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Midway Losses Mount, Another Executive Dismounts

by Rainier on Nov. 10, 2008 @ 5:50 p.m. PST

Midway has released its Q3 2008 financial results, revealing that it continues to lose money despite reorganizing and other attempts to stop the bleeding. While net revenues were up 50%, net loss nearly doubled from last year's $33.5 million to $75.9 million. While Matt Booty was recently promoted to president and CEO, Shari Redstone, daughter of media mogul Sumner Redstone, resigned as a board member.

Net revenues for the 2008 third quarter were $51.4 million, compared to the 2007 third quarter net revenues of $36.7 million and in line with prior guidance of approximately $52 million. The 2008 third quarter net loss was $75.9 million, or a loss of $0.83 per basic and diluted share, compared with a 2007 third quarter net loss of $33.5 million, or a loss of $0.37 per basic and diluted share, and below the Company’s revised guidance of a loss of $0.70, primarily due to additional amortization and writedowns of capitalized product development costs.

On a non-GAAP basis, excluding the impact of stock option expense and other non-cash items, the 2008 third quarter loss was $66.3 million or a loss of $0.72 per basic and diluted share, below the Company’s revised non-GAAP guidance of a loss of $0.60. For the 2007 third quarter, on a non-GAAP basis, the Company reported a loss of $28.0 million, or a loss of $0.31 per basic and diluted share. A reconciliation of non-GAAP results to GAAP results is provided at the end of this press release.

“In the second and third quarters of 2008 we have focused on addressing several critical issues that were affecting the ability of our company to achieve success, and the third quarter results and associated non-cash charges reflect that effort,” said Matt Booty, president and CEO. “Our current focus is the upcoming launch of Mortal Kombat vs. DC Universe, which aligns our Company with the exceptional Warner Bros. brand of DC Comics. We expect that the fourth quarter will represent significant progress toward completion of these efforts, and that we will enter 2009 with a renewed focus on Midway’s key strengths.”

During the third quarter, Midway executed on several operational milestones, including the combination of its Southern California studios, the optimization of its Austin facility and cancellation of an associated unannounced game, and the entrance into a receivables factoring agreement to offset the costs related to manufacturing its fall game releases. These operational milestones, combined with the Company’s favorable exit from underperforming licenses early in the fourth quarter, are designed to ensure successful launches, minimize costs, and focus resources on Midway’s strongest licenses, core game franchises such as Mortal Kombat, TNA iMPACT! and Wheelman, as well as future licenses and new IP.

Other recent operating highlights include:

  • During the third quarter, Midway released three well-received games: TNA iMPACT! for Xbox 360, PS3, PS2, and Wii worldwide, and in North America Unreal Tournament III for Xbox 360 and Mortal Kombat: Kollection for the PS2.
  • In August, Midway’s expansive line-up for this holiday season and beyond was received very positively at Games Convention 2008 in Leipzig, Germany, with more than 200,000 consumers and press in attendance.
  • In October, Midway launched Blitz: The League II, with significant media support from the game’s cover athlete, Lawrence Taylor.
  • On October 30, 2008, Midway announced that Matthew V. Booty was appointed by the Board of Directors as President and CEO of the company, and on November 5, 2008, Midway announced that Ryan G. O’Desky has been named CFO and Senior Vice President - Finance.

“During the quarter we executed on a series of strategic and financial moves that reinforce our commitment to developing games that meet clear profitability and scheduling goals. While some of those steps negatively impacted earnings, they were necessary to ensure we are better positioned for long-term success,” noted Matt Booty, president and CEO. “More importantly, we launched three high quality games, and completed the final touches on our highly anticipated fourth quarter releases.”

During the fourth quarter, the Company has already released worldwide Blitz: The League II for PS3 and Xbox 360, Game Party 2 for the Wii, and Touchmaster II and Mechanic Master for Nintendo DS. Midway also announced that it expects its flagship game Mortal Kombat vs. DC Universe for Xbox 360 and PS3 to be available in stores on November 16th in North America and November 21st in Europe. For the fourth quarter ending December 31, 2008, Midway expects the following:

  • Net revenues of approximately $105 million, with net loss of approximately $0.20 per basic and diluted share.
  • On a non-GAAP basis, Midway expects a fourth quarter loss of approximately $0.07 per basic and diluted share, which excludes approximately $0.13 of stock option expense, non-cash convertible debt interest expense, and deferred income tax expense related to goodwill.

For the full year ending December 31, 2008, Midway expects the following:

  • Net revenues of approximately $210 million, with a net loss of approximately $1.78 per basic and diluted share.
  • On a non-GAAP basis, Midway expects a full year loss of approximately $1.37 per basic and diluted share, which excludes approximately $0.41 of stock option expense, non-cash convertible debt interest expense, and deferred income tax expense related to goodwill.

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