Cinedigm Corp. Form 10-Q Summary
Reporting period: Three months ended June 30, 2020 (the company’s fiscal first quarter), compared with the three months ended June 30, 2019. The unaudited filing was submitted by Cinedigm Corp., now known as Cineverse Corp.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $6.0 million | $9.8 million |
| Operating loss | $2.6 million | $2.7 million |
| Net loss | $19.9 million | $5.0 million |
| Net loss per share, basic and diluted | $0.21 | $0.13 |
| Cash flow from operations | $(3.7) million | $4.0 million |
| Cash flow from investing | $0.5 million | $(0.3) million |
| Cash flow from financing | $5.2 million | $(5.5) million |
Revenue fell 39%. Cinema Equipment revenue declined 85% to $0.6 million, primarily as systems generated fewer virtual print fees; Content & Entertainment revenue declined 7% to $5.4 million. OTT Streaming and Digital revenue increased to $3.3 million from $2.7 million, partly offsetting lower Base Distribution revenue.
Operating loss improved slightly despite lower revenue. Selling, general and administrative expense declined 34% to $3.8 million, reflecting lower personnel, occupancy, consulting and travel costs. Interest expense fell 43% to $1.3 million. The $19.9 million net loss included a $15.8 million unrealized fair-value loss on the Starrise investment; excluding that item, the reported net loss would have been materially lower. Consolidated Adjusted EBITDA was negative $0.2 million, versus positive $0.5 million a year earlier; management reported $0.1 million of positive Adjusted EBITDA for Content & Entertainment and Corporate combined, compared with a $2.3 million loss.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $16.3 million, with another $1.0 million restricted; total assets were $111.1 million.
- Current assets of $53.4 million were below current liabilities of $111.1 million. The company reported negative working capital of $57.7 million and an accumulated deficit of $430.8 million.
- Notes payable, net of discounts and issuance costs, totaled approximately $46.1 million: $11.5 million of non-recourse debt and approximately $34.5 million of recourse debt. The balance sheet showed total liabilities of $113.7 million and a stockholders’ deficit of $2.6 million.
- Operating cash outflow was $3.7 million, compared with inflow of $4.0 million in the prior-year quarter. The company attributed cash generation in part to lower receivables, while payments against accounts payable and accrued expenses used cash.
- The company raised approximately $7.1 million net from a May share offering and received a $2.2 million PPP loan. After quarter-end, a July offering raised approximately $10.0 million net, before estimated offering expenses.
Material changes, outlook and risks
- COVID-19: Retail closures and limited openings hurt physical DVD and Blu-ray sales. Theatre closures and delayed or bypassed theatrical releases reduced virtual print fee revenue. Management said the duration and financial impact could not be reasonably estimated.
- Debt and liquidity: The company extended its East West Bank credit facility maturity to June 30, 2021 and extended the Second Lien Loans to September 30, 2020, with options to extend to March 31 and June 30, 2021. Other significant maturities included the MingTai note in October 2020, the Prospect Loan in March 2021 and the Bison note in March 2021. The credit facility amendment included a financial covenant beginning August 31, 2020.
- Management outlook: Management believed cash, expected operating cash flows, cost reductions, debt extensions, potential debt conversion, the Starrise investment, and capital raised during and after the quarter would meet obligations and operating needs for 12 months from filing. It also cautioned that additional capital might be needed and that failure to generate revenue, raise capital or control spending could harm liquidity.
- Starrise investment: The related-party investment was carried at $35.0 million at quarter-end, after a $15.8 million fair-value loss for the quarter. The filing also describes share transfers to settle vendor liabilities, with potential liability for any shortfall in sale proceeds.
- Other contingencies: The $2.2 million PPP loan was intended to fund eligible payroll, lease and utility costs, but forgiveness was not assured and repayment could be required. The filing reported no legal proceedings or defaults upon senior securities and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether COVID-related theatre and retail disruptions, and the resulting effect on segment revenue and cash generation, persisted or worsened.
- The status of upcoming debt maturities, covenant compliance, extensions, available revolver capacity and any need for further financing.
- The valuation and liquidity of the related-party Starrise investment, including the reported fair-value change and vendor-liability arrangements.
- Whether the PPP loan qualified for forgiveness and whether any amount remained repayable.
- The effect of the substantial share issuances on dilution: 41.4 million shares were issued during the quarter, and 111.9 million Class A shares were outstanding as of August 12, 2020.