Greetings, and welcome to the CuriosityStream Third Quarter 2025 Financial Results Conference Call [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tia Cudahy, CuriosityStream's Chief Operating Officer. Please go ahead.

Thank you, and welcome to CuriosityStream's discussion of its third quarter 2025 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Brady Hayden, 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, 2025, 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. Unless otherwise stated, all comparisons will be against our results for the comparable 2024 period. Now I'll turn the call over to Clint.

Thank you, Tia. We delivered strong Q3 results. Revenue grew 46% year-over-year to $18.4 million, exceeding guidance. Adjusted free cash flow rose 88% to $4.8 million, and adjusted EBITDA improved by $3.4 million year-over-year. Our 3 complementary growth pillars, subscriptions, licensing and advertising are driving momentum and strengthening CuriosityStream's position at the intersection of knowledge, media and AI. I'll briefly recap the underpinnings of Q3 and then look ahead to 2026 and beyond. Licensing revenue increased over 40% year-over-year, reflecting the strength of our team, demand for our corpus and the trusted relationships we built with traditional media partners and hyperscalers. We engaged with 9 key partners across video, audio, script and code and delivered over 1.5 million distinct assets. To achieve dominance as a provider of AI training data, we've assembled nearly 2-million hour library of video and audio across multiple genres, content largely cannot be scraped from the open web. We've also expanded our large-scale data structuring and metadata capabilities so we can meet partners' volume requirements and bespoke specifications for high integrity and rich data sets. In parallel, we broadened traditional content partnerships with leading global broadcasters, streamers and pay TV networks, including AMC, Netflix, Foxtel and a range of licensees across Asia. Overall subscription revenue, retail and wholesale combined was down year-over-year but increased sequentially every quarter in 2025. Importantly, our sequential growth in subscription revenue has been driven by daily operating focus, not simply by implementing price increases like many subscription services. In Q3, all 3 of our subscription services launched with partners in key English-speaking markets, the U.S., Australia and New Zealand as well as in our non-English market, Germany. Extensions with partners like Amazon and new multifaceted agreements with partners like TMTG further support this growth trajectory. While not yet a separate revenue…

Thanks, Clint, and good afternoon, everyone. Our full financial results will be in the 10-Q that we'll file in the next day or 2, but let me hit some of our third quarter highlights. As Clint said, in the third quarter, we reported revenue of $18.4 million, exceeding our guidance and a 46% increase compared to $12.6 million a year ago. Likewise, we reported another quarter of positive adjusted EBITDA, which came in at $3 million. This was an improvement of $3.4 million from a year ago and essentially flat from last quarter, which was a record quarter for us. This was also our third sequential quarter of positive adjusted EBITDA. Adjusted free cash flow came in at $4.8 million, an increase of $2.3 million compared to last year. This also represented our seventh quarter in a row of positive adjusted free cash flow. Third quarter revenue was led by our subscription business, which came in at $9.3 million, a sequential increase. Content licensing came in at $8.7 million in the quarter, an increase of over $7 million or 425% from last year, driven by continued growth in AI training fulfillments. Looking at our year-to-date numbers, licensing generated $23.4 million through September, which in perspective is already over half of what our subscription business generated for all of 2024. Third quarter gross margin was 59%, improving from 54% last year. We continue to see reductions in noncash content amortization, although our distribution and storage costs have increased slightly due to licensing and acquisition of content through revenue share arrangements. Combined costs for advertising and marketing plus G&A were higher by 52% compared to last year. This increase was the result of a noncash charge for stock-based compensation of $7 million or about $0.12 on a per share basis. G&A also…

[Operator Instructions] And our first question will come from Laura Martin with Needham & Company.

So Clint, a strategy one for you first, and that is -- so I know you've been a media CEO for a long time, but the returns on capital in this new revenue stream of licensees are like 10x higher. So what I don't understand is why are we taking these fabulous revenue and investing and hiring a guy to do media in Australia, which is offshore, lower margin, lower returns on capital. Why don't we just stick with -- stick with focusing on becoming sort of the go-to de facto AI guys that are independent and put all -- say no to media stuff, which is our path. Why are we adding stuff that's lower return on capital just because that's where we came from. Let's start with that one.

I appreciate the question, Laura. You cut out a little bit. The Australia reference was -- I just -- I didn't hear what you're referring to in Australia. I think I got the base...

You're hiring, right? What's the new guy going to do when you hire in?

We haven't hired anybody new. We just -- we announced a promotion of one of our guys who has been focused on helping to craft our AI relationships. We announced that last week, if that's what you're referring to.

No, I thought you said on the call that you were going to...

Okay. Yes, I did say on the call that we're going to hire a sales leader, yes. And let me take the -- and I think your question is a good one as it -- and so I think we've done a great job certainly on the cost side here, and we've done a really good job across the company, getting this business rolling. But we do need some additional sales leaders, even some who are really seasoned. And so there's an opportunity for us to do that. And sometimes, if you get a chance to bring somebody into the mix, it's a little bit like the NFL draft. We're not necessarily drafting for pure position, but if you can bring on an A+ player with real talent, you take the opportunity to do that. And so I didn't mean to imply that he would be -- or she would be working in only one area, but really helping on the revenue generation side. That is a -- key for us is we do need some help there. And we've done, as I said, I feel like we've done a nice job on the cost side, and we've laid some good groundwork so that if we bring in a couple of really strong players, it can have an accelerating impact on what we're doing. Let me do dodge, hopefully, I addressed that. If I didn't, Laura, ask me to clarify.

Well, I just want to be sure we're staying in the AI business is not...

Yes. 100% Yes, yes. Absolutely, Laura. Absolutely. And yes, and I know that you've expressed some concern in the past about smoothing out the revenue. And I'd love to address that if that's still a question on...

That was my second question, which is...

Okay. You're not the only one asking. So look, there will always be some lumpiness in licensing, but we're going to smooth it out over time. And we're going to accomplish this, and we are accomplishing this by both operational and contractual means. So operationally, as we increase our roster of partners, we reduce lumpiness. We believe that we'll double or triple our number of partners in the AI licensing area by the end of 2026. And in 2027, possibly earlier, as more open source models become accessible, there will potentially be hundreds and even thousands of companies who will need video to fine-tune specific models for consumer and enterprise purposes. Some refer to this as the open source and tune evolution. Contractually, structurally, SaaS, something you're familiar with, of course, Software as a Service. We know that's beloved by the software industry. We know that is beloved by investors. So with the type of volume we control, we've had discussions around structuring certain agreements as CaaS or C-a-a-S or Content as a Service, where we grant access over a term, so as a subscription with access to clouds of content with lots and lots of hours. Now in these deals, we need to make sure we have proper minimums in place and a few other safeguards, but this is a proven model that I think a lot of people love and that will enable smoother quarters and tighter predictability over time.

And our next question comes from Jason Kreyer with Craig-Hallum.

Great job, guys. So maybe kind of building on just the library and the AI opportunity. Clint, just curious if you could talk about how AI licensing has evolved over the last year. You had mentioned 9 partners this quarter. Just maybe talk about how broad is the demand for your corpus and how frequently are those platforms coming back to get more and more of your content?

Yes. So we've done about 18 fulfillments to date, and we've done that across 9 partners. And so without naming names, based on the math, I think we can represent that we've done 2 or 3 more renewals with some key existing partners. And as we look out into 2026, we see -- we suspect really the revenue from our existing partners, they'll probably comprise 60% to 80% of the AI licensing revenue and 20% to 40% will come from new partners. So we do see the roster increasing significantly. And we also see real opportunity for licensing beyond simply a training right, additional grants of rights like display rights or transformative rights or adaptation rights or even certain derivative rights or possibly even some that are as of yet unnamed. I mean we're building long-term relationships, and we're committed to making sure that as we enter into all of these agreements, it's not one and done. And so I think from an -- and then to answer your question about the evolution and the changes, I think if you look at the first deals that we did, it was just get people finish content, let them use that for training the models. Today, obviously, people are still looking for finished content, looking for raw video. But there's a real advantage to being able to structure the data in a way that many of your competitors can't. And what I mean by that is just the ability to clip content to index content to annotate and to then deliver it in 7- to 20-second clips with really detailed enriched metadata. So one thing I didn't mention on the call is in Q3, we entered into some of the highest cost per hour or cost per minute agreements by far that we had heretofore not entered into. So that's a function of being able to create things that are a little bit more bespoke and a much enhanced ability on our end to structure a data.

And Clint, when you talk about having nearly 2 million hours in the library, how does that split between what's available for AI licensing, what's available for streaming by consumers? Or is that the same number for both?

Yes. No, it's not the same number. It's a good question. The overwhelming majority of that is for AI licensing. So we have a lot of content partners, probably over 150 different content partners for our subscription services and for our ad-supported services. And obviously, as we're building our AI library, so those are some of the first people that we went to. But the overwhelming majority of that is for AI licensing. We are increasing our volume of rights in our traditional platforms, but the overwhelming majority is for AI licensing.

You've nearly doubled that in like the last quarter or 2 or doubled the library. I'm going to assume that's a proxy for effectively doubling the AI library over the last quarter or 2. Curious, is that an indication of, hey, you guys are getting better at figuring out what these AI platforms need and you're going out and sourcing a lot more of that? Or is there a different reason that we're not thinking about it and why you're adding so much more content to the library?

Well, you're 100% right on the first part. We are sourcing specific content. So that's part of it. At the same time, we feel like one of our advantages is the fact that we have existing relationships with so many production companies, so many distribution companies, so many creators, so many people who own and control large libraries of content that wherever it makes sense, we want to put our foot on the gas. And we're not going to be the #1 subscription service in the world. I mean Netflix and Amazon, they've got escape velocity. They have that covered. However, we believe that we can be, if not #1, one of the top 2 or 3 licensors of video for AI training and other purposes. And part of the way that you do that is you try to generate some escape velocity on your own. So as we build out the volume of our library, it makes us more appealing even more so as a one-stop shop for any of our partners.

And moving on to David Marsh with Singular Research.

Congrats on the quarter. I wanted to start, Brady, if I could. Could you give us a little bit more explanation of the stock-based comp here in the quarter? It's -- I know you had some comments about it in your prepared remarks, but I'm still a little bit confused by it. So I was just hoping you could maybe just give us a little bit more color.

Yes, sure. So -- and the 10-Q will be out either tomorrow or the next day, possibly Friday, but a lot of the details from that will be -- for the stock-based comp will be in that document. But a number of employees received a market-based SBC warrants and awards during the quarter, during -- actually in July. You'll see some of those in the Form 4s that the executives filed and a number of other employees received those as well. The market-based components of those were something new this quarter. And because of that, we had to take a much higher grant date fair value than we would have if the awards had just been purely time-based or purely internal performance-based. Because the stock -- because of the stock market component of those awards, the market-based component, we have to value those differently. So I think the total value -- and this will be in the Q, but it's well -- it's into the 8 figures, the total value of all of those awards, and that has to be expensed over an aggressive period of time, more aggressive than if they were purely time-based over 4 years. So that's why we are -- that's why we had the unusually high SBC in this quarter. And you'll see we have another -- we disclosed an amount that will need to be expensed over the next several quarters. So hopefully, that will be easier for you guys to factor into your models. Is that helpful, Dave?

Yes. That's really helpful. I appreciate it. Yes, it looks like almost $7 million a quarter. A couple of follow-up questions on that. How is that reflected in the current diluted share count, if it is at all? And how will it impact the share count going forward? And then just again, around SG&A, I mean, would you expect it to retreat pretty substantially in Q4? Is this an annual like accrual type thing? Or is this recurring quarterly?

Yes. So if you do the math and you look at all of our public filings, we -- I'd say it was a majority of what we will do in a year were granted in the quarter. I wouldn't expect there to be anything to that level in the next several quarters. I don't know exactly what our SBC will be for Q4, but I think the majority of what we will do for this year's grants we had to expense in Q3.

Okay. That's really helpful. Turning kind of more strategically, Clint, thanks for the color around the licenses. It's helpful. Could you talk about content or subscriptions a bit though? You guys have launched a number of new -- kind of new markets over the last several quarters. And can you just give us an update on reception and what kind of momentum you're seeing in some of those new markets and new platforms, please?

I appreciate that question. And if I may, if I could just add a little color to what Brady shared. I want everybody to know that all of our employee equity grants at this point, including or especially mine, are linked to financial performance of the company, all quantitative goals. So as a company, we're very tightly aligned around business and performance compensation. It's a key pillar of culture, and it's a key pillar of our compensation structure. We are not a bloated media company where people claim to fat-based salaries and guaranteed bonuses really strive to be the farthest thing from that as a performance-based company. So equity is a critical component of this pursuit, and it's also a way to help maintain a competitively advantageous operating budget. But getting back to your question around subscriptions. We have had a number of new launches with partners like Amazon in Australia, in New Zealand. And as they roll out subscription-based services around the world, we want to roll out with them. It's a -- building a subscription business is something where there are huge barriers to entry. And so for us, like beyond just the reliable recurring revenue of our subscription services, it's a moat and it's a competitive advantage in our licensing acquisition efforts. And as a result of these deals, David, and as a result of our sort of pipeline visibility, we're supremely confident that our overall subscription revenue, retail and wholesale will grow at a higher rate in '26 than in '25. And again, we're confident because we have visibility in the third-party pipeline, meaning new and meaningful wholesale distribution agreements, which will kick in as well as channel store launches inside and outside the U.S. for our SVOD services and also because we're diligently planning and taking the requisite steps to execute new pricing and packaging in 2026. I mean if you look at a lot of public and private companies in the subscription space, the way that they've grown is through simply or I might add often just lazily raising price. That's something we have the capacity to do, but we're trying to get to the core of what we really need to do based on our marketing spend to grow subscribers.

And -- let me jump back in. I think I forgot to answer your question on dilution. A portion of the RSUs for Q3 already vested in those were those did factor into our share count for dilution purposes. Obviously, we reported a net loss for the quarter. So it was overall anti-dilutive. But going forward, assuming we're -- for net positive quarters, we'll certainly have to include those -- all of those are fully diluted.

And Patrick Sholl with Barrington Research has our next question.

Just first one on the guidance in the quarter. Could you maybe just talk about the free cash flow guidance? It seems like relative to the increase in revenue, there's kind of limited free cash flow growth in the quarter. Is that mostly just a timing issue? Or is there anything to keep in mind there?

Timing issue.

Okay. And then on the content library for AI licensing. Can you just maybe talk about like the different markets between the content that you have that is from maybe your partners that also work with you on the streaming side versus other partners? And just maybe the different dynamics on margins and use cases and partners for licensing there.

Yes. It's a good question, Pat, and thank you. So when we were first building our library for AI licensing, we went to people with whom we had great existing relationships. And most of those companies are in the factual space, nonfiction entertainment, science, technology, history, travel, lifestyle, et cetera. In an effort to try to generate, again, escape velocity or dominate in the space, we then, at the same time, or shortly thereafter, start reaching out to people that we knew distributors who controlled content in other genres, general entertainment, sports as an example. And so with that type of corpus and with the way that we're able to structure some of that data, that's made a real difference as it relates to our overall proposition. I mean people love our content and love working with us because we have diversity of content, we have high quality, and we're able to just enrich the data in a way that's unique. But we do have some content whereas a lot of the content that we have in our AI corpus, we could put on our services, there is some content that goes well beyond the factual content that you would see on any of our subscription services or our ad-supported services.

And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.