CURIOSITYSTREAM INC. OnOctober 14, 2020 , we acquired Legacy CuriosityStream. The Business Combination was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. Under this method of accounting,Software Acquisition Group Inc. , which was the legal acquirer in the Business Combination, was treated as the "acquired" company for financial reporting purposes and Legacy CuriosityStream was treated as the accounting acquirer. Except as otherwise provided herein, our financial statements presentation includes (1) the results of Legacy CuriosityStream as our accounting predecessor for periods prior to the completion of the Business Combination, and (2) the results of the Company for periods after the completion of the Business Combination.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "we," "us," "our," and "the Company" are intended to mean the business and operations of LegacyCuriosityStream prior to the Business Combination and toCuriosityStream Inc. following the closing of the Business Combination. OverviewCuriosityStream is a media and entertainment company that offers premium video programming across the principal categories of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are seeking to meet demand for high-quality factual entertainment via SVoD platforms, as well as via bundled content licenses for SVoD and linear offerings, partner bulk sales, brand partnerships and content sales. We are well-positioned for growth as a digital-native video platform monetizing content across this broad revenue stack. We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through six products and services: Direct to Consumer Business, Partner Direct Business, Bundled Distribution, Program Sales,Corporate & Association Partnerships and Other. The table below shows our revenue generated through each of the foregoing products and services for the years endedDecember 31, 2021 , and 2020: Year Ended December 31, 2021 2020 Direct to Consumer (Subscriptions - O&O and App Services)$ 23,519 33 %$ 15,226 39 % Partner Direct Business (License Fees - Affiliates) 4,240 6 % 3,059 7 % Bundled Distribution (License Fees - Affiliates) 14,332 20 % 13,773 35 % Program Sales 24,758 35 % 5,691 15 % Corporate & Association Partnerships (Subscriptions - O&O Service) 1,302 2 % 1,282 3 % Other 3,110 4 % 590 1 % Revenues$ 71,261 $ 39,621 Our award-winning video content library features thousands of nonfiction episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration. Our content, approximately one-third of which is originally produced with the remaining two-thirds consisting of licensed programming, is available directly through our O&O Service and App Services. Our App Services enable access toCuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available to any household in the world with a broadband connection for$2.99 per month or$19.99 per year. We also provide a premium service for$9.99 per month or$69.99 per year. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individualswho subscribe toCuriosityStream via the partners' respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Roku Channels, Sling TV and YouTube TV. In addition to our Direct to Consumer Business and Partner Direct Business, we have affiliate relationships with ourBundled MVPD Partners and MVPDs, which are broadband and wireless companies in theU.S. and international territories to whom we can offer a broad scope of rights, including 24/7 "linear" channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber. In our Program Sales Business, we sell to certain media companies a collection of our existing titles in a traditional program sales deal. We also sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates program sales revenue. Our Corporate & Association Partnerships business is comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or "gift of curiosity." To date, over 27 companies have purchased annual subscriptions at bulk discounts for their employees. 36
In the future, we also hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns offer companies the chance to be associated withCuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, broadcast advertising spots, and digital display ads. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients. We executed one such advertising agreement in 2021 with Nebula. We executed on two such sponsorships in 2020: one in the financial services sector as well as a brand in the health and fitness sector. Prior to the Business Combination,Software Acquisition Group Inc. was a blank check company, incorporated as aDelaware corporation onMay 9, 2019 , and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Until the consummation of the Business Combination,Software Acquisition Group Inc. did not engage in any operations nor generate any revenue. OnOctober 14, 2020 , upon the consummation of the Business Combination, Legacy CuriosityStream becameSoftware Acquisition Group Inc.'s direct subsidiary and in connection with the Closing, we changed our name from "Software Acquisition Group Inc. " to "CuriosityStream Inc. " Recent Developments Acquisitions
On
OnAugust 13, 2021 , the Company consummated the acquisition of 100% of Learn25 for fixed cash consideration of approximately$1.5 million in addition to an earnout capped at$0.6 million . Learn25 provides access to hundreds of audio and video programs on history, science, psychology, health, religion, and other topics from various professors and subject-matter experts around the world.
Each of these acquisitions complements and enhances the Company's offering of premium factual content and provides additional long-term revenue and promotional opportunities by connecting directly with new audiences in new formats.
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Partnership with SPIEGEL TV
OnJuly 29, 2021 , the Company acquired a 32% ownership in Spiegel TV Geschichte undWissen GmbH & Co. KG (Spiegel Venture) for$3.3 million , expanding its European footprint through a partnership with SPIEGEL TV, the subsidiary of the German media conglomerate SPIEGEL, and its partner, Autentic, a factual content producer and distributor.Germany is the Company's top non-English-speaking market, and the partnership expands the Company's reach through the addition of hundreds of hours of German-dubbed programming to the Company's SVoD service as well as a rebranded linear channel in German-speakingEurope .Nebula Investment
OnAugust 23, 2021 , the Company purchased a 12% ownership interest inWatch Nebula LLC (Nebula) for$6.0 million with the commitment to purchase an additional 13% ownership interest for a total 25% stake, for a total of$12.5 million (through eight quarterly payments of$0.8 million ). The additional equity investment can be made or declined on a quarterly basis or accelerated at any time. The Company obtained 25% representation on Nebula's board of directors, providing the Company with significant influence, but not a controlling interest. COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughoutthe United States and globally. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A: "Risk Factors" section set forth in this Annual Report on Form 10-K for additional details. In an effort to protect the health and well-being of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, and international travel has been severely curtailed. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. While we and our partners have resumed productions and related operations in many parts of the world, our ability to produce content remains affected by the pandemic. The widespread availability of COVID-19 vaccines and corresponding rates of vaccination generally have been effective in curtailing rates of infection in many parts ofthe United States , mitigating many of the adverse social and economic effects of the pandemic. COVID-19 vaccinations have continued to increase, including as a result of the approval of vaccine boosters, access to the vaccine for school-aged children, and the implementation of vaccine requirements by certain public sector and private sector employers. Notwithstanding, there remains significant resistance to vaccination in certain geographies and among certain groupings of people. Additionally, regulators have approved oral antiviral treatment pills, which have proven effective in reducing severe illness from COVID-19. In many locations throughoutthe United States , the spread of COVID-19 decreased substantially throughout the spring and summer of 2021, and, as a result, certain activity restrictions were lifted in whole or in part; however, due in large part to the increased spread of new, more transmissible coronavirus variants, the number of individuals diagnosed with COVID-19 increased substantially at the end of 2021 and early 2022. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, such as by the "delta" and "omicron" variants of the virus, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners, and stockholders. It is not clear what potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers, or vendors, or on our financial results. 38
Key Factors Affecting Results of Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges, and other factors, including our ability to efficiently grow our subscriber base and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of operations over the last two fiscal years and are expected to continue to have such significant effects:
Revenues
Currently, the main sources of our revenue are (i) subscriber fees from the Direct to Consumer Business and Direct Subscribers, (ii) license fees from affiliateswho receive subscriber fees forCuriosityStream from such affiliates' subscribers ("Partner Direct Business" and "Partner Direct Subscribers"), (iii) bundled license fees from distribution affiliates ("Bundled MVPD Business" and "Bundled MVPD Subscribers"), and (iv) license fees from program sales arrangements. As ofDecember 31, 2021 , we had approximately 23 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers.
Since our founding in 2015, we have generated the majority of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. We charge$2.99 per month or$19.99 dollars per year for our standard Direct Service, or$9.99 per month or$69.99 per year for our premium Direct Service. We may in the future increase the price of our subscription plans, which may have a positive effect on our revenue from this line of our business. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee. We recognize subscription revenues ratably during each subscriber's monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the case of most MVPDs. We do not incur billing, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners. Operating Costs Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. As ofDecember 31, 2021 , licensed content represented 2,884 titles and original titles represented 1,043 titles. Producing and co-producing content and commissioned content is generally more costly than content acquired through licenses. The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content library will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. For a discussion of the accounting policies for content impairment write-down and management estimates involved therein, see "- Critical Accounting Policies and Estimates" below. Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, we focus on revenue-generating personnel, such as sales staff and roles that support the improvement, maintenance and marketing of our Direct Service. 39 Results of Operations The financial data in the following table sets forth selected financial information derived from our audited financial statements for the years endedDecember 31, 2021 and 2020 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated. We conduct business through one operating segment,CuriosityStream . Year ended December 31, 2021 2020 $ Change % Change (in thousands) Revenues: Subscriptions$ 24,821 35 %$ 16,508 42 %$ 8,313 50 % License fee 43,330 61 % 22,523 57 % 20,807 92 % Other 3,110 4 % 590 1 % 2,520 427 % Total Revenues$ 71,261 100 %$ 39,621 100 %$ 31,640 80 % Operating expenses: Cost of revenues 36,673 30 % 15,418 20 % 21,255 138 % Advertising and marketing 52,208 42 % 42,152 54 % 10,056 24 % General and administrative 34,859 28 % 20,851 26 % 14,008 67 % Total operating expenses$ 123,740 100 %$ 78,421 100 %$ 45,319 58 % Operating loss (52,479 ) (38,800 ) (13,679 ) 35 % Change in fair value of warrant liability 15,182 (10,120 ) 25,302 n/m Interest and other income 486 500 (14 ) (3 %) Equity interests income (464 ) - (464 ) n/m Loss before income taxes$ (37,275 ) $ (48,420 ) $ 11,145 (23 %) Provision for income taxes 360 179 181 101 % Net loss$ (37,635 ) $ (48,599 ) $ 10,964 (23 %)
n/m - percentage not meaningful
Revenue Revenue for the years endedDecember 31, 2021 and 2020 was$71.3 million and$39.6 million , respectively. The increase of$31.6 million , or 80% is due to a$8.3 million increase in subscription revenue, a$20.8 million increase in license fee revenue, and a$2.5 million increase in other revenue. The increase in subscription revenue resulted from a$8.3 million increase in subscriber fees received by us from Direct Subscribers for annual plans which resulted from increased brand awareness from greater advertising and marketing spending. The increase in license fees of$20.8 million resulted primarily from a$19.1 million increase in license fees related to a larger volume of program sales arrangements, including due to a new distribution agreement with Spiegel Venture during 2021 when compared to 2020, a$0.6 million increase in revenue from Bundled MVPD partners due to new agreements launched during 2021, and a$1.1 million increase in license fees from our Partner Direct Business due to an increase in the number of subscribers. The increase in other revenue of$2.5 million is primarily due to new services agreements entered into with the Spiegel Venture and Nebula in 2021 for$1.3 million each with no comparable transactions during the year endedDecember 31, 2020 . Operating Expenses Operating expenses for the years endedDecember 31, 2021 , and 2020 were$123.7 million and$78.3 million , respectively. This increase of$45.3 million , or 58%, primarily resulted from the following: Cost of Revenues: Cost of revenues for the year endedDecember 31, 2021 increased to$36.7 million from$15.4 million for the year endedDecember 31, 2020 . Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of$21.3 million , or 138%, is primarily due to the increase in content amortization of$18.2 million , which is primarily driven by the increase in program sales arrangements resulting in a significant accelerated amortization, as well as an increase in the number and cost of titles published during 2021 compared to 2020. The balance of the increase in cost of revenues is due to increases in revenue share expense related to bundled and premier tier arrangements with other streaming services (increase of$1.8 million ), hosting and streaming delivery costs (increase of$0.3 million ), distribution fees and commission costs (increase of$0.1 million ), subtitling and broadcast costs (increase of$0.7 million ), and advertising and sponsorship costs (increase of$0.2 million ). The increase of cost of revenues increased at a faster rate than the increase in revenue mainly due to increased amortization costs related to program sales during the year endedDecember 31, 2021 . 40 Advertising & Marketing: Advertising and marketing expenses for the year endedDecember 31, 2021 , increased to$52.2 million from$42.2 million for the year endedDecember 31, 2020 . This increase of$10.0 million , or 24% is primarily due to an increase in digital advertising of$9.5 million , an increase in radio advertising of$5.1 million , and an increase in agency fees of$1.8 million , partially offset by a decrease of$5.6 million in TV advertising and a decrease of$0.8 million in partner platforms and brand awareness advertising compared to the prior year. General and Administrative: General and administrative expenses for the year endedDecember 31, 2021 , increased to$34.9 million from$20.9 million for the year endedDecember 31, 2020 . This increase of$14.0 million , or 67%, is primarily attributable to$4.2 million for incremental salaries and benefits and$2.7 million for increased stock-based compensation expense due to higher volume and the fair value of the grants made to key executives, as well as incrementally increased headcount. In addition, an increase of$3.1 million is primarily attributable to finance and legal professional fees related to becoming a public company, an increase of$1.4 million due to additional insurance incurred necessary for a public company, an increase of$0.9 million related to subscriptions, an increase of$0.3 million related to the amortization of intangible assets, and an increase of$0.2 million related to corporate taxes. The increase is also due to the recognized benefit from the Paycheck Protection Plan (PPP) Loan we received inMay 2020 of$1.2 million , which reduced salaries and benefits expense by$1.2 million , with no comparable offset in 2021. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure to support the Company's activities as a public company, including adding personnel and systems to our administrative and revenue-generating functions. Operating Loss Operating loss for the years endedDecember 31, 2021 , and 2020 was$52.5 million and$38.8 million , respectively. The increase of$13.7 million , or 35%, in operating loss resulted from the increase in revenue of$31.6 million , or 80%, offset by the increase in operating expenses of$45.3 million , or 58%, in each case during the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , as described above.
Change in Fair Value of Warrant Liability
For the year endedDecember 31, 2021 , the Company recognized a$15.2 million gain related to the change in fair value of the warrant liability, which was due to a decrease in the fair value of the Private Placement Warrants for the year. This compared to a loss of$10.2 million recognized during the year endedDecember 31, 2020 , which was due to an increase in the fair value of the Private Placement Warrants in the prior year.
Interest and other income (expense)
Interest and other income for the year ended
Equity Interests Loss
For the year ended
Provision for Income Taxes Due to generating a loss before income taxes in each of the years endedDecember 31, 2021 , and 2020, we had a provision for income taxes of$360 thousand and$179 thousand , respectively. This increase of$181 thousand , or 101%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with parties in foreign jurisdictions. The Company's provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
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Net Loss
Net loss for the years endedDecember 31, 2021 , and 2020 was$37.6 million and$48.6 million , respectively. The decrease of net loss of$11.0 million , or 23%, is primarily due to a gain on the change in the fair value of the warrant liability that resulted in a gain of$15.2 million in 2021 compared to a loss of$10.1 million in 2020 and the increase in revenue, partially offset by higher operating expenses and equity interest loss, in each case during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , as described above.
Liquidity and Capital Resources
As ofDecember 31, 2021 , we had cash and cash equivalents, including restricted cash, of$17.5 million . In addition, the Company had available for sale investments in debt securities totaling$81.2 million , of which$65.8 million was classified as short-term investments. All of the Company's investments in debt securities can be readily converted to cash to meet the Company's ongoing operating cash flow needs. For the year endedDecember 31, 2020 , we incurred a net loss of$37.6 million and used$73.2 million of net cash in operating activities, used$74.9 million of net cash in investing activities, while financing activities provided$148.3 million of net cash. Through the date of the Merger, we financed our operations primarily from the net proceeds of our sale of Series A Preferred Stock in November andDecember 2018 . In connection with the Merger, we received net cash proceeds of approximately$41.5 million , prior to the payment of$5.7 million of transaction costs. OnFebruary 8, 2021 , we consummated the Offering (as defined below). The net proceeds from the Offering were$94.1 million , after deducting$6.8 million in underwriting discounts and commissions. We also incurred offering expenses in connection with the Offering of$0.7 million . During the year endedDecember 31, 2021 , we received funds of approximately$54.9 million for the exercise of
4.8 million Public Warrants. OnFebruary 8, 2021 , we consummated an underwritten public offering (the "Offering") of 6,500,000 shares of Common Stock plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the underwriterswho participated in the Offering, which over-allotment option was exercised by the underwriters in full onFebruary 5, 2021 . The net proceeds to us from the Offering were$94.1 million , after deducting underwriting discounts and commissions and transaction expenses. The Offering was made pursuant to the Company's Registration Statement on Form S-1, filed with theSEC onFebruary 1, 2021 , and declared effective onFebruary 3, 2021 . We believe that our cash flows from financing, combined with our current cash levels and investments in debt securities that are readily convertible to cash will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months, as evidenced by our cash flows from financing activities during the year endedDecember 31, 2021 and our cash and investment in debt securities balances atDecember 31, 2021 . We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current market conditions. Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception, and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses. Cash Flows
The following table presents our cash flows from operating, investing and
financing activities for the years ended
Year ended December 31,
2021 2020
(in thousands)
Net cash used in operating activities (73,242 ) (53,513 ) Net cash (used in) provided by investing activities (74,935 ) 25,455 Net cash provided by financing activities 148,340
36,623
Net increase in cash, cash equivalents and restricted cash 163
8,565
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Cash Flow from Operating Activities
Cash flow from operating activities primarily consists of net losses, changes to our content assets (including acquisitions and amortization), and other working capital items. During the years endedDecember 31, 2021 and 2020, we recorded a net cash outflow from operating activities of$73.2 million and$53.5 million , respectively, or an increased outflow of$19.7 million , or 37%. The increased outflow from operating activities was primarily due to an increase in the investment of content assets of$39.6 million , increase in the change in fair value of warrant liability of$24.7 million (from a loss of$9.5 million during the year endedDecember 31, 2020 to a gain of$15.2 million during the year endedDecember 31, 2021 ), and an increase in the change in accounts receivable of$10.8 million , partially offset by an increase in amortization of content assets of$18.2 million , increase in the change in deferred revenue of$4.3 million , increase in the change in content liabilities of$8.8 million , increase in stock-based compensation expense of$2.7 million , increase in the change in accrued expenses and other liabilities of$6.6 million , increase in amortization of premiums and accretion of discounts associated with investments in debt securities of$2.9 million , and a decrease in net loss of$11.0 million during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 .
Cash Flow Provided by (Used in) Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments, business acquisitions and equity investments and purchases
of property and equipment. During the year endedDecember 31, 2021 and 2020, we recorded a net cash outflow from investing activities of$74.9 million and a net cash inflow from investing activities of$25.5 million , respectively, or an increased cash outflow of$100.4 million . The increase in cash outflow from investing activities was primarily due to the purchases of available for sale investments of$151.9 million , partially offset by sales and maturities of$50.4 million and$41.9 million , respectively, for the year endedDecember 31, 2021 , compared to the purchase of available for sale investments of$28.1 million , and sales and maturities of investments of$43.2 million and$10.7 million , respectively, for the year endedDecember 31, 2020 . The Company also had cash outflows of$5.4 million related to the acquisition ofLearn25 and One Day University and outflows of$9.6 million related to the equity investments in Spiegel Venture and Nebula for the year endedDecember 31, 2021 , with no comparable activity during the year endedDecember 31, 2020
Cash Flow from Financing Activities
During the year endedDecember 31, 2021 , we recorded net cash inflow from financing activities of$148.3 million , which was attributable to the receipt of proceeds from the Offering of$94.1 million (net of$6.8 million of underwriting discounts and commissions) and the exercise of warrants of$54.9 million and exercise of stock options of$0.5 million , partially offset by the payments of transaction costs related to the Offering of$0.7 million and payments related to tax withholdings of$0.5 million related to vesting of restricted stock units incurred during the year endedDecember 31, 2021 . During the year endedDecember 31, 2020 , financing cash activities were limited to reverse merger acquisition proceeds of$41.5 million , payments of reverse merger acquisition offering costs of$5.1 million , borrowings and repayments of$9.7 million on the Line of Credit and proceeds from exercise of stock options of$0.3 million .
During the year ended
Capital Expenditures
Going forward, we expect to make expenditures for additions to our content
assets, and purchases of property and equipment. The amount, timing and
allocation of capital expenditures are largely discretionary and within
management's control. Depending on market conditions, we may choose to defer a
portion of our budgeted expenditures until later periods to achieve the desired
balance between sources and uses of liquidity and prioritize capital projects
that we believe have the highest expected returns and potential to generate cash
flow. Subject to financing alternatives, we may also increase our capital
expenditures significantly to take advantage of opportunities we consider to be
attractive.
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Off Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance withU.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Annual Report and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important "critical accounting policies" for the Company. A critical accounting policy is one which is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management's forecasts as to the manner in which such circumstances may change in the future. Content Assets The Company acquires, licenses and produces content, including original programming, in order to offer customers unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within "Net cash used in operating activities" on the consolidated statements of cash flows. The Company recognizes its content assets (licensed and produced) as "Content assets, net" on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs, and production overhead. Based on factors including historical and estimated viewing patterns, the Company previously amortized the content assets (licensed and produced) in "Cost of revenues" on the consolidated statements of operations on a straight-line basis over the shorter of each title's contractual window of availability or estimated period of use, beginning with the month of first availability. StartingJuly 1, 2021 , the Company amortizes content assets on an accelerated basis in the initial two months after a title is published on the Company's platform, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts. Furthermore, the amortization of original content is more accelerated than that of licensed content. We review factors that impact the amortization of the content assets on a regular basis and the estimates related to these factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets on an ongoing basis and will also record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales. The Company's business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. Revenue recognition
Subscriptions - O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service.CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber's monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental
authorities.
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Subscriptions - App Services
The Company also earns subscription revenues through its App Services. These
subscriptions are similar to the O&O Service subscriptions, but are generated
based on agreements with certain streaming media players as well as with Smart
TV brands and gaming consoles. Under these agreements, the streaming media
player typically bills the subscriber directly and then remits the collected
subscriptions to the Company, net of a distribution fee. The Company recognizes
the gross subscription revenues when earned and simultaneously recognizes the
corresponding distribution fees as an expense. The Company is the principal in
these relationships as the Company retains control over service delivery toits subscribers. License Fees - Affiliates The Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned. License Fees - Program Sales The Company has distribution agreements which grant a licensee limited distribution rights to the Company's programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use. The Company's performance obligations include (1) access to its SVoD platform via the Company's O&O Service and App Services, (2) access to the Company's content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVoD platform, the performance obligation is satisfied as access to the SVoD platform is provided post any free trial period. In contracts which contain access to the Company's content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer
to use.
Recently Issued Financial Accounting Standards
As an emerging growth company ("EGC"), the Jumpstart Our Business Startups Act
("JOBS Act") allows the Company to delay adoption of new or revised accounting
pronouncements applicable to public companies until such pronouncements are
applicable to private companies. The Company has elected to use this extended
transition period under the JOBS Act until such time as the Company is no longer
considered to be an EGC.
In February 2016 , the FASB issued ASU 2016-02, Leases (Topic 842), which
requires lessees to recognize lease assets and lease liabilities on the balance
sheet for those leases classified as operating leases under current U.S. GAAP.
ASU 2016-02 requires a lessee to recognize a lease liability and a right-of-use
asset for each lease with a term longer than twelve months. The new guidance
also requires additional qualitative and quantitative disclosures related to the
nature, timing and uncertainty of cash flows arising from leases. The Company
will adopt the new standard effective January 1, 2022 , using a modified
retrospective approach. The Company is continuing its evaluation of the impact
of the adoption and currently estimates the recognition of lease liabilities on
the Company's consolidated balance sheet for its operating leases in the range
of approximately $5.0 million to $6.0 million with a corresponding right-of-use
assets balance, net of existing lease incentives, of approximately $3.5 million
to $4.5 million , and no material impact on its consolidated statements of
operations or cash flows.
In June 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326), which requires that an entity measure and recognize expected credit
losses for financial assets held at amortized cost and replaces the incurred
loss impairment methodology in current U.S. GAAP with a methodology that
requires consideration of a broader range of information to estimate credit
losses. The guidance also modifies the impairment model for available-for-sale
debt securities. ASU 2016-13 is effective for the Company's fiscal year
beginning January 1, 2023 . The Company does not expect the implementation of ASU
2016-13 to have a material impact on its consolidated financial statements.© Edgar Online, source
