CURI - NASDAQ

Good day, everyone. And welcome to the CuriosityStream Q4 and Full Year 2022 Earnings Call. [Operator Instructions] I would now like to hand things over to Ms, Denise Garcia. Please go ahead.

Thank you. Welcome to CuriosityStream’s discussion of its third quarter 2022 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream’s Chief Executive Officer; and Peter Westley, CuriosityStream’s Chief Financial Officer. Following management’s prepared remarks, we will be happy to take your questions. But first, I will review the Safe Harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management’s current views only and the company undertakes no obligation to revise or update these statements nor to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today’s press release. Additional information will also be set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2022, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Now I will turn the call over to Clint.

Hello everyone. I appreciate you all joining us today. Also on the call are our COO and General Counsel, Tia Cudahy; our CFO, Peter Westley; and our Head of Content, Rob Burk. We have been hard at work since our last call and I am delighted to update you on our progress. We made some strategic commercial decisions in our content licensing business in Q4 and more recently that, while sacrificing immediate revenue and ostensibly better quarterly performance, we believe have put us firmly on the path to achieving positive adjusted free cash flow in the near-term and even firmer sustainability in the long-term. We are focused on driving operational efficiencies and leveraging opportunities made possible by our strong cash position. We also continue to focus on improving the economics of all of our partnerships and vendor agreements. We believe these decisions and actions, and some others that Peter will address, expand our overall opportunity and maximize profitability and sustainability despite short-term revenue impacts. As part of our continued focus on building long-term success, I am happy to share that we exceeded our year-end target cash balance of $50 million by over $5 million, ending the year with over $55 million in cash and short-term investments and zero debt. We believe our strong balance sheet and path to positive cash flow are major competitive advantages in the current environment. While some industry players must raise capital, which is increasingly expensive and difficult to secure, we believe we have the cash resources to turn cash flow positive without the need for outside capital. Consistent with our focus on long-term value creation over short-term revenue opportunities, we also remain highly disciplined in third-party licensing and distribution negotiations. We know the value of our content and we won’t enter into agreements that do not meet our valuation thresholds. We are in control of our own destiny and our future is bright. Specifically, our direct-to-consumer SVOD revenues grew 12% in the fourth quarter and 25% for the full year on a year-over-year basis. Looking ahead, we are optimistic about our ability to drive accelerated subscription revenue growth and profitability as we implement our new pricing structure, as we migrate to more efficient performance-based marketing and as we execute on product innovation that will produce measurable return. On the pricing front, we recently completed an extensive three-month pricing test with over 3 million interactions. We expect the changes we made to our standard tier subscription pricing on March 27th will create a tailwind to revenue growth later this year and beyond. Specifically, we increased the cost of our standard service to $39.99 from $19.99 per year for new annual subscribers and to $4.99 per month from $2.99 per month for new monthly subscribers. We had long maintained our $20 annual standard service price point despite the significant investments we have made to expand our content library and improve the user experience. We established our NEW price points following a rigorous process of testing and analysis that helped us to estimate the subscriber acquisition and retention impact of various pricing combinations. Specifically, we analyzed over 3 million sessions during the course of many weeks, using nine different combinations of pricing and messaging. After thoroughly reviewing the data, we confirmed a range of pricing flexibility and we believe we are striking the right balance between delivering value to our subscribers, optimizing lifetime value and enhancing profitability. Even at a higher price point, we continue to believe our service represents an extraordinary value compared to other offerings in the market. We expect the financial benefit of the price increase to build sustainably and gradually as new subscribers join and as annual subscribers renew over time. Our direct-to-consumer subscriber retention remained industry-leading during the fourth quarter as our incredibly talented content and marketing teams continued to leverage our critical-mass content library of over 15,000 programs to deliver new and engaging experiences. A great example of this was our highly successful 100 Days of Curiosity campaign. The campaign kicked-off September 23rd, with our landmark original feature doc Pompeii: Disaster Street and continued through the end of the year, with a different existing series or special re-featured on our service each day and highlighted across all social channels with gratifying success. Many of the titles re-featured in the 100 Days campaign received more than 10 times the number of views they would normally receive on a typical day. Top performers included everything from Secrets of the Solar System, Ancient Engineering and Eternal Egypt to Planet Insect, Amazing Dinoworld and Radioactive Forest, each of which saw their daily viewership increase from 5x to 25x in a single day. And nearly a week after we re-featured each title, they continued to deliver viewership levels much higher than previously. During the 100 Days of Curiosity campaign, social engagement jumped more than 200% from the previous three months. This was powered in large part by our strong video content, which drove a nearly 275% jump in video views during the 100 Days campaign as compared to the previous quarter. And the social growth we saw during that campaign continued into the first quarter, with engagements up 1400% from January 1st to today. Throughout the quarter, we also continued to premier more brand-defining original series like Oddly Satisfying Science, a second season of NYC Revealed, new episodes of our award-winning science and technology strand Breakthrough featuring Flying Cars, Reefs of Hope and Voyage into the Sun, as well as our one-hour special, The Lucy Mission: Origins of the Solar System and our ever-popular year end wrap, Top Science Stories of 2022. Building on the success of 100 Days, Curiosity has already created several more special campaigns to enhance program discoverability throughout 2023 and beyond, including Ancient Egypt Week, Space Week and Dino Week. Turning to product innovation, we have been encouraged by the continued embrace of our Smart Bundle subscription plan. In fact, December was an all-time record month for Smart Bundle subscriber additions, resulting in 32% year-over-year Smart Bundle subscriber growth. And while the Smart Bundle continues to increase as a percentage of our base, we believe there is excellent runway for growth considering that less than 10% of our DTC subscribers are on this plan. We believe our Smart Bundle subscribers, many of whom have upgraded from our standard subscription, appreciate the plan’s curated content and value. At $70 per year, our Smart Bundle represents an 83% savings compared to subscribing to each service individually. And we have broad, global rights with the majority of our six content partners including Da Vinci Kids, which we added to the bundle during the fourth quarter. Da Vinci Kids significantly enhances our proposition for kids ages five to 12 and is available in over 16 languages. Controlling a broad scope of rights with the majority of our content providers enables us to provide the Smart Bundle globally and expand our market opportunity. Additionally, based on our recent testing we found, not surprisingly, that our increased standard tier pricing generated a higher rate of Smart Bundle conversions. As I mentioned earlier, we believe the macro environment, with rising interest rates and diminished access to capital, creates many challenges for most, it has significantly increased our volume of inquiries from potential strategic and commercial partners. Besides strategic combination considerations, we are engaged with more scale partners around the world who are seeking high-quality, cost-effective alternatives from services like ours as compared to increasingly pricey content from legacy media companies. In addition, we believe our strong cash position increases our flexibility with regard to how we can structure our partnership agreements, both commercially and strategically. We believe our strong cash position also enables us to lock up important tools and services at meaningful discounts as we can buy in bulk and over a longer term. Nearly everything is on sale today. By that, I mean certain acquisition advertising inventory, certain influencer marketing services, technical products and services, and even non-core assets of other companies. We are aggressively taking advantage of these discounts, which may result in more cash out over a short period of time, but which we would trade for improvement in our longer term performance. Looking ahead, we are confident that we have the right assets and capabilities in place to execute on our innovation and growth strategies. Despite all of the macro noise we are currently in the midst of, more global opportunities are opening up as Curiosity and One Day University are rolling out with several new partners who will deliver millions of paying subscribers in Southeast Asia, Eastern Europe, Australia and even North America. While we have barely dipped our toe in the water in regard to third-party FAST and AVOD opportunities, we have considerable upside here through aligning with the right partners around the world. We have thousands of titles that haven’t run on any AVOD or FAST platforms. And we recently hired a great leader and executor in industry vet Tom Pope to head up our Brand Partnership efforts. While the turbulent macro environment has been a challenge in many respects, it has also presented new and compelling opportunities that didn’t exist even a year ago. With the decisive actions we have taken to rationalize our annualized cost base, the heavy lifting of critical mass content creation and languaging behind us, an increased DTC pricing structure and optimized scale partnerships, we see many ways to win in this environment and come out stronger on the other side. Before turning the call over to Peter for a more detailed discussion of our financials, I would like to thank our colleagues across the Curiosity ecosystem, full-time employees, freelancers, sales agents, producers, editors and our deeply appreciated third-party business partners. Thank you for focusing on the signal through the noise and for your tireless commitments and your quality work. Together, we will continue to help people around the world satisfy their curiosity through premium factual content and deliver durable, profitable growth for our shareholders. Over to you, Peter.

Thanks, Clint. As Clint mentioned, we made further progress towards our positive adjusted free cash flow objective during the quarter and we remain intensely focused on expense discipline and operating efficiency. We believe our Q4 results demonstrate the excellent progress we have made over the past year to improve profitability and cash flow. Fourth quarter adjusted EBITDA improved by $2.6 million compared with the prior year quarter, while adjusted free cash flow improved by $22.7 million year-over-year. Before I get into more details about the quarter, I’d like to make a couple of comments. First, I’d like to note that the metrics that we will refer to most frequently in this and future calls are revenue, adjusted EBITDA and adjusted free cash flow. We think that those figures will give you the best sense for the overall economics of our business. We are particularly focused on adjusted free cash flow, which, for the record, is simply calculated by taking cash flow from operations less capital expenditures and any adjustments that we think are appropriate, as disclosed in further detail in our earnings release. We have not taken any adjustments to free cash flow for any of the historical periods discussed in this call or presented in this quarter’s earnings release. The other thing that I would like to point out is that we made some important revisions to our Spiegel TV joint venture during the first quarter of 2023. Those changes, which included allowing the JV to directly offer subscription video on demand and FAST services, are intended to help drive the success of the business. These changes also resulted in a reduction to revenue of $2.2 million during the fourth quarter and the full year. Fourth quarter revenue was $14.5 million, compared to $27.3 million in the prior year quarter. The year-over-year change was primarily driven by a $9.5 million reduction in content licensing revenues, a $2.2 million reduction in bundled distribution revenues and a $2.1 million reduction in Other revenues, partially offset by continued revenue growth in our direct and enterprise categories. Our largest revenue category this quarter was our direct business, which includes our direct-to-consumer and partner direct revenue streams. Direct revenue came in at a combined $8.6 million, an increase of 10% compared with the fourth quarter of 2021. As Clint mentioned, we are implementing a price increase for our new standard plan subscribers and have transitioned to a performance-based customer-acquisition marketing model, as we entered 2023 with less than $1 million of marketing commitment for the year. We continue to be excited about our high-value Smart Bundle offering, where we achieved 32% subscriber growth this year. With the increase in our standard pricing, we expect an even higher percentage of new subscribers to opt for the Smart Bundle in 2023. Turning to content licensing, which was our second largest category this quarter, we generated $3 million of revenue, compared to $12.5 million in the prior year quarter. Our fourth quarter revenue in this category was negatively impacted by the Spiegel TV-related charges discussed previously. Content licensing is an inherently lumpy business. While we expect this characteristic to continue, we are encouraged by the level of interest in our library. Our next largest category this quarter was bundled distribution, which saw $1.5 million of revenue in the quarter. Q4 was the first quarter which included the full impact of the contract discussed last quarter that we did not renew. Excluding the $2.6 million of revenue we generated from this contract in the fourth quarter of 2021, bundled distribution revenue grew 29% year-over-year on an adjusted basis. We remain actively engaged in discussions with distributors around the world and are focused on signing new contracts to drive both top and line -- top and bottomline growth. Our next largest category was enterprise, which grew 18% year-over-year to $1.4 million in the fourth quarter. Fourth quarter gross margin of 9.4% was negatively impacted by lower revenues and our elevated content amortization expense relative to our run rate investment in new content additions. Content amortization in the fourth quarter was $9.8 million, nearly double our $5.2 million of cash content spend in the quarter. We expect content amortization expense, the largest component of our cost of revenues, to decrease going forward and ultimately converge with the lower level of new content investment that we require now that we have achieved critical mass in our content library. As we discussed on our last earnings call, our Q4 advertising and marketing expense of $9.1 million continued to reflect sizable legacy advertising commitments. Moving forward, we expect significant improvement on the advertising and marketing line, as we entered 2023 with less than $1 million of marketing commitments for the year. Turning to G&A, we continued to make progress in reducing our overhead costs, including a 29% workforce reduction between the end of 2021 and the end of 2022. G&A expenses were $7.6 million during the fourth quarter, down 15% year-over-year and 13% sequentially. Moving to profitability, despite lower revenues and ongoing legacy content amortization and advertising expenses, adjusted EBITDA loss of $13.6 million improved year-over-year from a loss of $16.3 million in the prior year. Moving forward, we expect adjusted EBITDA to benefit from lower levels of content amortization and advertising and marketing spend. We also reduced our fourth quarter cash spend on content by more than $2 million on a sequential basis and by greater than 75% compared to the prior year quarter. Adjusted free cash flow improved year-over-year during the quarter by $22.7 million, from negative $31.5 million to negative $8.8 million. At the end of the fourth quarter, cash, restricted cash and available-for-sale investments totaled $55.5 million, ahead of our $50 million year-end target. Our overall balance sheet was in great shape at the end of the year with $154 million of assets and $36 million of liabilities translating into book value of $118 million or approximately $2.23 per share. Moving to our first quarter guidance, we expect revenue in the range of $11 million to $13 million and adjusted free cash flow in the range of negative $8 million to negative $6 million. Included in this amount is approximately $4 million of payments related to marketing activity in the fourth quarter. Our adjusted free cash flow guidance reflects our continuing focus on bringing down our cash burn, which is a top priority for us. I’d also like to provide some further guideposts for 2023 that I hope will be helpful as you think about our business. First, we expect our content amortization, the largest component of our cost of revenue to decline from approximately $39 million in 2022 to $25 million to $30 million in 2023. Second, we expect our advertising and marketing expense to decline from approximately $41 million in 2022 to $20 million to $25 million in 2023, as we move to a performance-based marketing model. Finally, turning to our cash flow statement, we expect our cash spend on content to decline from approximately $42 million in 2022 to $10 million to $15 million in 2023. Along with our planned reduction in cash content spend, we expect our zero margin pre-sales content licensing revenue, which amounted to approximately $19 million in 2022 to be in the low-to-mid single-digit million dollar range in 2023. And with that, Operator, let’s open the call to questions.

Thank you, sir. [Operator Instructions] We will take our first question from Dan Kurnos, Benchmark.

Great. Thanks. Good afternoon. Clint, just maybe a couple of things, and obviously, thanks for all the help on kind of walking through the pieces. Just help us think through, first, just on the parts of the business that you strategically decided to exit. I know you have kind of the core DTC, but if there’s any way that you can kind of parse out impact on advertising or on the corporates or any kind of the segments that you used to disclose, podcast, ODU, just anything that helps us understand sort of what we are left with here given the guide? And then secondarily, you talked about tailwinds as we go into the back half of the year from pricing, can you just talk to how the pricing increases are going to play out, when do consumers see them as on their renewal date, do you phase it in, just help us kind of understand the timing of how that unfolds?

Happy to. Let me try to tick those off kind of one by one. So I appreciate the question, Dan. Let me say, first of all, we have a really competitive team. We like to win and I like to win and I probably hate losing more than I like winning and we would like to win every quarter. But at the same time, that’s a -- that can be a fleeting victory that’s less important than winning the race and we will win the race, I can assure you, by focusing on what is essential. So I don’t know that we have given up anything. I would say that we passed on some licensing opportunities that were really meaningful, because we balanced that revenue against what we believe to be possible through retaining certain rights and through broader licensing rights, and frankly, through combination considerations. So those decisions are not made lightly. But what I will say is, as we look out over this year, where we plan to grow and beyond where we plan to grow, we have grown in the past is, one, international rollouts with large channel stores like Amazon, like YouTube, the usual suspects there. These international environments are great because the number of SVOD services offered is a fraction of what it is in the U.S., like, in some cases maybe 10 to 15 services as compared to hundreds. It’s not just CuriosityStream, but also One Day U. This is kind of low-hanging fruit. And then the U.S., ODU will continue to roll out there. And we are able to do this because we control broad global rights to our content and we have not -- we didn’t -- historically, we haven’t leaned in at all to international rollouts with channel stores. We focus largely on bringing people directly to our service. So that business is rolling and we anticipate increasing. Bundled rollouts, we have four launches just this month, Eastern Europe, Northwestern Europe, Australasia, millions of paying subscribers, solid strong margin, recurring revenue with no marketing costs in areas where the direct-to-consumer opportunity is not necessarily as good as it is in other places. I think AVOD and FAST, so AVOD and FAST -- our brand partnership business has been a little bit lumpy in the past, because oftentimes, it’s we might be -- we might do a $1 million deal that happens in a quarter. This will get a little more predictable as we do two things, one, as we turn on traditional advertising with the millions of linear subscribers that we have around the world where we haven’t turned it on. In addition to that, we have thousands of hours or thousands of titles that haven’t run on large FAST and AVOD platforms. We dipped our toe in the water last year, as it relates to FAST. But to maximize the money here, you need to be on the top six platforms with good positioning and some promotion. That’s really important. I mean there’s -- you now have like thousands of FAST channels, some of which make no money. You don’t want to be yelling into the wind. You want to have the right alliances. And so I think, if you look at how companies that are looking to expand in FAST that have this kind of positioning, I mean, they will typically look at it, it’s like, okay, with FAST channel we can generate $3 million to $4 million per year and that assumes you have 250 hours of good content to roll through. So we have probably better content available than anybody that I can think of broadly in the media space that’s also operating. So we kind of know what the value is there in AVOD and FAST space. There’s a lot to exploit with and we just want to do it the right way. We don’t want to just throw up content and even though it might mean a short-term hit, we want to make sure that when we are doing this, we are doing it in the right way and we are maximizing the opportunity around it. And the opportunity is certainly clear and more predictable today than it even was six months, nine months ago. You could argue we should have moved into this area earlier and I think that’s a fair argument. But our focus has really been on building our subscription businesses. On the content licensing side, you can see the value that exists there in the AVOD, FAST space, if you just license your content as compared to licensing it and then continue to operate channels. As it relates to kind of traditional content licensing and we licensed over $45 million of content outside the U.S. in territories representing about 30% to 40% of the world. We have not sold U.S. or North American package. So there’s a lot of value here left to exploit, but we are not going to do a deal that we don’t think is in our long-term best interest. Even if it meant exceeding the analyst expectations by $1 million or $2 million in the quarter, that’s not the race that we are trying to win. And then getting back to the -- and then I think the last question was around the price increase. We did a lot of testing around the price increase, tested over nine different combinations over 3 million sessions. New customers are now seeing that pricing as of Monday. It’s a blended -- on a blended basis, it’s about an 83% price increase. So new customers coming on, we will say that. Over the next few months, we will transition our current monthly customers to that pricing and then over the next 11 months to 12 months, our annual customers will transition to the annual price. So our technology team did a lot of work there. We are really excited about the opportunity there and that will flow through later this year in ours and then more over the next few years. Frankly, we should have done this earlier. But now it’s certainly an extraordinary value as it relates to what’s available in the marketplace. It’s a long answer, Dan. Hopefully, I hit everything. But if I didn’t, please let me know what I missed.

No. That was very comprehensive Clint. Thanks very much. I appreciate it.

You bet. Thanks.

We will take the next question from Laura Martin, Needham.

Okay. Clint, so the first one for you. So my revenue fell by $13 million year-over-year to $14.5 million and I thought what I heard you say is that about $9 million of that was from lower content licensing and then $2.6 million was for the client that didn’t renew. Did I get that right?

Yeah. I am going to…

Is that the right of the $13 million decline?

I am going to have Peter correct me here. But it’s a combination of accounting correction that we took.

Okay.

It’s also -- so that was over $2 million and then…

Okay.

… yes, the deal that we did not renew, that we didn’t like the overall economics on as it related to our bundled distribution. And then the other difference was in presales content licensing, which we have pulled back on as we are trying to build a different approach there. The accounting treatment around our presales content licensing, as it’s existed for the last 18 months to 24 months has been zero margin. And so there are some changes that we need to make to how that works in order to generate higher content licensing revenue. So it’s really those three things. Peter, do you want to clarify?

Yeah. I will clarify slightly.

Yeah.

So the -- if I were to put it in the categories that I typically talk about, overall, the content licensing was down year-over-year by $9.5 million. That includes the $2.2 million charge taken in Q4. The bundled distribution revenues was down by $2.2 million, but in the comparable quarter, a year earlier, there was $2.6 million of revenue in that category that was associated with the distribution agreement that we did not renew in the middle of 2022 and then $2.1 million was a reduction in other revenues. But those were somewhat offset by revenue growth in our direct and enterprise categories.

Okay. Super helpful. Okay. So now when I look at the next quarter, I still have this company at like half the size, right? So I still have -- the top end of your guidance is $13 million next quarter after doing $14.5 million this quarter. So that is my question. Do I have -- is this company now have the size, it was 90 days ago or are we holding back that $9 million of licensing rights? What I heard you say in the answer to the prior question was, you are holding back some of that licensing income in the near-term, because you think you can do global distribution rights on these big platforms. Is that what you are saying, Clint?

In part. I think that, as Peter guided to in the first quarter, we pulled back a little bit, more than a little bit in some areas. And so we will have certainly greater growth as we go through the year, but we did a bit of a reset here in the last, I would say, four months, five months as we looked at opportunities that we could take advantage of and opportunities that we might want to consider later on in the year.

If I could add. I would say, our key focus is improving our overall economics and cash flow. Even if it means sacrificing some revenues, it’s really the bottomline that we are focused on. So there’s a couple of things that are happening here. There with a lower overall content spend, our content licensing is coming down, because we are going to have -- and particularly, going into 2023, as we talked about in the kind of forward guidepost. We had a lot of roughly $19 million of content licensing revenue in 2022 that was effectively zero margin revenue, it was presales revenue and something that we don’t make a margin on. So that is going down -- that number is coming down substantially. And the second big element is we had certain agreements with large enterprises where the overall economics are not terribly compelling and we are not going to do those deals again. And so the most obvious example of that is the bundled distribution deal that we elected not to renew in mid-2022 where even if it had revenue and gross margin associated with it, when you took the whole package into consideration, particularly very substantial marketing commitments that went alongside it, marketing commitments that we needed to make to that partner, overall those deals just didn’t make sense. And so obviously, when you look at the Q1 guidance, you are seeing a lower number, but improvement -- ultimately, it’s going to be improvements on the bottomline, improvements on the cash and the adjusted cash flow and position us to, as Clint suggests, grow from there.

Yeah. That makes a ton of sense. And then I want to stay on this marketing point, because I think it’s super interesting. So you did $9.1 million in the quarter of advertising and marketing. It sounds like you had this massive commitment maybe $40 million on its way to $20 million. If we are going to go into the FAST and AVOD business, the issue with those platforms is they are cluttered and you do have to spend a bunch of marketing dollars and ad dollars to drive discovery that you wouldn’t have had in the past. So can you speak to why you think you are going to be able to save so much money on that line if we are starting a whole new revenue stream that you never -- that CuriosityStream has never done in the past?

I think it’s a great question, Laura. So as it relates to and you hit it on the head. We have run off almost all of our obligated marketing expenses as of, and as Peter said in his comments, we paid for some of those in January that were for fourth quarter. So going forward, we are going virtually 100%, not quite there yet, but getting close to that on performance-based marketing. And so that’s with certain -- that’s around our direct business, that’s with certain key partners in the direct space. But to your point, like, okay, how are you going to maximize your AVOD and FAST initiatives, and what became real clear to me in looking at this over the last handful of months is you have to have the right partners. You just -- once you are -- as you said, unless you are positioned well with the top six providers and unless you are committing some level of promotion, you are not going to -- you risk yelling into the wind or just making a fraction of what’s possible. And so it takes longer to create these types of alliances, but that’s what we are focused on. We don’t want to just -- I mean, we dipped our toe in the water with some of the kind of secondary in size FAST platforms and we learned a fair bit from that. And obviously, we have done some work with our owned and own platforms in front of the paywall. But what I will say is that as it relates to the amount of money that needs to be spent to grow those services, that’s all a consideration in the way that we create our alliances in a go-to-market strategy with the larger platforms. Does that make sense, Laura?

Yeah. Super helpful. Thanks, guys. Thank you very much.

Next we will hear from Darren Aftahi, ROTH.

Hey. This is Dillon on for Darren. Thanks for taking the questions. So I wanted to follow up on the FAST side. Could you sort of share what percentage of revenue is coming from the FAST channels themselves?

It’s minimal in 2022. When we -- let say we dipped our toe in the water, just in an effort to learn what we could to understand the real differences and positioning of the service and also to just operationally make sure that we are doing all the things right. So minimal revenue from FAST last year. Going forward, it will be a component of our broader advertising and brand partnership business. So it’s meaningful. But AVOD is meaningful and then the comprehensive approach that we take to these brand partnerships where we are including our partners on our O&O platforms, including social, it spreads out across a number of different assets. So I think in 2023, FAST will be a component, but probably less of a component than it would be in 2024 and beyond when we have got a full year behind us and when we are really rolling. And the other benefit that we see to FAST is, it’s not just monetization for our brand partners. It’s also a platform to promote to our direct services and this becomes even more valuable as we move to virtually 100% performance-based marketing. And as we have, frankly, higher-margin, more profitable subscription tiers to promote to and it’s -- so we just want to make sure that we leverage it as strongly as we can. Makes sense?

Yeah. That’s helpful. And then in terms of the Spiegel changes and then some of the deals that have gone away, like, when do you expect to see the impact, one, of the Spiegel changes, and then are there any sort of other partnership or bundled agreements that are potentially less favorable in economics that you can either try to restructure or possibly do similar things to what you have done in the last six months?

Well -- do you want to?

Well, I would say, as it relates to Spiegel, we like that relationship. That’s a -- the fact that we have two linear channels in German-speaking Europe, reaching close to 5 million customers and seeing the Curiosity brand, that’s been really good. And what Peter is talking about is it, is an accounting treatment that we are -- we think actually positions that JV for even greater success. As it relates to our other bundled deals, I think, you will read about a number of them over the next month, the economics that we have with our other partners are good. They are all nice margin, recurring revenue, multiple years. And in the cases where it requires language content, much of that is behind us now, as it’s like having built this critical mass library. So the deals that we will do are going to all fit that criteria and really excited about the ones that are -- that come on over the past month and over the next month.

Yeah. I’d just add that one distribution deal we walked away from, that was a real outlier in terms of the overall economics of that package and we have instilled real discipline in some of our larger kind of enterprise types of deals and we are not doing some of the types of deals that we had done in the past, but there -- those deals are effectively all behind us as of the end of 2022.

Got it. Appreciate it. That’s helpful. Actually, one more, if I may did -- maybe I missed it, but did you guys share the subscription -- subscriber number at all for the end of the year?

We didn’t. But I mean, our direct -- we said our direct customers grew and they grew 25% year-over-year and on the bundled side, grew a little bit, and that was a combination of -- in certain cases, we are paid basically a fixed fee based on the numbers, not -- it’s not a fee per subscriber, it’s a fixed fee and the distributor customers, subscribers can go up and down a little bit and so that’s why it was kind of marginal growth over the quarter there.

Got it. Appreciate it. Thank you.

The next question comes from Jim Goss, Barrington.

Hi. Thank you. As you have gone through these consumer tests, I am wondering if you could talk about the pricing philosophy you have developed that caused you to arrive at the $4.99 and $39.99. Is --was there an element of you got what you paid for, so it was perceived that you were under pricing your service that might have been part of it? And the $39.95 seems like a conservative and compelling. The $4.99 a month gets you into more direct competition with some of the other services and I wonder if you might talk about that variation and the impact and maybe the mix of monthly versus annual?

I will take it at the start and then I will defer to my good friend and colleague, Peter. Jim, thanks for that question. So, yeah, as it relates to the $4.99 price, if you look out over the landscape of subscription services today, $4.99 with -- without breaking up the programs with ads is still really compelling. The other value to $4.99 and $39.99 is the -- we think that because that -- because it’s not as steep a discount as we had in the past as it relates to the annual plan, we believe our mix will change probably by 10 points to 20 points. Peter, is that accurate as to monthly versus annual or…

Something along those lines. It’s definitely going to skew more monthly. I think one of the things that was really interesting for us to test and we tested a variety of different price points, you hold a monthly price point constant and try a few different annual price points then change the annual price point, always comparing against the control group that we are seeing kind of our historical pricing. And one of the things I was really interested to look at as we are going through it is, historically, the $2.99, $19.99 historical pricing that we have had is a real outlier in that the annual price was basically less than seven months worth of monthly subscription payments, if you would want to equate it to. There are many, many services out there, whether it’s consumer or enterprise, where typically -- the more typical combination is that an annual price would equal about 10 months. So we were really interested to see kind of what the right mix was, and ultimately, ended up with what effectively is our new pricing, which is about eight months -- an equivalent of eight months in the annual pricing point. And that was certainly one of the things we thought was really interesting and that we were testing around to figure out where the ultimate kind of maximum optimized lift would be for revenue and value per session and lifetime value and all the other metrics we were trying to optimize for.

Okay. And is it fair to think that you would need to get to a significantly higher critical mass to consider an ad-light option that’s been successful in a lot of streamers?

I think that’s a great question and so here’s my response to that, Jim. First is, I think Disney’s recent price hike was constructive. They went out with a $3 price hike. And if you wanted to pay $3 more, you could continue to watch without ads. If you want to save $3, you could watch some ads. I think 6% of the people took the ad option. And so, but to your broader question, how do you use this service and how do you build a compelling advertising business. I think, we have a strategy to build our presence in front of the paywall, which will enhance our overall advertising revenue, which will enable us to promote to our direct service, but does not involve having a -- at this stage, having a Curiosity light we will pay for. When we look at how to -- as we have looked at it and when you look at the efficiency of your marketing spend, it’s going to be much greater if you are promoting to a specific subscription offering as compared to spreading that out over multiple, multiple options. We like the options that we have right now, because even though it’s not Curiosity light, we have this Smart Bundle that sits on top of our standard service, and that’s $9.99 a month or $69.99 a year. And if you were to add up the cost of those seven services that occupy that Smart Bundle with $410 a year, we are offering at $69.99 a year. That’s about an 83% discount. And what we found with this new pricing is, because our annual pricing -- because our monthly pricing is now closer to that Smart Bundle, we are seeing more Smart Bundle conversions. So that’s -- a lot that goes into that, it’s a very good question and we are really confident in this strategy going forward.

Okay. And one final thought to bring up. You mentioned, incorporating, performance based marketing in your our approach to creating visibility for the service. I wonder if you could talk about the cost value relationship and how many of those sort of services you are trying to use and exactly how you are trying to create that visibility through those services?

Sure. So we talk about performance based marketing. What we are saying is that our marketing messages are going to include a coupon or a call to action, not dissimilar to traditional direct response in the legacy TV business, as an example. And so how we do that is through traditional digital acquisition marketing means Facebook, Google, YouTube, but also through working with certain YouTube influencers who operate in the factual space who have passionate following and whose subscribers and followers will be more likely to subscribe to CuriosityStream. So those are the areas.

Yeah. And we are really driving to -- very focused on our cost of customer acquisition and the model around that and where we can price marketing kind of on that basis, it’s great and we would love to do that. We have obviously just significantly increased the lifetime value of our subscribers. So for new subscribers and so that creates some new possibilities for us on the marketing side because of that uplift.

We will now take a follow-up from Peter Henderson.

Hi. How are you doing? Thanks for taking the question. Clint, I just wanted to circle back to something that you stated earlier, which was, I believe you said everything is for sale. I am just wondering, have you broached anyone regarding a potential sale of the company at the south? Just wanted to sort of clarify that comment.

I think it’s a fair question. So when I am saying everything is for sale, I am talking largely about products and services.

Okay.

So, but at the same time, yeah, I think, there are non-core -- strategic -- non-core assets the companies own that are up for sale. Yes, we have had inquiries. We have had real meaningful inquiries as it relates to CuriosityStream being in combination with other companies. But what I like about the fact that things are on sale today is there are opportunities for us to purchase as an example, acquisition inventory at a discount and because we have the cash to do that, we can essentially buy in bulk and buy in advance and put that to work over a long period of time in a way that really drives profitability and sustainability. And so, as Peter said, we are supremely, I think, disciplined in the way that we are operating the business. We have rationalized the cost basis in a way that gives us a lot of flexibility, a lot of optionality going forward. But as it relates to -- but we have the ability to be opportunistic and so we are going to do that wherever it makes sense. And notwithstanding the challenging times that we are in. I mean, I think, I said in the script, like, we have never had more incoming as it relates to strategic and commercial opportunities. It’s just -- it’s a function of the time. It’s a function of the fact that we are on this march to positive cash flow. We don’t need to raise any additional money and we have cash in the bank. So those are -- typically, in my career, Peter, I have been like the smaller underleveraged guy. It’s nice to be in this position now…

Okay.

I don’t think and running a business that generates cash gives you a -- just gives you a lot more flexibility and opportunity.

Thank you.

Thank you.

Next up is Sharon Ditimas [ph], D.A. Davidson.

Hello and thank you for taking my question. I have one question. I am wondering, can you compare and contrast your distribution efforts with Amazon, Apple, Roku and other cable providers and discuss how that has changed overtime?

Compare and contrast our relationship with them? Is that you asked?

Right. Distribution efforts.

Sure. So as it relates to Amazon, Apple, Roku, in their channel stores, we launched with all of them on what -- to use an a la carte vernacular. So they offer essentially our subscription service through their system and through their offering and they pay us a fee based on subscriptions that come in. We have that same construct with Comcast in the U.S. and a few other traditional MVPDs in the U.S. So that’s one relationship. And then as it relates to other MVPDs, many of which are outside the U.S., we have a relationship with those providers where it’s more of a fixed fee approach. So they are paying us some kind of fixed fee that includes us conveying to them, perhaps a linear channel, some VOD content and a set of rights where they are going to pay us a fixed fee for that. We like that because that’s -- it’s multiyear revenue, it’s recurring and doesn’t require any additional expense from us in most cases and that’s the -- those are the deals that we have today. Where we have not leaned in and where we are over the next few years here is, in rolling out with that first subset of companies that you mentioned, the large channel stores like Amazon and now like YouTube TV with Prime Time Entertainment. Those are -- there are real opportunities there, and again, what we really like about that as you rollout in those international markets, you are -- the number of services that are being offered, it’s just a fraction of what it is in the U.S., like, I think, Amazon is fantastic at marketing their subscription video-on-demand services, but there’s a lot of them today, just a lot, and the same with Roku and the same with Apple. But we will -- I think you will see us continue to enhance those relationships, because not only are they helpful for our subscription video-on-demand products and we have three of those now, they also typically occupy that top six to seven category of FAST and AVOD platforms. So I think you will see us enhance the relationships, create broader global product relationships with that set of companies that you mentioned and thank you for the question, it was good one.

Great. Thank you.

At this time, I would like to hand the conference back to Mr. Clint Stinchcomb for any additional or closing remarks.

Well, I just want to thank everyone for the questions. I thought they were really good and helpful. I want to thank you for the interest in CuriosityStream. We have a lot of day-to-day work to do with our shoulders to the wheel and I am really excited about the actions that we have already taken and the direction that we are headed in. As Peter shared, we have taken the necessary and ongoing steps to significantly reduce our annualized expenses, to focus on the essentials and to move toward positive cash flow. This reset in combination with our strong cash position provides us with maximum control and maximum optionality. Again, we generated double-digit direct sales growth in Q4 and recently implemented a price increase, which we expect to drive significantly higher and lifetime value, while accelerating our path to positive adjusted free cash flow. Our critical mass content library of over 15,000 programs, combined with additional content that’s flowing in on a daily and weekly basis, that enables us to continually refresh our service, while remaining highly efficient in our content spend. We are off to a great start this year in regard to global partner rollouts of our services and these alliances, they build our more predictable long-term recurring subscription revenues at zero to minimal marketing costs and complement our lumper -- our lumpier areas of content monetization. We have a strong balance sheet, zero debt, which we believe cements our excellent strategic position in the current market environment, and Peter and I look forward to updating you on our progress this year as we execute on our plan. Thanks again.