EMAK Worldwide Reports Results for Fiscal Year and Fourth Quarter of 2007

Business Wire,  March 11, 2008  

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LOS ANGELES -- EMAK Worldwide, Inc. (Nasdaq:EMAK), a leading marketing services firm, today announced its financial results for the fourth quarter and full year ended December 31, 2007.

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"We ended the year on a high note as the fourth quarter represented EMAK's most profitable quarter in the last four years," said Jim Holbrook, EMAK's Chief Executive Officer. "Once again, we saw good growth in our fee-based agency revenues, with high double-digit revenue growth at Upshot versus the year-ago quarter. As we expected, revenues did decline as compared to the prior-year period due to two large, low-margin promotional programs that occurred in the fourth quarter of 2006, but were not repeated this year. Because we did not pursue the lower-margin programs this year, our gross profit margin improved significantly, boosting our bottom line.

"Our 2007 results demonstrate a challenging yet rewarding year. In our Agency Services segment, we enjoyed healthy growth of 5.4 percent for the full year, once again led by strong growth at our Upshot agency. We faced an approximately 10 percent decline in revenues in our Promotional Products segment as a result of the factors noted above for the fourth quarter, combined with deteriorating conditions in kids marketing in Europe experienced over the full year. When excluding operating losses in our international region, our domestic operations were profitable for the year. In response to the continued declines in Europe, during the fourth quarter of 2007 we implemented an agency restructuring plan which will result in lower operating expenses in 2008 as discussed below."

Fourth Quarter 2007 Financial Highlights

The following table presents financial highlights for the Company's operations for the fourth quarter of 2007. Full financial results, including reconciliations of GAAP to non-GAAP measures, follow at the end of the release.

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Additional Fourth Quarter 2007 Financial Highlights

* Agency Services revenues were significantly higher versus the year-ago quarter, increasing by $2.4 million, or 36.9 percent, due to continued growth at Upshot across new and recurring clients.

* Promotional Products revenues were lower versus the year-ago quarter, as noted previously.

* Consumer Products revenues were lower versus the year-ago quarter because of the segment's planned reduction to one remaining toy license through December 2008. Beginning with the first quarter of 2008, the Consumer Products and Promotional Products segments will be combined into one reporting segment.

* Gross profit increased 16.2 percent, and gross profit margin increased 800 basis points due to improvements across all segments.

* Agency Services gross profit dollars increased from the prior-year period as a result of a higher contribution of gross profit dollars from the Upshot agency, which had higher fee-based revenues from both new and existing clients.

* Agency Services gross profit margin increased due to the higher fee-based revenues mentioned previously and a smaller proportion of direct outside costs. Agency Services gross profit includes direct outside costs that fluctuate, making direct comparisons of the gross profit percentages difficult. Typically billings for direct outside costs, which are included in revenues, have very low gross margins. In periods in which segment revenues contain significant direct outside costs, the overall gross profit percentage will be lower. Management views the overall gross profit dollars, rather than the percentage, to be a more meaningful measure of performance in this segment.

* Consumer Products segment gross margins were higher than the prior-year period due to one-time write offs of barter credits in the prior-year period.

* Domestic revenues for the quarter were $35.6 million, or 77.6 percent of revenues, and international revenues for the quarter were $10.3 million, or 22.4 percent of revenues. In the year-ago quarter, domestic revenues were $44.1 million, or 79.4 percent of revenues, and international revenues were $11.4 million, or 20.6 percent of revenues.

* Net foreign currency translation had a favorable impact to revenues of approximately $360,000 versus the prior-year period average exchange rates.

* Operating expenses, before charges and gain, increased by $617,000 for the quarter. As a percentage of revenue, operating expenses were 25.2 percent in the fourth quarter of 2007, compared to 19.7 percent of revenues in the year-ago quarter. In the fourth quarter of 2007, the Company incurred higher costs related to SOX compliance, legal fees and higher occupancy costs related to non-cash expense for a new lease for its Chicago-based office. Additionally, the unfavorable impact of foreign currency translation in Europe increased operating expenses by $197,000.

* Operating income was $436,000 as compared to $8,000 in the year-ago quarter. Domestic operating income of $1.3 million was offset by international operating losses of $0.9 million.