Cinedigm Corp. — Q1 FY2020 Form 10-Q
Reporting period: Three months ended June 30, 2019; comparison is the three months ended June 30, 2018. The filing identifies the registrant as Cinedigm Corp. (NASDAQ: CIDM), a distributor of independent content and provider of digital cinema equipment and services. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Revenue | $9.803 | $13.078 |
| Operating loss | $(2.697) | $(0.439) |
| Net loss | $(5.039) | $(3.283) |
| Net loss attributable to common stockholders | $(5.122); $(0.13) per share | $(3.356); $(0.09) per share |
| Net cash provided by operating activities | $4.015 | $5.315 |
| Capital expenditures and other investing cash flow | $(0.252) | $(0.197) |
| Net cash used in financing activities | $(5.493) | $(5.250) |
| Adjusted EBITDA (non-GAAP) | $0.539 | $3.147 |
Revenue fell 25%. Operating margin was approximately negative 27.5%, versus negative 3.4% a year earlier. The net loss widened by $1.756 million. Operating cash flow remained positive, but declined about 24%; cash, cash equivalents and restricted cash together decreased $1.730 million during the quarter.
At June 30, cash and cash equivalents were $16.142 million, plus $1.000 million restricted cash. Current assets were $64.705 million and current liabilities $121.435 million, implying negative working capital of $56.7 million and a current ratio of approximately 0.53. Total assets were $98.202 million, total liabilities $139.792 million, and total deficit $41.590 million. Notes payable were $57.874 million net of discounts and issuance costs; gross principal was approximately $60.0 million. The filing reports $43.017 million of current recourse debt and $14.857 million of non-recourse debt, net.
Changes versus the prior-year quarter
- Cinema Equipment Business revenue declined 44% to $3.993 million, primarily due to fewer systems earning virtual print fees (VPFs) as major-studio payment periods ended. Content & Entertainment revenue declined 3% to $5.810 million.
- Within Content & Entertainment, OTT Streaming and Digital revenue rose to $2.675 million from $2.201 million, while Base Distribution revenue fell to $3.135 million from $3.762 million.
- Selling, general and administrative expense decreased 11% to $5.849 million, reflecting lower personnel and OTT marketing costs. Depreciation and amortization also declined.
- Interest expense fell 15% to $2.282 million, principally due to lower cinema-business debt, partly offset by higher corporate interest expense.
- Adjusted EBITDA, as defined by the company, declined to $0.539 million from $3.147 million. The company attributed the decrease primarily to lower cinema-equipment revenue.
Outlook, financing, risks and unusual items
- Management said cash, expected operating cash flows, Bison-related funding support and July–August financing transactions were expected to meet liquidity and capital needs for at least one year from August 2019. It also warned that losses may continue and that failure to increase revenue, secure capital or control discretionary spending could harm liquidity and financial condition.
- The company had an accumulated deficit of $400.9 million and significant debt obligations. Second Lien Loans of $11.3 million at quarter-end were extended to September 30, 2019; the company paid down $3.0 million on July 10 and expected Bison-related funding to help repay the remaining balance.
- After quarter-end, the $10.0 million Bison loan was replaced with an unsecured $10.0 million convertible note, bearing 5% interest and maturing March 4, 2020. Principal can be repaid in cash, shares or a combination, at the company’s option. The company also sold shares to BEMG, a Bison affiliate, for $3.0 million in July and $2.9 million in August.
- A July 3 amendment reduced the East West Bank facility to $18.0 million, required certain prepayments and daily cash sweeps, and extended maturity to June 30, 2020. At June 30, the company reported no additional availability under the facility based on its borrowing base.
- The planned Future Today acquisition remained in process. The merger agreement was amended, including a $0.5 million non-refundable deposit and an option to extend exclusivity for an additional $0.5 million; the company exercised that extension through August 14, 2019.
- VPF revenue is expected to continue declining: all 3,445 Phase I systems had ceased earning significant VPF revenue from certain major studios, while some smaller studios were expected to pay through December 2020. The company also noted seasonality in movie releases and content revenue.
- Adoption of the new lease standard added $2.259 million of operating lease liabilities and $2.169 million of right-of-use assets. The filing reports no material long-lived asset or goodwill impairment in the quarter. No legal proceedings were reported; management stated disclosure controls were effective.
Important facts for investors to verify
- Whether the remaining Second Lien Loans were repaid by the September 30, 2019 extended maturity, and the terms and availability of any Bison funding.
- Whether the company generated sufficient cash to meet obligations, given negative working capital, limited borrowing-base availability and recurring losses.
- The effect of the East West Bank amendment’s cash sweeps, prepayments and revised borrowing base on operating liquidity.
- Whether the Future Today acquisition closed, its final purchase terms and funding needs, and the status of the deposits.
- Whether the decline in VPF revenue was offset by content and OTT growth, and how reported non-GAAP Adjusted EBITDA reconciles to ongoing cash generation.