Cineverse Corp (CNVS) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. fiscal-2016 fourth-quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Jill Calcaterra, EVP Corporate Communications. You may begin.

Good afternoon and thank you for joining today's conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Financial Officer, Jeffrey Edell; and our General Counsel, Gary Loffredo.

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, July 14, 2016 and Cinedigm does not intend and undertakes no duty to update future events or circumstances.

In addition, certain financial information presented in this call represents non-GAAP financial measures.

And now I'd like to turn the call over to Chris McGurk.

Thanks, Jill. Thanks everyone for joining us on the call today. First, I would like to review the financings that we are currently working on to provide capital to support the business and strengthen our balance sheet. Then I will discuss some important up-to-the minute developments with our Board governance and then the progress we have made with our base business in OTT.

Following that discussion, Jeff will review our fourth-quarter and full-year financials and discuss the significant success we've had in achieving the streamline of our cost structure and building a profitable cash positive based business. After that we will take your questions.

So, as we've detailed in our filings, we have been working on a comprehensive and interrelated series of financing transactions to provide capital, significantly strengthen our balance sheet and improve our business prospects. If implemented, these transactions will lower outstanding debt, significantly reduce annual cash interest expense and add important new working capital to support our business. Also we have already significantly improved the liquidity from our existing revolving credit facility.

As a first step, we recently entered into an agreement with our existing bank group led by Societe Generale, to modify our existing revolving credit facility. This amendment immediately increased our working capital. Jeff will review this amendment in more detail in a few minutes. Importantly, these changes help facilitate the other two new financings now in front of the Company underscoring how our current banks have been very supportive and flexible regarding our financing efforts.

As a second step, this agreement with the banks gave us the flexibility to do a relatively small raise of up to $11 million in second-lien secured debt with a modest and shareholder-friendly equity component. Ron Chez, our largest shareholder and strategic advisor, along with myself, have already committed to invest in this facility. We believe Ron's investment is an important vote of confidence in both our strategy and our prospects.

We expect by later today to already have $4.5 million in funding and commitments toward this effort. Expect more news on this financing shortly.

Now it's very important to emphasize here that we plan to be very judicious regarding the total raise amount and probably will not target a full $11 million investment. The most important factor driving this debt tranche is that the additional working capital it will generate provides assurance that we clearly have the capital needed to continue to accelerate the Company's recent success in rolling up new independent distribution deals as well as supporting growth in our narrowcast OTT channels, including several new distribution deals on the near-term horizon similar to our successful Amazon agreement.

In addition to our significant cost streamlining efforts, that was a very important point for both our current lenders and the entities involved in a potential accretive exchange of the convertible and mezzanine debt currently on our balance sheet.

So, as a third step and as we reported in our filing today, this second-lien raise has helped enable the Company to develop an opportunistic plan to offer holders of the $64 million in 2015 convertible notes and $5 million in 2013 mezzanine notes on our balance sheet to exchange their debt for a combination in total of approximately 1.5 million shares of equity and $48.3 million in third-lien secured debt. We will attempt to finalize this accretive transaction after we move forward with the modest second-lien financing I just described.

If completed, this transaction will simplify our capital structure, reduce cash interest and significantly reduce the balance of the notes and future dilution from conversion.

Finally, in another important effort to further strengthen our balance sheet, we are evaluating proposals from potential new lenders to replace our current revolving credit facility that would further improve our liquidity providing even more capital to support the business.

Overall, we believe our efforts to strengthen the balance sheet, provide additional capital, streamline operations and take advantage of a much stronger competitive market position given recent industry events, will prime Cinedigm to attract significant new business and enhance shareholder value.

I want to thank all of our investors and other constituents for your extreme patience while we have worked on these transactions. It has taken far longer than we would've hoped to move forward with this complicated and interrelated set of deals. We appreciate your loyalty and understanding during this period of transition and hope the benefits of these transactions, combined with our operational changes and momentum in both our base business and OTT, will create material shareholder value.

Now I'd like to review some important developments in regard to our Board of Directors. Today we reached agreement that Ron Chez, our largest shareholder and key strategic advisor, will join our Board as the director effective immediately. Ron brings a wealth of expertise and knowledge of Cinedigm to this role and is clearly aligned with our shareholders. He has been instrumental over the last year as Strategic Advisor in helping guide the Company forward. We are very pleased that Ron has joined the Board.

Additionally, we are reducing the size of the Board to five directors effective immediately. This will streamline the governance process and make it even more efficient. We want to thank the two directors that will be stepping down for their service and we will be sending out a release with more details on this shortly.

Now to review our current business. Let's start with the strong progress we've made in OTT.

In aggregate, as of today, we are pleased that Cinedigm's three OTT channels, Docurama, CONtv and Dove, have over 2.5 million app downloads, about 500,000 registered users and over 50,000 estimated active subscribers.

We continue to be pleased with our involvement in Amazon's Streaming Partners program. As a reminder, all three of Cinedigm's OTT channels are available to Amazon Prime members for a $4.99 monthly subscription fee each. Prime members can now view Cinedigm's channels with the Amazon Video app available on hundreds of devices. We believe we secured this prime real estate due both to the high quality of all of our apps and the large volume of highly curated premium content available on each of our channels. And with an estimated 50 million households currently using Amazon Prime, or nearly 40% of total American households, this distribution arrangement significantly expanded the potential subscriber base of Cinedigm's OTT channels.

We are very encouraged by the performance of all three of our channels on Amazon to date, and we continue to have active discussions with other major distribution platforms and technology companies about making our channels available on more services under similar arrangements.

For example, we are now in advanced discussions with a very large consumer hardware manufacturer to embed both CONtv and Dove Channel in their North American product offerings. The result could be several millions in additional revenue. Look for more announcements about these types of distribution arrangements soon.

Now let's get into some detail on the specific channels starting with the Dove Channel. Since its launch in September 2015, the Dove Channel has rapidly generated about 1 million installations on Android, iOS and Roku as well as on Amazon. Additionally, we have more than 340,000 registered users. As of today we estimate approximately 35,000 active subs for Dove and growing. Dove's success has generated several discussions with potential strategic partners for the channel in which we are now actively engaged.

Now let's talk about CONtv. For CONtv, our reposition content offering that we discussed on the last call continues to see particular success on Amazon. In addition, we are engaged in active discussions with potential channel strategic partners who are particularly interested in a targeted audience of millennials. We are in the process of refreshing our content offerings for both CONtv and Dove where now have an enormous amount of consumer viewing data that will help us program the channels in a more targeted and efficient manner and drive additional subscriber growth.

Our Docurama channel also continues to grow, particularly on Amazon where the service is subscription based. It is an integral part of the skinny bundling conversations we continue to have with distribution platforms for our channels.

Now let's address our entertainment distribution business. We are pleased that gross sales grew 5% year-over-year despite the issues with our fiscal-year 2016 sales pipeline we have emphasized on previous calls. Through strong placement management, our returns are down 10% from the previous year.

Additionally, as Jeff will review in more detail, changing market conditions have allowed us to acquire a variety of new titles under very favorable terms and have presented us with a very strong queue of potential new deals that could dramatically expand our revenue base.

On the digital front, we've seen strong performance from our transactional digital accounts including iTunes, Google, Voodoo and Amazon Instant Video. Given the strong performance of several titles, including Traded, The Good Witch TV and movie franchise, the Sharknado franchise and a variety of our catalog titles, we are very pleased to be exceeding our sales goals.

Overall, when combined with our aggressive cost rationalization plan and continued focus on improving the product mix and customer base for both our physical and digital businesses where new digital services continue to launch, we are profitably managing our base business while it also provides a key competitive advantage in quickly building our leadership position in OTT.

Moreover, on a go-forward basis, we expect our base distribution business to generate sufficient cash to fund the growth capital required by our OTT channels. In the meantime, we continue our discussions with potential strategic OTT partners to accelerate our growth and also share the capital outlay required.

And now Jeff will review some key financial and operational points and also discuss the progress we have made in significantly streamlining our cost structure and building profitability in our base business. Jeff?

Thanks, Chris. As Chris mentioned, in this fiscal year we were dealing with the effects of a reduced sales pipeline that had a definite impact on our results particularly in quarters three and four. But even with those headwinds, we are pleased that our revenues were in line with analyst expectations. To provide some more context of our overall results, there are several items I want to highlight.

First, this was a ramp up year for our OTT business and we have been investing significantly in our channels. We now have three channels fully operational versus just one channel last year. We have continued to tightly manage our customer acquisition, overhead and marketing costs given the additional experience we have in running these channels. As an example, we recently launched a series of multi-month subscription plans and based on this change, the number of customer months sold has significantly increased and should help mitigate our churn.

Second, and very importantly, we improved our base business results significantly versus the prior year. With additional cost-cutting measures enacted coupled with more product opportunities, we are confident this business will be highly profitable going forward.

To review our top-line results for fiscal year 2016, first consolidated revenues for the year were $104.5 million; content and entertainment revenues for the year were $43.9 million; consolidated adjusted EBITDA for the year was $43.2 million; non-deployment adjusted EBITDA for the year was a loss of $3.4 million, inclusive of our significant investment in the ramp up of OTT.

To review our results for the fourth quarter, consolidated revenues were $23.2 million; content and entertainment revenues were $8.8 million; consolidated adjusted EBITDA was $9.1 million and non-deployment adjusted EBITDA was a loss of $2.1 million again inclusive of our significant investment in the ramp up of OTT.

On the financing side, as Chris mentioned, we entered into an agreement with our existing bank group, led by Societe Generale, to modify our existing $22 million revolving credit facility. This previous amendment immediately increased our working capital for operations by $6.2 million through September 13, 2016. But importantly and based on subsequent positive discussions with our banks, we now have extended the $6.2 million liquidity enhancement through June 30, 2017. The new amendment also reduced the maximum principal amount available under our facility from $22 million down to $19.8 million reflecting current utilization, which is more than offset by the $6.2 million I mentioned earlier.

We appreciate our close relationship with our bank group and the financing flexibility that they would have provided us. Significantly, these changes helped facilitate the other two new financing opportunities now in front of us for the Company that Chris described.

Combined with the $4.5 million in new second-lien commitment that Chris mentioned earlier, this $6.2 million credit enhancement improves our liquidity by approximately $11 million, and with the potential for the future exchange of our convertible and mezzanine debt, we can further improve this by up to $3 million more.

As we mentioned in our previous call, we have continually paid close attention to our cost structure, and in that regard we have aggressively trimmed expenses throughout our business transformation. We have implemented a plan that is on track to garner approximately $10 million in annualized cost savings. This plan encompasses personnel changes in both our New York and LA offices.

An another areas of focus is our occupancy where we believe we can also save in excess of $500,000 per year by continuing to optimize our real estate cost structure on the West Coast. None of these reduction initiatives that we have referred to should have any negative impact on fiscal year 2017 revenues. However, they should positively impact our EBITDA.

Additionally, as our position as a leading independent distributor has become more solidified based on positive industry events for Cinedigm, we have recently been able to acquire high potential content under very favorable terms. We also have a significant number of new deals now in front of us that could generate in excess of $30 million in sales. Based on the more favorable deal environment that we are experiencing, we expect to spend significantly less this year on acquisitions with a focus on higher return opportunities at a lower threshold of investment and risk on our part. And we continue to cull less profitable content, which may have the impact of lowering our revenues but should also have the benefit of increasing our EBITDA. All this reflects our key learnings over the last two years about the rapidly changing independent content acquisition and distribution marketplace.

Finally, as the larger entertainment studios launch their own distribution platforms, we feel we are strategically well-positioned to be an even more major supplier of indie content to those channels as they seek new content to fill out their own offerings.

The Company has reduced its long-term debt by $62.3 million for the 12 months ended March 31, 2016. And additionally post year-end, we reduced our recourse debt by $5.7 million in the first quarter of fiscal year 2017. Significantly, with our financing changes underway, potential investors and partners can now focus on the strong asset value that Cinedigm brings to the marketplace. This includes the residual value of our install projection systems from our deployment business, the large $300 million in NOL we carry, our public currency, the depth and breadth of our 50,000 title library, our broad distribution range of over 60,000 outlets, the potential to unlock more shareholder value by splitting up the Company into the deployment and media entities, and of course our burgeoning OTT channel business with its rapidly expanding user and subscriber base.

I would like to add that we look forward to having the financings behind us so we can turn all of our focus and attention to running our business and improving shareholder value.

Now I will turn the call back to Chris for concluding remarks. Chris?

Thank you, Jeff. In closing, I want to reiterate that we are working hard on the financing transactions I described at the beginning of this call, and again I want to thank our investors and other constituents for their patience.

Having already streamlined operations and reduced annual operating costs by approximately $10 million, we believe these financings will position us to exploit the very favorable market conditions, fueling our base distribution business and our leadership position in narrowcast OTT where we continue to engage in strategic discussions based on the success of our Dove, Docurama and CONtv channels.

Importantly, these financings will send the right positive signal at the right time to potential customers and partners for both our base business and OTT, where we need to capitalize on our momentum through strong, consistent business execution. And we are also very pleased with the positive changes that we have made to our Board.

And with that, we will now take questions. Operator?

Thank you. (Operator Instructions). Andrew D'Silva, Merriman Capital.

Good afternoon and thanks for taking my questions. Just have a couple of quick ones on OTT and then I will move over to your distribution business.

So first on OTT, spending decreased during the quarter and maybe going into the first quarter of 2017 related to OTT marketing, has there been a significant monthly decline in your spend on a quarterly or monthly basis, or any other cost-cutting measures directly related to the OTT channel?

Yes, as a matter of fact as we've determined certain programs that we are putting out there to obtain subscribers and as opposed to blanketing them, we've become much more targeted. So we've been able to trim between $100,000 and $150,000 a month off of our marketing spend, yet we are still getting growth in subscriber base. So, Andrew, it's a good point and well taken.

All right. And then as far as your internal market research goes with each channel, what are you seeing as the primary reason a greater portion of your either registered users or your app installs -- and again this is primarily related to CONtv and Docurama -- how come a larger portion of them are not becoming paid subs? In your opinion is it related to a lack of content, platform issues, pricing? Any color there would be useful in understanding future endeavors.

We are kind of happy with the way the funnel is working right now, as a matter of fact, Andrew. The 50,000 subscribers that we have in total across the three services, and you remember that Docurama is only a subscription service on Amazon, not on the other platforms. We feel good about our conversion and the way the funnel is working right now, and I think importantly I think you are going to see greater conversion going forward because of the point you just made. Dove has only been out there for about nine months now. We've got a year of experience in CONtv.

We've learned a lot based on the enormous amount of data that we've been able to generate and glean from all the viewership that we've had on the channels right now. And I think as I said on my remarks, right now we are fine-tuning our content offering based on that data and we think that kind of refreshment, particularly on the Dove Channel and CONtv, is going to be very helpful and drive additional subscriptions.

We also think that -- I mentioned that we've got several upcoming and potential distribution deals similar to the Amazon deal. On Amazon, it's exceeded all of our expectations across all three channels, and if we can, as we expect, transact two or three more of these deals on platforms similar to Amazon, we think that's going to really help jumpstart our subscription growth because again you get all the promotional and marketing spend from these giant platforms that exist out there right now.

So we feel pretty good of where we are at right now, and we feel very good about the prospects of getting two or three of these other major deals over the line in the next couple of months. And we think you are going to see that kick start our subscription growth pretty significantly.

Good. Good to hear that. And then as far as the AVOD side of the business for the OTT channels, are you obtaining the adequate amount of advertising inventory right now as you initially expected, and is inventory still coming in around that $13 to $17 CPM range? And then if you can maybe disclose just a little bit of data on how many hours of viewership you are seeing monthly across maybe all channels combined would be useful.

So, yes, the advertising dollars are still pretty stable. It still in the range that you say, Andrew, so we are still in that same CPM range, which is positive. But remember, most of what we are going to see here is obviously not from the AVOD side. It's going to be very much skewed to the SVOD side and any business that in this day and age tries to sell off of or create values off of advertising, it's not really appropriate. So you see the majority is going to come from the subscriber side.

Right. I was just -- go ahead. Yes, I was just trying to pinpoint the type of advertisers and hours watched to give me a sense of what major companies might be thinking as far as the demographics that you guys are targeting and your success within there because you are going to obtain higher quality advertisers and are willing to pay a higher CPM if the viewership is there and it's a good targeted audience.

Well, again, the AVOD piece of our business is a very small piece of the business right now given our level of viewership. It will become more important as we go forward. I think one of the things to your point about who our viewers are, we are finding recently an awful lot of interest in CONtv because it is appealing to that millennial demographic that is so attractive to not just advertisers but a lot of big entertainment companies that are trying to find that demo.

And when we talk about -- I mentioned that we are in advanced discussions with a major consumer electronics manufacturing company to be embedded on their devices in North America. That conversation started around CONtv because they were very, very attracted to that millennial demographic for CONtv, and then expand it into Dove when we were able to show them that Dove appealed to a huge demographic in and of itself, evangelicals and the faith and family audience.

Okay. That makes sense. And then just one quick question on the distribution side of the business. In previous calls, you kind of indicated that the physical side, DVD, Blu-ray, could be declining annually at around 10% to 15%. The benefits that you previously mentioned, market-related in your prepared remarks, are those expected to maybe offset that decline going into 2017, or do you still figure that to be the case going forward, that 10%, 15%?

It's absolutely going to offset that decline. We are going to make up for that industry decline, we believe, through additional volume. What's happening specifically in the industry is you are seeing more consolidation, specifically two of our competitors were impacted very, very recently. I won't name them. One was bought by a major studio and the second one has gone out of business. They went out of business for two reasons. One, like we did, they over reached and they made an acquisition of a physical distribution company and paid too much money. But unlike us, who managed to fight through that after the Gaiam acquisition and we think came out stronger based on all the activity that we put in place to streamline our business and pare off a lot of the unprofitable accounts, they weren't able to do that. And at the same time, they remained stuck in the old independent film acquisition business that we basically got out of a couple of years ago, paying for overpriced films at festivals and trying to release them theatrically.

So those two companies, basically, one doesn't exist anymore and the other one was subsumed by a major studio. All of the accounts in that business are now sitting there in front of us and we feel, as Jeff mentioned in his remarks, right now looking at it, we've got about $30 million in gross sales sitting in front of us right now.

We think we are at a unique point now where we can present ourselves as the independent studio that's financially stable and has great prospects going forward and we can pick up a lot of this incremental business with no increase in overhead. We think that's the competitive advantage that we've got right now and it's a buyer's market now, as Jeff described, so we think we are in a really, really good shape in the base business, not just in digital but in physical, for those reasons and we have a big opportunity in front of us that we need to execute and take advantage of.

And, Andrew, just to add to that, one is we are finding that the terms for the new deals that we are looking at as opposed to being payable in 30 or 60 days, some of them are going 60 to 90, in addition to the costs that Chris mentioned, there's also no advances required on a lot of this, so it cash flows better.

And then one of the earlier comments I made about and strategically the way the landscape is shaping, the budgets that the Netflix of the world and the Amazons of the world have out there is anywhere from $11 billion to $20 billion if you put them together or separately. It so far out exceeds the studios and the major networks, and since all of those entities themselves have created their own channels or are in the process of doing that, the appetite for acquiring content by those others players fall right to us sitting as the predominant player in the indie space domestically. So it gives us a great look for the future.

That's very fascinating. All right, well, I will get some more color with you guys off-line, but thanks and good luck going forward this year.

Thank you. (Operator Instructions). [Gentry Klein, Cedis].

Good afternoon. Thanks for taking my questions. On this $11 million of capital raise, what's the use of proceeds?

I think I mentioned this in my remarks, Gentry. We really felt that we needed and our banks felt and I think some of the entities involved in this exchange that we want to try to transact that I described, that we needed a little more firepower at our disposal to take advantage of the industry factors and opportunities that I just described in response to the last question. There's an awful lot of business sitting in front of us right now and we felt we needed a little bit more capital basically to go after that business and also do the things on the OTT side that I was talking about, refreshing the content on the Dove Channel and CONtv to make sure that we are investing properly to grow our subscriber base over the next few months at a critical time in that business, and particularly when we've got all of these high potential-distribution deals in the offing hopefully. We want to continue to show good growth in our user base and our subscribers.

And I think I will emphasize again, we have the ability to raise up to $11 million. I think it's highly improbable that we are going to raise that amount of money. At this point we don't think we need it. But it was an important thing for us to do, we think, just to make sure we had that extra firepower on our balance sheet. And it was important for our banks and it was an important fact for the potential exchange that we are looking at.

And it looks like your revolver was -- sorry?

No, Gentry, I was just going to add two things. One is, we've hit the tipping point of the inflex point with OTT in the path that was pure investment little revenue and in the next year we are looking at much more significant revenue even with a lesser spend. So it strengths the amount of capital that the Company needs compared to last year in that regard. And then with the $10 million of annualized expense cuts that we've made particularly between corporate and the base business and somewhat in OTT, that also further reduced the need for -- so this capital is going to be mainly going to growth and very little is going to be going for the past.

And again, Gentry, I just want to emphasize, we believe that if we can transact the exchange that I described, that will be an enormously additional positive step for the Company and a positive step for our balance sheet. It'll be a very accretive transaction which I think is important to everybody. It will reduce our cash interest payments, as Jeff said, by up to $3 million a year. It will reduce our debt further, and it will prevent significant dilution from the conversion going forward. So to add a little bit of the second-lien money to put some more firepower on the balance sheet, to help set up the opportunity for this exchange transaction, we thought was very prudent and smart for the Company.

We think the fact that Ron Chez is a significant investor in the second lien along with myself is another real positive signal, not just hopefully to our investors but also to the business community out there right now where a lot of content suppliers and a lot of players who want to operate in the OTT space are looking for a strong and financially stable company to partner with. And I think all of those factors that I just described are really behind this rather modest capital raise that we've talked about.

Right. So the revolver was $22 million at the end of the quarter. You paid it down $6 million. You have about $16 million outstanding on it it looks like. Clearly -- how much capacity do you have to draw on the revolver? And what's the borrowing base on the revolver because it would obviously seem like that's your cheapest cost of capital. I don't know what the receivables balance is on that but can you give us a little color as to where you sit in the borrowing base?

Sure. This is Jeff. I will help you out there. So originally our original revolver was at $30 million and we lowered it to $22 million in the last amendment to the banks, and this one we've lowered it to $19.8 million. Today, as you pointed out, we are at $16.2 million. We will pretty much stay in the $19.8 million range, $19 million to $19.8 million over the next several months, so we will have basically keep up at the maximum that our borrowing base allows us.

Remember, it's different than a credit line that you draw on and use and then pay back. The borrowing base is supposed to reflect your asset base. It's asset-based. It supposed to reflect a percent of your receivables, etc. So in that regard so -- but we generally will average about $20 million in a month over time.

We are also looking -- there's one other beauty to this thing -- is that even though the borrowing base has been reduced to $19.8 million, the banks had always kept $2.2 million in what's known as a debt-service reserve to fund the next six months of interest that was projected for our mezz, for our revolver and for the underlying -- for the converts. That is being canceled, paying down the debt and freeing up another $2.2 million of capacity. So it's no longer restricted, and now with the liquidity threshold at $800,000, it has added significant liquidity to the Company going forward.

In terms of your question about -- one last thing on the borrowing base. We are entertaining some interesting options to even have more access to capital because what we've seen is over time that the banks when we originally made this deal haven't quite evolved with us in terms of the digital business and so forth. We have significant amount of digital receivables in the $12 million to $13 million range at any point in time and we borrow very little against those digital receivables. And that is critical because that just comes in like an annuity where we've already delivered the product.

So we think a new bank opportunity could create significant additional liquidity beyond the borrowing base that we have right now.

Collateral wise, and it's something if you want to take a look at the second-lien deal that we are working on, but collateral wise we are somewhere less than 50% the way we look at collateral, probably closer to the high 30%s or low 40%s in terms of the collateral. There's a bunch of collateral that we don't even borrow against.

So for future banks, there's tremendous bandwidth. For current banks the way they are structured, this should work for us and our operations.

Got it. That's helpful. I really appreciate all that color. In terms of OTT, what's the capital outlay? How much have we spent on OTT? How much are we spending next year? It just seems -- I've brought this point up before -- we continue to show negative EBITDA. We continue to spend a lot of money on OTT. The market cap today is $7 million. I don't understand the investment rationale behind OTT. I would think given all the opportunities you talked about and the funding needs you talked about related to the base distribution business, which I believe we are poised to actually capitalize on, I just don't believe we are the right Company, we don't have the balance sheet to be funding this OTT venture, these three channels. I would like you to tell me and explain to everyone what the cost is of OTT?

I will say, and I don't want to give the specific number because we are in a very competitive environment, but I will to you in the last fiscal year the total investment was below $10 million and this year it's going to be below $5 million, the net investment in that business. And we've got a number of deals on the table right now that we are looking at strategic partners who might offset that capital outlay significantly and might also take equity stakes in each one of our channels.

So the rubber is really going to meet the road in the OTT business over the next six to nine months based on the strategic partnerships that we are able to get over the line and also the new distribution deals that I've talked about. The Amazon deal is a perfect example of the type of deal we want to do because it really reduces our risk and opens up an opportunity to bring in many, many more subscribers on that platform. If we can do two, three, four deals like that over the next three months, I think you are going to see a dramatic improvement in our numbers very, very quickly. And again, the type of deals that have gone on in that space, the multiples and the valuations of that space are far and above what you are going to get in the base distribution business, and that's why we've been pivoting the Company toward OTT.

So it's too early to make the kind of call that we should not be investing in that space. We finally got metrics in that space and we got a lot of interest in that space. And again as I said the rubber is going to meet the road based on the deals we do between now and the end of the year.

Okay. It's counterintuitive to me that -- I have a hard time understanding that, with a company as levered as we are and with the liquidity position we are in, you mentioned the revolver has been reducing its borrowing base and we find ourselves needing to raise second lien capital, that we would be spending any money on an initiative where we are burning cash on. If you are going to spend money I would think you should be spending it on the base distribution business. You should be buying back stock. We shouldn't be putting money into a venture that's burning cash. And all of our problems have been self-inflicted.

I believe if you had a base distribution business that was showing good profitability, good cash flow, a good level of EBITDA that people could attach a multiple to and imply a valuation, and you look at the projector business, the nonrecourse projector business, we'd have a significant more value than we do today and we wouldn't have the liquidity problems we do today. And it's a little mind-boggling the strategy that we've been employing. We've gone from (multiple speakers) last call was about strategic alternatives and this call is all about financial initiatives --.

Gentry, we've had this conversation before and I will just respond to it and then we can move on. We disagree with you. What we are working toward is an extremely strong base distribution business, which is what you are talking about that's cash flow positive, that can more than fund our OTT business, and we've got a very open competitive landscape in front of us now that we didn't have a year ago, and we are going to try to take advantage of it. And again that was one of the reasons why we did the small capital raise.

In OTT, we've got the burn down to below $5 million. We've got a number of opportunities on the table to reduce that burn or eliminate it completely and to partner with bigger, stronger distribution platforms and entertainment companies that can really help us accelerate and grow that business. And we are very focused on that because again, that's a much higher multiple, much higher return business than the base-distribution business. It's the future of the entertainment industry and we want to be part of it. So I think we should stop the conversation about this and move on to another question.

Okay. Thanks.

[Alan Portelli], private investor.

I have three questions. First of all before I asked my question, I'm so happy that Ron Chez is joining the Board because I think he's the largest shareholder of Cinedigm and the Board will definitely be shareholder friendly as the accountants like to say both in fact and in appearance. So I applaud that move.

But the stock price of Cinedigm continues to baffle me. I'm a longtime investor and today is a great example. You guys are reporting earnings that have apparently beat the estimates by $0.10 and revenue was in line with the analyst estimates and the stock goes down 16% or so and is now trading under $1. And right now what I always do when I look at that stock price is I divide it by 10 because of the reverse-stock split and I say oh, my Lord, it selling for less than $0.10.

And which leads me to my question. It's my belief that management hasn't been able to buy significant shares of Cinedigm because they might possess insider information. With all the disclosures that you've made today and all these things that are forthcoming, my question is will management now be able to buy significant shares of Cinedigm at these hopefully significantly undervalued prices since they no longer possess, in my opinion, insider information? That's my first question.

Thank you, Alan. Appreciate it very much. First, let me say we are also thrilled that Ron is joining the Board. Again, he's been our largest shareholder, a great supporter of the Company and as you know for the last year he's been a strategic advisor to the Company, particularly to me and I think his insights have been invaluable. And I think if Ron was on the call right now and responding to that last question, I think he would have said very much the same that I said in response. But you can talk to Ron and he's not shy about his opinions, as you know.

Second, you talk about the stock price and we are baffled by it and we are frustrated by it and we feel the pain of our investors. You talked about today the stock went down 25% in the 10 minutes before close. I know we don't put much stock in what goes on after hours, but after our release went out it up 44% after hours. It's just ridiculous.

We think it's undervalued. We think these financings that we have done are a good first step and an announcement to our investors that we are a financially stable company that's going to move forward. We are going to execute our strategy and we think it's a really good signal to the potential OTT partners out there and customers that we will have for our base business that can really help us thrive and grow and build the business and execute. And no one will be afraid to come to the Company because we've begun to change the narrative of the Company from the negative that we had before to a very, very positive one. And we hope that will have, along with superior execution, will have a very positive impact on the stock price and get it up to a level of value that we think is representative of the assets that we have in the Company that Jeffrey described.

I am investing in this second-lien note that has an equity component, so I figured that was a very good way for me to step up and show my confidence and faith in the Company along with Ron going forward. I'd turn it over to Gary to talk about our ability to buy stock going forward, but I think I can tell you that the management team here and our Board view the stock as very, very undervalued right now and a very good investment opportunity. Gary?

Yes. Yes, I hope so. Let's go ahead.

Yes, this is Gary. After the 10-K was filed today, which was filed around 5:12, we will go back and look at the disclosures and consult with outside counsel to see if we'd opened the window for employees and insiders to purchase stock depending on the level of inside information and the level of disclosures.

Okay, because you know a lot of investors look at insider trading and if they see management buying, it helps the stock price. Anyway, I hope that Gary you will let management know they can buy a lot of shares. That's the end of the question.

My second question is, the Amazon deal that you talk about, is that deal a percentage of revenue deal so that it's really a profit-sharing that you pay them only when you take in revenue?

Yes. I think -- and I don't want to get too specific because we have a nondisclosure agreement with them, but it's a revenue-sharing deal.

Good.

And they provide all the technology costs and the marketing services and we just provide the content. And I think the great thing about that deal is, when you net it all down because they are picking up a big piece of the cost basis, the margin is almost the same as if you were subscribing on our website, while we are taking advantage of their reach into 50 million homes. And that's why we are so excited about the similar deals that we have on the table right now. We have opportunities again to do very similar deals and some of these companies are tracking the fact that Amazon picked all three of our channels in their first tranche of 30 channels that they put up. And they picked them because the channels -- our technology works. They look great. Our user reviews are very positive, and we put up each channel with an enormous amount of content relative to other channels that exist out there in the narrowcast OTT space.

And we think all of those factors are going to be very, very important as we pursue the whole next round of distribution deals that we hope we are going to be able to announce in the next few months.

I'm glad to hear that and that's the response -- was the guy before me, was he Jeffery or Gentry, I couldn't hear his name -- Jeffrey?

Gentry.

Gentry, remember, you said that your capital outlay in OTT was $10 million last year and you expect it to be $5 million this year, but if you do more revenue-sharing deals, that contributes to less capital spending while still growing the OTT channel.

You are absolutely right, and again, I said less than $10 million last year and less than $5 million this year. And the other part of some of these deals, they are not just distribution deals that are revenue-sharing, we are also having conversations with larger entertainment companies that may have related assets who might want to invest in these channels and also as part of the deal pick up a big piece or provide content, marketing and technology services. So that in and of itself would defray a piece of our less than $5 million capital outlay.

Yes. That's good. My next question probably you might not be able to insert, but do you foresee a quarter in the next two or three years, or year that you'll be able to report a GAAP, GAAP pretax profit?

I will let Jeff Edell answer that question.

Yes, Alan, as much as I love you and I could talk to off-line, that's a kind of tough response for us. We don't really do look-forward, we don't provide guidance, but you could, if you have any of your analytics or the math and some of the things you are doing, if you just project out be OTT ramp up and the cost reductions in the Company, you could probably project when you could see that happening. But we don't give any forward-looking guidance, but it's all online for those types of things to happen.

Okay, my last point is not a question but a potential suggestion if you haven't to look into it. I used to be a Catholic for 50 years and we went to an Evangelical preacher and we're very happy with it and I know those kinds of people are important to the Dove Channel. Have you guys ever heard of in organization called AWANA?

How do you spell or pronounce that?

AWANA.

I have not.

Okay. I guess that's good because I can tell you, you should have your people look into it. It's a huge organization. They're Evangelical, they have programs at our church all through the fall and winter geared to children and parents who care about their kids. It's a wonderful organization and I have a feeling that if you learn more about them (multiple speakers) parents who care about their kids you might be able to work something out.

Yes, I appreciate that very much. And, again, just because I have not heard of AWANA doesn't mean we are not working with them because we've got a huge outreach program for the Dove Channel, an affiliate program where we've done outreach to religious, family, Evangelical organizations across the whole spectrum. But what I'll do is, I'm going to follow up with them specifically (multiple speakers) on AWANA and --.

Please do. There might be something there.

Yes, and Jill Calcaterra, who is here with me right now, will follow up directly with you to see whether we are working with them correctly, or there's an opportunity going forward.

Okay. That's it for now.

Alan, thank you very much for all of your question and your support.

There are no further questions in the queue at this time. I will turn the call back over to Chris for closing remarks.

Again, I want to thank you all for your support, for your patience, and we look forward to talking to you again actually in about a month, and hopefully we will have more progress to report at that point, both on our business, the financing activities that we've described here and also the strategic conversations that we've been having. So thank you all.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.