Company Announces Business Realignment as Part of Focused Strategy
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 $160 million from its annualized run rate.
“Saints Row(R): The Third(TM) and WWE(R) ’12 demonstrate the strengths of THQ’s core gaming capabilities. These titles performed at or better than the expectations we shared during our last investor conference call, driven by favorable critical reviews, community engagement and outstanding marketing efforts,” said Brian Farrell, THQ President and Chief Executive Officer. “Sales of the uDraw GameTablet and related software, and other titles in the kids, family and casual category were far weaker than anticipated, substantially reducing our financial results for the quarter.”
“We have since concluded an extensive review of our operations to realign our business, focusing on our key franchises with the most potential,” continued Farrell. “We are implementing a plan to bring costs in line with our lower anticipated level of revenue. With our focused product plan, leaner cost structure, cash balance, and existing credit facility, we believe the company has adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games.”
|(in millions, except per share data)||For the Three Months
Ended December 31,
|Net Sales – GAAP||$||305.4||$||314.6|
|Net Sales – Non-GAAP||$||404.4||$||323.1|
|Net Loss – GAAP||$||(55.9||)||$||(14.9||)|
|Net Income – Non-GAAP||$||24.0||$||28.5|
|Diluted Loss Per Share – GAAP||$||(0.82||)||$||(0.22||)|
|Diluted Earnings Per Share – Non-GAAP||$||0.35||$||0.42|
- Non-GAAP net sales of $404.4 million were 25 percent higher year-over-year and in-line with the company’s revised guidance issued in December 2011.
- Earnings from successful games Saints Row: The Third and WWE ’12 were offset by poor results for uDraw hardware and software. Lower uDraw revenue, high inventory reserves, price protection, and concessions at retail had an approximate $33.0 million impact on the company’s operating income in the quarter.
- The company ended the quarter with $47.7 million in cash and cash equivalents, and no outstanding borrowings on its $50.0 million credit facility.
- A reconciliation of GAAP to non-GAAP results is provided in the accompanying financial tables, and a supplemental consolidated reconciliation can be found athttp://investor.thq.com.
FISCAL 2012 THIRD QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
- With third quarter shipments of approximately 3.6 million units (life to date 3.8 million units),Saints Row: The Third is the largest owned-IP launch in THQ’s history. The company currently expects to ship between five and six million units over the life of this title.
- WWE ’12 shipped more than two million units in the quarter, in line with the expectations shared on the last investor conference call. To date, WWE ’12 sell-through is up 29% on like-for-like platforms in North America.
- The company announced the development of “South Park: The Game,” a collaboration between THQ, South Park Digital Studios LLC and Obsidian Entertainment, Inc. This definitive South Park experience comes to life in a role-playing adventure scheduled for release in the second half of calendar 2012. The first details of the game were revealed in an exclusive cover story in Game Informer’s January 2012 issue.
- THQ was the #5 publisher (#4 third-party publisher) in the U.S. in calendar 2011 with 5.4 percent market share and retail revenues up 16 percent year-over-year, according to the NPD Group, driven by the company’s strength on Xbox 360(R) and PlayStation(R) 3 consoles.
- THQ’s digital revenues for the third quarter of 2012 were more than double those in the year-ago quarter. Digital revenues for the nine months ended December 31, 2011 were 81 percent higher than the same period one year ago.
- Saints Row: The Third community members have created nearly 10 million characters, both in-game and via the Initiation Station. The game has also generated strong results from downloadable content (DLC) sales and is expected to be THQ’s highest-selling DLC title ever.
- The Margaritaville Online cross-platform game launched on Facebook and iPad on January 25, 2012, and the iPhone companion app is coming soon. The social/mobile versions ofApples to Apples, which launched on Xbox Live(R) and PlayStation Network in December, are targeted for release on February 8, 2012.
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:
|UFC(R) Undisputed(R) 3||Xbox 360, PlayStation 3||February 14, 2012|
|Darksiders(R) II||Xbox 360, PlayStation 3, PC||June 2012|
|South Park: The Game||Xbox 360, PlayStation 3, PC||Q3 FY13|
|Annual WWE Game||TBA||Q3 FY13|
|Metro: Last Light||Xbox 360, PlayStation 3, PC||Q4 FY13|
|Devil’s Third(TM)||Xbox 360, PlayStation 3, PC||Q4 FY13|
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:
|Un-named Original Title||Turtle Rock Studio (external)|
|Dark Millennium(R) Online||Vigil and Relic|
|Homefront(R) 2||Crytek (external)|
|Patrice Désilets Original Title||THQ Montreal|
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.
Link to full report