Quickflix : Quarterly Update and Appendix 4C December 2015

Quarterly update and Appendix 4CDecember 2015.indd ASX release

Quarterly Update

(& Appendix 4C) December 2015

Quickflix launched the new entry-level Premium Pass streaming product in December.

Quickflix Limited

& Controlled Entity

ABN 62 10 2 459 352 www.quickflix.com.au

Quickflix Quarterly Report

Quarterly Update

31 DECEMBER 2015

Restructure progressing with release from significant financial obligations secured.

During the December quarter, Quickflix made significant progress with its restructuring and cost reduction programme, successfully negotiating the release from financial obligations relating to content licensing commitments and lowering ongoing operating costs. Quickflix is re-positioning its service in response to significant competition in subscription video on demand streaming (SVOD) whilst also looking for new corporate opportunities to leverage its customer and revenue base, technology platform and digital capability. In lowering operating costs including marketing to acquire customers and investment in content, the Company necessarily is experiencing a reduction in customer and revenue levels however management's focus is on reducing these impacts as much as possible and securing new sources of revenue.

Significant developments in the quarter include:

• Finalising agreements to restructure key SVOD content licencing arrangements and securing release from current financial obligations with licensors including major studios. The total amount of SVOD licensing obligations from which the Company has been released now exceeds $7 million. In consideration of

  the releases Quickflix has restructured payment obligations for its remaining SVOD obligations, agreed certain royalty payments based on future revenues from 1 July 2016 and agreed to issue 51,209,657 options to subscribe for ordinary shares with a nil exercise price exercisable on or before 31 October 2018. The formal agreements and release from debt obligations significantly improve the Company's balance sheet position as it proceeds with plans for a re-capitalisation.

• Reducing operating costs and operating and investing cash burn. The Company has maintained control of costs realising savings across staff costs, technology and infrastructure, call centre costs, corporate overheads as well as marketing and content expenditure. Staff costs reduced by $0.5 million from the prior quarter as the benefit of headcount reduction flowed through. Net operating and investing cash outflow for the quarter was restricted to $0.18 million.

• A reduction in marketing expenditure to acquire customers to replace churn at a time SVOD competitors increased activity, resulted in customer numbers and revenue declining during the period. The decline in revenue receipts has been offset by cost reduction as operating cash burn was minimised.

• Development of new revenue sources including affiliate fees to supplement existing services. The first revenues were received late in the quarter and will be more significant in the current quarter. The early success of affiliate campaigns in which selected third party offers are made to customers highlight the value and incremental future revenue potential of Quickflix's base.

• Quickflix has also launched a new low-price entry product called Premium Pass which entitles the purchaser to a discounted entitlement to transactional streaming content. Premium Pass will be marketed to Quickflix's base and incorporated into third-party promotions.

• The receipt of an R&D tax rebate of $0.6 million. These funds were primarily applied to payments made as part of the restructuring arrangements with content and other suppliers.

  
  

  Key highlights in the December quarter were:

• Total customers of 101,195 down by 7 per cent;

• Paying customers of 91,817 down by 8 per cent;

• Total receipts of $3.9 million included receipts from customers of $3.3 million and an R&D tax rebate of

  $0.6 million;

• Operating and investing expenditure increased 2.6 per cent to $4.1 million with cost savings being applied to a reduction of creditor balances;

• Net operating and investing cash outflow of $0.18 million; and

• Cash at bank of $0.65 million.

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Quickflix Quarterly Report

Quickflix customers (Quarter)

*Paying customers are customers who purchase a service (subscription, pay-per-view or pay-to-own) during the quarter.

Customers and sales

End of Quarter

Dec-15

Sep-15

Change QoQ

Dec-14

Change YoY

Paying customers ended the December 2015 quarter at 91,817, which was 8 per cent lower than the previous quarter. Paying subscriber churn reduced to average 6.2 per cent over the quarter, down from 8.2 per cent in the previous quarter and 11.3 per cent in the June quarter.

Paying customers	91,817	100,121	-8%	117,106	-22%
Trial subscribers	9,378	8,930	5%	19,564	-52%
Total customers	101,195	109,051	-7%	136,670	-26%
Paying subscriber churn (monthly average)	6.2%	8.2%	25%	6.1%	-2%

Devices registered with Quickflix (000's) Streaming plays by device (million)

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Quickflix Quarterly Report

Proportion of Quickflix customers with access to streaming and DVD

Receipts from customers

Cash receipts from customers (including subscription fees, pay per view fees and third party affiliate fees) were

$3.3 million for the quarter, down 16 per cent compared to prior quarter. The reduction is due to the lower number of paying customers and a reduction in the average monthly receipts per customer to $10.54.

Quarter total/average	Dec -15	Sep-15	Change QoQ	Dec-14	Change YoY
Receipts from customers ($000s)	3,263	3,885	-16%	5,007	-35%
Average paying customers	93,796	103,378	-9%	115,629	-19%
Average monthly receipts per paying customer ($)	10.54	11.39	-7%	13.12	-20%

Operating and investing cash flows

Net operating and investing cash outflow for the December quarter was $0.18 million compared to an outflow of

$0.073 million in the September quarter. The Company received an R&D tax rebate of $0.6 million in the quarter which was applied to supplier payments including studios as part of restructuring existing commitments. Total operating and investing expenditure, including these payments, increased by 2.6 per cent to $4.1 million for the quarter. The Company's cost reduction initiatives which continued through the quarter will deliver sustained savings moving forward.

Quarter, $000s	Dec-15	Sep-15	Change QoQ	Dec-14	Change YoY
Receipts from customers	3,263	3,885	-16%	5,007	-35%
Net cash (used in) operating activities	-3,345	-3,790	-12%	-5,416	38%
Net cash (used in) investing activities	-98	-168	42%	-557	82%
Net operating & investing cash flow	-180	-73	-146%	-966	81%
Net cash provided by financing activities	0	0	-	404	-
Net increase (decrease) in cash	-180	-73	-146%	-562	-68%
Cash at end of financial period	659	839	-21%	2,120	-69%

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