Q1 2013 Earnings Call

August 06, 2012 5:00 pm ET


Lisa Mueller

Brian J. Farrell - Executive Chairman and Chief Executive Officer

Paul J. Pucino - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

Jason Rubin - President


Arvind Bhatia - Sterne Agee & Leach Inc., Research Division

Douglas Creutz - Cowen and Company, LLC, Research Division

Atul Bagga - Lazard Capital Markets LLC, Research Division

Thomas Andrews

Bradley G. Safalow - PAA Research LLC

Ryan Gee - BofA Merrill Lynch, Research Division

Michael Hickey - National Alliance Capital Markets, Research Division



Good afternoon. My name is Dianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the THQ Inc. Fiscal 2013 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Lisa Mueller, Director of Investor Relations. You may begin your conference.

Lisa Mueller

Thank you, and good afternoon, everyone. On today's call, we will make forward-looking statements regarding our current expectations, estimates and projections about the business of THQ, including statements regarding our expectations for the second quarter ending September 30, 2012, and the fiscal year ending March 31, 2013.

These statements are based upon management's beliefs and certain assumptions made by management and are subject to risks and uncertainties that may cause actual results to differ materially from today's forward-looking statements due to the discussion of trends, risk factors and other cautionary statements that are described in our March 31, 2012, Form 10-K and subsequent filings with the SEC. A copy of these filings may be obtained from our website. Unless otherwise required by law, THQ disclaims any obligation to update its view on any such risks or uncertainties after the date these statements are made.

In describing THQ's financial performance on our call today, we will discuss non-GAAP measures including net sales and EPS. These non-GAAP measures exclude the following: stock-based compensation expense; certain deferred revenue and related costs; business realignment and related expenses; capitalized interest; and other significant charges and benefits.

Non-GAAP results also include the impact of any foreign currency fluctuations on our available-for-sale investment securities. As a reminder, our non-GAAP EPS excludes any impact for the if-converted method of accounting for our convertible debt. Also, we capitalize interest associated with our convertible debt for GAAP purposes. For non-GAAP purposes, we continue to recognize interest expense as incurred. Please refer to the reconciliation of these measures to GAAP results in the tables provided in today's release and on our website.

On today's call, joining us from management, are Brian Farrell, Chairman and CEO; Paul Pucino, Executive Vice President and CFO; and Jason Rubin, President. To begin, I would now like to introduce Brian Farrell, our Chairman and Chief Executive Officer. Brian?

Brian J. Farrell

Thank you, Lisa, and good afternoon, everyone. On the call today, I will give you an update on the progress we have made over the last several months, highlighted by the hiring of Jason Rubin as our President. Paul will give you details on the quarter and our financial outlook, and then Jason will discuss his first 60 days on the job and share how he has affected and will continue to affect change at THQ.

For the first quarter of fiscal 2013, we reported net sales of $39 million and a net loss of $3.41 per share after adjusting for our recent 1-for-10 reverse stock split. Obviously, it was a light quarter reflecting no new releases but we are pleased that our results were better than our expectations due to sales of our catalog titles led by Saints Row: The Third and WWE '12, as well as our digital revenues.

More importantly, over the last 8 months, we have taken a number of steps to transform THQ and put it back on the path to profitability and growth. Since the restructuring that we began in January, we have exited nonperforming businesses, shed underperforming licenses and discontinued titles and products that did not fit our strategy or profitability targets.

We also significantly reduced costs and headcount in our corporate and global publishing organizations. As part of these efforts, we streamlined our product portfolio to focus on those titles we believe can achieve robust profitability and create long-term shareholder value. In the last 8 months, we have reduced our annual licensing commitments by $32 million and our annualized product development spend, selling and marketing expense and G&A by approximately $180 million, creating significantly better operating leverage going forward.

Additionally, in May, we bolstered our management team by naming Jason Rubin as our new President. Jason is a proven talent in the video game industry, who in a short time here, has already made important contributions to our company. He has energized our studios, brought us a fresh point of view on our intellectual properties and is formulating a plan to enable THQ to compete and thrive in the evolving market for games. Jason will share with you his perspective momentarily.

Following all of these recent actions, we believe THQ is well positioned to return to profitability and to create shareholder value. As we've said, our strategy is to develop and market high-demand core games with a significant digital component. These connected experiences are integral to increasing customer engagement, retention and monetization in our increasingly digital future.

With that, Paul will review our Q1 financials in more detail and discuss our guidance for fiscal '13 and Q2. Paul?

Paul J. Pucino

Thank you, Brian, and good afternoon. I will begin with a recap of our fiscal '13 first quarter results and then discuss our future business outlook. To recap the first quarter, for the 3 months ended June 30, 2012, we reported net sales of $39 million, compared with $141 million in the prior year Q1 and a net loss of $3.41 per share, compared to a net loss of $9.42 one year ago. As a reminder, our earnings per share amounts for the current and prior period have been adjusted for the 1-for-10 reverse stock split, which was effective as of July 5, 2012.

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