Summary
- Niche OTT content provider reports Q3/FY2023 results well above expectations.
- Numbers were boosted by a surprisingly large Virtual Print Fee ("VPF") contribution from the legacy cinema equipment business.
- Adjusted for the VPF impact, Cinedigm outperformed consensus expectations just slightly despite a sizeable contribution from the much-touted slasher movie Terrifier 2.
- The business continues to hemorrhage cash. At the end of Q3, available liquidity was down to just $6.8 million.
- Given mixed Q3 results in combination with ongoing cash consumption and the likely requirement to conduct a reverse stock split until April 3, I am downgrading the company's shares from "Speculative Buy" to "Sell".
After the close of Tuesday's session, niche OTT content provider Cinedigm ( CIDM ) reported Q3/FY2023 results well above analyst expectations.
Total revenues of $27.9 million came in more than 40% above the two analyst consensus. In addition, Cinedigm reported positive earnings of $0.03 while the street was looking for a small loss.
But on closer scrutiny, the numbers look much less impressive as most of the outperformance was the result of a massive $7.4 million recognition of Virtual Print Fees ("VPF") in the legacy cinema equipment segment while the core Content & Entertainment business which includes Cinedigm's streaming and base distribution segments continued to operate at a loss:
That said, the recent box office success of low-budget slasher movie Terrifier 2 is clearly reflected in the strong revenue contribution from the Base Distribution segment which was up very significantly both sequentially and year-over-year:
In addition, streaming revenue was up a healthy 19% quarter-over-quarter to $12.6 million but the business continues to hemorrhage cash.
After giving effect to the $2 million minimum liquidity covenant governing the company's fully drawn $5 million revolving credit facility with East West Bancorp ( EWBC ), available liquidity at the end of Q3/FY2023 was down to just $6.8 million.
In contrast to management's claims on the conference call, the company will likely have to raise additional capital sooner rather than later.
The company also reiterated its long-term growth objectives:
- targeting at least 50% annual revenue growth in streaming
- growing annual revenue to $150 million through both organic and acquired revenue
- growing the content library to 75,000 titles
- attaining engagement of two billion Connected TV minutes
- growing podcast portfolio to more than 100 podcasts
Please note that the company will likely be required to conduct a reverse stock split until April 3 to regain compliance with the Nasdaq's $1 minimum bid price requirement.
Bottom Line
Adjusted for the massive VPF top- and bottom line contribution, Cinedigm's Q3/FY2023 financial performance was just slightly above expectations despite the much-touted success of Terrifier 2 .
With available liquidity down to a paltry $6.8 million at the end of the quarter, the company will likely have to raise additional capital in the not-too-distant future.
Given mixed Q3/FY2023 results in combination with ongoing cash consumption and the likely requirement to conduct a reverse stock split until April 3, I am downgrading the company's shares from " Speculative Buy " to " Sell ".
For further details see:
Cinedigm: Strong Q3 Headline Numbers Do Not Hold Up To Scrutiny - Sell