Cineverse Corp. — Form 10-Q summary
Reporting period: Three and nine months ended December 31, 2023. This is the company’s fiscal third quarter of fiscal 2024. Unless stated otherwise, financial amounts below are in millions of dollars.
Business context
Cineverse operates streaming channels, distributes film and television content, and provides OTT technology and services. It now reports as one segment following the run-off of its digital cinema equipment operations, which had ended active operations in fiscal 2023.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Prior-year quarter | Nine months ended Dec. 31, 2023 | Prior-year period |
|---|---|---|---|---|
| Revenue | $13.3 | $27.9 | $39.3 | $55.5 |
| Operating income (loss) | $0.4 | $3.4 | $(1.7) | $(6.3) |
| Net income (loss) | $(2.7) | $5.0 | $(6.6) | $(6.6) |
| Net income (loss) attributable to common stockholders | $(2.9) | $4.9 | $(6.9) | $(6.9) |
| Adjusted EBITDA (non-GAAP) | $1.8 | $5.0 | $2.8 | $1.1 |
| Operating cash flow | Not provided separately | Not provided separately | $(9.3) | $(7.9) |
Quarterly operating margin was approximately 3.2%, versus 12.3% a year earlier; nine-month operating margin was approximately -4.3%, versus -11.4%. These are calculated from reported operating results and revenue. Gross margin is not separately presented in the filing.
- Quarterly revenue fell 52%; nine-month revenue fell 29%. Streaming and digital revenue declined 18% in the quarter and 8% over nine months. Base distribution fell 65% and 59%, respectively; other non-recurring revenue fell sharply as legacy cinema operations ran off.
- Quarterly net loss included a $3.0 million loss from the Metaverse investment. The prior-year quarter included $2.0 million of employee retention tax credit (ERTC) income; no ERTC income was recognized in the current quarter.
- Cash and cash equivalents were $5.5 million at December 31, down from $7.2 million at March 31, 2023. Current assets were $36.2 million against current liabilities of $36.7 million, or negative working capital of about $0.4 million.
- The company used $9.3 million of operating cash in the nine-month period, including $6.5 million of incremental content advances and minimum-guarantee payments. Investing cash use was $0.5 million; financing provided $8.2 million. Ending cash was $5.5 million.
- The $5.0 million revolving credit facility was fully drawn at December 31, 2023, at a 10% rate then, and matures September 15, 2024. On February 9, 2024, after quarter-end, the facility was expanded to $7.5 million on the same rate and maturity. Substantially all material subsidiary assets are pledged as security.
Changes, outlook and risks
Management attributed revenue pressure to a weaker advertising market, lower theatrical results than the prior-year success of Terrifier 2, reduced DVD and physical distribution activity, and the wind-down of digital cinema revenue. AVOD revenue was down $6.2 million over nine months, partly offset by growth in SVOD and digital revenue from acquired libraries and platforms. Cost reductions included lower compensation, legal, consulting, fulfillment and third-party SaaS expenses.
Management said cash and the credit facility were expected to fund operations for at least twelve months from the report filing date, while noting the company may pursue debt or equity financing if needed. The company has a history of losses, reported a $489.3 million accumulated deficit, and said losses may continue. No quantified revenue or earnings guidance is provided.
- The IRS is examining the company’s ERTC claim; the examination was ongoing at filing. The related receivable was $1.7 million at December 31, 2023.
- The Metaverse investment was valued at $1.3 million at December 31 after trading resumed; the company recorded $3.6 million of unrealized losses during the nine months and sold 30 million shares during the quarter.
- Deferred business-acquisition consideration was $6.6 million in total, including $4.0 million current. A $3.0 million DMR payment is due in March 2024; some consideration may be settled in stock at the company’s discretion, subject to conditions.
- The June 2023 equity offering and ATM sales raised capital but increased the share count. Warrants to purchase up to 2.667 million shares at $3.00 each remained outstanding at quarter-end. Management reported effective disclosure controls and no material change in internal control; no legal proceedings were reported.
Important facts for investors to verify
- Whether the expanded credit facility and cash generation are sufficient to cover operating needs and upcoming debt and deferred-consideration payments.
- Whether the ERTC receivable is recoverable, and the possible outcome and timing of the IRS examination.
- Whether advertising, streaming and distribution trends improve, and whether content advances produce expected returns and recoveries.
- The continued effect of the Metaverse investment’s valuation and any further share sales.
- Potential dilution from outstanding warrants, equity compensation and any future capital raises.