Bleak Times at Atari

The company misses earnings estimates by 11 cents a share.
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Updated from 5:13 p.m. EDT

Atari

(ATAR)

posted stunningly poor quarterly results on Tuesday, calling into question the company's future viability.

Revenue at the video-game software publisher fell 77% in its most recent quarter, leading to a much-worse-than-expected loss, dwindling cash reserves -- and resulting in the company's failure to meet the financial results required by HSBC, its chief financier.

But Atari will soldier on, the company said in a statement. Atari negotiated a waiver of its financial obligations with HSBC and thus will still be able to tap into the bank's credit line until next May. Meanwhile, Atari's majority owner,

Infogrames

, will provide the additional financial backing Atari may need to continue operations, Atari said.

"Atari is by far the largest asset for Infogrames," Atari CEO Bruno Bonnell said on a conference call, adding that Infogrames is "committed" to assisting Atari in "any way that makes sense for both group's shareholders."

Investors were a bit more skeptical, sending Atari's shares plunging 38 cents, or 17%, to $1.82 in recent after-hours exchanges.

Likewise, at least in terms of financial results, the company isj still going backward.

In the quarter ended June 30, Atari lost $32.8 million, or 27 cents a share. In the year-ago period, the company earned $12.1 million, or 10 cents a share. Year over year, sales fell 78% to $24.2 million.

Excluding discontinued operations and restructuring charges, Atari would have lost $28.3 million, or 23 cents a share.

The company's results were a far cry from what Wall Street was expecting. On average, analysts polled by Thomson First Call were expecting Atari to lose 11 cents a share in the June quarter on $55.35 million in sales. The company had not offered its outlook for the just-completed period.

Atari also did not offer guidance for its current quarter. Bonnell said that Atari does not plan to offer any financial guidance this year because it is a "transitional" one for the company.

Still, Bonnell indicated that the current quarter may offer more disappointing results. As with the just-completed period, the company doesn't plan to release any major titles during the current quarter, he said, meaning that Atari will rely largely on its older, bargain-priced catalog titles and distribution business to draw revenue.

The company plans to focus its shipments on the holiday quarter and the first calendar quarter of next year, Bonnell said.

Analysts are expecting a loss of 5 cents a share on $70 million in sales in the current quarter and 2 cents a share on sales of $355.3 million for the year.

The big drop in revenue was largely the result of unfavorable comparisons, company representatives said. Last year's sales were boosted by Atari's

Driver3

title, while sales in the just-completed quarter were hindered by a limited number of releases, the company said in the statement.

But the company's bottom line was also hurt by rising costs. Despite the huge sales decrease, Atari actually bumped up its research and development spending to $16.8 million from $15.5 million a year earlier.

Similarly, general and administrative expenses rose to $7.9 million from $7.5 million in the first quarter last year.

Atari also recorded $2.2 million worth of restructuring expenses in the quarter compared with none a year earlier. In the last year, the company has shuttered three studios, leading to the restructuring charges.

The hefty loss meant that from the end of March to the end of June, the company's cash balance shrank 44% to just $5.8 million.

Atari has been beset by operational problems and management turmoil for much of the last year. Despite boosting sales in the year-ago quarter,

Driver3

sold fewer copies than expected last year.

Meanwhile, the company has seen a host of management changes in recent months, including the

departure of CEO Jim Caparro in June.

Atari also

faces a delisting from the

Nasdaq

after the resignation of Thomas Mitchell from the company's board late last month.

The departure of Mitchell, a former Ernst & Young partner, leaves Atari without a financial expert on its audit committee, a violation of Nasdaq listing standards.

Atari expects sometime next week to send to the Nasdaq its plan for coming back into compliance with listing standards, Bonnell said on the call. But the company doesn't have to find a new CEO until next year, said Bonnell, who stepped in as CEO on an interim basis after Caparro's departure.

The company's experience with Caparro has encouraged it to take its time finding a successor, Bonnell said. The company is working with Infogrames to profile potential candidates and figure out who exactly would be the best fit, he said.

"The last experience was fairly disappointing at the least," he said.