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THQ Financial Results Reveal New Titles, Dates, Studio Realigments And Layoffs

by Rainier on Feb. 3, 2010 @ 4:16 p.m. PST

THQ announced its Q3 2010 financial results reporting a status quo in net sales, but a net income of $542,000, compared to last year's $191.8 million loss. Game-wise, THQ reports that Darksiders has sold 1.2 million units, while Juice Games and Rainbow Studios will henceforth focus on downloadable titles and be renamed to THQ Digital Studios Warrington and THQ Digital Studios Phoenix, respectively.Further down the line THQ plans to release Homefront and a new Red Faction in 2011, with Saint's Row 3, Warhammer Space Marine, and a Darksiders sequel in 2012.

Reflecting its increasing emphasis on digital distribution to build brands and drive growth, THQ has refocused its Juice Games and Rainbow Studios development studios on the creation of games for digital distribution and has renamed them THQ Digital Studios Warringtonand THQ Digital Studios Phoenix, respectively.

The key objectives for THQ’s digital studios will be the development of digitally distributed games based on THQ’s core game brands and new original intellectual properties, and the implementation of a portfolio-wide community platform to connect consumers to all of THQ’s core games using proprietary technology developed by THQ Digital Studios Warrington.

“Consumers are increasingly looking for deeper engagement with their favorite entertainment experiences. They also want to enjoy games and entertainment via convenient social and portable platforms that suit their lifestyle,” said Danny Bilson, Executive Vice President, THQ Core Games. “We plan to address these needs through a rich offering of content distributed across digital platforms, based both on all of our major core brands as well as new intellectual properties.”

THQ anticipates the first games from THQ Digital Studios Warrington and Phoenix to be released in fiscal 2011. The games are in development for all major digital platforms, including Xbox Live Arcade, PlayStation Network, iPhone and iPad.

THQ plans to continue to publish MV vs. ATV games under the Rainbow Studios brand.

As a result of the realignment, the company expects to reduce headcount in these studios by a total of approximately 60 people.

“We are pleased to report solid profitability in the third quarter and we are on track to achieve all of our fiscal 2010 financial targets that we announced at the beginning of the fiscal year,” said THQ President and CEO Brian Farrell. “This marks a significant turnaround for THQ in just one year and underscores the success of our focused strategy and reduced cost structure.”

For the fiscal third quarter ended December 31, 2009, THQ reported net sales of $356.7 million, compared with $357.3 million in the prior-year period. On a non-GAAP basis, for the three months ended December 31, 2009, the company reported net sales of $357.0 million, compared with $385.6 million a year ago.

For the three months ended December 31, 2009, the company reported net income of $542,000, or $0.01 per share, compared with a net loss of $191.8 million, or $2.86 per share, in the prior-year period. On a non-GAAP basis, the company reported net income of $26.6 million, or $0.35 per share, compared with a net loss of $9.6 million, or $0.14 per share, in the same period a year ago. Fiscal 2010 third quarter non-GAAP earnings per share would have been $0.39 if the company had not been required to use the “if-converted” method due to its August 2009 issuance of convertible senior notes.

For the nine months ended December 31, 2009, THQ reported net sales of $701.5 million, compared with $659.7 million in the prior-year period. On a non-GAAP basis, for the nine months ended December 31, 2009, the company reported net sales of $691.2 million, compared with $658.3 million a year ago.

For the nine months ended December 31, 2009, the company reported net income of $1.4 million, or $0.02 per share, compared with a net loss of $334.2 million, or $5.01 per share, in the prior-year period. On a non-GAAP basis, the company reported net income of $8.3 million, or $0.12 per share, compared with a net loss of $65.4 million, or $0.98 per share, in the same period a year ago.

A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

Farrell said, “In addition to meeting our financial targets, we launched two new franchises, UFC and Darksiders, and significantly strengthened our balance sheet. We also secured new long-term license agreements and continued to migrate our brands to digital platforms in order to drive THQ’s growth over the next several years."

Fiscal 2010 Third Quarter Highlights and Recent Developments

Market Share/Product Sales

  • THQ gained market share in the US in calendar 2009, ranking as the #4 independent publisher with a 4.7% share1.
  • UFC 2009 Undisputed™ ranked among the top ten new video game releases in the US1 for calendar 2009.
  • The Biggest Loser was the #1 best-selling fitness game by an independent publisher in the US for the December quarter1.

New License Agreements

  • In December, THQ and WWE entered into a new direct eight-year agreement granting THQ exclusive worldwide rights to develop and publish video games based on WWE content effective January 1, 2010.
  • In December, THQ announced multi-year, multi-property video game license agreements with DreamWorks Animation granting THQ exclusive worldwide rights to develop and publish video games based on DreamWorks Animation’s upcoming animated feature films Kung Fu Panda: The Kaboom of Doom and Puss in Boots, as well as the CG animated feature show, The Penguins of Madagascar.
  • On February 1, 2010, THQ announced two multi-year license agreements granting the company the exclusive worldwide rights to develop and publish video games based on Sony Pictures Consumer Products popular game show properties, “JEOPARDY!” and “Wheel of Fortune”.

Owned Franchises

  • In January, THQ launched new original game Darksiders, which achieved an average Metacritic rating of 83 and delivered strong commercial sales, with shipments of approximately 1.2 million units in its first four weeks. The Darksiders franchise is now added to THQ’s growing portfolio of owned brands, including de Blob™, Drawn to Life™, MX vs ATV™, Red Faction and Saints Row.

Core and Online Game Development

  • Consistent with its strategy to migrate its key brands online, THQ today announced the realignment of two of its development studios that will now focus on the creation of games for digital distribution.
  • Consistent with its strategy to reduce development costs while delivering high product quality, in December 2009, THQ announced plans to establish a new video game development studio in Montreal, Quebec.

Litigation Settlement

  • In December 2009, THQ, World Wrestling Entertainment and JAKKS Pacific, Inc. reached settlement agreements with respect to the WWE video game license and the termination of the THQ/JAKKS Pacific LLC joint venture. As a result, THQ reported a one-time settlement of $29.5 million, which is included in the venture partner expense line in its GAAP financial results for the fiscal 2010 third quarter ending December 31, 2009.

1Source: The NPD Group

Business Outlook

Fiscal Year Ending March 31, 2010

The company reaffirmed its expectation to report non-GAAP fiscal 2010 net sales higher than those reported in fiscal 2009, and to achieve profitability for fiscal 2010.

The company also reaffirmed its expectation that its fiscal 2010 year-end cash balance will be at least $50 million higher than at the end of fiscal 2009, excluding the net proceeds from the $100 million convertible senior note offering, the $32.8 million settlement payment to JAKKS Pacific related to the preferred return rate arbitration, and the $13.2 million settlement payment to WWE.

Fiscal Fourth Quarter 2010

Consistent with prior guidance, THQ expects to report fiscal fourth quarter non-GAAP net sales in the range of $175 million to $185 million. The company expects to report fiscal 2010 fourth quarter non-GAAP EPS of approximately breakeven.

Pursuant to THQ’s product strategy, key releases scheduled for the fourth quarter of fiscal 2010 include:

Fiscal Fourth Quarter

Games

     

Platforms

       

Darksiders

     

Xbox 360, PlayStation3

Metro 2033

     

Xbox 360, PC

Warhammer 40,000: Dawn of War II – Chaos Rising

     

PC

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