Thursday, August 6, 2009

RHI Entertainment Earnings/Conference Call

I listened to the RHI Entertainment (RHIE) conference call replay last night. They are a company affected so much by seasonality in their business that earnings numbers need to be looked at differently. From the surface, total revenue and library revenue were down significantly, but you have to look deeper. They make money not only on new productions, which include mini-series and made for tv movies, but also selling titles from their library. I made some notes while listening to the call from yesterday. This is paraphrasing from answers mostly from their CEO:

-Lower earnings and revenue entirely due to seasonality and not lower demand. Its taking longer to get contracts signed, but demand is still there. Lots of new products coming in 2nd half of this year.

-Such a large library that they can meet demand at different price points. Cheaper stuff. Networks can't stop running programming; they have to run something. So they are well positioned.

-Orders from NBC and ABC which weren't in the market a year ago.

-Going to pay down debt with free cash flow. About 200MM over next four years. Number one concern.

-Lots of new clients. Family products and action/adventure.

-More to cable and less to big networks. Expanding of amount of channels on cable and sat, many which run no original programming.

I like the fact that they can service not only cable networks, but some large networks who may not be interested in spending productions dollars on major series in this market.

Although they are sitting on a lot of debt for a company this size, they assured investors that they are going to create free cash flow and have specific goals of paying down approximately 200m in debt over the next four years. I'm happy to hear they have those specific goals about reducing debt. The company itself is well positioned, and I feel would be priced much higher if it weren't for that debt. The debt is allowing us to buy shares at a discount.

I'll be looking to pick up some shares soon. I'll post here when I do.

Disclosure: None


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