RLJ Entertainment Reports Financial Results For The Quarter Ended June 30, 2016

SILVER SPRING, Md., Aug. 15, 2016

HIGHLIGHTS

Highlights and significant events for the three months ended June 30, 2016 and 2015 are as follows:

• The Acorn TV paid subscriber base increased 111.9% from 151,000 as of June 30, 2015, to 320,000 as of June 30, 2016.
• Revenues from our Direct-to-Consumer segment, which primarily consists of our proprietary SVOD channels, increased 88.8% to $4.1 million. After costs of sales and operating expenses, our Direct-to-Consumer segment contributed $1.1 million of income from continuing operations for the current period compared to a loss from continuing operations of $0.4 million for the same period last year.
• Total revenues declined 20.9% to $15.8 million. The decrease was driven by a decrease in our Wholesale revenues resulting from us having fewer releases. Despite lower revenues, gross profit increased by 39.8% to $4.8 million.
• Gross margin increased to 30.2% compared to 17.1% during the same period last year. This improvement in gross margin is primarily attributable to the growth of our proprietary SVOD channels, which deliver a higher profit margin.
• Our loss from continuing operations improved by $0.9 million to $2.8 million primarily due to our improved gross margin offset by a $0.4 million increase in stock-based compensation. Our net loss improved by $0.4 million to $0.2 million.
• Adjusted EBITDA declined by $1.5 million to a loss of $1.3 million. The decline is due to relatively higher investments in content during a period of lower revenues and lower content amortization.

Highlights and significant events for the six months ended June 30, 2016 and 2015 are as follows:

• Revenues from our Direct-to-Consumer segment, which primarily consists of our proprietary SVOD channels, increased 79.0% to $7.6 million. After costs of sales and operating expenses, our Direct-to-Consumer segment contributed $2.0 million of income from continuing operations for the current period compared to a loss from continuing operations of $1.1 million for the same period last year.
• Total revenues declined 17.2% to $33.5 million. The decrease was driven by a decrease in our Wholesale revenues resulting from us having fewer releases. Despite lower revenues, gross profit increased by 44.4% to $9.9 million.
• Gross margin increased to 29.4% compared to 16.9% during the same period last year. This improvement in gross margin is primarily attributable to the growth of our proprietary SVOD channels, which deliver a higher profit margin.
• Selling, general and administrative expenses (or SG&A) decreased by 6.8%, which is primarily attributable to a $1.4 million decrease in selling expenses. This decrease is due to lower revenues and lower theatrical-release expenses.
• Our loss from continuing operations improved by $4.1 million due to our improved gross margin and lower selling expenses. Our net loss increased by $2.5 million primarily due to the change in fair value of stock warrants and other derivatives.
• Adjusted EBITDA declined by $2.3 million to a loss of $3.8 million. The decline is due to relatively higher cash investments in content during a period of lower revenues and lower content amortization.
• Cash flows from operations improved by $11.0 million, to a $2.1 million source of cash for the six months ended June 30, 2016 compared to a use of cash of $9.0 million for the same period last year.

Robert L. Johnson, Chairman of RLJ Entertainment stated, "I am excited about the continued growth of RLJ Entertainment's proprietary streaming channels which have become a significant and strategic part of our business model. Through the acquisition of exclusive and high-quality content, we are pleased with the growth in our streaming channels Acorn TV and UMC.  While improving our margins remains a priority for management, we are focused on continuing to increase our content acquisitions for the business."

Miguel Penella, Chief Executive Officer of RLJ Entertainment, added "We completed our plan to exit the direct-to-consumer catalog business having recently entered into a licensing agreement with Universal Screen Arts to administer the Acorn U.S. catalog and e-commerce business.  We continue to prioritize our strategic initiative to expand distribution opportunities for our proprietary SVOD channels and focus on acquiring specially curated feature films and British series to enhance our viewer's experience."

Nazir Rostom, Chief Financial Officer of RLJ Entertainment stated, "We are keenly focused on increasing our proprietary SVOD subscriber base and improving gross margins.  While there was a decline in the company's overall total revenue (driven by fewer releases and exiting our direct-to-consumer business), our gross margin increased to 29.4% compared to 16.9% during the same period last year.  The increase in profit margin is primarily due to the higher revenues from our proprietary SVOD channels.  Our plans for the second half of the year include looking at various avenues to increase our liquidity position, reduce our cost of capital and improve our operating efficiency, all of which will result in maximizing shareholder's value."