Exhibit 99.1
Muzak LLC Announces Second Quarter Results
FORT MILL, S.C.--(BUSINESS WIRE)--Aug. 7, 2003--Muzak LLC ("Muzak"
or the "Company"), the leading provider of business music services in
the United States, today announced financial results for the quarter
and six months ended June 30, 2003.
Music and other business services revenue for the quarter ended
June 30, 2003 was $43.4 million, a 7.4% increase, compared to $40.4
million for the quarter ended June 30, 2002. Equipment sales and
related services revenue increased 3.9% to $14.2 million for the
quarter ended June 30, 2003 from $13.7 million in the comparable 2002
period. As a result, total revenue for the quarter ended June 30, 2003
was $57.6 million, a 6.5% increase, compared to $54.1 million for the
quarter ended June 30, 2002.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization) was $12.7 million for the quarter ended June 30, 2003, a
decrease of $1.7 million or 11.7%, compared to $14.4 million in the
quarter ended June 30, 2002. Excluding a 2003 charge of $5.1 million
for loss on early extinguishment of debt (see paragraph below for a
summary of the financing transaction) and a 2002 charge of $3.1
million relating to an accrual for prior period licensing royalties
and related expenses, EBITDA increased 1.4% during the quarter ended
June 30, 2003 as compared to the 2002 period. The Company believes
that EBITDA is a meaningful measure of the cash flows available to
invest in new client locations and to service its debt obligations.
See attached reconciliation of cash flows from operating activities to
EBITDA.
For the six months ended June 30, 2003, the Company had music and
other business services revenue of $86.0 million, total revenue of
$114.3 million, and EBITDA of $30.4 million, representing increases of
7.6%, 8.8%, and 1.4%, respectively over the comparable 2002 period.
Excluding the charges referenced above as well as a 2002 charge of
$0.5 million relating to a postponed financing transaction, EBITDA
increased 5.4% in the six months ended June 30, 2003 as compared to
the 2002 period.
On May 20, 2003, the Company completed a private placement for
$220 million of 10% Senior Notes due 2009. The Company used the
proceeds to repay its then existing revolving credit facility, senior
term loans, certain other debt, and to make a distribution to Muzak
Holdings LLC to enable Muzak Holdings to repurchase a portion of the
13% Senior Discount Notes due 2010.
"Our recurring revenue growth is consistent with historical
periods and validates the stability of our recurring revenue base. We
signed several new national clients during the second quarter,
including British Petroleum, Rock Bottom restaurants, and Coldstone
Creamery. In addition, we have been successful in recontracting and
selling additional services to several of our national clients. The
increase in equipment sales revenue reflects our targeted efforts to
develop our equipment sales consistent with our continued growth in
recurring revenue," commented Bill Boyd, Chief Executive Officer.
"We experienced a decrease in our annualized cancellation rate to
9.4% in the first six months of 2003 from 9.9% in the 2002 comparable
period, a $0.6 million positive EBITDA impact on an annualized basis.
Our ongoing cost cutting initiatives have helped offset our targeted
investment in sales management and support positions, commission
expenses associated with higher one time equipment revenues, and
rising costs of corporate insurance. Our selling, general, and
administrative expenses as a percentage of revenues have remained flat
at 28.4% for the six months ended June 30, 2003 vs. the prior year.
The full impact on our financial performance of our targeted
investment in sales management and support positions is currently
suppressed due to a significant increase in backlog. We expect this
backlog to decrease in the second half of the year, thereby increasing
the visibility of our successful sales efforts. The financing
transaction extends 99% of the debt maturities to 2009 and beyond,
thus enhancing financial flexibility, and provides sufficient
liquidity to fund organic growth for the foreseeable future,"
commented Stephen Villa, Chief Operating Officer.
Muzak LLC will have a conference call on August 7, 2003 at 3:00
p.m. (Eastern Daylight Time) to discuss second quarter 2003 results.
The call in number is 1-800-756-4697 and the access code is 0801. A
replay of the call will be available for one week beginning on August
8, 2003. The replay number is 1-800-756-3819 and the access code is
080100.
Muzak, the leading audio imaging company, enhances brands and
creates experiences with AUDIO ARCHITECTURE(TM) and MUZAK VOICE(TM).
More than 100 million people hear Muzak programs each day. We deliver
music, messaging, and sound system design through more than 200 sales
and service locations.
The above statements include forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Some of these statements can be
identified by terms and phrases such as "anticipate", "believe",
"intend", "expect", "anticipate", "could", "may", "will" and similar
expressions and include references to assumptions that the Company
believes are reasonable and relate to its future prospects,
developments and business strategies. Forward-looking statements
involve risks and uncertainties, including, but not limited to those
related to the Company's substantial leverage and debt service
requirements, restrictions imposed by the terms of the Company's
indebtedness, the Company's history of net losses, the Company's
dependence on satellite delivery of its products and on license
agreements, the Company's ability to integrate acquisitions, future
capital requirements, the impact of competition and technological
change, the availability of cost-effective programming, the impact of
legislation and regulation, risks associated with the effect of
general economic conditions and the other factors discussed in Muzak
Holdings LLC's filings with the Securities and Exchange Commission.
Actual results could differ materially from these forward-looking
statements. The Company undertakes no obligation to update these
forward-looking statements.
Muzak LLC
Financial Highlights
--------------------
(unaudited, dollars in thousands)
Quarter
Quarter Ended Ended
6/30/2003 6/30/2002 % Change 3/31/2003
---------- ---------- --------- ----------
Selected Operations Data
Revenues
Music and Other Business
Services $43,388 $40,406 7.4% $42,642
Equipment Sales and
Related Services 14,195 13,663 3.9% 14,048
---------- ---------- -------- ----------
Total Revenues 57,583 54,069 6.5% 56,690
---------- ---------- -------- ----------
Cost of Revenues
Music and Other Business
Services (1) 7,936 10,888 -27.1% 7,784
Equipment Sales and
Related Services 11,966 11,043 8.4% 11,289
---------- ---------- -------- ----------
Total Cost of Revenues 19,902 21,931 -9.3% 19,073
---------- ---------- -------- ----------
Selling, General and
Administrative
Amortization of
Commissions 3,869 3,042 27.2% 3,617
Other Selling, General and
Administrative 16,100 14,809 8.7% 16,333
---------- ---------- -------- ----------
Total Selling,
General and
Administrative 19,969 17,851 11.9% 19,950
---------- ---------- -------- ----------
Other income (51) (79) -35.4% (30)
Loss on early
extinguishment on
debt (2) 5,078 - -
EBITDA (3) $12,685 $14,366 -11.7% $17,697
========== ========== ==========
EBITDA Margin (3) 22.0% 26.6% 31.2%
Cash flows from operating
activities $ 2,856 $ 7,908 $ 9,164
Balance sheet data
(end of period)
Total Assets $470,538 $482,019 $466,907
Revolving Loan 7,500 19,800 26,300
Muzak LLC Total Debt (4) 345,555 312,655 314,829
Other financial data
Muzak LLC Interest Expense $7,794 $7,012 $6,576
Muzak LLC Net Debt to 4.87x 5.47x 4.45x
EBITDA (5)
Muzak Holdings LLC Net Debt 5.60x 6.53x 5.39x
to EBITDA (5)
- ----------------------------------------------------------------------
(1) Cost of music and other business services includes $3.1 million
relating to an accrual for prior period licensing royalties and
related expenses in the quarter ended June 30, 2002
(2) Loss on early extinguishment of debt includes the write-off of
financing fees
(3) Represents net income before interest, income tax benefit
(expense), depreciation and amortization. The Company evaluates
liquidity using several measures, one of them being EBITDA. EBITDA
is not intended to be a liquidity measure that should be regarded
as an alternative to, or more meaningful than, cash flow from
operations as a measure of liquidity, as determined in accordance
with generally accepted accounting principles, known as GAAP.
However, management believes that EBITDA is a meaningful measure
of liquidity that is commonly used in similar industries to
analyze and compare companies on the basis of leverage and
liquidity, however it is not necessarily comparable to similar
titled amounts of other companies. The following table provides a
reconciliation of cash flows from operations to EBITDA.
Three months ended
Q2 2003 Q2 2002 Q1 2003
---------- ---------- ----------
Cash flows from continuing operating
activities $2,856 $7,908 $9,164
Loss on early extinguishment of debt (5,078) - -
Interest expense net of amortization 7,203 6,503 6,035
Change in working capital 6,182 (1,143) 1,546
Current taxes expense 299 73 54
Unearned installation revenue 10 319 (8)
Amortization of deferred subscriber
acquisition costs (3,869) (3,043) (3,617)
Deferred subscriber acquisition costs 5,080 3,747 4,517
Gain on disposal of fixed assets 2 2 6
---------- ---------- ----------
EBITDA $12,685 $14,366 $17,697
---------- ---------- ----------
EBITDA margin reflects EBITDA divided by total revenues
(4) Total debt excludes $2.1 million of debt of a subsidiary that is
non-recourse to the Company.
(5) Reflects Total Debt described in (3) above less cash divided by
EBITDA adjusted for non-cash items on a Last Quarter Annualized
Basis. Pursuant to the Company's indentures under which it has
notes outstanding, non-cash items reducing or increasing
consolidated net income are excluded from EBITDA for purposes of
calculating the consolidated leverage ratio
Muzak LLC
Financial Highlights
--------------------
(unaudited, dollars in thousands)
Six Months ended
6/30/2003 6/30/2002 % Change
---------- ---------- ---------
Selected Operations Data
Revenues
Music and Other Business Services $86,030 $79,946 7.6%
Equipment Sales and Related Services 28,243 25,086 12.6%
---------- ---------- ---------
Total Revenues 114,273 105,032 8.8%
---------- ---------- ---------
Cost of Revenues
Music and Other Business Services (1) 15,720 18,648 -15.7%
Equipment Sales and Related Services 23,255 20,601 12.9%
---------- ---------- ---------
Total Cost of Revenues 38,975 39,249 -0.7%
---------- ---------- ---------
Selling, General and Administrative
Amortization of Commissions 7,486 5,921 26.4%
Other Selling, General and
Administrative (2) 32,433 30,001 8.1%
---------- ---------- ---------
Total Selling, General and
Administrative 39,919 35,922 11.1%
---------- ---------- ---------
Other income (81) (91) -11.0%
Loss on early extinguishment of debt 5,078 -
EBITDA (3) $30,382 $29,952 1.4%
========== ==========
EBITDA Margin (3) 26.6% 28.5%
Cash flows from operating activities $12,020 $12,576
(1) Cost of music and other business services includes $3.1 million
relating to an accrual for prior period licensing royalties and
related expenses in the six months ended June 30, 2002
(2) Other selling, general, and administrative expenses include $0.5
million relating to a postponed financing transaction in the six
months ended June 30, 2002.
(3) Represents net income before interest, income tax benefit
(expense), depreciation and amortization. The Company evaluates
liquidity using several measures, one of them being EBITDA. EBITDA
is not intended to be a liquidity measure that should be regarded
as an alternative to, or more meaningful than, cash flow from
operations as a measure of liquidity, as determined in accordance
with generally accepted accounting principles, known as GAAP.
However, management believes that EBITDA is a meaningful measure
of liquidity that is commonly used in similar industries to
analyze and compare companies on the basis of leverage and
liquidity, however it is not necessarily comparable to similar
titled amounts of other companies. The following table provides a
reconciliation of cash flows from operations to EBITDA.
Six months ended
Q2 2003 Q2 2002
---------- ----------
Cash flows from continuing operating activities $12,020 $12,576
Loss on early extinguishment of debt (5,078) -
Interest expense net of amortization 13,238 13,848
Change in working capital 7,728 1,401
Current taxes expense 353 73
Unearned installation revenue 2 737
Amortization of deferred subscriber acquisition
costs (7,486) (5,922)
Deferred subscriber acquisition costs 9,597 7,226
Gain on disposal of fixed assets 8 13
---------- ----------
EBITDA $30,382 $29,952
---------- ----------
EBITDA margin reflects EBITDA divided by total revenues
CONTACT: Muzak LLC
Catherine Walsh, 803-396-3000