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RLJ Entertainment Posts Second-Quarter Loss, Subscriber Increase

10 Aug, 2017 By: Stephanie Prange

RLJ Entertainment posted a loss of $1.1 million for the second quarter (ended June 30), compared with a loss of $0.2 million in the prior-year quarter. Improved operating performance of the business was more than offset by a $6.5 million increase in the fair value of stock warrants, according to the company.

Net revenue grew 19% year-over-year, driven by a 72% increase in revenue from proprietary digital channels. Revenue for the wholesale distribution segment grew 2.8%, driven by stronger licensing deals and distribution sales, the company reported.

Gross profit increased 104% year-over-year. Adjusted EBITDA for the quarter improved from a loss of $0.3 million in the same quarter of 2016 to a gain of $3.9 million in the second quarter of 2017. The improvement is primarily attributable to the continued growth of the higher-margin digital channels segment as well as stronger performance in the wholesale distribution segment.

Gross margin increased 21.5 percentage points to 51.7% from the second quarter of 2016, driven by rapid growth in the higher-margin digital channels segment and a greater number of higher-margin licensing deals in the wholesale distribution segment, the company reported.

Subscriber count increased 63% year-over-year for its online platforms to more than 550,000. The digital channels segment contribution income from continuing operations, after direct costs and expenses, increased 76.5% to $2.2 million, from $1.3 million in the second quarter of 2016.

“RLJ Entertainment's continued subscriber growth across platforms is firmly establishing Acorn TV and UMC as compelling OTT brands with strong consumer draws,” chairman Robert L. Johnson said in a statement. “Standalone channels targeting specific audiences represent an immediate and long-term growth opportunity. The company's plans to increase investments in compelling content, enhanced engagement and marketing, and widening geographic footprints are timely and designed to generate positive returns for investors.”

“We delivered strong second-quarter results through continued focused execution on all fronts, driving both digital channel subscriber growth and wholesale distribution revenue growth while significantly improving our operating efficiency,” CEO Miguel Penella, said in a statement. “Our increased investments in carefully curated, high-value programming, intensified marketing and broadened distribution to support the growth of our digital channels are paying off. As we enter the second half of the year, we are poised for a very strong 2017 and expect to build additional momentum with a robust line-up of original and exclusive digital channel content, very strong pipelines in our IP licensing and wholesale business units, and incremental investments in our future growth. As we advance our digital strategy, we are increasingly confident in our ability to achieve our objective of 1 million Acorn TV and UMC combined subscribers within the next 18 to 24 months."

On June 20, RLJ broadened its strategic partnership with AMC Networks, expanding the AMC Tranche A Term Loan from $13 million to $23 million and converting interest payments into common stock at a fixed conversion price of $3 per share on both the Tranche A Term Loan and the Tranche B Term Loan. AMC also exercised $5 million of its Tranche A Warrants into RLJE common stock at $3 per common share. Additionally, dividend payments on the preferred stock held by Robert L. Johnson were eliminated through 100% conversion of his preferred stock into common stock at $3 per share.

“Continued gains in digital channel subscribers and a return to growth in wholesale distribution resulted in expanded gross margins within both segments as well as significantly improved EBITDA of $3.9 million,” CFO Nazir Rostom said in a statement. “We signed a few new wholesale distribution licensing deals in Q2 that helped gross margin to exceed normal levels, and we expect a return to normal levels (approximately 40%) for the second half of the year. For the full year, we are increasing investments in marketing and programming and also expect to deliver adjusted EBITDA growth versus last year."

About the Author: Stephanie Prange

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