Mr. Darren Richardson reports
MAD CATZ REPORTS FISCAL Q3 2012 NET SALES OF $46.2 MILLION AND DILUTED EPS OF $0.02
Mad Catz Interactive Inc. has provided its financial results for its fiscal 2012 third quarter
ended Dec. 31, 2011.
For the quarter ended Dec. 31, 2011, Mad Catz generated net sales of
$46.2-million compared with the record quarterly net sales of $93.0-million recorded in the fiscal 2011 third quarter. The company's
Tritton, Cyborg and Saitek brands all recorded year-over-year sales
increases in the fiscal 2012 third quarter. However, there was a
year-over-year decline in fiscal third quarter net sales due to a
challenging comparison with the year ago period, which benefited from
sales of game-specific products and a third party distribution agreement
that are not continuing.
Gross profit in the fiscal 2012 third quarter was $11.2-million,
compared with $26.4-million a year ago, while gross profit margin was 24 per cent,
compared with 28 per cent a year ago. Total operating expenses in the fiscal 2012
third quarter were $9.0-million, down 14 per cent from $10.4-million in the
prior year quarter. The decrease in operating expenses was related to a
reduction in the accrual for bonus expense and lower variable selling
expenses. Total operating expenses as a percentage of revenues were 19 per cent,
compared with 11 per cent in the prior year period, resulting in operating income
of $2.2-million, compared with $16.0-million in the prior year quarter.
Foreign exchange losses for the third quarter of fiscal 2012 were
approximately $500,000, compared with $700,000 a year ago.
Reflecting a tax benefit of less than $100,000 in the fiscal 2012
third quarter versus income tax expense of $4.6-million in the prior
year fiscal third quarter, the company reported net income of $1.5-million, or two cents per diluted share, compared with net income of $9.7-million, or 15 cents per diluted share a year ago.
Adjusted EBITDA, a non-GAAP (generally accepted accounting principles) financial measure (defined as earnings
before interest, taxes, depreciation and amortization, and change in fair
value of warrant liability), in the three months ended Dec. 31,
2011, was $2.5-million, compared with $16.0-million in the prior year
quarter. Adjusted net income and adjusted diluted earnings per share,
which exclude the impact of amortization of intangibles, stock-based
compensation and goodwill impairment (if any), were $2.0-million and
three cents, respectively, in the fiscal third quarter versus $10.2-million
and 16 cents, respectively, in the prior year quarter. Adjusted EBITDA,
adjusted net income and adjusted diluted earnings per share are non-GAAP
financial measures.
In the nine-month period ended Dec. 31, 2011, the company reported
net sales of $88.4-million, compared with $150.3-million in the comparable
period of the prior fiscal year. Gross profit was $22.6-million, down
from $42.8-million in the prior year, while gross profit margin was 26 per cent,
compared with 29 per cent a year ago. Total operating expenses in the first nine
months of fiscal 2012 were $26.9-million, up 4 per cent from $25.7-million in
the prior year-to-date period and, as a percentage of net sales, reached
30 per cent, compared with 17 per cent a year ago. The company recorded an operating loss
of $4.3-million and an operating profit of $17.1-million in the first
nine months of fiscal 2012 and fiscal 2011, respectively.
Foreign exchange loss for the first nine months of fiscal 2012 was
approximately $300,000, compared with a loss of less than $100,000 a year ago. Reflecting an income tax benefit of $300,000 in the
fiscal 2012 year-to-date period and income tax expense of $5.6-million
in the comparable year-ago period, the company reported a net loss of
$2.4-million, or four cents per diluted share, compared with a net income of
$9.4-million, or 16 cents per diluted share a year ago.
In the fiscal 2012 year-to-date period, adjusted EBITDA was a loss of
$2.1-million compared with adjusted EBITDA of $19.3-million in the first
nine months of fiscal 2011. Adjusted net loss and adjusted diluted loss
per share, which exclude the impact of amortization of intangibles and
stock-based compensation, were $1.3-million and two cents, respectively, in
the fiscal 2012 year-to-date period versus adjusted net income of $10.7-million and adjusted diluted income per share of 18 cents, respectively, in
the comparable year ago period.
Third quarter fiscal 2012 financial highlights
Net sales by geography for the third quarter of fiscal 2012 were as
follows:
-
North American net sales were $21.8-million or 48 per cent of quarterly
sales, compared with $56.4-million or 61 per cent of quarterly sales in the
prior year.
-
European net sales were $22.8-million or 49 per cent of quarterly sales,
compared with $35.1-million or 38 per cent of quarterly sales in the prior
year.
-
Net sales to other countries were $1.6-million or 3 per cent of quarterly
sales, compared with $1.4-million or 1 per cent of quarterly sales in the
prior year.
Gross sales by platform were as follows:
-
Xbox 360 accounted for 35 per cent of total gross sales versus 31 per cent in the
prior year.
-
PC represented 26 per cent of total gross sales versus 12 per cent in the prior year.
-
PlayStation 3 accounted for 5 per cent of total gross sales versus 19 per cent in
the prior year.
-
Wii products represented 3 per cent of total gross sales versus 19 per cent in the
prior year.
-
Hand-helds represented 2 per cent of total gross sales in both periods.
-
All other platforms represented 29 per cent of total gross sales versus 17 per cent
in the prior year.
Gross sales by category were as follows:
-
Audio products represented 39 per cent of total gross sales versus 24 per cent in the
prior year.
-
Specialty controllers represented 24 per cent of total gross sales versus 29 per cent
in the prior year.
-
PC input devices represented 13 per cent of total gross sales versus 6 per cent in
the prior year.
-
Controllers represented 9 per cent of total gross sales versus 16 per cent in the
prior year.
-
Accessories represented 9 per cent of total gross sales in both periods.
-
Games represented 5 per cent of total gross sales versus 16 per cent in the prior
year.
-
All other sales represented less than 1 per cent of total gross sales versus
0 per cent in the prior year.
Reported net position of bank loan less cash at Dec. 31, 2011, was
$15.5-million, compared with $15.9-million at Dec. 31, 2010, and
$1.7-million as of March 31, 2011.
New products shipped in and subsequent to third quarter of fiscal
2012 include:
-
The Detonator stereo headset for the Xbox 360;
-
Jonah Lomu Rugby Challenge game for the Xbox 360 throughout North
America;
-
The Cyborg R.A.T.7 Contagion gaming mouse for both the Mac and PC;
-
Rock Band 3 Red Hot Chili Peppers DLC bundles for the
Xbox 360;
-
The Trigger stereo headset for the Xbox 360;
-
The Soulcalibur V Arcade FightStick Soul Edition, designed for use
with the Soulcalibur V video game on the Xbox 360 and PlayStation 3;
-
The primer wireless stereo headset for the Xbox 360;
-
The licensed Major League Gaming Pro Circuit Controller for the Xbox
360 and PlayStation 3.
Recent key developments and licence agreements:
-
PlayStation accessory licensing agreement with Sony Computer
Entertainment Japan, which permits the company to manufacture and
distribute products for the PlayStation Vita throughout Japan.
Commenting on the results, Darren Richardson, president and chief
executive officer of Mad Catz, said: "The decline in financial results
for the fiscal 2012 third quarter largely reflects the difficult
year-ago comparison which benefited significantly from strong sales of
products related to specific video games and strong revenue from a third
party distribution agreement, which has since been discontinued. We also
experienced delays in launching key products for the 2011 holiday season
and were impacted by the overall economy and fundamental changes in the
video game industry, marked by the transition of Nintendo's Wii console
and the move by many casual gamers to smart phones and tablets. Thus,
while we are not satisfied with these results, we believe a simple
comparison between the fiscal third quarter of 2012 and 2011 is not a
fully accurate indicator of the company's direction and prospects.
"Three years ago, the company made a strategic decision to shift its
focus towards the creation of high-value products for passionate, hard
core consumers. This shift has not happened overnight and is still
ongoing. Initial success was evident in growing sales of our high-end
Saitek flight products and, more recently, is demonstrated by our widely
acclaimed Cyborg PC and Mac products as well as our Tritton premium
audio products. Each of these three brands generated sales growth in the
fiscal third quarter of 2012.
"We also believe these high-end products have much longer product life
spans and are the best way forward as we reach another inflection point
in the video game industry with casual gamers moving more toward tablet
and smart phone gaming, leaving hard core gamers who demand the best. We
realize and understand that more growth in these key areas is needed and
we are committed to increasing our sales and marketing efforts to expand
awareness of these products, while keeping a sharp eye on operating
expenses.
"In addition to our focus on creating aspirational products, over the
past few years, we have expanded our geographic footprint as we continue
to build a worldwide sales and marketing team. As games continue to
cross geographic borders and the Internet allows worldwide on-line
competition, the company is committed to position itself as a leading
provider of products that optimize the passionate video gamer's
performance on a global basis.
"In fiscal 2011, we benefited from discrete opportunities to partner
with premium game titles. We will continue to look for such
opportunities and pursue them when they make financial sense. However,
we believe that the long-term growth and financial health of the company
depends on creating must have products for passionate consumers that
do not rely on outside forces for their success."
Mr. Richardson concluded: "Looking ahead, we have a range of exciting
initiatives that should benefit fiscal 2013. Our line of audio products
is going into wide distribution in the United States and is doing well
in other parts of the world. We intend to increase marketing and
awareness efforts for our universally acclaimed Cyborg R.A.T. PC and Mac
products and plan to further fill out the Cyborg range. We will continue
to carefully select targeted software opportunities that pose manageable
downside risk by complementing our hardware initiatives. We are also
committed to supporting the professional gaming community and developing
products that live up to their exacting demands."
The company will host a conference call and simultaneous webcast on
Feb. 8, 2012, at 5 p.m. ET, which can be accessed by dialling
212-231-2901. Following its completion, a replay of the call can be
accessed for 30 days at the company's website or via telephone at 800-633-8284 (reservation
No. 21575698) or, for international callers, at 402-977-9140.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except share and per share data)
Three months ended Nine months ended
Dec. 31, Dec. 31,
2011 2010 2011 2010
Net sales $46,195 $92,957 $88,416 $150,276
Cost of sales 34,954 66,556 65,792 107,429
-------- -------- -------- --------
Gross profit 11,241 26,401 22,624 42,847
Operating expenses
Sales and marketing 4,455 4,935 11,467 10,982
General and administrative 2,832 4,047 9,433 10,565
Research and development 1,285 1,089 4,476 2,780
Acquisition-related items 187 102 779 708
Amortization of intangible assets 235 244 721 708
-------- -------- -------- --------
Total operating expenses 8,994 10,417 26,876 25,743
-------- -------- -------- --------
Operating income (loss) 2,247 15,984 (4,252) 17,104
Interest expense, net (371) (1,046) (818) (2,284)
Foreign exchange (loss), net (536) (736) (338) (41)
Change in fair value of warrant liability 162 - 2,696 -
Other income 7 46 39 223
-------- -------- -------- --------
Income (loss) before income taxes 1,509 14,248 (2,673) 15,002
Income tax expense (benefit) (32) 4,552 (251) 5,554
-------- -------- -------- --------
Net income (loss) $1,541 $9,696 $(2,422) $9,448
======== ======== ======== ========
Basic net income (loss) per share $0.02 $0.18 $(0.04) $0.17
Diluted net income (loss) per share $0.02 $0.15 $(0.04) $0.16
We seek Safe Harbor.
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