Cinedigm Corp. (now Cineverse Corp.) — Form 10-Q
Reporting period: Fiscal second quarter and six months ended September 30, 2019. Dollar amounts are in millions unless stated otherwise. The filing reports the company’s name as Cinedigm Corp.
Business context
Cinedigm operated two segments: Cinema Equipment, which finances and services digital cinema systems and earns virtual print fees (VPFs), and Content & Entertainment, which distributes film and television content and operates OTT and digital services. Major-studio VPF payments had largely ended for Phase I systems and ended for Phase II systems in November 2018, reducing the contribution from Cinema Equipment.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2019 | Six months ended Sep. 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $10.2 | $20.0 | $13.7 / $26.8 |
| Operating loss | $(1.1) | $(3.8) | $(0.9) / $(1.3) |
| Net loss | $(3.1) | $(8.1) | $(3.5) / $(6.8) |
| Net loss per share | $(0.08) | $(0.21) | $(0.09) / $(0.18) |
Revenue fell 25% in both comparative periods. Cinema Equipment revenue declined 51% for the quarter and 48% for six months; Content & Entertainment revenue increased 5% and 2%, respectively. Lower Cinema Equipment revenue drove the overall decline. SG&A decreased 23% for the quarter and 17% for six months, reflecting cost reductions and lower OTT marketing spend. Higher royalty and freight costs partly offset those savings. Operating losses widened despite lower SG&A.
For the six months, operating cash flow was $3.8 million, compared with $1.6 million a year earlier. Investing cash flow was nil, versus $0.9 million used in 2018. Financing used $8.0 million, including debt repayments, partly offset by $5.85 million of common-stock proceeds. Cash and cash equivalents were $13.7 million at September 30; restricted cash was $1.0 million. Cash, cash equivalents and restricted cash declined $4.2 million over the six months.
At September 30, total assets were $92.5 million and total liabilities were $130.6 million, leaving a $38.2 million deficit. Negative working capital was $53.2 million. Notes payable had a net carrying amount of $49.7 million, including $36.7 million current recourse debt and $13.0 million non-recourse debt. Management cited approximately $51.8 million of debt principal before unamortized discounts and issuance costs. The $18 million East West Bank facility had $14.7 million outstanding and no borrowing availability under the borrowing base.
Quarterly Adjusted EBITDA was reported as positive $1.4 million, versus $2.9 million in 2018; six-month Adjusted EBITDA was positive $2.0 million, versus $6.0 million. The company’s separately reported non-cinema equipment Adjusted EBITDA losses were $1.0 million and $3.2 million, respectively. Adjusted EBITDA is a non-GAAP measure, not a substitute for GAAP results or cash flow.
Material changes, outlook and risks
- Management said cash on hand, expected operating cash flows, Bison-related funding support and the July and August financing transactions should meet liquidity and capital needs for at least one year from November 2019. This expectation depends on cash generation and continued access to funding; management warned that failure to increase revenue, raise capital or control discretionary spending could harm liquidity.
- The $8.0 million Second Lien Loans were extended from June 30 to September 30, 2019 after partial repayment. On October 24, the maturity was extended again to November 30, 2019. The company planned to obtain Bison-related capital to repay the remaining balance.
- In July, the company replaced a $10 million Bison loan with a $10 million unsecured convertible note bearing 5% interest and maturing March 4, 2020. The company may repay it in cash, shares or a combination. The existing $5 million convertible note bearing 8% interest was extended after quarter-end to October 9, 2020.
- The company sold 3.9 million shares to BEMG, a Bison affiliate and major shareholder, for $5.85 million at $1.50 per share. Proceeds supported working capital and debt repayment. These transactions were dilutive.
- The East West Bank amendment reduced the facility limit to $18 million, required certain prepayments and daily cash sweeps, and extended maturity to June 30, 2020.
- The proposed Future Today acquisition remained in process. The company had paid $1.0 million in non-refundable deposits, recorded as a prepaid current asset, subject to credit against the purchase price if the transaction closes.
- After quarter-end, Nasdaq notified the company that its share price had failed the $1 minimum bid-price requirement. The company had until April 8, 2020 to regain compliance; a reverse stock split was under consideration but no decision had been made.
- No formal financial guidance was provided. The filing identifies continuing net losses, substantial debt obligations, declining VPF revenue, seasonality and dependence on additional capital as risks. Management reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether the company repaid or further extended the Second Lien Loans after the November 30, 2019 maturity, and whether the expected Bison funding was obtained.
- Whether operating cash flows and other funding sources supported the stated one-year liquidity expectation, given negative working capital and no availability under the bank facility.
- The status, final terms and financing of the Future Today acquisition, including treatment of the $1.0 million deposit.
- Progress toward Nasdaq’s minimum bid-price compliance deadline and any decision regarding a reverse stock split.
- The pace of Cinema Equipment revenue attrition and whether growth in OTT and digital revenue can offset declining VPF income and rising content-related costs.
- Potential dilution from the convertible notes, warrants and equity financing, and the effect of related-party funding arrangements.