Cinedigm Corp.

Good afternoon and thank you for joining today’s third quarter fiscal 2017 earnings conference call. Participating in today’s call are Cinedigm’s Chairman and Chief Executive Officer, Chris McGurk; Chief Financial Officer, Jeffrey Edell; and our General Counsel and Head of Digital Cinema, Gary Loffredo.

Before I hand the call over to management, please note that on this call certain information presented contains forward-looking statements. These statements are based on management’s current expectations and are subject to risks, uncertainties and assumptions.

Potential risks and uncertainties that could cause the Company’s business and financial results to differ materially from these forward-looking statements are described in the Company’s periodic reports filed with the SEC from time to time. All of the information discussed on this call is as of today, February 14, 2017 and Cinedigm does not intend and undertakes no duty to update future events or circumstances.

In addition, certain financial information presented in this call represents non-GAAP financial measures. And now, I’d like to turn the call over to Chris McGurk.

Thanks Jill. And thanks everyone for joining us on the call today.

We continue to make strong progress in all aspects of our business. First, it’s important to underscore that we’ve accomplished several significant steps towards strengthening our balance sheet and reducing our cost structure.

All of these recent successes will help achieve our overriding objective of sustained and growing business profitability. Let me briefly list some of these accomplishments now.

We have implemented more than $10 million in annual operating cost reductions, including the recent termination of our West Coast office lease and by leasing less expensive space. That alone reduced our cost by over $750,000 per year.

We reduced our Digital Cinema debt by over $43 million during the first nine months of fiscal year 2017. We fully prepaid the outstanding balance of over $9 million in our Societe Generale Phase 1 term loan facility in November 2016.

We closed two significant accretive exchange transactions for our convertible notes over the past two months reducing our convertible note balance by $7.4 million and reducing our annual interest expense by over $300,000. We cancelled approximately 1.8 million common stock warrants of an institutional holder in December 2016 for a very nominal fee, further simplifying our balance sheet and reducing overhead.

And we are not yet done with our efforts. We continue to aggressively pursue additional cost streamlining opportunities.

In addition, working with our investment advisors, we continue to target additional opportunities to accretively exchange our convertible debt with current holders further reducing our total debt balance and interest cost. We also have made significant progress lining up promising opportunities to replace our existing revolver with an expanded asset-based loan that more adequately reflects the huge collateral base that we have in our business.

As a result of all this progress, we’re now prioritizing additional convertible debt exchanges and securing an expanded asset based loan as our top two financing priorities versus raising the additional second lien debt that we discussed on prior calls. Expect more news on these efforts in the next couple of months.

Most importantly, all of this successful activity has improved our ability to profitably grow our business operations, which I will now review. First: in Digital Cinema, we are currently evaluating opportunities to improve our financing of the remaining non-recourse debt on our books even though we continue to pay down very rapidly.

Also, we’re pursuing initiatives to realize the significant residual value of the more than 4,600 digital projection systems that we own. Second: in our Studio content distribution business the recent elimination of two of our biggest competitors has solidified our market position as by far the largest and strongest independent studio in North America.

With our library of almost 60,000 films and TV episodes, we’re aggressively leveraging our streamlined and efficient operations to attract and release significant new content in genres where we have proven competitive advantages and solid track record of achieving strong revenues and high rates of financial return. The three genres where we are generating the most success are family content, with strong performance over the last quarter from our Hallmark titles including Christmas Under Wraps and A Wish for Christmas; action Western titles where we achieve strong results from films such as Stagecoach and Traded; and sports where we help to follow-up the huge success we had in the third quarter with the official release of 2016 World Series Champions, the Chicago Cubs with the NFL’s official Super Bowl presentation, Super Bowl LI Champions, New England Patriots that we will release in March.

And we were particularly pleased to see that our entire Hallmark title line got 20% more placement that generated 30% more revenue than last year. I also want to underscore again that Cinedigm’s approach to distribution is almost totally based on the acquisition of finished or fully packaged entertainment content.

We do not invest in development or production of content to any material extent. Obviously this gives us a very advantageous risk profile as we build our library of premium content in an environment where we are now clearly the 800-pound gorilla in independent content distribution in North America.

Finally, the ability of our studio operations to attract new content in high-potential genres combined with a massive size of our library clearly gives us an important competitive advantage as we build-out our future in the high-growth OTT business. Subscription video-on-demand is projected to soon be a $30 billion marketplace, bigger than theatrical and DVD.

And all of our efforts have positioned Cinedigm to be the key independent player in that space. A narrow cast version of Netflix both here in North America and potentially overseas.

Our three current OTT channels, DOCURAMA, Dove and CONtv continue to grow and expand across new platforms. We now have more than 3.3 million app downloads and approximately 80,000 active subscribers in total.

Besides the continued strong performance of all of our channels on Amazon, and the new deal with Chinese technology giant LeEco, for our three current channels and one more in development that we discussed on our last call, we launched the Dove Channel on Apple TV last month, fully optimized for TV OS with a new design featuring an upgraded user interface. And we continue to leverage the vast amount of direct consumer data we are getting on our current OTT channels to help target high-potential new channel opportunities.

While there are several promising discussions ongoing with key branded partners in that regard, importantly, we’re now fielding many new potential deals from major entertainment players who are seeking to utilize Cinedigm’s proven OTT expertise, our long-term platform relationships and our OTT track record to help launch their own channels both domestically and overseas. Besides having three successful channels in the market and two years of experience in performance metrics, Cinedigm has a long and successful history of serving up tens of thousands of hours of streaming content coded to exacting customer standards across every major digital platform.

We’re now carefully evaluating opportunities in this new line of third party business and fully expect to become a major factor in providing OTT services and content aggregation to major players across the entire $30 billion OTT ecosystem. In addition, we continue to have very productive discussions with potential strategic partners and investors that could significantly accelerate the growth curve for our own narrow cast OTT channels.

Expect more news on that soon. However, even without those partnerships, we expect that our OTT business will move out of the investment phase and cross breakeven during our upcoming fiscal year.

This fast move to breakeven is driven by all of the market advantages Cinedigm has in efficiently launching and managing OTT channels at scale, underscoring again, exactly why we are now attracting such a high level of interest from potential third party business in this space. And with that, I’ll now turn things over to Jeff, for a financial recap and an operational update.

Thanks Chris. For third quarter of 2017, we’re very pleased with the positive momentum that we’re seeing across all of our businesses and the subsequent financial results.

Consolidated revenues were $24.4 million, Content and Entertainment revenues were $11.6 million. Consolidated adjusted EBITDA was $11.5 million.

Our non-deployment adjusted EBITDA was $2 million, inclusive of the significant operating cost incurred in the ramp up of the over-the-top channels that Chris referred to. And our CEG combined OTT adjusted EBITDA increased 90%.

Year-to-date non-deployment adjusted EBITDA was $2.8 million, an increase of over 300% or $4.1 million from last year, and CEG OTT adjusted EBITDA increased 58% over that same period. Overall, in the first nine months of fiscal year ‘17, the company paid-down over $43 million to non-recourse debt related to the Digital Cinema business.

Our balance sheet continues to improve as evidenced by our current ratio being 1.1:1 as compared to 1:1 at the end of the last fiscal year, an improvement of over 11%. When considering that, we now operate three distinct channels in the ramp-up phase, with a fourth one in development on a variety of platforms and supporting them with ever-improving customer acquisition programs, marketing operations, we’re very pleased with these results.

Our revenue in OTT is approaching $2 million for this fiscal year, compared to approximately $300,000 for the last fiscal year. In addition, we have cut our operating deficit in OTT approximately in half compared to last year.

Overall, we believe the business is clearly headed in the right direction, especially when the results of the LeEco deal and other platform deals begin generating revenue mainly during this next fiscal year. Now, that we have solid and growing metrics, we continue to see some real interest from potential strategic investors for all three of our OTT channels.

We’re looking for partners that will not only add capital but will also bring strategic assets to the table in terms of content, viewership, subscriber acquisition and expanded distribution footprint. Since Chris, already reviewed our numerous positive financial transactions, I’d like to address them in more detail with some specifics.

Let’s start with our significant cost reduction measures that have resulted in an annual savings of over $10 million. Before I get into the details, it’s important to remember that in the last several years, we have absorbed and integrated three different companies in New Video, Gaiam which absorbed Vivendi and Cinedigm.

In addition to tremendous asset, each company came to the plate with several and separate real-estate leases, potential and personnel and internal systems. We have had to deal with both the combination of those respective businesses while at the same time addressing the massive shift in the overall entertainment distribution business as consumers look for over-the-top solutions.

Clearly, a rigorous review of all our expenditures was needed to account for all this change and to find more, efficiencies. To that end, we found a variety of solutions including combining and/or eliminating like-job responsibilities, consolidating real-estate and enacting efficiencies through the various state-of-the-art systems that we have put in place.

As Chris mentioned, we’re in the process of moving our LA office to less-expensive space. This move alone will save us approximately $750,000 annually.

And as an additional bonus, we believe the new space will encourage even more collaboration and productivity and our employees due its open space format. Which brings me to my second item: Cinedigm’s employees, we believe that our employees are our greatest asset.

As leaders of the highly competitive entertainment and digital distribution landscape, it’s important for us to retain and motivate our valuable team. We have streamlined our workforce over the last two years from over 150 people down to approximately 100.

And we plan to keep Cinedigm as an attractive place to work on lease. In this means, we have recently implemented some new benefits, including an enhanced 401-K plan, granting incentive options with long-term vesting to all employees and providing for flexible work hours to adjust for the competitive workplace environment.

As Chris said, we are now the 800-pound gorilla, an independent content distribution in North America, with the most streamlined and efficient operation in the business. And we need to make sure we have focused and properly incentivized employees to maintain that standing.

Already these relatively low-cost efforts have proven to be beneficial and serve to align employees and shareholder interest. The third item I want to mention is our enhanced green-lighting process, whereby we analyze potential content we intend to acquire for distribution.

This process which includes gathering and analyzing historical sales data by genre, talent, retail enthusiasm and the like has been modified with a laser focus on increasing financial return on capital and internal rate of return. This has helped us focus on the genres that Chris mentioned earlier, sports, family, action Westerns, where we are currently generating a high growth rate and financial returns.

Overall, we continue to minimize our upfront investments while increasing our distribution fees. With the success we’ve achieved during the past year in reducing operating expenses, reducing balance sheet debt, acquiring more profitable content to distribute across all our outlets, potential investors and partners are now seeing the potential value that Cinedigm brings to the marketplace.

We hope to soon be announcing even further transactions to improve our balance sheet and further improve our liquidity by leveraging our extensive asset base and collateral including the residual value of our installed projections systems from our deployment business. Keep in mind that we still maintain an extremely large, approximately $300 million NOL that we carry and have a valuable public currency.

We’ve been working closely with the current banks led by Societe Generale to replace our current revolver with a new expanded facility that better reflects the current state of our business and our extensive collateral base. Our new potential lenders see the value in our AAA customers and relationships, especially in the digital business where companies like Amazon, Apple, Netflix, Hulu and Google to name a few comprise the vast majority of our receivables base and we have virtually zero bad debt.

All of the above make Cinedigm a force to be reckoned with as we move into our next fiscal year. Now, I’ll turn the call back to Chris for his concluding remarks.

Thank you, Jeff. In closing I want to reiterate that we have made significant progress in strengthening our company through all of the recent accretive financing activities and cost streamlining accomplishments that Jeff and I just highlighted.

We remain very, focused on quickly delivering additional accretive convertible debt exchange transactions in a new expanded revolver. Aided by those efforts, we continue to leverage our position as the largest independent studio in North America.

And our studio content distribution business, we are very, focused on acquiring and releasing premium content in high financial return genres where we have a strong track record and industry-leading expertise. And that will drive revenue growth and increase profitability.

In Digital and OTT, we’re extremely well-positioned to take advantage of the rapid emergence of the new S5 ecosystem in North America as well as international territories. Again, that subscription video-on-demand business is soon projected to generate over $30 billion in revenue.

And it is the highest growth, highest margin part of the entertainment business. Having the track record to service and grow not only our own narrow cast OTT channels but to also acquire, manage and service an enormous volume of digital content rights and launch channels for third parties in this S5 ecosystem is a key competitive advantage for Cinedigm.

We look forward to sharing successes on that front in the near future as we build out that new line of business. Finally, I want to point out that we continue to be engaged in several conversations with potential strategic partners at the corporate level.

There has been significant M&A activity recently in the independent entertainment content space with companies like Legendary and DIP Plug having being acquired by the China-based entertainment conglomerate Wanda, And AMC Networks, investing heavily in ROJ Entertainment, primarily because of their OTT business. With our public currency, growing metrics in OTT, potential positioning as the leading independent content aggregator for the huge and growing S5 ecosystem and the significant potential residual value for our Digital Cinema equipment, we are attracting interest from multiple entities both in the U.S.

and abroad that we are carefully evaluating. And with that, we will now take your questions.

Operator?

Thank you. Just a couple of questions on the VPF if I could start with, Jeff, I think on one of the previous calls you had mentioned that the NPV of that unit is positive.

And I was wondering maybe if you could put a number around it, I mean, are we looking at something over $15 million, is it a material number? My second question regarding the VPF business is with the prospect loan it looks like making up a majority of the outstanding non-recourse debt.

Are you looking to refinance that debt at any point in 2017 or is it going to be sort of a gradual pay down? Thank you.

Okay. So, the first, Gary, do you want to answer that one?

Yes, I had a hard time hearing the first one. The prospect refinance yes that is the majority of the digital sentiment non-recourse debt.

And we are exploring the possibility of refinancing that prospect there with a lower interest rate financing.

And Hasnaim, your first question about the value of the net NPV of the projectors, we don’t ever go out really from the company and give a value. But there are 4,600 projectors that we do have ownership of, 3,500 outright.

And so, those systems from a use perspective with bumper-to-bumper warranties as Gary like to talk about all the time. They could be worth $15,000 a piece at the end of the day.

This is Chris, as Jeff said we don’t do the calculation ourselves. Others have looked at the company and it’s both encouraging and frustrating for us that some of their calculations show that the residual value of that equipment of the projectors that Jeff mentioned is far and above the current market capital of the company.

The other thing that I will say is that the interesting thing is we’re getting some interest from entities in emerging markets with significant growth rates in terms of the theatrical business, China obviously, who are looking at that equipment that potentially is going to come back to us and seeing it as an asset that they can leverage in their marketplace. So, we’re encouraged that the residual value is significant and we’re very encouraged that we’re going to be able to realize that value.

Okay. And then maybe just to follow-up on that.

With regards to the AMC acquisition of Carmike that being closed, have the discussion started yet or do you expect any discussions regarding maybe taking that in-house, that business in-house for them?

Gary?

We expect to have some discussions with AMC once they fully integrate the Carmike Systems. But we’ve not made any report right now.

Okay. Is that a 2017 timeframe or later than that?

We expect to have discussions with them this year.

Okay, okay. I’ll get back in the queue and leave for someone else.

Thank you.

Thank you.

Hi, it’s Loren from [indiscernible]. I had a question on the OTT installed base of users and the run-rate there.

I know it seems like it’s come down quite a bit in terms of the growth rate. Can you kind of comment on what you’re seeing there?

No, look, it’s - strictly the OTT business is strictly a measurement that the interplay, of the amount of money that we choose to spend on content refreshing the channels and the marketing dollars. So these are the levers that we can literally Loren turn up or turn down as we like.

If we turn down the levers of content and marketing we can get to a breakeven very quickly but you’ll slow your growth rate. If we turn those levers up, we increase the period of time to breakeven but we create great value in a lot more subscribers.

We’re actually very happy with the current subscriber base. And what’s happened to us, which is fantastic is the acquisition cost per subscriber has dropped considerably.

So as we’ve been in this business now for a year and half, two years, we’ve been enabled to bring down the actual cost of acquiring a subscriber and then the long-term value of the actual customer themselves.

Okay. So basically you just spend a little less on marketing in the last quarter?

And one of the things we’ve been concentrating, I know a lot of these distribution and platform deals, we haven’t seen any impact as Jeff mentioned of the LeEco deal kicking, we never got any reporting out of them. And we’ve got three or four other distribution deals on the table right now that we’re trying to get over the line.

So, with the spend that we’re doing in this first calendar quarter on both content and marketing and when the impact of these new deals kick-in, we fully expect to see the growth rate begin to climb up again.

And did I hear you correctly, you said, it was on a $2 million run-rate, is that a net revenue absent the revenue share to the partner?

That is the gross revenue that comes into us compared to the gross revenue that came into us last year, $300,000-ish last year and $2 million in this fiscal year. It’s just a year-over-year.

It’s not a run-rate because every single.

I see, it’s in fiscal year 2017, okay.

Yes, yes, you got it.

Okay. Great.

And then on the Digital Cinema side, what were the Phase 1 revenues?

For this particular, you want the quarter or the year, year-to-date?

Just the last quarter.

Yes, the Phase 1 revenues for this quarter were $7.855 million exactly. And the year-to-date is $28.1 million.

Okay. It seemed like you guys had paid down a greater amount of the Phase 1 data if I’m not mistaken, I think it was $12 million at the end of September than the revenues that you just mentioned?

Yes. Soc Gen, it was paid down $9 million-ish total I think $12 million.

So they’re paid to zero, so they don’t really exist now in terms of their spot there. But yes.

So, that was just paid out of the restricted cash I guess?

Yes, the combination, Gary, do you want to address that?

Yes, it was paid down over the VPF cash flow from Phase 1 and the restricted cash.

And then, when you look at the total non-recourse debt, what is that at right now?

Total non-recourse debt is sitting at $74 million, $75 million right now. And it’s predominantly prospect with KBC really having the balance.

Great. What was the amount of the prospect to that go down a little?

Prospect is going down considerably, yes.

Sorry, quarter-over-quarter?

Quarter-over-quarter, Gary, do you have that handy? I might have to look that up.

I don’t have the reported numbers as of the end of last quarter. But we paid it down that as well.

Yes. We’re $6 million down now and then we were down I want to say $5 million or $6 million during the quarter, somewhere in that range.

Got it. And then, kind of just you guys had mentioned the $10,000 to $15,000 residual value on the projectors.

Are you thinking that that is something that accrue to equity or?

Did you say - I didn’t hear the first part of your question.

Yes, I thought I heard, I thought I heard you mention people talked about maybe a range of $10,000 to $15,000 per projector in terms of residual value?

The range is actually, it’s actually wider than that. Some had the projector price higher than that.

But is that something that you expect to be above and beyond the prospect debt and something will accrue to actual holders?

Yes, based upon the calculations that we have, we believe the prospect that could be paid off through just the cash flow of the business. And that would lead residual value potentially available to the company.

Great. Thank you.

Thanks Loren.

Thank you. Just a question on the content entertainment business, the distribution revenues obviously have been impacted over the past year and half as a lot of the Amazon and Netflix have gone more in-house.

Is this more of a steady state run-rate you expect going forward with regards to distribution business? Or is that something that will kind of continue to decrease over the next two years?

Look, Hasnaim, the marketplace for the physical business as everyone is aware declines anywhere from 9% to 20%, but that’s just strictly DVD, Blu-Ray combined. We are in a unique position we’re the only Indi that sort of left out there that we can pick up business that’s coming from folks that don’t want to be part of the major studio system.

So, we think we can flatten out our revenues from CEG as you look period-to-period create a steady state just from picking up that business. Additionally, digital is a focus of this company, and it’s a large focus as we go into this quarter and the next fiscal year.

It’s a more profitable business and it’s a kind of thing that we’re trying to get more and more rights, digital attached to the physical product we distribute and also looking to expand foreign as well. So, if you add the fact we’re the only Switzerland-based, Swiss I’m saying in terms of Indi based, Indi left out there outside the studios, the ability to pick-up business that falls outside the studios with digital and the foreign opportunity gives us a very stable future in terms of how we see that business.

And if I could just add to what Jeff said, this is Chris. The upside to us in digital is what I was talking about in my remarkets about digital aggregation for S5 platforms.

That in addition, it is licensing digital content. If we can build out that business and become an aggregator for other platforms and maybe not just participate in fees but also participate in potentially the subscription revenues at that platform, you’ve got a huge growth engine for the business that ought to more than offset obviously any decline in physical and really propel our growth going forward.

And that’s one of the reasons why we’re focused on trying to build-out that business because we think we have unique attributes as an independent, our ability to handle massive amounts of content and our expertise in the OTT space that people are looking at, that we can build that business out. And that’s going to be a substantial growth engine for us in digital that doesn’t rely on us launching our own channel.

And I guess, MLB’s internal streaming services, was, part of it was sold to Disney, I think within the past six to nine months. But it takes a certain amount of scale as you can see with optimized business as well.

I mean, how much or how far away are you from that type of scale? Do you need that type of scale with regards to the customers that you’re pursuing?

You’re talking about in the OTT space?

Yes, well, I guess with regards to providing SVOD, being a third party SVOD?

We’re not providing the technology and platform. What we would be providing is we will be providing the content, curation and certain programming services.

We would not be investing in technology or building out a platform for a third party.

Okay, okay, got it.

Yes. So, and it’s kind of a unique position that we’re in because besides us there are very few players that can deliver that level of content and that level of curation and programming services to a large entity that’s trying to participate in the OTT space at scale.

But to add on to what Chris said, there are certain players that are looking to leverage the technology we already have. And our distribution abilities and so forth, and we hope to make some announcements about that in the ensuing quarter.

Okay. And then, final question from me.

Initially when you’re trying to do the convert exchange several quarters ago, I think the target that you laid out was something if I can remember right, something close to reducing convertible debt by $18 million. Is that kind of how you’re looking at the exchanges now with regards to second lien and equity exchanges?

Or is there a dollar figure that you’re going for? I guess how are you thinking about those exchanges now?

Look, the exchanges could run anywhere from $0.20 on a $1 to $0.40 on $1 to $0.50, depending upon whether they’re consummated through cash, equity or adding to the second lien debt. We have $15 million is our cap in our second lien debt position.

So, to the extent that we can utilize the second lien debt and garner a large discount, convert, it makes sense because it’s adding equity value to the company. And you see, the two transactions that we’ve just done right now, one of them is probably $0.20 on the dollar when you figure out just the straight equity that we converted it for without putting anything in the second lien position and got rid of significant debt.

And the other one was a combination of equity and a second lien position that was around just I think under 50%. So, you can give an idea of the range.

So, if you took the $64 million of overall debt and you take the $5 million in mix, because that’s available to work this way as well, its $69 million. I don’t think it’s too far of a stretch to get $18 million off of that debt.

Yes, we don’t have any hard and fast rule to any particular deal other than we’re trying to reduce our interest cost, we’re trying to improve our balance sheet, we want to make sure that it’s an accretive transaction. Obviously we’re extraordinarily focused on making sure we’re not doing anything to mute our current shareholders.

And we’re very happy with the deals that we’ve done so far. And you should expect more announcements in the near future.

Great. Thanks so much.

And good luck.

Thank you.

Thank you.

Thanks. Yes, you made a good comment about the cash flows of the Digital Cinema business covering the debt and then the residuals to the equity on the projectors.

I wanted to make sure I understood where the revenue streams were coming from in terms of kind of the assumptions. I know that I think you’re projecting the Phase 1 screens for the MPA to roll-off this year.

And then after that I guess you’d have the non-MPA revenue streams. Is that still around $1 million roughly per quarter?

Gary, do you want to?

Gary, you want to tackle that one?

We’re not prepared to give guidance on what we expect on the Phase 1 screens. But as far as the revenue, this Phase 1 VPF revenues and then there is the Phase 2 VPF revenue and the service fees that we get for collecting those revenue.

All of those revenue streams will go to pay down the prospect debt. And we are forecasting that revenue is sufficient to pay off the prospect debt without using any sale or projectors.

Right. So 2017 we’re still thinking that the 10-year anniversary on the Phase 1 goes away.

Is that right on the MPA projectors?

Under the major studio you’re talking about?

Yes.

Yes.

Okay, and then, Phase - sorry, go ahead.

No, go ahead.

Phase 2, it sounded like disclosures where that would carry on through 2022, albeit decreasing starting next year is that right with projectors rolling?

Yes.

And then, your media services, how should we think about that from a modeling perspective and I think it was 10% of the Phase 2 VPF and 7.5 of the MPA Phase 1. Is that just kind of calculation based on those two drivers?

Yes, it’s based on the VPF revenue that we collect.

Got it. Okay, great.

Thank you.

Thank you, Loren.

Again, thank you all. We’ve got a lot going on.

And we feel very good about the progress we made in the business. So, thanks for your support.

And stay tuned and expect to hear more from us over the coming weeks. Thank you all.