Cineverse Corp (CNVS) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Digital Cinema fiscal 2013 fourth-quarter earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time.

(Operator Instructions)

As a reminder, this webinar is being recorded. Now I will turn the conference over to your host, Jill Calcaterra, Chief Marketing Officer. Please begin.

Good afternoon, everyone, and welcome to Cinedigm's full year and fourth-quarter 2013 earnings conference call. With me 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 on 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, June 19, 2013, and Cinedigm does not intend and undertakes no duty to update feature 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 measures and an explanation of why the Company believes such non-GAAP financial measures are useful to investors. And now I would like to turn the call over to Chris McGurk, Chairman and Chief Executive of Cinedigm. Chris?

Thanks, Jill, and thanks everyone for joining us for Cinedigm's full year and fourth-quarter fiscal 2013 conference call. I am first going to give a brief overview of our current achievements, and then Adam will review our financial highlights. After that, we will answer any questions you may have. So, let's begin.

As a backdrop, I want to reiterate how we have completely transformed Cinedigm since I joined the Company into 2011. In that first year, we sold our two non-core businesses so we could focus on our core Digital Cinema servicing software and content distribution units. Then last year, we acquired New Video, the world's largest digital aggregator of independent content, creating a complete end-to-end independent distribution Company solidly positioned in the digital arena and ready to take full advantage of the opportunities the digital revolution presents us. Just as important, we accomplished the strategic initiatives while delivering strong growth and financial results during the period of transition. Now, looking forward, we expect fiscal 2014 will be a year of continued investment as well as a year where we will begin to reap the returns of our growing businesses. We will take full advantage of emerging Global opportunities, accelerate our movie releases and solidify our market position.

Perhaps most important, during this last fiscal year, we successfully refinanced all of our existing debt, which dramatically improved our balance sheet and cleared the way for future strategic activity. In one step, we successfully lowered our cost of capital, extended our mezzanine debt maturity to 2021, and ensured that all of our debt was nonrecourse to our content and software businesses. We now have zero recourse debt, and we estimated the balance of the nonrecourse debt will rapidly decline by roughly $40 million to $45 million per year. This complete refinancing also improved our capital flexibility and simplified our story. It was a complete win on every level for the Company.

Now, I'd like to highlight some of the recent achievements in our three core divisions. Let me start with Digital Cinema Services. We are pleased that our domestic screen [signing] program is virtually complete. We have far surpassed our stated goal to deploy more than 10,000 screens with 11,703 screens now installed across 267 separate exhibitors. In the quarter, we also completed a 296 screen installation at Caribbean Theaters, an international exhibitor, and began initial installations with our partner ICAA in Australia and New Zealand with roughly 100 screens installed and more to come. Additionally, we are now in discussions to further expand into other territories including Latin America, Eastern Europe and Asia. And, as we have stated previously, we expect our VPF servicing fees to generate $6 million to $10 million in recurring annual EBITDA over the next three to five years.

Now to review the highlights from our Software business. As we announced earlier this year, Dan Sherlock joined us in January as the new President of the Software group. Dan is an entertainment software veteran with previous executive experience as President at Baseline.com and General Manager of Movies.com while it was owned by Disney. One of the first projects Dan undertook was spearheading the introduction of software as a service for our products. As the industry finally shifts to the SaaS model, our transition is being well received by studios and exhibitors.

To punctuate this model shift, subsequent to our fiscal year end, Dan and his team presented our enterprise exhibitor software during CinemaCon. This is Cinedigm's first web-based SaaS product geared to provide executives with a high-level dashboard view into their businesses. The response has been very positive with 12 of our existing customers signing MOUs on the spot. Dan and his team have also focused significant resources on completing the rebuild of our distributor project for major studios. We're in final go-live preparations with a major studio customer and expect to also upgrade a number of our other existing accounts. Additionally, as we discussed in our last investor call, we expect to complete the delayed customization and implementation for another major studio customer in the coming months. With these important changes and an active sales pipeline, we continue to add to our over 70% share of all studios using our distribution software product and our footprint of over 16,000 exhibitor screens using our theater software solutions.

Now, let's move on to the Entertainment group. During our last earnings call, I spent the majority of my time discussing the digital revolution that is transforming the entertainment business. I won't get into the same level of detail now, but let me remind you of the positive impact of the current digital explosion. First, more quality independent movie and television content with star talent is now available at a lower cost than ever before, and it can now be delivered digitally in a very flexible and economic manner to audiences in theaters and in the home and mobile markets. Second, multiple existing and emerging low-cost digital distribution platforms are now competing in an arms race for quality content. Third, aggregators and programmers are in high demand to thoughtfully guide and monetize the school of content on all existing and emerging platforms. And finally, the opportunity to own over-the-top channels that narrowcast premium targeted content to readily accessible audiences on all devices is now a reality.

Our plan to capitalize on these upsides from the digital revolution is very focused and clear. We will continue the low risk, high-volume, high-variety release strategy for acquired independent content that we've already begun as we ramp up from five movie releases last year to 15 to 18 releases this fiscal year. We will continue to grow our 20,000 title digital library of films and television episodes by acquiring distribution rights to the high-quality independent movie and television product demanded by our rapidly expanding digital and VOD partners. We will continue to extend Cinedigm's leadership position and relationships with core theatrical and digital platforms. We will continue to identify and partner with innovative first movers in the digital content revolution including exhibitors, producers and new digital platforms. We will aggressively build our over-the-top channel initiatives, leveraging our unique assets to capitalize on the upside of this high-potential new business. And finally, we will leverage our successful distribution strategies by growing our businesses internationally.

The execution of this plan lies within the three core pillars that make up our Entertainment Group. One, independent movie acquisitions and releasing. Two, content aggregation and distribution on all platforms in the theatrical, home and mobile markets. Three, over-the-top branded channels and apps. Now, I want to briefly delve into these strategies. To date on the independent movie distribution front, we have acquired 17 titles ranging from horror to documentaries and from traditional releases to DMA and Ultra VOD. We have released 10 films so far including five in our fiscal first quarter ending in June. Our first acquisition, the Invisible War, was nominated for an Academy award and won the prestigious Independent Spirit award. Other high-profile releases include the English Teacher with Julianne Moore and Greg Kinnear, Arthur Newman with Colin Firth and Emily Blunt, and Violet and Daisy with James Gandolfini. And we're particularly excited about the upcoming August release of Short Term 12, a wonderfully written, acted and directed film that is already being called one of the best indie films of the year.

Now, I would like to take this opportunity to provide more insight into the low-risk, high-reward economic model of our movie releasing business where, as opposed to the traditional studio model, the positive impacts of the digital revolution I just described are enabling us to acquire and release content at a very low upfront cost in a very flexible manner across releasing windows and platforms resulting in a targeted IRR well north of 20%. A specific example of this would be our recent release of the English Teacher, our Julianne Moore movie. Through three weeks of pre-theatrical Ultra VOD release revenues, and a significant SVOD license, we recovered all of our upfront acquisition costs, plus we began to generate a profit through fee revenues, all this prior to the film's theatrical release, prior to any DVD Blu-ray sales, and prior to the exploitation of the film on any other platform. Now, when you consider that we have almost another 15 year distribution rights term in which generate additional profits on this film in all media in North America, the attractiveness of our business model is very, very evident.

On the aggregation and distribution front, we have equally positive news and results to date to share. Our overall digital business was up 55% in fiscal 2013 versus a year ago, and during the year, we distributed nearly 10,000 hours of film and TV content to the digital [echo] system. On the physical side of our business, we had another great year. We significantly outperformed industry averages during the fiscal year, with 65% growth in physical product sales -- that's DVD and Blu-ray -- compared to an industry decline of 6%.

The partnership we announced in April with Universal Studios should further enhance our physical DVD and Blu-ray distribution efforts. In this partnership, Universal will provide comprehensive supply chain services, including direct sales access to major accounts like Walmart, Target and Best Buy across North America for Cinedigm's growing DVD and Blu-ray library. With Universal by our side, we look forward to rapidly expanding our home entertainment business and are certain that more opportunities to launch mutually beneficial new business initiatives with Universal will develop as this innovative partnership evolves.

And finally, on the over-the-top app channel front, we are moving aggressively to establish ourselves as a key player in this high-potential and rapidly evolving business. We just launched a subscription VOD channel with Google's YouTube for our Docurama brand, and we will soon launch an app supported version of that same app on virtually all platforms including Samsung, Sony, Roku, Xbox and others. For this channel, we are leveraging our huge documentary library where we control over 1200 titles, and our independent film acquisition business where we've acquired 13 new theatrical documentaries in the last year alone. Additionally, we tapped into our unique relationships with the theatrical exhibition community to help launch this effort in premier Docurama with a seven-week presentation of seven documentaries and 15 theaters around the country, providing a unique promotional and branding advantage not to mention tremendous PR coverage.

We believe that in this over-the-top app business, we are at the very beginning of a huge growth opportunity for new networks with very few existing over-the-top channels that enable content suppliers to go direct to audiences on all devices via the Internet. The upside potential of this new over-the-top channel approach is enormous. It is already being recognized in the market. Just last month, DreamWorks paid $33 million with a $70 million additional potential earnout for AwesomenessTV, a YouTube channel. Another YouTube channel called Nerdist was recently acquired by Legendary Films. And last December, Time Warner led a $45 million investment in Maker Studios, which produces digital content and services online channels.

So clearly, the world is waking up to the upside potential of this over-the-top channel business. And we believe Cinedigm is uniquely well-positioned to lead in the over-the-top channel area in the independent content space for several reasons. First, we have an enormous 20,000 title library of digital content with a particular strength in premium targeted categories including documentaries, anime, kids' programming and more. Second, as a complete independent studio, we have the ability to monetize this content off-channel on all platforms and throughout our distribution network of retailers as well as all other home and mobile platforms. Third, we have theatrical distribution capabilities to provide a very high level of branding and awareness to these channels as I just described with our recent theatrical launch of Docurama. And finally, we are experts in precisely marketing to these targeted and added audiences in extremely effective ways using social media and the Internet. Obviously, there is a huge opportunity for growth on these platforms, and it's an area where we will focus significant management time and resources. Now I'll turn the call over to Adam Mizel, our Chief Operating Officer and CFO, to discuss our financial results.

Thank you, Chris. I will begin with a review of our financial results for the full year fiscal 2013, which ended on March 31. Please note that all comparisons referenced in my prepared remarks reflect year-over-year comparisons unless I clarify otherwise.

Revenues for fiscal 2013 were $88.1 million, a 15% increase from $76.6 million in fiscal 2012. For fiscal 2013, adjusted EBITDA from continuing operations totaled $55.6 million, a decrease from $58 million a year ago. The increase in revenues was primarily the result of solid performance at Cinedigm's Entertainment Group, including results from the New Video acquisition, more than offsetting modest decreases in deployment and services revenues due to -- one, a reduction in VPF revenues and EBITDA in the fiscal year by each approximately $2 million during the summer of 2012 as major studios shifted their release schedules around the Summer Olympics and the issues surrounding the Aurora, Colorado movie theater shootings. And two, the delayed delivery in customer product acceptance related to over $2 million in software revenues as the completion of the distributor product upgrade moved into fiscal year 2014. Non-deployment revenues, excluding Cinedigm's VPF units, grew 58% to $36 million inclusive of New Video during the fiscal year. Adjusted EBITDA from non-deployment businesses was $5.1 million versus $5.7 million in fiscal year 2012.

As we've discussed in previous calls, as Cinedigm drives revenue growth, we do not expect all of this growth to immediately drop to the bottom line. We are in the middle of an investment period as we ramp up the resources and infrastructure needed to support our content and software growth engines. As a result, decline in EBITDA resulting from this expansion was primarily driven by one, the expenses associated with scaling up our movie and library acquisitions and releases where incurred a net $500,000 of J-curve distribution costs in advance of home entertainment revenues for those releases; two, the growth of our content acquisition, theatrical marketing and operations teams to support our expanded acquisitions and slate of releases; three, a significant expense investment in software new product development; and four, as referenced earlier, the software revenue recognition timing and studio schedule shifts and impacts on service fees.

Consolidated loss from continuing operations was $20.6 million or a loss of $0.44 a share for the full year compared to a consolidated loss from continuing operations of $14 million or $0.39 a share in the comparable prior year. However, after adjusting for the nonrecurring items, primarily the write-off of previously capitalized debt issuance costs, debt prepayment fees, and restructuring and merger and acquisition expenses around both our refinancing and our New Video acquisition last year, a consolidated loss from continuing operations was $7.3 million or $0.15 per share compared to $12.2 million or $0.34 per share in the prior year.

To briefly review the fourth quarter, revenues were $21.4 million, a 21% increase from $17.7 million in the year ago quarter. Adjusted EBITDA from continuing operations for the quarter was $13.5 million, a 6% increase from $12.7 million in the year ago period. Non-deployment revenues for the fourth quarter were $8.3 million, a 91% increase from $4.4 million in the year ago period, and 20% pro forma year on year assuming the results of New Video were included in both periods.

Adjusted EBITDA from non-deployment operations for the quarter was $900,000 up from $200,000 in the year ago period, reflecting the impact of the New Video acquisition, and the J-curve releasing expenses of $500,000. After adjusting for nonrecurring items such as write-off of previously capitalized debt issuance costs, debt prepayment fees, restructuring and merger and acquisition expenses, fourth-quarter loss from continuing operations was $4.7 million or $0.10 a share, slightly below a loss of $0.12 a share, $4.5 million in the prior year period.

This past fiscal year has clearly demonstrated the strong growth trajectory at Cinedigm, as well as the limited short-term visibility on quarterly results we have given, the impact a single movie release or software contract can have on any period. As we look forward into our current fiscal year 2014, we are excited by our growth prospects. Digital Cinema Services, which continues to seek additional international servicing opportunities, provides a stable recurring base of revenues and EBITDA on which we are building our software and content businesses.

We expect software will continue to grow this year as our distributor launch takes hold, enterprise web hits the market in force and international opportunities expand, though the growth will be somewhat muted by our shifting to software as a service model. This creates much greater long-term stability, earnings and equity value, but limits short-term results as we will not record significant upfront license fees. That is the right trade-off to make for shareholder value.

We expect our content revenues to more than double again this year, which would represent a greater than quadrupling of content revenues since our New Video acquisition in April 2012. This has been a successful acquisition and has put Cinedigm in the middle of the dynamic digital entertainment landscape and a key strategic conversation partner within our industry. Content EBITDA is also growing significantly, though much of this revenue growth does not yet immediately fall to the bottom line due to one, the J-curve accounting around movie releases we have discussed already, and two, the investment in growth infrastructure, sequel systems and now OTT channels that are required to keep us on the cutting edge of our industry. We must continue to rapidly expand our library and our new releases, and we must rapidly launch and expand our OTT channel business.

As Chris mentioned earlier, there is a massive opportunity, and that requires our focus and our investments. That is again the right trade-off to make to grow shareholder value. As a result of these trends, we expect our revenue in EBITDA growth to be strongest in the second half of our fiscal year upcoming, due to one, the timing of our software installation -- neither studios nor exhibitors go live on products in the busy summer movie season we are now in -- two, the normal seasonality in our business driving entertainment revenues and for the holidays in fiscal Q3 and Q4, and three, the planned ramp up in our movie releasing business.

We have released five movies alone to date in our fiscal first quarter compared to five all of last year, and incurred almost $2 million of upfront J-curve expenses just this first quarter alone. Revenues for these releases will kick in during the fall as they hit the home entertainment markets, and that slate is tracking at or above our profitability expectations already. As a result, we have already built in significant growth later this year based on DVD pre-orders, subscription video-on-demand license fee agreements, and transaction and cable VOD release commitments.

As one of our large and most thoughtful shareholders appropriately reminded us recently, we are not GE, and we should not attempt to manage our business towards quarterly expectations as a large Fortune 500 company can and will do. We are growing rapidly and making the necessary investments to drive value creation. We are building long-term and significant library value with 15-year distribution rights. We are building branded, high-margin owned OTT channels. We are adding SaaS software clients; we have refinance our balance sheet into lower-cost nonrecourse debt to provide us with the financial flexibility to support our growth. We will update our shareholders with our progress and our results, and in particular, major new customers and software, major movie and library acquisitions, results from our slate of releases, validating the profitability models we assume, and other achievements that will ultimately drive bottom line. 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 our business. It was slightly over two years ago that we laid out a strategy to transform Cinedigm to take full advantage of the digital revolution that is changing the entire entertainment business. Today, we are fully executing against that strategic plan in all areas. Digital Cinema continues to service our 11,700 strong screen deployments. Software is embarking on new and meaningful businesses, and the digital revolution has triggered opportunities for success in our Entertainment Group that are even greater than we imagined, with new platforms emerging, new distribution outlets and viewing devices launching, and an ever-increasing demand by customers to consume our vast library of content.

All in all, we have a clear roadmap for where we are headed, and the entire Management team is focused on producing results. In addition, we continue to spend time looking at accretive opportunities to acquire new content libraries and potential M&A that can profitability accelerate our growth plans. We are now a leader in a dynamic space with a strong team, strong businesses and unique plan. And we also expect consolidation opportunities in this rapidly changing landscape, and we plan to be a leader in those efforts as we move our business forward. We thank you for your time and attention today, and we look forward to sharing our continued progress on next quarter's call. What that, I'll open the call up to any questions you may have.

Thank you.

(Operator Instructions)

Joel Achramowicz, Merriman Capital.

Thank you. Adam and Chris, looks like you started off the year on a good note, especially with the new releases in the content area. I had a couple just house cleaning questions to begin with, Adam, on the debt side, now that it's all nonrecourse, there was a slight increase in -- sequential increase quarter over quarter, and the total nonrecourse debt, was that mainly as a result of restructuring and cost related to the recent financing?

Exactly. I mean, we paid down approximately $35 million of debt last year in absence of any of the fees in the cost of refinancing the whole thing.

So basically, that should be the high, From now on, it should be declining now?

That debt will pay down give or take around $40 million a year as we run out the VPF business over the next ten years. I mean, that's why that debt was upgraded to investment grade rating by Moody's and why we were able to complete the refinancing we did.

So obviously that's -- going forward now, that will just be -- the objective of the Firm will be to reduce that secularly?

Correct.

Just on a content perspective, Chris, there's a new documentary I think out that was just published today talking about the TWA flight disaster, and I was wondering if that is the kind of property that you might own or have an opportunity to bid for or whether you are involved in that?

Yes, we look at everything. I believe that is a TV doc, not 100% sure. But we look at everything that is out there. That to me, because it's been covered so much over the last I think 14 years since the actual crash happened, to me it's probably better served as a TV doc, and we're primarily looking -- although we look at everything, we're looking at documentaries that we can launch theatrically and get the kind of awareness and promotion out of them that only theatrical can bring you and we can do in a smart and targeted way. And then we can exploit the hell out of it in all the ancillary markets so, probably that one is a little bit too under the radar for that kind of space.

But you are in the mix for the most part of just about all the major documentaries?

Well actually, yes, that is absolutely correct. We've become kind of a go-to studio now for quality documentaries. We bought six docs that we will be releasing over the next few months. We've already released two of them. And we also bought seven other docs the we released under this Docurama program, and I would have to say that we're probably number one and number two stop for any producer or agent who is representing a doc. And I really believe that also extends to the rest of our content acquisition efforts.

When we picked up this movie, I think I mentioned in the last call, Short Term 12 that's getting just fabulous reviews, and quite frankly, to me is probably one of the best independent films that I've ever seen. It came out of South by Southwest, and they won both the Audience prize and the Grand Jury prize at the same time, which is highly unusual. And we picked it up. We were in the mix with the several other studios, the producers and the agents chose to go with us because of our track record and the plan we developed for that property. So I don't think we take a backseat to anyone right now in terms of either docs or narrative films in the range of pricing that we are looking at.

I was interested, DreamWorks is a little bit larger than you guys, but they struck a deal recently with Netflix this week to provide them with hourly content. I was thinking you guys, being the leader in indie films might eventually have opportunities to strike similar type deals as channels on some of these VOD-based over-the-top distributors, any thoughts on that?

I think down the road, I think as you probably know, our plan right now is really just to acquire content and not produce or develop content. We think that's a smarter way to go, particularly since, as I mentioned in my remarks, there's just a vast array of quality, independent content with star power in that you can acquire at much more favorable prices than even two or three years ago. So we're going to stick to acquisitions right now. We're selling our product -- both library product and our new product to Netflix now. I'm not going to rule out the possibility that down the road, there might be some original programming, but right now, our intent is really just to build our acquisition business and fully leverage once we get up to speed, fully leverage sort of our full slate and full lineup of product with platforms like Netflix and the other platforms that are available.

Joel, we just completed an eight figure license deal with some of our library content in Netflix, and included in that were a number of TV programs where for instance in season one, they licensed probably for a six-figure number, and for season two or three, because of the performance of the program, paid five to seven times more for the licensing rights for the future seasons because, effectively, we went out, we found content that met their demographic needs and performed well, and then we continue to bring more of that content and pricing goes up. That is the attractiveness of that intermediary model in the aggregation space we play. So we do -- we kind of doing some different similar things with Netflix from a different perspective without producing and taking the risk of original programs.

And you heard right, that was an eight figure deal that Adam mentioned, And just look at our $88 million in revenues this year; that's more than 10% of our revenue base just on that one deal alone.

And it obviously reflects too the track record here, you're building and finding good content and adding -- aggregating that into your portfolio.

Absolutely.

One final question, just a breakdown on the Phase I, Phase II revenues, do you have those numbers for the quarter, Adam?

I don't have them in front of me, but they'll be in the 10-K that we're filing tomorrow hopefully.

Great. Thanks guys, that's all I have for now. Good luck going forward.

(Operator Instructions)

James Basch, Dialectic Capital.

Sounds like a lot of things are coming together right now and a lot of interesting, compelling opportunities are in front of you. I guess in that vein, when you look at this fiscal year, what are some of the opportunities that you're most excited about? Is it too preliminary right now to try to give a rough range and quantifying some of those opportunities in this fiscal year and beyond? And I'll have a follow-up question after that.

I think in terms -- this is Adam -- in terms of opportunities, as we talked about in our prepared remarks, I think there's lots of really exciting things going on in our content acquisition and releasing business. We are excited about the slate of movies that we've acquired to date, and the performance of the first five that we've released so far have us very optimistic about the performance of that slate against our plans. And so, as I said in my remarks, that starts to build in a lot of growth later in the year because you release them now, 90, 120 days later, they hit the home market, so most of the revenues and earnings start from movies three to four months after their theatrical release if it's done in a traditional manner. And so that we see a lot of opportunity there. We're going into the Toronto Film Festival in September with a lot of opportunities for further attractive acquisitions that will set up the release slate for the rest of the fiscal year and into the next one.

Similarly, we're pretty excited about the opportunities -- we launched these branded ODT channels like Docurama. In the short run, that will not produce significant revenues and earnings because you got to build those, but they build very quickly if you put them in the right platforms with the right support of the digital partners on those platforms, which we generally have given our deep relationships with them as aggregators. I think you'll see that in the medium-term is driving a lot of value. And then we're owning branded platforms, and we're owning direct relationships with consumers in ways that we do not today, which we think will create a lot of value.

So both of those have us excited, and look on the software side, I think we're coming to the end of sort of a product refresh and upgrade cycle, and we have customers lining up looking at that. So I think as we look out -- not in the summer because people may kick tires, but they're not going to do much in the summertime given how busy this industry is with the summer releasing schedules. When we look in the back half of the year, we've got a line of people who look pretty interested in what we are bringing to them, so when we add all that up, we like what we see. We said that's coming over the next six to nine months. As we've learned this year, we're not in a place where we can predict on a quarterly basis and are going to give guidance as a result I think we'll give people a pretty good forward look three or four months out every time we get on the phone, and what we see and where things are going.

I think if I could add one thing -- this is Chris, James -- the other thing we're pretty excited about is this deal we just did with Universal a couple of months ago. When we bought New Video, clearly we bought a company that was a complete leader in digital distribution among independents and had great strength in that arena. Where there was room for improvement probably was in physical DVD distribution, where they were going through a rack jobber named Anderson. Doing this overall comprehensive deal with Universal basically brings the power of a major studio to bear against our physical DVD business. We think it's going to generate a tremendous upside on both our stream of independent films we're acquiring and also our library. And I think the great thing, too, is we've been talking to Universal about a number of other potential initiatives that we can put in place with them where they can sort of be our big brother in the marketplace, and we hope to have announcements in that regard going forward. So, from a distribution standpoint, we think being a partner with Universal has really upped our game tremendously and will help us both in acquiring new product and generating 20%, 30%, 40% more on the physical DVD side than what we were able to generate with the deal we had in place before that.

All right, sounds great. And so you mentioned potential M&A down the road, and while I recognize that there's nothing necessarily imminent on the horizon, I did want to ask a little bit more about that. In light of all the compelling stuff that you guys are talking about where it sounds like the second half of this fiscal year, we'll start to see maybe more of those opportunities drop to the bottom line, as a major shareholder, I'm anticipating that the stock is going to hopefully start to reflect that upside down the road. And so I would have concerns right now, even trying to keep in mind the long-term opportunities of M&A, that we would see another equity transaction, what I would consider over the long-term dilutive prices since I think the valuation here is really compressed. And, I have some concerns about how you would potentially finance that. I just don't want equity dilution right at these prices. So can you talk a little bit more about what your potential, what your parameters would be around M& A, whether what I'm saying is something that's been heavily discussed not only at the board level, and how you guys are thinking about other potential alternatives and financing if you were to pursue M&A? Thanks.

Sure, I think we said consistently that we keep our eyes and ears open on the strategic M&A front and we look at things that we believe are accretive. We all -- our board and our Management own a lot of stock, and we certainly are looking to do things that are accretive, that's one. Number two, as you rightly said, there's nothing imminent or we wouldn't even be talking about it. And so you need to be in the middle of those conversations to figure out what makes sense and when they make sense, if they make sense.

And so I think we weigh all of those factors you're describing and then others as we look at the opportunities out there. We're in a fast-moving space, and part of our analysis always is building versus buying, and we are investing and building lots of pieces of our business, and that's going to translate into the bottom line. If we see opportunities that allow us to accelerate the organic growth through an inorganic means, that part of our analysis. So I think there's a lot of factors, I hear your view and agree with your view on dilution in the general course because we don't like it, we don't want it. We have to find -- we will keep our eyes open for things that we think are accretive and add to the long-term value for everybody.

We're kind of -- this is Chris -- we're a rare commodity in the entertainment space because we're a public currency in a quality exchange, and we've got a lot of income. This isn't Adam and I out there turning over every stone, though the business is looking for the opportunity to sort of create the next Lionsgate model. Lionsgate ten years ago was $1.50 stock, and now they are a $28 stock, and a big part of that was because they were the only public currency with the strong public Management team on a quality exchange in town. And guess what? Now that we've sort of cleared the decks of the Company, done our refinance, if you look at us right now, you can really draw that parallel to where Lionsgate was. And again, as Adam said, we're being very careful in this whole arena. We're only going to look for opportunities that are accretive, but if we can follow that Lionsgate path and do a lot quicker than they did, I think our shareholders will be very happy, because we're in unique position sort of to create that next-generation version of Lionsgate at this point.

Good luck.

Kris Tuttle, SoundView Technology.

A couple quick questions. One, could you give a little bit of an update maybe on the software business and where there's an opportunity to transition to at least to a partial SaaS type model which could help predictability and adoption? And then my second question is the economics of the Business, especially in the new content, are compelling as you've laid out, is there any way to kind of dramatically accelerate that business from doing 20 films a year to 150 films a year? Is that kind of scale -- does that make any sense, or is it just the same number of better, bigger films I guess? Those are my two questions.

I'll answer the second question first and then I'll turn it over to Adam. The constraint on sort of scaling up the releasing business to that level, 100 films, is a distribution organization whether you're taking the movies out theatrically or you're going day-to-day theatrical or Ultra VOD. It's probably limited at the most to two pictures a month. That's about the most a distribution organization in the primary markets can handle. And I think once we ramp up to that point from a quality-control standpoint, I think that's just fine. And pumping two new movies each month into the ancillary markets is what we think is sort of the right amount of product to give leverage as we mix in that new product with library product, to sell at all the different accounts whether it's the physical accounts or the digital accounts. So we think getting up to 20, to 25 releases a year is the right level for our releasing organization to try to maximize value.

Okay.

The only thing I would add is that one of the ways we will grow that business more quickly is if we will look at acquisitions around the library side, because we can put through our digital and our Universal deal on home entertainment side of the Business. And that does circle back to James' question just a minute ago, which is the other way, the more aggressive we are in that space, that requires upfront capital that we recycle in a 6 to 12 month period. And so if you ask, one of the things we do think about on the acquisition front is look at libraries, not companies and we look at movies where if we can earn very high returns on capital, that's an example of where we have to evaluate finding capital versus passing on an opportunity. And we look at those things and we ask that question quite frequently. If we some day we can generate for us returns in the 30%s or 40%s, which sometimes we do, and if we need money for that, then we have to figure out how to do that, and that's all part of the trade-off that we have to balance all the time to get them to the rate of growth, because growth doesn't come without capital, and so we have to balance that's and that's what we do. I'm not sure on the software side what you're asking more clarity on, maybe Kris, just give me a follow-up of what you're a little more depth of what you're asking?

We talked about this a little while ago. I mean, there's the software, they tend to be large enterprise sales, big-ticket, large sales cycles, lots of special features, and of course there's a lot of different parts of the software opportunity in your business. And I guess my question there is, is there a transition or an opportunity to take that business into a more adoption-friendly kind of SaaS model that would allow customers to either buy new software from you or new versions of existing software for the transition to what is -- in the old days we called it monthly rental?

Yes, I think that, as I talked a little bit about and Chris did in the script, one of the things we're launching in this NOS prize web software is exactly that. We introduced it in April to our customers at CinemaCon. On the spot we signed up a dozen plus to MOUs to license it and to begin the SaaS implementation on August 1. And there is a long reasonable line behind that, so that is the kind of things we are doing. As you know, that -- if we signed up 20 of those guys, it won't produce $5 million or $2 million of revenue in the next quarter because it is a monthly, annual type SaaS model where you're going to build it and the timing of when you sign them and as they rolled it in, but it produces long-term stability. So that is absolutely where we're driving the product, and it's the same conversation we're having with the studios on a larger scale on the new version of our distributor product where they're starting to like that idea rather than looking at license and maintenance fees and modest patch fixes and then new major releases every few years rather than having that recurring SaaS and basically being part of that upgrade cycle and paying for it that way, they like it. I think you'll see more of that over the next 12 to 18 months as customers convert.

Got you. All right, terrific, thank you.

[Ron Chose].

Good afternoon. You mentioned Universal before and how that will add your business. Could you be specific and talk about the dollars that are involved? What was it, and what would it be now that you've established this relationship with Universal?

I'll try couple of things. I mean effectively, Ron, we believe what Universal does is makes us more effective at things we were doing in the past on the physical goods side because of their direct relationship with -- into the Walmart and Best Buys and Targets of the world of which we effectively become part of. Through their sales force and our sales force working together, our product shipping with their product, we will get better placement in the big retailers, we will get better notice and better participation in sales and incentives programs, and we will have effectively more leverage in our products. What we think that then does is we will be able to generate 20% to 30% higher DVD sales for the same title as if we were doing it before. So, when we look at some of -- and a lower manufacturing cost of doing that. So higher sales, lower cost, bigger margin, we're already beginning to see those signs when we look at some of the pre-orders we have with some of the movies we are releasing right now from the big retailers, they are larger than we would have expected before with our other partners and we expect that to keep flowing through as we work with them. So, that's the tangible on what we do today, and so we expect that to drive greater revenues on our DVD business.

Similarly, as Chris said I think, there are opportunities for us to work with Universal, combining one of our strengths with some of their strengths. In particular as we look at movies, that make sense to release date and date Ultra VOD, and then into the digital platforms, we have a different form than they do to do that. We can make that economically efficient at smaller volumes than they can do, we have different deals with the major -- with the Netflix 's and the HBO's of the world than they do for their major releases, and we have different relationships with exhibitors than they do for booking those kinds of things. And so, it's much easier for them to partner with someone like us to do many of those services for those movies than they could do themselves. That opens up a new horizon of movies we can acquire and new capital partner in acquiring them, back to one of our earlier conversations as we look at ways to leverage our dollars and make them go further by partnering with Universal and sharing the capital cost and risk of those kinds of things, our dollars go further, and we can drive growth in our business without other forms of capital, so those all always we are working with them.

Those are all discussions right now, Ron, and obviously we can't give you specifics on the cost savings that Adam mentioned because we've got the deal with Universal and subject to confidentiality agreement. But we see tremendous upside there on both the cost of revenue side, and this new business opportunities side. So I think it's also -- I we used to work at Universal a long time ago, I was the President of the motion picture group over there, and I put all the people into the home video organization in the late '90s who are still there and running it, so we've got a really, really good relationship with them, and we expect some new and exciting things just beyond the base deal that is going to generate a real upside to us financially to come out of this arrangement.

Well, not focusing at all on cost saving part efficiencies, just if you pre-Universal the deal, if you were doing $1 of business, what would you expect to do now that you're -- on the revenue side now that you have this relationship with Universal? Is it going to double that $1? Or what is it going to do in general terms?

I think, Ron, what I was saying before is if we were doing $1 of physical goods business, we would expect to be able to do on that same title $1.20 or $1.25. And in aggregate, I think when we built our budget and we look at the next year, what we've been saying is we think our content revenues will more than double year on year from this fiscal year, and they're a little north of $16 million this fiscal year. We're saying we expect them to more than double next fiscal year. Part of our confidence in that is because we will be generating more revenues on the same types of work through the physical side; part of it is releasing more movies, part of it is acquiring more things, there's a whole set of components. But having that relationship with them in and of itself drives volume, and it makes us that much more of an attractive partner when we're acquiring things. And as a constant donor says, do we want to sell distribution to Cinedigm or someone else, they can feel that much more comfortable with the quality of services we offer, so it's a lot of pieces; you can't just boil it down to one number.

And I think Adam's being a little conservative on the 20% to 30% because some of the titles we've looked at, it's been more like 50%.

Okay. With -- you were very enthusiastic about Short Term 12. Just as a specific example, if Short Term 12 were successful, not over the top successful and I don't mean over-the-top as described before, but it was a very successful indie movie, what might -- what would the range, if you can speak to that, what would the range of revenue be that you could generate from that theatrically?

You're talking about theatrical revenues?

Yes.

Again, as we've said on these calls many a time, focusing in on box office is really a mistake as a measure of success in the indie business, because we think on a movie like Short Term 12, it will be very successful for us if it does in the high hundreds of thousands of box office. But on breakout indie film, could be anywhere from $2 million to $12 million at the box office, and at those numbers, it would generate a very, very significant upside versus our current plan. But again I stress, it doesn't have to do that to be extraordinarily profitable for us.

That's just an answer to a very general question. Last question is -- or not question really, but I have one more, there is general accord back to a question that was asked previously with regard to staying away from dilution with the currency that we have right now. We would really like to avoid that, you guys agree with that?

Sure. We don't want to do that, but there are cost. I will give you an example to your example of Short term 12, we added a partner who is taking on 50% of the financial cost and risk of that movie. We didn't want to do that, right? So if that movie turns out to be incredibly successful and we sold 50% of it, you're going to call up and say -- you guys were idiots, why don't you find the money because you would have made double what you made? And so those are always the trade-offs, and so we have to measure of those and weigh those, but as a general statement, dilution is never a good thing. We have to look at in the context of what the use of proceeds are and whether it can generate better returns you think on the cost of it -- that's what we do.

No I -- okay, you are answering that. And then the one other question is if you would like to make any comment about international business, particularly in Asia and particularly I guess in China?

We're looking at opportunities internationally and we're very, very focused on China obviously as it is the biggest growth market in the world and at some point, experts' estimates vary, it's going to exceed the US probably around 2020. So, we're looking aggressively a potential partners or joint venture opportunities, particularly on the content distribution side of the Business where we might be able to find a partner that's well-positioned in China or other emerging markets or English-speaking territories, and that would help us tremendously if we were out there say on these independent films and library titles looking to buy rights more than just North America. It would give us more leverage to acquire more and better product and give us a distribution footprint that might mirror the distribution footprint we have here domestically and expand our reach and power around the globe. So, I would hope that over the next fiscal year, we will reach agreement and partnering arrangements or joint venture arrangements in some key territories overseas to turn us into much more of an indie powerhouse with a bigger world footprint.

So it is a strategic priority?

Absolutely.

Okay, thank you.

Thank you. Jeffrey [Lane], [Bedmond].

Just a follow-up just for a minute, I don't want to beat the equity dilution since it's been asked a couple of times, but I want to ask something a little bit different. Is there any flexibility at all either with credit lines or other forms of debt that you could potentially take on now that you've kind of refinanced and improved the balance sheet so you don't have to do in equity dilution, but there's a way to do some other type of financing that would not be delivered?

I would say that down the road, and it's not that long road, but a little bit down the road, we should be able to put in some form of credit line to support our acquisition and releasing business because that -- any capital we deploy there generally recycles in a 6 to 12 month period. I think with a little more track record of what we've been doing directly and a little more time, that's one of the ways we would expand that business more rapidly without significant dilution, because we should be able to get some financing there.

Okay. I just want to ask a question on the indie releases and the fact that you did five in the first quarter. I think you said the launch costs on that were about $2 million?

Yes. The expenses that we recognized net of revenues because of the launch costs were more than that, but there were also revenues were a little over approaching $2 million give or take, I'm not sure exactly where that will come out in final.

My question is what -- how many quarters out is it going to take as you start to release more of these things and they develop a tail with additional revenues? Do you expect it to become revenue neutral?

Yes, fiscal year 2014.

Basically, it's like you're in the middle of the curve, so we did five movies last year, we're doing 15, 18 this year. Until we get to the second half of this year, the later part of this year where the movies that we released in this fiscal first quarter are then profitable. We've gotten those expenses, and they go into the home markets and we recognize revenues from DVDs, we recognize revenues from transactional rentals and from subscription VOD license fees, those movies will kick in profits, and there will be as many of those as anything we're doing in the future. You'll start saying that basically drag go away because you'll have the profits from the past outweigh the cost of the future. Coming in the next six to nine months.

For all of 2014 fiscal year, we'll be steady-state.

So, but in terms of the inflection point, you're looking not -- if you were looking out to let's say March, I don't know if it's at the March quarter, but basically the March quarter is where you're suggesting it would become neutral to positive?

I think it will be neutral to positive sooner than that because we don't do a lot of -- we won't release a lot of movies in the December quarter because we just don't do holiday.

Fourth quarter of this fiscal year --

Third and fourth quarter.

And again, obviously all of the next fiscal year 2014.

Okay.

I think you'll start --

You'll see positive contribution after all those expenses in Q3 and/or Q4 and then fiscal '13 for sure because we'll be at a steady-state or the growth will be -- we go from 16 to 20 releases, you won't notice that to the same degree.

Okay, and then just finally, do you -- are you giving any kind of guidance in terms of revenue growth and then EBITDA growth on the non-deployment side for the upcoming fiscal year?

We're not giving guidance at this point. I just think we are -- we're small enough and growing rapidly enough that, that --

As Adam said in his remarks, guidance is for GE right now. We're in ramp-up phase right now as he said, both the software and content business still -- there's volatility there given revenue recognition and release time issues, and so we're not planning on quarterly guidance for our non-deployment.

What we said overall is in the content side, we expect those revenues to more than double year on year, fiscal '13 to fiscal '14, and a chunk of that but not all of that's going to drop to the bottom line. Some of that will drop to the bottom line because we are investing, but some of that -- to your earlier question about catching up on the releasing side -- will drop to the bottom line. And then other business, what we've always said is our Digital Cinema servicing business is pretty stable at this point even if we add and we will add more international servicing, that's modest in dollar terms of revenues and EBITDA compared to where that is in that $7 million. $8 million, $9 million a year EBITDA range. And our software business is going to grow, I think there's -- I really don't have enough visibility given the timing of different new customers and implementations when and exactly what, but we expect that to grow in both top and bottom line. So, as that -- as we have more clarity, we'll give it, but sitting here today, we don't feel comfortable giving statements beyond that on an annual basis.

The one thing, as I listened to the story, this is probably one of the most exciting calls of the calls I've been listening to this quarter, it just sounds like things are really starting to come together as you look out over the next 12 months. Just a lot of positive things happening. What are you doing to continue to kind of get the story out there so that other people can kind of gauge what you have been doing and where you're headed?

Well, I think a couple things. We go to investment conferences, that we -- either people are covering us and a few others that were invited to. We were at the Gabelli conference in June, we were at the B. Riley conference in May, I don't remember what the next one we have is. I just don't remember -- summer sometime.

Doing a lot of one-on-ones as well.

We're doing a lot of one-on-ones, we're doing Investor Days with some of our analysts going to visit investors, we issued and we will keep issuing press releases of major new client relationships and things we do.

We always joke that we're number one in each of our businesses, deployment, software and content. We're also pretty much number one in press releases because we've got an awful lot going on here, and I think one of the gratifying things now is the feedback we're getting from within the industry as people are really beginning to understand our story and how we're this innovative Company again as I said, has a shot at being the next generation Lionsgate. So, the stories out there, we just have to keep like Chinese water torture telling that story to the right audiences both on the investor side, the strategic side and the financial side. And then obviously we need to back up that story with some strong results, and hopefully once we get through this ramp-up, we'll be able to deliver that, as Adam said, towards the second half of this year. And then, at that point, hopefully everything will have come together on each side of the Business.

Thank you, good luck.

This concludes the Q&A portion of today's conference. I'd like to turn the call over to Management for any closing remarks.

This is Chris. Just on behalf of Jill and Adam, I want to thank all of you for your time, attention to the Company and support, and we look forward to talking to you again on the next earnings call. Thank you all.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.