Chicken Soup for the Soul Entertainment, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Chicken Soup for the Soul Entertainment first quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. Jeff Matika. Mr. Matika, you may begin.

Thank you and welcome. With me on the call today are William J. Ruhanna, Chairman and Chief Executive Officer, and Chris Mitchell, Chief Financial Officer, to review the results of the 2020 first quarter as well as provide a business update. Following this discussion, there will be a moderated Q&A session open to the participants on the call. During this call, management will make forward-looking statements. Forward-looking statements include but are not limited to statements regarding expectations, intentions, and strategies regarding the future. Included in these risks are forward-looking statements based on management's current expectations and assumptions and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from projected results. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release, which also applies to the content of this call. Additional risk disclosures can be found in the company's filing with the Securities and Exchange Commission. As a reminder, on May 14, 2019, Chicken Soup for the Soul Entertainment created a subsidiary with Sony Pictures Television, launching Crackle+. On today's call, management will make comments on certain gap-based and non-gap pro forma financial information of the combined company, That includes Crackle's financial results for the relevant periods prior to the closing date as if the acquisition occurred on January 1, 2018. The non-GAAP financial measure the company uses is adjusted EBITDA. Management believes that adjusted EBITDA provides useful information in that it excludes amounts that are not indicative of the company's core operating results and ongoing operations and provides a more consistent basis for comparison between periods. The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is the most directly comparable GAAP measure. For further information regarding the company's historical financial performance, we refer you to our filings with the SEC, including our quarterly report on Form 10Q for the quarter ended March 31, 2020, which was filed today. I would now like to turn the call over to William Ruhanna, Chairman and CEO. Bill, please go ahead.

William Ruhanna Thank you, Jeff. Good afternoon, everybody. Thank you all for joining us today. We're pleased to share that during Q1 2020, we were able to maintain the momentum we talked about when we reported our Q4 2019 results. Of course, the early part of the second quarter has posed challenges as expected. But notwithstanding near-term uncertainty, our performance over the last two quarters reinforces our confidence in our business model. and our belief that we have a long runway for growth when industry and economic conditions normalize. Before I get to the highlights of the first quarter and more about the current environment, I'd like to note that today is the one-year anniversary of our acquisition of Crackle, and it's been an eventful year. Our Q1 highlights are another bit of evidence of just how transformational the Crackle acquisition has been for our company. In the first quarter, we delivered 14.1 million of revenue, which was more than four times the first quarter of 2019. These results were driven by strength in both our online networks business, which came from stable advertising revenue, increasing viewership, and significant year-over-year growth, and from distribution and production. Our online networks generated 9 million in the quarter, with distribution and production contributing $5.1 million. That was up 185% from last year. Adjusted EBITDA for the first quarter exceeded analyst expectations, analyst consensus by over 20%, totaling $2 million, the second straight quarter in which we exceeded EBITDA expectations. We're currently in a solid financial position because we moved immediately to take protective measures that enhanced our balance sheet and improved our liquidity when the pandemic struck. These actions should stand us in good stead, assuming that the current environment doesn't materially weaken from here. On a related note, we were pleased to see that the rating group Egan Jones reaffirmed our company's BBB rating. Chris will discuss The implications of this in a few minutes. Overall viewing trends on Crackle have been healthy with video streams averaging approximately 50 million per month on Crackle and Popcorn Flicks. As we talked about in our last call, visits and viewership trends were already solid during the quarter, but began to spike in March as shelter-in-place mandates went into effect. Also, our internal metrics show record visits for Crackle and Popcorn Flicks in that period. Increased traffic and viewership enabled us to deliver month-on-month growth and ad impressions throughout the quarter at stable eCPMs. In fact, we had more advertising demand during Q1 than we did ad inventory, despite local advertising beginning to experience some pressure near the end of the quarter. One thing is becoming increasingly clear about our programming strategy. Our original and exclusive programming is finding an audience. New and original exclusive content made up nearly 15% of streaming hours in the quarter, the best overall quarterly performance we've seen so far. For some perspective, when we started tracking this metric in September, only 3% of streaming hours were from original and exclusive content. Coincident with the growth in viewership of our own original and exclusive content, we are having to rely less on Sony for content. Today, more than 60% of our programming on Crackle comes from us, compared to only 10% just a few quarters ago. We believe this demonstrates the depth, quality, and growing volume of content we were able to bring to air via our low-cost, low-risk distribution and production business. Turning to distribution and production, our strategy is gaining momentum. The increased number of titles and their overall quality contributed to strong growth in the first quarter. You may remember that in our last call, I discussed the fact that we had already obtained all the content that we need for 2020 in last year's fourth quarter, which puts us in a good position to continue this momentum throughout the year. It's worth noting that more than $800,000 of the distribution and production revenue this quarter comes from our online networks business as we deliver more of our own content including our original exclusive programming to Crackle+. This is kind of an amazing number when you consider that the total revenue share from the time of the Crackle Plus transaction through the end of 2019 was only $900,000. This is a good indication of the value of our content and another sign that our differentiated AVOD business model is working. Moving to the current environment, We, along with others in our industry, have begun to see impacts from the pandemic. Advertising activity weakened substantially in April, led by brand and local advertising. This is disappointing but not unexpected. Keep in mind we work with resale partners for local ad sales, largely comprised of broadcast and cable station owners. Our partners began seeing lower demand from small businesses as the stay-at-home mandates went into effect. Many national advertisers have also cut marketing costs dramatically. However, some ad categories have seen increases. For example, consumer packaged goods, gaming, delivery, insurance, and pharma have been among the stronger contributors. As parts of the country partially reopen, We are seeing this lead to some revival in local and a rekindling of demand in brand advertising. However, marketers who are used to airing brand ads nationally are struggling with how to better target those ads to markets where economic activity is stronger versus markets in which stay-at-home orders are still in effect. Now, targeting geographically is something we are actually very good at since we've been generally doing that for approximately 40% of all our advertising. Overall, the environment remains highly uncertain. We are in a relatively better position than some, given our attractive, younger, and male-skewing demographic, and we are focused on reinforcing that message with existing ad partners while also being creative and exploring new opportunities such as branded channels. We also think our audience looks attractive to political advertisers and we anticipate to begin picking up some of that business as the election season swings into gear. Viewing trends are starting to revert to normalized levels in April, trending down from a late March peak and have remained fairly stable in May. May advertising booking is currently showing improvement over April. Whether these trends hold is a function of how the pandemic and economy evolve in the coming weeks. On the distribution and production side, TVOD has been a bright spot for us across our industry. Last quarter, I asked you to check out our release of Last Full Measure, and I guess you did, so thank you. We believe that TVOD will continue to be an important part of our distribution and production business while theaters remain closed. We have a strong lineup of content for TVOD, which is distributed broadly over digital and cable platforms. We also have a healthy pipeline of new original content, including Cooped Up and Crown Vic, which we recently released. Because we have set our full slate of new content through the end of the year, The current film and television production delays should not impact us in 2020. We are seeing more interest in our screen media library as other programmers and networks seek to fill holes in their own schedules. Summarizing our recent results, we had a solid first quarter pretty much across the board with strong audience growth and viewership trends. growth in ad revenue, and a revitalized distribution and production business, all showing continued momentum. This demonstrates the long-term potential we have ahead of us. Early in Q2, we've begun to see the effects of the challenging and uncertain economic environment we all find ourselves in today. While we hope April will be a floor in terms of ad revenue, that remains to be seen. Regardless, we expect to see a partially offsetting benefit as our distribution and production revenue continues to grow. At the operating level, our focus is on continuing to execute, manage our costs carefully, and maintain a flexible balance sheet. We are taking an opportunistic approach to building our business for the future, reviewing potential acquisitions of both companies and film and TV libraries. We believe if we execute well in the near term that we would be in a good position to come out of the current environment in a stronger position. As I mentioned on the last call, we continue to see significant strategic opportunities, and that has only increased since we last spoke. We are doing our best to balance these efforts, the efforts that it takes to execute our plan, and ensure that we are in a position to make it through these challenging times while also exploring opportunities as large media players develop their AVOD strategies. We believe the value of our unique business model, which would take years to build or replicate, stands out in the industry. We all know that these times require everyone to pull together, and we'd like to thank our employees, our community, and our investors for their support and fortitude. I'd also like to thank our vendors who have uniformly been supportive of our business. And in a broader sense, we appreciate the commitment of the people and organizations that have come together to address this global health emergency. And our thoughts are with all those who have been impacted. Now I'll turn this over to Chris.