RLJ Entertainment Reports Financial Results for the Third Quarter Ended September 30, 2013 SILVER SPRING, Md., Nov. 7, 2013 (GLOBE NEWSWIRE) -- RLJ Entertainment Inc., ("RLJ Entertainment" or "the Company") (Nasdaq:RLJE), today reported results for the third quarter ended 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 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, 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." 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 $12.2 million to $32.7 million. Net revenue for the nine months ended September 30, 2013 increased $49.9 million to $107.3 million. Net loss for the three months ended September 30, 2013 totaled $8.5 million, compared to net loss of $482,000 for the three months ended September 30, 2012. For the nine months ended September 30, 2013, net loss totaled $29.0 million, compared to net loss of $194,000 for the nine months ended September 30, 2012. Miguel Penella, Chief Executive Officer of RLJ Entertainment, commented: "I am pleased with the direction of the business in the third quarter as we continued to strengthen our content investment strategy through capital reallocation and securing additional cost savings. These initiatives led to year over year EBITDA growth, even on a lower base of revenue, underscoring the efficiencies that we are driving in the business. Going forward, I am confident that we are making the right decisions to establish a solid video entertainment platform and distribution strategy that positions the business for long term growth." 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 $6.4 million to $32.7 million compared to pro forma net revenue of $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% or $549,000 for the quarter, and the Company's UK wholesale distribution business, which increased 12.6% or $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 $13.8 million to $107.3 million compared to pro forma net revenue of $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% or $2.1 million for the nine months ended, and our UK wholesale distribution business, which grew $7.3 or $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 $485,000 in increased revenues for the nine months ended September 2013. Adjusted EBITDA increased $8.3 million to $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 $5.3 million to $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 $6.2 million recognized during the nine months ended September 2013. Adjusted EBITDA is a non-GAAP financial measure.See below for a reconciliation to U.S. GAAP. 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 Entertainmentmay 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) September 30, 2013 and December 31, 2012 Successor (In thousands, except share data) September 30, December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $2,630 $4,739 Accounts receivable, net 12,148 20,484 Inventories, net 16,718 23,029 Investments in content, net 36,600 30,981 Prepaid expenses and other assets 3,097 1,938 Total current assets 71,193 81,171 Noncurrent portion of accounts receivable 3,250 4,127 Noncurrent portion of investments in content 46,441 58,816 Property, equipment and improvements, net 1,576 1,800 Equity investment in affiliates 24,269 25,449 Other intangible assets 20,144 23,883 Goodwill 47,066 47,382 Total assets $213,939 $242,628 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities $23,322 $30,590 Accrued royalties and distribution fees 38,491 32,658 Deferred revenue 5,747 4,339 Current portion of long term debt 15,040 4,000 Total current liabilities 82,600 71,587 Long term portion of debt, less debt discount 63,858 78,323 Deferred tax liability 350 350 Stock warrant liability 7,406 4,324 Total liabilities 154,214 154,584 Equity: Common stock, $0.001 par value, 250 million shares authorized, 13,700,862 and 13,377,546 shares issued and outstanding at September 30, 2013 and December 31, 13 13 2012, respectively Additional paid-in capital 86,596 86,133 Retained earnings (deficit) (27,267) 1,743 Accumulated other comprehensive gain 383 155 Total equity 59,725 88,044 Total liabilities and equity $213,939 $242,628 RLJ ENTERTAINMENT, INC. Consolidated Statements of Operations (unaudited) For the Three and Nine Months Ended September 30, 2013 and 2012 Successor Predecessor (In thousands, except per Three Months Nine Months Three Months Nine Months share data) Ended Ended Ended Ended September 30, September 30, September September 30, 30, 2013 2013 2012 2012 Revenue $32,741 $107,333 $20,568 $57,447 Cost of sales 24,747 88,627 12,149 31,633 Gross profit 7,994 18,706 8,419 25,814 Selling expenses 6,397 18,046 4,388 11,063 General and 4,560 16,827 4,955 14,607 administrative expenses Depreciation and 1,388 4,308 137 398 amortization Total selling, general andadministrative 12,345 39,181 9,480 26,068 expenses LOSS FROM OPERATIONS (4,351) (20,475) (1,061) (254) Equity earnings of 1,364 2,924 462 983 affiliates Interest expense, net (2,019) (6,027) (261) (838) Other income (expense) (2,832) (3,751) 501 118 Total other income (3,487) (6,854) 702 263 (expense) INCOME (LOSS) BEFOREPROVISION FOR (7,838) (27,329) (359) 9 INCOME TAXES Provision for income 670 1,681 123 203 taxes NET LOSS (8,508) (29,010) (482) (194) Less (net income) loss attributable to — — 13 (43) noncontrolling interests NET LOSS APPLICABLE $(8,508) $(29,010) $(469) $(237) TOCOMMON SHAREHOLDERS Net loss per common share: Unrestricted common stock: Basic and diluted $(0.62) $(2.15) $(0.46) $(0.23) Restricted common stock: Basic and diluted $(0.62) $(2.15) $— $— Unrestricted weighted averageshares outstanding: Basic and diluted 13,340 13,340 1,023 1,023 Restricted weighted averageshares outstanding: Basic and diluted 292 127 — — RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) For the Three and Nine Months Ended September 30, 2013 and 2012 Successor Predecessor (In thousands) Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended September 30, September 30, September September 30, 30, 2013 2013 2012 2012 NET LOSS: Net loss $(8,508) $(29,010) $(482) $(194) Other comprehensive income (loss): Foreign currency 803 228 151 295 translation gain Total comprehensive (7,705) (28,782) (331) 101 income (loss) Less: comprehensive income (loss) attributable tononcontrolling interests: Share of net income — — (13) 43 (loss) Share of foreign currency — — 42 37 translation gain Comprehensive income attributable — — 29 80 tononcontrolling interest Comprehensive income (loss) attributable $(7,705) $(28,782) $(360) $21 tocommon shareholders RLJ ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF EQUITY (unaudited) For the Nine Months Ended September 30, 2013 (Successor) Common Stock Accumulated (In Additional Stockholder Retained Other Non- thousands) Par Paid- Notes Earnings Comprehensive Treasury controlling Total Shares Value in Capital Receivable (Deficit) Gain Stock Interests Equity Balance at January 1, 13,378 $13 $86,133 $— $1,743 $155 $— $— $88,044 2013 Issuance of restricted 323 — — — — — — — — common stock for services Stock-based — — 463 — — — — — 463 compensation Foreign currency — — — — — 228 — — 228 translation Net loss — — — — (29,010) — — — (29,010) Balance at $ September 13,701 $13 $86,596 $— (27,267) $383 $— $— $59,725 30, 2013 For the Nine Months Ended September 30, 2012 (Predecessor) Common Stock Accumulated (In Additional Stockholder Other Non- thousands) Par Paid- Notes Retained Comprehensive Treasury controlling Total Shares Value in Capital Receivable Earnings Loss Stock Interests Equity Balance at January 1, 1,023 $10 $4,451 $(684) $ 26,295 $(421) $(583) $759 $29,827 2012 Stock-based — — 373 — — — — — 373 compensation Foreign currency — — — — — 258 — 37 295 translation Net income — — — — (237) — — 43 (194) Stockholders' — — — — (4,879) — — (265) (5,144) Distributions Balance at September 30, 1,023 $10 $4,834 $(684) $ 21,179 $(163) $(583) $574 $25,157 2012 RLJ ENTERTAINMENT, INC. Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, 2013 and 2012 (In thousands) Successor Predecessor 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(29,010) $(194) Adjustments to reconcile net loss to net cash: Equity earnings in affiliates (2,924) (983) Amortization of content, including impairments 50,535 11,412 Depreciation and amortization 510 339 Amortization of intangible assets 3,798 59 Foreign currency exchange loss/(gain) 706 (310) Fair value adjustment of stock warrant liability 3,082 — Noncash interest expense 750 — Stock-based compensation expense 463 373 Changes in assets and liabilities: Accounts receivable, net 9,151 3,487 Inventories, net 6,308 (244) Investment in content, net (38,276) (18,935) Prepaid expenses and other assets (361) (1,137) Accounts payable and accrued liabilities (7,617) 877 Deferred revenue 1,403 — Net cash used in operating activities (1,482) (5,256) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (350) (505) Acquisition of affiliate — (21,871) Dividends received from affiliate 4,005 2,682 Net cash provided by (used in) investing activities 3,655 (19,694) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility 10,398 6,167 Repayments of borrowings under revolving credit (3,000) — facility Proceeds from debt 191 27,511 Repayment of debt (11,452) (3,502) Distributions to stockholders — (5,144) Net cash provided by (used in) financing activities (3,863) 25,032 Effect of exchange rate changes on cash (419) (198) NET DECREASE IN CASH: (2,109) (116) Cash at beginning of period 4,739 1,625 Cash at end of period $2,630 $1,509 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $4,183 $659 Income taxes $539 $727 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 nine months ended September 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 Nine Months Ended September 30, 2013 and 2012 Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2013 2012 2013 2012 Actual Proforma (1) Actual Proforma (1) Revenues $32,741 $39,152 $107,333 $121,161 Costs of sales 24,747 27,007 88,627 85,206 Gross profit 7,994 12,145 18,706 35,955 Selling, general and administrative 12,345 16,202 39,181 45,961 expenses Loss from operations (4,351) (4,057) (20,475) (10,006) Equity earnings of 1,364 294 2,924 1,318 affiliates Interest expense, net (2,019) (1,938) (6,027) (5,814) Other income (expense) (2,832) 675 (3,751) 2,450 Provision for income (670) (123) (1,681) (46) taxes Net loss $(8,508) $(5,149) $(29,010) $(12,098) Adjusted EBITDA $3,717 $(4,547) $1,179 $6,503 Notes to the Proforma Income Statement Table: (1)An adjustment for interest expense has been made to the prior year three and nine month ended September 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 U.S. GAAP net loss: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2013 2012 2013 2012 Actual Proforma Actual Proforma $(8,508) $(5,149) $(29,010) $(12,098) Net loss Amortization of content 13,947 15,513 50,535 49,508 Cash investment in content (10,346) (21,756) (38,276) (50,163) Depreciation and amortization 1,388 1,413 4,308 4,246 Interest expense 2,019 1,938 6,027 5,814 Provision for income tax 670 123 1,681 46 Transactions costs and severance 351 2,901 2,369 7,786 Warrant liability fair 3,884 — 3,082 — valueadjustment Stock-based compensation 312 470 463 1,364 Adjusted EBITDA $3,717 $(4,547) $1,179 $6,503 CONTACT: Sloane & Company Erica Bartsch, 212-446-1875 email@example.com Traci Otey Blunt, 240-744-7858 The RLJ Companies firstname.lastname@example.org RLJ Entertainment, Inc. logo
RLJ Entertainment Reports Financial Results for the Third Quarter Ended September 30, 2013
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