CuriosityStream Inc. — Form 10-Q Summary
Business context and reporting period
CuriosityStream operates a single-segment factual-entertainment streaming business, monetizing subscription video-on-demand services, affiliate and bundled distribution, program sales, corporate partnerships and related services. The filing covers the unaudited quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The company reported approximately 20 million total paying subscribers at September 30, 2021.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $18.7 million vs. $8.7 million; up 114% | $44.0 million vs. $28.3 million; up 56% |
| Operating expenses | $26.9 million vs. $15.5 million; up 74% | $78.5 million vs. $51.5 million; up 52% |
| Operating loss | $8.2 million vs. $6.8 million | $34.5 million vs. $23.2 million |
| Net income (loss) | $0.8 million vs. $(6.7) million | $(26.2) million vs. $(22.8) million |
| Net income (loss) per basic share | $0.02 vs. $(0.85) | $(0.51) vs. $(2.73) |
| Net income (loss) per diluted share | $(0.14) vs. $(0.85) | $(0.63) vs. $(2.73) |
Revenue composition for the nine months was $16.9 million of subscriptions, $26.0 million of license fees and $1.1 million of other revenue. Program sales were a major growth driver, contributing $11.7 million versus $4.1 million in the prior-year period. Subscriptions represented 39% of revenue, license fees 59% and other revenue 2%.
Approximate margins were:
- Third-quarter cost-of-revenue margin: 49%; implied gross margin: 49%, compared with approximately 61% in the prior-year quarter.
- Nine-month cost-of-revenue margin: 44%; implied gross margin: 56%, compared with approximately 62% in the prior-year period.
- Third-quarter operating margin: negative 44%, compared with negative 77% in 2020.
- Nine-month operating margin: negative 78%, compared with negative 82% in 2020.
At September 30, 2021, cash and cash equivalents were $21.3 million, restricted cash was $2.3 million, and debt securities totaled $108.3 million, including $59.5 million classified as short-term. Total assets were $226.9 million and total liabilities were $55.9 million. Stockholders’ equity was $171.0 million. The $4.5 million line of credit was terminated on July 16, 2021. The company also had a $1.2 million PPP loan that it expected to be forgiven; if forgiveness were rejected, repayment could be required.
For the nine months, operating activities used $41.8 million of cash, investing activities used $100.6 million, and financing activities provided $148.7 million. Financing inflows included $94.1 million of net proceeds from a February common-stock offering and approximately $54.9 million from public-warrant exercises. Cash, cash equivalents and restricted cash increased by $6.3 million to $23.7 million.
Material changes versus the prior comparable period
- Revenue increased sharply, primarily from program sales, higher direct annual-subscription revenue, bundled distribution and affiliate activity.
- Operating losses widened in absolute dollars because content amortization, advertising and marketing, and general and administrative expenses grew substantially.
- Content amortization increased to $14.1 million for the nine months from $6.8 million, including accelerated amortization associated with program sales.
- Advertising and marketing expense increased 15% for the nine months to $33.1 million. General and administrative expense increased 118% to $25.9 million, driven partly by higher headcount, professional fees and stock-based compensation.
- The third quarter benefited from an $8.3 million gain, and the nine-month period from a $6.3 million gain, due to decreases in the fair value of the private-placement warrant liability. This non-operating, non-cash item materially affected reported earnings.
- Content assets increased to $61.7 million from $32.9 million at December 31, 2020. Deferred revenue increased to approximately $22.2 million from $12.7 million, primarily due to annual subscriptions and program-sales activity.
- The company acquired One Day University for $4.5 million and Learn25 for fixed consideration of approximately $1.5 million plus a potential earnout of up to $0.6 million. It also acquired a 32% interest in Spiegel TV Geschichte und Wissen for approximately $3.3 million and a 12% interest in Watch Nebula for $6.0 million, with a commitment to acquire an additional 13% interest for total consideration of approximately $12.5 million.
- Beginning July 1, 2021, the company changed its estimated content-amortization pattern to accelerate expense during the first two months after release; management stated that the change did not materially affect reported amortization for the periods presented.
Guidance, outlook, commentary and risks
Management did not provide specific quantitative revenue, earnings or subscriber guidance in the filing. Management stated that it expects to continue incurring net losses because of content, marketing, personnel and infrastructure investments, but believes existing cash, investments and financing access will support operations, capital expenditures and working capital for at least the next twelve months.
Key obligations and contingencies include $25.3 million of content commitments at September 30, 2021, of which $21.9 million was expected to be paid in the fourth quarter of 2021; $22.7 million of specified advertising and marketing commitments; and a potential $0.6 million Learn25 earnout. The company also expects significant future content spending and may adjust capital expenditures depending on market conditions.
COVID-19, including potential resurgences and the Delta variant, continued to affect production, partners, travel and business activity. Other important risks include subscriber growth and retention, dependence on program sales and distribution partners, content-asset recoverability and amortization estimates, international operations, competition, market volatility, and the company’s history of operating losses. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors.
Management concluded that disclosure controls were effective as of September 30, 2021. A prior material weakness related to SPAC warrant accounting was described as remediated, subject to ongoing evaluation.
Important facts for investors to verify
- Whether program-sales revenue and the resulting accelerated content amortization are recurring or unusually concentrated in 2021.
- The sustainability of subscriber growth, annual-subscription renewals and the reported approximately 20 million paying-subscriber figure.
- Cash burn relative to the company’s $23.7 million of cash, cash equivalents and restricted cash and its $108.3 million debt-securities portfolio.
- The timing and amount of future content, advertising, acquisition and Nebula investment commitments.
- The potential earnings volatility from the fair-value accounting of private-placement warrants and the remaining warrant overhang.
- Whether the PPP loan is ultimately forgiven and whether the preliminary purchase-price allocations and Learn25 earnout change materially.
- Whether the company can achieve operating breakeven while continuing substantial content, marketing and infrastructure investment.