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spk08: Ladies and gentlemen, hello and welcome, and thank you for joining us for today's Chicken Soup for the Soul Entertainment First Quarter 2022 Earnings Results and Red Box Entertainment Acquisition Conference Call. As a reminder, all participants are in a listen-only mode, but later you will have the opportunity to ask questions. Also, please be aware today's session is being recorded. And to get us started with opening remarks and introductions, I am pleased to turn the floor over to Investor Relations for Chicken Soup for the Soul Entertainment, Mr. Taylor Krafchick. Please go ahead, Taylor.
spk02: Thank you, Operator, and welcome. With me on the call today are William J. Ruhanna, Chairman and Chief Executive Officer for Chicken Soup for the Soul Entertainment, and Chris Mitchell, Chief Financial Officer for Chicken Soup for the Soul Entertainment, to review the first quarter 2022 results as well as provide a business update. Joining Bill and Chris on the call today is Galen Smith, Chief Executive Officer of Redbox Entertainment, to help review the proposed transaction between Check It Suit for the Soul Entertainment and Redbox Entertainment. 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. 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, minutes will make comments on certain gap-based and non-gap pro forma financial information. The non-gap 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 gap measure. With respect to our proposed transaction with Redbox, the information provided during this call is provided by Chicken Soup for the Soul Entertainment for informational purposes only to assist interested parties in making their own evaluation with respect to the transaction. No information provided during this call is intended to and shall not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or a solicitation of any vote or approval nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of prospectus, meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as is amended. In connection with the proposed transaction, we intend to file with the SEC a registration statement on form S4 that will include a proxy statement of Redbox and will also constitute a prospectus and information statement of Chicken Soup for the Soul Entertainment. Each hour company and Redbox may also file other relevant documents with the SEC regarding the proposed transaction. This document is not a substitute for the proxy statement, information statement, prospectus, or registration statement, or any other document that we or Redbox may file with the SEC. The definitive proxy statement information statement prospectus, if and when available, will be mailed to stockholders of our company and Redbox. For further information regarding the company's historic financial performance, financial condition, and operational and other information risks and risks, we refer you to our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended March 31, 2022, which was filed today. We also refer you to the public filings Redbox made with the SEC. I would now like to turn the call over to Will Ruhanna, Chairman and CEO. Bill, please go ahead.
spk04: Thank you, Taylor, and thank you, everybody, for joining us this morning. As you know, we have a big call today, and we're going to start with our Q1 results, which we'll go through quickly, and then we'll go into the acquisition of Redbox Entertainment. which is a combination of two really beloved brands with a shared vision of disrupting the digital ecosystem. It's a perfect fit, really. It's a complimentary fit that's really hard to imagine. Because of the fit, the deal will take our company to a new level. We'll scale much more quickly, and we couldn't be more excited about this. I may sound like I'm not excited, but we've been up quite a lot of the last few days, and I'm tired. But we've got a lot to talk about today. Galen Smith, the Redbox CEO, is with us, and he'll be working on the Q&A with me, and he'll also have a little bit of something to say about the deal. So on to the first quarter. We grew our first quarter by 26% year-over-year to $29.2 million, a little bit higher than we thought, but good. And adjusted EBITDA came in right on target at $3.7 million. We continue to drive viewership growth and retention. We really have done well with our new tech platform, We've got strong advertiser interest, and I think the switch from broadcasting cable to AVOD continues with advertisers. We're capitalizing that with Salesforce, which really is second to none, and also through a growing ad rep partnership business, which I think we'll probably talk about in the next call because we don't have a lot of time today. On the viewership front, we continue to roll out our distribution touchpoint strategy. That is really working. We had sequential quarterly growth in CracklePlus viewership of over 11.5%, and I think it's continuing from what I can see even into this quarter. We've got tremendous growth on Vizio, which has actually become almost as big as Amazon Fire for us as a result of, I think, the very good tech we have there. We launched our Samsung tech, and that's also going well. We've made progress in a couple of other key areas and we've grown, as you know, we're at 70 touch points and we're going to 90 by the end of the year. We've made terrific progress in the library, again, in the first quarter. Owned an original exclusive content to 27% of our total viewership, an all-time high. We actually had a month in the 30s there. It's clearly going in the right direction. Our production capabilities, increase we are we're now going to have more than one original and exclusive content piece each year this year every week this year you know that was our original goal we're probably going to get closer to two by the time we exit the year it's a real benefit to us for our viewers and as well as to our bottom line since that's our highest margin product excuse me um so that's a quick overview of q1 it was a very good quarter everything is right on track I wouldn't change a thing about what our expectations are for the year. So let's turn to the big news of the day, this transformational acquisition that we've made. We put some slides, I guess you can access these on the webcast, if you are on that, and I'll run through them. So slide number five, which is entitled Chicken Soup Entertainment to Combine with Redbox Entertainment, kind of sets the groundwork for this. This is a big scaled platform now of content production and distribution. And I think we've really refined our target today, which is the value conscious consumer. I'm sure many of you will We'll reflect upon that when you get a chance and realize that in an era of inflation and possible recession, value-conscious consumers are likely to express themselves in different ways, some of which we've already seen. But what we're going to end up with now is a leading independent, integrated, direct-to-consumer media platform where we interact with consumers in many, many places, like the kiosks, TVOT, et cetera. And it will deliver premium entertainment at a good value for people. I think it's really the right place at the right time. Turning to slide four, or I guess it's page six, you can see the rationale for what we've done here. We've got two great brands coming together. Two great brands coming together. And we think that the complementary nature of our assets is really hard to duplicate. We've got our content library. We have our great Salesforce. We have our AVOD networks. Redbox has the marvelous kiosk system that spans the United States. It has a TVOD business, PVOD business, free live TV business, which is basically a fast business. And when you put those assets together, you actually have a very complete ad-supported video-on-demand type business. It really isn't anybody else who has anything quite like this. Clearly a transformative deal. I think it's right in line with consumer demand. And I expect that there'll be some great synergies, as you'll hear, that will come from this. On page seven, we talk about the transaction terms. So you guys know, we've done a number of transactions to build the company. In every case, We start with the strategic rationale. If the acquisition makes strategic sense, we are going to try and complete it. Of course, we also try to make great financial deals. On slide five here, you're going to see that this is the right business fit. We know that. The transaction itself, I think, is very well thought through because what it really does is it solves a problem that Redbox had of liquidity. and puts the new combined company in a very strong position, we'll acquire 100% of Redbox. It's an all-stock transaction. Redbox shareholders will receive a little over 4.6 million shares of our Class A common stock. We will assume $320 million or approximately of Redbox debt. Pro forma ownership of the company will be 76%. Chicken soup for the soul shareholders, 23%. Redbox shareholders, Our new lender, HPS, who I really look at as a partner, will own 4.5% of the combined company. We've taken Redbox's credit facility and really dealt with the issues that were caused by their SPAC transaction. We've extended it. We've added $80 million of additional working capital via a new revolving credit facility. The new term loan and the new credit facility will mature in five years in the term loan case, two and a half years in the revolving credit case. We have the right to pick interest if we need to for the first 18 months. And as Chris will tell you somewhat gleefully, there are no financial covenants in the transaction for the first two years. As you know, I like flexibility. I like us to be protected. And I believe with the extension, the new capital, the pick interest option, and the no covenants. We've really put the company in a position that we can do what we need to do over the next couple of years to recognize all of our synergies, grow the business, have a recovery, and move on from there. In terms of the deal itself, we are the majority shareholder of Chicken Soup for the Soul, who happens to be speaking, has approved the deal, as has the majority shareholder of Redbox. So we expect to go through the regulatory process quickly, with customary closing conditions, but we'll get this deal closed in the second half of 2022, and both Galen and I are really committed to doing it as quickly as we can. We wanna bring these companies together as fast as possible because we're excited about what we see. So, let's move on to slide six. Or actually slide seven, I guess is where we're at now. This is a quick summary for those of you who may not know us of who we are. Our Crackle Plus business is comprised primarily of three big streaming services, Crackle, Chicken Soup for the Soul, and Popcorn Flix. We've been building our viewership through our Touchpoint strategy. We have more than 90 deals in place by the end of the year. Our recently relaunched user experience is really helping cement viewership. We've assembled a huge library of movies and TV shows, over 14,000 movies, over 24,000 episodes of television. Got a highly unusual asset there for an independent AVOD. Much of our content is wholly owned, and we're producing more of that every day. That's, of course, our most profitable content. Over a quarter of our ad impressions are generated by our original and exclusive content, and that's, once again, our most profitable. Not pictured on the slide is our very strong, fully capable ad sales force. That sales force is really second to none. They're doing a wonderful job in the marketplace. I'm going to turn it over to Galen to talk to you about Redbox and its position in the market and anything else that he'd like to talk about.
spk01: So Galen, over to you. Thanks, Bill. We're really excited to be here to discuss this combination and the value creation potential we see in bringing together Redbox with Chicken Soup for the Soul Entertainment. Redbox is a household name and one that's synonymous with value. At our core, Redbox exists to provide quality home entertainment for everyone. And we do it by making it ridiculously cheap and easy for consumers to get the entertainment they want most. Redbox was founded originally on three core tenets, value, simplicity, and convenience. And we've been taking those same core tenets from our physical distribution footprint to bring them to the digital world. Our legacy business, which consists of approximately 38,000 kiosks, still has tremendous reach and power for consumers looking for the ultimate value. For $2 or less per night, consumers get access to the newest and latest theatrical releases. That's a third of the cost of digital options. We make it super convenient with our kiosks located in places people are already shopping, with 90% of Americans within a five-minute drive. With this core focus on value, we've been investing in transforming Redbox for the digital age. This has been focused on moving from a one-window legacy DVD business to a multi-window, multi-faceted digital entertainment company where we're able to offer content in each of these windows that you see on slide eight. We launched a transactional video on demand service as well as an ad-supported service in previous years. Our core customer base, which includes 40 million Redbox Perks loyalty members, They tend to be late adopters of new technology, and we've seen a tremendous opportunity to help these consumers adapt in moving into the digital world. With our loyalty program, we have the ability to incent and give the consumer even more value by providing them points all along the way, and then giving them the opportunity to use these points to consume even more entertainment. Over the past few years, we've been investing heavily in this transformation, which requires substantial capital, investment, and scale. Unfortunately, our results from this legacy business have been severely impacted over the past two years by COVID, which closed theaters and caused studios to release content on streaming platforms or delay movies completely outright. While we expect a healthy rebound as studios refocus their efforts on releasing new content in theaters first, the impact has still lasted longer than we expected. In addition to hurting our results, this delay has also hampered our ability to invest in the digital transformation. By joining forces with Chicken Soup, We will gain much-needed scale, access to capital, and the existing technology resources to power Redbox transformation, something we couldn't do on our own. We see substantial synergies to working with Chicken Soup and believe this is a win-win for our value-conscious consumers and shareholders. With an all-stock transaction structure, our shareholders will still be able to participate in the upside potential and recovery of Redbox's business without the significant downside risk from trying to achieve it on our own. We're really excited to work together with Bill and his team. Back to you, Bill.
spk04: Thank you, Galen. I'm really excited and looking forward to working with you and the Redbox team, as is the entire Chicken Soup for the Soul team. We're going to complete this transaction and we'll realize the full potential of this combination. Looking at slide nine, which is called Industry Backdrop, I believe, I mentioned that this is the right time for this deal. And this is one of the reasons why. You know, traditional content is at a crossroads, as we know. Cord cutting continues, converting continues to accelerate, media companies are moving to digital platforms, MVPDs are partially addressing the bundling issue that's driving down cable subscriber numbers, but all these services cost money, as the SVODs do. And as Netflix Q1 numbers show, consumers are starting to hit a new wall, and so subscriber growth has stopped. And just as an aside, you know I've been saying this for over two years, that AVOD is the future, that ultimately all content will be consumed with ads. And now you've got to ask yourself the question, would you rather pay and watch ads or would you like to watch them for free? Because you have no place to go anymore where you don't have to pay. So that's it. We provide free, great content. People watch ads in exchange for it. And it's why we're in the right place at the right time. Let's move to the next slide. Obviously, this is a big market opportunity. We know that. You know, I think people believe that Avon might be the single best growth opportunity in content distribution today. I certainly am one of those people. And advertising via connected television is going to double by 2024 from 2020 levels. You can see that in this slide. And by the way, that's a study that just came out recently. So right place, right time in terms of the industry, in terms of consumer desire. If you've been listening to our conference calls, let's go to the next slide. We've been talking about how 2022 would be a year of scale for us. Over the past one to two years, we've put in place the services, the content engine, the ad sales platform, the distribution relationships, and the technology to drive growth. Meanwhile, Redbox went public last fall, coming from a different place, but they had essentially the same vision. They also had TVOD. They proved their chops, frankly, in their TVOD and PVOD businesses, which grew fast. And then, no pun intended, they launched their fast channel business, Free Live TV, something we were really anxious to do with an impressive lineup of digital channels. They have their incredible customer base, their customer loyalty program. They have their, excuse me, this is slide 12, I've just been reminded. So for those of you who are lost because I gave you the wrong number, I apologize. Look, I view the red box chicken soup for the soul combination as kind of magical. This is an accelerant of cash flow, bringing customers together, driving revenue and more. If you turn to slide 13, you start to see a little bit about the synergies. There are really meaningful synergies in this transaction. And unlike most transactions where the ones you could count on, obviously, are the cost ones, right, when you look at synergies. But in this case, a number of the revenue synergies are just pretty obvious. We control them by putting screen media, movies through the red box kiosks. All of a sudden, there's another source of revenue for our existing content by selling the ads. for our joint AVOD networks. We don't pay to another party, but we also get the benefit of that advertising sale, and we know that we can arbitrage CPMs. We can get much better CPMs than Redbox was able to get on their own because of our sales force and because of our scale with advertisers. So there are a lot of synergies here, whether they are revenue or cost. I really believe in them. I don't think they're stretches. I think they're meaningful. They're about $40 million a year, and that's a lot of money. So that in and of itself might have justified the financials for the transaction. But as you'll see on slide 14, the combined company is a powerful financial engine. Between the synergies and run rates, we're expecting to exit this year at a run rate of over $500 million of revenue. with $100 to $150 million of adjusted EBITDA run rate, I believe there will be meaningful cash flow from that. And my goal in 2023 is to drive significant cash flow for the business as we get all of the pieces together and we benefit from the rebound, which I think we all know is already happening in theatrical releases. So it's not like we're guessing. Everybody knows the studios are releasing movies again. They didn't before, but they're doing it now. And that is, you look at history, there is a direct relationship between theatrical release and Redbox Kiox results. So, the last slide gives you sort of an overview of what we've been saying, hopefully a little more articulately than I've managed to do it this morning. I just want to say one thing to the Redbox employees. I know you've been through a tough time, but you've built a great company, and you should be proud. We would not be interested in buying Redbox if we didn't think it was a tremendous company with great leadership, terrific people, and a wonderful market presence. And to the chicken soup for the sole employees, thank you for putting us in a place where we actually could try to do something like this. This is a pretty unprecedented transaction. I don't know if they'll write about it. Maybe they will. It's a pretty unprecedented transaction. But we...
spk08: that we couldn't have gotten here without really hard work on the part of a lot of people and i want to thank you all operator let's move on to questions gentlemen thank you and to our audience joining today over the phones at this time if you would like to ask a question simply press star and one on your telephone keypad pressing star one will place your individual lines into a queue Also, a friendly reminder that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and one to ensure that your signal can reach our equipment. Once again, ladies and gentlemen, that is star and one on your touchtone phone if you would like to ask a question. We'll hear first from Tom Forte at DA Davidson.
spk09: First off, Phil and Galen, congrats. It's almost such a good deal, I have no questions. It makes perfect sense. Ask one anyway, Tom. Make one up. All right. I'll force myself to ask one. So, all right. The question I have then is, Bill, you were very early in seeing where the world was heading as far as consumers willing to pay for advertising while watching high-quality content with ads. And others in the space have been talking about subscription video on demand hitting saturation in the U.S. and some pressure on digital advertising, either from consumer packaged goods companies scaling back their spend or auto companies just not advertising because they're already selling every car on the lot. So what are your thoughts on the landscape for AVOD for 2022? And when I look at your first quarter results and your fourth quarter results, You're clearly not affected by some of the same trends that are affecting the industry. Why?
spk04: Okay. So, first of all, thanks, Tom. Yes, we have been saying this for a long time, and everybody knows it. And a lot of times, for a long time, we were kind of alone in this statement. I think it's nice to have a little company, finally, where people have acknowledged that in order for our content business to work, you need a certain amount of money, right? I mean, you just can't spend $18 billion a year and not get money back. It doesn't make any sense. So, you know, there's going to be a lot of rightsizing now over the next year in the business as the big SVODs pull back on production. That's not going to be great for independent producers or people who own studios because there's going to be a lot less production going forward. There's going to be rightsizing and budgets. If your talent, you're about to hear that you're not going to get the same amount of money you got before. It's all already starting. Netflix has already started to cut back meaningfully. If you're an employee in a tech business in our space, you're already starting to see layoffs. I mean, what you would have expected in an overheated kind of business is happening. It's coming back to reality. The thing we've done, Tom, and we've always done it, is we stayed true to a long-term plan that we knew would work. And so we didn't engage in inflated content spend despite the fact that people pushed us to do it. We haven't engaged in sidetracks that make no sense. We stuck to our plan, build our content up, have as much of it as we can, build our ABUD businesses, build our sales forces, create relationships with advertisers. There are a couple of macro factors now that are really important. I think we all know inflation is a real issue. I think a lot of people are suspecting that a recession is coming. I will tell you that it's really interesting to be in AVOD sales today if you believe that's the case. Because what you are likely to see over the next year is even as broadcast and cable get decimated by a cutback in spending, The migration is so ferocious into AVOD that we are going to still be sold out. It's just the way it is. Advertising can shrink in the aggregate by meaningful percentages, and we will still be sold out because we are in the place where advertisers are migrating to, and the places they are leaving, broadcast and cable, are the places that are going to feel the heat. So I think 2022 is actually going to be a great year for our AVOD businesses. with this new scale and with these fast networks which we'll have and the T by business and the P by business, and let's not forget the kiosk business, which is the most value-oriented part of entertainment that exists today. We're in the right place for consumers who need to cut back, whether it's because of inflation eating into their money or whether it's because of recession eating into their money. value conscious consumers are going to increase as a percentage of the overall world and we're sitting there waiting for them it's right place right time and then add to that the theatrical release increase it's really hard to imagine a better moment to be doing what we're doing so i think tom 2022 and 2023 are going to be amazing years for us great thank you bill thanks for taking my questions congrats thank you
spk08: Next, we'll hear from Jason Cryer at Gregg Hallam. Please go ahead. Your line is open.
spk06: Thank you, and congratulations, Bill, on getting this done. wanted to ask if you could just talk a little bit more about synergies and i guess i'm a little focused more on the revenue synergies and in particular things like you've made a lot of investment in your platform recently um redbox has a lot of access to three theatrical content and and clearly you're expanding your production uh over the course of this year so curious how this transaction impacts all of those things yeah that's great that's a great question jason you know um
spk04: When we started to look at what we could do together, a couple of things became obvious. One of which is we both make a lot of movies, and it's a funny thing. We can make a lot less and accomplish our goals, and that's a synergy of cost savings because we will not have to make the 17 that Redbox was making and the 24 that we were making this year. We're just going to need 24. We'll make the 24 that will run both through the AVI business and through the kiosks in a way that generates revenue for both. So there's savings like that. We have the ad-supported, we have our Salesforce savings, which is obvious. I mean, you know, not only do we have much higher CPMs than Redbox was able to achieve through outside sales agencies, so, you know, we all know don't generally care as much. But we also have the ability to sell much more of the inventory because we have a lot of scale now in the ad business. We are an important stop. By the way, for those of you who didn't see our New Fronts video, it's on our website. It's really worth watching. You'll get a sense of just what we've accomplished on the content side of our business. On the tech side, Jason, we were going to have to build a free TV service. Well, guess what? We don't have to now. We wanted to build the TVOD and PVOD service. We don't have to now. Redbox was going to have to build the AVOD businesses that we have. They don't have to now. They were going to have to get the content that we have. They don't have to now. They were going to have to build an ad sales force. They don't have to now. I mean, this is like a once in a lifetime combination. Only Chicken Soup and Redbox together. can create this kind of complete platform that otherwise doesn't really exist today without spending a fortune. So if somebody else were going to try to do this, they'd have to spend the hundreds of millions of dollars and the years that we spent building our content library. They'd have to take the time to build the Salesforce that we have. They'd have to take the time to build the ABOD networks we have. It's just us. It's us and Redbox. Together, it just makes a lot of sense. I don't, I guess most of you would not have any way of knowing that we first started working on this almost two years ago. We thought that this was a perfect match for a long, long time. And you know, sometimes things don't work quite the way you want, but if you are patient and you hang around the net, as I like to say, sometimes you get lucky. And I think we both got lucky on this. The opportunity came to really contribute to each other's well-being. And that's what we're doing here. And so for all of our shareholders, there's real upside, really meaningful upside here. You look at these numbers, $500 million of revenue, $100 million of EBITDA. You know, guys, we're only going to have 20 million shares outstanding after the deal, maybe 20.5 or 21, I mean, tops. You all can do the math. $100 million divided by 20 million shares is $5 of EBITDA share. I don't know what multiple you want to put on that, but... It seems to me it should be higher than one, or two, which is where we might be today. I don't know where we are today. So, you know, real value created here, and in part, Jason, it is the synergies, but there are a lot of them. We didn't really size them all to that $40 million number because so many of them are things that were aspirational and that you didn't have to do, and they weren't cost-cutting. They were cost-saving looking forward. Galen, how do you feel about it? Do you have anything you want to add on that?
spk01: No, I mean, I think the industrial logic between the two companies makes a ton of sense. There's great opportunities. We've already been commercial business partners for a long time with the full chicken soup offering and excited to move forward with the opportunities here. But I think there are undeniable, really easy-to-see synergies between the two companies that create a lot of value. Okay.
spk06: Appreciate all that great commentary. Bill, if I could ask just one follow up there. Last quarter, you talked about your reach into about 40 million monthly users. Is there a way to quantify that today? I would imagine that number increases substantially, but wondering if you can put any parameters around just how big your audience will be after this transaction.
spk04: Oh, my. Well, you know, there's 40 million Redbox loyalty program customers. There's more than 40 million monthly active viewers of the Crackle Plus networks. By the way, we did mention that we had sequential growth of 11.5% in viewership in the first quarter over the fourth quarter of last year. By the way, not normal. That's not a normal quarter to grow viewership that kind of way. And viewership is continuing to grow. So we've looked at the demographics, of course, of our two customer bases, and they're complementary in funny ways. We've got a lot of young people watching Crackle who don't mind watching ads and don't want to pay for anything. And we've got a lot of people who are Redbox customers who want to save money. They both are looking not to pay for things, but it's for different reasons. It's actually kind of a funny complementary group. It expands our universe considerably. But there's some overlap, for sure. We just don't know how much. And we're going to try to figure that out over time. But we've got a huge amount of information now. Think about where we sit. The kiosks, how many millions of interactions every month, Gail? Seven million?
spk01: More, yeah. It's significant. So we're getting lots of data in terms of what our consumers like, what the types of movies, the types of actors. And we can use that across all the different platforms in terms of ensuring that the content that consumers want most,
spk04: available across every different touch point between the combined companies and so we have that plus TVOD and PVOD we've got our AVOD businesses we're starting to be in a place where we will know more about what consumers like than almost anybody so but with real data you know not with this imaginary Nielsen type stuff you know real data that'll get me quoted I'm sure but you know this is This is really an unusual combination, really an unusual combination.
spk06: Perfect. Well, congrats on getting it to this point. Thanks for taking questions.
spk04: All right. You're welcome. Thanks for coming with us this morning.
spk08: And once again to our phone audience today, a friendly reminder, please be sure to return to your handset prior to pressing star and 1 for a question if you're joining today on a speakerphone. Again, that is star and one for a question, ladies and gentlemen. Next, we'll hear from John Hickman at Ladenburg.
spk10: Hi. Hey, congratulations, Bill. Could you talk a little bit about the debt, like how fast you think you can pay it off, what – Can you give us an idea of what you think the interest rate will be in the near term?
spk04: How fast can we pay it off? I think pretty fast, John, truthfully. The combined companies do generate meaningful cash flow, but we need a few months to get our plan in place to really sit down and put things together. We know that You'll see in the proxy in a couple of weeks our projections for the next couple of years, and I would say study that in order to do it. I'm pretty confident this debt's not going to be with us for a long time. That I can tell you. Interest rate, Chris, do you remember what the interest rate is?
spk05: It depends on the leverage of the company at the time. It depends on whether we're paying cash or PIC, but think of it around the 7.5%, 8% area.
spk10: Okay, that sounds reasonable. And then just for modeling purposes in the near term, from your guidance, it would appear that somewhere around $400 million in annual revenues is coming from Redbox. Is that a reasonable assumption?
spk04: At the end of the year when we do that? Chick-fil-A will contribute more than that, and Redbox will probably contribute more than that. So then you're going to say to me, but Bill, that's more than $500 million. And that's why it's a plus. So, you know, we're comfortable saying we're going to exit this year at a $500 million revenue run rate at $100 million to $150 million adjusted EBITDA run rate. But as we roll through this, you know, you'll get a better sense of it in the proxy and the like.
spk10: Okay. Well, thanks.
spk04: Thank you.
spk08: Our next question today comes from Brian Kinslinger at Alliance Global.
spk03: Great. Thank you. Congratulations. I wanted to ask just one question about the rollout of the platform, which was planned for the second half of the year, I think, to hit all your touch points. Did this in any way change that timeline given any shifts in focus? No.
spk04: Business as usual. Business as usual over here. In fact, we're making great progress. I believe the Amazon Fire version of our platform is about to go live, and everything else is staying exactly on that schedule. We've got a lot of adults in the room. We will do our day jobs while we put this company together.
spk03: The follow-up I guess I would have, can you quantify in any way – whatever KPI you think is relevant, and how your platforms on that, sorry, your distribution points on that platform are doing compared to, you know, the touch points that are not using the NewTek platform.
spk04: Thanks. Yeah, so both Samsung and Vizio are on the NewTek platform. Vizio has really soared into third position of all of our platforms ever since we launched it. It's neck and neck now with Amazon Fire. I'm afraid I might quote the numbers wrong, but there's been at least a 40% increase in time spent by people on the Vizio platform now, but there's more of them too. It's not just time now, it's actually more repeat customers coming coming back because I guess the experience is better, which certainly was the plan. Samsung's off to a great start, but it's very early. It was up even more than that. But, you know, we really have to let these things mature a little bit before we give you a real sense of it. But so far, Brian, it's doing exactly what we wanted it to do. I'm very excited to see what happens to Amazon Fire because that's already a very big platform for us. There's some pretty strong marketing there, too. And That's, I think that's coming in the next couple of days. It may even be today. I mean, it's, it's great.
spk03: I'm waiting for it on my Amazon fire myself. Thanks Bill.
spk04: I'm going to use it at home, but thanks for asking. Got one last time for one last question operator. Do you have a last question?
spk08: Certainly. We'll hear from Tom Marr at Hilton Capitol. Please go ahead.
spk07: Hi, good morning guys. Thanks for the question. Um, I had two questions. One is on the, um, sort of the legacy red box business, if I look at that kiosk-based, I'm just curious what the approach is. Is it sort of to enhance and grow that, or is it to transition those loyal customers, if you will, onto AVOD? I just, you know, what's the strategy there? And then I had a follow-on question related to the financials.
spk04: Okay, so two-part answer, Tom. Part one, and thanks for answering that question, because I really didn't make this point. The kiosk business, as it rebounds with theatrical releases, is going to generate a ton of cash flow. And in addition to being a great place to gather information, connect with consumers, market our other services as millions of people come to the kiosk, it represents a source of capital for the company going forward, which will be meaningful. And for those of you who are wondering about the DVD business, you can pretty much count on the fact that with the increase in theatrical releases from 50 some odd last year to over 140 by next year, that there's going to be a dramatic upturn in the in the kiosk business we can already see it starting to develop average rentals per visit is starting to go up and a number of other things so that business is really it serves a couple of purposes one of which is generate a lot of cash flow for the company the other of which is it's another touch point with consumers where we can learn a lot about what they're interested in now there is a service business associated with that kiosk which is also generating some meaningful cash flow for uh for redbox and that business we would enhance as well. And that's, you know, there's some real value to that, I have to say, as well. It's kind of a hidden gem inside the company that people don't really focus on. And Galen is very aware of all of that. It's managed that, I think, brilliantly to create it into its own business that has real upside. So that's sort of floating around as well. Ultimately, of course, though, we're a digital business, and that's the future, and we all know it. And as it takes maybe 10 to 20 years for people to finally leave the DVDs. By the way, there were 3 million DVD players sold last year in the United States of America, for those of you who wonder about whether there are still DVDs out there. There were 3 million sold last year. The idea is really to take these customers who, as Galen said, tend to be slow adopters. And it may not just be because of the tech. Sometimes they live in places where there just isn't enough broadband yet. I mean, there's 20 million people who live in places where there's no broadband of consequence, so they don't get to participate in the digital video business. They get to participate in the DVD business. You know, those people, slow adopters for technology reasons, and people's habits all convince me that while there is ultimately a drop-off in the DVD business, there's first a big spike up, and then over time, over decades, a gradual reduction, because this is just like any other thing. It takes time for people to change their habits and migrate to new things. So that's it. Fair enough. It's really a combination of things. It's very, very exciting, actually.
spk07: Good. And then on the synergies that you've granted, these may be kind of your first take at it. I think you lay out $41 million here. Just curious about how that would split out between sort of assumed revenue synergies versus cost saves, and then maybe to get Chris involved. I don't know what kind of phasing we should look for that in terms of when they sort of hit the P&L.
spk04: Yeah, it's $30 million of cost and about $10 million of net revenue. Chris, you want to talk about timing? I know we have to work on the plan and all that stuff.
spk05: Yeah, I think we'll be working further to – fine-tune the timing as we go through the closing process. But a lot of these cost savings are things that we can implement quickly upon close. I think the two companies have been looking at a combined plan for some time now and fully aligned on execution of that. So I think we'll expect to see the cost savings generated quickly and the revenue synergies as well. Those are things that are We'll start implementing right away in terms of what Bill talked about on the content side and be able to scale back on the titles that the two combined companies were going to work on independently. We'll work on providing some guidance at the right time to help modeling, but these are both areas of synergies that we think we can implement pretty quickly post-close.
spk04: I should point out, I'd be remiss not to point out that Galen has been cutting costs of the business very aggressively over the last year as he right-sizes the business. It's weird. It's the current DVD level, which obviously means if we're breaking even or making money at the current level, if we double or triple, this is going to be a cash flow machine. I think we all believe that's really what we're looking at here. It's not like we're starting with cost savings from day one and we never thought about it before. The Redbox management team has been really smart about the way they've gone forward already. And we're just going to keep that going and add all of the special things that come from the two companies being together. It's an enormous amount of savings and a real accelerant of growth, customers and cash flow and the like. So that's kind of it. That's kind of it for today. This is a big event, as we all know. It's an exciting event. Our company is in a new place. We have a meaningful position now in a business that we will use effectively and thoughtfully, as you can imagine. We're already thinking about our future and everything we can do with this platform. to everything we do with this platform to build our business. It's quite extensive. Look, I'll close by once again just thanking all of our team members. Great job, everybody. Welcome aboard, Redbox employees. Can't wait to meet you. Can't wait to spend time with you. Can't wait for you all to meet each other and to become part of what is a wonderful company. Thank you all for joining us today, and we'll talk to you again, I'm sure.
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