Press releaseCHICAGO, Illinois, November 1, 2007 – Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended September 30, 2007. The Company also updated its full year revenue and earnings guidance and provided revenue and earnings guidance for the fourth quarter ending December 31, 2007.
THIRD QUARTER RESULTS
Net revenues for the 2007 third quarter were $36.7 million, compared to the 2006 third quarter net revenues of $27.4 million. The 2007 third quarter net loss was $33.5 million, or a loss of $0.37 per basic and diluted share, compared with a 2006 third quarter net loss of $22.2 million, or a loss of $0.24 per basic and diluted share.
On a non-GAAP basis, excluding the impact of stock-option expenses and certain non-cash items, the 2007 third quarter loss was $28.0 million or a loss of $0.31 per basic and diluted share. For the 2006 third quarter, on a non-GAAP basis, the Company had a loss of $20.3 million, or a loss of $0.22 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 Stranglehold for Xbox 360 and PC worldwide, which was a top-10 selling Xbox 360 game in the UK for the five weeks following launch according to Chart Track, as well as a top-10 selling Xbox 360 title in North America for the month of September according to The NPD Group. With the shipment of Stranglehold for the PS3 in North America on October 29, 2007, Midway has now exceeded 1 million units shipped worldwide on all platforms. Midway expects to ship Stranglehold for the PS3 in Europe later this month.
- Midway, in conjunction with developer Epic Games, recently released a demo of Unreal Tournament 3 for the PC, which has remained one of the top 2 most downloaded games on FilePlanet.com since it was released on October 12th.
David F. Zucker, president and chief executive officer, commented, "We are happy with the response to our first front-line next generation game, Stranglehold, and believe that it has provided a solid foundation to build our standardized toolset for all of our next generation titles. Additionally, our commitment to our expanded direct presence in Europe has been validated with strong results for Stranglehold throughout the territory."
During the fourth quarter, the Company has released Stranglehold for the PS3 in North America, Cocoto Racing for the DS in Europe, and The Bee Game for the GBA and DS in North America. Later this quarter, Midway expects to release worldwide Unreal Tournament 3 for the PC, BlackSite: Area 51 for Xbox 360 and PC, Ultimate Mortal Kombat for the DS, and Aqua Teen Hunger Force: Zombie Ninja Pro-Am for the PS2; in North America BlackSite: Area 51 for the PS3, Foster's Home for Imaginary Friends for the DS, and Game Party and Cruis'n' for the Wii; and in Europe Stranglehold for the PS3 and Hour of Victory for the PC. For the fourth quarter ending December 31, 2007, Midway expects the following:
- Net revenues of approximately $80 million, with a net loss of approximately $0.21 per basic and diluted share.
- On a non-GAAP basis, Midway expects a fourth quarter loss of approximately $0.13 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 $0.07 of non-cash convertible debt interest expense.
Midway is lowering its financial outlook for the full year 2007 primarily to reflect the movement of certain Nintendo Wii and DS titles out of this fiscal year, mainly in the European territories, as well as lower expectations for PS3 product sales due to delayed release dates resulting in shorter holiday selling periods. For the year ending December 31, 2007, Midway now expects the following:
- Net revenues of approximately $160 million with a net loss of approximately $0.95 per basic and diluted share.
- On a non-GAAP basis, Midway expects a loss of approximately $0.76 per basic and diluted share, which excludes approximately:
o $0.03 of stock option expense and deferred income tax expense related to goodwill, and
o $0.16 of non-cash convertible debt interest expense.
Mr. Zucker concluded, "We remain confident that our technology strategy and product plan position us to grow both revenue and market share as we move into the heart of this console cycle. In the coming months, as we reveal more details on our strong line-up of new IP and major franchises for 2008, we expect to show investors how we plan to realize significant growth in 2008."
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 a more direct 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 appropriate.
In the future, Midway may consider whether other significant items should be excluded when arriving at non-GAAP measures of financial performance.