The Company also updated its guidance for the year ending December 31, 2005 and provided revenue and earnings guidance for the third quarter ending September 30, 2005.
SECOND QUARTER RESULTS
Net revenues for the 2005 second quarter were $36.9 million, compared with 2004 second quarter net revenues of $47.3 million. The 2005 second quarter loss applicable to common stock was $29.9 million or a loss of $0.35 per share, compared with a 2004 second quarter loss applicable to common stock of $11.2 million or a loss of $0.17 per share. The second quarter results were below previously provided expectations primarily due to lower-than-forecasted sales of Unreal Championship 2, as well as the writedown of capitalized product development costs for upcoming releases and the need for additional reserves for markdowns.
Other recent operating and financial highlights include:
- During the 2005 second quarter, Midway released Area 51 for PlayStation 2, Xbox, and PC, and Unreal Championship 2 for Xbox in North America and Europe. Area 51 was a top 5-selling Xbox game and #6 overall game for the month of May in the U.S. according to NPD Funworld. In addition, in the United Kingdom, Area 51 was in the top 10 for four weeks according to Chart Track;
- Several of Midway's upcoming games shown at this year's E3 industry trade event in Los Angeles received nominations for Game Critics Awards including Best Fighting Game for Mortal Kombat: Shaolin Monks and Best Sports Game for Blitz: The League;
- Also at E3, Midway announced its first next generation title, Stranglehold, which is being developed in collaboration with world-renowned action film director, John Woo, and starring Chow Yun-Fat. In addition, the Company announced Unreal Tournament 2007 for PC, in development at Epic Games, Inc.;
- Midway announced on June 27, 2005, a strategic relationship with MTV, a division of Viacom, Inc., to jointly market three upcoming video game titles, beginning with the release of L.A. RUSH, expected to ship in the 2005 fourth quarter;
- Midway announced this morning an agreement with Warner Bros. Interactive Entertainment for the rights to publish interactive games based on the upcoming computer animated motion picture The Ant Bully. This is the second animated film in partnership with Warner Bros. Interactive Entertainment, along with the previously announced adaptation of Happy Feet; and,
- Midway announced this morning that it had acquired development studio Ratbag Holdings Pty Ltd., based in Australia, expanding the Company's internal product development organization globally.
David F. Zucker, president and chief executive officer, commented, "Extending our reputation for producing high-quality frontline titles, Midway's second quarter product releases, Area 51 and Unreal Championship 2, generated an enthusiastic response from critics and the gaming community. Importantly, our upcoming holiday lineup is garnering early positive feedback from reviewers."
Mr. Zucker continued, "Our efforts to expand our publishing business through strategic partnerships such as with MTV and Warner Bros. Interactive Entertainment, and to grow our internal product development capabilities through acquisitions and organic growth, demonstrate that Midway's turnaround strategy continues to gain momentum. We are committed to creating high-quality innovative content for this and the next console cycle, and we have assembled excellent internal development teams and global marketing resources to support this goal."
For the quarter ending September 30, 2005, the Company expects net revenues of approximately $30 million, with a net loss of approximately $19 million. During the quarter, Midway expects to release Mortal Kombat: Shaolin Monks for PlayStation 2 and Xbox, Midway Arcade Treasures 3 for PlayStation 2, Xbox, and GameCube, and a compilation of Midway Arcade Treasures 2 and 3 for the PC. Midway also expects to ship The Suffering: Ties that Bind for PlayStation 2, Xbox, and PC at the end of September, 2005, although due to the timing of its shipment at the end of the quarter, the Company expects to recognize the associated revenues in the fourth quarter.
During the fourth quarter of 2005, Midway expects to release Gauntlet: Seven Sorrows for PlayStation 2 and Xbox, Blitz: The League for PlayStation 2 and Xbox, Ed, Edd n Eddy: The Mis-Edventures for PlayStation 2, Xbox, GameCube, GameBoy Advance, and PC, and L.A. RUSH for PlayStation 2 and Xbox. In addition, the Company also expects to release its first two PlayStation Portable (PSP) titles: Mortal Kombat: Deception Unchained and Midway Arcade Treasures: Extended Play during the quarter.
"We are very excited about our product lineup for the next two quarters as we look to launch a diverse lineup of games that include several key Midway franchises, new family-friendly products and our first-ever PSP titles. We are committed to investing in our internal development resources and recruiting top industry talent, as evidenced by our acquisition of Ratbag, to establish the infrastructure necessary to build scale and succeed in the next generation. In addition, with the expectation of a crowded fourth quarter market for real-time strategy titles, we believe it is prudent to shift Rise & Fall: Civilizations at War to 2006 to benefit from a less competitive release window," added Mr. Zucker.
For the year ending December 31, 2005, Midway has revised its revenue expectations in part due to the rescheduling of the release date for Rise & Fall: Civilizations at War to the first quarter of 2006 from the fourth quarter of 2005. As such, for the year ending December 31, 2005, the Company now expects net revenues of approximately $200 million, as compared to the Company's previous estimate of $225 million. Additionally, the Company now expects a net loss of approximately $60 million, an increase from the Company's prior expectation of a net loss of approximately $47 million.