Mad Catz CEO resigns

Along with others!

Press release:

On February 5, 2016, Mr. Thomas Brown resigned from the Company’s Board of Directors, including from his role as Chairman and from his position as a member of the Board’s Audit Committee. The Company’s Board of Directors has named Mr. John Nyholt as Chairman. Mr. Nyholt has been a director of the Company since October 2013.

In addition, the Company’s Board of Directors accepted the resignation of Mr. Darren Richardson from his position as President and Chief Executive Officer and from his seat as a member of the Company’s Board of Directors. Ms. Karen McGinnis, previously the Company’s Chief Financial Officer, has been named President and Chief Executive Officer of Mad Catz and has been appointed to the Company’s Board of Directors.

Replacing Ms. McGinnis, Mr. David McKeon has been appointed Chief Financial Officer. Mr. McKeon previously served as the Company’s Vice President, Corporate Controller.

Further, Mr. Whitney Peterson has resigned as the Company’s Senior Vice President of Business Affairs, General Counsel and Corporate Secretary.

I’m guessing the earnings report scheduled for tomorrow isn’t going to be great. Rock Band 4 fallout?

Must be really bad if they couldn’t wait until after the earnings report to resign.

Stock is down almost 26%.

And that despite the surge in Saitek HOTAS sales due to elite dangerous 😟

they got another blow today- The other game they were counting on to save them, Street Fighter V, is going to have backwards compatibility on controllers for the PS4. People will keep their PS3 sticks.

In addition, the PC version requires xinput for now, so their new controllers won’t even work on the PC version. (you’ll need to emulate a driver or use a 360 controller)

Oof. 37% of the company will be laid off.

Rock Band sell-through was lower than originally forecast resulting in higher inventory balances as well as lower margins due to increased promotional activity with retailers," president and CEO Karen McGinnis said in a statement alongside its results. The company also experienced low demand for its audio and PC products, and decreasing sales in European and Asian regions.

Ouch, that’s nasty.

Also, Gamasutra failed in math. 37% of the company will be laid off, 63% will remain.

Good news!

Fiscal 2016 third quarter net sales increased 114% to $65.0 million, the second highest quarterly net sales in the Company’s history

Bad news!

Gross margin declined to 17.5% from 26.9% in the prior year quarter

On February 5, 2016, the Company’s Board of Directors approved a restructuring plan focused on lowering operating costs, increasing efficiencies and better aligning its workforce with the needs of the business. The plan consists of a reduction in the number of positions across the organization equal to approximately 37% of the total workforce and includes changes at the executive level. As a result of these actions, the Company expects to record a pre-tax cash restructuring charge of approximately $3.0 million during the fourth quarter of fiscal 2016, comprised primarily of severance and benefits afforded to terminated employees and executive officers (inclusive of amounts due Messrs. Richardson and Peterson pursuant to their amended and restated employment agreements, dated as of April 22, 2014). The Company anticipates that the actions associated with these headcount reductions will be substantially completed by the end of the fourth quarter of fiscal 2016, and that these actions will result in annual savings in excess of $5.0 million starting in the first quarter of fiscal 2017.

I was just about to say something about being surprised Mad Catz was still in business at all, but i did recently buy a Saitek HOTUS for Elite…

Just doing my part to keep Mad Catz in business i suppose.

sidetrack question: Is the xbox one controller on PC an Xinput device?

Yes it is.

Oh boy.

I want to briefly touch upon the announcement from last week regarding the notice we received from the New York Stock Exchange market, that due to our current low stock price, continued listing on the exchange, it’s partly on [ph] affecting a share consolidation or otherwise demonstrating sustained price improvement within the required timeframe. If we are not compliant with the continued listing standards or do not make progress on increasing the share price per share, the exchange may decide to initiate delisting proceedings.

At the present time, we anticipate that we will seek shareholder approval to effectuate a reverse stock split of our issued and outstanding common stock at our next annual meeting. The board is assessing which split ratio would best serve shareholders while allowing the Company to remain complaint with the Exchange’s continued listing assignments.[/quote]

We ended the quarter on December 31st with negative working capital of $11 million. This results in $41 million in current liabilities and $30 million of current assets, of which $15 million was in inventory. Although all Rock Band 4 inventory was sold prior to September 6, we did provide extended payment terms to a customer on a portion of the sales, precluding us from recognizing revenue under U.S. GAAP until the product actually sold through.

As such we recognized $2 million in net sales of Rock Band 4 products during the third quarter and we have $2.5 million of Rock Band 4 inventory remaining on our balance sheet at December 31, at its net realizable value. While we did not incur additional charges related to Rock Band 4 during the quarter, if suppliers cannot sell through at the current expected prices, we may have to take additional charges in the future related to funding additional prices adjustments at retailers in order to improve the sell through to consumers.[/quote]

Unidentified Analyst

Okay, and my last question is there – I mean it doesn’t – right now it doesn’t – I’m a big investor here, I mean shareholder, and I don’t see that much optimization. I have hope a year ago, when I heard the conference call, I had hope. I saw that you were going to do the restructuring but it seems like we really haven’t made that much progress. My concern is, let’s say you don’t put up the sale, so let’s say the Company doesn’t get sold. Are you going to have enough money to go to the next six months? Do you still see this as a going concern?

Karen McGinnis

I think long term we will struggle. We will have a – if we don’t figure out some strategic alternatives, some additional financing, we’re looking at all different options, Q4 and Q1 are both seasonally low quarters. They typically aren’t profitable even in big years. And so you continue usually to incur losses. And so that will just add to the negative working capital. And you’d have to get cash in to rectify that. And so that will be a challenge for us. And it’s – you know why – although we started a strategic alternative process a while back, and it did – I would say we have made progress, but we started out with a really big hole. We were able to sell all the Rock Band 4 inventory, we were able to sell a product line for $13 million and that got some much-needed cash in. But again, since it didn’t correct everything, the biggest constraint is supply, and if you don’t have enough product to sell, it makes it really hard to generate profits.

And or if you don’t get the product in the timelines that you want, and you’re having to air freight it, then air freight eats into a lot of your profitability as well. And what we didn’t anticipate a year ago was just how much more of a burden Rock Bank 4 was going to be. We’ve taken about $6 million of charges, just this year on things like price protection, with retailers related to Rock Band 4. And so although we had a lot of things that I would say went our way this year, we had a lot of things that didn’t. And when you start out with a big hole, it makes it really challenging.

Unidentified Analyst

Right, now Karen you mentioned a couple of quarters – you said that you were very confident. You still feel that way?

Karen McGinnis

I’m very confident that Mad Catz has exceptional products. And I think we proved that. Every time we put something out in the market, it gets good reviews. Where it gets placed, it gets sold. Our Tritton audio line is a great brand, particularly in Europe. Its gaining traction again in the U.S., because we’re getting more placements for it. I was hoping for a much better holiday quarter not unlike I’m sure the rest of the ambassadors were, of which I’m also a shareholder. And so I’m incredibly disappointed with the Q3 and the profitability. It should have been – we needed that to be profitable quarter. So I’m still optimistic that we’ve got good products. I think, we’ve got good things. We’re looking at lots of different strategic alternatives. And so I’m still optimistic that there is a path forward. But probably a little bit less optimistic than maybe I would have been six months ago.

Unidentified Analyst

Okay, Karen do you see, this is just [indiscernible]. Do you see is that – do you think that there’s a chance that we could go along without being sold. Is there any hope with that or do you see really like the end of – the sales is going to be probably – what’s going to be the final thing. So do you see any – like we can continue without selling the company?

Karen McGinnis

I mean we will – unless we get some type of financing or there’s some other way to get cash into the Company. I think that becomes a little bit more difficult, because our ability to raise capital is very limited, also because the market cap has been suppressed so much. We haven’t sold any shares under the ATM. And doing nothing, which is why we have a process to look at strategic alternatives, I don’t think would be prudent, because I do think you just can’t continue to expect manufacturers to ship products without making payments as they become due.[/quote]

That final exchange is pretty amazing.

I think Saitek was sold last year to Logitech. So they should be unaffected?

Just a few months ago actually. Yes Saitek should be OK depending on if Logitech see’s any redundencies or not. Like I mentioned in the hardware forum Logitech either got an amazing deal for them, or the previous Mad Catz CEO was insanely off when he bought them.

Just to make sure I understand; unless they’re purchased, people are anticipating Mad Catz to last about as long as one of their controllers - correct?

The fighting game controllers released by Mad Catz this gen and last gen have been top-class. This gen’s are a bit overpriced though.

It was really bad before Mad Catz got good. People were making custom sticks. There are alternatives now at least such as Qanba.