Midway shows $34 million Q1 loss

By Patrick Garratt, Tuesday, 6 May 2008 06:59 GMT

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Whoops. Midway reported Q1 financials last night, showing a $34 million loss for the period ending March 31, despite a revenue increase from $11.1 million to $29.9 million, like-for-like.

Loss have increased significantly from the same period last year, with Q1 2007 seeing the firm $19.8 million in the red.

Matt Booty, interim Midway chief since the “departure” of David Zucker in March, said: “At our recent Gamers’ Day event in Las Vegas, we showed the strength of our future line-up – everything from the driving action of Wheelman starring Vin Diesel, to the exciting combination of two enormous franchises with Mortal Kombat vs. DC Universe, to the open-world lifestyle action experience of This is Vegas. Rounding out the year is TNA iMPACT!, which is garnering significant buzz for its potential to reinvigorate the wrestling genre, Unreal Tournament 3 for the Xbox 360, Blitz: The League II, and new casual games on multiple platforms.

“Midway has the products, the talent, and the technology infrastructure to succeed in the industry, and this management team is committed to improving execution.”

Press release after the link.

CHICAGO, Illinois, May 5, 2008 – Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended March 31, 2008. The Company also provided revenue and earnings guidance for the second quarter ending June 30, 2008.

FIRST QUARTER RESULTS

Net revenues for the 2008 first quarter were $29.9 million, compared to the 2007 first quarter net revenues of $11.1 million and ahead of prior guidance of approximately $28 million. The 2008 first quarter net loss was $34.0 million, or a loss of $0.37 per basic and diluted share, compared with a 2007 first quarter net loss of $19.8 million, or a loss of $0.22 per basic and diluted share.

On a non-GAAP basis, excluding the impact of stock-option expenses and other non-cash items, the 2008 first quarter loss was $26.4 million or a loss of $0.29 per basic and diluted share, compared to the Company’s previous non-GAAP guidance of a loss of approximately $0.21 per basic and diluted share. For the 2007 first quarter, on a non-GAAP basis, the Company reported a loss of $18.2 million, or a loss of $0.20 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:

During the first quarter, Midway released an online Stranglehold Expansion Pack for Xbox 360 and PS3 in North America, and in Europe Midway released Unreal Tournament 3 and BlackSite: Area 51 for the PS3, Game Party and Cruis’n for the Wii, Foster’s Home for Imaginary Friends for the DS, and Hour of Victory for the PC.
Midway announced that Matthew V. Booty has been named interim president and chief executive office of the Company following the termination of David F. Zucker. In addition, Midway promoted Miguel Iribarren to Senior Vice President – Publishing of Midway Games Inc., and Martin Spiess to the position of Executive Vice President, International of Midway Games Ltd., a subsidiary of Midway Games Inc.
Midway announced the next installment in its billion-dollar Mortal Kombat franchise, Mortal Kombat vs. DC Universe for the Xbox 360 and PlayStation 3, licensed by Warner Bros. Interactive Entertainment and DC Comics, at its press event in Las Vegas.

Outlook

During the second quarter, the Company has released NBA Ballers: Chosen One for Xbox 360 worldwide and for PS3 in North America. For the second quarter ending June 30, 2008, Midway expects the following:
Net revenues of approximately $18 million, with a net loss of approximately $0.38 per basic and diluted share.
On a non-GAAP basis, Midway expects a second quarter loss of approximately $0.28 per basic and diluted share, which excludes approximately:
$0.01 of stock option expense and deferred income tax expense related to goodwill, and
$0.09 of non-cash convertible debt interest expense.

Matt Booty, interim president and CEO, commented, “At our recent Gamers’ Day event in Las Vegas, we showed the strength of our future line-up – everything from the driving action of Wheelman starring Vin Diesel, to the exciting combination of two enormous franchises with Mortal Kombat vs. DC Universe, to the open-world lifestyle action experience of This is Vegas. Rounding out the year is TNA iMPACT!, which is garnering significant buzz for its potential to reinvigorate the wrestling genre, Unreal Tournament 3 for the Xbox 360, Blitz: The League II, and new casual games on multiple platforms. Midway has the products, the talent, and the technology infrastructure to succeed in the industry, and this management team is committed to improving execution.”

NON-GAAP FINANCIAL MEASURES

Midway has included non-GAAP financial measures in its quarterly results and 2008 second quarter 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 a 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.

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, Monday, May 5, 2008. The conference call number is (866) 356-3377 or (617) 597-5392 (international callers). The passcode for the call is 20891514. 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 12 by dialing (888) 286-8010 or (617) 801-6888 (international callers). The passcode for the replay is 63708015. Additionally, a replay of the call will be available for twelve months on the Internet via www.investor.midway.com.

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