Cinedigm Digital Cinema Corp. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2011 (the company’s first fiscal quarter of fiscal 2012). The filing is by Cinedigm Digital Cinema Corp.; it describes a digital cinema services, software, deployment-financing, and content company. Amounts below are in U.S. dollars.
Financial results
| Metric | Quarter ended June 30, 2011 | Prior-year quarter |
|---|---|---|
| Revenue | $23.5 million | $19.4 million |
| Operating income (loss) | $2.3 million | $(0.1) million |
| Net loss | $(6.4) million | $(7.1) million |
| Net loss attributable to common stockholders | $(6.5) million | $(7.2) million |
| Loss per common share, basic and diluted | $(0.20) | $(0.24) |
| Operating margin | 9.6% | (0.6)% |
Revenue increased 21%. Phase II Deployment revenue rose to $3.0 million from $0.6 million, and Services revenue increased 93% to $5.5 million. Content & Entertainment revenue declined 22% to $3.4 million; Phase I Deployment revenue was broadly stable at $11.6 million. Management attributed growth mainly to more Phase II systems installed and higher software, service, and content-delivery activity. Content declines reflected weaker advertising and fewer distribution events than in the prior-year quarter.
Cash flow: Operating activities provided $7.3 million, compared with $2.0 million a year earlier. Investing activities used $2.2 million, principally for equipment, and financing activities used $4.4 million, mainly for debt repayments. Cash and cash equivalents increased $0.7 million to $11.4 million.
Balance sheet, debt, and liquidity
- At June 30, 2011, current assets were $49.6 million and current liabilities were $48.3 million, giving working capital of approximately $1.4 million.
- Cash, restricted available-for-sale investments, and restricted cash totaled approximately $22.2 million; restricted balances are not freely available for general corporate use.
- Total liabilities were $304.8 million, versus assets of $300.9 million. Stockholders’ equity was negative $3.9 million.
- Notes payable totaled $268.9 million; capital lease obligations added $5.6 million, for reported total debt including leases of $274.5 million. Approximately $188.4 million of notes payable was non-recourse, and $80.5 million was recourse.
- The $80.4 million 2010 Note carries 8% PIK interest and 7% cash interest. Management said its cash-interest reserve covered payments through September 30, 2011. The company reported compliance with debt covenants at quarter-end.
- Contractual obligations totaled $398.8 million, including debt principal and interest, leases, theatre advertising commitments, and purchase obligations. The filing identifies approximately $13.8 million of Phase II system purchase obligations expected to be funded through non-recourse facilities.
Outlook, risks, and notable items
- Management expected continued net losses for the foreseeable future, but believed available cash and expected operating cash flows would meet obligations through at least June 30, 2012. The filing warns that failure to grow revenue, obtain capital, or manage discretionary spending could materially affect the company’s ability to continue as a going concern; the financial statements contain no adjustments for a possible failure to continue.
- Management expected positive operating cash flow and improving Adjusted EBITDA during the remainder of the fiscal year, citing Phase II deployments, software contracts, and service fees. Adjusted EBITDA from non-deployment Phase I and Phase II businesses was $0.3 million, versus a loss of $0.5 million in the prior-year quarter. This is a non-GAAP measure and should not be treated as cash flow or GAAP earnings.
- Further Phase II deployment depends partly on securing financing; management had signed commitment letters but cautioned that financing might not be completed on acceptable terms. Performance is also exposed to film-release timing, digital-screen adoption, studio and exhibitor demand, competition, and interest-rate movements.
- In May 2011, the company sold certain Pavilion Theatre assets and liabilities, but remained the primary obligor on its capital lease. The quarter included a $0.6 million loss from discontinued operations, attributable to the Pavilion Theatre.
- After quarter-end, the company agreed to sell 4,338,750 Class A shares for approximately $6.9 million, intended for working capital and strategic opportunities. It also signed a binding letter of intent for Technicolor to acquire assets of its physical and electronic distribution business and enter a software partnership; definitive documentation and completion remained pending.
- The company reported no legal proceedings and stated that disclosure controls were effective, with no significant quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether the post-quarter $6.9 million equity financing closed and how proceeds were used, including dilution to existing shareholders.
- Whether the Technicolor transaction closed, what assets and economics were involved, and the continuing scope of Cinedigm’s software business.
- Availability and terms of additional Phase II financing, deployment commitments, and the company’s ability to meet debt and cash-interest obligations.
- Underlying cash generation and the assumptions behind management’s Adjusted EBITDA outlook, separate from non-recourse deployment entities and non-GAAP adjustments.
- The sustainability of revenue growth, especially Services and Phase II, and recovery in Content & Entertainment advertising and distribution.