Chicken Soup for the Soul Entertainment, Inc. (CSSE) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day ladies and gentlemen, and welcome to the Chicken Soup for the Soul Entertainment Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your first speaker Mr. Taylor Krafchik, Ellipsis IR.
Taylor Krafchik: Thank you, operator, and welcome. With me on the call are William J. Rouhana, Chairman and Chief Executive Officer; and Chris Mitchell, Chief Financial Officer, to review the second quarter 2021 results, as well as provide a business update. 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. The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is most directly comparable GAAP measure. For further information regarding the company's historical financial performance, we refer you to our filings with the SEC, including our report on Form 10-Q for the quarter ended June 30, 2021, which was filed today. 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 good afternoon everyone. Welcome to our second quarter 2021 earnings call. I'm going to provide some highlights from the quarter and update on our progress overall, as well as some details on some key areas of focus as we head into the second half of the year. Chris Mitchell, our CFO, will then dive a little deeper into the financials. We had a solid second quarter that built on the positive momentum we demonstrated in Q1. We generated strong revenue growth, closed the Sonar deal, continued to expand our distribution touchpoints, which are now demonstrably contributing to our viewer growth. And we're getting a great reception from advertisers with a stellar performance at the recent upfronts. We've also completed preparations and are ready to launch both our new Chicken Soup for the Soul AVOD streaming network and our new tech platforms and viewer interfaces. Finally, in June, we raised $75 million in new capital to fund our growth. And we're looking at ways to best deploy that strategically in support of future growth. So, it's been another busy quarter, with a lot of progress that positions the company even more strongly for continued growth and momentum in the months ahead. A couple of highlights on the financials. We reported net revenue of $22.1 million, up 64% on a year-over-year basis. Adjusted EBITDA was $3.2 million, which was up 19% as the business continues to scale. Our online network revenue was up and exceptionally strong 78%, and we continued to see good growth on the distribution and production side as well. Overall, results keep us on a solid trajectory to reach our revenue targets for the full year. As I noted, Chris will go into more detail on this at a bit. Looking more closely at our project -- our progress, I want to start with advertising. We've always pursued a broad-based ad strategy leveraging three-pronged -- a three-pronged sales approach, including direct sales, programmatic, and local partnerships. Unlike other AVODs, we see the most upside in direct sales, that's because we offer something that most AVODs do not, a steady pipeline of original and exclusive programming that allows for Upfront sales and sponsorships while driving viewership and attracts a highly sought after audience. Direct sales deliver higher profitability on our original content. And we can drive even more upside by creating innovative ad formats that improve both the viewer experience and the visibility advertisers get on our networks about our audience. This was our approach at the upfronts this year and upfront orders are now projected to be up over 130% over last year. We also see much larger commitments than ever before. We're also diversifying our advertisers even further, as roughly half of our top 20 commitments have come from brand new advertisers, major national advertisers. We will continue to advance the strategy and expect to see more sponsorship and integrated brand partnership opportunities moving forward. Of course, advertisers only do business with you if you deliver viewers and we're making great progress there as well. Viewership on Crackle and Popcornflix was up in the high-teens in the month of June on a year-over-year basis. A tremendous increase when you consider the very rough comparison to 2020, when so many viewers were stuck at-home. I'd also note that with new contact -- content starting to come back across networks and platforms, there is more competition for eyeballs as well. So, our results reinforce the breadth and depth of our content on Crackle Plus, which is increasingly our competitive advantage. In addition to the appeal of our content, we believe our viewership growth is also being driven by the expansion of distribution touchpoints that we've been working hard on all year. We continued this expansion in the quarter with Zumo, more Plex channels, Fubo, Redbox and Filo. Additionally, since the end of the quarter, we've added Flex, X1, Cox, another Fubo channel, another Filo channel, VIZIO WatchFree and others bringing our total act of touchpoints to 50, with over 20 more on the way. And we're not done yet. In fact, we are only about half -- we are only about half of the more than 100 touchpoints we now expect to reach over time. We've said that we believe each touchpoint can bring us several hundred thousand viewers over time. And in fact, what we've seen so far is approximately more than 450,000 new monthly average viewers added by each of our mature touchpoints. If this holds as anticipated, viewership should continue to grow nicely as our newer touchpoints mature and as we add new ones. Keep in mind that we're also about to launch the new Chicken Soup for the Soul streaming network and embrace the same distribution strategy with this service. In anticipation of driving new levels of viewership, we've also been very busy readying the launches of our new tech platforms and viewer experiences. The new Crackle Plus platform looks great and we'll launch eminently on VIZIO Smart TVs before rolling out over the course of the next year on dozens of our other distribution touchpoints. We've also launched our new Popcornflix app on Android iOS, the Web and Apple TV just this week, and intend to launch that on all remaining platforms by the end of September. These improved platforms dramatically enhance the user experience and put us on the cutting edge from a technology standpoint. Additionally, they will help us create an even better user experience by increasing access to view a data and behaviors to help us deliver more personalized ads more effectively. Of course, all of our progress on distribution and our platform has been domestic up until now, but we also have a significant opportunity to expand Crackle Plus internationally. And I'll talk about those plans in just a moment. First though, let's turn to our content. In Q2, we saw success with several of our original and exclusive titles and continued to build on our strong pipeline. The headline for us right now is that the second season of our hit series Going From Broke has been doing extremely well since it premiered in the back half of May. Also exclusively on Crackle, we launched Skyfire, a film in which chaos erupts, when the once dormant volcano at the world's only volcano theme park and resort starts to rumble. And it has been the third most popular title on Crackle since its launch a couple of weeks ago. Led by these titles, our original and exclusive content viewership showed continued strength and remained in the high-teens of total ad impressions for the quarter on track with our December goal of 20% of total ad impressions. As I noted, as we drive this number higher, we expect our profit margins will continue to expand. Next up, on the original content slate, we have a couple of exciting Chicken Soup for the Soul originals premiering, including The Uncommon History of Very Common Things, which premieres on Crackle in August and Smart Home Nation, which premieres on Crackle in December. In other business developments, we closed the Sonar deal and are moving quickly on integrating Sonar's content into our Screen Media library and executing on using this content in our new programming activities. As for the performance of productions acquired in the Sonar deal, we've already seen an early great success in The Mysterious Benedict Society on Disney+. And looking ahead, we're off to a good start with the second season of the hit show Hunters on Amazon prime. We're also starting to see the first pieces of Sonar content migrated over to our own networks. Taboo, the hit FX series is set to premier on Crackle in September. Tom Hardy is the star. And more recently we premiered our first piece of Sonar content to migrate over to Crackle with The Temptations, a two-part mini series on the true story behind the legendary Motown musical sensation. This program shot to number one on the Crackle network in just three weeks, and it's a perfect example of the success we expect to see from the movies and television programs we acquired as part of the Sonar library. And we believe it is the first of what we expect will be many success stories. By the way, it's really good. I would watch it. I've enjoyed it. As I've mentioned, we've been -- we will also be launching our new Chicken Soup for the Soul streaming network later this month with Sonar content, which will provide an additional option for viewers. The streaming network will broaden Crackle Plus' demographic reach by delivering the Chicken Soup for the Soul brand of inspiring, uplifting, and informative content, including a large selection of scripted movies and TV series, as well as unscripted programming, covering food, home, travel, and other similar content. Turning the Screen Media. We've also recently acquired several star studded films over the last few months, including Gold, starring Zac Efron and Susie Porter, a tale of two men traveling through the remote desert who stumbled across the biggest golden nugget ever found; Naked Singularity starring John Boyega and Olivia Cooke, with executive producers Ridley Scott and Dick Wolf, which tells the story of a promising young New York City public defender; and Best Sellers, a comedy starring Aubrey Plaza and Michael Caine, which is about a daughter's last ditch effort to save the boutique publishing house HER father has left her. My wife, Amy, has enjoyed that movie. It's about her business, the publishing business. While French -- while fresh content on our network gets lots of attention, we also continue to move forward aggressively with our content distribution strategy. Most recently, we signed an agreement with Millennium Media for Screen Media to exclusively distribute 15 of their movies over the next three years. Some of you may recall that Millennium is the same studio that produced the Outpost, Until Death, which were huge hits for us over the past year. I must say to be in a position now to be able to acquire and distribute this kind of volume and quality of content is very exciting for us. And there is just no one focused on ad supported streaming who has this production distribution capabilities, acquisition relationships or library that matches ours. Additionally, there have been some recent changes in the industry with regard to shortening the initial pay TV window. And these changes will allow us to put our own programming onto our own AVOD networks more quickly while still licensing that initial window to others. This industry updating -- update is having a positive impact on the flow of product to our network, without us having to sacrifice the licensing revenue associated with Pay1 and also enhances the marketing benefits gained from our licensed partners. So, what's next? The answer is to continue executing on our key growth initiatives in the U.S. including strategic opportunities, while increasing our focus on building out our international business. There have been a few key developments in recent weeks that helps spotlight where we're going. One of them we announced just a few moments ago. These include inquiring Sonar and establishing Halcyon, which has set the foundation for international television production. The pending launch of the Chicken Soup for the Soul streaming network, which rounds out our Crackle Plus network offering, the recently announced acquisition of the Crackle International Trademarks for Crackle Plus from our partners at Sony, which gives us trademarks in over 50 countries, expanding Australia, Asia, Europe, and South America. This deal will allow us to offer all three of our key streaming networks around the globe and bring our name -- our AVOD networks worldwide. And most recently today the Keshet deal that we announced, where we are the exclusive supplier of non-Israeli AVOD content to this new AVOD/SVOD service in Israel. For those of you who don't know Keshet, they are the leading broadcaster in Israel by far. We are also providing them technical and operational expertise in the support of their launch. And by supplying content and expertise to Keshet, we're demonstrating two of the three legs of our value proposition to international streaming services. The third leg is our brands, and we are working on opportunities to deploy our brands and services internationally. In summary, we're now a little bit more than two years into our operation of Crackle Plus, with transport and the network from every angle, financial, quality of content viewership, advertising, and now technologically. We're in a great position and the financial results are showing that. In terms of what's next, we're looking to accelerate our execution on all fronts, with these priorities in mind, leaning into the momentum with advertisers and delivering unmatched opportunities and more innovative formats and business models, driving forward on our network distribution initiatives, especially as we launched the Chicken Soup for the Soul in that AVOD, continuing to grow the original content production pipeline and leveraging our ever-growing library, and finally, doing all of this internationally. We're in an even stronger financial position to execute on these initiatives, following our offering in July and see additional opportunities to strategically expand our business, particularly around more AVOD networks and library expansion. We expect to be in an even better position as our financial performance ramps. And given we are growing at a faster rate year-to-date than we had initially anticipated, we remain confident in the outlook we have for the year. I'd like to thank the Chicken Soup for the Soul team once again for all their hard work. I'm going to turn this over to Chris who will give you some additional details on financials.
Chris Mitchell: Thank you, Bill. You've already heard our operational highlights. I will focus on our review of our financial results and balance sheet. As noted on prior calls, with full ownership of Crackle Plus, we are now operating the business on a holistic consolidated basis, which is how we will continue to discuss our financial results going forward. As a reminder, we have added a table in our MD&A section and a revenue footnote section of the 10-Q that breaks down our consolidated revenue by source, that we believe to be helpful for investors. Our financial results for the second quarter of 2021 reflect further execution on our key growth initiatives, which positioned us to further build on the momentum we achieved in the first quarter. Let's go through the second quarter results. Starting with results for second quarter, we reported net revenue of $22.1 million compared to $23.2 million in the first quarter of 2021. This compares to $13.5 million in the second quarter of the prior year for an increase of $8.6 million or roughly 64% year-over-year. This year-over-year increase in net revenue was primarily driven by an increase in ad sales and by license fees. As Bill mentioned, our distribution pipeline remained strong and we added nine new distribution touchpoints in June, as well as nine more shortly thereafter that are now reflected -- that are not reflected in our second quarter results. In total, we have 50 distribution touchpoints and remain on track with our goal of growing to 100 touchpoints by the end of this year. This positions us exceptionally well to drive further growth in both viewership and ad dollars over the balance of the year. It's worth noting that we were not able to recognize as much revenue as anticipated in the quarter related to Hunters 2 and Slasher 4, we recognize revenue on Hunters 2 based on a percentage completion basis. And we had one episode of Slasher 4 where delivery was slightly delayed until the first week of July, bringing the total number of episodes delivered in July to seven. For the third consecutive quarter, we sold virtually all of our advertising inventory. Our strong dealership and high-quality content continue to attract advertisers, and we're seeing larger commitments than ever before, while growing existing relationships and go to new ones. Additionally, the upcoming launch of our Chicken Soup for the Soul AVOD would expand our viewer demographic even further and provide yet another revenue -- another avenue for advertising revenue. Ad revenue was driven by further expansion of our original exclusive content offering coupled with the continued innovation and enhancements we've made to the overall ad experience. As Bill noted, we saw tremendous success at this year's upfronts, which is a good indicator for continued momentum and ad revenue to the rest of 2021. We expect to see continued momentum in this area throughout the remainder of the year, and we'll make further progress on our advertising strategy. Gross profit for the second quarter of 2021 was $6.7 million or 30% of net revenue, roughly flat with the prior quarter on a percentage basis. This compares to $0.6 million in the same period prior year or 4% of net revenue. Operating loss for the second quarter of 2021 was $7.8 million compared to an operating loss of $13.1 million in the year ago period. Our adjusted EBITDA for the second quarter was $3.2 million compared to $2.7 million in the same period last year, a year-over-year increase of roughly 19%. The year-over-year increase was driven by ad sales with a rebound in the market as the impact of COVID rein, continued strength in the distribution business and a strong performance by Going From Broke. We were also beginning to see a return of some production revenue. Looking at our balance sheet and liquidity position as of June 30th, 2021, the company had cash and cash equivalents of $18.4 million compared to $24.6 million at the end of the first quarter of 2021 and $4.7 million at the end of the year ago period. Please note that the closing of our common stock offering in July, 2021 provided us with $75 million in gross proceeds. We are pleased with our enhanced liquidity position, which provides us greater flexibility to pursue attractive growth opportunities in a strategic and disciplined way. In closing, we're pleased with the continued momentum we saw in our business in the second quarter and excited about the opportunities we see to build on that momentum as the year unfolds. We began accomplished a tremendous amount in a relatively short period of time where a very busy and productive year so far. We believe we were even more strongly positioned to further evolve the business and accelerate growth in the coming months. With the acquisition of Sonar now complete, we have several key pieces in place that will enable us to utilize our new content and production capabilities and accelerate our international expansion, which we expect will contribute to our financial results in an increasingly meaningful way as they developed. Additionally, we were particularly focused on growing viewership and streaming revenue, with initiatives aimed at content to drive viewership, enhancing the user experience and platform, growing distribution of our streaming networks, and pursuing larger and more innovative ad formats and marketing partnerships, that will help drive higher margins over time. With all of these initiatives in place that continue to gain traction and enhanced platform and strengthen balance sheet to provides additional liquidity, we are competent in the growth that lies ahead. And as we work to capture that growth, we will continue to benefit from the integration of all aspects of our business, while managing expenses and risk in a disciplined way, with an eye on improving cash flow and profitability. With that, thank you for joining the call. I'll now turn it back over to Bill.
William Rouhana: All right. We'll take questions now, operator.
Operator: Thank you, sir. The first question we have Jason Kreyer from Craig-Hallum. Your line is open. Once again, Jason Kreyer from Craig-Hallum. Your line is open.
Jason Kreyer: Hey, sorry about that. Thanks Bill. So, just wondering, I know you don't give quarterly guidance and you've given kind of a -- some perspective on what we should anticipate for the year. Just wondering if there's any way you can quantify the slippage of revenue from Hunters and Slashers. I know the quarter came in a little below what we were expecting, so I'm not sure if that's kind of -- if it's related to that or if there are some other factors at play.
William Rouhana: No. That was it. That was two items where the -- where we're at. So -- but look, we're -- our view of this is, we're right on track for the year. We're actually a little ahead of track for the year. And so, those two events are just -- they just move from one month to the next is what happens so.
Jason Kreyer: I'm assuming that's not all that different than what we saw with release back in the beginning of the year.
William Rouhana: Yeah. The production business and the licensing business can be lumpy and events can occur in those businesses that delay you from one month to the next. From my perspective, the most important thing I saw in the numbers was a 78% growth in the online networks business. To me, that was really an imp -- really, really a great result for us Jason, far our expectations.
Jason Kreyer: Appreciate it. I wanted to touch on the upfront, so the new fronts, you've got that in the review mirror, obviously you bring in -- you've brought in a lot of new advertisers relative to what we had on the platform a year ago. Just curious if you can give us kind of summary of the response you're getting from some of those customers and in particular kind of some feedback on what you're hearing on the new ad formats that you've introduced.
William Rouhana: Yeah. So, this was another, I think, really good thing for the year besides being up effectively 133%, meaning more than doubling. The top 20 advertisers have 11 new major companies. And it's -- to me that is a really very good thing. I'm very pleased by that because this will make -- not only does it show that the appeal that there is to our networks, but what I like about it and my other things, it's going to vary the ads a lot. And as you know, in our space, one of the big complaints people have is they see the same ad over and over again, not just from us, but on all. And it's this diversity of advertisers. It's got to actually be part of the way that problem gets solved by simply having lots of ads to choose from. And when you see twice as many in the top 20 -- or I'm sorry, half of the top 20 now brand new major companies, it bodes well for lots of reasons. So, I was really pleased by that. We didn't lose any top advertisers, but we added a bunch of new ones who managed the muscle their way into our top 20. So very, very impressive. We also made deals with every holding company, which for us is the first. And I think it all just shows that the migration over -- to over the top to AVOD from broadcast and cable is just continuing to go very, very rapidly.
Jason Kreyer: Last one for me. You've got the new chicken soup AVOD coming, just two parts on that. As far as, are there any incremental costs we need to think about as you roll that out? And then, from an advertising perspective, I know that's going to appeal more to the female demographic, what do you need to prove to that advertising base before they start to come in? And that starts to influence upfronts next year?
William Rouhana: Well, yeah, the demographic will be improved. I agree with you from an advertiser's point of view or a more diverse is probably the better way of putting it from an advertiser's point of view by that ad network. As far as incremental costs go, I mean, there really aren't any operating costs of the sort that we have. Part of the Sonar transaction, as you recall, was to get us a lot of owned library that we could use to help launch that network. I mean, that is happening and will in fact happen and therefore, our cost of revenue and then it will actually be lower. So, I think in the end, Jason, that network will end up adding to profitability, not reducing -- not increasing costs, just simply because we are going to have a much lower cost of revenue on that network. So, yeah, that's really the way I see that one. I don't think that's an increase. I think that's an increase in profitability.
Jason Kreyer: Understood. Thank you, sir. Appreciate it.
William Rouhana: Thank you, Jason.
Operator: Next question, we have Dan Kurnos from The Benchmark Company. Your line is open.
Daniel Kurnos: Great. Thanks. Good evening, Bill. I'm sure you're tired of me asking you international questions, but you have a deal. And obviously, it is a significant on task at hand for you guys. Maybe if you could just help us size a little bit the Keshet deal, just how we should think about how additive it is, that quickly? And then, I know we've discussed this before. You've got the AVOD launch, we've obviously seen others go with more of a personal basis, get the channel in there and then try to work through some DTC. Just obviously DTC not being a big focal point for you, but still you could get kind of teaser channels in there and then build out AVOD if you want it to, just help us think kind of how you attack the international market. And especially considering that, you have a bunch of cash on your balance sheet. I don't know if that's possibly one of the areas that you look to attack more aggressively now.
William Rouhana: Yeah. So, I think the interesting thing about the announcement we made today, Dan, is that Keshet is kind of a perfect example of the kind of broadcaster we want to be in business with. They are the leader in their marketplace by far. They have a tremendous reach with their existing broadcast networks and they have a Salesforce that's able to sell ads, video ads at top dollar. That's what they do for a living already. They have local content that they use for their network, but they're in real need of a couple of things. One is content from outside of their country, because most broadcasters have a limited library of content, that they could reuse. And if you're going to be in the VOD space, you need to have a lot of it. You need to have -- if you're going to compete with Netflix, when they come into your country, you've got to have some scale and scope. That's going to make you as attractive to a viewer as a Netflix with a big library. So, they need the kind of thing we have, which is a lot of content with that's available for AVOD. They need technological help. Although, people like Keshet are pretty darn smart. They know what they're doing. They've built out a heck of an AVOD/SVOD business, or they're building out an AVOD/SVOD business. And they are -- but they also have some local content that they can integrate into the network. So that it's a complete package. They're launching their network at the beginning of next year, so we won't have any material impact this year on the revenue. But they're -- if you look at their numbers and I can't show, I'm not going to share them with you, they would be a very significant contributor to our revenue next year. And I'm hopeful that they're right. They're certainly in a position to do what you've seen big broadcasters in this country do like Fox, for example, and Viacom use their networks to drive AVOD. And from our perspective, we want to partner with people who can do that country-by-country. That's really the way we look at it. Can you repeat your second part of your question, Dan, because I think I forgot it?
Daniel Kurnos: Yeah. No, that's fine. It was just in terms of use of capital Bill, obviously with the cash and the balance sheet, I was curious how we think domestic versus international deployment.
William Rouhana: Well, as you can imagine, the phone never stops ringing these days here with opportunities to spend our money, that's for sure. But we're pretty disciplined about this stuff as you know. Our view is that the things we should buy or more AVOD networks when we can do it in a way that is cost-effective, and I think there are a few ways to do that. And also more libraries where we can use the capital to reduce our cost to revenue and drive incremental EBITDA growth. And there are a few ways to do that, where it's really great is if you get both in one package and there are a few ways to do that. So, we're very actively looking at a variety of things that are out there for us in the domestic marketplace. Internationally, I think our best approach to the international business is going to be through partnerships. And those aren't going to require the kind of capital, that I think we'll deploy in the U.S. to grow our business more quickly and more effectively.
Daniel Kurnos: Got it. And just one more, if I could. We've been getting a lot of color from other players around pandemic cohorts. You guys -- look, one of the things that's come up a lot is that not everyone is Netflix. People are in different lifecycle, stages of their lifecycle. You guys are clearly on your way to multiple touchpoints that you don't even have yet. And so, I think, this needs to be viewed through a different lens, but on an apples-to-apples basis, if you look at the cohorts that you acquired during the pandemic, do you have any data on viewership habits, retention, or any of those you guess?
William Rouhana: Yeah. It's basically flat and that's why the distribution touchpoint strategy is so -- is become such an important part of the future. If you look at just how well those touchpoints are doing. You remember Dan, when I first introduced this idea a couple of quarters ago, I talked about how we would hope to get between 205,000 monthly active viewers from each of these touchpoints. We've now got 10 of them operating and operating long enough so that we could actually determine what's going on. And the numbers more like 450 every month, 450,000 monthly active viewers from each of these touchpoints. We've got nine more that just launched that will have an opportunity to now to continue to increase that set. And we've gone from saying we were going to do 64 of these. I hope you guys heard what Chris said in his part of the speech to say, we're going to do a hundred. We're continuing to expand the strategy. And I believe this strategy is the growth driver for viewership. It is the single best way for us to drive viewership without overpaying, without spending marketing money, that doesn't make sense. And we are not fighting the same fight that our competitors are fighting. We're actually by adding these touchpoints, making it easier for people to find us and it's working. To me, this is the greatest piece of news we've had, which is that this idea, which is unique to us and these touchpoints continue to go where people are going, as the way to drive growth is actually working and delivering and delivering big time. It's really an inexpensive wonderful way to grow viewership. And I'm quite happy about it. So, yeah, it's -- I get that it's gotten a little bit tougher for everybody to grow their viewership because you've got less pandemic watching. You've got more choices for people, but it turns out that if you go places where people are going naturally and make it easy for them to find you, they're going to watch your stuff. If it's good and ours is.
Daniel Kurnos: Got it. Thanks for all the color, Bill and congrats on international.
William Rouhana: Thanks.
Operator: Next question, sir, we have Brian Kinstlinger from Alliance Global Partners. Your line is open.
Brian Kinstlinger: Great. Thanks. Hi, Bill. To your point about touchpoints, can you update us about the -- when the new VIZIO Smart TV began shipping with the new remote, that had your button on it? And I think a couple of quarters back when you announced that you thought this would be much bigger than the average new touchpoints. So, can you talk about the early impact it's had on viewership? That'd be great. Thanks.
William Rouhana: Okay. So, it started shipping in late May. It's been shipping in June. I have no idea how many of them sold through yet. But I guess the good news, Brian, is that touchpoint is not in the numbers that I just reported. The VIZIO Watch, I guess it's WatchFree TV. We launched three VIZIO channels since the end of the second quarter and our VIZIO, our app, which will go live, IVIZIO is about, I'd say seven to 10 days away to go of going live. So the impact of the VIZIO button is yet to be seen in these numbers and I expect it …
Brian Kinstlinger: Understood. And then, I wanted to touch on the new deal you announced today. Should we assume the economics for you is similar to the 50-50 model that you have on other platforms? It sounds like they're doing a little bit more of the selling in the ads, but it's all your content. So just maybe talk about the economic.
William Rouhana: Yeah. Without getting too detailed, because I really don't think that's appropriate in the circumstances. The economics are better.
Brian Kinstlinger: Great. Understood. Lastly, I asked -- I think this -- the last two quarters on the new platform that's being launched. Can you talk about when you think this has a big impact on gross margins as the system better optimizes recommendations being based on what you own?
William Rouhana: Yeah. So time on site really is what you're talking about, time watching, which is of course, one of the key things about the new platforms, which is it's easier to stay on, the recommendations get better. We get smarter. With the -- the VIZIO is the number one launch of the platform. So, it's coming up in the next few days to a week to 10 days, somewhere in there. It's already in. It's actually working. But VIZIO has its own way of actually launching these platforms. So, it will be still a few more days. They will rollout, so that by the end of the year, we're on all of the different touchpoints with the new platform. Popcornflix will actually be out ahead. Popcornflix will be on all the new -- all of its platforms by the end of September. Crackle will be on all of its by the end of the year. So, I'm expecting that over the course of the year, we'll -- over the course of the second half of the year, we'll see continued growth in time on site, as a result of the better viewer experience, combined with more and more viewers from the touchpoints. I'm thinking those two things together have a very big impact on the second half of the year.
Brian Kinstlinger: I guess I'm thinking more, Bill, on the gross margin as you've religiously talked about lowering the cost of goods. I'm wondering, do you -- end the year at a 35% margin potentially exit the year anyway with you pushing more owned content as it -- and the viewership and the metrics start to change?
William Rouhana: Yeah. So, the answer is, I think yes, to your -- to the specific question you asked. But I also found it fascinating to listen to Chris discuss last year, his margin of 4% compared to this year's margin of 30%. We've made good progress and increasing the margin over the last year. That's for sure. I think, that's pretty obvious when you go from 40% to 30%. To go from 30% to 35% feels very likely to me, Brian. We'd like to get some upside even over that if we could. But I think it's a safe bet and it's not a wild idea that we can go from 30% to 35% where we've gone from 40% to 30%. So, having performed a third, so feels pretty good to me, pretty likely.
Brian Kinstlinger: Great. Thanks so much, Bill.
William Rouhana: Thank you.
Operator: Next question, sir, we have Austin Moldow from Canaccord. Your line is open.
Austin Moldow: Hi. Thanks for taking my questions. Within your own network revenue, what are the relative sizes between Crackle and Popcornflix contribution? And within that context, how big can the Chicken Soup for the Soul services?
William Rouhana: So, the Crackle -- Crackle is much bigger than Popcornflix. Like -- I would say it's pretty much like a two-thirds, one-third universe, Austin, without being overly precise about it. I'm expecting the Chicken Soup for the Soul AVOD to be as big as Crackle. There's many reasons for that belief, but that's our expectation. Now that won't happen day one, but over time, the brand is an extremely strong brand, as you guys know, and it's -- the female demographic is underserved in AVOD. So, we're getting great response from all the distribution platforms on promoting it and building it and from advertisers and alike, so I feel like that one's really got great potential.
Austin Moldow: Got it. And, what does the new Crackle technology platform enable you to do?
William Rouhana: Well, I mean, there's a bunch of different things. So it, -- the number one thing I feel is it's faster loading, so that's a starting point, better viewer experience. The ad insertion is switched to SSAI. So, it's a better ad insertion experience. The -- when you sign up for our service using your -- well, your phone becomes your remote control. Your -- my case, an iPhone becomes your remote control. You're able to sign up on your phone that automatically will download onto your various TV sets in your home our three networks, so that you don't have to go and find them on your Smart TVs or your Roku devices or your -- and -- or your Amazon Fire device. When -- if you have a particular program you indicate you're interested in seeing, because you've seen something -- we've marketed something new through an email or alike, when you go to your TV, it'll be there already waiting for you. So, it’s -- it reduces friction in so many ways for people to find the things they want to watch, have them easy -- easily available to them. It allows us as a company to reach out to people using the email, using the phones in a way that it's a much simpler way for people to go from a Web based or iOS based experience to a connected TV experience because of the way it -- the way you're able to get access on your connected devices -- your connected TV devices, but routed from your phone. So, there's a series of things that I really think make a whole bunch of -- will make a big, big, big difference. And if that's not enough, it's also got better data analytics. And I think our recommendation engine will get much stronger too. So, a lot of the things that you've talked about, Austin, in the past, relating to watch time, how long people stay, I believe, are going to be significantly positively impacted by the tech.
Austin Moldow: Okay. Thank you very much.
William Rouhana: You're welcome.
Operator: Next question, sir, we have Jon Hickman from Ladenburg. Your line is open.
Jon Hickman: Hey. All my questions have been asked and answered, except I was just wondering out of all the new content that you kind of talked about or that's in the pipeline, so what's your big favorite? Do you have another Outpost in the copper there?
William Rouhana: Yeah. That's a good -- that's actually a very good question. There are some really good movies coming. We just put together a big deck for the Pay1 guys on the stuff that's coming. I think, maybe the one that I'm most interested in is Gold, which is coming with Zac Efron and Anthony Hayes. It's the story I mentioned in the script about the two guys who are going -- traveling through the remote desert. It's the first Zac Efron movie maybe ever, or certainly in a long time outside of the studio system. It's a big event that we're getting this movie. And then the Millennium, Jon, have got, that Millennium deal. You remember those were the guys who gave us both Outpost and Until Death, which has done really well for us. Thank you, Megan Fox. She did a wonderful job promoting her movie. She really -- she was really all in on that, but they've got some really good stuff coming. The Enforcer, with Antonio Banderas, Kate Bosworth; The Follower, which I think will be interesting. There's just a lot of good stuff coming in the pipeline. If you're Antonio Banderas fan, they're going to give you one of those next year. So pipeline looks really good in terms of the movie side. In terms of the series side, I'm just thrilled with the way Going From Broke Season 2 is performed. And I suspect we'll be talking about more of that in the near future, so.
Jon Hickman: Okay. Thanks.
William Rouhana: Thank you.
Operator: Next question, sir, we have Laura Martin from Needham. Your line is open.
Laura Martin: Okay. Let's start with a housekeeping one. One is, how -- I know you closed the Sonar deal on May 24th. How much of the quarterly $22 million of revenue was Sonar?
William Rouhana: A very small amount this time, Laura.
Laura Martin: Like a couple million, is that fair?
William Rouhana: No. less than that.
Laura Martin: Okay. Great. I'll use that. I have a really hard one for you. So, I am using -- I'm going to assume this is 78% growth you cited twice is actually a proxy for your ad revenue. Is that fair, or did you report higher ad revenue growth year-over-year?
William Rouhana: No. That's right. That's a fair proxy for that.
Laura Martin: Okay. So, here's my hard question. You are paying a direct Salesforce and you're reporting the lowest CTV ad growth in your AVOD service of any company that's reported. So, aren't we under monetizing your assets because we're paying a direct Salesforce and we're getting -- they're locking up these rights too fast by selling out a 100% at a lower growth rate than anybody else. So, my question is you're the best businessman I know. At what point do you hold back 10% of your ad inventory and put it on programmatic platforms to create a benchmark that those ad Salesforce that you're paying have to exceed because they're getting paid a salary and they're producing lower results than if you had it programmatically.
William Rouhana: So, you and I have had this debate a few times now.
Laura Martin: We have. We just respectively disagreed.
William Rouhana: We are going to keep having it into the foreseeable future. And what, look, there's certainly -- it's a legitimate argument that you're trying -- that you're making, which is that there's -- that it's cheaper to do programmatic selling if it works as well. Where we have a slight disagreement is on the -- does it work as well? And in my opinion, we're better served by having the relationships we have with advertisers that are built through our Salesforce. I feel like the fact that we're up 133% in the upfront year-over-year is partly because of that. I know others have had good upfronts, but ours are really, really great. I think part of the reason we have 11 new major customers in the top 22 is because we've had people in the field working with the major agencies, explaining to them what we do, getting us our piece of the pie. I seek that these things are part of building a business that are required. And even -- I would say, even to people who talk about doing just the programmatic stuff also tend to have other ways that they monetize or try to, but I still believe that that's the right way to go. But thanks a lot for saying that I'm the best businessman you know, because it would be hard for me to disagree with that part of your question.
Laura Martin: No. I want you to go to every one of your salesmen and tell them Wall Street thinks we should go programmatic and fire all of you and get higher rates in the scatter market. Do you just tell them that? See if they don't deliver better results for you here.
William Rouhana: Actually Laura, I'm going to invite you to tell them that.
Laura Martin: Yeah. I am happy to. I am happy to.
William Rouhana: I -- invite you to do it.
Laura Martin: What's going on with customer acquisition costs, with all this new competition in the Olympics, in the markets, blah, blah, blah. What's happening with your customer acquisition cost trends?
William Rouhana: That's the great point about this platform strategy, this distribution touchpoint strategy. It's very inexpensive and that's where we're adding our people. And that's really what I like about it. It's got our -- it's got our customer acquisition costs, I believe as low as you could possibly have it. And it costs very little for us to add these touchpoints and they're adding 450,000 average monthly average use for every single one of them. I don't think we can match that in any other way. To me, it's the greatest part of what we're doing. I think it's -- I'm very excited about the fact that this worked. This is like -- this didn't have to work, but it did. And the fact that it is working and we're now doubling down on it is really and truly from my point of view, one of the key differentiators between us and others, and I'm excited about it, really and truly very excited about it. I wasn't sure if it was going to be 200,000 or 500,000, it's 450 now. And that seems to be -- it just seems to be holding across the board. And some of them are doing better, some are a little worse, but it's really -- it's working. The strategy is definitely working. And with nine more already launched for this quarter, I'm expecting this to get -- to just continue to overwhelm anything else that we're doing in terms of adding customers. Now, we'll buy a company or two I'm sure in the next quarter or so, that we'll add customers too, because it does make sense to pull together more of these viewers and get the economies of scale. But this is the real issue to me. This is why I'm focused on these distribution touchpoints. So, I think they really are game changers for us in terms of how to grow in a cost effective way.
Laura Martin: Okay. And I shouldn't ask another one because your norm on this call is three, but I'm going to ask one still. Are you big enough? You just said you pulled together. You need to buy some more stuff. NBC is telling me they're not big enough to compete in streaming. Tell me how you feel that you're adding stuff to bulk up. Is that an exit strategy for you to go to something bigger? Are you really big enough to compete in this game of monster, huge companies?
William Rouhana: Well, I think there's a short-term and a long-term. By the way, everybody, this is the last question because we've just run out of time, but I'm going to answer this question.
Laura Martin: I am sorry.
William Rouhana: That's okay. And those of you who didn't get a question, I apologize to you. But we're -- this is the end of the time. So, look, in the short-term, we're small enough so that we can get bigger enough, so that it makes a difference in terms of creating shareholder value. And that's my number one goal here is to drive more shareholder value. We can materially grow our business in a sensible way in the near-term and be much more valuable company. In the long-term, one of the ways that value is likely to be recognized is because we become combined with somebody bigger. And, of course, you know that as well as I do. But I'm still in the mode -- in the mode of building and growing materially so that we can continue to increase the value of our company to our shareholders. And then, I'm certain that at some point, we'll decide, hey, we have to be part of something bigger. And we should say yes to all the people who call us all the time instead of call back another time. So, I think that's the answer.
Laura Martin: Okay. Sorry. I took so much time. My apologizes.
William Rouhana: That’s okay. Anyway, look, what's been going on in the world, I want to make sure that I don't forget to thank our entire team and our sales team included for all the hard work that they've done through COVID. I like most other CEOs, I know I'm worried about the impact of Delta, that variant what's going to mean. We're going to come back to the office starting right after Labor Day. I doubt we're going to do that anymore. The -- hopefully we're all going to be better -- we're all going to be at a better spot in the next couple of months. But in the meantime, I just want to thank all our people. They've been doing a wonderful job. And thank you all for attending the call. And I look forward to talking to you all again soon. Thanks everybody.
Operator: Thank you so much presenters. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.
