Navarre Corporation Reports Improved Profitability for Second Quarter of Fiscal Year 2010
MINNEAPOLIS, Oct. 29 /PRNewswire-FirstCall/ -- Navarre Corporation (Nasdaq: NAVR - News) today reported its second quarter and year-to-date financial results for its fiscal year 2010.
Second Quarter Fiscal Year 2010
- Net sales were $122.4 million, as compared to net sales of $170.3 million for the same period last year, a decrease of 28%.
- Operating income during the second quarter was $3.8 million; as compared to an operating loss of $70.2 million in the prior fiscal year.
- Net income increased to $2.3 million, or $0.06 per diluted share, as compared to a net loss of $44.5 million, or a loss of $1.23 per diluted share, in the prior fiscal year.
- EBITDA (earnings before interest, taxes, depreciation, amortization, and share-based compensation expense) was $6 million; as compared to Adjusted EBITDA of $5.6 million in the prior year's second quarter. Adjusted EBITDA does not include the impact of a $73.4 million non-cash goodwill impairment charge recognized in the second quarter of fiscal year 2009. (See "Use of Non-GAAP Financial Information" below)
- Debt at September 30, 2009 was $19.9 million; as compared to debt of $45.6 million on September 30, 2008, a reduction of $25.7 million or 56%.
Year-to-Date Fiscal Year 2010
- Net sales were $256.7 million, as compared to net sales of $312.3 million for the same six month period last year, a decrease of 18%.
- Net income increased to $6.4 million, or $0.18 per diluted share, as compared to a net loss of $43.9, or a net loss of $1.21 per diluted share, in the prior fiscal year.
- EBITDA increased by 39% to $15.1 million, as compared to Adjusted EBITDA of $10.9 million in the first half of the prior fiscal year. Adjusted EBITDA does not include the impact of a $73.4 million non-cash goodwill impairment charge recognized in the second quarter of fiscal year 2009. (See "Use of Non-GAAP Financial Information" below)
Cary Deacon, Chief Executive Officer, commented, "The continued macroeconomic difficulties faced by consumers and the closure of Circuit City impacted sales versus the prior year's second quarter. However, our strategy to refocus on more productive revenue sources is clearly paying off as we are seeing strong levels of profitability and a $25.7 million debt reduction versus the same time last year."
"In particular, we are seeing the expansion of value-added services contribute to gross margin improvement in the Distribution segment. These services strengthen relationships with both our customers and our vendors as we customize service levels to their exact requirements. We look forward to seeing the continued benefit of these initiatives as the economy improves." continued Deacon.
Outlook
In light of results from the first two fiscal quarters, the company is updating its guidance for fiscal year 2010 as follows:
- The range of anticipated net sales has been narrowed to between $525 million and $550 million;
- Anticipated EBITDA has increased to between $23 million and $26 million; and
- Cash flow from operations is expected to be positive for fiscal year 2010 results.
Publishing Segment
The publishing segment includes the results of FUNimation Entertainment, Encore and BCI. For the second quarter ended September 30, 2009, the publishing segment had net sales, before inter-company eliminations, of $21.4 million, a decrease of 26%, as compared to net sales of $28.8 million in the second quarter of the prior fiscal year. BCI, whose operations have been winding down since the third quarter of fiscal year 2009, generated nominal sales in the second quarter and accounted for over half of this net sales decline. (See "Use of Non-GAAP Financial Information" below)
Operating income during the second quarter for the publishing segment was $2.5 million, as compared to an operating loss of $70.3 million in the second quarter of the prior year. The operating loss in the second quarter of fiscal 2009 resulted from the recognition of a $73.4 million non-cash goodwill impairment charge. The publishing segment's operating income was positively impacted by increased gross margins in software publishing, which were partially offset by a relatively soft new release schedule for anime products during the quarter.
Distribution Segment
The distribution segment includes the results of Navarre Distribution Services and Navarre Logistical Services. For the second quarter ended September 30, 2009, the distribution segment's net sales, before inter-company eliminations, were $111.3 million, as compared to net sales of $158.5 million for the same period last year, a decrease of 30%. In addition to the loss of Circuit City and the weak retail environment, the distribution segment had no major video game release in the quarter. (See "Use of Non-GAAP Financial Information" below)
Operating income in the distribution segment for the second quarter was $1.3 million, as compared to operating income of $100,000 in the second quarter of the prior fiscal year. The distribution segment's quarterly results benefited from reduced operating expenses combined with higher gross margins from, among other things, an increase in value-added services revenue and a reduced mix of lower margin video games.
Conference Call
The Company will host a conference call at 11:00 a.m. ET, Friday, October 30, 2009, to discuss its fiscal year 2010 second quarter financial results. The conference call can be accessed by dialing (866) 318-8615, conference participant passcode "76307129", ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the "Investors" section of the Company's web site located at www.navarre.com. Those wishing to access the call through the internet should go to the Company's web site fifteen minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available at the Company's web site following the call's completion.
Use of Non-GAAP Financial Information
In evaluating our financial performance and operating trends, management considers information concerning our net sales before inter-company eliminations, and earnings before interest, taxes, depreciation, amortization, and share-based compensation expense, which are not calculated in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The Company's management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these preliminary non-GAAP financial measures to the comparable preliminary GAAP results, which is attached to this release and can also be found on the Company's web site at www.navarre.com.
About Navarre Corporation
Navarre® Corporation is a publisher and distributer of a wide range of computer software and home entertainment products. The Company publishes anime content through its FUNimation Entertainment® subsidiary and computer software through its Encore® subsidiary. Navarre Distribution Services distributes computer software, DVD video, video games and accessories; and Navarre Logistical Services provides value-added services to third-party publishers. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information regarding Navarre can be found at http://www.navarre.com.
Safe Harbor
The statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: difficult economic conditions that adversely affect the Company's customers and vendors; the Company's revenues being derived from a small group of customers; a pending investigation by the U.S. Securities and Exchange Commission (the "SEC") or litigation arising out of this investigation may subject the Company to significant costs; the seasonal nature of the Company's business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its new ERP system; the Company's dependence on significant vendors; uncertain growth in the publishing segment; the Company's ability to meet significant working capital requirements related to distributing products; and the Company's ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company's reports to the Securities and Exchange Commission, including in particular the Company's Form 10-K filings, as well as its other SEC filings and public disclosures.
Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC's other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please contact the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Net sales $122,411 $170,296 $256,717 $312,321
Cost of sales (exclusive of
depreciation
and amortization) 101,544 146,066 212,286 265,965
-------- -------- -------- --------
Gross profit 20,867 24,230 44,431 46,356
Operating expenses:
Selling and marketing 5,690 7,206 10,845 12,921
Distribution and warehousing 2,435 3,046 4,511 5,930
General and administrative 7,249 8,181 15,277 16,634
Bad debt expense 92 200 92 200
Depreciation and amortization 1,594 2,376 3,383 4,697
Goodwill impairment - 73,412 - 73,412
-------- -------- -------- --------
Total operating expenses 17,060 94,421 34,108 113,794
-------- -------- -------- --------
Income (loss) from operations 3,807 (70,191) 10,323 (67,438)
Other income (expense):
Interest expense (1) (601) (833) (1,320) (2,448)
Interest income - 14 7 29
Other income (expense), net 364 (223) 815 (321)
-------- -------- -------- --------
Net income (loss) before
income tax 3,570 (71,233) 9,825 (70,178)
Income tax benefit (expense) (1,290) 26,725 (3,384) 26,297
-------- -------- -------- --------
Net income (loss) $2,280 $(44,508) $6,441 $(43,881)
======== ======== ======== ========
Earnings (loss) per common
share:
Basic $0.06 $(1.23) $0.18 $(1.21)
======== ======== ======== ========
Diluted $0.06 $(1.23) $0.18 $(1.21)
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 36,237 36,191 36,237 36,188
Diluted 36,650 36,191 36,530 36,188
(1) The six month period ended September 30, 2008, includes a $0.49
million non-cash write-off of debt acquisition costs.
NAVARRE CORPORATION
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited) (Unaudited)
September 30, September 30, March 31,
2009 2008 2009
-------- -------- --------
Assets
Current assets:
Accounts receivables, net $61,328 $94,689 $72,817
Inventories 31,819 49,632 26,732
Other 15,783 25,896 23,199
-------- -------- --------
Total current assets 108,930 170,217 122,748
Property and equipment, net 14,003 17,949 15,957
Other assets 43,199 80,639 44,464
-------- -------- --------
Total assets $166,132 $268,805 $183,169
======== ======== ========
Liabilities and shareholders' equity
Current liabilities:
Note payable - line of credit $19,916 $45,597 $24,133
Accounts payable 80,101 120,432 106,708
Other 20,728 18,882 14,040
-------- -------- --------
Total current liabilities 120,745 184,911 144,881
Long-term liabilities:
Other 1,408 2,850 1,281
-------- -------- --------
Total liabilities 122,153 187,761 146,162
Shareholders' equity 43,979 81,044 37,007
-------- -------- --------
Total liabilities and
shareholders' equity $166,132 $268,805 $183,169
======== ======== ========
NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
September 30,
2009 2008
-------- --------
Net cash provided by (used in) operating activities $1,500 $(7,208)
Net cash used in investing activities (1,384) (426)
Net cash provided by (used in) financing activities (116) 3,189
-------- --------
Net decrease in cash - (4,445)
Cash at beginning of period - 4,445
-------- --------
Cash at end of period $- $-
======== ========
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net
Sales and Business Segment Information
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------------------------------------
2009 % 2008 % 2009 % 2008 %
--------------------------------------------------------
Net sales:
Publishing $21,431 16.1% $28,794 15.4% $46,296 16.6% $56,212 16.2%
Distribution 111,336 83.9% 158,458 84.6% 232,732 83.4% 291,553 83.8%
-------- -------- -------- --------
Net sales
Before
inter-company
eliminations 132,767 187,252 279,028 347,765
-------- -------- -------- --------
Inter-company
Eliminations (10,356) (16,956) (22,311) (35,444)
-------- -------- -------- --------
Net sales
as reported $122,411 $170,296 $256,717 $312,321
======== ======== ======== ========
Income (loss)
from operations:
Publishing $2,533 $(70,305) $8,685 $(66,861)
Distribution 1,274 114 1,638 (577)
-------- -------- -------- --------
Consolidated
income (loss)
from
operations $3,807 $(70,191) $10,323 $(67,438)
======== ======== ======== ========
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended Six Months Ended
September 30, September 30,
----------------- -----------------
2009 2008 2009 2008
------ ------ ------ ------
Net income (loss), as reported $2,280 $(44,508) $6,441 $(43,881)
Interest expense (income), net 601 819 1,313 2,419
Income tax (benefit) expense 1,290 (26,725) 3,384 (26,297)
Depreciation and amortization 1,594 2,376 3,383 4,697
Share-based compensation 272 213 529 501
Goodwill impairment - 73,412 - 73,412
------ ------ ------ ------
EBITDA(1) and Adjusted EBITDA(2) $6,037 $5,587 $15,050 $10,851
====== ====== ====== ======
(1) EBITDA (earnings before interest, taxes, depreciation, amortization,
and share-based compensation expense) is shown for the three month
period and the six month period ended September 30, 2009.
(2) Adjusted EBITDA (earnings before interest, taxes, depreciation,
amortization, share-based compensation expense, and goodwill
impairment charges) is shown for the three month period and the
six month period ended September 30, 2008.
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