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| 8-K - 8-K - THQ INC | a6-30x128xk.htm |
 | FOR IMMEDIATE RELEASE Lisa Mueller THQ Investor Relations 818/871-5125 Angela Emery THQ Corporate Communications 818/871-8650 |
THQ REPORTS FISCAL 2013 FIRST QUARTER RESULTS
AGOURA HILLS, Calif., Aug. 6, 2012 -- THQ Inc. (NASDAQ: THQI) today reported financial results for the first quarter ended June 30, 2012.
(in millions, except per share data) | For the Three Months Ended June 30, | ||||||
2012 | 2011 | ||||||
Net Sales - GAAP | $ | 133.7 | $ | 195.2 | |||
Net Sales - Non-GAAP | $ | 38.5 | $ | 141.2 | |||
Net Income (Loss) - GAAP | $ | 15.4 | $ | (38.4 | ) | ||
Net Loss - Non-GAAP | $ | (23.3 | ) | $ | (64.4 | ) | |
Diluted Earnings (Loss) Per Share - GAAP | $ | 2.00 | $ | (5.63 | ) | ||
Diluted Loss Per Share - Non-GAAP | $ | (3.41 | ) | $ | (9.42 | ) | |
Financial Highlights
• | Q1 Non-GAAP net sales were $38.5 million, above guidance of $25 - $30 million. |
• | Q1 Non-GAAP net loss per share was ($3.41), better than guidance of ($4.00) - ($4.50). Net loss per share amounts for the current and prior period were adjusted for the 1-for-10 reverse split of the company's common stock effected on July 5, 2012. |
• | A reconciliation of GAAP to non-GAAP results is provided in the accompanying financial tables, and a supplemental consolidated reconciliation can be found at http://investor.thq.com. |
“We have made significant progress reshaping the company. With the changes implemented over the last several months, we are in a much better position today to deliver on our pipeline of games, beginning with Darksiders® II, which launches next week in North America,” said THQ Chairman and CEO Brian Farrell. “We are also pleased to have new management on board at THQ, led by President Jason Rubin, who brings tremendous experience to the company and has a proven track record of bringing multi-million unit sellers to market; Jason Kay, a fifteen-year media and entertainment industry veteran, as Chief Strategy Officer; and Ron Moravek, a seasoned creative development executive who has co-founded and led several technology businesses, including one of our most successful studios, Relic Entertainment, as EVP, Production. Jason Rubin and his new team bring an entrepreneurial approach to
our game slate as we seek to maximize the value of our intellectual properties and evolve our business in the face of our increasingly digital future.”
Fiscal 2013 First Quarter Highlights and Recent Developments
• | THQ announced it would transform development of the standalone expansion Saints Row®: The Third - Enter the Dominatrix™ into a full-fledged, full-priced sequel, with far greater potential to generate stronger results over the long term. The sequel is currently scheduled for release in calendar year 2013. |
• | The company's digital revenues for the first quarter of fiscal 2013 were $13.4 million, or 35 percent of non-GAAP net sales. |
• | THQ's line-up featured at the Electronic Entertainment Expo ("E3") garnered 29 awards from more than 67 nominations across the portfolio for upcoming titles such as Darksiders II, Company of Heroes® 2, Metro: Last Light and South Park™: The Stick of Truth™, which won a prestigious Game Critics Award “Best of E3” for best RPG. |
• | The company transferred its license to develop future video games based on the Ultimate Fighting Championship® (UFC), which resulted in a cash payment to THQ by the licensor. THQ will continue to publish its existing UFC console and mobile titles through March 31, 2013. |
Fiscal 2013 Product Slate
THQ has announced the following releases scheduled through its fiscal 2013:
Title | Platforms | Planned Release |
Darksiders® II | Console, PC | August 2012 |
WWE® '13 | Console | October 2012 |
Company of Heroes® 2 | PC | Q4 FY13 |
Metro: Last Light | Console, PC | Q4 FY13 |
South Park™: The Stick of Truth™ | Console, PC | March 2013 |
Restructuring and Business Realignment
THQ continued the implementation of its plans to streamline the organization and cost structure to position the company for sustained profitability.
• | During the fiscal first quarter, the company recorded approximately $4.5 million in non-GAAP business realignment expenses, which include cash costs of approximately $0.7 million related to severance and other employee-related costs, and non-cash impairment charges of approximately $4.3 million related to decisions made to cancel or reconfigure titles. |
Investor Conference Call
THQ will host a conference call to discuss fiscal 2013 first quarter results and fiscal 2013 second quarter and full year 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 12449281, 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 August 8, 2012 by dialing (855) 859-2056 domestically, or (404) 537-3406 internationally, conference ID 12449281.
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 and related expenses, |
• | 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 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 and Related Expenses. 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 and related charges 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 2013 first quarter ended on June 30, 2012. Our fiscal 2012 first quarter ended on July 2, 2011.
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, Company of Heroes, Darksiders II, Metro: Last Light, Saints Row, Saints Row: The Third, Saints Row: The Third - Enter the Dominatrix and their respective logos are trademarks and/or registered trademarks of THQ Inc.
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, future financial expectations and estimated product release dates. 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, 2012, 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.
THQ Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended June 30, | ||||||||||
2012 | 2011 | |||||||||
Net sales | $ | 133,687 | $ | 195,153 | ||||||
Cost of sales: | ||||||||||
Product costs | 38,486 | 67,063 | ||||||||
Software amortization and royalties | 37,353 | 64,920 | ||||||||
License amortization and royalties | 5,749 | 8,139 | ||||||||
Total cost of sales | 81,588 | 140,122 | ||||||||
Gross profit | 52,099 | 55,031 | ||||||||
Operating expenses: | ||||||||||
Product development | 9,295 | 30,189 | ||||||||
Selling and marketing | 14,639 | 50,676 | ||||||||
General and administrative | 10,132 | 12,049 | ||||||||
Restructuring | 1,389 | (140 | ) | |||||||
Total operating expenses | 35,455 | 92,774 | ||||||||
Operating income (loss) | 16,644 | (37,743 | ) | |||||||
Interest and other income (expense), net | (753 | ) | 443 | |||||||
Income (loss) before income taxes | 15,891 | (37,300 | ) | |||||||
Income taxes | 506 | 1,145 | ||||||||
Net income (loss) | $ | 15,385 | $ | (38,445 | ) | |||||
Earnings (loss) per share — basic | $ | 2.25 | $ | (5.63 | ) | |||||
Earnings (loss) per share — diluted | $ | 2.00 | $ | (5.63 | ) | |||||
Shares used in per share calculation — basic | 6,852 | 6,832 | ||||||||
Shares used in per share calculation — diluted | 8,090 | 6,832 | ||||||||
Presentation gives effect to the Reverse Stock Split, which occurred on July 5, 2012.
THQ Inc. and Subsidiaries
Reconciliation of GAAP net income (loss) to Non-GAAP net loss (a)
(In thousands, except per share data)
For the Three Months Ended June 30, | ||||||||||
2012 | 2011 | |||||||||
Net sales | $ | 133,687 | $ | 195,153 | ||||||
Changes in deferred net revenue | (95,162 | ) | (53,914 | ) | ||||||
Non-GAAP net sales | $ | 38,525 | $ | 141,239 | ||||||
For the Three Months Ended June 30, | ||||||||||
2012 | 2011 | |||||||||
Operating income (loss) | $ | 16,644 | $ | (37,743 | ) | |||||
Non-GAAP adjustments affecting operating income (loss): | ||||||||||
Changes in deferred net revenue | (95,162 | ) | (53,914 | ) | ||||||
Changes in deferred cost of sales | 47,347 | 9,398 | ||||||||
Business realignment and related expenses (b) | 4,397 | 4,691 | ||||||||
Stock-based compensation | 615 | 1,631 | ||||||||
Amortization of capitalized interest (c) | 840 | 1,196 | ||||||||
Total non-GAAP adjustments affecting operating income (loss) | (41,963 | ) | (36,998 | ) | ||||||
Non-GAAP operating loss | $ | (25,319 | ) | $ | (74,741 | ) | ||||
For the Three Months Ended June 30, | ||||||||||
2012 | 2011 | |||||||||
Net income (loss) | $ | 15,385 | $ | (38,445 | ) | |||||
Non-GAAP adjustments: | ||||||||||
Non-GAAP adjustments affecting operating loss | (41,963 | ) | (36,998 | ) | ||||||
Capitalized interest expense (c) | (1,494 | ) | (1,409 | ) | ||||||
Business realignment expenses (b) | 121 | — | ||||||||
Interest and other income (expense), net | — | — | ||||||||
Income tax adjustments (d) | 4,622 | 12,501 | ||||||||
Non-GAAP net loss | $ | (23,329 | ) | $ | (64,351 | ) | ||||
Non-GAAP loss per share — diluted (e) | $ | (3.41 | ) | $ | (9.42 | ) | ||||
___________________
Notes:
(a) | See explanation above regarding the company's practice on reporting non-GAAP financial measures. |
(b) | Business realignment and related expenses in the three months ended June 30, 2012 reflect actions taken through June 30, 2012 and include: non-cash software development charges of approximately $4.3 million related to decisions made to cancel and reconfigure titles; a net benefit $2.0 million related to license negotiations; $0.7 million of cash charges for severance and other employee-related costs; and $1.5 million of charges and changes in estimates related to contract and lease terminations as well as long-lived asset write-offs and other adjustments. |
(c) | Represents interest expense capitalized to software development and subsequent amortization. |
(d) | 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. |
(e) | Non-GAAP loss per share presentation gives effect to the Reverse Stock Split, which occurred on July 5, 2012, and has been calculated using diluted shares before applying the “if-converted” method relative to the Notes issued in August 2009. |
THQ Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands)
June 30, 2012 | March 31, 2012 | ||||||||
ASSETS | |||||||||
Cash and cash equivalents | $ | 20,937 | $ | 75,977 | |||||
Accounts receivable, net of allowances | 4,129 | 15,994 | |||||||
Inventory | 15,370 | 18,485 | |||||||
Licenses | 16,134 | 21,927 | |||||||
Software development | 90,039 | 105,220 | |||||||
Deferred income taxes | 5,675 | 5,732 | |||||||
Income taxes receivable | 1,290 | 687 | |||||||
Prepaid expenses and other current assets | 25,541 | 46,011 | |||||||
Total current assets | 179,115 | 290,033 | |||||||
Property and equipment, net | 22,560 | 22,132 | |||||||
Licenses, net of current portion | 41,576 | 42,594 | |||||||
Software development, net of current portion | 26,793 | 25,348 | |||||||
Other long-term assets, net | 12,771 | 12,687 | |||||||
TOTAL ASSETS | $ | 282,815 | $ | 392,794 | |||||
LIABILITIES AND EQUITY | |||||||||
Accounts payable | $ | 50,061 | $ | 42,905 | |||||
Accrued and other current liabilities | 52,724 | 83,693 | |||||||
Deferred revenue, net | 48,725 | 144,686 | |||||||
Total current liabilities | 151,510 | 271,284 | |||||||
Other long-term liabilities | 52,121 | 53,837 | |||||||
Convertible senior notes | 100,000 | 100,000 | |||||||
Total liabilities | 303,631 | 425,121 | |||||||
Total stockholders' equity | (20,816 | ) | (32,327 | ) | |||||
TOTAL LIABILITIES AND EQUITY | $ | 282,815 | $ | 392,794 | |||||
THQ Inc. and Subsidiaries
Unaudited Supplemental Financial Information
(In thousands)
Three Months Ended | ||||||||||||||||
Platform Revenue Mix | June 30, 2012 | June 30, 2011 | ||||||||||||||
Consoles | ||||||||||||||||
Microsoft Xbox 360 | $ | 13,980 | 36.3 | % | $ | 51,542 | 36.5 | % | ||||||||
Sony PlayStation 3 | 9,861 | 25.6 | 35,782 | 25.3 | ||||||||||||
Nintendo Wii | 3,196 | 8.3 | 19,024 | 13.5 | ||||||||||||
Sony PlayStation 2 | 284 | 0.7 | 1,019 | 0.7 | ||||||||||||
27,321 | 70.9 | 107,367 | 76.0 | |||||||||||||
Handheld | ||||||||||||||||
Nintendo Dual Screen | 3,467 | 9.0 | 21,284 | 15.1 | ||||||||||||
Sony PlayStation Portable | 641 | 1.7 | 2,122 | 1.5 | ||||||||||||
Wireless | 421 | 1.1 | 736 | 0.5 | ||||||||||||
4,529 | 11.8 | 24,142 | 17.1 | |||||||||||||
PC | 6,675 | 17.3 | 9,730 | 6.9 | ||||||||||||
Non-GAAP net sales | 38,525 | 100.0 | % | 141,239 | 100.0 | % | ||||||||||
Changes in deferred net revenue | 95,162 | 53,914 | ||||||||||||||
Net sales | $ | 133,687 | $ | 195,153 | ||||||||||||
Geographic Revenue Mix | ||||||||||||||||
Domestic | $ | 23,325 | 60.5 | % | $ | 87,743 | 62.1 | % | ||||||||
Foreign | 15,200 | 39.5 | 53,496 | 37.9 | ||||||||||||
Non-GAAP net sales | 38,525 | 100.0 | % | 141,239 | 100.0 | % | ||||||||||
Changes in deferred net revenue | 95,162 | 53,914 | ||||||||||||||
Net sales | $ | 133,687 | $ | 195,153 | ||||||||||||