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Chicken Soup for the Soul Entertainment Reports Q3 2020 Results

Chicken Soup for the Soul Entertainment, Inc.
·14 min read

Strong performance across Online Networks and Distribution & Production businesses drives significant growth

COS COB, Conn., Nov. 12, 2020 (GLOBE NEWSWIRE) -- Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CSSE), one of the largest operators of streaming advertising-supported video-on-demand (AVOD) networks, today announced its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Financial Summary

  • Gross revenue of $20.0 million, compared to $13.9 million in the second quarter of 2020, and $17.0 million in the year-ago period.

  • Net loss of $13.0 million compared to a net loss of $10.0 million in the second quarter of 2020, and a net loss of $13.3 million in the year-ago period; $12.0 million net loss before preferred dividends, compared to $9.0 million net loss in the second quarter 2020, and $12.4 million net loss before preferred dividends in the year-ago period.

  • Adjusted EBITDA of $4.2 million, compared to $2.7 million in the second quarter 2020, and a loss of $0.4 million in the year-ago period.

  • Online Networks, which include Crackle and Popcornflix, revenue of $6.7 million compared to $5.4 million in the second quarter of 2020, and $14.4 million in the year-ago period. The year-over-year decline reflects approximately $6.2 million in advertising revenue in the year ago period from the since-shuttered Playstation Vue, and intercompany revenue share payments in the 2020 period of $1.3 million to our Distribution & Production business for the licensing of content from our sister company, Screen Media.

  • Distribution & Production revenue of $13.3 million compared to $8.5 million in the second quarter of 2020, and $2.7 million in the year-ago period due to strength in content licensing and TVOD revenue.

Recent Business Highlights

  • Continued to expand pipeline of Original & Exclusive content which represented 16% of average monthly streaming hours in the quarter, compared to just 2% a year ago.

  • Online Networks delivered steady viewership throughout the quarter and sequential growth in ad impressions. The latest Crackle original series, Spides, premiered on September 17th, and drove over one million streams in its first two weeks.

  • Distribution and Production generated strong performance driven by the #1 TVOD hit The Outpost as well as the company’s growing library of film and television content.

  • Today the company agreed to a 30-day extension of a key decision deadline, to December 14, 2020, as the Crackle Plus joint venture partners assess the possibility of closer collaboration.

“Our strong third quarter results demonstrate that we are continuing our momentum, despite the pandemic, and we are poised for a terrific end to 2020,” said William J. Rouhana Jr., chairman and chief executive officer of Chicken Soup for the Soul Entertainment. “Viewers are engaging with our differentiated and expanding Original and Exclusive content, and our Distribution and Production business generated an exceptional performance driven by one of the summer and fall’s most-watched films on VOD, The Outpost. We are now turning our focus to growing awareness of our Crackle Plus networks to scale viewership, while continuing to expand our stable of fully owned content, which will drive both future revenue opportunity and higher margins. We’ve also enhanced our balance sheet, working capital position and financial flexibility. We believe we are in an excellent position to drive greater levels of growth in 2021 as we capitalize on the robust opportunities ahead in the emerging AVOD landscape.”

Gross profit for the quarter ended September 30, 2020 was $4.5 million, or 23% of net revenue, compared to $0.6 million in the second quarter, or 4% of net revenue, and $3.2 million, or 19% of net revenue for the year-ago period. The change in the percentage of gross profit resulted in part from non-cash amortization of the film library in the company’s traditional distribution business, which is required by GAAP to be included in cost of revenue. Without this non-cash film library amortization expense, the gross profit would have been $12.5 million or 65% of total net revenue.

Operating loss for the quarter ended September 30, 2020 was $11.3 million compared to an operating loss of $13.1 million in the second quarter 2020, and $9.6 million in the year-ago period. Without this film library amortization expense and other depreciation and amortization, operating income would have been $1.3 million.

Net loss was $13.0 million, or $1.04 per share, compared to a net loss of $10.0 million, or $0.83 per share, in the second quarter 2020, and a net loss of $13.3 million, or $1.11 per share in the prior-year third quarter. Excluding preferred dividends, the net loss in the third quarter of 2020 would have been $12.0 million, or $0.96 per share, compared to net loss of $12.4 million, or $1.03 per share for the year-ago period.

Adjusted EBITDA for the quarter ended September 30, 2020 was $4.2 million, compared to $2.7 million in the second quarter 2020, and a loss of $0.4 million in the year-ago period.

As of September 30, 2020, the company had $9.2 million of cash and cash equivalents compared to $6.2 million at September 30, 2019, and outstanding debt of $34.8 million as of September 30, 2020 compared to $20.2 million as of September 30, 2019.

For a discussion of the financial measures presented herein which are not calculated or presented in accordance with U.S. generally accepted accounting principles (“GAAP”), see “Note Regarding Use of Non-GAAP Financial Measures” below and the schedules to this press release for additional information and reconciliations of non-GAAP financial measures.

The company presents non-GAAP measures such as Adjusted EBITDA and Pro Forma Adjusted EBITDA to assist in an analysis of its business. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the company's operating performance.

Conference Call Information

  • Date, Time: Thursday, November 12, 2020, 4:30 p.m. ET.

  • Toll-free: (833) 832-5128

  • International: (484) 747-6583

  • Conference ID: 2772449

  • A live webcast and replay will be available at http://ir.cssentertainment.com/ under the “News & Events” tab

Conference Call Replay Information

  • Toll-free: (855) 859-2056

  • International: (404) 537-3406

  • Conference ID: 2772449

ABOUT CHICKEN SOUP FOR THE SOUL ENTERTAINMENT
Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CSSE) operates streaming video-on-demand networks (VOD). The company owns a majority stake in Crackle Plus, a company formed with Sony Pictures Television, which owns and operates a variety of ad-supported and subscription-based VOD networks including Crackle, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and FrightPix. The company also acquires and distributes video content through its Screen Media subsidiary and produces original long and short-form content through Landmark Studio Group, its Chicken Soup for the Soul Originals division and APlus.com. Chicken Soup for the Soul Entertainment is a subsidiary of Chicken Soup for the Soul, LLC, which publishes the famous book series and produces super-premium pet food under the Chicken Soup for the Soul brand name.

Note Regarding Use of Non-GAAP Financial Measures
The company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). It uses a non-GAAP financial measure to evaluate its results of operations and as a supplemental indicator of operating performance. The non-GAAP financial measure that is used is Adjusted EBITDA. Adjusted EBITDA (as defined below) is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. Management believes this non-GAAP financial measure enhances the understanding of the company’s historical and current financial results and enables the board of directors and management to analyze and evaluate financial and strategic planning decisions that will directly affect operating decisions and investments. The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or non-recurring items or by non-cash items. This non-GAAP financial measure should be considered in addition to, rather than as a substitute for, the company’s actual operating results included in its condensed consolidated financial statements.

“Adjusted EBITDA” means earnings before interest, taxes, depreciation, amortization (including tangible and intangible assets), acquisition-related costs, consulting fees related to acquisitions, dividend payments, non-cash share-based compensation expense, and adjustments for other unusual and infrequent in nature identified charges, including transition related expenses. Adjusted EBITDA is not an earnings measure recognized by U.S. GAAP and does not have a standardized meaning prescribed by GAAP; accordingly, Adjusted EBITDA may not be comparable to similar measures presented by other companies. Management believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. The most comparable GAAP measure is operating income.

A reconciliation of net loss to Adjusted EBITDA is provided in the company’s interim report on Form 10-Q for the three and nine months ended September 30, 2020 and Annual Report on Form 10-K for the year ended December 31, 2019 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of GAAP Net Income as reported to Adjusted EBITDA.”

FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are subject to risks (including those set forth in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2020) and uncertainties which could cause actual results to differ from the forward-looking statements. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. Investors should realize that if our underlying assumptions for the projections contained herein prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections.

INVESTOR RELATIONS
Taylor Krafchik
Ellipsis
CSSE@ellipsisir.com
646-776-0886

MEDIA CONTACT
Kate Barrette
RooneyPartners LLC
kbarrette@rooneyco.com
(212) 223-0561

Tables Follow

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Balance Sheets

September 30,

December 31,

2020

2019

(unaudited)

ASSETS

Cash and cash equivalents

$

9,243,315

$

6,447,402

Accounts receivable, net of allowance for doubtful accounts of $1,777,744 and $1,531,247, respectively

24,772,024

34,661,119

Prepaid expenses and other current assets

2,985,503

1,173,223

Goodwill

21,448,106

21,448,106

Indefinite lived intangible assets

12,163,943

12,163,943

Intangible assets, net

20,575,942

35,451,951

Film library, net

36,878,196

33,250,149

Due from affiliated companies

6,081,324

7,642,432

Programming costs and rights, net

20,702,405

15,113,574

Other assets, net

4,794,239

313,585

Total assets

$

159,644,997

$

167,665,484

LIABILITIES AND EQUITY

Current maturities of commercial loan

$

$

3,200,000

Commercial loan, net of unamortized deferred finance costs of $0 and $189,525, respectively

11,810,475

9.50% Notes due 2025, net of unamortized deferred finance costs of $1,059,401 and $0, respectively

21,040,599

Notes payable under revolving credit facility

2,500,000

5,000,000

Film acquisition advance

10,210,000

Accounts payable and accrued expenses

25,923,748

26,646,390

Ad representation fees payable

3,021,520

12,429,838

Film library acquisition obligations

10,609,186

5,020,600

Programming obligations

6,416,012

7,300,861

Accrued participation costs

12,894,099

5,066,512

Other liabilities

1,777,548

170,106

Total liabilities

94,392,712

76,644,782

Commitments and contingencies

Equity

Stockholders' Equity:

Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 1,732,139 and 1,599,002 shares issued and outstanding, respectively; redemption value of $43,303,475 and $39,975,050, respectively

173

160

Class A common stock, $.0001 par value, 70,000,000 shares authorized; 4,919,195 and 4,259,920 shares issued, 4,844,960 and 4,185,685 shares outstanding, respectively

492

425

Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,813,938 shares issued and outstanding

782

782

Additional paid-in capital

96,498,618

87,610,030

Deficit

(67,182,836

)

(32,695,629

)

Class A common stock held in treasury, at cost (74,235 shares)

(632,729

)

(632,729

)

Total stockholders’ equity

28,684,500

54,283,039

Subsidiary convertible preferred stock

36,350,000

36,350,000

Noncontrolling interests

217,785

387,663

Total equity

65,252,285

91,020,702

Total liabilities and equity

$

159,644,997

$

167,665,484

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenue:

Online networks

$

6,652,562

$

14,383,659

$

21,038,965

$

25,128,001

Distribution and Production

13,318,050

2,662,429

26,948,795

6,655,114

Total revenue

19,970,612

17,046,088

47,987,760

31,783,115

Less: returns and allowances

(608,861

)

(255,394

)

(1,861,396

)

(828,785

)

Net revenue

19,361,751

16,790,694

46,126,364

30,954,330

Cost of revenue

14,840,851

13,614,648

37,684,786

23,568,743

Gross profit

4,520,900

3,176,046

8,441,578

7,385,587

Operating expenses:

Selling, general and administrative

9,301,550

6,371,870

23,194,223

13,894,351

Amortization and depreciation

4,576,742

4,695,522

15,022,885

5,631,136

Management and license fees

1,936,175

1,676,303

4,612,636

3,091,093

Total operating expenses

15,814,467

12,743,695

42,829,744

22,616,580

Operating loss

(11,293,567

)

(9,567,649

)

(34,388,166

)

(15,230,993

)

Interest expense

659,803

195,881

1,322,831

483,363

Loss on extinguishment of debt

169,219

350,691

169,219

350,691

Acquisition-related costs

1,078,637

98,926

3,735,373

Other non-operating income, net

(43,445

)

(8,997

)

(4,381,292

)

(34,546

)

Loss before income taxes and preferred dividends

(12,079,144

)

(11,183,861

)

(31,597,850

)

(19,765,874

)

Provision for income taxes

26,000

1,248,000

93,000

557,000

Net loss before noncontrolling interests and preferred dividends

(12,105,144

)

(12,431,861

)

(31,690,850

)

(20,322,874

)

Net loss attributable to noncontrolling interests

(73,135

)

(37,473

)

(169,878

)

(36,960

)

Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.

(12,032,009

)

(12,394,388

)

(31,520,972

)

(20,285,914

)

Less: preferred dividends

1,017,691

929,387

2,966,235

2,330,675

Net loss available to common stockholders

$

(13,049,700

)

$

(13,323,775

)

$

(34,487,207

)

$

(22,616,589

)

Net loss per common share:

Basic and diluted

$

(1.04

)

$

(1.11

)

$

(2.83

)

$

(1.89

)


Chicken Soup for the Soul Entertainment, Inc.

Adjusted EBITDA

Three Months Ended September 30,

2020

2019

Net loss available to common stockholders

$

(13,049,700

)

$

(13,323,775

)

Preferred dividends

1,017,691

929,387

Provision for income taxes

26,000

1,248,000

Other taxes

97,466

54,590

Interest expense

659,803

195,881

Film library and program rights amortization

8,020,638

1,369,874

Share-based compensation expense

346,773

303,205

Acquisition-related costs

1,078,637

Reserve for bad debt and video returns

1,538,449

722,729

Amortization and depreciation

4,960,074

4,695,522

Other non-operating income, net

(43,445

)

(8,997

)

Loss on extinguishment on debt

169,219

350,691

Transitional expenses

1,634,771

All other nonrecurring costs

472,322

377,184

Adjusted EBITDA

$

4,215,290

$

(372,301

)

Nine Months Ended September 30,

2020

2019

Net loss available to common stockholders

$

(34,487,207

)

$

(22,616,589

)

Preferred dividends

2,966,235

2,330,675

Provision for income taxes

93,000

557,000

Other Taxes

202,117

386,265

Interest expense

1,322,831

483,363

Film library and program rights amortization

16,922,753

3,804,268

Share-based compensation expense

820,881

794,149

Acquisition-related costs

98,926

3,735,373

Reserve for bad debt & video returns

4,072,785

1,241,243

Amortization and depreciation

15,661,774

5,631,136

Other non-operating income, net

(4,381,292

)

(34,546

)

Loss on extinguishment on debt

169,219

350,691

Transitional expenses

4,353,345

2,876,124

All other nonrecurring costs

1,128,662

564,240

Adjusted EBITDA

$

8,944,029

$

103,392