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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 Nickelodeon

THQ 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.


                               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 %
                                   =======  =======  =======  =======

CONTACT: THQ/Investor Relations
Julie MacMedan, 818/871-5095
THQ/Media Relations
Liz Pieri, 818/871-5061

SOURCE: THQ Inc.


 
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