CuriosityStream Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
CuriosityStream provides factual-entertainment streaming content through its owned website, mobile and device applications, distribution partners, affiliates, bundled offerings, and program sales. The filing covers the quarter and six months ended June 30, 2021, with comparisons to the corresponding 2020 periods. The company operates as one reportable segment and reported approximately 20 million paying subscribers as of June 30, 2021.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $15.3 million | $12.0 million | $25.3 million | $19.5 million |
| Operating loss | $(11.1) million | $(4.4) million | $(26.3) million | $(16.5) million |
| Net loss | $(8.3) million | $(4.3) million | $(27.1) million | $(16.1) million |
| Net loss per share | $(0.16) basic; $(0.19) diluted | $(0.66) basic and diluted | $(0.54) basic and diluted | $(1.88) basic and diluted |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(23.4) million | $(28.5) million |
- Q2 revenue increased 27% year over year; six-month revenue increased 30%.
- Subscription revenue rose 40% in Q2 to $5.7 million and 40% for the six months to $10.6 million. License-fee revenue rose 20% in Q2 to $9.6 million and 22% for the six months to $14.6 million.
- Q2 operating expenses increased 61% to $26.4 million, including advertising and marketing of $11.5 million and general and administrative expense of $9.2 million. Six-month operating expenses increased 43% to $51.5 million.
- Approximate Q2 operating margin was negative 72% and net margin was negative 54%; six-month operating margin was negative 104% and net margin was negative 107%.
- Q2 cost of revenues was $5.7 million, implying an approximate gross margin of 63%. Six-month cost of revenues was $9.9 million, implying an approximate gross margin of 61%.
- Cash and cash equivalents were $7.1 million at June 30, 2021. Restricted cash was $6.7 million, and total cash, cash equivalents, and restricted cash were $13.8 million.
- Investments totaled $148.2 million at fair value, consisting of $92.5 million of current investments and $55.7 million of non-current investments.
- The company had no balance drawn on its $4.5 million line of credit. The facility was extended to February 28, 2022 and is collateralized by $4.5 million of restricted cash. A $1.158 million PPP loan remained subject to forgiveness; the company expected no repayment, but forgiveness was not presented as final in the filing.
- Six-month investing cash outflow was $129.0 million, largely reflecting $141.6 million of investment purchases and the $4.0 million cash portion of the One Day University acquisition. Financing cash inflow was $148.7 million.
Material changes versus the prior comparable period
- Revenue growth was outweighed by higher spending. Q2 operating loss increased 153% and net loss increased 92% year over year.
- Advertising and marketing expense increased 39% in Q2 and 13% for the six months, primarily from higher digital, radio, and partner-platform advertising.
- General and administrative expense increased 166% in Q2 and 135% for the six months, driven by higher stock-based compensation, headcount, salaries, professional fees, insurance, and the absence of the prior-year PPP expense reduction.
- Content amortization increased, including accelerated amortization associated with program-sales contracts. Content assets, net increased to $49.1 million from $32.9 million at December 31, 2020.
- The company raised $94.1 million net from a February 2021 common-stock offering and received approximately $54.9 million from public-warrant exercises during the first six months. Common shares outstanding increased to approximately 52.6 million at June 30, 2021 from approximately 39.5 million at December 31, 2020.
- Q2 included a $1.8 million gain from the change in fair value of the private-placement warrant liability; the six-month period included a $2.0 million loss from that liability, creating earnings volatility without corresponding operating cash flow.
Outlook, commentary, risks, and unusual items
- Management stated that available cash, investments, financing capacity, and current liquidity were expected to support operations, capital expenditures, and working capital for at least the next twelve months. The company also stated that it expects to continue incurring net losses.
- Future spending is expected to include content production and acquisition, advertising and marketing, personnel, systems, and infrastructure. Management may defer or increase discretionary capital expenditures depending on market conditions and expected returns.
- Content commitments totaled $30.1 million at June 30, 2021, including $23.5 million not yet recorded as liabilities. Advertising commitments totaled $12.0 million, with $6.0 million expected to be paid in each of the remainder of 2021 and 2022.
- On May 11, 2021, the company acquired One Day University for aggregate consideration of $4.5 million, including $4.0 million paid at closing and a $0.5 million indemnification holdback. The preliminary allocation included $2.3 million of content and intangibles and $2.6 million of goodwill.
- After quarter-end, the company agreed to acquire a 32% interest in a German joint venture for approximately $4.2 million, subject to required German approvals. It also announced a partnership with SPIEGEL TV and Autentic to expand German-language distribution.
- COVID-19, including potential resurgences and the Delta variant, could continue to affect content production, partners, operations, and customer activity.
- Management identified content-asset recoverability and amortization, revenue recognition, acquisition valuations, stock-based awards, and warrant valuation as significant areas involving estimates. The company reported that a previously identified material weakness in SPAC-warrant accounting controls had been remediated, subject to ongoing evaluation.
- The filing reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether subscriber growth and annual-plan bookings translate into recurring revenue and improved customer-acquisition economics.
- Whether marketing, personnel, and infrastructure spending can be reduced relative to revenue growth and when operating losses may narrow.
- The sustainability and timing of program-sales and affiliate-license revenue, which represented a majority of reported revenue in the periods presented.
- The company’s ongoing content commitments, accelerated content amortization, and any future content-asset impairments.
- The status of PPP-loan forgiveness, the February 2022 line-of-credit maturity, and the use and liquidity of the company’s investment portfolio.
- Potential dilution from approximately 6.7 million outstanding warrants, 4.7 million options, and 0.8 million restricted stock units at June 30, 2021, in addition to other equity awards.
- Completion and financing of the proposed German joint-venture investment and the expected contribution from the One Day University acquisition.