CURIOSITYSTREAM EQ. WARRT(CURIW) - 2023 Q1 - Quarterly Report

Part I. Financial Information This section encompasses the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements for CuriosityStream Inc., including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, equity investments, balance sheet components, revenue breakdown, equity and warrant information, earnings per share, stock-based compensation, segment data, related party transactions, leases, commitments, and income taxes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time - The company's total assets decreased by $11.01 million, or 7.1%, from December 31, 2022, to March 31, 2023, primarily due to a reduction in short-term investments and accounts receivable. Total liabilities also decreased by $4.54 million, while stockholders' equity saw a decline of $6.47 million[10] Consolidated Balance Sheet Key Metrics | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change ($) | | :--------------------------------- | :------------------------------ | :------------------------------- | :--------- | | Total Assets | $143,102 | $154,113 | $(11,011) | | Total Liabilities | $31,945 | $36,487 | $(4,542) | | Total Stockholders' Equity | $111,157 | $117,626 | $(6,469) | | Cash and cash equivalents | $48,668 | $40,007 | $8,661 | | Short-term investments in debt securities | $0 | $14,986 | $(14,986) | | Accounts receivable, net | $9,699 | $10,899 | $(1,200) | | Content assets, net | $66,373 | $68,502 | $(2,129) | | Total current liabilities | $26,399 | $30,960 | $(4,561) | | Deferred revenue | $13,863 | $14,281 | $(418) | Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net loss for the reporting period - For the three months ended March 31, 2023, CuriosityStream reported a net loss of $7.75 million, a significant improvement from $15.89 million in the prior year, primarily driven by a substantial 46% reduction in operating expenses, despite a 30% decrease in total revenues[14] Consolidated Statements of Operations Key Metrics | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Revenues | $12,387 | $17,627 | $(5,240) | (30%) | | Operating expenses | $20,175 | $37,121 | $(16,946) | (46%) | | Operating loss | $(7,788) | $(19,494) | $11,706 | (60%) | | Net loss | $(7,751) | $(15,892) | $8,141 | (51%) | | Basic Net loss per share | $(0.15) | $(0.30) | $0.15 | (50%) | Consolidated Statements of Comprehensive Loss This section reports the net loss and other comprehensive income or loss components, reflecting total comprehensive loss - The total comprehensive loss for Q1 2023 significantly decreased by 52% to $7.71 million from $16.13 million in Q1 2022, primarily due to a reduced net loss and an unrealized gain on available-for-sale securities in the current period compared to a loss in the prior year[17] Consolidated Statements of Comprehensive Loss Key Metrics | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Net loss | $(7,751) | $(15,892) | $8,141 | (51%) | | Unrealized gain (loss) on available for sale securities | $40 | $(233) | $273 | n/m | | Total comprehensive loss | $(7,711) | $(16,125) | $8,414 | (52%) | Consolidated Statements of Stockholders' Equity This section details changes in the company's equity accounts over the reporting period - Stockholders' equity decreased from $117.6 million at December 31, 2022, to $111.2 million at March 31, 2023, primarily due to the net loss incurred during the period, partially offset by stock-based compensation and other comprehensive income[20] Consolidated Statements of Stockholders' Equity Key Metrics | Metric | Dec 31, 2022 (in thousands) | Q1 2023 Activity (in thousands) | Mar 31, 2023 (in thousands) | | :--------------------------------- | :-------------------------- | :------------------------------ | :-------------------------- | | Total Stockholders' Equity (Beginning) | $117,626 | | | | Net loss | | $(7,751) | | | Stock-based compensation, net | | $1,242 | | | Other comprehensive income | | $40 | | | Total Stockholders' Equity (Ending) | | | $111,157 | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities - The company significantly reduced cash used in operating activities in Q1 2023 to $6.3 million from $12.3 million in Q1 2022. Investing activities provided $15.0 million, primarily from maturities of debt securities, leading to a net increase in cash, cash equivalents, and restricted cash of $8.7 million for the quarter[23] Consolidated Statements of Cash Flows Key Metrics | Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Net cash used in operating activities | $(6,308) | $(12,287) | $5,979 | (49%) | | Net cash provided by investing activities | $14,995 | $19,773 | $(4,778) | (24%) | | Net cash used in financing activities | $(26) | $(137) | $111 | (81%) | | Net increase in cash, cash equivalents and restricted cash | $8,661 | $7,349 | $1,312 | 18% | | Cash, cash equivalents and restricted cash, end of period | $49,168 | $24,896 | $24,272 | 97% | Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies and specific financial components Note 1 — Organization and business This note describes CuriosityStream Inc.'s business model, content offerings, and distribution channels - CuriosityStream Inc. provides high-quality factual content via a direct subscription video on-demand (SVOD) platform and through distribution partners, offering access to over six thousand on-demand, ad-free productions[26][27] - The company's content is accessible through its owned and operated website, mobile applications, and third-party platforms, with subscription prices varying by content bundle and length[27] Note 2 — Basis of presentation and summary of significant accounting policies This note outlines the accounting principles, estimates, and significant policies used in preparing the financial statements - The unaudited consolidated financial statements adhere to U.S. GAAP, consistent with the prior year, and incorporate management's estimates for items such as content asset amortization and fair value measurements[28][31] - The company adopted ASU 2016-13 on credit losses effective January 1, 2023, which did not have a material impact on its consolidated financial statements[30][41] - Fair value measurements for financial instruments are categorized into Level 1 (active market quotes), Level 2 (similar asset quotes), and Level 3 (unobservable inputs), with Private Placement Warrants valued using a Black-Scholes model as Level 3[35][37][40] Note 3 – Equity Investments This note details the company's equity method investments in Spiegel Venture and Watch Nebula LLC - CuriosityStream holds a 32% ownership in Spiegel TV Geschichte und Wissen GmbH & Co. KG (Spiegel Venture) and a 16.875% ownership in Watch Nebula LLC, both accounted for using the equity method[42][46] - The company recorded an equity method investment loss of $0.2 million for the three months ended March 31, 2023[47] Equity Investment Income (Loss) | Investment | Q1 2023 Income (Loss) (in thousands) | | :--------------------------------- | :----------------------------------- | | Spiegel Venture | $28 | | Nebula | $(247) | | Total | $(219) | Note 4 — Balance sheet components This note provides detailed breakdowns of key balance sheet accounts, including cash, investments, and content assets - Cash and cash equivalents increased to $48.7 million as of March 31, 2023, while short-term investments in debt securities were fully matured, decreasing from $14.99 million to zero[48][49] - Total content assets, net, decreased by $2.13 million to $66.37 million, with licensed content amortization decreasing by 35% and produced content amortization decreasing by 35% year-over-year[51][52] Balance Sheet Components Summary | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Cash and cash equivalents | $48,668 | $40,007 | | Restricted cash | $500 | $500 | | Short-term investments in debt securities | $0 | $14,986 | | Total Content Assets, net | $66,373 | $68,502 | | Warrant liability | $331 | $257 | Content Amortization Expense | Content Amortization | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Licensed content | $1,945 | $2,999 | $(1,054) | (35%) | | Produced content | $3,907 | $6,039 | $(2,132) | (35%) | | Total | $5,852 | $9,038 | $(3,186) | (35%) | Note 5 — Revenue This note explains the company's revenue recognition policies and provides a breakdown of revenue by type and remaining performance obligations - Total revenues decreased by 30% year-over-year to $12.39 million in Q1 2023. Subscription revenue declined by 10%, while License Fees revenue saw a significant 50% decrease, primarily from bundled distribution and content licensing[55] - Other revenue, primarily from marketing services, increased by 140% to $0.27 million[55] Revenue Breakdown by Type | Revenue Type | Q1 2023 (in thousands) | % of Total | Q1 2022 (in thousands) | % of Total | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------- | :--------------------- | :--------- | :--------- | :--------- | | Subscriptions – Total | $7,520 | 61% | $8,355 | 47% | $(835) | (10%) | | License Fees – Total | $4,593 | 37% | $9,158 | 52% | $(4,565) | (50%) | | Other – Total | $274 | 2% | $114 | 1% | $160 | 140% | | Total Revenues | $12,387 | 100% | $17,627 | 100% | $(5,240) | (30%) | Remaining Performance Obligations | Remaining Performance Obligations (in thousands) | | :--------------------------------- | | Remainder of year ending Dec 31, 2023: $5,695 | | For the years ending Dec 31, 2024: $4,156 | | For the years ending Dec 31, 2025: $2,096 | | For the years ending Dec 31, 2026: $193 | | For the years ending Dec 31, 2027: $31 | | Thereafter: $195 | | Total: $12,366 | Note 6 — Stockholders' equity This note details the components of stockholders' equity, including information on outstanding warrants and their valuation - As of March 31, 2023, the company had 3.05 million publicly traded warrants (equity-classified) and 3.68 million Private Placement Warrants (liability-classified) outstanding, all exercisable at $11.50 per share and expiring on October 14, 2025[60][61] - The fair value of the Private Placement Warrants increased, resulting in a $0.1 million loss related to the change in fair value in Q1 2023, compared to a $3.9 million gain in Q1 2022[65] Private Placement Warrant Valuation | Private Placement Warrant Valuation | | :--------------------------------- | | As of March 31, 2023: | | Exercise price: $11.50 | | Stock price (CURI): $1.35 | | Expected volatility: 79.00% | | Expected warrant term (years): 2.5 | | Risk-free interest rate: 3.94% | | Dividend yield: 0% | | Fair Value per Private Placement Warrant: $0.09 | | As of December 31, 2022: | | Exercise price: $11.50 | | Stock price (CURI): $1.14 | | Expected volatility: 77.00% | | Expected warrant term (years): 2.8 | | Risk-free interest rate: 4.22% | | Dividend yield: 0% | | Fair Value per Private Placement Warrant: $0.07 | Note 7 — Earnings (loss) per share This note presents the calculation of basic and diluted net loss per share and the treatment of anti-dilutive securities - Basic and diluted net loss per share for Q1 2023 was $(0.15), an improvement from $(0.30) in Q1 2022, reflecting a reduced net loss[67] - Common stock equivalents, including 4.63 million options, 1.03 million restricted stock units, and 6.73 million warrants, were excluded from the diluted EPS calculation as their effect would be anti-dilutive due to the net loss[67][68] Net Loss Per Share Calculation | Metric | Q1 2023 (in thousands, except per share data) | Q1 2022 (in thousands, except per share data) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | $(7,751) | $(15,892) | | Weighted–average shares | 52,950 | 52,750 | | Net loss per share - Basic and Diluted | $(0.15) | $(0.30) | Note 8 — Stock-based compensation This note outlines the company's stock-based compensation plans and the expense recognized for equity awards - The company recognized $1.27 million in stock-based compensation expense in Q1 2023, a decrease from $1.79 million in Q1 2022[75] - The CuriosityStream 2020 Omnibus Plan authorized 7,725,000 shares for various equity awards, with 1,514,000 shares available for issuance as of March 31, 2023[70] Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | | :--------------------------------- | | Q1 2023: | | Stock-based compensation - Options: $777 | | Stock-based compensation - RSUs: $490 | | Total: $1,267 | | Q1 2022: | | Stock-based compensation - Options: $967 | | Stock-based compensation - RSUs: $821 | | Total: $1,788 | Note 9 — Segment and geographic information This note clarifies the company's single operating segment and provides a breakdown of revenue by geographic location - The company operates as a single reporting segment, with all long-lived tangible assets located in the United States[76][77] - International revenue increased its share to 46% of total revenue in Q1 2023, up from 33% in Q1 2022, with the Netherlands becoming a significant contributor at 10% of total revenue[77] Revenue by Geographic Location | Revenue by Geographic Location | | :--------------------------------- | | Q1 2023 (in thousands): | | United States: $6,686 (54%) | | Netherlands: $1,246 (10%) | | United Kingdom: $562 (5%) | | Other International: $3,893 (31%) | | Total International: $5,701 (46%) | | Total: $12,387 (100%) | | Q1 2022 (in thousands): | | United States: $11,799 (67%) | | Netherlands: $65 (0%) | | United Kingdom: $1,901 (11%) | | Other International: $3,862 (22%) | | Total International: $5,828 (33%) | | Total: $17,627 (100%) | Note 10 — Related party transactions This note discloses transactions with related parties, including revenue, cost of revenues, and balance sheet impacts - The company recognized $0.8 million in revenue from license fees and revenue share from Spiegel Venture and incurred $1.2 million in revenue share to Nebula from subscription sales in Q1 2023[78][79] - CuriosityStream also sublets a portion of its office space to Hendricks Investment Holdings, LLC, a related party[80] Related Party Transactions Summary | Related Party Transactions (in thousands) | | :--------------------------------- | | Statement of Operations (Q1 2023): | | Revenues: $794 | | Cost of revenues: $1,202 | | Balance Sheets (March 31, 2023): | | Accounts receivable: $2,804 | | Accounts payable: $788 | Note 11 — Leases This note details the company's operating lease arrangements, including Right-of-Use assets and lease liabilities - As of March 31, 2023, the company had operating lease Right-of-Use (ROU) assets of $3.6 million and total lease liabilities of $4.9 million for its non-cancellable office space lease expiring in 2033[82][84] - Total operating lease cost for Q1 2023 was $0.13 million, and the company also acts as a lessor, subletting office space to a related party, generating less than $0.1 million in income[83][85] Lease Financials Summary | Lease Financials (as of March 31, 2023, in thousands) | | :--------------------------------- | | Operating lease ROU assets: $3,633 | | Current lease liabilities: $300 (approx) | | Non-current lease liabilities: $4,560 | | Weighted average remaining lease term: 9.9 years | | Present value of total lease liabilities: $4,903 | | Total lease cost (Q1 2023): $134 | Note 12 — Commitments and contingencies This note outlines the company's content obligations and advertising commitments - As of March 31, 2023, the company had $7.5 million in content obligations, with $1.6 million included in content liabilities and $5.9 million not yet reflected on the balance sheet, all expected to be paid by December 31, 2023[87] - Advertising commitments totaled $1.1 million as of March 31, 2023, with $0.6 million expected to be paid in the remaining nine months of 2023 and $0.5 million in 2024[90] Note 13 — Income taxes This note provides information on the company's income tax provision and valuation allowance position - The company recorded a $0.1 million provision for income taxes in both Q1 2023 and Q1 2022, primarily related to foreign withholding income taxes[91] - No tax benefit was recognized for federal or state income tax purposes due to the company being in a full valuation allowance position[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on CuriosityStream's financial performance and condition for the three months ended March 31, 2023. It covers an overview of the business, key factors influencing operations, a detailed analysis of results, liquidity and capital resources, and critical accounting policies. The company saw a significant reduction in net loss driven by expense management, despite a decline in revenue Overview This section provides an overview of CuriosityStream's business model, content library, and pricing strategy - CuriosityStream is a media and entertainment company offering premium factual video and audio programming through various channels, including its Direct Business, Bundled Distribution, Content Licensing, Enterprise, and Other services[95][96] - The company's content library features over 15,000 programs, with more than 9,500 originally produced and owned titles, and has localized a large portion of its library in ten languages[96] - As of March 27, 2023, the standard pricing for new Direct Business subscribers increased to $4.99 per month or $39.99 per year, up from $2.99 per month or $19.99 per year[97] Revenue by Product/Service | Revenue by Product/Service | | :--------------------------------- | | Q1 2023 (in thousands): | | Direct Business: $8,582 (70%) | | Bundled Distribution: $1,473 (12%) | | Content Licensing: $2,018 (16%) | | Enterprise: $40 (0%) | | Other: $274 (2%) | | Total Revenues: $12,387 (100%) | | Q1 2022 (in thousands): | | Direct Business: $8,334 (47%) | | Bundled Distribution: $3,767 (21%) | | Content Licensing: $4,248 (24%) | | Enterprise: $1,163 (7%) | | Other: $114 (1%) | | Total Revenues: $17,627 (100%) | Key Factors Affecting Results of Operations This section discusses the primary factors influencing the company's operating results, including subscriber growth, pricing, and cost management - Future operating results are dependent on the company's ability to efficiently grow its subscriber base, increase prices, and expand service offerings to maximize subscriber lifetime value[104] - Primary operating costs include content production and acquisition, advertising and marketing, personnel costs, and distribution fees, with a strategic focus on efficient customer acquisition and revenue-generating personnel[107][109] - The company's main revenue sources are subscriber and license fees from its Direct Business, bundled license fees from distribution affiliates, license fees from content licensing, subscriber fees from its Enterprise business, and Other revenue, including advertising and sponsorships[105] Results of Operations This section analyzes the company's financial performance, focusing on revenues, operating expenses, and net loss for the period - Total revenues decreased by 30% to $12.4 million in Q1 2023, primarily due to a $4.6 million decrease in License Fees revenue and a $0.8 million decrease in Subscriptions revenue[111][112][113] - Operating expenses decreased by 46% to $20.2 million, driven by a $11.7 million reduction in advertising and marketing, a $2.8 million decrease in cost of revenues, and a $2.4 million decrease in general and administrative expenses[111][114][116][117] - The operating loss decreased by 60% to $7.8 million, and the net loss decreased by 51% to $7.7 million in Q1 2023, compared to the prior year[111][118][123] Results of Operations Key Metrics | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Total Revenues | $12,387 | $17,627 | $(5,240) | (30%) | | Total operating expenses | $20,175 | $37,121 | $(16,946) | (46%) | | Operating loss | $(7,788) | $(19,494) | $11,706 | (60%) | | Net loss | $(7,751) | $(15,892) | $8,141 | (51%) | Liquidity and Capital Resources This section assesses the company's cash position, cash flow activities, and ability to meet its financial obligations - As of March 31, 2023, the company had $49.2 million in cash and cash equivalents, including restricted cash. Management believes these levels are adequate to support operations for at least the next twelve months[124][125] - Net cash used in operating activities decreased by 49% to $6.3 million in Q1 2023, while investing activities provided $15.0 million, primarily from maturities of debt securities[127][128][132] - The company anticipates continued net losses due to significant operating and capital expenditures, with principal uses of cash being content acquisition, advertising, and working capital[126] Cash Flows Summary | Cash Flows (in thousands) | | :--------------------------------- | | Q1 2023: | | Net cash used in operating activities: $(6,308) | | Net cash provided by investing activities: $14,995 | | Net cash used in financing activities: $(26) | | Net increase in cash, cash equivalents and restricted cash: $8,661 | | Q1 2022: | | Net cash used in operating activities: $(12,287) | | Net cash provided by investing activities: $19,773 | | Net cash used in financing activities: $(137) | | Net increase in cash, cash equivalents and restricted cash: $7,349 | Critical Accounting Policies and Estimates This section highlights the significant accounting policies and management judgments, particularly for content assets and revenue recognition - The company's critical accounting policies involve significant management judgment, particularly for content assets and revenue recognition[136] - Content assets are capitalized and amortized on an accelerated basis in the initial two months after publication or when significant content licensing occurs, reflecting observed upfront viewing patterns[138][140] - Revenue recognition varies by type: subscriptions are recognized ratably over the membership period, license fees are recognized over the agreement term, and content licensing revenue is recognized once content is made available to the licensee[142][144][145] Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk This section indicates that there are no quantitative and qualitative disclosures regarding market risk applicable for this quarterly report - Not applicable for this quarterly report[148] Item 4. Controls and Procedures As of March 31, 2023, the company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective. Furthermore, there were no material changes in internal control over financial reporting during the quarter - The CEO and CFO evaluated and concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[150] - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2023[151] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, results of operations, financial condition, or cash flows - No material adverse legal proceedings are currently pending against the company[154] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on March 31, 2023 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K filed on March 31, 2023[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - None[157] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - None[158] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Not Applicable[159] Item 5. Other Information This section reports that there is no other information to disclose - None[160] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including various certifications and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[162] Part III. Signatures This section contains the required executive signatures for the quarterly report Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, signed by Clint Stinchcomb, President and Chief Executive Officer, and Peter Westley, Chief Financial Officer and Treasurer, on May 11, 2023 - The Quarterly Report on Form 10-Q was signed by Clint Stinchcomb (President and CEO) and Peter Westley (CFO and Treasurer) on May 11, 2023[168]