10-QPeriod: Q1 FY2012

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q1 Ended Jun 30, 2011

Filed August 9, 2011For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported a net loss of $8.7 million for the three months ended June 30, 2011, a significant shift from a net income of $26.3 million in the prior year period. This downturn was primarily driven by a decrease in net revenue, down 10.9% to $334.4 million, largely attributed to lower sales of key franchises like Grand Theft Auto and the absence of a major title release comparable to Red Dead Redemption in the prior year. While gross profit margin saw a slight improvement due to lower royalty expenses, operating expenses increased significantly, particularly in selling and marketing, impacting overall profitability. Despite the quarterly loss, the company ended the period with a solid cash position of $248.8 million. Long-term debt remains substantial, with $138 million in convertible senior notes outstanding. The company has several highly anticipated titles slated for release in the upcoming fiscal year, including NBA 2K12, BioShock Infinite, and Borderlands 2, which are expected to drive future revenue growth. Management believes current liquidity and available credit are sufficient to meet operational needs for at least the next 12 months.

Financial Highlights

49 data points
Beta

Revenue

$334.38M

36.8% Gross Margin

Net Income

-$8.71M

-2.6% Net Margin

EPS (Diluted)

$-0.11

Total Assets

$1.00B

Cash & Equivalents

$248.76M

Free Cash Flow

-$30.81M

Financial Statements
Beta
Revenue$334.38M
Cost of Revenue$211.22M
Gross Profit$123.16M
Operating Expenses$125.02M
Operating Income-$1.86M
Net Income-$8.71M
EPS (Basic)$-0.11
EPS (Diluted)$-0.11
Shares Outstanding (Basic)82.50M
Shares Outstanding (Diluted)82.50M

Key Highlights

  • 1Net loss of $8.7 million for the quarter, a reversal from a $26.3 million profit in the prior year.
  • 2Net revenue decreased by 10.9% to $334.4 million, driven by lower sales of Grand Theft Auto and the absence of a major title like Red Dead Redemption.
  • 3Gross profit margin improved slightly to 36.8% due to lower internal royalty expense.
  • 4Operating expenses increased by 30.3% to $125.0 million, mainly due to higher selling and marketing costs for new releases.
  • 5Cash and cash equivalents stood at $248.8 million at quarter-end, a decrease from $280.4 million at the prior quarter-end.
  • 6The company has $138 million in 4.375% convertible senior notes due 2014.
  • 7Several key titles are slated for release in the upcoming fiscal year, including NBA 2K12, The Darkness II, XCOM, BioShock Infinite, and Borderlands 2.

Frequently Asked Questions

The primary reason for the decline in net income is a decrease in net revenue, which fell by 10.9% to $334.4 million. This was mainly due to lower sales from established franchises like Grand Theft Auto and the lack of a blockbuster title release comparable to Red Dead Redemption, which significantly boosted revenue in the prior year's comparable quarter.

Take-Two Interactive has $138 million in 4.375% convertible senior notes due in 2014. The company's common stock price performance has met certain conditions, allowing holders to convert their notes under specific circumstances. As of June 30, 2011, the company's intention is to settle conversions in shares of common stock, and the notes remain classified as long-term debt. They are in compliance with all indenture covenants.

The company has a strong pipeline of upcoming titles, including NBA 2K12, BioShock Infinite, and Borderlands 2, which are expected to drive future revenue growth. While the current quarter showed a net loss, management believes their cash position and available credit are sufficient to fund operations and capital expenditures for the next 12 months. The success of these upcoming releases will be critical for improving future profitability.

Take-Two Interactive transacts business in various foreign currencies and is exposed to exchange rate fluctuations. They use forward foreign exchange contracts to mitigate this risk, primarily for non-functional currency-denominated inter-company loans, receivables, and payables. For the three months ended June 30, 2011, foreign currency translation adjustments resulted in a gain of $0.3 million, and foreign currency forward contracts generated a gain of $0.4 million.