Mad Catz Interactive's CEO Discusses F4Q12 Results - Earnings Call Transcript

Mad Catz Interactive, Inc. (MCZ)

F4Q12 Earnings Call

June 13, 2012 5:00 p.m. EDT

Executives

Norberto Aja – IR

Darren Richardson – President and CEO

Allyson Evans – CFO

Analysts

Justin Ruiss – Sidoti & Co.

Ronald Rotter – RLR Partners

Stan Trilling – Credit Suisse

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Mad Catz Interactive fiscal 2012 fourth quarter results conference call.

During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this conference is being recorded today, Wednesday, June 13, 2012.

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

Norberto Aja

Thank you, operator, and good afternoon everyone and welcome to Mad Catz's fiscal 2012 fourth quarter and full year conference call. With me on the call today are Darren Richardson, Mad Catz's President and Chief Executive Officer, along with Allyson Evans, Mad Catz's Chief Financial Officer. Darren will provide an overview of the results and the principal drivers behind them. Afterwards, Allyson will review the financial results in greater detail, before turning the call back to Darren for some closing remarks.

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, believe 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, first party price reductions, price protection taken in response to price cuts, the ability to successfully market both new and existing products domestically and 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, June 13, 2012 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 CEO of Mad Catz. Darren?

Darren Richardson

Thank you, Norberto, and good afternoon everyone. Thank you for joining us on our fiscal 2012 fourth quarter and full-year conference call.

Fiscal 2012 full-year results largely reflect the difficult year-ago comparison which benefited from sales of products related to specific video games and revenue from a third-party distribution agreement which has since been discontinued. We also experienced delays in launching key products for the 2012 -- 2011 holiday season, and we’re impacted by the overall economy, fundamental changes in the video game industry, marked by the transition of Nintendo’s Wii console, and the move by many casual gamers to smartphones and tablets. Even though we are not satisfied with these results, we believe a simple comparison between fiscal 2012 and fiscal 2011 is not a fully accurate indicator of the company’s direction and prospects.

Three years ago, the company made a strategic decision to shift its focus towards creation of high-value products for passionate, hard-core consumers. This shift has not happened overnight and is still ongoing. Initial success was evident in growing sales of our high-end Saitek flight simulation products, and more recently is demonstrated by a widely acclaimed Cyborg PC and Mac products, as well as our Tritton premium audio products. Each of these three brands generated sales growth in fiscal 2012. In particular, the sale of Cyborg products grew 40% to $19 million in net sales, and the sales of Tritton products grew 48% to $37 million in net sales. Total audio product net sales of $45 million accounted for over 38% of net sales, just shy of the 40% to 50% target for the fiscal 2012.

We also believe these high-end products have much longer product life spans and that the best way forward is we’ll reach a transition in the video game industry with casual gamers moving more towards tablet and smartphone gaming, leaving hard-core gamers who demand the best. We realize and understand that more growth in these key areas is needed and we’re committed to increasing our sales and marketing efforts to expand awareness of these products while keeping a sharp eye on operating expenses.

In addition to our focus on creating aspirational products, over the past few years we have expanded our geographic footprint as we continue to build a worldwide sales and marketing team. As games continue to cross geographic borders and the internet allows worldwide online competition, the company is committed to position itself as a leading provider of products that optimize the passionate video gamers’ performance on a global basis.

We opened our first international sales and marketing office in 2002 and now over 50% of our sales are generated outside the United States. Today we have sales and marketing personnel in the United States, the United Kingdom, France, Germany, Spain, Sweden, Japan, China and Hong Kong, working directly with retailers in their regions. And going forward, we plan to continue to invest in expanding our geographic reach.

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