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THQ's Q3 Financial Results Reveal New Titles

by Rainier on Feb. 2, 2007 @ 1:45 p.m. PST

THQ's fiscal Q3 2007 net sales increased to $475.7 million, up 33% from a year ago, driven by strong sales of WWE SmackDown vs. Raw 2007, Cars, Avatar, SpongeBob SquarePants and Destroy All Humans! 2. In the conference call, THQ executives revealed a new Red Faction is in the works, as well as the Stuntman franchise it acquired from Atari. Cars is getting a sequel by end of the year, and WWE Smackdown expands onto PS3, Wii and NDS. In total, 11 new Wii titles are scheduled, and the previously revealed, but yet unannounced, Juiced and MX titles are due in fiscal 2008.

The company reported record fiscal third quarter net income of $62.1 million, or $0.91 per diluted share, which included stock-based compensation expense of $0.09 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income was $68.1 million, or $1.00 per diluted share. For the same period a year ago, THQ reported net income of $46.9 million, or $0.71 per diluted share, which included stock-based compensation expense of $0.02 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, fiscal 2006 third quarter net income was $47.8 million or $0.73 per diluted share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

For the nine months ended December 31, 2006, net sales increased 30% to $854.8 million, from $658.5 million for the same period a year ago. THQ reported net income of $61.5 million, or $0.92 per diluted share, which included stock-based compensation expense of $0.18 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income was $74.0 million, or $1.10 per diluted share. For the prior year period, THQ reported net income of $40.8 million or $0.63 per diluted share, which included stock-based compensation expense of $0.03 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior year period was $43.1 million, or $0.66 per diluted share. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

"THQ significantly outperformed the market this year. Not only did we grow our market share in every major territory, we also significantly improved profitability while making investments in our product pipeline and internal development capabilities.

"Our success was driven by our Disney/Pixar, WWE and Nickelodeon franchises, as well as outstanding results for our two newest owned intellectual properties, Saints Row and Company of Heroes. We now own six well-established franchises, each with one million plus unit sales that we plan to sequel and extend well into the future," said Brian Farrell, president and CEO of THQ.
Business Highlights

Fiscal 2007 Title Performance

* Cars videogames achieved the #1 movie title and #2 overall console title ranking in the US for calendar 2006. Cars has now shipped more than seven million units
* WWE SmackDown vs. Raw 2007 ranked in the top ten titles for December and top 20 for calendar 2006. WWE SmackDown vs. Raw 2007 has now shipped nearly 4 million units
* Saints Row was the #1 original game from an independent publisher on the Xbox 360 and ranked in the top ten Xbox 360 titles of 2006. Saints Row has now shipped more than 1.3 million units * Fiscal year-to-date, seven of THQ's titles have shipped more than one million units

THQ Gains Market Share

* THQ was the #1 independent publisher on the Nintendo DS in the US for calendar 2006
* THQ grew 2006 US console and PC market share to 7.6%, up from 6.8% a year ago, and was the #3 independent publisher in the US
* THQ grew 2006 UK console and PC market share to 7.9%, up from 6.4% a year ago, and was the #2 independent publisher in the UK, up from #4 a year ago, according to UK Chart Track
* In addition to the US and UK markets, THQ gained market share in each major territory, including Australia, France and Spain, according to GfK

New Developments

* THQ announced an exclusive, worldwide agreement with Zuffa, LLC to publish videogames based on the Ultimate Fighting Championship(R) (UFC(R)) brand through 2011
* THQ expanded its internal next-generation console development capabilities with the acquisition of Mass Media
* During the quarter, THQ opened direct sales operations in Milan, Italy, and Zurich, Switzerland
* THQ announced the addition of Gary Rieschel, a 25-year technology and investment veteran based in Shanghai, China, to its board of directors

Financial Guidance

THQ reaffirmed previous guidance for the fourth quarter and updated guidance for the full fiscal year ending March 31, 2007. The company provided initial guidance for the fiscal year ending March 31, 2008:

* For the fourth quarter of fiscal 2007, THQ expects net sales of approximately $146 million and earnings per diluted share of approximately $0.14 ($0.09 on a GAAP basis, which includes $0.05 per diluted share in non-cash stock-based compensation expense).
* For the fiscal year ending March 31, 2007, the company expects net sales of approximately $1 billion and earnings per diluted share of approximately $1.23 ($1.00 on a GAAP basis, which includes $0.23 per diluted share in non-cash stock-based compensation expense).
* For the fiscal year ending March 31, 2008, the company expects net sales in the range of $1.12 billion to $1.15 billion and earnings per diluted share in the range of $1.34 to $1.44 ($1.11 to $1.21 on a GAAP basis, which includes $0.23 per diluted share in non-cash stock-based compensation expense.)

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