Mad Catz Interactive, Inc. (MCZ) F3Q2012 Earnings Conference Call February 8, 2012 5:00 PM ET Executives Norberto Aja – Investor Relations Darren Richardson – President and Chief Executive Officer Allyson Evans – Chief Financial Officer Analysts Ronald Rotter – RLR Partners Elliot Christian Huber [ph] David Brigham – Brigham Investments Stan Trilling – Credit Suisse Joseph Miranda [ph] Presentation Operator
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, first party price reductions, the ability to successfully market both new and existing products domestically, as well as 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 and description of these risks and uncertainties and other matters can be found in the company's reports filed with the appropriate regulatory authorities. Today's call, February 8, 2012 and web cast 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 CEO of Mad Catz. Darren? Darren Richardson Thank you, Norberto. Good afternoon everyone and thank you for joining us on the call today. The current quarter results are meaningfully below the record [ph] year ago levels, and we can easily identify the factors that led to this outcome. Most significantly, the decline in sales of video game specific products related to titles such as Rock Band 3 and Call of Duty, the discontinuation of a third party distribution agreement in Europe, and missing plan release dates with several high-profile products. However, the quarter also brought several accomplishments for Mad Catz, most notably, the year-over-year sales increases in the fiscal 2012 third quarter of the company’s Tritton, Cyborg and Saitek branded products, and the extremely positive product reviews we’re seeing.
To best understand where we’re in the face of the challenging economy, the console life cycle, the rapid emergence of smart phones and tablets as gaming platforms, and the evolving retail landscape, I want to take a few minutes to review Mad Catz evolution over the past several years. This will provide you with a deeper perspective, not only on the recent quarter’s results, but more importantly how we’re positioning the company for the future and a return to growth.In the past, Mad Catz was known as a value price producer of control pads and accessories that sold at a discount to first party products. Four years ago, control pads accounted for 35% of our sales, about $30 million of net sales on an annualized basis. This quarter control pads accounted for 9% of sales and $13 million of net sales over the last 12 months, a decline of $17 million. More importantly, there is a distinct difference in our product strategy over this period, and a significant percentage of our control pads sold today are at premium prices to first party products, rather than at a discount. Four years ago, the sale of accessories, commodity items like batteries, charging solutions, cases and cables, accounted for 48% of sales and over $40 million in net sales on an annualized basis. This quarter, accessory sales accounted for 9% of sales and $30 million on an annualized basis, a decline of $29 million. Again, a key differentiating factor over this period is that the bulk of accessories we sell today are licensed or unique. The value segment of our business has been significant to our decline for a few years going from over 80% of net sales 4 years ago to well under 15% today. Given the macro factors discussed earlier, the value price segment has the potential for further decline. Fortunately, our exposure to this segment is now limited from a sales perspective, and is even more limited from a gross profit perspective. Read the rest of this transcript for free on seekingalpha.com