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Mandalay Digital Reports Fiscal 2015 First Quarter Financial Results

Companies mentioned in this article: Mandalay Digital Group, Inc.

LOS ANGELES, Aug. 14, 2014 /PRNewswire/ -- Mandalay Digital Group, Inc. (Nasdaq: MNDL) (the "Company" or "Mandalay Digital"), a leading provider of mobile technology solutions through its wholly owned subsidiary Digital Turbine, today announced financial results for the fiscal 2015 first quarter ended June 30, 2014.

Recent Highlights:

    --  Launched DT Ignite with Verizon on LG G3;
    --  More than $6.5 million of media committed to date for summer device
        launches globally, at CPIs ranging from $0.50 to $3.00;
    --  Confirmed deployment of DT IQ on T-Mobile USA during calendar 2014
        across multiple devices.  The multi-year agreement includes terms for
        launching IQ on all T-Mobile Android devices;
    --  Launched DT Ignite on MSAI in India;
    --  Expanded relationships with SingTel and Smart Communications to include
        direct billing connectivity through DT Pay;
    --  DT Ignite to be installed on 12 million devices, up from 1 million
        today, and DT IQ to be installed on 1 million devices, up from 100,000
        today, by the end of fiscal 2015;
    --  To provide updated fiscal 2015 guidance within the next 30 days,
        including insight into fiscal 2016 to account for expanded tier 1 U.S.
        carrier relationship.

Revenue(1) for the first quarter of fiscal 2015 grew to $5.6 million, up from $4.8 million for the prior year period. Revenue for the fiscal 2015 first quarter was comprised primarily of DT Content and DT Pay, as the stated ramp up for the Company's DT Ignite and DT IQ products commenced this summer, which was subsequent to the end of the fiscal quarter.

Gross profit totaled $1.4 million for the fiscal 2015 first quarter, compared with $1.7 million for the fiscal 2014 first quarter. The decrease was primarily related to sales mix. Adjusted gross profit and adjusted gross margin, excluding the amortization of intangibles (which the Company refers to as non-GAAP adjusted gross profit and non-GAAP adjusted gross margin), was $1.8 million and approximately 32%, respectively, for the first quarter of fiscal 2015, compared with $2.1 million and approximately 43%, respectively, for the same period last year. The decrease in non-GAAP adjusted gross profit and non-GAAP adjusted gross margin was primarily related to sales mix. A table reconciling non-GAAP adjusted gross profit and non-GAAP adjusted gross margin to GAAP gross profit and gross margin can be found in the tables at the end of this press release.

"We have made substantial progress for our high-growth Ignite and IQ products, with momentum continuing to grow," said Peter Adderton, CEO of Mandalay Digital. "Ignite is now commercially available in the United States, expanding our global footprint, and IQ is expected to be commercially available in the U.S. later this calendar year. These achievements are not only tangible evidence of the significant value our products provide to carriers, advertisers and ad networks, but also of our ability to successfully execute against our business plan."

Total operating expenses for the first quarter of fiscal 2015 equaled $6.1 million, compared with $5.8 million for the first quarter of fiscal 2014. The increase related to costs in support of the Company's go-to-market strategy for current and expected future revenue growth. Total operating expenses for the fiscal 2015 first quarter included $0.9 million in non-cash items, comprised of depreciation and stock based compensation. Total operating expenses for fiscal 2014 first quarter included $1.3 million in non-cash items, comprised of depreciation and stock based compensation.

Net loss from continuing operations, net of incomes taxes, for the fiscal 2015 first quarter was $4.6 million, or ($0.12) per share, based on 37.4 million weighted average common shares outstanding. Net loss from continuing operations, net of income taxes, for the fiscal 2014 period was $5.4 million, or ($0.29) per share, based on 18.9 million weighted average common shares outstanding.

The fiscal 2015 first quarter net loss was $4.6 million, or ($0.12) per share. The fiscal 2014 first quarter net loss, including discontinued operations, was $5.7 million, or ($0.30) per share.

Non-GAAP adjusted EBITDA loss (which excludes certain cash and non-cash expenses; see full definition below) for the first quarter of fiscal 2015 was $2.9 million, versus $2.3 million last year. A table reconciling non-GAAP adjusted EBITDA loss to GAAP net loss can be found at the end of this press release.

Cash, cash equivalents and restricted cash totaled $18.9 million at June 30, 2014, compared with $22.0 million at March 31, 2014. The Company has significantly strengthened its balance sheet over the last year by raising more than $33.0 million, net of offering related costs. Mandalay Digital is debt-free, with a working capital position of $15.3 million at the end of the first quarter of fiscal 2015, compared with a negative working capital position one year ago.

"With our Ignite and IQ products still in the early stages of launch, and an industry that continues to be explosive, we remain very excited about our opportunity for substantial long-term growth," Adderton said.

Business Outlook
Mandalay Digital expects to update its business outlook to include the expanded deployment with a U.S. tier one carrier within the next 30 days.

About Mandalay Digital Group
Mandalay Digital Group, Inc., through its wholly owned subsidiary, Digital Turbine, provides mobile solutions for wireless carriers globally to enable them to better monetize mobile content. The Company's products include mobile application management through DT Ignite, user experience and discovery through DT IQ, application stores and content through DT Marketplace, and content management and mobile payments through DT Pay. With global headquarters in Los Angeles, and offices in the U.S., Asia Pacific and EMEA, Mandalay Digital's solutions are used by more than 31 million consumers each month across more than 20 global operators. For additional information, visit www.mandalaydigital.com.

Conference Call
Management will host a conference call, today at 4:30 p.m. ET to discuss its fiscal 2015 first quarter financial results. To participate, interested parties should dial 888-572-7033 in the United States or 719-325-2420 from international locations, conference ID 9515812. A playback of the call will be available until 7:30 pm ET on August 21, 2014 by dialing 888-203-1112 within the United States or 719-457-0820 from international locations, passcode 9515812. A webcast of the conference call will be available at www.mandalaydigital.com.

Use of Non-GAAP Financial Measures
To supplement the Company's condensed financial statements presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), Mandalay Digital uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP gross profit and gross margin and non-GAAP adjusted EBITDA. Reconciliations to the nearest GAAP measures of all non-GAAP measures included in this press release can be found in the tables below.

Non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance, prospects for the future and as a means to evaluate period-to-period comparisons. The Company believes that these non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results. The Company believes the non-GAAP measures that exclude such items when viewed in conjunction with GAAP results and the accompanying reconciliations enhance the comparability of results against prior periods and allow for greater transparency of financial results. The Company believes non-GAAP measures facilitate management's internal comparison of its financial performance to that of prior periods as well as trend analysis for budgeting and planning purposes. The presentation of non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Non-GAAP gross profit and gross margin are defined as GAAP gross profit and gross margin adjusted to exclude the effect of intangible amortization expense. Readers are cautioned that non-GAAP gross profit and gross margin should not be construed as an alternative to gross margin determined in accordance with U.S. GAAP as an indicator of profitability or performance, which is the most comparable measure under GAAP.

Non-GAAP adjusted EBITDA is calculated as GAAP net loss excluding the following cash and non-cash expenses: interest expense, foreign transaction gains (losses), debt financing and non-cash related expenses, debt discount and non-cash debt settlement expense, gain or loss on extinguishment of debt, income taxes, asset impairment charges, depreciation and amortization, stock-based compensation expense, change in fair value of derivatives, and accruals for one-time and discretionary bonuses. Because adjusted EBITDA is a non-GAAP measure that does not have a standardized meaning, it may not be comparable to similar measures presented by other companies. Readers are cautioned that Non-GAAP adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with U.S. GAAP as an indicator of performance, which is the most comparable measure under GAAP.

Non-GAAP gross profit and gross margin and adjusted EBITDA are used by management as internal measures of profitability and performance. They have been included because the Company believes that the measures are used by certain investors to assess the Company's financial performance before non-cash charges and certain costs that the Company does not believe are reflective of its underlying business.

Forward-Looking Statements
This news release includes "forward-looking statements" within the meaning of the U.S. federal securities laws. Statements in this news release that are not statements of historical fact and that concern future results from operations, financial position, economic conditions, product releases and any other statement that may be construed as a prediction of future performance or events, including that Mandalay Digital's products will experience momentum and continued or substantial growth, that Mandalay Digital will experience success with its business plan, projected installation levels of our products, statements concerning Mandalay's Digital's expected fiscal 2015 guidance, expansion of Tier 1 carrier relationships, and product availability in the current and future calendar years are forward-looking statements that speak only as of the date made and which involve known and unknown risks, uncertainties and other factors which may, should one or more of these risks uncertainties or other factors materialize, cause actual results to differ materially from those expressed or implied by such statements. These factors include the inherent and deal specific challenges in converting discussions with carriers into actual contractual relationships, product acceptance of a new product such as DT Ignite or DT IQ in a competitive marketplace, the potential for unforeseen or underestimated cash requirements or liabilities, risks intrinsic to dispositions (like the Twistbox disposition) such as successor liability claims, the impact of currency exchange rate fluctuations on our reported GAAP financial statements, the Company's ability as a smaller company to manage international operations, its ability given the Company's limited resources to identify and consummate acquisitions, varying and often unpredictable levels of orders, the challenges inherent in technology development necessary to maintain the Company's competitive advantage such as adherence to release schedules and the costs and time required for finalization and gaining market acceptance of new products, changes in economic conditions and market demand, rapid and complex changes occurring in the mobile marketplace, pricing and other activities by competitors, and other risks including those described from time to time in Mandalay Digital Group's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission (SEC), press releases and other communications. You should not place undue reliance on these forward-looking statements. The company does not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

(1) Mandalay Digital's divestiture of Twistbox Entertainment in the fiscal 2014 fourth quarter is reflected as discontinued operations. All periods presented have been revised to reflect this presentation. Unless otherwise noted, all discussions in this press release relate to continuing operations.

For more information, contact:
Laurie Berman/Matt Sheldon
PondelWilkinson Inc.
(310) 279-5980
pwinvestor@pondel.com

(Financial Tables Follow)


                                         MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

                                                  CONSOLIDATED BALANCE SHEETS


                                            (In thousands, except per share amounts)


                                                                                    June 30                       March 31

                                                                                                           2014                  2014
                                                                                                           ----                  ----

                                                                                  (unaudited)

    ASSETS


    Current assets

    Cash and cash equivalents                                                                           $18,687               $21,805

    Restricted cash                                                                                         200                   200

    Accounts receivable, net of allowances of $0
     and $0, respectively                                                                                 5,106                 5,102

    Deposits                                                                                                 44                    24

    Prepaid expenses and other current assets                                                               389                   350
                                                                                                            ---                   ---

                                                                       Total current assets                24,426                27,481


    Property and equipment, net                                                                             470                   465

    Deferred tax assets                                                                                      82                 3,238

    Intangible assets, net                                                                                7,258                 9,074

    Goodwill                                                                                              6,309                 4,837
                                                                                                          -----                 -----

                                                                       TOTAL ASSETS                       $38,545               $45,095
                                                                                                        =======


    LIABILITIES AND STOCKHOLDERS' EQUITY


    Current liabilities

    Accounts payable                                                                                     $3,504                $2,943

    Accrued license fees                                                                                  2,638                 3,395

    Accrued compensation                                                                                  1,881                 1,681

    Deferred tax liabilities                                                                                 10                 2,987

    Other current liabilities                                                                             1,051                   900
                                                                                                          -----                   ---

                                                                       Total currrent liabilities           9,084                11,906


    Long term contingent liability, less discount
     of $0 and $762, respectively                                                                   -                  238
                                                                                                  ---                  ---

                                                                       TOTAL LIABILITIES                   $9,084               $12,144


    Stockholders' equity

    Preferred stock

    Series A convertible preferred stock at $0.0001 par value;
     2,000,000 shares authorized, 100,000 issued and
     outstanding (liquidation preference of $1,000,000)

                                                                                                            100                   100

    Common stock, $0.0001 par value: 200,000,000 shares authorized;

    38,193,029 issued and 37,438,429 outstanding at June 30,
     2014; 38,143,028 issued and 37,388,429 outstanding at
     March 31, 2014

                                                                                                              7                     7

    Additional paid-in capital                                                                          194,504               193,422

    Treasury Stock (754,600 shares at June 30,
     2014 and March 31, 2014)                                                                              (71)                 (71)

    Accumulated other comprehensive loss                                                                  (161)                (199)

    Accumulated deficit                                                                               (164,918)            (160,308)
                                                                                                       --------              --------

                                                                       Total stockholders' equity          29,461                32,951
                                                                                                         ------


    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                          $38,545               $45,095
                                                                                                        =======               =======


                                             MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF OPERATIONS


                                                (In thousands, except per share amounts)


                                                                       3 Months Ended

                                                                       June 30, 2014         June 30, 2013
                                                                       -------------         -------------

                                                                        (unaudited)           (unaudited)


    Net revenues                                                                      $5,554                 $4,783
                                                                                      ------                 ------


    Cost of revenues

       License fees                                                                    3,796                  2,714

       Other direct cost of revenues                                                   344                    403
                                                                                       ---                    ---

                                                Total cost
                                                of
                                                revenues                               4,140                  3,117
                                               -----------


    Gross profit                                                                       1,414                  1,666
                                                                                       -----                  -----


    Operating expenses

       Product development                                                           1,959                  1,588

       Sales and marketing                                                             761                    373

       General and administrative                                                    3,374                  3,802
                                                                                     -----                  -----

                                                Total
                                                operating
                                                expenses                               6,094                  5,763
                                               ----------


    Loss from operations                                                           (4,680)               (4,097)
                                                                                    ------                 ------


    Interest and other income / (expense)

       Interest  income / (expense)                                                      3                (1,440)

       Foreign exchange transaction gain /
        (loss)                                                                         (6)                    29

       Loss on settlement of debt                                                     (10)                     -

       Gain/ (loss) on disposal of fixed
        assets                                                                           2                    (2)

       Other income                                                                        9                      -

                                                Interest
                                                and other
                                                expense                                  (2)               (1,413)
                                               ---------


    Loss from operations before income
     taxes                                                                         (4,682)               (5,510)


       Income tax benefit                                                             (72)                  (87)
                                                                                       ---                    ---


    Net loss from continuing operations,
     net of taxes                                                                 $(4,610)              $(5,423)


    Discontinued operations, net of taxes:

       Loss from operations of discontinued
        component                                                                        -                 (263)
                                                                                       ---                  ----

        (including gain on disposal of $0 and $3,275)


    Net loss                                                                        $(4,610)              $(5,686)
                                                                                     =======                =======


    Other comprehensive income:

       Foreign currency translation
        adjustment                                                                     $38                   $104
                                                                                       ---                   ----


    Comprehensive loss                                                            $(4,572)              $(5,582)
                                                                                   =======                =======


    Basic and diluted net loss per common
     share                                                                         $(0.12)               $(0.30)
                                                                                    ======                 ======

       Continuing operations                                                       $(0.12)               $(0.29)

       Discontinued operations                                $                          -               $(0.01)

       Net loss                                                                      $(0.12)               $(0.30)
                                                                                      ======                 ======


    Weighted average common shares
     outstanding, basic and diluted                                                 37,424                 18,861
                                                                                    ======                 ======


                                                                            MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

                                                                                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                            (In thousands)


                                                                                                 3 Months Ended

                                                                                                 June 30, 2014                              June 30, 2013
                                                                                                 -------------                              -------------

                                                                                                   (unaudited)                                (unaudited)

    Cash flows from operating
     activities

               Net loss                                                                                                  $(4,610)                         $(5,686)

                Adjustments to reconcile net loss
                to net cash used in operating
                activities:

                  Loss on disposal
                   of discontinued
                   operations, net
                   of taxes                                                     -                                                      474

                  Depreciation and amortization                                                                               369                               280

                  Amortization of debt discount                                                                                 -                            1,267

                  Interest and PIK interest accrued                                                                             -                              101

                  Stock and stock option
                   compensation                                                                                               818                                52

                  Stock issued for services                                                                                    76                             1,189

                  (Increase) /decrease in assets,
                   net of effect of disposal of
                   subsidiary:

                     Accounts receivable                                                                                      (4)                               37

                     Deposits                                                                                                (20)                             (53)

                     Deferred tax assets                                                                                    3,156                                 -

                     Prepaid expenses and other current
                      assets                                                                                                 (39)                              365

                  Increase /(decrease) in
                   liabilities, net of effect of
                   disposal of subsidiary:

                     Accounts payable                                                                                         561                               541

                     Accrued license fees                                                                                   (757)                            2,139

                     Accrued compensation                                                                                     201                               351

                     Other liabilities and other items                                                                    (2,886)                          (2,651)

                Net cash used in operating
                activities                                                                                                (3,135)                          (1,594)



    Cash flows from investing
     activities

                     Purchase of property and equipment                                                                      (32)                             (18)

                     Settlement of contingent liability                                                                        10                                 -

                     Cash used in acquisition of
                      subsidiary                                                                                                -                          (1,287)

                     Cash acquired with acquisition of
                      subsidiary                                                                                                -                              513

                Net cash used in investing
                activities                                                                                                   (22)                            (792)



    Cash flows from financing
     activities

                     Issuance of shares for cash                                                                                -                            2,700

                Net cash provided by financing
                activities                                                                                                      -                            2,700



    Effect of exchange rate changes on
     cash and cash equivalents                                                                                              39                                90
                                                                                                                           ---                               ---


    Net change in cash and cash
     equivalents                                                                                                       (3,118)                              404


    Cash and cash equivalents,
     beginning of period                                                                                                21,805                             1,149
                                                                                                                        ------                             -----


    Cash and cash equivalents, end of
     period                                                                                                            $18,687                            $1,553
                                                                                                                       =======                            ======


    Supplemental disclosure of cash
     flow information:


               Taxes paid                                                                              $                        -                              $24





    Supplemental disclosure of non-cash investing and financing activities:


               Contingency earn
                out on
                acquisition of
                subsidiary, net
                of discount                               $                     -                                                     $841
               =================

               Common stock of
                the Company
                issued for
                acquisition of
                subsidiary                                $                     -                                                   $4,449
               ================

               Common stock of
                the Company
                issued for
                settlement of
                contingent
                liability                                                    $188                                                 $       -
               ================


                                  MANDALAY DIGITAL GROUP, INC. AND SUBSIDIARIES

                             RECONCILIATION OF GAAP and NON-GAAP FINANCIAL MEASURES


                                          (In thousands and unaudited)


    GROSS MARGIN TO NON-GAAP GROSS MARGIN


                                                 3 Month Ended

                                                 June 30, 2014                      June 30, 2013
                                                 -------------                      -------------


    Revenue                                                    $5,554                             $4,783

     Gross
     profit                                                    $1,414                             $1,666

     Gross
     margin
     percentage                                                   26%                               35%


       Add
        back:
        Amortization
        of
        intangibles                                              $344                               $403


     Non-
     GAAP
     gross
     profit                                                    $1,758                             $2,069

     Non-
     GAAP
     gross
     margin
     percentage                                                   32%                               43%



    NET LOSS TO ADJUSTED EBITDA


                                                 3 Months Ended

                                                 June 30, 2014                      June 30, 2013
                                                 -------------                      -------------


    Net
     Loss                                                    $(4,610)                          $(5,686)

    Add back items:

        Other
        (income)
        /
        expense                                                     2                               (27)

        Interest
        expense,
        net
        of
        interest
        income                                                      -                             1,440

        Depreciation
        and
        amortization                                              369                                427

        Stock
        compensation                                              894                              1,241

        Bonus
        Accruals*                                                 537                                 85

        Discontinued
        operations                                                  -                               263

       Tax
        expense                                                  (72)                              (87)


     Adjusted
     EBITDA                                                  $(2,880)                          $(2,344)


    * Bonuses include cash paid
     bonuses of $25 thousand and $85
     thousand for the periods ended
     June 30, 2014 and 2013,
     respectively.

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SOURCE Mandalay Digital Group, Inc.