CuriosityStream Inc. (CURI) Earnings Call Transcript

Good afternoon. My name is Shamali, and I will be your conference operator today. I'd like to welcome everyone to the CuriosityStream Third Quarter 2026 Earnings Conference Call. Please note that today's call is being recorded. [Operator Instructions] I will now turn the call over to Vanessa Gillon, CuriosityStream's Senior Vice President of Operations. You may begin your conference.

Thank you, and welcome to CuriosityStream's discussion of its third quarter 2026 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Sean Piche, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we will take questions from the analyst community. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws. These statements are not guarantees of future performance but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update these statements nor to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2026, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Unless otherwise stated, all comparisons will be against our results for the comparable 2025 period. Now I'll turn the call over to Clint.

Thank you, Vanessa. Q3 was a strong quarter for Curiosity. We reported revenue of $21 million, up from $18.4 million a year ago. Net income increased by $8.6 million to $4.8 million. Adjusted EBITDA grew 67% to $5 million. Licensing revenue increased 35% to $11.7 million. And while subscription revenue declined slightly, the profitability of our subscription business improved significantly. Earnings per share increased $0.14 from a loss of $0.06 to a profit of $0.08, roughly equivalent to our quarterly dividend payment. The value and durability of the extensive intellectual property we control millions of hours and terabytes of premium video and audio and operational data continues to drive momentum. We are pleased with our progress, but our focus remains squarely on execution and on our longer-term objectives, building Curiosity into a company that informs, inspires and entertains and then so doing generates $100 million or more reliable, recurring and increasingly profitable and predictable annualized revenue. Our progress reflects the strength of the business model built around valuable intellectual property, proven revenue streams and disciplined capital allocation. What is particularly encouraging about our performance is the operating leverage we are beginning to demonstrate. Revenue grew 13% this quarter, while adjusted EBITDA increased 67%. That relationship is important. It illustrates the potential for our business to generate meaningful earnings growth as we expand revenue without a corresponding increase in our cost structure. And reimagining how we work internally and with what, with whom we work externally and through adopting and embracing AI productivity tools, we have created an annualized expense structure going forward where our cost to operate the business and to pay our annual dividends are below $40 million annually and as such, could be funded virtually entirely from our subscription business. We spent years assembling and developing a substantial library of premium content, establishing distribution relationships and building the capabilities to monetize our assets across different platforms, markets and customers. Those investments are creating opportunities that extend well beyond traditional streaming. Nowhere is this more apparent than in licensing. The continued investment in super intelligence is creating new markets for high-quality rights controlled data. Nearly all of our cash licensing revenue in Q3 was generated directly from AI developers. Curiosity is well positioned to continue to serve these partners in markets through our premium video and audio library and our expanding portfolio of operational data including proprietary software code and associated development records. We believe the value of these assets extends beyond any single licensing transaction. As AI models become more capable, the demand for differentiated legally licensable and high-quality data is likely to evolve. Our strategy is to position Curiosity to address that band across multiple data types, customers and use cases. Importantly, we are focused not simply on generating licensing revenue but on building durable commercial relationships that create opportunities for recurring revenue, the exploitation of additional rights and expanded use of our intellectual property over time. Our subscription business remains an equally important component of our strategy. We are managing this business with a clear emphasis on profitability, retention and the lifetime value of our subscribers. Our objective is not grow any cost, is to build a durable profitable subscriber base through compelling content, effective distribution partnerships and disciplined customer acquisition. The significant improvement in subscription profitability demonstrates the value of that approach. We continue to believe there are attractive opportunities to expand our reach and our subscriber relationships. But we will pursue these opportunities with the same financial discipline that is contributing to our current results. Our intellectual property can be monetized repeatedly across multiple customers and distribution channels. As we continue to scale, an increasing portion of incremental revenue can contribute to earnings and cash flow. That is fundamental to how we think about building long-term shareholder value. We also recognize that quarterly results will not always follow a straight line, particularly in licensing through the timing and size of individual transactions and effect reported performance. Our responsibility is to continue expanding our pipeline of opportunities, improving revenue visibility and building a more predictable business over time. Much of our success is always going to be the direct or indirect results of talented, smart and amazing people who are motivated to accomplish an important mission doing great work. On that note, I want to welcome Sean Piche, who joined Curiosity in September as our new CFO. Sean brings an exceptional combination of financial, operational and transact experience accumulated over 30 years of working with some of the world's leading media and technology companies. Sean is joining Curiosity as an important point in our evolution. We've established a profitable business, demonstrated the growing value of our intellectual property and created opportunities to scale our revenue and our earnings. His expertise in capital allocation, strategic transactions and financial management will be invaluable as we pursue these opportunities. I'm particularly pleased to have a CFO who thinks not only about financial performance but about how to create and maximize long-term shareholder value. That is our shared objective, and I believe Sean will make an important contribution to achieving. Looking ahead, our priorities are straightforward: grow and diversify licensing revenue, sustained and improved subscription profitability, expand the value of intellectual property, and maintain rigorous discipline over cost and capital allocation. We believe Curiosity has a differentiated set of assets, business model with increasingly attractive economics and significant opportunities ahead. Our third quarter results provide further evidence that our strategy is working. We intend to build on that progress. We remain focused on the work that creates the greatest value and continue translating the strength of our intellectual property into revenue, earnings, cash flow and returns for our shareholders. Our objective is not simply to build a larger Curiosity. It is to build a more valuable Curiosity, one with stronger earnings, more predictable revenue, increasing cash flow and a growing capacity to return capital to shareholders. Over to Sean.

Thank you, Clint, and good afternoon, everyone. This is my first earnings call since joining CuriosityStream as Chief Financial Officer in September, and I look forward to getting to know many of you in the months ahead. I would like to focus on our remarks on 3 things: our top line revenue the growth of our licensing business, including cash licensing and the progress we are making in reducing expenses and running the company more efficiently. I will then turn to cash flow, including how we are investing to grow the business while generating the cash to support a sustainable dividend before closing with our outlook. We generated third quarter revenue of $20.7 million, an increase of 13% compared to $18.4 million in the prior year period. Licensing revenue was $11.7 million, up 35% year-over-year and accounted for 57% of our revenue this quarter. Over $7 million came from cash licensing agreements, led by new AI licensing deals entered into during the quarter. The balance came from border arrangements, which we exchanged a more library to acquire new programming for our subscription service. That growth reflects continued demand for our content and data assets across both traditional content licensing and AI-related opportunities. Gross profit was $10.1 million, representing a gross margin of 49% compared to $10.8 million and a gross margin of 59% in the third quarter last year. We view our gross margin approaching 50% as a strong result, reflecting the shift in our revenue mix toward AI licensing. The change from last year is driven by our revenue mix, including revenue sharing with our content partners on AI licensing and amortization of programming acquired through partner, and we believe our licensing model continues to offer attractive opportunities to monetize our library and seed assets. We continue to make meaningful progress on our cost structure. Advertising and marketing and general and administrative expenses declined by $8.8 million or 58% compared to the third quarter of 2025. Excluding stock-based compensation and restructuring costs, these expenses declined by $3 million or 36%, reflecting more efficient marketing spend and our focus on our line yard expense base with the business. Subsequently to the quarter end, we completed a reduction in force as part of our broader commitment to optimizing our cost structure. As a result, we expect to record a onetime charge of approximately $0.6 million in the fourth quarter, primarily related to severance and associated employee benefit costs. We expect these actions to result in annualized savings of approximately $1.2 million to $1.5 million. Together with the other cost actions we have taken this year and greater use of productivity tools across the organization, we expect advertising and marketing and general and administrative expenses, excluding stock-based comp and restructuring costs to be approximately 20% lower in the second half of the year than in the first half. While these decisions are never easy, we believe there are important steps in maintaining a disciplined cost structure and supporting our longer-term goal of building a sustainable, cash-generative business. GAAP net income was $4.8 million, an improvement of $8.6 million compared to a net loss of $3.7 million in the prior year quarter. Net income includes $0.9 million of noncash gains related to our acquisition of the remaining interest in the Spiegel Venture, primarily from the remeasurement of our previously held interest. The third quarter was our seventh consecutive quarter of positive adjusted EBITDA, which increased 67% to $5 million, and our adjusted EBITDA margin expanded to 24% from 16% a year ago. Through the first 9 months of the year, adjusted EBITDA totaled $17.1 million at a margin of 29% and compared with $7.1 million in the same period of 2025. The improvement in adjusted EBITDA was driven by our continued cost discipline. Advertising and marketing expenses were $1.9 million lower as we continue to focus our subscriber acquisition spending on the most efficient channels. And general and administrative expenses, excluding stock-based compensation and other items, excluded from adjusted EBITDA, were $0.8 million lower, reflecting reduced professional fees and compensation costs. These savings more than offset the effect of our revenue mix on gross profit. At the same time, our licensing business, which accounted for 57% of our revenue this quarter and grow with little incremental fixed costs, so as it becomes a larger share of the business, more of each additional dollar of revenue flows through to earnings. As a result, we generated operating income of $3.7 million compared with an operating loss of $4.5 million a year ago and net income of $4.8 million or $0.08 per diluted share. I'd also like to spend a moment on the economics of our AI licensing business because they differ from those of our traditional content licensing. The agreements we are signing with companies developing AI technologies include large multimillion-dollar deals. They draw on our library, including raw footage and other assets, and they also draw content from our partners. Where partner content is included, we share a portion of the revenue with those partners, and that revenue share can represent 50% or more of a given deal. These agreements generate attractive returns with little incremental fixed costs and our ability to aggregate and deliver content at that scale is an important reason AI developers choose to work with us. It does mean, however, that the margins on our AI licensing will look different from what you might expect as that revenue came entirely from our own library, and you can see that reflected in our cost of revenues this quarter. Turning to cash flow. Operating activities generated $4.5 million of cash in the third quarter, bringing operating cash flow for the first 9 months of 2026 to $1.5 million. In the first half of the year, operating cash flow was negative despite strong adjusted EBITDA, and the main reason was timing. The $10 million licensing agreement we entered into in the second quarter, for which we recognize as $8.5 million of revenue, is payable in 4 annual installments of $2.5 million beginning mid-2027. So the revenue and EBITDA recognized in the second quarter, while the cash will come in over the next several years. We are focused on investing to grow the business while generating the cash to support a sustainable dividend. As we have stated, we need to fund the entire dividend in 2027 from free cash flow, and we view the third quarter as a step in that direction. Our earnings of $0.08 per share were in line with our quarterly dividend. During the quarter, we paid our regular quarterly dividend of $0.085 per share or approximately $5 million, and we ended the quarter with $10 million in cash and investments, no debt and an undrawn $10 million revolving credit facility. Turning to our outlook. Based on our results through the first 9 months and our current visibility, we are raising our full year 2026 guidance of revenue between $77 million and $82 million to $79 million and $82 million and adjusted EBITDA from $18 million and $22 million to $20 million and $22 million. To sum up the quarter, revenue grew 13% and licensing grew 35%, and our cost discipline drove a 67% increase in adjusted EBITDA to $5 million. Our cost actions position us to reduce advertising and marketing and general and administrative expenses by approximately 20% in the second half, supporting our focus on investing to grow the business while generating the cash to support a sustainable dividend. With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from the line of Jason Kreyer with Craig-Hallum.

Welcome to the call, Sean.

Thank you.

So really nice quarter on the license revenue side. Sean -- sorry, Clint, you had mentioned that the vast majority of that came from AI license deals. Wondering if you can unpack that a little bit, where those sources are. Like a year ago, we had talked about a little bit more contribution from the Tier 1 LLMs, and in the last couple of quarters, we talked about contribution from Tier 2s and kind of some off-the-shelf packaging. So just wondering if you can kind of square away where demand came from.

Yes. I appreciate that question. And Jason, we're glad to have Sean as well, so thank you for that. In this quarter, the AI licensing revenue was primarily from the Tier 1 guys. I mean that's just still where the kind of overwhelming majority of spending is happening. We fully anticipate that the roster will expand, but that's where it was for Q3, for sure. If I can -- as far as the concentration is concerned, I think that trend will continue for some time. But our point of view, I think, a pretty informed point of view from talking to a lot of people every single day, is that the overall training market is going way, way up before it goes down. And we believe, like many others, that most enterprise companies will have their own models by 2028, 2029. And all of these enterprise companies will need data for training their models, just not as much as the frontier labs. So it's not inconceivable that you could have a market for training data that goes from, what, 20 companies today to 5,000.

Can you talk about the appetite for those off-the-shelf solutions that we talked a little bit more about last quarter?

Yes. I think in the most recent quarter, there was a heavy appetite for some of the most scarce content. I think the most scarce content, at least on the video side, is in the scripted space. And just in an effort to meet people where they are, we have a wide variety of content. I don't know that people necessarily associate CuriosityStream certainly on the subscription side as being a company that controls a lot of scripted entertainment, but we control a lot of scripted entertainment that's in high demand for a number of reasons. Obviously, the AI is good at a lot of things today. It's still kind of early stages as it relates to being able to, I think, tell stories and tell compelling stories. So among other things, scripted entertainment is in demand, I think, to help those efforts.

And then last one for me. I just wanted to ask about the appetite for these barter deals, why these barter deals makes sense for Curiosity and kind of what we should anticipate going forward between the mix of these barter arrangements versus kind of cash-generating revenue deals.

Yes. No, a great question. I really appreciate that. I think one area, among others, where Sean has already been really helpful is in really just continuing to focus on our cost base. And as I mentioned in my remarks, we really believe today that based on a lot of the work that we've done with whom we are working with now externally, with whom we're working with internally, the productivity tools at our disposal, we've created an annualized expense structure going forward where our cost to operate the business and to pay our annual dividend are below $40 million annually and as such, can be funded virtually entirely from our subscription business. And one way to ensure that we do that is through sort of thoughtful barter consideration that is fulfilling various content needs that we have through means other than pure cash spending. Patrick?

And Patrick, your line is now live.

I just wanted to follow up on something from the prepared remarks on the licensing revenue. You had mentioned that some of the licensing revenue would be paid in installments of 2027. I was just kind of curious if there's been any like shift over, I guess, the terms over when those receivables come in on the AI licensing side and if there's any sort of mismatch between when the LLMs pay you versus when you have revenue share to your other partners that you're aggregating the right thought.

No, thanks for that question, Patrick. The deal that Sean was referring to was a traditional licensing deal that we did in the second quarter. And in light of the scope and scale of that agreement, and we agreed to a payment schedule that went out over a period of time, that we wouldn't agree to and that we have never agreed to as it relates to our AI licensing agreements. Typically, with our AI licensing agreements, we're getting paid everything within, call it, 4 to 6 months. And then we have a period of time where we can pay out our rev share partners as well.

Yes, I would just add to that. I mean we like about that business is that it's no investment in working capital. So we can grow the AI licensing business. And the way our deals are structured with our customers and then our partners is such that we don't need to make an investment in working capital to grow that business. So we like it from that perspective. It's cash flow positive for us and working capital positive. So hopefully, that helps.

Yes. Sorry, I missed the comments on the traditional licensing. One other question I had on the subscription business. Do you have -- I guess, could you outline like any additional market launches or channel store launches that you kind of view as opportunities to help kind of maintain that business, so you would be able to largely fund the operating expense levels out of that business? Or I guess, maybe just sort of where you kind of see like that businesses and its, I guess, maturity state.