RHI Entertainment Reports Q1

“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, Financial) “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.