FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: June
30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the Transition
Period from to
Commission file number: 0-15159
RENTRAK CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-0780536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
7700 NE Ambassador Place, Portland, Oregon 97220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(503)284-7581
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (x)
No ( )
As of August 4, 1997, the Registrant had 11,499,043 shares of
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the
three month periods ended June 30, 1997 and
June 30, 1996
Consolidated Balance Sheets as of June 30,
1997 and March 31, 1997
Consolidated Statements of Cash Flows for the
three month periods ended June 30, 1997 and
June 30, 1996
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Three Months Ended June 30,
1997 1996
<S> <C> <C>
REVENUES:
PPT $ 29,011,516 $ 22,648,696
Other 1,603,035 1,114,414
30,614,551 23,763,110
OPERATING COSTS AND EXPENSES:
Cost of sales 25,038,640 19,454,334
Selling and administrative 3,419,737 3,622,828
28,458,377 23,077,162
INCOME FROM OPERATIONS 2,156,174 685,948
OTHER INCOME (EXPENSE):
Interest income 122,851 173,621
Interest expense (5,000) (119,915)
Other - 208,875
117,851 262,581
INCOME BEFORE INCOME TAX PROVISION 2,274,025 948,529
INCOME TAX PROVISION 962,891 372,233
NET INCOME $ 1,311,134 $ 576,296
FULLY DILUTED EARNINGS PER COMMON
SHARE AND COMMON EQUIVALENT SHARE $ 0.10 $ 0.05
SHARES USED IN PER SHARE
CALCULATION 15,757,068 12,243,069
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
UNAUDITED
June 30, March 31,
1997 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,348,811 $ 10,167,169
Accounts receivable, net of
allowance for doubtful
accounts of
$230,862 and $409,313 16,008,217 16,434,566
Advances to program suppliers 643,118 492,844
Inventory 1,942,268 1,902,618
Deferred tax asset 817,253 1,365,064
Other current assets 3,788,548 2,901,964
Total current assets 30,548,215 33,264,225
PROPERTY AND EQUIPMENT, net 1,962,435 2,006,556
INTANGIBLES, net 350,913 171,509
OTHER INVESTMENTS, net 748,515 778,950
DEFERRED TAX ASSET 3,745,975 3,637,563
OTHER ASSETS 4,305,464 3,189,192
TOTAL ASSETS $ 41,661,517 $ 43,047,995
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
UNAUDITED
June 30, March 31,
1997 1997
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ - $ 5,000,000
Accounts payable 20,436,842 17,160,492
Accrued liabilities 1,252,065 613,669
Accrued compensation 771,426 1,695,814
Deferred revenue 2,563,172 2,672,849
Net current liabilities of
discontinued operations 4,589,916 4,633,114
Total current liabilities 29,613,421 31,775,938
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value;
Authorized: 10,000,000 shares - -
Common stock, $.001 par value;
Authorized: 30,000,000 shares
Issued and outstanding:11,609,543
shares at June 30, 1997 and
11,847,441 at March 31, 1997 11,610 11,847
Capital in excess of par value 47,223,518 47,931,165
Net unrealized gain on investment
securities 206,023 184,932
Accumulated deficit (34,141,595) (35,452,729)
Less - Deferred charge - warrants (1,251,460) (1,403,158)
12,048,096 11,272,057
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 41,661,517 $ 43,047,995
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Three Months Ended June 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,311,134 $ 576,296
Adjustments to reconcile income to
net cash provided (used) in operations
Gain on investment / asset sales - (208,875)
Depreciation 187,772 265,593
Amortization of intangibles 22,723 42,436
Amortization of warrants 151,698 37,409
Provision for doubtful accounts (5,246) (23,250)
Retailer financing program reserves - 45,000
Studio advance reserves (12,126) (67,478)
Deferred income taxes 426,471 161,331
Change in specific accounts:
Accounts receivable (600,031) (2,204,310)
Advance to program suppliers (138,148) (449,595)
Inventory (39,650) 479,743
Other current assets 113,416 945,631
Accounts payable 3,276,350 (7,268,677)
Accrued liabilities & compensation (285,992) 702,389
Deferred revenue (109,677) 1,606,326
Net current liability of
discontinued operations (43,198) -
Net cash provided (used) by operation 4,255,496 (5,360,031)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (143,651) (25,174)
Purchase of other assets and intangibles - 28,366
(Investments)/reduction in retailer
financing program (545,108) 955,000
Proceeds from sale of investment / assets - 434,864
(Purchase)/reduction of other assets
& intangibles (677,211) -
Net cash provided (used) by
investing activities (1,365,970) 1,393,056
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under
line of credit (5,000,000) 3,000,000
Repurchase of common stock (732,366) (1,155)
Issuance of common stock 24,482 -
Net cash provided (used) by
financing activities (5,707,884) 2,998,845
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,818,358) (968,130)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THIS PERIOD 10,167,169 2,683,128
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,348,811 $ 1,714,998
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $ 5,000 $ 94,833
Income taxes 142,093 116,016
NON-CASH TRANSACTIONS
Increase (decrease) in net
unrealized gain on
investment securities 21,091 (338,285)
Reduction of warrants - 496,913
Retailer Loan Program Investment
through conversion of accounts
receivable 1,031,626 -
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
RENTRAK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements
of RENTRAK CORPORATION (the "Company"), have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for the three month
period ended June 30, 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year ended March 31,
1998. The Condensed Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and
footnotes thereto included in the Company's 1997 Annual Report to
Shareholders.
The Condensed Consolidated Financial Statements reflect, in the
opinion of management, all material adjustments (which include only
normal and recurring adjustments) necessary to present fairly the
Company's financial position and results of operations.
The Condensed Consolidated Financial Statements include the accounts
of the Company, its majority owned subsidiaries, and those
subsidiaries in which the Company has a controlling interest after
elimination of all intercompany accounts and transactions.
Investments in affiliated companies owned 20 to 50 percent are
accounted for by the equity method.
NOTE B: Net Income Per Share
For the quarter ended June 30, 1997, net earnings per share is
computed using the "modified" treasury stock method. Under this
method, the number of shares is based on the weighted average number
of shares outstanding and the assumed exercise of common stock
equivalent options and warrants regardless of whether the market price
of the common stock exceeded the exercise price of the options and
warrants. In addition, contingent warrants were assumed to have been
exercised. The number of treasury shares assumed to be purchased with
the proceeds from the exercise of stock options and warrants is
limited to 20 percent of the outstanding shares at period end.
Proceeds from exercise of the options and warrants in excess of those
used to purchase treasury shares were assumed to have been invested in
government securities with the resultant net interest income, adjusted
for appropriate tax effects, added to net income for purposes of
calculating earnings per share.
For the quarter ended June 30, 1996, net income per share of common
stock is computed on the basis of the weighted average shares of
common stock outstanding plus common equivalent shares arising from
dilutive stock options, using the treasury stock method. The Company's
outstanding warrants were not dilutive during this period.
NOTE C: Major Suppliers
For the quarter ended June 30, 1997, the Company had one program
supplier whose product generated 55 percent, a second that generated
18 percent, and a third that generated an additional 15 percent of
Rentrak revenues. No other program suppliers provided product which
generated more than 10 percent of revenue for the three month period
ended June 30, 1997.
For the quarter ended June 30, 1996, the Company had one program
supplier whose product generated 40 percent, a second that generated
28 percent, and a third that generated and additional 12 percent of
Rentrak revenues. No other program supplier provided product which
generated more than 10 percent of revenue for the three month period
ended June 30, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Information included in Management's Discussion and Analysis of
Financial Conditions 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 can be identified by the uses of forward-looking
words such as "may", "will", "expects", "intends", "anticipates",
"estimates", or "continues" or the negative thereof or variations
thereon or comparable terminology. The following factors are among
the factors that could cause actual results to differ materially from
the forward-looking statements: business conditions and growth in the
video industry and general economics, both domestic and international;
competitive factors, including increased competition, new technology,
and the continued availability of Cassettes from Program Suppliers.
Such factors are discussed in more detail in the Company's 1997 Annual
Report to Shareholders.
Results of Operations
For the quarter ended June 30, 1997, total revenue increased $6.8
million, or 28.6 percent, rising to $30.6 million from $23.8 million
in the quarter ended June 30, 1996. Total revenue includes the
following fees: application fees generated when retailers are approved
for participation in the Pay Per Transaction ("PPT") system; order
processing fees generated when prerecorded videocassettes
("Cassettes") are ordered by and distributed to retailers; transaction
fees generated when retailers rent Cassettes to consumers; sell-
through fees generated when retailers sell Cassettes to consumers; buy
out fees when retailers purchase Cassettes at the end of the lease
term; royalty payments from Rentrak Japan; and sale of Cassettes.
The increase in total revenue and the increases described in the
following paragraph were primarily due to the growth in (i) the number
of retailers approved to lease Cassettes under the PPT system from the
Company (the "Participating Retailers"); (ii) the number of titles
released to the PPT system; and (iii) the total number of Cassettes
leased under the PPT system.
Cost of sales for the quarter ended June 30, 1997 rose to $25.0
million from $19.5 million the prior year, an increase of $5.5
million, or 28.2 percent. The increase is due to the increase in
revenue noted above.
Selling, general and administrative expenses were $3.4 million in
fiscal 1997 compared to $3.6 million in fiscal 1996, a decrease of
$0.2 million, or 6 percent. As selling, general and administrative
expenses remained relatively flat over the same quarter in the prior
fiscal year while revenues increased dramatically, the Company was
able to achieve a decrease from 15 percent for the quarter ended June
30, 1996 to 11 percent for the quarter ended June 30, 1997 in the
percentage of selling, general and administrative expenses to total
revenue.
Other income was $0.1 million for the quarter ended June 30, 1997 and
$0.3 million for the quarter ended June 30, 1996. In 1996, other
income includes a gain of $0.2 million on the sale of corporate
securities.
For the quarter ended June 30, 1997, the Company recorded a pre-tax
profit of $2.3 million, or 7.5 percent of total revenue, compared to a
pre-tax profit of $0.9 million, or 4 percent of total revenue in the
quarter ended June 30, 1996. This increase is primarily due to an
increase in total revenue which resulted in increased gross margin
dollars.
Included in the amounts above are the results from Other Subsidiaries
which are comprised of other video retail and other operations. For
the quarter ended June 30, 1996, Other Subsidiaries recorded pre-tax
income of $124,634 compared to $13,000 for the quarter ended June 30,
1996.
Consolidated Balance Sheet
At June 30, 1997, total assets were $41.7 million, a decrease of $1.3
million from the $43.0 million at March 31, 1997. As of June 30, 1997,
Cash had decreased $2.9 million to $7.3 million from $10.2 million at
March 31, 1997. The decrease is primarily due to the repayment of the
$5.0 million line of credit which was outstanding at March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and other liquid investments of
$7.3 million, compared to $10.2 million at March 31, 1997. At June
30, 1997, the Company's current ratio (current assets/current
liabilities) decreased to 1.03 from 1.05 at March 31, 1997.
The Company has an agreement for a line of credit with a
financial institution in an amount not to exceed the lesser of
$10 million or the sum of (a) 80 percent of the net amount of
eligible accounts receivable as defined in the agreement. The
line of credit expires on December 18, 1997. Interest is payable
monthly at the bank's prime rate plus .5 percent (9.0 percent at
June 30, 1997). The lender has an option to purchase 10,000
unregistered shares of common stock of the Company at $7 per
share, which exceeded market value at the date of grant. The
line is secured by substantially all of the Company's assets.
The terms of the agreement require, among other things, a minimum
amount of tangible net worth, minimum current ratio and minimum
total liabilities to tangible net worth. The agreement also
restricts the amount of net losses, loans and indebtedness and
limits the payment of dividends on the Company's stock. The
Company is in compliance with these covenants or has obtained
waivers of noncompliance as of June 30, 1997. At March 31, 1997,
the Company had $5.0 million outstanding borrowings under this
agreement. The Company repaid the $5.0 million in April, 1997.
As of June 30, 1997, available borrowing capacity totaled $10
million.
The Company has established a retailer financing program whereby the
Company will provide, on a selective basis, financing to video
retailers who the Company believes have the potential for substantial
growth in the industry. In connection with these financings, the
Company typically makes a loan to and/or an equity investment in the
retailer. In some cases, a warrant to purchase stock may be obtained.
As part of such financing, the retailer typically agrees to cause all
of its current and future retail locations to participate in the PPT
system for a designated period of time. Under these agreements,
retailers are typically required to obtain some or all of their
requirements of Cassettes offered under the PPT system or obtain a
minimum amount of Cassettes based on a percentage of the retailer's
revenues. Notwithstanding the long term nature of such agreements,
both the Company and the retailer may, in some cases, retain the right
to terminate such agreement upon 30-90 days prior written notice.
These financings are highly speculative in nature and involve a high
degree of risk, and no assurance of a satisfactory return on
investment can be given. The amounts the Company could ultimately
receive could differ materially in the near term from the amounts
assumed in establishing reserves.
The Board of Directors has authorized up to $18 million to be used in
connection with the Company's retailer financing program. As of June
30, 1997, the Company has invested or loaned approximately $14.5
million in various retailers. The investments individually range from
$0.2 million to $5.9 million. Interest rates on the various loans
range from the prime rate plus 1 percent to the prime rate plus 2
percent. As the financings are made, and periodically throughout the
terms of the agreements, the Company assesses the likelihood of
recoverability of the amounts invested or loaned based on the
financial position of each retailer. This assessment includes
reviewing available financial statements and cash flow projections of
the retailer and discussions with retailers' management. As of June
30, 1997, the Company reserved approximately $10.1 million.
As noted in the Company's 1997 Annual Report to Shareholders, the
Company distributed to its Shareholders shares of common stock of
BlowOut Entertainment, Inc. (BlowOut). The operations of BlowOut were
reflected as discontinued operations in the March 31, 1996
consolidated financial statements. Net current liabilities of
discontinued operations include management's best estimates of the
anticipated losses from discontinued operations through the final
resolution of all contingencies related to the disposition of BlowOut.
The estimates are based on an analysis of the costs which may be
incurred to dispose of the entity. The amounts the Company will
ultimately incur could differ materially in the near term from the
amounts assumed in arriving at the loss on disposal of the
discontinued operations.
BlowOut is essentially a start-up company and is experiencing
rapid growth requiring additional financing if it is to continue
its expansion and to support operations of recently opened
stores. The Company is the principal creditor to BlowOut. The
Company has agreed to guarantee up to $7 million of indebtedness
of BlowOut (Guarantee). The Guarantee expires for future
borrowings on the earlier of (i) December 31, 1997 or (ii) such
time as the total indebtedness of BlowOut subject to the Rentrak
Guarantee is equal to $7 million. During the term of the
Rentrak Guarantee, and/or so long as any guarantee is thereunder
outstanding, BlowOut has agreed to pay the Company a weekly fee
at a rate equal to .02 percent per week of then-currently
outstanding indebtedness subject to the Rentrak Guarantee.
BlowOut has executed a $3 million note in favor of the Company
which accrues interest at 9% per annum and is due in April 1999.
At March 31, 1997, the total outstanding balance of the debt
under such note, including accrued interest, was $3.4 million.
BlowOut has a credit facility (the Credit Facility) in an
aggregate principal amount of $2 million for a five-year term.
Amounts outstanding under the Credit Facility bear interest at a
fixed rate per annum equal to 13.98 percent. Pursuant to the
terms of the Guarantee, the Company agreed to guarantee any
amounts outstanding under the Credit Facility until the lender is
satisfied, in its sole discretion, that BlowOut's financial
condition is sufficient to justify the release of the Company's
guarantee. As of June 30, 1997, BlowOut had borrowed
approximately $1.5 million under the Credit Facility.
BlowOut also has a revolving line of credit (Line of Credit) in a
maximum principal amount at one time outstanding of $5 million.
Under the Line of Credit, BlowOut may only draw up to 80% of the
Orderly Liquidation Value (as defined in the Line of Credit) of
eligible new and used Cassette inventory. Advances under the
Line of Credit bear interest at a floating rate per annum equal
to the Bank of America Reference Rate plus 2.75% percent (11.25
percent as of June 30, 1997). The term of the Line of Credit is
three years. The Company has agreed, under certain circumstances
in the event of default under the Line of Credit, to repurchase
BlowOut's Cassette inventory at specified amounts. As of June
30, 1997, BlowOut had borrowed approximately $2.6 million under
the Line of Credit.
The Company's exposure related to adverse financial and
operational developments at BlowOut is limited to its receivables
from BlowOut [See Note 4 of the Notes to the Consolidated
Financial Statements] and the obligations under the Guarantee
[See Note 9 of the Notes to the Consolidated Financial
Statements].
On November 26, 1996, the Board authorized the re-purchase of up
to two million shares of Common Stock in open market and
negotiated purchases. In the quarter ended June 30, 1997, the
Company had acquired 257,594 shares for an aggregate amount of
approximately $732,000. These purchases were funded through cash
flows from operations.
The Company's sources of liquidity include its cash balance, cash
generated from operations and its available credit facility.
These sources are expected to be sufficient to fund the Company's
operations for the year ending March 31, 1998.
PART II
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
None
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement of Computation of per share earnings.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated this 7th day of August, 1997
RENTRAK CORPORATION:
s/s Carolyn A. Pihl
Carolyn A. Pihl
Chief Accounting Officer
Signing on behalf of the registrant
<TABLE>
Rentrak Corporation
Computation of Net Income Per Share
For the Quarter Ended June 30, 1997
<CAPTION>
Primary Fully Diluted
<S> <C> <C>
Weighted average number of shares of
common stock outstanding 11,697,712 11,697,712
Dilutive effect of exercise of
stock options 4,588,062 6,381,265
Less: purchase of treasury shares, up to
20% of shares outstanding at period end (2,321,909) (2,321,909)
Weighted average number of shares of common
stock and common stock equivalents 13,963,865 15,757,068
Net Income $ 1,311,134 $ 1,311,134
Plus: interest income from investments
assumed purchased with proceeds from
exercise of stock options and warrants in
excess of proceeds used to purchase
treasury stock. 137,468 221,913
Net Income for purposes of computing
earnings per share. $ 1,448,602 $ 1,533,047
Net Income per Share $ 0.10 $ 0.10
The computation of net income per share for the quarter ended
June 30, 1996 is not provided since it can be clearly determined form the
material contained in the footnotes to the financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 7,348,811
<SECURITIES> 0
<RECEIVABLES> 16,239,079
<ALLOWANCES> 230,862
<INVENTORY> 1,942,268
<CURRENT-ASSETS> 30,548,215
<PP&E> 6,875,395
<DEPRECIATION> 4,912,960
<TOTAL-ASSETS> 41,661,517
<CURRENT-LIABILITIES> 29,613,421
<BONDS> 0
0
0
<COMMON> 11,610
<OTHER-SE> 12,036,486
<TOTAL-LIABILITY-AND-EQUITY> 41,661,517
<SALES> 30,614,551
<TOTAL-REVENUES> 30,614,551
<CGS> 25,038,640
<TOTAL-COSTS> 28,458,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> 2,274,025
<INCOME-TAX> 962,891
<INCOME-CONTINUING> 1,311,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,311,134
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
