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Navarre Reports Strong Fiscal Second Quarter 2013 Financial Results

Navarre Corporation Logo

MINNEAPOLIS, Oct. 29, 2012 (GLOBE NEWSWIRE) -- Navarre Corp. (Nasdaq:NAVR) ("Navarre"), a vertically integrated, multi-channel platform for retailers and manufacturers, reported financial results for its fiscal second quarter ended September 30, 2012.

Fiscal Q2 2013 Financial Highlights vs. Year-Ago Quarter:

  • Announced the definitive agreement to acquire SpeedFC, a provider of e-commerce services
  • Net sales in Canada increased 58% to $16.7 million
  • Net sales in the e-commerce channel increased 32% to $19.6 million
  • Software net sales grew 8% to $83.8 million
  • Encore sales up 12% to $7.1 million
  • Total operating expenses reduced 20% to $11.3 million
  • Net income increased to $488,000 or $0.01 per share, versus a net loss of $1.2 million or $(0.03) per share
  • Adjusted EBITDA increased to $2.2 million, compared to a loss of $298,000
  • The company continued to carry no debt at September 30, 2012

Fiscal Q2 2013 Financial Results

Consolidated net sales from ongoing product lines in the fiscal second quarter of 2013 increased 4% to $104.1 million from $100.4 million in the year-ago quarter. The increase was generated across several areas of the company's business, including proprietary software published by Encore, distributed third-party software, consumer electronics and accessories (CE&A) products, e-commerce fulfillment, as well as sales in the Canadian retail distribution channel. Including sales from the home video product category, which Navarre announced its departure from at the end of its fiscal year 2012, consolidated net sales in the fiscal second quarter of 2013 were $104.1 million, down slightly from $106.6 million in the year-ago quarter.

The company's focus on cost reduction and efficiency continued to produce positive results in the fiscal second quarter of 2013. Total operating expenses were reduced by 20% to $11.3 million, compared to $14.2 million in the year-ago quarter.

Net income in the second quarter of fiscal 2013 increased to $488,000 or $0.01 per share, compared to a net loss of $1.2 million or $(0.03) per share in the year-ago quarter.

Adjusted EBITDA (a non-GAAP term) in the fiscal second quarter of 2013 increased significantly to $2.2 million, compared to a loss of $298,000 in the second quarter of fiscal year 2012 (see "Use of Non-GAAP Financial Information" below, for further discussion).

The company continued to carry no debt at September 30, 2012.

On September 27, 2012, Navarre entered a definitive agreement to acquire SpeedFC, a provider of e-commerce services to online retailers and manufacturers. This transaction is expected to close in November 2012, and is subject to a number of contingencies, including the approval by Navarre's shareholders to issue more than 20% of its outstanding shares as required under NASDAQ rules, and securing necessary financing. Navarre anticipates closing the SpeedFC acquisition in its third quarter and providing an update to its guidance at that time.

Management Commentary

"The robust results we experienced in the fiscal second quarter reflect the proactive steps we've taken in the key growth areas of our business," said Richard Willis, president and CEO of Navarre. "We are encouraged that net sales increases were broad-based and that our three targeted organic growth initiatives—Canada, e-commerce and CE&A—have sustained healthy double-digit growth rates throughout the first six months of our fiscal year, growing 46%, 25% and 35% year-over-year, respectively."

"During the quarter, we announced an agreement to acquire SpeedFC," continued Willis. "Following this acquisition, Navarre will have an operating platform that is unique in the marketplace. We will be able to offer our customers world class e-commerce platforms and web hosting, 24/7 customer service, third party logistics, as well as retail and direct-to-consumer distribution. We believe the steps we have taken to focus on our growth areas, realign our cost structure and to pursue synergistic acquisitions like SpeedFC clearly positions Navarre as a single-source solution for retailers and manufacturers who seek to simplify their supply chain.

"We continue to be focused on driving down our costs. In the past year, we have successfully reduced our operating expenses by approximately $1 million a month. For the first six months of fiscal 2013, our operating costs are down $6.7 million or 23%. Our emphasis on efficiency and sales from targeted organic growth markets has resulted in second quarter adjusted EBITDA of over $2.2 million versus a loss of approximately $300,000 in the same period last year. I appreciate and thank our organization for their efforts toward this turnaround in Navarre's performance."

Outlook

The company's guidance for fiscal 2013, issued on May 22, 2012, remains on track with net sales expected to be between $460.0 million and $480.0 million, and adjusted EBITDA anticipated to be between $9.0 and $11.0 million. Navarre expects to update its fiscal year 2013 guidance following the anticipated closing of the SpeedFC transaction.

Conference Call

Navarre will host a conference call tomorrow, Tuesday, October 30, 2012 at 11:00 a.m. Eastern time to discuss its fiscal second quarter 2013 results. President and CEO Richard Willis and CFO Diane Lapp will host the call, followed by a question and answer period.

Date: Tuesday, October 30, 2012
Time: 11:00 a.m. Eastern time (10:00 a.m. Central time)
Dial-In Number: 1-866-783-2146
Conference ID#: 91857747

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay via the "Investors" section of the company's website at www.Navarre.com.

A replay of the conference call will be available after 1:00 p.m. Eastern time on the same day through November 6, 2012.

Toll-free replay number: 1-888-286-8010
Replay passcode: 37429287

About Navarre Corporation

Founded in 1983, Navarre® is a vertically integrated, full-service platform for retailers and manufacturers. The company uniquely offers multi-channel sales solutions, including retail distribution programs, e-commerce fulfillment and third party logistics services. Navarre is headquartered in Minneapolis, Minnesota. For additional information, please visit the company's website at www.Navarre.com.

The Navarre Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6839

Use of Non-GAAP Information

In evaluating the company's financial performance and operating trends, management considers information concerning the company's net sales before inter-company eliminations, and earnings before interest, taxes, depreciation, amortization, share-based compensation expense and restructuring charges from continuing operations, which 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 website at 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: difficult economic conditions that adversely affect the company's customers and vendors; the company's revenues being derived from a small group of customers; pending or prospective litigation may subject the company to significant costs; the seasonal nature of the company's business; the company's ability to adapt to the changing demands of its customers; the potential for the company to incur significant costs and to experience operational and logistical difficulties in connection with its information technology systems and infrastructure; the company's dependence on significant vendors; the uncertain results of developing new software products; uncertain financial results 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 U.S. Securities and Exchange Commission (the "SEC"), including, in particular, the company's proxy statement filed October 10, 2012, the company's Form 10-K filings, as well as its other SEC filings and public disclosures.

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 contact the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.

NAVARRE CORPORATION
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited) (Unaudited)
September 30, September 30, March 31,
2012 2011 2012
Assets:
Current assets:
Cash $ -- $ 5,403 $ 5,600
Accounts receivable, net 66,294 59,088 47,935
Inventories 34,723 34,486 28,850
Deferred tax assets — current, net 1,174 6,719 1,580
Other 1,739 3,846 2,211
Total current assets 103,930 109,542 86,176
Property and equipment, net 6,397 8,213 6,868
Goodwill and intangible assets, net 1,278 7,802 1,547
Deferred tax assets — non-current, net 18,846 25,316 18,450
Other assets 7,432 14,529 8,335
Total assets $ 137,883 $ 165,402 $ 121,376
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $ 91,120 $ 83,407 $ 73,421
Other 4,926 8,663 6,642
Total current liabilities 96,046 92,070 80,063
Long-term liabilities:
Other liabilities 1,542 1,865 1,497
Total liabilities 97,588 93,935 81,560
Shareholders' equity 40,295 71,467 39,816
Total liabilities and shareholders' equity $ 137,883 $ 165,402 $ 121,376
NAVARRE CORPORATION
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
Three months ended September 30, Six months ended September 30,
2012 2011 2012 2011
Net sales $ 104,132 $ 106,568 $ 195,404 $ 210,584
Cost of sales (exclusive of depreciation) 92,016 93,973 173,241 184,202
Gross profit 12,116 12,595 22,163 26,382
Operating expenses:
Selling and marketing 4,549 5,005 8,493 10,048
Distribution and warehousing 1,801 2,495 3,513 4,938
General and administrative 4,166 5,753 8,238 11,677
Depreciation and amortization 814 927 1,627 1,899
Total operating expenses 11,330 14,180 21,871 28,562
Income (loss) from operations 786 (1,585) 292 (2,180)
Other income (expense):
Interest income (expense), net (166) (288) (261) (581)
Other income (expense), net 142 (255) (99) (330)
Income (loss) from operations, before income tax 762 (2,128) (68) (3,091)
Income tax benefit (expense) (274) 879 (15) 1,215
Net income (loss) $ 488 $ (1,249) $ (83) $ (1,876)
Earnings (loss) per common share:
Basic $ 0.01 $ (0.03) $ -- $ (0.05)
Diluted $ 0.01 $ (0.03) $ -- $ (0.05)
Weighted average shares outstanding:
Basic 37,180 36,831 37,168 36,719
Diluted 37,348 36,831 37,168 36,719
Other comprehensive income (loss):
Net unrealized gain (loss) on foreign exchange rate translation, net of tax 55 (279) 83 (267)
Comprehensive income (loss) $ 543 $ (1,528) $ -- $ (2,143)
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net Sales and Business Segment Information
Three Months Ended September 30, Six Months Ended September 30,
2012 % 2011 % 2012 % 2011 %
Net sales:
Software $ 83,837 80.5% $ 77,528 72.7% $ 149,301 76.4% $ 151,956 72.2%
Consumer electronics and accessories 15,653 15.0% 14,816 13.9% 36,500 18.7% 27,042 12.8%
Video games 2,181 2.1% 5,556 5.2% 4,920 2.5% 10,352 4.9%
Home video -- 0.0% 6,137 5.8% -- 0.0% 16,421 7.8%
Distribution 101,671 97.6% 104,037 97.6% 190,721 97.6% 205,771 97.7%
Publishing 7,081 6.8% 6,315 5.9% 12,499 6.4% 13,522 6.4%
Net sales before inter-company eliminations 108,752 110,352 203,220 219,293
Inter-company eliminations (4,620) -4.4% (3,784) -3.6% (7,816) -4.0% (8,709) -4.1%
Net sales as reported $ 104,132 $ 106,568 $ 195,404 $ 210,584
Operating income (loss)
Distribution $ (1,209) $ (1,670) $ (2,624) $ (3,909)
Publishing 1,995 85 2,916 1,729
Consolidated operating income (loss) $ 786 $ (1,585) $ 292 $ (2,180)
Net Sales by Geographic Region
United States $ 92,097 $ 99,791 $ 174,418 $ 199,606
International 16,655 10,561 28,802 19,687
Net sales before inter-company eliminations 108,752 110,352 203,220 219,293
Inter-company eliminations (4,620) (3,784) (7,816) (8,709)
Net Sales as reported $ 104,132 $ 106,568 $ 195,404 $ 210,584
Net Sales by Sales Channel
Retail $ 89,132 $ 95,525 $ 167,428 $ 190,659
E-commerce 19,620 14,827 35,792 28,634
Net sales before inter-company eliminations 108,752 110,352 203,220 219,293
Inter-company eliminations (4,620) (3,784) (7,816) (8,709)
Net Sales as reported $ 104,132 $ 106,568 $ 195,404 $ 210,584
NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended September 30,
2012 2011
Net cash used in operating activities (15,653) (6,037)
Net cash provided by (used in) investing activities (813) 20,104
Net cash provided by (used in) financing activities 10,866 (8,664)
Net increase (decrease) in cash (5,600) 5,403
Cash and cash equivalents at beginning of period 5,600 --
Cash and cash equivalents at end of period $ -- $ 5,403
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Three Months Six Months
Ended September 30, Ended September 30,
2012 2011 2012 2011
Net income (loss), as reported $ 488 $ (1,249) $ (83) $ (1,876)
Interest expense, net 166 288 261 581
Income tax expense (benefit) 274 (880) 15 (1,215)
Depreciation and amortization 814 927 1,627 1,899
Foreign translation loss (gain) (137) 255 106 329
Share-based compensation 236 361 460 423
Transaction costs 393 -- 393 --
Adjusted EBITDA $ 2,234 $ (298) $ 2,779 $ 141
CONTACT: Investor Relations Liolios Group, Inc. Cody Slach 1-949-574-3860 NAVR@liolios.com

Source:Navarre Corporation