10-QPeriod: Q3 FY2016

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Dec 31, 2015

Filed February 4, 2016For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) reported its third-quarter fiscal 2016 financial results for the period ending December 31, 2015. The company experienced a significant year-over-year revenue decline, primarily due to the absence of major product releases comparable to the prior year's releases of Grand Theft Auto V for new consoles and Borderlands: The Pre-Sequel. This revenue decrease, coupled with substantial business reorganization expenses of $71.2 million related to studio closures and restructuring, resulted in a net loss for the quarter and the nine-month period. Despite the revenue challenges, the company saw strong performance from its Grand Theft Auto franchise, particularly from ongoing recurrent consumer spending on Grand Theft Auto Online and the PC release of Grand Theft Auto V. Digital distribution channels continue to grow in importance, representing a larger portion of net revenue. The company also has a robust cash position and available credit, which management believes is sufficient to support operations and future initiatives. Investors should monitor the impact of ongoing restructuring efforts and the company's ability to generate substantial revenue from its upcoming product pipeline.

Financial Highlights

51 data points
Beta

Revenue

$414.22M

37.7% Gross Margin

Net Income

-$42.41M

-10.2% Net Margin

EPS (Diluted)

$-0.51

Total Assets

$2.59B

Cash & Equivalents

$835.24M

Free Cash Flow

$166.02M

Financial Statements
Beta
Revenue$414.22M
Cost of Revenue$257.86M
Gross Profit$156.36M
Operating Expenses$215.56M
Operating Income-$59.20M
Net Income-$42.41M
EPS (Basic)$-0.51
EPS (Diluted)$-0.51
Shares Outstanding (Basic)83.43M
Shares Outstanding (Diluted)83.43M

Key Highlights

  • 1Revenue declined by 22.0% to $414.2 million for the three months ended December 31, 2015, compared to $531.1 million in the prior year's period.
  • 2Net loss for the three months ended December 31, 2015, was $42.4 million, or ($0.51) per diluted share, compared to a net income of $40.1 million, or $0.42 per diluted share, in the prior year's period.
  • 3The company incurred $71.2 million in business reorganization expenses related to closing two development studios and reorganizing another.
  • 4Despite the overall revenue decline, net revenue from digital online channels increased to 35.4% of total net revenue for the quarter.
  • 5Recurrent consumer spending (add-on content, microtransactions, online play) increased as a percentage of digital online revenue.
  • 6The company repurchased $26.6 million of its common stock during the nine months ended December 31, 2015, as part of its share repurchase program.
  • 7Cash and cash equivalents stood at $835.2 million as of December 31, 2015, with $379.4 million in short-term investments.

Frequently Asked Questions

The primary driver for the revenue decrease was the absence of major product releases in the current period that were comparable to the prior year, such as the new console versions of Grand Theft Auto V and Borderlands: The Pre-Sequel. While Grand Theft Auto V and Grand Theft Auto Online continued to generate revenue, it was not enough to offset the prior year's performance.

The company incurred $71.2 million in business reorganization expenses primarily due to employee separation costs from reorganizing and closing development studios. This significantly impacted the net loss for the quarter and the nine-month period. Management indicated that up to an additional $8.0 million in charges may be incurred.

Take-Two Interactive maintains a strong liquidity position with $835.2 million in cash and cash equivalents and $379.4 million in short-term investments as of December 31, 2015. The company also has $98.3 million in available borrowing capacity under its Credit Agreement. Management believes these resources are sufficient to meet its working capital, capital expenditure, and other commitments.

Future revenue growth will depend on the success of the company's product pipeline, which includes titles like XCOM 2, Battleborn, and Mafia III. The increasing importance of digital distribution channels and recurrent consumer spending, as demonstrated by Grand Theft Auto Online, are key areas of focus for driving future revenue.