Take-Two Interactive Software, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023; filed May 25, 2023. This is an annual report, not a report for calendar 2022 Q4. Unless otherwise noted, amounts are in U.S. dollars and millions.
Business context and reporting period
Take-Two develops, publishes and operates console, PC and mobile games through Rockstar Games, 2K, Private Division and Zynga. It reports one operating segment. The May 23, 2022 acquisition of Zynga materially changed the business mix; FY2023 includes Zynga results from the acquisition date.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $5,349.9 | $3,504.8 |
| Net bookings | $5,283.6 | $3,408.2 |
| Gross profit / margin | $2,285.3 / 42.7% | $1,969.4 / 56.2% |
| Operating income (loss) / margin | $(1,165.2) / (21.8)% | $473.6 / 13.5% |
| Net income (loss) | $(1,124.7) | $418.0 |
| Diluted earnings (loss) per share | $(7.03) | $3.58 |
| Cash provided by operating activities | $1.1 | $258.0 |
- Revenue rose 52.6% and bookings rose 55.0%, primarily reflecting $2,159.2 of revenue from Zynga. Growth was partly offset by lower revenue from Grand Theft Auto and Borderlands.
- Mobile contributed 47.5% of revenue, versus 11.5% the prior year; console contributed 43.1%, versus 72.2%. Digital online channels generated 95.1% of revenue. Recurrent consumer spending represented 78.1% of revenue, up from 64.8%.
- Gross margin fell 13.5 percentage points. The company cited acquired intangible-asset amortization and impairment, as well as higher mobile-platform fees. FY2023 included a $465.3 impairment of acquired developed game technology.
- Operating expenses rose to $3,450.5, including higher marketing, development and administrative costs following Zynga. Net cash from operating activities was nearly breakeven; capital expenditures were $204.2.
- At year-end, cash and cash equivalents were $827.4, short-term investments were $187.0, and cash plus restricted cash was $1,234.6. The $500.0 revolving facility had no borrowings and approximately $499.5 available.
- Debt carrying value was approximately $3,079.8, comprising $1,346.8 current and $1,733.0 long-term debt. Face value was approximately $3,094.1. The $350.0 term loan was repaid in April 2023 using proceeds from a subsequent $1,000.0 senior-note issuance.
Material changes, outlook and risks
- Acquisitions and unusual items: Zynga was acquired for consideration valued at $9,521.8; Popcore was acquired in November 2022. In addition to the $465.3 intangible impairment, the company recorded $79.1 of software-development-cost impairments and a $30.0 impairment of a Zynga-related San Francisco office lease asset. The filing attributes the intangible impairment partly to revised game forecasts and strategy changes.
- Outlook: The filing gives no numerical FY2024 revenue or earnings guidance. It anticipates FY2024 capital expenditures of $180. Announced releases include LEGO 2K Drive, NBA 2K24, WWE 2K24, Star Wars Hunters and After Us; release timing and commercial success remain uncertain.
- Concentration and operating risks: The five largest customers generated 79.6% of FY2023 revenue, and Sony, Google, Apple and Microsoft each exceeded 10%. Apple and Google accounted for 98.0% of mobile revenue. Grand Theft Auto contributed 14.6% of revenue, and the five leading franchises together contributed 52.9%.
- Other key risks: Management highlights hit-title dependence, development delays and cost overruns, competition and player-acquisition costs, reliance on third-party platforms and their fees or policies, consumer spending and foreign-exchange exposure, debt obligations, and evolving privacy, content and gaming regulations. International revenue was 37.2%; sales in Russia and Belarus were suspended following the conflict in Ukraine.
- Cybersecurity: A September 2022 intrusion exposed confidential Rockstar material, including early footage of the next Grand Theft Auto, and a separate vendor-platform compromise affected 2K customer support. The company reported immaterial one-time incident costs, expected further security spending, and said the Rockstar incident had not disrupted services or development timelines.
- Contingencies: The company describes routine legal matters and states that, except as otherwise disclosed, reasonably possible losses beyond recorded accruals are not expected to be material. The filing also reports $294.8 of gross unrecognized tax benefits, including interest and penalties.
- Subsequent to year-end, Take-Two issued $1,000.0 of notes at 5.000% and 4.950%, repaid the $350.0 term loan, and announced a tender offer for up to $500.0 of its 3.300% notes due 2024.
Important facts for investors to verify
- How much of revenue, bookings and cash generation is attributable to Zynga, and whether the acquired mobile business can improve profitability and margins.
- The assumptions and forecast sensitivities behind the $465.3 intangible impairment, and the potential for further impairment given the substantial acquired goodwill and intangible assets.
- Operating cash flow and investment requirements after the acquisition, including working-capital needs and capitalized game-development spending.
- Debt maturities, refinancing plans and interest costs, especially the 2024 notes and the impact of subsequent borrowing and repayment activity.
- Revenue and receivable concentration among major platform and distribution partners, as well as exposure to Apple and Google policies, fees and advertising changes.
- Execution and release timing for announced games, player engagement and monetization trends, and any further effects of cybersecurity incidents or regulatory developments.