Cinedigm Corp. Form 10-Q Summary
Reporting period: Three months ended June 30, 2016 (fiscal first quarter), compared with the three months ended June 30, 2015. The filing identifies the registrant as Cinedigm Corp.; it does not use the name Cineverse Corp.
Business context
Cinedigm distributed independent entertainment content and operated digital cinema deployment and servicing businesses supporting more than 12,000 screens. It reported four segments: Phase I Deployment, Phase II Deployment, Services, and Content & Entertainment (including OTT channels). Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $22.5 | $22.8 |
| Operating income (loss) | $0.3 | $(5.4) |
| Net loss | $(4.6) | $(11.3) |
| Net loss per share | $(0.70) | $(1.63) |
| Operating cash flow | $6.8 | $2.1 |
| Adjusted EBITDA, non-GAAP | $10.7 | $8.1 |
- Revenue declined 2% overall. Phase I, Phase II, and Services revenue rose 13%, 10%, and 22%, respectively; Content & Entertainment revenue fell 25% to $6.8 million.
- Operating expenses fell to $22.2 million from $28.2 million, reflecting lower direct costs and SG&A. Operating margin was approximately 1.2%, versus approximately negative 23.5% a year earlier.
- Adjusted EBITDA from non-deployment businesses remained negative at $1.2 million, improving from a $2.3 million loss. Adjusted EBITDA is a non-GAAP measure and should not be treated as cash flow.
- Cash and cash equivalents were $14.4 million at June 30; restricted cash was $9.0 million, for combined cash and restricted cash of $23.4 million. Cash fell $11.1 million during the quarter. Investing activities used $0.2 million; financing activities used $17.7 million, including $11.0 million of debt payments and $5.7 million of net revolver repayments.
- Current assets were $93.2 million and current liabilities $102.0 million, a working-capital deficit of $8.9 million. Total liabilities were $268.6 million, against a stockholders’ deficit of $77.0 million. Accumulated deficit was $347.1 million.
- At quarter-end, debt principal was approximately $105.8 million non-recourse and $84.3 million recourse. The reported carrying amount of notes payable, net of issuance costs, was $183.1 million. No revolving-credit availability remained at June 30. The company reported compliance with debt covenants at quarter-end.
Changes, outlook, and material risks
- Lower corporate and Content & Entertainment SG&A, reduced restructuring-related costs, and lower depreciation contributed to improved operating results. Management attributed higher deployment revenue in part to more wide-release titles and two blockbuster films in the current quarter.
- Management expected cash and restricted cash, cost reductions, July financing, committed financing, and operating cash flows to support liquidity needs for the next 12 months. It cautioned that additional capital may be needed and that financing commitments might not be completed.
- On July 14, 2016, the company raised $2.0 million through second-lien loans due in 2019, bearing 12.75% interest, and issued shares and warrants in connection with the financing. Additional lender and CEO funding commitments were described, but remained subject to completion. The credit agreement was amended, including a reduction of its minimum-liquidity requirement to $800,000 and changes to the debt-service reserve and facility limit.
- Phase I virtual print fee revenue is winding down: 189 systems had already ceased earning fees from certain major studios by June 30. Management expected more than half of Phase I systems to lose those fees by December 2016 and nearly all by December 2017. It expected lower VPF revenue to be partly offset by reduced related non-recourse debt outflows. Phase II fee revenue may also end earlier if contractual cost recoupment is achieved.
- Content & Entertainment faced weaker digital performance, reduced physical DVD and Blu-ray sales and shelf space, and shifted strategy toward narrowcast OTT channels, including CONtv and Dove Channel. Management planned fiscal 2017 cost reductions through staffing, occupancy, and other expense actions.
- The company had an accumulated deficit and significant debt and contractual obligations. It received a Nasdaq notice for failing to meet the $15 million minimum market value of publicly held shares; it had until December 20, 2016, subject to possible extensions, to regain compliance or face potential delisting proceedings.
- Disclosure controls and procedures were reported ineffective as of June 30, 2016, due to ongoing remediation of a material weakness identified in the prior annual report. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
- The company effected a 1-for-10 reverse stock split in May 2016; share and per-share figures were retroactively adjusted.
Important facts for investors to verify
- Whether the additional second-lien funding commitments were completed, and the resulting borrowing costs, dilution, collateral, and liquidity.
- Actual cash availability after restrictions, debt service, and covenant requirements, particularly given no revolver availability at quarter-end.
- The timing and financial impact of Phase I and Phase II VPF revenue run-off and related debt-service reductions.
- Progress and measurable savings from cost reductions, and the operating performance and funding needs of the OTT and Content & Entertainment businesses.
- Progress in remediating the material weakness and regaining Nasdaq market-value compliance.