Chicken Soup for the Soul Entertainment, Inc.
Q2 2019 Earnings Call Transcript

Published: 15 Aug 2019

[Operator:]

Hello and welcome to the Chicken Soup for the Soul Entertainment’s Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this call is being recorded.It is now my pleasure to introduce James Carbonara of Hayden IR.

[James Carbonara:]

Thank you, and welcome. With me on the call today are William J. Rouhana, Chairman and Chief Executive Officer; and Chris Mitchell, Chief Financial Officer to review results of the second quarter as well as a business update and an update on the Crackle Plus joint venture. 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. These statements are based on the current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release which also applies to the content of this call.As a reminder, on May 14, 2019 Chicken Soup for the Soul Entertainment completed the joint venture with Sony Pictures Television launching Crackle Plus. On today's call, management will make comments on certain GAAP-based and non-GAAP pro forma financial information of the combined company that includes Crackle’s financial results for the relevant periods prior to the Closing Date, as if the acquisition occurred on January 1, 2018.Please refer to the Company's recently filed amendment number one to the current report on Form 8-K/A filed with the Securities and Exchange Commission on July 30, 2019 for further details. If you had not had chance to view this Form 8-K now it would be good time to review it.I would now like to turn the call over to William Rouhana, Chairman and CEO. Bill. Please go ahead.

[William Rouhana:]

Thanks James. Good afternoon, everybody and thanks for joining us today. We had an incredibly productive and busy quarter as we completed our joint venture with Sony creating Crackle Plus, which is the name of our online networks business which includes Crackle, Popcornflix, Truli and Pivotshare. And in our financial statements, the results of Crackle Plus are listed as online networks.So in addition to completing our joint venture, we implemented our plan to operate Crackle profitably and to generate cash flow from this division. And I'm going to go through the details of the results of that implementation in a minute.With the scale of Crackle Plus we now have new ways; we can generate revenue, reduce risk and increase profitability. And more on that later. Now a bit about the implementation of our plan.Before we entered the joint venture with Sony, which officially closed on May 14, we had already identified a number of opportunities and cost savings -- for cost savings which enabled this very smooth integration.As a result and as detailed in the 8-K/A filed on July 30, that James mentioned earlier, and that we will required to file the SEC, we have streamlined the organization eliminating approximately $65.3 million in total annualized costs on estimated pro forma 2018 net revenue of $92.6 million.As a result and as expected Crackle Pus was EBITDA positive for us in the second quarter even with just 45 days of control. And we believe the profitability of this unit will grow in the future.The four key areas we identified to reduce costs and improve margins were in technology, marketing, content and SG&A. Let me break this down further. In cost of goods sold, we managed to get technology cost decreased from $18 million annually to about $5 million, as a result of working with Sony to consolidate technology costs onto Sony shared platform.We also replaced fixed fee content agreements with revenue sharing agreements between Crackle Plus, CSSE, and Sony. In marketing, we excluded Sony's marketing agreements from transferred assets, thereby freeing ourselves from their marketing commitments.We are utilizing our owned and operated networks and brand-related social media as a more cost effective means of marketing. In addition, we have received substantial marketing commitments from our platform partners which we will use in the near future to drive growth.In content, we now have access to the Sony library on a revenue shared basis pursuant to a Master agreement as compared to the previous approach which included substantial guarantees for the acquisition of content.In addition, the thousands of hours of television and film rights that we have in screen media and in Chicken Soup for the Soul Entertainment are also being made available to our online networks business.An interesting side note is that since we have acquired Crackle, we've been inundated with requests for major media companies and producers to exhibit their content on our online networks. And we have test screen media with the job of acquiring AVOD rights across the industry.In the SG&A area, duplicative roles in the operations teams were eliminated and we eliminated Sony's corporate overhead allocation expenses not applicable to the Crackle Plus business. These measures resulted in estimated pro forma SG&A annual cost reductions of $35.6 million.To provide some context to all of these numbers; on a pro forma net revenue of $92.6 million for 2018, we would have generated GAAP EPS of $0.02 per diluted share versus a reported loss of $0.16, and our adjusted EBITDA would've been slightly more than $25 million, all as outlined in the 8-K/A.When we released our first quarter results, we provided you to look at the results of the combined companies as though we had achieved our operating plan in the first quarter of 2019.The combined entities generated net revenue of $17 million, operating profit of over $987,000 and adjusted EBITDA of $2.4 million. While we haven't provided the same pro forma detail in our press release and thank you for the second quarter, because we actually include half of quarter Crackle and the real numbers.When we look at the second quarter, the pro forma Q2 revenue would have been over $21 million. And the pro forma adjusted EBITDA calculated using the methodology in our 8-K/A combining it with the actual results and looking at it the way we did in our last release would have approached $3 million.Now shifting gears to actual second quarter results for 2019 filed today in our 10-Q. As I stated in our previous call, we expected reported second quarter results to be much better than the actual first quarter results.And as you could see from today's reported results, second quarter revenue and adjusted EBITDA grew significantly year-over-year and sequentially. Giving that, we only have 45 days of Crackle in the quarter, we anticipate that the third quarter results should be stronger than the second quarter with a full 90 days of operating Crackle.Second quarter net revenue was $12.2 million, which is a record quarter for us and adjusted EBITDA was $1.3 million. Chris will go into more detail about all of this shortly.Let me talk to you little bit about our three business areas; I'm going to begin with online networks. The scale of the combined organization we now have is attracting increased interest from advertiser's increased upfront deals and not surprisingly strategic partners.We are now one of the largest ad supported networks in the industry and have solidified our position as a leader in the high growth AVOD business. We've created a unique model with advantages that will allow us to continue to expand this business.For the combined audience of nearly 10 million monthly active users on our owned and operated networks, plus millions more on our ad rep network. We see a path to profitable growth. We're going to begin sharing some new key metrics that we believe are more valuable to our shareholders and potential investors.Even though many of our competitors in the industry are focused on monthly active users, the number of users does not directly translate to revenue, which is why we are now focusing on registered users, managed stream and ad impressions served, each of this directly relates to revenue and profitability.In the second quarter, we had over 2.6 billion minutes streamed on our online networks. We had 680 million ad impressions on our owned and operated networks and our average eCPMs were $19.We have a world-class group of advertisers that are serviced by our first-class sales organization including companies like Chrysler, Facebook, Geico, Lexus, Unilever, the U.S. Army and Verizon.We have significant upfront commitment sign and expected from advertisers and agencies approaching $70 million for this year and next. And then of course we have scatter and programmatic ad revenue as well.All of this is made possible by our over 26 million registered users, our over 46,000 combined hours of programming, our 90 content partners, partnerships on our combined VOD services and the demographic composition of our audience. Our audience gender skew slightly male. Over half of our viewers have household income in excess of $60,000. And the age of our viewers ranges from 18 to 65, and a surprisingly evenly distributed across the years.Moving to our content strategy, the vast majority of our content for the online network business has now made available to us on a revenue-sharing basis. This reduces our costs. There was an interesting statistic from Nielsen and the Hollywood reported last month that pointed out that viewers spend the majority of their time watching library titles on Netflix rather than Netflix originals. In fact, it's a 70/30 split, library to originals.Through the Crackle Plus joint venture, we have access the Sony library, which I'm sure you can imagine is quite large. As well as thousands of titles from our screen media library and contracts with other major content providers like Paramount.In further, of the expansion of our library titles, we've charged screen media with the job of acquiring AVOD rights from across the media industry. In just two months we have finalized 13 agreements and have over a dozen in deal memo stage which all together include thousands of hours of programming.We've initiated conversations with over 70 media companies including some of the world's biggest. We've develop the plan to continue to have exclusive and original content available on our online networks and we will do this by utilizing our distribution and production business to obtain AVOD rights on a favorable basis as we've always said.The couple of examples may help explain this. We have now decided to release Going From Broke, the Ashton Kutcher executive produced series as an original on Crackle and Popcornflix this October. This will make an original series available exclusively to our online networks that is been fully funded by sponsors.In November, we will make The Man Who Killed Don Quixote available exclusively on our VOD network. This is a Terry Gilliam film 20 years in the making with a passionate Monty Python following.We chose the timing of this release to coincide with the new Star Wars release since Adam Driver stars in both films. We have already recovered much of the cost of this film from release and other media. We expect to be able to repeat both of these models time and time again.Turning to our other business areas, we'll start with television and film distribution. By the end of Q2 we had released 12 titles. We have upcoming film releases such as Corporate Animal starring Demi Moore and Ed Helms in September, Cold blood starring Jean Reno, Memory Origins of Alien in October which is a documentary of the sci-fi classic alien that is celebrating its 40th anniversary this year.Crown Vic in October which was produced by Alec Baldwin and stars Thomas Jane. The action thriller Grand Isle starring Nicolas Cage and Kelsey Grammer in December and some others. The acquisition of these films further supports our efforts to acquire content cost-effectively and most will be made available on exclusive basis on our owned and operated networks.We expect the impact of these films and other film acquisitions we currently have in the pipeline to increase second half revenue and EBITDA and expect overall that screen media will perform better than last year.On the flipside, our content acquisition efforts at screen media are enhanced by our ownership of our online networks. As we are one of the few places producers can go to obtain meaningful AVOD revenue for their films and TV series.In television and short form video production, we began production on the second season of Chicken Soup for the Soul Animal Tales. Our business model for this segment is to limit operational and financial risk by producing content once we have secured sponsorships or commitments that exceed the production cost.This strategy generates a reliable pipeline of content for our online network business with minimal financial risk. We currently have 13 series in various stages of development with full or partial sponsor commitments on many of them.We are deliberately moving slowly in this area as it is our preference to develop separate production entities and partnership with major producers designed to feed our screen media and online network businesses. We feel this structure gives us the ability to scale more quickly with limited risk.We are following the pattern established by other major media companies by allying ourselves with talented producers to accelerate production activity, and we will not only continue to cover non-scripted programming, but we will use these vehicles to begin to facilitate production a scripted series and films.We plan to do this by creating entities which we will help seed finance and exchange for distribution rights for screen media and online networks. The net effect will be that we will use our distribution capability to facilitate the creation of more production with less risk while we retain partial ownership of content that is produced.All of this is only possible because of the acquisition of Crackle which gives us an ability to guarantee a certain amount of AVOD revenue for productions to be created by these entities. This will also increase the flow of product for screen media.The Crackle Plus division remains our primary focus given its ability to drive revenue and profit across all our business areas. Crackle sales force is a solid pipeline, great relationships and they are doing a wonderful job in discussions to add new ad rep network partners and sponsors.The Crackle Plus joint venture has positioned Chicken Soup for the Soul Entertainment as a leader in the AVOD space and allows us to effectively tie all of our operating areas together.One final thought about the AVOD business. The common misconception is that the OTT space is dominated by subscription-based players, but a recent Parks Associates report pointed out that SVOD revenue only makes up 46% of the OTT market. AVOD currently holds 18% of the market and that number is growing and growing quickly.Interestingly, an IAB report indicates that 45% of the people who watch streaming television watch and supported OTT most of the time. There are now connected TVs in over 97 million households in the country. The result of all of this is that ad spending in the AVOD OTT space is estimated to have increased 54% from 2017 to 2018 and by another 40% from 2018 to 2019.All of which explains why we are so excited to be a key player in the space, and while will continue to add tuck-in acquisitions continue to grow our VOD offerings with the goal of significantly growing revenue and profitability from this area next year.With that, I'll turn the call over to Chris Mitchell, our CFO to review the reported second quarter financial results. Chris?

[Chris Mitchell:]

Thank you, Bill. We delivered on our expectation to significantly increase revenue in the second quarter. Total revenue for Q2, 2019 was $12.2 million compared to $3.2 million last year. The increase was primarily the result of adding 45 days of Crackle results.Online networks which again includes the Crackle Plus joint venture generated $10 million in revenue in Q2 2019 compared to $899,000 in year ago period.Television and film distribution generated revenue of $2 million in Q2, 2019 compared to $2 million in Q2, 2018. Television and short form video production generate revenue of $227,000 in Q2, 2019 compared to $230,000 in Q2, 2018.As Bill said, we have finally settled network release for going for Broke for October on online networks and we are still working on how we want to release the fourth season of Chicken Soup for the Soul's hidden heroes.We believe we can get significantly more viewers by streaming on our online networks as opposed to airing on cable and thereby generate more revenue from these series. For CSSE as a whole, gross profit for the quarter ended June 30, 2019 was $3.6 million or 30% of total revenue compared to $1.2 million or 39% of total revenue in the year ago period.Operating loss for the quarter ended June 30, 2019 was $3 million compared to an operating loss of $1.6 million for the year ago period. Without the non-cash charges -- without certain non-cash charges operating profit would've been $500,000. Adjusted EBITDA for Q2, 2019 was $1.3 million compared to $212,000 for the year ago period.Turning to our balance sheet at June 30, 2019, the company had cash and cash equivalents of $5.2 million compared to $7.3 million at December 31, 2018. We had outstanding debt of $7.1 million at June 30, 2019 compared to outstanding debt of $7.6 million as of December 31, 2018.It probably makes sense to take a few minutes to review the balance sheet in light of the Crackle joint venture closing. Our total assets increased to $157.7 million and our network increase to $113.7 million, which interestingly exceed our current market value.Finally, I should mention Crackle is now generating positive cash flow. We have filed a registration statement for a small CSSEP referred stock offering and also expect to close a $16 million credit facility next week.I'll now turn the call back over to Bill.

[William Rouhana:]

Thanks Chris. Operator, we'll take questions.[Operator Instructions] And our first question comes from the line of Dan Kurnos with the Benchmark Company. Your line is now open.

[Dan Kurnos:]

Great. Thanks. Good evening. Nice start, Bill with the Crackle here. Couple of questions, just a clarification obviously do people understand just looking at the pro forma numbers that we all have. Just wanted to be clear here Bill, the 92.6 and the 25 that you quoted. Those are clean the posts pulling out the non-profitable revenue contracts or having realigned your contracts? That was the baseline that you set in 2018 is that correct?

[William Rouhana:]

That is correct.

[Dan Kurnos:]

Okay. So, a couple of things here just one point I wanted to touch on that you made your prepared remarks just around still focusing on production as a funnel for content. I want to get sort of a sense from you on how much of the content over time do you think you own versus license and given some of the changes that we seen in the marketplace obviously the consolidation notably yesterday afternoon with Viacom and CBS; does that impact your ability to do rev share deals. How long are those deals and how you think that impacts the marketplace?

[William Rouhana:]

Yes. That's a complicated question you just asked Dan, but that's enterprising. Obviously we're watching what's going on in terms of consolidation our space like everybody else. What's interesting to me is that in the first 45 days that we've owned Crackle, we had over 70 incoming requests for showing people's content on our networks. And these are --some of these are major, major media company. So I don't think that we are going to see any near term difficulty getting access to content on a revenue share basis.Over the long term, that may not even be the best strategy for the business once we have built enough critical mass so that we know precisely what we will generate from specific shows. And we obviously have the data now that we will start to watch very carefully to see what a typical show generates. For example, going from Broke, the reason that we elected to put it on Crackle is when we looked at the numbers, there's a good reason to believe we could generate a couple of million plus dollars of revenue from exhibiting it on our owned and operated networks whereas we would not have gotten as much for that on a cable network.So there are -- there is a point at which owning the content is of course advantageous. Right now I think the ability to do these rev share deals is abundant, it's plentiful, we can do them and they're the right way to go. So you asked another question looking in there, which is really what's the value? What's going on in terms of the value of these streaming media properties? I noted that when CBS and Viacom made their announcement and they said they weren't going to buy anything else, they specifically accepted from that statement streaming video and direct to consumer products, because we are in the part of the industry that people absolutely need to figure out how to get into. And we're seeing that through the way which we've been approached by people since the date of the closing. So it's quite clear to me that we are in the right place. And exactly what that translates into strategically I think is a very interesting and open question.

[Dan Kurnos:]

And then the question just originally on sort of your balance of preferred of owning versus licensing, how that kind of -- how you expect that to be right now in terms of a percentage? And then, maybe it is unfair to ask but since you kind of just opened the door to it your willingness to implement either pay walls or gates, do you need to still scale up significantly more to get there? Or do you have kind of a freemium plan laid out or ad supported to pay channel?

[William Rouhana:]

No. I think there is no there's no freemium plan. I don't think we'll put up gates. I think we'll grow on really AVOD business as quickly as possible. That's to me the best use of our time. Through these tuck-in acquisitions I've talked about before, the split of content, I think it's going to be overwhelmingly rev share and library content for quite some time. That's one of the reasons I mentioned the 70/30 split on Netflix even today. I don't know about all of you. But I found that interesting, it wasn't intuitively obvious to me that 70% of the viewing on Netflix is still the old library stuff. So there's still -- there's a big appetite for that kind of content. We have access to tons of it. And I think that's the right way to build the business right now.

[Dan Kurnos:]

Got it. Thanks for the color, Bill and good luck.

[William Rouhana:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Austin Moldow with Canaccord. Your line is now open.

[Austin Moldow:]

Hi. Thanks for taking my questions. I wanted to lead off with one kind of a two-parter about your ad sales strategy. If you can just sort of talk through with a few more specifics about how you view your ad sales between direct and programmatic and sort of as a corollary to that your ECM sounded pretty high which is great. Wondering if you can give color on why you think it is high? Thanks.

[William Rouhana:]

Thanks for that question, Austin. That's a good one. We are overwhelmingly direct sales and what we call resellers, and language being a barrier to understanding in this particular business with people using different words to mean different things, to mean the same thing. Let me try to explain what I'm talking about. As I listed in the -- in my part of the presentation we have direct selling relationships that go to those who of American corporations, but we also work very closely with companies that have major local sales forces to give them DMA specific targeted viewers that they can advertise -- that they can sell advertisements to.And so we have two ways we do what you would call direct selling ourselves and through very targeted local sales organization. Some of these are the biggest companies in our industry who have a need for more local ad inventory. And because of that we do almost no programmatic ad sales. That to me is a key differentiator between us. First our and others. Our ability to do those local sales and secondly, the fact that we between the local sales and the direct sales to major national companies we have an ability to sell the vast majority of our inventory and more. That directly translates into the $19, just so you know. And we are not finding -- we're not trending down the way programmatic ad sales are trending.

[Austin Moldow:]

Got it. And as a follow-up, do you then sort of push back on what the industry or the ad tech industry generally talks about with programmatic of it being sort of more efficient, higher ROI, better targeting and sort of you know if you look out a long time that's where the majority of ad sales is going to go?

[William Rouhana:]

So, I think there's a couple of different ideas lurking there. So let me let me pass the question. In terms of efficiency when one -- there's a couple of things about efficiency. One is reaching the right customer. One is having an ease of ability to actually deliver your ads. So we do allow our direct sales customers to use programmatic delivery in order and not have them have additional headcount in order to actually implement their ad their ad buys with us.But the second part of the question which is better targeting which is the argument that the programmatic guys make, you can achieve in more than one way. And we have more than 26 million people who have are registered users of our -- on our networks, which gives us information about those people that most -- I think I daresay none of our competitors actually have, except if they use programmatic ad type selling. So we've created an opportunity for ourselves to have a higher value customer through the registration of our customers. This is a relatively unique position we're in.

[Austin Moldow:]

Got it. And maybe the last question if possible. What kind of information exactly are you talking about? With your registered users and do you view it as any kind of friction point to require what sounds like maybe a more in-depth registration process?

[William Rouhana:]

Yes. I think naturally enough, our apps have been downloaded a 127 million times and only 26 million, I say only. Only 26 million people have actually registered. So one out of five people are registering not four out of five, but nevertheless 26 million registered users is larger than any of the viewer counts you've heard from anybody else in the industry. It's larger than Pluto, it's larger than Tubi, not larger than Roku, but it is a very larger number, and so we have a built in base there. People have taken the time to register and around whom we can give better data. I am not going to tell you all the data that we have because I don't want anyone to know.

[Austin Moldow:]

Fair enough. Well, I really appreciate the color. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Allen Klee with Maxim Group. Your line is now open.

[Allen Klee:]

Yes hi. First off, can you tell us how much of preferred you had outstanding as of the end of the quarter?

[William Rouhana:]

$30 million roughly, Allen.

[Allen Klee:]

Okay. And then another question is more like strategic -- theoretical I guess, but within -- where you have libraries, where you have your movies and your TV shows, how do you think about the economics of the return you generate from that if you also factor in how much you feel you need to spend on new content to just as a cost of doing business?

[William Rouhana:]

I'm not sure I really understand the question. So help me a little bit.

[Allen Klee:]

I'm trying to understand it can have good margins, but then if you like some -- like the streaming guys that are in a content war. None of them are making money because they're spending so much always on new content and how do you say that-- how do you think about that or maybe how you're different than that?

[William Rouhana:]

Okay. That helps. When I was talking about facilitating the creation of these production entities that I mentioned in the last part of my talk, but I was really talking about was trying to use the fact that we have access to AVOD revenue which is something that scarce for producers, because if you're a producer today, where do you go to generate a VOD revenue. You're not going to go to Pluto because that's owned by CBS Viacom. You could go to the and go to us and really that's about as many good places as you have of any scale, because every bit of revenue matters when you're making content.The fact that we're a gatekeeper to one of the key places that one can get a return and the fastest growing portion of that -- of the possible return, areas of return makes us a critical place for people to get access to. That gives us an ability to become a distributor vis-à-vis content rather than to have to pay the cost of it. And to you and to basically work off of other people's equity, in other words get the benefit of the last guy in and the first guy out as financial people liked to think about things.That gives us very high returns because we're putting up a small percentage of the overall cost of content and getting a disproportionate share of the upside through our distribution fees and our use of the content on our networks. We didn't invent this. This is what major media companies have done for years and years and years. So we're just taking that approach rather than saying we're just going to make all this stuff pay out a percent of it the way the streaming guys are doing right now which I'm not entirely sure I understand why they're doing it, but they're doing it.I see this as a better way to facilitate content and by allying with major producers and we'll tell you about these people in the future as we finalize these arrangements. We're going to be able to do both scripted and non-scripted programming in an advantageous economic way and have a very high return on it.

[Allen Klee:]

Thank you. My last question is of the five TV series that you've talked about historically and that are in your 10 Q Do you expect all five of them to go into production and generate revenue in 2019?

[William Rouhana:]

No. I don't expect all five of them to go into production in 2019 I really don't know yet what's going to go into production in 2019, because I'm more focused on creating the ability to produce much greater amounts of content through these two vehicles I've been talking about. And I'm saving some of the rights that we have and some of the information we have on the -- some of the relationships we have in the 13 series that we already have in development to try and put them into this new, into the unscripted portion of these new companies.

[Allen Klee:]

Okay. Thank you. Good luck.

[William Rouhana:]

Thanks Allen.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from the line of Jon Hickman with Ladenburg. Your line is now open. Pardon me Jon. Please check your mute button.

[Jon Hickman:]

I'm sorry. I'm here. Can you hear me now?

[William Rouhana:]

Yes, Jon, How are you?

[Jon Hickman:]

I'm good. Sorry.

[William Rouhana:]

Okay.

[Jon Hickman:]

I was just wondering if you could comment a little bit on. So I know you have the preferred stock that you can use from time to time, but how do you -- like how are you feeling about your overall balance sheet at the moment assuming you want to continue to do tuck-in acquisition?

[William Rouhana:]

Yes. I'm feeling good about my overall -- our overall balance sheet as Chris pointed out. We've grown it considerably that net worth is now over $113 million and neither of us could resist the -- pointing out that it was that our net worth is higher than our market cap. But our business now is cash flow positive. We are going to finish off this little bit of prefer that we have left up to offer and we're going to enter into our new bank agreement. I think both of those things will be done in the next week. Between the combination of cash flow and those things we're in pretty good shape for the foreseeable future.As far as the acquisitions go most of the tuck-in acquisitions we're looking at, Jon, actually pay for themselves. And the primary reason for that is because we're buying guys who are getting $8 or $9 CPMs. Austin's comment earlier about $19 being a good number. I know why he said that because we know that the programmatic number for some of the smaller guys can be $8 to $9. But if we buy $8 or $9 CPM businesses move them onto our platform and get $19. You can see there's a lot of room for a very profitable arbitrage there, which is immediately cash flow positive and which essentially could pay for itself.So that's really the way we're -- the deals we're negotiating right now our structure. They're self-funded and they are profitable from day one because of that arbitrage among other things and there are quite a few of those out there. The bigger ones, if we want to do another big one like a Crackle obviously we'll be looking at those. But there I mean we'll probably make life more complicated again because we're unlikely to do that as a straight away acquisition. We're much more likely to find a way to deliver value to somebody other than just money. I mean that's been our way of doing things as you know.

[Jon Hickman:]

So could you just a couple of numbers. How many direct sales guys do you have on the ad side?

[William Rouhana:]

20 plus.

[Jon Hickman:]

20 plus. And what's the overall employee count now with Crackle in there?

[William Rouhana:]

It's about 90 direct employees in entertainment.

[Jon Hickman:]

Okay. Thank you. Appreciate it. My other questions were asked and answer.

[William Rouhana:]

Thanks very much. Thank you all for joining us today. Operator, I think, as far as I can tell we're done.

[Operator:]

Correct. Ladies and gentlemen that wraps up the question and answer session. We'd like to thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.