Curiositystream Q3 2020 Prepared Remarks

CuriosityStream Q3 2020 Prepared Remarks

Introduction

Denise Garcia, Investor Relations

Welcome to CuriosityStream’s discussion of its third quarter 2020 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.

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 three months ended September 30, 2020 when filed. In addition, reference will be made to non-GAAP financial measures.

Now I'll turn the call over to Clint.

Clint Stinchcomb, CEO Thank you, Denise. I would like to thank everyone for joining our third quarter 2020 earnings call, CuriosityStream’s first as a public company. I’m delighted to have with us today our COO and General Counsel, Tia Cudahy, our CFO, Jason Eustace, and our Chief Product Officer and EVP of Content Strategy, Devin Emery. After my comments I will turn the call over to our CFO, Jason Eustace, to review the third quarter financials. At the close of Jason’s review we will open up the call for questions.

CuriosityStream’s mission is to provide premium factual entertainment that informs, enchants, and inspires. As a pure-play streaming service, we are capitalizing on the worldwide trend favoring on- demand content. Our flexible business model with multiple avenues of content monetization and our differentiated content offering provides us with several key competitive advantages. Other providers have tried to enter this market with more limited business models, expensive programming, and narrower go-to market strategies, with little success. Our focus on factual content which has longevity and is engaging across multiple demographics and geographies is key to our success. Let me talk about our success in the third quarter.

We closed a strong third quarter at CuriosityStream. Revenue grew 83% over third quarter 2019, to $8.7 million, driven by continued strength in direct-to-consumer and distribution revenue. Revenue increased across the business and we continue to be on track with our 2020 and 2021 revenue goals. Sequentially,

Q3 revenue declined, as expected following an outsized revenue contribution from program sales in the second quarter.

On a year over year basis, we more than doubled our subscribers in Q3 with notable increases in subscribers on annual plans and International subscribers at the same time, we reduced churn and customer acquisition costs. We continued to build our content library and completed our business transaction to become a publicly traded company. I’ll share more details about each of these highlights, starting with growth in subscribers.

We had another strong quarter in Direct subscriber additions following a record breaking first half of the year.

A couple of factors contributed to these results: 1) We continued to see strength in our Direct Response digital marketing channels as people continue to look for new and expanded content options 2) We increased awareness marketing tactics targeting high-proclivity-to-subscribe audiences to amplify our Direct Response efforts.

We continue to optimize our direct business to our North Star metrics—paying subscribers and Lifetime Value. In the third quarter, we increased paid subscribers over 100% year over year while decreasing Customer Acquisition Cost 18% and driving an estimated 53% increase in LTV year over year. Next quarter, we plan to further increase our investments in advertising & marketing to drive brand awareness. Given the current competitive landscape and historical subscription purchase behavior, we believe fourth quarter presents a great opportunity to invest in brand awareness advertising.

Now, I’d like to highlight a few exciting developments on the content side. During the quarter, we launched production for the third season of our successful franchise 4TH AND FOREVER celebrating triumphs of the human spirit. We also completed production on Fighting for Lincoln: The Wide Awakes, about a little-known paramilitary political operation that some say delivered the presidency to Abraham Lincoln. The Wide Awakes premiered in October.

On Bastille Day in July we premiered The French Revolution, our two-part original series, which takes audiences to the streets of Paris for the birth of the French revolution and chronicles the fall of the world’s most powerful monarchy.

My Wild Backyard is a series successfully filmed during the COVID pandemic that premiered in September. The show’s hosts take viewers through Mexico, Chile, South Africa, New York, and the Pacific Ocean off the coast of California, for an intimate look at the wildlife that calls those places home. Throughout the third quarter we actually premiered 17 natural history specials, stunning, expansive films about cheetahs, owls, apes and the natural splendors of Russia and Australia.

And today, we announced the premier of our landmark original series Beyond the Spotlight on November 19th. This exciting project, Executive Produced by Leonardo DiCaprio, will explore the hidden backstory of some of the world’s biggest celebrities and entrepreneurs, and how they’re “giving back” to the causes that helped shape who they are today. The first three profiles will feature NBA legend Shaquille O’Neal, and renowned actors Kristen Bell and Samuel L. Jackson, who is the highest grossing actor of all time. We’re very excited to bring this compelling content to our subscribers.

The thought I would leave you with about our content is its quality and its range. CuriosityStream programs to the full category of factual entertainment. In our library you will find deep and wide offerings across science, history, technology, nature, society, and lifestyle.

As other streaming providers find it challenging to build an audience and grow their business, we are experiencing the opposite. We have the unique competitive advantage of having a library that scales across multiple revenue streams, multi-generational and multi-national audiences and is difficult to replicate. Titles like The Butterfly Effect remain among the top 5 titles in Q3 this year over Q3 last year and highlight the longevity and value of factual content and the optionality in our business model.

And we continued to invest in our product to improve the features and functionality of our service. We have re-written our web app as a first step to improve the form and function of all of our platforms including mobile and connected TV apps and are already seeing significant increase in speed and responsiveness. We are also designing new user interfaces for each of our platforms, which on top of our improved infrastructure will allow for a sleeker UI, a more intuitive UX, and an increasingly impressive proprietary tech stack.

As I mentioned when we kicked off the call, on October 14th we announced the closing of our business combination with Software Acquisition Group and on October 15th we began trading on Nasdaq under the ticker symbol “CURI” as the first publicly traded media company focused on streaming factual content. Being a publicly-traded company has not changed our focus on becoming the dominant player in pure factual media. We continue to be on a three-year trajectory with goals of doubling annual revenue with large recurring revenues and high gross margins led by an elite and proven management team. I’m excited to lead us through the next stage of growth.

Now I’ll hand the call off to our CFO, Jason Eustace.

Jason Eustace, CFO Thanks Clint. I’m excited about our transition to becoming a public company and enjoyed meeting many of our investors throughout the process. I look forward to updating you on our progress each quarter. Now, let’s look at third quarter numbers.

CuriosityStream’s Q3 2020 revenues grew 83% to $8.7 million from $4.8 million in Q3 2019. This was led by direct-to-consumer and distribution subscription revenue. We continue to increase all of our revenue lines year over year, with the majority increasing triple digits over Q3 2019.

Cost of revenue was $3.4 million, or 39% of revenue compared to 41% of revenue in Q3 2019. As a result, gross margin expanded from 59% in Q3 2019 to 61% this year.

Advertising and marketing expense was $7.8 million, a 17% decrease year over year driven by CuriosityStream’s continued direct to consumer subscriber growth plan, and brand marketing offset by the increase in subscribers while reducing CAC. Next quarter, we plan to increase advertising and marketing spend over $5 million from Q3 to approximately $13 million total. This includes increased spending on brand awareness to capitalize on the current market opportunity Clint mentioned previously.

CuriosityStream’s overall operating expenses decreased 7% to $12.0 million from $12.9 million in Q3 2019. EBITDA improved from a loss of $10.0 million in Q3 2019 to a loss of $6.7 million this quarter.

CuriosityStream reported net loss of $6.7 million in Q3 2020, compared to a net loss of $9.7 million in Q3 2019.

CuriosityStream’s ending cash and investment balances on September 30th, 2020 totaled $23.3 M as compared with $38.0 M at December 31, 2019. The Company ended Q3 2020 with stockholders’ deficit of $126.1 million.

On October 15th, at the closing of our business combination with Software Acquisition Group, we received $49 million.

We are on track with our plans for this year and 2021. For the 4th quarter, we expect revenue of at least $11.3 million and revenue of at least $39.5 million for the year.

For FY21, we expect revenue to be at least $71 million consistent with our disclosure during the business combination.

And now I’ll turn it back over to Clint to open the line for questions.