Q4 2020 Earnings Call
Greetings and welcome to take to fourth quarter and full year earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Any watch required operator assistance during the conference. Please press Star Zero on your Kelly telephone keypad.
Please note this conference call is being recorded.
I would now like to turn the conference over to your host Mr., Hank Diamond Senior Vice President of an Investor Relations and corporate communications. Thank you you may begin.
Good afternoon.
Welcome and thank your for joining take todays conference call to discuss these results for the fourth quarter and fiscal year 2020.
At March 31st 2020.
Todays call will lead by throughout the only take two's Chairman and Chief Executive Officer.
Well you know our president.
And we need Goldstein, our chief financial Officer.
We will be available to answer your questions. During the Q1 <unk> session. 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 Securities law.
These forward looking statements are based upon the beliefs or management.
It's also 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.
Corn factors are described in our filings with the FCC.
Including the company's most recent annual report on form 10-K.
In quarterly report on form 10-Q.
Including the rest summarized in the section entitled Risk factors.
I'd also like to know that unless otherwise stated all numbers. We book, that's helping 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 the items on our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance.
In addition, we have posted to our website it flight deck that they do we present, our results and financial outlook.
Our press release and filings with the FCC may be obtained from the website at www Dot take two games Dot com.
And now I'll turn the call over too right.
Thanks. Good afternoon, Thank you for joining us today.
Before I begin on behalf of Orange higher management team colleagues around the world.
I'd like to express or deep condolences for those who lost their lives lost family members during his pandemic.
Every corner of the World Heroes in the form a first responders and healthcare workers put their lives of risk to take care of deal.
Serve life.
And enable societies to return to normal.
For which was well im incredibly grateful.
I'm also proud of our entire organization for seamlessly and successfully shifting to work from home environment to keep our company moving forward.
And to continue to deliver the best entertainment experiences to our audiences.
Turning to our business are significantly better than expected fourth quarter results concluded another extraordinary year for take too.
During which we achieved numerous milestones including record net bookings of nearly $3 billion.
As well as record digitally delivered bookings for consumer spending and earnings.
Nearly all of our Talbot titles outperformed in the fourth quarter, including MBK 20 Grand theft auto on lighting graph startup five red dead redemption to borderlands, three and social Point's mobile games to name just Q.
During the fourth quarter, both for car consumer spending on and full game sales of MBK 20 significantly outperformed our expectations.
Consumer engagement with MBK remained at record levels throughout fiscal 2020 with daily active users growing 13% and.
My team users increasing nearly 50%.
During the fourth quarter over 9 million hours educate gameplay watched I'm switching costs more than 1100 channels.
Representing a 40% increase over the third quarter.
This strong engagement began prior to people sheltering at home and resulted recurrent consumer spending growth of 18% in the fourth quarter reversing our expectation of a decline.
This positive trend was driven primarily by the success in February parts that drops remixing.
For the full year recurrent consumer spending on the M. D. H UK franchise grew nearly 30% to a new record.
And remains the largest contributor to that part of our business.
Today, MBK Twentyth sold in over 12 million units.
33% over Mph UK 19 in the same period, we now expect a lifetime units recurrent consumer spending in net bookings for N.P.H.T.K. 20 will be the highest ever for its UK sports title.
I'd like to thank visual concepts into K for doing an incredible job addressing the prior issues with MBK 20, and delivering another year record results.
As part of our broader support those in need during the cobot 19 pandemic.
Okay partner with the M.D.A.
And be a players association and the U.S.P. and to create the MBK players trying to make comprised of 16 M.B.A. stars raise funds for the Arizona Bank that work.
We're incredibly proud to include this unique program among our worldwide covert 19 response initiatives.
The positive momentum for Grand Theft Auto line continues with sort of per litre performance in both players in that bookings since the July launch of the Diamond Casino resort uptake Grand theft Auto on line achieved its best ever monthly active users in both July and August 2019.
And then grew sequentially each month from December 2019 through March 2020.
This exceptional engagement helped to drive recurrent consumer spending growth at 87% during the fourth quarter and 40% for the full fiscal year New records in both periods.
In addition sales of Grand theft auto five surpassed our expectations and the title is now sold in over 130 billion units.
Further cementing its position as the must have title of the car console generation.
Red Dead redemption to also exceeded our expectations in the fourth quarter and to date has sold any more than 31 million units worldwide.
Both engagement and recurrent consumer spending a red dead on line continue to gain momentum.
Net bookings grew 62% into fourth quarter and more than tripled for the full year, excluding digital content bundled with the Red dead redemption to premium additions.
Throughout the coming year Rockstar games will continue to support both Red dead on line and Grand theft Auto in line with more content updates to keep new and returning players excited and engaged.
Borderlands three latest installment in order to finding shooter litter series.
Performed or expectations in the fourth quarter and the title is now sold in over 10 million units.
50% over borderlands two in the same carrier.
On March 13th Borderlands, three was released on an array of Tc retailers, including steam where sales up again exceeded our projections.
During the fourth quarter, two king gearbox launch guns love and tentacles. The marriage of Wainwright Hammerlock. The second to four announced paid campaigns that are included in the borderlands three Super Deluxe edition and the season pass or can be purchased separately upon release.
The season pass attach rate for Borderlands three continues to be the highest into case and the franchise its history and there's more contact coming.
Or don't have threes monthly active users have steadily climb that each month during the fourth quarter and in March with the largest influx of new players since the launch due to its release on steam.
We attribute to success in parts of two Kazan gearbox software is continued effort to support borderlands. Three is a life service game with weekly advance three times that drops and consistent communication with bands that should continue to benefit the title and the series over the long term.
During fiscal 2020 private division watch their most successful released today with the out towards the title as an immense critical and commercial success and its significantly exceeded our expectations would more than 2.5 million units sold in today.
Yeah, well just a perfect example of how price division can complement our core portfolio selectively and contribute meaningful results to our bottom line.
Our fiscal 2020 results were also enhanced by a variety of other offerings led by N D. H UK gene Sid Meier's civilization, six social point's mobile games and the W.W. each UK series.
In fiscal 2020 were car consumer spending grew 34% through a new record and accounted for 51% of our total net bookings.
In addition to virtual card cheaper MBS UK Grand theft auto in line to read that online recurrent consumer spending was enhanced by a variety of other offerings in the free to play category social point outperformed our expectations in the fourth quarter and remains a significant contributor to our results. It's two biggest games Dragon city in Mostra legends as well is worth life.
Tasty town and World shot.
Social point continues to invest it's broad and innovative pipeline at more than 10, new games planned for launch in the coming years.
WWD Supercard also outperformed during the fourth quarter growing 20%.
The title has now been downloaded more than 20 million times or remains to case highest grossing mobile title.
And then yes, you can line and trying to significantly exceeded our expectations from 37% and 25% during the fourth quarter and full year respectively.
Total remains the number one piece the online sports game in China with more than 49 million registered users.
Adam contact to 85% in fiscal 2020 led by offerings for the Borderlands franchise, Sid Meier's civilization sex and W.W., we to pay 20.
Finally sales are borderlands three premium additions, which include additional content that is allocated to recurrent consumer spending also contributed positively to our results.
Looking ahead, our company has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP.
For fiscal 2021 would be a light year for new releases, we expect to deliver strong results due to the diversity and strength of our catalog and live service offerings.
Transition to a new Consol new console cycle is always the very exciting time for our industry and our development teams are already taking their creative aspirations to a new level by finding ways to push the limits of this new technology.
However, the speed of these transitions can be unpredictable.
CIC early in the your offended by 12 in 19.
And our fiscal 2021 release slate reflects our strategy to bring our creative achievements of the largest possible audience.
Our commitment to deliver the highest quality titles and get them optimal conditions to achieve success remains resolute.
We have an array of titles that will begin to launch fiscal 2022, which we expect to drive sequential growth that year Karl will discuss this in more detail shortly.
There's no doubt that our recent results benefited from people sheltering at home as players have sought interactive entertainment stay connected and engage with friends and family the connections and communities built will remain in place once people resumed their normal activities and should continue to benefit our industry's results.
We're fortunate to work in an industry that can bring some positivity in a difficult time as previously mentioned all look take two's labels have come together to deliver a portion of proceeds from April one day to cope with Nigerian charities worldwide.
Looking ahead take to remain superbly positioned creatively operationally and financially to capitalize on the many positive trends in our registry and to deliver continued growth and returns for our shareholders over the long term.
Now I'll turn the call over to Carl.
Thanks Ross.
I like to join Strauss in expressing our condolences to all those who have lost loved ones are facing adversity. During this club O pandemic.
When you take two are very fortunate to have colleagues around the world well continue to dedicate themselves to our mission, despite very difficult and uncertain times.
I'll now discuss our recent and upcoming releases.
On April 24 to care for access games released XCOM I never squad and all new Standalone title in the award winning turn based XCOM Tactical series.
That five years after the event of XCOM, two I never squad provide a dynamic and unique experience for fans and new players.
It has received strong reviews, including 4.5 out of five stars from screen right. The said I never squad as a worthy addition for any turned they strategy fast collection.
Comics and gaining magazine gave the title in the 8.5 out of 10 and called it a whole new dimension of strategy.
Yesterday to came off the Mafia trilogy for Playstation four Xbox one and PC.
The trilogy combined all three previously released Mafia titles into a single package curated by two case hangar 13 development studio.
You too and Mafia III are currently available with the purchase of the trilogy, well Mafia what will be delivered on August 28, as the game is being completely remade from the ground up including technology, New voice acting new game mechanics anymore.
Starting tomorrow and through March 2021 to cater for access games will begin their by monthly release of six downloadable content packs as part of the all new Sid Meier's civilization, six new frontier pass or Playstation four Xbox one Nintendo switch and PC.
Later this year, the new frontier pass will come to mobile platforms and each pad will be available for individual purchase.
The new Frontier pass will provide eight new civilization nine new leaders in a variety of new game play modes and content. In addition for access games will also provide free uptakes between.
Feature new maps scenarios ballot update and more.
On May 29 to cable continue to bolster our offerings for the Nintendo switch to sum up their most popular successful franchises, including Bioshock the collection.
<unk>, let disease legendary collection and they come to collection.
In addition, antuna fit private division, but released the critically acclaimed player choice driven RPG the out of world, but the switch.
On June 16, private division one launch this integration for Playstation four Xbox one and PC.
To help by be one interactive independent studio founded by Halo creator Marcus late though disintegration if they <unk> first person shooter Atlanta is real time classical elements to create an entirely new experience.
Featuring a drilling single player campaign as well as frenetic multiplayer game play. This integration is currently available for preorder, including an array of bonus cosmetic digital content for use in multiplayer modes.
Early this week private division and squad and not the partnership with the European Space Agency to launch a new credible space program update entitled shared Horizons, which is planned to launch on PC on July 1st 2020.
The update will also be available later this year on console.
Sure Horizons celebrates the European state agencies outstanding cash contribution to space exploration and we'll be at free update for all players at the critically acclaimed space simulation game.
On August 20, Onest, two cable released P.G. toward two K. 21 for Playstation four Xbox one Nintendo switch PC and stadia.
Developed by H.B. Studios, TJ Tortue, K 21, well feature P.J. torque professional Justin Thomas on the cover officially licensed pro players course it here.
The most realistic core scanning to date play by play commentary, if I look Lv enriched theme I knew PJ toward career mode.
<unk> and local multiplayer course and player customization and online societies.
In addition throughout the coming months to cable release additional content offerings for N.V., two k. 20 at borderlands three.
Additional details will be reveal shortly.
And Rockstar games will continue to provide an array of content gameplay experiences for the back open world a grand theft auto online and read that online what it takes a set engagement records.
Selectively expanding our sports offerings remains an exciting growth opportunity for our company in March two came out the partnership with the NFL encompassing multiple games.
The partnership marks the return of football team games to two cases stable every now and sports titles as well as an expansion of video game properties for the I felt.
Well specific game titles developers and release date will be revealed overtime, we can't confirm that these projects will be not simulation football game experiences and we'll launch starting in calendar year 2021 during fiscal 2022.
We're thrilled to be back if that's what the NFL, which is one of the most successful sports brands in the world.
We're confident that are forthcoming interfyl offerings will be extremely fun highly engaging and deeply social experiences.
Last month to pay announced that it would be extending the production timeline for the next W.W. me two k. franchise simulation game to ensure that the development team a visual concepts has the opportunity to create the best experience possible.
We also believe that there is a meaningful opportunity to expand our W.W., we offerings to that aired.
Hey announced W.W.H.T.K. battlegrounds, it completely new gaming experience that will feature arcade style action and over the top superstar designs environments and moves.
W. E. Two k. battleground, it's being developed by favor interactive the studio behind MBK playgrounds and is scheduled to launch this fall.
Okay, well have more to share about the games in the coming months.
The team at private divisions near Seattle studio, we meet hard at work on Kerbel space grow granted the next iteration of the popular space simulation franchise.
Due to delays from Cobot 19, we're moving to the release of the game to fall 2021 in order to provide the team with a time they need to create the best Cripple space program experience possible.
Turning to E sports on me the NVH UK League began its 2020 feet and planning at least six weeks every remote gameplay.
All 23 and be a two kaylee teams are participating in regular season game play in their local markets from their homes with games simulcast live on the MBK leaks Twitch and you two channels.
Detail surrounding the remainder of the 2020 seasoned schedule instruction will be shared as information becomes available.
We're very excited about that continued progress and growth of the league, which has a long term potential to enhance engagement it'd be a driver of profit for our company.
In order to build the scale of our organization, we continue to make significant investments to enhance our industry leading portfolio intellectual property.
I'll now provide visibility into our long term pipeline, which is the strongest in our company's history.
No that we are only including full game releases and not add on content.
Across our internally on labels and outside development studio partners. We currently have 93 titles plan for release over the next five years through fiscal 2025.
Oh, the 93 titles 63, our core gaming experiences, including 15 platform extensions of existing titles.
17 are midcore arcade style experiences.
And 13 titles are casual experiences.
47 of these 93 titles are from existing franchises and 46 are from new intellectual properties.
In terms of platforms 72 of the 93 titles, our plan for console PC and or streaming including seven that will also be available on mobile.
And 21, our plan specifically from mobile.
With respect to business models 67, other 93, our games that are required to be purchased at 26 are free to play.
No that these figures reflect a snapshot of our current pipeline as it stands today.
It is likely that some of these titles will not be develop your completion and we will undoubtedly be adding new titles to our slate.
As Ross mentioned fiscal 2021 will be a light new release here, however, given our strong pipeline and expectation for increasing recurrent consumer spending we expect sequential growth to resume in fiscal 2022.
In closing, we're incredibly excited about the many long term opportunities for our company to deliver the must captivating and engaging experiences and all that entertainment to audiences around the world.
Well the capitalizing on new platforms, embracing new business models and distribution channels and expanding its for emerging markets.
Okay is exceedingly well positioned to generate value to consumers as well as growth and margin expansion for our shareholders.
I'll turn the call over to Lainie.
Thanks, Good afternoon, everyone.
Our fourth quarter fiscal 2020 result.
How do you want to financial outlook for the first quarter fiscal year 2021.
Please note that additional details regarding our actual results and outlook and teams are properly.
I'd also like to its fast money condolences to those have been affected by the coffee 19th.
I'm also a massive proud of my colleagues around the world continues to support our organization the level of professionalism and dedication to our business [laughter].
As John mentioned significantly better than expected fourth quarter was all finished a terrific you're pretty much.
When we achieved record result.
Turning to the fourth quarter total net bookings grew 49% to 729 million dollar as compared to our outlook of 540 $590 million.
This outstanding that's all that's driven by the exceptional performance of our tied up in the fourth quarter.
In some spending grew 47% and accounted for 61% total nothing that's compared to <unk> outlook over 10% route.
Consumer spending exceeded our outlook due primarily to the record performance I'd be teekay and Grand theft Auto online.
Digitally delivered bookings grew 60% and accounted for 92% of the total as compared to our outlook about 20%.
This result exceeded our outlook due to the outperformance recurrent consumer spending and digitally delivered football games out.
During the fourth quarter, 65% South current generation console game on delivered digitally.
57% last year.
GAAP net revenue grew 41% to $761 million accosted called increased $299.
Operating expenses increased by 9% $243 million due primarily to higher R&D that.
GAAP net income for 223 million dollar or one dollar and seven cents per share as compared to 57 million dollar or 50 cents per share in the fourth quarter fiscal 2019.
Turning to our fiscal 2020 horizontal well enough I'm sure. It's a new record of 2.99 billion dollar. This extraordinary results were driven by Carson MBK Grand outside of online Congrats I don't buy and the record breaking launch important <unk> right.
Current consumer spend increased 34% to a new record and accounted for 51% toll on that.
It's exceeding our outlook of 25%.
Definitely should lever nothing so 35% to a new record of 2.4 billion dollar and accounted for 82%.
This to you hit our outlook of 25 cents due to better than expected recurrent consumer spending and definitely delevering football games out.
During fiscal 2020, 55% of South current generation console game, which 11 definitely up from 30% last year.
Non-GAAP adjusted unrestricted operating costs, I was $615 million as compared to our out of over 500 million dollar.
During fiscal 2020, we spent $53 million and capital expenditure.
At the school, you're at our cash and short term it doesn't sound.
$2 billion.
GAAP net revenue grew 16% to 3.9 billion dollar and cost of goods sold increased to $1.5 billion.
Operating expenses increased by 20% to $1.1 billion, due primarily to higher R&D and marketing.
GAAP net income grew to $44 million or $3.54 per share.
Today, we came in strong national outlook for fiscal 2021.
Operating results are currently expected to be lower than it out and 20.
Like at least schedule, coupled with continued investment in our future pipeline, that's been able I go further and improve margins overtime.
On people they got to shelter now it's on increasing consumer engagement with our title to the <unk> accessibility and social nature.
Were continuing to experience is positive trend, which is reflected in our first quarter out Vietnam when it any additional benefit from this trend in our outlook for the back half of the.
Normally assume that deep recession, or further delays and the leases it's kind of factor though.
None of our guidance starting with the fiscal first quarter.
For Jack nothing to range from 850 million dollar.
3% from $422 million in the first quarter last year.
This increase is being driven primarily.
I recognize the graph that's out of online graft identified and they see okay, and then redemption to embed online and the borderlands franchise.
The largest contributor to net bookings are expected to be that's I don't like and Grand identify have used to gauge funny red dead redemption to embed that online where last three.
We project the crowds Mustang to grow by approximately 75% described is expected to be driven primarily by rapid outside of online and be a gateway.
We also expect actually delivering that buttons to double.
Forecast assumes that 81% of our current generation console games out will be delivered digitally and 75 exactly the same Perry last year.
GAAP net revenue to range from $775 million to $825 million and cost intelligently and $392 million to $480 million.
Operating expenses are expected to range from $267 million to $277 million.
The midpoint. This represents a 10% increase over last year, driven primarily by higher R&D expense and charitable contribution.
GAAP net income is expected to range from 103 to 160 million dollar.
Or nine cents to one dollar share.
Matt reporting purposes after tax rate to be 16% throughout this call 2021.
Turning to around one for the fall says Oh yeah.
We project that button to range from 2.55 to 2.5 billion dollar expect Bronson MBS UK offset our result import last three that redemptions, you and roundup.
Yeah, that's out of a mine and Red hat on line, excluding digital content bundles at a premium addition are projected to be approximately in line fiscal 2020.
The largest contributor to net bookings are expected to be MBK Grand theft Auto mine Grand theft auto by Red Dead redemption to read that online social point's smoking borderlands, three civilization sick and the out of world.
We expect the net bookings breakdown for hardly at all to be roughly 55% UK, 35% Rockstar games and 10% private division. It's also point.
Our forecast our geographic never like to be about 60%, United States and 40% International.
Exactly.
To roughly flat as compared to fiscal 2020, driven primarily by brought them have yet to K offset by lower allocating a consumer spending on the part of that's great and Red dead redemption.
Premiumization.
The current consumer spending as a percentage of our business is expected to grow approximately 60% persons 51% last year.
[noise] Superjack digitally delivered net bookings to decline by that 8%.
Fair enough.
So John is projected to represent 86% up from 82% last year.
Yes assumes a 60% of current generation console games out well need to leverage definitely up from 55% last year.
With respect to generate more than $350 million non-GAAP adjusted.
I'm sure that operating cash flow I find it deploying approximately $75 million some capital expenditure.
Capital expenditures over the prior year, it's primarily due to spending on <unk> build out and I see.
GAAP net revenue to range from 2.63 to 2.73 billion dollar cost, it's all to range from $1.19 billion to $1.24 billion.
Oh operating expenses are expected to range one plant one to 1.12 billion dollar at the midpoint. This represents 1% decrease over the prior here just a matter of our marketing and stock compensation expenses, partially offset by higher R&D expense and charitable contribution.
I would expect GAAP net income to range from 299 to 329 million dollar or $2 and 60.
$2, an 85 cents per share.
In closing fiscal 2020, with a record year protect yep, well, they're delivering incredible Standalone entertainment experiences.
Engaging live services that captivate I connect communities around the world our ability to serve our audiences has never been better fiscal 2021 promises to be another great year for our organization.
Well this isn't about capitalize on the many opportunity, but then I am just straight on to navigate the uncertainties.
We have astronics development pipeline in our company's history.
That's a bunch of work to resume in fiscal 2020, Sam what our world class creative assets focus on operational excellence and disciplined approach to capital allocation takes is positioned to generate significant gross margins fashion over the long time. Thank you I'll now turn the call back to shop.
Thanks, Tony and Carl on behalf of our entire Madison became I'd like to thank our colleagues for their hard work their commitment to excellence.
After delivering another outstanding year, particularly under these circumstances.
For our shareholders I want to express our appreciation for your continued support.
I'll now take your questions operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tome indicate your line is in the question Q you May press Star too if you like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment. Please why we poll for questions.
My first question comes from Collins, Sebastian with Robert W. Baird. Please proceed with your question.
Okay, great. Thanks, Congrats on the strong quarter and hope you all are doing well and also thinks the visibility on a pipeline. That's very helpful. I was wondering if you could add any any color on the linearity of a plan releases over that three or four you your time period.
And then Strauss, maybe a bigger picture question.
As the publisher of the world's most successful open world franchise I Wonder if you think theres, a real business opportunity for a matter burst type environment. I know this is one of the more topical discussion points in certain industry circles right now, but with the next gen I'm on the horizon and given what we've just been going through.
I Wonder if you see any potential for that thank you.
Bye Bye linearity I think we're theraskin collyn is should we expect a gentle constant upward sloping curve of our releases net bookings and cash flow and the answer is we really are aiming to have.
Handful or greater.
New significant releases every year from existing franchises in new intellectual property and as you could talk from Carl description, we have plenty of plenty of great content coming that reflects that desire.
But it doesn't mean that in any given year Adobe linear already as you put it.
And this year fiscal 21 reflects that the good news is that with our strong catalog or their life service offerings.
And with their annual releases, we can have great strength, even in the late year, even though it's not our goals have a lot here.
And then do even better in the year, where we have we're able to launch a number of titles, which is our strategy and even better than that if we're fortunate enough to have a blockbuster title and we have some of those as well.
So you know be the variability in our results I don't think we'll ever go away not when you have some of the biggest entertainment properties on Earth that don't come out every year the can't come out every year a fair to remain.
If they are there to remain.
The biggest titles.
So.
That's that's my view on linear already.
Definitely our goal to be smoother and to grow our there will still be some variability.
And.
Wallace a book to answer your question.
More more broadly.
I really think that's more a label question. Then is there anything else you know as soon as we get into the nature of the contents on what we're doing in the future those and those questions are better answered buyer labels me aims to give as much visibility you can count on these calls, but when we get into specific core creative matters no, we'll announce that at the label level.
Through time.
Thank you.
Our next question comes from my King with Goldman Sachs. Please proceed with your question.
Thanks, So much I just had a question about the pipeline visibility could you just give us a sense of what the completion rate for games in development have been in the past and could you just help us think about exactly what a a core gaming experience.
It is.
You know I think you guys said 70 72 games for PC Council screaming over the next five years.
Yeah, <unk> 14 gains year on average is this just a significant increase now put relative to what you've done in the past or.
Is there a or add on content or something else in those numbers. Thanks.
HM just to answer your last part of your question first we did not include out on content in those numbers I'm. So those are all full game releases and how we define.
Our two of at how we define what core experience as well we really this is not necessarily to say to reflect that mean, the largest investments that we make they tend to be bigger investments because core games tend to be how big a better games and more engaging on targeting more core gamers, but it doesn't necessarily mean that unless we said before they read a lot of new IP and.
Generally speaking.
You can really expect on the new I also know IP front as much more risky and the generally speaking our our development budgets are going to be lower for new IP.
So let me a wide range of investments across all of our types of at least they were doing including core games, but the core games are really those looking for engaging experiences where you could play anywhere from five to five hours at a time right. So it's really really thinks it's up the.
AAA it is probably the wrong way to chronic pain, because that does kinda tape investment and that's not specifically what we're talking about here then the first part of the question I forget what it was.
It was about the percentage of games in development, that's typically grocery completion in the past.
I don't have a specific I don't want a specific number there for you I'm, obviously, though games that are coming out that are that are part of existing franchises. The rate of completion on that is obviously much much higher for new I piece in various stages of development I mean for something that might be in a prototype.
Prototype stage you know maybe you can be anywhere from you know can be half the time or could be 75, or something I'm really just depends and we've got titles that are in various different stages of development in that pipeline that I suggested.
And the more new projects that we have you know, but new IP you could probably expect that that completion rate to be lower than if it was that's all I could think franchises and we do have a like a lot of IP in there and there's just a stress again those numbers I assume that all those things come out, which we know it's not going to be the case, but it also assumes that nothing.
Got it to their release slate, which also is not going to be the case.
So this is a larger pipeline that we had before we've been talking about this for quite some time.
And our expectation is we'd like to keep up this velocity, it's really important for us to to build scale and this is one way that we're doing it we need more at bats.
Thanks, Carl that was really helpful.
Our next question is from Mariano Lu with Barclays. Please proceed with your question.
Great. Thanks for taking my questions have one on and be a one high level question.
So the one that Andy I noticed that and date UK 21 still slated for fall 2020, or any thoughts you can provide on what happened to that title.
Its release date after and be season continues to be suspended due the rest of the calendar year.
And then Strauss you mentioned in the past that consumers on average watch I get 50 hours of linear TV and 45 hours a video games, how how is that those hours increase or shifts and during the current club in Barnett and what is your vision on what a post quarter will look like in terms of time spent on entertainment and.
It again.
Thanks.
[laughter].
Sure I'll, just as Carl for MB <unk>, obviously, we're all hoping that we're going to have an MBS season, and we have actually been through Oh, we have had history with NBC does not starting on time in the past we've had a strike situation in the past.
So we have familiar with that you don't want to say that it wouldn't impact again at all but we tend to be able to continue our business in a robust way even in light of delays in season, starting or different kinds of season, starting so obviously all of US you know around the world Hope that we've got a maybe a season. If we don't for some reason I think the game as a standalone basis.
This is a compelling experience and well be fine.
And this is strauss regarding engagement.
Activate which is a leading media consultancy just provided us with some research.
All good so all age groups all demographics.
During this crovitz shelter in place time period time, certainly the gaming has increased about 39%.
While time spent with video linear entertainment has increased about 43%. So there during the same ballpark.
Literary Entertainment did increase more but what's interesting is their research shows that post kogut. Once people returned to their normal routines. They expect time spent with gaming to grow at a greater rate about 14% sustained increase of about 14%.
Versus about an 8% since stained increase in time spent with linear entertainment with video compared to pre cobot 19, all levels. So I think it represents a sea change as shifts and we're going to begin to see meaningful growth in interactive entertainment.
Meaningfully outstrips the growth in winter Entertainment no trend that we've we've seen a blade of course, but I think I think that the lines are going to begin to diverge in the paper vendor Interactive entertainment and why do I take that I think that sheltering at home.
Tragic as it is.
Side as it is.
Has caused people to look for entertainment and people have returned to interactive entertainment new people have come to it and they realize not only is beautiful not only is engaging not opening is a funding potentially competitive depending on the game not only did a great stories and characters.
Did you can also be engaged with friends and communities all around the world you can create new friends and communities all around the world, while you're playing those games and you can play with those people because you can connect with and you can talk to them, while you're playing.
Over overdraft client so.
[music].
You know, there's not a moment for celebration, we're deeply saddened by what's going on in the world.
But I you know the view I think the to the smart view is that.
All preexisting trends have been accelerated by this crisis.
And the shifts to interactive entertainment and the growth in the sector.
As one of those trends now with all that said, we still have to execute every day.
Growth in the sector is not going to help us if we don't make great games that we don't deliver hits.
Right, it's very interesting thank you.
Our next question is from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
Hi, Scott So I'd want to ask about what you see on a regional basis, if there's any differentiating engagement dynamics as we kind of meter through areas getting hard hit and then responding a bit China and then as places around the world with turned to some some of the normal in the development side.
I was just shipped to work from home with was that Kinda lockstep no real problems and then what are you seeing as regions start to get back to work and Asiapac.
Yes.
Thanks, Brian I'm, sorry for the delay we we're all working remotely.
We don't see meaningful differences regionally and so far we have not seen.
Meaningful changes as regions are gone back to work for example, and be a two k. online in China. Now has 49 million registered users remains the number one peachy sports title in China, and it was up 25% year over year.
There's not going was up 40% in the quarter. So we are we're not seeing meaningful differences, we are not saying.
Significant changes as people had back to work, but I think it is he was fully or expectation.
And I just I reflected that in the research I just quoted that they'll do that fits the level of engagement will not stay the same as things return to normal, but we do think it would be higher than it was before.
And in terms of working from home look we're very fortunate you know, we we've got a real wake up call during hurricane Sandy when we were not really particularly prepared and ever since that which is quite some time ago. We've been a a company. In addition to being a highly compliant company, but a company has on disaster recovery and we have stated the art systems.
In fact, we had planned completely apart from this crisis. The habit work from home test stay on March 12, and that it turns out to you know.
We Gotta go live right about them anyhow, a week after that.
We had 5000 people effectively working from home completely set up with all the equipment they needed and because we know when people are connected on line of course, we could see that their productivity if anything it increased over working in the office and as people got used to sitting in one place would not much else to do in front of their desktops.
We're fortunate we have a incredibly talented hard working group of colleagues, who really believe in this company is mission.
And largely I hope, mostly love working.
Together.
And are we thought as our mission to uplift people during this very difficult time.
And we're very connected with our teams where we're talking to them all the time.
I'm doing three town Hall meeting next week on zoom three different time zones hope to backed with almost everyone who works at the company.
So it's it's gone incredibly well and we really haven't missed a beat overtime I think it gets harder.
But I still don't expect that we will miss a beat but it does get harder I not of the view that you start shutting down into real estate and everything works from home and it's just as effective I think it's.
Pretty close to as a factor in a pinch and a crisis like this where you have no choice and people see it as their obligation to pull together under great work.
But there's no substitute for in person collaboration in connection.
Got it thanks Ralph.
Our next question is from Eric Sheridan with UBI. Yes. Please proceed with your question.
Thanks, So much maybe I can ask another sort of longer term question for the back of some of the answers your given on the corn environment and what it means for engagement long term note, what you've seen so far and I know what a short period of time over the last couple of months and again, you know pretty horrible that dropped but has that changed at all your view with the way in which I came should be distribute.
Did or maybe thinking about game development or even more ticky Bucky monetization over the long term as you see that type of increased engagement levels, maybe playing out for interactive team and over the medium to long term moving beyond just the quality of the content also the form and matter of monetization to make sure they are capturing that.
That's that's search and engagement. Thanks, so much.
[noise] I'm sure there are many things that we have learned already in can learn.
We havent.
We haven't seen in a massive change in our approach.
And remember when we talk about monetization. Our goal is always to deliver a phenomenal entertainment experience first and foremost and we figure that if we do that monetization takes care of itself.
Our goal is not.
To constantly.
Build monetization naturally we need to get paid appropriately so we can.
We can share the proceeds with our talented colleagues.
And create a return for our investors, it's our job to do both.
We care about all of our constituents.
So we're not we're we're not a charitable organization more for profit organization, obviously wouldn't be on the coffee.
Research.
But.
Monetization isn't a problem to this organization when we put out the best Entertainment on Earth people show up for it we give them something that's incredibly valuable they pay for it.
We take it as axiomatic that the nature of an experience.
Is the intersection of the quality of experience and whether you feel you receive value for that experience. If you go to a phenomenal restaurant and have an incredible meal, but bill.
It should have cost you're not going back even if you can afford it even if your price inelastic you're not going back just doesn't feel good. So we need to make sure that we always deliver more than what we charge and that's the goal of our company and that's the goal of all of our labels with all that said with increase.
Engagement.
Increased monetization, you're seeing the effects of that and these results enemies and this initial guidance.
Our next question is from Ryan GE with Bank of America. Please proceed with your question.
Hey, good afternoon, thanks, guys.
A couple of quick ones for here one for Lainie, then maybe for Karl.
Lainie, if we were wind back to fiscal 18, you know that's probably the last year you didn't really have any big new AAA.
Titles beyond sports I notice that the profit margin earnings per share was higher than what you're guiding to for fiscal 2001, even at the high end.
I know the share count in tax rate difference is going on but maybe what's the one or two differences you would call it's too as to why no physical 21, maybe doesn't look as robust.
As compared to fiscal 18, and then you know a Carl just on Mafia real quick can you remind us how material that franchise has been for take two in the past it sounds like this trilogy, the acquires I knew game with imports and re masters along with it so what's the opportunity we should really think about this type of game.
Oh, the trilogy and 21, thank you.
Hi, Ryan I don't have been numbers in front of me, but I can tell you off the top of my hat for sure I thought it it's going to be higher R&D expense.
It's definitely I see what I've done.
Numbers that are much higher right now on it as Carl talked about our Buckley Scott.
Our pipeline of titles has grown significantly over the last couple of yards and do you see in the detail about our title then well we have coming out of an upside here is that something that we've worked on growing significantly and as we look at the.
The dominant a lot of that's going to R&D expense.
Which is growing our operating expense line and things that you know selling to the fact that is the fact that are our bottom line margin I'm quite the best that and that as well as are all her out DNA faster just crown.
Hi, personnel and and I teach them for cyber security as well just overall I see expense for the business and our online games I think that wasting the biggest on increased for on the <unk>.
And it in terms of the Mafia opportunity Vafias been incredibly successful franchise for us over a long time between Mafia, while I'm happy to a lot here three.
And just to give you an idea.
Mafia three is already sold and it's about 7 million units are so I'm talking to US also incredibly successful in Lafayette want us as well so it's been a significant contributor for us.
Really excited about the trilogy. It is the same three games, but it is there's obviously a much more improvements that are that are at our current when the game. They mafia one it's going to be basically completely remain fully really made but there's going to be newtek, there's going to be new voice acting new game attack Kinex and a lot more than that I'm. So there's quite a bit to work that's going into brand.
Got the trilogy, and we've had great success with bringing out these collections.
You know and again, even though they're not brand new experiences, there's always a new audience to catch and then there's always been doing sprint depending on the judge the generation that each of those individual titles came out where even existing fans can can enjoy a different way I'm. So it's been meaningful for us as their franchise and we're really excited about the trilogy coming out.
Great. Thank you guys.
Our next question is from Brian Nowak with <unk> Morgan Stanley. Please proceed with your question.
Hey, guys. Thanks for taking the question to on GCA. So recently, there's been an offering on the epic games store, where people been able to get a you know GTN for free on PC.
Can you update us on your thinking about lowering barriers to entry 10 years to some of these big on your Rcs driven games, whether its MBS UK are obviously its recent thing with the DTA, presumably getting people into ecosystem driving the network effects and engaging them and ultimately monetizing that engagement as such.
Big part of the business, how do you think about the risk award a bringing people in for free versus you know charging them for for upland access and has that changed at all recently and then just following up on on something came up earlier in the call you mentioned 15 platform extensions.
It's usually a five one of those 16 thanks.
Thanks, Brian for your question.
Your question was also pretty good answer that's sort of all the above.
No.
Grand Theft auto five is a seven year old title, obviously, it's been offered at lower price points. Since initial release price point and we do have a obviously your online offering and there are monetization opportunities within that offering.
So.
Specific promotions with specific outlets with specific deals behind them can make sense to us and we do believe that it's a great idea in general to grow the audience growing engagement grow users.
And with that will come more net bookings and will come you know more profits. So that was the thesis behind that were very very selective.
And those kinds of promotions and they typically are only available for limited periods of time, when they make sense for catalog titles.
And we haven't yet made any announcements that we that are reflected in today's release and as you know we don't talk about specific new titles at these calls we leave those discussions to the labels.
Thanks.
Our next question is from Todd Juenger with Sanford Bernstein. Please proceed with your question.
Hi, good afternoon. Thanks for squeezing me in for either Karl or Strauss ever feels like it I Hope you don't mind me going back to the engagement question, yet one more time, but I'd I'd love to explore it this way when you think about the increase engagement recently.
Can you help us understand how much of that you think is proportionately driven by existing gamers, who works playing more.
Versus perhaps lapsed gamers, who have come back.
Versus perhaps you know new people to gaming and any differences in that answer based on either platform, you know PC versus console versus mobile or by your major franchises. Thanks, a lot appreciate it.
Hi, it's Karl in terms of engagement I'm, probably going to give you an answer that's not overly satisfying but to answer your question. It it's really both at all those things its new game or if its existing gamers its people coming back to the.
Franchise, and we track all of that we don't we don't publicize it but we track all of that.
And really what keeps people coming if they're coming back in even keep new people coming in is a constant release of new contact.
Every time, we come out with new content. There is ultimately some publicity around that and it brings people back in the franchise. It keeps people engaged tour who are.
Currently engaged with the franchise and it also brings new folks and I'm. So it really is all of the Bob and I really haven't seen that change so much specifically as it relates to anything going on during the pandemic, but obviously there are other avenues are open to us to bring it to bring in new folks and we're always playing with pricing models. You know you mentioned.
We are doing things like I'm, putting things into subscription oriented services or giving things away for a certain period of time all of that generates new excitement and engagement for our for a franchise as a four games that are.
Hopefully continue as well and kind of future and isn't just a temporary thing and we've seen that title or time and I like to point out we're still like we're still really an extra special note.
We are getting better and better and our investment in data analytics really allows us to show to see in real time, what these things do for US you know were and where do we get the most engagement how does a new player coming in and then three context or subscription service context or in a low price contacts compare.
To someone who came in painful price, what and what does that cohort look like and we're getting better and better and analyzing that said, we optimize all of our promotional activity to maximize our our economic opportunities.
Our next question is from Eric Handler with MKM Partners. Please proceed with your question.
Yes. Thank you for the question and I Hope everybody has a healthy in well Strauss when you look at given all of the games that you haven't in your pipeline now.
I'm just wondering if you could talk a little bit about scale and infrastructure and if even half of those games come to fruition do you have everything you need in place.
In terms of personnel to effectively distribute these games that market. These games.
Yes, I thought you were in or.
Do we have everything in place to develop and we still will be building up our development teams in terms of marketing and distribution, yes, I mean, one of the.
One of the reasons that we've talked about the need for scale in order to have competitive operating margins. We already have competitive gross margins highly competitive gross margins tough competitive operating margins you need scale with the same level of success of your games and that's our goal here, where the reason you get those higher operating margins with more net bookings is because you know.
Build up your fixed overhead and your fixed overhead. We typically include marketing a distribution expenses I fully expect that our distribution will become more efficient as the world moves more to digital distribution, we already have a highly efficient distribution mechanism.
And yeah with volume you might increase your marketing headcount modestly, but but not all that significantly naturally our development headcount is part of the cost of making their game.
And you should expect with volume that our development expense goes up and you're already seeing that.
Great just as a follow up would you think about capital allocation and given all the cash you have on hand, it doesn't seem like there's much going on from an industry M&A standpoint at this time.
But given all the games you have in the pipeline do you think it lessens the need for year to be thinking about M&A or you know how are you thinking about balancing which are currently developing versus external opportunities.
We still feel that our capital is used best in three different ways.
First to support organic growth.
Then an incredibly successful story for this company. This year is no exception really only done one meaningful acquisition, which was social point.
The.
Second is to support.
A return of capital shareholders, and we've done a great deal that selectively and we've talked through buybacks they'd been opportunistic and I I think the highest price we ever paid with around $99. If I'm not mistaken. So obviously so far.
We've called out reasonably well.
And then we preserved capital and incredibly strong balance sheet for the possibility of very selective inorganic.
Growth driven by acquisition.
We're very disciplined we're looking only for accretive deals and you're right. There aren't a lot of opportunities. We're hopeful that there will be some opportunity that would move our company forward potentially diversify its operations Abyss.
And bring in intellectual property and talent.
Those have been our rubric, we expect to stay squarely within interactive entertainment you shouldn't expect us to diversify outside of it and those opportunities are few and far between but they do exist.
And done right the benefit of that would be to have highly competitive operating margins. So we don't need scale for scale say, but if we want to be the best in the business and we do then our financial results have to reflect that then that means we have top highly competitive operating margins in the only thing standing in the wave that for us.
The scale, but again, if you buy scale foolish way will help you.
And if you buy scale and then can't maintain the success of that organization, thereby ruining your gross margins you. Obviously, we're not benefit your operating margin said another way if you're going to do with acquisition. It has to be smart it has to be accretive relatively quickly. It's not immediately and then post closing.
And you've got to integrate the business soundly and run the business successfully.
We refer to make sense, that's tall order thats why most corporate acquisitions fail. That's why we're so incredibly disciplined but we are of the view that there will be opportunities and certainly coming out of this crisis or there may be more opportunity than we otherwise would have expected.
Thank you very much.
Our next question is from Matthew Thornton with Suntrust. Please proceed with your question.
Hey, Thanks up nicely as question. Good afternoon, everyone. Maybe first question just coming back to the to the pipeline title count that you discussed earlier.
I'm wondering if you have a label breakdown I don't think you talked about it in terms of breakdown by label, but wondering if you if you have one.
Secondly, recurring type titles I guess, when we think about that that total count would still the guys recurring login ambulate, UK, which will come out obviously five times when that five years is that I counted five times or is that because accounted onetime.
And then third question yesterday I was just just curious how you think about growth bogeys over a multi year timeframe do kind of look out the growth rates you know maybe blockbuster lost a blockbuster launch or is it over a five year frame or just curious how do you. How you think about growth milestones when you look at the business over multi years.
Thanks, everyone.
[noise] [noise] hi, Carl the Oh, Yeah, you're right, we did not break it down by label, but they are there. Our belief is obviously from all of the label. So we don't really have anything to share in that regard, but there are quite a few releases from all of our labeling.
Putting a private division two K. rock star and social point as well [noise].
Give me and in terms of the the breakdown how that works so.
If there's a sequel that comes out after they have franchise if something comes out every year. This is our view of our entire pipeline. So yes that would be counted.
And in terms of how we look at gross good news is.
You know were operators were also investors. We also are big shareholders. We look at exactly the way you. It you know we're looking for growth in that bookings were looking for growth in EBITDA.
We're looking for growth in recurrent consumer spending because it reflects solidity in the business. So it's a much less volatile than.
Initial releases could be.
And finally, we're looking for growth in our stock price.
And that's how were judged so you know were were judged from an economic point of view largely on total shareholder return as we should be were not touched at all any P.S.
Okay, and terrible way to judge management team for obvious reasons, you can fill around with it.
Total shareholder returns no place to hide and Thats how were judged so I think in exactly the where you would look at it you know scale because its correlated with operating margins in the way that I said earlier.
The scale of your operating profit or your EBITDA or your operating cash flow.
And of course your stock price.
And on those.
Efforts, we've done very well indeed for quite some time.
Our next question comes from Mike Hickey, but the benchmark company. Please proceed with your question.
[noise] instyle, calling and almost in young guys and solid execution. While this is very difficult environment.
It was I'm curious your view on the economy will be fiscal year 21, 22, I think he said he.
We didn't see a deep recession, but I'm curious what sort of recovery.
You expect.
And how unemployment or other factors you look back and pack for like game sales.
Well like sort of this as it relates to your guidance.
Thanks, Mike Weird.
You know.
Our our expectations for fiscal 21.
I have not been adjusted for the recent success that we've had in this tragic curative.
In the back half a year. So we we we're not counting on.
You know this.
This level of engagement and spending to continue equally though we're not planning for a deep prolonged.
Consumer recession.
So I would say if there had to peg it we're right there in the Middle you know, which is where we probably should be since we can't call my own personal which does not influence our numbers is that we're in see a relatively rapid consumer driven recovery when the dust careers and my own view as a dust as Paul.
We are going to clear sooner than many people effect.
But I'm, an optimist and we don't plan based on my opinions. So I would say, we're right down the middle or that we assume relatively stable economic conditions that yeah. We were surprised when there were a deep ongoing consumer recession, we would not be and then permit kind of results could.
Being negatively influenced by.
And equally if there was a massive unexpected expansion that could benefit our results. So I think we're assuming relative stability.
We're not assuming.
Continued enhance gauge monetization likes of which we have seen recently.
<unk>.
Thanks, that's helpful. The last one for me on fiscal you're talking to.
No did a mix teaching for sequential growth and of course.
You guys tend to be a conservative.
As a good Needham Institute the broadly speaking.
Can you sort of talk too.
The drivers of growth.
Fiscal year 22, and obviously you.
You know looks like half two years in the first quarter guidance from 21, so there's probably upside there.
Do you expect grew up with this would be 20.
I want to thank you.
Yeah, sorry, I I think probably not much said, we expect sequential growth year over year in fiscal 22 and that is driven by the release schedule. The Carl described in the pipeline that we're investing in so we expect.
Some releases coming out of that pipeline.
In fiscal 22, and we expect them to generate sequential growth.
<unk> was up.
Hi, Thanks, guys Thats lumpy well.
Our next question is from Doug Crudes with Cowen and company. Please proceed with your question.
Yeah. Thanks, and went back 10 to 15 years ago. There were a lot of successful sports franchises out there most of the major league supported multiple simulation in or two titles you had an MLP title <unk> golf Tenda or extreme sports so and so on.
Good day, and there's basically he enormous title in sports in the market, including <unk> two k., let's see rather that are kind of hanging on by the skin that her teeth and that's it presumably there are other ones going away because it became an economical to make them at diminishing your numbers, you've got a P.G.I. title you're working on cement.
Fell titles, you're continuing to dusted wwb is it simply a function of getting the cost structure down to a level, where they can be profitable at relatively low you didn't numbers or do you see something in the market, where you think there are opportunities opening up that maybe didnt exist 234 years ago. Thanks.
Well, Okay. There are certain sports, obviously that are not going to drive the audiences that you're going to get with that for example, and be a where people or football I'm. Obviously, we're very excited about moving back into football the NFL as one of the most powerful brands in the world, we'd been an NFL business before weve excelled and Anna.
I'll business before although we're not going into the simulation space. You know, we're very excited about what we can bring that we can bring to that to that market. So we think there's significant opportunity for us to expand within that market, just where we are now, but you're right. Some of the other smaller sports you're not going to be able to I've been able to spend the kind of money.
That you all that you can't on the bigger sports to drive to drive your economics have you need to balance it out so by definition smaller already into smaller sports you're going to need to balance. It was smaller development budget, but that doesn't mean, there's not a lot of opportunity could be saying that they are to generate significant economics.
Because once you actually get people into there obviously the correlation between the popularity of the sport and the game itself, but it's not necessarily limited to that so people aren't golf fans can play golf games.
That we've seen that we've seen that over and over again, and we think that there's an opportunity for us to go into some of these sports and do very very well of course with a reasonable budget, but to bring desktop we came to the consumer engage them and then the economics will come.
Alright, thank you.
Our next question comes from race doctoral with consumer Edge Research. Please proceed with your question.
Great. Thanks, a high level question on this topic of scale and I guess, how you guys are thinking about investments in your forward pipeline I'd love to know more about green light process and I guess you looked at the last.
10, or so years, plus Oh video gaming, there's been a lot of focus on really growing in that head content, even you yourselves and seen a lot of success with GE, a and B I and it does seem like you have a lot of smaller titles or tuck in titles are doubly titles that are in your pipeline. So I don't think about you Green light.
And those titles. In addition for you just talked about but things like <unk> and you know what are the unit economics look like for those titles.
Relative to some of the big AAA releases.
And I guess.
Something that could eventually lead to lower margin structure on a on a per unit basis, which would sort of limit the upside of what you're talking about what scale.
Well I think what you're really talking about how our approach to new ideas for the most part. We you know you we have leaned in the industry generally speaking and obviously it take two as well because we've got such huge powerful franchises, we lean into those franchises have generated significant economic results driven by the consumer engagement with them, but we.
Still think it it's critical to invest in new I'd hate to keep that that fresh pipeline going because you never know we're next head it's going to come from but you can't but you're right you can't invest in the same way that you do in your franchise.
Yes. So you do have to take a different approach to it I'm always continuing to seek new innovative ways to enhance our product portfolio, including.
Hey, I knew I pay that has a chance to be successful.
And it doesn't necessarily have to happen in the first generation I always like they used. The example of Bruce Springsteen. It took them a long time to even had a gold album. It took them. If you released has to get there you you need to trade that the title so the ideas.
Take as many shots as you can.
To do so in touch away that if it doesn't work out you don't lose your shirt, but then you create some kinda reaction there something great about something that you did and maybe the first one it economically powerful, but though I guess for US is always to grow in Irish after iterations of the second one when we know we've got an audience. We can invest a lot more and expand that marketing budget expand that development budget.
And and push that franchise forward. That's what franchise development is all about you don't have to come out of the bat and JV successful at the same level as a grand theft auto and MBJ. One if you take that approach will never launch anything no. I mean, that's just shortsighted and it's tempting there's no doubt about it you know to do that because it's very very.
Efficient and the margin structures are enormous but I think we're limiting ourselves creatively and economically if we take that path and that's not what we're doing but we have to be mindful about our investment levels.
And in any patient and and look at franchise development over the long term I mean, our franchises.
In every single case adoration release after release have grown they don't go the other way enters the reason for that because we take a long view.
Got it. Thank you and then as you have success in some of these new IP.
You will be putting out there I mean, how do you think about let's say you do have a a blockbuster head off the jump can you reposition some of your resources towards recurrent spending in rebuilding that model immediately or do you do you expect to sort of keep these studio pats separate meaning you know lets say you do have something that.
You know.
All of a sudden is in the tier or maybe not grand theft auto, but maybe a borderlands do you reposition other studios to sort of attack the recurrent spending opportunity or do you remain on this pipeline pass that you've laid out.
Well it takes time, but you've got a title that takes off unexpectedly.
Do you you certainly can hit it resources on the go and if there is a significant opportunity to do so they're recurrent consumer spending and you can absolutely do that and you can extend the life of franchising borderlands, It's actually a great example, because when borderlands two took off what I was one of the successful borderlands two took off like crazy our DLC.
Plan expanded and on a daily basis, I mean, I don't remember what our original DLC plan, but it wasn't 10 to 12 releases, which is where we ended up. So you can always invest more overtime and you can obviously do that and again, we've got a you know a robots micro transaction model, but what you can't do you can't change nature of the game.
That would be suicide because the reason you have ahead because people like the way. It is so if you get to know audience going and you change the nature of the game surely would that motivation of of creating economic extracting economic value from the consumer you run the risk of screwing up the franchise and again, that's not something that we would do.
Got it thanks, so much again.
Our next question is from Alex Jama with Jefferies. Please proceed with your question.
Thanks, guys for taking the question I'm, just just for Lainie circling back to the earlier question on on margins and how it relates to the full year guide I understand the color around R&D expenses being up but it also looks like the guidance is implying gross margins that are a bit lighter than we expected curious if that's just.
You know conservatism or something specific to call out we would think that you'd see some gross margin improvement, especially with you know the accelerated shift we're seeing in digital right now so any color there would be helpful. Thanks, guys.
I'm sure. It's I would say much more units that's slightly down at basically it flat from last year. So if we do you are seeing income I don't know that from the digital and the recurrent consumer spending Mexicans recurrent consumer spending in the higher margin business for us.
But that's being offset by having left hand releases. This year. So that's why we're seeing it flat, but it's early in the arts and I'll see you know how we go towards the latter part of the year enough recurrent consumer spending continues to stay strong right. Yeah. We should hopefully see that left off a lot that I'm talking a lot of Arthur yeah.
Okay. Thanks, Mike.
Weve reached the end of the question and answer session I would now like turn the call over to management for closing comments.
Well, we just want to thank everyone for attending the call.
Once again, we want to extend our best wishes to everyone Who's listening today for your health <unk> for your loved ones health and our condolences for any losses, but you are your loved ones have suffered.
We know this is an incredibly challenging time, we feel blessed to be able to.
You have some small.
Consolation, but bring light entertainment's people, we're proud of what we do grateful to be able to do.
And once again I want to express my gratitude to our colleagues for their dedication for showing up with smile on their face for doing such amazing work. The reason, we're able to have these.
Extraordinary results is solely a function of that work.
So thank you so much for joining us and and our very best wishes.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
The conference call has ended please.
Disconnect your lines at this time thank you.