Chicken Soup for the Soul Entertainment, Inc.

Thank you for standing by, and welcome to Chicken Soup for the Soul Entertainment's second quarter 2022 earnings conference 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 1-1 on your telephone. I would now like to hand the call over to Taylor Krafcik, Ellipsis IR. Please go ahead.

Thank you, operator, and welcome. With me on the call today are William J. Ruhanna, chairman and chief executive officer of Chicken Soup for the Slow Entertainment, and Chris Mitchell, chief financial officer, to review the second quarter 2022 results, as well as provide a business update. Following this discussion, there will be a moderated Q&A session open to 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 be materialized from projected results. Given these uncertainties, listeners are in a caution to not place undue reliance on any forward-looking statements contained in this conference call. Please refer to the cautionary text regarding forward-looking statements contained as well as 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 GAAP-based and non-GAAP pro forma financial information. The non-GAAP financial measure the company uses is adjusted EBITDA. Management believes that adjusted EBITDA provides useful information and 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, financial condition, and operational and other informational and risks, please refer to our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended June 30, 2022, which will be filed tomorrow. I would now like to turn the call over to William Ruhanna, Chairman and CEO. Bill, please go ahead.

Thank you, Taylor, and thank you, everybody, for joining us today. We had an outstanding quarter, and we continue to see momentum in scaling our business. We've also been very busy with early integration work on the Redbox acquisition, which, as you know, closed today. We keep on doing this, closing or announcing deals on the day we announce earnings, and I've got to try to break this pattern because we're always very tired when we have these calls as a result. I'm going to run through a few highlights from our quarter and then turn to Redbox in the future for our company. Chris will go through some details on the numbers for Q2, and then we will take some questions. We have a couple of visitors with us today whose names you saw in our press release. Galen Smith, who's our new executive vice chairman, welcome. And Jonathan Cates, who was our new president, welcome, Jonathan. You know, in Q2, we really grew quite a bit. Our revenue was up 70% year over year to $37.6 million. By the way, all of these numbers are Chicken Soup for the Soul Entertainment only. They do not include any Redbox results. Our adjusted EBITDA grew 77% to $5.6 million. Our advertising sales engine is delivering results, both for our owned and operated group of networks and our growing roster of ad rep partners. The ability to do so is a function of everything we've done to scale our business over the last couple of years. Our viewership is growing as we continue to roll out new distribution touchpoints. We've reached a total of 110 pre-Redbox. And these viewers are responding to our new tech platform as measured by increasing time spent on our services. And we are releasing original and exclusive content at a faster clip that's fueled by our robust production pipeline and our large library. Incidentally, our original and exclusive content continues to deliver very well. It was 22% of our ad impressions in the second quarter. Put it together and you have many more viewers spending more time with content they can't find elsewhere. That gives us more ad inventory and more value that we can provide to our advertisers. I'm going to spend a minute on our ad sales operation because we're building something very special there. We don't talk enough about it and it's going to be very important to our future. In addition to our strong owned and operated effort, we've built over the past three years, we now have also built a meaningful ad rep business for Avod companies, and we have 12 ad rep partners. We've sold out our inventory again in the quarter, and we're ready to bring on additional inventory that Redbox's channels provide. Now, the ad sales asset we've built is getting attention in the industry. This year we had multiple fast and AVOD services approach us about selling their ads for them. That's a pretty big change in the last year. We were up from six ad rep partners last year to 12 now. And in addition to expanding our ad revenue, these partners open up future strategic opportunities for our company. Other AVODs have already learned that building an ad sales engine isn't easy. By the way, Microsoft and Netflix will learn that soon. And that gives us a unique opportunity to become a hub that can support the broader free streaming ecosystem. So we've come quite a long way in a short time since starting the Crackle Joint Venture just three years ago. Our vision around the strategic importance of AVOD amid changing consumer viewing habits is now a growing reality. And as we can see from slowing subscriber growth for premium subscription VOD services as well as the ongoing cord cutting trend, consumers are adapting, they're getting smarter about their subscriptions and content choices, and they are looking for value in addition to quality content. AVOD solves all these needs in a way that legacy or subscription services cannot quite reach. By the way, our combination with Redbox makes us the single best place for value conscious consumers to consume premium entertainment. So that brings us to Redbox. This is a transformative deal that, in effect, accelerates our scale-up strategy by as much as three years. In fact, it now makes us the media company for value-conscious consumers, and it begins transforming our financial results right away. As we've disclosed, we now expect to be on a free cash flow positive run rate ending this year, far ahead of our plans as a standalone company. And while the financial markets may have been confused by this deal, we and key investors like Apollo are not. Chicken soup for the soul entertainment and Redbox are a truly unique fit. The combination creates a fully formed entertainment asset for the streaming era that we don't think you can find anywhere else. The asset includes a large content library, our significant IP ownership, a valuable original production pipeline, a fully developed ad sales engine marketing machine with expanded ad inventory, and streaming assets that include our AVOD networks, Redbox's TVOD, PVOD, and free live TV channels, along with their cash-generating kiosk network, and don't forget the service business. Together, our businesses are an ideal fit. and are in a position to tap into the respective value-conscious consumer bases with two great brands, or actually more than two, that complement each other in many ways. Today, in conjunction with the closing, we also announced important leadership appointments. I've introduced them already. Galen Smith, the former CEO of Redbox, will become our Executive Vice Chairman of both Redbox and Chicken Soup for the Soul Entertainment, and will report to me. We also introduced Jonathan Cates as president of Chicken Soup for the Soil Entertainment. Jonathan is a proven television industry leader who will be responsible for operations and will also report to me. You'll be hearing more from Galen and Jonathan as we continue to integrate and scale our combined company. But I also want to take a moment to welcome the rest of the Redbox team. Redbox has phenomenal talent, and we're excited and privileged that we have the senior team joining our Chicken Soup for the Soul entertainment team. Redbox will file its second quarter 10Q tomorrow, and as you'll see, the kiosk business is starting to show renewed growth as the theatrical release market slowly comes back to life and prior cost cutting is beginning to work its way into its P&L. And improving kiosk business is important in the early days of this acquisition as it provides a valuable source of cash flow for the company to fund growth of our digital businesses. But Redbox's current performance isn't the reason we bought the company. We bought it for the assets, the customers, and the unique strategic fit. And we've already hit the ground running on integrating Redbox into everything we're doing. For example, we've turned our sales force to the task of selling Redbox ad inventory. We started folding the Redbox and Chicken Soup for the Soul channel assets into one platform. And we are already integrating Redbox's film content into our screen media sales effort and into our network programming operations. Also, now that we have Redbox's content pipeline, we are adjusting our content strategy from a focus on building more pipeline to optimizing the pace of rights monetization. We now have the flexibility to spread out our content investment without sacrificing our robust schedule. Programming cost is one of several profitability levers we have, and now we have the ability to manage this one well. Speaking of content, with the addition of more than 11,000 new content assets that Redbox has on their AVOD network, including the recently signed AVOD license for MGM content, we now have 51,000 That's a lot, 51,000 AVOD assets. That's pretty amazing. We'll be sharing more soon on our plans, but one fun question I know folks will have is how we are planning to manage our remarkable portfolio of brands. Over time, you can expect to see the Redbox brand emerge as our flagship consumer-facing brand in the U.S., where it has strong brand equity. One example of where we're heading We are in the early stages of creating a singular Redbox app, or as I've been calling it, a super app, that would house all of our streaming networks and be distributed as yet another touchpoint for our networks and content. As for the Chicken Soup for the Soul and Crackle brands, as I've said before, these brands are well-known around the world and will play a starring role as we ramp up our international operations. Overall, our touchpoint strategy will be expanded to include the Redbox app and FAST channels, and that will bring our existing total touchpoints to 141 with 167 once we complete those under contract. It's really a lot of reach. Now that we've completed the transaction, you'll also see other benefits rolling through our financials, including the end of duplicative public company costs, and over time, the key synergy and operating benefits already discussed that will aid adjusted EBITDA and free cash generation. In addition to operating synergies, we'll have meaningfully reduced CapEx, since we will no longer need to build our own fast channels, our fast channel service like the free live TV service Redbox has, or PVOD and TVOD capabilities. Redbox will not need to build a sales force, and neither of us will need to increase our library. We also have more than 100 originals in our queue. One aspect of the deal that I want to touch on quickly is the acquisition financing. Not only was this a very low-cost acquisition for us, but we were able to restructure Redbox's debt in a way that provides us additional near-term liquidity, extends maturities, eliminates covenants, and provides flexibility. In short, we are in a good capital position to achieve our plans with all the cash flow benefits I've just outlined. I'll wrap up with a few observations on the outlook for the rest of the year. We continue to make good progress on our financial goals. We had a fantastic final quarter of standalone chicken soup for the soul entertainment. And at the same time, we're watching the macro environment carefully. While our business model thrives on consumers watching their budget, we also know we're not immune to pressure in ad spend and inflation impacts on expenses. As we sit here today, we do see some emerging caution on the part of advertisers, but not nearly as much as we've heard about in the media. Our increased scale and viewership are also opening us up to political spend in this election season, and we're seeing that activity more than offset any headwinds. For the year, which will include nearly five months of red box results, we believe we will exit the year at $500 million revenue and 100 million EBITDA run rate, just as we said before. In closing, we couldn't be more excited about the addition of Redbox. It sets the stage for accelerated growth. We're looking forward to our newly expanded team, and it is a really great one. And we're going to build a premium streaming service for the next generation of entertainment. We've been right about what's going to happen in the industry, and I think we will continue to be right. I'm going to hand it over to Chris to go over the call and go through our financial performance for the quarter.