Helios and Matheson reveals cash shortage in its second-quarter report

Things are starting to look dire at MoviePass.Hollis Johnson/Business Insider

• MoviePass’ parent company, Helios and Matheson, has less than two months of cash left at the rate it was burning through its funds in the second quarter.
• Even if it was able to reduce its burn rate as much as executives have stated, it still would have less than a month’s worth of cash.
• When it’s run low on funds in the past, Helios and Matheson has repeatedly issued and sold new shares to raise cash.
• But that tactic may be coming to an end; it already increased its share count by more than 9,000% in the last two weeks, and its stock price is inching closer and closer to $0.

Enjoy your MoviePass subscription while you’ve got it. You may not be able to use it two months from now.

Helios and Matheson, the parent company of MoviePass, has less than two month’s worth of cash left, the company revealed Tuesday in its quarterly report.

And that may be overstating things. It could run out of cash much sooner than that if it has overstated the degree to which new restrictions on the service — including a new three-films-a-month limitation — will reduce the rate at which it burns through cash. 

The company cautioned investors in the report that its cash is running low and reissued a previously stated “going concern” warning. The company did not immediately respond to a request for further comment. 

“Without additional funding, the company will not have sufficient funds to meet its obligations within one year from [Tuesday],” the company said in its quarterly report. “These factors raise substantial doubt about the company’s ability to continue as a going concern.”

As of Friday, Helios and Matheson had just $26 million in cash on hand. It had another $25.4 million on deposit at its merchant bank, which processes payments on its behalf.

By contrast, the company burned through more than $219 million in the second quarter. That’s a rate of about $73 million a month — or nearly 50% more than all of the company’s cash and accounts receivable on Friday.

MoviePass has been making changes to save cash

But Helios and Matheson has been making changes to its MoviePass service, which is its only significant business, to conserve cash. Most notably, it plans to limit the number of films subscribers can see at no extra price to just three a month — down from one a day. MoviePass CEO Mitch Lowe told the Wall Street Journal he expected the changes, which take effect Wednesday, to reduce the company’s cash burn rate by 60%.

Assuming that figure is accurate, it would mean that Helios and Matheson is now burning cash at a rate of about $29 million a month — or, again, more than the entire amount of cash it had on hand as of Friday.

And that’s assuming things don’t get dramatically worse, which again may be a big assumption. One of the things Lowe has repeatedly crowed about is the sharp rise in the number of MoviePass subscribers and the value of the data the company is collecting from them.

But all the recent changes to the company’s service seem to be taking a toll on its users. As of Saturday, the company had 3.2 million subscribers, which was up by just 200,000 in the six weeks since the end of June. Between December and the end of June, MoviePass added 2 million subscribers, or about 333,333 per month.

Helios and Matheson has repeatedly sold shares to raise cash

When the company has run low on cash in the past, it has issued new shares to raise funds. And in the report it raised the prospect of doing that again, noting that it has already filed a regulatory document indicating its intent to sell as much as $1.2 billion worth of new shares.

MoviePass CEO Mitch Lowe and Helios and Matheson Chief Executive Ted Farnsworth in happier times.MoviePass/ReutersIn fact, the company has already been issuing lots of new shares to generate cash. Between June 30 and last Friday, the company issued and sold 232.4 million new shares on the market, raising some $50.2 million.

But the company’s ability to keep repeating that tactic seems dubious. It’s already in danger of being delisted from the Nasdaq stock market for having a share price of less than $1, a move that would severely limit its ability to sell new shares.

Last month, Helios and Matheson attempted to boost its stock price above that threshold by reverse splitting its stock, giving investors one of its new shares for 250 of its old ones. The move worked only temporarily; within a week, the company’s stock was again trading at less than $1 a share. On Tuesday, it closed regular trading at 5 cents a share, and sunk under 4 cents a share in after-hours trading.

It looks set to fall even farther after the company revealed in the report just how much it has diluted shareholders in just the last several weeks.

Helios’ share count has increased by 9,423% in two weeks

After its reverse stock split, Helios and Matheson had just 1.7 million outstanding. By July 31, it had 6.7 million shares in circulation. However, by Monday it had 636.9 outstanding shares. That’s an astounding 9,423% increase to its number of shares in less than two weeks.

In after-hours trading Tuesday, shareholders seemed to already be starting to take the new, previously unreported dilution into account. In recent exchanges, Helios and Matheson’s stock was down more than a penny, or about 29%, to 4 cents a share.

The farther the company’s stock falls the more shares it will have to sell to raise additional funds. And the more shares it sells, the less each share will likely fetch on the open market.

For the quarter, Helios and Matheson reported a loss of $63.3 million on sales of $74.2 million. In the same period a year earlier — which was before it took control of MoviePass — the company lost $5.2 million on $1.1 million in sales.

The company’s cash burn was more than triple its stated loss in part because it recognized big paper gains due to the reduction in some of its liabilities.

All of which is to say that something could change soon — the company could get a strategic investment from another, larger company, or it could get acquired wholesale. But with things being as they are, MoviePass subscribers should, perhaps, buckle up for the worst-case scenario.