Cineverse Corp (CNVS) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. Fourth Quarter 2017 Fiscal Earnings Call. (Operator Instructions) As a reminder, this call is being recorded.

I would like to introduce your host for today's conference, Jill Calcaterra, EVP, Investor Relations. Ma'am, you may begin.

Thank you. Good afternoon, and thank you for joining today's fourth quarter and full year fiscal 2017 earnings 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 and Head of Digital Cinema, 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, June 29, 2017, 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.

Thank you, Jill, and thanks, everyone for joining us on the call today.

Just a few minutes ago, we were very pleased to announce an agreement for a major strategic investment in Cinedigm by Bison Entertainment Investment Limited, which is a wholly owned subsidiary of Bison Holding Company Ltd. As I discuss this agreement, I will refer to Bison Entertainment Investment Limited as Bison, and Bison Holding Company Ltd. as Bison Capital.

We believe this strategic investment just announced and related business relationship will be a transformative event for Cinedigm. Founded in 2014 by Mr. Peixin Xu, Bison Capital is a major force in the media and entertainment business in China with multiple investments in film and television production, film distribution and entertainment-related mobile Internet services, including Bona Film, Xunlei and Weiying Technologies.

We believe Bison Capital's business investments and relationship in China, combined with the substantial investment in Cinedigm and the potential for additional significant balance sheet refinancing, will help solidify our position as the leading independent content distributor in North America and, in addition, open up significant new growth opportunities for our content, OTT channels and services and digital cinema businesses in China as well as other emerging markets. Bison Capital is the perfect financial and strategic partner to help take Cinedigm's unique business model to the next level as a leading global digital entertainment company.

Here are the key elements of this agreement. Cinedigm has entered into a stock purchase agreement with Bison Capital, wherein the company has agreed to sell to Bison Capital 20 million shares of our Class A common stock for an aggregate purchase price of up to $30 million, from which up to 400,000 shares may be sold to members of management instead of Bison Capital. The company is also in advanced discussions with holders representing approximately 99% by principal amount of the company's outstanding 5.5% convertible senior notes due in 2035 to exchange their notes in cash, other securities of the company for a combination thereof, in order to decrease the debt obligations of the company. We believe these exchange transactions with holders of our notes will result in a substantial reduction of our indebtedness and allow us to aggressively pursue the opportunities that the Bison Capital transaction enables.

Upon issuance of the shares, Bison Capital will own a majority of the outstanding Class A common stock and will be entitled to designate 2 members at our Board of Directors, the size of which will be fixed at 7 members as of the closing date. The proceeds from the sale of shares will be used for the cash portion of the convertible note exchanges and for working capital and general corporate purposes.

In addition, Bison Capital will provide the company with a $10 million loan for working capital and general corporate purposes within 60 days of closing and will then work with the company to refinance and/or retire the remaining debt of the company.

The company will hold a meeting of stockholders in the third calendar quarter of 2017, at which time we will seek approval from shareholders of these transactions I just described, including the issuance of the shares. These transactions are subject to closing conditions, including completion of the convertible note exchanges and receipt of stockholder and regulatory approvals, including CFIUS.

I want to reiterate that we believe this agreement with Bison Capital is a major positive and transformational event for the company. We believe the strategic upside to the company will be enormous. We've limited our discussion today to what is being publicly released in our 10-K and 8-K. We expect to hold a separate investor call that will be open to the public to discuss this transaction, and we will announce details of that call shortly. As such, I will wait until that more fulsome call to take your questions on this and instead focus the rest of our comments and the Q&A on the business and financial results we announced today.

So let me now highlight some of our operational and financial accomplishments during the quarter and full year. During the year, we paid down over $53 million in nonrecourse debt related to the Digital Cinema business. We achieved in excess of $10 million in annual operating cost savings that were initiated during fiscal 2016. We terminated the current office lease for our West Coast facilities and leased less expensive space, reducing our rent expense by over $700,000 annually.

In our Digital Cinema business, we began to actively pursue options to realize the significant residual value of the more than 4,600 digital projector systems we own. This quarter, we completed an exchange of $10 million of a portion of the company's 5.5% convertible notes for common stock and second-lien debt, bringing the total amount of the exchange of those notes and reduction in our debt accomplished this year to $13.4 million.

Additionally, we continue to work to strengthen our balance sheet by reducing debt obligations and expanding our current bank revolver, initiatives that clearly will be enhanced by the Bison transaction.

In our entertainment business, we also saw significant progress. We saw success with a variety of our key content titles, including NFL Super Bowl 51, our Power Rangers library titles and Beauty and the Beast, our released scheduled to draft off of this recent successful live action theatrical.

On the digital sales front, Good Witch Season 3 continues to perform well, with sales already 211% higher than Season 2. Our other Hallmark series, When Calls The Heart Season 4, is also performing well; and The Ticket, a day-and-date theatrical release, surpassed our expectations.

In our OTT business, we announced a partnership to launch the WHAM Network, a 24/7 streaming channel providing news information and entertainment focused on the global eSports and gaming ecosystem. We expect this channel to launch sometime in the fall.

Our OTT channels, Dove Channel, Docurama and CONtv, continue to gain significant app downloads, registered users and active subscribers. The 3 channels currently have approximately 4 million app downloads, 797,000 registered users and approximately 85,000 active subscribers. We expect those numbers to continue to grow with our recently announced plans to significantly extend the availability of our fast-growing OTT services by supporting Google's Chromecast and Android TV platforms as well as Amazon Fire TV for the first time. These modes will expand our reach by over 60 million plus potential consumers.

The company's OTT group is focused on completing a substantial upgrade of our technical and distribution infrastructure to support 3 imminent deals with major vMVPDs and telcos, which are expected to go live in the second half of fiscal year 2018.

In another move to expand our reach, earlier this month, we announced an agreement with JungoTV to distribute Cinedigm's portfolio of digital networks to cable, satellite, telco and technology companies in several emerging and fast-growth international markets with a total population of over 2.5 billion consumers. Finally, we also recently announced our selection of Verizon Digital Media Services to power the streaming and syndication of linear content for our channel portfolio.

And with that, I'll now turn things over to Jeff to review our financial results. Jeff?

Thanks, Chris. For fourth quarter and full fiscal year 2017, we're very pleased with the positive momentum that we're seeing across our businesses and the subsequent financial results.

Results for the fourth quarter of 2017. Consolidated revenues were $19.6 million. Content and entertainment revenues were $7.9 million. Consolidated adjusted EBITDA was $6.7 million. Non-deployment adjusted EBITDA was negative $1.8 million, inclusive of all the operating costs incurred in the ramp-up of our over-the-top channels. However, this is positive news as it's 12% improvement over the prior year quarter.

Results for the full 2017. Consolidated revenues for the year were $90.4 million. Content and entertainment revenues for the year were $34.2 million. Consolidated adjusted EBITDA for the year was $42.4 million, and non-deployment adjusted EBITDA was a positive $1 million, which is a $4.4 million improvement over the last fiscal year.

Additionally, as Chris mentioned, during the fiscal quarter -- fiscal year 2017, the company paid down over $53 million of nonrecourse debt related to the Digital Cinema business.

In terms of the cost reductions mentioned previously, migrating both the New York and the Los Angeles offices into smaller and less expensive spaces will save the company over $700,000 in rent expense over this first year alone. We are very pleased that our 2-year cost-reduction program has enabled us to get our entertainment business backing into positive EBITDA. At the same time, Cinedigm remains uniquely positioned to leverage all markets and content windows as one of the few turnkey solutions for content providers, which gives us a strong competitive position that Bison Capital's strategic investment, that Chris spoke about earlier, will allow us to more strongly leverage.

Through fine-tuning and analysis of up-to-the-minute market dynamics, our content greenlighting process has proven to be very effective recently, and we have increased the minimum IRRs we expect to achieve on new products, projects that we continue to invest in. In addition, we continue to test the markets to determine the specific niches of content that we feel would maximize our returns. Competitions for great employees continues to exist in both L.A. and in New York. And the company continues to do all that it can in terms of flexible work schedules, employee recognition and enhanced 401(k) plan and equity retention plans to attract and retain key employees.

We continue to represent some of the key content providers in the industry, namely: Hallmark, Shout! Factory, Jim Henson, The Weinstein Company, the NFL, 4K, Scholastic, STUDIOCANAL, Sonar and more. And we maintain physical distribution relationships with the industry stalwarts such as Walmart, Amazon, Best Buy, Target, Ingram, Costco, Red Box and digital distribution arrangements with Netflix, Amazon, Google, Hulu, Apple iTunes and more.

Our 3 over-the-top channels continue to grow nicely as we ended the fiscal year at almost $2 million in gross revenues, which is over 6x the revenues from the prior year with over 85,000 monthly active paying subscribers.

In addition, our first new third-party OTT channel, WHAM, is set to go live during the fall of this year. For WHAM, we'll receive a significant distribution fee without any responsibility to fund content development, marketing or technology costs. This will all be provided by WHAM.

For all of our channels, we continue to aggressively expand our distribution footprint, particularly on additional higher-margin third-party platforms like our current Amazon deal. We mentioned previously that we had been receiving significant interest from potential strategic investors. And as Chris discussed earlier, this is culminated in an agreement for a major investment from an international strategic partner, Bison Capital.

One direct additional benefit of this strategic investment will be the ability to refinance and expand our existing revolver, currently with the Soc Gen Group at a much lower interest cost. We have been carefully coordinating our efforts in this area to leverage and reflect the Bison Capital investment and potential additional balance sheet refinancing and debt retirement.

Based upon the above, one can see why we continue to believe in our promising future, especially with our new strategic partner, Bison Capital. In addition to all the financial upsides, the Bison Capital agreement will help open up multiple new revenue streams for us digitally and internationally, in addition to increasing all aspects of our current revenue base.

Now I'll turn the call back to Chris. Chris?

Thanks very much, Jeff. With all of that as a backdrop, I'd now like to open up the call for your questions, mindful of my previous point that we will be deferring any additional discussion of the Bison Capital strategic investment until we hold the special conference call in that subject in the very near future.

Operator?

(Operator Instructions) And we have a question from Hasnain Karim.

Just a question on the recent transaction with Bison. Maybe if you can just talk about how many -- I guess, what exactly you're evaluating besides a capital infusion where you're thinking about VPF spinoffs. Are you still thinking about selling those projectors? I know that was something that you talked about in the past with regards to raising funds. Or maybe if you can talk about exactly what the VPF business means for Cinedigm going forward.

Yes. I appreciate the question. But as I said, we're going to defer the discussion in Bison until this special conference call that we're going to set up in the very near future. Again, because we really want to lay out the strategic rationale for the deal in a very clinical fashion for you, at which time I think you're going to see the value of the deal, which is the question that you're asking, and why we think it's such a huge positive for the company. So I'm going to appreciate the question, but I will defer the response on that until our special conference call.

Okay. Could you talk about the VPF side of the business? And what does that mean going forward to the company as a whole?

So as you know, the company has this Phase 1 and Phase 2 setup. And what's happening now is Phase 1 is sort of trailing off, but we see significant value in the residual valued equipment. So given all that, especially with the potential opening of China and some of the international markets, there could be a great opportunity to take the equipment itself to either sell it or to repurpose it in other countries. But that's something that we'll address more fully in the Bison strategic call that we'll have in a week or so.

Yes. And I would -- this is Gary Loffredo. I'd just like to add that, as Jeff remarked, we paid off over $53 million in nonrecourse debt related to Digital Cinema business during the past year. The Digital Cinema business will continue through 2022, and we continue to service all of the digital systems that are part of our rollout.

Okay. Maybe. If you could talk to the share count and the amount of -- I guess, with regards to the Bison deal, sorry, but I just want to have more clarification if I could. The $30 million that the company will receive or up to $30 million, what's that ratio dependent on?

I think again, we're going to defer conversation about that until this special call. Other than what's been disclosed in our 10K, in our filings today. But we really appreciate your questions. Thank you. And we'll have all the answers for you in about a week.

(Operator Instructions) And our next question comes from [Alan Cortelli].

Chris and Jeffrey, this is [Alan Cortelli]. I just -- I'm not going to ask a question on the Bison deal. I want a clarification on what you said, Chris. Did they purchase -- I heard you say they purchased 20 million shares for $30 million or, in other words, $1.50 a share? Is that correct? Is that what I heard?

That's the math.

That's the math. Okay.

And just to clarify, there's an agreement to purchase that. There are still some closing conditions.

Correct. Correct.

As Chris has just described.

Okay. And so this Bison call, one thing I would request is that you give us shareholders a little more advanced notice on when this Bison call is going to happen rather than the day of the call. I don't want to get an e-mail the day of the call. If you could give us just 2 or 3 days...

That's a very good point. Alan, that's a very good point, and we intend to do that. Again, one of the reasons why we didn't want to try to go into detail today is we knew we had an earnings call. We disclosed this agreement an hour ago. And we felt that it wouldn't be fair to our shareholders to try to answer all of your questions in that manner. So we're going to set this additional call. We're going to give you plenty of notice. And I guarantee you, we're going to go soup to nuts through why we believe this is the right deal for the shareholders and our company -- the right deal strategically for the company.

Based on what you said, it sounds outstanding. Anyways, the only comment -- the other comment or question I have is -- I'm a full-time babysitter. I retired 5 years ago, and I didn't have a Cinedigm file with me. I'm at my daughter's house babysitting, hiding in the basement from the kids. But paid subscribers, paid subscribers, I think, Jeffrey, you said it's 85,000.

Yes. That's right, Alan.

Okay. If I -- I don't have my notes, but I think in the last call was to the last quarter, 3, 4 months ago, whatever, it was -- I thought it was 75,000 or so. And if I'm correct, my question is -- it seems to be growing as fast as all these wonderful things that are happening.

Yes.

So aren't you happy with 85,000? Are you still not pleased that paid subscribers aren't growing faster? How's that for a question?

No. We're very happy where we are right now. I'm just going to turn it over to Jeff and let him explain what we've been doing and what we think the next step is for the business.

Right. So Alan, when you create -- you can create paid subscribers by a combination of the amount of content that you're buying and putting up on the channels, in addition to the marketing dollars that you're spending. But we very pretty specifically and consciously lowered the spend during this past quarter so we would have predicted a lower growth rate. And we took our dollars, which are very precious to this point in time up until the Bison closing, and we put that towards the technology and the capital and the infrastructure because we realized that, according to a Kagan study, there's 1/3 of all video customers are going to be used what Chris called MPV -- MVPDs, which are MSOs. And most of them, over 1/3 of them, are going to be on these types of services in the future. So we wanted to have the technology to deal with the large telcos and these MSOs as we come out of 2017, so where dollars were spent not necessarily on marketing and content but more so on the infrastructure and the technology.

And as I said in my remarks, we've got a number of these deals, distributed third-party deals, on the table, similar to the Amazon deal, which had been very successful for us. And now that we have our infrastructure and technology up to snuff, we're very focused on closing these deals over the next 6 months.

Okay. Well, that's a very good answer. I like that answer. And I wish you guys the best on this Bison deal. I can't wait to be on that conference call.

Yes. We're looking forward to it very much, and we wish you the best of luck on your babysitting activities.

I beat Walmart's prices every day.

Very good.

(Operator Instructions) And our our next question comes from Terry Hackett from Hackett Management.

Gentlemen, for those of us that have watched you the last couple of years, you should be congratulated for advancing this company on many, many fronts. My hats off to you. And I'll tell you, the Bison deal announced today caught me off guard, and I think it does lead to an exciting future having that capital to deal with. Well done.

Well, thank you, Terry. We appreciate that very, very much. And we agree with you.

Yes.

And looking at the numbers, the cost synergies appear to be kicking in full force this fiscal year. No doubt the additional interest savings when the recapitalization and the modification of financing changes. Can you comment at all on operating profit for this fiscal year as you look forward a bit?

Well, that was a combination in your question there. So one thing that's going to happen is as we pay out about $5 million of interest cost, and that $5 million, roughly $3.5 million of that was related to the converts. And the Bison situation is going to allow us to alleviate that. So there's going to be a direct savings of about $3.5 million in the interest cost there. We have saved approximately tens of millions of dollars of overhead costs on programs we've implemented since 2016. And as you mentioned, those are now in full tilt. So finally, we've gotten the content and entertainment group, which is the physical side of the business, including the digital side, the whole entertainment business and OTT. Well, sans OTT, we've gotten that now into a positive EBITDA range, which is the first time in all the years I've been here. So that -- from an operational standpoint, that has been very helpful. And with the new deals that we're doing for content -- and we spend anywhere from $10 million to $12 million on content, with those deals now, if those are coming in at 15% to 20% IRRs, we should start seeing margin enhancement on those as well. And Bison and this additional capital that you allude to is going to provide some necessary funds for us in order to make those acquisitions to realize those margins.

So we could draw our own conclusions.

Yes. We're not going to really provide any guidance. We haven't done that in the past. So I can't give you guidance if that was what you were looking for.

Well, that's fair and is consistent with what you've done in the past. And we're all wishing you the best.

Thank you very much, Terry.

Thanks, Terry.

And we appreciate your support.

(Operator Instructions) And we have a question from Richard Rolfe.

This is Dick Rolfe, Founder and CEO of The Dove Foundation. I should say retired CEO of The Dove Foundation. I wanted to ask a question, but I wanted to preface it by telling you that in the 25 years that I led The Dove Foundation, in all the deals that are negotiated through Dove, I never found a partner more happy to deal with than Cinedigm. I found Cinedigm to be reputable, to be trustworthy, to be people of your word, to exceed your expectations. And I've just been delighted that Dove chose Cinedigm as an OTT partner to deal with. So -- and this is not a paid political announcement.

I just want to -- thank you so much for those comments, and we found you to be a perfect partner in the organization that you put together. It was carrying on in a brilliant way. And the sky is the limit for the Dove Channel. And a lot of that is because of all the work that you put in basically to build the organization to what it is today. And we appreciate that very much.

Well, thank you, thank you. That leads me to my question, which was probably obvious. So of your OTT numbers, your registered users and your subscribers, could you break that down and attribute specific to the Dove Channel?

No. I would say we've been really reluctant to give specific numbers by channel primarily because of -- for competitive reasons. There are competitive family and faith-oriented channels, Comic-Con-oriented channels. We have said in the past, and I'll reiterate it, that the Dove Channel is our most successful channel to date, and it's done well in every platform that we put it up on, particularly well in -- on Amazon. And when we're looking at these deals with new platforms similar to Amazon that Jeff was talking about, Dove is probably our most significant calling card. I mean, everybody wants that channel. And I will also tell you, in our discussions internationally, in our discussions in China, from an overall standpoint, our library of distribution rights stacks up really, really well for international expansion because over 50% of the library is sports, documentaries and particularly family content, which works in China and works in most territories overseas. So we see Dove as a real great asset to have as we expand internationally as well, which is going to add, we think, very, very significant viewership and subscriber growth.

So I'll accept those accolades and leave the specific numbers. I certainly don't want to impede your competitiveness with the world out there. So thank you for that information.

Okay. Thank you very much.

And at this time, I am showing no more further questions.

Okay. And we're sure -- if there -- if anybody had any technical problems getting through anything, you can contact Jill Calcaterra, and she'd be very, very happy to take the questions, so if there were any issues with the phones. And I'll just say again, we're very pleased to have had this call today. We think this transaction that I spoke about is just an enormous upside for the company. And we're going to schedule this conference call in the very near future and lay out the rationale for all of you. And I think you'll see why we're so excited about the transaction and why we think it's such an upside for the shareholders of this company.

So with that, I want to thank you all for your support and listening in today, and will be talking to you again very, very soon. Thank you all.

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