01—Abstract
Summary
Summary of the 10-Q filed September 3, 2010. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported its second-quarter 2010 results, showcasing a significant turnaround in performance compared to the prior year.
The company experienced a substantial increase in net revenue, driven primarily by the successful launch of "Red Dead Redemption" and other key titles like "BioShock 2" and "Borderlands." This revenue growth led to a positive net income for the quarter, a marked improvement from the net loss reported in the same period of 2009. The company also demonstrated strong cash flow generation, significantly increasing its cash and cash equivalents balance, largely due to robust operating and investing activities, including the divestiture of its distribution business. The strategic focus on its core publishing operations, coupled with a pipeline of anticipated strong titles, positions Take-Two for continued growth.
While challenges remain, including managing operating expenses and navigating potential legal proceedings, the company appears to be on a stronger financial footing. Investors should monitor the impact of new product releases and the company's ability to maintain its revenue momentum and control costs.
02—Key points
Key Highlights
- Net revenue surged by 273.0% to $354.1 million for the three months ended July 31, 2010, compared to $94.9 million in the prior year, largely driven by the release of 'Red Dead Redemption'.
- The company swung to a net income of $5.9 million ($0.07 per share) for the quarter, a significant improvement from a net loss of $56.5 million ($0.73 per share) in the same period last year.
- Cash and cash equivalents increased significantly to $232.1 million as of July 31, 2010, up from $102.1 million at October 31, 2009, indicating improved liquidity.
- Operating expenses saw a notable increase in selling and marketing costs, up 97.2% to $46.7 million, primarily due to increased advertising for 'Red Dead Redemption'.
- The company completed the sale of its Jack of all Games distribution business in February 2010, classifying its results as discontinued operations and allowing for a sharper focus on publishing.
- Total operating expenses as a percentage of net revenue decreased substantially from 74.4% in Q2 2009 to 26.3% in Q2 2010, reflecting improved operational leverage.
- Gross profit margin improved significantly to 32.1% from 19.0% year-over-year, benefiting from a more favorable pricing mix, including the strong performance of 'Red Dead Redemption'.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, Take Two Interactive Software Inc kept $0.01.
- Revenue$245.0M100.0%
- Cost of revenue−$136.6M55.8%
- Gross profit$108.3M44.2%
- Operating costs−$95.3M38.9%
- Operating income$13.0M5.3%
- Interest, other & tax−$9.7M4.0%
- Net income$3.3M1.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed September 3, 2010Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $244.97M$50.62M | +383.9% |
| Cost of Revenue | $136.64M$39.54M | +245.5% |
| Gross Profit | $108.33M$11.08M | +878.0% |
| R&D Expenses | $11.29M$9.45M | +19.5% |
| Operating Expenses | $95.30M$54.22M | +75.8% |
| Operating Income | $13.03M-$43.14M | +130.2% |
| Net Income | $3.34M-$66.09M | +105.1% |
| EPS (Basic) | $0.04$-0.85 | +104.7% |
| EPS (Diluted) | $0.04$-0.85 | +104.7% |
| Shares Outstanding (Basic) | 79.79M— | — |
| Shares Outstanding (Diluted) | 79.79M— | — |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant revenue increase in the quarter?
The primary driver of the substantial revenue increase was the successful launch of the title 'Red Dead Redemption' in May 2010, which generated significant sales and positively impacted revenue across all platforms, particularly current-generation consoles.
How has the company's profitability changed compared to the previous year?
The company has shown a dramatic improvement in profitability. In the three months ended July 31, 2010, Take-Two reported a net income of $5.9 million, a stark contrast to the net loss of $56.5 million reported for the same period in the prior year. This turnaround is attributed to increased revenues and improved gross margins.
What is the status of the company's legal proceedings?
Several legal proceedings are ongoing, including securities class actions and derivative suits related to past stock option practices and content in 'Grand Theft Auto: San Andreas'. While some have seen preliminary settlement approvals or dismissals, others are still pending. The company believes it has adequately accrued for potential losses, but an unfavorable resolution of any matter could materially affect its financial condition.
How has the divestiture of the distribution business impacted the company?
The sale of the Jack of all Games distribution business in February 2010 has allowed Take-Two to focus its resources on its core publishing operations. The results of this business are now classified as discontinued operations, simplifying the presentation of the company's ongoing performance.
06—Continue