Take-Two Interactive Software, Inc. Reports First Quarter Fiscal 2008 Financial Results

Top and Bottom Line Results Exceed Guidance, Company Raises Fiscal 2008 Guidance and Provides Second Quarter Guidance

Posted by Staff
New York, NY ? March 11, 2008 ? Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today announced financial results for its first quarter ended January 31, 2008.

Net revenue for the first quarter was $240.4 million, compared to $277.3 million for the same quarter of fiscal 2007, which benefited from more new game releases in last year's holiday season. First quarter sales were led by BioShock, Carnival Games?, NBA 2K8, Grand Theft Auto catalog titles, and the release of Grand Theft Auto: Vice City Stories in Japan. Distribution revenue rose year over year, fueled by the strength of next generation software and hardware sales, including robust demand for Wii? products.

Net loss for the first quarter was $38.0 million or $0.52 per share, compared to a net loss of $21.5 million or $0.30 per share in the first quarter of fiscal 2007.

The first quarter results include $6.1 million in stock-based compensation expense ($0.08 per share); and $1.7 million in expenses related to unusual legal matters and business reorganization costs ($0.02 per share). Results for the first quarter of 2007 included $4.0 million in stock-based compensation expense ($0.06 per share); and $7.2 million in expenses related to unusual legal matters ($0.10 per share).

Non-GAAP net loss was $30.3 million or $0.41 per share in the first quarter, compared to a net loss of $10.3 million or $0.14 per share in the first quarter of 2007. (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on non-GAAP items.)

Business Highlights

Among the significant recent business developments, Take-Two noted the following:

-- Rockstar Games announced a worldwide release date of April 29, 2008 for the highly anticipated Grand Theft Auto IV.

-- 2K Games said today that BioShock 2, the sequel to the wholly owned and internally developed title, is being developed by 2K Marin and is planned for release in the fourth quarter of fiscal 2009. The critically acclaimed BioShock title has sold over 2 million units worldwide since its launch in August.

-- Carnival Games, a wholly owned and internally developed title for the Wii?, shipped over 1 million units since its debut in late August. 2K Play will be bringing this popular title to the Nintendo DS? this summer.

-- 2K Play announced today that Carnival Games: Mini-Golf?, a brand extension of the Carnival Games franchise, is coming exclusively to the Wii this fall.

-- 2K announced the acquisition of Illusion Softworks, the creator and owner of several hit video game franchises, including Mafia, Hidden & Dangerous and Vietcong. Renamed 2K Czech, the Czech Republic based studio is currently developing Mafia II for next generation consoles and Games for Windows®.

Strauss Zelnick, Chairman of Take-Two, stated, "We are pleased with Take-Two's stronger than expected top and bottom line results for the first quarter. Our performance benefited from a diverse range of hit titles in the first quarter, and we are eagerly awaiting the release of Grand Theft Auto IV in the second quarter. We believe that our extraordinary creative assets and improving operational efficiency will be sources of significant value for shareholders as the interactive entertainment industry moves further into the current growth cycle."

Ben Feder, Chief Executive Officer of Take-Two, added, "We're excited about our robust product lineup, most of which is based on internally-owned and developed IP. With one of the strongest release schedules in the industry, Take-Two is clearly well positioned for the future. In addition to Grand Theft Auto IV, for the balance of fiscal 2008 our releases will include Midnight Club: Los Angeles, Sid Meier's Civilization Revolution, Top Spin 3, Don King Presents: Prizefighter, Carnival Games for DS, Carnival Games: Mini-Golf for Wii, NBA® 2K9, NHL® 2K9, episodic content for Grand Theft Auto IV on Xbox 360, as well as other titles. We also have significant visibility into fiscal 2009, which includes additional episodic content for Grand Theft Auto IV, Mafia II, Borderlands?, BioShock 2, our complete sports lineup, additional Nick Jr. titles under our agreement with Nickelodeon, and several new brands."

Financial Guidance

The Company is providing guidance for the second quarter ending April 30, 2008 and is raising its guidance for the fiscal year ending October 31, 2008 as detailed below. Fiscal 2008 guidance reflects the release of Borderlands for Xbox 360, PLAYSTATION 3 and Games for Windows® in fiscal 2009 instead of fiscal 2008 in order to allow additional development time for this highly anticipated game and provide a better balance in the release of Take-Two's triple-A titles.


Revenue* Non-GAAP EPS (a)(b)
------------------ ------------------------
Second quarter ending $450 to $500 $1.00 to $1.10
4/30/2008
Fiscal year ending $1,250 to $1,400 $1.35 to $1.55
10/31/2008

* In millions (a) The Company's non-GAAP EPS estimates for the second quarter ending April 30, 2008 and fiscal year ending October 31, 2008 exclude approximately $0.16 and $0.49 per share, respectively, of stock-based compensation expense; and approximately $0.04 and $0.08 per share, respectively, of business reorganization charges and expenses related to unusual legal matters. The Company's stock-based compensation expense for the second quarter and fiscal 2008 reflects the cost of approximately two million stock options issued to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these options is dependent upon several factors, including future changes in Take-Two's stock price. (b) EPS estimates reflect tax expense on international operations only.

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.

Product Pipeline

The following titles shipped during the first and second quarters
of 2008:

Title Platform
---------------------------------------------- ----------------------

Bully: Scholarship Edition Xbox 360, Wii
College Hoops 2K8 Xbox 360, PS3, PS2
Deal or No Deal(TM): Secret Vault Games PC
Dora the Explorer: Dora Saves the Mermaids(TM) PS2, DS
Go, Diego, Go!: Safari Rescue(TM) Wii, PS2, DS
Grand Theft Auto: Vice City Stories (Japan) PS2, PSP
Major League Baseball(R) 2K8 Xbox 360, PS3, Wii,
PSP, PS2


Take-Two's lineup announced to date for the remainder of fiscal
2008 includes the following titles:

Title Platform
---------------------------------------------- ----------------------

Carnival Games(TM) DS
Carnival Games: Mini-Golf(TM) Wii
Don King Presents: Prizefighter Xbox 360, Wii, DS
Grand Theft Auto IV Xbox 360, PS3
Grand Theft Auto IV episodic content Xbox 360
Major League Baseball(R) 2K8 Fantasy All-Stars DS
Midnight Club: Los Angeles Xbox 360, PS3
NBA(R) 2K9 Multiple platforms
NHL(R) 2K9 Multiple platforms
Sid Meier's Civilization(R) Revolution(TM) Xbox 360, PS3, DS
Top Spin 3 Xbox 360, PS3, Wii, DS

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 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 uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items. Non-GAAP gross profit, operating loss, net loss and basic and diluted 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:

-- Business reorganization, restructuring and related expenses

-- Stock-based compensation

-- Professional fees and expenses associated with the Company's stock options investigation and certain other unusual regulatory and legal matters

-- 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. Therefore, 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 year ended October 31, 2007 to reduce headcount, relocate employees and consolidate sales and operational functions.

The Company recorded additional business reorganization costs in the first quarter ended January 31, 2008, and expects that additional business reorganization, restructuring and related costs will be recorded in the remainder of 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.

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 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 has 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 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.
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