10-QPeriod: Q2 FY2023

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q2 Ended Sep 30, 2022

Filed November 8, 2022For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) reported significant changes in its financial performance for the second quarter of fiscal year 2023, heavily influenced by the acquisition of Zynga which closed in May 2022. The company experienced a substantial increase in net revenue, driven by the addition of Zynga's mobile gaming portfolio, particularly recurrent consumer spending. However, this top-line growth was accompanied by a substantial net loss, primarily due to increased operating expenses, including significant amortization related to the acquisition, higher marketing and personnel costs, and substantial interest expenses from new debt. The balance sheet reflects a dramatic increase in assets and liabilities due to the Zynga acquisition, with goodwill and intangible assets significantly increasing. The company also took on considerable new debt to finance the acquisition. Despite the net loss, the company's core operations, particularly recurring consumer spending from its expanded mobile offerings, show positive trends, highlighting the strategic shift towards a more diversified revenue stream. Investors should monitor the integration of Zynga and the management of the increased debt load as key factors moving forward.

Financial Statements
Beta
Revenue$1.39B
Cost of Revenue$713.90M
Gross Profit$679.60M
Operating Expenses$932.10M
Operating Income-$252.50M
Interest Expense$28.90M
Net Income-$257.00M
EPS (Basic)$-1.54
EPS (Diluted)$-1.54
Shares Outstanding (Basic)166.90M
Shares Outstanding (Diluted)166.90M

Key Highlights

  • 1Net revenue surged by 62.4% year-over-year to $1.39 billion for the three months ended September 30, 2022, largely driven by the acquisition of Zynga, which contributed $639.3 million in net revenue.
  • 2Recurrent consumer spending, a key growth area, increased by 93.0% to $1.10 billion, representing 79.1% of total net revenue, indicating strong performance from in-game purchases and virtual currency.
  • 3The company reported a net loss of $257.0 million for the quarter, a significant decrease from a net income of $10.2 million in the prior year period, primarily due to increased operating expenses and acquisition-related costs.
  • 4Total operating expenses more than doubled, increasing by 144.4% to $932.1 million, driven by higher selling & marketing, general & administrative, and research & development expenses, significantly impacted by the Zynga acquisition.
  • 5Total assets more than doubled from $6.5 billion to $17.5 billion, reflecting the substantial impact of the Zynga acquisition, with goodwill and intangible assets showing significant increases.
  • 6Long-term debt increased substantially from $0 to $2.94 billion, due to senior notes issued to help finance the Zynga acquisition, alongside new credit facilities and term loans.
  • 7The company reported a net loss per diluted share of $1.54 for the quarter, compared to diluted earnings per share of $0.09 in the prior year period.

Frequently Asked Questions

The primary driver of the significant increase in revenue was the acquisition of Zynga, which closed on May 23, 2022. Zynga's mobile gaming portfolio contributed substantially to the company's net revenue.

The net loss was primarily due to a significant increase in operating expenses. These included higher selling and marketing, general and administrative, and research and development costs, largely associated with the integration of Zynga. Additionally, increased interest expense from new debt financing and substantial amortization of acquired intangible assets contributed to the net loss.

The Zynga acquisition dramatically increased Take-Two's total assets and total liabilities. Assets grew due to the acquisition of Zynga's assets, with significant increases in goodwill and intangible assets. Liabilities increased substantially due to the new debt incurred to finance the acquisition, including senior notes and credit facilities.

Take-Two Interactive significantly increased its debt load to finance the Zynga acquisition. As of September 30, 2022, long-term debt stood at approximately $2.94 billion, including various series of senior notes. The company also has a revolving credit facility and a term loan. A portion of Zynga's existing convertible notes also remain outstanding.