Take-Two Interactive Form 10-Q: Q1 FY2016

Key insights

7 takeaways

01
As of June 30, 2015, Take-Two held $245.85 million in capitalized software development costs for unreleased titles, up from $211.25 million as of March 31, 2015.
02
The Grand Theft Auto series remains a core pillar for the company, with the Grand Theft Auto V title having sold-in over 220 million units across all platforms.
03
General and administrative expenses rose by $9.7 million for the quarter ending June 30, 2015, driven largely by a $5.5 million increase in stock-based compensation and $3.0 million in higher professional fees and restructuring costs.
04
The company's 1.75% Convertible Notes due in 2016 became convertible at the holder's option as of July 1, 2015, because the common stock price exceeded 130% of the conversion price for at least 20 of the 30 trading days ending June 30, 2015.
05
Take-Two recorded $1.71 million in software development impairment charges during the three months ended June 30, 2015.
06
Foreign currency forward contracts resulted in a loss of $662,000 for the three months ended June 30, 2015, compared to a loss of $802,000 in the same period of the previous year.
07
The company is preparing for the adoption of new accounting standards regarding inventory measurement (ASU 2015-11) and cloud computing arrangements (ASU 2015-05), effective for the company in April 2017 and April 2016, respectively.

Summary

Take-Two Interactive’s financial performance for the first quarter of fiscal year 2016, ending June 30, 2015, reflects a period of significant revenue growth driven by the continued dominance of the Grand Theft Auto franchise. The company reported a $149.9 million year-over-year revenue increase, with Grand Theft Auto V and Grand Theft Auto Online accounting for 62% of total net revenue. This growth was bolstered by the PC launch of the title and the recognition of previously deferred revenue. Despite these gains, the company recorded a net loss of $67.0 million, an increase from the $35.4 million loss reported in the same period the prior year, alongside a contraction in gross profit margin to 26.4% due to rising operating expenses in marketing, administration, and research and development.

The company operates within a single publishing segment, with financial activities spanning global markets and diverse distribution channels. Digital online channels remain a cornerstone of the business model, contributing 55.9% of total net revenue during the quarter. Financial management remains stable, characterized by full compliance with all debt covenants, including those related to a $100 million credit agreement and various convertible notes. While the company’s 1.75% convertible notes became eligible for conversion due to stock price performance, management intends to settle any such conversions through the issuance of common stock.

Liquidity remains robust, with $815.8 million in cash and cash equivalents as of the quarter's end, providing sufficient capital to meet operational requirements for the upcoming 12 months. The company continues to navigate international market risks and foreign currency fluctuations through active hedging strategies. Furthermore, Take-Two maintains a share repurchase program with 10 million shares authorized for buyback, though no repurchases were executed during this period. Governance remains anchored by the 2014 Management Agreement with ZelnickMedia, which dictates executive leadership and compensation structures through March 2019.