Cinedigm Corp. (CIDM) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to Cinedigm Second Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen only mode. Please note this conference is being recorded. I would now like to turn the conference over to Jill Calcaterra, Executive Vice President. Thank you. You may begin.
Jill Calcaterra: Good afternoon. And thank you for joining us today on our second quarter fiscal 2021 earnings conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; President of Cinedigm Networks, Erick Opeka, and Chief Operating Officer and General Counsel and President of our Cinema Equipment Business, Gary Loffredo.
Chris McGurk: Thanks, Jill. And thanks everyone for joining us on the call today. I'd like to give a brief update on our business performance and outlook. And then I will turn things over to Erick for a more in-depth review of our streaming business results in strategy. Then Gary will cover our financials, and the significant progress we've made in strengthening our balance sheet. And after that, we'll take questions. So despite the impacts of COVID-19 on the advertising and theatrical markets, and the usual seasonal slowness of our first and second quarters of the fiscal year, we've had a remarkable run so far this year and rapidly building up our streaming business and solidifying our position as a leading independent player in that space, the most important and fastest growing segment of the entertainment business. With the advertising business now rebounding sharply, and the cord cutting ship to streaming still dramatically and permanently accelerating due to the continued stay-at-home environment; Cinedigm continues to be in a very strong and unique position to rapidly grow our market share and reach sustain profitability. And we are expecting another very strong performance next quarter, as well. And that's our seasonally strongest quarter. Very importantly, as the streaming business consolidates, which was inevitable, and is happening now as evidenced by the constant news of mergers and acquisitions in the space, Cinedigm finds itself in a perfect competitive position, given our unique capabilities, technology, and distribution reach to grow even faster by acquiring profitable streaming assets, like our very successful Viewster acquisition, and the recent announcement of our agreement to purchase The Film Detective, which will add 10,000 films and TV episodes to our content library, as well as two high potential streaming channels to our rapidly expanding OTT portfolio.
Erick Opeka: Thank you, Chris. First, let me discuss our streaming performance over the quarter. So despite the summer being a seasonally slow period and the ad market still recovering from COVID-19, our OTT networks group performed incredibly well growing at 45% year-over-year overall in the quarter. Our revenue growth was driven by two key trends. First, this fiscal year we saw 45% rise in paid subscriptions to more than 142,000 subscribers by the end of the quarter, led by our fandom streaming service CONtv, which was up 78%. Much of the rise came from our plan to grow subscriptions on our third-party partners such as the Roku channel, Dish Network, Amazon, Comcast and others. We expect this area to continue to deliver growth with calendar Q4 to Q1 being the two highest growth period for subscriptions in the year. The second key trend was the resumption of advertising growth in our linear and on-demand businesses which prior to COVID were our highest growth areas for the company. In the quarter our ad-based channels revenue was up 80% year-over-year, driven by more than 16.1 million ad-supported viewers, which we're estimating today as of November. We expect to see further accelerated growth in the calendar Q4 driven by an overall ad market recovery, heavy election spending, seasonal holiday spending and the continued shift of dollars from traditional TV advertising towards the OTT market.
Gary Loffredo: Thanks Erick. For the second quarter of fiscal year 2021, which along with the first quarter is seasonally slow, consolidated revenues were $7.2 million. As expected, overall revenues declined as a result of the contracted decline in our legacy digital cinema equipment business, and the significant negative impact of COVID-19, which caused state mandated theater closures and the temporary halt of distribution of major studio releases into movie theaters. With respect to the cinema equipment business, the deployment contracts in this segment of our business provide for the payment of virtual print fees for up to 10 years from the date of the installation of the digital projection systems and therefore continue to move towards the end of the respective terms.
Chris McGurk: Thanks Gary and thanks Erick Clearly, we continue to power through many of the negative impacts of the COVID-19 pandemic on the entertainment business to rapidly expand our position as the leading internet player in the streaming space, with quality channel, content and technology solutions for the entire explosively growing global streaming business segment. We now have 26 streaming channels in our portfolio, access to almost 900 million streaming devices globally, and over 16 million monthly ad-based viewers. We have a proven premium OTT technology solution with Matchpoint. And we have become a go-to-streaming service provider for key players in the business. Clearly, Cinedigm has established a significant and growing set of capabilities and footprint. And by far the best face in the entertainment business. Streaming, as Erick detailed, we plan to leverage that we're going to create a roll-up strategy of key profitable streaming assets similar to the Viewster and The Film Detective acquisitions that will immediately and significantly benefit from what Cinedigm brings to the table. And we believe we're going to post some very strong results next quarter, our seasonally strongest period. And now we will take your questions operator.
Operator: Our first question comes from Dan Kurnos with The Benchmark Company.
DanKurnos: Great, thanks. Good afternoon. Nice to see the streaming momentum starting to pick-up here, let's kind of dive in a little bit on the roll-up strategy. I think it makes a ton of sense we seem to be very successful, especially in kind of these market conditions. Maybe either Erick or Chris, if you could just give us your thoughts on a; kind of what multiple range you expect you can acquire these things for, b; how the landscape has evolved to the point of, are there still a whole bunch of orphans out there? And in kind of relative from a production standpoint, are these going to be larger deals? Will it be kind of chunky? Just how do we kind of think about it? And then I have a follow up, thanks.
ChrisMcGurk: Yes, this is Chris, let me start, and then I'll turn it over to Erick and he can get more specific. I'm not going to comment specifically on the kind of multiples that we're looking at in these acquisitions, the only thing I will say is, we feel very good about the Viewster and The Film Detective deals that we did, that we were able to find subscale assets that could benefit immediately, from all of our capabilities in our technology. And also, with management teams and ownership that, particularly in The Film Detective case, wanted to participate in the upside that they saw with Cinedigm stock going forward. So, as Erick said, with 14,000 apps on Roku right now, there are tons of these smaller subscale assets out there, that could immediately benefit from what we bring to the table, and we literally are going to have the opportunity to pick and choose we believe forward. And obviously, we're going to go after those assets that we believe can have the biggest and immediate and most immediate impact from what we bring to the table. We're not talking about, $30 million, $40 million, $50 million acquisitions; we're talking about acquisitions that are quite a bit smaller than that, although we don't preclude anything. But I'm not going to comment on the multiple and our approach. And with that, I'll let Erick to discuss in a little more detail, if you want to stick.
ErickOpeka: Yes, so I think, clearly, we're looking at - we're looking - there's a wide range of companies, ranging from things that are great values up to things that are maybe marketed more competitively priced. I think, if we're going to be skewing somewhere towards the middle of that range, I think, our focus is going to be on developing and growing what is already a robust proprietary deal flow pipeline. So I think you're going to see us getting things for reasonable valuations, that applying our advantages, our technology, our distribution, we can rapidly have them achieve what we would believe to be higher valuations. So that's the general model approach. I think, there are, look, clearly on the extreme high end of the market for services with millions of subscribers, we're not playing in that space today. I think we're going to be building up over time, the approach for, we're already in preliminary planning for next fiscal year, but I would say it would be safe and conservative to say, we'd like to add low eight figures of revenue worth of acquisitions, and we have the pipeline to achieve that. So, that's - we're going to be going at it pretty aggressively. But I think we're going to be, like I mentioned during the remarks, one a quarter or so is our appetite, we think that's digestible, it won't be disruptive to company operations. So you can kind of back that out, what we're thinking in terms of scale. And I think that to your last point was, in terms of available assets out there. Well, when you keep in mind Cinedigm is positioning ourselves as a global footprint, not just - so we're not just looking at North American assets, we're looking at global assets. And there are far more services out there than there are I think it's a buyers' market for, if you're patient and looking for the right assets or right fit for our company.
ChrisMcGurk: And if I could just add to that, Erick thanks. Dan, I think thing that really gets us excited about this is if you look around at the industry right now, there are virtually no other companies that can bring to the table, what we can bring to the table at this moment for some of these smaller subscale players. We've got technology, we've got content, we've got the infrastructure, and we've got our distribution muscle. And we also have a public currency that a lot of these companies find very attractive. And we think that really gives us an edge in going out there and being able to be really discerning and pick those assets out and bring them into to the Cinedigm family that we really think have the biggest chance to have explosive growth, both from a revenue and EBITDA standpoint.
DanKurnos: Yes, that's really helpful. And Chris and Erick, it makes a ton of sense, right? I would imagine with the infrastructure, you just mentioned that you're going to, as you said, get pretty meaningful synergies out of the gate. And therefore, in a synergize basis, I imagine most of these will be highly accretive from a cash flow perspective. So maybe, Erick, since you did bring up kind of just a global perspective, maybe you can answer this, I was going ask a question about CPM. Since it sounds like they mostly turned the corner and started improving in September. And we've certainly heard from other players in the space, kind of the uniqueness of having a streaming only option as opposed to being forced into a bundle. And so I don't know if that characterization fits outside of domestic or maybe some of the more mature European markets. But I'd love to get your perspective on how pricing is kind of also providing a tailwind right now, if it is.
ErickOpeka: Just can you clarify pricing as it relates to --?
DanKurnos: CPMs and your OTT business?
ErickOpeka: Oh, yes, sure. Yes, no, I think, coming, as I mentioned earlier, coming off of - the ad-market didn't really start recovering in full force until July. But as you can imagine, demand in July and August are pretty low from a programmatic basis. So we really started to see the upward tick in CPMs, and volume at the end of the quarter. So the quarter really, I would say the first two thirds of the quarter have still had some of the depressed levels. I would say that, fast forward to today, we're not only fully recovered, CPMs are, I would say, at a premium to where they were year-over-year, I would say volume and still are far greater, I think, so if you kind of extrapolate out from there and say, well, we were still able to punch up 80% year-over-year growth despite all of that, I think it bodes very well for what happens when we, as we were seeing, I think the monetization side of streaming, you see a lot of stocks getting hammered over stay-at-home versus not stay-at-home. But I think the real big driver is having a robust advertising market. And that advertising market is going to be advertising and streaming, no matter how many hours of streaming, there are odd, the more hours are streaming, the more revenue comes in. If streaming hours dip slightly, we'll still see a net and dramatic improvement in CPMs because there'll be less CPMs available. So I continue to remain bullish mostly on the market dynamics and the prospects for a broader recovery because the segments like travel, automotive to some extent, entertainment are not spending, or they are still not spending. So if we're seeing these results in OTT, and we're missing a bunch of segments, I think it really bodes well for the growth rates that we're going to see in the future.
Operator: Next question comes from Brian Kinstlinger with Alliance Global.
AndrewBond: Good afternoon. This is Andrew Bond calling in for Brian. Just wanted to know how many channels do you have live today versus ones that are in development?
ErickOpeka: Yes, so this is Erick here. So we have 12 channels live today in the market, and then we have 26 under contract; out of this 26 we're anticipating at least two to three launching per quarter, until we hit that full number.
AndrewBond: Okay, great. And then as you continue to build your footprint with channels that have been launched, could you talk about the sales cycles and getting additional platforms to stream your content?
ErickOpeka: Sure. So, I think, if we kind of look to Bob Ross as a good example, which has basically been, its journey started at the beginning of this fiscal year, where I would characterize Bob Ross as at probably 70% fully distributed. So if you kind of, with the impact of COVID, where things took a little bit longer to move forward in some - with some platforms and things, just due to people adapting to a stay-at-home environment early on in our fiscal year, which began in April one. So we're looking at six months to get to about 70%. So I think by the end of the fiscal year we will be well over 90%. So what we saw this year with everything going on, it's taken about a year for a very strong channel to get full distribution. I would say, Bob Ross, would be on the higher end with the most demand. So I would say it could probably go up to 18 months to 24 months to get that same type of distribution for maybe at less popular channel. But we think that's pretty adequate when you compare it to Cable Television Distribution, where full distribution takes five - took five to seven years. So it's far less than half the time, maybe about a third of the time that it would have taken for cable channels. So the cycle to full revenue generation is pretty, is relatively quick, although it does take some patience.
AndrewBond: Right. Okay. That's great color. And can you quantify the trailing 12- month revenue and adjusted EBITDA of The Film Detective? And is this a licensing model? And are there cost synergies involved?
ErickOpeka: We're not currently describing, we're not breaking out the revenues on The Film Detective. But in terms of in terms of synergies, we think there's substantial, as I detailed in our acquisition remarks, there's really, there's three key buckets that we can really enhance the distribution, the revenue and the earnings potential of these properties. One is distribution, right, we have several hundred distribution outlets, and our terms just due to our larger size relative to our partners are going to be more favorable. So we're going to have some immediate increased distribution; two, will be on the technology side, given that Matchpoint is a proprietary platform with all of the benefits that is incurred, a lot of costs that are spent on third party vendors, licensors will be eliminated. Additionally, because Matchpoint is an automation platform, in some of our acquisitions that we do, there will be potential for overhead reductions and SG&A reductions, depending on the platform. We'll look at that on a case by case basis. Obviously, with some acquisitions, there's a net benefit by bringing in relationships and capabilities, which is definitely the case with Film Detective and their knowledge of film and content libraries. And the ability to extract value out of those is fantastic. So we're actually adding green power to the company. And then the last bucket, of course, is on the monetization side, where our monetization engine applied to the --, we have extremely strong monetization at both on SVOD and AVOD, that we can bring you there and all these parties. So, we, as we look to Film detective, as we mentioned earlier, looking at doubling EBITDA within a few quarters doubling revenue, 12 to 18 months is sort of the benchmark we look at on every acquisition that we look at. And by the way, we are only focused today on accretive acquisitions from the get go and leveraging the sort of improvements to further enhance the profitability of the assets that we pick up.
ChrisMcGurk: Hey, this is Chris. If I could just add to what Erick said. Phil Hopkins was the CEO and Founder of The Film Detective. And now he's going to be the President of the film Detective inside the Cinedigm family, just done an amazing job in building that business. And he's probably the best in the business at identifying classic film and TV content. And he has done a really good job in identifying additional libraries and additional streaming assets that we could maybe bring into this roll-up strategy. So he's actively working with us to help implement the roll-up strategy along with Erick and Gary. And I think I just want to emphasize that point, because we, Erick said this, we think one of the great things about this strategy is we're able to bring executive talent into the company that can really help accelerate our agenda. And Phil Hopkins is a perfect example of that.
AndrewBond: Perfect, that's all great color. Thank you and lastly, I'm sorry, if I miss this but can you also estimate how the pressure on the advertising market has impacted your revenue? And are you seeing any recovery in the market as the economy is slowly improving?
ErickOpeka: Yes, so as we looked at from the first quarter and about half of this quarter, we saw quite an impact on streaming advertising. I think what has really driven the rebound has been, as advertisers have seen TV audiences continue to decline due to cord cutting, particularly on cable. And there's the real lack of addressability, we've seen the shift from television to streaming accelerate at a far greater rate. So that acceleration of the limited dollars that were being spent, plus reopening has with local markets, plus an increase in spending around the election and now finally, going into the holiday season. We still punched up an 80% year-over-year rate of growth, despite all of the other headwinds I've described. So we think, there's, while there may be some, a little bit of bumpiness in the next quarter or two in the industry, overall, we think the streaming piece of it will have the least impact, in fact, has already returned to growth. As you look at some of those, I think we see the entire streaming industry on the ad side is trending to be 15% to 20% based on some analysts that we've reviewed. We're dramatically over performing because we have been focused on adding new monetization partners at a very steady cliff. So we remain incredibly bullish on this business. We think that we're heading into Q4 which is going to be - calendar Q4, which is a fantastic period of the year for us. Q1 is cyclically the slowest quarter. But then we're a dual revenue model business. So we typically see our subscription surge in Q1, calendar Q1, our fiscal Q4. So we have that sort of dual revenue model that allows us to offset any seasonality that we might see. But I think just the sheer number of channels that we're launching, and the increased monetization efforts that we've had, we should see a pretty strong pretty strong pair of quarters coming up.
Operator: Our next question is from Dan Kurnos with The Benchmark Company.
DanKurnos: Thanks. I just wanted to follow up really quickly and two housekeeping things that are probably just the wrong information out there, Chris, just on the Starrise piece. There's nothing in your mind that indicates that there's anything fundamentally off; it's just literally the closing of the production in Hong Kong, China that's been challenging there. And then, Gary, on the movie side of the equation, the projector side, it feels like the vaccines actually good news. So there's a shot that you have with the kind of the inventory you have, and sort of getting that at least a little bit back on track from a monetization standpoint. If you guys could just address those two things, I'd appreciate it. Thanks.
ChrisMcGurk: Thanks, Dan. This is Chris. I'll take the Starrise question, as you pointed out, and let Gary talked to the second one. Yes, there's really nothing other than the downtick in the whole market place. The shutdown over in China, from COVID that we believe is impacted the Starrise shares. And we fully expect as they begin to sell, they're pretty huge inventory of television programming into the marketplace that in the COVID effects begin to wear off, then you'll see a rebound in the stock price going forward. So you're absolutely right. There's no operating issue from our standpoint. Gary?
GaryLoffredo: Yes. And on the digital cinema business, you're right that movie exhibitors have experienced a very tough six months. So many major studio releases have been pushed back. And as you know, we earn a VPF each time a movie is initially shown at a movie theater. So these studio releases have been rescheduled for 2021. So we will make up that revenue in 2021. Movies may pass through the theaters a lot quicker. So instead of a movie staying at a movie theater for four weeks, it stays for two weeks and recycles for a new movie coming in, which is good for us because we earn a VPF each time that movie plays the first time it plays in a movie theater. So the quicker they recycle through the more churns we get VPF. And as far as selling the equipment, we were in talks with certain exhibitors to purchase the equipment early this year. But those talks were put on hold as the exhibitors strengthen their balance sheet, raise capital and get through this pandemic. So you're right. In 2021, it should much - here should be much better outlook for theater.
Operator: Thank you. We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Chris McGurk for closing comments.
Chris McGurk: Thank you, operator. I just want to thank Dan and Andrew for their questions. Those are great questions and everyone else on the call for your support and your attention and your interest in the company. And we're really looking forward to talking to you again in a couple of months. So thank you all and keep focused on us. All right, goodbye.
Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
