ACCLAIM ENTERTAINMENT POSTS INCOME, REVENUE GAINS IN QUARTER

Acclaim maintained its previously stated revenue forecast for 3rd and 4th quarters of $65 million and $90 million, respectively, but said it boosted fiscal year revenue expectation to $308 million from $301 million “to allow for the actual net revenues increase of the first half to flow through for the full year total.” Company also reiterated expectation of nontaxed income of $38.6 million (39?) for 2002. For 2003, it continued previous forecasts of $379 million revenue and $66 million (67?) nontaxed income.

Acclaim CEO Gregory Fischbach said: “We achieved our goals for the 2nd quarter of this fiscal year, as our portfolio of titles received critical praise, and continued to generate sales and a consistent return on our investment in tools and technologies for this next-generation hardware cycle.” Title that performed especially well for company in quarter was All- Star Baseball 2003. Fischbach said: “Our 2nd quarter simultaneous launch of [that game] across all platforms, underscored our commitment to creating great products on schedule which appeal to the increasing mass-market consumer audience. In its first 4 weeks at retail, All-Star Baseball 2003 has quickly become the #1 baseball videogame of the season. According to the latest NPDFunworld report, All-Star Baseball 2003 after 4 weeks on the charts, was the 5th best-selling software title for… Xbox videogame console and the 5th best-selling title for the PlayStation 2” (PS2).

In conference call with analysts, Acclaim Pres. Edmond Sanctis said sales of All-Star Baseball 2003 had been “solid” so far and development already was under way on followup -- All-Star Baseball 2004.

On negative side, Acclaim’s gross profit in quarter represented 59% of net revenue, which it said was below its forecast and was affected by 2 primary factors -- (1) promotional arrangement in rental market designed to drive awareness for launch of All-Star Baseball 2003 and (2) establishment of budget software line. However, it said it expected gross profit to return to its earlier forecast levels in the 3rd and 4th quarters. Company said operating expenses for 2nd quarter increased 39% to $35 million from $25.3 million in same quarter year ago, primarily because of $10.6 million higher marketing and selling expenses for TV, media and print, as well as royalty expenses for certain key titles.

Breaking down gross revenue by platform in quarter, Acclaim said 128-bit software represented 87%, 32-bit and portable cartridges only 6% each and PC games and other only 1%. On geographic basis, company said N. America and international operations generated 77% and 23% of revenue, respectively. Acclaim said its 6 internal studios generated 70% of its gross revenue in quarter.

Company said it released 9 SKUs in quarter: All-Star Baseball 2003, Ecco the Dolphin: Defender of the Future and Shadow Man: 2econd Coming for PS2; All-Star Baseball 2003, 18 Wheeler: American Pro Trucker and Jeremy McGrath Supercross World for GameCube; All-Star Baseball 2003 for Xbox; NBA Jam 2002 for Game Boy Advance (GBA). It said All-Star Baseball 2003 contributed 24% of total gross revenue in quarter, Legends of Wrestling 13%, Dave Mirra Freestyle BMX (9%), Shadow Man: Second Coming (8%), Burnout (7%), Jeremy McGrath Supercross World (6%), Crazy Taxi (5%), 18 Wheeler: American Pro Trucker (4%), Mary- Kate and Ashley (3%). Sanctis said various titles continued to perform well for company exiting holiday season. For example, he said, “more than 4000,000 units” of Dave Mirra game were sold in N. America in Jan. and Feb. alone.

Sanctis also said in conference call that PS2 “continued to be the dominant next-generation system in the marketplace” and reached installed base of 8.1 million in N. America by end of Feb. In comparison, he said, Microsoft reached 1.7-million unit installed base for Xbox and Nintendo 1.3-million for GameCube in N. America through Feb. Microsoft probably won’t provide official update on how many consoles it has sold until its 3rd quarter financial results are announced April 18 and it has been mum since saying it sold through 1.5 million by year-end. If Acclaim’s figure is accurate for Xbox sellthrough, that would mean it sold only additional 200,000 in Jan. and Feb. We were unable to get official comment from Nintendo of America about updated GameCube sellthrough numbers by our deadline. Although company admitted it had fallen behind on shipments in holiday season, analysts and retailers have indicated supplies have improved in last few weeks. In quarter, PS2 games represented 60% of Acclaim’s revenue, GameCube only 20%, Xbox 7% and PSone 6%, company said. It didn’t provide number for GBA.

Acclaim also said it completed private placement of 7.2 million shares of common stock Feb. 13 for gross proceeds of $21.5 million (CED Feb 14 p7) and Sanctis said some of that money was being used to expand internal development team.

Sanctis said Acclaim planned to ship 11 SKUs in 3rd quarter -- 2 each for PS2 and Xbox, 3 for GameCube, 4 for GBA. He said company was looking forward to Electronic Entertainment Expo (E3) in L.A. next month, where it will spotlight new games including Aggressive Inline and Turok: Evolution. Sanctis said company planned especially aggressive marketing campaign for latter with “Turok Tuesday” planned for Sept. 3 as latest entry in company’s established franchise is released on all 4 next-generation systems. He said it would be first time Acclaim ever had shipped any title simultaneously for 4 platforms. Game will be backed by $8 million marketing campaign by Acclaim, which Sanctis said was about same push company gave to release of its first Mortal Kombat game. TV commercial for game finished shooting in L.A. last week and company will show it at E3, he said. Company indicated in conference call it was confident Turok title would ship on time after development period of 35 months. In addition to Turok, company said it planned to ship 3 other titles in 4th quarter.

In 2003, Acclaim expects to ship 18 games for Xbox, along with 17 for PS2, 14 for GameCube, 13 for GBA. Although it plans to ship one more SKU for Xbox than PS2 in 2003, it said it still expected Sony’s platform would represent 55-60% of Acclaim’s revenue in 2003 with Xbox vs. GameCube breakdown simply “too early to call” at this point. GBA, meanwhile, is likely to represent only 7-8% of revenue next year as company remains “selective” with titles it releases for that platform, it said. Number of overall titles planned for 2003 across all platforms, represents 24% increase in schedule over fiscal year 2002. Company plans to ship 14 SKUs in first quarter 2003 alone -- 4 each for PS2 and GameCube and 3 each for GBA and Xbox. Acclaim said it plans several new brands in first quarter 2003, including Dave Mirra Freestyle BMX 3 and Vexx from its internal studio.