Cineverse (CNVS) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements show a net loss of $6.6 million for the nine-month period, with assets and liabilities decreasing as the company transitions to a single reporting segment Condensed Consolidated Balance Sheets Total assets decreased to $83.2 million while total liabilities decreased to $39.9 million, resulting in an increase in total stockholders' equity to $43.3 million Condensed Consolidated Balance Sheets (in thousands) | | December 31, 2023 (Unaudited) | March 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $36,236 | $37,577 | | Total Assets | $83,224 | $87,988 | | Total Current Liabilities | $36,668 | $45,331 | | Total Liabilities | $39,897 | $48,915 | | Total Equity | $43,327 | $39,073 | Condensed Consolidated Statements of Operations Revenues decreased to $39.3 million, but operating loss significantly reduced to $1.7 million, with net loss attributable to common stockholders at $6.9 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenues | $39,268 | $55,478 | | Operating Loss | $(1,704) | $(6,305) | | Net Loss | $(6,589) | $(6,620) | | Net Loss Attributable to Common Stockholders | $(6,946) | $(6,919) | | Basic & Diluted Net Loss Per Share | $(0.59) | $(0.78) | Condensed Consolidated Statements of Comprehensive (Loss) Income The company reported a comprehensive loss of $6.7 million for the nine months ended December 31, 2023, a slight improvement from the prior year Comprehensive (Loss) Income (in thousands) | | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(2,736) | $5,022 | $(6,589) | $(6,620) | | Comprehensive (loss) income | $(2,780) | $5,102 | $(6,698) | $(6,881) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $9.3 million, while financing activities provided $8.2 million, resulting in a $1.6 million decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,287) | $(7,901) | | Net cash used in investing activities | $(482) | $(429) | | Net cash provided by financing activities | $8,156 | $4,064 | | Net change in cash and cash equivalents | $(1,613) | $(4,266) | | Cash and cash equivalents at end of period | $5,539 | $8,796 | Condensed Consolidated Statements of Equity Total stockholders' equity increased to $43.3 million, primarily due to capital raised from common stock issuance, offsetting the net loss - Total equity increased by $4.2 million over the nine months, from $39.1 million to $43.3 million[29] - Key activities affecting equity included a net loss of $6.6 million, stock-based compensation of $1.1 million, and proceeds from the issuance of Class A common stock, including a $7.4 million direct equity offering[29][52] Notes to the Condensed Consolidated Financial Statements The notes detail the company's shift to a single reporting segment, its accumulated deficit of $489.3 million, disaggregated revenue, and reliance on expanded credit facilities and equity offerings - The company's cinema equipment business concluded active operations at the end of fiscal year 2023, now operating as a single reporting segment[46][63] - As of December 31, 2023, the company had an accumulated deficit of $489.3 million and negative working capital of $0.4 million, with net cash used in operations of $9.3 million for the nine months[48] Disaggregated Revenue (in thousands) | Revenue Source | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Streaming and digital | $29,006 | $31,375 | | Base distribution | $4,529 | $11,145 | | Podcast and other | $1,953 | $1,740 | | Other non-recurring | $3,780 | $11,218 | | Total revenue | $39,268 | $55,478 | - The company expanded its revolving line of credit with East West Bank from $5.0 million to $7.5 million on February 9, 2024, maturing on September 15, 2024[49][150] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 52% Q3 revenue decline due to legacy business run-off, offset by cost savings, focusing on streaming, content investment, and liquidity management, with Adjusted EBITDA at $1.8 million for the quarter Results of Operations Q3 FY24 total revenue declined 52% to $13.3 million due to legacy business run-off and lower distribution, while aggressive cost management reduced operating expenses Q3 Revenue Comparison (in thousands) | Revenue Source | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Streaming and digital | $9,537 | $11,598 | $(2,061) | (18%) | | Base distribution | $2,811 | $8,121 | $(5,310) | (65%) | | Other non-recurring | $64 | $7,186 | $(7,122) | (99%) | | Total Revenue | $13,276 | $27,882 | $(14,606) | (52%) | - The decline in Base Distribution revenue in Q3 was primarily due to a $3.8 million drop in theatrical revenue, partly due to the high-profile success of 'Terrifier 2' in the prior year[163] - For the nine months ended Dec 31, 2023, SG&A expenses decreased by $7.9 million (27%) year-over-year, driven by reductions in compensation ($3.0 million), corporate expenses ($2.1 million), and share-based compensation ($2.8 million)[207][208] Liquidity and Capital Resources The company manages liquidity with an accumulated deficit of $489.3 million, utilizing an expanded $7.5 million credit line and $7.4 million from equity financing - The company had an accumulated deficit of $489.3 million and negative working capital of $0.4 million as of December 31, 2023[146] - The company expanded its line of credit facility with East West Bank to $7.5 million on February 9, 2024, maturing on September 15, 2024[158] - In June 2023, the company raised approximately $7.4 million in gross proceeds from a direct offering of common stock and warrants[168] - Management believes existing cash and credit facilities are sufficient to support operations for at least twelve months from the filing date of the report[159] Adjusted EBITDA (Non-GAAP Measure) Adjusted EBITDA was $1.8 million for Q3 FY24, decreasing from the prior year, but increased to $2.8 million for the nine-month period, with key adjustments including a $3.0 million Metaverse loss Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(2,736) | $5,022 | $(6,589) | $(6,620) | | Adjusted EBITDA | $1,840 | $5,036 | $2,846 | $1,056 | - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, M&A costs, and other certain items[212] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[225] - There were no material changes to the company's internal control over financial reporting during the three months ended December 31, 2023[225] PART II - OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, equity sales, defaults, safety, and other information, including exhibits Item 1. Legal Proceedings The company reports no legal proceedings requiring disclosure for the period - None[228] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K or subsequent quarterly reports - 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, 2023, and subsequent Form 10-Q reports[229] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - None[194] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities for the period - None[195] Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - Not Applicable[196] Item 5. Other Information The company reports no other information for the period - None[197] Item 6. Exhibits This section lists exhibits filed with the quarterly report, including an amendment to the loan agreement and CEO/CFO certifications - Filed exhibits include Amendment no. 2 to the Loan Guaranty and Security Agreement, Officer's Certificates pursuant to Sarbanes-Oxley Section 302, and Certifications pursuant to Sarbanes-Oxley Section 906[200]