PolarityTE Inc (PTE) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. And welcome to the Majesco Entertainment Company Q3 2005 earnings conference call. My name is Carlo and I'll be your coordinator for today's presentation.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's conference, Mary Magnani. Please proceed, ma'am.

Thank you very much for joining us today as management will provide an overview of Majesco's third quarter financial results.

Before we get started, I will provide the Safe Harbor statement. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27(a) of the Securities Act of 1933 as amended and Section 21(e) of the Securities Exchange Act of 1934 also as amended. While the forward-looking statements reflect the company's good faith belief, they are not guarantees of future performance and involve risk and uncertainty.

The company's actual results could differ materially from those expressed in this phone call. Some of these factors are discussed in the company's press releases and filings with the SEC. The company assumes no obligation publicly update or revise any forward-looking statement.

On our call today we have Jim Helfen, Chairman, Jesse Sutton, President and John Gross, our Chief Financial Officer. Jesse will handle the opening and introductions, John will review the financials and Jesse will conclude with the summary and outlook. This call will not include an interactive Q&A session.

I will now turn the call over to Jesse Sutton. Jesse?

Thanks, Mary. And welcome everyone to our third quarter earnings call. Today we will be reviewing our third quarter financial results. As you know, in July we brought down our guidance to reflect the conditions we are encountering in the marketplace.

The past 8 weeks have been a very difficult time for us. We have learned a lot of hard lessons. We understand the challenges that lie ahead and we are very focused on maximizing our potential by leveraging our strengths and 19 years of experience in the video game business.

I will now turn the call over to John Gross, our Chief Financial Officer, to provide the quarterly financial results.

John?

Thank you, Jesse. As Jesse mentioned, the quarter was difficult -- was a difficult period for us by any measure. Net revenues for the quarter were $4.6 million compared to $32.9 million for the third quarter of 2004. Our revenues are recognized net of reserves price protection and other allowances.

During the quarter, our net sales were impacted by weaker than expected sales across all of our product lines and significant provisions for price protection. We incurred a loss in the gross margin line as a result of lower net revenues and higher development costs associated with the launch of our frontline titles which were not fully recovered due to lower than anticipated sales.

Cost of goods sold decreased to 5 million from 19.3 million last year as a result of lower sales volumes. Software development costs were 15.8 million, up from 7.6 million for the third quarter of last year. This increase was driven by the aforementioned charges related to development of premium products, principally Advent Rising and Psychonauts.

Selling and marketing expenses for the third quarter of 2005 were 8.5 million versus 3 million for the same quarter last year. The increase was a result of media campaigns and promotional expenses related to releases of our own premium titles.

General and administrative expenses increased to 3.4 million from 1.4 million in the third quarter of last year. The increase was primarily attributable to costs in building our infrastructure to be a NASDAQ-listed company as well as compliance costs for Sarbanes-Oxley.

Operating loss for the third quarter was 38.6 million versus operating income of 3.1 million for the same period last year. The loss is attributable to the aforementioned reasons in addition to provisions for impairment of capitalized software costs, a loss on a proposed settlement and severance (ph).

For the quarter, we generated a net loss of 37.5 million or $1.69 per share applicable to common stockholders compared to net income of 20.5 million or $1.06 per share for the same -- for the third quarter last year.

Moving now to the balance sheet, as of July 31st, 2005, the company had $10.2 million in cash and cash equivalents. We factor our receivables and utilized purchase order financing to fund the manufacturing of our products.

Recently the Factory imposed a limitation on cash advances of 7.5 million and a maximum of 2 million for letters of credit. Previously our limit was 30 to 35 million in the aggregate. We are currently negotiating with the Factory to increase our availability as well as exploring alternative arrangements. Although there can be no assurances, management believes it can significantly reduce expenditures and operate the business under a curtailed operating plan if suitable financing is not available.

I would now like to turn the call back over to Jesse Sutton.

Jesse?

Thank you, John. As I said before, the third quarter was challenging for us in more ways than one. We attribute the softness in the business to the following. Weaker than expected sales of many of our products including the frontline, value and video. Difficult market conditions due to the console transition, large order indications for our TV arcade products that did not materialize due to sales (ph) saturation of the category.

In addition, some of our products have been moved from the fourth quarter of 2005 into the first quarter of 2006. These include Infected, Jaws and the GameBoy Advantage 90-minute video products. And as we've indicated previously, Aeon Flux has been moved to November to better coincide with the theatrical release of the movie.

Therefore, we are updating our fiscal 2005 guidance primarily to reflect the timing shift of the aforementioned products and to recognize that we have indications of weaker initial orders across all of our products.

For fiscal 2005, we expect net revenues of $60 to $65 million and operating loss of approximately 40 to 45 million. As a result of these factors we are re-evaluating our business model funnel to determine appropriate strategy going forward.

Our thoughts on the industry are as follows.

We believe the industry will be in flux over the next few quarters as consumers migrate from current gen consoles t to the next gen. Like every console transition, this will be a challenging time for everyone in the industry. This is a time when all publishers hunker down, reassess and tweak their forward strategy.

On the international side, as previously announced, we have recently signed an agreement with EHQ to distribute our calendar 2005 products in the (inaudible). This deal is meaningful for us because historically, very small amount of our revenue came from outside North America. This agreement gives us a foothold in the international market.

We look forward to working closely with EHQ to expand our presence overseas. Throughout the balance of this fiscal year and beyond we will remain focused on navigating through a difficult time for Majesco.

We will update you further on our fourth quarter call. Thanks again.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes your presentation and you may now disconnect.