THQ Reports Fiscal 2009 Fourth Quarter and Full Year Results
* Business Realignment Substantially Completed Resulting in $220 Million Annual Cost Savings
* Q4 GAAP Results Include $44.7 Million of Business Realignment Charges
* Company to Expand Leadership in Fighting Category with Launch of UFC 2009 Undisputed on May 19AGOURA HILLS, Calif.–(BUSINESS WIRE)–THQ Inc. (NASDAQ: THQI) today announced financial results for the fourth quarter and fiscal year ended March 31, 2009.
Full Year Results
For the twelve months ended March 31, 2009, THQ reported net sales of $830.0 million, compared with net sales of $1,030.5 million a year ago. On a non-GAAP basis, the company reported fiscal 2009 net sales of $812.6 million, compared with $1,061.0 million in the prior year.
For the fiscal year ended March 31, 2009, the company reported a net loss of $431.1 million, or $6.45 per share. In the prior year, the company reported a net loss of $35.3 million, or $0.53 per share. On a non-GAAP basis, the company reported a fiscal 2009 net loss of $101.8 million, or $1.52 per share. In the prior year, the company reported a non-GAAP net loss of $13.6 million, or $0.20 per share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
“In light of a challenging fiscal 2009, we have substantially completed a significant realignment of our business to position THQ for profitability and positive cash flow in fiscal 2010,” said Brian Farrell, THQ president and CEO. “We have taken decisive actions to achieve our cost saving objectives, eliminating $220 million in cash expenditures while at the same time implementing a focused product strategy. We are investing in the brands and products with the highest potential to drive THQ’s long-term profitable growth.”
Fourth Quarter Results
For the fourth quarter of fiscal 2009, THQ reported net sales of $170.3 million, compared with $187.0 million for the same period a year ago. On a non-GAAP basis, the company reported net sales of $154.3 million, compared with $217.6 million for the same period a year ago. Sales were driven primarily by new releases WWE® Legends of Wrestlemania® and Warhammer® 40,000™ Dawn of War® II.
For the fourth quarter of fiscal 2009, the company reported a net loss of $96.9 million, or $1.44 per share. For the same period a year ago, THQ reported a net loss of $34.5 million, or $0.52 per share. On a non-GAAP basis, the company reported a fiscal 2009 fourth quarter net loss of $36.4 million, or $0.54 per share. For the same period a year ago, the company reported a non-GAAP net loss of $24.8 million, or $0.37 per share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
Strategic Plan
In November 2008, the company announced a more focused product strategy and an updated strategic plan. The company’s product strategy focuses on 1) developing a select number of high quality owned intellectual properties targeted at the core gamer, such as Saints Row® 2 and the upcoming Red Faction®: Guerrilla™ and Darksiders™; 2) extending THQ’s leadership in the fighting category with such brands as WWE and Ultimate Fighting Championship; 3) reinvigorating the product portfolio and improving profitability in the company’s kids business; 4) building strong mass appeal/family game franchises like de Blob®, Drawn to Life® and Big Beach Sports™; and 5) extending successful brands into emerging online markets with games such as Company of Heroes® Online and the company’s Warhammer® 40,000™ MMORPG. The company also announced plans to align its organization and cost structure to support this strategy.
Business Realignment
During the fiscal fourth quarter, the company recorded approximately $44.7 million in non-GAAP business realignment expenses, which included cash costs of approximately $4.5 million, including severance and other employee-related costs, and lease and other contract termination costs; and $40.2 million in non-cash impairment charges related to the cancellation of titles and long-lived assets associated with studio closures. The company expects to report additional charges of up to $10 million in fiscal 2010 as certain projects are completed and facilities are vacated. The charges will be excluded from the company’s non-GAAP results.
The company has substantially completed actions necessary to achieve its business realignment plan to reduce planned fiscal 2010 spending by $220 million, which included headcount reductions of approximately 600 people, or 24% of its workforce.
The company continues to maintain a strong studio system with eight internal development studios and more than 1,200 people in its product development organization.
Fiscal 2009 Product Highlights
* Building on its successful Saints Row franchise, THQ has shipped more than 2.8 million units of Saints Row 2
* THQ achieved its goal of improving product quality, as evidenced by the 80+ Metacritic scores for all of its key original games released in fiscal 2009
* Warhammer 40,000: Dawn of War II debuted as the best selling PC game across major video game markets worldwide, including the US, UK, France, Germany, Spain and Australia (According to the NPD Group, Inc., ELSPA/GfK Chart-Track and GfK.)
* THQ launched a successful brand extension with WWE Legends of Wrestlemania
* THQ established new casual franchises de Blob and Big Beach Sports“We delivered on our product quality promise with Saints Row 2, WWE SmackDown vs. Raw 2009, de Blob, Warhammer 40,000 Dawn of War II and other fiscal 2009 titles,” said Farrell. “Our upcoming product pipeline continues to emphasize our commitment to delivering high quality entertainment for gamers. We look forward to the upcoming launch of our first games based on the popular Ultimate Fighting Championship, and the exciting new version of our Red Faction franchise.”
Business Outlook
The company’s fiscal 2010 operating plan targets profitability and positive cash flow generation on net sales approximating those achieved in fiscal 2009. The company expects its quarterly cash balance to reflect typical seasonal patterns, with the fiscal 2010 year-end balance at least $50 million higher than at the end of fiscal 2009.
Pursuant to THQ’s product strategy, key new releases scheduled for fiscal 2010 include:
Core Gamer Owned Intellectual Properties
Platforms
Darksiders™
Xbox 360®, PLAYSTATION®3
Red Faction® Guerrilla™
Xbox 360, PLAYSTATION3, Windows PC
Fighting
UFC® 2009 Undisputed™
Xbox 360, PLAYSTATION3
WWE® SmackDown® vs. Raw® 2010
Xbox 360, PLAYSTATION3, Wii™, Nintendo DS™, PlayStation®2, PSP®
Mass Appeal/Family
MX vs. ATV™
Xbox 360, PLAYSTATION3, Nintendo DS, PSP
All Star Cheer Squad™ 2
Wii
Three Titles to be Announced
TBA
Kids
Disney?Pixar’s Up
Xbox 360, PLAYSTATION3, Wii, Nintendo DS, PlayStation2, PSP, Windows PC
Disney?Pixar’s Cars Race-O-Rama
Xbox 360, PLAYSTATION3, Wii, Nintendo DS, PlayStation2, PSP
Marvel® Super Hero Squad™
Wii, Nintendo DS, PlayStation2, PSP
SpongeBob Truth or Square
Xbox 360, Wii, Nintendo DS, PSP
Online
Company of Heroes® Online
Windows PC
Dragonica™
Windows PC
Beginning in fiscal 2010, for non-GAAP purposes, the company has determined to adopt a fixed, five-year projected tax rate for the purposes of evaluating its operating performance, as well as to forecast, plan and analyze future periods. Based on its current five-year projections, the company plans to apply a 15 percent tax rate to its fiscal 2010 non-GAAP operating results.
Previously today, THQ announced it had secured a commitment for a $35 million senior secured credit facility with Bank of America, N.A.
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,
* goodwill impairment charges,
* other-than-temporary impairment on investments and mark-to-market on Auction Rate Securities,
* non-cash valuation allowance for deferred tax assets and
* related income tax effects for each of these items.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 its uses.
The company excludes these expenses from its non-GAAP financial measures primarily because its management does not believe they are reflective of 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 to its performance in prior periods. 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.
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 shareholder 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 with significant online functionality 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 costs is important to facilitate comparisons to prior periods when the company did not delay 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.
In the financial tables below, THQ has provided a reconciliation of the most comparable GAAP financial measure to each of the non-GAAP financial measures used in this press release.
