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.� OUTLOOK 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: -- $0.01 of stock option expense and
deferred income tax expense related to goodwill, and -- $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: --
$0.02 of stock option expense, -- $0.13 of non-cash convertible
debt interest expense, and -- $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 that 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. CONFERENCE CALL Midway Games
Inc. is hosting a conference call and simultaneous webcast open to
the general public at 4:30 P.M. EDT today, Thursday, May 3, 2007.
The conference call number is (800) 291-9234 or (617) 614-3923
(international callers). The passcode for the call is 92181909.
Please call ten minutes in advance to ensure that you are connected
prior to the presentation. Interested parties may also access the
live call on the Internet at www.investor.midway.com or at
www.earnings.com. Please log-on fifteen minutes in advance to
ensure that you are connected prior to the call's initiation.
Following its completion, a replay of the call can be accessed
until May 10th by dialing (888) 286-8010 or (617) 801-6888
(international callers). The passcode for the replay is 49959332.
Additionally, a replay of the call will be available for twelve
months on the Internet via www.investor.midway.com. ABOUT MIDWAY
Midway Games Inc. (NYSE:MWY), headquartered in Chicago, Illinois,
with offices throughout the world, is a leading developer and
publisher of interactive entertainment software for major video
game systems and personal computers. More information about Midway
and its products can be found at www.midway.com. FORWARD-LOOKING
STATEMENTS This press release contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning future business conditions and the outlook for
Midway Games Inc. (the "Company") based on currently available
information that involves risks and uncertainties. The Company's
actual results could differ materially from those anticipated in
the forward-looking statements as a result of these risks and
uncertainties, including, without limitation, the financial
strength of the interactive entertainment industry, dependence on
new product introductions and the ability to maintain the
scheduling of such introductions, the current console platform
transition and other technological changes, dependence on major
platform manufacturers and other risks more fully described under
"Item 1. Business - Risk Factors" in the Company�s Annual Report on
Form 10-K for the year ended December 31, 2006, and in any more
recent filings made by the Company with the Securities and Exchange
Commission. Each forward-looking statement, including, without
limitation, financial guidance, speaks only as of the date on which
it is made, and Midway undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which it is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances, except as
required by law. MIDWAY GAMES INC. Consolidated Statements of
Operations (In thousands, except per share amounts) (unaudited) �
Three Months Ended March 31, 2007� � 2006� � Net revenues $ 11,070�
$ 15,396� � Cost of sales: Product costs and distribution 6,594�
7,570� Royalties and product development 2,698� 7,114� Total cost
of sales 9,292� 14,684� Gross profit 1,778� 712� � Research and
development expense 7,606� 10,662� Selling and marketing expense
6,195� 6,453� Administrative expense 5,747� 5,347� Restructuring
and other charges (benefit) (783) -� Operating loss (16,987)
(21,750) Interest income 943� 995� Interest expense (3,567) (1,691)
Other income, net 360� 194� Loss before income taxes (19,251)
(22,252) Provision for income taxes 563� 347� Net loss $ (19,814) $
(22,599) � Loss per share of common stock: Basic and diluted $
(0.22) $ (0.25) � Weighted average number of shares outstanding:
Basic and diluted 90,999� 90,410� MIDWAY GAMES INC. Consolidated
Balance Sheets (In thousands) � March 31, December 31, 2007� 2006�
(unaudited) Assets Current assets: Cash and cash equivalents $
71,967� $ 73,422� Receivables, net 8,223� 51,366� Inventories
2,630� 2,891� Capitalized product development costs 55,492� 35,213�
Prepaid expenses and other current assets 12,906� 12,792� Total
current assets 151,218� 175,684� Capitalized product development
costs 1,681� 6,400� Property and equipment, net 20,420� 20,407�
Goodwill 41,277� 41,273� Other assets 10,436� 10,297� Total assets
$ 225,032� $ 254,061� � Liabilities and Stockholders' Equity
Current liabilities: Accounts payable $ 6,386� $ 7,864� Accrued
compensation and related benefits 3,396� 4,541� Accrued royalties
4,765� 8,097� Accrued selling and marketing 3,144� 4,935� Deferred
revenue 2,005� 2,000� Current portion of long-term debt 3,333�
3,333� Other accrued liabilities 12,940� 15,164� Total current
liabilities 35,969� 45,934� � Convertible senior notes, less
unamortized discount 142,497� 142,010� Long-term debt 2,778� 3,611�
Deferred income taxes 9,730� 9,402� Other noncurrent liabilities
387� 397� � Stockholders' equity: Common stock 925� 925� Additional
paid-in capital 445,137� 444,115� Accumulated deficit (400,696)
(380,882) Accumulated translation adjustment (1,915) (1,671)
Treasury stock (9,780) (9,780) Total stockholders' equity 33,671�
52,707� Total liabilities and stockholders' equity $ 225,032� $
254,061� MIDWAY GAMES INC. Consolidated Non-GAAP Operating Results
(In thousands, except per share amounts) (unaudited) � The
following table reconciles Midway's net loss and basic and diluted
loss per share as presented in its Consolidated Statements of
Operations as prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") in the United States of America with
its non-GAAP loss and non-GAAP basic and diluted loss per share.
Midway's non-GAAP loss and non-GAAP basic and diluted loss per
share exclude stock option expense, non-cash convertible debt
interest expense, and deferred tax expense related to goodwill. �
Three Months Ended March 31, 2007� � 2006� � Net loss $(19,814)
$(22,599) � Stock option expense (1) 753� 789� Non-cash convertible
debt interest expense 487� -� Deferred tax expense related to
goodwill 328� 328� � � Non-GAAP loss $(18,246) $(21,482) � � Three
Months Ended March 31, 2007� � 2006� � Basic and diluted loss per
share of common stock $ (0.22) $ (0.25) � Stock option expense (1)
0.01� 0.01� Non-cash convertible debt interest expense 0.01� -�
Deferred tax expense related to goodwill 0.00� 0.00� � � Non-GAAP
basic and diluted loss per share of common stock $ (0.20) $ (0.24)
� (1) Excludes stock option costs capitalized as product
development costs. MIDWAY GAMES INC. Net Revenues by Platform (in
thousands) � Three Months Ended March 31, 2007� 2006� � Microsoft
Xbox 360 $ 795� 7.2% $ -� 0.0% Nintendo Wii 1,668� 15.1% -� 0.0%
Sony PlayStation 2 3,960� 35.8% 6,923� 45.0% Microsoft Xbox 479�
4.3% 4,280� 27.8% Nintendo GameCube 507� 4.6% 331� 2.2% Sony
PlayStation Portable 197� 1.8% 1,867� 12.1% Nintendo DS 1,341�
12.1% -� 0.0% Nintendo Game Boy Advance 771� 7.0% 192� 1.2%
Personal Computer 110� 1.0% 474� 3.1% Royalties and other 1,242�
11.1% 1,329� 8.6% � Total $ 11,070� 100.0% $ 15,396� 100.0% MIDWAY
GAMES INC. Net Revenues by Geography (in thousands) � Three Months
Ended March 31, 2007� 2006� � North America $ 6,954� 62.8% $
11,467� 74.5% International 4,116� 37.2% 3,929� 25.5% � Total $
11,070� 100.0% $ 15,396� 100.0%
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