Navarre Corporation Reports Financial Results for Third Quarter Of Fiscal Year 2008

Navarre Corporation Reports Financial Results for Third Quarter Of Fiscal Year 2008

Company to Host Conference Call on February 7, 2008, at 11:00 a.m. EST

MINNEAPOLIS, Feb. 6 /PRNewswire-FirstCall/ -- Navarre Corporation (NASDAQ:NAVR) a publisher and distributor of physical and digital home entertainment and multimedia software products, today reported its fiscal year 2008 third quarter results for the period ending December 31, 2007.

   Financial Results -- Third Quarter Fiscal Year 2008    -- Net sales from continuing operations were $217.5 million, as compared      to $195.4 million for the third quarter of fiscal year 2007, an      increase of $22.1 million or 11.3%.    -- Net income from continuing operations was $4.0 million, or $0.11 per      diluted share, as compared to net income from continuing operations in      the third quarter of fiscal year 2007 of $3.8 million, or $0.10 per      diluted share.    -- Net income was $3.9 million, or $0.11 per diluted share, as compared to      net income in the third quarter of fiscal year 2007 of $4.1 million, or      $0.11 per diluted share.    -- Earnings before interest, taxes, depreciation, amortization (EBITDA)      from continuing operations was $11.4 million as compared to $11.2      million for the third quarter of fiscal year 2007.  See "Use of      Non-GAAP Financial Information" below.     Financial Results -- Year to Date Fiscal Year 2008    -- Net sales from continuing operations in the first nine months were      $498.3 million, as compared to $486.5 million for the first nine months      of fiscal year 2007, an increase of $11.8 million or 2.4%.    -- Net income from continuing operations during the first nine months was      $6.1 million, or $0.17 per diluted share, as compared to net income      from continuing operations in the first nine months of fiscal year 2007      of approximately $5.8 million, or $0.16 per diluted share.    -- Net income during the first nine months was $9.0 million, or $0.25 per      diluted share, as compared to net income in the first nine months of      fiscal year 2007 of $6.3 million, or $0.17 per diluted share.    -- EBITDA from continuing operations for the first nine months of fiscal      year 2008 was $23.2 million as compared to $23.8 million for the first      nine months of fiscal year 2007.  See "Use of Non-GAAP Financial      Information" below.    

Cary Deacon, Chief Executive Officer, commented, "Despite a very choppy retail quarter, our distribution group aggressively pursued market share and has continued to expand our close relationships with both vendor and retail partners. This strategy changed our margin mix in the quarter and we believe that this impact is temporary. We employed more distribution inventory in the quarter to support our initiatives and fully expect to finish our fiscal year at or below last year's inventory levels. As well in the quarter, our distribution segment was awarded Symantec's software business at Best Buy."

Deacon continued, "Both Encore and FUNimation had a solid quarter. Each business met operating profit expectations, which were an improvement as compared to the same quarter last year. Encore's signing of the previously announced PlayFirst exclusive license agreement was an important step in our acquisition plan in the PC gaming and entertainment sector. FUNimation continues to grow its market share in the Anime sector. The Publishing segment was impacted by the poor performance of BCI; however, we believe that BCI is positioned to return to profitability in fiscal year 2009."

   Business Segment Highlights    Publishing Segment  

The publishing segment includes the results of the wholly-owned subsidiaries FUNimation, Encore and BCI. For the third quarter ended December 31, 2007, the publishing segment's net sales, before inter-company eliminations, were $31.4 million, as compared to net sales of $35.0 million for the same period last year. See "Use of Non-GAAP Financial Information" below.

FUNimation's sales and profitability benefited from the resolution of a dispute with Atari, a licensee of interactive video game rights to the Dragonball Z franchise, which resulted in the realization of previously unpaid royalties. FUNimation anticipates that its licenses to Atari will provide an additional revenue stream going forward as a $10 million prepaid royalty advance that was received by FUNimation in 2004 has now been earned out.

Encore met the Company's sales expectations in the third quarter. Encore's operating income increased during the third quarter as compared to the prior year and it has achieved operating income improvements in all three quarters of this fiscal year versus the prior year.

BCI's sales declined compared to the same period in the prior year and this shortfall accounted for the year over year sales decline in the publishing segment during the third quarter. BCI incurred a modest operating loss in the quarter. The Company is continuing its focus on the Latino and budget categories and anticipates that a pipeline of new products and programs in these categories will have a positive impact on BCI's future results.

Distribution Segment

For the third quarter ended December 31, 2007, the distribution segment's net sales, before inter-company eliminations, increased 11.5% to $205.2 million, as compared to net sales of $184.1 million for the same period last year. See "Use of Non-GAAP Financial Information" below.

Sales growth resulted from continued market share gains, particularly in the PC software category. Video game sales in the third quarter were also a significant driver of the distribution sales increase with the category accounting for $24.9 million in sales as compared to $16.5 million in the same quarter of the prior year, an increase of 51%.

ERP Implementation

The implementation of a new Enterprise Resource Planning (ERP) system continued to meet the Company's expectations. Finance systems, including sales and procurement, went live in September. During the quarter these systems continued to mature, providing improved information, more efficiently. The second phase of this implementation involves the installation of a warehouse and transportation management system that has been licensed from HighJump Software, and the integration of that system with the Company's financial reporting systems which operate on an SAP platform. The second, and final, phase of this ERP implementation is anticipated to be installed in the summer of fiscal year 2009. During the quarter, expense related to ERP implementation was approximately $1 million.

Discontinued Operations

In connection with the Company's May 31, 2007, sale of its independent music business to Koch Entertainment, the Company received $6.5 million in cash at closing. Discontinued operating activities, including the liquidation of retained assets and liabilities, has yielded an additional $6.4 million in cash.

Debt and Interest Expense

The Company's debt, net of cash, at the end of the third quarter of fiscal year 2008 was $54.5 million, as compared to $65.6 million at December 31, 2006, a year over year reduction of $11.1 million. Interest expense decreased in the third quarter by approximately $0.3 million as compared to the third quarter of fiscal year 2007.

Outlook

Based on the operating results during the first nine months of the fiscal year, the Company reiterated its fiscal year 2008 guidance as follows:

   -- The Company anticipates consolidated net sales of between $620 million      and $640 million.   -- Earnings before interest, taxes, depreciation and amortization (EBITDA)      from continuing operations are expected to be between $29 million and      $31 million.   -- Anticipated net income (including discontinued operations) between      $9 million and $10 million.   -- Anticipated depreciation and amortization expense of approximately      $10 million.   -- Anticipated share-based compensation expense of approximately      $1 million.   -- Cash flow from operations is anticipated to again be positive for      fiscal year 2008 results.     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/.

Conference Call

The Company will host a conference call at 11:00 a.m. ET, Thursday, February 7, 2008, to discuss the Company's quarterly results. The conference call can be accessed by dialing (800)798-2801, conference participant passcode "79565540", ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the "Investors" section of the Company's web site located at http://www.navarre.com/. Those wishing to access the call through the internet should go to the Company's 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 at the Company's web site following the call's completion.

About Navarre Corporation

Navarre Corporation (NASDAQ:NAVR) is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, DVD video, video games and accessories. Navarre develops, licenses and publishes home entertainment and multimedia content through its Encore, BCI, and FUNimation subsidiaries and has established distribution relationships with customers across a wide spectrum of retail channels. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information is available 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 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 implementation of a new ERP system; pending litigation or regulatory investigation of the Company may result in significant costs; 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 for the year ended March 31, 2007, 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 Company's 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       Nine Months                                              Ended             Ended                                            December 31,      December 31,                                           2007     2006     2007     2006   Net sales                            $217,547 $195,424 $498,284 $486,488   Cost of sales (exclusive of    depreciation and amortization)       185,913  162,717  420,606  402,725   Gross profit                           31,634   32,707   77,678   83,763   Operating expenses:     Selling and marketing                 7,323    7,916   20,922   22,148     Distribution and warehousing          3,592    4,048    8,935    9,475     General and administrative            9,591    9,646   25,839   25,724     Bad debt expense                        -         52       85    2,871     Depreciation and amortization (1)     2,506    2,792    7,047    8,099   Total operating expenses               23,012   24,454   62,828   68,317   Income from operations                  8,622    8,253   14,850   15,446   Other income (expense):     Interest expense                     (1,778)  (2,061)  (4,857)  (5,988)     Interest income                          43       42      167      253     Warrant expense                         -        -        -       (251)     Other income (expense), net              60      (80)     431       21   Net income before income tax            6,947    6,154   10,591    9,481   Income tax expense                     (2,938)  (2,354)  (4,454)  (3,690)   Net income from continuing operations   4,009    3,800    6,137    5,791   Discontinued operations, net of tax     Gain on sale of discontinued      operations                              70      -      4,714      -     Income (loss) from discontinued      operations                            (176)     251   (1,879)     505   Net income                             $3,903   $4,051   $8,972   $6,296   Basic earnings per common share:     Continuing operations                  $.11     $.10     $.17     $.16     Discontinued operations                $-       $.01     $.08     $.02     Net income                             $.11     $.11     $.25     $.18   Diluted earnings per common share:     Continuing operations                  $.11     $.10     $.17     $.16     Discontinued operations                $-       $.01     $.08     $.01     Net income                             $.11     $.11     $.25     $.17   Weighted average shares outstanding:     Basic                                36,143   35,868   36,080   35,750     Diluted                              36,257   36,271   36,281   36,205    (1) Depreciation and amortization expense in the three months ended       December 31, 2007 and 2006 includes $894,000 and $1.5 million,       respectively, and in the nine months ended December 31, 2007 and 2006       includes $2.7 million and $4.5 million, respectively, of amortization       expense related to the FUNimation acquisition.                               NAVARRE CORPORATION                    Consolidated Condensed Balance Sheet                               (In thousands)                                (Unaudited)                                           December 31, December 31, March 31,                                             2007        2006         2007   Assets   Current assets:        Cash and cash equivalents            $4,248     $10,732        $966        Receivables, net                    116,171     114,425      70,609        Inventories                          50,823      45,377      36,791        Other                                23,636      22,799      20,889        Assets from discontinued         operations - current                   210      28,705      21,889   Total current assets                     195,088     222,038     151,144   Property and equipment, net               17,342      12,259      14,042   Other assets                             126,734     125,803     122,696   Assets from discontinued operations -    non current                                  --         372         343   Total assets                            $339,164    $360,472    $288,225    Liabilities and shareholders' equity   Current liabilities:        Note payable - line of credit       $48,917         $--     $38,956        Note payable - short-term               150       5,000         150        Accounts payable                    129,741     130,567      87,145        Other                                17,992      14,755      13,680        Liabilities from discontinued         operations - current                   846      16,352      12,748   Total current liabilities                197,646     166,674     152,679   Long-term liabilities:        Note payable - long-term              9,632      71,380      14,850        Other                                 8,463       7,152       7,245   Total liabilities                        215,741     245,206     174,774        Shareholders' equity                123,423     115,266     113,451   Total liabilities and shareholders'    equity                                 $339,164    $360,472    $288,225                               NAVARRE CORPORATION              Consolidated Condensed Statements of Cash Flows                               (In thousands)                                (Unaudited)                                                          Nine Months Ended                                                             December 31,                                                          2007        2006    Net cash  provided by (used in) operating    activities                                          $(3,020)     $7,870   Net cash used in investing activities                (11,252)     (5,764)   Net cash provided by (used in) financing    activities                                            4,599      (3,620)   Net cash provided by (used in) discontinued    operating activities                                  6,455      (2,050)   Proceeds from sale on discontinued operations          6,500          --   Net increase (decrease) in cash                        3,282      (3,564)   Cash at beginning of period                              966      14,296   Cash at end of period                                 $4,248     $10,732                               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 December 31,  Nine Months Ended December 31,                    2007    %      2006    %      2007    %      2006    %   Net sales:     Distribution $205,221 86.7% $184,090 84.0% $462,502 84.0% $445,311 82.3%     Publishing     31,354 13.3%   35,045 16.0%   88,020 16.0%   95,788 17.7%   Net sales before    inter-company    eliminations   236,575        219,135        550,522        541,099     Inter-company      eliminations (19,028)       (23,711)       (52,238)       (54,611)   Net sales as    reported      $217,547       $195,424       $498,284       $486,488    Income from    continuing    operations:     Distribution   $2,892         $3,310         $4,843         $4,133     Publishing      5,730          4,943         10,007         11,313   Consolidated    income from    continuing    operations      $8,622         $8,253        $14,850        $15,446     Reconciliation of Net Income from Continuing Operations to EBITDA                                  Three Months Ended       Nine Months Ended                                     December 31,            December 31,                                  2007        2006        2007        2006    Net income from               $4,009      $3,800      $6,137      $5,791    continuing operations,    as reported        Interest expense         (income), net            1,735       2,019       4,690       5,735        Tax expense               2,938       2,354       4,454       3,690        Depreciation and         amortization             2,506       2,792       7,047       8,099        Share-based         compensation               259         220         826         520   EBITDA                       $11,447     $11,185     $23,154     $23,835  

First Call Analyst:
FCMN Contact: carrie.schudi@navarre.com

Source: Navarre Corporation

CONTACT: Navarre Investor Relations, +1-763-535-8333, ir@navarre.com

Web site: http://www.navarre.com/

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Profile: International Entertainment