This coming Thursday, Mad Catz is having their FY 2017 Q1 conference call. It’s at 5 ET, and if you go to their site and click on the Investor Relations, there’s a link to the webcast. Anyone can listen in. I’m not sure if anyone would be terribly interested in it, but if you are, here is a little bit of backstory on what’s been going on. I have an accounting background, but I don’t deal specifically with investments or financial reporting, so most of this is fairly dumbed down comments.
In Q3 FY 2016, they announced exectuve board leadership changes, and adopted a restructuring plan which included laying off about 37% of the workforce. While their Q3 sales numbers were high, their gross margin (Net Revenue minus Operating Expenses) shrunk from 27% to 15%. Basically, it was costing them too much to make their products. A big problem was they ended up having to heavily discount a lot of their Rock Band hardware around Black Friday to keep up with competitors. There were some warning signs in their financials, as their Current Ratio (current assets/current liabilities) dropped to around or just below 1, which is a big problem if all of a sudden they need to pay off current debts.
In Q4 FY 2016, it was a similar story. They had good sales numbers, but their margin on sales fell to -5.1%. They were basically losing money on units sold that period, again mainly to problems with Rock Band 4 hardware. They ended up having to write off inventory as being obsolete, or being at a much lower value than they first thought. They also had a lot of severance and restructuring expense from their layoff descisions in Q3. One really bad sign was that in the Audit Report from KPMG, recurring losses from operations raised substantial doubt about the ability of Mad Catz to continue as a going concern. Basically, the Auditors are saying that there are concerns as to whether or not the company will able to continue to keep going in the future. The losses from operations as well as poor Balance Sheet ratios (such as the current ratio) puts the company in danger of violating certain debt covanents, which means Mad Catz might have big problems raising money, might end up suddenly having a large loan come due, or might end up having higher interest rates to pay.
Looking ahead to Q1 FY 2017, the things to look at would be whether the company is showing improvement with it’s Gross Margin, whether it’s balance sheet ratios are improving, seeing if their operatin expenses are down (especially salary/employee expense), and whether they’ve come up with a plan to deal with their possible debt covenant issues.
Regardless of how people may feel about their other peripherals, they did a shitload for this scene. Complain a people may, having accessible sticks with quality parts is a huge deal when compared to all the bullshit sold in the dark ages.
They also sponsored a metric fuckton of tournaments. So yeah, huge loss.
I think it’d be a huge loss if they did end up going away. From what I can tell, they seem to make a quality product (at least in what I’ve heard regardng their fight sticks) and they’ve certainly been an active sponsor at events. Their big problem is that the hardware industry is highly competative, and they’ve had a lot of internal efficeincy issues.
Didn’t they have that android console riding in on the Ouya wave?
…
Yeah.
Also, I thought they lost a lot of money on Rockband because they grossly overestimated the demand, and then couldn’t sell off their stock before they lost the license.
