CuriosityStream Inc. (NASDAQ:CURI) Q4 2023 Earnings Call Transcript
CuriosityStream Inc. (NASDAQ:CURI) Q4 2023 Earnings Call Transcript March 20, 2024
CuriosityStream Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.17. CURI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, my name is Jeanne, and I will be your conference operator today. I would like to welcome you to the CuriosityStream Inc., Q4 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Andrew Lata, Investor Relations. You may begin your conference.
Andrew Lata: Welcome to CuriosityStream's discussion of its fourth quarter and full year 2023 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer, and Peter Westley, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions. But first, I'll review the Safe Harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the Federal Securities Laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements.
Please be aware that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update these statements nor to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2023, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com.
Now, I'll turn the call over to Clint.
Clint Stinchcomb: Thank you, Andrew. Hello, everyone. I appreciate you all joining us today. Also on the call are our COO and General Counsel, Tia Cudahy, our CFO, Peter Westley, and our Head of Content, Rob Burke. While we will discuss Q4 in detail, I want to begin this call by congratulating the Curiosity team for achieving a significant and critical milestone. I'm delighted to share that we will end Q1 2024 with more cash on hand than we had at the end of Q4 and with positive adjusted free cash flow. Importantly, we will accomplish this without reducing our paid marketing spend. Looking forward, we'll be guiding the positive adjusted free cash flow for the first quarter of 2024, and we'll be initiating a dividend program in April which will be paid from excess cash.
Looking back, Q4 was a good quarter. We improved our adjusted free cash flow for a fifth straight quarter as we cut our cash burn to $2.4 million, while sequentially keeping our marketing spend relatively flat. Our direct revenue grew both sequentially and year-over-year, continued to roll out our new pricing plans to new direct customers and to a cohort of our existing subscribers. Many of our annual subscribers are only now coming up for renewal, and most of our channel store partners just began adopting or announcing the increase to our flagship service. 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. In just the last two months, we've had our products and services launched on over 30 third-party platforms around the world. In order to expand the top of our marketing and promotional funnel and further monetize our content, we rolled out our AVOD product with key partners like Tubi, Xumo, and Roku in October. 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've just started to leverage practical generative AI catalysts in order to explore and conduct ways to work faster, cheaper, and more efficiently in several areas. Some specific examples we are utilizing today include functional areas like more personalized and targeted email marketing, as well as broader CRM initiatives, accelerated sequencing in the editing process, which enables us to meet a broad range of different third-party platform requirements around the world, and in so doing, put more content to work.
Our engineering team is testing and using AI to enhance software development practices such as automated code suggestions, reviews, data analysis, and database query assistance. Additionally, we're experimenting with AI to enhance categorization of content, analysis of scripts, and factual analysis. We've also started using AI for understanding customer feedback through sentiment analysis and summarizing insights to improve user experiences and content relevance. While premium program synthetic dubbing is not quite ready for prime time, we believe it's within our sights to create a meaningful impact on the speed and volume of content we can publish across the globe in a growing number of languages. In regard to premium factual content, we closed out the year in Q4 with one of our strongest programming slates to date, headlined by our brand-defining reboot of Connections with James Burke, a six-part journey through the seemingly small and unrelated events that fuel human innovation.
We also had the launch of our annual Dino Week stuff, anchored this year by the premiere of Amazing Dino World 2 and the release of more cutting-edge science and tech specials like AI Tipping Point, Mystery of the Giant Birds, and a perennial fan favorite, Top Science Stories of 2023. Looking ahead, we're excited about our strong start to 2024, including the premiere of original series like Science for Evil Geniuses, Rebuilding Notre Dame, The Invention of Surgery, and The Art of Seduction. In closing, I'm happy to reinforce that we ended the year with over $38 million in cash and equivalents and zero debt. We believe our strong balance sheet and projected 2024 positive cash flow are major competitive advantages in the current environment, and we continue to believe that our global appeal, our direct subscriber base and direct platforms, our broad and deep content library of over 17,000 titles, our multi-year third-party agreements, our public company currency, and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable long-term strength and exceptional flexibility.
Over to you, Peter.
Peter Westley: Thanks, Clint. As Clint mentioned, we made further progress towards our positive adjusted free cash flow objective during the quarter, and we remain intensely focused on expense discipline and operating efficiency. We believe our Q4 results demonstrate the excellent progress we've made over the past year to improve profitability and cash flow. Fourth quarter adjusted EBITDA improved by $10.2 million compared with the prior year quarter, while adjusted free cash flow improved by $6.4 million year-over-year. Fourth quarter revenue was in line with our guidance range for the quarter, and adjusted free cash flow was above the high-end of our guidance range. This was our fifth straight quarter of sequentially improving adjusted free cash flow.
Turning to our fourth quarter results, revenue was $14.8 million compared to $14.5 million in the prior year quarter. We saw year-over-year gains in all of our major revenue categories, with the exception of our enterprise business, which now represents the smallest portion of our revenue. Our largest revenue category in Q4 was again our direct business, which came in at $9.1 million, up 6%, both sequentially and year-over-year, primarily driven by the impact of our price increases implemented earlier in 2023. Turning to content licensing, which was our second largest category this quarter, we generated $3.3 million of revenue compared with $3.0 million in the prior year quarter. Content licensing is an inherently lumpy business. We continued to close a number of barter transactions during the quarter, with these deals accounting for $2.5 million of our total content licensing revenue.
Our next largest category was bundled distribution, which saw $1.8 million of revenue in the quarter compared to $1.5 million in the prior year quarter. The year-over-year growth was primarily driven by new partnerships and the recognition of revenue from earlier periods due to successful collections. For Q4, our other revenue category was $0.5 million, an increase of approximately $0.5 million compared to the fourth quarter of last year when we had less than $10,000 of revenue in this category. Our other revenue category includes advertising, sponsorships, branded social media promotional videos, transactions, and other sources of revenue. As with our content licensing business, we engage in advertising-related barter transactions. In the fourth quarter, approximately $350,000 of our other revenue related to barter transactions.
While our other revenue is a small part of our business right now, we believe we have significant opportunities to grow our future advertising and sponsorship revenues in our pay TV channels and in front of the paywall in the coming quarters. Fourth quarter gross margin of 45% increased from 9.4% in the prior year quarter driven by our cost control efforts and a significant decline in content amortization expense. Content amortization in the fourth quarter was $5.2 million, which was about half of the $9.8 million we recorded in the prior year quarter. We expect content amortization expense, the largest component of our cost of revenues, to continue to decline going forward and ultimately converge with the lower level of new content investment that we require now that we've achieved critical mass in our content library.
G&A expense during the fourth quarter of 2023 of $6.4 million was down $1.2 million or 15% year-over-year, driven by lower compensation and professional services costs. As part of our more than $15 million in planned reductions and cash spending that we discussed on our Q3 earnings call, we initiated a reduction in force in December, which resulted in a $0.8 million restructuring charge during the quarter. From an accounting standpoint, we recorded this charge, which mostly consists of severance costs, in Q4 of 2023, although the majority of these costs will be paid in 2024. As we align our staff levels with our current business needs, we believe that our workforce optimization efforts will enable us to operate more efficiently and significantly reduce compensation costs in 2024 and beyond.
Our fourth quarter advertising and marketing expense of $5 million was down 45% year-over-year, and we continue to exercise discipline and analytical rigor in deploying our customer acquisition dollars. Moving to profitability, adjusted EBITDA loss was $3.4 million, the calculation of which excludes the $0.8 million restructuring charge that was discussed earlier. Compared to an adjusted EBITDA loss of $13.6 million in the prior year quarter. Adjusted free cash flow use of $2.4 million for the quarter improved $6.4 million year-over-year. As we mentioned earlier, this represents our fifth consecutive quarter of sequentially improving adjusted free cash flow and underscores our continued momentum toward positive adjusted free cash flow. Our overall balance sheet remained in great shape with $101 million of assets, $28.4 million of liabilities, and book value of $72.6 million, or approximately $1.36 per share.
We entered the quarter with total cash, cash equivalents, and restricted cash of $38.2 million and no outstanding debt. Moving to our first quarter 2024 guidance, we expect revenue in the range of $11.5 million to $12.5 million and adjusted free cash flow in the range of $0.25million to $1 million. We are excited to be guiding to positive adjusted free cash flow for the first time in the company's history. This is a major milestone for CuriosityStream. Additionally, as Clint mentioned, given our expectations regarding cash flow in the first quarter and for the balance of the year, our Board of Directors has decided to return capital to our shareholders in the form of cash dividends. Specifically, they have declared that a dividend of 2.5 cents per share will be paid quarterly to our shareholders.
The first dividend will be paid on April 30, 2024 to holders as of the close of business on April 12, 2024. Finally, I wanted to give an update on the notice that we received from NASDAQ. Just yesterday, we received written notification from the Listing Qualifications Department of NASDAQ granting our request for a 180-day extension to regain compliance with the minimum bid price rule. We now have until September 16, 2024 to meet the requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1 per share for a minimum of 10 consecutive business days during this 180-day period. With that, operator, let's open the call to questions.
See also 15 High Quality Foundations for All Skin Types and 20 High Quality Hand Creams for Dry, Cracked Skin.
To continue reading the Q&A session, please click here.
