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THQ shares drop 30% after analyst cites a 'liquidity crisis'

February 03, 2012|Bloomberg News

Shares of video game maker THQ Inc. tumbled 30% after an analyst said the Agoura Hills company might need to draw on a revolving line of credit.

THQ declined to 53 cents, its lowest close since July 1995, and on a day the stock market rose strongly. The company has a $50-million revolving credit facility, according to a Nov. 9 regulatory filing.

Todd Mitchell, an analyst with Brean Murray Carret & Co. in New York, said the cancellation of the uDraw game tablet has created "a liquidity crisis for the company that puts its viability in question." He estimated the project will end up costing THQ $100 million.

"We were looking at uDraw as a bridge to this core and digital future, and that bridge turned out to be a plank we walked off of," Chairman and Chief Executive Brian Farrell said Thursday.

Farrell said uDraw's "underperformance in the quarter had the single biggest impact on our financial results." THQ will cut 240 jobs and reduce its CEO's pay by 50% after reporting a net loss of $55.9 million, or 82 cents a share, for the fiscal third quarter.

The company reported sales of $305.4 million. Excluding some items, profit was $24 million, or 35 cents a share, THQ said. The video game maker had $47.7 million in cash and equivalents on hand when the quarter ended Dec. 31.

Farrell's salary will drop to $359,250 from $718,500 for a one-year period, according to a filing with the U.S. Securities and Exchange Commission. Cash compensation for the company's board members also was cut by half, according to the filing.

"With our focused product plan, leaner cost structure, cash balance and existing credit facility, we believe the company has adequate resources to deliver on our strong multiyear pipeline of games," Farrell said Thursday.

THQ said Friday that it had reached an agreement with Los Angeles-based Innovative Leisure to create and publish games for digital and mobile platforms starting this year.

"Innovative Leisure has the expertise to deliver remarkable and cutting-edge games," Danny Bilson, a THQ executive vice president, said in a statement.

Farrell said new home console introductions could reinvigorate sales.

"As we approach a potential new console cycle it does introduce an element of risk," Farrell said. "Another way to think about that is it does present a tremendous amount of opportunity."

About 44% of THQ's games were made for Nintendo Co.'s Wii console, which has seen two years of declining sales as consumers opt for Microsoft Corp.'s Xbox 360 and Sony Corp.'s PlayStation 3. Those consoles play games in high-definition and offer online downloads of movies and music.

Nintendo has said it will begin selling a high-definition Wii U console by year-end. Microsoft also may be preparing an update to its Xbox 360 console, according to reports.

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