AGOURA HILLS, Calif., Nov. 3: THQ Inc. (Nasdaq: THQI) today announced preliminary financial results for the second quarter of fiscal 2007 and raised its net sales and EPS guidance for the full fiscal year. The financial results and guidance reported today do not take into account any adjustments that may be required in connection with the previously announced ongoing review of THQ's stock option grant practices, discussed more fully below, and should be considered preliminary until THQ files its Quarterly Report on Form 10-Q for the second quarter of fiscal 2007.
THQ's fiscal 2007 second quarter net sales increased 68% to $240.2 million, from $142.7 million a year ago, on robust sales of owned and internally developed new original properties Saints Row TM and Company of Heroes TM , and continued sales of games based on Disney*Pixar's Cars, reflecting the game's wider international release.
The company reported fiscal 2007 second quarter net income of $12.6 million, or $0.19 per diluted share, which included equity-based compensation of $0.06 per share, related to the adoption of FAS 123 ® . On a non-GAAP basis, excluding equity-based compensation expense, net income was $16.4 million, or $0.25 per diluted share. For the second quarter of fiscal 2006, THQ reported a net loss of $1.4 million, or $0.02 per share. A reconciliation of non-GAAP results to GAAP results is provided in the accompanying financial tables.
For the six months ended September 30, 2006, net sales increased 26% to $379.0 million, from $300.7 million for the same period a year ago. THQ reported fiscal 2007 first half net income of $518,000, or $0.01 per diluted share, which included equity-based compensation of $0.08 per share, related to the adoption of FAS 123 ® . On a non-GAAP basis, excluding equity-based compensation expense, net income was $5.9 million, or $0.09 per diluted share. For the prior-year period, THQ reported a net loss of $5.4 million, or $0.09 per share. A reconciliation of non-GAAP results to GAAP results is provided in the accompanying financial tables.
Results Subject to Stock-Based Compensation Review
As previously announced, the company received a letter of informal inquiry from the United States Securities and Exchange Commission ("SEC") relating to its stock option grant practices. The company's board of directors appointed a special committee which, with the assistance of independent legal counsel and outside accounting experts, is investigating the company's stock option grant practices and overseeing the company's response to the SEC. To date, this investigation has determined that the actual measurement dates for financial accounting purposes of certain stock option grants issued in the past are likely to differ from the recorded grant dates of such awards reflected in the company's historical financial statements. As a result, the company believes that it is likely to need to adjust the preliminary financial information presented in this release, and to restate certain historical financial statements to record additional non-cash stock-based compensation expense and related cash and non-cash tax adjustments related to past stock option grants. The company has not yet determined the amount of such charges, the resulting tax and accounting impact, whether the impact on its current financial statements will be material, or what historical periods require restatement. In light of the investigation, the company currently expects that it will not file its Quarterly Report on Form 10-Q for the second quarter of fiscal 2007 in a timely manner. The company intends to file this Quarterly Report as soon as practicable following completion of the special committee investigation.
"THQ's outstanding second quarter results demonstrate the power of our balanced mix of owned properties and games based on world-class brands," said Brian Farrell, THQ president and CEO. "During the quarter, THQ's Studio System delivered two ground-breaking original titles, Saints Row on Xbox 360 and Company of Heroes on PC. We have established two significant new franchises that we view as important pillars of our growth for many years to come."
THQ's holiday line-up will be led by WWE ® SmackDown ® vs. Raw ® 2007 on multiple platforms including the Microsoft Xbox 360 TM , a full line-up of Nickelodeon titles on multiple platforms including the Nintendo Wii TM , Cars on the Xbox 360 and the Nintendo Wii, Bratz TM Forever Diamondz TM , Destroy All Humans! ® 2, The Sopranos ® and Warhammer ® 40,000 TM : Dawn of War: Dark Crusade TM . The company also expects strong sales of Saints Row and Company of Heroes to continue through the holidays.
"We look forward to launching games based on our biggest brands this holiday, including four titles for the Nintendo Wii," said Farrell. "THQ's holiday line-up demonstrates our significant breadth of product for gamers on current and next-generation consoles, handhelds, PC and wireless."
The company reported the following second quarter highlights:Saints Row was the #1 title by value in September according to The NPD Group (NPD). More than one million units of Saints Row shipped during the quarter Cars videogames ranked #1 in the UK for the quarter ended September 30 2006, according to UK Chart Track. Cars has now shipped more than four million units life-to-date Company of Heroes was the #1 PC title by value in September according to NPD. The game achieved a 96% rating from PC Gamer, the highest ever for a Real-Time-Strategy game THQ is the #1 independent publisher on the Nintendo DS year-to-date, according to NPD
THQ raised its guidance for the 2007 full fiscal year and provided initial guidance for the third and fourth fiscal quarters of 2007:For the 2007 fiscal year, the company now expects to report net sales in the range of $925 million to $975 million and net income in the range of $0.95 to $1.05 per diluted share. This excludes forecasted equity-based compensation expense of $0.18 per diluted share. For the third quarter of fiscal 2007, the company expects net sales in the range of $400 million to $425 million and net income in the range of $0.69 to $0.74 per diluted share. This excludes forecasted equity-based compensation expense of $0.04 per diluted share. For the fourth quarter of fiscal 2007, the company expects net sales in the range of $145 million to $170 million and net income in the range of $0.17 to $0.22 per diluted share. This excludes forecasted equity-based compensation expense of $0.04 per diluted share.
THQ makes reference to certain non-GAAP measures, including operating income, certain expenses (including sales and marketing, product development, general and administrative), net income and net income per share for the second quarter and first six months of fiscal 2007, which exclude equity-based compensation to allow for a better comparison of results in the current period to those in prior periods that did not include FAS 123 ® equity-based compensation. THQ's reference to these measures should not be considered in isolation but in addition to results that are presented as consistent with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future and provide further information for comparative purposes due to the adoption of the new accounting standard FAS 123 ® . Specifically, the company believes the non-GAAP measures provide useful information to investors by excluding certain expenses that may not be indicative of its core operating results and business outlook.
Investor Conference Call
THQ will host a conference call to discuss fiscal second quarter results today at 11:00 a.m. Eastern/8:00 a.m. Pacific. Please dial (866) 711-8198 or (617) 597-5327, access code 64321657 to listen to the call or visit the THQ Inc. Investor Relations home page at www.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 8, 2006, by dialing (888) 286-8010 or (617) 801-6888, access code 45016792.
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, Company of Heroes, Destroy All Humans!, 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 fiscal 2007 third and fourth quarter and full year 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. THQ did not retain nor otherwise influence The NPD Group, Inc. or UK Chart-Track. 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, 2006, 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.
The forward-looking statements in this release, including guidance on expected results for the third and fourth quarter of fiscal 2007 and the fiscal year ending March 31, 2007, are subject to a number of risks and uncertainties associated with matters relating to the company's stock option grant practices, which could cause actual results to vary, perhaps materially, and the expected results may not occur. It is uncertain the extent to which the company's historical and future financial statements will be affected. In addition, we cannot predict the response by the SEC to the special committee's findings in response to the SEC's informal inquiry previously announced by the company on August 7, 2006 or the outcome of the stockholder derivative litigation. In addition, the company does not expect to be in a position to file its Quarterly Report on Form 10-Q for the second quarter of fiscal 2007 on a timely basis. This delay could have an adverse effect on the ability of the company to maintain its listing on the NASDAQ Global Select Market. Finally, the costs to the company of the ongoing review, the SEC inquiry and the derivative litigation could be material.
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, 2006, 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.