Chicken Soup for the Soul Entertainment Inc (CSSE) Q3 2021 Earnings Call Transcript

Chicken Soup for the Soul Entertainment Inc (CSSE -38.87%)
Q3 2021 Earnings Call
Nov 08, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Chicken Soup for the Soul Entertainment third quarter 2021 earnings call. [Operator instructions] I would now like to turn the conference over to your first speaker Mr. Taylor Krafchik, Ellipsis IR.

Please go ahead sir.

Taylor Krafchik -- Investor Relations

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 third 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 September 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.

Bill Rouhana -- Chairman and Chief Executive Officer

Thank you, Taylor. Good afternoon and welcome to our third quarter 2021 earnings call. I'm going to provide some highlights from the quarter and update on our progress, our overall strategy, as well as some details on some key areas of focus as we head into the final quarter of the year. Chris Mitchell will then do a deeper dive into our financials.

We delivered a strong quarter with record all-time revenue and the second-best adjusted EBITDA performance in our history. In this case, I like second best because we're about to enter our seasonally strongest quarter Q4. Our results show that our momentum is continuing to build and that our strategy is working. That's borne out across our strategic initiatives from the differentiated programming we are delivering through both our originals and exclusives and our rapidly growing library to our growth in viewership, driven by rapid expansion of our network distribution, to the innovative formats we are delivering to advertisers, and finally, our execution on improving our technology which we believe is also helping improve viewership.

I'll talk about all this progress we've made in a bit more detail. But before I do, I want to mention that our momentum has so far continued into the fourth quarter. And financially, we're poised to deliver an excellent finish to the year. We're also accelerating our growth strategy as illustrated by several important announcements we've made in the last couple of days and these include the launch of the Chicken Soup for the Soul streaming service, the launch of our Chicken Soup for the Soul Television Group, which consolidates our studio and distribution activities under the leadership of David Ellender, including Locomotive, our recently acquired company in India, and the retention of Michael Solomon, a prolific global television distribution executive, who is joining us as a strategic advisor in building our business.

Additionally, since quarter end, we've completed the rollout of the new Popcornflix app on all services but more about that later. We're very excited that we about what we can achieve as we look to 2022 and beyond. But first, let's review what's got us here. Third quarter net revenue was $29.1 million, up approximately 50% on a year-over-year basis and 34% on a sequential quarterly basis.

Earlier this year, we moved to reporting on a net basis. And while we're not calling out that adjustment regularly, I do want to mention that this quarter our gross revenue figure was $29.6 million, which was in line with expectations. This record revenue for our company and I believe this is record revenue for our company, sorry. And I believe that approaching $30 million of revenue in the quarter that is usually seasonally weaker bodes well for our future revenue potential.

Revenue is being driven by continued ad inventory sellout supported by strong demand for our original content and coupled with our growing content library. Adjusted EBITDA was $4.9 million, up 17% year over year, reflecting the increasing scale of our business and our cost-efficient production and distribution model, which we believe will continue to drive margin expansion over time. This quarter's performance is especially noteworthy in light of the adjusted EBITDA impacts of the significant investments we have made in expanding our streaming service distribution and creating our new tech platforms. These investments are clearly driving results and we expect to continue reaping the benefits of them.

Overall, this record quarter puts us on track to meet our full year revenue target with our seasonally largest quarter still to come in Q4. Looking at our Crackle Plus, AVOD networks. Recent research from Kantar shows that Crackle viewer penetration increased in Q3 to 4.5% of households, while overall industry penetration decreased and further that our viewer share compares favorably with a number of subscription streamers like ESPN+ and Discovery+. Four and a half percent may not sound like much to you but you might -- and you might be surprised JustWatch indicates that Apple TV has 4% penetration and Showtime 2%.

I've said many times that AVOD can compete with SVOD services and that we are working to build the best AVOD. When third parties are comparing or to SVOD offerings, I consider that a good sign. We think that's a testament to three things. First, the power of our original inclusive content.

Second, the hard work we've done to increase our distribution touch points, which as of this quarter had increased by yet another 13 touch points and we are averaging about 445,000 new monthly active viewers per touch point. And third, the launch of our new user interfaces for Popcornflix and Crackle, which Kantar pointed out, has already caused viewers to notice our improved ease of use and quality, resulting in an increase of almost 66% in our Net Promoter Score in Q3. In fact, our total owned and operated monthly active viewers were up 33% from a year ago, thanks to additional viewers from new touchpoints. The recent launch of our new crackle platform on VIZIO Smart TVs which will roll out to many of our other distribution touchpoints over the coming year has started well.

The old VIZIO app contributed 9.9% of our overall crackle viewership. The new VIZIO app contributes 13.9% of overall viewership, that's a 40% increase. Successful video playbacks increased on VIZIO from 83 and a half percent to 96%. This provides approximately a 15% lift in viewership in all situations.

It also makes our marketing campaigns 15% more impactful and efficient. VIZIO start times improved 42% as a result of the new VIZIO app, dropping to 4.4 seconds from 7.6 seconds, and it's even better on newer VIZIO models. Early data shows that the upward trajectory is accelerating in the fourth quarter. All of which bodes well for our goal of increasing overall viewer time meaningfully from our new user interface.

The relaunch of popcorn flicks with a new look improved user experience and a ramp-up and exclusive action adventure content has also gone well. The new Popcornflix is now available on Fire TV, Apple TV, Roku, Android, iOS and other platforms with enhanced app features new search, functionality and navigation, server-side ad insertion, and improved playback performance. The new Popcornflix is also off to a great start with viewer engagement up approximately 50% in September. In addition to these developments, the launch of our Chicken Soup for the Soul streaming service has begun.

This moment has been a longtime timing for our company. This new streaming service features a robust collection of the best in-home content that typically appeals to a female audience, including a significant portion of content acquired through the Sonar acquisition, as well as classic award-winning content that we've been creating for years of Chicken Soup for the Soul. We've launched the network as a fast channel, ahead of a full VOD launch, scheduled for December on VIZIO. And as illustrated in our press announcement, I'm especially pleased with the strong support from the broad group of partners who are getting behind this new streaming service with us.

Underpinning the success of all our networks is and will continue to be our differentiated content. In Q3, we continue to deliver new original and exclusive titles and to grow our library. Our new original and exclusive content continues to generate a significant portion of overall ad impressions and because we do not have to pay rev-share on this content, it will also positively impact our profit margins over time. For this reason, among many others, we are excited about the progress that we have made in just in the Sonar content onto our network since the acquisition.

This content has been performing extremely well and driving significant ad impressions. In fact with the addition of Sonar's content, we've already surpassed our year-end original and exclusive ad impression target which was 20%, hitting 22% in September. One early example of content success in this area is Taboo, the hit FX series that successfully premiered exclusively on Crackle in September and has been seeing a strong initial performance is the number one content on several of our fast channels. Also, The Temptations, which is a two-part mini-series and the first piece of content from Sonar to migrate over to Crackle has also seen initial success after shooting to number one on the Crackle network in its first three weeks.

So let's turn to our coming attractions. As I've noted on previous calls, our plan is to roll out a new piece of original and exclusive content every week in 2022 and we remain on track to meet that goal. We provide this content to all three of our streaming services. In fact, we are already making this move on Popcornflix having just announced the rollout of the first original and exclusive program for that streaming service an action-packed original documentary Hollywood Bulldogs that tells the story of British stunt performers who dominated Hollywood in the '70s and '80s.

In addition, Screen Media has acquired several star-studded films over the last few months. Brian Wilson a deeply personal documentary about the genius behind the Beach Boys that premier to rave reviews of the 2021 Tribeca Film Festival. The show features an original song by Wilson for the film along with interviews from Bruce Springsteen, Elton John and more. And most recently Fast Charlie, a thriller starring Pierce Brosnan and directed by Phillip Noyce who directed Salt and Clear & Present Danger among other great action films.

It's a story of Charlie Swift, who has worked for an aging mob boss Stan for 20 years and is skillfully operating as a prolific fixer and efficient hitman. Incidentally at the AFM, we laid off about 75% of the cost of that film in five days in foreign presales. Our continued focus on delivering compelling content combined with our growing viewership continues to drive strong interest from our advertisers with our ads once again sold out in the third quarter. As you know, we believe to build the best AVOD we need to enhance the mix of ads over time and create a combination of today's ad formats with integrations, sponsorships, and interactive ads.

We believe that this approach will generate more revenue and result in a better user experience. In Q3, we had the other two examples of our innovative integrations with the general insurance company which was featured in 10 episodes of Inside the Black Box and Verizon, which is integrated into three episodes, and Smart Home Nation. Our partners are thrilled with our increased ability to target specific audiences and present the benefits that they provide to customers in real-life stories. We are now in conversations with a growing number of advertisers on integration and sponsor opportunities that can increase their visibility with the right audiences, while also creating a more seamless experience for our viewers.

As we look to the future, international growth is a huge opportunity for us. And we believe we now have the assets to execute on that opportunity following the announcement of our partnership with Keshet in Israel in August, which gives us an opportunity to build our streaming services in that market. In late October we announced we acquired a majority stake in Locomotive global which currently produces series for Netflix and other premium platforms in India. India is a priority market for us given its size and the awareness of the Chicken Soup for the Soul brand in that market.

Locomotive has built a great business in India and has a keen eye for programming that resonates with local audiences. The acquisition gives us a profitable base to enter this key country. We expect there will be much more coming in terms of international rollout in the next few months. Our new television group, which is headed by David Ellender, the former CEO of Fremantle, is also a key piece of our overall ambitions.

The new Television Group consolidates our TV studio activity activities, including Halcyon, which was formed from the Sonar acquisition, Landmark Studios, the aforementioned Locomotive, and Chicken Soup for the Soul studios under one group. Under David's leadership, we will focus on expanding our original TV content development pipeline, increasing our IP rights ownership facilitating the launch of additional networks, and accelerating international expansion, which is a particular strength of David's. In order to further bolster our domestic and international TV efforts, we also added one more member to our team, as I touched on earlier. The addition of Michael Solomon, as a Strategic Adviser, provides us access to one of the most highly accomplished television production and distribution executives in the history of our business.

He will assist us in program and library acquisitions, coproduction financing and sales, and international joint ventures among other activities. We expect that he will be an invaluable resource, as we execute on our global AVOD rollout. Looking ahead, we feel great about Q4 and our outlook for the full year and we're already preparing for a much bigger 2022. We've made tremendous strides this year in increasing viewership, building advertising relationships, improving our viewer experience, and growing our content asset and production output.

And we positioned the company to begin executing on an exciting international growth opportunity. Finally, we've strengthened our balance sheet, enabling us to better deploy our deal-making capabilities to further supplement organic growth. As we've shown with Crackle Plus, Screen Media, Sonar, and most recently Locomotive, we are adept at expanding our capabilities, content, and viewership through thoughtful acquisitions and partnerships that make strategic and economic sense. We've also shown that the confidence we have in our business, announcing today that our board authorized a $10 million common stock buyback.

With that, I'd like to thank the Chicken Soup for the Soul team once again for all their hard work and I will turn this over to Chris who will give additional details on the financials. Chris?

Chris Mitchell -- Chief Financial Officer

Thank you, Bill. As you've already heard our operational highlights, I will focus on a review of our financial results and balance sheet. Our financial results for the third 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 half of the year. Starting with results for the third quarter, we reported net revenue of $29.1 million compared to $19.4 million in the third quarter of the prior year, or an increase of $9.7 million or roughly 50% year over year.

This year-over-year increase in net revenue was primarily driven by an increase in licensing and ad sales. Gross revenue for the third quarter was $29.6 million. For the fourth consecutive quarter, we sold virtually all of our advertising inventory. Our strong viewership and high-quality content continue to attract advertisers and we're seeing larger commitments than ever before, while growing existing relationships and building new ones.

Additionally, we launched our new Chicken Soup for the Soul AVOD, which will expand our viewer demographic even further and provide yet another avenue for advertising revenue. Ad revenue was driven by further expansion of our original and exclusive content offerings, coupled with the continued innovation and enhancements we've made to the overall ad experience. Gross profit for the third quarter 2021 was $6.2 million or 21% of net revenue. This compares to $4.5 million in the same period prior year or 23% of net revenue.

Gross margin in the quarter reflects a higher level of distribution from streaming revenue and the significant investments in technology to launch the two new streaming platforms in addition to, the ingestion of the Sonar content on to Crackle. As Bill mentioned, our Sonar-related content has already begun to contribute meaningfully to an increase in original and exclusives as a percentage of total ad impressions in the third quarter which will translate into improved gross margins over time. Operating loss for the third quarter of 2021 was $13.3 million compared to an operating loss of $11.3 million in the year-ago period. In order to position us for accelerating growth in 2022, we deliberately ramped up investments in technology which I outlined earlier, and invested significantly in technology-focused employees to improve our streaming apps.

Further, investment spending was in the -- further investment spending was in the areas of marketing including spend on the VIZIO button, which we believe will drive benefits over an extended period of time and content acquisition to drive viewership. We also made hires in other areas of the business outside of tech, to support growth and we expanded our stock option plan to incentivize and reward our employees which increased non-cash stock compensation by $3.1 million in the quarter. Even though we invested more in technology employee compensation, marketing, and content, we were still able to bring down operating expenses as a percentage of net revenue to 67% in the third quarter versus 82% in the year-ago period. Our adjusted EBITDA for the third quarter was $4.9 million compared to $4.2 million in the same period last year, a year-over-year increase of roughly 17%.

The year-over-year increase reflects the increasing scale of our business and our cost-efficient production and distribution model which as Bill mentioned, we believe will drive margin expansion over time. Looking at our balance sheet and liquidity position as of September 30, 2021, the company had cash and cash equivalents of $66.9 million compared to $18.4 million at the end of the second quarter of 2021 and $9.2 million at the end of the year-ago period. Please note the closing of our common stock offering in July of 2021, which provides 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. Additionally, the company's board of directors today approved a two-year authorization for the repurchase of up to $10 million in Chicken Soup for the Soul Entertainment common stock.

The company anticipates that repurchase activity would be conducted opportunistically in open market transactions. The size of the authorization is intended to indicate the board's view of the value that the company is creating, as demonstrated by our financial results and strategic execution while also ensuring the company maintains capital flexibility to continue investing in high-return initiatives both organically and through enhancing acquisitions and partnerships. In closing, we're pleased with the continued momentum we saw in our business in the third quarter and excited the opportunities we see to build upon that momentum, as the final quarter of the year unfolds. We have the key pieces in place that will enable us to utilize our new content and production goals and accelerate our international expansion, which we expect will contribute to our financial results in an increasingly meaningful way as they develop.

Additionally, we focused on growing viewership and streaming revenue, with initiatives aimed at growing and enhancing content to drive viewership and improve 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 a strengthened balance sheet and liquidity, we are confident 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.

Bill Rouhana -- Chairman and Chief Executive Officer

All right, operator. We'll take questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Dan Kurnos from Benchmark Company. Your line is now open.

Dan Kurnos -- The Benchmark Company -- Analyst

Great, thanks. Good afternoon. Bill just two questions. First, I know that you went out of your way to say Q4 performing nicely.

Can you just talk about some of the diversified about upfront dollars getting pushed out of Q4 and into Q1? So just any thoughts there. And then in international, you continue to build out a really nice network. Maybe you could just I feel like I ask this every call, but maybe you can just help us sort of frame timing of investments against when we start to see some of the revenue coming in? And how material do you think that gets say this time next year? Thanks.

Bill Rouhana -- Chairman and Chief Executive Officer

I think I heard everything you said Dan. It seemed like you broke up a little bit on the first question. Did you ask me whether some advertising is moving from Q4 to Q1? Is that what you asked in the first question?

Dan Kurnos -- The Benchmark Company -- Analyst

Yes, I was just asking if you're signing noise with some of the upfront dollars if that diversifies?

Bill Rouhana -- Chairman and Chief Executive Officer

No, we're not seeing any of that. I don't know if others are but we're continuing to see really strong demand in Q4. We'll be waste all out again. But no real sign of anybody deferring, at least not from what we've seen.

I gather, I've been asked this question in a different context that because some of the advertisers may be having trouble because they have supply chain issues but we just haven't seen it. It just hasn't impacted us yet at all. As far as international goes, this is developing more quickly than I expected it to. We're in the middle of conversations, very advanced conversations from multiple territories around the world with meaningful companies and to be joint venture partners.

The Locomotive transaction will generate revenue some in Q4 and then a considerable amount next year. We like entering a market with making money. You know, how I am I like to make money, even as we're growing things. And that transaction is going to be accretive, very immediately really.

So I'm not quite ready Dan yet to give you a real – a complete view of next year or in particular, the international part of next year. I want to see -- I want to pin down a couple of these conversations we have going on. And if it falls into place, the way I hope it will, then it would be a pretty important part of next year. There's no question, this is a very big opportunity and it's going very well.

So there'll be more to talk about in the next little bit of time I would say.

Dan Kurnos -- The Benchmark Company -- Analyst

All right. Thanks Bill.

Operator

Your next question comes from the line of Thomas Forte from D.A. Davidson. Your line is now open.

Thomas Forte -- D.A. DavidsonAnalyst -- Analyst

Great. Thanks. So three questions. So Bill, first off, you sound very excited with good reasons, so I'm glad to hear that.

So the first question is, we'll go with baseball analogy. What inning are you in on improving your ad tech?

Bill Rouhana -- Chairman and Chief Executive Officer

One.

Thomas Forte -- D.A. DavidsonAnalyst -- Analyst

OK. Fair enough. Second, I don't want to make any assumptions, but I was curious given that's another hot topic for digital advertising, were you at all impacted by Apple and Apple's efforts to focus on consumer privacy?

Bill Rouhana -- Chairman and Chief Executive Officer

Yes. Not that we've seen Tom it -- we -- I mean most of where we interact with consumers on connected televisions and there's been no impact that we've seen from Apple on that. So I'd say no not really. It hasn't had any impact so far.

Thomas Forte -- D.A. DavidsonAnalyst -- Analyst

All right. Great. And then last question, this is somewhat a point of clarification. It sounds like, you said you're not seeing any negative impact as it pertains to supply chain and advertising, meaning advertisers who are having a hard time getting products or scaling back their ad spend.

One thing Roku mentioned is that the inflation in prices for televisions and then also supply chain issues for televisions were having a negative impact on Roku. So is that having any impact on you recognizing what you just said about supply chain and advertisers, but are inflation in TV prices and/or supply chain issues that may limit production of TVs having any impact on you?

Bill Rouhana -- Chairman and Chief Executive Officer

No not that I've seen. I mean, I am aware of what Roku said. I'm not entirely sure I understood it. But for us, we're not in the equipment business at all.

So there would be no way supply chain would directly affect us. It could have affected -- it might have affected some of our advertisers. But if you look at who advertises with us primarily, there's a fair large amount of it is healthcare kind of companies, insurance companies, digital companies. And they don't really have supply chain issues of their own.

Pharma, not really. Digital companies obviously not. So I don't -- we haven't seen we haven't seen advertiser pullback. And you may recall from the last quarterly report that we've added a pretty diverse group now of advertisers through the up-front, so that our top 21 or so advertisers really are -- they come from a whole variety of industries.

So there may be some impact that I haven't seen yet and maybe in the auto guys, but they're not a huge part. We're very, very diversified in our advertising base. There's very, very little dependence on any one group of companies in one part of the ecosystem. So haven't seen -- actually nothing other than increased demand and higher price, higher CPM prices I haven't seen any.

I was actually surprised by Roku's comment to tell you the truth. But maybe it's just their -- they were talking about their equipment. And I guess they're in the TV business too now. So that puts them in the supply chain of the sort.

So that's it Tom, I don't -- we just haven't seen it. It's just not....

Thomas Forte -- D.A. DavidsonAnalyst -- Analyst

Good. Thanks for taking my questions Bill.

Bill Rouhana -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Michael Morris from Guggenheim. Your line is now open.

Michael Morris -- Guggenheim Securities -- Analyst

Thank you very much. Good afternoon guys. A couple of questions. First, you mentioned or referenced this growth in original exclusive content to 22% of the ad impressions.

And I'm curious if you can help us at all size how big this portion of your business can be over time. And maybe give us some perspective on the relative advantage of the economic impact of this exclusive inventory compared to your inventory overall? And I guess maybe along those lines, you've announced that you made these structural changes in terms of consolidation of your TV production business. And I'm curious if you can share anything about what you think that means for volume of production or efficiency as you look forward, like where do you expect to see the biggest impact from that change? Thanks a lot.

Bill Rouhana -- Chairman and Chief Executive Officer

By the way Mike, welcome. This is your first call.

Michael Morris -- Guggenheim Securities -- Analyst

Thank you. I appreciate it.

Bill Rouhana -- Chairman and Chief Executive Officer

So original and exclusives, in the ideal world Mike one day virtually everything on our networks we'll own. We'll either have created it or we'll own the libraries. Think MGM, Amazon that's really what that transaction was about. How do we own the content that's on our networks rather than pay a rev share.

That runs typically 50% of every dollar that comes into your network to producers when you're borrowing their content the way a rev share is designed. And we much prefer the idea of original and exclusive content and owned library, because it changes the economic model dramatically and that 50% rev share that you don't have to pay, you can use as we did this past quarter to ramp up marketing, increase your tech expenditures, more quickly roll out your new platforms than we had anticipated, and still have a positive adjusted EBITDA. To me that's really the magic of what we're trying to do, shift those costs out of the content line and over to things that will grow the business in a different way. I do think it's certainly not getting to 100% ever, because we'll always -- like in all of the network businesses as you -- library is effectively fungible, but there's always going to be content that's the top layer where you do need to have access to what you might call hits.

And I hope we'll make some. I've been guessing with 52 new originals and exclusives next year. We have a shot at our House of Cards moment, but who knows? But we will always I'm sure want to buy up an occasional big show. We have a couple of these conversations going on now that are pretty exciting, that could really help drive viewership going forward.

But we want to kind of steadily move toward as high a number as humanly possible and it will be a very high number. What I'm happy about in particular is that we set a goal this year of 20% originals and exclusives and when you take into account the Sonar transaction, which as everybody real -- people who have heard me speak about this before, know that I said one of the reasons we wanted to buy Sonar was to ingest that content so that we owned the -- more of the content in our library, not just the originals and exclusives. And sure enough, this has worked exactly as we hoped. We've taken -- we've ingested the Sonar library and immediately, we've seen that we've jumped past our goal already to 22% of exclusive content, when you take the Sonar library into account.

And so it's going to pay off. And as we continue to ingest more of it, that number should go up and it should be further enhanced by an increasing number of original and exclusive programs that we either acquire through Screen Media or create through the Chicken Soup for the Soul Television Group, which is the segue to the second question you asked, which is what is the impact of that consolidation. I'll tell you this, first of all, when we look at next year, we expect to get about half of our original and exclusive content from ramped-up activity at Screen Media where they're buying more and more high profile and a larger number of films. And I called out Fast Charlie during the course of my talk because I wanted you all to see that when we -- even as we ramp up the scale to a really first-class kind of movie as Fast Charlie will be with Pierce Brosnan and Phillip Noyce and a few others who will be announced later that we're doing it in the way we always do everything, carefully with laying off our risk and we've already laid off 75% to 80% or 70% to 80% of the risk in five days of the AFM, since we acquired that movie.

But as importantly is the quality of that movie, the scale of that movie and how it continues our progress toward better and better content. A question that people constantly ask me, how are you going to get better and better content without taking huge sums of money and spending them? Here's a great illustration. We've laid off 70% to 80% of that before we got it. But if you look at the other side of what we expect, about half of the content should come from production of series.

And there it's a different model. As we've said that's a combination of tax credits sponsor integrations and I pointed out both Verizon and the general for a reason, they took substantial chunks of the production cost in those two series Inside the Black Box and smart homes and paid those for us in exchange for integrating them into those series just more examples of how we do that. That combined with tax credits and foreign partnerships are how we fund an increasingly robust television production business, putting it all under one umbrella organization with David Ellender at the head of it and David is the former CEO of Fremantle very experienced person, with very big – very meaningful contacts in our business around the world, with foreign partners, who he's been dealing with for years and years and years. This enhances our ability to accelerate the type of shows that we're going to be making as well as producing our probable risk.

So putting it all there, and letting him organize it, and oversee it all to me was a very big important step toward getting us half of our new content from television series next year. So in my mind, both those things are very important, both the ramping up of Screen Media's volume, as well as the scale of what they do, but also with the thoughtful laying off of risk and the organization of our production business under a leader, who's tested and who has very really, really, important international relationships. These are both very critical pieces toward looking at 2022 and putting together that system that we're looking at.

Michael Morris -- Guggenheim Securities -- Analyst

Thank you for that, Bill. Appreciate it.

Bill Rouhana -- Chairman and Chief Executive Officer

Thank you, Mike.

Operator

Your next question comes from the line of Jason Kreyer from Craig-Hallum. Your line is now open.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Hey, gentlemen, good afternoon. Bill, so you've got the new platform available on Popcornflix. You've also got that available on Crackle through VIZIO, just wondering, if you can lay out the long-term financial benefits there? As you started rolling that out, any kind of qualitative remarks on your ability to deliver targeted advertising or your ability to kind of scale-up CPMs in any way?

Bill Rouhana -- Chairman and Chief Executive Officer

So the long-term plan, as you know Jason is to continue to roll out the Crackle platform, and the Chicken Soup, for the Soul platform across the 41 places that we think you need to be in order to reach people that's we call them touchpoints, as you know. And I think, we had previously announced we were at 50. We've now contracted for or launched. We're up to 79 that we have in our sites here for the fourth quarter.

We're going to go, I think, we'll have all three networks on all 41 of these platforms sometime in the beginning of 2022. And as we see rolling out each one of these, we're adding, I think it was 450 something, 1,000 per month last quarter, it's about 445 the average this quarter as we've expanded it. And that is where our growth in monthly active viewers is coming from the distribution touchpoint strategy expansion and the fact that, we are rolling out the additional networks. But that gets compounded when you start to add more time that people are on your site.

And that's why we focused on increasing the quality of the network. And I was really excited, when I saw that, our Net Promoter Score as per surveys that were being done, had already started to move up considerably. We got a long way to go to get to where we want to be. But you have to start somewhere, and we've already seen some pretty cool results.

I mean, for Popcornflix to be up 50% and engagement right away on the launch of that new tech was very reassuring. I could tell you that, I tried to give a lot of information about the VIZIO numbers, just so you could get a sense of the fact that this seems to be working too. So if you take increasing touch points and increasing monthly active viewers. And then, longer time on site, what you get is a lot more ad impressions and pretty fast growth.

And that's been the strategy for a while, what's happened now in this third quarter is we've actually accomplished a bunch of it. We launched Popcornflix. It's up and running everywhere. We've initiated the Crackle rollout with the VIZIO platform.

And that's working. We've launched the fast channels for Chicken Soup for the Soul streaming service. And we know, we'll have the VOD service on VIZIO by the end of the year. And so we're just implementing this strategy one step at a time.

And by doing that, we're increasing the available and inventory we have. And the fact is there is insatiable demand in the marketplace for OTT ads, it continues to be there. We told everybody last time that was a 133% increase in our up-fronts, that's kind of just the surface of what's going on. And then on top of that, Jason, we're starting to roll out these integrations that I've been talking about for the last couple of years.

Because we're vertically integrated, we can integrate people into the programming. That is yet another way we can monetize viewership and it doesn't interfere as much with the viewers, experience. So the combination of these factors, are what's driving the business. And it's really going to have a big impact in 2022, from what I can see.

It's already having an impact now. We've done better going into the fourth quarter than we expected to be doing. And I expect that's going to continue to happen. This is working.

There's more to do for sure. We'll keep doing it. Lay on top of that 52 originals and exclusive to next year, you've got the formula for what I think is really an excellent really great but it should be a great year. So -- and then, I will say there's going to be more, there's going to be more M&A activity for sure.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

I appreciate all the color there. Just one follow-up here, So can you give some color on like the financial tailwinds as you head into Q4? Because, obviously we heard your enthusiasm, but I know, we look at last year there wasn't a whole lot of sequential growth, and there's a lot of reasons why there wasn't last year. But just maybe you can lay out the source of that enthusiasm, so we can kind of get a better representation of what you're seeing, as we move into the fourth quarter?

Bill Rouhana -- Chairman and Chief Executive Officer

Yeah. It's funny to ask that. I figured this would be a question, because I know I am pretty excited about, where we are now and how the business has heading. And I took a look at the last couple of years.

And if you take a look you're going to see that we've averaged about 37% of our revenue in the fourth quarter over the last couple of years. Fourth quarter has always been our strongest quarter by far. You do it again, given where we are. And you can see why I'm pretty optimistic, that we're going to have a good Q4.

I'll let you do the math Jason, but that's the facts. And there's no reason to believe we can't be close to that number again. And that would be precisely where we wanted to be for the year. So I'm very comfortable for the -- where we've said, we're going to be.

I'm pleased with the direction. But I'm really excited -- I'm more excited actually about the fact that I see 2022 starting to really form as a great year. And it's the combination of what we've done in the production business, the ramping up of the Screen Media, quality, quality of acquisitions, the growth in international and the fact that the combination of things we've talked about in the AVOD business are all coming together at the same, there's four reasons that 2022 should be a very good year. This is not dissimilar to what I said coming into 2021.

I said there were three reasons that 2021 should turn out to be a very good year and it will be and that was we were going to have more production activity over the course of the year. That's turned out to be true. Screen Media was going to acquire more stuff. That turned out to be true.

We would have growth in the streaming services. That turned out to be true. All of these things have turned out as we predicted they would for 2021, or will turn out the way we did. And I'm telling you that 2022 is starting this takes shape.

And now it's got four reasons. The international piece is the fourth piece, new fourth reason to be looking at continued very fast growth in the business. So I'm feeling good about it. You read that right.

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Perfect. Thanks for the time, Bill. I appreciate it.

Bill Rouhana -- Chairman and Chief Executive Officer

You're welcome. We're going to have to make this the last question operator.

Operator

Your last question comes from the line of Mike Grondahl from Northland Securities. Your line is now open.

Mike Grondahl -- Northland Securities --Analyst

Yes Hey, thanks, Bill. Two quick questions. One, how should we think about gross margin going forward? And then the SG&A at $15 million, is that sort of a new run rate to think about?

Bill Rouhana -- Chairman and Chief Executive Officer

That SG&A had a one-time very high charge in the form of share of an option grant. As you may recall, Mike we authorize at the annual meeting in June, an expansion of our option plan and we shortly thereafter in the first month of this quarter issued options to a larger number of our employees, and that manifests itself in the format. I think it's about $3.4 million worth of comp, which was part of an add back into the adjusted EBITDA. But in terms of SG&A, it was in that number that you just cited.

So I don't expect that that's going to be a consistent run rate going forward. That would -- that was a catch-up grant let's call it. Although, I have to say it is pretty obvious to anybody who's breathing that it is really getting competitive for employees. And we are having to really pay attention to that just as others are especially in the tech space, where my god, these guys, I don't even, I mean, they really have a they have an unfair advantage now in terms of their ability to negotiate with companies.

But I think that was an extraordinary event. The other thing that was a little bit unusual, Mike, in this particular quarter was the legal expenses were pretty high and unusually high. And so I would say that, that had an impact. Now, we did ramp up marketing.

In that case, we ended up with a one-time expense for the VIZIO button, which was recognized in this quarter. So there were a number of things about the quarter that were pretty high compared to other quarters. So it isn't really a run rate. Now, look we added -- the other thing to take into account is we added about 100 employees in the last year, which may not sound like much until you realize we only had 82 when we entered the year and we now have 182.

So somehow through this crazy COVID where we -- I don't know how we all survived this, we managed to double the size of our employee base and grow our business tremendously. I'm looking forward to going back to the office by the way. But nevertheless, it has been quite something to grow the business during this kind of a period. So that's a long-winded answer to your question.

The answer is no. I don't think it really is representative of a run rate. It's probably a bit higher than the run rate would be going forward.

Mike Grondahl -- Northland Securities --Analyst

That's helpful. And any high-level comments on gross margin going forward?

Bill Rouhana -- Chairman and Chief Executive Officer

It's going to go up. It's going to go up. It was a bit of distribution margin depression this quarter but -- and we also remember as we invest in tech, we bring down the gross margin in the streaming service business before we bring it up because that is a fixed cost that goes into our gross margin analysis. And so this was the investment.

The heavy tech investment in this quarter which I'm absolutely certain is going to bear fruit. In fact it already is. That was a big contributor to the number.

Chris Mitchell -- Chief Financial Officer

And the tech was a little high due to the Sonar content ingestion.

Bill Rouhana -- Chairman and Chief Executive Officer

Yes. So that's Chris speaking up and pointing out that we had to ingest all that Sonar content, which also took added additional cost to the quarter.

Mike Grondahl -- Northland Securities --Analyst

Got it. Thank you.

Bill Rouhana -- Chairman and Chief Executive Officer

You're welcome. Well, thank you everybody for joining us tonight. It's just about 5:30 and we've kept you long enough. Look forward to updating you again soon and take care.

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Taylor Krafchik -- Investor Relations

Bill Rouhana -- Chairman and Chief Executive Officer

Chris Mitchell -- Chief Financial Officer

Dan Kurnos -- The Benchmark Company -- Analyst

Thomas Forte -- D.A. DavidsonAnalyst -- Analyst

Michael Morris -- Guggenheim Securities -- Analyst

Jason Kreyer -- Craig-Hallum Capital Group -- Analyst

Mike Grondahl -- Northland Securities --Analyst

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