Exhibit 99.1
Muzak Holdings LLC Announces First Quarter Results
FORT MILL, S.C.--(BUSINESS WIRE)--May 16, 2005--Muzak Holdings
LLC ("Muzak" or the "Company"), the leading provider of business
music services in the United States, today announced financial
results for the quarter ended March 31, 2005.
Music and other business services revenue for the quarter ended
March 31, 2005 was $46.8 million, a 3.2% increase, compared to $45.4
million for the quarter ended March 31, 2004. Equipment sales and
related services revenue declined to $14.1 million in the quarter
ended March 31, 2005 as compared to $14.4 million in 2004. As a
result, total revenue for the quarter ended March 31, 2005 was $60.9
million, a 1.9% increase, compared to $59.8 million for the quarter
ended March 31, 2004.
The Company evaluates its operating performance using several
measures, two of them being EBITDA (Earnings Before Interest, Taxes,
Depreciation, and Amortization) and EBITDA as defined in our
indentures, of which the primary difference is the exclusion of
non-cash items. Since EBITDA as defined in the indentures is used to
determine our ability to incur additional indebtedness, the Company
believes it provides useful information to our investors. EBITDA was
$14.2 million for the quarter ended March 31, 2005 as compared to
$17.0 million in the quarter ended March 31, 2004. EBITDA as defined
in our indentures, which excludes non-cash items, was $14.4 million, a
decrease of $3.4 million or 19.3% as compared to $17.9 million in the
2004 period. The non-cash items excluded from EBITDA, as defined by
our indentures, were comprised of charges to reflect the write-off of
capitalized installation labor upon client contract terminations.
EBITDA is not intended to be a performance measure that should be
regarded as an alternative to, or more meaningful than, net income as
a measure of performance, as determined in accordance with generally
accepted accounting principles, known as GAAP. Net loss for the
quarter ended March 31, 2005 was $11.4 million as compared to $9.4
million in the prior year. See attached reconciliation from net loss
to EBITDA and to EBITDA as defined by the indentures.
The cancellation rate for the quarter ended March 31, 2005 was
10.1% and is consistent with 2004 levels. In addition, the Company
signed several new national clients during the first quarter including
Sprint, Ultra Diamonds, and Sports Authority. First quarter
recontracts include Texas Roadhouse, Atlantic and Pacific Tea Company,
and Steinmart.
After taking into consideration the increase in cash balances as
well as non-period related royalty payments, the Company had a net
cash use of $2.0 million during the first quarter of 2005. Such net
cash use is principally due to the increase in interest payments as a
result of the Senior Discount Notes going cash pay in September 2004.
Muzak and CVS Pharmacy, Inc. are co-defendants in a lawsuit filed
by DMX Music, Inc. in Los Angeles County Superior Court on July 25,
2003 as described in our Annual Report on Form 10-K for the year ended
December 31, 2004. On May 13, 2005, Muzak and DMX Music, Inc. entered
into a settlement and general release agreement that resolves all
claims between Muzak and DMX Music, Inc. and requires a $1.0 million
payment by Muzak to DMX Music, Inc. The cost of the settlement has
been recorded in selling, general, and administrative expenses in the
first quarter of 2005. The agreement is subject to the approval of the
United States Bankruptcy Court currently presiding over DMX Music,
Inc's Chapter 11 reorganization. Muzak believes that the Bankruptcy
court will approve the settlement terms in June 2005.
On April 15, 2005, the Company refinanced its existing Senior
Credit Facility with a $105.0 million term loan ("New Senior Credit
Facility"). A portion of the proceeds from the New Senior Credit
Facility was used to repay in full the outstanding term and revolving
loans and associated interest and to collateralize outstanding letters
of credit under the Company's then existing Senior Credit Facility,
and to pay related fees and expenses. After giving effect to the uses
of the proceeds, the refinancing provided approximately $21.0 million
in cash for business needs.
Muzak Holdings LLC will have a conference call on May 16, 2005 at
11:00 a.m. (Eastern Standard Time) to discuss first quarter 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 at 9:00
a.m on May 17, 2005. 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 our 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, 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 the Company'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 Holdings LLC
Financial Highlights
----------------------------------------
(unaudited, dollars in thousands)
Quarter Ended
3/31/2005 3/31/2004(1) % Change 12/31/2004
-------------------------------------------
Selected Operations Data
Revenues
Music and Other Business
Services $46,831 $45,383 3.2% $46,929
Equipment Sales and Related
Services 14,093 14,407 -2.2% 16,673
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Total Revenues 60,924 59,790 1.9% 63,602
-------------------------------------------
Cost of Revenues
Music and Other Business
Services 10,079 8,449 19.3% 8,311
Equipment Sales and Related
Services 13,576 13,384 1.4% 16,086
-------------------------------------------
Total Cost of Revenues 23,655 21,833 8.3% 24,397
-------------------------------------------
Selling, General and
Administrative
Amortization of Commissions 4,543 3,256 39.5% 4,328
Other Selling, General and
Administrative (2) 18,478 17,734 4.2% 18,745
-------------------------------------------
Total Selling, General
and Administrative 23,021 20,990 9.7% 23,073
-------------------------------------------
Impairment of deferred
production costs - - 6,578
Other (income) expense 12 (3) -500.0% (217)
Loss on early
extinguishment of debt - - 183
-------------------------------------------
EBITDA (3) $14,236 $16,970 -16.1% $9,588
===========================================
EBITDA Margin 23.4% 28.4% 15.1%
Other financial data
EBITDA per the indentures $14,443 $17,892 $15,976
Muzak LLC Interest Expense 10,586 8,782 10,413
Muzak Holdings LLC Interest
Expense 11,400 10,606 11,227
Muzak LLC Net Debt to 7.15x 4.98x 6.38x
EBITDA (4)
Muzak Holdings LLC Net Debt 7.57x 5.77x 6.76x
to EBITDA (4)
Balance sheet data (end of
period)
Revolving Loan $42,500 $20,000 $34,000
Muzak LLC Total Debt (5) 415,928 359,092 408,064
Muzak Holdings LLC Total
Debt (5) 440,173 416,042 432,309
(1) As previously disclosed, the Company discovered an error
pertaining to revenue and accounts receivable cutoff procedures
dating back to the time of the merger of Audio Communications
Network and Muzak Limited Partnership in March 1999. In addition,
the Company has restated its 2004 quarterly information to reflect
year end adjustments. The financial statement impact of this error
and 2004 year end adjustments for periods included within this
press release are as follows (in thousands):
Quarter ended March 31,2004
As reported Adjustment As restated
----------------------------------
Statement of Operations
Music and other business services
revenue 45,268 115 45,383
Equipment revenue 14,805 (398) 14,407
Costs of equipment revenues 12,605 779 13,384
Amortization of commissions 4,546 (1,290) 3,256
Other Selling, general, and
administrative expenses 16,554 1,180 17,734
EBITDA 17,915 (945) 16,970
Depreciation and amortization 16,140 (360) 15,780
Net loss (8,801) (592) (9,393)
(2) Selling, general, and administrative expenses for the quarter
ended March 31, 2005 include a $1.0 million charge for the
settlement with DMX Music, Inc.
(3) Represents net income before interest, income tax benefit
(expense), depreciation and amortization. The Company evaluates
performance using several measures, one of them being EBITDA as
defined by our Senior Discount Notes, Senior Subordinated Notes,
and Senior Notes indentures (the "Notes"). EBITDA is not intended
to be a performance measure that should be regarded as an
alternative to, or more meaningful than, net income as a measure
of performance, as determined in accordance with generally
accepted accounting principles, known as GAAP. However, management
believes that EBITDA provides useful information because EBITDA as
defined by our Notes indentures is used to determine our ability
to incur additional indebtedness. The following tables provides a
reconciliation from net income to EBITDA and to EBITDA as defined
in the Notes.
Three months ended
Q1 2005 Q1 2004 Q4 2004
------------ ---------- ----------
Net Loss $(11,443) $(9,393) $(16,111)
Interest expense 11,400 10,606 11,227
Taxes (52) (23) (38)
Depreciation and amortization 14,331 15,780 14,510
------------ ---------- ----------
EBITDA 14,236 16,970 9,588
------------ ---------- ----------
Non-cash items 207 922 6,388
------------ ---------- ----------
EBITDA pursuant to the Notes $14,443 $17,892 $15,976
============ ========== ==========
(4) Reflects Total Debt described in (5) below less cash divided by
EBITDA per the Notes on a Last Quarter Annualized Basis.
(5) Total Debt excludes $2.0 million of debt of a subsidiary that is
non-recourse to the Company.
CONTACT: Muzak Holdings LLC
Catherine Walsh, 803-396-3000