Chicken Soup for the Soul Entertainment, Inc. (CSSE) on Q1 2022 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, hello, thank you joining us for today’s Chicken Soup for the Soul Entertainment First Quarter 2022 Earnings Results and RedBox Entertainment acquisition Conference Call. And to get started with the opening remarks and introductions I am please to turn the floor over to our Investor Relations for Chicken Soup for the Soul Entertainment, Mr. Taylor Krafchik. Please go ahead Taylor.
Taylor Krafchik: Thank you, operator and welcome. With me on the call today are William Rouhana, Chairman and Chief Executive Officer for Chicken Soup for the Soul Entertainment; and Chris Mitchell, Chief Financial Officer for Chicken Soup for the Soul Entertainment, to review the first quarter 2022 results, as well as provide a business update. Joining Bill and Chris on the call today is Galen Smith, Chief Executive Officer or RedBox Entertainment to help review the proposed transaction between Chicken Soup for the Soul Entertainment and RedBox Entertainment. Following this discussion, there will be a moderated Q&A session open to the participants on the call. During this call, management will make forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, intentions and strategies regarding the future. Forward-looking statements are based on management’s current expectations and assumptions and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from projected results. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release, which also applies to the content of this call. Additional risk disclosures can be found in the company’s filings with the Securities and Exchange Commission. On today’s call, management will make comments on certain GAAP-based and non-GAAP pro forma financial information. The non-GAAP financial measure that the company uses is adjusted EBITDA. Management believes that adjusted EBITDA provides useful information and that it excludes amounts that are not indicative of the company’s core operating results and ongoing operations and provides a more consistent basis for comparison between periods. No information provided during this call is intended to and shall not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or a solicitation of any vote or approval. Nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of security shall be made except by means of prospectus meeting the requirements of section 10 of the U.S. Securities Act of 1933 as amended. In connection with the proposed transaction we intend to file with the SEC a registration statement on Form S-4 that will include a proxy statement of RedBox and will also constitute a prospectus and Information Statement of Chicken Soup for the Soul Entertainment. Each our company and RedBox may also file other relevant documents with the SEC regarding the proposed transaction. This document is not a substitute for the proxy statement, information statement, prospectus or registration statement or any other document that we or RedBox may file with the SEC. The definitive proxy statement information statement prospectus if and when available will be mailed to stockholders of our company and RedBox. For further information regarding the company’s historic financial performance, financial condition and operational and other information risks and risks we refer you to our filings with the SEC including our quarterly report on form 10-Q for the quarter ended March 31, 2022, which was filed today. We also refer you to the public filings RedBox made with the SEC. I would now like to turn the call over to William Rouhana, Chairman and CEO. Bill please go ahead.
William Rouhana: Thank you, Taylor, and thank you, everybody, for joining us this morning. As you now we have a big call today. And we’re going to start with our Q1 results, which we’ll go through quickly. And then we’ll go into the acquisition of RedBox Entertainment, which is a combination of two really beloved brands, with a shared vision of disrupting the digital ecosystem. It’s a perfect set really, it’s a complementary set that’s really hard to imagine because of the Fed, the deal will take our company to a new level will scale much more quickly. And we couldn’t be more excited about this. I may sound like I’m not excited but we bid up quite a lot of, a lot of the last few days. And I’m tired but I got a lot to talk about today. Galen Smith, RedBox CEO is with us. And he’ll be working on the Q&A with me. And he’ll also have a little bit of something to say about the deal. So on to the first quarter. We grew our first quarter by 26%, year-over-year to 29.2 million a little bit higher than we thought. Then adjusted EBITDA came in right on target at 3.7 million. We continue to drive viewership growth and retention. We really have done well with our new tech platform. We’ve gotten strong advertiser interest, and I think the switch from broadcast and cable to AVOD continues with advertisers. We’re capitalizing that with sales force, we’re truly a second to none. And also through a growing ad, rapid partnership business, which I think we’ll probably talk about in the next call because we don’t have a lot of time today. On the viewership front, we continue to roll out our distribution touch point, strategy that is really working. We had sequential quarterly growth and crackle plus viewership of over 11.5% and I think it’s continuing from what I can say, even into this quarter. We’ve got tremendous growth on Vizio, which has actually become almost as big as Amazon Fire for us as a result of I think, the very good tech we have there. We launched our Samsung tech. And that’s also going well. We made progress and a couple of other key areas. And we’ve grown as you know, we’re at 70 touch points, and we’re going to 90 by the end of the year. We made terrific progress in the library, again, in the first quarter viewership -- original exclusive content to 27% of our total viewership and all time high, actually had a month in the 30s there. It’s clearly going in the right direction. Our production capabilities increase. We are now going to have more than one original and exclusive content PCG this year, every week this year. That was our original goal, we’re probably going to get closer to two by the time we exit the year. It’s a real benefit to us, for our viewers, and as well as to our bottom line, since that’s our highest margin product. Excuse me. So that’s a quick overview of Q1. It was a very good quarter, everything is right on track. I wouldn’t change a thing about what our expectations are for the year. So let’s turn to the big news of the day this transformational acquisition that we made. We put some slides. I guess you can access these on the webcast, if you are on that, and I’ll run through them. So slide number 5, which is entitled Chicken Soup to The Soul Entertainment to combine with RedBox Entertainment, kind of lays the, sets the groundwork for this. This is a big scale platform now of content production and distribution. And I think we’ve really refined our target today which is the value conscious consumer. I’m sure many of you will reflect upon that when you get a chance and realize that in an era of inflation and possible recession, value conscious consumers are likely to express themselves in different ways, some of which we’ve already seen. Where we’re going to end up with now as a leading independent, integrated, direct to consumer media platform where we interact with consumers in many, many places at the kiosk, TVOD, etc. And we’ll deliver premium entertainment at a good value for people. I think it’s really the right place at the right time. Turning to slide 4 or I guess it’s page 6. You can see the rationale for what we’ve done here. We’ve got two great brands coming together and we think that the complementary nature of our assets is really hard to duplicate. We’ve got our content library. We have our great Salesforce. We have our AVOD networks. RedBox has the marvelous kiosk system that spans the United States. It has a TVOD business, PVOD business, free live TV business, which is basically a fast business. And when you put those assets together, you actually have a very complete ad supported Video on Demand type business. It’s really, I mean, really isn’t anybody else who has anything quite like this, clearly a transformative deal. I think its right in line with consumer demand and I expect that there will be some great synergies, as you’ll hear that will come from this. On slide, page 7 we talk about the transaction terms. So you guys know we’ve done a number of transactions to build the company. In every case, we start with the strategic rationale. If the acquisition makes strategic sense we are going to try and complete it. And of course, we also try to make great financial deals. On slide 5 here, you’re going to say that this is the right business fit, we know that. And the transaction itself, I think is very well thought through because what it really does is it solves a problem that RedBox had of liquidity, and puts the new combined company in a very strong position. We’ll acquire 100% of RedBox. It’s an all stock transaction. RedBox shareholders will receive a little over 4.6 million shares of our class A common stock. We will assume $320 million or approximately a RedBox debt. Pro forma ownership of the company will be 76% Chicken Soup for the Soul shareholders 23%, RedBox shareholders, our new lender HPS. So I really look at it as a partner will own 4.5% of the combined company. We’ve taken RedBox’s credit facility, and really dealt with the issues that there were caused by their spec transaction. And we’ve extended it, we’ve added $80 million of additional working capital being the new revolving credit facility, the new term loan and the new credit facility will mature in five years in the term long case two and a half years in the revolving credit case. We have the right to pick interest if we needed to for the first 18 months. And as Chris will tell you, some like gleefully, there are no financial competences in the transaction for the first two years. As you know, I like flexibility I like us to be protected. And I believe with the extension, the new capital to pick interest option and the no covenants, we’ve really put the company in a position that we can do what we need to do over the next couple of years to recognize all of our synergies, grow the business, have a recovery and move on from there. Terms of the deal itself we are the majority shareholder of Chicken Soup for the Soul, who happens to be speaking has approved the deal, as has the majority shareholder of RedBox. So we expect to go through the regulatory process quickly with customary closing conditions. But we’ll get this deal closed in the second half of 2022 both Galen and I are really committed to doing it as quickly as we can. We want to bring these companies together as fast as possible because we’re excited about what we see. So let’s move on to slide 6 or actually slide 7. This is a quick summary for those of you who may not know us of who we are. Our crackled plus, business is comprised primarily of three big streaming services, crackle, Chicken Soup for the Soul and popcorn flex. We’ve been building our viewership through our touch point strategy. We have more than 90 deals in place by the end of the year. Our recently re-launched user experience is really helping cement viewership. We’ve assembled a huge library of movies and TV shows over 14,000 movies, over 24,000 episodes of television got a highly unusual asset there for an independent AVOD. Much of our content is wholly owned, and we’re producing more of that every day. That’s of course, our most profitable content. Over a quarter of our ad impressions are generated by our original and exclusive content. And that’s our once again, our most profitable. Not pictured on the slide is our very strong, fully capable ad sales force. The ad sales force is really second to none. They’re doing a wonderful job in the marketplace. I’m going to turn it over to Galen to talk to you about RedBox and his position in the market and anything else that he’d like to talk about. So Galen over to you.
Galen Smith : Thanks Bill. We’re really excited to be here to discuss this combination and the value creation potential we see in bringing together RedBox with Chicken Soup for the Soul Entertainment. RedBox is a household name, and one that’s synonymous with value. At our core RedBox uses to provide quality home entertainment for everyone. And we do it by making it ridiculously cheap and easy for consumers to get the entertainment they want most. RedBox was founded originally on three core tenets; value, simplicity and convenience. And we’ve been taking those same core tenants from our physical distribution footprint to bring them to the digital world. Our legacy business which consists of approximately 38,000 kiosks still has tremendous reach and power for consumers looking for the ultimate value. For $2 or less per night, consumers get access to the newest and latest theatrical releases. That’s a third of the cost of digital options. We make it super convenient with our kiosks located in places people are already shopping with 90% of Americans within a five minute drive. With this core focus on value, we’ve been investing in transforming RedBox for the digital age. This has been focused on moving from a one window legacy DVD business to a multi window multifaceted digital entertainment company where we’re able to offer content in each of these windows that you see on slide 8. We launched a transactional video on demand service as well as an ad supported service in previous years. Our core customer base, which includes 40 million RedBox, Parslow members, they tend to be late adopters of new technology. And we’ve seen a tremendous opportunity to help these consumers adapt in moving into the digital world. With our loyalty programs, we have the ability to incent and give the consumer even more value by providing them points all along the way and then giving them the opportunity to use these points to consume even more entertainment. Over the past few years, we’ve been investing heavily in this transformation which requires substantial capital, investment and scale. Unfortunately, our results from his legacy business have been severely impacted over the past two years by COVID which closed theaters and caused studios to release content on streaming platforms for delay movies completely outright. While we expect a healthy rebound as studios refocus their efforts on releasing new content and theaters first, the impact is still lasted longer than we expected. In addition to hurting our results, this delay is also hampered our ability to invest in the digital transformation. By joining forces with Chicken Soup, we will gain much needed scale access to capital and existing technology resources to power RedBox transformation, something we couldn’t do on our own. We see substantial synergies to working with Chicken Soup, and believe this is a win-win for our value conscious consumers and shareholders. With an all stock transaction structure, our shareholders will still be able to participate in the upside potential and recovery of RedBox’s business without a significant downside risk from trying to achieve it on our own. We’re really excited to work together with Bill and his team. Back to you Bill.
William Rouhana: Thank you Galen. I’m really excited looking forward to working with you and the RedBox team as is the entire Chicken Soup for the Soul team. We’re going to complete this transaction and will realize the full potential of this combination. Looking at slide 9, which is called industry backdrop, I believe. I mentioned that this is the right time for this deal. And this is one of the reasons why traditional content is at a crossroads as we know. Cord cutting continues, converting continues to accelerate. Media companies are moving to digital platforms. MVPDs are partially addressing the bundling issue that’s driving down cable subscriber numbers. But all these services cost money. And as the SI’s do, and as Netflix Q1 numbers show, consumers are starting to hit a new wall and so subscriber growth is stopped. And just as an aside, I’ve been saying this for over two years that AVOD is the future that ultimately all content will be consumed with ads. And now you’ve got to ask yourself the question, would you rather pay and watch ads or would you like to watch them for free, because you have no place to go anymore where you don’t have to pay. So that’s it. We provide free, great content. People watch ads in exchange for it. And it’s why we’re in the right place at the right time. Let’s move to the next slide. Obviously, this is a big market opportunity. We know that. I think people believe that AVOD might be the single best growth opportunity in content distribution today. I certainly am one of those people. And advertising via connected television is going to double by 2024 from 2020 levels. You can see that in this slide. And by the way, that study is a study that just came out recently. So right place right time in terms of the industry, in terms of consumer desire. If you’ve been listening to our conference calls, let’s go to the next slide. We’ve been talking about how 2022 would be a year of scale for us. Over the past one to two years we’ve put in place the services, the content engine, the ad sales platform, the distribution relationships and the technology to drive growth. Meanwhile, RedBox went public last fall coming from a different place, but they had essentially the same vision. They also had TVOD. They prove their chops, frankly and their TVOD and TVOD businesses which grew fast and then no pun intended. They launched their first channels as this free live TV, something we were really anxious to do with an impressive lineup of digital channels. They have their incredible customer base, their customer loyalty program. They have their, excuse me. This is slide 12. I’ve just been reminded. So for those of you who are lost because I gave you the wrong number, I apologize. Look I view the RedBox Chicken Soup for the Soul combination as kind of magical. This is an accelerant of cash flow bringing customers together, driving revenue and more. If you turn to slide 13, you start to see a little bit about the synergies. They are really meaningful synergies in this transaction. And unlike most transactions were the ones you can count on obviously are the cost ones when you look at synergies, but in this case, a number of the revenue synergies are just pretty obvious. We control them by putting screen media, movies through the RedBox kiosks, all of a sudden, there’s another source of revenue for our existing content by selling the ads for our AVOD our joint AVOD networks that we don’t pay to another party. But we also get the benefit of that advertising sale. And we know that we can arbitrage CPMs. We can get much better CPM than RedBox was able to get on their own because of our sales force because of our scale with advertisers. So there are a lot of synergies here, whether they are revenue or cost I really believe in them. I don’t think they’re stretches. I think they’re meaningful. They’re about $40 million a year. And that’s a lot of money. So that in and of itself might have justified the financials for the slot, for the transaction. But as you’ll see on slide 14, the combined company is a powerful financial engine between the synergies and run rates were expected to exit this year at a run rate of over $500 million of revenue with $100 million to $150 million of adjusted EBITDA run rate, I believe there will be meaningful cash flow from that. And my goal in 2023 is to drive significant cash flow for the business as we get all of the pieces together. And we benefit from the rebound, which I think we all know is already happening in theatrical releases. So it’s not like we’re guessing. Everybody knows what studios are releasing movies again, they didn’t before, but they’re doing it now. And that is you look at history ever. There is a direct relationship between theatrical release and RedBox kiosks results. So last slide gives you sort of an overview of what we’ve been saying. Hopefully a little more articulately than I’ve managed to do it this morning. I just want to say one thing to the RedBox employees. I know you’ve been through a tough time. But you’ve built a great company, and you should be proud. We would not be interested in buying RedBox if we didn’t think it was a tremendous company with great leadership, terrific people, and a wonderful market presence. And to the Chicken Soup for the Soul employees’ thank you for putting us at a place where we actually could try to do something like this. This is a pretty unprecedented transaction. I don’t know if they’ll write about it. Maybe they will. It’s a pretty unprecedented transaction. But we knew that we couldn’t have gotten here without really hard work on the part of a lot of people. And I want to thank you all. Operator, let’s move on to questions.
Operator: Gentlemen, thank you. We’ll hear first from Thomas Forte at D.A Davidson.
Thomas Forte: So first off, Bill and Galen, congrats. It’s almost such a good deal. I have no question. It makes perfect sense.
William Rouhana: Make one up.
Thomas Forte: All right, I’ll force myself to ask one, so all right. The question I have then is, Bill, you were very early in seeing where the world was heading as far as consumers willing to pay for advertising while watching high quality content with ads and others in the space have been talking about subscription Video on Demand hitting saturation U.S. and some pressure on digital advertising either from consumer packaged goods companies scaling back their spend or auto companies just not advertising because they’re already selling every car on the lot. So what are your thoughts on the landscape for AVODs for 2022? And when I look at your first quarter results and your fourth quarter results, you’re clearly not affected by some of the same trends that are affecting the industry. Why?
William Rouhana: Okay, so, first of all, thanks, Tom. Yes, we have been saying this for a long time, and everybody knows it. And a lot of times for a long time, we were kind of alone in this statement, I think it’s nice to have a little company finally, where people have acknowledged that in order for our content business to work, you need a certain amount of money. I mean, you just can’t spend $18 billion a year and not get money back, it doesn’t make any sense. So there’s going to be a lot of right sizing now over the next year in the business as the big escorts pull back on production, that’s not going to be great for independent producers, or people who own studios, because there’s going to be a lot less production going forward. There is going to be right sizing and budgets, if your talent, you’re about to hear that you’re not going to get the same amount of money you got before. It’s all already starting. Netflix has already started to cut back meaningfully. If you’re an employee and a tech business in our space, you’re already starting to see layoffs. I mean, what you would have expected in an overheated kind of business is happening, it’s coming back to reality. The thing we’ve done Tom and we’ve always done it is we stayed true to a long term plan that we knew would work. And so we didn’t engage in inflated content spend despite the fact that people pushed us to do it. We haven’t engaged in side tracks that make no sense. We stuck to our plan, build our content up have as much as we can, build our AVOD businesses builds our sales forces, create relationships with advertisers. There are a couple of macro factors now that are really important. I think we all know inflation is a real issue. I think a lot of people are suspecting that a recession is coming. I will tell you that it’s really interesting to be in AVOD sales today if you are, if you believe that’s the case, because what you are likely to see over the next year is even as broadcast and cable get decimated by a cutback in spending, the migration is so ferocious into AVOD that we are going to still be sold out. It’s just the way it is. Advertising could shrink in the aggregate by meaningful percentages. And we will still be sold out because we are in the place where advertisers are migrating too. And the places they are leaving broadcast and cable are the places that are going to feel the heat. So I think 2022 is actually going to be a great year for our AVOD businesses with this new scale and with these fast networks, which will have and the TVOD business and the PVOD business. And let’s not forget the kiosk business, which is the most value oriented part of entertainment that exists today. We’re in the right place for consumers who need to cut back whether it’s because of inflation eating into their money or whether it’s because of recession eating into their money, value conscious consumers are going to increase as a percentage of the overall world. And we’re sitting there waiting for them. Its right place right time. And then add to that the theatrical release increase. It’s really hard to imagine a better moment to be doing what we’re doing. So I think 2022 and 2023 are going to be amazing years for us.
Thomas Forte: Great, thank you, Bill. Thanks for taking my question. Congrats.
Operator: Next we’ll hear from Jason Kreyer at Craig-Hallum. Please go ahead. Your line is open.
Jason Kreyer: Thank you and congratulations, Bill on getting this done. I wanted to ask if you could just talk a little bit more about synergies. And I guess I’m a little focused more on the revenue synergies. And in particular things like you’ve made a lot of investment in your platform recently. RedBox has a lot of access to theatrical content and clearly you’re expanding your production over the course of this year, so curious how this transaction impacts all of those things.
William Rouhana: Yes, that’s a great question. Jason. When we started to look at what we could do together, a couple of things became obvious. One of which is we both make a lot of movies. And it’s a funny thing, we can make a lot less and accomplish our goals. And that’s a synergy of cost savings, because we will not have to make the 17 that RedBox was making and the 24 that we were making this year. We’re just going to need 24, make the 24 that were run both through the AVOD business and through the kiosks in a way that generates revenue for both. So there are savings like that. We have the ad supported, we have our sales force savings, which is obvious. I mean not only do we have much higher CPMs, than RedBox was able to achieve through outside sales agencies so we all know don’t generally care as much. But we also have the ability to sell much more of the inventory, because we have a lot of scale now in the ad business. We are an important stop. By the way, for those of you who didn’t see our NewFronts video, it’s on our website, it’s really worth watching. You’ll get a sense of just what we’ve accomplished on the content side of our business. On the tech side, Jason, we were going to have to build a free TV service. Well guess what we don’t have to now. We wanted to build a TVOD and PVOD service, we don’t have to now. RedBox was going to have to build this the AVOD businesses that we have. They don’t have to now. They were going to have to get the content that we have. They don’t have to now. They were going to have to build ad sales force. They don’t have to now. I mean, this is like a once in a lifetime combination. Only chicken Soup and RedBox together can create this kind of complete platform that otherwise doesn’t really exist today without spending a fortune. So somebody else was going to try to do this, they’d have to spend the hundreds of millions of dollars and the years that we spent building our content library. They’d have to take the time to build the sales force that we have. They’d have to take the time to build the AVOD networks we have. It’s just us, it’s us and RedBox together it just makes a lot of sense. And I guess most of you would not have any way of knowing that we first started working on this almost two years ago. We thought that this was a perfect match for a long, long time. And sometimes things don’t work quite the way you want. But if you are patient, and you hang around the net, as I like to say, sometimes you get lucky. And I think we both got lucky on this. The opportunity came to really contribute to each other’s well being. And that’s what we’re doing here and so for all of our shareholders, there’s real upside, really meaningful upside here. You look at these numbers 500 million revenue, 100 million of EBITDA you know guys, we’re only going to have 20 million shares outstanding after the deal, maybe 20.5 or 21 I mean, tops. You all can do the math 100 million divided by 20 million shares. This is $5 EBITDA share. I don’t know what multiple you want to put in that. But it seems to me it should be higher than one, which is two, which is where we might be today. I don’t know where we are today, so real value created here. But in part Jason it is the synergies, but there are a lot of them. We didn’t really size them all to that $40 million number because so many of them are things that were aspirational, and that you didn’t have to do. And they weren’t cost cutting. They were cost saving. Looking forward. Galen how do you feel about it? Anything you want to add on that?
Galen Smith: No, I mean, I think the industrial line between the two companies makes a ton of sense, there’s great opportunities. We’ve already been commercial business partners for a long time with the full Chicken Soup offering and excited to move forward with the opportunities here. But I think there are undeniable, really easy to see synergies between the two companies to create a lot of value.
Jason Kreyer: Appreciate all that great commentary. Bill if I could ask just one follow up there. Last quarter, you’ve talked about your reaching to about 40 million monthly users. Is there a way to quantify that today? I would imagine that number increases substantially. But wondering if you can put any parameters around just how big your audience will be after this transaction.
William Rouhana: There’s 40 million RedBox loyalty program customers, there’s more than 40 million monthly active viewers of the crackle plus networks. By the way, we did mention that we had sequential growth of 11.5% in viewership in the first quarter over the fourth quarter of last year. By the way, not normal that’s not a normal quarter to grow viewership that kind of way so and viewership is continuing to grow. So we’ve looked at the demographics of course of our two customer bases and they’re complementary in funny ways, like we’ve got a lot of young people watching crackle who likes who don’t mind watching ads or don’t want to pay for anything. And we’ve got a lot of people who are RedBox customers who wants to save money. They both are looking not to pay to pay for things. But it’s for different reasons. It’s actually kind of a funny complementary group. It expands our universe considerably. But there’s some overlap for sure. We just don’t know how much and we’re going to try to figure that out over time. But we’ve got a huge amount of information now. Think about where we sit. The kiosks, how many millions of interactions every month, Galen? 7 million?
Galen Smith: Yes. It’s significant. So we’re getting lots of data in terms of what our consumers like, with the types of movies and types of actors, we can use that across all different platforms in terms of ensuring that the content that consumers want most are available across every different touch point between the combined companies.
William Rouhana: And so we have that plus TVOD and PVOD we’ve got our AVOD businesses, we’re starting to be in a place where we will know more about what consumers like than almost anything. So but with real data not with this imaginary Nielsen type stuff, real data that will get me quoted, I’m sure. But this is really an unusual combination, really an unusual combination.
Jason Kreyer: Perfect. Well, Congrats on getting into this point. Thanks. Thanks for taking questions.
William Rouhana: All right. You’re welcome. Thanks for coming with us this morning.
Operator: Next we’ll hear from Jon Hickman with Ladenburg Thalmann & Co.
Jon Hickman: Hi. Congratulations, Bill. Could you talk a little bit about the debt like how fast you think you can pay it off? Can you give us an idea of what you think the interest rate will be for the, in the near term?
William Rouhana: Yes. I mean, it’s how fast we pay it off. I think pretty fast. John, truthfully. The combined companies do generate meaningful cash flow. But we need a few months to get our plan in place to really sit down and put things together. We know that you’ll see in the proxy in a couple of weeks, our projections for the next couple of years. And I would say study that in order to do it. I’m pretty confident that that’s not going to be with us for a long time that I can tell you. Interest rate, Chris, you remember what that interest rate?
Chris Mitchell: It depends on the leverage of the company the time depends on whether we’re paying cash or pick but think about around the 7.5% - 8% area.
Jon Hickman: Yes. That sounds reasonable. And then, just for modeling personal purchases in the near term. From your guidance, it would appear that somewhere around 400 million in annual revenues is coming from RedBox. Is that a reasonable assumption?
Chris Mitchell: At the end of the year when we do that, to Chicken Soup contribute more than that and RedBox will probably contribute more than that. So then you’re going to say me, but Bill that that’s more than 500 million, and that’s why -- we’re comfortable saying we’re going to exit this year at a $500 million revenue run rate and $100 million to $150 million adjusted EBITDA run rate. But as we roll through this you’ll get a better sense of it in the proxy and in the like.
Jon Hickman: Okay, well, thanks.
Operator: Our next question today comes from Brian Kinstlinger at Alliance Global.
Brian Kinstlinger: Hey, thank you. Congratulations. I wanted to ask one question about the rollout of the platform which was planned for the second half of the year, I think you’ve had all your touch points. This in many ways, changed that timeline given me shift in focus?
William Rouhana: No. business as usual, business as usual over here. In fact, we’re making great progress. I believe the Amazon Fire version of our platform is about to go live. And everything else is staying exactly on that schedule. We’ve got a lot of adults in the room. We will do our day jobs while we put this company together.
Brian Kinstlinger: The follow up I guess I would have can you quantify in any way whatever KPI you think is relevant, and how your platforms on that, sorry, your distribution point on that platform are doing compared to the touch points that are not using that platform and the new tech platform. Thanks.
William Rouhana: Yes. So both Samsung and Vizio are on the new tech. Vizio has really soared into third position of all of our platforms ever since we launched it. It’s neck and neck now with Amazon Fire. I’m going to I’m afraid I might quote the numbers wrong. But there’s been at least a 40% increase in time spent by people on the Vizio platform now, but there’s more of them too. It’s not just time now. It’s actually more repeat customers coming back. Because I guess the experiences is better, certainly was the plan. Samsung was off to a great start. But it’s very early. It was up even more than that. But we got to, we really have to let these things mature a little bit before we give you a real sense of it. But so far, Brian, it’s doing exactly what we wanted it to do. And very excited to see what happens to Amazon Fire, because that’s already a very big platform for us. There’s some pretty strong marketing there too. And that’s, I think that’s coming in the next couple of days. It may even be today. I mean.
Brian Kinstlinger: It’s crazy. I’m waiting for my Amazon to fire myself. Thanks.
William Rouhana: Me too. How many you sit at home. Thanks for asking. I got one last time for one last question operator, if you have a last question.
Operator: Certainly. We’ll hear from at Hilton Capital. Please go ahead.
Unidentified Analyst: Hi, good morning, guys. Thanks for the question. I have two questions. One is on the sort of the legacy RedBox business. If I look at that kiosk base, I’m just curious what the approach is, is it sort of to enhance and grow that? Or is it to transition those loyal customers, if you will, on to AVOD? What’s the strategy there? And then I had a follow on question related to the financials.
William Rouhana: Okay, so two parts Tom. Part one, and thanks for answering that question because I really didn’t make this point. The kiosk business, as it rebounds with theatrical releases is going to generate a ton of cash flow. And in addition to being a great place to gather information, connect with consumers, market our other services, as millions of people come to the kiosk, it represents a source of capital for the company going forward, which will be meaningful. And for those of you who are wondering about the DVD business, you can pretty much count on the fact that with the increase in theatrical releases from 50, some odd last year to over 140, by next year, there’s going to be a dramatic upturn in the kiosk business, we can already see it’s starting to develop, average rentals per visit, is starting to go up and a number of other things. So that business is really it serves a couple of purposes, one of which is generating a lot of cash flow for the company. The other which is it’s another touch point with consumers where we can learn a lot about what they’re interested in. Now, there is a service business associated with that kiosk, which is also generating some meaningful cash flow for RedBox and that business, we would enhance as well. And that’s, there some real value to that, I have to say as well, it’s kind of a hidden gem inside the company that people don’t really focus on. And Galen is very aware of all of that. He has managed that I think brilliant lady to create it into its own business that has real upside. So that’s sort of floating around as well. Ultimately, of course, though, we’re a digital business. And that’s the future and we all know it. And as it takes maybe 10 to 20 years for people to finally leave the DVDs by the way, there were 3 million DVD player sold last year in the United States of America, for those of you who wonder about whether they’re still DVDs out there. There were 3 million sold last year. The idea is really to take these customers who as Galen tend to be slow adopters. And it may not just be because of the tech, sometimes they live in places where there just isn’t enough broadband yet. I mean, there’s 20 million people live in places with no broadband of consequence. So they don’t get to participate in the digital ad, digital video business, they get to participate in the DVD business. Those people, slow adopters for technology reasons and people’s habits all convinced me that while there is ultimately a drop off in the DVD business, there’s first a big spike up and then over time, over decades, a gradual reduction, because this is just like any other thing. It takes time for people to change their habits and migrate to new things. So that’s it.
Unidentified Analyst: Fair enough.
William Rouhana: It’s really a combination of things. Very, very exciting, actually.
Unidentified Analyst: Good. And then on the synergies that you’ve granted these may be kind of your first takeout if you lay out 41 million here Just curious about how that would split out between sort of assumed revenue synergies versus cost saves? And then maybe to get Chris involved, I don’t know what kind of phasing we should look for that in terms of when they sort of hit the P&L?
William Rouhana: Yes, it’s 30 million in cost and about 10 million in net revenue. Chris, you want to talk about timing? I know, we have to work on the planning all that stuff.
Chris Mitchell: Yes, I think, we’ll be working further to fine tune the timing as we go through the closing process. But a lot of these cost savings are things that we can implement, quickly upon close. I think the two companies have been looking at a combined plan for some time now and fully aligned on execution of that. So I think we’ll expect to see the cost savings generated quickly and the revenue synergies as well, those are things that we’ll start implementing right away in terms of what Bill talked about on the content side and be able to scale back on the titles that the two combined companies we’re going to work on independently. So we’ll work on providing some guidance at the right time to help modeling. But these are both areas of synergies that we think we can implement pretty quickly post close.
William Rouhana: And I should point out, I’d be remiss not to point out that Galen has been cutting costs of the business very aggressively over the last year as he right sizes the business for the current, it’s weird, it’s the current DVD level, which obviously means if we’re breaking even or making money at the current level, if we double or triple this is going to be a cash flow machine. And I think we all believe that’s really what we’re looking at here. So it’s not like we’re starting with cost savings from day one and we never thought about it before. The RedBox management team has been really smart about the way they’ve gone forward already. And we’re just going to keep that going. And add all of the special things that come from the two companies being together. It’s an enormous amount of savings and a real accelerated of growth, customers and cash flow and the like. So that’s kind of it. That’s kind of it for today. This is a big event, as we all know. It’s an exciting event. Our company is in a new place. We’re a new, we have a meaningful position now in a business that we will use effectively and thoughtfully. As you can imagine we’re already thinking about our future and everything we can do with this platform to everything we do with this platform to build our business. It’s quite extensive. Look, I’ll close by once again just thanking all of our team members. Great job everybody. Welcome aboard RedBox employees, can’t wait to meet you, can’t wait to spend time with you, can’t wait for you all to meet each other and to become part of what is a wonderful company. Thank you all for joining us today. And we’ll talk to you again I’m sure.
Operator: Ladies and gentlemen, this does conclude today’s Chicken Soup for the Soul Entertainment first quarter 2022 earnings results and RedBox Entertainment acquisition conference call.
