SAN DIEGO, Nov. 03, 2016 (GLOBE NEWSWIRE) — Mad Catz Interactive, Inc. (“Mad Catz” or the “Company”) (NYSE MKT:MCZ), today announced financial results for the fiscal 2017 second quarter ended September 30, 2016.
Key Highlights of Fiscal 2017 Second Quarter and Subsequent:
- Fiscal 2017 second quarter net sales decreased 62% to $14.9 million, driven primarily by a decrease in sales of Rock Band 4 products; by geography, the Company recorded a 63% decrease in net sales to the Americas, a 62% decrease in net sales to EMEA and a 44% decrease in net sales to APAC;
- Gross margin declined to 3.6% from 23.1% in the prior year quarter, driven primarily by charges of $2.2 million related to Rock Band 4 in connection with price reductions to retailers and write-downs of inventory and other assets, as well as product mix and increased freight costs;
- Sold the Saitek simulation product line to Logitech for $13.0 million cash;
- Total sales and marketing, general and administrative, and research and development expenses decreased 49% from the prior year period to $4.1 million as the Company continued to realize the benefits of restructuring activities undertaken during the fourth quarter of fiscal 2016 and from lower cooperative advertising costs as a result of lower Rock Band 4 sales;
- Operating income, which included an $8.2 million gain on the Saitek sale, increased to $4.5 million from $0.9 million in the prior year;
- Diluted net income per share was $0.06, compared to diluted net loss of ($0.02) in the prior year;
- Net position of bank loans, less cash and restricted cash, was $9.2 million at September 30, 2016, compared to $9.4 million at June 30, 2016 and $12.7 million at September 30, 2015;
- Sold no shares under the “At-the-Market” (“ATM”) equity offering program;
- Completed the sale of the remaining Rock Band 4 inventory prior to the end of the wind-down period;
- Shipped the new Tritton ARK™ 100 headsets, part of the Company’s new Tritton ARK Series line of innovative gaming headsets; and
- Announced the details and shipment schedule of the Company’s entirely upgraded line of RAT mice, which include the RAT1, RAT4, RAT6, RAT8, RAT PRO S+ and RAT PRO X+.
| Summary of Financials | |||||||||||||||||||||||
| (in thousands, except margins and per share data) | |||||||||||||||||||||||
| Three Months | Six Months | ||||||||||||||||||||||
| Ended September 30, | Ended September 30, | ||||||||||||||||||||||
| 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||
| Net sales | $ | 14,867 | $ | 38,918 | (62 | %) | $ | 25,655 | $ | 51,892 | (51 | %) | |||||||||||
| Gross profit | 528 | 9,006 | (94 | %) | 424 | 11,884 | (96 | %) | |||||||||||||||
| Net operating expenses | (3,950 | ) | 8,147 | (148 | %) | 654 | 14,787 | (96 | %) | ||||||||||||||
| Operating income (loss) | 4,478 | 859 | 421 | % | (230 | ) | (2,903 | ) | (92 | %) | |||||||||||||
| Net income (loss) | 4,080 | (1,611 | ) | (353 | %) | (713 | ) | (5,576 | ) | (87 | %) | ||||||||||||
| Net loss per share, basic and diluted | $ | 0.06 | $ | (0.02 | ) | (353 | %) | $ | (0.01 | ) | $ | (0.08 | ) | (87 | %) | ||||||||
| Gross margin | 3.6 | % | 23.1 | % | (1,950) bps | 1.7 | % | 22.9 | % | (2,120) bps | |||||||||||||
| Adjusted EBITDA (loss) (1) | $ | 5,360 | $ | 1,391 | 285 | % | $ | 1,885 | $ | (1,674 | ) | (213 | %) | ||||||||||
| (1) Definitions, disclosures and reconciliations regarding non-GAAP financial information are included on page 8. | |||||||||||||||||||||||
Commenting on the Company’s fiscal 2017 second quarter results, David McKeon, Chief Financial Officer of Mad Catz, said, “The fiscal 2017 second quarter marked a pivotal time for Mad Catz as we successfully sold our remaining Rock Band 4 inventory ahead of the wind-down period, completed the sale of our Saitek-branded product line to Logitech and continued to leverage the strategic initiatives implemented in the fiscal first quarter related to operational efficiencies and product execution. Although working capital constraints had some impact on our product launch timing and top line revenue in the quarter, we made significant improvements in working capital during the quarter and successfully brought a number of new Tritton and Mad Catz branded products to market ahead of the holiday season.”
“While we still have much work to accomplish in the quarters ahead, we are pleased with the improvements we are achieving across our business. We remain confident that the benefits we are seeing on the back of our restructuring plan will positively impact our business in the coming quarters and help us achieve top and bottom line growth in our continuing product lines as well as added value for our shareholders.”
| Summary of Key Sales Metrics | ||||||||||||||||||||||||
| Three Months | Six Months | |||||||||||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||||||||||
| (in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||
| Net Sales by Geography | ||||||||||||||||||||||||
| Americas | $ | 9,934 | $ | 27,027 | (63 | %) | $ | 15,260 | $ | 32,002 | (52 | %) | ||||||||||||
| EMEA | 3,678 | 9,656 | (62 | %) | 7,663 | 15,298 | (50 | %) | ||||||||||||||||
| APAC | 1,255 | 2,235 | (44 | %) | 2,732 | 4,592 | (41 | %) | ||||||||||||||||
| $ | 14,867 | $ | 38,918 | (62 | %) | $ | 25,655 | $ | 51,892 | (51 | %) | |||||||||||||
| Sales by Platform as a % of Gross Sales (a) | ||||||||||||||||||||||||
| Consoles | 44 | % | 18 | % | 44 | % | 24 | % | ||||||||||||||||
| Rock Band 4 | 30 | % | 62 | % | 24 | % | 46 | % | ||||||||||||||||
| Saitek | 14 | % | 9 | % | 16 | % | 14 | % | ||||||||||||||||
| PC and Mac | 10 | % | 8 | % | 13 | % | 11 | % | ||||||||||||||||
| Smart devices | 2 | % | 3 | % | 3 | % | 5 | % | ||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
| Sales by Category as a % of Gross Sales (a) | ||||||||||||||||||||||||
| Audio | 40 | % | 17 | % | 38 | % | 22 | % | ||||||||||||||||
| Rock Band 4 | 30 | % | 62 | % | 24 | % | 46 | % | ||||||||||||||||
| Saitek | 14 | % | 9 | % | 16 | % | 13 | % | ||||||||||||||||
| Mice and keyboards | 9 | % | 7 | % | 12 | % | 10 | % | ||||||||||||||||
| Specialty controllers | 5 | % | 2 | % | 7 | % | 3 | % | ||||||||||||||||
| Controllers | 1 | % | 1 | % | 2 | % | 3 | % | ||||||||||||||||
| Accessories | 1 | % | 1 | % | 1 | % | 2 | % | ||||||||||||||||
| Games and other | — | % | 1 | % | — | % | 1 | % | ||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
| Sales by Brand as a % of Gross Sales (a) | ||||||||||||||||||||||||
| Tritton | 39 | % | 15 | % | 36 | % | 20 | % | ||||||||||||||||
| Rock Band 4 | 30 | % | 62 | % | 24 | % | 46 | % | ||||||||||||||||
| Mad Catz | 17 | % | 13 | % | 24 | % | 18 | % | ||||||||||||||||
| Saitek | 14 | % | 9 | % | 16 | % | 13 | % | ||||||||||||||||
| All others | — | % | 1 | % | — | % | 3 | % | ||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
| (a) Sales of products related to the Rock Band 4 video game and simulation products sold as part of the sale of Saitek assets are listed separately in each of the tables to provide comparable information for our ongoing product lines. | ||||||||||||||||||||||||
Karen McGinnis, President and Chief Executive Officer of Mad Catz, added, “The fiscal second quarter results show that our strategy is clearly working and that we continue to make solid progress against our operational objectives while positioning Mad Catz to leverage the opportunities ahead around console, PC and mobile gaming. Our recent new product launches demonstrate the continued power of our innovation engine and reflect our ability to address profitable growth across our market opportunities.”
“As we enter the second half of fiscal 2017 and the holiday season, we will continue to focus on delivering shareholder value by efficiently bringing new products to market, supporting our new product launches, further expanding our retail partner footprint and maintaining operational discipline and focused execution. We’ve got momentum, a winning product portfolio and an exceptional team to lead us along the way.”
Management Conference Call Webcast
The Company will host a conference call and simultaneous webcast on November 3, 2016, at 5:00 p.m. ET, which can be accessed by dialing (303) 223-4397. 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/Investor Relations”) or via telephone at (800) 633-8284 (reservation #21820327) or, for International callers, at (402) 977-9140.
About Mad Catz
Mad Catz Interactive, Inc. (“Mad Catz”) (NYSE MKT:MCZ) is a global provider of innovative interactive entertainment products marketed under its Mad Catz® (gaming) and Tritton® (audio) brands. Mad Catz products cater to gamers across multiple platforms including in-home gaming consoles, handheld gaming consoles, Windows® PC and Mac® computers, smart phones, tablets and other smart devices. We distribute our products through many leading retailers around the globe. Headquartered in San Diego, California, Mad Catz maintains offices in Europe and Asia. For additional information about Mad Catz and its products, please visit the Company’s website at www.madcatz.com.
Social Media
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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 “seek,” “anticipate,” “estimate,” “expect,” “believe,” and “intend” and statements that an event or result “may,” “will,” “should,” “could” or “might” occur or be achieved and other similar expressions together with the negative of such expressions.. These forward-looking statements reflect management’s current beliefs and expectations and are based on information currently available to management, as well as its analysis made in light of its experience, perception of trends, current conditions, expected developments and other factors and assumptions believed to be reasonable and relevant in the circumstances. These assumptions include, but are not limited to, continuing demand by consumers for video game consoles and accessories, the continuance of open trade relations between China and the United States, the ability to maintain or extend our existing licenses, the ability to continue producing and selling our products in accordance with various intellectual property that might apply to said products, the continued financial viability of our largest customers, the continuance of timely and adequate supply from third party manufacturers and suppliers, no significant fluctuations in the value of the U.S. dollar relative to other currencies, the continued satisfaction of our obligations under our existing loan agreements and any future loan agreements we may obtain, and continued listing of our common stock on the NYSE MKT. Forward-looking statements are subject to significant risks, uncertainties, assumptions and other factors, any of which could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. 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. Investors should not place undue reliance on such forward-looking statements. Forward-looking statements are not guarantees of future performance or outcomes and actual results could differ materially from those expressed or implied by the forward-looking statements. We assume no obligation to update or alter such forward-looking statements whether as a result of new information, future events or otherwise except as required by law.
– TABLES FOLLOW –
| Consolidated Statements of Operations |
||||||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 14,867 | $ | 38,918 | $ | 25,655 | $ | 51,892 | ||||||||
| Cost of sales | 14,339 | 29,912 | 25,231 | 40,008 | ||||||||||||
| Gross profit | 528 | 9,006 | 424 | 11,884 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 1,457 | 4,457 | 2,848 | 7,173 | ||||||||||||
| General and administrative | 2,079 | 2,638 | 4,547 | 5,532 | ||||||||||||
| Research and development | 560 | 941 | 1,217 | 1,862 | ||||||||||||
| Restructuring and severance costs | 22 | – | (3 | ) | – | |||||||||||
| Amortization of intangible assets | 109 | 111 | 222 | 220 | ||||||||||||
| Net gain on sale of Saitek assets | (8,177 | ) | – | (8,177 | ) | – | ||||||||||
| Net operating expenses | (3,950 | ) | 8,147 | 654 | 14,787 | |||||||||||
| Operating income (loss) | 4,478 | 859 | (230 | ) | (2,903 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (277 | ) | (364 | ) | (610 | ) | (621 | ) | ||||||||
| Foreign currency exchange gain (loss), net | 286 | (154 | ) | 820 | (93 | ) | ||||||||||
| Change in fair value of warrant liabilities | 49 | (871 | ) | 3 | (917 | ) | ||||||||||
| Other income | 2 | 10 | 23 | 22 | ||||||||||||
| Total other income (expense) | 60 | (1,379 | ) | 236 | (1,609 | ) | ||||||||||
| Income (loss) before income taxes | 4,538 | (520 | ) | 6 | (4,512 | ) | ||||||||||
| Income tax expense | (458 | ) | (1,091 | ) | (719 | ) | (1,064 | ) | ||||||||
| Net income (loss) | $ | 4,080 | $ | (1,611 | ) | $ | (713 | ) | $ | (5,576 | ) | |||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | 0.06 | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.08 | ) | |||||
| Diluted | $ | 0.06 | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.08 | ) | |||||
| Shares used in per share computations: | ||||||||||||||||
| Basic | 73,469,571 | 73,469,571 | 73,469,571 | 73,469,571 | ||||||||||||
| Diluted | 73,469,571 | 73,469,571 | 73,469,571 | 73,469,571 | ||||||||||||
| Consolidated Balance Sheets | ||||||||
| (in thousands) | ||||||||
| (Unaudited) | ||||||||
| September 30, | March 31, | |||||||
| 2016 | 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,176 | $ | 2,436 | ||||
| Restricted cash | 180 | 680 | ||||||
| Accounts receivable, net | 6,106 | 9,585 | ||||||
| Other receivables | 528 | 998 | ||||||
| Inventories | 17,160 | 23,005 | ||||||
| Income taxes receivable | 163 | 159 | ||||||
| Prepaid expenses and other current assets | 1,907 | 2,969 | ||||||
| Total current assets | 27,220 | 39,832 | ||||||
| Deferred tax assets | 8,775 | 9,449 | ||||||
| Other assets | 389 | 531 | ||||||
| Property and equipment, net | 2,019 | 2,921 | ||||||
| Intangible assets, net | 1,682 | 2,270 | ||||||
| Total assets | $ | 40,085 | $ | 55,003 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Bank loans | $ | 10,549 | $ | 16,076 | ||||
| Accounts payable | 19,145 | 25,354 | ||||||
| Accrued liabilities | 7,403 | 8,153 | ||||||
| Notes payable | 50 | 73 | ||||||
| Income taxes payable | 4 | 173 | ||||||
| Total current liabilities | 37,151 | 49,829 | ||||||
| Notes payable, less current portion | 119 | 145 | ||||||
| Warrant liabilities | 297 | 300 | ||||||
| Deferred tax liabilities | 10 | 10 | ||||||
| Other long-term liabilities | 587 | 699 | ||||||
| Total liabilities | 38,164 | 50,983 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock | 63,655 | 63,552 | ||||||
| Accumulated other comprehensive loss | (7,184 | ) | (5,695 | ) | ||||
| Accumulated deficit | (54,550 | ) | (53,837 | ) | ||||
| Total shareholders’ equity | 1,921 | 4,020 | ||||||
| Total liabilities and shareholders’ equity | $ | 40,085 | $ | 55,003 | ||||
| Consolidated Statements of Cash Flows | ||||||||
| (in thousands) | ||||||||
| (Unaudited) | ||||||||
| Six Months | ||||||||
| Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (713 | ) | $ | (5,576 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation and amortization | 1,169 | 1,038 | ||||||
| Amortization of deferred financing fees | 120 | 189 | ||||||
| (Gain) loss on disposal of assets | (23 | ) | 6 | |||||
| Net gain on sale of Saitek assets | (8,177 | ) | – | |||||
| Stock-based compensation | 103 | 262 | ||||||
| Change in fair value of warrant liabilities | (3 | ) | 917 | |||||
| Provision for deferred income taxes | 674 | 678 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 3,176 | (19,790 | ) | |||||
| Other receivables | 429 | (431 | ) | |||||
| Inventories | 3,889 | (17,625 | ) | |||||
| Prepaid expenses and other current assets | 891 | (357 | ) | |||||
| Other assets | 15 | 85 | ||||||
| Accounts payable | (6,455 | ) | 22,280 | |||||
| Accrued liabilities | (1,130 | ) | 9,602 | |||||
| Deferred rent | (122 | ) | (24 | ) | ||||
| Income taxes receivable/payable | (188 | ) | 1,045 | |||||
| Net cash used in operating activities | (6,345 | ) | (7,701 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of intangible assets | – | (25 | ) | |||||
| Purchases of property and equipment | (422 | ) | (1,245 | ) | ||||
| Net proceeds from sale of Saitek assets | 10,628 | – | ||||||
| Net cash provided by (used in) investing activities | 10,206 | (1,270 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Borrowings on bank loans | 19,288 | 41,955 | ||||||
| Repayments on bank loans | (24,815 | ) | (30,248 | ) | ||||
| Payment of financing fees | – | (720 | ) | |||||
| Changes in restricted cash | 500 | – | ||||||
| Borrowings on notes payable | – | 95 | ||||||
| Repayments on notes payable | (56 | ) | (160 | ) | ||||
| Payment of expenses related to issuance of common stock | – | (164 | ) | |||||
| Net cash (used in) provided by financing activities | (5,083 | ) | 10,758 | |||||
| Effects of foreign currency exchange rate changes on cash | (38 | ) | 41 | |||||
| Net (decrease) increase in cash | (1,260 | ) | 1,828 | |||||
| Cash, beginning of period | 2,436 | 5,142 | ||||||
| Cash, end of period | $ | 1,176 | $ | 6,970 | ||||
| Supplementary Data | ||||||||||||||||
| Adjusted EBITDA (Loss) Reconciliation (non-GAAP) | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months | Six Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net income (loss) | $ | 4,080 | $ | (1,611 | ) | $ | (713 | ) | $ | (5,576 | ) | |||||
| Adjustments: | ||||||||||||||||
| Depreciation and amortization | 544 | 552 | 1,169 | 1,038 | ||||||||||||
| Stock-based compensation | 50 | 124 | 103 | 262 | ||||||||||||
| Change in fair value of warrant liabilities | (49 | ) | 871 | (3 | ) | 917 | ||||||||||
| Interest expense, net | 277 | 364 | 610 | 621 | ||||||||||||
| Income tax expense | 458 | 1,091 | 719 | 1,064 | ||||||||||||
| Adjusted EBITDA (loss) | $ | 5,360 | $ | 1,391 | $ | 1,885 | $ | (1,674 | ) | |||||||
Adjusted EBITDA, a non-GAAP (“Generally Accepted Accounting Principles”) financial measure, represents net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation and change in the fair value of warrant liabilities. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it being presented as an alternative to operating or net income (loss) 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 GAAP. 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. Our management believes, however, that in addition to the 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.
CONTACT: Contact: David McKeon Chief Financial Officer Mad Catz Interactive, Inc. [email protected] or (858) 790-5045 Joseph Jaffoni, Norberto Aja, Jim Leahy JCIR [email protected] or (212) 835-8500