New Frontier Media F4Q07 (Qtr End 3/31/07) Earnings Call Transcript

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New Frontier Media (NOOF)
F4Q07 Earnings Call
June 5, 2007 11:00 am ET

Executives

Michael Weiner - CEO, Secretary and Chairman, New Frontier Media
Karyn L. Miller - Chief Financial Officer and Treasurer, New Frontier Media
Ken Boenish - President, New Frontier Media, Inc. and The Erotic Networks
Ira Bahr - Chief Operating Officer, New Frontier Media

Analysts

Michael Kelman - Susquehanna Financial Group
Rich Ingrassia - Roth Capital Partners
Jack Lipstein - Futura Capital
Jamie Clement - Sidoti & Company
Eric Wold - Merriman Curhan Ford
Jason Williams - Analyst

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New Frontier Media, Fourth Quarter, Fiscal 2007, Earnings Release Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. If you have a question please press the "*" followed by the "1" on your touch-tone phone.

This conference is being recorded, Tuesday, June 5, 2007. I would now like to turn the conference over to Karyn Miller, Chief Financial Officer.

Karyn L. Miller

Thank you and good morning. Welcome to the New Frontier Media, Fiscal 2007, Fourth Quarter Results Conference Call. This is Karyn Miller, New Frontier Media’s Chief Financial Officer. With me today is Michael Weiner, Chief Executive Officer of New Frontier Media, Ken Boenish, President of New Frontier Media and Ira Bahr, Chief Operating Officer of New Frontier Media. Also on the call is our SEC counsel, Steven Pappas with the law firm of Lehman & Eilen.

During this call Michael will give an overview of the company’s strategic position, and then I will review New Frontier Media’s results of operations for the quarter. After our commentary we will open up the conference call for questions. A replay of this conference call will be available until June 12th, at 1800-405-2236, using the pass code 11090935.

This call will be archived for 12 months on our website at www.noof.com under Investor Relations, Webcasts & Events. 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 question via e-mail to [e-mail].

During this call we may make references to non-GAAP measures. This information including a, reconciliation to the related GAAP measure is available in today’s earnings release. The copy of our earnings release is available at our website at www.noof.com under Investor Relations, News Releases.

All information discussed during this conference call is as of today, and the company assumes no obligation to update information discussed during this conference call. During this conference call management may make forward-looking statements, and intend for these statements to be covered by the safe-harbor provisions for forward-looking statements.

All statements regarding the company’s expected financial position and operating results, its business strategy, its financing plans, and the outcome of any contingencies are forward-looking statements. In addition, forward-looking statements may be identified by the use of words such as “believe”, “expect”, “intend”, “seek”, “estimate”, and “anticipate” or variations of such words.

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. For more information about these risks and uncertainties, please refer to the company’s press release and its filings with the Securities and Exchange Commission including the company’s most recently filed Form 10K in the Risk Factor section and Form 10Q. And now I’d like to turn the call over to Michael Weiner, Chief Executive Officer.

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Michael Weiner

Thank you Karyn and good morning everyone. This morning we are reporting the results of a very successful fiscal 2007 for New Frontier Media. Year-over-year revenue was up 35% and net income was up 9% and post-tax cash flow from operations was up over 50%. In our core Pay TV business, we added nearly 50 million new network households. We launched two services on the nation's largest satellite platform. We concluded a 3-year deal with our largest customer and we maintained our performance advantages on all platforms.

We also feel that extensive primary research, which has driven a number of critical business decisions over the past year and is being used to help shape our future strategic direction. We took major steps towards full integration of our new MRG unit and launched MRG content in nearly 14 million cable households. Overall taking into account our $0.60 dividend in February, shareholders saw a 26% return on the investment in this fiscal year.

Using organic growth dividends and strategic acquisitions, we are optimistic that over time we can continue to provide the returns our shareholders have become accustomed to. The most significant news of this past quarter is the announcement of the company's new cash dividend of $0.125 per share per quarter. As we announced in May the first of these dividends will be paid by the end of this month to shareholders of record as of yesterday, June 4th.

We expect future dividends to be paid in June, September, December and March of each year. Based on our present share price, we believe our dividend yield is larger than that of nearly every media company in the United States. As we close our tenth fiscal year as a public company, New Frontier Media is prospering and we are doing so in an increasingly difficult competitive marketplace.

In our core business, we are seeing both new competitors and softness in the growth of the overall market. More importantly, we have seen what appears to us to be irrational and unsustainable pricing from our largest competitor. New Frontier has long told its partners that they would make more money with our channels even if our competitor channels were given away for free. We believe that this dynamic is now being proved in the marketplace.

As we believe our largest competitor is not hitting its revenue guarantees and is therefore providing its channels as an effective rate of zero. While the short-term impact of this has slowed our growth we believe that over the longer term we will see a shakeout in which weaker competitors gradually withdraw from the field in a way that will work to New Frontier's advantage. The fact that despite these challenges the company has succeeded in showing impressive year-over-year growth.

Our success has been connected with adherence to a very simple set of principles. First, we are not interested in market leadership for the sake of it. We are interested in profits. Second, we invested in research and development to ensure that we can monetize emerging consumer trends and to ensure that we are the most proficient partner in new technologies being deployed by our customers. Third, we use our cash flows and [net] prudent debt to explore a wide range of strategic opportunities both in our existing businesses as well as outside them.

As we look to the future, we see growth opportunities in numerous markets including direct-to-consumer distribution channels, international markets and emerging technology platforms. Some of these may take more than 12 months to develop. The changing technology has always been positive for our business and the coming years will be no different. The challenge for New Frontier is to be positioned to successfully monetize these technologies in the same way we have done with video-on-demand and I have every confidence that we will.

New Frontier has an impressive history of growth. In our just concluded year we captured $63 million of revenue up from $43 million just 36 months ago. The company will continue to exploit its technology, its relationships and its creative resources to grow over the coming years. Overall, we believe there could be no greater concrete evidence of our confidence in New Frontier's ability to sustain and grow its cash flows and our decision to create a dividend that is nearly equal to the present total net earnings of the entire corporation.

We believe that the value component combined with our historical record of growth and our prudent use of capital should provide our shareholders with excellent returns for years to come. Before I ask Karyn to walk you through our just concluded quarter, I want to take a moment to talk about last month's announcement that Karyn would be leaving the company. Karyn has been with New Frontier for nearly nine years.

This is roughly triple the time that public company CFOs' typically serve. Karyn has been with us through the good times and the challenging times. She has been with us during massive changes and reporting regulations and she has been with us through two different CEOs. Through it all she has applied a steady reliable hand in our financial affairs and today our finances, our accounting and our compliance are strong as they have ever been.

Karyn though will be missed by the company and myself personally. We have already engaged a recruiter to facilitate our search for Karyn's replacement and Karyn has agreed to stay on until her successor comes aboard and to answer to the question everyone is waiting on hold to ask. Yes, Karyn is really going camping for a year.

Now, I will turn it over to you, Karyn.

Karyn L. Miller

Thank you, Michael. So we start with an overview of the company’s results for the quarter. Net revenue for the company was $14.2 million for the current year quarter compared to $12.9 million for the quarter a year ago representing an increase of 10%. The gross margin percentage for the company was 69% for both the current year and prior year quarter.

Operating expenses were 47% of revenue for the quarter end of March 31, 2007 excluding a $0.1 million impairment expense for the quarter as compared to 37% for the quarter a year ago. The company reported fiscal year 2007 fourth quarter net income of $1.7 million or $0.07 per fully diluted share as compared to net income of $3.3 million or $0.14 per fully diluted share for the fourth quarter of last year.

The company reported EBITDA for the fourth quarter of the current year of $3.6 million as compared to $4.7 million for the quarter a year ago representing a decrease of 23%. Reconciliation of EBITDA to our GAAP numbers is included in our press release on our website. The company has approximately $26.6 million in cash and marketable securities on its balance sheet as of the end of the fourth quarter.

We will be paying our first quarterly recurring dividend on June 29th which will use approximately $3 million in cash. The company currently has approximately 24.3 million shares outstanding.

Moving on to look at the Pay Television segment's results. Quarterly revenue for the Pay TV group increased to $11.2 million for the quarter ending March 31, 2007 from $11.1 million for the quarter a year ago representing a 1% increase. Our Pay TV revenue is comprised of both revenue from sales to our C-band customers and revenue from our core business of distributing our Pay-Per-View Networks and VOD offerings via our relationships with our cable DBS and hotel partners.

The group’s quarterly C-band revenue decreased 33% to $0.4 million for the current year quarter from $0.6 million for the fourth quarter a year ago. As always, we continue to monitor the margins of this business and work to find ways to decrease our costs as our revenue erodes. The C-band market now has less than 60,000 total active units.

The group’s cable and DBS Pay-Per-View revenue decreased 4% to $5.5 million for the current year quarter from $5.7 million for the quarter a year ago. This decrease is primarily the result of declining revenue from our largest customer as a result of the previously announced finalization of a new licensing arrangement in October 2006, which resulted in an adjustment downward of our historical rates.

This revenue decline was partially offset by an increase in revenue from the launch of two of our Pay-Per-View networks on the largest DBS platform in the U.S., which occurred in April 2006. Pay TV group's VOD revenue increased 10% to $5.3 million in the fourth quarter of the current fiscal year from $4.8 million for the quarter a year ago.

Currently, we provide VOD content to nearly 26 million VOD enabled cable customers in the U.S. The increase in VOD revenue year-over-year for the quarter is related to an increase in VOD revenue from the largest cable MSO in the U.S. This revenue was partially offset by the sale of a smaller MSO system to larger multi-channel operators, which resulted in a lower license fee earned from our VOD content on those systems.

Cost of sales for the Pay TV group increased 3% to $3.2 million for the current year quarter from $3.1 million for the quarter a year ago. The quarterly year-over-year increase in cost of sales is related to an increase in our VOD transport cost. The increase in these costs was partially offset by a decrease in the amortization of our content and a decline in our cable transponder costs due to the elimination of one our transponders for our pleasure network.

Quarterly operating income for the Pay TV group decreased 7% to $5.4 million for the current year quarter from $5.8 million for the quarter a year ago. Operating expenses increased 18% to $2.6 million for the current year quarter from $2.2 million for the quarter a year ago. The increase was a result of expensing our stock options, costs as required under FAS 123(R), an increase in expenses related to consumer studies performed during the quarter, an increase in advertising costs and an increase in branding and promotional costs.

Moving on to the Internet group, the Internet group's revenue declined 17% to $0.5 million for the current year quarter from $0.6 million for the quarter a year ago. Cost of sales decreased 33% to $0.2 million from $0.3 million for the quarter a year ago, and operating income declined to a loss of $0.2 million from operating income of $0.1 million for the quarter a year ago.

The operating loss for the current year quarter included a $0.1 million impairment charge related to equipment that is no longer being used by our wireless segment. And moving on to the Film Production group, the Film Production group's revenue is comprised as you may remember of two segments: our Repped Title Revenue and our Owned Title Revenue.

Revenue earned from our Repped Title businesses is a result of licensing film titles, which we represent but do not own, under International and Domestic Sales Agency agreements with various independent film producers.

We have a portfolio of over 70 mainstream titles that we represent through our Main Line Releasing and Lightning entertainment labels. Revenue from our Owned Titles is earned as we license our own erotic film library, either on a flat fee, or a revenue share basis, or after the producers are hired.

The company completed the acquisition of the Film Production group during the fourth quarter a year ago and the year ago quarter only included 45 days of results for the Film Production group. A year-over-year quarter analysis will not be meaningful to you. Therefore, I will discuss the fiscal year 2007 fourth quarter results on a standalone basis only.

The Film Production group earned $0.5 million in Repped Title revenue and $1.9 million in Owned Title revenue during the current year quarter. Over half of our Repped Title revenue is generated by the licensing of five major titles. Our quarterly Owned Title revenue included our [first] revenue through licensing our erotic event content directly to the largest cable MSO, for use on its VOD platform, revenues from the delivery of more than 15 titles to domestic and international licensees and revenues from the distribution of several of our mainstream horror films through our distribution arrangement with Lions Gate.

We anticipate launching our erotic event and movie content on other major MSOs, VOD platforms during the first half of the 2008 fiscal year. Cost of sales for the film production group was $1 million for the current year quarter. Cost of sales relates primarily to Owned Titles, and consists of film amortization costs, as well as, delivery and distribution costs. Film amortization represents approximately 78% of our total costs of sales.

As predicted our gross margins have began to normalize as we begin to monetize newly produced content in addition to the content purchase as part of the acquisition. Our growth margin for the fourth quarter was 60%. Operating expenses for the quarter were $1.2 million and the film production group generated operating income of $0.3 million for the fourth quarter. Operating expenses include amortization of identifiable and tangibles resulting from the acquisition, as well as, the accrual of the earn-out related fee acquisition and other payroll benefits and trade-show related costs.

Now looking at our corporate overhead, our corporate administration operating expenses increased 67% to $2.5 million for the current year quarter from $1.5 million for the quarter a year ago. This increase is primarily related to stock option expense from the adoption of FAS 123(R) and increase in costs related to the addition of a Chief Operating Officer and Chief Information Officer to the executive team and an increase in legal and accounting costs.

Many of you have noticed that we have not provided formal guidance for our new fiscal year. The company has made the decision that providing these metrics is unbalanced, not beneficial to the company or its shareholders. Over the long-term efficient markets will value our company correctly based on our results notwithstanding the guidance. The guidance process is one that has been burdensome for management and frustrating for investors as we have always brought a conservative bias to our estimates. And it has brought undue focus and attention on short-term results rather than on long-term outcomes for which the company is planning.

Therefore in lieu of formal guidance, the company is going to give investors a more tangible and specific description of where we think the company is going in fiscal 2008. First, we expect to add at least 15 million new network households to our core business including launch of a new channel on 1 DBS platform and a launch on the last major MSO with whom we do not presently do business.

Second, we expect to increase distribution for MRG’s erotic event and thriller content by 23.8 million cable and DBS home. Third, we expect to launch new frontier products on a range of new platforms including IPTV, set top boxes and multiple web-based platforms. Fourth, we expect to improve average revenue per retail purchase using a variety of up-sales and cross-sales from our networks. Fifth, we expect two major producer for hire jobs for our film production group.

Sixth, we expect to reverse the downward trend in our internet unit and seventh, we expect to execute prudent strategic acquisitions when they present themselves as we have in the past.

And now, I would like to open it up for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you have a question please press the "*" followed by the "1" on your touch-tone phone. If you'd like to withdraw your question, press the "*" followed by the "2". If you're using a speakerphone, you will need to lift your handset before making the selection.

Our first question comes from Michael Kelman, with Susquehanna Financial Group. Please go ahead.

Michael Kelman - Susquehanna Financial Group

Thanks. Hi, there is a pretty significant drop-off in Pay-Per-View revenue this quarter on a sequential basis, which was basically offset by a sequential up-tick in VOD revenue and given that the new EchoStar revenue splits were in the fiscal third quarter, I was somewhat surprised by the level of the fall from Pay-Per-View. So I was wondering is this quarterly results just more reflective of the dynamics of the marketplace shifting to more VOD consumption. And if that’s the case should we expect to see the fourth quarter numbers as a good level to assume throughout fiscal 2008?

Karyn Miller

Hi, Mike. Actually what are you are seeing, if you remember correctly our contract wasn't signed till about mid-third quarter. So this is truly the first quarter where we had a full three months of the new contract in place. So that’s why you are seeing (inaudible) the difference in the cable Pay-Per-View revenue.

Michael Kelman - Susquehanna Financial Group

Okay, and in terms of Video On-Demand seeing the up-tick from third quarter to fourth quarter?

Karyn Miller

Ken, you want to take that?

Ken Boenish

Sure.

Karyn Miller

(inaudible) is not here in person, so you have to bear with us.

Ken Boenish

Okay, we have been very busy conducting quite a bit of consumer research with regard to learning more about what people watch, when they watch, why they watch, who they watch where, and we have been using that information to really guide our acquisitions, our programming strategy and our marketing strategy relative to VOD content. And we believe that that is having a big effect on the performance of our product on the platforms.

Michael Kelman - Susquehanna Financial Group

Okay, great. And then in terms of the competitive environment for VOD are you saying increased competition from new players in that space particularly given the lower capital requirements of that business versus actually running a Pay-Per-View channel?

Ken Boenish

The competitive field has been pretty steady over the last year or two, 18 months. So we haven’t seen really any additional entries. Yes, there are constantly changes on the platform in terms of what the user interface looks like and cable operators have been making improvements to that user interface and so we have been able to take advantage of some new opportunities to include movie previews and some other materials. So that’s actually been good for the company.

Michael Kelman - Susquehanna Financial Group

Okay, great and one another question. You had mentioned earlier about your largest competitor having trouble meeting their revenue guarantees and then effectively having almost a 0% revenue share with certain operators. Are you feeling any pressure from a pricing standpoint with regards to how your contracts are structured? And may be you could help us understand, if there is going to be a potential negative impact next year because of that?

Ken Boenish

Yes. We are not really feeling any pressure on our splits, I mean, really our effective revenue split with our distribution partners is pretty low and our performance is so high like Michael said, we believe our distribution partners make more money paying us a license fee than they do getting our competitor's services for free. So we think we are in really good shape and we really haven’t gotten any pressure to discount license fees below to what they have settled in at.

Michael Kelman - Susquehanna Financial Group

So your contracts aren’t structured with any MFNs or anything where you would be required to lower because somebody else is paying something lower. It’s all based on whatever hurdles you have to meet?

Ken Boenish

Our contracts are independent of our competitors. So their license fee does not affect ours.

Michael Kelman - Susquehanna Financial Group

Perfect. Thank you.

Ken Boenish

Thank you.

Operator

Our next question comes from Rich Ingrassia with Roth Capital Partners. Please go ahead.

Richard Ingrassia - Roth Capital Partners

Thanks. Good morning everybody. Michael, can you say a little bit more about the competitor shakeout you mentioned other than unsustainability of Playboy's pricing strategy, along what other lines do you think that shakeout might occur that is content quality, reliability, may be technological capabilities?

Ken Boenish

Rich, this is Ken, I’ll take that question. As a lot of you have probably seen Playboy in its most recent 10K filing published an unredacted version of its contract with Direct TV. You guys can read this for yourself, what I will read is that this contract provides a significant minimum revenue guarantee to Direct TV, specifically if Playboy's movie channels don’t deliver on these minimums. They have to refund an amount up to their entire license fee for the channels, which in essence makes those channels free to Direct TV.

Now, based on our performance of our own channels on this platform, we believe that indeed Playboy will be forced to return that license fee upon the anniversary of the contract. So we think that our competitor effectively giving services away at zero license fee is unsustainable, and there is going to have to be some major changes in the category in order for Playboy to correct its position. And we don’t know entirely what that is but we think that it could possibly mean an opportunity for our company.

Richard Ingrassia - Roth Capital Partners

And then other than Playboy, specifically the product for lack of better [word] this may be more commoditized among some of the smaller distributors. Would you expect some changes to occur there in the competitor front the next two years?

Ken Boenish

We think that cable operators and satellite operators will continue to evaluate their business partners in this category based on performance and we expect that companies that perform at a higher level are going to be awarded with more shelf space than those companies that don’t perform so well.

Richard Ingrassia - Roth Capital Partners

Okay. One more question I guess for Ken and then a couple for Karyn. I don’t think you mentioned an international initiative in the Seven Point Plan have you identified any specific opportunities overseas as a result of MRG’s presence?

Ken Boenish

Yes. We have in fact, I mean, Europe right now, which is the reason why I am calling in. And we have already established some initial distribution on a few platforms outside the US and we are working on increasing that distribution and establishing relationships with new companies.

And the MRG content is really a great asset for us because we own the content. We have a global license for that content. The content is very unique in nature and it’s less explicit content, so it’s universally acceptable in virtually every market.

Richard Ingrassia - Roth Capital Partners

Okay. And. Thanks, Ken. Karyn some balance sheet -- two balance sheet questions. I noticed fairly sizable increase in other assets. Can you just detail that a little bit doubled sequentially? Thanks.

Karyn Miller

I think that’s going to be due to the [AI], you are looking sequentially, I don’t have that information handy, I apologize, on a sequential basis. But there’s been, I mean, suffice to say that there has been nothing that has happened from a balance sheet perspective that should give anybody cause, I mean, everything is kind of [and as always] and I can look that up and let you know later.

Richard Ingrassia - Roth Capital Partners

Okay. And then finally just maybe some detail on use of the cash in the quarter, I mean, given operating results and the sequential change in AI looks like it should have been a net cash generator but the balance sheet shows cash and investments down about $10 million from December?

Karyn Miller

Yes. Well we obviously paid our dividend in February.

Richard Ingrassia - Roth Capital Partners

Okay. And what was that?

Karyn Miller

That was $14.6 million of cash that we used.

Richard Ingrassia - Roth Capital Partners

And so there is nothing else then?

Karyn Miller

No.

Richard Ingrassia - Roth Capital Partners

Okay. Thanks.

Operator

Our next question comes from [Jack Lipstein with Futura Capital]. Please go ahead.

Unidentified Analyst

Hi. Good morning. Two questions. In terms of G&A, it’s obviously gone up and you guys have detailed it why, is that the new run rate that we should kind of expect blowing any new hires?

Karyn Miller

Yes. I think that obviously I can’t actually tell you anything because we are no longer giving guidance.

Unidentified Analyst

Right. But I mean it’s still growing much faster than say revenues, and I don’t -- one quarter a trend doesn’t necessarily make but it’s significantly different let us say than the prior quarters and I am just trying to get a sense of it, if that -- if this is more normal or we are going to return back to G&A that (inaudible) grows quickly as revenues?

Karyn Miller

Again Jack -- I hate to, I apologize but with not giving guidance we really can’t give any indication to anybody as to what the trends are going to look like going forward.

Unidentified Analyst

Okay. Another, you need any new hypersensitive company at this point to run any of the Seven Point Initiative you guys talked about on the top line?

Karyn Miller

No.

Michael Weiner

Jack, I’ll take that.

Karyn Miller

No, we are not planning on doing any more major hires and I think with the addition of Ira Bahr and Scott Piper, our CIO in fiscal ’07 that really completed the team for us.

Unidentified Analyst

Okay. (inaudible) correct at this G&A original last quarter was a result of new hires, there was nothing else in there that is significantly driving this quarter’s G&A level?

Karyn Miller

Yes. I would say that’s correct.

Unidentified Analyst

Okay. And then in the Seven Point Initiatives you guys talked about the web, sort of twice, one was you are going to bring the internet group from a decline, you initially said grow it but sort of stem the losses. Can you give us a little color there and then does that dovetail or is that separate than you said web based platforms for distribution and tell us with some more thoughts on that?

Ira Bahr

Jack, this is Ira Bahr. Good morning.

Unidentified Analyst

Good morning.

Ira Bahr

You know the company has been growing so fast over the core television distribution business that the attention that management has been able to focus in my estimation on web products has been less than optimal. And this year we have taken a number of initiatives to turnaround the trend, it has been a declining trend with respect to the web. It's a challenging environment. You are going to see a number of new products launched at our core website ten.com this year. In addition we are looking at peripheral initiatives that drive business to the web.

So, I would say that we are -- that's about the amount of color we will give at this time until those products are released, but the main tangible thing that's happening now is a great deal more resource being applied against this front. We also seek to integrate our wireless initiative into our web initiative and we have a strategy on that that we think is going to make a lot of sense and money for the company over time.

With respect to integration, there is a great deal of talk about with a [couple] of last 50 foot problem, which is bringing Internet to television set-top boxes and we have seen a release of things like Apple TV and another technologies to facilitate this. One view of this is that it’s a view that we have is that the winners in this phase are going to be the customers we have today.

So that is the idea of bringing internet connected to the television will be best accomplished by a company like Comcast, like Time Warner, like Cox and like Charter. They have already got the high speed Internet that they are delivering to the home. They have already got a set-top box and they have got trucks and technicians to come to people's houses and facilitate these connections. So we think that as those things start to happen we are going to gain consistently with that growth.

Unidentified Analyst

And in the Internet space and this web based platform, I mean, whose is your main competition right now?

Ira Bahr

Well, the web is filled with a hundred thousand different competitors.

Unidentified Analyst

So, it’s still just the one off kind of stuff.

Ira Bahr

Yeah. We believe so, yes.

Unidentified Analyst

Okay. And then this web based platform I should read that as to mean this idea of the set top box as opposed to something else like You Tube or something along those lines.

Ira Bahr

Well, we are looking at all options but you can consider both.

Unidentified Analyst

Okay. Great. Thanks.

Operator

Our next question comes from Jamie Clement with Sidoti & Company. Please go ahead.

Jamie Clement - Sidoti & Company

Hi. Good morning. I just had a quick question about MRG. Looking backwards, obviously, the December quarter was extremely strong and I think you said that you would have expected a seasonal drop-off in the fourth quarter. If you look back over the last -- let us say three quarters of reported results, do you think that on the top line that represents a pretty good way of looking at this business' seasonality going forward?

Karyn Miller

Hi, Jamie. Yeah. I do think that, MRG -- our third quarter, the fourth quarter will always be a strong quarter for us. To see if there are a lot of companies just like we had talked about last quarter we [do] a lot of companies who take delivery of content than as they kind of get ready for their next calendar year.

Jamie Clement - Sidoti & Company

Right.

Karyn Miller

Yeah, I would continue to expect that trend to continue.

Jamie Clement - Sidoti & Company

Okay. And just another question just a follow-up on the competitive environment and I mean, I guess -- I guess there is sort of two sides to that equation. You know the one side is convincing your customers that they will make more money by paying you a license fee versus as you said essentially getting content for free. And the other side to that is to what extent do you think there will always be for lack of a better word, an idiot out in the marketplace that's trying to push the pricing to get share?

Ken Boenish

Jamie, this is Ken. To say, the way we look at it is that cable operators are really only going to -- satellite operators only choose to work with a handful of companies. There maybe hundreds of companies that would like to get in this space but that’s really just not going to happen. We think that the competitive field is pretty well established and we can't control what other companies do or don't do in terms of license fee. The one thing that we can do is pay attention to our own business and make sure our product is the best product we can put on the platform and make sure that we are always the top performer and that's what we are going to continue to do.

Jamie Clement - Sidoti & Company

And just the last question, Karyn. Heading into this last fiscal year you all highlighted some area of costs that you thought you could whittle away, add transponder cost that sort of thing. Are there any kinds of initiatives heading into this fiscal year that we should be on the lookout for as far as a low hanging fruit or you did not pick from that perspective?

Karyn Miller

Again, I would say we are obviously not giving any guidance going forward but I think we have always run this company very efficiently and effectively and if we can find ways to save costs without impairing the quality of the product we produce, we are going to look for those.

Jamie Clement - Sidoti & Company

Okay. And just to clarify, I wasn't looking for specific numbers. It was just sort of -- at this time last year there were some points of emphasis that you guys highlighted without actually giving numbers behind them but anyways thank you very much for your time.

Operator

Our next question comes from Eric Wold with Merriman Curhan Ford. Please go ahead.

Eric Wold - Merriman Curhan Ford

Hey, good morning. I got a couple of questions. First of all on the pricing front, not so much pricing I guess between you and the MSO in terms of the split but in terms of the customer what have your conversations been with the MSOs and may be the satellite guide sort of, the ability to raise prices to the consumer, if that’s even a possibility and how much leeway did you have there?

Ken Boenish

Eric, this is Ken. We have seen the price of our product gradually increase since we have gotten into this business. In fact many of our partners are selling our content now for as much as $11.99. We generally don't have specific conversations with cable operators about pricing in terms of encouraging them to increase prices. However, we do share with them what we are seeing in different markets and how the product performs and for us it's really more about finding the sweet spot between price point and buy rate in order to generate maximum revenue and that's were we really keep our fingers on the pulse up.

Eric Wold - Merriman Curhan Ford

Okay. And looking at that would you anticipate you still have some room or you think things are decently priced, kind of what they are now?

Ken Boenish

Yes, I think that we will see pricing come up in some markets probably the cable operators or DBS operators that are on the lower end of the spectrum right now will most likely take price increases to come up to where some of the other people are at. Again, it’s really on a market-by-market basis.

Eric Wold - Merriman Curhan Ford

Do you think that's mostly on Pay-Per-View or VOD or both?

Ken Boenish

Both, we are seeing price parity between Pay-Per-View and VOD.

Eric Wold - Merriman Curhan Ford

Okay. And, just some clarification on some of the comments on the guidance, the 15 million additional households that you think will come online this year, when shall we see that in the fiscal year?

Ken Boenish

It’s really just like always we are going to see new customers come on every quarter. We are not always in control of when we get those launches and when those customers come online. Of course, we try to get the business the doors as quickly as possible but ultimately that's up to our distribution partners.

Eric Wold - Merriman Curhan Ford

Okay. And then on MRG the 28 million homes that will additionally reach this year remind us how many homes you are reaching now, so what kind of increase is that?

Ken Boenish

Right now we have about 22 million homes I believe as far as the MRG content does and so effectively we will be doubling up (inaudible).

Eric Wold - Merriman Curhan Ford

Okay.

Karyn Miller

It's actually going, Eric, just to clarify, it's actually what we said was going to 23.8 million cable and DBS homes.

Eric Wold - Merriman Curhan Ford

Oh 23.8?

Karyn Miller

23.8. And as of the end of March, we were about a little under 14 million.

Eric Wold - Merriman Curhan Ford

Okay. Thank you. And then lastly, going back to the question on international, obviously MRG has gotten you some good kind of initial contacts and good relations over there, do you think getting more penetration in international gain more placements over there, gain more relationships, can that be done just the way you have got in place now with MRG and relations you have built or would you have to acquire someone else really to get the penetration you want to see?

Ken Boenish

We will -- we are going to let the business guide us in that direction. Of course, if we think we can make more money by bringing on a small amount of staff and having boots on the ground in markets outside the US, we will definitely do that but for right now we are exploring those opportunities with existing personnel and we are as I said having some nice initial success, so we are pretty bullish on the prospects for gaining meaningful international distribution.

Eric Wold - Merriman Curhan Ford

Perfect. Thank you, guys.

Operator

Our next question comes from Jason Williams of (inaudible). Please go ahead.

Jason Williams

Yes. Hi. Thanks for taking my call. Somebody else alluded to in the call so I’ll ask it more directly. What was your cash flow from operations from the cash flow statement for the quarter?

Karyn Miller

You know for the quarter, I think it was probably in the neighborhood of $3 million or $4 million.

Jason Williams

$3 million or $4 million, okay. And perhaps I want to mention it [little] quick -- and then you said you didn’t know why sequentially that -- should I ask this in a different way, year-over-year on your current assets category of either one from $871,000 to $2.8 million and (inaudible) you can give on that increase will be appreciated?

Karyn Miller

Part of the increase (inaudible) we have taxes receivable amounts that is setting up there and well that (inaudible) separate assets. I apologize, I cannot, I don’t know of the top of my head what exactly caused that increase, I will reiterate that if you want to call me later I will get you that number.

My guess is and as we pay our -- we tend to pay our insurance premiums in March and of course, that is all prepaid for the full year and I think that is what driving up that entire balances, our insurance premiums are fairly significant for an entire 12-months period of time.

Jason Williams

Okay.

Karyn Miller

So, I will reconfirm that if you want to call me later but that is what my expectation is of that amount is.

Jason Williams

Got it. Great. Thanks. Also I just want to say I think it is great that you are not giving quarterly guidance as a shareholder and I think it is great to just focus on long-term and just not playing what I think is a silly game of quarterly guidance so good for you.

Karyn Miller

Thank you

Jason Williams

You bet. Bye-bye.

Michael Weiner

Well, there are no more questions?

Karyn Miller

We have one more question that was actually emailed in to us and I would rather answer this. It says AT&T has been rolling out its new IPTV platform in a few states, they offer Playboy, will they be providing your services as well, I did not see it listed on their channel line up?

Ken Boenish

Yes. Couple of things of this as we understand it, AT&T is actually rolling out their home zone product, which is the integrated satellite platform with dish more quickly than they are the U-verse product and of course, with respect to home zone we are on that with respect to U-verse, yes we are in conversations about getting on that platform we expected as it rolls out to in material numbers we will be on it.

Michael Weiner

Thank you all. There are no more questions. We look forward to our next conference call. Thank you all.

Operator

Ladies and gentlemen, this does conclude the New Frontier Media Fourth Quarter Fiscal 2007 Earnings Release Conference Call. You may now disconnect. And we thank you for using AT&T teleconferencing.

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