Hello, and welcome to the CuriosityStream Q3 2023 Earnings Call. 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. [Operator Instructions] I will now turn the conference over to Denise Garcia, Investor Relations. Please go ahead.

Thanks, Gael. Welcome to CuriosityStream's discussion of its third 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 September 30, 2023 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.

Thanks, Denise, and good afternoon. I appreciate you all joining us today. Also with me on this call are our COO and General Counsel, Tia Cudahy; and our CFO, Peter Westley. This was another good quarter for us as we moved closer to sustained profitability. We grew sequential revenue by 11%. We improved our adjusted free cash flow for a fourth straight quarter as we cut our cash burn to $3 million, while actually increasing our marketing spend by approximately 20% in the second quarter. We introduced our new pricing plans to new direct customers and to a cohort of our existing subscribers. As most of our annual subscribers have not come up for renewal, and as our channel store partners are just now beginning to adopt or announce our increased pricing, we anticipate it will take through the end of 2024 for the price increase to fully roll through the financials. We entered into long-term licensing agreements with several new partners in Europe and North America. And as follow-up to my Q2 remarks in order to expand the top of our marketing and promotional funnel and further monetize our content we leaned into two of our advertising initiatives as we launched into broadcast syndication for the first time in September, with two seasons of 4th and FOREVER. Also in September, we began rolling out an AVOD package with the top US AVOD distributors and we are delighted with the week-over-week growth to date. We have a large evergreen globally appealing library of content thousands of hours that, we are now putting to work across new platforms that we believe will both increase and enhance the reliability durability and predictability of our revenues going forward. In regard to revenue, I'm delighted to report that our direct revenue services CuriosityStream ODU,…

Thanks very much, Clint. We continued to make good progress on our path to positive adjusted free cash flow, while delivering on our near-term financial commitments during the third quarter. As a result of our strong execution, third quarter revenue and adjusted free cash flow both came in above the high end of our guidance ranges. We continued to tightly control expenses while remaining disciplined in our customer acquisition investments. Turning to our third quarter results. Revenue was $15.6 million compared to $23.6 million in the prior year quarter. The year-over-year change was primarily driven by decreases in content licensing, enterprise and bundled distribution revenues. Despite this decline in revenue, we were able to improve our adjusted free cash flow from negative $12.6 million in the prior year quarter to negative $3 million, in this year's third quarter as a result of our intense focus on bottom line. This was our fourth straight quarter of sequential improvement in our adjusted free cash flow. Our largest revenue category this quarter was our direct business. Direct revenue came in at $8.6 million, up 3% sequentially as we were starting to see the impact of our price increases put in place earlier this year. On a year-over-year basis, direct revenue was relatively flat. Turning to content licensing, which was our second largest revenue category this quarter, we generated $5.1 million of revenue compared with $10.8 million in the prior year quarter. Content licensing is an inherently lumpy part of the business and we faced a tough comparison this quarter as Q3 of 2022 was an exceptional quarter for us in this revenue category. One thing that should be pointed out about this quarter is that $4.9 million of our Q3 2023 content licensing revenue related to barter deals we entered into during the…

[Operator Instructions] Your first question comes from the line of Tom Forte of D.A. Davidson. Your line is open.

Great. So one question and one follow-up. So you talked a little bit in the prepared remarks but can you talk more about when you decide to end in –sorry when you decide whether or not to enter into barter agreements. Are you not intending to do that on a go-forward basis? And then when you do what's the relative margin of those versus I guess just I don't want to say regular sales – sales outside of barter agreements?

Really glad you asked that question Tom, and let me take the why and Peter can speak to some of the specifics. So summary answer is that, we needed to obtain new content and to a much lesser extent tap into marketing opportunities without spending cash because we're trying to get to profitability as quickly as possible. As I'm sure you're well aware Tom, the direct-to-consumer subscription streaming business has only become more challenging. Outside Netflix, the losses are pretty staggering. Disney's lost over $12 billion from their streaming initiatives. NBCU's lost over $6 billion since 2020. Paramount is in the same ballpark as NBCU and happy because they may only lose $2 billion this year. WBD hasn't spent nearly as much as their counterparts but they've reported losses of over I think 2 million subs in the second quarter and just under 1 million in the third. And some significant players who are trying to grow in the space maybe going to zero or some form of bankruptcy and certainly some other subscale streaming services will probably go under all together. So it's a tough time it's a tough market but we're on top of it. And so the first key is to rationalize your cost base as Peter said. So like many others we're doing that. We know what cost we can take out of G&A and core and programming and we're doing it. Our most variable costs of course marketing and programming both of which are important in the direct subscription business. So we know today about what we need to spend annually to maintain our direct revenues. And for the overwhelming majority of companies in the direct-to-consumer subscription business, paid marketing is a requirement. I mean you just – you have to do it. There's no…

Yeah. Let me -- probably the simplest thing to do is walk through a kind of hypothetical example about how the content works. So imagine a scenario in which we are swapping content with a partner that's valued at -- the value of the content is basically $1 million in each direction. When we deliver that content to our partners we would recognize the $1 million of revenue at the time the delivery is accepted in both directions. So we recognize revenue. We would not have expense associated with that revenue at that time. What we would do is also book on our balance sheet in addition to our content assets of $1 million for the content that's coming back to us. When we publish that content we would amortize the content just like we would with any other licensed content. So we do kind of an accelerated amortization for the first couple of months and then straight line through the balance of the life of the license. So roughly that -- for most of this content as with most of our license content typical would be three years. And so over the life of -- because it's a swap over the life of the relationship the revenue we would recognize and the content amortization would equal out over the life of the swap effectively.

Excellent. All right. So then for my one follow-up question, I think I know the answer, but I'm going to ask anyway. So it seems like as a result of the solution to the writers' strike that content cost may be going up for some and they seem to be then potentially raising prices as a result I know you already had a price increase in place but I don't want to assume. But I suspect that you're not going to see the cost inflation on the resolution of writers' strike that others might.

If I can -- thank you for that question Tom. And obviously, we're really happy for all the people who are involved in that that they can go back to work now. However, I do think there is risk next year of a couple of other unions associated with the production business that could choose to strike. However, what I would -- the key point that, I don't know that we can emphasize enough is a small percentage of our overall direct subscriber base has actually been exposed to our rate increase. So when you think about -- we have a lot of annual customers well over 80% as we've said in the past. So most of them have not seen the rate increase and then as it relates to our channel store partners, all of them are either they have just announced it or are just beginning to adopt it. So it will take a while. It's good news for 2024 for those growth areas. Peter anything to add?

No. Just to the extent that there are new terms related to the settlement of the writers' strike that effectively doesn't impact us.

I mean obviously 2024 is [indiscernible] Thank you. Thank you, Tom.

Thank you.

There are no further questions at this time. This concludes today's conference call. You may now disconnect.