TMCnet News
THQ Announces Fiscal 2005 Second Quarter Results CALABASAS HILLS, Calif. --(Business Wire)-- Oct. 27, 2004 -- Company Reiterates Fiscal 2005 Guidance of $1.10 EPS; THQ Renews Key Long-Term License Agreements with Pixar and NickelodeonTHQ Inc. (NASDAQ:THQI) today announced financial results for the second quarter of fiscal 2005 and reiterated guidance of net sales of $680 million and $1.10 earnings per diluted share for the fiscal year ending March 31, 2005. For the three months ended September 30, 2004, THQ reported net sales of $96.3 million and a net loss of $6.4 million, or $0.16 per share, ahead of guidance of $82 million net sales and a loss of $0.20 per share. For the same period a year ago, THQ reported net sales of $126.5 million and net income of $3.6 million, or $0.09 per diluted share, which included other income of $4 million (pre-tax), or $0.06 per diluted share, from an insurance settlement. For the six months ended September 30, 2004, THQ reported net sales of $184.5 million and a net loss of $10.3 million, or $0.27 per share. In the corresponding prior-year period, with significantly more new product releases, THQ posted net sales of $224.6 million and net income of $32,000, or $0.00 per diluted share. "Our better-than-expected results this quarter were driven by the outstanding performance of new releases `Warhammer(R) 40,000: Dawn of War(TM)', `WWE(TM) Day of Reckoning(TM)', and `Full Spectrum Warrior(TM)' as well as strong catalog sales in our international territories," said Brian Farrell, president and chief executive officer, THQ. "Both `Warhammer(R) 40,000: Dawn of War(TM)', our first release from recently acquired Relic Entertainment, and 'Full Spectrum Warrior(TM)' underscore our strategy of gaining share against the core gamer. We are extremely pleased with `Warhammer(R) 40,000: Dawn of War(TM)', which ranks as a top-selling title in multiple territories and we look forward to more ground-breaking games from Relic and our deep internal development studio organization." Farrell continued, "Our recent successes in extending our relationships with Nickelodeon and Pixar and continued momentum in our product development organization position THQ for growth through the upcoming console transition and beyond." Fiscal 2005 Financial Guidance THQ reiterated guidance for the fiscal year ending March 31, 2005 and provided initial guidance for the third and fourth quarters of fiscal 2005: -- For the fiscal year ending March 31, 2005, THQ continues to expect net sales of approximately $680 million and net income of approximately $1.10 per diluted share. -- THQ stated that THQ Wireless(TM) is expected to contribute more than $20 million of THQ's net sales in fiscal 2005. -- For the third quarter of fiscal 2005, the company expects net sales of approximately $330 million and net income of about $1.15 per diluted share. -- For the fourth quarter of fiscal 2005, the company expects net sales of approximately $165 million and net income of about $0.21 per diluted share. Product Release Schedule: Fiscal 2005 Third Quarter Farrell said that the third quarter release schedule is highlighted by established mass-market brands, including three titles anticipated to ship more than one million units: "The Incredibles," "WWE SmackDown!(TM) vs. Raw(TM)" and "The SpongeBob SquarePants(TM) Movie." Other highly anticipated titles for the quarter include the recently released "Tak 2: The Staff of Dreams" and "The Polar Express." Fiscal 2005 Fourth Quarter Key product releases anticipated for the fiscal 2005 fourth quarter include: "The Punisher(TM)," from internal studio Volition in January; "MX vs. ATV Unleashed," from internal studio Rainbow in February; and "Full Spectrum Warrior(TM)" for PlayStation(R) 2 and "WWE(TM): Wrestlemania(R) XXI" in March. Fiscal 2006 First Quarter The company said that it plans to release three new original titles in the fiscal 2006 first quarter. Pandemic Studios' "Destroy All Humans!(TM)" and "S.T.A.L.K.E.R.: Shadow of Chernobyl" from GSC Game World are now scheduled to ship in April and May of 2005, respectively. In addition, the company plans to release "Juiced" in the fiscal 2006 first quarter. "Our holiday 2004 drive titles are based on some of the biggest brands in entertainment, including three of the most highly anticipated theatrical releases of the season," Farrell said. "Our fiscal 2005 fourth quarter portfolio includes a deep line-up of titles that appeal to both the core gamer and mass-market consumer. As we move into fiscal 2006, we plan to deliver a steady stream of quality titles throughout the year." Recent Developments THQ Secures Long-Term, Strategic License Agreements and Expands Core Gamer Offerings -- In August 2004, THQ announced an exclusive multi-property publishing agreement with Pixar Animation Studios granting THQ worldwide interactive rights to four upcoming Pixar animated feature films. The agreement starts in 2006 and includes all current and future video game console systems, PC/MAC, and handheld and wireless devices through 2013. -- In October 2004, THQ renewed its master interactive license agreement with Nickelodeon granting THQ worldwide interactive rights through 2010 to publish games based on all existing and future animated TV and movie properties targeting kids ages 6-14. -- THQ continued to build its stable of core gamer titles with new exclusive worldwide publishing rights to the "Juiced" franchise, the highly anticipated street racing property by Juice Games. Subject to final contract and certain closing conditions, THQ plans to release "Juiced" for the PlayStation(R) 2 computer entertainment system, the Xbox(R) videogame system from Microsoft and PC in the first quarter of fiscal 2006. Product Development Momentum -- THQ, consistent with its strategy to grow internal development capabilities, opened a new studio in the San Diego area. The new studio, Concrete Games, is focusing on next-generation console technology and development, and becomes THQ's ninth internally owned studio. -- Underscoring the strength of THQ's product development organization, THQ was recently rated the number two independent publisher by Game Developer Magazine. THQ received the highest internal developer satisfaction rating of all publishers. Q2 Titles Top Sales Charts -- "WWE Day of Reckoning(TM)" was the #2 best-selling Game Cube title for the month of September, according to The NPD Group. -- "Warhammer(R) 40,000: Dawn of War(TM)" ranks as a top selling PC title in the US, UK, France, Germany and Australia (according to The NPD Group, UK Chart Track, GFK and Media Control). Handheld Leadership -- THQ, building on its leadership on handheld devices, plans to launch "Ping Pals" for the Nintendo(R) DS portable game system in early December. "Ping Pals" takes advantage of the highly anticipated two-way messaging feature in the DS system. The company also plans to bring its market-leading kids and family brands to the platform, including games based on the Disney/Pixar films "Cars" and "The Incredibles," as well as SpongeBob SquarePants(TM) and Tak. In addition, THQ has four Sony PlayStation(R) Portable (PSP) titles in development, and plans to release its successful MX brand for the PSP launch. -- THQ Wireless(TM) continued to build its content and technology offerings and grow its revenue base. Through MINICK USA, THQ Wireless(TM) now offers the US market the added value of mobile applications such as Short Message Service (SMS) voting and information services. This week marked the launch of its first premium SMS campaign with the NFL that enables fans to vote their favorite NFL players into the Pro Bowl. THQ Wireless also enhanced its growing product portfolio with two new SpongeBob SquarePants(TM) games and seven Midway arcade titles for mobile devices. Investor Conference Call: THQ management will host an investor conference call today, October 27, 2004, at 2:00 p.m. PDT (5:00 p.m. EDT) to review the company's financial results and operations for the quarter ended September 30, 2004 and discuss its future outlook. The call may be accessed by dialing (800) 299-7635 domestic or (617) 786-2901 international, access code is 87846239, or by visiting THQ's Web site at www.thq.com. THQ (NASDAQ:THQI) is a leading independent publisher of interactive entertainment software worldwide. The company develops its products for all popular game systems including the PlayStation(R) 2 computer entertainment system from Sony Computer Entertainment, the Xbox(R) videogame system from Microsoft, Nintendo GameCube(R) and Game Boy(R) Advance, personal computers as well as wireless devices. The THQ Web site is located at www.thq.com. The THQ Wireless site is located at www.thqwireless.com. THQ, THQ Wireless, Rainbow Studios, Relic Entertainment, Volition, Inc. and their respective logos are trademarks and/or registered trademarks of THQ Inc. 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, 2004 and March 31, 2005, and the fiscal year ending March 31, 2005. 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, 2004, 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. -0- *T THQ Inc. Second Quarter 2005 Earnings Announcement Consolidated Statements of Operations (In thousands, except per share data) Table 1 Three Months Ended Six Months Ended September 30, September 30, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net sales $ 96,295 $126,517 $184,489 $224,612 Costs and expenses: Cost of sales 30,873 44,988 64,646 83,241 License amortization and royalties 8,998 15,551 16,005 24,803 Software development amortization 17,836 23,026 30,751 42,270 Product development 15,349 9,393 25,330 18,160 Selling and marketing 20,053 20,495 38,250 39,623 Payment to venture partner 1,512 2,095 2,036 2,560 General and administrative 12,692 9,681 25,510 19,045 --------- --------- --------- --------- Total costs and expenses 107,313 125,229 202,528 229,702 --------- --------- --------- --------- Income (loss) from operations (11,018) 1,288 (18,039) (5,090) Interest income, net 985 409 1,958 1,141 Other income (expenses) -- 4,004 -- 4,000 --------- --------- --------- --------- Income (loss) before income taxes and minority interest (10,033) 5,701 (16,081) 51 Income taxes (3,774) 2,109 (5,921) 19 --------- --------- --------- --------- Income (loss) before minority interest (6,259) 3,592 (10,160) 32 Minority interest (95) -- (95) -- --------- --------- --------- --------- Net income (loss) $ (6,354) $ 3,592 $(10,255) $ 32 ========= ========= ========= ========= Net income (loss) per share - diluted $ (0.16) $ 0.09 $ (0.27) $ 0.00 ========= ========= ========= ========= Shares used in per share calculation - diluted 38,997 39,159 38,692 39,060 ========= ========= ========= ========= The above table reflects our Consolidated Statement of Operations in accordance with U.S. Generally Accepted Accounting Principles. Reconciliation of Net Income to Non-GAAP Net Income (Loss) (In thousands, except per share data) Table 2 Three Months Ended Six Months Ended September 30, September 30, 2004 2003 2004 2003 --------- --------- ---------- -------- Net income (loss) $(6,354) $ 3,592 $(10,255) $ 32 Settlement of dispute with directors' and officers' insurance carrier -- (4,000) -- (4,000) Income taxes -- 1,480 -- 1,480 -------- -------- --------- -------- Non-GAAP net income (loss) $(6,354) $ 1,072 $(10,255) $(2,488) ======== ======== ========= ======== Non-GAAP net income (loss) per share - diluted $ (0.16) $ 0.03 $ (0.27) $ (0.07) ======== ======== ========= ======== Shares used in per share calculation - diluted 38,997 39,159 38,692 38,258 ======== ======== ========= ======== The reconciliation of U.S. GAAP net income to Non-GAAP net income (loss) excluding the settlement with the directors' and officers' insurance carrier in 2003, including the related income tax effect, is detailed in the above financial tables. We have excluded the settlement from Non-GAAP net income (loss) because it is considered "non-operational" in nature. Non-GAAP net income (loss) excluding the settlement is not recognized as a measure for financial statement presentation under U.S. GAAP. However, management believes that this information is useful for investors in evaluating our operational performance and for facilitating meaningful comparison to prior periods. THQ Inc. Second Quarter 2005 Earnings Announcement Table 3 Balance Sheets (In thousands) September 30, March 31, 2004 2004 ------------ ------------- ASSETS Cash, cash equivalents and short-term investments $187,109 $ 253,039 Accounts receivable - net 51,340 59,088 Inventory 14,469 22,303 Licenses 15,122 13,172 Software development 59,384 39,997 Deferred income taxes 278 -- Income taxes receivable 11,251 -- Prepaid expenses and other current assets 29,052 9,451 ---------- -------------- Total current assets 368,005 397,050 Property and equipment, net 20,210 17,468 Licenses - net of current portion 8,734 9,068 Software development - net of current portion 8,103 9,798 Deferred income taxes -- 560 Goodwill - net 78,371 59,399 Long-term marketable securities 20,874 24,320 Other long term assets - net 15,015 9,488 ---------- -------------- Total assets $519,312 $ 527,151 ========== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 15,681 $ 22,147 Accrued expenses 33,197 22,361 Accrued payments to venture partner 1,399 746 Accrued royalties 20,111 41,305 Income taxes payable -- 216 Deferred income taxes -- 642 ---------- -------------- Total current liabilities 70,388 87,417 Accrued expenses - net of current portion 2,000 -- Accrued royalties - net of current portion 1,775 1,142 Deferred income taxes - net of current portion 1,082 -- Minority interest 1,021 -- Common stock 389 382 Additional paid-in capital 318,388 304,860 Accumulated other comprehensive income (loss) 9,476 8,302 Retained earnings 114,793 125,048 ---------- -------------- Total stockholders' equity 443,046 438,592 ---------- -------------- Total liabilities and stockholders' equity $519,312 $ 527,151 ========== ============== THQ Inc. Supplementary Tables Three Months Six Months Ended Ended September 30, September 30, 2004 2003 2004 2003 -------- ----- ----------- ----- Platform Revenue Mix Consoles PlayStation 2 21.6 % 26.4 % 21.8 % 27.7 % Xbox 5.5 17.0 16.2 18.2 Game Cube 17.6 10.4 11.4 9.0 PlayStation 1.0 2.7 1.6 3.1 ------- ------- ------- ------- 45.7 56.5 51.0 58.0 ------- ------- ------- ------- Handheld Game Boy Color 0.0 0.0 0.0 0.6 Game Boy Advance 22.7 29.0 25.1 25.9 ------- ------- ------- ------- 22.7 29.0 25.1 26.5 ------- ------- ------- ------- PC CD-ROM 24.0 12.8 17.9 14.0 Wireless 6.5 1.4 4.9 1.3 Other 1.1 0.3 1.1 0.2 ------- ------- ------- ------- 100.0 % 100.0 % 100.0 % 100.0 % ======= ======= ======= ======= Geographic Revenue Mix Domestic 66.5 % 76.8 % 63.1 % 74.1 % Foreign 33.5 23.2 36.9 25.9 ------- ------- ------- ------- 100.0 % 100.0 % 100.0 % 100.0 % ======= ======= ======= ======= *T |
