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| EX-99.1 - SouthPeak Interactive CORP | v185659_ex99-1.htm |
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Transcript of
SouthPeak
Interactive (SOPK)
Fiscal
2010 Third Quarter
Earnings Conference Call
May
17, 2010
Participants
Brandi
Floberg, Piacente Group, IR
Melanie
Mroz, CEO
Reba
McDermott, Chief Financial Officer
Terry
Philips, Chairman
Presentation
Operator
Greetings
and welcome to the SouthPeak Interactive fiscal 2010 third quarter earning
conference call. At this time all participants are in a listen-only
mode. A brief question and answer session will follow the formal
presentation. If anyone should require operator assistance during the
conference, please press *0 on your telephone keypad. As a reminder
this conference is being recorded. I would now like to turn the
conference over to your host, Ms. Brandi Floberg. Thank you, you may
begin.
Brandi Floberg – Piacente
Group – Investor Relations
Hello
everyone and welcome to SouthPeak Interactive Corporation Fiscal 2010 third
quarter earnings conference call. On the call today will be SouthPeak
CEO Melanie Mroz, Chief Financial Officer, Reba McDermott and Chairman, Terry
Philips. Before we begin I would like to quickly review the company’s
Safe Harbor statement by reminding everyone the statements made during this call
that are not historical facts are considered Forward Looking Statements under
the federal securities laws. These Forward Looking Statements are
based on the beliefs of our management as well as assumptions made by
information currently available to us. SouthPeak assumes no duty or
obligation to update these Forward Looking Statements even though its situation
may change in the future. Actual operating results may vary
significantly from these Forward Looking Statements based on a variety of
factors. We encourage you to review SouthPeak filings with the
Securities and Exchange Commission which are available under the corporate
section of the company’s website at www.southpeakgames.com
and at www.sec.gov. For
additional information on risk factors that could cause actual results to differ
materially for some current expectations please read SouthPeak’s annual and
quarterly reports filed with the SEC. SouthPeak will also be
discussing GAAP and non-GAAP measures today. SouthPeak’s
reconciliation of GAAP and non-GAAP results is available in the press release,
the company issues today, which is also available on SouthPeak’s
website. I would now like to turn the call over to SouthPeak CEO,
Melanie Mroz.
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Transcript:
SouthPeak
Interactive (SOPK)
Fiscal
2010 Third Quarter Earnings Conference Call
May
17, 2010
|
Melanie Mroz – SouthPeak
Interactive – President & CEO
Thank you
Brandi and thank you all for joining us today. Consistent with our
previously announced strategies we have limited the number of titles released
during the first quarter. While this impacted our sales in the short
term we are pleased with the gains we have made with this strategy as it allows
us to keep our expenses in line and offers us additional visibility to our top
and bottom line as we are managing the number of titles released and decreasing
our associated expenses with sales and marketing and warehousing costs while
continuing to introduce new compelling titles. We are confident that
this move will best align our business with the current regional
environment. Although we are cautiously optimistic with respect to
the industry’s prospect for the balance of calender 2010 we remain vigilant in
our cost control.
During
the period we have effectively reduced our overall operating expenses compared
with both with last year and last quarter as we continue to closely monitor our
G&A. I am pleased with our results for the first nine months of
fiscal 2010 which reflect our business on a normalized basis. We are
proud to have achieved adjusted EBITDA profitability as well as positive GAAP
net income for the quarter. We are pleased to have resolved both the
CDV litigation and the Paradox dispute putting these issues behind us and
shedding the associated costs and distraction so that we can move forward and
continue to focus on growing our business.
During
the quarter we officially launched our strategic partnership with Koch Media’s
Deep Silver and released the first three titles and we are very pleased with the
initial results and direction of this relationship. We believe this
partnership will yield significant value for both SouthPeak and Deep Silver and
look forward to an ongoing collaboration. Before I turn the call over
to Reba and Terry, I would like to highlight two very significant announcements
that we made earlier this month. The success of our My Baby franchise
continues to attract users with our release in the holiday selling season of My
Baby first steps. In April we have reached an important milestone
with record sales for the franchise exceeding one million units. Our
overall catalogue sales remain strong which speaks to our growing brand appeal
and our extensive portfolio of over 60 interactive games. We continue
to add to this space by introducing new games and exciting sequels that provide
a solid built-in customer base and attract new users. My Baby is the
perfect example of the lasting popularity of some of our games. We
believe that they remain a considerable growth opportunity with this franchise
and with our broader catalogue, continue to capture new revenue.
Recently
we significantly strengthened our already robust 2011 line up as we purchase the
assets to publish Firefly Studio’s Stronghold 3. This is an extremely
exciting franchise as it has sold more than 5 million copies globally estimated
over $50 million in sales. As one of the most respected games in its
genre we expect this to be among our premier title introduction with current
plans to release this game in Spring 2011. In line with our strategy
to release sequels to already popular titles we expect this high profile game to
enhance our portfolio in brand with notable contributions to our top line
through both retail and digital offerings. We continue to gain
interaction in a digital market and this addition of further lines have brought
our strategy to better capitalize on the rapidly growing digital channel
platform where they remains a significant unrealized opportunity for a catalogue
and new titles. With that overview, I would now like to turn the call
over to Reba McDermott to provide a summary of our financial
results. I would also like to welcome and congratulate Reba who we
promoted to Chief Financial Officer in April based on her outstanding
performance as our Chief Accounting Officer, her deep knowledge is accompanying
her strong accounting background. Reba, congratulations and please go
ahead.
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Transcript:
SouthPeak
Interactive (SOPK)
Fiscal
2010 Third Quarter Earnings Conference Call
May
17, 2010
|
Reba McDermott – SouthPeak Interactive – Chief Financial Officer
Thank you
Melanie and good evening everyone. On today’s call I will review
SouthPeak’s financial performance for the fiscal 2010 third quarter ended March
31st,
2010. Revenue for the quarter was $7.5 million, a decrease of 44%
from revenue of $13.5 million for the comparable period and fiscal year
2009. A decrease in revenue was primarily driven by the decrease in
the number of new titles we have released and fewer units sold for next
generation platforms Xbox 360 and PS3 which sell at a higher MSRP compared with
Nintendo DS and Wii. Our average net revenue per until decreased from
$19.01 in the fiscal 2009 period to $14.09 in the fiscal 2010
period. For the three months ended March 31, 2010 gross profit
decreased to $413,000, or 6% of revenues, from $5.3 million, or 39% of revenues,
for the same period in 2009. The decrease in gross profit dollars and gross
margin was due primarily to an increase in revenue contribution from Koch Media
titles, which carry lower gross margins than traditional self published titles
as well as a reduced contribution from titles released on next generation
platforms, which have a higher MSRP and an overall lower royalty rate as a
percentage of wholesale prices.
Total
operating expenses for the third quarter of fiscal 2010 decreased significantly
and we recognized an income of $173,000 compared with total operating expenses
of $5.9 million for the third quarter of fiscal 2009. The substantial
improvement in operating expenses for the third quarter of 2010 was primarily
the result of two unusual items in the quarter. First we recognized a
gain of $3.2 million during the period on the extinguishment of accrued
litigation costs associated with the resolution of our legal proceedings with
CDV Software Entertainment A.G. This gain normalizes our expenses
based on the $3.1 million in charges we incurred in the second quarter of fiscal
2010 for litigation costs and a reserve associated with the preliminary
judgement from our legals proceedings with CDV. As we stated on our
last call we believe that we would be able to recoup these expenses that were
set aside for litigation to resolution. Second we also recognized a
gain on settlement of contingent purchase price obligations related to legal
obligations associated with our game corp’s subsidiary of $908,000 during the
third quarter of fiscal 2010. Excluding these non-recurring gains
totaling $4.2 million we improved our total operating expenses by 32% year over
year based on our strategy to maintain tight cost control. We reduced
our sales and marketing expenses for the period by 69% to $1 million compared
with $3.2 million in the comparable prior year. The reduction in
sales and marketing costs are due to lower direct spending as a result of
releasing fewer titles in a more vigilant approach to product
marketing. We also improved our warehousing and distribution expenses
for the third quarter of fiscal 2010 which decreased by 39% to $327,000 compared
with $524,000 for the third quarter of fiscal 2009. We believe that
this is a solid reflection of the scalability and flexibility of our business
model as we can move quickly to adjust expense levels to bring them in line with
anticipated market demand.
Net
income for the third quarter of fiscal 2010 was $192,000, or break even based on
53.3 million weighted average shares outstanding. This compares with
a net loss of $692,000, or $0.04 per share in the third quarter of fiscal 2009
based on 35.9 million weighted average shares outstanding. Earnings
before interest, taxes, depreciation and amortization or adjusted EBITDA for the
third quarter as fiscal 2010 was $1.2 million compared with an adjusted EBITDA
loss of $247,000 for the prior fiscal year.
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Transcript:
SouthPeak
Interactive (SOPK)
Fiscal
2010 Third Quarter Earnings Conference Call
May
17, 2010
|
Turning
to our cash flow statement cash used in operating activities for the nine months
ended March 31st, 2010
were $258,000 compared with $5.5 million for the same period in the prior
year. Our quarterly report for the period ended March 31st, 2010
assumes the company will continue as a going concern. We are in the
process of resolving our contingencies for amounts significantly less than
currently accrued for in order to reduce liabilities its balance sheet and make
payments terms more manageable for the Company. We are actively
controlling our cost structure to better align with our revenue
stream. While we are committed to pursuing these and other options to
address our viability as a going concern, there can be no assurance that these
plans will be successfully completed. Subsequent to the close of the
quarter we completed a financing of approximately $1 million and we will
continue taking action to improve our balance sheet and
liquidity. That concludes my comments on the financial results so I
would like to turn the call over to our Chairman, Terry
Philips. Terry.
Operator
All lines
are live.
Reba McDermott – SouthPeak
Interactive – Chief Financial Officer
Yeah, we
need Terry.
Terry Philips – SouthPeak
Interactive – Chairman
Thank you
Reba and good evening everyone. I believe the results of the quarter
and feel that we have made great progress in a very challenging
environment. We had a terrific product pipeline and excited about
these titles released in the current quarter. These titles are much
anticipated Dementium II sequel for the Nintendo DS which has released great
review scores. Metacritic has given his game 79 out of 100 and this
game has achieved several other near perfect scores in both the US and in the
UK. We released 3D Dot Game Heros for the PS3 this past weekend in
Europe. This game has achieved great reviews to date with Metacritic
ratings of 80 and other leading reviews scoring this game at above
90. This is a reflection of strong headway made by our international
group and we are pleased with the initial response from European gamers who have
put 3D Dot Heros near the top of the sales chart almost immediately upon its
release. We have a robust and exciting pipeline among our upcoming
product releases scheduled for the near term is the much anticipated launch Two
Worlds II for the Xbox 360 and Windows PC as well as the expanse in this popular
title to the PS3 platform to capture a new audience. The success of
the first game in the series we are delighted to introduce the newest version
with enhancements that we think will drive additional interests from built in
user base as well as attract new players. We have trying to ship Two
Worlds II to retail stores this September. Our branded title TNA
iMPACT! Cross the Line remains on tract for release this summer. We
are pleased that Nintendo DS version of this game will feature TNA’s biggest
star in one of the most recognizable figures in pro-wrestling history, Hulk
Hogan, who joined TNA brand earlier this year. As Melanie mentioned
we are very excited to have acquired publishing rights to Stronghold 3 from
Firefly Studios. Stronghold has sold over 5 million copies generating
more than $15 million in sales to date owing to a large and dedicated fan
base. Stronghold is one of the premier franchises in the Real-time
strategy genre and we look forward to its release next year. As I
mentioned on our last call we are looking at social gaming sector as a means to
further diversify our offering and involved with the industry direct consumer
focus. We remain on tract with our plan launch of our first game for
Facebook later this year. We see a lot of potential for the company
to capitalize on new opportunities in these popular and growing distribution
pattern. We continue to evaluate a release schedule and maintain a
cautious stance at this stage so the keen focus on level to consumer spending is
well over the overall retail and market constraint. Regardless of
these conditions our strategic goals remain the same and we are well equipped to
release an increasing number of titles as we see these market conditions become
more favorable. Our extensive portfolio of titles now exceed 16
interactive entertainment games across the all leading platforms. Our
branded games address a variety of genres which allow us to cross sell our games
in the fields of all ages and interests but continuing to build our leading
publishing brand. With that we would like to now open the call to
your questions. Operator?
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Transcript:
SouthPeak
Interactive (SOPK)
Fiscal
2010 Third Quarter Earnings Conference Call
May
17, 2010
|
Operator:
Thank
you. Ladies and gentlemen we will now be conducting a question and
answer session. If you would like to ask a question, please press *1
on your telephone keypad. A confirmation tone will indicate your line
is in the question queue. You may press *2 if you would like to
remove your question from the queue. For participants using speaker
equipment, it may be necessary to pick up your handset before pressing the *
keys. One moment please while we poll for questions. Once
again ladies and gentlemen if you would like to ask a question please press *1
on your telephone keypad. It appears there are no questions at this
time.
Reba McDermott – SouthPeak
Interactive – Chief Financial Officer
Alright,
thank you all for joining us.
Operator
Thank
you. Ladies and gentleman this concludes today’s
teleconference. You may disconnect your lines at this
time. Thank you for your participation.
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