THQ Inc. Reports Operating Results (10-Q)
Thq Inc. has a market cap of $34.3 million; its shares were traded at around $4.96 . Thq Inc. had an annual average earning growth of 14.7% over the past 10 years.
Highlight of Business Operations:We provide our products through both the retail channel and through online digital delivery methods. Recently, the interactive entertainment software industry began delivering a growing amount of games, downloadable content and product add-ons by direct digital download through the Internet and gaming consoles. We believe that much of the growth in the industry will come via online distribution methods, including, multi-player online games (both subscription and free-to-play), free-to-play micro-transaction based games, paid downloadable content ("DLC"), and digital downloads of full-games. Conversely, based on industry data, we believe retail sales for the industry will continue to be a decreasing revenue source over the next several years. For the six months ended June 30, 2012, reported retail software sales in the U.S. for the industry decreased 29% compared to the same period in 2011 according to the NPD Group; for the same period, across U.K., Germany, France, Spain and Benelux, aggregated retail software sales decreased 17% compared to the same six-month period in 2011 according to GfK. However, digital sales for the industry are expected to grow over 24% worldwide in calendar 2012 and almost double, over calendar 2011 levels, in the following five years to $68.5 billion worldwide according to the International Development Group, Inc.'s Forecast Update (April 2012). Accordingly, we plan to emphasize the digital components in our future core game releases. In the event our games are released with increasingly more undelivered elements at the time of sale, such as the online service present within some of our games, more of our revenue may be deferred, which will impact the timing of our revenue recognition but not our cash flow from operations.
Over the past few years, our industry has seen a shift in preferences in the casual and lifestyle games market away from kids' and movie-based licensed console titles. We believe this shift is due to gameplay with online digital delivery methods, including games played online and on social networking sites such as Facebook, and through wireless devices. As discussed above, in response to this continued shift in preferences, we exited the market for video games based on licensed kids' and movie-based entertainment properties and uDraw. Approximately 17% and 39% of our net sales before the impact of changes in deferred net revenue in the three months ended June 30, 2012 and 2011, respectively, came from these types of games.
Net sales in Europe in the three months ended June 30, 2012 decreased $23.2 million compared to the same period last fiscal year. We estimate that changes in foreign currency translation rates during the three months ended June 30, 2012 decreased our reported net sales in this territory by $1.0 million. The decrease in net sales in this territory was primarily due to our release schedule as we did not release any new titles in the current quarter. This decrease was partially offset by an increase in the average selling price of our catalog units sold.
Net sales in the Asia Pacific territory in the three months ended June 30, 2012 decreased $15.1 million, compared to the same period last fiscal year. We estimate that changes in foreign currency translation rates decreased our reported net sales in this territory by $0.2 million during the three months ended June 30, 2012. The decrease in net sales in this territory was primarily due to lower net sales from catalog titles as we sold fewer catalog units and had lower average net selling prices in the current quarter compared to the same period last fiscal year. The decrease in net sales in this territory was also due to our release schedule
Accounts Receivable. Accounts receivable decreased $11.9 million, from $16.0 million at March 31, 2012 to $4.1 million at June 30, 2012. The decrease was primarily due to our release schedule as we did not release any major new releases in the three months ended June 30, 2012. Accounts receivable allowances were $47.0 million at June 30, 2012, a $23.4 million decrease from $70.4 million at March 31, 2012. Allowances for price protection and returns as a percentage of trailing nine-month net sales, excluding the impact of changes in deferred net revenue, were 6% and 11% at June 30, 2012 and 2011, respectively. We believe our current allowances are adequate based on historical experience, inventory remaining in the retail channel, and the rate of inventory sell-through in the retail channel.
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