RLJ Entertainment Reports Financial Results for the Second Quarter Ended June 30, 2013 SILVER SPRING, Md., Aug. 5, 2013 (GLOBE NEWSWIRE) -- RLJ Entertainment Inc., ("RLJ Entertainment" or "the Company") (Nasdaq:RLJE), today reported results for the second quarter ended June 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 SEC. RLJ Entertainment 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, fitness and faith, by using new technologies to deliver that content to consumers. Robert L. Johnson, Chairman of RLJ Entertainment stated, "We continue to make solid progress integrating the Acorn and Image businesses and I am pleased with management's hard work to date to refine the growth strategy and its content investment approach. The team is highly focused on positioning RLJ Entertainment for growth over the long-term, which includes investing in a targeted portfolio of content offerings and leveraging a strong set of traditional and digital distribution channels, particularly in the US and UK. To support these efforts, Miguel Penella and I have made several key appointments over the last few months, including Drew Wilson, our CFO, and Nina Henderson Moore, President of our Urban Digital Channel, 'OnCue'. I firmly believe we now have the right executive team in place to build an exciting content company that satisfies increasing consumer demand for unique, quality content across multiple platforms." GAAP Financial Results The financial results for the three and six months ended June 30, 2013 reflect the operating activities of RLJ Entertainment and its subsidiaries (referred to as the "successor" period). The results for the three and six months ended June 30, 2012 reflect the operations of only the Acorn Media and its subsidiaries businesses (referred to as the "predecessor" period). The comparative discussion below for these periods is based on Generally Accepted Accounting Principles (or 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 June 30, 2013, net revenue increased $17.0 million to $34.3 million. Net revenue for the six months ended June 30, 2013 increased $37.7 million to $74.6 million. Net loss for the three months ended June 30, 2013 totaled $16.9 million, compared to net loss of $554,000 in three months ended June 30, 2012. For the six months ended June 30, 2013 net loss totaled $20.5 million, compared to net income of $288,000 in the six months ended June 30, 2012. Miguel Penella, Chief Executive Officer of RLJ Entertainment, commented: "Our results during the second quarter reflect the continued successful execution of our business strategy and the progress we have made bringing together Acorn and Image. We remain highly focused on identifying synergies derived from the merger of the two companies, securing additional cost savings, refining and strengthening our content investment strategy through capital reallocation, and improving our balance sheet. While these efforts have impacted our financial results in the quarter, we are confident that the steps we are taking will solidify further growth opportunities, clarify the RLJ Entertainment investment thesis, and enable us to achieve our long-term financial targets." Proforma Financial Results The Company is presenting financial information for the three and six month's ended June 30, 2013 and pro forma financial information for three and six months ended June 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 operating results of RLJ Entertainment as if Image Entertainment and Acorn Media were acquired as of the periods indicated. These combined results are not necessarily indicative of the results that may have been achieved had the combined companies been combined as of such dates or periods, or of RLJ Entertainment's future operating results. For the three months ended June 30, 2013, RLJ Entertainment net revenue declined $6.3 million to $34.3 million compared to pro forma net revenue of $40.6 million in the three months ended June 30, 2012. The decline in net revenue is primarily attributable to the timing of certain title releases between quarters and a significant one-time transaction related to management's planned execution of synergies to consolidate fulfillment partners. Management believes that the consolidation will position the Company for future costs savings by combining, at scale, all of its operations under a single distribution and fulfillment partner. In addition, Image gross sales increased by 4.0% but were offset by increased price rebate and return reserves for the three months ended June 30, 2013 compared to the three months ended 2012. Image's 2012 revenues included a significant reduction in rebates and sales returns reserves that did not repeat in the three months ended June 30, 2013. For the six months ended June 30, 2013, RLJ Entertainment net revenue declined $7.4 million to $74.6 million compared to pro forma net revenue of $82.0 million for the six months ended June 30, 2012. Results were primarily attributable to the timing of certain title releases between quarters and a significant one-time transaction related to the planned execution of synergies to consolidate fulfillment partners in the second quarter of 2013, as explained above. Acorn revenue increased 12% in the six months ended June 30, 2013 versus the prior year primarily due to the release of "Foyle's War 8" offset by the Image revenue decline resulting from the timing of three high-profile titles in 2012, "The Double," "All Things Fall Apart" and "Beneath the Darkness" that performed at or above expectations compared to two high-profile titles, "The Numbers Station" and "Day of the Falcon in 2013." Adjusted EBITDA decreased $12.1 million for the three months ended June 30, 2013, compared to the same period in 2012. The decline in Adjusted EBITDA was primarily attributable to significant charges the company recorded in COGS and SG&A related to (a) finished goods inventory impairment charge ($3.2 million) from the early termination of a content output agreement, (b) finished goods inventory write-down ($1.5 million) associated with the Madacy line and other obsolete hard goods inventory and (c) the recording of minor asserted legal claims of $0.5 million. Additionally, the decrease in Adjusted EBITDA was partly driven by (i) the decline in revenue for the quarter versus prior year resulting from the timing of key title releases ($4 million) and (ii) the impact of a single wholesale return transaction in the quarter resulting from management's consolidation of a fulfillment partner. The sales return had a $1.1 million in Adjusted EBITDA negative impact. We expect the returned inventory to be resold at normal pricing in upcoming quarters. Adjusted EBITDA decreased $13.6 million for the six months ended June 30, 2013, as compared to the prior year. The decline in Adjusted EBITDA for the six months ended June 30, 2013 primarily relates to items discussed above in the three months ended June 30, 2013 Adjusted EBITDA variance along with the impact of increased foreign currency loss of $1.4 million during the six months ended June 30, 2013. RLJ Entertainment, Inc. (Nasdaq:RLJE) 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. RLJE 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 RLJE owns 64% of, RLJE 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, RLJE has direct contacts and billing relationships with millions of consumers. RLJE 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. RLJE has proprietary e-commerce web sites for the Acorn and Acacia brands, and owns the recently launched Acorn TV digital subscription service. Forward Looking Statements This press release may include "forward looking statements" within the meaning of the "safe harbor" provisions of the United Stated Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Investors are cautioned that such forward looking statements with respect to revenues, earnings, EBITDA, performance, strategies, prospects and other aspects of the business of RLJ Entertainment is based on current expectations that are subject to risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward looking statements. These factors include, but are not limited to: (1) RLJ Entertainment's ability to integrate the businesses of Image Entertainment, Inc. and Acorn Media Group, Inc.; (2) the inability of RLJ Entertainment to fully realize the anticipated benefits of the business combination with Image Entertainment, Inc. and Acorn Media Group, Inc. or such benefits taking longer to realize than expected; (3) the ability of RLJ Entertainment's officers and directors to generate a number of potential investment opportunities; (4) RLJ Entertainment's ability to maintain relationships with customers, employees, suppliers and lessors; (5) the loss of key personnel; (6) delays in the release of new titles or other content; (7) the effects of disruptions in RLJ Entertainment's supply chain; (8) the limited liquidity and trading of RLJ Entertainment's public securities; (9) RLJ Entertainment's financial performance, including the ability of RLJ Entertainment to achieve revenue growth and EBITDA margins or realize synergies; (10) the possibility that RLJ Entertainment may be adversely affected by other economic, business, and/or competitive factors; (11) the need for additional capital and the availability of financing; (12) technological changes; (13) pricing and availability of products and services; (14) demand for RLJ Entertainment's products and services; (15) the ability to leverage and monetize content; and (16) other risks and uncertainties indicated from time to time in filings with the SEC by RLJ Entertainment. Readers are referred to the most recent reports filed with the SEC by RLJ Entertainment. Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. RLJ ENTERTAINMENT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, 2013 and December 31, 2012 ASSETS Successor (In thousands, except share data) June 30, 2013 December 31, 2012 Current assets: Cash and cash equivalents $3,693 $4,739 Accounts receivable, net 19,395 20,484 Inventories, net 15,165 23,029 Investment in content, net 26,507 30,981 Prepaid expenses and other assets 1,759 1,938 Total current assets 66,519 81,171 Noncurrent portion of accounts receivable 3,361 4,127 Noncurrent portion of investment in content 55,112 58,816 Property, equipment and improvements, net 1,448 1,800 Equity investment in ACL 21,470 25,449 Other intangible assets 21,334 23,883 Goodwill 47,382 47,382 Total assets $216,626 $242,628 LIABILITIES Current liabilities: Accounts payable and accrued liabilities $28,151 $30,590 Accrued royalties and distribution fees 34,091 32,658 Deferred revenue 3,787 4,339 Current portion of long term debt 11,449 4,000 Total current liabilities 77,478 71,587 Long-term portion of debt, less debt discount 68,158 78,323 Deferred tax liability 350 350 Stock warrant liability 3,522 4,324 Total liabilities 149,508 154,584 Stockholders' equity: Common stock, $0.001 par value, 250 million shares authorized, 13,430,177 and 13,377,546 13 13 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively Additional paid-in capital 86,284 86,133 Retained earnings (deficit) (18,759) 1,743 Accumulated other comprehensive gain (loss) (420) 155 Net stockholders' equity 67,118 88,044 Total liabilities and stockholders' equity $216,626 $242,628 RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three and Six Months Ended June 30, 2013 and 2012 Successor Predecessor Three Months Six Months Three Months Six Months (In thousands, except per Ended Ended Ended Ended share data) June 30, 2013 June 30, 2013 June 30, June 30, 2012 2012 Revenue $34,286 $74,592 $17,294 $36,879 Cost of sales 36,144 63,880 9,419 19,484 Gross profit (loss) (1,858) 10,712 7,875 17,395 Selling expenses 5,602 11,649 3,112 6,675 General and administrative 6,592 12,267 4,805 9,652 expenses Depreciation and 1,494 2,920 130 261 amortization Total selling, general and 13,688 26,836 8,047 16,588 administrative expenses INCOME (LOSS) FROM (15,546) (16,124) (172) 807 OPERATIONS Equity earnings of 911 1,560 497 521 affiliates Interest expense, net (1,882) (4,008) (420) (577) Other income (expense) 158 (919) (566) (383) Total other income (813) (3,367) (489) (439) (expense) INCOME (LOSS) BEFORE (16,359) (19,491) (661) 368 PROVISION FOR INCOME TAXES Provision (benefit) for 585 1,011 (107) 80 income taxes NET INCOME (LOSS) (16,944) (20,502) (554) 288 Less net income (loss) attributable to — — (35) 56 noncontrolling interests NET INCOME (LOSS) APPLICABLE TO COMMON $(16,944) $(20,502) $(519) $232 SHAREHOLDERS Net income (loss) per common share: Unrestricted common stock: Basic $(1.27) $(1.53) $(0.51) $0.23 Diluted $(1.27) $(1.53) $(0.51) $0.23 Restricted common stock: Basic $(1.27) $(1.53) $— $— Diluted $(1.27) $(1.53) $— $— Unrestricted weighted average shares outstanding: Basic 13,340 13,340 1,023 1,023 Diluted 13,340 13,340 1,023 1,031 Restricted weighted average shares outstanding: Basic and diluted 49 43 — — RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) For the Three and Six Months Ended June 30, 2013 and 2012 Successor Predecessor Three Six Months Three Months Six Months Months Ended (In thousands) Ended Ended Ended June 30, June 30, 2013 June 30, 2013 June 30, 2012 2012 NET INCOME (LOSS): Net income (loss) $(16,944) $(20,502) $(554) $288 Other comprehensive income (loss): Foreign currency translation 106 (575) (57) 144 gain (loss) Total comprehensive income (16,838) (21,077) (611) 432 (loss) Less: comprehensive income (loss) attributable to noncontrolling interests: Share of net income (loss) — — (35) 56 Share of foreign currency — — (3) (5) translation loss Comprehensive income (loss) attributable to noncontrolling — — (38) 51 interest Comprehensive income (loss) attributable to common $(16,838) $(21,077) $(573) $381 shareholders RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF EQUITY (unaudited) For the Six Months Ended June 30, 2013 (Successor) Common Stock Accumulated (In Par Additional Stockholder Retained Other Treasury Non-controlling Total thousands) Shares Value Paid-in Notes Earnings Comprehensive Stock Interests Stockholders' Capital Receivable Loss Equity Balance at January 1, 13,378 $ 13 $ 86,133 $ — $ 1,743 $ 155 $ — $ — $ 88,044 2013 Issuance of restricted 52 — — — — — — — — common stock for services Stock-based — — 151 — — — — — 151 compensation Foreign Currency — — — — — (575) — — (575) Translation Net loss — — — — (20,502) — — — (20,502) Balance at 13,430 $ 13 $ 86,284 $ — $ $ (420) $ — $ — $ 67,118 June 30, 2013 (18,759) For the Six Months Ended June 30, 2012 (Predecessor) Common Stock Accumulated (In Par Additional Stockholder Retained Other Treasury Non-controlling Total thousands) Shares Value Paid-in Notes Earnings Comprehensive Stock Interests Stockholders' Capital Receivable Loss Equity Balance at January 1, 1,023 $ 10 $ 4,451 $ (684) $ 26,295 $ (421) $ (583) $ 759 $ 29,827 2012 Stock-based — — 231 — — — — — 231 compensation Net income — — — — 232 — — 56 288 Foreign Currency — — — — — 149 — (5) 144 Translation Stockholders' — — — — (3,737) — — (265) (4,002) Distributions Balance at 1,023 $ 10 $ 4,682 $ (684) $ 22,790 $ (272) $ (583) $ 545 $ 26,488 June 30, 2012 RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Six Months Ended June 30, 2013 and 2012 Successor Predecessor (In thousands) 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(20,502) $288 Adjustments to reconcile net income (loss) to net cash used in operating activities: Equity earnings in affiliates (1,560) (521) Amortization of content, including impairments 36,588 8,149 Depreciation and amortization 370 221 Amortization of intangible assets 2,550 40 Foreign currency exchange loss 1,774 376 Fair value of stock warrant liability (802) — Noncash interest expense 584 — Stock-based compensation expense 151 231 Changes in assets and liabilities associated with operating activities: Accounts receivable, net 1,669 4,365 Inventories, net 7,793 592 Investment in content, net (27,930) (8,802) Prepaid expenses and other assets 183 (626) Accounts payable and accrued liabilities (1,946) (4,828) Deferred revenue (552) — Net cash used in operating activities (1,630) (515) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (28) (402) Acquisition of ACL — (21,871) Dividends received from ACL 4,005 1,105 Net cash provided by (used in) investing activities $3,977 $(21,168) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility $10,398 $5,901 Repayments of borrowings under revolving credit (3,000) — facility Proceeds from debt 191 20,700 Repayment of debt (10,452) (1,334) Distributions to stockholders — (4,002) Net cash provided by (used in) financing activities (2,863) 21,265 Effect of exchange rate changes on cash (530) (219) NET DECREASE IN CASH: (1,046) (637) Cash at beginning of period 4,739 1,625 Cash at end of period $3,693 $988 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $2,608 $462 Income taxes $253 $546 RLJ ENTERTAINMENT, INC. Unaudited pro forma financial information reflects the operating results of RLJE as if Image and Acorn Media were acquired as of the periods indicated. These combined results are not necessarily indicative of the results that may have been achieved had the combined companies been combined as of such dates or periods, or of our future operating results. Management believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations because it removes material noncash items that allows investors to analyze the operating performance of the business using the same metric management uses. The exclusion of noncash items better reflects our ability to make investments in the business and meet obligations. Presentation of Adjusted EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. The Company uses this measure to assess operating results and performance of its business, perform analytical comparisons, identify strategies to improve performance and allocate resources to its business segments. While management considers Adjusted EBITDA to be important measures of comparative operating performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with GAAP. Not all companies calculate Adjusted EBITDA in the same manner and the measure as presented may not be comparable to similarly-titled measures presented by other companies. The following unaudited pro forma financial information for the three and six months ended June 30, 2013 and 2012 reflects the operating results of RLJE as if Image and Acorn Media were acquired as of January 1, 2012. The unaudited pro forma financial information does not include adjustments for Business Combination transaction costs and severance incurred and other one-time expenses, nor does it include adjustments for synergies. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of such historical dates or periods, or of RLJE's future operating results. PROFORMA INCOME STATEMENT (unaudited) For the Three and Six Months Ended June 30, 2013 and 2012 Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2013 2012 2013 2012 Actual Proforma (1) Actual Proforma (1) Revenues $34,286 $40,563 $74,592 $82,009 Costs of sales 36,144 29,341 63,880 58,199 Gross profit (1,858) 11,222 10,712 23,810 Selling, general and 13,688 13,895 26,836 29,759 administrative expenses Income (loss) from (15,546) (2,673) (16,124) (5,949) operations Equity earnings of 911 496 1,560 1,024 affiliates Interest expense, net (1,882) (1,938) (4,008) (3,876) Other income (expense) 158 (751) (919) 1,775 Provision (benefit) for 585 30 1,011 77 income taxes Net income (loss) $(16,944) $(4,836) $(20,502) $(6,949) Adjusted EBITDA $(6,274) $5,801 $(2,538) $11,050 *Notes to the Proforma Income Statement Table: (1)An adjustment for interest expense has been made to the prior year three and six month ended June 30, 2012 as if the existing debt was in place throughout the period. The following table includes the reconciliation of our consolidated Adjusted EBITDA to consolidated GAAP net loss: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2013 2012 2013 2012 Actual Proforma Actual Proforma Net income (loss) $(16,944) $(4,836) $(20,502) $(6,949) Amortization of content 19,319 18,382 36,588 33,995 Cash investment in (13,468) (13,588) (27,930) (28,407) content Depreciation and 1,494 1,422 2,920 2,833 amortization Interest expense 1,882 1,938 4,008 3.876 Provision (benefit) for 585 (30) 1,011 (77) income tax Transactions costs and 1,379 2,058 2,018 4,885 severance Warrant liability (598) — (802) — Stock-based compensation 77 455 151 894 Adjusted EBITDA $(6,274) $5,801 $(2,538) $11,050 The above Adjusted EBITDA presentation differs from the Adjusted EBITDA presentation for the period ended March 31, 2013 and 2012.The amounts excluded from the current presentation of Adjusted EBITDA are ACL EBITDA, foreign currency exchange gain (loss) and other income related to Madacy. CONTACT: Sloane & Company Erica Bartsch, 212-446-1875 firstname.lastname@example.org Traci Otey Blunt, 240-744-7858 The RLJ Companies email@example.com
RLJ Entertainment Reports Financial Results for the Second Quarter Ended June 30, 2013
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