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. 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. 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. More recently, at the end of February, Apple TV rolled out CuriosityStream in 23 countries, which is not a simple achievement for most U.S.-based companies in light of increasingly stringent EU content requirements. In just the last two months, we've had our products and services launched on over 30 third-party platforms around the world. In order to expand the top of our marketing and promotional funnel and further monetize our content, we rolled out our AVOD product with key partners like Tubi, Xumo, and Roku in October. We are pleased with our early progress as our millions of monthly impressions continue to grow dramatically. We have a large, evergreen, globally appealing library of content, now over 17,000 titles, that we are putting to work across new platforms that we believe will both increase and enhance the reliability, durability, and predictability of our revenues going forward. We reduced G&A significantly in Q4 and have continued to do so in 2024 as we streamlined the organization, renegotiated vendor agreements, and bartered where we had advantages. As the impact of new technologies is often overhyped, as we've seen with innovations like the Metaverse, 5G, and crypto, we are treading thoughtfully into the AI opportunities available to us, carefully and methodically. We've just started to leverage practical generative AI catalysts in order to explore and conduct ways to work faster, cheaper, and more efficiently in several areas. Some specific examples we are utilizing today include functional areas like more personalized and targeted email marketing, as well as broader CRM initiatives, accelerated sequencing in the editing process, which enables us to meet a broad range of different third-party platform requirements around the world, and in so doing, put more content to work. Our engineering team is testing and using AI to enhance software development practices such as automated code suggestions, reviews, data analysis, and database query assistance. Additionally, we're experimenting with AI to enhance categorization of content, analysis of scripts, and factual analysis. We've also started using AI for understanding customer feedback through sentiment analysis and summarizing insights to improve user experiences and content relevance. While premium program synthetic dubbing is not quite ready for prime time, we believe it's within our sights to create a meaningful impact on the speed and volume of content we can publish across the globe in a growing number of languages. In regard to premium factual content, we closed out the year in Q4 with one of our strongest programming slates to date, headlined by our brand-defining reboot of Connections with James Burke, a six-part journey through the seemingly small and unrelated events that fuel human innovation. We also launched our annual Dino Week stuff, anchored this year by the premiere of Amazing Dino World 2 and the release of more cutting-edge science and tech specials like AI Tipping Point, Mystery of the Giant Birds, and a perennial fan favorite, Top Science Stories of 2023. Looking ahead, we're excited about our strong start to 2024, including the premiere of original series like Science for Evil Geniuses, Rebuilding Notre Dame, The Invention of Surgery, and The Art of Seduction. In closing, I'm happy to reinforce that we ended the year with over $38 million in cash and equivalents and zero debt. We believe our strong balance sheet and projected 2024 positive cash flow are major competitive advantages in the current environment, and we continue to believe that our global appeal, our direct subscriber base and direct platforms, our broad and deep content library of over 17,000 titles, our multi-year third-party agreements, our public company currency, and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable long-term strength and exceptional flexibility. Over to you, Peter.

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 successful collections. For Q4, our other revenue category was $0.5 million, an increase of approximately $0.5 million compared to the fourth quarter of last year when we had less than $10,000 of revenue in this category. Our other revenue category includes advertising, sponsorships, branded social media promotional videos, transactions, and other sources of revenue. As with our content licensing business, we engage in advertising-related barter transactions. In the fourth quarter, approximately $350,000 of our other revenue related to barter transactions. While our other revenue is a small part of our business right now, we believe we have significant opportunities to grow our future advertising and sponsorship revenues in our pay TV channels and in front of the paywall in the coming quarters. Fourth quarter gross margin of 45% increased from 9.4% in the prior year quarter driven by our cost control efforts and a significant decline in content amortization expense. Content amortization in the fourth quarter was $5.2 million, which was about half of the $9.8 million we recorded in the prior year quarter. We expect content amortization expense, the largest component of our cost of revenues, to continue to decline going forward and ultimately converge with the lower level of new content investment that we require now that we've achieved critical mass in our content library. G&A expense during the fourth quarter of 2023 of $6.4 million was down $1.2 million or 15% year-over-year, driven by lower compensation and professional services costs. As part of our more than $15 million in planned reductions and cash spending that we discussed on our Q3 earnings call, we initiated a reduction in force in December, which resulted in a $0.8 million restructuring charge during the quarter. From an accounting standpoint, we recorded this charge, which mostly consists of severance costs, in Q4 of 2023, although the majority of these costs will be paid in 2024. As we align our staff levels with our current business needs, we believe that our workforce optimization efforts will enable us to operate more efficiently and significantly reduce compensation costs in 2024 and beyond. Our fourth quarter advertising and marketing expense of $5 million was down 45% year-over-year, and we continue to exercise discipline and analytical rigor in deploying our customer acquisition dollars. Moving to profitability, adjusted EBITDA loss was $3.4 million, the calculation of which excludes the $0.8 million restructuring charge that was discussed earlier. Compared to an adjusted EBITDA loss of $13.6 million in the prior year quarter. Adjusted free cash flow use of $2.4 million for the quarter improved $6.4 million year-over-year. As we mentioned earlier, this represents our fifth consecutive quarter of sequentially improving adjusted free cash flow and underscores our continued momentum toward positive adjusted free cash flow. Our overall balance sheet remained in great shape with $101 million of assets, $28.4 million of liabilities, and book value of $72.6 million, or approximately $1.36 per share. We entered the quarter with total cash, cash equivalents, and restricted cash of $38.2 million and no outstanding debt. Moving to our first quarter 2024 guidance, we expect revenue in the range of $11.5 million to $12.5 million and adjusted free cash flow in the range of $0.25 million to $1 million. We are excited to be guiding to positive adjusted free cash flow for the first time in the company's history. This is a major milestone for CuriosityStream. Additionally, as Clint mentioned, given our expectations regarding cash flow in the first quarter and for the balance of the year, our Board of Directors has decided to return capital to our shareholders in the form of cash dividends. Specifically, they have declared that a dividend of 2.5 cents per share will be paid quarterly to our shareholders. The first dividend will be paid on April 30, 2024, to holders as of the close of business on April 12, 2024. Finally, I wanted to give an update on the notice that we received from NASDAQ. Just yesterday, we received written notification from the Listing Qualifications Department of NASDAQ granting our request for a 180-day extension to regain compliance with the minimum bid price rule. We now have until September 16, 2024, to meet the requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1 per share for a minimum of 10 consecutive business days during this 180-day period. With that, operator, let's open the call to questions.

Your first question comes from 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 EU renewals. And can you tell us about the terms of those? Are those getting better? 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. We did do a few new deals there in the first quarter of 2024 as well, which is a meaningful opportunity for us.

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.

My second question is about the M&A market. We noticed activity with Studio. Can you share your thoughts on the current M&A landscape and whether you believe anyone can successfully exit in this market? Additionally, is it becoming increasingly challenging for smaller streaming companies to attract interest?

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, such as DramaFever, Filmstruck, Seeso, and others. These were real services for a while. 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. M&A is tough right now for a lot of people. We are focused on allocating our cash toward the business and towards dividends. I think that many companies will 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. For many of these companies, growth is tough. I do think that it will be challenging over the next year or 18 months. That is why we appreciate that we have a unique and sustainable cost base. We are not competing for costly programming that demands significant financial investment. In this macro environment where consumer confidence is shaky and 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 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 a lot of it 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 from the calculation of that number.

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

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

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 revenue share model with the larger distributors where the revenue 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. We are in a lot of conversations there. In light of all the content that we have, we are trying to secure the best deals as it relates to fast. This includes potentially deeper partnerships with either the platform leaders you mentioned or even category leaders in the space. We are really encouraged and excited about the opportunity to put so much of our content to work on those platforms that have not yet been fully utilized.

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

They are a place for us to promote our subscription services. In the case of Xumo, Tubi, or Pluto, Roku is a good example. With Roku, we have a nice holistic relationship where they offer our apps, they provide CuriosityStream in their channel store, and they feature part of our AVOD package. The benefit is that with Roku, there is a subscription offering; if someone watches the first two episodes of a series like the History of Wall Street but wants to watch the third, Roku does a great job of selling subscriptions to CuriosityStream in that case. So yes, in the case of Roku, you described it perfectly.

You also talked about the critical mass with your library, which I think you've achieved over the past year or more. Can you describe the process right now for using that library and keeping it fresh while ensuring you take advantage of that critical mass? Are you carving out like a quarter of it per season or something of that nature? How exactly are you working with that?

It's a great question. If you came to CuriosityStream today and tried to watch all of our 4,500 to 5,000 titles, that would probably take you a few years. For new customers, it's almost like a premiere night every night on CuriosityStream. We're trying to surface the best content and serve the right personalized genres to the right subscribers. At the same time, we currently have over 700 titles on the shelf that we haven't yet published. I can't emphasize enough that we have a really unique cost base and a comprehensive approach to amassing content. We continue to build our library. The nice thing is that we have multiple products to push that content through. As translation services become less expensive, catalyzed by AI, we have the opportunity to deploy content in many languages worldwide. We're in 175 countries today, but we're not in 175 different languages; in fact, we're currently in 10. We have a large volume of content and are generating more reliability and predictability around the yield it provides when deployed on different platforms. We're on 114 different third-party platforms today with our content and growing. We're really excited about the opportunities in front of us.

Okay. And lastly, are the global relationships similar to the domestic relationships, and can you grow those global relationships with the same content the way you're describing with AI-driven embellishment into additional languages?

We've not used AI-translated content in commercial broadcasts yet. However, we do think that's close, and we are working with different partners on that daily. We have global rights to much of our content. A lot of it is broadly appealing because it falls into factual genres—science, animals, motors, crime, adventure, kids, and living—categories that translate well. You're not restricted by colloquialisms that might arise within procedural dramas in the U.S. or similar genres. Therefore, our content travels well. We've perhaps underestimated the platform opportunities available to us moving forward. We look to establish great partnerships and help our partners generate revenue while growing our business.

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