CURIOSITYSTREAM INC. 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. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Amendment No. 1 to our Annual Report on Form 10-K/A for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission ("SEC"). 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 ofCuriosityStream .
Cautionary Note Regarding Forward-looking Statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or the Company's management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with theSEC . All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company's behalf are qualified in their entirety by this paragraph. OverviewCuriosityStream is a media and entertainment company that offers premium video programming across the entire category 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 lines of business: Direct to Consumer, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Sponsorships. For the six months endedJune 30, 2021 , Direct to Consumer and Corporate & Association Partnerships together represented approximately 41% of our revenue, followed by Bundled Distribution (approximately 28% of our revenue) and Partner Direct Business (approximately 8% of our revenue), Program Sales (approximately 23% of our revenue) and Sponsorships (less than 1% of our revenue). Our product and service lines and channels through which we generate revenue are described in further detail below. 23
Our content library features more than 3,100 nonfiction episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration, with an estimated$1 billion in original production value. Our content, approximately one-third of which is originally produced and the other two-thirds of which is 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 for high definition resolution, or$9.99 per month or$69.99 per year for service in 4K. 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 and Partner Direct Businesses, we have affiliate relationships withMVPDs and Bundled MVPD Partners to whom we can offer a broad scope sets 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. Our Corporate & Association Partnerships business to date has been 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 30 companies have purchased annual subscriptions at bulk discounts for their employees. In the future, we hope to enter into multi-year integrated partnerships where we create and distribute content in support of these partners' Corporate Social Responsibility (CSR) and membership initiatives. In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns would 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 on two such sponsorships in the last quarter of 2020: one in the financial services sector as well as a brand in the health and fitness sector. The sixth line of business in our revenue stack is our Program Sales Business. We are able to sell to certain media companies a collection of our existing titles in a traditional program sales deal and we are currently party to a multi-year, multi-million dollar program sales agreement with one such media company. We are also able to 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. 24 Recent Developments Equity Financing OnFebruary 8, 2021 , we consummated an underwritten public offering (the "Offering") of 6,500,000 shares of the Company's common stock, par value per share$0.0001 ("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$6.8 million in underwriting discounts and commissions. We also incurred and paid offering expenses in connection with the Offering of$0.7 million during the six months endedJune 30, 2021 . 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 . During the six months endedJune 30, 2021 , we received funds of approximately$54.9 million for the exercise of 4.8 million Public Warrants. The receipt of the net proceeds from the Offering as well as proceeds received from the exercise of Public Warrants during the six months endedJune 30, 2021 has resulted in a significant cash balance that has mitigated the Company's potential capital risk for the foreseeable future. There were no warrants exercised during the three months endedJune 30, 2021 . Asset Purchase Agreement
OnMay 11, 2021 , the Company consummated the acquisition of 100% ownership ofOne Day University pursuant to that certain Asset Purchase Agreement, datedMay 11, 2021 , by and amongOne Day University and the Company for the aggregate consideration of$4.5 million . OneDay University provides access to talks and lectures from professors at colleges and universities inthe United States . The acquisition 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.
Partnership with SPIEGEL TV
OnJuly 29, 2021 , the Company announced the expansion of 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 . 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 Amendment No. 1 to our 2020 Annual Report on Form 10-K/A for additional details. In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, 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. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed "essential," isolate residents to their homes or places of residence, and practice social distancing. In addition, COVID-19 vaccinations have been increasing, though at a decreasing rate with significant resistance to vaccination in certain geographies and among certain groupings of people. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, notably by the "delta" variant 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.
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 periods presented below and are expected to continue to have such significant effects:
Revenues Currently, the main sources of our revenue are (i) subscriber fees from Direct Business and Direct Subscribers, (ii) license fees from affiliateswho receive subscriber fees forCuriosityStream from such affiliates' subscribers ("Partner Direct Business" and "Partner Direct Subscribers") and (iii) bundled license fees from distribution affiliates ("Bundled MVPD Business" and "Bundled MVPD Subscribers"). As ofJune 30, 2021 , we had approximately 20 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers. 25
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 Direct Service in high-definition resolution or$9.99 per month or$69.99 per year for service in 4K. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a revenue share or 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 ofJune 30, 2021 , licensed content represented 2,081 titles and original titles represented 1,006 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, for the first several years of our existence, we invested heavily in engineering, marketing and programming staff to build the Company and its service offering. Beginning in 2019, however, we began to focus on sales staff and other revenue-generating personnel. Results of Operations The financial data in the following tables set forth selected financial information derived from our unaudited consolidated financial statements for the three and six months endedJune 30, 2021 and 2020 and shows our results of operations as a percentage of revenue or as a percentage of costs. We conduct business through one operating segment,CuriosityStream Inc.
Comparison of the three months ended
Three months ended
June 30,
2021 2020 $ Change % Change
(unaudited)
(in thousands)
Revenues:
Subscriptions $ 5,680 37 % $ 4,067 34 % $ 1,613 40 %
License fee 9,610 63 % 7,978 66 % 1,632 20 %
Other 54 0 % 4 0 % 50 n/m
Total Revenues $ 15,344 100 % $ 12,049 100 % $ 3,295 27 %
Operating expenses:
Cost of revenues 5,722 22 % 4,671 28 % 1,051 23 %
Advertising and
marketing 11,520 44 % 8,304 51 % 3,216 39 %
General and
administrative 9,153 34 % 3,437 21 % 5,716 166 %
Total operating
expenses $ 26,395 100 % $ 16,412 100 % $ 9,983 61 %
Operating loss (11,051 ) (4,363 ) (6,688 ) 153 %
Other income
(expense)
Change in fair value
of warrant liability 1,764 - 1,764 n/m
Interest and other
income (expenses) 1,036 86 950 1,105 %
Loss before income
taxes $ (8,251 ) (4,277 ) $ (3,974 ) 93 %
Provision for income
taxes 53 40 13 33 %
Net loss $ (8,304 ) $ (4,317 ) $ (3,987 ) 92 %
n/m - percentage not meaningful
26
Revenue
Revenue for the three months endedJune 30, 2021 and 2020 was$15.3 million and$12.0 million , respectively. The increase of$3.3 million , or 27% is due to a$1.6 million increase in subscription revenue, a$1.6 million increase in license fee revenue, and$0.1 million increase in other revenue. The increase in subscription revenue of$1.6 million resulted from an increase of$1.9 million in subscriber fees received by us from Direct subscribers for annual plans offset by a$0.3 million decrease inCorporate & Association Partnership sales. The increase of$1.6 million in license fees resulted primarily from a$1.3 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of$0.3 million on license revenue is primarily due to an increase of$0.3 million in revenue from Partner Direct. The increase in other revenue of$0.1 million is due to sponsorship revenue deals with customers. Operating Expenses Operating expenses for the three months endedJune 30, 2021 and 2020 were$26.4 million and$16.4 million , respectively. This increase of$10.0 million , or 61%, primarily resulted from the changes in the components of our operating expenses described below:
Cost of Revenues: Cost of revenues for the three months endedJune 30, 2021 increased to$5.7 million from$4.6 million for the three months endedJune 30, 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$1.1 million , or 23%, is due primarily to the increase in content amortization of$1.1 million , of which$0.2 million is due to the timing and number of titles published during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 and$0.9 million is due to accelerated content amortization related to our program sales contracts during the three months endedJune 30, 2021 when compared to the prior year period. Advertising and Marketing: Advertising and marketing expenses for the three months endedJune 30, 2021 increased to$11.5 million from$8.3 million for the three months endedJune 30, 2020 . This increase of$3.2 million , or 39%, was principally due to an increase in digital advertising of$2.8 million , an increase in radio advertising of$1.2 million and an increase in partner platform advertising of$0.3 million . This overall increase is partially offset by a decrease of$0.9 million in TV advertising and a decrease of$0.2 million in brand awareness advertising when compared to the second quarter of 2020. General and Administrative: General and administrative expenses for the three months endedJune 30, 2021 increased to$9.1 million from$3.4 million for the three months endedJune 30, 2020 . This increase of$5.7 million , or approximately 166%, was primarily due to an increase of$1.1 million in stock-based compensation in the three months endedJune 30, 2021 when compared to the three months endedJune 30, 2020 . Also, an increase of$1.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount for the current period when compared to the second quarter of 2020. The remaining increase in general and administrative cost is primarily due to an increase of$1.3 million related for professional fees, increase of$0.4 million related to insurance costs and increase of$0.1 million related to licenses and subscriptions. During the three months endedJune 30, 2020 , the Company applied the receipts of the PPP loan of$1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the three months endedJune 30, 2021 . We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions. Operating Loss
Operating loss for the three months endedJune 30, 2021 and 2020 was$11.1 million and$4.4 million , respectively. The increase of$6.7 million , or approximately 153%, in operating loss resulted from the increase in revenue of$3.3 million , or 27%, offset by the increase in operating expenses of$10.0 million , or 61%, during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , as described above.
Change in Fair Value of Warrant Liability
For the three months endedJune 30, 2021 , the Company recognized a$1.8 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 during the three months endedJune 30, 2021 . There was no comparable activity in the prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months endedJune 30, 2021 increased$1.0 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments. Provision for Income Taxes
Due to our loss from operations in each of the three months endedJune 30, 2021 and 2020, we had a provision for income taxes of$53 thousand and$40 thousand , respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of the increase in contracts executed with third parties in foreign jurisdictions in the three months endedJune 30, 2021 when compared to the three months endedJune 30, 2020 . 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. Net Loss
Net loss for the three months endedJune 30, 2021 and 2020 was$8.3 million and$4.3 million , respectively. The increase of$4.0 million , or approximately 92%, resulted primarily from the increase in operating expenses, offset by a smaller increase in revenue as well as the change in the fair value of the warrant liability during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , as described above. 27
Comparison of the six months ended
Six months ended
June 30,
2021 2020 $ Change % Change
(unaudited)
(in thousands)
Revenues:
Subscriptions $ 10,557 42 % $ 7,518 39 % $ 3,039 40 %
License fee 14,599 58 % 11,994 61 % 2,605 22 %
Other 124 0 % 4 0 % 120 n/m
Total Revenues $ 25,280 100 % $ 19,516 100 % $ 5,764 30 %
Operating expenses:
Cost of revenues 9,880 19 % 7,337 20 % 2,543 35 %
Advertising and
marketing 23,769 46 % 21,009 59 % 2,760 13 %
General and
administrative 17,885 35 % 7,621 21 % 10,264 135 %
Total operating
expenses $ 51,534 100 % $ 35,967 100 % $ 15,567 43 %
Operating loss (26,254 ) (16,451 ) (9,803 ) 60 %
Other income
(expense)
Change in fair value
of warrant liability (2,022 ) - (2,022 ) n/m
Interest and other
income (expenses) 1,296 418 878 210 %
Loss before income
taxes $ (26,980 ) (16,033 ) $ (10,947 ) 68 %
Provision for income
taxes 79 77 2 3 %
Net loss $ (27,059 ) $ (16,110 ) $ (10,949 ) 68 %
n/m - percentage not meaningful
Revenue Revenue for the six months endedJune 30, 2021 and 2020 was$25.3 million and$19.5 million , respectively. The increase of$5.8 million , or 30% is due to a$3.0 million increase in subscription revenue, a$2.6 million increase in license fee revenue, and a$0.1 million increase in other revenue. The increase in subscription revenue of$3.0 million resulted from an increase of$3.6 million in subscriber fees received by us from Direct subscribers for annual plans offset by a$0.6 million decrease inCorporate & Association Partnership sales. The increase of$2.6 million in license fees resulted primarily from a$1.7 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of$0.9 million on license revenue is due to an increase of$0.7 million in revenue from Partner Direct Business and an increase of$0.2 million in revenue from Bundled MVPD partners, in each case as a result of an increase in the number of users and/or subscribers for our service. The increase in other revenue of$0.1 million is due to new sponsorship revenue deals with customers. Operating Expenses Operating expenses for the six months endedJune 30, 2021 and 2020 were$51.5 million and$35.9 million , respectively. This increase of$15.6 million , or 43%, primarily resulted from the changes in the components of our operating expenses described below: Cost of Revenues: Cost of revenues for the six months endedJune 30, 2021 increased to$9.9 million from$7.3 million for the six months endedJune 30, 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$2.5 million , or 35%, is due primarily to the increase in content amortization of$2.3 million , of which$0.9 million is due to the timing and number of titles published during the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 and$1.4 million is due to accelerated content amortization related to our program sales contracts during the six months endedJune 30, 2021 when compared to the prior year period. The remaining increase in cost of revenues is due to slight increases in hosting and streaming delivery costs, processing and distribution fees, and subtitling and broadcast costs (total increase of$0.3 million ). The increase of cost of revenues is consistent with the increase in revenue during the six months endedJune 30, 2021 . Advertising and Marketing: Advertising and marketing expenses for the six months endedJune 30, 2021 increased to$23.8 million from$21.0 million for the six months endedJune 30, 2020 . This increase of$2.8 million , or 13%, was principally due to an increase in digital advertising of$3.0 million , an increase in radio advertising of$1.5 million and an increase in partner platform advertising of$0.9 million , partially offset by a decrease of$2.5 million in TV advertising and a decrease of$0.1 million in brand awareness advertising when compared to the prior period. 28
General and Administrative: General and administrative expenses for the six months endedJune 30, 2021 increased to$17.9 million from$7.6 million for the six months endedJune 30, 2020 . This increase of$10.3 million , or approximately 135%, was primarily due to an increase of$3.1 million in stock-based compensation in the period when compared to the six months endedJune 30, 2020 . Of this increase related to stock-based compensation,$2.2 million is due to the recurring recognition of compensation expense over the service period and$0.9 million is due to the immediate recognition of stock-based compensation expense of a fully vested award granted inJanuary 2021 to an executive. Also, an increase of$2.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount of mid to senior management hires for the current period when compared to the prior period. The remaining increase in general and administrative cost is primarily due to an increase of$2.3 million related to professional fees, increase of licenses and subscriptions of$0.4 million and$0.8 million related to insurance costs. During the six months endedJune 30, 2020 , the Company applied the receipts of the PPP loan of$1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the six months endedJune 30, 2021 . We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions. Operating Loss Operating loss for the six months endedJune 30, 2021 and 2020 was$26.3 million and$16.5 million , respectively. The increase of$9.8 million , or approximately 60%, in operating loss resulted from the increase in revenue of$5.8 million , or 30%, offset by the increase in operating expenses of$15.6 million , or 43%, in each case during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , as described above.
Change in Fair Value of Warrant Liability
For the six months endedJune 30, 2021 , the Company recognized a$2.0 million loss related to the change in fair value of the warrant liability, which was due to an increase in the fair value of the Private Placement Warrants during the six months endedJune 30, 2021 . There was no comparable activity in the prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months endedJune 30, 2021 and 2020 increased$0.9 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments. Provision for Income Taxes Due to our loss from operations in each of the six months endedJune 30, 2021 and 2020, we had a provision for income taxes of$79 thousand and$77 thousand , respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of the increase in contracts executed with third parties in foreign jurisdictions in the six months endedJune 30, 2021 when compared to the six months endedJune 30, 2020 . 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. Net Loss
Net loss for the six months endedJune 30, 2021 and 2020 was$27.1 million and$16.1 million , respectively. The increase of$11.0 million , or approximately 68%, resulted primarily from the increase in operating expenses, and change in fair value of the warrant liability, partially offset by a smaller increase in revenue as well as an increase in interest and other income, in each case during the six months endedJune 30, 2021 as compared to the six months ended June
30, 2020, as described above.
Liquidity and Capital Resources
As of
Through the date of the Merger, we have financed our operations primarily from the net proceeds of our sale of Series A Preferred Stock in November andDecember 2018 . An additional source of liquidity includes borrowings under our Line of Credit Facility with a bank (the "Line of Credit"). This Line of Credit provides for borrowings of up to$4.5 million with interest-only monthly payments at a rate equal to the LIBOR Daily Floating Rate plus 2.25%. The Line of Credit carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance is due when the Line of Credit matures onFebruary 28, 2022 , following the execution of a one-year extension duringFebruary 2021 . The Line of Credit is collateralized by cash of$4.5 million that is held in restricted cash in current assets on the consolidated balance sheet. 29
OnFebruary 8, 2021 , we consummated the Offering. 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 , of which all was paid during the six months endedJune 30, 2021 . During the six months endedJune 30, 2021 , we received funds of approximately$54.9 million for the exercise of 4.8 million Public Warrants. There was no exercise of Public Warrants during the three months ended June
30, 2021. We believe that our cash flows from financing, combined with our current cash and investment levels and available borrowing capacity, 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 and cash and investment balances as ofJune 30, 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 periods indicated:
Cash Flow from Operating Activities
For the six months ended
June 30,
2021 2020
(unaudited)
(in thousands)
Net cash used in operating activities $ (23,356 ) $ (28,516 )
Net cash provided by (used in) investing activities (128,957 ) 31,621
Net cash provided by financing activities 148,679 -
Net increase (decrease) in cash, cash equivalents and
restricted cash $ (3,634 ) $ 3,105
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 six months endedJune 30, 2021 and 2020, we recorded a net cash outflow from operating activities of$23.4 million and$28.5 million , respectively, or a decreased outflow of$5.1 million , or 18%. The decreased outflow from operating activities was primarily due to an increase in content liabilities, accounts payable, and accrued expenses and other liabilities of$7.3 million during the six months endedJune 30, 2021 as compared to a decrease of$5.5 million during the six months endedJune 30, 2020 , the increase in deferred revenue being$6.5 million larger during the six months endedJune 30, 2021 , and stock-based compensation expense, amortization of content assets, and change in fair value of warrant liability increasing$7.4 million during the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2021 , partially offset by a$10.9 million increase in net loss and$11.9 million higher level of additions to content assets in the current year period.
Cash Flow from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments and purchases of property and equipment.
During the six months endedJune 30, 2021 and 2020, we recorded a net cash outflow from investing activities of$129 million and a net cash inflow from investing activities of$31.6 million , respectively, or an increased cash outflow of$160.6 million . The increase in cash outflow from investing activities was primarily due to the purchases of investments of$141.6 million during the six months endedJune 30, 2021 . We had sales and maturities of$4.9 million and$12.0 million respectively, during the six months endedJune 30, 2021 compared to sales and maturities of investments of$35.6 million and$8.5 million , respectively, during the six months endedJune 30, 2020 . The Company also had cash outflows of$4.0 million related to the Acquisition of ODU during the six months endedJune 30, 2021 .
Cash Flow from Financing Activities
During the six months endedJune 30, 2021 , we recorded net cash inflow from financing activities of$148.7 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 , partially offset by the payments of transaction costs related to the Offering of$0.7 million incurred during the six months endedJune 30, 2021 . During the six months endedJune 30, 2020 , financing cash activities were limited to borrowings and payments of$1 million each on the line of credit. 30 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.
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 consolidated financial statements, which have been prepared in accordance withU.S. GAAP. Certain amounts included in or affecting the consolidated financial statements 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 consolidated 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 members 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 library 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 library (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 generally amortizes the content library (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. The Company reviews factors impacting the amortization of the content library on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
31
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. Subscription - App Services The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but these subscriptions 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 to its subscribers. Licensing - 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. Licensing - 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.
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