CuriosityStream Inc. (CURI) Q1 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the CuriosityStream First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. I’ll now turn the conference over to Denise Garcia with Investor Relations. Please go ahead.

Thank you. Welcome to CuriosityStream’s discussion of its first quarter 2021 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream’s Chief Executive Officer; and Jason Eustace, 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 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. 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 three months ended March 31, 2021 when filed. In addition, reference will be made to non-GAAP financial measures. Now, I’ll turn the call over to Clint.

Thank you, Denise. I’d like to thank everyone for joining our first quarter 2021 earnings call. I’m delighted to have with us today, our COO and General Counsel, Tia Cudahy; our CFO, Jason Eustace; and our Chief Product Officer and EVP of Content Strategy, Devin Emery. After my comments, I will turn the call over to our CFO, Jason Eustace, to review the financials. At the close of Jason’s remarks, we will open up the call for questions. CuriosityStream’s mission is to provide premium factual entertainment that informs, enchants and inspires. As a pure-play streaming service, we are capitalizing on current and emerging worldwide trends favoring on-demand content. Our security and robust business model with multiple avenues of content monetization and our differentiated content offering provides us with several key competitive advantages. And our focus on factual content, which has longevity and engaging appeal across multiple demographics and geographies is key to our success. Let me talk about the first quarter. I’m pleased to report robust growth in our direct subscription businesses, where we grew subscribers over 80% year-over-year during the quarter is our high value subscribers and we are adding them at a rapid clip. We will continue to delight our customers through high quality content additions and product innovations, which you will see from us in the coming quarters. We're also pleased to announce that we have acquired One Day University, the founder led company, which shares our core value of providing inspiring, engaging and informative content for people who want to know more. One Day University features over 500 unique talks and lectures from the best professors from over 150 colleges and universities in the United States. This milestone acquisition for our company that will fortify enhance our long-term direct-to-consumer digital proposition to a broader factual audience, and also enable us to leverage the promotional power and reach of their enchanting live events is the world opens up. I'll provide more details later in the call. Revenue in the first quarter grew 33% year-over-year to $9.9 million driven by continued strength in direct subscription revenue. But program sales and sponsorship also contributing to our success in the quarter. As we noted on previous earnings calls, third party revenue growth can be lumpy and difficult to forecast precisely due to deal timing. We continue to expect a robust second half and now have 90% of our full-year revenue goals of $71 million committed, up from 80% at the end of last year. With over $178 million of cash and investments on our balance sheet at the end of the quarter, we are in an excellent position to invest in growth. We've always been opportunistic in our pursuit of profitable growth, we see a great deal of opportunity in the current environment. We will take advantage of our low customer acquisition costs, continuing to invest in marketing. And according to our plan, we will continue to pursue strategic opportunities such as the One Day University acquisition we announced today. One Day University direct consumer services include live stream and Q&A events five days per week, premium multipart courses and access to a proprietary library of hundreds of entertaining and informative lectures in science, history, art, politics, and more. Think of One Day University as a Masterclass for academia, which appeals to an interested in curious customer base, the digital education and edutainment industries are growing at an accelerated rate following the pandemic, which expanded market awareness and engagement. As an example of Coursera, the U.S. registered learner base by 65% in 2020, up from 24% growth in 2019. One day University was founded as a location based Entertainment Company, which pre-COVID would hold 60 to 70 live events per year. One Day University pivoted to streaming following the COVID outbreak and launched its SVOD service in April of last year. A year later, this service is experienced same tailwinds from COVID that many have and is growing when they use content is highly complementary to our existing library, with our more advanced technology platform and marketing resources, we see a tremendous opportunity to accelerate subscriber growth. We're really excited to work with the company's brilliant visionary founder Steven Schragis, after this acquisition to accelerate One Day University’s growth, enhance the value proposition of our direct services. They're always looking for creative ways to grow our business and enhance our service offerings. So when we identify a strategic growth opportunity, like One Day University, we will aggressively pursuing. We have other opportunities in our pipeline, which would improve our value proposition, expand our distribution and accelerate subscriber growth, which we look forward to announcing in the coming months. We continue to optimize our business to our North Star Metrics, revenue and paying subscribers. At the end of the first quarter, we increased total subscribers 28% compared to the first quarter of 2020, to approximately 16 million with direct subscribers increasing 80%. We continue to deliver unique, relevant, insightful perspectives on our world through groundbreaking new content. During the quarter, we premiered the three part Original Series Ancient Yellowstone, which reveals the stunning array of past and present life that's been discovered beneath the hot springs and snowcapped mountains of Yellowstone National Park. The series was shot entirely during the pandemic, and the first episode had more viewers in its first week than any other program today. In March, we premiered Nature Through Her Eyes, beautiful four part series about some of the world's greatest female natural history photographers and cinematographers. It opened on International Women's Day during a special Jackson Wild Film Festival event that highlighted the enormous challenges that female filmmakers face and the unique perspective they bring to capturing the natural world. At the end of the quarter, we also premiere the first five episodes of our 10 Park Landmark original series ancient engineering, which reveals how major advances in design gave rise to some of the greatest structures in history, and how these century old building techniques continue to shape our world to this day. , : Production is also well underway on some of our most ambitious feature docks including biotech on groundbreaking Black American Aviator, Bessie Coleman and have all, the gripping story of why Hollywood actor Michael Enright gave up everything to fight alongside Kurdish forces in Syria during their long and brutal war against ISIS. We continue to invest in the distinct content that defines us nature, history, science, travel in every category in the factual genre. We will offer more new originals this year than any time in our history. We're exploring all options to expand a library that is already unrivalled, and goes deeper than anyone into the topics our viewers already care about or have yet to discover. We're extremely well capitalized at the end of the first quarter with over $178 million of cash and investments on our balance sheet. Cash Flow during the quarter benefited from our following offering, which raised approximately $94 million in proceeds. We also receive $55 million during the quarter from warrant exercises. With our strong balance sheet, robust direct subscriber growth in leading factual content library and streaming, we are excited about our prospects for the remainder of the year and beyond. And as we have 90% of our year in revenue target committed, we're on track to achieve our year-end revenue goal for 2021. I'd like now to turn the presentation over to our CFO Jason Eustace. , : Production is also well underway on some of our most ambitious feature docks including biotech on groundbreaking Black American Aviator, Bessie Coleman and have all, the gripping story of why Hollywood actor Michael Enright gave up everything to fight alongside Kurdish forces in Syria during their long and brutal war against ISIS. We continue to invest in the distinct content that defines us nature, history, science, travel in every category in the factual genre. We will offer more new originals this year than any time in our history. We're exploring all options to expand a library that is already unrivalled, and goes deeper than anyone into the topics our viewers already care about or have yet to discover. We're extremely well capitalized at the end of the first quarter with over $178 million of cash and investments on our balance sheet. Cash Flow during the quarter benefited from our following offering, which raised approximately $94 million in proceeds. We also receive $55 million during the quarter from warrant exercises. With our strong balance sheet, robust direct subscriber growth in leading factual content library and streaming, we are excited about our prospects for the remainder of the year and beyond. And as we have 90% of our year in revenue target committed, we're on track to achieve our year-end revenue goal for 2021. I'd like now to turn the presentation over to our CFO Jason Eustace.

Thanks, Clint. I'm also excited about our increased visibility into our 2021 revenue goal and the exciting business development activities we announced this quarter. With over $178 million of cash and investments on our balance sheet at the end of the quarter, we're in the strongest position in our history to execute our multifaceted growth strategy. Before reviewing the first quarter financials, I'll give a brief update on the 10K we refiled earlier this month. The SEC recently required companies that have completed a spec transaction to reclassify private placement warrants as liabilities. As a result of the reclassification, we recognized incremental non-operating expense of $10 million for the year ended December 31, 2020. There was no material impact on to our historically recorded cash and cash equivalents or cash flows from operating, investing or financing activities. During the first quarter of 2021, we recognized an incremental $3.8 million and other expense related to the change in the fair value of our warrant liability. Now let's review our first quarter financials. CuriosityStream’s Q1’21 revenues grew 33% to $9.9 million from $7.5 million in Q1 of 2020. This was led by direct-to-consumer, partner direct and higher program sales. Cost of revenue was about $4.2 million, or 42% of revenue, compared to 36% of revenue in Q1 2020, primarily due to an increase in our content amortization as a result of timing and a number of titles released in Q1 2021 compared to the same quarter prior year. As a result, the Q1 gross margin was 58%, compared to 64 in Q1 of ‘20. Advertising and marketing expenses were about a little over $12 million, a 4% decrease year-over-year, and a sequential decrease of about $1.1 million. CuriosityStream's overall operating expenses increased 22% to $20.8 million, up from $17.1 in Q1’20. First quarter EBITDA loss of $15.5 million, compared to an EBITDA loss of 12.3 last year, due to higher G&A costs associated with being a public company and higher personnel costs related to key executive hires we announced last quarter, as well as other great talent we added from our team during the quarter. CuriosityStream ending cash and investment balances on March 31, 2021 totaled $178.1 million, which is up from $42.4 million at the end of last year. As we successfully raised $94 million in our follow on offering and received $55 million from warrants exercise during the quarter. We are on track with our plans for 2021 to deliver $71 million in revenue with over 90% of our 2021 revenue committed to date, up from 80% at the end of last year. We continue to expect an outsize second half of the year as our new lines of business such as program sales and sponsorships ramp up and we pursue additional business development opportunities such as One Day University deal we announced today. And now I'll turn it back over to Clint to open up the line for questions.

[Operator Instructions] And your first question comes from Tom Forte with D.A. Davidson & Company.

Great, thanks for taking my questions. I had three questions in total. So the first one I have, Clint, previous calls you talked about the opportunity to advance your sponsorship efforts when pandemic related restrictions ease and you get the opportunity to meet with companies once again. Can you give us an update on these efforts?

Yes, thank you for the question, Tom. I'd say the things are still not quite as open as we'd like. But we did recently add some strong brands to our advertising roster in the consumer technology and financial services space. Our team are like coiled springs, they are ready to meet with anyone in person virtually anywhere, anytime in the world. And so if things open up, this roster of brand partners will only increase.

Great. And then my second question is, I was wondering if CuriosityStream gets a halo effect when one of your content providers does show another channel as David Attenborough did on Earth Day with a show on Apple TV plus?

Yes, definitely. We think it's actually additive to CuriosityStream, additive to the category when Netflix will offer a program or a series like that, or Apple TV will offer a program or a series like that. And so, for us, as we've said in the past, we want to be the most reliable destination for factual entertainment and provided we continue to mark our territory in that way. We will benefit from the halo effect of that type of content and other services.

Excellent. All right. And then my third question, thank you for taking my question. On the One Day University acquisition really looks like a great acquisition on first blush. But we're in particular intrigued with the notion alive. Reminds us a little of what clubhouse is doing. The clubhouse is only focused on audio and video elements as well. How can we think about your live content strategy in general? And for One Day University in particular?

Well, audio was actually built on a live in-person events started by a entrepreneur Steven Schrager more than 10 years ago. He wanted a place where curious people could spend a fun and engaging day or half day in community with other curious people, listening to our country's greatest minds. And so I think what attracted people is, Steven built a Rockstar of Italy master instructional talent, the best in the country, from Catherine Sanderson at Danvers, who is well known for her work on the Science of Happiness to the Great American History and Louis Masur from Rutgers, Anatole Enza from Georgetown, Scott Galloway from NYU. So, Stevens created, the best collection of professors that you can find I think anywhere in the world. And so we believe that, as the world opens back up, we will, will work closely with Steven and his team, to even increase, the number of live events that are done every year. And, what we believe is important, and we're not alone in this is that over time, the most successful digital media companies whether it's an online and offline presence, and a passionate off-line presence meaning, live in-person presence. Over the long-term we'll deliver new direct subs, new brand partners, and ultimately reduce our CAC.

Great. Thanks, Clint for taking my question.

Thank you, Tom.

And your next question comes from [Devin Brisco with Bozo Global Research]. Q –Unidentified Analyst: Thanks for the question. I just had a follow-up on the One Day University acquisition. Could you talk about the financial profile and potential synergies from the acquisition and just how you're thinking about integration of that asset? And how you could potentially I don't know if you potentially could bundle the services together and do utilize content or exactly how you're going to sort of integrate the two businesses together?

Yes, so. Steven, in his head of operations, Kevin Brennan, he run a great company right now, it's small, it's 910 people. And so we will need some time to properly integrate ODU into our tech stack and marketing operations and to identify and pursue optimal pricing and packaging scenarios. But they will continue to operate ODU as a standalone business. And you know, the next few months, we'll work closely with Stephen and the rest of the team to leverage as many synergies as possible. There will be a lot more to come there, in regard to specifics, but we're really excited about what we'll be able to do together. And what will be able to - how will be able to health grow One Day university. Do you want to add anything to that?

No, I was going to say, I think the point that we want to make is that we're going to hopefully with the acquisition, we hope to amplify their presence in the marketplace, specific enough spots, as well as the other lines of the business to really propel their growth going forward. Q –Unidentified Analyst: And you talked about some lumpiness in revenue for the year, particularly related to third-parties. Could you provide a little bit more color just on your expectations for growth for the year? Do you expect revenue trends to accelerate sort of each quarter throughout the year? And do you think you were impacted at all just on the subscription side, due to tough COVID comps in the first half? Or is that not that very much of a factor?

It has not been much of a factor I mean, churn might pick up a little bit as we kind of go into Q2, but we're not expecting a major increase there as those COVID subscriptions kind of anniversary. And so that that could go up a little bit, but overall, we're expecting the next three quarters obviously be bigger than the one we just had, because we have to hit that 71. So they will be much bigger in order to hit that 71 for the full-year. Q –Unidentified Analyst: Okay. Thank you.

And your next question comes from Dan Kurnos, with The Benchmark Company, LLC. And Dan, your line is open.

Hi, thanks. Good evening. Jason just to be clear the 71 is exclusive on the acquisition? Correct?

Inclusive.

Okay. And then Clint also just some color. I know you talked about offline and online presence. So I'm just curious if you're kind of viewing this, this is not really a pivot, this is ancillary, synergistic, and potential for you to take some of your own talents and some of the pipeline and potentially drive it offline, as well as getting more of their talent online. Is that the right way to view this?

Yes.

Okay. And then maybe if you can just give us kind of an update on sort of the international push? Obviously, there's been a lot of noise in Asia, unfortunately, due to COVID. But just in general, kind of the international MVPD expansion strategy, where we are there?

Yes, we continue to meet with international distribution partners, obviously, not in-person. And I think that you'll see the fruits of our labor in the second, third and fourth quarter this year, as it relates to those conversations. We have a great team. We have a varsity team that's out there in lots of conversations. And because as things open up more, that's only a tailwind for us. We're excited about the opportunity to meet more in person with people, but conversations are good and strong. Some of these third-party deals take a while to actually get across the finish line. I mean there are a lot of deals that are available to us. But we're trying to do the right. Strike the right long-term partnerships with the right distributors of scale.

Got it. And last one just on pricing. Obviously, that's probably not now you're still building up a library. I know historically, you've talked about your ability to take pricing. Just wonder, as you layer this acquisition in where the library is, when you start to have those conversations?

That's referring to price elasticity with distributors or on the direct side. I'm sorry.

No on the DTC side.

Yes, on the DTC side. So, yes, we do believe that we have considerable price elasticity, providing great value at $3 a month or $20 per year. We are testing some premium tier options, where we're providing the people, additional features and benefits and even additional content for those people that subscribe to our premium tier, which we previously referred to as our 4K tier. So I think over the next few months, you'll see just some interesting things there.

Perfect. Thanks for all the color guys. Appreciate it.

Thanks.

Your next question comes from Darren Aftahi with ROTH Capital Partners.

Hey, guys. Good afternoon. Thanks to my questions. The million incremental subs sequentially, what was kind of a mix of direct versus bundled?

Yes, it follow the same mixture that we've what typically seeing with. So it's outsized to the bundle side of the house, but definitely we're seeing greater growth or greater pickup on the stronger ARPU side on the direct side.

Got it. And then the improvement in visibility is directly related to what from last quarters call.

Third-party distribution agreements.

And I guess my last one following-up on the lumpiness. With advertising revenue typically being down in the first quarter, is that kind of what was contributory or program sales? I know you guys just kind of emphasize the second half of the year in terms of that being much faster growth, but like how do we think about sponsorship and program sales is going to move quarter-to-quarter?

It's a really hard thing to predict, quite honestly, because with program sales, it's going to be dependent on when that production is actually finished. So if the production we anticipated to be ready at the end of June, and it's quite - it's delayed in production that could then flip into July or August. So we're going to wait to figure out what's the best time to take delivery of the product. So we can recognize the revenues that that sometimes is what's going to cause some of that that lumpiness in our quarter-to-quarter on the program sales side. And similarly on the sponsorship side, it takes a while to get those deals going. And so while we have every expectation for them to fall within certain quarters, we're much more focused on what the full-year number is going to be. And we have high probability. We know we're going to hit that $71 million. So it's just we don't we're not. It's not fine tune down to each and exact every quarter as far as when it's going to fall.

That's fair. I just guess for you Jason. What's the right share count to be using on a go-forward basis?

That's 52 on a fully diluted, sorry, basic and then 66 on a fully diluted.

Great. Thank you.

Yep.

Your final question comes from Logan Thomas with Stifel.

Hi, there. Thanks for taking the question. I think this has been asked a couple different times. But I'll go ahead and just asking maybe a slightly different way on the guide for the year. Wondering if you can just talk to directionally how much of the incremental growth from here implied in the guide is from the program sales versus the other buckets subscription and affiliate licensing. And then trying to extrapolate that up to a higher level question. How are you thinking about the scalability of the program sales revenue streams, maybe either as a source of pain for subsidizing content costs, and just more of the mid to longer-term picture on program sales in general would be helpful?

No, I mean, perfect sales is still going to continue to be a key part of our revenue stack. And our program strategy. It allows us access to high quality content, where we get to subsidize it with a third-party distributor where we're currently not in those territory. So it's a great business model for us. And to the degree that the contents still there, and when - as we're growing, it's still going to be a big part of our revenue stack going forward. So and as it relates to the lumpiness for the quarters, it's just I mean, we're much more focused on the long-term, it's a $71 million marathon, it's not quarter-to-quarter. So that's, I think, that's the way we look at it. And we continue to have strong growth in our strongest ARPU section of the business on the partner direct and the direct. And we continue to sign up long-term distribution, third-party bundled distribution partners. So I think those are the way - that's the way I look at the business to look at it as a positive impact. And I'll say a high probability that we're going to hit that $71 million for the next year.

As Jason said, it's sometimes hard to predict quarter-to-quarter on when content will deliver. But what we liked about the program sales businesses and de-risks our overall business and it is, annuals and multi-annual obligated with contractual revenue.

Got it. Thanks for the detail. And then a final one. Apologies if I missed this, but the 80% year-over-year on the direct subscribers. Was there an update on the size of the direct subscriber base? And then, with that just anything to call out on new content, or the marketing strategy fronts, they're moving the needle are worth calling out on acquisition and retention? Thanks.

Yes, I mean, on the direct side, we're still in that between 1 million or 2 million direct DTC subs is where we currently are as of first quarter. So it's a little bit of a broader range, but it's still where we see I'll say continued rapid growth. And I don't know if there's anything. Devin, do you want to add on customer acquisition, if there's certain channels that are working better.

All of our channels are continuing to work well as they have. Although is a very strong second half of the year in terms of content that's going to be going on the subscription service. So we're excited for the word of mouth that's going to generate and help catalyze our marketing activities. As we were talking about earlier in the call, we are now at the anniversary date of when we brought on a lot of people from last year where quarantine was starting. And the renewal rates are in line with what we typically see which are, we're releasing information a couple of weeks ago, they’re industry best. So these people who signed up at discounted rates, when we were doing the discounting and quarantine, are now renewing at the standard and high levels that we typically see, and their renewal prices are 70% higher than they were. Obviously, that's not reflected in Q1. But as they as they are renewing, they're going to standard pricing 70% higher than they paid initially. And they're renewing very nicely for us. So a lot of good stuff that we're seeing right now on the direct business and we're going to be able to continue to use that strong engagement to be able to catalyze and continue our strong growth on the DSP side.

Great. Thanks, guys.

Thank you, Logan.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.