Cineverse Corp (CNVS) 2013 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to Cinedigm's first quarter 2013 earnings conference call. With us today are the Company's Chairman and Chief Executive Officer, Chris McGurk, and Chief Operating Officer and CFO, Adam Mizel. Before I hand the call over to Management, please note that in this call, certain information presented contains forward-looking statements. These statements are based on Management's current expectations and are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, August 14, 2012, and Cinedigm does not intend and undertakes no duty to update future events or circumstances.

In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The Company's earnings release, which was issued this afternoon, and is available on the Company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes that such non-GAAP financial measures are useful to investors. And now, I'd like to turn the call over to Chris McGurk, Chairman and Chief Executive Officer of Cinedigm. Chris.

Thank you, operator, and thanks, everyone, for joining us for Cinedigm's first quarter fiscal 2013 conference call. The fiscal first quarter was an important and exciting time for Cinedigm. Most critically, we completed our acquisition of New Video, on April 20, creating a full-service end to end digital studio, acquiring and distributing independent films and specialty content both theatrically and via all key digital mobile and home media platforms. Cinedigm is now the number one operator in each of its businesses. We are the number one servicer of digital cinema screens, the number one provider of operational software to exhibitors and movie studios, and the number one aggregator and digital distributor of independent film, television, and other content. We have also quickly and efficiently integrated New Video into CEG, our content and entertainment group with Steve Savage and Susan Margolin leading our efforts as co-presidents of the division. This new CEG is performing well and has exceeded our financial expectations right out of the gate.

Our digital cinema servicing group also continues to aggressively push towards the deadline for domestic deployment. We are also working with our studio partners to expand the installation deadline to December 31 and are optimistic this will occur. Finally, our software unit continues its growth with a new European customer, the completion of a major domestic exhibitor implementation and a robust sales pipeline. Timing delays continue to impact us in the short-term, but we expect a number of new software customers from our ongoing sales efforts in the near future.

Now let's discuss our first quarter fiscal 2013 results. Consolidated revenues for first quarter fiscal 2013 were $20.9 million, a 15.9% increase over the prior-year period, including New Video results, since April 20. Non-deployment revenues for fiscal quarter -- for first fiscal quarter 2013 were $6.9 million, a nearly 100% increase over the prior-year time period, largely due to the New Video acquisition and a 5.6% increase over the prior-year quarter inclusive of New Video on a pro forma basis. Consolidated adjusted EBITDA from continuing operations for first quarter fiscal 2013 was $13.5 million, consistent with the $13.6 million generated in the year ago period.

Adjusted EBITDA, excluding deployment subsidiaries, was $825,000, versus $815,000 in the same period last year. These results were in line with our expectations, as movie release patterns reduced our phase 1 deployment revenues and EBITDA was impacted by our budgeted investment and content acquisition and other short-term revenue recognition timing impacts. Adam will provide greater financial context on the quarter later in the call.

Now, let's discuss our three core divisions in more detail starting with our digital deployment and servicing business. This past fiscal quarter, we signed license agreements for 566 screens and installed 644 screens. In total, as of today, we have over 11,000 screens under agreement and 9,977 screens installed at June 30, across 234 exhibitors. We still have a number of exhibitors in our pipeline to sign, and, as I mentioned earlier, we are optimistic that our installation deadline will be extended until December 31.

On the software front, we have committed considerable budgeted resources to build our deal pipeline and support our international expansion, helping to ensure that we capitalize on this growth opportunity. And we are seeing solid early results. In April, we hired industry veteran Larry McCourt, as Senior Vice President of Software Sales and Marketing, charged with expanding and strengthening a worldwide client base for the Company's software products. Additionally, as part of a complete reorganization of the division along key product lines, we announced that another long-term studio and software executive, Rob Springer joined as Senior Vice President and Product Manager of Distributor Solutions. This reorganization will refocus the Company's product development strategies and resources for improved client responsiveness and rapid product expansion. Each of our restructured product lines, distribution, exhibition, and content, will now be led by an experienced product manager with responsibility for determining and executing the Company's product vision.

In June, we announced that Empire Cinemas has selected Cinedigm software to automate and manage the operation of Empire's digital movie theaters in the United Kingdom, including the iconic Empire At Leicester Square in London, as we continue to expand our European footprint. Empire Cinemas operates a total of 164 screens. We also completed our software deliveries to AMC theaters, which controls over 5000 theaters screens in North America. Larry and the team have a robust sales pipeline and we have pilots started at several exhibitors, as well as several contract negotiations nearing completion.

Now I will turn to our content distribution business. With our recent New Video acquisitions, bringing over 5000 movies and 500 television shows to our library, we clearly jump started our plans in the high-growth area of content acquisition and distribution, strongly positioning us in the multi-billion dollar independent film and alternative content business. Already, we have acquired two award winning films at Sundance and South by Southwest, The Invisible War and Citadel, the highly regarded independent film In Our Nature, as well as 22 Bullets, a Luc Besson and Jean Reno thriller. And last month, we announced the acquisition of Don't Stop Believing, Every Man's Journey, a sensation at the Tribeca Film Festival and the real live rock 'n roll story of the Filipino singer Arnel Pineda, a formerly homeless teen who was plucked from YouTube to become the front man for the iconic American rock band, Journey. Our pipeline of potential film and library acquisitions remains very strong. So, expect more content announcements in the coming months.

Our plan anticipates distributing one to two independent film releases per month as well as rolling out multiple alternative content in theater channels over the next 18 months. Our objective is to fill underutilized theater seats by aligning targeted content with audiences who want to enjoy programming in a communal setting. Then, we will leverage the awareness, publicity, and enhanced ancillary value that only a theatrical release can bring, and distribute that content on the consumer's preferred home and/or mobile viewing device, be it an iPad, a mobile phone, or a TV. To support these aggressive growth plans we made some budgeted staffing moves subsequent to quarter end. Vincent Scordino was brought on to head up theatrical acquisitions. He is a veteran acquisition executive who was most recently at millennium, where he led negotiations in acquiring a number of successful films, including, most recently, Richard Linklater's Bernie. We also promoted Bob Fiorella to Executive Vice President and Chief Strategy Officer for Entertainment, charged with guiding strategy in this area, including analyzing the tremendous number of business development opportunities that have arisen since the New Video acquisition announcement.

June was a very busy month in our fast growing distribution division as we released our first acquisition, the high-profile film, The Invisible War on June 22, to glowing reviews, including the New York Times Critics Pick and a 100% fresh rating on movie site Rotten Tomatoes. In fact, the film is the best reviewed movie of the year. The interesting coverage around this very important and newsworthy documentary on the military has been equally tremendous, with inclusion in Entertainment Weekly, ABC's The View, HBO's Bill Maher, Newsweek, The Daily Beast, and the Huffington Post. The theatrical release for The Invisible War is wrapping up in August with the film available on digital platforms in September.

June also saw the release of the documentary about UFC champ -- champion, Anderson Silva, called Like Water. The release date in theaters and via video on demand with Lions Gate was timed to capitalize on the highly anticipated Silva fight in mid-June. Based on presales of ancillary distribution rights and early release results, we are confident that both The Invisible War and Like Water will be profitable and consistent with our releasing economic model. Are Indie Direct unit which offers up our theatrical distribution capabilities on a fee for service basis to content owners was also busy, as we released Battlefield America, Where Kids Rule, to almost 200 theaters in June.

Further validating Cinedigm's strong position in the digital space, we have significantly outperformed industry growth for the first half of the calendar year on all major digital platforms. According to recent data published by Digital entertainment group, the digital content distribution category grew nearly 77% industry wide from a year ago, while Cinedigm saw growth of 114% in that same time. In the electronic sell through category, the industry grew 22% while Cinedigm more than quadrupled that with growth of nearly 95%. And Cinedigm's transactional VOD business saw equally impressive stats, growing 98%, while the industry grew 12%. We expect to see continued strong results in this area, as we aggressively seek new content and distribution partners for our existing digital businesses, while exploring and investigating new opportunities for growth. On the DVD platform, Cinedigm outperformed the industry, as well, posting growth of 9.2% as the industry saw a drop of 8%. So, overall, a very impressive performance from our distribution business this year.

And with that, I will now turn the call over to Adam Mizel, our Chief Operating Officer and CFO, to further discuss our financials for the quarter. Adam?

Thank you, Chris. Q1 2013 was a solid quarter and in-line with our expectations as we seamlessly integrated New Video into our operations and continue to experience growth across all of our non-deployment units. Total revenues grew 15.9% to $20.9 million, and non-deployment revenues rose nearly 100% to $6.9 million, as we benefited from that consolidation of New Video. Including New Video results in both periods, our non-deployment revenues increased 5.6%, year-over-year. Total EBITDA was substantially flat in year-over-year at $13.5 million, and the non-deployment EBITDA was also flat at $825,000. As we expected, deployment revenues in phase1 were down $1.1 million this quarter, due to movie release timing in the calendar year, and this drops straight to the consolidated EBITDA bottom line. In addition, as Chris mentioned earlier, we released two independent films this June so experienced the J curve we have described previously, in which we recognized acquisition and marketing expenses at the release date of a movie, in advance of earning the expected revenues from all media over a 12 to 36 month period.

The J curve effect this quarter was an up front expense of almost $260,000. The good news is that, based on our ancillary market pre-sales and estimated VOD revenues, we expect to be profitable on both of these titles in the near term. Software revenues were impacted by the continuation of certain delays in revenue recognition, and deployments, that we discussed last quarter, as we did deliver to a major exhibitor, but still experienced delays at two other customers, a major studio and one of our international exhibitors. This timing delay represents approximately $1 million of remaining licensing revenue we will recognize later this fiscal year. The first quarter 2013 net income was also impacted by M&A costs of over $1.3 million, from the New Video acquisition.

Now I will discuss each of our segments in greater detail, first, our assets heavy phase 1 and phase 2 deployment segments and the non-recourse debt associated with the corresponding deployments. As mentioned previously, phase 1 and EPS revenues decreased $1.1 million in the quarter, to $10.4 million, primarily, from a modest reduction in the number of movies released during the quarter, as well as a unique calendar quirk as last year in the final Transformer movie was released on Wednesday June 30, rather than the first Friday in July. That alone accounted for almost $700,000 of the revenue variance. To remind you, we are in recurring phase 1 with service fees of 5% of the total phase 1 VPF revenues.

Phase 2 deployment revenues were $3.6 million for the first quarter, representing an increase of 19% year-over-year. This revenue growth was driven by the success of our phase 2 deployment program. The total number of deployed phase 2 screens installed was 6,253 at June 30, versus 2,829 last year at June 30. We have 660 screens signed in our backlog, as well as over 500 additional screens still in our sales pipeline. We expect to install most of these screens by the end of the calendar year. All of these screens generate recurring revenues for our digital services unit as well as upfront license fees and recurring maintenance fees for our software division. We continue to aggressively strengthen our balance sheet, as we paid down over $14 million of nonrecourse debt in the quarter.

Our services segment, which includes the previously mentioned digital cinema services unit and our software unit, generated $5.2 million of revenues, including inter-segment deployment service fees, a growth of 10% year-over-year, as we serviced over 3,300 more screens this year than last. Our software unit with revenue continued it's recent growth, as revenues increased to $1.8 million in the quarter, up nearly 11% versus the prior year period. The software unit continues to experience benefit from our phase 2 deployments, which generated license and recurring maintenance fees for our Theatre Command Center product, the software that allows a theater to operate like an iPod. In addition, growth was driven by our expanding TCC enterprise product, which provides centralized exhibitor management and data analysis and our EMS product, which manages the entire backend movie booking and distribution process to address the operational needs of exhibitors. We are building a substantial pipeline of new business in these areas.

This was the first quarter for CEG, our content distribution unit, to include our New Video acquisition. This segment generated $2.8 million of revenues, compared to $0.3 million in the previous year period. Pro forma for New Video in both periods, our combined content unit revenues were substantially unchanged. This understates our growth, because at the time New Video converted its financials to GAAP, New Video benefited from a significant one-time revenue recognition catch up a gain, related to its subscription VOD revenues in a prior-year fiscal first-quarter. Excluding this accounting impact, growth in CEG would have been almost 20%, year-on-year.

As Chris mentioned earlier, we saw solid growth in both our physical goods and digital distribution revenues year-on-year as we out-paced the industry. Our digital revenues increased 114% this quarter, as we both continued to license existing library content to the various and growing number of digital platforms, as well as expanded our library, with 249 new properties, including 87 new TV series. We expect continued strong digital growth as we leverage our position as an aggregator, for all the major digital platforms including iTunes, Netflix, Amazon, Hulu, Xbox, Voodoo and others, as well as benefit from the plans of a number of major consumer brand, to launch their own subscription VOD services.

As we discussed earlier, we also released two films, and recognized $269,000 of up front acquisition and marketing expenses this quarter. As a reminder, we recover all of our upfront costs from all content revenue streams and earn our typical 30% distribution fee prior to sharing economics with other partners. We expect to typically earn a gross 60% to 100% return on this investment from our fees or 25% to 35% IRR are over a two to three year initial period.

Finally, we are reaffirming the annual guidance provided last quarter. In total we expect to produce consolidated GAAP revenues, including our deployment units of $91 million to $97 million and consolidated adjusted EBITDA of $57 million to $59 million in fiscal 2013. We expect fiscal year 2013 to produce adjusted EBITDA from non-deployment operations of $11.2 million to $12.7 million prior to the $4.5 million $5 million of GAAP expense impact from our 8 to 10 movie acquisitions and additional library acquisitions. Net of the GAAP expense impact, we expect to produce reported adjusted EBITDA from non-deployment operations for fiscal 2013 of $6.7 million to $7.7 million. We expect our portfolio of movie distribution rights to produce a strong and accretive Return on Investment as we previously discussed.

As a reminder, quarterly results are not a predictable metric for Cinedigm at this time, as we build our software and content release businesses, and each quarter can be significantly impacted, like this recent quarter, by software deployment, timing, and revenue recognition outside our control, by the timing of our CEG content acquisitions and the corresponding release dates, and by changing movie release dates by that major studios and the resulting impact on the EPS revenues. The seasonality of our businesses has increased with our New Video acquisition in with the heavy movie release calendar in our fiscal Q3 and ending December 31, and the significant holiday purchases that digital and physical DVD home entertainment products. This will skew our EBITDA performance to that quarter.

Now, I will turn the call back to Chris.

Thanks, Adam. In summary, we are excited about both the near and long-term prospects for the business. We have already taken key steps to bolster our presence in the content distribution space, expand our stable, predictable digital servicing business and ultimately generate strong multiple recurring revenue streams to further deleverage our balance sheet and generate significant profits. We also continue to develop Cinedigm's presence internationally and have already made great strides in Australia, New Zealand, Brazil, and the UK. We will continue to further expand our presence globally, where many theaters have yet to be digitally converted. We thank you for your time and attention today and look forward to sharing our continued progress on next quarter's call.

With that, I will open up the call to questions. Operator?

(Operator Instructions)

There do appear to be no questions. I would like to turn the call back over to Chris McGurk.

Okay. Well, thank you all again for your attention on the call and all of your support. And we look forward to talking to you again very soon. Thank you.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.