What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-02-14 · 74 added, 104 removed, 77 unchanged (70% of the section changed)

6 unchanged sentences

Business Overview

Cineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases;

(ii) as a large-scale global aggregator and full-service distributor of feature films and television programs;

and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts.

Cineverse Corp.

(“Cineverse”, “us”, “our”, "we", and “Company” refers to Cineverse Corp.

and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000.

Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.

The Company has a long legacy in using technology to transform the entertainment industry and played a pioneering role in transitioning movie screens from traditional analog film prints to digital distribution.

Over the past several years, Cineverse has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company, and we continue to push the bounds of our industry with innovative technology offerings.

Cineverse is a premier streaming technology and entertainment company with its core business operating as (i) a portfolio of owned and operated streaming channels with enthusiast fan bases;

(ii) a large-scale global aggregator and full-service distributor of feature films and television programs;

and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts.

Our streaming channels reach audiences in several distinct ways:

direct-to-consumer, through these major application platforms, and through third party distributors of content on platforms.

The Company’s streaming technology platform, known as MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.

We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers.

We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity.

The Company no longer manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment.

All prior period reporting within this report reflects this change.

Financial Condition and Liquidity

As of December 31, 2023, the Company has an accumulated deficit of $489.3 million and negative working capital of $0.4 million.

For the three and nine months ended December 31, 2023, the Company had a net loss attributable to common stockholders of $(2,864) thousand and $(6.9) million, respectively.

Net cash used in operating activities for the nine months ended December 31, 2023 was $9.3 million, which included $6.5 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

As of June 30, 2024, the Company has an accumulated deficit of $507.3 million and a working capital deficit of $0.9 million.

For the three months ended June 30, 2024, the Company had a net loss attributable to the Company's common stock, par value $0.001 per share (the "Common Stock") holders of $3.2 million.

Net cash used in operating activities for the three months ended June 30, 2024 was $1.7 million, which included $2.0 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

We may continue to generate net losses for the foreseeable future.

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets.

The line of credit expires on September 15, 2024.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 10.00% as of December 31, 2023.

As of December 31, 2023, $5.0 million was outstanding on the Line of Credit Facility, gross of issuance costs of $(69) thousand.

On February 9, 2024, the Company expanded the Line of Credit Facility to $7.5 million at the same interest rate and with the same maturity date.

The Company is party to a Loan, Guaranty, and Security Agreement, as amended to date, with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $7.5 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 10.00% as of June 30, 2024.

The term of the Line of Credit

Facility has been extended to September 15, 2025.

As of June 30, 2024, $4.8 million was outstanding on the Line of Credit Facility, gross of issuance costs of $127 thousand.

On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with T3 Lender and the Company, as guarantor, to the T3 Loan Agreement.

The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3,666 thousand, and a maturity date of April 1, 2025, with a permitted extension of the term for 120 days under certain conditions.

The T3 Loan bears no interest until the maturity date other than an interest advance equal to $576 thousand at the closing of the T3 Loan on April 5, 2024.

The interest advance was recorded as a discount on the T3 Loan at inception and will be amortized to interest expense and increase the loan amount over its term.

If the T3 Loan is extended as noted above, the T3 Loan will bear interest at a rate of 1.44% per month.

T3 Borrower may prepay the obligations under the T3 Loan, in full or in part, without penalty or premium.

The proceeds under the T3 Loan Agreement are being used for the funding under the Company’s distribution arrangements for the film titled Terrifier 3 (the “Film”).

The T3 Loan Agreement contains customary covenants, representation and warranties and events of default.

The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $3.1 million as of June 30, 2024.

After the principal of the T3 Loan is paid in full, T3 Lender will be entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until T3 Lender has received 1.75 times the full commitment amount of $3,666 thousand, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest.

The T3 Loan is secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to T3 Borrower from the distribution of the Film.

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B.

Riley FBR, Inc.

Riley” and, together with A.G.P., the “Sales Agents”),

pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares.

The Company is not obligated to sell any shares under the ATM Sales Agreement.

Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $30 million.

During the first quarter of the fiscal year, the Company sold 177 thousand shares under the ATM Sales Agreement for $1.1 million in net proceeds, after deduction of commissions and fees.

The ATM Sales Agreement has expired in accordance with its terms.

Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company was able to offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares.

For the twelve months ended March 31, 2024, the Company sold 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees.

The ATM Sales Agreement expired in fiscal year 2024 in accordance with its terms.

On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million.

1 unchanged sentence

The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise.

All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.

In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.

All 517 thousand pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.

The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment.

We believe our cash and cash equivalents and our credit facility, as of December 31, 2023, will be sufficient to support our operations for at least twelve months from the filing of this report.

The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

As of June 30, 2024 and March 31, 2024, short term content advances were $12.2 million and $9.3 million, respectively, and content advances, net of current portion were, $1.7 million and $2.6 million, respectively.

Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

We believe our cash and cash equivalent balances as of June 30, 2024 will be sufficient to support our operations for at least twelve months from the filing of this report.

Critical Accounting Estimates

7 unchanged sentences

Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Results of Operations for the Three Months Ended December 31, 2023, and 2022 (in thousands):

For the Three Months Ended December 31,

Results of Operations for the Three Months Ended June 30, 2024, and 2023 (in thousands):

For the Three Months Ended June 30,

As a % of Revenue

Streaming and digital

Base distribution

Podcast and other

Other non-recurring

Total Revenue

For the three months ended December 31, 2023, total revenue declined by $14.6 million, or 52% as compared to three months ended December 31, 2022.

During this time, Streaming and Digital revenue for three months ended December 31, 2023, decreased by $2.1 million, driven by a decline in the Company's AVOD revenue of $1.7 million due to continued headwinds in the broader advertising market.

This decrease was partially offset by a $0.5 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as Screambox.

The Company's $5.3 million decline in Base Distribution revenue for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was primarily driven by a $3.8 million decline in theatrical revenue, in part due to the Terrifier 2 success in fiscal year 2023, a decline of $1.1 million in barter-related licensing deal in the third quarter of fiscal 2023, as well as a $0.8 million decline in DVD-related sales and related physical distribution revenue, as the Company's focus shifts away from physical sales.

Other non-recurring revenue related to the Company's legacy cinema equipment as its operations run-off.

Following the completion of cost recoupment, the expiration of the exhibitor master license agreements applicable to this line of revenue, and the recognition of all remaining constrained variable consideration, revenue decreased $7.1 million.

In the third quarter of fiscal 2024, $0.1 million of remaining systems sales were recognized.

Direct Operating Expenses

For the Three Months Ended December 31,

Direct operating expenses

The $8.9 million decrease in Direct Operating Expenses for the three months ended December 31, 2023 is primarily driven by the variable costs associated with a 52% decrease in quarterly revenue, including reduced licensing, royalty and participation expenses of $3.6 million;

reduced manufacturing, freight, and fulfillment charges of $3.4 million.

In addition, the Company's reserve against advances provided to partners decreased by $1.1 million relative to the three months ended December 31, 2022 and a $0.5 million increase in acquired content-related preparation costs capitalized as a result of the Company's content investment initiative.

Selling, General and Administrative Expenses

For the Three Months Ended December 31,

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended December 31, 2023 decreased by $2.7 million.

In comparison to the three months ended December 31, 2022, compensation expenses decreased by $0.9

million due to a $0.7 million reduction in bonus accrual attributable to fiscal year 2024 performance, a decrease in recurring salaries and associated taxes of $0.7 million, partially offset by a $0.2 million increase in severance expense.

Corporate expenses decreased by $1.0 million primarily related a reduction of $0.6 million in legal fees and $0.4 million in other consulting and service providers, as a result of the Company's savings initiatives.

Share-based compensation has decreased by $0.5 million, as a result of forfeitures associated with US-based workforce reduction, a decline in stock price, and a relatively higher number of award tranches fully vesting.

Other operating expenses decreased by $0.4 million, primarily driven by reductions in marketing related costs of $0.3 million as a result of spending controls put into place.

Depreciation and Amortization Expense

For the Three Months Ended December 31,

Amortization of intangible assets

Depreciation of property and equipment

Depreciation and Amortization

Amortization expense has continued to increase and depreciation expense has continued to decrease as a result of the Company's shift away from the physical business to its focus on content-related spend during the three months ended December 31, 2023.

Interest expense, net

For the three months ended December 31, 2023, interest expense decreased by $76 thousand from $367 thousand to $291, primarily as a result of a $69 thousand decrease in deferred consideration amortization.

Results of Operations for the nine months ended December 31, 2023 and 2022 (in thousands):

For the Nine Months Ended December 31,

Streaming and digital

Base distribution

Podcast and other

Other non-recurring

Total Revenue

For the nine months ended December 31, 2023, the Company's revenue declined by $16.2 million.

The decrease was driven by a $6.6 million decline in the Company's base distribution, driven by a $3.7 million decline in theatrical revenue following fiscal year 2023's theatrical success with films such as Terrifier 2, and a $2.4 million decrease in DVD and related supply chain costs, as the Company has shifted its focus away from the physical business.

Streaming and digital revenue decreased by $2.4 million, driven by a $6.2 million decrease in AVOD from the headwinds faced in the advertising market, partially offset by a $2.6 million increase in SVOD and a $0.9 million increase from digital revenue as the Company continued to see the benefits from recent years' acquisitions, such as DMR, Fandor and Bloody Disgusting, which have contributed value-accretive libraries, distribution platforms and technologies.

The decrease in Other non-recurring revenue decline was related to the run-off of the Company's legacy digital cinema business, whose active operations ran-off at the end of fiscal year 2023.

For the nine months ended

December 31, 2023, variable consideration from these operations had decreased by $5.8 million and system sales decreased by$1.5 million.

For the three months ended June 30, 2024, total revenue declined by $3.9 million, or 30% as compared to three months ended June 30, 2023.

During this time, Streaming and digital revenue for three months ended June 30, 2024, decreased by $2.4 million, driven by a $1.9 million decline in the Company's digital distribution revenue resulting from the impact of content release timing in the current quarter relative to the first quarter in fiscal 2024, as well as the recent change in and build-out of the Company's direct advertising sales team.

This decrease was partially offset by a $0.2 million increase in SVOD revenue.

Podcast and other revenue increased by $0.6 million, or 143%, due to the success of the Company's Bloody Disgusting podcast content.

The Company's $0.8 million decline in Base distribution revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by a decline in DVD-related sales and related physical distribution revenue, as the Company's focus shifts away from physical sales.

Other non-recurring revenue is related to the Company's legacy cinema equipment as its operations run-off.

In the first quarter of fiscal 2024, the Company recognized $1.2 million in legacy digital cinema system sales and variable consideration;

however, in the first quarter of fiscal year 2025, sales of legacy systems have decreased, and the Company anticipates this trend will continue.

Direct Operating Expenses

For the Nine Months Ended December 31,

For the Three Months Ended June 30,

As a % of Revenue

Direct operating expenses

For the nine months ended December 31, 2023, the Company's direct operation expense decreased $12.8 million.

The decrease was primarily driven by $4.3 million in fulfillment and manufacturing costs associated with the decline in the Company's physical distribution business, a $2.5 million decrease in licenses, royalties, and participation expenses, a $2.2 million decrease in the Company's costs associated with the Company's reserves against advances to partners, a $1.6 million reduction in SaaS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, and $0.7 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date.

The $2.5 million decrease in Direct operating expenses for the three months ended June 30, 2024 was primarily driven by the variable costs associated with the decline in comparative quarterly revenue, including reduced licensing, royalty and participation expenses of $1.7 million;

reduced manufacturing, freight, and fulfillment charges of $0.1 million related to the decline of physical sales, and the Company's reserve against advances provided to partners increased by $0.2 million relative to the three months ended June 30, 2023.

Selling, General and Administrative Expenses

For the Nine Months Ended December 31,

Three Months Ended June 30,

As a % of Revenue

Compensation expense

3 unchanged sentences

Selling, General and Administrative

During the nine months ended December 31, 2023, the Company's SG&A decreased by $7.9 million.

Relative to nine months ended December 31, 2022, compensation related costs primarily decreased due to a reduction in the Company's bonus expense of $2.2 million and an increase in capitalized labor of $0.5 million from the development of the Company's Matchpoint software.

Corporate expenses declined by $2.1 million primarily decreased due to a corporate focus on reducing third-party legal costs in the amount of $1.5 million and a decline of $0.6 million in other consulting and service providers due to the Company's cost-saving initiatives.

Share-based compensation also decreased by $2.8 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of awards tranches fully vesting.

Selling, general and administrative expenses for the three months ended June 30, 2024 decreased by $1.3 million.

In comparison to the three months ended June 30, 2023, compensation expenses decreased by $0.4 million driven a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.

Corporate expenses decreased by $0.7 million primarily related to a reduction of $0.3 million in other consulting service providers, $0.2 million in legal fees, and $0.1 million in public relations fees, as a result of the Company's savings initiatives.

Other operating expenses decreased by $0.3 million, primarily driven by reductions in the provision for credit losses of $0.2 million and a decrease in advertising barter costs of $0.2 million.

Depreciation and Amortization Expense

For the Nine Months Ended December 31,

For the Three Months Ended June 30,

As a % of Revenue

Amortization of intangible assets

1 unchanged sentence

Depreciation and Amortization

Depreciation expense decreased primarily due to the remainder of our digital cinema assets reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023.

Amortization expense has continued to increase as a result of the Company's shift away from the physical business to its focus on content related spend.

Amortization expense and depreciation expense have remained relatively consistent for three months ended June 30, 2024, compared to the three months ended June 30, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.

Interest expense, net

For the nine months ended December 31, 2023 relative to the nine months ended December 31, 2022, interest expense decreased by $99 thousand from $880 thousand to $781, primarily as a result of a $233 thousand decrease

in deferred consideration amortization, partially offset by a $182 thousand increase in line of credit related interest costs, which was entered into in September 2022.

For the three months ended June 30, 2024, interest expense increased by $0.1 million from $0.3 million to $0.4 million, primarily as a result of the Company's Terrifier 3 term loan interest of $0.1 million.

Adjusted EBITDA

13 unchanged sentences

For the Three Months

Ended December 31,

For the Nine Months Ended December 31,

Net income (loss)

Income tax (benefit) expense

Ended June 30,

Income tax expense

Depreciation and amortization

1 unchanged sentence

Loss from equity investment in Metaverse

Provision for doubtful accounts

Stock-based compensation

Employee retention tax credit

Other (income) expense, net

1 unchanged sentence

Transition-related costs

Mergers and acquisition costs

Adjusted EBITDA

Changes in our cash flows were as follows (in thousands):

For the Nine Months Ended

For the Three Months

Ended June 30,

Net used in operating activities

2 unchanged sentences

Net Change In Cash and Cash Equivalents

For the nine months ended December 31, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and increases in accounts payable, accrued expenses, and other liabilities, partially offset by a decrease in accounts receivable and the unrealized loss from the Company's investment in Metaverse's stock.

For the three months ended June 30, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by a decrease in unbilled revenue, the collection of the Company's ERTC claim, and an increase in accounts payable and accrued expenses.

Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.

Cash used in investing activities was used in the expenditures towards long-lived intangible assets and fixed assets, as well as the receipt from the return of investment from the sale of equity securities.

Cash provided by financing activities pertained to the draw and repayment of the Company's line of credit, payment of earnout consideration, and issuance of company equity, net of financing fees.

For the nine months ended December 31, 2022, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital.

Additionally, during the nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors.

Cash received from virtual print fees ("VPFs"), from our legacy digital cinema business, decreased from the previous period in alignment with the decrease in eligible VPF systems.

Prepaid and other current assets increased by $2.7 million.

In addition, we made $1.1 million in advances for the nine months ended December 31, 2022.

Cash used in financing was used for the purchase of long-lived fixed assets.

Net cash provided by financing activities was driven by the net receipt of $5 million from the Company's line of credit, partially offset by the Company's deferred consideration and debt issuance costs.

Cash provided by financing activities pertained to the receipt of funds from the Company's Terrifier 3-related term loan, repayment of the Company's line of credit, payment of deferred consideration, and payment of financing fees.

For the three months ended June 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital.

Additionally, during the three months ended June 30, 2023, the Company decreased accounts payable by $4.7 million to vendors.

In addition, we made net advances of $2.2 million for the three months ended June 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

Off-balance sheet arrangements

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis