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CSSE: Q1 2018 Shows First Full Quarter of Screen Media Acquisition

By Lisa Thompson


Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) reported Q1 2018 revenues of $6.0 as expected. This revenue was broken down into the company’s three lines of business:

Television & Short-form Video Production – this is the original business of producing TV shows. In the first quarter this business generated $2.1 million in revenues versus $1.3 million a year ago. Through March 31, the company delivered episodes of both Season 3 of Hidden Heroes and Season 1 of Vacation Rental Potential. It expects to deliver 60 half hours of programming this year via five shows. One show is Season two of Vacation Rental Potential (for 10 episodes), which has already been announced, and one, we assume, is a new season of Hidden Heroes (it has had up to 26 episodes in a season), although this has not been announced. We believe the three new shows are on the topics finance, veterans, and rebuilding communities. In the quarter the company booked revenues from a deal with Netflix for Being Dad—a deal that was facilitated by Screen Media and allowed CSSE to eliminate the distribution fee. Since Vacation Rental Potential has gotten an early start, it should be able to start delivering and generating revenue in Q3. The company is also lowering risk be being about to find multiple sponsors for certain shows.

Television and Film Distribution – is the main business of Screen Media. It includes buy, selling, licensing, and distributing TV and film content for its library of 1200 TV and films, but does not include the revenues generated by Popcornflix. This business generated $3.2 million in revenues in the quarter, which was up over 50% over last year. EBITDA was up 60% from last year. Screen Media was purchased in November 2017 and there were no revenues to CSSE in its 2017 quarter. The existing library generates half the revenue here, and new acquisitions generate the other half.

Online Networks (Video on Demand) – is the portion of Screen Media’s business that generates revenues from ads on Popcornflix and its online OTT programming. It contributed $662,000 in revenues in the quarter. Popcornflix grew 31% year over year and ad requests were up 9% year over year. In the first quarter it added 132,691 new subscribers on YouTube, up from 50,000 added in the same period last year. As of right now, it has 627,218 subscribers on YouTube. When CSSE acquired it, Popcornflix had 397,000 users per month of its website and had 3.8 million page views; it is now up to 829,000 users per month and 7.7 million page views. Plans are to continue to grow channels and content offerings and the company is going through its library and categorizing its content. The company plans to add available CSSE produced shows to Popcornflix in the second half of this year. There is a pipeline of acquisition candidates the company continues to evaluate, which would add to its VOD offerings.

Gross margins have been hit by the addition of amortization of film library, which is put in cost of goods, as it is a variable amount each quarter. So when including that cost, gross margin declined from 67% to 43% in Q1 2018. However, when that non-cash cost is eliminated, gross margin was actually up to 73% from 67%. Both content production and distribution have similar gross margins excluding that amortization.

Operating expenses grew from $402,000 to $2.8 million with the addition of Screen Media.

Operating income was a loss of $160,000 versus a profit of $541,000.

Net interest expense was $21,000 versus $476,000 a year ago and before the company raised money in its August IPO.

This year the company had a pretax loss of $226,000 versus a gain of $65,000. In both quarters however the company paid taxes. This year they were $336,000 versus $199,000 in 2017. CSSE expects to pay an annualized tax rate of 28% for this year and next.
Net income was a loss $562,000 versus a loss of $134,000 or $0.05 per share versus $0.01 per share on 27% more shares outstanding.

More importantly adjusted EBITDA for the company was $1.7 million versus $0.5 million a year ago.

The company reiterated its 2018 guidance for $36 million in revenues and adjusted EBITDA of $18 million. Based on using an average enterprise value to sales of its peers of 16.1 times, and using a conservative $16.7 million in EBITDA, we believe the stock is worth $23.00 per share.

2018 Assumptions

The company expects to deliver 60 half hour show equivalents comprised of renewals of current shows as well as new shows. We expect two of these shows to begin to be delivered in Q3 rather than Q4, smoothing revenues somewhat from the fourth quarter hockey stick.

For many years Screen Media was cash starved by heavy debt and its business declined from revenues of $20 million. In Q1 we believe this business grew near 50% from 2017 levels. If it does that for the full year, it could move from $14 million in annual revenues, to $21 million in 2018. We have conservatively forecasted $19.7 million.


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