Navarre Corporation Reports Financial Results for Fourth Quarter and Fiscal Year 2006
Company Will Host a Webcast June 1, 2006 at 11:00 a.m. ET
MINNEAPOLIS, May 31 /PRNewswire-FirstCall/ -- Navarre Corporation (NASDAQ:NAVR), a publisher and distributor of physical and digital home entertainment and multimedia products, today reported fiscal year 2006 fourth quarter and fiscal year-end results for the period ending March 31, 2006.
Financial Results Fiscal Year 2006 Fourth Quarter
-- Net sales for the fiscal year fourth quarter ended March 31, 2006
increased approximately 22.0% to $173.2 million, as compared to net
sales of $142.0 million for the same period last year.
-- Earnings before interest, taxes, depreciation, amortization (EBITDA)
for the fiscal fourth quarter was approximately $5.4 million, as
compared to an EBITDA loss of $2.5 million for the same quarter last
year. See "Financial Information Disclosure" below.
-- Operating income for the fiscal fourth quarter was approximately
$4.2 million, as compared an operating loss of $3.3 million for the
same quarter last year. See "Financial Information Disclosure" below.
-- Net income for the fourth quarter of fiscal year 2006 was $1.1 million
or $0.03 per diluted share, as compared to a net loss in the fourth
quarter of fiscal year 2005 of $3.3 million or a loss of $0.12 per
diluted share. See "Financial Information Disclosure" below.
-- Cash as of March 31, 2006 was $14.3 million.
Financial Results Fiscal Year 2006
-- Net sales for the fiscal year ended March 31, 2006 increased
approximately 15.0% to $686.1 million, as compared to net sales of
$596.6 million for the fiscal year ended March 31, 2005.
-- EBITDA, excluding the effects of previously-announced pre-tax charges
of $12.7 million associated with the write-off of balances related to
the Musicland bankruptcy and $4.1 million associated with the
write-off related to an independent music label, was $31.3 million.
See "Financial Information Disclosure" below.
-- Net loss for the fiscal year 2006 was $3.2 million or a loss of $0.11
per diluted share, as compared to net income of $10.2 million or $0.35
per diluted share for the fiscal year ended March 31, 2005. Included
in the net loss for fiscal year 2006 were the above mentioned charges
of $16.8 million related to the Musicland bankruptcy and the write-off
of balances related to an independent music label. See "Financial
Information Disclosure" below.
Eric Paulson, the Company's Chairman and Chief Executive Officer commented, "Fiscal year 2006 has been an active year for Navarre. During the year the Company integrated the acquisition of FUNimation and continued to diversify through the growth of the Publishing segment. I am pleased with the operating results in spite of the $12.7 million write-off related to the bankruptcy of Musicland." Paulson continues, "The Company is well positioned for the future and I believe we are on track to achieve our fiscal year 2007 guidance."
Reid Porter, the Company's Chief Financial Officer also commented, "The Company continued its focus on cash management. Receivables and inventories were relatively flat versus prior year despite the addition of FUNimation and a 15.0% increase in consolidated net sales year over year. In addition, the Company reduced its debt incurred at the time of the FUNimation acquisition. During the fiscal year the Company paid down its GE credit facility by $59.9 million, ending the 2006 fiscal year with an aggregate outstanding debt balance of $80.1 million and $14.3 million of cash."
Business Segment Highlights
Publishing Segment
The publishing segment includes the results of Encore, BCI and FUNimation. For the fourth quarter ended March 31, 2006, the publishing segment achieved net sales of $33.8 million (before inter-company eliminations), an increase of 57.1%, as compared to net sales of $21.5 million (before inter-company eliminations) for the same period last year. For fiscal year 2006, net sales increased 33.2% to $127.6 million (before inter-company eliminations), as compared to net sales of $95.8 million (before inter-company eliminations) for the same period last year. See "Financial Information Disclosure" below.
In the publishing segment, FUNimation finished the fourth quarter with strong video sales through expanded retail penetration. During the fourth quarter, FUNimation also announced that The Independent Film Channel (IFC) acquired broadcast rights to Samurai 7. In addition, the FUNimation Channel announced the launch of a syndicated anime block on the CoLours TV Network with 12 million households. This syndicated anime block will be featured 7 days per week at 10:00 p.m. to 12:00 p.m. ET.
Encore contributed to the fiscal year results with successful launches of PC Tool's Spyware Doctor, Print Shop version 21 and Print Master version 17. And as part of our digital strategy Encore also signed a licensing agreement granting Glu Mobile rights to create and publish Hoyle(R)-branded games for mobile phones.
BCI experienced continued growth from the success of He-Man and the Masters of the Universe titles, as well as overall sales growth through better penetration to leading retailers.
Distribution Segment
The distribution segment distributes first and third party PC software, CD audio, DVD video, and video games. For the fourth quarter ended March 31, 2006, distribution segment net sales increased 10.2% to $151.5 million (before inter-company eliminations), as compared to net sales of $137.5 million (before inter-company eliminations) for the same period last year. For fiscal year 2006, net sales increased 11.6% to $621.7 million (before inter-company eliminations), as compared to net sales of $556.9 million (before inter-company eliminations) for the same period last year. See "Financial Information Disclosure" below.
In the distribution segment, software, video game, DVD video and independent music categories experienced strong sales. During the fiscal year the Company's independent music group benefited from the strong performance of Little Big Town's album entitled "The Road to Here" which went gold (500,000 albums sold) during the fourth quarter. Distribution's growth during the fiscal year was primarily achieved through continued market share gains at retail. The distribution segment also benefited from increasing the number of vendors and product lines carried in each of our product categories. The Company's distribution center is driving internal efficiencies and increased capabilities while providing our customers with an ever increasing level of service. The Company's distribution into Canada continues to increase as we improve our market penetration into customers such as Costco, Future Shop/Best Buy, London Drug and Wal-Mart.
Outlook
The outlook for fiscal year 2007 is as follows:
-- The Company anticipates consolidated net sales of between $720 million
and $740 million.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) are expected to be between $36 million and $40 million.
-- Anticipated net income of between $10 million and $13 million.
-- Anticipated depreciation expense of $3 million.
-- Anticipated amortization expense of $8 million, primarily related to
the acquisition of FUNimation.
Financial Information Disclosure
Use of Non-GAAP Financial Information
In evaluating our financial performances and operating trends, management considers information concerning our net sales before inter-company eliminations and earnings before interest, taxes, depreciation and amortization that are not calculated in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The Company's management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which is attached to this release and can also be found on the Company's web site at http://www.navarre.com/ .
FUNimation Balance Sheet Analysis
The Company notes that its independent auditors have not finalized their review of the Company's revaluation of FUNimation's opening balance sheet in connection with the previously-announced purchase price reduction. This analysis is based upon a report that has been prepared by an independent third party and the Company does not anticipate that there will be any changes to the information presented in this press release.
Conference Call
The Company will host a conference call at 11:00 a.m. ET, Thursday, June 1, 2006, to discuss the Company's fiscal year 2006 fourth quarter and fiscal year-end results. The conference call will be broadcast live over the Internet and can be accessed at http://www.navarre.com/ . Investors should go to the web site 15 minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available following the call's completion by accessing http://www.navarre.com/ where a replay will be available for a one-year period.
About Navarre Corporation
Navarre Corporation (NASDAQ:NAVR) is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, CD audio, DVD video, video games and accessories. Since its founding in 1983, the Company has established distribution relationships with customers across a wide spectrum of retail channels which includes mass merchants, discount, wholesale club, office and music superstores, military and e-tailers nationwide. The Company currently provides its products to over 18,000 retail and distribution center locations throughout the United States and Canada. Navarre has expanded its business to include the licensing and publishing of home entertainment and multimedia content, primarily through the acquisitions of Encore Software, Inc., BCI Eclipse Company, LLC, FUNimation Productions, Ltd. and The FUNimation Store, Ltd. For more information, please visit the Company's web site at http://www.navarre.com/ .
Safe Harbor
The statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: the Company's revenues being derived from a small group of customers; the Company's dependence on significant vendors; uncertain growth in the publishing segment; the Company's ability to meet significant working capital requirements related to distributing products; and the Company's ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company's reports to the Securities and Exchange Commission, including in particular the Company's Form 10-K and Form 10-K/A for the year ended March 31, 2005. Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC's other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31, March 31,
2006 2005 2006 2005
Net sales $173,234 $142,033 $686,126 $596,615
Cost of sales
(exclusive of
depreciation and
amortization) 147,615 117,805 579,033 505,263
Gross profit 25,619 24,228 107,093 91,352
Operating expenses:
Selling and marketing 7,280 6,044 29,320 21,483
Distribution and
warehousing 2,588 2,246 10,087 8,848
General and
administrative 10,797 18,135 43,632 47,365
Bad debt expense
(recovery) (197) 57 12,111 423
Depreciation and
amortization 986 1,079 9,259 3,522
Total operating
expenses 21,454 27,561 104,409 81,641
Income (loss) from
operations 4,165 (3,333) 2,684 9,711
Other income (expense):
Interest expense (3,038) (514) (11,217) (783)
Interest income 176 114 777 473
Deconsolidation of
variable interest
entity -- -- 1,896 --
Warrant expense (342) -- (342) --
Other income (expense),
net 608 (242) 1,013 (241)
Net income (loss) before
tax 1,569 (3,975) (5,189) 9,160
Income tax (expense)
benefit (507) 629 2,014 1,006
Net income (loss) $1,062 $(3,346) $(3,175) $10,166
Earnings (loss) per
common share:
Basic $0.03 $(0.12) $(0.11) $0.38
Diluted $0.03 $(0.12) $(0.11) $0.35
Weighted average
shares outstanding:
Basic 30,921 27,397 29,898 26,830
Diluted 31,568 27,397 29,898 28,782
NAVARRE CORPORATION
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)
March 31, March 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $14,296 $15,571
Receivables, net 87,853 88,932
Inventories 43,624 40,759
Other 24,384 22,701
Total current assets 170,157 167,963
Property and equipment, net 10,298 8,152
Other assets 129,032 19,777
Total assets $309,487 $195,892
Liabilities and shareholders' equity
Current liabilities:
Note payable - short-term 5,000 250
Accounts payable 97,923 96,387
Other 19,224 15,159
Total current liabilities 122,147 111,796
Long-term liabilities:
Note payable - long-term 75,130 --
Other 6,897 6,812
Total liabilities 204,174 118,608
Shareholders' equity 105,313 77,284
Total liabilities and shareholders' equity $309,487 $195,892
NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Twelve Months Ended
March 31,
2006 2005
Net cash used in operating activities $(7,305) $(2,505)
Net cash used in investing activities (91,032) (3,670)
Net cash provided by financing activities 97,062 7,251
Net decrease in cash (1,275) 1,076
Cash at beginning of period 15,571 14,495
Cash at end of period $14,296 $15,571
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of GAAP Net Sales
Three Months Ended March 31,
2006 % 2005 %
Net sales:
Distribution $151,507 81.8% $137,494 86.4%
Publishing 33,763 18.2% 21,494 13.5%
Other -- -- 93 0.1%
Net sales before
inter-company
eliminations 185,270 159,081
Inter-company
eliminations (12,036) (17,048)
Net sales as
reported $173,234 $142,033
Twelve Months Ended March 31,
2006 % 2005 %
Net sales:
Distribution $621,739 82.9% $556,927 85.3%
Publishing 127,612 17.0% 95,777 14.6%
Other 424 0.1% 352 0.1%
Net sales before
inter-company
eliminations 749,775 653,056
Inter-company
eliminations (63,649) (56,441)
Net sales as
reported $686,126 $596,615
Reconciliation of Net Income (Loss) to EBITDA
Three Months Ended Twelve Months Ended
March 31, March 31,
2006 2005 2006 2005
Net income (loss), as
reported $1,062 $(3,346) $(3,175) $10,166
Interest expense
(income), net 2,862 400 10,440 310
Tax expense (benefit) 507 (629) (2,014) (1,006)
Depreciation and
amortization 986 1,079 9,259 3,522
EBITDA 5,417 (2,496) 14,510 12,992
Musicland write-off -- -- 12,690 --
Music label write-off -- -- 4,107 --
EBITDA excluding charges $5,417 $(2,496) $31,307 $12,992
Business Segments
Three months ended
March 31,
2006 Distribution Publishing Other Eliminations Consolidated
Net sales $151,507 $33,763 -- $(12,036) $173,234
Income (loss)
from
operations $(1,231) $5,396 -- -- $4,165
Three months ended
March 31,
2005 Distribution Publishing Other Eliminations Consolidated
Net sales $137,494 $21,494 $93 $(17,048) $142,033
Income (loss)
from
operations $(6,383) $3,580 $(530) -- $(3,333)
Twelve months ended
March 31,
2006 Distribution Publishing Other Eliminations Consolidated
Net sales $621,739 $127,612 $424 $(63,649) $686,126
Income (loss)
from
operations $(8,588) $12,862 $(1,590) -- $2,684
Twelve months ended
March 31,
2005 Distribution Publishing Other Eliminations Consolidated
Net sales $556,927 $95,777 $352 $(56,441) $596,615
Income (loss)
from
operations $(2,173) $14,007 $(2,123) -- $9,711
Source: Navarre Corporation
CONTACT: Haug Scharnowski, Vice President Corporate Relations of Navarre
Corporation, +1-763-535-8333, hscharnowski@navarre.com
Web site: http://www.navarre.com/
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