10-QPeriod: Q3 FY2017

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Dec 31, 2016

Filed February 8, 2017For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) reported its third-quarter fiscal year 2017 results for the period ending December 31, 2016. The company demonstrated revenue growth, driven by strong performance in titles such as Civilization VI and NBA 2K17, as well as continued engagement with Grand Theft Auto Online. Digital distribution channels continue to gain prominence, now accounting for over half of net revenue, highlighting a significant shift in consumer purchasing behavior. Despite overall revenue growth, the company reported a net loss for the quarter and the year-to-date period. This loss is attributed to increased selling and marketing expenses, higher research and development costs for new titles, and some non-recurring items like business reorganization expenses in the prior year. However, the company's cash position remains strong, with a substantial increase in cash and cash equivalents driven by operating and investing activities, indicating a healthy liquidity. Looking ahead, the company is well-positioned with a strong product pipeline, including the highly anticipated Red Dead Redemption 2. Recent acquisitions, such as Social Point, signal a strategic focus on expanding its mobile gaming presence. Investors should monitor the company's ability to translate revenue growth into profitability and manage its significant R&D investments.

Financial Highlights

52 data points
Beta

Revenue

$476.47M

34.7% Gross Margin

Net Income

-$29.84M

-6.3% Net Margin

EPS (Diluted)

$-0.33

Total Assets

$3.09B

Cash & Equivalents

$1.04B

Free Cash Flow

$284.32M

Financial Statements
Beta
Revenue$476.47M
Cost of Revenue$311.07M
Gross Profit$165.40M
Operating Expenses$193.81M
Operating Income-$28.41M
Net Income-$29.84M
EPS (Basic)$-0.33
EPS (Diluted)$-0.33
Shares Outstanding (Basic)90.43M
Shares Outstanding (Diluted)90.43M

Key Highlights

  • 1Net revenue increased by 15.0% to $476.5 million for the three months ended December 31, 2016, compared to $414.2 million in the prior year period.
  • 2Digital online channels represented 50.4% of total net revenue for the quarter, an increase from 35.4% in the prior year, indicating a strong shift towards digital sales.
  • 3The company reported a net loss of $29.8 million for the quarter, compared to a net loss of $42.4 million in the prior year.
  • 4Cash and cash equivalents significantly increased to $1,039.4 million as of December 31, 2016, from $798.7 million as of March 31, 2016, reflecting strong operational cash flow.
  • 5Selling and marketing expenses increased significantly by 60.1% year-over-year for the quarter, driven by advertising for new releases and announcements like Red Dead Redemption 2.
  • 6The company is investing heavily in Research & Development, with R&D expenses increasing by 34.5% year-over-year for the quarter to support new titles.
  • 7Subsequent to the quarter, on January 31, 2017, Take-Two acquired Social Point, a mobile game developer, for $175 million in cash and stock.

Frequently Asked Questions

Take-Two Interactive reported revenue growth of 15.0% to $476.5 million for the three months ended December 31, 2016. However, the company continued to incur a net loss, reporting $29.8 million for the quarter, compared to a loss of $42.4 million in the same period last year. This indicates revenue growth was offset by increased operating expenses, particularly in selling and marketing.

Revenue growth was driven by strong performances from titles like Civilization VI, NBA 2K17, and continued engagement with Grand Theft Auto Online. The company also saw a significant shift towards digital distribution, with digital channels accounting for over 50% of net revenue for the quarter. This trend highlights the growing importance of digital sales and recurrent consumer spending.

The company's financial position remains strong, with cash and cash equivalents increasing significantly to $1,039.4 million as of December 31, 2016. This increase was primarily due to positive cash flows from operations and investing activities. The company believes its current liquidity is sufficient to meet its working capital needs and commitments.

The company is involved in a legal dispute with Leslie Benzies, former president of one of its subsidiaries, claiming damages of at least $150 million. While Take-Two believes it has strong defenses and has accrued what it deems an adequate amount for this matter, the outcome is uncertain and could potentially impact future financial results if it exceeds current accruals.