Cineverse Corp.

Good day, everyone. Welcome to Cineverse's third quarter fiscal 2024 financial results conference call. My name is Elliot, and I'll be your operator today. Currently, all participants are in listening 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, please press star, then zero. Please note this call is also being recorded. I'd now like to turn the call over to our host, Gary Lofredo, 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 Third Quarter Financial Results Conference Call. The press release announcing Cineverse's results for the fiscal third quarter ended December 31st, 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 at Cineverse's website after the conclusion of this call. Before we begin, I would like to point out that certain statements made today 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 describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All the information discussed in this call is as of today, February 14th, 2024, 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 applicable to GAAP measures in our earnings release carefully as you consider these metrics. I'm Gary LeFretto, Chief Legal Officer, Secretary, Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO, Eric Opica, President and Chief Strategy Officer, Tony Wiador, Chief Operating Officer and Chief Technology Officer, Mark Lindsey, Chief Financial Officer, and Yolanda Macias, Chief Content Officer, all of whom will be available for questions following the prepared remarks. On today's call, Chris will discuss our third quarter fiscal year 2024 highlights, the latest operational developments, outlook, and long-term strategies. Mark will follow with a review of our results for the fiscal third quarter ended December 31st, 2023, and Eric will provide some 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 thanks, everyone, for joining us today. This morning, we announced a partnership with global technology and search giant Google with whom we developed and will soon launch a groundbreaking new AI-based unified streaming search technology called CineSearch. Both Eric and I will speak more about this later in our remarks. However, I want to emphasize that we believe this AI technology partnership with Google and the launch of CineSearch is an important milestone for the company that not only further validates our industry-leading proprietary technology, but should also provide an important new revenue stream for Cineverse because it directly helps solve the biggest consumer issue with streaming search and discovery today. The current time-consuming, archaic search technology that provides limited and unfiltered content choices for viewers. CineSearch and our chatbot video guide, Ava, will soon help solve that important issue for consumers. Now let me speak to this quarter's results. Just as we reported last quarter, we again made strong progress this quarter toward our goal of dramatically reducing costs, improving margins, and achieving sustained profitability. We did this by continuing to aggressively cut costs as we finalized the consolidation of the eight key streaming content and technology acquisitions we made over the past three years, while we also continue to offshore a significant number of domestic employment positions to our Cineverse Services India operation, a unique competitive cost and work efficiency advantage that Cineverse enjoys versus everyone else in our space. We also continued to further optimize our streaming channel portfolio, sacrificing some revenues for improved margins and profitability by culling lower margin channels while focusing our resources on higher margin and higher return performers. Driven by these initiatives to dramatically cut costs, offshore domestic positions to our Indian operation, and further optimize our channel portfolio, I believe our results this quarter again demonstrate that we are well on our way towards sustained profitability. We increased our direct operating margin to 59% from 48%. In continuing last quarter's trend, we decreased our SG&A costs by $2.7 million, or 30%. That's down another half a million dollars from our last reported quarter and down $7.9 million for 27% versus last year on a fiscal year to date basis. And we expect to achieve even greater savings going forward as we offshore more domestic positions to India and see the full impact of the series of headcount cuts that we have made, totaling 34 positions so far. So we remain very confident we will achieve our stated goal of $8 million in annual cost savings. And let me reiterate what I said on our last call. Cineverse Services India is a significant competitive advantage for us, providing huge cost savings and workflow upsides within a trusted, battle-tested operating division of our company. Not only do we intend to leverage that advantage to the fullest extent possible, but we are also considering initiatives to turn it into a profit center by offering our back office services in India to other domestic companies. Although the adjustment for the recognition of the non-cash loss on our investment in a metaverse company certainly had a big negative impact on our bottom line this quarter, we are nonetheless very pleased with our results, excluding that impact. Excluding the metaverse adjustment, net income was positive at $200,000. Clearly, we continue to be on a path to our target of sustained profitability. Before I end my remarks, let me quickly speak to three very important developments for the company. First, we expanded our line of credit with EastWest Bank from $5 million to $7.5 million, giving us more flexibility and firepower on our balance sheet, particularly since we are not laden with the tens of millions of dollars in debt that most of our competitors are dealing with. Second, Terrifier 3 just started filming and is scheduled for release in the fall of this year. This sequel to last year's film phenomenon, Terrifier 2, was just named as one of the 10 most highly anticipated horror films of 2004 by USA Today and should continue to be a huge catalyst for our horror business, all of our bloody disgusting enterprises, and our screen box horror channel. And third, as I mentioned at the onset of my remarks, Today, we announced an exciting new partnership with global search and technology leader Google, with whom we will soon unveil an innovative AI-based search platform that we're calling CineSearch. As part of this new service, Cineverse is introducing a new AI-based video advisor that will be known simply as AVA. This is groundbreaking technology that directly addresses the number one issue in streaming, the limitation current methods of search and discovery where users are forced to seek films using archaic discovery technology and limited to only a subset of film choices spread across specific platforms. We believe this generative AI search technology partnership with Google not only further validates the industry-leading nature of our proprietary technology, which puts us years ahead of our competitors, but also will be a significant new revenue opportunity for the company. Eric will speak much more in a minute about CineSearch and our partnership with Google, as well as the other key initiatives and partnerships in our channel and technology businesses that we believe will have a significant positive impact on our top-line revenue growth and margins. But first, Mark will add more color to our financial results and other financial matters. Mark?