01—Abstract
Summary
Summary of the 10-Q filed August 3, 2018. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. reported net revenue of $387.98 milliona 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 millionb 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.
02—Key points
Key Highlights
- Net 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.
- Net income increased by 18.9% to $71.69 million compared to $60.28 million in the prior year period.
- Diluted earnings per share improved to $0.62 from $0.56 year-over-year.
- The company adopted new revenue recognition standards (Topic 606), impacting reported revenues and cost of goods sold, generally leading to more accelerated revenue recognition.
- Recurrent 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.
- The company repurchased $153.5 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.
- Operating expenses increased by 7.1% to $185.77 million, driven by higher general and administrative, selling and marketing, and research and development costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2019, Take Two Interactive Software Inc kept $0.18.
- Revenue$388.0M100.0%
- Cost of revenue−$131.4M33.9%
- Gross profit$256.6M66.1%
- Operating costs−$185.8M47.9%
- Operating income$70.8M18.3%
- Interest, other & tax$847,0000.2%
- Net income$71.7M18.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2019filed August 3, 2018Financial Statements
Q1 FY2019 against Q1 FY2018
| Line item | Q1 FY2019Q1 FY2018 | Change |
|---|---|---|
| Revenue | $387.98M$418.22M | −7.2% |
| Cost of Revenue | $131.37M$194.57M | −32.5% |
| Gross Profit | $256.62M$223.65M | +14.7% |
| Operating Expenses | $185.77M$173.43M | +7.1% |
| Operating Income | $70.85M$50.22M | +41.1% |
| Interest Expense | $95K$5.75M | −98.3% |
| Net Income | $71.69M$60.28M | +18.9% |
| EPS (Basic) | $0.63$0.57 | +10.5% |
| EPS (Diluted) | $0.62$0.56 | +10.7% |
| Shares Outstanding (Basic) | 112.94M105.49M | +7.1% |
| Shares Outstanding (Diluted) | 115.98M118.78M | −2.4% |
05—Questions
Frequently Asked Questions
What was the primary driver of the revenue decrease in the quarter?
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.
How did the adoption of new accounting standards affect the financial results?
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.
What is the company's strategy for future revenue growth, given the shift in revenue mix?
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'.
How is the company managing its cash and liquidity?
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.
06—Continue