THQ is not in good shape. That's probably an understatement. Yesterday, the company quietly let it slip in an SEC filing that 240 more staff are being cut, and CEO Brian Farrell is getting his pay cut in half. Today, the third-quarter fiscal results revealed a $56 million loss, which is more than triple last year's Q3 loss of $14.9 million. Sales also dipped a bit, dropping from $314.6 million to $305.4 million.
The company is in the midst of a major realignment and restructuring, which sees it exiting the kids's licensed games category with an increasing focus on fewer, higher quality core titles.
"As part of this business realignment, the company is implementing plans to streamline its organization and cost structure to support what will be a smaller company positioned for sustained profitability. The company currently expects these actions will result in a reduction of selling, general and administrative expenses and product development expenditures totaling approximately $160 million from its annualized run rate," THQ stated.
So what went wrong in Q3? THQ noted that earnings from Saints Row: The Third and WWE ’12 were "offset by poor results for uDraw hardware and software. Lower uDraw revenue, high inventory reserves, price protection, and concessions at retail had an approximate $33.0 million impact on the company’s operating income in the quarter."
The publisher was sure to remind everyone that Saints Row is the largest owned-IP launch in THQ’s history and THQ expects to ship between five and six million units over the life of the title.
Importantly, THQ is also making some progress in digital, as THQ’s digital revenues for the third quarter of 2012 were more than double those in the year-ago quarter, and digital revenues for the nine-month period were 81 percent higher than a year ago.
“Saints Row: The Third and WWE ’12 demonstrate the strengths of THQ’s core gaming capabilities. These titles performed at or better than the expectations we shared during our last investor conference call, driven by favorable critical reviews, community engagement and outstanding marketing efforts,” said Brian Farrell, THQ President and Chief Executive Officer. “Sales of the uDraw GameTablet and related software, and other titles in the kids, family and casual category were far weaker than anticipated, substantially reducing our financial results for the quarter.”
“We have since concluded an extensive review of our operations to realign our business, focusing on our key franchises with the most potential,” continued Farrell. “We are implementing a plan to bring costs in line with our lower anticipated level of revenue. With our focused product plan, leaner cost structure, cash balance, and existing credit facility, we believe the company has adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games.”
