Rentrak's CEO Discusses F1Q14 Results - Earnings Call Transcript

Aug. 7.13 | About: Rentrak Corporation (RENT)

Rentrak Corporation (NASDAQ:RENT)

F1Q14 Earnings Call

August 7, 2013 5:00 PM ET

Executives

Bill Livek – Vice Chairman and CEO

David Chemerow – COO and CFO

Analysts

John Crowther – Piper Jaffray

Todd Mitchell – Brean Capital

Matt Chesler – Deutsche Bank

Rich Tullo – Albert Fried & Company

Hamed Khorsand – BWS Financial

Operator

Welcome to Rentrak’s Fiscal 2014 First Quarter Financial Results Conference Call. During the call the company will be making forward-looking statements that are subject to certain risks and uncertainties. Please refer to the Safe Harbor statement contained in today’s press release and also to Rentrak’s periodic filings with the SEC for a complete discussion of those risks and uncertainties that could cause actual results to differ materially from those you might perceive today.

Additionally, Rentrak will be discussing certain non-GAAP financial results. The news release issued earlier today contains a reconciliation of these non-GAAP financial results to their most comparable GAAP measures. These reconciliations can also be found on the company’s website at www.rentrak.com. Additionally the website contains supplemental financial information that provides historical trend data in Rentrak’s various lines of business. Finally please note that the company has posted slides to accompany today’s webcast on its website at www.rentrak.com.

Now I would like to turn the call over to Bill Livek, Vice Chairman and Chief Executive Officer of Rentrak. Please go ahead, sir.

Bill Livek

Thank you operator and thank you everyone who is joining us today. You’ll be hearing from David Chemerow, our COO and CFO very shortly, a number of members of our executive management team are available participating in the question-and-answer session after our remarks.

We followed up a very strong fourth quarter, by reporting an even stronger first quarter today. Revenue growth of 24% surpassed our expectations and set a new record since the current management team that’s been in place. Both our Advanced Media Information Group and Home Entertainment grew in the mid-20% range compared with last year’s first quarter.

Within AMI, each of our business lines performed well. We have delivered on our plans to build a world-class information company, focused on measuring for movie and TV Everywhere industry. Wherever movies or TV content is being viewed, Rentrak is measuring that.

Uniquely we have built a strong competitive mode around Rentrak by marking viewers with highly valuable information of all the products they consume, the cars they drive and the lifestyles they lead with our census based currencies. We help advertisers, their agencies, the movie industry, cable and satellite providers, TV stations and networks understand how to reach consumers more effectively and importantly how to do so more profitably.

I’ll start today with Home Entertainment, which had a fantastic quarter. Two prime factors contributed to our success, first, we continued to benefit from the additional large retail customer, next we also benefit from Warner Brothers’ decision to provide store based retailers with content on the title initial release dates. We are continuing to increase our share of the market, as we show you on slide 4, on the advanced presentation.

Even though, physical rental store segment is in decline, we continue to do well. As David will discuss later, Home Entertainment is expected to grow 5% to 8% this year. We’re continuing our efforts to add new business to this segment and new services within this group. If we’re successful we’ll be able to extend our growth beyond this year. If we’re aren’t able to add new customers in these services, revenue could decline in the fourth quarter as the new rental customer and the Warner Brothers will reach for Anniversary date later this year.

Our Home Entertainment business is extremely valuable since it provides us with a large source of cash and operating income to be used for future growth in our Advanced Media businesses. Our Advanced Media business is a pure information business that has the wonderful benefit of many long-term reoccurring customer contracts.

Now, with our box-office business which is in AMI, and it’s successfully expanding its market with new product inventions. As I discussed during our last quarterly call, Rentrak has built a strong presence in China, which posted 36% box-office growth in the first half of 2013, followed by a 35% growth in 2012.

While the bulk of the ticket sales during the first half of the year came from domestic Chinese film, the China Entertainment Government body is relaxing its censorship rules, helping reduce the Red-tape for foreign content producers to enter the Chinese market. As this happens, Rentrak will profit from our census based information ramp. China represents great long-term revenue which benefiting for us.

I’m very excited about our recently launched new service in our Media area, and a partnership with two leading companies called PreAct. This service is a social media tracking tool that monitors consumer’s conversations about a movie, as early as the new performance release, if you could please look at slide 7.

The movie industry first, with PreAct, it combines these new sites with our real-time box-office information to give content creators an estimate of the effectiveness of the films pre-release marketing campaigns, and they make critical adjustments accordingly. This is a ground breaking tool, which also helps guide studio executives in choosing the optimal weekend release date with the films. We believe that this knowledge based service will become an important component of marketing campaigns for every Hollywood release.

As you know, Rentrak measures how many customers go to the movies, how much they spend and what they think about the content. More than $100 million to spend annually in movie market research and Rentrak is focused on getting its fair share of the S5, with our new think-speed of services. And this is revenue in addition to our component revenue in our movie business.

Now, I’d like to discuss our on-demand business, which is also in AMI. Even though we’ve been successful in this business for several years, our on-demand client base continues to grow. We recently signed new clients T-Ten Digital Media, CBC Television and FX Movie Channel and Vertical Entertainment. We also expanded our on-demand relationship with Vivendi Entertainment to include Digital Download Essentials, the industry’s only reporting and auditing service that provides performance intelligence and movies and television content downloaded or streamed via the internet.

We launched our Digital Download Essentials services during the quarter. This service provides studios with competitive title level purchase and rental data for digital movies from licensees such as iTunes, Amazon Instant Video, Google Play, Xbox Live, PlayStation, Wal-Mart’s Vudu service and other over-the-top providers on an aggregate basis.

So, we showed you slide 9, in the last quarter, (inaudible). I wanted to show it to you again the video to reiterate how important Rentrak VOD information is becoming in the advertising ecosystem. Let’s spend one third of all VOD television show viewership happened with the first three days of the show’s airing.

Rentrak is the only company that delivers viewing information for content watch and days forward after the shows first live aired viewing on VOD or DVR. In fact, recent comments by CBS highlight the very large audience reach by a VOD and of course measured by Rentrak, urge new series under the dome. Network show developing new business models to more actively sell advertising under 4 plus, and Rentrak is right where at helping them quantify this segment.

Given the power of the VOD median, it’s no wonder that everyone in the industry is looking at the huge advertising opportunities that it presents. Our ability to buy transparency into the VOD viewing patterns is going to play a big role in making this happen. Already, a leader in network VOD transparency, Rentrak is working hard to help our clients participate in the potential of the estimated $10 billion advertising in the Video-on-Demand.

Our initiative to gain whole title transparency is gaining momentum. To date more than three quarters of the top 50 VOD ad-network supported clients have agreed to network level transparency in more a third of those have agreed to title level transparency. Having a transparent view of the high performing VOD titles, make it easier for an ad agency and advertisers to buy this engage in highly targeted audience.

In addition, we believe, because many networks have disabled or enrolled to disable fast forwarding in VOD. Advertising on VOD should become more valuable over time.

I’ll end the discussion with our television business in AMI, which continues to show tremendous progress. Our TV system operators commonly referred to as NANO cells are a very valuable asset to Rentrak.

On the call today, we are thrilled to announced for the first time that Direct TV has become an important viewing data partner for TV services. Direct TV and Rentrak have executed a multi-year agreement with their anonymous television deal for millions of Direct TV subscribers to be integrated in Rentrak television services.

Over the next several months, Rentrak will be updating our local and national television products to look like the actual viewing data from Direct TV. Direct TV represents the second national footprint for integration into our database of Cable, Telco and Satellite operators.

Once fully implemented, Rentrak will expand its lead with measuring millions of television, day-in and day-out from every zip-code in America, the benefit of this contract to our clients and investors and numerous. Many of our customers in prospect have asked for this addition and we will proud them Direct TV, has joined our family.

Over the last several years, we built considerable business from the ground up and we now have television station clients in half of the 210 local markets in the country, which is a sizable and impressive feat. Our huge footprint can be seen on slide 10.

Our work with local advertising agencies is also spreading quite well. Over the past several months, we have signed 27 new local ad agencies, together these agencies are using Rentrak to buy television inventory in 73 markets, raising in size in Chicago to city, Rentrak has television station clients in 45 of these markets, many of them focus on the automobile sector, which is a key driver in local television station revenue.

So, Rentrak’s unique ability to render integrate automobile ownership by television program is of great interest and benefit to them. It has been our national TV business, more agencies utilize Rentrak local – as more of the agencies utilize Rentrak, local stations are induced subscribe for measurement services.

We have grown our local station client base to more than 230, and still have considerable opportunity to grow our market. Our strategy of obtaining the anchor client into the local market and signing an additional television station and local ad agencies within the market is working. So, we are continuing along the same path.

We have signed three or more television stations in 34 markets, four of the top five stations in 10 markets in all affiliates in six markets. These stations groups that we have signed for Rentrak own 37% of all local television stations in the U.S. This gives us an opportunity to grow our customer base as you can see on slide 12. And while industry consolidation is having a short-term impact on the rate of new client signings, the major consolidators are already Rentrak customers. This is a great opportunity for us since these clients have already experienced Rentrak and have shown their desire to work with us.

Now, I’ll finish our discussion on national television, which includes our network, agency and advertising business. We have built a great reputation by connecting granular television dealing information to extensive consumer buying demographics for more than 10 sources, such as Credit Sports, Auto Ownership, Retail Expenditures, we call these advanced demographics. This is a competitive advantage for Rentrak.

In the last quarter, we signed nine new television networks. And as we announced this morning, our success includes the Scripps network. Their highly respected networks include HGTV the Food Network, the Travel Channel, Great American Country, the Cooking Channel and DIY. Additionally, and we announced for the first time on this call, we have added the Weather Channel. Other networks added this quarter are pursued network integral.

As I mentioned in my discussion about local, national network growth is viewed by advertising agencies and advertisers who connect the using our census like currencies in integrated advanced demographics. As some of the agencies owned by number of way of large holding companies, recently did in the upfront planning process.

Our National Advertising business has grown nicely with new clients such as National Media Research, leading with public political ad agency, we recently signed that to our rating service to buy television for the upcoming political campaigns. Much has been written about Rentrak information having helped with democratic parties during the last Presidential Elections.

Our viewing and our political targeting offers robust information that helped Obama for a narrow cuffed plan and buy a highly effective television advertising campaign. National Media would be using our political segmentation and our TV measurement information to help plan television campaign strategies for state-wide and congressional campaigns in the 2013 and ‘14 election cycle.

In addition to National Media, we are currently working with three additional state-wide elections during this 2013 campaign cycle with our services. And expect to be doing much more in the fourth quarter as the mid-term election cycle approaches.

Political, which has been a great category for our similar to automobiles, where we can take make a model and purchase information up against TV shows that consumers watch. Slide 13, shows that many consumer segments, we are integrating a viewership information web. Census like currency, is extremely powerful with our advanced demographics and no one than Rentrak provide this.

We are also integrating our television services with ad-agency software platforms to extend the ease of use in the marketplace. Most recently, we began a relationship with Tele-America and Media, a leading media network that delivers approximately three quarters of a million ad insertions daily, yes that’s daily.

Tele America will utilize Rentrak’s stable and granular television information across the broadcast and cable network landscape to provide national brands and direct response advertisers with the more targeted view of the national and local television market to improve advertising schedules.

We are working closely with collective, a leader in understanding and delivering audiences, together we’re creating products to the ad-agency marketplace that allow advertisers to effectively supplement their television advertising campaigns with online video buys but better understanding TV reach, with the TV schedule and utilizing that information to target customers with digital offline video, most recently Zenith Media and now Search Support in use of these services within the market.

As we continue to fulfill our promise, and precisely measure the movies and TV Everywhere, and build high-value products, this will translate into continued growth of Rentrak and value for our shareholders.

Now, I’d like to turn things over to David, to look at turnover numbers for the quarter. David?

David Chemerow

Thank you, Bill. I’ll start with revenue which you’ll find on slide 15. Consolidated revenue grew 24% to $28.8 million, reflecting 25% growth in AMI and 23% growth in Home Entertainment.

Revenue in the company’s Home Entertainment segment rose to $13.1 million up from $10.6 million, for last year’s first fiscal quarter. As Bill mentioned, we benefited from the addition of a large rental customer and Warner Brothers in turn.

AMI improved to $15.8 million for fiscal 2014 first quarter, up from $12.6 million for the same period last year and represented 55% of Rentrak’s consolidated revenue up from 54% last year.

Moving to slide 16, you’ll find additional details about our AMI segment. By business lines, TV measurement grew 52% from last year’s first quarter in line with our expectation. Box-office revenue was below 8% for the quarter. OnDemand Everywhere revenue increased 24% from last year’s first quarter, reflecting new customers and the launch of our Digital Download Essentials industry product.

Moving to slide 17, consolidated gross margin was 46% for fiscal 2014 first quarter versus 50% last year. The decline related to a greater contribution from our TV Essentials business. AMI generated 72% of consolidated gross margin dollars to same as last year.

Within AMI, gross margin totaled 60% of revenue for the first quarter of fiscal 2014, down from 56% a year ago. The decline primarily related through continued faster growth in our TV business, which carried a lower gross margin into our other AMI businesses.

Bill mentioned the signing of a commercial addition deal with Direct TV, which is great strategic news. The cost of this agreement will be part of cost of goods sold of our TV business just like our other data deals. However, we do not expect to see any significant expense from this deal in this fiscal year.

Home Entertainment gross margin was 28%, which was in line with our projections. Gross margin in this business was 30% for last year’s first quarter. The decrease principally reflected a higher contribution from our PBC business, which typically has lower margins, including the addition of a major rental chain client, which has smaller margins.

Consolidated operating expenses totaled $14.2 million compared with $12.2 million last year. The change mainly reflected a 10% increase in cost, associated with the expansion of our business after offsetting a $621,000 credit related to the company’s stock based compensation agreement with DISH in the fiscal 2013 first quarter. The increase in cost is due mostly to adding employees and other expenses related to the growth in our TV business.

This brings operating loss to the first quarter of fiscal 2014 to $1 million, which included $1.4 million in stock based compensation costs, and $84,000 in acquisition related costs. For last year’s first fiscal quarter, operating loss was $644,000 which included $1.5 million in stock based compensation costs and $328,000 in acquisition and reorganization related costs, offset by the $621,000 credit related to our disagreement.

Excluding all these amounts for both periods, operating income would have been $464,000 for the fiscal 2014 first quarter versus $593,000 last year.

By segment, which is showed on slide 18, AMI operating income totaled $1.8 million or 11% of AMI revenue for fiscal 2014 first quarter versus $1.9 million or 15% of AMI revenue last year. Last year’s $1.9 million as an operating income included the $621,000 credit related to DISH. So, AMI operating income increased $1.5 million in pull with that credit.

Home Entertainment operating income totaled $2.2 million or 17% of Home Entertainment revenue for the fiscal 2014 first quarter, compared with $1.8 million or 17% of Home Entertainment revenue a year ago.

Our net loss for the first quarter of fiscal 2014 totaled $1.2 million or $0.10 per share compared with the net loss of $618,000 or $0.06 per share for last year’s first fiscal quarter. Excluding the items previously mentioned for both periods, net income would have been $292,000 or $0.03 per diluted share for the fiscal 2014 first quarter, compared with $619,000 or $0.05 per diluted share one year ago.

On slide 19, you’ll see that cash generated by operating activities was $3.3 million versus $337,000 a year ago. Cash, cash equivalents and marketable securities grew to $21.6 million at June 30, 2013 up from $20.4 million at March 31, 2013.

Off the $1.9 million in capital spending for the first quarter of fiscal 2014, $1.2 million was related to internally developed software cost in connection with our essential process and the remaining $677,000 was related to computer equipment and lease hold improvements.

We expect to incur approximately $8 million in capital spending, $5 million of which is related to internally developed software, with the remaining $3 million related to hardware purchases for fiscal 2014.

Before we move to the Q&A session, I’d like to remind you of our long-term business metrics, which can be found on slide 20. This guidance should be considered as expected trend-line growth with actual quarter-to-quarter growth being a little lumpy.

We expect the quarter to average out to our full year guidance. Our TV business is expected to grow 80% for fiscal 2014. The run-rate from our contract is currently up 72% over the first quarter of fiscal 2013. In other words, the annualized value of our current contract is 72% higher in our first fiscal quarter of last year.

Gross margins in TV, should be approximately 50% over the long-term, with variations due to fixed cost agreements. We continue to believe that our box-office business, it should grow 12% annually with some year-to-year variability. Gross margins are expected to be in the 75% range.

Now, please keep in mind that none of our major studio contacts come up for renewal in fiscal 2014, so we do not expect to benefit from any associated price increases this year. Our major contracts do come up for renewal next year. For fiscal year 2015, it should benefit from price increases on major contracts.

We believe that our OnDemand Everywhere business will increase 20% per year again with some year-to-year variability, with gross margins in the 75% range.

In our Home Entertainment business, we’ve now increased our estimates and we now expect revenue growth of approximately 5% to 8% for fiscal 2014. We continue to believe that gross margins should be approximately 27%.

In summary, and as outlined on slide 21, our home entertainment business has stabilized and has returned to growth. Our global box-office business remains the industry gold standard. China, and new product introductions like PreAct, represents great opportunities for us.

Rentrak is the only company to provide the granular census like currency to help capture the multi-billion dollar Video OnDemand advertising opportunity. Our local TV service has a long runway for growth. And strengthen our advertising agency business to drive network growth well into the future.

Bill and I both thank you for your continued support and interest in Rentrak. As a reminder, our 2013 Investor Day is scheduled for October 9, in New York City. In the meantime, we look forward to updating you again next quarter.

We’re now ready to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). And our first question comes from the line of Peter Appert with Piper Jaffray. Please go ahead.

John Crowther – Piper Jaffray

Yes, this is John Crowther on for Peter. I thought I’d first talk, you called out – mentioned on the call that you’ve had some nice momentum here recently with local ad agencies. I was wondering if you could kind of remind us of the economics of those contracts. And then, I know, on the national side, you’ve kind of been using attractive rates to get national agencies involve and using that as a pole for national TV networks. I’m just wondering if that is a similar sort of strategy or a way it plays out on the local stations? And then how are those local ad agencies using that data right now? Is it more for sort of buying efficiency or currency or guarantees?

Bill Livek

Ad agencies historically pay very little for information. It’s the classes picking up forward, the seller offers cater the research and information to induce the buyer to buy. And the ad agencies are the buyer of the television advertising. Our only focus was the large national agencies to get involved in the planning process. And we’ve done that and we continue to do that with the goal of getting into the next step of the fine process.

Local agencies have been a rather new initiative, early on, we spent our energy around television stations, now, we’re building in with the ad agencies to utilize us in a variety of different applications. Every local ad agency that we get they have a different application with us, that is to be – they buy under the idea of having a bit more constructive conversation with the television station that conclude a plan and ultimately get their TV ads on the right TV programs.

John Crowther – Piper Jaffray

Okay.

Bill Livek

There is not a lot of money there on the local ad agency side. But they’re strategically important to us.

John Crowther – Piper Jaffray

Great, I appreciate that. Just on the Scripps deal that you guys announced today. I wonder if you could just sort of help us understand the sales process there, maybe a little bit in terms of how that sort of developed with them and how they intend to use the data here. And maybe how many of the stations are currently being covered by the other competitor?

Bill Livek

As you know, Scripps is one of the largest pure television entertainment businesses with TV, food, account in the like of some of their iconic brands. They are measured by the sample currency. They put this Rentrak with the idea of utilizing our advanced demographics as of said in the press release. These are very, very valuable networks. And certain advertisers, they hit the sweet-spot of what they’re looking for.

By Rentrak integrating information like the products that their viewers buy and the cars that they own, using considerable information to negotiate ad schedules. Scripps has been a leader for many years, they were one of the first television guys, they have participated in purchase Rentrak’s Video OnDemand through their services. And that’s one of the reason we’re very excited to having joined our broad based television network services.

So, it was a long process that we went through with Scripps as these incline network process order. And it takes a while for the networks to see the usage of Rentrak in the planning up in the television up-runs. So, when we talk about Rentrak increasingly used in television up-runs, these networks go back and assess that they can have a good return on their investment with us. And we’re proud the expert of signing this contract because they believe as we do that they’ll have a very good return on their investment with us.

John Crowther – Piper Jaffray

Great, and then just one last question on the signing up of the new MSO contributing data to you guys. I’m just wondering obviously, it sounds like no expenses this year as it is sort of a ramp up phase of getting that data in processing and understanding. I’m wondering if that’s more of a fixture variable type contract going forward. And what sort of footprint does that expand your sort of coverage to maybe some statistics get up there as we get sort of 12 to 18 months out here?

Bill Livek

The beautiful thing about Direct TV is, now Rentrak has both national footprints. And as the inevitable retransmission concern battles happen, this gives us the ability to make sure that Rentrak could continue to produce products all the time regardless of the inevitable disagreements that our customer have with one another.

Direct TV does now give us information as does DISH from virtually every zip code in America, it will allow us to improve our local product and improve our national product. David, can you just comment on the financials of it.

David Chemerow

Sure. John, this is a fixed cost from arrangements that was very similar than to our AT&T and Charter arrangements that are also fixed cost.

John Crowther – Piper Jaffray

Okay, great. Thank you very much guys.

David Chemerow

Thanks John.

Operator

Thank you. Our next question comes from the line of Todd Mitchell with Brean Capital. Please go ahead.

Todd Mitchell – Brean Capital

Thank you. I would like to follow up on some more questions on the Direct TV contract. So, if you are – first of all, I wasn’t aware that Direct TV could pull all of this data back from all of their set-top boxes. So, can we assume that is this is a fixed cost deal that you’re not buying all of the Direct TV subs, you’re just buying a panel off of them similar to I think, you have a deal with TRA. So, then, also can we assume that it’s not exclusive?

Bill Livek

This deal is not exclusive. We are not going to comment on what we’re getting. But this is a far larger number of homes and television sets that anyone has. This is – we believe a very special contract that forward and siege, what anyone has access to. So, that’s why we’re particularly excited, it’s going to give us a great deal of benefit for advertisers, agencies, television networks and stations.

Todd Mitchell – Brean Capital

Can you talk about how many households it will provide you with?

David Chemerow

Todd, we will have at least 1 million households from this.

Todd Mitchell – Brean Capital

Okay. And is there any particular market, I mean, one of the things that I think you cited was, when you have re-trans battle with like DISH, then that market goes dark. And this will give you the ability to cover up that market basically, if that were to happen?

Bill Livek

Yeah, that’s true. Currently Rentrak has statistical processes that click in whenever there is re-trans battle. So, essentially we correct for those inequities within there. The Direct TV information allows us to improve those statistical corrections. But to respond more to this than precautionary desired ad that we want. It’s also the ability to merge these advanced demographics with the Rentrak service.

We believe that the consumer, the ad agencies and advertisers are galvanizing around becoming more efficient with the advanced demographics. And this is an important piece of the puzzle. And we told you for a long time that we want to have access to somewhat everyone’s operator data merged into our co-op. And this is another logical step that we serve with Direct.

Todd Mitchell – Brean Capital

Okay. So, basically, is there any – okay, so, I guess two kind of ways to go with this I guess is, is there any particular geographical markets that you would feel that you would need to walk up on now that you have both of the DPS players. I know, with DISH there were certain metropolitan markets where theoretically it would have been more desirable to have a bigger level of subscribers. Is Direct fill that hole or would you be looking now to finally kind of close the loop on a couple of major cities with a couple of MSOs?

Bill Livek

There is often a perception that DISH is more rural because that was their alerts of the large battle like DISH. And in some cases that maybe in fact the case. But with Direct that’s pretty flat footprint. And so, it doesn’t correct for any geographic inequities, it just provides greater benefit to our customers. And our customers assess to have a wider footprint. And we’re able to deliver and we believe it will cause us to create better products in the future, our customers then would be willing to pay more. So, we’re doing this as an investment, we think it’s a prudent investment for the company, if it’s our clients ask for it.

David Chemerow

And if I could add Todd, we are still in discussion with several MSOs, possible further additions. So, this is not the only – we hope this is not the only addition that we make to – on data sources.

Todd Mitchell – Brean Capital

Okay. And, will you be providing Direct TV with data on their own viewership?

Bill Livek

Not from the set-top.

Todd Mitchell – Brean Capital

Okay. And will you be providing data, I realized also the Direct and DISH, do you work together in selling affiliate inventory? Would you be working on that if they were – if that’s kind of the goals as to get involved there as well?

Bill Livek

Yeah, we don’t ever in that perspective like what would happen in the future, we just want us today focus on what we actually signed issues this great multi-year contract with Direct TV would be able to utilize their households in all of our products.

Todd Mitchell – Brean Capital

Okay, great. I will – that’s my main focus. I’ll pop back in if I have something else. Thank you.

Bill Livek

Okay, thanks. Thank you, Todd.

Operator

Thank you. Our next question comes from the line of Matt Chesler with Deutsche Bank. Please go ahead.

Matt Chesler – Deutsche Bank

Yeah. Hi, good afternoon, and thanks for taking my call. On this Direct TV deal, is it big idea of our coverage simply to – in geographies where you have MSOs and you don’t have broad covers to fill in that (inaudible), it’s a bid to improve the representation of the data, is that – am I right in thinking that that’s the primary onset of what you’re trying to do?

Bill Livek

I think that’s correct. When you think about how Rentrak builds its local service, it’s from the zip-code up with the available information. So, this basically gives us in every zip-code at least the minimum of two sources to build up against the population within those zip-codes. And in many of those zip-codes we have a cable operator that’s providing us information. And we want to continue to fill in the light space with our projection models.

So, as you know, all television information has come from a projection involved. And for more tightly in-home those projection models and the greater value the customer see with most able and most predictable ratings.

Matt Chesler – Deutsche Bank

Okay, it makes sense. Just to further understand like the nature of the data it’s where you’re getting access to. So, are you saying that you’re going to have at least 1 million households? And others who have subscribed to it, such as let’s say Kansa Media, put together service, it’s based on 100,000 – roughly 100,000 on average households from the same dataset.

So, just from a product capability standpoint, what is – what’s unique about your relationship or the data that you’re going to have access to that enables over 10X amount of data to come from the same data source?

Bill Livek

The unique feature that Rentrak brings to the market is, we are the exchange where the operators come to, to mix their special television union information together. So it’s mixed anonymously and we don’t have a Direct TV product or a DISH product in the market or an AT&T product. Rentrak has a television product that homogenizes this information together and then leaves on top of it information about the cars that those viewers owner drive, the products that they have in their cupboard, their lifestyle, their political persuasion, so advertisers and agencies can make a decision.

So, Rentrak’s business plan we believe is special. And the proof it has been importing we continue to grow it. And our customers like the progress that they’re making and we’re going to continue to focus the work we’ve been doing to get more and more customers.

Matt Chesler – Deutsche Bank

Okay, understood. And if I look at, and TV essentially switching to guidance, a little bit. You’ve been adding actually growing quarter-to-quarter by about $500,000 each quarter. And to get to your guidance as a full year implies about $1.5 million. That increase Q-on-Q for the next few quarters, that’s a step function change in the pace of revenue momentum. We can see all the press releases you’re putting out. But can you help us understand what’s leading to that step-up?

Bill Livek

Sure Matt. We’ve been working real hard within that group in terms of working up to and trying to sell new contracts. So our belief is and as we’ve looked at this and we’ve looked at this on a client-by-client basis, is that we believe we’re going to be able to achieve or exceed the figures that we cited, the 80% growth year-over-year. And we realize that is a step-up from where we are right now.

And as you take a look in each of the verticals, who we’re selling, do we expect to sell, where we are with that process, we feel good about concluding the year at that kind of level.

Matt Chesler – Deutsche Bank

Okay. And then just, in Home Entertainment, to better understand the trends in that business. What are your business leaders in that unit, selling units, they think that they can realistically accomplish in terms of sort of penetrating the retail customer base. So, you were at 39% penetration for 2012, which is state that you can take that number to 50% of the market and what would that mean for the business if you’re able to do that?

David Chemerow

We haven’t tried to project where that penetration is going but I expect it to go up a bit above where it is right now, this is we feel continue and get full year effects of what we’ve already accomplished. They’re out there trying to sell additional customers, trying to sell additional services, and that’s what not included in our forecast. And we are not willing to include that into our deal.

We’re kind of business where we want to make sure it would tell new advice and we have those contracts in today. And at this point, the working numbers, they don’t have it yet and we may or may not achieve them. So, we feel great about where they’re going, we feel great about what they’ve accomplished. But in this business, you can’t just look at the trends, you have to go look at what we accomplished.

Bill Livek

Matt, our leaders in our Home Entertainment business have performed extraordinarily well. Our leaders in all of our business lines including those behind the scenes in IT property and research have performed well. They’ve been committed to our business objectives of having home entertainment as a core business to produce a lot of cash, to grow our advanced media business, and actually just execute it well.

And this quarter, I just want to celebrate with you all investors and analysts, with the quarter that will still worked by will over a bunch of year. And this is what we want to perceive come out the other end. And we’re pretty proud.

Matt Chesler – Deutsche Bank

Great, thank you.

Operator

(Operator Instructions). Our next question comes from the line of Rich Tullo with Albert Fried & Company. Please go ahead.

Rich Tullo – Albert Fried & Company

Yes, it’s Tullo. Matt Chesler, I think has a very good career as a Senator in the U.S. Senate with a full blistering. When we look at the Direct TV, is that something you are doing because this is going to get you to the next level in signing new accounts because it seems to me like we’re – have a substantial number of households, how many households, I mean, you got over 20 million now know?

David Chemerow

We were at 25 million before Direct TV. I’m sorry, we’re 25 million TVs approximately 12 million households before Direct TV.

Rich Tullo – Albert Fried & Company

All right. And with Direct TV, it’s going to be…

David Chemerow

I think it will be at least a 1 million, so depending on what they transact to be. Yeah, we bring it from 12 million to 13 million on that business.

Bill Livek

And it’s – so, your question appears to be, did we do this because we wanted to enhance revenue and have attract new customers. The answer is absolutely. We did this because some of our customers and some of our prospects have told us that this is an important ingredient. We did an arrangement that we believe is one that’s financial prudent and has a big product benefit that will resolve from sales. So, that’s why we did it and we’re excited about it.

Rich Tullo – Albert Fried & Company

Okay. Same question, as we look at what’s going with CBS, and Time Warner and I know you guys got to be like Switzerland and be very neutral about your comments. But doesn’t what is going on suggest that no matter what the outcome is, the future of TV next year is going to really weigh heavily on generating incremental ad dollars, because it does seem like we’re kind of running out of ability to increase affiliate fees and grow content providers the increased affiliate fees and grow revenue because and they’re essentially squeezing the blood out of the stone here. Is that not somewhat correct?

Bill Livek

I love CBS, I love Time Warner Cable, they’re great partners in all of our businesses. And the consumer is figuring out a way to watch entertainment everywhere. And we’re excited about the nation business still across platforms that, is yet to play out as the consumer is finding all different ways. So, this is Rich, capital looking at its best, where it’s already mentioned the arguments we went up, being resolves, we can’t comment on it, but we love them all.

Rich Tullo – Albert Fried & Company

But doesn’t this increase demand for your services, because no matter what the outcome is? Advertising adds to the – I mean, really advertising has to take up the slack if affiliate fees are capping out, no?

Bill Livek

There, we have said many times, we believe that there will be far more fractionalization in the future than there has been in the past. Since this like for census based currencies that Rentrak created will become more and more important as viewers are finding their programming a lot more spot.

So, I’m bullish on advertising, I’m really bullish on the ad-business. And we’re going to have a strong and continue to have a strong information company that helps the buyer and seller get together on a deal and that’s what we’re doing every day.

Rich Tullo – Albert Fried & Company

And one question for David, Home Entertainment, that was a heck of a number, 23%. Is there – was there any particular titles driving that or is this kind of more of a realignment of the industry back to maybe where it was before some of these mail services were popular?

Bill Livek

All right, Rich, you and I had an argument one year ago I think of this ad. This business can be stabilized and has the modest growth. And I believe if you remember the outcome of it, we disagree. And this is the result of mortgage team doing a lot of hard work in a business that clearly as a secular decline. And we’re not going to sit here and say that physical BVBs will not decline. But we are sitting here to say we’re going to find continue to find where in the business that overall has that secular decline. We got a great team. And Rich, this is one of those businesses that we couldn’t do without great people.

Rich Tullo – Albert Fried & Company

If you want me to apologize, I apologize, you were right. It didn’t come out this year. Okay, I get it. My question was it title specific or is it, is it these little guys catching the bid from their customers?

David Chemerow

The titles were strong this quarter for us as you know in the past with us, titles are strong and these revenues may be 3% higher, 3% lower than they’d otherwise be. The bulk of it is not related to the title, the bulk of this is related as Bill said the new customer and to Warner Brothers can invest. And so that’s what Bill just quoted and that’s why he said, probably the team because it’s not the titles it’s because of what they set up is significant to happen.

Bill Livek

And also remember that a lot of the blockbuster movies that don’t do well at the box-office has a tendency to rent really well. And nice – unfortunately for the studios there was a bunch of them, fortunately for us, we should lend well. And we’ll participate that in a few of our businesses and measurement size.

Rich Tullo – Albert Fried & Company

It doesn’t – no, since we had someone like that. I mean, does that propend well for the fourth quarter, the fourth calendar year quarter?

Bill Livek

We’ll see. And as you know, from so many past quarters, with Home Entertainment, we’re comfortable giving the guidance we did for this fiscal year.

Rich Tullo – Albert Fried & Company

Yeah.

Bill Livek

And we’re going to work hard that’s all we can comment. Thank you, Rich so much.

Rich Tullo – Albert Fried & Company

Fair enough. Thank you very much for taking my questions. Bye-bye.

David Chemerow

Bye.

Operator

Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial. Please go ahead.

Hamed Khorsand – BWS Financial

Hi, just couple of questions. First one, your commentary on the call was different than on your past calls regarding seeking more data from MSOs. In past calls you had said you had enough from a statistical standpoint. So, why is it that customers are demanding more from you?

Bill Livek

In the past calls I did in fact say we had enough to build the business. As you build the business, you get to a point where you assess what else you need to break-out on the next level of growth. And some of our customer said that having Direct TV would be very helpful in having them subscribe and that’s why we went down that loop. And it’s consistent with what we’ve said in the past though is that, we are at a junction box for the industry to come and lend us through information so we can market it in high value added products.

Hamed Khorsand – BWS Financial

Okay. And are there any potential customers in the line that requested more data that you could sign on now that you have Direct TV?

Bill Livek

Well, the reason as we are comfortable giving the long-term guidance that we are on TV is expecting the take.

David Chemerow

Hamed, I think that’s also fair to say that this still fits within the guidance we’ve given it to gross margin in this business. The cost that we will pay for this is fits well within the formula, within the calculations that I’ve given you in the past of 50% profitable to build in this business. So, that part is not changing and I think we have long said, yes, we have enough statistically if we will selectively add additional MSOs as topper opportunities come up and this was a good opportunity for us.

Hamed Khorsand – BWS Financial

Okay. And are you changing any of your viewpoints here as to what’s happening on the local station from the last call you have?

David Chemerow

No, we are still on seeing some delays due to our customers being very busy working on M&A. You also aren’t clear with the $1 billion deal with Alberta and there is a whole lot of things going on. We’re working on it, we’re still accepting to gain additional business, we’re still growing in that business, we’re growing nicely we’re not growing as fast as we were a year ago. So that’s the beauty of a portfolio of verticals with our TV business, they all don’t have to be on hyper drive every quarter in order to proceed at our numbers.

Hamed Khorsand – BWS Financial

Okay. And then, my last question is, what are your expectations on the SG&A spending, I mean, you’re running right now at 49% of revenue?

David Chemerow

We think that our SG&A will continue growing up in the AMI business, somewhere to what the trends have been. And everybody has access to the chart that we have up on the website that shows the trends by quarter for the last three years and by years for the last five years. That is continuing as we continue to add resources into the TV business with sales people, customer service people, having cost to need to continue building out that business.

And as a result, we believe we’ll continue to grow that. And my belief is, for as long as our sales are growing in this 80 plus percent type of range, having SG&A growing for TV in the 10% to 25% range is not a problem.

Hamed Khorsand – BWS Financial

Do you have an internal target as to one you would reach profitability here?

David Chemerow

We’ve talked about this before and it’s the same. And that’s as Bill said, we expect to reach overall profitability for the whole company this year. And it’s fiscal ‘14 and we still expect to achieve breakeven in our TV business in at least one quarter during this year. So, we are rapidly moving in that direction as we’re bringing in more revenue. A lots fallen to the bottom line. We lost $6 million and upper in income in TV last year. And while that – what I just said, doesn’t say it’s going to zero, in order to break even one quarter, it’s got to get pretty close to that. So, you can make substantial projects this year towards making TV both neutral and then profitable.

Hamed Khorsand – BWS Financial

Okay. Thank you.

Bill Livek

Thank you. You’re welcome, Hamed.

Operator

Thank you. Our next question comes from the line of Chris (inaudible) Capital. Please go ahead.

Unidentified Analyst

Yeah, thank you. And again, like everyone else, congratulations on a good quarter. Multiple sense of good announcements and honestly a couple of surprises today. Would you expand a little bit about the integration you’re doing with ad-agencies and software platforms, I know you mentioned earlier that Tele-America Media I think was what you mentioned. But anything on Media, which end at all can you speak of any work you’re doing with them?

Bill Livek

Yeah, we’ve been working with Media Ocean until sometime. We are not fully integrated in there yet, we are in their research system. We are not in some important systems, but we’ve got a dialogue with them. They’re really great people. And we’re moving forward to come out the other end with Media outing.

Unidentified Analyst

Do you have any expectation on when you think that could be completed?

Bill Livek

No, all I can tell you is that our team is focused versus their team, to get it done. Like everything the response in the road are on these things. And I thought it would have been done a while ago, if not, but we’re working through it.

Unidentified Analyst

Fair enough. Thank you and again, congratulations.

Bill Livek

Thank you.

David Chemerow

Thanks Chris.

Unidentified Analyst

You bet.

Operator

And I’m showing no further questions in the queue at this time. I would like to turn the conference over to management for closing remarks.

Bill Livek

I would just like to thank all of you. And like always, we appreciate that you trust some of your investment dollars with Rentrak. And we look forward to seeing you on the next call or at our Investor Day, which is the next time that we’ll be visiting with you. All right, take care and thank you very much.

Operator

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.

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