Midway Announces 2007 Q1 Results
CHICAGO – Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended March 31, 2007. The Company also confirmed its prior full year guidance and provided revenue and earnings guidance for the second quarter ending June 30, 2007.
FIRST QUARTER RESULTS
Net revenues for the 2007 first quarter were $11.1 million, compared to the 2006 first quarter net revenues of $15.4 million and ahead of prior guidance of approximately $7 million. The 2007 first quarter net loss was $19.8 million, or a loss of $0.22 per basic and diluted share, compared with a 2006 first quarter net loss of $22.6 million, or a loss of $0.25 per basic and diluted share.
On a non-GAAP basis, excluding the impact of stock-option expenses and other non-cash items, the 2007 first quarter loss was $18.2 million or $0.20 per basic and diluted share, compared to the Company’s previous non-GAAP guidance of a loss of approximately $0.23 per basic and diluted share. For the 2006 first quarter, on a non-GAAP basis, the Company reported a loss of $21.5 million, or a loss of $0.24 per basic and diluted share. A reconciliation of non-GAAP results to GAAP results is provided at the end of this press release.
Other recent operating highlights include:
* Midway released The Lord of The Rings Online: Shadows of Angmar in North America on April 24th, culminating an extensive beta event and the most successful North American pre-order program in Midway’s history.
* In addition, Midway announced that Aqua Teen Hunger Force Zombie Ninja Pro-Am, an interactive title based on the hit comedy series from Cartoon Network’s Adult Swim, is expected to be available for PlayStation 2 this fall.
David F. Zucker, president and chief executive officer, commented, “We exceeded our expectations during the first quarter primarily due to the continuing sales of our holiday 2006 releases and other catalog titles. The second quarter is off to an excellent start with the launch of The Lord of The Rings Online, and our resources are focused on successfully launching several more titles later in the quarter.”
During the second quarter, the Company has already released The Lord of the Rings Online: Shadows of Angmar for PC in North America, and expects to release Mortal Kombat: Armageddon for the Wii, Hour of Victory for the Xbox 360, Hot Brain for the PSP, and Touchmaster for the Nintendo DS worldwide. For the second quarter ending June 30, 2007, Midway expects the following:
* Net revenues of approximately $29 million, with a net loss of approximately $0.18 per basic and diluted share.
* On a non-GAAP basis, Midway expects a second quarter loss of approximately $0.14 per basic and diluted share, which excludes approximately:
o $0.01 of stock option expense and deferred income tax expense related to goodwill, and
o $0.03 of non-cash convertible debt interest expense.
For the year ending December 31, 2007, Midway’s full year outlook remains unchanged:
* Net revenues are expected to grow approximately 36% to $225 million with a net loss of approximately $0.44 per basic and diluted share.
* On a non-GAAP basis, Midway expects a loss of approximately $0.27 per basic and diluted share, which excludes approximately:
o $0.02 of stock option expense,
o $0.13 of non-cash convertible debt interest expense, and
o $0.02 of deferred income tax expense related to goodwill.
Mr. Zucker concluded, “We are very excited by the strong response of gamers and the press alike to the launch of The Lord of the Rings Online, and we are encouraged by the early excitement we are seeing for such front-line titles as Mortal Kombat: Armageddon for the Wii, Stranglehold, BlackSite: Area 51, The Wheelman, Unreal Tournament III and Hour of Victory. As the next generation systems build momentum through this year, we believe we are well positioned to take advantage of the growing base of gamers looking for the highest quality content.”
NON-GAAP FINANCIAL MEASURES
Midway has included non-GAAP financial measures in its quarterly results and 2007 outlook. Midway does not intend for the presentation of the non-GAAP financial measures to be isolated from, a substitute for, or superior to the information that has been presented in accordance with GAAP. In addition, information used in the non-GAAP financial measures may be presented differently from non-GAAP financial measures used by other companies. The non-GAAP financial measures used by Midway include non-GAAP basic and diluted loss per share.
Midway considers the non-GAAP financial measures used herein, when used together with the corresponding GAAP measures, to be helpful in providing meaningful additional information regarding its performance by excluding specific items t hat may not be indicative of Midway’s core business or projected operating results. These non-GAAP financial measures exclude the following items:
Stock Option Expense. Midway adopted SFAS No. 123R, “Share-Based Payment” beginning January 1, 2006 in which it began to recognize as an expense the fair value of its stock options. A non-GAAP measurement that excludes stock option expense identifies this component of compensation expense that does not require cash outlay.
Non-cash convertible debt interest expense. In accordance with GAAP, Midway is required to record discounts on its convertible senior notes as a result of decreases in the conversion prices of these notes. These amounts are amortized as interest expense through the first date on which the holders may redeem the notes. There is no cash outlay associated with this interest expense. A non-GAAP measurement that excludes the convertible debt non-cash interest expense allows for an easier comparison to prior periods, and also distinguishes this interest expense from the remainder of the interest expense, which requires (or required) a cash outlay by Midway.
Deferred tax expense related to goodwill. Midway recognizes deferred tax expense related to increases in the difference between the book basis and tax basis of goodwill. Goodwill is not amortized for book purposes but is amortized for tax purposes. This increase in the book to tax basis difference causes an increase in the related deferred tax liability balance that cannot be offset against deferred tax assets. Given the nature of this deferred tax expense, a non-GAAP measurement that excludes this expense is deemed relevant.
In the future, Midway may consider whether other significant items should be excluded when arriving at non-GAAP measures of financial performance.
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Midway Games Inc.
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