10-QPeriod: Q1 FY2019

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q1 Ended Jun 30, 2018

Filed August 3, 2018For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported net revenue of $387.98 million for the three months ended June 30, 2018, a decrease of 7.2% compared to $418.22 million in the prior year period. This decline was primarily attributed to lower revenue from 'Grand Theft Auto V' and 'Grand Theft Auto Online', partially offset by an increase in the 'NBA 2K' franchise. The company also adopted new revenue recognition standards (Topic 606), which resulted in a more accelerated revenue pattern but also impacted reported figures. Despite the revenue dip, net income saw a significant increase to $71.69 million from $60.28 million year-over-year, leading to improved diluted EPS of $0.62 from $0.56. The company actively managed its capital, repurchasing $153.5 million in common stock during the quarter, and maintained a strong liquidity position with $974.2 million in cash, cash equivalents, and restricted cash at the end of the period.

Financial Highlights

53 data points
Beta

Revenue

$387.98M

66.1% Gross Margin

Net Income

$71.69M

18.5% Net Margin

EPS (Diluted)

$0.62

Total Assets

$3.46B

Cash & Equivalents

$464.80M

Free Cash Flow

-$25.47M

Financial Statements
Beta
Revenue$387.98M
Cost of Revenue$131.37M
Gross Profit$256.62M
Operating Expenses$185.77M
Operating Income$70.85M
Interest Expense$95K
Net Income$71.69M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)112.94M
Shares Outstanding (Diluted)115.98M

Key Highlights

  • 1Net revenue decreased by 7.2% to $387.98 million in Q1 FY19 compared to $418.22 million in Q1 FY18, mainly due to lower contributions from Grand Theft Auto V and Online.
  • 2Net income increased by 18.9% to $71.69 million compared to $60.28 million in the prior year period.
  • 3Diluted earnings per share improved to $0.62 from $0.56 year-over-year.
  • 4The company adopted new revenue recognition standards (Topic 606), impacting reported revenues and cost of goods sold, generally leading to more accelerated revenue recognition.
  • 5Recurrent consumer spending revenue increased by 42.2% to $241.03 million, now representing 62.1% of total net revenue, highlighting a growing shift towards ongoing engagement.
  • 6The company repurchased $153.5 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.
  • 7Operating expenses increased by 7.1% to $185.77 million, driven by higher general and administrative, selling and marketing, and research and development costs.

Frequently Asked Questions

The primary driver of the revenue decrease was lower contributions from established franchises like Grand Theft Auto V and Grand Theft Auto Online, partially offset by growth in the NBA 2K franchise. The adoption of new revenue recognition standards (Topic 606) also impacted reported net revenue, generally leading to a more accelerated recognition pattern but also adjusting the reported figures.

The adoption of Topic 606, Revenue from Contracts with Customers, led to a more accelerated revenue recognition pattern, particularly affecting the timing of revenue from game-related services and full game sales. While this impacted gross profit and net revenue figures, the company reported a net increase in income from operations and net income, suggesting operational improvements beyond the accounting change. The adoption also shifted certain balances between deferred revenue and other liability accounts.

The company is emphasizing recurrent consumer spending, which includes revenue from virtual currency, add-on content, and in-game purchases. This segment grew significantly, now representing over 62% of net revenue. This indicates a strategic focus on driving ongoing engagement with existing titles, complementing the release of new full game titles. The company also has a strong product pipeline including 'Red Dead Redemption 2' and 'NBA 2K19'.

Take-Two Interactive maintained a strong liquidity position, with $974.2 million in cash, cash equivalents, and restricted cash as of June 30, 2018. During the quarter, the company utilized $153.5 million for share repurchases, demonstrating capital return to shareholders. The company also has a $100 million credit facility available, though no borrowings were outstanding at quarter-end.