New Frontier Media Reports Strongest Revenue Quarter in Company History

New Frontier Media Reports Strongest Revenue Quarter in Company History

BOULDER, Colo., Feb. 5 /PRNewswire-FirstCall/ -- New Frontier Media, Inc. (NASDAQ:NOOF) , a worldwide producer and distributor of transactional television and general motion picture entertainment, today reported revenue of $17.9 million for the quarter ended December 31, 2007, representing an increase of 8% from $16.6 million during the same quarter in the prior year. This is the highest quarterly revenue ever reported by the Company. The Company reported earnings per share of $0.13 for the quarter ended December 31, 2007, as compared to $0.14 per share for the same quarter last year.

"We are pleased with the financial results and performance of our business in the third quarter," said Michael Weiner, Chief Executive Officer of New Frontier Media, Inc. "The Film Production segment had a very strong quarter as expected, and our Transactional TV segment continues to execute well in a very competitive market. We believe this segment has now stabilized and is poised to resume a growth trend in our next fiscal year as we experience results connected with our recent launch of an additional channel on the nation's largest DBS platform. We appreciate the support of shareholders who have believed in the Company's ability to execute through the challenging quarters of this past fiscal year."

   Segment Information    Transactional TV  

The Company's Transactional TV segment (formerly referred to as the Pay TV segment) reported revenue of $9.9 million for the quarter ended December 31, 2007, as compared to $11.2 million for the same prior year quarter, representing a decrease of 12%. The following detailed revenue results were reported for the Transactional TV segment:

    --   Pay-per-view ("PPV") revenue during the current quarter declined 22%         to $5.4 million from $6.9 million for the same quarter last year.         The decrease is primarily a result of the renegotiated agreement         with one of the Company's key customers during the third quarter of         fiscal year 2007. Simultaneously, this customer added two         incremental competitive channels to its adult category, thereby         creating a lower relative value for each of the Company's services.         This will be the last period that the comparison of the Company's         year-over-year quarterly results is impacted by the above-mentioned         renegotiated agreement.    --   Video-on-demand revenue increased to $4.4 million during the current         quarter representing a 16% increase from the $3.8 million in revenue         during the same prior year quarter.  This increase is due to a         general improvement in the performance of the Company's content.    --   C-Band revenue decreased to $0.1 million from $0.5 million in the         prior year.  As previously announced, this service was discontinued         during the current quarter.    

Cost of sales for the Transactional TV segment was $2.8 million and consistent with the same prior year quarter. Operating expenses declined 9% to $2.0 million from $2.2 million for the same quarter a year ago primarily from a reduction in certain advertising costs. Operating income for the Transactional TV segment was $5.1 million which reflects a 19% decline as compared to the same quarter in the prior year.

Film Production

The Company's Film Production segment reported revenue of $7.6 million for the current quarter reflecting an increase of approximately 58% as compared to $4.8 million in the same prior year period. The following detailed revenue results were reported for the Film Production segment:

    --   Owned product revenue increased 16% to $4.3 million during the         current quarter from $3.7 million in the same prior year quarter.         This increase is primarily due to the delivery of a 13 episode movie         series to a premium TV service.    --   Repped product revenue declined slightly to $0.7 million as compared         to $0.9 million in the same prior year quarter.    --   Other revenue increased to $2.6 million for the quarter ended         December 31, 2007 as compared to $0.2 million for the same quarter a         year ago.  The increase in revenue is from the completion and         delivery of a producer-for-hire arrangement during the current         quarter.    

Cost of sales increased to $4.0 million in the current quarter as compared to $1.8 million in the same prior year quarter from expenses realized in connection with the completion of the producer-for-hire arrangement. Operating expenses for the Film Production segment increased to $1.4 million in the current quarter as compared to $1.2 million in the same prior year quarter primarily due to a $0.7 million impairment charge associated with two film events. The estimated future benefit from these events was originally established when the Company acquired MRG Entertainment, Inc. ("MRG"). During the current quarter, the Company lowered its original estimate of the benefits expected from these two events, thereby resulting in an impairment charge equal to the difference in the remaining unamortized costs of the events and the estimated future benefits. Partially offsetting the impact of the $0.7 million impairment charge was the reversal of a $0.5 million earn-out accrual that had been previously accrued during the nine months ended September 30, 2007. The former shareholders of MRG were entitled to receive an additional earn-out payment of $0.7 million during the calendar year ended December 31, 2007 if certain performance targets were achieved. During the nine months ended September 30, 2007, the Company estimated that the performance targets would be met and accordingly, recorded an accrual. MRG did not achieve the twelve month performance target, so the earn-out accrual was reversed in the current quarter.

The Film Production segment generated operating income of $2.2 million for the quarter ended December 31, 2007 representing an increase of 22% as compared to $1.8 million during the same prior year quarter.

Internet

The Company's Internet segment reported net revenue of $0.4 million for the quarter ended December 31, 2007 as compared to net revenue of $0.6 million for the same prior year quarter, representing a decrease of 33%. Operating income for the Internet segment was $0.1 million for the quarter ended December 31, 2007 as compared to a loss from operations of $0.5 million for the quarter ended December 31, 2006. The results for the prior year quarter included a $0.4 million impairment charge for the write-off of certain licensed content.

Corporate Administration Expenses

Corporate administration expenses for both the quarter ended December 31, 2007 and 2006 were $2.6 million.

Adjusted EBITDA and Cash Flows

The Company reported Adjusted EBITDA for the quarter ended December 31, 2007 of $5.6 million compared to $6.5 million in the same prior year period. A schedule reconciling EBITDA and Adjusted EBITDA (both defined below) to the most directly comparable United States generally accepted accounting principle ("GAAP") financial measure -- Net Income -- is included in this press release. The Company believes EBITDA and Adjusted EBITDA are important financial measures and they are used by management to monitor the financial performance of the Company. The decline in Adjusted EBITDA for the current quarter compared to the same period last year is primarily attributable to the following:

    --   lower net income from a decline in the PPV revenue reported in the         Transactional TV segment from the renegotiated contract with a key         customer; and    --   an increase in cash investments in content associated with the Film         Production segment's creation of new content.    

Total cash and investments as of December 31, 2007 increased to $19.6 million as compared to $16.6 million as of September 30, 2007. The increase from the previous quarter is primarily attributable to the following:

    --   a $3.7 million increase in cash flows from operations as compared to         the second quarter of fiscal year 2008; and    --   the timing of the payment of a $3.0 million dividend which was         accrued in the quarter ended December 31, 2007 but not paid until         January 2008. The $3.0 million dividend for the prior quarter ended         September 30, 2007 was accrued and paid during that same quarter.     Conference Call Information  

New Frontier Media, Inc. will be conducting its conference call and web cast to discuss earnings today at 11 a.m. Eastern Time. The participant phone number for the conference call is (800) 240-6709. To participate in the web cast please log on to http://www.noof.com/ and click on "Investor Relations" and then "Webcasts & Events". A replay of the conference call will be available for seven days beginning after 1 p.m. Eastern Time on February 5, 2008 at (800) 405-2236, access code 11108180#. The replay will also be archived for twelve months on the Corporate web site at http://www.noof.com/. This press release can be found on the Company's corporate web site, http://www.noof.com/, under "Investor Relations/News Releases".

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on current expectations, estimates and projections made by management. The Company intends for the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. Words such as "anticipates", "expects", "intends", "plans", "believes'', "seeks", "estimates", or variations of such words are intended to identify such forward-looking statements. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements. All forward-looking statements made in this press release are made as of the date hereof, and the Company assumes no obligation to update the forward-looking statements included in this news release whether as a result of new information, future events, or otherwise. Please refer to the Company's most recent Form 10-K and other filings with the SEC for additional information regarding risks and uncertainties, including, but not limited to, the risk factors listed from time to time in such SEC reports. Copies of these filings are available through the SEC's electronic data gathering analysis and retrieval system (EDGAR) at http://www.sec.gov/.

Non-GAAP Financial Measures

This press release contains "non-GAAP financial measure(s)" as defined in Item 10 of Regulation S-K, including EBITDA and Adjusted EBITDA on a consolidated basis for the three and nine month periods ended December 31, 2007 and 2006.

The Company believes these measures provide useful information to management and to investors; however, these "non-GAAP" measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. A reconciliation of EBITDA and Adjusted EBITDA, as compared to the most directly comparable GAAP financial measure, is presented in a reconciliation table that follows our presentation of Consolidated Operating Results below. EBITDA is calculated as net income plus depreciation, amortization (excluding content amortization), income taxes and interest expense less interest income. Adjusted EBITDA is calculated as EBITDA plus content amortization and share based compensation expenses, less cash investments for content and capital expenditures.

ABOUT NEW FRONTIER MEDIA, INC.

New Frontier Media, Inc. is a leader in transactional television as well as general motion picture entertainment. The Company delivers eight full-time transactional adult-themed pay-per-view networks to cable and satellite operators across the United States. These services reach approximately 165 million network homes. Additionally, the Company is a leading provider of content to video-on-demand platforms on cable and satellite. New Frontier is the exclusive distributor of Penthouse branded adult television in the U.S. The Company's programming originates at New Frontier's state of the art digital broadcast center in Boulder, Colorado. The Company owns tens of thousands of hours of digital content and partners with more than 150 movie studios to bring together the most exciting variety of transactional adult entertainment available today.

New Frontier Media's MRG Entertainment unit produces original motion pictures that are distributed in the U.S. and internationally on premium movie channels. MRG Entertainment also develops and produces original event programming that is widely distributed on satellite and cable pay-per-view. MRG's Lightning Entertainment unit represents the work of a full range of independent U.S. film producers in markets in every corner of the globe. The Lightning portfolio consists of over 40 titles.

For more information about New Frontier Media, Inc. contact Grant Williams, Corporate Controller, at (303) 444-0900, extension 185, and please visit our web site at http://www.noof.com/.

    Contact: Grant Williams, Corporate Controller    (303) 444-0900 x 185    gwilliams@noof.com      Consolidated Operating Results   (in thousands, except per share amounts)                                             (Unaudited)       (Unaudited)                                            Quarter Ended   Nine Months Ended                                             December 31,      December 31,                                            2007     2006     2007     2006    Net sales                              $17,921  $16,569  $43,291  $49,063    Cost of sales                            6,872    4,744   14,128   15,268    Gross margin                            11,049   11,825   29,163   33,795    Operating expenses                       6,277    6,741   19,000   17,581    Operating income                         4,772    5,084   10,163   16,214    Other income                               175      376      560      876    Income before provision for income taxes 4,947    5,460   10,723   17,090    Provision for income taxes              (1,815)  (2,076)  (3,949)  (6,503)    Net income                              $3,132   $3,384   $6,774  $10,587    Basic income per share                   $0.13    $0.14    $0.28    $0.44    Diluted income per share                 $0.13    $0.14    $0.28    $0.44    Dividends declared per common share      $0.13    $0.60    $0.38    $0.60    Average outstanding shares of common    stock                                  23,805   23,769   24,088   23,811    Common stock and common stock    equivalents                            23,878   24,279   24,241   24,285      Reconciliations of EBITDA and Adjusted EBITDA                                             (Unaudited)        (Unaudited)                                           Quarter Ended   Nine Months Ended                                            December 31,      December 31,                                           2007     2006     2007      2006    Net Income                             $3,132   $3,384   $6,774   $10,587    Adjustments:            Depreciation/Amortization(1)     572      519    1,653     1,470            Interest expense                  52       28      148        85            Interest income                 (139)    (388)    (608)     (948)            Income taxes                   1,815    2,076    3,949     6,503   EBITDA                                  5,432    5,619   11,916    17,697             Content amortization           2,336    2,359    4,866     7,980            Cash investments in content   (1,967)  (1,502)  (6,507)   (5,467)            Capital expenditures            (367)    (288)  (1,527)     (874)            Share-based compensation         150      278      713       706    Adjusted EBITDA                        $5,584   $6,466   $9,461   $20,042    (1) Amortization excludes amortization of content      Consolidated Balance Sheets   (in thousands)                                               (Unaudited)                                            December 31, 2007  March 31, 2007   Assets   Current assets:     Cash and cash equivalents                    $16,420           $17,345     Restricted cash                                   40             1,710     Marketable securities                          2,603             8,681     Accounts receivable, net                      15,763            12,249     Deferred tax asset                               337               528     Prepaid and other assets                       1,278             2,863    Total current assets                            36,441            43,376    Equipment and furniture, net                     4,717             4,534   Prepaid distribution rights, net                10,162             9,084   Marketable securities                              584               587   Recoupable costs and producer advances           1,291             1,278   Film costs, net                                  6,870             6,991   Goodwill                                        18,608            18,608   Other identifiable intangible assets, net        2,199             2,771   Other assets                                     1,172               987    Total assets                                   $82,044           $88,216    Liabilities and shareholders' equity   Current liabilities:     Accounts payable                              $1,686            $1,942     Dividend payable                               2,982                 -     Taxes payable                                    628                 -     Producers payable                                986             1,049     Deferred revenue                                 895               889     Due to related party                              32               647     Accrued compensation                           1,305             3,298     Deferred producer liabilities                  2,278             1,344     Accrued liabilities and other                  1,460             3,664    Total current liabilities                       12,252            12,833    Deferred tax liability                               -               976   Taxes payable                                    1,849             1,726   Other long-term liabilities                      1,021               982    Total liabilities                               15,122            16,517    Commitments and contingencies    Shareholders' equity:     Common stock                                       2                 2     Additional paid-in capital                    61,647            64,191     Retained earnings                              5,286             7,536     Accumulated other comprehensive loss             (13)              (30)    Total shareholders' equity                      66,922            71,699      Total liabilities and shareholders' equity   $82,044           $88,216      Consolidated Statements of Cash Flows   (In thousands)                                       (Unaudited)                                                     Nine Months Ended                                                        December 31,                                                   2007               2006   Cash flows from operating activities:   Net income                                     $6,774            $10,587     Adjustments to reconcile net income to net      cash provided by operating activities:     Depreciation and amortization                 6,519              9,450     Tax benefit from option/warrant exercises       211                 76     Share-based compensation                        713                706     Charge for asset disposition and impairment   1,141                436   Changes in operating assets and liabilities         Accounts receivable                      (3,514)            (1,929)         Accounts payable                           (256)               196         Prepaid distribution rights              (3,493)            (3,333)         Capitalized film costs                   (3,014)            (2,134)         Deferred revenue                              6                258         Producers payable                           (63)               606         Taxes receivable and payable, net         1,738                479         Deferred tax asset and liability, net      (893)            (1,315)         Accrued compensation                     (1,993)               606         Other assets and liabilities, net           743                (26)              Net cash provided by operating              activities                           4,619             14,663    Cash flows from investing activities:     Payment for business acquisitions                 -                (18)     Purchase of investments available-for-sale   (2,736)           (22,091)     Redemption of investments available-for-sale  8,844             17,398     Purchase of equipment and furniture          (1,527)              (874)     Payment of related party note arising from      business acquisition                          (615)              (526)              Net cash provided by (used in)              investing activities                 3,966             (6,111)    Cash flows from financing activities:     Proceeds from exercise of stock      options/warrants                               512              1,712     Purchase of common stock                     (3,844)            (2,160)     Payment of dividend                          (6,042)                 -     Excess tax (shortfall) benefit from option      /warrant exercise                             (136)               730              Net cash (used in) provided by              financing activities                (9,510)               282    Net (decrease) increase in cash and    cash equivalents                                (925)             8,834   Cash and cash equivalents, beginning of period 17,345             12,611    Cash and cash equivalents, end of period      $16,420            $21,445  

First Call Analyst:
FCMN Contact:

Source: New Frontier Media, Inc.

CONTACT: Grant Williams, Corporate Controller of New Frontier Media,
Inc., +1-303-444-0900, ext. 185, gwilliams@noof.com

Web site: http://www.noof.com/

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Profile: International Entertainment