Earnings Call Transcript - CURI Q1 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the CuriosityStream Q1 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. It is now my pleasure to turn today’s call over to Ms. Denise Garcia, Investor Relations. Please go ahead.

Denise Garcia, Investor Relations

Thanks, Brent. Welcome to CuriosityStream's discussion of its first quarter 2022 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Jason Eustace, 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 March 31, 2022 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.

Clint Stinchcomb, CEO

Thank you, Denise. I would like to thank everyone for joining our first quarter earnings call. Also joining us today is our COO and General Counsel, Tia Cudahy; our CFO, Jason Eustace; and our Chief Strategy Officer, Devin Emery. This quarter, Jason will begin with an overview of our first quarter financial results and a review of our key financial objectives. Following his remarks, I’ll share our plan to achieve those objectives. Jason?

Jason Eustace, CFO

Thanks, Clint. First, I’m pleased to report first quarter 2022 revenue grew 77% year-over-year to $17.6 million with continued strong DTC growth of 49%. Both revenue and EBITDA were in line with our expectations. Notably, we reduced our cash burn by $19.3 million quarter-over-quarter to end with a burn of 13.9 million, and we ended the first quarter with cash, restricted cash, and available for sale investments balance of 85 million, while weighted average shares outstanding were about 52.8 million. We are increasing our guidance for the first half, and we now expect revenue to range from 38 million to 40 million, and our EBITDA to range a loss of 35 million to 33 million. Last quarter, we discussed our increased focus on the achievement of positive cash flow and said we would provide updates to this objective in the future. Today, we are establishing two specific financial targets related to this objective. First, we intend to achieve positive cash flow from operations by the first quarter of 2023. And second, we expect to maintain a minimum cash and investment balance of $50 million this year and beyond. These targets are crucially important to our board, our management team, and our shareholders as we work towards joining the ranks of enduring companies that operate on a positive cash flow basis. Now, I’ll turn the call back over to Clint to discuss our strategy and our plans to meet these objectives.

Clint Stinchcomb, CEO

Thank you, Jason. And, to be clear, given the company’s strong cash position and positive operating cash flow forecast, management expects no requirement for future capital raises to support operations. Since becoming a public company almost two years ago, we’ve significantly grown revenue and subscribers, developed a multifaceted revenue stack, and built the world’s best factual content library. As you know, the Curiosity company we operate today is a much more robust business than it was less than two years ago. Along the way, we’ve created many assets, built solid relationships, and developed key learnings that we have yet to fully leverage to drive growth and operating efficiency. As a streaming platform with flexible content rights, we can quickly pivot to take advantage of changes in market dynamics, and do so in a cost-effective manner. I believe the work we have done has positioned us well to operate on a positive operating cash flow basis by the first quarter of 2023, while maintaining a $50 million cash cushion. To get there, let me share how we view our business opportunity. Our board and our management team view our business as three primary building blocks. The first of these, which we built early on in our development, is a well-engineered streaming platform that can scale globally. Our territory-adaptive, easy to navigate, and localizable streaming platform now serves Curiosity subscribers in over 175 countries and enables us to launch with existing capital and engineering resources regional subscription video-on-demand services such as the service we recently launched in Germany in partnership with Spiegel. Our second building block is our content. Through the end of 2022, we will have invested over $188 million in original productions and acquired content. We’ve invested a further 15 million to 20 million in acquisitions like One Day University and Learn25 and partnerships like Spiegel and Nebula, which brought additional content into our ecosystem that we have yet to fully cultivate. We believe the original production cost, or “on-screen” value of our content, is over 5x greater than what we actually paid for it, and with over 10,000 titles, we believe we have built the world’s best factual content library in all genres. As we’ve gained knowledge about the kinds of factual content audiences are most interested in and which resonate best with consumers, we believe much of the heavy lifting is behind us. We’ve identified a path forward, which will allow us to continue to delight our subscribers by refreshing and replenishing the Curiosity library while reducing our content spending to a level that can easily be accommodated within positive cash flow from operations in 2023 and beyond. As a reminder, Curiosity is distinguished from other streaming companies in that we are not competing to win the content spending war. We monetize our content in multiple ways and are playing on an entirely different field. We are not, for example, bidding on ever-escalating sports rights or scripted series. In contrast, Curiosity operates within a more predictable, less competitive content acquisition and production environment, especially now that traditional factual linear networks have transitioned largely to the exhibition of reality TV repeats and the major streaming platforms are focused largely on the production of movies and scripted series. While the competitive battles rage in regard to scripted content streamers, Curiosity now stands alone as the reliable destination for on-demand premium factual content in history, science, nature, technology, human adventure, space, medicine, and exploration. This is a good place to be. We expect our cash flow profile to improve next year as we continue to monetize our content through subscriptions to our direct tiers, bundled partnerships, content licensing, and sponsorship. And in the service of these objectives, meaning promotion to our subscription tiers and advertising and sponsorship monetization, we are increasingly focused on building audience engagement in front of the paywall. We are doing this through expanded rollouts of our FAST and PayTV channels that focus on genres ranging from science to history to nature to kids, and also through enhanced engagement in AVOD and audio. In light of the flexible rights we control across our thousands of hours of content, we can be swiftly responsive to the needs of subscription-resistant consumers directly into distribution partners. As these free ad-supported developments illustrate, a key strategy for us this year is to reduce expenditures on direct paid marketing. As revenue builds in 2023 and beyond from our ad-supported services, and as our SVOD sales are boosted from the enhanced promotion, we expect that our revenues and profits will continue to increase. We also intend to continue to explore alliances and combinations that would result in the exposure of our content on global-scale promotional platforms. At Curiosity, we believe that our promotional funnels, which effectively and efficiently market our core premium subscription service constitute the third critical building block of our enterprise. Our game plan is to focus on maximizing the performance of our global streaming platform, our best-in-class content, and our promotional outreach. In summary, we have created an enduring media brand that we expect to soon generate positive cash flow from operations with an upward revenue growth trajectory that is fully reflective of the worldwide demand for quality entertainment that informs, enchants, and inspires. With that, operator, let’s open the call to questions.

Operator, Operator

Your first question is from the line of Peter Henderson with Bank of America. Your line is open.

Peter Henderson, Analyst

Yes, hi. Thank you for taking the question. Just quickly, curious how do you differentiate between the value of the library content as a subscription acquisition tool versus new content as a subscription acquisition tool? And it sounds like you guys are planning to sort of slow down the production of new content. I’m just kind of curious as to how much that will impact subscriber growth moving forward?

Clint Stinchcomb, CEO

Yeah, thank you for the question, Peter. That’s a good one. And I’m going to take the first part of this and then my colleague Devin Emery will take the second part. So, I mentioned in our last call that we believe we’ve built a critical mass library. We’ve built this library much faster than we anticipated because we acquired more content than we had originally anticipated and through some tuck-in acquisitions we were able to bring more content into Curiosity as well. So, with over 10,000 titles, we feel like we have a strong critical mass, and there's a lot of it, as I mentioned, that we've not yet deployed. So, I’ll start with that piece and then as it relates to the execution of that, Devin will talk a little bit about that.

Devin Emery, Chief Strategy Officer

And I think importantly through the end of this year and continuing, we have a lot of original content rolling out. The way that we view how we are producing, acquiring, and distributing is, I mentioned this in the past, we want to be the app that everyone goes to when they want our genre of programming. And so, we have seven internal categories of content that we're looking at. Half of them are original, half of them are acquisition, and they also serve different purposes and they're all very important. So, keeping things fresh is incredibly important to us, and we know that it is going to drive engagement and retention, as well as acquisition. So, none of the types of content that we are producing or programming are going away, but we also know that there are plenty of investments we can make that continue to make our home screen in our app very fresh, get people a lot of content, and continue to make us the app that people will open up where they want to watch anything from the original film that we're releasing or something like crash course or along those lines. We want everything, and we will continue to have everything.

Peter Henderson, Analyst

Just one quick follow. Do your distribution, your bundled distribution agreements have any sort of requirements on new content creation at all?

Clint Stinchcomb, CEO

Yes. Some have minimum hourly requirements. That's the minimum of distributors that do. We have zero concerns about meeting any of those. And I want to be careful about what I say about distribution agreements because I learned early on that the distribution markets don't really like that. Hopefully, that answers the question, Peter.

Peter Henderson, Analyst

Yes, it does. Great. Thank you.

Operator, Operator

Your next question comes from the line of Laura Martin with Needham. Your line is open.

Laura Martin, Analyst

Hey you guys. Kudos on putting free cash flow first, that is fabulous for the start today. Let's go with – can you give us an update on what's going on with One Day University, please?

Clint Stinchcomb, CEO

One Day University? So, we continue to – thank you, Laura. Appreciate those comments. Those relate to One Day University. We continue to build the library there. We have a great Creative Head of One Day University in Steven Schragis, who is the original founder. And we've also recently added it to our premium tier. And so we're seeing some growth there that we're excited about. We think there's a lot of value to unlock. It was originally started as a live event company. Obviously, that's not exactly what it is today. And what we've chosen to do is take the content, continue to build on the content and wrap it into our subscription service operations. And at the same time, we have been doing some premium course events that we're certainly encouraged by the initial results. So, we like One Day University, I think it provides a lot of value to the company and we see a lot of opportunities to unlock value there.

Laura Martin, Analyst

Great. My second one is, I know it's early because you guys just started doing the FAST channel stuff, can you talk about what surprised you? You guys have been subscription really since you were in your inception, but this is really your first – by the way, everybody's following you. Right? Netflix and Disney are going to follow you. So, what is surprising you as you enter the ad-driven portion of the streaming business?

Devin Emery, Chief Strategy Officer

I don't think anything has surprised us significantly. I think what we're working on right now is because we program in a very broad genre. We know the people who are using FAST channels are going to like different types of content. So, we're still in the experimentation mode in what parts of our library and what types of genres we're going to program. We've seen good initial results. We're definitely planning on expanding the number of partners that we're working with, and I think what you'll see over time is that we'll also be looking at how we program in terms of these genres and are we looking at one brand that goes across everything? Are we looking at genre-specific brands, and that's something that we'll be figuring out as we go.

Clint Stinchcomb, CEO

One thing that maybe surprised me a little bit is, we have been asked by distribution partners and other large platforms to create very descriptive services, a science service and an engineering service. And we're considering all of that.

Laura Martin, Analyst

Totally sounds interesting to me. It's a whole new for you guys. Sounds fascinating. Okay. My last question is on viewing. So, one of the things I think Jason just said was that 50% of titles were original and 50% were acquisitions. And so, you really feel your 10,000 titles are enough. My question is, when you look at viewing, is viewing over-weighted towards your original titles or is viewing weighted towards your purchase titles? I'm interested in the relationship between investment versus viewing. So, kind of return on invested dollar is what I'm trying to get at, sort of?

Devin Emery, Chief Strategy Officer

We don't have exact numbers to share on that, but I will say that we love our original content and we love acquisition content. One of the nice things about original content is that we can create exactly what we know is going to engage with our audience. So, you do see that when we're creating original content, it is resonating very strongly. That said, we have a lot of, as Clint was talking about earlier, we have the ability to pick up titles that we know are going to resonate very well with our subscribers, and anecdotally one of our top shows that we premiered a quarter or two ago is a show that's available on a lot of other platforms, but as I was saying earlier, because we want to be the place that people go to watch this type of content, it had a stronger life, we think on the CuriosityStream platform, than it might on other services. So, I would say that it weights towards original because we have full control over that. We know exactly what we need to make to make that do well with our audience, but again, the acquisitions are incredibly important too.

Clint Stinchcomb, CEO

Without a doubt, I mean, as an example, we've premiered Engineering the Future season this week. And so, obviously that's generating more consumption than any other title, but if you look right underneath that, we have great evergreen programming like The Story of Europe as an example for us. And so, that's a Top 20 performer this week. So, I think a lot of the original programming will tend to bring people in something that the press will like or write about, but certainly the breadth and depth and quality of the content is what keeps people and then CuriosityStream we believe keeps our retention rates among the best in the industry.

Laura Martin, Analyst

Fantastic. Thank you.

Operator, Operator

Your next question is from the line of Victoria James with D.A. Davidson. Your line is open.

Victoria James, Analyst

Thank you for taking my question. I've got two, but I'll ask them one at a time. So firstly, last quarter, you were still in considerations around, sort of the timing and the potential of a price increase for your service, can you frame up how you think about user retention and engagement impact in advance of those prospective changes?

Clint Stinchcomb, CEO

I'll take the first part and I would say that as I mentioned in our last call, I think we have a lot of room to better align our offering as it relates to the price the consumers pay. So, as we mentioned before, that represents significant opportunity for us. At the same time, anytime you do a rate increase or anything like that, you want to do it very thoughtfully and deliberately, and so Devin and his team are working through that. We are not going to announce for competitive reasons and a variety of other reasons exactly when we're planning to do that, but we certainly continue to work on it and work to ensure that when we do initiate a price increase, we do it in the most thoughtful and effective manner possible. That answers your question, Victoria?

Victoria James, Analyst

Sorry. I muted myself. Yes. Thank you. And then my second question is, we recently wrote a white paper on inflation and have since then, sort of been looking at rising labor cost and hiring, can you talk to us about how you think about your ability to attract and retain talent at CuriosityStream?

Clint Stinchcomb, CEO

It's a great question, and I would say that we're obviously in a free agent economy today. I think that's undeniable. I think there are a lot of technical people, a lot of engineers, a lot of product marketing people who are purpose-driven. And I think that is something unique about Curiosity. We are a purpose-driven company and that's attractive to a large subset. I think we also, not unlike many other companies, offer pretty flexible working environments, largely remote with our engineering staff as an example. And so, as we continue to offer those things, continue to provide people with an opportunity and really level of responsibility to do new and interesting things, what we found is, teams find that attractive.

Victoria James, Analyst

Thank you.

Operator, Operator

Your next question is from the line of Dillon Heslin with ROTH Capital Partners. Your line is open.

Dillon Heslin, Analyst

Hey. Thanks for taking my question. First one, on the DTC side in terms of conversion, I think you guys mentioned potentially lowering your marketing outlook a little bit, how much of that is due to just better conversion from some of those marketing efforts being more efficient? And then how does the FAST strategy play into that in terms of potentially funneling those into, sort of SVOD subs over time?

Clint Stinchcomb, CEO

That’s a great question. And you pretty much nailed the strategy in that question and that our marketing approach is different than a traditional marketing approach where you have a funnel going from awareness to consideration, etcetera. What we're looking to do and we've done successfully is to get kind of inside the communities that have the highest propensity to subscribe and engage with our product within the context that they are in. So, what we have found and refined and gotten very good at is, we are able to invest in these communities and then over time, increase the engagement around our brand in those communities and pull back on some of the paid marketing that we're doing there. So, a good example of this is homeschooling. So, that's a community of parents who are homeschooling their children. Years ago, we invested a fair amount of paid marketing to reach them within the context of podcast resources, and we did a very good job of increasing our awareness, as well as creating that community evangelist effect. So, now we're not spending a ton of money in that specific community, but we're still very strong there. We're still engaged there as a brand. And we're still constantly recommended by other homeschoolers that have signed up for Curiosity as their streaming service of choice. So, we replicate that approach. And what that means is that, as we are able to call it launching FAST, call what we're doing on our YouTube channel or in front of the paywall, where we're creating content and engaging with those communities, we can create and foster these evangelists of our brand where it's not a traditional one-to-one pay for the impression, try to get the conversion type of relationship. So, as we continue to do that and continue to refine it, we believe and we've seen that our marketing efficiency continues to get stronger and stronger and the organic impact of those relationships and those communities continues to compound so that we can spend fewer dollars and drive higher conversions.

Dillon Heslin, Analyst

Got it. And then, thank you. And then sort of as a follow-up, could you talk about potential advertising, like, do you have any better visibility there until what the ad sales might be, and then any comment on, sort of the percentage of subscribers that have taken up the tiered plans? I think I saw somewhere; the Nebula has 0.5 million subscribers by now? Thank you.

Clint Stinchcomb, CEO

Yeah. That's accurate based on what they've shared publicly, and as an organization that has an investment in Nebula and an acquisition partnership with Nebula, we'd love seeing that. What we like about Nebula is obviously they have a group of – more than a group, well over a 100 creators with close to 200 million cumulative followers in science, history, tech, travel, literature space. So, it's an excellent matchup for us. We think that they provide us a great marketing vehicle into a younger demographic, providing a very efficient form of marketing for us. So, we really like what they're doing. As it relates to a premium tier, that continues to grow, but we're not going to release specific figures there. But I think marketing team has done an excellent job with that. A smart bundle that you can find in the world. And so, I think we'll continue to build there, and did I miss any other parts of the question? Yes. Sponsorship. What I will say on advertising and sponsorship is, we're not going to release specific numbers, but we're on track to have by far our best year ever as it relates to that revenue line.

Dillon Heslin, Analyst

Okay. Thank you.

Operator, Operator

Your next question is from the line of James Goss with Barrington Research. Your line is open.

James Goss, Analyst

Okay. Thank you. With regard to the FAST channel concept, are you thinking of developing at least one or a group of specific channels to put on that sort of path in addition to the comprehensive package that someone can subscribe to? And with regard to the more comprehensive traditional package, a number of the providers are looking at ad-free versus ad-light type of programs, and found that the ad-light versions have actually developed higher ARPU than the fully paid one. And is that sort of in your concept as well?

Devin Emery, Chief Strategy Officer

I would say that we've certainly been asked to create multiple channels in the FAST space, and that’s I think in light of the quality content that we have and in light of the variety of factual content that we have. So, we'll obviously be evaluating that and evaluating that constantly, we're well-positioned to do that, and to the extent that we can do that in a way that is additive and by additive, I mean additive to the promotion of our subscription services and added as an extension for brand partnership monetization. We think there's certainly some opportunities there. As it relates to putting it and I think if I'm understanding your question correctly, you asked that we would consider putting a FAST or making a FAST channel available on our subscription service. Maybe, if I understood that correctly, what I would say is…

James Goss, Analyst

It wasn't exactly that. I was thinking with your subscription channel, can you do it either through a fully paid or an ad load version where you do say a pre-roll, not interrupt content that creates advertising in front of it? And in that way, it creates some premium stats that might be a way to develop an ARPU even if it is at a discount to whatever you charge for the fully paid one, that might actually wind up giving you a better ARPU overall for those willing to listen to ads?

Clint Stinchcomb, CEO

We don't currently have any plans to be doing that, but what I will say is that we have the ability to run messages in front of videos, obviously. Right now, we're using that for premium upselling to our premium tier, which is one of our main paths to increased ARPU as well as some other promotional messages that we have. So, as we continue to do that, we'll have more information and we'll be able to build out the advertising capabilities that's certainly something that we could do, but it's not something that's on the roadmap right now.

James Goss, Analyst

Okay. And one last one. How many relationships do you have right now or do you plan to have with either CTV or MVPD providers?

Clint Stinchcomb, CEO

We have many today across those ecosystems, and I would say that we expect those partnerships to only grow.

James Goss, Analyst

Okay. Alright. Thank you.

Clint Stinchcomb, CEO

Thank you, Jim.

Operator, Operator

There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's conference call.