Take-Two's Q3 Sales Fall, Loss Narrowed, Layoffs Expected

September 10, 2007 | By: James Brightman

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While Take-Two's net sales were down in the third quarter, loss was narrowed and the company is continuing to restructure and focus on core businesses. Unfortunately, that means more "headcount reduction" is expected. Take-Two also revealed that BioShock has shipped over 1.5 million copies thus far. [Update: added conference call tidbits]

Take-Two Interactive today revealed its third-quarter financial results for the period ended July 31. The publisher's net revenue was down to $206.4 million, compared to $241.2 million for the same period of fiscal 2006 � the company attributed the decline in part to a tough comparison to Q3 '06 when they released GTA: Liberty City Stories on PS2.

Net loss for the quarter was $58.5 million, which was improved from a net loss of $91.4 million during Q3 of fiscal 2006. "As compared with the year-ago period, the 2007 third quarter results reflected a decrease in product costs, software development costs, royalties and operating expenses," said Take-Two.

The company also noted that the loss "includes pre-tax expenses totaling $12.4 million for business reorganization and related costs due to Take-Two's management changes, restructuring expenses from the Company's cost savings initiatives, legal expenses and other professional fees associated with the stock options investigation, responses to the New York County District Attorney's subpoenas, and other legal matters, as well as stock-based compensation expenses."

Primary drivers of sales during the quarter included The Darkness, Fantastic Four: Rise of the Silver Surfer, The BIGS and All-Pro Football 2K8.

Looking ahead to the fourth quarter, Take-Two reiterated its previous guidance of $275 million to $300 million in revenue. The company is very pleased with BioShock, which has shipped over 1.5 million units worldwide since launch and is the highest rated game to date on Xbox 360 according to both GameRankings.com and Metacritic.com.

Take-Two has also provided initial guidance for the 2008 fiscal year of $1.1 billion to $1.4 billion in revenue and earnings per share of $0.80 to $1.00.

"Today we are establishing guidance for fiscal 2008 - the first full year to reflect the contributions of our new management team. Our outlook reflects a strong product pipeline, the benefits of a comprehensive restructuring and cost-efficiency program, including the sale of our non-core Joytech accessories division, and the expected profitability of our sports business. We also are announcing a new publishing label - 2K Play - focused on the expanding casual gamer market. We are proud of what this Company's management team has accomplished in a short time, and confident that our efforts will build the value of Take-Two in the future," said Strauss Zelnick, Chairman of Take-Two.

"Take-Two is well-positioned to capitalize on the growth of the video game market as next generation consoles gain traction. Our creative teams are delivering a strong and increasingly diverse product portfolio, including our successful new BioShock franchise. We are looking forward to our 2007 holiday line up, as well as our solid 2008 slate, which includes the release of Grand Theft Auto IV in our fiscal 2008 second quarter," added Take-Two CEO Ben Feder.

While Take-Two's management would appear to be on the right track, unfortunately for some of the company's employees, the continued restructuring efforts at the publisher are likely to result in more layoffs. "The Company expects that additional restructuring costs will be recorded in the fourth quarter of 2007 and into the 2008 fiscal year. Such costs are expected to relate to further headcount reduction, asset write-offs and associated professional fees," Take-Two noted.

[UPDATE] In a conference call to discuss the financial results, Take-Two execs hinted that BioShock would become one of the publisher's primary franchises over the long-term. It's expected that more BioShock games will follow on a two-year interval. Take-Two would not disclose actual sales figures for BioShock, but the execs stated that the game has been one of the fastest selling in Take-Two's history.

In addition, the company revealed that both LA Noire (the 1940s style crime game from Team Bondi) and Beaterator (a PSP music game) have been delayed from Take-Two's fiscal 2008 calendar, which means the titles won't be released until November 2008 at the earliest.