Cinedigm Corp. Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2015. The filing also reports fourth-quarter results for the three months ended March 31, 2015. This is an annual report, not a standalone quarterly filing.
Business context
Cinedigm distributed independent film and television content across digital, physical and other platforms, operated emerging over-the-top (OTT) channels, and serviced digital cinema systems. Its four reporting segments were Phase I Deployment, Phase II Deployment, Services and Content & Entertainment (CEG). At year-end, it reported nearly 50,000 content titles and episodes and more than 12,000 serviced screens. Docurama launched in 2014 and CONtv launched in March 2015; Dove Entertainment Channel was planned for 2015.
Financial results and key metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $105.5 million | $104.3 million |
| Operating income (loss) | $(8.8) million | $6.4 million |
| Net loss | $(32.2) million | $(25.9) million |
| Net loss attributable to common shareholders | $(31.7) million | $(26.2) million |
| Operating cash flow | $9.2 million | $39.6 million |
| Cash, cash equivalents and restricted cash | $25.8 million | $57.0 million |
| Working capital | $(30.9) million | $(5.0) million |
Revenue increased 1%. Segment revenue was $36.2 million for Phase I, $12.3 million for Phase II, $11.9 million for Services and $45.1 million for CEG. CEG’s reported operating loss was $21.3 million, including a $6.0 million goodwill impairment. Consolidated operating margin was approximately (8.4%), versus 6.1% in FY 2014. The filing does not provide a consolidated gross margin figure.
Fourth-quarter revenue was $27.6 million and the loss from continuing operations was $11.6 million; the quarter included the $6.0 million goodwill impairment. FY 2015 Adjusted EBITDA, a non-GAAP measure, was $47.9 million, down from $55.7 million. Adjusted EBITDA from non-deployment businesses fell to $1.2 million from $9.5 million.
At March 31, 2015, total assets were $279.7 million and total liabilities were $298.8 million; stockholders’ deficit was $19.0 million. The balance sheet reported $157.3 million of non-recourse notes payable and $46.0 million of recourse notes payable, plus $5.5 million of capital leases. Management also described approximately $47.5 million of recourse debt principal. The filing identifies a $5.0 million minimum liquidity covenant under the corporate credit agreement; Cinedigm said it was in compliance with debt covenants at year-end.
Changes versus prior year
- Revenue was nearly flat year over year. CEG grew 4%, reflecting a full year of GVE acquisition revenue, but results were pressured by higher-than-expected product returns, integration issues, terminated unprofitable contracts and delayed co-production partnerships.
- Services revenue declined 5%, principally because the prior year included non-recurring activation fees from deployments in Australia and New Zealand.
- Operating results deteriorated from income of $6.4 million to a loss of $8.8 million. The change reflected higher SG&A, increased amortization and the $6.0 million goodwill impairment.
- Net loss widened to $32.2 million from $25.9 million. Operating cash flow fell to $9.2 million from $39.6 million, while cash and restricted cash declined by $31.2 million during the year.
- The Company sold its Software business in September 2014 for $3.0 million cash and recorded a $3.3 million loss on sale.
Outlook, risks and unusual items
- Outlook: No formal revenue or earnings guidance was provided. Management expected to invest significantly in OTT infrastructure, content and partnerships, with OTT growth targeted over fiscal 2016–2018. It expected cash flows from OTT to offset packaged-goods declines beyond 2018, but this depended on forecasts and execution.
- Liquidity: Despite recurring losses and negative working capital, management said cash on hand, operating cash flow and the April 2015 financing would enable the Company to meet obligations through at least June 30, 2016, subject to assumptions about business and liquidity conditions.
- Subsequent financing: In April 2015, Cinedigm issued $64.0 million of 5.5% convertible senior notes due 2035, generating approximately $60.9 million net proceeds. It used proceeds to repay and terminate the $18.2 million term-loan balance, repurchase approximately 2.7 million shares for $2.6 million, and fund a forward purchase transaction for approximately 11.8 million shares for $11.4 million. The remaining approximately $28.2 million was intended for working capital and general purposes. The notes are convertible at an initial price of approximately $1.21 per share and create potential dilution; the forward transaction also carries counterparty risk.
- Litigation: Cinedigm is pursuing arbitration against Gaiam over alleged breaches, acquisition representations and working-capital adjustments related to GVE. Cinedigm seeks more than $30 million plus other relief; Gaiam disputes the claims and seeks more than $6 million. The outcome was uncertain.
- Principal business risks: dependence on major studios and exhibitors, consumer shift away from DVDs and Blu-ray, OTT execution and funding needs, competition, substantial debt and restrictive covenants, customer concentration, and possible further goodwill impairment. Six studios each accounted for at least 10% of Phase I revenue and together generated 35% of consolidated revenue. Walmart and Amazon each represented at least 10% of CEG revenue; one customer represented approximately 12% of consolidated revenue.
- Reporting: The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal controls were effective. The Company reported an accumulated deficit of $300.4 million, distinct from its $19.0 million year-end stockholders’ deficit.
Important facts for investors to verify
- Whether operating cash flow and liquidity improve, and whether the Company remains compliant with the $5.0 million minimum-liquidity covenant and other debt terms.
- Progress, costs, monetization and audience adoption of CONtv, Docurama and planned OTT channels, compared with management’s cash-flow assumptions.
- Performance of CEG after physical-product returns, GVE integration costs and the goodwill impairment; verify whether further impairment is possible.
- Developments and eventual outcomes of both Gaiam arbitrations, including any working-capital adjustment, recovery or liability.
- The post-year-end financing’s actual impact on debt, interest expense, share count and dilution, including settlement of the forward stock purchase and conversion terms.
- Trends in studio and exhibitor concentration, VPF receipts and digital cinema debt repayment, alongside the maturity and cash-payment schedule for recourse and non-recourse obligations.