Earnings Call Transcript - CNVS Q1 2026

Operator, Operator

Good day, everyone, and thank you for joining us for the Cineverse Corp. First Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Eden, and I will be your operator today. I would now like to turn the call over to Gary Loffredo, Chief Legal Officer, Secretary and Senior Adviser for Cineverse. Please go ahead.

Gary S. Loffredo, Chief Legal Officer, Secretary and Senior Adviser

Good afternoon, everyone. Thank you for joining us for the Cineverse Fiscal Year 2026 First Quarter Financial Results Conference Call. The press release announcing Cineverse's results for the fiscal first quarter ended June 30, 2025, is available at the Investors section of the company's website at www.cineverse.com. A replay of this broadcast will also be made available at the Cineverse website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations 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 on this call is as of today, August 14, 2025, and Cineverse does not assume any obligation to update any of these forward-looking statements, except as required by law. In addition, certain financial information presented in this call represent non-GAAP financial measures, and we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. I am Gary Loffredo, Chief Legal Officer, Secretary and Senior Adviser at Cineverse. With me today are Chris McGurk, Chairman and CEO; Erick Opeka, President and Chief Strategy Officer; Tony Huidor, President of Technology and Chief Product Officer; Mark Lindsey, 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 fiscal year 2026 first quarter financial highlights, the latest operational developments, outlook and long-term growth strategy. Mark will follow with a review of our financial results. Erick will provide some details on our streaming business results and operating initiatives, and Yolanda will cover our upcoming theatrical slate before opening the floor for questions. I will now turn the call over to Chris McGurk to begin.

Christopher J. McGurk, Chairman and CEO

Thanks, Gary, and thanks, everyone, for joining us on the call today. On our last call, Tony Huidor reviewed our technology business in some depth following our recent reorganization, where Tony became our President of Technology and Chief Product Officer to help turbocharge our tech business. On this call, Yolanda Macias, who recently became our Chief Motion Pictures Officer, will review our theatrical business in some detail as well since we have so rapidly built it into a surging new product line for the company. However, before Yolanda goes through that theatrical business review, Mark will detail our financial performance, and then Erick will outline our operational progress and the new initiatives across our businesses. And I will start before them by briefly reviewing some points that I believe are very important for our shareholders. First, we had another strong quarter from a revenue standpoint with significant growth across all our key lines of business. Operating margins also increased markedly from the first quarter of last year. Investments in SG&A and marketing to support our expanding theatrical releasing business and build out our technology, product, business development and sales team impacted our adjusted EBITDA and net income. However, we expect to begin to see some strong returns from these investments beginning in our fiscal second quarter that we are currently halfway through. Mark will get into more detail on all that in just a minute. Second, The Toxic Avenger Unrated hits theaters in 2 weeks on August 29th. We are pleased with the reaction to the film so far, particularly the response to the movie cast and director at Comic-Con, where we got major studio level panel placement in the main hall and lots of attention. Yolanda will get into more detail on the release and marketing strategy in a few minutes. But now I want to emphasize the economic comparison of this film to Terrifier 3 from a Cineverse standpoint. Like Terrifier 3, our all-in investment to acquire and release The Toxic Avenger is less than $5 million. That in and of itself generates a really favorable risk-reward profile for us with an extremely low ultimate box office breakeven of between $5 million to $10 million and significant upside beyond that. However, the risk/reward profile on Toxic Avenger gets even better than that since we completely bought out the film from the producers for all North American rights in perpetuity. That means we completely own the entire stream of studio and producer revenues and profits that The Toxic Avenger will generate in all media domestically forever. And we don't have to share that with anyone. Obviously, that's an extremely advantageous position that I have never seen replicated for a major studio production such as this one. Third, we added a great high-potential new film to our slate that we're very proud to have acquired, Air Bud Returns. We believe this amazing beloved family film and TV franchise formally set up at The Walt Disney Company for over 2 decades under the creative guidance and ownership of producer Robert Vince, has a built-in audience that is all prime for a wide release theatrical revival in late summer of 2026. Our recent announcement that Buddy, the Golden Retriever, is returning to the big screen has already garnered a huge positive reaction from fans in the media, both traditional and social. The announcement was featured on Good Morning America, The TODAY Show and People magazine, among many, many other outlets. Finally, just yesterday, we announced a 50-50 joint venture for MicroCo, a new studio and platform for Microseries, a market projected to reach $10 billion by 2027. Our partner for MicroCo is Lloyd Braun's Banyan Ventures. Lloyd is the former Chairman of ABC Entertainment and the former Chairman of WME. Joining this venture as CEO is Jana Winograde, the very talented former President of Showtime Networks; and also Susan Rovner as Chief Creative Officer, the also very talented former Chairman of NBCUniversal Television and Streaming. The goal here is to be a first mover domestically in this rapidly growing new market by taking advantage of the demonstrated capabilities of this elite leadership team while fully leveraging Cineverse's unique set of streaming, content, technology, marketing and AI assets to create no less than the Netflix of Microseries in a low-cost, AI-native fan-forward environment. All the investments we have made over the years in technology, AI, content and streaming have given us a tremendous advantage in dramatically lowering entry cost to this business as well as accelerating speed to market and scale. Erick will explain all this in more detail in just a few minutes. In many ways, we are entering this Microseries business for the exact same reason we entered the wide release film business — because we have assembled a unique set of next-generation assets that create a compelling competitive advantage versus everyone else in the business. These assets enable us to break all the traditional rules and economic models that burden everyone else in the industry and should lead to significant value creation. And with that, I'll turn things over to Mark for a financial update. Mark?

Mark Wayne Lindsey, Chief Financial Officer

Thank you, Chris. As Chris noted, we had a strong top line revenue and gross margin quarter with $11.1 million in revenue, a $2.1 million increase over the prior year quarter and a gross margin of 57% compared to 51% last year, materially above our guidance of 45% to 50%. For the quarter, we reported a net loss of $3.5 million and adjusted EBITDA of negative $2.1 million compared to a net loss of $3.1 million and adjusted EBITDA of $1.4 million in the prior year quarter. The decline in both numbers is primarily the result of our SG&A expenses impacted by increased investments in sales, legal, marketing and technology to support our expanding theatrical and technology initiatives for the remainder of the fiscal year. We fully expect to see strong top and bottom line results in the remainder of our fiscal year as a result of these upfront investments. We had $2 million in cash and cash equivalents on our balance sheet as of June 30, 2025, with $8.9 million available on our $12.5 million working capital facility. The decline in cash from year-end is directly attributable to the acquisition of content and the payment of royalties during the quarter, the majority of which was related to Terrifier 3. Subsequent to year-end, 1.9 million warrants to purchase shares of our common stock were redeemed for $5.8 million in proceeds or $3 per share, leaving approximately 700,000 warrants still outstanding. We would also like to highlight the positioning of our current balance sheet with no long-term debt, no acquisition-related liabilities outstanding. Outstanding warrants have been reduced to 700,000 and $12 million available on our capital facility as of today. Finally, coming off a fiscal year with record revenues and strong revenue and gross margin growth this quarter, we believe the SG&A investments that we've made this quarter will lead to strong top and bottom line results for the remainder of the fiscal year. With that, I'll turn the floor over to Erick to discuss our operating and strategic growth initiatives. Erick?

Erick Opeka, President and Chief Strategy Officer

Thanks, Mark. So this was a quarter of acceleration across all our key business lines, streaming, advertising and platform services. Our strategy is working, and we're starting to see results. Starting with streaming, we delivered 4 billion total minutes viewed, up 38% year-over-year and 20% sequentially. FAST minutes streamed were 3.8 billion, a 39% increase over the prior year. Total streaming viewers climbed to 214 million, up 24%. Subscriber count grew to 1.4 million, an increase of 5% year-over-year and 1% over the prior quarter. Screambox is up 27% since the release of Terrifier 3 on the streaming service. And the Cineverse channel has grown more than 4,300% since January off a small base, but clearly gaining traction. We saw a strong uptick in free trial starts in the quarter, many of which are now converting to paid in the current quarter, and we're leaning into that momentum. Over the next 2 quarters, we expect to pursue aggressive growth through new partnerships, bundling strategies and marketing execution in the period. On advertising, performance was mixed. Headwinds from open market programmatic remain, though we are seeing signs of recovery as brands and agencies begin to restore spending heading into the back half of the year. The real strength came from our direct business, which grew 57% year-over-year. That growth was driven by both new and returning advertisers, including Expedia, Mint Mobile, ZipRecruiter, Warner Bros. Pictures, Sony Pictures, Hulu, Neon, Audible and Universal Pictures, among others. Cineverse continues to be a must-buy for entertainment marketers. Our advantage is scale, targeting and breadth of formats. We're not just offering CTV; we're delivering a full funnel reach across mobile, podcast, display and live events. C360, our proprietary ad platform, is now a core part of that strategy. Subsequent to the quarter end, in July, we just delivered our strongest month ever in terms of campaign volume and advertiser adoption. What makes C360 powerful is that it gives us reach not only across our own owned properties but across the open web. Advertisers can reach our fandom audiences across a stunning 98% of U.S. ad supply. What does that mean? That means advertisers can target Cineverse audiences wherever they are on ESPN, Hulu, CTV platforms and more anywhere. That's what allows us to scale while still offering precision. On licensing, we continue to land high-value deals while preserving windows on our own platforms. That hybrid approach is delivering both revenue and strategic control. We've been capturing mid-7-figure revenue across partners while driving growth on services like Screambox and Cineverse. We're monetizing through both first-party and third-party channels, and that's a real advantage. Now let's talk about the micro drama announcement. With MicroCo, we're not entering the space to compete with other apps. We're building the platform that's going to define the category. There are dozens of apps operating independently, but none offer a complete experience for fans, creators and advertisers, which is pretty surprising given the scope of this being a $10 billion market. MicroCo is going to be that infrastructure layer. What makes MicroCo different is our strategy to match the cost-effectiveness of the space, short form, mobile first with rapid production while raising the bar on quality. That's what's been missing, content that feels built to last. So our leadership team and partners reflect that ambition. Jana Winograde, our CEO, was the former President of Entertainment at Showtime, where she greenlit and launched the network's most successful streaming series, including Yellowjackets. She previously led business ops for ABC's Network and Studio, which gives her a rare hybrid view of creative and operational leadership. And Susan Rovner joining in October as Chief Content Officer is one of the most accomplished network and studio executives in the business. She's overseen more than 18 series that reached the 100-episode mark, including Gossip Girl, Flash, Shameless and Supernatural, among many more. And Lloyd Braun, Chair of the Board, is behind some of the most successful shows in modern television, including iconic and successful series like The Sopranos, Lost, Desperate Housewives, Grey's Anatomy and Jimmy Kimmel Live! So this is not a team that's just chasing trends. We're going to be setting the standard for an emerging space. And with our Matchpoint technology, content library, fandom network and ad platform and some amazing platform innovations forthcoming, we're going to be building the infrastructure, distribution and monetization that the space has been missing. So we believe MicroCo can fully unify this entire micro drama ecosystem in the same way Amazon Prime has unified it for long-form content, aggregating great content, enabling creators and delivering discovery and monetization at scale. So while we're proud of what we've built so far leading up to this announcement, we know there's a lot more to do. And the team across Cineverse continues to operate with urgency, focus and a commitment to execution. So now we're putting them to work during the next phase of growth. And with that, I'll turn it over to Yolanda to discuss our theatrical business.

Yolanda Macias, Chief Motion Pictures Officer

Thank you, Erick. As part of the next-generation studio, the Motion Picture Group is building our strongest slate of wide releases in the company's history. This supports our strategy of IP with addressable and identifiable audiences who match Cineverse's internal media assets while offering the creative community an opportunity to reach their fans with a much better risk-reward profile than anywhere else in town. The next release from our fan-first slate is The Toxic Avenger Unrated directed by Macon Blair, which is a reimagination of Troma's 1984 classic and is coming to theaters over Labor Day weekend on August 29th. Also following our trend of wide unrated releases is Silent Night, Deadly Night, directed by Mike P. Nelson and which will undoubtedly shock audiences in time for the holidays on December 12th. On January 23rd, gamers and fans of creepy storytelling will experience the next installment of the iconic horror game franchise Return to Silent Hill, and it is the 20th anniversary of the original 2006 film. This joins our other previously announced wide release and the third installment of the franchise Wolf Creek: Legacy. Going beyond horror, we recently announced expanding our theatrical slate into the important and popular family category, Air Bud Returns, the iconic franchise created by Robert Vince, who will continue to resonate and delight fans across generations. The marketing campaign launched first on the TODAY Show last Friday, where we announced that your Golden Retriever has an opportunity to be in the next Air Bud movie. The search is on. And look for another exciting announcement very soon about a major film theatrical reissue that is coming to Cineverse and to fans in 2026. All wide releases leverage our unique theatrical strategy blueprint to release in an effective and efficient manner as proven with Terrifier 2 and Terrifier 3. We target and reach major studio level awareness across all our internal media assets, efficient paid media spend and major brand partnerships. As Chris stated earlier, these projects have total investments in acquisition costs and P&A of less than $5 million and ultimate box office breakeven of less than $10 million. That's why they have such a favorable risk/reward profile versus all our major independent studio competitors. We will continue to prove that our independent and innovative approach will generate positive results for filmmakers and receiving participation overages earlier than the traditional studio paradigm. Comic-Con was a huge marketing and press success for The Toxic Avenger and Silent Night, Deadly Night. Talent interviews, panel discussions and exclusive fan screenings were very well received, and talent has been incredibly supportive with these efforts. Reactivating the iconic Moviefone number for the first time in a decade, Cineverse partnered with Moviefone and launched a fan-forward experience on August 1st with Peter Dinklage's voice as Toxie reading showtimes. The press pickup exceeded our expectations, and AdAge named it one of the most creative campaigns you need to know about. Toxie is the hero we need now, and there is no better time for him to come to the big screen than now. As these releases show and the strategies to distribute and promote them support, we are champions not only for filmmakers, but also for our fans. We listen to them and deliver the films they want to see in the format they want to see them. We will continue to be bold and bring compelling pictures to theaters, including unrated pictures in which fans can see the filmmakers' vision in all its glory. In addition, we are disrupting Hollywood studio economics by delivering greater and faster back end to filmmakers. We will continue to identify and acquire proven IP from franchises, books or games or reissues of cinema masterpieces that beg to be offered as a unique experience to existing and new fans. The beauty of known IP is the addressable and highly engaged audiences that you can match and align with our expansive network of channels, podcasts and editorial sites like Bloody Disgusting. In addition, we are releasing award-winning limited theatrical independent movies on less than 100 screens. These theatrical releases are prestige films acquired from festivals with a strong following and it marks Cineverse's support of indie filmmaking. For example, this November 14th, we will release The Things You Kill, winner of Best Director at Sundance Film Festival 2025. A Useful Ghost, winner of Critics Week Grand Prize of Cannes Film Festival will make its North American debut at the Toronto International Film Festival. Both critically acclaimed films may receive a best international feature film nomination for their country of origin, and of course, we will support the FYC campaign. Finally, the Teddy Award-winning animated comedy out of the Berlin Film Festival, Lesbian Space Princess, will be theatrically released on October 31st. In summary, the Motion Picture Group is targeting highly engaged fandoms and creating event viewing and unique experiences across all windows of distribution. We are engaging legacy and new fans with our multi-touch point campaigns supported by our technology and media assets at a fraction of studio cost. We expect to build wide and limited theatrical releases to roughly 14 pictures per year over the next several years. We will be announcing other exciting IP releases and reissues as early as next week and in the coming months. And with that, operator, let's open it up for Q&A.

Operator, Operator

Your first question comes from the line of Dan Kurnos with Benchmark.

Daniel Louis Kurnos, Analyst

Great. Hopefully, you can hear me okay. I have a couple of questions, starting with the MicroCo announcement. Chris and Erick, you provided a lot of details, but why partner with you? It's clearly a significant market with Netflix and YouTube discussing it, and Mountain entering the DSP space. The opportunity for small and medium-sized businesses is substantial. So, first, why partner with you? Second, how much investment will you be making if it's a 50-50 joint venture? Lastly, how do you view monetization in this space? On the expense side, could you share insights on your investments and how you expect leverage to develop in the upcoming quarters? I would appreciate that.

Christopher J. McGurk, Chairman and CEO

Well, Dan, this is Chris. You did a good job there of getting like 15 questions in with your one question, one follow-up, but good on you. Just in terms of the micro drama, Microseries initiative, I think it emphasizes one compelling point. People are coming to us now, not just filmmakers, but other businesses and people in the industry who now understand that we built a collection of assets that nobody else has. And again, whether it's launching a wide release movie business in a smarter way, we think, than everybody else with virtually no risk, or a Microseries business where we've already spent 10 years investing in kind of the infrastructure, the technology, the AI, the streaming, the podcast, our marketing operation, C360. So we've done most of the heavy lifting already to basically be the first domestic company to launch into the space, which, as we said, is going to be a $10 billion business in 1.5 years. So I think Lloyd and company, who are all incredibly experienced and have been around the block, wanted to be involved in a game-changing new business that had already done really well overseas. And I think they saw that we could really be sort of their secret weapon and helping them leverage all their creative talents and their relationships to do it in an incredibly smart, cost-effective way, and do it really quickly and really be the first mover in the space. So generally, I think that is why they came to us. I'll let Erick get into more detail on your 14 other questions.

Erick Opeka, President and Chief Strategy Officer

Thank you, Chris. One reason we're a strong choice is the fandom business we've developed. We've taken compelling assets and created a platform in the horror genre with Bloody Disgusting and Screambox. This ecosystem has enabled us to produce and release wide theatrical movies while building a substantial advertising business around it. We observe similar trends in the micro drama space. We are not merely launching another brand to compete with existing ones. We have a strategic plan aimed at replicating the success we've had with Bloody Disgusting, which involves immense fandom, multi-platform presence, and significant revenue generation, along with being a go-to source for information and data. Our model utilizes everything we've been developing, including Synacor, Matchpoint, and C360. We aim to create competitive products not just in terms of original content but by building an ecosystem similar to Amazon Prime, which includes channel sales, an ad-supported model, and IMDb, tailored for the micro drama sector to foster fandom and maximize monetization. We are not just creating another micro drama app among many; we are establishing a foundational hub for the micro drama industry along with its fandom. Regarding investments, we have many options and a strong team, which has attracted considerable interest from various players. We will share more details as our financing strategy finalizes. For now, we plan to bootstrap with our partners to kick things off and explore investment opportunities later. We believe this business has the potential to grow substantially based on the capital we invest. If we determine that our capital requirements exceed our current capabilities, we are open to bringing on additional equity partners. I hope this provides some insight, even though I can't share all the specifics at this time.

Operator, Operator

Your next question comes from Kevin Pimentel with Alliance Global Partners.

Unidentified Analyst, Analyst

This is Kevin for Brian Kinstlinger. On the June earnings call, you highlighted that Matchpoint was closer to monetization with the big studios evaluating the technology. Is there anything more you can share on the progress here? And can you help manage expectations for sales cycle and feedback from studios?

Christopher J. McGurk, Chairman and CEO

Yes. Thanks, Kevin. This is Chris. I'm going to turn that over to Tony, who's basically in the midst of filling up our tech pipeline right now, and he can give you an update on where we stand and maybe a little bit better sense of sort of the timeline.

Mark Antonio Huidor, President of Technology and Chief Product Officer

Thanks, Chris. Kevin, thank you for the question. I think as we communicated at the last earnings call, we've made significant inroads in terms of bringing Matchpoint to market. One of the challenges that we had previously was really getting Matchpoint in front of the decision-makers, the champions at the studios. With the recent hiring and announcement of Michele Edelman and the sales team that we've built around that, I'm confident that we now have the right sales team to really grow this business out rapidly. The traction and the robust response, positive response we've received from the studios has been tremendous. I would say that over the last quarter, our pipeline has easily more than tripled in terms of potential deals, some of these deals, obviously, the larger studios are going to take a little longer to close. The deal cycles are longer. But the revenue potential is far exceeds the smaller deals that we've currently announced. We will continue to do small deals because the deal cycles are smaller. So that's the meat and potatoes of the business. But our goal really is to continue to target larger big whales that we think will drive meaningful revenue to the business. We're pretty bullish. I would say that we're also making some traction with cineSearch. We're in a process of entering a pilot with a major TV OEM, one of the top 5 global TV manufacturers. So once again, I think as we've said before, Matchpoint is really the sphere that gets us in front of the big clients, Matchpoint Dispatch. And then from there, we upsell the other services and products that we've developed. The product portfolio that we have is bar none, far superior to anything any of our competitors are out there pitching. We're seeing movement in the industry in terms of competitors to Matchpoint. We're seeing some other competitors fall out of the business, go under, be sold. So it really has opened up tremendous opportunity for us. So we feel very bullish on where we stand on the technology sales side.

Unidentified Analyst, Analyst

Great. And then could you go into a little bit more detail on the strategy to drive strong revenue contributions from podcasts?

Christopher J. McGurk, Chairman and CEO

Erick, do you want to take that?

Erick Opeka, President and Chief Strategy Officer

Sure. The initial phase of our podcast business focused on building a sizable audience, which we have successfully achieved. The next phase involves enhancing our sales capabilities to transition from programmatic and third-party sales arrangements, which negatively impact our gross margins. We have established a dedicated sales team that is now fully staffed. Although they have been with us for less than a quarter, they are actively reaching out to their contacts. This team brings substantial experience in podcast monetization from SiriusXM and is already making significant progress, with notable deals starting to come in. We believe that combined with our expanded efforts on C360, the integration of direct podcast sales with our team’s work on CTV, podcasts, and other aspects of our ecosystem will yield effective results. Our plan for the upcoming quarters is clear, acknowledging that it typically takes a new sales team about one to two quarters to reach their full potential. However, we are optimistic about their readiness for the latter half of the year, which is critical for sales.

Operator, Operator

There are no further questions remaining. So I'll pass the conference back over to the management team for closing remarks.

Christopher J. McGurk, Chairman and CEO

Yes, this is Chris. Thank you all again for joining us today. And please feel free to reach out to Julie Milstead with any additional questions you might have. We look forward to speaking with you all again on our next quarterly call. Thank you.

Operator, Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.