CuriosityStream Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
CuriosityStream operates a single-segment factual-entertainment streaming and content-licensing business, offering more than 3,100 nonfiction episodes through owned platforms, applications, and distribution partners. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020. The company reported approximately 16 million paying subscribers as of March 31, 2021.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $9.936 million | $7.467 million | Up 33% |
| Cost of revenues | $4.158 million | $2.666 million | Up 56% |
| Gross profit | Approximately $5.778 million | Approximately $4.801 million | Up approximately 20% |
| Gross margin | Approximately 58% | Approximately 64% | Down approximately 6 percentage points |
| Operating loss | $15.203 million | $12.088 million | Loss increased 26% |
| Net loss | $18.755 million | $11.793 million | Loss increased 59% |
| Net loss per share | $0.39 | $1.22 | Improved due primarily to higher share count |
| Net cash used in operating activities | $12.590 million | $22.308 million | Outflow decreased 44% |
Subscriptions generated $4.877 million, or 49% of revenue, and increased 41%. License fees generated $4.989 million, or 50% of revenue, and increased 24%. Advertising and marketing expense was $12.248 million, while general and administrative expense increased 109% to $8.733 million, principally due to higher stock-based compensation, personnel, professional fees, and public-company costs.
Cash, cash equivalents, and restricted cash totaled $18.020 million at March 31, 2021. The company held $84.679 million of short-term investments and $75.351 million of non-current investments. Total assets were $230.946 million, compared with $88.595 million at December 31, 2020, primarily reflecting equity-financing proceeds invested in securities.
Investing activities used $135.653 million, principally for $141.644 million of investment purchases. Financing activities provided $148.879 million, including $94.101 million of net proceeds from a February common-stock offering and $54.898 million from warrant exercises. The company had no amount drawn under its $4.5 million line of credit; the facility was extended to February 28, 2022. The $1.158 million PPP loan remained subject to forgiveness, with management stating that it expected no repayment.
Material changes versus the prior comparable period
- Revenue increased $2.469 million, driven by higher direct annual subscription revenue, program sales, partner-direct activity, bundled distribution, and sponsorships.
- Cost of revenues increased $1.492 million, including higher content amortization and accelerated amortization related to program-sales contracts.
- Advertising and marketing expense declined $0.457 million, principally due to lower television advertising commitments.
- General and administrative expense increased $4.549 million, including approximately $2.0 million of additional stock-based compensation, higher salaries and benefits, professional fees, and insurance costs.
- The company recognized a $3.786 million non-cash expense from the increase in the fair value of its private-placement warrant liability.
- Common shares outstanding increased substantially following the February offering and warrant exercises; period-end shares outstanding were approximately 52.549 million.
- Content assets increased to $39.220 million from $32.926 million at December 31, 2020.
Outlook, commentary, risks, contingencies, and unusual items
Management stated that financing proceeds, cash and investments, and available borrowing capacity should support ongoing operations, capital expenditures, and working capital for at least the next twelve months. The company also stated that it has incurred significant losses since inception and expects to continue incurring net losses. No formal revenue or profitability guidance was provided.
Management identified subscriber growth, customer-acquisition efficiency, content investment, distribution relationships, and expansion of the service offering as key drivers of future results. COVID-19 continued to affect production, partners, travel, and business activity, and the company stated that the extent and duration of future effects remained uncertain.
At March 31, 2021, content obligations totaled $21.677 million, including $18.173 million not yet recorded as liabilities because the related content did not meet asset-recognition criteria. Advertising commitments totaled $15.041 million for agreements with specified amounts. Remaining fixed performance obligations were $26.879 million.
The company disclosed a material weakness in internal control over financial reporting related to accounting for private-placement warrants and stated that its disclosure controls were not effective as of March 31, 2021. Management initiated remediation and expected to complete it during the second quarter of 2021, but provided no assurance of successful remediation.
On May 10, 2021, after the reporting period, the company acquired One Day University for $4.5 million. The acquisition provides access to university lectures and is intended to expand the company’s factual-content offering.
Important facts for investors to verify
- Whether subscriber growth and subscription revenue can continue to outpace rising content, marketing, and administrative costs.
- The sustainability and cash economics of the reported approximately 16 million paying subscribers, including direct, partner-direct, and bundled subscribers.
- The effect of continued operating cash burn and recurring net losses on liquidity after financing proceeds are deployed.
- The valuation, liquidity, and maturity profile of the company’s $160.030 million investment portfolio.
- The accounting and valuation of the $24.629 million private-placement warrant liability and the company’s remediation of the related material weakness.
- The timing and cash requirements of the $21.677 million content obligations and $15.041 million advertising commitments.
- The impact of COVID-19 on content production, partner operations, subscriber activity, and future financial results.
- The financial contribution and integration costs of the One Day University acquisition.