Take-Two Interactive Software, Inc. Reports Strong Results for Fiscal Third Quarter 2019

GAAP net revenue grew to $1.249 billion

GAAP net income per diluted share increased to $1.57

Net Bookings grew 140% to $1.569 billion

Company repurchased 1.0 million shares of its common stock for $108.9
million

Company raises outlook for fiscal year 2019

NEW YORK–(BUSINESS WIRE)–Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today reported strong
results for its fiscal third quarter 2019 ended December 31, 2018. In
addition, the Company provided its initial outlook for its fiscal fourth
quarter ending March 31, 2019, and raised its outlook for its fiscal
year ending March 31, 2019. For additional information, please see the
fiscal third quarter 2019 results slide deck posted to the Company’s
investor relations website at http://ir.take2games.com.

Fiscal Third Quarter 2019 Financial Highlights

On April 1, 2018, the Company adopted FASB ASU 2014-09 (Topic 606), Revenue
from Contracts with Customers
. Topic 606 significantly changes how
the Company recognizes and reports net revenue and net income; however,
it does not materially impact Net Bookings (our operational metric).
Financial data for periods prior to April 1, 2018 has not been restated.

Net revenue grew to $1.249 billion, as compared to $480.8 million in
last year’s fiscal third quarter. Recurrent consumer spending (virtual
currency, add-on content and in-game purchases, including the allocated
value of virtual currency and add-on content included in special
editions of certain games) increased and accounted for 24% of total net
revenue. The largest contributors to net revenue in fiscal third quarter
2019 were Red Dead Redemption 2, NBA® 2K19 and NBA 2K18,
Grand Theft Auto® Online and Grand Theft Auto V, WWE®
2K19
and WWE® SuperCard, Dragon City and Monster
Legends
, and Sid Meier’s Civilization® VI.

Digitally-delivered net revenue grew to $594.7 million, as compared to
$258.4 million in last year’s fiscal third quarter, and accounted for
48% of total net revenue. The largest contributors to
digitally-delivered net revenue in fiscal third quarter 2019 were Red
Dead Redemption 2
, Grand Theft Auto Online and Grand Theft
Auto V
, NBA 2K19 and NBA 2K18, WWE 2K19 and WWE
SuperCard
, Monster Legends and Dragon City, and Sid
Meier’s Civilization VI
.

Net income increased to $179.9 million, or $1.57 per diluted share, as
compared to $25.1 million, or $0.21 per diluted share, for the
comparable period last year. Net income included a favorable impact from
the release of certain valuation allowances on the Company’s deferred
tax assets resulting in the recognition of a $108.7 million tax benefit
in the quarter. Without the release of the valuation allowances, the
third quarter tax benefit would have been $11.3 million.

During the 9-month period ended December 31, 2018, net cash provided by
operating activities grew 62% to $390.2 million, as compared to $241.1
million in the same period last year. During the 9-month period ended
December 31, 2018, Adjusted Operating Cash Flow (Non-GAAP), which is
defined as GAAP net cash from operating activities, adjusted for changes
in restricted cash, grew 188% to $587.0 million, as compared to $204.1
million in the same period last year (please see the section below
titled “Non-GAAP Financial Measure” for additional information). As of
December 31, 2018, the Company had cash and short-term investments of
$1.601 billion.

The following data, together with a management reporting tax rate of
20%, 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 December 31, 2018

       

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

   

Amortization &
impairment of
acquired

intangible assets

       
Net revenue $ 1,248,738 319,829
Cost of goods sold   898,484     87,011       (96,082 )           (3,630 )
 
Gross profit 350,254 232,818 96,082 3,630
 
Operating expenses   298,475           (27,586 )     5,930       (1,710 )
 
Income from operations 51,779 232,818 123,668 (5,930 ) 5,340
Interest and other, net   8,071     (313 )                  
Income before income taxes 59,850 232,505 123,668 (5,930 ) 5,340
 

In order to calculate net income per diluted share for management
reporting purposes, the Company uses its fully diluted share count of
114.7 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 third quarter 2019, total Net Bookings grew 140% to $1.569
billion, as compared to $653.9 million during last year’s fiscal third
quarter. Net Bookings from recurrent consumer spending grew 31% and
accounted for 22% of total Net Bookings. The largest contributors to Net
Bookings in fiscal third quarter 2019 were Red Dead Redemption 2, NBA
2K19
, Grand Theft Auto Online and Grand Theft Auto V, WWE
2K19
and WWE SuperCard, Dragon City and Monster
Legends
, and Sid Meier’s Civilization VI.

Catalog accounted for $243.9 million of Net Bookings led by Grand
Theft Auto
, Dragon City and Monster Legends, and
Sid Meier’s Civilization VI
.

Digitally-delivered Net Bookings grew 85% to $703.8 million, as compared
to $379.7 million in last year’s fiscal third quarter, and accounted for
45% of total Net Bookings. The largest contributors to
digitally-delivered Net Bookings in fiscal third quarter 2019 were Red
Dead Redemption 2
, NBA 2K19, Grand Theft Auto Online and
Grand Theft Auto V, WWE SuperCard and WWE 2K19, Monster
Legends
and Dragon City, and Sid Meier’s Civilization VI.

Management Comments

“Take-Two delivered better-than-expected results in the fiscal third
quarter,” said Strauss Zelnick, Chairman and CEO of Take-Two. “Our
outperformance was driven primarily by the record-breaking launch of Red
Dead Redemption 2
along with strong results from NBA 2K19. In
addition, consumers engaged significantly with our offerings, and
recurrent consumer spending grew 31% to a new record. We generated
strong cash flow and ended the period with $1.6 billion in cash and
short-term investments, after deploying $109 million to repurchase 1
million shares of our stock.

“As a result of our outstanding third quarter performance, we are
raising our outlook for fiscal 2019, which is poised to be a record year
for Net Bookings and Adjusted Operating Cash Flow. Looking ahead, as our
industry continues to embrace new technologies that enhance consumers’
experience with, and access to interactive entertainment, we remain
focused on broadening the reach of our content and expanding further
globally. Take-Two is exceedingly well-positioned – creatively,
strategically and financially – to capitalize on the vast opportunities
that will shape the future of our business, and to deliver long-term
growth and margin expansion.”

Business and Product Highlights

Since October 1, 2018:

Take-Two:

  • Repurchased 1.00 million shares of its common stock for $108.9 million.

Rockstar Games:

  • Launched Red Dead Redemption 2 for PlayStation 4 and Xbox One.
    Told across the deepest and most expansive Rockstar Games’ world to
    date, Red Dead Redemption 2 is the label’s first game built
    from the ground up for the current console generation. The title
    received outstanding reviews, with numerous influential critics
    awarding Red Dead Redemption 2 a perfect score, and the title
    also received multiple game of the year awards. Red Dead Redemption
    2
    has also been a massive commercial success and has set numerous
    records, including the biggest opening weekend in retail sell-through
    across all entertainment releases (over $725 million), and the second
    biggest launch (three days) in retail sell-through across all
    entertainment releases (next to Grand Theft Auto V). According
    to The NPD Group, based on combined physical and digital sales in the
    U.S., Red Dead Redemption 2 was the best-selling video game of
    2018. To date, Red Dead Redemption 2 has sold-in more than 23
    million units worldwide.
  • Launched the public Beta for Red Dead Online. Free with every
    copy of Red Dead Redemption 2, Red Dead Online is an
    evolution of the classic multiplayer experience in the original Red
    Dead Redemption
    , blending narrative with competitive and
    cooperative gameplay in fun new ways.
  • Released new free content updates for Grand Theft Auto Online,
    including:

    • Festive Surprise 2018, which featured festive decorations
      adorning Arena Workshops, Nightclubs and other properties across
      the city, and the rare Southern San Andreas snowfall phenomenon
      blanketing the streets.
    • Arena War, which includes 7 deadly Arena Events, as well as
      the opportunity for players to run their own workshop, craft their
      own juggernauts of destruction and track their own carnage-filled
      careers.
    • Halloween 2018, featuring new Halloween-themed modes, such
      as Condemned, and updates to creepy classics like Slashers and
      more.
    • Numerous new vehicles, weapons, clothing and more.

2K:

  • Announced that video game industry veteran Michael Condrey has joined
    2K as President of the label’s new game development studio based in
    Silicon Valley. Condrey is best known for co-founding Sledgehammer
    Games and leading development for the renowned Call of Duty
    franchise, including Call of Duty: Modern Warfare 3. Condrey
    also served as Chief Operating Officer and Director at Visceral Games
    in establishing the popular Dead Space franchise. In his new
    role with 2K, Condrey will build and lead a new development team to
    work on an unannounced project.
  • Announced, together with The National Basketball Association (NBA)
    and National Basketball Players Association (NBPA) a significant,
    multiyear global partnership extension. The agreement expands upon the
    success of NBA 2K, the top-rated and
    top-selling NBA video game simulation series for the past 17 years*
    that has sold-in nearly 90 million units worldwide.
  • Launched WWE 2K19, the next release from our flagship WWE video
    game franchise, for PlayStation 4, Xbox One and Windows PC. For the
    first time ever, 2K introduced the WWE 2K19 Million Dollar Challenge,
    where eligible entrants participate in an international contest in
    which the finalist will compete one-on-one in WWE 2K19 against
    AJ Styles for the chance to win $1 million. WWE 2K19 is being
    supported with a series of downloadable content, including a Season
    Pass.
  • Released Sid Meier’s Civilization VI, winner of The Game
    Awards’ and DICE Awards’ Best Strategy Game 2016, for Nintendo Switch.
    2K and Firaxis Games partnered with Aspyr Media to bring Civilization
    VI 
    to Nintendo Switch and ensure the experience meets the
    same high standards of the beloved series.
  • Launched Saber Interactive’s arcade-action sports game, NBA 2K
    Playgrounds 2
    , for Xbox One, PlayStation 4, Nintendo Switch and
    PC. This over-the-top, two-on-two basketball experience complements
    2K’s top-selling NBA 2K series and expands the label’s
    footprint in the basketball video game space.
  • Released Carnival Games®, for Nintendo Switch. Built from the
    ground up for Nintendo Switch, Carnival Games can be
    played alone or with up to four players simultaneously, leveraging the
    unique accessibility of the console’s Joy-Con controllers. Carnival
    Games
    was also released for PlayStation 4 and Xbox One.
  • Published physical versions of The
    Golf Club 2019 Featuring PGA TOUR
    ®
    the
    latest entry in the award-winning golf simulation series, for
    PlayStation 4, Xbox One and PC. Developed by HB Studios, The
    Golf Club 2019 Featuring PGA TOUR 
    marks the franchise’s
    first release featuring the official PGA TOUR license. The game had
    been released digitally on August 28, 2018.
  • Launched NBA 2K Mobile, which enables players to experience
    console quality graphics and lifelike NBA 2K action on the go.
    Collect your favorite NBA players, build your dream team, and step
    onto the court in lifelike 5v5 match-ups. Use Drills to train up your
    players, compete in Seasons to earn new rewards, participate in
    limited time events for exclusive cards, and rise up the leaderboards
    on their way to becoming legendary. . NBA 2K Mobile is
    currently available for free download on iOS phones and tablets and is
    planned to be available on Android devices in Spring 2019.
  • Launched Borderlands 2 VR for PlayStation VR. For the first
    time ever, Borderlands 2 VR enables players to immerse
    themselves virtually in the mayhem-filled world of Borderlands,
    the popular shooter-looter developed by Gearbox Software.
  • Announced that Sid Meier’s Civilization VI: Gathering Storm, the
    largest expansion pack ever created for a Civilization game and
    the second pack for the critically acclaimed and award-winning Sid
    Meier’s Civilization VI
    from Firaxis Games, will be available for
    Windows PC on February 14, 2019.

Private Division:

  • Announced that The
    Outer Worlds
    , a new intellectual property created by Obsidian
    Entertainment, will be available in calendar 2019 (Take-Two’s fiscal
    year 2020) on PC, PlayStation 4 and Xbox One. Co-game directors Tim
    Cain and Leonard Boyarsky, original creators of Fallout,
    have reunited for this new single-player RPG from the renowned team at
    Obsidian.
  • Announced that Ancestors:
    The Humankind Odyssey
     is planned for launch in
    calendar 2019 (Take-Two’s fiscal year 2020) digitally on PC,
    PlayStation4, and Xbox One. Ancestors: The Humankind
    Odyssey
     is the debut title from Panache Digital Games, the
    independent development studio co-founded in 2014 by Patrice Désilets,
    original creative director of Assassin’s Creed.

Social Point:

  • Launched Tasty Town, our latest free-to-play mobile offering,
    for iOS and Android devices. This all-new game enables players to
    fulfill their culinary dreams of designing and managing their own
    restaurant. In Tasty Town, players embark on an incredible
    journey – from farm to table – to build their gastronomic empire,
    including experiencing the joy of growing their own ingredients,
    hiring the best chefs, creating delectable dishes, creating and
    managing their own restaurant, and racing against the clock to serve
    meals with their food truck.

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

Outlook for Fiscal 2019

Take-Two is providing its initial outlook for its fiscal fourth quarter
ending March 31, 2019 and is raising its outlook for its fiscal year
ending March 31, 2019, as follows:

Fourth Quarter Ending March 31, 2019

  • GAAP net revenue is expected to range from $530 to $580 million
  • GAAP net income is expected to range from $76 to $89 million
  • GAAP diluted net income per share is expected to range from $0.67 to
    $0.77
  • Share count used to calculate both GAAP and management reporting
    diluted net income per share is expected to be 114.6 million (1)
  • Net Bookings (operational metric) are expected to range from $450 to
    $500 million

The Company is also providing selected data and its management reporting
tax rate of 20%, 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 March 31, 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 $530 to $580 ($80)
 
Cost of goods sold $248 to $274 ($22) ($28) ($2)
 
Operating Expenses $205 to $215 ($26) ($2)
 
Interest and other, net ($10)
 
Income before income taxes $87 to $101 ($58) $54 $4
 

Fiscal Year Ending March 31, 2019

  • GAAP net revenue is expected to range from $2.66 to $2.71 billion
  • GAAP net income is expected to range from $354 to $367 million
  • GAAP diluted net income per share is expected to range from $3.07 to
    $3.18
  • Share count used to calculate both GAAP and management reporting
    diluted net income per share is expected to be 115.5 million (3)
  • Net cash provided by operating activities is expected to be
    approximately $545 million, which includes a decrease of $195 million
    recorded in the first 9-months of fiscal 2019 due to the Company’s
    adoption of Accounting Standards Update 2016-18, Statement of Cash
    Flows (Topic 230): Restricted Cash
  • Adjusted Operating Cash Flow (Non-GAAP) is expected to be
    approximately $740 million
  • Capital expenditures are expected to be approximately $60 million
  • Net Bookings (operational metric) are expected to range from $2.89 to
    $2.94 billion

The Company is also providing selected data and its management reporting
tax rate of 20%, 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, 2019

 

Financial Data

$ in millions GAAP outlook (2)  

Change in
deferred net
revenue and
related
cost of

goods sold

   

Stock-based
compensation

   

Impact of
business
reorganization

   

Amortization of
acquired
intangible

assets

           
Net revenue $2,659 to $2,709 $231
 
Cost of goods sold $1,513 to $1,538 $93 ($171) ($10)
 
Operating Expenses $921 to $931 ($97) $6 ($7)
 
Interest and other, net ($30) $1
 
Income before income taxes $255 to 270 $137 $268

($6)

$17
        1)   Includes 113.1 million basic shares and 1.5 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 113.4 million basic shares and 2.1 million shares
representing the potential dilution from unvested employee stock
grants.
 

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 Nintendo Switch, Xbox 360, PlayStation 3, PC and mobile platforms;
and stable foreign exchange rates. See also “Cautionary Note Regarding
Forward Looking Statements” below.

Product Releases

The following titles were released since October 1, 2018:

Label

   

Title

   

Platforms

   

Release Date

2K    

WWE 2K19 Deluxe and Wooooo! Editions

    PS4, Xbox One, PC     October 5, 2018
2K

WWE 2K19 Standard Edition

PS4, Xbox One, PC October 9, 2018
2K

XCOM 2: War of the Chosen – Tactical Legacy Pack (DLC)

PC October 9, 2018
2K

NBA 2K Playgrounds 2

PS4, Xbox One, Switch, PC October 16, 2018
Rockstar Games

Red Dead Redemption 2

PS4, Xbox One October 26, 2018
2K

Carnival Games

PS4, Xbox One, Switch November 6, 2018
2K

The Golf Club 2019 Featuring PGA TOUR (Physical SKU)

PS4, Xbox One, PC November 13, 2018 *
2K

WWE SuperCard Season 5

iOS, Android November 13, 2018
2K

Sid Meier’s Civilization VI

Switch November 16, 2018
2K

NBA 2K Mobile

iOS November 19, 2018
2K

WWE 2K19: Titans Pack (DLC)

PS4, Xbox One, PC November 20, 2018
Rockstar Games

Red Dead Online Beta

PS4, Xbox One November 27, 2018
2K

Borderlands 2 VR

PS VR December 14, 2018
2K

WWE 2K19: New Moves Pack (DLC)

PS4, Xbox One, PC December 18, 2018
2K

WWE 2K19: Rising Stars Pack (DLC)

PS4, Xbox One, PC January 22, 2019
Social Point

Tasty Town

iOS, Android January 31, 2019
 

* North American release date. International release date is 3
days later.

 

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

 

Label

   

Title

   

Platforms

   

Release Date

2K

Sid Meier’s Civilization VI: Gathering Storm (Expansion
Pack)

PC February 14, 2019
2K

NBA 2K Mobile

Android Spring 2019
Private Division

Ancestors: The Humankind Odyssey

PS4, Xbox One, PC (digital only) 2019 (fiscal 2020)
Private Division

The Outer Worlds

PS4, Xbox One, PC 2019 (fiscal 2020)
 

Conference Call

Take-Two will host a conference call today at 8:00 a.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 December 31, 2018.

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.

Contacts

(Investor Relations)
Henry A. Diamond
Senior Vice President
Investor
Relations & Corporate Communications
Take-Two Interactive
Software, Inc.

(646) 536-3005
[email protected]

(Corporate
Press)
Alan Lewis
Vice President
Corporate Communications
& Public Affairs
Take-Two Interactive Software, Inc.
(646)
536-2983
[email protected]

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