Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report.

This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as "believes," "anticipates," "expects," "intends," "plans," "will," "estimates," and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Business Overview

Cineverse Corp. ("Cineverse", "us", "our", "we", and "Company" refers to Cineverse Corp. and its subsidiaries unless the

context otherwise requires) is a premier technology and entertainment company which was incorporated in Delaware on March 31, 2000.

Cineverse's core entertainment business operates (i) a portfolio of owned and operated streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top ("OTT") app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts.

Our streaming channels reach audiences in several distinct ways: direct-to-consumer, through major application platforms, and through third-party distributors of content on platforms. We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

Cineverse's technology business provides advertising technology and media services. Bolstered by the acquisition of IndiCue Inc. in the fourth fiscal quarter of 2026, the Company's Connected TV ("CTV") monetization platform provides proprietary location-based digital advertising technology solutions that offer advertisers a targetable, measurable, and accountable way to utilize CTV media and data solutions at scale. The Company also provides solutions for media owners, including an advertising platform for Digital Out-of-Home ("DOOH") networks that enables users to manage advertising inventory, optimize sales, and monetize unsold inventory.

The Company's streaming technology platform, known as Matchpoint™, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform. Through the integration of Giant Worldwide, Matchpoint™ has expanded its automated media services ecosystem supported by longstanding studio relationships and performance marketing expertise. Our media distribution services offerings include media mastering, quality control services, localization, content delivery and fulfillment.

Our Class A common stock, par value $0.001 per share (the "Common Stock"), is listed on The Nasdaq Stock Market ("Nasdaq") under the symbol "CNVS."

Financial Condition and Liquidity

As of September 30, 2026, the Company has an accumulated deficit of $512.7 million and negative working capital of $9.7 million. For the three months ended September 30, 2026, we had net income attributable to Common Stock holders of $3.2 million, and for the six months ended September 30, 2026, we had a net loss attributable to Common Stock holders of $2.6 million.

Net cash used in operating activities for the six months ended September 30, 2026 was $3.9 million, which included $5.8 million of incremental investment in our content portfolio via advances or minimum guarantee payouts. We may continue to generate net losses for the foreseeable future.

The Company is party to a Loan, Guaranty, and Security Agreement, as amended on April 8, 2025, with East West Bank (the "Line of Credit Facility") that currently provides for borrowings of up to $12.5 million guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries' assets. The facility includes provisions that allow for an increase in total borrowing capacity up to $15.0 million, subject to lender approval. As of September 30, 2026, $11.5 million was outstanding on the Line of Credit Facility.

The Company will continue to invest in content development and acquisitions from which it believes it will obtain an appropriate return on its investment. As of September 30, 2026 and March 31, 2026, short-term content advances were $9.0 million and $7.5 million, respectively, and long-term content advances, net of current portion, were $10.9 million and $8.2 million, respectively.

Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. We believe our cash, availability under our Line of Credit Facility and ability to use our ATM as of September 30, 2026, will be sufficient to support our operations for at least twelve months from the filing of this report.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Results of Operations for the three months ended September 30, 2026 and 2025 (unaudited) (in thousands):

Revenue

For the three months ended September 30, 2026, revenue increased by $13.6 million to $26.0 million compared to the prior year quarter, primarily due to $14.3 million of revenue from the IndiCue and Giant businesses acquired in the fourth quarter of fiscal 2026, partially offset by a $0.9 million decrease in base distribution revenue.

Base distribution revenue decreased primarily due to $1.2 million of lower theatrical revenue, as the prior year quarter included the theatrical release of Toxic Avenger, partially offset by $0.3 million of sponsorship revenue related to Air Bud Returns.

Podcast and other revenue increased by $0.1 million, primarily due to revenue from new podcasts.

Direct Operating Expenses

Direct operating expenses increased by $10.8 million for the three months ended September 30, 2026 compared to the prior year quarter, primarily due to the IndiCue and Giant acquisitions, mainly increased revenue share costs within our Advertising Technology revenue stream and increased personnel costs from Media Services, neither of which was present in the prior year quarter, which preceded the acquisitions in the fourth quarter of fiscal year 2026. The Company also incurred higher royalty expenses on certain higher performing titles such as Demon Slayer and a higher estimated provision for content advances, partially offset by lower theatrical distribution costs, as the prior year quarter included Toxic Avenger.

Selling, General and Administrative Expenses

For the three months ended September 30, 2026, selling, general and administrative expenses decreased by $1.3 million compared to the prior year quarter, primarily due to decreases in marketing expenses of $1.6 million and compensation expense of $0.1 million, partially offset by increases in share-based compensation of $0.3 million, other operating expenses of $0.2 million and corporate expenses of $0.1 million.

Compensation expense was relatively flat, due to the reversal of previously accrued incentive compensation ($0.6 million), partially offset by increased severance costs ($0.5 million) as part of integration and cost rationalization efforts.

Corporate expenses increased primarily due to acquisition-related professional services ($0.6 million), partially offset by lower consulting fees and audit fees ($0.5 million).

Share-based compensation increased primarily due to incremental awards granted following the second quarter of fiscal year 2026.

Marketing expenses decreased primarily due to earlier theatrical marketing for the fiscal year 2026 film slate which had an earlier average release date in the fiscal year.

Other operating expenses increased due to higher rent expense associated with new leased facilities ($0.2 million), partially offset by lower bad debt expense following collections on a previously reserved IndiCue receivable ($0.2 million).

Depreciation and Amortization Expense

Amortization expense increased by $1.5 million during the three months ended September 30, 2026 compared to the prior year quarter primarily due to the intangible assets acquired as part of our acquisitions made in the fourth quarter of fiscal 2026.

Changes in Fair Value of Assets and Liabilities

For the three months ended September 30, 2026, the Company recognized a decline of $7.0 million from changes in the fair value of acquisition-related consideration, consisting of $3.7 million decline for deferred consideration including a $1.5 million gain on the partial settlement and $3.3 million decline for earnout consideration. There were no such amounts in the prior year period.

Interest Expense, Net

For the three months ended September 30, 2026, interest expense increased by $0.6 million to $0.7 million compared to the prior year quarter. The increase was primarily the result of interest on the Notes issued in February 2026 and a higher average balance on the Line of Credit Facility.

Results of Operations for the six months ended September 30, 2026 and 2025 (unaudited) (in thousands):

Revenues

For the six months ended September 30, 2026, revenue increased by $33.1 million to $56.6 million compared to the same period in 2025, primarily due to $33.7 million of revenue from the Advertising Technology and Services and Media Services revenue streams acquired in the fourth quarter of fiscal 2026, partially offset by a $1.6 million decrease in Base distribution revenue. The decrease in Base distribution revenue was primarily due to $1.2 million of theatrical revenue from Toxic Avenger in the prior year period. The increase in Streaming and digital revenue was primarily due to higher revenue from higher performing titles such as Demon Slayer. Podcast and other revenue increased by $0.2 million, primarily due to revenue from new podcasts.

Direct Operating Expenses

Direct operating expenses increased by $26.0 million for the six months ended September 30, 2026 compared to the same period in 2025, primarily due to the revenue share costs of $19.8 million related to the Advertising Technology revenue stream and incremental personnel costs of $3.2 million to service the Media Services revenue stream.

Selling, General and Administrative Expenses

For the six months ended September 30, 2026, selling, general and administrative expenses increased by $1.4 million compared to the same period in 2025, primarily due to increases in share-based compensation of $0.8 million, other operating expenses of $0.3 million, compensation expense of $0.9 million and corporate expenses of $0.4 million, partially offset by a $1.1 million decrease in marketing expenses.

The increase in compensation expense was primarily due to severance costs related to integration and cost rationalization efforts ($0.8 million) and additional employees from the acquisitions made in the fourth quarter of fiscal 2026 ($0.5 million).

The increase in corporate expenses was primarily due to acquisition-related professional services ($0.7 million), partially offset by lower audit fees ($0.3 million).

The increase in share-based compensation was primarily due to incremental awards granted at a higher fair value subsequent to the second quarter in fiscal year 2026.

Marketing expenses decreased primarily due to earlier theatrical marketing for the fiscal year 2026 film slate which had an earlier average release date in the fiscal year.

The increase in other operating expenses was primarily due higher rent for new leased facilities ($0.3 million).

Depreciation and Amortization Expense

Amortization expense increased by $3.2 million during the six months ended September 30, 2026 compared to the same period in 2025, primarily due to the intangible assets acquired as part of our acquisitions made in the fourth quarter of fiscal 2026 ($2.4 million) and higher content capitalization costs ($0.9 million).

Changes in Fair Value of Assets and Liabilities

For the six months ended September 30, 2026, the Company recognized a decline of $5.7 million from changes in the fair value of acquisition-related consideration, consisting of $1.7 million decline for deferred consideration including a $1.5 million gain on the partial settlement and $4.0 million decline for earnout consideration. There were no such amounts in the prior year period.

Interest Expense, Net

For the six months ended September 30, 2026, interest expense, net increased by $1.4 million to $1.3 million compared to the prior year period, which included a $0.4 million discount on accrued interest provided by the lender on our Terrifier 3 term loan in return for the final payment on that loan. The increase was primarily the result of interest on the Notes issued in February 2026 and a higher average balance on the Line of Credit Facility.

Adjusted EBITDA

We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.

We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Following is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands):

(1) Includes $44 thousand and $88 thousand of amortization included in direct operating expenses on our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2026, respectively, and $129 thousand and $214 thousand for the three and six months ended September 30, 2025, respectively.

Cash Flow

Changes in our cash flows were as follows (in thousands):

The Company experienced improved operating cash flows during the period, primarily reflecting the impact of acquisitions completed in the fourth quarter of fiscal year 2026 and the resulting increase in scale and recurring cash-generating activities. Investing cash outflows were principally related to content investments and the continued settlement of acquisition-related obligations. Financing cash inflows were driven principally by borrowings used to fund strategic growth initiatives, including acquisition-related payments and upcoming theatrical release commitments.

Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies, Basis of Presentation and Consolidation on the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.