Cineverse (CNVS) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Cinedigm reported a $6.0 million net loss for Q2 2022, reversing prior-year net income due to decreased revenue and increased operating expenses Condensed Consolidated Balance Sheets Total assets decreased to $94.2 million as of June 30, 2022, primarily due to reduced cash and receivables, with total equity falling to $36.0 million Condensed Consolidated Balance Sheets (in thousands) | Balance Sheet Items | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11,519 | $13,062 | | Accounts receivable, net | $25,215 | $30,843 | | Total current assets | $44,081 | $52,163 | | Total assets | $94,223 | $104,636 | | Liabilities & Equity | | | | Total current liabilities | $51,651 | $56,992 | | Total liabilities | $58,232 | $63,686 | | Total equity | $35,991 | $40,950 | | Total liabilities and equity | $94,223 | $104,636 | Condensed Consolidated Statements of Operations Q2 2022 revenues decreased 9.5% to $13.6 million, resulting in a $4.6 million operating loss and a $6.1 million net loss, reversing prior-year profitability Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Revenues | $13,590 | $15,015 | | Total operating expenses | $18,174 | $12,241 | | Income (loss) from operations | $(4,584) | $2,774 | | Net income (loss) | $(5,987) | $5,194 | | Net income (loss) attributable to common stockholders | $(6,093) | $5,098 | | Net income (loss) per Class A common stock - basic | $(0.03) | $0.03 | Condensed Consolidated Statements of Cash Flows The company used $1.2 million in cash from operations for Q2 2022, reversing prior-year positive cash flow, resulting in a $1.5 million overall cash decrease Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,198) | $3,621 | | Net cash used in investing activities | $(61) | $(791) | | Net cash used in financing activities | $(284) | $(6,324) | | Net change in cash | $(1,543) | $(3,494) | | Cash at end of period | $11,519 | $14,355 | Notes to the Condensed Consolidated Financial Statements Notes detail two operating segments, revaluation of A Metaverse Company equity, revenue disaggregation showing CEG growth, and significant customer concentration - The company operates in two primary segments: Cinema Equipment Business and Content & Entertainment Business (CEG)[25] - The equity investment in A Metaverse Company was reclassified from Level 1 to Level 3 fair value as of June 30, 2022, after trading of its shares was halted on the Hong Kong Stock Exchange. The valuation is now based on an offer from an independent third party[38][52] Revenue by Business Segment (in thousands) | Segment/Category | Q1 FY2023 (ended June 30, 2022) | Q1 FY2022 (ended June 30, 2021) | | :--- | :--- | :--- | | Cinema Equipment Business | $1,427 | $6,231 | | Digital System Sales | $1,194 | $5,575 | | Content & Entertainment Business | $12,163 | $8,784 | | OTT Streaming and Digital | $9,958 | $7,006 | | Physical Revenue | $2,205 | $1,778 | - For the quarter ended June 30, 2022, three customers accounted for a significant portion of consolidated revenues: Amazon.com, Inc. (19%), Distribution Solutions (13%), and Roku, Inc. (9%)[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the transition from legacy Cinema to growing CEG, reporting a 9% revenue decline, net loss, and negative Adjusted EBITDA, affirming sufficient liquidity Results of Operations Total revenue decreased 9% to $13.6 million due to a 77% drop in Cinema Equipment, despite 38% CEG growth, alongside significant increases in operating and SG&A expenses Revenue by Segment (in thousands) | Segment | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cinema Equipment Business | $1,427 | $6,231 | $(4,804) | (77)% | | Content & Entertainment Business | $12,163 | $8,784 | $3,379 | 38% | | Total | $13,590 | $15,015 | $(1,425) | (9)% | - Direct operating expenses increased by 59% ($2.7 million) YoY, driven by higher license/royalty costs, content production, and SaaS expenses from the DMR acquisition[211] - Selling, general and administrative (SG&A) expenses increased by 62% ($3.7 million) YoY, primarily due to a $2.2 million increase in personnel costs from acquisitions, $0.7 million in legal expenses, and $0.5 million in professional consulting services[212] Adjusted EBITDA Consolidated Adjusted EBITDA was a $2.2 million loss, a $7.7 million decrease year-over-year, attributed to lower system sales and higher operating expenses Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income (loss) | $(5,987) | $5,194 | | Adjustments | $3,750 | $285 | | Adjusted EBITDA | $(2,237) | $5,479 | - Consolidated Adjusted EBITDA decreased by $7.7 million year-over-year, primarily due to a decrease in system sales and higher operating expenses in the Content & Entertainment business[223] Liquidity and Cash Flow Cash and cash equivalents decreased to $11.5 million, with $1.2 million used in operating activities, though management affirms sufficient liquidity for the next twelve months Quarterly Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,198) | $3,621 | | Net cash used in investing activities | $(61) | $(791) | | Net cash used in financing activities | $(284) | $(6,324) | - The company had cash and cash equivalents of $11.5 million at June 30, 2022[230] - Management believes the combination of cash balances and expected cash flow from operations will be sufficient for capital needs for at least the next twelve months[168] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in financial reporting and insufficient personnel, with remediation efforts actively underway - Management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2022[243] - Material weaknesses were identified in internal controls related to the financial close and reporting process and an insufficient complement of personnel with appropriate accounting and controls knowledge[244] - Remediation efforts are underway, including the hiring of a new Chief Financial Officer and a new Executive Vice-President of Accounting, restructuring processes, and engaging external advisors[246] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings during the period - None[252] Item 1A. Risk Factors No material changes to risk factors were reported from the prior Annual Report on Form 10-K - There have been no material changes to the Risk Factors disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022[253] Item 6. Exhibits This section lists exhibits including officer certifications and Inline XBRL financial data files - The report includes officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as Inline XBRL instance and taxonomy documents[260]