Cineverse Corp. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report. This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Business Overview 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. 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. Cineverse is a 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 video on demand ("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 Matchpoint™, 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 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. Financial Condition and Liquidity As of December 31, 2025, the Company has an accumulated deficit of $(511.2) million and negative working capital of $(1.4) million. For the three and nine months ended December 31, 2025, the Company had a net loss attributable to the Company's common stock holders of $(1.0) million and $(10.3) million, respectively. Net cash used in operating activities for the nine months ended December 31, 2025 was $23.3 million, which included $7.9 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. During the nine months ended December 31, 2025, 1.9 million warrants were exercised for net proceeds of $5.8 million. The Company is party to a Loan, Guaranty, and Security Agreement, as amended on April 8, 2025, with East West Bank (the "Line of Credit Facility") providing for borrowings of up to $12.5 million guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets. The facility includes provisions that allow for an increase in total borrowing capacity up to $15.0 million, subject to lender approval. As of December 31, 2025, $8.3 million was outstanding on the Line of Credit Facility. 25 The Company will continue to invest in content development and acquisitions, from which it believes it will obtain an appropriate return on its investment. As of December 31, 2025 and March 31, 2025, short-term content advances were $7.9 million and $6.7 million, respectively, and long-term content advances, net of current portion, were $9.2 million and $4.1 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, availability under our Line of Credit Facility and ability to use our ATM as of December 31, 2025 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. 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. 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. Our significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies , of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited) , of this Quarterly Report on Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. 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, 2025 and 2024 (unaudited) (in thousands) : Revenue For the Three Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Streaming and digital $ 11,488 $ 14,128 (2,640 ) (19 )% 70 % 35 % Base distribution 3,516 24,481 (20,965 ) (86 )% 22 % 60 % Podcast and other 1,282 2,058 (776 ) (38 )% 8 % 5 % Other and non-recurring — 73 (73 ) (100 )% — — Total Revenue $ 16,286 $ 40,740 $ (24,454 ) (60 )% 100 % 100 % Streaming and digital revenue for the three months ended December 31, 2025 decreased by $2.6 million, primarily due to strong digital release revenue of $2.8 million from Terrifier 3 in the prior period. This is partially offset by revenue growth of $1.5 million in our top channels. Programmatic revenue decreased by $1.2 million due to reduced advertiser demand. Base distribution revenue decreased by $21.0 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024, primarily attributable to the strong theatrical release revenue of $22.8 million from Terrifier 3 in the prior period. This is partially offset by theatrical release revenue of $1.2 million in the current period. Podcast and other revenue decreased by $0.8 million during the three months ended December 31, 2025, compared to same period in 2024 due to lower podcast direct advertising. 26 Direct Operating Expenses For the Three Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Direct operating expenses $ 5,049 $ 20,997 $ (15,948 ) (76 )% 31 % 52 % The $15.9 million decrease in Direct operating expenses for the three months ended December 31, 2025 was primarily driven by lower variable costs compared to the prior year quarter, which included royalty expenses for Terrifier 3 , platform fees, freight, and fulfillment charges, offset by an increase in manufacturing costs related to Toxic Avenger. Selling, General and Administrative Expenses For the Three Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Compensation expense $ 4,778 $ 6,574 $ (1,796 ) (27 )% 29 % 16 % Corporate expenses 1,588 832 756 91 % 10 % 2 % Share-based compensation 1,027 498 529 106 % 6 % 1 % Marketing expenses 2,043 72 1,971 2738 % 13 % — Other operating expenses 1,254 1,385 (131 ) (9 )% 8 % 3 % Selling, General and Administrative $ 10,690 $ 9,361 $ 1,329 14 % 66 % 22 % For the three months ended December 31, 2025 compared to three months ended December 31, 2024, compensation expense decreased by $1.8 million primarily due to a lower bonus accrual. Corporate expenses increased by $0.8 million reflecting higher professional services and legal expenses associated with strategic business and content acquisitions. Marketing expenses increased by $2.0 million primarily due to Toxic Avenger . For the three months ended December 31, 2024, $0.6 million Marketing expenses were included in Direct operating expenses. Depreciation and Amortization Expense For the Three Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Amortization of intangible assets $ 1,118 $ 806 $ 312 39 % 7 % 2 % Depreciation of property and equipment 85 140 (55 ) (39 )% 1 % — Depreciation and Amortization $ 1,203 $ 946 $ 257 27 % 8 % 2 % Amortization expense increased by $0.3 million during the three months ended December 31, 2025 compared to the prior year quarter primarily due to increased capitalized content costs. Interest Expense, Net For the three months ended December 31, 2025, compared with the same period in 2024, interest expense decreased by $2.1 million to $0.2 million primarily due to higher interest participation in the prior year related to the T3 Loan, which was obtained and repaid during the prior fiscal year, lower borrowings under our line of credit, and lower interest rates. 27 Results of Operations for the nine months ended December 31, 2025 and 2024 (unaudited) (in thousands) : Revenues For the Nine Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Streaming and digital $ 30,151 $ 31,920 $ (1,769 ) (6 )% 76 % 51 % Base distribution 6,377 26,153 (19,776 ) (76 )% 16 % 42 % Podcast and other 3,216 4,374 (1,158 ) (26 )% 8 % 7 % Other and non-recurring 18 159 (141 ) (89 )% — — Total Revenue $ 39,762 $ 62,606 $ (22,844 ) (36 )% 100 % 100 % Streaming and digital revenue for the nine months ended December 31, 2025 decreased by $1.8 million compared to the same period in 2024, primarily driven by primarily due to strong digital release revenue of $2.8 million for Terrifier 3 in the prior period. This is partially offset by growth of $1.4 million in our top channels. Base distribution revenue decreased by $19.8 million for the nine months ended December 31, 2025, compared to the same period in 2024, primarily due to the strong theatrical release revenue of $22.8 million in the prior period. This is partially offset by the theatrical and physical releases bringing in $2.0 million in the current period. Podcast and other revenue declined by $1.2 million during the nine months ended December 31, 2025 compared to same period in 2024, due to lower podcast direct advertising. Direct Operating Expenses For the Nine Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Direct operating expenses $ 15,070 $ 31,738 $ (16,668 ) (53 )% 38 % 51 % The decrease of $16.7 million in Direct operating Expenses for the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024 was primarily driven by lower variable costs, including royalty expenses and platform fees. The reduction also reflects higher recoupements on our content advances resulting in lower provision for royalty advance allowance. These decreases were partially offset by increased theatrical distribution fees related to Toxic Avenger and licensor costs. Selling, General and Administrative Expenses For the Nine Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Compensation expense $ 15,468 $ 14,713 $ 755 5 % 39 % 24 % Corporate expenses 4,270 2,576 1,694 66 % 11 % 4 % Share-based compensation 1,939 1,471 468 32 % 5 % 2 % Marketing expenses 5,355 116 5,239 4516 % 13 % — Other operating expenses 4,017 3,412 605 18 % 10 % 6 % Selling, General and Administrative $ 31,049 $ 22,288 $ 8,761 39 % 78 % 36 % For the nine months ended December 31, 2025 compared to nine months ended December 31, 2024, Compensation expenses increased by $0.8 million due to increased employee headcount. Corporate expenses increased by $1.7 million reflecting higher professional services and legal expenses associated with strategic business and content acquisitions. Marketing expenses increased primarily due to costs associated with Toxic Avenger . For the nine months ended December 31, 2024, $0.8 million of marketing expenses were included in Direct operating expenses. Other operating expenses increased by $0.6 million primarily due to increased administrative costs. 28 Depreciation and Amortization Expense For the Nine Months Ended December 31, As a % of Revenue 2025 2024 $ Change % Change 2025 2024 Amortization of intangible assets $ 3,115 $ 2,330 $ 785 34 % 8 % 4 % Depreciation of property and equipment 296 453 (157 ) (35 )% 1 % 1 % Depreciation and Amortization $ 3,411 $ 2,783 $ 628 23 % 9 % 5 % Amortization expense increased by $0.8 million during the nine months ended December 31, 2025, compared to 2024, primarily due to increased capitalized content costs. Interest Expense, Net For the nine months ended December 31, 2025, compared with the same period in 2024, interest expense decreased by $3.0 million, primarily due to higher interest participation in the prior year related to the T3 Loan, which was obtained and repaid during prior fiscal year, lower borrowings under our line of credit, and lower interest rates. In addition, during the nine months ended December 31, 2025, we recognized a $0.4 million discount on accrued interest provided by the T3 lender in exchange for the final payment made during the period. Adjusted EBITDA We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items. Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric. We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance. We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP. 29 Following is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands): For the Three Months Ended December 31, For the Nine Months Ended December 31, 2025 2024 2025 2024 Net (loss) income $ (875 ) $ 7,161 $ (9,936 ) $ 2,906 Add Back: Income tax expense 19 6 53 19 Depreciation and amortization ⁽¹⁾ 1,332 1,031 3,755 3,039 Interest expense 195 2,342 64 3,110 Stock-based compensation 1,027 490 1,939 1,463 Other expense (income), net 5 (73 ) 51 (238 ) Net income attributable to noncontrolling interest (49 ) (48 ) (137 ) (155 ) Acquisition-related costs 603 — 603 — Employee severance costs 97 — 144 27 Adjusted EBITDA $ 2,354 $ 10,909 $ (3,464 ) $ 10,171 (1) - Includes $129 thousand and $344 thousand of amortization included in direct operating expenses on our Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2025, respectively, and $85 thousand and $256 thousand for the three and nine months ended December 31, 2024, respectively. Cash Flow Changes in our cash flows were as follows (in thousands): For the Nine Months Ended December 31, 2025 2024 Net cash (used in) provided by operating activities $ (23,308 ) $ 4,945 Net cash used in investing activities (1,434 ) (655 ) Net cash provided by (used in) financing activities 13,236 (3,413 ) Net Change in Cash and Cash Equivalents $ (11,506 ) $ 877 For the nine months ended December 31, 2025, 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 and a decrease in accounts payable and accrued expenses. Cash used in investing activities is primarily related to expenditures towards long-lived intangible and fixed assets, along with strategic acquisitions. Cash flows from financing were primarily attributable to proceeds under the Line of Credit Facility, net of payments, and proceeds from common stock warrant exercises. For the three and nine months ended December 31, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, reserve for credit losses and stock-based compensation, including capitalized content spend and other changes in working capital. Off-balance sheet arrangements We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE. 30