TTWO

Take-Two Interactive Software, Inc. (TTWO)

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Take-Two Interactive Software, Inc. (TTWO)

F3Q09 Earnings Call

September 1, 2009 4:30 pm ET

Executives

Cindy Buckwalter - Executive Vice President

Strauss Zelnick - Chairman of the Board

Benjamin Feder - Chief Executive Officer, Director

Lainie Goldstein - Chief Financial Officer

Analysts

Heath Terry - FBR Capital Markets

Daniel Ernst - Hudson Square Research

Mike Hickey - Janco Partners

Edward Williams - BMO Capital Markets

Arvind Bhatia - Sterne Agee & Leach

Benjamin Schachter - Broadpoint

Presentation

Operator

Greetings, ladies and gentlemen and welcome to the Take-Two Interactive Software Q3 2009 results. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Cindy Buckwalter, Executive Vice President for Take-Two Interactive. Thank you, Ms. Buckwalter. You may begin.

Cindy Buckwalter

Thank you. Welcome and thank you all for joining us for our third quarter conference call. Today’s call will be led by Strauss Zelnick, Chairman of Take-Two; Ben Feder, our CEO; and Lainie Goldstein, our CFO. Our team will be available to answer your questions during the Q&A session following our prepared remarks.

Before we begin, I would first like to quickly review our Safe Harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including our 10-K for the fiscal year ended October 31, 2008, and our 10-Q for the second quarter ended April 30, 2009. These documents may be obtained from our website at www.taketwogames.com.

Now I will turn the call over to Strauss.

Strauss Zelnick

Thanks, Cindy and good afternoon, everyone. Today we’ll review our financial results for the third quarter and discuss our operating highlights, our upcoming product lineup, and our outlook for the balance of the fiscal year.

Take-Two's third quarter results were in line with the guidance that we provided in July. Our top line results were slightly better than our guidance due to higher-than-expected revenue from catalog titles.

Recent reports have confirmed that the U.S. retail environment for interactive entertainment has not significantly changed since our last call. We are continuing to see weak consumer spending, slow adoption of hardware, and caution on the part of retailers with respect to both their initial orders of new releases and inventory management.

Internationally we are seeing similar trends throughout Europe and Asia. Now on a positive note, France and Germany have each reported modest economic growth and they have announced that they are officially out of the recession. European hardware sales have held up reasonably well on the PS3 and Xbox 360 and we have seen a broadening of market demographics through further hardware adoption of the Wii and DS.

In the past month we have experienced increased sales of our catalog titles in France and Germany, which we think bodes well for upcoming triple A releases. Our industry success is driven by hit titles and we believe that several key products from our company and our peers will play an important role in driving the business this holiday season.

In Asia, western titles are gaining share across the region as high quality entertainment products and strong production values are becoming increasingly important to these consumers. China and Korea continue to enjoy exponential year-over-year growth in the online interactive entertainment category and analysts have predicted that the market could exceed $5 billion by 2012. We hope to benefit from the growth of this market through our partnership with Ten Cent to bring NBA 2K online to Asia.

While the overall software market in Japan has declined year over year, there’s been growth in the Xbox 360 and Nintendo DS. We’ve seen our presence expand significantly in the region, driven by our proven brands and strong catalog, including titles such as Grand Theft Auto 4 and Midnight Club Los Angeles. There are many opportunities for Take-Two to capitalize further in this market, including investing in online products and leveraging the strength of our proven intellectual property.

All that said, clearly this has been and continues to be a challenging year for our industry and for our company. We believe that a prudent outlook is appropriate and we are maintaining our guidance for the fiscal year.

Looking forward, we are very excited about our terrific holiday lineup. The holidays historically have been the strongest sales period for our industry and we think that interactive entertainment will continue to be an important category this year. We also believe the retailers and consumers will concentrate on triple A and value-oriented titles, the two key areas of our portfolio and strategy. We are pleased that both Sony and Microsoft have reduced the price of their systems and we hope that will serve as a catalyst for the continued growth of our industry and also help to expand the audience for our titles.

We are confident in our long-term outlook. We have an exceptional pipeline of titles for 2010. We have a strong balance sheet and remain focused on the efficiency of our business and we are both proud and pleased to work with many of the most talented people in our business.

Now I will turn the call over to Ben.

Benjamin Feder

Thanks, Strauss. Today we reported net revenue for the third quarter was $139 million, a non-GAAP net loss was $50 million, or $0.66 per share This compared to revenue for the 2008 third quarter of $434 million, and non-GAAP net income of $71.5 million, or $0.93 per share. It’s important to note that these results for our third quarter of 2008 reflected significant revenue from Grand Theft Auto 4, which launched at the end of our second quarter last year.

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