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Take-Two Interactive Software, Inc. Reports Strong Results For Third Quarter Fiscal 2013

Stocks in this article: TTWO

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, marketer and publisher of interactive entertainment for consumers around the globe. The Company develops and publishes products through its two wholly-owned labels Rockstar Games and 2K, which publishes its titles under the 2K Games, 2K Sports and 2K Play brands. Our products are designed for console systems, handheld gaming 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," "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 for current generation platforms, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, our ability to raise capital if needed and risks associated with international operations. Other important factors and information are contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2012, in the section entitled "Risk Factors," 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
   
Three months ended December 31, Nine months ended December 31,
  2012     2011     2012     2011  
 
 
Net revenue $ 415,773   $ 236,325   $ 914,996   $ 677,739  
 
Cost of goods sold:
Software development costs and royalties 77,641 27,236 260,180 129,086
Product costs 99,020 68,803 244,593 207,391
Licenses 31,735 20,521 47,483 42,914
Internal royalties   7,903     9,907     9,261     32,998  
Total cost of goods sold   216,299     126,467     561,517     412,389  
 
Gross profit 199,474 109,858 353,479 265,350
 
Selling and marketing 60,724 40,228 205,582 143,684
General and administrative 32,880 29,705 106,891 86,067
Research and development 22,369 16,823 57,001 49,340
Depreciation and amortization   2,509     2,854     7,828     9,383  
Total operating expenses   118,482     89,610     377,302     288,474  
Income (loss) from operations 80,992 20,248 (23,823 ) (23,124 )
Interest and other, net   (8,094 )   (6,190 )   (23,562 )   (14,203 )
Income (loss) from continuing operations before income taxes 72,898 14,058 (47,385 ) (37,327 )
Provision (benefit) for income taxes   2,021     (127 )   4,947     4,368  
Income (loss) from continuing operations 70,877 14,185 (52,332 ) (41,695 )
Income (loss) from discontinued operations, net of taxes   488     (81 )   368     (285 )
Net income (loss) $ 71,365   $ 14,104   $ (51,964 ) $ (41,980 )
 
Earnings (loss) per share:
Continuing operations $ 0.76 $ 0.16 $ (0.61 ) $ (0.50 )
Discontinued operations   -     -     -     (0.01 )
Basic earnings (loss) per share $ 0.76   $ 0.16   $ (0.61 ) $ (0.51 )
 
Continuing operations $ 0.66 $ 0.16 $ (0.61 ) $ (0.50 )
Discontinued operations   -     -     -     (0.01 )
Diluted earnings (loss) per share (1) $ 0.66   $ 0.16   $ (0.61 ) $ (0.51 )
 
Weighted average shares outstanding: (2)        
Basic 93,338 89,523 85,382 83,003
Diluted   119,359     89,523     85,382     83,003  
 

(1)

 

For the three months ended December 31, 2012, diluted EPS has been calculated using the “if-converted” method as a result of the issuances of the 4.375% Convertible Notes in June 2009 (the "4.375% Convertible Notes") and the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes" and together with the 4.375% Convertible Notes, the "Convertible Notes") for which diluted net income has been adjusted by $7,834 related to interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2012 diluted EPS include 26,021 shares related to the potential dilution from the Convertible Notes.

 

The “if-converted” method was not used for the other periods presented as the assumed conversion would have been anti-dilutive.

 

(2)

Basic and diluted include participating shares of 7,596 and 5,958 for the three months ended December 31, 2012 and 2011, respectively.

 
       
Three months ended December 31, Nine months ended December 31,

OTHER INFORMATION

2012     2011 2012     2011
 
Geographic revenue mix
United States 65% 65% 58% 52%
International 35% 35% 42% 48%
 
Platform revenue mix
Microsoft Xbox 360 43% 39% 44% 44%
Sony PlayStation 3 34% 38% 34% 38%
PC and other 18% 11% 18% 10%
Nintendo Wii 2% 4% 1% 2%
Sony PSP 1% 3% 1% 2%
Nintendo DS 1% 3% 1% 2%
Sony PlayStation 2 1% 2% 1% 2%
 
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
   
December 31, March 31,
  2012     2012  
 
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 448,723 $ 420,279
Accounts receivable, net of allowances of $62,746 and $51,002 at December 31, 2012
and March 31, 2012, respectively 94,241 45,035
Inventory 29,687 22,477
Software development costs and licenses 199,813 211,224
Prepaid expenses and other   45,426     44,602  
Total current assets   817,890     743,617  
 
Fixed assets, net 23,701 18,949
Software development costs and licenses, net of current portion 74,327 104,755
Goodwill 228,786 228,169
Other intangibles, net 9,301 16,266
Other assets   35,776     37,671  
Total assets $ 1,189,781   $ 1,149,427  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,263 $ 46,681
Accrued expenses and other current liabilities 211,425 156,768
Deferred revenue 26,348 13,864
Liabilities of discontinued operations   1,181     1,412  
Total current liabilities   281,217     218,725  
 
Long-term debt 330,311 316,340
Other long-term liabilities 12,480 16,316
Liabilities of discontinued operations, net of current portion   959     2,319  
Total liabilities   624,967     553,700  
Commitments and contingencies
 
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized - -
Common stock, $.01 par value, 200,000 and 150,000 shares authorized at
December 31, 2012 and March 31, 2012, respectively; 93,659 and 90,215 shares
issued and outstanding at December 31, 2012 and March 31, 2012, respectively 937 902
Additional paid-in capital 819,871 799,431
Accumulated deficit (263,303 ) (211,339 )
Accumulated other comprehensive income   7,309     6,733  
Total stockholders' equity   564,814     595,727  
Total liabilities and stockholders' equity $ 1,189,781   $ 1,149,427  
 
     
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
 
Nine months ended December 31,
  2012       2011  
 
Operating activities:
Net loss $ (51,964 ) $ (41,980 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization and impairment of software development costs and licenses 189,319 117,158
Depreciation and amortization 7,828 9,383
(Income) loss from discontinued operations (368 ) 285
Amortization and impairment of intellectual property 6,678 979
Stock-based compensation 22,778 23,463
Amortization of discount on Convertible Notes 13,971 7,294
Amortization of debt issuance costs 1,521 1,014
Other, net 735 778
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable (49,206 ) 30,943
Inventory (7,210 ) 2,062
Software development costs and licenses (150,479 ) (147,315 )
Prepaid expenses, other current and other non-current assets (474 ) 4,125
Deferred revenue 12,484 (1,640 )
Accounts payable, accrued expenses and other liabilities 47,072 (59,574 )
Net cash used in discontinued operations   (1,223 )   (1,580 )
Net cash provided by (used in) operating activities   41,462     (54,605 )
 
Investing activities:
Purchase of fixed assets (12,317 ) (7,984 )
Net cash used in discontinued operations   -     (1,475 )
Net cash used in investing activities   (12,317 )   (9,459 )
 
Financing activities:
Proceeds from exercise of employee stock options - 238
Proceeds from issuance of Convertible Notes - 250,000
Payment of debt issuance costs   -     (6,875 )
Net cash provided by financing activities   -     243,363  
 
Effects of foreign exchange rates on cash and cash equivalents   (701 )   (6,342 )
 
Net increase in cash and cash equivalents 28,444 172,957
Cash and cash equivalents, beginning of period   420,279     280,359  
Cash and cash equivalents, end of period $ 448,723   $ 453,316  
 
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
RECONCILIATION OF GAAP TO Non-GAAP MEASURES (Unaudited)
(in thousands, except per share amounts)
                 
 
Three months ended December 31,   Nine months ended December 31,
  2012     2011   2012     2011  
Net Revenues
GAAP Net Revenues $ 415,773 $ 236,325 $ 914,996 $ 677,739
Net effect from deferral in net revenues   (10,766 )   -   4,183     -  
Non-GAAP Net Revenues $ 405,007   $ 236,325 $ 919,179   $ 677,739  
 
Gross Profit
GAAP Gross Profit $ 199,474 $ 109,858 $ 353,479 $ 265,350
Net effect from deferral in net revenues (6,421 ) - 3,611 -
Stock-based compensation   1,790     794   8,034     4,379  
Non-GAAP Gross Profit $ 194,843   $ 110,652 $ 365,124   $ 269,729  
 
Income (Loss) from Operations
GAAP Income (Loss) from Operations $ 80,992 $ 20,248 $ (23,823 ) $ (23,124 )
Net effect from deferral in net revenues (6,421 ) - 3,611 -
Stock-based compensation 8,681 10,803 22,778 23,463
Business reorganization and related 384 247 758 1,015
Professional fees and legal matters   -     20   -     196  
Non-GAAP Income from Operations $ 83,636   $ 31,318 $ 3,324   $ 1,550  
 
Net Income (Loss)
GAAP Net Income (Loss) $ 71,365 $ 14,104 $ (51,964 ) $ (41,980 )
Net effect from deferral in net revenues (6,421 ) - 3,611 -
Stock-based compensation 8,681 10,803 22,778 23,463
Business reorganization and related 384 247 758 1,015
Professional fees and legal matters - 20 - 196
Non-cash amortization of discount on Convertible Notes 4,772 3,234 13,971 7,294
Non-cash tax expense 482 465 1,438 1,286
Discontinued operations   (488 )   81   (368 )   285  
Non-GAAP Net Income (Loss) $ 78,775   $ 28,954 $ (9,776 ) $ (8,441 )
 
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ 0.66 $ 0.16 $ (0.61 ) $ (0.51 )
Non-GAAP earnings (loss) per share (1) $ 0.67 $ 0.27 $ (0.11 ) $ (0.10 )
 
Number of diluted shares used in computation
GAAP 119,359 89,523 85,382 83,003
Non-GAAP (2) 119,359 115,544 85,382 83,003
 

(1)

 

For the three months ended December 31, 2012 and 2011, Non-GAAP diluted EPS has been calculated using the “if-converted” method as a result of the issuances of the 4.375% Convertible Notes in June 2009 (the "4.375% Convertible Notes") and the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes" and together with the 4.375% Convertible Notes, the "Convertible Notes") for which diluted net income has been adjusted by $3,062 and $2,378, respectively, related to interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2012 and 2011 Non-GAAP diluted EPS include 26,021 shares related to the potential dilution from the Convertible Notes.

 

The “if-converted” method was not used for the nine months ended December 31, 2012 and 2011 as the assumed conversion would have been anti-dilutive.

 

(2)

For the three months ended December 31, 2012 and 2011, the diluted shares used in the computation of Non-GAAP EPS include participating shares of 7,596 and 5,958, respectively.

 




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