SOURCE: Majesco Entertainment Company

Majesco Entertainment Company

January 14, 2014 16:02 ET

Majesco Entertainment Company Reports Fourth Quarter and Full Year Fiscal 2013 Financial Results

EDISON, NJ--(Marketwired - Jan 14, 2014) - Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the fourth quarter and full year of fiscal 2013 ended October 31, 2013.

Fourth Quarter Results

For the fourth quarter ended October 31, 2013, Majesco's net revenues were $10.1 million, down 62 percent versus $26.6 million in the same period a year ago. During the fourth quarter of fiscal 2013, the Company reported an operating loss of $4.5 million, compared to operating loss of $3.0 million in the fourth quarter of fiscal 2012. Net loss for the fourth quarter was $4.6 million compared to net loss of $2.7 million in the fourth quarter of fiscal 2012. The Company's basic and diluted net loss per share for the quarter ended October 31, 2013 was $(0.10), compared to basic and diluted net loss per share of $(0.07) in the same period last year.

On a non-GAAP basis, the net loss for the fourth quarter ended October 31, 2013 was $4.2 million compared to non-GAAP net loss of $2.7 million in the fourth quarter of last year. The non-GAAP diluted net loss per share for the quarter ended October 31, 2013 was $(0.09) compared to diluted net loss per share of $(0.07) in the same period 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.

Twelve Month Fiscal 2013 Results

For the twelve months ended October 31, 2013, the Company's net revenues were $47.3 million versus $132.3 million in the year ago period, a decline of 64 percent. The Company reported an operating loss of $12.2 million compared to operating income of $3.7 million in the same period of 2012. For the twelve months ended October 31, 2013, net loss was $12.6 million compared to net income of $4.6 million for the twelve months ended October 31, 2012. Included in twelve month fiscal 2013 operating results is a charge of $0.8 million for severance expenses from the strategic realignment implemented in January 2013. The Company's basic and diluted net loss per share for the twelve months ended October 31, 2013 was $(0.30), compared to basic and diluted net income per share of $0.12 and $0.11, respectively, for the corresponding period in 2012.

Non-GAAP operating loss for the twelve month period was $10.0 million compared to non-GAAP operating income of $5.4 million for the comparable period in 2012. For the same period, non-GAAP net loss was $10.5 million in 2013 compared to non-GAAP net income of $4.4 million in 2012. The Company's non-GAAP basic and diluted net loss per share for the twelve months ended October 31, 2013 was $(0.25) compared to diluted net income per share of $0.10 in the corresponding period of 2012. 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.

Management Commentary

"Given the ongoing industry transition in console gaming, 2013 unfolded as we expected," said Jesse Sutton, Chief Executive Officer of Majesco Entertainment. "The casual game market has fragmented as new digital platforms have gained popularity, causing disruption and opportunity for Majesco. In response to the changing landscape, we have implemented a multi-pronged strategy that leverages Majesco's traditional core competencies -- our sales and marketing expertise, strong industry relationships and broad distribution reach -- to diversify our revenue sources and position Majesco for renewed growth. Key elements of the strategy include shifting to an outsourced variable cost business model, focusing on a smaller slate of high-profile branded games based on popular characters or franchises and investing in two strategic growth areas: online casino games and digital lotteries through our partnership in GMS Entertainment and the formation of a new division, Midnight City, to publish and distribute digital games for independent developers."

"During the fourth quarter Midnight City released its first set of games and GMS Entertainment completed the acquisition of Pariplay Limited. We also released console and mobile games based on characters with established audiences such as Phineas and Ferb, Agent P Doofendash and Monster High. The rest of our holiday slate was released early in our first fiscal quarter of 2014, including the newest iterations of our Zumba franchise, Zumba Kids and Zumba Fitness World Party, which launched in November and followed the popular release of Zumba Dance, the first ever motion-based fitness experience for mobile tablets," added Mr. Sutton.

"Looking ahead, although the next generation of gaming consoles has been launched, the development of an installed user base and casual game market is still a 'work in progress.' Accordingly, in our ongoing relationship with Zumba Fitness, we plan to continue to jointly promote the current popular game titles in the marketplace in 2014, including our recently launched Zumba Fitness World Party, rather than enter into a fixed long-term agreement for new sequels. We will evaluate plans for future motion sensing games on next generation platforms as we gain more visibility in the market and see the installed base grow. Our balance sheet, with approximately $18.2 million of cash and availability from our factor, continues to afford Majesco the financial strength to weather the current industry transition and to invest for renewed growth," concluded Mr. Sutton.

Fiscal 2014 Outlook

Due to the continuing lack of clarity on market development and consumer preferences for the recently released video gaming consoles, management is currently not providing sales and earnings guidance for fiscal 2014.

Announced Product Line-up

First Quarter Fiscal 2014 Ending January 31, 2014

To date, the Company has announced the following titles that were, or are expected to be, released during its fiscal first quarter 2014, which includes the recent holiday sales period:

  • Zumba® Fitness World Party on Xbox One®, the all-in-one games and entertainment system from Microsoft, Kinect™ for Xbox 360®, Wii U™ and Wii™ is the latest game in the successful dance fitness franchise that has sold more than 10 million units worldwide. This fun, freeing fitness journey embodies Zumba's global reach of over 185 countries by taking your workout to exotic locations around the world. Work your body with new modes, dance styles and 40 high-energy new routines set to a world-class soundtrack featuring Lady Gaga, Daddy Yankee and Pitbull. (Launched in November)
  • Zumba® Kids on Kinect™ for Xbox 360® and Wii™ is the first brand extension of the best-selling Zumba franchise that is custom-designed for younger players. Featuring a range of dance styles, creative mini-games, customization and chart-topping hits from Justin Bieber and Willow Smith, this engaging interactive experience is packed with gameplay to keep kids moving! (Launched in November)
  • Young Justice: Legacy (distributed by Majesco, published by Little Orbit) on PlayStation®3, Xbox 360 and Wii U™ is based on the acclaimed Cartoon Network animated series inspired by the DC Comics characters. Players assemble their Young Justice team from 12 heroes including NightWing, Kid Flash, Robin and more. Track down notorious villains and be mentored by powerful superheroes as you explore, customize and battle in this action-packed, RPG styled game. (Launched in November)
  • Barbie™ Dreamhouse Party™ (distributed by Majesco, published by Little Orbit) on Wii U™, Wii™, Nintendo 3DS™ and DS™ takes fans behind the pink doors into the fantastic world of the Barbie® Dreamhouse® mansion. (Launched in November)
  • The Bridge on the Xbox Live online entertainment network from Microsoft offers a supremely cerebral 2D puzzle experience. Players join our stalwart, amnesiac protagonist through a journey into his heart, mind and soul to discover the life he's forgotten. Throughout the story, players progress through detail-oriented, hand-drawn environments with aesthetics reminiscent of M.C. Escher's artwork and style.
  • Agent P: Doofendash, on tablets, iOS and Android phones is an action-packed endless runner set in the Phineas and Ferb universe. Featuring Agent P and the top agents of the Organization Without a Cool Acronym (O.W.C.A.), the game transports players onto the rooftops of Danville through Doofenshmirtz Evil Inc., and into the skies above the Tri-State Area to provide an authentic Phineas and Ferb experience.(Launched in November) 
  • The motion-based Zumba® Dance for iOS and Android smartphones brings one of the "Best Tablet Fitness Apps of 2013" to millions of mobile phones for the first time. Offering motion-tracking technology that uses the phone's front-facing camera, the game also features global dance styles coupled with chart-topping hits, a progress tracker that counts calories burned, class customization, tutorials and a live class locator. 
  • BandFuse: Rock Legends, (distributed by Majesco, published by Mastiff) on Xbox 360® video game and entertainment system from Microsoft and PlayStation® 3 computer entertainment system, features legendary rockers who transform players into real-world guitarists, bassists and vocalists. Reinvigorating the music genre with a stellar lineup of acclaimed talent, exclusive real-guitar and vocal multiplayer, authentic animated tablature and lag-free audio, the game unleashes a full band experience for players of all skill levels with 55 genre-jumping songs ranging from rock to metal and punk to funk.

Fiscal 2014

The Company expects to announce details of its 2014 lineup in the coming months.

Conference Call

At 4:30 p.m. ET today, January 14, 2014, 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 #10038848.

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

To facilitate a comparison between the three and twelve months ended October 31, 2013 and 2012, 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
  • Expenses related to workforce reduction
  • 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 to Non-GAAP Financial Measures."

About Majesco Entertainment Company

Majesco Entertainment Company is an innovative developer, marketer, publisher and distributor of interactive entertainment for consumers around the world. Building on more than 25 years of operating history, the company develops and publishes a wide range of video games through several divisions, including its console and handheld division, its mobile division, and its independent digital label, Midnight City. Majesco also owns 50% of GMS Entertainment, the parent company of online gaming company Pariplay, which specializes in iGaming, iLottery and social gaming. Majesco is headquartered in Edison, NJ and the company's shares are traded on the Nasdaq Stock Market under the symbol: COOL. More info can be found online at majescoent.com or on Twitter at twitter.com/majesco.

Safe Harbor

Some statements set forth in this release, including the estimates under the headings "Fiscal 2014 Outlook" contain forward-looking statements that are subject to change. Examples of forward-looking statements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie forward-looking statements. Statements including words such as "anticipate," "believe," "estimate" or "expect" and statements in the future tense are forward-looking statements. These statements are subject to business and economic risk and reflect management's current expectations, and involve subjects that are inherently uncertain and difficult to predict. Some of the risks and uncertainties 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; 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, 2013. 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 AND TWELVE MONTHS  
(Unaudited, in thousands)  
   
    Three months Ended
October 31,
    Twelve months Ended
October 31,
 
             
    2013   %     2012   %     2013   %     2012   %  
    (thousands)         (thousands)         (thousands)         (thousands)      
Nintendo Wii/WiiU   $ 3,101   31 %   $ 13,867   52 %   $ 21,874   46 %   $ 79,014   60 %
Microsoft Xbox 360     1,331   13 %     8,383   32 %     10,408   22 %     34,874   26 %
Nintendo DS/3DS     4,577   45 %     3,885   15 %     11,930   25 %     15,479   11 %
Sony Playstation 3     281   3 %     76   0 %     845   2 %     885   1 %
Accessories and other     787   8 %     351   1 %     2,210   5 %     2,035   2 %
TOTAL   $ 10,077   100 %   $ 26,562   100 %   $ 47,267   100 %   $ 132,287   100 %
                                                 
                                                 
                                                 
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands, except share amounts)  
   
    October 31,
2013
    October 31,
2012
 
    (unaudited)        
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 13,385     $ 18,038  
  Due from factor, net     2,134       12,501  
  Accounts and other receivables     1,169       3,936  
  Inventory     4,859       7,762  
  Advance payments for inventory     1,064       257  
  Capitalized software development costs and license fees     7,825       3,489  
  Prepaid expenses and other current assets     2,827       1,724  
    Total current assets     33,263       47,707  
Property and equipment, net     817       1,003  
Investment in GMS Entertainment Limited     3,500       -  
Other assets     69       588  
    Total assets   $ 37,649     $ 49,298  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable and accrued expenses   $ 8,994     $ 15,490  
  Inventory financing     1,764       -  
  Advances from customers and deferred revenue     6,838       4,454  
  Warrant liability - current     -       17  
    Total current liabilities     17,596       19,961  
Commitments and contingencies                
Stockholders' equity:                
  Common stock -- $.001 par value; 250,000,000 shares authorized; 46,295,969 and 41,862,321 shares issued and outstanding at October 31, 2013 and 2012, respectively     46       42  
  Additional paid-in capital     124,148       120,755  
  Accumulated deficit     (103,530 )     (90,888 )
  Accumulated other comprehensive loss     (611 )     (572 )
    Net stockholders' equity     20,053       29,337  
    Total liabilities and stockholders' equity   $ 37,649     $ 49,298  
                 
                 
                 
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited, in thousands, except share amounts)  
   
    Three Months Ended
October 31
    Year Ended
October 31
 
                         
    2013     2012     2013     2012  
Net revenues   $ 10,077     $ 26,562     $ 47,267     $ 132,287  
Cost of sales                                
  Product costs     4,694       11,155       18,625       46,718  
  Software development costs and license fees     4,637       10,593       16,474       42,054  
    Total cost of sales     9,331       21,748       35,099       88,772  
Gross profit     746       4,814       12,168       43,515  
Operating costs and expenses                                
  Product research and development     652       1,894       5,542       7,784  
  Selling and marketing     1,643       3,801       7,854       20,157  
  General and administrative     2,328       1,989       9,176       10,077  
  Workforce reduction     -       -       776       -  
  Loss on impairment of capitalized software development costs and license fees - cancelled games     500       -       675       1,219  
  Depreciation and amortization     85       118       381       566  
    Total operating costs and expenses     5,208       7,802       24,404       39,803  
Operating (loss) income     (4,462 )     (2,988 )     (12,236 )     3,712  
Other expenses (income)                                
  Interest and financing costs     118       193       409       958  
  Change in fair value of warrant liability     -       (346 )     (17 )     (1,932 )
(Loss) income before income taxes     (4,580 )     (2,835 )     (12,628 )     4,686  
  Income taxes (benefit)     6       (106 )     14       73  
Net (loss) income   $ (4,586 )   $ (2,729 )   $ (12,642 )   $ 4,613  
Net (loss) income per share:                                
  Basic   $ (0.10 )   $ (0.07 )   $ (0.30 )   $ 0.12  
  Diluted   $ (0.10 )   $ (0.07 )   $ (0.30 )   $ 0.11  
Weighted average shares outstanding:                                
  Basic     44,525,507       40,440,609       41,601,343       39,973,248  
  Diluted     44,525,507       40,440,609       41,601,343       40,823,197  
                                   
                                   
                                   
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited, in thousands)  
   
    Year Ended
October 31,
 
    2013     2012  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net (loss) income   $ (12,642 )   $ 4,613  
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:                
  Depreciation and amortization     381       566  
  Change in fair value of warrant liability     (17 )     (1,932 )
  Non-cash compensation expense     1,416       1,686  
  Provision for price protection and customer allowances     2,993       4,324  
  Amortization of capitalized software development costs and license fees     6,460       17,363  
  Loss on impairment of capitalized software development costs and license fees     675       1,219  
  Impairment of goodwill     -       54  
  Provision for excess inventory     675       1,515  
  Changes in operating assets and liabilities, net of acquisition:                
    Due from factor     7,374       (15,888 )
    Accounts and other receivables     2,767       (830 )
    Inventory     2,228       2,328  
    Capitalized software development costs and license fees     (10,971 )     (9,441 )
    Advance payments for inventory     (807 )     5,678  
    Prepaid expenses and other assets     (1,086 )     844  
    Accounts payable and accrued expenses     (6,417 )     (4,868 )
    Advances from customers and deferred revenue     2,384       (1,139 )
      Net cash (used in) provided by operating activities     (4,587 )     6,092  
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment     (274 )     (338 )
Investment in GMS Entertainment Limited     (3,500 )     -  
    Net cash used in investing activities     (3,774 )     (338 )
CASH FLOWS FROM FINANCING ACTIVITIES                
Sale of common stock     2,000       -  
Proceeds from exercise of options and warrants     -       9  
Income tax withholding from exercise of options and warrants     (19 )     (161 )
Borrowings for (repayments of) inventory financing     1,764       (1,238 )
    Net cash provided by (used in) financing activities     3,745       (1,390 )
Effect of exchange rates on cash and cash equivalents     (37 )     (15 )
Net (decrease) increase in cash and cash equivalents     (4,653 )     4,349  
Cash and cash equivalents -- beginning of period     18,038       13,689  
Cash and cash equivalents -- end of period   $ 13,385     $ 18,038  
SUPPLEMENTAL CASH FLOW INFORMATION                
Cash paid during the period for interest and financing costs   $ 455     $ 870  
Cash paid during the period for income taxes   $ -     $ 591  
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                
Leased assets   $ -     $ 46  
                 
                 
                 
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY  
RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(Unaudited, in thousands, except share amounts)  
   
    Three months ended     Year ended  
    October 31,     October 31,  
    2013     2012     2013     2012  
GAAP operating (loss) income   $ (4,462 )   $ (2,988 )   $ (12,236 )   $ 3,712  
Non-cash compensation (1)     399       385       1,416       1,686  
Severance (2)     -       -       776       -  
Non-GAAP operating (loss) income   $ (4,063 )   $ (2,603 )   $ (10,044 )   $ 5,398  
                                 
GAAP net (loss) income   $ (4,586 )   $ (2,729 )   $ (12,642 )   $ 4,613  
Non-cash compensation (1)     399       385       1,416       1,686  
Severance (2)     -       -       776       -  
Change in fair value of warrants (3)     -       (346 )     (17 )     (1,932 )
Non-GAAP net (loss) income   $ (4,187 )   $ (2,690 )   $ (10,467 )   $ 4,367  
                                 
GAAP net (loss) income per diluted share   $ (0.10 )   $ (0.07 )   $ (0.30 )   $ 0.11  
Non-cash compensation (1)     0.01       0.01       0.03       0.04  
Severance (2)     -       -       0.02       -  
Change in fair value of warrants (3)     -       (0.01 )     -       (0.05 )
Non-GAAP net (loss) income per diluted share   $ (0.09 )   $ (0.07 )   $ (0.25 )   $ 0.10  
                                 
Shares used in GAAP and Non-GAAP per diluted share amounts     44,525,507       40,440,609       41,601,343       40,823,197  
                                 

(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 2013, 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 approximately 40 employees.
(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.

Contact Information

  • For additional information, please contact:
    Company Contact:
    Michael Vesey
    Chief Financial Officer
    732.476.1956

    Investor Relations Contact:
    Stephanie Prince/Jody Burfening
    LHA
    212.838.3777
    sprince@lhai.com