Q3 2024 Cineverse Corp Earnings Call

Operator: www.cineverse.com Good day, everyone. Welcome to the Cineverse Fiscal 2024 financial results conference call. My name is Elliot, and I'll be your operator today. Currently, all participants are in listen-only mode. We will have a question and answer session following management's prepared remarks, at which time participants can press the star followed by the number one to ask a question. If anyone needs operator help, please press star, then zero

Yeah.

Good day, everyone and welcome to city versus third quarter of fiscal 2020 full financial results Conference call. My name is Elliot and I'll be your operator today.

Currently all participants are in listen only mode. We will have a question and answer session. Following managements prepared remarks by which time participants compression star followed by the number one to ask a question if.

If anyone needs operator, Please press Star then zero.

Operator: Please note this call is also being recorded. I'd now like to turn the call over to our host, Freddo, Chief Legal Officer, Secretary, and Senior Advisor for Cineverse. Please go ahead.

Please note. This call is also being recorded.

Ill turn the call over to our host Gary Loffredo, Chief Legal Officer Secretary and senior adviser for St. Louis. Please go ahead.

Freddo: Good afternoon, everyone. Thank you for joining us for the Cineverse Fiscal 2024 Third Quarter Financial Results Conference. The press release announcing Cineverse's results for the fiscal third quarter ended December 31st, 2023, is available in 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 today 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.

Good afternoon, everyone. Thank you for joining us for the <unk> fiscal 2024 third quarter financial results Conference call.

The press release announcing sooner versus results for the third fiscal third quarter ended December 31, 2023 is available at the investors section of the company's website at Www Dot <unk> Dot com.

A replay of this broadcast will also be made available at <unk> website. After the conclusion of this call.

Before we begin I would like to point out that certain statements made today.

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 described potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward looking statements.

Freddo: All the information discussed in this call is as of today, February 14th, 2024, 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 disclosure and the reconciliation tables applicable to GAAP measures in our earnings release carefully as you consider these.

All of the information discussed in this call is as of today February 14, 2024, and <unk> 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 applicable to GAAP measures in our earnings release carefully as you consider these metrics.

Gary Lafredo: I'm Gary Lafredo, Chief Legal Officer, Secretary, and Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO, and Erick Opeka, President and Chief Strategy Officer.

I am Gary Loffredo, Chief Legal Officer Secretary senior adviser at <unk>.

With me today are Chris Mcgurk, Chairman and CEO.

Eric <unk>, President and Chief strategy Officer.

Chris McGurk: Tony Weador, Chief Operating Officer and Chief Technology Officer; Mark Lindsey, Chief Financial Officer, and Yolanda Macias, Chief Content Officer, all of whom will be available for questions following the prepared remarks. On today's call, Chris will discuss our third quarter fiscal year 2024 highlights, the latest operational developments, outlook, and long-term strategy. Mark will follow with a review of our results for the fiscal third quarter ended December 31, 2023, and Eric will provide some detail on our streaming business results and operating initiatives before we open the floor for questions. I will now turn the call over to Chris McGurk, to begin.

Many we adore Chief operating officer, and Chief Technology Officer, Mark Lindsey Chief Financial Officer.

London, BCS Chief content officer, all of whom will be available for questions. Following the prepared remarks.

On today's call, Chris will discuss our third quarter fiscal year 2024 highlights the latest operational developments outlook and long term strategy.

Mark will follow with a review of our results for the fiscal third quarter ended December 31 2023.

And Eric will provide some detail on our streaming business results and operating initiatives before we open the floor for questions.

I will now turn the call over to Chris Mcgurk to begin.

Chris McGurk: Thanks, Gary, and thanks everyone for joining us today. This morning, we announced a partnership with global technology and search giant Google, with whom we have developed and will soon launch a groundbreaking new AI-based unified streaming search technology called CineSearch. Both Eric and I will speak more about this later in our remarks. However, I want to emphasize that we believe this AI technology partnership with Google and the launch of CineSearch is an important milestone for the company that not only further validates our industry-leading proprietary technology but should also provide an important new revenue stream for Cineverse because it directly helps solve the biggest consumer issue with streaming search and discovery today, the current time-consuming, archaic search technology that provides limited and unfiltered content CineSearch and our chatbot video guide Ava will soon help solve that important issue.

Thanks, Gary and thanks, everyone for joining us today.

This morning, we announced the partnership with global Technology, and search giant Google with whom we developed and will soon launch a groundbreaking new AI based unified screaming search technology call centers search.

Eric and I will speak more about this later in our remarks, however, I want to emphasize that we believe this AI technology partnership with Google and the launch of Senate search is an important milestone for the company.

Not only further validates our industry, leading proprietary technology, but should also provide an important new revenue stream for senators because it directly helps solve the biggest consumer issue with streaming search and discovery today.

The current time consuming our search technology that provides limited an unfiltered content choices for viewers.

Send a search and our chatbot video guys Eva will soon help solve that important issue.

Chris McGurk: Now, let me speak to this quarter's results. Just as we reported last quarter, we again made strong progress this quarter toward our goal of dramatically reducing costs, improving margins, and achieving sustained profitability. We did this by continuing to aggressively cut costs as we finalized the consolidation of the eight key streaming content and technology acquisitions we made over the past three years, while we also continue to offshore a significant number of domestic employment positions to our Cineverse Services India operation, a unique competitive cost and work efficiency advantage that Cineverse enjoys versus everyone else in our space. We also continued to further optimize our streaming channel portfolio, sacrificing some revenues for improved margins and profitability by culling lower margin channels while focusing our resources on higher margin and higher return performance.

Consumers now.

Now, let me speak to this quarter's results.

Just as we reported last quarter, we again made strong progress this quarter towards our goal of dramatically reducing costs, improving margins and achieving sustained profitability.

We did this by continuing to aggressively cut costs as we finalize the consolidation of the <unk> streaming content and technology acquisitions, we made over the past three years. While we also continue to offshore a significant number of domestic employment positions to our center versus services, India operation.

A unique competitive cost and work efficiency advantaged, that's been averse enjoys versus everyone else in our space.

We also continued to further optimize our streaming channel portfolio sacrificing some revenues for improved margins and profitability by calling lower margin channels, while focusing our resources on higher margin and higher return performance.

Chris McGurk: Driven by these initiatives to dramatically cut costs, offshore domestic positions to our Indian operation, and further optimize our channel portfolio, I believe our results this quarter again demonstrate that we are well on our way to sustained profitability. We increased our direct operating margin to 59% from 48%. In continuing last quarter's trend, we decreased our SG&A cost by $2.7 million, or 30%.

Driven by these initiatives to dramatically cut costs offshore domestic positions to our Indian operation and further optimize our channel portfolio I believe our results. This quarter again demonstrate that we are well on our way towards sustained profitability.

We increased our direct operating margin to 59% from 48%.

And continuing last quarter's trend, we decreased our SG&A costs by $2 7 million or 30%.

Chris McGurk: That's down another half a million dollars from our last reported quarter and down 7.9 million dollars, or 27 percent versus last year on a fiscal year-to-date basis. And we expect to achieve even greater savings going forward as we offshore more domestic positions to India and see the full impact of the series of headcount cuts that we have made, totaling 34 positions so far. So, we remain very confident that we will achieve our stated goal of $8 million in annual cost savings. And let me reiterate what I said in our last call.

Down another half a million dollars from our last reported quarter and down $7 9 million or 27% versus last year on a fiscal year to date basis.

And we expect to achieve even greater savings going forward as we offshore more domestic positions to India and see the full impact of the series of head count that we have made totaling 34 positions so far.

So we remain very confident we will achieve our stated goal of $8 million in annual cost savings.

And let me reiterate what I said on our last call.

Chris McGurk: Cineverse Services India is a significant competitive advantage for us, providing huge cost savings and workflow upsides within a trusted, battle-tested operating division of our company. Not only do we intend to leverage that advantage to the fullest extent possible, but we are also considering initiatives to turn it into a profit center by offering our back office services in India to other domestic companies. Although the adjustment for the recognition of the non-cash loss on our investment in a Metaverse company certainly had a big negative impact on our bottom line this quarter, we are nonetheless very pleased with our results. Excluding that impact, including the Metaverse adjustment, net income was positive at $200,000.

Silver services, India is a significant competitive advantage for us providing huge cost savings and workflow upsides within a trusted battle tested operating division of our company.

Not only do we intend to leverage that advantage to the fullest extent possible, but we are also considering initiatives to turn it into a profit center by offering our back office services in India to other domestic companies.

Although the adjustment for the recognition of the noncash loss on our investment and our meta versus companies certainly had a big negative impact on our bottom line. This quarter. We are nonetheless, very pleased with our results excluding that impact.

Excluding them better versus adjustment net income was positive at $200000 clear.

Chris McGurk: Clearly, we continue to be on a path to our target of sustained profitability. Before I end my remarks, let me quickly speak to three very important developments for the company. First, we expanded our line of credit with EastWest Bank from $5 million to $7.5 million, giving us more flexibility and firepower on our balance sheet, particularly since we are not laden with the tens of millions of dollars in debt that most of our competitors are due. Second, Terrifier 3 just started filming and is scheduled for release in the fall of this year. This sequel to last year's film phenomenon, Terrifier 2, was just named one of the 10 most highly anticipated horror films of 2004 by USA Today and should continue to be a huge catalyst for our horror business, all of our bloody disgusting enterprises, and our screen box horror channels.

Clearly, we continue to be on a path to our target of sustained profitability.

Before I end my remarks, let me quickly speak to three very important developments for the company.

First we expanded our line of credit with East West Bank from 5 million to.

$7 5 million.

Giving us more flexibility and firepower on our balance sheet, particularly since we are not laden with tens of millions of dollars in debt than most of our competitors are dealing with.

Second <unk>.

Terrify or three just started filming and are scheduled for release in the fall of this year.

This equal to last year's film phenomenon Clarifier to was just named as one of the 10, most highly anticipated horror films of 2004 by USA today.

Should continue to be a huge catalyst for our core business all of our blending discussing enterprises in our screen box or a channel.

Chris McGurk: And third, as I mentioned at the beginning of my remarks, today we announced an exciting new partnership with global search and technology leader Google, with whom we will soon unveil an innovative AI-based search platform that we're calling Cinescope. As part of this new service, Cineverse is introducing a new AI-based video advisor that will be known simply as AVA. This is groundbreaking technology that directly addresses the number one issue in streaming, a limitation of current methods of search and discovery where users are forced to seek films using archaic discovery technology and limited to only a subset of film choices spread across specific platforms. We believe this generative AI search technology partnership with Google not only further validates the industry-leading nature of our proprietary technology, which puts us years ahead of our competitors, but also will be a significant new revenue opportunity for the Eric will speak much more in a minute about CineSearch and our partnership with Google, as well as the other key initiatives and partnerships in our channel and technology businesses that we believe will have a significant positive impact on our top-line revenue growth and margin. But first, Mark will add more color to our financial results and other financial matters. Mark.

And third as I mentioned at the onset of my remarks today, we announced an exciting new partnership with global search and technology leader, Google with whom we will assume unveil.

And innovative AI based search platform that we're calling set of search as part of this new service center versus introducing a new AI based video adviser that will be known simply as anybody.

This groundbreaking technology that directly addresses the number one issue in streaming.

Limitation of current methods of search and discovery, where users are forced to seek films using our discovery technology and limited to only a subset of film choices spread across specific platforms. We believe this generative AI search technology partnership with Google.

It only further validates the industry, leading nature of our proprietary technology, which puts US years ahead of our competitors, but also will be a significant new revenue opportunity for the company.

Eric will speak much more in a minute about center search and our partnership with Google as well as the other key initiatives and partnerships and our channel and technology businesses that we believe will have a significant positive impact on our topline revenue growth and margins.

But first Mark will add more color to our financial results.

Other financial matters Mark.

Mark Lindsey: Thank you, Chris. For the fiscal third quarter ended December 31, 2023, Cineverse reported total revenues of $13.3 million, which compares to $13.0 million last quarter and $27.9 million in the prior year period. As a reminder, the prior year quarter included material non-recurring revenue of approximately $4 million for tariff fire on theatrical revenue and $7 million of revenue related to our legacy digital cinema business. When excluding the impact of Terrafire 2 and Digital Cinema, the decrease in revenue was primarily due to the impact on our advertising revenue from the intentional elimination of certain lower-margin channels via portfolio optimization and reallocating those resources to higher-performing and higher-margin streaming properties, which is important to our goal of achieving sustainable profitability in the near term.

Thank you Chris for the fiscal third quarter ended December 31, 2023, <unk> reported total revenues of $13 3 million, which compares to $13 1 million last quarter and $27 9 million in the prior year period as a reminder, the prior year quarter.

<unk> included material nonrecurring revenue of approximately $4 million for clarifier to theatrical revenue and seven seven.

$7 million of revenue related to our legacy digital cinema business when excluding the impact of clarifier to engage with cinema. The decrease in revenue was primarily due to the impact on our advertising revenue from the intentional elimination of certain lower margin channels via portfolio optimization and reallocating those resources to higher <unk>.

Reforming and higher margin streaming properties, which is important to our goal of achieving sustainable profitability in the near term. We are cautiously optimistic for double digit revenue growth in fiscal year 2025, as the economy improves interest rates decline in your expected improvement in the advertising market in a political year.

Mark Lindsey: We are cautiously optimistic for double-digit revenue growth in fiscal year 2025 as the economy improves, interest rates decline, and the advertising market improves. In a political year, subscription-based revenues increased 13% to $3.4 million, driven by the continued success of our enthusiast streaming service. Advertising-based revenues declined 31% to $4.1 million, primarily due to our channel optimization efforts and the continued impact of the current economic environment on advertising.

Description based revenues increased 13% to $3 4 million.

Driven by the continued success of our enthusiasm streaming services.

Advertising base revenues declined 31% to $4 1 million, primarily due to our channel optimization efforts and the continued impact of the current economic environment on advertising spend.

Mark Lindsey: Eric will provide some additional details on the operational drivers behind our financial results. As Chris mentioned, our direct operating margin for the period was 59%, an increase from 48% in the prior year quarter, which is in excess of our previously provided guidance of 45 to 50% for the full fiscal year 2024. Our improved direct operating margin is a direct result of our cost optimization initiatives referred to earlier. SG&A expenses decreased $2.7 million, or 30% from the prior year quarter, and $500,000 from last quarter.

I will provide some additional details on the operational drivers behind our financial results.

Chris mentioned, our direct operating margin for the period was 59% an increase from 48% in the prior year quarter, which is in excess of our previously provided guidance of 45% to 50% for the full fiscal year 2024, our improved direct operating margin is a direct result of our cost optimization initiatives referred to earlier.

SG&A expenses decreased $2 7 million or 30% from the prior year quarter and 500000 from last quarter. Again. This is improvement is a direct result of the cost optimization initiatives discussed previously we expect to gain even greater efficiencies as our offshoring efforts to center versus services in India.

Mark Lindsey: Again, this is an improvement and it's a direct result of the cost optimization initiatives discussed previously. We expect to gain even greater efficiencies as our offshoring efforts to Cineverse Services India gain momentum in the remainder of fiscal year 2024 and into fiscal year 2025. Adjusted EBITDA for the quarter was $1.8 million compared to $5 million last year, with the decrease being driven by the impact of Terrafire 2 and our legacy digital cinema business in the prior year quarter.

Gain momentum in the remainder of fiscal year 2024 and into fiscal year 2025.

Adjusted EBITDA for the quarter was $1 8 million compared to $5 million last year with the decrease being driven by the impact from tariffs higher too in our legacy.

Digital cinema business in the prior year quarter.

Mark Lindsey: We had $5.5 million in cash and cash equivalents on our balance sheet as of December 31, 2023, and $5 million outstanding on our working capital facility. As Chris mentioned, we recently announced an increase in our working capital facility with EastWest Bank from $5.0 million to $7.5 million. We appreciate our relationship with EastWest Bank and the confidence they're showing by expanding the size of the credit facility, which increases our financial flexibility and liquidity and is a testament to our improving financial position and creditworthiness. This capacity increase will be used primarily to fund ongoing investments in our content portfolio. During the quarter, our cash flow used in operations was negative $3.1 million, of which $1.9 million was related to investments in our content portfolio via advance and or minimum guarantee payments, the largest being for Terrafire 3.

We had $5 $5 million in cash and cash equivalents on our balance sheet as of December 31, 2023, and $5 million outstanding on our working capital facility as Chris mentioned, we recently announced any increase in our working capital facility with East West Bank from five <unk> to.

To $77 5 million we.

Our relationship with East West Bank and the confidence they are showing by expanding the size of the credit facility, which increases our financial flexibility and liquidity.

Testament to our improving financial position and credit worthiness.

<unk> increase will be used primarily to fund ongoing investments in our content portfolio.

During the quarter, our cash flow used in operations was negative $3 1 million of which $1 9 million was related to investments in our content portfolio via advance into a minimum guarantee payments the largest being for tariff higher III.

Mark Lindsey: For the last six months, our cash flow used in operations was negative $105,000 when excluding our content portfolio spend, showing just how close we are to being sustainably cash flow positive. We expect this positive trend to continue for the fourth quarter and into fiscal year 2025. I also want to point out that we have a stock repurchase program in place through the end of this month. As you know, we have not utilized the stock repurchase program to date due to cash flow constraints.

For the last six months, our cash flow used in operations was negative $105000.

When excluding our content portfolio spend showing just how close we are to be sustainably cash flow positive. We expect this positive trend to continue for the fourth quarter and into fiscal year 2025.

I also want to point out that we had a stock repurchase program in place through the end of this month as you know we have not utilized the stock repurchase program to date due to cash flow constraints as such we are working with our board to extend the program would you expect to be able to utilize once we have turned the corner on sustained profitability. We are keeping all of our option.

Mark Lindsey: As such, we are working with our board to extend the program, which we expect to be able to utilize once we have turned the corner on sustained profitability. We are keeping all of our options open with regard to what we believe is a significantly undervalued stock price where we are trading substantially below book value. In addition, as good governance requires, we will be refreshing our ATM facility shortly, though we don't have any current plans or needs to raise equity at this time.

Opened with regard what we believe is a significantly undervalued stock price, where we're trading substantially below book value.

In addition, as good governance requires we will we will be refreshing our ATM facility. Shortly though we don't have any current plans or needs to raise equity at this time, we believe the increase in our working capital facility along with the significant progress that we've made in our cost savings initiatives at the company well positioned financially with.

Eric: We believe the increase in our working capital facility, along with the significant progress that we've made in our cost savings initiatives, has the company well-positioned financially. With that, I'll turn the floor over to Eric to discuss the market environment and our growth initiatives. Hey, good afternoon, everyone, and thanks for joining us today.

That I will turn the floor over to Eric to discuss the market environment and our growth initiatives.

Hey, good afternoon, everyone and thanks for joining us today.

Eric: So considering our announcement today, I'd like to start off discussing the market opportunity for our technology platform, Match, and then we'll review our financial operational performance in future outlooks. As you've heard and seen from our announcements and materials, we've also been rapidly focused on scaling our MatchPoint technology and services. We believe this is the most important part of our growth strategy for numerous reasons. First, the entertainment landscape is rapidly evolving into a universal scale, bundled subscriptions, a wide array of enthusiast services, plus thousands of fast channels and large-scale ad-supported platforms found on every major hardware manufacturer. This is a great opportunity for content owners, as there are tens of thousands of buyers globally, all of them requiring large volumes of content licensed from tens of thousands of media companies around the globe. However, today, there's no unified platform that allows companies to deliver all of this content to all these partners automatically and at scale.

So considering our announcement today I'd like to start off discussing the market opportunity for our technology platform match point and then we'll review our financial operational performance and future outlook.

As you've heard and seen from our announcements in materials. We've also been rapidly focused on scaling our <unk> technology and services business.

We believe this is the most important part of our growth strategy for numerous reasons.

First the entertainment landscape is rapidly evolving into the universal scale bundled subscriptions.

Wide array of enthusiasm services.

Thousands of SaaS channel and large scale AD supported platforms down on every major hardware manufacturer.

This is a great opportunity for content owners as they are in the landscape with tens of thousands of buyers globally all of them requiring large volumes of content license from the tens of thousands and media companies around the globe.

Today, there is no unified platform that allows companies to deliver all of these to all these partners automatically and at scale.

Eric: At the same time, we're hearing from the buyers, the platforms themselves, the content owners, and the hardware manufacturers that they simply don't have the infrastructure and ability to manage massive content. For example, the major fast platforms have been heavily focused on scaling AVOD and bundled channel solutions for this year, but they lack the infrastructure to compete with Amazon, Apple, and Google. Some are trying to build these solutions internally and are struggling. On the content side, like many of the studios, they throw huge sums of cash at the livery problem, outsourcing it to legacy companies who continue doing it manually and very expensively, and small to mid-sized companies are simply not equipped to keep up with the cost. In addition, all of these companies are struggling to measure the revenue and performance results of these efforts so they can better improve their efforts.

At the same time, we are hearing from the buyers the platforms themselves the content owners the hardware manufacturers that they simply don't have the infrastructure and ability to manage these massive content needs. For example, the major SaaS platforms have been heavily focused on scaling Avon and bundled channel solutions for this year, but they lack the infrastructure to compete with Amazon.

Apple and Google.

We're trying to build these solutions internally and are struggling.

On the content side like many of the studios. They throw huge comes it's capped sums of Castleton delivery problem outsourcing at the legacy companies. We continue doing it manually and very extensively and small to mid sized companies are simply not equipped to keep up with the cost.

In addition, all of these companies are struggling to measure the revenue performance results of these efforts so they can better improvement efforts.

Eric: We believe MatchPoint is the solution to both sides of the equation for both content owners and platforms. Our vision is to make MatchPoint become a media cloud, enabling both the content and platform sides to manage and process their content for both today's and tomorrow's business. Our next-gen product suite will enable the processing and management of professional-grade content at scale, as simply as if they were ordering from Amazon, at 100% accuracy. Beyond that, our data tools will allow them to measure the performance of all of their content so they can make better business decisions and easily integrate it into their financial And, like the AWS Storefront and the Google Cloud Store, our customers will have access to dozens of best-in-breed applications to further extend their capabilities. We today are already offering 14 different applications, including several in-house developed AI tools. So Matchpoint is really the only cloud-based media solution to do all of this, and it truly is an end-to-end platform, and the platform will grow with partners as they use it.

We believe match point is the solution to both sides of the equation for both content owners and platforms. Our vision is to make the match point become a media cloud, enabling both the content and platform side to manage and process their content for both today's and Tomorrow's business needs. Our next Gen product suite will enable the processing and management.

No great content at scale as simple as if they are ordering for Amazon at 100% accuracy.

Beyond that our data tools will allow them to measure the performance of all of their content. So they can make better business decisions and easily integrate into their financial accounting system.

And like the AWS storefront, Google cloud for our customers will have access to dozens of best in breed applications to further extend their capabilities.

We today are already offering 14, if for applications, including several in house developed AI tools.

So <unk> point is really the only cloud based media solution to do all of this and it truly is an end to end platform.

And the platform will grow with partners and they use it long term if they want to build apps and the launch SaaS channels or even build their own version of <unk>, we have turnkey solutions and technology, that's perfectly and seamlessly integrating into the platform and their workflows. Most importantly, we can do all of this at a fraction of what it would cost to build internally.

Eric: Long-term, if they want to build apps, launch fast channels, or even build their own version of Tubi or Pluto, we have turnkey solutions and technology that's perfectly and seamlessly integrated into the platform and their workflows. And, most importantly, we can do all of this at a fraction of what it would cost to build internally or use third-party ad hoc solutions as they try to stitch it together. All in all, we truly believe MatchPoint can become, for professional video, what AWS is to the web and app economy. So during the quarter, we announced our partnership with Amagi, and after quarter end, we launched our new product, Lightning Fast, to much fanfare at the CES show in Las Vegas.

We use third party AD hoc solutions as they try to stitch. It together all in all we truly believed mask point can become for professional video with AWS is to the web and App economy.

During the quarter, we announced our partnership with <unk> and after quarter end, we launched our new product Lightning fast.

Not much fanfare at CES show in Las Vegas.

Eric: We have a robust pipeline now ranging from small and medium-sized businesses up to studios interested in various elements of MatchPoint, along with some major new scale opportunities to launch new platforms we expect to close in the coming weeks and months. As I noted, there are many, many companies in need of our solutions and expect to move quickly in the new year to take advantage of this burgeoning opportunity. We plan to continue building out the team and plan on expanding our sales force rapidly over the next several quarters to take advantage of this. Now, let's discuss a topic that Chris touched on earlier and has really become the center of attention within the media space, AI. There's a tremendous race by big tech companies to compete with the early success of open AI, and along with that, there are many discussions on whether AI will have a positive or negative impact on the entertainment business. But our vision for AI is twofold.

We have a robust pipeline now ranging from small and medium sized businesses up to studios interested in various elements of match point, along with some major new scale opportunities to launch new platforms, we expect to close in the coming weeks and months.

As I noted there are many many companies in need of our solutions and expect to move quickly into net new year to take advantage of this burgeoning opportunity.

Plan to continue building out the team and plan on expanding our salesforce rather rapidly over the next several quarters to take advantage of this.

Now, let's discuss the topic of Chris touched on earlier and that has really become the center of attention within the media Space Act.

Tremendous rates by Big Tech companies to compete with the early success of open AI and along with that there are many discussions on whether or not we will have a positive or negative impact on the entertainment business.

But our vision is twofold first we're going to enable our customers to utilize it to become far more efficient, which will help companies increase revenue and reduce operating costs.

Eric: First, we're going to enable our customers to utilize AI to become far more efficient, which will help companies increase revenue and reduce operating costs. AI will also provide our customers with the ability to take advantage of major media company needs for LLM data, and we believe our systems can allow companies to mine their libraries at scale to do so. And finally, we see tremendous value in leveraging AI for addressing one of the biggest shortcomings in the video streaming industry, unified search and discovery. As you may have read, we announced the forthcoming launch of our next-gen video search and recommendation service called Finish. As advanced tech revolutionized search over two decades ago, we believe that AI offers tremendous potential to help improve the quality of video search and to enhance recommendations with the services you use and love in ways that current search engines aren't capable of, and who better to partner with than the world leaders of search, Google? With Google, we've developed an enhanced search engine that leverages extensive, rich data from dozens of sources, including leading metadata providers, as well as by extracting We want to go far beyond searching for things by the limited old way of by title, actor, and director.

AI will also provide our customers the ability to take advantage of major media company needs for LLM data and we believe our systems can allow companies to mine their library that scale to do so and finally, we see tremendous value in leveraging AI for addressing one of the biggest shortcoming in the video streaming industry unified search and discovery.

As you May have read we announced the forthcoming launch of our Nexgen video search and recommendation service called Center search.

As advanced Tech revolutionized search over two decades ago, we believe that <unk> offers tremendous potential to help improve the quality of video search and to enhance recommendations with the services you use and love and ways that current search engines are capable of and.

And who better to partner with and the world leaders in search and Google.

The Google we've developed an advanced and enhanced search engine that leverages extensive rich data from dozens of sources, including leading metadata providers as well as by extracting enhanced information through computer vision that analyzes every frame and move your show.

We want to go far beyond searching for things by the limited old way and by title actor Director Synopsys.

At the end of the day cinema and Great TV is about invoking moods, and we'll support that by allowing users to find content through <unk>.

Much more subjective search dimensions, such as setting a mood town intensity.

Eric: At the end of the day, cinema and great TV are about evoking moods, and we'll support that by allowing users to find content through much more subjective search dimensions such as setting, theme, mood, tone, intensity, and much, much more. These same capabilities will be incredibly valuable to enable highly relevant advertising, as you can imagine. Ultimately, it's about helping consumers find exactly what they want, regardless of the platform or business model. And we want it to be fun, too. And what could be more fun than interacting with the world's greatest movie experts?

Much much more the same capabilities will be incredibly valuable enable highly relevant advertising as you can imagine.

Ultimately, it's about helping consumers find exactly what they want regardless of what platform or business model.

And we want it to be fund too and what could be more fund and interacting with the world's greatest expert.

That's what we're attempting to build out our AD based video adviser.

We envision <unk> to not only be a significant expert in the whole universe of cinema, but also on the films and content with any specific streaming service.

Today, even expert across hundreds of thousands of films and we expect to rapidly expand those capabilities.

Eric: That's what we're attempting to build with Ava, our AI-based video advisor. We envision Ava to be a significant expert on the whole universe of cinema but also on the films and content available on any specific streaming service. Today, Ava is an expert across hundreds of thousands of films, and we expect to rapidly expand those capabilities. Now, when seeking something to watch, you can do it in a fun, engaging conversation with a friendly AI persona that you can search through and interact with in ways never before possible. Now, let's talk a little bit about our performance.

Now when seeking something to watch so you can do it in a fun engaging conversation with a friendly AI persona that you can search through and interact with in ways never previously imagined.

Al Let's talk a little bit about our performance, our digital and streaming revenues reached $13 3 million during the quarter, which while down 36% over the prior year quarter that was driven by the expected. It was driven by the expansion and optimization of our enthusiast subscription revenues, but was offset by the lack of a comparable <unk>.

It'll be clarify or two in the quarter.

And then on top of that our planned portfolio optimization efforts to reduce low margin channels and we also saw a decline in Q3 AD revenues driven by slower December sales and challenging comps with last year without political advocacy spending in the current fiscal year.

Eric: Our digital and streaming revenues reached $13.3 million during the quarter, which, while down 36% over the prior quarter, was driven by the expansion and optimization of our enthusiast subscription revenues, but was offset by the lack of a comparable title to Terrafire 2 in the quarter. And then on top of that, our planned portfolio optimization efforts to reduce low-margin channels, and we also saw a decline in Q3 ad revenues driven by slower December sales and challenging comps with last year without political advocacy spending in the current. Subscription revenue has increased to 3.4 million, which is up 13% over last year. Our overall subscriber count has reached approximately 1.4 million subscribers, a growth of 30% year over year and up 11% over the prior quarter. This was predominantly due to the growth of subscribers during the quarter on Dev and our cult film service, Midnight Pulp. This progress in a diverse array of channels underscores the strength and appeal of our enthusiast streaming services and the overall diversity of our revenue. Ad base revenues dipped to $4.1 million, a decrease of 31%.

Subscription revenue increased to $3 4 million, which is up 13% over last year. Our overall subscriber count has reached approximately one 4 million subscribers a.

The growth of 30% year over year and up 11% over the prior quarter.

This was predominantly due to the growth in subscribers during the quarter on Dove, and our cult film service midnight pulp.

This progress in a diverse array of channels underscores the strength and appeal of our enthusiast streaming services and the overall diversity of our revenue model.

AD based revenues dip to $4 1 million a decrease of 31%. This decline is in line with comments made by Christian Mark coming from channel portfolio optimization.

And of course, the tough comp with last year, which had significant political and advocacy spending.

We also saw lighter than anticipated December after robust October and November and we believe this is due to a strategic shift by brands and agencies in the open marketplace for programmatic advertising.

Campaigns now ending far earlier in the month than in prior years and.

In conversation with our marketplace peers and partners it seems to be widespread across the industry and not just isolated to us.

We believe our long term focus on shifting our AD revenue mix away from open market programmatic to programmatic guaranteed private marketplace and direct AD deals will alleviate our exposure to the volatility in the open marketplace.

Eric: This decline is in line with comments made by Christian Mark coming from Channel Portfolio Optimization and, of course, the tough comp with last year, which had significant political and ad. We also saw a lighter than anticipated December after robust October and November. And we believe this is due to a strategic shift by brands and agencies in the open marketplace for programmatic advertising, with campaigns now ending far earlier in the month than in prior years, in conversation with our marketplace peers and partners. This seems to be widespread across the industry and not just isolated to us. We believe our long-term focus on shifting our ad revenue mix away from open market programmatic to programmatic guaranteed, private marketplace, and direct ad deals will alleviate our exposure to volatility in the open market. During the quarter, we continued to focus on sustained profitability with operating margins of net income.

During the quarter, we continue to focus on sustained profitability with operating margins of net income.

We saw further progress in that area lifting our overall gross margins to 59%.

We've been able to achieve those levels by leveraging our library to reduce short term content spend renegotiated most of our operating deals to be more favorable and by focusing on the highest margin parts of our business, namely third party distributed fast enough slide channels.

At these margin levels, we have unlocked something that is very uncommon in the streaming business scale operating margins most of the major media companies are barely eking out profits in streaming in the low to single digits.

With a long way to go before they have realistic businesses in streaming we send our philosophy of operating streaming services that provide a wide array of choice in targeted high quality library programming from around the world.

Eric: We saw further progress in that area, lifting our overall gross margins to 59%. We've been able to achieve those levels by leveraging our library to reduce short-term content spend, renegotiating most of our operating deals to be more favorable, and by focusing on the highest-margin parts of our business, namely third-party distributed fast and s-fudge. At these margin levels, we have unlocked something that is very uncommon in the streaming business, scale operating margins. Most of the major media companies are barely eking out profits and streaming in the low to single digits, with a long way to go before they have realistic businesses.

That works in the face of larger companies slashing content, while raising prices.

We believe this low cost money ball approach to streaming can deliver outsized margins and profits and is a highly scalable model.

Subsequent to quarter end, we also launched several new fast move on services that we had previously announced including the season more on bandwidth for channel mediator and Marty Krofft channel entrepreneur TV, our Indian friends and several other channels will be coming online in the next few weeks is that all of these channels are quickly ramping revenue contribution as we grow the.

Eric: We think our philosophy of operating streaming services that provide a wide array of choice in targeted, high-quality library programming from around the world is a model that works in the face of larger companies slashing content while raising prices. We believe this low-cost, money-ball approach to streaming can deliver outsized margins and profits and is a highly scalable model. Subsequent to quarter end, we also launched several new fast and avoid services that we had previously announced, including the Cesar Malone Dog Whisperer channel, Mediator, Sid Marty Kroc channel, and Entrepreneur TV. Barney and Friends and several other channels will be coming online in the next few weeks.

Distribution footprint over the coming two quarters.

Over the next few quarters, we're going to continue to our focus on optimization.

And as we've achieved the high degree of optimization on the operating side, we are now focusing on the SG&A side.

We continue to simplify our organizational structure and continuing to rationalize it to this new model.

We'll continue to leverage our growing capabilities for our universe services hub in India, which allows us to operate much of the back office services with greater cost efficiency.

We think leveraging this core capability along with other cost optimizations will enable us to achieve the 15% to 20%.

15%, 20% net income margins were targeting in the near term for this business.

All in all we've made great strides in the last several quarters and we now have the streaming business that can scale with best in class margins and integrated in demand technology platform with even better margins and a strong pipeline of exciting new businesses and customers and we expect to bring forward during our upcoming fiscal year our.

Eric: It sets all of these channels to quickly ramp up revenue contribution as we grow the distribution footprint over the coming two quarters. Over the next few quarters, we're going to continue our focus on optimization. And as we've achieved a high degree of optimization on the operating side, we're now focusing on the SG&A side. Our strategy is to continue to simplify organizational structure and continue to rationalize it to this new model.

Our future looks incredibly bright and we can't wait to show you more as things develop.

With that operator, let's open it up for Q&A.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.

Would like to withdraw your question. Please press star followed by Terry.

One for Greg to ask a question. Please ensure your device is undiluted locally.

Our first question comes from Brian can swing US with Alliance Global Partners. Your line is open. Please go ahead.

Eric: We'll continue to leverage our growing capabilities for our Cineverse Services Hub in India, which allows us to operate much of the back office services with greater cost. We think leveraging this core capability, along with other cost optimizations, will enable us to achieve the 15 to 20% net income margins we're targeting in the near term. All in all, we've made great strides in the last several quarters, and we now have a streaming business that can scale with best-in-class margins, an innovative in-demand technology platform with even better margins, and a strong pipeline of exciting new businesses and customers we expect to bring forward during our upcoming fiscal year. Our future looks incredibly bright, and we can't wait to show you more. With that operator, let's open it up for Q&A. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by... When preparing to ask your question, please ensure that your device is unmuted locally.

Great congratulations on making the difficult but necessary decisions.

All the channels.

And give up some revenue where the economic report.

Great to see EBITDA profit without the legacy business or one of the first time as I can remember so great job.

Can you talk about the expected early commitments from.

The platform is related to your new channels, whether it be dog wish for a meat eater, the CIT and Marty Krofft channel as well as entrepreneur.

How long does it take to know whether these will be needle movers.

And how long does it take to know what they will hit the success you hope they'll hit.

Hey, Brian This is Chris I just wanted to thank you for that.

I want to thank you for those comments first Brian.

Spot on and we appreciate it very much and I guess Eric.

I'll answer your question.

Sure.

Question, Yes so.

Yes.

Over the last few years as we've been launching these channels.

Yes, when we first started this because we're very early on we've been doing fast now.

Almost five almost six years now.

Operator: Our first question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open, please go ahead. Great, congratulations on making the difficult but necessary decisions, calling the channels, and giving up some revenue where the economics were poor. Great to see Eva.profit without the legacy business for one of the first times I can remember. So, great job.

Today the competition for swaps have gone up dramatically in every major studio now launching channels.

So the lead time.

To launch new channels is really longer than it was when we first started doing this business used to be a quarter or two.

It's nowhere near the duration that used to take and cable to get full distribution that could take three to four years.

Chris McGurk: Can you talk about the expected early commitment from the platforms related to your new channels, whether it be Dog Whisperer, Meat Eater, the Sid and Marty Krop channel, as well as Entrepreneur. How long did it take to know whether these would be needle movers?

If you were doing a good job I think here six to nine months.

Is probably realistic steady state full distribution.

May take a little longer we now have a lot of legacy <unk>.

Eric: and how long does it take to know whether they will hit the success you hope they'll? Hey, Brian, this is Chris. I just want to thank you for those comments first, Brian. I think they were spot on, and we appreciate them very much. And I guess Erica will answer your question.

Media providers entering this space.

Directv charter others are all contemplating services.

So some.

Some of the legacy cable providers like Comcast are already in.

As we as we look at the at the market here I think.

Eric: Sure. A great question. Yeah. Yeah, you know, over the last few years as we've been launching these channels, you know, when we first started this, because we were very early on, we've been doing fast now, you know, almost five, almost six years now. Today, the competition for slots has gone up dramatically. You know, you have every major studio now launching channels. So, the lead time to launch new channels is really longer than it was when we first started doing this business. It used to be a quarter or two. It's nowhere near the duration that it used to take in cable to get full distribution, which could take three to four years. If you're doing a good job, I think six to nine months is probably realistic steady state full distribution may take a little longer, as you know, we now have a lot of legacy media providers entering the space.

I think that the duration is going to continue to get longer as this business looks more and more like the new cable.

For Us I think the good news because we launched a lot of our new services on pretty large scale platforms like <unk>, Amazon and others. So we get a really good perspective right out of the gate.

About how well theyre going to perform.

I'll give you one good data point.

It's that we find very optimistic our dog Whisper channel.

As already outperforming Bob Ross, which has always been our big champion performer.

By about 40%.

On the first platforms, we've launched it.

Which includes some big players like Amazon and others. So we think.

That's very very promising and so.

Eric: You know, DirecTV, Charter, and others are all contemplating services. So, you know, some of the legacy cable providers like Comcast are already in. So, as we look at the market here, I think, you know, I think the duration is going to continue to get longer as this business looks more and more like the new cable. For us, I think, you know, the good news is that we launched a lot of our new services on pretty large-scale platforms like 2B, Amazon, and others. So, we get a really good perspective right out of the gate about how well they're going to perform. I'll give you one good data point that we find very optimistic.

We always thought.

These are Milan could be a second Bob Ross, but it's doing even better than <unk> to the state.

So we think as that scales out its distribution.

We are hoping to see that same pattern follow up.

Same goes for mediator mediator on the platforms, we've launched it.

It's Ben.

Dramatically over over indexing foreign bonds other.

Other things that we have on the platforms of time.

So we think that.

We've always known that it's going to fill a niche that is.

Eric: Our Dog Whisperer channel is already outperforming Bob Ross, which has always been our big champion performer, by about 40% on the first platforms we've launched it on, which include, you know, some big players like Amazon and others. So we think that's very, very promising. And so, you know, as we always thought Caesar Milan could be a second Bob Ross, but it's doing even better than Bob Ross is to this day. So we think as that scales out its distribution, we're hoping to see that same pattern follow. Same goes for meat eaters, meat eaters on the platforms we've launched.

Really not being served by most fast channels in the market today.

We think the.

The performance, we're seeing there.

Extremely impressive so out of the gate so far it's too early to tell on some of the other ones that just launched but I think.

Overall, we're very very pleased with the ones that should be doing well or doing better than we expected and with things like media.

Doing even better than.

And then we had even hoped.

Eric: It's been dramatically over-indexed, far above other things that we have on the platforms it's on. So we think that, you know, that we've always known that it's going to fill a niche that's really not being served by most fast channels in the market today. But we think the performance we're seeing in there is extremely impressive. So out of the gate so far, it's too early to tell on some of the other ones that just launched. But I think overall, you know, we're, we're, very, very pleased with the ones that should be doing well or doing better than we expected. And with things like meat eater, you know, doing even better than we had even hoped, it's still looking like it's going to be a very fruitful next few quarters. Right. That's super helpful.

Looking like it's going to be very fruitful next few quarters.

Great that's super helpful.

The way to think about because.

Unclear to us how many platforms you're on early on.

And the adoption and scale is there something you can share with us in terms of maybe exiting calendar 'twenty.

2024.

These channels in total on a run rate might look like in terms of revenue is that that too difficult to provide is it totally unclear just maybe any helpful.

Especially in that would be great.

Yes, I think.

It's too early it's too early to say, we're just rolling out the distribution on these.

Eric: Is there a way to think about, because it's unclear to us how many platforms you're on early on and the adoption and scale, is there something you can share with us in terms of maybe ending calendar 2020 for what these channels in total might, a run rate might look like in terms of revenue? Is that too difficult to provide? Is it totally unclear?

But the expectation out of these larger brands and channels was to stand up another Bob Ross was the stand up another sort of large scale brand.

And.

Early indications are that.

Between mediator beats.

Between.

Mediator and others.

I think we really do have that here.

Eric: Just maybe, a whole discussion. That would be great. Yeah, I think it's, you know, it's too early to say. You know, we're just rolling out the distribution on these. But, you know, the expectation out of these larger brands and channels was to stand up, you know, another Bob Ross was to stand up as another sort of large-scale brand. And, you know, early indications are that, you know, between Meteor and others, we're really good. I think we really do have that here.

I think also one of the things Thats changed in the last few months.

Last year in the prior year, there was really a.

A more conservative approach to channel launches.

Do think that.

What we're seeing is most of the major players are really ramping up.

The total footprint that we that we're seeing here. So in aggregate. If you kind of look at where we are steady state with the current business.

Eric: I think also, you know, one of the things that's changed in the last few months. Last year and the prior year, there was really a more conservative approach to channel launches. I do think that what we're seeing is most of the major players are really ramping up the total footprint that we're seeing here. So in aggregate, if you kind of look at where we are steady state with the current business, my sense is we've added at least another Bob Ross and a half, maybe two Bob Rosses long term at a full steady state distribution. I don't have a specific number to share with you on that, but yeah. I don't think I'd use the census scale.

My sense is we've added at least another Bob Ross and a half maybe two <unk> long term at full steady state distribution.

I don't have specific numbers to share with you on that but yes.

I hope that gives you a sense of scale.

Yeah, Great and then maybe you can provide some updates regarding the managed services business you made some high level comments, but last call you talked about I think getting to 10.

$10 million revenue run rate as you exited calendar 2024, if I'm, saying that right correct.

Eric: And then maybe you can provide some updates regarding the managed services business. You made some high-level comments, but on last call, you talked about getting to a $10 million revenue run rate as you exited calendar 2024, if I'm saying that right. Correct me if I'm wrong, which I believe would assume probably two large VSPs and maybe some smaller ones on board.

Correct me, if I'm wrong, which I believe would assume probably too large sps and maybe some smaller ones on boarded can you talk about if your assumptions have changed.

Reasonable.

Any any discussions on early adopters would be great.

Yes, Paul.

Eric: Can you talk about if your assumptions have changed? are still reasonable, and any discussions on early adopters would be great. Yes, I'll get it started, and Tony, who is on the call, can provide some color on that too. As we kind of look at our product suite and our product mix, where we're getting the most attention and traction is on the dispatch side, which makes a lot of sense. In my prepared comments, we said that every major fast platform, which includes Samsung, Vizio, all of them, they had it relatively easy over the last few years to launch that platform; they took a feed from us and hundreds of other people, and it's a lot easier than managing an ad-supported service because there's no content delivery. Other people handle the programming. You're not involved at the depth of analytics compared to Avon. There are no back-office problems you have to deal with for bank royalties and things like that.

I'll get it started and Tony <unk> on the call can can provide some color on that too.

As we kind of look at our product suite and our product mix.

Where we are we're getting the most attention and traction is on the dispatch side.

It makes a lot of sense it might come and my prepared comments.

And we said that.

Every major.

Fast platform, which include Samsung Z O all of them.

They had a relatively easy over the last few years, where.

So onto that platform they took a feed from us and hundreds of other people.

And it's a lot easier than managing an AD supported service.

There is no content deliveries.

<unk>.

Other people handle the programming really youre not involved at the depth of analytics versus Avon.

There is no back office problems, you have to deal with for bank royalties and things like that.

Eric: Now that they're all aspiring to be 2B and Pluto-like with big, vast Avon catalogs, they all need massive amounts of technology. On the flip side, they need to ingest lots of content. You've got this universe where Avon is rapidly growing and expanding. This year, I think you'll see that.

We will now that they are all.

Aspiring to be to be include a like with big vast Avon catalog. They all need massive amounts of technology on the flip side they need to ingest lots of content. So you have got this universe, where Avon is rapidly growing expanding alongside fast now and this year I think will be youll see that I've heard a lot of other.

Eric: I've heard a lot of other pundits in the market talking about that, and I would tend to agree, given our conversations at CS and elsewhere with the platforms and content owners. So this universe where you have this massive demand and need for the ability to push tens of thousands of hours and receive and manage tens of thousands of hours, I think it's led to a universe where most of these people have no systems to do this. They're doing it manually,

Pundits in the market talking about that and I would tend to agree given our conversation to see us in other places with the platforms and content owners. So this universe, where you have this massive demand and need for the ability to push tens of thousands of hours and receive and managed and tens of thousands of hours I think it has led to a universe, where most of these people have noticed.

To do this they are doing it manually theyre doing it with Google.

Eric: They're doing it with, you know, Google Sheets and paying third parties to do it manually at a very high cost. That's not scalable. And we saw this last time, you know, digital 1.0, when you had iTunes and Amazon Prime and other places. You have to be able to do this at scale. And so all of these companies and all on both sides are really going to need massive amounts of technology. And beyond that, you need to deploy technology that can leverage AI to do things like content localization, captions, enriched and deep metadata detection, and other things that we haven't even contemplated where the industry is going today, things like automated ad insertion. So we will do all of this today.

We will sheets and paying third parties to do it manually.

Very high cost.

Thats not scalable and we saw this is the last time digital one on itunes and Amazon Prime and other places you have to be able to do this at scale and so all of these companies and all on both sides.

Are really going to.

They need massive amounts of technology.

And beyond that date, you need to deploy technology that can leverage AI.

To do things like content localization captions.

Enriched in deep meditation metadata detection.

And another thing that we haven't even contemplated where the industry is going today.

At things like automated AD insertion. So we do all of this today. So so we think long story short is dispatch is proving to be far more important to the market. Then I think we anticipated when we started going out to the market. We thought the app side and he is going to probably be a bigger piece.

Eric: So, long story short, dispatch is proving to be far more important to the market than I think we anticipated when we started going out to market. We thought the app side was going to probably be a bigger piece. So the good news is this unlocks far bigger potential customers. What that means for sales cycles is clearly, it's a longer sales cycle than focusing on SMB.

Good news is this unlocks our bigger potential customers.

<unk>.

What that means for sales cycles as clearly.

It's a longer sales cycle.

On SMB, but the potential revenues are much greater so I think you are.

Eric: But the potential revenues are much greater. So I think your thoughts on us having larger scale customers, I think that's right. I would say if we could score up two to three big scale enterprise partners on this side, I think that would probably be, that would put us on a path to those numbers that we have been talking about. We also think obviously onboarding lots of customers on the delivery and content outside, those customers are motivated because the market demand for large volumes of content is there. Everybody from Netflix on down is ramping up licensing. And some partners are saying send us everything you've got.

I think your thoughts on us having.

<unk>.

Larger scale customers I think that's right.

I would say if we could scale could score up.

Two to three big scale Enterprise partners on this side.

I think.

That would probably be that would put us on a path to those numbers that we have been talking about.

Also think obviously onboarding lots of customers on the delivery and content outside.

Those customers, who are motivated because the market demand for large volumes of content there everybody from Netflix on down is ramping up licensing.

And some partners are saying since everything you've got right.

Eric: So we're an immediate revenue generation solution. And we're doing this at, keep in mind, we did this to support our own business on that over the last decade, which led us to here. So we're doing this at maybe 1H the cost of doing it through legacy.

So we're we're an immediate revenue generation solution and we're doing this at keep in mind, we did this to support our own business on that over the last decade.

Let us to here. So we're doing this at maybe one <unk> the cost of doing it through.

Eric: So not only do people save a ton of money, but they make a lot of money by being able to do this at scale. So this is, so I think that really is gonna unlock far more customers on the smaller side. So I hope that gives you some context on what that means for this year. Great, I'm going to speak one last question and then I'm going to hop off. I'm Sinister.

Legacy needs, so not only do people save a ton of money. They makes a lot of money by being able to do this at scale. So this is I saw I think.

That really has gotten locked far more customers on the smaller side.

So I hope that gives you some context on what that means for this year.

Great and then sneak one last question on M&A Hopper.

<unk>.

I'm senior search.

Eric: Is this functionality that you're going to try and sell directly into streaming platforms as a standalone solution, so like a subscription, or is it going to be bundled or somehow priced into one of your products? Tony, do you want to describe your thoughts on the business model? Yeah, I'll take that.

Is this functionality that youre going to try and sell.

Directly into streaming platforms as a standalone solution, so like a subscription or is it going to be bundled or somehow priced into when any of your products.

Tony you want to do you want to describe your thoughts on the business model.

Yes, I'll take that.

Tony: Again, thank you for the question. It's probably the short answer is all of the above. I think from my perspective, having done some initial outreach, TV OEMs is probably the first likely partnership. TV manufacturers have a variety of different services and apps and content libraries that they can't really properly provide search for. So we think that would be the first opportunity, and it's likely going to be a licensing model. In that case, it would likely be a white label.

Thank you for the question.

It's probably the short answer is all of the above I think from my perspective.

Having done some initial outreach.

TV Oems as probably the first likely partnership.

The TV manufacturers on a variety of different services and apps.

Uh huh.

Content libraries that they can't really properly throughout search for where we think that would be the first opportunity is likely going to be a licensing model.

I'll now close would likely would be white label, we won't require local key questions.

Tony: We won't require that they keep this in search branding or the Ava branding, but we're not opposed to it. I think the second tier would be smaller platforms, definitely not the Netflixes of the world, but others who are trying to compete, who have difficulty with discovery. So CineSearch, once again, would be made available there. And then, ultimately, we always see everything that we do as a showpiece or match point.

<unk> branding.

But we're not opposed to I think the second tier would be.

Smaller platforms.

Definitely not.

Netflix of the world, but others, who are trying to compete.

Or have difficulty with discovery.

So some research once again will be made available there and then ultimately we always see everything that we do have a showpiece for Moss point. So we will make that available with some search and potentially other services that we launched.

Tony: So we will make it available within CineSearch and potentially other services that we launch. So in that case, on the consumer model, it'll likely be a hybrid, a free tier with unlimited usage, a premium tier, paid sponsorship, search ads, and a combination of different ways to monetize. Ultimately, the cost that we're trying to cover is that accessing the LLM can be expensive. OpenAI, obviously, had that problem

In that case on the consumer model it will be likely a hybrid a free tier with unlimited usage came in tier.

Paid sponsorships surcharge combination in different ways to monetize ultimately the crossover trying to cover.

Access will mail alone can be expensive.

The open at all obviously you have a problem that's all they came out with a subscription $20 or.

Tony: That's why they came out with the subscription, a $20 fee that they later raised. So we'll see the same issue. But a lot of our focus has been on trying to optimize usage and better understand behavior. Hence why we're coming out with the beta first, so that we can get a better understanding of the cost structure. Great. Thanks so much, guys.

The lower rates.

We will see the same issue, but a lot of our focus on pulling on tomo optimize.

The usage and better understand the labor, hence why we're coming out with the data. So that we can go to build our understanding of the cost structure.

Great. Thanks, so much guys.

Brian David Kinstlinger: Thanks, Brian. Our next question comes from Dan Kernos with The Benchmark Company. Your line is open, please go ahead. Great, thanks. Good evening.

Thanks, Brian.

Our next question comes from Dan <unk> with the Benchmark Company. Your line is open. Please go ahead.

Great. Thanks, Good evening, Tony can I, just follow up on that for a second.

Tony: Tony, can I just follow up on that for a second? Obviously, major platforms like Roku have what to watch, and everyone's trying to figure out how to work on discovery in this space. And I think what you guys are proposing is really intriguing for sort of the next evolution, although obviously there are some clicks and takes around. Can you guys meta tag everything appropriately? AI still has some, you know, accuracy issues. So I'm sure you're trying to work all of that out.

Obviously major platforms like Roku have.

What to watch and everyone's trying to figure out how to work on discovery in the space and I think with you guys are proposing is really intriguing for sort of the next evolution. Obviously that there are some puts and takes around can.

Can you guys meta tag everything appropriately NII still has some accuracy issues. So I'm sure you're trying to work all of that out in some of that is going to be incumbent on the owners of the actual content to fix some of that I guess in order to make this thing work, but on the flip side.

Tony: And some of that's going to be incumbent on the owners of the actual content to fix some of that, I guess, in order to make this thing work. But on the flip side, given how many platforms are out there, if you're offering this tool, is there not a way for you guys to ultimately participate in the bounty race that, you know, like Roku, somebody said, if Roku points to Netflix and says, hey, this is on, you might want to sign up for Netflix. It's probably a bad example because they don't monetize Netflix that way, but, you know, they would theoretically capture a bounty for that. I know you guys are trying to put this as part of a broader package, but there's a huge element or secondary element of subscription service signup that is addressable here.

Given how many at least for now until there is more consolidation give me given how many platforms that are out there.

We are offering this tool is there not a way for you guys to ultimately participate in the bounty rates that Roku somebody said, it's broken point similar to Netflix and says Hey, This is arne.

You might want to sign up for Netflix and Fred that example, they don't monetize Netflix that way, but that they would theoretically capture balancing for that I know you guys are trying to put this as part of a broader package, but theres a huge elements are secondary element of subscription service sign up that is addressable here and I know the Oems want to tap into that.

Tony: And I know the OEMs want to tap into that. I'm just curious how you're thinking about, you know, kind of everything that I just sort of laid out in that sort of secondary revenue stream. First of all, Brian, sorry for calling you Dan.

I'm, just curious how youre thinking about.

Kind of everything that I, just sort of laid out in that sort of secondary revenue.

Extreme.

First of all Brian sorry, if I'm, calling you damage.

Tony: I got your voice confused. So Dan, yeah, it's something that we've thought about. Essentially, what you're describing is an affiliate model, a bounty, a paper bounty. I see that probably as a secondary approach. I think for us to get to the point where that makes sense, we need scale. And for us to get scale, we need some fairly large partnerships in place. At that point, when we have the eyeballs and the viewership in place, we potentially can. And these affiliate models exist. It's not something that we need to go out and invent.

Most confused.

So Dan yes.

Thing that we've thought about it.

Essentially what Youre, describing is an affiliate model a bounty of paper bounty.

I see that probably in the secondary approach I.

I think for us to get to the point, where that makes sense, we need scale.

And for us to get scale, we need some fairly large partnerships in place at.

At that point, when we had the eyeballs in the viewership in place.

We can and these affiliate models exist, it's not something that we need to go on in that.

Tony: So we have the ability to strike deals where if we drive traffic and can show conversion, we should be able to benefit and get some type of subscription bounty for doing so. What's interesting about this product is there are a lot of different ways of trying to extract value and monetize the service. In terms of what you're outlining, we're not relying only on traditional metadata that comes from the licensors. First of all, we have official licenses to official metadata from key metadata suppliers.

So we have the ability to strike deals, where we drive traffic and can show conversion, we should be able to benefit and get some type of subscription boundaries for doing so.

What's interesting about this product is there is a lot of different ways, all kind of trying to.

Extract value and monetize the service.

Terms of what you're outlining we're not reliant only on traditional native data that comes from the licensor is first of all we license.

We haven't we have official license to efficient made a data from <unk>.

<unk> made a data suppliers, but as Eric pointed out we are investing heavily and we've already started the process of indexing our library as well can computer vision and ultimately bad data has tremendous value that as probably a third possible revenue stream, which is we could start passing that through to the AD tag one of our <unk>.

Tony: But, as Eric pointed out, we are investing heavily, and we've already started the process of indexing our library as well through Computer Vision. And ultimately, that data has tremendous value that probably has a third possible revenue stream, which is we could start passing that through the ad tags on our ad-supported business. So as we're doing fast channels and providing these to platforms, the more detail you can provide about what's inside the movie, there's value there on the advertiser side.

<unk> business as we're serving as we're doing fast channels and providing these two platforms. The more detail you can provide about what's inside the movie.

There's value there on the advertiser side. So we think that's an area where the work that we're doing on AI and contextual tagging has significant value in the long term future is all going to be about meta data and AI.

Tony: So we think that's an area where the work that we're doing on AI and contextual tagging has significant value in the long term. The future is arguably about metadata. And AI only works well when it has a very rich library and trove of metadata to search from. And so for us, over the last year, you've probably seen some of these announcements we've made with buying labs and others. Many of you probably don't really understand the significance.

AI only works well when it has a very rich library and <unk> made the data and the search from and so for us over the last year, you've probably seen some of these announcements we have done with <unk> labs and others. Many of you probably don't really understand the significance, but we've been laying the groundwork for this product for the last year and part of that groundwork.

Tony: But we've been laying the groundwork for this product for the last year, and part of that groundwork has been building the metadata capabilities and building our library of metadata so we can better search for it. And so really, what we've announced today is a culmination of all that work and finally presents it in a package that consumers and investors can understand. Page 3 of 3 I was going to add one point to that, too, which is, you know, if you kind of look at the broader, bigger opportunity for platforms, as these become very skilled businesses with very large captive audiences of, you know, 10s to 50 million plus users, in some cases of All of them are really thinking about how to squeeze more ARPU per user out of them.

<unk> been building the main data capabilities in building our library of meta data. So we can better search it and so really what we've announced today is a combination of all that work and finally presented in a package that consumers and investors can understand.

Got it Thats really all I have.

Okay.

I was going to add one point to that to us.

If you kind of look at the broader.

Bigger opportunity for platforms.

These become very scaled businesses.

Very large captive audiences.

10 to 15 50 million plus users in some cases in the scale global platforms hundreds of millions.

All of them are really thinking about how to squeeze more RP per user out.

Eric: Today, they're all focused on building ad-based experiences, but there could be a real opportunity here, much the way Google deployed AdSense with the acquisition of DoubleClick and later scaled that across their whole search product. Building self-service ad tools and other things into this that allow for very intuitive and natural advertising opportunities native to interaction with a persona. So if you can imagine interacting with a persona and the platform, if somebody wants to promote something specific and we find somebody searching for something very appropriate, you know, you're talking about, you know, targeted advertising, contextual advertising, doing it in a natural and very seamless way in a user interaction where So we're exploring things like that on top of a license, meter. And Eric, can I add one last thing?

Today, they are all focused on building.

And based experiences, but there could be a real opportunity here much the way Google deployed.

<unk>.

With the acquisition of Doubleclick and later.

Scaling that across their whole search products.

Building building self service AD tools and other things into this that allows for very intuitive.

And natural advertising opportunities native too.

Interaction with the persona. So if you can imagine interact and interacting with the persona and the platform if somebody wants to promote something specific and we find somebody is searching for something very appropriate youre talking about.

Targeted advertising contextual advertising.

Doing it in a natural.

And very seamless way and a user interaction where users talking with persona.

Having that system be white label to offer streaming service it would be a very significant revenue opportunities. So we're exploring things like that on top.

Our license and metered usage model.

And Eric can I ask what your ceiling Michael.

Tony: So Dan, one other thing. I think the question that will be asked is why is Google doing it with Cineverse, right? Why isn't Google doing it themselves? You know, as Eric pointed out, I think the short answer is, you know, MatchPoint.

So Dan one other thing.

I think the question that we'll be asking why is Google doing it with senators right why isn't Google doing it themselves.

As Eric pointed out I think the short answer.

The short answer is match point, we have a huge head start over all the other platforms, who are trying to compete in this space.

Tony: We have a huge head start over all the other platforms who are trying to compete in this space. What we have in MatchPoint, the underlying foundation, user authentication, recommendation engine, a lot of that fundamental sort of technology is required to power a service like CineSearch. And there's really not a lot of players out there who kind of have that same full stack that we do.

What we have in match point, the underlying foundation user authentication recommendation engine a lot of that fundamental sort of technology is required to power service like some research and Theres really not a lot of players out there who kind of have that same full stack that we do and that is really our competitive advantage that we.

Tony: And that is really our competitive advantage that we have a head start. And, you know, we're obviously anxious to get this to market. We want to get it right.

Have a head start and we're obviously anxious to get those to market, we want to get it right, but we wouldn't be able to do this if we didn't have the underlying stack that we built with <unk> point over the last few years.

Eric: But we wouldn't be able to do this if we didn't have the underlying stack that we've built with MatchPoint over the last few years. All right, I'm going to try to ask another one because you guys just answered the two questions I was going to ask about self-serve and why Google. Eric, could you maybe talk, because you brought this up in terms of expanding?

Alright, and then just try to ask another one because you guys just answered the two questions I was going to ask on self serve and why Google.

Eric can you just maybe talk because you brought this up.

Eric: I mean, look, this is obviously the future of the platform, right? MatchPoint is based on it. And, you know, you've talked about new capabilities, and Tony just talked about all the groundwork that's been laid out. And the fact that you just landed Google as a partner suggests that doors are open to you that may not have been open previously. And so to the extent that you're thinking about expanding through partnership, you know, obviously guys that are making noise like ThinkBack that are linked in on the back end. Are there any other particular areas of opportunity that you see through partnership that you can drive more platform creation similar to what you announced today? And is it possible that there are other major partners, not to say there are only so many Googles, but other major partners, and Amagi was a big win too, coming, let's say, in the next 12 months. Yeah,

We are expanding I mean look this is obviously the key to the platform right.

Is match point based and you've talked about new capabilities and Tony just talked about all the groundwork thats been laid out and the fact that you just landed Google as a partner suggest that doors are open to you that may not have been open previously and so to the extent that youre thinking about expanding through partnership obviously.

The guys that are making noise like think back that are linked in on the backend or are there any other particular areas of opportunity that you see through partnership that you can drive more.

Platform creation similar to what you announced today and is it possible that there are other major partners. Notwithstanding there are only so many google's, but other major partners in a market with a big win two that could be coming within the next 12 months.

Yes so.

Eric: So, you know, first up, you make a good point about Google and Google Cloud. You know, I look at, as we built a technology platform here, that, you know, getting access to more customers rapidly and scaling rapidly is critical. So, in addition to obviously our own direct, you know, sales efforts, the Amagi partnership, really working with the existing cloud stores today is going to be very important. You know, clearly, we're working with Google Cloud. I think, you know, the natural progression of this would be to put MatchPoint and other offerings in the Google Cloud Store. So, you know, obviously, getting access to those markets is incredibly important. You know, we will need to do some work to our software stack to make it, you know, work in that environment. But I think that's an immediate path, I think, is a real opportunity. So, you know, I would say that's a big one. Tony, I don't know if there's any, but I think adding more partners.

First step you make a good point on Google Google Cloud.

I look at as we built a technology platform here.

That.

Getting access to more customers rapidly and scaling rapidly and is critical.

So in addition to obviously our own direct sales efforts.

Oddity partnership.

Really working with the existing cloud stores today is going to be very important clearly, we're working with Google cloud I think the natural progression of this would be the opposite would be to put match point in our other offerings in the Google Cloud store.

So.

Obviously getting access to those markets is incredibly important.

We will need to do some work to our.

Our software stack to make it work in that environment, but I think that's an immediate path I think is a real opportunity.

So I would say that's a big one Tony.

Tony I don't know if theres any I think adding more.

Partners Micro services, obviously right.

Eric: Microservices, obviously. Right. Yeah.

Yes.

Eric: Yeah, yeah, microservices. So today, you know, when our platform today, if you want to work with us, you can license Dispatch and start using it. You can license our Blueprint product. You can also license our analytics product. But the reality is most major media companies, the biggest platforms in the world, they may want to use what we're doing, right? They may say, wow, CineSearch is amazing. Hey, these elements of your stack are awesome, but they're not going to, you know? Netflix isn't going to abandon their stack. These are stacked, right?

Yes, yes micro services so today.

Our platform today, if you if you wanted to to work with us.

License dispatch and start using it you can.

You can license our blueprint product you can license our analytics product.

But the reality is most major media companies the biggest scale platforms in the world.

They may want to use a piece of what we're doing right. They may say, while the Senate searches amazing Hey, these elements of your stack are awesome, but theyre not going to.

Clicks isn't going to abandon their stack these are stacked right.

Eric: So that's where the microservices model comes in, where we basically take, you know, all the features and capabilities and match them to, make them into a variety of microservices that can be licensed and leveraged as APIs and third-party customer software, and they can be integrated very rapidly with developers. The beauty of this is you can, you know, instead of us taking six to 12 months to deploy a customer, it's, you know, if you have a good SDK and well-documented APIs, an engineer could test you out and see if it works for their stack. And, you know, that's where we really need to be going.

So that's where the micro services model comes in where we basically take.

All the features and capabilities and match point make them into a variety of micro services that can be licensed.

And leverage.

API is in third party customer software.

And they can be integrated very rapidly with developers the beauty of this is.

You can instead.

Instead of us taking six to 12 months to deploy a customer.

If you have a good SDK in and well documented Apis.

An engineer could test you out and see if it works for their stack and that's where we really need to be going.

Eric: So, we're in the process of really, you know, for match point 1.5 to 2.0, re-architecting our business model and approach. We're still going to offer a full turnkey solution with a backend for SMBs and mid-sized companies, but I think it would be great for us to work with Netflix, Google, Warner Media, and other studios and others that have their own engineering forces and massive audiences.

We're in the process of really.

For match point.

One five to two point al is re Architected, our business model approach, we're still going to offer a full turnkey solution with the backend for SMB and mid size companies.

But I think for us to work with the Netflix Google's Warner Warner Media as another studios and others that are have their own engineering forces and massive audiences for us to get that business.

Eric: For us to get that business, we're gonna sell the microservices instead. And we think, ultimately, that's the AWS model, and a lot of cloud-based models follow that. And we think that's a way for us to really win in this space. Low barriers to entry, very rapid scale. And when you start having very big companies hitting our services with the meter running, it can be quite lucrative.

Seldom micro services instead and.

And we think ultimately that's the AWS model all of that.

That's.

A lot of cloud based models follow that and we think Thats a way for us to really win in this space.

Low barrier to entry very rapid scale and when you start having very big companies hitting our services with the <unk>.

Peter running it's it can be quite lucrative and very quick.

Operator: There are no further questions remaining, so I'll pass the conference back over to the management team for closing remarks. Okay. This is Chris.

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

Great.

This is Chris so thank you all for joining us today and please feel free to reach out to jewelry most it with any additional questions that you might have.

Chris McGurk: So, thank you all for joining us today. And please feel free to reach out to Julie Millstead with any additional questions that you might have. And we very much look forward to speaking to you all again on our next quarterly call. Thank you very much. That concludes today's conference call. Thank you all for your participation; you may now disconnect your line. www.cineverse.com

And we very much look forward to speaking to you all again on our next quarterly call. Thank you very much.

Okay.

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

Yeah.

[music].

Sure.