10-QPeriod: Q1 FY2021

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q1 Ended Jun 30, 2020

Filed August 4, 2020For Securities:TTWO

Summary

Take-Two Interactive Software Inc. (TTWO) reported strong financial results for the quarter ended June 30, 2020, with net revenue increasing by 53.8% year-over-year to $831.3 million. This significant growth was driven by robust sales from key franchises like Grand Theft Auto (including GTA Online and GTA V), NBA 2K, Borderlands 3, and Red Dead Redemption 2 (including Red Dead Online). The company also saw a substantial increase in net cash provided by operating activities, reaching $445.4 million, up from $108.5 million in the prior year period. This indicates strong operational performance and efficient cash generation. The company's strategic shift towards digital distribution continues to yield positive results, with digital online revenue accounting for 87.4% of total net revenue, up from 79.2% in the prior year. Recurrent consumer spending, which includes in-game purchases and add-on content, also showed strong performance, contributing 57.7% to net revenue. Despite an increase in cost of goods sold, the company managed its operating expenses effectively, leading to a significant increase in net income to $88.5 million from $46.3 million in the comparable prior-year period, with diluted EPS rising to $0.77 from $0.41.

Financial Highlights

51 data points
Beta

Revenue

$831.31M

42.7% Gross Margin

Net Income

$88.50M

10.6% Net Margin

EPS (Diluted)

$0.77

Total Assets

$5.37B

Cash & Equivalents

$1.40B

Free Cash Flow

$436.52M

Financial Statements
Beta
Revenue$831.31M
Cost of Revenue$476.69M
Gross Profit$354.62M
Operating Expenses$272.48M
Operating Income$82.14M
Net Income$88.50M
EPS (Basic)$0.78
EPS (Diluted)$0.77
Shares Outstanding (Basic)113.86M
Shares Outstanding (Diluted)114.96M

Key Highlights

  • 1Net revenue surged by 53.8% to $831.3 million, driven by strong performance of key franchises like Grand Theft Auto and NBA 2K.
  • 2Digital online revenue represented 87.4% of total net revenue, highlighting the company's successful transition to digital distribution.
  • 3Recurrent consumer spending continued to be a major revenue driver, accounting for 57.7% of net revenue.
  • 4Net income more than doubled to $88.5 million, leading to a significant increase in diluted EPS to $0.77.
  • 5Net cash provided by operating activities dramatically increased to $445.4 million, showcasing robust operational cash generation.
  • 6The company maintained a strong balance sheet with $1.4 billion in cash and cash equivalents and $880.8 million in short-term investments.
  • 7Despite increased cost of goods sold, operating expenses were managed effectively, with selling and marketing expenses decreasing year-over-year.

Frequently Asked Questions

The significant revenue growth was primarily driven by strong sales from the company's major franchises, including Grand Theft Auto (GTA Online and GTA V), NBA 2K, Borderlands 3, and Red Dead Redemption 2 (including Red Dead Online). Increased recurrent consumer spending and the continued shift to digital online channels also contributed significantly.

While cost of goods sold increased due to higher revenue, Take-Two Interactive managed its operating expenses effectively. Selling and marketing expenses decreased year-over-year, partly due to lower marketing spend on certain titles and reduced travel due to COVID-19 related restrictions. Research and development expenses saw a modest increase, primarily due to higher personnel and IT costs.

The company reported a strong cash position with $1.4 billion in cash and cash equivalents and $880.8 million in short-term investments as of June 30, 2020. Net cash provided by operating activities was robust at $445.4 million. Management believes its current liquidity and available credit facilities provide sufficient resources to meet its short-term and long-term cash requirements.

The company noted a positive impact on its results in the first quarter of fiscal year 2021 (which includes the reported quarter) due to increased consumer engagement with its products resulting from pandemic-related closures and movement restrictions. However, management acknowledges uncertainty regarding the duration of these effects and potential offsetting impacts from deteriorating economic conditions. The company has implemented measures to mitigate negative impacts, such as transitioning to remote work, and has observed minimal disruption to date.