Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RENT > SEC Filings for RENT > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for RENTRAK CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for RENTRAK CORP


8-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations regarding revenue growth, gross profit margin and liquidity) constitute forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements may be identified by the use of forward-looking words such as "could," "should," "plan," "depends on," "predict," "believe," "potential," "may," "will," "expects," "intends," "anticipate," "estimates" or "continues" or the negative thereof or variations thereon or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q include, in particular, statements regarding:
• our future results of operations and financial condition and future revenue and expenses, including increases in Home Entertainment ("HE") Division revenue and increases in our Entertainment Essentials™ revenue as a result of further investments, the addition of new retailers and development and expansion of new and existing services, both domestically and internationally;

•          the future growth prospects for our business as a whole and individual
           business lines in particular, including adding new clients, adjusting
           rates and increasing business activity, and using funds in our foreign
           bank accounts to fund our international expansion and growth;

• increases in our costs over the next twelve months;

•          continued contraction in the major "brick and mortar" retailers' share
           of the home video rental market;


•          continued increases in end consumers' usage of non-"brick and mortar"
           options for obtaining entertainment content, such as kiosks;

• future acquisitions or investments;

• our plans or requirements to hold or sell our marketable securities;

• our relationships with our customers and suppliers;

• our ability to attract new customers;

• market response to our products and services;

•          increased spending on property and equipment in Fiscal 2014 for the
           capitalization of internally developed software, computer equipment
           and other purposes;

• expected amortization of our deferred rent; and

•          the sufficiency of our available sources of liquidity to fund our
           current operations, the continued current development of our business
           information services and other cash requirements through at least
           September 30, 2014.

These forward-looking statements involve known and unknown risks and uncertainties that may cause our results to be materially different from results implied by such forward-looking statements. These risks and uncertainties include, in no particular order, whether we will be able to:
• successfully develop, expand and/or market new services to new and existing customers, including our media measurement services, in order to increase revenue and/or create new revenue streams;

• timely acquire and integrate into our systems various third party databases;

•          compete with companies that may have financial, marketing, sales,
           technical or other advantages over us;


•          successfully deal with our data providers, who are much larger than us
           and have significant financial leverage over us;


•          successfully manage the impact on our business of the economic
           environment generally, both domestic and international, and in the
           markets in which we operate, including the financial condition of any
           of our suppliers or customers or the impact of the economic
           environment on our suppliers' or customers' ability to continue their
           services with us and/or fulfill their payment obligations to us;


•          effectively respond to rapidly changing technology and consumer demand
           for entertainment content in various media formats;

• retain and grow our base of retailers ("Participating Retailers");

•          manage the impact that rapidly changing technology and consumer
           preferences may have on our existing Participating Retailers and the
           risks associated with Participating Retailers ceasing to operate or
           exiting the home video rental market earlier than anticipated;


•          continue to obtain home entertainment content products (e.g. DVDs,
           Blu-ray Discs) (collectively "Units") leased/licensed to home video
           specialty stores and other retailers from content providers, generally
           motion picture studios and other licensors or owners of the rights to
           certain video programming content ("Program Suppliers");

• retain and expand our relationships with our significant Program Suppliers;

• manage and/or offset any cost increases;


Table of Contents

• add new clients or adjust rates for our services;

• adapt to government restrictions;

•          leverage our investments in our systems and generate revenue and
           earnings streams that contribute to our overall success;


•          enhance and expand the services we provide in our foreign locations
           and enter into additional foreign locations; and


•          successfully integrate business acquisitions or other investments in
           other companies, products or technologies into our operations and use
           those acquisitions or investments to enhance our technical
           capabilities, expand our operations into new markets or otherwise grow
           our business.

Please refer to Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 ("Fiscal 2013") as filed with the Securities and Exchange Commission on June 13, 2013 for a discussion of reasons why our actual results may differ materially from our forward-looking statements. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our expectations change.

Business Overview
We have two operating divisions within our corporate structure and, accordingly, we report certain financial information by individual segment under this structure. Our Advanced Media and Information ("AMI") Division includes our media measurement services. Our HE Division includes our distribution services as well as services that measure, aggregate and report consumer rental and retail activity on film product from traditional "brick and mortar," online and kiosk retailers.

Our AMI Division includes our Entertainment Essentials™ lines of business and encompasses media measurement business intelligence services across multiple screens and platforms delivered as Software as a Service ("SaaS"). These big data services, offered primarily on a recurring subscription basis, provide consumer viewership information, integrated with consumer segmentation and purchase behavior databases. We provide film studios, television networks and stations, cable, satellite and telecommunications company ("telco") operators, advertisers and advertising agencies insights into consumer viewing and purchasing patterns through our thorough and expansive databases of box office results and local, national, on demand and "Over the Top" television performance.

Our HE Division services incorporate a unique set of applications designed to help clients maintain and direct their business practices relating to home video products. Entertainment content is distributed to various retailers primarily on behalf of motion picture studios. We track and report performance of home entertainment products leased directly to video retailers or through our Pay-Per-Transaction® ("PPT®") System. Within this system, video retailers are given access to a wide selection of box office hits, independent releases and foreign films from the industry's leading suppliers on a revenue sharing basis. We provide second- and third-tier retailers, as well as a few major national chains, the opportunity to acquire new inventory, and our PPT® System enables retailers everywhere, regardless of size, the ability to increase the depth and breadth of their inventory, to more efficiently adjust ordering strategies to better satisfy consumer demand and to more effectively take advantage of trends and opportunities in the marketplace. We lease product from our Program Suppliers; Participating Retailers sublease that product from us and rent it to consumers. Participating Retailers then share a portion of the revenue from each retail rental transaction with us and we share a portion of the revenue with the Program Suppliers. Our PPT® System supplies both content providers and retailers with the intelligence and infrastructure necessary to make revenue sharing a viable and productive option.

Our HE Division also includes our rental Studio Direct Revenue Sharing ("DRS") services, which grant content providers constant, clear feedback and data, plus valuable checks and balances on how both their video products and retailers are performing. Data relating to rented entertainment content is received on physical product under established agreements on a fee for service basis.

AMI Division
Our media measurement services, offered primarily on a recurring subscription basis, are distributed to clients through patent pending software systems and business processes, and capture data and other intelligence viewed on multiple screens across various platforms within the entertainment industry.

Our current spending, investments and long-term strategic planning are heavily focused on the development, growth and expansion of our AMI Division, both domestically and internationally. As such, we continue to allocate significant resources to our Entertainment Essentials™ services and product lines. Our AMI Division revenue increased $6.9 million, or 26.6%, in the first six months of Fiscal 2014 compared to the first six months of Fiscal 2013.

The AMI Division lines of business, which we refer to as Entertainment Essentials™ services, are:


Table of Contents

• Box Office Essentials®;

• TV Essentials®, which includes StationView Essentials™; and

• OnDemand Everywhere™, which includes OnDemand Essentials® and related products.

Typical clients subscribing to our services include motion picture studios, television networks and stations, cable, satellite and telco operators, advertisers and advertising agencies.

HE Division
The financial results from the HE Division continue to be affected by the changing dynamics in the home video rental market. This market is highly competitive, constantly changing and influenced greatly by consumer spending patterns, behaviors and technological advancements. The end consumer has a wide variety of choices from which to select his or her entertainment content and can easily shift from one provider to another. Some examples include renting Units from our Participating Retailers or other retailers, purchasing previously viewed Units from our Participating Retailers or other retailers, renting or purchasing Units from kiosk locations, ordering Units via online subscriptions and/or online distributors (mail delivery), subscribing to at-home movie channels, downloading or streaming content via the internet, purchasing and owning the Unit directly or selecting an at-home "pay-per-view" or "on demand" option from a satellite, cable, or telecommunications provider.

Our PPT® System focuses primarily on the traditional "brick and mortar" retailer and provides those Participating Retailers the opportunity to increase the depth and breadth of their inventory, to more efficiently adjust ordering strategies to better satisfy consumer demand and to more effectively take advantage of trends or opportunities in the marketplace. Many of our arrangements are structured so that Participating Retailers pay reduced upfront fees and lower per transaction fees in exchange for ordering Units of all titles offered by a particular Program Supplier (referred to as "output" programs). These programs offer Participating Retailers a way to more effectively acquire "new release" rental inventory on a lease basis instead of purchasing and owning the inventory directly.

The landscape of the home video rental market for "brick and mortar" retailers has seen significant changes, and some major retailers, such as Movie Gallery, have exited the market entirely, while others, such as Blockbuster Entertainment ("Blockbuster") have closed a significant number of stores and recently announced it will close all remaining U.S. based locations, which represents approximately 300 company-owned retail stores, as well as its by-mail movie distribution, by early January 2014. As a result of these market changes, the major "brick and mortar" retailers' share of the overall industry is contracting. It is difficult to predict what effect, if any, this will have on our Program Suppliers and/or the performance of our Participating Retailers.

Also, end consumers' usage of non-"brick and mortar" options for obtaining entertainment content, such as kiosks, continues to increase and our Participating Retailers' market share has been negatively affected, contributing to an overall decline in our revenue in the past few years. However, during the third quarter of Fiscal 2013, we added Blockbuster as a PPT® customer and provide Units to that retailer from at least one major Program Supplier. While we have generated additional revenue in the current quarter partially as a result of adding Blockbuster, we currently expect PPT® revenue to decline beginning in the fourth quarter of Fiscal 2014 due to Blockbuster's recent announcement.

In general, we continue to be in good standing with our Program Suppliers, and we make ongoing efforts to strengthen those business relationships through enhancements to our current service offerings and the development of new service offerings. During the third quarter of Fiscal 2013, a former Program Supplier, Warner Bros., returned to the PPT® System, and we were able to begin offering its content to our Participating Retailers again. We are also continually seeking to develop business relationships with new Program Suppliers, and we have seen an increased interest in our offerings as Program Suppliers look for ways to reduce expenses. Our relationships with Program Suppliers may typically be terminated without cause upon thirty days' written notice by either party.

Sources of Revenue
Revenue by segment includes the following:

AMI Division
Subscription fee and other revenue, primarily relating to custom reports, from
our Entertainment Essentials™ services.
HE Division
•          PPT® revenue includes fees generated when Participating Retailers rent
           Units or sell previously-viewed rental Units to consumers and upfront
           fees generated when Units are distributed to Participating Retailers.
           Additionally,


Table of Contents

certain arrangements include guaranteed minimum revenue from our customers, which are recognized on the street (release) date, provided all other revenue recognition criteria are met; and
• DRS fees, which are generated from data tracking and reporting services provided to Program Suppliers.

Results of Operations
Certain information by segment was as follows (dollars in thousands):
                                         AMI          HE        Other (1)      Total
Three Months Ended September 30, 2013
Sales to external customers           $ 16,961     $ 12,514    $     -       $ 29,475
Gross margin                            10,131        3,481          -         13,612
Income (loss) from operations            1,603        2,232     (4,890 )       (1,055 )
Three Months Ended September 30, 2012
Sales to external customers           $ 13,230     $  9,261    $     -       $ 22,491
Gross margin                             7,764        2,942          -         10,706
Income (loss) from operations          (15,691 )      1,694     (4,421 )      (18,418 )
Six Months Ended September 30, 2013
Sales to external customers           $ 32,719     $ 25,598    $     -       $ 58,317
Gross margin                            19,601        7,161          -         26,762
Income (loss) from operations            3,369        4,433     (9,877 )       (2,075 )
Six Months Ended September 30, 2012
Sales to external customers           $ 25,841     $ 19,873    $     -       $ 45,714
Gross margin                            16,081        6,137          -         22,218
Income (loss) from operations          (13,749 )      3,493     (8,806 )      (19,062 )

(1) Includes corporate and other expenses that are not allocated to a specific segment.

Revenue
Revenue increased $7.0 million, or 31.1%, to $29.5 million in the second quarter of Fiscal 2014 compared to $22.5 million in the second quarter of Fiscal 2013. Revenue increased $12.6 million, or 27.6%, to $58.3 million in the six month period ended September 30, 2013 compared to $45.7 million in the six month period ended September 30, 2012. The increase in revenue was due to an increase in AMI Division revenue, primarily related to growth in our existing lines of business, and an increase in HE Division revenue, primarily related to the addition of Blockbuster in the third quarter of Fiscal 2013, coupled with an increase in the total Units available to our Participating Retailers, primarily as a result of the return of Warner Bros. to the PPT® System noted above. These fluctuations are described in more detail below.

AMI Division
Revenue related to our Entertainment Essentials™ business information service offerings increased primarily due to the addition of new customers, rate increases from existing customers and expansion of our systems and service offerings. We expect continued future increases in our Entertainment Essentials™ revenue as a result of further investments, development and expansion of new and existing services, both domestically and internationally.


Table of Contents

Revenue information related to our AMI Division is as follows (dollars in thousands):

                              Three Months Ended September 30,            Dollar
                                      2013                     2012       Change    % Change
Box Office Essentials® $           6,344                     $  5,735    $   609     10.6%
TV Essentials®                     7,216                        4,146      3,070     74.0%
OnDemand Everywhere™               3,401                        3,349         52      1.6%
                       $          16,961                     $ 13,230    $ 3,731     28.2%
                               Six Months Ended September 30,             Dollar
                                      2013                     2012       Change    % Change
Box Office Essentials® $          12,805                     $ 11,704    $ 1,101      9.4%
TV Essentials®                    12,913                        7,885      5,028     63.8%
OnDemand Everywhere™               7,001                        6,252        749     12.0%
                       $          32,719                     $ 25,841    $ 6,878     26.6%

The increases in Box Office Essentials® revenue in the Fiscal 2014 periods were primarily due to rate increases for existing clients and the addition of new services.

The increases in TV Essentials® revenue in the Fiscal 2014 periods were primarily due to the addition of new clients and rate increases for existing clients as well as our acquisition of iTVX in the second quarter of Fiscal 2014, which contributed $128,000 to the increases in both the three and six month periods ended September 31, 2013.

The increases in OnDemand Everywhere™ revenue in the Fiscal 2014 periods were primarily due to rate increases for existing clients, the addition of new clients and launching new services, offset by the end of a large custom reporting project included in the Fiscal 2013 periods. We also experienced a delay in our new Total Television service, which is now scheduled to launch later this fiscal year.

HE Division

Revenue information related to our HE Division is as follows (dollars in
thousands):
            Three Months Ended September 30,            Dollar
                    2013                     2012       Change    % Change
PPT® $          11,631                     $  8,609    $ 3,022     35.1%
DRS                883                          652        231     35.4%
     $          12,514                     $  9,261    $ 3,253     35.1%
             Six Months Ended September 30,             Dollar
                    2013                     2012       Change    % Change
PPT® $          23,791                     $ 18,385    $ 5,406     29.4%
DRS              1,807                        1,488        319     21.4%
     $          25,598                     $ 19,873    $ 5,725     28.8%

The increases in PPT® revenue in the Fiscal 2014 periods were primarily due to the addition of Blockbuster as a Participating Retailer and the return of Warner Bros. as a Program Supplier as of the third quarter of Fiscal 2013. We expect higher volumes and increased revenue for the third quarter of Fiscal 2014, but since this is dependent on various factors, such as the availability and quality of Units, as well as Blockbuster's recent announcement that it will close all of its U.S. company-owned locations we are unable to predict what impact, if any, this will have on our PPT® revenue in the future.

The increases in DRS revenue in the Fiscal 2014 periods were primarily due to increased transactions processed as a result of the return of Warner Bros. as a Program Supplier as of the third quarter of Fiscal 2013. We believe the modification of Warner Bros.' distribution strategy should increase our DRS revenue, but it is difficult to predict what impact, if any, this will have on our revenue in the future.


Table of Contents

Cost of Sales and Gross Margins
Cost of sales represents the direct costs to produce revenue.

In the AMI Division, cost of sales includes costs relating to our Entertainment Essentials™ services, and consists of costs associated with the operation of a call center for our Box Office Essentials® services, as well as costs associated with amortizing capitalized, internally developed software used to provide the corresponding services and direct costs incurred to obtain, cleanse and process data and maintain our systems.

In the HE Division, cost of sales includes Unit costs, transaction costs, sell-through costs and freight costs. Sell-through costs represent the amounts due to the Program Suppliers that hold the distribution rights to the Units. Freight costs represent the cost to pick, pack and ship orders of Units to the Participating Retailers. Our cost of sales can also be affected by the release dates of Units with guarantees. We recognize the guaranteed minimum costs on the release date. The terms of some of our agreements result in recognition of 100% of the cost of sales on titles in the first month in which the Unit is released, which results in lower margins during the initial portion of the revenue sharing period. Once the Unit's rental activity exceeds the required amount for these guaranteed minimums, margins generally expand during the second and third months of the Unit's revenue sharing period. However, since these factors are highly dependent upon the quality, timing and release dates of all new Units, margins may not expand to any significant degree during any reporting period. As a result, it is difficult to predict the effect these Program Supplier revenue sharing programs with guaranteed minimums will have on future results of operations in any reporting period.

Cost of sales increased $4.1 million, or 34.6%, in the second quarter of Fiscal 2014 compared to the second quarter of Fiscal 2013 as described in more detail below.

AMI Division
Cost of sales information related to our AMI Division is as follows (dollars in
thousands):
                                     Three Months Ended September
                                                  30,                   Dollar
                                          2013            2012          Change       % Change
Costs related to:
Amortization of internally developed
software                             $        796     $      647     $      149       23.0%
Call center operation                       1,334          1,266             68        5.4%
Obtaining, cleansing and processing
data                                        4,700          3,553          1,147       32.3%
                                     $      6,830     $    5,466     $    1,364       25.0%
                                      Six Months Ended September
                                                  30,                   Dollar
                                          2013            2012          Change       % Change
Costs related to:
Amortization of internally developed
software                             $      1,579     $    1,247     $      332       26.6%
Call center operation                       2,735          2,510            225        9.0%
Obtaining, cleansing and processing
data                                        8,804          6,003          2,801       46.7%
                                     $     13,118     $    9,760     $    3,358       34.4%

The increases in cost of sales within the AMI Division in the Fiscal 2014 periods compared to the same periods of Fiscal 2013 resulted primarily from the addition of new data supplier agreements and the amendment to our data supplier agreement with DISH Network L.L.C. ("DISH"), which occurred in the second quarter of Fiscal 2013, and requires minimum payments relating to predefined net profit sharing provisions of portions of our TV Essentials® line of business.


Table of Contents

HE Division
Cost of sales information related to our HE Division is as follows (dollars in
thousands):
                         Three Months Ended September 30,            Dollar
                                 2013                     2012       Change    % Change
Costs related to:
. . .
  Add RENT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RENT - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.