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Mad Catz® Reports Fiscal 2016 Third Quarter Financial Results and Announces Adoption of Restructuring Plan

SAN DIEGO, Feb. 09, 2016 (GLOBE NEWSWIRE) -- Mad Catz Interactive, Inc. (“Mad Catz” or the “Company”) (NYSE MKT:MCZ) (TSX:MCZ), today announced financial results for the fiscal 2016 third quarter ended December 31, 2015. Mad Catz also announced the adoption of a Company-wide restructuring plan that includes several executive level and Board of Directors changes as specified in the Company’s previous announcement dated February 8, 2016.

 Key Highlights of Fiscal 2016 Third Quarter and Subsequent:

  • Fiscal 2016 third quarter net sales increased 114% to $65.0 million, the second highest quarterly net sales in the Company’s history;
     
  • Net sales growth driven by a 391% increase in net sales to the Americas, partially offset by a 6% decrease in net sales to EMEA and a 56% decrease in net sales to APAC;
     
  • Gross margin declined to 17.5% from 26.9% in the prior year quarter;
     
  • Total operating expenses increased 44% from the prior year period to $8.6 million;
     
  • Operating income increased 28% to $2.8 million;
     
  • Diluted net income per share was $0.02 for the fiscal 2016 third quarter, consistent with the prior year;
     
  • Net position of bank loans, less cash and restricted cash, of $17.7 million at December 31, 2015, compared to $12.7 million at September 30, 2015 and $10.7 million at December 31, 2014;
     
  • Sold no shares under the “At-the-Market” (“ATM”) equity offering program;
     
  • Shipped F.R.E.Q.TE™ 7.1 surround sound gaming headset for Windows PC;
     
  • Announced the Tritton Katana HD 7.1 surround sound gaming headset, a 2016 CES Innovation Award Honoree and the First HDMI™-powered gaming headset for gaming consoles, Windows PC, smart devices and HDMI audio sources;
     
  • Announced the R.A.T. 1 gaming mouse, a 2016 CES Innovation Award Honoree;
     
  • Shipped the stand-alone Rock Band™ 4 Wireless Fender™ Stratocaster™ Guitar Controller and the stand-alone Rock Band™ 4 Triple Cymbals Expansion Kit;
     
  • Announced new range of Street Fighter™ V licensed controllers, including fightsticks, Tournament Edition fightsticks and fightpad controllers;
     
  • Announced the E.S. PRO1™ Gaming Earbuds specifically designed for eSports gamers;
     
  • Announced that the Company will be the first to offer traditional video game controller hardware for the “Designed for Samsung” program;
     
  • Announced executive level and Board of Directors changes including the departure of Chairman of the Board, Thomas Brown; President and CEO, Darren Richardson; SVP Business Affairs, General Counsel and Secretary, Whitney Peterson; and, the appointment of John Nyholt as Chairman of the Board; Karen McGinnis as President, CEO and member of the Board of Directors; David McKeon as CFO; Tyson Marshall as General Counsel and Secretary; and Andrew Young as Chief Technology Officer; and,
     
  • The Board of Directors approved a restructuring plan focused on lowering operating costs, increasing efficiencies and better aligning the Company’s resources with its needs and goals.

 

Summary of Financials
(in thousands, except margins and per share data)
                       
  Three Months       Nine Months    
  Ended December 31,       Ended December 31,    
    2015       2014     Change     2015       2014     Change
                       
Net sales $ 65,038     $ 30,451       114 %   $ 116,930     $ 69,665       68 %
Gross profit   11,405       8,178       39 %     23,289       19,972       17 %
Total operating expenses   8,584       5,971       44 %     23,371       19,320       21 %
Operating income (loss)   2,821       2,207       28 %     (82 )     652        (113 %)
Net income (loss)   1,219       1,358        (10 %)     (4,357 )     (809 )     439 %
Net income (loss) per share, basic and diluted $ 0.02     $ 0.02       0 %   $ (0.06 )   $ (0.01 )     500 %
                       
Gross margin   17.5 %     26.9 %   (940) bps     19.9 %     28.7 %   (880) bps
                       
Adjusted EBITDA (1) $ 2,950     $ 2,713       9 %   $ 1,276     $ 2,156        (41 %)

 

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

Commenting on the Company’s fiscal 2016 third quarter results, Karen McGinnis, President and Chief Executive Officer of Mad Catz, said, “Our quarterly net sales were the second highest in the Company’s history reflecting strong Rock Band 4 sales, which were partially offset by continuing softness in sales of our audio and PC gaming products. However, Rock Band sell-through was lower than originally forecast resulting in higher inventory balances as well as lower margins due to increased promotional activity with retailers.  Looking ahead, we are confident in our ability to further monetize our diverse range of products and are focused on updating and improving many of our product offerings to better leverage the opportunities we see ahead.”

 

Summary of Key Sales Metrics  
    Three Months       Nine Months    
    Ended December 31,       Ended December 31,    
(in thousands)     2015      2014    Change    2015      2014    Change 
                                                                         
Net Sales by Geography                        
  Americas $ 47,002     $ 9,573       391 %   $ 79,003     $ 22,281       255 %
  EMEA   16,702       17,825        (6 %)     32,000         37,104        (14 %)
  APAC   1,334       3,053        (56 %)     5,927       10,280        (42 %)
    $ 65,038     $ 30,451       114 %   $ 116,930     $ 69,665       68 %
Sales by Platform as a % of Gross Sales                        
  Next gen consoles (a)   79 %     21 %         71 %     19 %    
  PC and Mac   14 %     43 %         19 %     44 %    
  Universal   5 %     25 %         6 %     23 %    
  Smart devices   2 %     5 %         3 %     8 %    
  Legacy consoles (b)   - %     6 %         1 %     6 %    
      100 %     100 %         100 %     100 %    
Sales by Category as a % of Gross Sales                        
  Specialty controllers   72 %     22 %         67 %     23 %    
  Audio   16 %     47 %         18 %     43 %    
  Mice and keyboards   6 %     23 %         8 %     23 %    
  Accessories   4 %     4 %         3 %     4 %    
  Games and other   1 %   - %         2 %     1 %    
  Controllers   1 %     4 %         2 %     6 %    
      100 %     100 %         100 %     100 %    
Sales by Brand as a % of Gross Sales                        
  Mad Catz   78 %     34 %         72 %     34 %    
  Tritton   15 %     44 %         17 %     39 %    
  Saitek   6 %     17 %         9 %     18 %    
  Other   1 %     5 %         2 %     9 %    
      100 %     100 %         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.            

 

Restructuring Plan

On February 5, 2016, the Company’s Board of Directors approved a restructuring plan focused on lowering operating costs, increasing efficiencies and better aligning its workforce with the needs of the business. The plan consists of a reduction in the number of positions across the organization equal to approximately 37% of the total workforce and includes changes at the executive level. As a result of these actions, the Company expects to record a pre-tax cash restructuring charge of approximately $3.0 million during the fourth quarter of fiscal 2016, comprised primarily of severance and benefits afforded to terminated employees and executive officers (inclusive of amounts due Messrs. Richardson and Peterson pursuant to their amended and restated employment agreements, dated as of April 22, 2014). The Company anticipates that the actions associated with these headcount reductions will be substantially completed by the end of the fourth quarter of fiscal 2016, and that these actions will result in annual savings in excess of $5.0 million starting in the first quarter of fiscal 2017.

In addition and as announced yesterday on February 8, 2016, the Company’s Board of Directors approved several changes to its executive leadership team and Board of Directors composition, effective immediately. Those changes include:

Departures

  • Thomas Brown resigned from the Company’s Board, including from his roles as Chairman of the Board and member of the Audit Committee;
     
  • Darren Richardson agreed to resign from his position as President and Chief Executive Officer of the Company and as a member of the Company’s Board of Directors; and,
     
  • Whitney Peterson agreed to resign from his position as Senior Vice President of Business Affairs, General Counsel, and Corporate Secretary of the Company.

Appointments

  • Mr. John Nyholt as Chairman of the Board. Mr. Nyholt has been a director of the Company since October 2013;
     
  • Karen McGinnis as President and Chief Executive Officer and member of the Company’s Board.  Ms. McGinnis was previously Chief Financial Officer of the Company;
     
  • David McKeon as Chief Financial Officer. Mr. McKeon was previously VP, Corporate Controller of the Company;
     
  • Tyson Marshall as General Counsel and Corporate Secretary.  Mr. Marshall was previously Associate General Counsel of the Company; and,
     
  • Andrew Young as Chief Technology Officer. Mr. Young was previously Vice President, Product Development of the Company.

Ms. McGinnis, added, “Today, we are announcing a restructuring plan that we strongly believe will enable Mad Catz to be more competitive and increase our focus on operational, technological and commercial actions that will help us achieve our long-term vision. These changes will allow us to operate more effectively and help create an organization that is more agile, able to pursue growth and regain share in our core markets by simplifying our processes and reducing our operating costs, thus increasing our competitiveness and profitability without compromising the quality of our product offering. This realignment of our resources will also enable us to better support strategic initiatives that will make our product slate more competitive, help us gain added consumer interest and create sustainable shareholder value.

“In closing, I’d like to recognize the tremendous value that Thomas, Darren and Whitney have brought to Mad Catz during their tenure, thank them for their many contributions throughout the years and wish them the very best.”

The Company will host a conference call and simultaneous webcast on February 9, 2016, at 5:00 p.m. ET, which can be accessed by dialing (212) 231-2927. 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 #21804861) or, for International callers, at (402) 977-9140.

About Mad Catz
Mad Catz Interactive, Inc. (“Mad Catz”) (NYSE MKT:MCZ) (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

https://www.facebook.com/MadCatz.Global

http://twitter.com/MadCatz

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: continuing demand by consumers for videogames and accessories; continued financial viability of our largest customers; 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 facilities; ability to timely execute the restructuring plan in a manner that will positively impact our financial condition and results of operations and not disrupt our business operations; 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.

 

Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
 
    Three Months   Nine Months
    Ended December 31,   Ended December 31,
      2015       2014       2015       2014  
                 
Net sales     $ 65,038       $ 30,451       $ 116,930       $ 69,665  
Cost of sales       53,633         22,273         93,641         49,693  
Gross profit   11,405       8,178       23,289       19,972  
Operating expenses:                
Sales and marketing   4,865       2,673       12,038       8,562  
General and administrative   2,600       2,337       8,132       8,210  
Research and development   1,007       852       2,869       2,220  
Amortization of intangible assets   112       109       332       328  
Total operating expenses   8,584       5,971       23,371       19,320  
Operating income (loss)       2,821         2,207         (82 )       652  
Other expense:                
Interest expense, net   (657 )     (238 )     (1,278 )     (563 )
Foreign currency exchange loss, net   (657 )     (83 )     (750 )     (500 )
Change in fair value of warrant liabilities   1,200       1       283       56  
Other income   18       13       40       92  
Total other expense   (96 )     (307 )     (1,705 )     (915 )
Income (loss) before income taxes       2,725         1,900         (1,787       (263 )
Income tax expense       (1,506       (542       (2,570       (546
Net income (loss)     $ 1,219       $ 1,358       $ (4,357     $ (809
Net income (loss) per share:                
Basic $ 0.02     $ 0.02     $ (0.06 )   $ (0.01 )
Diluted $ 0.02     $ 0.02     $ (0.06 )   $ (0.01 )
Shares used in per share computations:                
Basic   73,469,571       64,488,798       73,469,571       64,240,446  
Diluted   73,902,905       64,644,470       73,469,571       64,240,446  



  Consolidated Balance Sheets
  (in thousands)
  (Unaudited)
   
    December
31,
  March
31,
      2015       2015  
ASSETS      
Current assets:      
  Cash $ 3,986     $ 5,142  
  Restricted cash   5,780         -  
  Accounts receivable, net   26,944       7,823  
  Other receivables   1,384       560  
  Inventories   27,738       15,479  
  Deferred tax assets   169       2,245  
  Income taxes receivable   341       967  
  Prepaid expenses and other current assets   2,707       1,293  
    Total current assets   69,049       33,509  
Deferred tax assets   7,585       7,605  
Other assets   606       418  
Property and equipment, net   3,682       3,376  
Intangible assets, net   2,377       2,584  
    Total assets $ 83,299     $ 47,492  
         
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
  Bank loans $ 27,502     $ 7,920  
  Accounts payable   28,351       16,404  
  Accrued liabilities   12,778       4,196  
  Notes payable   637       1,015  
  Income taxes payable   536       141  
    Total current liabilities   69,804       29,676  
Notes payable, less current portion   158       36  
Warrant liabilities   904       1,187  
Deferred tax liabilities   43       43  
Deferred rent   691       762  
    Total liabilities   71,600       31,704  
         
Shareholders' equity:      
  Common stock   63,485       63,128  
  Accumulated other comprehensive loss   (5,212 )     (5,123 )
  Accumulated deficit   (46,574 )     (42,217 )
    Total shareholders' equity   11,699       15,788  
    Total liabilities and shareholders' equity $ 83,299     $ 47,492  



  Consolidated Statements of Cash Flows
  (in thousands)
  (Unaudited)
   
    Nine Months
    Ended December 31,
      2015       2014  
Cash flows from operating activities:      
  Net loss $ (4,357 )   $ (809 )
  Adjustments to reconcile net loss to net cash      
    used in operating activities:      
  Depreciation and amortization     1,711         1,549  
  Accrued and unpaid interest expense on note payable     -         10  
  Amortization of deferred financing fees     262         57  
  Loss on disposal of assets     4         8  
  Stock-based compensation     357         376  
  Change in fair value of warrant liabilities     (283 )       (56 )
  Provision for deferred income taxes     2,096         114  
Changes in operating assets and liabilities:      
  Accounts receivable     (19,150 )        (7,314 )
  Other receivables     (825 )       511  
  Inventories     (12,277 )       (1,460 )
  Prepaid expenses and other current assets     (1,168 )       (49 )
  Other assets     114         36  
  Accounts payable     12,031         2,585  
  Accrued liabilities     8,698         (292 )
  Deferred rent     (71 )       553  
  Income taxes receivable/payable     1,019         (50 )
    Net cash used in operating activities   (11,839 )     (4,231 )
Cash flows from investing activities:      
  Purchases of intangible assets   (125 )       -  
  Purchases of property and equipment     (1,600 )       (1,604 )
    Net cash used in investing activities   (1,725 )     (1,604 )
Cash flows from financing activities:      
  Borrowings on bank loans     103,629         53,839  
  Repayments on bank loans     (84,047 )       (44,824 )
  Payment of financing fees     (818 )        (50 )
  Changes in restricted cash     (5,780 )       -  
  Borrowings on notes payable     95         -  
  Repayments on notes payable     (501 )       (791 )
  Proceeds from exercise of stock options     -         236  
  Payment of expenses related to issuance of common stock     (164 )       -  
    Net cash provided by financing activities   12,414       8,410  
Effects of foreign currency exchange rate changes on cash   (6 )     (181 )
    Net increase in cash   (1,156 )     2,394  
Cash, beginning of period   5,142       1,496  
Cash, end of period $ 3,986     $ 3,890  



  Supplementary Data
  Adjusted EBITDA (Loss) Reconciliation (non-GAAP)
  (in thousands)
  (Unaudited)
   
    Three Months   Nine Months
    Ended December 31,   Ended December 31,
      2015       2014       2015       2014  
                 
Net income (loss) $ 1,219     $ 1,358     $ (4,357 )   $ (809 )
Adjustments:              
  Depreciation and amortization     673         440         1,711         1,536  
  Stock-based compensation     95         136         357         376  
  Change in fair value of warrant liabilities     (1,200 )       (1 )       (283 )       (56 )
  Interest expense, net     657         238         1,278         563  
  Income tax expense     1,506         542         2,570         546  
Adjusted EBITDA $ 2,950     $ 2,713     $ 1,276     $ 2,156  


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:
David McKeon
Chief Financial Officer
Mad Catz Interactive, Inc.
dmckeon@madcatz.com or (858) 790-5045

Joseph Jaffoni, Norberto Aja, Jim Leahy
JCIR
mcz@jcir.com or (212) 835-8500

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