Chicken Soup for the Soul Entertainment, Inc.

Thank you, operator, 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 second quarter 2021 results, as well as provide a business update. Following this discussion, there will be a moderated Q&A session open to the participants on this 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. Forward-looking statements are 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 filings with the Securities and Exchange Commission. On today's call, management will make comments on certain gap-based and non-gap pro forma financial information. The non-gap financial measure that 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 gap measure. For further information regarding the company's historical financial performance, we refer you to our filings with the SEC, including our report on Form 10Q for the quarter ended June 30, 2021, which was filed today. I would now like to turn the call over to William Ruhanna, Chairman and CEO. Bill, please go ahead.

Thank you, Taylor, and good afternoon, everyone. Welcome to our second quarter 2021 earnings call. I'm going to provide some highlights from the quarter, an update on our progress overall, as well as some details on some key areas of focus as we head into the second half of the year. Chris Mitchell, our CFO, will then dive a little deeper into the financials. We had a solid second quarter that built on the positive momentum we demonstrated in Q1. We generated strong revenue growth, closed the sonar deal, continued to expand our distribution touchpoints, which are now demonstrably contributing to our viewer growth, and we're getting a great reception from advertisers with a stellar performance at the recent upfronts. We've also completed preparations and are ready to launch both our new Chicken Soup for the Soul AVOD streaming network and our new tech platforms and viewer interfaces. Finally in June, we raised $75 million in new capital to fund our growth, and we're looking at ways to best deploy that strategically in support of future growth. So it's been another busy quarter with a lot of progress that positions the company even more strongly for continued growth and momentum in the months ahead. A couple of highlights on the financials. We reported net revenue of $22.1 million, up 64% on a year-over-year basis. Adjusted EBITDA was $3.2 million, which was up 19% as the business continues to scale. Our online network revenue was up an exceptionally strong 78%, and we continue to see good growth on the distribution and production side as well. Overall, the results keep us on a solid trajectory to reach our revenue targets for the full year. As I noted, Chris will go into more detail on this in a bit. Looking more closely at our progress, I want to start with advertising. We've always pursued a broad-based ad strategy, leveraging a three-pronged sales approach, including direct sales, programmatic, and local partnerships. Unlike other AVADs, we see the most upside in direct sales. That's because we offer something that most AVADs do not, a steady pipeline of original and exclusive programming, that allows for upfront sales and sponsorships while driving viewership and attracts a highly sought-after audience. Direct sales deliver higher profitability on our original content, and we can drive even more upside by creating innovative ad formats that improve both the viewer experience and the visibility advertisers get on our networks about our audience. This was our approach at the upfronts this year, and upfront orders are now projected to be up over 130% over last year. We also see much larger commitments than ever before. We're also diversifying our advertisers even further, as roughly half of our top 20 commitments have come from brand new advertisers, major national advertisers. We will continue to advance the strategy and expect to see more sponsorship and integrated brand partnership opportunities moving forward. Of course, advertisers only do business with you if you deliver viewers, and we're making great progress there as well. Viewership on Crackle and Popcorn Flix was up in the high teens in the month of June on a year-over-year basis, a tremendous increase when you consider the very rough comparison to 2020 when so many viewers were stuck at home. I'd also note that with new content starting to come back across networks and platforms, there is more competition for eyeballs as well, so our results reinforce the breadth and depth of our content on Crackle+, which is increasingly our competitive advantage. In addition to the appeal of our content, we believe our viewership growth is also being driven by the expansion of distribution touchpoints that we've been working hard on all year. We continued this expansion in the quarter with Zumo, more Plex channels, Fubo, Redbox, and Philo. Additionally, since the end of the quarter, we've added Flex, X1, Cox, another Fubo channel, another Philo channel, Vizio Watch Free, and others, bringing our total active touch points to 50, with over 20 more on the way. And we're not done yet. In fact, we are only about half of the more than 100 touch points we now expect to reach over time. We've said that we believe each touch point can bring us several hundred thousand viewers over time, And in fact, what we've seen so far is approximately more than 450,000 new monthly average viewers added by each of our mature touchpoints. If this holds as anticipated, viewership should continue to grow nicely as our newer touchpoints mature and as we add new ones. Keep in mind that we're also about to launch the new Chicken Soup for the Soul streaming network and embrace the same distribution strategy with this service. In anticipation of driving new levels of viewership, we've also been very busy readying the launches of our new tech platforms and viewer experiences. The new Crackle Plus platform looks great and will launch imminently on Vizio smart TVs before rolling out over the course of the next year on dozens of our other distribution touchpoints. We've also launched our new Popcorn Flix app on Android, iOS, the web, and Apple TV just this week. and intend to launch that on all remaining platforms by the end of September. These improved platforms dramatically enhance the user experience and put us on the cutting edge from a technology standpoint. Additionally, they will help us create an even better user experience by increasing access to viewer data and behaviors to help us deliver more personalized ads more effectively. Of course, All of our progress on distribution and our platform has been domestic up until now. But we also have a significant opportunity to expand Crackle Plus internationally, and I'll talk about those plans in just a moment. First, though, let's turn to our content. In Q2, we saw success with several of our original and exclusive titles and continued to build on our strong pipelines. The headline for us right now is that the second season of our hit series, Going From Broke, has been doing extremely well since it premiered in the back half of May. Also exclusively on Crackle, we launched Skyfire, a film in which chaos erupts when the once dormant volcano at the world's only volcano theme park and resort starts to rumble. And it has been the third most popular title on Crackle since its launch a couple of weeks ago. Led by these titles, our original and exclusive content viewership showed continued strength and remained in the high teens of total ad impressions for the quarter, on track with our December goal of 20% of total ad impressions. As I noted, as we drive this number higher, we expect our profit margins will continue to expand. Next up, on the original content slate, we have a couple of exciting Chicken Soup for the Soul originals premiering. including The Uncommon History of Very Common Things, which premieres on Crackle in August, and Smart Home Nation, which premieres on Crackle in December. In other business developments, we closed the Sonar deal and are moving quickly on integrating Sonar's content into our screen media library and executing on using this content in our new programming activities. As for the performance of productions acquired in the Sonar deal, We've already seen an early great success in The Mysterious Benedict Society on Disney+, and looking ahead, we're off to a good start with the second season of the hit show Hunters on Amazon Prime. We're also starting to see the first pieces of sonar content migrated over to our own networks. Taboo, the hit FX series, is set to premiere on Crackle in September. Tom Hardy is the star. And more recently, we premiered our first piece of sonar content to migrate over to Crackle with The Temptations, a two-part miniseries on the true story behind the legendary Motown musical sensation. This program shot to number one on the Crackle Network in just three weeks, and it's a perfect example of the success we expect to see from the movies and television programs we acquired as part of the sonar library. And we believe it is the first of what we expect will be many success stories. By the way, it's really good. I would watch it. I've enjoyed it. As I've mentioned, we will also be launching our new Chicken Soup for the Soul streaming network later this month with sonar content, which will provide an additional option for viewers. The streaming network will broaden Crackle Plus' demographic reach by delivering the Chicken Soup for the Soul brand of inspiring, uplifting, and informative content, including a large selection of scripted movies and TV series as well as unscripted programming covering food, home, travel, and other similar content. Turning to screen media, we've also recently acquired several star-studded films over the last few months, including Gold, starring Zac Efron and Susie Porter, a tale of two men traveling through the remote desert who stumble across the biggest gold nugget ever found. Naked Singularity, starring John Boyega and Olivia Cooke, with executive producers Ridley Scott and Dick Wolf, which tells the story of a promising young New York City public defender, and Best Sellers, a comedy starring Aubrey Plaza and Michael Caine, which is about a daughter's last-ditch effort to save the boutique publishing house her father has left her. My wife Amy has enjoyed that movie. It's about her business, the publishing business. While fresh content on our network gets lots of attention, we also continue to move forward aggressively with our content distribution strategy. Most recently, we signed an agreement with Millennium Media for Screen Media to exclusively distribute 15 of their movies over the next three years. Some of you may recall that Millennium is the same studio that produced The Outpost and Till Death, which were huge hits for us over the past year. I must say, To be in a position now to be able to acquire and distribute this kind of volume and quality of content is very exciting for us. And there is just no one focused on ad-supported streaming who has the production and distribution capabilities, acquisition relationships, or library that matches ours. Additionally, there have been some recent changes in the industry with regard to shortening the initial paid TV window. And these changes will allow us to put our own programming onto our own Avon networks more quickly while still licensing that initial window to others. This industry update is having a positive impact on the flow of product to our network without us having to sacrifice the licensing revenue associated with payone and also enhances the marketing benefits gained from our licensed partners. So what's next? The answer is to continue executing on our key growth initiatives in the U.S., including strategic opportunities, while increasing our focus on building out our international business. There have been a few key developments in recent weeks that help spotlight where we're going. One of them we announced just a few moments ago. These include acquiring Sonar and establishing Halcyon, which has set the foundation for international television production. The pending launch of the Chicken Soup for the Soul Avon streaming network, which rounds out our Crackle Plus network offering. The recently announced acquisition of the Crackle International trademarks for Crackle Plus from our partners at Sony, which gives us trademarks in over 50 countries, spanning Australia, Asia, Europe, and South America. This deal will allow us to offer all three of our key streaming networks around the globe and bring our Avon networks worldwide. And most recently, today, the Kashet deal that we announced, where we are the exclusive supplier of non-Israeli AVOD content to this new AVOD SVOD service in Israel. For those of you who don't know Kashet, they are the leading broadcaster in Israel by far. We are also providing them technical and operational expertise in the support of their launch. And by supplying Content and expertise to Cachette, we're demonstrating two of the three legs of our value proposition to international streaming services. The third leg is our brands, and we are working on opportunities to deploy our brands and services internationally. In summary, we're now a little more than two years into our operation of Crackle+. We've transformed the network from every angle, financial, quality of content, viewership, advertising, and now technologically. We're in a great position, and the financial results are showing that. In terms of what's next, we're looking to accelerate our execution on all fronts with these priorities in mind, leaning into the momentum with advertisers and delivering unmatched opportunities and more innovative formats and business models, driving forward on our network distribution initiatives, especially as we launch the Chicken Soup for the Soul AVOD, continuing to grow the original content production pipeline, and leveraging our ever-growing library, and finally, doing all of this internationally. We're in an even stronger financial position to execute on these initiatives following our offering in July and see additional opportunities to strategically expand our business, particularly around more AVOD networks and library expansion. We expect to be in an even better position as our financial performance ramps, and given we are growing at a faster rate year-to-date than we had initially anticipated, We remain confident in the outlook we have for the year. I'd like to thank the Chicken Soup for the Soul team once again for all their hard work. I'm going to turn this over to Chris, who'll give you some additional details on the financials.

Thank you, Bill. As you've already heard our operational highlights, I will focus on a review of our financial results and balance sheet. As noted on prior calls, with full ownership of Crackle+, We are now operating the business on a holistic, consolidated basis, which is how we will continue to discuss our financial results going forward. As a reminder, we've added a table in our MD&A section and a revenue footnote section of the 10Q that breaks down our consolidated revenue by source that we believe to be helpful for investors. Our financial results for the second quarter of 2021 reflect further execution on our key growth initiatives. which positioned us to further build on the momentum we achieved in the first quarter. Let's go through the second quarter results. Starting with results for the second quarter, we reported net revenue of $22.1 million compared to $23.2 million in the first quarter of 2021. This compares to $13.5 million in the second quarter of the prior year for an increase of $8.6 million or roughly 64% year-over-year. This year-over-year increase in net revenue was primarily driven by an increase in ad sales and by licensing. As Bill mentioned, our distribution pipeline remained strong and we added nine new distribution touchpoints in June, as well as nine more shortly thereafter that are not reflected in our second quarter results. In total, we have 50 distribution touchpoints and remain on track with our goal of growing to 100 touchpoints by the end of this year. This position does exceptionally well to drive further growth in both viewership and ad dollars over the balance of the year. It's worth noting that we were not able to recognize as much revenue as anticipated in the quarter related to Hunters 2 and Slasher 4. We recognized revenue on Hunters 2 based on a percentage completion basis, and we had one episode of Slasher 4 where delivery was slightly delayed until the first week of July, bringing the total number of episodes delivered in July to seven. For the third consecutive quarter, we sold virtually all of our advertising inventory. Our strong viewership and high-quality content continue to attract advertisers, and we're seeing larger commitments than ever before while growing existing relationships and building new ones. Additionally, the upcoming launch of our Chicken Soup for the Soul AVOD will expand our viewer demographic even further and provide yet another avenue for advertising revenue. Ad revenue was driven by further expansion of our original exclusive content offerings, coupled with the continued innovation and enhancements we've made to the overall ad experience. As Bill noted, we saw tremendous success at this year's upfronts, which is a good indicator for continued momentum in ad revenue through the rest of 2021. We expect to see continued momentum in this area throughout the remainder of the year as we make further progress on our advertising strategy. Gross profit for the second quarter of 2021 was $6.7 million, or 30% of net revenue, roughly flat with the prior quarter on a percentage basis. This compares to $0.6 million in the same period prior year, or 4% of net revenue. Operating loss for the second quarter of 2021 was $7.8 million compared to an operating loss of $13.1 million in the year-ago period. Our adjusted EBITDA for the second quarter was $3.2 million, compared to $2.7 million in the same period last year, a year-over-year increase of roughly 19%. The year-over-year increase was driven by ad sales, with a rebound in the market as the impact of COVID waned, continued strength in the distribution business, and a strong performance by going from broke. We are also beginning to see a return of some production revenues. Looking at our balance sheet and liquidity position as of June 30, 2021, the company had cash and cash equivalents of $18.4 million, compared to $24.6 million at the end of the first quarter of 2021 and $4.7 million at the end of the year-ago period. Please note that the closing of our common stock offering in July 2021 provided us with $75 million in gross proceeds. We are pleased with our enhanced liquidity position, which provides us greater flexibility to pursue attractive growth opportunities in a strategic and disciplined way. In closing, we're pleased with the continued momentum we saw in our business in the second quarter and excited about the opportunities we see to build on that momentum as the year unfolds. We've again accomplished a tremendous amount in a relatively short period of time for a very busy and productive year so far. We believe we are even more strongly positioned to further evolve the business and accelerate growth in the coming months. With the acquisition of Sonar now complete, we have several key pieces in place that will enable us to utilize our new content and production capabilities and accelerate our international expansion, which we expect will contribute to our financial results in an increasingly meaningful way as they develop. Additionally, we're particularly focused on growing viewership and streaming revenue with initiatives aimed at content to drive viewership, enhancing the user experience and platform, growing distribution of our streaming networks, and pursuing larger and more innovative ad formats and marketing partnerships that will help drive higher margins over time. With all of these initiatives in place that continue to gain traction, an enhanced platform, and strengthened balance sheet that provides additional liquidity, we are confident in the growth that lies ahead. And as we work to capture that growth, we will continue to benefit from the integration of all aspects of our business, while managing expenses and risk in a disciplined way with an eye on improving cash flow and profitability. With that, thank you for joining the call. I'll now turn it back over to Bill.