Midway revenues climb 47 percent

In spite of a bottom line streaked in red, Midway CEO David Zucker was proud of his team in Chicago for delivering a better-than-expected quarter...and he let analysts know it. He opened this afternoon's third quarter earning's call by saying Midway had "continued our commitment to build our reputation as one of the industry's consistently high-quality game publishers."

Revenues for the 2004 third quarter were $17.0 million, up 47 percent from $11.6 million in the same quarter a year ago, Zucker said. However, the company still posted a loss for the quarter, coming some $13.9 million short, which actually compared favorably to the 2003 third quarter loss of $23.3 million. This was largely due to continuing strong sales of shooter The Suffering and pro basketball-lifestyle sim NBA Ballers.

Zucker said Midway had "effectively stabilized our base of operations." Looking ahead, Zucker clarified his outlook that the company would outperform its previously articulated guidance, bumping up predicted revenues for the fourth quarter by $17.5 million to $78 million. He also adjusted his guidance for the full fiscal year ending December 31, 2004, to $162 million, up $5 million. However, he still foresees a full fiscal-year loss of $20 million.

Commenting on the current October-December quarter and why the increased revenues may not translate into overall profit, Zucker said, "Although we now expect better revenues for the year, we are ramping up investment in next-generation development more quickly than anticipated, including the acquisition of Inevitable Entertainment. That will create more expenses for the quarter." Last month, Midway bought Austin, Texas-based developer Inevitable Entertainment, developer of its upcoming shooter Area 51, in a cashless deal for 218,421 shares of Midway stock.

Interestingly, the company only released one SKU during the quarter in North America: the PlayStation 2-only Shadow Hearts: Covenant.

Zucker had some fighting words to add to his statement today, indicating Midway was ready to compete for a bigger share of the pan-industry revenue pie. "We are well aware that prior transitions have not only been periods of volatility for the overall industry, but have also provided opportunities for well-positioned publishers to gain market share and strategically enter markets," he said. "Midway didn't manage the last transition well and this opportunity was lost. We are preparing carefully for this [upcoming] transition and…we will not be shying away from investing in the right kinds of projects to position us for bigger and [more] profitable market share in the next console generation, beginning in 2007."

Hinting that additional acquisitions could follow, Zucker closed out his statement, by saying, "Another important component of growing the scale of our company is building the internal product development capacity to support a much larger product lineup. [The acquisitions of] Surreal Software and Inevitable Entertainment are steps in the right direction. You should not be surprised to see more activity either in this area or in further additional hires for Midway as they continue to build high-quality internal development capability."