MCZ: Management Comments on Q4/FY09 Results and Outlook for FY10

Thu. June 25, 2009; Posted: 01:24 PM

Mad Catz Interactive, Inc. (MCZ) announced its financial results for the fourth quarter and fiscal year ended March 31, 2009.

The Company reported net sales for the fiscal year ended March 31, 2009 of $112.6 million, a 28.3% increase from $87.7 million in fiscal 2008. Mad Catz incurred a net loss for the year ended March 31, 2009 of $0.59 per diluted share versus net income of $0.06 per share in fiscal 2008.

Net sales for the fiscal fourth quarter ended March 31, 2009 were $22.8 million, an increase of 3.9% from $21.9 million in the fiscal 2008 fourth quarter. The Company reporte a fourth quarter loss of $0.07 per diluted share, compared to a net loss of $0.02 per diluted share in the fourth quarter of the prior fiscal year.

Darren Richardson, President and CEO of Mad Catz, commented in a conference call, "We achieved record sales levels for Q4 and FY09. During the year, we grew sales in all of the geographic regions that we address, completed global integration of Saitek, secured additional high profile mass appeal licenses, launched several new successful products, improved our operating cost structure and made significant progress in improving our near term liquidity and access to working capital."

Stewart Halpern, CFO of Mad Catz, added, "Our fiscal year benefited from the first full year of our PC accessories business, but we also grew our console video game business and had nice successes with new products. Our business was negatively impacted by foreign exchange on several levels, most notably gross margin."

Mr. Richardson explained, "We are seeing an industry-wide slowdown in Q1 of 2010. Although retailers remain cautiously optimistic on the video game category outlook for the year, they continue to exercise extreme caution regarding inventory exposure, especially through the slower summer months. We expect Q1 to be a difficult period for comparable sales and margins with continued improvement in operating expenses."

He continued, "We are focused on a number of key objectives in FY10 to position us to deliver EBITDA and earnings growth over the course of the year. Our future is bright with the best product line-up in our history, the most sales and products distribution reach ever, an improved operating expense structure and amended note and credit agreements."

Mr. Richardson added, "I believe that we are well positioned to demonstrate the true earnings power of this business once the macro-economic environment normalizes."

Yesterday, the Company announced that it has extended and amended its secured working capital credit facility with Wachovia Capital Finance Corporation. Mad Catz elected to reduce the amount of the amended credit facility to $30 million from the current facility's $35 million. The amendment resets the interest rate applicable to the credit facility to, at the Company's option, either the U.S. prime rate plus 2.00% or LIBOR plus 3.50%.

In addition, the Company amended the $14.5 million convertible note issued as partial consideration for its 2007 acquisition of Saitek. Under the original terms of the note, $4.5 million of the $14.5 million note, plus accrued interest, was due on October 31, 2009, with the balance due on October 31, 2010. Pursuant to the restructuring, Mad Catz will make payments of: $500,000 on October 31, 2009; approximately $550,000 on March 31, 2010 and $2.4 million annually each March 31 thereafter. The loan is scheduled to mature on March 31, 2019. The restructuring also calls for mandatory accelerated payments should Mad Catz achieve certain financial metrics. Mad Catz may also make voluntary prepayments at any time without penalty. Interest on the note will continue to accrue at 7.5%, per the original terms, until April 1, 2015, at which time the interest rate will increase to 9%. Beginning June 30, 2009, the Company will begin to make quarterly payments of approximately $45,000 to be credited against the accrued interest. The note will continue to be convertible into shares of Mad Catz common stock at the original conversion price of $1.419 per share.

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