Midway Q2 09 – losses up, revenues down

By Patrick Garratt, Tuesday, 5 August 2008 06:49 GMT

Midway’s released second quarter results, showing a loss of $34.8 million compared to a loss of $14.3 million for the same period last year.

Revenues were down, from $31.8 in 2007 to $23.4 million this year.

Press release after the link.

Chicago, Illinois, August 4, 2008 – Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended June 30, 2008. The Company also provided revenue and earnings guidance for the third quarter ending September 30, 2008.

Second Quarter Results

Net revenues for the 2008 second quarter were $23.4 million, compared to the 2007 second quarter net revenues of $31.8 million and ahead of prior guidance of approximately $18 million. The 2008 second quarter net loss was $34.8 million, or a loss of $0.38 per basic and diluted share, compared with a 2007 second quarter net loss of $14.3 million, or a loss of $0.16 per basic and diluted share.

On a non-GAAP basis, excluding the impact of stock-option expenses and other non-cash items, the 2008 second 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 $0.28 per basic and diluted share. For the 2007 second quarter, on a non-GAAP basis, the Company reported a loss of $11 million, or a loss of $0.12 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 second quarter, Midway released NBA Ballers: Chosen One for Xbox 360 worldwide and for PS3 in North America, and Unreal Tournament III for Xbox 360 in Europe.
Several of Midway’s games shown at this year’s E3 Media & Business Summit received awards and critical praise including Mortal Kombat vs. DC Universe, which was named as one of the best fighting games of E3 by numerous publications.
Midway announced new casual titles such as the sequel to the million-plus unit selling game, Game Party 2, as well as Touchmaster 2, Mechanic Master, and a new casual games portal, MidwayArcade.com. In addition, Midway announced the next installment of its million-plus unit selling football franchise, Blitz: The League II.


During the third quarter, the Company has released Unreal Tournament III for Xbox 360 in North America, and expects to release TNA iMPACT! wrestling game for Xbox 360, PS3, PS2, and Wii worldwide. For the third quarter ending September 30, 2008, Midway expects the following:
Net revenues of approximately $52 million, with a net loss of approximately $0.37 per basic and diluted share.
On a non-GAAP basis, Midway expects a second quarter loss of approximately $0.27 per basic and diluted share, which excludes approximately $0.10 of non-cash convertible debt interest expense, stock option expense, and deferred income tax expense related to goodwill.

Matt Booty, interim president and CEO, commented, “At E3 this year, Midway showed that we have possibly our strongest holiday line-up in recent years, which we plan to kick off in September with TNA iMPACT!, a game that is garnering substantial buzz as a formidable competitor to other wrestling franchises. Following that, we expect the releases of Blitz: The League II and Mortal Kombat vs. DC Universe to expand the audience beyond their core fan bases.”

Non-GAAP Financial Measures

Midway has included non-GAAP financial measures in its quarterly results and 2008 third 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 a ssociated 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, August 4, 2008. The conference call number is (866) 831-6272 or (617) 213-8859 (international callers). The passcode for the call is 86748468. 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 August 11 by dialing (888) 286-8010 or (617) 801-6888 (international callers). The passcode for the replay is 64906094. 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 videogame systems and personal computers. More information about Midway and its products can be found at www.midway.com.

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