Cineverse Corp (CNVS) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cinedigm Digital Cinema fiscal 2018 First Quarter 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, Executive Vice President Investor Relations. Please go ahead.

Good afternoon, and thank you for joining today's first quarter fiscal 2018 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, August 14, 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.

Thanks, Jill, and thanks, everyone, for joining us on the call today. Since we have had 2 investor calls within the last 45 days, we'll try to make this one brief.

As you know, we recently announced our game-changing transaction with Bison Capital for Bison to invest in Cinedigm. To recap and update, here is where we stand in regard to final completion of that agreement. We signed a definitive agreement with Bison on June 29. We then signed agreements with all of our major convertible noteholders on July 10 to exchange the approximately $50 million remaining balance of those notes for cash, some equity and some second lien debt for a value of less than $0.50 on the dollar.

This transaction was a key element of the Bison agreement and the exchange will be completed upon closing. After closing, we will have completely and accretively eliminated the entire $64 million in convertible notes that had existed on our balance sheet less than a years ago.

We have now set our stockholders meeting for August 31. The agenda will include the Bison transaction approval. We want to emphasize this key opportunity for our stockholders to vote regarding this important transaction at the meeting or beforehand by proxy.

The Board of Directors recommends that stockholders vote in favor of proposals 1 through 8. Please vote by Internet, phone or mail. Assuming that our stockholders approve and we obtain other necessary approvals, we hope to close and fund as soon as possible after August 31. As we emphasized on our last 2 calls, this transformative Bison transaction is clearly much more than a $40 million investment in our company. This investment brings multiple benefits to us financially, strategically and operationally.

Let me reiterate what Bison's strategic investment does for Cinedigm. First, out of Bison's $30 million equity investment, this transaction will provide over $10 million in net cash to our balance sheet upon closing to support our growth initiatives after funding the convertible note exchanges. Additionally, this transaction will then provide another $10 million in the form of a loan within 60 days of closing to provide more growth in working capital to the company, directly addressing what has always been our largest growth constraint in the past.

As I just described, this transaction also enables the accretive elimination of all of the remaining $50 million in convertible debt on our balance sheet. This Bison transaction, together with the convertible note exchanges, also gives us an opportunity to further refinance and/or retire the remaining debt on our balance sheet, which we anticipate may include reducing our -- or refinancing our second lien debt and refinancing our current ABL facility, potentially lowering our aggregate cost of capital by 2% to 3%.

Strategically, this transaction gives us the opportunity to leverage Bison's position as a major force in the booming Chinese marketplace, where Bison already has key investments in film and TV production, film distribution and Internet-related mobile services by expanding internationally into China and other high-growth emerging markets. International expansion, particularly into China, has been a key objective for us. Bison is the catalyst that can make this happen with the potential to create the first true Sino-U. S. entertainment studio.

This transaction also gives us the growth capital to solidify our position as one of the largest and best positioned independent content companies in the business with particular strength in the highest growth segment of the market, OTT, a projected $65 billion global business by 2021.

Bison's investment in related businesses will be key catalyst in securing Cinedigm's business position as an important player in that market, all enhanced by the opportunity for a strong competitive position in the fastest growing major territory, China.

This transaction not only opens the door for us in China to aggressively distribute our content, but also provides the opportunity to launch our existing and new OTT channels into the high-growth entertainment ecosystem there with particular focus on the booming online and mobile marketplace.

The online video market in China is projected to be a staggering $33 billion business by 2022. Reciprocately, this transaction will give Cinedigm the opportunity to release Chinese content and launch China-oriented OTT channels here in North America, representing another significant potential revenue source.

Operationally, this transaction will enable us to operate more efficiently as a global company, acquiring content rights, particularly high-margin digital rights across multiple territories, and leveraging our overhead and infrastructure against a much wider distribution footprint.

We believe our expertise and track record in the digital space combined with Bison's investment and leverage in China can help make us the go-to independent content aggregator in North America, China and other emerging international markets.

Add that all up, and it is self-evident why we believe this transaction will be game changing for Cinedigm and provide the opportunity for greatly enhanced shareholder value.

Now to discuss our ongoing business. First, 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 4.3 million app downloads, over 850,000 registered users and over 86,000 active subscribers, and 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 the Android TV platforms.

Just 2 weeks ago, we launched the Dove Channel on the Amazon Fire TV platform, which according to eMarketer, has a reach of over 39 million viewers a month. In our beta period of the Amazon Fire platform, we're already seeing strong revenue growth that is significantly over-indexing our internal projections and we expect this to increase even further with planned promotional activities both on and off platform.

Last week, we made our first international launch of our OTT business by bringing the Dove Channel into Canada on iOS and Android. With over 2/3 of 37 million Canadians identifying themselves as people of faith, we expect this market to meaningfully contribute to OTT revenues in the coming quarters as we ramp up our targeted marketing efforts. These moves in total will expand our reach by over 60 million plus potential new customers.

In another move to expand our reach, in June we announced an agreement with JungoTV to distribute our portfolio of digital networks to cable, satellite, telco and technology companies in several emerging and fast growth international markets with total population of over 2.5 billion consumers.

We also expect to launch our first distributed channel, WHAM, a lifestyle channel focused on the incredibly large and fast-growing eSports and gaming businesses by the end of this calendar year. And very importantly, and the first of many pending deals, we recently closed a significant distribution deal to embed our OTT networks with a top 3 consumer electronics device manufacturer. This deal affords us critical placement usually only available to companies like Netflix, Amazon and Hulu, and reflects the rising consumer value that manufacturers, telcos and MSOs are placing on our portfolio of channels. We expect to announce this agreement when our channels go live on this platform before the end of this calendar year.

In our entertainment distribution business, we continue to find success, representing some of the key content players in the industry. Maintaining physical distribution relationships with industry stalwarts such as Walmart, Amazon, Best Buy, Target, Ingram, Costco, Red Box, and digital and television distribution arrangements with Netflix, Amazon, Google, Hulu, Apple, iTunes, Fandango, In Demand and many, many more.

And we're also very encouraged that shortly after the end of the quarter, we found great early success with Hickok, a western starring Luke Hemsworth, Kris Kristofferson and Trace Adkins, which is over-performing our expectations and should deliver significant results in the current quarter.

Not only have we already doubled our digital forecast on Hickok, but several TV series are also performing very well for us in digital, including Hallmark's When Calls the Heart, Good Witch Season 3 and Chesapeake Shores Season 1.

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

Thanks, Chris. For the first quarter of fiscal 2018, we are very pleased with the positive momentum that we are seeing across our businesses and the subsequent financial results. Consolidated revenues were $15.2 million; content and entertainment revenues were $5.5 million; content and entertainment EBITDA was a negative $3.2 million, but this is inclusive of the unallocated corporate overhead and our OTT channel business, which is an improvement of over $700,000 from the prior year and quarter-over-quarter or 18% better.

Consolidated adjusted EBITDA was $5.4 million and nondeployment adjusted EBITDA was a negative $1.4 million, which of course also was inclusive of operating costs incurred in the ramp-up of the OTT channels during the past year or quarter.

Additionally, during the first quarter of fiscal year 2018, the company paid down over $7 million in nonrecourse debt related to the Digital Cinema business with excess cash flows that this business segment generates. As to what has been mentioned previously and historically about our ongoing balance sheet initiative, we should not lose sight of the fact that we have been able to pay down company debt by a staggering $170 million since 2013.

On the Digital Cinema front, as expected, revenues continue to decline as the studios are reaching the end of the respective 10-year contract payment periods, this has all been planned and was the main driver behind Cinedigm leveraging the digital expertise and relationships that we had garnered in the theatrical business into the home entertainment business and the high-growth OTT marketplace.

During this paradigm shift from our pioneering role in transitioning movie theaters from traditional print to digital distribution, we have grown a sizable content library that comprises more than 50,000 titles and include brands such as Hallmark, Discovery, Scholastic, the NFL and the NHL among others, and relationships with over 60,000 physical stores and digital retailers. Our business strategy continues to evolve to match high-growth current market opportunities.

In addition, we continue to actively pursue options to realize the significant residual value of the more than 4,600 digital projector systems that we currently own and create additional revenue opportunities or convert the equipment into leverageable capital.

As I mentioned earlier, in the content and entertainment segment, EBITDA was a negative $3.2 million which was -- is an improvement of $700,000 from the prior year-end quarter or 18%. Keep in mind that Q1 and Q2 are usually typically are seasonally lowest performance quarters for the segment.

The positive result we are seeing year-over-year is a combination of many factors. Among them are our 2-year $10 million cost reduction program as well as an improved greenlighting process that has increased the minimum IRRs we are achieving on new projects as we continue to invest in those genres that are the higher market performers. A few great examples include our investments in the IP MAN series based on the popular martial arts film franchise that focuses on Bruce Lee's mentor and that has grown and grossed over $250 million at the international box office, as well as multiple Western movies releases such as our most recent Hickok film.

In light of the imminent Bison transaction closing and all of the publicity that surrounds this transformational deal, we have seen an evolving positive narrative which has allowed us to attract some high-profile content, other business opportunities as well. In addition to improving our liquidity substantially, that will allow for a much improved new ABL opportunity. Aiding us in our efforts to expand our ABL and lower our cost of capital is a material fact that our balance sheet debt will be reduced by over $50 million as a result of our significantly discounted and accretive pay-down of this convertible debt.

From an OTT perspective, we are excited by the fact that Bison transaction will give us the funds necessary to acquire appropriate content to populate our channels and help drive subscriber growth. During the past few months, which are seasonally slowest time for subscriber acquisition, we have been focusing more on getting our technology and infrastructure back-end in place and solidified to allow for this expected future growth. Combined with the Bison deal, the next wave of OTT distribution deal that Chris mentioned beginning with the Amazon Fire launch should be a key catalyst to drive significant growth in users and active subscribers.

Cinedigm remains uniquely positioned to leverage all markets and content windows to provide one of the few independent turnkey solutions for our various content providers outside of the studio system. A strong competitive position at the Bison's strategic investment will now allow us to more strongly leverage. Our deal with Bison will create a one-of-a-kind Sino-U. S. entertainment company, giving us significant leverage in both North America, the largest, and China, the fastest-growing marketplaces.

Cinedigm is clearly poised for future success with our ability to continue to leverage our large content library and distribution network with strong industry-wide relationships and the operationally efficient streamline and debt reduction focused management team, evidenced by our multiyear cost reduction plan and balance sheet achievement.

A replicate-able low cost, high-margin OTT startup strategy, a recent 3-year track record of the implementation across 4 OTT channels and effective track record of significant debt reduction over the past several years, and now adding a well-financed, capitalized and strategic major investor with significant industry relevant international investments and relationships.

Clearly, in addition to all the financial upsides, the Bison Capital relationship will help open up multiple new revenue streams for us internationally in addition to enhancing all aspects of our current revenue base, there's so much to be excited about.

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

Thanks, Jeff. We believe that the Bison transaction is game changing and transformative for the company for all of the reasons that we have stressed on this and our prior 2 conference calls with all of you. Again, let me reiterate that we are holding a stockholders' meeting on August 31 and the approval of the Bison transaction is on the agenda. I want to emphasize the key opportunity for our stockholders to vote regarding this important transaction either before that date by proxy or at the meeting itself.

The Board of Directors recommends that stockholders vote in favor of proposals 1 through 8. Please vote by Internet, phone or mail.

With all of that as a backdrop, I would now like to open the call up for your questions. Operator?

(Operator Instructions) And with no questions, I'd like to turn the conference back over to Cinedigm for any closing comments.

Yes, I'd like to take the lack of questions as a good sign, that we've done a good job, I think, on the last 3 calls now, making all the points about the Bison transaction and the positive trajectory of the business. Again, I'll close by thanking all of those listening for your support and attention to the company right now. We're at a very key moment for the company with this Bison transaction in front of us. And again, I would encourage all our shareholders to vote at the stockholders' meeting on August 31. So thank you all for your support, and we look forward to talking to you again very soon.

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 great day.