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THQ's Sales Down, Losses Up, Reveals New Titles

by Rainier on May 6, 2009 @ 2:11 p.m. PDT

THQ released its financial results for Q4 and fiscal year 2009 revealing that net sales were down about 20% (from 2008's $1,030.5 million to $830.0 million) while net loss ballooned from last year's $35.3 million to 2009's $431.1 million. Sales were driven by the newest WWE title and Dawn of War II. Looking ahead THQ plans to release a slew of titles, including new installments in the MX vs. ATV, SpongeBob, and Pixar's Cars franchises, as well as three titles to be announced.

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.”

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.

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.

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.”

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

  • Darksiders (Xbox 360, PS3)
  • Red Faction Guerrilla (Xbox 360, PS3, PC)

Fighting

  • UFC 2009 Undisputed (Xbox 360, PS3)
  • WWE SmackDown vs. Raw 2010 (Xbox 360, PS3, Wii, NDS, PS2, PSP)

Mass Appeal/Family

  • MX vs. ATV (Xbox 360, PS3, NDS, PSP)
  • All Star Cheer Squad 2 (Wii)
  • Three Titles to be Announced

Kids

  • Disney Pixar’s Up (Xbox 360, PLAYSTATION3, Wii, Nintendo DS, PlayStation2, PSP, 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 (PC)
  • Dragonica (PC)

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