CuriosityStream Inc. — Form 10-Q Summary
Business Context and Reporting Period
CuriosityStream provides factual entertainment through direct and app-based subscriptions, bundled distribution, content licensing, enterprise sales, advertising and sponsorships. The filing covers the three and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods. The company operates as one reporting segment.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Revenue | $14.1 million | $22.3 million | $26.5 million | $40.0 million |
| Cost of revenues | $9.9 million | $13.0 million | $18.9 million | $24.8 million |
| Gross margin | 29.5% | 41.9% | 28.5% | 37.9% |
| Operating loss | $(8.0) million | $(16.1) million | $(15.8) million | $(35.5) million |
| Operating margin | (56.9)% | (71.8)% | (59.7)% | (88.9)% |
| Net loss | $(9.9) million | $(16.0) million | $(17.7) million | $(31.9) million |
| Net loss per share | $(0.19) | $(0.30) | $(0.33) | $(0.60) |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $(10.6) million | $(18.1) million |
Q2 revenue consisted of $7.3 million of subscriptions, $6.2 million of license fees and $0.6 million of other revenue. Subscription revenue declined 19%, license fee revenue declined 47% and other revenue declined 63% year over year.
At June 30, 2023, cash and cash equivalents were $44.3 million, restricted cash was $0.5 million, and total cash, cash equivalents and restricted cash were $44.8 million. Short-term debt investments declined from $15.0 million at year-end 2022 to zero after $15.0 million of maturities during the first half. The filing does not report conventional borrowings or senior debt. Operating lease liabilities totaled $4.8 million, including $0.4 million current and $4.5 million non-current liabilities.
Total assets were $133.1 million versus $154.1 million at December 31, 2022. Content assets were $63.3 million, and stockholders’ equity was $102.6 million. Deferred revenue was $12.9 million on the balance sheet, while total deferred revenue disclosed in the revenue note was $13.6 million.
Material Changes Versus the Prior Comparable Period
- Revenue fell 37% in Q2 and 34% for the first six months, primarily because certain content licensing and bundled distribution agreements were not renewed and certain corporate bulk subscriptions ended in 2022.
- Operating expenses declined 42% in Q2 and 44% year to date. Advertising and marketing decreased 63% in Q2 and 72% year to date, reflecting strategic changes and cost reductions. General and administrative expense decreased 25% in Q2 and 24% year to date.
- Cost of revenues declined 24% in both Q2 and the first six months, but declined less rapidly than revenue, reducing gross margins by approximately 12.4 percentage points in Q2 and 9.4 percentage points year to date.
- Operating losses improved because of lower expenses, despite the revenue decline. Net losses improved 38% in Q2 and 45% year to date.
- The 2022 comparative periods included a $3.6 million goodwill and intangible asset impairment charge; no comparable charge was recorded in 2023.
- The company recorded a $2.0 million impairment of its Spiegel Venture equity investment in Q2 2023. Total equity method investment loss was $2.2 million in Q2 and $2.5 million year to date.
- Content asset additions were $7.1 million year to date versus $25.3 million in the prior-year period, while content amortization was $12.3 million versus $19.1 million.
Cash Flow, Liquidity and Outlook
- Operating cash outflow improved to $10.6 million from $18.1 million in the first six months. Investing activities provided $15.0 million, primarily from debt-security maturities, and financing activities used $0.1 million.
- Management stated that existing cash, including readily convertible money market investments, should support ongoing operations, capital expenditures and working capital for at least the next twelve months. Management also stated that additional capital-market financing may be available if needed.
- The company expects to continue spending on content assets and property and equipment, but at a slower rate than in prior periods. Management expects continued net losses.
- As of June 30, 2023, content obligations totaled $5.8 million, including $1.8 million recorded as current content liabilities and $4.0 million not yet recognized on the balance sheet. These obligations were expected to be paid by December 31, 2023.
- Specified advertising commitments totaled $2.1 million, with $1.4 million expected in the second half of 2023 and $0.7 million in 2024.
Guidance, Risks and Unusual Items
- No quantitative revenue, earnings or subscriber guidance is provided in the filing.
- New standard-service pricing increased effective March 27, 2023 to $4.99 per month or $39.99 per year; most legacy subscriber pricing and Smart Bundle pricing remained unchanged.
- The company identified impairment indicators, including a decline in its stock price, but concluded that no long-lived asset impairment was required. It did record the separate Spiegel Venture impairment.
- Spiegel Venture achieved targets that triggered a $0.9 million holdback payment liability, which was paid in July 2023. The company’s carrying value in the venture was $2.0 million after impairment.
- The company held a 16.875% interest in Nebula at June 30, 2023. It may be required to make additional $0.8 million investments if specified targets are met through the third quarter of 2023.
- In July 2023, 4.6 million eligible employee stock options were exchanged for 1.6 million restricted stock units. The filing states that no incremental compensation expense resulted from the exchange.
- Material risks include continued operating losses and cash burn, dependence on subscriber growth and retention, declining licensing revenue, content commitments, reliance on distribution partners, potential impairment of content and equity investments, and the need for future financing if liquidity deteriorates.
- The filing reports no material litigation, no defaults on senior securities, no off-balance-sheet arrangements and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective as of June 30, 2023.
Important Facts for Investors to Verify
- Whether the reduced content licensing and bundled distribution revenue is recurring, temporary or indicative of further contract attrition.
- Subscriber counts, churn, acquisition costs and the revenue impact of the March 2023 pricing increase; these metrics are not clearly provided in the filing.
- Whether expense reductions can continue without impairing content production, customer acquisition or service quality.
- The sustainability of the $44.8 million cash position relative to ongoing operating cash burn, content obligations and potential Nebula investments.
- The valuation and future performance of the Spiegel Venture and Nebula investments, including the potential exercise of related purchase or put/call rights.
- The effect of the July 2023 option exchange and the potential dilution from outstanding options, restricted stock units and approximately 6.7 million warrants.