THQ Q2 2010 financials: Company reports $5.6 million loss, still looking positive
THQ has released its financial 2010 results for its second quarter which ended September 30, 2009 and will conclude for the year in March 2010.
While reporting a loss, things are looking up for the company as it has reduced its operating loss and is closer to breaking even since financial problems that plagued it last year.
While the company had no major product releases in the fiscal 2010 second quarter, net sales were driven by previously released games.
The company reported net sales of $101.3 million, compared with $164.8 million in the same period last year. On a non-GAAP basis, for the three months ended September 30, 2009, the company reported net sales of $100.4 million, compared with $151.6 million a year ago.
From the release:
For the three months ended September 30, the company reported a net loss of $5.6 million, or $0.08 per share, compared with a net loss of $115.3 million, or $1.73 per share, in the prior-year period. On a non-GAAP basis, for the three months ended September 30 the company reported a net loss of $25.2 million, or $0.37 per share, compared with a net loss of $30.4 million, or $0.46 per share, in the same quarter a year ago.
The company expects to report fiscal 2010 second half net sales similar to last year’s second half, with fiscal 2010 third quarter net sales that are approximately 5-10% below the same period last year, and a stronger fiscal 2010 fourth quarter than the prior-year quarter.
THQ plans to improve revenues year-over-year once its starts operating at a profit, and is confident that will happen once a predicted decline during the Q3 fiscal quarter is over.
CEO Brian Farrell said during the call to investors earlier that "THQ is now operating as a more efficient company", and UFC 2009 Undisputed, WWE SmackDown vs. Raw 2010, and MX vs. ATV Reflex will continue bringing revenue during the coming months.
Full PR passed the break.
THQ Reports Fiscal Second Quarter Results
AGOURA HILLS, Calif.--(BUSINESS WIRE)--THQ Inc. (NASDAQ: THQI - News) today announced financial results for the three months ended September 30, 2009.
For the fiscal second quarter ended September 30, 2009, THQ reported net sales of $101.3 million, compared with $164.8 million in the prior-year period. On a non-GAAP basis, for the three months ended September 30, 2009, the company reported net sales of $100.4 million, compared with $151.6 million a year ago. The company had no major product releases in the fiscal 2010 second quarter, and as a result, net sales were driven primarily by continued sales of previously released games.
For the three months ended September 30, 2009, the company reported a net loss of $5.6 million, or $0.08 per share, compared with a net loss of $115.3 million, or $1.73 per share, in the prior-year period. On a non-GAAP basis, for the three months ended September 30, 2009, the company reported a net loss of $25.2 million, or $0.37 per share, compared with a net loss of $30.4 million, or $0.46 per share, in the same quarter a year ago.
A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
“THQ is now operating as a more focused, more efficient company,” said Brian Farrell, THQ’s president and CEO. “We continue to deliver highly rated hit titles such as UFC 2009 Undisputed and WWE SmackDown vs. Raw 2010. We believe we are well positioned this holiday with our strong mass-market line-up led by the highly rated WWE SmackDown vs. Raw 2010, and the latest version of our multi-million unit franchise MX vs. ATV Reflex. In addition, we have positioned THQ to take a leading role in emerging online platforms in Asia and the US."
In July 2009, THQ prevailed in arbitration and in August 2009, THQ reached a settlement with JAKKS Pacific, which established a 40% lower preferred return payment rate owed to JAKKS Pacific for video games sold under the WWE license from July 1, 2006 through December 31, 2009. Pursuant to the terms of the settlement agreement, the company paid $32.8 million of accrued venture partner expense to JAKKS Pacific for the period of July 1, 2006 through March 31, 2009. Also related to the settlement, the company reported a one-time benefit of $24.2 million in its GAAP financial results for the fiscal 2010 second quarter ending September 30, 2009.
Fiscal 2010 Second Quarter Highlights and Recent Developments
* THQ gained market share for the first nine months of calendar 2009, ranking as the #3 independent publisher in the US1 with a 5.4% share and the #4 independent publisher in Europe2 with a 4.5% share
* UFC® 2009 Undisputed™ is a top-five best selling Xbox 360® and PlayStation®3 game for the first nine months of calendar 2009, according to NPD
* THQ strengthened its balance sheet with the issuance of $100 million of 5.00% convertible senior notes maturing in August 2014
* THQ advanced its online games strategy with the:
o launch of Dragonica™ Online in North America;
o launch of the public beta version of Company of Heroes® Online in China with Shanda Games; and
o new partnership with Windysoft to bring Company of Heroes Online to South Korea
* THQ appointed Edward L. Kaufman as Executive Vice President of Business and Legal Affairs, and Corporate Secretary
1Source: The NPD Group
2Source: Chart-Track and GfK
Business Outlook
Fiscal Year Ending March 31, 2010
The company reaffirmed its expectation to report fiscal 2010 net sales higher than those reported in fiscal 2009, and to achieve profitability for fiscal 2010, on a non-GAAP basis. The full year non-GAAP outlook excludes the one-time benefit of $24.2 million from the JAKKS settlement.
The company reaffirmed its expectation that its fiscal 2010 year-end cash balance will be at least $50 million higher than at the end of fiscal 2009, excluding the $32.8 million settlement payment to JAKKS Pacific and the net proceeds from the $100 million convertible senior note offering.
Fiscal 2010 Second Half Net Sales
The company expects to report fiscal 2010 second half net sales similar to last year’s second half, with fiscal 2010 third quarter net sales that are approximately 5-10% below the same period last year, and a stronger fiscal 2010 fourth quarter than the prior-year quarter.
Pursuant to THQ’s product strategy, key releases scheduled for the third and fourth quarters of fiscal 2010 include:
Fiscal Third Quarter
Core Games
Platforms
WWE® SmackDown® vs. Raw® 2010
Xbox 360, PlayStation 3, Wii™, Nintendo DS™,
PlayStation®2, PSP®
MX vs. ATV™ Reflex
Xbox 360, PlayStation 3, Nintendo DS, PSP
Kids, Family and Casual Games
All Star Cheer Squad™ 2
Wii
Disney●Pixar’s Cars Race-O-Rama
Xbox 360, PlayStation 3, Wii, Nintendo DS, PlayStation 2, PSP
Drawn to Life®: The Next Chapter™
Wii, Nintendo DS
Marvel® Super Hero Squad™
Wii, Nintendo DS, PlayStation 2, PSP
SpongeBob Truth or Square
Xbox 360, Wii, Nintendo DS, PSP
The Biggest Loser
Wii, Nintendo DS
World of Zoo™
Wii, Nintendo DS, Windows PC
Online
Company of Heroes Online
Online
Dragonica Online
Online
Fiscal Fourth Quarter
Core Games
Platforms
Darksiders™
Xbox 360, PlayStation 3
Metro 2033™
Xbox 360, Windows PC
Warhammer® 40,000™: Dawn of War™ II –
Windows PC
Chaos Rising™
Non-GAAP Financial Measures
In addition to results determined in accordance with GAAP, the company discloses certain non-GAAP financial measures that exclude the following:
* stock-based compensation expense,
* the impact of deferred revenue and related costs,
* business realignment expense,
* other-than-temporary impairment on investments and any subsequent realized gains on those investments, and mark-to-market adjustments on trading Auction Rate Securities,
* other material non-recurring charges and benefits, and
* related income tax effects for each of these items.
Beginning in fiscal 2010, for non-GAAP purposes, the company has adopted 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 non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
The company excludes these expenses from its non-GAAP financial measures primarily because its management does not believe they reflect the company’s core 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 the 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 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. Beginning in fiscal 2008, the company began recognizing the revenue and related costs from the sale of certain titles for which the online service is determined to be a deliverable over the estimated online service period. Although the company defers the recognition of its net revenue and costs with respect to these titles, there is no adverse impact to its operating cash flow. Internally, THQ’s management excludes the impact of deferred net revenue and costs related to packaged games when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The company believes that excluding the impact of deferred net revenue and related costs from its non-GAAP financial measures is important to facilitate comparisons to prior periods when the company did not defer the recognition of such amounts.
Business Realignment Expense. Although THQ has incurred business realignment expenses in the past, each charge has been a discrete, extraordinary event based on a unique set of business objectives. The company does not engage in business realignments on a regular basis or in the ordinary course of business. As such, the company believes it is appropriate to exclude these expenses from its non-GAAP financial measures.
Investor Conference Call
THQ will host a conference call to discuss fiscal 2010 second quarter results 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 36220855 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 6, 2009, by dialing 800.642.1687, domestic, or 706.645.9291, international, conference ID 36220855.
About THQ
THQ Inc. (NASDAQ: THQI - News) is a leading worldwide developer and publisher of interactive entertainment software. 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 www.thq.com and www.thqwireless.com. THQ, All Star Cheer Squad 2, Company of Heroes, Darksiders, Drawn to Life: The Next Chapter, MX vs. ATV Reflex, World of Zoo and their respective logos are trademarks and/or registered trademarks of THQ Inc.
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