What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-14 compared with 2024-11-14 · 73 added, 65 removed, 125 unchanged (52% of the section changed)

22 unchanged sentences

We have a history of net losses and we may continue to generate net losses for the foreseeable future.

As of September 30, 2024, the Company has an accumulated deficit of $509 million and a working capital deficit of $1.2 million.

For the three and six months ended September 30, 2024, the Company had a net loss attributable to Common Stockholders of $1.4 million and $4.5 million, respectively.

Net cash used in operating activities for the six months ended September 30, 2024 was $2.4 million, which included $1.7 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with EWB providing for a $7.5 million Line of Credit Facility, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 9.5% as of September 30, 2024.

As of December 31, 2024, the Company has an accumulated deficit of $501.7 million and a working capital surplus of $6.8 million.

For the three and nine months ended December 31, 2024, the Company had a net income attributable to Common Stock holders of $7.0 million and $2.5 million, respectively.

Net cash provided by operating activities for the nine months ended December 31, 2024 was $5.0 million, which is net of $4.8 million incremental investment in our content portfolio via advances or minimum guarantee payouts.

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

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 9.0% as of December 31, 2024.

The Line of Credit Facility matures on September 15, 2025.

As of September 30, 2024, $4.6 million was outstanding on the Line of Credit Facility, net of issuance costs of $180 thousand.

The Company intends to renew when the Line of Credit matures.

As of December 31, 2024, $3.8 million was outstanding on the Line of Credit Facility, net of issuance costs of $153 thousand.

Subsequent to December 31, 2024, our Line of Credit balance was paid down to $0.

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

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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 September 30, 2024.

The T3 Loan, including interest of $576 thousand, was repaid in advance during the quarter ended December 31, 2024.

After the principal of the T3 Loan is paid in full, the 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 the T3 Lender has received 1.75 times the full commitment amount of $3.7 million, 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 the T3 Borrower from the distribution of the Film.

We expect the T3 Loan to be fully paid off in December 2024 from Film proceeds.

On May 3, 2024, the Company entered into a sales agreement (the “2024 Sales Agreement”) with A.G.P./Alliance Global Partners and The Benchmark Company, LLC (collectively, the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock.

7 unchanged sentences

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

As of September 30, 2024 and March 31, 2024, short term content advances were $10.8 million and $9.3 million, respectively, and content advances, net of current portion, were $1.5 million and $2.6 million, respectively.

As of December 31, 2024 and March 31, 2024, short term content advances were $8.8 million and $9.3 million, respectively, and content advances, net of current portion, were $1.4 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 equivalents as of September 30, 2024 and availability under our Line of Credit Facility will be sufficient to support our operations for at least twelve months from the filing of this report.

We believe our cash and cash equivalents and availability under our Line of Credit Facility as of December 31, 2024 will be sufficient to support our operations for at least twelve months from the filing of this report.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

Our Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In connection with the preparation of our Condensed Consolidated Financial Statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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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 September 30, 2024 and 2023 (in thousands) :

For the Three Months Ended September 30,

Results of Operations for the three months ended December 31, 2024 and 2023 (in thousands) :

For the Three Months Ended December 31,

As a % of Revenue

2 unchanged sentences

Base distribution

Other non-recurring

Other and non-recurring

Total Revenue

For the three months ended September 30, 2024, total revenue declined by $0.3 million compared to the three months ended September 30, 2023.

Streaming and digital revenue increased by $0.7 million, primarily due to:

(i) the $1.6 million license fee revenue related to the licensing of the Dog Whisperer content, and offset by (ii) the unfavorable impact of other content releases' timing relative to the same period in the prior year.

Podcast and other revenue grew by $0.6 million due to the success of the Company's Bloody Disgusting podcast content.

Base distribution revenue increased by $0.8 million mainly due to the favorable physical returns reserves adjustments for the quarter.

For the three months ended December 31, 2024, total revenue grew by $27.5 million compared to the three months ended December 31, 2023.

Streaming and digital revenue increased by $4.6 million, primarily due to the net favorable impact of content releases' timing relative to the same period in the prior year, including the impact of Terrifier 3.

Podcast and other revenue grew by $1.2 million due to revenue increases from both:

(i) direct advertising ($1.1 million) and (ii) the Company's Bloody Disgusting podcast content ($0.1 million).

Base distribution revenue increased by $21.7 million mainly due to Terrifier 3 theatrical release in October 2024.

Other non-recurring revenue is related to the Company's legacy digital cinema equipment business ("Digital Cinema") as its operations continue to run-off.

Digital Cinema revenue decreased $2.4 million compared to the same period in the prior year.

Digital Cinema revenue increased insignificantly million compared to the same period in the prior year.

The Company doesn't anticipate future revenue related to the Digital Cinema business.

Direct Operating Expenses

For the Three Months Ended September 30,

For the Three Months Ended December 31,

As a % of Revenue

Direct operating expenses

The increase of $1.6 million in Direct Operating Expenses for the three months ended September 30, 2024, compared to the same period of 2023, was primarily due to the following:

(i) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, (ii) $0.4 million higher manufacturing, fulfillment, and freight charges, and (iii) $0.5 million higher royalty expenses.

The increase of $15.5 million in Direct Operating Expenses for the three months ended December 31, 2024, compared to the same period of 2023 significantly relates to the impact of Terrifier 3 release.

Specifically, the increase is due to:

(i) $13.0 million higher royalty expense, (ii) $1.3 million increase in marketing costs (including digital marketing), (iii) $0.6 million theatrical distribution fees to our service provider, and (iv) $0.7 million higher manufacturing, fulfillment and freight charges.

Selling, General and Administrative Expenses

For the Three Months Ended September 30,

For the Three Months Ended December 31,

As a % of Revenue

4 unchanged sentences

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased by $0.5 million compared to the same period of 2023.

In comparison to the three months ended September 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.

Selling, general and administrative expenses for the three months ended December 31, 2024 increased by $3.0 million compared to the same period of 2023, primarily due to (i) bonus accrual driven by Terrifier 3 theatrical revenue results and (ii) higher share-based compensation.

Excluding the effect of bonus accrual, compensation expenses decreased by $0.2 million, in comparison to the three months ended December 31, 2023, driven by a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.

Depreciation and Amortization Expense

For the Three Months Ended September 30,

For the Three Months Ended December 31,

As a % of Revenue

2 unchanged sentences

Depreciation and Amortization

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

Amortization expense and depreciation expense have remained relatively consistent for the three months ended December 31, 2024 and 2023 as the Company's intangible focused investment mix has remained consistent year-over-year.

Interest Expense, Net

For the three months ended September 30, 2024, interest expense increased by $142 thousand from $195 thousand to $337 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.

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

For the Six Months Ended September 30,

For the three months ended December 31, 2024, interest expense increased by $2.1 million from $0.3 million to $2.3 million primarily due to:

(i) interest participation relating to the T3 Loan (which was obtained and repaid during the fiscal year), (ii) higher drawings on our line of credit, and (iii) increased interest rates in 2024.

Results of Operations for the Nine Months Ended December 31, 2024 and 2023 (in thousands) :

For the Nine Months Ended December 31,

As a % of Revenue

2 unchanged sentences

Base distribution

Other non-recurring

Other and non-recurring

Total Revenue

For the six months ended September 30, 2024, total revenue declined by $4.1 million compared to the six months ended September 30, 2023.

Streaming and digital revenue for the six months ended September 30, 2024 decreased by $1.7 million

compared to the same period of 2023, primarily due to the unfavorable impact of content release timing relative to the same period in the prior year, offset by the $1.6 million of license fee revenue recorded during the current quarter related to the licensing of the Dog Whisperer content.

Podcast and other revenue grew by $1.2 million due to the success of the Company's Bloody Disgusting podcast content.

For the nine months ended December 31, 2024, total revenue grew by $23.3 million compared to the nine months ended December 31, 2023.

Streaming and digital revenue for the nine months ended December 31, 2024 increased by $2.9 million compared to the same period of 2023, primarily due to:

(i) $1.6 million of license fee revenue recorded during the period related to the licensing of the Dog Whisperer content, and (ii) net favorable impact of other content releases' timing relative to the same period in the prior year, including effect of Terrifier 3 content.

Podcast and other revenue grew by $2.4 million due to revenue increases from both:

(i) direct advertising ($1.7 million) and (ii) the Company's Bloody Disgusting podcast content ($0.7 million).

Base distribution revenue increased by $21.6 million mainly due to Terrifier 3 theatrical release in October 2024.

Other non-recurring revenue related to Digital Cinema decreased $3.6 million compared to the same period of 2023 as its operations continue to run-off.

1 unchanged sentence

Direct Operating Expenses

For the Six Months Ended September 30,

For the Nine Months Ended December 31,

As a % of Revenue

Direct operating expenses

The decrease of $0.9 million in Direct Operating Expenses for the six months ended September 30, 2024, compared to the same period of 2023, is primarily due to the net effect of the following key changes:

(i) $1.1 million lower royalty expense, (ii) $1.2 million lower digital marketing and SaaS subscription costs, (iii) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, and (iv) $0.5 million allowance reductions.

The increase of $14.6 million in Direct Operating Expenses for the nine months ended December 31, 2024, compared to the same period of 2023 significantly relates to the impact of Terrifier 3 release.

Specifically, the increase is due to the net effect of the following changes:

(i) $11.9 million higher royalty expense, (ii) $0.8 million increase in marketing costs, (iii) $0.6 million theatrical distribution fees to our service provider, (iv) $1.2 million higher manufacturing, fulfillment and freight charges, (v) $1.1 million higher license participations and advertising pool impression costs, and offset by (vi) $1.1 million lower SaaS subscription fees.

Selling, General and Administrative Expenses

For the Six Months Ended September 30,

For the Nine Months Ended December 31,

As a % of Revenue

4 unchanged sentences

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended September 30, 2024 decreased by $1.8 million compared to the same period of 2023.

In comparison to the six months ended September 30, 2023, compensation expenses decreased by $0.7 million driven by 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 and other operating expenses decreased by $0.4 million primarily driven by the Company's continued focus on cost savings initiatives.

Selling, general and administrative expenses for the nine months ended December 31, 2024 increased by $1.2 million compared to the same period of 2023, primarily due to (i) bonus accrual driven by Terrifier 3 theatrical revenue results and (ii) higher share-based compensation.

Excluding the effect of bonus accrual, compensation expenses decreased by $1.1 million, in comparison to the nine months ended December 31, 2023, driven by a change in the Company's employment mix as a result of a greater investment in Cineverse Services India.

Corporate expenses decreased by $0.5 million primarily driven by the Company's continued focus on cost savings initiatives.

Depreciation and Amortization Expense

For the Six Months Ended September 30,

For the Nine Months Ended December 31,

As a % of Revenue

2 unchanged sentences

Depreciation and Amortization

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

Amortization expense and depreciation expense have remained relatively consistent for the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.

Interest Expense, Net

For the six months ended September 30, 2024 compared to the same period of 2023, interest expense increased by $278 thousand from $490 thousand to $768 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.

For the nine months ended December 31, 2024 compared to the same period of 2023, interest expense increased by $2.3 million from $0.8 million to $3.1 million primarily due to:

(i) interest participation relating to the T3 Loan (which was obtained and repaid during the fiscal year), (ii) higher drawings on our line of credit and (ii) increased interest rates in 2024.

Adjusted EBITDA

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These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Following is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands) :

For the Three Months Ended

September 30,

For the Six Months Ended

September 30,

Income tax expense

Following is the reconciliation of our consolidated net income (loss) to Adjusted EBITDA (in thousands) :

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

Net income (loss)

Income tax (benefit) expense

Depreciation and amortization

7 unchanged sentences

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

For the Six Months Ended September 30,

Net used in operating activities

For the Nine Months Ended December 31,

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net Change in Cash and Cash Equivalents

For the six months ended September 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 accounts receivable, the collection of the Company's ERTC claim, and a decrease in accounts payable and accrued expenses.

Cash flows for the current fiscal period

For the nine months ended December 31, 2024, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Further, we had 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 the collection of the Company's ERTC claim.

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 assets as well as the sale of equity securities.

Cash provided by financing activities were primarily due to the receipt of funds from the T3 Loan offset by a net $1.6 million repayment of the Line of Credit Facility, $0.3 million net payment of deferred acquisition consideration and $0.2 million used to repurchase outstanding shares.

For the six months ended September 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.

Cash used in investing activities was used in the expenditures towards long-lived assets, net of proceeds from sale of equity securities.

Cash used in financing activities was primarily due to the net $2.4 million repayment of the Line of Credit Facility, repayment of our $3.1 million T3 Loan (which was obtained during the fiscal year), $0.3 million net payment of deferred acquisition consideration and $0.2 million used to repurchase outstanding shares.

Cash flows for the prior fiscal period

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.

In addition, we made net advances of $5.3 million for the six months ended September 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.

Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets.

Cash provided by financing activities pertained to the issuance of company equity, net of financing fees.

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.

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