THQ Reports Fiscal 2008 Second Quarter Results
AGOURA HILLS, Calif.--Nov. 1, 2007--THQ Inc. (NASDAQ:THQI) today announced financial results for the second quarter of fiscal 2008 that are consistent with the company's recently announced revised financial guidance.
For the second quarter of fiscal 2008, THQ reported net sales of $229.3 million, driven primarily by shipments of Disney/Pixar's Ratatouille, as well as Stuntman ® : Ignition TM and Juiced TM 2: Hot Import Nights TM , each across multiple game systems. For the same period a year ago, THQ reported net sales of $240.2 million.
For the second quarter of fiscal 2008, THQ reported a GAAP net loss of $7.0 million, or $0.11 per share, which includes $0.08 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported a net loss of $2.2 million, or $0.03 per share. For the same period a year ago, THQ reported GAAP net income of $11.6 million, or $0.17 per diluted share, which includes $0.08 per diluted share in stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $16.4 million, or $0.25 per diluted share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
For the six months ended September 30, 2007, THQ reported net sales of $333.8 million, compared with $379.0 million in the corresponding prior-year period. The company reported a GAAP net loss of $16.3 million, or $0.24 per share, which includes $0.11 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported a fiscal 2008 first half net loss of $8.4 million, or $0.13 per share. For the prior year period, THQ reported a GAAP net loss of $0.5 million or $0.01 per share, which included stock-based compensation expense of $0.10 per share. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $5.9 million, or $0.09 per diluted share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
"While we are disappointed with our recently revised fiscal 2008 financial guidance, we expect a solid second half to drive THQ's 13th consecutive year of revenue growth," said Brian Farrell, THQ president and CEO.
"Our proven holiday line-up features WWE SmackDown vs. Raw 2008, scheduled to release on twice as many platforms as last year. We have already shipped Cars 2: Mater-National, a sequel to last year's top-selling family title, as well as games based on Nickelodeon's popular Avatar, Nicktoons and SpongeBob characters."
Farrell continued, "We are well positioned to increase sales and profitability in fiscal 2009, with a solid product slate, including Disney/Pixar's Wall-E, Red Faction 3, Saints Row 2 and our first games based on the UFC."
Recent Developments:
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THQ announced Saints Row TM 2 for Xbox 360 and PlayStation 3 for fiscal 2009 The company doubled its Nintendo DS TM revenue from the prior year, driven primarily by Ratatouille and the success of Drawn to Life TM , a new original property created specifically for the Nintendo DS system THQ strengthened the breadth of its product offering for family and casual gamers by:o
o entering into an agreement with American Girl ® , a division of Mattel, Inc., for rights to publish video games based on the company's line of popular dolls and books, and
announcing the upcoming launch of its Xbox LIVE arcade portfolio, featuring SpongeBob SquarePants: Underpants Slam
During the quarter, the company repurchased $42 million of its common stock. THQ's board recently authorized an additional $25 million for stock repurchase. As a result, the company has $42 million available for repurchase.Fiscal 2008 Guidance
THQ reaffirmed its recently issued guidance for the third and fourth quarter, and full fiscal year ending March 31, 2008 as follows:
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For the fiscal year ending March 31, 2008, THQ expects net sales of approximately $1.06 billion and GAAP net income of approximately $0.56, which includes $0.24 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 $0.80 per diluted share. For the fiscal third quarter ending December 31, 2007, the company expects to report net sales of approximately $490 million and GAAP net income of approximately $0.61, which includes $0.06 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 $0.67 per diluted share. For the fiscal fourth quarter ending March 31, 2008, THQ expects to report net sales of approximately $240 million and GAAP net income of approximately $0.19, which includes $0.06 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 $0.25 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 second quarter results today at 6:30 p.m. Eastern/3:30 p.m. Pacific. Please dial 877.356.8075 or 706.902.0203, conference ID 20560632 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 5, 2007 by dialing 800.642.1687 or 706.645.9291, conference ID 20560632.
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, Drawn to Life, Juiced 2: Hot Import Nights, Red Faction, Saints Row, Stuntman: Ignition 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 quarters ending December 31, 2007 and March 31, 2008, and the 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
(In thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net sales $229,349 $240,197 $333,834 $379,026
Costs and expenses:
Cost of sales - product
costs 87,449 77,016 131,164 126,007
Cost of sales - software
amortization and
royalties 38,311 43,656 50,909 68,947
Cost of sales - license
amortization and
royalties 22,159 20,831 35,830 37,144
Cost of sales - venture
partner expense 1,137 773 2,034 1,482
Product development 28,561 25,686 53,193 51,922
Selling and marketing 47,193 38,925 69,996 65,636
General and
administrative 17,638 19,645 36,741 35,171
-------- -------- -------- --------
Total costs and
expenses 242,448 226,532 379,867 386,309
-------- -------- -------- --------
Income (loss) from
operations (13,099) 13,665 (46,033) (7,283)
Interest and other
income, net 2,569 3,736 9,925 6,476
-------- -------- -------- --------
Income (loss) before income
taxes and minority
interest (10,530) 17,401 (36,108) (807)
Income taxes (3,491) 5,857 (19,795) (152)
-------- -------- -------- --------
Income (loss) before
minority interest (7,039) 11,544 (16,313) (655)
Minority interest -- 45 -- 143
-------- -------- -------- --------
Net income (loss) $ (7,039) $ 11,589 $(16,313) $ (512)
======== ======== ======== ========
Earnings (loss) per share -
basic $ (0.11) $ 0.18 $ (0.24) $ (0.01)
======== ======== ======== ========
Earnings (loss) per share -
diluted $ (0.11) $ 0.17 $ (0.24) $ (0.01)
======== ======== ======== ========
Shares used in per share
calculation - basic 66,462 64,513 66,695 64,414
======== ======== ======== ========
Shares used in per share
calculation - diluted 66,462 66,726 66,695 64,414
======== ======== ======== ========
THQ Inc. and Subsidiaries
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(a)
(In thousands, except per share data)
Three Months
Ended Six Months Ended
September 30, September 30,
---------------- -----------------
2007 2006 2007 2006
------- ------- -------- -------
Net income (loss) $(7,039) $11,589 $(16,313) $ (512)
Stock-based compensation
expense (b) 6,964 6,037 12,991 9,133
Income tax adjustments ® (2,119) (1,259) (5,040) (2,734)
------- ------- -------- -------
Total non-GAAP adjustments 4,845 4,778 7,951 6,399
------- ------- -------- -------
Non-GAAP net income (loss) $(2,194) $16,367 $ (8,362) $ 5,887
======= ======= ======== =======
Non-GAAP earnings (loss) per
share - basic $ (0.03) $ 0.25 $ (0.13) $ 0.09
======= ======= ======== =======
Non-GAAP earnings (loss) per
share - diluted $ (0.03) $ 0.25 $ (0.13) $ 0.09
======= ======= ======== =======
Shares used in per share
calculation - basic 66,462 64,513 66,695 64,414
======= ======= ======== =======
Shares used in per share
calculation - diluted 66,462 66,726 66,695 66,629
======= ======= ======== =======
Non-GAAP Adjustments (a)
Three Months
Ended Six Months Ended
September 30, September 30,
---------------- -----------------
2007 2006 2007 2006
------- ------- -------- -------
Cost of sales - software
amortization and royalties (b)$ 1,212 $ 163 $ 2,978 $ 163
Product development (b) 1,135 1,322 2,172 2,117
Selling and marketing (b) 795 968 1,510 1,361
General and administrative (b) 3,822 3,548 6,331 5,456
Interest and other income, net -- 36 -- 36
Income tax adjustments ® (2,119) (1,259) (5,040) (2,734)
------- ------- -------- -------
Total non-GAAP adjustments $ 4,845 $ 4,778 $ 7,951 $ 6,399
======= ======= ======== =======
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 ® in the
three and six months ended September 30, 2007 and September 30, 2006,
and the payroll tax effects of our historical stock option grant
practices investigation in the three and six months ended September
30, 2006.
® Income tax associated with stock-based compensation expense.
THQ Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands)
September
30, March 31,
2007 2007
---------- ----------
ASSETS
Cash, cash equivalents and short-term
investments $ 296,932 $ 457,958
Accounts receivable, net of allowances 165,862 67,586
Inventory 41,814 27,381
Licenses 41,393 41,406
Software development 203,582 130,512
Income taxes receivable 17,939 18,525
Prepaid expenses and other current assets 13,731 16,238
---------- ----------
Total current assets 781,253 759,606
Property and equipment, net 49,786 45,095
Licenses, net of current portion 56,739 49,661
Software development, net of current
portion 37,520 33,766
Income taxes receivable, net of current
portion 6,364 2,163
Deferred income taxes 15,812 15,812
Goodwill 98,871 88,688
Other long-term assets, net 20,557 18,750
---------- ----------
TOTAL ASSETS $1,066,902 $1,013,541
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 85,630 $ 28,225
Accrued and other current liabilities 168,007 143,418
Deferred income taxes 23,706 25,647
---------- ----------
Total current liabilities 277,343 197,290
Other long-term liabilities 36,311 47,294
---------- ----------
Total liabilities 313,654 244,584
Total stockholders' equity 753,248 768,957
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,066,902 $1,013,541
========== ==========
THQ Inc. and Subsidiaries
Unaudited Supplemental Financial Information
Three Months Six Months Ended
Ended
September 30, September 30,
2007 2006 2007 2006
------- ------- ------- -------
Platform Revenue Mix
Consoles
Microsoft Xbox 360 19.4% 21.8% 16.4% 17.0%
Microsoft Xbox 0.1 2.2 0.5 3.5
Nintendo Wii 3.9 -- 4.6 --
Nintendo Game Cube 0.8 6.5 1.8 7.2
Sony PlayStation 3 5.8 -- 4.0 --
Sony PlayStation 2 27.3 20.6 26.4 22.5
------ ------ ------ ------
57.3 51.1 53.7 50.2
------ ------ ------ ------
Handheld
Nintendo Dual Screen 22.5 9.5 20.7 9.4
Nintendo Game Boy Advance 3.9 13.7 5.2 14.1
Sony PlayStation Portable 7.4 7.0 7.4 7.3
Wireless 2.1 2.9 2.8 3.8
------ ------ ------ ------
35.9 33.1 36.1 34.6
------ ------ ------ ------
PC 6.8 15.8 10.1 15.1
Other -- -- 0.1 0.1
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Geographic Revenue Mix
Domestic 33.9% 55.2% 43.1% 56.9%
Foreign 66.1 44.8 56.9 43.1
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
CONTACT:
THQ/Investor Relations
Julie MacMedan, 818-871-5125
or
THQ/Media Relations
Liz Pieri, 818-871-5061
SOURCE: THQ Inc.