Full-year results for FY2012, ended March, demon­strated accel­er­at­ing rev­enue growth (+31%), improved prof­itabil­ity, and a “restack­ing” of the busi­ness to align with prof­itable growth oppor­tu­ni­ties in soft­ware and content.

[To see this report in PDF for­mat (with dia­grams and IV table) please use this link CIDM_FY2012_Results_Update (PDF).]


Kris Tut­tle, kris@soundviewresearch.com, +1–617-934‑1877

Fis­cal Q4 was a lit­tle weaker than planned due to a few soft­ware deals slip­ping out of the quar­ter and the com­ple­tion of a major acqui­si­tion (New Video) that will now serve as the foun­da­tion of the con­tent business.

For­ward guid­ance for the cur­rent fis­cal year came in a lit­tle below where most peo­ple were think­ing due to expected flat­tish deploy­ment rev­enues and planned invest­ments in new con­tent to sup­port long term rev­enue growth. We’ve recast our IV model and a pre­lim­i­nary ver­sion is included in this update.

Over­all, investors saw the report as a “mixed bag” made up of strong oper­at­ing results for the fis­cal year with greater planned invest­ments in the com­ing year to drive long-term rev­enue and prof­itabil­ity. We see it a bit dif­fer­ently because we expect that announce­ment of addi­tional con­tent acqui­si­tions will drive the stock before sub­se­quent rev­enue and earn­ings. Over­all man­age­ment has exe­cuted well, con­tin­ues to own ~40% of the equity and is mak­ing the right long-term moves that sup­port our cur­rent $5.62 IV esti­mate. Addi­tional details are below.


Soft­ware and non-deployment rev­enues basi­cally dou­bled for FY 2012 but were flat­tish due to three cus­tomer accep­tance delays; these are sched­uled for com­ple­tion in the next two quarters.

For the rest of the fis­cal year we expect fur­ther devel­op­ment of the busi­ness in terms of new instal­la­tions, busi­ness pipeline and the launch­ing of new releases with addi­tional func­tion­al­ity. Cinedigm has also hired a head of soft-ware sales and mar­ket­ing to han­dle the grow­ing pipeline and more fully cap­i­tal­ize on the global mar­ket opportunity.

Based on the mar­ket demand, prod­uct pipeline, com­pet­i­tive posi­tion­ing and man­age­ment focus we expect the soft­ware growth rate to be sus­tain­able for the next two fis­cal years. By then we also expect a mean­ing­ful por­tion of the soft­ware rev­enues to be cloud-based and using the SaaS deliv­ery and busi­ness model. Over­all, we expect the growth and prof­itabil­ity of the soft­ware group to be the star in the medium-term while the con­tent busi­ness ramps up.

Turn­ing to con­tent busi­ness, the acqui­si­tion of New Video (NV) has already led to a num­ber of notable con­tent acqui­si­tions tar­geted to avid audi­ences in the­aters and sub­se­quently down­stream to mobile devices, tele­vi­sions and lap­tops through online con­tent providers (iTunes, Net­flix, Amazon.com, etc.)

For the first time the com­pany mapped out some details of their New Video con­tent strat­egy. The com­pany is in-vesting in new con­tent dur­ing the F2013 fis­cal year, which means acqui­si­tion and related costs will impact the P&L before rev­enues begin to kick in. Cinedigm FY 2012 Results Update June 26, 2012 2

In essence, the com­pany will be tak­ing a data and busi­ness model dri­ven approach to licens­ing and dis­trib­ut­ing con­tent that rep­re­sents a de-risking of the dig­i­tal con­tent mar­ket. Man­age­ment likes to describe this as the “Mon-eyball approach” to the con­tent indus­try. For those not famil­iar with the book and movie by the same name, it shuns gut feel­ings, big names, ego and other adverse selec­tion cri­te­ria in favor of an ana­lyt­i­cal, results-focused ap-proach that is geared to opti­miz­ing returns.

That doesn’t mean that the con­tent doesn’t have to be good. The New Video acqui­si­tion puts the com­pany at the nexus between a plethora of inde­pen­dent con­tent providers and the mas­sive global but frag­mented audi­ence of consumers.1

1 For more back­ground on the acqui­si­tion see: Cinedigm’s Acqui­si­tion into Con­tent and Dis­tri­b­u­tion, April 23, 2012. http://blog.research2zero.com/2012/04/cinedigms-acquisition-into-content-and-distribution/

As an investor, this means that Cinedigm pro­vides “last dol­lar in, first dol­lar out” cap­i­tal. They also receive a 25% dis­tri­b­u­tion fee and up to 20% of back-end prof­its after all fees and expenses. How­ever, these fa-vorable invest­ment terms won’t show up in rev­enues and prof­its until after newly-licensed con­tent gets into the release schedule.

The graph here illus­trates the dynam­ics start­ing in the quar­ter before release. Up-front mar­ket­ing costs must be expensed as incurred in ad-vance of rev­enue. As the film goes through release and then down-stream mon­e­ti­za­tion the expenses are recov­ered and period losses turn into period prof­its, which even­tu­ally result in a cumu­la­tive gain that ben­e­fits some from long-tail demand.

Each release will vary con­sid­er­ably in terms of details but the over­all shape of the busi­ness will be the same: pre-release mar­ket­ing and other expenses incurred and reported, fol­lowed by rev­enues. After a year results will be steady enough to off­set upfront invest­ments so the P&L will become more balanced.


The bal­ance sheet and report­ing struc­ture of Cinedigm make it hard for some investors to under­stand val­u­a­tion, but the busi­ness has been sim­pli­fied and today it is much eas­ier to under­stand. We decon­struct EBITDA for all the com­pa­nies we fol­low any­way. Most man­age­ment teams find the notion of “adjusted EBITDA” appeal­ing but it must be parsed and reclas­si­fied for use in any sen­si­ble intrin­sic val­u­a­tion (IV) model.

In the case of Cinedigm we include all (core and non-recourse debt) inter­est expenses but exclude depre­ci­a­tion. On the side of the bal­ance sheet we include only core debt as part of the total cap­i­tal­iza­tion of the com­pany. Ap-plying this to the IV model using a10x earn­ings mul­ti­ple we arrive at our IV of $5.62. We’d also note that the “period share price” that mea­sures purely cur­rent num­bers comes to $3.00, also well above the cur­rent share price of $1.40.

Just for fun we ran a ver­sion of the IV model with the non-recourse debt included in the total. It drops the IV sub­stan­tially but it still comes out to $3.65 per share using a 10x mul­ti­ple. Cinedigm FY 2012 Results Update June 26, 2012 3


Cinedigm has come a long, long way in just over a year and has entered a new phase of growth. Because they are blaz­ing a new trail in terms of the­atri­cal con­tent in a dig­i­tal world it’s going to take a lit­tle time for investors to embrace the busi­ness, but we expect that as more top flight con­tent comes to the big screen from Cinedigm with all the lit­tle screens fol­low­ing right behind, peo­ple will begin to take notice.

We will be cov­er­ing the newly dig­i­tal world of cin­ema more com­pletely in our next basic report on the company.

Mean­while, the upside in the shares pro­vides a strong incen­tive to put some patient money to work in this name.

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Digesting the Vringo Markman Hearing

by Kris_Tuttle on June 19, 2012

[Warn­ing label — I am not a lawyer and have no spe­cific infor­ma­tion about this case. In fact I’m really not qual­i­fied to write about it. But that seems to stop nobody these days. ;-) I also don’t have any posi­tions in any of the stocks men­tioned here.]

The awaited results of the Vringo “Mark­man” hear­ing rip­pled through the mar­ket in the last day or so as Vringo stock ($VRNG) started to rise again. Since this is such a high stakes soap opera I decided to take a lit­tle time to go through the courts “Mem­o­ran­dum Opin­ion and Order” which was filed with the SEC by the com­pany. It’s already said that the result was a win for Vringo with a score of 4–2 but I wanted to know more.

First of all some bad news for fol­low­ers of this saga — the 23 page doc­u­ment is con­cerned with the mean­ings of terms and the con­struc­tion of claims. That means that it’s a long and nuanced dis­cus­sion of what spe­cific terms like “a scan­ning sys­tem” actu­ally mean down to minu­tia is scan­ning through infor­ma­tion or merely scan­ning across a net­work. My sum­mary and analy­sis fol­lows but if you really want to get the full effect you should read the full document.

So what’s with deal with “terms?” As you’ll see in the analy­sis the legal def­i­n­i­tion of what terms mean can play a piv­otal role in deter­min­ing whether or not there is actu­ally infringe­ment. For exam­ple let’s say I patented step-by-step instruc­tions with a spe­cific order to whiten teeth. If some­one used these instruc­tions but in a dif­fer­ent order I would have a hard time assert­ing infringe­ment since my patent cov­ers a spe­cific order. It’s not black and white but you get the idea.

The Argu­ments

There were four undis­puted terms included “infor­mon” (a unit of infor­ma­tion), “user” (thank good­ness!), “rel­e­vance to the query” (how well the infor­ma­tion sat­is­fies) and “query” (request for search results.)

There were six dis­puted terms:

Please login (reg­is­tra­tion is free) to see the rest.

Fur­ther Reading:

If you haven’t seen it the orig­i­nal match to the flame came on March 31st with this post by James Altucher on TechCrunch: Why Google Might Be Going to $0

There are more links to this so please share in com­ments if you have them and they will be added.


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Constant Contact Continues to Confuse

June 13, 2012

We know the insides and outs of email mar­ket­ing and even online social net­work­ing for busi­ness but have always failed to grasp Con­stant Con­tact (CTCT — $16). Even after meet­ing with the com­pany man­age­ment we only came away with “we do what we do very sim­ply with lots of hand hold­ing for one and two person […]

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Information Security — StrikeForce Update

June 5, 2012

Today we pub­lished an update on Strike­Force Tech­nolo­gies out­lin­ing what has been con­sis­tent progress over the last sev­eral months dur­ing a time when secu­rity breaches remain rou­tine despite ele­vated spend­ing lev­els on improved tech­nolo­gies and ser­vices. In sum­mary the com­pany has improved their direct sales while devel­op­ing a net­work of chan­nel part­ners, dis­trib­u­tors and resellers […]

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Target demonstrates Amazon still rules online commerce.

May 4, 2012

Ama­zon ($AMZN) is a con­tro­ver­sial stock these days to be sure. We see 3 to 6 notes a day from short sell­ers about how this com­pany is wildly over­val­ued / about to crash. The fun­ni­est one though is the recent flurry on the back of Tar­get say­ing they would no longer sell the Ama­zon Kindle. […]

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What ever happened to Kazaa/Atrinsic?

April 19, 2012

We met with Atrin­sic $ATRN in 2011 after they attracted atten­tion by acquir­ing music prop­erty Kazaa late in 2010. Back then the shares were trad­ing in the $3-range ver­sus the cur­rent $0.08. At the time com­pany was work­ing on adding to the senior man­age­ment team and board at the same time they were hop­ing to secure […]

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Tech Growth Expectations

April 17, 2012

As we enter the heart of 1Q earn­ings sea­son we like to look at how expec­ta­tions are cur­rently set for the year. Based on a group of 219 mostly US-listed com­pa­nies with over $1B of annual rev­enues the expected tech­nol­ogy rev­enue growth this year is cur­rently 5.9%. [The aggre­gated fig­ures are $2.27T grow­ing to $2.41T YoY.] […]

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SYMC">Slumbering Symantec $SYMC

April 10, 2012

There feels like there is a dis­con­nect between all the activ­ity and dis­rup­tion in the infor­ma­tion secu­rity sec­tor and Syman­tec which has been qui­etly sit­ting on the side­lines. $SYMC shares have been trend­ing steadily down for the last seven years. But infor­ma­tion secu­rity and stor­age have been red hot the last year or two. Even the […]

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QPSA! rebrands as WHAT?">Quepasa QPSA! rebrands as WHAT?

April 3, 2012

For rea­sons we can’t begin to grasp Quepasa held a con­fer­ence call and pre­sen­ta­tion for ana­lysts and investors today to “unveil” their rebrand­ing strat­egy. We admit that we are new to the story but from a dis­tance the old story at least made some sense. Span­ish speak­ing peo­ple are a big seg­ment of the world […]

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VRNG?">What is going on with Vringo $VRNG?

April 3, 2012

We’ve known and fol­lowed some of the goings on at Vringo since late 2009 when we get inter­ested in their video ring­tones busi­ness as a poten­tial avenue for auto­mat­i­cally gen­er­ated 3D pic­tures. The idea may have been far out but we liked what they were doing with more dynamic and richer con­tent deliv­ery in the […]

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