Cinedigm Corp.
Q4 2013 Earnings Call Transcript

Published: 20 Jun 2013

[Operator:]

Good day ladies and gentlemen and welcome to the Cinedigm Digital Cinema Fiscal 2013 Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this webinar is being recorded. Now I'll turn the conference over to your host, Jill Calcaterra, Chief Marketing Officer.

[Jill Newhouse Calcaterra:]

Good afternoon, everyone, and welcome to Cinedigm's full year and fourth quarter 2013 earnings conference call. With me today are the company's Chairman and Chief Executive Officer, Chris McGurk; and Chief Operating Officer and CFO, Adam Mizel. 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 information discussed on this call is as of today, June 19, 2013, and Cinedigm does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The company's earnings release, which was issued this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors. And now, I'd like to turn the call over to Chris McGurk, Chairman and Chief Executive of Cinedigm. Chris?

[Christopher J. McGurk:]

Thanks, Jill, and thanks, everyone, for joining us for Cinedigm's full year and fourth quarter fiscal 2013 conference call. I'm first going to give a brief overview of our current achievements, and then Adam will review our financial highlights. After that, we'll answer any questions you might have. So let's begin. As backdrop, I want to reiterate how we have completely transformed Cinedigm since I joined the company in 2011. In that first year, we sold our 2 non-core businesses so we could focus on our core digital cinema servicing, software and content distribution units. Then last year, we acquired New Video, the world's largest digital aggregator of independent content, creating a complete end-to-end independent distribution company solidly positioned in the digital arena and ready to take full advantage of the opportunities that digital revolution presents us. Just as important, we accomplished these strategic initiatives, while delivering strong growth and financial results during the period of transition. And now looking forward, we expect fiscal 2014 will be a year of continued investment, as well as a year where we will begin to reap the returns of our growing businesses. We will take full advantage of emerging global opportunities, accelerate our movie releases and solidify our market position. Perhaps most important, during this last fiscal year, we successfully refinanced all of our existing debt, which dramatically improved our balance sheet and cleared the way for future strategic activity. In one step, we successfully lowered our cost of capital, extending our mezzanine debt maturity to 2021 and ensured that all of our debt was nonrecourse to our content and software businesses. We now have 0 recourse debt. And we estimate the balance of the non-recourse debt will rapidly decline by roughly $40 million to $45 million per year. This complete refinancing also improved our capital flexibility and simplified our story. It was a complete win on every level for the company. Now I'd like to highlight some of the recent achievements in our 3 core divisions. Let me start with digital cinema services. We are pleased that our domestic screen signing program is virtually complete. We have far surpassed our stated goal to deploy more than 10,000 screens, with 11,703 screens now installed across 267 separate exhibitors. In the quarter, we also completed a 296 screen installation at Caribbean theaters, an international exhibitor, and began initial installations with our partner ICAA in Australia and New Zealand, with roughly 100 screens installed and more to come. Additionally, we are now in discussions to further expand into other territories, including Latin America, Eastern Europe and Asia. And as we have stated previously, we expect our VPF servicing fees to generate $6 million to $10 million in recurring annual EBITDA over the next 3 to 5 years. Now to review the highlights from our software business. As we announced earlier this year, Dan Sherlock joined us this January as the new President of the software group. Dan is an entertainment software veteran with previous executive experience as President at baseline.com and general manager of Movies.com while it was owned by Disney. One of the first projects Dan undertook was spearheading the introduction of Software-as-a-Service for our products. As the industry finally shifts to this SaaS model, our transition is being well received by studios and exhibitors. To punctuate this model shift, subsequent to our fiscal year-end, Dan and his team presented our enterprise exhibitor software during CinemaCon. This is Cinedigm's first web-based SaaS product your to provide significant this with a high-level us board view into their business. The response has been very positive, with 12 of our existing customers signing MOUs on the spot. Dan and his team have also focused significant resources on completing the rebuild of our distributor products for major studio. We're in final go live preparations with a major studio customer and expect to also upgrade a number of our other existing accounts. Additionally, as we discussed in our last investor call, we expect to complete the delayed customization and implementation for another major studio customer in the coming months. With these important changes and an active sales pipeline, we continue to add to our over 70% share of all studios using our distribution software product and our footprint of over 16,000 exhibitors' screens using our theater software solutions. Now let's move on to the entertainment group. During our last earnings call, I spent the majority of my time discussing the digital revolution that is transforming the entertainment business. I won't get into the same level of detail now. But let me remind you of the positive impact of the current digital explosion. First, more quality independent movie and television content with star talent is now available at a lower cost than ever before and it can now be delivered digitally in a very flexible and economic manner to audiences in theaters and in the home and mobile markets. Second, multiple existing and emerging low-cost digital distribution platforms are now competing in an arms raise for quality content. Third, aggregators and programmers are in high demand to thoughtfully guide and monetize this pool of content on all existing and emerging platforms. And finally, the opportunity to own over-the-top channels that narrow cast premium targeted content to readily accessible audiences on all devices is now a reality. Our plan to capitalize on these upsides from the digital revolution is very focused and clear. We will continue the low risk, high-volume, high variety release strategy for acquired independent content that we've already begun as we ramp-up from 5 movie releases last year to 15 to 18 releases this fiscal year. We will continue to grow our 20,000-title digital library of films and television episodes by acquiring distribution rights to the high quality independent movie and television product demanded by our rapidly expanding digital and VOD partners. We will continue to extend Cinedigm's leadership positioning relationships with core theatrical and digital platforms. We will continue to identify and partner with innovative first movers in the digital content revolution, including exhibitors, producers and new digital platforms. We will aggressively build our over-the-top channel initiatives, leveraging our unique assets to capitalize on the upside of this high-potential new business. And finally, we will leverage our successful distribution strategies by growing our businesses internationally. In the execution of this plan lies within the 3 core pillars that make up our entertainment group

[Adam M. Mizel:]

Thank you, Chris. I will begin with the review our financial results for the full year fiscal 2013, which ended on March 31. Please note that all comparisons referenced in my prepared remarks reflect year-over-year comparisons unless I clarify otherwise. Revenues for fiscal 2013 were $88.1 million, a 15% increase from $76.6 million in fiscal 2012. For fiscal 2013, adjusted EBITDA from continuing operations totaled $55.6 million, a decrease from $58 million a year ago. The increase in revenues was primarily the result of solid performance in Cinedigm's entertainment group, including results from the new video acquisition, more than offsetting modest decreases in deployment in service revenues due to, one, a reduction in VPF revenues and EBITDA in the fiscal year by each approximately $2 million during the summer of 2012, as major studios shifted their release schedules around the Summer Olympics and the issues surrounding the Aurora Colorado movie theater shootings. And two, the delayed delivery and customer product acceptance related to over $2 million in software revenues as the completion of the distributor product upgrade move into the fiscal year 2014. Non-deployment revenues, excluding Cinedigm's VPF units, grew 58% to $36 million inclusive of New Video during the fiscal year. Adjusted EBITDA from non-deployment businesses was $5.1 million versus $5.7 million in fiscal year 2012. As we have discussed in previous calls, as Cinedigm drives revenue growth, we do not expect all of this growth to immediately drop to the bottom line. We are in the middle of an investment period as we ramp up the resources and infrastructure needed to support our content and software growth engines. As a result, the client EBITDA resulting from this expansion was primarily driven by

[Christopher J. McGurk:]

Thanks, Adam. In summary, we are excited about both near- and long-term prospects for our business. It was slightly over 2 years ago that we laid out a strategy to transform Cinedigm to take full advantage of the digital revolution that is changing the entire entertainment business. Today, we're fully executing against that strategic plan in all areas. Digital cinema continues to service our 11,700 strong screen deployment. Software is embarking on new and meaningful businesses and the digital revolution has triggered opportunities for success in our entertainment group that are even greater than we imagined, with new platforms emerging, new distribution outlets and viewing devices launching and an ever increasing demand by customers to consume our vast library of content. All in all, we have a clear roadmap for where we are headed and the entire management team is focused on producing results. In addition, we continue to spend time looking at accretive opportunities to acquire new content, libraries and potential M&A that can profitably accelerate our growth plans. We're now a leader in a dynamic space with a strong team, strong businesses and a unique plan. And we also expect consolidation opportunities in this rapidly changing landscape and we plan to be a leader in those efforts as we move our business forward. We thank you for your time and attention today and look forward to sharing our continued progress on next quarter's call. With that, I'll open the call up to any questions you might have.

[Operator:]

[Operator Instructions] First question is from Joel Achramowicz from Merriman Capital.

[Joel W. Achramowicz:]

Adam and Chris, looks like you started off the year on a good note, especially with the new releases in the content area. I had a couple of just kind of housecleaning questions to begin with Adam on the debt side, now that it's all nonrecourse. There was a slight increase and sequential increase quarter-over-quarter in the total nonrecourse debt; was that mainly as a result of restructuring and costs related to the recent financing?

[Adam M. Mizel:]

Exactly. I mean, we paid down an approximately $35 million of debt last year in absence of any of the fees and the cost of refinancing the whole thing.

[Joel W. Achramowicz:]

Yes. So basically that should be the high. I mean, from now on, it should just be declining now, secularly?

[Adam M. Mizel:]

That will pay down anywhere -- give or take around $40 million a year as we ride out the VPF business over the next phase. I mean, that's why that, that wasn't my Moody's and why we were able to complete the refinancing we did.

[Joel W. Achramowicz:]

Great. So obviously, that's -- going forward now, that would just -- the objective of the firm will be to reduce that secularly?

[Adam M. Mizel:]

Correct.

[Joel W. Achramowicz:]

Just on a content perspective, Chris, there's a new documentary, I think, out that was just published today, talking about the TWA flight disaster and I was wondering if that -- that's the kind of property that you might own or have an opportunity to bid for? Or whether you were involved in that?

[Christopher J. McGurk:]

Yes, we look at everything -- I believe that's a TV dock, not 100% sure, EPIX, but we look at everything that's out there. That, to me, because it's been covered so much over the last, I think, 14 years since the actual crash happened. To me, it's probably better served as a TV dock. And we're primarily looking -- although we look at everything -- we're looking at documentaries that we can launch theatrically and get the kind of awareness and promotion out of them that only theoretical can bring you, and we can do on a smarten targeted way. And then we can exploit the hell out of it in all the ancillary markets. So probably that one is a little bit too under the radar for that kind of a phase.

[Joel W. Achramowicz:]

Okay. You're in the mix for the most part -- just about all the major documentaries?

[Christopher J. McGurk:]

Well, actually, yes, that is absolutely correct. We've become kind of a go to studio now for quality documentaries. We bought 6 docs that we will be releasing over the next few months. We've already released 2 of them and we also bought 7 other docs that we released under this Docurama program and I would have to say that we're probably a #1 or #2 stop for a producer or an agent who's representing a doc. And I really believe that also extends to the rest of our content acquisition efforts. When we picked up this movie I think I mentioned in the last call, Short Term 12, that's getting just fabulous reviews and quite frankly, to me, is probably one of the best independent films that I've ever seen. And it came out as South by Southwest and it won both the audience prize and the grand jury prize at the same time, which is highly unusual. And we picked it up, we were in the mix with several other studios, the producers and the agents chose to go with us because of our track record and the plan that we developed for that property. So I don't think we take a backseat to anyone right now in terms of either docs or narrative films in the range of pricing that we're looking at.

[Joel W. Achramowicz:]

I was interested that DreamWorks -- which was a little bit larger than you guys -- but they struck a deal recently with Netflix this week to provide them with hourly content. And I was thinking that you guys, being the leader in indie films might eventually have opportunities to strike similar type of deals as channels on some of these VOD-based over-the-top distributors. Any thoughts on that?

[Christopher J. McGurk:]

Yes, I think down the road, I think as you probably know, our plan right now is really just to acquire content and not produce or develop content. We think that's a smarter way to go, particularly since as I mentioned in my remarks, there's just a vast array of quality independent content with star power that you can acquire at much more favorable prices than even 2 or 3 years ago. So we're going to stick to acquisitions right now. We're selling our product, both library product and our new product, to Netflix. Now, I'm not going to rule out the possibility that down the road, there might be some original programming. But right now, our intent is really just to build our acquisition business and fully leverage -- once we get up to speed -- fully leverage, sort of our full slate and our full lineup of product with platforms like Netflix and the other platforms that are available.

[Adam M. Mizel:]

And just, Joel, we just completed an 8-figure license deal with some of our library content in Netflix and included in that were a number of TV programs, where for instance, in Season 1, they licensed probably for a 6-figure number and for Season 2 or 3, because of the performance of the program, paid 5x to 7x more for the licensing rights for the future seasons because effectively we went out, we found content that met their demographic needs, it performed well, and then we continued to bring them more of that content and the pricing goes up. That is the attractiveness of that intermediary model in the aggregation space we play. So we kind of are doing some similar things with Netflix from a different perspective without producing and taking the risk of original programming.

[Christopher J. McGurk:]

And you heard right, that was an 8-figure deal that Adam mentioned. And just look at our $88 million from revenues this year, that's more than 10% of our revenue base just on that 1 deal alone.

[Joel W. Achramowicz:]

And it obviously reflects to the track record that you're building and finding good content and adding -- aggregating that into your portfolio.

[Christopher J. McGurk:]

Absolutely.

[Joel W. Achramowicz:]

One final question. Just a breakdown on the Phase 1 and Phase 2 revenues, do you have those numbers for the quarter, Adam?

[Adam M. Mizel:]

I don't have them in front of me. But I know it will be in the 10-K that we're filing tomorrow, hopefully.

[Operator:]

[Operator Instructions] Next question is from James Basch of Dialectic Capital.

[James Basch:]

Sounds like a lot of things are coming together right now and a lot of the interesting compelling opportunities are in front of you. I guess in that vein, when you look at this fiscal year, what are some of the opportunities that you're most excited about? Is it too preliminary right now to try to give a rough range in quantifying some of those opportunities both, I guess, in this fiscal year and beyond? And then I'll have a follow-up question after that.

[Adam M. Mizel:]

I think in terms of -- this is Adam -- in terms of opportunities, as we talked about in our prepared remarks, I think there's a lot of really exciting things going in our content acquisition and releasing business. We are excited about the slate of movies that we've acquired to date and the performance of the first 5 that we've released so far have us very optimistic about the performance of that slate against our plans. And so, as I said in my remarks, that's starts to build in a lot of growth and later in the year because you release them now, 90 to 120 days later they hit the home market. So most of the revenues and earnings start from movies 3 to 4 months after their theatrical release if it's done in the traditional manner. And so that -- we see a lot of opportunity there. We're going into the Toronto film Festival in September with a lot of opportunities for further attractive acquisitions that will set up the release slate for the rest of fiscal year and into the next one. Similarly, we're very excited about the opportunities. We launched these branded OTT channels like Docurama. In the short run, that will not produce significant revenues and earnings because you got to build those. But they build very quickly if you put them in the right platforms and with the right support of the digital partners on those platforms, which we generally have given our deep relationships with them as aggregators. I think we see that medium-term is driving a lot of value and then we're owning branded platforms and we're owning direct relationships with consumers in ways that we do not today, which we think will create a lot of value. So both of those have us excited. Then look, in the software side, we have, I think, we're coming to the end of sort of a product refresh and upgrade cycle and we have customers lining up looking at that. So I think when we look out -- as I said, not in the summer because people make kick tires, but they're not going do much in the summertime given how busy this industry is with the summer releasing schedule. When we look in the back half of the year, we've got a line of people who are pretty interested in what we're bringing to them. And so when we add all that up, we like what we see. As I said, that's coming over the next 6 to 9 months. We're not -- as we learned this year, we're not in a place where we can predict on a quarterly basis and aren't going to give guidance as a result. I think we'll give people a pretty good forward look 3 or 4 months out every time we get on the phone in what we see and where things are going.

[Christopher J. McGurk:]

I think if I could add one thing, this is Chris, James, the other thing that we're pretty excited about is this deal we just did with Universal a couple of months ago. When we bought New Video, clearly, we bought a company that was a complete leader in digital distribution among independents and had great strength in that arena. Where there was room for improvement, probably, was in physical DVD distribution, where they were going to a rack jobber named Anderson. Doing this overall comprehensive deal with Universal basically brings the power of a major studio to bear against our physical DVD business. And we think it's going to generate a tremendous upside on both our stream of independent films that we're acquiring and also our library. And I think the great thing too is we've been talking to universal about a number of other potential initiatives that we can put in place with them, where they can sort of be our big brother in the marketplace and we hope to have announcements in that regard going forward. So from a distribution standpoint, we think being a partner with Universal has really upped our game tremendously and will help us both in acquiring new product and then generating 20%, 30%, 40% more in the physical DVD side than what we were able to generate with the deal that we had in place before that.

[James Basch:]

All right, sounds great. And so you mentioned potential M&A down the road, and while I recognize that there's nothing necessarily imminent in the horizon, I did want to ask a little bit more about that. In light of all the compelling stuff that you guys are talking about, or it sounds like in the second half of this fiscal year will start to see maybe more of those opportunities drop to the bottom line. As a major shareholder, I'm anticipating that the stock is going to hopefully start to reflect that upside down the road. And so I would have concerns right now even trying to keep in mind the long-term opportunities of M&A that we would see another equity transaction at what I would consider over the long-term dilutive prices, since I think the valuation here is really compressed. And I have some concerns then how you would potentially finance that. I just don't want equity dilution, right, at this prices. So can you talk a little bit more about what your potential -- what your parameters would be around M&A? Whether what I'm saying is something that's being heavily discussed at the board level? And how you guys are thinking about other, I guess, potential alternatives in financing if you were to pursue M&A?

[Adam M. Mizel:]

Sure. I mean I think that we said consistently that we keep our eyes and ears open on the strategic M&A front and we look at things that we believe are accretive. And we all -- our board and our management own a lot of stock. And we certainly are looking to do things that are accretive, that's one; #2, as you rightfully said, there's nothing imminent or we wouldn't even be talking about it. And so you need to be the middle of those conversations to figure out what makes sense and when they make sense, if they make sense. And so I think we weigh all of those factors you're describing and then others as we look at the panoply of opportunities out there. We're in a fast-moving space and part of our analysis always is building versus buying, and we are investing and building lots of pieces of our business and that's going to translate into the bottom line. If we see opportunities that allow us to accelerate the organic growth through an inorganic means, that's part of our analysis. So I mean, there's a lot of factors I hear your view and agree with your view on dilution in the general course because we don't like it and we don't want it. We have to find -- we will keep our eyes open for things that we think are accretive and add to our long-term value for everybody.

[Christopher J. McGurk:]

We're kind of -- this is Chris, we're a rare commodity in the entertainment space because we're a public currency in a quality exchange. And we've got a lot of incoming. This isn't Adam and I out there turning over every stone. The business is looking for the opportunity to sort of create the next Lionsgate model. You know, Lionsgate 10 years ago was a $1.50 stock and now they're a $28 stock and a big part of that was because they were the only public currency with a strong public management team on a quality exchange in town. And guess what? Now that we've sort of cleared the decks with the company, done our refinance. If you look at us right now, you can really draw that parallel to where Lionsgate was. And again, as Adam said, we're being very careful in this whole arena. We're only going to go look for opportunities that are accretive. But if we can follow that Lionsgate path and do it a lot quicker than they did, I think our shareholders will be very happy. Because we're in a unique position, sort of, to create that next generation version of Lionsgate at this point.

[Operator:]

Our next question is from Kris Tuttle of Soundview Technology.

[Kris Tuttle:]

Anyway, thanks. A couple of quick questions. One, could you give a little bit of an update, maybe, on the software business? And where there's an opportunity to transition to, at least, to a partial SaaS-type model, which could help predictability and adoption? And then my second question is just the economics of the business, especially in the new content are compelling, as you've laid out. Is there any way to kind of dramatically accelerate that business from doing 20 films a year to 150 films a year. Is that kind of scale, does that make any sense? Or is it just the same number of better, bigger films, I guess? So those are my 2 questions.

[Christopher J. McGurk:]

I'll answer the second question first, and then I'll turn it over to Adam. The constraint on sort of scaling up the releasing business to that level, 100 films, is a distribution organization. Whether you're taking the movies out theatrically or you're going day and day theatrical or ultra VOD is probably limited at the most to 2 pictures a month. That's about the most a distribution organization in the primary market can handle. And I think once we ramp-up to that point from a quality control standpoint, I think that's just fine. And pumping 2 new movies each month into the ancillary markets is what we think is sort of the right amount of product to give leverage as we mix in that new product with library product to sell it all with different accounts, whether it's the physical accounts or the digital accounts. So we think 20 to -- getting up to 20 to 25 releases per year is the right level for our releasing organization to try to maximize value.

[Adam M. Mizel:]

Adding -- the only thing I'd add is that one of the ways that we will grow the business more quickly is if we will look at acquisitions around the library side. Because if we can put through our digital and our Universal deal on home entertainment side of the business. And that does circle back to James' question just a minute ago, which is the other way -- the more aggressive we are in that space, that requires upfront capital that we recycle in a 6 to 12-month period. And so if you ask one of the things we do think about on the acquisition front is we look at libraries, not companies, and we look at movies, where if we can earn very high returns on capital, that's an example of where we have to evaluate finding capital versus passing on an opportunity and we look at those things and we ask that question quite frequently. If we sometimes see something we think can generate for us returns in the 30s or 40s, which sometimes we do and if we need money for that, then we got to figure out how to that. And that's all part of the trade off that we have to balance all the time to get into the rate of growth because growth doesn't come without capital. And so we have to balance that and that's what we do. I'm not sure on the software side what you're asking more clarity on, I mean, maybe Kris just give me a little -- a follow up of what you're -- a little more depth to what you're asking?

[Kris Tuttle:]

Yes, I mean, we talked about this a little while ago. I mean, there's -- the software -- they tend to be large enterprise sales, big-ticket, large sales cycles lots of special features. And of course there's a lot of different parts of the software opportunity in your business. And I guess my question there is, are there -- is there a transition or an opportunity to take that business into a more adoption-friendly kind of SaaS model that would allow customers to either buy new software from you or new versions of existing software but transition to -- what is, in the old days, we used to call it is -- monthly rental?

[Adam M. Mizel:]

Yes, I think that, as I talked a little bit about and twisted in the script, one of the things we're launching in this NOI-prized web software is exactly that. We introduced it in April to our customers at CinemaCon. On the spot, we signed up a 12-plus to MOUs to license it and to begin the SaaS implementation of it on August 1 and there's a long -- a reasonable line behind that. So that's the kind of things we are doing. As you know, that -- if we signed up 20 of those guys, it won't produce $5 million or $2 million of revenue in the next quarter because it's -- it is a monthly, annual type SaaS model, where you're going to build it in the timing of when you sign them and as they roll it in, but it produces long-term stability. So that is absolutely where we're driving the product and it's the same conversation we're having with the studios on a larger scale on the new version of our distributor product, where they're starting to like that idea rather than looking at license and maintenance fees and modest patch fixes and then new major releases every few years, rather, having that recurring SaaS and basically being part of that upgrade cycle and paying for it that way, they like it. So I think, you'll see more of that over the next 12 to 18 months as customers convert.

[Operator:]

Our next question is from Ron Chess [ph].

[Unknown Analyst:]

You mentioned Universal before and how that will add to your business. Could you be specific? And talk about the dollars that are involved? What was it? And what would it be now that you've established this relationship with Universal?

[Adam M. Mizel:]

I'll try a couple of things. I mean, effectively, Ron, one of the -- we believe -- what Universal does is makes us more effective at things that we were doing in the past on the -- particularly on the physical goods side. Because of their direct relationship with -- into the Walmarts and Best Buys and Targets of the world, of which we effectively become part of through their sales force and our sales force working together, our product shipping with their product. We will get better placement in the big retailers. We will get better notice and better participation in sales and incentives programs and we will have effectively more leverage in our product. What we think that then does is we will be able to generate 20% to 30% higher DVD sales for the same title as if we were doing it before. So when we look at some of -- and a lower manufacturing cost of doing that. So higher sales, lower cost, bigger margin. I mean we're already beginning to see those signs and that when we look at some of the pre-orders we have for the movies we're releasing right now from the big retailers, they're larger numbers than we would've expected before with our other partners and we expect that to keep flowing through as we work with them. So that's the tangible on what we do today, right? And so we expect that to drive greater revenues in our DVD business. Similarly, as Chris said, I think there are opportunities for us to work with Universal, combining what are our strengths to some of their strengths. In particular, as we look at movies that make sense to release day-and-date and ultra VOD, and then into the digital platforms. We have a different platform than they do to do that. We can make that economically efficient at smaller volumes than they can do. We have different deals with the major -- with the Netflix-es and the HBOs of the world than they do for their major releases. And we have different relationships with exhibitors than they do for booking those kinds of things. And so it's much easier for them to partner with someone like us to do many of those services for those movies than they could do themselves. That opens up a new horizon of movies we can acquire, a new capital partner in acquiring them -- back to one of our earlier conversations, as we look at ways to leverage our dollars and make them go further by partnering with Universal and sharing the capital cost and risk of those kinds of things, our dollars go further and we can drive growth in our business without other forms of capital. So those are always -- we're working with them going forward.

[Christopher J. McGurk:]

And those are all discussions right now, Ron. And obviously, we can't give you specifics on the cost savings that Adam mentioned because we've got the deal with Universal that's subject to confidentiality agreement. But we see tremendous upside there in both the cost in revenue side and in this new business opportunity side. I think it's also key -- I used to work at Universal a long time ago, I was the President of the motion picture group over there and I put all the people into the home video organization in the late '90s while we're still there and running it. So we've got a really, really good relationship with them and we expect some new and exciting things just beyond the base deal that's going to generate a real upside to us financially, to come out of this arrangement.

[Unknown Analyst:]

Well, not focusing at all on the cost-saving part efficiencies, but just if you pre-Universal the deal, if you were doing $1 of business, what would you expect to do now that you are on the revenue side, now that you have this relationship with Universal, is it going to double that $1? Or what is it going to do, in general tones?

[Adam M. Mizel:]

I think, Ron, what I was saying before is, if we were doing $1.00 of physical goods business, we would expect to be able to do on that same title $1.20 or $1.25. And in aggregate, I think when we built our budgets and we look at the next year, what we've been saying is we think our content revenues will more than double year-on-year from this fiscal year and they're a little north of $16 million this fiscal year. We're saying that we expect them to do more than double next fiscal year. Part of our confidence in that is because we won't be generating more revenues on the same types of work through the physical side -- part of it is releasing more movies, part of it is acquiring more things -- there's a whole set of components, but having that relationship with them in and of itself drives volume and it makes us that much more of an attractive partner when we're acquiring things. And a constant donor says, do we want to sell distribution to Cinedigm or to someone else? They can feel that much more comfortable at the panoply and the quality of services we offer. So it's a lot of pieces. You can't just boil it down to one number.

[Christopher J. McGurk:]

Yes. And I think Adam is being a little conservative on the 20% to 30% because on some of the titles we've looked at, it's been more like 50%.

[Unknown Analyst:]

Okay. With -- you were very enthusiastic about Short Term 12. Just as a specific example, if Short Term 12 were successful, not over-the-top successful and I don't mean over-the-top as described before -- but it was a very successful indie movie, what might -- what would the range -- if you can speak to that, what would the range of revenue be that you could generate from that theatrically?

[Christopher J. McGurk:]

You're talking about theatrical revenues?

[Unknown Analyst:]

Yes.

[Christopher J. McGurk:]

Again, as we've said on these calls many a time, focusing in on box office is really a mistake as a measure of success in the indie business. Because we think, on a movie like Short Term 12, it will be very successful for us if it does in the high 100s of thousands of box office. But -- and a breakout indie film, could be anywhere from $2 million to $12 million at the box office. And at those numbers, it would generate a very, very significant upside versus our current plan. But again, I stress, it doesn't have to do that to be extraordinarily profitable for us.

[Unknown Analyst:]

No, that's an -- that's just an answer to a very general question. Last question is, we are -- not question really, but I have one more. There is general accord back to a question that was asked previously with regard to staying away from dilution with the currency that we have right now? We would really like to avoid that, you guys agree with that?

[Adam M. Mizel:]

Sure. We don't want to do that, but there are costs to it. I'll give you an example. To your example on Short Term 12, we have a financial partner who is taking on half of the financial cost and risk of that movie. We didn't want to do that, right? So if I -- if that movie turns out to be incredibly successful and we sold half of it, you're going to call up and say, "You guys are idiots. Why didn't you find the money? Because you would've made double what you made." Those are always the trade-offs. And so we have to measure those and weigh those, but as a general statement, dilution is never a good thing. You have to look at it in the context of what the use of proceeds are and whether it can generate better returns, you think, than the cost of it. That's what we do.

[Unknown Analyst:]

Okay. You are answering that. And then the one other question is if you would like to make any comment about international business particularly in Asia and particularly, I guess, in China?

[Christopher J. McGurk:]

We're looking at opportunities internationally and we're very, very focused on China, obviously, as it is the biggest growth market in the world and at some point, the experts estimates vary, it's going to exceed the U.S. probably around 2020. So we're looking aggressively at potential partners or joint venture opportunities, particularly on the content distribution side of the business, where we might be able to find a partner that's well-positioned in China or other emerging markets or English speaking territories, and that would help us tremendously if we are out there, say in these independent films and library titles, looking to buy rights more than just North America. It would give us more leverage to acquire more and better product. And they'd give us a distribution footprint that might mirror the distribution footprint we have here domestically and expand our reach and power around the globe. So I would hope that over the next fiscal year we'll reach agreement and partnering arrangements or joint venture arrangements in some key territories overseas to turn us into much more of an indie powerhouse with a bigger world footprint.

[Unknown Analyst:]

So it is a strategic priority?

[Christopher J. McGurk:]

Yes, absolutely.

[Operator:]

Our final question is from Jeffrey Link of [indiscernible] .

[Unknown Analyst:]

Just a follow-up just for a minute. I don't want to beat the dilution -- equity dilution -- since it's been asked a couple of times, but I want to ask something a little bit different. Is there any flexibility at all either with credit lines or other forms of debt that you could potentially take on now that you've kind of refinanced and improved the balance sheet so that you don't have to do an equity dilution, but there's a way to do some other type of financing that would not be dilutive?

[Adam M. Mizel:]

I would say that down the road, and I don't think it's that's long down a road but a little bit down the road, we should be able to in -- put in some form of credit line to support our acquisition and release business because that any capital we deployed are generally recycled in a 6 to 12-month period. So I think we have a little more track record of what we've been doing directly and a little more time, that's one of the ways we will expand that business more rapidly without significant dilution. Because we should be able to get some financing there.

[Unknown Analyst:]

Okay. I just want to just ask a question on the indie releases and the fact that you did 5 in the first quarter. I think you said the launch cost on that were about $2 million?

[Adam M. Mizel:]

Yes, well, the expenses that we recognized net of revenues, because the launch costs are more than that but they're also revenues, were a little over -- approaching $2 million, I mean, there'll be give or take. I'm not exactly sure where that will come out in the final.

[Unknown Analyst:]

My question is at what -- how many quarters out is it going to take, as you start to release more of these things and they develop a tale with additional revenues? Do you expect it to become revenue neutral?

[Christopher J. McGurk:]

Fiscal year 2014.

[Adam M. Mizel:]

Yes, I think, basically, you're in the middle of a curve, right? So we did 5 movies last year. We're doing 15 to 18 this year. Until we get to the second half of this year, the later part of this year, where the movies that we released in this fiscal first quarter are then profitable. We've gotten those expenses, they go into the home markets and we recognize revenues from DVDs. We recognize revenues from transactional rentals and from subscription VOD license fees. Those movies will kick in profits and they'll be as many of those as anything we're doing in the future. You'll start seeing that basically drag, go away, because you'll have the profit from the past outweighing the cost of the future. That's coming in the next 6 to 9 months.

[Christopher J. McGurk:]

Yes and for all of 2014 fiscal year, we'll be at steady stable.

[Unknown Analyst:]

So, but do you -- in terms of the inflection point, you're looking not in the -- if you were looking out at to, let's say, March -- I don't know if it's at the March quarter -- but basically the March quarter is where you're suggesting it would become neutral to positive?

[Adam M. Mizel:]

I think it will be neutral positive sooner than that because we don't a lot of -- we won't release a lot of movies in the December quarter because we just don't in the holidays.

[Christopher J. McGurk:]

I think in the fourth quarter of this fiscal year.

[Adam M. Mizel:]

Third and fourth quarter.

[Christopher J. McGurk:]

And then, again, obviously, all of the next fiscal year in 2014.

[Adam M. Mizel:]

I think you'll start -- definitely, you'll see positive contribution after all those expenses in Q2 and/or Q4 and then fiscal '15 for sure, because we'll be at a steady-state. Or the growth will be -- we go from 16 to 20 releases, you won't notice that to the same degree.

[Unknown Analyst:]

Okay. And then just finally, do you -- have you -- are you giving any kind of guidance in terms of revenue growth and then EBITDA growth on the non-deployment side, for the upcoming fiscal year?

[Adam M. Mizel:]

We're not giving guidance at this point. I just think we are -- we're small enough and growing rapidly enough that, that just ...

[Christopher J. McGurk:]

As Adam said in his remarks, guidance is for GE right now. We're in a ramp-up phase here. As we said, both the software and the content business still, there's volatility there, given revenue recognition and release timing issues. And so we're not planning on quarterly guidance for our -- over our non-deployment...

[Adam M. Mizel:]

What we said overall is, in the content side, we expect those revenues to more than double year-on-year fiscal '13 to fiscal '14. And a chunk if not all of it is going to drop to the bottom line. Some of that will drop to the bottom line because we are investing, but that -- some of that, to your earlier question about catching up on the releasing side we'll drop to the bottom line and then other businesses -- what we've always said is our digital cinema servicing business is pretty stable at this point. Even if we add, and we will add some more international servicing, that's modest in dollar terms of revenues and EBITDA compared to where that is in the $7 million, $8 million, $9 million a year of EBITDA range. And our software business is going to grow. I think there's -- I really don't have enough visibility given the timing of different new customers and implementations when and exactly what, but we expect that to grow both top and bottom line. So as that -- as we have more clarity, we'll give it. But sitting here today, we don't feel comfortable giving statements beyond that on an annual basis.

[Unknown Analyst:]

The one thing, as I listen to this story, this is probably one of the most exciting calls of the calls I've been listening to this quarter. It just sounds like things are really starting to come together as you look out over the next 12 months. Just a lot of positive things happening. What are you doing to continue to kind of get the story out there so that other people can kind of gauge what you have been doing and where you're headed?

[Adam M. Mizel:]

Well, we -- I think a couple of things. I mean, we go to investment conferences that we -- either people are covering us and a few others that we're invited too. We were at the Gabelli Conference in June. We were at the B. Riley Conference in May. I don't remember what the next one we have is. I just don't remember...

[Christopher J. McGurk:]

We've been doing a lot of one-on-ones as well.

[Adam M. Mizel:]

We do a lot of one-on-ones. We do Investor Days, with some of our analysts going to visit investors. We issue -- and we will keep issuing press releases of major new -- relationships and things that we do.

[Christopher J. McGurk:]

Yes. I think we always joke that we're #1 in each of our businesses

[Operator:]

Thank you. That's the Q&A portion of today's conference. I'd like to turn the call over to management for any closing remarks.

[Christopher J. McGurk:]

This is Chris. Just on behalf of Joe and Adam, I want to thank all of you for your time, attention to the company and support. And we look forward to talking to you again on the next earnings call. Thank you, all.

[Operator:]

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