10-QPeriod: Q3 FY2014

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Dec 31, 2013

Filed February 4, 2014For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported a significant surge in revenue and net income for the three and nine months ended December 31, 2013, primarily driven by the highly successful launch of "Grand Theft Auto V." The company's balance sheet saw a substantial increase in cash and cash equivalents, growing from $402.5 million to $972.2 million, reflecting strong operational cash flow. Despite this positive performance, the company also engaged in significant financing activities, including the issuance of new convertible notes and substantial share repurchases, notably a large buyback from the Icahn Group. Investors should note the significant reliance on the "Grand Theft Auto" franchise for revenue, as well as the company's ongoing investments in research and development and the transition to new gaming console platforms.

Financial Highlights

51 data points
Beta

Revenue

$1.86B

39.9% Gross Margin

Net Income

$578.43M

31.0% Net Margin

EPS (Diluted)

$4.69

Total Assets

$1.99B

Cash & Equivalents

$972.17M

Free Cash Flow

$587.67M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.12B
Gross Profit$744.13M
Operating Expenses$137.84M
Operating Income$606.29M
Net Income$578.43M
EPS (Basic)$5.88
EPS (Diluted)$4.69
Shares Outstanding (Basic)85.06M
Shares Outstanding (Diluted)111.81M

Key Highlights

  • 1Net revenue for the three months ended December 31, 2013, dramatically increased to $1.86 billion from $415.8 million in the prior year, largely due to Grand Theft Auto V.
  • 2Net income for the three months ended December 31, 2013, was $578.4 million, a substantial improvement from $71.4 million in the same period last year.
  • 3Cash and cash equivalents surged to $972.2 million as of December 31, 2013, up from $402.5 million at the end of the prior fiscal quarter.
  • 4The company repurchased approximately 12 million shares from the Icahn Group for $203.5 million in November 2013, alongside other open market repurchases.
  • 5Significant debt financing activities included the issuance of $287.5 million in 1.00% Convertible Notes due 2018.
  • 6Console game sales accounted for 96.7% of revenue in the most recent quarter, highlighting the industry's shift and the company's focus on major platforms.
  • 7The company expects continued investment in R&D and is navigating the transition to new console hardware (PS4 and Xbox One).

Frequently Asked Questions

The primary driver was the exceptionally strong performance of "Grand Theft Auto V," which was released in September 2013. Sales from this title significantly boosted net revenue and profitability for both the three and nine-month periods ending December 31, 2013.

Take-Two significantly increased its cash and cash equivalents to $972.2 million, primarily from strong operating cash flows generated by game sales. The company also engaged in substantial financing activities, issuing new convertible debt ($287.5 million) and conducting significant share repurchases, including a major transaction with the Icahn Group, indicating a focus on capital management and potentially shareholder returns.

Key risks include the heavy reliance on major franchises like Grand Theft Auto, as revenue can fluctuate significantly based on release schedules. The company is also subject to the cyclical nature of the gaming hardware industry, with new console generations (PS4, Xbox One) impacting sales, and faces competition and potential disruptions from the transition to digital distribution and evolving consumer preferences.

Take-Two is actively supporting the new console platforms, with console sales already representing a dominant share of its revenue (96.7% in the latest quarter). The company continues to invest in research and development for these platforms and is managing its product pipeline to capitalize on market transitions.