Q2 2021 Curiositystream Inc. Earnings Call
Okay.
Good day and thank you for standing by welcome to the curiosity stream Q2 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session.
Can I ask a question during the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Denise Garcia Investor Relations. Please go ahead.
Thanks, Matti Hello, welcome to curiosity streams discussion net but second quarter 2021 financial results, leading the discussion today are Clint Stinchcomb, just curiosity streams, Chief Executive Officer, and Jason Houston Curiosity Strange Chief Financial Officer. Following management's prepared remarks, we'll be happy to take your questions but for.
First I'll review the Safe Harbor statement.
During this call we may make statements related to our business that are forward looking statements under the 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 manager.
Its current views 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 quarterly report on form 10-Q for the 3 months.
June 32021, when filed in addition reference will be made to non-GAAP financial measures now I'll turn the call over to Clint.
Okay.
Thank you Denise I'd like to thank everyone for joining our second quarter 2021earnings call.
I'm delighted to have with US today, our CFO and general Counsel Tia Cuddihy, our CFO, Jason Eustace, and our chief product officer, and EVP of content strategy Devin Emory.
After my comments I'll turn the call over to our CFO, Jason used us to review the financials.
At the close of Jason's remarks, we will open up the call for questions.
Curiosity is the global factual entertainment brand for people, who want to know more.
We are deeply rooted in our passion for and chanting and informative storytelling and our strong direct subscription service with approximately 20 million paying subscribers across our platforms and distributors.
We are committed to producing acquiring and distributing the best content across every genre of the factual category and our original programming. This year is resonating more than ever.
Unlike many streaming services that rely on 1 line of revenue we are delivering strong topline growth on a multifaceted revenue stack anchored by recurring subscription revenues and industry leading retention.
Let me talk about the second quarter.
I am pleased to report another quarter of robust growth in our direct subscription business.
Where we grew subscribers, 56% year over year.
New subscribers are joining our service at a rapid clip.
On the annual anniversaries for subscribers, who signed up during the most significant periods of the Covid Lockdown had passed.
We have successfully navigated retaining those users better than anyone else from the industry.
There were some concerns about an uptick in churn affecting our business when COVID-19 lockdowns in the U S lifted but in fact, we retained in Q2.2021.
Higher percentage of users, who signed up in Q2.2020 than any other streaming service, including Netflix.
Our monthly churn.
Remained in the low single digits during the quarter as we continued to lead the streaming industry and subscriber retention.
We were also pleased to announce a partnership with Spiegel television.
The iconic media brand and leading producer and distributor of high quality factual content for German speaking audiences.
This distribution partnership bolsters, our global reach by adding millions of subscribers in Europe.
Accelerates our growth through the addition of hundreds of hours of German debt programming.
2 our subscription video on demand service and extends our brand through the introduction of the curiosity channel in German speaking Europe.
Deal demonstrates our commitment to prioritizing strong performing international markets and expanding globally through strategic distribution partnerships.
It's substantially increases our profile in Europe, which we believe sets the stage for accelerated subscriber growth in the region.
Revenue in the second quarter grew 55% compared to Q1 of 2021 to $15.3 million for.
55%.
Driven by continued strength in direct subscription revenue content licensing also contributing to our success in the quarter.
Paid subscribers increased 40% year over year to approximately $20 million.
Up from $16 million at the end of the first quarter on strong double digit growth across our streaming businesses. We continue to expect a robust second half of 2021 and are confirming our full year revenue guidance of $71 million for 2021.
The fundamentals of our streaming businesses were exceptionally strong during the second quarter.
Led by low direct to consumer subscriber churn, which was relatively flat on both a year over year and quarter over quarter basis.
According to antenna a media analytics provider curiosity stream led the streaming industry and subscriber retention for the 13 months ended in May of this year.
As of the end of May we had retained 72% of subscribers who joined our service during the height of the pandemic in April 2020.
They had a netflix for 71% Disney at 55% Hulu at 52% HBO, Max at 41% and Apple TV plus 17%.
We believe our industry low churn demonstrates the high value of our service as well as the success of our annual subscription strategy.
While our competitors typically have 1 month.
To prove the value of their service, we have an entire year to train our algorithms and to learn and to serve our subscribers the content that best suits their preferences.
We believe our industry, leading subscriber retention was especially impressive in the context for the second quarter of 2021 as annual subscribers, who took advantage of promotional pricing last year.
Their subscriptions at this year's higher rack rates.
Higher renewal pricing combined with a higher proportion of premium subscriptions as we enhance the value of our premium tier offering drove a quarter over quarter increase in direct to consumer average revenue per user, which we expect to continue.
We are encouraged by these favorable trends and are as excited as ever about the long term growth prospects of our subscription businesses.
We believe the long term growth prospects of our subscription business will be further enhanced by our recently announced partnership with Spiegel T D.
International expansion has always been a key pillar of our growth strategy with our success to date, largely driven by distribution deals with pay TV operators worldwide.
Our partnership with Spiegel TV extends well beyond the typical distribution deal as it includes the introduction of curiosity branded linear channel in Germany speaking, Europe, which will help raise our brand awareness to millions of people.
In addition of hundreds of hours of German debt programming to our subscription video on demand service.
This channel will continue to be operated by the current management team led by our good friends business Associates and talented leader Patrick Earle from authentic and Michael Clarke from Spiegel television.
Germany is currently 1 of curiosity streams top 3 non English speaking markets. We expect this partnership to accelerate our direct to consumer subscriber growth and German speaking countries and beyond.
Our partnership with Spiegel TV more firmly establishes curiosity stream in Europe over the longer term as we expand our language customization. We believe Europe represents a vast direct to consumer opportunity with hundreds of millions of affluent broadband subscribers.
Unlike many traditional media companies are international expansion opportunity is less hampered by fractured rights issues and is greatly enhanced by how well our content travels.
We continued to deliver unique relevant and insightful perspectives on our world through groundbreaking new content.
During the quarter, we premiered the 6 part Darkey series, Doug to the rescue.
Featuring featuring Ariel cinematographer and drone pilot Doctor on.
On this series gives viewers an inside look at what happens to animals, both wild and domestic on the ground in the aftermath of a natural disaster from.
From Hurricanes to wildfires, Doug travels to the hardest hit areas using nextgen drone technology to find animals, who are stranded or left behind and then it gets them back safely to their owners are to their natural habitat.
Doug really tap the cultural zeitgeist. She was profiled on good morning America access Hollywood, Rachael Ray and in a beautiful way out and people magazine last week.
Throughout the quarter. We also premiered 3 new episodes of our landmark original series engineering the future.
Each explores the spectacular next generation eco machines that could revolutionize life as we know it now.
And on the opposite end of the spectrum 5 new episodes of our Tentpole original ancient engineering, which reveals how key technological innovations from our distant past continue to give rise to some of our greatest engineering achievements today.
Both series delivered some of our strongest premieres to date and have already had been greenlit for second seasons in 2022 as part of our strategy to better engage viewers with popular brand defining returnable series.
Another returnable series. We premiered was the most recent season of fourth and forever, which profiles iconic high school football programs in the U S.
Football is merely the prism from which to tell the stories of the people in their community.
This season, we embedded with Alcoa high in East, Tennessee extra.
Extraordinary school that did not just embrace diversity integration, but became a much stronger community and a football powerhouse because of it.
We also premier the first for episodes of our landmark series faster.
Humanities quest to save time, a quirky smart and engaging series I encourage you to watch along with all of the other premier as I mentioned.
We continue to invest in the distinct content that we believe defines us nature history science travel and every category in the factual genre, we will offer more new original this year than any time in our history.
We're exploring all options to expand our library that is already unrivalled and goes deeper than anyone into the topics our viewers already care about or have yet to discover.
I'm excited to announce that more recently, we were nominated for an Emmy Award in the category of Outstanding Science and technology documentary for them ours episode of our epic 8 part series secrets of the solar system.
It's an honor to be among the nominees and to be recognized for creating such high quality Science program.
With our strong balance sheet robust subscriber momentum a.
Sturdy beachhead in German speaking Europe strong.
A strong team and the leading factual content library in streaming we are executing in a manner that makes us enthusiastic about the remainder of 2021 and beyond.
I'd now like to turn the presentation over to our CFO, Jason used us for some financial highlights.
Thanks, Clint I'm also excited about the strong momentum in our subscription businesses and the landmark business development activities, we announced this quarter.
As the World Reopens and entertainment options increase our subscriber growth continued continues unabated.
We look forward to building a record 20 million subscribers and remain on track to achieve our $71 million revenue goal for the year.
Now, let's review second quarter financials curiosity streams Q2, 2021 revenues grew 27% to $15.3 million up from $12 million in Q2.2020. The revenue increase was led by direct to consumer subscription sales and program sales.
Cost of revenue was $5.7 million or <unk>, 37% of revenue compared to 39% of revenue in Q2 of 2020, a decrease of 2 percentage points on a year over year basis. As a result for Q2 gross margin was 63% compared to 61% in Q2 of 2020.
Advertising and marketing expenses were $11.5 million compared to 8.3 in Q2 of 2020 as we continue to be opportunistic with our marketing spend and invest when the REIT market conditions exist.
<unk> overall operating expenses were $26.4 million compared to $16.4 million in Q2 of 2020.
Second quarter EBITDA loss of $10.9 million compared to an EBITDA loss of $4.3 million last year due to higher G&A costs associated with being a public company higher personnel costs and increased marketing investment.
We are on track with our plans for 2021 to deliver $71 million in revenue.
We expect our revenue mix to shift in the third and fourth quarters as presale agreements comprised a higher percentage of revenues than in prior quarters.
Again accounting for pre sales under GAAP requires us to amortize content costs to cost of revenue on an accelerated basis. Upon revenue recognition instead of on net straight line basis over the estimated period.
Abuse as we would with other original content.
As a result pre sale revenues are pass through on a GAAP basis for the quarter, when they're booked and did not contribute to the GAAP gross profit.
Due to the significant ramp in pre sales deals we anticipate in the third and fourth quarter, we expect GAAP gross margins to be in the low to mid forty's on the second half of the year.
Gross margins in our core subscription businesses are expected to remain strong on a lower cost per hour of programming relative to the broader streaming industry.
While we expect GAAP gross margins to remain volatile over the next several quarters based on the size and the timing of pre sales, we anticipate that the growth in our subscription business will mute the negative and presale deals on GAAP gross margins over the longer term.
And now I'll turn it back over to Clint and open the lineup for questions.
Thank you Jason let's please open up for questions.
Yes.
As a reminder to ask a question Oni Press Star 1 on your telephone touch on your question press the pound key please standby, while we compile the Q&A roster.
And your first question comes from the line of Devin Briscoe with Bank of America.
Thanks for the question.
And you had some promotional.
You had some subscribers lapping some promotional price pricing in the quarter.
Still retain subs better than the rest of the industry.
Have you gained any additional insights into what content is doing well in terms of retaining subs and then as you saw the other side of that equation.
Given you have such low churn is acquisition content going to become a bigger focus going forward.
It sounds like you might be ramping up content spend in the second half.
It's 15 million in cash spend for a good number for the full year.
Yeah.
Duncan and thank you definitely the second part of that question. Okay. Go ahead Glen go ahead and to go on and take the second part and then I'll take the first part.
Yeah. So the second part there Devin program investment is still is still on track as we mentioned earlier. This year, we're still on track for the high 14th or 15th as far as our content spend so that's that's in line with everything as we expected on <unk>.
Earlier this year, we're still going to be over 4000 titles by the end of the year.
Okay. Thanks.
Thank you, Jason and David if I may add.
Yes.
The reasons for the high retention on our many.
Certainly programming.
And yes, we do have an idea as to what peak.
Like but I will tell you that it's it is quality, but it is also quantity and there is also a.
A particular cadence of providing new content to the platform and we certainly have a greater cadence there than we've had.
In years past, just because where we're deeper ore.
We're deeply deeper into the cycle of adding significant programming I think we've also done a lot to minimize the friction associated with subscribing to curiosity stream and we've also I think you know significantly enhance the user experience and continue to do that.
Kevin would you like to add anything yes, I would just reiterate that the velocity of new content coming to the platform across our tentpole originals and exclusives our acquisitions.
And even our curation of content available elsewhere is it's higher than it ever has been and all of those are incredibly important so all of those contribute different values for the platform and are all critical for making the best user experience and you'll see that continue across all the different types of content that we have and there'll be more of it and we'll be coming to our platform more quickly than it ever has before.
And also as Clint was saying on the product and technology side, we've been investing in to data engineering, CRM and engagement UX and UI.
All of these have been things that we've been working on for quite a while but as Clinton was saying are critical so that people when they're coming into the platform have the best possible experience finding whichever pieces of content that they really wanted to watch and engage with.
All of that combined with our continued strength enable to activate our audience.
Has been what.
We have seen is leading to that retention. There is there is no silver bullet its obsession over all of the right details.
Thanks, that's helpful and you just announced a deal with Spiegel television in the quarter and in the past you've talked about there being sort of an outsized opportunity internationally for growth are you starting to see a revenue mix shift yet in that direction and I am curious how you plan to prioritize bundled.
Distribution vs.
More pure play DTC product internationally, and what that mix will look like going forward.
Excellent question, Devin I would say that if you will.
We have more bundled subscribers outside of the U S. Today, we have more direct subscribers in the U S. Today that said, we do have a.
Direct subscribers in 176 countries today, which I think.
Underscores.
The attraction of a factual content and it also underscores the fact that.
With factual content, you can it's a little bit easier to control.
On the distribution.
<unk> have a broader scope of rights than say in the in the scripted space for example.
We will continue to kind of prioritize.
On the international markets, where we are performing.
Performing best as I've said that Germany was a top 3 market for us. So we think that debt, Germany, and German speaking Europe represents a.
A lot of opportunity also believes that look.
Almost every.
Third party agreement that we enter into provided its a proper value exchange is additives curiosity stream because at this stage, we still have a lot of headroom as it relates to general awareness. So Spiegel. For example, we think there will be a lot of value in having a.
The linear network that is able to promote to our subscription service in a meaningful way, which we don't really have in Europe today.
That helpful.
Yeah.
Your next question comes from the line of Darren Kathy from Roth.
Hi, guys. Thanks for taking my questions.
First of all on the renewals.
On that let's call it the Covid quarter, obviously was a.
Hi, number for you guys kind of mentioned from et cetera.
I am curious if all of those.
On the annual plan review at a higher rate card or were there any kind of discounts offered.
All of the renewals came at the higher rack rates.
Okay. So I guess it kind of begs the question.
In terms of pricing power.
Like what are your general thoughts about pricing power on annual plans and month to month as you kind of dollars, we still on kind of a validation story at this point.
Yes.
We think we have considerable pricing power, we think that low.
Last year has demonstrated that we are committed to growing subs and in the aggregate certainly.
At the same time, we continue to do.
A lot of a lot of engineering work a lot of foundational work a lot of.
Technical work, so that when we do take advantage of that pricing power, we can maximize.
The transition from existing to whatever higher price we implement.
Got it great and then on the 4 million sequential sub debt.
Can you just kind of talk about the mix of DTC and partner direct versus bundle and maybe with bundled any kind of geographies that are over indexing.
Yes, so the majority of those subscribers, obviously came from a bundled subscribers.
We grew our direct subscribers 56%.
Over.
Over the year on year over year, so that was that was strong and meaningful.
And then they work their way.
Certainly sprinkled around the majority of.
The majority.
Our from our from the Spiegel agreement that we entered into but continue to continue to add direct subscribers.
Almost everywhere and I would say that.
If you if we didn't we didn't break it out this way, but more direct subscribers came from outside.
The U S. This quarter than from a year ago.
Just given here on just last 1 for me I think last quarter, you gave the visibility on that $71 million bogie for guidance on 90% any kind of update there.
Past the halfway point.
Yeah, we're definitely still guiding to the whole 71 for the year and were definitely less than 10% left to go at this point. So we still feel fairly confident that that 71 for the next 2 quarters.
Alright add Darren so for.
First full year as a public company and we want to demonstrate that we can hit our annual targets and not be superheroes.
Fair enough thanks, guys.
Got it.
Your next question comes from the line of Dan Carnose with benchmark.
Okay, great. Thanks.
Maybe a couple of thoughts.
Yes.
Retention Covid number was very interesting can you just talk about obviously with delta that rearing its head.
What youre seeing in terms of trends as we head into the back half of the year, if theres any play there and maybe if you want to also tangentially speak about.
For the development.
Day you.
And whether or not.
April and how are you.
And how you develop that asset.
And then just on the international side just following up on an earlier question I actually thought it was interesting.
You went to sort of non I mean, obviously, Germany Western Europe speaks a lot of English, but it was in Germany doing a lot of localized language stuff.
Can you help us think about.
How we think about kind of next geography or.
Whether we actually get.
India on the table vs.
Maybe more like in Australia, just how do we think about kind of on balance on the international for them because theres still a ton of large mvpds and partners out there that you guys can kind of go after with your sort of unique product set.
No I think that's I think that's a great question and something we're thinking a lot about and what I will say today is.
Hmm.
We are prioritizing additional international markets, we're not going to announce those today, but that is something that we're thinking about obviously on a daily basis, and then lots of conversations around.
As it relates to.
2.1 day University I think that's a good question.
Yeah.
I think what we've said about that is that.
Tuck in acquisitions like that have always been an element of our growth strategy. The talks and lectures that they offer up on 1 day University right now are awesome best professors and the world's most engaging most entertaining.
Right now we're focused in the near term on technical work on integration work on the only recently launched a digital subscription platform before we acquired it needs some work but.
We will improve it.
As far as the live events are concerned we do plan to launch live events in the fourth quarter. Obviously, there is you know.
Is seemingly a new concern every day, whether it's the delta variant or some other form of the virus, but all I can say there is we will see.
Got it thank you got it.
As a reminder to ask a question you will need for star 1 on your telephone to withdraw your question press the pound key.
Question comes from the line of Alex Yes to meet with D. A Davidson.
Thanks, so much for taking my questions I have 2 the first.
And have you experienced or noticed any impacts from the pandemic related restrictions being lifted and the second is in the past you had discussed advancing your sponsorship efforts when restrictions ease and you were able to meet with companies again. So how are you thinking about your sponsorship average today.
Great. So.
Yes in certain parts of the U S. We've been able to.
Finally get back out and have more in person meetings.
Nationally as you're probably aware, it's really not opened up.
Like we had hoped it would like we think it will in the future.
And then.
As it relates to the sponsorship business we have.
We have strong interest in some strong commitments for the back half of the year and we're working on.
Pulling from.
Many of those as possible across the finish line and fulfilling those commitments where they exist. So yes as the.
As the world opens up and we can meet with more people that as a tailwind for us and we are doing that wherever we can obviously it's.
Not quite as easy as we'd hoped it would be at this point in time.
Great. Thank you.
Your next question comes from the line of Dan.
Medina with Needham <unk> company.
Thank you for the question on Jason I was wondering if you could help me help us think a little bit about.
Second half advertising and marketing spend for them.
For the rest of it yet.
Thank you.
Sure. So second half of the year were expected to be very similar to the first half right around on high elevens on a low 12 as far as on marketing investment for Q3 and Q4.
Again, we'd love to be honest, that's just the target so we'd love to be opportunistic given the market conditions. So on Devin healthy opportunity, you'll take advantage of that fourth quarter might be on was little bit higher because we take advantage of some of the stuff during the holidays, but generally the takeaway should be high elevens low 12 from as far as Q3 and Q4 marketing investment.
Great. Thank you.
And there are no more questions at this time.
This concludes today's conference call. Thank you for participating you may now disconnect.
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On that.
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Thank you.
Revenue.
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Alright.
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