Majesco Entertainment Company Reports First Quarter Fiscal 2012 Financial Results

First Quarter Revenue up 37 percent to $66.2 million

GAAP Operating Profit Margin of over 11%

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Mar 12, 2012, 04:05 ET

EDISON, N.J., March 12, 2012 /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, 2012.

For the first quarter ended January 31, 2012, Majesco's net revenues were $66.2 million, up 37 percent versus $48.5 million in the same period a year ago. During the first quarter of 2012, the Company reported operating income of $7.6 million, compared to operating income of $8.0 million in the first quarter of 2011. Net income for the quarter was $7.7 million versus net income of $6.8 million in 2011. On a non-GAAP basis, net income for the quarter was $7.3 million compared to non-GAAP net income of $7.5 million 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.

The Company's basic and diluted net income per share for the quarter ended January 31, 2012 was $0.19, compared to basic and diluted net income per share of $0.18 in the same period last year. Non-GAAP diluted net income per share for the quarter ended January 31, 2012 was $0.18 compared to net income per share of $0.20 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 another strong holiday quarter, with a very large and diverse release slate led by the best-selling fitness franchise on the market. Zumba Fitness 2 for the Nintendo Wii got off to a great start, and we are equally excited about Zumba Fitness Rush, which was just released in February, exclusive to the Kinect platform. We were also pleased with the performance of several other titles from this past holiday season including Cooking Mama 4: Kitchen Magic on the 3DS, and Alvin and the Chipmunks: Chipwrecked on Kinect, Wii and DS. We have also just announced that Mini Putt Park, our first internally developed social game will be coming to the Facebook platform in a few weeks, and we also expect to launch as many as 4 new mobile titles for the iOS and Android marketplaces this year. Finally, we are very excited by the development progress of our extremely innovative, motion-based game developed in partnership with the NBA, and look forward to announcing details next month."

Highlights

First quarter 2012 net revenues were $66.2 million, an increase of $17.7 million, or 37 percent, compared to the prior year. Growth was driven by the success of Zumba Fitness 2. As a result of this being the first holiday season in Europe for both Zumba Fitness and Zumba Fitness 2 on the Wii platform, international revenue grew significantly to $16.7 million, accounting for 25% of net revenue in the first quarter.
As of January 31, 2012, the Company had $21.8 million in cash and cash equivalents, compared with $7.9 million on January 31, 2011.
Zumba Fitness 2 was released for the Wii on November 15, and has sold over 1 million units worldwide in its first 4 months. The Zumba Fitness franchise has sold over 6 million units worldwide to date.
Zumba Fitness Rush was released on Kinect for Xbox 360 on February 12, and was recently awarded a "9 out of 10" from Official Xbox Magazine.
Majesco introduced two new additions to the Cooking Mama franchise this past holiday season, with successful launches of both Cooking Mama 4: Kitchen Magic on the 3DS, and Camping Mama: Outdoor Adventures on the DS. To date, the Cooking Mama franchise has sold over 9 million units in the US.

Announced Product Line-up

Second Quarter Fiscal 2012 Ending April 30, 2012

To date, the Company has announced the following titles that were, or are expected to be, released during its fiscal second quarter 2012:

Zumba® Fitness Rush launched exclusively on Kinect for Xbox 360 this February and will support two downloadable dance style packs due out in May and September of this year. This exhilarating dance-fitness party is packed with exclusive Kinect content including: 10 additional routines, five new venues and three more instructors – plus voice control, online connectivity and full body motion tracking. Get a total body workout with 42 sizzling new songs and routines, 10 of which are exclusive to Kinect, including contagious Zumba® originals and tracks from hot artists like Pitbull and Nicole Scherzinger. Dance 24 international dance styles as you party yourself into shape – that's twice the number of styles included in the original Zumba® Fitness game and more than any other dance game. Six superstar Zumba instructors guide you through each routine in a variety of new venues that range from Las Vegas to Rio, while the new Progress Tracker calculates calories burned. Multiplayer support rounds out the experience and an accessible tutorial ensures that players can learn the basic steps at their own pace.
Mini Putt Park, Majesco's first internally developed social game, is coming exclusively to the Facebook® Platform this April. Players of all ages can design their very own miniature golf course in this ultimate mini putt social experience. As the world's first-ever virtual mini putt construction kit, Mini Putt Park lets players build a replica of their real-life home course, a fantastical otherworldly course or something in between. Players can either visit Putter Island and conquer course after course, each complete with a crazy boss to defeat, or take the fun to their friends list by sharing their own custom courses with friends to complete.

Fiscal 2012 Outlook

The Company expects fiscal 2012 full year net revenue in a range of $130 to $140 million, and non-GAAP earnings per share of $0.25 to $0.35. This outlook is based on an estimated fully diluted share count of approximately 41.5 million, and assumes non-cash compensation of approximately $0.05 to $0.07 per share for fiscal 2012. The Company has not provided a reconciliation of forward-looking GAAP and Non-GAAP financial measures due to the potential effects that changes in its stock price may have on the fair value of outstanding warrants.

Conference Call

At 4:30 p.m. (EDT) 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://ir.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 10008616.

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

To facilitate a comparison between the three months ended January 31, 2012 and 2011, 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
Change in fair value of 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.

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 all leading console and handheld platforms as well as online, social networks and mobile devices. Product highlights include Zumba® Fitness, Cooking Mama™, and Alvin and the Chipmunks. The company's shares are traded on the NASDAQ Stock Market under the symbol: COOL. Majesco is headquartered in Edison, NJ with offices in San Francisco, CA, Bristol, UK, and a social games development studio in Foxboro, MA. More info can be found online at www.majescoentertainment.com or on Twitter at www.twitter.com/majesco.

For additional information, please contact:

Todd Greenwald, CFA
Director of Investor Relations & Strategic Planning
732-476-1938
[email protected]

Safe Harbor

Some statements set forth in this release, including the estimates under the headings "Fiscal 2012 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 consumer demand for videogame consoles and related hardware; 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. The Company does not undertake, and specifically disclaims 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,
	2012	%	2011	%
Nintendo Wii	$ 47,447	72%	$ 25,899	53%
Microsoft Xbox 360	9,597	14%	10,944	23%
Nintendo DS	6,970	10%	9,018	19%
Nintendo 3DS	1,064	2%	-	-
Sony PlayStation 3	432	1%	2,331	5%
Other	670	1%	274	0%
TOTAL	$ 66,180	100.0%	$ 48,466	100.0%

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
	January 31, 2012	October 31, 2011
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$ 21,750	$ 13,689
Due from factor, net	13,878	937
Accounts and other receivables, net	4,929	3,143
Inventory, net	8,198	11,605
Advance payments for inventory	1,161	5,975
Capitalized software development costs and license fees, net	4,228	12,564
Prepaid expenses and other current assets	1,351	3,071
Total current assets	55,495	50,984
Property and equipment, net	1,143	1,184
Other assets	165	209
Total assets	$ 56,803	$ 52,377
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$ 22,044	$ 20,313
Inventory financing payables	-	1,238
Advances from customers and deferred revenue	2,272	5,642
Total current liabilities	24,316	27,193
Warrant liability	1,122	1,949
Commitments and contingencies
Stockholders' equity:
Common stock — $.001 par value; 250,000,000 shares authorized; 41,333,825 and 41,307,349 shares issued and outstanding at January 31, 2012 and October 31, 2011, respectively	41	41
Additional paid-in capital	119,656	119,222
Accumulated deficit	(87,775)	(95,501)
Accumulated other comprehensive loss	(557)	(527)
Net stockholders' equity	31,365	23,235
Total liabilities and stockholders' equity	$ 56,803	$ 52,377

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except share amounts)
	Three Months Ended January 31
	2012	2011
Net revenues	$ 66,180	$ 48,466
Cost of sales
Product costs	23,838	20,823
Software development costs and license fees	19,328	8,012
	43,166	28,835
Gross profit	23,014	19,631
Operating costs and expenses
Product research and development	2,307	1,230
Selling and marketing	8,986	7,009
General and administrative	3,017	3,308
Loss on impairment of software development costs and license fees – cancelled games	991	-
Depreciation and amortization	158	45
	15,459	11,592
Operating income	7,555	8,039
Other expenses (income)
Interest and financing costs, net	463	710
Change in fair value of warrants	(827)	416
Income before income taxes	7,919	6,913
Income taxes	193	151
Net income	$ 7,726	$ 6,762
Net income per share:
Basic	$ 0.19	$ 0.18
Diluted	$ 0.19	$ 0.18
Weighted average shares outstanding:
Basic	39,736,792	37,638,705
Diluted	41,495,430	37,732,220

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
	Three Months Ended January 31,
	2012	2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 7,726	$ 6,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	158	45
Change in fair value of warrants	(827)	416
Non-cash compensation expense	434	276
Provision for price protection and customer allowances	2,408	1,889
Amortization of software development costs and license fees	9,280	2,784
Loss on impairment of software development costs and license fees	991	25
Changes in operating assets and liabilities, net of acquisition:
Due from factor	(15,399)	(14,240)
Accounts and other receivables	(1,779)	(521)
Inventory	3,407	1,178
Capitalized software development costs and license fees	(1,893)	(1,427)
Advance payments for inventory	4,769	4,811
Prepaid expenses and other assets	1,721	435
Accounts payable and accrued expenses	1,727	3,394
Advances from customers	(3,322)	(391)
Net cash provided by operating activities	9,401	5,436
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(117)	(77)
Net cash used in investing activities	(117)	(77)
CASH FLOWS FROM FINANCING ACTIVITIES
Inventory financing	(1,237)	(5,472)
Net cash (used in) financing activities	(1,237)	(5,472)
Effect of exchange rates on cash and cash equivalents	14	(2)
Net increase (decrease) in cash and cash equivalents	8,061	(115)
Cash and cash equivalents — beginning of period	13,689	8,004
Cash and cash equivalents — end of period	$ 21,750	$ 7,889
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and financing costs	$ 463	$ 710
Cash paid during the year for income taxes	$ 514	$ -

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited, in thousands, except share amounts)

	Three Months Ended January 31,
	2012	2011
GAAP operating income	$ 7,555	$ 8,039
Non-cash compensation (1)	434	276
Non-GAAP operating income	$ 7,989	$ 8,315

GAAP net income	$ 7,726	$ 6,762
Non-cash compensation (1)	434	276
Change in fair value of warrants (2)	(827)	416
Non-GAAP net income	$ 7,333	$ 7,454

GAAP net income per diluted share	$ 0.19	$ 0.18
Non-cash compensation (1)	0.01	0.01
Change in fair value of warrants (2)	(0.02)	0.01
Non-GAAP net income per diluted share	$ 0.18	$ 0.20
Shares used in GAAP and Non-GAAP per diluted share amounts	41,495,430	37,732,220

(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 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.