Mad Catz® Reports Fiscal 2014 First Quarter Financial Results

Mad Catz Interactive, Inc. (“Mad Catz” or “the Company”) (NYSE MKT/TSX: MCZ), today announced financial results for the fiscal 2014 first quarter ended June 30, 2013.

Key Fiscal 2014 First Quarter Highlights:
  • Net sales in the quarter declined 14% to $18.7 million, as a 37% decrease in sales to North America was partially offset by increases in sales of 3% in Europe and 24% in APAC;
  • Gross margin remained stable at 28.7% versus the first quarter last year;
  • Total operating expenses declined 6% year-over-year to $7.5 million, driven primarily by lower acquisition-related items;
  • Diluted loss per share of $0.03 remained flat versus the prior year;
  • Net position of bank loan, less cash, was $8.4 million at June 30, 2013 compared to $6.1 million at March 31, 2013 and $11.9 million at June 30, 2012;
  • Shipped the TRITTON™ Kunai™ Universal Headset for consoles, PC, Mac and smart devices;
  • Shipped the TRITTON F.R.E.Q.7 surround sound gaming headset, Mad Catz M.O.U.S.9 wireless mouse and R.A.T.M gaming mouse for PC, Mac and smart devices;
  • Announced the Mad Catz M.O.J.O. Android™ Micro Console as part of the Company’s GameSmart initiative;
  • Announced the Mad Catz C.T.R.L.R Wireless GamePad for mobile and smart devices;
  • Announced the TRITTON Kunai Stereo Gaming Headset, the TRITTON Pro+ True 5.1 Surround Sound Headset for PC and Mac as well as the TRITTON F.R.E.Q.4D Gaming Headset for PC, Mac and smart devices;
  • Announced the Mad Catz Killer Instinct™ Arcade FightStick™ Tournament Edition 2 and the Mad Catz Arcade FightStick Tournament Edition 2 for Xbox One™; and
  • Announced the appointment of Karen McGinnis as Chief Financial Officer.
                 
Summary of Financials
(in US$ thousands, except margins and per-share data)
 
Three Months
Ended June 30,
  2013     2012   Change
 
Net sales $ 18,684 $ 21,822 -14 %
Gross profit 5,365 6,275 -15 %
Total operating expenses   7,483     7,967   -6 %
Operating loss   (2,118 )   (1,692 ) 25 %
Net loss   (2,065 )   (1,717 ) 20 %
Net loss per share, basic and diluted   ($0.03 )   ($0.03 ) -
 
Gross margin 28.7 % 28.8 % -0.1 %
 
EBITDA (loss) (1) ($1,402 ) ($402 ) 249 %
Adjusted EBITDA (loss) (1) ($1,385 ) ($592 ) 134 %
 

(1) Definitions, disclosures and reconciliations regarding non-GAAP financial information are included on page 8.

Commenting on the results, Darren Richardson, President and Chief Executive Officer of Mad Catz, said, “We entered fiscal 2014 with several key objectives, including furthering the transition of our business toward higher-value products, positioning the Company to take full advantage of the shift towards mobile gaming, and strategically leveraging our resources to best benefit from the launch of the Xbox One and PlayStation 4 gaming consoles during the upcoming holiday season.

“As expected, we saw a decline in our console-related product sales during the first quarter due to the consumer anticipation around the upcoming console transition. However, this decline was partially offset by continuing strong sales growth in our PC and Mac products. We continued to grow our presence and market share across emerging markets, and were especially pleased with the on-going growth in Europe where we grew market share in the face of considerable headwinds.”

Mr. Richardson concluded, “The video gaming industry is clearly at an important inflection point, our entire range of products – across the Mad Catz, Tritton and Saitek brands – are positioned to take advantage of this shift and to provide a platform for long-term growth. We are particularly excited about the potential for our mobile product ecosystem around GameSmart as well as our upcoming offering of unique products for both the Xbox One and PlayStation 4 consoles. We believe these products will make a positive contribution to sales as our fiscal year unfolds.”

Karen McGinnis, Chief Financial Officer of Mad Catz, added, “While console-related sales were down significantly as consumers prepare for the upcoming launch of the next generation gaming consoles, gross sales of products for the PC and Mac were up over 26% driven principally by our professional gaming mice and keyboards. And, despite a year-over-year decline in gross sales of audio devices, we saw strength at the lower price points of our audio product range driven by the Kunai line of headsets. We successfully held the line on gross margin at 28.7% for the quarter and saw a 6% decrease in total operating expenses, keeping our net loss per share flat year-over-year at $0.03.”
                 
Summary of Key Sales Metrics
 
Three Months
Ended June 30,
(in US$ thousands)   2013     2012   Change
 
Net Sales by Geography
Europe $ 10,115 $ 9,796 3 %
North America 6,600 10,439 -37 %
APAC   1,969     1,587   24 %
Total $ 18,684   $ 21,822   -14 %
 
Sales by Platform as a % of Gross Sales
PC & Mac 47 % 34 %
Universal 26 % 28 %
Xbox 360 17 % 28 %
Playstation 3 9 % 7 %
Other   1 %   3 %
Total   100 %   100 %
Sales by Category as a % of Gross Sales
Audio 44 % 44 %
Mice and Keyboards 30 % 21 %
Specialty Controllers 17 % 16 %
Accessories 6 % 8 %
Controllers 2 % 9 %
Games and Other   1 %   2 %
Total   100 %   100 %
Sales by Brand as a % of Gross Sales
Mad Catz 47 % 46 %
Tritton 39 % 41 %
Saitek 11 % 10 %
Other   3 %   3 %
Total   100 %   100 %
 

The Company will host a conference call and simultaneous webcast on August 8, 2013, at 5:00 p.m. ET, which can be accessed by dialing (212) 271-4651. Following its completion, a replay of the call can be accessed for 30 days at the Company's Web site ( www.madcatz.com, select “About Us/Investors”) or for 7 days via telephone at (800) 633-8284 (reservation #21668502) or, for International callers, at (402) 977-9140.

About Mad Catz

Mad Catz Interactive, Inc. (“Mad Catz”) (NYSE MKT: MCZ) is a leading global provider of innovative interactive entertainment and leisure products marketed under its Mad Catz® (gaming), Tritton® (audio), and Saitek® (simulation) brands. Mad Catz also develops flight simulation software through its internal ThunderHawk Studios™; publishes games under its Mad Catz brand; and, distributes games and videogame products for third parties. Mad Catz distributes its products through most leading retailers offering interactive entertainment and leisure products and maintains offices in North America, Europe and Asia. For additional information about Mad Catz and its products, please visit the Company’s website at www.madcatz.com.

Social Media

Facebook: http://www.facebook.com/MadCatzIncTwitter: http://twitter.com/MadCatzYouTube: http://www.youtube.com/MadCatzCompany

Safe Harbor

Information in this press release that involves the Company's expectations business prospects, plans, intentions or strategies regarding its future are forward-looking statements that are not facts and that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "project," "intend," "should," "plan," "goal," "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 the Company’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include 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; unanticipated product delays; or a downturn in the market or industry. A further list and description of these and other factors, risks, uncertainties and other matters can be found in the Company's most recent annual report, and any subsequent quarterly reports, filed with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators. The forward-looking statements in this release are based upon information available to the Company as of the date of this release, and the Company assumes no obligation to update any such forward-looking statements as a result of new information or future events or developments, except as may be required by applicable law. Forward-looking statements believed to be true when made may ultimately prove to be incorrect. These statements are not guarantees of the future performance of the Company and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

- TABLES FOLLOW -

             
Consolidated Statements of Operations

(unaudited, in US$ thousands, except share and per share data)
 
Three Months
Ended June 30,
  2013     2012  
 
Net sales $ 18,684 $ 21,822
Cost of sales   13,319     15,547  
Gross profit   5,365     6,275  
Operating expenses
Sales and marketing 2,906 3,239
General and administrative 3,233 2,956
Research and development 1,011 1,021
Acquisition related items 99 518
Amortization of intangibles   234     233  
Total operating expenses   7,483     7,967  
Operating loss (2,118 ) (1,692 )
Other (expense) income:
Interest expense, net (118 ) (269 )
Foreign currency exchange (loss) gain, net (24 ) 256
Change in fair value of warrant liability (17 ) 190
Other income   71     65  
Total other (expense) income   (88 )   242  
Loss before income taxes (2,206 ) (1,450 )
Income tax benefit (expense)   141     (267 )
Net loss   ($2,065 )   ($1,717 )
Net loss per share:    
Basic and diluted   ($0.03 )   ($0.03 )
Weighted average common shares outstanding:    
Basic and diluted   63,477,399     63,462,399  
 
   
Consolidated Balance Sheets

(unaudited, in US$ thousands)
 
June 30, March 31,
  2013     2013  
ASSETS
Current assets:
Cash $ 2,398 $ 2,773
Accounts receivable, net 8,979 13,884
Other receivables 2,036 1,374
Inventories 25,301 23,795
Deferred tax assets 247 257
Income tax receivable 467 344
Prepaid expenses and other current assets   2,740     2,711  
Total current assets 42,168 45,138
Deferred tax assets 365 370
Other assets 353 359
Property and equipment, net 2,866 2,977
Intangible assets, net   3,448     3,679  
Total assets $ 49,200   $ 52,523  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan $ 10,757 $ 8,888
Accounts payable 15,372 15,573
Accrued liabilities 5,359 6,652
Contingent consideration 1,241 1,650
Income taxes payable   -     258  
Total current liabilities 32,729 33,021
Contingent consideration 1,072 2,214

Warrant liability
166 149
Deferred tax liabilities 152 152
Other long-term liabilities   81     109  
Total liabilities $ 34,200   $ 35,645  
 
Shareholders equity
Common stock 60,255 60,102
Accumulated other comprehensive loss (3,667 ) (3,701 )
Accumulated deficit   (41,588 )   (39,523 )
Total shareholders' equity   15,000     16,878  
Total liabilities and shareholders' equity $ 49,200   $ 52,523  
 
               
Consolidated Statements of Cash Flows

(unaudited, in US$ thousands)
 
Three Months
Ended June 30,
  2013     2012  
Operating activities:
Net loss ($2,065 ) ($1,717 )
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 686 779
Amortization of deferred financing fees 8 37
Provision for deferred income taxes 16 (1 )
Stock-based compensation 153 147
Contingent consideration, net of payments (764 ) 194
Change in fair value of warrant liability 17 (190 )
Changes in operating assets and liabilities:
Accounts receivable 4,915 3,078
Other receivables (661 ) (421 )
Inventories (1,503 ) 4,066
Prepaid expenses and other current assets (29 ) (93 )
Other assets (31 ) (31 )
Accounts payable (379 ) (745 )
Accrued liabilities (1,292 ) (1,118 )
Income taxes receivable/payable   (380 )   (705 )
Net cash (used in) provided by operating activities   (1,309 )   3,280  
Investing activities:
Purchases of property and equipment   (160 )   (257 )
Net cash used in investing activities   (160 )   (257 )
Financing activities:
Payment of contingent consideration (787 ) (518 )
Repayments on bank loan (17,022 ) (20,331 )
Borrowings on bank loan   18,891     17,352  
Net cash provided by (used in) financing activities   1,082     (3,497 )
Effects of foreign currency exchange rate changes on cash   12     (186 )
Net decrease in cash (375 ) (660 )
Cash, beginning of period   2,773     2,474  
Cash, end of period $ 2,398   $ 1,814  
 
               
Supplementary Data
EBITDA and Adjusted EBITDA Reconciliation (non-GAAP)

(unaudited, in US$ thousands)
 
Three Months
Ended June 30,
2013   2012  
 
Net loss ($2,065 ) ($1,717 )
Adjustments:
Interest expense 118 269
Income tax (benefit) expense (141 ) 267
Depreciation and amortization 686     779  
EBITDA (loss) ($1,402 ) ($402 )
Change in fair value of warrant liabilitiy 17   (190 )
Adjusted EBITDA (loss) ($1,385 ) ($592 )
 

EBITDA, a non-GAAP financial measure, represents net loss before interest, taxes, depreciation and amortization. To address the Warrants issued in the first quarter of fiscal 2012 and the resulting gain/loss on the change in the related warrant liability, we have excluded this non-operating, non-cash charge and defined the result as “Adjusted EBITDA”. We believe this to be a more meaningful measurement of performance than the previously calculated EBITDA. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it being presented as an alternative to operating income or net income as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States. As defined, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe, however, that in addition to the operating performance measures found in our financial statements, Adjusted EBITDA is a useful financial performance measurement for assessing our Company’s operating performance. Our management uses Adjusted EBITDA as a measurement of operating performance in comparing our performance on a consistent basis over prior periods, as it removes from operating results the impact of our capital structure, including the interest expense resulting from our outstanding debt, and our asset base, including depreciation and amortization of our capital and intangible assets. In addition Adjusted EBITDA is an important measure for our lender.

Copyright Business Wire 2010

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