Cineverse Corp (CNVS) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corporation Fiscal 2019 Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jill Calcaterra, Executive Vice President. Please go ahead.

Good afternoon, and thank you for joining us today for our third quarter fiscal 2019 earnings conference call.

Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Financial Officer, Jeffrey Edell; President of Digital Networks, Erick Opeka; and our General Counsel and Head of the Cinema Equipment Business, 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, February 13, 2019, 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. We made significant business progress in the third quarter, which was generally in line with our expectations. In our OTT business, we achieved several significant growth milestones. As of today, our overall ad-supported footprint surpassed 2.4 million monthly active users, up 370% versus last year.

In tandem with this, we saw a 212% quarter over quarter growth in connected TV ad requests, a big future driver of revenues for us. We have also now grown our active subscription base to more than 109,000 users and have successfully moved that business to a low OpEx, high margin distributed business.

During the quarter, we accelerated our plan to expand our OTT business into digital linear subscription and ad-supported third-party platforms. We also expanded our OTT services in distribution businesses, areas which I will describe in detail shortly. And as we noted last quarter, this plan allows us to leverage large-scale OEM cable and telco partners to drive engagement in revenue, while at the same time minimizing marketing and operating costs.

Additionally, we are leveraging our superior distribution technology and capabilities with our matchpoint platform, enabling entertainment brands and content owners access to effectively monetize their content, while reducing time-to-market and at lower operating expense.

Finally, strategic M&A transactions begin in earnest with the acquisition of ComicBlitz, often referred to as the Netflix of digital comics, Viewster, a general interest ad-supported streaming service with an international footprint, and Viewster Anime, a leading global anime service.

Overall, we made significant progress in all key areas of our business this quarter. First, for OTT network distribution, we had a total of 22 channel launches on 14 third-party platforms during the quarter, delivering over 12,000 film and television assets. These launches break down into three key categories: digital linear, ad-supported, or AVOD, and subscription or SVOD.

For digital linear, we launched 9 channels on 4 platforms during the court, including the Roku Channel, Samsung TV Plus, Visio Watch Free, Pluto TV, [Zumo], and Stirr, the new platform from the Sinclair Broadcast Group. We are pleased to note that Cinedigm's ad-supported digital linear networks are now available on approximately 77% of all smart TVs sold in North America, reaching approximately 27 million new customers annually, and importantly, with no customer acquisition cost to us.

On most of these devices, our channels are available on platforms embedded in the firmware and requiring no app installation, and we expect our engagement and growth to track along shipment and purchase cycles for these devices.

For ad-supported VOD, we expanded the availability of our content on 3 key players in the space -- Pluto TV, Zumo , and Tubi, the three market leaders in this arena, delivering nearly 5,000 assets to these platforms during the quarter. Preliminary results so far are greatly exceeding our internal forecasts, which is, in our opinion, driven by triple digit growth in connected TV ad revenues year-over-year and reflects what we believe to be an accelerating overall industry trend.

Because of this, we see AVOD in general as a top priority for the company's growth. We're continuing to explore bringing our AVOD channels and content library to additional large-scale OEM cable and telco providers in the coming year.

In the quarter, we announced our acquisition of Viewster and Viewster Anime, which closed on February 5. This acquisition provides us with a strong global footprint and trademarks in more than 30 territories, more than 5,600 new programming assets with broad global rights and additional OEM relationships. We are already executing on plans to expand the services footprint, accelerating our growth in AVOD.

Finally, we continue to see significant expansion of our subscription efforts. As of today, our subscription businesses total approximately 109,000 active subscribers across our direct-to-consumer and third-party footprint.

In the quarter, we expanded the availability of our services on two key partners -- Comcast Xfinity and Dish, across the Dish Network and Sling TV. This subscribe growth trajectory on third party platforms has enabled us to dramatically reduce our direct-to-consumer marketing spend with minimal impact on our subscriber growth.

Given the industry's focus on providing consumers with more choice in creating their own bundles, we expect to expand our SVOD offerings with existing partners and are in talks now with numerous other telcos, OEMs, and cable providers to bring our subscription bundles to their platforms.

During the quarter, we also acquired ComicBlitz, a comic subscription platform that offers thousands of all-you-can-read comics for one low monthly price. We plan on growing ComicBlitz in the same manner as our other channels, predominantly licensing it to mobile platforms globally.

Beyond ComicBlitz, we plan to continue to leverage partnerships and M&A to bring additional subscription services and content into Cinedigm. Regarding OTT services and distribution, our efforts in the quarter culminated in the launch of matchpoint, our company's OTT managed services platform. Matchpoint is essentially the productization of our technological platform and operational services, borne out of our 12 years of leadership in space.

Matchpoint is comprised of three key areas: Blueprint, our rapid channel development framework; Dispatch, our platform to deliver content and channels faster and more cost-effectively than anyone in the industry; and Insights, our analytics and data platform. We met extensively with potential matchpoint customers at CES and I'm happy to report that we already have a considerable pipeline of new clients from around the world, including cable networks, film and TV distributors, OTT channels, and OEMs.

To sum up our OTT efforts, we are executing well on our mission to bring incredible entertainment value to consumers, content creators, and platforms on a global scale. We will also continue our efforts on the red-hot ad-supported sector by expanding the portfolio and footprint of AVOD and digital linear channels, and continuing to support the strong and growing install base of our subscription networks, profitably on third-party platforms.

Matchpoint will provide revenues from technology and services, while also expanding our portfolio of available channels for distribution. And we will continue to look for opportunities in M&A that accelerate all of these focus areas. And of course, we will continue to be a key aggregator and licenser of premium independent content to the entire OTT ecosystem.

In the content distribution business, as we've noted on prior calls, we continue to see very strong ROI performance on film co-productions where we engage with experienced producers and guide the script development and key casting decisions to ensure the final product is highly marketable with a well-defined target audience.

For fiscal year '20, we have already secured 4 co-productions and the titles look exceptionally strong with very favorable risk reward profiles. This should have a meaningful impact on both physical and digital distribution margins in fiscal '20.

We've also placed significant attention of the transactional VOD business for cable and satellite providers, in part because it favors film content from independent producers, and in part because we have seen a direct and measurable correlation between our social media promotions and related transactional revenue.

In fiscal '19, we're up 10% year-over-year in this business despite having a slightly smaller release schedule. In addition to distributing our channels to outside platforms, we also distributed individual titles from our library to an expanding list of platforms and we are already seeing real growth in this segment, with Tubi TV up 108% year-to-date and Pluto TV also showing solid growth, up 68%.

We also see significant new AVOD players lining up with Freedive from Amazon and rumored services from Facebook and Google. So we expect this part of our business to continue to see strong growth.

During the quarter, we expanded our premium content library with the acquisition of all North American distribution rights to the film Holy Land. We plan to release this picture in select theaters, on-demand, and digital in mid-2019 with a Blu-ray and DVD release to follow later in the year.

We also acquired the Michael Franti documentary, Stay Human, and the suspense thriller, the Final Wish. Films such as these provide important content fuel for our OTT streaming business.

On the China front, we closed two significant content licensing deals for our upcoming Bamboo Channel, the first with China International TV Corporation to bring over 500 hours of particular Chinese content to the U.S., and the second with China Lion for over 40 popular films. We're very pleased with how Bamboo is coming together and look forward to sharing more updates in the near future.

And with that, I'll now turn the call over to Jeff for a brief review of our financial results.

Thank you. In summary, we continue to make strong progress. Thanks, Chris. For the first quarter of fiscal 2019, consolidated revenues were $14.6 million. As expected, total consolidated revenues for this quarter declined as a result of the contracted decline in our cinema equipment business, as the combination of the 10-year deployment contracts and cost recoupment contracts are at various stages of reaching the end of their terms.

For the quarter, adjusted EBITDA decreased by $1.9 million, or 34% to $3.6 million for the three months ended 2018, compared to $5.5 million for the three months ended December 2017. The decrease was largely due to the expected cinema equipment virtual prints fee decline in the legacy business, which was particularly offset by a 250% increase in the content and entertainment business.

Direct operating expenses decreased in the third quarter of fiscal '19 to $5.2 million, down 18% compared to the prior year, primarily due to low physical volume and a change in revenue mix, which caused lower royalty costs and lower per unit fulfillment costs in the majority of the physical distribution business.

Also net interest expense decreased 18% to $2.6 million in the third quarter compared to $3.1 million in the third quarter of the last fiscal year. The decrease is primarily as a result of the reduced debt balances compared the prior period, particularly the full payoff of our formal convertible debt balance.

Our total debt is now $64.8 million, or 13% lower than it was 12 months ago. The net loss attributable to common shareholders for the third quarter of fiscal 2019 was $3.3 million, a nearly 44% improvement compared to $6 million loss in the first quarter of fiscal '18, and a 6% improvement sequentially compared to the $3.6 million lost in the second quarter of fiscal 2019.

The improvement is primarily the result of decreased interest costs due to much lower debt balance., the reduction in depreciation expense as systems continued off-line, the full impact of our efforts to streamline our cost structure and improve margins from the performance or content entertainment business, and the shift of our business more towards OTT streaming.

Our legacy cinema business -- equipment business -- continues to runoff as expected. Subsequent to the third fiscal quarter, we completed the sale of 311 digital cinema projection systems, bringing the total number of systems sold to date to 328. We expect to recognize significant revenues in the fourth quarter due to these sales.

As I mentioned before, we are in the process of selecting an advisory firm with expertise in the area to help monetize the remaining available systems and expect to announce more sales in the coming months.

With that, I'll now turn the call back to Chris.

Thanks, Jeff. In summary, we continue to make strong progress in expanding our OTT footprint by increasing our library of content and our channel portfolio, and launching it across additional platforms.

Our matchpoint services are rolling out and look to be a strong addition to our OTT product and revenue portfolio. We are also building our presence in the high growth, high margin AVOD market through new channels, platform partnerships, and licensing deals, as evidenced by our rapidly growing user base, now 2.4 million monthly actives, up 370% versus last year.

In addition, we continue to look for more smart and accretive acquisitions like ComicBlitz, Viewster, and Viewster Anime that can further accelerate our growth curve.

And with that, we'll now take any questions you may have. Operator?

(Operator Instructions) Our first question comes from the line of Austin Moldow from Canaccord Genuity.

So I want to start out with a question about your user base, which you said is 2.4 million. I know there are a lot of different channels and a lot of data feeding into that number. But I'm wondering if you could maybe walk us through qualitatively what you know. I'm kind of interested in hearing maybe which distribution platforms are bringing in the most customers or maybe the best -- the most viewers and the best viewers with a lot of engagement who are viewing for a long item, whether it's the OEMs, or AVOD, or direct. Just kind of any behavior characteristics you can share would be super helpful.

Thanks, Austin. This is Chris. I'll have Erick Opeka, our President of Networks who's here answer that question and again, I'll just caution that we've got to be just a little bit careful in terms of confidentiality and disclosure, but he'll do his best to answer your question.

Hi, Austin. So without sort of talking about specific activity on certain platforms, because we're -- clearly, we can't disclose that information, what I can tell you is on a sort of segment basis, in terms of growth and engagement, we see the digital first linear, and in particular, OEM integrations for digital linear are tending to scale the fastest and represent the largest and fastest growing portion of that number.

And we really look at that and say that that's driven predominantly by these things being baked into the firmware of television, so there's no apps to install and users can start consuming immediately.

Following that, AVOD platforms like Tubi and others tend to drive quite a bit of consumption just due to their very large-scale install base. So that's to give you a little directionality there.

And if you don't mind commenting on the monetization or maybe just sort of comment where we are. I know it's de minimis basically as of last quarter. Are you seeing that ramping on schedule or is there still sort of a time period for engagement to take off before you start meaningfully monetizing from here?

Well, I think it would be helpful to give sort of a sense on the monetization cycle on any of these platforms. It varies from platform to platform, but generally speaking, we see from launch, typically it takes 30 to 60 days for our content channels and so forth to flow all the way out to the entire addressable base. A lot of these platforms are very careful to test with a small segment or one channel of users and then it flows.

So it typically can take up to 60 days to be fully addressable. And then it typically takes about a quarter to optimize the ad serving and fill rates on an ad-supported service. Sometimes we can do it faster than that depending on the platform and partner, and sometimes, partners get it out to scale much quicker. But generally speaking, we kind of look at 30 to 60 days to hit the full addressable footprint and then about a quarter to fully ramp up and see it fully realized in what it can monetize.

My last question is on just how you're thinking about the sale of projection systems in general. Mainly, I'm kind of interested in what the current thinking is amongst management between balancing timing of these sales, trying to sell them all, perhaps, as quickly as possible, and -- to clean up the story -- and then also balancing on the other side, you know, getting as much -- selling for as high a price as you possibly can, while clearing all your inventory.

I'll let Gary Loffredo, who is on the line and runs that business, answer that question. But before he responds, I'll say we've been very pleased, by the way, with the deals that we've made so far. Obviously, we can't disclose the specific pricing of the deals, but I think you're going to see some significant revenues from the more than 340 we've sold to date and we're going to book most of that in our fourth quarter.

But I'll let Gary answer your question. Gary?

Sure. You did hit on the exact dynamic we're trying to weigh. We've sold 328 systems so far and as Chris said, for a number of reasons, mostly competitive and for future negotiations, we're not disclosing the specific sales price by projector. But these sales, most of these sales closed in the fourth quarter and we'll be reporting them in our 10-Q or reporting the total revenue for these systems as a group. We're not going to release specific terms but we weigh selling them quickly versus selling them at a price that we're comfortable with. And we're weighing more toward getting a fair price. We know what these systems are worth. We know what a fair price is and we don't intend to sell them for less than that fair price.

So we'll take our time. There's still -- some of them are still earning VPFs and we'll sell them in ordinary course.

(Operator Instructions) Our next question comes from the line of Lisa Thompson from Zacks Investment.

So let me just clarify. On the projector sales, you sold 311 of them in the fourth quarter?

Gary, do you want to answer the question?

Yes, we sold 311 in the fourth quarter.

Okay. And so I guess we're talking around $3 million-ish, that's the ballpark; is that right?

Well, we don't -- I don't think we --

The total number will be in our next report, in our 10-K. We have to get through the fourth quarter, see if there's any more sales, and close the quarter.

Do you anticipate having sales every quarter or is this just something that end of year, said we want to go buy a projector?

We are talking with every exhibitor that has a projector but it's more -- it's driven by their timeframe and their specific capital constraints, their budgetary issues, and their goals. So we are in active discussions with almost every exhibitor that has our projector.

Okay, but so you don't have a guess of how this is going to flow?

No. Like I said, we want to sell it at a fair price. So when the opportunity arises and we can come to terms at a price that we're comfortable with, we'll sell them.

And as far as Phase 1, is that gone now? Should we expect revenues in the fourth quarter of zero?

No. There's still limited revenue that we're collecting from Phase 1 but all of the major studios have reached -- have paid for 10 full years. So they've stopped. So the majority of the revenue has ended.

But there will be a little something?

There will be a little something. Yes.

Okay. I wanted to go back to the statement where you said that, what was it, content and OTT grew 254% or something. Can you define exactly what we're talking about there?

Yes, the 256%, so that's the -- Lisa, it's Jeff. That's the quarter-over-quarter year-over-year and that's specifically -- remember when we talked about the model and so forth. We have the Content and Entertainment Group alone. We have the OTT area and then we have this unallocated corporate overhead basket. This is just the content and entertainment group by itself is 256% ahead of last year quarter-over-quarter.

And that's all the revenue in the content business minus physical distribution? Or is that a subset?

This is the EBITDA, the EBITDA generated from the physical and distribution original CEG business, having nothing to do with OTT or unallocated.

Okay. And how does that compare to revenues? Can you describe that a little bit?

Well, the interesting news is, is revenue -- you'll see it on the Q that we're publishing. Revenue is down slightly but we're way ahead in terms of the EBITDA performance.

Because of all the things that we've talked about on these calls before, changing the mix of our content, a more effective green lighting program, focusing more on co-productions, et cetera, et cetera. So that has always been our goal -- focus on our EBITDA line in that business.

And can you just say a little bit how physical distribution looked compared to last year?

The physical -- you mean in terms of revenue or in terms of?

Yes, revenue.

We can go over some of that on our call, Lisa, separately. But the revenue, again, the billings are down for the physical side of it. So the revenue is down. Remember, the physical business itself is declining at anywhere from 8% to 15% depending upon which studio you're talking to, et cetera.

And we are -- even though our catalog continues to decline from just straight physical side of things, the fact that we have focused our business now on more of the content deals that we're doing, that should be able to buffer some of that decline.

And you didn't talk anything about bringing movies to China. Is there anything in the works right now?

We're still working on it as you can see. Yes, we're working on it. We're trying to be selective. Remember, there's only 64 release slots over in China for non-Chinese content. We've got a number of conversations going on right now. We focus our efforts, really, as you can see, in closing distribution deals for the U.S. and closing deals with big Chinese entertainment companies who are going to provide content to service our Bamboo launch for later in the year.

But keep your eyes open for announcements going forward about Hollywood films that we've managed to get the rights for, for release in China with our Chinese partners.

And going back to last quarter, you talked about a number of movies that you had coming out. Did anything do particularly well? I saw some good reviews for some of them.

Many of the films that we came out with did actually pretty well but no one movie was the driver of any of that revenue. We're now pretty linear in terms of new films that we're putting out there. So we're getting 1 or 2 every quarter and the plan for the next year, a little bit of guidance would be anywhere from 5 to 10.

Yes, and again, the focus is on co-productions, where, as opposed to just going out and acquiring a finished film, you know, we actually get involved in the early stage and have control to some extent over the production of the film. And I think as we talked about last time, that business had a year to return on investment for us and it's been getting better and better.

And again, as I've said, we've already identified four of those films for next year that we're excited about and hopefully, we'll add three to four more to the portfolio.

And just to clarify on Bamboo, when you launch that, is that going to be a channel just like your other channels, meaning it's going to go into distribution in the same way?

This is Erick here. So our goal is to take any channel that we distributed and create versions that allow us the broadest device reach. So we anticipate that channel going out in an ad-supported and subscription fashion into the market. We like the hybrid model or the freemium model and it's commonly called in the industry. And that will allow the broadest reach. It will allow for sampling and lower cost of user acquisition.

So we'll expect to see it on Xfinity, and on Tubi TV, and all those other places like everything else?

Exactly. Yes. A third party distribution strategy is a heavy part of Bamboo and all future channel launches that we would do.

Okay. Great. I look forward to seeing it. That's all my questions. Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Chris McGurk for any further remarks.

I just want to thank everyone for your continued support with us and for joining us on the call today. And we look forward to reporting again on our fourth quarter results in June.

So thank you all.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.