Rock Band 4 Publisher Mad Catz Operating Loss Triples for Q1 2016

Things are looking a bit shaky for peripheral maker and Rock Band 4 publisher Mad Catz. Following receiving an audit opinion early last month, the company has today revealed their financial results for the fiscal 2016 first quarter ending June 30.

The quarter saw net sales decrease 23% to $13 million, an operating loss of $3.8 million compared to an operating loss of $1.1 million the prior year quarter and a net position of bank loan of $5.8 million compared to $2.8 milion at March 31.

Key Highlights of Fiscal 2016 First Quarter and Subsequent:

— Fiscal 2016 first quarter net sales decreased 23% to $13.0 million,
driven by a 33% decrease in net sales to EMEA, a 9% decrease in net sales
to the Americas and a 19% decrease in net sales to APAC;
— Gross margin declined to 22.2% from 30.2% in the prior year quarter;
— Total operating expenses increased 7% from the prior year period to $6.6
million;
— Operating loss was ($3.8 million), compared to an operating loss of ($1.1
million) in the prior year quarter;
— Diluted loss per share was ($0.05) for the fiscal 2016 first quarter,
compared to a diluted loss per share of ($0.02) last year;
— Net position of bank loan, less cash, of $5.8 million at June 30, 2015,
compared to $2.8 million at March 31, 2015 and $5.3 million at June 30,
2014;
— Announced new financing facilities with New Star Business Credit and FGI
to provide combined financing of up to $30.0 million, increasing to $45.0
million from September 30, 2015 to December 31, 2015;
— Announced pre-order availability of Rock Band(TM) 4 Band-in-a Box(TM)
Software Bundle and Wireless Fender(TM) Stratocaster(TM) Guitar
Controller and Software Bundle at various global retailers;
— Announced pre-order availability of R.A.T. PROX starting August 4, 2015;
and,
— Announced agreement with Cloud Imperium(TM) Games to create dedicated
Saitek-branded Star Citizen(TM) gaming hardware.

Summary of Financials
(in thousands, except margins and per share data)

Three Months
Ended June 30,
——————-
2015     2014     Change
—————————–

Net sales                               $12,974  $16,747      (23%)
Gross profit                              2,878    5,063      (43%)
Total operating expenses                  6,640    6,194         7%
——————-
Operating loss                          (3,762)  (1,131)       233%
——————-
Net loss                                (3,965)  (1,245)       218%
——————-
Net loss per share, basic and diluted   ($0.05)  ($0.02)       150%
===================

Gross margin                              22.2%    30.2%  (800) bps

Adjusted EBITDA (loss) (1)             ($3,065)   ($446)       587%

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

“Two broad trends drove continued challenges in the first quarter of
Fiscal 2016. First, consumers were largely focused on products for the
next generation consoles as evidenced by our 83% sales growth for next
generation products. This drove a sharp decline in the demand for
legacy platform products and more than offset the next generation
product growth. Second, demand in Europe has been very weak and
competitors continue to be very promotional in an effort to drive
sales,” said Karen McGinnis, Chief Financial Officer of Mad Catz.
“While total operating expenses grew by 7% on the back of increased
spend around marketing and product development to support the upcoming
Rock Band 4 launch and holiday season, our focus on and efforts to
drive additional operational efficiencies across the business resulted
in an 8% year-over-year decrease in G&A expenses. Additionally, we
secured new and expanded financing that we believe will provide the
financial capacity and flexibility we need to support our expected
growth in the remainder of fiscal 2016.”

Summary of Key Sales Metrics
Three Months
Ended June 30,
————————————-
(in thousands)                                  2015              2014             Change
—————————————————–

Net Sales by Geography
EMEA                                               $5,643            $8,373            (33%)
Americas                                            4,974             5,449             (9%)
APAC                                                2,357             2,925            (19%)
————————————-
$12,974           $16,747            (23%)
=====================================
Sales by Platform as a % of Gross Sales
PC and Mac                                            45%               47%
Next gen consoles (a)                                 28%               12%
Universal                                             15%               25%
Smart devices                                         10%                8%
Legacy consoles (b)                                    2%                7%
All others                                             0%                1%
————————————-
100%              100%
=====================================
Sales by Category as a % of Gross Sales
Audio                                                 38%               39%
Specialty controllers                                 32%               22%
Mice and keyboards                                    17%               26%
Controllers                                            8%                7%
Accessories                                            4%                5%
Games and other                                        1%                1%
————————————-
100%              100%
=====================================
Sales by Brand as a % of Gross Sales
Tritton                                               34%               36%
Mad Catz                                              34%               35%
Saitek                                                24%               18%
Other                                                  8%               11%
————————————-
100%              100%
=====================================

(a) Includes products developed for Xbox One, PlayStation 4 and Wii U.
(b) Includes products developed for Xbox 360, PlayStation 3 and Wii.

Darren Richardson, President and Chief Executive Officer of Mad Catz,
commented, “We are very excited to launch Rock Band 4 in October
through our partnership with Harmonix. Response to the new gameplay has
been overwhelmingly positive and the game has received great critical
reviews and won multiple awards. We have also seen strong consumer
preorders and strong initial purchase orders from retailers. Factory
production is now fully ramped up and we expect shipments to retailers
to begin in September ahead of the October launch. In Fiscal 2016, we
expect sales of Rock Band 4 products to contribute to significant sales
growth, improved operating leverage, and increased cash flow.”

“As we look ahead to the balance of Fiscal 2016 and beyond, we believe
we have positioned Mad Catz to capitalize on the growth opportunities
in front of us, including our initiatives around leveraging the
extensive – and still expanding – next generation console installed
base, the highly acclaimed and much anticipated release of Rock Band 4,
the development of mobile gaming, and the ongoing appeal of PC gaming.
We believe industry trends are healthy, we are executing on our plan to
consistently strengthen our competitive advantages in the marketplace
and remain confident that we have both the resources and know-how to
drive long-term success.”

The Company will host a conference call and simultaneous webcast on
August 13, 2015, at 5:00 p.m. ET, which can be accessed by dialing
(212) 231-2937. 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 for seven days via telephone at (800)
633-8284 (reservation #21773461) or, for International callers, at
(402) 977-9140.