Cinedigm Corp. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2018, compared with the three months ended June 30, 2017. The filing identifies the registrant as Cinedigm Corp.; it does not use the name Cineverse Corp.
Business context and financial results
Cinedigm operated two reportable segments: Cinema Equipment and Content & Entertainment (CEG). Its businesses include digital cinema equipment financing and services, and distribution of independent film, television and other content.
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Revenue | $13.1 million | $15.2 million |
| Operating loss | $0.4 million | $0.9 million |
| Net loss | $3.3 million | $5.2 million |
| Net loss attributable to common stockholders | $3.4 million | $5.2 million |
| Operating cash flow | $5.3 million | $4.6 million |
| Cash and cash equivalents at period end | $17.8 million | Not provided for the comparable quarter |
Revenue fell 14% year over year. Cinema Equipment revenue declined 27% to $7.1 million, primarily as systems reached the end of VPF payments from major studios. CEG revenue rose 9% to $6.0 million, reflecting a stronger home-video release schedule and moderate OTT growth. Operating expenses were $13.5 million, down from $16.1 million, including lower depreciation and amortization. The reported operating margin was approximately negative 3.4%, versus negative 5.9% a year earlier; no gross margin is presented.
Operating cash flow exceeded net income chiefly in the context of noncash expenses and working-capital movements, including collections of receivables and lower unbilled revenue. Investing activities used $0.2 million; financing activities used $5.3 million. Cash, cash equivalents and restricted cash totaled $18.8 million, including $1.0 million restricted for debt service.
Balance sheet, debt and liquidity
At June 30, 2018, total assets were $108.1 million and total liabilities were $133.6 million. Stockholders’ deficit was $25.5 million, including an accumulated deficit of $382.6 million. Current assets of $64.3 million were below current liabilities of $91.5 million, a working-capital deficit of approximately $27.2 million.
Notes payable, net of discounts and issuance costs, totaled approximately $64.0 million: $25.7 million current and $38.3 million long-term. This included $30.0 million of net non-recourse debt associated principally with Cinema Equipment. The filing identifies $25.7 million of recourse debt as current, including the $5.0 million 2013 Notes due October 21, 2018 and $10.7 million of Second Lien Loans due June 30, 2019.
The company reported $6.8 million available under its $19.0 million revolving credit facility at June 30; it borrowed a further $2.0 million on August 8, reducing stated availability to $4.8 million. On July 20, after quarter-end, it borrowed $10.0 million from a Bison affiliate at 5% to repay its prior $10.0 million Bison loan. The new loan matures July 20, 2019, may be payable on demand, and is unsecured.
Changes, outlook and risks
- Management said consolidated Adjusted EBITDA was $3.1 million, down 41% from $5.4 million. Adjusted EBITDA from the non-cinema businesses remained negative, improving to $2.5 million loss from $3.2 million loss. This non-GAAP measure is not a substitute for GAAP results or cash flow.
- Management expects reduced VPF revenue as Phase I systems have largely ceased earning significant payments from major studios. Remaining payments from mostly smaller studios are expected through December 2020, at less material levels. Lower debt outflows have partly offset declining revenue.
- The company stated that cash, post-quarter financing, facility availability and expected operating cash flows should meet liquidity needs for at least one year from June 30, 2018. It also warned that continued losses, debt obligations, covenant restrictions and inability to raise capital or manage spending could adversely affect liquidity. No quantified revenue or earnings guidance was provided.
- The $5.0 million 2013 Notes mature in October 2018; management planned to obtain Bison capital for repayment. The Second Lien Loans mature in June 2019. The July 2018 Bison borrowing addresses the prior Bison loan, but the filing still describes substantial near-term financing requirements.
- The company adopted ASC 606 on April 1, 2018 using the modified retrospective method and reported no change in accounting treatment for its revenue streams. It changed to two reportable segments and recast prior segment results. No material legal proceedings or changes to previously reported risk factors were disclosed.
Important facts for investors to verify
- Whether the company can refinance or repay the 2013 Notes and meet the 2019 Second Lien and Bison maturities, including the terms and availability of further Bison financing.
- Actual borrowing capacity, covenant compliance and cash availability under the revolving facility; distinguish unrestricted cash from the $1.0 million restricted balance.
- The sustainability and composition of positive operating cash flow, given the quarterly working-capital movements and recurring net losses.
- The pace of VPF revenue runoff and whether CEG growth can offset declining Cinema Equipment revenue.
- The filing’s Adjusted EBITDA reconciliation and non-GAAP presentation; reported figures should be assessed alongside GAAP losses and cash flows.