Cinedigm Corp. (CIDM) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Today, we are hosting a Conference Call to discuss Cinedigm's First Quarter 2023 Results. My name is Drew, I will be your conference operator. At this time, all participants are in a listen-only mode. We will have a question-and-answer session at the end of the call. Please note that this call is being recorded. Your host for today is Ms. Laura Kiernan, Head of Investor Relations for Cinedigm. Please go ahead.
Laura Kiernan: Thank you, Drew. Good afternoon, everyone, and welcome to Cinedigm's first quarter fiscal 2023 earnings call. Before we begin, I would like to point out certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. The company's periodic reports that are filed with the SEC described potential risks and uncertainties that could cause the company's business and financial results to differ materially from those forward-looking statements. All of the information discussed on this call is as of today, August 16, and Cinedigm undertakes no duty to update it. In addition, certain financial information presented on this call represents non-GAAP financial measures. We encourage you to read our disclosures and the reconciliation tables applicable to GAAP measures in our earnings release carefully as you consider these metrics. With us today, we have Chris McGurk, Chairman and CEO; John Canning, CFO; Yolanda Macias, Chief Content Officer; Gary Loffredo, Chief Operating Officer, General Counsel and President; Erick Opeka, Chief Strategy Officer and President of Cinedigm Networks; and Tony Huidor, Chief Technology and Product Officer, all of whom will be available for questions following the prepared remarks. I will now turn the call over to Chris McGurk to begin.
Chris McGurk: Thank you, Laura. Welcome everyone and thanks for joining us on the call today. Before I get into this quarter's performance, which was outstanding, let me remind you as we reported in June, just how strong our financial results were in our last fiscal year that ended on March 31, 2022. For the full year, we posted consolidated revenues of $56.1 million, up 78% over the prior year with streaming revenues leading the way, up in the triple-digits for the year. We generated adjusted EBITDA of $11 million for the year and net income of $1.8 million. We also fully eliminated all of our debt. Those results were outstanding and we over performed versus our internal expectations in all of our businesses and we continued that positive trend in the first fiscal quarter of 2023 ended June 30. Our results exceeded both our own and external analyst consensus expectations once again. Our strong business momentum continued with total streaming revenue surging up 98% in our fiscal first quarter, another record quarter, almost doubling our long term streaming revenue growth target and beating our internal plan target for the quarter. Even more impressive, this dramatic growth was on top of triple-digit growth in the prior year. On a two-year basis, we grew our streaming revenues 455% this quarter. We continue to see massive growth in our ad supported AVOD and FAST streaming revenues, which increased 131% versus last year. As other players in the space scrambled to put in place and advertising supported streaming strategy, we've had our ad supported channels in operation since 2018. And Cinedigm continues to outperform the rest of the industry. Our diverse portfolio of 30 targeted enthusiast streaming channels with over 60 advertising demand partners bidding on our ad inventory, now includes 15 wholly-owned and operated channels such as Fandor, Screambox, and TheDove channel. And several premium third-party branded channels such as TheBob Ross Channel, he Elvis Presley Channel and Real Madrid TV. This broad and diversified channel portfolio is not only driving continued strong results, but is also mitigating risk, setting us apart from almost every other player in the fast growing content streaming business, who are all mostly dependent on a single streaming channel or a single revenue model for success. As I said, we also have no debt at all in the balance sheet having fully eliminated over $15 million (ph) in debt burden since the start of the pandemic. We achieved such a strong balance sheet despite the multiple investments and acquisitions we made over that period to build our business. Now in addition to our unique and diversified business strategy, a debt free and soon to be sustainably profitable business, clearly sets us apart from almost everyone else in our space. Our vastly increased scale has made us an increasingly impactful player in the streaming content and technology business. At 30 channels and with access to over 1.1 billion global streaming devices in every major streaming platform, we now have one of the largest and most widely distributed streaming portfolios in the business. With 46,000 films in TV episodes in our library, we now have one of the largest modern streaming libraries in the world. With full ownership of our Matchpoint technology platform, we now fully control what we believe is the most highly scalable video streaming an end-to-end content distribution platform that exists today. These scaled up assets have now set the stage for the company to launch four key internal growth initiatives, Cineverse, Cinedigm Advertising Solutions, Cinedigm Podcast Network, and Matchpoint 2.0. Cinedigm 's multiyear investments in technology streaming channels and content, made these initiatives possible. As we've said previously, the seven whole upstreaming acquisitions we made over the last two years alone, brought in 15 new channels, 15,000 new films and TV episodes, and full ownership of our industry leading Matchpoint streaming platform, all of that on top of our triple digit organic streaming growth during that period. These new initiatives leverage our dramatically scaled up assets, technology and workforce with little incremental investment. Our Matchpoint streaming technology is an absolutely key competitive advantage for us here. It gives us the ability to execute faster and lower cost with higher margins and with greater analytical insight than any of our competitors. Along with international business expansion, we expect these four new initiatives will generate incremental annual high margin revenues of over $50 million at steady state. Erick will further expand on all this in his comments. In addition, the synergies and scale benefits from recently acquired assets are enabling us to stream on our cost structure. We fully expect to generate at least $7.5 million in annual cost savings and achieve our aim of long term sustainable profitability, which we are absolutely committed to achieving this year. John will provide more details on that in a minute. I believe it's also important to point out that the long-planned wind down and monetization of our legacy Digital Cinema business is close to completion. In this quarter, this resulted in a revenue reduction of $4.8 million because of the timing of revenue recognition of higher Digital Cinema equipment sales recognized in the first quarter of last year. Without including digital cinema, our revenues were 38% higher than last year's quarter. Despite this loan-planned wind down and much lower recognition of equipment sales this year, because of our continued hyper growth in streaming, we still expect to generate significantly higher total full year revenues in this fiscal year versus last year. When as I said, our total revenues increased 78% to $56.1 million as we move toward our strategic goal of $150 million in annual revenues in two to four years. Before I turn things over to John and Erick, I'd like to follow-up on some points I made in my recent letter to shareholders. Given our continued convincing financial performance and growth, driven by our unique diversified streaming content strategy, our debt free balance sheet and drive to sustainable profitability, we remain as frustrated as we know you all are regarding our extremely undervalued stock price. As I said in my letter, we are considering a stock buyback program given what we believe is a bargain price on our stock. In addition, we plan to keep educating the investment community about our unit streaming strategy, while we keep out performing like we did again this quarter versus consensus estimates on revenues, adjusted EBITDA and net income. And we will keep pushing back again sometimes misinformed negative sentiments about the streaming content sector and keep explaining how we have a unique and winning business model that separates us from other streaming companies. Our results in this quarter clearly backed that up as we posted 131% advertising growth in the face of much hand-wringing by entertainment industry pundits about the digital ad marketplace, with Cinedigm again performing way higher than the rest of the industry. Streaming remains the fastest growing segment of the entertainment business and we are incredibly well positioned in ad supported streaming, the fastest growing sub segment. Streaming is clearly the future of entertainment. Cinedigm's diversified channel strategy, our huge modern streaming content library, our industry leading Matchpoint technology, and our stellar management team position us to not only capitalize on that future, but to also quickly become a high growth, high margin and uniquely sustainably profitable streaming company. With that, let me turn it over to John for a more detailed review of our financial results. John?
John Canning: Thank you, Chris, and good day, everybody. I'll touch on a few first quarter highlights then I'll update you on our outlook for the year. However, first let me reiterate a key point that Chris made. Our full year revenues were $56.1 million last year, up 78% with $11 million in adjusted EBITDA and $1.8 million in net income. Those were outstanding results that have also set a high performance bar for us this year. That said, we fully intend to generate significant total revenue growth this fiscal year as well as achieve sustainable profitability by the end of the year. Our key first quarter financial results for the quarter ended June 30, 2022, include consolidated revenue of $13.6 million compared to $15 million in the prior year quarter. As Chris mentioned, the decrease in consolidated revenue of $1.4 million was because of a reduction of $4.8 million in legacy Digital Cinema equipment sales as the business winds down and becomes fully monetized. Without Digital Cinema included, our revenues were up 38% in the quarter. It's important to note that our core business streaming revenue increased 98% to $8.1 million driven by an increase of 131% and ad supported revenue and a 43% increase in subscription revenue over the prior year quarter. Erick will get into the drivers for this increase when he speaks. Overall content and entertainment revenue was $12.2 million and grew by 38%. This was by organic user growth, increasing market demand for Cinedigm's extensive connected television ad inventory and the launch of new streaming channels versus the prior year. I think it's also important to point out that Cinedigmâs total revenue and all component revenues exceeded our own internal growth plans for the quarter. Our adjusted EBITDA was negative $2.2 million in the current year quarter compared to positive adjusted EBITDA of $5.5 million in the prior year quarter. The difference in the year-over-year EBITDA relates to the sale of Digital Cinema equipment last year that we didn't repeat this year and didn't expect to and that business winds down. Net loss was $6.1 million or negative $0.03 per share compared to net income of $5.1 million or positive $0.03 per share in the prior year quarter. This included a non-operating charge of $1.3 million for the company's investment in a Metaverse company, formerly known as Starrise Media. We are reiterating our long term growth goals for the next two to four years, including targeting at least 50% annual revenue growth in streaming, growing our annual revenue to $150 million through both organic and acquired revenue, and growing the content library to 75,000 titles. We have already achieved our previously stated goals of obtaining 40 million monthly viewers and attaining engagement of 1 billion connected TV minutes. Because we achieved these growth goals one year earlier than expected, we are currently resetting these targets. Our balance sheet remains very strong with $12 million in cash and zero debt. Before I hand off to Erick, I want to provide an update on the status of our legacy Digital Cinema business as it nears its end of life. It has always been our expectation to monetize the Digital Cinema assets as we showed with great success at our most recent fiscal year results, which reflected sales of those assets over $11 million of the $18 million total Digital Cinema revenue. While we have some remaining systems in service, we do not expect sales of those remaining systems to contribute materially to our results this fiscal year, nor do we expect Digital Cinema deployment or services revenue anywhere near the approximately $7 million we booked last year. Both of these points underscore the importance of looking at our core business streaming growth story, unencumbered by the Digital Cinema business. Despite all that, we fully expect to generate substantial full year total revenue growth for the company this year versus last year, where our consolidated revenues were $56.1 million, up 78% over the prior year. On our last earnings call at the end of June, we highlighted that our annual streaming revenue more than doubled in our fiscal year ended March 31, 2022. And we expect that streaming growth engine to continue to produce 50% plus year-over-year annual growth for the foreseeable future, especially given our related growth initiatives, which Erick will discuss further. As Chris noted, we almost doubled our growth versus that target this quarter. Finally, we continue to reap the benefits of our acquisition strategy, having integrated seven companies in the last couple of years, most recently with DMR joining the Cinedigm family last March. This strategy has also significantly increased our global headcount over that same period since the pandemic began. As expected, the synergistic effects of these combinations and subsequent integration are already materializing throughout our cost of sales and SG&A expenses, revealing streamlining opportunities for cost savings and improved efficiencies, especially as we migrate from incumbent third-party providers to our owned technology Matchpoint and negotiate better rates from vendors because of our greater scale. Chris has stated repeatedly, our aim to achieve $7.5 million in annual cost savings, and given the pace with which we've identified and are executing against streamlining initiatives, I am confident that we will attain those annual savings and be sustainably profitable by year-end. With that, I'll hand off to Erick.
Erick Opeka: Thank you, John, and thanks again to everyone for joining the call today. We really do appreciate your interest and your support. So before we begin, I want to highlight a few key developments and points about the broader streaming industry. So as illustrated by the recent earnings calls from all the major streaming companies like Disney, Paramount Global, HBO, Discovery and others. They're major changes afoot. With these companies collectively pacing to lose over $10 billion this year alone, many are pivoting towards an ad-based strategy to offset those losses. It isn't just a revenue opportunity, however, this is a survival tactic. What's rarely discussed is that many of these companies earn 60% to 70% or more of their total revenues from old-fashioned cable television advertising. Those dollars are supposed to support their ongoing streaming pivot. But in reality, those ad dollars are flowing faster than ever out of cable. We expect total advertisers spend on connected TV advertising to drive more than $22 billion in revenue next year and nearly all of that is flowing right out of the cable industry. So in effect, for these big scale streamers, you have a rapidly cannibalizing legacy business that can't support the multi-billion dollar losses of their emerging businesses. No, I'm not comparing Cinedigm to these giant behemoths, but on scale, but what I am comparing to them is on business model. If you contrast the business model with Cinedigm, you're going to see a far more promising and compelling narrative. First, we made our pivot from pure subscription advertising beginning in 2018, long before many of these streaming services had even launched or even contemplated advertising. Unlike the major streamers, our subscription businesses is looked at on a ring-fenced basis are already profitable even in their current subscale state as they continue to grow. And with no legacy cable advertising businesses in our company, we're free to compete on price without impacting other revenue streams or cannibalizing ourselves. We're not concerned about the large general and entertainment streaming services entering the space. We're not competing with them. Much like the rise of basic cable in the 1980s and 1990s, our focus is on providing advertisers with passionate enthusiast audiences at a value that helps them achieve their brand or customer acquisition goals cost effectively. And given the rapid rise of advertising and marketing costs today, that is exactly what advertisers are telling us they want, and we're delivering on that mission and our results are showing that. Cinedigm's offerings are intriguing advertisers and our platform partners and the numbers continue to reflect that. Total streaming minutes in the quarter rose to approximately 2.31 billion up 68.7% over the prior year quarter. Our ad-supported streaming audience, including web, mobile, social, Connected TV increased to approximately 89.6 million monthly viewers, up nearly 300% over the prior year quarter, and total subscribers to the company's subscription video streaming services increased to 984,000, representing an increase of 45% over the prior year quarter. Our results and growth show that our strategy to scale our streaming business has paid off with substantial revenue growth and other key metric growth. We expect this trend to continue as we make considerable progress on our key initiatives. First, I'm glad to report that Cinedigm Cineverse, our big scale streaming service, the development is nearly complete for its launch in a matter of weeks. Our focus is on getting the market before the busy fourth quarter and focusing on third-party carriage deals with hardware manufacturers and other platforms, which are in negotiation. Next, let's discuss Cinedigm ad solutions, our direct sold advertising initiative. We've assembled a great team with extensive experience and are in the market in earnest selling today. The early feedback from brands and agencies has been fantastic. They love the idea of being able to both discretely target a focused audience across multiple partner's properties, but through one partner. They also love our ability to do deeper integrations and campaigns beyond just programmatic ads that help them reach young and hard-to-reach viewers on the platforms of their choice, which are increasingly smart TVs. We are also in discussions with many other streaming companies to sell their advertising for them in this manner, and we'll have more to announce on that in the near future. Third, we continue to scale our owned and operated audio streaming business, the Cinedigm Podcast Network. Leveraging our experience in genre content and fiction podcast is helping us find a real footing in what is now a $3 billion a year business, up more than 10 times in just three years. We're now at 25 podcasts and expect that number to increase to over 100 within the next 18 months. Our unique bespoke model is not only resonating with advertisers but many small publishers as well and we also expect to sign many networks and top-tier podcasts within the next quarter for representation. Selling both third-party podcasts and third-party SaaS channels allows us to leverage our scale, infrastructure and sales team to generate high-margin revenue quickly with a minimal CapEx investment. So that's going to be a big focus for us over the next 12 months and a key part of our drive to profitability. Last but not least, let's talk about Matchpoint, our proprietary streaming platform. As we all know, the streaming business is a marriage of both content and technology, and you can't be a true player in this game if you're not doing both well. With one of the largest film and TV libraries in the business, Matchpoint affords us the ability to execute faster at lower cost and with higher margins and with greater insight than our competitors. Our platform provides us complete tech stack that fully meets the needs of a rapidly growing OTT business, providing us with an unparalleled competitive advantage that allows us to operate the largest fast portfolio in the streaming library in the business. Combined with one of the best management and operational teams in the industry, Cinedigm has in place all of the elements to achieve what has been so far mostly in the nascent streaming business, a high growth, high margin, profitable streaming company. With that, let me turn things over to the operator to take your questions.
Operator: Thank you. So starting todayâs Q&A session. Our first question today comes from Dan Kurnos from Benchmark. Your line is now open.
Daniel Kurnos: Great. Thanks. Good morning, . Just I want to follow up on a couple of things here. I might break the one question, one follow-up. But just Erick, you talked a lot about sort of monetization of the ecosystem, and it's clear that a lot of the longer -- the larger guys are bleeding a bunch of money and cost effective programming has gained some momentum. But I'm also curious around -- we saw the Netflix deal with Microsoft, and you talked a lot in your prepared remarks around direct versus sort of programmatic. And I'm curious on how you think the ecosystem evolves from there? And specifically, how it relates to your kind of the evolution of your own monetization strategy. Do you think that will have any impact or how you're shifting your own game plan in this environment.
Erick Opeka: Sure. Well, one of the things that has been very compelling to hear as we've had sellers out in the market is there -- the many layers between the platforms and the agencies and brands themselves. There's too many gatekeepers. So you have lots of different platforms and companies out there. And ultimately, when you have companies like us where we have a huge social footprint, lots of different levers that we can pull custom content and other initiatives we can do on the channels themselves, branded shelves of content. None of those things are possible programmatically. And with brands really striving to stand out from one another these days, just straight programmatic advertising doesn't cut it, especially for brand advertisers. That doesn't mean that by any means, I think programmatic is an important piece of everybody's marketing mix. But in a market where people are increasingly trying to stand out and gain attention, the ability for companies to execute on these sort of multifaceted campaigns and reach discrete audience buckets. Not everybody wants to spend high double-digit, mid to high double-digit CPMs to reach general audiences, right? They want to focus and target. So I think obviously, being part of that mix with very targeted focused brands and channels around discrete interest areas and having the ability to execute really sort of unique and compelling campaigns, I think that's exactly the same sort of play that basic cable did in its horizon in the '80s and '90s to sort of compete and do more of a white glove approach vis-a-vis what you saw with the broadcast networks. So I think a similar dynamic is approaching there. And I think we've put together the right team to be able to execute that in that manner.
Daniel Kurnos: Got it. That's super helpful. And then to kind of follow up on the first part of my preamble, I guess, just around content. As you guys look at the market and some of the noise that's happened and I guess we're bouncing back off lows, but between either incremental cost-effective M&A, additional partnerships and really, frankly, just where I'm going with this, Erick, and Chris, just around thinking about the launch or pending launch of the umbrella channel how complete are you guys on that front? Are there any other holes you'd like to fill? And when you have conversations around bundling and other things, as being maybe part of the package. I guess I'm trying to get at sort of how we're thinking about monetization of the umbrella channel and the content portfolio you have as it stands today?
Erick Opeka: Yeah. So well, a couple of things. If you kind of look at -- so we're sitting on 43,000, 44,000 titles. I would say that for the average audience, there's probably in that library, while there's things for everyone in there, our real focus is on the best high quality content in that library. So that's what we're really going to be focused on for Cineverse. You have access to all of that, but I think there's probably 15,000 titles that are fantastic deep. So that's where we'll be starting over the next quarter or so. So from launch over the next quarter, 10,000 to 15,000 titles will be in that service. Eventually, everything that we touch will be available, but that's where we're starting. But I think, look, as you look at our focus and goal on content, what are the drivers? The drivers that people want on any streaming service. You want high quality new things that aren't available anywhere else. So I think I've mentioned recently between our kind of flagship properties, Fandor, and Screambox, the goal over the next 12 months is to get to a run rate where we're doing a brand new release every week. Some of those will be bigger releases, right, like Terrifier that we've announced, one of our big films of the quarter coming up Halloween (ph) but there'll be new content flowing in, new films and shows coming in, exclusive series and things like that. And then just a really deep refresh of library somewhere in the neighborhood of several thousand titles we're going to be investing in. So I think that's really that's really a key part of our strategy, right? And it's common sense. People, when you go to a streaming service, what's the first place people typically go, what's new and what's trending and usually what's trending is what's new. So I think our emphasis on bringing in fresh new titles, refreshing the library is going to be the most important thing we do over the next 12 months. I think, look, we saw some fantastic subset of licensing from Warner with Freddie's Nightmares on Screambox and some other sort of key titles that we've done of that caliber. And we're going to continue to do that. And we're also going to find great gems that the platform Cineverse will be breaking. So that's -- I hope that gives you a little context about what our emphasis is going to be.
Daniel Kurnos: Yes. No, that is helpful. I am also curious, given sort of your unique portfolio and footprint, I have to imagine you're having conversations with others about being included in either packages or other things. A lot of guys are -- to your point, there's a lot of standardized scripted content out there, and you guys have some strong, strong presence in several different verticals. I'm wondering if that's a possibility or how you're thinking about sort of partnerships in the commercialization effort?
Erick Opeka: You hit the nail in the head. So we are not precious about bundling or trying to chart our own core direct-to-consumer. We've always been we made the decision in 2017 to say, we're going to bundle and bundling, and then it stems back from our philosophy of, we don't really care how consumers find us or get to our content or join our content. We -- whether they're going to get it through a bundle through a platform they already subscribed to, whether they're going to get it from us directly, whether it's Amazon channels or through Roku, doesn't matter to us. We want people to be able to get it however and whenever they want it. So -- and we actually think the economics are actually more favorable to us on an OpEx basis and a profitability basis, on those kinds of partnerships. With the cable industry had a good thing going with -- in terms of the business model, it may not have been the most consumer-friendly, but it was consumer friendly in the sense you've got a lot of content for at least one discrete price. We're already doing this on Dove Channel, and the results have been Dove went from a low six figure to a mid to high six figure subscriber base by bundling. It works. It's going to be a big part of our strategy and I have a directive to my biz dead folks to bundle away. And so expect to see a lot more of that over the next several quarters from us.
Operator: Our next question today comes from Brian Kinstlinger from Alliance Global. Your line is now open.
Brian Kinstlinger: Great. I got a couple. First, can you quantify the DMR revenue contribution? And maybe if possible, talk about how you're driving better monetization of that asset from an advertising perspective with your technology?
John Canning: Hey, Brian. This is John (ph). We're not going to get specific about DMR other than what we said in the press release when we announced it that we were targeting, I believe, $10 million revenues and a positive EBITDA contribution. But beyond that, we're not going to we're not going to break it out, particularly since we integrated their content in our channels into our business right now. But I'll let Eric respond to the second part of your question. Erick?
Erick Opeka: Yes. What I will say is, we are we have exceeded our expectations so far, and that's especially promising given that we're still -- we closed the deal in April. So we're still in the final stages of integration and still bringing the library haven't even put the library on all of our other streaming services yet. So we're very, very pleased with the results so far. I would say -- I'm sorry, can you repeat the second part of your ask on the question there?
Brian Kinstlinger: Was just on advertising. I think that you had talked about being able to get more out of DMR through your technology and render rates, I'm sure. So I was just trying to get -- is that happening yet? Is it...
Erick Opeka: That is definitely happening. We've moved -- so we have a pretty sophisticated ad tech stack, and we've seen considerable improvement in render rates, fill and CPM. The other big element is we have audience extension and other revenue streams that we're able to fill with our direct sales business that DMR didn't have a direct sales capability. So those two factors there. The first factor, just moving it to our stack saw a pretty dramatic lift in revenue, which reflected in a sizable improvement in the revenue run rate. So as Chris mentioned, I think the numbers that we put forward, we think, are quite doable given what we're seeing already and that's before even reaping the benefits really of the full integration. So content still is flowing out in the other apps and services, which is going to drive more ad impressions more revenue. So overall, we're very, very pleased, very bullish on what we're going to accomplish on that front.
Brian Kinstlinger: Okay. I have two more, and then I'll get back in the queue. Can you talk about how the first couple of months of the Elvis channel has been received compared to other channels that you've launched? And then have you had any luck on distributing the channel to the three big guys, Roku, Pluto and Tubi which I think initially were reluctant, but maybe things have changed given all the lot around Elvis.
Chris McGurk: Yeah. So two pieces. First, on the reception. Reception has been fantastic. Our biggest performer we believe has been in the Amazon ecosystem. I can't give much more specifics than that due to -- we can't really discuss how it's the quantitative side performing on specific platforms. But I would say on previous spend has been quite a strong performer and that performance. And then other places obviously done well. It's done well, too. I think it's done -- did well in the DIRECTV, Sling TV ecosystem. So for anybody who is on the fence, just looking at what the numbers look like would have to question sitting on that fence given what we've seen so far. So I'm not going to comment publicly on where those conversations are aren't, but I would say let's say, the numbers and the success that we've had on some pretty big and important platforms have people definitely reconsidering their delay or wait and see stance and there we're in active talks.
Brian Kinstlinger: Great. One more question, I'll get back in the queue. On the cost side, you've talked about $7.5 million of cost cuts, OpEx increased sequentially. Can you talk about where the investments in OpEx are being made? And then where will we see them come out? Is that OpEx or cost of goods -- or will that -- those cuts be reinvested in other ways to grow the business?
Erick Opeka: I'll let John can speak more in depth. I would say on the streaming side, a lot of the OpEx was reflected in increase in OpEx on OTT was us picking up VMR number one, right? And then number -- the full weight, a lot of that OpEx is being pushed into our deals and being renegotiated. So you'll see some savings and cost benefit around the integration there that which wasn't fully realized in that quarter. The other is content investment, short-term content licenses, particularly for our flagship services. We did spend more this year on short-term licenses as we've steered those towards the gap between new release and longer-term investments. So I think that's just a short-term sort of investment in OTT. And then obviously, we picked up more people. And as we streamline the organization, cost -- and some of those people are hitting the expense or the OpEx side as they work on creating the streaming services and the operation of those services. So some of that will also -- we'll get some benefit there as we complete the integration. And John, is there anything else you think do you want to add there?
John Canning: No. That's pretty much most of it. I mean Erick covered without getting too specific. But yes, we -- as mentioned in our comments, we -- our headcount grew pretty dramatically through the course of the last couple of years. And we're now -- we're in the natural back-end evolution of the M&A process of streamlining and finding efficiencies. And just getting better at what we do. So you'll see when you look at that SG&A, a good portion of that was people related costs just from acquired heads, there was probably a little lift in professional services to support the integration process. But those savings are real and expected, and we're starting to see them already as we march through even Q2 so far.
Brian Kinstlinger: Great. Thank you.
Operator: Our next question today comes from Scott Buck from H.C. Wainwright. Your line is now open.
Scott Buck: Hi. Good morning, everyone. Thank you for taking my questions. First one, on the Cineverse launch, can you just speak to what the internal expectations are and what KPIs you'll be pointing investors to?
Erick Opeka: Sure. So in terms of KPIs, I think if you kind of look at how we -- whenever we launch something, first phase is distribution touch points. Part two is, the users that come from those distribution touch points. The third is, the advertising KPIs, how are we doing on impressions and growth there. And then ultimately, it's financial. So I think the early stages, we'll be looking at how well are we securing distribution, what's the footprint look like. And so that's what we're really going to be focusing on. These launches, I think, this is an app based launch as opposed to a fast based launch. So there's a little bit longer of a ramp versus a fast channel, which kind of lights up immediately. So I think you're going to be looking at several quarters of building as it gets some material footprint under it.
Scott Buck: Great. That's helpful. And then I'm curious on the longer-term target of $150 million of revenue you have basically a $50 million run rate today. What should we think about organic versus inorganic in that incremental $100 million? And then if you could speak to what the pipeline looks like for or on the inorganic side would be great.
Erick Opeka: Sure. So on the organic side, so as we laid out, I think those four initiatives between Cineverse, direct ad sales, podcasting and extracting some partnership and SaaS revenue out of Matchpoint. I think we expect those steady state to generate upwards of $50 million. So if you combine that with the current run rate of the company, that gets us -- gets you about two-thirds of the way there. We think the remainder of that comes from focused organic growth off of the platform and then will come from also from inorganic growth or M&A. While we're -- we can't talk specifically about any targets or ideas, we probably have one of the largest pipelines of opportunities that led to the eight deals we did prior to prior to the start of this -- or from -- I'm sorry, April through December of the preceding year. So we think the next phase for us, once market conditions improve, we have plenty of ideas and opportunities to look at again. We think the difference now being -- there's obviously a downside to our equity price not being where we'd like it to be, but neither is most other targets we were looking at, right, we think we've got fair valuation. So I think there's a lot more that we can do there. But I think we need to -- in the short term, we're going to be focusing more on just these launches, organic initiatives. And then when market conditions dictate, we'll consider more M&A.
Scott Buck: Great. Thatâs very helpful. Appreciate the time today, guys. Thank you.
Erick Opeka: Thank you.
Operator: Our next question comes from Leo Carpio from Joseph Gunnar. Your line is now open.
Leo Carpio: Hi. Good afternoon, gentlemen. Two quick general industry questions. The first 1 is the Walmart deal with Paramount Plus, does that have any impact with your distribution later with them? And then secondly, have you noted any impact from macroeconomic pressures in general? Thanks.
Erick Opeka: I'll take that. Go ahead, Chris.
Chris McGurk: I'll answer the second piece, and then Erick can answer the first piece, the Paramount piece. I think our results speak for themselves. I mean I said in my remarks that people were concerned about the digital ad market. We've seen that with some of the bigger services and everything. Our ad sales were up 131% in the quarter and we see the momentum continuing over the rest of the year, particularly with all of the spending that will be done for the mid-term. So the only impact that we've seen from macroeconomic reasons, and we think it's for no good reason, as we've explained, is the impact on our stock prices. We've been hit along with a lot of the other technology media streaming microcap stocks, that's it. In terms of the business, we're moving ahead on all fronts. We've exceeded all of our internal expectations, as we said, both for the full year last year and for this quarter. And we don't see any issue with both becoming sustainably profitable by the end of this year, as we said, with the cuts that John mentioned and also hitting that target of $150 million in revenues, and Erick explained the components of how we're going to get there. So for us, it's costing ahead and we haven't really experienced any business headwinds. Erick, do you want to take the first question about Walmart and Paramount?
Erick Opeka: Yeah. That's -- that has really no impact on any relationships we have with Walmart today. I think, in general, it represents Walmart, big-scale streamers partnering with big scale partners is, I think, to be expected given their competitive place with Amazon and looking to offer something. But I think -- for us, it's a good model to emulate with the appropriate partners for our brands. So a great example is previous -- prior to us owning it, Fandor, one of our brands had a partnership with Costco, where Costco members got a discounted bundle for movies. And so one of the things that we look at is can we reinitiate those kinds of partnerships with either Cineverse with the sort of appropriate retailer, theatrical or other partnered. And I think that's something that we're working very hard on because it's a good idea and at a for scale. This is how almost every studio, streaming service has got through the subscriber and revenue numbers that they're at today. And I think with a big scale and unique offering that we have, we think there's opportunities, maybe not Walmart scale, but we think it's still big scale with some of the partners that we're looking at. So -- but yes, it's -- so if anything, it's a direction we're also going in.
Operator: Thank you. There are no further questions at this time. I would like to turn the conference back over to Chris McGurk for closing remarks.
Chris McGurk: Thank you. Again, thank you, everyone, for joining us today and for your interest in Cinedigm. Please follow-up with Laura Kiernan and the team and high-touch Investor Relations with any questions you may have. You can reach her at cinedigm@htir.net. We look forward to speaking with you again when we report our second quarter results for the fiscal year 2023 in November. Thank you.
Operator: That concludes today's Cinedigm chorus call. You may now disconnect your lines.
