Mandalay Digital Reports Record Second Fiscal Quarter 2014 Financial Results Organic Growth of 37% Quarter-over-Quarter Exceeds Guidance

Management to Provide Customer Updates on Conference Call at 4:30PM EST Today

LOS ANGELES, Nov. 14, 2013 /PRNewswire/ -- Mandalay Digital Group, Inc. (NASDAQ: MNDL) ("Mandalay Digital" or "the Company"), today announced financial results for the three months ended September 30, 2013. 

Second Fiscal Quarter 2014 Highlights:

  • Revenues were $7.0 million, up 667% year-over-year due principally to acquisitions and up 37% from $5.1 million in fiscal Q1 2014 from a comparable asset base
  • Revenues exceeded the upper-end of Q2 revenue guidance range of $6.4 - $6.8 million
  • Gross margin was 36.1%; Non-GAAP gross margin was 43.5% excluding intangibles amortization expenses
  • Adjusted EBITDA (a non-GAAP measure) improved $1.1 million, a 47% increase from Q1
  • Company increased cash and cash equivalents to $7.8 million from its August public offering and related retirement or conversion of all secured and unsecured notes
  • Reaffirms FY 2014 revenue guidance of $27 - 29 million and breakeven Adjusted EBITDA by the end of FY 2014 (March 31 2014)

Peter Adderton, CEO of Mandalay Digital, began "Our strong revenue growth so far this year reflects increasing adoption of our content marketplace and carrier-empowering billing, DT Pay™ which closes the loop on content sales.   The strong growth momentum in the first six months of our fiscal 2014 provides financial validation that our acquisition strategy to combine targeted, high-growth, operating companies like MIA and Logia, is working.  The ramp in new carrier agreements for DT Ignite™ and  DT IQ™ was very encouraging, a signal that global carriers are seeking outsourced solutions – found in our products and services – to manage their global content needs. These wins were a result of our continued focus on the emerging markets, where we see the greatest prospects for growth in the mobile space, and a leading indicator for our future growth.   We have made significant progress to date and we see significant opportunities ahead to capture our share of this large and quickly expanding market." Mr. Adderton concluded.     

Second Fiscal Quarter 2014 Results
Mandalay Digital's revenues are derived primarily from the provisioning of products, services and software for mobile carriers and their subscribers in the form of: 1) A mobile application management service that enables mobile operators and OEMs to control, manage and monetize the applications that are installed on smartphone devices through DT Ignite™;  2) Content search, discovery, licensing, and delivery  through DT Content™, MarketPlace™ and DT IQ™; and 3) Integrated mobile operator billing through DT Pay™.

Revenue for the three months ended September 30, 2013 increased 667% to $7.0 million compared to $0.9 million in the same period a year ago.   Substantially all of such increase was due to the acquisitions of Logia and MIA. Quarter-to-quarter, revenues from a comparable asset base increased 37% from $5.1 million in the first quarter of 2014 driven by primarily by increases in DT Pay™ and DT Content Management™.

Gross profit increased 371% to $2.5 million compared to $0.5 million in the corresponding period a year ago. Substantially all of such increase was due to the acquisitions of Logia and MIA. Quarter-to-quarter gross profit from a comparable asset base increased 38.5% from $1.8 million in the first quarter of 2014, and gross margin for the second quarter was 36.1%, up 30 basis points from the first quarter. Non-GAAP gross margin (which we define as GAAP gross margin excluding amortization of intangibles)*, was 43.5% for the three months ended September 30, 2013 exceeding the Company's target of 40%.

Total operating expenses were $6.4 million for the three months ended September 30, 2013 compared to $6.0 million in the prior quarter.   $1.9 million of the expenses were non-cash items such as depreciation and stock based compensation.    Excluding such non-cash items, operating expenses were reduced quarter-over-quarter by 5.0%.

Adjusted EBITDA for the quarter was a loss of $1.2 million versus an Adjusted EBITDA loss of $2.3 million in the previous quarter, an improvement of 47.3%. Adjusted EBITDA excludes both cash and non-cash expenses and is defined below under "Use of Non-GAAP Financial Measures." The table below reconciles the Company's Adjusted EBITDA to GAAP Net Loss and Non-GAAP Gross Margin to GAAP Gross Margin.

Second Fiscal Quarter Non-GAAP Reconciliation Tables

*See "Use of Non-GAAP Financial Measures"

NET LOSS TO ADJUSTED EBITDA


Q2 2014

(in thousands)

Q1 2014

(in thousands)

NET LOSS

(6,222)

(5,686)

ADD BACK: OTHER EXPENSE, NET OF INCOME

2,240

1,609

ADD BACK: DEPRECIATION AND AMORTIZATION

546

492

ADD BACK: STOCK COMPENSATION

1,909

1,241

ADD BACK: BONUSES

207

85

ADD BACK: INCOME TAX PROVISION

90

(76)

ADJUSTED EBITDA

(1,230)

(2,335)

GROSS MARGIN TO NON-GAAP GROSS MARGIN


Q2 2014

(in thousands)

REVENUE

6,996

GROSS PROFIT

2,527

GROSS MARGIN (%)

36.1



ADD BACK: AMORTIZATION OF INTANGIBLES

514

NON-GAAP GROSS PROFIT

3,041

NON-GAAP GROSS MARGIN (%)

43.5

The Company had a net loss of $6.2 million and a net loss per share of ($0.25) for the three months ended September 30, 2013.  The net loss includes non-cash, non-recurring charges accounted for in interest and other income (expense) of approximately $2.7 million related to the extinguishment, conversion and repayment of the Company's debt and long-term obligations that occurred in August and September in connection with its public offering offset by a gain relating to a change in the valuation of its long-term contingent liability of $0.6 million.  The Company's weighted average diluted shares outstanding during the quarter ended September 30, 2013 were 25.2 million, reflecting a 1-for-5 reverse stock split on April 12, 2013, as well as the August public stock offering.

Mandalay Digital's stock commenced trading on the NASDAQ Capital Market on June 12, 2013 under the ticker symbol, "MNDL".

Cash and cash equivalents totaled $7.8 million at September 30, 2013 compared to $1.1 million at March 31, 2013 (and compared to $1.6 million at June 30, 2013). The Company received $13.3 million in gross proceeds, inclusive of the overallotment underwriter option, from its August public offering of common stock.

Outlook
The Company is reiterating its financial guidance for the fiscal year ending March 31, 2014 as follows:

Revenues:

$27.0 to $29.0 million

Adjusted EBITDA:

Breakeven by the end of fiscal year

Conference Call
Management will host a conference call, today, Thursday, November 14th.

Date:

Thursday, November 14, 2013

Time:

4:30 pm ET

US Dial-In:

1-877-941-1428

International Dial-In:

1-480-629-9665

Conference ID:

4647925

Webcast:

http://public.viavid.com/index.php?id=106635

A playback of the call will be available until 11:59 pm ET on November 21, 2013. To listen, call +1-877-870-5176 within the United States or +1-858-384-5517 when calling internationally. Please use the replay PIN number 4647925.

About Mandalay Digital Group
Mandalay Digital Group (Nasdaq: MNDL) is at the convergence of media content and mobile communications. It delivers a mobile services platform that works with mobile operators and third-party publishers to provide portal management, user interface, content development and billing technology that enables the responsible distribution of mobile entertainment. Mandalay Digital is headquartered in Los Angeles and has offices in Australia, Germany and Israel. For additional information, visit www.mandalaydigital.com.

Use of Non-GAAP Financial Measures
To supplement the Company's condensed financial statements presented in accordance with GAAP, Mandalay Digital uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include Adjusted EBITDA and non-GAAP gross margin. Reconciliation to the nearest GAAP measures of all non-GAAP measures included in this press release can be found above.

Non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance, prospects for the future and as a means to evaluate period-to-period comparisons. The Company believes that these non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results. The Company believes the non-GAAP measures that exclude such items when viewed with GAAP results and the accompanying reconciliation, enhance the comparability of results against prior periods and allow for greater transparency of financial results. The Company believes non-GAAP measures facilitate management's internal comparison of the Company's financial performance to that of prior periods as well as trend analysis for budgeting and planning purposes. The presentation of non-GAAP measures are not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Adjusted EBITDA is calculated as GAAP net income (loss) excluding the following cash and non-cash expenses: interest expense, foreign transaction gains (losses), debt financing and non-cash related expenses, debt discount and non-cash debt settlement expense, gain or loss on extinguishment of debt, income taxes, asset impairment charges, depreciation and amortization, stock-based compensation expense, change in fair value of derivatives, and accruals for one-time and discretionary bonuses. Since Adjusted EBITDA is a non-GAAP measure that does not have a standardized meaning, it may not be comparable to similar measures presented by other companies.  Readers are cautioned that Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with U.S. GAAP as an indicator of performance, which is the most comparable measure under GAAP. Adjusted EBITDA is used by management as an internal measure of profitability. We have included Adjusted EBITDA because we believe that this measure is used by certain investors to assess our financial performance before non-cash charges and certain costs that we do not believe are reflective of our underlying business.

Non-GAAP gross margin is defined as GAAP gross margin adjusted to exclude the effect of intangible amortization expense.  Readers are cautioned that non-GAAP gross margin should not be construed as an alternative to gross margin determined in accordance with U.S. GAAP as an indicator of profitability or performance, which are the most comparable measures under GAAP. These measures used by management as an internal measure of profitability or performance. We have included them because we believe that these measures are used by certain investors to assess our financial performance before non-cash charges and certain costs that we do not believe are reflective of our underlying business.

Forward Looking Statements
This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Statements in this press release concerning future results from operations, financial position, economic conditions, product releases and any other statement that may be construed as a prediction of future performance or events are forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements.  These factors include uncertainties as to ability to manage international operations, ability to identify and consummate roll-up acquisitions targets, levels of orders, ability to record revenues, release schedules, finalization and market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors, and other risks including those described from time to time in Mandalay Digital Group's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission (SEC), press releases and other communications.  Such forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release

Contacts:

MZ North America
John Mattio, SVP
Tel: +1-212-301-7130
Email: john.mattio@mzgroup.us
www.mzgroup.us

MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS














September 30,


March 31,






2013


2013

ASSETS














Current assets







Cash and cash equivalents



$                     7,806


$                  1,149


Accounts receivable, net of allowances of $130 and $130, respectively


5,815


1,995


Deposits



48


563


Prepaid expenses and other current assets



625


285



Total current assets



14,294


3,992









Property and equipment, net



427


148

Deferred tax assets



415


-

Intangible assets, net



10,609


4,757

Goodwill



4,770


3,588



TOTAL ASSETS



$                 30,515


$              12,485









LIABILITIES AND STOCKHOLDERS' EQUITY













Current liabilities







Accounts payable



$                     5,596


$                  3,783


Accrued license fees



3,276


669


Accrued compensation



1,188


692


Current portion of long term debt, net of discounts of $0 and $726, respectively

10


3,777


Deferred tax liabilities



306


134


Other current liabilities



660


600



Total current liabilities



11,036


9,655









Long term secured note, less discount of $0 and $980, respectively


-


1,252

Long term contingent liability, less discount of $762 and $159, respectively


238


841



Total liabilities



$                   11,274


$                11,748









Stockholders' equity







Preferred stock








Series A convertible preferred stock








at $0.0001 par value; 200,000 shares authorized, 100,000 issued and outstanding






(liquidation preference of $1,000,000)



100


100


Common stock, $0.0001 par value: 200,000,000 shares authorized;







32,027,046 issued and 31,272,447 outstanding at September 30, 2013;







19,222,493 issued and 18,467,894 outstanding at March 31, 2013;


7


7


Additional paid-in capital



172,545


142,571


Treasury Stock (754,600 shares at March 31, 2013 and March 31, 2012)


(71)


(71)


Accumulated other comprehensive loss



172


(266)


Accumulated deficit



(153,512)


(141,604)



Total stockholders' equity



19,241


737



TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$                 30,515


$              12,485









MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS













(In thousands, except per share amounts)

















3 Months Ended


3 Months Ended


6 Months Ended


6 Months Ended






September 30


September 30


September 30


September 30






2013


2012


2013


2012














Net revenues


$                    6,996


$                       912


$                  12,088


$                    2,203














Cost of revenues











License fees


3,817


299


6,762


913



Other direct cost of revenues


652


77


975


135




Total cost of revenues


4,469


376


7,737


1,048














Gross profit


2,527


536


4,351


1,155














Operating expenses











Product development


2,513


365


4,179


731



Sales and marketing


581


215


1,014


318



General and administrative


3,325


3,191


7,203


5,591




Total operating expenses


6,419


3,771


12,396


6,640














Loss from operations


(3,892)


(3,235)


(8,045)


(5,485)




Interest and other expense


(2,240)


(520)


(3,849)


(1,009)














Loss from operations before income taxes


(6,132)


(3,755)


(11,894)


(6,494)



Income tax provision


(90)


(20)


(14)


(34)


Net loss


(6,222)


(3,775)


(11,908)


(6,528)














Basic and diluted net income / (loss) per common share


$                     (0.25)


$                     (0.22)


$                     (0.53)


$                     (0.38)


Weighted average common shares outstanding, diluted


25,232


17,447


22,636


17,175














MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS





















(In thousands)












6 Months Ended


6 Months Ended



September 30


September 30








2013


2012


Cash flows from operating activities







Net (loss)/income



$            (11,908)


$           (6,528)



Adjustments to reconcile net income/(loss) to net cash







 used in operating activities:








Depreciation and amortization


1,037


197




Amortization of debt discount


726


712




Interest accrued



36


221




PIK Interest



68


-




Finance costs



1,427


-




Fair value of financing costs related to conversion options


1,479


-




Stock-based compensation


410


66




Warrants issued  for services


406


555




Stock issued for services


1,803


-




Revaluation of contingent liability


(603)


-




Increase / (decrease) in fair value of derivative liabilities


811


21




Loss on disposal of leasehold improvements


8


-




(Increase) / decrease in assets, net of effect of disposal of subsidiary:








Accounts receivable


(1,011)


(311)





Deposits



515


(3)





Prepaid expenses and other current assets


142


(43)




Increase / (decrease) in liabilities, net of effect of disposal of subsidiary:








Accounts payable


418


(175)





Accrued license fees


2,607


(144)





Accrued compensation


151


156





Other liabilities and other items


(2,415)


229



Net cash used in operating activities


(3,893)


(3,294)












Cash flows from investing activities








Purchase of property and equipment


(32)


(8)




Cash used in acquisition of subsidiary


(1,287)


(3,416)




Cash acquired with acquisition of subsidiary


513


59



Net cash used in investing activities


(805)


(3,365)












Cash flows from financing activities








Repayment of debt obligations


(3,657)


-




Issuance of shares for cash


14,924


1,000



Net cash provided by financing activities


11,267


1,000












Effect of exchange rate changes on cash and cash equivalents


88


(3)












Net change in cash and cash equivalents


6,657


(5,662)












Cash and cash equivalents, beginning of period


1,149


8,799












Cash and cash equivalents, end of period


$               7,806


$            3,137












Supplemental disclosure of cash flow information:

















Taxes paid



$                    -


$                 34












SOURCE Mandalay Digital Group, Inc.



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