Cineverse Corp.

Good day, everyone. Welcome to Cineverse second quarter fiscal 2025 financial results conference call. My name is Makaya, and I will 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 LaFrito, Chief Legal Officer, Secretary, and Senior Advisor for Cineverse. Please go ahead.

Good afternoon, everyone. Thank you for joining us for the Cineverse Fiscal Year 2025 Second Quarter Financial Results Conference Call. The press release announcing Cineverse's results for the fiscal second quarter ended September 30th. 2024 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 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 of the information discussed on this call is as of today, November 14, 2024. Inciniverse 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, Chief Legal Officer and Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO, Eric Opica, President and Chief Strategy Officer, Tony Weidor, Chief Operating Officer and Chief Technology Officer, Mark Lindsey, Chief Financial Officer, Mark Torres, Chief People 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 fiscal 2025 second quarter highlights, the latest operational developments, outlook, and long-term strategy. Mark will follow with a review of our results for the fiscal second quarter ended September 30, 2024. And Eric will provide some detail on our streaming business results and operating initiatives before we open the floor to questions. I will now turn the call over to Chris McGurk to begin.

Thanks, Gary, and thanks, everyone, for joining us today. We reported a very strong second quarter of growth and financial improvements. Even without recording a single dollar of financial results from our usually successful box office hit Terrifier 3, where we control all domestic rights in the US and Canada, and which we released after the close of this quarter. We grew our revenues 20% versus last year in this quarter, excluding the impact of our legacy digital cinema business. In addition, we grew our revenues by 40% versus our last reported quarter ended June 30th. showing strong sequential business momentum. We also exceeded our previously stated operating goals with a margin of 51%. We continued to significantly reduce our SG&A costs and also generated positive adjusted EBITDA of more than $500,000. We beat our analyst consensus guidance on every key financial metric. Additionally, All our key operating metrics across our content licensing, technology, advertising, streaming, and podcast businesses continue to grow significantly during the quarter, which bodes very well for our continued future success. Mark and Eric will speak to all of that in just a few minutes. So now let me take some time to discuss what I know is the number one topic for most of our investors, the unprecedented success of our Terra Terrifier horror film franchise and what it means for Cineverse's future. Following the late 2022 success of our Terrifier 2 release, which surprised and shocked the film industry by achieving approximately $11 million at the domestic box office via a limited release on just a $250,000 production budget and a less than $500,000 marketing spend, which all resulted largely because the center versus very targeted fan-based digital and social media marketing plan that leveraged our horror assets of screen box and bloody disgusting. We set out to fully employ all the assets that we had built over the past few years to devise a new marketing and distribution strategy for Terrifier 3 that would take full advantage of the powerful fan-based entertainment ecosystem we now have in place as well as the strength of the film franchise itself. Our marketing and release plan for Terrifier 3 worked brilliantly, with its performance stunning the industry even more than Terrifier 2 did. Released wide on over 2,500 screens on October 11, amidst many mega-dollar production budget and mega-dollar marketing spend major studio releases, Terrifier 3 opened to number one at the domestic box office with almost $19 million in ticket sales, supplanting Joker to become the top performing film in America. The film has now rolled on to record more than $54 million at the domestic box office and is now the number one performing unrated film of all time, taking over the top spot from the previous record holder, Renaissance, a film by Beyonce. We accomplished this by effectively employing every asset in the Cineverse ecosystem to mobilize the horror fan base to come out and see the movie in theaters. Fully utilizing our Matchpoint technology, our streaming channel portfolio with over 80 million monthly viewers, our social media footprint, including Bloody Disgusting, and our top 10 podcast network in an incredibly cost-efficient way to build awareness and interest for an audience that then came out to see the movie in droves. Because we so effectively employed this ecosystem to identify and mobilize fans to see Terrifier 3 in theaters, we spent well under $1 million in out-of-pocket cost to market the movie, a number that has astounded the industry, particularly since we released the film among major studio releases with marketing budgets well north of $20 to $30 million. And in the case of Joker, probably more than $100 million in marketing spend worldwide on top of a reported $190 million production budget. We calculate that our ecosystem most likely created over $5 million in media value to support our movie that involved no cash outlay on our part. I've personally been involved in the release of at least 500 films in my career, both major studio releases and independent films. and the box office revenue to cash marketing spend ratio for Terrifier 3 is exponentially higher than any result I've ever seen. The performance of Terrifier 3 is truly in a class by itself, and the industry has taken note of that in a big way. We believe that the record-setting performance of Terrifier 3 is strong evidence that Cineverse's ecosystem of assets is established a potential new blueprint for releasing films theatrically in a much smarter, cost-effective, and risk-advantaged manner than anything ever attempted in this space before. We believe this can be a major advantage going forward for independent films, filmmakers, and even for the major studios if the majors choose to rethink their spending plans from the ground up, like Cineverse did for both of the Terrifier movies. Our studio competitors also do not have the powerful and complete combination of targeted streaming channels, passionate fan bases that view our channels more than 80 million times per month, wide social media footprints and influencers like Bloody Disgusting, a top 10 podcast network, and targeted match point advertising technology that we do. We just resoundingly demonstrated the power of that ecosystem to the rest of the industry by fully leveraging our integrated assets to do what almost everyone in the entertainment business thought was impossible. Open to number one and then go on to earn more than $54 million at the box office and still going for less than a $1 million marketing step. That previously unheard of feat in the movie business is creating a lot of interest from independent producers and other studios to try to generate similar theatrical performance results utilizing Cineverse's ecosystem in the same manner as Terrifier 3, not just in horror, but in other genres where we have strong footprints and fan bases like family films, female-oriented films, animation, and anime. This could create an entirely new profit line for us. And of course, we plan to utilize this successful release blueprint for Cineverse's own releases as well. Our recent announcement that we're going to distribute the remake of the controversial horror film classic Silent Night, Deadly Night, for which we have worldwide rights at the end of this year is a testament to that point. I also want to emphasize that having two really great movies in Terrifier 2 and 3 that resonated strongly with both critics and audiences alike had an overriding impact on the success of both films. So our hats are off. to director-writer Damian Leone, producer Phil Falcone, and the entire Terrifier creative team for their vision, their understanding of their audience, and their creative genius that powered these films. So what's next for Terrifier 3? The film will soon be distributed into the digital and DVD Blu-ray markets in our current fiscal third quarter with a streaming pay TV release following that. Our distribution costs for these ancillary markets are extremely small. So we expect a very high margin return and significant profits from these post theatrical channel releases. Terrifier 2 has also had a strong rebirth in digital sales due to all the activity around the release of Terrifier 3, underscoring the evergreen power of the Terrifier franchise yet again. Additionally, we're planning a Christmas reissue of Terrifier 3 in the box office with added features to attract the fan base yet again. Like every major independent and major studio, we do not disclose profitability on individual films for competitive reasons and also for participant nondisclosure reasons. However, it's obvious that Terrifier 3 will be extremely profitable and will have a very significant positive impact on our financial results beginning in our next recorded quarter. For instance, we more than recovered our total acquisition and marketing investment in the film from our share of theatrical revenues alone in just the first 48 hours of release. And we expect to book more than 20 million in theatrical revenues by December 31st, which represents our share of domestic box office which we split with theatrical visitors. On top of that, we will be recording the very significant high margin revenues from the ancillary markets that I just mentioned, plus potential revenues from our ScreenBox streaming channel in our fiscal third quarter ending on December 31st, and then in the many quarters beyond that. Suffice it to say that this film is probably the highest ROI film I've ever been involved with. And our investors will begin to see that very soon. The cash impacts from this wildly successful release will also provide a significant balance sheet upside to Cineverse. It has been our goal to achieve a sustainable self-funding balance sheet for our ongoing operations. We believe Terrifier 3 advances that agenda by miles. And as such, we have no plans to raise outside equity capital to support our current operations in the foreseeable future. And with that, I'll turn things over to Mark.

Thank you, Chris. As Chris mentioned, we had an exceptionally strong quarter, allowing us to exceed analyst consensus guidance for revenue, net income, net income per share, and adjusted EBITDA. For our second fiscal quarter ended September 30, 2024, Cineverse reported total revenues at $12.7 million compared to $10.6 million in the prior year period, or a 20% increase when excluding the $2.4 million of non-recurring, non-cash revenues from our legacy digital cinema business from the prior year quarter. In addition, compared to our last quarter ended June 30, 2024, our revenues increased by 3.6 million, or 40%. The 20% increase in recurring revenues in the current quarter was driven by a .7 million increase in streaming and digital revenue, primarily due to a 1.6 million of revenue from the licensing of our Dog Whisperer with Cesar Millan content. a 0.6 million or 93% increase in our podcast and other revenue, and a 0.8 million increase in our base distribution revenue. With the amazing performance of Terrifier 3, the continued double-digit growth of our podcast business, improved content licensing opportunities, and expected growth in our direct advertising revenues, we're expecting a material increase in revenue for our fiscal quarter ended December 31, 2024. Eric will provide additional details on the operational drivers behind our financial results. As Chris mentioned, our direct operating margin for the quarter was 51%, which exceeded our previously issued guidance of 45 to 50% for direct operating margins. Our improved direct operating margin is a direct result of our cost optimization initiatives referred to earlier. We expect our direct operating margin in future quarters to be in line with or exceed our previously stated targeted margins of 45 to 50%. SG&A expenses decreased 0.5 million or 7% for the second quarter compared to the prior year quarter. Again, this improvement is the result of our continued focus on cost optimization initiatives that we've been discussing over the last year and a half. Over the last six quarters, we've decreased our SG&A expenses from an average of $9.2 million per quarter for fiscal year 2023 to $6.4 million this quarter for an annualized savings of $11.4 million. For the remainder of fiscal year 2025, we expect our SG&A expenses to remain relatively flat and continue to decline as a percentage of revenue as we continue to focus on our cost savings initiative and leveraging our offshoring opportunities in Cineverse Services India. Adjusted EBITDA for the quarter was $0.5 million compared to a negative $0.1 million for the same quarter last year when excluding the $2.4 million of prior year non-recurring non-cash revenues from our legacy digital cinema business discussed previously. We had $2.4 million in cash and cash equivalents on our balance sheet as of September 30, 2024, and $4.7 million outstanding on our $7.5 million working capital facility with an additional $2.7 million available capacity. During the quarter, our cash flows used in operations was a negative $0.7 million, of which $0.7 million was related to investments in our content portfolio via advance and or minimum guarantee payments. When excluding our content portfolio spend during quarter, our cash flows provided by operations was breakeven. We expect to be operating cash flow positive for the full fiscal year 2025. I also want to remind everyone that our board of directors approved a one-year extension of our stock repurchase program. The program to purchase 500,000 shares now expires on March 1, 2025. During the quarter, we repurchased approximately 31,000 shares under this program bringing our fiscal year-to-date share repurchases to 215,000 shares. As we discussed last quarter, we believe our stock was significantly undervalued at less than $1 per share with a market cap that was materially lower than our book value. As of the close of business yesterday, our stock price closed at $2.68 per share, reflecting an approximate $42 million market cap, which we believe is somewhat more representative of our true value. We believe that there is still material upside to our stock price based on the phenomenal results of Terrifier 3, the significant growth that we are realizing in our podcast and advertising lines of business, and our technology initiatives, which are just beginning to take hold. With that, I'll turn the floor over to Eric to discuss our strategic growth initiatives. Eric?

Thank you, Mark. As we discussed last quarter, we focused on a few key strategies to drive our growth. This included expanding our streaming footprint, enhanced ad sales capabilities, opening up new distribution channels, and investing in technology that supports everything we do. This quarter, we took solid steps in each area, building a foundation that aligns with our long-term vision. Now, while today's numbers don't yet capture the impact of Terrifier 3, which has performed far beyond expectations in theaters. We expect to see significant financial contributions from it through all lines of our business in the next quarter, as Chris and Mark both detailed. We're excited about what Terrifier 3 represents and how it reinforces our direction for Cineverse's sustainable growth. On the streaming side, total subscribers for the quarter were approximately 1.36 million, marking a 13% increase over the prior year quarter. During the quarter, anticipation for Terrifier 3 also fueled renewed interest in Terrifier 2 on our platforms, with Screenbox subscribers growing approximately 7% in September alone. The film's viewership surged by 161% from August, reaching 1.28 million minutes viewed across all internal platforms in September. On third-party platforms like Amazon, the film has dramatically exceeded all expectations, and new revenue-sharing agreements we've put in place on the franchise lead to significant low seven figure revenue streams on the title in the subsequent quarters from this quarter. We expect these films to be evergreen cash cows for the company for the foreseeable future. Our fast channels also saw remarkable growth this quarter with more than 2.32 billion minutes streamed during the quarter, up to 40% over the prior year quarter. September marked the second best month ever for our Dove channel with over 95 million minutes consumed just behind July, and up over August, typically a slow month of the year for FAST. Our Barney channel that was recently launched this year continues to perform exceptionally, reaching an all-time high in September of over 129 million minutes viewed, marking seven consecutive months of growth. Even our reality-focused channel, SoReal, also hit record monthly highs, and with programming changes, we see it on an outstanding trajectory to join our top performing channels. Our podcast network has also become a critical piece of our revenue engagement strategy with ongoing rapid growth. Since last quarter, we've expanded to 51 podcasts, adding high-profile shows that continue to broaden our audience reach. We're thrilled to have signed the Dead Meat podcast hosted by Chelsea Rebecca and James A. Janisse from the Dead Meat YouTube channel with more than 6.6 million subscribers. We're also integrating podcasts into our broader Cineverse brands, such as Retro Crush, hosted by TikTok personality Malcolm Crawford, and Midnight Pulp in pre-production with Diana Prince, known for the last drive-in on Shudder. Our true crime show, Creepy Places, hosted by John Grylls of Creepy, which attracts 1.3 million monthly downloads, is another standout. And our original podcast, Mayfair Watcher Society, has also returned for its second season after being named of Apple's Top Podcasts. and ranking in the top 5% of most shared podcasts on Spotify. October was a record month, with our podcast network reaching 15 million downloads and listens, placing us among the top 10 largest podcast networks globally. With this momentum, we're well positioned to achieve eight-figure annual revenues in the midterm. Ad sales also performed well, with book revenue up over 60% over Q1, underscoring our successful focus on direct ad sales and premium pricing. We're pleased to report that we're attracting major blue chip clients, including Paramount, Lionsgate, Disney, 20th Century Fox, FX Networks, Sony Pictures, and Activision. Those were all customers during the quarter. This quarter also marked the first time we received requests for proposals from non-entertainment brands, including Macy's, Wendy's, McDonald's, Grubhub, Frito-Lay, and Pepsi. This expansion into consumer brands broadens our revenue base and strengthens our position as a go-to platform for high value brand partnerships. Driving the success is the growth of our C360 platform, which processed over 20 billion ad requests in October. This technology is allowing us to help our advertisers reach highly targeted audiences efficiently, delivering high value results for our clients. Turning to Matchpoint, we continue to see strong progress. We've recently made several key hires support growing demand and now have a low mid- to seven-figure pipeline of opportunities, including OEMs, new and existing channel platforms, content distributors, and more. We've closed some initial deals that showcase Matchpoint's potential, and these deals represent substantial infrastructure investments for our customers. Typically, the lead time on deals to Matchpoint is about a six- to 12-month lead time, So we anticipate seeing the real financial impact in the back half of this year and into the new fiscal year beginning in April. Additionally, we're developing shorter cycle revenue opportunities through our dispatch business, helping clients scale to meet the means of fast AVOD and AI licensing markets. We're actively engaged in meaningful conversations that could lead to significant new business on this front. On the technology side since search our Ai powered content discovery tool developed with Google is on track for a full consumer release next year we're already in discussions with several major OEMs to license in a search which opens up a promising new revenue stream if we're successful. we're also seeing opportunities to license portions of our content library for Ai training. We're in discussions with multiple parties to add significant volume and value to our 66,000 title library, positioning Cineverse as a leader in AI-driven content licensing. Looking ahead, we're doubling down on scaling SVOD, AVOD, and FAST channels with tech partnerships, expanding our content licensing, building on direct ad sales, and driving revenue through Matchpoint and podcasts. We're also developing a strong IP and franchise-driven theatrical slate that complements Terrifier, which has already redefined what's possible in indie horror. Above all, Cineverse stands out for our highly supportive model for filmmakers with fair, transparent deals and data-driven money-brawl approach to content powered by proprietary technology. This is a groundbreaking model not currently available from any major or many major studios. and this approach leverages our ecosystem to provide a cost-effective, risk-advantaged pathway to success. The strategies we outlined last quarter are producing real results, as shown with the financial results this quarter, and our growth in streaming engagement, ad sales, podcast listenership, and tech innovation positions us for sustained profitability and growth. We look forward to building on this momentum and showing what a modern, tech-enabled entertainment company can achieve. With that, operator, let's open it up for Q&A.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. We'll pause here briefly as your questions are registered. The first question comes from the line of Dan Carnos with Benchmark Company. You may go ahead.

Thanks. Good afternoon. Chris, obviously, just a big congratulations on what is an unprecedented success in the movie industry. I'm sure you've been getting plenty of plaudits from your peers and others, but I'll just start off by saying that on T3 and You mentioned it in your prepared remarks. I'd love to have a sense from you guys. You're going to make a boatload of cash from this thing. You have some debt. You can kind of fund additional investments and content based on that playbook. How do we think about how you're going to position the company going forward? I know you're going to talk more about it next quarter, but you started with silent, but just help us think through what the success means and what other films could do, like, how does this grow quickly into another revenue stream for you?

Yeah, and thank you, Dan, for those comments. It was very nice of you. Well, look, we're still a streaming technology and content company. That's the core of what we do, and I think you saw the results this quarter where our revenues were up 40% over the last sequential quarter show that our plan is working across our base business, even without Terrifier. In terms of digital licensing, technology business, podcast business, our streaming business. So I just want to underscore that point. Our goal right now is to really take advantage of what just happened, where we sort of developed a new blueprint for releasing movies that kind of astounded the industry and turn it into another successful profit line for the company. And it's consistent with who we are because The reason why the release works so well is what I was saying in my remarks and also that we leveraged every element in this ecosystem that we built over the last 10 years in order to build a better mousetrap and figure out how to release a movie in an incredibly successful way with almost no out of pocket marketing spend. It's just kind of astounding that we did that. So the goal now is to leverage our entire ecosystem, create a new line of business here, both with product that we acquire ourselves and then to allow other independent studios and actually majors to use our ecosystem to market and leverage their own product because they don't have all the assets that we have in place across this really fan-centric portfolio of channels, our podcast network, our ad technology, all these are in our social footprint we're both discussing. We're sorting through properties right now. Obviously, people are knocking on our door, particularly in the horror space. You saw that we just announced Silent Night, Deadly Night, which is a classic controversial horror movie that came out in 84 and banned from theaters. We're continuing our assault on Christmas following Terrifier 3 with Art the Clown and Santa Claus. But we've got a number of other properties that we're looking at. some very well-known IP that people want us to consider taking out using our ecosystem. And we've had some entreaties in the non-horror space as well, in the faith and family space, and in the animation space. So it's our goal really to turn this into an ongoing business. It's not going to be a usually capital-intensive business for us, as we just saw with Terrifier 3. And it really is an extension and supports and augments and is based on all of the assets we put in place as a technology and streaming company. So I think you're going to see more announcements about content releases coming over the next three or four months. And some of those might be releases that happen sooner rather than later.

Got it. That's hugely helpful. Thank you. And just one last one on T3. Before I turn to Eric, how are we thinking about, you know, at this point, you have the re-release in Christmas, but you have an opportunity to decide how to maximize it, licensing, windowing, putting it on ScreenBox. Have you thought through that yet? And, you know, do you have a plan or is that sort of TBD?

That's a great question because obviously we have to balance, you know, the upside we would get from our subscriber base on ScreenBox versus, you know, getting a big check from pay and streaming services that now are recognizing the value of the franchise. So we're actively engaged in analyzing our options in that space, and we hope to make a decision on what we're going to do over the next few weeks.

Perfect. Eric, just quickly for you, appreciate the update on the direct ads. Nice progress there. I just wanted to ask you quickly about in a search and how we should think about that from kind of a long-term monetization opportunity, given that we're hearing a lot of movement now in the industry around meta-tagging, kind of what to watch and buy tech. And I thought your comment on short cycle sales was particularly interesting, given that the industry has finally realized that they need to license more content to stem the streaming bleeding. So Avon, in fact, are taking off again, just kind of curious, you know, what you need to see there in order to develop that business line. Thanks.

Sure, sure. So, you know, first I'll tackle the second part of your question on the short cycle piece. So if you kind of look out at the marketplace, you know, one of the biggest trends has been all of these fast platforms, which is basically every single TV platform OEM manufacturer, the Samsungs, Vizios, and so on of the universe, all of them are really expanding their ad-supported offerings to complement the fast platforms. Most of them launched as fast only without much on-demand programming. Really, to have a rounded-out offering, everybody needs to have a mix of fast channels, on-demand programming, and add-on subscriptions. So all of them are adding all of these components. What that's caused in the market is a pretty significant demand for large volumes of ad-supported content. So number one, in addition to us controlling and owning a very large library, clearly we're rapidly expanding our efforts to distribute AVOD content ourselves. But for Matchpoint, the real opportunity is, you know, for most players like us in the industry, the cost of rapidly delivering and scaling up content to all of these places quickly, a Berlin airlift of content, if you will, is very, very expensive and has very long cycle time. Today, we can take Dispatch, one of the modules that we have in Matchpoint, and help companies very rapidly either ingest that into their own ecosystems so we can help platforms do a better job at it, or we can actually help companies that normally are trying to do this with three guys in a room or using expensive outsourced services scale up and actually make a lot of money rapidly to take advantage of that. Beyond that, this same system that works incredibly well to help the existing streaming ecosystem is really also a very ideal platform to scale up for an even bigger and more voracious content demand, and that is AI content licensing. There's been various reports that have said that that can be anywhere from a $1 to $5 billion business over the next few years, depending on how you look at it. But one thing is certain, the demand out there is real. We're engaged in those conversations today with a variety of partners. And two, the technical challenges with doing it are intense. These platforms that want training data want to do it in a very rapid period of time. And unless you have a scalable platform, platform like match point, you really can't, um, tackle that problem. So that's really the short term to midterm opportunity. Both of these are not opportunities that are going away, but the demand for both of these is very high right now. And we have the technology to help the market, uh, actually cash in on it. Um, so that's to that piece. And then as we talk about at CineSearch, I think the, uh, the biggest thing to point out is, um, If you look at the TV OEM space, much like in mobile phones, every major television manufacturer really needs to incorporate AI features into their systems for content discovery. And some of the larger players may build or develop their own platforms. but when you have more than half the market out there of every television sold with no internal solution to this, we think that represents a very large opportunity given just in the U.S. alone, there's something like 40 million plus TVs sold every year in the U.S. and double that number internationally. So I think the big thing to think about is us fulfilling a pretty big market need for AI-driven customer experience tools. So what we're working on now is, as you can imagine, this isn't a turnkey solution for every manufacturer. Every manufacturer has different demands. They have different partnerships with different players. So it's less of a turnkey white label thing and more of a bespoke approach with these partners And so, you know, we're actively engaging in a variety of conversations on that front. You know, I think we really hope to have more on that next year as that evolves. Super helpful.

Thank you so much, and congrats again, guys.

Thanks, Dan. Thank you.

Thank you. The next question is from the line of Brian Kinstingler with Alliance Global Partners. You may proceed.

Great. Thanks so much. And let me add my congrats on your success in the box office. Following up on the future playbook in response to the success of leveraging your ecosystem, how will you go about evaluating what I suspect is numerous independent movies and titles coming to you to determine what is the best chance of success under your platform?

TAB, Mark McIntyre, Thanks Brian for your comment, and you know a couple of things you know we have a very exhaustive green lighting process in place anyways that we would continue to. TAB, Mark McIntyre, use to evaluate any any new property, but first and foremost, we would look for properties that we think we can best leverage with our system. TAB, Mark McIntyre, You know, obviously we have a ton of horror assets in place with screen box and buddy disgusting in our history of distributing horror movies. and an executive team that really knows what works and what doesn't work in that space and that's what we leveraged uh with with terrifier and and and so we're looking at properties you know in the horror space specifically that we can we can follow the same playbook properties that have online buzz like terrifier did known ip uh like silent night deadly night uh that still has a fan base that will give us a leg up in launching it. And I think the other thing that's usually important here is kind of a threshold question for any movie in my mind is, you know, is it a concept or an idea that the fan base is actually going to go to a theater to see? You know, what is it about the concept that is going to make that fan, you know, rush out on that first Friday to go see it, you know, so that he can, he or she, you know, can tell all their friends to be the first one to see it. And that's sort of a threshold question we ask. Robert Miller Jr.: : about you know any any piece of content. Robert Miller Jr.: : So again, as I said we're looking in other verticals where we think we have strength. Robert Miller Jr.: : children's and family content, you know we've really built up that business, not just with dog but with all of the kind of evergreen IP that we're. Robert Miller Jr.: : are on our channels now from you know Garfield to Barney to sit in mardi kross to even you know Bob Ross and the dog whisperer which we think is very family friendly and very. Um, you know, children friendly to, um, anime and animation, which we've had a track record and releasing as well, and more pure family and faith oriented content. So, um, again, just to step back again, we're looking for properties. That clearly we know we have assets. We have an expertise and capability and which will give us a leg up in marketing of the property and properties that, you know, we know we believe There's going to be a call in the fan base to go out and see it in the theater as opposed to waiting to see it at home. And we're going to be extremely cautious in terms of our financial commitment to any movie that we put on board. We proved the concept here that we could release a movie and open it to number one with $500,000 in cash out of pocket spending. know in an all-in investment in a piece of content and less than five million dollars and um you know i think that's a good um that's a good model you know going forward from a financial standpoint you know as well um so we feel really good about our positioning we feel great about the industry response to what we did people are absolutely astounded by it we feel great about the content submissions that we've seen so far and you can expect some more announcements about movies, I think, in the next two to three months.

Right. And then for titles like Silent Night, Deadly Night, or any other title, how will you determine if it will be a theatrical or limited release? Is that title by title, or are you realizing, given your ecosystem, you can have a wider release?

Right. We're intending to use this model to do wide release movies, but until you actually see the movie, whether it's in production or you're buying a finished movie, it's tough to make that call on how wide you're going to go. Fortunately, as I said with Terrifier 3, we knew what we had. We saw the movie. Once it debuted at Fantastic Fest in Austin in August, we knew we had it. winner based on the critical reaction and also the fan reaction. There's absolutely no question about going wide with the movie. It was just a matter of getting exhibitors to realize how much upside there was. They quickly figured that out when their theater started selling out five weeks in advance of the release of the movie. Hopefully, we're going to pick properties that maybe don't have that level of interest and excitement, but even at a fraction of that Richard Schauffler, That have sort of that built in audience and excitement, so that we can make you know really smart informed decision about whether we go live on how many theaters or whether we take a limited release.

Richard Schauffler, Great. Richard Schauffler, i'm going to search. Richard Schauffler, Maybe you could share a little bit about the revenue model is this an annual licensing model is it recurring kind of SAS model is it price per device if it's on a TV, if you could help us. understand how that's going to be monetized, the revenue model.

All right, Eric or Tony, you want to take that?

Yeah, I think at a very high level, and obviously, you know, as I mentioned earlier, these are really going to be more bespoke than a pure SaaS model just due to the size and scale of these types of deals. So, you know, but I would anticipate the deal being some combination of license fee plus, you know, plus, you know, variable costs, similar to you would see in other other similar sort of, you know, API driven platform models. Right. But I do think also. There are other opportunities and ways to do this. For example, advertising-based models and other things that could modify that approach depending on the partner. Great.

My last question is revenue from podcasting grew 30% sequentially. I'm wondering with the various non-entertainment advertisers you discussed that are coming to you with RFPs with the much stronger viewership. I'm wondering, do you expect to see even stronger yields where revenue will grow faster than viewership over the next couple of quarters? I'm just wondering how you're thinking about that and fill rates.

Yep, yep. So, you know, we, you know, I think our first goal was to build, you know, when you're in the chicken and egg scenario of building a new product, our first goal was just to build audience with a great lineup of products. And so we really did that first before focusing on monetization. So, you know, that leads to a natural monetization gap there. where you know you you uh have a lot of head space to grow revenue um so i think you're right uh your comment that you know revenue growth will outpace audience growth um although you know if you if you look at you know what i call you know what we can call the terrifier effect right of you know success begets in the film business obviously success begets more interest And even in the podcast space, the success of Terrifier is opening doors to much larger properties and agencies that represent larger podcast properties that want to join our network. So, you know, while I'll say I think in the short term, the audience or the revenue growth will outpace the audience growth. That can also change very quickly if there's some very, very large shows that we've been in dialogue with that want to join the network as well. So in the short term, that's the case. But I think in the longer term, they'll either pace neck and neck or we may have big surges of audience and inventory growth if we do sign some bigger shows. So our real focus, though, is to maximize, fill On this platform, we're rapidly hiring up salespeople to help sell that faster. We've been doing co-selling partnerships with a variety of people to help fill the inventory in the short term. So I think our number one goal, this is our biggest real opportunity of scaling revenue growth in the short term, outside of the film business is the podcast business. So we're going to put a lot of energy and effort into growing that over the next few quarters.

Great. Thanks again.

Thanks, Brennan.

The next question is from Milan of J. Pesek with Corsair Capital. You may proceed.

Thank you. Hey, guys, great quarter. We've seen it. We're celebrating it. And I think the promotion of Terrifier not only has highlighted what you can do in the film business, but has raised, obviously, Cineverse's capabilities all along. I will get to a question, but away from Terrifier, which was great, you know, revenues up, margins up, operating costs down. That seems like a pretty good combination we're getting close to. to break even, you know, we're still at amazingly to me, um, only a $45 million market cap, about a $50 million enterprise value. And, and, and I think one reason why, uh, is because people were worried that you'd run out of cash and have to do a dilutive financing as was done maybe a year ago. And glad to hear you emphasize that you're not going to need cash. I mean, this, this terrifier is a real boon. Um, and, uh, I guess there'll be another real chance of it from TerraFire 4 as well in a couple of years. In any case, that's a lot of statement. My question, because I think the other two gentlemen asked good questions about the opportunity space. The data AI business, I'm a little bit enthralled with that idea, the amount of spending that's going on right now to improve AI is amazing. But what sets you apart? You're not the biggest company out there. You have a big library, yes, but compared to the Disney's and Warner Brothers and Universal's, why wouldn't the data AI guys get their data from video from those folks? And I think I know the answer, but I'd like to hear it again and probably helpful to others.

That's a good question, John. I'll let you. I'll let Eric answer that more specifically in a second, but it has to do with our technological capabilities and our capability over the years that we've demonstrated in acquiring, assimilating, and distributing vast amounts of content across the spectrum. We've probably done more of that than anybody in the business. I want to thank you for your support and your question. We really appreciate it. I just want to say that at the onset. Then I'll turn it over to Eric and let Eric. specifically answer the question on AI data capability. Eric?

Sure, sure. Well, I think if you look at the AI licensing landscape, you know, there's a couple of challenges that, you know, you've seen deals announced with AI being used at studios. But really, it's been more of to develop internal tools for marketing. What we haven't really seen is a major licensing deal out. And there's a couple of reasons for that. One is, I think, the issue with guilds and unions and talent at the top echelon of the space, as well as IP rights and other things. uh, for some of these multi-billion dollar franchises make it incredibly difficult, uh, for the studios, uh, to do licensing. Um, you know, they're signatories to all kinds of agreements and other things, uh, in the independent space and more broadly in the global space. Um, there isn't those same limitations. Um, when you think about these AI training models, um, they actually want a high degree of diversity. They want high quality content, they want independent content, they want documentaries, they want foreign films, they want foreign TV shows. So it actually, they do not want to blanket and only license studio content because that will skew the models in one direction. So I think the dynamics of what they need, which is this diverse set of information and data, makes this market highly beneficial for independents. The second piece, why us versus anyone else, is very simple, the idea of scale. You know, We've been in the business of delivering massive amounts of scale content into the streaming ecosystem. We've delivered literally millions of assets out into the streaming ecosystem over the last 15 years. And we now have an automation platform that allows us to not only deliver this at scale, but do the pre-processing or work that's required to meet the very specific and very intensive needs of AI models that if any one of these studios or companies that have a big library try to do this today, the high cost of using third-party traditional services or trying to do it internally is cost prohibitive. And at the pricing levels for licensing today, eats up anywhere from 60 to 80% of the revenue generated. So it's just not a sustainable model unless you have a big scale system. So that's where dispatch really comes in. If we ingest this content and literally we can scale up and deliver for an infinitesimally small fraction of what it would cost somebody to do it through one of these more expensive systems. So our leadership in the space, that we've been doing this for 15 years. You know, we were an Apple aggregator, helped them build iTunes up and helped all the others do it. Our diverse library that actually fits what these guys want. And then lastly, a scalable platform designed to do exactly what the AI environment wants. Those three factors together make us, you know, probably the most qualified company in the space to help support that growth. So that's, I hope that answers your question.

It does. And I think it was, you know, obviously a very big opportunity, a very big opportunity given the size of your firm today to license out, you know, a few million dollars a year is huge to you at this size. Just following up on that, as you talked about your ability to get it in the right, whatever metadata form or whatever you call it for ai ingestion or analysis but to uh license out your library today do you have to spend any significant sums to get your library in shape or you've already done that um i'll let uh tony uh tony who are our search tony who are on the call uh yeah that but you know go ahead tony i'll take that question so

The underlying sort of premise of MatchPoint is we do a deal with the licensor and they deliver our highest quality source into MatchPoint. It then undergoes QC and mastering and prep. We then take that file and it sits inside of MatchPoint. And from that point on, they never need to deliver the file again. And MatchPoint can deliver a thousand different ways. So regardless of what any of these AI partners requirements are match point was designed to deliver to that spec. So to Eric's point, um, we can, we, you know, these companies are when, when they're licensing video for data, they're not licensing 50 movies or a hundred. They're each orders on average of 10,000 hours or more, you know, in the tens of thousands of hours. Right. So this is why to our point, this won't scale for the big studios because they're using third-party vendors. we're generally charging $500 to $1,500 per file delivery. And if the revenue to license a title for training is far less than that, it's just not sustainable. Whereas for MatchPoint, our cost to actually use MatchPoint and deliver is measured significantly less than that. And so we could deliver 10,000 movies at a click of a button without a single human touching a single file and in any flavor that any partner wants. And that is our secret sauce, and that is the competitive advantage that we have with Matchpoint, where we can use that to deliver our own library and potentially even deliver on behalf of other companies who are looking to license to the AI companies.

Great. Thank you. Well, I look forward to continuing improvement in the core line, the new line of business promoting movies sort of individually on top of the Terrifier franchise and all the metaverse and Jake Hamilton, meta search, etc, etc, so thank you and congrats on. Jake Hamilton, On terrifier again.

Thank you. Thank you jack that that that is the plan.