Q3 2021 Curiositystream Inc. Earnings Call
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Please be advised that today's conference call is being recorded.
I would now like to hand, the conference over to your Speaker today, Denise Garcia Investor Relations. Please go ahead.
Thanks, Josh Hi, welcome to curiosity streams discussion of its third quarter 2021 financial results, leading the discussion today are Clint Pinchcock curiosity streams, Chief Executive Officer, and Jason used to 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 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 management's 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 web.
Site 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 three months ended September 32021 file. In addition reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors Dot curiosity.
Stream Dot com now I will turn the call over to Clint.
Thank you Denise.
Like to thank everyone for joining our third quarter 2021 earnings call.
<unk> to have with us today, our CFO and general Counsel Tia Cudahy.
Our CFO, Jason Eustace, and our Chief product officer, and EVP of content strategy David Emery.
After my comments I will turn the call over to our CFO, Jason users 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.
Our flagship subscription video on demand service continues to gain traction in the marketplace as we produce acquire and distribute compelling content across every genre of the factual category.
In light of our deliberate and opportunistic approach to content creation and acquisition. We now as the company has more than 5000 titles under license or ownership up from 3000, a year ago.
Not only is our subscription service firing in all cylinders, but we continue to deliver balanced growth across our unique multifaceted revenue stack.
Let me talk about the third quarter I'm pleased to report another strong quarter of year over year revenue growth of 114%.
With slightly more than seven weeks left in the year.
We're delighted to announce that 100% of our full year 2021 revenue guidance of $71 million is committed.
Our ability to deliver these results.
In the midst of the worst global pandemic, a century underscores the resiliency of our business and our leadership in the factual entertainment category or.
Our 2021 revenue number reflects a nearly eight fold increase over a three year period.
Early eightfold truly remarkable achievement this wouldn't have been possible without the exceedingly talented and hard working team we've assembled at curiosity stream.
I'd like to think.
Everyone personally at this moment.
For their commitment.
Our revenue more than doubled in the third quarter, driven by broad based growth, including strong gains in our direct to consumer and licensing businesses.
Our success in licensing is a testament to our expertise in content creation and the global appeal of the factual entertainment category curiosity.
Curiosity streams content strategy has always been flexible and opportunistic with the ultimate objective of providing our subscribers with the best and broadest range of factual content.
Our business development initiatives, including our recent acquisition of one day University and the investment in Nebula, We announced last quarter are consistent with this objective.
As the world's largest creator owned streaming platform <unk>.
<unk> is in the pole position to capitalize on the rapid growth and creator contents and our investment will help nebula accelerated growth, while enabling our shareholders to directly participate in the company's success.
I'll provide more detail on our enhanced strategic partnership and investment in <unk> later in the call.
Revenue in the third quarter grew 114% year over year to $18 $7 million driven by continued strength in direct subscription revenue.
The anticipated step up in licensing revenue.
Our licensing business are difficult to predict on a quarterly basis and this quarter is a good example is a few programs that could have delivered in Q3 <unk>.
Delivered in Q4 due to editorial enhancements, we chose to make.
<unk> films, representing over $1 $5 million of combined revenue closed during the first week of the fourth quarter.
With 100% of revenue committed we are thrilled to reaffirm our 2021 annual revenue guidance of $71 million, which.
<unk> again, approximately 80% year over year growth.
We reported another great quarter in our direct to consumer business with 50% year over year increase in DTC subscribers, marking the 11th straight quarter of at least 50% DTC subscriber growth.
The fundamentals of our direct consumer business remained exceptionally strong during the third quarter with the lowest churn in the company's history and.
And a second consecutive quarter over quarter increase in average revenue per user.
The sequential improvement in <unk> was driven by a lower percentage of subscribers on promotional pricing plans, we see potential for accelerated <unk> growth driven by additional innovative service hearing as we expand our partnerships and deploy our unique offerings such as one day universities lectures and events with.
With more subscribers adopt standard and premium tier subscriptions.
And these service line extensions, we expect ARPA growth to become an increasingly significant driver of our topline growth.
Okay.
Our content licensing business with them was another highlight of the quarter with sales of nearly $6 million up from less than 50000, a year ago factual content travels well internationally and these agreements allow us to capitalize on the demand in markets, where we have yet to establish a significant direct to consumer offering the rates we saw.
License to third parties in foreign territories under pre sales contracts.
Back to us after the term of the contract.
And due to the largely evergreen nature effectual content, we expect the titles we license under pre sales agreements to retain significant economic value at the end of the contract period, which is not reflected in our GAAP accounting.
Our pipeline of pre sales agreements was strong and provides a solid foundation of revenue in the coming quarters.
During the quarter, we entered into a number and variety of distribution partnerships, including a multi year distribution agreement procured kiosk the stream of <unk> TV to which their subscribers gained access to a linear channel and Vod service.
During the quarter, we premiered more of our growing slate of Tentpole originals.
We started investing in these projects more heavily last year and our investments are beginning to bear real fruit.
In July we premiered rescued chimpanzees of the Congo with Jane Goodall.
Groundbreaking five part series filmed over several years that offered unprecedented access to the rehabilitation of orphan chimpanzees struggling to return to the wild.
That was followed by the global premiere of secrets to civilization and epic three part original series about the astonishing new links scientists have uncovered between our planet's ever changing climate in the fortunes and misfortunes of humankind from the bronze age to the collapse of the Roman Empire.
And the Premier of our acclaimed feature dark of all gripping 90 minute profile of Hollywood actor turn soldier, Michael <unk>, who gave up everything to joint Kurdish forces and their brutal struggled through the feed Isis in Syria.
Throughout the quarter. We also continued to deliver strong slate of cutting edge science and technology programming include.
Including the three part mini series becoming margin.
Which chronicles humanities long and surprising journey to the customer of reaching Mars.
And multiple new episodes of our timely and highly successful science and Tech strand breakthrough, including Egypt lost city voyage to Venus and secrets of the dog's nose.
We also premiered four more episodes of faster, our corky and irreverent original series explores the elaborate tools such as the barcode. This washer disposable cup and microwave with humans are developed to try to save time and are mindboggling repercussions those inventions end up having in our everyday existence.
And we premiered season four butterfly effect.
Which is a spectacular reenactments mind-blowing videogame inspired CGI to show has some of the tiniest events in human history.
We have transformed the entire course of human history from the invention of electricity to the discovery of quantum physics.
We're always looking for creative ways to further extend our leadership in the factual category, which is why we were thrilled last quarter to announce a landmark agreement with nebula.
World's largest create around streaming and technology platform we.
We are nevertheless share a focus on entertaining informative highly engaging content and is partnered and strategic and marketing arrangement since <unk> inception.
With over 140 active creators, who together have over 120 million collective Youtube subscribers nebulous grown to more than 350000 paying subscribers in less than two years.
This landmark deal enhances our long standing strategic partnership while affording us the opportunity to.
Help accelerate nebulous growth through financial investment in the company.
The investment will enable <unk> to more rapidly build new product features launched new business lines for creators and market the nebula platform to new audiences.
We believe additional opportunities like accelerated subscription growth, new and larger sponsorship agreements and meaningful commerce.
Where possible because of the authenticity credibility and legitimacy of the nebula creators.
Through our investment, which values nebula in excess of $50 million, we will attain a significant minority position as well as board representation Nebula will continue to be run by Dave <unk> CEO parent company standard we've.
We believe <unk> only scratched the surface of its long term growth potential.
It is curiosity stream shareholders, we're thrilled by the opportunity to share a nebulous success through our ownership position in the company.
In summary, we're pleased to announce another strong quarter with 100% visibility into our full year revenue guidance of $71 million.
The right strategy the right people in place we look forward to continued success now and in the coming years.
I'd like to turn the presentation over to our CFO, Jason used us for some financial highlights.
Thanks, Glenn I'm also excited to announce another strong quarter with 100% of our fiscal 'twenty, one revenue guidance of $71 million now committed our subscription businesses grew at strong double digit rates during the quarter and we delivered nearly $6 million of licensing revenue.
Our investments in growth are paying off and we continue to find attractive opportunities to prudently deploy our shareholders' capital.
Now, let's review the third quarter financials curiosity streams Q3, 'twenty, one revenues grew 114% to $18 7 million up from $8 7 million in Q3 of 2020.
The revenue increase was led by program sales licensing and direct to consumer sales, which grew over 50% at stable customer acquisition costs.
As Clint mentioned, we recognized $1 5 million of revenue during the first week of the fourth quarter from pre sales agreements, we would expect it to close during the third quarter. The timing of film productions can be difficult to predict and it's not uncommon for final delivery dates to shift by a week or two.
We provide annual guidance rather than quarterly guidance in part to limit timing constraints that could pose a risk to production quality.
That being said we have only included in our full year 'twenty, one revenue guidance pre sales agreements with expected delivery dates no later than mid December to limit the potential for ordinary course of production delays to impact our ability to meet or exceed our guidance.
Advertising and marketing expenses were $9 3 million compared to $7 8 million in Q3 of 20 <unk>.
Advertising and marketing came in at approximately $3 million below budget for the quarter.
While we continue to find opportunities to invest in advertising and marketing dollars at attractive customer acquisition costs. During the third quarter will be reallocated a portion of our third quarter budget into the fourth quarter at a time when our marketing activity has traditionally been most active we now expect to invest $18 million in advertising and marketing during the fourth quarter.
As we believe the holiday season excuse me at the holiday season will afford us the opportunity to drive subscriber growth.
Cost of revenue was $9 6 million or 51% of revenue compared to 39% of revenue in Q3 of 2020, an increase of 12 percentage points on a year over year basis.
As a result, Q3 gross margin was 49% compared to 61% in Q3 of 2020.
While lower on a year over year basis gross margin exceeded our expectations due to a higher than expected mix of content licensing deals relative to pre sales agreements within program sales due to some pre sale deliveries slipping into Q4, we now expect full year gross margins in the mid Forty's.
Curiosity streams overall operating expenses were about $17 4 million compared with $12. One in Q3 of 'twenty.
Third quarter, EBITDA loss of $8 million compared to an EBITDA loss of $6 seven last year was due to higher G&A costs associated with being a public company.
Increased investment in human capital, particularly in the product and technology and increased marketing investment.
We are on track with our plans for 2021 to deliver $71 million in revenue with a 100% of the revenue committed and.
And now I'll turn the turn it back over to Clint and open the lineup for questions.
Yes.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Tom Forte with D. A Davidson your line is open.
Great one question and one follow up.
On the production side.
Disney has talked a lot about how.
The delta very into the Covid variance have slowed their production.
I know you talked about the Lumpiness and you talked about something falling into the fourth quarter versus the third quarter, but generally speaking can you talk about your production if you're.
It all slowed by the Delta various COVID-19 variance.
It's a great question, Tom Thank you for asking that.
Yes, I would say that throughout Covid, we premiered programming nearly every week and with some of our.
Some of our best ever original content coming out now and in through the end of the year content like evolved with Patrick <unk>, who we believe to be the next David Attenborough and that was a that was a series that was shot on multiple continents.
And obviously multiple countries as well and so we were able to navigate through that.
Recently launched a beautiful series called.
The Royals.
<unk>.
We were able to.
We were able to use I think extraordinary historical footage in there and we have stories that had never been told.
In a way that I think kind of demonstrates it.
One way to kind of navigate COVID-19 and some of the challenges around shooting, but yes.
We'll end the year with.
Our content and AR.
Than we've ever had as I mentioned, we have now 5000 titles under contract or license not all of which are owned curiosity stream today, but we have volume and we have quality and we're delighted that we were able to maintain that through this period.
Are we are we recognize where long term focus we recognize the long term is a series of short term shares of short terms, but as it relates to content.
Our intent is always to create the best possible.
Programming that we can create and.
If it means that something might slip from second group third quarter third quarter to fourth quarter, we're going to we're going to cite on the.
We're going to side on the on the side of editorial quality.
Thats why we have a great comfort in our annual guidance.
And our our quarters can be.
A little bit lumpy in light of that does that answer your question Tom.
Yes, thanks, Glenn so im trying to draw a trend from one acquisition, one day University and one investment and nebula at two businesses that have subscription models and content. So.
How would you describe your overall M&A strategy and how do you look at additional opportunities going forward.
I think our M&A strategy to date has been.
To acquire companies with.
Complementary factual content and comps.
Companies that can enable us to grow revenue and grow subscribers. So.
In the case of Nebula.
Is right at the center of the creator economy.
Thank you.
We've seen a number of.
<unk>.
We've seen a fair bit of M&A activity, there recently right with the.
Moon Bug as an example that was recently valued at $3 billion.
$3 billion in this last round and so.
It can be a challenge too.
Aligned with a.
With the creator organization for a variety of reasons and Jason Keller.
Found that out.
When he tried to do that with the vessel but.
As it relates to as it relates to nebula, they're an excellent marketing partner of us of ours, because they give us.
They give us a straight line into a younger demographic.
And then the case of one day you.
That's that area is a little bit older.
Complements our traditional entertainment with.
With with with courses of the highest quality from the highest professors around the around the around the country around North America, and then look we just we just love.
We love Nebula, and we had.
Like one day, you we had experience in working with them, whether it was with Wendover real life lore, muster legal eagle or Mark has ground lease or.
Great.
Great creators and what they call kind of the.
Educationally area Science technology history food.
<unk> plump smack in.
And our.
In our category, but obviously, it's highly engaging content that's produced by.
A younger group.
Great.
Your next question comes from Peter Henderson with Bank of America. Your line is open.
Hi, and thank you for taking the question. So just wanted to ask on subscriber growth a little bit. It appears that there was very little subscriber growth in the third quarter and it seems to extended trend coming in from the second quarter, which benefited from the Spiegel deal but.
The DTC side I'm, just curious like what do you think you can do I mean, obviously I know you're going to increase marketing spend what do you think you can do to really reignite that sort of growth and also curious on the marketing spend was the decision to reduce marketing spend in <unk> result of trends you saw during that quarter.
And just made a calculation that.
Better to spend that in the holiday period.
And then I just have one quick follow up.
Yes, let me take the first part of that and then ill yield adjacent Devin, but so in total direct subscribers grew significantly in third quarter, while the total paying remained.
At the $20 million level that was due to rounding.
And it's also due to.
Sure.
What are the dynamics around some of our larger bundled international partners. So.
As our.
We have certain international partners.
Lots of.
With lots of video subscribers, who actually lost video customers in Q3, but as our revenue demonstrates we are largely insulated from those swings as most of our agreements are fixed or fixed fee plus.
I think if you look at as an industry example, we've seen U S distributors in the last few weeks report video sub losses as high as four to 500000 subscribers for the last quarter. We don't have bundled agreements with these U S distributors, but I'm, just kind of citing them to illustrate the point Peter we have international partners, who are experiencing similar losses to their video tier.
<unk>, which impacts our total reported number but despite this dynamic we are on pace to report meaningful increases to all of our sub buckets by yearend.
That includes direct bundled in bulk and yes as to the marketing decision.
We know what's possible in the fourth quarter.
Based on our based on our experience.
And.
Based on <unk>.
Work that we're doing with certain partners that it makes a lot more sense to put more money to work in the fourth quarter.
That's great I mean, I guess could you just talk a little bit about trends youre seeing thus far in fourth quarter I know, it's obviously going to be very back half weighted.
Any color you can provide on trends through October or November.
On the subscriber side, yes, I mean look we're.
And quarter over quarter revenue increases across all of our all of our lines.
And obviously that includes cloud subscribers includes licensing includes bulk subscription and even includes.
Meaningful quarter of sponsorship as it relates to.
Different dynamics that we're seeing in Q4.
I mean, it's continued strong DTC growth quarter over quarter, just like we said in the earlier in the call on the DTC side of the business has been growing quarter over quarter for the last seven quarters consecutively. So that continues to not continues.
<unk> continues to grow very strongly for us and we don't see that slowing down in fourth quarter.
Okay, great. Thank you.
As a reminder, if you'd like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
And your next question comes from <unk> with Jpmorgan. Your line is open.
Hi, Thank you I just had a quick follow up on the bundled subscribers I was wondering if you could talk a little bit about the pace of those negotiations with your partners do you still see more opportunity to grow the bundled subscriber base both in the U S and internationally.
On my second question would be I know it might be too early to guide 2022, but I was wondering.
Out of your revenue stream.
Would you think the biggest growth drivers would be thank you.
Yes.
Thanks, Neil I'll take the first part this is Glenn as it relates to the pacing of our bundled distribution agreements.
Pacing has suffered really due to our inability to travel internationally.
It's just it's hard to get around that when you have a relatively new service like ours communicated.
In person.
It's extraordinarily difficult today to do that with Covid. So I think you're pacing is absolutely slowed as a result of that we have.
Great confidence in our ability to grow.
The bundled.
Subscribers and we think based on.
Success stories that we've developed over this year and.
And through the back half of last year, we like our hand going into next year with those with those partners.
There are a lot of deals that are available to us.
It's important to us to do the right deals.
Those that are sustainable and that will lead to.
Really meaningful engaged subscriber growth.
Second part the second part of your question.
The DTC would probably be the biggest piece as far as where we see the strongest growth coming out of this year going into next year and then we'll provide guidance on 'twenty two with them.
The first part of 'twenty, two when we had our fourth quarter call.
Yes.
Yeah.
Again, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad, we'll pause for just a few moments to compile any remaining questions.
And we do have a question from Tim <unk> with D. A Davidson. Please go ahead.
Great. Thanks, I had a follow up question. So clearly you've talked before about examples of content you've had on the platform that wasn't necessarily exclusive but the way you presented it.
Drove a lot of audience skews I am taking a crash course biology as an example, I don't know if that is an example, but can you give a couple of examples like that.
<unk> had content that isn't necessarily exclusive to your platform, but you are able to draw a lot of audience use for it.
I'd be happy to and the good news is have Devin here and I'll have him I'll have him supplement Tom but.
Crash course has.
Been a gift that keeps on giving so beyond crashed.
Crash course biology, we a crash course literature with crash course World history crashed horse European history continues to deliver in a really really.
Meaningful way and so when we can find content like that.
That has some recognition that that hasnt audience.
No.
We'll be aggressive in kind of curating that for curiosity stream 70 in some other examples you'd like to point to yes, I think the thing to keep in mind is that we're building a product that becomes the default 21 factual content right and so obviously, we have our tentpole original programming that you can only get on our service, but then we're also building in the best way.
To watch content that might not be exclusive to our service, but it is a better way to to watch it.
Say crash course again right. If you want to get that you can get that on Youtube. It is a hassle to watch all of that obviously the huge of AD load is extremely high.
Play listing and to be able to find the next episode is quite difficult and if you watched our curiosity extreme none of those are issues for us.
So there is plenty of content.
Dave Rubenstein talks there is <unk>.
And venture awards, there is a lot of content that we can create a much better experience around viewing then you can get on other platforms, where they might be available. So that as a strong strategy for us is going to be continued strategy for us is very complementary to our original exclusive content.
Great. Thanks for taking my follow up question.
Thank you Tom.
There are no further questions at this time. This does conclude today's conference call. Thank you for your participation and you may now disconnect.
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