Good afternoon, my name is Jeanne, and I will be your conference operator today. I would like to welcome you to the CuriosityStream Inc., Q4 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] Thank you. I would now like to turn the conference over to Andrew Lata, Investor Relations. You may begin your conference.

Welcome to CuriosityStream's discussion of its fourth quarter and full year 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 annual report on Form 10-K for the fiscal year ended December 31, 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.

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 Westley, 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. 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. Importantly, we will accomplish this without reducing our paid marketing spend. Looking forward, we'll be guiding the positive adjusted free cash flow for the first quarter 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 fifth straight quarter as we cut our cash burn to $2.4 million, while sequentially keeping our marketing spend relatively flat. Our direct revenue grew both sequentially and year-over-year, continued to roll out our new pricing plans to new direct customers and to 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. And more recently, at the end of February, Apple TV rolled out CuriosityStream in 23 countries, not a simple achievement for most U.S.-based companies in light of increasingly stringent…

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. Fourth quarter adjusted EBITDA improved by $10.2 million compared with the prior year quarter, while adjusted free cash flow improved by $6.4 million year-over-year. Fourth 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. This was our fifth straight quarter of sequentially improving adjusted free cash flow. Turning to our fourth quarter results, revenue was $14.8 million compared to $14.5 million 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 $9.1 million, up 6%, both sequentially and year-over-year, primarily driven by the impact of our price increases implemented earlier in 2023. Turning to content licensing, which was our second largest category this quarter, we generated $3.3 million of revenue compared with $3.0 million in the prior year quarter. Content licensing is an inherently lumpy business. We continued to close a number of barter transactions during the quarter, with these deals accounting for $2.5 million of our total content licensing revenue. Our next largest category was bundled distribution, which saw $1.8 million of revenue in the quarter compared to $1.5 million 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…

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

Fantastic. The first one, I wanted to go back to Asia. You said you were doing Asia and ECU renewals. And can you tell us about the terms of those? Are those getting better at work? What are the terms of your renewals?

The agreement that I was referencing in Asia is with a telecom provider. 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. We did do a few new deals there in the first quarter of 2024 as well, meaningful opportunity for us, yes.

Did you renew anything in the EU?

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

Perfect. Cool. Okay, great. My second question is on the M&A market. We saw that [indiscernible] Studio. Could you talk about what you think is going on in the M&A market and whether you think anybody can exit in this market? Or is the attraction of smaller streaming companies becoming more difficult?

I think without a doubt, it is more difficult, especially for subscale streamers. It depends on where you draw that line. But I would say we have some really unique advantages there. Laura, there have been a lot of services over the last four or five years that are either subscale or part of a larger company that have just gone completely away, DramaFever, Filmstruck, Seeso, [RoosterTV] [ph], et cetera. These were real services for a while. I think that one of the things that is unique about us and that we are really excited about is that we have real cash. We have increasing cash. We have taken the hard steps over the last 12 months to turn the ship and put us into positive territory. And so I think M&A is tough right now for a lot of people. We are focused on allocating our cash toward the business, toward the dividends, obviously. I think that there are going to be certainly many companies that have real challenges. Now I will say that through our smart bundle, which includes six other services in addition to CuriosityStream, we have conversations with a lot of the smaller streaming companies that you have referenced, even some larger ones. And so for a lot of these guys, growth is tough. And I do think that it will certainly be challenging over the next year, over the next 18 months. That is why we like the fact that we have a unique and really sustainable cost base. We are not competing for costly sports or Game of Thrones or the Hobbit or hours of programming that are tens of millions of dollars per hour. I will say just kind of close with this, like in this macro environment where consumer confidence is shaky, where individual spending is more disciplined, we are on track to have our best month of subscriber reactivations in over two years. That is not because consumers are jumping in to watch Dexter or Love Island or a single seasonal series. Rather, it is a testament to quality, to value, and to premium evergreen content with global appeal. Thank you for that question, Laura.

Sure. And then, Peter, my last question is for you. You are guiding to adjusted free cash flow of $0.25 million to $1 million in Q1. Can you remind us, how much will severance lower the free cash flow in the first quarter? Is that a lot of it is going to be paid out in Q1?

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.

Yes, that's fine. Asking what's the number is for severance.

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

[Operator Instructions] Your next question comes from the line of Jim Goss with Barrington. Your line is open.

I was wondering, the domestic relationships with Tubi, Xumo, Roku, are they all pretty similar and are they largely fast channel driven?

Great question, Jim. Thank you for asking. For most of them, the business model is the same. It is 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 channel today that we recently launched with a few distributors in the U.S. and then more recently in the EU. And then, obviously, we are in a lot of conversations there. So in light of all of the content that we have, we are trying to do the right deals as it relates to fast. So what that includes sometimes, Jim, is deeper partnerships with either the platform leaders like you mentioned or even category leaders in the space. So we are 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 have not been put to work.

Those are also the primary conduits for your subscription services, is that correct?

They are a place for us to promote to our subscription services. In the case of Xumo or 2B or Pluto, Roku, yes, good example. With Roku, we have a nice holistic relationship where they offer our apps, they offer a CuriosityStream in their channel store, and they offer our AVOD package, a certain amount of our AVOD package. The nice thing about that with Roku where there is a subscription offering is, if we are showing a series like the History of Wall Street and you watch the first two episodes but then you want to watch the third, Roku does a great job of selling people to a monthly subscription to CuriosityStream in that case. So yes, in the case of Roku, exactly as you described, Jim.

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 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 and library, could you describe that process right now? Are you carving out like a quarter of it per season or something of that nature? How exactly are you working out with that?

It's a great question. So if you came to just CuriosityStream today and tried to go through and watch all of our 4,500 to 5,000 titles that we have there, that would probably take you a few years. So it's sort of like for new customers especially, it's almost a premier night every night on CuriosityStream. We're trying to do a great job of resurfacing the best content and serving up the right personalized genres to the right subscribers. At the same time, we have on our shelf right now, Jim, we have over 700 titles that we haven't even published yet. So I think I alluded to it in my last answer, but I can't emphasize enough that we have a really unique cost base. And we have 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 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. We're in 175 countries today, but we're not in 175 different languages. We're in 10. 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. We're on 114 different third-party platforms today with our content and growing. So we're really excited about the opportunity in front of us.

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?

We've not used, just to be clear, we've not put into commercial broadcast any AI translated content. However, we do think that's close and obviously, we're working with different partners on that on a daily basis. But we have global rights to a lot of our content. And a lot of it is, as you know, it's broadly appealing because it's in the factual genres. 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. You're not hampered by colloquialisms that you might experience with procedural dramas in the U.S. or something like that. So content travels well. I think we've sort of underestimated the platform opportunities available to us going forward. 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.

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