10-Q
RLJ ENTERTAINMENT, INC. filed this Form 10-Q on 11/09/2017
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Revenues

A summary of net revenues by segment for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Digital Channels

 

$

6,954

 

 

$

4,384

 

 

$

19,358

 

 

$

11,053

 

IP Licensing

 

 

41

 

 

 

17

 

 

 

45

 

 

 

43

 

Wholesale Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

11,297

 

 

 

11,440

 

 

 

25,326

 

 

 

32,787

 

International

 

 

2,608

 

 

 

2,510

 

 

 

8,891

 

 

 

7,999

 

Total Wholesale Distribution

 

 

13,905

 

 

 

13,950

 

 

 

34,217

 

 

 

40,786

 

Total Revenues

 

$

20,900

 

 

$

18,351

 

 

$

53,620

 

 

$

51,882

 

 

Revenues increased $2.5 million for the three months ended September 30, 2017 compared to the same period in 2016. The increase in revenues is primarily driven by our Digital Channels segment, which increased by $2.6 million. The increase in revenues from our Digital Channels segment primarily results from over 50% growth in paying subscribers. We increased our marketing efforts during the quarter to enhance subscriber growth. In addition, we are continually featuring new content on our digital channels, which we believe is a key factor in attracting new subscribers for all of our channels. Revenues from our Digital Channels segment continues to represent a growing and more meaningful portion of our consolidated revenues. Revenues from these channels for the three months ended September 30, 2017 account for 33.3% of our total revenues as compared to 23.9% for the three months ended September 30, 2016.

Revenues increased $1.7 million for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in revenues is primarily driven by our Digital Channels segment which increased by $8.3 million offset by revenues from our Wholesale Distribution segment, which decreased by $6.6 million during the first nine months of 2017. The increase in revenues from our Digital Channels segment primarily results from over 50% growth in paying subscribers. Our Wholesale Distribution segment’s revenue decline is attributable to decreases in the U.S. revenues of $7.5 million and an increase in international revenues of $0.9 million. The Wholesale Distribution segment’s U.S. revenue decrease is primarily attributable to less content being released in the first half of 2017 compared to the same period last year as well as a decline in demand for DVDs and Blu-ray product as more digital programming becomes available. International Wholesale Distribution revenues increased due to the strong performance of two new releases during the year.

Cost of Sales (“COS”) and Gross Profit

A summary of COS by segment and overall gross margins for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Digital Channels

 

$

2,291

 

 

$

1,202

 

 

$

5,496

 

 

$

3,358

 

IP Licensing

 

 

 

 

 

(106

)

 

 

 

 

 

(102

)

Wholesale Distribution

 

 

10,421

 

 

 

10,216

 

 

 

25,426

 

 

 

31,732

 

Total COS

 

$

12,712

 

 

$

11,312

 

 

$

30,922

 

 

$

34,988

 

Gross Profit

 

$

8,188

 

 

$

7,039

 

 

$

22,698

 

 

$

16,894

 

Gross Margin %

 

 

39.2

%

 

 

38.4

%

 

 

42.3

%

 

 

32.6

%

 

COS increased by $1.4 million to $12.7 million for the three months ended September 30, 2017 compared to the same period in 2016. The increase in COS is primarily attributed our Digital Channels segment which increased by $1.1 million due to increased content amortization and royalty expense resulting from additional programming added to the channels. Impairment charges recorded for content investments and inventories total $1.0 million and $0.9 million for the three months ended September 30, 2017 and 2016, respectively. Our step-up amortization was $0.7 million and $1.0 million for the three months ended September 30, 2017 and 2016, respectively. The decrease step-up amortization is primarily attributable to lower revenues for content that was released as of the Business Combination date relative to our estimations of future revenues.

As a percentage of revenues, our gross margin improved to 39.2% for the three months ended September 30, 2017 as compared to 38.4% for the same period last year. The improvement is primarily attributable to a revenue growth from our proprietary digital

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