SAN DIEGO & TORONTO--(BUSINESS WIRE)--Feb. 5, 2004--Mad Catz
Interactive, Inc. (AMEX:MCZ) (TSE:MCZ)
Conference Call: Today, February 5, at 11:00 a.m. EST
Dial-in numbers: 800-633-8556 (US and CAN) or 212-341-7087
(International)
Webcast: www.madcatz.com (Select "Investors")
Replay Information: See release text
Mad Catz Interactive, Inc. (AMEX:MCZ) (TSE:MCZ), the world's
leading manufacturer of video game accessories, announced today
financial results for the third quarter and nine months ended December
31, 2003. The Company also announced a senior management transition
planned for the new fiscal year, whereby Darren Richardson, 43, the
Company's Executive Vice President, who also serves as the President
and Chief Operating Officer of Mad Catz, Inc., will assume the
additional roles of President and Chief Executive Officer of Mad Catz
Interactive, Inc. from Morris Perlis, who will continue to serve as a
member of the Company's board of directors.
Net sales for the third quarter ended December 31, 2003 increased
4.8% to $42.0 million from $40.1 million in the same period a year
ago. Gross profit for the quarter increased to $9.7 million, compared
to $9.6 million in the same period a year ago. Selling and
administrative expenses in the fiscal 2004 third quarter increased
43.0% to $6.3 million from $4.4 million in the same period a year ago.
Selling expenses as a percentage of net sales increased to 10.1%
compared to 5.6% for the same period a year ago. The increase in
selling expenses and the corresponding increase in selling and
administrative expenses was primarily attributable to additional
cooperative advertising expenses at new retailers as well as expenses
incurred to support the GameShark brand. Administrative expenses in
the third quarter were $2.1 million compared to $2.2 million in the
same period a year ago. As a percentage of sales, administrative
expenses declined to 5.0% in the December 31, 2003 quarter from 5.4%
in the in the same quarter of fiscal 2003. Income before taxes for the
quarter ended December 31, 2003 was $2.7 million, compared to income
before taxes of $4.1 million in the fiscal 2003 quarter. Net income
for the quarter was $1.6 million or $0.03 per share on a basic and
diluted basis, compared to $2.6 million or $0.05 per share on a basic
and diluted basis for the same quarter in fiscal 2003. EBITDA (defined
as earnings before interest, taxes, depreciation and amortization) was
$3.3 million in the quarter ended December 31, 2003 down from $4.9
million in the same quarter of fiscal 2003. A reconciliation of EBITDA
included herein, to the Company's net income on a GAAP basis, is
included in the financial tables accompanying this release.
Net sales for the nine months ended December 31, 2003 increased
15.8% to $81.1 million from $70.0 million during the same period of
fiscal 2003, with gross profit increasing 21.1% to $18.2 million from
$15.1 million, in the nine-month period of fiscal 2003. Selling and
administrative expenses for the nine months of fiscal 2004 were $15.2
million compared to $10.6 million in the same period of fiscal 2003.
Selling expenses as a percentage of net sales increased to 11.6% for
the nine-month period of fiscal 2004 from 7.8% in the same period of
fiscal 2003. Administrative expenses declined to 7.1% of net sales, or
$5.8 million, for the nine months ended December 31, 2003, compared to
7.4%, or $5.2 million, in the prior fiscal year. Net income before
taxes for the nine months ended December 31, 2003 was $1.0 million
versus $2.3 million in the same period of fiscal 2003. The Company
reported net income for the fiscal 2004 nine-month period of $0.6
million, or $0.01 per basic and diluted share, compared to net income
of $1.1 million or $0.02 per basic and diluted share for the first
nine months of fiscal 2003. For the nine months ended December 31,
2003, Mad Catz' EBITDA was $2.9 million compared to EBITDA of $4.4
million in the same period of fiscal 2003.
The Company expects completion of its planned management
transition by the end of the Company's current fiscal year, March 31,
2004. Mr. Perlis was named President and CEO in April 2001 and Mr.
Richardson has served in his current positions since August 1999. As a
result of the planned consolidation of the senior management titles,
the corresponding consolidation of the Company's Toronto and San Diego
offices to San Diego, and other cost savings initiatives currently
being implemented, Mad Catz Interactive, Inc. expects annualized
operating expense savings in excess of $1.5 million commencing with
its 2005 fiscal year. The Company anticipates no material severance or
other charges related to the management change and office
consolidation. The consolidation of facilities to San Diego will not
affect the Company's Canadian incorporation or its listing on the
Toronto Stock Exchange, and will not impact the Company's Canadian
sales office operation.
Fiscal 2004 Third Quarter Highlights:
- Continued Worldwide Sales Growth:
- U.S. sales up 12% to $33.5 million from $30.0 million.
- Canadian sales up 59% to $3.1 million from $2.0 million.
- International sales down 34% to $5.3 million compared to
$8.0 million.
- Excluding PlayStation 2 memory card sales from the
third quarter of fiscal 2003, international sales
increased 172%.
- GameShark and Xploder game enhancement software
represented approximately 9% of third quarter gross sales.
- Gross sales excluding PlayStation 2 memory card sales a year
ago, were up 24%.
- Gross profit margin 23.0% for the third quarter.
- New product introductions:
- GameShark GameSaves for GameCube.
- GameShark SharkBoard.
Mad Catz Interactive, Inc. President and CEO, Morris Perlis
commented, "When I joined Mad Catz, it was a company with tremendous
potential yet faced several specific challenges including a highly
competitive industry and retail environment, distribution that was
concentrated among too few retailers, and a product line limited in
breadth and differentiation from first party offerings. We addressed
each of these challenges head-on, leveraging our core competencies and
ascended to our current position as the world's leading third party
accessory provider.
"The strength of our current distribution, product offerings, and
balance sheet are evidence that the Company is executing on the
clearly defined long-term goals we established when I arrived. Those
goals included broadening development of the best accessories on the
market at numerous price points; improving margins by effectively
reducing product costs; expanding retail penetration into new and
existing accounts; continuing our European expansion; exploring
synergistic acquisitions, like that of GameShark; and managing our
balance sheet through efficient inventory management. We have also
identified and are implementing significant operating cost savings and
are actively pursuing additional cost containment to enhance
profitability without impairing our ability to provide our customers
with the highest level of quality and service.
"Given Mad Catz' emergence as the industry leader, the Board and I
believe it is an opportune time for Darren to assume the leadership of
the Company. He is acknowledged industry-wide for his expertise in all
areas relevant to Mad Catz including design and engineering, sales,
marketing, distribution, and manufacturing. We are confident that his
further contributions will foster a positive, seamless transition. I
am excited to announce Darren's new role at Mad Catz and look forward
to Mad Catz' success under his guidance."
Commenting on the management transition, Patrick Brigham, Chairman
of Mad Catz' Board of Directors said, "Morris has accomplished the
goals we established when he was appointed CEO. Through his hard work
and dedication, over what will be three years with Mad Catz, he has
expertly managed the Company's operations and established a clear line
of succession for Darren to assume the leadership of the Company. He
has imparted knowledge, innovation and determination to this
organization, and inspired his employees to perform at their best and
to generate results. We appreciate Morris' efforts, look forward to
his continued input as director, and are excited to realize the
benefits of that hard work as Darren leads Mad Catz going forward."
Addressing Mad Catz' financial results for the quarter, Mr. Perlis
added, "While we continue to see improvements in the economy, the 2003
holiday season was clearly one of mixed results. As the reports from a
number of retailers indicated, it was not until just before Christmas
that holiday traffic picked up, minimizing the benefit to our third
quarter.
"According to data from NPD Group, a provider of industry
marketing information, in 2003, total sales for U.S. video game
console products declined 2.7% to $10.0 billion from $10.3 billion in
2002. During the same period, sales of video game accessories declined
approximately 1.4% to $1.2 billion, or 12% of total industry sales.
With the industry in a down year, it is important to highlight that
Mad Catz' 5% sales growth during the quarter and 16% sales growth year
to date continued to exceed that of the industry.
"In December, the strongest single month of the year for our
industry, total hardware unit sales -- a key driver for video game
accessory sales -- decreased 4%. Although December sales for GameCube,
Xbox, and Game Boy Advance increased 88%, 9%, and 5%, respectively,
the strength of those systems was overshadowed by the weakness of the
PlayStation 2, which, despite a dominant market share position, saw
sales decline 28%. Even though GameCube product was one of the fastest
growing segments of our business during the holidays, those sales
improvements could not offset two factors: first, the revenue impact
of the lower price points GameCube products carry versus PlayStation 2
and Xbox accessories; and second, the fact that GameCube occupies a
significantly smaller overall market share than the market-leading
PlayStation 2. The strength of GameCube and the relative weakness of
PlayStation 2 and Xbox over the holidays were instructive, however, in
shaping our expectations for the industry in 2004. Last fall,
Nintendo's price cut on the GameCube fueled significantly higher sales
of the console during the holidays. Accordingly, since Sony and
Microsoft have held out longer than Nintendo with hardware price cuts,
we expect the market for PlayStation 2 and Xbox products to expand
significantly when the anticipated price cuts occur on those consoles,
giving us reason for continued optimism in 2004.
"For the quarter, net sales increased approximately 5% from the
same period in fiscal 2003. Additionally, when looking at Mad Catz'
sales excluding PlayStation 2 memory card sales in the year ago
period, sales during the quarter increased 24%. We believe this figure
is especially significant, as it directly conveys the strength of our
product design and sales team, enabling us to produce strong growth
while effectively fending off new competitors as they enter the
marketplace.
"We remain as optimistic as ever about our GameShark products and
the value they bring to our organization. In the face of a challenging
holiday retail environment, in the fiscal third quarter, GameShark
enjoyed its third sequential increase in sales, representing
approximately 9% of Mad Catz' sales. With the shipment of GameShark
GameSaves, in late December, GameShark products are now available for
every major console. Moving into 2004, we expect the broad
availability of GameShark products combined with anticipated console
price cuts and the release of highly desirable, challenging, 'AAA'
titles this year, both of which fuel GameShark sales, to build on the
momentum of the line throughout the year.
"Considering the challenging operating environment faced by the
Company in the third quarter, it is noteworthy to highlight the
continued improvements in our balance sheet. Our efforts to closely
manage our balance sheet contributed to reduced interest payments
compared with the quarter in the prior fiscal year and also improved
our cash and working capital position from the same period in the
prior fiscal year. It is through these efforts that we continue to
enhance Mad Catz' flexibility to adapt to new industry challenges.
"Selling, general and administrative expenses increased to $6.3
million during the quarter, up from $4.4 million in the same period in
fiscal 2003. The largest component of selling expenses is co-op
advertising, which is incurred as a percentage of sales and, as a
result, increases as sales increase. Accordingly, corresponding to the
continued diversification of Mad Catz' customer base, the Company now
sells more products to retailers that promote products through
cooperative advertising programs. This change in customer mix resulted
both from Mad Catz' shift to a direct sales model in Europe from the
previous distribution model, as well as further breadth in the
distribution of Mad Catz' products in North America.
"Selling expenses also include costs directly associated with
marketing support for the GameShark line of products. A significant
portion of GameShark marketing costs relates to expenses for the
GameShark.com Web site including agreements related to the maintenance
of the GameShark.com Web site. We remain optimistic about GameShark
and are confident that increased sales combined with lower expenses
for this line of products going forward will allow us to realize the
full benefit of this synergistic acquisition. Finally, reflecting Mad
Catz' cost containment efforts, general and administrative expenses
were down slightly from the same period a year ago and essentially
in-line with the previous quarter."
The Company will host a conference call and simultaneous webcast
today, February 5, 2004, at 11:00 a.m. EST. Following its completion,
a replay of the call can be accessed for 30 days on the Internet from
the Company's Web site (www.madcatz.com, select "Investors") or for
two days via telephone at 800-633-8284 (reservation # 21182891) or,
for international callers, at 402-977-9140.
About Mad Catz Interactive, Inc.
Mad Catz Interactive, Inc., (www.madcatz.com), designs, develops,
manufactures and markets a full range of high quality, competitively
priced accessories for video game consoles and portables. Mad Catz is
a worldwide leader of innovative peripherals in the interactive
entertainment industry, with distribution through nine of the top ten
U.S. retailers offering interactive entertainment products. With
operating headquarters in San Diego, California, Mad Catz has offices
in Canada, the U.K. and Asia, as well as distributors in Europe and
Australia.
Safe Harbor For Forward-Looking Statements:
This press release contains forward-looking statements about the
Company's business prospects that involve substantial risks and
uncertainties. The Company assumes no obligation to update the
forward-looking statements contained in this press release as a result
of new information or future events or developments. You can identify
these statements by the fact that they use 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; the ability to successfully market both
new and existing products domestically and internationally;
difficulties or delays in manufacturing; 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 Securities and Exchange Commission and the Canadian
Securities Administrators.
MAD CATZ INTERACTIVE, INC.
Consolidated Statements Of Operations (unaudited, $US)
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net sales $41,981,667 $40,050,899 $81,075,085 $70,015,508
Cost of sales 32,306,176 30,488,688 62,836,304 54,951,851
------------- ------------- ------------- -------------
Gross profit 9,675,491 9,562,211 18,238,781 15,063,657
Expenses
(Income):
Selling
expenses 4,227,223 2,252,141 9,377,459 5,440,738
Administrative
expenses 2,089,165 2,163,878 5,780,441 5,187,149
Interest
expense 292,012 526,417 1,035,013 1,241,545
Depreciation
and
amortization 312,278 270,798 936,661 893,420
Other income (19,143) (5,589) (76,934) (46,025)
Foreign
exchange
loss 62,893 228,449 217,721 73,998
------------- ------------- ------------- -------------
6,964,428 5,436,094 17,270,361 12,790,825
------------- ------------- ------------- -------------
Income before
income taxes 2,711,063 4,126,117 968,420 2,272,832
Income tax
expense 1,084,426 1,499,846 387,368 1,159,008
------------- ------------- ------------- -------------
Net income $ 1,626,637 $ 2,626,271 $ 581,052 $ 1,113,824
Accumulated
deficit,
beginning of
period (16,949,164) (18,626,718) (15,903,579) (17,114,271)
------------- ------------- ------------- -------------
Accumulated
deficit, end
of period $(15,322,527) $(16,000,447) $(15,322,527) $(16,000,447)
============= ============= ============= =============
Net income per
share:
Basic $ 0.03 $ 0.05 $ 0.01 $ 0.02
============= ============= ============= =============
Diluted $ 0.03 $ 0.05 $ 0.01 $ 0.02
============= ============= ============= =============
Weighted
average number
of common
shares
outstanding:
Basic 53,293,804 53,182,629 53,235,853 53,016,641
============= ============= ============= =============
Diluted 54,125,770 53,255,764 54,068,075 53,395,604
============= ============= ============= =============
MAD CATZ INTERACTIVE, INC.
Consolidated Balance Sheets (unaudited, $US)
December 31, March 31, December 31,
2003 2003 2002
Assets
Current assets:
Cash $ 2,004,804 $ 1,234,104 $ 783,967
Accounts receivable 34,755,484 16,530,226 32,859,804
Inventories 19,098,505 18,413,299 22,226,720
Prepaid expenses and
deposits 1,046,341 1,032,830 890,569
Current portion of future
income tax assets 3,030,550 3,030,550 2,119,803
Income tax receivable - 598,137 -
------------- ------------- -------------
59,935,684 40,839,146 58,880,863
Deferred financing fees - 238,649 357,974
Capital assets 1,721,384 1,729,310 1,870,624
Intangible assets 4,883,870 5,046,634 -
Goodwill 20,168,890 17,737,549 16,553,097
------------- ------------- -------------
$86,709,828 $65,591,288 $77,662,558
============= ============= =============
Liabilities and
Shareholders' Equity
Current liabilities:
Bank loan $22,319,544 $17,076,993 $23,724,522
Accounts payable and
accrued liabilities 28,231,371 16,004,283 22,570,461
------------- ------------- -------------
50,550,915 33,081,276 46,294,983
Future tax liabilities 85,829 85,829 84,171
Shareholders' equity:
Capital stock 45,892,189 45,793,085 45,793,085
Cumulative translation
adjustment 5,503,422 2,534,677 1,490,766
Accumulated deficit (15,322,527) (15,903,579) (16,000,447)
------------- ------------- -------------
36,073,084 32,424,183 31,283,404
------------- ------------- -------------
$86,709,828 $65,591,288 $77,662,558
============= ============= =============
MAD CATZ INTERACTIVE, INC.
Supplementary Data ($US)
Geographical Sales Data
The Company's sales and capital assets are attributable to the
following countries (all results are unaudited):
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Sales
United States $33,506,903 $30,041,010 $64,098,937 $51,700,225
International 5,335,782 8,040,866 11,415,720 15,079,522
Canada 3,138,982 1,969,023 5,560,428 3,235,761
------------- ------------- ------------- -------------
$41,981,667 $40,050,899 $81,075,085 $70,015,508
============= ============= ============= =============
EBITDA RECONCILIATION
EBITDA represents net income plus interest, taxes, depreciation and
amortization.
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income $ 1,626,637 $ 2,626,271 $ 581,052 $ 1,113,824
Adjustments:
Interest
expense 292,012 526,417 1,035,013 1,241,545
Income tax
expense 1,084,426 1,499,846 387,368 1,159,008
Depreciation
and
amortization 312,278 270,798 936,661 893,420
------------- ------------- ------------- -------------
EBITDA $ 3,315,353 $ 4,923,332 $ 2,940,094 $ 4,407,797
============= ============= ============= =============
The Company believes that EBITDA is a useful supplement to net income
as an indication of operating performance. EBITDA is a key financial
measure but is not intended to represent cash flows for the period,
nor has it been 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 accounting principles generally accepted in Canada.
As defined, EBITDA is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in
the method of calculation.
CONTACT:
Mad Catz Interactive, Inc., Toronto
Morris Perlis, 416-368-4449
or
Jaffoni & Collins Incorporated, New York
Nathan Ellingson or Joseph Jaffoni, 212-835-8500
mcz@jcir.com
SOURCE: Mad Catz Interactive, Inc.
