Take-Two Interactive Software (TTWO) Q1 FY2027: Development write-down drives operating loss
Revenue rose 2% as a write-down tied to canceled game development pushed operating results into a loss.
Lead
Take-Two’s Q1 FY2027 revenue rose 2.0% from a year earlier, but operating results swung to a loss. The operating loss was $35.5 million. A write-down of assets tied to canceled game development weighed on profitability. Operations also used $168.8 million in cash. Revenue growth did not cover development costs and cash outflows.
By MinJeKim | LineVest News
Source: Take-Two Interactive Software, Inc.’s Form 10-Q for the quarter ended June 30, 2026, filed August 7, 2026, including its financial statements, accompanying notes, and Management’s Discussion and Analysis.
Amounts are in millions of dollars. The balance sheet compares 2026.03.31→2026.06.30. Income and cash flow figures compare April–June 2025→April–June 2026. Parentheses indicate negative amounts.
1. Consolidated balance sheet analysis
1-1. Key asset comparisons
| Item | Prior period | Current period | Change | Interpretation |
|---|---|---|---|---|
| Cash and cash equivalents | 1,545.5 | 1,364.9 | -11.7% | Available cash declined |
| Accounts receivable | 737.0 | 606.9 | -17.7% | Uncollected sales proceeds declined |
| Inventory | Not separately disclosed | Not separately disclosed | Cannot be calculated | Balance cannot be assumed to be 0 |
| Property and equipment | 445.4 | 429.6 | -3.5% | Net carrying value declined |
| Other intangible assets | 1,653.2 | 1,493.6 | -9.7% | Amortization and impairment warrant attention |
The cash decline should be viewed alongside outflows from operating and investing activities. Cash plus short-term investments fell from 1,989.3 to 1,826.6. Moving some cash into time deposits does not explain the full decline.
The decrease in accounts receivable produced a 130.0 positive cash flow adjustment. Take-Two did not use its receivables sale program in the current period. Collection-period data is unavailable, so the decline does not establish that customers paid faster.
Property and equipment purchases were 25.0, below depreciation expense of 40.1. That is consistent with the asset decline, although exchange rates and other changes also matter. Other intangible assets should likewise be assessed alongside current-period amortization and impairment expense of 168.5. Amortization spreads an asset’s cost across its useful life.
The table’s intangible assets exclude separately reported goodwill and software development costs and licenses. Development costs and licenses rose 3.6%, from 2,346.3 to 2,431.0. The balance represents game development spending that has yet to be charged to expense.
1-2. Current debt surged as a bond neared maturity
The net carrying amount of total borrowings, including zero-coupon convertible notes, increased 0.1% from 2,518.0 to 2,519.7. Current borrowings jumped from 30.0 to 629.9. The main reason was the reclassification of 600.0 in notes due April 2027 from long-term to current debt. No borrowings were repaid during the period. The decline in long-term borrowings therefore does not reflect debt repayment.
Accounts payable, an operating liability, fell 14.9% from 211.0 to 179.5. Contract liabilities fell 14.7%, from 1,189.6 to 1,014.5. These are customer amounts billed or received before revenue is recognized. They represent future service obligations rather than principal to repay.
Accrued expenses and other liabilities fell 18.2%, from 1,117.8 to 914.3. They include interest and taxes as well as employee costs, so the entire balance cannot be treated as an operating liability. Lease liabilities fell from 440.3 to 425.0. These balances are operating lease liabilities.
1-3. Equity rose despite a growing accumulated deficit
Paid-in capital, comprising share capital and additional paid-in capital, rose from 11,955.8 to 12,097.9. The accumulated deficit widened from 7,058.8 at the end of March 2025 to 7,357.0 at the end of March 2026. It reached 7,391.1 at the current quarter-end. Cumulative losses continued to grow.
Total equity increased 2.8% to 3,608.4. An equity increase of 111.3 from share-based compensation and 31.8 in employee share purchases helped offset the net loss. The increase did not come from retained profits.
2. Consolidated income statement analysis
2-1. Revenue rose, but operating results swung to a loss
| Item | Prior period | Current period | Change |
|---|---|---|---|
| Revenue | 1,503.8 | 1,533.9 | +2.0% |
| Operating income | 21.6 | (35.5) | Swung to a loss |
| Operating margin | 1.4% | -2.3% | -3.8%p |
| Net income | (11.9) | (34.1) | Loss widened 186.6% |
| Net margin | -0.8% | -2.2% | -1.4%p |
Margin changes are calculated using unrounded figures. %p means percentage points, the difference between two percentages.
Game revenue increased 40.3, but advertising revenue fell 10.2. Total revenue rose just 30.1. Cost of revenue, meanwhile, increased 92.6, or 16.6%. Gross margin fell from 62.8% to 57.5%.
Note 7 says Take-Two recorded a 43.4 impairment charge in cost of revenue, citing decisions to cancel development projects and other factors. An impairment charge reduces an asset’s recorded value when that value is unlikely to be recovered. The charge does not account for the entire increase in cost of revenue.
Operating expenses fell 5.4 as selling and marketing spending declined. That saving did not offset the 62.5 drop in gross profit. Operating results worsened by 57.1. Lower interest expense and a larger income tax benefit partly cushioned the increase in the net loss.
2-2. Research and administrative costs outpaced revenue
Research and development expense, which is not closely tied to sales volume, rose 6.8% to 273.8. General and administrative expense increased 9.1% to 226.3. Together, they equaled 32.6% of revenue, up from 30.8% a year earlier. Both grew faster than revenue, adding to the cost burden.
Selling and marketing expense fell 9.7% to 369.7. Advertising is not purely a variable cost because management can adjust spending. Development spending also includes amounts expensed immediately and amounts recorded as assets. The filing does not classify costs as fixed or variable. An exact total or break-even point therefore cannot be calculated.
3. Cash flow statement analysis
| Item | Prior period | Current period | Change |
|---|---|---|---|
| Operating cash flow | (44.7) | (168.8) | -124.1 |
| Investing cash flow | (36.8) | (52.4) | -15.6 |
| Financing cash flow | 618.3 | 30.5 | -587.8 |
| Ending cash | 2,116.2 | 1,446.1 | -670.1 |
Ending cash includes restricted cash. Its scope therefore differs from cash and cash equivalents on the balance sheet.
Operating cash flow included negative adjustments of 173.0 for development costs and licenses and 174.9 for lower contract liabilities. A 265.9 decline in accounts payable, accrued expenses and other liabilities also reduced it. Cash collected on receivables did not offset those effects. The contract-liability adjustment, by itself, does not mean Take-Two paid out the same amount in cash.
Major investing outflows included 25.0 for property and equipment, a 17.9 increase in time deposits and 15.8 for asset acquisitions. Net cash provided by financing activities fell sharply because share issuance proceeds decreased by 1,187.8. The absence of the prior-year debt repayment of 600.0 partly offset that decline.
Free cash flow (FCF), meaning operating cash flow after capital spending, was -168.8－25.0＝-193.8. The outflow was 124.0 greater than the prior-year figure of -69.8. This calculation does not subtract development spending again because it is already included in operating cash flow. Cash interest paid on notes was 37.6. Cash income taxes paid were not separately identifiable in the provided figures.
4. Four further points to watch
Console and mobile revenue moved in opposite directions. Console revenue rose 16.3% to 640.5. Mobile revenue fell 4.9% to 762.3. The overall growth rate masks the gap between these major platforms. The filing identifies a revenue increase of 89.0 from NBA 2K, partly offset by declines of 32.8 from Color Block Jam and 24.2 from Grand Theft Auto. It attributes console growth primarily to NBA 2K and Borderlands, and the mobile decline primarily to Color Block Jam.
Recovering development assets matters. Development costs and licenses of 2,431.0 account for 26.8% of total assets. Future sales must recover a substantial balance. This quarter’s impairment charge shows that development spending does not always translate into revenue.
Recurring spending supports revenue, but does not guarantee cash flow. Recurrent consumer spending, including virtual currency, add-on content, in-game purchases and advertising, rose 2.7% to 1,289.8. It represented 84.1% of total revenue. Contract liabilities nevertheless declined, so the recurring revenue share alone does not establish improving cash flow.
Future contract revenue must be weighed against upcoming maturities. Revenue allocated to contract obligations that remain unfulfilled totals 1,271.2. Take-Two expects to recognize 1,061.6 of that amount over the next 12 months. Neither figure guarantees profit or cash receipts. The bond maturity falling within that period also belongs in funding plans.
5. Key implications and outlook
A favorable scenario would see console growth and recurrent consumer spending continue, with sales recovering the value of development assets. Sustained marketing savings could also help restore profitability.
Further development cancellations, declining mobile revenue and continued operating cash outflows would add pressure. Next quarter’s results should be assessed for revenue growth, a recovery in gross margin, contract-liability trends and funding for upcoming maturities. One quarter does not establish a return to full-year profitability.
Disclaimer
This report is based on the provided U.S. SEC quarterly filing (10-Q) and is for informational purposes. It is not an investment recommendation.