What THQ’s Q3 2011 Conference Call said about the company

Finishing up an article on Bitmob exploring some of the reasons to worry about THQ, I thought it would be a good idea to focus on what their Q3 2011 conference call had talked about. I’m only going to go down the most relevant points, but it was interesting stuff.

  • uDraw’s terrible performance hit THQ much harder than I thought. THQ had said that their quarterly earnings would have doubled if it weren’t for uDraw. Throughout the call, uDraw was seen as the monkey that threw shit at everything that was awesome about the quarter like SR the Third and WWE 12.
  • There is about $80 million of uDraw inventory (1.4 million units) that THQ says that they are going to move into the channel. They have also exited the uDraw business by ceasing all production of the devices. That’s it for uDraw. Also, it sounded like they lost around $20 million due to discounts on uDraw units already shipped out. Altogether, that’s a potential $100 million loss that they’ve chalked up to their gamble until they can get rid of all of their uDraws.
  • Dark Millennium, the WHK40 MMO that Relic and Vigil are working on, will need a “partner” to help bring it out. Developing the kind of MMO that a company like THQ is expected to deliver isn’t cheap. Estimates running around $200 million for The Old Republic have been floating around and given THQ’s financial position, I doubt they want to bet that much money to on just one project. So it’s not canceled.
  • Metro Last Light is moved to a Q4 2013 release. That’s a little more than a year away. At least it isn’t as far off as Homefront 2 by Crytek that’s slated for March, 2014. That is, if THQ manages to survive that far.
  • Patrice Desilets is still working at Montreal on a secret project
  • The five core studios for THQ are: THQ Montreal, Volition, Relic, Vigil in Texas, and San Diego.
  • Interesting rumor brought up by one of the people during the Q&A – Volition is working on a version of Saint’s Row for the Wii U. Of course, THQ can’t say anything about projects like that.
  • No one asked about Guillermo Del Toro’s project
  • Apparently, UFC has disappointed with 1.5 million sales (shipped?)
  • THQ was super happy about the performance of SR the Third and WWE 12. uDraw rained on that parade.
  • Their digital sales were okay, I think $26 mil was mentioned, but not great.
  • They hope to build up a digital ecosystem the same way that SR the Third did with player created models. They’re hoping to capitalize on it.
  • SR the Third is the largest IP launch of their history and its DLCs were the best selling in their history.
  • Darksiders 2 will apparently get double the marketing that the first one did
  • They’re lowering their fiscal 2012 guidance (warning) and expect that sales in fiscal 2013 will be HALF of what they are in 2012 as the company goes lean
  • Lean usually means “downsizing”. When management starts talking about making their company more “lean and agile” that usually means that more layoffs are in the works. Just ask anyone that has worked at a large company if they’ve heard the same buzzwords. The sad part is that this will probably help THQ’s bottom line. The sad part comes in when you realize how many people may be affected by this before they are done.
  • Product development is expected to be $100 million less next year. Right now it’s around $250 million. I’m not sure how that will work out…if you’re taking out that much money, what is getting let go? Equipment? More licenses? People?
  • The call mentioned working with Crytek (Homefront 2), Turtle Rock Studios, Obsidian (South Park the RPG), and Itagaki’s Valhalla (Devil’s Third).
  • Their San Diego studio was mentioned as working on the next UFC title
  • Did I mention that their quarterly earnings would have DOUBLED if not for uDraw? I think I did.

So after all was said and done, am I worried? I still am in part because all of this talk about “going lean” and “agile” is a refrain that many companies have used in the past to justify trimming employee headcount and shuttering projects. Sometimes it works. And sometimes it allows a soft landing into Chapter 11.

The next few months are going to be interesting ones for THQ. No doubt.

UPDATE: Noticed afterwards that THQ’s stock price fell to around $0.57 from a day high of $0.77 in the hour before the conference call. Can’t say I’m surprised given how downbeat things had turned out. Tomorrow could be bloody.

Still I’m surprised that there was a run up before the actual call considering how negative the news was prior. Were people betting on it to fall? Or did they honestly believe it was going to be a surprise?

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