Muzak Holdings LLC Announces First Quarter Results

Business Wire, May 15, 2008

Operating Summary (excludes DMX transaction related amounts):

Positive free cash flow increases from $2.5 million to $4.9 million

EBITDA decreases 4.8% for the quarter over prior year; increases 2.4% on a sequential quarter basis

FORT MILL, S.C. -- Muzak Holdings LLC ("Muzak" or the "Company"), a leading provider of business music services in the United States, today announced financial results for the quarter ended March 31, 2008.

Total revenue for the quarter ended March 31, 2008 was $62.5 million, a .2% increase, compared to $62.3 million for the quarter ended March 31, 2007. Music and other business services revenue for the quarter ended March 31, 2008 was $48.4 million, a 1.4% increase, compared to $47.7 million for the quarter ended March 31, 2007. Equipment sales and related services revenue was $14.1 million in the quarter ended March 31, 2008 as compared to $14.6 million for the same period in 2007. Music and other business services revenue increased from the sale to a franchisee of a limited number of accounts located outside of the Company's service territory and the buyout of previously leased equipment to existing clients. Decreases in equipment and related service revenue are attributed to the overall net decline in new account installations compared to the same quarter last year.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $16.8 million for the quarter ended March 31, 2008 (excluding approximately $800,000 in expenses directly associated with the proposed DMX transaction in both quarters), a decrease of $0.8 million or 4.8% as compared to $17.6 million in the quarter ended March 31, 2007. For the quarter, revenue increases were offset by increases in cost of revenues, decreasing our total margins on revenue to 59.2% for the quarter ended March 31, 2008 compared to 60.7% for the quarter ended March 31, 2007. Increases in the cost of the field staff due to higher labor, benefits, and fuel were the primary cause for the decrease in margins. Selling, general and administrative expenses as a percentage of total revenue remained at 32.6% for the quarter ended March 31, 2008 and 2007.

EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, net income as a measure of performance, as determined in accordance with generally accepted accounting principles, known as GAAP. Net loss for the quarter ended March 31, 2008 was $7.3 million, a 7.5% decrease, compared to $8 million in the prior year. Net loss includes $750,000 and $775,000 in non-recurring costs associated with the potential DMX transaction for the three months ended March 31, 2008 and 2007, respectively. See attached reconciliation from net loss to EBITDA and to EBITDA as defined by the indentures.

The Company generated a net cash increase of $4.9 million for the three months ended March 31, 2008 versus an increase of $2.5 million for the three months ended March 31, 2007 (excluding $784,000 and $125,000 in proposed DMX transaction expenses paid in the quarter ended March 31, 2008 and 2007, respectively). This represents the highest quarterly cash flow within the tenth consecutive quarter of positive cash flow since the company altered its business model. The positive cash flow for the quarter is primarily attributable to improvements in working capital, lower account installations, and other operational efficiencies. The net investment made in new subscriber locations was $5.6 million for the quarter ended March 31, 2008 versus $6.8 million in 2007. The Company's cash balance as of March 31, 2008 was approximately $30 million.

On April 7, 2008, Muzak LLC and DMX, Inc announced that they had been informed by the Antitrust Division of the U.S. Department of Justice (DOJ) that the DOJ's investigation into the proposed merger of the companies, to allow for a sale to a third party, would be closed without an antitrust challenge. The companies are now cleared to proceed with the proposed transaction subject, ultimately, to the review by federal regulators of the identity and ownership interests (among other things) of an as yet to be identified third party buyer. The Company has confirmed that the investment banking firm, Moelis & Company, has been retained to represent Muzak and DMX, Inc. during the sale process. Moelis & Company is assisting the companies in the preparation of an offering memorandum, virtual data rooms, and management presentations. Until a purchase is finalized, the companies are operating independently and Muzak continues to compete and to provide, without disruption, the highest quality products and services to its clients.

Muzak and its subsidiaries recently made other important announcements regarding client offerings since the first of the year including the following:

* Launch of the new Encompass LE2 delivery system that allows clients to customize their music and messaging experience by combining the speed and quality of its satellite delivery system with the flexibility of an online management system;