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Take-Two Interactive Software, Inc. Reports Results for Fiscal Third Quarter 2018


 Tags:   News: Games                This was published: 7 Feb 2018 - 09:26 pm         Print article: Printer friendly page
          

Take-Two Interactive Software, Inc. Reports Results for Fiscal Third Quarter 2018 - on DefenceBriefing.net

Take-Two Interactive Software, Inc. (NASDAQ-NMS: TTWO) today reported results for its fiscal third quarter 2018, ended December 31, 2017. In addition, the Company provided its initial financial outlook for its fiscal fourth quarter ending March 31, 2018, and updated its financial outlook for its fiscal year ending March 31, 2018.



Fiscal Third Quarter 2018 GAAP Financial Highlights

Net revenue grew to $480.8 million, as compared to $476.5 million in last year’s fiscal third quarter. Recurrent consumer spending (virtual currency, add-on content and microtransactions) grew 64% year-over-year and accounted for 32% of total net revenue. The largest contributors to net revenue in fiscal third quarter 2018 were Grand Theft Auto® V and Grand Theft Auto Online, NBA® 2K18, WWE® 2K18 and WWE SuperCard, and L.A. Noire.

Digitally-delivered net revenue grew 8% to $258.4 million, as compared to $240.2 million in last year’s fiscal third quarter, and accounted for 54% of total net revenue. The largest contributors to digitally-delivered net revenue in fiscal third quarter 2018 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, WWE 2K18 and WWE SuperCard, and Sid Meier’s Civilization VI.

Net income increased to $25.1 million, or $0.21 per diluted share, as compared to net loss of $29.8 million, or $0.33 per diluted share, for the comparable period last year. Net income reflects $11.9 million of incremental income tax expense, or approximately $0.10 per diluted share, due to the application of the Tax Cuts and Jobs Act, enacted on December 22, 2017. This amount is a reasonable estimate provided in accordance with Securities and Exchange Commission guidance. We will provide additional information about such estimate in our forthcoming Form 10-Q for the fiscal quarter ended December 31, 2017.

Net cash provided by operating activities was $203.0 million. As of December 31, 2017, the Company had cash and short-term investments of $1.322 billion.

The following data, together with a management reporting tax rate of 22%, 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 Ended December 31, 2017

       

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

   

Amortization
& impairment
of acquired
intangible
assets

   

Business
reorganization

           
Net revenue $ 480,840 173,099
Cost of goods sold   267,983     37,647     8,262             (4,912 )      
 
Gross profit 212,857 135,452 (8,262 ) 4,912
 
Operating expenses   204,005           (21,288 )           (4,258 )     (700 )
 
Income from operations 8,852 135,452 13,026 9,170 700
Interest and other, net   3,374                 795            
Income before income taxes 12,226 135,452 13,026 795 9,170 700
 

In order to calculate net income per diluted share for management reporting purposes, the Company uses its fully diluted share count of 119.5 million and adds back to net income the interest expense, net of tax, on its convertible notes of $0.01 million.

Operational Metric – Net Bookings

During fiscal third quarter 2018, total Net Bookings were $653.9 million, as compared to $744.8 million during last year’s fiscal third quarter, which had benefitted from the launches of Mafia III and Sid Meier’s Civilization VI. Net Bookings from recurrent consumer spending grew 44% year-over-year and accounted for 40% of total Net Bookings. The largest contributors to Net Bookings were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, WWE 2K18, L.A. Noire, and Dragon City and Monster Legends.

Catalog accounted for $343.5 million of Net Bookings led by Grand Theft Auto, and Dragon City and Monster Legends.

Digitally-delivered Net Bookings grew 6% to $379.7 million, as compared to $357.4 million in last year’s fiscal third quarter, and accounted for 58% of total Net Bookings. The largest contributors to digitally-delivered Net Bookings in fiscal third quarter 2018 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, WWE 2K18 and WWE SuperCard, and Monster Legends and Dragon City.

Management Comments

“During the holiday season, we benefited from high consumer demand for our offerings, enabling our Company to deliver another quarter of both strong Net Bookings and net cash provided by operating activities,” said Strauss Zelnick, Chairman and CEO of Take-Two. “Our stellar results were highlighted by record recurrent consumer spending on both Grand Theft Auto Online and NBA 2K18, robust ongoing sales of Grand Theft Auto V, and the successful launch of WWE 2K18. We took advantage of favorable market conditions to deploy $110 million of cash to repurchase more than 1 million shares of our stock. As a result of our outstanding third quarter performance and increased fourth quarter forecast, we are raising our fiscal 2018 outlook for Net Bookings.

“In addition to achieving superb results, we announced the formation of Private Division, our new label that is dedicated to bringing titles from top independent developers to market. Private Division already has deals to publish several upcoming titles based on new IP from renowned talent, and represents an exciting new growth opportunity that complements Take-Two’s core business.

“Rockstar Games has announced that Red Dead Redemption 2 will launch on October 26, 2018. We continue to expect to deliver both record Net Bookings and record net cash provided by operating activities in fiscal 2019, in excess of $2.5 billion and $700 million, respectively, led by the launches of Red Dead Redemption 2 and a highly anticipated new title from one of 2K’s biggest franchises. We have a robust development pipeline and are better positioned than ever for long-term growth and margin expansion.”

Business and Product Highlights

Since October 1, 2017:

  • Take-Two announced the formation of Private Division, a new publishing label that focuses on bringing titles from top independent developers to market. Private Division will publish several upcoming titles based on new IP from renowned industry creative talent, including the previously announced Ancestors: The Humankind Odyssey from Panache Digital Games; an unannounced RPG currently codenamed Project Wight from The Outsiders; an unannounced RPG from Obsidian Entertainment; and an unannounced sci-fi first-person shooter from V1 Interactive. Private Division is also the publisher for Kerbal Space Program, which Take-Two acquired in May 2017.
  • Take-Two deployed $110.1 million to repurchase 1.06 million shares of its common stock.
  • Effective December 18, 2017, Take-Two was added to the NASDAQ-100 Index® (NASDAQ-NMS: NDX). The NASDAQ-100 Index is composed of the 100 largest non-financial companies listed on The NASDAQ Stock Market®.

Rockstar Games:

  • Released new versions of the blockbuster detective thriller, L.A. Noire, for Nintendo Switch™, PlayStation®4 and Xbox One. These new versions include the original L.A. Noire game plus all of its additional downloadable content, with specific enhancements tailored to the unique capabilities of each platform. Following these came the release of LA Noire: The VR Case Files, featuring seven select cases from the original game rebuilt specifically for a virtual reality experience on the HTC VIVE™ system.
  • Released new free content updates for Grand Theft Auto Online, including:
    • More themed content drops for Smuggler’s Run featuring:
      • The Mammoth Mogul aircraft and Stockpile, a new, jet-fueled take on capture-the-flag.
      • Transform Races, a new form of Stunt Race where players switch vehicle classes instantly mid-race across land, air and sea.
    • Special Halloween content including the Vigilante weaponized vehicle, the Seabreeze aircraft and Condemned Adversary Mode.
    • The Doomsday Heist, a story-driven online adventure involving the planning, preparation and execution of a series of epic co-operative heist missions and featuring a ton of new vehicles and gear, inside the biggest Grand Theft Auto Online update yet.
    • Festive Surprise 2017, which featured holiday-themed items in stores across Los Santos, the Firework Launcher, as well as the return of favorite items from past holiday seasons and more.
  • Released the Criminal Enterprise Starter Pack that gives players access to a huge range of the most exciting and popular additions to Grand Theft Auto Online, including properties, vehicles, weapons and more valued at over GTA$10,000,000 plus GTA$1,000,000 Bonus Cash.
  • Announced that Red Dead Redemption 2, which had been planned for release during Spring 2018, will now launch on October 26, 2018 to allow additional time to polish further the final product.

2K:

  • Released the Sid Meier’s Civilization VI: Khemer and Indonesia Civilization and Scenario Pack bringing new challenges and scenarios to Firaxis Games’ popular strategy series, and announced that its Rise and Fall expansion pack for the title will launch on February 8, 2018.
  • Launched WWE 2K18 for PlayStation 4, Xbox One, Nintendo Switch and PC. Developed collaboratively by Yuke's and Visual Concepts, WWE 2K18 features Seth Rollins as its cover Superstar, along with the largest playable roster in franchise history, new online-centric Road to Glory mode, notable gameplay improvements, and a powerful new graphics engine. WWE 2K18 has been supported with a series of downloadable content, including a Season Pass.
  • Released WWE SuperCard – Season 4, the latest addition to the Company’s action-packed collectible card-battling game, as a free downloadable update for iOS and Android™ devices. Featuring 250 new cards, three new card tiers, and much more, the WWE SuperCard series – which has now been downloaded more than 16.5 million times to date – delivers the best in competitive and engaging WWE action for mobile devices.
  • Launched NHL® SuperCard 2K18, the foremost NHL collectible card-battling game. Featuring cover athlete Kyle Turris, center for the Nashville Predators, NHL SuperCard is available for download free of charge for iOS and Android devices and offers more than 450 cards, thrilling game modes, weekly events and more to bring players on the ice and into the action.

Private Division:

  • Released Kerbal Space Program Enhanced Edition, the new console version of the beloved space simulation game, for digital download on PlayStation 4 and Xbox One. Kerbal Space Program Enhanced Edition is built from the ground up to include re-worked and console-optimized UI, a new control scheme exclusively for consoles, and more ways to enjoy launching spaceships into orbit. As a thank you to the existing console community, all owners of the prior console version of Kerbal Space Program can redeem the Enhanced Edition for free.

Financial Outlook for Fiscal 2018

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

Fourth Quarter Ending March 31, 2018

  • GAAP net revenue is expected to range from $460 to $510 million
  • GAAP net income is expected to range from $87 to $99 million
  • GAAP diluted net income per share is expected to range from $0.73 to $0.83
  • Share count used to calculate GAAP diluted net income per share is expected to be 118.8 million (1)
  • Net Bookings (operational metric) are expected to range from $410 to $460 million

The Company is also providing selected data and its management reporting tax rate of 22% 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 March 31, 2018
       
Financial Data
$ in millions

GAAP
outlook (2)

   

Change in
deferred net
revenue and
related cost of
goods sold

   

Stock-based
compensation (3)

   

Non-cash
amounts
related to
convertible
notes

   

Amortization
of acquired
intangible
assets

       
Net revenue $460 to $510 ($50)
 
Cost of goods sold $196 to $225 ($20) ($6) ($4)
 
Operating Expenses $190 to $200 ($23) ($3)
 
Interest and other, net ($3) ($0)
 
Income before income taxes $77 to $88 ($30) $29 $0 $7
 

Fiscal Year Ending March 31, 2018

As a result of its strong fiscal third quarter 2018 results and increased outlook for the fiscal fourth quarter, Take-Two is raising its fiscal year 2018 outlook for Net Bookings. In addition, the Company is increasing its outlook for GAAP net revenue and GAAP net income.

  • GAAP net revenue is expected to range from $1.80 to $1.85 billion
  • GAAP net income is expected to range from $170 to $181 million
  • GAAP diluted net income per share is expected to range from $1.50 to $1.60
  • Share count used to calculate GAAP diluted net income per share is expected to be 113.2 million (4)
  • Net cash provided by operating activities is expected to be approximately $300 million
  • Capital expenditures are expected to be approximately $60 million
  • Net Bookings (operational metric) are expected to range from $1.99 to $2.04 billion

The Company is also providing selected data and its management reporting tax rate of 22% 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, 2018
           
Financial Data
$ in millions GAAP

outlook (2)

   

Change in
deferred
net
revenue
and related
cost of
goods sold

   

Stock-based
compensation (3)

   

Non-cash
amounts
related to
convertible
notes

   

Acquisition
related
expenses

   

Amortization &
impairment of
acquired
intangible
assets

   

Business
reorganization
excluding
stock-based
compensation

               
Net revenue $1,803 to $1,853 $187
 
Cost of goods sold $905 to $934 $11 ($30) ($17)
 
Operating Expenses $776 to $786 ($93)(5) $7 ($27) ($13)
 
Interest and other, net $0 ($10)
 
Income before income taxes $123 to $133 $176 $123 $10 ($7) $44 $13
 
      1)   For the fiscal fourth quarter ending March 31, 2018, the Company’s fully diluted share count used for both GAAP and management reporting purposes is expected to be 118.8 million, which includes 114.0 million basic shares, 4.1 million shares representing the potential dilution from unvested employee stock grants, and 0.7 million shares representing the potential dilution from convertible notes. For management reporting purposes, the interest expense, net of tax, on the convertible notes, which is added back to net income to calculate diluted net income per share is $0.03 million.
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) The Company's stock-based compensation expense for the periods above includes the cost of approximately 0.6 million restricted stock units previously granted to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these shares is dependent upon several factors, including future changes in Take-Two's stock price.
4)

For the fiscal year ending March 31, 2018, the Company’s fully diluted share count used for management reporting purposes is expected to be 118.0 million, which includes 110.1 million basic shares, 3.1 million shares representing the potential dilution from unvested employee stock grants, and 4.8 million shares representing the potential dilution from convertible notes. The interest expense, net of tax, on the convertible notes, which is added back to net income to calculate diluted net income per share for management reporting purposes is $0.83 million. Take-Two’s GAAP net income per diluted share outlook is calculated using a diluted share count of 113.2 million (basic shares plus unvested employee stock grants ), because using the “if-converted” method and the Company’s fully diluted share count of 118.0 million would have been anti-dilutive.

5)

Includes $2.4 million of stock-based compensation related to business reorganization.

 

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 October 1, 2017:




Further information:
Organisation name:    Take-Two Interactive
Organisation stock symbol: NASDAQ:TTWO


Latest stock price data for NASDAQ:TTWO

Label

   

Title

   

Platforms

   

Release Date

2K    

NHL SuperCard 2K18

    iOS, Android     October 4, 2017
2K

WWE 2K18

PS4, Xbox One October 13, 2017
2K

NBA 2K18

Switch (physical) October 17, 2017
2K

WWE 2K18

PC October 17, 2017
2K

WWE 2K18: Accelerator (DLC)

PS4, Xbox One, PC October 17, 2017
 


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