Cineverse Corp. Class A Common Stock 2027 Q1 Earnings Call

Gary, please go ahead. Good afternoon, everyone.

Thank you for joining us for the Cineverse first quarter fiscal year 2027 financial results conference call. The press release announcing Cineverse's results for the fiscal first quarter ended June 30, 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 of the information discussed on this call is as of today, August 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 am Gary Loffredo, Chief Legal Officer, Secretary, and Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO; Erick Opeka, 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 first quarter fiscal year 2027 business highlights.

Sean will follow with a review of our financial results, and Erick 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 the call today. We registered yet another very strong quarter. Driven by the acquisitions of Giant Worldwide and IndiCue, which both closed during the fourth quarter of fiscal 2026, we increased total revenues by 175% over last year's first quarter and increased adjusted EBITDA by $2.6 million, our second positive adjusted EBITDA quarter in a row. We feel this is impressive as we had no new wide-release theatrical films during this quarter, which also happens to be one of our two most seasonally slow quarters across all our businesses. Importantly, technology revenues represented more than 60% of the consolidated total during the quarter. Clearly, technology is now the largest source of revenue for the company, and much of that revenue is recurring and durable, with many A-list industry customers now using our products and services.

We are also very optimistic about the business and financial prospects for VAUDIO, a new proprietary ad tech offering that extends brands' audio campaigns onto connected TVs. This new product, which was developed and built by the IndiCue executive team, was just announced yesterday. Following our two key acquisitions, we have embarked on several initiatives to reduce costs, improve efficiencies, and generate synergies. We have identified and are now targeting over $13 million in annual upsides from that process, which is well underway, including a $1.8 million reduction in force that occurred after the close of this quarter. We are not just cutting costs. We are also rationalizing our greatly expanded business footprint to focus on our highest potential and most profitable core products and services to better concentrate management focus and improve margins and profitability.

By our third and fourth fiscal quarters, we should see the great majority of those savings and synergies realized. Those quarters also happen to be our two strongest seasonal quarters, and we have three high-potential wide-release films that exactly follow the Terrifier 2 and 3 model in the lineup for those quarters as well. It is also important to note that we improved operating cash flow by over $13 million this quarter. Based on our acquisitions and business rationalization efforts, we should have a much lower CapEx to generate cash going forward. Let me now speak to our theatrical releasing business for a moment before I turn things over to Sean.

We are in the theatrical releasing business in what we believe is a smarter, less risky way than our competitors for one primary reason: to generate a strong return on investment, while at the same time creating recurring revenues by driving viewers and subscribers to our streaming channels and by adding valuable properties to our film library. Following the same low investment strategy that fully leverages our streaming, podcast, social media, and advertising ecosystem as we did on Terrifier 2 and 3, we have now released three more films to date using that same strategy. Those films had a high return on investment and now join the ultra-profitable Terrifiers in our library, which should only help increase the value of that asset, which was already assessed at approximately $45 million by an independent firm last year.

We have three releases coming up this fiscal year that also exactly follow the Terrifier formula. First up on October 9th is Guillermo del Toro's masterpiece, "Pan's Labyrinth," presented for its 20th anniversary in 4K and 3D. In addition to opening the Cannes Film Festival Classics presentation at the Palais in May, we recently conducted a panel featuring Guillermo del Toro and talent from the film in the main hall at Comic-Con, where 6,500 fans gave them a rousing reception. Guillermo also showed 3D footage of the film for the first time to 900 fans, and the footage got another incredibly positive response. We also took talent from our next film, "Air Bud Returns," which will be released on January 22nd, to Comic-Con. In this case, the talent involved was principally Air Bud himself. The golden retriever did his own panel and spent hours taking photos with the fans.

We are very encouraged by the reaction we saw at Comic-Con, and prior to that, at CinemaCon, to this iconic and nostalgia-inducing golden retriever named Buddy. Finally, we will be releasing the latest installment of the "Wolf Creek" horror franchise next March. We have seen the rough cut of the film and are very excited about the film's theatrical potential. With that, I will now turn things over to Sean for a financial review.

Sean? Thank you, Chris. A few highlights from our first fiscal quarter.

Revenues were $30.6 million, up 175% from $11.1 million in the same quarter last year. This was primarily driven by our $19.4 million increase from our new advertising, technology, and media services revenue streams. Our direct operating margin for the quarter was 35%, down from the prior quarter of 57%. This direct operating margin performance, however, was in line with our expectations. Reflecting the impact of our fourth-quarter acquisitions, including our new advertising technology revenue stream that carried an average 79% revenue share expense paid to supply partners in Q1. In our media services revenue stream, a business that we are focused on optimizing throughout the course of fiscal year 2027.

We expect margins to improve as we complete our cost reduction and synergy initiatives, particularly by our third and fourth quarters, where the majority of our impact will be reflected in our financial statements. Net loss attributable to common stockholders for the quarter was $5.8 million, a $2.1 million greater net loss than the $3.6 million net loss in the same quarter last year. The decline was driven by a $2.7 million increase in SG&A from increased compensation costs following our fourth quarter acquisitions, $1.8 million from depreciation and amortization, primarily driven by purchase price accounting from our fourth quarter acquisitions. A $1.3 million non-cash accounting adjustment from the change in the fair value of our IndiCue earn-out and deferred consideration liabilities, and a $0.8 million increase in interest costs from higher utilization of our line of credit from paying down non-recurring acquisition-related liabilities and convertible note interest.