PolarityTE, Inc.
Q3 2008 Earnings Call Transcript

Published: 12 Sep 2008

[Operator:]

Welcome to the Majesco Entertainment Company’s third quarter 2008 earnings conference call. (Operator Instructions) At this time I would like to turn the conference over to Mike Smargeosy of Brainerd Communicators.

[[Mike Smargeosy]:]

I would like to welcome you to Majesco Entertainment’s conference call today. Before we get started, I’d like to remind you that this call is being recorded and the audio broadcast and replay of this teleconference will be available in the Investor Relations section on the company’s website. As a reminder, this call may contain forward-looking statements including statements regarding management’s intentions, hope, expectations, representations, plans or predictions about the future. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual future results to differ materially from the expectations set forth in the forward-looking statements. Factors that could cause actual results to differ materially are specified in the company’s annual report on Form 10K for the year ended October 31, 2007 and other filings with the SEC. The company does not undertake and specifically disclaims any obligation to release publicly the results of any revisions that may be made to any forward-looking statements to reflect occurrences of anticipated or unanticipated events or circumstances after the date of such statements. To facilitate a comparison between the reported periods, the company has presented both GAAP and non-GAAP financial results. GAAP financial measures include settlement of litigation and related charges net and changes in the fair value of warrants, operating income, net income, and basic and diluted loss per share have been adjusted to report non-GAAP financial measures that excluded these charges and income related to gains on these settlements and warrants. These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and the company’s prospects for the future. These measures should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. Reconciliation between GAAP and non-GAAP financial measures is included in the press release issued earlier today. On the call today we have Jesse Sutton, Chief Executive Officer, John Gross, Chief Financial Officer, and Gui Karyo, Executive Vice President of Operations. I would now like to turn the call over to Jesse.

[Jesse Sutton:]

I’ll open up the call with some highlights and a strategic overview of our performance in the third quarter of 2008. John will follow with the financial review for the quarter. And I will conclude with comments on some of the games in our product portfolio. Gui, John and I will then be happy to take your questions. Our operating and financial performance in fiscal 2008 has been exceptional. We have delivered double-digit revenue growth while controlling our costs and made tremendous progress in regards to profitability as we generated positive earnings per share for both the three and nine-month periods. As a result of our performance to date and our current outlook for the rest of the year, we have increased our fiscal 2008 revenue guidance and expect to be profitable for the full year. Our guidance for fiscal 2008 represents a significant improvement from the year ago period. I would note that we have increased our guidance despite the fact that the release of our next Cooking Mama title has been moved to the first quarter of fiscal 2009. The movement of this title which is from our largest franchise highlights the overall strength of our previous three releases and we would obviously expect to benefit from the release of this Cooking Mama title in fiscal 2009. We have delivered this financial performance by executing on our strategic plan. This includes our core focus on the family friendly mass market genre, a genre that remains the fastest-growing and most popular segment in the gaming industry. While we are platform agnostic we have and will continue to focus on publishing games for Nintendos, Wii and DS currently the fastest-growing console and handheld systems respectively. We continue to keep an eye on all platforms where casual games can be successful and in this regard we have begun initial development of products for Apples, iTouch and iPhone. As reflected in our third quarter and year-to-date financial performance we are successfully executing on our business plan and remain confident in our ability to continue to improve our profitability and overall financial performance. During the third quarter we released Wonderworld Amusement Park for the Wii and as expected the game was well received by our target audience in the US and will be released in Europe this holiday season. Further, sales of the game made a significant contribution to our bottom line. In late June we released Cake Mania 2 for the DS and in just over a month we experienced good demand for the second iteration of the cake baking adventure where the user can once again strive for fame and fortune. Finally, our most successful franchise Cooking Mama has sold 2.3 million units to date under three SKUs and continues to be a favorite among the family friendly mass market audience. As I previously mentioned our second Wii SKU of Cooking Mama, Cooking Mama World Kitchen, which includes an all new three-dimensional graphic presentation along with new recipes, nodes and comedic mini game surprises was expected to hit the shelves in our fiscal fourth quarter. However, we anticipate this latest installment in the celebrated franchise to be shipped in our fiscal first quarter and in advance of the holiday shopping season. During the third quarter international sales comprised 8.5% of our revenue versus 29.5% in 2007. This is primarily a result of a delay in the availability of our products in Europe and we would expect to see an improvement in international sales starting in the fiscal fourth quarter of 2008. Securing international publishing rights remains at the top of the list of our priorities as we believe that non-US markets particularly Europe and parts of Asia represent very attractive and relatively untapped markets for us that have the potential to further diversify and grow our revenue streams. As we announced during the first quarter we launched Majesco Studios in Santa Monica, California in order to begin developing our games internally with a focus on retaining the intellectual property rights. The studio remains on track with the production of Our House and Wonderworld Amusement Park both for Nintendo’s DS handheld and both set for release in fiscal 2009. We consider this strategy to be low risk as we are essentially transferring costs from external development to the studio while gaining the potential benefit of IP assts as we develop and release titles. Another example of our commitment to bringing intellectual property in-house is our agreement with legendary designer Masay Matsuura and artist Rodney Alan Greenblat for the production of Major Minors Majestic March in which we have a co-ownership of the intellectual property rights. As a testament to this game’s potential, Major Minor was recognized as runner up in the Best Music Game category at E3 2008 by industry website OneUps.com, runner up to MTV’s Rock Band 2. In summary, the third quarter exceeded our internal projections as we continued to execute on our strategic and operating initiatives. Year-to-date we have made significant progress in regards to our financial performance; specifically in regards to improved profitability as we drove revenues and diligently managed operating costs. We believe we have the right strategy in place and remain well positioned to deliver additional returns for our shareholders. I would now like to pass the call to John Gross, Majesco’s Chief Financial Officer, to provide the financial review of our fiscal third quarter of 2008.

[John S. Gross:]

Before I cover the details of our third quarter’s financial performance, I’d like to give you some highlights of progress we’ve made in three areas

[Jesse Sutton:]

Our strategy in 2008 has clearly been the right one. The remainder of our 2008 lineup will include a variety of titles for various platforms. Some of these include Zoo Hospital for the Wii, a wholly owned IP for Majesco. It’s the first Wii game of its kind that lets players experience a veterinarian’s job by performing various surgical procedures on 48 different animals that they can then care for in their enclosures to ensure a healthy recovery. Jillian Michaels’ Fitness Ultimatum 2009 for the Wii is the first game of its type to combine a celebrity fitness trainer with the Wii and innovative balance board accessory to offer players a fun and entertaining way to get in shape. Away

[Operator:]

(Operator Instructions) Our first question comes from Ed Woo - Wedbush Morgan Securities.

[Ed Woo:]

I just wanted to ask particularly any specific reasons on why Cooking Mama moved into the first quarter and what are the current trends on game sales on Cooking Mama?

[Gui Karyo:]

Let me answer the last first. The current trends on game sales on Cooking Mama are best described as very strong. It is a bona fide video game franchise at this point and it continues to sell well across all of our accounts, across all of our SKUs. With regards to World Kitchen, the goal with World Kitchen for Office Create the designers of the game was really to bring the experience to a whole new level taking the best possible elements of the controller on the Wii to the Cooking Mama genre, and it’s just a matter of fine tuning at this point. The designers wanted a couple more weeks to add to the game some elements that it thought made a material difference and we thought it made sense.

[Ed Woo:]

Are there any comments on the current Wii and DS supply? I know we just got a PD Data about today that shows Wii supplies in the US seem to be actually decreasing as opposed to increasing. Do you see any outlook for this holiday season?

[Gui Karyo:]

We don’t generally comment on Nintendo’s supply chain for products. What we will tell you is that we don’t see supply affecting the sales of our products and our expected sales of products at this point.

[Ed Woo:]

One of the big products I think that’s had a little bit of buzz is Jillian Michaels. Do you guys have any comments on that and particularly, I know you don’t like to comment on the supply chain, but obviously the balance board will have a big role in that game. But it seemed like the Wii fit doesn’t seem to be getting really good supply in the US. Do you think that’s going to impact it?

[Gui Karyo:]

Let me begin by saying that we’re extremely excited about Jillian Michaels’ game. It is launching at about the same time as her television show. The Biggest Loser is also launching its latest season. We think it is a wonderful product for the Wii market. It targets the mom in the house that owns the Wii who is probably a big fan of Jillian, not just her show but also her website, mailing list, DVDs and books. It makes innovative use of the Wii balance board and we think that even without the balance board it is very exciting and interesting product and does what Nintendo intends to do with the Wii platform in general, which is allow for all kinds of entertainment experiences that make innovative use of controllers and offer new entertainment opportunities.

[Operator:]

Our next question comes from Todd Greenwald - Signal Hill.

[Todd Greenwald:]

I’m wondering if you could comment a little bit more on what you’re doing with Facebook and with the anagrams and I guess most importantly, how do you plan to really monetize something like that?

[Gui Karyo:]

The anagrams application on Facebook is very similar to games like Scrabulous and various others which are real social gaming experiences. We love the anagrams as a game. We love that if you’re at all familiar with the game, it is more than any board game or word game I’ve played a true social experience and we thought that the best place we could launch that as a digital game would be within the Facebook environment. Like every other online Facebook game, the monetization is initially going to be done through advertising but what we really see this as is both an opportunity for us to work in the Facebook space to gain better knowledge and to bring an application we think is very appropriate to that platform to life. And I think that is going to offer a bunch of interesting opportunities for us both in the form of more Facebook games and also in the form of the Bananagrams brand going into other platforms like DS and Wii and other places where we think that it will work.

[Todd Greenwald:]

Would Facebook manage the sale of that advertising for you and then cut you a check? And then also just to follow up on that, do you think you could bring some of the same kind of applications you’re doing at Facebook to the iPhone and the App store there?

[Gui Karyo:]

I’m not going to spend too much talking about the model by which monetization occurs as we don’t’ really get into that for any of the product plans we sell, but what I will say is that we absolutely believe that iPhone in particular has a nice overlap in the kinds of game plays that will work and that it wouldn’t surprise me if there were several games for iPhone that we announce over the next year that have a lot of similarities to the Facebook application.

[Operator:]

At this time I’m showing no additional questions and I would like to turn the conference call back over to management.

[Jesse Sutton:]

Thanks again for joining us today and we look forward to speaking with you in January when we intend to report our 2008 fourth quarter and full year results.