Q3 2020 Earnings Call
Greetings and welcome to take to Interactive Software's Q3, 2020 earnings conference call. At this time all participants are in listen only mode of question. That's a question will follow the formal presentation.
<unk> operator assistance during the conference. Please press starts or on your telephone keypad. Please note. This is being recorded I would now like turn the conference over to your host Mr. had done senior Vice President Investor Relations. Thank you you may begin.
Good afternoon, welcome and thank you for joining take Two's conference call.
To discuss its results for the third quarter of fiscal year 2020 ended December 31st 2019.
Today's call will be like Bystrov settlement take two's, Chairman and Chief Executive Officer.
Well, you don't our president and we need Goldstein our chief.
Financial Officer.
Every available to answer your questions during the Q when a freshman following our prepared remarks.
Before we begin I'd like to remind everyone that statements made during this call that are not historical facts are considered forward looking statements under federal.
Security for.
These forward looking statements are based on the beliefs or a management. It's also assumptions made by and information currently available to us.
We have no obligation to update these forward looking statements.
Actual 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 FCC, including the company's most recent annual report on form 10-K, and quarterly report on form 10-Q.
Excluding the risk summarized in the section entitled Risk factors.
I'd also like to know that unless otherwise stated all numbers, we will use discussing today, our gap and all comparisons are year over year.
Additional details regarding our actual results and outlook are contained in our press release, including me I didn't set our management uses.
Internally to address our GAAP financial results in order to evaluate our operating performance.
In addition, we have posted to our web site in flight deck that visually presents our results and financial outlook.
Our press release and filings with the FCC, maybe pain from or.
Website at Www Dot take two games dotcom.
And now I'll turn the call over to Strauss. Thanks. Thanks, Good afternoon, and thank you for joining us today.
Routes in 2019 holiday season experienced robust demand for our offerings that drove third quarter operating result, solidly within our increased out.
[laughter], our net bookings were substantially higher than what we included for the third quarter. When we gave our original fiscal 2020 outlook classmate as well as one we increased our outlook last August.
Highlights our the performance of Grand Theft Auto online and Grand Theft Auto five MBK 20, Red dead redemption, too and Red dead.
Online the outer world and borderlands, three reflecting our ability to deliver some of the most captivating experiences in the entertainment industry [noise].
Grand Theft auto in line once again exceeded our expectations delivering its best holiday quarter ever for both audience size and that bookings.
During the third quarter.
And consumer spending on Grand theft Auto online grew 54% driven by Rockstar games continue to release of engaging new contracts Grand theft Auto in line had its biggest series of back to back updates ever in terms of player numbers with records in audience size in December and the third quarter. Following the release of the dynamic casino and resort.
Update in July and the dynamic casino heist in December.
We're now on track to deliver a new record for Grand theft Auto online recurrent consumer spending in fiscal 2020.
Sales of Grand Theft Auto five also exceeded our expectations and the title is now sold in more than 120.
Million units. According to the MPD group Grand Theft Auto five was the best selling game up is actually in the U.S. based on both unit and dollar sales.
Red Dot online continues to gain momentum both in terms of engagement and recurrent consumer spending net bookings from Red dead online outperformed our expectations during the.
Third quarter, almost tripling both year over year and sequentially, excluding digital content bundled with Red dead redemption to premium additions.
I doubt long online hit a new peak in player numbers in December following the release of the latest update Moonshine Ers and then exceeded those numbers and set a new record in January.
We remain as excited as ever about the long term opportunity for read that online to be a significant driver of recurrent consumer spending.
In November Red Dead redemption to launched for the PC and Google Stadium today has sold in over 29 million units. According to the MPD group Red dead redemption to with the top title of the last four years.
Based on U.S. dollar sales.
[music].
It bears, noting that the collective lifetime selling of Grand theft auto five and Red dead redemption too is now them more than 150 million units worldwide with over 250 million lifetime game accounts created across both titles Rockstar games total online audience is.
So its biggest today, having recorded record numbers and the third quarter.
On October 25th Private Division launched the outer worlds Fracs box, one Playstation foreign PC developed by Obsidian Entertainment the outer world, So significantly exceeded our expectations and its holding more than 2 million units to date.
Critical response to the.
Has been outstanding and the other World says one more than 75 awards, including game of the year from the New York video game critic circle, and structured and best RPG over the year from IDN Shack News Gamer eggs and others. The title is also a finalist for the Dice Awards outstanding achievement in story and the Rpgs year.
We're confident.
It into the outer worlds will continue to expand its audience, including through its release on then tend to switch which has now planned for fiscal 2021.
Unit sales of MBK Twentyth latest installment in our industry, leading basketball series have outperformed our expectations and the titles to sold in over 8 million units to date.
Up slightly over MBK 19 in the same period in November the title was released for Google Stadia.
In addition engagement with MBK 20 is reaching all time highs with average daily active users growing and my team users up more than 35%.
In addition, MBK 20 is generated more than.
276 million views on Youtube and over 8 million hours of content, Washington, Twitch across hundreds of channels.
While this increased engagement led to strong growth in recurrent consumer spending in certain modes of MBK 20, we've not experienced the same positive benefits across the entire game due to some specific.
Line changes, which we plan to address and future versions of MBK because of this we no longer expect lifetime net bookings for MBK 20 to be a record for the series. However, we continue to expect recurrent consumer spending for the MBK franchise to grow in the strong double digits for fiscal 2020.
Taking creative risk is part of take two's DNA as we constantly strive to improve the gameplay experience for our audiences more often than not this results in enhancing our growth which is reflected in the substantial long term outperformance of MBJ. Okay.
Turning to borderlands three.
The latest installment in our jar defining shooter litter series continues to expand its audience since its record breaking launch in September with more than 50% user growth in comparison to borderlands two at the same time and its lifecycle to paying gearbox are supporting the game with free content as well as for downloadable campaign expansions, which are.
Included with the Borderlands three Super Deluxe edition and the season pass or can be purchased separately. Upon release. The first of these expansions moxy Tyson and the handsome jackpot was released during the third quarter was positively received by critics and consumers alike, helping to drive a season pass attach rate for borderlands three there was a record.
Both for the series and for two K. at the same point and the titles lifecycle.
In December Borderlands, two was released for Google Stadia and will be available on steam in the coming months to date Borderlands. Three has sold nearly 8 million units and we expect lifetime unit sales to be a record for the series.
Earlier in the.
Our two K. launched WWD, two k. 20 for Playstation four Xbox one and PC W.W. Each UK 20 feature several new gameplay mode to celebrate the W. W is thriving women's division as well as an array of fan favorite superstars legends and match types.
While we're disappointed that W.W., we to pay 20 does not meet.
Our expectations both in terms of sales and quality to K is actively working with visual concepts to ensure that these issues are addressed in the future and they'll have more to share on their plan. Soon the W. W. E brand continues to expand worldwide and the remains a substantial long term opportunity to grow our WWD to K series by improving the quality.
Polity of the game.
Among take two's core tenets of our aim to be the most creative in the most innovative company in the entertainment industry. Today. In addition to delivering the highest quality Standalone entertainment experiences we measure our success by our ability to captivate and engage audiences well beyond that titles initial release.
To that end during the third quarter recurrent consumer spending grew 6% and accounted for 41% of our total net bookings.
In addition to virtual currency Fremiet, two k. Grand theft auto in line in Red Dead on line recurrent consumer spending was enhanced by a variety of other offerings in the free to play category social.
Continues to be a meaningful contributor to our results towards mobile titles Dragons city months' for legends World shaft, Tasty town and word life.
During the quarter, social point added new content special events and updates to these games are Barcelona based studio continues to invest in its broad and innovative pipeline of new games planned for launch in the coming years.
Two k. launch season, six of Wwb Supercard, featuring all new card tiers and upgraded features the title has now been downloaded more than 20 million times and remains to case highest grossing mobile title.
MBK online in China remains the number one PC online sports game in China with more than 48 million registered users.
I don't content grew 135% led by offerings for Borderlands, three Sid Meier's civilization, six and Wwb two K. 20.
Finally sales and borderlands three premium additions, which include additional content that is allocated to recurrent consumer spending also contributed during the period.
As a result for a solid third quarter results and outlook for the fourth quarter, we're increasing the low end of our fiscal 2020 operating outlook, while maintaining the high end fiscal 2020 shaping up to be another terrific year for take too.
Looking ahead, our company has the strongest development pipeline in its history and we're committed to supporting our.
Titles with offerings designed to drive ongoing engagement. In addition, we're actively investing in emerging markets platforms and business models that have significant potential to enhance our growth take two is exceedingly well position to capitalize on the many positive trends in our industry and to generate returns for our shareholders over the long term.
I'll now turn.
On the call over to Carl.
Thanks Travis.
I'll begin by discussing our upcoming releases.
How many months to paying gearbox software will continue to support borderlands three with robust post launch contest strategy, including all the endgame many events and three additional downloadable campaign expansions.
Later this month attacks in Boston today, we'll unveil details about their future content offerings borderlands three upcoming release theme and more.
In addition asked our games will continue to provide an array of content and gameplay experiences for the vast open wells of Grand theft Auto online and Red dead online, which continue to.
Engagement records for the label.
In fiscal 2021, private division will expand our offerings for the Nintendo switch with the release of the outerwear US as Strauss noted earlier the title is incredibly well received by critics and consumers alike on its original launched platforms and we are confident that we'll continue to thrill audiences.
As a immerse themselves and this player choice driven RPG on the switch.
One of our organization as key priorities building scale like growing the size of our development pipeline.
Investing in our World class, three and resources and partnering with the best Independent studios in the industry enables take two to enhance our.
Industry, leading portfolio intellectual property, which is the foundation of our strategy to grow our business and expanded profitability.
In December two K. announced the formation of cloud Chamber, which will be working on the next generation of the globally acclaimed Bioshock franchise for the next several years.
Cloud Chamber is a collective storytellers.
Year to push the limits of interactive entertainment, and making unique captivating and thoughtful experiences set in a rich immersive world.
The team will be based on two locations to case head quarters in the vinyl, California, as well as in Montreal, Quebec, which marks the first ever Teekay studio in Canada.
Private to then.
As another example of our growing investment in new intellectual property.
This year, we benefited from the exceptional performance of the out of wells, our new label is taking a strategic approach to working with some of the industry is best creative talent and as quickly amassing an impressive pipeline for the future.
Alright fiscal year, 2000, 2021, private division plans to release.
We'll space program to at this integration, which just completed a successful technical data.
Private division will have more announcements about their growing portfolio over time.
Mobile, which continues to be the highest growing highest grossing and fastest growing segment in the interactive entertainment is an important opportunity.
For take too.
It's also important currently has five games active in the market, including Dragon say monsters lessons.
Well, Jeff Tasty town and word life and they have more than 10, new games and the various stages of development.
In addition, we continue to pursue new mobile offerings and extensions of our existing franchise.
W.W., we supercar, and then be entertain mobile.
Global proliferation of smart mobile devices and high speed data networks represents an exciting entry point into emerging markets, particularly in China, Latin America Africa in India.
Takes his development pipeline over the next five years is the largest and most of.
First in our company's history, including releases from our biggest franchises exciting new IP free to play offerings and the diverse mix of casual mid core and core gaming experiences.
We will have much more to share on this exciting slate of titles in the months to come.
In addition to our focus on.
Selling existing and building the franchises, we have a number of emerging opportunities that have the potential to contribute to our growth and margin expansion.
Sure I mean, they become a compelling distribution platform for our industry that could expand our market and increased margins.
Our frontline or catalog offerings, the highest quality content drives consumer adoption and.
Takes his portfolio is a must have for any new platform.
During the holiday season, we released Red dead redemption to MBK 20, and borderlands three for purchase on Google Stadia.
E Sports remains an exciting the segment our industry and company. The MB two kaylee, our first foray into competitive gaming in partnership with the.
MBA is gearing up for third season that will begin at the end of this month.
Leap continues to expand it with new teams joining this year, bringing accounts at 23, including a first international and non MB 18, the Gen GE Tigers of Shanghai.
The launch of the Genji Tigers the first step in the long term effort to build.
On a stronger global presence for the Lee.
In January the MB two kaylee hosted its global imitation match a series of exhibition matches, featuring APAC Invitational players and the 2019 NVH UK lead final MVP playing against tough representatives from MHK online too.
The games realized strained in China on 10 cents Painless E Sports Genji, serving partner do you and who yet as well as on the M&A to Talese Twitch and Youtube channels. We're very excited about the continued progress in growth at the Lee, which has a long term potential to enhance engagement and to be a driver profits for our company.
In closing as we begin a new decade, we entered an incredibly exciting period for our industry and company, which should bring technological advancements and well as compelling new platforms and business models.
We remain steadfast in our commitment to deliver the highest quality entertainment experiences to captivate engage our audiences throughout the world and to generate growth.
And margin expansion.
I'll now turn the call over Atlantic.
Thanks, Carl Good afternoon, everyone today will discuss our third quarter results and then review our financial outlook.
In fiscal year 2020.
Please note that additional details regarding our actual results and outlook are contained in our press release.
As Jeff.
Mentioned, we experience about demand for our offerings throughout the 2019 holiday season that enabled us to deliver third quarter operating results solidly within our increase outlook.
Total net bookings were $888 million as compared to our outlook of 860 $910 million.
Current consumer spending grew 6% and accounted for 41% of total net bookings as compared to our outlook at 5%.
Digitally delivered net bookings decreased slightly by 2% and accounted for 70% at the total as compared to our outlook a 5% growth.
The decrease is due to various John fiscal south.
Titles over the holidays.
During the third quarter, 44% of current generation console game or delivered definitely up from 31% last year.
Turning to some details of our third quarter income statement GAAP net revenue grew to $930 million and cost of goods sold decreased to $437 million.
Operating expenses increased by 6% to $360 million due primarily to higher personnel and R&D costs offset by lower marketing expenses.
GAAP net income was $164 million or $1.43 cents per share as compared to $180 million $1.57 cents per share.
Third quarter fiscal 2019.
Adjusted unrestricted operating cash flow for the nine months ended December 30 for 2019 is $548 million and we ended the period with approximately 2 billion in cash and short term investment.
Now I will review the highlights of our fiscal 2020.
And so outlook starting with the fourth quarter, we project net bookings to range from 540 $590 million up from $488 million in the fourth quarter last year.
The largest contributor to net bookings are expected to be Grand theft auto online in Grand theft Auto side, and the 8-K 20 Red dead redemption.
Tailing bad debt online Sid Meier's civilization sex and borderlands Gray.
We project recurrent consumer spending to grow by approximately 10% driven primarily by growth in Grand theft auto online and bad debt online.
We expect digitally delivered net bookings increased by over 20% our forecast assumes at 60.
6% of our current generation console games will be delivered digitally up from 57% in the same period last year.
We expect GAAP net revenue to range from $635 million to $685 million in cost of goods sold to range from $274 million to $286 million.
Operating expenses are expected to range from 247 $257 million at the midpoint. This represents at 13% increase over last year, driven primarily by higher personnel costs and marketing expenses.
GAAP net income is expected to range from high Gen $5 million to $128 million or.
Do you sense to $1.12 cents per share.
It's not reporting purposes, we expect our tax rate to be 17%.
Fiscal 2020.
Turning to our outlet to the full fiscal year.
Raising the low end of our net bookings outlets by $50 million and maintaining the high end, we now expect.
Bookings to range from 2.8 $2.85 billion.
The increase is driven by higher expectations for Grand theft auto online, including record recurrent consumer spending on the title Grand theft auto side any out of while partially offset by reduced expectations, but borderlands ray and recurrent consumer spending on and the teekay.
If it gets expectations. The borderlands three are still consistent with our original high expectations for the title prior to launch.
The largest contributor to net bookings are expected to be MDACC cage, funny, and MDACC Canineteen Grand theft auto online and Grand theft Auto five borderlands three red dead redemption.
Sales and bad debt online the outer wear out and Sid Meier's civilization.
We expect the net bookings breakdown from our label to leave roughly 55% Teekay, 35% Rockstar games, and 10% private vision and the point.
And we forecast our geographic net bookings, but see about 60%.
Dates and 40% international.
We are maintaining our forecast for recurrent consumer spending to increase by approximately 25%.
We now project digitally delivered net bookings to grow by approximately 25% versus our prior expectation of nearly 30% growth due to our higher mix of physical south.
Note that this is still.
Above our forecast given in August of high teens growth.
Our outlook. This assumes that 55% of current generation console game will be delivered digitally up from 38% last year.
We are increasing our outlet for ADESA unrestricted operating cash flow to over $500 million versus our prior.
Our expectation of over 450 million dollar, we now plan to deploy approximately $60 million for capital expenditures.
Prior expectation of $75 million.
We expect GAAP net revenue to range from $2.96 billion to $3.1 billion and cost of goods sold to range from 1.42 to one point.
For 3 billion dollar.
Total operating expenses are expected to range from $1.13 billion to $1.4 billion at the midpoint. This represents a 20% increase over the prior year, driven primarily by higher marketing R&D and personnel costs.
We expect GAAP net income to range from 380.
Moving to $409 million are $3.38 at $3.58 per share.
In closing our focus on producing the highest quality entertainment.
Delivered strong third quarter results and reaffirm that take to remain on pace to deliver another terrific year.
Looking ahead with our World class.
Last creative team from commitment to operational excellence and solid financial Foundation, our company is exceptionally well positioned to deliver value to our petsmart and returns to our shareholders. Thank you I'll now turn the call back this Jeff.
Thanks, Lenny and Carl on behalf of our entire management team I'd like to thank our colleagues for their hard work.
And commitment to excellence to our shareholders I want to express our appreciation for your continued support.
We'll now take your questions operator.
Thank you at this time, we will be conducted a question answer session. If you would like to US question. Please press star one on your telephone keypad confirmation till indicate your line is in the question Q you.
Your first start to fuel at your move your question from the Q for participants using speaker equipment, and maybe not seemed to pick up your had said before presence Starkey one moment. Please as we pull for questions.
Our first question comes to line up Todd younger with Sanford Bernstein. Please proceed with your question.
Hi, good afternoon, Thank you for taking the.
And I hope you understand that I feel I have to ask this question I'm sure you were expecting it. So you had a significant executive departure at rock Star.
Carl or Strauss.
Anything you can tell us about succession planning impact on operations in the pipeline culture.
Future plans and.
Competition, whatever you can say on that matter I'm sure. We'd appreciate thank you.
Todd Thanks for your question this is Strauss.
So Dan Houser had been on an extended leave since some early spring 2019.
The company has been led since its founding by Sam Houser, who is president of the.
Company and it's an extraordinary team effort and Sam's are great player coach.
The results of Rockstar games continue to be extraordinary with the launch of the new content for both Grand theft Auto online and for Red dead online and its and its amazingly gratifying to see.
The Grand theft auto five selling at 120 million units and Red dead redemption to be up to 29 million units with the launch MPC and stadia.
As well as the really extraordinary results of Grand theft Auto in line, which we now expect to have another record year more than six years. After its initial launch and of course Red dead on.
In line itself.
It was up something like three X year over year end sequentially.
In the last quarter. So the label has really never been stronger were incredibly optimistic and excited at the same time are grateful to Dan first contributions and we wish him well.
Thank you if you don't mind, if I could ask good just a follow up and more on the business side.
So starts I think I've heard you say multiple times publicly that tick to aspires to launch a AAA game every year at least one every year.
Right.
We assume should we assume that that includes calendar year 2000.
20, I'm not asking for any formal announcements of anything but.
With this year should we expect a AAA release this year as well and anything you could say about more about that would be appreciated. Thanks.
So as we always do you are going to hear our initial outlook for fiscal 2001 in may and.
Labels of course always make our product releases.
We have set our strategy as you correctly pointed out is to have a strong frontline release schedule. Both iterations from beloved franchises. We have 11 franchises that have sold in at least five new on million units within within one release as well as new intellectual property and we are working on the most robust.
Bus pipeline in our history.
So we're we're amazingly excited about it that said, we havent always been able to achieve our goal of having a strong frontline release schedule are in every year or even in the recent past what has been great. Though is we've now built a company that has these very strong underpinnings of catalog titles and ongoing titles.
That that live on in the Hearts and minds of our consumers generating engagement and generating net bookings and profits. So right. Now we have titles are like Grand theft Auto online Red dead online all the social point titles and there are five that are successfully in market NVH, who came online in China, Wwb, Supercard, which has been down.
Load of more than 20 million times on the list goes on.
And this past quarter for example catalog sales represented about 40% of our net bookings. So we now have a company that no season in season now we feel confident can generate plenty of net bookings can engage with consumers and can generate a great deal of profitability and of course at the same.
Time will build our business with those frontline new releases.
Given that we're a company that depends on our creative teams to make.
As close to perfect products as possible, we have to be willing to live with the vagaries of product deliveries and I mean, sometimes we will have been frontline years, but even in those frontline years.
Been able to deliver really great financial results.
I'll leave it there. Thank you so much.
Our next question comes on line of the quick with Cowen and company. Please proceed with your question.
Thanks.
Hi, recall correctly two years ago, you guys had a bit of a hiccup within the two k.
Consumer spending obviously last year was incredibly strong it seems you're running into a little bit of an air pocket again this year.
Could you could you talk about what's going on is that just sort of growing pains. As you continue to sort of try to find new friends, new frontiers for the franchise to to get consumers to spend money.
Is it something with the process is it.
Something with sort of the engagement loops any you can stand out would be helpful.
First of all I want to make sure that we distinguish between a problem at a high class problem. So.
The high class problem is that we had said in our revised outlook that we thought MBJ Twoq 20 would set another record for net bookings and now we're realizing that say we.
Expected set another record despite its very strong unit sales in the great engagement and that's because of one of the parts of the online version.
Recurrent consumer spending coming in somewhat lower than we had expected that's related to a design feature one that we can address going forward, but it's not really a hiccup because.
Our goal is first and foremost to captivate and engage consumers in R&D gauge mint is up and our unit sales are up and the title quality is just phenomenal. It's also true that as a company that doesn't lead with monetization we lead with entertainment engagement now and then our monetization may not be exactly what we think it will be so let me.
Take responsibility for the decision to focus first and foremost on the entertainment experience on the consumer and only secondarily on what the monetization is and that means now and then we may fall short of setting a record, but failing to set a record isn't exactly a problem. When you have a title that says massively successful is on the UK 20 is.
An incredibly profitable title for the firm owing incidentally recurrent consumer spending for the franchise will actually be up in the fiscal year and solid double digits. So the engagement is strong the spending is strong and at the same time. There were some does the design changes that didnt optimized specific recurrent consumer spending and certain modes.
And we are confident we'll be able to address those.
Okay. Thank you.
Our next question comes from the line of drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, guys good afternoon.
What does this led to the reduce view on borderlands three can you comment.
On how the game has performed on PC to date and without getting into specific numbers. What are your expectations for the game once it's available on steam.
Well borderlands is actually performing better than our original outlook at sold in nearly 8 million units.
Weve.
Just one of the downloadable content packs, we have three more expected at the moment and in fact this season pass attach rate is a record for the series and a record for two K. at this point titles lifecycle and we expect the borderlands three will I will set a record in terms of net bookings for the franchise, so our expectations remain solid and.
Very strong it's a it's a great big hit for US right. When when we went into on the Christmas season, we had really seen on real excitement for the title and we lifted our expectations a little bit higher than we had it at the very beginning of the year, which was very high to begin wed items that we didn't meet those that higher expectations that we did meet our.
Let's now very high expectations for the tied up so thats why were bringing it down slightly but it's very high from the beginning of the area. This is again. This is a massive said by any standard but we've always said this when we when we guide and when we revise we aim to be accurate and sometimes the vagaries of the entertainment business will be that.
We don't exactly get it right.
Okay fair enough and just a follow up I think in the initial press release, you indicated that the sell through on T.C. was quite strong again, what are your expectations for the game once it launches on steam.
We continue to a very high.
Patients as I said, we fully expect that borderlands three will set a record for the franchise.
Got it okay. Thanks, guys.
Our next question comes the line of Andrew Uerkwitz with Oppenheimer. Please proceed with your question.
Yeah. Thank you for let me ask couple of questions here. The first one just how should we think about.
The next kind of next generation console does it add more uncertainty or does it actually alleviate uncertainty as we think about the transition to the new console in terms of lot of surface games.
And be a or GTL line or or what have you.
Hi, it's Karl.
You weren't really excited about the new next generation console I think the best part about it as I think everyone. Now knows that we are going to have a next generation console and there's a lot of anticipation for.
I'll leave the details about what the expectations our to our partners, Microsoft and Sony and I think so far the buzz about what that with the causes are going to be able do from a technological perspective.
It's very exciting for us.
So in that regard I think it eliminates uncertainty because we know we're going to next console cycle and that we believe it will be very robust in the great thing for the industry.
And again anytime that you out you have these kind of advancements and tag it creates opportunities for our great incredible creative team to push the limits of those that tech.
Now I'd and create the experiences that we know consumers are going to want to engage with for very long periods of time, even after the initial sale to the extent that we've got the ability to do that and all indications are that we will and we expect this will lead to growth for our company has its a very positive thing.
You've been for current.
Going live service games that you have now that were built for older over Jen.
Yes, I mean look how what exactly the transition is going to be from concept from for each game from concept from six between the console cycle.
We will vary but there's no reason to believe that they success. It we're experiencing windows services would be any.
Less.
Would be any would be any less in the new generation that isn't the old generation.
Got it. Thank you and then just.
Just on that kind of other high level question I think out of World was on Microsoft Xbox Game Pass do you think that helped or hurt the the successor that franchise.
Yes, it's hard to say I think what we've said all along as a generally speaking we want to be where the consumer is generally speaking, we think subscriptions or subscription offerings to the extent they exist are probably better suited to catalog, but we're willing to take.
Experimental chances when it makes sense for particular title and when the deal underlying.
That.
Option also makes sense for us and we're pleased that we have a great partnership with Microsoft and were mostly pleased with the title such a big hit it sold in more than 2 million units and it's 175 game awards. So it's early days for all of these platforms. It's obviously early days for many technologies, including streaming.
Technology, our goal is to be where the consumer is where we're ecumenical and we're open minded.
Got it thank you guys much.
Our next question comes on line of Matthew.
Suntrust. Please proceed with your question.
Hi, good afternoon. Thank for taking my question guys.
Maybe two quick housekeeping or triangulation.
And then I'll come back to an earlier question.
Gee T.A. versus MB educating the back half a year I mean could could you tell me online actually be bigger than than the EMEA was the in December could it be it in the fourth quarter.
Similarly, Red Dead I think the initial expectation this year was recurrent.
I would be down year on year. When you include.
Some of the premium skews from from last year as launch.
Is that still the case given the success that that tells having could recurrent actually be up year on year.
And then just coming back as trials to your comment around the recent departure I wanted to paraphrase and make sure that that we had the message right. It sounds like this was a fairly isolated.
Departure.
No no wonder plans for departure the culture are still kind of ahead as it has been the pipeline is has a has been the progress is kind of where it has been.
I just want to make sure that that that we have that that messaging right. Because obviously loud industrializing asking that question any color there would be helpful. Thanks, guys.
So in the first one.
We have said that the NDA to K on is the highest contributor on the recurrent consumer spending on for the four on for all titles. So we have said that what is your second question, sorry, I missed that one.
On Red dead online, if that could actually be up year on year, even including the premiums.
You kind of contribution last year.
Nobody's and now with including the special editions, it's not it's only in without including the special edition.
And in terms of your question about Rockstar and I think your question I think your questions for fall in the category of the stability.
Guilty of the team going forward.
As well as the culture of the of the label. So in terms of team stability, Sam Hausers President of Rockstar games. He founded Rockstar games has a great player coach and he leads a team of thousands of people everyday who are trying to make that.
Most extraordinary entertainment experiences.
No and to me on that through those are their goals and and more often than not they achieve or even exceed that those goals, which is just amazing.
It's it's doesn't I don't typically speak for other people, but I I confidently can speak and say that Sam is highly committed to the organization.
And Sam and I were very close.
So together.
And it's an enormous pleasure to two to be able to be in business with Sam and the entire team at Rockstar.
Culturally.
I've only seen ongoing improvements a rock star frankly, I've only seen.
Growth and.
And engagement and innovation and.
And I think one of the great things about all of our labels in our company as a whole as it were incredibly self critical and were we aim to be utterly transparent.
And we always try to do better and I think thats true of everywhere that take two touches and Rockstar games sets the standard for always.
Trying to improve the quality of its operations or the quality of the way that they work in the quality of their culture, I frankly couldn't be more proud of how effectively that label is operating.
I think this year has been one of amazing straying from dropping content on the same day for both Red dead online and Grand Theft Auto online.
And delivering content that set records in terms of engagement on player excitement over and incidentally revenue and profitability, so things couldn't be better and to be very specific no. We certainly don't expect other departures as an organization as a whole we havent extraordinarily low rate of attrition.
Ian vastly lower than the industry average I think thats, because we offer great place to work at all of our labels.
To take to corporate as well and to the extent of we ever fall short, we always aim to do better.
Great. Thanks, guys.
Our next question comes on line O'brien with bank of.
Please proceed with your question.
Hey, good afternoon. Thanks, you guys are taking the questions. So maybe first for Lainie I guess with over 60% of the business now coming from recurrent consumer spend how has that impacted your ability to provide us guidance one quarter, one year out, especially as you consider.
Okay, and borderlands coming in lower should should we have greater confidence now than in the past.
Your guidance or does this present other challenges for you. So that's the first question and then for Karl you touched on cloud Chamber can you maybe getting update on the two k. silicon.
Studio, maybe hangar 13 are those likely to also have content out in the next one to two years anything you can say they're great.
Well in terms of forecasting winter recurrent consumer spending there is some things that I think are easier to predict but it does present other challenges as well I'm, especially when you have.
Titles that are out in the market for such a long time and you would expect them to decline and then one year. They decline and then the next year they grow and there's different content. When it comes out it's still pretty difficult to predict that as well as on deferring en Ling.
Glenwood, making deferring.
Well when they trying different things in different game.
Now how that's going to perform that can also be had another variable. So we're definitely getting better at it and we have a lot lot more information analytics that we can use to be more productive, but there are different things that change every year that can you may get on different from.
Yeah, So I'd say, we're getting better at it but there are different things that we hadn't recurrent consumer spending each year. So I wouldn't say that it's a slam down, but it's definitely something that we're getting better at.
And then in regards to your question about hangar 13.
And also Michael Contrary studio I wish I could say I wish I could tell you more about what they're working on tens is very exciting both the studios.
We're incredibly excited to have the teams and hangar 13 led by Hayden and also Michaels yet to be named studio.
As well working on new and exciting setting projects as I said before our.
Line is very diverse and it's very large.
And we're going to share with you more about that in the coming months.
And these two projects are obviously part of that so you can certainly expect that there will be games coming out of the studios I wish I could tell you more about them to stay tune because they are very exciting and we're thrilled to be business with both of those with both of those folks in there and.
Higher teams.
So stay tuned.
Okay, and then if I could just follow up on that that last point so.
Shock still several years out borderlands just came I should we assume that you get your characterization characterization of robust slate ahead also includes Rockstar content not just UK.
Yes.
Yeah, we were talking about the entire company all of our labels Rockstar Private division social point and Teekay.
Great. Thank you guys.
Our next question comes from the line of Air churn would you be US. Please proceed with your question.
Thanks, So much for taking my question, maybe a bigger picture.
Sure what you saw another player in the industry I'll make a larger announcement with Google in the last couple of weeks curious how you're thinking about a couple of the large secular themes that are playing out the industry with respect to.
Either owning or outsourcing your own technology infrastructure, how you think about the content you're producing broad.
Cash a broader over direct.
Channels, and how to think about either owning that or partnering and the same with respect to cloud computing is the distribution mechanism for gaming, how you're thinking about wrapping what you've been very good out over the years in terms of content creation and thinking about maybe try and got either through your own efforts through partnership.
Relationships. Thanks, so much.
Well I appreciate the question and the question points sort of points off our focus on expanding the company in this industry that has these extraordinary tailwinds.
Through a focus on new technologies, new business models new.
Two types of entertainment and new geographies or geographies, where we're not currently represented and so it's sort of for multiple choice questions. It would be all of the above we're focusing on all of them you specifically asked on the distribution side. How are we looking at that and the answer is we are we're very engaged in looking at options or do.
Include direct to consumer options are our strategy.
Excuse me.
Our strategy has been to be where the consumer is.
If I keep joking Carl is going to figure out our.
Strategy has been.
Apologies to view, where the consumer.
Tumor is and to be ecumenical about various distribution opportunities and to work with all of the players in the space and I expect we'll continue to do all of that.
Okay.
Our next question comes the line of Mario Lu with Barclays. Please proceed with your question.
Hi couple of questions one on GT, one on Red dead on so gteighty five have partnerships with Playstation now.
The last year and then.
Xbox game pass or in January, which I suspect it added.
Owns a player. So any color you can provide regarding these types of partnerships and specifically how much.
Much of an uplift on day provided to Gigi online bookings and secondly on Red dead glad to hear that.
I don't mind tripled year on year.
And then I know you mentioned before that GTM online is in a world of its own how confident are you that right online engagement can maintain or grow for six years passed as well.
Thanks.
You know in terms of how specific arrangements with specific titles Pan out we typically don't go into that level of detail except to say, we enter into those arrangements with a view that they'll benefit the titles they'll benefit us and that they'll benefit our.
I am more often than not we are able to do all three of those things.
In terms of the success of Red Dead online, we're incredibly excited about the momentum there we're seeing in the quarter, we feel really good going forward, but as I said when when asked about Grand theft auto in line or early on and I was asked a lot about it we really know how high up is we.
I really don't have any way of knowing where the consumer will take us where we do know as it were going to deliver them a lot more great content and so far it does look like when we deliver great content into these beloved franchises consumers show up and staying engaged so we're very optimistic about the future of Red dead online and.
Excited about the momentum we see.
That's helpful. Thank you.
Our next question comes the line of Eric Handler with MKM Partners. Please proceed with your question. Thank you very much for the question actually got to for your first wondering if you'd be willing to sort of lift the komodo on the development.
Playing a little bit and talk about how many.
AAA console games are currently in development and to the extent that maybe you could say.
How many of those might be released in the next one to three years and how many might be released in the next you know beyond three years.
As anything to sort of give us a little bit of roadmap there.
Would be greatly appreciated and secondly, with Red dead online.
When you originally launched GTN line, you had a couple big content drops that really helped to development.
Of that business gunrunner.
Errors in the first types that you did 100 have we seen that type of content drop yet for Red dead online.
Okay.
Hi, Eric It's Karl I, just regarding the pipeline.
This question obviously comes up.
On every single call we have in every single.
Meeting we have.
With investors and we are like I said, we are we're going to share more about the pipeline with you over the coming months I think that give you some more color on exactly what constitutes that pipeline. So give you a little bit more ideas between what we've got going on with new IP and and existing franchise is free to play games different business models.
Yes.
Games core games.
Midcore games.
We're hoping to share a lot more information with you over the coming months regarding that.
And in terms of Red Dead I don't think you can compare content content.
The last content drops on Red dead have.
Been fantastically successful.
And the.
Just update Moon, Shriners degrade and generated all of this excitement that we've seen reflected in the numbers and then I'm confident Rockstar games will continue to deliver great content for read that online, but theres no real way to compare qualitatively.
Two or I suppose quantitatively to two Grand theft auto online content, they're just they're different games and.
They have different types of content, that's dropped but the goal is to create content to consumers love and engaging and spend against.
Thank you very much.
Our next question comes the line of Mike King with Goldman Sachs. Please proceed with your question.
Hi, Thank you very much for the question I just.
Just have one on M&A for Strauss as a group it seems like video game publishers have been pretty resistant to making their frontline content available Dan date on subscription products do you think that could eventually catalyze vertical consolidation to get that.
Content in the future and I'd also appreciate hearing your thoughts on the.
Kind of AAA horizontal consolidation as well thank you.
I think were.
I'm proud of my Crystal ball most of the time were.
Really had a very bad Crystal ball is when I've been predicting consolidation in the industry I think I predicted meaningful consolidation in the industry about 10 years ago and.
We're still waiting.
So.
It seems it in industry, where you have these extraordinary tailwinds and.
A week players get washed out and really get.
Sold for scrap essentially and strong players only gets stronger it's it's hard to imagine why you'd see a lot.
Horizontal consolidation horizontal consolidation tends to occur when when industries are under pressure or companies are under pressure.
Typically certainly in the entertainment industry. That's historically been the case, so I'm not I'm not sure what to expect I think your question about vertical consolidation has and is interesting even though.
Your first day business school. They explained to you the vertical consolidation doesn't create value one could imagine a.
A powerful just distributor thanks just to build.
Build an audience could imagine the acquiring exclusive rights to key product would would jump start that.
The the track record of that going well.
On the linear entertainment business has been very poor.
And then tried over and over again, but I suppose it it could it could be tried in the interactive entertainment business.
Very hard for us very hard for us to say.
What we do everyday is.
This is get up and tried to do the best job. We can both from a create a point of view out of business point of view and we try to be of service to our customers. Our colleagues in our investors and that's served us well and in terms of our own approach to M&A.
We have a significant cash balance just shy of $2 billion, we don't have any debt.
Yes.
And we have a lot of cash flow in fact, we've revised upward or expectations about adjusted operating cash flow for the year to 500 million up from 450, our capex is down a little bit as well. So we certainly are in a position to pursue transactions are lenses is it strategically.
Full and is it financially accretive and that analysis, let us to acquire social point several years ago, We're happy we did and on to the extent that opportunity.
Matches those criteria, we would hope to move forward as well.
Great. Thank you for your thoughts.
Our.
Next question comes on line of Raymond structural with consumer Edge Research. Please proceed with your question.
Great. Thanks for taking my question.
One on retaining talent and this isn't really meant to.
Involve Dan Houser, but you can certainly comment on that as well it's more in thinking about how you're opening up these new studios and even your equity investment in proletariat.
Can you talk about how the changing business models and the changing pipeline that you have as far as bringing new ideas to market is making you think differently about the way that your incentivizing. Your employees I know you think deeply about these matters. Thanks.
Yes, we're what we're trying always to think.
Currently about his creativity.
We know there will be in next to new thing you Havent seen the final expression of what interactive entertainment or entertainment.
He is.
Here in 2020, you're going to see big innovations hopefully from us, but certainly from the industry in the next 1235 10.
20 years, and where position so that we ought to be able to be at the front line of that and shame on us if we're not so the creative expression of what we do.
Must evolve will evolve.
But the culture that underlies that tier remains unchanged because it works.
And part of a culture is compensation.
In a for profit enterprise you can outline your cultural culture verbally, but your compensation programs, either will or will not drive that culture and our culture is one of sharing in our compensation programs are one of sharing we.
Emotionally share success, we all take responsibility for failure and equally our count compensation programs align incentives with our shareholders by making sure that essentially we have profit shares essentially.
If we Miss our goals then incentive comp for the.
Team is disappointing or zero, if we exceed our goals. It's good if we massively exceed our goals is very good but its self liquidating because it's driven by an increase from profits and at the label level, we essentially although we call. It different things have profit sharing arrangements. So the better the labels do the better the human beings do.
Better the shareholders do.
Thats our goal and it's all formulaic because we don't believe and discretionary comp programs, we think they lead to politicking and other bad things our comp programs are almost entirely formulaic based on results versus plan and or actual operational profitability.
At the divisional level.
Great. Thanks very much.
Our next question comes on line of alleys gentlemen, with Jefferies. Please proceed with your question.
Question, Carl you mentioned free to play that's an opportunity in your remarks, you guys have a lot of valuable IP in your portfolio.
So just curious if anything in your catalog could work on a free to play basis or if you were to launch a free to play offering more likely based on new IP. Thanks.
Yes, I think the short answer is im sure. There are lots of things in our catalog that would work on a free to play basis.
And that doesn't necessarily mean that we pursue that it really has to be.
In the right mix of the creative goal.
And what the what the development team is trying to achieve from a creative perspective.
And then the business model et cetera free to play games.
So we tend to have the belief that you can't really invest at the same level on a free to play experience that you do in a standard ownership AAA title.
There are probably going to be examples in the future where thats not the case, but thats a jar general philosophy.
So but that doesn't necessarily mean that age old franchise that was a AAA ownership type model could work in a free to play context.
And certainly new IP get big guys opportunities to pursue new business models and amongst those.
Business models are free to play so the answer it really could be both.
Got it thanks guys.
Our next question comes on line of Matthew born with Suntrust. Please proceed with your question.
Hey, Thanks for sneaking me back in my question has actually taken but I'll ask a different one.
I think was.
Carl you mentioned talking about the pipeline in the next couple of months here I'm. Just curious number one a day that you're just talking with fiscal 2001 slate or is that more of a multiyear outlook that you guys are thinking about providing and then just kind of what venue is that on the next call.
Certain venue or is this kind of AD hoc by studio just how should we think about.
This information coming to us any any color there thanks guys.
Yes, I mean, our goal is obviously look we have insight into many years into the future with the pipeline as and one thing we know for sure is that it will change.
Got everything in the pipeline well see the light of day. That's currently in pipeline and there'll be things that are not in the pipeline that will come out but our goal is.
As to share as much information as we can you give you insight into what we see which is a multiyear pipeline and when exactly we do that.
You'll have to wait and see but really it will be in the coming months and that and when that information comes you'll know.
Our final question comes on line of Jeffcoat with.
Thank you with your question.
Hi, guys. Thanks for taking the question can you talk about engagement with the Rockstar games launcher. Since we went live back in September and then could you eventually see adding games from other take two studios or even games from third party publishers.
Yes, they've had very strong.
Our results with Rockstar games launcher, and we're excited to see that.
In terms of power the company will pursue it broadly that's part of the work that we're doing now we obviously do have a central site, where you can buy games and off.
I would hope that our company would work together effectively to pursue various.
The consumer offerings, but equally our bar labels are highly independent. So I think your expectations are probably that were unlikely to have only one place of any sort to buy anything we're likely to have multiple outlets were likely to have direct outlets were likely to be work with third parties and we're likely to.
Have multiple opportunities throughout the organization, but the underpinnings within the organization the technical underpinnings in the business underpinnings will be centralized we will all work together cooperatively. So we don't duplicate efforts. So you can you can see a consumer facing approach that's quite varied and then we have a highly efficient approach internally where.
We have all all people working together productively in service of the same goals.
Thanks, Jeff.
Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back over to management for any closing remarks.
Thanks, everyone for joining us today were very.
Very proud of the results driven by our creative teams and and driven by our business teams as well we are grateful to our colleagues all around the world, we're very grateful to our shareholders shareholders for their support and grateful to all of you who attended and took the time to be thoughtful and ask questions.
This concludes today's teleconference.
Since you May now disconnect your lines at this time. Thank you for your participation have a wonderful day.