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Chicken Soup for the Soul Entertainment Reports Record Q2 2019 Revenue of $12.2 Million

     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.

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Source: Chicken Soup for the Soul Entertainment, Inc.