CuriosityStream Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 20, 2024

There are 6 speakers on the call.

Operator

Good afternoon. My name is Jeannie, and I will be your conference operator today. I would like to welcome you to the Curiosity Stream Inc. Q4 2023 Earnings Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Andrew Lotta, Investor Relations. You may begin your conference.

Speaker 1

Welcome to CuriosityStream's discussion of its Q4 and full year 2023 financial results. Leading the discussion today are Clint Stinchcombe, CuriosityStream's Chief Executive Officer and Peter Westley, 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.

Speaker 1

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. 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 annual report on Form 10 ks for the fiscal year ended December 31, 2023, when filed.

Speaker 1

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. Now, I'll turn the call over to Clint.

Speaker 2

Thank you, Andrew. Hello, everyone. I appreciate you all joining us today. Also on the call are our COO and General Counsel, Tia Cudahy our CFO, Peter Wesley and our Head of Content, Rob Burke. While we will discuss Q4 in detail, I want to begin this call by congratulating the Curiosity team for achieving a significant and critical milestone.

Speaker 2

I'm delighted to share that we will end Q1 2024 with more cash on hand than we had at the end of Q4 and with positive adjusted free cash flow. And importantly, we will accomplish this without reducing our paid marketing spend. Looking forward, we'll be guiding to positive adjusted free cash flow for the Q1 of 2024 and we'll be initiating a dividend program in April, which will be paid from excess cash. Looking back, Q4 was a good quarter. We improved our adjusted free cash flow for a 5th straight quarter as we cut our cash burn to $2,400,000 while sequentially keeping our marketing spend relatively flat.

Speaker 2

Our direct revenue grew both sequentially and year over year. Continued to roll out our new pricing plans to new direct customers into a cohort of our existing subscribers. Many of our annual subscribers are only now coming up for renewal and most of our channel store partners just began adopting or announcing the increase to our flagship service. And even at a higher price point, we continue to believe our subscription services represent an extraordinary value compared to other offerings in the market. We entered into new long term licensing and distribution agreements with partners in Asia and the EU in Q4.

Speaker 2

And more recently, at the end of February, Apple TV rolled out Curiosity Stream in 23 countries, not a simple achievement for most U. S.-based companies in light of increasingly stringent EU content requirements. Just the last 2 months, we've had our products and services launched in over 30 3rd party platforms around the world. In order to expand the top of our marketing and promotional funnel and further monetize our content, We rolled out our AVOD product with key partners like Tubi, Xumo and Roku in October and we are pleased with our early progress as our millions of monthly impressions continue to grow dramatically. We have a large evergreen globally appealing library of content now over 17,000 titles that we are putting to work across new platforms that we believe will both increase and enhance the reliability, durability and predictability of our revenues going forward.

Speaker 2

We reduced G and A significantly in Q4 and have continued to in 2024 as we streamlined the organization, renegotiated vendor agreements and bartered where we had advantages. As the impact of new technologies is often overhyped as we've seen with innovations like the metaverse, 5 gs, crypto, we are treading thoughtfully into the AI opportunities available to us, thoughtfully and measuredly. We've just started to leverage practical generative AI catalyst in order to explore, conduct ways to work faster, cheaper and more efficiently in several areas. Some specific examples we're utilizing today include functional areas like more personalized and targeted email marketing as well as broader CRM initiatives, accelerated sequencing in the editing process which enables us to meet a broad range of different third party platform requirements around the world and in so doing put more content to work. Our engineering team is testing and using AI to enhance software development practices such as automated code suggestions, reviews, data analysis and database query assistance.

Speaker 2

Additionally, we're experimenting with AI to enhance categorization of content, analysis of scripts, factual analysis. We've also started using AI for understanding customer feedback through sentiment analysis and summarizing insights to improve user experiences and content relevance. While premium program synthetic dubbing is not quite ready for primetime, we believe it's within our sites to create a meaningful impact on the speed and volume of content we can publish across the globe in a growing number of languages. In regard to premium factual content, we closed out the year in Q4 with one of our strongest programming slates to date, headlined by our brand defining reboot of connections with James Burke. 6 part journey through the seemingly small and unrelated events that fuel human innovation.

Speaker 2

We also had the launch of our annual Dynaweek stunt, anchored this year by the premier of Amazing Dynaworld 2 and the release of more cutting edge science and tech specials like AI Tipping Point, Mystery of the Giant Birds and a perennial fan favorite, Top Science Stories of 2023. Looking ahead, we're excited about our strong start to 2024, including the premier of original series like Science for Evil Geniuses, Rebuilding Notre Dame, the invention of surgery

Speaker 3

and

Speaker 2

the art of seduction. In closing, I'm happy to reinforce that we ended the year with over $38,000,000 in cash and equivalents and 0 debt. We believe our strong balance sheet and projected 2024 positive cash flow, our major competitive advantages in the current environment and we continue to believe that our global appeal, our direct subscriber base and direct platforms, our broad and deep content library of over 17,000 titles, our multiyear 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. Over to you, Peter.

Speaker 3

Thanks, Clint. As Clint mentioned, we made further progress towards our positive adjusted free cash flow objective during the quarter and we remain intensely focused on expense discipline and operating efficiency. We believe our Q4 results demonstrate the excellent progress we've made over the past year to improve profitability and cash flow. 4th quarter adjusted EBITDA improved by $10,200,000 compared with the prior year quarter, while adjusted free cash flow improved by $6,400,000 year over year. 4th quarter revenue was in line with our guidance range for the quarter and adjusted free cash flow was above the high end of our guidance range.

Speaker 3

This was our 5th straight quarter of sequentially improving adjusted free cash flow. Turning to our 4th quarter results. Revenue was $14,800,000 compared to $14,500,000 in the prior year quarter. We saw year over year gains in all of our major revenue categories with the exception of our enterprise business, which now represents the smallest portion of our revenue. Our largest revenue category in Q4 was again our direct business, which came in at $9,100,000 up 6% both sequentially and year over year, primarily driven by the impact of our price increases implemented earlier in 2023.

Speaker 3

Turning to content licensing, which was our 2nd largest category this quarter, we generated $3,300,000 of revenue compared with $3,000,000 in the prior year quarter. Content licensing is an inherently lumpy business. We continue to close a number of barter transactions during the quarter with these deals accounting for $2,500,000 of our content total content licensing revenue. Our next largest category was bundled distribution, which saw $1,800,000 of revenue in the quarter compared to $1,500,000 in the prior year quarter. The year over year growth was primarily driven by new partnerships and the recognition of revenue from earlier periods due to successful collections.

Speaker 3

For Q4, our other revenue category was 0.5 $1,000,000 an increase of approximately $500,000 compared to the Q4 of last year when we had less than $10,000 of revenue in this category. Our other revenue category includes advertising, sponsorships, branded social media promotional videos, transactions and other sources of revenue. As with our content licensing business, we engage in advertising related barter transactions. In the Q4, approximately $350,000 of our other revenue related to barter transactions. While our other revenue is a small part of our business right now, we believe we have significant opportunities to grow our future advertising and sponsorship revenues in our pay TV channels and in front of the paywall in coming quarters.

Speaker 3

4th quarter gross margin of 45% increased from 9.4% in the prior year quarter, driven by our cost control efforts and a significant decline in content amortization expense. Content amortization in the 4th quarter was $5,200,000 which was about half of the $9,800,000 we recorded in the prior year quarter. We expect content amortization expense, the largest component of our cost of revenues, to continue to decline going forward and ultimately converge with the lower level of new content investment that we require now that we've achieved critical mass in our content library. G and A expense during the Q4 of 20 23 of $6,400,000 was down $1,200,000 or 15% year over year, driven by lower compensation and professional services costs. As part of our more than $15,000,000 in planned reductions and cash spending that we discussed on our Q3 earnings call, we initiated a reduction in force in December, which resulted in a $800,000 restructuring charge during the quarter.

Speaker 3

From an accounting standpoint, we recorded this charge, which mostly consists of severance costs in Q4 of 2023, although the majority of these costs will be paid in 2024. As we align our staff levels with our current business needs, we believe that our workforce optimization efforts will enable us to operate more efficiently and significantly reduce compensation costs in 2024 and beyond. Our 4th quarter advertising and marketing expense of $5,000,000 was down 45% year over year and we continue to exercise discipline and analytical rigor in deploying our customer acquisition dollars. Moving to profitability. Adjusted EBITDA loss was $3,400,000 the calculation of which excludes the $800,000 restructuring charge discussed earlier, compared to an adjusted EBITDA loss of $13,600,000 in the prior year quarter.

Speaker 3

Adjusted free cash flow use of $2,400,000 for the quarter improved $6,400,000 year over year. As we mentioned earlier, this represents our 5th consecutive quarter of sequentially improving adjusted free cash flow and underscores continued momentum toward positive adjusted free cash flow. Our overall balance sheet remained in great shape with $101,000,000 of assets, $28,400,000 of liabilities and book value of $72,600,000 or approximately $1.36 per share. We ended the quarter with total cash, cash equivalents and restricted cash of $38,200,000 and no outstanding debt. Moving to our Q1 2024 guidance, we expect revenue in the range of $11,500,000 to $12,500,000 and adjusted free cash flow in the range of $250,000 to $1,000,000 We're excited to be guiding positive adjusted free cash flow for the first time in the company's history.

Speaker 3

This is a major milestone for CuriosityStream. Additionally, as Clint mentioned, given our expectations regarding cash flow in the Q1 and for the balance of the year, our Board of Directors has decided to return capital to our shareholders in the form of cash dividends. Specifically, they have declared that a dividend of $0.025 per share will be paid quarterly to our shareholders. The first dividend will be paid on April 30, 2024 to holders as of the close of business on April 12, 2024. Finally, I wanted to give an update on the notice that we received from NASDAQ.

Speaker 3

Just yesterday, we received written notification from the listing qualifications department of NASDAQ granting our request for a 180 day extension to regain compliance with the minimum bid price rule. We now have until September 16, 2024 to meet the requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1 per share for a minimum of 10 consecutive business days during this 180 day period. With that, operator, let's open the call to questions.

Operator

Your first question comes from the line of Laura Martin with Needham. Your line

Speaker 4

is open. Hi. Can you hear me okay, guys?

Speaker 5

We can. Yes.

Speaker 4

Fantastic. So, the first one I wanted to go back to Asia. You said you're doing Asia and EU renewals. And can you tell us about the terms of those? Are those getting better, worse?

Speaker 4

Are they staying the same? What are

Operator

the terms of your renewals?

Speaker 2

Yes. So the agreement that I was referencing in Asia is with a telecom provider and that was a new deal, Laura. So we don't have a massive third party platform presence in Asia, but this is a nice way for us to get into the territory. And then we can talk about this later, but we did do a few new deals there in the Q1 of 2024 as well. So

Speaker 4

That's right.

Speaker 3

Meaningful opportunity for

Speaker 2

us, yes. Sorry.

Speaker 4

What was that year? Did you renew anything in the EU?

Speaker 2

Yes. So in the EU, we had we do have one significant renewal coming up in Q3 of this year. But what I was referring to there were actually new agreements leading to new rollouts, which will which we've not announced today, but we will shortly.

Speaker 4

Okay, cool. Okay, great. I'm wondering, my second question is on the M and A market. We saw that Apollo bids as well as building for the Paramount Studios. Could you talk about what you think is going on in the M and A market and whether you think like anybody can exit in this market or is the attraction of smaller streaming companies becoming more difficult?

Speaker 2

Yes. I think without a doubt, it's more difficult, especially for subscale streamers. I mean, look, it depends on where you draw that line. But I would say we have some really unique advantages there. I mean, you know, Laura, there have been a lot of services over the last 4 or 5 years that are either subscale or part of a larger company that have just gone completely away, drama fever, film struck, CSO, Rooster Teeth, etcetera.

Speaker 2

Like these were real services for a while. And so I think that one of the things that is unique about us and that we're really excited about is that we have real cash, we have increasing cash, we've taken the hard steps over the last 12 months really to turn the ship and put us into positive territory. And so I think M and A is tough right now for a lot of people. I think though that while we're focused on allocating our cash toward the business, toward the dividend, obviously. I think that there are going to be certainly many companies that have real challenges.

Speaker 2

Now, I will say that through our smart bundle, which includes 6 other services in addition to CuriosityStream, like we have conversations with a lot of the smaller streaming companies that you've referenced, even some larger ones. And so for a lot of these guys, it's growth is tough. And I do think that it will be certainly be challenging over the next year, over the next 18 months.

Speaker 4

And

Speaker 2

that's why we like the fact that we have a unique and really sustainable cost base. We're not competing for costly sports or Game of Thrones or The Hobbit or hours of programming that are tens of 1,000,000 of dollars per hour. I mean, I will say, I'll just kind of close with this, like in this macro environment where consumer confidence is shaky, where individual spending is more disciplined, we're on track to have our best month of subscriber reactivations in over 2 years. And that's not because consumers are jumping in to watch Dexter or Love Island or a single seasonal series. Rather, it's a testament to quality, to value and to premium evergreen content with global appeal.

Speaker 2

Thank you for that question, Lauren.

Speaker 4

Sure. And then Peter, my last question is for you. You're guiding to adjusted free cash flow of like $250,000 to $1,000,000 in Q1. Can you remind us how much will severance lower the free cash flow in the Q1? You said a lot of it was going to be paid out in Q1.

Speaker 3

Yes. So severance is actually added back in the calculation of adjusted free cash flow. So that would be effectively excluded in the calculation of that number.

Speaker 4

Yes. That's why I'm asking what the number is for severance.

Speaker 3

Yes. So the total severance will be about on the order of $350,000 or so. Yes. Slightly higher than that, somewhere in that order.

Speaker 4

Thank you. That's exactly what I wanted to know. Thanks, guys.

Speaker 2

Thank you,

Operator

Your next question comes from the line of Jim Goss with Barrington. Your line is open.

Speaker 5

All right. Thank you. I was wondering the relationships domestic relationships with Tubi, Xumo, Roku, are they all pretty similar and are they largely fast channel driven? Yes, that's a great question.

Speaker 2

Yes, great question, Jim. Thank you for asking. For most of them, the business model is the same. I mean, it's typically a rev share model with the larger distributors, where the rev share from the platform to the partner might be anywhere from 40% to 60%. As it relates to fast channels, we do have our CuriosityStream flagship fast channels today that we've recently launched with a few distributors in the U.

Speaker 2

S. And then more recently with in the EU. And then obviously, we're in a lot of conversations there. And so in light of all of the content that we have, we're trying to do the right deals as it relates to fast. And so what that includes sometimes, Jim, is sort of deeper partnerships with either the platform leaders like you mentioned or even category leaders in the space.

Speaker 2

And so we're in the process of being in all those conversations, but are really encouraged and excited about the opportunity to put so much of our content to work on those platforms that heretofore has not been put to work.

Speaker 5

So those are also the primary conduits for your subscription services. Is that correct?

Speaker 2

Well, there are place for us to promote to our subscription services. But in the case of like a Xumo or Tubi or Pluto or Roku, those guys are Roku, yes, good example. I mean, with Roku, we have a nice holistic relationship where they offer our apps, they offer Curiosity Stream in their channel store and they offer our AVOD package, a certain amount of our AVOD package. And the nice thing about that with Roku where there's a subscription offering is, if we're showing a series like the history of Wall Street and you watch the first two episodes, but then you want to watch the 3rd, Roku does a great job of upselling people to a monthly subscription to CuriosityStream in that case. So yes, in the case of Roku, exactly as you described, Joe.

Speaker 5

You also talked about the critical mass with your library, which I think you have gotten to over the past year or more. And I'm wondering, I think I may have asked some of this before, but in terms of using that library and keeping it fresh, but making sure you take advantage of that critical mass in library. Could you describe that process right now? And like are you carving out like a quarter of it per season or something of that nature? How exactly are you working out with that?

Speaker 2

Yes. It's a great question. And so, if you came to just CuriosityStream today and try to go through and watch all of our the 4,500 to 5000 titles that we have there, that probably take you a few years. So it's sort of like for new customers, especially it's almost like premier night every night on CuriosityStream. So, we're trying to do a great job of resurfacing the best content and serving up the right personalized genres to the right subscribers.

Speaker 2

At the same time, we have on our shelf right now, we have over 700 titles that we haven't even published yet. So I think I alluded to it in I think my last answer, but I can't emphasize enough that we have a really unique cost base, and we have kind of a unique and extensive approach to amassing content. So we actually continue to build that to build our library. And the nice thing today is we have multiple products to push out that to push that content through. And as I mentioned in my script, as translation services become less expensive and hopefully catalyzed by AI, we have an opportunity to put content in language all throughout the world, whereas we're in 175 countries today, but not in 175 different languages, we're in 10.

Speaker 2

So we have a high volume of content and we're generating more reliability and predictability around what that content will yield when we deploy it on different platforms. But I also we're on 100 and 14 different third party platforms today with our content and growing. So we're really excited about the opportunity in front of us.

Speaker 5

Okay. And lastly, are the global relationships pretty similar to the domestic relationships? And are you able to grow those global relationships with the same content the way you're describing with AI dictated embellishment into additional languages?

Speaker 2

Yes. So we've not used just to be clear, like we've not put into commercial broadcast any AI translated content. However, we do think that that's close and obviously we're working on that. We're working with different partners on that on a daily basis. But yes, we have global rights to a lot of our content and a lot of it is, as you know, it's just it's broadly appealing because it's in the factual genres.

Speaker 2

It's science, it's animals, it's motors, it's crime, it's adventure, it's kids, it's living and those categories just translate well. There's not you're not hampered by colloquialisms that you might experience with procedural dramas in the U. S. Or something like that. So yes, the content travels well and you just look, I think we've sort of underestimated the platform opportunities available to us going forward.

Speaker 2

And we're looking to do whatever we can to enter into great partnerships and help our partners make money and obviously grow our business as well.

Speaker 5

All right. Thank you very much.

Speaker 2

Thank you, Jim.

Operator

There are no further questions at this time. Thank you for your interest and participation. This concludes today's call. You may now disconnect.

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Key Takeaways

  • CuriosityStream achieved positive adjusted free cash flow in Q1 2024 with more cash on hand than Q4 2023 and maintained its paid marketing spend, guiding to continued positive cash flow and initiating a $0.025 per share quarterly dividend starting April.
  • In Q4, the company improved adjusted free cash flow for the fifth consecutive quarter, cut cash burn to $2.4 million, and saw direct revenue grow 6% sequentially and year-over-year to $9.1 million as total revenue reached $14.8 million.
  • The distribution footprint expanded significantly, including AVOD launches with Tubi, Xumo, and Roku in October, Apple TV rollouts in 23 countries, and new long-term licensing deals in Asia and the EU, growing presence on over 33 third-party platforms.
  • With a global library of over 17,000 titles, CuriosityStream is deploying practical AI tools across marketing, editing, software development, and content categorization to work faster, cut costs, and accelerate international translation and dubbing.
  • The company ended 2023 with $38.2 million in cash, zero debt, and secured a 180-day Nasdaq extension to regain the $1.00 minimum bid price while reducing content amortization and G&A expenses through organizational streamlining and vendor renegotiations.
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Earnings Conference Call
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