10-Q/APeriod: Q1 FY2002

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report (Amendment) for Q1 Ended Apr 30, 2001

Filed July 18, 2001For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) reported its fiscal second-quarter and year-to-date results for the period ending April 30, 2001. The company experienced significant revenue growth, driven by both its publishing and distribution segments. Publishing revenue saw a notable increase due to strong sales of titles for Sony's PlayStation and PlayStation 2 platforms, while distribution revenue was boosted by the acquisition of VLM Entertainment Group, Inc. However, the company's financial performance was significantly impacted by substantial non-cash impairment charges related to investments in internet-related securities, particularly its investment in Gameplay. Despite the revenue uplift, the impairment charges led to a net loss for the quarter and year-to-date. The shift in revenue mix towards console games, especially PlayStation 2, is a key strategic development. Management anticipates this trend will continue, indicating a pivot away from PC-centric revenue. Investors should closely monitor the impact of sales returns and allowances, which have increased, and the recoverability of capitalized development costs and prepaid royalties.

Key Highlights

  • 1Total net sales increased by 33.3% to $93.3 million for the three months ended April 30, 2001, compared to the prior year period.
  • 2Publishing revenue grew by 40.2% driven by strong sales on Sony PlayStation and PlayStation 2 platforms, with console games now representing 62.6% of publishing revenue.
  • 3Distribution revenue increased by 25.5%, largely due to the acquisition of VLM Entertainment Group, Inc.
  • 4Significant non-cash impairment charges of $18.4 million related to investments in Gameplay, along with other internet securities, resulted in a net loss of $11.9 million for the quarter.
  • 5Excluding impairment charges, the company would have reported net income of $3.9 million for the quarter.
  • 6Sales returns and allowances increased significantly to $28.3 million for the six months ended April 30, 2001, compared to $15.4 million in the prior year, primarily due to a change in product and customer mix.
  • 7The company's cash and cash equivalents increased to $6.9 million from $5.2 million, with net cash provided by operating activities improving to $23.3 million for the six months ended April 30, 2001.

Frequently Asked Questions

Revenue growth is driven by increases in both publishing and distribution operations. Specifically, publishing revenue is boosted by strong sales of titles for Sony's PlayStation and PlayStation 2 consoles, while distribution revenue has benefited from the acquisition of VLM Entertainment Group, Inc.

The net loss of $11.9 million for the three months ended April 30, 2001, was primarily due to significant non-cash impairment charges totaling $20.7 million related to investments in internet securities, most notably its investment in Gameplay. Excluding these charges, the company would have reported a net income.

There is a clear shift away from PC platforms towards video game consoles. For the three months ended April 30, 2001, console games represented 62.6% of publishing revenue, up from 43.2% in the prior year. The company anticipates this trend will continue, driven by the popularity of platforms like PlayStation 2.

Sales returns and allowances more than doubled to $28.3 million for the six months ended April 30, 2001. While attributed to changes in product and customer mix, a significant increase could adversely affect future operating results if they exceed the company's reserves.