Cinedigm Corp. Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2020. The filing is by Cinedigm Corp. (NASDAQ: CIDM), a distributor of independent content and provider of digital-cinema equipment and services.
Financial performance
| Metric | Three months ended Sep. 30, 2020 | Prior year | Six months ended Sep. 30, 2020 | Prior year |
|---|---|---|---|---|
| Revenue | $7.2 million | $10.2 million | $13.2 million | $20.0 million |
| Operating loss | $5.1 million | $1.1 million | $7.7 million | $3.8 million |
| Net loss | $26.6 million | $3.1 million | $46.4 million | $8.1 million |
| Net loss per share | $0.23 | $0.08 | $0.45 | $0.21 |
| Operating cash flow | Not separately reported for the quarter | $(12.8) million | $3.8 million provided | |
| Adjusted EBITDA | $(1.1) million | $1.4 million | $(1.3) million | $2.0 million |
Revenue declined 30% for the quarter and 34% for the six-month period. Cinema Equipment revenue fell 82% and 84%, respectively, primarily because fewer systems generated virtual print fees and theatres closed or showed fewer new releases during COVID-19. Content & Entertainment revenue was down 1% for the quarter and 4% for the six months; growth in OTT streaming and digital revenue partly offset weakness in physical distribution.
The quarter’s net loss included a $19.8 million loss from changes in the fair value of the Starrise investment; the six-month charge was $35.6 million. This non-cash fair-value change was the principal reason net losses substantially exceeded operating losses. Quarterly SG&A rose 24%, partly due to cash retention bonuses and employee stock awards. Interest expense declined compared with the prior year.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $16.5 million, with another $1.0 million restricted. Current assets were $51.6 million and current liabilities were $87.5 million, resulting in negative working capital of approximately $35.9 million.
- Notes payable totaled approximately $30.5 million, including $11.7 million of net non-recourse debt and $18.8 million of recourse debt. The $11.7 million Prospect Loan was due March 31, 2021; the credit facility and Second Lien Loans had maturities extended to 2021.
- Operating cash use of $12.8 million was offset by financing cash inflows, including $17.6 million from stock issuances and warrant exercises, $8.5 million net revolving-credit proceeds, and a $2.2 million PPP loan. Cash increased by $2.2 million over the six months.
- The company raised gross proceeds of $8.0 million in a May stock offering and approximately $10.8 million in a July offering. In September, $15 million of Bison and Mingtai convertible notes were converted into 10 million common shares.
- Management said available cash, expected operating cash flows, cost reductions, debt-maturity extensions, the Starrise investment and access to financing should meet obligations for 12 months from filing. It also cautioned that additional capital may be needed and that failure to increase revenue, obtain capital or control spending could harm liquidity.
Outlook, risks and unusual items
- COVID-19 restrictions disrupted theatre exhibition and physical retail and distribution, reducing cinema fees and physical-product sales. Management could not estimate how long the disruption or its financial effects would last.
- The cinema business faces a longer-term decline in virtual print fees as Phase I systems reach the end of their fee-earning periods. The company expected remaining, less-material Phase I fees from some smaller studios through December 2020.
- The Starrise investment is a related-party investment measured at quoted market value. Its carrying value fell to $14.5 million at September 30, from $23.4 million at March 31; management disclosed a subsequent market-based estimate of approximately $7.3 million as of November 13.
- The $2.2 million PPP loan bears 1% interest and may be forgivable if requirements are met; the filing says it could be subject to repayment.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether liquidity and access to financing proved sufficient given negative working capital, operating cash outflow and upcoming debt maturities.
- Actual PPP loan forgiveness or repayment status and any subsequent borrowing or equity issuance.
- Subsequent Starrise market value, related-party transaction terms and any further fair-value effects.
- Whether theatre closures, delayed releases, the end of VPF revenue and DVD distribution disruptions continued to depress revenue.
- The dilution and compensation impact of the substantial share issuances; shares outstanding were 123.0 million at September 30, 2020, versus 63.3 million at March 31, 2020.
- Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP losses and cash flows.