Earnings Labs

CuriosityStream Inc. (CURI)

Q2 2023 Earnings Call· Mon, Aug 14, 2023

$3.35

+2.92%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

-7.32%

1 Week

-14.89%

1 Month

-30.61%

vs S&P

-31.11%

Transcript

Operator

Operator

Good afternoon, and welcome to the CuriosityStream Second Quarter 2023 Earnings Call. My name is Briana, and I will be your conference operator today. Please note that this call is being recorded. [Operator Instructions] I would now like to turn today's call over to Denise Garcia, Investor Relations. Please go ahead.

Denise Garcia

Analyst

Thanks, Briana. Welcome to CuriosityStream's discussion of its second quarter 2023 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 June 30, 2023 when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP financial 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. Hello, everyone. I really appreciate you all joining us today, especially as I know we are not your first earnings call this August. Also with me on the call, our COO and General Counsel, Tia Cudahy; and our CFO, Peter Westley. This was a good quarter for us as we move toward profitability. We improved our adjusted free cash flow for a third straight quarter and grew sequential revenue by 14%. We introduced our higher pricing to new direct customers into a small segment of our existing subscribers. We entered into meaningful and thoughtful licensing agreements with several new partners in the Middle East, the U.K. and Europe. We believe this ongoing expansion of our licensing partners, both by territory and platform will benefit us in the quarters to come. In addition, in order to expand the top of our marketing and promotional funnel and further monetize our content, we will be rolling out certain titles and packages into broadcast network syndication for the first time and also with top AVOD partners beginning in Q4. Further, we opportunistically locked in performance-based marketing initiatives with exceptional content creators and influencers that we believe should increase awareness and subscriber acquisition, while at the same time, minimizing risk. As I know we have some new people listening today, let me quickly review what we do and how we make money. Our overarching mission is constant and has never changed. Simply put, our mission is to help satisfy people's curiosity through enlightening premium factual films and programs and also through entertaining instructional talks from subject matter experts. Our efforts to be a go-to content service for anyone who wants to know more about the world are anchored by our flagship subscription service CuriosityStream. Today, anyone in more than 175 countries with…

Peter Westley

Analyst

Thanks, Clint. During the second quarter, we believe we continued to make good progress on our path to positive adjusted free cash flow while delivering on our near-term financial commitments. We introduced our increased pricing for new direct subscribers and tested to find the most effective ways to increase the prices paid by our existing subscribers. Those increases for existing subscribers are being put into full effect this quarter. On the cost side, we remain disciplined in our spending. As a result of our focused execution, second quarter revenue and adjusted free cash flow were in line with our guidance ranges. Turning to our second quarter results. Revenue was $14.1 million compared to $22.3 million in the prior year quarter. The year-over-year change was primarily driven by decreases in content licensing, bundle distribution and enterprise revenues. Our largest revenue category this quarter was our direct business. Direct revenue came in at $8.3 million, a 3% decrease compared with the second quarter of 2022. As Clint mentioned, this slight decrease came despite a 63% year-over-year reduction in marketing expenses during the quarter. We expect direct revenues to grow sequentially in the third quarter as the impact of the price increases to new and existing subscribers begins to flow into the financial results. However, it will take a full year or more for the impact of these price increases to completely flow through our financial statements given the fact that the significant majority of our direct subscribers are currently on annual subscription plans. We expect this positive impact to begin to materialize in the third quarter of 2023. Turning to content licensing, which was our second largest revenue category this quarter, we generated $3.6 million of revenue compared with $6.7 million in the prior year quarter. The profitability of those revenues was…

Operator

Operator

[Operator Instructions] Our first question comes from Laura Martin with Needham. Your line is open.

Laura Martin

Analyst

Hi. Maybe just a couple. So the margins were lovely on this content licensing. But my question is, is that really recurring? Because when you content a license, you can't only do it once and then you can't really content a license again. So is it really a recurring positive for you, the margin expansion is coming from content licensing. That's my first one.

Clint Stinchcomb

Analyst

Yes, that's a great question, Laura. And I would say that in light of - if you're only a U.S.-based company or only focused on one region, I think it might be challenging. But in our case, because of the global appeal of the content, I think because of the emergence of kind of non-traditional licensing partners, we don't really see any end insight there. We had, I think, 13 different licensing partners in the quarter. We entered into those agreements in what I would say was thoughtfully and meaningfully. And we don't anticipate any cannibalistic impact and really believe that in certain parts of the world, especially just the presence of our content will be a positive for generating increased awareness.

Laura Martin

Analyst

Cool. And then my second question is, could you give us an update on what's happening with the FAST channels and the ad revenue stream progress, please?

Clint Stinchcomb

Analyst

Yes. So we signaled to that a little bit. We will be rolling out in the fourth quarter with large AVOD platforms, and then we'll be also putting some content into a broadcast syndication. And the same goes for FAST. We've been encouraged, obviously, to do this for a while. We want to make sure that we crafted deals that made sense because, as you know, it's easy to just stick a FAST channel out there. It's easy to just put AVOD content out there. But if you're not aligned with the large platforms, if you don't have any promotion and if you don't have the right positioning, you risk yelling into the wind. So we want to be real thoughtful about this and create a revenue stream that is growing every quarter, and we think we can really build on and that we think will be really additive to what we're doing even in the subscription space through enhancing the top of the funnel.

Peter Westley

Analyst

If I could add just a little bit, Laura. The - those revenues appear in our other revenue category. That category had $622,000 of revenues in the second quarter. That was up from $274,000 in the first quarter and down from $1.7 million in the second quarter of 2022, but that quarter had $1.6 million of the $1.7 million was related party revenue. So non-related party revenue was roughly $100,000 a year ago. So that is a category that has experienced some nice growth when you subtract out the related party revenue a year ago.

Laura Martin

Analyst

Very helpful. Thank you, guys. Thank you.

Operator

Operator

Your next question comes from Peter Henderson with Bank of America. Your line is open.

Peter Henderson

Analyst · Bank of America. Your line is open.

Yes, hi. How're you guys doing? Thank you for taking the question. I guess - I'd like to start, I know you haven't passed through the price increases across the entire base. I'm just kind of curious, though, for where you have instituted the price increases, if you can sort of discuss the response or what kind of trend you're seeing or people are not on annual plans? And then finally, when do you actually expect to have the price increases through the entire base? I mean, I guess, what percentage of you could remind us? What percentage of the base is on annual plans at this point?

Peter Westley

Analyst · Bank of America. Your line is open.

Yes. So what we are seeing of our B2C customer base, the vast majority of those folks are on annual plans of the existing subscriber base, north of 90%. Our partner direct revenues is more of a monthly cycle of subscriber rate. We are seeing, as we - so we did a lot of testing this quarter about - with different cohorts of our subscriber base, depending on whether you were monthly or annual, what type of price point you were paying out, what type of package you were you are coming in at. We tried and we tested a whole bunch of different trials to see how best to pass through price increases, what packages would generate the best outcomes for us. And so we are starting to see some increase in that pricing start to flow through the financials now, early days. We're also seeing a slight increase in churn, which was not - which was fully anticipated. And what we're seeing was well within the range of what was anticipated. But as you expect and as we - when we talk about this price increase, to begin with, we expect that the economic benefit of the price increase, given the magnitude of the increases will offset - much more than offset any increase we see as a result of churn that happens with the existing subscriber base.

Peter Henderson

Analyst · Bank of America. Your line is open.

Okay. Thank you.

Operator

Operator

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

Jim Goss

Analyst · Barrington Research. Your line is open.

Thanks. I'd like to follow up a little on what Laura was asking about the licensing and probably also the response with this global appeal, which we recognize as an advantage. Wondering what the cost might be to ready the content for other markets? Is it minimal or do you think substantial? How key category do you expect that to be? And what level of consistency do you think it might have within the income statement?

Clint Stinchcomb

Analyst · Barrington Research. Your line is open.

Excellent questions. Jim, thank you for asking those. In regard to localizing and languaging our content, there's a range of costs. The good news is that we believe, over time, that will come down considerably, particularly if we're able to take advantage of generative AI solutions that are out there. I will say that in our case, a lot of our languaging is behind us. We've - as part of MVPD distribution agreements that we entered into; we had some licensing obligations. So we have most of that is in our rearview mirror. We'll continue to license kind of moderately going forward. But I think the good news is like the price has come down, which has given us and the fact that we've just done a lot has really provided us with a lot of flexibility going forward. And again, there are hundreds and hundreds and hundreds of licensing partners when you have, thankfully, premium factual content that you can put anywhere into the world. So actually, we like that trend. And I think that - I think you could really argue that we've been a little too precious about our content in the past, and we have a lot of different people that we can work with going forward, and we just want to make sure that we do that in the most thoughtful, meaningful way.

Peter Westley

Analyst · Barrington Research. Your line is open.

Yes. I do think just kind of following up on Clint's comments. It will continue to be a bit lumpier category for us in some of our other categories. Obviously, the direct business, for example, is - tends to be just a kind of a smoother line in terms of what you're seeing and content licensing deals can be big and lumpy. But the fact that we're bringing in increasing number of content licensing partners makes us very - feel us very good about kind of the sustainability and repeatability of that part of the business.

Jim Goss

Analyst · Barrington Research. Your line is open.

Okay. And just one other thing. In terms of the price increases you were trying to put into effect, would you say you're getting not very much resistance from those you're offering the service at a higher price? Or can you give any guidance as to share of individuals who are staying with you versus declining?

Peter Westley

Analyst · Barrington Research. Your line is open.

Yes. So I mean, we've seen a slight uptick in terms of people leaving the service relative to what we had experienced before we had price increases. But again, it's well more than offset by the positive impact of the increases themselves. And a lot of what we spent the second quarter doing with different cohorts was looking at what would be the offers that would be most positively received and most likely to bring people - have people continue to stay on the service, but at a higher price point. So that could be, for example, bundling in ODU with the renewal of a CuriosityStream subscription. It could be encouraging people to upgrade to Smart Bundle, which is, Clint said is no longer at such a premium price point to the now standalone price point for CuriosityStream. So a lot of work and effort was done with different groups to figure out what the best offer for each of them was. And - the - so we are seeing some slight upticks in some of the metrics in terms of people leaving, but again, well within the range of what was anticipated.

Clint Stinchcomb

Analyst · Barrington Research. Your line is open.

We should have increased pricing earlier, Jim, to trade will take any day.

Jim Goss

Analyst · Barrington Research. Your line is open.

Okay. Thank you so much.

Operator

Operator

[Operator Instructions] Your next question comes from Tom Forte with D.A. Davidson. Your line is open.

Sharanjit Cheema

Analyst · D.A. Davidson. Your line is open.

Hi. This is Sharanjit on for Tom Forte. Thank you so much for taking my questions. My first question is how, if at all, are you affected by the writers and actors strikes we would think that you are relatively well positioned versus your peers, given that it seems though you are less reliant on writers and actors.

Clint Stinchcomb

Analyst · D.A. Davidson. Your line is open.

Thank you for asking that, Sharanjit. I think we're better aligned than most in the industry. And we've seen no impact in regard to our massing of content, either through creation and acquisition and we've seen no identifiable impact to licensing revenue. Should it continue for a long time, I think it could create a small tailwinds, but we haven't even seen that to date.

Sharanjit Cheema

Analyst · D.A. Davidson. Your line is open.

And for my second question, Disney seems more interested in partnering with companies than it has been in the past. And the best example right now is its online betting effort with Penn Entertainment and given its focus on content from National Geographic, is there an opportunity for CuriosityStream to work more closely with Disney? Especially as it ramps its efforts to cut costs, including for content?

Clint Stinchcomb

Analyst · D.A. Davidson. Your line is open.

Thank you for asking that as well, Sharanjit. I would say as sure as the sun will set in the West, bundling offers and alliances will increase. We've always believed that, and we will leverage those opportunities appropriately. Even for our premium tier Smart Bundle that Peter just talked about, we're receiving new inquiries and requests every week to be a part of that. And so I won't speak specifically to Disney, but boy, what an opportunity they created for Penn's former content partner. But we will align as both an anchor and a complementary service wherever it makes sense.

Sharanjit Cheema

Analyst · D.A. Davidson. Your line is open.

Thank you.

Operator

Operator

There are no further questions at this time. With that, we will conclude the CuriosityStream second quarter earnings call. I would like to thank everyone for joining us today. Have a great evening. You may now disconnect.