Take-Two Interactive Form 10-Q: Q2 FY2014

Key insights

7 takeaways

01
Take-Two reported a net loss for the three and six months ended September 30, 2013, resulting in the exclusion of all common stock equivalents from diluted earnings per share calculations due to their antidilutive impact.
02
Selling and marketing expenses rose by $35.5 million for the quarter ending September 30, 2013, driven primarily by the high-profile releases of Grand Theft Auto V and The Bureau: XCOM Declassified.
03
General and administrative expenses increased by $12.2 million for the quarter, largely due to a $5.4 million rise in stock-based compensation and $4.0 million in combined personnel and consulting costs.
04
Research and development expenses for the six-month period increased by $12.8 million, attributed to lower payroll capitalization rates as development resources transitioned to new projects following the March 2013 launch of BioShock Infinite.
05
In June 2013, the company issued $138.0 million in 1.00% Convertible Notes and subsequently called for the redemption of all outstanding 4.375% Convertible Notes, which were settled by August 29, 2013.
06
The company maintains a management agreement with ZelnickMedia through May 2015, which provides for an annual management fee of $2.5 million plus a maximum annual bonus of $3.5 million, both subject to 3% annual increases.
07
As of October 28, 2013, Take-Two Interactive had 97,101,554 shares of common stock outstanding.

Summary

Take-Two Interactive’s financial performance for the second quarter of fiscal year 2014 reflects a period of significant capital restructuring and strategic transition, anchored by the high-profile release of Grand Theft Auto V. The company maintained a single-segment publishing structure across its Rockstar Games and 2K labels while navigating a challenging fiscal landscape. For the six months ending September 30, 2013, the company reported a net loss of $186.0 million, an increase from the prior year’s $123.3 million loss, primarily driven by elevated operating expenses and the timing of major title releases.

A central focus during this period was the optimization of the company’s debt profile. Take-Two successfully redeemed $138 million in 4.375% convertible notes, settling the obligation through a mix of cash and common stock, and subsequently issued $287.5 million in 1.00% convertible notes due 2018. These maneuvers, combined with the unwinding of associated hedge and warrant transactions, resulted in a net cash gain of $28,778 and left the company with a robust liquidity position of $661.9 million in cash and cash equivalents by the end of the quarter.

Operationally, the company experienced a marked shift toward digital distribution, which accounted for 60.1% of quarterly net revenue. Despite this growth, international markets remained critical, contributing 44% of total revenue for the six-month period. Management continues to mitigate risks associated with foreign currency fluctuations through forward contracts, though these instruments incurred a $10.3 million loss. Looking forward, the company faces potential operational risks related to the implementation of a new enterprise resource planning system, even as it continues to manage the complexities of retail concentration and the evolving digital landscape.