Chicken Soup for the Soul Entertainment, Inc.

Good day and thank you for standing by. Welcome to the Chicken Soup for the Salt Entertainment fourth quarter 2022 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would like to hand the conference over to your speaker today, Sayola Wandau, head of investor relations. Please go ahead.

Thank you, Kevin. Good morning, and thank you all for joining us. We'll begin with opening remarks from our Chairman and CEO, William J. Ruhanna, followed by remarks from our CFO, Jason Meyer. After the 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. This includes the factors set forth in Chicken Soup for the Soul Entertainment's most recent annual report on Form 10-K and in our most recently filed quarterly report on Form 10-Q. The company undertakes no obligation to update any forward-looking statement. Please refer to the earnings release under the News and Events tab in the Investor Relations section of the company's website for a discussion of certain non-GAAP forward-looking measures discussed on this call. And with that, I'll turn the call over to William Ruhanna, Chairman and CEO, Bill, please go ahead.

Well, thank you, Zeya, and welcome, everyone. And thank you for being flexible as we had to adjust the timing of the call in order to take advantage of the opportunity to raise a bit of capital, as you saw in our filing this morning. And I'll discuss that in greater detail in a moment. But first, let me talk a little bit about the past year. 2022 was a year of transformation, not only for our industry, but for our company as well. Total annual revenue for the company was $253 million, up 129% over last year, and adjusted EBITDA was $33.5 million, up 53% in the same period. We hit our revenue run rate of $500 million in revenue and $100 to $150 million of adjusted EBITDA as we planned. When we started the year, we had about 170 employees. Seemingly overnight, we found ourselves with over 1,300 when we acquired Redbox. Integrating a company several times larger than us was no easy feat, particularly one dependent on the return of theatrical releases. And despite the challenges we faced, we were able to position ourselves successfully for continued growth in 2023. As we look forward, there are many opportunities for us to scale our business further and continue growing, all driven by three pillars. One, the Redbox integration and the kiosk rebound that is currently underway. Two, our position as a premier advertising sales platform for the broader Avon industry, and three, efficient working capital that supports the growth we expect in 2023 and beyond. As we'll discuss in a moment, the return of theatrical titles is firmly underway. This return, however, began in earnest months later than we had anticipated when we acquired Redbox. When looking at 2022, there was only a small trickle of big-budget wide-release hits that broke the year-long theatrical drought. Films like Top Gun, Maverick, Black Adam, and Black Panther were gone forever. But the frequency of the releases was sporadic and very slow. We were still seeing extended weeks with no major releases. To give you some context, that's only three major event films from August through February. And as you all know, the kiosks depend equally on the frequency of major releases as they do on the volume of those releases. The frequency of major releases is finally here. After waiting for years, big movies are back in the theaters every week. Beginning in February this year with the theatrical release of Ant-Man and the Wasp, Quantuminium, we expect at least one new major wide release every weekend for the rest of the year. It's like the floodgates have opened and the studios are rushing to release as many films as possible on available weekends. In fact, the 2023 theatrical slate is one of the most impressive in terms of content and volume in years. Some of the highest grossing film franchises of all time are slated to release their latest installments this year, including films like Indiana Jones and the Dial of Destiny, Fast 10, Transformers, Rise of the Beasts, and Mission Impossible. Dead Reckoning, and there are many, many others. We already see the positive impact on rentals as these films move from theaters to kiosks and TVOD. The average weekly rentals at the kiosks in March are nearly twice those in the month of February. Rentals per kiosk per day, our version of same-store sales, also jumped in March and are now over 40% of 2019's level, and we expect that to continue to grow. In line with our expectations, we expect to see the early impact of the theatrical rebound beginning Q2, as those films arrive in the home video window following a four- to six-week theatrical run. And for those doubting the pent-up demand for audiences to watch these films in the theater, all you have to do is look at the theatrical performance of recent releases like Creed III, Scream 6, and John Wick Chapter 4. All of these films set franchise record-breaking opening weekends. Creed III had the biggest opening weekend of any sports film in history. Even when looking at the Super Bowl ads this year, with 11 film trailers shown, nearly doubling the amount during last year's Super Bowl, you could see the evidence that the theatrical business is back. As studios spend millions on P&A marketing these films, We stand to benefit from consumer awareness as the films leave the theatrical window and enter the home video window. By the way, it's important to highlight the value of the home video window. We are a dominant player in that window, which includes rentals and sales of physical DVDs and digital TV. An industry study recently showed that studios generated about $7 billion a year from the home video window. Even during the pandemic, studios generated $5 billion a year. underscoring the window's resiliency. As we all know, studios are obligated to maximize the value of their films for stakeholders, including talent and producers, and can no longer justify skipping such a valuable window. As they realize this, we stand to benefit because we are an important participant in that window, both in physical DVDs and TVOD. And as a reminder, we operate one of the largest TVOD platforms in the industry. The second pillar of growth for the year comes from our premier ad sales platform through which we are cementing our leading position in the broader advertising ecosystem. You might have seen a press release yesterday from the IAB announcing this year's lineup at the new fronts. And it would have included a name you might not have heard before, Crackle Connects. I'm happy to announce that we just launched Crackle Connects, a unique and fully scaled in-house media company It represents not only our own ad inventory, but also that of third-party clients, what we used to call ad rep partners. Led by our Chief Revenue Officer, Philippe Galton, and President of Ad Sales, Darren Olive, Crackle Connects will connect brands with consumers. We also announced today a significant milestone as we accelerate our growth across the advertising ecosystem. Crackle Connects now represents 20 ad rep partners. And by the way, that's up from two last year. Together, they reach 80 million monthly active viewers, 60 million of which come from our owned and operated platforms, which is up from 40 million, and 20 million come from our ad rep partners. We're excited to capitalize on the growth we've seen over the year, representing our Avot partners in the ad ecosystem. We look forward to sharing more on Crackle Connects in the coming weeks, leading to our presentation at New Fronts in May. During the quarter, we saw strong growth across our owned and operated Avon platforms. In December, we saw Redbox Avon usage hit an all-time high, driven by the highly curated content slate, including the Expendables film series, which accounted for the best title performance on Redbox ever. Holiday content was also a huge hit, with our screen media-owned film, Elliot, the Littlest Reindeer, one of my favorites, maintaining its position as a top-performing title on Redbox AVOD and Crackle AVOD. Crackle MAU growth was driven by our ongoing strategy of meeting consumers where they are across connected TVs in Crackle and Redbox-branded remotes. Finally, the Chicken Soup for the Soul AVOD continues to be our fastest-growing AVOD, with growth reflecting the launch of fast channels and new apps, which I'm pleased to announce just launched on Roku. Overall, direct CPMs were up modestly year over year, and fill rates remain in the 80% to 90% range. December was about 29% over the prior December, consistent with the results we saw in Q3. We remain comfortable with the broader advertising environment, which continues to benefit from the shift of ad dollars from linear and broadcast to connected TV. And as more viewers and brands converge on ABUD, we are well positioned to continue capturing that growth this year. Our fast networks continue to perform very well, including our owned and operated channels, which are syndicated to third parties like Roku and Samsung. We recently expanded our offering of third-party content by partnering with industry-leading media outlets, including QVC and Allen Media Weather Channel, bringing our total number of fast channels to over 160. It makes us having one of the largest numbers of fast channels on any service. Our TVOD business is already benefiting from the return of theatrical titles. In fact, this past Tuesday was our biggest day in TVOD ever, driven by the release of Avatar, The Way of Water. TVOD orders in the fourth quarter were up 6% year-over-year and up 13% sequentially from the third quarter, We continue to refine our strategy on our TVOD offering as we do with our kiosks to merchandise previous titles in a franchise around the release of the latest installments. We did this when we merchandised the kiosk on TVOD with Knives Out around Netflix's release of Glass Onion. We also did it with Scream, and it's a meaningful way to capture audience demand around new releases. In fact, just recently, John Wick chapters one and three were our top two catalog titles in kiosks over the past two weeks, coinciding with the Theot Skrullis of John Wick, Chapter 4. Turning finally to the third pillar, we have adapted our approach to take into account the challenging macrofinancial environment we're living in, with rising rates, inflation, bank problems, among other challenges. We've attacked these issues head-on, first by achieving the synergies we identified when we entered the Redbox transaction, but we did not stop there. We continued by looking at all of the commitments Redbox made to make sure that they were things we thought made sense for the business. If we found they weren't, we changed them. In addition, we made further cost cuts than we initially anticipated and deferred further expenses, such as executive bonuses, to tie them more closely to our expectations for free cash flow. And we recently licensed content that we weren't fully utilizing for the tune of $8 million. We have begun the integration of our ad rep business, O&O networks, and SaaS platforms to generate contribution margin that we use to invest in the growth of our owned and operated networks. This should allow us to continue to grow that integrated business with less capital needs. And finally, yesterday, we did a small public offering to begin the process of strengthening our balance sheet. We raised $10.8 million from investors, including our parent company. and worked out an arrangement with our parent company to reduce future cash payments starting January 1st, relating to the management of license agreements through a stock purchase commitment. In addition, we're looking at certain assets that are not strategic to our go-forward strategy, which we intend to sell. We believe that this will help us reduce debt more quickly than anticipated, and of course, we plan to finalize our working capital loan with our accounts receivable in the near future. In closing, If 2022 is a year of transformation, 2023 has the potential to be a year of execution and growth. The rebound in theatrical releases is already driving rentals higher. The integration of our ad-supported businesses is already well underway. Our TVOD business is continuing to grow. Our short-term actions are focused on addressing the macro environment we're all living in, but our long-term mission remains to build the leading premium entertainment company for value-conscious consumers. With that, I'll turn it over to Jason.