Cineverse (CNVS) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, cash flows, and equity, along with detailed notes explaining the company's accounting policies, financial condition, and specific transactions for the period ended June 30, 2024 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2024 | March 31, 2024 | | :-------------------- | :------------ | :------------- | | Cash and cash equivalents | $3,955 | $5,167 | | Accounts receivable, net | $9,262 | $8,667 | | Total current assets | $31,531 | $32,721 | | Total Assets | $62,342 | $64,378 | | Total current liabilities | $32,429 | $31,249 | | Total Liabilities | $32,905 | $32,227 | | Total equity | $29,437 | $32,151 | - The company's total assets decreased from $64.38 million to $62.34 million, while total liabilities increased from $32.23 million to $32.91 million, leading to a decrease in total equity from $32.15 million to $29.44 million as of June 30, 2024, compared to March 31, 2024[4] Unaudited Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific periods, reflecting operational performance Unaudited Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | | Revenues | $9,127 | $12,980 | | Total operating expenses | $11,905 | $15,697 | | Operating loss | $(2,778) | $(2,717) | | Net loss | $(3,050) | $(3,536) | | Net loss attributable to common stockholders | $(3,162) | $(3,638) | | Basic Net loss per share | $(0.20) | $(0.37) | | Diluted Net loss per share | $(0.20) | $(0.37) | - Revenues decreased by 29.7% from $12.98 million in Q1 2023 to $9.13 million in Q1 2024. Despite the revenue decline, the net loss attributable to common stockholders improved from $(3.64) million to $(3.16) million, and basic/diluted net loss per share improved from $(0.37) to $(0.20) year-over-year[5] Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income This section presents the company's net loss and other comprehensive income items, showing total comprehensive loss Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | | Net loss | $(3,050) | $(3,536) | | Foreign exchange translation | $55 | $(78) | | Net income attributable to noncontrolling interest | $(23) | $(14) | | Comprehensive loss | $(3,018) | $(3,628) | - The comprehensive loss for the three months ended June 30, 2024, was $(3.02) million, an improvement from $(3.63) million in the prior year, primarily due to a lower net loss and positive foreign exchange translation[6] Unaudited Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(1,714) | $(3,260) | | Net cash used in investing activities | $(423) | $(272) | | Net cash provided by financing activities | $925 | $8,509 | | Net change in cash and cash equivalents | $(1,212) | $4,977 | | Cash and cash equivalents at end of period | $3,955 | $12,129 | - Net cash used in operating activities improved to $(1.71) million in Q1 2024 from $(3.26) million in Q1 2023. However, net cash provided by financing activities significantly decreased from $8.51 million to $0.93 million, leading to a net decrease in cash and cash equivalents of $(1.21) million in Q1 2024, compared to a $4.98 million increase in Q1 2023[7] Unaudited Condensed Consolidated Statements of Equity This section tracks changes in the company's equity components, including stock, capital, and accumulated deficit Equity Component (in thousands) | Equity Component (in thousands) | March 31, 2024 | June 30, 2024 | | :------------------------------ | :------------- | :------------ | | Preferred Stock Amount | $3,559 | $3,559 | | Common Stock Amount | $194 | $194 | | Treasury Amount | $(11,978) | $(12,166) | | Additional Paid-In Capital | $545,996 | $546,554 | | Accumulated Deficit | $(504,153) | $(507,315) |\ | Total Stockholders' Equity | $33,273 | $30,536 | | Total Equity | $32,151 | $29,437 | - Total stockholders' equity decreased from $33.27 million to $30.54 million from March 31, 2024, to June 30, 2024, primarily due to the net loss of $(3.07) million and treasury stock acquisitions of $(188) thousand, partially offset by stock-based compensation and common stock issuances[9] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, financial condition, and specific transactions 1. Nature of Operations and Liquidity This section describes the company's business, operational context, and current liquidity position - Cineverse Corp. is a streaming technology and entertainment company operating a portfolio of owned/operated streaming channels, a global content distributor, and a proprietary SaaS platform (Matchpoint™) for OTT app development and content distribution[11][57] - The company received a Nasdaq Listing Qualifications staff letter on July 10, 2024, indicating non-compliance with the minimum bid price requirement ($1 per share) and has 180 days (until January 6, 2025) to regain compliance[11] - As of June 30, 2024, the company had an accumulated deficit of $507.3 million and a negative working capital of $0.9 million, with a net loss of $3.2 million attributable to common stockholders for the three months ended June 30, 2024[12][58] - The company has a $7.5 million revolving Line of Credit Facility with East West Bank, with $4.8 million outstanding as of June 30, 2024, and a term loan of up to $3.67 million for the 'Terrifier 3' film, with $3.1 million outstanding as of June 30, 2024[12][46][48] - The company believes its cash and cash equivalent balances as of June 30, 2024, will be sufficient to support operations for at least twelve months[13][60] 2. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the accounting principles, estimates, and policies used in preparing the financial statements - The financial statements are prepared in conformity with GAAP, are unaudited, and include all normal recurring adjustments. Management makes estimates and judgments affecting reported amounts, with actual results potentially differing[14][61] - The company manages its operations as one reporting segment[18] - The Employee Retention Tax Credit (ERTC) receivable was $0.1 million as of June 30, 2024, down from $1.7 million as of March 31, 2024, following a $1.7 million cash receipt in June 2024[18] Intangible Assets, Net (in thousands) | Intangible Asset | June 30, 2024 Net | March 31, 2024 Net | | :------------------------------- | :---------------- | :----------------- | | Content Library | $2,607 | $2,641 | | Advertiser Relationships and Channel | $9,653 | $10,062 | | Customer Relationships | $750 | $818 | | Software | $2,240 | $2,320 | | Tradenames, Trademarks and Patents | $834 | $855 | | Capitalized Content | $2,154 | $1,632 | | Total Intangible Assets | $18,238 | $18,328 | - No goodwill impairment charges were recorded for the three months ended June 30, 2024 and 2023, following a $14.0 million charge in the fiscal year ended March 31, 2024[23] Fair Value Measurements (in thousands) | Item | June 30, 2024 Total | March 31, 2024 Total | | :--------------------------------- | :------------------ | :------------------- | | Equity investment in Metaverse, at fair value | $162 | $362 | | Current portion of earnout consideration | $180 | $180 | Disaggregated Revenue by Source (in thousands) | Revenue Source | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | | Streaming and digital | $7,703 | $10,114 | | Podcast and other | $1,043 | $429 | | Base distribution | $351 | $1,158 | | Other non-recurring | $30 | $1,279 | | Total Revenue | $9,127 | $12,980 | - One customer represented 39% and 26% of consolidated revenues for the three months ended June 30, 2024 and 2023, respectively[33] Basic and Diluted Net Loss Per Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net loss attributable to Common Stockholders | $(3,162) | $(3,638) | | Weighted-average shares of Common Stock outstanding | 15,702 | 9,879 | | Basic Net Loss Per Share | $(0.20) | $(0.37) | | Diluted Net Loss Per Share | $(0.20) | $(0.37) | 3. Other Interests This section details the company's investments in other entities and related financial interests - The company indirectly owns 100% of CDF2 Holdings, a Variable Interest Entity (VIE), but is not the primary beneficiary. Its maximum exposure to loss from CDF2 Holdings is $0 as of June 30, 2024[40] - Cineverse holds an investment in Roundtable Holdings, Inc. (Roundtable Securities) valued at $0.2 million, accounted for using the cost method as the company owns less than 20% and does not exert significant influence[43] 4. Stockholders' Equity This section provides an overview of changes in the company's equity, including stock issuances and repurchases - During Q1 2024, the company issued 93 thousand shares of Common Stock, including 64 thousand for preferred stock dividends and 29 thousand for acquisition compensation. In Q1 2023, 2,337 thousand shares were issued, primarily from a direct offering and ATM sales[42] - Cumulative dividends in arrears on Series A Preferred Stock were $89 thousand as of June 30, 2024, paid in Common Stock[42] - Treasury stock increased to 473 thousand shares (cost $12.17 million) as of June 30, 2024, from 289 thousand shares (cost $11.98 million) as of March 31, 2024, due to the acquisition of 184 thousand shares through a Rule 10b5-1 trading plan[42][9] - Stock-based compensation expense was $0.5 million for both the three months ended June 30, 2024 and 2023[45] 5. Debt This section details the company's outstanding debt obligations, including credit facilities and term loans - The company has a $7.5 million revolving Line of Credit Facility with East West Bank, bearing interest at 1.5% above the prime rate (10.00% as of June 30, 2024), extended to September 15, 2025. $4.8 million was outstanding as of June 30, 2024[46] - A Term Loan for up to $3.67 million was entered into on April 5, 2024, for the 'Terrifier 3' film, with a maturity date of April 1, 2025. It bears no interest until maturity, except for a $576 thousand interest advance paid at closing. $3.1 million was outstanding as of June 30, 2024[48] - The company provided a guarantee for the T3 Loan, capped at $1.5 million, which is subordinated to the Line of Credit Facility[48] 6. Commitments and Contingencies This section outlines the company's contractual obligations, lease commitments, and potential liabilities - Cineverse operates as a virtual company with one domestic operating lease (subleased to a third party, expiring January 2025) and two operating leases for its India operations (expiring July 2027)[49] Operating Lease Liabilities and Commitments (in thousands) | Metric | June 30, 2024 | March 31, 2024 | | :-------------------------- | :------------ | :------------- | | Noncurrent Lease Assets | $725 | $834 | | Current Operating Lease Liabilities | $338 | $401 | | Noncurrent Operating Lease Liabilities | $418 | $462 | | Total Operating Lease Liabilities | $756 | $863 | | Fiscal Year Ending March 31 | Operating Lease Commitments | | :-------------------------- | :-------------------------- | | 2025 | $308 | | 2026 | $200 | | 2027 | $210 | | 2028 | $72 | | Total Lease Payments | $790 | - The company recognized $45 thousand and $44 thousand of income from its subleasing arrangement for the three months ended June 30, 2024 and 2023, respectively[49] 7. Income Taxes This section discusses the company's income tax expense, deferred taxes, and effective tax rate - Income tax expense was $7 thousand for the three months ended June 30, 2024, down from $20 thousand in the prior year, primarily attributable to taxable income in India related to transfer pricing[54] - The company has a full valuation allowance offsetting potential deferred tax assets due to net operating loss carryforwards, reflecting an inability to use such losses[54] - The effective tax rate was (0.2)% for the three months ended June 30, 2024, compared to (0.6)% for the same period in 2023[54] Recently Issued Accounting Pronouncements This section discusses new accounting standards issued by FASB and their potential impact on the company's financial reporting - FASB issued ASU 2023-07 (Segment Reporting) effective for fiscal years beginning after December 15, 2023, requiring incremental segment expense disclosures. The company is assessing its impact[41] - FASB issued ASU 2023-09 (Income Taxes Disclosures) effective for annual periods beginning after December 15, 2024, requiring specific tax categories in rate reconciliation. The company is evaluating its adoption method and impact[41] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, liquidity, and results of operations for the three months ended June 30, 2024, compared to the prior year, including a detailed breakdown of revenue and expense changes, and a reconciliation of Adjusted EBITDA Business Overview This section describes the company's strategic transformation and its core business operations in streaming technology and content distribution - Cineverse has transformed from a digital cinema equipment and physical content distributor to a leading independent streaming company, focusing on owned/operated streaming channels, global content distribution, and its proprietary Matchpoint™ SaaS platform[57] - The Matchpoint™ platform offers AVOD, SVOD, TVOD, and linear capabilities, automates content distribution, and provides robust data analytics[57] - The company distributes content for major brands like Hallmark, ITV, NFL, and Highlander across various digital platforms (e.g., Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi) and physical goods (DVD/Blu-ray)[57] Financial Condition and Liquidity This section assesses the company's current financial health, working capital, and ability to meet short-term and long-term obligations - As of June 30, 2024, the company reported an accumulated deficit of $507.3 million and a working capital deficit of $0.9 million, with a net loss attributable to common stockholders of $3.2 million for the three months ended June 30, 2024[58] - Net cash used in operating activities for the three months ended June 30, 2024, was $1.7 million, including a $2.0 million incremental investment in content[58] - The company maintains a $7.5 million revolving Line of Credit Facility with East West Bank, with $4.8 million outstanding as of June 30, 2024, and a term loan of up to $3.67 million for the 'Terrifier 3' film, with $3.1 million outstanding[58][60] - The company believes its cash and cash equivalent balances as of June 30, 2024, are sufficient to support operations for at least twelve months, but may pursue equity or debt offerings opportunistically for further capital needs[60] Critical Accounting Estimates This section highlights key accounting policies and management judgments that significantly impact the financial statements - The company's financial statements rely on significant accounting policies and management's assumptions and estimates, particularly for revenue recognition, allowance for credit losses, goodwill and intangible asset impairments, and share-based compensation expense[61][63] Results of Operations This section analyzes the company's revenue and expense performance for the three months ended June 30, 2024, compared to the prior year Revenue Performance (in thousands) | Revenue Source | Q1 2024 ($) | Q1 2023 ($) | Change ($) | % Change | | :-------------------- | :---------- | :---------- | :--------- | :------- | | Streaming and digital | 7,703 | 10,114 | (2,411) | (24)% | | Podcast and other | 1,043 | 429 | 614 | 143% | | Base distribution | 351 | 1,158 | (807) | (70)% | | Other non-recurring | 30 | 1,279 | (1,249) | (98)% | | Total Revenue | 9,127 | 12,980 | (3,853)| (30)%| - Total revenue declined by $3.9 million (30%) year-over-year, primarily due to a $2.4 million decrease in Streaming and digital revenue (driven by content release timing and changes in direct advertising sales) and a $1.2 million decrease in other non-recurring revenue from legacy cinema equipment sales[63] - Podcast and other revenue significantly increased by $0.6 million (143%) due to the success of the Bloody Disgusting podcast content[63] - Direct operating expenses decreased by $2.5 million (36%), driven by reduced licensing, royalty, and participation expenses ($1.7 million) and lower manufacturing/fulfillment charges due to declining physical sales[63][64] - Selling, general and administrative expenses decreased by $1.3 million (17%), mainly due to a $0.4 million reduction in compensation expenses (change in employment mix) and a $0.7 million decrease in corporate expenses (consulting, legal, PR fees)[66] - Interest expense increased by $0.1 million to $0.4 million, primarily due to the Terrifier 3 term loan interest[66] Adjusted EBITDA This section presents a non-GAAP measure of the company's operating performance, excluding specific non-cash and non-recurring items - Adjusted EBITDA is a non-GAAP financial metric used to measure the financial performance of the business, excluding interest, taxes, depreciation and amortization, stock-based compensation, and other non-recurring items[69] Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2024 ($) | Q1 2023 ($) | | :----------------------------------- | :---------- | :---------- | | Net loss | (3,050) | (3,536) | | Add Back: | | | | Income tax expense | 7 | 20 | | Depreciation and amortization | 863 | 822 | | Interest expense | 431 | 295 | | Loss from equity investment in Metaverse | 3 | — | | Stock-based compensation | 470 | 409 | | Other (income) expense, net | (163) | 36 | | Net income attributable to noncontrolling interest | (23) | (14) | | Transition-related costs | 27 | 468 | | Adjusted EBITDA | (1,435) | (1,500) | - Adjusted EBITDA improved slightly to $(1.44) million in Q1 2024 from $(1.50) million in Q1 2023[70] Cash Flow This section summarizes the company's cash generation and usage across operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 ($) | Q1 2023 ($) | | :---------------------------------- | :---------- | :---------- | | Net cash used in operating activities | (1,714) | (3,260) | | Net cash used in investing activities | (423) | (272) | | Net cash provided by financing activities | 925 | 8,509 | | Net Change In Cash and Cash Equivalents | (1,212) | 4,977 | - Net cash used in operating activities decreased due to lower loss from operations (excluding non-cash expenses), decreased unbilled revenue, collection of ERTC claim, and increased accounts payable, partially offset by content advances[72] - Net cash used in investing activities increased due to higher expenditures for long-lived intangible and fixed assets, partially offset by proceeds from the sale of equity investment securities[72] - Net cash provided by financing activities significantly decreased due to lower proceeds from the line of credit and the absence of large common stock issuances seen in the prior year, despite proceeds from the Terrifier 3 term loan[72] Off-balance sheet arrangements This section describes the company's involvement with unconsolidated entities and potential off-balance sheet obligations - The company holds a 100% equity interest in CDF2 Holdings, an unconsolidated Variable Interest Entity (VIE), but is not the primary beneficiary[72] Item 4. Controls and Procedures This section details the company's disclosure controls and procedures, including their definition, management's evaluation of their effectiveness, and any changes in internal control over financial reporting Definition and Limitations of Disclosure Controls and Procedures This section defines the scope and inherent limitations of the company's disclosure controls and procedures - Disclosure controls and procedures are designed to reasonably ensure that information required for SEC reports is recorded, processed, summarized, and reported timely, and communicated to management for disclosure decisions[74] Evaluation of Disclosure Controls and Procedures This section presents management's assessment of the effectiveness of the company's disclosure controls and procedures - As of June 30, 2024, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective in providing reasonable assurance for timely and accurate information disclosure[75] Changes in Internal Control Over Financial Reporting This section reports any material changes in the company's internal control over financial reporting during the period - There have been no material changes in the company's internal control over financial reporting during the three months ended June 30, 2024[76] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, debt defaults, and other miscellaneous disclosures Item 1. Legal Proceedings This section confirms the absence of any material legal proceedings involving the company - No legal proceedings were reported[76] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the Risk Factors disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2024[77] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered sales of equity securities, specifically shares issued for an acquisition, and outlines the company's share repurchase activities under its approved Rule 10b-18 plan - On April 1, 2024, the company issued 29,741 shares of Common Stock as a deferred payment for the acquisition of Christian Channel, pursuant to Section 4(a)(2) of the Securities Act[78] Open Market Repurchases of Class A Common Shares (May 2024) | Period | Total Number of Shares Purchased | Average Price Per Share | Total Number of Shares Purchased as Part of Publicly announced Plans | Maximum Shares that May yet be purchased under the Plan or Programs | | :---------- | :------------------------------- | :---------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------ | | May 2024 | 184,495 | $1.02 | 184,495 | 315,505 | | Total | 184,495 | $1.02 | 184,495 | 315,505 | - The Board approved the renewal of a stock repurchase program on February 29, 2024, to purchase up to 500,000 shares of Common Stock, expiring March 1, 2025[78] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities have occurred - No defaults upon senior securities were reported[78] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[78] Item 5. Other Information This section confirms there is no additional material information to report - No other information was reported[78] Item 6. Exhibits This section provides an index of exhibits filed as part of the Form 10-Q, including various agreements and certifications - Key exhibits include the Guaranty Agreement, Loan and Security Agreement, Amendment No. 3 to Amended and Restated Loan, Guaranty and Security Agreement, and Officer's Certificates (Sections 302 and 906 of Sarbanes-Oxley Act)[80] Signatures This section contains the official certifications and signatures of the company's principal executive and financial officers - The report was signed by Christopher J. McGurk, Chief Executive Officer and Chairman of the Board of Directors, and Mark Lindsey, Chief Financial Officer, on August 14, 2024[82]