Image Entertainment, Inc. : Image Entertainment Reports Third Quarter 2012 Financial Results

24.9% Increase in Net Revenues for Fiscal 2012 Third Quarter Over the Same Quarter in Prior Fiscal Year

CHATSWORTH, Calif.--(BUSINESS WIRE)--Feb. 14, 2012-- Image Entertainment, Inc. (OTCQB:DISK), a leading independent licensee and distributor of entertainment programming in North America, today reported financial results for its third fiscal quarter ended December 31, 2011.

"We're pleased with the results of this past quarter," stated Ted Green, Chairman of the Board and Chief Executive Officer of Image Entertainment. "We've made great strides in expanding both our digital and broadcast business. Our digital distribution revenue and broadcast revenue have both significantly increased over the same quarter last year and we look forward to that continuing."

"Our net revenue increased approximately 25% over the same quarter last year," commented John Avagliano, Chief Operating Officer and Chief Financial Officer. "While the growth in digital and broadcast met our expectation for the quarter, physical product sales exceeded our projections, primarily driven by strong sell-through at all our major retailers."

Financial Summary - Third Quarter of Fiscal 2012, Ended December 31, 2011

• Net revenues increased 24.9% to $34,553,000, compared to net revenues of $27,669,000 for the three months ended December 31, 2010. The increase in revenues was primarily as a result of stronger performance in both physical and digital formats.
  • Discs (DVD and Blu-ray) revenues increased 10.7% to $27.9 million, from $25.2 million.
  • Digital distribution revenues increased 286.9% to $4.3 million, from $1.1 million.
  • Broadcast revenues increased 43.7% to $1.6 million, from $1.1 million.
• Gross profit margins were 21.7%, compared to 23.1% for the three months ended December 31, 2010, primarily as a result of lower margins realized on new release product partially offset by higher margin digital revenues and lower manufacturing costs and freight and fulfillment expenses.
• Selling expenses approximated 5.9% of net revenues, down from 6.8% of net revenues for the three months ended December 31, 2010. The reduction resulted from increased digital and broadcast revenues, which typically carry lower selling costs as compared to physical product sales.
• General and administrative expenses were $3,361,000 compared to $3,193,000, for the three months ended December 31, 2010, and, as a percentage of consolidated net revenues, decreased to 9.7% from 11.5% for three months ended December 31, 2010. The increase in absolute costs was primarily attributable to increased legal fees and higher stock-based compensation expense.
• Income from operations was $2,080,000, compared to income from operations of $1,324,000, for the three months ended December 31, 2010.
• Other expense was $41,000, compared to other income of $1,289,000 for the three months ended December 31, 2010, primarily as a result of the change in fair value of the warrant and purchase rights.
• Net income applicable to common shareholders was $763,000 ($0.00 per diluted share), compared to a net income applicable to common shareholders of $1,388,000 ($0.01 per diluted share) for the three months ended December 31, 2010.

Fiscal Year 2012 Guidance

At this time, the Company is not providing quarterly or annual revenue guidance for fiscal 2012.

Corporate Conference Call

Image Entertainment's management will not be hosting a conference call regarding the third fiscal 2012 quarter ended December 31, 2011 financial results.

About Image Entertainment:

Image Entertainment, Inc. is a leading independent licensee and distributor of entertainment programming in North America, with approximately 3,700 exclusive DVD titles and approximately 300 exclusive CD titles in domestic release and more than 450 programs internationally via sublicense agreements. For many of its titles, the Company has exclusive audio and broadcast rights, as well as digital download rights to approximately 2,200 video programs and approximately 500 audio titles containing more than 5,700 individual tracks. The Company is headquartered in Chatsworth, California. For more information about Image Entertainment, Inc., please go to www.image-entertainment.com.

Forward-Looking Statements:

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to, among other things, the Company's goals and business strategy. All forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes and results to differ materially from current expectations.

These factors include, but are not limited to, (a) the Company's ability to borrow against its revolving line of credit, which may not have any or sufficient availability for the Company to acquire desirable programming and to operate its business, (b) the Company's ability to generate sufficient working capital from operations to fund continued content acquisitions, (c) the Company's history of losses and the potential of additional losses, (d) the Company's limited working capital and limited access to financing, (e) conditions and obligations associated with the Madacy Home Video acquisition, (f) conditions and obligations related to the move of the Company's replication and distribution arrangements, (g) changing public and consumer taste and changes in customer spending patterns, which may among other things, affect the entertainment and consumer products business generally, (h) the effect of the ongoing current economic slowdown on the willingness of consumers and retailers to purchase the Company's products, (i) changes in the mix of titles sold to customers, (j) technological developments that may affect the distribution of the Company's products or create new risks to the Company's ability to protect its intellectual property, (k) increased competitive pressures, both domestically and internationally, which may, among other things, affect the performance of the Company's business operations and profit margins, (l) changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations, which may impede the Company's access to, or increase the cost of, external financing for its operations and investments, (m) further sales or dilution of the Company's equity, which may adversely affect the market price of the Company's common stock, (n) the exertion of influence of the Company's largest stockholders over the Company's future direction, and (o) risks associated with the Company's strategy of pursuing acquisitions, joint ventures and partnering arrangements.

For further details and a discussion of these and other risks and uncertainties, see "Risk Factors" in the Company's Annual Report on Form 10-K, as amended, for the year ended March 31, 2011. Many of the factors that will determine the outcome of the subject matter of this press release are beyond Image Entertainment's ability to control or predict. Unless otherwise required by law, the Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

IMAGE ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS (unaudited) December 31, 2011 and March 31, 2011
ASSETS
(In thousands)		December 31, 2011			March 31, 2011
Current assets:
Cash		$	304		$	333
Accounts receivable, net of reserve for returns, allowances and provision for doubtful accounts of $7,293 - December 31, 2011; $8,462 - March 31, 2011			16,746			20,268
Inventories			14,027			13,709
Royalty and distribution fee advances			13,719			12,665
Prepaid expenses and other current assets			751			607
Total current assets			45,547			47,582
Noncurrent inventories, principally production costs			581			1,053
Noncurrent royalty and distribution fee advances			16,903			15,480
Property, equipment and improvements, net			752			605
Intangible assets, net			1,632			2,144
Goodwill			6,762			6,762
Other assets			86			86
Total assets		$	72,263		$	73,712

IMAGE ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS (unaudited) December 31, 2011 and March 31, 2011
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(In thousands, except share data)	December 31, 2011				March 31, 2011
Current liabilities:
Accounts payable	$	10,060			$	6,781
Accrued liabilities		5,710				7,828
Accrued royalties and distribution fees		22,280				23,055
Deferred revenue		3,697				5,331
Revolving credit facility		8,479				6,116
Current portion of long-term debt, less debt discount		623				1,795
Stock warrant		-				72
Total current liabilities		50,849				50,978
Noncontrolling interest liability		2,524				2,603
Series B cumulative preferred stock dividends accrued		5,964				3,546
Long-term debt, less current portion, less debt discount		497				1,443
Total liabilities		59,834				58,570
Commitments and Contingencies
Series B cumulative preferred stock, $0.0001 par value, 30,000 shares authorized; 22,600 issued and outstanding at December 31, 2011 and March 31, 2011, respectively, with a liquidation preference of $28.6 million and $26.1 million as of December 31, 2011 and March 31, 2011, respectively		5,839				5,839
Series C junior participating preferred stock, $0.0001 par value, 67,933.4 shares authorized at December 31, 2011 and March 31, 2011, respectively; none issued and outstanding at December 31, 2011 and March 31, 2011, respectively		-				-
Stockholders' equity:
Common stock, $0.0001 par value, 500 million shares authorized at December 31, 2011 and March 31, 2011, respectively; 256,402,000 and 255,602,000 issued and outstanding at December 31, 2011 and March 31, 2011, respectively		26				26
Additional paid-in capital		66,028				65,000
Accumulated deficit		(59,464	)			(55,723	)
Total stockholders' equity		6,590				9,303
Total liabilities, preferred stock and stockholders' equity	$	72,263			$	73,712

IMAGE ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended December 31, 2011 and 2010
	Three Months Ended December 31,
(In thousands, except per share data)	2011						2010
NET REVENUES	$	34,553		100.0	%		$	27,669		100.0		%
COST OF SALES		27,069		78.3				21,283		76.9
Gross Margin		7,484		21.7				6,386		23.1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling expenses		2,043		5.9				1,869		6.8
General and administrative expenses		3,361		9.7				3,193		11.5
Total selling, general and administrative expenses		5,404		15.6				5,062		18.3
INCOME FROM OPERATIONS		2,080		6.0				1,324		4.8
OTHER EXPENSES (INCOME):
Interest expense, net		293		0.8				315		1.1
Other expense (income)		41		0.1				(1,289	)	(4.7	)
Total other expense (income)		334		0.9				(974	)	(3.5	)
INCOME BEFORE PROVISION FOR INCOME TAXES		1,746		5.1				2,298		8.3
PROVISION FOR INCOME TAXES		144		0.4				106		0.4
NET INCOME		1,602		4.6				2,192		7.9
Dividend on Series B preferred stock		839		2.4				804		2.9
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS	$	763		2.2	%		$	1,388		5.0		%
NET INCOME PER COMMON SHARE:
Net income per common share - basic and diluted	$	0.00					$	0.01
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		255,822						135,414

IMAGE ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Nine Months Ended December 31, 2011 and 2010
	Nine Months Ended December 31,
(In thousands, except per share data)	2011							2010
NET REVENUES	$	78,225		100.0		%		$	63,301		100.0		%
COST OF SALES		60,753		77.7					49,138		77.6
Gross Margin		17,472		22.3					14,163		22.4
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling expenses		6,323		8.1					4,618		7.3
General and administrative expenses		11,319		14.5					9,662		15.3
Total selling, general and administrative expenses		17,642		22.6					14,280		22.6
INCOME (LOSS) FROM OPERATIONS		(170	)	(0.2	)				(117	)	(0.2	)
OTHER EXPENSES (INCOME):
Interest expense, net		809		1.0					621		1.0
Other expense (income)		176		0.2					(2,195	)	(3.5	)
Total other expense (income)		985		1.3					(1,574	)	(2.5	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(1,155	)	(1.5	)				1,457		2.3
PROVISION FOR INCOME TAXES		168		0.2					137		0.2
NET INCOME (LOSS)		(1,323	)	(1.7	)				1,320		2.1
Dividend on Series B preferred stock		2,418		3.1					2,240		3.5
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS	$	(3,741	)	(4.8	)	%		$	(920	)	(1.5	)	%
NET LOSS PER COMMON SHARE:
Net loss per common share - basic and diluted	$	(0.01	)					$	(0.01	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		255,675							62,587

Source: Image Entertainment, Inc.

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