Majesco Entertainment's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Majesco Entertainment (COOL)

Q4 2011 Earnings Call

January 17, 2012 4:30 pm ET

Executives

Christina Glorioso - Chief Marketing Officer

Jeffrey Anderson - Senior Vice President of Social Games

Jesse Sutton - Chief Executive Officer and Director

Michael Vesey - Chief Financial Officer

Todd Greenwald -

Analysts

Mark Gomes

Amit Dayal - Rodman & Renshaw, LLC, Research Division

Unknown Analyst

John Taylor

Presentation

Operator

Hello. This is the Chorus Call operator, and welcome to the Majesco Entertainment Fourth Quarter 2011 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded, and now I'd like to turn the conference over to Todd Greenwald, Director of Investor Relations and Strategic Planning. Please go ahead, Mr. Greenwald.

Todd Greenwald

Thank you, and good afternoon. I'd like to welcome you to Majesco Entertainment conference call. Before we get started, I'd like to remind you that the call is being recorded, and the audio broadcast and replay of the teleconference will be available in the Investor Relations section on the company's website.

As a reminder, this call may contain forward-looking statements, including statements regarding management's intention, hope, expectations, representations, plans or predictions about the future. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results or actual future results to differ materially from the expectations set forth in the forward-looking statements.

Factors that could cause actual results to differ materially are specified in the company's annual report on Form 10-K for the year ended October 31, 2011, and other filings with the SEC. The company does not undertake and specifically disclaims any obligation to release publicly the results of any revision that may be made to any forward-looking statements to reflect the occurrences of anticipated or unanticipated events or circumstances after the date of such statements.

To facilitate a comparison between the reported periods, the company has presented both GAAP and non-GAAP financial measures. GAAP financial measures include expenses related to noncash compensation, changes in the fair value of warrants, severance costs and a benefit from the sale of certain state income tax benefits derived from net operating losses. Operating income, net income and diluted income per share have been adjusted to report non-GAAP financial measures that exclude these items.

These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. This measure should be considered in addition to results prepared in accordance with GAAP but should not be considered as substitute or superior to GAAP results. Reconciliation between GAAP and non-GAAP financial measures is included in the press release issued earlier today. With me on the call are Jesse Sutton, Chief Executive Officer; and Mike Vesey, Chief Financial Officer. I'd now like to turn the call over to Jesse.

Jesse Sutton

Thanks, Todd. I'll open the call with an overview of our performance in the fiscal year and some highlights from the holiday season. Mike will follow with the financial review, and I'll conclude with an update on our product slate for the rest of the year. I'm also pleased to welcome our Senior Vice President and Chief Marketing Officer, Christina Glorioso, who will spend a few moments discussing a unique partnership we've established with Microsoft. I'd also like to introduce Jeff Anderson, our Senior VP of Social and Mobile Games, who will discuss our progress in that area, after which we will be happy to take your questions.

In 2011, we experienced a strong year fueled by the stellar performance of the industry's leading fitness and dance title, Zumba Fitness, as well as the release of 2 Cooking Mama titles. Sales grew over 65% to $125 million, and our gross margin expanded to 36%, up from 24% last year. This resulted in a non-GAAP EPS of $0.28, up from a loss of $0.04 last year. These results include a noncash charge of $2.7 million to reflect an impairment taken for a few titles released in Q1 2012 that did not meet our expectations.

We continue to be pleasantly surprised by the success of Zumba Fitness. Zumba Fitness finished the year as the industry's #1 fitness title across all platforms and is now one of the best-selling fitness video games in history. In North America, Zumba was the industry's #3 best-selling title on the Wii and the #12 best-selling title across all platforms. In the U.K., Zumba was the #1 title on the Wii and the #4 title across all platforms competing against the industry's biggest blockbuster hits and proven franchises.

In 2011, Zumba Fitness took the motion-based gaming world by storm. To date, over 6 million units have been sold worldwide, and the sequel is currently outselling the original. Furthermore, we believe the Zumba brand is still in the early stages of its growth curve. Today, there are more than 12 million Zumba enthusiasts taking classes weekly in over 110,000 locations across more than 125 countries. These numbers are up significantly from a year ago. This holiday, we released Zumba Fitness 2 on the Wii, which repairs 1 million units on 1 platform faster than it did a year ago across 3 platforms. Additionally, Zumba Fitness 1 continues to sell well alongside Zumba 2 as it benefits from the brand's overall marketing campaign and its significance present -- significant presence at retail. Finally, there are more catalyst coming up for our Zumba franchise. Zumba Fitness Rush comes out in February exclusively on Kinect for Xbox 360, and we're very excited for its release. We will discuss this title in greater detail later on the call.

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