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, 1999
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 IRS 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 July 31, 1999, the Registrant had 10,471,806 shares of
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and March 31, 1999
Consolidated Statements of Income for the three
month periods ended June 30, 1999 and June 30,
1998
Consolidated Statements of Cash Flows for the
three month periods ended June 30, 1999 and June
30, 1998
Notes to Consolidated Financial Statements
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
(UNAUDITED)
June 30, March 31,
1999 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,232,494 $2,145,963
Accounts receivable, net of allowance for doubtful
accounts of $371,831 and $355,241 26,988,536 23,906,398
Advances to program suppliers 4,047,292 2,840,262
Inventory 2,367,363 2,804,983
Deferred tax asset 1,579,637 1,579,637
Income tax receivable 2,639,470 3,006,502
Other current assets 3,160,391 3,467,473
Total current assets 42,015,183 39,751,218
PROPERTY AND EQUIPMENT, net 1,607,083 1,723,448
OTHER INVESTMENTS, net 2,616,801 2,014,701
DEFERRED TAX ASSET 2,529,873 2,497,762
OTHER ASSETS 2,796,169 3,469,660
TOTAL ASSETS $51,565,109 $49,456,789
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,
1999 1999
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $8,250,000 $7,925,000
Accounts payable 16,698,289 16,628,294
Accrued liabilities 6,958,694 5,822,574
Accrued compensation 780,972 941,836
Deferred revenue 111,778 100,415
Net current liabilities of discontinued operations 730,070 3,746,766
Total current liabilities $33,529,803 $35,164,885
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value;
Authorized: 10,000,000 shares 0 0
Common stock, $.001 par value;
Authorized: 30,000,000 shares
Issued and outstanding: 10,442,345 shares
at June 30, 1999 and 10,439,948 at
March 31, 1999 10,442 10,440
Capital in excess of par value 43,650,246 43,644,479
Cumulative other comprehensive income 85,351 137,747
Accumulated deficit (25,138,769) (28,751,757)
Less - Deferred charge - warrants (571,964) (749,005)
18,035,306 14,291,904
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,565,109 $49,456,789
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Three Months Ended June 30,
1999 1998
<S> <C> <C>
REVENUES:
PPT $26,441,311 $30,441,358
Other 4,553,759 3,018,084
30,995,070 33,459,442
OPERATING COSTS AND EXPENSES:
Cost of sales 24,437,684 27,547,868
Selling, general, and administrative 4,499,153 3,761,942
28,936,837 31,309,810
INCOME FROM OPERATIONS 2,058,233 2,149,632
OTHER INCOME (EXPENSE):
Interest income 38,183 121,862
Interest expense (165,425) (18,225)
Other 0 (117,768)
(127,242) (14,131)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION 1,930,991 2,135,501
INCOME TAX PROVISION 691,505 845,657
INCOME FROM CONTINUING OPERATIONS 1,239,486 1,289,844
GAIN FROM DISPOSAL OF DISCONTINUED
SUBSIDIARIES (PLUS INCOME TAX
BENEFIT OF $483,502) 2,373,502 0
NET INCOME $3,612,988 $1,289,844
EARNINGS PER SHARE:
Basic:
Continuing operations $0.12 $0.12
Discontinued operations $0.23 $0.00
$0.35 $0.12
Diluted:
Continuing operations $0.12 $0.11
Discontinued operations $0.23 $0.00
$0.35 $0.11
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Three Months Ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,612,988 $1,289,844
Adjustments to reconcile income to
net cash provided by (used in) in operations
Gain on disposal of discontinued operations (2,373,502) 0
(Gain) loss on asset and investment sales 0 117,768
Depreciation and Amortization 328,879 196,494
Amortization of warrants 177,041 157,864
Provision for doubtful accounts 0 (131,653)
Reserves on advances to program suppliers 305 0
Change in specific accounts:
Accounts receivable (3,092,312) 3,231,437
Advances to program suppliers (1,207,335) (4,495,386)
Inventory 437,620 (312,023)
Income tax receivable 367,032 0
Other current assets 307,082 (636,867)
Accounts payable (230,005) 6,186,843
Accrued liabilities & compensation 975,256 19,500
Deferred revenue 11,363 (775,924)
Net current liabilities of discontinued operations (643,194) 0
Net cash provided by (used in) operations (1,328,782) 4,847,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and inventory (65,939) (72,087)
Proceeds from retailer financing program 0 65,121
Reduction (additions) of other assets
and intangibles 150,483 (107,745)
Net cash used in investing activities 84,544 (114,711)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit 325,000 (6,000,000)
Issuance of common stock 5,769 85,770
Net cash provided by (used in) financing activitie 330,769 (5,914,230)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (913,469) (1,181,044)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THIS PERIOD 2,145,963 6,361,680
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,232,494 $5,180,636
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $195,095 $18,225
Income taxes, net of refunds 19,330 107,857
NON-CASH TRANSACTIONS
Reclassification of accounts receivable to
other investments 10,174 0
Change in unrealized gain (loss) on investment
securities, net of tax (52,396) (110,869)
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, 1999 are not necessarily
indicative of the results to be expected for the entire fiscal
year ending March 31, 2000. The Condensed Consolidated
Financial Statements should be read in conjunction with the
Consolidated Financial Statements and footnotes thereto
included in the Company's 1999 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 inter-company 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
Basic earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per common
share is computed on the basis of the weighted average shares
of common stock outstanding plus common equivalent shares
arising from dilutive stock options and warrants.
The weighted average number of shares of common stock and
common stock equivalents and net income used to compute basic
and diluted earnings per share at June 30 were calculated as
follows:
<TABLE>
<CAPTION>
Note B: Net Income Per Share
3-Months Ended 3-Months Ended
June 30, 1999 June 30, 1998
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average number of
shares of common stock
outstanding 10,440,614 10,440,614 11,004,333 11,004,333
Dilutive effect of exercise of
stock options - 101,071 - 931,306
Weighted average number
of shares of common stock
outstanding and common
stock equivalents 10,440,614 10,541,685 11,004,333 11,935,639
Net Income:
Continuing operations $1,239,486 $1,239,486 $1,289,844 $1,289,844
Discontinued operations 2,373,502 2,373,502 - -
Net income: $3,612,988 $3,612,988 $1,289,844 $1,289,844
Earnings per share:
Continuing operations $0.12 $0.12 $0.12 $0.11
Discontinued operations 0.23 0.23 - -
Net income $0.35 $0.35 $0.12 $0.11
</TABLE>
Options and warrants to purchase approximately 5,900,000 and 305,000
shares were outstanding for the three month periods ended June 30,
1999 and 1998, respectively, but were not included in the computation
of diluted EPS because the warrants' and options' exercise prices were
greater than the average market price of the common shares during the
periods. The options and warrants, which expire during fiscal years
2000 through 2008, remain outstanding at June 30, 1999.
NOTE C: Major Suppliers
For the quarter ended June 30, 1999, the Company had one program
supplier whose product generated 22 percent, a second that generated
19 percent, and a third that generated an additional 18 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, 1999.
For the quarter ended June 30, 1998, the Company had one program
supplier whose product generated 32 percent, a second that generated
31 percent, and a third that generated an additional 17 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, 1998.
NOTE D: Discontinued Operations
On November 26, 1996, the Company made a distribution to its
shareholders of 1,457,343 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.
On March 22, 1999, BlowOut filed for Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. At that same time BlowOut filed a motion to sell
substantially all the assets of BlowOut. The sale to a third party
video retailer was approved by the Bankruptcy Court on May 10, 1999,
and closed on May 17, 1999. The Company was the principal creditor of
BlowOut. In 1996, the Company had agreed to guarantee up to $7
million of indebtedness of BlowOut ("Guarantee"). Pursuant to the
terms of the Guarantee, the Company agreed to guarantee any amounts
outstanding under BlowOut's credit facility. As the proceeds from the
sale of the BlowOut assets were not sufficient to cover the amounts
due under this facility, the Company, pursuant to the Guarantee, has
agreed to a payment plan to fulfill BlowOut's obligation under its
credit facility. The amount outstanding at June 30, 1999 of
approximately $800,000 will be paid in monthly installments of
approximately $36,000. The funds remaining, if any, after payment of
administrative and cost claims after dismissal of the case may further
reduce the amount due under the credit facility.
During the quarter ended June 30, 1999, the Company recorded a gain on
the disposal of discontinued operations of $1.9 million related to
BlowOut , as the liability related to BlowOut contingencies was less
than anticipated. The Company also reduced the valuation allowance
which was recorded against the deferred tax asset related to
liabilities of discontinued operations. This reduction of
approximately $500,000 in the valuation allowance was recorded as an
income tax benefit from discontinued operations in the accompanying
consolidated income statement.
Net current liabilities of discontinued operations at June 30, 1999,
relate to amounts to be paid pursuant to the BlowOut guarantees, net
of tax benefit.
ITEM 2. 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 liquidity and
capital resources 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: the
Company's ability to continue to market the Pay Per Transaction
("PPT") System successfully, the financial stability of participating
retailers and their performance of their obligations under the PPT
System, non-renewal of line of credit, business conditions and growth
in the video industry and general economics, both domestic and
international; competitive factors, including increased competition,
expansion of revenue sharing programs other than the PPT System by
Program Suppliers, new technology, the ability of the Company and its
suppliers and customers to address potential Year 2000 problems, the
continued availability of prerecorded videocassettes ("Cassettes")
from Program Suppliers and the cost associated with certain litigation
involving the Company as well as the outcome of that litigation. Such
factors are discussed in more detail in the Company's 1999 Annual
Report to Shareholders.
Results of Continuing Operations
For the quarter ended June 30, 1999, total revenue decreased $2.5
million, or 7.5 percent, falling to $31.0 million from $33.5 million
in the quarter ended June 30, 1998. Total revenue includes the
following fees: application fees generated when retailers are approved
for participation in the PPT System; order processing fees generated
when 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 generated when retailers purchase Cassettes at
the end of the lease term. In addition total revenue includes royalty
payments from Rentrak Japan, charges to customers of the Company's
fulfillment business known as ComAlliance, and sales of Cassettes.
The decrease in total revenue and the decreases described in the
following paragraph were primarily due to the decline in (i) the total
number of Cassettes leased under the PPT System; and (ii) the number
of titles released to Rentrak for distribution under the PPT System.
Cost of sales for the quarter ended June 30, 1999 fell to $24.4
million from $27.5 million in the quarter ended June 30, 1998, a
decrease of $3.1 million, or 11.3 percent. The decrease is due to the
decrease in revenue noted above.
Selling, general and administrative expenses were $4.5 million for the
quarter ended June 30, 1999 compared to $3.8 million in the quarter
ended June 30, 1998, an increase of $0.7 million, or 18.4 percent.
The increase in selling, general and administrative expenses is
primarily due to increased legal fees related primarily to the lawsuit
with Hollywood Video.
For the quarter ended June 30, 1999, the Company recorded income from
continuing operations of $1.2 million, or 4.0 percent of total
revenue, compared to income from continuing operations of $1.3
million, or 3.9 percent of total revenue in the quarter ended June 30,
1998.
Discontinued Operations
On March 22, 1999, BlowOut filed for Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. At that same time BlowOut filed a motion to sell
substantially all the assets of BlowOut. BlowOut is not related to
the Company's wholly owned subsidiary BlowOut Video, Inc. The sale to
a third party video retailer was approved on May 10, 1999 and closed
on May 17, 1999 (the "closing").
During the quarter ended June 30, 1999, the Company recorded a gain on
the disposal of discontinued operations of $1.9 million related to
BlowOut , as the liability related to BlowOut contingencies was less
than anticipated. The Company also reduced the valuation allowance
which was recorded against the deferred tax asset related to
liabilities of discontinued operations. This reduction of $0.5
million in the valuation allowance was recorded as income tax benefit
from discontinued operations in the accompanying consolidated income
statement.
Net current liabilities of discontinued operations at June 30, 1999,
relate to amounts to be paid pursuant to the BlowOut guarantees, net
of tax benefit.
Consolidated Balance Sheet
At June 30, 1999, total assets were $51.6 million, an increase of $2.1
million from the $49.5 million at March 31, 1999. As of June 30,
1999, cash decreased $0.9 million to $1.2 million from $2.1 million at
March 31, 1999. Accounts receivable increased $3.1 million from $23.9
million at March 31, 1999 to $27 million at June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and other liquid investments of
$1.2 million, compared to $2.1 million at March 31, 1999. At June 30,
1999, the Company's current ratio (current assets/current liabilities)
was 1.25 compared to 1.13 at March 31, 1999.
The Company has an agreement for a line of credit with a financial
institution in an amount not to exceed the lesser of $12.5 million or
the sum of 80 percent of the net amount of eligible accounts
receivable as defined in the agreement. The line of credit expires on
December 18, 1999. Interest is payable monthly at the bank's prime
rate (7.75 percent at June 30, 1999). 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 as of June
30, 1999. At June 30, 1999, the Company had $8.3 million outstanding
borrowings under this agreement.
The Company has established a retailer financing program whereby the
Company will provide, on a selective basis, financing to video
retailers that 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 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 speculative in nature and involve a high degree of
risk, and no assurance of a satisfactory return on investment can be
given.
The Board of Directors has authorized up to $18 million to be used in
connection with the Company's retailer financing program. The
investments individually range from $35,000 to $4.9 million. Interest
rates on the various loans range from 5 to 10 percent per annum. 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. The amounts the Company ultimately
receives could differ materially in the near term from the amounts
assumed in establishing reserves.
The Company was the principal creditor of BlowOut. In 1996, the
Company had agreed to guarantee up to $7 million of indebtedness of
BlowOut ("Guarantee"). BlowOut had 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 14.525 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 Guarantee. As the proceeds
from the sale of the BlowOut assets were not sufficient to cover the
amounts due under this facility, the Company, pursuant to the
guarantee, has agreed to a payment plan to fulfill BlowOut's
obligation under its credit facility. The funds remaining, if any,
after payment of administrative and cost claims after dismissal of the
case may further reduce the amount due under the Credit Facility. As
of June 30, 1999, the balance owing under this obligation is
approximately $800,000.
The Company's sources of liquidity include its cash balance, cash
generated from operations and its available credit resources. These
sources are expected to be sufficient to fund the Company's operations
for the year ending March 31, 2000.
PART II
Item 1. Legal Proceedings.
Note 10 to the Company's Consolidated Financial
Statements, under the caption "Contingencies" in the Company's
1999 Annual Report to Shareholders, provides information on
certain litigation in which the Company is involved. There
have been no material developments with respect to these
litigation matters.
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. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - One
The Company filed one report on form 8K
dated June 14, 1999, during the quarter for which this report is
filed, and reported information contained in Item 5 - Other
Events.
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 13th day of August, 1999
RENTRAK CORPORATION:
/S/ Carolyn A. Pihl
Carolyn A. Pihl
Vice President Finance
Signing on behalf of the registrant
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 1,232,494
<SECURITIES> 0
<RECEIVABLES> 27,360,367
<ALLOWANCES> 371,831
<INVENTORY> 2,367,363
<CURRENT-ASSETS> 42,015,183
<PP&E> 7,828,432
<DEPRECIATION> 6,221,349
<TOTAL-ASSETS> 51,565,109
<CURRENT-LIABILITIES> 33,529,803
<BONDS> 0
0
0
<COMMON> 10,442
<OTHER-SE> 18,024,864
<TOTAL-LIABILITY-AND-EQUITY> 51,565,109
<SALES> 30,995,070
<TOTAL-REVENUES> 30,995,070
<CGS> 24,437,684
<TOTAL-COSTS> 28,936,837
<OTHER-EXPENSES> 127,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,425
<INCOME-PRETAX> 1,930,991
<INCOME-TAX> 691,505
<INCOME-CONTINUING> 1,239,486
<DISCONTINUED> 2,373,502
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,612,988
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
</TABLE>
