Cinedigm Corp. (now identified in the request as Cineverse Corp.) — Form 10-Q
Reporting period: Fiscal first quarter ended June 30, 2022; comparisons are with the three months ended June 30, 2021. Financial statement amounts below are in U.S. dollars; monetary figures are shown in millions unless stated otherwise.
Business context and financial results
Cinedigm distributes independent film and television content across streaming, digital, physical and theatrical channels, and provides digital cinema equipment and related services. It reports two segments: Content & Entertainment and Cinema Equipment.
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $13.590 | $15.015 |
| Operating income (loss) | $(4.584) | $2.774 |
| Net income (loss) | $(5.987) | $5.194 |
| Net income (loss) attributable to common stockholders | $(6.093) | $5.098 |
| Diluted EPS | $(0.03) | $0.03 |
| Operating cash flow | $(1.198) | $3.621 |
| Adjusted EBITDA (non-GAAP) | $(2.237) | $5.479 |
Operating margin was approximately (33.7)% versus 18.5% in the prior-year quarter, calculated from reported revenue and operating income. The filing does not provide a separate consolidated gross-margin figure.
Revenue, costs and material period-over-period changes
- Content & Entertainment revenue: $12.163 million, up 38% from $8.784 million. OTT Streaming and Digital revenue rose to $9.958 million from $7.006 million; physical revenue rose to $2.205 million from $1.778 million.
- Cinema Equipment revenue: $1.427 million, down 77% from $6.231 million. Digital system sales fell to $1.194 million from $5.575 million; management also cited fewer eligible VPF systems.
- Costs: Direct operating expenses increased 59% to $7.356 million. SG&A rose 62% to $9.815 million, including increased personnel, legal and consulting expenses. Management attributed content-segment cost increases to royalties, DVD fulfillment, content and production, staffing, restoration and SaaS costs associated with acquisitions.
- Other items: A $1.256 million loss from the fair-value change in the Metaverse investment compared with a $0.334 million gain in the prior-year quarter. The prior-year quarter also included a $2.178 million gain from PPP loan forgiveness and note extinguishment.
Cash, liquidity and obligations
- Cash and cash equivalents were $11.519 million at June 30, 2022, down from $13.062 million at March 31, 2022. Operating, investing and financing cash flows were $(1.198) million, $(0.061) million and $(0.284) million, respectively.
- Current assets were $44.081 million and current liabilities $51.651 million, resulting in negative working capital of approximately $7.6 million. Total assets were $94.223 million; total liabilities were $58.232 million.
- The company reported no outstanding debt principal at quarter-end for its cinema equipment, Content & Entertainment or Corporate segments. It had $0.682 million of operating lease liabilities, plus deferred purchase consideration of $8.828 million and earnout consideration of $1.815 million.
- Management said cash on hand and expected operating cash flows were expected to fund operations and capital needs for at least 12 months from the filing. It also cautioned that additional capital may be needed. Available financing capacity cited was approximately $38.0 million under a shelf registration statement and $37.6 million under an equity line; no sales under either facility occurred during the quarter.
Outlook, risks and unusual matters
- No numerical revenue, earnings or cash-flow guidance was provided. Management said losses could continue, citing depreciation and amortization, marketing and content acquisition costs.
- Management identified COVID-19-related volatility and uncertainty, seasonality in film releases and CEG cash flows, and the risk that failure to grow revenue, raise capital or manage discretionary spending could harm liquidity.
- Trading in the related-party Metaverse investment was halted on the Hong Kong exchange on April 1, 2022. Its $5.772 million quarter-end fair value was classified as Level 3 and based on an independent third-party purchase offer and market-pricing assessment; the company warned the value could be reduced or written off if the offer is withdrawn.
- Three customers—Amazon, Distribution Solutions and Roku—accounted for approximately 19%, 13% and 9% of consolidated revenue, respectively, in the quarter.
- Management reported disclosure controls were not effective due to material weaknesses in financial close/reporting and information and communication controls, including insufficient experienced accounting personnel. Remediation efforts included new finance hires, additional accounting staff, process changes and external advisers; the weaknesses had not yet been deemed remediated.
- The filing reported no material changes to previously disclosed risk factors and no legal proceedings in the period. A $0.7 million increase in legal expenses was attributed primarily to a legal settlement; further details are not clear in the filing text provided.
Most important facts for investors to verify
- Whether Content & Entertainment growth can translate into improving operating margins and cash flow given higher operating costs.
- Whether management’s 12-month liquidity assessment remains supportable despite negative working capital and operating cash use.
- Progress and independent testing of the disclosed internal-control remediation, including whether the material weaknesses are resolved.
- The status and support for the Metaverse purchase offer and its Level 3 valuation.
- Customer concentration, acquisition-related costs and liabilities, and any future use of equity financing facilities that could dilute shareholders.