Cinedigm Corp.
Q2 2017 Earnings Call Transcript

Published: 15 Nov 2016

[Operator:]

Good day, ladies and gentlemen and welcome to the Cinedigm Fiscal 2017 Second 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 introduce your host for today's conference Ms. Jill Calcaterra, EVP of Corporate Communications. Ms. Calcaterra you may begin.

[Jill Calcaterra:]

Good afternoon and thank you for joining today's second quarter 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, November 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. Chris?

[Chris McGurk:]

Thank you Jill. And thanks everyone for joining us on the call today. Today I'll provide general updates on our progress in strengthening our balance sheet in moving the business forward. Jeff will then review our second quarter financials and after that we'll take your questions. So first, as we discussed on our last call, the financing of up to $11 million in second lien secured debt with a modest equity component is currently in process. We have $5.5 million already funded and we've been working with B. Riley, our investment bankers on securing additional funding commitments. We expect an announcement on another closing in the future. Once we complete that raise, we will readdress the exchange offering for our convertible and mezzanine holders that we described in the last call and in our filings. We also continue productive discussions regarding a new enhanced revolver for our base business. Overall we believe our ongoing efforts to strengthen the balance sheet and provide additional capital combined with our initiatives to streamline operations have primed Cinedigm to attract significant new business and enhance shareholder value. Now to briefly review our business operations. First let's talk about our OTT and digital content business. Our OTT channels business continues to show strong metrics growth with over 3.1 million app downloads to-date. Over 570,000 registered users and approximately 76,000 active subscribers. Our marketing efforts for Dove Channel are now in full bore as we enter the holiday sales cycle and have led to a significant surge in chart position. On Google Play out of over 2.2 million apps on the App Store Dove is currently ranked in the top 15% as the number 321 highest grossing app. In addition we are ranked number 32 highest grossing entertainment app ahead of successful OTT channels like CBS All Access and A+E Networks Lifetime Movies. On iOS we are the 35 highest grossing app in the entertainment category and are in the top 700 grossing apps out of over 2 million available in that store. As we had hinted at in our earlier conference calls we were pleased to announce last month our partnership with a leading global company LeEco a huge China based OEM and streaming company to launch a new streaming content program as part of LeEco's North American launch. Two of Cinedigm’s over the top streaming channels Dove Channel and CONtv will be available to LeEco consumers on LeEco’s Ecophones and Ecotvs as part of the initial launch. Plus our channels will also be available on LeEco’s Smart TV line once LeEco's acquisition of Vizio is completed as expected by the end of the year. In addition select Cinedigm content will also be available within LIVE LeEco's innovative integrate content channel. And we believe this is just the beginning of a much bigger relationship with the LeEco as we are currently in the midst of exploring additional partnership opportunities for channels and content aggregation within both domestically and overseas. This was evidenced in our press release earlier today, where we announced that our third OTT channel DOCURAMA as well as a new yet to be named Cinedigm OTT Channel currently in development will be launched on the LeEco ecosystem in the first calendar quarter next year. Bringing our narrowcast channel portfolio on their devices up to four offerings in total. Additionally we’re very pleased with our involvement in Amazon Streaming Partners Program and we continue to be in active discussions with six additional partners of similar or larger scale about making our channels available on more services under similar arrangements. Now that we have solid and growing metrics, we also continue active discussions with potential strategic investors for all three of our OTT channels. We are looking for partners that will not just add capital but will also bring strategic assets to the table in terms of content, viewership, subscriber acquisition and expanded distribution footprints. Now let me briefly discuss some more specific progress within CONtv and Dove Channel. With CONtv we have seen increased original content creation and opportunities to film panels events and talent providing significant new refreshed content for the channel. To provide some context for this shift and upside of our non-exclusive relationship with Wizard World is the ability to both attend and film events in panels at a wide variety of Comic Con and fan events. Most recently. CONtv partnered with Stan Lee's Los Angeles Comic Con providing fans an inside look at must-see panels events and exclusive interviews with some of the most beloved stars in film TV and the comic book universe. Additionally we filmed several events in virtual reality including tours of the floor and Stan Lee's panel, giving fans the opportunity to truly immerse themselves and experience the convention in a whole new way. We're very pleased to be on the cutting edge of both streaming channels and the virtual reality experience. With Dove Channel we are planning to expand the device footprint to Apple TV and Chromecast in the coming quarter. On top of this we will continue to release innovative product enhancements like we recently did with Dove NOW, our Lean Back channel feature that provides a 24/7 program channel featuring a mix of Dove’s best movies and TV shows. Expanding the Dove channel offering with inspiring and uplifting content curated by day part and demographics Dove NOW offers pre-programmed family classics like The Little Rascals to award winning films like The Perfect Wave to give viewers the ultimate viewing experience. Already it is one of the most highly watched features on the Dove service. Beyond this we are continuing to ramp-up our internal production efforts to produce low cost, high quality content from our studio including several new talk shows for both Dove and CONtv. Additionally we are finalizing enhanced digital rights management capabilities to enable us to license catalog content from the major studios, which we believe will be a strong driver of subscriber growth and engagement in subsequent quarters. Our entertainment distribution business gives us the ability to service not only our own OTT channels but to acquire manage and service an enormous volume of digital content rights. This will be a key competitive advantage for Cinedigm as we seek to become the key independent content supplier for the new SVOD ecosystem in North America as well as international territories. A projected $30 billion plus business, bigger than the Theatrical and DVD businesses at their peaks. Overall we believe that when combined with our recent successes and partnerships we are successfully repositioning our Company to not just be a leader in the rapidly growing narrowcast OTT space but also as a major content provider to new and expanding third party SVOD platforms and services, where recent rollout announcements include DirecTV Now, YouTube’s Unplugged, and Hulu’s new cable service. Given our unique capabilities and assets including our library of over 58,000 films and TV episodes our vast experience with processing digital content to match all required specs, our long-term relationships with all the major digital players, and importantly our strong team that has a proven track record of developing and servicing new digital opportunities, we believe there is tremendous upside potential for Cinedigm in this area. And with that Jeff will now review some key financial and operational points.

[Jeffrey Edell:]

Thanks Chris. For the second quarter of 2017, we're very pleased with the positive momentum we're seeing across our businesses and the subsequent financial results. Consolidated revenues were $23.9 million, Content and Entertainment revenues were $7.9 million. Consolidated adjusted EBITDA was $14.5 million, an increase of over $3 million or 27% up from the previous fiscal year quarter. Non-deployment adjusted EBITDA was $2 million, an increase of nearly $3 million or 327% growth versus the prior fiscal year quarter, inclusive of our significant investment in the ramp up of OTT. Additionally we're seeing positive results for fiscal year-to-date 2017 with EBITDA results up 29% or $5.6 million versus prior fiscal year-to-date and EBITDA results in our combined CEG and OTT groups up a 125% or $4 million versus prior fiscal year-to-date. When considering that, we're now operating three distinct channels on a variety of platforms and supporting them with customer acquisition programs, marketing and operations. We're very pleased with these results. We have more of revenue now in OTT than all of the last fiscal year. And we've cut our investment deficit in OTT approximately in half. Overall we believe the business is headed in the right direction, especially with the results of the LeEco deal and other platform deals beginning to generate revenue mainly during the next year. As Chris mentioned we continue to look for additional capital to fund our growth in our [Audio Dip] OTT business and are making good progress to that end. On the expense side we feel our operations have been streamlined to a great extent through over $9 million in cost reduction initiatives and we continue to look for ways to improve efficiencies and profitability. Between 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 helping us to quickly build our relationship and leadership position in the venture business of OTT. The Company is actively pursuing additional opportunities domestically and abroad for both OTT and the digital content businesses. As we look ahead with these changes made and continued progress across our businesses we believe potential investors and partners are now able to focus on the strong asset value that Cinedigm brings to the marketplace. This is evident by our ability to raise capital given the large base of collateral that exists within our Company including the residual value of our installed projection systems in our deployment business the large approximate $300 million in NOLs we carry. Of course our public currency, the depth and breadth of our 58,000 plus title library that Chris alluded to, our broad distribution range of over 50,000 outlets and of course our burgeoning OTT channel business with its rapidly expanding metrics including approximately 3.1 million installs and 76,000 active subscribers. Finally the Company made principal payments of $29.8 million on its long-term debt arrangements for the six months ended September 30 2016. I am also pleased to announce that during the current quarter we’ll be paying off the CDF I Debt entirely. As Chris mentioned we are also in discussions to replace our current revolver with a new expanded facility that better reflects the current state of our business and our extensive collateral base. Now I’ll turn the call back to Chris for some concluding remarks.

[Chris McGurk:]

Thank you Jeff. In closing I want to reiterate how well positioned our entertainment distribution business is given the emergence of the new Subscription Video-on-Demand ecosystem in North America as well as international territories. Again that SVOD business is projected to generate $30 billion plus in revenue and it's the highest growth, highest margin part of the entertainment business. Having the track record to service and grow not only our own narrowcast OTT Channels but to acquire manage and service an enormous volume of digital content rights for third parties in the SVOD ecosystem is a key competitive advantage for Cinedigm and we look forward to sharing successes on that front in the near future. In addition I want to point out that with the help of our investment advisors we continue to be engaged in several conversations with potential strategic partners at the corporate level. There has been significant M&A activity recently in the independent entertainment content space, with Legendary and Dick Clark having been acquired by the China based entertainment conglomerate Wanda. Relativity acquired by any Asian social media company and AMC Networks investing heavily in RLJ Entertainment, primarily because of their OTT business. With our public currency growing metrics in OTT and potential positioning as the leading independent content aggregator for the huge and growing SVOD ecosystem. We are attracting multiple entities with strategic interest that we are carefully evaluating. And with that we’ll now take any questions you might have. Operator?

[Operator:]

Thank you. [Operator Instructions] And I'm showing no questions at this time I would like to turn the call back over to Chris McGurk for any closing comments.

[Chris McGurk:]

Yeah this is Chris so I will take the fact that no questions are being asked as sort of an affirmation that we did have a pretty great quarter and we're making significant progress and we appreciate all your support and we look forward to talking to you again on the next call soon. So thank you all.

[Operator:]

Ladies and gentlemen thank you for participating in today's conference. This concludes the program and you may now disconnect everyone have a great day.