UPDATE: Rentrak Back on Track, Chief Executive Says8 Jun, 2001 By: Joan Villa
Rentrak Corp. recorded a sevenfold increase in fourth quarter net earnings to $1.5 million in a turnaround that chairman and c.e.o. PaulRosenbaum says takes the company out of its "crisis management" mode ofthe past six months.
"We are now in a position to look at future growth; everything has changed in the last two months," reports Rosenbaum, who took over themanagement of Rentrak along with a newly elected board of directors in September. "We have no outstanding line of credit; it is zero. We haveadequate cash in the bank to pursue our goals for where we’re going in the next two to three years and that is an enviable position in light ofthe fact that in our core business we are making money."
Rentrak’s stock closed at $4.10 June 6, the day after the announcement of the financials, up 173% from its 52-week low of $1.50.
Rentrak fills a valuable industry niche, says analyst Bob Alexander, president of Alexander & Associates. "It’s great for the industry," he says. "The industry needs a Rentrak capability. It’s really important for the retailer to have this alternative."
He attributes the turnaround to Rosenbaum’s leadership. "[Rentrak] didn’t change one key operating executive. What’s changed is what Paul has been able to do to steady and focus the company," Alexander says. "Ithink Paul Rosenbaum has exerted a very steadying hand on the company and has brought an enormous amount of credibility to the company."
Rosenbaum partially credits the quarterly revenue and profit boost to a newly restructured agreement with Movie Gallery that gave Rentrak a $1.6 million cash payment and accounted for approximately 7 cents pershare of consolidated net earnings for the quarter.
"The important thing is we have preserved an important business relationship with Movie Gallery" that will benefit both companies, he says. "As a result of the revised agreement we expect to do a substantial amount of PPT [pay-per-transaction] business with Movie Gallery."
Further, a restructuring of the company’s Rentrak Japan relationship after the close of the fourth quarter will contribute a minimum cash infusion of $2.4 million later in the year. "Because of the Rentrak Japan deal,we’re sitting very well for the future," he notes. Rentrak projects earningsof 85 cents per share for the 2002 fiscal year, which Rosenbaum calls a "very conservative" estimate "that can have a significant increase on the upside."
Rosenbaum’s stint as "interim" c.e.o., which began with a shareholdercoup in September that ousted former company founder and c.e.o. Ron Berger, will likely continue for another year. Calling his original idea of a six-month turnaround "naive," Rosenbaum says he will hand over the reins when he can "ensure that my investment and your investment will be in the besthands possible."
The Pay-Per-Transaction distributor reported 3.4% higher revenues of $30.5 million for the quarter and total revenues of $116.4million — a 2.6% increase — for the year. However, due to bad debt writeoffs and other one-time charges totaling $9.6 million in the second quarter, Rentrak reported an annual consolidated net loss of $7.6 million, comparedto net earnings of $3.4 million in the prior fiscal year.
"Excluding nonrecurring items, Rentrak’s core entertainment businessproduced a profit from continuing operations for the year," Rosenbaum says.
Addressing the dramatic increases in DVD rentals this year, Rosenbaum acknowledges that Rentrak does few DVD transactions because the format is priced low enough for retailers to purchase outright rather than usingrevenue-sharing.
"Video retailers still do 85% to 90% of their businesswith VHS cassettes," using revenue-sharing to decrease upfront costs and manage risk, he explains. "Now that retailers are trying to balance their shelf space between VHS and DVDs, risk management becomes even more important to them. Therefore, we do not think that our VHS cassette business will be negatively impacted by increased DVD rentals this year."
However, Rosenbaum says that could change if the studios adopt a two-tiered price that would give DVD a rental window. Should that happen,Rosenbaum continues, studios would channel DVD product through Rentrak’s PPT system and the company’s DVD share "would increase dramatically."
Going forward, Rentrak is focusing on expanding its information and data reporting to video-on-demand transactions through its DigiTrak software. The company has also expanded warehouse space for Internet fulfillment subsidiary 3PF. That division’s total annual revenues of $23.4 millionfor the fiscal year are not expected to grow in 2002 due to the bankruptcy of a major customer, Rosenbaum says.