Net Sales Improve 29% to $18.7 Million; Net Income Reaches $2.7 Million
EDISON, N.J. - March 17, 2008 -- Majesco Entertainment Company Inc. (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the fiscal first quarter ended January 31, 2008.
Jesse Sutton, Chief Executive Officer of Majesco Entertainment, said, "We delivered an exceptional quarter across all financial metrics as we continued to execute our plan. Our performance was driven by our focus on the casual gaming market and the steps we have taken to improve our financial position and operating model over the past year. Further, we benefited from a strong domestic sales performance, driven by sales of our Cooking Mama games, which delivered a revenue increase of 47 percent versus the same period last year. In the quarter, total revenue increased 29 percent to $18.7 million compared to the same period in 2007, gross margins were 40.2 percent, and we reported net income of $2.7 million, or $0.10 per share, which includes a $0.8 million benefit from adjustments to warrants and our litigation accrual. This performance demonstrates the potential of our business model.
"Our strategy is working and we are executing on our business plan," continued Sutton. "We expect to continue to benefit from the improvements we have made in our operations throughout the rest of the year. Our new studio is open and is developing its first title, Our House for DS, which complements the previously announced Wii version and helps build our portfolio of intellectual property. We are focused on expanding the number of titles we publish and strengthening our retail distribution. Our management team remains committed to a disciplined financial approach, improving our profitability and driving increased value for shareholders over the long-term."
Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics
To facilitate a comparison between the three months ended January 31, 2008 and 2007, the Company has presented both GAAP and non-GAAP financial results. GAAP financial measures, including gain on settlement of litigation and related charges net, change in fair value of warrants, operating income, net income, and basic and diluted earnings/loss per share, have been adjusted to report non-GAAP financial measures that exclude these charges and income related to gains on these settlements and warrants. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance and the Company's prospects for the future. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to GAAP results.
In the fiscal year ended October 31, 2007, the Company recorded a $2.8 million charge in connection with the expected settlement of class action litigation. The charge was comprised of $2.5 million, representing the fair value, on the date the agreement was executed, of the common stock expected to be distributed when the settlement becomes effective and $0.3 million representing the increase in the value of the shares since that date.
The Company will adjust the fair value of the liability to the fair value of the shares expected to be distributed at each balance sheet date and record the resulting change as a non-cash charge, or gain, to earnings in each period until the shares are distributed. Due to fluctuations in the Company's stock price, this resulted in a non-cash gain of $0.3 million during the quarter ended January 31, 2008. The settlement provides that if the fair value of the stock falls below $2.5 million, the Company will issue additional shares, subject to certain limitations, with a fair market value equal to the amount of the decrease. Therefore, the liability will not be adjusted below $2.5 million.
During the fourth quarter of 2007, the Company raised $5.9 million in an equity financing. As part of that transaction, the Company issued warrants that contain a provision that under certain circumstances in which the Company is sold, merged, or otherwise enters into a "fundamental transaction", as defined in the warrant agreement, with a company that is not publicly traded, the warrants may be settled by a cash payment. As a result the warrants were recorded as a liability at their fair value of $2.1 million, in accordance with FASB statement No. 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity, and FASB Staff position 150-1 Issuers Accounting for Freestanding Financial Instruments Composed of More Than One Option or Forward Contract Embodying Obligations under FASB Statement 150. In addition, the Company will measure the fair value of the warrants at each balance sheet date, and record the change in fair value as a non cash charge or gain to earnings each period. The warrants were valued at $1.0 million at January 31, 2008. A reduction in the Company's stock price since October 31, 2007 resulted in a non-cash gain of $0.5 million during the quarter ended January 31, 2008.
Comparison of Three Months Ended January 31, 2008 to January 31, 2007
-- Net revenue was $18.7 million in 2008, compared to $14.5 million in 2007. The increase was primarily attributable to the strong performance of our Cooking Mama games, including the introduction of Cooking Mama 2: Dinner with Friends for the DS.
-- Net revenue for the first quarter of 2008 was comprised of 22 percent from sales of games for console systems, including 20 percent contributed from the Wii. Seventy-seven percent of net sales were from games for handheld systems virtually all of which came from games for DS. This compares to the first quarter of 2007 when 10 percent of revenue was contributed from games for console systems and 63 percent from handheld systems, including 51 percent from games developed for DS.
-- In the first quarter of 2008, 99 percent of revenue came from Domestic sales with 1 percent from International. This compares to the first quarter of 2007 when 86 percent of revenue came from Domestic sales with 14 percent from International. The change in revenue mix was primarily driven by a strong Domestic sales performance, which recorded a revenue increase of 47 percent, and lower International sales as a result of several international releases shifting from the first quarter to the second quarter of 2008.
-- Gross margin was 40.2 percent, compared to 31.1 percent in 2007, reflecting the higher margins attributable to Wii games and Cooking Mama 2, which was at a premium price point. Additionally, the Company benefited from a larger mix of Domestic sales in the quarter, which historically have had a higher margin than our International sales. Last year's margin was unfavorably impacted by the sale of low margin Dance Dance Revolution (DDR) product, which the Company no longer produces.
-- The GAAP operating income was $2.4 million, which included a $0.3 million non-cash gain related to the settlement of class action litigation, compared to 2007 operating loss of $0.2 million. Non-GAAP 2008 operating income was $2.1 million, compared to a non-GAAP operating loss of $0.2 million in 2007.
-- GAAP net income was $2.7 million, or $0.10 per share, which included a $0.3 million non-cash gain related to the settlement of class action litigation as well as a $0.5 million non-cash gain in the fair value of warrants issued, compared to 2007 net loss of $0.9 million, or $0.04 per share. Non-GAAP net income was $1.9 million, or $0.07 per share, compared to a non-GAAP net loss of $1.0 million, or $0.04 per share in 2007.
-- Interest expense and financing costs decreased 73.3 percent in 2008 to $0.2 million from $0.7 million in 2007, as the Company benefited from the additional capital and negotiating better terms with its financing sources.
-- At January 31, 2008, the company had cash and cash equivalents of $8.2 million.
Announced Product Line-up
First Quarter 2008 ending January 31, 2008:
All of the following titles were released in North America during the Company's first quarter:
-- Cooking Mama 2: Dinner with Friends for DS is the sequel to the award-winning original that includes 80 all-new recipes, extensive customization and a tasting mode with friends.
-- Left Brain Right Brain for DS is the only brain game that promotes ambidexterity through a series of mini-games that requires players to flip the DS and play with both their dominant and non-dominant hands.
-- Furu Furu Park for Wii is a collection of 30 mini-games, including arcade classics like Arkanoid and Bubble Bobble, that all take advantage of the range of motion possible via Wii RemoteTM play.
-- Mega Brain Boost for DS offers exceptional value by including three full brain games designed to improve memory and concentration on one cartridge.
Second Quarter 2008 ending April 30, 2008:
All of the following titles have, or areexpected to be released in North America during the Company's second quarter:
-- Pet Pals: Animals Doctor for DS invites players to step into the challenging world of veterinary medicine by diagnosing and treating 30 different medical cases created by real vets.
-- Blokus Portable: Steambot Championship for the PSP® (PlayStation®Portable), is based on the world-renowned Blokus board game and blends its award-winning strategic gameplay with the anime characters from the Steambot Chronicles series.
-- Eco-Creatures: Save The Forest for DS is a real-time strategy game in which players must control units of woodland creatures through a unique environmental adventure. An Eco-Creatures playable demo is currently being featured through May in 10,000 Nintendo DS kiosks located at retailers nationwide.
-- Nanostray 2 for DS is the sequel to the very first 3D shooter available on DS and delivers thrilling non-stop shooting action combined with stunning graphics.
-- Wild Earth: African Safari for Wii is a first person safari adventure that challenges players to capture award-winning photos of the continent's exotic wild life.
-- Toy Shop for the DS puts players at the helm of a struggling toy shop where they'll need to create fun toys that sell, while managing store inventory, customers and budget.
To date, the Company has announced the following titles that are expected for release during the rest of fiscal 2008:
-- Blast Works: Build, Trade&Destroy for Wii, is an innovative interpretation of a geometric shooter that lets players build their own personalized game experiences and then share their creations with friends via WiiConnect24.
-- Wonderworld Amusement Park for Wii brings to life a fully 3D world of boardwalk games, rides and prizes across multiple themed areas that players can explore with personalized avatars.
-- Cake Mania 2 for DS is the sequel to the best-selling DS game based on Sandlot Games' award-winning downloadable title. Players will lead Jill through more than 200 different levels of baking and frosting madness with an all-new customer base, exotic locations, kitchen upgrades and multiple endings.
-- Nancy Drew: The Mystery of the Clue Bender Society for DS is the follow up to The Deadly Secret of Olde World Park and offers mystery buffs and Nancy Drew fans a fresh interactive caper with a wealth of new features.
-- Cooking Mama: World Kitchen for Wii is the sequel to the best-selling Cooking MamaCook Off game for Wii that has sold more than 380,000 units and challenges players to use the Wii remote as the ultimate cooking utensil.
-- Babysitting Mania for DS is based on the hit PC simulation from Gogii Games and challenges players to manage unruly kids, lists of chores and out-of-control houses without losing their cool.
First Quarter 2009 ending January 31, 2009:
To date, the Company has announced the following titles that are expected for release during the fiscal first quarter of 2009:
-- Major Minor's Majestic March for Wii marks the return of the creative team behind the renowned PaRappa the Rapper franchise-legendary game designer and multimedia musician Masaya Matsuura and famed New York artist Rodney Alan Greenblat. The game turns the Wii Remote into a "special" baton the bandleader Major Minor uses to keep tempo, recruit new band members and pick up valuable items, while marching through eight whimsical locations that contain various hair-raising events.
-- We will continue to support the best-selling casual game from Sandlot Games by publishing Cake Mania for Wii. The game will integrate motion-based control with the series' signature cake-baking gameplay.
-- Our House for Wii turns the Wii Remote into the ultimate creation tool that lets players design, build and decorate their own personalized trophy home, and then share it with friends in an online neighborhood via WiiConnect24.
-- Our House for DS is the first game from Majesco Studios Santa Monica. This companion game to the Wii version turns the DS stylus into the ultimate creation tool. Players will work as contractors and then use their work-for-hire earnings to design, build and decorate their own personalized trophy home.
Fiscal 2008 Outlook
The Company reconfirmed its outlook for fiscal 2008 full year net revenue to be in the range of $53 million to $58 million. The Company expects 59 percent of its net revenue to be from handheld titles, with virtually all titles for DS, and 41 percent from console titles, with 40 percent from titles for Wii. In 2007, 64 percent of its net revenue was from handheld titles, with 56 percent from titles for DS, while 30 percent was from console titles and 20 percent from Wii titles. The Company also expects that its mix of International revenues for the year will approximate previous years and be in the neighborhood of 15 to 20 percent. In 2008, excluding Majesco Studios, cash fixed costs, which include general and administrative, product research, and the fixed portion of sales and marketing costs, are expected to be similar to 2007 in the range of $12 to $14 million. The Company expects 2008 gross margins to show continued modest expansion, improving over the 33.9 percent reported in 2007. The Company's guidance assumes the release of approximately 28 titles in 2008 with approximately 11 Wii, 15 DS titles and 2 other. This compares to 19 titles in 2007, comprised of 2 Wii, 13 DS and 4 other. The Company's results are impacted by seasonalityfrom the December holiday period and variability based on release schedules.
At 4:30 PM ET today, management will host an earnings conference call. To access the call in the U.S., please dial 1-877-317-6701 and international callers please dial 1-412-317-6701. The access code for the call is 4881586. Please dial in approximately 10 minutes prior to the start of the conference call. The conference call will also be broadcast live over the Internet and available for replay for 90 days from the "Investor Relations" section of the company's Web site at http://www.majescoentertainment.com. In addition, a replay of the call will be available via telephone for two business days, beginning two hours after the call. To listen to the telephone replay in the U.S., please dial 1-877-344-7529 and for international callers, dial 1-412-317-0088. Enter access code 4881586.
Use of Non-GAAP Financial Information
To supplement the Company's unaudited condensed consolidated financial statements presented in accordance with GAAP, Majesco Entertainment uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Majesco include: non-GAAP gain on settlement of liabilities and other gains, non-GAAP settlement of litigation and related charges net, non-GAAP change in fair value of warrants, non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items from the Company's unaudited condensed consolidated statements of operations:
•Settlement charges related to the settlement of class action litigation
•Change in fair value of warrants
•Gains on settlement of liabilities and other gains
For more information on these non-GAAP financial measures, please see the tables in this release captioned "Reconciliation of GAAP and non-GAAP Financial Measures" which includes a reconciliation of the non-GAAP to the GAAP results.
About Majesco Entertainment Company
Headquartered in Edison, NJ, with an international office based in Bristol, UK, Majesco Entertainment Company (NASDAQ: COOL) is an innovative provider of video games for the mass market, with a focus on publishing video games for leading portable systems and the Wii console. Product highlights include Nancy Drew, Cooking Mama 2: Dinner with Friends and Zoo Hospital for Nintendo DS and Cooking Mama: Cook Off for the Wii system. More information about Majesco can be found online at the newly relaunched www.majescoentertainment.com.