CuriosityStream Inc
NASDAQ:CURI
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CuriosityStream Inc
Earnings Call Analysis
Q4-2023 Analysis
CuriosityStream Inc
In a transformative move, the company witnessed its gross margin soar to 45% in the fourth quarter from just 9.4% the previous year. This impressive upswing was largely attributed to prudent cost control measures and a sharp reduction in content amortization expense, which fell to $5.2 million from $9.8 million. The company anticipates further reductions in content amortization expense now that their content library has reached critical mass.
In line with prior discussions about reducing cash spending by over $15 million, the company executed a reduction in workforce. This tough decision entailed a $0.8 million restructuring charge in Q4 of 2023, primarily severance costs that will be dispensed in 2024. This aligns with a broader effort to optimize operations and significantly reduce future compensation costs, a testimony to proactive financial stewardship.
By substantially decreasing advertising and marketing expenses by 45% year-over-year to $5 million, the company demonstrated a disciplined approach to customer acquisition. This, alongside other initiatives, led to a reduced adjusted EBITDA loss of $3.4 million, exceeding last year's loss by over $10 million. The company's balance sheet remains robust, with no outstanding debt, and shareholder equity stands strong at approximately $1.36 per share. These achievements underscore a trajectory towards positive adjusted free cash flow, evidenced by a consecutive decline in adjusted free cash flow use for five quarters.
Looking forward, the company projects Q1 2024 revenues of $11.5 million to $12.5 million and an adjusted free cash flow between $0.5 million to $1 million—marking the first instance of positive adjusted free cash flow forecast in the company's history. In a move that highlights confidence in its financial health and cash flow, the Board has also decided to distribute wealth to shareholders through a quarterly cash dividend of $0.025 per share, with the first payment scheduled for April 30, 2024.
The company also updated its status regarding NASDAQ's minimum bid price rule. Having received a 180-day extension, the company now has until September 16, 2024, to comply by ensuring the closing bid price of its common stock stays at or above $1 per share for at least 10 consecutive business days within this extended period.
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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. [Operator Instructions]
Thank you. I would now like to turn the conference over to Andrew Lata, Investor Relations. You may begin your conference.
Welcome to CuriosityStream's discussion of its fourth quarter and full year 2023 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Peter Westley, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws.
These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update these statements or 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.
And importantly, we will accomplish this without reducing our paid marketing spend. Looking forward, we'll be guiding to positive adjusted free cash flow for the first quarter of 2024, and we'll be initiating a dividend program in April, which will be paid from excess cash. Looking back, Q4 was a good quarter. We improved our adjusted free cash flow for a fifth straight quarter as we cut our cash burn to $2.4 million, while sequentially keeping our marketing spend relatively flat.
Our direct revenue grew both sequentially and year-over-year, continued to roll out our new pricing plans to new direct customers and to a cohort of our existing subscribers. Many of our annual subscribers are only now coming up for renewal, and most of our channel store partners just began adopting or announcing the increase to our flagship service. And even at a higher price point, we continue to believe our subscription services represent an extraordinary value compared to other offerings in the market.
We entered into new, long-term licensing and distribution agreements with partners in Asia and the EU in Q4. And more recently, at the end of February, Apple TV rolled out CuriosityStream in 23 countries, not a simple achievement for most U.S.-based companies in light of increasingly stringent EU content requirements. Just in the last 2 months, we've had our products and services launched in 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, and 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 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, crypto, we are treading thoughtfully into the AI opportunities available to us, thoughtfully and measuredly.
We 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 e-mail 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, 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 primetime, 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, 6-part journey through the seemingly small and unrelated events that fuel human innovation. We also had the launch of our annual Dino Week stunt, anchored this year by the premier of Amazing Dinoworld 2 and the release of more cutting-edge science and tech specials like A.I. 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 premier 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 0 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 multiyear 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 continue to close a number of barter transactions during the quarter with these deals accounting for $2.5 million of our content -- 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 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 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 ended 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 $0.5 million to $1 million. We're 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 $0.025 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.
[Operator Instructions] Your first question comes from the line of Laura Martin with Needham.
So the first one, I wanted to go back to Asia. You said you're doing Asia and EU renewals. And can you tell us about the terms of those? Are those getting better, worse, are those staying the same? What are the terms of your renewals [indiscernible]?
Yes. So the agreement that I was referencing in Asia is with a telecom provider and that was a new deal, Laura. So we don't have a massive, third-party platform presence in Asia, but this is a nice way for us to get into the territory and then -- we can talk about this later, but we did do a few new deals there in the first quarter of 2024 as well. So equal opportunity for us, yes. Sorry?
Did you renew anything in the EU?
Yes. So in the EU, we had -- 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 will -- which we've not announced today, but we will shortly.
Okay. Great. I'm wondering -- my second question is on the M&A market. We saw that Apollo bid [indiscernible] for the Paramount studio. Could you talk about what you think is going on in the M&A market and whether you think like anybody can exit in this market? Or is the [ traction ] of smaller streaming companies becoming more difficult?
Yes. I think without a doubt, it's more difficult, especially for subscale streamers. I mean look, it depends on where you draw that line. But I would say we have some really unique advantages there. I mean you know, Laura, there've been a lot of services over the last 4 or 5 years that are either subscale or a part of a larger company that have just gone completely away, DramaFever, FilmStruck, Seeso, Rooster Teeth, et cetera, like these were real services for a while.
And so I think that one of the things that is unique about us and that we're really excited about is that we have real cash. We have increasing cash. We've taken the hard steps over the last 12 months really to turn the ship and put us into positive territory. And so I think M&A is tough right now for a lot of people. I think, though, that while we're focused on allocating our cash towards the business, towards the dividend obviously, I think that there are going to be certainly many companies that have real challenges.
Now I will say that through our Smart Bundle, which includes 6 other services in addition to CuriosityStream, like, we have conversations with a lot of these smaller streaming companies that you've referenced, even some larger ones. And so for a lot of these guys, growth is tough. And I do think that it will be -- it will certainly be challenging over the next year, over the next 18 months. That's why we like the fact that we have a unique and really sustainable cost base.
We're not competing for costly sports or Game of Thrones or The Hobbit or hours of programming that are tens of millions of dollars per hour. I will say, just kind of close with this, like in this macro environment where consumer confidence is shaky, where individual spending is more disciplined, we're on track to have our best month of subscriber reactivations in over 2 years. And that's not because consumers are jumping in to watch Dexter or Love Island or a single seasonal series. Rather, it's 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're guiding to adjusted free cash flow of like $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? You said a lot of it was going to be paid out in Q1?
Yes. So severance is actually added back in the calculation of adjusted free cash flow. So that would be effectively excluded in the calculation of that number.
Yes. that's why I'm asking what the number is for severance?
Yes. So the total severance will be about on the order of $350,000 or so, slightly higher than that, but somewhere in that order of magnitude.
[Operator Instructions] Your next question comes from the line of Jim Goss with Barrington.
I was wondering the relationships -- domestic relationships with Tubi, Xumo, Roku, are they all pretty similar? And are they largely FAST channel-driven? or are there differences?
Yes. Great question, Jim. Thank you for asking. For most of them, the business model is the same. I mean it's typically a rev share model with the larger distributors where the rev share from the platform to the partner might be anywhere from 40% to 60%. As it relates to FAST channels, we do have our CuriosityStream flagship FAST channel today that we've recently launched with a few distributors in the U.S. and then more recently with -- in the EU.
And then obviously, we're in a lot of conversations there. And so in light of all of the content that we have, we're trying to do the right deals as it relates to FAST. And so what that includes, sometimes, Jim, is sort of deeper partnerships with either the platform leaders like you mentioned or even category leaders in the space. And so we're in the process of being in all those conversations, but are really encouraged and excited about the opportunity to put so much of our content to work on those platforms that heretofore has not been put to work.
So those are also the primary conduits for your subscription services, is that correct?
Well, they are a place for us to promote to our subscription services. But in the case of like a Xumo or Tubi or Pluto or those guys are -- Roku, yes, good example. I mean with Roku, we have a nice holistic relationship where they offer our apps, they offer CuriosityStream in their channel store and they offer our AVOD package or certain amount of our AVOD package. And the nice thing about that with Roku where there's a subscription offering is if we're showing a series like the History of Wall Street and you watch the first 2 episodes, but then you want to watch the third, Roku does a great job of upselling people to a monthly subscription to CuriosityStream in that case. So yes, in the case of Roku exactly as you described, Jim.
You also talked about the critical mass with your library, which I think you've gotten to over the past year or more. And I'm wondering -- I may have asked some of this before, but in terms of using that library and keeping it fresh, but making sure you take advantage of that critical mass on library, could you describe that process right now? And like are you carving out like 1/4 of it for season or something of that nature? How exactly are you working with that?
Yes, it's a great question. If you came to just CuriosityStream today and try to go through and watch all of our 4,500 to 5,000 titles that we have there, that probably take you a few years. So it's sort of like for new customers, especially, it's almost like premiere night every night on CuriosityStream. So we're trying to do a great job of resurfacing the best content and serving up the right personalized genres to the right subscribers. At the same time, we have on our shelf right now, Jim, we have over 700 titles that we haven't even published yet.
So I think I alluded to it in, I think, my last answer. But I can't emphasize enough that we have a really unique cost base. And we have a unique and extensive approach to amassing content. So we actually continue to build that -- to build our library. And the nice thing today is, we have multiple products to push out that content through. And as I mentioned in my script, as translation services become less expensive and hopefully catalyzed by AI, we have an opportunity to put content in language all throughout the world. Whereas we're in 175 countries today, but not in -- we're not in 175 different languages, we're in 10.
So we have a high volume of content, and we're generating more reliability and predictability around what that content will yield when we deploy it on different platforms. But I don't say -- we're on 114 different third-party platforms today with our content and growing. So we're really excited about the opportunity in front of us.
Okay. And lastly, are the global relationships pretty similar to the domestic relationships? And are you able to grow those global relationships with the same content the way you're describing with AI-dictated embellishment into additional languages?
So we've not used -- just to be clear, like we've not put into commercial broadcast any AI-translated content. However, we do think that that's close, and obviously, we're working on that -- we're working with different partners on that on a daily basis. But yes, we have global rights to a lot of our content. And a lot of it is -- as you know, it's just -- it's broadly appealing because it's in the factual genres. It's science, it's animals, it's motors, it's crime, it's adventure, it's kids, it's living and those categories just translate well. There's not -- you're not hampered by colloquialisms that you might experience with procedural dramas in the U.S. or something like that.
So yes, the content travels well. And you just -- look, I think we've sort of underestimated the platform opportunities available to us going forward. And we're looking to do whatever we can to enter into great partnerships and help our partners make money and obviously grow our business as well.
There are no further questions at this time. Thank you for your interest and participation. This concludes today's call. You may now disconnect.