Despite the gloss by Helios chairman and CEO Ted Farnsworth that the executive team is “very encouraged” by the results, the company’s quarterly SEC filing contains a host of unsettling disclosures for investors. Among them: a $39 million write-down due to a “significant” (but unspecified) decline in subscribers, as well as the disclosure that two more board members have departed.
In the filing, the company blamed the wider losses on the acquisitions of MoviePass, the Moviefone assets and the forming of MoviePass Ventures and MoviePass Films. Because of all of the spending, the company reported an accumulated deficit of $377.3 million as of September 30. It expects to pile up further net losses and “significant cash outflows” for “at least” the next 12 months.
Due to that red ink, Helios added in the filing, management is posing questions about the company’s ability to raise additional funding and concedes it could run out of cash within a year. “While management will look to continue funding operations by raising additional capital from sources such as sales of the company’s debt or equity securities or loans in order to meet operating cash requirements, there is no assurance that management’s plans will be successful,” the company cautioned.
MoviePass earlier this year claimed 3 million subscribers but did not include updated subscriber numbers in its quarterly filing. It touted a decrease in frequency as it converts subscribers to a three-movies-a-month plan. Average monthly use per subscriber fell to .77 movies per month in September, down from 2.22 movies in April.
In recent weeks, the company has had to scrap a vote for another reverse stock split, which would prop up the company’s share price in order to avoid a devastating delisting by the Nasdaq. Additionally, the company is under investigation by the New York State Attorney General’s office for allegedly misleading investors. Its stock has been trading between one and two pennies a share for the past couple of months. Nasdaq rules require that it trade at $1 a share or higher.
Even as it encountered dramatic challenges to its operations — mainly the high burn rate required by its former subscription model, which allowed members to see one movie a day for $10 a month — MoviePass expanded into other areas. It acquired a controlling stake in Emmett Furla Films and ramped up the activity of its film finance arm, which it promoted at an event at Sundance last January.
The third-quarter report offered some of the clearest visibility on the state of those investments, though they are footnotes compared with the larger issues.
Helios said the company has invested $6.2 million in production arm MoviePass Films. Finance arm MoviePass Ventures has capital investment in film costs totaled $13.4 million. The breakdown is $2.4 million of investments in rights to completed and released films and $11 million for completed and partially completed films yet to be released.
Here is a look at MoviePass subscriber use trends, furnished by Helios in its quarterly report: