AGOURA HILLS, Calif.--(BUSINESS WIRE)--THQ Inc. (NASDAQ: THQI) today reported financial results for the fiscal 2012 second quarter ended September 30, 2011.
For the three months ended September 30, 2011, THQ reported net sales of $146.0 million, compared with $77.1 million in the prior-year period. On a non-GAAP basis, for the three months ended September 30, 2011, the company reported net sales of $119.6 million, compared with $70.4 million a year ago.
For the three months ended September 30, 2011, the company reported a net loss of $92.4 million, or $1.35 per diluted share, compared with a net loss of $47.0 million, or $0.69 per diluted share, in the prior-year period. On a non-GAAP basis, for the three months ended September 30, 2011, the company reported a net loss of $46.9 million, or $0.69 per diluted share, compared with a non-GAAP net loss of $40.6 million, or $0.60 per diluted share, in the same period a year ago.
A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables, and a supplemental consolidated reconciliation can be found at http://investor.thq.com.
“We are encouraged that our second quarter performance exceeded our expectations, particularly in a quarter with a light release schedule,” said Brian Farrell, THQ President and Chief Executive Officer. “Our two biggest quarters of the year remain ahead of us, and we are focused on execution. In Q3 we are planning for the largest quarter in our history, in terms of sales and earnings, driven by Saints Row: The Third, the uDraw GameTablet, and WWE ’12. With UFC Undisputed 3 launching in the fourth quarter, we are well-positioned to deliver a strong second half of fiscal 2012.”
Fiscal 2012 Second Quarter Highlights and Recent Developments
- THQ released Warhammer® 40,000®: Space Marine®. According to NPD, it was a Top 10 title in North America in September.
- The company announced the next installment of the Homefront® franchise to be developed by Crytek, the creators of multiple award-winning first person shooters. The Homefront sequel is currently scheduled for release in fiscal 2014.
- THQ completed the previously-announced realignment of its internal studios to narrow its focus on key strategic initiatives and franchises, and to properly align resources with its upcoming slate of games.
- The company finalized a new asset-based credit facility with Wells Fargo Capital Finance, LLC. Under the new facility, the company may borrow up to $75 million during the current peak sales period.
Digital Highlights
- THQ’s digital revenues for the six months ended September 30, 2011 were 68 percent higher than the same period one year ago. The company continues to expect strong growth in digital revenues year-over-year in fiscal 2012.
- The company launched its THQ.com website with new functionalities, user interface, and e-commerce features. New connectivity features will be introduced as THQ builds its online community and extends the game experience through game-to-web technology.
- The closed beta for THQ’s Margaritaville® Online game for Facebook began in October, and the commercial launch is targeted for January 2012. THQ also announced the December 2011 release of its new social/mobile game, Apples to ApplesTM, based upon the popular Mattel family game.
Fiscal 2012 Third Quarter Release Schedule
THQ has announced the following releases scheduled for the third quarter of fiscal 2012:
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Title |
Platforms |
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Key Titles |
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| Xbox 360®, PlayStation® 3, PC | ||||||
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Xbox 360, PlayStation 3, WiiTM |
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| Xbox 360, PlayStation 3, Wii | ||||||
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Full Lineup |
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| PlayStation Network, Xbox Live®, Facebook, iPhone, iPad, AndroidTM | ||||||
| uDraw GameTablet for Wii, Nintendo DSTM | ||||||
| Wii, KinectTM for Xbox 360 | ||||||
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uDraw GameTablet for Xbox 360, PlayStation 3 and Wii |
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| Nintendo 3DSTM | ||||||
| Nintendo DS, Wii | ||||||
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uDraw GameTablet for Xbox 360 and PlayStation 3 |
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| Wii, Nintendo DS, PlayStation 3, Kinect for Xbox 360 | ||||||
| Kinect for Xbox 360, Nintendo DS | ||||||
| Nintendo 3DS | ||||||
Fiscal 2012 Fourth Quarter Release Schedule
THQ has announced the following releases scheduled for the fourth quarter of fiscal 2012:
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Title |
Platforms |
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Key Titles |
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| Xbox 360, PlayStation 3 | ||||||
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Full Lineup |
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| Facebook, iPad, iPhone | ||||||
| Kinect for Xbox 360, PlayStation® Move | ||||||
Investor Conference Call
THQ will host a conference call to discuss fiscal 2012 second quarter results and fiscal 2012 guidance today at 2:00 p.m. Pacific/5:00 p.m. Eastern. Please dial (877) 356-8075 domestic or (706) 902-0203 international, conference ID 21253670 to listen to the call or visit the THQ Inc. Investor Relations Home page at http://investor.thq.com. The online archive of the broadcast will be available approximately two hours after the live call ends. In addition, a telephonic replay of the conference call will be provided approximately two hours after the live call ends through November 4, 2011 by dialing (855) 859-2056 domestically, or (404) 537-3406 internationally, conference ID 21253670.
Non-GAAP Financial Measures
In addition to results determined in accordance with GAAP, the company discloses certain non-GAAP financial measures that exclude the impact of the following:
- stock-based compensation expense,
- certain deferred revenue and related costs,
- business realignment expense,
- capitalized interest, and
- other significant charges and benefits.
Non-GAAP results also include the impact of any foreign currency fluctuations on our available-for-sale investment securities, when classified in equity for GAAP purposes.
For non-GAAP purposes, the company uses a fixed, long-term projected tax rate of 15% to evaluate its operating performance, as well as to forecast, plan and analyze future periods.
THQ may consider whether other significant items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses. The company excludes these items from its non-GAAP financial measures primarily because its management does not believe they reflect the company's primary business, ongoing operating results or future outlook. THQ's management believes that the use of non-GAAP financial measures provides meaningful supplemental information regarding its financial condition and results of operations, and helps investors compare actual results to its long-term operating goals as well as to its performance in prior periods. The non-GAAP financial measures included in this earnings release have been reconciled to the comparable GAAP results in the accompanying tables, and should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.
In addition to the reasons stated above, which are generally applicable to each of the items THQ excludes from its non-GAAP financial measures, the company's management uses certain of the non-GAAP financial measures for the following reasons:
Stock-Based Compensation. THQ does not consider stock-based compensation charges when evaluating the performance of its business or formulating its operating plans. Stock-based compensation charges are subject to significant fluctuation outside of the control of management due to the variables used to estimate the fair value of a share-based payment, such as THQ's stock price, interest rates and the volatility of the company's stock price. Further, when considering the impact of equity award grants, THQ places a greater emphasis on the use of such grants as retention tools for long-term stockholder value creation, as well as overall stockholder dilution, rather than the accounting charges associated with such grants.
Deferred Revenue/Costs. The company defers revenue and related costs from the sale of certain titles that have undelivered elements upon the sale of the game, such as online services, and recognizes that revenue upon the delivery of the undelivered elements or over the estimated service period as applicable. As there is no impact to its operating cash flow, THQ's management excludes the impact of deferred net revenue and costs when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, we believe these measures provide a more timely indication of trends in our business, provide comparability with the way our business is measured by analysts, and consistency with industry data sources.
Business Realignment Expense. Although THQ has incurred business realignment expenses in the past, each charge relates to a discrete event based on a unique set of business objectives. THQ’s management does not believe these charges reflect the company's primary business, ongoing operating results or future outlook. As such, the company believes it is appropriate to exclude these expenses from its non-GAAP financial measures.
Impact of Capitalized Interest. The company capitalizes interest expense and other financing costs as a component of capitalized software development. THQ's management considers interest cost to be a financing cost in the period in which it is incurred, and thus excludes the impact of the capitalization of interest costs to software development and the subsequent amortization expense when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.
Other significant charges and benefits. THQ does not consider certain significant charges and benefits that are related to discrete events or market conditions to be indicative of ongoing operating results or future outlook. As a result, the company believes it is appropriate to exclude expenses and benefits such as legal settlements or market-related impairments, from its non-GAAP financial measures.
Fiscal Periods
Our fiscal year ends on the Saturday nearest March 31st. For simplicity, we present all fiscal periods as ending on a calendar month end. Our fiscal 2012 second quarter ended on October 1, 2011. Our fiscal 2011 second quarter ended on October 2, 2010.
About THQ
THQ Inc. (NASDAQ: THQI) is a leading worldwide developer and publisher of interactive entertainment software. The company develops its products for all popular game systems, personal computers, wireless devices, and the Internet. Headquartered in Los Angeles County, California, THQ sells product through its global network of offices located throughout North America, Europe, and Asia Pacific. More information about THQ and its products may be found at http://www.thq.com. THQ, Homefront, Saints Row: The Third, uDraw, uDraw GameTablet and their respective logos are trademarks and/or registered trademarks of THQ Inc.
Microsoft, Xbox, Xbox 360, Xbox LIVE, the Xbox logos, and the Xbox LIVE Arcade logo are either registered trademarks or trademarks of Microsoft Corporation in the U.S. and/or other countries.
"PlayStation" is a registered trademark of Sony Computer Entertainment Inc.
Wii, Nintendo DS and Nintendo DSi are trademarks of Nintendo.
All other trademarks are property of their respective owners.
THQ Inc. Caution Concerning Forward-Looking Statements
This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about the business of THQ Inc. and its subsidiaries (collectively referred to as "THQ"), including, but not limited to, expectations of video game console and software growth, financial guidance, estimated release dates, and the potential for online gaming. These statements are based upon management's current beliefs and certain assumptions made by management. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, business, competitive, economic, legal, political, and technological factors affecting our industry, operations, markets, products, or pricing. Readers should carefully review the risk factors and the information that could materially affect THQ's financial results, described in other documents that THQ files from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal period ended March 31, 2011 and subsequent Quarterly Reports on Form 10-Q, and particularly the discussion of trends and risk factors set forth therein. Unless otherwise required by law, THQ disclaims any obligation to update its view on any such risks or uncertainties or to revise or publicly release the results of any revision to these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
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THQ Inc. and Subsidiaries Unaudited Consolidated Statements of Operations (In thousands, except per share data) |
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Three Months Ended September 30, |
Six Months Ended September 30, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||
| Net sales | $ | 146,004 | $ | 77,053 | $ | 341,157 | $ | 226,432 | ||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||||||||
| Product costs | 57,986 | 35,003 | 125,049 | 95,706 | ||||||||||||||||||||||
| Software amortization and royalties | 77,893 | 21,162 | 142,813 | 54,515 | ||||||||||||||||||||||
| License amortization and royalties | 23,156 | 9,583 | 31,295 | 30,473 | ||||||||||||||||||||||
| Total cost of sales | 159,035 | 65,748 | 299,157 | 180,694 | ||||||||||||||||||||||
| Gross profit | (13,031 | ) | 11,305 | 42,000 | 45,738 | |||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Product development | 27,954 | 17,900 | 58,143 | 34,375 | ||||||||||||||||||||||
| Selling and marketing | 37,765 | 24,023 | 88,441 | 57,649 | ||||||||||||||||||||||
| General and administrative | 12,037 | 11,878 | 24,086 | 23,722 | ||||||||||||||||||||||
| Restructuring | 6,082 | (161 | ) | 5,942 | 7 | |||||||||||||||||||||
| Total operating expenses | 83,838 | 53,640 | 176,612 | 115,753 | ||||||||||||||||||||||
| Operating loss | (96,869 | ) | (42,335 | ) | (134,612 | ) | (70,015 | ) | ||||||||||||||||||
| Interest and other income (expense), net | 2,467 | (3,991 | ) | 2,910 | (5,581 | ) | ||||||||||||||||||||
| Loss before income taxes | (94,402 | ) | (46,326 | ) | (131,702 | ) | (75,596 | ) | ||||||||||||||||||
| Income taxes | (2,017 | ) | 659 | (872 | ) | 1,499 | ||||||||||||||||||||
| Net loss | $ | (92,385 | ) | $ | (46,985 | ) | $ | (130,830 | ) | $ | (77,095 | ) | ||||||||||||||
| Loss per share — basic | $ | (1.35 | ) | $ | (0.69 | ) | $ | (1.91 | ) | $ | (1.14 | ) | ||||||||||||||
| Loss per share — diluted | $ | (1.35 | ) | $ | (0.69 | ) | $ | (1.91 | ) | $ | (1.14 | ) | ||||||||||||||
| Shares used in per share calculation — basic | 68,340 | 67,813 | 68,329 | 67,779 | ||||||||||||||||||||||
| Shares used in per share calculation — diluted | 68,340 | 67,813 | 68,329 | 67,779 | ||||||||||||||||||||||
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THQ Inc. and Subsidiaries Reconciliation of GAAP net loss to Non-GAAP net loss(a) (In thousands, except per share data) |
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For the Three Months Ended September 30, |
For the Six Months Ended September 30, |
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| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||
| Net sales | $ | 146,004 | $ | 77,053 | $ | 341,157 | $ | 226,432 | |||||||||||||||||
| Changes in deferred net revenue | (26,394 | ) | (6,658 | ) | (80,308 | ) | 4,232 | ||||||||||||||||||
| Non-GAAP net sales | $ | 119,610 | $ | 70,395 | $ | 260,849 | $ | 230,664 | |||||||||||||||||
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For the Three Months Ended September 30, |
For the Six Months Ended September 30, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||
| Operating loss | $ | (96,869 | ) | $ | (42,335 | ) | $ | (134,612 | ) | $ | (70,015 | ) | ||||||||||||||
| Non-GAAP adjustments affecting operating loss: | ||||||||||||||||||||||||||
| Changes in deferred net revenue | (26,394 | ) | (6,658 | ) | (80,308 | ) | 4,232 | |||||||||||||||||||
| Changes in deferred cost of sales | 18,757 | 1,075 | 28,155 | (179 | ) | |||||||||||||||||||||
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Business realignment expenses(b) |
44,173 | (161 | ) | 48,864 | 7 | |||||||||||||||||||||
| Stock-based compensation | 1,708 | 1,829 | 3,339 | 4,357 | ||||||||||||||||||||||
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Amortization of capitalized interest(c) |
1,538 | — | 2,734 | — | ||||||||||||||||||||||
| Total non-GAAP adjustments affecting operating loss | 39,782 | (3,915 | ) | 2,784 | 8,417 | |||||||||||||||||||||
| Non-GAAP operating loss | $ | (57,087 | ) | $ | (46,250 | ) | $ | (131,828 | ) | $ | (61,598 | ) | ||||||||||||||
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For the Three Months Ended September 30, |
For the Six Months Ended September 30, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||
| Net loss | $ | (92,385 | ) | $ | (46,985 | ) | $ | (130,830 | ) | $ | (77,095 | ) | ||||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||||
| Non-GAAP adjustments affecting operating loss | 39,782 | (3,915 | ) | 2,784 | 8,417 | |||||||||||||||||||||
| Mark-to-market adjustments on investments(d) | — | 2,524 | — | 2,524 | ||||||||||||||||||||||
| Capitalized interest expense (c) | (1,421 | ) | — | (2,830 | ) | — | ||||||||||||||||||||
| Business realignment expenses (b) | 913 | — | 913 | — | ||||||||||||||||||||||
| Income tax adjustments (e) | 6,252 | 7,817 | 18,753 | 11,197 | ||||||||||||||||||||||
| Non-GAAP net loss | $ | (46,859 | ) | $ | (40,559 | ) | $ | (111,210 | ) | $ | (54,957 | ) | ||||||||||||||
| Non-GAAP loss per share — diluted | $ | (0.69 | ) | $ | (0.60 | ) | $ | (1.63 | ) | $ | (0.81 | ) | ||||||||||||||
___________________
| Notes: | |||
| (a) | See explanation above regarding the company's practice on reporting non-GAAP financial measures. | ||
| (b) | Business realignment expenses in the three months ended September 30, 2011 includes: $17.5 million of software development related to the cancellation of two unannounced titles, $16.0 million of related license costs, $4.6 million of cash charges for severance and other employee-related costs, $4.6 million for contract and lease termination costs, and $2.4 million for the write-off of other long-lived assets. | ||
| (c) | Represents interest expense capitalized to software development and subsequent amortization. | ||
| (d) | Mark-to-market adjustments, including the impact of changes in foreign currency rates, related to certain of our available-for-sale investment securities; these amounts are recorded in "Accumulated other comprehensive income," a component of stockholders' equity, on our balance sheet until realized. | ||
| (e) | For non-GAAP purposes, the company uses a fixed, long-term projected tax rate of 15% to evaluate its operating performance, as well as to forecast, plan and analyze future periods. | ||
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THQ Inc. and Subsidiaries Unaudited Consolidated Balance Sheets (In thousands) |
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September 30, |
March 31, |
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| ASSETS | |||||||||||||
| Cash and cash equivalents | $ | 51,055 | $ | 85,603 | |||||||||
| Accounts receivable, net of allowances | 27,746 | 161,574 | |||||||||||
| Inventory | 21,114 | 31,905 | |||||||||||
| Licenses | 35,763 | 32,869 | |||||||||||
| Software development | 176,642 | 222,631 | |||||||||||
| Deferred income taxes | 7,668 | 8,200 | |||||||||||
| Income taxes receivable | 1,379 | — | |||||||||||
| Prepaid expenses and other current assets | 44,836 | 56,908 | |||||||||||
| Total current assets | 366,203 | 599,690 | |||||||||||
| Property and equipment, net | 26,327 | 28,960 | |||||||||||
| Licenses, net of current portion | 79,640 | 85,367 | |||||||||||
| Software development, net of current portion | 49,977 | 49,858 | |||||||||||
| Deferred income taxes | 516 | 516 | |||||||||||
| Other long-term assets, net | 9,710 | 10,014 | |||||||||||
| TOTAL ASSETS | $ | 532,373 | $ | 774,405 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||||
| Accounts payable | $ | 71,050 | $ | 100,550 | |||||||||
| Accrued and other current liabilities | 145,278 | 137,922 | |||||||||||
| Deferred revenue, net | 58,933 | 141,060 | |||||||||||
| Total current liabilities | 275,261 | 379,532 | |||||||||||
| Other long-term liabilities | 83,731 | 88,042 | |||||||||||
| Convertible senior notes | 100,000 | 100,000 | |||||||||||
| Total liabilities | 458,992 | 567,574 | |||||||||||
| Total stockholders' equity | 73,381 | 206,831 | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 532,373 | $ | 774,405 | |||||||||
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THQ Inc. and Subsidiaries Unaudited Supplemental Financial Information (In thousands) |
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| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||
| Platform Revenue Mix | September 30, 2011 | September 30, 2010 | September 30, 2011 | September 30, 2010 | ||||||||||||||||||||||||||||||||||||
| Consoles | ||||||||||||||||||||||||||||||||||||||||
| Microsoft Xbox 360 | $ | 36,098 | 30.2 | % | $ | 10,996 | 15.6 | % | $ | 87,640 | 33.6 | % | $ | 61,211 | 26.5 | % | ||||||||||||||||||||||||
| Sony PlayStation 3 | 28,115 | 23.5 | 8,953 | 12.7 | 63,897 | 24.5 | 61,747 | 26.8 | ||||||||||||||||||||||||||||||||
| Nintendo Wii | 15,503 | 13.0 | 13,011 | 18.5 | 34,527 | 13.2 | 32,171 | 13.9 | ||||||||||||||||||||||||||||||||
| Sony PlayStation 2 | 1,292 | 1.1 | 1,903 | 2.7 | 2,311 | 0.9 | 6,606 | 2.9 | ||||||||||||||||||||||||||||||||
| 81,008 | 67.8 | 34,863 | 49.5 | 188,375 | 72.2 | 161,735 | 70.1 | |||||||||||||||||||||||||||||||||
| Handheld | ||||||||||||||||||||||||||||||||||||||||
| Nintendo Dual Screen | 17,677 | 14.8 | 17,246 | 24.5 | 38,961 | 14.9 | 36,912 | 16.0 | ||||||||||||||||||||||||||||||||
| Sony PlayStation Portable | 1,974 | 1.6 | 6,862 | 9.8 | 4,096 | 1.6 | 11,203 | 4.9 | ||||||||||||||||||||||||||||||||
| Wireless | 730 | 0.6 | 1,499 | 2.1 | 1,466 | 0.6 | 3,088 | 1.3 | ||||||||||||||||||||||||||||||||
| 20,381 | 17.0 | 25,607 | 36.4 | 44,523 | 17.1 | 51,203 | 22.2 | |||||||||||||||||||||||||||||||||
| PC | 18,221 | 15.2 | 9,925 | 14.1 | 27,951 | 10.7 | 17,726 | 7.7 | ||||||||||||||||||||||||||||||||
| Non-GAAP net sales | 119,610 | 100.0 | % | 70,395 | 100.0 | % | 260,849 | 100.0 | % | 230,664 | 100.0 | % | ||||||||||||||||||||||||||||
| Changes in deferred net revenue | 26,394 | 6,658 | 80,308 | (4,232 | ) | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 146,004 | $ | 77,053 | $ | 341,157 | $ | 226,432 | ||||||||||||||||||||||||||||||||
| Geographic Revenue Mix | ||||||||||||||||||||||||||||||||||||||||
| Domestic | $ | 68,757 | 57.5 | % | $ | 41,111 | 58.4 | % | $ | 156,500 | 60.0 | % | $ | 149,137 | 64.7 | % | ||||||||||||||||||||||||
| Foreign | 50,853 | 42.5 | 29,284 | 41.6 | 104,349 | 40.0 | 81,527 | 35.3 | ||||||||||||||||||||||||||||||||
| Non-GAAP net sales | 119,610 | 100.0 | % | 70,395 | 100.0 | % | 260,849 | 100.0 | % | 230,664 | 100.0 | % | ||||||||||||||||||||||||||||
| Changes in deferred net revenue | 26,394 | 6,658 | 80,308 | (4,232 | ) | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 146,004 | $ | 77,053 | $ | 341,157 | $ | 226,432 | ||||||||||||||||||||||||||||||||