Mad Catz Interactive, Inc. ( MCZ) F2Q12 (Qtr End 09/30/2011) Earnings Call November 9, 2011 5:00 pm ET Executives Norberto Aja - IR, Jaffoni & Collins, Inc. Darren Richardson - President and CEO Allyson Evans - CFO Analysts Ronald Rotter - RLR Capital Management Stan Trilling - Credit Suisse Presentation Operator
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Among the factors that could cause the 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, first party price reductions, the ability to successfully market both new and existing products domestically and internationally, difficulties or delays in manufacturing, or a downturn in the market or industry.A further list and description of these risks, uncertainties and other matters can be found in the company's reports filed with the Securities and Exchange Commission and the Canadian Securities Administrators. A further list of these risks and uncertainties and other matters can also be found on the company's reports filed with the appropriate regulatory authorities. Today's call, November 9, 2011 and webcast includes non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all the 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, and good afternoon everyone. Thank you for joining us today. Fiscal 2012 second quarter sales of $25.8 million are on par with the second highest level ever recorded in the second quarter in the company's history. However, the same quarter last year was a blow out quarter by any measure. Thanks largely to the initial launch shipments of Rock Band 3 and strong sales contribution from a distribution agreement for third-party products, but it seems being terminated. So this year was always going to be a difficult comparison, but it's hard not to be a little disappointed with the results. We have a promising new product development pipeline, as evidenced yesterday by the announcement that four Mad Catz products were named as CES Innovations 2012 Design and Engineering Award Honorees. And we are hopeful that strong new product launches combined with margin in excess of our targeted 30% could bridge a large part of the sale shortfall.
Unfortunately, product development and manufacturing delays resulted in a nominal sales contribution from new products during the quarter. And while gross margins improved from the prior quarter, they were below our target.We remained focused on executing our plan to grow their business and as expected, expenses grew 5%, predominantly on the back of increased sales, marketing and research and development expenses. In other words, we continue to invest in the business, its strength and the company's future. In the process, we're growing the base of evergreen products, products that don't need to be reinvented each year. And we're expanding our distribution platform to new markets. As we continue to invest in the transformation of the company from a provider of commodity video game products to a company that develops innovative products for passionate consumers. We expect to continue investing in sales, marketing and research and development expenses that could negatively impact the results in the short-term. But we believe we'll benefit the business in the long-term. We're committed to our business plan and we're confident in the ability of our talented team to execute on our growth strategies and deliver long-term success. In conclusion, Mad Catz is committed to delivering products that appeal to passionate consumers, growing its distribution platform and creating a vehicle for delivering sustainable, profitable growth. We've made progress on these initiatives over the last several years. And while we clearly have more work to do, we fully understand the challenges and opportunities and are focused on the job at hand. With that, I'd like to turn the call over to Allyson to provide some additional color on the results. Allyson Evans Thanks, Darren. Let me begin with a brief review of the income statement. Net sales for the fiscal second quarter were $25.8 million, down 31% from $37.4 million in the fiscal 2011 second quarter. This decline was primarily driven by the negative comparison to the launch of Rock Band 3 and strong sales contribution from the distribution of third party products in the prior year quarter. Partially offsetting these declines were strong sales of our Tritton-branded headsets, including products related to the recent launch of Gears of War 3 and our Cyborg R.A.T. Gaming Mice. Read the rest of this transcript for free on seekingalpha.com