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Mad Catz® Reports Fiscal 2015 First Quarter Financial Results

Mad Catz Interactive, Inc. (“Mad Catz” or the “Company”) (NYSE MKT/TSX: MCZ), today announced financial results for the fiscal 2015 first quarter ended June 30, 2014.

Key Highlights of Fiscal 2015 First Quarter and Subsequent:

  • Fiscal 2015 first quarter net sales declined 10% to $16.7 million, driven by a 17% decline in net sales in both EMEA and the Americas, offset partially by a 49% increase in net sales in APAC;
  • Gross margin for the fiscal 2015 first quarter improved to 30.2%, compared to 28.7% in the prior year quarter;
  • Total operating expenses in the fiscal 2015 first quarter decreased 17% from the prior year period to $6.2 million;
  • Diluted loss per share was ($0.02) for the fiscal 2015 first quarter, compared to a diluted loss per share of ($0.03) in the prior year quarter;
  • Net position of bank loan, less cash, of $5.3 million at June 30, 2014, compared to $4.1 million at March 31, 2014 and $8.4 million at June 30, 2013;
  • Shipped the new range of Tritton® Xbox One licensed headsets;
  • Shipped the Pro Racing Force Feedback Wheel and Pedals for Xbox One;
  • Shipped the S.T.R.I.K.E.M™ Mobile Keyboard for iOS, Android and Windows;
  • Shipped the Saitek® X-55 RHINO H.O.T.A.S. System for Windows PC;
  • Shipped the R.A.T.TE™ (Tournament Edition) Gaming Mouse for Windows PC and Mac;
  • Shipped the Mad Catz C.T.R.L.R™ Wireless Gamepad for Amazon® Fire TV, PC, Mac, and Android Smart Devices; and,
  • Announced participation in Needham Interconnect Conference on August 6, 2014.
 
Summary of Financials
(in thousands, except margins and per share data)
     
Three Months
Ended June 30,
2014 2013 Change
 
Net sales $ 16,747 $ 18,684 (10 %)
Gross profit 5,063 5,365 (6 %)
Total operating expenses   6,194     7,483   (17 %)
Operating loss   (1,131 )   (2,118 ) (47 %)
Net loss   (1,245 )   (2,065 ) (40 %)
Net loss per share, basic and diluted   ($0.02 )   ($0.03 ) (33 %)
 
Gross margin 30.2 % 28.7 % 150 bps
 
Adjusted EBITDA (loss) (1) ($446 ) ($1,125 ) (60 %)
 

(1) Definitions, disclosures and reconciliations regarding non-GAAP financial information are included on page 7.

Commenting on the Company’s fiscal 2015 first quarter results, Darren Richardson, President and Chief Executive Officer of Mad Catz, said, “Our financial results are in-line with our expectations as they reflect the impact from the ramp-up in sales of next generation consoles following their introduction in late 2013. The initial industry reception is exceeding expectations and reflects the strong consumer appeal the video game industry holds. As the installed base reaches critical mass, we expect consumers will look to complement their console investment with other video game products and we are confident in our ability to successfully bring to market products that enable our consumers to achieve their goals of maximizing their gaming experience wherever they choose to play.”

 
Summary of Key Sales Metrics
 
    Three Months  
Ended June 30,
(in thousands) 2014   2013 Change
 
Net Sales by Geography
EMEA $8,373 $10,115 (17%)
Americas 5,449 6,600 (17%)
APAC 2,925 1,969 49%
$16,747 $18,684 (10%)
Sales by Platform as a % of Gross Sales
PC & Mac 47% 47%
Universal 25% 26%
Next gen consoles (a) 12% 0%
Smart devices 8% 1%
Legacy consoles (b) 7% 25%
All others 1% 1%
100% 100%
Sales by Category as a % of Gross Sales
Audio 39% 44%
Mice and keyboards 26% 30%
Specialty controllers 22% 17%
Controllers 7% 2%
Accessories 5% 6%
Games and Other 1% 1%
100% 100%
Sales by Brand as a % of Gross Sales
Tritton 36% 39%
Mad Catz 35% 47%
Saitek 18% 11%
Other 11% 3%
100% 100%
 
(a) Includes products developed for Xbox One, PlayStation 4 and Wii U.
(b) Includes products developed for Xbox 360, PlayStation 3 and Wii.
 

Karen McGinnis, Chief Financial Officer of Mad Catz, commented, “We experienced a 10% decrease in net sales during the first quarter driven by declines in sales of products for legacy consoles in all regions as a result of the console transition and, to a lesser extent, declines in sales of mice and keyboards. These declines were offset partially by strong sales of products for the new consoles and smart devices, as well as an increase in sales of our Saitek flight simulation products. Although sales declined 10% compared to the prior year, our gross margin improved to 30% and our operating expenses decreased by 17%. As a result, our operating loss in the first quarter was $1.1 million, compared to the $2.1 million operating loss generated in the first quarter last year. We also remained focused on managing our overall liquidity position and ended the quarter with a net position of bank loan less cash of $5.3 million, compared to $8.4 million a year ago and $4.1 million last quarter.”

Mr. Richardson, concluded, “Overall, we are pleased with the results around our initiatives to reduce operating expenses, improve gross margins and launch new products across various platforms. As we enter fiscal 2015, we remain confident that our business strategy, product offerings and financial position are primed to deliver improved results and help us to return to growth and profitability by focusing on what we do best: designing innovative products for passionate gamers and executing strong global market launches of those products; selling gaming accessories for new platforms, including smart devices; expanding our global sales reach, particularly in APAC; maintaining our disciplined approach to working capital management and product placement profitability; expanding our Saitek flight simulation business; and identifying strategic opportunities for the expansion of products in adjacent and compatible categories.”

The Company will host a conference call and simultaneous webcast on August 4, 2014, at 5:00 p.m. ET, which can be accessed by dialing (212) 231-2901. 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 for seven days via telephone at (800) 633-8284 (reservation #21728090) or, for International callers, at (402) 977-9140.

About Mad Catz

Mad Catz Interactive, Inc. (“Mad Catz”) (NYSE MKT/TSX: MCZ) is a global provider of innovative interactive entertainment products marketed under its Mad Catz® (gaming), Tritton® (audio), and Saitek® (simulation) brands. Mad Catz products cater to passionate gamers across multiple platforms including in-home gaming consoles, handheld gaming consoles, Windows® PC and Mac® computers, smart phones, tablets and other mobile devices. Mad Catz distributes its products through its online store as well as distribution via 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

Facebook: http://www.facebook.com/MadCatzInc

Twitter: http://twitter.com/MadCatz

YouTube: 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 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; availability of capital under our credit facility; commercial acceptance of new in-home gaming consoles; 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 require 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

(in thousands, except share and per share data)

(Unaudited)

 
    Three Months
Ended June 30,
2014   2013
 
Net sales $16,747 $18,684
Cost of sales 11,684   13,319  
Gross profit 5,063   5,365  
Operating expenses:
Sales and marketing 2,412 2,906
General and administrative 3,151 3,233
Research and development 522 1,011
Acquisition related items - 99
Amortization of intangible assets 109   234  
Total operating expenses 6,194   7,483  
Operating loss (1,131 ) (2,118 )
Other expense:
Interest expense, net (158 ) (118 )
Foreign currency exchange loss, net (35 ) (24 )
Change in fair value of warrant liability (19 ) (17 )
Other income 81   71  
Total other expense (131 ) (88 )
Loss before income taxes (1,262 ) (2,206 )
Income tax benefit 17   141  
Net loss ($1,245 ) ($2,065 )
Net loss per share:    
Basic ($0.02 ) ($0.03 )
Diluted ($0.02 ) ($0.03 )
Shares used in per share computations:    
Basic 64,081,689   63,477,399  
Diluted 64,081,689   63,477,399  
 
 

Consolidated Balance Sheets

(in thousands)

(Unaudited)

 
    June 30,   March 31,
2014 2014
ASSETS
Current assets:
Cash $2,465 $1,496
Accounts receivable, net 7,464 8,059
Other receivables 1,404 1,531
Inventories 17,711 17,189
Deferred tax assets 933 926
Income tax receivable 895 895
Prepaid expenses and other current assets 1,425   1,605  
Total current assets 32,297 31,701
Deferred tax assets 1,365 1,334
Other assets 363 499
Property and equipment, net 2,492 2,737
Intangible assets, net 2,913   3,022  
Total assets $39,430   $39,293  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan $7,763 $5,612
Accounts payable 13,442 13,661
Accrued liabilities 4,597 4,874
Note payable 1,032 1,336
Income taxes payable 89   330  
Total current liabilities 26,923 25,813
Note payable, less current portion 962 1,023

Warrant liability

94 75
Deferred tax liabilities 179 178
Other long-term liabilities 60   78  
Total liabilities 28,218 27,167
 
Shareholders' equity:
Common stock 61,036 60,847
Accumulated other comprehensive loss (1,615 ) (1,757 )
Accumulated deficit (48,209 ) (46,964 )
Total shareholders' equity 11,212   12,126  
Total liabilities and shareholders' equity $39,430   $39,293  
 
 

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 
    Three Months
Ended June 30,
2014   2013
Cash flows from operating activities:
Net loss ($1,245 ) ($2,065 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 501 686
Accrued and unpaid interest expense on note payable 10 -
Amortization of deferred financing fees 15 8
Stock-based compensation 123 153
Change in fair value of contingent consideration - (764 )
Change in fair value of warrant liability 19 17
Provision for deferred income taxes (37 ) 16
Changes in operating assets and liabilities:
Accounts receivable 629 4,915
Other receivables 134 (661 )
Inventories (493 ) (1,503 )
Prepaid expenses and other current assets 190 (29 )
Other assets 162 (31 )
Accounts payable (96 ) (379 )
Accrued liabilities (262 ) (1,292 )
Income taxes receivable/payable (227 ) (380 )
Net cash used in operating activities (577 ) (1,309 )
Cash flows from Investing activities:
Purchases of property and equipment (261 ) (160 )
Net cash used in investing activities (261 ) (160 )
Cash flows from financing activities:
Borrowings on bank loan 13,686 18,891
Repayments on bank loan (11,535 ) (17,022 )
Payment of financing fees (50 ) -
Repayments on note payable (375 ) -
Proceeds from exercise of stock options 66 -
Payment of contingent consideration -   (787 )
Net cash provided by financing activities 1,792   1,082  
Effects of foreign currency exchange rate changes on cash 15   12  
Net increase (decrease) in cash 969 (375 )
Cash, beginning of period 1,496   2,773  
Cash, end of period $2,465   $2,398  
 
 

Supplementary Data

Adjusted EBITDA (Loss) Reconciliation (non-GAAP)

(in thousands)

(Unaudited)

 
  Three Months
Ended June 30,
2014   2013
 
Net loss ($1,245 ) ($2,065 )
Adjustments:
Depreciation and amortization 516 694
Stock-based compensation 123 153
Change in fair value of warrant liability 19 17
Acquisition related items - 99
Interest expense, net 158 118
Income tax benefit (17 ) (141 )
Adjusted EBITDA (loss) ($446 ) ($1,125 )
 

Adjusted EBITDA (loss), a non-GAAP financial measure, represents net loss before interest, taxes, depreciation and amortization, stock-based compensation, the gain/loss on the change in the fair value of the related warrant liability, goodwill impairment, if any, and acquisition related items. 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 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 generally accepted accounting principles 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 performance measures found in our financial statements, Adjusted EBITDA is a useful financial performance measurement for assessing our Company’s operating performance. We use 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.

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