Q2 2022 Chicken Soup for The Soul Entertainment Inc Earnings Call

August 11, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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The conference will begin shortly.

As Johan during Q&A, you can dial star one one.

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Okay.

Thank you for standing by and welcome to Chicken soup for the Soul Entertainment's second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during this session you will need to press star one one on your telephone.

Now I'd like to hand, the call over to Taylor Krawczyk Ellipsis IR. Please go ahead.

Thank you operator and welcome.

On the call today are William Jami, Hannah Chairman and Chief Executive Officer of Chicken soup for Entertainment and Chris Mitchell Chief Financial Officer to review the second quarter of 2022 results as well as provide a business update.

Following this discussion there will be a moderated Q&A session open to 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 materially from projected results.

Given these uncertainties listeners are cautioned to not place undue reliance on any forward looking statements contained in this conference call. Please refer to the cautionary tax regarding forward looking statements contained.

On 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 measures. 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.

This release contains a reconciliation of adjusted EBITDA as net income or loss, which is the most directly comparable GAAP measure.

For further information regarding the company's historical financial performance financial condition, and operational and other informational and risks. Please refer to our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended June 32022, which will be filed tomorrow.

I'd now like to turn the call over to William for Hannah Chairman and CEO Bill. Please go ahead.

Thank you Taylor and thank you everybody for joining us today.

We had an outstanding quarter, and we continued to see momentum in scaling our business.

Also been very busy with early integration work on the Red box acquisition, which as you know closed today.

I say we.

Keep on doing this closing or announcing deals on the day, we announce earnings and I've got to try and break this pattern because we're always very tired when we have these calls as a result.

I'm going to run through a few highlights from our quarter and then turn to Red box in the future for our company Chris will go through some details on the numbers for Q2, and then we will take some questions.

We have a couple of visitors with us today, whose names you saw in our press release, Alan Smith, who is our new executive Vice Chairman welcome.

Jonathan case, who is our new president.

Got it.

In Q2, we really grew quite a bit our revenue was up 70% year over year to $37 6 million.

By the way all of these numbers are chicken soup for the solid entertainment only they do not include any red box results.

Our adjusted EBITDA grew 77% to $5 6 million.

Our advertising sales engine is delivering results both for our owned and operated group of networks and our growing roster of AD Rep partners.

The ability to do so as a function of everything we've done to scale our business over the last couple of years. Our viewership is growing as we continue to rollout new distribution touch points. We've reached a total of 110.

Pre redbox and.

And these viewers are responding to our new tech platform as measured by increasing time spent on our services.

And we are releasing original and exclusive content at a faster clip.

Fueled by our robust production pipeline and our large library.

Incidentally, our original and exclusive content continues to deliver very well it was 22% of our AD impressions in the second quarter.

To put it together and you have many more viewers spending more time with content they can't find elsewhere.

That gives us more AD inventory and more value that we can provide to our advertisers.

I'm going to spend a minute on our AD sales operation because we are building something very special there.

We don't talk enough about it and it's going to be very important to our future.

In addition to our strong owned and operated effort.

Built over the past three years, we now have also built a meaningful AD rep business for Eva companies and we have 12 AD Rep partners with.

We sold out our inventory again in the quarter and we're ready to bring on additional inventory that red boxes channels provide.

Now the AD sales asset we've built is getting attention in the industry. This year, we had multiple facets.

Services approach us about selling their ads for them.

That's a pretty big change in the last year, we were up from six AD Rep partners last year to 12 now.

In addition to expanding our AD revenue these partners open up future strategic opportunities for our company.

Other AI bots have already learned that building an AD sales engine is an easy.

By the way, Microsoft and Netflix will learn that soon and that gives us a unique opportunity to become a hub that can support the broader free streaming ecosystem.

So we've come quite a long way in a short time since starting the crackle joint venture just three years ago.

Our vision around the strategic importance of <unk> admitted amid changing consumer viewing habits is now a growing reality.

And as we can see from slowing subscriber growth for premium subscription Vod services as well as the ongoing cord cutting trend consumers are adapting they're getting smarter about their subscriptions and content choices and they are looking for value. In addition to quality content.

<unk> solves all of these needs in a way that legacy or a subscription service services cannot quite reach.

By the way our combination with Red box. It makes us the single best place for value conscious consumers to consume premium entertainment.

So that brings us to Red box. This is a transformative deal that in effect accelerates our scale up strategy by as much as three years.

In fact, it now makes us that media company for value conscious consumers.

And it begins transforming our financial results right away.

As we disclosed we now expect to be on a free cash flow positive run rate ending this year far ahead of our plans as a standalone company.

And while the financial markets may have been confused by this deal.

And key investors like Apollo or not.

Chicken soup for the Soul Entertainment and Red box are a truly unique fit.

The combination creates a fully formed entertainment asset for the streaming era that we don't think you can find anywhere else.

The asset includes a large content library are significant IP ownership of valuable original production pipeline are fully developed AD sales engine marketing machine.

Expanded ad inventory and.

Streaming assets that include our Eva networks Red boxes T that pea that in free live TV channels.

Long with their cash generating kiosks network and don't forget the service business.

Together, our businesses are an ideal fit and are in a position to tap into their respective value conscious consumer basis with.

With two great brands or actually more than two complement each other in many ways.

Today in conjunction with the closing we also announced important leadership appointments I have introduced them already Galen Smith, the former CEO of Red box will become our executive Vice chairman of both Redbox and chicken soup for the sell entertainment and will report to me.

We also introduced Jonathan case as president of tickets for the social Entertainment Jonathan is a proven TV industry leader, who will be responsible for operations and we will also report to me.

You'll be hearing more from gallon and Jonathan as we continue to integrate and scale our combined company.

But I also want to take a moment to welcome the rest of the Red box Red box team.

Redbox has phenomenal talent and we're excited and privileged that we have the senior team joining our chicken soup themselves entertainment team.

Red box will file its second quarter, 10-Q, tomorrow and as Youll see the kiosk business is starting to show renewed growth.

<unk> market slowly comes back to life and prior cost cutting is beginning to work its way into its P&L.

An improving kiosk business is important in the early days of this acquisition as it provides a valuable source of cash flow for the company to fund growth of our digital businesses.

That Red box is current performance isn't the reason we bought the company we bought it for the assets to customers in a unique strategic fit.

And we've already hit the ground running on integrating red box into everything we're doing for example, we've said we turned our sales force to the task of selling Redbox ad inventory.

Started folding the red box of chicken soup for the solid channel assets into into one platform.

And we are already integrating red boxes film content into our screen media sales effort into.

Through our network programming operations.

Also now that we have red boxes content pipeline, we are adjusting our content strategy from our focus on building more pipeline to optimizing the pace of rights monetization.

Now with the flexibility to spread out our content investment without sacrificing our robust schedule.

Programming costs is one of several profitability levers, we have and now we have the ability to manage this one well.

Speaking of content with the addition of more than 11000, new content assets that Red box has an area about network, including a recently signed a license for MGM content.

Now have 51000.

It's a whole lot 51000 Avon asset.

That's pretty amazing.

Well, we'll be sharing more soon on our plans and but one question I know folks will have is how we are planning to manage our remarkable portfolio of brands.

Over time, you can expect to see the Red box branded merge is our flagship commute consumer facing brand in the U S where it has strong brand equity.

One example of where we're heading we are in the early stages of creating a singular redbox app.

As I've been calling it a super App that would house all of our streaming networks and be distributors, yet another touch point for our networks and content.

As for the chicken soup for the solid Crackle brands as I've said before these brands are well known around the world and will play a starring role as we ramp up our international operations.

Overall, our touch points strategy, where we will be expanded to include the red box App and fast channels.

And that will bring our existing total touch points to 141.

With 167, once we complete that was under contract.

It's really a lot of room.

Now that we've completed the transaction you'll also see other benefits rolling through our financials, including the end of duplicative public company costs and over time, the key synergy and operating benefits already discussed that related adjusted EBITDA and free cash generation.

In addition to operating synergies will have meaningfully reduced capex since we will no longer need to build our own fast channels are fast channels service like the free live TV service Red box as well.

<unk> capabilities Red box will not need to build a sales force and neither ops. It neither of us will need to increase our library.

We also have more than 100 originally in our queue.

One aspect of the deal that I want to touch on quickly is the acquisition financing.

Not only was this a very low cost of acquisition for us.

But we were able to restructure red box is that in a way that provides us additional near term liquidity.

Extends maturities eliminated covenants and provides flexibility.

In short we are in a good capital position to achieve our plans, but also all the cash flow benefits Ive just outlined.

I'll wrap up with a few observations on the outlook for the rest of the year.

We continue to make good progress on our financial goals, we had a fantastic.

The final quarter of Standalone chicken soup for the social entertainment and.

And at the same time, we are watching the macro environment carefully while our business model thrives on consumers watching their budget. We also know we're not immune to pressure and AD spend and inflation impacts on expenses.

As we sit here today, we do see some emerging caution on the part of advertisers, but not nearly as much as we've heard about in the media.

Our increased scale and viewership are also opening us up to political spend in this election season, and we're seeing that activity more than offset any headwinds.

For the year, which will include nearly five months of Red box results. We believe we will exit the year at $500 million revenue.

$100 million EBITDA run rate just as we said before.

In closing we couldn't be more excited about the addition of Red box.

It sets the stage for accelerated growth.

We're looking forward to our newly expanded team and it is a really great one.

And we're going to build a premium streaming service for the next generation of entertainment.

We've been right about what's going to happen in the industry and I think we will continue to be right got.

Got to hand, it over to Chris.

So over the call and go through our financial performance for the quarter.

Thank you Bill.

As Bill pointed out we had a terrific quarter or last quarter Standalone chicken soup for the soul Entertainment.

We generated all time record revenue and record Q2, EBITDA driven by execution on our key growth initiatives. We are in a strong position as we enter our next phase of growth with redbox.

On that note, we couldnt be more excited about bringing on redbox. This deal will add significant revenue adjusted EBITDA and cash flow as we believe and we believe will drive attractive long term growth.

Turning to the results for the second quarter <unk>, We reported net revenue of $37 6 million compared to $22 1 million in the prior year period.

Year over year increase of approximately 70%.

<unk> net revenue of $29 2 million in the first quarter of 2022 for a sequential quarterly growth rate of 29%.

The year over year increase in net revenue was driven by an increase in <unk> streaming revenues from <unk> rights.

<unk> increase in AD representation revenues and distribution touch points revenues and an increase in <unk> revenues.

Notably we saw a meaningful sequential quarterly growth across all of our streaming revenue categories, highlighting our unique positioning in the <unk> ecosystem.

Our owned and operated streaming network revenue was driven by our updated apps, which were rolled out across additional platforms. As we continue to sell out of our advertising inventory.

We also saw continued success with our distribution touch one strategy, helping to expand our content reach and drive viewership.

Our AD Rep partnerships also drove AD sales as we continue to add new partners and expand our existing relationships and.

In addition, we benefited from an increase in the sales of our content streaming rights to third party streaming networks as well as to some of our AD Rep partners.

Worth reiterating Bill's comments earlier that we believe the unique combination of chicken soup for the soul Entertainment and Red box will be in the best position to benefit from the continued growth in the Avon has vast markets.

<unk> revenue growth in all of the revenue categories that I just mentioned.

No other company in the <unk> space has capabilities like ours across all of these revenue categories.

Additionally, we believe our second quarter performance is especially noteworthy in light of the macro and secular growth challenges facing the broader media and the streaming industries.

Moving down to P&L gross profit before film library amortization expense and related costs was $20 7 million in the quarter or 55% of net revenue as compared to $13 5 million in the prior year quarter or 61, 2% of net revenue.

Gross profit was 6 million in the quarter or 16% of that revenue as compared to $6 7 million in the prior year quarter or <unk>, 33%.

Of net revenue.

Gross profit margin percent was below the prior year quarter, primarily due to a few factors first a shift in production related sales mix from high gross margin fee revenue in the prior year quarter to lower margin, but strategic cost plus production service revenue in the current quarter.

Second the acceleration of older technology platform costs as a result of launching our new streaming apps and lastly, the acceleration of program cost for a program that was sold soon after the end of the second quarter.

The combination of these impacts on our gross margin or unusual both in size and timing and we do not expect to set of circumstances to repeat.

We believe after normalizing for these unusual factors our gross margins are performing as we've expected them too as we scale the business.

We also anticipate seeing our typical seasonal improvement in gross margin as we move through the second half of the year, assuming current advertising revenue expectations hold.

Operating loss for the second quarter, 2022 was $16 8 million compared to an operating loss of $7 8 million in the year ago period.

9 million variance was primarily due in addition to the impact of lower gross margin to a $3 million increase in compensation expense for the quarter when compared to the 2021 period.

Higher compensation expense, primarily reflects an increase in head count, including the acquisitions of sonar and $2 91 media.

We also had $2 4 million and higher professional fees for the second quarter when compared to the prior year period, primarily related to our acquisition of Red box.

Also other operating expenses increased by $1 6 million in the second quarter compared to 2021. This increase was primarily due to an increase in marketing expenses related to crackle, plus and nonrecurring costs.

$300000 related to the relocation of our office in California.

Our adjusted.

<unk> EBITDA for the second quarter was $5 6 million compared to $3 2 million in the same period last year, representing a year over year increase of 77%.

This reflects the scale that we have continued to drive in the business through our viewership growth and our cost efficient content acquisition production and distribution model.

In addition to continued scaling benefits as we integrate red box.

Realize revenue and cost synergies and continue growing and expanding our original and exclusive content library, we expect to drive further EBITDA growth and margin expansion over time.

Looking at our balance sheet and liquidity position as of June 32022.

We had cash and cash equivalents of $23 5 million compared to $21 5 million at the end of the first quarter.

2022, and $18 4 million at the end of the year ago period.

We have multiple sources of liquidity available to us.

And now that we've closed the redbox transaction, we have incremental liquidity available under a new revolving credit facility.

Having said that in the current environment, we have a focus on free cash flow and are scaling back on content spend and viewing our content assets as a savings bank that we can selectively cash and if we choose to.

This approach maintains our solid liquidity position and gives us flexibility.

Let me shift briefly to the Red box acquisition in our financial reporting the acquisition of Redbox close today August 11th as we've discussed.

Will be included in the chicken soup for the Soul Entertainment's financial results beginning with our Q3 report.

We plan to report revenue for the combined company under a single revenue line as we do now and will provide investors with color on revenue drivers across our service areas.

In closing, we had an excellent quarter from a chicken soup for the soul Entertainment Standalone business perspective that sets. The stage for continued strong growth that we expect to amplify with our acquisition of Red box. The combined company going forward creates an entertainment company for value conscious consumers that we believe will generate over $500 million in <unk>.

Revenue and $100 million to $150 million and adjusted EBITDA on an annualized basis exiting this year with multiple opportunities to accelerate our growth in 2023 and beyond.

With that we will now turn it over to the operator to begin the Q&A session.

Thank you as a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question.

Standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte.

D. A Davidson your line is open.

Bill, Chris Gayle, and Jonathan Congratulations on making quarter and a great deal to Bill hopefully you are anticipating my first question. So one question one follow up Bill.

Bill can you give your updated thoughts on M&A now that you've completed by box.

[laughter].

Okay.

Tom I havent, even bed to sleep.

Yeah.

Alright.

This is still an environment where.

People, who are thoughtful about the way they acquire things can make very good.

Purchases that ultimately can drive tremendous shareholder value that's.

That's what I believe happened today with the closing of the Red box transactions.

And there are a number of other opportunities out there that I think can really be useful for people in our possession.

So we have we haven't we have basically got the platform we need today that time between our Eva networks or <unk>.

Our customer loyalty program with $41 million.

Customers in it.

Our sales force the kiosks to generate cash flow that media. The media network that sits on top of the of the kiosks and then the service business and by the way.

Everything inside of Redbox is growing with the exception of the kiosk business at this moment in time and that's going to start growing pretty soon too as there are more theatrical releases Kelly.

No.

There is an opportunity to do more.

I'm going to at least take one day off before we start looking at our our next logical addition to our business and we've got to get our act together and do the things. We said, we're going to do with the company I think by.

By the addition of this management team and.

Structure, we've put in place we have a real chance to continue to grow this business in a meaningful way into a real.

Serious media company. So that's our goal that's what we're going to keep doing a VAT is our north star and the place we think we will grow and.

Growth from.

And just keeps going and I don't think we're done yet Tom.

Okay excellent Alright, and then for my follow up question I think Chris just talked about $100 million to $150 million of adjusted EBITDA year, how should we think about your priorities for investment spending given that free cash flow generation.

Well I think we'll take down our leverage a bit first before we do much of anything else, but of course put an asterisk on that because if I saw something amazing that would generate even more cash for us more quickly we'd use it that way.

But right now I think our focus is on making sure we delever the business.

We're in a pretty okay place I mean, if you look at the total leverage that will have.

When things come back to where they should be it wont be out of line and it'll be it'll be fine, but I don't like having too much leverage so I'll focus first on spending some money on that.

On reducing some of our leverage that would be the first place we'll go.

But keep the asterisk there.

Alright. Thank you bill Thank you everyone.

Thanks, Tom.

Thank you. Our next question comes from the line of Jason <unk>.

Craig Hallum.

Jason Your line is open.

Thank you.

Again, my congrats bill on both the acquisition in the quarter.

And part question for you just on the kiosk business. So curious a.

What is your different strategy, that's been employed previously to kind of reaccelerate growth there.

What kind of opportunity you have to monetize chicken soup content and kiosks and then see how youre looking at just the trajectory of that business as we go forward, but more new releases hitting the market.

Yes, I think thanks.

Thanks, Jason the first.

Last thing first.

Claris thing is that there will be far more theatrical releases at a much clear batch for consistent pace beginning in the fourth quarter.

I had the numbers a little while ago.

I think theres something like 37 current.

Theatrical releases that will hit our boxes in the fourth quarter that's up from.

<unk> in the third quarter and 18 in the second quarter. So it's not a small number its a big number it's a big difference and there is a consistent.

Relationship between theatrical releases hitting the kiosks and rentals going up.

Once that pattern is fully established and it's baked in and is back to normal we're going to see a very significant rise in the revenue there we already see that each time this stuff I couldnt talk about until we own the company today that each time there was.

A meaningful theatrical release back into the marketplace. There was a major uptick in rentals for that week and the week following and Thats going to continue as you suggest have a steady pace of them just getting one and then going through three weeks without one and so that's why we're so optimistic about about the about those.

<unk>. This is not we're not dreaming. This up this is the pattern that we see in the numbers.

Argue numbers people out there you should be happy because it's in the numbers, it's not in our mind or in our hope. It's the fact of the matter. So that's 0.1, Jason and I think you asked whether we're going to do things differently with the kiosks I would say the answer is probably not but we may market them a little more aggressively.

We certainly are going to keep growing the service business was related to the kiosk business that is a gem.

Call that a hidden gem, but if I keep talking about it it won't be hidden very much longer so it's a gem.

It's growing very quickly it generates cash it's going to keep growing.

Am I allowed to say that we've raised prices.

I guess, not so we won't say that but.

Thats a business that there is a price opportunity and I'll put it that way and.

This is a good business, we have a very unique asset in that field sales force, which is a phenomenal group of people doing a great job and run by a terrific Guy named Mike Chamberlain. So there is a real real visit there and I forgot your second one I did one in three Jason So what was number two.

Your content hitting the kiosks Oh, yeah, that's right.

It's funny.

That's happening and it will happen.

It will continue to happen and instead of gas.

Gail and given us some small amount of money as a guarantee and then pocketing the rest for himself we now get to keep the whole effect, which is a lot better for the position for us in terms of the way we look at this it is I mean.

Give them credit now that I understand what he was making on what we're giving impact I'm really glad it's on my side.

It's a big change.

But yes that will be a consistent thing and what's as important Jason is the fact that we will now be acquiring with that filter.

So as we're getting new content one of the filters, we will put it through its hasnt got a performing or redbox kiosks that does a few things for us one it reduces our risk as we acquire content because we have yet another source of revenue that we know we're going to get but it also will help generate more titles for the key ask that.

Attract consumers because we know as we acquire them. These are the types of titles at work. So it's a very good combination of things and it's already started.

Okay.

Firstly, just one follow up on your AD sales.

You seem to be performing pretty well in the face of this impending recession than we've seen plenty of others that are not performing as well can you just maybe talk about I don't know what all categorized as outperformance or why you are performing better.

Hi.

Aye.

Through and that aside during my my main talked about not really seeing in the marketplace. What we've been hearing in the media.

Yeah.

I have a feeling that what's happening is certain areas of advertising are under attack and some of it because there is a natural tendency if youre already if you're an advertiser and you're already going to lead broadcast youre going to leave cable and you're going to go to OTT.

Cut back because you were a little worried about a possible recession, you certainly had to cut back their first right.

Youre not going to cut back in the pure OTT, but as you'll remember.

Cold you in the past and we've discussed this a number of times most of our competitors also have broadcast networks and other networks and they package their advertising and then when they go to the marketplace to the investment marketplace.

Allocate there.

Revenues across those patterns in different ways, and you'd never get a pure play analysis from them with us.

Only one site.

<unk> revenue and we're not seeing any drop off in it.

Now there is the issue of programmatic versus direct selling maybe the reason that we are having absolutely no problem and still seeing CPM growth because that should be the next question somebody asked me.

Is because we have a direct sales force and we are not as subject to the market vagaries that come when you were in a computer driven sales business I have said repeatedly that the pre.

<unk> sales business is a race to zero unless you use it to service not to sell.

There is no doubt that is true.

And then by the way. This is why we have 12 AD rep.

Well have other <unk>, who have come to us and asked us to seller ads that didn't come to us asking to sell programmatically. They came because they are attracted by our direct sales force its capability of selling out of inventory and its capability of creating long term relationships with advertisers.

This is what's happening so a lot of what we see in the newspaper is there a newspaper anymore or whatever that thing is in the news.

We're just not seeing it in the marketplace.

On top of that though don't forget we're in a moment in time, where there's going to be a lot of political spending.

We're certainly big enough now that we're getting a lot of that.

And thats kind of thats more than offsetting any softness we're seeing in the market. So I don't mean to say there isn't a sense on the part of advertisers that the world Baby choppy, but where they are taking that sense is not to OTT.

They are taking it to cable they are taking at the broadcast I don't know anything about the social media guys or what's going on there at the same market seem to be all kinds of dislocations there.

But the actual Avon business.

There's tremendous demand.

I always appreciate that incremental color. Thank you.

Youre welcome.

Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.

Our next question comes from the line of observing Zahn.

<unk> global serving Zane your line is open.

Hi, there I'm, calling on behalf of Bryan principally here at Alliance Global.

You answered my first question really about CPM advertising, so I'll just move on to the second one.

You talked about a little bit but in terms of upgrading the touch points to the new Tech platform.

Have you seen a consistent improvement of viewership and return viewers with those upgrades and if so can you quantify that improvement.

Well first of all welcome Sir and I know, you've just joined Brian and congratulations. Thank you I appreciate it.

Welcome.

<unk>.

The touch point strategy is working there is no question, it's been the main driver of <unk>.

Increased viewership and as I said earlier in my talk the the tech is working too.

Seeing that people are staying longer in the combination of the two who are driving AD impressions to records for us.

So.

The answer is it does work and it is happening and we are doing it and we're going to keep doing it touch point strategy is not over as you know as you heard we're really at more than 140 now with the addition of the redbox touch points.

And we have another 20 to go.

With them, but with the Red box network being added in the Red box Super App being added.

We will expand the number of places we're going to be found I still am of the opinion.

That.

Yes.

The marketplace for consumers is so difficult to navigate that you need to be wherever they may go.

And therefore, you have to make it easy for them to find you by being on every being every place that that.

People congregate.

I will say that the creation of the Super App.

Everything can be in one place for us.

At the beginning of.

Making it easier for people to find our content on our apps and we will see we'll see how that goes.

The exact increase from the touch points.

It remains about the same as it's been right around 450000 per new touch points per month monthly active viewers.

And the length of time has been consistently better by no less than 20% every time, we've we've added the tech two are new.

In a new place.

So.

It's going well.

It's working.

Great. Thank.

Thank you so much appreciate it that's all I have.

Thank you. Our next question comes from the line of Laura Martin of Needham <unk> Company.

Laura Martin Your line is open.

Bill Great numbers today.

Alright.

Fabulous Sunny.

Sonny and of course, the thought here that way.

My question is on this AD rep business.

Youre selling out your inventory or selling out their inventory.

So you just don't know how the AD Rep business works do you buy their inventory and keep the upside if you guys do better or is it straight Michele how does the money work for your addresses.

Yes, it's a good question and the answer is both.

The one I like the best is where we get to buy it and then we get to resell it and keep as much as possible but.

Most of these guys are too smart for that so they make us they make us take a fee and the fee.

The Commission is interestingly high enough so that it's worth doing on a consistent basis.

And there used to be there was a time where.

If you were somebody using an AD rep partner like US your entire reason for doing it would be to buy time to replace us.

But what started to happen is in the marketplace. As you know advertisers are focusing on fewer and fewer places to buy and therefore, it's harder and harder to develop a sales force that actually has enough critical mass to get the advertisers attention and so we've had a number of our AD rep.

Partners go off to try and start there I would add for US and then come back because it does it work.

And what's happened is we've become sort of the centering device for what all the middle size Abe.

<unk> to go to market to go to advertisers. So we make a healthy margin doing that but we also get them money. They couldnt have otherwise gotten so it becomes a win win.

But I do like it better when they just tell us the inventory we can resell it because we can make much more.

But they don't always let us do that large so.

And it's become strategic tubing.

Let me, let you ask your next question.

Let's build on that because that's where I was sort of going ask does it sounds like there are other strategic benefits you get when you started to have a closer relationship with the Saudis talked about a couple can you build on that and how it strategic which started build longer term value than the current P&L, yes, and thats really one of the things I like most about the way this is evolving what we.

See happening is increasingly those partners also will lease content from us for use on their networks and that helps us monetize our content either further makes us more connected I don't want to say dependent on each other but more connected and that connectivity of course is helpful.

And then some of these partners are actually places, where we put our apps.

And now they want us to sell their ads. In addition to the ads that relate to our absent so they become distribution partners for us and so there is this web.

Connectivity between us and these AD rep companies that goes beyond just selling ads.

There's another piece of this from my perspective, we get to understand better.

What people are doing what things they are watching what stops there actually interested in which which <unk> services are performing best and while we can't share that information because it's.

Ravi it's private to other people it is useful for us in understanding better how to build our business and so it helps by we make we make real money doing this now and.

And if you go back Laura you remember when we first bought Crackle there was PFS view, which was the Sony.

You know.

Tony Network and that was one of our big customers and it was a very it was a critical part of our plan and then they shut PSU down with one days' notice so that wasn't too good but now we have a dozen partners who more than replace the PSU group and that spreads risk it increases information it's generating.

Really solid revenue and profitability for us and it's going to continue to grow it's a pretty big factor as we move forward and it's very exciting actually.

Got it that's super helpful. And then I'm interested in this political point, you're making because we haven't heard from other people that theyre getting political revenue yet. So are you, saying to us that a driver for Q3 and Q4 will be political revenue upside this year.

I am and I will say I'm already annoyed by some of the political ads that I have to watch on our network.

They're already making me in aggregate.

I'm, so mad at Bob Stefan Naskhi whoever the Hell. He is he's running for Governor Connecticut.

It adds all the time, it's driving me crazy and he's loud too.

So I don't know.

I like I like Lamont, he's a good guy and he's our governor Scott.

Asking for crazy that at any of that there is so much of this now so many ads coming in so fast this is going to be a very interesting political season.

With these.

These crazy people all spending insane amounts of money. The only thing. It was better. This was on Bloomberg was spending every dime he had to try and become president and he would pay any amount at any time for any yet it's not quite as good as that but it's pretty good.

Avid impact at least it is for us.

These are the guys arent seeing it too so.

Okay, and then I will just build on that for my last question and that is the frequency cap could you raise a great point, which is in the AD driven streaming business. The biggest consumer complaints is AD frequency. So can you talk about what you guys do on your services to frequency cap.

Like everybody else, we struggle with it and it's a it's a challenge because what you have multiple sources of ads and when advertisers go to multiple frequency capping could you raise a great point, which is in the AD driven streaming the biggest consumer complaint is AD frequency. So can you talk about.

What do you guys still on your services to frequency cap.

Like everybody else, we struggle with it and it's a it's a challenge because what you have multiple sources of ads and when advertisers go to multiple <unk>.

Purveyors to place their ads.

It comes in electronically looks like two different ads, but it's the same ad.

And so it's very tough to work your way through that we all worked on it and I remember a lot better than we used to be I remember there was a time when we first on these networks, where you might see five of the same AD in a row and that was really annoying, we don't have that anymore.

There still are there still it is still hard to completely screen.

Ads that are and as you saw on the last day AD break.

And things like that so.

We're working on it we're getting better at it but we're not anywhere near where we need to be on it we will get better.

Okay.

Thank you very much.

Thanks, Laura.

Think unless I misunderstand it were at the end of the time for this call. So I want to thank everybody for joining us today will be around and hope to talk to you. All soon it's been an exciting time for us and exciting time for our company I know, it's sort of interesting time in our industry and I look forward to speaking with you all about that as we go forward. Thanks for joining.

Us.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Thank you.

[music].

Sure.

Yes.

[music].

One on your telephone I would now like to hand, the call over to Taylor Krawczyk Ellipsis IR. Please go ahead.

Thank you operator and welcome.

With me on the call today are William gave you Hannah Chairman and Chief Executive Officer of Chicken soup for the full entertainment and Chris Mitchell Chief Financial Officer to review the second quarter of 2022 results as well as provide a business update.

During this discussion there will be a moderated Q&A session open to participants on this call.

Given these uncertainties listeners are cautioned to not place undue reliance on any forward looking statements contained in this conference call.

Please refer to the cautionary text regarding forward looking statements contained.

The content of this call I.

Additional risk disclosures can be found in the Companys 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 and 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 pace.

For comparison between periods. The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is the most directly comparable GAAP measure.

I would now like to turn the call over to William for Hannah Chairman and CEO Bill. Please go ahead.

Thank you Taylor and thank you everybody for joining us today.

We had an outstanding quarter, and we continued to see momentum in scaling our business.

<unk> been very busy with early integration work on the Red box acquisition, which as you know closed today.

I say, we keep on doing this closing or announcing deals on the day, we announce earnings and I've got to try and break this pattern because we're always very tired when we have these calls as a result.

I'm going to run through a few highlights from our quarter and then turned to Red box.

Future for our company, Chris will go through some details on the numbers for Q2, and then we will take some questions. We have a couple of visitors with US today, whose names you saw in our press release, Alan Smith, who is our new executive Vice Chairman welcome and Jonathan case, who is our new President welcome Jonathan.

In Q2, we really grew quite a bit our revenue was up 70% year over year to $37 6 million.

All of these numbers are chicken soup for the soul Entertainment only they do not include any red box results.

Our adjusted EBITDA grew 77% to $5 6 million.

Our advertising sales engine is delivering results both for our owned and operated group of networks and our growing roster of AD Rep partners.

The ability to do so as a function of everything we've done to scale our business over the last couple of years.

Our viewership is growing as we continue to rollout new distribution touch points, we've reached a total of 110.

[laughter] pre red box.

And these viewers are responding to our new tech platform as measured by increasing time spent on our services.

And we are releasing original and exclusive content at a faster clip.

Fueled by our robust production pipeline and our large library.

Incidentally, our original and exclusive content continues to deliver very well it was 22% of our AD impressions in the second quarter.

Put it together and you have many more viewers spending more time with content they can't find elsewhere.

That gives us more AD inventory and more value that we can provide to our advertisers.

I'm going to spend a minute on our AD sales operation because we are building something very special in there.

We don't talk enough about it and it's going to be very important to our future.

In addition to our strong owned and operated effort.

Built over the past three years, we now have also built a meaningful AD rep business for Eva companies and we have 12 AD Rep partners with.

We've sold out our inventory again in the quarter and we're ready to bring on additional inventory that red boxes channels provide.

Now the AD sales asset we've built is getting attention in the industry. This year, we had multiple fast today.

Services approach us about selling their ads for them.

That's a pretty big change in the last year, we were up from six AD Rep partners last year to 12 now.

In addition to expanding our AD revenue these partners open up future strategic opportunities for our company.

Other AI bots have already learned that building an AD sales engine engine is an easy.

By the way, Microsoft and Netflix will learn that soon and that gives us a unique opportunity to become a hub that can support the broader free streaming ecosystem.

So we've come quite a long way in a short time since starting the crackle joint venture just three years ago.

Our vision around the strategic importance of Avon admitted amid changing consumer viewing habits is now a growing reality.

<unk> solves all of these needs in a way that legacy or a subscription service services cannot quite reach.

By the way our combination with Red box. It makes us the single best place for value conscious consumers to consume premium entertainment.

So that brings us to Red box. This is a transformative deal that in effect accelerates our scale up strategy by as much as three years.

In fact, it now makes us that media company for value conscious consumers.

And it begins transforming our financial results right away.

As we've disclosed we now expect to be on a free cash flow positive run rate ending this year far ahead of our plans as a standalone company.

And while the financial markets may have been confused by this deal.

And key investors like Apollo or not.

Chicken soup for the Soul Entertainment and Red box are a truly unique fit.

The combination creates a fully formed entertainment asset for the streaming era that we don't think you can find anywhere else.

The asset includes a large content library are significant IP ownership of valuable original production pipeline are fully developed AD sales engine marketing machine.

With expanded AD inventory and.

And streaming assets that include our Eva networks Red boxes T that pea that in free live TV channels.

Long with their cash generating kiosk network and don't forget the service business.

Together, our businesses are an ideal fit and are in a position to tap into their respective value conscious consumer basis with.

With two great brands are actually more than two complement each other in many ways.

We also introduced Jonathan case, as president of Chicken soup for the sell entertainment Jonathan is a proven TV interesting later, who will be responsible for operations that will also report to me.

Youll be hearing more from gallon and Jonathan as we continue to integrate and scale our combined company.

But I also want to take a moment to welcome the rest of the Red box Red box team.

Redbox has phenomenal talent and we're excited and privileged that we have the senior team joining our chicken system. So entertainment.

Red box will file its second quarter, 10-Q, tomorrow and as Youll see the kiosk business is starting to show renewed growth.

The <unk> market slowly comes back to life and prior cost cutting is beginning to work its way into its P&L.

An improving kiosk business is important in the early days of this acquisition as it provides a valuable source of cash flow for the company to fund growth of our digital businesses.

That Red box is current performance isn't the reason we bought the company we bought it for the assets to customers in a unique strategic fit.

And we've already hit the ground running on integrating red box into everything we're doing for example, we've said we've turned our sales force to the task of selling Redbox AD inventory we have.

Started folding the red box of chicken soup for the soul channel assets into our into one platform.

And we are already integrating red boxes film content into our screen media sales effort into our network programming operations.

Also now that we have red boxes content pipeline, we are adjusting our content strategy from a focus on building more pipeline to optimizing the pace of rights monetization.

How has the flexibility to spread out our content investment without sacrificing our robust schedule.

Grabbing cost is one of several profitability levers, we have and now we have the ability to manage this one well.

Speaking of content with the addition of more than 11000, new content assets that Red box has on their <unk> network.

Including the recently signed a <unk> license for MGM content, we now have 51000.

As a whole lot 51000 Avon asset.

That's pretty amazing.

Well, we'll be sharing more soon on our plans and but one question I know folks will have is how we are planning to manage our remarkable portfolio of brands.

Over time, you can expect to see the Red box brand emerge as our flagship commute consumer facing brand in the U S where it has strong brand equity one.

One example of where we're heading we are in the early stages and creating a singular red box app or as I've been calling it a super App that would house all of our streaming networks and be distributed as yet another touch point for our networks and content.

As for the chicken soup for the solid Crackle brands as I've said before these brands are well known around the world and will play a starring role as we ramp up our international operations.

Overall, our touch point strategy will be will be expanded to include the red box App and fast channels.

And that will bring our existing total touch points to 141.

With 167, once we complete those under contract.

It's really a lot of room.

In addition to operating synergies will have meaningfully reduced capex since we will no longer need to build our own fast channels are fast channel service like the free live TV service Red boxes.

<unk> capabilities Red box will not need to build a sales force and neither ops. It neither of us will need to increase our library.

We also have more than 100 original in our queue.

One aspect of the deal that I want to touch on quickly is the acquisition financing.

Not only was this a very low cost acquisition for us.

But we were able to restructure redbox is that in a way that provides us additional near term liquidity.

Extends maturities eliminates covenants and provides flexibility.

In short we are in a good capital position to achieve our plans with all the cash flow benefits Ive just outlined.

I'll wrap up with a few observations on the outlook for the rest of the year.

We continue to make good progress on our financial goals, we had a fantastic final quarter as Standalone chicken soup for the Soul Entertainment and.

As we sit here today, we do see some emerging caution on the part of advertisers, but not nearly as much as we've heard about in the media.

Our increased scale and viewership are also opening us up to political spend in this election season, and we're seeing that activity more than offset any headwinds.

For the year, which will include nearly five months of Red box results. We believe we will exit the year at $500 million revenue and 100 million EBITDA run rate just as we said before.

In closing we couldn't be more excited about the addition of Red box.

It sets the stage for accelerated growth.

We're looking forward to our newly expanded team and it is a really great one.

And we're going to build a premium streaming service for the next generation of entertainment, we've been right about what's going to happen in the industry and I think we will continue to be right I'm going to hand, it over to Chris to go over the call and go through our financial performance for the quarter.

Your bill.

As Bill pointed out we had a terrific quarter or last quarter as Standalone chicken soup for the soul Entertainment.

We generated all time record revenue and record Q2, EBITDA driven by execution on our key growth initiatives. We are in a strong position as we enter our next phase of growth with redbox.

Turning to the results for the second quarter for <unk>, We reported net revenue of $37 6 million compared to $22 1 million in the prior year period.

Year over year increase of approximately 70% and compared to net revenue of $29 2 million in the first quarter of 2022 for a sequential quarterly growth rate of 29%.

The year over year increase in net revenue was driven by an increase in <unk> streaming revenues from Eva writes a significant increase in AD representation revenues and distribution touch point revenues and an increase in <unk> revenues.

Notably we saw meaningful sequential quarterly growth across all of our streaming revenue categories, highlighting our unique positioning in the antibody ecosystem.

Our owned and operated streaming network revenue was driven by our updated apps, which were rolled out across additional platforms. As we continue to sell out of our advertising inventory.

We also saw continued success with our distribution touch one strategy, helping to expand our content reach and drive viewership.

Our AD Rep partnerships also drove AD sales as we continue to add new partners and expand our existing relationships and.

In addition, we benefited from an increase in the sales of our content streaming rights to third party streaming networks as well as to some of our AD Rep partners.

<unk> revenue growth in all of the revenue categories that I just mentioned.

No other company in the <unk> space has capabilities like ours across all of these revenue categories.

Additionally, we believe our second quarter performance is especially noteworthy in light of the macro and secular growth challenges facing the broader media and streaming industries.

Moving down to P&L gross profit before film library amortization expense and related costs was $20 7 million in the quarter or <unk>, 55% of net revenue as compared to $13 5 million in the prior year quarter or 61, 2% of net revenue.

Gross profit was 6 million in the quarter or 16% of that revenue as compared to $6 7 million in the prior year quarter or <unk>, 33%.

Of net revenue.

Second the acceleration of older technology platform cost as a result of launching our new streaming apps and lastly, the acceleration of program cost for a program that was sold soon after the end of the second quarter.

The combination of these impacts on our gross margin were unusual both in size and timing and we do not expect this set of circumstances to repeat.

We believe after normalizing for these unusual factors our gross margins are performing as we've expected them too as we scale the business.

We also anticipate seeing our typical seasonal improvement in gross margin as we move through the second half of the year, assuming current advertising revenue expectations hold.

Operating loss for the second quarter, 2022 was $16 8 million compared to an operating loss of $7 8 million in the year ago period.

9 million variance was primarily due in addition to the impact of lower gross margin to a $3 million increase in compensation expense for the quarter when compared to the 2021 period.

Higher compensation expense, primarily reflects an increase in head count, including the acquisitions of sonar and $2 91 media.

We also had $2 4 million and higher professional fees for the second quarter when compared to the prior year period, primarily related to our acquisition of Red box.

$300000 related to the relocation of our office in California.

Our adjusted EBITDA for the second quarter was $5 6 million compared to $3 2 million in the same period last year, representing a year over year increase of 77%.

This reflects the scale that we have continued to drive in the business through our viewership growth in a cost efficient content acquisition production and distribution model.

In addition to continued scaling benefits as we integrate redbox.

Realized revenue and cost synergies and continue growing and expanding our original and exclusive content library, we expect to drive further EBITDA growth and margin expansion over time.

Looking at our balance sheet and liquidity position as of June 32022, the company had cash and cash equivalents of $23 5 million compared to $21 5 million at the end of the first quarter.

2022, and $18 4 million at the end of the year ago period.

We have multiple sources of liquidity available to us.

And now that we've closed the redbox transaction, we have incremental liquidity available under a new revolving credit facility.

This approach maintains our solid liquidity position and gives us flexibility.

Let me shift briefly to the Red box acquisition, and our financial reporting the acquisition of Red box close today August 11th as we've discussed and will be included in the chicken soup for the soul Entertainment's financial results beginning with our Q3 report.

We plan to report revenue for the combined company under a single revenue line as we do now and will provide investors with color on revenue drivers across our service areas.

In closing, we had an excellent quarter from a chicken soup for the Soul Entertainment stand alone business perspective that sets. The stage for continued strong growth that we expect to amplify with our acquisition of Red box the combined company going forward.

An entertainment company for value conscious consumers that we believe will generate over $500 million in revenue and $100 million to $150 million and adjusted EBITDA on an annualized basis exiting this year with multiple opportunities to accelerate our growth in 2023 and beyond.

With that we will now turn it over to the operator to begin the Q&A session.

Thank you as a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask some question.

Standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte of D. A Davidson your line is open.

Bill, Chris Gayle, and Jonathan Congratulations on amazing quarter, and a great deal to Bill hopefully you are anticipating my first question. So one question one follow up on.

Bill can you give your updated thoughts on M&A now that you've completed by box.

[laughter] time, I havent, even been to sleep.

But look you know this is still an environment where.

People, who are thoughtful about the way they acquire things can make very good perched.

Purchases that ultimately can drive tremendous shareholder value, that's what I believe happened today with the closing of the Red box transactions.

And there are a number of other opportunities out there that I think hadn't really be useful for people in our position.

So we have we have we have basically got the platform we need today that time between our Eva networks or <unk>.

Our customer loyalty program with $41 million.

Customers in it.

Our sales force the kiosks to generate cash flow that media. The media network that sits on top of the of the kiosks and then the service business and by the way.

Everything inside a red box is growing with the exception of the kiosk business at this moment in time and that's going to start growing pretty soon too as there are more theatrical releases coming.

So.

There is an opportunity to do more.

By the addition of this management team and.

Structure, we've put in place we have a real chance to continue to grow this business in a meaningful way into a real.

Serious media company. So that's our goal that's what we're going to keep doing a bought is our north star and the place we think we will grow and.

Growth from.

And just keeps going and I don't think we're done yet Tom.

Okay excellent all right and then for my follow up question, I think Christian talked about $100 million to $150 million of adjusted EBITDA year, how should we think about your priorities for investment spending given that free cash flow generation.

Well I think we'll take down our leverage a bit first before we do much of anything else, but of course put an asterisk on that because if I saw something amazing that would generate EBIT more cash for us more quickly we'd use it that way.

But right now I think our focus is on making sure we delever the business.

We're in a pretty okay place I mean, if you look at the total leverage that will have.

When things come back to where they should be it wont be out of line and it'll be it'll be fine, but I don't like having too much leverage so I'll focus first on spending some money on that.

On reducing some of our leverage that would be the first place we'll go.

But keep the asterisk there.

Alright. Thank you bill Thank you everyone.

Thanks, Tom.

Thank you. Our next question comes from the line of Jason <unk> of Craig Hallum.

Jason Your line is open.

Thank you.

Again, my congrats bill on both the acquisition and the quarter Multipart question for you just on the kiosk business. So curious a.

What is your different strategy, that's been employed previously to kind of reaccelerate growth there.

What kind of opportunities you have to monetize chicken to content and kiosks and then see how youre looking at just the trajectory of that business as we go forward, but more new releases hitting the market.

Yes, I think thanks.

Thanks, Jason the first.

Last thing first the single Claris thing is that there will be far more theatrical releases at a much clear are much more consistent pace beginning in the fourth quarter.

I had the numbers a little while ago.

I think theres something like 37 current.

Theatrical releases that'll hit our boxes in the fourth quarter that's up from.

13 in the third quarter and 18 in the second quarter. So it's not a small number its a big number it's a big difference and there is a consistent.

Relationship between theatrical releases hitting the kiosks and rentals going up.

Once that pattern is fully established and is baked in and is back to normal we're going to see a very significant rise in the revenue there we already see that each time. This is stuff I couldnt talk about until we own the company today that each time there was.

On a meaningful theatrical release back into the marketplace. There was a major uptick in rentals for that week and the week following and Thats going to continue as you suggest have a steady pace of them instead of getting one and then going through three weeks without one and so that's why we're so optimistic about about the about those.

<unk>. This is not we're not dreaming. This up this is the pattern that we see in the numbers.

Argue numbers people out there you should be happy because it's in the numbers, it's not in our mind are and our hope is the fact of the matter. So that's 0.1, Jason and I think you asked whether we're going to do things differently with the kiosks I would say the answer is probably not but we may market them a little more aggressively.

We certainly going to keep growing the service business was related to the kiosk business that as Jim had I called it a hidden gem, but if I keep talking about it it won't be hidden very much longer so it's a gem.

It's growing very quickly it generates cash it's going to keep growing.

Am I allowed to say that we've raised prices.

I guess, not so we won't say that but.

That's a business that there is a price opportunity and I'll put it that way and.

This is a good business, we have a very unique asset in that field sales force, which is a phenomenal group of people doing a great job and run by a terrific Guy named Mike Chamberlain. So there is a real a real business there and I forgot your second one I did one in three Jason So what was number two.

Your content hitting the kiosks Oh, yeah, that's right.

It's funny.

That's happening.

Will happen.

It will continue to happen and instead of gas.

<unk> given us some small amount of money as a guarantee and then pocketing the rest for himself we now get to keep the whole effect, which is a lot better for the physician for US is in terms of the way we look at this it is.

Give them credit now that I understand what he was making on what we are giving them I'm really glad it's on my side.

It's a big change.

But yes that will be a consistent thing and but.

As important Jason is the fact that we will now be acquiring with that filter. So as we're getting new content. One of the filters, we will put it through its hasnt got a performing or redbox kiosks that does a few things for us one it reduces our risk as we acquire content because we have yet another source of revenue.

We know we're going to get but it also will help generate more titles for the kiosk that attract consumers because we know as we acquire them.

Types of titles at work. So it is a very good combination of things and it's already starting.

Selfishly, just one follow up on your AD sales.

You seem to be performing pretty well in the face of this impending recession than we've seen plenty of others that are not performing as well can you just maybe talk about the.

I don't know what all categorized as outperformance or why you are performing better.

Uh huh.

Aye.

Through and that aside during my my main talks about not really seeing in the marketplace. What we've been hearing in the media.

I have a feeling that what's happening is certain areas of advertising are under attack and some of it because there is a natural tendency if youre already if you're an advertiser and you're already going to lead broadcast are going to leave cable and you're going to go to OTT.

If you're going to cut back because you are a little worried about a possible recession, you certainly had to cut back their first right.

Youre not going to cut back in the pure OTT, but as you'll remember I told you in the past and we've discussed this a number of times most of our competitors also have broadcast networks and other networks and they package their advertising and then when they go to the marketplace to the investment marketplace.

They allocate there.

Their revenues across those patterns are different ways and you'd never get a pure play analysis from them.

With us it's the only one site a bad revenue and we're not seeing any drop off in it.

Is because we have a direct sales force and we are not as subject to the market vagaries that come when you were in a computer driven sales business I have said repeatedly.

Programmatic sales business is a race to zero unless you use it to service not to sell.

There is no doubt that is true.

And then by the way. This is why we have 12 AD rep.

Well have other <unk>, who have come to us and ask the seller ads that didn't come to us to sell programmatically.

Came because they are attracted by our direct sales force its capability of selling out of inventory and its capability of creating long term relationships with advertisers.

This is what's happening so a lot of what we see in the newspaper is there a newspaper anymore or whatever that thing is in the news.

We're just not seeing it in the marketplace.

On top of that though don't forget we're in a moment in time, where there's going to be a lot of political spending.

We're certainly big enough now that we're getting a lot of that and.

And thats kind of thats more than offsetting any softness we're seeing in the market. So I don't mean to say there isn't.

On the part of advertisers that the world Baby choppy, but where they're taking that sense is not to OTT.

We're taking it to cable theyre, taking into broadcast I don't know anything about the social media guys or what's going on there in the same markets seem to be all kinds of dislocations there.

But the actual Avon business, there's tremendous demand.

Always appreciate that incremental color. Thank you.

Welcome.

Thank you again to ask a question. Please press star one one on your telephone again star one one on your telephone to ask a question.

Our next question comes from the line of observing Zhang of Alliance Global.

And then your line is open.

Hi, there I'm, calling on behalf of Bryan principally here at Alliance Global.

You answered my first question really about kimpton advertising, so I'll just move on to the second one.

You talked about a little bit but in terms of upgrading the touch points to the new Tech platform.

Have you seen a consistent improvement of viewership and returned viewers with those upgrades and if so can you quantify that improvement.

Well first of all welcome Sir and I know you just joined Brian and congratulations. Thank you I appreciate it.

Youre very welcome.

<unk>.

The touch point strategy is working there's no question, it's been the main driver of.

Increased viewership and as I said earlier in my talk the Tech is working too.

Seeing that people are staying longer in the combination of the two who are driving AD impressions to records for us.

So.

And we have another 20 to go with.

With them, but with the Red box network being added in the Red box Super App being added.

We will expand the number of places we're going to be found I still am of the opinion.

That.

The marketplace for consumers is so difficult to navigate that you need to be wherever they may go and therefore, you have to make it easy for them to find you by being on every being every place that that people congregate.

I will say that the creation of the Super App.

Everything can be in one place for us.

At the beginning of.

Making it easier for people to find our content on our apps and we'll see we'll see how that goes the exact increase probably touch points.

It remains about the same as it's been put around 450000 per new touch points per month.

The viewers.

And the length of time has been consistently better by no less than 20% every time, we've we've added the tech to a new in a new place.

No.

It's going well.

Working.

Great.

Thank you so much I appreciate it that's all I have.

Thank you. Our next question comes from the line of Laura Martin of Needham and company.

Laura Martin Your line is open.

Okay great.

Great numbers today.

I can do or are you doing.

Fabulous.

Or does that appear that way.

My question is on this AD rep business.

Youre selling out your inventory or selling out their inventory.

So you just don't know how the AD rep business work, how do you buy their inventory and keep the upside. If you guys do better is the street missing how does the money work for your addresses.

Good question, Laura and the answer is both.

The one I like the best is where we get to buy it and then we get to resell it and keep as much as possible but.

Most of these guys are too smart for that so they make us they make us take a fee and the fee.

The Commission is interestingly high enough so that it's worth doing on a consistent basis.

And there used to be there was a time where.

If you were somebody using an AD rep partner like US your entire reason for doing it would be to buy time to replace us.

Partners go off to try and start their own AD for US and then come back because it does it work and <unk> and what's happened is we've become sort of the centering device for what all the middle size a box to go to market to go to advertisers. So we make a healthy margin doing that but we also get them money.

I couldnt have otherwise gotten so it becomes a win win.

But I do like it better when they just tell us the inventory and we can resell it because we can make much more.

But they don't always let us do that Laurie so.

Got.

And it's become strategic too, but let me let me let you ask your next question.

No no no I was let's build on that because that's where I started going next because it sounds like there are other strategic benefits you get when you started to have a closer relationship with the Saudis talked about a couple can you build on that and how it strategic which started to build longer term value than the current P&L.

And that's really one of the things I like most about the way. This is evolving what we see happening is increasingly those partners also will lease content from us for use on their networks and that helps us monetize our content even further.

As more connected I don't want to say dependent on each other but more connected and that connectivity of course is helpful.

And then some of these partners are actually places, where we put our apps.

And now they want us to sell their ads. In addition to the ads that relate to our absent so they become distribution partners for us and so there is this web.

Connectivity between us and these AD rep companies that goes beyond just selling ads.

There's another piece to this from my perspective, we get to understand better.

What people are doing.

Things they are watching what stuff, they're actually interested in.

Which <unk> services are performing best.

And while we can't share that information because it's.

Hi, Rob its private or to other people. It is useful for us in understanding better how to build our business and so it helps buying that we make we make real money doing this now.

And if you go back Laura you remember when we first bought Crackle there was PFS view, which was the Sony.

Generating.

Really solid revenue and profitability for us and it's going to continue to grow it's a pretty big factor as we move forward and it's very exciting actually.

That's super helpful. And then I'm interested in this political point, you're making because we haven't heard from other people that theyre getting political revenue yet. So are you, saying to us that a driver for Q3 and Q4 will be political.

Political revenue upside this year.

I am and I will say I'm already annoyed by some of the political ads that I have to watch on our network.

They're already making me in aggregate.

So Matt it Bob Stefan Naskhi whoever the Hell. He is he's running for governor in Connecticut.

That is all the time, it's driving me crazy and he's loud too so I don't know.

I like I like Armani, and he's a good guy and he's our governor Scott.

<unk> is a crazy about it any of that there is so much of this now so many ads cutting against so fast this is going to be a very interesting political season.

With these crazy people all spending insane amounts of money. The only thing. It was better. This was on Bloomberg was spending every dime he had to try and become president and he would pay any amount at any time for any yet it's not quite as good as that but it's pretty good.

Avid impact at least it is for us and I don't believe these other.

<unk> arent seeing it too so.

Okay, and then I will just build on that for my last question and that is on frequency capping could you raise a great point, which is in the AD driven streaming business. It's the biggest consumer complaints is AD frequency. So can you talk about what you guys do on your services to frequency cap.

Like everybody else, we struggle with it and it's a it's a challenge because what you have multiple sources of ads and when advertisers go to multiple frequency capping could you raise a great point, which is in the AD driven streaming business. The biggest consumer complaints is ad frequency.

So can you talk about what you guys do on your services to frequency cap.

Like everybody else, we struggled with it and it's a it's a challenge because when you have multiple sources of ads and when advertisers go to multiple purveyors to place their ads.

<unk> comes in electronically looks like two different ads, but it's the same ad.

And so it's very tough to work your way through that we all worked on it and I remember a lot better than we used to be I remember there was a time when we first of all on these these networks, where you might see five of the same AD and neuro and that was really annoying, we don't have that anymore.

There still are there still it is still hard to completely screen.

Ads that are and as you saw on the last day AD break.

And things like that so.

We're working on it we're getting better at it but we're not anywhere near where we need to be on it we will get better.

Thank you very much.

Thanks, Laura and I think unless I misunderstand it were at the end of the time for this call. So I want to thank everybody for joining us today will be around and hope to talk to you. All soon it's been an exciting time for us and exciting time for our company and I know, it's sort of interesting time in our industry.

I look forward to speaking with you all about that as we go forward thanks for joining us.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 Chicken Soup for The Soul Entertainment Inc Earnings Call

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