Q3 2022 Chicken Soup for The Soul Entertainment Inc Earnings Call

November 14, 2022

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Good day, and thank you for standing by and welcome to the chicken soup for the Soul Entertainment third quarter 2022 earnings call.

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I would now like to hand, the conference over to your speaker today.

<unk> head of Investor Relations. Please go ahead.

Thank you good afternoon, and thank you for joining us for the chicken soup for the Soul Entertainment third quarter 2022 conference call.

Begin with opening remarks from our chairman and CEO William J, Rihanna, followed by remarks from our CFO Chris Mitchell.

After their remarks, we'll open the call for questions.

Matters discussed on this call include forward looking statements, including those regarding the performance of future fiscal years.

The statements are subject to a number of risks and uncertainties.

Actual results could differ materially and adversely from those described in the forward looking statements.

Gulf of various factors.

These include the risk.

And chicken soup for the Soul Entertainment most recent annual report on Form 10-K.

Amended and our most recent quarterly report on Form 10-Q filed with the SEC today.

And the company's registration statement on form S. Four it declared effective by the SEC on July 15th 2022.

The company undertakes no obligation to publicly release the results of any revisions to these forward looking statements that may be made to reflect any future events or circumstances. Please.

Please refer to the earnings release under the news and events tab on the Investor Relations section of the company's website for a discussion of certain non-GAAP forward looking measures discussed on this call.

With that I'll now turn the call over to William <unk>, Chairman and CEO Bill. Please go ahead.

Thank you Sarah and welcome everyone. This is the first earnings call. We've had since we acquired Red box, we had a great quarter.

Come back to that in a moment when we review the quarter's highlights I'll also update you on how well our integration of Red box has been going I'll walk you through the synergies we've been capturing across every part of our business.

But first I want to spend a moment talking about what a great moment. This is for Avon and fast.

Two studies recently caught my attention first was included in our newsletter from Lion tree, which many of you know a thought leader in our media financing space.

As indicated that 98% of brands expected connected television advertising to become larger than mobile advertising in the next two to three years.

Branch overwhelmingly recognize the growing value of connected TV advertising and nearly every single advertiser is expecting it to become a massive channel to reach their consumers.

In addition, 86% of consumers are willing to see ads that are relevant are entertaining in fact, only 40% of them would reject connected television if there are too many ads.

Going forward, we will see more and more AD dollars shift to connected TV AD supported video on demand.

What's even more shocking and interesting came in the second survey this one from Nielsen.

Only 37% of USD yours are currently watching streaming services.

That means the majority of the opportunity in Avon and fast is still to come and remains untapped.

So what does this mean for us.

This shift happens, we're poised to take market share as we build the best Dave out and fast services because the trend is clear more and more AD dollars will shift to CTV and AD supported video on demand and the growth ahead as major.

Early on we as a company identified our North Star.

And in a world of more and more competing as thought services limited.

<unk> growth and ballooning content cost the industry would turn and ultimately rely on Avon as a more viable business model.

We recognize that <unk> would become the place to be and we adjust the beginning to see that shift as more and more entertainment companies are rushing to offer AD supported tiers.

While others are just beginning to explore fast offerings.

We've been doing this for years since we first planted our flag with popcorn flex in 2017, and then began and then by acquiring crackle in 2019.

Since that time, we've only been getting bigger and better building scale, adding distribution touch points and producing on acquiring high quality content for our services.

Let me be clear our mission remains the same as it has always been we are building the best day by platform and a leading premium entertainment company for value conscious consumers.

I want to underscore the fact that we are the only scaled a void.

<unk>, followed by our studio our Tech company, which gives us both the opportunity and flexibility to drive our strategy and create value for our stakeholders.

By the way that <unk> study I mentioned earlier also highlighted something that we've known for years.

We'll watch interesting and relevant ads with nearly nine out of 10 consumers, saying, they're willing to watch ads that are entertaining interesting or relevant to them. So both advertisers and consumers are coming together and realizing that Avon is the place to be.

Never been in a better position to capitalize capitalizing that convergence.

Our strong and unique positioning in the media landscape is reflected in the results we announced today.

We ended the third quarter with seven with revenue of $72 4 million adjusted EBITDA of $99 6 million and adjusted earnings per share of 54.

Exceeding consensus expectations across all of these key financial metrics the strength in our operating results proves that our touch point strategy is working and we remain comfortable with our expectation to exit the year at a run rate of $500 million in revenue and $100 million to $150 million and adjusted EBITDA.

We're making this progress because our strategy of owning an incredibly diverse set of assets, which we use to monetize content in.

Every conceivable way gives us the ability to keep a flow of premium content coming even though our streaming services are free.

We have a physical kiosk business <unk> business that complements our growing <unk> business.

<unk> business and our studio business, where he can produce acquire in license titles to other streamers.

There is a way to monetize titled through distribution, we have it and we do it.

Not only does our 360 degree strategy allow us to monetize content across every window and platform. It also mitigates the risk of depending solely on one platform a device manufacturer.

This combination of monetizing every window diversifying our distribution touch points and I should add not being in the very competitive device business has put us in the best position to capture video on demand market share and incremental ad dollars.

Our integration of Red box has been has been going as well as expected.

The management team that we've put in place along with our employees have done a tremendous job of identifying ways to capture synergies and scale the business.

As we outlined on our last call, we expect meaningful synergies that we've already begun to capture we've had been uncovered synergies that werent included in our original plan.

This is all to say that our plan is coming together nicely and we have all the pieces in ingredients needed for success going forward.

Now turning to a little bit more on quarterly performance. As you are aware of the performance of our kiosks is driven by both the number and cadence of big theatrical releases, along with the level of rentals.

Fight the pandemic customer visits to kiosks remained steady over the past two years, even with kiosks had very few blockbusters.

After a years long drought driven by the Covid related theater closures and production delays Big movies are finally coming back as you saw this past weekend and consumers customers no longer have to leave the kiosks empty handed.

All comments are surprised that the outside outsized theatrical head.

This year's biggest Paramount's top gun Maverick works as it works its way through our distribution windows. We can expect an equally outsized impact on the level of rentals at our kiosks during the fourth quarter in.

In fact, we've already seen a positive impact in <unk> during the third quarter from the film, which I'll discuss in a moment.

Clear the big films drive rentals at the kiosk and Thats exactly what we saw.

As over the last month with the average number of rentals per day increased by 20%, 25% over the prior months.

We're continuing to see a growth in average rentals, both in October and November , but as I mentioned, we need consistent big title releases to get back to historical levels.

That consistency, particularly if you look at exhibit results is not yet where we want it.

However, it is evident that the industry is trending in a positive direction with more worth more studios recommitting to the theatrical window and I might add that every time, a big hit like this weekend had kmart comes out that reinforces the message to the studios.

Despite these challenges our kiosk network remains a critical piece of our marketing and distribution flywheel and as always we're focused on driving profitability by constantly optimizing that network.

As of September 30, we had around 34000 kiosks nationwide.

Of this number of kiosk will fluctuate as we evaluate the most profitable net mix of both retail partners at locations looking forward, we want kiosks kiosk counts to grow year over year, as we shift to more profitable locations.

In fact, we are already working on adding 1000 kiosks with our most profitable retail partner.

I also want to briefly highlight our servicing business.

Which is inside our kiosk network, which remains a hidden gem and although I don't think it will remain hidden if I keep talking about it. This way. This business is growing and we have a fantastic partnership with Amazon hub lockers to service their entire network in the U S. Additionally, our pilot with <unk> was successful and we've recently entered into an agreement to service there.

Her entire kiosk network as well.

Turning to <unk>.

<unk> offering is yet another way for us to interact with our with our consumers and meet audiences everywhere they are making decisions.

Back to top gun Maverick is film strong performance extended beyond theaters, an entity that where it was our biggest premium title launch ever at $19 99.

Blockbuster had like top gun, our value proposition with customers consumers is as clear as ever but we're looking for an affordable nightly physical rental at a kiosk or transactional video on demand experience. We are the leading premium entertainment destination for value conscious consumers.

Yes.

<unk> business provides us with an incredible amount of valuable data and what people like to watch that data combined with our kiosks rental information and our loyalty program of 41 million members gives us both a captive audience and a wealth of information on how we should program and monetize our content on our networks.

It's a data driven process that is one of the reasons that our <unk> business is a strategic asset that will only grow in importance going forward.

Turning to our digital offerings I spoke earlier about what a great moment. This is for Avon and fast because of the seismic shift to the consumers and advertisers to CTV from linear broadcast.

Overall AD impressions were up 28% year over year in September and Cpm's were up 8% during that same period proof that we're capturing audiences and drove by Supercharging, our distribution touch points strategy not only for crackle in chicken soup for the soul services, but now for the Red box App as well.

We're on track to hit over 160 touch points by year end, giving us the reach and footprint to meet audiences everywhere imaginable.

And in our AD Rep business, we've added two new partners, bringing our total number of partners to 14 with more to come.

Those who are paying attention would have noticed the steady flow of press releases, we put out.

One as recent as this morning announced our extended partnership with Vizio.

Which by the way is added to our previously announced <unk> partnership.

Two of the largest TV manufacturers in the world.

To add not one but two buttons for both crackle and Red box App on millions of remotes in 2023.

If we're most we're real estate I'm told this is prime Malibu Malibu oceanfront.

We're also we also recently expanded our relationship with LG launching for fast channels on their platform Crackle chicken soup for the soul truly and popcorn flex.

We're also seeing continued success and growth of our chicken soup for the soul streaming service, where I'm pleased to announce we're expanding our distribution footprint and are launching on Android fire.

Amazon fire and Android TV with Roku soon to follow.

The growth we saw on the App from August to September and number of minutes watched it is a big number over 4000% of course, we are talking about starting with small numbers there, but nevertheless, it was driven by two factors increased touch points and high quality program programming time to major global events.

Which I'll talk about in a moment.

The chicken soup for the soul brand is recognized and loved by audiences around the world and that brand strength is a major driver of the performance of our branded streaming service.

Much like the book series the content on the streamer consistently resonates with audiences because it's both topical and seasonal.

Our programming team does a fantastic job curating content on the chicken soup for the soul App that resonates with audiences and ties into major global events.

A fantastic example of this includes the chicken soup for the Soul Royals channel, which featured $24 seven content on the Royal Fat Royal family and tied into the life and legacy of the late Queen Elizabeth.

Audiences Love this content helped drive total minutes view in September to a record high heading.

Heading into the holidays to better service our audiences the content. They love we've got one of the largest offerings of holiday fast branded SaaS channels. Among all Avon services 13 channels to be exact including one from chicken soup for the soul.

And as we continue to expand our digital distribution touch points, our world class team of creative and acquisition executives are making sure that we have the highest quality content that viewers love to watch the.

The strong performance of Crackle and on our other platforms was driven by our high quality slate of original shows <unk>.

<unk> shows like the wall in the vault and going from broke executive produced by Ashton Kutcher, and Dan Rosensweig, which if you haven't seen it you should really check it out.

By the way season, three launched on November 10th.

As well as our exclusively licensed content like BBC Sherlock not.

Not only are we putting high quality content on our own services, but we're also producing and licensing high quality content to other streamers.

Our House Studios produced series for Disney plus the mysterious Benedek Society as a breakthrough hit being nominated for 11 children and families.

Emmys, including outstanding Young Teen series.

Series began streaming last year, our second season, just premiered on October 26.

So when it comes to content production and acquisition our strategy mitigates risk without sacrificing quality, you'll also see us develop co productions like we are doing a publicist medias apex content ventures.

On an upcoming reality series, starting the hilarious JV smooth that will run exclusively on our redbox and crackle platforms.

Power of our studio model over time allows us to offset production risk, while creating a pipeline of content that is owned and controlled by us.

<unk> that we can monetize across every channel.

Turning to our advertising outlook, there's no doubt that advertising budgets are shifting from broadcast and linear to CTV.

And as we build the best Dave out of SaaS platforms, we're insulated from the decline in traditional broadcast linear ad spending.

We expect to see continued strength in CTV AD spend as we head into the holidays and into next year.

As the industry scrambles to pivot to AD supported streaming we are well positioned to take advantage of that shift and create value for our partners customers and shareholders.

I'd like to thank our employees for their tremendous dedication and hard work as we integrate chicken soup for the soul Entertainment and Red box.

Then we wouldn't be a top a bi company and a leading destination for premium content for value conscious consumers.

And then finally in closing we announced this afternoon that we're excited to have Jason Meyer promoted to the role of Chief Financial Officer of Chicken soup for the Soul Entertainment.

Jason joined Us about a year ago and has served as our chief accounting officer over that period. He brings a wealth of experience and is well suited for the role which he will officially start tomorrow.

And of course, we need to think Chris Mitchell, our current CFO , who will continue to be the chief financial officer of our parent company chicken soup for the Soul Holdings and will remain on the board of ticket to sell entertainment.

While it continues to help out in other roles with the parent company.

He will also continue to help with Investor relations and financings as needed for the entertainment business.

With that I'd like to turn it over to Chris to walk you through our financial results for the quarter.

Thank you Bill.

Good afternoon, everyone first.

First I'd like to say congratulations to Jason I'm excited to see you move into this role.

Now for some commentary on the quarter.

As Bill discussed we are well positioned to continue taking market share as both audiences and advertisers shift from linear to CTV and now with the addition of red boxes, <unk> and DVD businesses, we are even better positioned to benefit from the rebound in theatrical releases.

Our third quarter results were strong and reflect a partial quarter for red box as the acquisition closed on August 11th 2022.

Third quarter net revenue was $72 4 million compared to $29 1 million in the prior year period.

Year over year increase of 149% and compared to net revenue of $37 6 million in the second quarter of 2022 sequential quarterly growth rate of 92%.

In addition to growth from having six weeks of Red box revenues in the period. We saw continued strength enabled streaming revenues from Hayward rights as well as add representation revenues distribution touch point revenues owned and operated AD revenues driven by our new apps and an increase in sponsorship revenue due to the.

Premier of chicken soup for the soul of TV groups original production pet caves on our streaming platforms.

We saw continued strength across all of these streaming revenue categories. Once again, highlighting our unique positioning in the Avon ecosystem.

The benefits of Red box acquisition started to become clear right away as CSS E. Salesforce began to sell red boxes, Eva and fast channel Ad inventory.

Realizing higher CPM and higher fill rates as compared to levels realized pre acquisition. While also saving the commission the red box used to pay to a third party sales team.

We also recently saw the benefits of owning red boxes Tivo platform in early November with the strong performance of top gun Maverick, our biggest premium title launch on <unk>.

We believe our third quarter performance is once again noteworthy in light of the macro and secular growth challenges facing the broader media and streaming industries.

In the third quarter gross profit before film library amortization expense and related cost and after Red box product cost was $45 4 million or 63% of net revenue as compared to $18 3 million in the prior year quarter or 63% of net revenue.

CSC Standalone gross profit was 22% of net revenue in the quarter up from 16% in the second quarter of 2022 and 21% in the prior year quarter.

When combined with Red boxes, Standalone gross profit margin after product cost of approximately 59%. The combined businesses had a blended gross profit margin.

38%.

Operating loss for the third quarter 2022 was $42 7 million compared to an operating loss of $13 2 million in the year ago period. This variance was largely driven by a $15 3 million increase in one time transaction related expenses related to the close of Red box.

And an $8 7 million increase in compensation expense, primarily driven by year over year increases in workforce driven by the Red box merger and the acquisition of 10 91 media in March of 2022.

We also had a $4 1 million increase in other operating expenses, primarily related to additional overhead cost of <unk>.

$3 1 million from the Red box operation.

Our adjusted EBITDA for the third quarter was $9 6 million compared to $4 9 million in the same period last year, representing a year over year increase of 96%.

This reflects our continued viewership growth and our cost efficient content acquisition production and distribution model.

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.

Of note net income for the quarter would have been positive without the nonrecurring transaction costs.

Looking at our balance sheet and liquidity position as of September 32022, the company had cash and cash equivalents equivalents of $36 3 million.

Compared to $23 5 million at the end of the second quarter of 2022.

As we discussed last quarter, we are focused on free cash flow and are scaling back on content spend.

In fact, we've committed to less than $500000 of new content spend since closing the redbox transaction.

And we have the ability to view our content assets as a savings bank. So we can selectively cash and if we choose to.

Further enhancing our liquidity, we have very little in the way of payments that will become due under our new HTS debt facilities. If we choose to pick our interest expense is there is no required principal reductions for two and a half years post closing of the acquisition.

We also have multiple sources of additional liquidity available to us, including the ability to have an accounts receivable based facility against our $96 million of accounts receivable.

And normal course content financings.

All of these levers combined to put us in a solid liquidity position with flexibility as we remain committed to generating free cash flow and paying down debt.

Now I would like to turn the call over to <unk> for Q&A.

Thank you operator can we open the line for Q&A. Please.

As a reminder to ask a question press star one one when you're talking with Bam. Please standby, while we compile the Q&A roster.

Our first question comes from Thomas Forte with D. A Davidson your line is now open.

Great. So bill congrats on an amazing quarter two high level industry question. The first one.

When you think about the industry to what extent is the launch of Netflix 699 code serviced.

Service going to accelerate that secular shift of AD spending moving to OTT from linear television.

I think it is going to accelerated a budget.

We've already seen that basically every major advertiser now is committed to CTV as I cited earlier in the talk.

And it just gives it just validates once and for all that this is it but it is an AD supported business that we're all in.

And consumers are going to watch content with ads and there'll be surprised if the <unk>.

Netflix and Disney's of the World.

Continue to increase the number of ads they run on their shows because they need them and they need the money. So.

It's happened people have arrived.

Excellent I agree with you and I look forward to watching their AD loads increased first time alright. Thank you.

The one that is also a industry level, but then tickets to fulfill a specific.

If I think about Amazon and Apple and forget about how much money. They are spending potentially take live sports move into OTT.

To what extent is live sports moving to OTT accelerating cord cutting and how is it accelerating cord cutting good for chicken soup.

Well I think earlier on.

Aye.

Talked about that Nielsen's statistic about only about 36% of people getting their there.

Content through streaming meaning there are 64 left to come to come over.

We're after that 64% time aren't we I mean that triples, the size of our business are.

Market at the very least and when they as they as the sports is a sports move over the cord cutting continues the <unk>.

Size of the market, where we're attacking is got a triple in size over time and it just gives it just it gives you a sense of the scale of the opportunity in front of US. That's one of the top five people in the space. It's got an enormous opportunity. So yes sports helps and now it is helping us by moving people.

Okay.

Thank you Bill.

Please standby for our next question.

Our next question comes from Dan <unk> with Benchmark Company. Your line is now open.

Great. Thanks, Good afternoon, I haven't got that one bill.

Just a few if you'll bear with me just a quick one that always gets asked of you is.

Your channel mix.

And you are about I think 14% programmatic now we know that magnetic just one <unk>.

<unk> deal from three view.

From a freewheel mi and.

It's interesting because to me.

As growing gangbusters, primarily programmatic, whereas.

Pluto, which is going a little bit the other direction is actually sounded like they are starting to shift a little bit more of a direct sales channel. So I'm just curious how youre thinking about kind of channel sales mix going forward.

Yeah, Hi, Dan.

That has always been an issue as you know.

We've always taken the position that direct is the way to go for the most part and that seems to still be the case as far as we can tell.

I've always tried to make sure people understand that direct sales doesn't necessarily mean direct delivery because we quite often sell directly to advertisers and then deliver programmatically because its at its advantageous for us and them.

But.

That continues to be the case I think we're at 69% directed.

We brought that number's card there'll be a new deck filed in the morning that'll be in there.

And so we're staying where we are I will say this dan.

We're now at 14 AD Rep partners people have come to us to ask for help selling their ads.

The reason they come to us because we have a direct sales force.

That part of our business has been growing very very rapidly.

It is an extraordinarily advantageous place for us to be because it gives us increasing critical mass and therefore, increasing importance to our advertisers it allows us to help them.

These other companies monetize their advertising.

But it wouldn't be happening if we didn't have a direct sales force they need access to what direct salespeople can do we have it we provided.

I don't want to get into the details of.

The nature of that business, but suffice it to say, it's a good business for us.

So.

We're now up to 2014, we were at three at the beginning of the year. These are not insignificant people who have come our way in.

There are another three I think at least in the queue.

Who are coming to to get this kind of help from us this creates a kind of collective.

Group of <unk>, who are going to the market together it provides.

Crease in cloud increasing notoriety recognition whatever you want to say so.

This direct sales force approach has really worked well for us in more ways than one.

Got it Thats helpful update on that and then.

Just something that you've kind of mentioned only 500000 committed.

Then obviously you have a huge library as you've added more youre working on the integration with Red box.

An interesting point in the market right Bell, where you've got a bunch of guys that are probably starting to recognize that there may be spending a little too much on content spend although we'll see if that eases or not and they're really looking for outlets too.

Utilize more efficient networks, which you guys have the studios in gist.

You've always prided yourself on your original content mix, how do you think of both the incremental channel four content production some of what you've mentioned today as well as also and you mentioned this a little bit of a top gun, beating an outlet for increased monetization from third party partners.

Well as you know I like to make money in any way, we possibly can.

So being an outlet for others content, especially through our <unk> business and our kiosk business.

It's really a great place to be it generates tremendous amounts of cash flow. It gives us some strategic importance to those partners. Because we are the sole source of certain types of revenue are an important source of other types of revenue and you can't.

You can't Underplay, how important that is in a business of the software that we have an outlet.

Outlet or two that are very important contributors to some of the biggest companies revenue streams.

So from that point of view, Dan I like it is a profitable business I also like it as a business that puts us in a good strategic position from the point of view of creating our own content. The fact that we didn't spend much is because we have a lot.

<unk> built up as you guys know over the last year over 100 pieces of original and exclusive content that we have coming our way.

Got thousands and thousands a day about assets tens of thousands of Avon assets now.

And those assets are are up higher and higher quality.

I watch our networks pretty much every day, sometimes to the chagrin of our network ops people.

Because I may be the best QA Guy on that can the company at this point given the fact that I am constantly complaining because I want it to be as great as it could possibly be.

And I got to tell you the stuff we have on the networks is really really good I called out some of it in the wall.

Yes.

The wall is great in the vault is great I watched the Brian Wilson Special last night, it's great. Sherlock is great. These are incredibly high quality shows they're just as good as anything you'd find that any of us thought and there are lots of them on our networks.

We're in a good spot as far as content goes and Thats one of the reasons, we're going to be able to look at our content as a savings account as Chris said as much as anything else.

We will have we will generate a fair amount of liquidity from our content over the next 12 months.

And I know you'd be disappointed if I didn't ask.

Even though of course, you just digesting Red box, but you did put in the press release more commentary around international.

We've got Paramount starting to launch a hybrid model. There next year I think they are starting to help lay even more groundwork there, but just how do you think about international monetization you already have some of your own.

Boots on the ground or bricks laid there, but just how much.

There was an opportunity is that you think over the next 12 months.

I think it's a big opportunity.

It has gone slower than I thought it was going to go down I thought we would already be.

Yes.

And quite a few more countries and we're actually at right now.

We are in pretty serious discussions as we say in the new.

New deck, we filed tomorrow.

Dozens of countries now.

With meaningful.

Potential counterparties.

Well recognized well, Florida partners.

I think it will end up being a very big opportunity for us structured a little bit the way.

<unk> rolled out their business internationally and the way HBO rolled out their business internationally.

But the proofs.

Proofs and to put it it's not there yet, but I do think it's going to be a big opportunity.

Alright, Thanks, Bill I'll leave you to your QA and the rest of the Q&A.

Thank you Dan.

Please standby for our next question.

Yes.

Our next question comes from Eric Wold with B Riley Securities. Your line is now open.

Thank you and good afternoon.

A couple of questions Bill I guess.

You mentioned.

That sort of the financial I'm, sorry, you mentioned that you still expect to exit the year.

$500 million revenue run rate and a $100 2 million and adjusted EBITDA run rate can you talk about that.

Puts and takes that could drive you to the low end or higher of that range with.

Does that seem to fix revenue number and then you still expect to exit this year on a.

Positive free cash flow run rate.

Okay.

Not think anything's changed Erik from what we expected when we when we did the acquisition.

What may change as some of the ways. We ended up at those results. So.

For example, I was really surprised by how good a business I see the <unk> business, becoming that is that is going to be a big contributors to this.

This process I've also been really gratified by that.

The way in which the the Eva networks are now coming together and the way in which we're rolling out additional places where there is where there are.

The additional touch points and I think our sales force is doing a great job already selling a good chunk of the inventory that Red box has had and then theres the fast business, where we added eight or 10 more channels. So all of those parts of the business.

Exceeding my expectations.

The service business is also exceeding my expectations and the one places not exceeded my expectations as the kiosks, where the pace of the new theatrical releases continues to be choppy we get.

We've got a top gun, we have a fantastic experience.

Well youll see that as the process continues to roll on.

There'll be more and more theatrical releases that are coming it's pretty clear now.

But it's.

The combination is really good.

It's really the mix, Eric Thats going to drive whether it's 150.

There are different market okay.

Right.

That helps.

Sorry for the last one.

Are you still looking to exit the year on the positive free cash flow run rate.

Yes, I'm still in the same place changed with the same thing about what I predicted.

Yes.

And then final question I'm going to ask you a question you raised the question.

In a report I saw recently about financing and I Hope you heard the answer which Chris.

Delivered loud and clear.

Working capital needs are good are satisfied by our cash on hand, our $96 million of accounts receivable and our.

Our ability if we care too to get it.

Accounts receivable financing so to the extent people are looking for something else.

That's all that's all we need to do so.

Okay and then just final question on on Redbox, you've talked about it at all.

The pace of releases.

Releases, it's still something that kind of is holding back.

In our business.

But as you look at the individual titles that have come out with a strong titles come out.

Q3, and so far in Q4.

Can you just talk about kind of what youre, seeing what kind of or the rental patterns or trends of those titles versus kind of what they were for strong titles and pre pandemic are you seeing any evidence of.

Those strong titles in the <unk>.

I think they are driving driving demand for maybe some of the smaller titles in the kiosk.

Yes to that.

That is always because people don't usually rent one thing I think the average rentals are close to two per session. If I remember correctly.

I don't believe we're ever going back to 2019, and the kiosk business. So let me be clear nor have I ever said that I thought we were going back to 2019 in the gas business.

Our holding our entire premise for the purchase of the business was that we would return to about half of 2019.

Through the resurgence of theatrical I mean, the world's changed in 2000 and since 2019.

But if we get to the numbers that we that that we expect will be highly profitable, Eric and Thats, what we care about so.

The answer to the question about what are we seeing what we're seeing is consistent consistent with what I expected.

Got it thanks Bill.

Youre welcome.

Please standby for next question.

Our next question comes from Jason <unk> with Craig Hallum. Your line is now open.

Hey, guys good afternoon Bill.

We've heard a lot in connected TV about some advertising advertisers pulling back on budget just due to the macro so curious if youre seeing any of that in your business and then the second one for me just any update on your strategy on pricing of either kiosk or TV Audi rentals.

Yes.

Let's see.

Pullbacks.

I'm sure there are some Jason because the economy sucks.

Technical term.

But I don't think.

I don't think were really seeing it.

It's it's.

Overwhelmed by the movement from linear and broadcast to CTV and really overwhelmed in the last quarter by <unk>.

Politically.

There were so many political ads, even though we were trying not to take too. Many so just everything that came through programmatically was political.

It's getting pretty annoying.

I wouldn't want to live in Georgia, right now where they are about to have a repeat of the list.

At a time because of that race, but it was to me thats.

I think if you don't get the fact that there's this huge migration masking.

Whatever is happening in the economy.

Then you don't understand the industry because we.

We've got more viewers.

And the broadcasters and linear guys had last year or so I mean, it's not really complicated the advertisers follow the viewers and they no longer wonder whether they need to be on CTV. I mean, you remember when we first started doing this and started talking about this with you.

There was a question will advertisers actually go to connected TV will add over that question has been conclusively answered once and for all thank you Netflix. Thank you Disney and thank you viewers for moving.

That's why they they com.

So.

That migration is an over at the very beginning I cited those Nielsen numbers for a reason to make to make sure people understood that we are in like the third inning of what is a massive change in the nature of our business. We're not in the ninth inning, we're in the very early innings.

So.

I think that's the answer on the advertiser side, we haven't seen it.

I think I said in there somewhere that AD impressions were up 28% year over year Jason.

You know I think thats the most important metric in our business number of AD impressions, because thats, what we can sell so that's the combination of viewers and time on site, both of which have been going well for us.

The 28% increases as a meaningful one, especially given what people think is a moment of headwinds of high competition for actualization of the marketplace. All the things that people think are going on in our space.

And they are.

We've got a strategy that I think has been working and is it is working.

<unk>.

To grow our business and to grow it in a cost effective way.

I forgot your second question Jason.

That's okay. It was just around pricing.

Any changes to pricing on kiosk or television on demand.

Now I can tell you that on November one we raised prices at the kiosks by 'twenty six.

So from $2 to $2.

99 to $2 25.

That already happened.

I've been pretty clear I think with most people that we were going to look at that and we've not really looked at it we did it.

Teva is a little trickier, because we all we compete in <unk> with a bunch of others, who.

<unk> price the way they price so I don't think that's as much a price.

<unk> is a discovery situation and I'm really excited that the people at Google Finally came around and decided to include <unk>.

Our available <unk> service and searches about movies up until about three weeks ago.

You would have found.

<unk> you would've found itunes you would've found voodoo, but you wouldn't have found us when you search for a movie.

Now you do.

That's clearly had a positive impact on our <unk> business and like I said there've been some pretty pleasant surprises on the upside thats one of them.

So I think thats.

There's more to come on that.

Great. Thank you Bill.

Please standby for our next question.

Our next question comes from Michael Morris with Guggenheim Partners. Your line is now open.

Thank you very much good evening.

Team I have a couple of questions one.

You could talk a little bit more about the impact of the button arrangement with <unk> and <unk> and what kind of a lift.

<unk>.

Have seen or expect to see from these types of partnerships, maybe any kind of cost associated with that.

I'm also curious about.

Bill your comment about adding the kiosks.

If you could expand a bit more on sort of the profitability or a path to return.

On the kiosk growth plans.

How long of a process do you expect that to be and then finally.

Free cash flow.

You.

Talking about the guide of a run rate as you exit the year what are your thoughts on full year free cash flow either in sort of 'twenty three there beyond what does that path look like thank you very much.

Okay. So if I can remember this.

On the buttons Mike.

We did a vizio button.

Deal I guess, a little over a year ago, maybe a little bit more.

The reason, we not only renewed it but expanded it.

Because it worked we were able to see people click on the button sample our content and stay long enough. So that we could measure that.

The returns and it was substantial.

What we found as we did all of this analysis had measuring with the previous deal that Sony had done a number of years ago, what's still leading to more people viewing so.

The buttons have worked and you know as we've looked at the business.

One of the key complaints that viewers have is it's hard to find things. So we're doing everything in our power to make it easier to find us.

So that they don't have to go searching and the buttons definitely do that.

So we are very committed to the strategy of further buttons, if we can get them and if we cant getting ourselves placed on that.

Ill call the homepage of the smart TV manufacturers.

So that our titles are obvious and easy for people to find because discovery is a critical critical issue in the first thing people have to discover as your network.

So we're there and that's going to continue.

Key asset probably will surprise people.

Here that I'm interested in the idea of looking at both the retail partners that we have and the number of kiosks, we have in a new way.

First of all there are summary hotel partners that are not as profitable as others and I don't really want to I think it's kind of a waste of time and energy to be spending money on less profitable partners.

Some of them more profitable partners are ones that we have big opportunities to expand the number of kiosks that we have.

And that's really where our focus will be that's going to take some time, because if we're going to move things around which we will do and try to follow the money, which we definitely will do.

At this time and effort involved in that but there is a real opportunity and I would say this is another one of those things I didn't realize we would have the opportunity to do I thought we would just be taking things out now I'm starting to think we're going to be putting things back in places that it is more a more sensible and more profitable to do those kiosk still do.

Very well.

Same number of visits now than there were over the last two years the number of visits that gone down.

<unk> very steady so number of conversions that have gone down because of the lack of stuff C. But now the boxes are starting to have a lot of stopping them again. It's you know there is top gun bullet train and note, but a few other things this week.

You just haven't seen this quality of content sitting there for people, so theyre going to have more opportunity to rent things, Mike and that of course means more.

More per session and that drives you back to the kind of numbers that we want to see.

You asked about free cash flow in 2023, I wouldn't change a thing from what we've said before.

This $500 million run rate.

How we will try to enter the year.

I'm sure we will grow it but we haven't predicted a number yet and we can't really until we take a harder look at the next year, which we're doing now, but we're learning a lot it's been great.

A lot of work not complaining mind you but.

Tremendous amount of work and a lot of.

Lot of change for people and Thats always hard, but it's been it's been a good a good experience I'd say overall.

Thank you Bill I appreciate that insight.

If I could just follow up on the first question about the buttons totally appreciate your point about that valuable real estate are they expensive I mean, it seems like Oh, yes, I forgot that part.

Let's put it this way.

Our valuation is that there is a return on the investment, but I will tell you that part of the reason it's worked for us.

Goes back to something I talked for a long time ago about we have other ways, we have relationships with most disease. These manufacturers, we do other things with them. We provide content, we do a lot of things.

<unk> backed that allow us to mitigate cost Mike and I think probably as a result of that we find ourselves in a different position than maybe other people would've who don't have the ability to break out of their assets to the table.

They're not that expensive and they're certainly not expensive compared to what they return.

That's great. Thanks for helping us I appreciate it.

Welcome.

Please standby for next question.

This is going to be the last question, we can take operator, because we're running out of time, but I wanted to make sure I left this one went out bought more opportunities up.

Okay.

Question comes from Laura Martin with Needham Your line is now open.

Hey, nice numbers you guys congratulation.

So youre a great programmer and so what I am really intrigued by is this red box opportunity for keyboard. It is my point of view that we're going to have big hit, but then there is not going to be kind of him in the theater agree with you that 2019 doesn't coming back to the theaters. My question is to the right with Red.

Box work for keyboard or the next window you have so that you could pull.

But more.

Sequels, or the prequels into that those boxes and sort of displace other maybe not so popular.

Titles from the box office at that time do you have enough time to sort of re gender within those boxes, because we saw with Lord of the rings Once Amazon released a new one.

Sub lease from the owner all the prior Lord of the rings and they like tripled the.

The other one so that would be a profit driver right box do you guys have the flexibility to do that when you're adding entitled for the Red box Yep.

Finally, we have both a digital and physical contract with all of the studios Laura So we have access to.

Both their Dvds and their and their transactional video rights that doesn't automatically translate a dave out however, so.

That's going to be a catches you can hours or sporadic thing, but what we will now is whats working before anybody else because we have the <unk> business and we have the boxes and thats part of why I'm. So excited about this collection of assets. The information that we get from each of these places we monetize.

Can be used in the other places sort of to really reinforce your point will now that things are working and we will be able to go and solicit them for other parts of our.

Our business faster than other people well because every place that people are consuming stuff.

So I hope that answers okay.

It sounds like the answer to my question is now that is if you.

If youre going to get over the weekend, where condo was a massive hit $180 million in the box office. So you now know that from the box office release date.

You would love to go to Marvel and basically pack redbox kiosks with all the stop having to do with Macondo you don't have the flexibility to actually do that is the key off globally.

And the physical world do that we actually do that Laura.

We actually do that.

So I answered your question slightly differently.

Because it's not an automatic right, but we do have the ability to do that and we do.

We do okay, Okay cool.

And then.

It does it does it does increase the viewing that we get on these older movies.

Yeah, and I think sequels are going to be sort of where we gather audience.

Okay.

So then my other question is on <unk>.

Im very interested in your point of view on.

As we get Netflix further into late next year as we get Disney starting.

Best in class in December .

By 2023 with the combination of weak connected TV demand and lots of new supply might actually start hurting our cost per thousand could you give us a point of view on that.

Well.

You know.

Our <unk> are up 8% over last year this year.

We went we've been going out to market looking for more than we're getting currently.

We're taking orders.

That way.

A lot of what we'll take orders for our for sales across the year. So the question would be the spot market I guess because by the time you get to the point you've described towards the end of next year.

It'll be a spot market question.

Not an upfront question.

I think it's possible, but I actually don't think it will come out that way because I think the last piece of the puzzle is the migration of people and I don't see that slowing down at all.

Especially the Avon because if the market really is going to be softer.

As is the premise of the question.

There's going to be even more pressure on people to watch a buys as compared to.

Double or triple up on their <unk>.

So I think we are.

That offsetting factor at least to consider but.

My Crystal ball is not as clear as it might otherwise be.

No it's super helpful I'm hearing expert.

Good to hear your point of view, Thank you very much.

Thank you.

Operator.

That's going to be at night.

Everybody for joining us today, and we went to full hour I didn't really mean to go quite that long but.

They gave me a lot to say because there was a lot going on and it's been a great start to a beautiful marriage. So thanks, everybody and to all our employees. Thanks for joining us today until our investors. Thanks for joining us today.

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

Okay.

The conference will begin shortly.

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

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<unk>.

Good day, and thank you for standing by and welcome to the chicken soup for the Soul Entertainment third quarter 2022 earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one one when your telephone and you will then hear an automated message advising youre hanging just raised.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today Zale loved one Dow head of Investor Relations. Please go ahead.

Thank you good afternoon, and thank you for joining us for the chicken soup for the Soul Entertainment third quarter 2022 conference call.

We will begin with opening remarks from our chairman and CEO William J Rohana, followed by remarks from our CFO Chris Mitchell.

After their remarks, we will open the call for questions.

The matters discussed on this call include forward looking statements, including those regarding the performance of future fiscal years.

Such statements are subject to a number of risks and uncertainties.

Actual results could differ materially and adversely from those described in the forward looking statements as a result of various factors.

These include the risk factors set.

Set forth in chicken soup for the Soul Entertainment's most recent annual report on Form 10-K, as amended and our most recent quarterly report on Form 10-Q filed with the SEC today.

And the company's registration statement on form S. Four it declared effective by the SEC on July 15 from 2022.

The company undertakes no obligation to publicly release the results of any revisions to these forward looking statements that may be made to reflect any future events or circumstances.

With that I'll now turn the call over to William <unk>, Chairman and CEO Bill. Please go ahead.

Thank you Sarah and welcome everyone. This is the first earnings call. We've had since we acquired Red box and we had a great quarter.

I'll come back to that in a moment when we review the quarter's highlights I'll also update you on how well our integration of Red box has been going I'll walk you through the synergies we've been capturing across every part of our business, but first I want to spend a moment talking about what a great moment. This is for Avon and fast.

Two studies recently caught my attention first was included in our newsletter from Lion tree, which many of you know a thought leader in our media financing space.

It indicated that 98% of brands expected connected television advertising to become larger than mobile advertising in the next two to three years brands.

Branch overwhelmingly recognize the growing value of connected TV advertising and nearly every single advertiser is expecting it to become a massive channel to reach their consumers.

In addition, 86% of consumers are willing to see ads that are relevant are entertaining in fact, only 40% of them would reject connected television if there are too many ads.

Going forward, we will see more and more AD dollars shift to connected TV and AD supported video on demand.

But what's even more shocking and interesting came in the second survey this one from Nielsen.

On the 37% of U S viewers are currently watching streaming services.

That means the majority of the opportunity in Avon and fast is still to come and remains untapped.

So what does this mean for us.

As this shift happens, we're poised to take market share as we build the best day of Hot and fast services, because the trend is clear more and more AD dollars will shift to CTV and AD supported video on demand and the growth ahead as major.

Early on we as a company identified our north star the idea that in a world of more and more competing as thought services limited <unk> subscriber growth in ballooning content cost the industry would turn and ultimately rely on Avon as a more viable business model.

We recognize that <unk> would become the place to be and we adjust the beginning to see that shift as more and more entertainment companies are rushing to offer AD supported tiers.

Others are just beginning to explore fast offerings.

We've been doing this for years since we first planted our flag with popcorn flex in 2017, and then began and then by acquiring crackle in 2019.

And since that time, we've only been getting bigger and better building scale, adding distribution touch points and producing on acquiring high quality content for our services.

Let me be clear our mission remains the same as it has always been we are building the best <unk> platform and a leading premium entertainment company for value conscious consumers.

I would just underscore the fact that we are the only scaled <unk> not growing by a studio or Tech company, which gives us both the opportunity and flexibility to drive our strategy and create value for our stakeholders.

By the way that <unk> study I mentioned earlier also highlighted something that we've known for years people will watch interesting and relevant ads with nearly nine out of 10 consumers, saying they are willing to watch ads that are entertaining interesting or relevant to them. So both advertisers and consumers are coming together and realizing the Ava.

As the place to be and we've never been in a better position to capitalize on capitalizing that convergence.

Our strong and unique positioning in the media landscape is reflected in the results we announced today.

We ended the third quarter with 17 with revenue of $72 4 million adjusted EBITDA of $99 6 million and adjusted earnings per share of 54.

Exceeding consensus expectations across all of these key financial metrics.

Strength in our operating results proves that our touch point strategy is working and we remain comfortable with our expectation to exit the year at a run rate of $500 million in revenue and $100 million to $150 million and adjusted EBITDA.

We're making this progress because our strategy of owning an incredibly diverse set of assets, which we use to monetize content in every conceivable way gives us the ability to keep a flow of premium content coming even though our streaming services are free.

We have a physical kiosk business <unk> business that complements our growing Eva business, a fast business and the studio business, where he can produce acquire in license titles to other streamers.

Theres a way to monetize the title through distribution, we have it and we do it.

Not only does our 360 degree strategy allow us to monetize content across every window in platform. It also mitigates the risk of depending solely on one platform a device manufacturer.

This combination of monetizing every window diversifying our distribution touch points and I should add not being in a very competitive device business has put us in the best position to capture video on demand market share and incremental ad dollars.

Our integration of Red box has been has been going as well as expected.

Our management team that we've put in place along with our employees have done a tremendous job of identifying ways to capture synergies and scale the business.

As we outlined on our last call, we expect meaningful synergies that we've already begun to capture we've been uncovered synergies that werent included in our original plan.

This is all to say that our plan is coming together nicely and we have all the pieces in ingredients needed for success going forward.

Now turning to a little bit more on quarterly performance as you are aware the performance of our kiosks is driven by both the number and cadence of big theatrical releases, along with the level of rentals.

Fight the pandemic customer visits to kiosks remained steady over the past two years, even with kiosks had very few blockbusters.

<unk> comments are surprised that the outside outsized theatrical head.

In fact, we've already seen a positive impact in <unk> during the third quarter from the film, which I'll discuss in a moment.

It's clear that big films drive rentals at the kiosks and Thats exactly what we saw.

As over the last month with the average number of rentals per day increased by 20%, 25% over the prior months.

We're continuing to see a growth in average rentals broke in October and November , but as I mentioned, we need consistent big title releases to get back to historical levels.

That consistency, particularly if you look at exhibit results is not yet where we want it.

However, it is evident that the industry is trending in a positive direction with more worth more studios recommitting to the theatrical window and I might add that every time a big hit like this weekend had came up comes out that reinforces the message to the studios.

As of September 30, we had around 34000 kiosks nationwide.

Of this number of kiosk will fluctuate as we evaluate the most profitable mix of both retail partners that locations looking forward, we want kiosks kiosk counts to grow year over year, as we shift to more profitable locations.

In fact, we are already working on adding 1000 kiosks with our most profitable retail partner.

I also want to briefly highlight our servicing business.

As inside our kiosk network, which remains a hidden gem.

Although I don't think it will remain hidden if I keep talking about it this way.

This business is growing and we have a fantastic partnership with Amazon hub blockers to service their entire network in the U S. Additionally, our pilot with <unk> was successful and we've recently entered into an agreement to service their entire kiosk network as well.

Turning to <unk>, our transactional offering is yet another way for us to interact with our with our consumers and audiences everywhere they are making decisions.

Going back to top gun Maverick.

<unk> strong performance extended beyond theaters, an entity that where it was our biggest premium title launch ever at $19 99.

Buster like top gun, our value proposition for customers consumers is as clear as ever but we're looking for an affordable nightly physical rental at a kiosk or transactional video on demand experience. We are the leading premium entertainment destination for value conscious consumers.

[laughter].

It's a data driven process that is one of the reasons that our <unk> business is a strategic asset that will only grow in importance going forward.

Turning to our digital offerings I spoke earlier about what a great moment. This is for Avon and fast because of the seismic shift to the consumers and advertisers to CTV from linear broadcast.

We're on track to hit over 160 touch points by year end, giving us the reach and footprint to meet audiences everywhere imaginable.

And in our AD Rep business, we've added two new partners, bringing our total number of partners to 14 with more to come.

Yes.

How is who are paying attention would have noticed the steady flow of press releases, we put out.

One as recent as this morning announced our extended partnership with Vizio.

Which by the way is added to our previously announced <unk> partnership.

Two of the largest TV manufacturers in the world.

To add not one but two buttons for both crackle and Red box App on millions of remotes in 2023.

If we're most we're real estate I'm told this is prime Malibu Malibu Ocean front.

We're also we also recently expanded our relationship with LG launching for fast channels on their platform Crackle chicken soup for the soul truly and popcorn flex.

Amazon fire and Android TV with Roku soon to follow.

The growth we saw on the App from August to September and number of minutes watched it was a big number over 4000% of course, we are talking about starting with small numbers there, but nevertheless, it was driven by two factors increased touch points and high quality program programming time to major global events.

Which I'll talk about in a moment.

A chicken soup for the soul brand is recognized and loved by audiences around the world and that brand strength is a major driver of the performance of our branded streaming service.

Much like the book series the content on the streamer consistently resonates with audiences because it's both topical and seasonal.

Our programming team does a fantastic job curating content on the chicken soup for the soul App that resonates with audiences and ties into major global events.

A fantastic example of this includes the chicken soup for the Soul Royals channel, which featured 24 seven content on the Royal Fat Royal family and tied into the life and legacy late Queen Elizabeth.

Audiences Love this content helped drive total minutes view in September to a record high.

Heading into the holidays to better service our audiences the content. They love we've got one of the largest offerings of holiday fast branded fast channels. Among all Avon services 13 channels to be exact including one from chicken soup for the soul.

The strong performance of Crackle and on our other platforms was driven by our high quality slate of original shows including shows like the wall in the vault and going from broke executive produced by Ashton Kutcher, and Dan Rosensweig, which if you haven't seen it you should really check it out by.

By the way season, three launched on November 10th.

As well as our exclusively licensed content like BBC Sherlock not.

Not only are we putting high quality content on our own services, but we're also producing and licensing high quality content to other streamers.

Our House Studios produced series for Disney plus the mysterious Benedix Society as a breakthrough hit being nominated for 11 children and family.

Emmys, including outstanding Young Teen series.

Serious began streaming last year, our second season, just premiered on October 26.

So when it comes to content production and acquisition our strategy mitigates risk without sacrificing quality, you'll also see us develop co productions like we're doing a publicist medias apex content ventures.

On an upcoming reality series, starting the hilarious jb's mode that will run exclusively on our red box on crackle platforms.

Power of our studio model over time allows us to offset production risk, while creating a pipeline of content that is owned and controlled by us.

<unk> that we can monetize across every channel.

Turning to our advertising outlook, there's no doubt that advertising budgets are shifting from broadcast and linear to CTV.

And as we build the best Dave out of SaaS platforms, we're insulated from the decline in traditional broadcast on linear ad spending.

We expect to see continued strength in CTV AD spend as we head into the holidays and into next year.

As the industry scrambles to pivot to AD supported streaming we are well positioned to take advantage of that shift and create value for our partners customers and shareholders.

I'd like to thank our employees for their tremendous dedication and hard work as we integrate chicken soup for the soul Entertainment and Red box. So.

Without them, we wouldn't be a top Eva company, and a leading destination for premium content per value conscious consumers.

And then finally in closing we announced this afternoon that we're excited to have Jason Meyer promoted to the role of Chief Financial Officer of Chicken soup for the Soul Entertainment.

And of course, we need to thanks, Chris Mitchell, our current CFO , who will continue to be the chief financial officer of our parent company ticketing saw holdings and will remain on the board of chicken soup for the Soul Entertainment.

While it can take us to help out in other roles with the parent company.

He will also continue to help with Investor relations and financings of needed for the entertainment business.

With that I'd like to turn it over to Chris to walk you through our financial results for the quarter.

Thank you Bill.

Good afternoon, everyone first I'd like to say congratulations to Jason I'm excited to see you move into this role.

Now for some commentary on the quarter.

Our third quarter results were strong and reflect a partial quarter for red box as the acquisition closed on August 11th 2022.

Third quarter net revenue was $72 4 million compared to $29 1 million in the prior year period.

Year over year increase of 149% and compared to net revenue of $37 6 million in the second quarter of 2022 for a sequential quarterly growth rate of 92%.

In addition to growth from having six weeks of redbox revenues in the period. We saw continued strength enabled streaming revenues from Hayward rights as well as add representation revenues distribution touch point revenues owned and operated AD revenues driven by our new apps and an increase in sponsorship revenue due to the.

Premier of chicken soup for the soul TV groups original production pet caves on our streaming platforms.

We saw continued strength across all of these streaming revenue categories. Once again, highlighting our unique positioning in the Avon ecosystem.

The benefits of Redbox acquisitions started to become clear right away as CSS E. Salesforce began to sell red boxes, Eva and fast channel Ad inventory.

<unk> higher CPM and higher fill rates as compared to levels realized pre acquisition. While also saving the commission the redbox used to pay to a third party sales team.

We also recently saw the benefits of owning red boxes T by platform in early November with the strong performance of top gun Maverick, our biggest premium title launch on <unk>.

We believe our third quarter performance is once again noteworthy in light of the macro and secular growth challenges facing the broader media and streaming industries.

<unk> stand alone gross profit was 22% of net revenue in the quarter up from 16% in the second quarter of 2022 and 21% in the prior year quarter.

When combined with Redbox is standalone gross profit margin after product cost of approximately 59%. The combined businesses had a blended gross profit margin of 30.

38%.

An increase in compensation expense, primarily driven by year over year increases in workforce driven by the Red box merger and the acquisition of $2 91 media in March of 2022.

We also had a $4 1 million increase in other operating expenses, primarily related to additional overhead cost of $3 1 million from the Red box operation.

Our adjusted EBITDA for the third quarter was $9 6 million.

Appeared to $4 9 million in the same period last year.

Representing a year over year increase of 96%.

This reflects our continued viewership growth and our cost efficient content acquisition production and distribution model.

Of note net income for the quarter would have been positive without the nonrecurring transaction costs.

Looking at our balance sheet and liquidity position as of September 32022, the company had cash and cash equivalents equivalents of $36 3 million.

Compared to $23 5 million at the end of the second quarter of 2022.

As we discussed last quarter, we are focused on free cash flow and are scaling back on content spend.

In fact, we've committed to less than $500000 of new contents, then since closing the red box transaction.

And we have the ability to view our content assets as a savings bank, we can selectively cash and if we choose to.

We also have multiple sources of additional liquidity available to us, including the ability to have an accounts receivable based facility against our $96 million of accounts receivable.

And normal course content financings.

All of these levers combined to put us in a solid liquidity position with flexibility as we remain committed to generating free cash flow and paying down debt.

Now I'd like to turn the call over to <unk> for Q&A.

Thank you operator can we open the line for Q&A. Please.

As a reminder to ask a question press star one one when you're talking with Bam. Please standby, while we compile the Q&A roster.

Our first question comes from Thomas Forte with D. A Davidson your line is now open.

Great. So bill congrats on an amazing quarter two high level industry question. The first one.

When you think about the industry to what extent is the launch of Netflix 699.

Serviced going to accelerate that secular shift of AD spending moving to OTT from linear television.

I think it is going to accelerated a budget.

We've already seen that basically every major advertiser now is committed to CTV as I cited earlier in the talk.

And it just gives it just validates once and for all that this is it that it is an AD supported business that we're all in.

And consumers are going to watch content with ads and there'll be surprised if the <unk>.

Netflix and Disney's of the World.

Continue to increase the number of ads they run on their shows because they need them and they need the money. So.

It's happened people have arrived.

Excellent I agree with you and I look forward to watching their AD loads increased first time alright. Thank you.

The one that is also a industry level, but then chicken soup for the soul of specific.

I think about Amazon and Apple and forget about how much money, they're spending potentially take live sports and move into OTT.

To what extent is live sports moving to OTT accelerating cord cutting and how is it accelerating cord cutting good for chicken soup.

Well I think earlier on.

Aye.

Talked about that Nielsen's statistic about only about 36% of people getting there.

Content through streaming, meaning the 64 left to come to come over.

We're after that 64% time arent we.

Triples, the size of our business are.

Market at the very least and when they as they as the sports is the sports move over the cord cutting continues.

Size of the market, where we're attacking is got a triple in size over time and it just gives it just it gives you a sense of the scale of the opportunity in front of US. That's one of the top five people in the space. We've got an enormous opportunity. So yes sports helps and now it is helping us by moving people.

Okay.

Thank you Bill.

Please standby for next question.

Our next question comes from Dan <unk> with Benchmark Company. Your line is now open.

Great. Thanks, Good afternoon, I haven't got that one bill.

Bill.

Maybe just.

Do you feel bear with me just a quick one that always gets asked of you is.

Your <unk>.

<unk> now and you are about I think 14% programmatic now we know that magnet just one fox.

<unk> deal from three view.

From Freewheel excuse me and.

It's interesting because Julie.

Growing gangbusters, primarily programmatic, whereas.

<unk>, which just going a little bit the other direction is actually sounded like they are starting to shift a little bit more of a direct sales channels. So I'm just curious how youre thinking about kind of channel sales mix going forward.

Yeah, Hi, Dan that's.

That has always been an issue as you know.

We've always taken the position that direct is the way to go for the most part and that seems to still be the case as far as we can tell.

<unk>.

That continues to be the case I think we're at 69% directed.

What that number is Kurt will there'll be a new deck filed in the morning that'll be in there.

And so we're staying where we are I will say this dan.

We're now at 14 AD Rep partners people have come to us to ask for help selling their ads.

The reason they come to US is because we have a direct sales force.

And that part of our business has been growing very very rapidly.

It is an extraordinarily advantageous place for us to be because it gives us increasing critical mass and therefore, increasing importance to our advertisers it allows us to help.

These other companies monetize their advertising.

But it wouldn't be happening if we didn't have a direct sales force.

They need access to what direct salespeople can do we have it we provided.

I don't want to get into the details of the.

The nature of that business, but suffice it to say, it's a good business for us.

No.

We're now up to 2014, we were at three at the beginning of the year. These are not insignificant people, who have come our way and there are another three I think at least in the queue.

Who are coming to to get this kind of help from us this creates a kind of collective.

Group of <unk>, who are going to the market together it provides increasing cloud increasing notoriety recognition whatever you want to say so.

Direct sales force approach has really worked well for us in more ways than one.

Got it that's helpful update on that and then.

Just something that you kind of mentioned only 500000 committed.

The contest then obviously you have a huge library you've added more youre working on the integration with Red box can you just kind of an interesting point in the market right Bill where you've got a bunch of guys that are probably starting to recognize that there may be spending a little too much on content spend although we'll see if that eases or not and they are really looking for outlet.

<unk>.

Utilize more efficient networks, which you guys have the studios and just.

You've always prided yourself on your original content mix, how do you think of both be incremental channel four content production some of which you've mentioned today as well as also and you mentioned this a little bit of a top gun being an outlet for increased monetization from third party partners.

Well as you know I like to make money in any way, we possibly can and so being an outlet for others content, especially through our <unk> business at our kiosk business.

It's really a great place to be it generates tremendous amounts of cash flow that gives us some strategic importance to those partners. Because we are the sole source of certain types of revenue are an important source of other types of revenue and you can't.

Can't Underplay, how important that is in a business of the software that we have an outlet and out.

Or two that are very important contributors to some of the biggest companies revenue streams. So from that point of view, Dan I like it is a profitable business I also like it as a business that puts us in a good strategic position from the point of view of creating our own content. The fact that we didn't spend much is because we have a lot we have built up.

As you guys know over the last year over 100 pieces of original and exclusive content that we have coming our way.

We've got.

Thousands of Avon assets tens of thousands of Avon assets now and those assets are are up higher and higher quality.

I watch our networks pretty much every day, sometimes to the chagrin of our network ops people.

Because I may be the best QA Guy on the company at this point given the fact that I'm constantly complaining because I want it to be as great as it could possibly be.

And I got to tell you the stuff we have on the networks is really really good I called out some of it in the wall.

Yes.

The wall is great in the vault is great I watched the Brian Wilson Special last night, it's great. Sherlock is great. These are incredibly high quality shows. They are just as good as anything you'd find that any spot and there are lots of them on our networks.

We're in a good spot as far as content goes and Thats one of the reasons, we're going to be able to look at our content as a savings account as Chris said as much as anything else.

We will have we will generate a fair amount of liquidity from our content over the next 12 months.

And I know you'd be disappointed if I didn't ask this.

Even though of course, you are just digesting redbox, but you did put in the press release more commentary around international and.

Boots on the ground or bricks laid there, but just how much.

Of an opportunity is that you think over the next 12 months.

I think it's a big opportunity.

It's gone slower than I thought it was going to go down I thought we would already be.

And quite a few more countries and we are actually at right now.

We are in pretty serious discussions as we say in the <unk>.

New deck, we filed tomorrow.

Dozens of countries now.

With meaningful.

Potential counterparties.

Well recognized well thought of partners.

I think it will end up being a very big opportunity for us structured a little bit the way.

<unk> rolled out their business internationally and the way HBO rolled out their business internationally.

But the proofs in the put it it's not there yet, but I do think it's going to be a big opportunity.

Alright, Thanks, Bill I will leave you to your <unk> and the rest of the Q&A. Thank you.

Thank you Dan.

Please standby for next question.

Yes.

Our next question comes from Eric Wold with B Riley Securities. Your line is now open.

Thank you and good afternoon.

A couple of questions Bill I guess.

You mentioned.

That sort of the financial numbers, you mentioned that you still expect to exit the year.

If I were $1 billion revenue run rate and 100 $150 million and adjusted EBITDA run rate can you talk about the puts and takes that could drive you towards the low end or high end of that range with that.

That seemed a fixed revenue number and then.

Still expect to exit this year.

Positive free cash flow run rate.

I don't think anything has changed Erik from what we expected when we when we did the acquisition.

That may change as some of the ways. We ended up at those results. So.

For example, I was really surprised by how good a business I see the Teva business, becoming that is that is going to be a big contributors to this too.

This process I've also been really gratified by that.

The way in which the the Eva networks are now coming together and the way in which we're rolling out additional places where there is where there are.

With the additional touch points and I think our sales force is doing a great job already selling a good chunk of the <unk>.

Inventory that Red box has had and then theres the fast business, where we added eight or 10 more channel. So all of those parts of the business.

Or actually exceeding my expectations.

Service business is also exceeding my expectations and the one places not exceeding my expectations as the kiosks, where the pace of the new theatrical releases continues to be choppy we get.

We got a top gun, we have a fantastic experience.

Youll see that as the process continues to roll on.

There'll be more and more theatrical releases that are better coming it's pretty clear now.

But.

It's the combination is really good and I think it's really the mix, Eric that's going to drive whether it's 150.

There are different mark okay.

Parts of it.

That helps.

Sorry for the last one.

Are you still looking to exit the year and the positive free cash flow run rate.

Yes, I am still in the same place changed its the same thing about what I predicted.

And then final question.

I'm going to ask you a question you raised the question.

In a report I saw recently about financing and I Hope you heard the answer which Chris.

Delivered loud and clear.

Our working capital needs are good are satisfied by our cash on hand, our $96 million of accounts receivable and.

Our ability if we care too to get it.

Accounts receivable financing so to the extent people are looking for something else.

That's all that's all we need to do so.

Okay and then just final question on on Redbox, you've talked about it at all.

Obviously the pace of.

Leasing is still something that kind of is holding back the recovery in that business.

If you look at the individual titles that have come out with a strong titles that have come out kind of in <unk>.

Q3, and so far in Q4.

Can you talk about kind of what youre seeing with kind of the rental patterns or trends of those titles versus kind of what they were for strong titles and pre pandemic and are you seeing any evidence of.

Yes.

Those strong titles and the traffic they are driving driving demand for maybe some of the smaller titles in the kiosks as well.

Yes to that.

That is always because people don't usually rent one thing I think the average rentals are close to two per session. If I remember correctly.

So I don't believe we're ever going back to 2019, and the kiosk business. So let me be clear.

Nor have I ever said that I thought we were going back to 2019 in the gas business.

We are holding our entire premise for the purchase of the business was that we would return to about half of 2019.

Through the resurgence of theatrical I mean, the world's changed in 2000 and since 2019.

But if we get to the numbers that we that that we expect will be highly profitable, Eric and Thats, what we care about so.

The answer to the question about what are we seeing what we're seeing is consistent consistent with what I expected.

Got it thanks Bill.

Youre welcome.

Please standby for next question.

Our next question comes from Jason <unk> with Craig Hallum. Your line is now open.

Hey, guys good afternoon Bill.

Yes.

Let's see.

Pullbacks.

Sure there are some Jason because the economy sucks.

A technical term.

But I don't think.

I don't think we're really seeing it.

It's.

It's overwhelmed by the movement from linear and broadcast to CTV and really overwhelmed in the last quarter by the.

Politically.

There were so many political ads, even though we were trying not to take too many to just everything that came through programmatically was political.

It is getting pretty annoying.

I wouldn't want to live in Georgia, right now where they are about to have a repeat of the last period of time because of that race, but it was to me thats.

I think if you don't get the fact that there's this huge migration masking.

Whatever is happening in the economy.

Then you don't understand the industry because.

We've got more viewers.

And the broadcasters and linear guys had less fewer so I mean, it's not really complicated the advertisers follow the viewers and they no longer wonder whether they need to be on CTV. I mean, you remember when we first started doing this and started talking about this with you.

That's why they may come.

So.

I think that's the answer on the advertiser side we.

Haven't seen it.

I think I said in there somewhere that AD impressions were up 28% year over year Jason.

The 28% increases as a meaningful one, especially given what people think is a moment of headwinds of high competition of fractional ization of the marketplace. All the things that people think are going on in our space.

And they are.

We've got a strategy that I think has been working and is and is working.

<unk>.

To grow our business and to grow it in a cost effective way.

I forgot your second question Jason.

That's okay. It was just around pricing.

Any changes to pricing on kiosk or television on demand.

Now I can tell you that on November one we raised prices at the kiosks by 'twenty six.

So from $2 to $2 or $4 99 to $2 25.

That already happened.

I've been pretty clear I think with most people that we were going to look at that and we not only looked at it we did it.

Teva is a little trickier, because we all we compete in <unk> with a bunch of others, who.

Price the way they price so I don't think that's as much a price.

Situation as it is a discovery situation and I'm really excited that the people at Google Finally came around and decided to include <unk>.

Our available <unk> service and searches about movies up until about three weeks ago. They you would've found.

<unk> you would've found itunes you would've found voodoo, but you wouldn't have found us when you search for a movie.

Now you do.

That's clearly had a positive impact on our <unk> business and like I said, there, but it's a pretty pleasant surprises on the upside thats one of them.

So I think thats.

There's more to come on that.

Great. Thank you Bill.

Please standby for next question.

Our next question comes from Michael Morris with Guggenheim Partners. Your line is now open.

Thank you very much good evening.

Team I have a couple of questions one Im hope.

You could talk a little bit more about the impact of the button arrangement with <unk> and <unk> and what kind of a lift.

<unk>.

Have seen or expect to see from these types of partnerships, maybe any kind of cost associated with that.

I'm also curious about.

<unk>.

Bill your comment about adding the kiosks.

If you could expand a bit more on sort of the profitability or a path to return.

On the kiosk growth plans.

Long of a process do you expect that to be and then finally.

Free cash flow.

You.

Okay. So if I can remember this.

On the buttons Mike.

We did a vizio button.

Deal I guess, a little over a year ago, maybe a little bit more.

The reason, we not only renewed it but expanded it.

Because it worked we were able to see people click on the button sample our content and stay long enough. So that we could measure that.

The returns and it was substantial what we found as we did all this analysis had measuring was the previous deal that Sony had done a number of years ago, what's still leading to more people viewing so.

Buttons have worked and you know as we've looked at the business.

One of the key complaints that viewers have is it's hard to find things. So we're doing everything in our power to make it easier to find us.

So that they don't have to go searching and the buttons definitely do that.

So we are very committed to the strategy of further buttons, if we can get them and if we cant getting ourselves placed on that.

Ill call the homepage of the smart TV manufacturers.

So that our titles are obvious and easy for people to find because discovery is a critical critical issue in the first thing people have to discover as your network.

So we're there and that's going to continue.

He asked he probably will surprise people.

Here that I'm interested in the idea of looking at both the retail partners that we have and the number of kiosks, we have in a new way.

Okay.

Some of them more profitable partners are ones that we have big opportunities to expand the number of kiosks that we have.

And that's really where our focus will be that's going to take some time, because if we're going to move things around which we will do and try to follow the money, which we definitely will do.

At this time and effort involved in that but there is a real opportunity and I would say this is another one of those things I didn't realize we would have the opportunity to do I thought we would just be taking things out now I'm starting to think we're going to be putting things back in places that it is more and more sensible and more profitable to do those kiosk still do.

Do very well.

The same number of visits now than there were over the last two years the number of visits have not gone down.

They very steady so number of conversions that have gone down because of the lack of stuff C. But now the boxes are starting to have a lot of stopping them again. It's you know there is.

Top gun bullet train and note that a few other things this week.

You just haven't seen this quality of content sitting there for people, so theyre going to have more opportunity to rent things, Mike and that of course means more.

More per session and that drives you back to the kind of numbers that we want to see.

You asked about free cash flow in 2023, I wouldn't change a thing from what we've said before.

This $500 million run rate.

How we will try to enter the year.

I'm sure we will grow it but we haven't predicted a number yet.

Can't really until we.

Take a harder look at next year, which we're doing now, but we're learning a lot it's been great.

Lot of work not complaining mind, you, but tremendous.

Tremendous amount of work and a lot of a lot.

<unk> change for people and that's always hard, but it's been it's been a good a good experience I would say overall.

Thank you Bill I appreciate that insight if I could just follow up on the first question about the buttons.

We appreciate your point about that valuable real estate are they expensive I mean, it seems like Oh, yes, I forgot that part.

Let's put it this way our evaluation is that there is a return on the investment, but I will tell you that part of the reason it's worked for us.

Back to something I talked for a long time ago about we have other ways. We have relationships with most of these these manufacturers we do other things with them. We provide content, we do a lot of things that back that allow us to mitigate cost like and I think probably as a result of that we find ourselves in a different position than maybe other.

People, who don't have the.

Ability to break out of their assets to the table.

So.

They're not that expensive and they're certainly not expensive compared to what they return.

That's great. Thanks for helping us I appreciate it.

Welcome.

Please standby for next question.

Is going to be the last question, we can take operator, because we're running out of time, but I wanted to make sure I left this one went out bought more opportunity. So okay. Our next question comes from Laura Martin with Needham. Your line is now and then.

Hey, nice numbers you guys congratulation.

So youre a great programmer and so what I am really intrigued by is this red box opportunity for key board. It is my point of view that we're going to have big hit, but then there is not going to be kind of in the theater agree with you that 2019 doesn't coming back to the theaters. My question is does the REIT with Red bar.

<unk> worked for keyboard or.

The next window you have so that you could.

Put more of the sequel prequel into that those boxes and sort of displace other maybe not so popular.

Titles from the box office at that time do you have enough time to sort of rejigger within those boxes, because we saw the Florida. The ring once Amazon released a new one they sub leased from the owner all the prior Lord of the rings and they like tripled the viewing either one so that would be a profit driver.

Brent box do you guys have the flexibility to do that when you are adding entitled for the Red box.

Finally, we have both a digital and physical contract with all of the studios Laura So we have access to.

Both their Dvds and their and their transactional video rights.

It doesn't automatically translate a day about however, so we that's going to be a catches you can hours or sporadic thing, but what we will now is whats working before anybody else because we have the <unk> business and we have the.

Boxes, and Thats part of why I'm. So excited about this collection of assets. The information that we get from each of these places we monetize can be used in the other places sort of to really reinforce your point will now that things are working and we will be able to go and solicit them for other.

Of our.

Our business faster than other people well because every place that people are consuming stuff.

So I hope that's okay. So it sounds like the answer to my question is now that is if you if youre going to get over the weekend, where condo was a massive hit $180 million at the box office.

So you now know that from the box office release date.

Would love to go to Marvel and basically pack redbox kiosks with all the stop having to do with Macondo you don't have the flexibility to actually do that as the kiosk level at that point.

And the physical world do that we actually do that Laura.

We actually do that.

So.

I answered your question slightly differently.

It's not an automatic right, but we do have the ability to do that and we do.

We do okay, Okay cool.

And then it.

It does it does it does increase the viewing that we get on these older movies.

Yeah, and I think stakeholders are going to be sort of where we gather audience from Alex okay.

So then my other question is on <unk>.

I'm very interested in your point of view on.

As we get Netflix further into late next year as we get Disney starting.

Best in class in December .

Feels like 2023 with the combination of weak connected TV demand and lots of new supply might actually start hurting our cost per thousand could you give us a point of view on that.

Well.

You know.

Our <unk> are up 8% over last year this year.

I, we went we've been going out to market looking for more than we're getting currently.

Taking orders.

That way.

A lot of what we'll take orders for our for sales across the year.

So the question would be the spot market I guess because by the time you get to the point you've described towards the end of next year.

It'll be a spot market question not a not an upfront question.

I think it's possible are but actually don't think it will come out that way because I think the last piece of the puzzle is the migration of people and I don't see that slowing down at all.

Especially to Avon.

If the market really is going to be softer as as the U S is the premise of the question.

There's going to be even more pressure on people to watch Eva just compare it to.

Double or triple up on their restaurants. So I think we're we've got that offsetting factor in at least to consider but.

My Crystal ball is not as clear as it might otherwise be.

No. It's super helpful. I'm hearing expert so it's super helpful to hear your point of view. Thank you very much.

Thank you.

Operator.

That's going to be at night.

Thank you everybody for joining us today, and we went to full hour I didn't really mean to go quite that long but.

That gave me a lot to say because there was a lot going on and it's been a great start to a beautiful marriage. So.

Everybody into all our employees, thanks for joining us today and to all our investors. Thanks for joining us today.

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

Q3 2022 Chicken Soup for The Soul Entertainment Inc Earnings Call

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