Q3 2022 CuriosityStream Inc Earnings Call

Forward to continuing to fulfill our mission to provide the world with quality Entertainment.

That informs and chance and inspires.

Before turning the call over to Peter for a more detailed discussion of our financials I would like to thank our dedicated employees partners and shareholders for their continued support.

I'd also like to personally thank Devin.

Kevin Emery for his contributions and collegiality over the last three years Devan.

<unk> joined us as a marketing executive and responded with aplomb that increasingly complex objectives, we challenged them to me.

Well Devin will be moving on I'm delighted that he will continue to work with us in an advisory capacity. Thank you very much David.

Peter Thanks Clint.

As Clint mentioned, we were very pleased with our third quarter performance with both revenue and EBITDA above the high end of our guidance ranges.

Driven by a number of factors.

Q3 revenue was $23 6 million up 26% year over year.

Before I get into breaking that total down into our revenue categories I do want to note that we have renamed two of those categories.

First what we previously called program sales were now categorizing as content licensing, which we think is a more accurate reflection of that business is business activity. Since many of these transactions involve the licensing of certain rights to our content rather than the outright sales of our programs.

Secondly, we are renaming corporate and association to simply enterprise to be more consistent with industry practice.

So returning to our revenues content licensing was our most significant category this quarter generating $10 8 million of revenue an increase of 60% year over year.

It's notable that this quarter saw both what we refer to as pre sales and content library licensing transactions those library licensing deals tend to have particularly attractive margin characteristics.

Our second largest category this quarter was our direct business, which includes our direct to consumer and partner direct categories.

Direct revenue came in at a combined $8 $6 million, an increase of 16% compared with Q3 2021.

It's worth pointing out that the significant majority of our subscribers in these combined categories, our direct customers of ours, which is not the case for many other streaming services.

Our next largest category this quarter was bundled distribution.

Which saw $2.6 million of revenue in the quarter.

This category was down 27% year over year in Q3, as a result of our non renewal of a single distribution partnership.

While that partnership accounted for a meaningful amount of revenue.

Overall economics for renewing the partnership were not compelling.

As Clint mentioned earlier and I mentioned last quarter, we're extremely focused on improving the overall economics and Bottomline performance of curiosity stream at this time and in the coming quarters and as such we will only enter into commercial relationships that meet our long term revenue and subscriber expectations.

Our next largest category was enterprise, which saw $1 4 million of revenue in the quarter compared to less than 50000 of revenue in the prior year quarter.

Finally, we had approximately $200000 of other revenue in the quarter, which was down from approximately 900000 in the prior year's third quarter.

Third quarter gross margin was 42, 4% up slightly from the second quarter.

One of the big stories of the quarter was clearly a reduction in marketing expense, which was 40% lower year over year and a major driver of our substantial EBITDA outperformance.

We're also seeing meaningful progress in our efforts to reduce our G&A expense, which declined nearly $2 million sequentially.

We believe that we have the opportunity to further reduce these G&A expenses in the coming quarters.

EBITDA for the quarter was a loss of $4 2 million substantially better than our guidance range. As a result of the factors I just described.

This was the best EBITDA performance since the company went public in 2020.

I would also point out that this figure includes approximately $1 7 million of stock based compensation.

Going forward, we plan on discussing and adjusted EBITDA figure during our quarterly reports as do many of our peers in the media and technology sectors.

We also reduced our third quarter cash content spend by more than $4 million on a sequential basis and by greater than 65% compared to the prior year quarter.

This was enabled by the aggressive investments in content that we've made over the past couple of years.

At the end of the third quarter cash restricted cash and available for sale investments totaled $64 $3 million.

Part of my philosophy when it comes to guidance is that it's only truly useful to provide in cases, where there is a meaningfully tight range of expected results to share with investors.

As we head into the end of the year. This year, though we're seeing a wide range of potential outcomes for the quarter.

And we do not anticipate the kind of Q4 sequential revenue growth that we've experienced in the past.

As you know parts of our business tend to involve lumpy large transactions, particularly in the fourth quarter that are inherently somewhat unpredictable and this year that unpredictability is particularly notable.

Also as a reminder, last year, we generated over $10 million in fourth quarter content licensing revenue.

In addition, last year's fourth quarter revenue included $2 $6 million from the distribution agreement that we elected not to renew this quarter.

Finally, we are pleased to reaffirm our expectation that we will end the year with at least $50 million of cash restricted cash and available for sale investments.

With that operator, let's open the call to questions.

Yes.

Yes.

At this time I would like to remind everyone in case to ask a question Press Star then the number one on your telephone keypad.

Our first question comes from Tom Forte with D. A Davidson.

Great Sure Clinton, Peter Congrats on the quarter and the progress, we're making towards free cash flow generation I wanted to ask you. How you thought the 100 days of curiosity promotions going I think its still ongoing I think you'd launched it.

Toward the end of September .

And if it's driving the <unk>.

Success, you hope for and highlighting the differentiator constantly other platform and then I have a follow up.

Okay.

Okay.

Thank you for asking Tom.

We've been particularly.

Excited about and encouraged by the 100 days promotion.

I think it's emblematic of the range of quality content on curiosity I think it underscores the.

Evergreen nature of factual content broadly.

And.

I think what we found is.

In emphasizing.

Our 100 days approach.

That positive impact on engagement.

A positive impact on the duration of viewing.

That's it.

Easy for people to understand and it's a great way for us to.

Reposition our content and re highlight what is so great about curiosity extreme so thank you for asking has been great and I think you can.

We expect that we will we will do things like this on a continuous basis going forward.

Great and then when I think about the OTT industry in general.

Like there's kind of two big things that are going on one is advanced.

Advancements of AD supported.

Services, Netflix rolling out a 699 months at <unk>.

Ported effort too.

Live sports moving to OTT.

Then the thought there is that the live sports moving to OTT may accelerate cord cutting.

So I'd love to get your thoughts on both.

To the extent that youre seeing the industry move toward advertising and then maybe your own fast channel at efforts there and then if you stand to benefit.

You are indifferent.

Or perhaps acceleration of cord cutting with live sports moving to OTT.

Well I think in light of both.

Both of those dynamics Tom.

Really important to have a.

Our pure brand like we have we're the leader in the factual space.

We have extraordinary.

Large collection of factual content across all of the key category Science technology history Natural history Society.

And lifestyle, which I think is really important with all of the different programming options available to people as it relates to fast.

Do have SaaS channel, we continue to roll that out for us.

That's one component of our.

Of our overall audience building strategy, it's one component of our advertising and sponsorship strategy, but what I will say about fast is that it offers for a company like ours more than just a monetization benefit yes, there's a monetization benefit but in our case. We can also use our SaaS channels to promote to our <unk>.

Direct subscription tiers and.

It's an increasingly helpful chip and broader.

Third party distribution conversations.

I think that fast in and of itself.

We will continue to grow people will continue to consume that I think that the biggest winners there will be the platforms.

And people, who and companies who have just lots and lots of SaaS services.

But I do think that for companies like ours.

It's one kind of key component.

And as it relates to ask.

Accelerating cord cutting.

I think yes.

Yes, I think it does when you look at the when you look at the overall consumption there.

If you look at that.

The long long trend.

Probably not unlikely that some of those SaaS platforms will develop subscription services.

At some point in the future so.

We're in both places right now we want to meet consumers, where we are obviously there are much greater barriers to entry to building a subscription service I think thats going to be really hard for.

Any new entrants going forward.

So we.

We like our hand.

Where we are and.

Obviously, we recognize the importance to <unk>.

Meet consumers where they are.

That's been our approach.

Early on we want to be.

Pure <unk>.

Actual brand.

Monetize content across different categories.

<unk> SaaS and advertising content licensing.

Courses subscription tiers.

And.

Even perhaps a few other initiatives going forward. Thank you for that question.

Thanks Kurt.

Our next question comes from Peter Henderson with Bank of America.

Yes, hi, Thanks for taking my question. So I guess I'm just curious on this partnership deal that ended.

When.

Did it and I guess this is the first question and then.

What sort of efforts are you guys making to attract.

Those partnerships that you may have lost as direct to consumer subs and what type of success have you had.

In recapturing some of those subs potentially as direct to consumer subs.

Question, Peter what I'll say is it ended in the third quarter.

We've attracted.

Are customers as direct subs as a result of that and so that particular deal not to get into who it was with but.

The marketing was heavily focused on a strategically important but concentrated DMA for us which exposed curiosity to some key constituencies really important to other parts of our business.

And again as a result of that we have added thousands of subscribers to our direct service and anticipate adding more.

Thank you for your question.

One thing I would add is that that ended roughly midway through the third quarter.

Thank you.

And just as a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Our next question comes from Darren <unk> with Roth Capital Partners.

Hi, Thanks for taking my question. This is Austin on for Darrin.

Brian I'm curious.

If you can discuss.

How youre thinking about trimming.

Marketing expense.

That degree while still balancing topline growth.

Subscriber traction.

And then also how we should think about that moving forward I know you touched on that with G&A I'm not sure. If you mentioned marketing as well.

I'll take the top part and I'll hand, it over to Peter. Thank you for the question so as it relates to as it relates to marketing.

One of the things we're really excited about is as we go into 2023 and 2023.

Don't have the same marketing obligations that we've had in previous years, namely partner marketing obligations. So our marketing will move to virtually 100% performance based marketing.

Based on what we've learned up to this point.

As we look out.

Over what's possible, we're really excited about that transition.

I'll leave it at that and then.

I'll hand, it over to Peter to talk about marketing and perhaps even more broadly cash flow this quarter, yeah. So I would make.

I'd make a couple of points.

In terms of the marketing so as can touch on even even at this level, we were able to outside of this one distribution agreement that we did not renew outside of that we were able to grow the subscriber base on a substantially lower marketing spend.

We do believe that next year as we move into as we get through some significant significantly large contractual commitments that we have on the marketing side will be 100% performance based marketing spend and we think we will get.

Even better Bang for our Buck than we have been getting with some of the marketing spend this year.

And one other one other point I would make youll see in our Q ultimately that we do expect marketing spend to tick up a little in Q4, we do have a commitment.

Our contractual commitment of $6 million in Q4, and expect the marketing spend will be a little bit a little bit north of that and so we do.

We do think as we as we go forward that we do have the ability even at.

Relatively low level compared to what we've spent historically too as we move into an era, where it's all performance based marketing spend to continue to build the business.

Lower overall market market spend next year.

Great. Thank you.

There are no further questions at this time with that said concludes today's conference. Thank you for attending today's presentation. You may now disconnect.

Okay.

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