Contribution of Crackle Plus for Approximately Half of the Quarter Drives Record Revenue, Increases in Ads Served, and Accelerating Advertising Rates

Pro Forma 2018 Annual Net Revenue of $92.6 Million for Combined Entity

COS COB, Conn., Aug. 14, 2019 (GLOBE NEWSWIRE) -- Chicken Soup for the Soul Entertainment, Inc. (CSS Entertainment) (Nasdaq: CSSE), a growing media company building online video-on-demand (VOD) networks that provide video content for all screens, today announced its financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 and Recent Business Highlights
(Results reflect Crackle Plus joint venture closed on May 14, 2019)

• Total revenue of $12.2 million
• Net loss of $5.9 million; $5.1 million before preferred dividends
• Adjusted EBITDA of $1.3 million
• Crackle Plus streaming video joint venture launched
• Release of The Man Who Killed Don Quixote, a much anticipated film directed by Terry Gilliam
• Began production on Season 2 of Chicken Soup for the Soul’s Animal Tales

Total revenue for the quarter ended June 30, 2019 was $12.2 million compared to $3.1 million in the year-ago period. The year-over-year increase reflects 45 days of Crackle contribution.

• Online networks, which includes Crackle, Popcornflix and Pivotshare, generated $10 million in revenue
• Television and film distribution generated $2.0 million in revenue
• Television and short-form video production generated $0.2 million in revenue

“In the second quarter total revenue was a record $12.2 million, reflecting only 45 days of our ownership of Crackle. Our increased scale is driving advertiser interest,” said William J. Rouhana Jr., chairman and chief executive officer of CSS Entertainment. “Our ads served on our owned-and-operated networks increased to 681 million in the second quarter, up from 33 million in the year ago quarter, validating the consolidation strategy. Crackle’s eCPM rate is 27% higher than Popcornflix's and we expect to increase our ad rates across all of our online networks over time as we close the gap between Popcornflix and Crackle.  These results underscore our excitement for this joint venture.”
             
Gross profit for the quarter ended June 30, 2019 was $3.6 million, or 30% of total revenue, compared to $1.2 million, or 39% of total revenue for the year-ago period. The reduction in the percentage of gross profit was a result of an increase in online networks revenue which has a lower gross profit percentage.  

Operating loss for the quarter ended June 30, 2019 was $3.0 million compared to an operating loss of $1.6 million for the year-ago period. The quarterly operating loss reflects certain non-cash or one-time expenses including $0.7 million in non-cash amortization, $1.2 million of transitional expenses related to the Crackle Plus joint venture, and $1.6 million in film library amortization. If such expenses were excluded from SG&A or cost of revenue, the Company would have reported quarterly operating income of $0.5 million.  

Net loss was $5.9 million, or $0.49 per share, compared to a net loss of $1.7 million, or $0.14 per share in the prior-year second quarter. Excluding preferred dividends, the net loss in the second quarter of 2019 would have been $5.1 million, or approximately $0.42 per share, compared to a net loss of $1.7 million, or $0.14 per share last year.

Adjusted EBITDA for the quarter ended June 30, 2019 was $1.3 million compared to $0.2 million in the same period last year.

As of June 30, 2019, the company had $5.2 million of cash and cash equivalents compared to $7.2 million as of December 31, 2018, and outstanding debt of $7.1 million as of June 30, 2019 compared to $7.6 million as of December 31, 2018.

Crackle Plus Pro Forma Financial Information

CSS Entertainment completed the joint venture launching Crackle Plus on May 14, 2019 (Closing Date). Under generally accepted accounting principles (GAAP), Crackle’s financial results are only included in the combined company’s reported financial results from the Closing Date forward and are not reflected in the combined company’s reported financial results for any periods prior to the Closing Date.

In this release, to supplement and aid in an understanding of the combined company’s reported financial results, CSS Entertainment is also providing certain GAAP-based and non-GAAP pro forma financial information of the combined company that includes Crackle’s financial results for the relevant periods prior to the Closing Date, as if the acquisition occurred on January 1, 2018. See “Use of Non-GAAP Measures and Supplementary Information” below and the accompanying financial schedules for more information, including descriptions of any such pro forma measures that may be non-GAAP measures and reconciliations of those non-GAAP measures to their most directly comparable GAAP measures. Please refer to the Company’s recently filed Amendment No. 1 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on July 30, 2019 for further details on pro forma results disclosed herein.

“This was an incredibly productive and busy quarter as we completed the joint venture creating Crackle Plus,” said Mr. Rouhana. “We are now one of the largest ad-supported networks in the industry and have solidified our position as a leader in the high-growth, advertising-supported VOD (AVOD) business. Before we entered into the joint venture agreement, we had identified a number of synergistic opportunities and cost reduction targets, which enabled a smooth integration. As a result, and as detailed in the recently filed Form 8-K/A, we have streamlined the organization, eliminating approximately $65.3 million in total annualized costs on an estimated pro forma combined 2018 net revenue of $92.6 million.”

“The four key areas we identified to reduce costs and improve margins were in technology, marketing, content and SG&A,” continued Mr. Rouhana. “Estimated pro forma reductions of $29.6 million in Cost of Goods Sold (COGS) were primarily due to consolidating technology costs onto a shared platform and replacing fixed fee content agreements with revenue sharing agreements. On the SG&A front, duplicative roles in the operations teams were eliminated, and we streamlined allocated corporate overhead expenses. Our marketing spend was also significantly reduced by excluding certain marketing agreements from transferred assets and using our owned-and-operated networks and brand related social media. These measures resulted in estimated pro forma S&GA annual cost reductions of $35.6 million and $25.3 million in annual pro forma adjusted EBITDA.”

“Now that Crackle is fully integrated, we intend to focus on further acquisitions of online networks, adding to our ad partner network, and growing our film distribution activity,” said Mr. Rouhana. “We also plan to grow our television and short-form video production platform while reducing the risk capital allocated to these projects. We anticipate our proprietary content production contributing more significantly to revenue next year, demonstrating the potential synergies in our business.”

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: Wednesday, August 14, 2019, 4:30 p.m. ET.
• Toll-free: (833) 832-5128
• International: (484) 747-6583
• Conference ID: 2279818
• A live webcast is available at http://ir.cssentertainment.com/ under the “News & Events” tab

Conference Call Replay Information

• Toll-free: (855) 859-2056
• International: (404) 537-3406
• Reference ID: 2279818

ABOUT CHICKEN SOUP FOR THE SOUL ENTERTAINMENT

Chicken Soup for the Soul Entertainment, Inc. is a growing media company building and acquiring streaming VOD networks that provide content for all screens. CSS Entertainment has a majority stake in Crackle Plus, a joint venture 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. CSS Entertainment also acquires and distributes video content through its Screen Media subsidiary and produces long- and short-form content through its Chicken Soup for the Soul Originals division and through 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 and non-cash share-based compensation expense, and also includes the gain on bargain purchase of subsidiary and adjustments for other identified charges such as costs incurred to form the company and to prepare for the offering of its Class A common stock to the public, prior to its IPO. Identified charges also include the cost of maintaining a board of directors prior to being a publicly traded company. As the IPO has been completed, director fees will be deducted from Adjusted EBITDA going forward. Adjusted EBITDA is not an earnings measure recognized by 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 the company’s performance that provides useful information to investors regarding its 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 Quarterly Report on Form 10-Q for the three months ended June 30, 2019 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Unaudited Historical Results 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 April 1, 2019, as amended April 30, 2019 and June 4, 2019) 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
James Carbonara
Hayden IR
james@haydenir.com
(646) 755-7412

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

Tables Follow

	Chicken Soup for the Soul Entertainment, Inc.
	Pro Forma Condensed Consolidated Combined Statement of Operations
	For the Year Ended December 31, 2018
	(audited)
									CSS							Pro Forma			Pro Forma
										Entertainment			Crackle U.S. (1)			Adjustments			Combined
						Revenue, net				26,859,519			65,784,308						92,643,827
	Cost of revenue									12,345,590			65,558,710			(29,629,305	)		48,274,995
						Gross profit				14,513,929			225,598			29,629,305			44,368,832
	Operating expenses:
		Selling, general and administrative								10,745,235			44,357,633			(35,943,445	)		19,159,423
		Management and license fees								2,666,907			-			6,578,431			9,245,338
						Total operating expenses				13,412,142			44,357,633			(29,365,014	)		28,404,761
	Operating (loss) / income before Amortization									1,101,787			(44,132,035	)		58,994,320			15,964,071
		Amortization								326,988			-			4,194,952			4,521,940
	Operating (loss) / income									774,799			(44,132,035	)		54,799,367			11,442,131
	Interest income									39,058			-						39,058
	Interest expense									(388,036	)		-			-			(388,036	)
	Acquisition-related costs									(396,793	)		-			-			(396,793	)
	Goodwill impairment expense												(8,800,000	)		-			(8,800,000	)
	Income / (loss) before income taxes and preferred dividends									29,028			(52,932,035	)		54,799,367			1,896,360
	Provision for (benefit from) income taxes									874,000			-			(363,310	)		510,690
	Net (loss) / income before noncontrolling interests and preferred dividends									(844,972	)		(52,932,035	)		55,162,678			1,385,671
	Net (Loss) / income attributable to noncontrolling interests															38,100			38,100
	Net (loss) / income attributable to Chicken Soup for the Soul Entertainment, Inc.									(844,972	)		(52,932,035	)		55,124,577			1,347,570
	Preferred dividends									1,112,910			-			-			1,112,910
	Net (loss) / income available to common Stockholders								$	(1,957,882	)		(52,932,035	)		55,124,577			234,660
	Net (loss) / income per common share:
	Basic and diluted								$	(0.16	)								0.02
	Weighted average number of common shares outstanding:
	Basic and diluted									11,944,528									11,944,528
	(1) Crackle U.S. financial information presented is for the year ended March 31, 2019, while the Company’s presented financial information is for the year ended December 31, 2018. Given the combined year end dates are within 93 days and the combined periods are the same as per SEC FRM 4560.32, no adjustments have been made to conform the financial statements.
	See accompanying notes to Pro Forma unaudited condensed consolidated financial statements.

 

	Chicken Soup for the Soul Entertainment, Inc.
	Pro Forma Condensed Consolidated Combined Statement of Operations
	For the Three Months Ended March 31, 2019
	(unaudited)
									CSS							Pro Forma			Pro Forma
										Entertainment			Crackle U.S.			Adjustments			Combined
						Revenue, net				2,193,154			15,040,554			-			17,233,708
	Cost of revenue									1,632,101			16,992,166			(8,004,622	)		10,619,645
						Gross profit				561,053			(1,951,612	)		8,004,622			6,614,063
	Operating expenses:
		Selling, general and administrative								2,822,057			6,237,890			(5,156,864	)		3,903,083
		Management and license fees								219,270			-			1,504,055			1,723,325
						Total operating expenses				3,041,327			6,237,890			(3,652,808	)		5,626,408
	Operating (loss) / income before Amortization									(2,480,274	)		(8,189,502	)		11,657,431			987,655
		Amortization								205,623			-			1,048,738			1,254,361
	Operating (loss) / income									(2,685,896	)		(8,189,502	)		10,608,693			(266,706	)
	Interest income									13,525			-			-			13,525
	Interest expense									(141,123	)		-			-			(141,123	)
	Acquisition-related costs									(397,935	)		-			397,935			(0	)
	Goodwill impairment expense									-			(4,100,000	)		-			(4,100,000	)
	(Loss) / income before income taxes and preferred dividends									(3,211,430	)		(12,289,502	)		11,006,628			(4,494,304	)
	Provision for (benefit from) income taxes									(438,000	)		-			(772,316	)		(1,210,316	)
	Net (loss) / income before noncontrolling interests and preferred dividends									(2,773,430	)		(12,289,502	)		11,778,945			(3,283,988	)
	Net (Loss) / income attributable to noncontrolling interests															(17,690	)		(17,690	)
	Net (loss) / income attributable to Chicken Soup for the Soul Entertainment, Inc.									(2,773,430	)		(12,289,502	)		11,796,634			(3,266,298	)
	Preferred dividends									603,307			-			-			603,307
	Net (loss) / income available to common Stockholders								$	(3,376,737	)		(12,289,502	)		11,796,634			(3,869,605	)
	Net (loss) per common share:
	Basic and diluted								$	(0.28	)								(0.32	)
	Weighted average number of common shares outstanding:
	Basic and diluted									11,970,743									11,970,743
	See accompanying notes to Pro Forma unaudited condensed consolidated financial statements.

 

	Chicken Soup for the Soul Entertainment, Inc.
	Condensed Consolidated Statements of Operations
	(unaudited)
									Three Months Ended								Six Months Ended
									June 30,								June 30,
									2019				2018*				2019				2018*
	Revenue:
		Online networks							$	10,009,078			$	899,197			$	10,744,342			$	1,530,212
		Television and film distribution								1,975,711				2,031,818				3,444,990				5,274,965
		Television and short-form video production								226,740				229,622				547,695				2,436,161
						Total revenue				12,211,529				3,160,637				14,737,027				9,241,338
		Less: Television & film distribution returns and allowances								(241,047	)			(125,645	)			(573,391	)			(445,994	)
						Net revenue				11,970,482				3,034,992				14,163,636				8,795,344
	Cost of revenue									8,321,994				1,806,266				9,954,095				4,926,971
						Gross profit				3,648,488				1,228,726				4,209,541				3,868,373
	Operating expenses:
		Selling, general and administrative								4,700,424				2,493,625				7,522,481				5,143,022
		Amortization								729,991				24,078				935,614				48,155
		Management and license fees								1,195,520				293,689				1,414,790				865,084
						Total operating expenses				6,625,935				2,811,392				9,872,885				6,056,261
	Operating (loss)									(2,977,447	)			(1,582,666	)			(5,663,344	)			(2,187,888	)
	Interest income									12,024				3,472				25,549				3,647
	Interest expense									(146,359	)			(97,263	)			(287,482	)			(118,818	)
	Acquisition-related costs									(2,258,801	)			-				(2,656,736	)			(45,300	)
	(Loss) before income taxes and preferred dividends									(5,370,583	)			(1,676,457	)			(8,582,013	)			(2,348,359	)
	(Benefit from) provision for income taxes									(253,000	)			(9,000	)			(691,000	)			204,000
	Net (loss) before noncontrolling interests and preferred dividends									(5,117,583	)			(1,667,457	)			(7,891,013	)			(2,552,359	)
	Net income attributable to noncontrolling interests									513				-				513				-
	Net (loss) attributable to Chicken Soup for the Soul Entertainment, Inc.									(5,118,096	)			(1,667,457	)			(7,891,526	)			(2,552,359	)
	Less: Preferred dividends									797,981				-				1,401,288				-
	Net (loss) available to common stockholders								$	(5,916,077	)		$	(1,667,457	)			(9,292,814	)			(2,552,359	)
	Net (loss) per common share:
	Basic and diluted								$	(0.49	)		$	(0.14	)		$	(0.78	)		$	(0.21	)
	* In accordance with ASC Subtopic 805-50 "Transactions between entities under common control", results of operations for the 2018 period have been retrospectively adjusted for the acquisition of A Plus on December 28, 2018 to furnish comparative information as required. The effects of intra-entity transactions have been eliminated as a part of the consolidation, where applicable.
	See accompanying notes to unaudited condensed consolidated financial statements.

 

	Adjusted EBITDA
		Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
	Net loss available to common stockholders, as reported	$	(5,916,077	)		$	(1,667,457	)		$	(9,292,814	)		$	(2,552,359	)
	Preferred dividends		797,981				-				1,401,288				-
	Provision for (benefit from) income taxes		(253,000	)			(9,000	)			(691,000	)			204,000
	Other Taxes		50,465				-				331,675				-
	Interest expense, net of interest income		134,335				93,791				261,933				115,171
	Film library and program rights amortization, included in cost of revenue (non-cash)		1,595,768				1,168,393				2,466,894				2,622,532
	Share-based compensation expense		275,097				239,005				490,944				493,200
	Acquisition-related costs and other one-time consulting fees		2,258,801				50,000				2,656,736				145,300
	Reserve for bad debt & video returns		218,111				178,164				518,515				586,144
	Amortization		729,991				37,111				935,614				74,221
	Transitional Expenses (a)		1,241,353				-				1,241,353				-
	All other nonrecurring costs		144,150				122,276				187,055				122,278
	Adjusted EBITDA	$	1,276,975			$	212,283			$	508,193			$	1,810,487

 

	PART I: FINANCIAL INFORMATION
	Item 1: Financial Statements
	Chicken Soup for the Soul Entertainment, Inc.
	Condensed Consolidated Balance Sheets
								June 30,				December 31,
								2019				2018
								(unaudited)
	ASSETS
	Cash and cash equivalents							$	4,455,013			$	6,451,758
	Restricted cash								750,000				750,000
	Accounts receivable, net								19,722,755				12,841,099
	Prepaid expenses								1,459,473				218,736
	Inventory, net								273,623				262,068
	Goodwill								12,466,680				2,537,079
	Indefinite lived intangible assets								42,651,470				12,163,943
	Intangible assets, net								23,039,766				2,971,637
	Film library, net								31,179,409				25,338,502
	Due from affiliated companies								5,111,923				1,213,436
	Programming costs, net								14,015,404				12,790,489
	Program rights								981,830				-
	Deferred tax asset								1,253,000				452,000
	Other assets, net								322,873				356,221
	Total assets							$	157,683,219			$	78,346,968
	LIABILITIES AND  EQUITY
	Current maturities of commercial loan							$	1,000,000			$	1,000,000
	Commercial loan and revolving line of credit, net of
	unamortized deferred finance cost of $295,255 and $334,554, respectively								6,121,411				6,582,113
	Accounts payable and accrued expenses								18,449,712				5,078,805
	Ad Representation fees payable								3,772,084				-
	Film library acquisition obligations								5,553,100				2,715,600
	Programming Obligations								7,300,862				-
	Accrued participation costs								1,114,157				1,539,139
	Other liabilities								147,107				414,506
	Deferred revenue								-				6,469
	Total liabilities								43,458,433				17,336,632
	Commitments and contingencies (Note 16)
	Equity
	Stockholder's Equity:
	Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation
	preference of $25.00 per share, 10,000,000 shares authorized; 1,338,002 and 918,497 shares issued
	and outstanding, respectively, redemption value of $33,450,050 and $22,962,425, respectively								134				92
	Class A common stock, $.0001 par value, 70,000,000 shares authorized;
	4,247,706 shares issued, 4,173,471 outstanding								423				421
	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								84,995,345				59,360,583
	Subsidiary convertible preferred stock								36,350,000				-
	Retained (deficit) earnings								(7,011,627	)			2,281,187
	Class A common stock held in treasury, at cost (74,235 shares)								(632,729	)			(632,729	)
	Total stockholders' equity								113,702,328				61,010,336
	Noncontrolling interests								522,458				-
	Total Equity								114,224,786				61,010,336
	Total liabilities and equity							$	157,683,219			$	78,346,968
	See accompanying notes to unaudited condensed consolidated financial statements.

Source: Chicken Soup for the Soul Entertainment, Inc.