Q3 2021 Chicken Soup for The Soul Entertainment Inc Earnings Call
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Good day, and thank you for standing by welcome to the chicken soup for the Soul Entertainment third quarter 2021 earnings call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
So ask a question during the session you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today say like cross Jake from Ellipsis IR. Please go ahead Sir.
Thank you operator and welcome.
With me on the call today are William J, with Hana, Chairman and Chief Executive Officer, and Chris Mitchell, Chief Financial Officer to review the third quarter 2021 results as well as provide a business update.
Following this discussion there will be a moderated Q&A session open to the participants on this 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.
Forward looking statements are 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 to differ materially from 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 text regarding forward looking statements contained in the earnings release, which also applies to the content of this call.
Additional risk disclosures can be found in the company's filings with the Securities and Exchange Commission.
On today's call management will make comments on certain GAAP based and non-GAAP pro forma financial information.
Non-GAAP financial measure the company uses is adjusted EBITDA.
Management believes that adjusted EBITDA provides useful information in that it excludes amounts that are not indicative of the company's core operating results and ongoing operations and provides a more consistent basis for comparison between periods.
The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is the most direct comparable GAAP measure.
For further information regarding the company's historical financial performance, we refer you to our filings with the SEC, including our report on Form 10-Q for the quarter ended September 32021, which was filed today.
I would now like to turn the call over to William Hanna Chairman and CEO Bill. Please go ahead.
Thank you Taylor and good afternoon, and welcome to our third quarter 2021 earnings call.
I am going to provide some highlights from the quarter and update on our progress our overall strategy as well as details on some key areas of focus as we head into the final quarter of the year.
Chris will then do a deeper dive into our financials.
We delivered a strong quarter with record all time revenue in the second best adjusted EBITDA performance in our history.
In this case I like second best because we're about to enter our seasonally strongest quarter Q4.
Our results show that our momentum is continuing to build and that our strategy is working.
It's borne out across our strategic initiatives from the differentiated programming, we are delivering through both our original and exclusive in.
And our rapidly growing library.
Two our growth in viewership driven by rapid expansion of our network distribution to the innovative formats, we are delivering to advertisers and finally, our execution on improving our technology, which we believe is also helping improve viewership.
I'll talk about all of this progress we have made it a bit more detail, but before I do I want to mention that our momentum has so far continued into the fourth quarter and.
And financially we're poised to deliver an excellent finish to the year.
We're also accelerating our growth strategy as illustrated by several important announcements we've made in the last couple of days.
And these include the launch of the chicken soup for the soul streaming service.
The.
Our launch of our chicken soup for the Soul television group, which consolidates, our studio and distribution activities under the leadership of David Hollander.
<unk> locomotive, our recently acquired company in India.
And the retention of Michael Solomon prolific global TV distribution executive who is joining us as a strategic adviser and building our business.
Additionally, since quarter end, we've completed the rollout of the new popcorn flex App on all services.
But more about that later.
We're very excited that we can about what we can achieve as we look to 2022 and beyond but first let's review what's got us here.
Third quarter net revenue was $29 1 million up approximately 50% on a year over year basis, and 34% on a sequential quarterly basis.
Earlier this year, we moved to reporting on a net basis and while we're not calling out that adjustment regularly I do want to mention that this quarter. Our gross revenue figure was $29 6 million, which was in line with expectations.
This record revenue for our company and I believe that and I believe this is record revenue for our company, sorry, and I believe that our <unk>.
Approaching $30 million of revenue in a quarter that is usually seasonally weaker bodes well for our future revenue potential.
Revenue is being driven by continued AD inventory sellout supported by strong demand for our original content and coupled with our growing content library.
Adjusted EBITDA was $4 9 million up 17% year over year, reflecting the increasing scale of our business and our cost efficient cost efficient production and distribution model.
Which we believe will continue to drive margin expansion over time.
This quarter's performance is especially noteworthy in light of the adjusted EBITDA impacts of the significant investments we have made in expanding our streaming service distribution and creating our new tech platforms.
These investments are clearly driving results and we expect to continue reaping the benefits of them.
Overall this record quarter puts us on track to meet our full year revenue target with our seasonally.
Largest quarter is still to come in Q4.
Looking at our Crackle plus networks recent research from Qantar shows that crackle viewer penetration increased in Q3 to four 5% of households.
While overall industry penetration decreased and further that our viewers share compares favorably with a number of subscription streamers like ESPN plus in discovery plus.
Four 5% may not sound like much to you, but you might and you might be surprised that Josh just watch indicates that Apple TV has 4% penetration and Showtime 2%.
I've said, many times that Eva can convene compete with asphalt services and that we are working to build the best Dave that when.
When third parties are comparing our metrics to asphalt offerings I consider that a good sign.
We think Thats a testament to three things first the power of our original and exclusive content.
The hard work, we've done to increase our distribution touch points, which as of this quarter had increased by yet another 13 touch points and we are averaging about 445000, new monthly active viewers per touch point and.
And third the launch of our new user interfaces for popcorn flex and Crackle, which qantar pointed out has already caused viewers to notice our improved ease of use and quality.
Resulting in an increase of almost 66% in our net promoter score in Q3.
In fact, our total AUM.
Owned and operated monthly active viewers were up 33% from a year ago. Thanks to additional viewers from new touch points.
The recent launch of our new Crackle platform on Vizio, Smart Tvs, which will rollout to many of our other distribution touch points over the coming year has started well.
The old Vizio App contributed nine 9% of our overall crackle viewership new Vizio App contributes 13, 9% of overall viewership.
A 40% increase.
Successful video playback increased.
On Vizio from 83, 5% to 96%. This provides approximately a 15% lift in viewership in all situations.
It also makes our marketing campaigns, 15% more impactful inefficient.
Maybe I'll start times improved 42% as a result of the new Vizio app dropping to four four seconds from 7.6 seconds and it's even better on newer vizio models.
Early data shows that the upward trajectory trajectory is accelerating in the fourth quarter, all of which bodes well for our goal of increasing overall viewer time meaningfully from our new user interface.
The relaunch of popcorn flex with the new book improved user experience and a ramp up in exclusive action adventure content has also gone well.
Popcorn Flex is now available on fire, TV, and Apple TV, Roku, Android iOS and other platforms with enhanced App features new search functionality.
And navigation service side AD insertion and improved playback performance.
The new popcorn Flex is also off to a great start with fewer engagement up approximately 50% in September.
In addition to these developments the launch of our chicken soup for the soul streaming service has begun.
This moment has been a long time coming for our company.
New streaming service features a robust collection of the best in home content that typically appeals to a female audience, including a significant portion of content acquired through the sonar acquisition as well as classic award winning content that we've been creating for years of chicken soup for the soul.
We've launched the network as a fast channel.
Ahead of our full Vod launch scheduled for December on Vizio.
And as illustrated in our press announcements I'm, especially pleased with the strong support from the broad group of partners, who are getting behind this new streaming service with us.
Underpinning the success of all our networks is and will continue to be our differentiated content.
In Q3, we continued to deliver new original and exclusive titles and to grow our library.
Our new original and exclusive content continues to generate a significant portion of overall AD impressions and because we do not have to pay Rev share on this content will also positively impact our profit margins over time.
For this reason among many others. We're excited about the progress that we've made ingesting the sonar content onto our network since the acquisition.
Content has been performing extremely well and driving significant AD impressions. In fact with the addition of sonar is content, we've already surpassed our year end original and exclusive AD impression target, which was 20% hitting.
Hitting 22% in September.
One early example of content success in this area is taboo.
FX series that successfully premiered exclusively on crackle in September and has been seeing strong initial performance is the number one.
Content on several of our fast channels.
Also the Temptations, which is a two part many series and the first piece of content from sonar to migrate over to Crackle has also seen initial success after shooting to number one on the Crackle network in its first three weeks.
So, let's turn to our coming attractions.
As I've noted on previous calls our plan is to rollout a new piece of original and exclusive content every week in 2022.
And we remain on track to meet that goal.
We provide this content to all three of our streaming services. In fact, we are already making this move on popcorn flex, having just announced the rollout of the first original and exclusive program for that streaming service and action packed original documentary Hollywood Bulldogs.
The story of British stunt performers, who dominated Hollywood in the Seventy's and Eighty's.
In addition screen media has acquired several star studded films over the last few months.
Ryan Wilson, a deeply personal documentary about the genius behind the Beach boys at Premier to rave reviews of the 2021 Tribeca Film Festival.
<unk> features an original song by Wilson for the film along with interviews from Bruce Springsteen Elton John in more.
And most recently fast Charlie thriller starring Pierce Brosnan, and directed by Philip Noyce, who directed salt and clear and present danger among other great action films.
The story of Charlie Swift, who has worked for an aging mob boss stand for 20 years.
And as skillfully operating as a prolific fixer and efficient hit man.
Incidentally.
At the AFM, we laid off about 75% of the cost of that film and five days and foreign pre sales.
Our continued focus on delivering compelling content combined with our growing viewership continues to drive strong interest from our advertisers with our ads once again sold out in the third quarter.
As you know we believe to build the best day that we need to enhance the mix of ads over time in.
And then create a combination of today's AD formats with integrations sponsorships and interactive ads.
We believe that this approach will generate more revenue and result in a better user experience in.
In Q3, we had yet another two examples of our innovative integrations with the General insurance Company, which was featured in 10 episodes of inside the Black box and Verizon, which is integrated into three episodes of smart home nation.
Our partners are thrilled with our increased ability to target specific audiences to present, the benefits that they provide to customers in real life stories.
We are now in conversations with a growing number of advertisers on integration and sponsor opportunities that can increase their visibility with the right audiences. While also creating a more seamless experience for our viewers.
As we look to the future international growth is a huge huge opportunity for us.
And we believe we now have the assets to execute on that opportunity.
Following the announcement of our partnership with Couchette in Israel in August, which gives us an opportunity to build our streaming services in that market in late October we announced we acquired a majority stake locomotive global which currently produces series for Netflix and other premium platforms in India.
India is a priority market for us given its size and the awareness of the chicken soup for the soul brand in that market.
Locomotive has built a great business in India and has a keen eye for programming that resonates with local audiences.
The acquisition gives us a profitable base to enter this key country.
We expect there will be much more coming in terms of international rollout in the next few months.
Our new television group, which is headed by David <unk>. The former CEO of Fremantle is also a key piece of all of our overall ambitions.
New television group consolidates, our television studio activity activities, including Halcyon, which was formed from the somewhat sonar acquisition Landmark studios, the aforementioned locomotive and chicken soup for the Soul Studios under one group.
Under David's leadership, we will focus on expanding our original TV content development pipeline, increasing our IP rights ownership.
<unk> the launch of additional net networks and accelerating international expansion, which is a particular strength of davids.
In order to further bolster our domestic and international PV efforts. We also added one more member to our team as I touched on earlier.
The addition of Michael Solomon as a strategic advisor provides us access to one of the most highly accomplished television production and distribution executives in the history of our business.
He will assist us in programming library acquisitions co production financing and sales and international joint ventures among other activities.
We expect that he will be an invaluable resource as we execute on our global <unk> rollout.
Looking ahead, we feel great about Q4, and our output outlook for the full year and we're already preparing for a much bigger 2022.
We've made tremendous strides this year, increasing viewership building advertising relationships, improving our viewer experience and growing our content asset and production output.
And we've positioned the company to begin executing on an exciting international growth opportunity.
Finally, we strengthened our balance sheet, enabling us to better deploy our deal making capabilities to further supplement organic growth.
As we've shown with crackle plus.
His screen media sonar and most recently locomotive.
Our adept at expanding our capabilities content in viewership through thoughtful acquisitions and partnerships that make strategic and economic sense.
We've also showed that the confidence we have in our business announcing today that our board authorized a $10 million common stock buyback.
With that I'd like to thank the chicken soup for the solid team once again for all their hard work and I will turn this over to Chris who will give additional details on the financials Chris.
Thank you Bill.
As you've already heard our operational highlights I will focus on a review of our financial results and balance sheet.
Our financial results for the third quarter of 2021 reflect further execution on our key growth initiatives, which positioned us to further build on the momentum we achieved in the first half of the year.
Starting with the results for the third quarter, we reported net revenue of $29 1 million compared to $19 4 million.
Third quarter of the prior year.
For an increase of $9 7 million or roughly 50% year over year.
This year over year increase in net revenue was primarily driven by an increase in licensing and AD sales.
Gross revenue for the third quarter was $29 6 million.
For the fourth consecutive quarter, we sold virtually all of our advertising inventory.
Strong viewership in high quality content continue to attract advertisers and we're seeing larger commitments than ever before while growing existing.
Some relationships and building new ones.
Additionally, we launched our new chicken soup for the soul Avon.
It will expand our newer demographic, even further and provide yet another avenue for advertising revenue.
AD revenue was driven by further expansion of our original and exclusive content offerings, coupled with the continued innovation and enhancements we've made to the overall ad experience.
Gross profit for the third quarter, 2021 was $6 2 million or 21% of net revenue.
This compares to $4 5 million in the same period prior year or 23% of net revenue.
Gross margin in the quarter reflects a higher level of distributions in streaming revenue and the significant investments in technology to launch the two new streaming platforms. In addition to the ingestion of the sonar content onto crackle.
As Bill mentioned, our sonar related content has already begun to contribute meaningfully to the increase in original and exclusive as a percentage of total AD impressions in the third quarter.
Each will translate into improved gross margins over time.
Operating loss for the third quarter 2021 was $13 3 million compared to an operating loss of $11 3 million in the year ago period.
In order to position us for accelerating growth in 2022, we deliberately ramped up investments in technology, which I outlined earlier.
And invested significantly in technology focused employees to improve our streaming apps.
Further investment spending was in the further investment spending was in the areas of marketing, including spend on the Vizio button, which we believe will drive benefits over an extended period of time and content acquisition to drive viewership.
We also made hires in other areas of the business outside of tech to support growth.
And we expanded our stock option plan to incentivize and reward our employees, which increased non cash stock compensation by $3 1 million in the quarter.
Even though we invested more in technology employee compensation marketing and content, we were still able to bring down operating expenses as a percentage of net revenue to 67% in the third quarter versus 82% in the year ago period.
Our adjusted EBITDA for the third quarter was $4 9 million compared to $4 2 million in the same period last year.
Year over year increase of roughly 17%.
The year over year increase reflects the increasing scale of our business.
And our cost efficient production and distribution model.
Which as Bill mentioned, we believe will drive margin expansion over time.
Looking at our balance sheet and liquidity position as of September 32021, the company had cash and cash equivalents of $66 9 million compared to $18 4 million at the end of the second quarter of 2021.
At $9 2 million at the end of the year ago period.
Please note the closing of our common stock offering in July of 2021, which provides us with $75 million in gross proceeds.
We are pleased with our enhanced liquidity position, which provides us greater flexibility to pursue attractive growth opportunities.
<unk> and disciplined way.
Additionally, the company's board of directors today approved a two year authorization for the repurchase of up to $10 million chicken soup for the soul Entertainment common stock.
The company anticipates that repurchase activity would be conducted opportunistically in open market transactions.
The size of the authorization is intended to indicate the board's view of the value that the company is creating as demonstrated by our financial results and strategic execution. While also ensuring the company maintains capital flexibility to continue investing in high return initiatives.
Organically.
And through value enhancing acquisitions and partnerships.
In closing.
We're pleased with the continued momentum we saw in our business in the third quarter and excited about the opportunities we see to build upon that momentum as the final quarter of the year unfolds.
We've got the key pieces in place that will enable us to utilize our new content and production capabilities and accelerate our international expansion, which we expect will contribute to our financial results in increasingly meaningful way as they develop additionally.
Additionally, we focused on growing viewership and streaming revenue.
Initiatives aimed at growing and enhancing content to drive viewership and improve the user experience and platform growing.
Growing distribution of our streaming networks in pursuing larger and more innovative AD formats and marketing partnerships that will help drive higher margins over time.
With all of these initiatives in place that continue to gain traction and enhanced platform and a strengthened balance sheet and liquidity. We are confident in the growth that lies ahead.
And as we work to capture that growth, we will continue to benefit from the integration of all aspects of our business, while managing expenses and risk in a disciplined way with an eye on improving cash flow and profitability.
With that thank you for joining the call I'll now turn it back over to Bill.
Alright, operator, we will take questions.
Thank you.
To ask a question you will need to press star one on your telephone.
Draw your question press the pound key.
<unk> wanted to compile the Q&A roster.
Your first question comes from the line of Dan <unk> from Benchmark Company. Your line is now open.
Great. Thanks.
Good afternoon, Bill just two questions.
First I know that you went out of your way to say Q4 performing nicely can you just talk about that.
And some of the diversified upfront dollars getting pushed out of Q4 into Q1, So just any thoughts there and then international.
Continue to build out and really by network maybe.
Maybe you can just look at this every call, but maybe you can just help us sort of frame timing.
Timing of investments against when do we start to see some of the revenue coming in and how material do you think that yet.
I'll say this time next year. Thanks.
I think I heard everything you said, Dan It seemed like you broke up a little bit on the first question.
You asked me whether some advertising is moving from Q4 to Q1 is that what you asked me and the first question I was just asking if you saw any noise with some of the powers that the diversified.
Now, we're not seeing any any of that.
I don't know if others are but we are.
We're continuing to see.
Really strong demand in Q4.
We will be we'll be we'll be way sold out again.
But no no real sign of anybody differing at least not from what we've seen I gather.
I've been asked this question in a different context.
Because some of the advertisers may be having trouble because they have supply chain issues, but we just haven't seen it just hasnt impacted us yet at all.
As far as international goes.
This is.
This is developing more quickly than I expected it to.
Okay.
We're in the middle of conversations.
Very advanced conversations for multiple territories.
Around the world with meaningful companies and to be joint venture partners.
The.
The locomotive transaction will generate revenue.
Some in Q4, and then a considerable amount next year.
We like entering a market with make making money you know how I am I like to make money.
As we're growing things.
And that transaction is going to be accretive.
<unk>.
Immediately really.
So.
I'm not quite ready Dan yet to give you a real.
Complete view of next year or.
The international part of next year I wanted to see I wanted to pin down a couple of these conversations we have going on.
And if it falls into place, but I hope. It will then it would be a pretty important part of next year.
There's no question. This is a very big opportunity and it's going very well.
So there'll be more there'll be more to talk about in the next little bit of time I would say.
Alright, great. Thanks Bill.
Your next question comes from the line of pharma Forte from D. A Davidson your line is now open.
So three questions. So bill first off you sound very excited with good reasons I'm glad to hear that.
So the first question as well.
We will go with baseball analogy.
What inning are you in an improving your AD tech.
Okay.
One.
Yes.
Okay fair enough.
Second.
Don't want to make any assumptions, but I was curious given that's another hot topic for digital advertising.
Are you at all impacted by Apple and Apple's efforts to focus on consumer privacy.
Yes, not that we've seen Tom.
It.
We.
I mean, most of most of where are we.
Mostly where we interact with consumers and connected televisions.
There's been no impact that we've seen from Apple on that.
So I'd say no not really.
It Hasnt had any impact so far.
Alright, Great and then last question. This is somewhat of a point of clarification. It sounds like you said youre not seeing any neck.
Negative impact as it pertains to supply chain and advertising, meaning advertisers, who are having hard time getting products are scaling back their ad spend.
One thing Roku mentioned.
The.
The inflation in prices for TV, and then also supply chain issues for televisions, we are having a negative impact on roku.
So.
That having any impact on you recognizing what you just said about supply chain and advertisers.
Our inflation and TV prices.
<unk> supply chain issues that may limit production of Tvs, having any impact on you.
No not that I've seen.
I am aware of what Roku said.
I'm not entirely sure I understood it but.
For us we're not in the equipment business at all so that would be no.
<unk> supply chain with directly affect us it could have affected it might have affected some of our advertisers, but if you look at who advertise with us primarily.
Thats fair.
Fair a fair a large amount of it is health care kind of companies insurance companies digital companies.
And they they don't really have supply chain issues.
Of their own.
Pharma not really.
Digital companies, obviously not.
So I don't we haven't seen this we haven't seen advertiser pullback.
You may recall from the last the last quarterly report that we've added a pretty diverse group now of advertisers through the upfront.
So that.
Our top.
'twenty, one or so advertisers really are they come from a whole variety of industries.
So there may be there may be some impact that I haven't seen yet and maybe in the in the auto guys, but theyre not a huge theyre not a huge part we're very very diversified in our advertising base.
There's very very little dependence on any one group of companies and one part of our.
The.
As the ecosystem so.
Seen.
Actually nothing other than increased demand.
Higher price.
Higher CPM prices.
I haven't seen a haven't seen any I was actually kind.
Kind of surprised by Roku is comment and tell you the truth.
But maybe it's just there they were talking about there.
Their equipment.
And I guess theyre in the TV business to now so.
Puts them in their supply chain of the sort.
So at that time, we just haven't seen it.
Good.
Thanks for taking my questions Bill.
Thank you.
Your next question comes from the line of Michael Morris from Guggenheim. Your line is now open.
Thank you very much good afternoon, guys a couple questions.
First you mentioned or referenced this growth in original and exclusive content to 22% of the AD impressions.
And I'm curious if you can help us at all kind of size how big this portion of your business can be over time, and maybe give us some perspective on the relative advantage of.
The economic impact of.
This.
Exclusive inventory compelling compared your inventory overall.
And I guess, maybe along those lines you've announced that you've made these structural changes in terms of.
<unk> of your TV production business and I'm curious if you can share anything about what do you think that means for volume of production or efficiency as you look forward.
Or do you expect to see the biggest impact.
From that change thanks, a lot.
By the way Mike welcome.
Thank you for this is your first call so well get through it okay I.
I appreciate it.
So original and exclusive.
In the ideal World, Mike One day.
Virtually everything on our networks, we alone will either have created it or will own the libraries.
I think MGM Amazon.
That's really what that transaction was about.
How do we own the content that's on our networks rather than.
Pay a rev share.
That runs that runs typically 50% of every dollar that comes into your network to producers when you're when you're borrowing their content the way a rev share as designed.
And we.
<unk> prefer the idea of original and exclusive content.
And owned library, because it changes the economic model dramatically and that 50% Rev share that you don't have to pay.
You can use as we did this past quarter too.
To ramp up marketing increase your tech expenditures more quickly rollout your new platforms than we had anticipated and still have a positive adjusted EBITDA.
To me that's really the magic of what we're trying to do shift those costs out of the content line and over two.
Things that will grow the business.
In a different way.
I do think it's certainly not getting to a 100% ever because we'll always like an all in all of the network businesses. As you as you library is effectively fungible, but theres always going to be content, that's sort of the top layer, where you do need to have.
Access to what you might call hits and I Hope, we'll make some I'm guessing with 52, new originals and exclusives next year, we have a shot.
At our house of cards moment, but who knows.
But we but we will always I'm sure want to buy up at occasional big Big show. We have a couple of these conversations going on now that are pretty exciting that could really help drive viewership going forward.
But we want to kind of steadily move towards.
As high a number as humanly possible and it'll be a very high number.
What I'm happy about in particular is that we set a goal this year of 20% original exclusives.
When you take into account the sonar transaction, which.
As everybody people, who have heard me speak about this before I know that I said one of the reasons. We wanted to buy sonar was to ingest that content. So that we owned.
<unk>.
More of the content in our library, not just the original and exclusive and sure enough. This has worked exactly as we hoped we've taken we've ingested the sonar library.
Immediately.
We've seen that we've jumped passed our goal already to 22%.
<unk>.
Exclusive content when you take the sonar library into account.
And so it's going to pay off and as we continue to adjust more of it that number should go up and it should be further enhanced by an increasing number of original and exclusive programs that we.
Either acquire through screen media or create through the chicken soup for the soul television group, which is the segue to the second question you asked which is what is the impact of that consolidation.
I'll tell you that it's first of all.
When we look at next year.
We expect to get about half of our original and exclusive content from ramped up activity at screen media.
They're buying more and more high profile and <unk>.
A larger number of films.
And I called out fast Charlie during the course of my talk because I wanted you all to see that when we even as we ramp up the scale to really first class kind of.
Movies as fast Charlie will be with Paris, PRASM and Philip noise that a few others, who will be announced later.
We're doing it in the way, we always do everything carefully with laying off our risk and we've already laid that laid off 75% to 80% or 70% to 80% of the risk and five days of the AFM.
Since we acquired that movie.
But as importantly is the quality of that movie the scale of that movie and how it continues our progress.
Towards better and better content a question that people constantly asked me how are you going to get better and better content without taking huge sums of money and spending them.
Here's a great illustration.
We've laid off 70% to 80% of that before we before we got it.
But if you look at the other side of what we expect about half of the content should come from production of series and they're it's a different model as we've said that's a combination of tax credits.
Sponsor integrations and I pointed out both horizon in general for a reason they took substantial chunks of.
The production cost in those two series inside the black box and smart homes.
And paid those for us in exchange for integrating them into those series.
Just more examples of how we do that.
That comment that combined with tax credits.
And far and partnerships are how we fund and increasingly robust.
Television production business, putting it all under one umbrella organization with David <unk>. The head of it David is the former CEO of Fremantle.
<unk> experienced person with very big very meaningful context in our business around the world with foreign partners, who he has been dealing with for years and years and years. This enhances our ability to accelerate.
The type of shows that we are going to be making as well as.
Producing our probable risk so putting it all they are letting him organize it and oversee it all to me was a very big important step towards getting us half of our new content from television series next year. So.
In my mind, both those things are very important.
Both the ramping up of screen Media's volume as well as the scale of what they do but also with the thoughtful laying off of risk.
And the organization of our production business under a leader who has tested and it has.
Really important international relationships.
These are both very critical pieces towards towards looking at 2022.
And putting together that.
That system that we're looking at.
Thanks for the thoughts appreciate it.
Thank you Mike.
Yeah.
Your next question comes from the line of Jason <unk> from Craig Hallum. Your line is now open.
Hey, gentlemen, good afternoon.
Bill So you've got the new platform available on popcorn Flex you've also got that available on crackle through <unk>. Just wondering if you can lay out the long term financial benefits there.
As you started rolling that out any.
Kind of qualitative remarks on your ability to deliver targeted advertising or your ability to kind of scale up cpm's in any way.
So the long term.
Our long term plan as you know Jason is to continue to.
Rollout the crackle platform and the chicken soup for the cell platform across the 41.
Alright.
Places that we think you need to be in order to reach people.
We call them touch points as you know.
I think we had previously announced we were at 50 <unk>.
Now contracted for or launched we're up to 79 that we are that we have in our sights here for the fourth quarter.
We're going to go.
I think we will have all three networks on all 41 of these.
Platforms.
Sometime in the beginning of 2022.
And as we as we see rolling out each one of these we're adding.
It was 450 something thousand per month.
Last last quarter, it's about $4 45, the average this quarter as we've expanded it and that is where our growth in monthly active viewers is coming from the distribution touch points strategy expansion.
And the fact that we're rolling out the additional networks.
That gets.
Compounded.
When you start to add more time that people are on your site.
And Thats why we focused on increasing the quality of the network and I was really excited when I saw that arent net.
Promoter score as per <unk>.
Surveys that were being done had already started to move up considerably.
A long way to go to get to where we want to be but you have to start somewhere and we've already seen some pretty cool.
<unk> I mean for popcorn flex to be up 50% and engagement right away on the launch of <unk>.
That new tech.
Was very reassuring I can tell you that I tried to give a lot of information about the vizio.
Numbers, just so you could you could get a sense of the fact that this seems to be working too.
So if you take increasing touch points and increasing monthly active viewers and then longer time on site. What you get is a lot more ad impressions and pretty fast growth.
And that's been the strategy for a while what's happened now in this third quarter as we've actually accomplished a bunch of it we launched popcorn flex, it's up and running everywhere we've initiated.
The crackle rollout with the Vizio platform and Thats working we've launched the fast channels.
For chicken soup for the soul streaming service and we know we will have the Vod service on vizio by the end of the year and so we're just implementing the strategy one step at a time.
And by doing that we're increasing the available inventory we have and the fact is there is insatiable demand.
In the marketplace for OTT ads it continues to be there.
We told everybody last time that was 133% increase in our.
Our upfronts.
That's that's kind of just the surface of what's going on and then on top of that.
Jason we're starting to rollout these integrations that ive been talking about.
For the last couple of years.
Because we are vertically integrated we can integrate people into the programming that is yet another way we can monetize viewership.
And it doesn't interfere as much with the viewers' experience. So the combination of these factors are what's driving the business and it's really going to have a big impact in 2022 from what I can say.
It's already having an impact now.
We've done better.
Going into the fourth quarter, then we expect it to be doing.
And I expect that's going to continue to happen.
This is working there is more to do for sure.
We'll keep doing it.
Lay on top of that 52 originals and exclusives next year, you've got the formula for what I think is really an excellent.
Really a great but should be a great year.
And then I will say, there's got to be more there's going to be more M&A activity.
For sure.
I appreciate all the color there.
Just one follow up here so can.
Can you give some color on the financial tailwind as you head into Q4, because obviously, we heard your enthusiasm, but I know we look at last year, there wasn't a whole lot of sequential growth and Theres a lot of reasons why there wasn't last year, but just maybe you can lay out the source of that enthusiasm. So we can kind of go.
A better representation of what Youre seeing as we move into the fourth quarter.
Yes, it's funny you asked that.
I figured this would be a question because I know I know I am pretty excited about where we are now and how the business.
Has heading and I took a look at the last couple of years and if you take a look youre going to see that we've averaged about 37% of our revenue in the fourth quarter over the last couple of years fourth part has always been our strongest quarter by far.
You do it again.
Given where we are and you can see why I'm pretty optimistic that we are.
We're going to have a good Q4, I'll, let you do the math, Jason but that's the facts.
And.
There's no reason to believe we can't be.
Close to that number again.
And that would be.
Precisely where we want it to be for the year. So im very comfortable for the where we where we've said we're going to be.
I am pleased with the direction, but I'm really excited I'm more excited actually about the fact that I see 2022, starting to really form.
As a great year.
It's the combination of what we've done in the production business the ramping up of the screen media.
<unk> quantity of.
Acquisitions.
Growth in international.
And the fact that the combination of things we've talked about in the <unk> business are all coming together at the same time.
For reasons that 2022 should be a very good year.
This is not dissimilar to what I said coming into 2021.
I said there were three reasons 2021 should turn out to be a very good year and it will be and that was we were going to have more production activity over the course of the year. That's turned out to be true screen media was going to acquire more stuff that turned out to be true. We would have growth in the streaming services that turned out to be true all of.
These things have turned out as we predicted they would.
For 2021 or will turn out the way, we did and I'm, telling you that 2022 is starting this takes shape and now its got four reasons. The international piece is the new fourth piece.
New fourth reason to be looking at.
Continued very fast growth in the business.
So I'm feeling good about it.
You read that right.
Perfect. Thanks for the time I appreciate it.
Welcome we're going to have to make this the last question operator.
Your last question comes from the line of Mike Grondahl from Northland Securities. Your line is now open.
Yes, Hey, Thanks, Bill two quick questions one.
Should we think about gross margin going forward.
And then the SG&A at $15 million is that sort of a new run rate to think about.
That SG&A had a one time very high charge in the form of share of.
I have an option grant as you may recall, Mike we.
We authorized at the annual meeting in June and expansion of our option plan.
And we.
Shortly thereafter.
The first month of this quarter.
Issued options to a larger number of our employees and that.
Manifests itself in the form I think it's about $3 $4 million worth of.
Comp.
Which was part of an add back into the adjusted EBITDA, but in terms of SG&A. It was in that number that you decided so I don't expect that that's going to be a consistent run rate.
Going forward that that would that was a catch up crap, let's call. It.
Although I have to say.