10-QPeriod: Q2 FY2010

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q2 Ended Jul 31, 2009

Filed September 3, 2009For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported a significant revenue decline in the nine months ended July 31, 2009, compared to the same period in 2008, largely due to the prior year's release of the highly successful Grand Theft Auto IV. Net revenue fell from $1.21 billion to $625 million. This revenue drop also resulted in a substantial net loss of $115.9 million for the nine-month period, a stark contrast to the $112.1 million net income reported in the prior year. The company has taken steps to strengthen its financial position, including issuing $138 million in convertible senior notes in June 2009. However, the balance sheet reflects a considerable decrease in cash and cash equivalents, down to $174.8 million from $280.3 million at the start of the fiscal year, primarily due to operating losses. Despite the financial challenges, the company continues to invest in future game development, as evidenced by the significant balance of software development costs and licenses.

Financial Highlights

26 data points
Beta

Revenue

$50.62M

21.9% Gross Margin

Net Income

-$66.09M

-130.6% Net Margin

EPS (Diluted)

$-0.85

Cash & Equivalents

$174.79M

Free Cash Flow

-$154.55M

Financial Statements
Beta
Revenue$50.62M
Cost of Revenue$39.54M
Gross Profit$11.08M
R&D Expenses$9.45M
Operating Expenses$54.22M
Operating Income-$43.14M
Net Income-$66.09M
EPS (Basic)$-0.85
EPS (Diluted)$-0.85

Key Highlights

  • 1Net revenue for the nine months ended July 31, 2009, decreased by 48.5% to $625.1 million, down from $1.21 billion in the prior year, driven by the absence of major title releases like Grand Theft Auto IV.
  • 2The company reported a net loss of $115.9 million for the nine months ended July 31, 2009, compared to a net income of $112.1 million in the same period of 2008.
  • 3Cash and cash equivalents decreased by $105.5 million during the first nine months of fiscal 2009, ending at $174.8 million as of July 31, 2009.
  • 4In June 2009, Take-Two issued $138 million in 4.375% convertible senior notes due 2014 to bolster its liquidity.
  • 5Operating expenses were significantly reduced, with selling and marketing down 20.7% and general and administrative down 20.6% year-over-year for the nine-month period.
  • 6The publishing segment remains the dominant revenue driver, though its share of total revenue decreased from 81.3% to 66.9% due to the strong performance of the distribution segment in the current period.
  • 7The company is facing ongoing legal proceedings, including a securities class action lawsuit, for which a settlement is being proposed for $20.115 million.

Frequently Asked Questions

The substantial decrease in revenue and the resulting net loss are primarily attributable to the absence of major blockbuster title releases in the current period, most notably Grand Theft Auto IV, which was a significant revenue driver in the prior year. The company's financial performance is highly dependent on the timing and success of its major game launches.

To improve its liquidity position, Take-Two Interactive issued $138 million in convertible senior notes in June 2009. The company also has an available credit line and expects its current cash on hand and projected cash flow from operations to be sufficient for the next 12 months.

The publishing segment remains the core business, but its relative contribution to revenue has decreased due to lower sales following the prior year's major releases. The distribution segment showed improved performance, partly due to acting as an agent for other publishers and a focus on higher-margin software. The company continues to invest in new game development across various platforms and genres.

The company is involved in several legal proceedings, including a securities class action lawsuit related to Grand Theft Auto: San Andreas and option backdating. A settlement of $20.115 million is proposed for this matter, with a significant portion covered by insurance. Other legal matters include derivative actions and personal injury claims, though some have seen favorable rulings or are being settled.