Take-Two Interactive Software, Inc. Reports Fourth Quarter and Fiscal 2007 Financial Results
December, 18 2007
Fourth Quarter Bottom Line Exceeds Guidance; Net Loss Declines on Revenue Growth and Reduced Expenses
Company Reiterates Fiscal Year 2008 Guidance and Provides First Quarter Guidance
New York, NY – Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today announced financial results for its fourth quarter and fiscal year ended October 31, 2007.
Net revenue for the fourth quarter was $292.6 million, compared to $266.6 million for the same period of fiscal 2006. Fourth quarter sales were led by BioShock, NBA 2K8 and Carnival Games, all of which were new titles released this quarter, as well as Grand Theft Auto catalog titles. Distribution revenue rose year over year, as next generation hardware sales were fueled by the strength of new front-line software titles, along with robust demand for Wii products.
Net loss for the fourth quarter was $7.1 million or $0.10 per share, compared to a net loss of $14.0 million or $0.20 per share in the fourth quarter of fiscal 2006.
The fourth quarter 2007 results include $4.8 million in stock-based compensation expenses ($0.06 per share); $4.5 million in business reorganization costs ($0.06 per share), including a $3.1 million loss related to the sale of Joytech ($0.04 per share); and $1.5 million in expenses related to unusual legal matters ($0.02 per share). Results for the fourth quarter of 2006 included $6.8 million in stock-based compensation expenses ($0.08 per share); $5.5 million in expenses related to unusual legal matters ($0.06 per share); and $2.3 million in expenses primarily related to studio closures ($0.03 per share).
Non-GAAP net income was $3.4 million or $0.05 per share in the fourth quarter of 2007, compared to a net loss of $1.8 million or $0.03 per share in the fourth quarter of 2006. (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on Non-GAAP items.)
Among the significant recent business developments, Take-Two noted the following:
· 2K Games’ wholly owned and internally developed BioShock for Xbox 360 and Games for Windows® has shipped over 2 million units worldwide since its launch in late August. This critically acclaimed title has received numerous accolades, including Game of the Year from the British Academy of Film and Television Arts (BAFTA), and from the Associated Press. Additionally, the title won Game of the Year, Best Xbox 360 Game and Best Original Score at the 2007 Spike TV Video Game Awards on December 9th.
· Carnival Games, a wholly owned and internally developed title for Nintendo’s Wii™, has shipped over 500,000 units since its debut in late August. 2K Play will be bringing this popular title to Nintendo DS™ in fiscal 2008.
· The Company closed on an expanded $140 million senior secured revolving credit facility.
· 2K announced the formation of 2K Marin, a new development studio in Novato, California, which will develop original intellectual property, as well as co-develop products with other 2K studios around the world.
· Gary Dale was named Executive Vice President of Take-Two, responsible for business development and optimizing sales and distribution activities. He had previously served as Chief Operating Officer of Rockstar Games.
Strauss Zelnick, Chairman of Take-Two, stated, “Fiscal 2007 was a year of progress for Take-Two, capped by better-than-expected bottom line financial performance in the fourth quarter. The Company has benefited from initiatives to streamline operations and improve our cost structure, while continuing to expand our portfolio of powerful video game franchises. As a result of this progress, Take-Two today is sharply focused on its core publishing business and is operating more productively and efficiently, while continuing to foster the extraordinary creative talent of our development teams. We are fully committed to building on this solid foundation to produce great entertainment and to enhance shareholder value.”
Ben Feder, Chief Executive Officer of Take-Two, added, “Take-Two enters fiscal 2008 with the strongest, most diverse product lineup in our history – much of it internally developed and owned IP – which positions us well for the continued growth of the interactive entertainment market. We are building on our existing franchises while creating new hits such as the award-winning BioShock and Carnival Games. Our releases for the coming year include six titles that have sold over one million units in earlier versions, ranging from Grand Theft Auto IV, shipping in the second quarter of fiscal 2008, to Midnight Club: Los Angeles, Bully: Scholarship Edition, Sid Meier’s Civilization: Revolution, Major League Baseball 2K8 and NBA 2K9. We’ll also release several new brands, including Borderlands and Don King Presents: Prizefighter, as well as Nick Jr. titles based on our partnership with Nickelodeon.”
Fiscal Year 2007 Results
Net revenues were $981.8 million for the fiscal year ended October 31, 2007, compared to $1.038 billion in fiscal 2006. Net loss for fiscal 2007 was $138.4 million or $1.93 per share, compared to $184.9 million or $2.60 per share in fiscal 2006.
Fiscal 2007 results include $17.3 million in stock-based compensation expenses ($0.24 per share); $23.6 million in business reorganization costs ($0.32 per share), which included a $3.1 million loss related to the sale of Joytech ($0.04 per share); and $16.7 million in expenses related to unusual legal matters ($0.23 per share). Results for fiscal 2006 included $21.9 million in stock-based compensation expenses ($0.19 per share); $32.2 million in expenses primarily related to studio closures ($0.34 per share); and $6.9 million in expenses related to unusual legal matters ($0.06 per share). Fiscal 2006 results also reflected a non-cash charge of $59.5 million ($0.84 per share) to record a valuation allowance on deferred tax assets.
Non-GAAP net loss was $81.0 million or $1.13 per share in fiscal 2007, versus $84.0 million or $1.18 per share in the comparable period of 2006. (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on Non-GAAP items.)
The Company is providing guidance for the first quarter ending January 31, 2008 and reiterating its guidance for the fiscal year ending October 31, 2008 as follows:
Non-GAAP EPS (a)
First quarter ending
$175 to $225
$(0.50) to $(0.60)
Fiscal year ending
$1,100 to $1,400
$1.30 to $1.50 (b)
Key assumptions and dependencies underlying the Company’s guidance include continued consumer acceptance of the Xbox 360® video game and entertainment system from Microsoft, PLAYSTATION®3 computer entertainment system and Wii™ home video game system from Nintendo; the ability to develop and publish products that capture market share for these next generation systems while continuing to leverage opportunities on legacy platforms; as well as the timely delivery of the titles detailed in this release.
The following titles shipped during the first quarter of 2008:
College Hoops 2K8
Xbox 360, PS3, PS2
Dora the Explorer: Dora Saves the Mermaids™
Go, Diego, Go!: Safari Rescue™
Deal or No Deal: Secret Vault Games
Grand Theft Auto: Vice City Stories (Japan)
Take-Two's lineup announced to date for the remainder of fiscal 2008 includes the following titles:
Xbox 360, PS3, Games for Windows®
Bully: Scholarship Edition
Xbox 360, Wii
Don King Presents: Prizefighter
Xbox 360, Wii, DS
Dora the Explorer: Dora Saves the Mermaids™
Go, Diego, Go!: Safari Rescue™
Grand Theft Auto IV
Xbox 360, PS3
Grand Theft Auto IV episodic content
Major League Baseball® 2K8
Midnight Club: Los Angeles
Xbox 360, PS3
Sid Meier's Civilization® Revolution™
Xbox 360, PS3, DS
Top Spin 3
Xbox 360, PS3, Wii
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 Measures
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company also uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items. Non-GAAP gross profit, operating income (loss), net income (loss) and basic and diluted 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, and 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:
* Business reorganization, restructuring and related expenses, including losses on sale of subsidiaries
* Stock-based compensation
* Professional fees and expenses associated with the Company’s stock options investigation and certain other unusual regulatory and legal matters
* Non-cash charges related to asset write-offs
* Severance, relocation and other expenses outside of the Company’s planned business reorganization initiatives, primarily related to certain studio closures in the 2006 periods
* Charge recorded to income tax expense for a valuation allowance, reflecting the uncertain utilization of deferred tax assets
* Income tax effects of the items listed above
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. In addition, the Company believes it is appropriate to exclude certain items as follows:
Business reorganization, restructuring and related expenses
In March 2007, the Company’s stockholders elected a new slate of members to Take-Two’s Board of Directors, who immediately removed the Company’s former President and Chief Executive Officer. Subsequently, the Company’s former Chief Financial Officer resigned. As a result of these actions and the implementation of a business reorganization plan, the Company incurred significant costs in the three months and year ended October 31, 2007 to reduce headcount, relocate employees and consolidate sales and operational functions. In addition, certain intellectual property was impaired and written off as a component of cost of good sold in the year ended October 31, 2007, based on a determination made by the newly appointed management team.
In September 2007, the Company sold substantially all of the net assets, primarily inventory and accounts receivable, of its wholly owned Joytech video game accessories subsidiary for approximately $3.6 million in cash. The disposition of Joytech did not involve a significant amount of assets or materially impact the comparability of the Company’s operating results. The Company recorded a loss of $3.1 million related to the sale of Joytech.
The Company expects that additional business reorganization, restructuring and related costs will be recorded in the 2008 fiscal year. Such costs are expected to relate 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 expenses from its non-GAAP financial measures.
The Company does not consider stock-based compensation charges when evaluating business performance and management does not contemplate stock-based compensation expense in their short and long-term operating plans. Furthermore, executive and management incentive compensation plans are generally based on measures that exclude the impact of stock-based compensation. The Company places greater emphasis on shareholder dilution than accounting charges when assessing the impact of stock-based equity awards.
Professional fees and expenses associated with the Company’s stock options investigation and certain other unusual regulatory and legal matters
The Company incurred significant legal and other professional fees associated with both the investigation of stock option grants and the Company’s responses to the New York County District Attorney’s subpoenas. One of management’s primary objectives is to bring conclusion to its regulatory matters. The Company continues to incur substantial 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 charges related to asset write-offs
In 2006, impairment charges were recorded in connection with studio closings to write-off software development costs related to several titles in development. The impairment charges were based on an assessment of the future recoverability of capitalized software balances related to these titles and the determination that these titles were unlikely to recover capitalized costs given a change in sales expectations as a result of weaker market conditions, the closure and anticipated closure of development studios, uncertainty involved in the console transition and historical performance of the titles. This charge was recorded as a component of cost of goods sold.
In addition, impairment charges were incurred related to the write-off of certain trademarks, acquired intangibles, goodwill and other assets based on management’s assessment of the future value of these assets, including future business prospects and estimated cash flows to be derived from them. These charges were recorded in depreciation and amortization expense and impairment of long lived assets.
The Company believes these charges were each based on a unique set of business objectives and circumstances, and therefore believes it is appropriate to exclude these non-cash charges related to asset write-offs from its non-GAAP financial measures.
Severance, relocation and other
In connection with certain studio closures in 2006, the Company incurred severance and other costs. The Company also relocated its European headquarters to Geneva. The Company does not regularly close development studios and does not plan to move its European headquarters, and therefore believes it is appropriate to exclude these expenses from its non-GAAP financial measures. These costs were recorded in research and development and general and administrative expenses.
Charge for tax valuation allowance
In July 2006, the Company recorded income tax expense for a valuation allowance, to reflect the uncertain utilization of deferred tax assets relating to net operating losses carried forward from prior periods and deductible temporary differences. This charge represents the income tax impact of the Company’s aggregate net operating losses and temporary differences existing at the beginning of the period.
EBITDA and Adjusted EBITDA
Earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) is a financial measure not calculated and presented in accordance with accounting principles generally accepted in the United States. 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 or as a substitute for net income/(loss) prepared in accordance with GAAP.
About Take-Two Interactive Software
Headquartered in New York City, Take-Two Interactive Software, Inc. is a global developer, marketer, distributor and publisher of interactive entertainment software games for the PC, PLAYSTATION®3 and PlayStation®2 computer entertainment systems, PSP® (PlayStation®Portable) system, Xbox 360® and Xbox® video game and entertainment systems from Microsoft, Wii™, Nintendo GameCube™, Nintendo DS™ and Game Boy® Advance. The Company publishes and develops products through its wholly owned labels Rockstar Games, 2K Games, 2K Sports and 2K Play; and distributes software, hardware and accessories in North America through its Jack of All Games subsidiary. Take-Two'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.
Microsoft, Xbox, Xbox 360, Xbox LIVE, and the Xbox logos are trademarks of the Microsoft group of companies.
"PlayStation", “PLAYSTATION”, "PSP" and the "PS" Family logo are registered trademarks of Sony Computer Entertainment Inc. Memory Stick Duo™ may be required (sold separately).
™, ®, Game Boy Advance, Nintendo GameCube, Nintendo DS and the Wii logo are trademarks of Nintendo. © 2006 Nintendo.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws. Such forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to them. The Company has no obligation to update such forward-looking statements. Actual results may vary significantly from these forward-looking statements based on a variety of factors. These risks and uncertainties include the matters relating to the Special Committee’s investigation of the Company’s stock option grants and the restatement of our consolidated financial statements. The investigation and conclusions of the Special Committee may result in claims and proceedings relating to such matters, including previously disclosed shareholder and derivative litigation and actions by the Securities and Exchange Commission and/or other governmental agencies and negative tax or other implications for the Company resulting from any accounting adjustments or other factors. Other important factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2006, and in the Company’s Form 10-Q for the third quarter ended July 31, 2007 in the section entitled “Risk Factors.”