CuriosityStream Q3 2024 Earnings Report

CuriosityStream EPS Results

• Actual EPS: -$0.06
• Consensus EPS: -$0.01
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: -$0.14

CuriosityStream Revenue Results

• Actual Revenue: $12.60 million
• Expected Revenue: $13.80 million
• Beat/Miss: Missed by -$1.20 million
• YoY Revenue Growth: N/A

CuriosityStream Announcement Details

• Quarter: Q3 2024
• Date: 11/6/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, November 6, 2024
• Conference Call Time: 5:00PM ET

CuriosityStream (NASDAQ:CURI), Inc. is a factual-media and streaming company that provides on-demand programming focused on science, technology, history, nature, society and related subjects. Its service features documentary films, series, short-form videos and educational content, including original productions and licensed programming from third-party creators.

The company distributes its content through its direct-to-consumer streaming platform and digital applications, as well as through partnerships and bundled offerings with other media and technology providers. CuriosityStream has served subscribers internationally, with its programming made available across multiple geographic markets through internet-connected devices and platforms.

CuriosityStream was founded in 2015 by John Hendricks, who also founded the Discovery Channel. The company went public through a business combination and began trading on the Nasdaq under the symbol CURI in 2020. Its business is centered on expanding access to specialized factual content through subscription-based and other digital distribution models.

CuriosityStream Q3 2024 Earnings Call Transcript

Key Takeaways

• Record adjusted free cash flow: $2.6M in Q3, marking the 8th straight quarterly improvement and ending the period with ~$40M liquidity and no debt.
• Direct subscription revenue rose 13% year-over-year to $9.8M, with annualized direct revenue now exceeding cash-basis operating expenses.
• Total Q3 revenue of $12.6M was down from $15.6M a year ago, reflecting lumpiness in content licensing and fewer non-cash barter deals.
• Gross margin expanded to 54% (90% excluding content amortization) while G&A and marketing expenses fell by 8% and 30% respectively, narrowing the adjusted EBITDA loss to $0.4M.
• Distribution and licensing momentum accelerated, launching FAST/AVOD channels with Samsung TV Plus, Fubo, Tubi, Pluto and Roku, closing nine global content deals and targeting 20–30 new partners leveraging 300k+ hours of assets.

Presentation

[Operator]

Good afternoon. My name is Jael and I'll be your conference operator today. At this time, I'd like to welcome everyone to the CuriosityStream Third 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 speaker's 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 cell phone keypad. To withdraw your question, please press star one again. I will now turn the call over to Vanessa Gillon, CuriosityStream's Head of Investor Relations. You may begin your conference.

[Vanessa Gillon, VP of Investor Relations at CuriosityStream]

Thank you, and welcome to CuriosityStream's discussion of its third quarter 2024 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer, and Brady Hayden, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe harbor statement. 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 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 Gillon, VP of Investor Relations at CuriosityStream]

For a discussion of the material risks and other important factors that could affect our actual results, 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 10-Q for the quarter ended September 30, 2024, when filed. 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. Unless otherwise stated, all comparisons will be against our results for the comparable 2023 period. Now I'll turn the call over to Clint.

[Clint Stinchcomb, CEO at CuriosityStream]

Thank you, Vanessa. I appreciate everyone joining us today for this Q3 quarterly report. 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 and our third consecutive quarter of positive free cash. 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. We believe we are well positioned to continue to deliver sequential top line revenue growth, generate meaningful adjusted free cash flow, and to continue to pay our dividend from surplus cash. We grew our direct subscription revenue 13% year over year, and while our sequential growth was flat, our margin here was up.

[Clint Stinchcomb, CEO at CuriosityStream]

As I mentioned last quarter, our annualized direct revenues now exceed our annualized operating expenses on a cash basis. 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. Amazon made Curiosity University one of a small group of curated services available in the Prime Video channel store. 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. We rolled out new AVOD packages with the largest global third-party partners, Pluto in the U.S., Tubi in the U.K. and Canada, and Roku in Latin America, among others. We executed nine content licensing agreements with partners in the U.S., Europe, the Middle East, and Latin America.

[Clint Stinchcomb, CEO at CuriosityStream]

On the content front, we continue to expand our Summer Blockbusters programming and marketing campaign to increase viewer engagement across some of our biggest and best-performing original series, 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, 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. We're achieving new heights and critical milestones while continuing to keep our shoulders to the wheel and to thoughtfully rationalize our cost base.

[Clint Stinchcomb, CEO at CuriosityStream]

In light of the increasing availability of AI-infused productivity tools, significantly reduced vendor costs, and strong organizational incentives around cost containment, we believe that we have additional room to reduce our overall expenses, both fixed and variable. 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. 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. These monetizable data sets today include over 300,000 hours of video and audio and hundreds of thousands of unique images, audiobooks, scripts, text, and code.

[Clint Stinchcomb, CEO at CuriosityStream]

We believe our strong balance sheet and significant and growing positive cash flow make us stand out in the current environment. 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 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, CFO at CuriosityStream]

Thank you, Clint, and good afternoon, everyone. 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. 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. 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. 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. 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.

[Brady Hayden, CFO at CuriosityStream]

Our additional revenue categories, content licensing, bundled distribution, and other, generated $2.8 million in the quarter compared to $7 million a year ago. 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. Third quarter gross margin of 54% increased from 46% a year ago, driven by continued reductions in content amortization and cash-based cost of revenues. 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.

[Brady Hayden, CFO at CuriosityStream]

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 realized the ongoing benefits of our planned spending reductions, 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. Adjusted EBITDA loss was $0.4 million in the third quarter compared to a loss of $3.9 million a year ago. 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, and as we mentioned earlier, adjusted free cash flow was $2.6 million in the quarter compared with negative $3 million a year ago.

[Brady Hayden, CFO at CuriosityStream]

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. We paid our July dividend of $1.3 million, and we ended September with total cash and securities of $39.8 million and no outstanding debt. We believe our balance sheet remains in great shape and that this provides us with significant operating flexibility. Moving to fourth quarter guidance, we expect revenue in the range of $12-$14 million and adjusted free cash flow in the range of $2-$3 million. With that, we can hand it back to Jael and open the call to questions.

[Operator]

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're 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. Your first question comes from the line of Patrick Sholl of Barrington Research. Your line is open.

[Patrick Sholl, Research Analyst at Barrington Research]

Hi, good afternoon. Thank you. Just had a couple of questions on the FAST and AVOD aspects. I was just wondering how you view monetization versus monetization of the FAST channels versus growing awareness of the subscription streaming service, how you kind of view balancing those two efforts.

[Clint Stinchcomb, CEO at CuriosityStream]

Excellent question, Pat, and I really appreciate that. I would say we started leaning in pretty hard to AVOD and FAST 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, we do rely on paid marketing, but the more that we can build a presence in front of the paywall and begin to use our assets to promote to our subscription services more, that's very good for us. And just as an example, September, toward the end of the quarter, we launched four FAST channels with Samsung TV Plus in the U.S. and Europe. We launched FAST with Fubo. We expanded our AVOD proposition with Tubi in the U.K. and Canada and with Pluto in the U.S. with Roku in Latin America.

[Clint Stinchcomb, CEO at CuriosityStream]

And those are the biggest of the biggest when it comes to FAST and AVOD. And so we really like that category. We have a lot of content still to deploy there. And so I would say that we're whereas the category is not immature and evolving. I think 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 Sholl, Research Analyst at Barrington Research]

Okay. On content spending, I know it's been lower as we'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?

[Clint Stinchcomb, CEO at CuriosityStream]

Yeah. Great question. So we try to premiere four to five programs a week on CuriosityStream. I think we've never been a hit-reliance service, but people like to come to CuriosityStream. They like to stay there because of the breadth and depth of our content. And so I think it's easy for people to kind of sit back and say, "Okay, how much are you spending on content?" And then evaluate the company that way. We have a slightly different point of view. There are ways to amass really quality content without spending a lot of money, especially as you develop more assets like we do. And so as I referenced, Pat, in my remarks, today we have over 300,000 hours of audio and video under some kind of license. I mean, that's by any objective standard of measurement in the media business, that's a lot of content.

[Clint Stinchcomb, CEO at CuriosityStream]

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.

[Patrick Sholl, Research Analyst at Barrington Research]

Okay. Thank you.

[Operator]

Your next question comes from the line of Laura Martin of Needham. Your line is open.

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

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 Gen AI to lower costs? And secondly, have you looked into, I know you said you have 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 OpenAI or Google or Anthropic or any of those big ones?

[Clint Stinchcomb, CEO at CuriosityStream]

Yeah. Thank you for that question, Laura. Really appreciate it. So on the cost containment side, I think there's sort of three areas, and they're kind of varying stages of development. Obviously, on the customer service side, there's an opportunity to reduce your cost there. That's not incredibly material, I would say, over the next year, but it is a reduction. And then certainly in the area of editing and the speed that you can edit with in regard to sequencing and things like that that are aided by. It seems to be a new AI tool every day. That's fantastic. One of the big holy grails for us is in languaging. And so there's certain content in certain languages that we've actually translated using AI. And for certain documentaries where it's a voice of God, it's not bad, and it's hard for people to tell the difference.

[Clint Stinchcomb, CEO at CuriosityStream]

In certain other content where there are lots of voices, you'll have a little bit of way to go there. But as those costs come down and we can overnight put our content into 50 different languages instead of 12 or 13 into 180 countries, that's a meaningful development for us. And I don't know exactly when that date will come, but certainly that date is coming. On the licensing side, we've spent a lot of time in conversation with the largest LLMs, and you mentioned them exactly who they are. Laura, I think everybody knows from OpenAI to Amazon to Google and right on down the list. And so when you enter into those conversations, there's typically a period of 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.

[Clint Stinchcomb, CEO at CuriosityStream]

At the same time, 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 not just the gross number associated with it, but thoughtful around the unit economics. And so what I would say is not dissimilar to what Reddit shared with you earlier this week, but that's an emerging licensing partner, and we anticipate doing several to many deals in that area.

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

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. I think strategically, smaller streamers feel like they're at a competitive disadvantage. So if the merger market opens again, thanks to new administration, do you feel like it's time to exit the business to a bigger firm holding company?

[Clint Stinchcomb, CEO at CuriosityStream]

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—increasingly, you need to be large, large, large to compete in this business. We feel like we've got a great standalone 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 without a doubt, we would engage appropriately.

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

Okay. Great. 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. I'm surprised the fourth quarter guidance isn't a little higher just because of the seasonality of ad revenue. Is ad revenue just not going to be really material until maybe next year's fourth quarter? Is that what's happening here?

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

Yeah. I think the puts and the takes on our guidance are, yes, as it relates to our advertising revenue. I think it will increase and be material and meaningful next year. And then 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, Laura, is you're delivering to these companies tens of thousands of hours, if not more. I mean, it's sort of unlike anything that most media companies have done in the past. And when you do that, the licensors have a period of acceptance, and it's unlikely that they're not going to accept the content, but in any content licensing agreement, there's an acceptance period. And that period is anywhere from 30-45 days. And as we don't directly control that, we chose to kind of temper our guidance a little bit.

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

But certainly, as it relates to advertising and as it relates to licensing, there is meaningful upside.

[Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham]

Okay. Thank you very much. Thanks.

[Clint Stinchcomb, CEO at CuriosityStream]

Thank you, Laura.

[Operator]

Your next question comes from the line of Robert Maltby of Singular Research. Your line is open.

[Robert Maltbie, Managing Director and President at Singular Research]

Hi, Clint. Hi, Brady.

[Clint Stinchcomb, CEO at CuriosityStream]

Hi, Robert.

[Robert Maltbie, Managing Director and President at Singular Research]

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. Anyhow.

[Clint Stinchcomb, CEO at CuriosityStream]

Are you hiring, Robert?

[Robert Maltbie, Managing Director and President at Singular Research]

That's good. This is good stuff here. Good stuff. So I 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 and leverage can you do to increase value with that cash? What are your plans?

[Clint Stinchcomb, CEO at CuriosityStream]

Yeah. Great question and always a good problem to have or a good exercise to go through, so if you look at sort of the best uses of our cash, 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 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. As it relates to cash, for any acquisitions that we would make, what we would be looking for is for them to be accretive and to be able to deliver almost immediately, particularly as it relates to advertising and licensing.

[Clint Stinchcomb, CEO at CuriosityStream]

So there are a few libraries that are available in the market. We'll always take a look if something is priced right. And I think in light of the fact that we've really expanded our content licensing roster over the last 12 months, in light of the fact that we have a head of licensing that we've had since December who's really talented, Ludo Dufour. 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 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.

[Clint Stinchcomb, CEO at CuriosityStream]

As the board directs, we'll look at, again, just anything that's accretive, and we think we can buy at the right price.

[Robert Maltbie, Managing Director and President at Singular Research]

Regarding the dividend outlook or policy, is it safe to assume it'll at least be maintained at current levels, or is there a prospect for some type of growth there?

[Clint Stinchcomb, CEO at CuriosityStream]

I think we would look at every option. I think at an absolute minimum, we would maintain it. I think that if the best practice is to increase it in some capacity, then I think we'd take a really hard look at that too.

[Robert Maltbie, Managing Director and President at Singular Research]

Wanted to focus in on the gross margins and the ad budget prospectively. And great job on those margins. Very good. So you're looking at 90% versus 80% year over year on the gross margins. 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?

[Clint Stinchcomb, CEO at CuriosityStream]

I would say it's sustainable based on these current economics. As we move in and do more licensing deals, in light of, I think, the volume of content that we have today and in light of the fact that we acquired a lot of it through non-cash means, meaning we have a rev share obligation associated with that. So I think that we'll do a number of large licensing deals, but those will not be at 100% margin because it's not stuff that we wholly own. But they'll be at probably closer to a 50% margin, which is still fantastic. But that can cut into the overall margin. Does that make sense, Robert?

[Robert Maltbie, Managing Director and President at Singular Research]

Finally, looking at the top-line growth, what are you looking at in terms of the main catalysts? If you look at the landscape of your opportunity set, if you look at your potential partners, and then you look at the competition, what do you feel would be that we could understand avenues that could be a strong catalyst for your top-line growth?

[Clint Stinchcomb, CEO at CuriosityStream]

Yeah. The big catalysts are licensing. Again, I mean, we have over 300,000 hours now of audio and video under license. I think you'd be hard-pressed to find a company our size that controls that sort of volume. And so without a doubt, they're big opportunities in the licensing space. That's a real catalyst. It's a little bit lumpier because the revenue is recognized when the content is delivered and accepted as compared to over the course of the agreement. At the same time, from a longer-term standpoint, we are doing more pay-TV agreements outside the U.S., and we are, as I mentioned, enhancing our position in the FAST and AVOD space. And so that will continue to grow. Again, not as fast and not with the same heights as larger content licensing agreements, but those three categories can deliver a lot of growth.

[Clint Stinchcomb, CEO at CuriosityStream]

As it relates to the subscription revenue, you're tied in part there to the amount of money that you spend on paid marketing. And so the way that we're, our focus right now is to continue to, we're going to grow top-line revenue. We think we can grow it significantly. At the same time, we want to continue to generate meaningful cash. Does that help, Robert?

[Robert Maltbie, Managing Director and President at Singular Research]

Yeah. And I came in a little bit after you started the call. There's some pretty tight security there. That's great. But I came in and you were talking about your new partners' growth, 20-30 new partners, and 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 increasing sales to existing partners?

[Clint Stinchcomb, CEO at CuriosityStream]

Yeah, so the good news is we have a lot of existing partners that we've even gone back to on the licensing side, but 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, I mean, 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. We did a licensing agreement with News Corp, I think everybody's probably familiar with. And we did a licensing agreement with an audience-first YouTube company of scale. And then, as I mentioned, we're talking to a lot of technology companies around video training.

[Clint Stinchcomb, CEO at CuriosityStream]

So we've got a nice, we've got a nice roster, and it's wider than it's been. It's deeper than it's been. And so when I mentioned that we anticipate doing 20-30, bringing on 20-30 new partners, those will be, we'll continue to, those will be in the traditional space, traditional media companies. At the same time, they'll be in the technology area as well.

[Robert Maltbie, Managing Director and President at Singular Research]

Terrific. Thank you.

[Clint Stinchcomb, CEO at CuriosityStream]

Thank you, Robert.

[Operator]

With no further questions, that concludes today's conference call. We thank you for your participation. You may now disconnect.

Participants

Executives

• Clint Stinchcomb, CEO
• Brady Hayden, CFO
• Vanessa Gillon, VP of Investor Relations

Analysts

• Patrick Sholl, Research Analyst at Barrington Research
• Laura Martin, Managing Director, Senior Internet and Media Analyst at Needham
• Robert Maltbie, Managing Director and President at Singular Research