Alloy Reports Full Year and Fourth Quarter Fiscal 2007 Results

Business Wire, March 26, 2008

* Reports 2007 Full Year EBITDA of $10.4 million

* Reaffirms 2008 Full Year:

Revenue guidance of $225.0 - $240.0 million

EBITDA guidance of $20.0 - $24.0 million

NEW YORK -- Alloy, Inc. (the "Company") (NASDAQ: ALOY), one of the country's largest providers of media and marketing programs reaching targeted consumer segments, today reported financial results for its full fiscal year ended and fourth quarter ended January 31, 2008.

Results for Fiscal 2007

Revenue in the fiscal year ended January 31, 2008 ("fiscal 2007") increased $3.0 million, or 2%, to $199.1 million from $196.1 million in the fiscal year ended January 31, 2007 ("fiscal 2006").

Adjusted EBITDA, defined as operating income (loss) plus depreciation and amortization, special charges and non-cash stock-based compensation, for fiscal 2007 was $10.4 million, compared with $19.0 million for fiscal 2006, a decrease of $8.6 million. The decrease was primarily due to lower profitability in the Media segment related to the Channel One acquisition and reduced display board business.

Commenting on Alloy's performance and outlook, Matt Diamond, the Company's Chairman and Chief Executive Officer stated, "Alloy took critical steps in fiscal 2007 to drive growth of our high margin Media segment. Specifically, we acquired and integrated Channel One and Frontline, expanded our Teen.com interactive advertising network and raised the creative presence of our Alloy Entertainment business. These strategic initiatives, together with a strong book of contracted business with AMP Agency, which is part of our Promotions segment, support our expectation of substantial revenue and earnings growth in fiscal 2008."

Fiscal 2007 free cash flow, defined as net income (loss) before extraordinary items plus depreciation and amortization, special charges, stock-based compensation, debt conversion expense and amortization of deferred financing costs less capital expenditures, decreased approximately $21.6 million to $(6.7) million, or $(0.50) per diluted share, compared with $14.9 million, or $1.19 per diluted share, in fiscal 2006. The decrease was primarily due to higher capital expenditures for upgrades to Channel One's infrastructure as discussed in previous earnings releases and net cash used in operating assets and liabilities.

Operating income decreased approximately $82.8 million to a loss of $70.1 million in fiscal 2007, from income of $12.7 million in fiscal 2006. This decrease is primarily due to a non-cash goodwill and a long-lived asset impairment charge of $71.6 million in the Company's Media ($48.8 million) and Placement ($22.8 million) segments and lower Adjusted EBITDA. The Company is required to evaluate, at least annually, its goodwill and other long-lived assets for impairments. These impairments are included as part of special charges.

In fiscal 2006, the Company recorded a $17.9 million expense related to the conversion of $67.9 million of its convertible debentures. There was no debt conversion expense recorded in fiscal 2007.

Fiscal 2007 interest expense decreased $2.8 million, to $0.1 million from $2.9 million in fiscal 2006, primarily due to the conversion of convertible debentures to the Company's common stock during fiscal 2006. Income tax expense decreased approximately $0.2 million, to $0.5 million in fiscal 2007, from $0.7 in fiscal 2006 as a result of lower state income tax.

During fiscal 2007, the Company recorded an extraordinary gain of $5.7 million, net of tax, related to its acquisition of the operating assets of Channel One, as a result of liabilities being lower than initially estimated.

Net loss increased $57.2 million to $64.4 million, or $(4.82) per basic share for fiscal 2007, from a net loss of $7.2 million, or $(0.58) per basic share for fiscal 2006, primarily due to higher special charges which were partially offset by the extraordinary gain during fiscal 2007 and the absence of debt conversion expense.

Fiscal 2008 Outlook

The Company is reaffirming its fiscal year ending January 31, 2009 ("fiscal 2008") guidance, projecting revenue to be in the range of $225.0 million to $240.0 million and Adjusted EBITDA to be in the range of $20.0 million to $24.0 million. The projections are based on a full year of results from Frontline, a successful transition of the Channel One business and improved sales efforts in the Company's Promotion and Media segments.

Stock Repurchase Program

During fiscal 2007, under the Company's stock repurchase plan, the Company spent approximately $0.5 million repurchasing its common stock in the open market. The Company will continue to monitor market conditions and repurchase shares from time to time in the open market at prevailing market prices or in privately negotiated transactions.

Results for the Fourth Quarter Ended January 31, 2008

Revenue for the fourth quarter of fiscal 2007 was $43.1 million compared with $40.9 million for the fourth quarter of fiscal 2006, an increase of $2.2 million. The increase was primarily due to higher revenue in the Media segment.