Take-Two Interactive Software, Inc. Reports Strong Results for Fiscal Second Quarter 2019 November 7, 2018 4:05 PM ET GAAP net revenue grew 11% to $492.7 million GAAP net income increased to $0.22 per diluted share Net Bookings grew 1% to $583.4 million Company raises financial outlook for fiscal year 2019 NEW YORK--(BUSINESS WIRE)--Nov. 7, 2018-- Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today reported strong results for its fiscal second quarter 2019 ended September 30, 2018. In addition, the Company provided its initial financial outlook for its fiscal third quarter ending December 31, 2018, and raised its financial outlook for its fiscal year ending March 31, 2019. For additional information, please see the fiscal second quarter 2019 results slide deck posted to the Company’s investor relations website at http://ir.take2games.com. Fiscal Second Quarter 2019 GAAP Financial Highlights Net revenue grew 11% to $492.7 million, as compared to $443.6 million in last year’s fiscal second quarter. Recurrent consumer spending (virtual currency, add-on content and in-game purchases) grew 12% and accounted for 49% of total net revenue. The largest contributors to net revenue in fiscal second quarter 2019 were NBA® 2K19 and NBA 2K18, Grand Theft Auto® Online and Grand Theft Auto V, NBA 2K Online 2, Dragon City and Monster Legends, and WWE® SuperCard. Digitally-delivered net revenue grew 18% to $358.4 million, as compared to $302.9 million in last year’s fiscal second quarter, and accounted for 73% of total net revenue. The largest contributors to digitally-delivered net revenue in fiscal second quarter 2019 were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18 and NBA 2K19, NBA 2K Online 2, Monster Legends and Dragon City, and WWE SuperCard. Net income increased to $25.4 million, or $0.22 per diluted share, as compared to a net loss of $2.7 million, or $0.03 per diluted share, for the comparable period last year. As of September 30, 2018, the Company had cash and short-term investments of $1.025 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 September 30, 2018 Financial Data Change in deferred Amortization & Statement of net revenue and Stock-based impairment of $ in thousands operations related cost of compensation acquired goods sold intangible assets Net revenue $ 492,667 90,754 Cost of goods sold 234,880 5,622 (7,688 ) (3,670 ) Gross profit 257,787 85,132 7,688 3,670 Page 1/18 Operating expenses 231,801 (22,654 ) (1,742 ) Income from operations 25,986 85,132 30,342 5,412 Interest and other, net 4,975 (3 ) Income before income taxes 30,961 85,129 30,342 5,412 In order to calculate net income per diluted share for management reporting purposes, the Company uses its fully diluted share count of 116.1 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 second quarter 2019, total Net Bookings grew 1% to $583.4 million, as compared to $577.0 million during last year’s fiscal second quarter. Net Bookings from recurrent consumer spending grew 28% and accounted for 53% of total Net Bookings. The largest contributors to Net Bookings in fiscal second quarter 2019 were NBA 2K19 and NBA 2K18, Grand Theft Auto Online and Grand Theft Auto V, Dragon City and Monster Legends, WWE SuperCard, and NBA 2K Online 2. Catalog accounted for $287.8 million of Net Bookings led by Grand Theft Auto, Dragon City and Monster Legends, and NBA 2K. Digitally-delivered Net Bookings grew 20% to $426.2 million, as compared to $355.7 million in last year’s fiscal second quarter, and accounted for 73% of total Net Bookings. The largest contributors to digitally-delivered Net Bookings in fiscal second quarter 2019 were NBA 2K19 and NBA 2K18, Grand Theft Auto Online and Grand Theft Auto V, Dragon City and Monster Legends, WWE SuperCard, and NBA 2K Online 2. New Non-GAAP Financial Measure Starting in fiscal second quarter 2019, the Company is reporting 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. Please see the section below titled “Non-GAAP Financial Measure” for additional information. Management Comments “Take-Two delivered better-than-expected operating results, including growth in Net Bookings, during the fiscal second quarter,” said Strauss Zelnick, Chairman and CEO of Take-Two. “This outperformance was driven primarily by Grand Theft Auto V and Grand Theft Auto Online, as well as the successful launch of NBA 2K19. “On October 26th, Rockstar Games launched its highly-anticipated Red Dead Redemption 2, the label’s first game built from the ground up for the current console generation. Red Dead Redemption 2 has received outstanding reviews, with numerous critics awarding the title a perfect score. The title is now tied with Grand Theft Auto V as the highest rated title on PlayStation 4 and Xbox One, with a 97 Metacritic score. A massive commercial success, Red Dead Redemption 2 has set numerous records, including achieving the biggest opening weekend in the history of entertainment, with over $725 million in retail sell-through during its first three days. Red Dead Redemption 2 sold-in more units in its first 8 days than the original blockbuster Red Dead Redemption sold in its first 8 years and, as of today, the title has sold-in over 17 million units worldwide. “As a result of our strong second quarter performance and outstanding early results from Red Dead Redemption 2, we are Page 2/18 raising our financial outlook for fiscal 2019, which is also poised to be a record year for Net Bookings and Adjusted Operating Cash Flow. Looking ahead, we have a strong development pipeline across our labels and are exceedingly well positioned for long-term growth and margin expansion.” Business and Product Highlights Since July 1, 2018: Rockstar Games: Launched Red Dead Redemption 2 for PlayStation 4 and Xbox One. Told across the deepest and most expansive Rockstar world to date, Red Dead Redemption 2 is Rockstar’s first game built from the ground up for the current console generation. The title has received outstanding reviews, with numerous influential critics awarding Red Dead Redemption 2 a perfect score, including IGN, The Guardian, Game Informer, The Telegraph, Digital Trends and others. Following are some highlights from reviews: The Washington Post: “Jaw-dropping at every level.” The Hollywood Reporter: “What Rockstar has delivered in Red Dead Redemption 2 is not just the best game of the year, but the best game of the decade.” CNET: "Red Dead Redemption 2 has undoubtedly raised the bar for narrative open-world games and will likely have a lasting impact on how they are made in the future.” GQ UK: "Red Dead Redemption 2 is Rockstar’s best game; a grand, magnificent adventure that’s vast yet intimate... It's a landmark moment for the open world genre, and for the medium as a whole." Red Dead Redemption 2 has also been a massive commercial success and has set numerous records. The title’s list of initial benchmarks includes: Biggest opening weekend in retail sell-through across all entertainment releases (over $725 million); Second biggest launch (three days) in retail sell-through across all entertainment releases (next to Grand Theft Auto V); Biggest entertainment launch of 2018; Most pre-ordered full game ever on PlayStation Network; Biggest day one full game sales ever on PlayStation Network; Biggest first three days full game sales ever on PlayStation Network. Red Dead Redemption 2 sold-in more units in its first 8 days than the original blockbuster Red Dead Redemption sold in its first 8 years and, as of today, the title has sold-in over 17 million units worldwide. Released new free content updates for Grand Theft Auto Online, including: Sumo (Remix) Adversary Mode, in which players try to reach a safe zone to avoid going up in flames before the timer runs out while pieces of the track may or may not disappear at random. Running Back (Remix) Adversary Mode, where players attempt to drive an undersized Panto hatchback Runner into the end zone while being both flanked and opposed by an upgraded fleet of 5-star recruits in Tezeracts. Trading Places (Remix) mode, a menacing collision of super-human agility and devastating firepower. Hunting Pack (Remix) mode, which challenges a Runner to prevent an onboard bomb from detonating, while a team of Defenders must protect the Runner at all costs. GTA Online: After Hours, which enables players to partner with legendary club impresario Tony Prince to open and operate a top-shelf nightclub featuring world-class DJ acts and use that club as a front for a network of criminal enterprises. Numerous new vehicles, weapons and more. 2K: Released Carnival Games®, for Nintendo Switch. Built from the ground up for Nintendo Switch, Carnival Page 3/18 Games can be played alone or with up to four players simultaneously, leveraging the unique accessibility of the console’s Joy-Con controllers.