10-QPeriod: Q3 FY2012

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Dec 31, 2011

Filed February 3, 2012For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) reported its third-quarter and nine-month results for the period ending December 31, 2011. The company saw a significant year-over-year decrease in net revenue for both the quarter and the nine-month period, primarily attributed to lower sales of established titles like "Red Dead Redemption" and the "Grand Theft Auto" franchise, partially offset by newer releases such as "L.A. Noire." Financially, the company experienced a net loss for the nine-month period, contrasting with a net profit in the prior year. This shift was influenced by lower revenues and increased operating expenses, particularly in general and administrative costs driven by stock-based compensation related to a management agreement. Despite the operational challenges, Take-Two significantly bolstered its cash position through the issuance of $250 million in 1.75% Convertible Notes in November 2011. The company maintained a strong liquidity position with over $453 million in cash and cash equivalents at the end of the period.

Financial Highlights

49 data points
Beta

Revenue

$236.32M

46.5% Gross Margin

Net Income

$14.10M

6.0% Net Margin

EPS (Diluted)

$0.16

Total Assets

$1.14B

Cash & Equivalents

$453.32M

Free Cash Flow

-$47.58M

Financial Statements
Beta
Revenue$236.32M
Cost of Revenue$126.47M
Gross Profit$109.86M
Operating Expenses$89.61M
Operating Income$20.25M
Net Income$14.10M
EPS (Basic)$0.16
EPS (Diluted)$0.16
Shares Outstanding (Basic)83.56M
Shares Outstanding (Diluted)83.56M

Key Highlights

  • 1Net revenue declined significantly year-over-year for both the three and nine months ended December 31, 2011, impacted by a difficult comparison to strong prior-year releases like 'Red Dead Redemption'.
  • 2The company reported a net loss of $41.98 million for the nine months ended December 31, 2011, a reversal from a net income of $70.51 million in the same period last year.
  • 3Cash and cash equivalents increased substantially to $453.3 million as of December 31, 2011, up from $280.4 million at March 31, 2011, largely due to the issuance of $250 million in 1.75% Convertible Notes.
  • 4Operating expenses saw a modest increase for the nine-month period, driven by higher general and administrative costs, including increased stock-based compensation.
  • 5Key upcoming releases mentioned include 'Max Payne 3', 'BioShock Infinite', 'XCOM: Enemy Unknown', and the highly anticipated 'Grand Theft Auto V'.
  • 6The company continued to manage its debt obligations, with both the 4.375% Convertible Notes due 2014 and the newly issued 1.75% Convertible Notes due 2016 in compliance with their respective covenants.
  • 7International revenue remained a significant portion of total revenue, though it saw a slight decrease as a percentage for the quarter compared to the prior year.

Frequently Asked Questions

For the nine months ended December 31, 2011, Take-Two Interactive reported a net loss of $41.98 million, a significant shift from the net income of $70.51 million reported in the same period last year. This downturn was driven by a substantial decrease in net revenue, primarily due to the phasing out of major titles from the prior year and the performance of newer releases. While the company's operational performance showed a decline, its cash position strengthened considerably.

Take-Two's cash and cash equivalents saw a significant increase, reaching $453.3 million by December 31, 2011, up from $280.4 million at the beginning of the fiscal year. This improvement was largely fueled by the successful issuance of $250 million in 1.75% Convertible Notes in November 2011. The company believes its current cash reserves, along with its credit facilities, will provide sufficient liquidity to meet its obligations for at least the next 12 months.

The primary reason for the revenue decline is a difficult year-over-year comparison, as the prior year benefited from strong sales of major titles like 'Red Dead Redemption' and 'Mafia II'. While new releases like 'L.A. Noire' and 'Duke Nukem Forever' contributed positively, they did not fully offset the decline from the prior year's blockbuster hits. Sales from console platforms remain the largest contributor to revenue, but PC and handheld sales also contribute to the overall revenue mix.

Take-Two's strategy continues to focus on developing and publishing high-quality, internally developed titles to build successful franchises. The company has a robust product pipeline, including highly anticipated titles such as 'Grand Theft Auto V', 'Max Payne 3', and 'BioShock Infinite', which are expected to drive future revenue growth. They are also expanding into digital distribution and social gaming to capture emerging market trends.