Business context and reporting period
Cinedigm Corp. (Nasdaq: CIDM) filed this unaudited Form 10-Q for the fiscal quarter and nine months ended December 31, 2021. Its businesses are Cinema Equipment and Content & Entertainment, including content distribution and streaming networks. The filing describes the company as Cinedigm; “Cineverse” is not the registrant name in this report.
Financial performance and liquidity
Unless noted otherwise, amounts are in U.S. dollars.
- Quarter revenue: $14.1 million, up 41% from $10.0 million. Content & Entertainment revenue rose 33% to $12.0 million; Cinema Equipment revenue rose 126% to $2.1 million.
- Quarter results: Operating loss was $0.8 million versus $1.3 million. Net loss was $0.4 million versus $9.7 million; loss attributable to common stockholders was $0.5 million. Adjusted EBITDA, a non-GAAP measure, was $1.3 million versus $0.9 million.
- Nine-month revenue and earnings: Revenue was $39.2 million, up 69%. Operating income was $0.6 million versus an $9.0 million loss; net income was $4.6 million versus a $56.1 million loss. Adjusted EBITDA was $7.5 million versus negative $0.4 million.
- Drivers and earnings quality: Nine-month Cinema Equipment revenue included $9.1 million from digital projector sales, compared with $0.2 million a year earlier. Net income also reflected a $2.2 million PPP loan forgiveness gain and a $1.5 million fair-value gain on the Starrise investment; the prior-year period included a $42.4 million Starrise fair-value loss. These items materially affect the period comparison.
- Cash flow: Nine-month operating cash flow was $4.7 million, investing cash flow was negative $5.0 million, and financing cash flow was positive $2.6 million. Cash and cash equivalents were $20.2 million at December 31, 2021, compared with $16.8 million at March 31, 2021.
- Liquidity and obligations: Working capital was $2.9 million. Current assets were $58.7 million and current liabilities $55.8 million. Notes payable were zero after repayment of the $7.8 million Prospect Loan and repayment of the East West credit facility; that facility expired September 28, 2021, with no remaining availability. Accounts payable and accrued expenses were $54.7 million. Deferred and earnout consideration for acquired businesses totaled about $3.5 million, including current and long-term amounts.
- Capital and equity: The company sold 5.3 million shares under its B. Riley equity line in October and November, raising $12.4 million net. It had 174.9 million Class A shares outstanding at December 31, 2021.
Changes, outlook, risks, and notable matters
- Streaming and digital growth, new channels, expanded platform distribution, and improved advertising fill and CPM rates supported Content & Entertainment revenue. Physical-disc distribution revenue declined in the quarter to $3.7 million from $4.2 million, while OTT streaming and digital revenue increased to $8.4 million from $4.9 million.
- Management said it expected cash, operating cash flows, and financing strategies to cover contractual, operational, and capital needs for 12 months from the filing date, but warned that additional capital may be needed. It cited the risks of failing to grow revenue, obtain capital, or control discretionary spending.
- COVID-19 and the Omicron variant continued to create uncertainty. Management noted theater restrictions and closures in Canada, fewer wide theatrical releases than before the pandemic, physical-disc weakness, and possible production delays. It also identified risks from changing consumer preferences and content owners’ own streaming services.
- The company acquired FoundationTV in June 2021 and Bloody Disgusting in September 2021, adding technology, content and advertising-related assets, as well as deferred and earnout obligations. On January 4, 2022, it agreed to acquire Digital Media Rights, subject to closing conditions.
- Management reported that disclosure controls were not effective as of December 31, 2021 because of previously identified material weaknesses in financial close/reporting and information and communication controls. Remediation efforts included new finance leadership, added accounting staff, process changes, and external advisers; management said remediation was not yet complete.
- The filing reported no material change to previously disclosed risk factors and no legal proceedings. Management reported no goodwill impairment for the nine-month period.
Most important facts for investors to verify
- Whether operating cash flow and available financing can sustain liquidity, given only $2.9 million of working capital, the expired credit facility, and management’s caveat that more capital may be needed.
- How much future revenue and cash generation depends on projector sales, streaming growth, and the seasonality and timing of theatrical releases.
- The extent to which reported earnings and Adjusted EBITDA reflect nonrecurring gains, fair-value movements, acquisition effects, and exclusions in the company’s non-GAAP measure.
- Potential dilution and cash commitments from equity-line sales, stock awards, preferred dividends, acquisition consideration, and earnouts.
- Progress in remediating material weaknesses and improving disclosure controls, and the status and terms of the proposed Digital Media Rights acquisition.