Exhibit 99.1
Muzak Holdings LLC Announces Third Quarter Results and Appoints New CFO
FORT MILL, S.C.--(BUSINESS WIRE)--Nov. 14, 2006--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 September 30, 2006.
Music and other business services revenue for the quarter ended
September 30, 2006 was $47.7 million, a 0.8% increase, compared to
$47.4 million for the quarter ended September 30, 2005. Equipment
sales and related services revenue increased to $15.2 million in the
quarter ended September 30, 2006 as compared to $15.0 million in 2005.
As a result, total revenue for the quarter ended September 30, 2006
was $63.0 million, a 1.0% increase, compared to $62.3 million for the
quarter ended September 30, 2005.
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
$14.9 million for the quarter ended September 30, 2006, an increase of
$0.1 million or 0.8% as compared to $14.7 million in the quarter ended
September 30, 2005. EBITDA as defined in our indentures, which
excludes non-cash items, was $15.2 million for the quarter ended
September 30, 2006 as compared to $15.5 million in the 2005 period.
The non-cash items excluded were comprised of the write-off of
capitalized installation labor upon client contract terminations of
$0.4 million and $0.5 million in the quarters ended September 30, 2006
and 2005, respectively, and a $0.3 million reserve for capital
investments at subscriber locations that were lost or destroyed as a
result of hurricane Katrina in the quarter and nine months ended
September 30, 2005. Additionally, EBITDA for the quarter ended
September 30, 2005 includes restructuring charges of $0.3 million.
For the nine months ended September 30, 2006, the Company had
music and other business services revenue of $142.4 million, total
revenue of $183.9 million and EBITDA of $45.1 million , representing
increase (decreases) of 0.9%, (0.1%) and 17.1%, respectively, versus
the comparable 2005 period. EBITDA as defined in our indentures was
$46.5 for the nine months ended September 30, 2006, an increase of
$3.7 million or 8.7% as compared to $42.7 in the 2005 comparable
period. In addition to the items listed above for the quarter ended
September 30, 2006 and 2005, EBITDA and EBITDA as defined in our
indentures for the nine months ended September 30, 2005 include a $1.0
million settlement charge relating to the DMX lawsuit and associated
legal expenses of $0.6 million as well as a $1.7 million impairment
charge on notes receivable.
EBITDA for the quarter and nine months ended September 30, 2006
reflects the recent write off of $2.0 million of implementation and
design costs associated with the company's new enterprise resource
planning ("ERP") system. On October 11, 2006, the Company recommended,
and the Board of Directors authorized, that our relationship with the
vendor of our current operating system be extended and renewed and
that the implementation of the new ERP system be discontinued. As part
of management's ongoing assessment of the estimated costs and
anticipated benefits associated with the ERP system and its
implementation, the Company focused on projected operating
efficiencies and determined that the greatest potential efficiencies,
net of investment, could be reaped by working with our current vendor
to implement improvements to systems and processes. This write off is
included in selling, general and administrative expenses for the three
and nine months ended September 30, 2006.
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 September 30, 2006 was $10.4 million as compared to
$11.3 million in the prior year. See attached reconciliation from net
loss to EBITDA and to EBITDA as defined by the indentures.
The Company generated a net cash increase of $0.3 million and $1.9
million for the three and nine month periods ended September 30, 2006,
respectively, versus a net cash usage of $6.7 million and $16.5
million for the three and nine month period ended September 30, 2005,
respectively. The third quarter 2006 represents the fourth consecutive
quarter of positive cash flow. The cash flow improvement on a
year-over-year basis is partially attributable to lower capital
investments and the implementation of a standardized pricing
initiative, which were both key components of our revised business
plan implemented on June 24, 2005. The net investment made in new
subscriber locations was $6.9 million for the quarter ended September
30, 2006. This investment is comprised of a gross investment of $7.4
million offset by $0.5 million of installation revenue received. This
represents a 16% reduction to the third quarter 2005 net investment,
which was $8.2 million.
The Company announced on November 14, 2006 that Dodd Haynes shall
assume the duties of Chief Financial Officer of the Company effective
November 20, 2006. Mr. Haynes was most recently Vice President of
Internal Audit and Loss Prevention at Family Dollar Stores, a NYSE
listed retailer headquartered in Charlotte, North Carolina. Prior to
joining Family Dollar, Mr Haynes held various executive and managerial
positions at Goodrich Corporation and Price Waterhouse.
Muzak Holdings LLC will have a conference call on November 14,
2006 at 3:00 p.m. (Eastern Standard Time) to discuss third quarter
results. The call in number is 1-800-756-4697 and the access code is
8141. A replay of the call will be available for one week beginning at
4:00 p.m. on November 15, 2006. The replay number is 1-800-756-3819
and the access code is 216211.
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, our history of net losses, our lack of readily available
funds to borrow, our dependence on satellite delivery of our products,
our dependence on third parties to license music rights, possible
disruption poised by new business strategies and initiatives, the
impact of natural disasters on our client locations and our support
facilities, future capital requirements, the impact of competition and
technological change, the availability of cost-effective programming,
the impact of legislation and regulation, our dependence on the
contributions of key personal, the ability to control or impact client
cancellations, potential conflicts poised by the significant ownership
stake of our controlling equity holder, 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
9/30/2006 9/30/2005 % Change 6/30/2006
---------- ---------- --------- ----------
Selected Operations Data
Revenues
Music and Other Business
Services $47,743 $47,363 0.8% $47,172
Equipment Sales and
Related Services 15,218 14,974 1.6% 14,321
---------- ---------- --------- ----------
Total Revenues 62,961 62,337 1.0% 61,493
---------- ---------- --------- ----------
Cost of Revenues
Music and Other Business
Services 11,749 10,552 11.3% 11,251
Equipment Sales and
Related Services 14,928 14,654 1.9% 14,227
---------- ---------- --------- ----------
Total Cost of Revenues 26,677 25,206 5.8% 25,478
---------- ---------- --------- ----------
Selling, General and
Administrative
Amortization of
Commissions 4,042 4,364 -7.4% 4,145
Other Selling, General
and Administrative (1) 17,656 17,836 -1.0% 16,380
---------- ---------- --------- ----------
Total Selling, General
and Administrative 21,698 22,200 -2.3% 20,525
---------- ---------- --------- ----------
Restructuring Charges (2) - 373 - -
Other (income) expense (270) (179) 50.8% (372)
---------- ---------- --------- ----------
EBITDA (3) $14,856 $14,737 0.8% $15,862
========== ========== ========= ==========
EBITDA Margin 23.6% 23.6% 25.8%
Other financial data
EBITDA per the indentures $15,228 $15,478 $16,255
Muzak LLC Interest Expense 11,873 11,475 11,772
Muzak Holdings LLC
Interest Expense 12,688 12,288 12,587
Muzak LLC Net Debt to 6.94x 6.90x 6.48x
EBITDA (4)
Muzak Holdings LLC Net 7.34x 7.29x 6.88x
Debt to EBITDA (4)
Balance sheet data (end of
period)
Cash Balance (5) $19,692 $17,297 $19,387
Muzak LLC Total Debt (6) 440,988 442,556 441,053
Muzak Holdings LLC Total
Debt (6) 465,233 466,771 465,298
Muzak Holdings LLC
Financial Highlights
- ----------------------------------------------------------------------
(unaudited, dollars in thousands)
Nine months ended
9/30/2006 9/30/2005 % Change
---------- ---------- ---------
Selected Operations Data
Revenues
Music and Other Business Services $142,407 $141,142 0.9%
Equipment Sales and Related Services 41,496 42,983 -3.5%
---------- ---------- ---------
Total Revenues 183,903 184,125 -0.1%
---------- ---------- ---------
Cost of Revenues
Music and Other Business Services 34,069 31,019 9.8%
Equipment Sales and Related Services 42,587 41,680 2.2%
---------- ---------- ---------
Total Cost of Revenues 76,656 72,699 5.4%
---------- ---------- ---------
Selling, General and Administrative
Amortization of Commissions 12,268 13,339 -8.0%
Other Selling, General and
Administrative (1) 50,302 55,401 -9.2%
---------- ---------- ---------
Total Selling, General and
Administrative 62,570 68,740 -9.0%
---------- ---------- ---------
Restructuring Charges (2) 339 1,717 -
Other (income) expense (784) (289) 171.3%
Loss on early extinguishment of debt - 2,735 -
---------- ---------- ---------
EBITDA (3) $45,122 38,523 17.1%
========== ========== =========
EBITDA Margin 24.5% 20.9%
EBITDA per the indentures $46,458 $42,728
(1) Selling, general, and administrative expenses include $2.0 million
write-off of ERP system for the quarter and nine months ended
September 30, 2006. Selling, general, and administrative expenses
include $0.4 million and $1.3 million capitalized labor impairment
charges for the quarter and nine months ended September 30, 2006,
respectively and includes $0.5 million and $1.2 million capitalized
labor impairment for the quarter and nine months ended September 30,
2005, respectively. Selling, general, and administrative expenses for
the nine months ended September 30, 2005 includes a $1.0 million
charge for the settlement with DMX Music, Inc and associated legal
expenses of $0.6 million. Selling, general, and administrative
expenses include $1.7 million impairment charge on notes receivable
for the nine months ended September 30, 2005.
(2) Restructuring charges for the nine months ended September 30, 2006
include $0.3 million of severance relating to implementation of a
field management reorganization implemented in January 2006
restructuring charges for the quarter and nine months ended September
30, 2005 include $0.4 million and $1.0 million, respectively, of
severance relating to the implementation of the revised business plan
of June 24, 2005 and include $0.7 million impairment of lease
obligations due to excess capacity in certain field office locations
(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
Q3 2006 Q3 2005 Q2 2006
---------------------- ----------
Net Loss $(10,433) $(11,287) $(9,392)
Interest expense 12,688 12,288 12,587
Taxes (78) (27) (84)
Depreciation and amortization 12,679 13,763 12,751
---------------------- ----------
EBITDA 14,856 14,737 15,862
---------------------- ----------
Non-cash items 372 741 393
---------------------- ----------
EBITDA pursuant to the Notes $15,228 $15,478 $16,255
====================== ==========
Nine months ended
Q3 2006 Q3 2005
----------------------
Net Loss $(30,923) $(39,009)
Interest expense 37,715 35,824
Taxes (242) (95)
Depreciation and amortization 38,572 41,803
----------------------
EBITDA 45,122 38,523
----------------------
Non-cash items 1,336 4,205
----------------------
EBITDA pursuant to the Notes $46,458 $42,728
======================
(4) Reflects Total Debt described in (6) below less unrestricted cash
divided by EBITDA per the Notes on a Last Quarter Annualized Basis.
(5) September 30, 2006 cash balance includes restricted cash of $1.7
million, which was used to cash collateralize letters of credit
(6) Total Debt excludes $1.8 million of debt of a subsidiary that is
non-recourse to the Company.
CONTACT: Muzak Holdings LLC
Alex Brenner, 803-396-3000