Cineverse Corp.

Good day, everyone. Welcome to Cineverse's first quarter fiscal 2024 financial results conference call. My name is Cole, and I'll be your operator today. Currently, all participants are in a listen only mode. We will have a question and answer session following management's prepared remarks, at which time participants can press star followed by the number one to ask a question. If anyone needs operator help, press star zero. Please note that this call is being recorded. I would now like to turn the call over to your host, Gary Loffredo, with Chief Legal Officer, Secretary, and Senior Advisor for Cineverse. Please go ahead.

Good afternoon, everyone. Thank you for joining us for the Cineverse Fiscal 2024 First Quarter Financial Results Conference Call. The press release announcing Cineverse's results for the fiscal first quarter ended June 30, 2023, is available at the investor section of the company's website at www.cineverse.com. A replay of this broadcast will also be made available on the Cineverse website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations are subject to risks, uncertainties, and assumptions. The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All of the information discussed in this call is as of today, August 14, 2023, and Cineverse does not assume any obligation to update any of these forward-looking statements except as required by law. In addition, certain financial information presented in this call represent non-GAAP financial measures. And we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. I'm Gary LaFretto. With me today are Chris McGurk, Chairman and CEO, Eric Opica, President and Chief Strategy Officer, Tony Huidor, Chief Operating Officer and Chief Technology Officer, John Canning, Chief Financial Officer, Yolanda Macias, Chief Content Officer, and Mark Lindsey, Executive Vice President, Finance and Accounting, all of whom will be available for questions following the prepared remarks. On today's call, Chris will discuss first quarter fiscal year 2024 highlights, the latest operational developments, outlook, and long-term strategy. John will follow with a review of our results for the fiscal first quarter ended June 30, 2023. And Eric will provide detail on our streaming business results and operating initiatives before we open the floor for questions. I will now turn the call over to Chris McGurk to begin.

Thanks, Gary, and hello, everyone. Thank you for joining us today. We made some very good progress during the quarter toward our previously stated goal of reduced costs, improved margins, and sustained profitability. We reduced operating costs by $2.5 million versus last year's quarter, enabling us to narrow our operating loss by $1.9 million, or 41%. We posted a direct operating margin of 46.2%. in line with our guidance target of 45% to 50%. These improvements are the direct result of our cost streamlining and margin improvement efforts, which have included a 30 position headcount reduction, the renegotiation of most of our operating deals, a plan cut and go forward overall executive compensation until we reach sustained profitability, major future cost savings from our offshoring of positions to Centiverse services india and now the calling of lower margin channels from our broad streaming portfolio of enthusiast networks as i've noted before on these calls unlike many of our competitors who have a single streaming channel and only one or two revenue models our 26 channel streaming portfolio and multiple revenue streams give us the ability to truly manage our business as a portfolio this provides us with a unique ability to cull lower performing channels, particularly those where we are not getting enough content from our partners to refresh programming on a timely enough basis. So we are doing this aggressively as we focus on the bottom line, even at the expense of lower margin revenues. We saw the impact of that in our results this quarter, where our advertising revenues dropped versus last year, mainly as a result of these channel optimization activities. Eric will cover that in more detail in a few minutes. However, I want to emphasize that we are committed to continuing this process of trading off lower margin channels and related businesses for higher performers when we have the opportunity to improve our margins and operating results, which is exactly what we saw this quarter with a $2.5 million reduction in operating costs and 41% reduction of our operating loss versus last year. Despite the drop in advertising revenues, we were pleased to report overall growth in our streaming and digital business for this quarter, despite fewer channels, the tough advertising market environment, and a seasonally slow revenue period. Streaming and digital revenue increased 58% to a record total of 10.5 million from last year's first quarter, primarily driven by our paid subscription streaming business, which was up 44.7% versus last year, and led by growth on our screen box for our channel and also by digital content licensing, which grew 105.9% on the strength of our library sales and new releases. The number of paid subscribers to our channels also increased significantly versus last year, up 38%. As Eric will detail, we expect a rebound in our advertising revenues to complement this subscription and digital sales growth going forward. particularly as we aggressively leverage our new ad services group and head into the political advertising season. In addition to all of that, last fall's theatrical phenomenon, Terrifier 2, continues to be a monster performer for us in home entertainment. Released last October, the film has already generated $11.2 million in revenues for the company. We are planning a theatrical reissue of the film late this year where we will debut a teaser of the highly anticipated franchise follow-up, Terrifier 3, slated for release in the fall of 2024. All of this has been driven by our unique 360-degree approach to marketing, which utilizes all the promotional power of our 26 streaming channels, 70 million monthly active viewers, robust podcast business, and the viral social media influencer and editorial capabilities of our bloody disgusting horror division. This cost-efficient and highly effective marketing approach helped turn Terrifier 2 into a horror phenomenon and is one of our key competitive advantages going forward. Eric will cover this in more detail. However, let me speak for a minute about what we see as one of the most important and unique initiatives we have undertaken to reduce costs and attain our goal of sustained profitability. Cineverse Services India. Having been involved with the key Cineverse personnel in India for over nine years, having acquired 100% of our Matchpoint technology operation almost three years ago, and having seen the exciting new streaming and content management technology innovations they have developed, including our current push into AI, we now see Cineverse India as not just a platform for industry leadership in streaming and AI technology, but as a unique, and battle-tested operation that can offshore the majority of our support functions in the US at a dramatically reduced cost and with improved efficiencies at the very same time. This is why we formed Cineverse Services India and announced it on our last earnings call. What makes this unique for us is that we are offshoring, not outsourcing, domestic positions to a Cineverse Services India operation that is already a trusted and high-functioning division of the company. This is why we are so confident that this initiative, which we plan to complete by the end of this fiscal year, will not only contribute several million dollars in cost savings, but will improve workflows and efficiencies across the board. It is a unique competitive advantage that we are aggressively leveraging. I also want to mention that an independent third party valued our 65,000 title content library this quarter at $26 million to $30 million. That compares to a $2.9 million book value for the library as of June 30th, 2023. Our stockholders' equity as of June 30th was $45.6 million, and we had over $12 million in cash at hand on that date. Centerverse's other assets include a 26-channel enthusiast streaming portfolio with more than 70 million monthly active viewers and MatchPoint, our industry-leading content management, streaming, and AI technology platform that was the driving force behind the $68 million in total revenues we generated last fiscal year. As of today, we have zero debt, including a zero balance on our EastWest Bank line of credit, which we just extended for another 12 months. All of those facts underscore why we believe our equity is so significantly undervalued at this point in time. We need to do a better job of stressing these points to the investment community, and we still have a stock repurchase program in effect into the first quarter of next year. Finally, while Eric will cover the specifics of this in a few minutes, I do want to speak to our status and future as an almost fully technology-driven company. Cineverse is, at its core, an innovative technology company. We led the charge in the game-changing conversion of theaters to digital technology, which saved the industry billions of dollars in distribution costs and made the theatrical business technologically competitive again with the TV business. We spent years developing Matchpoint with a team of talented world-class engineers now at Cineverse India, and it is now an industry-leading content management streaming and emerging AI technology platform. We were a pioneer in the fast streaming business with connected TVs, now the fastest growing segment of the business. Beyond that technological heritage, it is now very clear that our proprietary Matchcoin technology is the very foundation of all our lines of business, from OTT and streaming, content distribution, to ad sales and ad tech. Frankly, We've done a lousy job of communicating this critical point in the past, and we aim to do better going forward by hammering that point home. Because Matchpoint is the backbone of our business. It's the reason we've had success in establishing partnerships with leading OEMs and tech brands, such as TCL and Amagi, and bringing in top channel brands like Bob Ross, Sid and Marty Kropp, and GoPro, among many others. It is already recognized as a leading entertainment technology, and we are confident the recently announced Matchpoint AI initiative will also become an industry leader, attract the same quality, same level of quality brands and partners, and generate significant high margin revenues in the future. To recognize all of this, we hope to provide additional disclosures in the future to reflect the fact that our Matchpoint technology is already directly responsible for generating a very significant percentage of our revenues and operating results and will very likely represent an even greater percentage of our results in the future. We believe Centiverse should be viewed as a core technology company, and our reporting needs to reflect that. Look for more on this as we move through the next couple of quarters. All that said, Powered by Matchpoint, we believe we are well positioned to continue growing our streaming technology and content business. Our proprietary technology, now moving into AI, our substantial portfolio of streaming channels, our 65,000 title content library, and our differentiated 360-degree marketing approach together make up the secret sauce driving Cineverse's growth strategy going forward. Supported by our initiatives, such as Centiverse Services India, we remain committed to delivering improved financial performance for fiscal year 2024 as we continue to reduce operating costs and improve margins, working toward our goal of achieving sustainable profitability. And with that, I'll turn it over to John to go over our financial results for the fiscal 2024 first quarter. Thank you, Chris.