|THQ Reports Fiscal 2012 Third Quarter Results|
Saints Row: The Third is Most Successful Owned-IP Launch in Company History
AGOURA HILLS, Calif., Feb 02, 2012 (BUSINESS WIRE) --THQ Inc. (NASDAQ: THQI) today reported financial results for the third quarter ended December 31, 2011.
The company recently announced its updated business strategy to exit the traditional kids' licensed video game category and focus on its core game franchises and digital initiatives. As part of this business realignment, the company is implementing plans to streamline its organization and cost structure to support what will be a smaller company positioned for sustained profitability. The company currently expects these actions will result in a reduction of selling, general and administrative expenses and product development expenditures totaling approximately $160 million from its annualized run rate.
"Saints Row(R): The Third(TM) and WWE(R) '12 demonstrate the strengths of THQ's core gaming capabilities. These titles performed at or better than the expectations we shared during our last investor conference call, driven by favorable critical reviews, community engagement and outstanding marketing efforts," said Brian Farrell, THQ President and Chief Executive Officer. "Sales of the uDraw GameTablet and related software, and other titles in the kids, family and casual category were far weaker than anticipated, substantially reducing our financial results for the quarter."
"We have since concluded an extensive review of our operations to realign our business, focusing on our key franchises with the most potential," continued Farrell. "We are implementing a plan to bring costs in line with our lower anticipated level of revenue. With our focused product plan, leaner cost structure, cash balance, and existing credit facility, we believe the company has adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games."
FISCAL 2012 THIRD QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
THQ announced recently that it is exiting development of traditional kids' licensed console games. The company has concluded negotiations with two licensors and is negotiating arrangements with two others. The company is also substantially eliminating its ongoing financial commitment with developers as it exits this business. Additionally, THQ has no future commitments or plans to manufacture uDraw hardware. THQ's strategy is to focus on its premium core and fighting franchises and to expand its digital revenues.
As part of this business realignment, the company is implementing initiatives to streamline its organization and cost structure. The company currently expects these actions will result in a reduction in its annualized run rate of selling, general and administrative expenses of approximately $60 million, and a reduction of its annualized product development expenditures of approximately $100 million, primarily due to its exit from the kids' licensed console games category.
Total charges related to these actions are estimated at approximately $11.0 million, of which $2.5 million are non-cash. The majority of these charges are expected to be recorded by the end of the 2012 fiscal year and will be excluded from the company's non-GAAP results.
Product Release Schedule
THQ has announced the following core releases scheduled through fiscal 2013:
The company also has in development two unannounced core titles for release in fiscal 2013.
THQ's lineup of future titles announced for fiscal 2014 and beyond includes:
The company also has in development four unannounced core titles for release in fiscal 2014 and beyond. The majority of all unannounced titles are company-owned IP.
Investor Conference Call
THQ will host a conference call to discuss fiscal 2012 third quarter results and fiscal fourth quarter and full year 2012 guidance today at 2:30 p.m. Pacific/5:30 p.m. Eastern. Please dial (877) 356-8075 domestic or (706) 902-0203 international, conference ID 43429454 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 February 4, 2012 by dialing (855) 859-2056 domestically, or (404) 537-3406 internationally, conference ID 43429454.
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:
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 related 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.
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 third quarter ended on December 31, 2011. Our fiscal 2011 third quarter ended on January 1, 2011.
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, Darksiders, Devil's Third, Homefront, inSANE, Metro: Last Light, Saints Row, 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.
(a) See explanation above regarding the company's practice on reporting non-GAAP financial measures.
(b) Business realignment expenses in the three months ended December 31, 2011 reflect actions taken through December 31, 2011 and include: $3.1 million of software development related to cancelled titles and $1.3 million of cash charges for severance and other employee-related costs, as well as gains of $0.9 million for changes in estimates related to contract and lease terminations and long-lived asset write-offs.
(c) Included in "Cost of sales-License amortization and royalties" in our GAAP statement of operations for the three and nine months ended December 31, 2010 is a $30.3 million impairment charge on kids movie-based licenses.
(d) Represents interest expense capitalized to software development and subsequent amortization.
(e) Realized gains on sales of investments to the extent we had previously excluded a related other-than-temporary impairment from non-GAAP amounts.
(f) 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.
(g) 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.
(h) Non-GAAP earnings (loss) per share has been calculated using diluted shares before applying the "if-converted" method relative to the Notes issued in August 2009.
SOURCE: THQ Inc.
THQ Investor Relations