Actionable Opportunities in Special Situations: Spinoffs, Bankruptcy, Restructurings


Rentrak Corporation (RENT) is exploring Strategic Alternatives for its Home Entertainment business

In its FY14 Q3 press release, Rentrak Corporation (RENT) announced it is exploring strategic alternatives for its Home Entertainment business, or PPT (compromises 45% of FY13 revenue). David Chemerow, COO and CFO, outlined further details regarding a sale of the home entertainment business and how RENT would look post-sale:

As Bill indicated, we are making significant progress and evaluating the possible sale of our PPT business, which distributes physical DVDs to brick-and-mortar home video rental stores. Any sale would not include our DRS or direct revenue sharing business, which is also in the home entertainment segment. DRS is a high margin information business measuring all revenue-sharing transactions in the marketplace.

I’d like to share some additional information with you, so you can better understand the size of our PPT business and assess its value. This year based on our guidance of 7% to 10% revenue growth for the home entertainment segment, we expect PPT’s revenues to be $43 million to $46 million. For fiscal 2015, we expect PPT revenue to decline by 20% to 25% due to the total loss of revenue from Blockbuster as well as the long-term normal decline in the business. This would result in fiscal 2015 PPT revenue in the range of $33 million to $35 million. In fiscal 2015, we also expect the PPT business to generate operating income in the range of $2 million to $3 million.

I’d also like to share with you a little more information about how Rentrak would look if we did not own the PPT business. Our revenue this quarter if we included only AMI and DRS would have been $19.5 million, which is up 37% from the prior year. This was higher than the 35% growth rate of AMI, because of the growth in our DRS business. Including DRS would also have increased AMI’s gross margin from the reported 63% to 65%. Although we have not yet made a decision on the sale of the PPT business, if we do decide to sell it before the end of fourth fiscal quarter, we believe we will be able to treat that business as a discontinued operations for the entire fourth quarter. This means that PPT would be accounted for on a one line basis at the bottom of income statement for both historical and prospective purposes. We are experiencing high revenue growth in AMI and this also helps us generate robust EBITDA margin with minimal capital expenditures. Without the PPT business Rentrak exhibits the characteristics of many software as a service companies providing cloud based software to the entertainment and advertising industries.

Source: Earnings Transcript, FY14 Q3 Press Release

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