Chicken Soup for the Soul Entertainment Reports Q3 2020 Results

Rhea-AI Summary

Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CSSE) reported a strong third quarter for 2020, with gross revenue reaching $20.0 million, up from $13.9 million in Q2 2020 and $17.0 million year-over-year. Despite a net loss of $13.0 million, improved adjusted EBITDA of $4.2 million was noted. The Online Networks segment generated $6.7 million in revenue, while Distribution & Production saw a surge to $13.3 million. The company is focused on enhancing its content and financial position for growth in 2021.

Positive

• Gross revenue increased to $20.0 million, a 44% rise from Q2 2020.
• Adjusted EBITDA improved to $4.2 million from $2.7 million in Q2 2020.
• Online Networks revenue rose to $6.7 million, showing resilience in growth.
• Distribution & Production revenue surged to $13.3 million from $8.5 million in Q2 2020.
• Gross profit margin increased to 23% of net revenue, compared to 4% in Q2 2020.

Negative

• Net loss of $13.0 million, compared to $10.0 million in Q2 2020.
• Operating loss of $11.3 million, though improved from $13.1 million in Q2 2020.
• Outstanding debt increased to $34.8 million compared to $20.2 million in Q3 2019.

Strong performance across Online Networks and Distribution & Production businesses drives significant growth

COS COB, Conn., Nov. 12, 2020 (GLOBE NEWSWIRE) -- Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CSSE), one of the largest operators of streaming advertising-supported video-on-demand (AVOD) networks, today announced its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Financial Summary

• Gross revenue of $20.0 million, compared to $13.9 million in the second quarter of 2020, and $17.0 million in the year-ago period.
• Net loss of $13.0 million compared to a net loss of $10.0 million in the second quarter of 2020, and a net loss of $13.3 million in the year-ago period; $12.0 million net loss before preferred dividends, compared to $9.0 million net loss in the second quarter 2020, and $12.4 million net loss before preferred dividends in the year-ago period.
• Adjusted EBITDA of $4.2 million, compared to $2.7 million in the second quarter 2020, and a loss of $0.4 million in the year-ago period.
• Online Networks, which include Crackle and Popcornflix, revenue of $6.7 million compared to $5.4 million in the second quarter of 2020, and $14.4 million in the year-ago period. The year-over-year decline reflects approximately $6.2 million in advertising revenue in the year ago period from the since-shuttered Playstation Vue, and intercompany revenue share payments in the 2020 period of $1.3 million to our Distribution & Production business for the licensing of content from our sister company, Screen Media.
• Distribution & Production revenue of $13.3 million compared to $8.5 million in the second quarter of 2020, and $2.7 million in the year-ago period due to strength in content licensing and TVOD revenue.
  

Recent Business Highlights

• Continued to expand pipeline of Original & Exclusive content which represented 16% of average monthly streaming hours in the quarter, compared to just 2% a year ago.
• Online Networks delivered steady viewership throughout the quarter and sequential growth in ad impressions. The latest Crackle original series, Spides, premiered on September 17^th, and drove over one million streams in its first two weeks.
• Distribution and Production generated strong performance driven by the #1 TVOD hit The Outpost as well as the company’s growing library of film and television content.
• Today the company agreed to a 30-day extension of a key decision deadline, to December 14, 2020, as the Crackle Plus joint venture partners assess the possibility of closer collaboration.

“Our strong third quarter results demonstrate that we are continuing our momentum, despite the pandemic, and we are poised for a terrific end to 2020,” said William J. Rouhana Jr., chairman and chief executive officer of Chicken Soup for the Soul Entertainment. “Viewers are engaging with our differentiated and expanding Original and Exclusive content, and our Distribution and Production business generated an exceptional performance driven by one of the summer and fall’s most-watched films on VOD, The Outpost. We are now turning our focus to growing awareness of our Crackle Plus networks to scale viewership, while continuing to expand our stable of fully owned content, which will drive both future revenue opportunity and higher margins. We’ve also enhanced our balance sheet, working capital position and financial flexibility. We believe we are in an excellent position to drive greater levels of growth in 2021 as we capitalize on the robust opportunities ahead in the emerging AVOD landscape.”

Gross profit for the quarter ended September 30, 2020 was $4.5 million, or 23% of net revenue, compared to $0.6 million in the second quarter, or 4% of net revenue, and $3.2 million, or 19% of net revenue for the year-ago period. The change in the percentage of gross profit resulted in part from non-cash amortization of the film library in the company’s traditional distribution business, which is required by GAAP to be included in cost of revenue. Without this non-cash film library amortization expense, the gross profit would have been $12.5 million or 65% of total net revenue.

Operating loss for the quarter ended September 30, 2020 was $11.3 million compared to an operating loss of $13.1 million in the second quarter 2020, and $9.6 million in the year-ago period. Without this film library amortization expense and other depreciation and amortization, operating income would have been $1.3 million.

Net loss was $13.0 million, or $1.04 per share, compared to a net loss of $10.0 million, or $0.83 per share, in the second quarter 2020, and a net loss of $13.3 million, or $1.11 per share in the prior-year third quarter. Excluding preferred dividends, the net loss in the third quarter of 2020 would have been $12.0 million, or $0.96 per share, compared to net loss of $12.4 million, or $1.03 per share for the year-ago period.

Adjusted EBITDA for the quarter ended September 30, 2020 was $4.2 million, compared to $2.7 million in the second quarter 2020, and a loss of $0.4 million in the year-ago period.

As of September 30, 2020, the company had $9.2 million of cash and cash equivalents compared to $6.2 million at September 30, 2019, and outstanding debt of $34.8 million as of September 30, 2020 compared to $20.2 million as of September 30, 2019.

For a discussion of the financial measures presented herein which are not calculated or presented in accordance with U.S. generally accepted accounting principles (“GAAP”), see “Note Regarding Use of Non-GAAP Financial Measures” below and the schedules to this press release for additional information and reconciliations of non-GAAP financial measures.

The company presents non-GAAP measures such as Adjusted EBITDA and Pro Forma Adjusted EBITDA to assist in an analysis of its business. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the company's operating performance.

Conference Call Information

• Date, Time: Thursday, November 12, 2020, 4:30 p.m. ET.
• Toll-free: (833) 832-5128
• International: (484) 747-6583
• Conference ID: 2772449
• A live webcast and replay will be available at http://ir.cssentertainment.com/ under the “News & Events” tab
  

Conference Call Replay Information

• Toll-free: (855) 859-2056
• International: (404) 537-3406
• Conference ID: 2772449
  

ABOUT CHICKEN SOUP FOR THE SOUL ENTERTAINMENT
Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CSSE) operates streaming video-on-demand networks (VOD). The company owns a majority stake in Crackle Plus, a company formed with Sony Pictures Television, which owns and operates a variety of ad-supported and subscription-based VOD networks including Crackle, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and FrightPix. The company also acquires and distributes video content through its Screen Media subsidiary and produces original long and short-form content through Landmark Studio Group, its Chicken Soup for the Soul Originals division and APlus.com. Chicken Soup for the Soul Entertainment is a subsidiary of Chicken Soup for the Soul, LLC, which publishes the famous book series and produces super-premium pet food under the Chicken Soup for the Soul brand name.

Note Regarding Use of Non-GAAP Financial Measures
The company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). It uses a non-GAAP financial measure to evaluate its results of operations and as a supplemental indicator of operating performance. The non-GAAP financial measure that is used is Adjusted EBITDA. Adjusted EBITDA (as defined below) is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. Management believes this non-GAAP financial measure enhances the understanding of the company’s historical and current financial results and enables the board of directors and management to analyze and evaluate financial and strategic planning decisions that will directly affect operating decisions and investments. The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or non-recurring items or by non-cash items. This non-GAAP financial measure should be considered in addition to, rather than as a substitute for, the company’s actual operating results included in its condensed consolidated financial statements.

“Adjusted EBITDA” means earnings before interest, taxes, depreciation, amortization (including tangible and intangible assets), acquisition-related costs, consulting fees related to acquisitions, dividend payments, non-cash share-based compensation expense, and adjustments for other unusual and infrequent in nature identified charges, including transition related expenses. Adjusted EBITDA is not an earnings measure recognized by U.S. GAAP and does not have a standardized meaning prescribed by GAAP; accordingly, Adjusted EBITDA may not be comparable to similar measures presented by other companies. Management believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. The most comparable GAAP measure is operating income.

A reconciliation of net loss to Adjusted EBITDA is provided in the company’s interim report on Form 10-Q for the three and nine months ended September 30, 2020 and Annual Report on Form 10-K for the year ended December 31, 2019 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of GAAP Net Income as reported to Adjusted EBITDA.”

FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are subject to risks (including those set forth in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2020) and uncertainties which could cause actual results to differ from the forward-looking statements. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. Investors should realize that if our underlying assumptions for the projections contained herein prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections.

INVESTOR RELATIONS
Taylor Krafchik
Ellipsis
CSSE@ellipsisir.com
646-776-0886

MEDIA CONTACT
Kate Barrette
RooneyPartners LLC
kbarrette@rooneyco.com
(212) 223-0561

Tables Follow

Chicken Soup for the Soul Entertainment, Inc.
Condensed Consolidated Balance Sheets
	September 30,				December 31,
	2020				2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	9,243,315			$	6,447,402
Accounts receivable, net of allowance for doubtful accounts of $1,777,744 and $1,531,247, respectively		24,772,024				34,661,119
Prepaid expenses and other current assets		2,985,503				1,173,223
Goodwill		21,448,106				21,448,106
Indefinite lived intangible assets		12,163,943				12,163,943
Intangible assets, net		20,575,942				35,451,951
Film library, net		36,878,196				33,250,149
Due from affiliated companies		6,081,324				7,642,432
Programming costs and rights, net		20,702,405				15,113,574
Other assets, net		4,794,239				313,585
Total assets	$	159,644,997			$	167,665,484
LIABILITIES AND EQUITY
Current maturities of commercial loan	$	—			$	3,200,000
Commercial loan, net of unamortized deferred finance costs of $0 and $189,525, respectively		—				11,810,475
9.50% Notes due 2025, net of unamortized deferred finance costs of $1,059,401 and $0, respectively		21,040,599				—
Notes payable under revolving credit facility		2,500,000				5,000,000
Film acquisition advance		10,210,000				—
Accounts payable and accrued expenses		25,923,748				26,646,390
Ad representation fees payable		3,021,520				12,429,838
Film library acquisition obligations		10,609,186				5,020,600
Programming obligations		6,416,012				7,300,861
Accrued participation costs		12,894,099				5,066,512
Other liabilities		1,777,548				170,106
Total liabilities		94,392,712				76,644,782
Commitments and contingencies
Equity
Stockholders' Equity:
Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 1,732,139 and 1,599,002 shares issued and outstanding, respectively; redemption value of $43,303,475 and $39,975,050, respectively		173				160
Class A common stock, $.0001 par value, 70,000,000 shares authorized; 4,919,195 and 4,259,920 shares issued, 4,844,960 and 4,185,685 shares outstanding, respectively		492				425
Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,813,938 shares issued and outstanding		782				782
Additional paid-in capital		96,498,618				87,610,030
Deficit		(67,182,836	)			(32,695,629	)
Class A common stock held in treasury, at cost (74,235 shares)		(632,729	)			(632,729	)
Total stockholders’ equity		28,684,500				54,283,039
Subsidiary convertible preferred stock		36,350,000				36,350,000
Noncontrolling interests		217,785				387,663
Total equity		65,252,285				91,020,702
Total liabilities and equity	$	159,644,997			$	167,665,484

 

Chicken Soup for the Soul Entertainment, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
Revenue:
Online networks	$	6,652,562			$	14,383,659			$	21,038,965			$	25,128,001
Distribution and Production		13,318,050				2,662,429				26,948,795				6,655,114
Total revenue		19,970,612				17,046,088				47,987,760				31,783,115
Less: returns and allowances		(608,861	)			(255,394	)			(1,861,396	)			(828,785	)
Net revenue		19,361,751				16,790,694				46,126,364				30,954,330
Cost of revenue		14,840,851				13,614,648				37,684,786				23,568,743
Gross profit		4,520,900				3,176,046				8,441,578				7,385,587
Operating expenses:
Selling, general and administrative		9,301,550				6,371,870				23,194,223				13,894,351
Amortization and depreciation		4,576,742				4,695,522				15,022,885				5,631,136
Management and license fees		1,936,175				1,676,303				4,612,636				3,091,093
Total operating expenses		15,814,467				12,743,695				42,829,744				22,616,580
Operating loss		(11,293,567	)			(9,567,649	)			(34,388,166	)			(15,230,993	)
Interest expense		659,803				195,881				1,322,831				483,363
Loss on extinguishment of debt		169,219				350,691				169,219				350,691
Acquisition-related costs		—				1,078,637				98,926				3,735,373
Other non-operating income, net		(43,445	)			(8,997	)			(4,381,292	)			(34,546	)
Loss before income taxes and preferred dividends		(12,079,144	)			(11,183,861	)			(31,597,850	)			(19,765,874	)
Provision for income taxes		26,000				1,248,000				93,000				557,000
Net loss before noncontrolling interests and preferred dividends		(12,105,144	)			(12,431,861	)			(31,690,850	)			(20,322,874	)
Net loss attributable to noncontrolling interests		(73,135	)			(37,473	)			(169,878	)			(36,960	)
Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.		(12,032,009	)			(12,394,388	)			(31,520,972	)			(20,285,914	)
Less: preferred dividends		1,017,691				929,387				2,966,235				2,330,675
Net loss available to common stockholders	$	(13,049,700	)		$	(13,323,775	)		$	(34,487,207	)		$	(22,616,589	)
Net loss per common share:
Basic and diluted	$	(1.04	)		$	(1.11	)		$	(2.83	)		$	(1.89	)

Chicken Soup for the Soul Entertainment, Inc.
Adjusted EBITDA
	Three Months Ended September 30,
	2020				2019
Net loss available to common stockholders	$	(13,049,700	)		$	(13,323,775	)
Preferred dividends		1,017,691				929,387
Provision for income taxes		26,000				1,248,000
Other taxes		97,466				54,590
Interest expense		659,803				195,881
Film library and program rights amortization		8,020,638				1,369,874
Share-based compensation expense		346,773				303,205
Acquisition-related costs		—				1,078,637
Reserve for bad debt and video returns		1,538,449				722,729
Amortization and depreciation		4,960,074				4,695,522
Other non-operating income, net		(43,445	)			(8,997	)
Loss on extinguishment on debt		169,219				350,691
Transitional expenses		—				1,634,771
All other nonrecurring costs		472,322				377,184
Adjusted EBITDA	$	4,215,290			$	(372,301	)
	Nine Months Ended September 30,
	2020				2019
Net loss available to common stockholders	$	(34,487,207	)		$	(22,616,589	)
Preferred dividends		2,966,235				2,330,675
Provision for income taxes		93,000				557,000
Other Taxes		202,117				386,265
Interest expense		1,322,831				483,363
Film library and program rights amortization		16,922,753				3,804,268
Share-based compensation expense		820,881				794,149
Acquisition-related costs		98,926				3,735,373
Reserve for bad debt & video returns		4,072,785				1,241,243
Amortization and depreciation		15,661,774				5,631,136
Other non-operating income, net		(4,381,292	)			(34,546	)
Loss on extinguishment on debt		169,219				350,691
Transitional expenses		4,353,345				2,876,124
All other nonrecurring costs		1,128,662				564,240
Adjusted EBITDA	$	8,944,029			$	103,392

FAQ

What were Chicken Soup for the Soul Entertainment's financial results for Q3 2020?

The company reported a gross revenue of $20.0 million and a net loss of $13.0 million for Q3 2020.

How did Chicken Soup for the Soul's online networks perform in Q3 2020?

Online Networks generated $6.7 million in revenue, up from $5.4 million in Q2 2020.

What is the adjusted EBITDA for CSSE in Q3 2020?

Adjusted EBITDA for the quarter ended September 30, 2020, was $4.2 million.

What is the current debt level of Chicken Soup for the Soul Entertainment?

As of September 30, 2020, the company had outstanding debt of $34.8 million.

How is CSSE planning to grow in 2021?

The company aims to enhance its Crackle Plus networks and expand original content to drive revenue and margins.