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Armchair Analysis: THQ Delays Slate of Games, Abbreviates Earnings Call
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Armchair Analysis: THQ Delays Slate of Games, Abbreviates Earnings Call

THQ abbreviates its second quarter earnings call and cancels its Q&A session after disappointing sales; has an alarm been sounded?

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[vc_row][vc_column][vc_column_text]THQ has released its earnings for the second quarter of its 2013 fiscal year, and while the news was mixed, the earnings call that followed was the bigger story as the normal Q&A session was scrapped and CEO Brian Farrell’s closing remarks that saluted his employees sounded like a death knell.

The biggest news here isn’t the numbers. The publisher beat its guidance by about 15%. Operating expenses were down by 42%. These are good signs that changes have shown some positive effects. YOY sales were down more than 26% for the quarter, despite the release of Darksiders II. 1.4 million units of Darksiders II were shipped in the August-September timeframe, and while the game debuted at #1 on the combined NPD software SKU chart in August with 247,000 units sold, it disappeared from the chart in September. These are negative signs, especially with regards to Darksiders II, which was referred to as “disappointing” during the conference call.

The fact that THQ has delayed its slate of games is alarming. Metro: Last Light and Company of Heroes 2 are now set to release in March – just under the wire for the end of the fiscal year. South Park: The Stick of Truth has been pushed into the next fiscal year (at least April) and is no longer seeing a March release. These delays led to the announcement that THQ is seeking additional capital to remain afloat.

Centerview Partners LLC has been brought in to help find that capital, and there’s speculation that a sale of the publisher is being looked into. More ominous is this line from the earnings press release:

“There can be no assurance that the evaluation of strategic and financing alternatives will result in a transaction or financing, or that, if completed, said transaction and/or financing will be on attractive terms.”

That is a desperate statement. An easier way to read it is, “We’re broke and need cash now, no matter what the cost.”

Centerview’s influence was felt during the earnings call as the usual question and answer session with analysts was cancelled. Mr. Farrell stated that he hoped that analysts and investors “understand that we are not in a position” to answer questions and that the publisher had been advised by Centerview to cancel the Q&A. It will be interesting to see how analysts and investors react to this turn of events.

The cancellation of the Q&A session wasn’t the only notable event during the call. Jason Rubin indicated that “Darksiders II did not perform to our expectations or live up to its generally favorable reception,” which can be interpreted as a sales disappointment for the publisher. Brian Farrell sounded almost dejected as he closed the call by saluting THQ’s “dedicated employees for their tireless efforts in moving THQ forward.”

We’ll see what happens with THQ moving forward, but there’s potential for further restructuring, layoffs, and even bankruptcy and closure if THQ cannot find capital or a buyer.

The alarm has been sounded.


About the Author: Skerritt