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On Monday, niche OTT content provider Cinedigm (NASDAQ:CIDM) reported fourth quarter and fiscal year 2022 results.
As expected by me, top-line results came in well ahead of the one-analyst estimate as the company’s core streaming business continued to grow at a healthy clip:
We had tremendous success again this fourth fiscal quarter, growing our total revenues by 104% to $16.9 million. This was driven by record-high streaming revenues that included a 109% increase in ad-supported streaming revenues, which were also up an incredible 793% on a two-year basis.
Management also reiterated its long-term growth goals for the next 2-4 years:
- 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.
That said, the strong sequential revenue growth did not translate into increased profitability. Excluding the legacy cinema equipment business, Adjusted EBITDA was negative $2.3 million, almost $2 million lower than in the preceding quarter.
Unfortunately, the company again missed the deadline for filing its annual report on form 10-K due to “delays relating to compiling information related to recent acquisitions“, which impedes a more detailed assessment of the company’s financial results and particularly its Q4/FY2022 cash flows.
After successfully renegotiating the purchase price, Cinedigm managed to complete the previously announced acquisition of Digital Media Rights or “DMR”, a small provider of Asian film and television content late in the quarter:
As we announced yesterday, the DMR acquisition closed on March 28, 2022, with revised terms versus what we had preliminarily announced in January. The revised purchase price is $16.4 million payable in four installments, with the first all-cash payment of $8 million paid from cash in hand on the date of closing. Cinedigm will make subsequent installment payments of $8.4 million in cash or Cinedigm equity, at the Company’s discretion. The Company will make these additional cash or stock installment payments of $3.0 million, $3.0 million and $2.4 million at 12 months, 24 months and 36 months from the closing date, respectively.
As a result, we have gained a great asset in DMR that immediately adds $10 million in annual streaming revenues and $3 million in annual adjusted EBITDA, while enabling us to execute at an entirely higher scale of business operations and launch substantial new growth initiatives.
Mostly as a result of the $8 million payment to the former owners of DMR, cash was down to $13.1 million at the end of Q4.
Hopefully, the DMR acquisition will help reduce cash consumption of the company’s core streaming business as otherwise Cinedigm will likely have to dilute shareholders even further going forward, particularly given the fact that almost $10 million in cash flows generated from legacy cinema equipment sales in FY2022 won’t repeat going forward.
On the conference call, management advised investors and analysts to use the $38 million in FY2022 revenues generated by the core streaming and content business as the baseline for the company’s targeted 50%+ growth expectations going into FY2023.
Keep in mind that this projection already includes the expected $10 million top line contribution from DMR so organic growth expectations appear to be closer to 25%.
Lastly, the company will likely be required to conduct a reverse stock split until October 3 to address the Nasdaq’s $1 minimum bid price requirement.
Bottom Line
Despite a sizeable revenue beat, Cinedigm’s Q4/FY2022 results weren’t well-received by market participants as ongoing growth in the core streaming business hasn’t translated into improved profitability metrics.
In addition, the wind-down of the company’s legacy business segments will result in some major top-line and cash flow headwinds in FY2023.
Moreover, low cash balances and a weak stock price are limiting Cinedigm’s ability to pursue further accretive acquisitions.
Going forward, investors will likely have to prepare for further dilution and the requirement to conduct a reverse stock split.
In sum, the combination of poor investor sentiment and company-specific issues is likely to weigh on the shares for the time being.
Given the multiple headwinds discussed above, I am reiterating my “sell” rating on the shares.
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