CuriosityStream Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
CuriosityStream operates a single-segment factual-entertainment streaming business, monetizing content through direct and app-based subscriptions, affiliate and bundled distribution, program sales, corporate partnerships, and advertising or sponsorships. The filing covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
As of June 30, 2022, management reported approximately 25 million total paying subscribers. The company had 52.8 million common shares outstanding as of August 11, 2022.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $22.3 million, up 46% | $40.0 million, up 58% |
| Operating loss | $16.1 million, versus $11.1 million | $35.5 million, versus $26.3 million |
| Net loss | $16.0 million, versus $8.3 million | $31.9 million, versus $27.1 million |
| Basic and diluted loss per share | $0.30, versus $0.16 basic | $0.60, versus $0.54 basic |
| Net cash used in operating activities | Not separately provided | $18.1 million, versus $23.4 million |
Second-quarter revenue consisted of $8.9 million of subscription revenue, $11.7 million of license-fee revenue, and $1.7 million of other revenue. Six-month revenue consisted of $17.3 million of subscriptions, $20.9 million of license fees, and $1.8 million of other revenue.
Second-quarter cost of revenues was $13.0 million, producing an approximate gross margin of 42%, compared with approximately 63% in the prior-year quarter. Operating margin was approximately negative 72%, compared with negative 72% in the prior-year quarter, while net margin declined to approximately negative 71%, from negative 54%.
For the six-month period, cost of revenues was $24.8 million, producing an approximate gross margin of 38%, compared with approximately 61% in the prior-year period. Operating margin was approximately negative 89%, compared with negative 104%, and net margin was approximately negative 80%, compared with negative 107%.
Financial position, cash flow, debt and liquidity
- Cash and cash equivalents were $22.8 million; restricted cash was $0.5 million, for total cash, cash equivalents and restricted cash of $23.3 million.
- Short-term debt securities totaled $54.5 million. Including cash and restricted cash, readily available cash and investments totaled approximately $77.8 million.
- Content assets, net, were $78.9 million, up from $72.7 million at December 31, 2021.
- Total liabilities were $54.8 million, compared with $55.6 million at year-end. The filing does not report conventional funded debt outstanding; the $1.2 million PPP loan was forgiven in full in April 2022.
- Operating lease liabilities totaled $5.1 million at June 30, 2022, including $4.8 million non-current. The company adopted lease accounting guidance effective January 1, 2022.
- Net cash used in operating activities was $18.1 million. Investing activities provided $24.0 million, primarily from maturities and sales of debt securities, while financing activities used $0.2 million.
- Management stated that existing cash and readily convertible debt investments should support ongoing operations, capital expenditures, and working capital for at least the next twelve months, while also stating that continued net losses are expected.
Material changes versus the prior comparable period
- Revenue increased $7.0 million, or 46%, in the quarter and $14.7 million, or 58%, for the six-month period. Growth reflected higher direct and corporate subscriptions, increased program sales, new bundled-distribution agreements, and a current-period advertising agreement.
- Cost of revenues increased 127% in the quarter and 151% year to date, principally because content amortization increased by $5.8 million and $12.2 million, respectively. Management attributed the increase to accelerated amortization associated with program sales and a larger and more expensive content slate.
- Advertising and marketing expense decreased 3% in the quarter but increased 9% year to date. General and administrative expense increased 16% in the quarter and 18% year to date.
- The company recorded $3.6 million of impairment charges in the quarter and year to date, comprising $2.8 million of goodwill impairment and $0.8 million of definite-lived intangible-asset impairment. Goodwill was reduced to zero.
- The fair-value gain on private-placement warrant liabilities was $0.5 million in the quarter and $4.3 million year to date, compared with gains of $1.8 million and a loss of $2.0 million in the respective 2021 periods. These non-cash valuation changes materially affected reported earnings.
- Accounts receivable declined to $11.6 million from $23.5 million at year-end, while short-term investments declined from $65.8 million to $54.5 million. Stockholders’ equity declined to $133.1 million from $161.9 million, primarily reflecting accumulated losses.
Guidance, outlook, risks and unusual items
The filing does not provide formal quantitative revenue, earnings, subscriber, or cash-flow guidance. Management’s outlook is that liquidity is adequate for at least the next twelve months, but the company expects to continue incurring net losses and plans to continue spending on content, marketing, and operations.
- Content commitments totaled $18.9 million at June 30, 2022, including $12.9 million not yet recorded on the balance sheet. Management expected $16.4 million of these obligations to be paid in the second half of 2022.
- Specified advertising commitments totaled $10.8 million, with $10.1 million expected to be paid in the second half of 2022.
- Management identified a sustained decline in the company’s share price as the trigger for goodwill and intangible-asset impairment testing. The valuation depended on forecasts, discount rates, terminal growth, market multiples, and other subjective assumptions.
- Content amortization is based on estimated viewing patterns and may be accelerated when titles receive significant upfront viewing or are used in program sales. Changes in these estimates could materially affect future margins.
- The company has equity-method investments in Spiegel Venture and Nebula with a combined carrying value of $11.1 million and recorded a $0.5 million equity-interest loss year to date. It is committed to purchasing an additional 13% interest in Nebula through eight quarterly payments of approximately $0.8 million.
- Principal risks include continued operating losses and cash burn, dependence on subscriber growth and distribution partners, competition in streaming, content commitments and amortization estimates, potential additional impairments, and reliance on management forecasts. The filing reports no material changes to previously disclosed risk factors and no material pending legal proceedings.
Important facts for investors to verify
- Whether subscriber growth and the reported approximately 25 million paying subscribers translate into sustainable recurring revenue and improved customer-acquisition economics.
- Whether accelerated content amortization and program-sales activity continue to pressure gross margin and operating cash flow.
- The pace of cash consumption relative to approximately $77.8 million of cash and short-term debt securities, including required content, advertising, lease, and Nebula commitments.
- The assumptions supporting the goodwill and intangible-asset impairment tests and the possibility of further impairment charges.
- The composition, maturity, credit quality, and liquidity of the $54.5 million short-term debt-securities portfolio, including unrealized losses of $0.5 million at June 30, 2022.
- The effect of outstanding warrants, options, and restricted stock units on potential dilution; approximately 13.1 million antidilutive share equivalents were excluded from diluted loss-per-share calculations.