Cinedigm Corp. — Form 10-K Summary
Reporting period: The filing covers the fiscal year ended March 31, 2018, not calendar 2017 Q4 as indicated in the request metadata. It also presents unaudited fourth-quarter segment results for the three months ended March 31, 2018. Financial amounts below are in U.S. dollars.
Business context
Cinedigm operated digital cinema deployment and servicing businesses alongside Content & Entertainment, which distributes independent film and television through physical, digital, theatrical and OTT channels. It serviced more than 12,000 screens and reported four segments: Phase I Deployment, Phase II Deployment, Services and Content & Entertainment. The company said its strategy increasingly emphasized OTT networks as legacy digital-cinema fees and physical-media sales declined.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $67.7 million | $90.4 million |
| Income from operations | $0.7 million | $6.8 million |
| Net loss | $18.5 million | $15.2 million |
| Net loss per share | $0.81 | $1.92 |
| Cash provided by operating activities | $22.4 million | $31.7 million |
| Cash used in investing activities | $0.9 million | $0.5 million |
| Cash used in financing activities | $16.1 million | $44.1 million |
- Revenue fell 25.1%. Operating margin was approximately 1.1%, versus 7.5% in FY2017; the company remained loss-making, with net loss widening by $3.3 million.
- Revenue by segment: Phase I $16.8 million (down 47.7%); Phase II $11.9 million (down 5.4%); Services $8.9 million (down 23.1%); Content & Entertainment $30.1 million (down 11.9%). Management attributed declines to expiring virtual print fee (VPF) periods, lower physical-product sales and a shift in content mix. OTT-channel sales increased $0.7 million.
- Adjusted EBITDA, a non-GAAP measure, was $23.0 million versus $43.4 million, down 46.9%. Adjusted EBITDA from non-deployment businesses was negative $2.7 million, versus positive $1.0 million. These measures should not be treated as substitutes for GAAP results or cash flow.
- At year-end, cash and cash equivalents were $18.0 million and restricted cash was $1.0 million. Working capital was negative $2.2 million; total stockholders’ deficit was $22.3 million.
- Debt principal was approximately $74.0 million, comprising $33.8 million of recourse debt and $40.2 million of non-recourse digital-cinema debt. The new East West Bank revolver had a $19.0 million maximum, $8.2 million drawn and $9.8 million available at year-end. The 12.75% Second Secured Lien Notes had $10.6 million outstanding and matured in June 2019; $5.0 million of 2013 Notes was due in October 2018. The Prospect Loan had $39.7 million outstanding and matured in March 2021.
Material changes, outlook and risks
- In November 2017, Bison became the majority shareholder after purchasing shares for $30.0 million. Cinedigm also borrowed $10.0 million from a Bison affiliate at 5%, due in June 2021, and issued warrants for 1.4 million shares at $1.80 per share.
- The company exchanged and retired $50.6 million principal amount of 5.5% convertible notes for $17.6 million cash, 3.54 million common shares and $1.5 million of Second Lien Notes. It recorded $4.5 million of debt-conversion and extinguishment expense.
- Phase I VPF revenue had substantially ended for certain major studios across the systems by year-end. Remaining Phase I VPF and ancillary revenue was expected to be less material and continue through December 2020. Phase II VPF revenue was expected to begin ending on some systems in December 2018 and largely phase out by December 2022, potentially earlier upon contractual cost recoupment.
- Management expected cash, financing and operating cash flows to meet liquidity needs for at least one year after the financial statements were issued, while warning that additional capital could be needed and that this expectation depended on no material adverse developments. Management also cited cost reductions, including office relocations expected to save approximately $0.7 million annually.
- After year-end, the company reported that the Phase II Credit Agreement was repaid in full in June 2018; the related Advisory Fee Note remained outstanding at a reported $4.0 million balance as of March 31, 2018. Management also reported launching Wham Network and COMBAT GO in April 2018, with additional OTT channels in development.
- Key risks include declining VPF revenue and physical-media demand; customer, studio and exhibitor concentration; competition and uncertain OTT economics; substantial debt, covenant restrictions and refinancing needs; and dependence on successful content selection and business execution. The filing also highlights China-related operating and legal risks and possible CFIUS review. The Bison ownership change limited use of tax loss carryforwards; the filing estimated approximately $209 million of NOLs would not be usable.
- The filing reports no material legal proceedings in its legal-proceedings section; the notes separately say ordinary-course legal matters were not expected to significantly affect financial position, results or liquidity. The auditor gave an unqualified opinion on the financial statements. Management said disclosure controls and internal control over financial reporting were effective; the auditor did not audit internal control effectiveness.
Investor facts to verify
- Reconcile the filing’s debt disclosures, maturities, collateral, guarantees and covenant compliance, including the June 2018 Phase II Credit Agreement repayment and remaining Advisory Fee Note.
- Assess the sustainability and quality of reported operating cash flow as VPF revenue declines, including working-capital movements and the availability of the revolving facility.
- Track segment revenue, margins and cash generation, particularly Content & Entertainment and the OTT channels, against the continued decline in legacy distribution.
- Review the terms and effects of Bison’s control, related-party financing, warrants and potential dilution, as well as the restrictions on NOL use.
- Confirm subsequent-period liquidity, debt repayment and refinancing plans, and whether management’s stated liquidity runway assumptions were achieved.