THQ Reports Fiscal 2008 Third Quarter Results
AGOURA HILLS, Calif.–(BUSINESS WIRE)–THQ Inc. (NASDAQ:THQI) today announced financial results for the third quarter of fiscal 2008, consistent with the company’s recently announced revised financial guidance. The company also reaffirmed its financial outlook for the fourth quarter of fiscal 2008.
For the third quarter of fiscal 2008, THQ reported net sales of $509.6 million, driven primarily by WWE® SmackDown® vs. Raw® 2008, Cars: Mater-National and MX vs. ATV™ Untamed, each across multiple game systems. For the same period a year ago, THQ reported net sales of $475.7 million.
For the third quarter of fiscal 2008, THQ reported GAAP net income of $15.5 million, or $0.23 per diluted share, which includes $0.01 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported net income of $16.4 million, or $0.24 per diluted share. Both GAAP and non-GAAP net income include a $0.02 per diluted share gain from the receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the same period a year ago, THQ reported GAAP net income of $62.1 million, or $0.91 per diluted share, which includes $0.09 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $68.1 million, or $1.00 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
As previously reported by the company, fiscal 2008 third quarter results include approximately $27 million in non-cash charges related to the company’s decision to cancel certain projects in development and the write-down of the value of certain intellectual properties as part of its product quality initiatives, as well as approximately $20 million in accelerated amortization expense.
For the nine months ended December 31, 2007, THQ reported net sales of $843.4 million, compared with $854.8 million in the corresponding prior-year period. The company reported a GAAP net loss of $806,000, or $0.01 per share, which includes $0.13 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported nine-month net income of $8.1 million, or $0.12 per diluted share. Both GAAP net loss and non-GAAP net income include a $0.02 per share gain from receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the prior-year period, THQ reported GAAP net income of $61.5 million or $0.92 per diluted share, which included stock-based compensation expense of $0.18 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $74.0 million, or $1.10 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
“During the holiday quarter, we were pleased with the record performance of WWE SmackDown vs. Raw 2008 and the successful launch of our internally developed game MX vs. ATV Untamed,” said Brian Farrell, THQ president and CEO.
Farrell continued, “We continue to strengthen our product development capabilities to support our long-term strategy of creating new owned intellectual properties. We look forward to launching Frontlines: Fuel of War at the end of this month. In fiscal 2009, we are well positioned for increased sales and profitability with strong owned intellectual properties such as Red Faction and Saints Row and well-known licensed franchises including WWE, UFC, Disney/Pixar and Nickelodeon.”
Recent Developments:
- During the quarter, THQ shipped more than 5 million units of WWE SmackDown vs. Raw 2008, bringing total lifetime WWE franchise net sales to more than $1 billion.
- During the quarter, total lifetime Nickelodeon franchise net sales surpassed $1 billion, driven by Avatar, Nicktoons and SpongeBob SquarePants.
- For the nine months ended December 31, 2007, THQ’s international net sales increased significantly, to 50% of total global net sales from 40% a year ago, as THQ continued to execute on its international growth strategy.
- For the quarter and nine months ended December 31, 2007, THQ grew its Nintendo DS™ revenue 94% year-over-year, aided by the launch of Drawn to Life™, a newly established owned franchise created specifically for the Nintendo DS system.
- On January 18, 2008, the company acquired Big Huge Games, a veteran development studio focused on the multi-billion dollar Role-Playing-Games market.
- On January 23, 2008, THQ announced the appointment of two executives to newly-created product development positions to help drive new intellectual property creation.
- On February 4, 2008, THQ announced the appointment of technology industry veteran Colin Slade as executive vice president and chief financial officer.
Fiscal 2008 Guidance
THQ reaffirmed its recently issued guidance for the fourth quarter and full fiscal year ending March 31, 2008 as follows:
- For the fiscal year ending March 31, 2008, THQ expects net sales of approximately $1.04 billion and a GAAP loss per share of approximately $0.16, which includes approximately $0.21 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report net income of approximately $0.05 per diluted share.
- For the fiscal fourth quarter ending March 31, 2008, THQ expects to report net sales of approximately $200 million and a GAAP net loss of approximately $0.13, which includes approximately $0.07 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report a net loss of approximately $0.06 per diluted share.
Non-GAAP Financial Measures
In addition to results determined in accordance with GAAP, THQ discloses certain non-GAAP financial measures that exclude stock-based compensation expense and related income tax effects. The non-GAAP financial measures included in the earnings release have been reconciled to the comparable GAAP results 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.
When evaluating the performance of its business, THQ does not consider stock-based compensation charges. Likewise, THQ excludes stock-based compensation expense from its short and long-term operating plans. In contrast, THQ’s management team is held accountable for cash-based compensation and such amounts are included in the company’s operating plans. In addition, the 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 THQ’s stock price. Further, when considering the impact of equity award grants, THQ places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
In the financial tables below, THQ has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.
Investor Conference Call
THQ will host a conference call to discuss fiscal third quarter results today at 5:00 p.m. Eastern/2:00 p.m. Pacific. Please dial 877.356.8075 or 706.902.0203, conference ID 31143285 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 7, 2008, by dialing 800.642.1687 or 706.645.9291, conference ID 31143285.
About THQ
THQ Inc. (NASDAQ:THQI) 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, THQ Wireless, Big Huge Games, Drawn to Life, MX vs. ATV Untamed, Red Faction, Saints Row and their respective logos are trademarks and/or registered trademarks of THQ Inc.
All other trademarks are trademarks or registered trademarks of their respective owners.
This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the company’s expectations for revenue and earnings per share for the quarter and fiscal year ending March 31, 2008, and for the company’s product releases and financial performance in future periods. 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”) and are based upon management’s 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, economic, competitive and technological factors affecting the operations, markets, products, services and pricing of THQ. 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 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 Quarterly Reports on Form 10-Q and its Annual Report on Form 10-K for the fiscal period ended March 31, 2007, and particularly the discussion of risk factors that may affect results of operations set forth therein. 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 | ||||||||||||||
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(In thousands, except per share data) |
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| Three Months Ended | Nine Months Ended | |||||||||||||
| December 31, | December 31, | |||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||
| Net sales | $ | 509,609 | $ | 475,741 | $ | 843,443 | $ | 854,767 | ||||||
| Costs and expenses: | ||||||||||||||
| Cost of sales – product costs | 175,568 | 162,110 | 306,732 | 288,117 | ||||||||||
| Cost of sales – software amortization and royalties | 126,270 | 71,417 | 177,179 | 140,364 | ||||||||||
| Cost of sales – license amortization and royalties | 50,420 | 49,759 | 86,250 | 86,903 | ||||||||||
| Cost of sales – venture partner expense | 19,207 | 13,503 | 21,241 | 14,985 | ||||||||||
| Product development | 41,311 | 21,912 | 94,504 | 73,834 | ||||||||||
| Selling and marketing | 65,499 | 51,213 | 135,495 | 116,849 | ||||||||||
| General and administrative | 15,528 | 24,100 | 52,269 | 59,271 | ||||||||||
| Total costs and expenses | 493,803 | 394,014 | 873,670 | 780,323 | ||||||||||
| Income (loss) from continuing operations | 15,806 | 81,727 | (30,227 | ) | 74,444 | |||||||||
| Interest and other income, net | 3,412 | 2,595 | 13,337 | 9,071 | ||||||||||
| Income (loss) from continuing operations before income taxes and minority interest | 19,218 | 84,322 | (16,890 | ) | 83,515 | |||||||||
| Income taxes | 5,224 | 24,367 | (14,571 | ) | 24,215 | |||||||||
| Income (loss) from continuing operations before minority interest | 13,994 | 59,955 | (2,319 | ) | 59,300 | |||||||||
| Minority interest | ─ | (7 | ) | ─ | 136 | |||||||||
| Income (loss) from continuing operations | 13,994 | 59,948 | (2,319 | ) | 59,436 | |||||||||
| Gain on sale of discontinued operations, net of tax | 1,513 | 2,107 | 1,513 | 2,107 | ||||||||||
| Net income (loss) | $ | 15,507 | $ | 62,055 | $ | (806 | ) | $ | 61,543 | |||||
| Earnings (loss) per share – basic: | ||||||||||||||
| Continuing operations | $ | 0.21 | $ | 0.92 | $ | (0.03 | ) | $ | 0.92 | |||||
| Discontinued operations | 0.02 | 0.03 | 0.02 | 0.03 | ||||||||||
| Earnings (loss) per share – basic | $ | 0.23 | $ | 0.95 | $ | (0.01 | ) | $ | 0.95 | |||||
| Shares used in per share calculation – basic | 66,118 | 65,387 | 66,502 | 64,737 | ||||||||||
| Earnings (loss) per share – diluted: | ||||||||||||||
| Continuing operations | $ | 0.21 | $ | 0.88 | $ | (0.03 | ) | $ | 0.89 | |||||
| Discontinued operations | 0.02 | 0.03 | 0.02 | 0.03 | ||||||||||
| Earnings (loss) per share – diluted | $ | 0.23 | $ | 0.91 | $ | (0.01 | ) | $ | 0.92 | |||||
| Shares used in per share calculation – diluted | 67,815 | 68,101 | 66,502 | 67,150 | ||||||||||
| THQ Inc. and Subsidiaries | ||||||||||||||||||
| Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) (a) | ||||||||||||||||||
|
(In thousands, except per share data) |
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| Three Months Ended December 31, |
Nine Months Ended
December 31, |
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| 2007 | 2006 | 2007 | 2006 | |||||||||||||||
| Income (loss) from continuing operations | $ | 13,994 | $ | 59,948 | $ | (2,319 | ) | $ | 59,436 | |||||||||
| Stock-based compensation expense (b) | 4,730 | 6,779 | 17,721 | 15,912 | ||||||||||||||
| Income tax adjustments (c) | (3,804 | ) | (724 | ) | (8,844 | ) | (3,458 | ) | ||||||||||
| Total non-GAAP adjustments | 926 | 6,055 | 8,877 | 12,454 | ||||||||||||||
| Non-GAAP income from continuing operations | 14,920 | 66,003 | 6,558 | 71,890 | ||||||||||||||
| Gain on sale of discontinued operations, net of tax | 1,513 | 2,107 | 1,513 | 2,107 | ||||||||||||||
| Non-GAAP net income | $ | 16,433 | $ | 68,110 | $ | 8,071 | $ | 73,997 | ||||||||||
| Non-GAAP earnings per share – basic: | ||||||||||||||||||
| Non-GAAP continuing operations | $ | 0.23 | $ | 1.01 | $ | 0.10 | $ | 1.11 | ||||||||||
| Discontinued operations | 0.02 | 0.03 | 0.02 | 0.03 | ||||||||||||||
| Non-GAAP earnings per share – basic | $ | 0.25 | $ | 1.04 | $ | 0.12 | $ | 1.14 | ||||||||||
| Shares used in per share calculation – basic | 66,118 | 65,387 | 66,502 | 64,737 | ||||||||||||||
| Non-GAAP earnings per share – diluted: | ||||||||||||||||||
| Non-GAAP continuing operations | $ | 0.22 | $ | 0.97 | $ | 0.10 | $ | 1.07 | ||||||||||
| Discontinued operations | 0.02 | 0.03 | 0.02 | 0.03 | ||||||||||||||
| Non-GAAP earnings per share – diluted | $ | 0.24 | $ | 1.00 | $ | 0.12 | $ | 1.10 | ||||||||||
| Shares used in per share calculation – diluted | 67,815 | 68,101 | 68,560 | 67,150 | ||||||||||||||
| Non-GAAP Adjustments (a) | ||||||||||||||||||
| Three Months Ended December 31, |
Nine Months Ended
December 31, |
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| 2007 | 2006 | 2007 | 2006 | |||||||||||||||
| Cost of sales – software amortization and royalties | (b) | $ | 2,413 | $ | 625 | $ | 5,391 | $ | 788 | |||||||||
| Product development | (b) | 1,262 | 1,470 | 3,434 | 3,587 | |||||||||||||
| Selling and marketing | (b) | 573 | 1,125 | 2,083 | 2,486 | |||||||||||||
| General and administrative | (b) | 482 | 3,534 | 6,813 | 8,990 | |||||||||||||
| Interest and other income, net | (b) | ─ | 25 | ─ | 61 | |||||||||||||
| Income tax adjustments | (c) | (3,804 | ) | (724 | ) | (8,844 | ) | (3,458 | ) | |||||||||
| Total non-GAAP adjustments | $ | 926 | $ | 6,055 | $ | 8,877 | $ | 12,454 | ||||||||||
| Notes: | ||||||||||||||||||
| (a) See explanation above regarding the Company’s practice on | ||||||||||||||||||
| reporting non-GAAP financial measures. | ||||||||||||||||||
| (b) Stock-based compensation expense recorded under SFAS 123(R) in the | ||||||||||||||||||
| three and nine months ended December 31, 2007 and December 31, | ||||||||||||||||||
| 2006, and the payroll tax effects of our historical stock | ||||||||||||||||||
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option grant practices investigation in the three and nine months |
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ended December 31, 2006. |
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(c) Income tax associated with stock-based compensation expense. |
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| THQ Inc. and Subsidiaries | ||||||
| Unaudited Consolidated Balance Sheets | ||||||
|
(In thousands) |
||||||
| December 31, | March 31, | |||||
| 2007 | 2007 | |||||
| ASSETS | ||||||
| Cash, cash equivalents and short-term investments | $ | 325,344 | $ | 457,958 | ||
| Accounts receivable, net of allowances | 270,740 | 67,586 | ||||
| Inventory | 43,584 | 27,381 | ||||
| Licenses | 27,346 | 41,406 | ||||
| Software development | 148,822 | 130,512 | ||||
| Income taxes receivable | 5,890 | 18,525 | ||||
| Prepaid expenses and other current assets | 14,954 | 16,238 | ||||
| Total current assets | 836,680 | 759,606 | ||||
| Property and equipment, net | 49,359 | 45,095 | ||||
| Licenses, net of current portion | 61,356 | 49,661 | ||||
| Software development, net of current portion | 26,066 | 33,766 | ||||
| Income taxes receivable, net of current portion | 14,104 | 2,163 | ||||
| Deferred income taxes | 15,812 | 15,812 | ||||
| Goodwill | 99,026 | 88,688 | ||||
| Other long-term assets, net | 15,880 | 18,750 | ||||
| TOTAL ASSETS | $ | 1,118,283 | $ | 1,013,541 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Accounts payable | $ | 73,753 | $ | 28,225 | ||
| Accrued and other current liabilities | 205,562 | 143,418 | ||||
| Deferred income taxes | 24,161 | 25,647 | ||||
| Total current liabilities | 303,476 | 197,290 | ||||
| Other long-term liabilities | 39,979 | 47,294 | ||||
| Total liabilities | 343,455 | 244,584 | ||||
| Total stockholders’ equity | 774,828 | 768,957 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,118,283 | $ | 1,013,541 | ||
| THQ Inc. and Subsidiaries | |||||||||||||||||
| Unaudited Supplemental Financial Information | |||||||||||||||||
| Three Months Ended |
Nine Months Ended |
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December 31, |
December 31, |
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| 2007 | 2006 | 2007 | 2006 | ||||||||||||||
| Platform Revenue Mix | |||||||||||||||||
| Consoles | |||||||||||||||||
| Microsoft Xbox 360 | 12.3 | % | 12.5 | % | 13.9 | % | 14.5 | % | |||||||||
| Microsoft Xbox | 0.1 | 2.6 | 0.3 | 3.0 | |||||||||||||
| Nintendo Wii | 10.4 | 5.1 | 8.1 | 2.8 | |||||||||||||
| Nintendo Game Cube | 0.2 | 4.5 | 0.8 | 5.7 | |||||||||||||
|
Sony PlayStation 3 |
11.8 | ─ | 8.7 | ─ | |||||||||||||
| Sony PlayStation 2 | 25.6 | 38.2 | 25.9 | 31.3 | |||||||||||||
| 60.4 | 62.9 | 57.7 | 57.3 | ||||||||||||||
| Handheld | |||||||||||||||||
| Nintendo Dual Screen | 20.2 | 11.2 | 20.4 | 10.4 | |||||||||||||
| Nintendo Game Boy Advance | 2.9 | 10.1 | 3.8 | 11.9 | |||||||||||||
| Sony PlayStation Portable | 8.5 | 5.9 | 8.1 | 6.5 | |||||||||||||
| Wireless | 1.0 | 1.6 | 1.7 | 2.6 | |||||||||||||
| 32.6 | 28.8 | 34.0 | 31.4 | ||||||||||||||
| PC | 7.0 | 8.3 | 8.2 | 11.3 | |||||||||||||
| Other | ─ | ─ | 0.1 | ─ | |||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
| Geographic Revenue Mix | |||||||||||||||||
| Domestic | 54.6 | % | 61.9 | % | 50.1 | % | 59.6 | % | |||||||||
| Foreign | 45.4 | 38.1 | 49.9 | 40.4 | |||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||