CuriosityStream Inc. Price & Performance (CURI)

Thank you, and welcome to Curiositystream discussion with fourth quarter full year twenty twenty four financial results.

Leading the discussion today are Clint Fitchcomb, Curiositystream Chief Executive Officer and Brady Hayden, Curiosity Stream's Chief Financial Officer. [indiscernible] Following management's prepared remarks, we'll 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 to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward looking statements. Be aware that any forward looking statements reflect management's current views only in 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 report to our SEC filings available on the SEC website 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 ks for the fiscal year ended 12/31/2024 when filed. In addition, reference will be made to non GAAP financial measures.

A reconciliation of these non GAAP financial measures to comparable GAAP measures can be found on our website at investors.preostiastream.com. Unless otherwise stated, all comparisons will be against our results for the comparable 2023 period. I'll turn the call over to Clint. Clint, the floor is yours. Thank you, Brett. We took big steps forward in 2024. To speak plainly, we delivered a year over year cash flow increase about $26,000,000 in 2024. More specifically, we lost about $16,000,000 in cash in 2023 and we made about $10,000,000 in 2024. We did this by executing on the cost rationalization we promised and by securing higher margin revenue across our subscription services, which represent recurring revenue and also in our advertising and licensing initiatives which represent largely variable revenue. [indiscernible] I'm gratified to share that 2025 will be a return to top line growth and continued bottom line growth. Q4, we delivered our ninth straight quarter of increased cash flow and as such our highest ever adjusted free cash flow at $3,300,000 Our top line revenue also exceeded our guidance. [indiscernible] Our subscription revenue grew both sequentially and year over year Our variable revenue grew sequentially and were down slightly from the prior year quarter [indiscernible] believe it's important and helpful to understand that by increasing our overall roster and categories of partners, [indiscernible] which enabled higher margin revenue we laid additional and critical groundwork for heavy overall improvement Our confidence in 2025 is driven by five factors.

Number one, we aggregated and amassed rights to hundreds of thousands of hours of monetizable video and audio we're putting to work on our own platforms, and in licensing agreements. Our licensing agreements are with both traditional media partners and technology partners that are in need of content to train and fine tune large language models to accelerate their AI product rollouts in an environment of increasing competition. [indiscernible] Over the past handful of months, we've delivered and licensed over eight million minutes of video and audio, and we're in the process of delivering much more. [indiscernible] We have much greater visibility today than three, six and nine months ago in regard to what possible here. Number two, our overall annualized operational costs are significantly lower than our recurring revenue. This dynamic ensures a hard minimum of annual free cash flow and empowers us with the flex Through enhanced simplification and optimization practices, made much easier by improving AI tools. We're continuing to reduce costs while not negatively impacting growth. Number three, falling translation costs driven by AI. While we can't yet dub in subtitle all of our content through Synthetic AI solutions, we can for certain subsets. Like natural history films with the voice of God narration.

We're beginning to translate more sub genres of content within and beyond our current 12 languages. Believe increased localization will be particularly catalytic to factual programming like ours as it travels well as evidenced by our subscribers in 170 different countries. Number four, new currency rollouts.

Light of our existing global subscriber base and worldwide appeal, we plan to add 20 to 30 new currency opportunities for our subscribers this year.

Enhanced talent density.

While we always have ample room for improvement, our high concentration of skilled motivated and enthusiastic team members is generating increased productivity innovation, faster decision making, faster execution [indiscernible] faster fixing of mistakes, and we believe a competitive advantage for Curiosity Stream by enabling us to achieve more with less and to quickly adapt to evolving opportunities. While it's not a metric we obsess over, among the highest in our competitive set. Following our annual dividend review meeting in January, and in accordance with historical best practices of confident dividend paying companies, we announced an increase from $10.20 25. We subsequently announced an upwardly revised increase to $0.16 for shareholders through 2025 which we plan to pay from operations in light of our enhanced visibility into certain third party agreements and our overall pipeline. We believe this dividend beginning with $0.04 per share this quarter on March 28 is a great way to reward our investors and our employees and to raise the broader global profile of Curiosity Stream. Today, in addition to participating in the growth potential of a vibrant organization at the intersection of content and generative AI, shareholders can enjoy a return comparable to cash and other ultra reliable investment instruments.

This increase further underscores our confidence in our trajectory. While I've referenced our dramatic increase in content volume, we premiered some terrific original series and feature specials. Some favorites include a rather irreverent series, Science for Evil Geniuses, starring Game of Thrones actor Paul Kay, The Feature Doc, Searching for Satoshi about the mysterious creator of Bitcoin fourth season of our high school football series, Fourth and Forever, featuring the DeSoto Eagles, their quest to recapture a Texas State title our delicious evolutionary biology special Taste: The Flavor of Life and our epic five part series, Faithful Planet. Which brings to life most violent chapters in Earth's geologic history. In closing, I'm proud that the well directed hard work of our talent dense team enabled us to achieve our ninth straight quarterly increase in cash flow $3,300,000 and end the year with approximately $40,000,000 in liquidity and no debt, zero. Looking forward, we're returning to top line revenue growth, in the double digits in 2025 and we likewise anticipate double digit annual percentage growth in free cash flow. Additionally, we continue to believe that our extensive library of now hundreds of thousand of hours of audio and video our global appeal, our direct subscriber base and direct platforms, our multiyear third party agreements, our public company currency, and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable durable, long term strength and exceptional flexibility.

Over to my friend and colleague, Brady. Thank you, Clint, and good afternoon, everyone. Our full financial results are presented in the back of the press release that we just issued a few minutes ago as well as the 10 ks that we'll file in the next few days. But let me quickly go through some of the results that we want to highlight for the fourth quarter as well as full year 2024. We have remained intensely focused on expense discipline and operating and we believe our 2024 results demonstrate the excellent progress we have made over the past several quarters. Clint said we achieved another milestone in the fourth quarter as adjusted free cash flow came in at $3,300,000 which exceeded guidance and was an improvement of $5,700,000 from prior year. This also represented the highest quarterly adjusted free cash flow in the company's history and nine quarters of sequential improvement in this metric. For the full year, adjusted free cash flow was $9,500,000 an improvement of $25,500,000 from 2023. To put that number in context, we improved our 2024 cash flow by an amount equal to half of our annual revenue. Looking more at revenue, [indiscernible] fourth quarter revenue was above our guidance range coming in at $14,100,000 compared to $12,600,000 in Q3 The and $14,800,000 in the prior year quarter.

Our direct business remained our largest revenue category generating $9,400,000 in Q4 and $38,600,000 for the full year continuing to demonstrate a predictable recurring revenue stream.

Total revenue of $51,100,000 was lower for the full year, although this was mostly the result of entering fewer non cash transactions in 2024 than in 2023. If you take out these non cash deals, our 2024 revenue was essentially flat year over year. [indiscernible] Fourth quarter gross margin of 52% increased from 45% a year ago driven by our cost control efforts and continued reductions in content amortization. Our gross margin excluding content amortization which focuses on the cash cost of delivering our services was 85% in the fourth quarter compared to 80% a year ago. Turning to operating expenses. For the year, our combined expenses for advertising and marketing plus G and A were down $7,700,000 or 17% compared to 2023, as we realized the ongoing benefits for our planned spending reductions. And excluding stock based compensation, G and A declined $7,300,000 or 29% in 2024. [indiscernible] Fourth quarter adjusted EBITDA improved by $1,500,000 or 43% compared with the prior year And for the full year, adjusted EBITDA improved by $14,100,000 or 70%. [indiscernible] we've discussed before, our earnings are negatively impacted by content amortization which is of course a non cash expense we are required to record each quarter.

While we don't provide guidance with regard to adjusted EBITDA, we expect that as revenue grows and margins continue to improve, breakeven adjusted EBITDA is within our reach.

And as we mentioned earlier, adjusted free cash flow was $9,500,000 for the year, compared with negative $16,000,000 in 2023 an improvement of $25,500,000 Turning to return of capital. In March 2024, we announced our dividend program During the year, we paid three dividends including our September dividend of $1,400,000 bringing total dividends paid for the year to $4,100,000 also announced in 2024 our share repurchase plan and during the year we bought back 216,000 shares of our common stock. [indiscernible] Looking forward, increasing the dividend program to $0.16 per share in 2025 and would imply about a 7.5% yield based on yesterday's closing price of our shares. [indiscernible] We ended the year with total cash and securities of $39,700,000 and no outstanding debt. To put that into context, our cash and securities balance represents about one third of our market cap at our current share price. This along with our confidence to continue generating strong free cash flow further supports our dividend increase.

Moving to first quarter twenty twenty five guidance. We expect revenue in the range of $14,500,000 to $15,500,000 and adjusted free cash flow in the range of $1,000,000 to $2,000,000 While we don't provide full year guidance, we believe we'll achieve double digit growth in both revenue and cash flow for 2025. [indiscernible] With that, we can hand the call back to the operator and open it to questions. [indiscernible] now begin the question and answer session. And your first question comes from Patrick Scholl with Barrington Research.

Hi, thank you. I was just wondering if you could talk a little bit more about the revenue expectations for Q1 and full year. So you had mentioned earlier about separating out subscription and the advertising and content licensing as kind of recurring versus variable growth. I was just kind of wondering how you're seeing the contribution of those kind of two different types of revenue into the 2025 expectations?

Yes. Thank you for the question, Pat. It's a really good one and I'm I'm glad that you asked it. One thing that I said in my opening remarks is that in light of our current overall annualized operational costs, these are significantly lower than our recurring revenue, which we consider to be our subscription revenue. So this dynamic ensures a really hard minimum of annual free cash flow and gives us a flexibility to take some calculated swings, potentially some large swings. So when we're talking about subscription and and when we're talking about recurring revenue, we're typically talking about anything that is subscription oriented. And so then you go to variable. So variable historically is licensing and advertising. So when we're thinking the question I've been asked many times okay, are some of these big licensing deals that you anticipate doing this year are those recurring? And so think it's critical to understand this. I've done directly or been parts of hundreds and hundreds of content licensing agreements. Most of them are not recurring. So typically a company like ours is delivering content to a partner partner accepts the content and then we then recognize the revenue at the start of the term.

Used to be upon acceptance of the content, it's now at the start of the term. So it's not recurring in the traditional sense. But it can become de facto recurring if we build a strong relationship with a content partner by delivering high quality diverse content on time and at the scope and scale they're looking for. As early as we are in this practice of licensing video to non traditional partners, for AI. Training purposes.

Already had clients ask for a second and third order after we fulfilled the first. So strong relationship with a customer with whom we've demonstrated a track record of great performance, is many times better than a contractual relationship that locks you into volume into pricing. And so what I have said publicly, Pat, is that we anticipate that the licensing revenue that we generate this year will be will likely exceed our direct revenue. So we're not guiding to year end, but hopefully that gives you some sense of of what's possible. We'll continue to share each quarter the the process that we're making in these areas, but we feel very good about this year and feel very good about our growth potential And I feel like we have better visibility even though we're doing larger individual deals than we've had in the past. It's better visibility to a high minimum threshold. So hopefully that's helpful. But in terms of like how I think of it going forward, will this be a robust business for us? Three years from now?

As it relates to like AI training licensing. I think I would say that if we're talking about specifically and only granting an AI video training right, It probably will be, but we don't know for sure. What we do know for sure based on decades of content and data licensing practices is that if we control rights as we do now to hundreds of thousands of hours of quality, monetizable audio and video, there'll be considerable demand for our corpus. Is that helpful, Pat? Can I expand Okay? That was very helpful. And then I was just on just the overall subscriber activity I guess, can you just talk about how you've kind of approach managing the service and kind of in light of general increased macro uncertainty and what learnings you had from I guess, 2022 and the the uncertainty in that period? Yes.

Thanks for asking. So if you look at the direct subscription business today, got Netflix, you have Amazon who have escape velocity. Those are completely different animals. I think there's been some good news in the press recently for some existing legacy services like Max in regard to their subscriber numbers for a couple of reasons. One is, [indiscernible] embraced bundling from kind of a partner level and also from a wholesale level. And so I think you are seeing a certain return to almost a traditional cable pay TV business, not exactly, but in part. And so that's happening. However, those are exceptions. Like if you look at most of the hundreds of streaming services in business today, to the extent that they're growing, they're doing a price increase for the most part. Like you just look at the big ones and you can see, okay, the price increases are really, really frequent. And then also there embracing bundling and other approaches. I think that for the for the larger services, what tends to get people to subscribe to those are big specials. Well, whereas most of the consumption comes from series with lots and lots of episodes, 300, 400.

Typically, targeted to kids or adults for sure. But what we've learned like over the last even just like over the last six weeks is most streams the most streams content series last year was Bluey. I don't know if you have young kids, Pat, but if you do, you've heard of that. Fifty five billion minutes over the course of the year.

So that's a lot. I think number two was Grey's Anatomy. That's a good series. There's hundreds of episodes. And that makes up a significant portion of of Netflix's consumption as they've shared. So think that what we're seeing is cost rationalization, a reliance on some key specials, to get people to come to the service and then a robust library. To keep people engaged and subscribed. By the way, that's our strategy as well. On a slightly different level than some of these multibillion dollar companies. But that's the approach. And so with our subscription services, we push hard with our partners and because of our global appeal, we have a number of new launches in our pipeline. But then at the same time, we want to make sure that we have a certain number of [indiscernible] exciting specials that will generate some press to help get people into the service. And then we want to make sure that we have a really robust library. And so as part of one benefit to all of this content that we've amassed in large part for licensing the hyperscalers. We're also getting additional rights as we as we aggregate that content that we can put to work.

In AVOD and Fast and Pay TV then across our subscription services.

Your next question comes from the line of Laura Martin with Needham. Please go ahead. Hi there. Craig, could you update us on what's going on with your fast channels and your ad driven businesses?

Sure. I think that as it relates to our fast channels and our ad driven businesses, again, one thing we're really enthusiastic about is just in light of the high, high level of volume of content that we been acquiring, aggregating over the last nine to ten months. In addition to being able to license that out, we're able to start putting that to work There's a lag between, obviously, when we have it and and when we provide it to one of the large platform partners and then when they publish it and then when we get paid. But that lag will work itself out. But excited about fast for a number of reasons. One is, we're getting a number of new launches for our fly service.

And then our three U. S. Hispanic services are being distributed by Astraea, we believe are outperforming others in that category and based on what we've seen to date and with the number of new partner launches coming up, we're really excited about what that will yield. At the same time, while we're focused on our owned and operated fast channels, AVOD channels and incorporating advertising into more of our pay TV channels. There is in certain cases, if we think the economics make sense, we will just do some straight licensing deals with those partners as well. So that revenue over the course of 2025 will show up as licensing revenue as compared to advertising revenue. But continue to that continues to be a good strong durable area that will only add to to our variable revenue over the course of the year. Thank you for asking, Laura.

And then my follow-up is, back on the data life licensing. You sort of talked about a little bit, but I'm really interested in how the contracts for the tech company, so your nontraditional endemic are different from like your normal media license. It sounds like maybe they're shorter and then you do it and it's almost like project by project, then they come back and ask for more. Whereas over at Reddit, those deals are like three to five year deals.

So so I'm a little so can you describe how the track track is different from your traditional media license? [indiscernible] I'm really glad that you asked that. And so we don't know this for a fact, but we believe that we've probably done more in this space from a licensing standpoint than any other media company. It doesn't mean that of the agreements that we've done have started yet because the rev rec is started based on the term. But similar to traditional content licensing, we're delivering an agreed upon amount of content to the partner. So just like we would deliver fifty hours or 10 feature films to [indiscernible] we're going to deliver a big batch, big ranging batch of content. To a technology partner. And I think the first difference, Laura, is in in volume. I mean, they're just the volume is just by orders of magnitude greater. And obviously, the price that they'll pay on a per hour basis is lower than pay for a feature film, obviously. But provided you have the volume, you can be in really good shape. And so deliver the content, they accept it, the revenue is recognized when the term starts.

We have in a few cases, we have what might be referred to as sort of de facto additional content delivery based on some of the terms and conditions. But what you see in that space because there's like big tranches of needs is typically one agreement eight tranche of content, and then you get paid on that. So that's that's the sort of industry standard market there. But again, I cannot emphasize this enough. The key and it's the key to any kind like look, I've been I've been involved in so many content licensing agreements over the years that I've had four year agreements where we're they're contractually obligated to purchase a certain amount of content from us and then they don't because it's just lots and lots of ways to get out of that. So my feeling is always yes, you want to have as much contracted as possible. However, huge key, I cannot emphasize this enough, is really building a strong relationship with a partner and delivering high quality diverse content on time and when I say diverse, I mean like diversity of imagery and what's on the screen and movement and this type of stuff.

If you do that, and you do it well, like you're going to do more business with them. That is an absolute just think an undeniable fact. But a couple of other things I would add to that. So I talked a little bit about like, okay, what does this look like three years from now? I think Laura you and I were together at a conference maybe a year ago, I think out in Denver and we were talking a little bit about what we were looking to do here. But so if you step back and say, okay, if you control a lot of content, a lot of rights, like that's always going to be great. But what we also know, what we've also learned is because we're in this business early, the hyperscalers don't want to work with hundreds of licenses. They aren't today and they won't. And so they want to work with a at scale at scale with a very finite number. And then I think lastly, something really interesting is I think I've bet my life that there will be new grants of rights twelve months from now that don't exist today in the AI space.

Or have not been negotiated. I mean, I think if you listen to a call maybe call it eighteen months ago before Reddit announced their agreement which again that's all that's publishing, that's text and that's that is volume at a completely different scale than anybody has on a video basis. But I don't believe that that a lot of people would have even known what a an AI video training right grant was. And so so when I talk about training, like that's different than display or what I think will be many other additional rights and ways to participate in a long term process here.

Will become available. So just kind of leave it at that for now. Is that helpful?

Rights are going to change names and they're going to have to realize this everything they're doing today. In two years. There's going to be whole new things they want to do with them.

I've never seen our IP lawyer so excited, Laura. It's fantastic. Yes, that's right.

Thanks, you guys.

Thank you, Laura.

We have no further questions in our queue at this time. And ladies and gentlemen, that does conclude today's conference call.

Thank you for your participation and you may now disconnect.