Form 8-K RENTRAK CORP For: Nov 06
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
�
FORM 8-K
�
CURRENT REPORT
Pursuant to Section�13 OR 15(d) of the
Securities Exchange Act of 1934
November�6, 2014
Date of Report (Date of earliest event reported)
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Rentrak Corporation
(Exact name of Registrant as specified in its charter)
�
Oregon | � | 000-15159 | � | 93-0780536 |
(State or other jurisdiction of incorporation) | � | (Commission File Number) | � | (I.R.S. Employer Identification No.) |
7700 NE Ambassador Place
Portland, Oregon 97220
(Address of Principal Executive Offices and Zip Code)
503-284-7581
(Registrants telephone number, including area code)
N/A
(Former Name or Former Address, if changed since Last Report)
�
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
� | Written communications pursuant to Rule�425 under the Securities Act (17 CFR 230.425) |
� | Soliciting material pursuant to Rule�14a-12 under the Exchange Act (17 CFR 240.14a-12) |
� | Pre-commencement communications pursuant to Rule�14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
� | Pre-commencement communications pursuant to Rule�13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item�2.02. | Results of Operations and Financial Condition. |
On November�6, 2014, Rentrak Corporation issued a press release announcing results for the three and six months ended September�30, 2014. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference. The information in this Form 8-K and the Exhibit attached hereto is furnished and shall not be deemed filed for purposes of Section�18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
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Item�9.01. | Financial Statements and Exhibits. |
(d) Exhibits
The following exhibits are furnished herewith and this list is intended to constitute the exhibit index:
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99.1 | �� | Press release dated November 6, 2014 announcing Rentrak Corporations results for its second fiscal quarter ended September 30, 2014. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November�6, 2014
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RENTRAK CORPORATION | ||||
By: | � | /s/ David I. Chemerow | ||
� | Name: | � | David I. Chemerow | |
� | Title: | � | Chief�Operating�Officer,�Chief�Financial�Officer and Secretary | |
EXHIBIT INDEX
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Exhibit No. | �� | Description |
99.1 | �� | Press release dated November 6, 2014 announcing Rentrak Corporations results for its second fiscal quarter ended September 30, 2014. |
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RENTRAK REPORTS FISCAL 2015 SECOND QUARTER FINANCIAL RESULTS
-- TV Business Revenue Increases 85 Percent;
Total Company Quarterly Revenue Growth Accelerates to 41 Percent --
PORTLAND, OR (November�6, 2014) - Rentrak Corporation (Nasdaq: RENT), the leader in precisely measuring movies and TV everywhere, today announced financial results for its second fiscal quarter ended September�30, 2014.
Revenue for Rentraks TV Everywhere" business increased 85 percent for the second quarter of fiscal 2015 to $13.3 million, up from $7.2 million for the same period last year. Total company revenue(1) increased 41 percent to $25.2 million for the second quarter of fiscal 2015, up from $17.8 million for the same period last year.
(revenue in millions) | 2Q�FY15 | 2Q�FY14 | Percent Change | |||||
TV Everywhere" | $13.3 | $7.2 | 85 | % | ||||
Movies Everywhere" | $7.4 | $6.3 | 16 | % | ||||
OnDemand Everywhere� | $3.3 | $3.2 | 6 | % | ||||
Other services* | $1.2 | $1.1 | 7 | % | ||||
Total Revenue | $25.2 | $17.8 | 41 | % | ||||
Numbers may not sum due to rounding.
* Other services includes the companys Studio Direct Revenue Share (DRS) and Home Entertainment
Essentials information businesses.
Our second quarter was solid, with accelerating quarterly total revenue growth, 85 percent gains in our TV business and 16 percent gains in our movie business, said Bill Livek, Rentraks Vice Chairman and CEO. We have generated strong momentum over the last few months, including the acquisition of WPPs Kantars U.S.-based television measurement assets, the addition of GroupM as a client and partner and the expansion of our relationship with Fox to include several of their broadcast networks. We look forward to the future with optimism as we continue to develop innovative products that provide increasing value to the entertainment and advertising industries.
Gross margin improved to 68 percent of revenue for the second quarter of fiscal 2015, up from 62 percent for the same period last year. The increase was primarily due to the growth in revenue, since the costs associated with the companys data supplier agreements are largely fixed.
Operating expenses for the second quarter of fiscal 2015 totaled $17.6 million, versus $13.5 million for the second quarter of fiscal 2014. The increase primarily related to increases in headcount and stock-based compensation expenses.
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(1) Rentraks Pay Per Transaction� (PPT�) business is now reflected in its entirety as discontinued operations as a result of the companys plan to divest this business. All periods presented have been revised to reflect this presentation. Unless otherwise noted, all discussions in this press release relate to continuing operations.
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
Page 2 of 7
Operating loss for the second quarter of fiscal 2015 was reduced to $416,000, which included $2.1 million in stock-based compensation costs, $600,000 in costs related to the contingent consideration associated with the companys acquisition of iTVX in August 2013 and $270,000 in acquisition costs. Operating loss for the second quarter of fiscal 2014 was $2.4 million, which included $1.2 million in stock-based compensation costs, $800,000 in costs related to the contingent consideration associated with the acquisition of iTVX and $106,000 in acquisition costs. Excluding these amounts for both periods, operating income would have improved significantly to $2.5 million for the second quarter of fiscal 2015, compared with a loss of $293,000 for the second quarter of fiscal 2014.
Loss from continuing operations, net of income taxes, totaled $733,000, or $0.06 per share, for the second quarter of fiscal 2015, versus a loss of $1.5 million, or $0.12 per share, for the same period last year. Excluding the costs mentioned above for both periods, as well as the net loss attributable to noncontrolling interest, income from continuing operations, net of income taxes, for the second quarter of fiscal 2015 would have been $2.3 million, or $0.17 per diluted share, compared with $386,000, or $0.03 per diluted share, for the same period last year.
Net loss, including discontinued operations, was $374,000, or $0.03 per share, for the second quarter of fiscal 2015, compared with a loss of $634,000, or $0.05 per share, for the second quarter of fiscal 2014. Excluding the costs mentioned above for both periods, net income would have been $2.6 million, or $0.19 per diluted share, compared with net income of $1.2 million, or $0.10 per diluted share, for the same period last year.
Adjusted EBITDA (a non-GAAP measure) grew to $4.3 million for the second quarter of fiscal 2015, from $1.2 million for the same period last year. The reconciliation of adjusted EBITDA to net income, the most comparable financial measure based upon GAAP, as well as a further explanation of adjusted EBITDA, is included in the financial tables at the end of this press release.
Rentrak generated $6.7 million in cash from operating activities, including discontinued operations, for the second quarter of fiscal 2015, compared with $2.9 million for the second quarter of fiscal 2014. The company generated $6.1 million in cash from operating activities, including discontinued operations, for the first half of fiscal 2015, compared with $6.2 million for the first half of fiscal 2014.
Rentraks cash, cash equivalents and marketable securities balance increased to $23.3 million at September�30, 2014, up from $22.0 million at March�31, 2014.
Rentraks recent milestones include:
" | Agreeing to acquire the assets of the U.S. television measurement business of WPP's Kantar business unit. |
" | Entering into an agreement with WPPs GroupM to provide Rentraks national and local TV measurement services to GroupMs U.S. media agencies. |
" | Expanding its agreement with Fox Networks Group to include TV ratings measurement and single source consumer data reporting for FOX Broadcasting, FX Networks and The National Geographic Channel. |
" | Working with Zenith Media to provide Rentrak's massive and passive TV currency for local television buying. |
" | Being awarded a patent for the identification of when TV sets are off but the set-top-box is on, which is crucial to the measurement of viewing based on return-path TVs. |
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Long-Term Outlook
Rentrak said that it remains confident in its ability to continue generating substantial growth in revenue, including:
" | 80 percent annual growth in its TV Everywhere" business through fiscal 2016. |
" | 15 percent annual growth in its Movies Everywhere" business for the foreseeable future, up from a prior forecast of 12 percent. |
" | 20 percent annual growth in its OnDemand Everywhere� business for the foreseeable future. |
" | 5 percent annual decline in its Other services that measure physical DVDs. |
Conference Call
Rentrak will hold a conference call at 5:00 p.m. ET/2:00 p.m. PT today to discuss its fiscal 2015 second quarter financial results. Shareholders, members of the media and other interested parties may participate in the call by dialing 866-652-5200 from the U.S. or Canada, or 412-317-6060 from international locations, conference ID 10054494. This call is being webcast and can be accessed at Rentraks web site at www.rentrak.com, where it will be archived through November 6, 2015. An audio replay of the conference call will be available until November 14, 2014 by dialing 877-344-7529 from the U.S. or Canada, or 412-317-0088 from international locations, passcode 10054494.
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
Page 3 of 7
About Rentrak Corporation
Rentrak (RENT) is the entertainment and marketing industries premier provider of worldwide consumer viewership information, precisely measuring actual viewing behavior of movies and TV everywhere. Using its proprietary intelligence and technology, combined with advanced demographics, only Rentrak is the census currency for VOD and Movies. Rentrak provides the stable and robust audience measurement services that movie, television and advertising professionals across the globe have come to rely on to better deliver their business goals and more precisely target advertising across numerous platforms including box office, multiscreen television and home video. For more information on Rentrak, please visit www.rentrak.com.
Safe Harbor Statement
The foregoing paragraphs contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by the use of forward-looking words such as should, plan, believe, expects, anticipate, or continues or the negative thereof or variations thereon or comparable terminology. Forward-looking statements in this release include, without limitation, Rentraks ability to continue generating substantial growth in its TV Everywhere" business and expected rates of growth for Rentraks Movies Everywhere" and OnDemand Everywhere� businesses, expected rate of decrease in its service that measures physical DVDs, expected completion of the acquisition of the assets of the U.S. television measurement business of WPPs Kantar business unit, and expected divestiture of the PPT� business. These forward-looking statements are based on Rentraks current expectations, estimates and projections about its business and industry, managements beliefs, and certain assumptions, all of which are subject to change. Forward-looking statements are not guarantees of future performance and Rentraks actual results may differ significantly as a result of a number of factors, including the companys ability to attract new revenue-sharing customers and retain existing customers, the companys success in maintaining its relationships with studios and other product suppliers, the companys ability to successfully develop and market new products to create new revenue streams, its ability to successfully integrate acquired businesses, and Rentraks customers continuing to comply with the terms of their agreements. Additional factors that could affect Rentraks financial results are described in Rentraks reports on Form 10-K, 10-Q and other filings with the Securities and Exchange Commission. Results of operations in any past period should not be considered indicative of the results to be expected for future periods.
RENTF
(Financial Tables Follow)
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
Page 4 of 7
Rentrak Corporation and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) | ||||||||||||||||
� | For the Three Months Ended | For the Six Months Ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenue | $ | 25,241 | $ | 17,843 | $ | 47,585 | $ | 34,525 | ||||||||
Cost of revenue | 8,040 | 6,829 | 15,644 | 13,118 | ||||||||||||
Gross margin | 17,201 | 11,014 | 31,941 | 21,407 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 14,544 | 11,332 | 27,378 | 22,186 | ||||||||||||
Research, technology and innovation | 3,073 | 2,121 | 6,337 | 3,991 | ||||||||||||
Total operating expenses | 17,617 | 13,453 | 33,715 | 26,177 | ||||||||||||
Loss from continuing operations | (416 | ) | (2,439 | ) | (1,774 | ) | (4,770 | ) | ||||||||
Other income, net | 20 | 44 | 40 | 91 | ||||||||||||
Loss from continuing operations before income taxes | (396 | ) | (2,395 | ) | (1,734 | ) | (4,679 | ) | ||||||||
Provision (benefit) for income taxes | 337 | (937 | ) | 365 | (1,262 | ) | ||||||||||
Loss from continuing operations, net of income taxes | (733 | ) | (1,458 | ) | (2,099 | ) | (3,417 | ) | ||||||||
Income from discontinued operations, net of income taxes | 308 | 802 | 655 | 1,563 | ||||||||||||
Net loss | (425 | ) | (656 | ) | (1,444 | ) | (1,854 | ) | ||||||||
Net loss attributable to noncontrolling interest | (51 | ) | (22 | ) | (104 | ) | (29 | ) | ||||||||
Net loss attributable to Rentrak Corporation | $ | (374 | ) | $ | (634 | ) | $ | (1,340 | ) | $ | (1,825 | ) | ||||
Loss per share from continuing operations attributable to Rentrak Corporation common stockholders: | ||||||||||||||||
Basic and diluted | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.16 | ) | $ | (0.28 | ) | ||||
Income per share from discontinued operations attributable to Rentrak Corporation common stockholders: | ||||||||||||||||
Basic and diluted | $ | 0.03 | $ | 0.07 | $ | 0.05 | $ | 0.13 | ||||||||
Net loss per share attributable to Rentrak Corporation common stockholders: | ||||||||||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.11 | ) | $ | (0.15 | ) | ||||
Shares used in per share calculations: | ||||||||||||||||
Basic and diluted | 12,514 | 12,104 | 12,529 | 12,083 | ||||||||||||
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
Page 5 of 7
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Rentrak Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) (Unaudited) | ||||||||
� | September�30, 2014 | March�31, 2014 | ||||||
� | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 4,476 | $ | 5,102 | ||||
Marketable securities | 18,833 | 16,868 | ||||||
Accounts receivable, net of allowances for doubtful accounts of $85 and $162 | 14,946 | 12,199 | ||||||
Taxes receivable and prepaid taxes | 122 | |||||||
Deferred tax assets, net | 38 | 44 | ||||||
Assets held for sale | 4,256 | 5,443 | ||||||
Other current assets | 1,888 | 2,818 | ||||||
Total Current Assets | 44,437 | 42,596 | ||||||
Property and equipment, net of accumulated depreciation of $25,584 and $23,785 | 20,513 | 17,891 | ||||||
Goodwill | 6,841 | 7,034 | ||||||
Other intangible assets, net of accumulated amortization of $3,837 and $3,447 | 12,156 | 12,724 | ||||||
Other assets | 1,014 | 1,022 | ||||||
Total Assets | $ | 84,961 | $ | 81,267 | ||||
Liabilities and Stockholders Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 1,654 | $ | 1,766 | ||||
Accrued liabilities | 1,275 | 370 | ||||||
Accrued data provider liabilities | 8,500 | 4,460 | ||||||
Accrued compensation | 5,445 | 6,743 | ||||||
Deferred revenue and other credits | 3,423 | 2,644 | ||||||
Liabilities held for sale | 2,995 | 3,858 | ||||||
Total Current Liabilities | 23,292 | 19,841 | ||||||
Deferred rent, long-term | 2,329 | 2,413 | ||||||
Accrued compensation, long-term | 4,800 | 4,700 | ||||||
Taxes payable, long-term | 542 | 520 | ||||||
Deferred tax liability, net, long-term | 884 | 759 | ||||||
Total Liabilities | 31,847 | 28,233 | ||||||
Commitments and Contingencies | ||||||||
Stockholders Equity: | ||||||||
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued | ||||||||
Common stock, $0.001 par value; shares authorized: 75,000 and 30,000; shares issued and outstanding: 12,342 and 12,213 | 12 | 12 | ||||||
Capital in excess of par value | 85,505 | 83,562 | ||||||
Accumulated other comprehensive income (loss) | (11 | ) | 409 | |||||
Accumulated deficit | (33,162 | ) | (31,823 | ) | ||||
Stockholders Equity attributable to Rentrak Corporation | 52,344 | 52,160 | ||||||
Noncontrolling interest | 770 | 874 | ||||||
Total Stockholders Equity | 53,114 | 53,034 | ||||||
Total Liabilities and Stockholders Equity | $ | 84,961 | $ | 81,267 | ||||
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
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Rentrak Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) | |||||||
� | For the Six Months Ended September 30, | ||||||
� | 2014 | 2013 | |||||
Cash flows from operating activities: | |||||||
Net loss | $ | (1,444 | ) | $ | (1,854 | ) | |
Income from discontinued operations, net of income taxes | (655 | ) | (1,563 | ) | |||
Adjustments to reconcile net loss to net cash flows provided by operating activities of continuing operations: | |||||||
Depreciation and amortization | 3,400 | 2,824 | |||||
Stock-based compensation | 3,862 | 3,345 | |||||
Deferred income taxes | 207 | 154 | |||||
Loss on disposition of assets | 98 | ||||||
Realized loss on marketable securities | 2 | ||||||
Adjustment to allowance for doubtful accounts | (77 | ) | (21 | ) | |||
(Increase) decrease in: | |||||||
Accounts receivable | (2,747 | ) | (512 | ) | |||
Taxes receivable and prepaid taxes | 122 | (142 | ) | ||||
Other assets | 967 | (108 | ) | ||||
Increase (decrease) in: | |||||||
Accounts payable | (112 | ) | 803 | ||||
Taxes payable | 737 | (142 | ) | ||||
Accrued liabilities and compensation | (179 | ) | 1,093 | ||||
Deferred revenue | 781 | (382 | ) | ||||
Deferred rent | (85 | ) | 64 | ||||
Net cash provided by operating activities of discontinued operations | 1,175 | 2,627 | |||||
Net cash provided by operating activities | 6,050 | 6,188 | |||||
Cash flows from investing activities: | |||||||
Purchase of marketable securities | (8,000 | ) | (2,500 | ) | |||
Sale of marketable securities | 6,000 | 1,000 | |||||
Payments made to develop intangible assets | (53 | ) | (104 | ) | |||
Purchase of property and equipment | (5,265 | ) | (3,442 | ) | |||
Net cash used in investing activities of discontinued operations | (112 | ) | |||||
Cash paid for acquisition, net of cash acquired, and equity investment | (322 | ) | |||||
Net cash used in investing activities | (7,318 | ) | (5,480 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock | 757 | 653 | |||||
Net cash provided by financing activities | 757 | 653 | |||||
Effect of foreign exchange translation on cash | (115 | ) | 261 | ||||
(Decrease) increase in cash and cash equivalents | (626 | ) | 1,622 | ||||
Cash and cash equivalents: | |||||||
Beginning of period | 5,102 | 3,835 | |||||
End of period | $ | 4,476 | $ | 5,457 | |||
Supplemental non-cash information: | |||||||
Capitalized stock-based compensation | $ | 329 | $ | 511 | |||
Common stock used to pay for option exercises | 1,485 | 69 | |||||
Common stock used to pay for taxes associated with option exercises | 990 | 32 | |||||
Common stock used to pay for taxes associated with vested restricted stock units | 2,121 | ||||||
Decrease in leasehold improvements related to forgiven loan | 550 | ||||||
Common stock used to pay for acquisition | 375 | ||||||
Rentrak Reports Fiscal 2015 Second Quarter Financial Results
November 6, 2014
Page 7 of 7
Rentrak Corporation Reconciliation of GAAP and Non-GAAP Financial Measures Adjusted EBITDA & Non-GAAP Diluted EPS (In thousands, except per share amounts) (Unaudited) | ||||||||||||||||
� | For the Three Months Ended September 30, | For the Six Months Ended September 30, | ||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net loss attributable to Rentrak Corporation | $ | (374 | ) | $ | (634 | ) | $ | (1,340 | ) | $ | (1,825 | ) | ||||
Income from discontinued operations, net of income taxes | (308 | ) | (802 | ) | (655 | ) | (1,563 | ) | ||||||||
Adjustments: | ||||||||||||||||
iTVX stock-based compensation | 600 | 800 | 100 | 800 | ||||||||||||
Reduction in valuation allowance on deferred tax assets | (324 | ) | (324 | ) | ||||||||||||
Acquisition costs | 270 | 106 | 316 | 190 | ||||||||||||
Stock-based compensation (1) | 2,072 | 1,240 | 3,762 | 2,545 | ||||||||||||
Non-GAAP net income (loss) | $ | 2,260 | $ | 386 | $ | 2,183 | $ | (177 | ) | |||||||
Provision (benefit) for income taxes | 337 | (613 | ) | 365 | (938 | ) | ||||||||||
Investment income, net | (40 | ) | (46 | ) | (101 | ) | (93 | ) | ||||||||
Depreciation and amortization | 1,745 | 1,447 | 3,400 | 2,824 | ||||||||||||
Adjusted EBITDA | $ | 4,302 | $ | 1,174 | $ | 5,847 | $ | 1,616 | ||||||||
EPS (diluted), as reported | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.11 | ) | $ | (0.15 | ) | ||||
Non-GAAP EPS (diluted) | $ | 0.17 | $ | 0.03 | $ | 0.16 | $ | (0.01 | ) | |||||||
Weighted average number of shares used in per share calculations - common stock: | ||||||||||||||||
GAAP EPS (diluted) | 12,514 | 12,104 | 12,529 | 12,083 | ||||||||||||
Non-GAAP EPS (diluted) | 13,469 | 12,462 | 13,483 | 12,083 | ||||||||||||
(1) Excludes iTVX stock-based compensation
About Non-GAAP net income, Adjusted EBITDA and Non-GAAP Diluted EPS
From time to time, Rentrak may refer to Non-GAAP net income, Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation) and non-GAAP diluted EPS in its conference calls and discussions with investors and analysts in connection with the companys reported historical financial results. Adjusted EBITDA does not represent cash flows from operations as defined by U.S. generally accepted accounting principles ( GAAP ), is not derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to Adjusted EBITDA). Non-GAAP diluted EPS does not measure diluted EPS as defined by GAAP, is not derived in accordance with GAAP and should not be considered by the reader as an alternative to reported diluted EPS. Non-GAAP Diluted EPS uses non-GAAP net income in lieu of GAAP income in calculating EPS. The reconciliation of GAAP and non-GAAP financial measures for the three and six month periods ended September�30, 2014 and 2013 are included in the above table. Rentraks management believes that Non-GAAP Diluted EPS and Adjusted EBITDA are helpful as indicators of the current financial performance of the company and its capacity to operationally fund capital expenditures and working capital requirements. Due to the nature of the companys internally-developed software policies and its use of stock-based compensation, Rentrak incurs significant non-cash charges for depreciation, amortization and stock-based compensation expense that may not be indicative of its operating performance from a cash perspective. Rentrak also adjusts for acquisition and non-recurring costs as Rentraks management believes this provides a useful metric by which to compare the performance from period to period. In addition, Rentraks management believes that these costs as well as stock-based compensation should be factored out of reported EPS in order to provide a more useful indicator of the current financial performance of the company. No tax rate was applied to these adjustments because the company has established a valuation reserve against its deferred tax assets. Due to the nature of the companys equity and stock-based compensation plans and arrangements, costs associated with acquisitions and items which are considered nonrecurring in nature, the companys diluted EPS, which includes these items, may not be indicative of its on-going operating performance.