Q2 2023 CuriosityStream Inc Earnings Call
Your next question comes from Peter Henderson with Bank of America. Your line is open.
Speaker 1: Good afternoon and welcome to the CuriosityStream 2nd Quarter 2023 earnings call. My name is Brianna and I will be your conference operator today.
Speaker 1: Please note that this call is being recorded. At this time, all lines have been placed on listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. To withdraw your question, again press star 1.
of the existing subscriber base, north of 90%. Our partner direct revenues is more of a monthly CIFAS subscriber base. We are seeing as we, so we did a lot of testing this quarter about with different cohorts.
Speaker 2: During this call, we may make statements related to our business that are forward-looking statements under the Federal Securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect the management's current views only, and the company undertakes no obligation to revise or update these statements, nor to make additional forward-looking statements in the future. For discussion of the material risks and other important factors that could affect our actual results, please contact the
of our subscriber base, depending on whether you were monthly or annual, what type of price point you were paying at, what type of package you were coming in at. We tested a whole bunch of different trials to see how best to pass through price increases, what packages would generate the best outcomes for us. And so we are starting to see.
some increase in that pricing start to flow through the financials now early days. We're also seeing a flight increase in in turn, which was not, which was fully anticipated and what we're seeing was well within the range of what was anticipated.
Speaker 2: Please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our quarterly report on Form 10Q for the quarter ended June 30, 2023, when filed.
As you expect, and when we talked about this price increase, to begin with, we expect that the economic benefit of the price increase, given the magnitude of the increases, well offset, much more than offset any increase we see as a result of a churn that happens with existing subscriber bit.
Speaker 2: In addition, reference will be made to non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Now I'll turn the call over to Clint. Thanks, brewing, thanks for having me.
Thank you.
Speaker 3: Thank you Denise. Hello everyone. Really appreciate you all joining us today, especially as I know we're not your first earnings call this August . Also with me on the call, our CCLO and General Counsel, Tia Catehi and our CFO , Peter Wesley.
Your next question comes from Jim Goss with Barrington Research. Your line is now open.
Thanks. I'd like to follow up a little on what Laura was asking about the licensing and probably also the response with this global appeal to be recognized as an advantage. I wonder wondering what the costs might be to ready the content for other markets. Is it?
Speaker 3: This was a good quarter for us as we moved toward profitability. We improved our adjusted free cash flow for a third straight quarter and grew sequential revenue by 14%.
Speaker 3: We introduced our higher pricing to new direct customers and to a small segment of our existing subscribers.
Minimal or do you think substantial? How key category do you expect that to be and what level of consistency do you think it might have within the income statement?
Speaker 3: We entered into meaningful and thoughtful licensing agreements with several new partners in the Middle East, the UK, and Europe .
Speaker 3: We believe this ongoing expansion of our licensing partners, both by territory and platform, will benefit us in the quarters to come.
In regard to localizing and languaging our content, there's a range of costs. The good news is that we believe over time that will come down considerably, particularly if we're able to take advantage of the generative AI solutions that are out there. I will say that in our case, a lot of our languaging is behind us. We've, as part of MVPD distribution agreements that we entered into, we had some licensing obligations.
Speaker 3: In addition, in order to expand the top of our marketing and promotional funnel.
Speaker 3: and further monetize our content. We will be rolling out certain titles and packages into broadcast network syndication for the first time and also with top Avaud partners beginning in Q4.
Speaker 3: Further, we opportunistically locked in performance-based marketing initiatives with exceptional content creators and influencers that we believe should increase awareness and subscriber acquisition will at the same time minimizing risk.
We have most of that is in our rearview mirror. We'll continue to license kind of moderately going forward. But I think the good news is like the price has come down, which has given us in fact that we've just done a lot is really.
Speaker 3: And then we have some new people listening today. Let me quickly review what we do and how we make money.
Speaker 3: Our overarching mission is constant and is never changed. Simply put, our mission is to help satisfy people's curiosity through enlightening premium factual films and programs and also through entertaining instructional talks from subject matter experts. Our efforts to be to go to content service for anyone who wants to know more about the world are anchored by our flagship subscription service, and like a
provided us with a lot of flexibility going forward. And again, there are hundreds and hundreds and hundreds of licensing partners when you have.
Thankfully, premium factual content that you can put anywhere into the world. So, I actually like that. We like that trend. And I think that, you know, I think you could really argue that we've been a little too precious about our content in the past.
Speaker 3: for $4.99 per month or $39.99 per year, or to our premium tier smart bundle, which contains over 30,000 titles from six different services for $9.99 per month or $69.99 per year.
A lot of different people that we can work with going forward and we just want to make sure that we do that in the most thoughtful, meaningful way. Yeah, I do think just kind of following up on Clint's comments, it will continue to be a bit lumpier category for us than some of our other categories. Obviously the direct business, for example, tends to be just kind of a smoother line in terms of what you're seeing and content licensing deals can be big and lumpy, but the fact that we're bringing in increasing number of content licensing partners makes us feel very good about kind of the sustainability and repeatability of that part of the business. Okay, thank you. And just one other thing. In terms...
Speaker 3: As important to not overly rely on a single direct subscription revenue line, we also monetize our content through third-party distribution relationships for our products and services in 11 different languages.
Speaker 3: Through third-party content licensing of the stink titles and packages.
Speaker 3: and increasingly through advertising and brand partnerships.
Speaker 3: Peter will discuss our financials in greater detail later in the call.
Speaker 3: I couldn't be more enthusiastic about our path to positive adjusted free cash flow. A milestone that we believe we are closing in on.
Speaker 3: On the expense side, we reduce GNA expense by approximately 25% year over year in Q2, and we'll continue to work to bring this spending down further.
Speaker 3: We've spoken previously to our spending reductions associated with programming and marketing.
Speaker 3: Our marketing spend for the second quarter of 2023 was down 63% year over year, while direct revenues were roughly comparable, down less than 3%.
price or can you give any guidance to share of individuals who are staying with you versus decline?
Speaker 3: The only increasing cost projected for the second half of 2023, compared to the first half, is marketing, which is 100% in our control, and where increased spend is a function of meeting internal growth performance metrics.
Yeah, so I mean we've seen a flight uptick in terms of people leaving the service relative to what we had experienced before we had price increases.
Speaker 3: On the revenue side, our new pricing will take until late 2024 to fully roll through the PNL.
But again, it's well more than offset by the positive impact of the increases themselves. And a lot of what we spent the second quarter doing with different cohorts was
Speaker 3: to be clear, it doesn't just happen in one fell swoop.
Speaker 3: All new customers are seeing our increased pricing. And while we are rolling it out now to most monthly cohorts, our subscribers on annual plans won't see new pricing until their plans come up for renewal over the course of the year.
Looking at what would be the offers that would be most, most, and then, moving on.
positively received and most likely to bring people Have people continue to stay on the service, but at a higher price point. So you know that could be for example bundling in ODU with the renewal of a curiosity stream subscription
Speaker 3: Further, most of our channel store and app store partners, well, they have it on the near term roadmap have not yet commercially launched our new pricing.
Speaker 3: This is why I said at the beginning of my remarks that new pricing has been launched only a small segment of our direct subscriber base.
It could be encouraging people to upgrade to Smart Bundle, which is, Clinton said, is no longer at such a premium price point to the now standalone price point for Curiosity Stream. So a lot of work and effort was done with different groups to figure out what the best offer for each of them was. And...
Speaker 3: So we expect steady growth as a result of increased pricing associated with our core service.
Speaker 3: And also from our premium tier smart bundle, a higher margin service offering that is growing in part.
Speaker 3: as a result of its closer pricing proximity, CuriosityStream is a standalone service.
Speaker 3: Well, I've not talked much about one day university.
Speaker 3: ODU subscribers are indeed growing, and ODU is also proving to be a helpful lever and offering for certain existing cohorts contemplating renewal.
Speaker 3: We believe the third party demand a license and distribute our content and services is strong and growing.
The trade will take many days.
Okay, well, that relates to nervous. So thank you much.
Speaker 3: In addition to traditional legacy licensing partners, non-traditional licensing partners are also emerging.
Again, if you would like to ask a question during this time, please press star followed by the number one on your telephone keypad.
Speaker 3: That's just one example.
Speaker 3: We believe we were in the infant stage of a mini broadcast digital channel renaissance catalyzed by ATSC 3.0 which increases station groups need for content and services
Your next question comes from Tom Forte
Speaker 3: for their existing services and for the new ones they want to create.
Hi, this is Sharon G on for Tom Portay. Thank you so much for taking my questions. Um, my first question is how, if at all, are you affected by the writers and actors strikes? We would think that you are relatively well positioned versus your peers given that it seems to us you are left relying on writers and actors.
Speaker 3: Historically, this has not been an internal functional expertise for them. The top North American AVOD players have plenty of overall volume, but are still light in some key categories where we believe we can help.
Speaker 3: U.S., Abot is more nascent, so while the overall Abot licensing revenue opportunity is less than in the U.S., we believe the demand for content is greater. Has it been asked?
Speaker 3: If the current disruption to new content creation is helpful to us, I would say that we believe it provided no identifiable incremental benefit to us in the second quarter of 2023, or the first half of Q3. We also anticipate steady, sustainable long-term advertising and sponsorship revenue growth, and increase consumer awareness as we place certain content into Avaud Fast and broadcast syndication. Moving to content. Well, a critical mass library of more than 15,000 programs has enabled us to reduce our year-over-year cash content spend also by 63%. We added hundreds of new titles and some underserved factual genres like money and finance.
Speaker 3: and more in tried and true genres, like modern history, tech, and biographies, all within our planned content budget. As to what's on the screen now,
Speaker 3: We kicked off the quarter with the premiere of Lift the Ice.
Speaker 3: The global six-part series that filmed 20 expeditions across 12 countries and 5 continents.
Speaker 3: showcasing the harshest spots on the Earth, and revealing surprising secrets from our planet's melting cryosphere.
Speaker 3: From ancient viruses to new clues about the location of alien life. In May, we premiered our series, Giants, where world-renowned naturalist Dan O'Neill tracks down the planet's biggest creatures.
Speaker 3: These are the ones that can eat you and compares them with the help of CGI to the nastiest beast that have ever roamed our planet. On the science and tech front, we continue to produce timely deep dyes into trending stories of the day.
Speaker 3: with specials like Attack of the Zombie fungus. A wild look at the true story in science behind the HBO hit series The Last of Us. The Last of Us.
Speaker 3: Our popular breakthrough franchise premiered Jupiter's Moons and the Search for Life.
Speaker 3: which probes new missions that may answer astronomy's biggest question. And our new special roundup, 2023 Space Odyssey.
Speaker 3: new missions that may answer astronomy's biggest question. And our new special roundup, 2023 Space Odyssey. Comprehensive look at some of the year's biggest space stories.
Speaker 3: We also continued in our quest to share compelling untold tales from the past. Our series War Gamers is the story of a small group of British women
Speaker 3: Came up with the winning tactics to defeat deadly Nazi U-boats in the Battle of the Atlantic.
Speaker 3: Unearthed, Ancient Mysteries is a series that places legendary homicide detective Rod Demery
Speaker 3: Back in time to solve some of history's most notorious cold cases.
Speaker 3: Among other new premieres, we capped off the quarter with one of our most ambitious original productions to date.
Speaker 3: The four-part series.
Speaker 3: series, The Real Wild West.
Speaker 3: which tells the beautiful, broad story of the emergence of the American West.
Speaker 3: And at the same time, tells the stories of the heroes and influencers.
Speaker 3: you perhaps have never heard of.
Speaker 3: Black and Hispanic cowboys and leaders like Bass Reeves. Nat love. Pio Pico.
Speaker 3: Female home status, Chinese immigrants, and Native Americans like Crazy Horse and Sacaja Wea. This series is presented by the Grammy Award-winning artist, Dodd Flemmins, and based on consumer assumption, and press coverage from entertainment weekly to cowboys and Indians to Rolling Stone.
Speaker 3: The real Wild West series itself seems to be emerging into the cultural zeitgeist. Let me close by sharing what we've said in the past.
Speaker 3: in a transitioning media and tech environment filled with choppy water.
Speaker 3: Where many companies have overspent and some are trying belatedly to course correct.
Speaker 3: We like our hand. We believe we move closer every day, turning the corner and generating optimized and sustainable levels of cash.
Speaker 3: Further, at a time when content creation is slowed.
Speaker 3: In large media companies scrambled to rationalize product portfolios and costs.
Speaker 3: Many of their secondary and tertiary services are struggling.
Speaker 3: as are many undercapitalized independents.
Speaker 3: We believe that consumers and an expanding roster of third-party buyers
Speaker 3: We'll continue to place an even higher value on existing premium factual content and brand-safe relationships. In sum, we believe that our direct subscriber base...
Speaker 3: Our broad and deep content library.
Speaker 3: Our multi-year partner agreements, our strong cash position, our public market currency, and our lack of debt are uniquely favorable attributes that provide us with a firm foundation and exceptional flexibility.
Speaker 3: I'd like to now pass the baton to my friend and colleague, our CFO , Peter Westlake.
Speaker 4: Thanks Clint.
Speaker 4: During the second quarter, we believe we continue to make good progress on our path to positive adjusted pre-cash flow, while delivering on our near term financial commitment.
Our largest revenue category this quarter was our direct business. Direct revenue came in at $8.3 million, a 3% decrease compared with the second quarter of 2022. As Clint mentioned, this slight decrease came despite a 63% year-over-year reduction in marketing expenses during the quarter. We expect direct revenues to grow sequentially in the third quarter as the impact of the price increases to new and existing subscribers begins to flow into the financial results. However, it will take a full year or more for the impact of these price increases to completely flow through our financial statements, given the fact that the significant majority of our direct subscribers are current subscribers.
million dollars of revenue compared with 6.7 million dollars in the prior year quarter.
The profitability of those revenues was much higher this year, however, as more than 80% of our content licensing revenues in the second quarter of 2022 were zero margin pre-sales deals, and more than 80% of our content licensing revenues in the second quarter of 2023
were attractive margin library licensing deals. Our next largest category was bundle distribution, which generated $1.5 million of revenue in the quarter. If we deduct 2.6 million of revenue from the second quarter of 2022,
Related to a contract that we did not renew in the middle of last year, bundled distribution revenue would have grown 13% year-over-year.
Second quarter grows margin of 29.5% decreased from 41.9% in the prior year quarter, driven by lower year-over-year revenue, but improved from 27.3% in the first quarter.
The sequential improvement in gross margin was primarily driven by growth in library-based content licensing deals during the second quarter.
Our second quarter advertising and marketing expense of $4.2 million was down $7 million a year over year as we remain intent on maintaining tight discipline around our marketing spend.
GNA expense during the second quarter of 2023 was $8 million. Of $8 million was down $2.6 million or 25% euro a year. We will continue to focus on looking for ways to bring this spending down going forward.
Moving to profitability, adjusted EBITDA loss of $6.5 million was 39% less than our $10.6 million loss in the prior year period.
Second quarter cash spent on content was $3.3 million, down $5.6 million or 63% compared with the prior year quarter, as we continue to benefit from the critical mass library of content that we have built.
Adjusted free cash flow use of $4.3 million improved $1.7 million year over year and $2 million sequentially.
This represents our third consecutive quarter of sequentially improving adjusted free cash flow and underscores our continued momentum towards positive adjusted free cash flow.
We think that this metric is a particularly useful guide for investors as to the underlying economic realities of our business.
which is why it's one of the financial figures we use in our forward-looking guidance.
At the end of the second quarter, cash, cash equivalents, and restricted cash totaled $44.8 million.
We had no outstanding debt at the end of the quarter and we believe our overall balance sheet remained in great shape with $133 million of assets and $30 million of liabilities. Translating into book value of $130 million or approximately $1.94 per share.
One other item worth noting is that we conducted an impairment analysis that is reflected in this quarter's financial and state. Financial statements.
That analysis determined that the fair value of our investment in the German TV joint venture exceeded the carrying value as of June 30th.
And as a result, we recorded a $2 million non-cash impairment related to that investment during the quarter.
Before I turn to our guidance, I thought it would be worth taking a moment to revisit our prior comment that Q1 2023 would be a trough for us as we look to build from there.
If you look at our second quarter results, you'll see that sequentially we increased our revenues by 14%. Our gross margin by more than 200 basis points.
and our adjusted free cash flow by $2 million. We like the trajectory of the business.
Moving to our third quarter guidance, we expect revenue in the range of 13.5 to 15.5 million dollars.
and adjusted free cash flow in the range of negative five and a half to negative three and a half million dollars.
I'd also like to revisit the guidepost that we laid out previously related to certain expense items for the year.
We continue to expect that our cash ban on content for the year will be in the $10-15 million range.
but we are lowering our expected expenses for the two other categories that we discussed previously.
We now expect content amortization for the year to be $22 to $27 million, which is down from our $25 to $30 million prior estimate.
And we expect advertising and marketing expense to be $17 to $22 million down from our $20 to $25 million prior estimate.
as we look to increase our marketing spending in the second half of the year, well-maint continuing to maintain discipline around this effort.
For turning the call over to the operator for questions, I wanted to highlight one final housekeeping item related to our options and restricted stock units.
As you will see in Note 14 to our financial statements in the 10Q that we filed with the SEC this afternoon.
In July , following approval by the company's Board of Directors and Shareholders, exchange should approximately 4.6 million employee stock options for 1.6 million restricted stock units of an equivalent fair value, a net reduction of 3 million fully diluted shares for the company.
With that operator, let's open the call to questions.
Thank you. At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad.
Our first question comes from Laura Martin with Needham. Your line is open.
Hi, maybe just a couple. So the margins are lovely on this content license. And the question is, is that really recurring? Because when you content license can't only do it once, and then you can't really content license again. So is it really a recurring positive for you that the-
If you're only a US-based company or only focused on one region, I think it might be challenging, but...
We don't really see any end in sight there. We had, I think, 13 different licensing partners in the quarter. We entered into those agreements, you know, and what I would say was thoughtfully and meaningfully. And, you know, we don't anticipate any cannibalistic impact and really believe that in certain parts of the world, especially, just the presence of our content will be a positive for generating increased awareness.