Mad Catz Interactive CEO Discusses F2Q2011 Results – Earnings Call Transcript

Mad Catz Interactive, Inc. (

MCZ

)

F2Q2011 (Qtr End 09/30/10) Earnings Conference Call

November 4, 2010 5:00 PM ET

Executives

Norberto Aja – IR

Darren Richardson – President and CEO

Allyson Vanderford – Interim CFO

Analysts

Ronald Ryder – RLR Partners

Jordan Ku – Yellowstone Capital

P

resentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Mad Catz Fiscal 2011 Second Quarter Results Conference Call. (Operator Instructions)

I would now like to turn the conference over to Norberto Aja, Investor Relations. Please go ahead, sir.

Norberto Aja

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Thank you, operator, and good morning, good afternoon, everyone and welcome to Mad Catz Fiscal 2011 Second Quarter Conference Call. With me on the call today are Darren Richardson, Mad Catz’s President and Chief Executive Officer, along with Allyson Vanderford, Mad Catz’s Interim Chief Financial Officer.

Darren will provide an overview of the results and also comment on the drivers behind them. Afterwards, Allyson will review the financial results in greater detail. Finally, Darren will then close the call with some thoughts on our operating goals and the outlook for our sector in the balance of fiscal 2011.

However, before we begin, let me just take a few minutes to read the Safe Harbor language. Today’s discussion will contain forward-looking statements about the company’s financial results, estimates and business prospects that involve substantial risks and uncertainties.

The company assumes no obligation to update the forward-looking statements contained in this conference call as a result of new information or future events or developments. You can identify these statements by the fact that they use the words such as anticipate, estimate, expect, project, intend, plan, belief, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.

Among the factors that could cause actual results to differ materially are the following, the ability to maintain or renew the company’s licenses; competitive developments affecting the company’s current products; second party price reductions; price protection taken in response to price cuts; the ability to successfully market both new and existing products domestically, as well as internationally; difficulties or delays in manufacturing; delays in the company’s ability to obtain products from its manufacturers in China; market and general economic conditions. A further list and description of these risks, uncertainties and other matters can be found in the company’s reports filed with the appropriate regulatory authorities.

Today’s call and webcast includes non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today’s press release.

With that, I would now like to introduce Darren Richardson, President and Chief Executive Officer of Mad Catz. Darren?

Darren Richardson

Thank you, Norberto. Good afternoon, everyone, and thank you for joining the call. Before we start, I’d like to introduce and welcome Allyson Vanderford, our Interim CFO, who will be joining me on the call today.

Earlier today, we announced fiscal 2011 second quarter and year-to-date results that clearly reflect the top and bottom line benefits of Mad Catz strategy to bring higher value, higher margin products to market. On today’s call, I’ll provide a brief overview of our financial and operation achievements for the quarter and describe the drivers behind the record second quarter net sales, gross profit, net income, EPS and EBITDA.

Allyson will then review our financial performance in greater detail, after which I’ll provide an update on both our product development pipeline as well as some thoughts on the industry and the company’s outlook for the balance of fiscal 2011.

There’s several very positive factors driving the record quarterly and year-to-date net sales, including the acquisition of TRITTON Technologies, our new gaming audio line, the launch of Rock Band peripherals and bundles under our agreement with Harmonix, our Call of Duty Black Ops license agreement with Activision, our highly acclaimed Cyborg gaming mice and overall, the ongoing launch of the strongest portfolio of new products in Mad Catz’s history.

While second quarter net sales benefited from initial shipments of TRITTON and Rock Band products, it’s important to note that thanks to our strong portfolio of products across all our brands, we still generated growth on a quarterly basis even if both these product lines were excluded from our sales. Just as important as growing the top line, we’re able to leverage that growth all the way down to through the income statement.

While gross margins were below our 30% target due in part to lower margins on our Rock Band product line, Mad Catz still generated a record second quarter $10.5 million gross profit. Even though a large part of our selling expenses are variable, operating expenses as a percentage of net sales fell by over 9 percentage points to 22.9% contributing to record second quarter operating income, net income, earnings per share and EBITDA.

On a year-to-date basis, we recorded net sales and gross profit and we’re tracking well ahead of the prior year’s net income and EPS, leaving it very well-positioned to improve on fiscal 2010 record results.

With that, let me turn the call over to Mad Catz’s Interim CFO, Allyson Vanderford to review our financial results for the quarter. Allyson?

Allyson Vanderford

Thank you, Darren. Let me begin with a brief review of the income statement. Net sales for fiscal 2011 second quarter were $37.4 million, up 73% from $21.6 million in the fiscal 2010 second quarter. The increase in net sales was primarily driven by sales of audio products, which include TRITTON, the Mad Catz’s PlayStation 3 Bluetooth Headset and distribution of Turtle Beach products in Europe. Additional increases came from the initial shipments of Rock Band 3 products, Cyborg gaming mice and an OEM project for our product that was bundled in with a video game at launch.

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