Ovid Therapeutics Q4 2023 Earnings Call Transcript

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Provided by Quartr
June 29, 2023

There are 7 speakers on the call.

Operator

Day, everyone. Welcome to Syniverse's 4th Quarter and Year End Fiscal 2023 Financial Results Conference Call. My name is Matt, and I'll be your operator today. Currently, all participants are in a listen only mode. We will have a question and answer session following management's prepared remarks.

Operator

At which time, participants can press Please note that this call is being recorded. I would now like to turn the call over to your host, Gary Lofredo, Chief Legal Officer, Secretary and Senior Advisor for Synovus. Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining the Syniverse fiscal 2023 4th quarter and year end financial results conference call. The press release announcing Syniverse's results for the Q4 fiscal year ended March 31, 2023, is available at the Investors section of the company's website at www.cineverse.com. A replay of this broadcast will also be made available at Cinevers' website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward looking statements.

Speaker 1

These statements are based on management's Current expectations and are subject to risks, uncertainties and assumptions. The company's periodic reports that are filed with the SEC describe potential risks And uncertainties that can cause the company's business and financial results to differ materially from these forward looking statements. All the information discussed on this call is as of today, June 29, 2023. Inciniverse does not assume any obligation to update any of the forward looking statements except as required by law. In addition, certain financial information presented in this call represent Non GAAP financial measures, and we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures With me today are Chris McGurk, Chairman and CEO Eric Opica, President and Chief Strategy Officer Tony Huidore, Chief Operating Officer and Chief Technology Officer John Canning, Chief Financial Officer Yolanda Mesilla, Chief Content Officer and Mark Lindsay, Executive Vice President, Finance and Accounting, all of whom will be available for questions following the prepared remarks.

Speaker 1

On today's call, Chris will discuss fiscal year 2023 highlights, the latest operational developments, outlook and long term strategy. John will follow with a review of our results for the fiscal Q4 and the year ended March 31, 30 onetwenty 23. Eric will then provide some detail on our streaming business results and operating initiatives Before we open the floor for questions, I will now turn the call over to Chris McGurk to begin.

Speaker 2

Thanks, Gary, and hello, everyone. Thank you for joining us today. Fiscal year 2023 was a milestone year for Cinevers. By the end of the year, we wound down almost 100% of our legacy Digital Cinema business and are excited to be moving forward With a new name and brand that reflects our status as a pure play streaming technology and entertainment company. The wind down of Digital Cinema made our financial results rather lumpy over the last 2 years as we monetized the remaining assets in that business And adjusted our balance sheet as our equipment obligations diminished.

Speaker 2

However, during that same period, Our core business of streaming content and entertainment grew very rapidly through a combination of organic growth And 8 acquisitions of streaming content and technology assets. Over the last two fiscal years, we basically doubled the size of our core Content and Entertainment business. Increasing revenues from $28,200,000 for the fiscal year ended March 31, 2021 To a record $56,000,000 for the fiscal year just ended. For this fiscal year, we reported consolidated revenues of $68,000,000 Which reflects 21% year over year growth overall and 48% growth excluding our legacy digital equipment business. We reported streaming revenue of $32,200,000 up 59% year over year And up 2 30% on a 2 year basis, exceeding the company's previously stated long term goal of annual revenue streaming growth Now that Digital Cinema is essentially behind us, we do not expect to experience The lumpiness in our earnings that impacted us over the last 2 years, where we recorded $30,000,000 in Digital Cinema revenues And what must have seemed like a random pattern to some of our investors because the revenue recognition depended on the nonlinear timing of equipment sales And accounts payable reversals.

Speaker 2

That certainly had an impact on our top line results this quarter versus our last sequential quarter And the prior year Q4. Last quarter, our fiscal Q3, we recorded $7,200,000 in Digital Cinema revenue This quarter, we had only $800,000 in total Digital Cinema revenues. In addition to the significant difference in non core digital cinema revenues, in Q3, we also recognized 7.6 $1,000,000 in revenues from the release of TerraFire 2, which had its theatrical run and release into home entertainment in that quarter. That's $5,300,000 more than the TerraFire II revenues we recognized in Q4. That led to the notable difference in revenues from Q3 q4.

Speaker 2

Taking out those two timing factors, which added up to about $11,700,000 The quarter to quarter revenues between Q3 and Q4 look much more seasonally in line. The key takeaway is, With these timing issues aside, we generated more than $40,000,000 in revenues for the 2 quarters combined. The same holds true for the revenue comparison to Q4 of last year. We booked $6,700,000 in Digital Cinema Revenues last year and only $800,000 this year. Excluding these legacy revenues, Q4 revenues look much more in line both in terms of growth and seasonality.

Speaker 2

We anticipate these financial comparisons will become less complicated as we move further away from the sunset of our legacy Digital Cinema business and continue to concentrate on our core streaming entertainment and technology business. Overall, we believe our diverse business model and multiple revenue streams of paid subscriptions, advertising, content licensing, Transactional Digital Sales and Technology Services position us very well as we continue to expand our library of premium content, Effective distribution and marketing solutions and audience reach. We have more than 60,000 titles in our growing library, A portfolio of 26 enthusiast streaming channels with broad distribution and an industry leading content management and streaming technology And MatchPoint. Along with that, we hold a competitive advantage due to our investment in research and development resources in India, where we have a large team of advanced software engineers currently working on taking our technology portfolio to an entirely different level by leveraging AI and machine learning. We also have no long term debt, having reduced our debt by over $50,000,000 since 2020 And only holding a $5,000,000 line of credit.

Speaker 2

That is a very different situation than almost all of our competitors We carry very large debt burdens. All those assets combined with our debt advantage position Gives us a solid foundation for future growth. They've also advanced our scalability and positioned us to deliver improved financial performance in the current fiscal year ending March 31, 2024. John and Eric will get into more detail on all of that in a few minutes. Well, I intend to focus now on 2 important Cinevers initiatives, our content acquisition and content financing strategy And then our initiative to significantly reduce operating costs, improve margins and achieve sustainable profitability.

Speaker 2

First, as I detailed in a recent press release, Syniverse is currently experiencing an unprecedented inflow of premium content, Streaming channel and library acquisition opportunities. This has happened for two key reasons. 1st, We've fully established ourselves as an industry force in streaming, technology and content distribution. And second, The industry witnessed the tremendous success of the horror phenomenon we released called TerraFire 2, and particularly the unique way Cineverse made that success happen. Produced for just $250,000 Terrifier 2 earned over $15,000,000 at the box office, Added hundreds of thousands of streaming viewers and paid subscribers to our ScreenBox World channel and has generated over $10,000,000 in net revenues to Syniverse so far.

Speaker 2

In large part, this happened because the company brought to bear the full force of our assets to promote and virally market the movie In an incredibly cost effective way. We promoted the film not just on ScreenBox, but across our portfolio of channels And there are more than 70,000,000 monthly viewers and billions of ad impressions, while Bloody Disgusting, our in house horror group, Created and implemented a viral marketing campaign for their huge social base of horror enthusiast and influencers that was enormously successful. The film was featured on The Howard Stern Show, in The New York Times, People Magazine and Saturday Night Live among many, many others And became a viral sensation. In essence, we created several $1,000,000 worth of paid media by smartly leveraging our assets and expertise. We call this our 360 degree marketing approach and believe it will be fully applicable to the other genres where we have a channel base And access to millions of enthusiasts and influencers such as the Faith and Family Business and Asian content.

Speaker 2

Most importantly, all of this received notice in the entertainment industry, adding to the company's positive momentum And solidifying the idea that Cinevers has now become a key destination for important IP. That's why In addition to recently announced distribution and technology deals with partners such as GoPro or TCL, we have seen a flood of new partnership And M and A opportunities emerged in the last 90 days. Some of these we've announced already, such as the highly anticipated franchise sequel Terrifier 3, which we are planning to tease to horror fans as part of the re release of Terrifier 2 next fall And also the beloved Sid and Marty Kroff library, which will form the basis of a new Syniverse streaming channel. We are also close to signing a deal for distribution and channel rights for one of the most loved, successful and profitable non fiction television brands of all time. Also a highly valuable and recognizable children's IP library and also an iconic horror brand and library to complement our existing horror assets.

Speaker 2

For all these deals alone, we beat out competing offers from at least 3 major studios and a major cable conglomerate. These time sensitive competitive opportunities are the reason we did our recent equity raise, Even at what we believe is a significantly undervalued share price, we did not want to take on debt and we did not want to lose these properties to our studio competitors As they are a key part of the fuel for our future, we needed the funds to invest in our future immediately and maintain the company's momentum. Going forward, we are committed to finding alternatives to finance content acquisitions that provide more capital and do not require us to enter the equity market again. To that end, we've been working on developing a series Multi $1,000,000 off balance sheet content funds to provide financing for our film and TV acquisition efforts. These will be separate funds for horror, faith and family and catalog content.

Speaker 2

There are no guarantees we will close these deals, But our initial meetings at the Cannes Film Festival to sell in the first fund dedicated to horror generated very significant interest in our view. In addition, we are looking at project specific financings for higher budget and higher profile films and TV series in return for financial participation in the projects. Also, we are in conversations with potential investors in our Faith and Family and Horror businesses who might also bring content to the table. Stay tuned for more on all of these initiatives in the coming months. Ultimately, our goal is to be able to completely finance the growth of our library And content acquisitions through internal cash flow.

Speaker 2

The second area I want to cover now is our initiative to improve margins, Streamline costs and generate sustained profitability. This is the company's overarching goal. With no long term debt and a strong pipeline of new premium content channels and technology partners, our plan is to achieve sustainable long term profitability by the end of fiscal year 2024. We have mobilized the company now to target more than $10,000,000 And annual operating cost savings via SG and A cuts, operating deal renegotiations that leverage our vastly increased scale And through channel portfolio optimization. Much of these savings will come from the now nearly complete full integration of the 8 streaming channel company acquisitions we made over the last 3 years, including Fandor, Digital Media Rights, Stream Box and Dove.

Speaker 2

These acquisitions brought us multiple new streaming channels, more than 15,000 hours of content and viable scale. At the same time, these acquisitions brought increased operating costs that we identified as savings opportunities via full integration, Which we are now approaching. For example, since late August, we've already reduced our workforce by 20% with more significant savings to come. Eric will speak to the efforts we are implementing on the revenue side to generate high margin new sources of revenue in our advertising, podcast and other businesses. However, on the cost side, we're already seeing the results of our efforts take shape.

Speaker 2

This quarter, Our gross margin was 45% in our core business excluding legacy Digital Cinema, an increase of 700 basis points versus the Q4 of last Fiscal year and much higher than our last sequential quarter. Both our direct operating expenses and SG and A Decreased from last year versus a higher revenue number. We are very pleased with that progress and are committed to improving it even further. Although competitively our gross margin percentage is higher than most of our competitors, we want to increase it further. To that end, we are also committed to sacrificing lower margin revenues for higher margin growth and profitability.

Speaker 2

As we have already called some of the underperforming channels in our portfolio, so we can focus our resources on the high performers. Unlike our competitors, we have multiple streaming channels, 26 in fact. A wide diversity of channel genres And deal structures and multiple revenue streams that allow us to undertake a true portfolio management approach to the business. Whereas most of our competitors generally have only 1 channel and just 1 or 2 revenue streams and therefore cannot replicate Our portfolio approach. Another important initiative we are undertaking to streamline our cost structure, While improving margins and efficiencies is to further leverage one of the company's most important assets, Cinevers India.

Speaker 2

We have already talked on these calls before about how our industry leading content distribution and streaming technology platform Matchpoint We'll be a huge part of future value creation. From a cost efficiency standpoint, MatchPoint is unparalleled and is saving significant cost for us already. We're also planning to leverage that technology with 3rd party partners like our recent deal with TCL, One of the largest global TV and mobile device manufacturers. As the size of our content catalog continues to grow at a rapid pace, We are investing in developing next generation search and discovery technology using AI, machine learning and computer vision For the creation of enhanced contextual metadata and more. More news on this initiative will be coming shortly.

Speaker 2

Our MatchPoint technology was developed by our talented team of experienced engineers from the Syniverse India Group based in Calcutta. After having worked with them for 9 years and fully owning the operation for the last two and a half years, we are convinced that Syniverse India Can play an even bigger role in the company's future. To that end, we are going to be much more aggressive in consolidating offshore in India Many of our current outsourced workflows and back office headcount in the United States through the creation of Cinevers Services India. We believe this move could potentially save the company multi 1,000,000 of dollars. Syniverse India is already a high And we strongly believe that in addition to cost savings, this move could potentially streamline our current workflows And increase efficiencies even further.

Speaker 2

And with that, I'll now turn it over to John.

Speaker 3

Thank you, Chris. I'll start by reviewing our financial results for the full fiscal year 2023 and briefly go over those for the Q4. For the fiscal year ended March 31, 2023, Syniverse reported consolidated revenue of $68,000,000 An increase of 21% from $56,100,000 in the prior fiscal year. Content and entertainment accounted for more than 82% of revenue in fiscal year 2023 compared to over 67% of revenue in fiscal year 2022. Growth And our continuing operations was driven by organic user growth, new film performance, as Chris mentioned, increasing market demand for Cineverses' Extensive Connected Television ad inventory and the launch of new streaming channels versus the prior year.

Speaker 3

Total streaming and digital revenue increased 47% to a record $40,400,000 primarily as a result of an expanded channel portfolio, increased platform distribution, Advertising revenues and paid subscriptions. Eric will provide additional detail on the operational drivers behind our financial results. Streaming revenue of $32,200,000 on a standalone basis increased 59% over last year And 230% on a 2 year basis, exceeding our previous long term guidance of 50% annual streaming revenue growth per year. Net loss attributable to common shareholders was negative $10,100,000 or negative $1.13 per diluted share compared to net income attributable to common shareholders of $1,800,000 or $0.20 per diluted share in the prior fiscal year. This was primarily due to increased operating expenses from the acquisitions we made and the winding down and subsequent decrease in revenue contributions from the legacy Cinema Equipment Business.

Speaker 3

Adjusted EBITDA was $100,000 in fiscal year 2023 Compared to adjusted EBITDA of $11,000,000 in the prior fiscal year as a result of the increased net loss caused by an increase in total operating expenses, most of which were related to the investments, including 8 acquisitions of content, channel and technology companies we made to support the company's growth, as Chris described earlier. Increased OpEx for the Content and Entertainment segment compared to prior year was primarily due to $8,300,000 higher content licensing costs, Including royalties, participation and distribution expenses related to the continued growth in revenue noted above, as well as $2,900,000 Increase in expense related to DVD manufacturing and fulfillment due to the success of Terrifier 2. Moving to the quarter. For Q4 fiscal 2023, we reported consolidated revenue of $12,500,000 compared to $16,900,000 in the prior year period and $27,900,000 in the prior sequential quarter, Q3 of fiscal 2023. Q4 is typically a weaker quarter following the peak holiday season in Q3.

Speaker 3

Q3 also saw significantly higher revenue contributions from the The cinema equipment business of $7,200,000 as well as $7,600,000 from the initial release of Terrifier 2. We also saw only $800,000 in cinema equipment revenue in Q4 fiscal 2023 compared to $700,000 in the prior year period. As Chris noted, taking that factor into account, Q4 revenues looked much more in line with historical seasonality and growth. Content and entertainment revenue rose 14.5 percent to $11,700,000 and streaming and digital revenue increased 18.7% To $7,300,000 primarily driven by increased contributions from DMR following its acquisition in March of 2022 And an 8.1% increase in base distribution revenue due to the theatrical success of Terrifier 2. Content and Entertainment gross margin improved to a record 45% in the quarter, an improvement of 700 basis points Over the prior year quarter, driven by targeted reductions and operating costs.

Speaker 3

As Chris mentioned, total operating expenses improved in the quarter, Declining to $15,200,000 from $18,400,000 in Q4 fiscal year 2022. Net loss attributable to common shareholders of negative $3,200,000 or negative $0.35 per diluted share compared to net loss attributable to common shareholders of negative $2,600,000 or $0.30 per diluted share as a result of lower revenues. And adjusted EBITDA loss was negative $900,000 compared to adjusted EBITDA of $3,600,000 We had $7,200,000 in cash and cash equivalents on our balance sheet as of March 31, 2023. We previously announced We completed an equity financing on June 16, raising approximately $8,000,000 in net proceeds, and we maintain a Small revolving working capital facility is additional dry powder for key content acquisitions. We have no long term debt.

Speaker 3

Moving to guidance. We felt it was important for us to set more specific financial targets, so the investment community can better gauge our progress in the quarters to come. We have narrowed and refined previously announced financial objectives and have outlined revenue, gross margin and adjusted EBITDA guidance for the current fiscal year ending March 31, 2024 or our fiscal year 2024. The company expects Consolidated revenue of between $62,000,000 $70,000,000 for fiscal year 2024, with content and entertainment revenue 95% or more of consolidated revenue. This compares with consolidated revenue of $68,000,000 in fiscal year 2023, With Content and Entertainment representing 82 percent of total revenue or $56,000,000 While we anticipate some negative impact on margins Following the sunsetting of the legacy cinema equipment business and ongoing investments in content, distribution and technology, We expect gross margins of between 45% 50% for fiscal year 2024 as compared to gross margin of 47% in fiscal year 2023, which includes the legacy cinema equipment business.

Speaker 3

Excluding that business, margin was 36%. We continue to make progress on our cost reduction initiatives and anticipate that the full effects of these savings will be realized in Q3 fiscal 2024. We aim to maintain OpEx at a certain percentage of consolidated revenue On an ongoing basis to ensure that we are making prudent investment decisions in line with the growth of our business. Adjusted EBITDA is expected to range between positive $2,000,000 positive $4,000,000 in fiscal 2024, which compares to adjusted EBITDA loss of $8,600,000 in fiscal 2023, Which excludes the legacy digital the legacy Cinema Equipment business. Please keep in mind these guidance assumptions are based on, among other factors, With that, I'll turn the floor over to Eric.

Speaker 4

Thank you, John, and thanks to everyone for joining the call today. First, let me briefly discuss the current streaming business climate, Then I'll discuss our top line streaming business results and provide some key strategic initiatives that we'll be focusing on to achieve the guidance John just laid out. So regarding the current operating climate. As we all know, the current macroeconomic climate has shifted companies away from the growth at all cost strategies that were prevalent for most This has been very true in streaming as companies have tried to take on Netflix and later Hulu and YouTube for advertising dollars and subscribers. This is also true in specialty streaming, our arena, and many companies took on considerable debt loads to purchase assets at peak valuations.

Speaker 4

However, as strategies have had to shift, companies are now focused on cost savings and deleveraging. Ad dollars have also taken a hit and consumers are paring back on discretionary spending to include subscriptions. In the face of all this, I believe our diversified approach to streaming combined with the technological ability to achieve superior margins versus our micro cap peers Has and will continue to enable us to outperform in this fiscal year and for years to come. For example, for the Standard Media Index Released just a few days ago, ad revenues were down an average of 7.4% during calendar Q1 or our fiscal Q4. However, due to the efforts of our ad ops team, our matchpoint technology and expanded distribution efforts, We were able to drive ad impression growth by an increase of 14.6%, a significant performance margin over the industry prevailing rates.

Speaker 4

And while we did see CPM and single digit negative growth on the 3rd party platforms where we don't control the advertising, The part where we do directly control it, we're greatly able to outperform the market. Additionally, our portfolio and enthusiast strategy On the subscription side

Speaker 3

of the

Speaker 4

business are typically non correlative to macro and market conditions. For example, We grew our horror service screen box subscriptions 4 38% year over year despite a softer overall industry subscription growth rate. Our thesis is that the engagement and loyalty of enthusiast consumers that are invested in personal fandoms Will ultimately lead to lower long term churn rates and brand loyalty and has been as has been proven in our horror and faith verticals. So to sum it up, no streaming company can ever be immune from a world in which they operate. But our diversified portfolio approach of enthusiast properties Along with our technical abilities leading to superior margin ability means we can thrive in conditions that are going to prove challenging for our competitors, Especially those that are over leveraged.

Speaker 4

Now let's discuss some business highlights during the quarter. First, total streaming minutes of the quarter rose to Approximately $3,000,000,000 up 31% over the prior year quarter and 73% sequentially. This can be directly attributed to expansion of our services in recent quarters with partners like Roku, Mizeo, Pluto, QB and Amazon. Additionally, our investment in exclusive and original content along with premium library content led to increased engagement and watch times and this directly impacted growth. Total subscribers to the company's subscription video streaming services increased approximately 1,240,000 Representing an increase of 28% over the prior year quarter, in line with expectations.

Speaker 4

As noted earlier, this was mainly driven By the 4 38% growth in ScreenDocs on the back of the TerraFire 2 release, the subscriber growth is partially offset by an expected seasonal decline of approximately 56 ks low ARPU third party subs, particularly around Dove, Which had a minimal impact on revenue and they only affected the top line sub number. During the quarter, we continue to optimize our streaming portfolio. Like any portfolio, we look to rebalance the composition by adding new high profile high potential concepts while eliminating unprofitable properties. In the current year, so far we've added Fubu and GoPro to the mix, both of which we hope to launch later in the calendar year. During the quarter, we made some adjustments to our own portfolio.

Speaker 4

First, we wound down the Doctor. Ama linear channel as we founded a poor candidate for linear format. Channel continues to live on successfully as an SVOD and AVOD service where it's thriving. We also shut down con TV anime where we merged it with our much larger and more popular anime service, Retro Crush, which came through the DMR acquisition. This allowed us to half our operation cost and improve the retrocrush offering.

Speaker 4

And lastly, we ended the relationship managing with TekkenOps for the core TV streaming service. We're going to continue to evaluate channel performance and change the portfolio as needed throughout the year to improve overall profitability and increase margins. We continue to expand the Cineverse podcasting business with our emphasis on one of the fastest sub genres of shows, audio dramas. We've now reached more than 90,000,000 downloads a day across more than 30 shows and rapidly becoming one of the most important networks in the space. After the quarter end, we had a top 50 podcast with Re: Dracula, a modern tape on the classic Bram Stoker novel and also entered in a deal with Electronic Arts Bring their $1,000,000,000 franchise Dead Space in the audio fiction world.

Speaker 4

We expect to see many more brands and launches like that coming this year. We've also become a major player in the scripted podcast category. As we noted, our show Mayfair's Watches Society was picked by Apple's top podcast over the last year, and we had more than 5 shows in Spotify's top 50 fiction charts. We're going to continue to scale this business With the forthcoming inter language launches of key shows and the launch of shows including the new Living Dead property from George Romero and many more to come. Now let me just talk about the company's 4 part strategic plan to keep revenue growth going, improve gross margins and deliver positive EBITDA while we drive innovation in the new fiscal year.

Speaker 4

On the revenue side, as I noted earlier, our goal is to continue to find and launch new partnerships Add both new channels to the portfolio to add significant content to our family of channels including Cineverse. So far as Chris noted earlier, we've added some great brands that fit that bill, including Sid and Marty Krops' entire library, FUBU, Entrepreneur of Baymoudash, new African American oriented streaming service based on its pioneering cultural brand, Entrepreneur TV in partnership with Entrepreneur Magazine And GoPro, the new action sports channel in partnership with the namesake technology brand. As Chris alluded to, we have several additional imminent channels, all of which bring highly valuable instantly recognizable IP and brands. Our second key initiative is scaling up our third party advertising Our goal is not only to build and operate new channels with partners, but to expand the monetization for 3rd party channels and podcasts that need help on ad sales and distribution. This business is CapEx light with very high margins and we're seeing incredible interest in this offering We've put in place a great team, and we're going to be making some announcements in the coming weeks on this specific effort.

Speaker 4

3rd, we're going to continue to expand our subscriber base with the focus this year on the horror, Asian and face and family verticals. Our goal is to expand the content in these verticals by utilizing, as Chris mentioned, off balance sheet risk remote vehicles to acquire and finance the content, Which will reduce the company's need for growth capital. Our focus on driving new subscribers will be a mix of strategic partnerships with 3rd party platforms, Hardware OEMs such as our recent TCL deal as well as focused ROI driven customer acquisition marketing. 4th, we're continuing to drive the expansion of inverse. Since we last outlined our mission to bring the 90% of users Our bigger peers have shown exactly why this model is needed.

Speaker 4

From more than 1500 hours of shows being pulled from Disney Plus, Hulu and Max to the massive cuts of Turner Classic Movies, Access to broad based media choices is under attack. Given our massive library and technological prowess, we're perfectly suited to continue executing on this strategy. Launched just last September, we're already a top 10 streaming service in terms of content volume and breadth. One last point I want to mention is our commitment to technological innovation. While most of our peer companies From the largest to the smallest are spending their time figuring out how to build scale infrastructure and digital supply chain, something we solved more than 6 years ago.

Speaker 4

We're moving on to the next generation of capabilities and features. Our team of engineers includes talented data scientists who have tasked to build the next generation of streaming technologies With a focus on solving search discoverability and personalization and streaming experience, utilizing machine learning and AI. Our long term goal is simple. We want to make using a service as fun and unique and experienced as the movies and the shows themselves. Cinema is deeply rooted in our company and employee DNA and we're laser focused on bringing that magic and collective experience of the movies to the experience at home.

Operator

We will pause here briefly as questions are

Speaker 2

registered.

Operator

The first question is from the line of Daniel Kurnos with Benchmark Your line is now open.

Speaker 5

Great. Thanks. Good afternoon. First question for you guys It's just around the content acquisition strategy. So you do the raise.

Speaker 5

I don't know if you guys are willing to comment at least directionally on How much of that was for TerraFire III, but obviously there's some incremental additions to that and it sounds as the way that you put it Chris, there's a competitive bidding process. So maybe you can just talk about expected ROI on that spend, timing, realization and Just generically, why you guys can outbid the competition and flow it through your ecosystem at the winning bid price?

Speaker 2

Well, those were a lot of questions all wrapped up in that, Dan, but thank you. So, Terra Fire III It's a big chunk of that raise. Of all the things we got noticed in the company, as I mentioned in my remarks, the performance of TerraFire II got noticed Across the industry. I probably been involved in 500 or more films in my career, both big and small Across the industry at the major studios and independents I worked at. And I probably never been involved in such a high ROI film And a film that had such a remarkable marketing spend to box office ratio, we spent $100,000 in marketing that movie And the rest of it was our viral marketing campaign and it did $15,000,000 at the box office.

Speaker 2

So those are remarkable economics That were noticed by just about everybody in the industry. So we ended up in a situation where there were competitive bids That reflected a lower ROI than what we achieved on the movie. But we so we stepped up. We paid a lot more for the movie this movie than we did for Terra Fire 2. But remember what we're doing is we're fostering a franchise, Okay.

Speaker 2

By having TerraFire 3 and TerraFire 2, we're able to package and promote each and achieve bigger results on each one. Instance, as I mentioned, we're going to reissue TerraFire II next fall and we'll have a teaser on it for TerraFire III. And the biggest upside from it, as Eric described, was its impact on our streaming channel, ScreenBox. Our subscriptions were up 4 38% on ScreenBox and they stuck directly attributable Terrifier 2, and that's a real annuity for us. So even outside of our streaming business, we target more than a 30% ROI on every acquisition that we make.

Speaker 2

And as I said, I think the most important thing that we're trying to do right now is figure out ways To finance our acquisition strategy through these off balance sheet vehicles that I mentioned and that Eric mentioned And also to do single project financings, where we bring in partners for higher budget projects, so we don't have to go to the equity markets like we did This time, which is principally a timing issue because all of these opportunities came together essentially at once. And we think that'll be a big factor going forward to enable us to continue to bring this premium content in without diluting the company And service our channels, which is really the most important reason why we're doing this. We're willing to give away some of the upside in traditional distribution If it drives the kind of subscribers to our channels that Terrifier 2 drove to ScreenBox.

Speaker 5

Got it. That's helpful. Thanks, Chris. And then just on the cost savings efforts, I think Certainly, we've been looking for that inflection point. John, I don't know if I caught exactly your comments right on the timing.

Speaker 5

I don't know if you meant that the full Flow through would be next year for what Chris called out as $10,000,000 in annualized savings. So correct me If I have that wrong, but just in general, the cadence of recognizing those savings And on a go forward basis, as we look into next year or this fiscal 2024, How much contribution to the top line from the new stuff versus organic growth and against that savings drives kind of the EBITDA that you've arrived at?

Speaker 3

Sure. Let me speak to the cost savings first. So the $10,000,000 is what we expect To realize through the fiscal year in terms of total SG and A savings based on our initiatives. However, as we continue to grow, certainly we'll be investing against the new revenue that will commensurately go against Some of that cost savings as we invest in revenue generating folks and processes. So it will be throughout the year in terms of the cadence, but that's our goal for this year.

Speaker 3

The second part of your question, could you repeat that for me?

Speaker 5

That's pretty much encompasses it, John. I just wanted to understand the balance of some of the new Stop contributing to the revenue outlook, but also you had just addressed state investments in New revenue generating initiatives against the G and A savings.

Speaker 3

And last one, I guess,

Speaker 5

and then I'll step aside. Just for Eric, I know Thanks for the color on the marketplace. We talked about MatchPoint a lot. Sort of waiting for something sort of marquee headline, Anything? I know you guys are super high in the tech in the industry as you do.

Speaker 5

So is there anything to kind of think about that might be on the way For MatchPoint specifically.

Speaker 2

Sure, sure.

Speaker 4

So I think one of the things that gets when we talk about MatchPoint, Sometimes it can seem quite more if it's

Speaker 6

what it is and what

Speaker 4

it does. But I think the best way to really think about what Match Point is, think of it as almost like an operating system combined with the supply chain for streaming. So it's an end to end solution and it's really been designed To operate at an incredible amount of scale, that's part of the reason why we're working with a partner like TCL, which is the 2nd largest TV manufacturer globally after Samsung. The scale of Matchpoint And the amount of processing that it can do on video incidentally makes it one of the most Compelling platforms for next generation technology, right? Because if you think about, how to create large Language model datasets or other things that you're going to use for new experiences for users, new user Interfaces to interactive content, you need to be able to process a tremendous amount of audiovisual data.

Speaker 4

Just so it turns out that our engineering team that built the product happened to be PhD data researchers on big data and worked on these big problems for MTR like a decade ago on the video side. So we've really pretty rapidly adapted the technology to take advantage of this. And so one of the more compelling elements is, while most partners out there are trying to just figure out how To get a basic search box to work, we're doing some pretty extensive Machine learning tools to find ideal captioning points to use 3rd party language libraries and other tools to deeply encode metadata. So the level of things that we're doing, Scott, we initially built to make our lives easier, we're finding are the ideal pools That have really generated some market opportunities that big players are interested in. So we think that's going to be a very significant opportunity for us, I would say, pretty rapidly, just given some of the relationships and conversations we've already announced, like Deep Steel and others, and that we're having right now.

Speaker 4

So If you think about it, we've Chris mentioned 9 years, we've been investing in this capability technology for Almost a decade and really with over the last few years, it's come to a scale and endpoint where Making it a market product is imminent. And I know that's something we've been About for years, but market forces around the needs around processing large amounts of data around video Have really opened up some opportunities that we weren't even contemplating 6 months ago. So it's a pretty exciting time on that.

Speaker 5

Awesome. Super helpful. Thanks everyone. Appreciate it.

Operator

Thank you for your question. Next question is from the line of Brian Kinstlinger with Alliance Global Partners. Your line is now open.

Speaker 6

Great. It's great to see the drop in expenses and the rightsizing of content and entertainment to be profitable in 2024. Can you talk about the early traffic and or revenue contribution from Syniverse? How long before you think You'll be a material contributor and what is the marketing strategy that is educating consumer about this offering?

Speaker 4

Sure.

Speaker 2

Thanks, Brian. That's one for Eric.

Speaker 4

Sure, sure. So if you really think about the phases, because we've gone through this with several different channels Launches. The thesis of Syniverse, right, is it needs to be a scale product that has an incredible amount of content. So Phase 1 is just getting into the market and getting the product beyond a minimally viable product and having A base of content, number 1, that fulfills on the mission that we're talking about. So the good news is that's the first phase that we've been working on over the last Quarter and a half or so, which is going from 0 to ranking in the top 10 for title count.

Speaker 4

Now that we've got the title basis in the service, we're working on A lot of the tools that fulfill the promise of what we've been talking about, right, which is that next generation search capability and Some major innovations on user interface and interaction and a few other game changing things, which We're going to be revealing over the next quarter or so. So that piece, we think, Combined with that capability fulfills on that piece of it and then the second piece of it was distribution. Our strategy for Syniverse is less about us doing paid marketing and it's more about OEM And strategic partner partnership to get the product out there. So we've announced a couple early Partners with VIVGO, PCL and we are going to be adding more partners to that mix. We think that model is a way for us to more rapidly get the service in front of people.

Speaker 4

We will do traditional paid marketing and other things. I will probably be doing that later in the year close to calendar Q4, our fiscal Q3. So I would say meaningful revenue contribution should be coming at the back half of this year or Q3, Q4 fiscal Q3, Q4 as we Progress through these phases of getting the service up to scale. We also have some Other things that we will be doing to dramatically scale up the content offering, to me that's the single biggest thing, right, that That's the value proposition is having more choice, more channels, more assets than almost anyone else in the market and the tools for people to use it. We think we have to have that

Speaker 6

Great. That was super helpful, Eric. Can you quantify what percentage roughly Advertising is and how much of a headwind assuming it is 1 with CPMs In the quarter.

Speaker 4

So in the prior quarter, we're making we've been making the evolution From being, what I'd call a value player, our content That we had on most of the services, it was not the Avengers and others. It was specialty and niche content. So but our brands have been really growing and driving a lot of recognition in the market, especially with the major streamers, Streamy platforms like Samsung and others. So as we've established ourselves and we've also upped the game on content, right, we've made tremendous investments in it over the last year and a half. That is actually our CPMs have actually improved significantly.

Speaker 4

We also did a major reset In January of this year, January is normally one of the worst advertising times of the year. A lot of companies basically set their CPM floors to 0 and take what they can get. We bucked the trend and we actually raised our rates. We raised them up to 15%, 16%. We brought a new ad team.

Speaker 4

We have a new head of ad sales in the company. We really wanted to establish ourselves as not A low tier player, but as somebody who has good quality brands with great audience and good data. And so we did that during the quarter, And we actually increased revenue during the quarter just simply because we were aggressive on our CPMs And we established ourselves as a specialty and premium player as opposed to a value player. So CPM, I think going forward as we ramp direct sales in the back half of this year, When you blend the $30 to $35 CPMs we'll get from direct Campaign against

Speaker 3

our 16 to 18 through

Speaker 4

most During the holidays, you're going to see a much higher CPM rate in the back half of the year. So I feel pretty bullish on our CPMs. And The other thing about CPMs is advertisers pay for innovation and features and capabilities that you can't get on other platforms. So as Syniverse really starts to become a viable property in the market, I think one of the big benefits to that is Imagine if a platform had capabilities and features that you just couldn't find on any other platform, Especially around ad optimization and yield and other things. Well, those are the kinds of things that we're developing and I think advertisers are really going to be Impressed as we roll those features out in the coming quarters.

Speaker 6

It's really helpful. But if I can ask a follow-up. Your digital and streaming business has been posting exceptional growth, but this quarter you only posted 18.7 Gen growth, one of the slowest in a very long time for you. If that's not CPMs, it sounds like, What was the rationale for this quarter that had a slow year over year growth rate which accounts for seasonality?

Speaker 4

Sure. Well, so to clarify on the advertising side, keep in mind, we have 2 types of deals Where we're generating advertising, there's deals where we control the inventory and then there's deals where we rely on third parties to sell So if you think about us, we are compared to the 2Bs, Pluto's and others of the world, We're not anywhere near their scale, so we have more opportunity to grow. There's more room on growth on the upside. Bigger players are already at scale who deal a lot more with pre sold Advertising, those players saw a hit in Q1. Most of the platforms that we rely on to sell the inventory, They just didn't see the volume on the platforms that we saw.

Speaker 4

So net net, we saw Those I think we if I don't have the exact number in front of me, but we were high double digits I'm sorry, high teens or more on the ad side, but when you take into account 3rd parties Who aren't at scale, those parties were down in that quarter. I think everything's rebounded since then, but I think as we scale up our owned inventory and inventory that we sell for other people, we'll be less impacted by Macro ad market conditions, and it'll be more in our control As that pie shifts back towards more of upselling than them selling.

Speaker 6

Yes. It makes you a lot more clear. Thank you. And then you've discussed clearly TerraFire 2 and 3. Can you talk about the timing of theatrical releases in general in fiscal 2020 And how that might impact your results?

Speaker 6

Maybe timing meaning?

Speaker 2

Yes, we haven't formalized release schedule, but we've got Probably 3 more theatrical releases between now October and we're talking about the October to December timeframe for a reissue of TerraFire II, which I mentioned, We're going to add material for TerraFire III on it. We think it will do quite well because as you recall, last October, we really didn't know what we had when First release Terrifier. Now we know what we've got. We've got a horror franchise that has great awareness right now And an iconic character in Art Declown who's a lot of people are comparing to Jason Voorhees or Freddy Krueger. So, we're really focused on maximizing that reissue, setting up the release of Terra Fire 3 in the following year.

Speaker 2

And we'll probably have 2 more theatricals or day and date theatrical and POD releases in the 1st calendar quarter of next year, our 4th calendar quarter.

Speaker 6

And those will be limited releases I take it initially other than Terrifier instead of national releases? And then you'll see what that goes or no?

Speaker 2

Pardon, I didn't understand it. New theatrical releases.

Speaker 3

I'm just trying to understand.

Speaker 6

Yes, theatrical releases, But you have some that are nationally or widely released, sorry, I should use the term, versus a limited release. I take it for now, tariffier will be Yes.

Speaker 2

We consider every release on a case by case basis. As I said, I think one of our huge competitive advantages now Is that we figured out with Terrifier 2, how to like turn the machine on so that we can take a film out on either a 1000 screens, It's been virtually nothing in marketing and get the kind of results we got on Terrifier 2. So we have one film in the works for the fall, a lot of things going on in the 8 80 screens and other Horror film, we've got an animated film called Warrior King that we're trying to fit in the schedule and that will probably go out in between 500 and 1,000 screens. And on TerraFire 2, the reissue, it will probably be we haven't set that maybe 1500 screens. And we think on Terrafir, we can go out wide on 3,000 screens.

Speaker 2

I was I've been quoted in the industry and I've been in the industry far too long In saying that the actual leasing business would be a great business if you didn't have to spend any money on marketing? Well, I think we figured out how to do that with And that is going to be a big competitive advantage for us, particularly since the primary reason we're doing all this, as I said, is to drive subscribers and viewers to our channels, Which creates in subscriptions and viewership, an annuity going forward. So I think we've got a great model and which is one of the reasons why We did the equity raise because we need to put more content into that model now.

Speaker 6

Great. Last question. Thanks for taking all my questions. The first time you've given revenue guidance. It sounds from Eric's remarks that the 3rd party business has come back a little bit.

Speaker 6

Can you talk about Kind of how you think about seasonality, clearly the Q3 is your strongest quarter, but maybe just high level seasonality as you think about The revenue guidance and how we should think about it?

Speaker 2

Yes, I think Just specifically in terms of next quarter is a quarter that's very similar to this quarter in terms of percentage of the year. The 3rd fiscal quarter by far and away is the strongest quarter and the other quarters, There's not that much disparity between them except for me to say that both in our streaming business and in our content business, they're not as strong as the Q1. So maybe we can get you some more information on the historical performance of our content distribution and our streaming business quarter to quarter To give you a better sense of the public. And we update that because obviously things change And it's changed as our streaming business has become a bigger percentage of our revenues.

Speaker 6

Great. Thanks so much.

Speaker 3

But I

Speaker 2

think just in the Sure. You should probably look at next quarter in pretty much the same way you looked at this quarter.

Operator

Thank you for your question. There are no additional questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.

Speaker 2

Yes, this is Chris. Well, thank you all for joining us today and please feel free to reach out to Julie Milstead Or our Investor Relations firm, The Equity Group, with any additional questions you might have. We look forward to speaking to you all again on our next quarterly call in August. Thank you very much.

Operator

That concludes the conference call. Thank you for your participation. You may now disconnect your

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Earnings Conference Call
Ovid Therapeutics Q4 2023
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