Q1 2021 Take-Two Interactive Software Inc Earnings Call
[music].
2021 earnings conference call.
Time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
And I want you require operator assistance during the conference. Please press Star zero on your telephone keypad. As a reminder, this conference is being recorded I'd now like to turn the conference over to your host Mr. Heights Diamond. Thank you you may begin.
Good afternoon, welcome and thank you for joining pay today's conference call to discuss this results for the first quarter fiscal year 2021.
Ended June Thirtyth 2020.
Today's call will be like bike Strauss Zelnick take two chairman and Chief Executive Officer, Karl slate off our president and Lainie Goldstein, our Chief Financial Officer.
We will be available to answer your questions. During the Q1 a 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 on the belief with our management.
As well as assumptions made by and information currently available to us.
We have no obligation to update these forward looking statements.
Actual operating results may vary significantly from these forward looking statements based on a variety of factors.
These important factors are described in our filings with the FCC.
Including the company's most recent annual report on form 10-K, and quarterly report on form 10-Q.
Excluding the rest summarizing the section entitled Risk factors.
I'd also like to note that unless otherwise stated.
Numbers, we will be 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 the I didn't set our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance.
Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure.
In addition, we have posted to our web site a flight deck that visually presents our results and financial outlook.
Our press release and filings with the FCC may be obtained from our website at www Dot take two games Dot com.
And now I'll turn the call over to threats.
Thanks, and good afternoon, and thank you for joining us today.
I'd like to start by expressing on behalf of our entire management team our deepest sympathies for those who have been and continue to be affected by this pandemic.
Where immensely grateful that Rona serves on the front lines caring for people in the in helping the world navigate this crisis.
Turning to our business fiscal 2021 is off to a terrific start with first quarter operating results it significantly exceeded our expectations, including fiscal first quarter Records for GAAP net revenue and net bookings.
Our outstanding results were driven by the outperformance of MBK 20 Grand theft auto five in Grand Theft Auto online Red dead redemption to one read that online and social Point's mobile games.
I remain incredibly proud of our entire organization, which exemplifies our core tenets of creativity innovation and efficiency.
And continues to deliver industry, leading entertainment experiences to our audiences during these challenging times.
In the first quarter and be a two k. 20 significantly outperformed expectations and recently achieved a franchise milestone of $1 billion in that bookings since launch.
Consumer engagement with MBK continues to increase with daily active users calling 82%.
My career users growing 78% and my team users up a remarkable 108% as compared to the first quarter last year.
Regarding consumer spending and MBJ <unk>, two k. grew 126% to a new record.
And remained the largest contributor to that part of our business.
Today, and the educate twentyth sold in over 14 million units up over 18% compared with RMB eight UK 19 in the same timeframe.
We expect the lifetime units recurrent consumer spending and that bookings from D.A.T.K. 20 will be the highest ever for two k. sports title.
Nearly seven years after its initial release sales of Grand theft Auto five continued to exceed expectations a.
The title is not sold in nearly 135 million units and remains the standard bearer of the current console generation. In addition, recurrent consumer spending on Grand theft Auto online outperformed our forecast growing 155% through a new record.
In April Rockstar Games released Gerald last play a series of six new contact missions for Grand Theft Auto online.
The first quarter was the second best period ever for New player acquisition since the title launch in 2013.
The unprecedented player volume trends it started with the superlative performance of the Diamond Casino and resort update in July 2019, and drove record average multiplayer I may use through August 2019 persisted with sequential records in average multiplayer I may use from December 2019 through May 2020.
We now expect Grand theft auto in line to establish a new net bookings record in fiscal 2021.
In addition, the partnership with Epic games store, where Grand theft Auto five was offered free for a week in mid May was a contributing factor to the strong performance of Grand theft Auto in line and did not come at the expense of paid sales of the title in fact Grand theft Auto five sold through more units in the period than any first quarter since the titles launched in 2013.
And in the six weeks following the epic store promotion Grand Theft Auto five sold more units then in the same period than any previous year.
[noise] Red dead redemption to also outperformed and to date has sold in more than 32 million units worldwide. The title sold through twice as many units compared to last year engagement with M. recurrent consumer spending on Red online continues to increase the title acquired nearly twice as many users year over year and average mall.
Do you play around May use grew 50%.
Bookings from read that online surpassed expectations going 118%, excluding digital content bundled with Red dead redemption to premium additions during the first quarter Rockstar games added new content to read that online, including six new maps to showdown mode.
Through the coming year Rockstar games will continue to support both Red dead online and Grand theft Auto in line with more content updates to keep new and returning players excited and engaged.
Borderlands three continues to expand its audience today that sold in over 10, and a half million units worldwide up 69% over borderlands two in the same period during the first quarter two can gearbox launch bounty of blood. The third of four announced paid campaigns are included in the borderlands three Super Deluxe edition and the season pass.
Yes or are available for purchase separately upon release the season pass attach rate for borderlands three continues to be the highest into case history and there's more content coming.
In the period I may use grew at sales continued at a steady pace with the consistent release, a free and paid content.
We attribute this ongoing success in part to two casing gearbox software is continued efforts to support borderlands three as a live service game, which should continue to benefit the title in series over the long term.
Private divisions critical and commercial success, the outer worlds outperformed expectations in the first quarter and is now sold in 2.8 million units on June 5th the title was released for Nintendo Switch. In addition, private division launched disintegration, new satisfy first person shooter experience. It blends real time tactical elements for place.
Station for X. box want MPC.
During the first quarter two k. release Mafia too definitive addition of Mafia three definitive addition, as part of the Mafia trilogy, which combines all three previously released Mafia titles into a single package for Playstation four Xbox one and PC curated by two case hangar 13 studio.
Mafia one definitive addition will become available on September 25th as Carl will discuss shortly.
Okay also bolstered our offerings for Nintendo switch with some of our most beloved and successful franchises, including bio shock the collection the borderlands legendary collection and the XCOM two collection.
In addition to came for access games released Ascom come Maris quite an all new Standalone title and the award winning turn based Ascom series for PC.
Our first quarter results were also enhanced by a variety of other offerings led by social point, Sid Meier's civilization sex and the W. W. E series.
During the first quarter recurrent consumer spending exceeded expectations growing 127% to a new record and accounted for 65% of net bookings. In addition to virtual currency for MBK Grand theft auto online and read that online recurrent consumer spending was enhanced by the following offerings in the free to play category.
Sorry, social point outperformed expectations growing 54% to a fiscal first quarter record driven primarily by the exceptional performance of its two biggest games Dragon City, a monster legends. The studio continues to invest in its broad in innovative pipeline of more than 10, new games planned for launch in the coming years.
Wwb Supercard also outperformed during the first quarter growing 54%. The title has now been downloaded more than 21 million times. It remains to K is highest grossing mobile title.
And then you can line in China remains a significant contributor to our results. The title is the number one PC online sports game in China with nearly 50 million registered users.
Add on content grew 135% and outperformed expectations led by offerings for the Borderlands franchise, Sid Meier's civilization sex annex calm too.
As a result of our outperformance in the first quarter, along with a higher forecast for the balance of the year, we're raising our outlook for fiscal 2021, which is well underway to be another great year for take too.
Looking ahead, our company has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP.
We've made great strides to increase the scale of our enterprise and our car pipeline is more than double what it was five years ago in terms of number of games, including 54% internally developed titles and 46% externally developed titles.
In closing, we continue to prepare for our industry's forthcoming transition to a new console cycle, which will provide our world class development teams with a better platform on which to captivate and engage our audiences.
Our company remains superbly positioned creatively operationally and financially to capitalize on the many positive trends in our industry and to deliver returns for our shareholders over the long term I'll now turn the call over to Carl Thanks Ross.
I'd like to begin by thanking our teams for delivering an excellent start to the year the work being accomplished across our company is a shining example of what can be achieved through our culture collaboration which is more important than ever during these challenging times.
I'll now discuss our recent and upcoming releases.
On July 1st private Division and partnership for the European Space Agency, plus new update for wearable space program for PC entitled shared Horizons.
Update which will also be available later this year on consol's celebrates Esa outstanding contribution to space exploration and its free for all players of the critically acclaimed physics based space simulation game.
In addition type of division as new development studio intercept games remains hard at work apparel space program too, which is expected to launch in the fall of 2021.
On July 20, Threerd for access games released Ethiopia, APAC as part of their bimonthly release of six downloadable content packs. The all new Sid Meier's civilization, six new frontier past, our Playstation four Xbox one intend to switch and PC.
Later this year, the new frontier pass will come to mobile platforms and each path will also be available for individual purchase.
On July 28, Rockstar games released the natural list, a massive new update to Red dead online featuring a new frontier pursuit that will introduce players to the secrets of natural isn't as part of an all new role plus the new outlet outlaw pass tons of community requested features and fixes and much more to play and discover.
In months to come.
Launch date for the naturalist with Red Dead online best they ever outside of the holiday period, and the update continues to perform very well.
On August 20, Onest, two k. will lease well release PJ toward two K. 21 for Playstation four Xbox one intend to switch PC and stadia.
Developed by HP Studios PJ toward two K. 21 will feature PJ professional duston Thomas on the cover officially licensed pro players courses and gear realistic core scanning play by play commentary, if I look lv enrich beam.
New PJ to our career mold online and local multiplayer course and player customization and online societies.
On September 24, Okay. We'll release the next annual offering from our flagship MBK series for Playstation four Xbox one and tend to switch PC and stadia.
With extensive improvement best in class graphics, and gameplay competitive and community online features and deep very game mode. MBK 21 will offer a one of a kind immersion into all facets of NB basketball and culture.
In addition, MBK 21 last this holiday season for next generation platforms, providing unparalleled graphics and loading speeds and will once again redefine the standard for sport simulations.
Five time and they all Star importantly, trailblazer standout Damian Miller will be on the cover for the current generation versions and day to day 21, and 2019 first overall pick and consensus National College player of the year, Diane Williamson, The New Orleans Pelicans, well beyond the cover for the Playstation five next stock series X releases.
Yes.
And the eight you say 21 way to several initiatives to bridge. The two console generation is that the game, including my team cross progression and they shared VC, while it within the same console families.
In addition, and being legend Kobe Bryant lifetime achievement, the basketball excellence will be celebrated with the MBK 21 mom that forever edition, which will provide players with seamless access to both current and next generation versions in the game.
On September nine private division, where we leased PARAGUARD on the first narrative expansion for their award winning RPG outerwear us from Citi and entertainment.
And this expansion players will discover a long list and of monsters and Marauders on the Gorgon asked are right and I'll cover our mystery that will change the halcyon colony forever.
Apparel onboard on is the first of two narrative expansion that can be purchased individually I bundled at a discount and the outerwear OWT expansion pass.
On September 18th to cable release W. W. Two k. battlegrounds, a completely new WWD gaming experience that will feature arcade style brawling action, Playstation four Xbox one antenna switch PC and stadia.
Featuring a roster of more than 70, W.W., we superstars and legends at launch with additional superstars to be released thereafter W.W.. We took a battlegrounds is now available for preorder and digital formats and participating retailers.
At September 25th Teekay were released Mafia, one definitive addition for Playstation four Xbox one and PC and the Mafia true trilogy collection, which features all three previously released Mafia titles.
For the trilogy Mafia, one is being completely we made from the ground up including New technology voice acting game mechanics and more.
And the coming weeks, two k. and gearbox, we'll have more to share on their upcoming contact releases to support and further expand the audience for borderlands three.
Rock Star also announced an upcoming summer update to grant that thought online and both Grand theft Auto online and read that online will receive major update later this fiscal year.
Featuring an extension to existing frontier pursuits for Red dead online as well as Grand theft Auto online biggest update ever featuring a new take on high and I knew location.
Throughout fiscal 2021, we will continue to support our titles with innovative post launch content that drives engagement and recurrent consumer spending.
In addition, social point and UK will continue to broaden our offerings for mobile devices.
Looking ahead to fiscal year 2022, Rockstar games also announced that they will bring their beloved and I kind of Grand theft auto five to the next generation of console is in the second half of calendar 2021.
The new generation versions of the game will feature a range of technical improvement visual upgrades and performance enhancements to take full advantage of the latest hardware, making the game more beautiful and more responsive than ever.
For the community of Grand Theft Auto online the journey through this ever evolving World will continue on the next generation consoles with more new updates, including additional content exclusive to the new console and PC.
And we'll also be a new Standalone version of grant that that online coming in the second half of calendar 2021, which will be available for free exclusively for Playstation five players during the first three months.
Rockstar games will share more details on the new versions grant that that'll five in the month ahead.
Last week private division announced the signing of three new publishing arrangement agreements with top independent developers no studio legal geeks and roll seven.
These partnerships will expand the labels portfolio of titles that includes cripple space program franchise, the out of world ancestors, the humankind Odyssey and this integration.
Movie Studios founded in 2010 by Thomas smaller and Gennady Karl as a Bath to award winning studio best known for developing the critically acclaimed already and apply forest and Lori and the will of the west.
Studios is working on creating a compelling new action RPG.
The biggest piece founded in 2011 by trend Custer's like Missy anti carry a renowned for developing the PC game, our mellow, which combines deep tactical carplay rich tabletop strategy and RPG element.
Located in Melbourne League of Geeks is looking to expand upon its initial success with an ambitious new intellectual property.
Well seven is a basta multi award winning independent studio founded in London, and 2008 by Simon Bennett, John revenues and Tom Haggerty.
Role seven created the Ali Ali series, not a hero and laser Lee.
They are working with private division on the next step forward and then mission to create awesome flow state games.
The first of these titles is expected to launch a fiscal 2022.
Also last week Teekay announced a partnership with one team partners and the National Football League Players Association that will allow the label to include the names numbers images unlikeness as for over 2000 current NFL players and multiple non simulation football games that are currently in development and set to launch starting in calendar year 2021 during fiscal two.
Thousand 22.
We are thrilled to be back in the us with NFL, which is one of the most successful sport brand in the world.
We are confident that are forthcoming NFL offerings will be extremely fun highly engaging and deeply social experiences.
[laughter] excuse me.
Turning to export we're very excited about the continued progress in growth at the end the two kaylee, which is currently and its third season.
The playoffs will run between August 19th and 22nd prior to the finest on August 29.
The Lake has been steadily building its portfolio of high profile partnerships and sponsorships, including Anheuser Busch 18 T champion Athletic wear Gamestops hyperactive jostens, Panera bread, Rainer gaming S&P, scuff gaming sneakers stance and to sell.
Do you have yet to Kaylee airs live on the least which channel in addition to select matches.
During live on if the into SPM digital platforms and the end date UK lead you to channel as well as on delay on EG network in Southeast Asia.
Furthermore, in June as part of.
A multiyear agreements live streams that league games began airing on dash radios, nothing but net channel on digital network. It has more than 12 million subscribers.
We're very excited about the continued success and growth at the Mph, UK Lake, which has a long term potential to enhance engagement and to be adult driver of profits for our company.
Strauss mentioned, we had the strongest development pipeline it takes us history as well as significant potential to increase engagement and recurrent consumer spending. In addition, we are investing a number of emerging opportunities that have the potential to enhance our growth rate.
We remain focused on delivering the highest quality entertainment that captivates engages audiences throughout the world.
Whether expanding our offerings on the new platforms capitalizing on new business models in distribution channels, we're increasing our presence in emerging markets take two is exceedingly well positions to generate value to consumers as well as growth for our shareholders.
I'll turn the call over to lane.
Thanks, Carl and good afternoon, everyone today I'll discuss our first quarter results and then review our financial outlet second quarter in fiscal year 2021.
Please note that additional details regarding our actual results in outlets are contained in our press release.
As Jeff mentioned fiscal 2021 is off to a great start their first quarter operating results significantly beating our expectations.
Bookings grew 136% $996 million, which was it fits very well have backyard.
This result, scidera outlets of $800 million to $850 million given by the exceptional performance throughout our portfolio led by MBK 20 Grand theft Auto five and grant that's out of online Red dead redemption to Red Dead online. It's also points mobile games, partially offset by the underperformance of disintegration definitely.
Delivered net bookings grew 139% as compared to our outlet at 100% growth and accounted for 92% at the total this is all exceeded our outlet primarily due to the APA farm ins at recurrent consumer spending.
During the first quarter, 77% of South of current generation console game, which delivered digitally FM, 75% last year.
Okay, and consumer spending grew 127% as compared to our outlet at 75% growth and accounted for 65% of total net busting.
This growth was driven primarily by MBK 20 Grand theft Auto online, it's also points mobile games.
GAAP net revenue grew 54% to 831 million dollar pushes the fiscal first quarter back right and cost of goods sold increased to 477 million dollar.
Operating expenses increased by 10% emerging $72 million due primarily to our covered 19 charitable initiative headcount expansion in higher incentive compensation as a result of the Companys performance.
And GAAP net income grew to $89 million.77 per share as compared to $40 million.41 per share in the first quarter last year.
Now to our guidance starting with the fiscal second quarter, We project net bucket to range from $775 million to $825 million.
Compared to $951 million in second quarter last year, which benefited from the launch of borderlands three largest contributor to net bookings are expected to be and the AC K Grand theft Auto online in grant that data five red dead redemption tail and bad debt online borderlands, three social point's mobile games since.
Our civilisation sex and the out of World. We expect digitally delivered net bookings to be flat driven by growth in recurrent consumer spending offset by lower digitally delivered south of borderlands, three which launched last year.
A forecast assumes the 63% for current generation console games out will be delivered digitally.
51% last year.
We project the current consumer spending to grow by approximately 10%.
We expect GAAP net revenue to range from 750 to 800 million dollar and cost of goods sold to range from $355 million to $381 million.
Operating expenses are expected to range from $285 million to $295 million.
At midpoint. This represents 8% decrease over last year, given primarily by lower marketing expense.
GAAP net income is expected to range from 90 $210 million or 85 cents to 95 cents per share.
Management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2021.
Turning to our outlook for the full fiscal year, we're increasing our net bookings outlook range to 2.8 $2.9 billion from 2.55 $2.65 billion given by our outperformance in the first quarter, along with an updated forecast at the balance at the here.
We are continuing to see elevated engagement and south some people sounds to me it on which we have included in second quarter, but have not yet factored into the back half of the year, we expect growth and the UK Grand theft auto online and social Point's novel games to be offset by lower result, borderlands Threed Red dead redemption, Tim and grant that up.
Hi.
Bad debt on mine, excluding digital content bundled with Premiumization is projected to be approximately flat versus fiscal 2020.
The largest contributor to net bookings are expected to be and the 8-K Randolph data online and Grand theft Auto five red dead redemption to and bad debt online borderlands three so I was appointed mobile game, Sid Meier's civilization, six and the out of world.
We expect the net bookings breakdown from our label to be roughly 55% UK, 35% Rockstar games and 10% private division. It's also point.
And we forecast, our geographic Napa, but see about 60% United States and 40% International.
We now project digitally delivered net bookings increased by approximately 3% as compared to our prior outlet 80% decline. This growth is being driven by recurrent consumer spending and digitally delivered south.
Percentage of our business digital is projected to represent 87% from 82% last year.
Our forecast system and 60% of current generation console games out will be delivered digitally up from 55% last year.
We now expect recurrent consumer spending to grow by 16% as compared to our prior outlook, a flat versus fiscal 2020, and who represent 61% of net bookings as compared to 51% last year.
This growth is being driven by MDACC K Grand theft auto online until some point.
We are increasing our non-GAAP adjusted unrestricted operating cash flow outlook to more than 500 million dollar. After my prior outlook when intervention 50 million dollar we plan to deploy approximately 75 million dollar the capital expenditures.
Is that GAAP net revenue to range from $2.8 billion to $2.9 billion and cost of goods all to range from 1.28 to 1.32 billion dollar.
Total operating expenses are expected to range from 1.15 to 1.17 billion dollar at the midpoint. This represents 3% increase over the prior year driven by higher headcount R&D expense in Charlotte contribution, partially offset by lower marketing and stock compensation expenses.
We expect GAAP net income to range from 350, new engine $80 million $3.05 at $3.30 per share.
In closing fiscal 2021 is off to a strong start and is poised to be another terrific year for our organization, we remain well positioned both to navigate the uncertainties of these time and to capitalize on the positive trends within our industry over the long term our industry, leading creative assets from commitment to operational excellence.
And strong financial foundation position, our company to deliver significant growth and margin expansion for our shareholders. Thank you I'll now turn the call back the shaft.
Thanks, Lenny and Carl.
On behalf of our entire management team.
I'd again like to thank our colleagues for their hard work commitment to excellence and for delivering an exceptional start to the year to our shareholders I want to express our appreciation for your continued support when I take your questions operator.
Thank you.
This time will be conducting a question answer session.
If you'd like to ask your question. Please press star one on your telephone keypad.
Hey, confirmation tailwind to get your line is in the question Q.
Hey Press Star too if you like to remove your question from the Q4 participants use and speaker equipment. It may be necessary to pick up your handset before asking questions. One moment. Please why we poll for questions.
Our first question comes from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking the questions.
Maiden quarter. So the first question is on the 70 dollar price point announced for end date UK 21.
Any color behind making that decision and with that decision broad based or title specific sense MBK 21 will stand to MBS Susan.
Hi, instead of one so in other words is the higher price point embedded in guidance for all chip Blake you Gentiles going forward or just M- UK now the follow up.
Yeah, we're definitely announcing pricing on a title by title basis.
I was just observe there hasn't been frontline price increase for very long time, although costs have increased significantly, but most importantly, we.
We believe we're delivering the highest quality titles in the business and consumers are staying more engaged in ever games have extraordinary playability in replay ability and they offer many many hours of entertainment, we think it's a great value.
It does rely on our continuing to deliver amazing experiences and that's our strategy and our goal.
Got it and the second question is on GK online.
Anything you can share in terms of the normalized growth rate or GTL line. This quarter, so excluding the FX store.
Similarly can you shed what percentage of the bookings came from new versus existing players and just okay. Thanks.
No. We don't we don't give that kind of granular detail.
Okay all right.
Our next question comes on my gang with Goldman Sachs. Please proceed with your question.
Hey, Thanks for the question I was just wondering if you could expand on the Gteighty five enhance condition for next holiday.
Fields.
A little inappropriate to call. It a typical re master and I was just wondering if you could talk a little bit about whether or not there is an opportunity for a GCA call. It a replacement cycle. If you will thank you.
Well, it's a great question and I appreciate the sentiment with which it fast because we've now sold in over 135 million units and of course GJ five was created for the last console generation as the standard bearer and this generation and now we've announced that it will be available for the next generation of consoles, which.
It's just amazing.
Historically rock star.
Always delivers a great new experience with new content and new opportunities too excited engage and surprise players.
That's true of everything the Rockstar games releases are any more details I think were properly come from label in due time, but we couldn't be more excited that entire will be available for for the next generation consoles.
Great. Thank you stress.
Our next question comes from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
Thanks, guys.
Xbox 2020 couple of weeks ago, two weeks ago, we saw outer worlds grounded about they look great. These are all private division titles.
So our question was around this stress when you mentioned, thank you said.
Well some switch was 2.8 million units already how do you see private division aggregating up volumes over time Lainie I think you said in near term, it's going to hit 10% Thats private division and social point so.
How should we think about that metering out going to be longer down the road can be a bigger percentage and then the second part to that question was.
Title seem to appeal.
Maybe especially to the expanding demographic of gamers that are being pulled in the ecosystem can you can you give us any color.
Dynamics in terms of how types of players that are engaging with private label versus some of your other studios.
Well. Thanks for your question I've just to clarify our two worlds are sold in 2.8 million units across all platforms. So far as recently made available for switch.
So and we're very excited about outerwear. It's also has more content coming.
And that's a very exciting opportunity.
We think the the opportunity for private division to be a greater percentage of our overall net bookings is strong and to state. The obvious it will all depend on the quality of the releases, but there continue to sign up and announce great publishing arrangements with first class independent developers and.
Yeah.
And so far their track record is pretty extraordinary which is which is amazing.
In terms of the demographic to which they appeal I think thats title by title I don't think Theres anything in particular in their strategy that would would either limit or expand the scope of their potential audience, except that no. Other titles are created by developers who live outside of the big companies system.
And.
Does that give them an opportunity to be perhaps more innovative and take more risk possibly.
Although we pride ourselves on being the most innovative company across everything we do so.
It's it's a really good start we're incredibly proud of what the team has achieved so far private division and very optimistic about future.
Great. Thanks Strauss.
Our next question is from Colin Sebastian with Robert W. Baird. Please proceed with your question.
Hi, Thanks, congrats on the quarter.
A couple of questions as well.
First off with the start of the season Orlando.
If you've seen any change positively or negatively with respect to emulate UK and and broadly where markets have reopened if you've seen any any interesting changes or observations with respect to usage trends and then a bigger picture question on digital distribution Strauss I know you guys support.
Platforms, where users are where they where they want to access games.
There are an increasing number of platforms, which seems to some complexity to the to the to the industry. I'm curious if you have any updated thoughts on on a direct to consumer offering. If you think that makes more sense now.
Or maybe less sense, but just curious on your thoughts on distribution. Thank you.
So for MB two K.. Obviously this has been an incredible year for us and we.
We had a really really nice run obviously, a much better than our expectations. We originally projecting that it wasn't going to be record year now, it's going to be a record year across the board.
We obviously have some tailwind would that behind the asked the shelter at home, but generally speaking the game has been improving since the day came out and it's really generate a huge amount of interest across the board in terms of has that interest changed within new seasons et cetera, There's really nothing to report there at this point.
It is it certainly we're excited that basketball is is back at it.
It's always a good thing what people are engaged with the MBK is an incredible brand and having players on the core is obviously a good thing for us, but there's nothing really that we have to report about the results at south specifically related to that.
And with regard to distribution, yes, I know you captured a well we said we want to be where the consumer is we need to find that intersection of whats great for the consumer and what makes sense for us as a producer and distributor.
And there are a lot of opportunities we tend to be very supportive of new launches were supportive early of Google stadia, We certainly support what Microsoft and Sony Nintendo do when they when they bring our new platforms.
And I think that it will continue in terms of direct to consumer opportunities naturally we have the ability to go direct to consumer rock star goes direct to consumer through their launcher.
Okay goes direct to consumer we have the ability for consumers to buy goods directly from our company and I expect that to continue its still a relatively small portion of our business and I think our expectation overtime is that our goal is not to derive consumers to any particular destination, including one of our own.
Our goal is to be where the consumers.
Okay. Thank you.
Our next question is from Eric Handler with MKM Partners. Please proceed with your question.
Yes. Good question. Thanks for the question.
Wondered if you could talk a little bit about.
How you're balancing.
Turns in the back half the year about how the economy is going to fair.
It is what you're seeing in engagement in July are you seeing much of a fall off versus the months and the first quarter.
How is that shaping up.
Sure.
So we are in our Q2 guidance. We have included the fact that we're seeing some beneski benefits continue on our business some of that similar tailwinds that we've had since.
Since starting the first quarter actually the ended the fourth quarter as well.
So we do see some of that in our Q2 guidance in terms of the back half of the year, we really haven't factored anything in related to that or even or to taking account any sort of recessionary.
Possibilities.
So you're feeling good about the consumer right now but.
Basically you don't have a crystal ball for the back half a year, so too challenging to predict at this point.
That's right.
Okay. Thank you very much.
Our next question is from drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, guys. Good afternoon, Karl I think you and I have talked about this in the past, but want to revisit the software development costs balance and reconciled the total against your commentary around the game pipeline, it's considerably lower versus recent years and with.
More than 90 games in development does that suggest these are smaller titles or you're just not as far along.
Enhance the pipeline is very backend loaded thanks.
Can you just clarify what you mean what considerably lower.
Well.
Okay balance sheet, yes, yes, correct, yes current plus non capital.
Yeah, I think look as we said our pipeline is twice the size as it was more than double the size. It was five years ago really excited about what about what that is some of these titles are early on in development. Some of those titles are much further along in development. Some of these sales are very very big titles and some of these titles are very very very small titles I am so there.
As a big there is a big mix there and to in terms of so you can't really say, whether it's just more titles are there unless theyre, they're less expensive because there is such a play between those two elements, but you identified those two elements that will those two things will certainly play into how large that that capitalize balance sheet moves going forward, it's relative to the scale and where we are developing.
[music].
Okay. Okay. Thanks.
Our next question is from Matthew Thornton with Suntrust. Please proceed with your question.
Hey, good afternoon, everyone. Thanks for taking the question.
Maybe first Strauss.
Abuse get your thoughts three months later since the last call given the code environment just entered to hear your thoughts on.
Double lasting impact of all this whether its take to kind of operations specific whether its consumer and kind of what you think you can kind of hold onto one things kind of normalize I should be very answer to hear your latest thinking about the lasting impact of.
This environment longer term.
Then just secondly quickly you talked about obviously DTA moving to next Gen consoles curious of as any other.
Nonrecurring franchises that could also see a similar similar upgrade path. Thanks, everyone.
Yes in terms of the lasting impact of this period of time, so hard to predict because.
Most schumann's tend to believe the whatever is going on right. Now is what will always continue when of course.
It's not the case everything in fact generally changes so we've seen certain companies announce the from their point of view, everyone should just always work from home I'm I know there.
There are people I know, who believe they will never go to the movies again or they'll they'll never fly on an airplane again are staying the hotel again or even side a restaurant again I'm not I don't see the world that way so.
From our point of view.
This tragedy will pass.
And the World will will go back to looking an awful lot like it did before however, it does feel like this has been a period of time were previously existing trends have been accelerated.
And I do think that we.
Appreciate the possibility of remote work as needed where we understand.
A disaster scenario, how we can continue to be productive.
I think frankly, it's created a great benefit in our morale as an organization as any activity does I think tragedy will either pull people together push from apart I think we had a strong enough culture that a pull people even more together.
My point of view, but I think its borne out in the level of productivity in the quality of our games and the quality of our operations I'm hopeful that that continues in terms of the consumer.
I do think that this has intensified a shift from both analog entertainment to new Interactive Entertainment and I do think that people have come back to video games and Pride video games when the Hadnt driving previously and I think you're going to see a long lasting increase in demand again, that's an.
Not reflected in our numbers because we don't we don't build our guidance based on my opinion about things locally.
But I do believe Thats case, and I think you're you're seeing a systemic shift in favour of interactive entertainment and they're only handful of companies on Earth to aim to do what we do never mind are able to do what we do so puts us in a very good position. Indeed in terms of your question about other older titles being brought to next.
[noise] Gen consoles, you know, we always leave those announcements to our labels, but I'm sure there'll be more in the future.
Our next question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.
Hi, guys, it's Matt on for Brian. Thanks for taking the question two if I could so on GCA on the next Gen can you walk us through the decision.
Led into you know in the back half of next year would it into a separate online mode and then like the upgraded version of UK. Five obviously you had tremendous success kind of just packaging those two together when you went from the last generation to the current generation what was the opportunity that you saw.
And maybe separate.
And then just separately thinking about pipeline now that we're kind of remote.
Into into the word the work from home environment are you seeing more of an impact on game, maybe that are a little farther out in the development cycle or do you feel that the pipeline more or less kind of on track that you expected to be you would've expected to be three months ago. Thanks.
Yeah, I mean did the decision regarding GTN for next Gen. As it is a marketing decision into production decision by Rockstar games and I'm sure they'll have more to say about that in the coming months, but I'll I'll leave it to them as I as I prefer to do in terms of the pipeline we've been very fortunate as I just said our work.
Workforce has been exceedingly productive and I think we only have announced one delay since this whole tragedy started on that was a delay purple space program too.
For fiscal 2002, but apart from that everything is looking really good and is on track and on target no no issues whatsoever.
Thank you.
Our next question comes from Mike Hickey, the with the Benchmark Company. Please proceed with your question.
In Strauss Carl we think thanks for taking my question guys and congrats.
<unk> quarter.
Just two questions for me I guess.
Curious the response, you've gotten from your clear community on the naturalist experienced slight latest upgrade or update for that Didnt online and also curious about future cadence.
Hi, I'm, Ken I think it was December last year, when you've got the Moon general sort it seem like you saw mobile.
We ended period of time before we got an update I'm just curious if that was maybe because of work from home Mark there's something else going on that soon.
Led to that sort of lengthen the time in between updates.
So now you talked on pricing.
Just want to just curious on how you think about.
On the.
$70 price going obviously, a lot of people without jobs, how you think about.
Now how to impact we're kind of spend.
In the game and as you've done any sort of sooner. They were core what gives you I guess the confidence that demand won't slip at that price point. Thanks, guys.
Yeah. The no productivity has been strong across the board and across all of our labels and as you know Rockstar games decides on the cadence of updates and it's driven by great ideas on the ability to deliver those great ideas.
Into superb experiences and all of our labels wait to distribute new content.
Until it's nearly as perfect as it can possibly be.
There is more content coming for both Red data online and Grand theft Auto online. This fiscal year. So stay tuned I think it's gonna be awesome.
In terms of the price point. This is a very modest price increase.
You know the pricing has been going down on a on a real dollar basis for the better part of 15 years.
And we're applying this price point in the case, where we think the quality not only supports a demands of our production costs have gone up greatly but most importantly, the consumer experiences more robust than ever before and.
Hi, I'm utterly convinced that MBJ UK 21 will be nothing short of extraordinary so I don't expect that there will be any concerns.
Thank you.
Our next question comes from Eric Sheridan with UBI. Yes. Please proceed with your question.
Thanks.
For taking the question would be too if I can the following up on some of the teams earlier in the cold So you've seen from player behavior through Kobin 19, what might some of the key learnings are being around the marketing to age or content, and that's where reinvigorating players' desire to sort of go back and revisit content.
And games total prior generation.
Continues to drive out lifetime value that content and secondly, what did you learned about marketing efficiency as results of the Toyota by that and how that might how might that carry forward into the next console cycle as well. Thanks so much.
Yeah I don't think this period of time has led us to look at our catalog any differently than before we're bringing out the Mafia trilogy, we always bring out a legacy content, usually and enhance format for new consoles on a regular basis or even in the absence of of new distribution opportunities.
I'm sure that will continue of course, driven by the demand for our properties and.
If I'm not mistaken we still have the highest.
Sales per skew of catalog of any of our competitors based on the quality of where we have historically done we aim to keep doing that in terms of marketing efficiency.
I haven't really seen a change at any given time, we're trying to be more and more efficient with our marketing undoubtedly into mobile business, there's going to be a meaningful change in marketing based on changes that have been announced by Apple and other changes that are driven by privacy legislation and privacy concerns.
But I don't know that that will enhance efficiency in fact that may going the other direction. So it's always a challenge to create the best marketing.
I wouldn't say, it's becoming more or less efficient.
And then before.
Okay.
Our next question comes from Todd younger with Sanford Bernstein. Please proceed with your question.
Hi, Thanks, a ton for taking the questions I also have to if you don't mind for.
For whoever wants to Peel them. The first at the risk of being shut down again, and just waiting for more from Rockstar I'd love to explore the topic of the relationship with Playstation around GCA online and just.
At a higher level without the specifics what sorts of factors go into the decision to make such a partnership.
With.
With a company like Sony and.
In particular, what sorts of things would we expect you would get in return.
And then a in order to.
Offer them the thing if you've done including the exclusivity. That's question number one the second one is.
It wasn't too long ago every night, we turn on TV, we saw and be a celebrities playing against each other.
And then be at U. K on television.
I'm just I'm really curious is.
Well, that's about what that did in terms of licensing revenues are engagement in the quarter. Although that's interesting I'm more interested in whether that's open your mind or any of your development teams mine to how to keep things like that going well into the future.
What that can do in terms of bringing together, a celebrity and culture and your games in a in a in a social and engaging Wayne sort of driving.
That whole experienced a whole new level. Thanks.
Yes, I mean without going into too much detail on confidential arrangements typically we have great relationships with all of our platform partners and we will sometimes announce or particular situation in many instances, it's driven by marketing some.
Board.
And other benefits that both parties obtain from such an arrangement.
And Carl will take the refresh on basketball, yeah, an indicator that dnbi at the player tournament that we did obviously that was an exciting event and it was an unplanned event as you could probably tell US a company that would probably not have happened, but we're not for the covance situation. So in a lot away is there are some interesting things that can come out of the situations with you. When you are dealt with them.
This particular, one I wouldn't really think about it as a specific moneymaking opportunity in a moment, but like any marketing or anything that engages and audience or even creates new audience. It has the benefit of creating interests and engagement with the game. So we really look at that kind of thing like we would any of that as any other marketing opportunity.
Is there any big huge learning from it I mean, we can keep going.
Yes, I mean, it was definitely something different than what we've done before on the we have done player base things in the past and was on tournaments in the past. This was just kind of marrying them together.
So that's not to say we can do it every day or that this is that this is something that is going to set some kind of precedent for us but it certainly is interesting. It was a lot of fun to do and it undoubtedly increased interest and engagement with again as I've.
Financial results to ultimately reflect a all of these things happening for us at once.
Fair enough.
Our next question comes from Doug Crudes with Cowen and company. Please proceed with your question.
Hey, Thank you a little bit along the lines or last question in the last couple of years, you're really extended delay standards to be okay.
Very deep into the annual cycle foot far beyond where it where it used to be sort of falling off I think you'd be to cable unique has been an important part of that it still is there anything you could point to specifically where where are the week is really help engage with the overall game or you think the two were incidental to each other.
Yes.
Very hard to point to it but I think the MBK League is not only an interesting opportunity as a standalone, but but also forms part of building the brand and building overall engagement I I think you're you're 100% right. It used to be a three month experience on became a six month experience.
Now, it's very close to a world you know year long experience and that's very much our goal.
And that that's really reflection of mph, UK morphing from being the highest quality assuming the market to one of the highest quality interactive entertainment experiences of any time and it's both a Sam and a lifestyle.
In a world you can inhabit that's constantly evolving and changing that's very much the goal the visual concepts and you're seeing that goal of being realized I believe you will see it'd be more and more realized does the league form of part about unquestionably. We also expect it to be very successful on a standalone basis.
Okay. Thank you.
Our next question comes from Alex Jamel with Jefferies. Please proceed with your question.
Thanks for taking the question Carl a follow up to previous question, but the upcoming game pipeline for 93, New title for you mentioned last quarter launched by I think it was fiscal 25 should we expect similar cadence as we've seen in the past that maybe one non sports AAA title per year, and I think it's 11 Frank.
Sizes in your portfolio now that it's sold in at least 5 million units is it also fair to assume that the concentrate will include sequel to most of those bigger franchises.
I see.
Certainly the development pipeline certainly does include sequels to the bigger franchises.
And in some cases could include sequels, new franchises to the extent they actually work.
So that Theres no doubt that that's the case.
I'm sorry, what was the first part of the question.
Islam in the past I think the goal is building you know one non sports AAA title for years right that the cadence we still think about.
Yeah, I mean look it's again it takes a look one to whatever it may be that is I have a circle the come up with more than more that more than one wyndham, what we have now and to be more consistent with the number of AAA releases that come out every year. In addition to our annualized title so.
Whether that number is one to three thats certainly would be the goal.
Okay. Thanks.
Okay.
Our next question is from Ryan Gee with Bank of America. Please proceed with your question.
Yeah, Hey, good afternoon, thanks for taking the questions. So the 100% plus growth in my team players certainly consistent with demand were seeing for expression personalization and games right now so to speak to the opportunity for a non stem gain from the NFL and and.
Why you know 2021 is the right time in place to deliver that game.
And then on a related matter doubling of the and be a players I think it was last quarter can you speak to how much you've seen in growth in the players brand new to the franchise. So that as you look forward.
Even if you lost some of these kind of French casual guys.
You will still be net ahead. Thanks.
Yeah, I would just observe as I did previously that the game already offers numerous opportunities that are.
In addition to the Sam this is the core Sem game and.
Well, we'll leave to visual concepts, how that will be express going forward, but right now we think it MBK offers.
Something for everyone you want the best Sim game is there you want an opportunity to experience great music. It's there great characters. It's their play outside of the same game, it's there or just experienced the world that's possibility to so.
I'm sure there'll be much more to talk about will that visual concepts in through K talk about it.
In terms of the data around players, we don't tend to get.
To go into that much detail.
But you know with 14 million units sold 18% greater than last year wonderful engagement and enormous growth and recurrent consumer spending I think you can safely assume that the audience is expanding.
Okay.
And also to answer your question about football.
Look we obviously think that there's a significant opportunity for non simulation game play and with the NFL football business, otherwise, we wouldn't have done that partnership and won't be so excited about it.
The success of my team isn't necessarily a barometer for that there's so many different kinds of non simulation play and whether the my team phenomenon is relevant or not remains to be seen.
Irrespective of that the nonsense market is very exciting for us and Thats why were going forward with NFL with that.
Okay.
Thats helpful color. Thank you guys.
Ladies and John Weve reached the end of the question and answer session. At this time I'd like to turn the call back over to Strauss Zelnick for closing comments.
Thank you so much for joining us today on behalf of everyone to take too.
We appreciate your interest we appreciate your support and we'd like to wish you all happy healthy and most of all safe summer. Thank you for joining us.
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.
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