Martha Stewart Living Omnimedia Reports Second Quarter 2011 Results

Martha Stewart Living Omnimedia Reports Second Quarter 2011 Results

-- Merchandising Revenue Growth of 34% Excluding Onetime Gain

NEW YORK, July 26, 2011 /PRNewswire/ -- Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) today announced its results for the second quarter ended June 30, 2011. The Company reported revenue for the second quarter of $54.9 million.

Charles Koppelman, Executive Chairman and Principal Executive Officer, said: "Our second quarter results were led by continued momentum in our Merchandising business, which delivered 34% revenue growth and strong Adjusted EBITDA growth after excluding a favorable onetime gain in the prior year's quarter. While we're seeing choppiness across key categories in print advertising, we're also seeing robust consumer engagement across our print and web properties. Subscription revenue remains strong, and digital ad revenue is up 5%, tracking continued growth in our Internet user metrics. Looking ahead we remain focused on improving performance across our businesses in the second half of this year."

Lisa Gersh, who joined the Company in June as President and Chief Operating Officer, said: "In my first weeks since joining MSLO, I have enjoyed very productive engagement with our people, our partners and our senior management. I'm looking forward to working together with our teams as we leverage the foundation of our strong and valuable brands to produce profitable and sustainable revenue growth for MSLO."

Second Quarter 2011 Summary

Revenues were $54.9 million in the second quarter of 2011, compared to $55.3 million in the second quarter of 2010. The second quarter of 2010 included a $2.2 million termination payment related to the 1-800-Flowers.com relationship which concluded in the quarter.

Adjusted EBITDA for the second quarter of 2011 was a loss of $(0.6) million, compared to a gain of $1.8 million in the prior year period.

Operating loss for the second quarter of 2011 was $(2.5) million, compared to $(0.8) million for the second quarter of 2010.

Basic and diluted net loss per share were both $(0.05) for the second quarter of 2011, compared to $(0.02) for the second quarter of 2010.

Second Quarter 2011 Results by Segment

Three Months Ended,
June 30
(unaudited, in
thousands)
2011 2010
---- ----
REVENUES
Publishing $34,141 $35,292
Broadcasting 7,801 8,190
Merchandising 12,918 11,817
------ ------
Total Revenues $54,860 $55,299
======= =======

ADJUSTED EBITDA
Publishing $(1,596) $2,352
Broadcasting (367) (1,342)
Merchandising 8,519 7,652
Corporate (7,147) (6,843)
------ ------
Total Adjusted
EBITDA $(591) $1,819
===== ======

OPERATING
(LOSS)/INCOME
Publishing $(1,915) $1,887
Broadcasting (482) (1,458)
Merchandising 8,782 7,329
Corporate (8,871) (8,561)
------ ------
Total Operating
Loss $(2,486) $(803)
======= =====

Publishing

As previously announced, results from our former Internet segment are now included in our Publishing segment for all periods presented.

Revenues in the second quarter of 2011 were $34.1 million, compared to $35.3 million in the prior year's second quarter. The decrease reflects continued volatility in the print advertising market.

Adjusted EBITDA was a loss of $(1.6) million in the second quarter of 2011, compared to a $2.4 million gain in the prior year's quarter due to increased production and editorial expenses and the timing of circulation expenses.

Operating loss was $(1.9) million for the second quarter of 2011, compared to a $1.9 million gain in the second quarter of 2010.

Highlights

-- MSLO announced the extension of its long-standing relationship with
Clarkson Potter/Publishers with a new agreement to publish 12 books
through 2016; all titles are expected to be published simultaneously in
print and digital formats.
-- According to comScore Unified data, unique visitors across MSLO's
websites increased 32% and page views were up 26% over the prior year's
period.
-- The Company launched two new apps for the iPad -- Martha Stewart
Cocktails and Whole Living Smoothies -- and introduced a redesigned
version of the popular Martha's Everyday Food app for the iPhone and
iPod touch.

Broadcasting

Revenues in the second quarter of 2011 were $7.8 million, compared to $8.2 million in the second quarter of 2010 as lower ad sales revenue and lower international license fees more than offset increases in license fees from new programming.

Adjusted EBITDA was a loss of $(0.4) million for the second quarter of 2011 compared to $(1.3) million in the prior year's second quarter due primarily to savings in production and distribution costs associated with The Martha Stewart Show.

Operating loss was $(0.5) million for the second quarter of 2011, compared to $(1.5) million in the second quarter of 2010.

Highlights

-- The Martha Stewart Show on Hallmark Channel was honored with Daytime
Emmy Awards in two categories: Outstanding Lifestyle/Culinary Host and
Outstanding Lifestyle Program.
-- Production is currently underway or complete for 52 episodes of Emeril's
Table, a forthcoming daily series on Hallmark Channel, 48 new episodes
of Mad Hungry with Lucinda Scala Quinn, 26 new episodes of Petkeeping
with Marc Morrone, and 13 new episodes of Martha Bakes.
-- Hallmark Channel premiered two new MSLO primetime specials, including
the recent Martha Stewart Presents: Women with Vision and Martha Stewart
Presents: Grilling Secrets of the Master Chefs.

Merchandising

Revenues were $12.9 million for the second quarter of 2011, an increase of 9% from $11.8 million in the prior year's second quarter. The second quarter of 2010 included an additional $2.2 million in revenue received from the early termination of our agreement with 1-800-Flowers.com. Excluding that payment, revenue increased 34% year-over-year in the second quarter.

Adjusted EBITDA was $8.5 million for the second quarter of 2011, compared to $7.7 million in the prior year's second quarter. Excluding the early termination payment, Adjusted EBITDA was up 55% year-over-year.

Operating income was $8.8 million for the second quarter of 2011, compared to operating income of $7.3 million in the second quarter of 2010.

Highlights

-- The Martha Stewart Living line at The Home Depot demonstrated continued
growth in the quarter, driven by strength in outdoor furniture and
carpet, as well as the addition of a kitchen cabinetry program. The
quarter also included the successful launch of specialty paint and
project paint.
-- The Martha Stewart Collection at Macy's performed well and continues to
be the No. 1 brand in the retailer's home category, with double-digit
increases over the prior year's quarter, led by solid contributions in
textiles, kitchen tools and tabletop.
-- Martha Stewart Crafts benefited from solid performance at Michaels and
expanded distribution, including the launch of a new party crafts line
at Jo-Ann Fabrics and Crafts.
-- Martha Stewart Pets fashion apparel for dogs continued to be a popular
offering at PetSmart; a new line of cat products is expected to launch
in early September.
-- Emeril's cookware line with All-Clad continued to perform well and
distribution of his new cutlery line is expanding to such retailers as
Macy's, Dillard's, and Bed Bath & Beyond; sales of the chef's All-Clad
cookware and T-Fal appliances were strong during a successful HSN
appearance in May.

Corporate

Adjusted EBITDA was a loss of $(7.1) million in the second quarter of 2011 compared to a loss of $(6.8) million in the prior year's quarter. Total Corporate expenses were $(8.9) million in the second quarter of 2011 compared to $(8.6) million in the prior year's quarter.

The Company will host a conference call with analysts and investors on July 26th at 11:00 a.m. EDT that will be broadcast live over the Internet at www.marthastewart.com/ir, and an archived version will be available through August 9, 2011.

Use of Non-GAAP Financial Information

In addition to using net income to assess the organization's overall financial health, Company management uses consolidated net income/(loss) before interest income or expense, taxes, depreciation and amortization, impairment, non-cash equity compensation expense and other expense (including loss on equity securities) ("adjusted EBITDA"), a non-GAAP financial measure, to evaluate the performance of our businesses on a real-time basis. Adjusted EBITDA is considered an important indicator of operational strength, is a direct component of the Company's annual compensation program, and is a significant factor in helping our management determine how to allocate resources and capital. Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP. Management considers adjusted EBITDA to be a critical measure of operational health because it captures all of the revenue and ongoing operating expenses of our businesses without the influence of (i) interest charges, which result from our capital structure, not our ongoing business efforts, (ii) taxes, which relate to the overall organizational financial return, not that of any one business, (iii) the capital expenditure costs associated with depreciation and amortization, which are a function of historical decisions on infrastructure and capacity, (iv) the cost of non-cash equity compensation which, as a function of our stock price, can be highly variable, is not necessarily an indicator of current operating performance for any individual business unit, and is amortized over the various periods, (v) non-cash impairment charges, which are impacted by macro-economic conditions and do not necessarily reflect operating performance, and (vi) other income/(expense) which may include non-operational items.

Adjusted EBITDA provides a means to directly evaluate the ability of our business operations to generate returns on a real-time basis. We provide disclosure of adjusted EBITDA because we believe it is useful for investors to have means to assess our performance as we do. While adjusted EBITDA is a customized non-GAAP measure, it also provides a means to analyze value and compare our operating capabilities to those of companies with which we compete, many of which have different compensation plans, depreciation and amortization costs, capital structures and tax burdens. But please note that our non-GAAP results may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

A limitation of adjusted EBITDA is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues for our overall organization. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. Management also evaluates the cost of capitalized tangible and intangible assets by analyzing returns provided on the capital dollars deployed. A further limitation of adjusted EBITDA is that it does not include stock compensation expense related to our workforce. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or other measures of financial performance reported in accordance with GAAP.

About Martha Stewart Living Omnimedia, Inc.

Martha Stewart Living Omnimedia, Inc. (MSLO) is a leading provider of original "how-to" information, inspiring and engaging consumers with unique lifestyle content and high-quality products. MSLO is organized into the following business segments: Publishing, Broadcasting, and Merchandising. MSLO is listed on the New York Stock Exchange under the ticker symbol MSO.

Forward-Looking Statements

We have included in this press release certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our current beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These statements include estimates of future financial performance, potential opportunities, expected product line expansions and additions, future acceptability of our content and our businesses, anticipated growth, and other statements that can be identified by terminology such as "may," "will," "should," "could," "position," "expects," "intends," "plans," "thinks," "believes," "estimates," "potential," "seem," "counting" or "continue" or the negative of these terms or other comparable terminology. The Company's actual results may differ materially from those projected in these statements, and factors that could cause such differences include: adverse reactions to publicity relating to Martha Stewart or Emeril Lagasse by consumers, advertisers and business partners; the failure of national and/or local economies to improve or renewed deterioration of such economies; shifts in our business strategies; a loss of the services of Ms. Stewart or Mr. Lagasse; a loss of the services of other key personnel; a renewed softening of the domestic advertising market; changes in consumer reading, purchasing and/or television viewing patterns to which our offerings are unable to respond; unanticipated increases in paper, postage or printing costs; operational or financial problems at any of our contractual business partners; the receptivity of consumers to our new product introductions; the inability to add to our partnerships or capitalize on existing partnerships; and changes in government regulations affecting the Company's industries.

Certain of these and other factors are discussed in more detail in the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission, especially under the heading "Risk Factors," which may be accessed through the SEC's World Wide Web site at http://www.sec.gov/. The Company is under no obligation to update any forward-looking statements after the date of this release.

Martha Stewart Living Omnimedia, Inc.
Consolidated Statements of Operations
Three Months Ended June 30,
(unaudited, in thousands, except per share amounts)

2011 2010
---- ----
REVENUES
Publishing $34,141 $35,292
Broadcasting 7,801 8,190
Merchandising 12,918 11,817
Total revenues 54,860 55,299
------ ------

OPERATING COSTS AND EXPENSES
Production, distribution and
editorial 30,510 29,124
Selling and promotion 13,029 13,479
General and administrative 12,883 12,559
Depreciation and amortization 924 940
Total operating costs and expenses 57,346 56,102
------ ------
OPERATING LOSS (2,486) (803)

OTHER EXPENSE
Interest expense, net (14) (27)
Loss on equity securities (14) (19)
Total other expense (28) (46)
(2,514) (849)
LOSS BEFORE INCOME TAXES

Income tax provision (424) (400)

NET LOSS $(2,938) $(1,249)
======= =======
LOSS PER SHARE - BASIC AND DILUTED
Net loss $(0.05) $(0.02)
====== ======

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 54,766 54,389

Martha Stewart Living Omnimedia, Inc.
Consolidated Statements of Operations
Six Months Ended June 30 ,
(unaudited, in thousands, except per share amounts)

2011 2010
---- ----
REVENUES
Publishing $68,817 $66,627
Broadcasting 15,570 20,281
Merchandising 23,147 21,626
Total revenues 107,534 108,534
------- -------

OPERATING COSTS AND EXPENSES
Production, distribution and editorial 61,718 56,653
Selling and promotion 27,320 28,086
General and administrative 25,839 25,905
Depreciation and amortization 1,920 2,062
Total operating costs and expenses 116,797 112,706
------- -------
OPERATING LOSS (9,263) (4,172)

OTHER INCOME / (EXPENSE)
Interest expense, net (126) (108)
Income / (loss) on equity securities 205 (19)
Total other income / (expense) 79 (127)
(9,184)
LOSS BEFORE INCOME TAXES (4,299)

Income tax provision (831) (814)

NET LOSS $(10,015) $(5,113)
======== =======
LOSS PER SHARE - BASIC AND DILUTED
Net Loss $(0.18) $(0.09)
====== ======

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted 54,741 54,360

Martha Stewart Living Omnimedia, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

June 30, December 31,
2011 2010
(unaudited) ----
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $23,187 $23,204
Short-term investments 11,116 10,091
Accounts receivable, net 43,274 59,250
Inventory 6,147 5,309
Deferred television production costs 2,933 2,413
Other current assets 4,548 4,772
Total current assets 91,205 105,039
------

PROPERTY, PLANT AND EQUIPMENT, net 14,247 14,507
GOODWILL, net 45,107 45,107
OTHER INTANGIBLE ASSETS, net 46,541 46,547
OTHER NONCURRENT ASSETS, net 10,104 11,114
------ ------
Total assets $207,204 $222,314
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $24,363 $30,062
Accrued payroll and related costs 6,162 6,541
Current portion of deferred subscription
revenue 15,655 18,734
Current portion of other deferred revenue 4,928 4,732
Current portion of loan payable 1,500 1,500
Total current liabilities 52,608 61,569
------
DEFERRED SUBSCRIPTION REVENUE 4,351 4,529
OTHER DEFERRED REVENUE 4,965 1,413
LOAN PAYABLE 4,500 7,500
DEFERRED INCOME TAX LIABILITY 5,201 4,527
OTHER NONCURRENT LIABILITIES 3,961 3,743
----- -----
Total liabilities 75,586 83,281
------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, $0.01 par value,
350,000,000 shares 292 288
authorized: 29,156,887 and 28,753,212 shares
outstanding in
2011 and 2010, respectively
Class B common stock, $0.01 par value,
150,000,000 shares 260 263
authorized: 25,984,625 and 26,317,960 shares
outstanding in
2011 and 2010, respectively
Capital in excess of par value 298,170 295,576
Accumulated deficit (166,216) (156,201)
Accumulated other comprehensive loss (113) (118)
132,393 139,808
------- -------
Less: class A treasury stock - 59,400 shares
at cost (775) (775)
---- ----
Total shareholders' equity 131,618 139,033
-------
Total liabilities and shareholders'
equity $207,204 $222,314
===========

Martha Stewart Living Omnimedia, Inc.
Supplemental Disclosures Regarding Non-GAAP Financial Information
Three Months Ended June 30,
(unaudited, in thousands)

The following table presents segment and consolidated financial
information, including a reconciliation of operating
income/(loss), a GAAP measure, and adjusted EBITDA, a non-GAAP
measure. In order to reconcile adjusted
EBITDA to operating income, depreciation and amortization, non-cash
equity compensation, and non-cash
impairment charges are added back to operating income/(loss).

2011 2010
---- ----

ADJUSTED EBITDA
Publishing $(1,596) $2,352
Broadcasting (367) (1,342)
Merchandising 8,519 7,652
Corporate (7,147) (6,843)
------ ------
Adjusted EBITDA (591) 1,819
---- -----

NON-CASH EQUITY COMPENSATION
Publishing 188 231
Broadcasting 2 44
Merchandising (271) 312
Corporate 1,052 1,095
----- -----
Total Non-Cash Equity Compensation 971 1,682
--- -----

DEPRECIATION AND AMORTIZATION
Publishing 131 234
Broadcasting 113 72
Merchandising 8 11
Corporate 672 623
--- ---
Total Depreciation and Amortization 924 940

OPERATING (LOSS) / INCOME
Publishing (1,915) 1,887
Broadcasting (482) (1,458)
Merchandising 8,782 7,329
Corporate (8,871) (8,561)
------ ------
Total Operating Loss (2,486) (803)
------ ----

OTHER EXPENSE
Interest expense, net (14) (27)
Loss on equity securities (14) (19)
Total other expense (28) (46)
(2,514) (849)
LOSS BEFORE INCOME TAXES

Income tax provision (424) (400)
---- ----

NET LOSS $(2,938) $(1,249)
======= =======

Martha Stewart Living Omnimedia, Inc.
Supplemental Disclosures Regarding Non-GAAP Financial Information
Six Months Ended June 30,
(unaudited, in thousands)

The following table presents segment and consolidated financial
information, including a reconciliation of operating
income/(loss), a GAAP measure, and adjusted EBITDA, a non-GAAP
measure. In order to reconcile adjusted EBITDA
to operating income, depreciation and amortization, non-cash equity
compensation, and non-cash impairment charges
are added back to operating income/(loss).

2011 2010
---- ----

ADJUSTED EBITDA
Publishing $(3,088) $457
Broadcasting (2,038) 2,071
Merchandising 14,043 13,360
Corporate (13,846) (14,528)
------- -------
Adjusted EBITDA (4,929) 1,360
------ -----

NON-CASH EQUITY COMPENSATION
Publishing 327 465
Broadcasting 26 215
Merchandising 11 685
Corporate 2,050 2,105
----- -----
Total Non-Cash Equity Compensation 2,414 3,470
----- -----

DEPRECIATION AND AMORTIZATION
Publishing 350 669
Broadcasting 231 136
Merchandising 15 22
Corporate 1,324 1,235
----- -----
Total Depreciation and Amortization 1,920 2,062
----- -----

OPERATING (LOSS) / INCOME
Publishing (3,765) (677)
Broadcasting (2,295) 1,720
Merchandising 14,017 12,653
Corporate (17,220) (17,868)
------- -------
Total Operating Loss (9,263) (4,172)
------ ------

OTHER INCOME / (EXPENSE)
Interest expense, net (126) (108)
Income / (loss) on equity securities 205 (19)
Total other income / (expense) 79 (127)
(9,184) (4,299)
LOSS BEFORE INCOME TAXES

Income tax provision (831) (814)
---- ----

NET LOSS $(10,015) $(5,113)
======== =======

SOURCE Martha Stewart Living Omnimedia, Inc.

Martha Stewart Living Omnimedia, Inc.

CONTACT: Katherine Nash, Corporate Communications and Investor Relations, Martha Stewart Living Omnimedia, Inc., +1-212-827-8722, knash@marthastewart.com

Web Site: http://www.marthastewart.com

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