Projected Return: 144% Echelon Financial….
NeuLion Inc.
Not the Red Zone Play We Were Looking For…But We’ll Take It!
Projected Return: 144%
Event: NLN entered into an agreement to sell certain DivX assets, intellectual property (IP),
and subsidiaries to an affiliate of Fortress Investment Group LLC (FIG-US, NR).
All values are
in US$ unless otherwise noted.
Investment Thesis: NLN will sell to Fortress certain DivX assets, IP, and subsidiaries that are
not core to NLN’s focus in the over-the-top (“OTT”) market. The deal should lower NLN’s opex
costs and provide capital that NLN can use to expand its presence in the global OTT arena
(another Saffron-like deal possibly?). NLN will receive $41.5M (C$0.19/shr) in cash, subject to
adjustment as specified in the Purchase Agreement. We note that NLN has C$0.24/shr in
cash already on the balance sheet. These assets accounted for ~$15.0M and $20.7M in
revenue YTD and for 2016 (out of $23.2M and $31.9M in total DivX revenue), respectively.
NLN also expects to significantly reduce employee headcount across various departments of
the Company that have been assigned to DivX, resulting in ~20% opex savings (our estimate).
The deal is expected to close during Q118. We remain patiently optimistic and would become
more constructive on our PT on a material “Red Zone” contract announcement —
management reiterated confidence in its pipeline of opportunities.
We maintain our BUY
rating and DCF-based target of C$1.00.
Focus Points:
Recurring Revenue: Recurring revenue accounts for ~65-70% of the total on a quarterly basis.
NLN generated 56% of its revenue in North America, 24% in Asia, 17% in Europe, and 2% in
Australia. We expect the geographical diversification to continue to increase as NLN adds
more international sports and entertainment content to its product mix, attracting a wider
audience.
Deliver Live Content: Through NeuLion’s Sports Platform, professional sports programming
customers are provided with the ability to deliver live and on-demand content. NLN maintains
agreements with leading sports bodies and rights holders around the world.
Positioned to Capture OTT Market Share: NLN is perfectly positioned to take advantage of
new global opportunities with its OTT technology and services enabled by the NeuLion Digital
Platform, including the consumer electronics 4K market with its NeuLion CE SDK, and the
video compression H.265 market, powered by the MainConcept line of CODEC tools.
TV Everywhere Platform: NeuLion also provides a TV Everywhere platform that allows overthe-air
and cable television broadcasters, cable operators, entertainment companies, content
aggregators, MVPDs, and BDUs to deliver their live and on-demand content to various
devices.
Turnkey Solution from One Vendor: The NeuLion Digital Platform is a proprietary, turnkey,
end-to-end, cloud-based, configurable solution that was early to market, enabling digital
content management, distribution and monetization across the entire video ecosystem —
content owners, content creators and consumers.