Cinedigm Corp. Form 10-Q Summary
Business context and period. The filing covers the fiscal quarter and nine months ended December 31, 2015; the comparable periods are 2014. Cinedigm operated digital cinema deployment and servicing businesses and a Content & Entertainment segment distributing independent content and developing OTT channels. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.
Financial performance
| Metric | Three months ended Dec. 31, 2015 | Three months ended Dec. 31, 2014 | Nine months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2014 |
|---|---|---|---|---|
| Revenue | $30.7m | $31.3m | $81.2m | $77.9m |
| Operating income (loss) | $3.3m | $3.1m | ($20.0m) | ($2.2m) |
| Net income (loss) | ($2.0m) | ($2.3m) | ($36.4m) | ($20.3m) |
| Net loss attributable to common stockholders | ($2.6m) | ($2.4m) | ($35.9m) | ($20.5m) |
| Adjusted EBITDA, non-GAAP | $14.5m | $15.7m | $33.7m | $35.5m |
- Nine-month revenue increased 4% year over year, but the quarter’s revenue declined 2%. For the quarter, Content & Entertainment revenue fell 11% to $14.4m; for the nine months, it rose 9% to $35.2m.
- The nine-month operating loss included an $18.0m goodwill impairment charge against Content & Entertainment. The segment’s operating loss was $28.3m for the nine months.
- Quarterly operating margin was approximately 10.9%; nine-month operating margin was approximately negative 24.6%. These are calculated from reported revenue and operating results.
- Nine-month cash provided by operating activities was $15.1m, versus $11.5m in 2014. Investing activities used $0.4m, compared with $0.9m provided; financing activities used $7.5m, compared with $33.0m used. Cash and cash equivalents increased $7.2m to $26.2m.
Balance sheet, debt and liquidity
- At December 31, 2015, cash and cash equivalents were $26.2m and restricted cash was $9.0m. The company reported combined cash and restricted cash of $35.2m and working capital of $6.5m.
- Total assets were $242.2m, total liabilities $309.4m, and total stockholders’ deficit $67.2m. Accumulated deficit was $336.3m.
- Balance-sheet notes payable, net of unamortized debt issuance costs, totaled approximately $209.8m; capital lease obligations were $4.4m. Separately, scheduled principal obligations were reported as $90.9m of recourse debt and $128.1m of non-recourse debt, before interest.
- The company issued $64.0m of 5.5% convertible notes due 2035. The initial conversion price was approximately $1.21 per share. It also reported $21.9m drawn under its revolving facility and stated that $25.5m was available to borrow; those figures alongside the stated $30m facility limit warrant verification.
- Management reported compliance with all debt covenants at December 31, 2015. The revolving agreement includes a $5.0m minimum liquidity covenant and a debt-service coverage test beginning June 30, 2016.
Material changes, outlook and risks
- Operating trends: Management attributed stronger deployment revenue in the quarter to more wide-release and blockbuster titles. Content & Entertainment faced weaker-than-expected digital performance, delayed agreements, and continued DVD and Blu-ray declines. OTT channels included Docurama, CONtv and the Dove Channel.
- Outlook: Management said fiscal 2016 Content & Entertainment revenue and adjusted EBITDA projections—particularly for the second half—were materially below original estimates, citing difficulty securing expected contracts, customer relationships and OTT channels. It expected VPF and related services revenue to decline as certain systems reached the end of payment periods beginning December 2015; management expects the cumulative effect to become material in later periods.
- Liquidity and capital: Despite recurring losses and substantial debt obligations, management believed cash, restricted cash, revolver availability, cost reductions and expected operating cash flows would cover liquidity needs for the next 12 months. The company was exploring additional financing and strategic opportunities, including discussions with a potential investor, but gave no assurance a transaction would close.
- Unusual items: The company recorded an $18.0m goodwill impairment, $0.9m loss on extinguishment of debt, and $0.8m of nine-month restructuring and transition expenses. Gaiam paid $2.3m under a settlement, and a further $1.6m settlement was agreed; the company expected to record that additional amount in its fourth fiscal quarter. The disputes were reported fully settled.
- Listing risk: Nasdaq had notified the company that its shares faced delisting for failing to meet the $1 minimum bid-price rule. The company requested a hearing and said delisting was stayed during that process; it had shareholder authorization for a reverse split if needed. An extension was not assured.
- Other risks: Phase I virtual print fees were expected to phase out on more systems, with the majority ending by November 2017; Phase II fees could end earlier if cost recoupment is reached. The filing also notes dependence on estimates in the Content & Entertainment goodwill valuation and the possibility of further impairment.
Most important facts for investors to verify
- Current unrestricted cash, actual undrawn revolver availability, and compliance with liquidity and debt covenants.
- Progress and terms of any capital-raising or strategic transaction, and the company’s ability to fund obligations as they fall due.
- Nasdaq hearing outcome and whether a reverse stock split was required to maintain listing.
- Content & Entertainment performance against revised expectations, OTT economics, and the assumptions supporting remaining goodwill.
- Timing and financial impact of declining VPF revenues, and receipt and accounting for the additional $1.6m Gaiam settlement payment.
- Potential dilution and cash requirements associated with convertible-note conversion, holder repurchase rights and the forward stock purchase transaction.