01—Abstract
Summary
Summary of the 10-Q filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported its fiscal third quarter 2018 results for the period ending December 31, 2017.
The company demonstrated revenue growth for both the quarter and the year-to-date period compared to the prior year, driven by strong performance in its console segment and digital distribution channels. Notable contributors to revenue included the NBA 2K franchise, Grand Theft Auto Online, and the recent release of L.A. Noire on new platforms.
The company also saw significant growth in recurrent consumer spending, indicating a trend towards ongoing engagement with its titles. Financially, TTWO transitioned from a net loss in the prior year's comparable periods to a net income in the current quarter and year-to-date. This turnaround was supported by improved gross profit margins, primarily due to lower cost of goods sold, and effective management of operating expenses, despite increases in R&D and G&A.
The company also benefited from a significant shift in its tax provision due to the Tax Cuts and Jobs Act enacted in late 2017, which provided a net tax benefit and a lower corporate tax rate for future periods. The company's liquidity position remained strong, with substantial cash and short-term investments.
02—Key points
Key Highlights
- Net revenue increased by 0.9% to $480.8 million for the three months ended December 31, 2017, compared to $476.5 million in the prior year period. Year-to-date net revenue increased by 11.1% to $1.34 billion.
- The company reported net income of $25.1 million ($0.21 diluted EPS) for the quarter, a significant improvement from a net loss of $29.8 million ($-0.33 diluted EPS) in the same period last year. Year-to-date net income was $82.7 million ($0.74 diluted EPS).
- Gross profit margin improved to 44.3% for the quarter, up from 34.7% in the prior year, driven by lower cost of goods sold.
- Net revenue from digital online channels represented 53.7% of total net revenue for the quarter, up from 50.4% in the prior year, indicating a strong shift towards digital distribution.
- Recurrent consumer spending (virtual currency, add-on content, microtransactions) increased significantly, accounting for 32.0% of net revenue in the quarter compared to 19.6% in the prior year.
- The company adopted the Tax Cuts and Jobs Act, which included a provisional discrete tax expense of $18.1 million for the one-time transition tax, but also led to a lower corporate tax rate for future periods and re-measurement of deferred tax assets.
- Cash and cash equivalents and short-term investments totaled $1.32 billion as of December 31, 2017, providing a strong liquidity position.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2018, Take Two Interactive Software Inc kept $0.05.
- Revenue$480.8M100.0%
- Cost of revenue−$268.0M55.7%
- Gross profit$212.9M44.3%
- Operating costs−$204.0M42.4%
- Operating income$8.9M1.8%
- Interest, other & tax$16.3M3.4%
- Net income$25.1M5.2%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed February 8, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $480.84M$476.47M | +0.9% |
| Cost of Revenue | $267.98M$311.07M | −13.9% |
| Gross Profit | $212.86M$165.40M | +28.7% |
| Operating Expenses | $204.00M$193.81M | +5.3% |
| Operating Income | $8.85M-$28.41M | +131.2% |
| Net Income | $25.14M-$29.84M | +184.2% |
| EPS (Basic) | $0.22$-0.33 | +166.7% |
| EPS (Diluted) | $0.21$-0.33 | +163.6% |
| Shares Outstanding (Basic) | 113.99M90.43M | +26.1% |
| Shares Outstanding (Diluted) | 117.92M90.43M | +30.4% |
05—Questions
Frequently Asked Questions
What were the main drivers of revenue growth in this quarter?
Revenue growth was primarily driven by strong performance in the console segment, with contributions from franchises like NBA 2K and Grand Theft Auto. The release of L.A. Noire on new platforms and increased recurrent consumer spending (virtual currency, add-on content, microtransactions) also played a significant role.
How did the Tax Cuts and Jobs Act impact the company's financial results?
The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 had a significant impact. The company recorded a provisional discrete tax expense of $18.1 million related to a one-time transition tax on foreign earnings. However, the reduction in the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, is expected to benefit future periods. The TCJA also led to the re-measurement of deferred tax assets and liabilities.
What is the company's outlook regarding its convertible notes?
The company's 1.00% Convertible Notes due 2018 were eligible for conversion by holders starting January 1, 2018. During the quarter, $40.1 million in principal amount of these notes were tendered for conversion, and the company elected to settle these in shares of its common stock. The company intends to settle future conversions in shares as well.
Are there any significant legal proceedings that investors should be aware of?
The company is involved in a legal proceeding with Leslie Benzies, a former subsidiary president, who is claiming damages of at least $150 million. The company believes it has meritorious defenses and intends to vigorously defend itself, stating it does not believe the ultimate outcome will have a material adverse effect on its business, financial condition, or results of operations.
06—Continue