01—Abstract
Summary
Summary of the 10-Q filed October 30, 2013. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported its fiscal second quarter 2013 financial results for the period ending September 30, 2013.
The company experienced a significant decline in net revenue, down 45.5% year-over-year for the quarter, primarily driven by lower sales of titles released in the previous year, such as Borderlands 2. This revenue drop led to a substantial increase in net loss to $124.1 milliona, or $1.40 per share, compared to a net loss of $12.5 million, or $0.15 per share, in the prior year period. Despite the revenue challenges, the company successfully launched Grand Theft Auto V in September 2013, a major revenue driver that has had revenue deferred due to accounting policies for undelivered elements.
The company also saw a significant increase in cash and cash equivalents, reaching $661.9 millionb, largely due to proceeds from the issuance of new convertible notes and the termination of related hedge transactions, as well as positive cash flow from operations driven by collections related to recent releases. The company's strategic shift towards digital distribution channels continues, with digital online revenue comprising a larger portion of total revenue.
02—Key points
Key Highlights
- Net revenue for the quarter decreased by 45.5% to $148.8 million, compared to $273.1 million in the prior year quarter, largely due to the cyclical nature of game releases and lower sales from prior period titles.
- Net loss widened significantly to $124.1 million ($1.40 per share) from a net loss of $12.5 million ($0.15 per share) in the same period last year.
- The company launched Grand Theft Auto V in September 2013, a key title for future revenue, with revenue and associated costs deferred due to accounting treatment for undelivered content.
- Cash and cash equivalents increased substantially to $661.9 million from $402.5 million at the prior fiscal year-end, bolstered by new convertible note issuance and operational cash flow.
- Gross profit margin decreased to 37.9% from 42.0% year-over-year, impacted by a shift in product mix and higher software development costs.
- Digital online revenue now represents a larger portion of total revenue, accounting for 60.1% of net revenue in the current quarter, up from 20.3% in the prior year quarter.
- Operating expenses increased significantly, driven by higher selling and marketing expenses for new game launches (Grand Theft Auto V, The Bureau: XCOM Declassified) and increased general and administrative costs, including stock-based compensation.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2014, Take Two Interactive Software Inc lost $0.83.
- Revenue$148.8M100.0%
- Cost of revenue−$92.5M62.1%
- Gross profit$56.4M37.9%
- Operating costs−$174.3M117.1%
- Operating income−$117.9M79.2%
- Interest, other & tax−$6.2M4.2%
- Net income−$124.1M83.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed October 30, 2013Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $148.82M$273.08M | −45.5% |
| Cost of Revenue | $92.46M$158.49M | −41.7% |
| Gross Profit | $56.36M$114.60M | −50.8% |
| Operating Expenses | $174.25M$118.53M | +47.0% |
| Operating Income | -$117.89M-$3.93M | −2897.5% |
| Net Income | -$124.12M-$12.49M | −893.7% |
| EPS (Basic) | $-1.40$-0.15 | −833.3% |
| EPS (Diluted) | $-1.40$-0.15 | −833.3% |
| Shares Outstanding (Basic) | 88.82M85.40M | +4.0% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant decline in net revenue this quarter?
The significant decline in net revenue is primarily attributable to the timing of major game releases. The company had lower sales from titles released in the prior year, such as Borderlands 2 and Spec Ops: The Line, which were not fully offset by new releases during the current quarter. While Grand Theft Auto V was released in September 2013, its revenue recognition is deferred due to accounting policies for undelivered elements, impacting immediate reported revenue.
How has the company's cash position changed, and what are the main drivers?
The company's cash and cash equivalents increased significantly to $661.9 million as of September 30, 2013, from $402.5 million at the end of the previous fiscal year. This increase was driven by substantial cash inflow from financing activities, including the issuance of $287.5 million aggregate principal amount of 1.00% Convertible Notes, and $84.4 million from the termination of convertible note hedge transactions. Additionally, positive cash flow from operations, particularly collections related to recent game releases like Grand Theft Auto V, also contributed.
What is the impact of the Grand Theft Auto V release on the financial statements?
The release of Grand Theft Auto V in September 2013 is a major event. However, due to accounting rules for revenue recognition when there are undelivered elements (such as access to Grand Theft Auto Online), the revenue and associated cost of goods sold from this release were deferred and not recognized in the current quarter's income statement. This means the immediate financial impact on reported revenue and profit for this quarter is limited, but it positions the company for significant future revenue recognition.
What is the company's strategy regarding digital distribution, and how is it reflected in the results?
Take-Two Interactive is increasingly focused on digital distribution. This strategy is evident in the results as net revenue from digital online channels has grown substantially, now representing 60.1% of total net revenue for the quarter, a significant increase from 20.3% in the prior year quarter. This shift reflects the industry's trend towards digital downloads, add-on content, and mobile/tablet gaming, and is expected to be a key driver for future growth.
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