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STUDIO CITY, Calif.--(BUSINESS WIRE)--Nov. 6, 2008--Crown Media Holdings, Inc. (NASDAQ:CRWN) today reported its operating results for the quarter and nine months ended September 30, 2008.
Operating Highlights for the Quarter
-- Revenue growth. Crown Media's net revenue in the third quarter
of 2008 increased 17% to $64.5 million, from $55.3 million in
the prior year's third quarter. This increase was primarily
due to a 4% increase in advertising revenues and a 93%
increase in subscriber fee revenues. For the first nine months
of the year, revenue grew 25% to $206.6 million from $164.8
million in 2007, due to a 14% increase in advertising revenue
and a 99% increase in subscriber fee revenue.
-- Record ratings. For the third quarter of 2008, Hallmark
Channel delivered another record-breaking quarter in terms of
household delivery for both Prime Time and Total Day. The
channel maintained its position as a top-ten rated cable
channel, ranking ninth in Prime Time and tenth in Total Day
among all 73 ad-supported cable networks according to Nielsen.
This marks the 28(th) consecutive month that Hallmark Channel
has been among the top-ten highest rated ad-supported cable
networks in Prime Time.
-- Increase in family-friendly programming. The Company recently
announced the acquisition of the rights to 80 family-friendly
movies from Twentieth Television, including a host of Academy
Award-winning films with timeless appeal across all
generations. The deal includes such films as Big, Cocoon, Mrs.
Doubtfire, Home Alone and Cheaper by the Dozen. The
programming, which will begin to air in the beginning of 2009,
is expected to increase ratings and attract a younger
audience.
-- Expanded distribution of Hallmark Movie Channel. Launched in
April 2008 with 7 million subscribers, Hallmark Movie Channel
has experienced significant expansion. With additional
launches on Comcast, Time Warner, Cox, Cablevision and Verizon
systems, as well as organic growth on existing systems, at the
end of the third quarter Hallmark Movie Channel is in over 12
million homes, representing a 50% increase in just five
months.
"Our strong operating results in the year-to-date underscore the appeal of our programming and the increasing appreciation by our distributors and advertisers of the value of our brand and audience," noted Henry Schleiff, President and CEO of Crown Media. "We are looking forward to extending this success in the fourth quarter, our most exciting time of the year when our themed holiday programming attracts an increasingly large audience that has come to equate Hallmark Channel with the wholesome goodness of the holidays.
"While we expect that we will be impacted by the financial difficulties facing our economy, we believe that our channels have an inherent resiliency to withstand these challenges. As many Americans return to the fundamental values of home and family, our channels offer the kind of uplifting and positive programming they will be comforted by. Our advertisers are primarily in sectors in which consumers may continue to spend in an economic downturn, such as packaged goods and pharmaceuticals. As we look at our anticipated results for the full year, I am confirming my expectations that we will deliver low double-digit growth in advertising and increased subscriber fee revenue to generate in excess of $50 million in Adjusted EBITDA."
Financial Results
Historical financial information is provided in tables at the end of this release.
Operating Results
Crown Media reported revenue of $64.5 million for the third quarter of 2008, a 17% increase from $55.3 million for the third quarter of 2007. Subscriber fee revenue increased 93% to $14.2 million, from $7.4 million in the prior year's quarter as a result of higher net effective rates on average, primarily due to an increase in paying subscribers as a result of previously amended distribution agreements. Advertising revenue increased 4% to $50.0 million during the quarter, from $47.8 million in the third quarter of 2007, primarily due to higher advertising rates, increased advertising time and growth in advertising on Hallmark Movie Channel.
Crown Media reported revenue of $206.6 million for the nine months ended September 30, 2008, a 25% increase from $164.8 million for the same period of 2007. Subscriber fee revenue for the nine months ended September 30, 2008, increased 99% to $42.7 million, from $21.4 million in the prior year's period, as a result of higher net effective rates on average, primarily due to an increase in paying subscribers as a result of previously amended distribution agreements. Advertising revenue increased 14% to $163.0 million during the nine months ended September 30, 2008, from $143.1 million for the same period of 2007, reflecting higher advertising rates, increased advertising time and growth in advertising on Hallmark Movie Channel.
For the third quarter of 2008, cost of services decreased 25% to $39.1 million from $51.9 million during the same quarter of 2007. Within cost of services, programming expenses decreased 21% quarter over quarter to $36.7 million, due to the expiration of the programming agreement with NICC and the Company's effort to monitor costs. This was offset in part by the Company licensing Hallmark Hall of Fame programming under a new 2008 agreement with Hallmark Cards.
Other cost of services and amortization of our capital lease increased from $1.5 million of negative expense to $2.5 million of expense for the third quarter of 2008. During the three months ended September 30, 2007 and 2008, the Company reduced its estimate of a residual and participation liability by $4.7 million and $1.1 million, respectively.
For the nine months ended September 30, 2008, cost of services decreased to $117.2 million from $151.0 million during the same period of 2007. Within cost of services, programming expenses decreased 13% period over period to $107.7 million, following the December 31, 2007, expiration of our programming agreement with NICC and the Company's effort to monitor costs, offset in part by the Company's licensing Hallmark Hall of Fame movies under an agreement, which was entered into during 2008.
Other cost of services increased from $3.8 million to $9.5 million for the nine months ended September 30, 2008. During the nine months ended September 30, 2007 and 2008, the Company reduced its estimate of a residual and participation liability by $5.2 million and $1.1 million, respectively.
Selling, general and administrative expenses increased to $12.6 million for the quarter ended September 30, 2008, from $11.6 million in the year earlier period primarily due to an increase in salary, benefits, and settlement expenses. Marketing expenses of $4.6 million for the quarter ended September 30, 2008, increased from $3.6 million for the quarter ended September 30, 2007, due to increased media costs and increased promotional activities in the third quarter of 2008 as compared to the third quarter of 2007.
Selling, general and administrative expenses decreased to $38.0 million for the nine months ended September 30, 2008, from $39.8 million in the year earlier period primarily due to a $3.9 million decrease in compensation expense related to our share-based obligations offset in part by increases in salary, research, communication and settlement expenses. Marketing expenses increased to $13.1 million for the nine months ended September 30, 2008, from $11.9 million in the year earlier period due to increased media costs and increased promotional activities.
Adjusted EBITDA was $8.7 million for the third quarter of 2008 compared to an adjusted EBITDA loss of $6.5 million for the same period last year. Cash provided by operating activities totaled $24.6 million for the third quarter of 2008 compared to $5.4 million for the same period last year. The net loss for the quarter ended September 30, 2008, totaled $17.9 million, or $0.17 per share, compared to $37.9 million, or $0.36 per share, in the third quarter of 2007.
Adjusted EBITDA totaled $42.9 million for the nine months ended September 30, 2008, compared to and adjusted EBITDA loss of $10.5 million for the same period last year. Cash provided by operating activities totaled $41.6 million for the nine months ended September 30, 2008, compared to cash used in operating activities of $2.8 million for the same period last year. The net loss for the nine month period ended September 30, 2008, totaled $38.5 million, or $0.37 per share, compared to $121.7 million, or $1.16 per share, in the same period of 2007.
Conference Call and Webcast to be Held Thursday, November 6(th) at 2:00 p.m. ET
Crown Media Holdings' management will conduct a conference call this afternoon at 2:00 p.m. Eastern Time to discuss the results of the third quarter of 2008. Investors and interested parties may listen to the call via a live webcast accessible through the investor relations' section of the Company's web site at www.hallmarkchannel.com, or by dialing (800) 688-0796 (Domestic) or (617) 614-4070 (International) and requesting the "Third Quarter Earnings for Crown Media" call. For those listeners accessing the call through the Company's website, please register and download audio software at the site at least 15 minutes prior to the start time. The webcast will be archived on the site, while a telephone replay of the call is available for 7 days beginning at 4:00 p.m. Eastern Time, November 6(th), at 888-286-8010 or 617-801-6888 (international callers), using reservation number 81584353.
About Crown Media Holdings
Crown Media Holdings, Inc. (NASDAQ: CRWN) owns and operates cable television channels dedicated to high quality, broad appeal, entertainment programming. The Company currently operates and distributes the Hallmark Channel in the U.S. to 86 million subscribers. Hallmark Channel consistently ranks among the top ten ad-supported cable networks in Total Day and Prime Time household ratings and is the nation's leading network in providing quality family programming. Crown Media also operates a second 24-hour linear channel, Hallmark Movie Channel, which is distributed in both standard and high definition as Hallmark Movie Channel HD. Significant investors in Crown Media Holdings include: Hallmark Entertainment Holdings, Inc., a subsidiary of Hallmark Cards, Incorporated, Liberty Media Corp., and J.P. Morgan Partners (BHCA), LP, each through their investments in Hallmark Entertainment Investments Co.; VISN Management Corp., a for-profit subsidiary of the National Interfaith Cable Coalition; and The DIRECTV Group, Inc.
Forward-looking Statements
Statements contained in this press release may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management's current expectations, estimates and projections. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied in the forward-looking statements. Such risks and uncertainties include: competition for distribution of channels, viewers, advertisers, and the acquisition of programming; fluctuations in the availability of programming; fluctuations in demand for the programming Crown Media airs on its channels; Crown Media's ability to address its liquidity needs; Crown Media's incurrence of losses; and Crown Media's substantial indebtedness affecting its financial condition and results; and other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Risk Factors stated in the Company's 10-K Report for the year ended December 31, 2007 and the Company's 10-Q Report for the quarter ended September 30, 2008. Crown Media Holdings is not undertaking any obligation to release publicly any updates to any forward looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.
Use of Adjusted EBITDA
Crown Media evaluates operating performance based on several factors, including Adjusted EBITDA. Our calculation of Adjusted EBITDA adds back to net loss non-cash expenses and other items mentioned below.
Our measure of Adjusted EBITDA differs from the normal definition of EBITDA (earnings before interest, taxes, depreciation and amortization) used by most companies. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, subscriber acquisition fee amortization, amortization of film assets, impairment charges, and other non-cash expenses.. For this purpose, restricted stock unit compensation and retention program are treated as non-cash items, although they may result in cash payments during subsequent periods. Our credit facility contained a covenant that used this adjusted EBITDA measure. The Company no longer has an EBITDA covenant in its bank credit agreement. See "Selected Third Quarter Unaudited Financial Information" below for a reconciliation to GAAP net income. Management views Adjusted EBITDA as a critical measure of our operating performance and monitors this measure closely. We disclose Adjusted EBITDA so that our investors can have some of the same information available to our management to evaluate their investment in our Company.
We also believe that an Adjusted EBITDA provides an indication of the Company's ability to generate cash flows from operating activities since our non-cash expenses are excluded from our calculation of Adjusted EBITDA. A significant portion of the Company's cost structure related to the amortization of subscriber acquisition costs, which were significant non-cash charges. The Adjusted EBITDA calculation allows the Company to assess how much is available to pay debt service and gives a further indication of how much remains to fund discretionary expenditures such as the acquisition of programming or additional subscriber base. However, Adjusted EBITDA should be considered in addition to, not as a substitute for, historical operating income or loss, net loss, cash flow from operations and other measures of financial performance reported in accordance with accounting principles generally accepted in the United States.
Adjusted EBITDA differs significantly from cash flows from operating activities reflected in the consolidated statement of cash flows. Cash flow from operating activities is net of interest and taxes paid and is a more comprehensive determination of periodic income on a cash basis, exclusive of non-cash items of income and expenses such as depreciation, amortization, loss from discontinued operations and impairment of film assets. In contrast, Adjusted EBITDA is derived from accrual basis income and is not reduced for cash invested in working capital. Consequently, Adjusted EBITDA is not affected by the timing of receivable collections or when accrued expenses are paid. We are not aware of any uniform standards for determining EBITDA or our Adjusted EBITDA and believe that our calculation of Adjusted EBITDA is probably calculated differently than presentations of EBITDA by other entities because our calculation was based upon the definition in a bank credit agreement.
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
------------------ -------------------
Revenues:
Subscriber fees $ 14,240 $ 7,389 $ 42,672 $ 21,391
Advertising 49,950 47,819 162,836 142,750
Advertising by Hallmark Cards - - 157 390
Other revenue 292 104 901 260
------------------ -------------------
Total revenue 64,482 55,312 206,566 164,791
Cost of services:
Affiliate programming 842 11,247 1,777 21,149
Non-affiliate programming 35,811 35,148 105,922 103,327
Subscriber acquisition fee
amortization - 7,048 - 22,728
Amortization of capital lease 289 289 868 868
Other cost of services 2,170 (1,806) 8,654 2,933
------------------ -------------------
Total cost of services 39,112 51,926 117,221 151,005
Selling, general &
administrative expenses 12,640 11,578 37,966 39,828
Marketing expense 4,633 3,565 13,091 11,850
Depreciation and amortization 506 377 1,430 1,270
------------------ -------------------
Income (loss) from operations
before interest expense 7,591 (12,134) 36,858 (39,162)
Interest expense (25,454) (25,743) (75,360) (82,585)
------------------ -------------------
Net loss $(17,863)$(37,877) $(38,502)$(121,747)
------------------ -------------------
Net loss per share $ (0.17)$ (0.36) $ (0.37)$ (1.16)
------------------ -------------------
Weighted average shares
outstanding 104,788 104,788 104,772 104,788
Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheet Data
(In thousands)
As of September 30, As of December 31,
------------------- ------------------
2008 2007
------------------- ------------------
ASSETS
Cash and cash equivalents $ 4,298 $ 1,974
Accounts receivable, less
allowance for doubtful
accounts of $261 and $242,
respectively 55,715 68,603
Program license fees -
affiliates 1,055 166
Program license fees - non-
affiliates 92,077 119,523
Prepaid and other assets 4,021 4,478
Prepaid program license fee
assets 15,657 8,361
------------------- ------------------
Total current assets 172,823 203,105
Program license fees -
affiliates 8,107 653
Program license fees - non-
affiliates 176,564 129,268
Subscriber acquisition fees,
net 3,984 3,333
Property and equipment, net 15,942 15,962
Goodwill 314,033 314,033
Prepaid and other assets 7,739 9,887
------------------- ------------------
Total assets $ 699,192 $ 676,241
------------------- ------------------
Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheet Data
(In thousands)
As of September 30, As of December 31,
------------------- ------------------
2008 2007
------------------- ------------------
LIABILITIES AND STOCKHOLDERS'
DEFICIT
LIABILITIES
Accounts payable and accrued
liabilities $ 19,961 $ 25,255
Audience deficiency reserve 14,438 15,620
Accrued restricted stock
units 3,141 4,609
License fees payable to
affiliates 1,408 1,628
License fees payable to non-
affiliates 115,697 107,749
Payables to affiliates 17,253 18,951
Credit facility and interest
payable 35,215 19,583
Note and interest payable to
Hallmark Cards 5,915 -
Other current liabilities 3,813 5,979
------------------- ------------------
Total current liabilities 216,841 199,374
Accrued liabilities 15,345 18,056
License fees payable to
affiliates 7,923 -
License fees payable to non-
affiliates 87,207 56,521
Payables to affiliates 1,869 4,041
Credit facility - 50,000
Line of credit and interest
payable to HC Crown 107,449 101,360
Line of credit and interest
payable to Hallmark Cards
affiliate 61,338 57,868
Note and interest payable to
Hallmark Cards affiliate 168,273 158,753
Note and interest payable to
Hallmark Cards - 22,075
Senior unsecured note to HC
Crown, including accrued
interest 669,682 621,266
Company obligated mandatorily
redeemable preferred
interest 20,355 18,690
Other liabilities 16,920 19,232
Obligation to NICC for the
repurchase of Class A common
stock, extinguished January 2,
2008, $.01 par value; 0 and
4,357,066 shares issued and
outstanding as of September
30, 2008 and December 31,
2007, respectively 0 32,765
------------------- ------------------
Total liabilities 1,373,202 1,360,001
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Class A common stock, $.01 par
value; 200,000,000 shares
authorized; 74,117,654 and
69,760,588 shares issued and
outstanding as of September
30, 2008, and December 31,
2007, respectively 741 698
Class B common stock, $.01 par
value; 120,000,000 shares
authorized; 30,670,422 shares
issued and outstanding as of
both September 30, 2008, and
December 31, 2007 307 307
Paid-in capital 1,459,500 1,411,291
Accumulated deficit (2,134,558) (2,096,056)
------------------- ------------------
Total stockholders' deficit (674,010) (683,760)
------------------- ------------------
Total liabilities and
stockholders' deficit $ 699,192 $ 676,241
------------------- ------------------
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
------------------ --------------------
Net loss $(17,863)$(37,877) $ (38,502)$(121,747)
Subscriber acquisition fee
amortization expense 702 8,966 2,042 27,551
Depreciation and amortization 795 666 2,298 2,138
Residual and participation
expense - - 96 -
Amortization of film asset (1,068) (4,739) (921) (5,260)
Impairment of film asset - - 176 -
Interest expense 25,454 25,743 75,360 82,585
Restricted stock unit
compensation 648 784 2,380 4,245
------------------ --------------------
Adjusted earnings before
interest, taxes, depreciation
and amortization $ 8,668 $ (6,457) $ 42,929 $ (10,488)
------------------ --------------------
Programming and other
amortization 37,726 46,089 108,319 123,506
Provision for allowance for
doubtful account 38 108 43 95
Changes in operating assets
and liabilities:
Additions to program license
fees (67,800) (24,928) (135,893) (101,576)
Change to subscriber
acquisition fees (250) 738 (2,693) 858
Change in subscriber
acquisition fees payable 250 (988) 1,183 (1,206)
Interest paid (983) (2,227) (3,882) (6,721)
Changes in other operating
assets and liabilities, net
of adjustments above 46,931 (6,967) 31,573 (7,237)
------------------ --------------------
Net cash provided by (used in)
operating activities $ 24,580 $ 5,368 $ 41,579 $ (2,769)
------------------ --------------------
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
------------------ ------------------
Net cash provided by (used in)
operating activities $ 24,580 $ 5,368 $ 41,579 $ (2,769)
Net cash used in investing
activities (1,083) (1,428) (4,369) (3,995)
Net cash used in financing
activities (19,476) (10,870) (34,886) (7,198)
------------------ ------------------
Net increase (decrease) in cash
and cash equivalents 4,021 (6,930) 2,324 (13,962)
Cash equivalents, beginning of
period 277 6,933 1,974 13,965
------------------ ------------------
Cash equivalents, end of period $ 4,298 $ 3 $ 4,298 $ 3
------------------ ------------------
CONTACT: IR Focus
Investors and Press:
Mindy Tucker, 914-725-8128
mindy@irfocusllc.com
or
Crown Media
Media:
Nancy Carr, 818-755-2643
nancycarr@hallmarkchannel.com
SOURCE: Crown Media Holdings, Inc.
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