I’ve been following Helios and Matheson Analytics (HMNY) for some time now. A look at my Seeking Alpha profile will reveal that I’ve been outspoken about my bearish opinion. Helios and Matheson’s claim to fame is MoviePass, a movie theater subscription service that offers 3 movies per month with a fee of $9.95 per month.

Unfortunately, Helios and Matheson Analytics hasn’t been too forthcoming when it comes to the utilization rate of MoviePass, so estimates are the best that we can do. Considering the cost of the average movie ticket, subscribers would have to go to the movies at least twice per month to get their money out of the service. With this being the minimum point of strong return for consumers, I’ve used 2 movies per month in my models surrounding the utilization of MoviePass among its subscribers.

I’ve received a bit of feedback, some praising my estimates, and some arguing that they are too high. So, I decided to do some digging to see what a reasonable utilization rate would be that should be used in MoviePass models, coming to the conclusion that 1.5 movies per month is the most likely rate.

While the lower utilization rate would prolong the inevitable, it would still lead to dramatic losses. As a result, my opinion suggesting that HMNY will continue to fall ahead has not changed. However, I will admit that there is a chance, albeit a slim one, that Helios and Matheson could surprise investors with the potential for profit.

Looking At The Numbers From My Previous 2 Movies Per Month Model

At a utilization rate of 2 movies per month, Helios and Matheson Analytics would be taking a massive monthly loss from MoviePass. Before we get to the bottom line, there are a few factors that are included in this model:

  • Utilization Rate – My previous model suggested a utilization rate of 2 movies per month.
  • Movie Ticket Cost – In the United States, the average cost for a single movie ticket is approximately $8.97.
  • Subscription Revenue – MoviePass charges $9.95 per month per subscriber.
  • Non-Subscription Revenue – Helios and Matheson has stated that it generates between $4 and $6 per quarter in non-subscription based revenue.

Considering these factors, the model for monthly losses would be calculated as follows:

(Subscription Revenue + (Quarterly Non-Subscription Revenue/3)) – (Utilization Rate X Movie Ticket Cost) = Monthly Loss Per Subscriber

-Or (using the best possible non-subscription revenue)-

($9.95+($6.00/3) – (2X$8.97) = $5.99 (Monthly Loss Per Subscriber)

I Have Updated My Utilization Rate In This Model

Once again, after publishing multiple posts using the model above, I received quite a bit of feedback surrounding the utilization rate of MoviePass. So, I started digging to see what I could find. While some comments on message boards suggest that MoviePass’ utilization rate is over 2 movies per month, I have not found any evidence that suggests this to be the case.

In my research, I came across a compelling post on Reddit that broke down the utilization rate from the point of view of the box office. In the post, the author points to comments made about the top 27 movies sold. In the post, the author went on to account for less popular movies sold, coming to the conclusion that MoviePass purchased 14,499,069 million movie tickets between November, 2017 and March, 2018. During this time, the service averaged 2 million subscribers, suggesting that the company’s utilization rate through this period was 1.53 movies per month. Adjusting for missing data, the author went on to say that the average utilization rate is between 1.3 and 1.53 movies per month. While I believe that 1.3 movies per month is quite low, based on a strong argument on the Reddit post, I am adjusting my model to 1.5 movies per month per subscriber. Here’s what the numbers look like:

(Subscription Revenue + (Quarterly Non-Subscription Revenue/3)) – (Utilization Rate X Movie Ticket Cost) = Monthly Loss Per Subscriber

-Or (using the best possible non-subscription revenue)-

($9.95+($6.00/3) – (1.5X$8.97) = $1.51 (Monthly Loss Per Subscriber)

According to the MoviePass website, there are over three million subscribers on the service today. So, at a loss of $1.51 per subscriber, the monthly loss would come to $4.53 million. Considering that Helios and Matheson Analytics owns 92% of MoviePass, the actual loss attributable to Helios and Matheson would come to approximately $4.17 million per month or $12.51 million per quarter.

While It’s Slightly Better, The Future Still Looks Grim

Considering that Helios and Matheson Analytics had $15.513 million in cash on hand to close the quarter ending June, 30 2018, the company has about enough cash to make it through just over a quarter of MoviePass losses. Sure, that’s better than the few weeks that the previous model had to offer, but not by much.

Another thing to consider is that this time frame doesn’t include other costs like sales, general and administrative costs that came to more than $20 million in the last quarter. The bottom line here is that Helios and Matheson is out of money. Even with a lower MoviePass utilization rate, the company doesn’t have the money to make it through another quarter of general costs, let alone $12 million (a modest estimate) in quarterly losses due to MoviePass.

I Still Believe That Dilution Is On The Horizons

No matter how you slice it, even with a lower utilization rate than my previous models suggested, Helios and Matheson is in a tight spot. The company had just over $15 million in cash on hand on June 30, 2018 with mounting costs that between MoviePass losses and general costs, range far and beyond the money the company has sitting around.

Previous actions with regard to death spiral financing show that when Helios and Matheson Analytics gets in financial trouble, it is not above diluting shares to solve the problem. While this creates a new problem as dilution only leads to decreasing share value, it seems to be the go-to option for Helios and Matheson Analytics, as outlined in my recent post here.

Considering the fact that the company is not sitting on a sturdy financial foundation, combined with its history of death spiral financing, I believe that we can expect to see more of the same ahead.

The Takeaway

The takeaway here is that while my view of Helios and Matheson is a slightly brighter one than it was in the past due to a change in opinion with regard to utilization rate, I still wouldn’t be interested in investing in this stock. While a lower utilization rate will delay the need for cash, I believe that the need for funding in the near term is inevitable regardless of whether utilization sits at 2 movies per month or 1.5 movies per month. With Helios and Matheson Analytics’ history of dilution, I believe that the company will repeat its past, further diluting shares in an attempt to stay alive. As a result, I’m expecting to see further declines in the value of the stock.

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