Movie Gallery Reports Results for the 2007 First Quarter
DOTHAN, Ala., May 11, 2007 -- Movie Gallery, Inc. (Nasdaq: MOVI) today reported
results for the first quarter ended April 1, 2007.
For the first quarter of 2007, Movie Gallery's total revenues were $647.7
million, a decrease of 6.7% from $694.4 million in the first quarter of 2006.
Total revenues were primarily impacted by a 5.9% decline in same-store total
revenues for the first quarter as compared to the first quarter of 2006. To a
lesser extent, the decrease in revenues also resulted from the reduction of the
Company's store footprint by 184 stores, or approximately 4%, year over year.
Same-store total revenues declined 4.0% at Movie Gallery branded stores and
declined 6.8% at Hollywood branded stores. The same-store total revenues at
the Hollywood brand were impacted by a 13.1% decline in same-store revenues at
the Hollywood Video segment, which was partially offset by a 26.4% increase in
same-store revenues in the Game Crazy segment.
Gross margin on rental revenue for the first quarter of 2007 was essentially
flat at 69.7% compared to 69.6% for the first quarter of 2006. The Company's
rental gross margin for the first quarter of 2006 was negatively impacted by a
charge of $6.8 million, or 1.0% of rental revenue, which was recorded to
reflect changes in rental amortization estimates in the Movie Gallery segment.
Rental gross margins in the first quarter of 2007 reflect the adverse impact
of a 17% decline in the average sales price of previously viewed DVD movies.
The Company's operating income for the first quarter of 2007 was $33.6 million
as compared to $67.5 million for the first quarter of 2006. During the first
quarter of 2007, the Company incurred additional expenses of approximately
$6.3 million, or $0.21 per share, that impacted operating income. These
expenses primarily related to our digital content and online delivery efforts,
higher professional fees, and real estate optimization initiatives.
In conjunction with the senior credit facility refinancing in the first
quarter of 2007, net interest expense included a debt extinguishment charge of
$17.5 million, or approximately $0.58 per share, to write off unamortized
deferred financing fees related to Movie Gallery's previous senior credit
facility. As a result, the Company reported a net loss of $14.9 million, or
$0.47 per share, for the first quarter of 2007 which compares to net income of
$40.3 million, or $1.27 per share, in the first quarter of 2006.
Adjusted EBITDA, which is defined as operating income plus depreciation,
amortization, non-cash stock compensation, and special items, less purchases
of rental inventory, totaled $63.5 million during the first quarter of 2007
compared to $116.8 million in the first quarter of 2006. Reconciliations of
non-GAAP financial measures are provided in the financial schedules
accompanying this press release.
As of April 1, 2007, Movie Gallery had total cash of $27 million and
availability under its credit facility of $100 million.
Management's Commentary
Thomas Johnson, Executive Vice President and Chief Financial Officer, said,
"At the end of the quarter and as previously announced, the Company entered
into a new senior secured credit facility that provides additional
flexibility to the business and significantly reduces the capital constraints
that the Company had been working under. With the new facility now in place,
we are moving forward with our strategic plans to improve the Company's
financial performance."
Joe Malugen, Chairman, President and Chief Executive Officer, said, "During
the first quarter, the rental business experienced increased pressure and was
impacted by weaker titles released to video, increasing competitive pricing
pressure, unfavorable weather and the earlier shift to daylight savings time
in 2007. Notwithstanding these challenging market conditions, we're
encouraged by several developments and ongoing initiatives. We've seen strong
demand for video games, as evidenced by our solid product sales during the
quarter, and we are pursuing a plan to increase the availability of gaming
products in an additional 500 existing Hollywood Video and Movie Gallery
stores. We are also moving forward with our plan to increase customer
convenience and satisfaction by offering content through multiple channels.
We are confident that we are taking the right steps to drive growth as we
continue to pursue initiatives to reduce expenses and reposition Movie
Gallery for the future."
Conference Call Information
Management will have a conference call today (May 11, 2007) at 11:00 a.m.
Eastern Time to discuss the quarterly financial results. To listen to the
conference, please call 1-877-340-MOVI ten minutes prior to the scheduled
start time and reference passcode MOVIE GALLERY. The call may also be accessed
on the Investor Relations section of the Company's website at:
www.moviegallery.com.
A replay of the call can be accessed by dialing 1-877-919-4059, replay
passcode 19421417 beginning immediately after the call on May 11, 2007 and
continuing through July 11, 2007. The conference call webcast will also be
archived on the Investor Relations section of the Company's web site.
About Movie Gallery
The Company is the second largest North American video rental company with
over 4,575 stores located in all 50 U.S. states and Canada operating under the
brands Movie Gallery, Hollywood Video, Game Crazy and MovieBeam. The Game
Crazy brand represents 626 in-store departments and 14 free-standing stores
serving the game market in urban locations across the United States.
MovieBeam is a movies-on-demand service that provides instant access to a
changing lineup of movies through digital delivery to the home. Since Movie
Gallery's initial public offering in August 1994, the Company has grown from
97 stores to its present size through acquisitions and new store openings.
For more information about the Company, please visit our website at:
www.moviegallery.com.
Forward Looking Statements
To take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, you are hereby cautioned that this release
contains forward-looking statements, including statements regarding the
Company's plans and intentions, with regard to operational initiatives and
the impact of the Company's new senior credit facility, that are based upon
the Company's current intent, estimates, expectations and projections and
involve a number of risks and uncertainties. Various factors exist which
may cause results to differ from these expectations. These risks and
uncertainties include, but are not limited to, risks related to the
integration of acquisitions generally and the risk factors that are
discussed from time to time in the Company's SEC reports, including, but
not limited to, the Company's annual report on Form 10-K for the fiscal
year ended December 31, 2006 and subsequently filed quarterly reports on
Form 10-Q. The Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Contacts
Analysts and Investors: Michelle K. Lewis, Movie Gallery, Inc.,
503-570-1950
Media: Andrew B. Siegel of Joele Frank, Wilkinson Brimmer Katcher,
212-355-4449 ext. 127
- tables follow -
Movie Gallery, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
Thirteen Weeks Ended
----------------------
April 2, April 1,
2006 2007
---------- ----------
Revenue:
Rentals $ 570,427 $ 511,045
Product sales 123,938 136,650
---------- ----------
Total revenue 694,365 647,695
Cost of sales:
Cost of rental revenue 173,577 155,023
Cost of product sales 93,879 103,388
---------- ----------
Gross profit 426,909 389,284
Operating costs and expenses:
Store operating expenses 311,727 307,984
General and administrative 46,941 46,964
Amortization of intangibles 733 695
Other expenses - 22
---------- ----------
Operating income 67,508 33,619
Interest expense, net (includes $17,538
write off of debt issuance costs for the
thirteen weeks ended April 1, 2007) 27,454 47,800
---------- ----------
Income (loss) before income taxes 40,054 (14,181)
Income taxes (benefit) (293) 685
---------- ----------
Net income (loss) $ 40,347 $ (14,866)
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Net income (loss) per share:
Basic $ 1.27 $ (0.47)
Diluted $ 1.27 $ (0.47)
Weighted average shares outstanding:
Basic 31,691 31,848
Diluted 31,754 31,848
Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information
($ in thousands)
Thirteen Weeks Ended
----------------------
April 2, April 1,
2006 2007
--------- -----------
Adjusted EBITDA $ 116,795 $ 63,467
Same-store revenues:
Consolidated total (6.5%) (5.9%)
- Movie Gallery (3.7%) (4.0%)
- Hollywood (7.7%) (6.8%)
Consolidated rental (7.7%) (9.7%)
- Movie Gallery (5.6%) (3.3%)
- Hollywood (8.8%) (13.7%)
Consolidated product sales (0.8%) 11.4%
- Movie Gallery 18.2% (11.0%)
- Hollywood (3.9%) 16.0%
Margin data:
Rental margin 69.6% 69.7%
Product sales margin 24.3% 24.3%
Total gross margin 61.5% 60.1%
Percent of total revenue:
Rental revenue 82.2% 78.9%
Product sales 17.8% 21.1%
Store operating expenses 44.9% 47.6%
General and administrative expenses 6.8% 7.3%
Thirteen Weeks Ended
---------------------
April 2, April 1,
2006 2007
Cash Flow Data: ---------- ---------
Net cash flow provided by
(used in)operating activities $ (20,597) $ 16,783
Net cash flow used in
investing activities (8,693) (4,228)
Net cash flow used in
financing activities (71,392) (18,172)
Balance Sheet Data:
Cash and cash equivalents $ 34,468 27,335
Merchandise inventories, net 127,049 149,008
Rental inventories, net 358,038 333,953
Accounts payable 132,976 77,750
Long-term obligation,
including current portion 1,095,506 1,100,026
Store count:
Beginning of period 4,749 4,642
New store builds 70 1
Stores acquired - -
Stores closed (46) (54)
--------- --------
End of period 4,773 4,589
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Disclosures Regarding Non-GAAP Financial Information
In this press release, we have provided a non-GAAP financial measure,
Adjusted EBITDA, which is defined as operating income plus depreciation,
amortization, non-cash stock compensation, and special items, less purchases
of rental inventory. Adjusted EBITDA is presented as an alternative measure
of operating performance that is used in making business decisions, executive
compensation, and as an alternative measure of liquidity. It is an indicator
of a company's ability to incur and service debt, finance its operations, and
meet its growth plans. However, our computation of Adjusted EBITDA is not
necessarily identical to similarly captioned measures presented by other
companies in our industry. We encourage you to compare the components of our
reconciliation of Adjusted EBITDA to operating income and our reconciliation
of Adjusted EBITDA to cash flows from operations in relation to similar
reconciliations provided by other companies in our industry. Our presentation
of net cash provided by operating activities and Adjusted EBITDA treats
rental inventory as being expensed upon purchase instead of being capitalized
and amortized. This presentation differs from our GAAP basis presentation.
We believe this presentation is meaningful and appropriate to our EBITDA
calculation, as it reflects the true cash used to acquire inventory during
the period. It also takes into consideration the similarities to recurring
merchandise inventory purchases, our operating cycle and the relatively short
useful lives of our rental inventory. Adjusted EBITDA excludes the impact of
changes in operating assets and liabilities. This adjustment eliminates
temporary effects attributable to timing differences between accrual
accounting and actual cash receipts and disbursements, and other normal,
recurring and seasonal fluctuations in working capital that have no long-term
or continuing affect on our liquidity. Investors should consider our
presentation of Adjusted EBITDA in light of its relationship to operating
income and net income in our statements of operations. Investors should also
consider our presentation of Adjusted EBITDA in light of its relationship to
cash flows from operations, cash flows from investing activities and cash
flows from financing activities as shown in our statements of cash flows.
Adjusted EBITDA is not necessarily a measure of "free cash flow" because it
does not reflect periodic changes in the level of our working capital or
investments in new store openings, business acquisitions, or other long-term
investments we may make. However, it is an important measure used internally
by executive management in making decisions about where to allocate resources.
Because we use Adjusted EBITDA as a measure of performance and as a measure
of liquidity, the tables below reconcile Adjusted EBITDA to both operating
income and net cash flow provided by operating activities, the most directly
comparable amounts reported under GAAP.
The following table provides a reconciliation of Adjusted EBITDA to operating
income:
Thirteen Weeks Ended
-----------------------
April 2, April 1,
2006 2007
---------- -----------
Operating income $ 67,508 $ 33,619
Rental amortization 65,372 49,323
Rental purchases (45,943) (42,974)
Depreciation and
intangible amortization 26,718 21,842
Stock compensation 420 709
Amendment/refinance fees 2,720 948
---------- ----------
Adjusted EBITDA $ 116,795 $ 63,467
========== ==========
The following table provides a reconciliation of Adjusted EBITDA to net cash
provided by (used in) operating activities:
Thirteen Weeks Ended
-----------------------
April 2, April 1,
2006 2007
---------- -----------
Net cash provided by
(used in) operating activities $ (20,597) $ 16,783
Changes in operating
assets and liabilities 103,140 15,493
Investment in base stock
inventory 5,903 184
Amortization of debt
issuance cost (1,532) (19,178)
Other non-cash expense - 913
Deferred income taxes - (161)
Interest expense 27,454 47,800
Income taxes (293) 685
Amendment/refinance fees 2,720 948
---------- -----------
Adjusted EBITDA $ 116,795 $ 63,467
========== ===========