PolarityTE Inc (PTE) 2011 Q2 法說會逐字稿

Hello. This is the Chorus Call operator. Welcome to the Majesco Entertainment Company's fiscal second quarter 2011 earnings conference call. As a reminder, all participants will be in listen-only mode. (Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) This conference is being recorded. At this time, I would like to turn the call over to Todd Greenwald, Director of Investor Relations and Strategic Planning.

Thank you, and good afternoon. I'd like to welcome you to Majesco Entertainment's conference call. Before we get started, I'd like to remind you that the call is being recorded and the audio broadcast and replay of the 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 intention, 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 results or 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 10-K for the year ended October 31, 2010 and other filings with the SEC.

The Company does not undertake and specifically disclaims any obligation to release publicly the results of any revision that may be made to any forward-looking statements to reflect the 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 measures. GAAP financial measures include expenses related to non-cash compensation, changes in the fair value of warrants, severance costs and a benefit from the sale of certain state income tax benefits derived from net operating losses. Operating income, net income and diluted income per share have been adjusted to report non-GAAP financial measures that exclude these items. 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 or superior to GAAP results. Reconciliation between GAAP and non-GAAP financial measures is included in the press release issued earlier today. With me on the call are Jesse Sutton, Chief Executive Officer; and Mike Vesey, Chief Financial Officer. I'd now like to turn the call over to Jesse.

Thanks, Todd. I'll open up the call with some highlights and an overview of our performance in the second quarter. Mike will follow with a financial review and I'll conclude with an update on our product slate for the rest of the year. Then, we would be happy to take your questions.

In Q2, we experienced another strong quarter driven by the continued strength of Zumba Fitness. Sales grew nearly 200% to $32 million, and our gross margin expanded to 43%, up from 29% last year and 41% last quarter. This resulted in non-GAAP EPS of $0.13, up from a loss of $0.03 last year. We are very pleased with the success of Zumba Fitness. Zumba Fitness continues to be the number 2 best selling Wii title here in the US each month since launch, for 7 consecutive months, since its launch in November 2010.

In April, Zumba Fitness for Wii launched in Europe where it is off to another fast start, consistently ranking in the top 5 best selling video games across all platforms in the UK. The game has sold more than 2 million copies worldwide and we are looking forward to new and exciting features in the upcoming sequel, Zumba Fitness 2, coming to the Wii this holiday, and another yet to be announced platform early next year. We have also taken several exciting steps forward with our digital business.

I'm very happy to welcome aboard Jeff Anderson, our new Senior VP of Social and Mobile Games, along with the rest of his team at Quick Hit. Last week, we announced that we had acquired certain operating assets of Quick Hit, which is the developer and operator of QUICKHIT NFL Football, an online, free-to-play NFL licensed football game that utilizes a virtual goods revenue model. The most important part of that deal is bringing 12 talented new employees into Majesco, where they will significantly strengthen and accelerate our social gaming initiatives.

Jeff has an impressive background, not only as the CEO and founder of Quick Hit, but also as CEO of Turbine, a top publisher of online games including Dungeons & Dragons and Lord of the Rings. Before that, Jeff was an executive at EA where he managed the Ultima Online franchise. Jeff and his team will now manage our social games including Cooking Mama Friends' Cafe, Parking Wars 2, Bananagrams and future games currently in development.

They're also very close to launching our second major Facebook game, Parking Wars 2, which is in closed beta and will launch to the public later this summer. We believe this game is uniquely suited for a social platform as it has a vast amount of viral hooks that should make game play fun and also help the game to grow quickly. Our third Facebook game is yet to be announced but is on track to release later this year and will be announced shortly. It is tied to a very significant brand which we think will resonate well with the core demographic of Facebook users.

We are also rounding out our portfolio of digital games with several exciting titles like BloodRayne - Betrayal for Xbox Live and PlayStation Network, Greg Hastings Paintball 2 for PlayStation Network and a number of to-be-announced iPhone, iPad titles. Last, but not least, we are very excited about our holiday release slate which we think positions us well to have our biggest holiday yet. I will discuss our titles later on in the call. Now, I'd like to pass the call to Mike Vesey, our Chief Financial Officer, to provide the financial review of our fiscal second quarter results. Mike?

Thank you, Jesse. First, I'll recap our results for the quarter and close with some comments about our guidance for the year. As I discussed in our -- as I discuss our financial performance compared to the prior year, I'll use non-GAAP results in both periods. As Todd mentioned, our non-GAAP results include adjustments for non-cash or infrequently occurring items. The most significant items in the current quarter are approximately $2.9 million of non-cash charges related to the revaluation of our warrant liability, and about $400,000 in non-cash compensation expense. Please refer to our press release issued earlier today for a reconciliation of our GAAP and non-GAAP results.

Now for the quarter. Revenues for the 3 months ended April 30, 2011 were $32.1 million, an increase of 195% over $10.9 million reported in the comparable quarter last year. Sales were primarily driven by continued reorders for our Zumba Fitness titles that were released in November of 2010, as well as royalties on the release of the Wii version of the game in Europe where it has been a top selling title and contributed approximately $3.2 million of royalty income and accessory sales.

New releases did not have a significant impact on revenues in either year, as our release slate was concentrated around the holiday, and our fiscal fourth and first quarters. Accordingly, sales of Zumba products accounted for approximately 75% of our domestic sales during the second quarter in fiscal 2011. And products from our Mama franchise accounted for about 50% of sales in the same quarter last year. Overall revenues from our Mama line of products was down somewhat from the prior year, as pricing of our catalog products was lower reflecting later stage pricing on the Wii and DS platforms.

Our gross margin for the quarter was 43%. This is up from 29% in the same period a year ago. Our current quarter's margins reflect the impact of our Zumba Fitness products which carried higher price points when compared to our lineup from a year ago. The Wii and Kinect version of Zumba continue to sell at the original retail price of $39.99 and $49.99 for the Wii and Kinect version, respectively.

Gross margin percentages were also favorably impacted by royalties from European licensing and distribution of Zumba. Also included in gross margin this quarter is a $600,000 charge for the write-down of inventory from last holiday. This is primarily related to the Babysitting Mama doll accessory. Operating expenses include 3 notable increases from the prior year, related to, one, product research and development, two, advertising and marketing, and, three, charges related to canceled games.

First, research and development expenses for the quarter increased $1.3 million from the same period in the prior year. Approximately $800,000 of the increase is due to expenses related to our social games business, and $500,000 is due to the console game business. On the social games side, we entered this business through the use of outside developers to develop and operate 3 games for Facebook. These games are free to play and are expected to generate revenue through the sale of virtual goods. Since we are still optimizing the monetization characteristics of these games, we consider the games to be in the planning phase and expense all costs as incurred.

On June 3rd we acquired the operating assets and 12-person workforce of Quick Hit. During the next fiscal year, we intend to transition these games to our facility in Foxborough and reduce our outside development costs. Increased R&D expenses on the console side of the business are due to additional producers in support of our expanded game lineup. As some you may know, we outsource the development of all our console and handheld games to outside studios on a very low cost basis. However, we employ producers and quality assurance personnel to manage the development of these games.

The second item, sales and marketing expenses, increased approximately $1.1 million, primarily due to media advertising of our Zumba products and volume related selling expenses. And finally, we recorded a charge of $1.3 million related to the cancellation of games in development. We conducted a slate review of all our products in development for the upcoming holiday and canceled games for which we did not feel would meet our financial benchmarks and reallocated our resources to the games we felt have the highest potential for success.

In aggregate, our total operating expenses increased $3.6 million over the prior year. As a result of the increased sales and gross margins, non-GAAP net income for the quarter increased to $5.4 million compared to a loss of $1.2 million in the prior year. Non-GAAP diluted earnings per share for the quarter were $0.13, compared to a loss of $0.03 in the same period last year. So in summary, we had a profitable second quarter with close to 200% revenue growth and over $5 million, or $0.13 per share, of non-GAAP income after absorbing a $600,000 inventory write-down, $1.4 million in costs for canceled games, and $800,000 in research and development costs related to our social games business.

Now a quick review of our year-to-date results. Revenues for the 6 months ended April 30, 2011 were $80.6 million, an increase of 100% over the $40.1 million reported in the comparable period last year. Again, sales increased primarily due to sales of our Zumba Fitness titles that were released in November of 2010. Sales of Zumba products accounted for approximately two-thirds of our domestic sales during the 6-month period. Comparably, sales of our Mama line of products accounted for approximately half our sales in the prior year.

Our gross margin for the 6-month period was 41%. This is up from 29% in the same period a year ago, again, the increase is primarily due to higher pricing of our Zumba products. Operating expenses were $19.9 million, an increase of $9 million from the prior year. Approximately 50% of the increase was due to increased marketing and distribution costs associated with our higher revenues, primarily Zumba.

The remainder of the increase was the result of research and development costs related to the additional producers for console games, the outsourcing of social games and increased profit-based bonus expenses recorded in our first fiscal quarter. As a result, non-GAAP net income for the 6-month period increased to $12.8 million compared to $1.7 million in the prior year. Non-GAAP diluted earnings per share for the period increased to $0.33 compared to $0.04 for the same period last year.

Turning to our balance sheet. We closed our fiscal quarter ended April 30, 2011 with $18.5 million in cash and equivalents, and an additional $7.9 million in advances available to us under our accounts receivable factoring agreement leaving us with total cash availability of roughly $26.4 million. As of April 30, we had approximately a $5.6 million invested in capitalized software development and prepaid royalties with another $10.4 million committed to complete these games.

We had $7.6 million of inventory compared with $4.2 million in Q2 2010. Most of the inventory increase is related to our Zumba products. We continue to have no long-term debt to service. We received approximately $1.7 million in proceeds from the exercise of warrants during the period on the issuance of approximately 950,000 shares of common stock. The majority of the warrants were related to a pipe financing we did in 2007 and were exercised at a price of $2.04.

Now for our 2011 outlook. Following the successful first half of the year, and stronger than expected sell-through for Zumba Fitness, we expect to achieve approximately $110 million to $120 million of sales for the fiscal year, up from our prior guidance of $100 million to $110 million. We expect this to result in non-GAAP net income of $12 million to $14 million, and fully diluted earnings per share in the range of $0.30 to $0.35, based on an estimate of approximately 40 million fully diluted shares outstanding for the year.

This is an increase from our prior guidance of $0.20 to $0.25 per fully diluted share. Two items to note in our guidance. First, our fiscal year ends on October 31, and we plan to release a number of our holiday titles late in the fourth fiscal quarter of 2011. However, we also incur marketing expenses associated with the launch of the titles during the quarter and we anticipate any reorder sales associated with them to occur in the first fiscal quarter of 2012.

Our forecasted earnings are also impacted by our investment in our digital and online games business. Our online games business utilizes a premium revenue model and micro transactions on the Facebook platform. There's a start-up period required to establish optimized game play and monetization characteristics within the game before revenue is generated. Therefore, we have not planned significant revenue from this initiative in the current fiscal year in our guidance.

Additionally, there will be a transition period where we will carry the cost of both our third party developers in addition to the new Quick Hit employees as we transition the games over to our Foxborough office. I'll now turn the call back over to Jesse.

Thanks, Mike. I will now provide some comments on our lineup for the rest of 2011. We just got back from E3 where we received some fantastic feedback on our release slate including a "Best of E3" award from Electric Playground for BloodRayne - Betrayal, and two "Favorite of E3" awards from FamilyFriendlyVideoGames.com for a Take Shape for XBOX Kinect and Camping Mama - Outdoor Adventures for the DS.

In the past 2 months, we have announced a wide array of titles across all of the fastest growing platforms, Kinect, 3DS, Facebook, XBOX, Xbox Live and more. As we've said in the past, we believe in brands and we'll be aligning many of our major releases with proven recognizable brands. Underlining this commitment, we recently announced a major partnership with the National Basketball Association to bring an innovative, motion-based product to market that is unlike most traditional sports games. We'll be sharing details of this spring 2012 release soon.

This holiday we expect to launch many titles for the Kinect as well as the 3DS. Kinect for the XBOX 360 is off to an astonishing start, quickly ramping up to a 10-million-unit installed base which we believe could be well over 20 million a year from now. As more and more casual gamers migrate to new motion-based gaming plat force like Kinect and Move and the Wii, we believe this will create more opportunity for us, given our demographic focus on family and casual gamers.

We are supporting the Kinect this year with several big titles. Hulk Hogan's Main Event which is the first motion-based wrestling game on the Kinect and lets players train with icon Hulk Hogan as they build their own wrestling personalities and learn the art of showmanship to win over the crowd. Take Shape is a contagiously fun interactive party game which challenges players to stretch and shrink their body into hundreds of different shapes, animals and symbols. The game is designed exclusively for the Kinect and leverages full body motion mechanics with a social multi-player experience that brings family and friends together to play.

Mind 'n Motion is a fun, family friendly experience that puts your motor skills to the test with activities that keep your entire body moving as fast as your mind can trigger your next move. Finally, we will also continue to market and support Zumba Fitness for Kinect which should continue to sell well as that installed base grows. While Nintendo 3DS is off to a somewhat slower start, we believe in its long-term viability which will be most evident when some of its big first party brands that Nintendo is known for release later this year.

We have announced 6 new titles for the 3DS this year and are most excited about Cooking Mama 4 - Kitchen Magic, as well as Jaws - Ultimate Predator, Pet Zombies, The Hidden, Nano Assault and Face Racers - Photo Finish. Much like Cooking Mama's original 2006 debut early in the DS's life cycle, which continued to sell well, even 5 years later, we believe that Cooking Mama 4 can establish itself now on the 3DS and experience a similarly long tail for many years to come.

But we aren't leaving our core Mama fans behind. Conversely, we plan to widen the current audience with Camping Mama - Outdoor Adventures for the Nintendo DS. In addition to Mama, we are introducing Papa as well as a daughter and a son. Would-be campers can choose to play as either the son or daughter with Mama and Papa offering guidance on outdoor activities like rock climbing, spelunking, rowing and tree climbing as they navigate new environments that span forests, mountains and seas.

Finally, following the huge success of Zumba Fitness on Wii, we will continue to build this solid franchise with Zumba Fitness 2, coming this holiday for the Wii. Rebuilt from the ground up, with a brand-new development team, the sequel features contagious new music, exciting new choreography, more than double the number of dance styles and dynamic new arenas. The Zumba brand remains in a rapid growth mode and we are very happy to have partnered with the preeminent leader in the dance fitness world.

In addition to our 3 Facebook games coming this year, we also have other downloadable games launching soon on Xbox Live, PlayStation Network and the App store. Next month we are reintroducing fan favorite Rayne in BloodRayne - Betrayal for XBLA and PSN. The game is receiving a great deal of media attention coming out of last week's show including a "Best of E3" award from Electric Playground. Its depth of play, stylized presentation and solid mechanics promise to deliver a high quality title to online players around the world.

In summary, we are very encouraged by our performance so far this year and look forward to executing on our second half release slate while also investing in the growth of our social gaming initiatives. That concludes our formal remarks. Operator, if you could review the Q&A instructions, please.

(Operator Instructions) Our first question comes from Sean McGowan at Needham.

Hi. Can you hear me?

Yes.

Okay. Thanks. Couple things regarding, firstly, the impairment charge for canceled games. Would it be fair to say, correct me if I'm wrong, that maybe you've raised the bar a little bit so that some titles that maybe you wouldn't have canceled so far at this stage have been canceled? Or would they have been canceled anyway?

No, I think that's fair to say. I think as we grow as a Company, the threshold for success grows. And if products that we are creating are not going to meet that threshold, we're going to focus on the ones that can.

Okay. Thanks. Would you remind us of some of the basic terms of the warrants, like how many are still outstanding? Are they all exercisable at the same price? And what's the expiration?

Yes, sure, Sean. There's about $1.4 million of shares issuable under the warrants from the pipe transaction remaining. They expire in September of 2012. And they're at about $2.04. That's 98 --

It's all from that one issue? There's nothing left over from anything else?

No, very small. I mean, there's a couple very small issuances to consultants and things like that. But that's 98% of it.

And is the accounting treatment on that, do you assume exercise and then you assume repurchase of up to a certain amount of that? Is that the way that works?

Yes, so you're talking about in the EPS calculation, right?

Yes.

So we would assume that we get the proceeds, $2.04 for each share to buy back in the market. So if the stock price was at $4.08, you would be able to essentially buy half back after the exercise.

Right. Okay. But I know there are volume constraints on that or total percentages. At this point, can basically all of it be assumed to be used for repurchase? (Inaudible) of housekeeping. It doesn't affect non-GAAP. I just want to know what number to be looking for.

Yes.

Okay. What are the variable selling expenses, are they pretty constant as a percentage of sales or does that number even fluctuate and what is that?

The pure variable, I use about 5% for that. But it commissions to brokers that work the different retailers and it's also the fulfillment and handling costs that go along with the volume. And, of course, on top of that, you have the media which is, while it's variable, it's more a decision-based variable cost, not a volume-based variable cost.

Right. All right. And last question. Could you just remind me, because I couldn't catch it on the call, what was the percentage of domestic sales from Zumba for the six months? I got 75% for three months but what was it for the six months?

It was about two-thirds.

Okay. All right. Thank you.

Next question comes from John Taylor at Arcadia Investment Corp.

Hi. I've got a couple of questions. The first one is, Jesse, could you give us a sense of what it looks like the investment is going to look like in ramping up the digital stuff you're doing? You sort of talked about it in general terms but how much maybe dilution are you thinking is going to hit the numbers this year since you're not recognizing revenue? That's the first one.

And the second one is if you ex- out the royalty contribution from the Zumba sales in Europe, I wonder what the product gross margin looked like and was there anything going on with those numbers? Thanks.

Okay. I'll take the first part. I'll let Mike take you through the European royalties. I would view the investment as around a $2 million, $2.5 million investment. That's been included in our guidance for social games.

Okay. That's all cost and essentially no revenue to offset it?

Correct. It's investment into next year.

Okay. Great.

On the European contribution, the total revenue from Europe was about $3 million.

Okay.

And there's really two pieces in that. We sell the belt accessory over there and we also collect a royalty. The net amount in gross margin related to that is between $1 million and $1.5 million for the quarter.

All right. So why wouldn't that be a larger number, given the large margin on the royalty piece? Was the mix of accessories quite a bit higher than royalties, say?

Yes, well, the accessory is -- it has revenue in cost of sales so it's pretty much -- we're selling that with a small markup. But it's not where we're making --

Right. Okay. Okay, so if you take that out of the gross margin compared to the US published thing, anything going on there other than the mix towards Zumba?

No, it's mainly the Zumba numbers that are driving the margin.

Yes, which is selling price-driven, mostly.

Yes. And, I guess, the one thing we point out there is that the Kinect is still carrying a fairly console life cycle price as compared to the Wii at $49.99.

Okay, great. Okay. Thank you.

The next question comes from Adam Krejcik at ROTH Capital.

Hey, guys. Thanks for taking my call. Just some questions on the acquisition of Quick Hit here. I guess, kind of bigger picture, when Jeff starts and his team starts working on development, some of the stuff that's not already in progress, is the strategy to focus more on the casual games that you guys are kind of known for, or will they get into some more hardcore MMORPG type of stuff that they did at Turbine and EA?

No, no, we're staying strictly on the casual side. It's what we know. It's what he's been doing for the last few years at Quick Hit. And it's what we feel the future is, where the future is for us.

Got it. And just to clarify, the acquisition doesn't include the rights to the NFL Football game, is that right?

Yes. While we acquired the select assets of Quick Hit, we did not acquire rights to the NFL branded football, as disclosed. We entered into a license agreement with the owner of the game code with an option to purchase at a later date. However, at this time, we have not determined our plans with regard to proceeding with the NFL or the game.

Okay. And any kind of sense you can give us for maybe if not revenues, registered users or monthly active users or any data points there?

I would say it's too early to get into at this point but what I would tell you, Adam, is at the next call we'll get more detailed information to talk about.

Okay. And then for 2012, I know it's still a ways out, but any kind of internal goals or things you've said about digital social games as a percentage of your overall revenue where you would be happy or should we wait for a few more quarters still?

I would stay tuned. I think the goal for us to demonstrate some real success in that area by really growing our average user base, monthly or daily, on all of our games and really start building monetization. Once we're demonstrating that, then we can talk about the run rate that we're building to and the growth potential.

Got it. Thank you.

(Operator Instructions) Our next question comes from George Santana at Ascendant.

Thanks so much for taking my question here. Can you hear me?

Yes. Hi, George.

Congratulations on a great quarter, real phenomenal numbers. Just looking at the guidance that you have for the fiscal full year, could you speak perhaps to some of the other costs that we should perhaps integrate into our model, the seasonality, the integration costs, maybe any investments in support of the new product launches, and driving that question is seems like your guidance on the non-GAAP EPS is $0.30 to $0.35, but you've already earned $0.33 in the six months. Thanks.

I guess taking a step back, generally speaking our first and fourth fiscal quarters account for a lot of our sales. Since we do family friendly games we tend to time those near the holiday and that's where a lot of the sales are, with the first quarter being by far the strongest. So in the mid-quarters, we really have our catalog sales and we don't have a lot of planned new releases. So when you look at the rest of this year and you look at the next quarter, the third fiscal quarter is a quarter with maybe a couple small releases but not a lot of major new releases. It's really preparing for the holiday.

Then when you look at the fourth fiscal quarter, start to sell in our holiday release slate which, George, I think you saw at E3. So we usually start shipping that in in the last two weeks in October, so we'll have some sales in the fourth quarter. But we'll also have marketing costs associated with the release of that and the idea is we get the reorders in November and December that belong to our first fiscal quarter.

So when you look out at the rest of our year, you usually see a slow third quarter, increased sales in the fourth quarter as we begin to ship in for the holiday but also increased marketing expenses in hopes of positioning ourselves for our first fiscal quarter of next year which includes the holiday. The other thing to keep in mind as Jesse mentioned, we have some investment in social games in the last two quarters of this year also that we expect.

Great. Thank you.

The next question comes from Matt Spratford at Sidoti.

Hi, how are you? Just a couple quick ones for you. Just in terms of demand quarter-over-quarter, sequentially, I was just curious maybe if you could speak to that a little bit, particularly for Zumba?

I think demand has continued. I think it stayed in line with what I'll call the overall demand for the industry. Obviously, holiday is the hottest time for our industry but it's maintained its position in the top 10 up until now and continues to sell.

In Europe, it's only recently we launched on the Wii which has been the leading platform for it given the installed base, of course, of the platform. And since it's been launched, it's been a top five video game in the UK, being number one a couple of weeks, and has just continued to sell well there. So we are excited about it. We are -- we have cautious optimism going into the summer days as far as the continued sales of it, but obviously very pleased with it.

Got you. So you say it's probably, around comparable to this time last quarter? Would that be a fair assessment?

Probably a little -- I would say that we don't really comment this closely, this early in the quarter. But I would just say it's continuing to sell along with the rest of the industry products in terms of where its placement is in the top 10.

Okay. Fair enough. And then just in terms of the margins, more specifically on Zumba, how long do you expect that premium? Is that basically until you launch Zumba 2 in the holidays?

I think you'll see as -- we're always doing promotions and doing things along those lines to maintain the excitement at retail and continue its presence at the retail level. The plan is to continue it through that time, correct.

Okay. And then just in terms of R&D costs, I know you said they're up a little bit. Would you consider this to be a good baseline level for that?

The R&D as it relates to?

Just quarterly, I was just curious if this is a good run rate going forward? Obviously, there's a little seasonality but just more or less a baseline.

Yes, yes, absolutely.

All right. And then just the last one, on the impairment cost, would this be safe to say this is probably your big impairment for the year and then it will kind of taper off from here?

Yes, I'd like to think so.

(laughter) All right. Thanks. Appreciate it.

Yes, sure. Thank you.

Our next question comes from Jeff Osher at Harvest Capital.

Hi. Congratulations on another sound quarter. Mike, just a couple housekeeping questions. What percentage of the share jump sequentially of 10%-plus was related to just Treasury method dilution based on the stock price going up versus something else?

Well, there's two pieces of it. One is the warrant that exercised, went in as direct shares, right. And the rest of it was just due to the calculation, the change in the Treasury stock calculation because of the increase in share price. But, I guess, another way to look at it is even if those warrants weren't exercised, their shares would have been counted in there anyway. So I would say most of it is due to the change in share price with some impact from the actual exercise of the warrants themselves.

I mean, it's pretty small on the warrants, right? That was about $750,000 or $800,000 or something like that?

Yes, about, yes.

Okay. And then what -- ballpark, what's the rate you're paying on the factoring? I mean, is it as simple as just saying about $955,000 year-to-date of financing expense divided by the average amount due from factor?

Yes, there's really two pieces of it. One, we factor most of our accounts receivable which means we essentially sell it to the factor and they have the security interest in it and when that transaction takes place, we pay about 0.5% on the sale itself.

Okay.

And then when we take advances, we pay like a 1.5 points over LIBOR.

LIBOR. Okay. So it's L plus 1.5 points. Okay. Last question. The provision for price protection and allowances, was the fact that was flat year-over-year through the first six months with sales really strong, up 100%, is that just a function of the mix of Zumba and the lack of need for price protection?

Yes.

For the Zumba brand?

Yes, absolutely. We haven't had to lower the price on that. A lot of titles at this point in their cycle we would have taken at least one price drop. But on the Wii and the Kinect, we have not taken it yet.

Great. And then last question, maybe one for Jesse on the strategic side. I mean, does it make, Jesse, again, and I know there's been brain damage for years with the factor and the balance sheet and with the warrants having been exercised, I think this is usually your -- just with seasonality close to your cash peak. Does it make sense to look at optionality with the stock having had a pretty strong move to solidify the balance sheet even further?

I would say that having an effective shelf in place, it's an important tool to use as it allows the Company to quickly access the markets when needed or when market conditions are optimal. We're pleased to have the tool in place and available to us as we execute on our plans. But nothing else to really talk about as far as that's concerned.

The factor itself is -- given the cyclical nature of the business and the seasonal nature of the business, rather, we get -- we do a lot of our buying in holiday or close to holiday and usually the factor plays an important role in managing that process appropriately, allowing us --

Got it. I get it. Congrats. Thanks for taking my questions.

Thanks, Jeff.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I want to thank everybody for attending this second quarter call and we look forward to speaking to you again at the end of our third quarter in September. Have a great day.

The conference has now concluded. Thank you for attending today's event. You may now disconnect.