TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Dec 31, 2017

Summary

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.

Key Highlights

• 1Net 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.
• 2The 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).
• 3Gross profit margin improved to 44.3% for the quarter, up from 34.7% in the prior year, driven by lower cost of goods sold.
• 4Net 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.
• 5Recurrent 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.
• 6The 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.
• 7Cash and cash equivalents and short-term investments totaled $1.32 billion as of December 31, 2017, providing a strong liquidity position.

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