Cineverse Corp (CNVS) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corporation first-quarter fiscal 2016 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to hand the conference over to Jill Newhouse Calcaterra, Executive Vice President of Marketing and Corporate Communications. Please go ahead.

Good afternoon and thank you for joining today's first-quarter fiscal 2016 earnings conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Operating Officer, Adam Mizel; General Counsel and Head of Digital Cinema, Gary Loffredo; and our 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, August 12, 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.

Now I would like to turn the call over to Chris McGurk.

Thank you, Jill, and thanks, everyone, for joining us today. Since we just had our last call six weeks ago, today's remarks will be fairly brief and then we will take your questions.

I will start by giving a quick quarter update followed by a review of our larger strategic initiatives. Then I will review our recently announced corporate governance enhancements. After that, Adam will review our entertainment business in more depth, followed by Jeff, who will review our financial results.

Despite it being our slowest seasonal quarter, Cinedigm saw content and entertainment revenues increase 27% versus the prior-year quarter as we benefited from the strong release schedule and excellent physical and digital retail placement. We also added promising first-run film titles to our lineup such as A Brave Heart: the Lizzie Velasquez Story, The Falling, Meadowland, and Final Girl. We have continued to maintain strict fiscal discipline as we focus our capital on opportunities to drive growth and shareholder returns.

Now let me spend a few minutes on our OTT business. The blaring headline news in the entertainment business over the past few weeks has been that the industry is finally accepting the dramatic evidence that OTT has officially arrived as a completely disruptive game-changer for this business. The giant old media companies lost over $80 billion in market value last week because cord cutting is happening faster than many old-school entertainment executives ever believed it would. Those less flexible, large entertainment companies still tied to old media distribution are now scrambling to figure out what to do in the face of this seismic shift in consumer viewing behavior.

Far from being reactionary like many of those media conglomerates, Cinedigm is well ahead of the curve and operating now as an innovative disruptor, having already anticipated, planned for, and transformed the Company to take advantage of the rise of OTT. Our high-quality, narrowcast OTT channels are well-positioned to benefit from this changing consumer behavior and solidify our market lead. As such, we will continue to actively facilitate and capitalize on the audience's rapid shift to OTT services.

By 2020, the OTT market is projected to be a $20 billion business in North America, far larger than theatrical or DVD at its peak. Already Cinedigm has over 1.2 million app installations on multiple key platforms and devices across our current channels and will have at least four channels in full operation by the end of this calendar year. We are executing our strategy to aggressively exploit this game-changing industry shift and we firmly believe this will drive strong growth and shareholder returns.

Adam will give you more details about our OTT business in just a minute. However, we are very pleased with the progress of CONtv and Docurama and are very excited about the launch next month of the faith and family Dove Channel. Bringing the Dove Channel to market just a few months after the launch of CONtv underscores our unique ability to roll out narrowcast OTT channels faster and more economically than other companies in this space.

We are fully leveraging our digital expertise, OTT experience, independent studio infrastructure, windowing flexibility, and 60,000-title library to quickly launch channels at scale with hundreds or even thousands of hours of curated content. We are moving quickly to establish our OTT footprint, while many of our potential competitors seem satisfied to just simply announce channel ideas with indefinite release dates.

Now with the corporate and activist distractions behind us, we are accelerating discussions with several branded strategic partners, both for our existing OTT channels as well as new channel opportunities. This will further our goal of having 5 to 10-plus narrowcast OTT offerings launched and operating within the next 24 months.

And, importantly, a variety of large cable, satellite, and technology-based content distributors are planning to offer skinny bundles of OTT channels to anchor their programming strategies and potentially capture millions of cord-cutting viewers and subscribers. This has created a significant new opportunity for Cinedigm to capitalize upon. We are now engaged in several strategic conversations to include our curated channel portfolio, with its thousands and thousands of films and TV episodes and original programming, as a key part of those new distribution efforts. This would create a new and material revenue stream for us by dramatically expanding our channel distribution with deep-pocketed partners who are fighting for market share.

All of this momentum and activity underscores our belief that we can become a true leader in the game-changing OTT business, the leading narrowcast version of Netflix. Now is the critical time for us to invest and move aggressively here, given the key competitive advantages I just outlined. We are absolutely committed to seizing this opportunity now to build a high-growth OTT business potentially worth many, many times our current market value. Importantly, all available evidence in the entertainment space continues to support our viewpoint.

Now I will conclude by briefly addressing corporate matters. As we announced last May, we moved to enhance our Board of Directors to better support the Company's fully-evolved profile as a leading content distributor and OTT digital network company. To that end, we engaged Korn Ferry to work with our nominating committee to conduct a formal search for up to four new directors. I am very pleased that late last month we announced the results of our search and the settlement of recent shareholder activism that together led us to four strong new Board members in Blair Westlake, Andy Schuon, Zvi Rhine, and Patrick O'Brien.

Collectively, they bring important entertainment experience, financial expertise, and significant industry relationships to our Board. We are certain they will help guide Cinedigm as we continue to grow and build shareholder value. Additionally, we continue to seek a new Non-Executive Chairman and look forward to updating you on progress with that initiative.

We are very pleased to have a strengthened Board, although the activism and other factors over the last few months did cause some management distractions and lead to a negative narrative about the Company. This did impact our ability to drive new B2B activities and content acquisitions across the Company, but we are now laser focused on steps to make up for this lost time in growing our revenue base.

And now Adam will share more details about our entertainment and OTT efforts. Adam?

Thank you, Chris. During the seasonally slow first quarter, our entertainment business continued the rebound that began in the middle of last year. Entertainment revenues were up 27% versus prior-year quarter, exceeding our expectations as we benefited from strong performance of many of our new release titles and increased retail placement in both physical and digital.

We continue to seek co-production distribution partnerships and one-off content acquisitions to bolster our future release pipeline. However, this effort was limited the past several months by the corporate and activist factors Chris just mentioned. We are hopeful that with this now behind us we can work rapidly to make up for lost time towards the end of our fiscal year, and we will also aggressively manage all aspects of our business to drive continued improvement and results.

Let's now dive more deeply into the strong progress we've made in our OTT business. Given the dramatic surge in the OTT market, Cinedigm's focus has been appropriately dominated by CONtv and its initial success, as well as preparing the Dove Channel for launch next month.

So it has been less than six weeks since our last call. CONtv continues to grow, up nearly 30% to almost 430,000 app installs compared to 333,000 at the end of June. We achieved this with very little marketing spend and we are just this week ramping up marketing, having completed our latest version of the app with numerous new features and preparing for the important Wizard World Comic Con in Chicago, starting August 20, which over 60,000 attendees are expected.

CONtv Live Presents Chicago Comic Con will be live streaming for three days, including panels with stars Jeremy Renner, Stephen Amell, Burt Reynolds, and many more. This content will only be available to CONtv subscribers behind our pay wall.

Some additional stats we want to share. Average minutes viewed per week over the last month are up to 101.5 from slightly over 90 in June and positive sentiment on social media has now exceeded 83% with over 7.8 million social impressions. We have clearly hit a deep vein in the millennial fanboy and fangirl audience.

As we mentioned on the last call, our initial launch base has been designed to maximize the number of AVOD customers into the top of our funnel, as we refine our marketing offers and app features. Now with learning under our belt and the critical next technology development phase complete we has shifted over half our content behind the pay wall, increased the ads loads on the service, and ramped up our proprietary Live at the Con streaming program as we attempt to turn our avid AVOD viewers into paid SVOD subscribers.

Our current slate of originals is regularly the most highly viewed content on the app, so we are implementing a plan to acquire and/or produce additional content at a low cost. As a result, we have upped our slate with seven original program/series including Last Man Standing, Fight of the Living Dead, My Morphin Life, Mythica 1 and 2, Riftworld, and Comic Book America, in addition to the panels and other recorded content from the cons.

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 proved by the Dove Foundation. Slated to launch next month, the channel will feature newly acquired and original programming, as well as offerings from Cinedigm's vast library of content including Veggie Tales, Fraggle Rock, Highway to Heaven, The Adventures of Black Beauty, Swiss Family Robinson, and Where the Red Fern Grows.

We plan to have over 900 hours of Dove-approved content available at launch, all accessed through our unique interface that allows users to set controls using the Dove rating system that gauges six key criteria to ensure appropriate programming for families. We are the only OTT service that can offer this Dove-approved detailed interface and believe it will differentiate us from any competitive offerings.

Docurama continues to hold its own with more than 630,000 AVOD app installs across multiple platforms and 167.4 minutes of average weekly view time. Although we have not invested as aggressively to date in Docurama as we have with CONtv and Dove, we have seen the channel benefit from the CONtv launch due to greater marketing leverage across multiple platforms. We intend to increase our marketing and content investment around the channel as we continue to seek a strategic partner. This embedded customer base is a very powerful and attractive asset in our strategic discussions.

As Chris mentioned earlier, as leader in the OTT space and one of the very few with multiple branded channels launched, we are in numerous deep conversations with many potential distribution partners interested in offering some or all of our channels. We are excited by the prospect of significant third-party marketing support for our brand, as well as the accelerated and added revenue potential this could bring to Cinedigm. We intend to aggressively pursue these opportunities.

We also invested significant time and resources in this quarter and in Q1 on our ongoing working capital and AAA arbitrations with Gaiam, and both are proceeding on a path and timeline we are comfortable with. 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 and the 10-Q.

Overall, it continues to be a busy and productive time at Cinedigm. We're driving our entertainment business forward, acquiring content distribution rights that will drive future growth and also can be very valuable on our OTT channel, and making large strides in scaling our OTT business. We are 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 Q1 results.

Thank you, Adam. We are pleased with our results this quarter, our seasonally slowest. This continues the positive signs we saw at the time of our last call.

Consolidated revenues were $22.8 million, flat from the prior-year quarter. Non-deployment, which is our entertainment and services group, revenues were $11.8 million, an increase of 7% from the prior-year quarter. Content and entertainment revenues were up 27% versus the prior-year quarter. Consolidated adjusted EBITDA was $7.8 million, an increase of 7% from the prior-year quarter, and non-deployment adjusted EBITDA was a loss of $2.3 million, improving 52% from a loss of $4.8 million in the prior quarter a year ago.

Revenues in our phase one and phase two deployment businesses decreased compared to the prior period, primarily because there were six blockbuster titles released in the first quarter of the prior fiscal year compared to only three released in the June 30, 2015, period. Revenue generated by our services segment decreased as a result of the reduced VPFs earned by our phase one and phase two deployment businesses. Revenue at the content and entertainment segment were well ahead of plan and up 27% versus the prior-year quarter, reflecting increased revenues related to digitally distributed content and significantly fewer product returns compared to the June 14 period.

Non-deployment EBITDA, although significantly better than the prior year, was impacted by one-time charges from our fulfillment and back-office services deal from universal. Non-deployment EBITDA was also impacted by significant investment in OTT as we ramp up our offerings and launch the Dove Channel. Importantly, we also achieve lower direct operating costs in the quarter due to tighter expense controls.

We made principal payments of $28.8 million on our long-term debt obligations and paid down our revolving credit facilities by $9.2 million in the three months ended June 30, 2015. All in all, we are pleased that net retail sales of physical products and digital sales performed well for us during our seasonally slowest quarter. As we prepare for our peak holiday quarter, our focus will be on generating new business, maintaining selling, and managing our returns. In addition, we will continue investing in our OTT business to drive value creation, which will impact non-deployment EBITDA in the near term.

While we remain ahead of our internal plan on content and entertainment revenues year-to-date, as both Chris and Adam mentioned earlier, our new content acquisition plans were impacted by the corporate and activism issues which we have recently resolved. However, we will try to make up for that lost business in the second half of our fiscal year as continuing -- while continuing our strict expense management and executing on our OTT strategy.

Finally, we now have an aggregate NOL of an excess of $270 million and under generally accepted accounting principles, or GAAP, the asset value of our NOL is not reflected on our balance sheet.

Now I'm going to turn the call back over to Chris. Chris?

Thank you, Jeff, and thanks, Adam. Supported by our full entertainment business, we are focused on accelerating our momentum in the now fully-emerged OTT arena as more and more viewers cut cords and the old-school media companies scramble to react.

In contrast, over the last two years we have carefully built and implemented a plan to create a portfolio of 10 or more narrowcast OTT channels, each with potentially multiple hundreds of thousands of viewers and subscribers that will generate significant new streams of advertising and subscription revenues for us, including the new skinny bundling distribution opportunities I mentioned that are rapidly presenting themselves and can further accelerate our growth plans.

Cinedigm is now following the path of disruptive companies like Netflix and Amazon in their early years. Those companies focused on building audiences, customer affinity, and top-line growth; investing to build market share; 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 you to consider and understand that when you analyze what we are doing it Cinedigm today, building a position as a leader in the highest growth, highest multiple part of the entertainment business, a potential $20 billion market in North America called OTT. And since we are the only small cap entertainment company with a public currency and a real and growing footprint and strategy in the OTT space, we continue to receive expressions of strategic interest from industry and financial entities that value those assets. Rest assured that we will evaluate those opportunities with value creation and the best interests of our shareholders as our overriding priorities.

With that, we are now happy to answer any questions you might have. Operator?

(Operator Instructions) Matthew Brooks, Macquarie.

Good afternoon, guys. I've got a few questions on the OTT side.

I was wondering if you are able to say what percent of your users are active, say, after the first month after they register; whether there's any evidence you can point to about the customers and whether they are paying for your OTT content so far. Can you say more about how the partnerships might work? I'm just not sure I understand how someone is going to buy CONtv is also going to buy Dove. They seem like different markets to me, thanks.

Sure, I will start. Generally speaking, we see and expect to see monthly active users anywhere from 30% to 40% of our installed base. That's kind of normal in the space and we are seeing that generally in our channels. So that is the first answer to your question.

Second would be, as mentioned in the comments, that we are shifting aggressively now into pushing the SVOD offering on CONtv, so we expect to see the subscriber numbers begin to ramp up on the SVOD side over the next 90 days as we market that aggressively. We needed to get a number of technology developments done on the in-app billing, on wide streaming, and a bunch of capabilities that have all finally cleared QA within the last couple weeks at the various platforms.

And then the last question, I think when you look at the skinny bundle that Chris and I both referred to, there are a number of interesting players out there who are looking at ways in which they can create a content offering to cord-cutting consumers that is a much lower cost, but also much more focused on that audience's interest and needs. And look at our channels and say I can create for them a compelling content offering in which they then will subscribe either to whatever service they are providing through, whether it's a -- I'll give an example. Lots of examples.

Whether it's any of the virtual MSOs you see or hear out there or other technology players, and I think it's sort of interesting; it's a hybrid between a cable model and a completely a la carte model. We're getting -- we're having a lot of interesting conversations because we have these channels at scale with a lot of content curation and out there in the market being well received.

Okay, that's good. Thank you very much.

(Operator Instructions) I see no additional questions in the queue at this time. I would like to turn the conference back to management for any closing comments.

This is Chris. Again, I just want to thank you all for your interest and your support. We look forward to talking again in a few months.

And if you haven't bought a subscription yet to CONtv, now is the time to do it. And in 30 days please do the same for the Dove Channel. Thank you all and we look forward to talking to you soon. Bye.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.