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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