RRSat Rebuilt Broadcaster Contract Backlog Last Quarter

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PARIS — Satellite video services provider RRSat Global Communications Nov. 12 said its business has emerged from the global financial downturn with a harvest of new contracts but that profit will lag from the time when satellite capacity is booked to when it is filled with customer broadcasts.

Omer, Israel-based RRSat said it signed 18 new contracts with broadcasters in the three months ending Sept. 30, a clear indication that business was returning to previous levels after nearly a year’s softness owing to the economic slowdown in many parts of the world.

In a Nov. 12 conference call with investors, RRSat Chief Executive David Rivel said the dip in profitability is due mainly to the fact that the company anticipated the arrival of new customers by booking space on several satellites and began making lease payments.

RRSat Chief Financial Officer Gil Efron said the slight lag time between the buildup of satellite inventory and the arrival of revenue-paying customers is nothing new for the company.

“We increased available [satellite] capacity in the quarter in anticipation of increased demand, as evidenced by the 18 new contracts started during the quarter,” Efron said during the conference call. “We continue to step up our satellite capacity for this demand. I remind you that in the past we have experienced such a situation … As our capacity fills, we see gross [profit] margins returning to previous levels.”

RRSat leases capacity on several dozen satellites worldwide and then resells it to customers that also purchase RRSat’s television broadcast production and distribution services. The company believes that what started as a service for small broadcasters without their own broadcast-production facilities is now appealing to larger networks as well.

During the three months ending Sept. 30, RRSat signed contracts with NBC Universal Group and Fox Sports.

Rivel said RRSat is well-placed to take advantage of the global transition to high-definition (HD) television transmissions. For most broadcasters, the transition from analog to HD format is occurring gradually. They are continuing their analog broadcasts while inaugurating HD programming. This means they need more satellite capacity and, according to RRSat, makes them more likely to outsource production and distribution.

“Our [business] model is based on the number of channels,” Rivel said. “The more channels we have on our network, the more efficient we are. We get more revenue and profit. It will take another one to three years before standard-definition television is stopped.”

Rivel said that while the early part of the year customers hesitated before signing contracts, and limiting contracts to shorter terms, in the face of an economic slowdown, they now appear to be willing to commit more quickly, and for longer-term contracts.

RRSat’s backlog of business was $171 million as of Sept. 30, about the same as it was as of June 30.

RRSat reported revenue of $24.1 million for the three months ending Sept. 30, a 7 percent increase over the previous quarter and 20 percent over the same period a year ago. Gross profit, at $7.5 million for the quarter, was up 14 percent from a year earlier but represented a gross-profit margin decline, to 31 percent from nearly 33 percent.

The company incurs some of its costs in Israeli shekels. The Israeli currency appreciated against the U.S. dollar during the quarter and this too put pressure on profit margins, Efron said.