Business
RLJ Entertainment reports financial results for Q3 ending September 30, 2013
Robert L. Johnson, Founder and Chairman of The RLJ Companies
RLJ Entertainment Inc., has released the results for the third quarter ending September 30, 2013. Full detail of the financial results as well as Management Discussion and Analysis, or MD&A, can be found in the Company’s Form 10-Q filed with the Securities Exchange Commission (SEC).
RLJ Entertainment (which is part of the RLJ Companies) is a leading creator, owner and distributor of media content across digital, broadcast and physical platforms. The company leverages its branding expertise, access to content and direct to consumer skills to optimize the value of its programs for distinct audiences. RLJ Entertainment was formed in October 2012 through the business combination of RLJ Acquisition, Inc., Image Entertainment, Inc. and Acorn Media Group, Inc.
RLJ Entertainment is focused on driving growth through the development of interest-based entertainment services for targeted audiences in niche genres including British drama and mystery, urban, action/thriller, and fitness, by using new technologies to deliver that content to consumers.
Robert L. Johnson, Chairman of RLJ Entertainment stated, “The business continued to perform on plan this quarter and I am pleased to see the results of management’s focus on driving greater efficiencies across all areas of the business. With a capital reallocation strategy that will more effectively maximize the Company’s cash flow combined with strategic cost savings, the business is well positioned to execute on its strategic growth plan and to build shareholder value.”
Generally Accepted Accounting Principles (GAAP) Financial Results
The financial results for the three and nine months ended September 30, 2013 reflect the operating activities of RLJ Entertainment and its subsidiaries (referred to as the “successor” period). The results for the three and nine months ended September 30, 2012 reflect the operations of only the Acorn Media and its subsidiaries (referred to as the “predecessor” period). The comparative discussion below for these periods is based on Generally Accepted Accounting Principles in the United States (or U.S. GAAP) and the results for the 2012 predecessor periods are not indicative of, or comparable to, results for the 2013 successor periods.
The company has included in this release an extensive discussion and presentation of pro forma information in order to assist investors’ understanding of the Company’s ability to generate cash and grow and meet its financial commitments. The Company will not necessarily present this same level of disclosure on an ongoing basis.
GAAP Financial Results
Based on the consolidated financial statements as presented in the company’s Form 10-Q for the three months ended September 30, 2013, net revenue increased US$12.2 million to US$32.7 million. Net revenue for the nine months ended September 30, 2013 increased US$49.9 million to US$107.3 million.
Net loss for the three months ended September 30, 2013 totaled US$8.5 million, compared to net loss of US$482,000 for the three months ended September 30, 2012. For the nine months ended September 30, 2013, net loss totaled US$29.0 million, compared to net loss of US$194,000 for the nine months ended September 30, 2012.
Proforma Financial Results
The Company is presenting financial information for the three and nine month’s ended September 30, 2013 and pro forma financial information for three and nine months ended September 30, 2012 due to the closing of the business combination among RLJ Entertainment, Image Entertainment and Acorn Media on October 3, 2012. Unaudited pro forma financial information reflects the 2012 operating results of RLJ Entertainment as if Image Entertainment and Acorn Media were acquired as of the beginning of 2012.
These combined results are not necessarily indicative of the results that may have been achieved had the combined companies been combined as of such date or period, or of RLJ Entertainment’s future operating results.
For the three months ended September 30, 2013, RLJ Entertainment net revenue declined US$6.4 million to US$32.7 million compared to pro forma net revenue of US$39.1 million for the three months ended September 30, 2012.
The decrease in revenue was primarily driven by a decrease in the company’s wholesale distribution segment as follows:
(i) the timing release of one high-profile title (“The Tall Man”) released in 2012 with no equivalent release in 2013 (the Company has three high-profile titles releasing in the fourth quarter of 2013 consisting of “The Colony,” “Paradise” and “Doc Martin 6”),
(ii) a significant reduction in rebates and sales return reserves in 2012 that did not repeat in the same quarter of the current year, and
(iii) higher than expected returns from a former U.S. distribution partner, which was terminated in the second quarter of 2013, and from the company’s Canadian distributor.
Partially offsetting the declines in revenue for the three months ended September 30, 2013 was growth in both the Company’s direct-to-consumer segment, which increased 7.7 percent or US$549,000 for the quarter, and the Company’s UK wholesale distribution business, which increased 12.6 percent or US$283,000. The company experienced growth in its proprietary network, Acorn TV. As of October 31, 2013, the pay subscribers for Acorn TV have grown by 100% to over 40,000 compared to December 2012.
For the nine months ended September 30, 2013, RLJ Entertainment net revenue declined US$13.8 million to US$107.3 million compared to pro forma net revenue of US$121.2 million for the nine months ended September 30, 2012. The decline was driven by a decrease in the Company’s wholesale distribution segment, primarily within the US market, due to:
(i) the full release of five high-profile releases in 2012 (“The Double,” “All Things Fall Apart,” “Beneath the Darkness,” “The Tall Man,” and “Doc Martin 5”) versus only two high-profile releases in 2013 year-to-date (“The Numbers Station” and “Day of the “Falcon”),
(ii) a significant reduction in rebates and sales return reserves in 2012 that did not repeat in the current year, and
(iii) higher than expected sales returns from a former distributor and from the Company’s Canadian distributor. These declines were partially offset by solid growth in both our direct-to-consumer segment, which increased 9.6 percent or US$2.1 million for the nine months ended, and our UK wholesale distribution business, which grew 7.3 percent or US$546,000 year-to-date versus the same period for the prior year.
The Company experienced growth in its proprietary network, Acorn TV. Acorn TV contributed US$485,000 in increased revenues for the nine months ended September 2013.
Adjusted EBITDA increased US$8.3 million to US$3.7 million for the three months ended September 30, 2013, compared to the same period in 2012. The increase in Adjusted EBITDA for the three months ended September 30, 2013, is primarily attributable to reduced expenditures for investments in content. In 2012, the company made significant expenditures related to its production of Foyle’s War 8, which was released in the first quarter of 2013. The company is now just starting preproduction for Foyle’s War 9.
Adjusted EBITDA decreased US$5.3 million to US$1.2 million for the nine months ended September 30, 2013, as compared to the prior year period. The decline in Adjusted EBITDA for the nine months ended September 30, 2013 primarily relates to significant charges recorded by the Company in COGS related to the early termination of a multi-year content output arrangement with a content supplier in the second quarter of 2013. The impact of this management decision contributed to the total inventory impairment of US$6.2 million recognized during the nine months ended September 2013.
Adjusted EBITDA is a non-GAAP financial measure.
About RLJ Entertainment, Inc. : RLJ Entertainment is a premier independent licensee and distributor of entertainment content and programming in North America, the United Kingdom and Australia with over 5,300 exclusive titles.
RLJ Entertainment is a leader in numerous genres via its owned and distributed brands such as Acorn (British TV), Image (stand-up comedy, feature films), One Village (urban), Acacia (fitness), Slingshot (faith), Athena (educational), Criterion (art films) and Madacy (gift sets). These titles are distributed in multiple formats including DVD, Blu-Ray, digital download, digital streaming, broadcast television (including satellite and cable), theatrical and non-theatrical.
Via its relationship with Agatha Christie Limited, a company that RLJ Entertainment owns 64 percent of, RLJ Entertainment manages the intellectual property and publishing rights to some of the greatest works of mystery fiction, including stories of the iconic sleuths Miss Marple and Poirot. And through its direct-to-consumer business, RLJ Entertainment has direct contacts and billing relationships with millions of consumers.
RLJ Entertainment leverages its management experience to acquire, distribute, and monetize existing and original content for its many distribution channels, including its nascent branded digital subscription channels, and engages distinct audiences with programming that appeals directly to their unique viewing interests. RLJ Entertainment has proprietary e-commerce web sites for the Acorn and Acacia brands, and owns the recently launched Acorn TV digital subscription service.
Source: The RLJ Companies