Earnings Call Transcript - CURI Q4 2024

Operator, Operator

Good afternoon. My name is Krista and I will be your conference operator today. I'd like to welcome everyone to the CuriosityStream Fourth Quarter and Full Year 2024 Earnings Conference Call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I will now turn the call over to Brett Maas with CuriosityStream’s Investor Relations. You may begin your conference.

Brett Maas, Investor Relations

Thank you, and welcome to CuriosityStream’s discussion of its fourth quarter and full year 2024 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2024, 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 2023 period. Now I'll turn the call over to Clint. Clint, the floor is yours.

Clint Stinchcomb, CEO

Thank you, Brett. We took significant steps forward in 2024. To speak plainly, we delivered a year-over-year cash flow increase of about $26 million in 2024. More specifically, we lost about $16 million in cash in 2023 and we made about $10 million in 2024. We achieved this by executing on the cost rationalization we promised and by securing higher margin revenue across our subscription services, which represent recurring revenue, and also in our advertising and licensing initiatives which represent largely variable revenue. I’m pleased to share that 2025 will be a return to topline growth and continued bottom line growth. In Q4, we delivered our ninth straight quarter of increased cash flow and achieved our highest ever adjusted free cash flow at $3.3 million. Our topline revenue also exceeded our guidance. Our subscription revenue grew both sequentially and year-over-year. Our variable revenue grew sequentially and while it fell slightly from the prior year quarter, we believe it is important to understand that by increasing our overall roster and categories of partners, which enabled higher margin revenue, we laid the groundwork for substantial improvement in 2025. Our confidence in 2025 is driven by five factors. First, we aggregated and amassed rights to hundreds of thousands of hours of monetizable video and audio that we are putting to work on our own platforms and in licensing agreements. Our licensing agreements are with both traditional media partners and technology partners that need content to train and fine-tune large language models to accelerate their AI product rollouts in an increasingly competitive environment. Over the past few months, we have delivered and licensed over 8 million minutes of video and audio, and we are in the process of delivering much more. We have greater visibility today than three, six, or nine months ago regarding what is possible here. Secondly, our overall annualized operational costs are significantly lower than our recurring revenue. This dynamic ensures a hard minimum of annual free cash flow and empowers us with the flexibility to take some calculated risks. Through enhanced simplification and optimization practices, made more manageable by improving AI tools, we continue to reduce costs without negatively impacting growth. Thirdly, we are witnessing falling translation costs driven by AI. While we can’t yet dub and subtitle all our content through synthetic AI solutions, we can for certain subsets, like natural history films with a Voice of God narration. We are beginning to translate more subgenres of content within and beyond our current 12 languages. We believe increased localization will significantly benefit factual programming like ours as it has wide appeal, as evidenced by our subscribers in 176 different countries. Fourth, we have new currency rollouts planned. In light of our existing global subscriber base and worldwide appeal, we plan to add 20 to 30 new currency options for our subscribers this year. Lastly, we are enhancing our talent density. While we always have room for improvement, our high concentration of skilled, motivated, and enthusiastic team members generates increased productivity, innovation, faster decision-making, quicker execution, and we believe provides a competitive advantage for CuriosityStream by enabling us to do more with less and quickly adapt to evolving opportunities. While it's not a metric we obsess over, we believe our revenue per FTE is among the highest in our competitive set. Following our annual dividend review meeting in January and in accordance with historical best practices of confident dividend-paying companies, we announced an increase from $0.10 to $0.12 for dividend holders in Q1 2025. We subsequently announced an upward revised increase to $0.16 for shareholders through 2025, which we plan to pay from operations in light of our enhanced visibility into certain third-party agreements and our overall pipeline. We believe this dividend, beginning with $0.04 per share this quarter on March 28, is a great way to reward our investors and employees and to raise the broader global profile of CuriosityStream. Today, in addition to participating in the growth potential of a vibrant organization at the intersection of content and Generative AI, shareholders can enjoy a return comparable to cash and other ultra-reliable investment instruments. This increase further underscores our confidence in our trajectory. Though I have referenced our dramatic increase in content volume, we premiered some excellent original series and feature specials. Some favorites include our irreverent series 'Science for Evil Geniuses', starring Game of Thrones actor Paul Kaye; the feature documentary 'Searching for Satoshi', about the mysterious creator of Bitcoin; a fourth season of our high-school football series '4th & Forever', featuring the DeSoto Eagles in their quest to re-capture a Texas state title; our delightful evolutionary-biology special 'Taste: The Flavor of Life'; and our epic five-part series 'Fateful Planet', which highlights the most violent chapters in Earth’s geologic history. In closing, I’m proud that the well-directed work of our talent-dense team enabled us to achieve our ninth straight quarterly increase in cash flow, $3.3 million, and end the year with approximately $40 million in liquidity and no debt. Looking ahead, we are returning to topline revenue growth in the double digits in 2025 and likewise anticipate double-digit annual percentage growth in free cash flow. Additionally, we continue to believe that our extensive library of hundreds of thousands of hours of audio and video, our global appeal, our direct subscriber base and direct platforms, our multi-year third-party agreements, our public company currency, and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable, durable long-term strength and exceptional flexibility. Over to my friend and colleague, Brady.

Brady Hayden, CFO

Thank you, Clint, and good afternoon, everyone. Our full financial results are presented in the back of the press release that we just issued a few minutes ago as well as the 10-K that we’ll file in the next few days. But let me quickly go through some of the results that we want to highlight for the fourth quarter as well as full year 2024. We have remained intensely focused on expense discipline and operating efficiency, and we believe our 2024 results demonstrate the excellent progress we have made over the past several quarters. As Clint said, we achieved another milestone in the fourth quarter, as adjusted free cash flow came in at $3.3 million, which exceeded guidance and was an improvement of $5.7 million from the prior year. This also represented the highest quarterly adjusted free cash flow in the company’s history, with nine quarters of sequential improvement in this metric. For the full year, adjusted free cash flow was $9.5 million, an improvement of $25.5 million from 2023. To put that number in context, we improved our 2024 cash flow by an amount equal to half of our annual revenue. Looking more at revenue, fourth quarter revenue was above our guidance range, coming in at $14.1 million, compared to $12.6 million in Q3, and $14.8 million in the prior-year quarter. Our direct business remained our largest revenue category, generating $9.4 million in Q4 and $38.6 million for the full year, continuing to demonstrate a predictable, recurring revenue stream. Total revenue of $51.1 million was lower for the full year, although this was mostly due to entering fewer non-cash transactions in 2024 than in 2023. If you exclude these non-cash deals, our 2024 revenue was essentially flat year-over-year. Fourth quarter gross margin of 52% increased from 45% a year ago, driven by our cost control efforts and continued reductions in content amortization. Our gross margin excluding content amortization, which focuses on the cash cost of delivering our services, was 85% in the fourth quarter, compared to 80% a year ago. Turning to operating expenses, for the year, our combined expenses for advertising and marketing plus G&A were down $7.7 million or 17% compared to 2023, as we realized the ongoing benefits of our planned spending reductions. Excluding stock-based compensation, G&A declined $7.3 million or 29% in 2024. Fourth quarter adjusted EBITDA improved by $1.5 million or 43% compared with the prior year. For the full year, adjusted EBITDA improved by $14.1 million, or 70%. As we’ve discussed before, our earnings are negatively impacted by content amortization, a non-cash expense we are required to record each quarter. While we don’t provide guidance regarding adjusted EBITDA, we expect that as revenue grows and margins continue to improve, breakeven adjusted EBITDA is within our reach. As we mentioned earlier, adjusted free cash flow was $9.5 million for the year, compared with negative $16 million in 2023, an improvement of $25.5 million. Moving to return of capital, in March 2024, we announced our dividend program, and during the year, we paid three dividends, including our September dividend of $1.4 million, bringing total dividends paid for the year to $4.1 million. We also announced in 2024 our share repurchase plan, during which we bought back 216,000 shares of our common stock. Looking forward, increasing the dividend program to $0.16 per share in 2025 would imply about a 7.5% yield based on yesterday’s closing price of our shares. We ended the year with total cash and securities of $39.7 million and no outstanding debt. To put that into context, our cash and securities balance represents about one third of our market cap at our current share price. This, along with our confidence in continuing to generate strong free cash flow, further supports our dividend increase. Moving to first quarter 2025 guidance, we expect revenue in the range of $14.5 million to $15.5 million and adjusted free cash flow in the range of $1 million to $2 million. While we don’t provide full-year guidance, we believe we’ll achieve double-digit growth in both revenue and cash flow for 2025. With that, we can hand it back to the operator and open it to questions.

Patrick Sholl, Analyst

Hi. Thank you. I was just wondering if you could talk a little bit more about the revenue expectations for Q1 and full year. So you had mentioned earlier about separating out subscription and the advertising and content licensing as kind of recurring versus variable growth. I was kind of wondering how you're seeing the contribution of those two different types of revenue into the 2025 expectations.

Clint Stinchcomb, CEO

Yeah. Thank you for the question, Pat. It's a really good one and I'm glad that you asked it. One thing that I said in my opening remarks is that, in light of our current overall annualized operational costs, these are significantly lower than our recurring revenue, which we consider to be our subscription revenue. So, this dynamic ensures a really hard minimum of annual free cash flow and gives us the flexibility to take some calculated swings, potentially some large swings. So when we're talking about subscription and when we're talking about recurring revenue, we typically refer to anything that is subscription-oriented. Then we move to variable. Variable historically includes licensing and advertising. When we think about the question that I've been asked many times, concerning whether some of these big licensing deals that you anticipate doing this year are recurring, I think it's critical to understand this. I've been involved in hundreds of content licensing agreements, and most of them are not recurring. Typically, a company like ours delivers content to a partner. The partner accepts the content, and then we recognize the revenue at the start of the term. It used to be upon acceptance of the content, but now it is recognized at the start of the term. So, it's not recurring in the traditional sense, but it can become de facto recurring if we build a strong relationship with a content partner by delivering high quality, diverse content on time and at the scope and scale they're looking for. As early as we are in this practice of licensing video to non-traditional partners for AI training purposes, we've had clients request a second and third order after we fulfilled the first. So, a strong relationship with a customer, with whom we've demonstrated a great performance record, is much more valuable than a contractual relationship that locks you into volume and pricing. I have stated publicly that we anticipate the licensing revenue we generate this year will likely exceed our direct revenue. So, while we are not guiding to the year-end, hopefully, that provides some sense of what's possible. We'll continue to share our progress in these areas each quarter, but we feel very good about this year and our growth potential. I feel like we have better visibility now, even though we’re pursuing some larger individual deals than we did in the past. There’s better visibility to a high minimum threshold. I hope that’s helpful, Pat. In terms of like how I see it going forward, will this be a robust business for us three years from now regarding AI training licensing? If we’re talking about specifically granting AI video training rights, I believe it will be, but we don’t know for sure. What we do know for certain is that if we control rights to hundreds of thousands of hours of quality monetizable audio and video, there will be considerable demand for our content. Is that helpful, Pat? Can I expand any further?

Patrick Sholl, Analyst

Yeah. That was very helpful. And then I was just on the overall subscriber activity, I guess, can you just talk about how you manage the service during the general increased macro uncertainty and what learnings you have from 2022 and the uncertainty in that period?

Clint Stinchcomb, CEO

Yeah. Thanks for asking. So, if you look at the direct subscription business today, you've got Netflix and Amazon who have escape velocity; those are completely different animals. I think there has been some good news recently for some existing legacy services like Max regarding their subscriber numbers for a couple of reasons. One is they've embraced bundling from both a partnership level and a wholesale level. You're seeing a return to something akin to a traditional cable pay TV business; not exactly, but in part. However, those are exceptions. Most of the hundreds of streaming services today, to the extent that they are growing, are implementing price increases. Just look at the big ones and you will see that price increases are quite frequent. They're also embracing bundling and other approaches. Regarding our learnings from the last couple of years, what we’ve learned, even just over the last six weeks, is that most streamed content series last year was 'Bluey', which I believe you’ve heard of if you have young kids, which obtained 55 billion minutes of viewing. The second most is 'Grey's Anatomy', a great series with hundreds of episodes, and that makes up a significant portion of Netflix's consumption as they’ve shared. What we’re observing is cost rationalization, reliance on key specials to attract new subscribers, and maintaining a robust library to keep people engaged and subscribed. And by the way, that’s our strategy too, albeit on a different scale than those multi-billion-dollar companies. With our subscription services, we push hard with our partners. Because of our global appeal, we have a number of new launches in our pipeline. At the same time, we want to ensure we present great, exciting specials that will generate some press to draw new users to the service, while also maintaining a robust library. The content we’ve amassed, largely for licensing to hyperscalers, also allows us to obtain additional rights that we can leverage across AVOD, FAST, PayTV, and our subscription services.

Operator, Operator

Your next question comes from the line of Laura Martin with Needham. Please go ahead.

Laura Martin, Analyst

Hi there. I think, Clint, could you update us on what's going on with your FAST channels and your ad-driven businesses?

Clint Stinchcomb, CEO

Sure. I think that as it relates to our FAST channels and our ad-driven businesses, one thing we're really enthusiastic about is the high level of content volume we've been acquiring and aggregating over the last nine to ten months. In addition to licensing that content, we can start utilizing it. There’s a lag between when we acquire content, when we provide it to large platform partners, and when they publish it, followed by when we get paid. But that lag will resolve itself. I'm excited about FAST for several reasons. First, we're launching a number of new initiatives for our flagship service. Our three US Hispanic services that are being distributed by a partner are outperforming others in that category. Based on our observations to date and the number of new partner launches coming, we are optimistic about the potential outcomes. While we focus on our owned and operated FAST channels, AVOD channels, and incorporating advertising into more of our PayTV channels, there are, in certain situations, if the economics justify, we will proceed with straight licensing deals with those partners as well. So that revenue in 2025 will appear as licensing revenue compared to advertising revenue. However, we continue to believe it remains a strong area that will only uplift our variable revenue as the year progresses. Thank you for asking, Laura.

Laura Martin, Analyst

And then my follow-up is back on the data licensing. You sort of talked about it a little bit, but I'm really interested in how the contracts for the tech companies, so your non-traditional clients, differ from your normal media licensing. It sounds like maybe they're shorter and project-based, and then they come back for more, whereas over at Reddit, those deals are like three to five year contracts. Can you describe how the traditional licensing is different from your traditional media licensing?

Clint Stinchcomb, CEO

I'm really glad you asked that. We don't know for sure, but we believe that we've likely executed more licenses in this space than any other media company. That doesn't mean all agreements have commenced as revenue recognition begins based on the term. Similar to traditional content licensing, we fulfill an agreed amount of content to the partner. Just like we deliver content to HBO, we also deliver substantial quantities of content to technology partners. One key difference, Laura, is the volume of content; it’s often significantly larger. The price per hour for technology partners is generally lower than agreements for feature films. However, provided you have the volume, it can still be lucrative. We deliver the content, they accept it, and we recognize revenue when the term starts. There are a few cases where we have what could be classified as de facto additional content delivery based on certain terms and conditions. In this field, large tranches of need typically dictate one agreement, a batch of content, and payment. I must emphasize that building a strong relationship with a partner is crucial; if we deliver high quality and diverse content, it’s an undeniable fact that we will likely do more business with them. I think we will see new forms of agreements emerging in the AI space in the coming year that don't exist today. I've never seen our IP lawyer so excited, Laura. Thank you for your interest.

Laura Martin, Analyst

So helpful. So interesting and so helpful. I totally agree that these rights will evolve, and they will have to relicense everything they're doing today in two years; there's going to be a whole new set of requirements.

Clint Stinchcomb, CEO

Thank you, Laura.

Operator, Operator

And we have no further questions in our queue at this time. Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.