As a shareholder, I am incensed that the company will have to spend money to defend garbage like this. Let’s look at this poster child of abuse of the US civil litigation system. The definition of frivolous…
Tag: rhie
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RHI Reports Q2
The case for RHI Entertainment (RHI) and the expectation we had when we first looked at it still stands. Q1 and Q2 were expected to be poor and they were. Q’3 and 4 were expected to show a marked improvement and based on what is in production and what is expected to be delivered, that is also the case.
SEC filing:
RHI Q2
This one will require some patience although after Q3 is reported, if we do not see some real progress, we may want to take a look at reconsidering or at least tearing apart the investing thesis and starting order to see if we come to a different conclusion.
Disclosure (“none” means no position):Long RHI
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Some Portfolio Updates
Some minor news in a few items not enough for full posts but noteworthy none the less.
USO Calls
– Had a tight trailing stop on the OLL AI calls in USO (USO). Oil has its best month in a decade and did not want to catch a downdraft. That being said, got stopped out at 8.10 each for a 47% gain in 3 weeks. Still am holding USO AO at an unrealized gain of 41% (same time frame). Have a tight stop there also to guarantee the gains.
If I get stopped out of this, I will wait before getting back in for oil to pull back a bit. I have been more active here than normal but large price spikes demand so type of action when the economies underlying fundamentals don’t quite justify it.
Natural Gas
– Still hold UNG calls UNE JP and are down 13%. These are October calls so there is no rush or worry here.
News Corp (NWSA)
News Corp got twin upgrades last week. From Streetinsider.com
Earlier, a JPMorgan analyst upgraded News Corp. (Nasdaq: NWSA) from Neutral to Overweight. The analyst also raised JPMorgan’s price target on News Corp from $9 to $12, saying the “market is improperly assigning a negative value to several News Corp. businesses”.
JPMorgan’s raised price target represents potential price appreciation of 25% from current levels.
The JPMorgan analyst points out that the negative market sentiment comes despite positive cash flow generation in each of these divisions. Specifically, the analyst believes News Corp.’s Cable Networks branch deserves “a higher premium than competitors due to potential expansion opportunities in international markets”. JPMorgan also sees the media-giant’s Film business rebounding following this year’s “trough year”.
Traders may also be buying shares of News Corp. on the back of new coverage over at Wunderlich Securities. The firm started News Corp. at Buy, also citing the cable programming and film segments.
Readesr here will be thinking…….”no kidding JP Morgan..where you been”? About 3 weeks late on this call
RHI Entertainment (RHIE)
In a bid to strengthen its ties with the Hollywood creative community and expand into the TV-series production business, RHI Entertainment has opened a programming office in Los Angeles, to be led by Tom Patricia and Elizabeth Stephen.
Tom Patricia, the executive VP of movies and mini-series, and Elizabeth Stephen, executive VP of series, will be responsible for production and development as well as co-financing opportunities, working closely with RHI’s New York creative team, including company founder and head creative executive, Robert Halmi, Sr., and senior VP of development, Lynn Holst.
“While RHI has always had a high profile in Hollywood, this new programming arm will enable us to ramp up our West Coast development and production efforts even further,” said Robert Halmi Jr., the president and CEO of RHI. “Tom and Elizabeth are extremely talented executives who have the key relationships and know how to get projects greenlit and produced. They will have an immediate and far reaching impact on RHI’s creative output.”
Patricia is an Emmy-nominated producer whose credits include Homeless to Harvard for Lifetime Television and the mini-series The Gathering. He served as senior VP for Michael Ovitz’s Artists Television Group, where he was head of the television movie and mini-series department. He also headed up TV movies and mini-series at Mandalay Entertainment. Stephen most recently was president of Mandalay Television, and served as executive producer of the Showtime series Brotherhood.
I love it when holdings, in the midst of a severe recession make smart moves to expand their business. While other are retrenching, RHI is smartly and cheaply setting up shop in LA. Many feel the move is a precursor to them getting into the “regular TV lineup” shows from the current mini-series/TV movie format they have.
I like the move as the company has a great reputation in their current format so attracting talent and getting serious looks at projects for the TV genre ought not be too difficult.
Disclosure (“none” means no position):
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Seth Klarman Files 13-HR
Klarman’s Baupost Group made some interesting additions since the February filing
News Corp “A” (NWSA) shares up from 16 million to 27 million shares
RHI Entertainment (RHIE) from 3.6 to 4.9 million shares
Domtar (UFS) from 33 million to 40 million shares
Linn Energy (LINE) from 7.9 million to 4 million shares
Disclosure (“none” means no position):
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RHI Entertainment Reports Q1
Solid quarter considering what happened in Q4 2008. The key here is the 30-50 feature still expected for 2009. It also means year results will be heavily weighted to the backside. Investment thesis unchanged by these results. Book value =$11.55 a share vs $3.34 share price
Results:
“We are enthusiastic about our prospects for 2009 as market signals suggest that our cost value proposition continues to hold its appeal,” said Robert Halmi, Jr., President and Chief Executive Officer of RHI Entertainment, Inc. (RHIE) “This quarter shows that we are effectively managing our operations, bolstering our relationships with key broadcasters and cable networks, and solidly positioning our company for growth. We also remain committed to meeting our longer-term objectives of paying down roughly $200 million in debt over four years, continuing to monetize our library, reducing overhead, and further diversifying our product mix through series programming, all of which will serve to strengthen the underlying fundamentals of our business.”
Mr. Halmi continued, “Our financial results for the first quarter reflect the natural seasonality of our business as the majority of our revenue is booked in the second half of the year. As we expected and planned for, the unfavorable market conditions that we experienced in the fourth quarter of 2008 carried over into 2009. The good news, however, is that demand for original movies and mini-series and library content from broadcast and cable networks began to come back on line in January. Since that time, we have ramped-up our production and sales efforts accordingly. Production orders from NBC, Sci-Fi, Spike and Lifetime give us confidence that we are on track to deliver a solid slate of 30 – 35 films this year. Additionally, our recent trip to Europe for the annual international MIP sales conference gives us confidence that our library remains in high demand from customers looking for high quality and attractively priced content.”
Three Months Ended March 31, 2009
Total revenue for the three months ended March 31, 2009 was $13.0 million, a reduction of 41 percent from $22.2 million in the first quarter of 2008.
Library revenue decreased 25 percent to $13.0 million in the three months ended March 31, 2009, versus $17.3 million in the first quarter of 2008. The decrease was largely due to the weak market for television content purchases in the fourth quarter of 2008, which reduced the Company’s ability to recognize library revenue in the first quarter. RHI began to see a ramp-up in demand for library content during the first quarter.
Also contributing to the decrease in library revenue was a $1.5 million reduction related to the distribution of programming on ION during the three months ended March 31, 2009 compared to the prior year period as a result of a weakened advertising market.
There was no production revenue during the first quarter of 2009, compared to $4.9 million in the prior year period. RHI significantly slowed down its production activity in the fourth quarter of 2008 due to the difficult economic conditions and did not begin any films for the 2009 slate during that quarter. As a result, no original MFT movies or original miniseries were delivered in the first quarter. This compares to five MFT movies delivered during the comparable period in 2008. The Company has since ramped-up its production process in response to increased demand beginning in the first quarter of 2009 and at present, there are eight mini-series and eighteen MFT movies in various stages of production, most of which will be delivered this year. For the full year 2009, the Company expects to deliver a slate of 30 – 35 films.
Cost of sales for the three months ended March 31, 2009 was $13.4 million, compared to $17.6 million during the comparable period of 2008. The decline in the gross profit percentage was primarily driven by costs associated with minimum guarantees under the ION arrangement and distribution expenses. The lower revenue in the first quarter of 2009 covered less of these fixed costs, resulting in the decline in the gross profit percentage. It should be noted that while the rate of margin on library revenue recognized in the quarter decreased slightly, due to the mix of films, the Company has no reason to believe that the full year margin on the 2009 slate and library product will not be consistent with prior years.
Selling, general and administrative expenses decreased $1.9 million to $11.0 million in the three months ended March 31, 2009, from $12.9 million in the same period in 2008. A significant portion of this reduction relates to severance costs incurred in the prior year period, offset by costs associated with operating as a public company. The Company has however, begun to see the benefits of its continued focus on tightly managing its overhead costs.
The Company reported a loss on Adjusted EBITDA of $34.3 million for the three months ended March 31, 2009, compared with a loss of $15.2 million in the first quarter of 2008, largely driven by decreased revenue and a ramp up in production spending during the first quarter of 2009.
Net Loss for the first quarter of 2009 totaled $12.7 million, compared to a loss of $20.2 million in the same period of 2008. The Net Loss in the first quarter of 2009 reflects the $9.3 million in non-controlling interest in loss of consolidated entity. Loss per share for the three months ended March 31, 2009 was $0.94.
Disclosure (“none” means no position):Long RHIE
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True Religion: An Update
This is an update to a Feb. 26 post on True Religion (TRLG) when shares cost $11.
In that post I said:
At its current market cap, True is valued at just under 1 times 2009 sales and just over 1 times 2008’s. Too low.
What if the recession deepens and profits actually fall? Say they fall 10%? Will the stock then trade for 5 times those earnings? Or is it likely the current price reflects a general feeling profits may fall more than currently projected and any shortfall in results will be met with a stagnant share price? Who knows but my impression is that the latter is most likely.
Think about it. If you owned the company outright and someone offered you $8.62 for it ($11 share price – the $2.38 per share you have in the company’s bank account) would you take it or tell the potential buyer where to stick it? Me too. Now reverse it. If someone owned it and offered the company for $11 and included in the price was the $2.38 in the bank would you jump at it? Me too.
Today True released results:
Net sales for the first quarter increased 19.1% to $63.6 million compared to $53.4 million in the first quarter of 2008. Growth within our consumer direct and international businesses was partially offset by a decline in our US wholesale business. Gross profit grew 27% to $38.7 million or 60.9% of net sales from $30.5 million or 57.1% of net sales in the first quarter of 2008.
Our gross margin benefitted from the ongoing segment mix shifts towards our higher margin consumer direct business and the increase in our international segment’s gross margin. This was partially offset by the planned decline in our outlet stores gross margin.
And:
Operating income for the first quarter increased 15.0% to $13.1 million or 20.5% of net sales compared to $11.4 million or 21.2% of net sales in the prior year period. The year-over-year reduction in operating margin was primarily driven by the decrease in our consumer direct segment’s operating margins.
Turning now to our segment information, within our US wholesale segment, sales for the first quarter decreased 11.0% to $28.9 million versus $32.5 million in the prior year period. The decrease in the US wholesale segment’s net sales is due to a decline in sales boutiques and majors partially offset by an increase in sales to outside customers. Michael will expand on these trends in his comments.
International sales in the first quarter increased 26.0% to $11.2 million from $8.9 million in the prior year period. The year-over-year increase is primarily due to increased sales of Japan as well as increased sales to our European and North American distributors.
Consumer direct net sales which include our branded retail stores and e-commerce site increased 95.8% during the first quarter to $23.1 million from $11.8 million in the prior year period. The growth in our consumer direct segment is attributable to the expansion of our retail stores which totaled 49 at the end of the first quarter of 2009 compared to 18 retail stores at the end of the first quarter of 2008. Our total square footage at the end of the first quarter was 88,700 square feet compared to 31,900 total square feet at the end of the first quarter of 2008.
Nothing short of fantastic….
For the rest of the year:
While it is still early in the year, we are optimistic that the earnings from these favorable trends will offset the impact as the increase in the effective tax rate and the stock-based compensation accounting method change. Therefore, we continue to expect that the company’s 2009 earnings per share will be between $1.73 and $1.81 per share with an encouraging outlook, thanks to the improved sales order trends.
Now it trades at $20 a share or 11 times the low end of their estimates. Cash per share has risen to $2.92 and debt remains a non issue.
Did I buy some back then? No. Am I kicking myself? Yes. Is there a natural instinct to go buy some today because of the this missed chance? Yes. Will I? No. Before you do something rash when investing, stop, take a breath and look at what you did do.
What did I buy instead of True? In the Feb/March time frame I bought General Growth Properties (GGWPQ) (avg. $.49/today $1.02), RHI Enterntainment (RHIE)(avg. $2.02/today $3.44), Dow Chemical (DOW) (avg. $7.25/today $15).
Note: Dow Chemical shares have been owned for years and avg. cost for all shares is different, the cost referenced reflect just those shares bought in the mentioned time period for comparison.
So on an apples to apples comparison, we are doing just fine. Am I still upset that the cash I have sitting in the account was not put to use in True? Yup. But, looking back at what I did do diminishes that angst and DOES give me confidence that I am finding great value picks out there, even if I do not always pull the trigger for whatever reason.
Should we get the sell-off I expect, the chance of me letting this one slip away again are pretty slim…
Earnings call transcript
Disclosure (“none” means no position):Long GGWPQ, DOW, RHIE, none
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Wal-Mart CEO Comments on Economy
For my money, you can ignore everything coming out of Washington on the subject and simply listen to Wal-Mart’s (WMT) CEO. Matt Laure actually does a good job here. As much as I criticize him here, he deserves kudos when deserved.
Key Points:
– “A lot of stress still in the system”
– “This is not a V recession that we just bounce out of”
– “When people start buying more expensive cuts of meat, we may be coming out of it”
– Children’s apparel sales stronger than adults. “Mom and Dad will sacrifice but they will not deny their children”
– On increasing Wii sales, “Outside entertainment is being cut back on”
Visit msnbc.com for Breaking News, World News, and News about the Economy
This goes to my assertion that the recent market rally is overblown and contrary to recent pronouncements from Obama and Bernanke (green shoots showing), we are far from the end of this.
Those buying equities today must be extremely careful they are buying them based on the actual current situation of the company, not what you HOPE the economy will be doing in 6 months to justify today’s price. After a 20% market run, should the economy be as bad as today in October (very likely), you will have discovered you overpaid today for that stock.
My recent purchases of General Growth Properties (GGP), RHI Entertainment (RHIE) and Natural Gas (UNG) (yesterday) do not depend on an economic turnaround to justify their current valuations or the case for appreciation. All three have an investment thesis independent of the overall economy and should it improve, it only enhances the thesis.
Unless we get a dramatic correction in the market, I just think that is the only play right now for the vast majority of stocks out there.
Disclosure (“none” means no position):Long all stocks listed above
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On Wall St. Media 4/7
Talking about General Growth Properties (GGP), RHI Entertainment (RHIE), Best Buy (BBY), Sears Holdings (SHLD), Bill Ackman, The Economy and the Red Sox.
Disclosure (“none” means no position):Long GGP, RHIE, SHLD, None
Thanks to Doug and the folks at Wall St. Media for chatting with me on Thursday morning.
Topics covered:
– The Economy
– FASB mark-to-market changes
– General Growth Properties (GGP)
– RHI Enterntainment (RHIE), (as of this writing up 59% since video aired). Post on it here
Disclosure (“none” means no position):Long GGP, RHIE
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The Case For RHI Entertainment
A follow up to yesterday’s post….
First, let’s get into more detail on what they really do and to find it we’ll comb the 10-K filing with the sec.
Overview
We develop, produce and distribute new made-for-television movies, mini-series and other television programming worldwide. We are the leading provider of new long-form television content, including domestic made-for-television, or MFT, movies and mini-series. We also selectively produce new episodic series programming for television. In addition to our development, production and distribution of new content, we own an extensive library of existing long-form television content, which we license primarily to broadcast and cable networks worldwide.
Our business is comprised of the licensing of new film production and the licensing of existing content from our film library in territories around the world. Licensing rights in our film library generate contractual accounts receivable. The contractual accounts receivable reflect license agreements we have entered into with third parties for rights to our film content in future periods. The ability to license our library content in this manner provides us with visibility into long-term library cash flow
Made-for-television movies
Our MFT movie franchise focuses on the production of films with dramatic, suspenseful, or more recently, action/thriller storylines which are generally two broadcast hours in length. With production costs of $1.0 to $2.0 million per broadcast hour, our MFT movies limit our financial risk with their short production cycles and pre-sales which typically recoup the majority of our cost of production. In 2007 and 2008 our pre-sales equaled 84% and 70% of our MFT movie production costs, respectively. The decline in pre-sales as a percentage of production costs reflects lower sales activity resulting from the general economic slow down in the second half of the year and our operating decision to provide exploitation windows for programming on ION Media Networks (ION) and/or pay-per-view (PPV), prior to exploitation windows on broadcast or cable networks.
MFT movies are ordered by broadcast and cable networks and have become an integral part of the broadcast strategies of these programmers. Networks license the rights to air films that meet the characteristics of the network’s genre and therefore will appeal to their viewers. In 2008, we delivered multiple MFT movies to the Hallmark Channel, Lifetime, the Sci-Fi Channel and Spike TV. In 2009, we have completed development and have begun production for several MFT movies, which have already been licensed to broadcast and cable networks.
Mini-series
Over the past 20 years, we have shaped the mini-series industry with award winning and highly-rated releases like Lonesome Dove, Gulliver’s Travels, Human Trafficking, Tin Man and Mitch Albom’s The Five People You Meet in Heaven. A mini-series is typically four broadcast hours in length and production costs are approximately $2 to $5 million per broadcast hour of content. Typically, mini-series are ordered by broadcast and cable networks on a picture-by-picture basis. In 2007, we pre-sold more than 100% of our production costs for mini-series. In 2008, the pre-sales were 80% of our production costs for mini-series, reflecting the lower sales activity resulting from the general economic slowdown in the second half of the year and our operating decision to provide exploitation windows for programming on ION as noted above.
Long-form television library
With more than 1,000 titles, comprising over 3,500 broadcast hours of long-form television programming, our library is an important source of contractual cash flow, revenue and growth for our business. Our film library is enhanced each year with the addition of new MFT movies, mini-series and other television programming as their initial licenses expire. These new productions add value to the film library and ensure that it remains current. We believe that the talent and recognizability of the actors and actresses starring in our productions, along with the subject matter, result in our library having a long shelf life. Classic MFT movies and mini-series such as Cleopatra, Alice In Wonderland, Call of the Wild, Dinotopia, Arabian Nights, Merlin, The Odyssey and The Lion in Winter are examples of our library content which have been repeatedly licensed to our customers over the last several years.
Our productions have won 105 Emmy® Awards, 15 Golden Globes Awards and eight Peabody Awards.
Now, put you thinking cap on here. The company’s top customers are the Hallmark channel and Lifetime. What risk is there that they could lose, say the Hallmark account? This why you read the 10-k notes:
On January 12, 2006, HEI Acquisition, LLC acquired all of the membership interests in Hallmark Entertainment from HEH, subject to a Purchase and Sale Agreement (PSA) dated November 29, 2005 (the Acquisition). HEI Acquisition, LLC was immediately merged with and into Hallmark Entertainment and its name was concurrently changed to RHI LLC. RHI LLC’s sole member is Holdings, a limited liability company controlled by affiliates of Kelso. (RHI owns 46% of Kelso…note mine)
The Company acquired Hallmark Entertainment in order for it to execute its business strategy. The purchase price reflects the Company’s assessment that Hallmark Entertainment could be managed more efficiently and profitably when operated independently allowing the Company to refine its business model and production strategy by focusing on the most profitable content rather than volume, broadening and diversifying the type of content that it develops, produces and distributes and exploiting new distribution opportunities.
You know the “Hallmark Original” movies you see on the channel? Yup, they make em’
A 2008 10-Q says it more clearly:
On January 12, 2006, Hallmark Entertainment Holdings, LLC (Hallmark) sold its 100% interest in Hallmark Entertainment, LLC (Hallmark Entertainment) to HEI Acquisition, LLC. HEI Acquisition, LLC was immediately merged with and into Hallmark Entertainment and its name was changed to RHI Entertainment, LLC (RHI LLC or the Predecessor Company). Subsequent to the transaction, RHI LLC’s sole member was RHI Entertainment Holdings, LLC (Holdings), a limited liability company controlled by affiliates of Kelso & Company L.P. (Kelso). RHI LLC is engaged in the development, production and distribution of made-for-television movies, mini-series and other television programming (collectively, Films).
On June 23, 2008, RHI Entertainment, Inc. (RHI Inc. or the Successor Company) completed its initial public offering (the IPO).
But in the words of Apple’s Steve Jobs “wait, there’s more”
The Hallmark Channel is owned by Crown Media Holdings (CRWN). Back to the 10-k:
On October 5, 2006, the Company entered into a definitive agreement with Crown Media to purchase Crown Media Distribution, LLC for $160.0 million (subject to certain accounts receivable adjustments). The assets of Crown Media Distribution, LLC are comprised of a completed film library consisting of approximately 550 titles and approximately 2,400 hours of programming (Crown Film Library) and trade accounts receivable.
So, you know the “Hallmark Hall of Fame” movies? Yup, they own them.From Crown’s recent 10-k
Until we sold our domestic library to RHI Entertainment LLC on December 15, 2006, we licensed our film assets to broadcasters and video distributors (pay television channel providers) who paid a license fee for the right to exhibit or distribute the programming over a certain period of time.
In short, they essentially own the content Hallmark runs on its network. Nice.
But you’ll say, “Todd, they reported a loss last year!!” Back to 10-K
We have incurred net losses in the past largely due to amortization of film production costs, inclusive of impairment charges, and interest expense on our outstanding indebtedness. During the year ended December 31, 2008, a non-cash impairment charge of $59.8 million with respect to goodwill was recorded as the result of our stock price declining significantly to a level implying a market capitalization below our book value.
Without the goodwill charge the company earned NI of $16 million or $1.23 a share.
What about that book value? As of 12/31 it stood at $7.85 a share vs a $1.89 a share stock price today or you could say the company sells at 24% of its book value.
Disclosure (“none” means no position):Will be going long RHI, none
Categories
Seth Klarman Ups RHI Stake to Over 36%
Earlier this week Klarman’s Baupost Group purchased an additional 437,000 share of RHI at $1.19 a share.
Klarman now has 36.9% of the outstanding shares.
Here is the trading data for this year.
Klarman has been in touch with management as the 13D/A stated:
“The shares were acquired for investment in the ordinary course of business. Although the Reporting Persons intend from time to time to discuss with management issues about the Issuer and its strategic direction…”
So, what is RHI Entertainment (RHIE) and what the hell do they do?
RHI Entertainment, Inc. develops, produces and distributes new made-for-television movies, mini-series and other television programming worldwide. The Company provides long-form television content, including domestic made-for-television (MFT), movies and mini-series. It also selectively produces new episodic series programming for television. In addition to its development, production and distribution of new content, it owns an library of existing long-form television content, which the Company licenses primarily to broadcast and cable networks worldwide. RHI Entertainment, Inc’s business is comprised of the licensing of new film production and the licensing of existing content from its film library in territories worldwide. Licensing rights in its film library generate contractual accounts receivable. The contractual accounts receivable reflects license agreements it has entered into with third parties for rights to its film content in future periods.
Now, this is an interesting one because a quick glance at the financials reveals nothing that would make someone jump up and say “I’ve been buying at almost 5 and now it is under two, let’s pick up a whole lot more shares”. This is, however just what Klarman did. Klarman is also one of the best investors out there now so paying attention to him makes sense.
It also makes finding out what there is about this he likes worth the time. If you know, please leave it in the comments.
Disclosure (“none” means no position):None
I thought the same thing…..who the hell is RHI Entertainment?
Klarman’s Bauposat Group filed a 13D sayigng is now has 3.4million of 25% of the shares in the company.
RHI Entertainment, Inc. develops, produces and distributes new made-for-television movies, mini-series and other television programming worldwide. The Company also selectively produces new episodic series programming for television. In addition to its development, production and distribution of new content, RHI Payment systems Ltd owns a library of existing long-form television content, which it licenses primarily to broadcast and cable networks worldwide.RHI owns rights to approximately 1,000 titles, or over 3,500 broadcast hours, of long-form television programming, the majority of which has been developed and produced by it. The Company’s customers include a variety of domestic broadcast and cable networks, such as ABC, CBS, the Hallmark Channel, Lifetime, NBC, SCI-FI Network, Spike TV and USA Network, as well as international broadcasters, including Antena-3, M6, PROSIEBEN-SAT1, TF1, Seven Network and Sky.
FULL FILING
Disclosure (“none” means no position):none
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