Company Overview
Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSEP) is a media and entertainment company that has undergone a remarkable transformation in recent years. Founded in 2016, the company has rapidly expanded its portfolio to become one of the largest advertising-supported video-on-demand (AVOD) providers in the United States.
The company’s roots can be traced back to 2016 when it was formed as a subsidiary of Chicken Soup for the Soul, LLC, the publisher of the famous Chicken Soup for the Soul book series. Initially, the company focused on creating and distributing premium content for value-conscious consumers. In 2022, the company made a significant move by acquiring Redbox, the iconic DVD rental and digital entertainment company. This acquisition was part of the company’s strategy to expand its reach and diversify its revenue streams.
Chicken Soup for the Soul Entertainment’s core business now consists of three flagship AVOD streaming services: Redbox, Crackle, and Chicken Soup for the Soul. These platforms offer a vast library of films, television shows, and original content to viewers. In addition, the company operates Redbox Free Live TV, a free ad-supported streaming television (FAST) service, and a transactional video-on-demand (TVOD) service. The company has built one of the industry’s largest independently owned television and film libraries, consisting of approximately 20,000 films and television episodes. This extensive library is managed through its Screen Media and Chicken Soup for the Soul TV Group subsidiaries, which create, acquire, and distribute films and TV series.
Challenges and Industry Impact
Throughout its history, Chicken Soup for the Soul Entertainment has faced various challenges. The ongoing impacts of the COVID-19 pandemic have affected theatrical releases and consumer demand. The company has also had to navigate industry strikes and pre-acquisition issues with Redbox that impacted the planned integration of that business. Additionally, the company has been subject to numerous litigations and claims due to unpaid vendor and content supplier payments resulting from capital shortfalls.
Financials
The company’s financial performance has been mixed in recent years. For the year ended December 31, 2023, the company reported net revenue of $294.41 million, a decrease from $252.81 million in the prior year. The company’s net loss for the year was $622.52 million, compared to a net loss of $101.95 million in 2022. The significant increase in net loss was primarily due to a $380.81 million impairment charge related to the Redbox acquisition.
The company’s cash flow situation has also been challenging, with negative operating cash flow of $23.31 million in 2023 and negative free cash flow of $29.97 million. The company’s liquidity position has been strained, with a current ratio of 0.60 as of December 31, 2023, down from 0.77 in the prior year.
In the first quarter of 2024, the company reported net revenue of $27.40 million, a significant decrease from $109.60 million in the same period of 2023. The company’s net loss for the quarter was $52.90 million, compared to a net loss of $58.58 million in the prior-year period. The company’s cash and cash equivalents, including restricted cash, were $4.88 million as of March 31, 2024, down from $3.32 million at the end of 2023.
The sharp revenue decline in Q1 2024, coupled with the company’s high debt load and ongoing capital constraints, have raised substantial doubt about its ability to continue as a going concern. The significant decreases in revenue, net income, operating cash flow, and free cash flow compared to the prior year quarter were primarily due to a lack of new theatrical releases available for the Redbox kiosks and digital platforms, as well as the company’s inability to enter into normal library licensing transactions due to its diminished working capital position.
Liquidity
Despite these challenges, Chicken Soup for the Soul Entertainment has continued to invest in its content and platform development. The company’s Screen Media and Chicken Soup for the Soul TV Group subsidiaries have been actively acquiring and producing original content to bolster its streaming offerings.
As of the most recent quarter, the company had $4.6 million in restricted cash. The company’s HPS credit facility includes an $80 million revolving credit facility, of which $97.3 million was drawn as of the most recent quarter. The company’s current ratio and quick ratio both stand at 0.30, indicating significant liquidity challenges.
Due to the company’s significant net loss and negative equity position, the debt/equity ratio is not meaningful. This further underscores the company’s precarious financial situation and the urgent need for strategic financing initiatives.
Recent Developments
The company’s challenges have continued in 2024, with the company defaulting on its 9.50% Notes due 2025 in April 2024. The company is currently in discussions with the trustee and holders of the notes to resolve the default. Additionally, the company has received a delinquency letter from Nasdaq, informing the company that its securities may be delisted from the Nasdaq Capital Market due to the late filing of the company’s 2023 annual report.
Strategic Initiatives and Outlook
Despite these obstacles, Chicken Soup for the Soul Entertainment remains committed to its strategic vision. The company is actively pursuing various financing initiatives, including the sublicensing of content assets and sale-leaseback transactions, to improve its liquidity position and address its debt obligations. The company has also implemented cost-cutting measures and is exploring strategic alternatives to enhance shareholder value.
The company operates across three main business segments: VOD and streaming, retail, and licensing and other. The VOD and streaming segment encompasses the company’s three flagship AVOD streaming services – Redbox, Crackle, and Chicken Soup for the Soul. These services generate revenue through the sale of advertising inventory on their AVOD and FAST platforms, as well as through TVOD sales and licensing deals with third-party streaming platforms.
The retail segment is primarily driven by Redbox’s physical media rental and sales business. However, this segment has been significantly impacted by the decline in physical media consumption, with rental volumes decreasing 52% year-over-year in Q1 2024 due to a lack of new theatrical releases available to stock the kiosks.
The licensing and other segment encompasses the company’s content distribution and production activities. In Q1 2024, licensing and other revenue decreased 96% year-over-year, primarily due to the lack of major library licensing deals compared to the prior year period.
Management believes these results do not represent the future potential of the business, and they are actively pursuing strategic financing transactions to improve the company’s liquidity and allow it to better serve its customers and suppliers. However, the company’s small size and lack of international diversification present additional challenges.
In summary, Chicken Soup for the Soul Entertainment has undergone a transformative journey, expanding its reach through the Redbox acquisition and diversifying its streaming offerings. However, the company has faced significant financial and operational challenges, leading to net losses, negative cash flows, and liquidity concerns. The company’s ability to navigate these obstacles and execute its strategic initiatives will be crucial in determining its future success. The overall financial performance and outlook for CSSEP appear quite negative based on the current information, and the company faces a critical period as it seeks to address its liquidity issues and return to a sustainable growth trajectory.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.