Majesco Entertainment Company Reports First Quarter Fiscal 2011 Financial Results

Strong Quarterly Results; Raising Guidance for the Full Year

Mar 08, 2011, 16:05 ET from Majesco Entertainment Company

EDISON, N.J., March 8, 2011 /PRNewswire/ -- Majesco Entertainment Company (Nasdaq: COOL), an innovative provider of video games for the mass market, today reported financial results for the first quarter ended January 31, 2011.

For the first quarter ended January 31, 2011, Majesco's net revenues were $48.5 million versus $29.2 million in the same period a year ago. During this same period, the Company reported operating income of $8.0 million, compared to operating income of $2.5 million in the first quarter of 2010. Non-GAAP operating income was $8.3 million versus non-GAAP operating income of $3.5 million in 2010. Net income for the quarter was $6.8 million versus net income of $3.8 million in 2010. On a non-GAAP basis, net income for the quarter was $7.5 million compared to non-GAAP net income of $2.9 million last year.

The Company's basic and diluted net income per share for the quarter ended January 31, 2011 was $0.18, compared to basic and diluted net income per share of $0.10 in the same period last year. Non-GAAP basic and diluted net income per share was $0.20 compared to net income per share of $0.08 last year. Please refer to the Reconciliation of GAAP to Non-GAAP Financial Measures table included later in this release for additional information and details on non-GAAP items.

Jesse Sutton, Chief Executive Officer of Majesco, said, "Majesco had one of its best holiday quarters in the company's history.  Zumba Fitness has proven to be an extremely successful title, and is quickly establishing itself as another key franchise alongside Cooking Mama.  We were pleased with the Babysitting Mama and Crafting Mama launches, as both sold well at retail and show that the Cooking Mama brand is alive and well.  We've also made significant progress with our digital initiative – we are building this business alongside our traditional retail business.  We made our first real entry into the social games business with Cooking Mama Friends Cafe on Facebook, and are happy to announce that we have over 750,000 active users, despite a very limited marketing campaign to date.  We are already hard at work preparing to launch our next Facebook game this spring – Parking Wars 2, based on the A&E television series in its fourth season.  We plan to release at least 3 Facebook games this fiscal year, and have an experienced team working on optimizing the gameplay to improve the overall experience and monetization."  

Highlights

  • First quarter 2011 net revenues were $48.5 million, an increase of $19.3 million, or 66 percent, compared to the same quarter last year.  Growth was driven by the successful launches of Zumba® Fitness and Babysitting Mama.  
  • Gross margin for the first quarter 2011 was 40.5 percent, compared to 29.8 percent in 2010. The expansion in gross margin was driven by the higher price points of Zumba® Fitness, compared with our Wii and DS titles a year ago.
  • Zumba® Fitness has quickly become one of the company's fastest-selling titles, having sold over 1 million units in its first four months.  Momentum continued past the holiday season, as Zumba® Fitness was the industry's #2 best-selling title on the Wii in January, and the 5th best selling title overall, according to the NPD Group.  
  • Babysitting Mama shipped in early November and starred the iconic Mama character in her latest brand extension.   This innovative game was delivered with an adorable plush baby doll into which the babysitter tucks the Wii Remote™ in order to interact with the doll and game at the same time in 40 different activities.  
  • Cooking Mama Friends Cafe launched on Facebook in December, marking the Company's first significant foray into the social gaming business.  The game is free to play, supported by a micro-transaction model, and is an exciting new opportunity to broaden awareness for the Mama brand while introducing a viable new revenue stream for the Company.  Despite being in Beta mode, with limited marketing support, Cooking Mama Friends Cafe already has over 750,000 monthly active users.  

Announced Product Line-up

Second Quarter Fiscal 2011 Ending April 30, 2011

To date, the Company has announced the following titles that were or are expected to be released during its fiscal second quarter 2011:

  • Monster Tale for Nintendo DS is being developed by the key leads behind the critically acclaimed Henry Hatsworth in the Puzzling Adventure. The game mixes platform game play on the top screen with a deep pet-raising game on the Touch Screen to create a dynamic, one-of-a-kind adventure. The heroes of this intriguing tale are little Ellie and a mysterious young monster named Chomp, who together set out to reclaim the Monster World from the Kid Kings and their enslaved creature pets.
  • Greg Hastings Paintball 2 for PlayStation®Network is the most realistic paintball experience to date from the #1 name in the sport. The game introduces more than 10 single and multiplayer game modes, each staged in all-new paintball locations based on 62 actual fields around the world. Featuring three new event branches - Tournament Speedball, Recball, and Tournament Woodsball - players can build and develop their team of professional ballers to conquer the field. Support for the PlayStation®Move motion controller ensures precise targeting in online battles with up to 14 friends.
  • Left Brain Right Brain for iPhone, iPad and iPod Touch is based on the best-selling Nintendo DS ambidextrous brain game franchise that lets players sharpen their mental skills by training the left and right hemispheres of their brain with activities based on speed, accuracy, association, recognition, memory and strategy.

Fiscal 2011

To date, the Company has announced the following titles that are expected to be released during the rest of fiscal 2011:

  • Cake Mania Main Street for Nintendo DS is based on the best-selling Cake Mania franchise that has been downloaded more than 200 million times and sold more than 700,000 copies worldwide on DS and Wii. The game features 100 new levels of fast-paced gameplay marked by the series' signature time management mechanic, but this time players must run entirely new businesses, including a burger barn, flower shop and sushi restaurant.
  • Parking Wars 2 for Facebook is based on the hit real-life television series "Parking Wars", now in its fourth season on A&E. The game picks up where the 2008 Facebook game of the same name left off, as players ticket those cars left at expired meters while avoiding getting parking tickets from their friends.  This "freemium" game supported by micro-transactions lets players monitor and maintain their own street, keeping track of those parking on it while developing new properties to attract patrons and generate income. 
  • Face Kart: Photo Finish for Nintendo 3DS literally puts YOU in the driver's seat of an arcade style kart racer; players take photos of their face with their Nintendo 3DS camera and use them as avatars for their custom 3D racers, billboards and power-ups.
  • Pet Zombies for Nintendo 3DS lets players reanimate their very own zombies with a range of customizations and then care for (or torment!) their pets as they play with them in creepy 3D environments.  

Fiscal 2011 Outlook

The Company expects fiscal 2011 full year net revenue in a range of $100 to $110 million, up from the prior range of $85 to $90 million, and non-GAAP EPS of $0.20 to $0.25, up from $0.06 to $0.10.  We have not provided a reconciliation of forward-looking GAAP and Non-GAAP financial measures due to the potential effects that changes in our stock price may have on the fair value of outstanding warrants.  However, we expect non-cash compensation to amount to approximately $0.03 to $0.05 per share in fiscal 2011.  

The Company's guidance assumes the release of approximately 19 SKUs in 2011, including six for the 3DS, four for Kinect for the Xbox 360, three for Playstation 3, two for Wii and four for DS.  The Company's results are also impacted by seasonality from the December holiday period and variability based on release schedules.  

2011 RELEASE SCHEDULE

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Babysitting Mama Wii, $49.99

Monster Tale DS, $29.99

Cake Mania Main Street DS

Face Kart: Photo Finish 3DS

Zumba Fitness for Kinect, Wii and Move, $49.99 Kinect, $39.99 Wii and Move

Zumba Fitness for Wii and Move (Europe)

Parking Wars 2 for Facebook; freemium

Pet Zombies 3DS

Zumba Fitness for Kinect (Europe)

Greg Hastings Paintball 2 PSN, Price TBA

Cooking Mama Friends' Cafe Facebook; freemium

Left Brain Right Brain iPhone

Conference Call

At 4:30 p.m. (EST) today, management will host an earnings conference call. To access the call in the U.S., please dial 1-800-860-2442.  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 Info" section of the Company's website at http://www.majescoentertainment.com. In addition, a replay of the call will be available via telephone for seven days beginning approximately 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 449033.

Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics

To facilitate a comparison between the three months ended January 31, 2011 and 2010, the Company has presented both GAAP and non-GAAP financial results. GAAP financial measures, including operating income, net income, and basic and diluted earnings per share, have been adjusted to report certain non-GAAP financial measures.

These non-GAAP financial measures exclude the following items from the Company's consolidated statements of operations:

  • Expenses related to non-cash compensation
  • Net proceeds from sale of certain state income tax net operating loss carryforwards
  • Change in fair value of warrants
  • Severance costs for workforce reduction

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.

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".

About Majesco Entertainment Company

Majesco Entertainment Company is a provider of video games for the mass market.  Building on more than 20 years of operating history, the Company is focused on developing and publishing a wide range of casual and family oriented video games on Kinect for Xbox 360®, PlayStation®Move motion controller, Wii™, Nintendo 3DS™ and DS™, Facebook® Platform, mobile and other leading platforms. Product highlights include Cooking Mama™, Babysitting Mama™, TETRIS® Party Deluxe and Zumba Fitness®. The Company's shares are traded on the Nasdaq Stock Market under the symbol: COOL.  Majesco is headquartered in Edison, NJ and has an international office in Bristol, UK. More info can be found online at www.majescoentertainment.com or on Twitter at www.twitter.com/majesco.

Safe Harbor

Some statements set forth in this release, including the estimates under the headings "Fiscal 2011 Outlook" contain forward-looking statements that are subject to change. Statements including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause our results to differ materially from our expectations include the following: consumer demand for our products, the availability of an adequate supply of current-generation and next-generation gaming hardware, including but not limited to Nintendo's DS and Wii™ platforms; our ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of our products; competition in the interactive entertainment industry; developments in the law regarding protection of our products; our ability to secure licenses to valuable entertainment properties on favorable terms; our ability to manage expenses; our ability to attract and retain key personnel; adoption of new accounting regulations and standards; adverse changes in the securities markets; our ability to comply with continued listing requirements of the Nasdaq stock exchange; the availability of and costs associated with sources of liquidity; and other factors described in our filings with the SEC, including our Annual Report on Form 10-K for the year ended October 31, 2010. We do not undertake, and specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

UNAUDITED SUPPLEMENTARY PRODUCT DATA

NET SALES BY PLATFORM FOR THREE MONTHS

(Unaudited, in thousands)

Three Months Ended January 31,

2011

%

2010

%

Nintendo Wii

$  25,899

53.4%

$    7,973

27.3%

Microsoft Xbox 360

10,944

22.6%

176

0.6%

Nintendo DS

9,018

18.6%

20,255

69.4%

Sony Playstation 3

2,331

4.8%

0

0.0%

Other

274

0.6%

802

2.7%

TOTAL

$  48,466

100.0%

$  29,206

100.0%

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET DATA

(In thousands, except share data)

January 31,

2011

October 31,

2010

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$     7,889

$     8,004

Due from factor

13,769

1,015

Accounts and other receivables, net

844

725

Inventory, net

7,240

8,418

Advance payments for inventory

643

5,454

Capitalized software development costs and license fees

3,521

4,903

Prepaid expenses

486

921

Total current assets

34,392

29,440

Property and equipment, net

551

520

Other assets

69

69

Total assets

$     35,012

$     30,029

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$  14,768

$  11,375

Inventory financing payables

84

5,557

Advances from customers

555

945

Total current liabilities

15,407

17,877

Warrant liability

560

144

Commitments and contingencies

Stockholders' equity:

Common stock — $.001 par value; 250,000,000 shares authorized; 39,519,707 and 39,326,376 shares issued and outstanding at January 31, 2011 and October 31, 2010, respectively

40

39

Additional paid-in capital

115,100

114,824

Accumulated deficit

(95,571)

(102,333)

Accumulated other comprehensive loss

(524)

(522)

Net stockholders' equity

19,045

12,008

Total liabilities and stockholders' equity

$     35,012

$     30,029

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS DATA

(Unaudited, in thousands, except share data)

Three Months Ended

January 31

2011

2010

Net revenues

$  48,466

$  29,206

Cost of sales

Product costs

20,823

11,728

Software development costs and license fees

8,012

7,867

Loss on impairment of software development costs and license fees – future releases

-

905

28,835

20,500

Gross profit

19,631

8,706

Operating costs and expenses

Product research and development

1,230

934

Selling and marketing

7,009

3,056

General and administrative

3,308

2,124

Depreciation and amortization

45

53

11,592

6,167

Operating income

8,039

2,539

Other expenses (income)

Interest and financing costs, net

710

497

Change in fair value of warrants

416

(202)

Income before income taxes

6,913

2,244

Income taxes

151

(1,563)

Net income

$   6,762

$  3,807

Net income per share:

Basic

$    0.18

$    0.10

Diluted

$    0.18

$    0.10

Weighted average shares outstanding:

Basic

37,638,705

36,808,062

Diluted

37,732,220

36,829,239

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS DATA

(Unaudited, in thousands)

Three Months Ended

January 31,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$   6,762

$   3,807

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

45

53

Change in fair value of warrants

416

(202)

Non-cash compensation expense

276

522

Loss on disposal of assets

-

19

Provision for price protection and customer allowances

1,887

1,169

Amortization of software development costs and license fees

2,784

2,186

Loss on impairment of software development costs and license fees

25

905

Changes in operating assets and liabilities:

Due from/(to) factor

(14,238)

(6,671)

Accounts and other receivables

(521)

(645)

Inventory

1,178

2,599

Capitalized software development costs and license fees

(1,427)

(1,957)

Advance payments for inventory

4,811

2,472

Prepaid expenses and other assets

435

304

Accounts payable and accrued expenses

3,394

2,741

Advances from customers and other liabilities

(391)

(374)

Net cash provided by operating activities

5,436

6,928

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(77)

(4)

Net cash used in investing activities

(77)

(4)

CASH FLOWS FROM FINANCING ACTIVITIES

Inventory financing

(5,472)

(6,053)

Net cash used in financing activities

(5,472)

(6,053)

Effect of exchange rates on cash and cash equivalents

(2)

(7)

Net (decrease) increase in cash and cash equivalents

(115)

864

Cash and cash equivalents — beginning of period

8,004

11,839

Cash and cash equivalents — end of period

$  7,889

$  12,703

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Cash paid for interest

$     710

$      497

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited, in thousands, except share amounts)

Three Months Ended

January 31,

2011

2010

GAAP operating income

$    8,039

$     2,539

Non-cash compensation (1)

276

544

Severance (2)

-

403

Non-GAAP operating income

$    8,315

$    3,486

GAAP net income

$  6,762

$    3,807

Non-cash compensation (1)

276

544

Severance (2)

-

403

Change in fair value of warrants (3)

416

(202)

Sale of NJ state operating  loss carryforwards (4)

-

(1,656)

Non-GAAP net income

$    7,454

$   2,896

GAAP net income per diluted share

$  0.18

$     0.10

Non-cash compensation (1)

0.01

0.01

Severance (2)

-

0.01

Change in fair value of warrants (3)

0.01

(0.01)

Sale of NJ state operating loss carryforwards (4)

-

(0.04)

Non-GAAP net income per diluted share

$     0.20

$    0.08

Shares used in GAAP and Non-GAAP  per diluted share amounts

37,732,220

36,829,239

(1) Represents expenses recorded for stock compensation expense. The Company does not consider stock-based compensation charges when evaluating business performance and management does not consider stock-based compensation expense in evaluating its short and long-term operating plans.

(2) Represents one time severance costs related to a workforce reduction. During January 2010, Company management initiated a plan of restructuring to better align its workforce to its revised operating plans. As part of the plan, the Company reduced its personnel count by 16 employees, representing 17% of its workforce.

(3) Represents the change in the fair value of warrants classified as a liability. The fair value of the warrants is calculated at each balance sheet date with a corresponding charge or credit to earnings for the amount of the change in fair value.

(4) In December 2009, we received proceeds of approximately $1.6 million from the sale of the rights to approximately $21.2 million of New Jersey state income tax operating loss carryforwards, under the Technology Business Tax Certificate Program administered by the New Jersey Economic Development Authority. Net proceeds were recorded as an income tax benefit during the three months ended January 31, 2010.

SOURCE Majesco Entertainment Company



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http://www.majescoentertainment.com