CuriosityStream Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022; filed November 10, 2022. CuriosityStream operates a single-segment factual entertainment streaming and content-licensing business through direct subscriptions, distribution partners, bundled offerings, enterprise subscriptions, and content licensing.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $23.6 million | $18.7 million | $63.5 million | $44.0 million |
| Operating loss | $(4.4) million | $(8.2) million | $(39.9) million | $(34.5) million |
| Net loss | $(4.5) million | $0.8 million | $(36.4) million | $(26.2) million |
| Net loss per diluted share | $(0.09) | $(0.14) | $(0.69) | $(0.63) |
| Net cash used in operating activities | Not separately provided for the quarter | $(30.7) million | $(41.8) million |
- Q3 revenue increased 26%, while nine-month revenue increased 44%. Q3 subscription revenue rose 39% and license-fee revenue rose 28%; nine-month subscription and license-fee revenue increased 54% and 36%, respectively.
- Q3 operating margin was approximately negative 18.6%, compared with negative 44.0% in the prior-year quarter. Nine-month operating margin was approximately negative 62.8%, compared with negative 78.4% in the prior-year period.
- Q3 gross margin, calculated using revenue less cost of revenues, was approximately 42.4%, compared with 48.9% in Q3 2021. Nine-month gross margin was approximately 39.6%, compared with 55.8% in the prior-year period.
- Revenue growth was more than offset by higher content amortization and other cost of revenues. Nine-month cost of revenues increased 98% to $38.4 million, including $29.5 million of content amortization.
- Cash, cash equivalents and restricted cash totaled $47.3 million at September 30, 2022, including $46.8 million of cash and cash equivalents and $0.5 million of restricted cash. Short-term debt investments totaled $16.9 million and were described as readily convertible to cash.
- Total assets were $174.7 million and total liabilities were $44.2 million. The filing does not disclose outstanding conventional debt borrowings. Liabilities included $5.1 million of operating lease liabilities and an $0.8 million private-placement warrant liability.
- Content assets totaled $74.9 million, up from $72.7 million at December 31, 2021. Accumulated deficit was $226.6 million at September 30, 2022.
Cash flow and liquidity
- Nine-month operating cash outflow improved by $11.1 million, or 26%, from the prior-year period, primarily due to higher non-cash content amortization, impairment charges, and collections of accounts receivable.
- Investing activities provided $60.7 million, mainly from $64.8 million of sales and maturities of debt securities, partially offset by a $2.4 million investment in Nebula.
- Financing activities used $0.2 million. Unlike 2021, there were no significant common-stock issuances or warrant exercises during the period.
- Management stated that available cash and readily convertible debt investments were expected to support ongoing operations, capital expenditures, and working capital for at least the next twelve months. Management also expects continued net losses.
Material changes and unusual items
- Q3 net loss contrasted with prior-year net income, despite stronger revenue and a lower operating loss. The principal unfavorable comparison was the substantially smaller non-cash gain from remeasurement of the warrant liability: $0.5 million in Q3 2022 versus $8.3 million in Q3 2021.
- Nine-month results included a $3.6 million impairment charge, consisting of $2.8 million for all goodwill and $0.8 million for certain intangible assets. The impairment followed a sustained decline in the company’s share price and related fair-value analysis.
- Advertising and marketing expense declined 40% in Q3 and 4% for the nine-month period, while general and administrative expense increased 9% and 15%, respectively.
- Content licensing revenue represented 46% of Q3 revenue and 34% of nine-month revenue. Related-party revenue totaled $2.2 million in Q3 and $4.3 million for the nine-month period, including licensing revenue from the Spiegel Venture and marketing services for Nebula.
- The company adopted lease accounting guidance effective January 1, 2022, recognizing operating lease right-of-use assets and liabilities. The adoption did not affect reported operating results or cash flows.
Guidance, risks and contingencies
- No quantitative revenue, earnings, subscriber, or cash-flow guidance was provided. Management’s stated outlook is continued investment in content, marketing, and platform operations, with continued net losses anticipated.
- As of September 30, 2022, content obligations totaled $16.5 million, including $9.8 million expected to be paid by December 31, 2022 and $6.7 million during 2023.
- Specified advertising and marketing commitments totaled $7.1 million, including $6.0 million expected to be paid by December 31, 2022.
- Key risks include ongoing operating losses and negative operating cash flow, dependence on subscriber growth and content licensing, content amortization and impairment judgments, competition in streaming markets, partner and distribution relationships, related-party transactions, and potential volatility in the fair value of private-placement warrants.
- The company reported no material pending legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Management concluded that disclosure controls were effective as of September 30, 2022.
Important facts for investors to verify
- Whether revenue growth, particularly content licensing revenue, is recurring and can offset the sharp increase in content amortization.
- The sustainability of liquidity given $30.7 million of operating cash burn during the first nine months and management’s expectation of continued losses.
- Subscriber trends, mix, retention, acquisition costs, and the reported approximately 23.0 million total paying subscribers as of September 30, 2022.
- The assumptions supporting the goodwill and intangible-asset impairment analysis, including forecast revenue, discount rates, and terminal growth.
- The timing and economics of the $16.5 million content commitments, $7.1 million of specified advertising commitments, and future lease payments.
- The extent to which related-party revenue and expenses involving the Spiegel Venture and Nebula affect reported growth and margins.