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Take-Two Interactive Software, Inc. Reports Results for Fiscal First Quarter 2019

August 2, 2018 4:05 PM

GAAP net revenue was $388.0 million

GAAP net income increased to $0.62 per diluted share

Net Bookings were $288.3 million

Company repurchased 1.60 million shares of its common stock for $153.5 million.

NEW YORK--(BUSINESS WIRE)-- Take-Two Interactive Software, Inc. (NASDAQ: TTWO) today reported results for its fiscal first quarter 2019, ended June 30, 2018. In addition, the Company provided its initial financial outlook for its fiscal second quarter ending September 30, 2018, and updated its financial outlook for its fiscal year ending March 31, 2019. For additional information, please see the first quarter fiscal 2019 results slide deck posted to the Company’s investor relations website at http://ir.take2games.com.

Impact of Recently Adopted Accounting Standard

On April 1, 2018, the Company adopted FASB ASU 2014-09 (Topic 606), Revenue from Contracts with Customers. Topic 606 significantly changes how the Company recognizes and reports net revenue and net income; however, it does not materially impact Net Bookings (our operational metric). Financial data for periods prior to April 1, 2018 has not been restated. Additional information about the Company’s adoption of Topic 606 will be included in Take-Two’s Quarterly Report on Form 10-Q for the period ended June 30, 2018.

Fiscal First Quarter 2019 GAAP Financial Highlights

Net revenue was $388.0 million, as compared to $418.2 million in last year’s fiscal first quarter. Recurrent consumer spending (virtual currency, add-on content and in-game purchases) accounted for 62% of total net revenue, as compared to 41% in last year’s fiscal first quarter. The largest contributors to net revenue in fiscal first quarter 2019 were Grand Theft Auto® Online and Grand Theft Auto V, NBA® 2K18, Dragon City and Monster Legends, and WWE® SuperCard and WWE 2K18.

Digitally-delivered net revenue grew to $315.0 million, as compared to $268.2 million in last year’s fiscal first quarter, and accounted for 81% of total net revenue, as compared to 64% in last year’s fiscal first quarter. The largest contributors to digitally-delivered net revenue in fiscal first quarter 2019 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Monster Legends and Dragon City, and WWE SuperCard.

Net income increased to $71.7 million, or $0.62 per diluted share, as compared to $60.3 million, or $0.56 per diluted share, for the comparable period last year.

As of June 30, 2018, the Company had cash and short-term investments of $1.102 billion.

The following data, together with a management reporting tax rate of 20%, are used internally by the Company’s management and Board of Directors to adjust the Company’s GAAP financial results in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Three Months Ending June 30, 2018

Financial Data

$ in thousands

Statement of operations

Change in deferred net revenue and related cost of goods sold

Stock-based compensation

Non-cash amounts related to convertible notes

Acquisition related expenses

Amortization & impairment of acquired intangible assets

Business reorganization

Net revenue $ 387,982 (99,657 )
Cost of goods sold 131,365 (8,414 ) (3,969 ) (5,072 )
Gross profit 256,617 (91,243 ) 3,969 5,072
Operating expenses 185,771 (20,629 ) (194 ) (1,789 ) 242
Income from operations 70,846 (91,243 ) 24,598 194 6,861 (242 )
Interest and other, net 6,601 (595 ) 91
Income before income taxes 77,447 (91,838 ) 24,598 91

194

6,861 (242 )

In order to calculate net income per diluted share for management reporting purposes, the Company uses its fully diluted share count of 116.0 million.

Operational Metric – Net Bookings

Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period, and includes licensing fees, merchandise, in-game advertising, strategy guides and publisher incentives.

During fiscal first quarter 2019, total Net Bookings were $288.3 million, as compared to $348.3 million during last year’s fiscal first quarter, which had benefitted from the release of the Gunrunning update for Grand Theft Auto Online. Net Bookings from recurrent consumer spending accounted for 63% of total Net Bookings, as compared to 59% in last year’s fiscal first quarter. The largest contributors to Net Bookings in fiscal first quarter 2019 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Dragon City and Monster Legends, and WWE SuperCard and WWE 2K18.

Catalog accounted for $282.3 million of Net Bookings led by Grand Theft Auto, NBA 2K, and Dragon City and Monster Legends.

Digitally-delivered Net Bookings were $252.8 million, as compared to $280.9 million in last year’s fiscal first quarter, and accounted for 88% of total Net Bookings, as compared to 81% in last year’s fiscal first quarter. The largest contributors to digitally-delivered Net Bookings in fiscal first quarter 2019 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Monster Legends and Dragon City, and WWE SuperCard and WWE 2K18.

Management Comments

“Fiscal 2019 is off to a solid start, with first quarter operating results that exceeded our expectations,” said Strauss Zelnick, Chairman and CEO of Take-Two. “This performance was driven by better-than-expected recurrent consumer spending on Grand Theft Auto Online and NBA 2K18, as well as robust ongoing demand for Grand Theft Auto V, which is now approaching 100 million units sold-in to date. Accordingly, we are increasing our operating outlook for fiscal year 2019.

“We are incredibly excited about the October 26th launch of Rockstar Games’ Red Dead Redemption 2, as well as the upcoming releases of NBA 2K19 – which marks the 20th anniversary of the series and the 30th anniversary of the Visual Concepts development team – and WWE 2K19. Fiscal 2019 is poised to be another year of profitable growth for Take-Two, and we expect to deliver record operating results. Looking ahead, we have a strong development pipeline across our labels and are exceedingly well positioned for long-term growth and margin expansion.”

Business and Product Highlights

Since April 1, 2018:

Take-Two:

Rockstar Games:

2K:

Private Division:

* According to 2000 - 2018 Metacritic.com and Gamerankings.com.

Financial Outlook for Fiscal 2019

Take-Two is providing its initial financial outlook for its fiscal second quarter ending September 30, 2018 and is updating its financial outlook for its fiscal year ending March 31, 2019, as follows:

Second Quarter Ending September 30, 2018

The Company is also providing selected data and its management reporting tax rate of 20% that are used internally by its management and Board of Directors to adjust the Company’s GAAP financial outlook in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Three Months Ending September 30, 2018

Financial Data

$ in millions GAAP outlook (2)

Change in deferred net revenue and related cost of goods sold

Stock-based compensation

Amortization of acquired intangible assets

Net revenue $480 to $530 $20
Cost of goods sold $191 to $217 $5 ($6) ($2)
Operating Expenses $235 to $245 ($32) ($2)
Interest and other, net ($6)
Income before income taxes $59 to $74 $15 $38 $4

Fiscal Year Ending March 31, 2019

The Company is also providing selected data and its management reporting tax rate of 20% that are used internally by its management and Board of Directors to adjust the Company’s GAAP financial outlook in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Twelve Months Ending March 31, 2019

Financial Data

$ in millions GAAP outlook (2)

Change in deferred net revenue and related cost of goods sold

Stock-based compensation

Amortization of acquired intangible assets

Net revenue $2,500 to $2,600 $200
Cost of goods sold $1,432 to $1,456 $100 ($180) ($10)
Operating Expenses $900 to $940 ($116) ($7)
Interest and other, net ($25)
Income before income taxes $194 to 229 $100 $296 $17
1) For the fiscal second quarter ending September 30, 2018, the Company’s fully diluted share count used for both GAAP and management reporting purposes is expected to be 116.9 million, which includes 113.8 million basic shares and 3.1 million shares representing the potential dilution from unvested employee stock grants.
2) The individual components of the financial outlook may not foot to the totals as the Company does not expect actual results for every component to be at the low end or high end of the outlook range simultaneously.
3) For the fiscal year ending March 31, 2019, the Company’s fully diluted share count used for both GAAP and management reporting purposes is expected to be 116.9 million, which includes 113.7 million basic shares and 3.2 million shares representing the potential dilution from unvested employee stock grants.

Key assumptions and dependencies underlying the Company’s financial outlook include: the timely delivery of the titles included in this financial outlook; continued consumer acceptance of Xbox One and PlayStation 4; the ability to develop and publish products that capture market share for these new-generation systems while also leveraging opportunities on Nintendo Switch, Xbox 360, PlayStation 3, PC and mobile platforms; and stable foreign exchange rates. See also “Cautionary Note Regarding Forward Looking Statements” below.

Product Releases

The following titles were released since April 1, 2018:

Label

Title

Platforms

Release Date

Rockstar Games

Grand Theft Auto V: Premium Online Edition

PS4, Xbox One, PC

April 20, 2018

Take-Two's lineup of future titles announced to date includes:

Label

Title

Platforms

Release Date

2K

NBA 2K19 20th Anniversary Edition

PS4, Xbox One, Switch, PC September 7, 2018
2K

NBA 2K19 Standard Edition

PS4, Xbox One, Switch, PC September 11, 2018
2K

WWE 2K19 Deluxe and Wooooo! Editions

PS4, Xbox One, PC October 5, 2018
2K

WWE 2K19 Standard Edition

PS4, Xbox One, PC October 9, 2018
Rockstar Games

Red Dead Redemption 2

PS4, Xbox One October 26, 2018
2K

Carnival Games

Switch November 6, 2018
2K

NBA 2K Playgrounds 2

PS4, Xbox One, Switch, PC Fall 2018

Conference Call

Take-Two will host a conference call today at 4:30 p.m. Eastern Time to review these results and discuss other topics. The call can be accessed by dialing (877) 407-0984 or (201) 689-8577. A live listen-only webcast of the call will be available by visiting http://ir.take2games.com and a replay will be available following the call at the same location.

Final Results

The financial results discussed herein are presented on a preliminary basis; final data will be included in Take-Two’s Quarterly Report on Form 10-Q for the period ended June 30, 2018.

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. The Company develops and publishes products principally through its wholly-owned labels Rockstar Games and 2K, as well as its new Private Division label and Social Point, a leading developer of mobile games. Our products are designed for console systems and personal computers, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at http://www.take2games.com.

All trademarks and copyrights contained herein are the property of their respective holders.

Cautionary Note Regarding Forward-Looking Statements

The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," “should,” "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including: our dependence on key management and product development personnel, our dependence on our Grand Theft Auto products and our ability to develop other hit titles, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, and risks associated with international operations. Other important factors and information are contained in the Company's most recent Annual Report on Form 10-K, including the risks summarized in the section entitled "Risk Factors," the Company’s most recent Quarterly Report on Form 10-Q, and the Company's other periodic filings with the SEC, which can be accessed at www.take2games.com. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three months ended June 30,
2018 2017
Net revenue $ 387,982 $ 418,216
Cost of goods sold:
Internal royalties 53,167 77,704
Product costs 38,141 44,069
Software development costs and royalties 29,788 43,629
Licenses 10,269 29,167
Total cost of goods sold 131,365 194,569
Gross profit 256,617 223,647
General and administrative 67,735 60,603
Selling and marketing 58,306 52,214
Research and development 50,712 42,269
Depreciation and amortization 9,260 7,743
Business reorganization (242 ) 10,599
Total operating expenses 185,771 173,428
Income from operations 70,846 50,219
Interest and other, net 6,601 (2,808 )
Income before income taxes 77,447 47,411
Provision for (benefit from) income taxes 5,754 (12,865 )
Net income $ 71,693 $ 60,276
Earnings per share:
Basic earnings per share $ 0.63 $ 0.57
Diluted earnings per share $ 0.62 $ 0.56
Weighted average shares outstanding:
Basic 112,941 104,465
Diluted 115,985 117,753
Computation of Basic EPS:
Net income $ 71,693 $ 60,276
Less: net income allocated to participating securities - (588 )
Net income for basic EPS calculation $ 71,693 $ 59,688
Weighted average shares outstanding - basic 112,941 105,494
Less: weighted average participating shares outstanding - (1,029 )
Weighted average common shares outstanding - basic 112,941 104,465
Basic earnings per share $ 0.63 $ 0.57
Computation of Diluted EPS:
Net income $ 71,693 $ 60,276
Less: net income allocated to participating securities - (522 )
Add: interest expense, net of tax, on Convertible Notes 95 5,750
Net income for diluted EPS calculation $ 71,788 $ 65,504
Weighted average common shares outstanding - basic 112,941 105,494
Add: dilutive effect of common stock equivalents 3,044 13,288
Total weighted average shares outstanding - diluted 115,985 118,782
Less: weighted average participating shares outstanding - (1,029 )
Weighted average common shares outstanding - diluted 115,985 117,753
Diluted earnings per share $ 0.62 $ 0.56
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, March 31,
2018 2018
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 464,804 $ 808,973
Short-term investments 637,456 615,406
Restricted cash 509,380 437,398

Accounts receivable, net of allowances of $350 and $54,290 at June 30, 2018 and March 31, 2018, respectively

239,736 247,649
Inventory 10,642 15,162
Software development costs and licenses 12,676 33,284
Deferred cost of goods sold 19,141 117,851
Prepaid expenses and other 180,512 133,454
Total current assets 2,074,347 2,409,177
Fixed assets, net 105,852 102,478
Software development costs and licenses, net of current portion 719,870 639,369
Deferred cost of goods sold, net of current portion 736 26,719
Goodwill 387,328 399,530
Other intangibles, net 91,954 103,681
Other assets 75,917 56,887
Total assets $ 3,456,004 $ 3,737,841
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,767 $ 35,029
Accrued expenses and other current liabilities 906,881 914,748
Deferred revenue 450,568 777,152
Total current liabilities 1,391,216 1,726,929
Long-term debt 5,232 8,068
Non-current deferred revenue 15,861 355,589
Other long-term liabilities 191,490 158,285
Total liabilities 1,603,799 2,248,871
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized

-

-

Common stock, $.01 par value, 200,000 shares authorized; 113,811 and 132,743 shares
issued and 113,509 and 114,038 outstanding at June 30, 2018 and March 31, 2018, respectively 1,338 1,327
Additional paid-in capital 1,888,080 1,888,039
Treasury stock, at cost; 20,302 and 18,705 common shares at June 30, 2018 and March 31, 2018, respectively (611,680 ) (458,180 )
Retained earnings 615,482 73,516
Accumulated other comprehensive loss (41,015 ) (15,732 )
Total stockholders' equity 1,852,205 1,488,970
Total liabilities and stockholders' equity $ 3,456,004 $ 3,737,841

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three months ended June 30,

2018

2017 (as adjusted) (1)

Operating activities:

Net income $ 71,693 $ 60,276
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses 6,858 18,206
Depreciation 9,130 7,743
Amortization of intellectual property 6,861 8,181
Stock-based compensation 24,598 24,071
Amortization of discount on Convertible Notes 91 5,237
Gain on redemption of Convertible Notes - (1,103 )
Amortization of debt issuance costs 32 188
Other, net (3,103 ) (9,669 )
Changes in assets and liabilities, net of impact of adoption of Topic 606:
Accounts receivable 61,355 (9,294 )
Inventory 3,692 5,451
Software development costs and licenses (54,663 ) (71,829 )
Prepaid expenses and other current and other non-current assets (21,464 ) (23,199 )
Deferred revenue (95,075 ) (67,883 )
Deferred cost of goods sold 8,409 32,233
Accounts payable, accrued expenses and other liabilities (29,597 ) 71,281
Net cash (used in) provided by operating activities (11,183 ) 49,890

Investing activities:

Change in bank time deposits (29,840 ) (24,999 )
Proceeds from available-for-sale securities 51,388 62,205
Purchases of available-for-sale securities (44,108 ) (41,148 )
Purchases of fixed assets (14,289 ) (16,092 )
Asset acquisition - (25,381 )
Business acquisition (3,149 ) -
Net cash used in investing activities (39,998 ) (45,415 )

Financing activities:

Tax payment related to net share settlements on restricted stock awards (58,403 ) (57,689 )
Repurchase of common stock (153,500 ) -
Net cash used in financing activities (211,903 ) (57,689 )
Effects of foreign currency exchange rates on cash and cash equivalents (9,103 ) 6,448
Net change in cash and cash equivalents and restricted cash (272,187 ) (46,766 )
Cash and cash equivalents and restricted cash, beginning of year 1,246,371 1,281,214
Cash and cash equivalents and restricted cash, end of period $ 974,184 $ 1,234,448
(1) During Q1 FY19, the Company adopted Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash and applied that standard retroactively. The application of this new standard resulted in an increase to net cash from operating activities of $68.5 million in Q1 FY18 and $72.0 million in Q1 FY19, which are reflected herein.
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Net Revenue and Net Bookings by Geographic Region, Distribution Channel, and Platform Mix
(in thousands)
Three Months Ended

June 30, 2018

Three Months Ended

June 30, 2017

Amount % of Total Amount % of Total
Net revenue by geographic region
United States $ 221,411 57 % $ 258,260 62 %
International 166,571 43 % 159,956 38 %
Total net revenue $ 387,982 100 % $ 418,216 100 %
Net bookings by geographic region
United States $ 156,648 54 % $ 199,871 57 %
International 131,677 46 % 148,434 43 %
Total net bookings $ 288,325 100 % $ 348,305 100 %
Three Months Ended

June 30, 2018

Three Months Ended

June 30, 2017

Amount % of Total Amount % of Total
Net revenue by distribution channel
Digital online $ 315,047 81 % $ 268,235 64 %
Physical retail and other 72,935 19 % 149,981 36 %
Total net revenue $ 387,982 100 % $ 418,216 100 %
Net bookings by distribution channel
Digital online $ 252,761 88 % $ 280,914 81 %
Physical retail and other 35,564 12 % 67,391 19 %
Total net bookings $ 288,325 100 % $ 348,305 100 %
Three Months Ended

June 30, 2018

Three Months Ended

June 30, 2017

Amount % of Total Amount % of Total
Net revenue by platform mix
Console $ 294,730 76 % $ 344,917 82 %
PC and other 93,252 24 % 73,299 18 %
Total net revenue $ 387,982 100 % $ 418,216 100 %
Net bookings by platform mix
Console $ 199,921 69 % $ 265,750 76 %
PC and other 88,404 31 % 82,555 24 %
Total net bookings $ 288,325 100 % $ 348,305 100 %
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
ADDITIONAL DATA
(in thousands)
Three Months Ended June 30, 2018

Net revenue

Cost of goods sold- internal royalties

Cost of goods sold- software development costs and royalties

Cost of goods sold- product costs

Cost of goods sold- licenses

General and administrative

As reported $ 387,982 $ 53,167 $ 29,788 $ 38,141 $ 10,269 $ 67,735
Net effect from deferral and related cost of goods sold (99,657 ) (9 ) (8,405 ) -
Stock-based compensation (3,969 ) (11,518 )
Amortization and impairment of acquired intangibles (5,072 )
Acquisition related expenses (194 )
Three Months Ended June 30, 2018

Selling and marketing

Research and development

Depreciation and amortization

Business reorganization

Interest and other, net

As reported $ 58,306 $ 50,712 $ 9,260 $ (242 ) $ 6,601
Net effect from deferral and related cost of goods sold (595 )
Stock-based compensation (4,774 ) (4,337 )
Non-cash amounts related to convertible notes 91
Amortization and impairment of acquired intangibles (1,659 ) (130 )
Impact of business reorganization 242
Three Months Ended June 30, 2017 Net revenue

Cost of goods sold- internal royalties

Cost of goods sold- software development costs and royalties

Cost of goods sold- product costs

Cost of goods sold- licenses

General and administrative

As reported $ 418,216 $ 77,704 $ 43,629 $ 44,069 $ 29,167 $ 60,603
Net effect from deferral and related cost of goods sold (69,911 ) (7,654 ) (17,806 ) (14,831 )
Stock-based compensation (3,481 ) (13,120 )
Amortization of intangibles (4,242 )
Acquisition related expenses (18 )
Three Months Ended June 30, 2017

Selling and marketing

Research and development

Business reorganization

Depreciation and amortization

Interest and other, net

As reported $ 52,214 $ 42,269 $ 10,599 $ 7,743 $ (2,808 )
Stock-based compensation (2,585 ) (2,464 ) (2,421 )
Non-cash amounts related to convertible notes 5,237
Amortization of intangibles (2,308 ) (1,523 ) (120 ) (1,103 )
Acquisition related expenses
Impact of business reorganization (8,178 )

Take-Two Interactive Software, Inc.

Investor Relations:

Henry A. Diamond, 646-536-3005

Senior Vice President

Investor Relations & Corporate Communications

[email protected]

or

Corporate Press:

Alan Lewis, 646-536-2983

Vice President

Corporate Communications & Public Affairs

[email protected]

Source: Take-Two Interactive

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