Heat Turned Up On Chicken Soup For The Soul; Shares Of Redbox And Crackle Parent Plunge 40% On News Of Capital Raise, Q4 Red Ink
Chicken Soup for the Soul Entertainment’s stock plunged more than 40% in early trading Friday after the parent company of Redbox, Crackle and Screen Media announced a capital raise and reported fourth-quarter net losses.
The quarterly red ink had been expected, but the more surprising news was a $10.8 million common stock equity offering, including $3.8 million from corporate parent Chicken Soup for the Soul Holdings. The capital raise is designed to help the company navigate a challenging period. The offering was disclosed Thursday, but not its pricing, as the company decided to postpone its earnings release and conference call with Wall Street analysts.
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Those moves had sent shares tumbling in after-market trading Thursday, and that trend continued into Friday’s regular session, with the stock falling below $1.90 to an all-time low. CSSE went public on the Nasdaq in 2017 after the company known for its best-selling line of self-help books decided to launch an entertainment arm. In the years since, the company has pulled off a series of deals to acquire control of Crackle from Sony and bring aboard Redbox and Screen Media.
Deadline reported earlier this month about the company’s plan to renegotiate certain distribution deals and defer executive bonuses from March until the second quarter. The company has cited pressure from the lack of major movie releases coming through the Hollywood pipeline as studios continue their recovery from Covid. A lack of tentpoles is crippling to Redbox’s rental business at its 34,000 kiosks, as well as its online transactional business. CEO Bill Rouhana noted that there were only three major releases in rental windows from August 2022 to February 2023, though he estimated there will be 55 for the full year, or more than one big movie a week. “The floodgates have opened,” he said on the earnings call.
Revenue in the fourth quarter reached $113.6 million, edging analysts’ consensus forecast, but net losses of $2.70 per share were twice as wide as Wall Street expected. On a non-GAAP basis, the company posted earnings of 70 cents a share, compared with losses in the year-ago period of $1.36.
Rouhana said the integration of Redbox, in addition to its woes related to Covid, had squeezed overall operations. Chicken Soup had 170 employees at the start of 2022 and ended the year with about 1,300 due to the $370 million, all-stock acquisition of Redbox, which closed last summer.
Rouhana maintained that Chicken Soup would reach its financial goals even if Redbox’s rental business returns to merely 30% of its pre-pandemic level. A target of $41 million in cost savings has been achieved, he said, and has potential to go higher this year.
As far as the capital raise, Rouhana described it as a prudent step and it comes amid a much broader rethink by companies across the media sector, even though the market appeared to disagree in the early going.
“It’s a moment in time for everyone in our industry where people are attacking questions of cost, questions of content spend, questions of working capital and questions of capital on the balance sheet,” Rouhana said. “We’re not just doing one thing, we’re doing many things, all of which are designed to drive cash flow faster and to improve the overall capital of the business.”
For the full year in 2023, the company expects to take in $500 million in revenue and post adjusted EBITDA of between $100 million and $150 million.
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