Cineverse Corp (CNVS) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Cinedigm Corp. conference call. (Operator Instructions). As a reminder this conference call is being recorded. I would now like to turn the conference over to Jill Newhouse, Executive Vice President, Corporate Communications. You may begin.

Good afternoon and thank you for joining today's fourth-quarter and full-year fiscal 2015 earnings conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Operating Officer, Adam Mizel; and Chief Financial Officer Jeffrey Edell.

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 of the information discussed on this call is as of today, June 29, 2015 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.

Finally, as most of you know, we are currently facing shareholder activism issues, including a proposed plan to change the Board of Directors. We had already planned and announced prior to any activist filings to put in place a best practices corporate governance process to enhance our Board. We will address our progress on that in our comments. In the meantime, we remain focused on running the business and executing our growth plans. We look forward to ongoing discussion and engagement with our shareholders and as always appreciate their views and perspectives. With that said, please note that the subject of today's call is the Company's fourth-quarter and full-year fiscal 2015 earnings. We will not be taking questions on any activism issues. And now, I'd like to turn the call over to Chris McGurk.

Thank you, Jill and thanks, everyone, for joining us today. I'll start by giving a general business update coupled with a discussion on our larger strategic initiatives. Then I'll review recent development in our corporate governance. After that, Adam will review Cinedigm's base business and OTT initiatives in more depth, followed by Jeff, who will review our financial results.

We are pleased with our fourth-quarter operating and financial results, which underscore the positive momentum in our base business. Progress continued in refilling our sales pipeline with more premium content, including several new first-run films. We saw strong performance at Walmart year-over-year on the physical side and continued momentum in digital sales. We've maintained strict fiscal discipline as we focus our capital on opportunities to drive growth and shareholder returns. Adam will get into more detail on that in a few minutes.

We also continued to rapidly move ahead with our OTT business plan. We are thrilled that in aggregate across our channels we already have achieved more than 1 million app installations. In the quarter, we launched CONtv in preview mode in March and are very pleased with our progress so far. In less than four months, we've achieved more than 333,000 app installations. Those installations actually exceeded our goal for the entire first year of launch ending March 2016.

End-users are really enjoying the service with a large amount of weekly minutes viewed and positive 4 to 5-star app ratings on all platforms. Leveraging the underlying CONtv technology infrastructure, we are now prepping our faith and family Dove Channel for launch in late summer. We are excited about the initial programming lineup that we announced for DOVE two weeks ago, as well as the alpha version of the app that has been completed. Our experiences in key learnings from CONtv and Docurama have clearly enhanced our ability to launch DOVE in future channels quickly and with superior quality across all major consumer platforms.

And now, with our momentum accelerating, we believe more than ever that the Cinedigm differentiation we have discussed many times on these calls where we can launch OTT channels faster and more economically than competitors by leveraging our library of content and our robust home entertainment infrastructure positions us to be a true leader in the OTT business -- a leading narrowcast version of Netflix.

Now is the time for us to invest and move aggressively given this key competitive advantage. Just last week, Digital TV Research announced that there are soon expected to be more than 57 million subscription streaming customers in North America alone, up over 7 million from last year. In addition, OTT revenues in North America are expected to reach $20.5 billion by 2020, almost 10 times the level at the start of the decade. Clearly, the opportunity to grab valuable OTT real estate is now in front of us.

While many entertainment companies have announced channels that have yet to actually launch and with launch dates yet to be determined, we already have two channels launched and operating with another two scheduled to launch later this summer and fall and with several more in the wings. We remain absolutely committed to seizing this opportunity now to build a high-growth OTT business integrated with our industry-leading home entertainment business potentially worth many, many times our current trading value. Importantly, all available evidence in the entertainment space continues to support our viewpoint.

Looking ahead, we believe our OTT business will continue to be a high-growth engine on top of the solid recurring EBITDA contribution of our digital servicing business and the expanding EBITDA from our base content distribution business. Last week, we also announced an expanded partnership with and minority investment in the Shout! Factory, our largest home entertainment customer and a leading content studio of classic TV shows and films. This deal will benefit all aspects of our business.

In OTT, Shout! Factory adds a new pop culture channel to our portfolio that we will be able to effectively cross-promote with CONtv as both channels target a similar millennial demographic. In our base business, the extension of our distribution deal for three years with Shout ensures a long-term and growing stream of content through our entire distribution system. All in all, we are very pleased with where the Company stands today operationally and are very excited that with DOVE and Shout we now expect to have a portfolio of four OTT channels in operation by the end of the fourth quarter.

The progress I just outlined has not gone unnoticed as we continue to have a variety of conversations with potential partners interested in our OTT strategy and also focused on our position as the largest independent studio in the US with a flexible releasing strategy and 50,000 films and TV episodes in our library of rights. As the only small-cap public entertainment company poised to take advantage of the shift to digital and now rapidly launching a series of high potential OTT channels, we believe that we bring strong assets to those conversations. While it is our policy not to comment on press reports like the recent ones in this area that mention Cinedigm, we fully appreciate the optionality currently in front of us and we will continue to evaluate opportunities to make the correct value-creating decisions for the Company.

Now I'll conclude by briefly addressing corporate matters. As we announced last month, with our business transformation complete and a much stronger capital structure in place, we moved to enhance our Board of Directors to better support the Company's fully evolved profile as a leading content distributor and over-the-top digital network company. To that end, we engaged Korn Ferry, a leading executive search and advisory firm, to work with our nominating committee to conduct a formal search and vetting process for two to four new directors, including a new nonexecutive Chairman of the Board. All of this consistent with best practices.

We expect to emerge from this process with a terrific Board of experienced entertainment industry leaders and shareholder representatives who can add strategic and financial insights and relationships that will help propel Cinedigm forward. We are in the middle of this process right now and are very pleased with the interest we've received from potential Board members who understand Cinedigm's unique positioning and plan, as well as the compelling opportunities in front of us. Thus far, we have identified over 60 potential candidates with relevant industry and/or financial markets expertise and have interviewed or contacted more than 30.

We have also opened up the discussion to our constituents, including our activist shareholders, whom we've invited to be part of our best practices process. As you can see, we are undertaking a very thorough approach to identify the very best possible Board members who can actively advise and support the Company as we grow our business. Korn Ferry and our nominating committee are moving forward with this process as quickly as possible.

Finally, I am pleased to share with you that both our banks, who must approve any and all cash uses out of the ordinary course, and our Board have authorized up to $5 million for a stock buyback program over the next 12 months. As we've noted previously, we believe our stock price is extremely undervalued currently and therefore, share repurchases may be an effective use of capital. And now Adam will share more details about our base business and OTT efforts. Adam.

Thank you, Chris. I will first dive into greater detail on the continued rebound in our base home entertainment business and then the performance of our OTT channels. During the fourth quarter, our entertainment business continued the rebound that began in the second quarter. Our CEG revenues exceeded our expectations as we benefited from strong performance of many of our new release titles and continued stringent expense controls. Our progress in rebuilding our pipeline over the past year is beginning to impact performance as we benefited from a well-received content slate and strong physical goods placement and sellthrough at our main retail partners, as well as continued growth in digital licensing revenues.

We are seeing these solid results and operating trends continue in our new fiscal year as we enter the seasonally slowest time of year for our business. As an example, at Walmart, our largest physical sales customer, our new release placement has increased 7% from Q1 fiscal 2015 to Q1 fiscal 2016, and we have shown consistent growth in our catalog modular placements expanding over 31% since last October. We've increased our marketshare in a very competitive physical goods environment.

We continue to add coproductions and one-off content acquisitions into our future release pipeline. Several films from our previously announced coproduction deals are either in production or have delivered, including The Christmas [Trade] with Denise Richards and Tom Arnold, War Pigs with Dolph Lundgren and Mickey Rourke, 4GOT10 with Danny Trejo and Vivica Fox and others. We have also announced a number of acquisitions post the fiscal year-end to fill gaps in our release slate, including Life with Robert Pattison, Meadowlark with Olivia Wilde and Luke Wilson, The Falling with Maisie Williams, Final Girl with Abigail Breslin and Wes Bentley, and of course, the award-winning documentary and fan favorite film, A Brave Heart, the Lizzie Velasquez Story, which has won awards at every festival where it's played. We are exceptionally excited about this film and our innovative release plan to simultaneously bring the film to over 10 theatrical markets, including an Academy Award qualifying run, making it available on all cable video-on-demand platforms simultaneously.

Let's now dive more deeply into the strong progress we've made in our OTT business. Cinedigm's focus in the fourth quarter, as well as this current quarter, has been appropriately dominated by the CONtv launch and its initial success, as well as preparing the Dove Channel for its late summer launch. We began the preview release of CONtv on March 3 and have exceeded our full-year app installation goals in only 3.5 months with over 333,000 new AVOD customers added through Saturday, June 27.

We have clearly hit a deep vein in the millennial fan boy and fan girl audience. We are also seeing very strong user engagement. The average user is watching at least one movie per week. This is 30% ahead of our projections and the content views have increased 54% month over month since launch. We will continue to invest in our content offering to build on this momentum.

As we expected, the most effective marketing tool available to CONtv is through our partner, Wizard World and their 27 plus annual Wizard World Comic Con. We have taken full advantage with outreach at Las Vegas, Philadelphia, St. Louis, Sacramento and Des Moines to name a few with Richmond and Chicago conventions coming later this summer. Our booth has consistently been flooded with people and we've used our learnings at each convention to continue to increase our marketing effectiveness. We typically attract 30% to 40% of the customers at these shows to install our app and begin viewing. We expect as a result to continue to grow as we are now integrated with the Wizard World ticketing app and can market the service and the subscription benefits at the point of ticket purchase.

As we mentioned on the last call, our initial launch pace has been designed to maximize the number of AVOD customers into the top of our funnel as we refine our marketing messaging, evaluate content viewing interests, test various subscription perks and offers, improve the user experience and add critical features and functionality to the app. Now, with learning under our belt and the critical next technology development phase almost complete, we are shifting greater levels of content behind the pay wall, increasing add loads on the service and ramping up our proprietary Live at the Con streaming program as we attempt to turn our avid AVOD viewers into paid SVOD subscribers.

Our critical piece of user feedback received is that original and live programming is a compelling reason to subscribe. 80% of people we've surveyed at the cons have said that they would pay to access this content. So you can be assured that this is a big part of our plan to drive subscriptions. Our current slate of originals is regularly the most highly viewed content on the site, so we have already implemented a plan to acquire and/or produce additional content. This content is not expensive to produce, but we know it drives viewers. As an example, our original series, Fight of the Living Dead, in which we invested less than $100,000, now has over 11 million views across all platforms.

Overall, as you can see, CONtv is off to a fast start and we look forward to sharing more of our success as the channel matures and our marketing efforts really take hold. But we must also remember we are barely four months into building a brand-new business. We are in investment and growth mode and we are learning every day. Our progress will not be a straight line to the sky. We've gotten to this early success point with a modest investment compared to most OTT startups and maintain a reasonable breakout even point at well under 100,000 SVOD customers. We are now shifting into customer revenue generation mode as we invest in this next phase of growth. We continue to expect this business at scale to generate 40% plus operating margins for us from significant advertising and merchandising revenues, in addition to recurring subscription fees.

Now let's shift to the Dove Channel, our direct-to-consumer over-the-top digital network for families and kids seeking quality family-friendly content rated and approved by the Dove Foundation. Slated to launch in the late summer, the channel will feature newly acquired and original programming, as well as offerings from Cinedigm's vast library of family-friendly faith and kids content. We plan to have over 900 hours of Dove approved content available at launch, including exciting properties like Veggie Tails, Fraggle Rock, The Velveteen Rabbit, Davey and Goliath in the kids space, family favorites Highway to Heaven, Swiss Family Robinson, The Adventures of Black Beauty, Where the Red Fern Grows and popular redemptive narratives, Left Behind: the Movie, Lee Strobel's The Case for Christ's Resurrection, and Max Lucado's Resurrection.

Parents and families will truly appreciate the unique interface that allows users to set controls using the Dove rating system that gauges six key criteria to ensure appropriate programming for their families. We are the only OTT service to offer this detailed interface and believe it will put us well above any potential competitive offerings.

Finally, we continue to have discussions with strategic investors to partner with us at Docurama, our in-house brand and the first general we launched as a beta test. As I mentioned earlier, even though our focus has been much more on CONtv and the Dove launches recently, Docurama continues to more than hold its own with over 601,000 advertising video on demand app installs across multiple platforms, more than double what we announced on our third-quarter call. Though we have not invested as aggressively to date in Docurama as we did with CONtv and Dove, we have seen the channel benefit from the CONtv launch as we have greater marketing leverage across multiple platforms, [including] cross-market where appropriate.

Given this recent growth surge, we intend to increase our marketing content investment around the channel as we continue to seek a strategic partner. This growing embedded customer base is a very powerful and attractive asset in our strategic discussions. Look for us to make progress on this front and report back to you.

Significant time and resources were also invested in fiscal Q4 and this current quarter in our ongoing arbitrations with Gaiam. We continue to move forward on both a working capital arbitration and a AAA arbitration on contractual legal disputes. We remain confident in the merits of our position. Since this is a very active legal matter, we cannot provide any additional disclosure beyond what is in the 10-K.

Overall, it continues to be a very busy and productive time at Cinedigm. We are driving our base home entertainment business forward, acquiring content distribution rights that will drive future growth and can be very valuable on our OTT channels and making large strides in scaling our OTT business. We're doing this while tightly managing our expenses so we can focus our investment dollars on high return growth and customer acquisition. Now let me turn the call over to Jeff to provide greater detail on our Q4 and full-year results.

Thank you, Adam. We are pleased with our results for this quarter, which continued the positive signs we saw at the time -- same call last time. Full-year consolidated revenues were $105.5 million compared to the prior year of $104.3 million. Full-year non-deployment revenues, which is our entertainment and services segment, were $57 million compared to the prior year of $55.9 million. We reduced our nonrecourse debt to $41.3 million from the recurring virtual print fee revenue stream. Revenues in our phase 1 and phase 2 deployment businesses combined remained flat at $48.5 million for fiscal year 2015 compared to last year as total VPFs, the number of systems deployed, wide release titles and screen utilization rates were consistent with the prior fiscal year.

Revenues generated by our services segment decreased primarily due to the expected reduction of revenues earned from activation fees to $11.9 million from $12.6 million in the prior fiscal year. We deployed systems in Australia and New Zealand in the fiscal year ended March 31, 2014, which contributed $900,000 of nonrecurring activation fee revenue in the prior year that does not exist during this fiscal year.

Revenues at our CEG business increased to $45.1 million from $43.3 million in the prior fiscal year reflecting the full-year contribution of our October 2013 acquisition of GVE compared to five months of revenue from the GVE acquisition included in the prior year. Offsetting the increase in revenue were higher than anticipated returns of DVDs and Blu-ray discs in the current year in connection with our integration of GVE that occurred mainly in the first fiscal quarter of the year, as we transferred to the new physical goods replication distribution and fulfillment partner. In addition, as we've detailed in previous calls, certain issues arising in connection with the GVE acquisition negatively impacted our results in the current fiscal year.

Full-year consolidated adjusted EBITDA was $47.9 million. Full-year non-deployment adjusted EBITDA was $1.2 million. The reconciliation of adjusted EBITDA for the year ended March 31, 2015 also takes into account $6 million for goodwill impairment, which I will discuss in more detail shortly and $1.7 million of nonrecurring legal and other compliance-related expenses primarily related to our ongoing litigation with Gaiam and expenses related to initiating Sarbanes-Oxley compliance and a financial systems conversion.

As you saw in our press release, revenues in the fourth quarter of the fiscal year decreased compared to the same quarter in the prior year because, as we discussed in our prior calls, we terminated contracts with certain high-volume customers that did not substantially add to our net operating results. We also continue to experience lower demand for packaged goods due to industrywide changes in consumer behavior. This year has been one of investment in the OTT channel business that both Chris and Adam elaborated upon earlier. This investment has mainly impacted our EBITDA rather than capitalization on the balance sheet as we build out our tracking system's unique technology, market our app and website, develop and acquire content and grow our user base.

In April, we repaid the $18.2 million term loan outstanding under our recourse credit agreement with the proceeds from the convertible note offering and increased working capital on our balance sheet by the net proceeds of $28.2 million. Given the business and accounting issues with the GVE acquisition that we have previously discussed, we took a hard look at the carrying value of goodwill in our CEG segment and determined that we had an impairment in Q4. It is important to note that any potential positive result with respect to our Gaiam litigation recovery is not considered by GAAP for goodwill impairment. This impairment negatively impacted our non-cash operating results and an actual cash recovery later on will have a corresponding positive impact in our operating results at the time of that recovery.

As you know, we spent the better portion of the year integrating the GVE acquisition, restructuring our CEG business and shifting our focus to expanding the OTT channel business. Now that the GVE business is fully absorbed and we completed the process of identifying the significant redundancies, we believe that we have the right cost structure in place and expect to see operating income and cash flows from operations rebound as the full-year effects of those maneuvers begin to show up in our P&L in the second half of fiscal 2016.

Finally, we ended the year with $267 million of US net operating losses that will begin to expire in 2020 and under GAAP, the asset value of our NOL is not reflected on our balance sheet. Although we do not provide guidance, I am pleased to say our net revenues look to be on plan for the first quarter and we exceeded analyst consensus expectations for both the quarter and the full year. As a reminder, the first quarter is our seasonally slowest and our goal is to maintain positive non-deployment EBITDA. Now I'll turn back the call to Chris.

Thanks, Jeff and thank you, Adam. In summary, we're pleased with our performance this quarter and our success in filling the release pipeline with strong content and innovative programming. We are now focused on continuing the momentum we've seen so far with CONtv where installations are way ahead of our expectations, prepping the Dove Channel for launch in late summer and moving forward with our new OTT channel with Shout! Factory. With over 1 million app downloads already and four channels in operation by the fourth quarter, our plan to create a diversified portfolio of digital networks is well underway.

On top of that, we continue to plan to launch several more narrowcast channels, each with a customized business model that maximizes the potential for success as we strive to solidify our position as a leader in this high-growth, high-margin, high multiple business. As we have said before, our vision for this business is to have within two to three years a portfolio of 10 or more of these narrowcast channels launched and thriving, each with multiple hundreds of thousands of viewers and subscribers and generating significant new streams of advertising and subscription revenues.

As you think about Cinedigm, we think it's fair to compare our growth plans to those of Lionsgate in their early small-cap days. Like Cinedigm, that company grew both organically and through M&A activity, implementing an innovative and disruptive strategy and transformed itself into a tremendous industry success story. It's also important to reference Netflix and other disruptive entertainment-related technology companies like Amazon in their early years. At an early stage, those companies focused on building audiences, customer affinity and top-line growth, investing to build marketshare and solidify their competitive advantages. That is what aggressive and successful companies operating at an early stage in new businesses with dramatic upside potential do. We ask that you consider that when you view what we are doing at Cinedigm today. Building a position as a leader in the highest growth, highest multiple part of the entertainment business, OTT.

Together with our digital cinema business, which continues to generate strong recurring revenues and rapidly pay down its nonrecourse debt, Cinedigm is now positioned strategically as the only small-cap public entertainment company poised to take full advantage of the valuation upside potential from the industry shift to digital. From a shareholder perspective, we believe as our OTT channels scale, we can deliver rapid growth and significant higher margin recurring revenues and profits at a controlled level of investment and risk. And with that, we're now happy to answer any questions you might have. Operator.

(Operator Instructions). James Marsh, Piper Jaffray.

Great. Two quick questions here. First, on the app downloads, obviously that's great news for you to have expectations, but I was hoping you guys could drill down a little bit between I guess app downloads and actually signing up for SVOD and some of the metrics that you look at there kind of within the funnel, whether it's how many people actually started using the site after downloading the app or how many are active users. I'm just trying to figure out all the metrics in between kind of entering that funnel and then maybe getting down to the bottom of the funnel. Then I've got a follow-up.

Sure, James. It's Adam; I'll start. As we said in our comments, we've really focused on CONtv in the last 90 days and getting everyone into the top of the funnel and viewing the service and using the content and that's what we've focused on and we've had very high user engagement. As we mentioned, people are typically watching at least one movie or multiple episodes of something that -- total or similar time to a movie and we have very active user engagement. We are now shifting, literally, over the next few weeks to put more and more of our content behind the pay wall, to add more and more advertising so that you have that much more incentive to sign up behind the pay wall versus watching content with ads, and providing more and more of the original programming and the live streaming and the panels from the cons only to those premium subscribers.

All that's now starting to happen so that we convert more of those 333,000 installs into paid SVOD subscribers and more of the people who sign up new go right into the SVOD part of the funnel. That's now just happening. We have some expectations on those metrics, but we're going to -- we'll have to see what they turn out to be and then report back on the actuals when they happen.

Okay, all right. Fair enough. Then I guess on the Dove Channel, maybe if you could just give us a little bit more information on that. Obviously, you are leveraging a lot of the same platform that you've put together for Docurama, as well as for CONtv and using a lot of the things you mentioned, the learnings from those two launches, but what is different about this launch relative to CONtv, for example? Maybe you could just kind of compare and contrast them a little bit. Maybe talk about some of the unique challenges to launching that one, if there are any?

It's been a lot easier as is often the case. The first time you really do something, you always have more bumps in the road and more to learn. On the Dove side, it's certainly a simpler offering because it's focused on a faith and family-friendly content and marketplace, which is -- has a different level of demand and expectation as a very active fan boy/fan girl millennial market. The biggest difference, as we said, we really are leveraging all of the technology and the platform so many, many of the features that we've been adding to CONtv like in-app billing and like live streaming capability, which was something we added in the last 30 days to CONtv after getting just such tremendous user interest and feedback through it, automatically are then in the Dove platform.

The main unique components are clearly its user interface and in the Dove case, we've developed a very unique and proprietary ratings engine based on -- or user ratings selection engine based on how Dove rates content. So as a customer, you'll be able across the six rating dimensions that Dove use sort of set specific dials on your recommendation engine to say between 1 and 5, which is their Dove rating, I want level 1 on language and level 2 on theme and whatever it may be. So that customer can make a very customized experience of what content they see and their family sees and we think that's going to be a very powerful tool for the audience that we're targeting. So those are the kind of things that we've done in a unique way on top of that common platform.

Okay. That's very helpful. Thanks, Adam.

Andrew D'Silva, Merriman Capital

Just a few questions for everyone. I guess, first off, if you're able to, can one of you provide a little color on where you are in regards to your dispute with Gaiam? I know you had a favorable ruling out of the federal court in the Central District California. The judge ruled you should settle your working capital disputes in working capital arbitration instead of going to AAA arbitration first. And I'm aware that Gaiam is petitioning that order, but it was my understanding that a judge said working capital arbitration should proceed regardless of the appeal process. So are you guys actually in working capital arbitration right now and maybe you can just provide a little bit of clarity on the timeline? I believe it's supposed to be a 45-day process?

As I said in our (technical difficulty), there's very little we can say. It's a very complicated ongoing legal issue. But yes, we are in working capital arbitration.

Okay. That's all I wanted to know. And then moving over to CONtv, I heard your last response as far as putting up pay walls. Do you have any historical data from other companies that had an AVOD model and moved to an SVOD model and what typical conversion rates are and what we should maybe expect as a bare minimum annually?

I think when you're doing a good job, you would hope to get at least the low double-digit percentage of your AVOD users converting to SVOD users.

And that's an annual metric or is that just -- is there a certain, I guess, time horizon that you would expect to see that?

Timing is hard to know. I think that's part of the -- as we described here in the startup phase and you are moving different things and strategies -- but typically we would expect that we convert at least the low double-digit percentages of that AVOD base into SVOD users and then we'll keep growing that base obviously with new sign-ups and new customers and we think we've put together a very compelling offering that should attract people into the SVOD service.

Okay. Got it. And then moving just quickly over to CEG, Adam, I believe in the past you've stated that we should expect a backlog of new deals to approximate $50 million in gross billings this current fiscal year. Can you get a little more granular as to what the backlog comprises of? Is it primarily new production deals like the ones that have been announced with the VMI, Rapid Eye and Great Point Media, or is it growth from new initiatives with existing content suppliers from the catalog side of the business?

Sure. What we've talked about in the past are our new coproduction partnerships and customers that will be delivering us predominately movies, but sometimes television for distribution and so we described our expected annual revenues out of those guys and I think we still are focused on making that happen. And what you see is, and that's part of where we use one-off acquisitions to supplement what we're doing. Some guys will deliver exactly what we think. Some will be slower in delivering movies because it takes longer to make them and we then go out and acquire other content if we see holes in our release pipeline. So that's what we're focused on driving and making happen and so far, the first couple quarters we've been pretty close to plan. We've got some holes to fill for the back half of the year.

Okay. And then, Jeff, as far as timing of revenue goes from those production deals, do you know when we should expect that to be meaningfully start hitting the top line? Has it already begun or is it more of a fiscal third and fourth-quarter event for 2016 obviously. And also a little bit of clarity on what the operating margins are expected to be from production deals. Are they meaningfully higher than typical catalog operating margins?

Yes, they are going to be higher than the catalog operating margins, so we expect them to be several points higher and in terms of the hitting of those, those will hit in Q3 and mainly Q4 of this year where we will see that and then into the following fiscal year.

Okay. So expect a back half of the year ramp from that, got it. And then last question, can someone just provide a little clarity on Shout!, the media deal? Like what were the terms and also the investment itself? It doesn't seem to sync with other deals or partnerships, at least when you look offhand. Other partnerships you've announced in the past seem to augment either your content or distribution for OTT channels. This seems like you already have the existing relationship with Shout! and you already provide them a distribution. So I'm just trying to get my hands around what the value add is in the investment for you guys going forward.

We can't disclose the specifics of the deal other than what you probably saw in the press release. But as we said, we thought this was a really, really good deal for the Company for what we consider to be a pretty minimal investment. We've extended our distribution deal with them for another three years. We now are going to own a piece of the Company. They are profitable and they are growing. They are operating in a space that's very similar to a lot of the content in our library already and also what we are doing with CONtv. (inaudible) classic television and classic film programming is the type of content. It's like Nick at Night or TV Land that's very appealing to a millennial audience and more and more appealing. So there's obviously going to be large crossover with what we are doing with CONtv.

They already have an existing AVOD OTT channel and I think both parties believe that with our expertise in this space and our track record at launching channels and our relationships with all of the platforms, I think both parties agree that we can take the channel they have right now, flip it into a freemium model and really turbocharge it. And again, because the pop culture content has a very similar audience to what we have on CONtv, we think there are very large promotional and marketing synergies between CONtv and Shout! TV. So that's the strategic rationale for doing the deal and we believe we are able to accomplish all that at a very minimal investment, but with an investment that's going to generate, we believe, a nice return for us in and of itself.

Got it, got it. Thanks a lot. It was very informative. Good luck going forward.

[Matthew Brooks], Macquarie Capital.

I've got a few questions. The first one, you mentioned how original content was very important to CONtv. I'm just looking for any thoughts you've got on how you plan to have original content for Dove and perhaps also Shout!. I've looked at some of the content they have there. I can see how advertising for (inaudible) works, but not as sure about subscriber supported.

I think as we've talked a little bit about in the past, there's a combination of original programming strategies we have. Clearly, first and foremost is the virtual con experience, or live at the comic cons and then reported thereafter. There's a significant interest from this audience in seeing whether it's panels, cosplay contests, other kinds of events that go on at the cons where they can't otherwise access them. In addition, there's a natural outgrowth of some pretty low-cost original programming ideas, sort of along the lines of the Last Fan Standing game show that we did and other things like that that grow out of the people, personalities and talent that's already at the cons, so that's one bucket of things.

And then there are interesting opportunities for us to work with other production companies who are creating things for our audience like we did with Fight of the Living Dead and other things we've talked about with other studios who are supporting their ongoing big franchises in between movies where we are a very natural distribution point to get to the audience that wants to see that content. And so we are working on a variety of those fronts where we can acquire certainly rights for CONtv, and often because of our entire distribution infrastructure, all market and all media distribution rights, so in addition to monetizing on CONtv, we can exercise a windowing strategy and distribute that content through other physical and digital outlets at the right point in time.

That sounds very good. I guess my question wasn't clear enough. I sort of understand how that works, but CONtv I wonder how it works as well for Dove. (inaudible), etc., like how does that work?

I think for the Dove Channel, there will initially be less original programming, but that's less of what that audience is demanding. They are looking for safe and family-friendly content, but I think over time one can think of various review shows, talk shows, interview shows with talent, with people in that space and that community that are relevant to that audience and then over time, you can imagine as that business grows one could create one's own series whether it's digital short web series that fit in that or more online television like drama series that fit that audience. We're having some conversations with some very interesting production companies who do that already who are looking for digital outlets for their content as they look at new means and new media. So I think there's a little bit of both, but it is going to be more traditional in the original programming sense in a Dove Channel than it would be in a CONtv.

And for Shout!, you are imagining that some of your CONtv content would go to that channel, or you'd get some other original content for that one as well?

It would be different. I'm sorry, I don't think there's very much overlap between Dove and CONtv. There is between some CONtv and some things that we can do on the Shout! channel, and I think there may be opportunities to cross-market content, share originals, do different things there. I think the Dove Channel is clearly a very different audience.

Okay. Another question on a separate part of the business. On the systems business, can you make any comments about some of the system 2.0 rollout will sort of roll off after the first 10 years? Can you make any comments about the residual economics of that and any thoughts you might have on the new laser product that's being launched over the next 5 to 10 years? You can probably see a rollout of laser projection in the cinema industry, which would mean that some of the older systems would be out of date.

A couple things. One, all of the systems remain in service and/or remain in service collecting virtual print fees from different studios through 2020, 2021, 2022. Studios will run -- their VPF here will expire at different stages based on when they sign their original agreements with us. So yes, there will be a rampdown on the major studios who had a 10-year period of virtual print fees in those phase 1 systems, most of which were installed in 2006, 2007 calendar years; so that's true. But they'll continue to be used by exhibitors under contract for a while thereafter.

And then the laser side, laser projected engines would fit in any projector. It doesn't require a new projector. It's a different form of bulb than the bulb that's there. That would be an investment decision an exhibitor would make on his or her own, but they'd be using the same chassis. Like saying you wanted to put xenon headlights in a car that used to have bulbs or halogen ones, you could theoretically make that decision. You're not throwing out the car to do that.

Okay, that's very useful. And the last question was on the buyback. You would have had some spare capacity -- you had a forward rate agreement or repurchase agreement as part of the convertible issue. You only used $14 million of that and the rest of it could've been used to buy back shares. I'm just wondering why you didn't buy back more than the $5 million you sort of discussed today.

Not sure -- are you talking -- there's two different situations here. There is the $14 million that we did as part of the debt issuance and then there's another $5 million that we've announced today as an additional repurchase.

Correct. But when you did the original convertible offer, I think you had set aside more than $14 million for that and then it came in less than you expected.

Yes, we dropped the money onto our balance sheet is what we did. So I'm not sure what your point is? It would've been less than the $28.5 million that we dropped on the balance sheet in working capital, so we just we took the -- (multiple speakers).

I guess the question is whether -- like if you think the stock is very cheap and you got the cash from the convertible issue and you don't need it to roll out these channels, then why wouldn't you signal to the market how cheap the stock is and buy back more stock?

Well, I think as I mentioned in my comment, we were restricted by our banks that have to approve any use of cash outside of the normal course and they were comfortable with the $5 million level.

Okay. Got it. Thank you for your time.

I'm showing no further questions. I'd like to turn the call back to management for further remarks.

I'd just like to say that on behalf of Jill, Jeff, Adam and myself and everybody at Cinedigm, we want to thank you all for your continued interest and support and we look forward to talking to you in a month and a half on our next call. So thank you, all.

Ladies and gentlemen, thank you for participation in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.