Cineverse Q1 2024 Earnings Call Transcript

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Provided by Quartr
August 14, 2023

There are 8 speakers on the call.

Operator

Good day, everyone. Welcome to Syniverse's First Quarter Fiscal 20 24 Financial Results Conference Call. My name is Cole, 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 star followed by the number 1 to ask a question. Please note that this call is being recorded. I would now like to turn the call over to your host, Gary Lofredo with Chief Legal Officer, Secretary and Senior Advisor for Syniverse. Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining us for the Syniverse fiscal 2024 The press release announcing Syniverse's results for the fiscal Q1 ended June 30, 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 on the Syniverse 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. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions.

Speaker 1

The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward looking statements. All of the information discussed in this call is as of today, August 14, 2023, And Syniverse does not assume any obligation to update any of these 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 in our earnings release carefully as you consider these metrics. I'm Gary Lefretto.

Speaker 1

With me today are Chris McGurk, Chairman and CEO Eric Opeka, President and Chief Strategy Officer Tony Huidore, Chief Operating Officer and Chief Technology Officer John Canning, Chief Financial Officer Yolanda Macias, Chief Content Officer and Mark Lindsay, Executive Vice President, Finance and Accounting, all of whom will be available for questions following the prepared remarks. On today's call, Chris will discuss Q1 fiscal year 2024 highlights, the latest operational developments, outlook and long term strategy. John will follow with a review of our results for the fiscal Q1 ended June 30, 2023. And Eric will provide 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. We made some very good progress during the quarter toward our previously stated goal to reduce costs, improve margins and sustain profitability. We reduced operating costs by $2,500,000 versus last year's quarter, enabling us to narrow our operating loss by $1,900,000 or 41%. We posted a direct operating margin of 46.2 percent in line with our guidance target of 45% to 50%.

Speaker 2

These improvements are the direct result of our cost streamlining and margin improvement efforts, which have included a 30 position headcount reduction, the renegotiation of most of our operating deals, a planned cut and go forward, overall executive compensation until we reach sustained profitability, Major future cost savings from our offshoring of positions to Syniverse Services India and now the calling of lower margin channels from our broad Streaming portfolio of enthusiast networks. As I've noted before on these calls, unlike many of our competitors who have a single streaming channel and only 1 or 2 revenue models, our 26 channel streaming portfolio and multiple revenue streams give us the ability to truly manage our business as a portfolio. This provides us with the unique ability to call lower performing channels, particularly those where we are not getting enough content from our partners to refresh programming on a timely enough basis. So we are doing this aggressively as we focus on the bottom line even at the expense of lower margin revenues. We saw the impact of that in our results this quarter, where our advertising revenues dropped versus last year, mainly as a result of these channel optimization Eric will cover that in more detail in a few minutes.

Speaker 2

However, I want to emphasize that we are committed to continuing this process of trading off lower margin channels and related businesses for higher performance performers when we have the opportunity to improve our margins And operating results, which is exactly what we saw this quarter with a $2,500,000 reduction in operating costs and 41% reduction of our operating loss versus last year. Despite the drop in advertising revenues, We were pleased to report overall growth in our streaming and digital business for this quarter despite fewer channels, the tough advertising market environment in a seasonally slow revenue period. Streaming and digital revenue increased 58% to a record total of $10,500,000 from last year's Q1, primarily driven by our paid subscription streaming business, which was up 44.7% versus last year and led by growth on our ScreenBox horror channel And also by digital content licensing, which grew 105.9% on the strength of our library sales and new releases. The number of paid subscribers to our channels also increased significantly versus last year, up 38%. As Eric will detail, We expect a rebound in our advertising revenues to complement this subscription and digital sales growth going forward, particularly as we aggressively leverage our new ad services group and head into the political advertising season.

Speaker 2

In addition to all of that, Last fall's theatrical phenomenon Terrifier 2 continues to be a monster performer for us in home entertainment. Released last October, the film has already generated $11,200,000 in revenues for the company. We are planning a theatrical reissue of the film late this year where we will debut a teaser of the highly anticipated franchise follow-up Terra Fire 3 slated for release in the fall of 2024. All of this has been driven by our unique 360 degree approach to marketing, which utilizes all the promotional power of our 26 streaming channels, 70,000,000 monthly active viewers, robust podcast business and the viral social media influencer and editorial capabilities of our Bloody Disgusting Horror division. This cost efficient and highly effective marketing approach helped turn Terrafior II into a horror phenomenon and is one of our key competitive advantages going forward.

Speaker 2

Eric will cover this in more detail. However, let me speak for a minute about what we see is one of the most important and unique initiatives we have undertaken to reduce costs and attain our goal of sustained profitability. Cinevers Services India. Having been involved with the key Cinevers personnel in India for over 9 years, Having acquired 100% of our MatchPoint technology operation almost 3 years ago and having seen the exciting new streaming and content management Technology innovations they have developed, including our current push into AI, we now see Syniverse India is not just a platform for industry leadership in streaming and AI technology, but as a unique and battle tested operation that can offshore the majority of our support functions in the U. S.

Speaker 2

At a dramatically reduced cost and with improved efficiencies at the very same time. This is why we formed Cinnabar Services India and announced it on our last earnings call. What makes this unique for us is that we are offshoring, Not outsourcing domestic positions to a Syniverse Services India operation that is already a trusted in high functioning division of the company. This is why we are so confident that this initiative, which we plan to complete by the end of this fiscal year, will not only contribute several $1,000,000 in cost savings, but will improve workflows and efficiencies across the board. It is a unique competitive advantage that we are aggressively leveraging.

Speaker 2

I also want to mention that an independent third party valued our 65,000 title content library this quarter at $26,000,000 to $30,000,000 That compares to a $2,900,000 book value for the library as of June 30, 2023. Our stockholders' equity as of June 30 was $45,600,000 and we had over $12,000,000 in cash at hand on that date. Syniverse's other assets include a 26 channel enthusiast Streaming portfolio with more than 70,000,000 monthly active viewers and Matchpoint, our industry leading content management Streaming and AI technology platform that was the driving force behind the $68,000,000 in total revenues we generated last fiscal year. As of today, we have 0 debt, including a 0 balance in our East West Bank line of credit, which we just extended for another 12 months. All of those facts underscore why we believe our equity is so significantly undervalued at this point in time.

Speaker 2

We need to do a better job of stressing these points to the investment community and we still have a stock repurchase program in effect into the Q1 of next year. Finally, while Eric will cover the specifics of this in a few minutes, I do want to speak to our status and future is an almost fully technology driven company. Syniverse is at its core an innovative technology company. We led the charge in the game changing conversion of theaters to digital technology, which saved the industry 1,000,000,000 of dollars in distribution costs and made the theatrical business technologically competitive again with the TV business. We spent years developing Matchpoint with a team of Talented world class engineers now at Syniverse India and it is now an industry leading content management, streaming and emerging AI technology platform.

Speaker 2

We were a pioneer in the fast streaming business with connected TVs, now the fastest growing segment of the business. Beyond that technological heritage, it is now very clear that our proprietary MatchPoint technology is the very foundation of all our lines of business from OTT and streaming, content distribution to ad sales and ad tech. Frankly, we've done a lousy job of communicating this critical point in the past and we aim to do better going forward by hammering that point code. Because Matchpoint is the backbone of our business. It's the reason we have had success in establishing partnerships with leading OEMs and tech brands such as TCL and Amagi and bringing in top channel brands like Bob Ross, Sid and Marty Prop and GoPro among many others.

Speaker 2

It is already recognized as a leading entertainment technology and we are confident the recently announced Matchpoint AI initiative We'll also become an industry leader, attract the same quality, same level of quality brands and partners and generate significant high margin revenues in the future. To recognize all of this, we hope to provide additional disclosures in the future to reflect the fact that our MatchPoint technology is already directly responsible for generating a very significant percentage of our revenues and operating results and will very likely represent and even greater percentage of our results in the future. We believe Centerverse should be viewed as a core technology company And our reporting needs to reflect that. Look for more on this as we move through the next couple of quarters. All that said, powered by MatchPoint, we believe we are well positioned to continue growing our streaming technology and content business.

Speaker 2

Our proprietary technology now moving into AI, our substantial portfolio of streaming channels, Our 65,000 title content library and our differentiated 360 degree marketing approach together make up the secret sauce driving Syniverse's growth strategy going forward. Supported by our initiatives such as Syniverse Services India, We remain committed to delivering improved financial performance for fiscal year 2024 as we continue to reduce operating costs and improve margins, working toward our goal of achieving sustainable profitability. And with that, I'll turn it over to John to go over our financial results for the fiscal 2024 Q1.

Speaker 3

Thank you, Chris. For the fiscal Q1 ended June 30, 2023, Syniverse reported total revenues of $13,000,000 which compares to $13,600,000 in the prior year period. As Chris noted, this decrease was primarily due to the impact on our advertising revenue from the intentional elimination of certain lower margin channels via portfolio optimization and reallocating those resources to higher performing and higher margin streaming properties, which is important to our goal of achieving sustainable profitability in the near term. Total streaming and digital revenue increased 6% to a record $10,500,000 driven by our robust channel portfolio, increased platform distribution and paid subscriptions. This was led by a 45% increase in subscription revenue and a 106% increase in digital content licensing.

Speaker 3

Eric will provide additional detail on the operational drivers behind our financial results. Gross margin for the period was 46.2%, which is in line with our previously provided guidance of between 45% 50% for fiscal year 2024. Total OpEx decreased nearly $2,500,000 or 14% from last year's Q1, driven by a reduction in SG and A expense of nearly $2,000,000 This is a direct result of the cost cutting initiatives we've implemented since fiscal year 2023, and we expect to gain even greater efficiencies as Syniverse Services India gains momentum in the second half of fiscal year twenty twenty four. As a result of the decreased total OpEx, Net loss attributable to common stockholders narrowed to negative $3,600,000 or $0.37 negative per diluted share, a significant improvement from net loss of $6,100,000 or $0.69 negative per diluted share in the prior fiscal year period. Adjusted EBITDA loss narrowed to $1,500,000 negative from adjusted EBITDA loss of $2,200,000 negative in the prior year fiscal year.

Speaker 3

We had $12,100,000 in cash and cash equivalents on our balance sheet as of June 30, 2023, and we maintain a small revolving working capital facility as additional dry powder for key content acquisitions. Having paid down $5,000,000 on our revolver subsequent to quarter end, We currently have no outstanding balance on that facility and we have no long term debt. As Chris mentioned, we just extended that facility for another year, we feel well positioned to be able to execute on our growth initiatives over the next several months given our strong financial position. We are reiterating the previously provided guidance for fiscal year 2024, which is full revenue of between $62,000,000 $70,000,000 direct operating margins of between 45% 50% and adjusted EBITDA of between $2,000,000 $4,000,000 Please keep in mind, these guidance assumptions are based on, among other factors, the company's existing business, current view of existing market conditions and assumptions for fiscal year 2024. With that, I'll turn the floor over to Eric to discuss the market environment and our growth initiatives.

Speaker 4

Thank you, John. Yes, thank you, John, and thanks everyone for joining the call today. First, let me briefly discuss the current streaming business climate and I'm going to discuss our top line streaming results, provide some updates on our go forward channel strategy and review our technology initiatives. So first, regarding the current streaming macro environment. Despite a lot of hand wringing and negative sentiment both in the press, in the investor community, the streaming business is showing signs of reaccelerating growth after the post COVID hangover of the last 12 months.

Speaker 4

According to Comscore, both subscription and ad supporting streaming grew a combined 25% in the first half of the year in North America. And despite many claims and market saturation, the average household time spent streaming grew 19% year over year. Additionally, the number of services subscribed per household grew to 5.4, up from 4.7 in the prior year. While CTV advertising has been down around 7% to 8% oriented Kantar for the first half of the year, most large scale platforms such as YouTube, Meta and Hulu are showing modest gains in the last quarter. This presages an improvement in the overall CTV ad environment and the sentiment for the back half of the year has grown more optimistic among our agencies and demand partners.

Speaker 4

However, despite the significant audience shift to streaming, today only 15% of the estimated $70,000,000,000 in video ad spend in North America has been on streaming. With the number of households subscribing to cable falling to the low $30,000,000 range, we see long term trends is very favorable on the ad front. So to sum it all up, all of the key streaming macros, subscribers, time spent, services subscribed to, CTV ad share, So there are many, many years of industry growth remaining and driven heavily by a shift from legacy platforms over the next 5 years. So in the face of all of this, Syniverse's diversified approach to streaming, combined with the technological ability to achieve Superior margins over our peers positions us very well to compete. Now let's discuss a few of the business highlights in more detail from the quarter.

Speaker 4

So streaming and digital revenue increased 5.8 percent to a record $10,500,000 primarily driven by an increase in our digital licensing to other streaming platforms as well as growth in our paid subscription streaming business. Total subscription revenues were $3,200,000 up 45 percent And total subscribers to our streaming services were approximately 1,210,000, up 38%, driven by the success of new release and library acquisition for our flagship services, particularly our ScreamBox 4 channel. And we also saw some significant growth in our documentary streaming service, Docurama, which happened to grow 42% during the quarter. Total ad base revenue was $3,600,000 down 39% 0.3%. As Chris and John noted, during the quarter, we wound down several lower margin channel partnerships.

Speaker 4

These were predominantly third party channels, not channels we own, which included the El Rey network, the country network, the Elvis Presley channel and several proprietary fast channels as well. We finalized their wind down during the period, including the Docurama fast channel, not the subscription channel and ContiV anime. Additionally, we had a mandatory planned technology migration with the major fast channel platform partner. Due to this migration, we experienced significant reduction in monetization with that partner during the transition in May June. We saw significant recovery, subsequent in July and expect to be at pre transition levels for that partner In the critical busy period at the back half of the year.

Speaker 4

In the quarter, we continued our key strategic shift away from the COVID era approach of high top line revenue and KPA growth at the expense of profits to more measured growth with the focus on efficiency and profits. One area we're going to continue to focus on is leveraging our 65,000 title library to generate revenue. As Chris noted, Our business generating revenues from our streaming library was up 40% year over year. In prior years, our focus has been to emphasize our own streaming service at the expense of revenues generated with 3rd party services. However, over the last year, we've seen little to no cannibalization subscribers by making our titles more broadly available and we plan on dramatically expanding that effort.

Speaker 4

In addition, we plan on leveraging MatchPoint to scale up the volume of annual releases of new release titles by 100, which should have a significant and material impact on overall revenue. As we noted earlier, we've been we've begun to focus on eliminating streaming business lines that are unprofitable or far from profitability targets with a priority on winding down deals for channels we don't own outright or require significant CapEx to maintain deal rights. As I noted earlier, we ended our relationship with Authentic Brands on the Elvis Presley channel and also wind on several other channels. We estimate that the P and L benefit from these changes will take effect over the next few quarters and we'll see we think about a 30% margin improvement in our 3rd party channel business, which should translate in estimated 67% improvement in our streaming gross margins as those shutdowns fully wind off. But Docurama, as I mentioned earlier, is a great case study on proactive improvements and the strength of us having multiple revenue stream business model.

Speaker 4

So we originally operated that service as a subscription offering expanded it into fast as a fast channel in 2019. However, as has plagued many predecessor documentary linear networks, Decentral struggled to find an audience as a linear network. As it turns out, most people don't like to tune into documentaries in the middle of the show, which is the most common way for fast channels to find an audience. So we shuttered the fast channel during the last quarter and instead refocused our efforts on the subscription model. The net result has been extremely positive in a short time frame.

Speaker 4

Operating expenses were down by 100 of 1,000 of dollars, while our subscriber base grew by more than 42% during the quarter. So going forward, our approach to 3rd party channels is going to be very different from prior years, Rather than capital intensive co partnerships that require significant investment in CapEx and streaming rights, we're going to focus on Fee based managed technology services and exclusive advertising partnerships. These businesses require little to no risk capital and time to market is days to weeks rather than months or even sometimes years. Our overall approach to the ad market is changing as well. As advertisers focus on supply path optimization, we're currently ramping up the direct and sponsorship portion of our ad business significantly to capture the best results from calendar Q4.

Speaker 4

We recently expanded our ad sales team and in the quarter had secured direct ads and sponsorship deals with ancestry.com, Hershey's, Taco Bell, Sony Pictures, A24 and more. And most of the benefit is coming in the current quarter on these, but we've signed those in the prior quarter. So our approach is focused on selling omni channel, Web, mobile, audio and CTV and at 120% premium to our current CPMs. So think in the $35 range. The biggest shift for us is also a focus on managing the exclusive monetization for partner channels.

Speaker 4

As I noted earlier, we like this approach versus launching new channels because when we work with that partner, the channel is already live. It has predictable and forecastable revenues and cash flows, has no CapEx risk like there is with building a new channel and could be launched rapidly into the market. For example, we recently struck an exclusive monetization partnership with the Preview Channel. From deal to live, we were generating revenues in approximately 3 weeks and have since tripled the partner's daily revenue run rate. We're also pursuing this model on the audio side, signing large podcasts with scale audiences to our network.

Speaker 4

We plan on rapidly scaling this business over the 2 years with a focus on owned and exclusively monetized channels. Finally, I'd like to close out by discussing what's in store for technology and the implications for our business. As Chris noted, our proprietary streaming platform suite known as Matchpoint is the engine that makes everything we do possible. Indirectly, it's responsible for the vast majority of our revenues and we estimate that directly It enables the generation of up to half of the company's overall revenue. At its heart, the MatchPoint system enables scale analysis, processing, distribution, monetization and reporting of professional video content.

Speaker 4

We built it to replace a patchwork of dozens of SaaS companies and service vendors all on top of a highly scalable architecture to allow us to do far more than just our 65,000 title library. Matchpoint is increasingly becoming critical infrastructure for channel operators, OEMs and content producers mainly because it's a single source solution. It goes far beyond just operating streaming channels and supports a full stack infrastructure that modern media companies need, including rights and media management, content processing, digital delivery, apps, data intelligent analytics, customer reporting, royalties and payments and accounting support. As the only end to end operating system for media content in the market today, it eliminates dozens of vendors and dramatically simplifies operations. And our cloud infrastructure and modularity make it affordable and scalable while also being extremely cost efficient.

Speaker 4

If that was the only thing Matchpoint did, we think that would be a great business to offer partners. But the Matchpoint platform goes far beyond the businesses of today. It's also perfectly suited to take advantage of the business needs for media companies of tomorrow. Here's a few examples how we're help We help partners get ready for the consumer needs in the next era of streaming. First up, AI based content processing.

Speaker 4

And this ties right back into the recent announcements we made around our AI marketplace. We're using computer vision and machine learning to dramatically improve the Speed and quality of adding complementary data around video assets from captioning, meta tags, and screen descriptions to more esoteric elements like mood, tone and pacing, these data points are the building blocks of critical services for recommendation engines. But in the future, this data can be used to dramatically improve generated video AI and large language learning models or LLMs. Most generative video models rely on datasets known as text to video pairs,

Speaker 5

where text

Speaker 4

describes what's happening in a given video. Most available data sets are open source, very old, extremely limited and heavily rely on short form and web video content to feed the models. We believe that our capabilities and technology is going to allow us to generate extremely valuable, highly enriched textual data that will enable advanced generative video models for partners and businesses like RunwayML Gen 2, Google's Image and Video and others. Also, let's talk about enhanced next generation user interfaces. Despite streaming's rapid rise, the means of interacting and finding Content has changed very little over the last 15 years.

Speaker 4

We believe that the next generation of streaming user interfaces will be natural, intuitive and dramatically improve the relevancy and experience of services for consumers. We're actively working on commercialization of this effort and expect Some major announcements to come very soon. Next up and last is Fast 2.0. We've talked a lot on these calls about free ad supported streaming television and how it's rapidly replacing cable. However, The current user experiences and use cases, which are pre programmed linear channels and electronic program guide, are basically 80 year old Technology simply can't compete with the engaging hyper personalized video apps like TikTok and Reels for user engagement and time spent watching.

Speaker 4

We're currently working on a complete reimagining of the fast experience for users that will have the comfort, look and feel of cable with the hyper personalization experience users love from their social video services. With simple intuitive onboarding, The users' experience will be so customized that no 2 users will have the same service. So to sum it up, not only does Matchpoint provide a single enterprise solution as a Streaming operating system for the use cases of today. We're bringing next generation technology to support Fast 2.0, Speech based AI chat and data support for generative video AI. We are deep in this market and I can say that most companies are barely struggling With video delivery and are years away from even thinking about these kinds of solutions.

Speaker 4

However, we believe that leveraging our Extensive India team, we can bring these services to market rapidly. To sum it up, we're quite optimistic about the upcoming quarter with Continued growth in our subscription and licensing businesses. Our ad business recovery should be strong as well with the launch of new channels, new distribution and a focus on direct sales and sponsorships and we remain focused on gross margin improvement, managing our cost structure and exiting low and negative margin businesses. And finally, we're committed to investing in technology and scaling Matchpoint with a robust new customer base as we scale up and commercialize its next gen features. Again, thank you for joining today's call and we look forward to sharing our Q4 results in the coming months.

Speaker 4

With that operator, let's open it up for Q and A.

Operator

Thank you. We will now begin the Q and A session. We will pause here briefly as questions are registered. Our first question is from Dan Kurnos with Benchmark. Your line is now open.

Speaker 5

Yes, thanks. Good afternoon. Maybe Just Chris and Eric, I guess, if we think about the strategy and everybody is obviously being cautious with Cash flow right now in sort of this uncertain environment. I guess I just want to understand from you guys, a lot of what you talked about sounds

Speaker 4

I don't

Speaker 5

want to call it a pivot, but certainly a lot more technology oriented. You referenced that directly in your Eric, and I guess I just want to get a sense for you guys. As we think of things like we used to think about them, the umbrella channel and kind of a broader portfolio. How do we kind of reframe the narrative? Does that change at all with the O and O strategy?

Speaker 5

And I don't know if you're a little bit more cautious in how you go after O and O additions at this point. And then a year from now, if you've got an enterprise solution to match point, does that generating explicit revenues on its own. I just how do we think about kind of the revenue mix and kind of the strategy or just the overall framing of what you want us to kind of take away from what you said today?

Speaker 2

Thanks, Dan. This is Chris, you just threw an awful lot at us and I'll let Eric handle the bulk of the response on this. But we don't look at it as a pivot. We see it as sort of a recognition of something that we should have recognized all along. It's always given us a competitive advantage and driven the business Forward is our technology.

Speaker 2

And that's what Matchpoint is doing right now and driving us into new business arenas like AI As well as Eric described. And when we took a look at our results and we looked at each piece of our business, It was directly attributable to the fact that we own this industry leading technology. We looked at ourselves and said, hey, that's about 50% of our business right now. And we probably really should be taking a hard look at how we report going forward. In terms of our channel strategy, I mean, you've sat on these calls for years and we've always said at the very beginning when we were adding channel after channel that probably If you will ask us, what are you going to have 100 channels someday?

Speaker 2

We said probably a 2 dozen specific enthusiast channels It was probably our limit. And we got up to more than 30. And that's when we stepped back and said, you know what, we've got a unique opportunity As a portfolio company with a portfolio of channels really to implement Business 101, which is Call the underperformers and focus your resources against the stronger performers. We haven't stopped the idea of Cineverse as the Spotify of streaming. We're moving forward very aggressively on that, as you saw from the Amagi announcement.

Speaker 2

So I wouldn't call this a pivot, I'd call it a recognition of what we're good at, a rationalization of our portfolio strategy that we always intended to do and more than anything in overriding focus And cutting costs and driving toward profitability by the end of this year versus just focusing on the top line And adding revenues for revenue sake even if they're lower margin revenues. So I'll stop and let Eric finish the answer to the question. Go ahead, Eric.

Speaker 4

Yes. I would just add, if you kind of think about where we take the scale Channel strategy that we've been articulating with Syniverse. We think that it dovetails very nicely with our sort of refocus on Matchpoint. One of the biggest elements of the growth strategy for Syniverse has been working with OEM partners who don't have their own scale streaming service and so It's not just providing an operating system, right, like Comcast is doing with Zumo or Roku has. It's also providing partners a branded or co branded scale experience with a lot of titles and the entire infrastructure to support it and doing it rapidly.

Speaker 4

So we think that is the fastest way for us To grow that piece of the business, we have transactional capability with our partnership with Row 8. We have Tens of thousands of titles with our Amagi deal. So somebody, when we partner with them, can stand up, If they stand up, Cineverse either as Cineverse or as a co branded version of Cineverse, they're standing up a full turnkey, Their own version of a Pluto, Roku channel or Tubi in the immediately versus building out over 3, 4 or 5 years at really no CapEx risk, no employment costs, nothing. So for some partners, that's a pretty attractive result and we think we have a path to scaling Syniverse up following that direction. In terms of the broader channel portfolio, As Chris mentioned, when you talk about a company our size, focus is important, Right.

Speaker 4

And what we don't want to do is focus on small unprofitable or non Important channels when we have these big opportunities like Matchpoint, like Cineverse, our horror business is doing Exceptionally well. So we have these palm super verticals plus, plus Cineverse Plus Matchpoint really to me is where we're going to be focusing a lot of our time and effort going forward. Got it. That's really comprehensive

Speaker 5

and helpful. I appreciate it. Eric, just a follow-up to some sort of underlying trend. If you stripped out The channel pruning, how did 2Q look from an ad perspective? And are we Expecting kind of normal seasonality this year.

Speaker 5

We keep hearing kind of choppiness in the general market in Q3 with some hopes of sort of the normal Q4, I just don't know if your thoughts are, I'd appreciate it.

Speaker 4

Yes. So if you kind of back out The timing of the technical changes that we had to make, I mean the half of last fall element is those changes were originally scheduled to happen in Q4 last And we pushed them out as far as we could, so we wouldn't impact the busiest time of the year, which I'm glad we did. So we've known about them. They've been there. What we didn't know is how significant the impact is.

Speaker 4

I can't go into too much detail because we're I can't name the partner or the platform due to confidentiality reasons, It's a major partner of ours and a big revenue contributor. So the good news is that's behind us. It takes Time for the audience to build back once you basically we in effect had to remove channels from a program guide and removed it from people's favorites that had been live for years. So it just takes some time to build that back, but that's been building back. I think we're pacing for that piece to be back.

Speaker 4

And then the channel culling was a significant piece too. If you kind of back out those, My estimate for the year over year decline would be high single digits. So it's probably about 25% of the decline number was the annual decline. We are still seeing an impact on the business just year over year on the ad growth. Part of the reason we've been so Focus on expanding the number of lines of business we have is we're one of the few companies that have a diversified enough Revenue streams that we can say, okay, let's focus on the subscription side and as we kind of retool the ad business here with So our outlook is good improvement In this quarter, significant improvement on the year over year comps.

Speaker 4

And then for our calendar Q4, our fiscal Q3, We think we're going to be doing very well and back to double digit annual growth, Probably on the lower end of that, more like between 15% 20% is what we're kind of thinking. So still good and more in line with the whole overall CTV pie. Obviously not as good as the COVID era years, But nobody is doing that well short of some anomalous platforms or very small partners. We're optimistic, but we have a lot of tools to offset any Unanticipated or anticipated shakiness in the business.

Speaker 5

Perfect. Thanks very much, Eric. Thanks, Chris.

Speaker 2

Thanks, Dan.

Operator

Thank you, Dan. Our next question is from Brian Kinstlinger with Alliance Global Partners. Your line is now

Speaker 6

open. Good evening, guys. This is Shervin on for Brian. Congrats on a solid quarter. Thanks for taking my questions.

Speaker 6

To start, this has a couple of parts to it. How much the actual releases do you have planned within the next 12 months at this time? And what percentage of them do you expect to contribute a meaningful amount of revenue? And would you Do you expect to contribute a meaningful amount of revenue? And would you say that the planned releases are weighted towards any specific quarter?

Speaker 2

By releases, you're talking about theatrical releases or just new releases?

Speaker 6

Yes, theatrical releases, theatrical.

Speaker 2

I think Yolanda can chime in here. We have at least 5 more between now and the end of the year, Including Warrior King, Fire, the reissue of Terra Fire 2 among others. I think they're weighted toward the Q3 and Q4 of the year. Obviously, the franchise that we're nurturing And we think it's going to have the biggest impact on our business going forward is the Terrifier franchise. I think I mentioned that In a little over 9 months, TerraFire II generated $11,200,000 in revenues to the company And that's on an acquisition that we made below $1,000,000 and only spent $100,000 in marketing.

Speaker 2

And We're excited about the reissue of TerraFire II later this year. We're attaching a teaser to it for TerraFire 3, which is obviously very highly anticipated And that's going to be released in late 2024. And we're hopeful through all of that activity that we'll continue to see sort of the huge positive impact Our home entertainment business, the Terrifier, 2 brought with a huge increase to subscribers for our ScreenBox channel and also huge transactional video on demand, tremendous Sales, not exclusively into the streaming market and actually in physical DVD. So we're going to keep that train going. And we're at the same time, we're going to be in kind of a true franchise building manner.

Speaker 2

We're working with the producers to try to develop ancillary Content, podcasts, making of documentaries, things like that around the franchise. And that'll be our single biggest Driver, I think, in terms of new releases in Theatro going forward. I don't know, Yolanda Vasias Our Chief Content Officer is also on the call. If you want to add anything to that, Yolanda.

Speaker 7

Yes. Chris, you hit all the major points. I would just Continue that the franchise building, which is what we focus on. So we continue to focus on horror films, which you'll see about 5 of those theatrical release in the calendar Q4 and Q3, that we are also pivoting in the physical format to more collectibles to continue that growth and build franchises.

Speaker 2

Thanks.

Speaker 4

And I would also add one thing. In addition to film titles that are coming, Just give everybody a quick update on the various channels. So we're currently deep in GoPro. Our partner Roundtable It's a little bit of a snag. They've been editing video assets pretty aggressively creating feature length episodes out of the GoPro assets.

Speaker 4

So we expect that channel is moving along pretty rapidly. We expect it to be ready to go to market in the early part of calendar Q4. Then Marty Kroft is being remastered. If you've ever seen this content, it's land of the lost 1970s, very cool content, Very, millennial and Gen X favorites, but it needs to be restored and that process is ongoing. We're pegging that for a fiscal Q4 launch for the channel, but we anticipate commercial products to start coming out at the end of this calendar year.

Speaker 4

In terms of Entrepreneur channel, that channel is rapidly going and ready to go and that one should be coming within the next quarter or so. And we have some other properties that we're working on that we will be announcing in the coming weeks.

Speaker 1

Are you seeing any

Speaker 6

negative impact from the strike in any way in terms of filming or marketing for the theatrical releases?

Speaker 2

No, not yet. Right now, because we're in Indy and we're not signatory, It really hasn't affected at this point. We'll see if the spike drags on, but we don't really haven't seen any impact. We don't really anticipate any for the foreseeable future.

Speaker 7

In fact, we received waivers For our talent to promote our upcoming film On Fire.

Speaker 6

Great. That's good to hear. It's good to hear about the progress on the direct ad sales team. How large is the team now? And are you Still continuing to expand upon it.

Speaker 6

And how long would you say it takes for a new hire to be fully onboarded, trained, ready to go? And then last point on the direct ad sales. With the success that you've been having, can you quantify the direct ad pipeline at all or maybe as a multiplier compared to last year, how much more we should expect?

Speaker 4

Sure. So first up, we think

Speaker 5

the current

Speaker 4

direct team is about 5 people.

Speaker 5

We just added the 5th

Speaker 4

person as of a couple of weeks ago, Great sales of Exact that's coming over from Morning Brew, and has an extensive experience at A lot of luxury enough scale providers. So that team is being built out. We think we're probably looking to add 1 to 2 additional Sellers, we've got very good coverage. The management of that group is a seller himself. So it's very efficient and we think it's at the right staffing levels.

Speaker 4

We may add probably One more senior head, and probably some proposal support and more support on the branded content side. So we've got the right team. I think we've got the right team in place. The sort of industry target The little known thing is for most of even the biggest platforms, if you're getting up to 30% Of your total inventory sold direct, that would be in line with sort of the biggest players. I I don't know if that sort of keys up with what you've been hearing, but that's certainly the feedback that we get.

Speaker 4

Sometimes it's a little more, but For most players, it's a lot less, but that's really for us. We think targeting around a third of our inventory To sell direct is a very good space on our owned portfolio in this fiscal year, where there could be a tremendous amount of upside on that is in the There's this big block of people in the connected TV space who have their own rights to monetize, But they're subscale and really they can't afford to hire a sales team. And so we've got a pretty exceptional sales team with a good track record and a very, very long list of potential partners. The preview channel that we announced is the first we believe to be many Partners where we exclusively manage the advertising piece for a partner. So it's very different than an ad network where the network is just ostensibly programmatically filling in or competing and bidding on For us, it's very different.

Speaker 4

We're not only we're fully managing the monetization of the channel for a partner. So we think that is a very in demand service for a pretty broad swath of the CTV environment And both on apps and fast channels. And we think between the Matchpoint offering we have and other things that we bring to the table, We think we can grow and scale that business pretty quickly. So that business would is has a much higher ceiling than just our owned property.

Operator

There are no further questions remaining. So I'll pass Back over to the management team for closing remarks.

Speaker 2

Yes. Hi, this is Chris. So, thank you all for joining us today. 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.

Speaker 2

Thanks very

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Earnings Conference Call
Cineverse Q1 2024
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