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spk03: Good day and thank you for standing by. Welcome to the Chicken Soup for the Soul Entertainment third quarter 2022 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone and you will then hear an automated message Advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Zaya Lawando, Head of Investor Relations. Please go ahead. Zaya Lawando Thank you.
spk09: Good afternoon and thank you for joining us for the Chicken Soup for the Soul Entertainment Third Quarter 2022 Conference Call. We'll begin with opening remarks from our Chairman and CEO, William J. Ruhena, followed by remarks from our CFO, Chris Mitchell. After their remarks, we'll open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. These include the risk factors set forth in Chicken Soup for the Soul Entertainment's most recent annual report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed with the SEC today. And the company's registration statement on Form S-4 declared effective by the SEC on July 15, 2022. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Please refer to the earnings release under the news and events tab on the investor relations section of the company's website for a discussion of certain non-GAAP forward-looking measures discussed on this call. With that, I'll now turn the call over to William Ruhanna, Chairman and CEO.
spk08: Bill, please go ahead. Thank you, Zeya, and welcome, everyone. This is the first earnings call we've had since we acquired Redbox. We had a great quarter. I'll come back to that in a moment when we review the quarter's highlights. I'll also update you on how well our integration of Redbox has been going. I'll walk you through the synergies we've been capturing across every part of our business. But first, I want to spend a moment talking about what a great moment this is for AVOD and FAST. Two studies recently caught my attention. The first was included in a newsletter from Liontree, which many of you know. It's a thought leader in our media financing space. It indicated that 98% of brands expected connected TV advertising to become larger than mobile advertising in the next two to three years. Brands overwhelmingly recognize the growing value of connected TV advertising and nearly every single advertiser is expecting it to become a massive channel to reach their consumers. In addition, 86% of consumers are willing to see ads that are relevant or entertaining. In fact, only 40% of them would reject connected TV if there are too many ads. Going forward, we'll see more and more ad dollars shift to connected TV and ad-supported video on demand. But what's even more shocking and interesting came in the second survey, this one from Nielsen. Only 37% of US viewers are currently watching streaming services. That means the majority of the opportunity in Avon and Fast is still to come and remains untapped. So what does this mean for us? As this shift happens, we're poised to take market share as we build the best AVOD and fast services because the trend is clear. More and more ad dollars will shift to CTV and ad-supported video on demand, and the growth ahead is major. Early on, we as a company identified our North Star, the idea that in a world of more and more competing SVOD services, limited subscriber growth and ballooning content costs, the industry would turn and ultimately rely on AVOD as a more viable business model. We recognize that AVOD would become the place to be and we are just beginning to see that shift as more and more entertainment companies are rushing to offer ad-supported tiers while others are just beginning to explore fast offerings. We've been doing this for years since we first planted our flag with Popcorn Flix in 2017 and then by acquiring Crackle in 2019. And since that time, we've only been getting bigger and better, building scale, adding distribution touchpoints, and producing and acquiring high-quality content for our services. Let me be clear. Our mission remains the same as it has always been. We are building the best AVOD platform and a leading premium entertainment company for value-conscious consumers. I want to underscore the fact that we are the only scaled AVOD not owned by a studio or tech company. which gives us both the opportunity and flexibility to drive our strategy and create value for our stakeholders. By the way, that lion tree study I mentioned earlier also highlighted something that we've known for years. People will watch interesting and relevant ads, with nearly 9 out of 10 consumers saying they're willing to watch ads that are entertaining, interesting, or relevant to them. So both advertisers and consumers are coming together and realizing that AVOD is the place to be and we've never been in a better position to capitalize on that convergence. Our strong and unique positioning in the media landscape is reflected in the results we announced today. We ended the third quarter with revenue of $72.4 million, adjusted EBITDA of $9.6 million, and adjusted earnings per share of 54 cents, exceeding consensus expectations across all of these key financial metrics. The strength in our operating results proves that our touchpoint strategy is working, and we remain comfortable with our expectation to exit the year at a run rate of 500 million in revenue and 100 to 150 million in adjusted EBITDA. We're making this progress because our strategy of owning an incredibly diverse set of assets, which we use to monetize content in every conceivable way, gives us the ability to keep a flow of premium content coming, even though our streaming services are free. We have a physical kiosk business, a TVOD business that complements our growing AVOD business, a fast business, and a studio business where we can produce, acquire, and license titles to other streamers. If there's a way to monetize a title through distribution, we have it and we do it. Not only does our 360-degree strategy allow us to monetize content across every window and platform, it also mitigates the risk of depending solely on one platform or device manufacturer. This combination of monetizing every window, diversifying our distribution touchpoints, and I should add, not being in the very competitive device business, has put us in the best position to capture video on demand, market share, and incremental ad dollars. Our integration of Redbox has been going as well as expected. The management team that we've put in place, along with our employees, have done a tremendous job of identifying ways to capture synergies and scale the business. As we outlined on our last call, we expect meaningful synergies that we've already begun to capture. We've even uncovered synergies that weren't included in our original plan. This is all to say that our plan is coming together nicely, and we have all the pieces and ingredients needed for success going forward. Now turning to a little bit more on our quarterly performance, as you're aware, the performance of our kiosks is driven by both the number and cadence of big theatrical releases, along with the level of rentals. Despite the pandemic, customer visits to kiosks remained steady over the past two years, even when kiosks had very few blockbusters. After a year's long drought, driven by the COVID-related theater closures and production delays, big movies are finally coming back, as you saw this past weekend, and consumers, customers, no longer have to leave the kiosks empty-handed. It won't come as a surprise that the outsized theatrical hit, this year's biggest, Paramount's Top Gun Maverick, As it works its way through our distribution windows, we can expect an equally outsized impact on the level of rentals at our kiosks during the fourth quarter. In fact, we've already seen a positive impact in TVOT during the third quarter from the film, which I'll discuss in a moment. It's clear that big films drive rentals at the kiosks, and that's exactly what we saw as over the last month, with the average number of rentals per day increased by 25% over the prior month. We're continuing to see a growth in average rentals both in October and November, but as I mentioned, we need consistent big title releases to get back to historical levels. That consistency, particularly if you look at exhibit results, is not yet where we want it. However, it's evident that the industry is trending in a positive direction with more studios recommitting to the theatrical window. And I might add that every time a big hit like this weekend's hit comes out, that reinforces the message to the studios. Despite these challenges, our kiosk network remains a critical piece of our marketing and distribution flywheel. And as always, we're focused on driving profitability by constantly optimizing that network. As of September 30th, we had around 34,000 kiosks nationwide. This number of kiosks will fluctuate as we evaluate the most profitable mix of both retail partners and locations. Looking forward, we want kiosk counts to grow year over year as we shift to more profitable locations. In fact, we're already working on adding 1,000 kiosks with our most profitable retail partner. I also want to briefly highlight our servicing business, which is inside our kiosk network, which remains a hidden gem, and although I don't think it will remain hidden if I keep talking about it this way. This business is growing, and we have a fantastic partnership with Amazon Hub Lockers to service their entire network in the U.S. Additionally, our pilot with Kimi was successful, and we've recently entered into an agreement to service their entire kiosk network as well. Turning to TVOD, our transactional offering is yet another way for us to interact with our consumers and meet audiences everywhere they are making decisions. Going back to Top Gun Maverick, This film's strong performance extended beyond theaters and into TVOD, where it was our biggest premium title launch ever at $19.99. Like Top Gun, our value proposition for customers and consumers is as clear as ever. Whether looking for an affordable nightly physical rental at a kiosk or a transactional video on-demand experience, we are the leading premium entertainment destination for value-conscious consumers. TVOD Business provides us with an incredible amount of valuable data on what people like to watch. That data, combined with our kiosk rental information and our loyalty program of 41 million members, gives us both a captive audience and a wealth of information on how we should program and monetize our content on our networks. It's a data-driven process that is one of the reasons that our TVOD Business is a strategic asset that will only grow in importance going forward. Turning to our digital offerings, I spoke earlier about what a great moment this is for AVOD and FAST because of the seismic shift of the consumers and advertisers to see TV from linear and broadcast. Overall ad impressions were up 28% year-over-year in September, and CPMs were up 8% during that same period, proof that we're capturing audiences in droves by supercharging our distribution touchpoint strategy not only for Crackle and Chicken Soup for the Soul services, but now for the Redbox app as well. We're on track to hit over 160 touch points by year end, giving us the reach and footprint to meet audiences everywhere imaginable. And in our ad rep business, we've added two new partners, bringing our total number of partners to 14, with more to come. Those who are paying attention would have noticed the steady flow of press releases we put out. One as recent as this morning announced our extended partnership with Vizio, which, by the way, is added to our previously announced Hisense partnership, two of the largest TV manufacturers in the world, to add not one but two buttons for both the Crackle and Redbox app on millions of remotes in 2023. If remotes were real estate, I'm told this is prime Malibu oceanfront. We also recently expanded our relationship with LG, launching four fast channels on their platform Crackle, Chicken Soup for the Soul, Truly, and Popcorn Flix. We're also seeing continued success and growth at our Chicken Soup for the Soul streaming service, where I'm pleased to announce we're expanding our distribution footprint and are launching on Amazon Fire and Android TV, with Roku soon to follow. The growth we saw on the app from August to September in number of minutes watched is a big number, over 4,000%. Of course, we're talking about starting with small numbers there. But nevertheless, it was driven by two factors, increased touch points and high quality programming timed to major global events, which I'll talk about in a moment. The Chicken Soup for the Soul brand is recognized and loved by audiences around the world. And that brand strength is a major driver of the performance of our branded streaming service. Much like the book series, the content on the streamer consistently resonates with audiences because it's both topical and seasonal. Our programming team does a fantastic job curating content on the Chicken Soup for the Soul app that resonates with audiences and ties into major global events. A fantastic example of this includes the Chicken Soup for the Soul Royals channel, which featured 24-7 content on the royal family and tied into the life and legacy of the late Queen Elizabeth. Audiences loved this content and helped drive Total Minutes' view in September to a record high. Heading into the holidays to better service our audiences, the content they love, we've got one of the largest offerings of holiday fast branded fast channels among all AVOD services, 13 channels to be exact, including one from Chicken Soup for the Soul. And as we continue to expand our digital distribution touchpoints, our world-class team of creative and acquisition executives are making sure that we have the highest quality content that viewers love to watch. The strong performance at Crackle and on our other platforms was driven by our high-quality slate of original shows, including shows like The Wall, In the Vault, and Going from Broke, executive produced by Ashton Kutcher and Dan Rosenzweig, which if you haven't seen it, you should really check it out. By the way, Season 3 launched on November 10th, as well as our exclusively licensed content like BBC's Sherlock. Not only are we putting high-quality content on our own services, but we're also producing and licensing high-quality content to other streamers. Our Halcyon Studios-produced series for Disney+, The Mysterious Benedict Society, is a breakthrough hit, being nominated for 11 children and family Emmys, including Outstanding Young Teen series. The series began streaming last year. A second season just premiered on October 26th. So when it comes to content production and acquisition, our strategy mitigates risk without sacrificing quality. You'll also see us develop co-productions, like we're doing with Publicis Media's APX Content Ventures on an upcoming reality series starting the hilarious JB Smooth that will run exclusively on our Redbox and Crackle platforms. The power of our studio model over time allows us to offset production risk while creating a pipeline of content that is owned and controlled by us. content that we can monetize across every channel. Turning to our advertising outlook, there's no doubt that advertising budgets are shifting from broadcast and linear to CTV, and as we build the best Avon and Fast platforms, we're insulated from the decline in traditional broadcast and linear ad spending. We expect to see continued strength in CTV ad spend as we head into the holidays and into next year. As the industry scrambles to pivot to ad-supported streaming, we are well-positioned to take advantage of that shift and create value for our partners, customers, and shareholders. I'd like to thank our employees for their tremendous dedication and hard work as we integrate Chicken Soup for the Soul Entertainment and Redbox. Without them, we wouldn't be a top AVOD company and the leading destination for premium content for value-conscious consumers. And then finally, in closing, we announced this afternoon that we're excited to have Jason Meyer promoted to the role of Chief Financial Officer of Chicken Soup for the Soul Entertainment. Jason joined us about a year ago and has served as our Chief Accounting Officer over that period. He brings a wealth of experience and is well-suited for the role, which he will officially start tomorrow. And of course, we need to thank Chris Mitchell, our current CFO, who will continue to be the Chief Financial Officer of our parent company, Chicken Soup for the Soul Holdings, and will remain on the board of Chicken Soup for the Soul Entertainment while he continues to help out in other roles with the parent company. He will also continue to help with investor relations and financing as needed for the entertainment business. With that, I'd like to turn it over to Chris to walk you through our financial results for the quarter.
spk11: Thank you, Bill. Good afternoon, everyone. First, I'd like to say congratulations to Jason. I'm excited to see you move into this role. Now for some commentary on the quarter. As Bill discussed, we're well positioned to continue taking AVOD market share as both audiences and advertisers shift from linear to CTV, and now with the addition of Redbox's TVOD and DVD businesses, we are even better positioned to benefit from the rebound in theatrical releases. Our third quarter results were strong and reflect a partial quarter for Redbox as the acquisition closed on August 11th, 2022. Third quarter net revenue was $72.4 million, compared to $29.1 million in the prior year period, a year-over-year increase of 149% and compared to net revenue of $37.6 million in the second quarter of 2022 for a sequential quarterly growth rate of 92%. In addition to growth from having six weeks of Redbox revenues in the period, we saw continued strength in AVOD streaming revenues from AVOD rights as well as ad representation revenues, distribution touchpoint revenues, owned and operated ad revenues driven by our new apps, and an increase in sponsorship revenue due to the premiere of Chicken Soup for the Soul Television Group's original production, Pet Caves, on our streaming platforms. We saw continued strength across all of these streaming revenue categories, once again highlighting our unique positioning in the AVOD ecosystem. The benefits of Redbox acquisition started to become clear right away as CSSE Salesforce began to sell Redbox's AVOD and fast channel ad inventory, realizing higher CPMs and higher fill rates as compared to levels realized pre-acquisition, while also saving the commission that Redbox used to pay to a third-party sales team. We also recently saw the benefits of owning Redbox's TVOD platform in early November with the strong performance of Top Gun Maverick, our biggest premium title launch on TVOD ever. We believe our third quarter performance is once again noteworthy in light of the macro and secular growth challenges facing the broader media and streaming industries. In the third quarter, gross profit before film library amortization expense and related costs and after Redbox product cost was 45.4 million, or 63% of net revenue, as compared to 18.3 million in the prior year quarter or 63% of net revenue. CSSE standalone gross profit was 22% of net revenue in the quarter, up from 16% in the second quarter of 2022 and 21% in the prior year quarter. When combined with Redbox's standalone gross profit margin after product cost of approximately 59%, the combined businesses had a blended gross profit margin of 38%. Operating loss for the third quarter 2022 was $42.7 million compared to an operating loss of $13.2 million in the year-ago period. This variance was largely driven by a $15.3 million increase in one-time transaction-related expenses related to the close of Redbox and an $8.7 million increase in compensation expense primarily driven by year-over-year increases in workforce driven by the Redbox merger and the acquisition of 1091 Media in March of 2022. We also had a $4.1 million increase in other operating expenses primarily related to additional overhead costs of $3.1 million from the Redbox operation. Our adjusted EBITDA for the third quarter was $9.6 million compared to $4.9 million in the same period last year, representing a year-over-year increase of 96%. This reflects our continued viewership growth and our cost-efficient content acquisition, production, and distribution model. As we integrate Redbox, realize revenue and cost synergies, and continue growing and expanding our original and exclusive content library, we expect to drive further EBITDA growth and margin expansion over time. Of note, net income for the quarter would have been positive without the non-recurring transaction cost. Looking at our balance sheet and liquidity position as of September 30, 2022, the company had cash and cash equivalents of $36.3 million. compared to $23.5 million at the end of the second quarter of 2022. As we discussed last quarter, we are focused on free cash flow and are scaling back on content spend. In fact, we've committed to less than $500,000 of new content spend since closing the Redbox transaction. And we have the ability to view our content assets as a savings bank that we can selectively cash in if we choose to. Further enhancing our liquidity, we have very little in the way of payments, that will become due under our new HPS debt facilities if we choose to pick our interest expense as there is no required principal reductions for two and a half years post closing of the acquisition. We also have multiple sources of additional liquidity available to us including the ability to have an accounts receivable based facility against our $96 million of accounts receivable and normal course content financings. All of these levers combined to put us in a solid liquidity position with flexibility as we remain committed to generating free cash flow and paying down debt. Now I'd like to turn the call over to Zea for Q&A. Thank you, operator. Can we open the line for Q&A, please?
spk03: As a reminder, to ask a question, press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Thomas Forte with DA Davidson. Your line is now open.
spk04: Great. So, Bill, congrats on an amazing quarter. Two high-level industry questions. The first one is, when you think about the industry, to what extent is the launch of Netflix 699 ad-supported service going to accelerate the secular shift of ad spending moving to OTT from linear TV?
spk08: I think it's going to accelerate it a bunch, Tom. We've already seen that basically every major advertiser now is committed to CTV, as I cited earlier in the talk. And it just validates once and for all that this is it, that it is an ad-supported business that we're all in. And consumers are going to watch content with ads. And don't be surprised if the Netflix and Disneys of the world continue to increase the number of ads they run on their shows because they need them and they need the money. So it's happened. People have arrived.
spk04: Excellent. I agree with you, and I look forward to watching their ad loads increase over time. All right, so the second one then is also industry level, but then trick-or-treat for the sole specific. So if I think about Amazon and Apple and forget about how much money they're spending potentially to take live sports and move it to OTT, but to what extent is live sports moving the OTT accelerating cord cutting and how is an accelerating cord cutting good for chicken soup?
spk08: Well, you know, I think earlier on, I, I, I, um, talked about that Nielsen statistic about only about 36% of people getting their, their, uh, content through streaming, meaning, you know, there's 64 left to come, to come over. Uh, We're after that 64% time, aren't we? I mean, that triples the size of our business or our market at the very least. And as the sports move over, the cord cutting continues. The size of the market we're attacking is going to triple in size over time. And it just gives you a sense of the scale of the opportunity in front of us. It's one of the top five people in the space. We've got an enormous opportunity. So yes, sports helps, and now it's helping us by moving people.
spk04: Thank you, Bill.
spk03: Please stand by for our next question. Our next question comes from Dan Kurnas with the Benchmark Company. The line is now open.
spk02: Great, thanks. Good afternoon. I haven't got that one in a while. Bill, maybe just A few, if you'll bear with me. The quick one that I always get asked of you is your channel mix on sales. And, you know, you're about, I think, 14% programmatic now. We know that Magnite just won. Fox is one view deal from Freeview, from Freewheel, excuse me. And, you know, it's interesting because Tubi is growing gangbusters, primarily programmatic, whereas Pluto, which, is going a little bit the other direction. It's actually sounded like they're starting to shift a little bit more to direct sales channel. So I'm just curious how you're thinking about kind of channel sales mix going forward.
spk08: Yeah. Hi, Dan. That has always been an issue, as you know. We've always taken the position that direct is the way to go for the most part, and that seems to still be the case as far as we can tell. I've always tried to make sure people understand that Direct sales doesn't necessarily mean direct delivery because we quite often sell directly to advertisers and then deliver programmatically because it's advantageous for us and them. But that continues to be the case. I think we're at 69% direct if we brought the numbers current. There'll be a new deck filed in the morning. That'll be in there. And so we're staying where we are. I will say this, Dan. We're now at 14 ad rep partners. People have come to us to ask for help selling their ads. The reason they come to us is because we have a direct sales force. And that part of our business has been growing very, very rapidly. It is an extraordinarily advantageous place for us to be because it gives us increasing critical mass and therefore increasing importance to our advertisers. It allows us to help these other companies monetize their advertising, but it wouldn't be happening if we didn't have a direct sales force. They need access to what direct salespeople can do. We have it. We provide it. I don't want to get into the details of the nature of that business, but suffice it to say, it's a good business for us. So we're now up to 14. We were at three at the beginning of the year. These are not insignificant people who have come our way. And there are another three, I think, at least in the queue who are coming to get this kind of help from us. This creates a kind of collective group of AVADs who are going to the market together. It provides increasing clout, increasing notoriety, recognition, whatever you want to say. This direct Salesforce approach has really worked well for us in more ways than one.
spk02: Got it. That's a helpful update on that. And then just something that you kind of mentioned, only 500,000 in committed content spend. Obviously, you have a huge library. You've added more. You're working on the integration with Redbox. It's just kind of an interesting point in the market, right, Bill, where you've got a bunch of guys that are probably starting to recognize that they're maybe spending a little too much on content spend a little see if that eases or not and they're really looking for outlets to utilize more efficient networks which you guys have through studios and just you know we've always you always prided yourself on your original content mix how do you think of both being an incremental channel for content production some of which you've mentioned today as well as also And you mentioned this a little bit with Top Gun being an outlet for increased monetization from third-party partners.
spk08: Well, as you know, I like to make money in any way we possibly can. And so being an outlet for others' content, especially through our TVOD business and our kiosk business, it's really a great place to be. It generates tremendous amounts of cash flow. It gives us some strategic importance to those partners because we're the sole source of certain types of revenue or an important source of other types of revenue. And you can't underplay how important that is in a business of the sort we're in, that we have an outlet or two that are very important contributors to some of the biggest companies' revenue streams. So from that point of view, Dan, I like it as a profitable business. I also like it as a business that puts us in a good strategic position. from the point of view of creating our own content, the fact that we didn't spend much is because we have a lot. We have built up, as you guys know, over the last year, over 100 pieces of original exclusive content that we have coming our way. We've got thousands and thousands of Avon assets, tens of thousands of Avon assets now, and those assets are of higher and higher quality. I watch our networks. pretty much every day, sometimes to the chagrin of our network ops people, because I may be the best QA guy in the company at this point, given the fact that I'm constantly complaining, because I want it to be as great as it could possibly be. And I've got to tell you, the stuff we have on the networks is really, really good. I called out some of it, and the wall is great. In the Vault is great. I watched the Brian Wilson special last night. It's great. Sherlock is great. These are incredibly high-quality shows. They're just as good as anything you'd find on NES spot, and there are lots of them on our networks. We're in a good spot as far as content goes, and that's one of the reasons we're going to be able to look at our content as a savings account, as Chris said, as much as anything else. We'll generate a fair amount of liquidity from our content over the next 12 months.
spk02: And I know you'd be disappointed in me, Bill, if I didn't ask this, even though, of course, you're just digesting Redbox. But you did put in the press release more commentary around international. And, you know, we've got Paramount starting to launch a hybrid model there next year. I think they're starting to help lay even more groundwork there. But just how do you think about international monetization? You already have some of your own, you know. boots on the ground or bricks laid there, but just how much of an opportunity is that, do you think, over the next 12 months?
spk08: I think it's a big opportunity. You know, it's gone slower than I thought it was going to go down. I thought we would already be in quite a few more countries than we're actually in right now. We are in pretty serious discussions, as we say in the new deck we filed tomorrow, in dozens of countries now. with meaningful potential counterparties, well-recognized, well-thought-of partners. I think it'll end up being a very big opportunity for us, structured a little bit the way A&E rolled out their business internationally and the way HBO rolled out their business internationally. But proof's in the pudding. It's not there yet, but I do think it's going to be a big opportunity.
spk02: All right. Thanks, Bill. I will leave you to your QA and the rest of Q&A.
spk03: Thank you. Thank you, Dan. Please stand by for our next question. Our next question comes from Eric Wold with B Raleigh Securities. Your line is now open.
spk06: Thank you. Good afternoon. A couple of questions, Bill. I guess you mentioned I guess we'll start with the finance one first. You mentioned that you still expect to exit the year on a $500 million revenue run rate and $100 to $150 million in just an EBITDA run rate. Can you talk about the puts and takes that could drive EBITDA to the low end or high end of that range with that same kind of fixed revenue number? And then do you still expect to exit this year on a positive cash flow run rate?
spk08: I don't think anything's changed, Eric, from what we expected when we did the acquisition. What may change is some of the ways we end up at those results. So, for example, I was really surprised by how good a business I see the TVOD business becoming. That is going to be a big contributor to this process. I've also been really gratified by the way in which the the AVOD networks are now coming together and the way in which we're rolling out additional places where there are the additional touch points. And I think our sales force is doing a great job already selling a good chunk of the inventory that Redbox has had. And then there's the fast business where we added eight or 10 more channels. So all of those parts of the business are actually exceeding my expectations. The service business is also exceeding my expectations, and the one place that's not exceeding my expectations is the kiosks where the pace of the new theatrical releases continues to be choppy. We get a top gun. We have a fantastic experience, and you'll see that as the process continues to roll on, there'll be more and more theatrical releases that are coming. It's pretty clear now. But, you know, it's the combination is really good. And I think it's really the mix, Eric, that's going to drive whether it's 100 or 150. They're different margins.
spk06: Okay. That helps. But just to clarify the last one, are you still looking next to be on a positive free cash flow run rate?
spk08: Yeah, I'm still in the same place. I haven't changed the thing about what I predicted.
spk06: Final question.
spk08: I'm going to ask you a question. You raised a question in a report I saw recently about financing, and I hope you heard the answer, which Chris delivered loud and clear. Our working capital needs are satisfied by our cash on hand, our $96 million of accounts receivable, and our ability, if we care to, to get accounts receivable financing. So to the extent people are looking for something else, that's all we need to do.
spk06: Okay. And then final question on Redbox. You talked about how obviously the pace of releases is still something that kind of is holding back the recovery in that business. But if you look at the individual titles that have come out, the strong titles that have come out kind of in Q2, Q3, and so far in Q4, can you talk about kind of what you're seeing with kind of the rental patterns or trends of those titles versus kind of what they were for strong titles in pre-pandemic? And are you seeing any evidence of those strong titles and the traffic they're driving, driving demand for maybe some of the smaller titles in the kiosks as well?
spk08: Yes to that. We are seeing that as always because people don't usually rent one thing. I think the average rentals are close to two per session, if I remember correctly. I don't believe we're ever going back to 2019 in the kiosk business, so let me be clear. Nor have I ever said that I thought we were going back to 2019 in the kiosk business. Our entire premise for the purchase of the business was that we would return to about half of 2019 through the resurgence of theatrical. I mean, the world's changed since 2019. But if we get to the numbers that we expect, we'll be highly profitable, Eric, and that's what we care about. So the answer to the question about what are we seeing, what we're seeing is consistent with what I expected.
spk02: Got it. Thanks, Bill.
spk00: You're welcome.
spk03: Please stand by for our next question. Our next question comes from Jason Cryer with Craig Holland. Your line is now open.
spk07: Hey, guys. Good afternoon. Bill, we've heard a lot in Connected TV about some advertisers pulling back on budgets just due to the macro. So curious if you're seeing any of that in your business. And then the second one for me, just any updates on your strategy on pricing of either kiosk or TVOD rentals?
spk08: Yes. Let's see. Pullbacks. I'm sure there are some, Jason, because the economy sucks. That's a technical term. But I don't think we're really seeing it. It's overwhelmed by the movement from linear and broadcast to CTV and really overwhelmed in the last quarter politically. There were so many political ads, even though we were trying not to take too many. So just everything that came through programmatically was political. It was getting pretty annoying. I wouldn't want to live in Georgia right now where they're about to have a repeat of the last period of time because of that race. But it was, to me, that's – I think if you don't get the fact that there's this huge migration masking whatever's happening in the economy – then you don't understand the industry because we've got more viewers and the broadcasters and linear guys have less viewers. I mean, it's not really complicated. The advertisers follow the viewers and they no longer wonder whether they need to be on CTV. I mean, you remember when we first started doing this and started talking about this with you, there was a question, will advertisers actually go to connected television? Well, that's over. That question has been conclusively answered once and for all. Thank you, Netflix. Thank you, Disney. And thank you, viewers, for moving. That's why they come. So that migration isn't over. It's at the very beginning. I cited those Nielsen numbers for a reason, to make sure people understood that we're in, like, the third inning of what is a massive change in the nature of our business. We're not in the ninth inning. We're in the very early innings. So I think that's the answer on the advertiser side. We haven't seen it. I think I said in there somewhere that ad impressions were up 28% year over year, Jason. You know I think that's the most important metric in our business, number of ad impressions, because that's what we can sell. So that's the combination of viewers and time on site, both of which have been going well for us. The 28% increase is a meaningful one, especially given what people think is a moment of headwinds, of high competition, of fractionalization of the marketplace, all the things that people think are going on in our space. And they are. But we've got a strategy that I think has been working and is working to grow our business and to grow it in a cost-effective way. I forgot your second question, Jason.
spk07: That's okay. It was just around pricing, any changes to pricing on kiosks or TV on demand.
spk08: Well, now I can tell you that on November 1st, we raised prices at the kiosks by $0.26. So from $2 to $2, or from $1.99 to $2.25, that already happened. I'd been pretty clear, I think, with most people that we were going to look at that, and we not only looked at it, we did it. Now, TVOD's a little trickier because we compete in TVOD with a bunch of others who price the way they price. So I don't think that's as much a price situation as it is a discovery situation. And I'm really excited that the people at Google finally came around and decided to include our available TVOD service in searches about movies up until about Three weeks ago, you would have found Amazon, you would have found iTunes, you would have found Vudu, but you wouldn't have found us when you searched for a movie, and now you do. And that's clearly had a positive impact on our TVI business. And like I said, there have been some really pleasant surprises on the upside. That's one of them. So I think there's more to come on that.
spk03: Great. Thank you, Bill. Please stand by for our next question. Our next question comes from Michael Morris with Guggenheim Partners. Your line is now open.
spk10: Thank you very much. Good evening, team. I have a couple questions. One, I'm hoping you could talk a little bit more about the impact of the button arrangement with Vizio and Hisense and what kind of a lift you have seen or expect to see from these types of partnerships, maybe any kind of cost associated with that. I'm also curious about, Bill, your comment about adding the kiosks. If you could expand a bit more on sort of the profitability or path to return on the kiosk growth plans, how long of a process you expect that to be. And then finally, free cash flow. talked about the guide of a run rate as you exit the year. What are your thoughts on full year free cash flow, either in sort of 23 or beyond? What does that path look like? Thank you very much.
spk08: Okay. See if I can remember these. On the buttons, Mike, you know, we did a Vizio button deal, I guess, a little over a year ago, maybe a little bit more. The reason we not only renewed it but expanded it was because it worked. We were able to see people click on the buttons, sample our content, and stay long enough so that we could measure the return. And it was substantial. What we found as we did all this analysis and measuring was the previous deal that Sony had done a number of years ago was still leading to more people viewing. So the buttons have worked. And as we've looked at the business One of the key complaints that viewers have is it's hard to find things. So we're doing everything in our power to make it easier to find us so that they don't have to go searching. And the buttons definitely do that. So we are very committed to the strategy of further buttons if we can get them. And if we can't, getting ourselves placed on what I'll call the home page of the smart TV manufacturers so that our tiles are obvious and easy for people to find because discovery is a critical, critical issue and the first thing people have to discover is your network. So we're there and that's going to continue. The kiosks probably will surprise people to hear that I'm interested in the idea of looking at both the retail partners that we have and the number of kiosks we have in a new way. First of all, There are some retail partners that are not as profitable as others and I don't really want to, I think it's kind of a waste of time and energy to be spending money on less profitable partners. Some of the more profitable partners are ones that we have big opportunities to expand the number of kiosks that we have. And that's really where our focus will be. Now it's going to take some time because If we're going to move things around, which we will do, and try to follow the money, which we definitely will do, there's time and effort involved in that. But there's a real opportunity, and I'd say this is another one of those things I didn't realize we would have the opportunity to do. I thought we would just be taking things out. Now I'm starting to think we're going to be putting things back in places that it is more sensible and more profitable to do. Those kiosks still do very well. There's the same number of visits now than there were over the last two years. The number of visits have not gone down. They stay very steady. There's a number of conversions that have gone down because of the lack of stuff to see, but now the boxes are starting to have a lot of stuff in them again. There's Top Gun and Bullet Train and Note, but a few other things this week that you just haven't seen this quality of content sitting there for people. So they're going to have more opportunity to rent things, Mike. And that, of course, means more per session. And that drives you back to the kind of numbers that we want to see. You asked about free cash flow and 2023. I wouldn't change a thing from what we've said before. You know, this $500 million run rate is how we'll try to enter the year. I'm sure we'll grow it, but we haven't predicted a number yet, and we can't really until we take a harder look at next year, which we're doing now. But we're learning a lot. It's been great. A lot of work, not complaining, mind you, but tremendous amount of work and a lot of change for people, and that's always hard. But it's been a good experience, I'd say, overall.
spk10: Thank you, Bill. I appreciate that insight. If I could just follow up on the first question about the buttons, totally appreciate your point about that valuable real estate. Are they expensive? I mean, it seems like.
spk08: Oh yeah. I forgot to answer that part. Well, let's put it this way. Our evaluation is that there, there is a return on the investment, but I will tell you that part of the reason it's worked for us, this goes back to something I talked a long time ago about. We have other ways. We have relationships with most of these, these, uh, manufacturers. We do other things with them. We provide content. We do a lot of things that allow us to mitigate costs, Mike, and I think probably as a result of that, we find ourselves in a different position than maybe other people would have who don't have the ability to bring other assets to the table. So they're not that expensive, and they're certainly not expensive compared to what they return.
spk10: That's great. Thanks for helping with that. Appreciate it.
spk03: You're welcome. Please stand by for our next question.
spk08: This is going to be the last question we can take, operator, because we're running out of time. But I wanted to make sure I left this one opportunity. Okay.
spk03: Our next question comes from Laura Martin with Needham. Your line is now open.
spk05: Hey, nice numbers, you guys. Congratulations. So, Bill, you're a great programmer. And so what I am really intrigued by is this Redbox opportunity for TVODs. It is my point of view that we're going to have big hits, but then there's not going to be 10 of them in the theater. Agree with you, 2019 isn't coming back to the theaters. My question is, do the rights with Redbox work for TVOD or the next window you have so that you could put more of the sequels or the prequels into those boxes and sort of displace other, maybe not so popular, titles from the box office at that time. Do you have enough time to sort of rejigger what's in those boxes? Because we saw with Lord of the Rings, once Amazon released the new one, they subleased from the owner all the prior Lord of the Rings and they like tripled the viewing on those other ones. So that would be a profit driver for Redbox. Do you guys have the flexibility to do that when you're adding titles for the Redbox sales?
spk08: Funny, we have both a digital and physical contract with all the studios, Laura. So we have access to both their DVDs and their transactional video rights. That doesn't automatically translate to Davod, however. So that's going to be a catch-as-you-can or sporadic thing. But what we will know is what's working before anybody else, because we have the TVOD business and we have the boxes working. And that's part of why I'm so excited about this collection of assets. The information that we get from each of these places we've monetized can be used in the other places. So to really reinforce your point, we'll know that things are working, and we'll be able to go and solicit them for other parts of our business faster than other people will, because we're in every place that people are consuming stuff. So I hope that answers your question.
spk05: So it sounds like the answer to my question is no, that if you're going to get over the weekend, Wakanda was a massive hit, 180 million in the box office. So you now know that from the box office release date, you would love to go to Marvel and basically pack those red box kiosks with all the stuff having to do with Wakanda. You don't have the flexibility to actually do that at the kiosk level, it sounds like, in the physical world.
spk08: We actually do that, Laura. We actually do that. So I answered your question slightly differently because it's not an automatic right, but we do have the ability to do that, and we do. We do.
spk05: Okay. Okay. Cool.
spk08: And then my other – It does increase the viewing that we get on these older movies.
spk05: Yeah, and I think sequels are going to be sort of where we gather audience from now on. Okay. So then my other question is on – I'm very interested in your point of view on as we get Netflix further into late next year, as we get Disney starting, you know, best in class in December, it feels like 2023 with the combination of weak connected television demand and lots of new supply might actually start hurting our cost per thousand. Could you give us a point of view on that?
spk08: Well, you know, Our CPAMs are up 8% over last year, this year. We've been going out to market looking for more than we're getting currently. We're taking orders that way. A lot of what we'll take orders for, you know, are for sales across the year. So the question would be the spot market, I guess, because by the time you get to the point you've described, towards the end of next year, it'll be a spot market question, not an upfront question. I think it's possible, Laura, but I actually don't think it'll come out that way because I think the last piece of the puzzle is the migration of people. And I don't see that slowing down at all, especially to AVOD. Because if the market really is going to be softer, as is the premise of the question, there's going to be even more pressure on people to watch AVODs as compared to, you know, double or triple up on their SVODs. So I think we've got that offsetting factor at least to consider. But my crystal ball is not as clear as it might otherwise be.
spk05: No, super helpful. I mean, you're an expert, so it's super helpful to hear your point of view. Thank you very much.
spk08: Thank you. And, operator, that's going to be it. And I want to thank everybody for joining us today. And we went a full hour. I didn't really mean to go quite that long, but they gave me a lot to say because there was a lot going on, and it's been a great start to a beautiful marriage. So thanks, everybody. And to all our employees, thanks for joining us today. And to all our investors, thanks for joining us today.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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