Take-Two News Release

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Take-Two Interactive Software, Inc. Reports First Quarter Fiscal 2009 Financial Results
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NEW YORK NEW YORK--(BUSINESS WIRE)--Mar. 10, 2009-- Take-Two Interactive Software, Inc. (NASDAQ: TTWO) today announced financial results for its first fiscal quarter ended January 31, 2009.

Net revenue for the first quarter was $256.8 million, compared to $240.4 million for the same quarter of fiscal 2008. First quarter sales were led by Grand Theft Auto IV, Carnival Games, NBA 2K9 and Midnight Club: Los Angeles.

Net loss for the first quarter was $50.4 million or $0.66 per share, compared to a net loss of $38.0 million or $0.52 per share in the first quarter of fiscal 2008. The Company’s increased loss for the first quarter compared to the prior year was primarily due to higher marketing, legal, and research and development expenses.

The first quarter results include $6.2 million in stock-based compensation expense ($0.08 per share) and $4.9 million in expenses related to unusual legal matters ($0.06 per share). Results for the first quarter of 2008 included $6.1 million in stock-based compensation expense ($0.08 per share) and $1.7 million in expenses related to unusual legal matters and business reorganization costs ($0.02 per share).

Non-GAAP net loss was $39.3 million or $0.52 per share in the first quarter, compared to a net loss of $30.3 million or $0.41 per share in the first quarter of 2008. (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on non-GAAP items.)

Business Highlights

Among the significant recent business developments, Take-Two noted the following:

  • Over 13 million units of Rockstar Games’ Grand Theft Auto IV have been shipped as of January 31, 2009.
  • Rockstar Games announced Red Dead Redemption, a follow-up to the 2004 hit game Red Dead Revolver, which is in development at Rockstar San Diego and planned for a fall 2009 release.
  • 2K Play’s wholly owned Carnival Games™ franchise, including Carnival Games for Nintendo’s Wii™ and DS™, and Carnival Games MiniGolf for Wii, has shipped over four million units worldwide.

“Take-Two led off fiscal 2009 with somewhat better than expected performance. Our sales reflected the continued strength and diversity of our portfolio of top franchises, including Grand Theft Auto IV, Carnival Games, NBA 2K9 and Midnight Club: Los Angeles. Looking to the balance of the year, the economy remains challenging and uncertain, and our industry will not be immune to this environment. Consumers will continue to be highly selective in their purchases, including interactive entertainment. We need to deliver innovative, exceptionally compelling products to compete for this more limited consumer spending, and we are confident in our ability to do so," said Strauss Zelnick, Chairman of Take-Two.

Ben Feder, Chief Executive Officer of Take-Two, commented, "We believe that in this economic environment, publishers that can offer both quality and value will attract the broadest audience of consumers. We believe Take-Two is solidly positioned on both fronts, with our world-class studios creating triple-A titles and Jack of All Games’ expertise in distributing value products. We will continue to focus on our competitive strengths in both of these areas, while also investing in promising emerging markets, and leveraging our leading edge software development tools and technologies. We recognize the challenges of balancing efficiency with creativity, and our team believes that we can manage the business effectively without sacrificing our renowned standards for excellence.”

Financial Guidance

The Company is providing initial guidance for the second quarter ending April 30, 2009 and is reiterating its guidance for the fiscal year ending October 31, 2009 as follows:

  Revenue*     Non-GAAP EPS
Second quarter ending

4/30/2009

$200 to $220 $(0.10) to $(0.20)
Fiscal year ending

10/31/2009

$1,100 to $1,250 $0.00 to $0.20
 

* Dollars in millions

The Company’s non-GAAP EPS estimates for the second quarter ending April 30, 2009 and fiscal year ending October 31, 2009 exclude the following items:

  Stock-based compensation

expense per share

(a) (b)

    Expenses related to

unusual legal matters per share

Second quarter ending

4/30/2009

$0.07 $0.01
Fiscal year ending

10/31/2009

$0.25 $0.10

(a) The Company's stock-based compensation expense for the second quarter and fiscal year 2009 reflects the cost of approximately 2 million stock options and 1.5 million shares previously issued to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these options and shares is dependent upon several factors, including future changes in Take-Two's stock price.

(b) Excludes approximately $0.00 and $0.10 per share, respectively, of stock-based compensation expense for the second quarter and fiscal 2009 related to the potential issuance of 2,849,003 shares of restricted stock to certain employees of Rockstar Games, which is subject to stockholder approval of the 2009 Stock Incentive Plan at the Company’s annual stockholder meeting, scheduled for April 23, 2009. These shares have not been factored into the weighted average share count underlying the EPS guidance provided above for the second quarter and fiscal 2009.

Key assumptions and dependencies underlying the Company’s guidance include continued consumer acceptance of the Xbox 360® video game and entertainment system from Microsoft, PLAYSTATION®3 computer entertainment system, and Wii™ home video game system from Nintendo; the ability to develop and publish products that capture market share for these current generation systems while continuing to leverage opportunities on legacy platforms; as well as the timely delivery of the titles detailed in this release.

Product Pipeline

The following titles shipped during the first and second quarters of 2009:

Title     Platform
   
Dora the Explorer: Dora Saves the Snow Princess DS
Grand Theft Auto IV PC
Grand Theft Auto IV: The Lost and Damned Xbox 360
Major League Baseball® 2K9 Multiple platforms
MLB® 2K9 Fantasy All-Stars DS
MLB® Front Office Manager Xbox 360, PS3, Games for Windows®
MLB® Superstars Wii

Take-Two's lineup announced to date for the remainder of fiscal 2009 includes the following titles:

Title     Platform
   
Beaterator TBA
BioShock® 2 TBA
Borderlands™ Xbox 360, PS3, Games for Windows
Don King Boxing Wii, DS
Grand Theft Auto: Chinatown Wars DS
Grand Theft Auto IV Second Episode Xbox 360
Mafia II Xbox 360, PS3, Games for Windows
Major League Baseball® 2K9 PSP
Midnight Club: Los Angeles Downloadable
Content – South Central Premium Upgrade Xbox 360, PS3
NBA® 2K10 Multiple platforms
NHL® 2K10 Multiple platforms
Red Dead Redemption Xbox 360, PS3
The BIGS™ 2 Multiple platforms

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.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items. Non-GAAP gross profit, income (loss) from operations, net income (loss) and earnings (loss) per share are measures that exclude certain non-recurring or non-cash items and should be considered in addition to results prepared in accordance with GAAP. They are not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results. These non-GAAP financial measures may be different from similarly titled measures used by other companies.

The non-GAAP measures exclude the following items from the Company’s statements of operations:

  • Business reorganization, restructuring and related expenses
  • Stock-based compensation
  • Professional fees and expenses associated with unusual legal and other matters, including the Company's concluded process to evaluate its strategic alternatives
  • Income tax effects of the items listed above

In addition, the Company may consider whether other significant non-recurring items that arise in the future should also be excluded from the non-GAAP financial measures it uses.

The Company believes that these non-GAAP financial measures, when taken into consideration with the corresponding GAAP financial measures, are important in gaining an understanding of the Company’s ongoing business. These non-GAAP financial measures also provide for comparative results from period to period. Therefore, the Company believes it is appropriate to exclude certain items as follows:

Business reorganization, restructuring and related expenses

In March 2007, the Company’s stockholders elected a new slate of members to Take-Two’s Board of Directors, who immediately removed the Company’s former President and Chief Executive Officer. Subsequently, the Company’s former Chief Financial Officer resigned. As a result of these actions and the implementation of a business reorganization plan, the Company incurred significant costs in the fiscal years ended October 31, 2007 and October 31, 2008 to reduce headcount, relocate employees and consolidate sales and operational functions. These costs were related to severance, asset write-offs and associated professional fees. As of October 31, 2008, the Company had substantially concluded the reorganization plan.

The Company does not engage in reorganization activities on a regular basis and therefore believes it is appropriate to exclude business reorganization expenses from its non-GAAP financial measures.

Stock-based compensation

The Company does not consider stock-based compensation charges when evaluating business performance and management does not contemplate stock-based compensation expense in its short and long-term operating plans. The Company places greater emphasis on stockholder dilution than accounting charges when assessing the impact of stock-based equity awards.

Professional fees and expenses associated with unusual legal and other matters, including the Company’s concluded strategic review process

The Company incurred significant legal, consulting and investment banking expenses in the fiscal year ended October 31, 2008 related to the tender offer by Electronic Arts Inc. to acquire all of the Company’s outstanding shares, which was launched in March 2008 and expired in August 2008, and the Company’s related strategic review process which was completed in October 2008.

Additionally, the Company has realized significant legal and other professional fees associated with both the investigation of its historical stock option granting process and the Company’s responses to related governmental inquiries and civil lawsuits. The Company has also incurred legal expenses related to the tender offer by Electronic Arts. One of management’s primary objectives is to bring conclusion to its outstanding legal matters. The Company continues to incur expenses for professional fees and has accrued for legal settlements that are outside its ordinary course of business. As a result, the Company has excluded such expenses from its non-GAAP financial measures.

EBITDA and Adjusted EBITDA

Earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) is a financial measure not calculated and presented in accordance with U.S. GAAP. Management uses EBITDA adjusted for business reorganization and related expenses (“Adjusted EBITDA”), among other measures, in evaluating the performance of the Company’s business units. Adjusted EBITDA is also a significant component of the Company’s incentive compensation plans. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net income/(loss) prepared in accordance with GAAP.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a global developer, marketer, distributor and publisher of interactive entertainment software games for the PC, PLAYSTATION®3 and PlayStation®2 computer entertainment systems, PSP® (PlayStation®Portable) system, Xbox 360® video game and entertainment system from Microsoft, Wii™ and Nintendo DS™. The Company publishes and develops products through its wholly owned labels Rockstar Games, 2K Games, 2K Sports and 2K Play; and distributes software, hardware and accessories in North America through its Jack of All Games subsidiary. Take-Two's common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at www.take2games.com.

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

Microsoft, Xbox, Xbox 360, Xbox LIVE and the Xbox logos are trademarks of the Microsoft group of companies and are used under license from Microsoft.

"PlayStation", “PLAYSTATION”, "PSP" and the "PS" Family logo are registered trademarks of Sony Computer Entertainment Inc. Memory Stick Duo™ may be required (sold separately).

Wii and Nintendo DS are trademarks of Nintendo.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 realization of the anticipated benefits from our recent business reorganization, the ability to maintain acceptable pricing levels on our games, our reliance on a primary distribution service provider for a significant portion of our products, our ability to raise capital if needed, risks associated with international operations, the matters relating to the Special Committee's investigation of the Company's stock option grants and the claims and proceedings relating thereto (including stockholder and derivative litigation, actions by the SEC and/or other governmental agencies and negative tax or other implications for the Company resulting from any accounting adjustments or other factors) and risks associated with the Company's concluded process to evaluate its strategic alternatives including stockholder litigation arising therefrom. Other important factors and information are contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2008, 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 January 31,
2009 2008
 
Net revenue $ 256,810   $ 240,442  
 
Cost of goods sold:
Product costs 149,946 148,152
Software development costs and royalties 23,302 22,713
Internal royalties 20,472 6,145
Licenses   7,182     8,998  
Total cost of goods sold   200,902     186,008  
 
Gross profit 55,908 54,434
 
Selling and marketing 40,774 33,729
General and administrative 39,748 32,921
Research and development 20,943 15,810
Business reorganization and related - 162
Depreciation and amortization   5,108     6,409  
Total operating expenses   106,573     89,031  
Loss from operations (50,665 ) (34,597 )
Interest and other, net   2,349     1,367  
Loss before income taxes (48,316 ) (33,230 )
Income taxes   2,072     4,767  
Net loss $ (50,388 ) $ (37,997 )
 
Basic and diluted loss per share $ (0.66 ) $ (0.52 )
 
Basic and diluted weighted average shares outstanding   76,102     73,148  
 
 
Three months ended January 31,
OTHER INFORMATION 2009 2008
 
Total revenue mix
Publishing 58 % 51 %
Distribution 42 % 49 %
 
Geographic revenue mix
North America 75 % 84 %
International 25 % 16 %
 
Publishing revenue platform mix
PC 24 % 10 %
Nintendo Wii 19 % 19 %
Microsoft Xbox 360 18 % 21 %
Sony PLAYSTATION 3 15 % 8 %
Sony PlayStation 2 9 % 25 %
Sony PSP 8 % 13 %
Nintendo Handhelds 5 % 3 %
Other 2 % 1 %
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
           
January 31, October 31,
2009   2008  
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 217,836 $ 280,277
Accounts receivable, net of allowances of $63,296 and $68,448 at January 31, 2009 and
October 31, 2008, respectively 60,320 157,458
Inventory 75,972 104,235
Software development costs and licenses 116,712 113,436
Prepaid taxes and taxes receivable 24,954 23,763
Prepaid expenses and other   49,052     44,605  
Total current assets   544,846     723,774  
 
Fixed assets, net 29,358 32,361
Software development costs and licenses, net of current portion 66,745 61,991
Goodwill 225,182 230,809
Other intangibles, net 24,970 26,123
Other assets   9,648     8,294  
Total assets $ 900,749   $ 1,083,352  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,487 $ 156,167
Accrued expenses and other current liabilities 130,679 153,089
Deferred revenue   53,840     56,163  
Total current liabilities   244,006     365,419  
Line of credit 70,000 70,000
Income taxes payable 27,526 26,399
Other long-term liabilities   6,874     6,416  
Total liabilities   348,406     468,234  
Commitments and contingencies
 
Stockholders' equity:
Common stock, $.01 par value, 100,000 shares authorized; 78,757 and 77,694 shares issued

 

 

and outstanding at January 31, 2009 and October 31, 2008, respectively

788

777

Additional paid-in capital 610,431 603,579
(Accumulated deficit) retained earnings (32,113 ) 18,275
Accumulated other comprehensive loss   (26,763 )   (7,513 )
Total stockholders' equity   552,343     615,118  
         
Total liabilities and stockholders' equity $ 900,749   $ 1,083,352  
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
       
Three months ended January 31,
2009 2008
Operating activities:
Net loss $ (50,388 ) $ (37,997 )
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization and impairment of software development costs and licenses 20,092 18,581
Depreciation and amortization of long-lived assets 5,108 6,409
Amortization and impairment of intellectual property 390 351
Stock-based compensation 6,182 6,073
Deferred income taxes (177 ) (107 )
Foreign currency transaction gain and other (3,737 ) (1,387 )
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable 97,138 42,420
Inventory 28,263 16,844
Software development costs and licenses (31,613 ) (34,023 )
Prepaid expenses, other current and other non-current assets (6,957 ) 17,551
Accounts payable, accrued expenses, deferred revenue, income taxes payable and
  other liabilities   (121,110 )   (74,080 )
Total adjustments   (6,421 )   (1,368 )
Net cash used for operating activities   (56,809 )   (39,365 )
 
Investing activities:
Purchase of fixed assets (2,198 ) (1,370 )
Purchases of businesses, net of cash acquired   -     (151 )
Net cash used for investing activities   (2,198 )   (1,521 )
 
Financing activities:
Proceeds from exercise of options 4 937
Net borrowings on line of credit - 18,000
Payment of debt issuance costs   -     (979 )
Net cash provided by financing activities   4     17,958  
Effects of exchange rates on cash and cash equivalents   (3,438 )   (441 )
Net decrease in cash and cash equivalents (62,441 ) (23,369 )
Cash and cash equivalents, beginning of year   280,277     77,757  
Cash and cash equivalents, end of period $ 217,836   $ 54,388  
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
       
Non-GAAP Reconciling Items
Three months Professional Non-GAAP three
ended January 31, fees and Stock-based months ended January 31,
2009   legal matters   compensation   2009
 
Net revenue $ 256,810     $ -     $ -     $ 256,810  
 
Cost of goods sold:
Product costs 149,946 - - 149,946
Software development costs and royalties 23,302 - (1,172 ) 22,130
Internal royalties 20,472 - - 20,472
Licenses   7,182       -       -       7,182  
Total cost of goods sold   200,902       -       (1,172 )     199,730  
 
Gross profit 55,908 - 1,172 57,080
 
Selling and marketing 40,774 - (493 ) 40,281
General and administrative 39,748 (4,859 ) (3,391 ) 31,498
Research and development 20,943 - (1,126 ) 19,817
Business reorganization and related - - - -
Depreciation and amortization   5,108       -       -       5,108  
Total operating expenses   106,573       (4,859 )     (5,010 )     96,704  
Loss from operations (50,665 ) 4,859 6,182 (39,624 )
Interest and other, net   2,349       -       -       2,349  
Loss before income taxes (48,316 ) 4,859 6,182 (37,275 )
Income taxes   2,072       -       -       2,072  
Net loss $ (50,388 )   $ 4,859     $ 6,182     $ (39,347 )
 
Basic and diluted loss per share* $ (0.66 )   $ 0.06     $ 0.08     $ (0.52 )
 
Basic and diluted weighted average shares outstanding   76,102     76,102  
 
 
EBITDA:
Loss before income taxes $ (48,316 ) $ (37,275 )
Interest 1,545 1,545
Depreciation and amortization   5,108     5,108  
EBITDA $ (41,663 ) $ (30,622 )
Add: Business reorganization and related   -     -  
Adjusted EBITDA $ (41,663 ) $ (30,622 )
 
 
*Basic and diluted loss per share may not add due to rounding
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
         
Non-GAAP Reconciling Items
Three months Business Professional Non-GAAP three

ended January 31,

reorganization fees and Stock-based

months ended January 31,

2008   and related   legal matters   compensation   2008
 
Net revenue $ 240,442     $ -     $ -     $ -     $ 240,442  
 
Cost of goods sold:
Product costs 148,152 - - - 148,152
Software development costs and royalties 22,713 - - (746 ) 21,967
Internal royalties 6,145 - - - 6,145
Licenses   8,998       -       -       -       8,998  
Total cost of goods sold   186,008       -       -       (746 )     185,262  
 
Gross profit 54,434 - - 746 55,180
 
Selling and marketing 33,729 - - (867 ) 32,862
General and administrative 32,921 - (1,494 ) (3,372 ) 28,055
Research and development 15,810 - - (1,088 ) 14,722
Business reorganization and related 162 (162 ) - - -
Depreciation and amortization   6,409       -       -       -       6,409  
Total operating expenses   89,031       (162 )     (1,494 )     (5,327 )     82,048  
Loss from operations (34,597 ) 162 1,494 6,073 (26,868 )
Interest and other, net   1,367       -       -       -       1,367  
Loss before income taxes (33,230 ) 162 1,494 6,073 (25,501 )
Income taxes   4,767       -       -       -       4,767  
Net loss $ (37,997 )   $ 162     $ 1,494     $ 6,073     $ (30,268 )
 
Basic and diluted loss per share* $ (0.52 )   $ 0.00     $ 0.02     $ 0.08     $ (0.41 )
 
Basic and diluted weighted average shares outstanding   73,148     73,148  
 
 
EBITDA:
Loss before income taxes $ (33,230 ) $ (25,501 )
Interest 152 152
Depreciation and amortization   6,409     6,409  
EBITDA $ (26,669 ) $ (18,940 )
Add: Business reorganization and related   162     -  
Adjusted EBITDA $ (26,507 ) $ (18,940 )
 
 
*Basic and diluted loss per share may not add due to rounding

Source: Take-Two Interactive Software, Inc.

Take-Two Interactive Software, Inc.
Corporate Press/Investor Relations:
Meg Maise, 646-536-2932
meg.maise@take2games.com