Mad Catz Interactive Inc (MCZ)

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Mad Catz Interactive, Inc. (MCZ)

Q2 2013 Earnings Conference Call

November 6, 2012 05:00 PM ET


Darren Richardson - President and CEO

Allyson Evans Vanderford - CFO, PAO and Controller

Norberto Aja - Investor Relations


Justin Ruiss - Sidoti & Company, LLC

Edward Woo - Ascendiant Capital Markets

Stanley Trilling - Credit Suisse

Ronald Rotter - RLR Partners



Ladies and gentlemen thank you for standing by. Welcome to the Mad Catz Fiscal 2013 Second Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, November 06, 2012.

I’d now like to turn the conference over to Norberto Aja, Investor Relations. Please go ahead.

Norberto Aja

Thank you, operator and good afternoon everyone and welcome to Mad Catz’s fiscal 2013 second quarter conference call. With me on the call today are Darren Richardson, Mad Catz’s President and Chief Executive Officer; and Allyson Evans, Mad Catz’s Chief Financial Officer.

Darren will begin the call by providing an overview of the results and the principal drivers behind them. Afterwards, Allyson will review the financial results in greater detail, before returning the call back to Darren for some closing remarks.

However, before we begin, let me just take a few minutes to read the Safe Harbor language. Today’s discussion will contain forward-looking statements about the Company’s financial results, estimates and business prospects that involve substantial risks and uncertainties. The Company assumes no obligation to update the forward-looking statements contained in this conference call as a result of new information or future events or developments.

You can identify these statements by the fact that they’re under the words such as anticipate, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with any discussion of future performance or operating performance.

Among the factors that could cause actual results to differ materially are the following: the ability to maintain or renew the Company's licenses, competitive developments affecting the Company’s current products, first party price reductions, price protection taken in response to price cuts, the ability to successfully market both new and existing products domestically and internationally, difficulties or delays in manufacturing, delays in the Company’s ability to obtain products from its manufacturers in China, and market and general economic conditions. A further list and description of these risks, uncertainties and other matters can be found in the Company’s reported filings with the appropriate regulatory authorities.

Today’s call taken place November 6, 2012, and a webcast includes non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today’s press release.

With that, I’d now like to introduce Darren Richardson, President and CEO of Mad Catz. Darren?

Darren Richardson

Thank you, Norberto, and good afternoon everyone. Thank you for joining us on your fiscal 2013 second quarter conference call. Three years ago we made a strategic decision to shift our focus towards building high value products for passionate hardcore consumers and broadening our geographic sales base. While this shift was not expected to happen overnight and it’s still ongoing, we’ve reached an inflection point where the growth in our targeted product categories and geographic regions is now surpassing the decline in the sales of legacy products.

We’re pleased to see strong net sales growth of 21% for our fiscal second quarter, and especially pleased to see growth in all territories for the second straight quarter. Sales of PC and Mac input device products, predominantly gaming mice and keyboards, grew 78% and accounted for 20% of sales. Sales of our audio products grew 23% and accounted for 44% of sales.

On an annualized basis, the sales of audio products accounted for 41% of net sales, or $52 million, meeting our previously stated goal of audio products accounted for 40% to 50% of net sales. We believe these premium products have much longer product lifespan and offer Mad Catz the best path forward as the changing video game industry with many casual gamers moving to tablet and smartphone gaming, leaving hardcore gamers who demand the best. We realize and understand that more sales of these key products are needed and we’re committed to increasing our sales and marketing efforts to expand awareness of these products, while keeping a sharp eye on operating expenses.

In addition to our focus on creating aspirational products, we’ve also expanded our geographic footprint and continue to build a worldwide sales and marketing team. As games increasingly cross geographic borders and the internet allows worldwide online competition, the Company is committed to positioning itself as a leading provider of products that optimize the passionate gamers’ performance on a global basis.

We’re starting to realize the benefits of our investment and additional sales and marketing in the Asia Pacific regions. Sales to other countries accounted for 2% of sales in fiscal 2011, 5% of sales in fiscal 2012, 7% of sales in the first quarter of fiscal 2013 and 8% the in fiscal second quarter.

In summary, our focus and our goal is to bring to market a compelling consumer offering. We believe that Mad Catz can succeed if we build on our strengths and focus on targeted segments within the video game industry, leveraging our expanding distribution footprint to deliver to those consumers products with designs and features that are central to their gaming experience.

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