Take-Two Interactive Software, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended June 30, 2021, compared with the three months ended June 30, 2020. Take-Two develops, publishes, and markets interactive entertainment through Rockstar Games, 2K, Private Division, and T2 Mobile Games. Financial statements are unaudited.
Key financial results
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net revenue | $813.3 million | $831.3 million | Down 2.2% |
| Gross profit / margin | $483.6 million / 59.5% | $354.6 million / 42.7% | Margin up 16.8 percentage points |
| Operating income / margin | $170.5 million / 21.0% | $82.1 million / 9.9% | Operating income more than doubled |
| Net income | $152.3 million | $88.5 million | Up 72.0% |
| Diluted EPS | $1.30 | $0.77 | Up 68.8% |
| Net Bookings | $711.4 million | $996.2 million | Down 28.6% |
| Cash from operating activities | $148.2 million | $445.4 million | Down $297.2 million |
Recurrent consumer spending rose 15.2% to $572.3 million and represented 70.4% of revenue, versus 59.8% a year earlier. Full game and other revenue fell to $241.1 million from $334.5 million. Digital online revenue was $740.8 million, or 91.1% of revenue.
The gross-margin improvement reflected lower internal royalties and lower software-development amortization and royalties, primarily due to the timing of royalties and releases. Operating expenses increased 14.9% to $313.2 million, including higher marketing and research and development costs. The effective tax rate was 11.2%, compared with 2.1%; tax credits and excess stock-compensation tax benefits reduced the current-period rate.
Financial position and liquidity
- At June 30, 2021, cash and cash equivalents were $1.401 billion, short-term investments were $1.135 billion, and restricted cash totaled $756.5 million, including long-term restricted cash.
- Total assets were $6.314 billion and total liabilities were $2.683 billion. The filing reports no outstanding borrowings under its credit facility; $247.9 million was available, net of $2.1 million in letters of credit.
- Cash, cash equivalents, and restricted cash increased by $97.1 million from the beginning of the fiscal year. Operating cash flow was lower year over year, with changes in deferred revenue and other working-capital items among the significant movements.
- Capital expenditures were $86.4 million in the quarter; management anticipated approximately $170 million for FY2022.
Material changes and notable items
- Net Bookings declined mainly due to lower bookings from Grand Theft Auto Online and Grand Theft Auto V, NBA 2K, Red Dead Redemption 2, Borderlands 3, and The Outer Worlds; Two Dots partly offset the declines. Revenue decreased modestly, with higher NBA 2K revenue and mobile growth partly offset by lower Red Dead Redemption 2 and Borderlands 3 revenue.
- Mobile revenue increased to $82.3 million from $54.4 million. Console revenue was $602.4 million, while PC and other revenue declined to $128.6 million from $165.3 million.
- On June 1, 2021, Take-Two acquired 94.5% of mobile developer Nordeus for consideration with a reported acquisition-date fair value of $306.3 million. The transaction included cash, shares, a call option for the remaining interest, and contingent earn-out consideration valued at $78.7 million, with payments of up to $153 million dependent on performance. Nordeus contributed $1.9 million of revenue and a $4.5 million net loss from the acquisition date through quarter-end.
- The company also acquired two UK office buildings for $72.9 million. Software-development impairment charges were $9.8 million, versus $19.7 million in the prior-year quarter.
Outlook, risks, and contingencies
Management identified planned FY2022 releases including Grand Theft Auto V and a standalone Grand Theft Auto Online for PS5 and Xbox Series X|S, NBA 2K22, WWE 2K22, Tiny Tina’s Wonderlands, OlliOlli World, and Hades. The provided filing text does not give a clear numeric revenue or earnings forecast.
Management expects engagement to remain above pre-pandemic levels but anticipates some moderation as conditions normalize. It cautioned that COVID-19, consumer spending, console availability and transitions, title timing and performance, foreign exchange, and customer concentration could affect results. The five largest customers generated 80.6% of quarterly revenue. Grand Theft Auto products generated 33.7% of revenue. Management stated that liquidity was sufficient for anticipated short- and long-term requirements. Routine litigation was not considered material; the company noted losses above accrued amounts were reasonably possible but not expected to be material.
Important facts for investors to verify
- Whether the steep Net Bookings decline persists and how it translates into recognized revenue and cash flow.
- Whether recurrent consumer spending and mobile growth can offset title-release timing and lower full-game sales.
- The performance milestones, potential maximum payout, and final valuation of Nordeus’s contingent earn-out and remaining-interest call option.
- The sustainability of the unusually higher gross margin and the sensitivity of earnings to future release schedules and development costs.
- Customer concentration, COVID-19 and consumer-demand trends, foreign-exchange exposure, and the stated FY2022 capital-expenditure expectation.