EX-1 3 doc2.txt Exhibit (a)(5)(5) Contacts: Sam Gradess Chief Financial Officer Alloy, Inc. 212/244-4307 FOR IMMEDIATE RELEASE: Investor Relations: AJ Goodman PR21, Inc. 212/299-8888 ALLOY HITS SECOND QUARTER REVENUE AND EARNINGS TARGETS NEW YORK, NY - AUGUST 28, 2003 - Alloy, Inc. (Nasdaq:ALOY), a media, marketing services and direct marketing company targeting the dynamic Generation Y population, today reported revenues for the fiscal quarter ended July 31, 2003 of $80.5 million and a net loss attributable to common stockholders of $1.0 million, or $0.02 per diluted share. This compares with our previously announced guidance range of a second fiscal quarter net loss attributable to common stockholders of $0.02 to $0.06 per diluted share. For its second fiscal quarter, Alloy generated $1.6 million in earnings before income taxes and acquired intangible asset amortization ("EBTA"), excluding stock-based compensation expense of $0.3 million. This places Alloy at the upper portion of our previously announced guidance range for second fiscal quarter EBTA of $0 to $2.0 million. Also for the second fiscal quarter, Alloy generated $2.8 million in earnings before interest and other income/expense, income taxes, depreciation and amortization, and stock-based compensation expense ("Adjusted EBITDA"). For additional financial detail, including the reconciliation of EBTA and Adjusted EBITDA to GAAP results, please refer to the financial tables provided at the end of this release. Total revenues for the second fiscal quarter increased 55% to $80.5 million, compared with $52.0 million for the second quarter of fiscal 2002. Fiscal second quarter net merchandise revenues of $30.0 million were down 5% compared with $31.5 million for last year's fiscal second quarter. The reduction resulted primarily from a slight planned decline in overall catalog circulation as we reduced the number of catalogs circulated to prospects outside our database and non-buyers inside our database. Fiscal second quarter sponsorship and other revenues of $50.5 million were up 147% versus $20.4 million for the comparable period in our last fiscal year. The increase resulted from a larger advertising sales force, a broader client base, and a wider range of media services offered than in the last fiscal year, due to a combination of internal development and strategic acquisitions, together with the addition of revenues from the operations of OCM that we acquired at the beginning of the second quarter of fiscal 2003. Second fiscal quarter gross profit increased to $39.4 million, or 48.9% of revenues, compared with $27.8 million, or 53.5% of revenues, for the comparable period last year, largely as a result of the substantial increase in revenues. The decrease in gross profit percentage was primarily due to the lower gross margin profile of our sponsorship activities in this fiscal year's second quarter compared with last fiscal year's second quarter as newspaper and radio advertising placement and event marketing activities expanded relative to our print and interactive advertising programs, which generally have higher relative gross margins. Operating expenses were $40.0 million for the second quarter of fiscal 2003 versus $27.7 million for the second quarter of fiscal 2002. The increase resulted primarily from our enlarged advertising sales force and staff; the expenses from operations acquired within the last year, in particular those of Market Place Media and OCM; additional intangible asset amortization resulting from recent acquisitions; and the impact of $0.3 million of stock-based compensation. Net loss for the second quarter of fiscal 2003 was $0.3 million, compared with net income of $0.5 million for last fiscal year's second quarter. Net loss attributable to common stockholders for the second quarter of fiscal 2003 was $1.0 million, or $0.02 per diluted share, compared with net income attributable to common stockholders of $0.1 million, or $0.00 per diluted share, for last fiscal year's second quarter. EBTA excluding stock-based compensation decreased to $1.6 million for the second fiscal quarter of 2003 from $1.9 million for the second fiscal quarter of 2002. Adjusted EBITDA increased from $2.3 million for the second fiscal quarter of 2002 to $2.8 million for the second fiscal quarter of 2003. In the second fiscal quarter of 2003, Alloy did not repurchase any shares of its common stock under the share repurchase program. Commenting on the quarter, Matt Diamond, Chairman and Chief Executive Officer stated, "We are pleased to have met our financial performance targets for our second fiscal quarter. We saw particularly strong results from the sponsorship segment of our business, with our newspaper advertising, customer acquisitions and OCM activities leading the way. We also expect our sponsorship activities to continue demonstrating good operating performance throughout the second half of the year and have revised our sponsorship revenue guidance accordingly. With the dELiA*s acquisition expected to close during the third quarter, our focus in our merchandising business will be on integrating operations and charting a course to begin realizing in 2004 the substantial synergies we expect to result from the acquisition." As of July 31, 2003, the end of its fiscal second quarter, Alloy's consolidated database of Generation Y consumers grew to over 14.5 million total names, of which over 5.1 million were established buyers, versus approximately 11.7 million total names and 3.8 million established buyers as of July 31, 2002. Total revenues for the six months ended July 31, 2003 increased 46% to $149.9 million compared with $102.4 million for the six months ended July 31, 2002. Net merchandise revenues for the six months ended July 31, 2003 of $60.0 million were down 4% versus $62.6 million for the six months ended July 31, 2002. Sponsorship and other revenues of $89.9 million for the six-month period were up 126% compared with $39.8 million for the comparable period last fiscal year. Gross profit for the six months ended July 31, 2003 increased to $70.8 million, or 47.2% of revenues, compared with $56.7 million, or 55.4% of revenues, for the comparable period in fiscal 2002. Operating expenses were $72.4 million for the first six months of fiscal 2003 versus $53.8 million for the first six months of fiscal 2002. Net loss for the six months ended July 31, 2003 was $0.7 million, compared with net income of $3.6 million for the six months ended July 31, 2002. Net loss attributable to common stockholders for the first six months of fiscal 2003 was $1.9 million, or $0.05 per diluted share, compared with net income attributable to common stockholders of $2.6 million, or $0.06 per diluted share for the first six months of fiscal 2002. Looking ahead, Mr. Diamond concluded, "With the tender offer concluding in early September, we should have economic ownership of dELiA*s from that point in time. We believe that the addition of the dELiA*s business to our own will give our merchandise business the scale, financial profile and growth prospects to allow us to pursue shareholder value-creating transactions in the near term. As we evaluate the opportunities, our objective will be to stabilize the dELiA*s business and lay the groundwork for synergy-generating integration to begin emerging in 2004. "Assuming that we take majority ownership of dELiA*s in early September, we are establishing a fiscal third quarter merchandise revenue range of $50 million to $55 million, together with a sponsorship revenue range of $66 million to $69 million, a diluted earnings per share range of $0.01 to $0.07 and an Adjusted EBITDA range of $9 million to $12 million. We believe that going forward Adjusted EBITDA will provide more meaningful year-over-year earnings comparisons than EBTA in light of the additional depreciation and amortization charges that will result from the dELiA*s acquisition, along with the interest costs associated with our recent convertible debt offering. Consequently, we intend to highlight Adjusted EBITDA in our future releases and guidance and discontinue the use of EBTA, although we plan to continue calculating and presenting EBTA for comparative purposes. For the full fiscal year, we are forecasting merchandise revenues of $210 million to $220 million, sponsorship and other revenues of $200 million to $210 million, diluted earnings per share of $0.01 to $0.08, and Adjusted EBITDA of $25 million to $30 million." We are also announcing the sale of an additional $4.3 million in aggregate principal amount of our Convertible Senior Debentures due 2023 (the "Debentures") pursuant to the over allotment option issued in connection with our previously announced private placement of such Debentures. The exercise of the over allotment option resulted in additional gross proceeds to Alloy of $4.3 million, bringing total gross proceeds for the private placement to $69.3 million. The Debentures have not been registered under the Securities Act of 1933 (the "Act") and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Act. ABOUT ALLOY Alloy, Inc. is a media, marketing services and direct marketing company targeting Generation Y, a key demographic segment comprising the more than 60 million boys and girls in the United States between the ages of 10 and 24. Alloy's convergent media model uses a wide range of media assets to reach more than 25 million Generation Y consumers each month. Through Alloy's 360 Youth media and marketing services unit, marketers can connect with the Generation Y audience through a host of advertising and marketing programs incorporating Alloy's media and marketing assets such as direct mail catalogs, magazines, college and high school newspapers, Web sites, school-based media boards, college guides, and sponsored on- and off-campus events. Alloy generates revenue from its broad reach in the Generation Y community by providing marketers advertising and marketing services through 360 Youth and by selling apparel, accessories, footwear, room furnishings and action sports equipment directly to the youth market through catalogs, Web sites and magazines. For further information regarding Alloy, please visit our Web site (www.alloy.com) and click on "Investor Info". Information on 360 Youth's marketing services can be found at www.360youth.com. This announcement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations and beliefs regarding our future results or performance. Because these statements apply to future events, they are subject to risks and uncertainties. When used in this announcement, the words "anticipate", "believe", "estimate", "expect", "expectation", "project" and "intend" and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements. Additionally, you should not consider past results to be an indication of our future performance. Factors that might cause or contribute to such differences include, among others, our ability to: increase revenues, generate high margin sponsorship and multiple revenue streams, increase visitors to our Web sites (www.alloy.com, www.ccs.com, and www.danscomp.com) and build customer loyalty; develop our sales and marketing teams and capitalize on these efforts, develop commercial relationships with advertisers and the continued resilience in advertising spending to reach the teen market; manage the risks and challenges associated with integrating newly acquired businesses; and identify and take advantage of strategic, synergistic acquisitions and other revenue opportunities. Other relevant factors include, without limitation: our competition; seasonal sales fluctuations; the uncertain economic and political climate in the United States and throughout the rest of the world and the potential that such climate may deteriorate further; and general economic conditions. For a discussion of certain of the foregoing factors and other risk factors see the "Risk Factors That May Affect Future Results" section included in our annual report on Form 10-K for the year ended January 31, 2003, as amended, which is on file with the Securities and Exchange Commission. We do not intend to update any of the forward-looking statements after the date of this announcement to conform these statements to actual results or to changes in management's expectations, except as may be required by law. (tables to follow) Alloy, Inc. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Three Months Six Months Six Months Ended Ended Ended Ended 7/31/2002 7/31/2003 7/31/2002 7/31/2003 Net merchandise revenues $31,530 $30,028 $62,597 $59,999 Sponsorship and other revenues 20,443 50,473 39,809 89,946 ------------------------------------------------------------ Total revenues 51,973 80,501 102,406 149,945 Cost of goods sold 24,163 41,125 45,723 79,100 ------------------------------------------------------------ Gross profit 27,810 39,376 56,683 70,845 Selling and marketing expenses 22,498 31,489 43,923 56,867 General and administrative expenses 3,977 6,266 8,100 11,224 Acquired intangible asset amortization (1) 1,189 1,896 1,724 3,680 Stock-based compensation 8 291 16 291 Restructuring charge to write-off abandoned facility lease and equipment 0 0 0 380 ------------------------------------------------------------ Total operating expenses 27,672 39,942 53,763 72,442 Income (loss) income from operations 138 (566) 2,920 (1,597) Interest and other income (expense), net 597 (3) 1,132 284 ------------------------------------------------------------ Income (loss) before income taxes 735 (569) 4,052 (1,313) Income tax expense (benefit) 197 (248) 444 (606) ------------------------------------------------------------ Net income (loss) 538 (321) 3,608 (707) Preferred stock dividend and accretion 479 702 1,037 1,155 ------------------------------------------------------------ Net income (loss) attributable to common stockholders $59 ($1,023) $2,571 ($1,862) Net income (loss) attributable to common stockholders per basic share $0.00 ($0.02) $0.07 ($0.05) Net income (loss) attributable to common stockholders per diluted share $0.00 ($0.02) $0.06 ($0.05) Weighted average basic common shares outstanding: 38,204,132 41,135,614 37,573,097 40,650,532 Diluted shares outstanding per GAAP: 39,941,514 41,135,614 39,599,524 40,650,532 RECONCILIATION OF EBTA AND ADJUSTED EBITDA TO GAAP RESULTS (2): --------------------------------------------------------------------------------------- Net income (loss) $538 ($321) $3,608 ($707) Income tax expense (benefit) 197 (248) 444 (606) Acquired intangible asset amortization 1,189 1,896 1,724 3,680 Restructuring charge 0 0 0 380 Stock-based compensation 8 291 16 291 ----------------------------------------------------------------------------------------------------------------------------------- EBTA EXCLUDING STOCK-BASED COMPENSATION EXPENSE AND RESTRUCTURING CHARGE $1,932 $1,618 $5,792 $3,038 Interest and other income (expense), net 597 (3) 1,132 284 Depreciation and amortization 986 1,207 1,950 2,250 ----------------------------------------------------------------------------------------------------------------------------------- ADJUSTED EBITDA $2,321 $2,828 $6,610 $5,004
(1) Reflects the adoption of FAS 142 "Goodwill and Other Intangible Assets" as of February 1, 2002 which eliminates regular periodic amortization of goodwill. (2) This press release contains the non-GAAP financial measures EBTA and Adjusted EBITDA. Alloy uses EBTA and Adjusted EBITDA to evaluate its performance period to period without taking into account certain expenses which, in the opinion of Alloy management, do not reflect Alloy's results from its core business activities. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure as is now required under new SEC rules regarding the use of non-GAAP financial measures. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America. Alloy, Inc. SELECTED CONDENSED CONSOLIDATED BALANCE SHEET DATA (In thousands)
January 31, 2003 July 31, 2003 (audited) (unaudited) Assets Current Assets Cash and cash equivalents $35,187 $92,567 Marketable securities 23,169 4,782 Accounts receivable, net 30,022 30,237 Inventories, net 23,466 21,573 Prepaid catalog costs 2,100 3,132 Other current assets 10,130 12,409 ------------------------------- Total current assets 124,074 164,700 Property and equipment, net 10,081 10,044 Deferred tax asset 5,621 5,621 Goodwill, net 270,353 286,335 Intangible and other assets, net 24,471 29,718 ------------------------------- Total assets $434,600 $496,418 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $28,032 $21,333 Deferred revenues 15,106 17,320 Accrued expenses and other current liabilities 27,679 23,615 ------------------------------- Total current liabilties 70,817 62,268 Deferred tax liability 2,698 2,698 Other long term liabilities 93 100 Convertible debt 0 65,000 Series B Preferred Stock 15,550 13,646 Stockholders' Equity 345,442 352,706 ------------------------------- Total liabilities and stockholders' equity $434,600 $496,418