SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
Under the Securities Exchange Act of 1934
(Amendment No. ____)*
Cinedigm Corp.
(Name of Issuer)
Class A Common Stock, par value $0.001 per share
(Title of Class of Securities)
172406100
(CUSIP Number)
Zvi Rhine
Sabra Capital Partners, LLC
2301 E. Ontario Street, Suite 2301
Chicago, Illinois 60611
(847) 414-4371
With a copy to:
Derek D. Bork
Thompson Hine LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
(216) 566-5500
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Not applicable
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box □.
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.
_______________
* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
CUSIP No. 172406100 | 13D | Page 2 of 8 Pages |
1 |
NAME OF REPORTING PERSON
Sabra Investments, LP |
|
2 |
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) ¨ (b) ¨ |
3 |
SEC USE ONLY
|
|
4 |
SOURCE OF FUNDS
WC |
|
5 |
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
|
¨ |
6 |
CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware |
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH |
7 |
SOLE VOTING POWER
0 |
8 |
SHARED VOTING POWER
1,122,500 (including warrants to acquire 52,500 shares) | |
9 |
SOLE DISPOSITIVE POWER
0 | |
10 |
SHARED DISPOSITIVE POWER
1,122,500 (including warrants to acquire 52,500 shares) |
11 |
AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON
1,122,500 (including warrants to acquire 52,500 shares) | |
12 |
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨ |
13 |
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5% |
|
14 |
TYPE OF REPORTING PERSON
PN |
CUSIP No. 172406100 | 13D | Page 3 of 8 Pages |
1 |
NAME OF REPORTING PERSON
Sabra Capital Partners, LLC |
|
2 |
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) ¨ (b) ¨ |
3 |
SEC USE ONLY
|
|
4 |
SOURCE OF FUNDS
WC |
|
5 |
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
|
¨ |
6 |
CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois |
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH |
7 |
SOLE VOTING POWER
0 |
8 |
SHARED VOTING POWER
74,000 | |
9 |
SOLE DISPOSITIVE POWER
0 | |
10 |
SHARED DISPOSITIVE POWER
74,000 |
11 |
AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON
74,000 | |
12 |
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨ |
13 |
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.1% |
|
14 |
TYPE OF REPORTING PERSON
OO |
CUSIP No. 172406100 | 13D | Page 4 of 8 Pages |
1 |
NAME OF REPORTING PERSON
Mr. Zvi Rhine |
|
2 |
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) ¨ (b) ¨ |
3 |
SEC USE ONLY
|
|
4 |
SOURCE OF FUNDS
PF |
|
5 |
CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
|
¨ |
6 |
CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America |
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH |
7 |
SOLE VOTING POWER
500,350 (including warrants to acquire 26,250 shares) |
8 |
SHARED VOTING POWER
0 | |
9 |
SOLE DISPOSITIVE POWER
500,350 (including warrants to acquire 26,250 shares) | |
10 |
SHARED DISPOSITIVE POWER
0 |
11 |
AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON
500,350 (including warrants to acquire 26,250 shares) | |
12 |
CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
¨ |
13 |
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.7% |
|
14 |
TYPE OF REPORTING PERSON
IN |
CUSIP No. 172406100 | 13D | Page 5 of 8 Pages |
Item 1. Security and Issuer.
This Statement relates to the Class A Common Stock, par value $0.001 per share (the “Common Stock”), of Cinedigm Corp., a Delaware corporation (the “Company”). The Company reports that its principal executive offices are located at 902 Broadway, 9th Floor, New York, New York 10010.
Item 2. Identity and Background.
This Statement is filed by (i) Sabra Investments, LP (the “Fund”), a Delaware limited partnership, with respect to the Common Stock and warrants to acquire Common Stock directly held by it, (ii) Sabra Capital Partners, LLC (the “General Partner”), an Illinois limited liability company, with respect to the Common Stock directly held by it and as the general partner of the Fund, and (iii) Mr. Zvi Rhine, an individual, with respect to the Common Stock and warrants to acquire Common Stock directly held by him and as the Principal of the Fund and the General Partner.
Each of the Fund, the General Partner and Mr. Rhine is referred to herein as a “Reporting Person” and collectively as the “Reporting Persons.” The Reporting Persons are filing this Statement jointly. Neither the fact of this filing nor anything contained herein shall be deemed to be an admission by any of the Reporting Persons that they constitute a “group” for any purpose.
The principal business of the Fund is serving as a private investment fund. The principal business of the General Partner is to provide investment advisory and management services to private investment funds, including the Fund. The principal occupation of Mr. Rhine is serving as an investment manager and advisor. Mr. Rhine is a U.S. citizen. The business address of each of the Fund, the General Partner and Mr. Rhine is 2301 E. Ontario Street, Suite 2301 Chicago, Illinois 60611.
None of the Reporting Persons has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).
None of the Reporting Persons has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
The total cost for purchasing the Common Stock reported as held by the Reporting Persons in this Statement, including brokerage commissions, but not including the warrants reported as being held by the Reporting Persons, was approximately $2,519,799.
Item 4. Purpose of Transaction.
The Reporting Persons acquired the Common Stock reported in this Statement for investment purposes. The Reporting Persons purchased the Common Stock based on the Reporting Persons’ belief that the Common Stock, when purchased, was undervalued and represented an attractive investment opportunity. Depending on overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Common Stock at prices that would make the purchase or sale of the Common Stock desirable, the Reporting Persons may increase or decrease their positions in the Common Stock through, among other things, the purchase or sale of Common Stock through the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.
CUSIP No. 172406100 | 13D | Page 6 of 8 Pages |
The Reporting Persons intend to review their investment in the Common Stock on a continuing basis. Depending on various factors including, without limitation, the Company’s financial position, the price levels of the Common Stock, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Company as they deem appropriate including, without limitation, continuing to engage in communications with the Company’s management and Board, making recommendations or proposals to the Company concerning changes to the capitalization, corporate structure, ownership structure, board structure (including board composition) or operations of the Company, purchasing additional Common Stock, selling some or all of their Common Stock, engaging in short selling of or any hedging or similar transactions with respect to the Common Stock, or changing their intention with respect to any or all of the matters referenced herein.
None of the Reporting Persons currently has any present plan or proposal that would result in any of the actions described in paragraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons reserve the right in the future to formulate any such plans or proposals, and to take any actions with respect to their investments in the Company, including any or all of the actions described in paragraphs (a) through (j) of Item 4 of Schedule 13D.
On May 12, 2015, the General Partner sent a letter to the Company’s Chairman and Chief Executive Officer regarding the Company’s performance during recent years and proposed changes to the composition of the Company’s board of directors. A copy of the letter is filed as Exhibit 99.1 to this Statement and is hereby incorporated herein by reference.
Mr. Rhine met with representatives of the Company on May 13, 2015. Based on this meeting, the Reporting Persons are increasingly concerned that the Company’s Board does not plan to include meaningful shareholder representation on the Board or provide shareholders with meaningful input into any new candidates appointed to the Board. The Reporting Persons believe strongly that the Company’s Board is in dire need of shareholder representation to hold the Company’s management team accountable for its performance and corporate actions.
Item 5. Interest in Securities of the Issuer.
(a) The Reporting Persons beneficially own in the aggregate 1,696,850 shares of Common Stock, including warrants to acquire 78,750 shares of Common Stock, which in the aggregate represents approximately 2.2% of the Company’s outstanding Common Stock.
Each of the Fund, the General Partner and Mr. Rhine directly holds the number and percentage of shares of Common Stock disclosed in the applicable table set forth on the cover page to this Statement.
Each percentage ownership of shares of Common Stock set forth in this Statement is based on the 76,953,223 shares of Common Stock reported by the Company as outstanding as of February 10, 2015, in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission with respect to its quarterly period ended December 31, 2014.
The General Partner, as the general partner of the Fund, may be deemed to beneficially own the shares of Common Stock disclosed as directly owned by the Fund in this Statement. As the Principal of the Fund and the General Partner, Mr. Rhine may be deemed to beneficially own the shares of Common Stock disclosed as directly owned by the Fund and the General Partner in this Statement. Each of the General Partner and Mr. Rhine expressly disclaim such beneficial ownership by them.
CUSIP No. 172406100 | 13D | Page 7 of 8 Pages |
The Fund holds a 9% Subordinated Note due October 21, 2018 issued by the Company on October 21, 2013 in the principal amount of $200,000. Mr. Rhine holds a 9% Subordinated Note due October 21, 2018 issued by the Company on October 21, 2013 in the principal amount of $100,000. These Notes were issued to the Fund and Mr. Rhine pursuant to a Securities Purchase Agreement, dated October 21, 2013, by and among the Company, the Fund, Mr. Rhine and the other investors party thereto. In connection with the Note issuance, the Company issued a Warrant, dated October 21, 2013, to the General Partner to purchase 52,500 shares of Common Stock at a price of $1.85 per share and a Warrant, dated October 21, 2013, to Mr. Rhine to purchase 26,250 shares of Common Stock at a price of $1.85 per share. These Warrants expire on October 21, 2018. The Company filed copies of the forms of these agreements and instruments as exhibits to a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 23, 2013.
(b) The Fund beneficially owns, and has the shared power to direct the voting and disposition of, the shares of Common Stock disclosed as held by the Fund in the applicable table set forth on the cover page to this Statement. The General Partner beneficially owns, and has the shared power to direct the voting and disposition of, the shares of Common Stock disclosed as held by the General Partner in the applicable table set forth on the cover page to this Statement. The General Partner, as the general partner of the Fund, has the shared power to direct the voting and disposition of the shares of Common Stock held by the Fund. Mr. Rhine beneficially owns, and has the sole power to direct the voting and disposition of, the shares of Common Stock disclosed as held by him in the applicable table set forth on the cover page to this Statement. Mr. Rhine, as the Principal of the Fund and the General Partner, may also be deemed to have the shared power to direct the voting and disposition of the shares of Common Stock held by the Fund and the General Partner.
(c) The transactions effected by each of the Reporting Persons in the Common Stock during the past 60 days are set forth on Schedule A to this Statement. Each of these transactions was effected through the open market.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.
Pursuant to Rule 13d-1(k) promulgated under the Securities Exchange Act of 1934, as amended, the Reporting Persons have entered into an agreement with respect to the joint filing of this Statement, which agreement is set forth on the signature page to this Statement.
Item 7. Material to be Filed as Exhibits.
99.1 | Letter dated May 12, 2015 from Sabra Capital Partners, LLC to the Chairman and Chief Executive Officer of Cinedigm Corp. |
CUSIP No. 172406100 | 13D | Page 8 of 8 Pages |
SIGNATURE
After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this Statement is true, complete and correct.
In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of this Statement on Schedule 13D with respect to the Common Stock of the Company.
Dated: May 19, 2015
SABRA INVESTMENTS, LP | |
by Sabra Capital Partners, LLC, its general partner | |
/s/ Zvi Rhine | |
Zvi Rhine | |
Principal | |
SABRA CAPITAL PARTNERS, LLC | |
/s/ Zvi Rhine | |
Zvi Rhine | |
Principal | |
/s/ Zvi Rhine | |
Zvi Rhine |
Schedule A
Transactions by each of the Reporting Persons
in the Common Stock in the past 60 days:
Sabra Investments, LP:
Transaction Date | Number of Shares Bought/(Sold) |
Price Per Share ($) |
04/08/2015 | 50,000 | 1.45 |
04/10/2015 | 25,000 | 1.34 |
04/13/2015 | 10,000 | 1.28 |
04/14/2015 | 10,000 | 1.26 |
04/16/2015 | 7,500 | 1.22 |
05/01/2015 | 6,079 | 0.87 |
05/04/2015 | 36,421 | 0.93 |
05/05/2015 | 20,000 | 0.88 |
Mr. Zvi Rhine:
Transaction Date | Number of Shares Bought/(Sold) |
Price Per Share ($) |
04/10/2015 | 57,433 | 1.34 |
04/13/2015 | 69,500 | 1.29 |
Exhibit 99.1
401 E. Ontario St, Suite 2301 Chicago, IL 60611 Tel: 312.420.8582 |
May 12, 2015
Mr. Chris McGurk
Chairman & CEO
Cinedigm Corporation
1901 Avenue of the Stars
12th Floor
Los Angeles, CA 90067
Dear Chris,
Sabra Capital Partners, LLC is a private investment firm based in Chicago, IL. As you’re aware from our prior discussions, we have been a long-term investor in Cinedigm Corp (“Cinedigm” or the “Company”) holding stock since early 2013; investment funds that we manage currently own 2.7% of the Company’s common stock. In addition, we own nearly 10% of the Company’s 2013 Notes. Based on publicly available data, it is our understanding that we are one of Cinedigm’s largest shareholders. We have opportunistically purchased shares throughout the last two years and participated in several secondary transactions to support the Company’s growth plans. In essence, we have been a firm and strong supporter of the Company given our view of the sizeable growth opportunity in both the base distribution business and emerging OTT strategy (“CEG”), with long-term support from the deployment and services businesses.
However, the Company’s recent missteps have destroyed shareholder value and we no longer believe the current composition of the board is protecting the best interests of the very shareholders it is obligated to represent. Eighteen months after spending $51.5mm on Gaiam Vivendi Entertainment in October 2013 -- which was purported to generate $15mm in EBITDA, Cinedigm has yet to generate positive cash flow from the acquisition and is currently seeking $30mm in damages. Even more baffling, the Company proceeded with an ill-advised and highly dilutive $64mm convertible offering in April 2015 despite the strongest protest from investors. To champion the deal as a success with the 25% premium after the stock fell 40% is delusional and disingenuous at best. Such actions display a complete disregard for shareholder value. The Company has demonstrated a concerning penchant for spending shareholder money unwisely. We are hereby advocating for a more disciplined approach to the Company’s expenditures and capital allocation.
First, we believe an immediate and large share repurchase program of no less than $15mm is warranted to mitigate part of the dilution from the recently concluded convertible deal. Moreover, the Company should evaluate and pursue strategic alternatives for both its deployment and services segments. As illustrated in the tables below, a potential sale could unlock substantial capital (~$100mm above the current non-recourse debt outstanding) to prudently reinvest in the core CEG business and support further share repurchases. In addition, such a separation of the businesses will create a pure-play content distribution player with a clean balance sheet and high growth prospects. As a result, investors are likely to award the Company a higher multiple in the marketplace while lowering its cost of capital.
Table 1: Value of Deployment & Services Segments
Sum of Parts Value ($ in 000s, except per share) | ||||
PV of Deployment Cash Flow (+) | $ | 217,863 | ||
Non-recourse Debt 12/31/14 (-) | $ | (168,456 | ) | |
Digital Services (+) | $ | 46,762 | ||
Combined Value | $ | 96,169 |
Source: Company Filings and Sabra Capital Research
Sabra Capital Partners, LLC | Tel: 312.420.8582 |
Table 2: Deployment & Services Cash Flow
DEPLOYMENT CASH FLOWS ($ in 000s, except per screen) | ||||||||||||||||||||||||||||||||||||||||||||
FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | ||||||||||||||||||||||||||||||||||
A | A | A | E | E | E | E | E | E | E | E | ||||||||||||||||||||||||||||||||||
Phase I | $ | 44,034 | $ | 39,646 | $ | 36,309 | $ | 36,675 | $ | 40,890 | $ | 38,845 | $ | 24,534 | $ | 11,858 | $ | 11,858 | $ | 10,222 | $ | 10,222 | ||||||||||||||||||||||
Phase II | 13,033 | 12,464 | 12,146 | 12,335 | 13,407 | 13,750 | 13,750 | 13,750 | 12,875 | 9,457 | 3,823 | |||||||||||||||||||||||||||||||||
Total Deployment Rev | $ | 57,067 | $ | 52,110 | $ | 48,455 | $ | 49,011 | $ | 54,297 | $ | 52,595 | $ | 38,284 | $ | 25,608 | $ | 24,733 | $ | 19,679 | $ | 14,046 | ||||||||||||||||||||||
Y/Y Growth | 14.3 | % | (8.7 | %) | (7.0 | %) | 1.1 | % | 10.8 | % | (3.1 | %) | (27.2 | %) | (33.1 | %) | (3.4 | %) | (20.4 | %) | (28.6 | %) | ||||||||||||||||||||||
Q/Q Growth | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||
Deployment EBITDA | $ | 55,741 | $ | 50,733 | $ | 46,472 | $ | 46,961 | $ | 52,201 | $ | 50,566 | $ | 36,807 | $ | 24,620 | $ | 23,779 | $ | 18,920 | $ | 13,504 | ||||||||||||||||||||||
EBITDA Margin | 97.7 | % | 97.4 | % | 95.9 | % | 95.8 | % | 96.1 | % | 96.1 | % | 96.1 | % | 96.1 | % | 96.1 | % | 96.1 | % | 96.1 | % | ||||||||||||||||||||||
Phase I Screens | 3,724 | 3,724 | 3,724 | 3,724 | 3,724 | 3,538 | 2,234 | 1,080 | 1,080 | 931 | 931 | |||||||||||||||||||||||||||||||||
Phase II Screens | 1,815 | 2,503 | 2,503 | 2,514 | 2,514 | 2,514 | 2,514 | 2,514 | 2,354 | 1,729 | 699 | |||||||||||||||||||||||||||||||||
Phase I Rev/Screen | $ | 11,824 | $ | 10,646 | $ | 9,750 | $ | 9,848 | $ | 10,980 | $ | 10,980 | $ | 10,980 | $ | 10,980 | $ | 10,980 | $ | 10,980 | $ | 10,980 | ||||||||||||||||||||||
Y/Y Growth | 1.4 | % | (10.0 | %) | (8.4 | %) | 1.0 | % | 11.5 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||
Screen Turnover | 9.9 | x | 8.9 | x | 8.1 | x | 8.2 | x | 9.2 | x | 9.2 | x | 9.2 | x | 9.2 | x | 9.2 | x | 9.2 | x | 9.2 | x | ||||||||||||||||||||||
VPF Estimate | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | 1,200 | |||||||||||||||||||||||||||||||||
Phase II Rev/Screen | $ | 10,452 | $ | 5,537 | $ | 4,858 | $ | 4,915 | $ | 5,470 | $ | 5,470 | $ | 5,470 | $ | 5,470 | $ | 5,470 | $ | 5,470 | $ | 5,470 | ||||||||||||||||||||||
Y/Y Growth | (17.7 | %) | (47.0 | %) | (12.3 | %) | 1.2 | % | 11.3 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||
VPF Estimate | 1,061 | 624 | 598 | 599 | 598 | 598 | 598 | 598 | 598 | 598 | 598 | |||||||||||||||||||||||||||||||||
Projector Residual Value Per Screen | 0 | 15,000 | ||||||||||||||||||||||||||||||||||||||||||
PV of Deployment Cash Flow @8.0% Discount Rate | $ | 11,912 | $ | 48,335 | $ | 43,352 | $ | 29,218 | $ | 18,097 | $ | 16,183 | $ | 11,923 | $ | 38,843 | ||||||||||||||||||||||||||||
DIGITAL CINEMA SERVICES CASH FLOWS ($ in 000s) | ||||||||||||||||||||||||||||||||||||||||||||
Services Revenue | $ | 18,128 | $ | 12,932 | $ | 12,558 | $ | 12,161 | $ | 13,508 | $ | 13,391 | $ | 11,736 | $ | 10,266 | $ | 10,107 | $ | 9,294 | $ | 8,268 | ||||||||||||||||||||||
Services EBITDA | $ | 4,355 | $ | 8,126 | $ | 9,227 | $ | 9,242 | $ | 10,278 | $ | 10,189 | $ | 8,930 | $ | 7,811 | $ | 7,690 | $ | 7,072 | $ | 6,291 | ||||||||||||||||||||||
EBITDA Margin | 24.0 | % | 62.8 | % | 73.5 | % | 76.0 | % | 76.1 | % | 76.1 | % | 76.1 | % | 76.1 | % | 76.1 | % | 76.1 | % | 76.1 | % | ||||||||||||||||||||||
PV of Services Cash Flow @8.0% Discount Rate | $ | 2,319 | $ | 9,517 | $ | 8,735 | $ | 7,089 | $ | 5,742 | $ | 5,234 | $ | 4,456 | $ | 3,671 |
Source: Company Filings and Sabra Capital Research
As it relates to expenses and expenditures, we support the Company’s investments to capitalize on its growing CEG business but must insist such investments adhere to a high return on capital threshold. Shareholders deserve to see the payback and returns from existing channels before the Company allocates significant incremental capital into new projects. In essence, we require evidence that the OTT platform is beginning to bear fruit before committing a large portion of the recent capital raise into a competitive space given management’s unproven success. The Company indicated it would not act like “drunken sailors” with the new capital. However, given the poor track record of oversight by the board, we will seek board representation to ensure judicious analysis overrules unfettered spending. Furthermore, we expect the Company to scrutinize its expense structure and control costs while it pursues its various growth initiatives.
For the last several years, the only ones losing money have been the shareholders. Aside from the CEO, Chris McGurk, accepting his fiscal 2015 retention bonus of $250,000 in stock, which we applaud, there has been no insider buying at the Company. NONE. The management team purports to own a significant stake in the Company but the actual shares owned by its directors and executive officers are less than 4mm shares after excluding out-of-the-money options and warrants. It is unacceptable that the board doesn’t represent a larger portion of its constituency base and have a more meaningful ownership stake in the Company. For the management team to continually claim that the stock is “ridiculously” undervalued is ironic when they refuse to put their own money into the stock – as the rest of the shareholders do – as opposed to receiving shares/options as part of their employment agreements. Stock Ownership Guidelines need to be established for its executive officers. Moreover, the Stock Ownership Guidelines for its non-employee directors is insufficient and needs to be heightened.
Sabra Capital Partners, LLC | Tel: 312.420.8582 |
We strongly believe that the current market value does not represent the inherent value of the Company’s assets or the impending cash flow to be realized by the Company’s CEG business. In short, the security price is detached from the fundamentals of the Company. Importantly, this assumes the Company does not create any more self-inflicted wounds. During a conversation with management on April 14, 2015, to discuss the Company’s strategy and weak stock price, we were asked for additional patience. A week later, shareholders were grossly punished in an ill-conceived convertible deal. Our patience is over. The common shares of Cinedigm have performed miserably over any period of time. As such, we are seeking to reconfigure the board as a necessary step to protect and enhance shareholder value. We look forward to engaging in a constructive dialogue.
Best Regards,
/s/ Zvi Rhine
Zvi Rhine
Principal
Sabra Capital Partners
Sabra Capital Partners, LLC | Tel: 312.420.8582 |