QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
CURIOSITYSTREAM INC.
FORM 10-Q FOR THE QUARTER ENDED June 30, 2023
TABLE OF CONTENTS
| Page | ||||
| Part I. Financial Information |
||||
| Item 1. Financial Statements |
||||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |||
| Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk |
27 | |||
| 27 | ||||
| 28 | ||||
| 28 | ||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
28 | |||
| 28 | ||||
| 28 | ||||
| 29 | ||||
| 29 | ||||
| 30 | ||||
i
June 30, 2023 |
December 31, 2022 |
|||||||
(unaudited) |
||||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
||||||||
| Short-term investments in debt securities |
— | |||||||
| Accounts receivable |
||||||||
| Other current assets |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| |
|
|
|
|||||
| Investments in equity method investees |
||||||||
| Property and equipment, net |
||||||||
| Content assets, net |
||||||||
| Operating lease right-of-use |
||||||||
| Other assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| Liabilities and stockholders’ equity (deficit) |
||||||||
| Current liabilities |
||||||||
| Content liabilities |
$ | $ | ||||||
| Accounts payable |
||||||||
| Accrued expenses and other liabilities |
||||||||
| Deferred revenue |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| |
|
|
|
|||||
| Warrant liability |
||||||||
| Non-current operating lease liabilities |
||||||||
| Other liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| Stockholders’ equity (deficit) |
||||||||
| Common stock, $ |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive loss |
( |
) | ||||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity (deficit) |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity (deficit) |
$ | $ | ||||||
| |
|
|
|
|||||
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Operating expenses |
||||||||||||||||
| Cost of revenues |
||||||||||||||||
| Advertising and marketing |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Impairment of goodwill and intangible assets |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Change in fair value of warrant liability |
||||||||||||||||
| Interest and other income (expense) |
( |
) | ( |
) | ||||||||||||
| Equity method investment loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss per share |
||||||||||||||||
| Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of common shares outstanding |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss) |
||||||||||||||||
| Unrealized gain (loss) on available for sale securities |
— | ( |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Common Stock |
Preferred Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Equity (Deficit) |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ |
— |
$ |
— |
$ |
$ |
— |
$ |
( |
) |
$ |
|||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation, net |
— | — | — | — | — | |||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30, 2023 |
$ |
— |
$ |
— |
$ |
$ |
— |
$ |
( |
) |
$ |
|||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at December 31, 2022 |
$ |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation, net |
— | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30, 2023 |
$ |
— |
$ |
— |
$ |
$ |
— |
$ |
( |
) |
$ |
|||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at March 31, 2022 |
$ |
— | $ | — | $ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation, net |
— | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30, 2022 |
$ |
— | $ | — | $ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at December 31, 2021 |
$ |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation, net |
— | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at June 30, 2022 |
$ |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
For the six months ended June 30, |
||||||||
2023 |
2022 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
| Change in fair value of warrant liability |
( |
) | ( |
) | ||||
| Additions to content assets |
( |
) | ( |
) | ||||
| Change in content liabilities |
( |
) | ( |
) | ||||
| Amortization of content assets |
||||||||
| Depreciation and amortization expenses |
||||||||
| Impairment of goodwill and intangible assets |
— | |||||||
| Amortization of premiums and accretion of discounts associated with investments in debt securities, net |
||||||||
| Stock-based compensation |
||||||||
| Equity method investment loss |
||||||||
| Other non-cash items |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable |
||||||||
| Other assets |
||||||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses and other liabilities |
( |
) | ( |
) | ||||
| Deferred revenue |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Cash flows from investing activities |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Investment in equity method investees |
( |
) | ||||||
| Sales of investments in debt securities |
||||||||
| Maturities of investments in debt securities |
||||||||
| Purchases of investments in debt securities |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by investing activities |
||||||||
| |
|
|
|
|||||
| Cash flows from financing activities |
||||||||
| Payments related to tax withholding |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net increase in cash, cash equivalents and restricted cash |
||||||||
| Cash, cash equivalents and restricted cash, beginning of period |
||||||||
| |
|
|
|
|||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental disclosure: |
||||||||
| Cash paid for taxes |
$ | $ | ||||||
| Cash paid for operating leases |
$ | $ | ||||||
| Right-of-use |
$ | $ | ||||||
| • | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Spiegel Venture |
Nebula |
Total |
||||||||||
| |
|
|
|
|
|
|||||||
(in thousands) |
||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | |||||||||
| Investments in equity method investees |
— | |||||||||||
| Equity method investment loss |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| Balance at June 30, 2023 |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
June 30, 2023 |
December 31, 2022 |
|||||||
| |
|
|
|
|||||
(in thousands) |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents and restricted cash |
$ | $ | ||||||
| |
|
|
|
|||||
As of June 30, 2023 |
As of December 31, 2022 |
|||||||||||||||||||||||
| Cash and cash equivalents |
Short-term investments |
Total |
Cash and cash equivalents |
Short-term investments |
Total |
|||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||||||||||
| Level 1 Securities |
||||||||||||||||||||||||
| Money market funds |
$ |
$ |
— |
$ |
$ |
$ |
— |
$ |
||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Level 1 Securities |
$ |
— |
$ |
$ |
— |
$ |
||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Level 2 Securities |
||||||||||||||||||||||||
| Corporate debt securities |
— |
— |
— |
— |
$ |
$ |
||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Level 2 Securities |
— |
— |
— |
— |
$ |
$ |
||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
$ |
— |
$ |
$ |
$ |
$ |
||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
(in thousands) |
||||||||||||||||
| Debt Securities: |
||||||||||||||||
| Corporate |
$ | $ | ( |
) | $ | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
$ | $ | ( |
) | $ | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of | ||||||||
| June 30, 2023 |
December 31, 2022 |
|||||||
| |
|
|
|
|||||
| (in thousands) | ||||||||
| Licensed content, net |
||||||||
| Released, less amortization |
$ | $ | ||||||
| Prepaid and unreleased |
||||||||
| |
|
|
|
|||||
| Produced content, net |
||||||||
| Released, less amortization |
||||||||
| In production |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||||
2023 |
2022 |
2023 |
2022 | |||||||||||||
(in thousands) |
(in thousands) | |||||||||||||||
| |
|
|
| |||||||||||||
| Licensed content |
$ |
$ |
$ |
$ | ||||||||||||
| Produced content |
||||||||||||||||
| Total |
$ |
$ |
$ |
$ | ||||||||||||
| As of June 30, 2023 |
As of December 31, 2022 |
|||||||
| |
|
|
|
|||||
| (in thousands) | ||||||||
| Level 3 |
||||||||
| Private Placement Warrants |
$ | $ | ||||||
| |
|
|
|
|||||
| Total Level 3 |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||||||||||||||||||
| Subscriptions — O&O Service |
$ |
% |
$ |
% |
$ |
% |
$ |
% | ||||||||||||||||||||||||
| Subscriptions — App Services |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Subscriptions — Total |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| License Fees — Partner Direct Business |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| License Fees — Bundled Distribution |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| License Fees — Content Licensing |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| License Fees — Total |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| Other — Total (1) |
% |
% |
% |
% | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Revenues |
$ | $ |
$ |
$ |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| (1) | Other revenue primarily relates to other marketing services. |
| Remainder of year ending December 31, 2023 |
For the years ending December 31, |
|||||||||||||||||||||||||||
2024 |
2025 |
2026 |
2027 |
Thereafter |
Total |
|||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(in thousands) |
||||||||||||||||||||||||||||
| Remaining Performance Obligations |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
As of June 30, 2023 |
As of December 31, 2022 |
|||||||
| Exercise price |
$ | $ | ||||||
| Stock price (CURI) |
$ | $ | ||||||
| Expected volatility |
% | % | ||||||
| Expected warrant term (years) |
||||||||
| Risk-free interest rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Fair Value per Private Placement Warrant |
$ | $ | ||||||
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
(in thousands) |
(in thousands) |
|||||||||||||||
| Numerator — Basic and Diluted EPS: |
||||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator — Basic and Diluted EPS: |
||||||||||||||||
| Weighted–average shares |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss per share — Basic and Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
(in thousands) |
(in thousands) |
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| Antidilutive shares excluded: |
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Stock Options |
Restricted Stock Units |
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Number of Shares Available for Issuance Under the Plan |
Number of Shares |
Weighted- Average Exercise Price |
Number of Shares |
Weighted- Average Grant Date Fair Value |
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(in thousands, except per share data) |
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| Balance at December 31, 2022 |
$ | $ | ||||||||||||||||||
| Granted |
( |
) | ||||||||||||||||||
| Options exercised and RSUs vested |
( |
) | ||||||||||||||||||
| Forfeited or expired |
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| Balance at June 30, 2023 |
$ | $ | ||||||||||||||||||
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Three months ended June 30, |
Six months ended June 30, |
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2023 |
2022 |
2023 |
2022 |
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| Dividend yield |
N/A | % | N/A | % | ||||||||||||
| Expected volatility |
N/A | % | N/A | % | ||||||||||||
| Expected term (years) |
N/A | N/A | ||||||||||||||
| Risk-free interest rate |
N/A | % | N/A | % | ||||||||||||
| Weighted average grant date fair value |
N/A | N/A | $ | |||||||||||||
(in thousands) |
(in thousands) |
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| Stock-based compensation — Options |
$ | $ | $ | $ | ||||||||||||
| Stock-based compensation — RSUs |
$ | $ | $ | $ | ||||||||||||
Three months ended June 30, |
Six months ended June 30, |
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2023 |
2022 |
2023 |
2022 |
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| United States |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| International: |
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| United Kingdom |
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June 30, 2023 |
December 31, 2022 |
|||||||
(in thousands) |
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| Balance Sheet: |
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| Accounts receivable |
$ | $ | ||||||
| Accounts payable |
$ |
$ |
||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
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| Statement of Operations: |
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| Revenues |
$ |
$ |
$ |
$ |
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| Cost of revenues |
$ |
$ |
$ |
$ |
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Operating lease cost |
$ |
$ |
$ |
$ |
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| Short-term lease cost (1) |
( |
) |
( |
) |
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| Variable lease cost |
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| Total lease cost |
$ |
$ |
$ |
$ |
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(1) |
Short term lease cost includes a refund received by the Company during the three months ended June 30, 2023 for office space it previously occupied. |
| Remaining six months of 2023 |
$ | |||
| 202 4 |
||||
| 202 5 |
||||
| 202 6 |
||||
| 202 7 |
||||
| Thereafter |
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| |
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| Total lease payments |
$ | |||
| Less: imputed interest |
( |
) | ||
| |
|
|||
| Present value of total lease liabilities |
$ | |||
| |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of CuriosityStream Inc.
Cautionary Note Regarding Forward-looking Statements
This Quarterly Report on Form 10-Q contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the Company’s plans, expectations, thoughts, beliefs, estimates, goals and outlook for the future that are intended to be covered by the protections provided under the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “attribute,” “believe,” “continue,” “hope,” “estimate,” “expect,” “intend,” “may,” “might,” “potential,” “seek,” “should,” “will” and “would,” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023, and any other subsequent periodic reports and future periodic reports. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.
Overview
Created by John Hendricks, founder of the Discovery Channel and former Chairman of Discovery Communications, CuriosityStream is a media and entertainment company that offers premium video and audio programming across the principal categories of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires.
We are seeking to meet demand for high-quality factual entertainment via SVOD platforms, as well as via bundled content licenses for SVOD and linear offerings, content licensing, brand sponsorship and advertising, talks and courses and partner bulk sales.
We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through five products and services: Direct Business, Bundled Distribution, Content Licensing, Enterprise and Other. The table below shows our revenue generated through each of the foregoing products and services for the three and six months ended June 30, 2023 and 2022:
Currently, the main sources of our revenue are (i) subscriber and license fees earned from our Direct Business (“Direct Business”), (ii) bundled license fees from distribution affiliates (“Bundled Distribution”), (iii) license fees from content licensing arrangements (“Content Licensing”), (iv) subscriber fees from our Enterprise business (“Enterprise”), and (v) Other revenue, including advertising and sponsorships (“Other”).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Direct Business |
$ | 8,310 | 59 | % | $ | 8,554 | 38 | % | $ | 16,894 | 64 | % | $ | 16,888 | 42 | % | ||||||||||||||||
| Bundled Distribution |
1,509 | 11 | % | 3,888 | 17 | % | 2,983 | 12 | % | 7,655 | 19 | % | ||||||||||||||||||||
| Content Licensing |
3,615 | 26 | % | 6,655 | 30 | % | 5,633 | 21 | % | 10,904 | 27 | % | ||||||||||||||||||||
| Enterprise |
41 | 0 | % | 1,559 | 7 | % | 80 | 0 | % | 2,722 | 7 | % | ||||||||||||||||||||
| Other |
622 | 4 | % | 1,692 | 8 | % | 894 | 3 | % | 1,806 | 5 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Revenues |
$ | 14,097 | $ | 22,348 | $ | 26,484 | $ | 39,975 | ||||||||||||||||||||||||
|
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CuriosityStream’s award-winning content library features more than 15,000 programs that explore topics ranging from space engineering to ancient history to the rise of Wall Street. Our extensive catalog of originally produced and owned content includes more than 10,000 short-, mid- and long-form video and audio titles, including One Day University and Learn 25 recorded lectures that are led by some of the most acclaimed college and university professors in the world. Our library also features a rotating catalog of more than 5,500 internationally licensed videos and audio programs. Every month, we launch dozens of new video titles, which are available on-demand in high- or ultra-high definition. Through new and long-standing international partnerships, we have localized a large portion of our video library from English to ten different languages.
Our Direct Business revenue is derived from consumers subscribing directly through our owned and operated website (“O&O Service”), App Services, and Partner Direct relationships. Our O&O Direct-to-Consumer service is available in more than 175 countries to any household with a broadband connection. Currently, most legacy subscribers pay $2.99 per month or $19.99 per year for our standard CuriosityStream service. As of March 27, 2023, we increased our standard pricing for new subscribers to this service to $4.99 per month or $39.99 per year. We also provide a Smart Bundle service for $9.99 per month or $69.99 per year. Our Smart Bundle membership includes everything in our standard service, plus subscriptions to third-party platforms Tastemade, Topic, SommTV, DaVinci Kids, our equity investee Watch Nebula, LLC (“Nebula”), and our One Day University stand-alone service.
18
Our App Services enable access to CuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, major smart TV brands (e.g., LG, Vizio, Samsung) and gaming consoles. The multichannel video programming distributors (“MVPDs”), virtual MVPDs (“vMVPDs”) and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe to CuriosityStream via the partners’ respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Apple Channel, Roku Channel, Sling TV and YouTube TV.
In addition to our Direct Business described above, our Bundled Distribution business includes affiliate relationships with our Bundled MVPD Partners and vMVPDs, which are broadband and wireless companies in the U.S. and international territories to whom we can offer a broad scope of rights, including 24/7 “linear” channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber.
In our Content Licensing business, we license to certain media companies a collection of our existing titles in a traditional content licensing deal. We also sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates content licensing revenue.
Our Enterprise business is comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “gift of curiosity.” Revenues from our Enterprise business are included within Subscriptions — O&O Services in Note 5 to the accompanying unaudited consolidated financial statements.
Our Other business is primarily comprised of advertising and sponsorship revenue. We offer companies the opportunity to be associated with CuriosityStream content in a variety of forms, including short- and long-form program integration, branded social media promotional videos, advertising spots in our video and audio programs that are made available on our linear programming channels or in front of the paywall, and digital display ads.
In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns offer companies the chance to be associated with CuriosityStream content in the forms described above. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients.
Key Factors Affecting Results of Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges, and other factors, including our ability to efficiently grow our subscriber base, increase our prices, and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of operations over the last fiscal quarter and are expected to continue to have such significant effects:
Revenues
Since the Company was founded in 2015, we have generated the majority of our revenues from consumers directly accessing our content in the form of monthly or annual subscription plans. Currently, most legacy subscribers pay $2.99 per month or $19.99 per year for our standard CuriosityStream service. As of March 27, 2023, we increased our standard pricing for new subscribers to this service to $4.99 per month or $39.99 per year. We also provide a Smart Bundle service for $9.99 per month or $69.99 per year. Currently, our Smart Bundle pricing and pricing for most legacy subscribers remain unchanged. However, we may in the future increase the price of these existing subscription plans, which may have a positive effect on our revenue from this line of our business.
We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee, and host and stream our content to their customers via their own platforms, such as set top boxes in the case of most MVPDs. We do not incur billing, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners.
Operating Costs
Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. Producing and co-producing content and commissioned content is generally more costly than acquiring content through licenses.
The Company’s primary business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content library will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. For a discussion of the accounting policies for content impairment write-down and management estimates involved therein, see “— Critical Accounting Policies and Estimates” below.
Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, we focus on revenue-generating personnel, such as sales staff and roles that support the improvement, maintenance and marketing of our Direct Service.
19
Results of Operations
The Company operates as one reporting segment. The financial data in the following table sets forth selected financial information derived from our unaudited consolidated financial statements for the three months ended June 30, 2023 and June 30, 2022 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated.
Comparison of the three months ended June 30, 2023 and 2022
| Three months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change |
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| (unaudited) (in thousands) |
||||||||||||||||||||||||
| Revenues |
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| Subscriptions |
$ | 7,270 | 52 | % | $ | 8,922 | 40 | % | $ | (1,652 | ) | (19 | %) | |||||||||||
| License fee |
6,205 | 44 | % | 11,734 | 52 | % | (5,529 | ) | (47 | %) | ||||||||||||||
| Other |
622 | 4 | % | 1,692 | 8 | % | (1,070 | ) | (63 | %) | ||||||||||||||
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| Total Revenues |
$ | 14,097 | 100 | % | $ | 22,348 | 100 | % | $ | (8,251 | ) | (37 | %) | |||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Cost of revenues |
9,933 | 45 | % | 12,988 | 34 | % | (3,055 | ) | (24 | %) | ||||||||||||||
| Advertising and marketing |
4,203 | 19 | % | 11,208 | 29 | % | (7,005 | ) | (63 | %) | ||||||||||||||
| General and administrative |
7,980 | 36 | % | 10,603 | 28 | % | (2,623 | ) | (25 | %) | ||||||||||||||
| Impairment of goodwill and intangible assets |
— | — | 3,603 | 9 | % | (3,603 | ) | (100 | %) | |||||||||||||||
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| Total operating expenses |
$ | 22,116 | 100 | % | $ | 38,402 | 100 | % | $ | (16,286 | ) | (42 | %) | |||||||||||
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| Operating loss |
(8,019 | ) | (16,054 | ) | 8,035 | (50 | %) | |||||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||
| Change in fair value of warrant liability |
184 | 478 | (294 | ) | n/m | |||||||||||||||||||
| Interest and other income (expense) |
437 | (29 | ) | 466 | n/m | |||||||||||||||||||
| Equity method investment loss |
(2,235 | ) | (316 | ) | (1,919 | ) | 607 | % | ||||||||||||||||
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| Loss before income taxes |
$ | (9,633 | ) | $ | (15,921 | ) | $ | 6,288 | (39 | %) | ||||||||||||||
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| Provision for income taxes |
288 | 56 | 232 | n/m | ||||||||||||||||||||
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| Net loss |
$ | (9,921 | ) | $ | (15,977 | ) | $ | 6,056 | (38 | %) | ||||||||||||||
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n/m - percentage not meaningful
Revenue
Revenue for the three months ended June 30, 2023 and 2022 was $14.1 million and $22.3 million, respectively. This decrease of $8.2 million, or 37%, is primarily attributable to reductions in both License fees revenue and Subscriptions revenue.
The decrease in License fees revenue of $5.5 million was primarily driven by the non-renewal of certain content licensing arrangements of $5.6 million, partially offset by an increase of $2.6 million from new content licensing arrangements, and a decrease from the non-renewal of certain bundled distribution agreements of $2.9 million, partially offset by an increase of $0.5 million from new bundled distribution agreements. The decrease in Subscriptions revenue of $1.7 million was primarily due to the termination of certain corporate subscriptions related to bulk agreements, which occurred in the third quarter of 2022.
Operating Expenses
Operating expenses for the three months ended June 30, 2023 were $22.1 million, compared to $38.4 million for the same period in 2022, marking a reduction of $16.3 million, or 42%.
Cost of Revenues: Cost of revenues for the three months ended June 30, 2023 decreased to $9.9 million from $13.0 million in the same period of 2022. Cost of revenues encompasses content amortization, hosting and streaming delivery costs, payment processing costs, commission costs, and subtitling and broadcast costs. This reduction of $3.1 million, or 24%, primarily resulted from the decrease in content amortization and a decrease in revenue share expense related to bundled and premier tier arrangements with other streaming services.
Advertising and Marketing: Advertising and marketing expenses for the three months ended June 30, 2023 decreased to $4.2 million from $11.2 million for the three months ended June 30, 2022. This decrease of $7.0 million, or 63%, was primarily due to strategic changes in our marketing approach and cost-saving measures implemented in our advertising campaigns.
General and Administrative: General and administrative expenses for the three months ended June 30, 2023 decreased by $2.6 million, or 25%, from $10.6 million for the same period in 2022 to $8.0 million. The decrease was primarily due to cost controls and efficiency measures implemented across our administrative functions.
Impairment of Goodwill and Intangible Assets: We incurred no impairment charges for goodwill and intangible assets for the three months ended June 30, 2023, in contrast to the $3.6 million expense incurred in the corresponding period of 2022.
Operating Loss
The Company experienced an operating loss of $8.0 million for the three months ended June 30, 2023, which is a decrease of $8.0 million, or 50%, compared to the operating loss of $16.1 million for the three months ended June 30, 2022. The decrease in our operating loss is primarily driven by the reduction in our operating expenses of $16.3 million, or 42%, partially offset by the reduction in revenue of $8.3 million, or 37%.
Change in Fair Value of Warrant Liability
For the three months ended June 30, 2023, the change in the fair value of warrant liability (related to Private Placement Warrants) resulted in income of $0.2 million, a decrease of $0.3 million from the income of $0.5 million in the same period in 2022. The change primarily stemmed from fluctuations in the market price of our common stock and the corresponding changes to the underlying assumptions used in the valuation model used for our Private Placement Warrants during the three months ended June 30, 2022.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2023 was $0.4 million income compared to $0.1 million expense for the three months ended June 30, 2022. The increase is primarily related to an increase in interest income during the current period.
20
Equity Method Investment Loss
For the three months ended June 30, 2023, the Company recorded a loss of $2.2 million compared to a loss of $0.3 million for the three months ended June 30, 2022, related to its investments in Spiegel Venture and Nebula. The increase is primarily due to the $2.0 million impairment charge recorded by the Company to its investment in Spiegel Venture.
Provision for Income Taxes
We had a provision for income taxes of $0.3 million for the three months ended June 30, 2023 compared to $0.1 million for the three months ended June 30, 2022. The Company’s provision for income taxes is primarily related to foreign withholding income taxes and differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
21
Net Loss
The net loss for the three months ended June 30, 2023, was $9.9 million, compared to $16.0 million for the same period in 2022. The decrease in our net loss of $6.1 million, or 38%, primarily resulted from the decrease in operating expenses of $16.3 million, or 42%, partially offset by the reduction in revenue of $8.3 million or 37%, and an impairment charge to one of our equity method investments of $2.0 million.
Comparison of the six months ended June 30, 2023 and 2022
| Six months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Subscriptions |
$ | 14,790 | 56 | % | $ | 17,276 | 43 | % | $ | (2,486 | ) | (14 | %) | |||||||||||
| License fee |
10,800 | 41 | % | 20,893 | 52 | % | (10,094 | ) | (48 | %) | ||||||||||||||
| Other |
894 | 3 | % | 1,806 | 5 | % | (911 | ) | (50 | %) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Revenues |
$ | 26,484 | 100 | % | $ | 39,975 | 100 | % | $ | (13,491 | ) | (34 | %) | |||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Cost of revenues |
18,934 | 45 | % | 24,838 | 33 | % | (5,904 | ) | (24 | %) | ||||||||||||||
| Advertising and marketing |
7,318 | 17 | % | 25,976 | 34 | % | (18,658 | ) | (72 | %) | ||||||||||||||
| General and administrative |
16,039 | 38 | % | 21,106 | 28 | % | (5,067 | ) | (24 | %) | ||||||||||||||
| Impairment of goodwill and intangible assets |
— | — | 3,603 | 5 | % | (3,603 | ) | (100 | %) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
$ | 42,291 | 100 | % | $ | 75,523 | 100 | % | $ | (33,232 | ) | (44 | %) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating loss |
(15,807 | ) | (35,548 | ) | 19,741 | (56 | %) | |||||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||
| Change in fair value of warrant liability |
110 | 4,338 | (4,228 | ) | (97 | %) | ||||||||||||||||||
| Interest and other income (expense) |
825 | (86 | ) | 911 | n/m | |||||||||||||||||||
| Equity method investment loss |
(2,454 | ) | (472 | ) | (1,982 | ) | (420 | %) | ||||||||||||||||
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| Loss before income taxes |
$ | (17,326 | ) | $ | (31,768 | ) | $ | 14,442 | (45 | %) | ||||||||||||||
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| Provision for income taxes |
346 | 101 | 245 | n/m | ||||||||||||||||||||
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| Net loss |
$ | (17,672 | ) | $ | (31,869 | ) | $ | 14,197 | (45 | %) | ||||||||||||||
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Revenue
Revenue for the six months ended June 30, 2023, and 2022 was $26.5 million and $40.0 million, respectively. This decrease of $13.5 million, or 34%, is primarily attributable to reductions in both License fees revenue and Subscriptions revenue.
The decrease in License fees revenue of $10.1 million was primarily driven by the non-renewal of certain content licensing arrangements of $8.4 million, partially offset by an increase of $2.6 million from new content licensing arrangements, and a decrease from the non-renewal of certain bundled distribution agreements of $5.8 million, partially offset by an increase of $1.1 million from new bundled distribution agreements. The decrease in Subscriptions revenue of $2.5 million was primarily due to the termination of certain corporate subscriptions related to bulk agreements, which occurred in the third quarter of 2022.
Operating Expenses
Operating expenses for the six months ended June 30, 2023, were $42.3 million, compared to $75.5 million for the same period in 2022, marking a reduction of $33.2 million or 44%.
Cost of Revenues: Cost of revenues for the six months ended June 30, 2023 decreased to $18.9 million from $24.8 million in the same period of 2022. Cost of revenues encompasses content amortization, hosting and streaming delivery costs, payment processing costs, commission costs, and subtitling and broadcast costs. This reduction of $5.9 million, or 24%, primarily resulted from the decrease in content amortization and a decrease in revenue share expense related to bundled and premier tier arrangements with other streaming services.
22
Advertising and Marketing: Advertising and marketing expenses for the six months ended June 30, 2023, decreased to $7.3 million from $26.0 million for the six months ended June 30, 2022. This decrease of $18.7 million, or 72%, was primarily due to strategic changes in our marketing approach and cost-saving measures implemented in our advertising campaigns.
General and Administrative: General and administrative expenses for the six months ended June 30, 2023, decreased to $16.0 million, from $21.1 million for six months ended June 30, 2022. The decrease of $5.1 million, or 24%, was primarily due to cost controls and efficiency measures implemented across our administrative functions.
Impairment of Goodwill and Intangible Assets: We incurred no impairment charges for goodwill and intangible assets for the six months ended June 30, 2023, in contrast to the $3.6 million expense incurred in the corresponding period of 2022.
Operating Loss
The Company experienced an operating loss of $15.8 million for the six months ended June 30, 2023, which is a decrease of $19.7 million, or 56%, compared to the operating loss of $35.5 million for the six months ended June 30, 2022. The decrease in our operating loss is primarily driven by the reduction in our operating expenses of $33.2 million, or 44%, partially offset by the reduction in revenue of $13.5 million, or 34%.
Change in Fair Value of Warrant Liability
For the six months ended June 30, 2023, the Company recognized a gain of $0.1 million, compared to a gain of $4.3 million for the six months ended June 30, 2022. This reduction in gain of $4.2 million, or 97%, primarily stemmed from fluctuations in the market price of our common stock and the corresponding changes to the underlying assumptions used in the valuation model used for our Private Placement Warrants during the six months ended June 30, 2022.
Interest and Other Income (Expense)
For the six months ended June 30, 2023, Interest and other income (expense) amounted to $0.8 million, an increase of $0.9 million compared to an expense of $0.1 million for the six months ended June 30, 2022. The change was primarily due to increased interest income.
Equity Method Investment Loss
For the six months ended June 30, 2023, the Company recorded a loss of $2.5 million compared to a loss of $0.5 million for the six months ended June 30, 2022, related to its investments in Spiegel Venture and Nebula. The increase is primarily due to the $2.0 million impairment charge recorded by the Company to its investment in Spiegel Venture during the six months ended June 30, 2023.
Provision for Income Taxes
We had a provision for income taxes of $0.3 and $0.1 million in the six months ended June 30, 2023 and 2022, respectively. The Company’s provision for income taxes is primarily related to foreign withholding income taxes and differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
Net Loss
Net loss for the six months ended June 30, 2023 was $17.7 million, compared to a net loss of $31.9 million for the same period in 2022. The decrease in our net loss of $14.2 million, or 45%, is primarily due to a decrease in operating expenses and an increase in interest and other income, partially offset by a decrease in revenue, a reduction in gain from the change in the fair value of warrant liability and an impairment charge to one of our equity method investments.
Liquidity and Capital Resources
As of June 30, 2023, the Company’s cash and cash equivalents, including restricted cash, totaled $44.8 million. For the six months ended June 30, 2023, the Company incurred a net loss of $15.7 million and used $10.6 million of net cash in operating activities and $0.1 million of net cash in financing activities, while investing activities provided $15.0 million of net cash.
We believe that our current cash levels, including investments in money market funds that are readily convertible to cash, will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months. We believe that we have access to additional funds in the short term and the long term, if needed, through the capital markets to obtain further financing.
23
Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception, and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses.
Cash Flows
The following table presents our cash flows from operating, investing and financing activities for the six months ended June 30, 2023 and 2022:
| For the six months ended June 30, |
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| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net cash used in operating activities |
$ | (10,608 | ) | $ | (18,149 | ) | ||
| Net cash provided by investing activities |
14,995 | 24,024 | ||||||
| Net cash used in financing activities |
(57 | ) | (161 | ) | ||||
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| Net increase in cash, cash equivalents and restricted cash |
$ | 4,330 | $ | 5,714 | ||||
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Cash Flows from Operating Activities
Cash flows from operating activities primarily consist of net losses, changes to our content assets (including additions and amortization), and other working capital items.
During the six months ended June 30, 2023, and 2022, we recorded a net cash outflow from operating activities of $10.6 million and $18.1 million, respectively, or a decreased outflow of $7.5 million, or 41%.
The net cash outflow used in operating activities for the six months ended June 30, 2023, was primarily due to our $17.7 million net loss, $2.6 million of net cash used in changes in operating assets and liabilities, and an impairment charge to one of our equity method investments of $2.0 million. The outflow was partially offset by $7.7 million addback of non-cash expenses net of content additions. The most significant components of non-cash expenses include amortization of content assets of $12.3 million and stock-based compensation expense of $2.7 million, substantially offset by additions to content assets of $7.1 million and the change in content liabilities of $1.1 million. The components of changes in operating assets and liabilities were primarily attributed to a decrease in accrued expenses and other liabilities of $3.9 million and in deferred revenue of $1.4 million, partially offset by an increase in accounts payable of $0.6 million, a decrease in accounts receivable of $1.8 million, and a decrease in other assets of $1.5 million.
The net cash outflow used in operating activities for the six months ended June 30, 2022, was primarily due to our $31.9 million net loss, and $5.4 million of non-cash expenses net of content additions, partially offset by $19.1 million in cash provided by changes in operating assets and liabilities. The most significant components of non-cash expenses include content additions of $25.3 million, changes in content liabilities of $3.7 million and changes in the fair value of the warrant liability of $4.3 million, partially offset by amortization of content assets of $19.1 million and stock-based compensation expense of $3.4 million. The components of changes in operating assets and liabilities were primarily attributed to a decrease in accounts receivable of $11.9 million, a decrease in other assets of $4.0 million, an increase in accounts payable of $6.1 million, which were partially offset by a decrease in accrued expenses and other liabilities of $2.9 million.
Cash Flows from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments, business acquisitions and equity investments and purchases of property and equipment.
During the six months ended June 30, 2023, and 2022, we recorded a net cash inflow from investing activities of $15.0 million and $24.0 million, respectively, or a decrease of cash inflow of $9.0 million, or 37.5%.
The net cash inflow provided by investing activities for the six months ended June 30, 2023, was primarily due to maturities of investments in debt securities of $15.0 million.
The net cash inflow provided by investing activities for the six months ended June 30, 2022, was primarily due to the sale and maturities of investments in debt securities of $27.3 million, partially offset by purchases of investments in debt securities of $1.6 million and investments in Nebula of $1.6 million.
Cash Flows from Financing Activities
During the six months ended June 30, 2023 and 2022, we recorded net cash outflow from financing activities of $0.1 and $0.2 million, respectively, which is attributable to payments of withholding taxes during the respective periods.
Capital Expenditures
Going forward, we expect to continue making expenditures for additions to our content assets and purchases of property and equipment, although at a slower rate than in previous periods. The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive.
24
Off Balance Sheet Arrangements
As of June 30, 2023, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Quarterly Report on Form 10-Q and related disclosures must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A critical accounting policy is one which is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
Content Assets
The Company acquires, licenses and produces content, including original programming, in order to offer customers unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the unaudited consolidated statements of cash flows.
The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the unaudited consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs, and production overhead.
25
Based on factors including historical and estimated viewing patterns, the Company previously amortized the content assets (licensed and produced) in “Cost of revenues” on the unaudited consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. Starting July 1, 2021, the Company amortizes content assets on an accelerated basis in the initial two months after a title is published on the Company’s platform, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts. Furthermore, the amortization of original content is more accelerated than that of licensed content. We review factors that impact the amortization of the content assets on a regular basis and the estimates related to these factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets on an ongoing basis and will also record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant content licensing.
The Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Revenue recognition
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental authorities.
Subscriptions — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.
License Fees — Partner Direct and Bundled Distribution
The Company generates license fee revenues from MVPDs such as Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned.
License Fees — Content Licensing
The Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.
The Company’s performance obligations include (1) access to its SVOD platform via the Company’s O&O Service and App Services, (2) access to the Company’s content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVOD platform, the performance obligation is satisfied as access to the SVOD platform is provided post any free trial period. In contracts which contain access to the Company’s content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer to use.
Recently Adopted Financial Accounting Standards
The information set forth under Note 2 to the unaudited consolidated financial statements under the caption “Basis of presentation and summary of significant accounting policies” is incorporated herein by reference.
26
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the specified time periods in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of the CEO and the CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of June 30, 2023. Based on these evaluations, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
Our management is required to evaluate, with the participation of our CEO and our CFO, any changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 31, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
28
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Incorporated By Reference | ||||||||||||
| Exhibit No. |
Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed/Furnished | ||||||
| 31.1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101. INS** | Inline XBRL Instance Document | X | ||||||||||
| 101. SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||
| * | This document is being furnished with this Form 10-Q. This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act. |
| ** | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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PART III — SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| CURIOSITYSTREAM INC. | ||||
| Date: August 14, 2023 | By: | /s/ Clint Stinchcomb | ||
| Name: Title: |
Clint Stinchcomb President and Chief Executive Officer (Principal Executive Officer) | |||
| Date: August 14, 2023 | By: | /s/ Peter Westley | ||
| Name: Title: |
Peter Westley Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | |||
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