Navarre Corp. Posts Financial Results for 1Q of Fiscal Year 2010

Aug 02, 2009 (Close-Up Media via COMTEX) -- NAVRE | Quote | Chart | News | PowerRating -- Navarre Corp., a publisher and distributor of physical and digital home entertainment and multimedia products, has reported its financial results for the first quarter of its fiscal year 2010, ended June 30.

In a release on July 29, the Company noted that financial Results for fiscal year 2010 first quarter:

-- Net sales were $134.3 million, as compared to net sales of $142.0

million for the same period last year, a decrease of 5 percent.

-- Earnings before interest, taxes, depreciation, amortization, and

share-based compensation expense (EBITDA) was a first quarter record

for the Company at $9.0 million; as compared to EBITDA of $5.3 million

in the prior year's first quarter, or an increase of 71 percent. (See "Use

of Non-GAAP Financial Information" below)

-- Operating income of $6.5 million was an all-time high for the Company

during the first quarter, as compared to operating income of $2.8

million in the prior year, an increase of 137 percent. (See "Use of Non-GAAP

Financial Information" below)

-- Net income increased to $4.2 million, or $0.11 per diluted share, as

compared to net income of $627,000, or $0.02 per diluted share, in the

prior fiscal year.

-- Debt, net of cash, on June 30, was $23.2 million; as compared to

debt, net of cash, of $48.7 million on June 30, 2008, a reduction of

$25.5 million or 52 percent.

Cary Deacon, Chief Executive Officer, commented, "While our industry continues to be impacted by the global economic crisis, we are extremely pleased to be able to report record first quarter operating income and EBITDA. Gross margins improved across all divisions of the company and were coupled with strong expense management. We achieved an excellent first quarter."

Deacon continued, "The quarter beat our expectations in part due to FUNimation's stronger than anticipated sales of anime DVD's as well as a $1.75 million agency fee resulting from a royalty advance paid for the licensing of Dragon Ball Video Game rights to Bandai."

Publishing Segment

The publishing segment includes the results of the wholly-owned subsidiaries FUNimation Entertainment, Encore and BCI. For the first quarter ended June 30, the publishing segment had net sales, before inter-company eliminations, of $24.9 million, a decrease of 9.3 percent, as compared to net sales of $27.4 million in the first quarter of the prior fiscal year. BCI, whose operations have been winding down since the third quarter of fiscal year 2009, generated nominal sales in the first quarter as compared to $4.4 million in net sales during the first quarter of the prior fiscal year. (See "Use of Non-GAAP Financial Information" below)

Operating income during the first quarter for the publishing segment was $6.1 million, as compared to operating income of $3.4 million in the first quarter of the prior year. The publishing segment's operating income was positively impacted by FUNimation revenue from the licensing of North American video game rights to Bandai Namco in connection with the Dragon Ball Z brand.

Distribution Segment

The distribution segment includes the results of the wholly-owned subsidiary Navarre Distribution Services, which distributes PC software, DVD video, video games and accessories. For the first quarter ended June 30, the distribution segment's net sales, before inter-company eliminations, were $121.4 million, as compared to net sales of $133.1 million for the same period last year, a decrease of 9 percent. (See "Use of Non-GAAP Financial Information" below)

Operating income in the distribution segment for the first quarter was $364,000, as compared to an operating loss of $691,000 in the first quarter of the prior fiscal year. Reduced operating expenses allowed the distribution segment to realize positive operating results despite the reduced sales volume.

Reid Porter, Chief Financial Officer, commented, "The work done last year in systems improvements and eliminating unprofitable product lines contributed to the gross margin expansion and lower operating expenses achieved in the quarter. Good working capital management, which included strong cash collections in the quarter, led to a significant debt reduction and interest expense savings versus the prior year. While we anticipate difficult market conditions and year-over-year sales shortfalls to continue for some time, we expect that our expense initiatives and stronger balance sheet will continue to offset much of the impact of lower sales."

Outlook

In light of the continued impact of macro-economic conditions on the retail industry and in light of first quarter results, the company is updating its guidance for fiscal year 2010 as follows:

-- Projected net sales has been reduced to range between $525 million and

$575 million;

-- The Company has increased its anticipated EBITDA range and now expects

EBITDA to be between $21 million and $24 million; and

-- Cash flow from operations is anticipated to be positive for fiscal

year 2010 results.

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