01—Abstract
Summary
Summary of the 10-Q filed November 8, 2017. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc.'s (TTWO) Q2 fiscal year 2018 results show a mixed financial performance.
While net revenue saw an increase of 5.6% to $443.6 milliona for the quarter and 17.8% to $861.8 million for the six months compared to the prior year, driven by strong performance from franchises like NBA 2K and Grand Theft Auto Online, the company reported a net loss of $2.7 million for the quarter, a reversal from a net profit of $36.4 million in the prior year period. This shift was significantly impacted by a substantial increase in operating expenses, particularly in research and development and general and administrative costs, as well as a notable increase in cost of goods sold due to higher internal royalties and stock-based compensation expenses related to award modifications. The company also recorded a $11.3 million impairment charge related to R&D from the Social Point acquisition and initiated a strategic reorganization at one of its labels.
Despite the quarterly loss, the six-month period still shows a net income of $57.5 millionb. The company's balance sheet remains robust with total assets of $3.7 billion and a healthy cash position, although cash and cash equivalents decreased from the prior quarter. The company reiterated its positive outlook for future releases, including Red Dead Redemption 2, expected in Spring 2018.
02—Key points
Key Highlights
- Net revenue increased 5.6% to $443.6 million for the quarter and 17.8% to $861.8 million for the six months, primarily driven by NBA 2K and Grand Theft Auto Online.
- Reported a net loss of $2.7 million for the quarter, a significant decrease from a net income of $36.4 million in the prior year's comparable period.
- Gross profit margin declined to 44.4% for the quarter from 51.1% in the prior year, impacted by higher royalties and stock-based compensation.
- Operating expenses increased significantly, with R&D up 66.6% and G&A up 22.4% for the quarter.
- Recorded an $11.3 million impairment charge for in-process R&D from the Social Point acquisition.
- Initiated a strategic reorganization impacting one of its labels, resulting in $1.7 million in reorganization expenses for the quarter.
- Strong digital revenue contribution: 68.3% of QTD revenue and 66.3% of YTD revenue came from digital channels.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Take Two Interactive Software Inc kept $0.06.
- Revenue$443.6M100.0%
- Cost of revenue−$246.5M55.6%
- Gross profit$197.0M44.4%
- Operating costs−$208.3M47.0%
- Operating income−$11.3M2.6%
- Interest, other & tax$36.7M8.3%
- Net income$25.4M5.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed November 8, 2017Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $443.56M$420.17M | +5.6% |
| Cost of Revenue | $246.55M$205.60M | +19.9% |
| Gross Profit | $197.01M$214.56M | −8.2% |
| Operating Expenses | $208.33M$167.37M | +24.5% |
| Operating Income | -$11.32M$47.19M | −124.0% |
| Interest Expense | $0$8.67M | −100.0% |
| Net Income | $25.37M$36.43M | −30.4% |
| EPS (Basic) | $-0.03$0.42 | −107.1% |
| EPS (Diluted) | $-0.03$0.39 | −107.7% |
| Shares Outstanding (Basic) | 109.43M87.18M | +25.5% |
| Shares Outstanding (Diluted) | 109.43M115.20M | −5.0% |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in the quarter?
Revenue growth was primarily driven by the continued strong performance of the NBA 2K franchise and Grand Theft Auto Online, as well as revenue from titles acquired from Social Point. The shift towards digital distribution channels also contributed positively.
Why did the company report a net loss for the quarter despite revenue growth?
The net loss for the quarter was primarily due to a significant increase in operating expenses, including higher research and development costs, general and administrative expenses, and stock-based compensation. Additionally, cost of goods sold increased due to higher internal royalties and a specific stock compensation charge related to award modifications.
What is the impact of the Social Point acquisition on the financial results?
The acquisition of Social Point, completed in January 2017, contributed positively to revenue growth. However, the company also recorded an $11.3 million impairment charge related to in-process R&D from this acquisition during the quarter. Personnel and other expenses also increased due to the integration of Social Point.
How is the company managing its convertible debt?
The company's 1.00% Convertible Notes due 2018 are approaching maturity. Due to the company's stock price performance exceeding certain thresholds, holders now have the option to convert these notes into common stock. The company elected to settle conversions in shares during the quarter and intends to continue doing so. The principal amount outstanding has significantly decreased from the prior fiscal year-end.
06—Continue