Cineverse Corp Reports Second Quarter Fiscal 2027 Results - CINEVERSE CORP

Hello, everyone. Thank you for joining us, and welcome to the Cineverse second quarter fiscal year 2027 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Gary Lafredo, Chief Legal Officer, Secretary, and Senior Advisor. Gary, please go ahead. Good morning, everyone. Thank you for joining us for Cineverse's second quarter fiscal year 2027 financial results conference call. The press release announcing Cineverses' results for the fiscal second quarter ended September 30th, 2026, 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 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 the information discussed in this call is as of today, November 13, 2026. 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 represents 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, Secretary, and Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO, Eric Opeca, President and Chief Strategy Officer, Sean McCabe, Chief Financial Officer, Yolanda Macias, Chief Motion Pictures Officer, and Mark Torres, Chief People Officer, all of whom will be available for questions following the prepared remarks on today's call chris will briefly discuss our second quarter fiscal year 2027 business highlights then sean will follow with a review of our financial results and eric will provide further details on our two recent acquisitions i will now turn the call over to chris mcgurk to begin thank you gary and thanks everyone for joining us on this call today we recorded another very strong quarter both operationally and financially our revenues increased by 110 percent versus the prior year driven in large part by the significant positive impact of the two key acquisitions we made toward the end of our last fiscal year giant worldwide and indiq net income was 3.2 million dollars or 11 cents per share a 42 cent per share increase over the prior year quarter. Adjusted EBITDA for the quarter was $1.7 million, a $5.4 million increase in our third consecutive quarter with positive and growing adjusted EBITTA results. Importantly, we delivered these strong results during one of our seasonally slowest periods of the year across all our businesses. And even more importantly, our momentum is continuing going forward. In September, we generated over $10 million in consolidated revenues and estimate on a preliminary basis that we will record approximately $15 million in revenues in the month of October, our biggest revenue month since the release of Terrifier 3 two years ago. These revenues will be booked in our fiscal third quarter. Very clearly, the promise, synergies, and financial impact of the acquisitions of Giant Worldwide and IndieQ are now being realized across the entire company. As a result, our technology business now solidly represents the majority of our revenue and growth. We've already seen enormous value and synergies from the technology, customer base, business relationships, and expert leadership brought to Centiverse through these acquisitions, with ad tech and media services representing the largest factor in our more than doubling our quarterly revenue versus last year. Additionally, our successful targeted content acquisition and distribution strategy continues to deliver results. The most recent example of this was the October 9th Fathom event release of Guillermo del Toro's 20th anniversary edition of Pan's Labyrinth, one of the most acclaimed films of all time, which is also a very worthy addition to our film library and will be a profitable title as well. Combined with the continued growth of our streaming channels and podcast businesses, as well as the significant cost-saving initiatives we continue to implement, we remain very bullish about our competitive position in the evolving entertainment, media, and technology ecosystem. As such, and given our strong forward operational and financial momentum, we reaffirm our full-year fiscal 2027 guidance of $115 to $120 million in total revenues and $10 to $20 million in adjusted EBITDA. Adding to that forward momentum, this morning, which just so happens to be Friday the 13th, we announced that we have secured long-term rights to the latest feature film in the Jason Universe franchise, bringing back to the big screen one of the biggest and most successful horror film icons of all time, the legendary Jason Voorhees. This highly anticipated sequel, the 13th in the series, should be another high-impact theatrical and ancillary market release for us and a tremendous addition to our library as we have all rights and all media in North America for 25 years on the title. Importantly, despite the high profile and highly anticipated nature of this new Jason franchise property, which we plan to widely release in the theatrical market, we intend to fully fund it internally with no third-party capital. That is because of the unique aspects of our theatrical business model, the low-risk, high-potential return on investment approach we employ, and also the low out-of-pocket economics of our marketing ecosystem. And, by the way, all six of our last wide film releases, including pan's labyrinth will be profitable add value to our library and drive viewers and subscribers to our streaming channels which is our overall objective with this business expect a lot more news with additional specifics on the plans for this exciting high potential jason franchise film release in the near future and even before this potentially huge franchise film edition Cineverse's film library was just valued at approximately $45 million, more than seven times higher than its current book value. That's just another indication of how we continue to believe the company's equity is vastly undervalued at present. Finally, we're very pleased to nominate Dr. Samrat Ganguly for election to our board of directors at our upcoming annual meeting of stockholders. Dr. Ganguly, a former long-term Apple Global Infrastructure leader with a distinguished decades-long technology and academic career, is the technology pioneer and founder behind our industry-leading Matchpoint platform. Dr Ganguly is now an AI infrastructure entrepreneur. We look forward for Dr. Genguly. We look for Dr Gengully to help Cineverse plan and execute both our technology and our AI future. And with that, I'll now turn things over to Sean. Sean? Thank you, Chris. To provide a few highlights from our second fiscal quarter, revenues were $26 million, up 110% from the $12.4 million in the same quarter last year. This was primarily driven by our new ad tech and media services revenue streams. Our direct operating margin for the quarter was 38%. down from the prior quarter as of 58%, as anticipated following our Q4 acquisitions of IndieQ and Giant. This quarter's margin, however, represents a 300 basis point improvement over our first quarters, despite a decline in revenue during our seasonally slow period. We expect to continue to see direct operating margins improve in the second half of the year as the company benefits from seasonal and theatrical revenue increases, and we complete our cost rationalization initiatives. Thanks to these cost rationalizing initiatives and overall cost discipline, our reported SG&A for the quarter of $10.1 million is now lower than it was in the prior quarter, even after adding the overhead associated with two substantial acquisitions and now with revenue more than doubled since. Adjusted EBITDA for the quarter was $1.7 million, an increase of $5.4 million over the prior year quarter, an of 1.2 million over just last quarter this is continued progress during our seasonally slowest quarter and also the third consecutive quarter of positive and improving adjusted ebita with only one theatrical release during this time period this improvement in our operating performance can also be seen by the 17 million improvement in our cash flow from operations compared to the prior to date despite an increase in content advances of four million dollars net income attributable to common stockholders for the quarter was 3.2 million an 8.8 million dollar improvement over the same quarter last year in addition to the items included within adjusted ebitda 7 million of this increase was driven by non-recurring decrease value in the valuation of our acquisition related liabilities which is partially offset by higher depreciation and amortization of 1.6 million dollars driven by purchase price accounting from our q4 acquisitions and 0.6 million in interest cost from higher utilization of our line of credit and convertible note interest the second half of the year includes the u.s midterm elections holiday shopping season our three theatrical releases with more than 1.5 in theatrical marketing for these films already incurred during the first fiscal two quarters with these lifts to revenue and our cost rationalization program in full swing which has already actioned nine million dollars in annualized savings to date we look ahead to an exciting second half of the year which enables us to reaffirm our previously announced guidance of 115 to 120 million of revenue and 10 to 20 million dollars of adjusted ebitda for fiscal year 2027. from a liquidity standpoint we ended the quarter with 3.6 million dollars of cash in our line of credit still effective our reported network and capital as of september 30th was negative 9.7 however the company has the right to settle 8 million of this amount in equity during the quarter the company also secured a 3 million dollar loan from bondit for pan's labyrinth to better align the timing of our theatrical commitments and the related revenue so that we can maintain the pace of investment in our company's initiatives to promote growth and profitability we have also settled the vast majority of our cash-based m a liabilities with more than four million paid as of today and only 0.4 million dollars remaining to be paid in january as chris mentioned even though the new jason vorhees film we will be distributing is part of one of the biggest and highest profile horror franchises we believe will fully fund our investment in the film's release internally and do not foresee a need for outside financing on the project with that i'll turn it over to eric to discuss our operating highlights in greater detail thanks sean so last quarter my comments focused on our execution integrating the acquired businesses and taking out costs so today i want to cover four things first the market environment which is building in our favor and is the reason we built the company the way we did second how those initiatives are already showing up in our cost structure Third, the five levers we're pulling to keep expanding margin from here. And fourth, where we stand on the cost rationalization program and in streaming. So let me start with the market. So we see three forces converging. The first being restructuring. So as we all know, in the recent past, Lionsgate separated from Starz. Comcast spinning its cable networks into Versant. And then most recently, Paramount closed its $110 billion acquisition of Warner Brothers Discovery. So there are many other examples, and every one is either creating a separation or an integration. And behind each one sits years of library reversioning and redelivery that has now has to be done much faster and less costly than it was done before. The second is AI readiness. There was a recent Adobe 2026 media survey that found nearly half of media companies are describing their content supply chain as largely linear and resource intensive. And a separate industry survey found that 94% of media executives expect AI to be the biggest operational change this year, while most say they're not ready to deploy it at scale. So the gap between those two numbers is our market, and you can't put AI on top of supply chain that still moves by hand. So the third is scale. U.S. connected TV advertising expected to reach approximately $38 billion this year. And political spend for the quarter that we just, for the current quarter, was about $2.7 billion in this cycle, more than double the 22 midterms. And Omdia expects global CTV ad revenue to double again to $81 billion by 2030. So there's more channels, more versions, more ad decisionings, more need for ad execution and software in volumes that manual operations just can't keep up with. So all three point to the same requirement, a platform that automates and orchestrates how content and advertising move and interact. act so that's match point and we believe it's the best in this class and these acquisitions gave us the customer scale and monetization level to put that all to work an example that scales you can see it in our sgna over the past year we added more than 120 people we took on operations in poland through these acquisations expanded our team in india absorbed these two new businesses and carried the full marketing amount behind our theatrical slate but despite all of that cost base sgna came in at 10.1 million that's a million three below the same quarter a year ago and roughly a million and a half behind the first quarter of fiscal 27. so and that was with revenue seasonally lower by 4.6 million um meanwhile adjusted even tripled to 1.7 million so our direct operating margin expanded 300 basis points despite the lower revenue and so we've built the the company to work this way, and it's starting to show up ahead of our strongest seasonal quarters. So we're going to keep pressing on margin because that's where the next step up in EBITDA is going to come from. And there's five levers that we're focused on. The first is price. Our subscription services on third-party platforms had not been substantially repriced since before COVID, but between late October and last week, we raised prices across every single service with increases averaging 25 to 40 percent. We expect a meaningful lift in subscription revenue that will far outweigh any temporary churn. Second, our ad-supported footprint. We're intending to double our podcast network revenue over the next six to nine months, and we're also putting our apps and bloody disgusting to work driving film views and ad impressions across our own properties, so really ramping the ad footprint on those properties third automation during the quarter a major broadcaster became our first scale enterprise customer running fully automated on matchpoint that work carried software margins and because the workflow is now built every subsequent order from that customer is going to carry this economics two of our longest standing customers are giant that are moving into this model next and this is the margin transition we described last quarter it's now starting to show up in real workflows and fourth uh where the work's getting done we have close to 200 people across india poland moldova poland is expected to double and is moving into a larger facility and over time the majority of the work and the hiring and our tech business is going to be in those regions uh polls poland also is a beachhead in europe which is a very small part of our revenue today and won't stay that way and then the last is technology um we not launched the version of indiq platform during the september quarter that's already driving margin expansion and we believe it can be a meaningful contributor in the second half we don't leave the specifics there as the design is proprietary but it is working uh demonstrably well and on vadio the technical trials have gone very well we've signed four scale supply and demand customers during the trial and we expect a wide rollout beginning in our fiscal fourth quarter now on to the cost rationalization program so we expanded it by another million to 14 million annualized with over 9 million implemented some of that will be organizational but was most of what's remaining is contractual so we have existing long-term technology agreements with cloud providers and other partners those contracts set the timing and that's why much of the remaining savings left is going to land in the third and fourth quarters, and we expect to exit the fiscal year at that full 14 million run rate. Normal attrition shifting roles to our offshore campuses are going to add further benefit next fiscal year, and put together, SGN growth should stay very modest even as revenue continues to ramp. A few highlights from streaming where the same discipline applies. Our total minutes in the period grew 8% year-over-year to 4 billion, 4.05 billion, and 36%, excluding three channels that wound off during the quarter. Dove delivered its most watched quarter on record, up 80% to 854 million minutes, with its audience up 43%, and minutes per view are up 26%. People aren't just finding Dove, they're staying on dove and the dog whisperer and yugioh channels also set records uh and our midnight pulp cult channel grew 280 on its co-pilot launch uh on subscription our flagship cineverse channel hit another all-time high up 60 percent year over year and growing every month since january 25 retro crush set a new high as well roku subscribers across our channels are up 62% over the year. We ended the quarter at 1.44 million subscribers up around 2%. With repricing in place, our focus for the coming year is revenue and margin prescriber, not subscriber counts for its own sake. So put simply, the market is moving towards automation and we own the best in class day-of-the-art platform. The cost base is set, the margin levers are in motion, and then this back half is bringing the political advertising, as Chris previewed, plus our film slate and strongest seasonal quarters. We are exactly where we want to be. So with that operator, we can open up the line for questions. Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Dan Kernos with Stonex. Your line is open. Please go ahead yeah great thanks good morning um terrific results guys um i guess first just on uh jason on friday the 13th uh very cute chris um i think the question just is you guys have been steadily de-risking uh you know the film slate side of the portfolio obviously the family is producing and financing the film you guys had distribution rights on this thing um so maybe just talk about sort of the view on capital allocation process, and clearly the 25-year North American media rights, all rights media, et cetera, is going to clearly help continue the streak of profitable films. So maybe just start there, and then I've got some tech questions. Okay, thanks, Dan, and that's the first time someone has said what I said was cute, but good for you. Yeah, we're very pleased with this Jason deal, and I can't get into too many specifics, but you know it's one of the biggest horror franchises in history and everyone has been waiting for the next movie but what we've been able to do with our film slate and performance in the marketplace is based on the performance of our movies and particularly the terrifiers the way we cut our deals where we share the back end with our producers and kind of the low out-of-pocket spending that we we do from a marketing standpoint we've been able to track attract smart producers and directors guillermo del toro is an example and the barsamians are another example who really look at the economics don't want to work in the studio system and understand they have much bigger upside uh you know working with us particularly if we can perform like we performed on terrifier so i will say on what i will say on this movie without getting too specific is that even though the producers are financing it and the budget is higher than Terrifier 3, our all-in investment is going to be much lower than Terrifyer 3. And so we're very excited about that. There's a huge appetite out there in the marketplace that, you know, obviously Buddy Disgusting and others have been tracking for this movie and they've got a TV series that's very, very successful. And we think this can be a big franchise property for us with virtually de minimis risk on our part. And this model now on this movie is something that we want to try to apply even more and more going forward. Because again, as I've said, our objective with this business is not to try and compete with the major studios or anything. It's really to add value to our library and have properties that are going to drive subscribers and viewers to our channels. and I think Jason is going to be a perfect example of that. Got it. That's helpful. Just trying to keep you on your toes, Chris. No, I appreciate the Friday the 13th announcement. Eric, maybe for you, look, it sounds like Giant and IndieQ are going really well right now. Obviously, political was a boost, but it seems like the underlying trends are also strong. So maybe just kind of parse out those two aspects, what you're seeing kind of post-political, how you're seen either product development from the IndieQ side and what's driving the strength there. And then clearly, as you pointed out, a ton of consolidation in the broader media space. So it feels like a ripe opportunity for you guys to help with library conversion translation etc along that path sure uh so you're you're correct uh so we you know we had we had an incredibly strong uh ramp up into um the and through the political season um and uh as you would expect you know following following the third uh you know obviously don't sustain those rates but you know we're still seeing uh strong uh revenues post uh and going into the holiday season so we still believe that this will will uh you know given that the the dynamics of everything we still expect this to be an incredibly strong quarter um both off the tailwinds but off the strong performance um we've been working incredibly hard on uh technology to increase margins on a platform uh which we think will be reflected in this quarter um and on top of that um you know focus on uh the top line growth by adding new uh strong uh demand nodes um And, and partner nodes on the SAS side, we announced yesterday, or the prior day, deal with about $8 billion for media years for large advertisers. So that's a very welcome addition to the roster and should make a substantial difference in results next year. But beyond that, also continuing to improve the supply footprint by strengthening our relationships with our existing OEM partners and the label that we've been adding. So on top of that, you know, we've We've been in technical trials and working with partners to get that product fully ready for deployment by the end of this fiscal year to early Q4, hopefully in January is the target. So we think that will be a contributor to Q4 in this fiscal and a big pillar of growth into the next fiscal year. So all in all, lots of very strong and positive elements. And then on the giant side, obviously, we love the way things have broke out with Skydance in terms of our positioning with our media services business. We fit right in the sweet spot of where we believe that that business's expectations are, which is being able to do more at a lower price. That's our entire thesis. On top of that, we like the, and the team that we've been working with is the continuity team over there. So we feel very strongly that there's significant opportunities there. We've also been expanding our relationships with several of the other studios pretty dramatically over the last quarter in terms of volume. And look, we see the whole industry moving towards a volume-based, you know, given the shift towards A-VOD, given, you know, the mid-term to longer-term shift towards AI-based content, the scale and volume is going to be very hard to manage, and we have the really one of the few opportunities to manage that at scale with a platform. your next question comes from the line of brian kinslinger the alliance global partners your line is open please go ahead hi thanks um you just spoke a little bit about giant but um i guess the follow-up is uh as you leverage giants relationships to sell the match point into the major studios how is the sales business cycle and consumer adoption progressing? Eric, you want to take that? Sure, so there's really two different routes in working with large scale enterprise partners. As you know, any large scale, Fortune 500 enterprise deployment is a longer sales cycle just due to lots of decision makers, budget cycles. You know, compliance and other factors. But what's interesting for us is we really have have the managed services lever where somebody could sign a contract, start working with us in a few days, leveraging the benefits of the platform without having a SAS contract. Um, and, and effectively we manage the deployment of their assets or business on our platform, uh, without them having to, to license or deploy it in a seat based model. Um, so we, we do both, um, we're, we'll get it. Um, And I think typically what I think the long-term vision is those servicing agreements that allow us to operate at incredibly high margins using the platform really becomes a strong demonstrable um stale pitch for them moving on other enterprise products that we have so we think that sort of dual punch that's part of the reason why we we acquired a giant in the first place was you know i wouldn't call it a trojan horse because it's it's but it's it's a way into these organizations allow them to see and demonstrate the technology us generate high margin scalable revenue while doing so and then you know uh you know land and expand and sell other products so i think that you know that cycle is very short the longer sas cycle is you know typical for these big deployments six to 12 months so that's sort of the mix you're looking at got it thanks this is kevin on for brian by the way um okay and then um Can you give us some more color on recent CPN trends across the AVOB business? Are you seeing improvement in pricing, fill rates, or advertising demand? And how are you thinking about the trajectory into 2027? Yeah, so this is really a tale of two stories, obviously, because when you have the political, Obviously, we have the political season. Everything is exaggerated. Phil, CPM volumes increase. I think we had seen a downward trend in CPMs due to the massive amounts of volume of entrance into the market over the last couple of years that have outstripped the the demand and pushed cpms down um especially for kind of undifferentiated or lower tier inventory um i think uh uh we've seen those those trends start to stabilize and and uh revert in some buckets in some categories as the market is is you know you're still seeing double-digit growth in that segment relative to television. So we think ultimately, you know, CPMs are stabilizing. Inventory expansion, especially on the OEMs, is not moving as fast as it was a few years ago. It's allowing prices to start to stabilize and increase. So I think, you know—obviously, we're seeing seasonal lift. I think the long-term trends are – we've seen the lower and mid-ends of the market kind of bottom out. They're still at the higher end. You know, your top-tier premium is still commanding very high CPMs. But I think, you know, generally speaking, we're seeing the trends going in a positive direction. Your next question comes from the line of Laura Martin with Needham & Co. Your line is open. Please go ahead. Good morning. A couple of things. One is, you know, I know you guys are shifting to a technology-based company, so I'm really surprised to hear you talking about adding people in Poland and other countries. I think Wall Street's looking for people to be replaced with technology. So, and since you're a tech company now, why are we adding people and not replacing people with tech platforms? That's my first. My second is taking pricing on your subscriptions up by 40% says to me, strategically, you're getting out of that business. Since I assume even if demand is inelastic, it feels like you're going to make a little more money, but you're gonna lose a lot of subs with that kind of big price increase. So I'm interested in strategically where that business fits in your future. And then I really wanted to talk about this working capital numbers. So $9.7 million use of working capital and the total revenue was like $26 million. Could we go into what's happening in the working capital components that's driving such a big use of cash? Thank you. Thanks. Thanks, Laura. This is Chris. Thanks for joining the call. I'll take the first question that you asked and i'll let eric and maybe sean take the next two um we're not adding bodies as you can see by our results on sgna the costs are coming down what what we're doing is we're shifting bodies from the u.s to uh lower cost positions in um in india and poland and moldova while we automate more and more and save more money so as eric said you're going to continue to see um you know significant cost savings you know going going forward um we we realized about nine million in total right now our full target including uh you know contractual stuff above the organ organizational savings is going to be 14 million dollars so um we're not we're not adding headcount we're shifting um some headcount to much lower cost uh operating centers overseas eric do you want to take the second question yeah sure so uh you know we you know the the price changes have been both structural right smaller independents um like us have have less leverage uh have had less leverage in the past to change to change pricing so um this So we I think our prices have not kept up with the price increases market wide. So we were pretty dramatically under market on pricing. You know, some of our services were as cheap as three or four dollars subscriptions. So, you know, on a relative basis, they're still going to be very cheap. We're just doing a lot of catch up rather than graduating it. we're we're accelerating it. We're not planning to exit the subscription side of the business. In fact, we're making improvements and investments in that business, you know, in terms of better content, better technology to attract more users. But you know we've we already you know did a you know even though our DTC side of our revenue is a smaller base relative to our third party distribution, we already inured those those those price changes earlier than this and we we didn't see a meaningful turn off. So we think, you know, just given that these are niche vertical products with a lot of sticky subscribers, We're not seeing the same churn that maybe one would expect. We'll we'll ultimately we'll see how that plays out with the third party services. But, you know, we're going we're you know some of these services we're doing from five to five to $7 and so on, or three to $5 and so long. So we're coming from an extremely low base already. And then, Sean, I think you can you can discuss the the working capital question yes yeah so just i mean i guess so working capital the position on the balance sheet just a just a baseline is uh it was 19 negative 19 million last quarter that's negative 9.7 million this quarter we highlighted that uh 8 billion of this relates to the valuation of our deferred consideration and inert out liabilities which will be you know we have the right to settle in equity. So, you know, with the 1.7 that's remaining, I'd say we're, right now, we're building towards theatrical releases, which happen in Q, which happened in the second half of the year. So that means marketing, content, content spend. So we've, you Know, before we are, you Now, incurring those costs in advance of the revenue. And I'd Say on the cash flow from operation side of things, the number there is negative 4 million, which is actually very in line with our content, the growth in our content advances. There are no further questions at this time. I will now turn the call back to Chris McGurk for closing remarks. So thank you all for joining us today. And if you have any further questions, please feel free to reach out to Michael McHugh with those questions. And we look forward to speaking with you all again on our next quarterly call. Thank you very much. This concludes today's call. Thank you for attending. You may now disconnect.