OREANDA-NEWS. June 03, 2016.  Mad Catz Interactive, Inc. (“Mad Catz” or the “Company”) (NYSE MKT:MCZ), today announced financial results for the fiscal 2016 fourth quarter and full year ended March 31, 2016.

Key Highlights of Fiscal 2016 Fourth Quarter and Subsequent:

  • Fiscal 2016 fourth quarter net sales increased 4%  over the prior year fourth quarter to \\$17.1 million, driven by a 57% increase in net sales to the Americas and a 7% increase in net sales to APAC, partially offset by a 30% decrease in net sales to EMEA;
  • Gross margin declined to (5.1%) from 23.4% in the prior year quarter, driven by \\$6.8 million of charges related to Rock Band 4 for inventory write-downs, material authorizations and price reductions with retailers;
  • Total operating expenses increased 36% from the prior year period to \\$8.4 million, including \\$3.0 million for severance and restructuring costs;
  • Operating loss was (\\$9.3 million), compared to (\\$2.3 million) in the prior year;
  • Diluted net loss per share was (\\$0.10), compared to diluted net income per share of \\$0.09 in the prior year;
  • Net position of bank loans, less cash and restricted cash, was \\$13.0 million at March 31, 2016, compared to \\$17.7 million at December 31, 2015 and \\$2.8 million at March 31, 2015;
  • Sold no shares under the “At-the-Market” (“ATM”) equity offering program;
  • Announced “Designed for Samsung” versions of the Micro C.T.R.L.R™ Mobile Gamepad and S.U.R.F.R™ Wireless Media and Game Controller;
  • Voluntarily delisted common shares from the Toronto Stock Exchange as part of ongoing measures aimed at lowering operating costs;
  • Shipped new range of Street Fighter™ V licensed controllers, including fightsticks, Tournament Edition fightsticks and fightpad controllers;
  • Announced the X-56 Rhino H.O.T.A.S. Advanced Flight Control System™, the Company’s newest addition to its Saitek Pro Flight Range of PC-based simulation accessories;
  • Completed restructuring plan focused on lowering operating costs, increasing efficiencies and better aligning the Company’s resources with its needs and goals, with the expectation of generating annualized net savings of \\$6 million to \\$7 million starting in the first quarter of Fiscal 2017; and,
  • Agreement with Harmonix for Rock Band 4 was terminated resulting in a 120-day wind-down period, ending September 6, 2016, to sell remaining \\$8.3 million of Rock Band 4 inventory.

Key Financial Highlights of Fiscal 2016:

  • Fiscal 2016 net sales increased 55% over the prior year to \\$134.1 million, driven by a 215% increase in net sales to the Americas, partially offset by a 17% decrease in net sales to EMEA and 35% decrease in net sales in APAC;
  • Gross margin was 16.7%, compared to 27.7% in Fiscal 2015;
  • Total operating expenses in Fiscal 2016 increased 25% year-over-year to \\$31.8 million;
  • Operating loss for Fiscal 2016 was (\\$9.4 million), compared to an operating loss of (\\$1.6 million) for the prior year; and,
  • Diluted net loss per share in Fiscal 2016 was (\\$0.16), compared to diluted net income per share of \\$0.07 in the prior year.
 
Summary of Financials
(in thousands, except margins and per share data)
            
 Three Months   Year Ended  
 Ended March 31,   Ended March 31,  
  2016   2015  Change  2016   2015  Change
            
Net sales\\$17,144  \\$16,558   4% \\$134,074  \\$86,223   55%
Gross (loss) profit (873)  3,872    (123%)  22,416   23,844    (6%)
Total operating expenses 8,408   6,167   36%  31,779   25,487   25%
Operating  loss (9,281)  (2,295)  304%  (9,363)  (1,643)  470%
Net (loss)income (7,263)  5,556    (231%)  (11,620)  4,747    (345%)
Net (loss) income per share, basic and diluted(\\$0.10) \\$0.09    (211%) (\\$0.16) \\$0.07    (329%)
            
Gross margin  (5.1%)  23.4% (2,850) bps 16.7%  27.7% (1,100) bps
            
Adjusted EBITDA (loss) (1)(\\$8,389) (\\$1,841)  356% (\\$7,113) \\$315    (2358%)
                        

(1) Definitions, disclosures and reconciliations regarding non-GAAP financial information are included on page 8.

Commenting on the Company’s Fiscal 2016 fourth quarter and full year results, David McKeon, Chief Financial Officer of Mad Catz, said, “The fourth quarter of Fiscal 2016 wrapped up a mixed year for Mad Catz.  While we saw strong top-line results in the quarter and full year driven by sales of Rock Band 4 products, weaker than expected consumer demand for Rock Band 4 led to lower gross profit margins, higher expenses and a loss of \\$0.16 per share for the full year.”

“Despite the Rock Band 4-related challenges, Mad Catz did make some notable progress in the Fiscal 2016 fourth quarter.  We saw improved sales of our audio and fightstick products for next generation consoles and continued development work which will allow us to further refresh our core product lines.  In addition, we completed a significant restructuring program that will save the Company approximately \\$6 to \\$7 million on an annualized basis beginning in the first quarter of Fiscal 2017.  While there is much work to be done and we continue to have working capital constraints, we are confident that Fiscal 2017 will benefit from the Company’s recent efforts.”

 
Summary of Key Sales Metrics
 
  Three Months   Year Ended  
  Ended March 31,   Ended March 31,  
(in thousands) 2016   2015  Change  2016   2015  Change
             
Net Sales by Geography           
 Americas\\$8,840  \\$5,615   57% \\$87,843  \\$27,897   215%
 EMEA 6,386   9,143    (30%)  38,386     46,247    (17%)
 APAC 1,918   1,800   7%  7,845   12,079    (35%)
  \\$17,144  \\$16,558   4% \\$134,074  \\$86,223   55%
Sales by Platform as a % of Gross Sales           
 Next gen consoles (a) 62%  24%    70%  21%  
 PC and Mac 25%  52%    19%  46%  
 Universal 8%  17%    7%  22%  
 Smart devices 4%  5%    3%  7%  
 Legacy consoles (b) 1%  2%    1%  4%  
   100%  100%    100%  100%  
Sales by Category as a % of Gross Sales           
 Specialty controllers 53%  31%    64%  25%  
 Audio 31%  40%    20%  42%  
 Mice and keyboards 11%  22%    9%  23%  
 Accessories 2%  2%    3%  3%  
 Games and other 1%  1%    2%  1%  
 Controllers 2%  4%    2%  6%  
   100%  100%    100%  100%  
Sales by Brand as a % of Gross Sales           
 Mad Catz 62%  34%    71%  34%  
 Tritton 26%  37%    18%  39%  
 Saitek 11%  25%    9%  19%  
 Other 1%  4%    2%  8%  
   100%  100%    100%  100%  
             
 (a) Includes products developed for Xbox One and PlayStation 4. 
 (b) Includes products developed for Xbox 360 and PlayStation 3. 
        

Karen McGinnis, President and Chief Executive Officer of Mad Catz, commented, “The past few months have been an incredibly busy time at Mad Catz, a time of great change that we are confident will result in improvements across key operational and financial metrics.  Each of our initial objectives has been executed with incredible speed, many of them already showing a positive impact on the Company’s operations and financial results.”

“Looking ahead, we're starting the new fiscal year with a strong management team in place and with smart and dedicated employees who have already begun executing our vision and strategy.  We believe Fiscal 2017 will be a year of hard work, steady improvement and execution.  Our future will be based on our ability to innovate, execute and make continued progress towards sustainable and profitable growth.”

Going Concern Explanatory Paragraph in Audit Opinion

Pursuant to the disclosure requirements of NYSE MKT Company Guide Section 610(b), the Company is reporting that its audited consolidated financial statements for the fiscal year ended March 31, 2016, included in the Company's Annual Report on Form 10-K which it expects to file with the Securities and Exchange Commission on or about June 2, 2016, will contain an audit opinion from its independent registered public accounting firm that includes an explanatory paragraph related to the Company’s ability to continue as a going concern.

Management Conference Call Webcast

The Company will host a conference call and simultaneous webcast on June 2, 2016, at 5:00 p.m. ET, which can be accessed by dialing (303) 223-2684. Following its completion, a replay of the call can be accessed for 30 days at the Company's Web site (www.madcatz.com, select “About Us/Investor Relations”) or via telephone at (800) 633-8284 (reservation #21811928) or, for International callers, at (402) 977-9140.

About Mad Catz
Mad Catz Interactive, Inc. (“Mad Catz”) (NYSE MKT:MCZ) is a global provider of innovative interactive entertainment products marketed under its Mad Catz® (gaming), Tritton® (audio), and Saitek® (simulation) brands.  Mad Catz products cater to gamers and simulation enthusiasts across multiple platforms including in-home gaming consoles, handheld gaming consoles, Windows® PC and Mac® computers, smart phones, tablets and other smart devices.  We distribute our products through many leading retailers around the globe. Headquartered in San Diego, California, Mad Catz maintains offices in Europe and Asia. For additional information about Mad Catz and its products, please visit the Company’s website at www.madcatz.com.

Social Media
https://www.facebook.com/MadCatz.Global 
http://twitter.com/MadCatz
http://www.youtube.com/MadCatzCompany 

Safe Harbor
Information in this press release that involves the Company's expectations business prospects, plans, intentions or strategies regarding its future are forward-looking statements that are not facts and that involve substantial risks and uncertainties. You can identify these statements by the use of words such as “seek,” "anticipate," "estimate," "expect," "believe," and “intend” and statements that an event or result “may,” “will,” “should,” “could” or “might” occur or be achieved and other similar expressions together with the negative of such expressions.. These forward-looking statements reflect management’s current beliefs and expectations and are based on information currently available to management, as well as its analysis made in light of its experience, perception of trends, current conditions, expected developments and other factors and assumptions believed to be reasonable and relevant in the circumstances. These assumptions include, but are not limited to, continuing demand by consumers for video game consoles and accessories, timely reduction of inventory of products manufactured for the Rock Band 4 video game, the continuance of open trade relations between China and the United States, the ability to maintain or extend our existing licenses, the ability to continue producing and selling our products in accordance with various intellectual property that might apply to said products, the continued financial viability of our largest customers, the continuance of timely and adequate supply from third party manufacturers and suppliers, no significant fluctuations in the value of the U.S. dollar relative to other currencies, the continued satisfaction of our obligations under our existing loan agreements and any future loan agreements we may obtain, and continued listing of our common stock on the NYSE MKT. Forward-looking statements are subject to significant risks, uncertainties, assumptions and other factors, any of which could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. A further list and description of these and other factors, risks, uncertainties and other matters can be found in the Company's most recent annual report, and any subsequent quarterly reports, filed with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators. Investors should not place undue reliance on such forward-looking statements. Forward-looking statements are not guarantees of future performance or outcomes and actual results could differ materially from those expressed or implied by the forward-looking statements. We assume no obligation to update or alter such forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

 
Consolidated Statements of Operations
(in thousands, except share and per share data)
 (Unaudited)
  
  Three Months Year Ended
  Ended March 31, Ended March 31,
   2016   2015   2016   2015 
         
Net sales \\$17,144  \\$16,558  \\$134,074  \\$86,223 
Cost of sales  18,017   12,686   111,658   62,379 
 Gross (loss) profit (873)  3,872   22,416   23,844 
Operating expenses:        
 Sales and marketing 1,959   2,691   13,997   11,253 
 General and administrative 2,516   2,592   10,648   10,802 
 Research and development 830   775   3,699   2,995 
 Restructuring and severance costs 2,990     -   2,990     -  
 Amortization of intangible assets 113   109   445   437 
 Total operating expenses 8,408   6,167   31,779   25,487 
Operating loss  (9,281)  (2,295)  (9,363)  (1,643)
Other income (expense):        
 Interest expense, net (420)  (212)  (1,698)  (775)
 Foreign currency exchange gain (loss), net 47   (284)  (703)  (784)
 Change in fair value of warrant liabilities 604   542   887   598 
 Other income 54   80   94   172 
 Total other income (expense) 285   126   (1,420)  (789)
Loss before income taxes  (8,996)  (2,169)  (10,783)  (2,432)
Income tax benefit (expense)  1,733   7,725   (837)  7,179 
Net (loss) income (\\$7,263) \\$5,556  (\\$11,620) \\$4,747 
Net (loss) income per share:        
 Basic (\\$0.10) \\$0.09  (\\$0.16) \\$0.07 
 Diluted (\\$0.10) \\$0.09  (\\$0.16) \\$0.07 
Shares used in per share computations:        
 Basic 73,469,571   64,688,371   73,469,571   64,350,893 
 Diluted  73,469,571   64,798,978   73,469,571   64,776,699 
 Consolidated Balance Sheets
 (in thousands)
  
  March 31, March 31,
   2016   2015 
ASSETS   
Current assets:   
 Cash\\$2,436  \\$5,142 
         
 Restricted cash 680     -  
 Accounts receivable, net 9,585   7,823 
 Other receivables 998   560 
 Inventories 23,005   15,479 
         
 Deferred tax assets   -    2,245 
 Income taxes receivable 159   967 
 Prepaid expenses and other current assets 2,969   1,293 
 Total current assets 39,832   33,509 
Deferred tax assets 9,449   7,605 
Other assets 531   418 
Property and equipment, net 2,921   3,376 
Intangible assets, net 2,270   2,584 
 Total assets\\$55,003  \\$47,492 
     
LIABILITIES AND SHAREHOLDERS' EQUITY   
Current liabilities:   
 Bank loans\\$16,076  \\$7,920 
 Accounts payable 25,354   16,404 
 Accrued liabilities 8,153   4,196 
 Notes payable 73   1,015 
 Income taxes payable 173   141 
 Total current liabilities 49,829   29,676 
Notes payable, less current portion 145   36 
Warrant liabilities 300   1,187 
Deferred tax liabilities 10   43 
Other long-term liabilities 699   762 
 Total liabilities 50,983   31,704 
     
Shareholders' equity:   
 Common stock 63,552   63,128 
 Accumulated other comprehensive loss (5,695)  (5,123)
 Accumulated deficit (53,837)  (42,217)
 Total shareholders' equity 4,020   15,788 
 Total liabilities and shareholders' equity\\$55,003  \\$47,492 
 Consolidated Statements of Cash Flows
 (in thousands)
  
  Year
  Ended March 31,
   2016   2015 
Cash flows from operating activities:   
 Net (loss) income(\\$11,620) \\$4,747 
 Adjustments to reconcile net loss to net cash   
   used in operating activities:   
 Depreciation and amortization   2,435     2,050 
 Accrued and unpaid interest expense on note payable   -     10 
 Amortization of deferred financing fees   336     87 
 Loss on disposal of assets   -     (73)
 Stock-based compensation   424     520 
         
 Change in fair value of warrant liabilities   (887)    (598)
 Provision for deferred income taxes   368     (8,039)
Changes in operating assets and liabilities:   
 Accounts receivable   (1,802)    141 
         
 Other receivables   (448)    582 
 Inventories   (7,696)    1,024 
 Prepaid expenses and other current assets   (1,460)    187 
 Other assets   111     47 
 Accounts payable   9,140     1,627 
 Accrued liabilities   3,994     (1,131)
 Deferred rent   (64)    410 
         
 Income taxes receivable/payable   820     (119)
 Net cash (used in) provided by operating activities (6,349)  1,472 
Cash flows from investing activities:   
 Purchases of intangible assets (130)    - 
 Purchases of property and equipment   (1,753)    (2,067)
 Net cash used in investing activities (1,883)  (2,067)
Cash flows from financing activities:   
 Borrowings on bank loans   128,833     65,442 
 Repayments on bank loans   (120,677)    (63,134)
         
 Payment of financing fees   (818)    (85)
         
 Changes in restricted cash   (680)    - 
 Borrowings on notes payable   95     - 
 Repayments on notes payable   (1,085)    (1,434)
 Proceeds from exercise of stock options   -     236 
         
 Payment of expenses related to issuance of common stock   (164)    - 
 Proceeds related to issuance of common stock   -     3,399 
 Net cash provided by financing activities 5,504   4,424 
Effects of foreign currency exchange rate changes on cash 22   (183)
 Net (decrease) increase in cash (2,706)  3,646 
Cash, beginning of period 5,142   1,496 
Cash, end of period\\$2,436  \\$5,142 
Supplementary Data
Adjusted EBITDA (Loss) Reconciliation (non-GAAP)
(in thousands)
(Unaudited)
     
  Three Months Year Ended
  Ended March 31, 2016 Ended March 31, 2016
   2016   2015   2016   2015 
         
Net (loss) income(\\$7,263) \\$5,556  (\\$11,620) \\$4,747 
Adjustments:       
 Depreciation and amortization   724     514     2,435     2,050 
 Stock-based compensation   67     144     424     520 
 Change in fair value of warrant liabilities   (604)    (542)    (887)    (598)
 Interest expense, net   420     212     1,698     775 
 Income tax (benefit) expense   (1,733)    (7,725)    837     (7,179)
Adjusted EBITDA (loss)(\\$8,389) (\\$1,841) (\\$7,113) \\$315 
                

Adjusted EBITDA, a non-GAAP (“Generally Accepted Accounting Principles”) financial measure, represents net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation and change in the fair value of warrant liabilities. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it being presented as an alternative to operating or net income (loss) 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 GAAP. As defined, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. Our management believes, however, that in addition to the performance measures found in our financial statements, Adjusted EBITDA is a useful financial performance measurement for assessing our Company’s operating performance. Our management uses Adjusted EBITDA as a measurement of operating performance in comparing our performance on a consistent basis over prior periods, as it removes from operating results the impact of our capital structure, including the interest expense resulting from our outstanding debt, and our asset base, including depreciation and amortization of our capital and intangible assets. In addition, Adjusted EBITDA is an important measure for our lender.