DOTHAN, Ala., March 19, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Movie Gallery, Inc.
(Nasdaq: MOVI) today reported results for the fourth quarter and full year
ended December 31, 2006.
2006 and Recent Highlights
The Company has achieved a number of important objectives that
significantly improve Movie Gallery's overall financial strength and enhance
its prospects for success, including:
-- Completed the refinancing of its senior secured credit facility,
strengthening the Company's capital structure, providing greater
liquidity and reducing annualized cash interest expense.
-- Acquired MovieBeam, which provides the Company with a compelling
technology platform to enable digital content delivery and drive future
revenue growth.
-- Reduced capital spending in 2006 by opening only 123 new stores, most
of which were already in the pipeline.
-- Closed 230 underperforming stores and stores that had overlapping trade
areas during 2006. In order to maximize free cash flow, the Company
plans to curtail new store openings over the next several years.
-- Announced a real estate optimization strategy to better manage store
leases and sales floor space. These real estate projects are long term
in nature and Movie Gallery expects the bulk of the financial benefits
to be realized in 2008 and beyond.
Fourth Quarter Results
For the fourth quarter of 2006 Movie Gallery's total revenues were $663.3
million, a decrease of 1.9% from $676.4 million in the fourth quarter of 2005.
Same-store total revenues for the fourth quarter decreased 2.9% from the
fourth quarter of 2005. During the quarter, same-store total revenues were
relatively flat at negative 0.3% at Movie Gallery branded stores and negative
4.1% at Hollywood branded stores.
The Company's operating income for the 2006-fourth quarter increased to
$18.7 million as compared to an operating loss of $514.0 million in the same
period last year. Included in operating income for the fourth quarter of 2006
is $8.6 million of charges related to store closures, professional fees
associated with the Company's continued restructuring efforts and stock
compensation expense. Specifically, $3.0 million is related to charges
associated with the planned closure of domestic store locations and $1.5
million is related to the elimination of the Company's Mexico operations. In
addition, $3.1 million is attributable to professional advisory fees incurred
in conjunction with the Company's strategic planning and balance sheet
restructuring efforts and $1.0 million pertains to stock-based compensation.
Net loss for the fourth quarter totaled $15.1 million or $0.47 per share
as compared to a net loss of $546.5 million or $17.25 per share in the 2005
fourth quarter.
Adjusted EBITDA, which is defined as operating income plus depreciation,
amortization, non-cash stock compensation, and special items, less purchases
of rental inventory, increased by 36% during the 2006 fourth quarter to $45
million from $33 million in the fourth quarter of 2005. Reconciliations of
non-GAAP financial measures are provided in the financial schedules
accompanying this press release.
Full Year 20006 Results
For fiscal 2006, Movie Gallery's total revenues were $2.5 billion, an
increase of 25% from $2.0 billion in the fiscal 2005. In fiscal 2005, Movie
Gallery's total revenues included revenues for 36 weeks of the Company's
wholly-owned subsidiary, Hollywood Entertainment Corporation ("Hollywood"),
which was acquired on April 27, 2005. Total revenues in 2006 were comprised
of $871 million from Movie Gallery, $1.35 billion from Hollywood Video and
$325 million from Game Crazy.
Same-store total revenues for fiscal 2006 decreased 3.7% from the prior
year. For fiscal 2006 same-store total revenues at our Movie Gallery branded
stores were relatively flat at negative 0.1% and were negative 5.4% at our
Hollywood branded stores.
Operating income for the 2006 fiscal year improved to $96.3 million
compared to an operating loss of $476.4 million for the previous fiscal year.
Included in operating income for the full year 2006 is $43.2 million of
charges related to rental amortization changes, accounting for asset
retirement obligations, store closures, the Company's continued restructuring
efforts and stock compensation expense. Specifically, $11.3 million is
related to changes in the book value associated with revenue-sharing DVD
movies and the acceleration of the rental amortization of games at the Movie
Gallery segment, $7.3 million is related to the Company's asset retirement
obligations in accordance with SFAS 143, $9.6 million is related to planned
domestic store closures and $1.5 million is related to the elimination of
Movie Gallery's Mexico operations. In addition, $7.7 million is attributable
to professional advisory fees incurred in conjunction with the Company's
strategic planning and balance sheet restructuring efforts, $2.7 million is
related to fees incurred in connection with the 2006 amendment of Movie
Gallery's previous credit facility and $3.1 million pertains to stock-based
compensation.
Net loss for the fiscal year was $25.7 million or $0.81 per share as
compared to a net loss of $552.7 million or $17.53 per share for the 2005
fiscal year.
The Company generated Adjusted EBITDA of approximately $255 million in
2006, which was relatively flat with Movie Gallery's 2005 pro forma Adjusted
EBITDA (giving effect to the Hollywood acquisition as if it had occurred on
January 1, 2005) of $257 million. Reconciliations of non-GAAP financial
measures are provided in the financial schedules accompanying this press
release.
At the end of its fiscal year, December 31, 2006, Movie Gallery had total
cash and availability under its old revolving credit facility of $69 million.
On March 9, 2007, the Company announced that it has a new $900 million senior
secured credit facility comprised of:
-- a $100 million revolving credit facility;
-- a $600 million first lien term loan;
-- a $175 million second lien term loan; and,
-- a $25 million synthetic letter of credit facility.
Today, the Company's total cash and availability under the new revolving
credit facility is more than $111 million.
Management's Commentary
Thomas Johnson, Executive Vice President and Chief Financial Officer, said,
"With our new credit facility in place, Movie Gallery has the solid capital
structure and enhanced liquidity we need to grow our business and return to
profitability. Our strong cash flow and reduced interest expense will also
allow us to invest prudently in compelling strategic opportunities, such as
our recent acquisition of MovieBeam. We will continue to pursue our ongoing
operational improvement initiatives, which include real estate optimization
strategies and lower capital spending. We believe we can realize substantial
cost savings while pursuing other cash generation opportunities that will
significantly enhance value for all Movie Gallery shareholders."
"This is an exciting time and an inflection point in the history of our
company," said Joe Malugen, Chairman, President and Chief Executive Officer.
"Our stores provide solid cash flow and are the foundation of our business,
but increasingly we expect that technology will allow us to offer new and
different options for Movie Gallery customers. Our acquisition of
substantially all of the assets, technology, network operations, and customers
of MovieBeam gives us access to an innovative platform that we expect to drive
future revenue growth and diversification. We have completed our refinancing
transaction and made significant progress in reducing costs and I look forward
to providing updates on our continued progress in 2007."
Conference Call Information
Management will have a conference call today (March 19, 2007) at 11:00 a.m.
Eastern Time to discuss the quarterly and full year 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 97783990 beginning immediately after the call on March 19, 2007 and
continuing through May 19, 2007. The conference call webcast will also be
archived on the Investor Relations section of the web site.
About Movie Gallery
Movie Gallery is the second largest North American video rental company
with over 4,600 stores located in all 50 U.S. states and Canada operating
under the brands Movie Gallery, Hollywood Video and Game Crazy. The Game
Crazy brand represents 633 in-store departments and 17 free-standing stores
serving the game market in urban locations across the United States. 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 for the Company's expected liquidity and
interest expense under its new senior secured credit facility, plans regarding
new technologies, such as MovieBeam, and other strategies, operational
improvement initiatives and other cost reducing measures, new store openings,
and the Company's financial prospects for future periods, 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. 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
Movie Gallery, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
Thirteen Weeks Ended Fiscal Year Ended
---------------------- -----------------------
January 1, December 31, January 1, December 31,
2006 2006 2006 2006
--------- ----------- ---------- -----------
Revenue:
Rentals $ 520,396 $ 490,497 $1,630,058 $2,030,251
Product sales 155,969 172,794 357,269 511,682
--------- --------- --------- ---------
Total revenue 676,365 663,291 1,987,327 2,541,933
Cost of sales:
Cost of rental revenue 157,714 156,848 502,873 626,918
Cost of product sales 130,004 135,480 271,900 384,933
--------- --------- --------- ---------
Gross profit 388,647 370,963 1,212,554 1,530,082
Operating costs and expenses:
Store operating expenses 336,527 305,866 1,027,119 1,250,799
General and administrative 37,045 45,300 130,059 180,153
Amortization of intangibles 1,147 696 3,865 2,838
Impairment of goodwill 522,950 - 522,950 -
Impairment of other
intangibles 4,940 - 4,940 -
Other (income) expense - 391 - (43)
-------- -------- --------- ---------
Operating income (loss) (513,962) 18,710 (476,379) 96,335
Interest expense, net (27,100) (31,079) (68,529) (120,410)
Write-off of bridge
financing costs - - (4,234) -
Equity in losses of
unconsolidated entities - - (806) -
-------- -------- --------- ---------
Loss before income taxes (541,062) (12,369) (549,948) (24,075)
Income taxes 5,413 2,692 2,792 1,645
-------- -------- --------- ---------
Net loss $(546,475) $ (15,061) $(552,740) $ (25,720)
======== ======== ========= =========
Net loss per share:
Basic $ (17.25) $ (0.47) $ (17.53) $ (0.81)
Diluted $ (17.25) $ (0.47) $ (17.53) $ (0.81)
Weighted average shares outstanding:
Basic 31,685 31,840 31,524 31,800
Diluted 31,685 31,840 31,524 31,800
Cash dividends per
common share $ - $ - $ 0.06 $ -
Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information
(amounts in thousands)
Thirteen Weeks Ended Fiscal Year Ended
---------------------- ----------------------
January 1, December 31, January 1, December 31,
2006 2006 2006 2006
--------- ----------- --------- -----------
Adjusted EBITDA $ 33,041 $ 45,047 $ 184,644 $ 255,388
Same-store revenues:
Consolidated total (8.6%) (2.9%) (4.7%) (3.7%)
- Movie Gallery (6.8%) (0.3%) (5.7%) (0.1%)
- Hollywood (9.4%) (4.1%) (4.3%) (5.4%)
Consolidated rental (9.0%) (7.0%) (6.2%) (5.6%)
- Movie Gallery (9.3%) 0.4% (6.5%) (0.5%)
- Hollywood (8.8%) (11.0%) (6.0%) (8.3%)
Consolidated product sales (7.4%) 10.4% 1.7% 4.1%
- Movie Gallery 19.8% (5.8%) 3.0% 4.2%
- Hollywood (10.6%) 13.1% 1.5% 4.1%
Margin data:
Rental margin 69.7% 68.0% 69.1% 69.1%
Product sales margin 16.6% 21.6% 23.9% 24.8%
Total gross margin 57.5% 55.9% 61.0% 60.2%
Percent of total revenue:
Rental revenue 76.9% 73.9% 82.0% 79.9%
Product sales 23.1% 26.1% 18.0% 20.1%
Store operating expenses 49.8% 46.1% 51.7% 49.2%
General and administrative
expenses 5.5% 6.8% 6.5% 7.1%
Fiscal Year Ended
--------------------------
January 1, December 31,
2006 2006
---------- -----------
Cash Flow Data:
Net cash flow provided by
(used in)operating activities $ 132,135 $ (9,779)
Net cash flow used in
investing activities (1,151,212) (14,912)
Net cash provided by(used in)
financing activities 1,127,851 (77,765)
Capital Expenditures 58,198 19,620
Balance Sheet Data:
Cash and cash equivalents $ 135,238 $ 32,953
Merchandise inventories 136,450 140,614
Rental inventories, net 371,565 339,981
Accounts payable 236,989 86,380
Long-term obligation,
including current portion 1,161,229 1,092,455
Store count:
Beginning of period 2,482 4,749
New store builds 288 123
Stores acquired 2,138 -
Stores closed (159) (230)
--------- ---------
End of period 4,749 4,642
========= =========
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 a widely
accepted financial indicator in the home video specialty retail industry 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. We believe this presentation is meaningful and appropriate because
our annual cash investment in rental inventory is substantial and in many
respects is similar to recurring merchandise inventory purchases considering
our operating cycle and 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 our 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 of our Company 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 Fiscal Year Ended
----------------------- -----------------------
January 1, December 31, January 1, December 31,
2006 2006 2006 2006
---------- ---------- ---------- ----------
Operating income (loss) $ (513,962) $ 18,711 $ (476,379) $ 96,335
Rental amortization 61,123 55,492 213,141 222,751
Rental purchases (81,950) (54,708) (202,085) (179,954)
Depreciation and
intangible amortization 31,086 29,090 92,655 108,304
Accretion on asset
retirement obligations 80 3,102
Stock compensation 520 1,009 1,618 3,082
Impairment of goodwill 522,950 - 522,950 -
Impairment of
intangibles 4,940 - 4,940 -
Gain on sale of assets (494) (4,627) (494) (952)
Amendment fees 2,720
Store closure adjustment 7,844 - 7,844 -
Extended viewing fee
adjustment 984 - 18,954 -
Transaction bonuses - - 1,500 -
---------- ---------- ---------- ----------
Adjusted EBITDA $ 33,041 $ 45,047 $ 184,644 $ 255,388
========== ========== ========== ==========
The following table provides a reconciliation of Adjusted EBITDA to net
cash provided by operating activities:
Thirteen Weeks Ended Fiscal Year Ended
----------------------- -----------------------
January 1, December 31, January 1, December 31,
2006 2006 2006 2006
---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities $ 83,395 $ 25,290 $ 132,135 $ (9,779)
Changes in operating
assets and liabilities (80,657) (13,289) (63,702) 135,561
Investment in base stock
inventory 3,798 686 20,367 11,213
Amortization of debt
issuance cost (1,424) (1,709) (3,659) (6,661)
Tax benefit of stock
options exercised 3,301 - - -
Deferred income taxes (16,713) 297 (5,156) 279
Interest expense 27,100 31,079 72,763 120,410
Income taxes 5,413 2,693 2,792 1,645
Amendment fees - 2,720
Store closure adjustment 7,844 - 7,844 -
Extended viewing fee
adjustment 984 - 18,954 -
Transaction bonuses - - 1,500 -
Loses for unconsolidated
entities - - 806 -
--------- --------- --------- ---------
Adjusted EBITDA $ 33,041 $ 45,047 $ 184,644 $ 255,388
========= ========= ========= =========
We have also provided a pro forma Adjusted EBITDA, which combines the
results of Movie Gallery and Hollywood for the full fiscal year ended January
1, 2006, excluding certain merger-related expenses paid by Hollywood prior to
the completion of the merger. We believe this presentation is meaningful and
appropriate because it provides investors with information regarding our
results for fiscal 2005 on a basis that is more comparable to our results for
fiscal 2006. The following table provides a calculation of pro forma Adjusted
EBITDA to Adjusted EBITDA as reconciled above to operating income:
Hollywood
Fiscal Year Jan 1, 2005
Ended to Apr 26, Pro
Jan 1, 2006 2005 Forma
------------ ----------- ---------
Operating income (loss) $ (476,379) $ 45,067 $(431,312)
Rental amortization 213,141 59,042 272,183
Rental purchases (202,085) (74,147) (276,232)
Depreciation and
intangible amortization 92,655 21,108 113,763
Impairment of goodwill 522,950 - 522,950
Impairment of
intangibles 4,940 - 4,940
Gain of sales of asset (494) - (494)
Transaction bonus 1,500 - 1,500
Store closure adjustment 7,844 - 7,844
Stock compensation 1,618 - 1,618
Merger fees - 21,146 21,146
Extended viewing fee
adjustment 18,954 122 19,076
---------- ---------- ---------
Adjusted EBITDA $ 184,644 $ 72,338 $ 256,982
========== ========== =========
The following table reconciles Adjusted EBITDA and pro forma Adjusted
EBITDA to net cash provided by operating activities:
Hollywood
Fiscal Year Jan 1, 2005
Ended to Apr 26, Pro
Jan 1, 2006 2005 Forma
------------ ----------- ---------
Net cash provided by
(used in)operating
activities $ 132,135 $ (10,145) $ 121,990
Changes in operating
assets and liabilities (63,702) 45,010 (18,692)
Losses for unconsolidated
entities 806 - 806
Investment in base stock
inventory 20,367 4,561 24,928
Tax benefit of stock
options exercised - (15,204) (15,204)
Deferred income taxes (5,156) 17,700 12,544
Change in deferred rent - 1,650 1,650
Amortization of debt
issuance cost (3,659) (468) (4,127)
Store closure adjustment 7,844 - 7,844
Merger fees - 21,146 21,146
Transaction bonus 1,500 - 1,500
Interest expense 72,763 8,741 81,504
Income taxes 2,792 (775) 2,017
Extended viewing fee
adjustment 18,954 122 19,076
---------- ---------- ---------
Adjusted EBITDA $ 184,644 $ 72,338 $ 256,982
========== ========== =========
SOURCE Movie Gallery, Inc.
Analysts and Investors: Michelle K. Lewis of Movie Gallery, Inc., +1-503-570-1950;
Media: Andrew B. Siegel of Joele Frank, Wilkinson Brimmer Katcher, +1-212-355-4449
ext. 127
http://www.moviegallery.com
