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New Frontier Media, Inc. (NASDAQ:NOOF)

Q2 2011 Earnings Call

August 5, 2011 11:00 AM ET

Executives

Grant Williams – CFO

Michael Weiner – Chairman and CEO

Operator

Good morning ladies and gentlemen. Thank you for standing by. Welcome to today’s first quarter fiscal 2012 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Friday, August 5, 2011. At this time, I’d like to turn the conference over to Mr. Grant Williams, Chief Financial Officer. Please go ahead sir.

Grant Williams

Okay, thank you. Good morning everyone and welcome to the New Frontier Media fiscal 2012 first quarter results conference call. Joining me this morning are Michael Weiner, Chief Executive Officer of New Frontier Media, Marc Callipari, the company’s Chief Legal Officer and Scott Piper, the company’s Chief Technology Officer.

We will begin the call this morning with Michael’s comments on the first quarter results and strategic plans and then I’ll discuss the detailed financial results before we open up the call for questions. A reply of this conference call will be available for seven days at 1-800-406-7325 using the passcode 4461510. This call will be archived for 12 months on our website and new.com under the investor relations calendar events tab. This call is also being webcast.

During the question-and-answer segment, those of you listening via the internet will be able to ask questions. Please submit your questions via email to hpaten@news.com.

All information discussed during the conference call is current only as of today or as of the date of the applicable financial results and the company assumes no obligation to update information discussed during this conference call.

During this conference call, management may make forward-looking statements within the meaning of the Safe Harbor provided by the SEC for such statements, including statements regarding the company’s expected financial position and operating results, its business strategy, its financing plans and the outcome of certain contingencies. These 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 and should be considered in conjunction with the cautionary statements included in our press release and our most recent reports containing risk factors filed with the Securities and Exchange Commission including our most recently filed Forms 10-Q and 10-K.

I’ll now turn the call over to New Frontier Media’s Chief Executive Officer, Michael Weiner.

Michael Weiner

Thank Grant and good morning everyone. New Frontier Media’s performance during the first quarter of fiscal year 2012 was in line with our expectations and despite challenges in the marketplace, our performance continues to outpace our competitors.

Within the Transactional TV segment, we are building up on the international expansion momentum we have created thus far. For example, we were very pleased to announce the recent execution of a distribution arrangement with a large digital broadcast satellite provider in Mexico. We expect to generate revenue from this arrangement in the second or third quarter of fiscal 2012 and we believe the revenue will be meaningful to our international revenue results.

The execution of this agreement represents just one of the arrangements we have been working tirelessly to secure. Generally, our deal flow for international business is solid and our expansion efforts are going as planned.

We believe our focus on these efforts will continue to provide the company with solid revenue growth from international markets.

Within the Film Production segment, we returned to profitability during the first quarter of fiscal 2012. As you may remember, we reduced head count within the segment during the second half of fiscal 2011, resulting in a reduced cost structure. We realized the benefits from these actions in our first quarter and the benefits will continue throughout fiscal 2012.

We are also more closely monitoring and analyzing our investments in films and we are optimistic that this will result in improved performance for the segment in future periods.

Overall, we believe the first quarter was a good start for the fiscal year. We ended the quarter with approximately $16 million in cash and we continue to maintain a strong balance sheet, which will support our long term growth efforts.

We believe the company’s strategic objectives provide us with the necessary path to generate long term returns to the company in the future. Now, I’ll turn over the call to Grant to discuss the financial results and rating information in greater detail.

Grant Williams

Thank you Michael. We will begin the financial review this morning by discussing the first quarter operation performance by business segment as well as the liquidity position of the company, and then we’ll open up the call for questions.

For the Transactional TV segment, revenue in the first quarter decreased to $8.7 million as compared to $9 million in the same prior year quarter. Domestic revenue within the DOD and pay-per-view categories declined by approximately $0.2 million and $0.4 million respectively, and we believe these results reflect weaker consumer discretionary spending for our content as well as competition from other alternatives, such as lower cost and free internet websites.

Our international revenue results partially offset the declines in domestic revenue. International revenue increased by approximately $0.3 million to $1.5 million in the first quarter of fiscal year 2012, a 25% improvement as compared to the same prior year quarter results.

Cost of sales within the segment increased by approximately $0.3 million during the quarter due to higher transport costs associated with new domestic content packages and HD offerings. The cost also increased due to higher content and distribution rights amortization from acquiring worldwide content rights and from acquiring other new and unique content in an effort to support domestic and international growth efforts.

Operating expenses within the Transactional TV segment also increased due to several factors, including higher employee costs, primarily related to an executive employee that was formerly reported in the corporate administration segment, but was reassigned to the Transactional TV segment’s European sales efforts.

Costs were also higher due to the acceleration of certain tenant improvement depreciation and from additional depreciation on storage equipment purchased during the first half of fiscal 2011.

For the quarter, the Transactional TV segment reported $2.1 million of operating income as compared to $3.5 million in the same quarter of the prior year.

Moving on to the Film Production segment, revenue declined primarily because the same prior year quarter included owned content of episodic series revenue and producer for hire revenue, and no similar revenue was recognized during the first quarter of fiscal 2012.

Cost of sales for the Film Production segment also decreased as a result of lower film cost amortization and production costs consistent with the absence of owned content episodic series and producer for hire revenue.

Operating expenses for the Film Production segment declined primarily due to the departure of certain employees during the second half of fiscal year 2011 and from lower intangible asset amortization because certain assets became fully amortized during the fourth quarter of fiscal 2011.

Overall, the Film Production segment reported operating income of $0.3 million as compared to $0.4 million in the same prior year quarter.

Corporate Administration segment costs declined during the quarter due to the previously mentioned reassignment of an executive to the Transactional TV segment and from lower accounting and legal fees from cost reduction efforts.

On a consolidated basis, we generated a net loss from continuing operations of approximately $0.1 million or $0.01 per share as compared to net income of $0.6 million or $0.03 per share in the same prior year quarter.

For the company’s cash liquidity, we ended the quarter with approximately $16 million of cash on hand. Cash flow results include approximately $2.5 million in CapEx, primarily associated with our build out of the new combined facility as well as several first of the fiscal year disbursements such as our annual corporate insurance payments.

We also have a $5 million line of credit available for our working capital needs with $100,000 outstanding as of the end of the quarter.

So that will conclude our prepared remarks. Let’s please now open up the call for questions.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions) And management, I’m showing there are no questions in the queue. I’ll turn the call back over to you for any closing comments.

Grant Williams

Okay. Well thank you everybody for joining the call and we look forward to speaking to you again next quarter.

Operator

Thank you. Ladies and gentlemen, that does conclude today’s conference call. Thank you for your participation. You may now disconnect.

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