Cinedigm Corp. — Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended December 31, 2016; the company’s fiscal year ends March 31. The filing identifies the registrant as Cinedigm Corp. (not Cineverse Corp.). Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Business context and financial performance
Cinedigm operates digital cinema deployment and servicing businesses, alongside a Content & Entertainment business that distributes independent content and develops OTT channels. Its digital cinema operations support more than 12,000 screens. The company reports four segments: Phase I Deployment, Phase II Deployment, Services, and Content & Entertainment.
| Metric | Three months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2016 | Prior comparable period |
|---|---|---|---|
| Revenue | $24.4 | $70.8 | $30.7 and $81.2, respectively |
| Income from operations | $3.0 | $7.7 | $3.3 and loss of $20.0, respectively |
| Net loss | $0.5 | $5.5 | $2.0 and $36.4, respectively |
| Net loss attributable to common stockholders | $0.6 | $5.8 | $2.6 and $35.9, respectively |
| Operating cash flow | Not presented for the quarter | $24.6 | $15.1 for the nine-month period |
Quarterly operating margin was approximately 12.1% (versus 10.9%); nine-month operating margin was approximately 10.9%, compared with a negative 24.6%. These improvements reflect lower expenses, including lower depreciation and amortization and cost reductions; they do not offset the decline in revenue. Adjusted EBITDA, a non-GAAP measure, was $11.5 million for the quarter versus $14.5 million, and $36.6 million for nine months versus $34.1 million. Management reported nine-month Adjusted EBITDA from non-deployment businesses of $2.8 million, versus a loss of $1.3 million.
Balance sheet, debt and liquidity
- At December 31, cash and cash equivalents were $16.8 million and restricted cash was $1.0 million. Current assets were $106.4 million against current liabilities of $95.0 million; working capital was approximately $11.4 million.
- Total liabilities were $249.5 million and total stockholders’ deficit was $72.4 million. Net carrying value of notes payable was $156.4 million; the filing reports approximately $165.6 million of debt principal, comprising $90.8 million recourse and $74.8 million non-recourse debt.
- For the nine months, operating activities provided $24.6 million, investing activities used $0.4 million and financing activities used $32.9 million. Cash fell $8.7 million. Operating cash flow included working-capital movements, including a $15.9 million increase in accounts payable and accrued expenses.
- The revolving facility was nearly fully drawn: $19.6 million of $19.8 million, leaving $0.2 million available. Management stated that cash, cost reductions, financing and expected operating cash flows should meet liquidity needs for the next twelve months, while acknowledging possible need for additional capital.
Material changes and unusual items
- Revenue fell 20% in the quarter and 13% for nine months. Content & Entertainment revenue declined 20% and 25%, respectively, primarily due to lower physical-media sales and a shift toward licensed content, which earns lower fees. Phase I revenue fell as systems lost eligibility for certain studio virtual print fees (VPFs).
- Management expects nearly all Phase I systems to stop earning VPF revenue from certain major studios by December 2017. The related revenue decline is expected to be partly offset by reduced non-recourse debt cash outflows; ancillary system revenue is expected to be less material.
- SG&A declined 20% for the quarter and 32% for nine months, reflecting workforce and other cost reductions. Nine-month depreciation and amortization of property and equipment fell 20%.
- The company repaid its 2013 Term Loans in November 2016 and recorded a $0.7 million loss on extinguishment. It issued $5.5 million of 12.75% Second Secured Lien Notes, including loans from a director and the CEO/chairman. A December exchange canceled $3.4 million principal of convertible notes for 450,000 shares and warrants, with $0.4 million of debt-conversion expense.
- Termination of the Pavilion Theater capital lease generated a $2.5 million gain. A January 2017 office relocation was expected to save more than $0.7 million annually, with a $0.5 million termination fee payable over five years.
Outlook, risks and contingencies
- Management expects further VPF-related revenue declines in Phase I and Services, and continues cost-reduction measures. It provided no specific consolidated revenue or earnings guidance.
- The filing reports accumulated deficit of $348.2 million, continuing historical losses, substantial debt obligations and covenant requirements. A covenant waiver for the quarter ended December 31, 2016 was obtained on February 13, 2017 for the Cinedigm Credit Agreement and Second Secured Lien Notes.
- Nasdaq had notified the company that it was not meeting the $15 million minimum market value of publicly held shares requirement. On February 8, 2017, a Nasdaq Panel granted continued listing subject to demonstrating compliance by March 31, 2017, or June 20, 2017 if specified conditions apply. Continued listing was not assured.
- Management concluded disclosure controls and procedures were ineffective at December 31, 2016 because remediation of a previously identified material weakness was ongoing. The filing reports no material change to previously disclosed risk factors and no legal proceedings.
Important facts for investors to verify
- Whether Cinedigm met Nasdaq’s public-float market-value requirement by the applicable deadline and remained listed.
- Subsequent covenant compliance, available liquidity, debt maturities and whether additional financing was needed.
- The pace and financial impact of Phase I VPF expirations and whether anticipated debt-service reductions offset lost revenue.
- Progress in remediating the material weakness and restoring effective disclosure controls.
- The dilution and terms associated with debt exchanges, warrants, share issuances and insider-linked financing.
- The filing’s cover page states shares outstanding “as of February 9, 2016,” although the report was signed in February 2017; verify the intended date and share count.