Cinedigm Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2018. This is the company’s fiscal second quarter. The filing was signed November 14, 2018.
Business context
Cinedigm distributes independent film and television content and operates digital cinema equipment and related services. It reported two segments: Cinema Equipment and Content & Entertainment (CEG). The company recast prior-period segment results following its segment reorganization.
Financial performance
| Metric | Three months ended Sept. 30, 2018 | Prior-year quarter | Six months ended Sept. 30, 2018 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $13.7 million | $16.3 million | $26.8 million | $31.5 million |
| Operating income (loss) | $(0.9) million | $0.0 million | $(1.3) million | $(0.9) million |
| Net loss | $(3.5) million | $(7.5) million | $(6.8) million | $(12.6) million |
| Net loss attributable to common stockholders | $(3.6) million; $(0.09) per share | $(7.5) million; $(0.60) per share | $(6.9) million; $(0.18) per share | $(12.8) million; $(1.07) per share |
| Adjusted EBITDA | $2.9 million | $5.9 million | $6.0 million | $11.3 million |
Adjusted EBITDA is a non-GAAP measure. The filing reports no consolidated gross margin figure. In the quarter, Cinema Equipment revenue fell 25% to $7.5 million, mainly as fewer systems earned virtual print fees (VPFs); CEG revenue was flat at $6.3 million. For the six months, Cinema Equipment revenue fell 26% to $14.6 million, while CEG revenue rose 4% to $12.2 million. Quarter operating results included a $3.2 million prior-year debt-conversion and extinguishment charge that did not recur; lower interest expense also helped reduce net losses.
Cash flow, debt and liquidity
- Cash flow: Six-month operating cash flow was $1.6 million, down from $20.5 million. Investing used $0.9 million and financing used $3.0 million. Cash, cash equivalents and restricted cash declined $2.3 million to $16.7 million, including $1.0 million restricted for debt service.
- Balance sheet: Cash and cash equivalents were $15.7 million; total assets were $99.3 million. Current liabilities of $82.4 million exceeded current assets of $58.4 million; management reported negative working capital of $24.0 million. Total liabilities were $128.0 million and total stockholders’ deficit was $28.7 million.
- Debt: At September 30, reported notes payable were $67.1 million net of discounts and issuance costs. The filing also describes approximately $71.4 million of outstanding debt principal: $30.3 million non-recourse and $41.1 million recourse. The $19.0 million revolving facility had $0.8 million of availability. Contractual debt-related obligations, including estimated interest, totaled $90.1 million.
- Management’s liquidity view: The company stated it expected cash, operating cash flow and support or funding availability from Bison and other parties to meet needs for at least one year. It warned that failure to generate revenue, obtain capital or control discretionary spending could adversely affect liquidity.
Changes, outlook and risks
- Management attributed declining Cinema Equipment revenue to the end of major-studio VPF payments on many Phase I systems. Remaining VPF revenue from smaller studios was expected to continue through December 2020, but to be less material. CEG results are seasonal, typically stronger in the holiday quarter.
- The Second Lien Loans, with approximately $10.8 million outstanding, mature June 30, 2019; management planned to obtain capital from Bison or an affiliate to repay them. A separate $10 million Bison loan matures July 20, 2019 and may be payable on demand.
- After quarter-end, the company borrowed $5.0 million through an unsecured convertible note issued to MingTai Investment LP. The one-year note bears 8% interest, permits extensions, and is convertible at either party’s election; proceeds repaid the $5.0 million 2013 Notes before maturity.
- Management identified customer credit concerns: one Cinema Equipment customer was slow-paying while contract terms were being renegotiated, and another was in bankruptcy proceedings. The quarter included a $1.1 million doubtful-account provision.
- The filing reports no material changes to previously disclosed risk factors and no legal proceedings. Management said disclosure controls were effective and there were no material quarterly changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the company secures funding to meet the June and July 2019 debt maturities, and whether the Bison loan is extended or demanded early.
- Actual operating cash generation and revolving-credit availability, given the sharp year-over-year reduction in six-month operating cash flow and negative working capital.
- Collections from the slow-paying and bankrupt Cinema Equipment customers, and any further credit-loss provisions.
- The pace of VPF revenue declines and the ability of CEG growth to offset that decline; compare reported non-GAAP Adjusted EBITDA with GAAP losses and cash flows.
- The dilution and settlement terms of the $5.0 million convertible note and outstanding equity awards.