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(R). 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(R). 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.
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(R) SmackDown(R) vs. Raw(R) 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!(R) 2, The Sopranos(R) and Warhammer(R) 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.