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Take-Two Interactive Software, Inc. Reports Second Quarter Fiscal 2010 Financial Results

Q2 Non-GAAP EPS of $0.34 Exceeds Guidance

Company Increases Revenue and Non-GAAP EPS Guidance for Fiscal 2010

 

New York, NY – June 8, 2010– Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today announced financial results for its second quarter ended April 30, 2010.

 

Net revenue for the second fiscal quarter was $268.0 million, an increase of approximately 54% compared to $174.3 million for the same quarter of fiscal 2009. Second quarter fiscal 2010 sales were driven by the launches of BioShock® 2, Grand Theft Auto: Episodes from Liberty City on the PS3 and PCandMajor League Baseball® 2K10, along with continuing strong sales of catalog titles including NBA® 2K10 and Grand Theft Auto IV.

 

Income from continuing operations for the second quarter was $16.9 million or $0.20 per share, compared to a loss from continuing operations of $10.4 million or $0.13 per share in the second quarter of fiscal 2009.

 

The second quarter 2010 results from continuing operations included $7.1 million in stock-based compensation expense ($0.07 per share); $4.9 million in non-cash interest and non-cash tax expense ($0.05 per share); $3.6 million of non-cash loss on sale of subsidiary ($0.04 per share); $1.2 million in business reorganization costs ($0.01 per share); and $1.9 million primarily for insurance reimbursements for settlements and professional fees related to unusual legal matters ($0.02 per share). Results from continuing operations for the second quarter of 2009 included $5.3 million in stock-based compensation expense ($0.07 per share); and $1.8 million in professional fees and expenses related to unusual matters ($0.02 per share).

 

Non-GAAP income from continuing operations was $31.9 million or $0.34 per diluted share in the second quarter of fiscal 2010, compared to a non-GAAP loss from continuing operations of $3.2 million or $0.04 per share in the second quarter of 2009. (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on non-GAAP items.)

 

For the six months ended April 30, 2010, net revenue was $431.2 million, compared to $323.6 million for the same period a year ago.  Loss from continuing operations for the first half of fiscal 2010 was $16.9 million or $0.22 per share, compared to loss from continuing operations of $64.3 million or $0.84 for the 2009 period. Results from continuing operations for the first six months of fiscal 2010 included $13.6 million in stock-based compensation expense ($0.16 per share); $7.2 million in non-cash interest and non-cash tax expense ($0.09 per share); $3.6 million of non-cash loss on sale of subsidiary ($0.04 per share); $1.2 million in expenses related to business reorganization costs ($0.01 per share); and $1.2 million primarily for insurance reimbursements for settlements and professional fees related to unusual legal matters ($0.01 per share). Results from continuing operations for the first six months of fiscal 2009 included $11.5 million in stock-based compensation expense ($0.15 per share); and $6.7 million in professional fees and expenses related to unusual matters ($0.09 per share).

 

Non-GAAP income from continuing operations was $7.5 million or $0.09 per share in the first six months of 2010, compared to non-GAAP loss from continuing operations of $46.1 million or $0.60 per share in the comparable period of 2009.  (Please refer to Non-GAAP Financial Measures and reconciliation information included later in this release.)

 

Product Milestones

 

  • Rockstar Games launchedRed Dead Redemption on May 18 in the Company’s third fiscal quarter. The title has sold in over 5 million units to date and has been a commercial and critical success, with a near-perfect score of 95* from Metacritic.com.

  • Grand Theft Auto IVfrom Rockstar Games has sold over 17 million units globally.


 

Product Highlights

 

  • 2K Games announced that Mafia® II for the Xbox 360, PlayStation 3 and Windows PC is planned for release on August 24, 2010 in North America and on August 27, 2010 internationally.

  • 2K Games released Sid Meier’s Civilization® Revolution™ as a launch title for the Apple iPad.

  • 2K Play today announced New Carnival Games® for Wii and DS, the newest entry in its hit franchise that has sold over 6 million units. The title is planned for release this fall. The original Carnival Games title is the #3 selling third-party title of all time on the Wii according to The NPD Group**.

  • 2K Play announced a number of new Nickelodeon products, including titles based on the popular Dora the Explorer and Go, Diego, Go! television series.

  • 2K Games announced that XCOM®, the re-imagining of one of gaming's most storied and beloved franchises, is currently in development at 2K Marin exclusively for the Xbox 360 and Windows PC.


 

Financial Guidance

 

Take-Two is providing initial guidance for the third quarter ending July 31, 2010 and fourth quarter ending October 31, 2010, and is increasing its guidance for the fiscal year ending October 31, 2010 to reflect the successful launch of Red Dead Redemption and the Company’s better than expected second quarter results.

  • L.A. Noire, Mafia II andSid Meier’s Civilization V are planned for releasein the fourth quarter of fiscal 2010; and

  • The launch of Max Payne 3 has been moved out of fiscal 2010.


 

 

 












































































































































Third quarter ending 7/31/2010





Fourth quarter ending 10/31/2010





Fiscal year
ending 10/31/2010

















Revenue





$250 to $300 million





$200 to $250 million





$880 to $980 million




 











Non-GAAP EPS from continuing operations





$(0.10) to $(0.20)





$(0.10) to $(0.20)





$(0.10) to $(0.30)


















Stock-based compensation


expense per share (a)





$0.15





$0.07





$0.39

















Non-cash interest expense related to convertible debt (b)





$0.02





$0.02





$0.09


















Business restructuring costs, non-cash loss on sale of subsidiary, and expenses related to unusual legal matters





$0.01





$0.01





$0.07

















Non-cash tax expense





$0.01





$0.01





$0.06



   

  1. The Company's stock-based compensation expense for the third and fourth quarters and fiscal year 2010 includes the cost of approximately 2 million stock options and 1.5 million shares previously issued to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these options and shares is dependent upon several factors, including future changes in Take-Two's stock price.

  2. The Company adopted a new accounting standard in the first quarter of fiscal 2010 that requires convertible debt to be bifurcated into debt and equity components.  As a result of the new standard, the Company has begun to record non-cash interest expense on its convertible notes, in addition to the interest expense already recorded for coupon payments.


 

 

Key assumptions and dependencies underlying the Company’s guidance include continued consumer acceptance of the Xbox 360, PlayStation 3 and Wii; the ability to develop and publish products that capture market share for these current generation systems while continuing to leverage opportunities on certain prior generation platforms;  the timely delivery of the titles detailed in this release; as well as no significant changes in foreign exchange rates.

 

Product Releases

 

The following titles shipped in the second quarter of fiscal 2010:

 


























































Title   Platform
     
BioShock 2   Xbox 360, PS3, PC
BioShock 2: Rapture Metro Pack (DLC)   Xbox 360, PS3, PC
BioShock 2: Sinclair Solutions Tester Pack (DLC)   Xbox 360, PS3, PC
Borderlands: The Secret Armory of General Knoxx (DLC)   Xbox 360, PS3, PC
Grand Theft Auto: Episodes from Liberty City   PS3, Games for Windows®-LIVE
Grand Theft Auto: The Lost and Damned (DLC)   PlayStation®Network, Games for Windows-LIVE
Grand Theft Auto: The Ballad of Gay Tony (DLC)   PlayStation®Network, Games for Windows-LIVE
Major League Baseball® 2K10   Xbox 360, PS3, PS2, PSP, Wii, DS, PC
Sid Meier’s Civilization Revolution   iPad

 

 

 

The following titles shipped to date in the third quarter of fiscal 2010:

 


















Title   Platform
     
Red Dead Redemption   Xbox 360, PS3

 

 

Take-Two's lineup of key titles announced to date for the remainder of fiscal 2010 includes:

 











































Title   Platform
     
L.A. Noire   Xbox 360, PS3
Mafia® II   Xbox 360, PS3, PC
NBA® 2K11   TBA
NHL® 2K11   Wii
New Carnival Games   Wii, DS
Sid Meier’s Civilization® V   PC

Management Comment

 

Strauss Zelnick, Chairman of Take-Two, stated, “Our better than expected second quarter results reflect the solid performance of our triple-A titles and continued strength of our catalog business.  The successful worldwide launch of Red Dead Redemption reflects the unparalleled creative talent that is a distinguishing strength of Take-Two, and the title has set new benchmarks for quality and innovation. We are incredibly proud of our creative teams and their success in delivering some of the best interactive entertainment experiences.  We have raised our outlook for 2010 to reflect these achievements.”

 

Ben Feder, Chief Executive Officer of Take-Two, commented, “The successful diversification of our portfolio and the ability to leverage our proven franchises has enabled Take-Two to strengthen its position as an industry leader. Our core business continues to gain momentum, and Rockstar’s Red Dead Redemption is proving to be a hit. We’ll continue to build upon this success in the second half of our fiscal year with the release of several titles from our proven franchises, including Mafia IISid Meier’s Civilization VNBA 2K11 andNew Carnival Games.”

 

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 visitinghttp://ir.take2games.com and a replay will be available following the call at the same location.

 

Non-GAAP Financial Measures

 

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items.  Non-GAAP gross profit, income (loss) from continuing operations, net income (loss) and earnings (loss) per share are measures that exclude certain non-recurring or non-cash items and should be considered in addition to results prepared in accordance with GAAP.  They are not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results.  These non-GAAP financial measures may be different from similarly titled measures used by other companies.

 

The non-GAAP measures exclude the following items from the Company’s statements of operations:

 

  • Stock-based compensation;

  • Business reorganization, restructuring and related expenses;

  • Gain (loss) on sale of subsidiaries;

  • Professional fees and expenses associated with unusual legal and other matters;

  • Non-cash interest expense related to convertible debt; and

  • Non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options.


 

In addition, the Company may consider whether other significant non-recurring items that arise in the future should also be excluded from the non-GAAP financial measures it uses.

 

The Company believes that these non-GAAP financial measures, when taken into consideration with the corresponding GAAP financial measures, are important in gaining an understanding of the Company’s ongoing business. These non-GAAP financial measures also provide for comparative results from period to period.  Therefore, the Company believes it is appropriate to exclude certain items as follows:

 

Stock-based compensation

The Company does not consider stock-based compensation charges when evaluating business performance and management does not contemplate stock-based compensation expense in its short and long-term operating plans.  The Company places greater emphasis on stockholder dilution than accounting charges when assessing the impact of stock-based equity awards.

 

Business reorganization, restructuring and related expenses

From time to time, the Company may engage in business reorganization and restructuring activities, which may result in costs related to severance, asset write-offs and associated professional fees. The Company does not engage in reorganization activities on a regular basis and therefore believes it is appropriate to exclude business reorganization, restructuring and related expenses from its non-GAAP financial measures.

 

Gain (loss) on sale of subsidiaries

The Company recognized a non-cash loss on the sale of a subsidiary in the second quarter of fiscal 2010. The Company does not engage in sales of subsidiaries on a regular basis and therefore believes it is appropriate to exclude such gains (losses) from its non-GAAP financial measures.

 

Professional fees and expenses associated with unusual legal and other matters

The Company has incurred significant legal and other professional fees associated with both the investigation of its historical stock option granting practices and the Company’s responses to related governmental inquiries and civil lawsuits. One of management’s primary objectives is to bring conclusion to its outstanding legal matters.  The Company continues to incur expenses for professional fees and has accrued for legal settlements that are outside its ordinary course of business. As a result, the Company has excluded such expenses from its non-GAAP financial measures.

 

Non-cash interest expense related to convertible debt

The Company adopted a new accounting standard in the first quarter of fiscal 2010 that requires convertible debt to be bifurcated into debt and equity components.  As a result of the new standard, the Company has begun to record non-cash interest expense on its convertible notes, in addition to the interest expense already recorded for coupon payments.  The Company excludes the non-cash portion of the interest expense from its non-GAAP financial measures because these amounts are unrelated to its ongoing business operations.

 

 

Non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options

The Company recorded non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options.  Due to the nature of the adjustment as well as the expectation that it will not have any cash impact in the foreseeable future, the Company believes it is appropriate to exclude this expense from its non-GAAP financial measures.

 

EBITDA and Adjusted EBITDA

Earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) is a financial measure not calculated and presented in accordance with U.S. GAAP.  Management uses EBITDA adjusted for business reorganization and related expenses (“Adjusted EBITDA”), among other measures, in evaluating the performance of the Company’s business units.  Adjusted EBITDA is also a significant component of the Company’s incentive compensation plans. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net income/(loss) prepared in accordance with GAAP.

 

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

 

*According to Metacritic.com as of 6/7/10.

**According to The NPD Group estimates of U.S. retail video game sales of Wii titles through April 2010.

 

About Take-Two Interactive Software

 

Headquartered in New York City, Take-Two Interactive Software, Inc. is a global developer, marketer and publisher of interactive entertainment software games for the PC, PlayStation®3 and PlayStation®2 computer entertainment systems, PSP® (PlayStation®Portable) system, Xbox 360® video game and entertainment system from Microsoft, Wii™, Nintendo DS™, iPhone™, iPod® touch and iPad. The Company publishes and develops products through its wholly owned labels Rockstar Games and 2K, which publishes its titles under 2K Games, 2K Sports and 2K Play. 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 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," "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 for current generation platforms, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, our ability to raise capital if needed and risks associated with international operations. Other important factors and information are contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2009, in the section entitled "Risk Factors," as updated in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2010, and the Company's other periodic filings with the SEC, which can be accessed at www.take2games.com. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise