churn decreased to improvements in marketing content and product that we implemented throughout the year and that we continue to implement.
Our mix of targeted investments and awareness marketing tactics and direct response efforts aimed at keeping our customer acquisition cost efficient also contributed.
These results.
We continue to optimize our business to our Northstar metrics revenue and paying subscribers compared to 2019 at the end of the fourth quarter 2020, we increased our direct subscriber count by nearly 100% and increased our LTV by 48%.
Both while decreasing our total overall marketing budget.
Year over year. This demonstrates the impact of the efficiency focused and agile marketing strategy, we continually employee.
We continue to deliver unique relevant and current perspectives through groundbreaking new content.
During the quarter, we premiered original series like engineering the future narrow.
Weighted by the renowned Patrick Stewart, which explores the new era of Green and Mega machines focused on wind aviation and fusion and the landmark original franchise beyond the spotlight executive produced by the in order to caprio and his team at Appian way, which reveals how celebrities like Shaquille O'neal Kristen.
And balance Samuel Jackson are channeling their personal passions to help change the world.
During the election cycle. We also premiered our special fighting for Lincoln, the wider works, which explores the powerful but long forgotten para military movement that many believe delivered Abraham Lincoln to the presidency and the.
Companion three part mid form series, electing Lincoln, which reveals the key events from the run up of the $18 60 election that sparked American Civil War.
We also greenlit, our largest and most ambitious slate of original programming yet for 2021, including notable projects like the rescue chimpanzees of the Congo with Jane Goodall.
Oils and color.
<unk> history of Wall Street.
Oh, a sin a lower the year that rock the world and many others.
We will make more announcements about our new program franchise in the coming weeks and months.
We continue to invest in the distinct content that defines us nature history science travel and every category of the factual genre.
We will see more new original this year than any time in our history.
Our acquisition strategy will continue to expand the library that is already largely unrivaled and goes deeper than others into topics that our viewers already care about or have yet to discover.
Also during the quarter, we entered an international distribution partnership with Tata Sky one of India's large.
Largest content distribution on pay TV platforms and grew our distributed subscribers via partnerships with Russian operators.
Not surprisingly an increasing number of brands have an interest in the premium factual escalade space, especially as it relates to telling factual stories about the marketplace in which they operate.
We began.
And recognizing revenue from sponsorship and brand partnerships in the fourth quarter with brand partners from the financial services and health and wellness categories. As an example, one was interested in sponsoring content, we developed about apparel and promise of blockchain.
Blockchain bitcoin and crypto the story, they wanted to own and they trusted curiosity streams.
Dreams partnership team to get it right.
Another brand we worked with is becoming a global leader in connected fitness they're.
Their business like many in their space has experienced a boom in growth as a result of COVID-19.
They were interested in creating content that explores the phenomenon in connected fitness. So curiosity stream created the world interrupted.
Evolution of fitness for this partner and promoted across several platforms.
<unk> also has been very well received by our audience, both behind and in front of the paywall.
Moving on to the year, we crossed significant milestones in every area of the business.
We grew revenue to a record $40 million, we generated approximately.
15 million paying subscribers with notable strength in direct to consumer and international.
We improved the features and functionality of our product during the year by adding multi language support for audio tracks from captions.
Launching our on now linear app.
Experience significantly improving search and discovery within.
Our apps and.
And improving our quality of service infrastructure to allow us to better proactively improve customer experience.
We significantly strengthened our management team with strong leadership hires in the area of third Party U S distribution international distribution brand partnerships audience development and final.
<unk> increased the quantity and quality of our content library and continue to have one of the largest streaming factual content libraries in the world.
A few highlights in this area for 2020 included the landmark 90 minutes Special Pompeii Disaster Street featuring.
Featuring exclusive access to the first excavation of Pompeii and more than 70 years.
The epic three part.
Finance history of home narrated by renowned woodworker parks and recreations director Parks, Nick Offerman.
On the eight part series fourth them Forever Muck city compelling portrait of an iconic south Florida community on the banks of Lake Okeechobee. That's produced some of the NFL biggest stars.
And in October we became the first publicly traded media.
Media company focused on streaming factual content.
More recently in the first quarter of 2021, we completed a follow on offering.
Raising approximately $100 million on proceeds, which we intend to invest in programming and marketing.
This process also enabled us to strengthen our investor base with Blue chip long term institutional holders.
Series put another way we can.
$125 million redemption, GAAP through the secondary initiative and through warrant exercises I can't emphasize enough the importance of and value in being able to focus on running the business without the additional responsibility of raising money.
We are entering 2021 in a position of strength.
<unk> strong balance sheet.
And a leading factual content library of streaming.
And as we have more than 80% of our year end revenue target committed over 80% we're off to a strong start and on track to achieve our year end revenue goal for 2021.
I'd now like to turn the presentation over to the architecture.
Stringent ear of our fortress balance sheet are talented CFO, Jason Eustis.
Thanks, Clint I'm also excited about our strength entering 2021, and our 2020 accomplishments before I review, our fourth quarter financials. I'll note that we've included our unaudited financial statements of operations in the fourth and.
<unk> net quarter and the full year for 2020 as well as our net loss to EBITDA reconciliation in today's press release, our audited financials will be included in our 10-K filing which we'll be filing next week now let's review our fourth quarter financials. So curiosity strength in Q4, 2020 revenues grew 70% to $11 4 million.
For the flow from $6 $7 million in Q4 2019. This was led by direct to consumer and distribution subscription revenue. We continue to increase all of our revenue lines year over year with new contributions from sponsorship and advertising.
Cost of revenue was $4 7 million or 41% of revenue compared.
36% on revenue in Q4 of 2019, primarily due to an increase in the content amortization as a result of timing and the number of titles released in Q4 2020 compared to the same quarter the prior year.
As a result, the Q4 gross margin was 59% compared to about 64% in Q4 of 2019.
Advertising and marketing expenses was $13 3 million, a 14% decrease year over year on a sequential increase of approximately $5 million as we noted last quarter.
Curiosity strength overall operating expenses increased 16% to $22 2 million from $19 1 million in the fourth quarter of 2019.
Fourth quarter, EBITDA remained relatively flat compared to fourth quarter of 2019 at a loss of $15 5 million compared to an EBITDA loss of 14 $514 $8 million last year.
Curiosity streams, ending cash and investment balances on December 31, 2020 totaled $42 four.
<unk> 19, compared with $60 million at the end of 2019.
On October 15th at the closing of our business combination with software acquisition group, we received $49 million and more recently in February of this year, we closed on an additional public offering of approximately $101 million.
We are on track with our plans for 2021.
$4 million to deliver $71 million on revenue, which is consistent with our disclosure during the business combination we have good visibility on our revenue and over 80% of our 2021 revenue goal is committed at this point, we expect some lumpy quarters as our new lines of business, such as program sales and sponsorships ramp up and create an.
One by second half of the year and now I'll turn it back over to David to open the line for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question comes from the line of Dan <unk> with Benchmark Company. Your line is open.
Great. Thanks, Good evening guys.
Maybe just talk about the DTC sub trends.
Obviously finished the year strong I don't know if you guys got to $1 million on DTC.
On the net especially on the domestic side.
And maybe just help us help us think about kind of the balance of the year some of the puts and takes.
There are stimulus and a lot of people are talking about that driving sort of an uptick net slot. Obviously you guys at the annual.
Pricing.
That will mitigate some of the benefit from the back half of the year, but in terms of upside the targets on where do you see.
Think that goes on kind of maybe counter balance that if you will.
On the corporate side, either progress or how you think about how the reopening kind of impacts the way.
You consider that bucket. Thanks.
Thank you Dan I'll take it and then yield to Jason I think the.
Opening trends are a real positive for us, especially as it relates to our third party businesses. As you mentioned, we had we had great growth in our.
Direct service over the course of last year and.
Based on what we've seen.
So far this year, we don't see that slowing down.
But what we do see we do see opportunity is.
With the world opening up I mean, I can tell you.
Personally I'm a weighted.
South Florida later this week was a big media community in Miami, and then I'm headed to La next week.
Where.
<unk> is opening up out there. So I think just that general trend of being able to sit down and community with people and share our story as it relates to our third party partners.
Thats only positive for us.
Things open up more internationally that will be only more positive there so.
That's an excellent trend for us.
We are optimistic that.
We only have a positive impact on our direct business as well.
Yeah. The only thing I'd add there is that we continue to see the growth that we saw coming out of third quarter continuing into fourth quarter and then continue into the first part of 2021.
That's a strong continued growth on that direct side of our business.
So nothing has really changed and so even with the overall larger economic profile changing things opening up it has not negatively impacted our business.
Great.
System tailwind for some of the stimulus money coming through and then.
It's on the program sales and advertising I know, it's still nascent you talked about kind of the back half.
Year phenomenon, just maybe some of the conversations you are having obviously again stimulus should play a big role on this and I know you guys are kind of developing your go to market and how is this going to play out, but theres clearly a huge demand.
And content and there is obviously a big demand for advertising it probably ramps as the year goes on so just any incremental color you can give on on how you see that shaping up over the year would be helpful. Thank you.
Yes.
Yes on the on the brand side I would say that.
We hired a great leader for our brand partnerships business.
Demand from last year net stay most from spent majority of his career at time, Inc and.
I think he has sold a lot of seed since he started and.
All of those conversations and meetings that he's had will begin to bear.
Bear fruit as he kind of execute on.
A lot of what is <unk>.
Devin Emory's vision for how we maximize brand partnerships.
We definitely see.
We definitely see that business growing and then as it relates to this.
As it relates to program sales on the nice thing about that business as we conducted two ways one is.
Through sort of modest.
Library programming sales in parts of the world, where it can be promotional for us or it's not going to cause any heartburn to our other businesses and then we also engaged in pre sales construct which gives us a lot.
Lot of visibility into into.
And our revenue that is going to hit 6%.
To nine to 12 months down the line because it's just because of the nature of.
Production, but.
The fact that we are in the factual space has enabled us to continue to produce content right through the right through the pandemic, we haven't had any of the issues that.
Sure.
The issues that.
Most of the scripted companies have so.
We've got some great partners there.
Meaningful media companies who are.
Excited about working.
Working with us over the long term as well.
Got it really helpful. Thanks, guys I appreciate it.
Thank you. Your next question comes from the line.
Laura Martin with Needham Your line is open.
Hi, there can you hear me okay.
Perfectly Laura.
Great.
So you said that sub growth was driven by international So I'm curious as to what international revenue was as a percent in Q4 and when you gave us the projection for next year.
Line of can you give us.
Size of the international comes on to that is that growing or is it day insane in terms of percentage of total revenue contribution.
<unk> International.
So obviously, our direct business grew a lot majority of our direct subscribers came from.
The U S. The majority of our.
Bundle subscribers.
And from international and so what I can tell you on what I can tell you on a year over year basis.
Our international our international revenue grew by seven points.
Year over year and that I mean, we see that.
That's a growing trend for sure.
Georgia.
Can't you already are our direct subscribers today or in the U S. The slight majority of our bundled subscribers outside the U S. But.
Overtime.
The revenue and subscribers to dominated internationally.
Based on Okay cool.
And then my recollection is about 30% of your library hours, they're owned by you.
Of our 100% and then 70% of license.
So was that the numbers were those numbers stable in Q4, and when you look out to Q4 of next year do you expect any shift to that given your aggressive on content creation.
Planning for our 2021 now we like that we like that mix.
We'll continue to do more and better.
Original at the same time, we have a lot of excellent relationships around the world.
We see a lot of great content, that's available for acquisition.
Can acquire.
<unk>.
<unk> and efficient rate, sometimes is part of.
You broader deals so we anticipate that mix to stay about the same.
Jason.
I'm sorry.
How long are those deals are they finally equal three.
Three to five year deals and it comes to acquisition typically yes.
Okay, great. Thanks.
Thanks, guys. Good numbers, thanks, very much thank you <unk>.
Your next question comes from the line of Jim Goss with Barrington Research. Your line is open.
Hi, Thanks.
You mentioned a couple of the.
Key programming areas, you've developed such as Pompeii.
And I'm wondering how you are planning to use.
Is this a unique programming to build subscribers.
And in which areas do you think that would focus on relative.
To DTC and bundled in.
On our program sales et cetera.
The short answer is.
As we are in the content monetization business, we look to monetize.
Across multiple platforms and businesses, but I think it's a great question that you asked Jim and I'm going to have that Devin speak to it a little bit more as it relates to the direct business. So.
So the Tentpole programming is a key part of our overall marketing that goes right alongside kind of are.
Conceptual marketing right. So we're out there telling people what curiosity stream.
Stream is and then we're able to use these tentpole programs to drive people in specifically for program. So you will see us promote that across all of our channels and then you'll also see us promote that on specifically on platform group and drop people directly into some of our tent Poles, and then get them to sign up and stay with us. So I would say that the majority of our marketing tends to be focused on what curiosity stream is the.
<unk> of what we are.
Full value that you get in terms of the library on the platforms and then we are able to use Pompeii and our other great Tentpoles like history of home for more targeted and interest specific marketing that we do.
But I know you are trying to.
Build visibility.
The comps on are there ways you can promote this programming to attract the attention aside from.
The bundled distribution that you're looking at.
Say, the corporate and education on subscriptions that youre using to create some of that visibility are there certain areas, where you think you can do.
Do they.
And especially with this high profile content that I think youre drawing attention to and you also mentioned the blockchain on connected fitness very interesting.
<unk> unique take on things that occurred.
Those tie into all of these processes as well.
Yes so.
That's.
The spread point and yes, we are doing that so a good example of that is what we did with history of home right. So we had Nick off from an attached to that it made for a really great opportunity to use him use the show to specifically market that that show on he has a lot of love right people really like Nick Offerman, they like everything but he's in so we're able to use that to hit that group of people right. So you heard his voice on the radio.
You saw him.
And heard him on television slots as well as social so.
So yes, when they are when we have shows like that which we have more and more of we do create show specific campaigns that are able to leverage the talent involved and that are able to leverage the strength of the programming. So we are absolutely doing that we will continue to do more and more of that.
You want to take that second part.
I'd say, we I mean, we actually have a feature dark this year that.
We will put we will put marketing resources behind it but.
Donald once the pre growth there just to give you a sense of the scope and scale.
Yes.
Some of the projects that we're working on so.
We recognized.
We're not we're not a hit reliant service or hit reliant business, but obviously, if we can find.
More and bigger content that.
Resonates.
Cultural zeitgeist that will only have.
A positive impact on the business.
Okay, and maybe one last one and maybe this is.
<unk> space.
We look at the theatrical exhibitors and studios also.
With the changes in Windows.
Creating a focus on blockbusters, which could create some some boyd on the smaller end of the film releases do you think theres any of content you create.
Creating that could play a role in.
Filling some of that void that you could release theatrically.
Especially since you're creating and very high quality.
I think the answer is we have the quality to be able to do that and what it would come down to is the business case there.
Okay.
Uh huh.
Alright, thank you.
Thank you Jim.
Again, if you would like to ask a question press star one on your telephone.
Our next question comes from the line of Logan Thomas with Stifel. Your line is open.
Hi, Jason Thanks for taking the question.
The first question.
<unk> is just relating to.
The pace of investments and.
Particularly related to debt over the next 12 months.
How youre thinking about prioritizing.
Investing across these multiple.
Growth areas and multiple revenues.
Dreams.
From monetization streams that you talk about that'd be that'd be helpful. Just to frame that up for how investors should think about.
The pace of investments and how aggressive you want to go after these areas.
Yes, that's a great question and I think that we continue to see.
Revenue growth with our direct service.
<unk>.
Supremely confident that if we allocate more.
Marketing and promotional resources to that we can continue to grow it.
At a really meaningful level and so I think that we're always in conversations with the board about.
Whether.
Great It makes sense.
Whether or not it makes sense to really put our foot on the gas there kind of beyond that.
The plan that we're operating under right now so we're focused on hitting our our year end.
Our year end target.
And.
Obviously supremely confident in that would we'd love to.
Whether or not actually spent a little bit more money on the marketing and promotional side to grow that direct business and the answer is yes. I mean also because we think we have some we have price elasticity.
As it relates to that so it's just it's something that we continually look at and continually review.
Okay that makes sense and.
Just one other.
Question, if I can on the the 80% committed and I think you spoke.
Jason spoke to this a bit but just to just to tie it up.
As we think about it the 80% committed coming from.
Direct annual subscribers active licensing.
Third quarter events with distributors committed program sales are there any other sort of chunky items in their debt.
Investors should be thinking about in order to kind of bridge to that that 80% level from from the current run rate.
Yes, I think the one thing that you have to kind of take into consideration.
We do have the two the two newer aligns our revenue with that program sales and brand the brand sponsorship side, which is going to kind of create kind of a little bit more of a lumpy lumpy quarter to quarter cadence. So we.
Going to have sequential potentially down quarters, and some that can have big swings.
One after the next as well just.
<unk> had some of those programs sales deals can be quite substantial or some of the brand sponsorships can be and so as those mature we'll get to a more run rate business, but we'll definitely hit our full year numbers are 71, we definitely are 80% committed certain lines of business. We do have a greater line of visibility on like the direct like you articulated on the direct.
Because correct.
On the recurring contracts, we have on the distribution side.
But theres still remains the go get on top of that within certain of those lines of business as well.
Okay. Thanks, Thanks for the detail Jason Thanks, Brent.
Thank you Logan.
The part of your next question comes from the line of Tom Forte with D. A Davidson your line is open.
Great. Thanks for taking my question and congrats on the quarter I had one question on one follow up. So the first question is you talked about the reopening of basically everything so to what extent if at all was your production negatively impacted by Covid.
And if it was impacted where do things stand today.
Yes good.
Good news Tom is that we.
We produce right through Covid, and we premiered a new programming.
Right through Covid.
You had to get a little creative in certain cases.
So.
Some of it some of the productions.
We were in.
The pacing extended a little bit we did.
Some interviews resume as compared to doing them in person that people weren't comfortable sitting with a camera crew and.
So.
I would say that.
We learned a lot and.
We even got a little bit more efficient in certain cases.
<unk>.
I'd say that.
Going forward.
It's only getting better that said there are a few there are a few pockets of few places internationally, where it's still a little bit difficult but.
In light of the flexibility that we have around production schedules in light of the fact that.
Again, we're in the factual space and that the.
So space were confident that.
Everything that we're working on.
We continue to go according to plan and deliver.
Around the times that we're anticipating will all deliver.
Does that answer your question total yes. It does.
Thank you I knew that you had some.
Advantages as far as you Werent dependent on you know.
Large.
Numbers of actors.
Things of that nature of that work in your favor I just wasn't sure to what extent youre still disrupted okay. So the second question I had was.
As more subscription video on demand or hybrid.
Scripted a subscription video on demand advertising video on demand services come on line.
Do you think Thats had any impact at all on your viewership.
Yes, I feel like.
We're running our own race I mean, there is.
More content to watch every day on.
All kinds of platforms.
You mentioned these <unk> platforms.
If you look deep into the Avon platforms, the companies that own the Avon fast platforms, whether that's fox or Viacom or Samsung or whomever they are making a lot of money and certainly some of the programming partners are doing well there but.
But.
So theres a lot of content on those services that just.
It's not getting washed and kind of has hash marks as it relates to as it relates to the ratings. So.
For us we really see there is always going to be more content produced I mean, that's just kind of that's the nature of the Beast.
That's the.
A trend and so that's why we're focused on maintaining a premium brand position.
As a leading factual content provider, we feel like we do that and we continue to run our own race and execute on the plan that we have everything's going to work out well.
Great. If I had time I wanted to ask one more question. So.
So anecdotally I've enjoyed a lot of the content on the platform you talked about Lincoln material you had it was excellent.
Great stuff on Big Cats, my children enjoy.
Is it still the case that your viewership is widely spread out meaning no one individual title.
Both titles represents a dominant portion of your viewership.
That's correct.
On our product overall is very widely accessible very widely loved and then what we find is that people will use it in different ways right. So by being very broad we can capture a large percentage of the market, but what we are focused on from a concert.
Or product.
Product perspective, as well as as people use it and kind of their own individualized way in as different cohorts use it in different ways. We can also adjust our products to be able to make it easier to do so right. So.
As an example of this is curiosity kits right. So kids are using our product we can make it feel and look and interact slightly different with different programs.
And then if their parents or so even in the same households, so to answer your question, yes, it's still very broad based but we can continually do more and more to engage each different demographic psychographic based on the behavior that they're displaying on our platform.
Great. Thank you for taking my questions.
Thank you. Thank you Tom.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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