Business context and reporting period
Take-Two Interactive Software, Inc. filed this Form 10-K for the fiscal year ended March 31, 2021. The filing is an annual report, not a standalone 2020 fourth-quarter report. Take-Two develops and publishes games through Rockstar Games, 2K, Private Division, Social Point and Playdots, with one reportable operating segment.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net revenue | $3,372.8 | $3,089.0 | Up 9.2% |
| Gross profit / margin | $1,837.7 / 54.5% | $1,546.5 / 50.1% | Margin up 4.4 percentage points |
| Operating income / margin | $629.4 / 18.7% | $425.3 / 13.8% | Higher gross profit more than offset increased operating expenses |
| Net income / margin | $588.9 / 17.5% | $404.5 / 13.1% | Up 45.6% |
| Diluted EPS | $5.09 | $3.54 | Up from prior year |
| Net cash from operating activities | $912.3 | $685.7 | Up $226.6 |
| Cash, cash equivalents and restricted cash | $2,060.2 | $1,993.4 | Includes restricted balances |
| Short-term investments | $1,308.7 | $644.0 | Highly liquid, available for current operations |
| Credit facility borrowings | $0 | $0 | $197.9 available under the $200 million revolving facility |
Net cash used in investing activities was $806.7 million, primarily reflecting investment portfolio activity, the Playdots acquisition and fixed-asset purchases. Net cash used in financing activities was $57.3 million, primarily related to tax payments on net share settlements. The company reported no outstanding borrowings; its revolving credit facility runs through February 2024 and is subject to financial and other covenants.
Material changes versus the prior year
- Net Bookings, a company-defined operating metric, rose 18.8% to $3,552.6 million.
- Digital online revenue increased to 86.6% of revenue from 77.0%; recurrent consumer spending rose to 61.5% from 44.8%. Physical retail and other revenue declined to 13.4% from 23.0%.
- Revenue growth was led by NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Mafia, PGA TOUR 2K21, Dragon City and Two Dots. Declines in Borderlands 3, Red Dead Redemption 2 and The Outer Worlds partly offset growth.
- Gross margin improved mainly due to lower capitalized software amortization as a share of revenue and a reversal of stock-based compensation expense, partly offset by higher internal royalties and product mix.
- Operating expenses increased 7.8% to $1,208.3 million. General and administrative expense rose 22.8%, including higher personnel costs, pandemic-related charitable contributions, acquisition-related consulting and cloud IT costs; selling and marketing expense decreased.
- Net income included a $69.8 million reversal of share-based compensation expense following award forfeitures and a $39.6 million net gain on long-term investments. Interest and other income fell to $8.8 million from $38.5 million, primarily because lower interest rates reduced interest income.
Outlook, commentary, risks and unusual items
- Management expected engagement to remain above pre-pandemic levels but anticipated moderation as conditions normalized; it said the ultimate effects of COVID-19 remained uncertain. Management did not provide full-year revenue or earnings guidance in the supplied filing text.
- For fiscal 2022, the company anticipated capital expenditures of approximately $100 million. Announced planned releases included Grand Theft Auto V for PS5 and Xbox Series X|S, NBA 2K22, WWE 2K22 and OlliOlli World.
- Playdots was acquired on September 4, 2020, for consideration valued at $195.5 million, including cash and shares. It contributed $20.6 million of revenue and a $27.4 million net loss from acquisition through year-end. The acquisition added goodwill and intangible assets.
- The company recorded $39.1 million of software development cost and license impairment charges, relating to certain titles whose costs were expected to exceed recoverable value or whose development was discontinued.
- Revenue and collections are concentrated: the five largest customers accounted for 78.4% of revenue, and two customers represented 69.2% of gross accounts receivable. Grand Theft Auto products generated 29.2% of revenue; the five best-selling franchises together generated 84.1%.
- Principal risks include dependence on hit franchises and release timing, console transitions, competition, digital platform and customer concentration, development delays and cost overruns, cybersecurity and privacy threats, foreign currency and international regulatory exposure, and consumer demand changes. COVID-19 supported demand during the year but may also disrupt development, counterparties and future spending.
- The company disclosed routine legal matters and said, except as otherwise disclosed, potential losses beyond accrued amounts were not expected to be material. Ernst & Young issued unqualified opinions on the financial statements and internal controls; the control assessment excluded Playdots.
Important facts for investors to verify
- Whether recurring consumer spending, digital revenue and Net Bookings remain durable after pandemic-related engagement moderates.
- Customer and receivable concentration, particularly the exposure to the largest platform partners and distributors.
- Upcoming release schedules, development investment, capitalized software balances and the risk of further impairments or delays.
- The sustainability of FY2021 earnings after the compensation reversal and investment gain, and the effect of lower investment yields on interest income.
- Playdots’ integration and profitability, along with the company’s commitments for software development, licensing, marketing and purchases.