Alloy, Inc. (Nasdaq: ALOY): -- Full Year Revenue Up 6% To $195.3
Million; Fourth Quarter Revenue Up 3.3% To $43.2 Million -- Full
Year Adjusted EBITDA Up 259% To $17.3 Million; Fourth Quarter
Adjusted EBITDA $3.0 Million Compared with ($0.5) Million in 2004
-- Full Year and Fourth Quarter Results Include a Non-Cash
Impairment Charge of $32.7 Million Alloy, Inc. (Nasdaq: ALOY), a
media and marketing services company primarily targeting the
dynamic Generation Y population, today reported results for the
full fiscal year ended January 31, 2006 ("fiscal 2005") and the
fourth quarter ended January 31, 2006. Alloy completed its spinoff
of dELiA*s, Inc. ("dELiA*s") on December 19, 2005. The financial
results of dELiA*s are presented as discontinued operations for all
periods. Following the spinoff of dELiA*s, we changed the
composition of our reportable segments to the following three
operating segments: (i) Promotion, whose products and services are
promotional in nature, including the Alloy Marketing and Promotions
Agency business, the On-Campus Marketing unit, Sampling and Mall
Marketing services; (ii) Media, which includes our Out-of-Home
business, our Internet and Database businesses and our Specialty
Print and Intellectual Property businesses; and (iii) Placement,
which aggregates and markets third party media properties. For
fiscal 2005, revenue increased 6% to $195.3 million from $184.2
million in fiscal 2004, reflecting a 14.6% growth in our Media
Segment, a 6.2% growth in our Promotion Segment and a nominal
decrease in our Placement Segment. Revenue in our Media Segment was
$48.1 million in fiscal 2005 compared with $41.9 million in the
year ended January 31, 2005 ("fiscal 2004"). The increase is
primarily attributable to strong sales momentum in our Out-of-Home
business, as well as strength in the Alloy Entertainment unit.
Revenue in our Promotion Segment was $88.7 million in fiscal 2005
compared with $83.6 million in fiscal 2004. The increase is
principally attributable to revenue growth in our direct selling
services and sampling businesses, partially offset by lower revenue
from sales of promotions and sponsorships. Revenue in our Placement
Segment was $58.5 million in fiscal 2005 compared with $58.7
million in fiscal 2004. Operating loss decreased $53.7 million, or
69%, to $24.2 million in fiscal 2005 from $78.0 million in fiscal
2004. In fiscal 2005 we recorded Special Charges of $36.2 million
compared with $73.3 million in fiscal 2004. The Special Charges in
fiscal 2005 resulted from a $32.7 million non-cash goodwill and
long-lived asset impairment charge, which was recorded in our
fourth quarter, and $3.5 million of expenses related to the dELiA*s
spinoff. The fiscal 2004 Special Charges resulted from a $72.9
million non-cash goodwill and long-lived asset impairment charge,
which was recorded in the fourth quarter of fiscal 2004, and $0.4
million in restructuring costs. Our current business segments of
Promotion, Media and Placement were operated as one segment in
fiscal 2004. Despite the strength of the business this past year,
as a result of evaluating impairment on our three redefined
business segments, we determined that an additional impairment
charge was required for fiscal 2005. Excluding the Special Charges,
our Operating Income would have increased $16.7 million to $12.0
million in fiscal 2005 compared with an Operating Loss of $4.7
million in fiscal 2004. The significant improvement in Operating
Income excluding the Special Charges is primarily attributable to
revenue growth, an increased percentage of our total revenue coming
from our Media Segment, and a fiscal 2005 cost reduction program.
For fiscal 2005, Adjusted EBITDA, defined as Operating Loss plus
depreciation and amortization, special charges and non-cash stock
based compensation was $17.3 million compared with $4.8 million for
fiscal 2004, an increase of $12.5 million, or 259%. Commenting on
the fiscal year and fourth quarter financial results, Matt Diamond,
Chairman and Chief Executive Officer, stated, "We are very pleased
with the year over year operating improvement shown by Alloy Media
+ Marketing. We have reinvigorated sales growth in our key Media
Segment, significantly reduced our cost structure, and very
recently acquired Sconex, a key interactive acquisition, all of
which we believe position us well for the future. Moreover, we are
thrilled to have successfully completed a tax-free spinoff of
dELiA*s, Inc. to our stockholders during the fourth quarter of
fiscal 2005." Loss from continuing operations decreased $54.4
million, or 66%, to $28.0 million, or $2.41 per share, in fiscal
2005 from $82.4 million, or $7.74 per share, in fiscal 2004. The
improvement is primarily attributable to the decreased operating
loss and higher interest income. Net loss attributable to common
stockholders decreased $57.3 million, or 61%, to $36.1 million, or
$3.11 per share, in fiscal 2005 from $93.4 million, or $8.77 per
share, in fiscal 2004. In June 2005, all of our outstanding shares
of Series B Redeemable Convertible Preferred Stock were converted
into shares of Common Stock. Accordingly, the non-cash dividends on
the shares of Series B Preferred Stock decreased in fiscal 2005 to
$0.6 million from $1.6 million in fiscal 2004. For fiscal 2005,
free cash flow, defined as net income (loss) plus depreciation and
amortization, special charges, stock-based compensation, and
amortization of deferred financing costs less capital expenditures,
was approximately $13.3 million, or $1.15 per share, as compared
with ($1.8) million, or ($0.17) per share, in fiscal 2004, an
improvement of $15.1 million. FOURTH QUARTER For the fourth quarter
of fiscal 2005, revenue increased 3.3% to $43.2 million from $41.8
million in the comparable period of fiscal 2004, driven by a 25.4%
growth in our Media Segment partially offset by modest declines in
our Promotions and Placement Segments. The Media Segment growth was
principally attributable to strong sales in our Out-of-Home
business. The decrease in Promotion Segment revenue was
attributable to increased selectivity in the type of business we
choose to accept. The Placement Segment market was softer than
expected in the quarter. For the fourth quarter of fiscal 2005,
Adjusted EBITDA was $3.0 million as compared with a loss of $0.5
million in the same period of fiscal 2004, an increase of $3.5
million. Operating loss decreased $43.8 million, or 58%, to $32.1
million in the fourth quarter of fiscal 2005 from $75.9 million in
the same period of fiscal 2004. Excluding Special Charges, our
Operating Income would have increased $4.9 million to $2.0 million
in the fourth quarter of fiscal 2005 from an Operating Loss of $2.9
million in the same period of fiscal 2004. The significant
improvement in operating income excluding the Special Charges is
primarily attributable to stronger sales in our higher margin Media
Segment and our continued cost reduction efforts. Loss from
continuing operations for the quarter decreased $43.9 million, or
57%, to $33.0 million, or $2.78 per share, in fiscal 2005 from
$76.8 million, or $7.17 per share, in the fourth quarter of fiscal
2004. The improvement is primarily attributable to the decreased
operating loss and higher interest income. For the fourth quarter
of fiscal 2005, free cash flow was approximately $2.2 million, or
$0.19 per share, compared with ($2.3) million, or ($0.22) per
share, in 2004's fourth quarter, an improvement of $4.5 million.
RECENT DEVELOPMENTS On March 28, 2006, we announced our acquisition
of Sconex, a leading social networking site in the high school
market. We believe that optimizing and growing our interactive
properties is important as the youth market spends increasing
amounts of time online. Further, we believe that Sconex will be an
important contributor to our strategy of expanding our media
business segment. BUSINESS OUTLOOK Consistent with last year, we
are not providing earnings per share or Adjusted EBITDA target
ranges for the year but rather, during our quarterly conference
calls, will provide a recap and outlook for key operating metrics
that influence our earnings per share and Adjusted EBITDA and our
strategies to improve these metrics. About Alloy Alloy, Inc., under
the banner of Alloy Media + Marketing ("AM+M"), is a widely
recognized pioneer in nontraditional marketing. Working with AM+M,
marketers reach consumers through a host of programs incorporating
Alloy's diverse array of media and marketing assets and expertise
in direct mail, college and high school media, interactive, display
media, college guides, promotional and social network marketing.
For further information regarding Alloy, please visit our corporate
website at (www.alloyinc.com). Forward-Looking Statements This
announcement may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including statements
regarding our expectations and beliefs regarding our future results
or performance. Because these statements apply to future events,
they are subject to risks and uncertainties. When used in this
announcement, the words "anticipate", "believe", "estimate",
"expect", "expectation", "project" and "intend" and similar
expressions are intended to identify such forward-looking
statements. Our actual results could differ materially from those
projected in the forward-looking statements. Additionally, you
should not consider past results to be an indication of our future
performance. Factors that might cause or contribute to such
differences include, among others, our ability to: increase
revenues; generate high margin sponsorship and multiple revenue
streams; increase visitors to our Web sites (www.alloy.com,
www.delias.com, and www.ccs.com) and build customer loyalty;
develop our sales and marketing teams and capitalize on these
efforts; develop commercial relationships with advertisers and the
continued resilience in advertising spending to reach the teen
market; manage the risks and challenges associated with integrating
newly acquired businesses; and identify and take advantage of
strategic, synergistic acquisitions and other revenue
opportunities. Other relevant factors include, without limitation:
our competition; seasonal sales fluctuations; the uncertain
economic and political climate in the United States and throughout
the rest of the world, and the potential that such climate may
deteriorate further; and general economic conditions. For a
discussion of certain of the foregoing factors and other risk
factors see the "Risk Factors That May Affect Future Results"
section included in our annual report on Form 10-K for the year
ended January 31, 2005, and in subsequent filings that we make with
the Securities and Exchange Commission. We do not intend to update
any of the forward-looking statements after the date of this
announcement to conform these statements to actual results, to
changes in management's expectations or otherwise, except as may be
required by law. -0- *T ALLOY, INC. SUPPLEMENTAL DISCLOSURES
REGARDING NON-GAAP FINANCIAL INFORMATION
-----------------------------------------------------------------
(In millions) A. Adjusted EBITDA The following tables set forth the
Company's Adjusted EBITDA for the three month period and year ended
January 31, 2006 and 2005. The Company defines Adjusted EBITDA as
net income (loss) adjusted to exclude the following line items and
amounts presented in its Statement of Operations: income (loss)
from discontinued operations, income taxes, other items, interest
income, interest expense, special charges, depreciation and
amortization and stock-based compensation expense. The Company uses
Adjusted EBITDA, among other things, to evaluate the Company's
operating performance and to value prospective acquisitions. The
measure is also one of several components of incentive compensation
targets for certain management personnel, and this measure is among
the primary measure used by management for planning and forecasting
future periods. The Company believes that this measure is an
important indicator of the Company's operational strength and
performance of its business because it provides a link between
profitability and operating cash flow. The Company believes the
presentation of this measure is relevant and useful for investors
because it allows investors to view performance in a manner similar
to the method used by the Company's management, helps improve their
ability to understand the Company's operating performance and makes
it easier to compare the Company's results with other companies
that have different financing and capital structures or tax rates.
In addition, this measure is also among the primary measures used
externally by the Company's investors, analysts and peers in its
industry for purposes of valuation and comparing the operating
performance of the Company to other companies in the industry.
Since Adjusted EBITDA is not a measure of performance calculated in
accordance with GAAP, it should not be considered in isolation of,
or as a substitute for, net income as an indicator of operating
performance. Adjusted EBITDA, as the Company calculates it, may not
be comparable to similarly titled measures employed by other
companies. In addition, this measure does not necessarily represent
funds available for discretionary use, and is not necessarily a
measure of the Company's ability to fund its cash needs. As
Adjusted EBITDA excludes certain financial information compared
with net income, the most directly comparable GAAP financial
measure, users of this financial information should consider the
types of events and transactions that are excluded. As required by
the Securities and Exchange Commission ("SEC"), the Company
provides below a reconciliation of Adjusted EBITDA to net income.
Three Months Ended Fiscal Year Ended January 31, January 31,
----------------- ----------------- 2006 2005 2006 2005 ------
------- ------- ------- Net Loss ($23.8) ($73.3) ($35.5) ($91.8)
Plus: Income (Loss) from Discontinued Operations (9.2) (3.5) 7.5
9.4 Income Taxes 0.1 0.0 0.4 0.1 Other Items, net 0.0 0.0 0.0 0.4
Interest Income (0.3) (0.1) (0.9) (0.4) Interest Expense 1.1 1.0
4.3 4.3 Special Charges 34.1 72.9 36.2 73.3 Depreciation and
Amortization 0.9 2.0 5.0 7.9 Stock-based Compensation (included in
General and Administrative Expenses) 0.1 0.5 0.3 1.6 ------ -------
------- ------- Adjusted EBITDA $ 3.0 ($ 0.5) $17.3 $ 4.8 ======
======= ======= ======= B. Free Cash Flow Free cash flow is defined
by the Company as net income (loss) plus depreciation and
amortization, special charges, stock-based compensation, and
amortization of deferred financing costs less capital expenditures.
The Company uses free cash flow, among other measures, to evaluate
its operating performance. Management believes free cash flow
provides investors with an important perspective on the Company's
cash available to service debt and the Company's ability to make
strategic acquisitions and investments, maintain its capital
assets, repurchase its Common Stock and fund ongoing operations. As
a result, free cash flow is a significant measure of the Company's
ability to generate long-term value. The Company believes the
presentation of free cash flow is relevant and useful for investors
because it allows investors to view performance in a manner similar
to the method used by management. In addition, free cash flow is
also a primary measure used externally by the Company's investors,
analysts and peers in its industry for purposes of valuation and
comparing the operating performance of the Company to other
companies in its industry. Free cash flow per weighted average
shares outstanding is defined by the Company as free cash flow
divided by the weighted average shares outstanding used in the
computation of net income (loss) per share. As free cash flow is
not a measure of performance calculated in accordance with GAAP,
free cash flow should not be considered in isolation of, or a
substitute for, net income as an indicator of operating performance
or net cash flow provided by operating activities as a measure of
liquidity. Free cash flow, as the Company calculates it, may not be
comparable to similarly titled measures employed by other
companies. In addition, free cash flow does not necessarily
represent funds available for discretionary use and is not
necessarily a measure of operating cash flow to remove the impact
of cash flow timing differences to arrive at a measure which the
Company believes more accurately reflects funds available for
discretionary use. Specifically, the Company adjusts operating cash
flow (the most directly comparable GAAP financial measure) for
capital expenditures, deferred taxes, non-recurring expenditures
and certain other non-cash items in addition to removing the impact
of sources and or uses of cash resulting from changes in operating
assets and liabilities. Accordingly, users of this financial
information should consider the types of events and transactions,
which are not reflected. The Company provides below a
reconciliation of free cash flow to the most directly comparable
amount reported under GAAP, net cash flow provided by operating
activities. Three Months Ended Year Ended January 31, January 31,
------------------ ------------- 2006 2005 2006 2005 ------
-------- ------ ------ (In millions, except per share amounts) Net
cash provided by (used in) operating activities $ 8.9 $ 23.1 $ 5.2
($9.5) Plus (Minus) Net cash provided by operating activities
attributable to discontinued operations (2.8) (21.7) 5.6 (0.6)
Changes in operating assets and liabilities (5.3) (2.8) (0.3) 10.6
Spinoff and restructuring costs included in Special Charges 1.4 0.1
3.5 0.4 Capital expenditures 0.0 (1.0) (0.7) (2.7) ------- --------
------ ------ Free Cash Flow $ 2.2 ($2.3) $13.3 ($1.8) =======
======== ====== ====== Weighted Average Shares Outstanding 11.9
10.7 11.6 10.7 ======= ======== ====== ====== Free Cash Flow per
Share $ 0.19 ($0.22) $1.15 ($0.17) ======= ======== ====== ======
Alloy, Inc. Statement of Operations (In thousands, except per share
data) Three Months Ended Fiscal Year Ended January 31, January 31,
--------------------- --------------------- 2006 2005 2006 2005
---------- ---------- ---------- ---------- Revenue $ 43,211 $
41,842 $ 195,324 $ 184,208 ---------- ---------- ----------
---------- Expenses Operating 36,322 37,764 163,487 161,057 General
and Administrative 3,964 5,055 14,893 19,926 Depreciation and
Amortization 925 1,955 4,973 7,930 Special Charges 34,066 72,921
36,219 73,268 ---------- ---------- ---------- ---------- Total
Expenses 75,277 117,695 219,572 262,181 ---------- ----------
---------- ---------- Operating Loss (32,066) (75,853) (24,248)
(77,973) Interest Expense (1,061) (1,060) (4,243) (4,262) Interest
Income 349 103 898 351 Other Items, net (25) (9) (27) (365)
---------- ---------- ---------- ---------- Loss from Continuing
Operations before Taxes (32,803) (76,819) (27,620) (82,249) Income
Taxes (160) (28) (363) (158) ---------- ---------- ----------
---------- Loss from Continuing Operations (32,963) (76,847)
(27,983) (82,407) Income (Loss) from Discontinued Operations 9,178
3,500 (7,525) (9,374) ---------- ---------- ---------- ----------
Net Loss (23,785) (73,347) (35,508) (91,781) Dividends on Preferred
Stock -- (408) (620) (1,608) ---------- ---------- ----------
---------- Net Loss attributable to Common Stockholders' ($23,785)
($73,755) ($36,128) ($93,389) ========== ========== ==========
========== Basic and Diluted Net Loss per Share: Continuing
Operations ($2.78) ($7.17) ($2.41) ($7.74) Discontinued Operations
$ 0.77 $ 0.33 ($0.65) ($0.88) ---------- ---------- ----------
---------- Attributable to Common Stockholders' ($2.01) ($6.88)
($3.11) ($8.77) ========= ========= ========= ========= Weighted
Average Basic and Diluted Shares Outstanding 11,855 10,718 11,598
10,652 ========== ========== ========== ========== Reconciliation
of Operating Loss to Adjusted EBITDA (1): Net Loss ($23,785)
($73,347) ($35,508) ($91,781) Plus: Income (Loss) from Discontinued
Operations (9,178) (3,500) 7,525 9,374 Income Taxes 160 28 363 158
Other Items, net 25 9 27 365 Interest Income (349) (103) (898)
(351) Interest Expense 1,061 1,060 4,243 4,262 Special Charges
34,066 72,921 36,219 73,268 Depreciation and Amortization 925 1,955
4,973 7,930 Stock-based Compensation (included in General and
Administrative Expenses) 84 508 307 1,581 --------- ---------
--------- --------- Adjusted EBITDA $ 3,009 ($469) $ 17,251 $ 4,806
========= ========= ========= ========= (1) Adjusted EBITDA is a
non-GAAP financial measure. Alloy uses EBITDA to evaluate its
performance period to period without taking into account certain
expenses, which in the opinion of Alloy management, do not reflect
Alloy's results from its core business activities. These non-GAAP
measures should be considered in addition to, and not as a
substitute for, other measures of financial performance prepared in
accordance with GAAP. ALLOY, INC. CONSOLIDATED BALANCE SHEETS (In
thousands) January 31, -------------------- 2006 2005 ---------
---------- ASSETS Current assets: Cash and cash equivalents $
39,631 $ 25,137 Marketable securities -- 6,341 Accounts receivable,
net of allowance for doubtful accounts of $1,690 and $1,835,
respectively 42,483 34,413 Other current assets 7,851 8,548 Current
assets of discontinued operations -- 30,769 --------- ----------
Total current assets 89,965 105,208 Fixed assets 4,072 6,067
Goodwill 114,728 145,559 Intangible assets 7,006 10,131 Other
assets 3,717 3,233 Other assets of discontinued operations --
84,383 --------- ---------- Total assets $ 219,488 $ 354,581
========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 9,345 $ 13,075 Amount payable to
dELiA*s 8,155 -- Deferred revenue 10,552 12,313 Accrued expenses
and other current liabilities 16,061 9,228 Current liabilities of
discontinued operations -- 35,692 --------- ---------- Total
current liabilities 44,113 70,308 Senior convertible debentures
69,300 69,300 Other long-term liabilities 891 1,044 Other
liabilities of discontinued operations -- 5,166 Series B redeemable
convertible preferred stock, $10 per share liquidation preference;
$.01 par value; 3 shares designated; mandatorily redeemable; 0
(2006) and 1 shares (2005) issued and outstanding, respectively --
16,042 --------- ---------- Total liabilities 114,304 161,860
--------- ---------- Stockholders' equity: Common stock; $.01 par
value: authorized 50,000 shares; issued and outstanding, 11,874
(2006) and 10,981 (2005) 119 110 Additional paid-in capital 364,228
416,208 Deferred compensation (539) (517) Accumulated deficit
(254,459) (218,951) Accumulated other comprehensive loss -- (31)
--------- ---------- 109,349 196,819 Less treasury stock, at cost;
194 (2006) and 191 (2005) shares (4,165) (4,098) ---------
---------- Total stockholders' equity 105,184 192,721 ---------
---------- Total liabilities and stockholders' equity $ 219,488 $
354,581 ========= ========== *T
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