Earnings Labs

CuriosityStream Inc. (CURI)

Q3 2022 Earnings Call· Wed, Nov 9, 2022

$3.35

+2.92%

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Transcript

Operator

Operator

Good afternoon, good evening. My name is Devin and I will be your conference operator for today. At this time, I would like to welcome everyone to the CuriosityStream Third Quarter 2022 Earnings Call. All lines have been placed on you to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Investor of Relations, Denise Garcia, you may begin your conference.

Denise Garcia

Analyst

Thank you, Devin. Welcome to CuriosityStream's discussion of the third quarter 2022 financial results. Leading the discussion today are Clint Stinchcomb, 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. 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 quarter ended September 30, 2022, 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. Now, I'll turn the call over to Clint.

Clint Stinchcomb

Analyst

Thank you, Denise. I would like to thank everyone for joining our third quarter earnings call. I know we are not the only company reporting tonight. Also joining us today is our COO, General Counsel, Tia Cudahy; our CFO, Peter Westley; and our Head of Content, Strategy and Distribution, Robert, Devin Emery and Macquarie Davis. We delivered another strong quarter in Q3, with revenue and EBITDA exceeding the high end of our guidance ranges. We're making great progress towards becoming an enduring sustainably profitable company. Our CFO, my good friend and colleague, Peter Westley, is already making a significant impact in his first 6 months on the job as evidenced by this quarter's especially strong bottom line performance. As Peter will discuss in his remarks, we beat EBITDA by nearly $6 million relative to our guidance midpoint due to greater operating efficiencies, lower marketing costs and better gross margins relative to plan. We are leaving no stone unturned as we continue to operate in a manner that drives quality, accountability and cost efficiencies across the company. Before digging further into the quarter's results, I would like to touch on a few key highlights which demonstrate the value of our evergreen factual content and the benefits of our multifaceted revenue stack. We've deliberately positioned curiosity to meet consumers virtually wherever they go across the globe in order to monetize our content and IP in ways that maximize audience and profitability. During the quarter, we signed licensing agreements with a number of media companies, both at home and abroad. We also brought on new blue-chip advertising partners in the automotive technology and financial services industries. And within our streaming subscriber base, we are particularly encouraged by the continued uptake of our Smart bundle, demonstrating that many subscribers are willing to pay significantly…

Peter Westley

Analyst

Thanks, Clint. As Clint mentioned, we were very pleased with our third quarter performance, with both revenue and EBITDA above the high end of our guidance ranges, driven by a number of factors. Q3 revenue was $23.6 million, up 26% year-over-year. Before I get into bringing that total down into our revenue categories, I do want to note that we have renamed two of those categories. First, what we previously called program sales, we're now categorizing as content licensing which we think is a more accurate reflection of that business activity since many of these transactions involve the licensing of certain rights to our content rather than the outright sales of our programs. Secondly, we are renaming corporate and associations to simply Enterprise to be more consistent with industry practice. So returning to our revenues; content licensing was our most significant category this quarter, generating $10.8 million of revenue, an increase of 60% year-over-year. It's notable that this quarter saw both what we refer to as presales and content library licensing transactions. Those library licensing deals tend to have particularly attractive margin characteristics. Our second largest category this quarter was our direct business which includes our direct-to-consumer and partner direct categories. Direct revenue came in at a combined $8.6 million, an increase of 16% compared with Q3 2021. It's worth pointing out that the significant majority of our subscribers in these combined categories are direct customers of ours which is not the case for many other streaming services. Our next largest category this quarter was bundled distribution which saw $2.6 million of revenue in the quarter. This category was down 27% year-over-year in Q3 as a result of our nonrenewal of a single distribution partnership. While that partnership accounted for a meaningful amount of revenue, the overall economics for renewing…

Operator

Operator

[Operator Instructions] First question comes from Tom Forte with D.A. Davidson.

Thomas Forte

Analyst

Great. And Peter, congrats on the quarter and the progress you're making towards free cash flow generation. I want to ask you, Clint, how you got the 100 days of curiosity promotions going. I think it's still ongoing. I think you launched it towards the end of September. And if it's driving the success you hope for in highlighting the differentiated content on the platform? And then I have a follow-up...

Clint Stinchcomb

Analyst

Thank you for asking, Tom. We've been particularly excited about and encouraged by the 100 days promotion. I think it's emblematic of the range of quality content on curiosity. I think it underscores the evergreen nature of factual content broadly. And I think what we found is emphasizing this whole 100 days approach, it's a positive impact on engagement. It's had a positive impact on the duration of viewing. And it's something that's easy for people to understand and it's a great way for us to reposition our content and rehighlight what is so great about CuriosityStream. So thank you for asking. It's been great and I think you can expect that we will do things like this on a continuous basis going forward.

Thomas Forte

Analyst

Great. And then when I think about the OTT industry in general, I feel like there's kind of 2 big things that are going on. One is the advancements of ad-supported services, Netflix rolling out of $699 a month ad supported effort. And two, LotSports moving to OTT? And then the thought there is that the live sports moving to OTT may accelerate cord cutting. So love to get your thoughts clean both to the extent that you're seeing the industry move toward advertising and then maybe your own fast channel add efforts there? And then if you stand to benefit if you're indifferent on perhaps acceleration of cord cutting with live sports moving to OTT?

Clint Stinchcomb

Analyst

I think in light of both of those dynamics, Tom, it's really important to have a pure brand like we have. We're the leader in the factual space -- we have an extraordinary large collection of factual content across all of the key categories, science, technology history, natural history, society and lifestyle which I think is really important with all of the different programming options available to people. As it relates to FAST, we do have a fast channel. We continue to roll that out. For us, that's one component of our overall audience building strategy. It's one component of our advertising and sponsorship strategy. But what I will say about fast is that it offers for a company like ours more than just a monetization benefit. Yes, there's a monetization benefit. But in our case, we can also use our fast channels to promote to our direct subscription tiers. And it's an increasingly helpful chip and broader third-party distribution conversations. And I think that fast in and of itself will continue to grow. People will continue to consume that. I think that the biggest winners there will be the platforms and people who -- in companies who have just lots and lots of SaaS services. But I do think that for companies like ours, it's one kind of key component. And as it relates to accelerating cord cutting, I think, yes, I think it does when you look at the overall consumption there. I think if you look at the long, long trend, it's probably not unlikely that some of those fast platforms will develop subscription services at some point in the future. So we're in both places right now. We want to meet consumers where we are. Obviously, there are much greater barriers to entry to building a subscription service. I think that's going to be really hard for any new entrants going forward. And so we like our hands where we are. And obviously, we recognize the importance to meet consumers where they are. And that's been our approach primarily on. We want to be a pure factual brand and monetize content across different categories, fast and advertising, content licensing, courses, subscription tiers and even perhaps a few other initiatives going forward. Thank you for that question.

Operator

Operator

Our next question comes from Peter Henderson with Bank of America.

Peter Henderson

Analyst · Bank of America.

Yes. So I guess I'm just curious on this partnership deal that ended, when did it end? I guess, is the first question. And then what sort of efforts are you guys making to attract those partnership subs that you may have lost as direct-to-consumer subs? And what type of success have you had in recapturing some of those subs potentially as direct-to-consumer subs?

Clint Stinchcomb

Analyst · Bank of America.

Great question, Peter. What I'll say is it ended in the third quarter and we've attracted thousands of customers as direct subs as a result of that. And for that particular deal, not to get into who it was with. But the marketing was heavily focused on a strategically important but concentrated DMA for us which exposed curiosity to some key constituencies really important to other parts of our business. And again, as a result of that, we have added thousands of subscribers to our direct service and anticipate adding more. So thank you, good question.

Peter Westley

Analyst · Bank of America.

One thing I would add is that, that ended roughly midway through the third quarter.

Operator

Operator

[Operator Instructions] Our next question comes from Darren Aftahi with ROTH Capital Partners.

Unidentified Analyst

Analyst · ROTH Capital Partners.

This is Austin [ph] on for Darren. Ken, I'm curious if you can discuss how you're thinking about trimming marketing expense to that degree while still balancing top line growth and subscriber traction? And then also how we should think about that moving forward? I know you touched on that with G&A. I'm not sure if you mentioned marketing as well.

Clint Stinchcomb

Analyst · ROTH Capital Partners.

I'll take the top part and I'll hand it over to Peter. Thank you for the question. So as it relates to marketing, one of the things we're really excited about is as we go into 2023, in 2023, we won't have the same marketing obligations that we've had in previous years, namely partner marketing obligations. So our marketing will move to virtually 100% performance-based market. And based on what we've learned up to this point. And as we look over what's possible, we're really excited about that transition. So I'll leave it at that and then hand it over to Peter to talk about marketing and perhaps even more broadly cash flow this quarter.

Peter Westley

Analyst · ROTH Capital Partners.

Yes. So I'd make a couple of points in terms of the marketing. So as Clint touched on, even at this level, we were able to -- outside of this one distribution agreement that we did not renew, Outside of that, we were able to grow the subscriber base on a substantially lower marketing spend. We do believe that next year, as we move into -- as we get through some significant significantly large contractual commitments that we have on the marketing side, we will be 100% performance-based marketing spend and we think we'll get even better bank for our buck than we have been getting with some of the marketing spend this year. One other point I would make, you'll see in the Q ultimately that we do expect marketing spend to tick up a little in Q4. We do have a commitment -- a contractual commitment of $6 million in Q4 and expect the marketing spend will be a little bit north of that. And so we do think as we go forward, that we do have the ability even at a relatively low level compared to what we spent historically to -- as we move into an era where it's all performance-based marketing spend to continue to build the business on a lower overall market spend next year.

Operator

Operator

There are no further questions at this time. With that said, concludes today's conference. Thank you for attending today's presentation. You may now disconnect.