Q3 2024 CuriosityStream Inc Earnings Call
Jayle: Good afternoon, my name is Jayle and I'll be your conference operator today.
At this time I'd like to welcome everyone to the Curiosity Stream 3rd Quarter 2024 earnings conference call. Please note that today's call is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.
If you would like to ask a question simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again.
Speaker Change: I will now turn the call over to Vanessa Gillen, curiousity streams head of Investor Relations. You may begin your conference.
Vanessa Gillen: Thank you, and welcome to Curiosity Stream's discussion of its third quarter 2024 financial result.
Vanessa Gillen: leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer, and Brady Hayden, CuriosityStream's Chief Financial Officer. Following management, prepare remarks, we will be happy to take your questions, but first I'll review the safe harbor statement.
Vanessa Gillen: During this call, we may make statements related to our business that are forward-looking statements under the federal security's laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions.
Vanessa Gillen: Our actual results could differ materially from expectations reflected in any forward-looking statements.
Vanessa Gillen: Please be aware that any forward-looking statements reflect 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.
Vanessa Gillen: For a discussion of the material risks and other important factors that could affect our actual results,
Vanessa Gillen: Please refer to our FEC filings available on the FEC website and on our investor relations website as well as the risks and other important factors discussed in today's press release.
Vanessa Gillen: Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2024, when filed.
Vanessa Gillen: In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com.
Speaker Change: Unless otherwise stated, all comparisons will be against our results for the comparable 2023 period. Now, I'll turn the call over to Clint. Thank you, Vanessa.
Clint Stinchcomb: I appreciate everyone joining us today for this Q3 quarterly report.
Clint Stinchcomb: I'm delighted to share that we generated our highest ever quarterly adjusted free cash flow. This marks our eighth consecutive quarter of increased free cash flow.
Speaker Change: in our third consecutive quarter of positive free cash.
Vanessa Gillen: Specifically, our $2.6 million in adjusted free cash flow represents a year-over-year improvement of nearly $6 million. We also increased our top-line revenue and EBITDA sequentially. And even as we paid a significant dividend, our liquidity from Q2 to Q3 increased.
Vanessa Gillen: We believe we are well positioned to continue to deliver sequential top-line revenue growth, to generate meaningful adjusted free cash flow, and to continue to pay our dividend from surplus cash.
Vanessa Gillen: We grew our direct subscription revenue 13% year over year, and while our sequential growth was flat, our margin here was up. As I mentioned last quarter, our annualized direct revenues now exceed our annualized operating expenses on a cash basis.
Vanessa Gillen: We executed many new partnership agreements in Q3 that offer long-term reliable and durable recurring revenue. We launched pay TV channels with MVPD partners in Europe and Latin America.
Vanessa Gillen: Amazon made Curiosity University one of a small group of curated services available in the Prime Video Channel Store.
Vanessa Gillen: In regard to our advertising and sponsorship initiatives, we achieved some major milestones as we launched four fast channels with Samsung TV Plus domestically and internationally.
Vanessa Gillen: We rolled out new AVOD packages with the largest global third-party partners Pluto in the US to be in the UK and Canada and Roku in Latin America among others
Vanessa Gillen: We executed nine content licensing agreements with partners in the U.S., Europe, the Middle East, and Latin America.
Vanessa Gillen: On the content front, we continue to expand our summer DocBusters programming and marketing campaign to increase viewer engagement across some of our biggest and best performing original series.
Vanessa Gillen: including The Real Wild West, Asteroid Rush, Planet Insect, Giants, and Connections with James Burke. We also released three new specials from our acclaimed original series, Ancient Engineering, highlighting some of humanity's greatest achievements throughout Egypt, China, and the Middle East.
Vanessa Gillen: And we premiered multiple groundbreaking science, history, and nature specials, including Spider Vision Decoding Color, The Science of Movement, Cute Little Killers, Mystery of the Celtic Tomb, and Little Penguin Love Island.
Vanessa Gillen: We're achieving new heights and critical milestones while continuing to keep our shoulders to the wheel and to thoughtfully rationalize our cost base.
Vanessa Gillen: In light of the increasing availability of AI infused productivity tools, significantly reduced vendor costs,
Vanessa Gillen: and strong organizational incentives around cost containment, we believe that we have additional room to reduce our overall expenses, both fixed and variable.
Vanessa Gillen: In closing, I'm really proud that the well-directed work of our talent-dense team enabled us to generate $2.6 million in adjusted free cash flow and end the quarter with approximately $40 million in liquidity and no debt.
Vanessa Gillen: Looking forward, we anticipate executing meaningful licensing agreements over the next several quarters with 20 to 30 new partners through both new grants of rights and traditional grants of rights for the premium content and assets we own and have under license.
Vanessa Gillen: These monetizable datasets today include over 300,000 hours of video and audio in hundreds of thousands of unique images, audiobooks, scripts, text, and code.
Vanessa Gillen: We believe our strong balance sheet and significant and growing positive cash flow make us stand out in the current environment.
Vanessa Gillen: Moreover, we continue to believe that our global appeal, our direct subscriber base and direct platforms, our multi-year third-party agreements, our public company currency, and our global reputation will continue to grow.
Vanessa Gillen: and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable long-term strength and exceptional flexibility. I'd now like to pass the baton to my friend and colleague, Brady Hayden.
Brady Hayden: Thank you, Clint, and good afternoon, everyone.
Brady Hayden: As Clint said, we achieved another milestone in the third quarter as adjusted free cash flow came in at $2.6 million, near the high end of our guidance range.
Vanessa Gillen: This also represented the highest quarterly adjusted free cash flow in the company's history and two years of sequential quarterly improvement in this metric.
Vanessa Gillen: Revenue for the third quarter was $12.6 million compared to $12.4 million in the second quarter and $15.6 million a year ago.
Vanessa Gillen: Adjusted EBITDA improved by $3.5 million from last year, and our adjusted free cash flow improved by $5.6 million as we continued our intense focus on the bottom line.
Vanessa Gillen: Our largest revenue category in the quarter was our direct business, which generated $9.8 million, up 13% from a year ago, as we continued to benefit from the price increases we began rolling out last year.
Vanessa Gillen: Our additional revenue categories, Content Licensing, Bundled Distribution, and Other, generated $2.8 million in the quarter, compared to $7 million a year ago.
Vanessa Gillen: This change was driven mostly by the timing of content licensing transactions and a number of non-cash barter deals that we closed a year ago, while content licensing remains an inherently lumpy part of the business.
Vanessa Gillen: Third quarter gross margin, a 54% increase from 46% a year ago, driven by continued reductions in content amortization and cash-based cost of revenues.
Vanessa Gillen: Our gross margin excluding content amortization, which focuses on the cash cost of delivering our services, was 90% in the third quarter, compared to 80% a year ago. Looking ahead, we expect gross margin to continue to improve.
Vanessa Gillen: Turning to third quarter operating expenses, G&A was $6.4 million, down from $7 million, or 8% from Q3 of last year, as we realize the ongoing benefits of our planned spending reductions.
Vanessa Gillen: and excluding stock-based compensation, G&A declined 39% from a year ago. Finally, advertising and marketing expense was $3.6 million, a decline of 30% from $5.1 million a year ago, as we have continued to reduce partner marketing obligations.
Vanessa Gillen: Yeah.
Vanessa Gillen: Adjusted EBITDA loss was $0.4 million in the third quarter compared to a loss of $3.9 million a year ago.
Vanessa Gillen: While we don't provide guidance with regard to this metric, we expect that as gross margin continues to improve, break-even adjusted EBITDA is within our reach.
Vanessa Gillen: And as we mentioned earlier, adjusted free cash flow was $2.6 million in the quarter compared with negative $3 million a year ago.
Vanessa Gillen: Turning to return of capital. During the third quarter, we repurchased 173,000 shares of our common stock, bringing the total to 195,000 shares bought back under the repurchase program that we announced in June.
Vanessa Gillen: We paid our July dividend of $1.3 million and we ended September with total cash insecurities of $39.8 million and no outstanding debt.
Vanessa Gillen: We believe our balance sheet remains in great shape and that this provides us with significant operating flexibility.
Vanessa Gillen: Moving to fourth quarter guidance, we expect revenue in the range of $12 to $14 million and adjusted free cash flow in the range of $2 to $3 million.
Vanessa Gillen: With that, we can hand it back to JL and open the call to questions.
JL: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
JL: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Patrick Scholl of Barrington Research. Your line is open.
Speaker Change: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Patrick Scholl: Hi, good afternoon, thank you.
Speaker Change: I just had a couple questions on the FAST and AVOD aspects. I was just wondering how you view monetization of the FAST channels versus growing awareness of the subscription streaming service and how you kind of view balancing those two efforts.
Speaker Change: Excellent question, Pat, and I really appreciate that. I would say we started leaning in pretty hard to AVOD and FAST.
Patrick Scholl: toward the end of last year. And we do see significant revenue opportunities, and we also see significant promotional opportunities. I think as a smaller company without extensive assets,
Patrick Scholl: You know, we do rely on paid marketing, but the more that we can, you know,
Patrick Scholl: build a presence in front of the paywall and you know begin to use
Patrick Scholl: our assets to promote to our subscription services more, that's very good for us. So, and just as an example,
Patrick Scholl: September, toward the end of the quarter, we launched four fast channels with Samsung TV Plus in the US and Europe.
Patrick Scholl: We launched FAST with Fubo. We expanded our AVOD proposition with Tubi in the UK and Canada.
Patrick Scholl: and with Pluto in the U.S. and with Roku in Latin America. And, you know, those are the biggest of the biggest when it comes to FAST and AVOD. And so...
Patrick Scholl: We really like that category. We have a lot of content still to deploy there. And so I would say that we're, you know, where the category is not immature and evolving. I think
Patrick Scholl: The fact that we're in it now with some of the larger partners, we're excited about the going forward opportunity for revenue growth and for promotion.
Patrick Scholl: and their families. Thank you. Thank you.
Speaker Change: Okay, on content spending, I know it's been lower as you've kind of looked to control costs, but can you maybe talk about balancing investments in new content versus how you see the opportunity to barter library to kind of refresh maybe the content lineup? Yeah, great question. So,
Patrick Scholl: We try to premiere four to five programs a week on CuriosityStream.
Patrick Scholl: I think we've never been a hit-reliant service, but people like to come to CuriosityStream, they like to stay there because of the breadth and depth of our content. And so...
Patrick Scholl: I think it's easy for people to kind of sit back and say, OK, how much are you spending on content? And then, you know, evaluate the company that way.
Patrick Scholl: We have a slightly different point of view. There are ways to amass.
Patrick Scholl: really quality content.
Patrick Scholl: without spending a lot of money, especially as you develop more assets like we do.
Speaker Change: Pat, in my remarks, you know today we have over 300,000 hours of audio and video under some kind of license.
Speaker Change: By any objective standard of measurement in the media business, that's a lot of content. That's not all finished. A lot of that is raw footage, but nonetheless, it's all monetizable in the world that we're in today.
Speaker Change: Okay, thank you.
Speaker Change: Your next question comes from the line of Laura Martin of Needham. Your line is open.
Laura Martin: Sure, so my first one, Clint, is under the category of generative AI. You mentioned that you thought you could use it to bring down costs. Could you talk about more specifically how you're using generative AI to lower costs?
Speaker Change: And secondly, have you looked into, I know you said you had a lot of content licensing deals that you think you'll be announcing. So under this question of Gen AI, do you think you'll be able to license anything to the large language models like Open AI or Google or Anthropic or any of those big ones?
Speaker Change: Thank you for that.
Speaker Change: question Laura really appreciate it so on the on the cost containment side I think
Speaker Change: There's sort of three areas and they're kind of varying stages of development. Obviously on the customer service side, you know, there's an opportunity to reduce your cost there.
Speaker Change: That's not incredibly material, I would say, over the next year, but it is it is a reduction and it's certainly In the area of editing and you know the
Speaker Change: The speed that you can edit with, you know, in regard to sequencing and things like that, that is, that are aided by, you know,
Speaker Change: It seems to be a new AI tool every day. That's fantastic. You know, one of the big holy grails for us is in languaging. And so, certain content that, in certain languages that we've been, that we've actually...
Speaker Change: translated using AI and you know for certain documentaries where it's a voice of God it's it's it's not bad and it's hard for people to tell the difference.
Speaker Change: In certain other content where there are lots of voices, you know, you'll have a little bit of a way to go there but as those costs come down and you know, we can overnight put our content into 50 different languages instead of 12 or 13, you know into 180 countries
Speaker Change: That's...
Speaker Change: That's a meaningful development for us. And I don't know exactly when that date will come, but certainly that date is coming.
Speaker Change: On the licensing side...
Speaker Change: We've spent a lot of time in conversation with
Speaker Change: the largest LLMs and you mentioned them exactly who they are Laura I think everybody knows you know from OpenAI to Amazon to Google and and right on down the list and so
Speaker Change: When you enter into those conversations, there's typically a period of...
Speaker Change: pretty extensive review, depending on the partner, review by their research scientists. And so you enter into a little bit of back and forth there. At the same time,
Speaker Change: because it is a new area. There have been a lot of publishing deals done, not a lot of video training licensing deals done, but you want to be kind of thoughtful around.
Speaker Change: Not just the gross number associated with it, but thoughtful around the unit economics. And so, what I would say is, you know, like, not dissimilar to what, you know, Reddit shared with you earlier this week.
Speaker Change: several, you know, too many deals in that area.
Speaker Change: Okay, fantastic. Trump is our new president. As of today, I think the markets are up and I think people think that the M&A market is open.
Speaker Change: I think strategically, smaller streamers feel like they're at a competitive disadvantage. So, if the merger market opens again, thanks to new administration and
Speaker Change: Do you feel like it's time to exit the business to a bigger, a bigger, a warm building company?
Speaker Change: Well, I think it's always good to have those conversations when you're in a position of strength and when you're generating an increasing amount of free cash, which we certainly are. And I think everyone, I mean, John Malone said it a few weeks ago.
Speaker Change: increasingly you need to be large, large, large to compete in this.
Speaker Change: stand-alone business for the next few years, but at the same time we're always going to do what's in the best interest of the shareholders. So if that's a transaction of some type, then you know without a doubt we would we would engage appropriately.
Speaker Change: And then my last one is, you have a lot more ad-driven assets this year for the fourth quarter, which is typically a strong quarter for advertising. So Roku, Pluto, Tubi, Samsung.
Speaker Change: I'm surprised the fourth quarter guidance isn't a little...
Speaker Change: hired just because of the seasonality of ad revenue.
Speaker Change: Is ad revenue just not going to be really material until maybe next year's fourth quarter? Is that what's happening here? Yeah, I think the puts and the takes on our guidance are yes, as it relates to our advertising revenue. I think it's, you know.
Speaker Change: We'll increase and be, you know, material and meaningful next year. And then...
Speaker Change: The challenge in projecting on the licensing side, especially when you're talking about some of those non-traditional deals that we were just talking about, is you're delivering to these companies.
Speaker Change: Tens of thousands of hours if not more. I mean, it's it's a it's sort of unlike Anything that you know, most media companies have done in the past and when you do that
Speaker Change: The licensors have a
Speaker Change: It's unlikely that they're not going to accept the content, but in any content licensing agreement there's an acceptance period.
Speaker Change: You know, that period is anywhere from 30 to 45 days, and as we don't, you know, directly control that, you know, we chose to kind of temper our guidance a little bit. But certainly as it relates to advertising and as it relates to licensing, there is a meaningful upside.
Speaker Change: Okay, thank you very much. Thanks. Thank you, Laura.
Laura Martin: Thank you.
Speaker Change: Your next question comes from the line of Robert Maltby of Singular Research. Your line is open.
Robert Maltby: Hi, Clint. Hi, Brady.
Robert Maltby: Thank you.
Speaker Change: So, hi, I wanted to focus, I'm here for Dave. Dave's out on a luxury cruise, and I'm here doing all the hard labor, so
Speaker Change: You wanted to focus in on the balance sheet and the dividend stream initially. Your cash, what's the objective? What types of sources and uses?
Speaker Change: and leverage can you do to increase value with that cash? What are your plans?
Speaker Change: Yeah.
Speaker Change: Great question, and always a
Speaker Change: always a good problem to have, a good exercise to go through, so if you look at some of the best uses of our cash, you know, we feel like initiating a dividend this year, made a lot of sense, got a lot of new people to take a look at the stock, and I think
Speaker Change: We're going to continue to pay a dividend and I think we'll follow the best practices of long-term dividend paying customers and how they go from year to year around that. So we'll continue to do that.
Speaker Change: As it relates to cash, for any acquisitions that we would make, what we would be looking for is for them to be
Speaker Change: accretive and, you know, to be able to deliver almost immediately, particularly as it relates to advertising and licensing. So, you know, there are a few libraries that are available in the market.
Speaker Change: Thank you.
Speaker Change: We'll always take a look if something is priced right.
Speaker Change: 12 months in light of the fact that we have a
Speaker Change: We have a head of licensing that we've had since December who's really talented, Ludo, for and we've just been able to work with a wider variety of people now that we're working with a much wider variety of technology partners. It makes
Speaker Change: It makes the math around some of these acquisitions a little bit easier and a little bit better. So we would look, if we're doing something, ideally to be able to make our money back pretty quickly.
Speaker Change: and as the board as the board directs we'll look at again just anything that's that's a that's a creative and we think we can buy at the right price.
Speaker Change: Regarding the dividend outlook or policy, is it...
Speaker Change: safe to assume it'll at least be maintained at current levels or is there a prospect for some type of growth there? I think we I think we would look at at every option I think at an absolute minimum we would maintain it and I think that you know the best practices is to increase it in some capacity then I think you know
Speaker Change: We'd take a really hard look at that too.
Speaker Change: I wanted to focus in on the gross margins in the ad budget, you know, prospectively, and a great job of those margins, very good. So you're looking at 90% versus 80% year-over-year on the gross margins.
Speaker Change: And what's the forward look? Is that 90% sustainable or is that a little bit due to the cut or a bigger cut in the ad budget?
Speaker Change: I would say it's sustainable based on these current economics. As we move in and do...
Speaker Change: licensing deals in light of the volume of content that we have today and in light of the fact that
Speaker Change: We acquired a lot of it through...
Speaker Change: Non-cash means, meaning you...
Speaker Change: at debatefront.
Speaker Change: we have a rev share obligation associated with that so I think that we'll do you know a number of large licensing deals but those will not be at a hundred percent margin because we're not it's not stuff that we wholly own but they'll be at a
Speaker Change: you know, probably a, you know, closer to a 50% margin, which is still fantastic, but that's, that can cut into the overall margin. Does that make sense, Robert?
Speaker Change: What are you looking at in terms of the main catalysts?
Speaker Change: The landscape of your opportunity set, if you look at
Speaker Change: your potential partners.
Speaker Change: and then you look at the competition.
Speaker Change: What do you feel would be...
Speaker Change: you know, that, you know, we could understand.
Speaker Change: you know avenues that could could could be a strong catalyst for your top-line growth. Yeah the big catalysts are licensing. Again I mean we're we have you know over 300,000 hours now of audio and video under license. I think
Speaker Change: You'd be hard-pressed to find a company our size that controls...
Speaker Change: that sort of volume.
Speaker Change: And so, without a doubt, there are big opportunities in the licensing space. That's a real catalyst. You know, that's a little bit lumpier because the revenue is recognized when the content is delivered and accepted as compared to, you know, over the course of the agreement. At the same time, from a longer-term standpoint, we are doing more.
Speaker Change: pay TV agreements outside the U.S. And we are, as I mentioned, enhancing our position in the in the fast and Avon space. And so, you know, that will continue to grow again, not.
Speaker Change: not as fast and, you know, not with the same heights as, you know, larger content licensing agreements, but
Speaker Change: Those three categories.
Speaker Change: can deliver a lot of growth. As it relates to the subscription revenue, you're tied in part there to the amount of money that you spend on paid marketing.
Speaker Change: you know the way that we're our focus right now is to you know continue to we want to grow top-line revenue we think we can grow it significantly at the same time we want to continue to generate a meaningful cash
Speaker Change: Does that help, Robert?
Speaker Change: Hello.
Speaker Change: Yeah, and I came in...
Speaker Change: a little bit after you started to the call.
Speaker Change: Some pretty tight security there, that's great. But I came in and you were talking about your new partners growth, 20 to 30 new partners. Terrific, congrats on that. Just thinking about that trend line, what is the growth trajectory of potential new partners? Or is it more or less?
Speaker Change: you know, increasing sales to existing partners.
Speaker Change: You know existing partners that we that we've even gone back to on the licensing side but you know, I think in our case because we're global and because we have a broad proposition we can work with a large variety of companies as an example just this past quarter
Speaker Change: I think we did 10 licensing agreements, one with a company called HITN, which is a global Hispanic multimedia company that probably not a lot of people have heard of, but they have a really strong proposition and really strong backing.
Speaker Change: We did a licensing agreement with News Corp, which I think everybody is probably familiar with. And we did a licensing agreement with...
Speaker Change: an audience-first YouTube company of scale.
Speaker Change: and technology companies around the world.
Speaker Change: video training so
Speaker Change: We've got a nice
Speaker Change: We've got a nice roster and it's
Speaker Change: in the technology area as well.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you, Robert.
Speaker Change: With no further questions, that concludes today's conference call. We thank you for your participation. You may now disconnect.
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