THQ’s Q3 Investor Call Indicates They Might Not Be As Doomed As We Think
Yesterday afternoon, THQ held their quarterly investor teleconference. Casting a pall over the meeting was a series of recent events indicating that THQ’s fortunes are gloomy, most pointedly the layoff of 240 THQ employees and the reduction of CEO Brian Farrell’s salary mere hours before the call. However, if information shared during the meeting isn’t just so much misdirection, while THQ is a company in dire need of correction, they have a strong chance of pulling out of their apparent nosedive.
Speaking for the company the majority of the time, CEO Brian Farrell was somewhat frank about the position the Agora Hills developer is in. “At our last meeting, we told you our third quarter results would be the largest in our company’s history,” he said. “Unfortunately, we were wrong.” He went on to further clarify some of THQ’s more recent setbacks, most notably the failure of the uDraw tablet. In fact, the failure of uDraw was singled out as a primary cause of THQ’s problems in the current fiscal year, and especially in Q3. “Our quarterly earnings would have more than doubled without uDraw”. Naturally, production of the tablet has been terminated, and once the current inventory has been channeled, “we have no other remaining commitments related to uDraw”.
THQ also confirmed what recent layoffs and the jettisoning of several divisions, including their children’s gaming division, mean; that the developer is leaning up, and severely. “Q4 will be a transitional quarter until cost savings measures are realized,” a company official said during the meeting. When this transition ends, the company will be approximately 50% smaller than it has been during the current fiscal year. “While we’re not prepared to provide formal guidance today, we believe net sales for 2013 will be half of 12″.
Noting that “we’re in the process of transforming THQ into a very different company”, THQ’s new strategy is to focus on what they call their “core” games, promising that they will “deliver on our strong, multi year pipeline of games”. Those core games include the Saints Row franchise, WWE and Warhammer, with Saints Row and WWE touted as a particularly great successes. “We expect saints row the third to achieve the highest digital revenue of any console game in our history,” Farrell noted, adding that “Q3 sales driven primarily by Sr3 and WWE.”
The success of Saint’s Row’s digital revenues is another hint of THQ’s future strategy. They intend to emphasize the online component of their games, with increased emphasis on what they called a “digital ecosystem” around their games. This not only includes DLC (yuck), but in marketing and community building, ala the character builder for Saints Row The Third that launched a month before the game. This makes sense as, while not meeting projections, digital revenues were stated to be 80% higher than the previous fiscal year.
The meeting elided the recent troubles, referred to (as noted above) as ‘cost saving measures’. It was revealed that the company had a 48 million cash balance by the end of december and expects to end the quarter with 25 million cash in hand. For the total fiscal year, the company expects to report total earnings of 800-820 million.
As for upcoming games, THQ’s new focus on core games will be reflected in expenses. In fiscal year 2012, they will have spent an estimated 250 million on gross product development. They expect to spend 100 million less in 2013. Reflecting this, Metro: Last Light is delayed to the first quarter of 2013, the Warhammer MMO, though still in development, is planned for 2014 (they’re activiely seeking a partner for that project). However, some unambiguous good news (from our perspective): “We will say that Volition is dedicated to the Saints Row franchise”.
We will have a more in depth analysis of THQ’s fortunes and future on Monday.