Exhibit 99.1
NAVARRE REPORTS FINANCIAL RESULTS FOR
SECOND QUARTER OF FISCAL YEAR 2012
Company Announces Restructuring Initiatives to Increase Focus on
Profitable Growth in Core Business
MINNEAPOLIS, MN – October 31, 2011 – Navarre (Nasdaq: NAVR), a leading distributor and provider of complete logistics solutions, today reported its financial results for the second quarter of its 2012 fiscal year.
Second Quarter Fiscal Year 2012 Results
| • | Net sales from continuing operations were $106.6 million, as compared to net sales from continuing operations of $120.5 million for the second quarter of the prior year. |
| • | Operating loss from continuing operations before income tax was $1.6 million during the second quarter, as compared to operating income from continuing operations before income tax of $3.2 million in the prior year. |
| • | Net loss from continuing operations for the second quarter of fiscal year 2012 was $1.3 million, a loss of $0.03 per diluted share, versus net income from continuing operations of $1.5 million, or $0.04 per diluted share in the same period of the prior year. |
| • | Adjusted EBITDA from continuing operations for the second quarter was a loss of $382,000, as compared to Adjusted EBITDA from continuing operations of $4.2 million in the prior year’s second quarter. Adjusted EBITDA does not include stock-based compensation expense or CEO transition costs.(See “Use of Non-GAAP Financial Information” below.) |
| • | The Company had no debt and a cash balance of $5.4 million at September 30, 2011, as compared to debt of $14.4 million at September 30, 2010, an improvement of $19.8 million. |
Richard Willis, Chief Executive Officer, commented, “We had a difficult quarter, primarily due to a decline in the sale of software products. However, we are well positioned to focus on our core strengths in logistics and distribution to our retail partners. We have aggressively entered the consumer electronics and accessories markets, divested non-core assets, and are now restructuring to reduce expense. These expense reductions and increased efficiencies will allow Navarre to competitively price our products and services to gain new business while increasing our focus on customer support, sales and marketing.
“During the second quarter, we added 43 new vendor partners, with many of those being manufacturers of consumer electronics and accessories, a product category where we are seeing
triple-digit growth. These new product offerings have also helped to open relationships with 6 new customers during the second quarter. Many of those customers are outside of Navarre’s traditional customer footprint and have expressed great appreciation for the service levels that we provide. We are working with these new retail partners to provide them with new products and to offer solutions in their existing supply chain. I am excited about where we are headed and feel that we have the right people and strategies in place to increase the rate of Navarre’s expansion into new markets.”
Restructuring Initiative
The Company is focusing its efforts to better coordinate with its retail partners in the high-growth opportunities of e-commerce fulfillment and consumer electronics and accessories. The Company’s plans are expected to increase operating efficiencies and generate annualized, pre-tax cost savings of $5.5-$6.5 million when fully implemented in fiscal year 2013, with savings of $2.0 million expected to be achieved in fiscal year 2012. The Company anticipates that these savings will provide additional resources to invest in product lines and services categories that will create profitable growth, and increase flexibility to adjust to evolving distribution and logistics markets.
The Company expects to record a pre-tax restructuring charge and other non-recurring expenses in the range of $8.5-$9.5 million during the third and fourth quarters of fiscal year 2012. Cost savings will be achieved primarily by reducing layers of management and other personnel, outsourcing non-core business activities, and simplifying business structures and processes across the Navarre’s operations.
“I’m encouraged by how well the management team responded to this change in market conditions and how quickly we were able to put this restructuring plan together. This decision follows a thorough analysis of the Company’s operations and its opportunities for growth with our retail partners. The restructuring will allow us to focus on increasing our rate of growth in e-commerce fulfillment and with consumer electronics and accessory products. Those categories provide Navarre with the most direct path to increasing shareholder value,” commented Richard Willis.
Outlook
In light of decreased software sales and the restructuring and non-recurring charges that will be incurred in the Company’s third and fourth fiscal quarters, guidance for fiscal year 2012 has been updated as follows:
| • | Net sales are anticipated to be between $440 million and $470 million; and |
| • | Adjusted EBITDA is expected to be between $7 and $9 million. Adjusted EBITDA for the remainder of the 2012 fiscal year does not include the impact of stock-based compensation expense, CEO transition costs, or restructuring charges and other non-recurring expenses as are summarized in the supplemental information table. |
Conference Call
The Company will host a conference call on November 1, 2011, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). The conference call can be accessed by dialing (800) 901-5226, and utilizing the passcode “24900389”, ten minutes prior to the scheduled start time. In addition, a live broadcast of this call will be available by going to the “Investors” section of the Company’s website located at www.navarre.com. Those wishing to access this live broadcast of the call should go to the Company’s website fifteen minutes prior to the start time to register and download any necessary software. A replay of the conference call will be available at the Company’s website following its completion.
Use of Non-GAAP Financial Information
In evaluating our financial performance and operating trends, management considers information concerning our 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 preliminary non-GAAP financial measures to the comparable preliminary GAAP results, which is attached to this release and can also be found on the Company’s website at www.navarre.com.
About Navarre Corporation
Navarre® is a distributor and provider of complete logistics solutions for traditional and internet-based retail channels. Our solutions support both direct-to-consumer and business-to-business sales. We also publish computer software through our Encore® subsidiary. Navarre was founded in 1983 and is headquartered in Minneapolis, Minnesota.
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; a pending investigation by the U.S. Securities and Exchange Commission (the “SEC”) or litigation arising out of this investigation, or other matters, may subject the Company to significant costs; the seasonal nature of the Company’s business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its systems; 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 SEC, including, in particular, 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.
Additional Information
Navarre Investor Relations
763-535-8333
ir@navarre.com
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales | $ | 106,568 | $ | 120,476 | $ | 210,584 | $ | 219,268 | ||||||||
Cost of sales (exclusive of depreciation) | 93,973 | 103,216 | 184,202 | 187,531 | ||||||||||||
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Gross profit | 12,595 | 17,260 | 26,382 | 31,737 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 5,005 | 5,277 | 10,048 | 10,161 | ||||||||||||
Distribution and warehousing | 2,495 | 2,686 | 4,938 | 5,158 | ||||||||||||
General and administrative | 5,753 | 5,149 | 11,677 | 10,223 | ||||||||||||
Depreciation and amortization | 927 | 991 | 1,899 | 1,882 | ||||||||||||
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Total operating expenses | 14,180 | 14,103 | 28,562 | 27,424 | ||||||||||||
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(Loss) income from operations | (1,585 | ) | 3,157 | (2,180 | ) | 4,313 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest (expense) income, net | (288 | ) | (456 | ) | (581 | ) | (851 | ) | ||||||||
Other income (expense), net | (255 | ) | (172 | ) | (330 | ) | (431 | ) | ||||||||
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(Loss) income from continuing operations before income tax | (2,128 | ) | 2,529 | (3,091 | ) | 3,031 | ||||||||||
Income tax benefit (expense) | 879 | (1,072 | ) | 1,215 | (1,371 | ) | ||||||||||
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Net (loss) income from continuing operations | (1,249 | ) | 1,457 | (1,876 | ) | 1,660 | ||||||||||
Discontinued operations: | ||||||||||||||||
Income from discontinued operations, net of tax | — | 1,680 | — | 2,575 | ||||||||||||
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Net (loss) income | $ | (1,249 | ) | $ | 3,137 | $ | (1,876 | ) | $ | 4,235 | ||||||
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Basic (loss) earnings per common share: | ||||||||||||||||
Continuing operations | $ | (0.03 | ) | $ | 0.04 | $ | (0.05 | ) | $ | 0.05 | ||||||
Discontinued operations | — | 0.05 | — | 0.07 | ||||||||||||
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Net (loss) income | $ | (0.03 | ) | $ | 0.09 | $ | (0.05 | ) | $ | 0.12 | ||||||
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Diluted (loss) earnings per common share: | ||||||||||||||||
Continuing operations | $ | (0.03 | ) | $ | 0.04 | $ | (0.05 | ) | $ | 0.04 | ||||||
Discontinued operations | — | 0.05 | — | 0.07 | ||||||||||||
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Net (loss) income | $ | (0.03 | ) | $ | 0.09 | $ | (0.05 | ) | $ | 0.11 | ||||||
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Weighted average shares outstanding: | ||||||||||||||||
Basic | 36,831 | 36,376 | 36,719 | 36,371 | ||||||||||||
Diluted | 36,831 | 36,995 | 36,719 | 36,886 | ||||||||||||
NAVARRE CORPORATION
Consolidated Condensed Balance Sheets
(In thousands)
| (Unaudited) | (Unaudited) | |||||||||||||
| September 30, 2011 | September 30, 2010 | March 31, 2011 | ||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash | $ | 5,403 | $ | — | $ | — | ||||||||
Accounts receivables, net | 59,088 | 56,574 | 57,833 | |||||||||||
Receivable from the sale of discontinued operations | — | — | 24,000 | |||||||||||
Inventories | 34,486 | 27,694 | 24,913 | |||||||||||
Deferred tax assets – current, net | 6,719 | 6,624 | 6,436 | |||||||||||
Other | 3,846 | 3,416 | 3,957 | |||||||||||
Current assets of discontinued operations | — | 9,913 | — | |||||||||||
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Total current assets | 109,542 | 104,221 | 117,139 | |||||||||||
Property and equipment, net | 8,213 | 10,548 | 9,299 | |||||||||||
Intangible assets, net | 7,802 | 8,359 | 8,084 | |||||||||||
Deferred tax assets – non-current, net | 25,316 | 12,553 | 24,320 | |||||||||||
Other assets | 14,529 | 16,034 | 15,024 | |||||||||||
Non-current assets of discontinued operations | — | 29,907 | — | |||||||||||
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Total assets | $ | 165,402 | $ | 181,622 | $ | 173,866 | ||||||||
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Liabilities and shareholders’ equity | ||||||||||||||
Current liabilities: | ||||||||||||||
Revolving line of credit | $ | — | $ | 14,428 | $ | — | ||||||||
Accounts payable | 83,407 | 73,347 | 80,379 | |||||||||||
Other | 8,663 | 15,727 | 18,189 | |||||||||||
Current liabilities of discontinued operations | — | 10,079 | — | |||||||||||
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Total current liabilities | 92,070 | 113,581 | 98,568 | |||||||||||
Long-term liabilities: | ||||||||||||||
Other | 1,865 | 2,428 | 2,217 | |||||||||||
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Total liabilities | 93,935 | 116,009 | 100,785 | |||||||||||
Shareholders’ equity | 71,467 | 65,613 | 73,081 | |||||||||||
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Total liabilities and shareholders’ equity | $ | 165,402 | $ | 181,622 | $ | 173,866 | ||||||||
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NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
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| Six Months Ended September 30, | ||||||||
| 2011 | 2010 | |||||||
Net cash used in operating activities | $ | (6,037 | ) | $ | (4,041 | ) | ||
Net cash provided by (used in) investing activities | 20,104 | (8,985 | ) | |||||
Net cash (used in) provided by financing activities | (8,664 | ) | 10,447 | |||||
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Net cash provided by (used in) continuing operations | 5,403 | (2,579 | ) | |||||
Discontinued operations | ||||||||
Net cash provided by operating activities | — | 2,776 | ||||||
Net cash used in investing activities | — | (191 | ) | |||||
Net cash used in financing activities | — | (6 | ) | |||||
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Net cash provided by discontinued operations | — | 2,579 | ||||||
Net increase in cash | 5,403 | — | ||||||
Cash at beginning of period | — | — | ||||||
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Cash at end of period | $ | 5,403 | $ | — | ||||
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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, | |||||||||||||||||||||||||||||||
| 2011 | % | 2010 | % | 2011 | % | 2010 | % | |||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||||||||||
Software | $ | 77,528 | 70.3 | % | $ | 94,372 | 74.1 | % | $ | 151,956 | 69.3 | % | $ | 172,797 | 75.0 | % | ||||||||||||||||
Consumer electronics and accessories | 14,816 | 13.4 | % | 6,468 | 5.1 | % | 27,042 | 12.3 | % | 11,257 | 4.9 | % | ||||||||||||||||||||
Video games | 5,556 | 5.0 | % | 7,924 | 6.2 | % | 10,352 | 4.7 | % | 11,594 | 5.0 | % | ||||||||||||||||||||
Home video | 6,137 | 5.6 | % | 9,997 | 7.8 | % | 16,421 | 7.5 | % | 19,066 | 8.3 | % | ||||||||||||||||||||
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Distribution | 104,037 | 94.3 | % | 118,761 | 93.2 | % | 205,771 | 93.8 | % | 214,714 | 93.2 | % | ||||||||||||||||||||
Publishing | 6,315 | 5.7 | % | 8,656 | 6.8 | % | 13,522 | 6.2 | % | 15,710 | 6.8 | % | ||||||||||||||||||||
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Net sales before inter-company eliminations | 110,352 | 127,417 | 219,293 | 230,424 | ||||||||||||||||||||||||||||
Inter-company eliminations | (3,784 | ) | (6,941 | ) | (8,709 | ) | (11,156 | ) | ||||||||||||||||||||||||
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Net sales as reported | $ | 106,568 | $ | 120,476 | $ | 210,584 | $ | 219,268 | ||||||||||||||||||||||||
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Operating (loss) income from continuing operations: | ||||||||||||||||||||||||||||||||
Distribution | $ | (1,670 | ) | $ | 1,699 | $ | (3,909 | ) | $ | 1,708 | ||||||||||||||||||||||
Publishing | 85 | 1,458 | 1,729 | 2,605 | ||||||||||||||||||||||||||||
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Consolidated operating (loss) income from continuing operations | $ | (1,585 | ) | $ | 3,157 | $ | (2,180 | ) | $ | 4,313 | ||||||||||||||||||||||
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NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net (Loss) Income from Continuing Operations to Adjusted EBITDA
| Three Months | Six Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Net (loss) income from continuing operations, as reported | $ | (1,249 | ) | $ | 1,457 | $ | (1,876 | ) | $ | 1,660 | ||||||
Interest expense (income), net | 288 | 456 | 581 | 851 | ||||||||||||
Income tax (benefit) expense | (879 | ) | 1,072 | (1,215 | ) | 1,371 | ||||||||||
Depreciation and amortization | 927 | 991 | 1,899 | 1,882 | ||||||||||||
CEO transition costs | 170 | — | 1,653 | — | ||||||||||||
Share-based compensation | 361 | 242 | 424 | 468 | ||||||||||||
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Adjusted EBITDA | $ | (382 | ) | $ | 4,218 | $ | 1,466 | $ | 6,232 | |||||||
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