HMNY’s Q1: I Was WRONG… They’ve Been Burning MORE Money Than I Thought

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I’m going to make this quick, because I currently have no interest in HMNY. I’m watching from a distance to see how they weather the summer blockbuster season. Until then, I continue to tell people that I wouldn’t buy the stock.

I will, however, provide my quick, honest, and unbiased thoughts on their Q1:

 

1. It looks like they made a profit, but they didn’t. The “profit” came from reversing the value of the warrants they’ve dished out, which now have virtually no value.

Here’s how to look at the quarter…

Just doing quick math (not 100% accurate, but surely close enough), it looks like they did about $47M in MoviePass revenue, while incurring $134M in ticket expenses.

That’s $2.85 spent for every dollar brought in. If they were getting a full $9.95 per customer, that would equate to 2.9 movies per customer per month. In reality, my model shows that the number was closer to 1.9…

…but neither number is good. This is a function of collecting less than $9.95 per month from each subscriber (back of the napkin math says that it was closer to $7.50).

Factoring in their SG&A expenses, if they’re recognizing $7.50 per subscriber per month and paying $11 per ticket, they need to get utilization down to 2 movies every 3 months (0.65 per month). Right now, it’s running at around three times that level.

They’re not even close.

 

2. Speaking of SG&A, it rose $15M year over year, a LOT more than the $2.5 million I modeled. So much for their “free” advertising. People thought I was being a bashing bear, but you can now see that I wasn’t.

Yes, my numbers were negative… but also too optimistic.

FYI, they incurred $40M of non-cash interest expense and share-based compensation (a.k.a. dilution).

Adding it all up, if we adjust for the change in deferred revenue, they burned about $100M in the quarter. This ties back to the 47M in revenue, 134M in COGS, and 15M increase in SG&A. The numbers match up. #ugly

 

3. At a glance, I didn’t see much progress on generating revenue from theaters and studios. In fact, the word “theater” only appeared five times in the entire 10-Q… and none of the mentions even alluded to making any significant sums of money from them. Very odd coming from a company that likes to boast.

All I saw was this…

“MoviePass has, to date, monetized marketing services with two large Hollywood studios, conducted sanctioned tests with multiple others, and has also monetized its marketing and data services with at least six other independent distributors.  For the quarter ended March 31, 2018, the Company recorded $1.4 million from these new revenue streams.  We believe our technology and subscriber base provides us with a unique ability to target moviegoers both geographically and based on their viewing tastes.”

…and $1.4M = nada.

 

4. The latest $30M round & ATM broke the stock in a way unlike any round before it. They sought to push the boundaries of public financing and they found it. I now expect that any further dilution will create an exponential impact on the stock (not just -35% per $100 million, as was the case for prior rounds).

Because of this, the math says that they won’t ever get close to achieving their goal of movie-industry critical mass. My advice to them would be to take the sweat equity they’ve built and retrench into a smaller, niche company, exclusively servicing smaller theaters and smaller-budget movies.

That’s where their success seems to be. I believe that’s where their future lies… and it can be a profitable one… just not one that will make investors whole.

 

Other than that, the 10-Q was filled with lots of fluffy stats alluding to better days ahead. Based on what we’ve seen from them, it’s best to take a wait-n-see attitude towards all of that. I’m not saying to dismiss it — I’m saying to see if they show any progress before jumping in.

Better to show up in the second inning than to get rained out.

 

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34 thoughts on “HMNY’s Q1: I Was WRONG… They’ve Been Burning MORE Money Than I Thought

        1. He’s full of it. He has proven that beyond a shadow of any reasonable person’s doubt. He’s still talking about a line of credit and this fantasy 17 months worth of cash. Read the 10Q and match it to what he says. He is a liar and can’t be trusted.

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  1. Ted also said many companies that you would know have approached him wanting to buy MP and he’s turned them all down. He’s probably stretching the truth. But if there is an Amazon out there that was really interested, maybe I’ll be able to keep my MP card. Because I’m not going to the 1 art theater in town. I would be perfectly fine with paying a little more and being restricted with blackout dates and limits.
    He also took the moviefone app which was pretty good and turned it into garbage. Then aquired the horrible movie Gotti that was scheduled for VOD. So I’m wondering what sort of acquisition they can F’up this time.

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  2. One day when management is either in jail or back to running psychic lines, I can’t wait to see those notes!

    But seriously, I knew a guy (on message boards) a long time ago that was close with Marvel when it was controlled by Ron Perlmann. Guy’s name was Raviv.
    Anyway, he eventually wrote a book about the battle inside the board room. It was a good read. I don’t know if MP has the same appeal as Marvel did but writing a book about the rise and demise of MP is just a thought. There are some fun characters in this story.

    Liked by 1 person

  3. Mark – the $100mm convert that Helios originally only tapped for $25mm and then paid back is that still accessible as funds available to Helios/MoviePass?

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    1. The terms are onerous enough that they didn’t want it. I understand that things might be different now, but I’m sure the deal is off the table as it stood at the time.

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      1. That was extremely toxic converible financing and was shocked when they announced that deal with Hudson Bay. Kind of ironic tho. They paid back and got out of that deal without a huge amount of dilution but look what they are doing to the stock now with their ATM at these prices.

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    2. I’m pretty sure they cut HMNY off after the first 25M. I believe the deal did not allow dilution which is why Ted paid it off with the even more dilutive equity raises that have followed.

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      1. It was debt that was never gonna convert (given the high conversion price) and if he didn’t pay it off, he would’ve had a creditor on his back. If Ted actually comes through with his so called BIG acquisition announcement at Cannes this week, it’s possible HMNY may issue a new convertible note to finance it.

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        1. No I am pretty sure they had to pay it off if they diluted. Remember that was back before Teds intentions on how to fund the losses were well known. You have to go back and read the filing on it. As far as the big acquisition, you should prepare yourself for disappointment.

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  4. The numbers on their recent 10-Q were beyond awful. The fact that they believe they can fund these kind of losses indefinitely through shareholder dilution of a 65 cent stock is mind boggling. Can Ted be that stupid? What is is end game?

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  5. You write:
    “My advice to them would be to take the sweat equity they’ve built and retrench into a smaller, niche company, exclusively servicing smaller theaters and smaller-budget movies.”
    Can you say with any sincerity that the EGOS of Bill & Ted, wait, that’s a bad movie, I mean Mitch & Ted would allow them to go smaller? I see them diluting till the end and walking away with whatever “salary & bonuses” they’ve received
    Mitch & Teds Excellent Adventure

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    1. Probably… but we’ll see when they’re faced with the inevitability. For now they still have people supporting the stock. So far, the $$ raising had been near brilliant. They wouldn’t have gotten so much $$ any other way.

      All about getting more $$.

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      1. Also update your sub numbers as they only have 2.7mm as of 5/16/18 (your model had 2.82mm end of April and 3.07mm end of May

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          1. Looks like you are still keeping utilization high for May/June/July (2.6, 3.3, 2.4) and Nov/Dec (3.2, 3.5) or have you not updated these yet? Thanks!!

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          2. Brother, give me some time! I’m a retired man and the market’s closed. I should be sitting on the beach all day instead of working 70 hours a week.

            Maybe you should build one!

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  6. they now claim to have made 9 cents per share profit? What kind of bookkeeping r they using? Make no sense using the raw numbers

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