Acclaim reports significant losses

Despite cost-cutting and a smarter release calendar, the once-mighty publisher loses $31 million over nine months.

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When is a loss of $31 million over a nine-month period cause for celebration? When it's $9 million less than you lost for the same period the year earlier. Such is the bittersweet news out of Glen Cove, New York, which is home to Acclaim Entertainment.

The game publisher of such classics as Mortal Kombat and the NBA Jam series released both three- and nine-month financials yesterday. For the nine-month period ending last December (of 2003), Acclaim reported a net loss of $31.0 million off of net revenue of $113.7 million. The previous year it reported a net loss of $39.6 million on net revenue of $180.1 million.

That's the good news.

The bad news is that even though the company put itself on a strict cost-cutting regime--implementing "planned reductions in the company's marketing and selling expenses, its general and administrative expenses, and its research and development costs"--its tallies were "forgettable," as one industry reporter put it.

The Motley Fool financial site almost seemed to gloat at Acclaim's financial situation. "Between its heavy debt burden, bloody financials, and negative book value, Acclaim needs more than just a hit," the site said today. Not mentioned in the Motley Fool coverage were the positive results of the belt-tightening efforts. Acclaim said its operating expenses over the past nine months decreased by 37 percent, or $44.2 million.

Michael Pachter, senior vice president of research at investment firm Wedbush Morgan says there is still hope for Acclaim. "I think they're on course--if they can execute. It was essential for them to get costs under control--which they did--and to scale down their development effort to fewer, smaller games--again, which they did. The key is that they need to execute on branding and marketing to make sure that the games that they do produce are profitable," Pachter told GameSpot today.

For just the most recent quarter, the three-month holiday season ending December 28, 2003, Acclaim reported that it lost $9 million, which was significantly less than the almost $14 million loss it reported the year previous. Revenues for the quarter were $39.3 million, down some $23 million from the quarter a year earlier.

Looking ahead, Acclaim is projecting a loss in the current quarter of between $20 million to $25 million. However, in its outlook for the full fiscal year 2005, it expects to be profitable. Can the turnaround be accomplished? Says Pachter, "They haven't had a great track record, so we have to wait and see."

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