Media : Outdoor Channel Expenses Outstrip Revenue Grains in First Quarter

Outdoor Channel Holdings, Inc. reported consolidated revenues reached $16.9 million in the first quarter ended March 31, an 18 percent increase compared with $14.3 million in the first quarter of 2012, driven primarily by a 20 percent growth in advertising revenues at The Outdoor Channel ("TOC").

TOC, which had approximately 39.8 million cable, satellite and telco subscribers for May 2013, offers hunting, fishing, shooting, adventure and the Western lifestyle programming and can be viewed on multiple platforms including high definition, video-on-demand, as well as on a dynamic broadband website.

Total operating expenses for the first quarter were $26.5 million compared to $16.3 million in operating expense for the first quarter of 2012. Excluding merger related costs of $7.6 million, which includes the previously announced $6.5 million termination fee paid to InterMedia Outdoors Holdings, LLC ("InterMedia"), operating costs grew by $2.6 million, or 16 percent, on significantly higher programming and advertising and promotion expense, primarily relating to our first quarter program launch of Elite Tactical Unit ("ETU") and a new season of Major League Fishing ("MLF"). These program and promotion expense increases were in line with guidance previously provided by the company.

Resulting operating loss for the first quarter 2013 was $9.6 million, a $7.7 million increase from the $2.0 million of operating loss in the first quarter of 2012. Earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted for the effects of share-based compensation expense and merger related expenses, was negative $648,000, a 56 percent increase compared to adjusted EBITDA of negative $415,000 for the first quarter of 2012 on higher programming and promotion costs, net of increased revenue.

On a segment basis, TOC reported revenues of $14.7 million for the quarter, a 16 percent increase compared to $12.6 million of revenue for the first quarter of 2012 driven primarily by a 20 percent growth in ad revenues, primarily related to the aforementioned launches of ETU and MLF. TOC's EBITDA, adjusted for share-based compensation expense and merger related expenses, was negative $321,000 compared to $253,000 of adjusted EBITDA for the first quarter of 2012 driven primarily by higher programming and promotion expenses.

Our Production Services unit generated revenues (before intercompany eliminations) for the quarter of $3.4 million, a 231 percent increase compared to $1.0 million for the first quarter of 2012 resulting primarily from increased programming for TOC, including ETU. Production Services' EBITDA (including intercompany eliminations), adjusted for share-based compensation expense, was $90,000 compared to adjusted EBITDA of negative $274,000, with the improvement principally driven by lower SG&A expenses. TOC’s  Winnercomm unit is one of America's leading and highest quality producers of live sporting events and sports series for cable and broadcast television.

Our Aerial Cameras unit generated revenues for the quarter of $1.5 million, a 35 percent increase compared to $1.1 million in revenues for the first quarter of 2012 driven primarily by the ongoing U.S. government project initiated in the second quarter of 2012. TOC owns and operates the SkyCam and CableCam aerial camera systems which provide dramatic overhead camera angles for major sports events, including college and NFL football. The Aerial Cameras unit's EBITDA, adjusted for
share-based compensation expense, was negative $417,000 compared to adjusted EBITDA of negative $394,000 primarily due to fewer sporting events and reduced margins thereon, offset partially by margin contribution from our government project which commenced in April 2012.

Our consolidated net loss for the first quarter of 2013 was $6.1 million, or $.24 per basic and diluted share, compared to a consolidated net loss for the first quarter of 2012 of $1.2 million, or $.05 per basic and diluted share.

Pending sale

As announced by the company on March 13, 2013, the company entered into a definitive merger agreement with Kroenke Sports & Entertainment ("KSE") under which KSE is to purchase the company for $8.75 per share in an all-cash transaction. On May 2, 2013, KSE amended the agreement to increase the all-cash consideration to $9.35 per share. On May 3, 2013, the company received an all-cash offer from InterMedia for $9.75 per share under essentially the same terms and conditions as the proposed KSE merger. On May 8, 2013, the company and KSE amended the merger agreement to reflect an increased all-cash price of $10.25 per share, an increase of the break-up fee to $7.5 million and an amendment to the support agreement to require the directors and certain executive officers to vote in favor of the KSE merger, even if the Board determines an alternative proposal is superior. The merger transaction is subject to shareholder and other customary approvals.

Source Ourdoor Channel through SportsOneSource