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Take-Two Interactive Software, Inc. Reports Strong Results for Fiscal First Quarter 2020

GAAP net revenue grew 39% to $540.5 million

GAAP net income per diluted share was $0.41

GAAP net cash provided by operating activities increased to $108.5 million

Adjusted Operating Cash Flow (Non-GAAP) increased to $46.6 million

Net Bookings grew 46% to $422.2 million

Company raises outlook for fiscal year 2020

NEW YORK–(BUSINESS WIRE)–Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today reported strong results for its fiscal first quarter 2020 ended June 30, 2019. In addition, the Company provided its initial outlook for its fiscal second quarter ending September 30, 2019, and raised its outlook for its fiscal year ending March 31, 2020. For additional information, please see the fiscal first quarter 2020 results slide deck posted to the Company’s investor relations website at http://ir.take2games.com.

Fiscal First Quarter 2020 Financial Highlights

GAAP Net revenue grew 39% to $540.5 million, as compared to $388.0 million in last year’s fiscal first quarter. Recurrent consumer spending (which is generated from ongoing consumer engagement and includes virtual currency, add-on content and in-game purchases) increased 31% and accounted for 58% of total GAAP net revenue. The largest contributors to GAAP net revenue in fiscal first quarter 2020 were NBA® 2K19, Grand Theft Auto® Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, the Borderlands franchise, Social Point’s mobile offerings, WWE® SuperCard and WWE 2K19, and Sid Meier’s Civilization® VI.

Digitally-delivered GAAP net revenue grew 36% to $427.8 million, as compared to $315.0 million in last year’s fiscal first quarter, and accounted for 79% of total GAAP net revenue. The largest contributors to GAAP digitally-delivered net revenue in fiscal first quarter 2020 were NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, the Borderlands franchise, Social Point’s mobile offerings, and Sid Meier’s Civilization VI.

GAAP net income was $46.3 million, or $0.41 per diluted share, as compared to $71.7 million, or $0.62 per diluted share, for the comparable period last year.

During the 3-month period ended June 30, 2019, GAAP net cash provided by (used in) operating activities increased to $108.5 million, as compared to ($11.2) million in the same period last year. During the 3-month period ended June 30, 2019, Adjusted Operating Cash Flow (Non-GAAP), which is defined as GAAP net cash from operating activities, adjusted for changes in restricted cash, increased to $46.6 million, as compared to ($83.2) million in the same period last year (please see the section below titled “Non-GAAP Financial Measure” for additional information). As of June 30, 2019, the Company had cash and short-term investments of $1.542 billion.

The following data, together with a management reporting tax rate of 17%, are used internally by the Company’s management and Board of Directors to adjust the Company’s GAAP financial results in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Three Months Ended June 30, 2019

 

Financial Data

$ in thousands

Statement of
operations

Change in deferred
net revenue and
related cost of
goods sold

Stock-based
compensation

 

 

Impact of
business
reorganization

 

 

 

Business
acquisition

Amortization
& impairment
of acquired
intangible
assets

 

 

 

Net revenue

$540,459

(118,220

)

 

 

 

Cost of goods sold

241,469

(29,597

)

(30,798

)

 

 

 

(3,705

 

)

Gross Profit

298,990

(88,623

)

30,798

 

 

 

 

3,705

 

 

Operating expenses

247,260

(26,634

)

 

(386

 

)

 

(326

 

)

 

(1,683

 

)

Income from operations

51,730

(88,623

)

57,432

 

 

386

 

 

 

326

 

 

 

5,388

 

 

 

Interest and other, net

10,425

(494

)

 

 

 

Income before income taxes

62,155

(89,117

)

57,432

 

 

386

 

 

 

326

 

 

 

5,388

 

 

 

In order to calculate net income per diluted share for management reporting purposes, the Company uses its fully diluted share count of 113.7 million.

Operational Metric – Net Bookings

Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period, and includes licensing fees, merchandise, in-game advertising, strategy guides and publisher incentives.

During fiscal first quarter 2020, total Net Bookings grew 46% to $422.2 million, as compared to $288.3 million during last year’s fiscal first quarter. Net Bookings from recurrent consumer spending grew 55% and accounted for 67% of total Net Bookings. The largest contributors to Net Bookings in fiscal first quarter 2020 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K19, the Borderlands franchise, Red Dead Redemption 2 and Red Dead Online, Social Point’s mobile offerings, WWE SuperCard and WWE 2K19, and Sid Meier’s Civilization VI.

Catalog accounted for $394.7 million of Net Bookings led by Grand Theft Auto, NBA 2K, Borderlands, and Social Point’s mobile offerings.

Digitally-delivered Net Bookings grew 51% to $382.5 million, as compared to $252.8 million in last year’s fiscal first quarter, and accounted for 91% of total Net Bookings. The largest contributors to digitally-delivered Net Bookings in fiscal first quarter 2020 were NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, the Borderlands franchise, Red Dead Redemption 2 and Red Dead Online, Social Point’s mobile offerings, and Sid Meier’s Civilization VI.

Management Comments

“Fiscal 2020 is off to a terrific start with first quarter operating results that beat our expectations,” said Strauss Zelnick, Chairman and CEO of Take-Two. “We delivered significant Net Bookings and cash flow growth driven by the performance of Grand Theft Auto Online and Grand Theft Auto V, NBA 2K19, the Borderlands franchise, and Red Dead Redemption 2 and Red Dead Online.

“As a result of our better-than-expected first quarter operating results and increased forecast for the balance of the year, we are raising our outlook for fiscal 2020, which is anticipated to be another great year for our organization. We aim to build on this strong start by delivering a robust array of titles throughout the year, including Ancestors: The Humankind Odyssey, NBA 2K20, Borderlands 3, WWE 2K20 and The Outer Worlds, as well as new and innovative ways for consumers to remain engaged with their favorite entertainment experiences.

“Looking ahead, Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP. We are exceedingly well positioned to capitalize on the positive trends in our industry, and to generate significant growth and margin expansion over the long-term.”

Business and Product Highlights

Since April 1, 2019:

Rockstar Games:

Starting this summer, players will be able to take on the first three of a series of new roles: track down wanted criminals as a bounty hunter; search the world for treasure and other exotic items to sell as a collector; or build a business at camp as a trader and more.

2K:

Private Division:

Social Point:

* According to 2000 – 2019 Metacritic.com and Gamerankings.com.

Outlook for Fiscal 2020

Take-Two is providing its initial outlook for its fiscal second quarter ending September 30, 2019 and is raising its outlook for the fiscal year ending March 31, 2020:

Second Quarter Ending September 30, 2019

The Company is also providing selected data and its management reporting tax rate of 17%, which are used internally by its management and Board of Directors to adjust the Company’s GAAP financial outlook in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Three Months Ending September 30, 2019

 

Financial Data

$ in millions

GAAP outlook (2)

Change in
deferred net
revenue and
related cost of
goods sold

Stock-based
compensation

Amortization of
acquired
intangible
assets

 

Net revenue

$855 to $905

 

 

$5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

$415 to $442

 

 

($10)

 

 

($23)

 

 

($2)

 

 

 

 

 

 

 

 

 

 

Operating Expenses

$312 to $322

 

 

 

 

 

($20)

 

 

($2)

 

Interest and other, net

($9)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

$137 to $151

 

 

$15

 

 

$43

 

 

$4

Fiscal Year Ending March 31, 2020

The Company is also providing selected data and its management reporting tax rate of 17%, which are used internally by its management and Board of Directors to adjust the Company’s GAAP financial outlook in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook:

Twelve Months Ending March 31, 2020

 

Financial Data

$ in millions

GAAP outlook (3)

Change in
deferred net
revenue and
related cost of
goods sold

Stock-based
compensation

Amortization
of acquired
intangible assets

 

 

 

Reorganization
& acquisition

 

Net revenue

$2,830 to $2,930

 

 

($230)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

$1,296 to $1,341

 

 

($110)

 

 

($90)

 

 

($10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

$1,072 to $1,092

 

 

 

 

 

($84)

 

 

($7)

 

 

($1)

 

Interest and other, net

($39)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

$501 to $536

 

 

($120)

 

 

$174

 

 

$17

 

 

 

$1

1)

Includes 113.1 million basic shares and 0.7 million shares representing the potential dilution from unvested employee stock grants.

2)

The individual components of the financial outlook may not foot to the totals, as the Company does not expect actual results for every component to be at the low end or high end of the outlook range simultaneously.

3)

Includes 113.1 million basic shares and 1.5 million shares representing the potential dilution from unvested employee stock grants.

4)

Includes a $20.0 million net decrease in restricted cash for fiscal 2020.

 

Key assumptions and dependencies underlying the Company’s outlook include: the timely delivery of the titles included in this financial outlook; continued consumer acceptance of Xbox One and PlayStation 4; the ability to develop and publish products that capture market share for these current generation systems while also leveraging opportunities on PC, mobile and other platforms; and stable foreign exchange rates. See also “Cautionary Note Regarding Forward Looking Statements” below.

Product Releases

The following titles were released since April 1, 2019:

 

Label

Title

Platforms

Release Date

2K

Borderlands: Game of the Year Edition

PS4, Xbox One, PC

April 3, 2019

2K

NBA 2K Mobile

Android

April 17,2019

Social Point

Word Life

iOS, Android

May 9, 2019

Rockstar Games

Red Dead Online Spring Update

PS4, Xbox One

May 14, 2019

Private Division

Kerbal Space Program: Breaking Ground (DLC)

PC

May 30, 2019

Rockstar Games

Grand Theft Auto Online: The Diamond Casino & Resort

PS4, Xbox One, PC

July 23, 2019

2K

Sid Meier’s Civilization VI: Rise and Fall (Expansion Pack)

iOS

July 23, 2019

Take-Two’s lineup of future titles announced to date includes:

Label

Title

Platforms

Release Date

Private Division

Ancestors: The Humankind Odyssey

PC (digital only)

August 27, 2019

2K

NBA 2K20

PS4, Xbox One, Switch, PC

September 6, 2019

2K

Borderlands 3

PS4, Xbox One, PC

September 13, 2019

2K

WWE 2K20

PS4, Xbox One, PC

October 22, 2019

Private Division

The Outer Worlds

PS4, Xbox One, PC

October 25, 2019

Private Division

The Outer Worlds

Switch

TBA

2K

NBA 2K20

Stadia

November 2019

2K

Borderlands 3

Stadia

November 2019

Private Division

Ancestors: The Humankind Odyssey

PS4, Xbox One (digital only)

December 2019

Private Division

Disintegration

TBA

2020 (fiscal 2021)

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 Measure

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses a Non-GAAP measure of financial performance: Adjusted Operating Cash Flow, which is defined as GAAP net cash from operating activities, adjusted for changes in restricted cash. The Company’s management believes it is important to consider Adjusted Operating Cash Flow, in addition to net cash from operating activities, as it provides more transparency into current business trends without regard to the timing of payments from restricted cash, which is primarily related to a dedicated account limited to the payment of certain internal royalty obligations.

This Non-GAAP financial measure is not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results. This Non-GAAP financial measure may be different from similarly titled measures used by other companies. In the future, Take-Two may also consider whether other items should also be excluded in calculating this Non-GAAP financial measure used by the Company. Management believes that the presentation of this Non-GAAP financial measure provides investors with additional useful information to measure Take-Two’s financial and operating performance. In particular, this measure facilitates comparison of our operating performance between periods and may help investors to understand better the operating results of Take-Two. Internally, management uses this Non-GAAP financial measure in assessing the Company’s operating results and in planning and forecasting. A reconciliation of this Non-GAAP financial measure to the most comparable GAAP measure is contained in the financial tables to this press release.

Final Results

The financial results discussed herein are presented on a preliminary basis; final data will be included in Take-Two’s Quarterly Report on Form 10-Q for the period ended June 30, 2019.

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. The Company develops and publishes products principally through its wholly-owned labels Rockstar Games and 2K, as well as its Private Division label and Social Point, a leading developer of mobile games. Our products are designed for console systems and personal computers, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at http://www.take2games.com.

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

Cautionary Note Regarding Forward-Looking Statements

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,” “should,” “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, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, and risks associated with international operations. Other important factors and information are contained in the Company’s most recent Annual Report on Form 10-K, including the risks summarized in the section entitled “Risk Factors,” the Company’s most recent

Contacts

(Investor Relations)
Henry A. Diamond
Senior Vice President
Investor Relations & Corporate Communications
Take-Two Interactive Software, Inc.
(646) 536-3005
Henry.Diamond@take2games.com

(Corporate Press)
Alan Lewis
Vice President
Corporate Communications & Public Affairs
Take-Two Interactive Software, Inc.
(646) 536-2983
Alan.Lewis@take2games.com

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