01—Abstract
Summary
Summary of the 10-Q filed August 5, 2016. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported its financial results for the first quarter of fiscal year 2017, ending June 30, 2016.
The company demonstrated a significant improvement in gross profit margin, which rose to 38.6% from 26.4% in the prior year, driven by stronger net revenue and a favorable shift in revenue mix, particularly from the NBA 2K franchise. Despite an increase in selling and marketing expenses related to new product launches like 'Battleborn' and upcoming titles, the company managed to reduce its net loss to $38.6 milliona ($0.46 per share) from $67.0 million ($0.81 per share) in the same period last year. This performance reflects a strategic focus on higher-margin revenue streams and disciplined operational expense management.
Financially, Take-Two maintained a strong liquidity position with $796.3 millionb in cash and cash equivalents and $392.5 million in short-term investments as of June 30, 2016. The company's balance sheet shows total assets of $2.54 billion and total liabilities of $2.01 billion.
While the company utilized $47.2 millionc in cash from operations, largely due to investments in upcoming product development, its overall cash position remained robust, supported by investing activities. The upcoming maturity of its 1.75% Convertible Notes in December 2016 warrants investor attention.
02—Key points
Key Highlights
- Net revenue increased by 13.2% year-over-year to $311.6 million, driven primarily by the NBA 2K franchise and PC title XCOM 2, partially offset by declines in Grand Theft Auto V and Evolve.
- Gross profit margin significantly improved to 38.6% from 26.4% in the prior year, indicating better cost management and a favorable revenue mix.
- Selling and marketing expenses increased by 56.1% to $71.1 million, reflecting investments in new product launches like 'Battleborn' and upcoming titles such as 'Mafia III'.
- Net loss narrowed to $38.6 million ($0.46 per diluted share) from $67.0 million ($0.81 per diluted share) in the prior year's comparable period.
- Cash and cash equivalents remained strong at $796.3 million, although operating activities used $47.2 million in cash, primarily for product development.
- The company's 1.75% Convertible Notes are set to mature in December 2016, representing a significant upcoming financial event.
- Recurrent consumer spending (add-on content, microtransactions, online play) increased its contribution to digital online revenue to 57.0% from 53.7% in the prior year.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2017, Take Two Interactive Software Inc lost $0.12.
- Revenue$311.6M100.0%
- Cost of revenue−$191.4M61.4%
- Gross profit$120.2M38.6%
- Operating costs−$159.2M51.1%
- Operating income−$39.0M12.5%
- Interest, other & tax$416,0000.1%
- Net income−$38.6M12.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed August 5, 2016Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $311.55M$275.30M | +13.2% |
| Cost of Revenue | $191.38M$202.62M | −5.5% |
| Gross Profit | $120.17M$72.68M | +65.3% |
| Operating Expenses | $159.16M$135.32M | +17.6% |
| Operating Income | -$38.98M-$62.64M | +37.8% |
| Net Income | -$38.57M-$67.02M | +42.5% |
| EPS (Basic) | $-0.46$-0.81 | +43.2% |
| EPS (Diluted) | $-0.46$-0.81 | +43.2% |
| Shares Outstanding (Basic) | 84.59M82.83M | +2.1% |
| Shares Outstanding (Diluted) | 84.59M— | — |
05—Questions
Frequently Asked Questions
What was the primary driver of the revenue increase in this quarter?
The primary driver of the revenue increase was a $102.0 million rise in revenues from the NBA 2K franchise, primarily due to the recognition of previously deferred revenues from NBA 2K16. This was partially offset by lower net revenues from Grand Theft Auto V and Grand Theft Auto Online, as well as from the game Evolve.
How did the company manage its operating expenses, and what was the impact?
Total operating expenses increased by 17.6% to $159.2 million. The most significant increase was in selling and marketing expenses, up 56.1% to $71.1 million, driven by advertising for new releases like 'Battleborn' and upcoming titles. General and administrative expenses decreased by 4.7% due to lower stock-based compensation and restructuring costs, while research and development expenses remained relatively stable.
What is the company's current liquidity position and how does it plan to meet its financial obligations?
Take-Two Interactive maintained a strong liquidity position with $796.3 million in cash and cash equivalents and $392.5 million in short-term investments as of June 30, 2016. The company expects to rely on funds from operations, its Credit Agreement, and its Convertible Notes to meet its working capital needs.
Are there any significant upcoming debt maturities that investors should be aware of?
Yes, the company's 1.75% Convertible Notes with a principal amount of $250 million are due to mature on December 1, 2016. The company currently intends to settle conversion of these notes in shares of common stock if conversion is elected by holders.
06—Continue