Take-Two Interactive Software, Inc. — Form 10-Q
Reporting period: Fiscal first quarter ended June 30, 2023; comparisons are with the three months ended June 30, 2022. Take-Two develops and publishes interactive entertainment through Rockstar Games, 2K, Private Division, and Zynga. Amounts are in millions unless otherwise noted.
Financial results and liquidity
- Revenue: $1,284.7, up 16.5% from $1,102.4. Game revenue was $1,096.1 and advertising revenue was $188.6. Net Bookings, the company’s operating metric, increased 19.9% to $1,201.5.
- Profitability: Gross profit was $679.2, up 1.9%, but gross margin declined to 52.9% from 60.5%. Operating loss was $204.3 versus $37.4; net loss was $206.0 versus $104.0. Diluted loss per share was $1.22 versus $0.76.
- Cash flow: Operating cash flow was $5.0, down from $100.8. Investing activities provided $38.1; financing activities used $20.8. Cash, cash equivalents, and restricted cash totaled $1,260.7 at quarter-end.
- Liquidity: The balance sheet reported $775.8 of cash and cash equivalents and $109.2 of short-term investments. The company said available cash, investments, projected operating cash flow, and its revolving credit facility should meet short- and long-term cash requirements. No revolving-facility borrowings were outstanding; approximately $499.5 was available.
- Debt: Debt, net of discounts and issuance costs, totaled $3,076.8 ($372.1 current and $2,704.7 long-term). The company issued $1,000.0 of notes due 2026 and 2028, retired $650.0 of 2024 Notes, and repaid a $350.0 term loan. It recognized a $7.0 debt-extinguishment gain.
Changes and drivers versus the prior-year quarter
- Revenue growth was led by Zynga, including mobile and hyper-casual games; management attributed $320.8 of revenue growth and $332.0 of Net Bookings growth to Zynga. LEGO 2K Drive also contributed.
- Mobile revenue rose to $680.0, or 52.9% of total revenue, from $369.6, or 33.5%. Console revenue declined to $504.3 from $607.2; PC and other revenue declined to $100.4 from $125.6.
- Recurrent consumer spending increased to $1,068.4, or 83.2% of revenue, from $825.6, or 74.9%. Digital online revenue was 96.5% of total revenue, up from 94.1%.
- Lower gross margin reflected higher amortization of Zynga-acquired intangibles, higher capitalized software amortization, and platform fees associated with greater mobile revenue. Selling and marketing and research and development expenses increased; general and administrative expense fell, partly due to lower Zynga acquisition and integration professional fees.
- Quarter-end cash, cash equivalents, and restricted cash increased $26.1 from March 31, 2023. Net loss widened despite revenue growth.
Outlook, commentary, and risks
- The filing provides no numerical revenue or earnings guidance. For fiscal 2024, management anticipates capital expenditures of approximately $180.0; $31.5 was spent in the quarter.
- Announced releases for the remainder of fiscal 2024 include NBA 2K24, WWE 2K24, Star Wars Hunters, Top Troops, and Penny’s Big Breakaway. Management also expects continued franchise content and long-term investment.
- Management highlighted dependence on successful releases and key franchises, particularly Grand Theft Auto, which generated 13.6% of quarterly revenue. Results are affected by release timing, seasonality, and product acceptance.
- Other stated risks include mobile player-acquisition costs and platform fees, reliance on Apple and Google distribution, customer and receivables concentration, foreign-exchange exposure, macroeconomic conditions, and the ability to retain key personnel and integrate Zynga. The five largest customers generated 79.9% of revenue.
- The company recorded $18.2 of software-development impairment charges. It also recognized increases in acquisition-related contingent earn-out liabilities, including expense associated with Nordeus and Popcore. Routine legal matters were not believed material; management said there were no material changes to the risk factors in its latest 10-K.
Investor facts to verify
- Whether Zynga-led mobile and recurrent-spending growth can offset declines in console and PC revenue, and sustain Net Bookings growth.
- Whether gross margin stabilizes as mobile mix, platform fees, and acquired-intangible amortization affect profitability.
- Whether operating cash flow improves, given the quarter’s $5.0 generation and the company’s planned fiscal 2024 capital expenditures.
- Debt maturities, refinancing needs, and liquidity after the note issuance, note retirement, and term-loan repayment.
- Exposure to major customers and distribution platforms, foreign currencies, and contingent acquisition earn-outs.