Q2 2021 Take-Two Interactive Software Inc Earnings Call
At this time all participants are in a listen only mode a quick.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr., Hank Diamond Senior Vice President of Investor Relations and corporate communications.
Good afternoon, and welcome and thank you for joining take Two's conference call to discuss its results for the second.
So for the second quarter of fiscal 2021 Andas.
Ended September Thirtyth 2020.
Todays call will.
Will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl split up our President and Lainie Goldstein, our Chief Financial Officer.
We'll be available to answer questions during the Q any 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 beliefs of our management.
It's also some sales 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 are 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.
Including the risks summarized in the section entitled Risk factors.
[laughter] idle.
I'd also like to note that unless otherwise stated all numbers, we discussing today are GAAP and all comparisons are year over year.
So our audience is during these challenging times is a reflection of the professionalism and the passion or an entire organization I'm immensely proud of our teams throughout the world and and body our core tenants of creativity.
Innovation and efficiency.
On September 4th two K and visual concepts launched M. B, a two K 21, the latest installment in our industry, leading basketball simulation series for Playstation for Xbox One Nintendo switch P C and stadia.
Title is off to a remarkable start and that bookings from the title of outperformed your expectations to date M. B a two K 21 is sold in over 5 million units.
As compared with the second quarter of fiscal 2020 net bookings for the M. B a two K series grew 28%.
Current consumer spending significantly exceeded our expectations growing and incredible 76%.
Consumer engagement with M. B, a two K continues to increase with daily active users my Career's users and my team users growing significantly.
Moreover, M B a two K 21 users have been more deeply engaged with the game with average games played for user up 21% as compared to M. D. M. B a two K 20 in the same period.
Next week N B, a two K 21 will launch for next Gen platforms, which Carl will discuss shortly.
I'd like to congratulate two K and visual concepts for delivering another outstanding entry in this beloved franchise.
Seven years after its initial release Grand theft Auto five continues to grow its audience. The title is now sold in over 135 million units and remains one of the most successful an iconic experiences in all of entertainment. In addition, recurrent consumer spending on Grand theft Auto online outperformed our second quarter forecast.
And was the titles best second quarter ever in terms of both active players in new players.
During the month of August Rockstar games released the low Santos Summer special Progressive Dot online featuring an array of new vehicles co op missions business battles racetracks. The open wheel race creator and more we continue to expect Grand theft auto online to establish a new net bookings record in fiscal 2021.
Read that redemption to also outperformed in today's is sold in over 34 million units worldwide net bookings from Red Denver Gumption to ruin outstanding 124%.
Including 106% growth in full game sales.
Engagement with them or current consumer spending on red that online continues to increase with net bookings from the title surpassing expectations growing 96%.
Furthermore, the title grew 28% an audience and grow to new players was 47%.
During the second quarter Rockstar games added new content to read that online, including the naturalist update and a new specialists role, including the ability to hunt track and study legendary animals as well as new poaching missions and free roam events to new weapons, the advanced camera and more including the latest edition of outlaw passed the outlet pass number three.
Throughout the coming year Rockstar games will continue to support both red that online and Grand theft auto online with more content updates to keep new and returning players excited and engaged.
To expand our WD WWD offerings with a title that provides both casual gamers and diehard wrestling fans with an over the top pickup in play experience.
The title has exceeded our expectations and is being supported with post launch content.
In addition, during the period two K released Mafia definitive edition for Playstation four Xbox one and PC the title, which has exceeded our sales expectations and receive significant critical acclaim was comprehensive leary made from the ground up.
The release of Mafia definitive edition completes the full Mafia trilogy, our collection featuring definitive additions of all three Mafia titles.
The definitive additions of Mafia Mafia to Mafia III are available individually or as part of the trilogy.
To date these titles collectively sold in over 2 million units.
Turning to private division during the second quarter. The label released peril on Gorgon and narrative expansion for their award winning RPG the outer worlds from Obsidian Entertainment.
Harlan Gorgon is the first of two expansions that can be purchased individually or bundled at a discount in the outer worlds expansion pass the.
The other worlds continues to outperform our expectations and has now sold in over 3 million units.
Our second quarter results were also enhanced by a variety of other offerings led by Borderlands, three social Point's mobile games, and Sid Meier's civilization six.
During the second quarter recurrent consumer spending exceeded our expectations growing 43% and accounted for 64% of net bookings in.
In addition to virtual currency for MBS UK Grand theft auto online and read that online recurrent consumer spending was enhanced by the following offerings in the free to play category, Social Point's live games, including Dragon City Monster Legends World shaft safety town of word life outperforms during the second quarter matching the net bookings record achieved in the.
Previous quarter.
Live games delivered new fresh content events and experiences to boost engagement and enhance the customer experience and net bookings grew 55%.
The studio continues to invest in its broad and innovative pipeline of more than 10, new games planned for launch in the coming years.
Wwb Supercard also outperformed during the second quarter growing 24%.
The title has now been downloaded more than 22 million times and remains to case highest grossing mobile title.
Later this month to K will deliver season seven of our popular free to play Sports Entertainment mobile game.
And then you can line in China grew 13% and remains a significant contributor to our results.
The title is the number one PC online sports game in China with more than 50 million registered users.
Add on content grew 254% and outperformed expectations led by offerings for the Borderlands series and Sid Meier's civilization six.
As a result of our better than expected second quarter performance and improved outlook for the back half of the year, we're increasing our outlook for fiscal 2021, which we expect to deliver a new record for net bookings of over $3 billion.
In September as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings. We acquired played US a long standing leader in the mobile puzzled genre.
Founded in 2013 and based in New York City play Das builds mobile games with unique and thoughtful designs. The studios credit three hits dots, two dots and das Enco, which have collectively been downloaded over 100 million times their best known for two dots, which has been downloaded over 80 million times since its launch six years ago and that.
Continues to engage deeply audiences throughout the world.
Played us near term strategy for growth includes live ops technology and the addition of numerous features to its core games, such as scavenger Hunt and social leader boards, which are driving meaningful long term consumer engagement.
In addition play dots will remain focused on existing IP and will continue to create new properties as they've done since our inception.
We're very pleased to welcome near a fraud and the entire team at play dots to the take two family and are excited by the potential of their development pipeline and positive long term contributions to our business.
It bears, noting the next week will usher in exciting new era in the history of our industry. The eagerly anticipated launch of two new gaming platforms from Microsoft and Sony marked the latest technological advances the promise to provide our world class development teams with better platforms on which to captivate and engage our audiences were.
Both prepared and thrilled to take this next step on car will have more to share about our offerings for this next generation.
And as we've seen over the past several months consumers' appetite for and participation in interactive Entertainment has never been stronger we believe that this trend coupled with the fervor for new gaming platforms bodes well for the upcoming holiday season, and that interactive entertainment will be among the most popular gift giving items.
Looking ahead take two has the strongest development pipeline into history, including sequels from our biggest franchises as well as exciting new IP, we continue to make great strides to increase the scale of our enterprise, both organically and through selective inorganic accretive opportunities.
In closing our company remains superbly positioned to creatively operationally and financially to capitalize on the many positive trends in our industry and to deliver growth and returns for our shareholders over the long term I'll now turn the call over to Carl.
Thanks Ralph.
I'd like to begin by thanking our team for continuing their stellar work and achieving strong results that are lining up to deliver a record year for net bookings.
Our culture of collaboration coupled with the Companys commitment to creating the best entertainment experiences in driving our ongoing success and the ability to engage with audiences more deeply than ever before.
I'll now discuss our recent and upcoming releases.
As Ralph noted we are very excited about next week introduction of two new leading edge gaming platforms through these new robot platforms. Our development teams have an even greater ability to captivate and engage audiences with our renowned franchises and new intellectual properties.
We are thrilled to deliver at launch till two case, most successful and popular franchises.
MBK and borderlands for both platforms.
And they took a 21 was built from the ground up for next generation console and the once again redefine the standard for sports simulations in.
In addition to unparalleled graphics and loading speed MBJ 21, we introduced several initiatives to bridge current and new console generations of again, including my team cross progression and the shared DC wallet within the same console families.
Furthermore, MB legend, Toby Bryant lifetime achievement of basketball Exxon is celebrated with the MBK 21 Mama Forever addition, which will provide players with seamless access to both current and next generation versions of the game.
Just yesterday to K released the trailer for the city featuring a completely overhauled park experience exclusive the MBK 21 on next Gen console sales.
Originally introduced in India to Kay 14 for X plus one and pay us for the park helped push to pay for it by creating a competitive online basketball environment that allowed our quickly growing community to compete against each other outside of the authentic and the experience.
This experience has evolved over the years into the neighborhood and now what we have probably introduced at the city with it many times larger and more immersive community based experience only possible on next gen consoles.
In a digital concepts most ambitious execution of the virtual basketball community.
For the last three has been fully optimized for next Gen consoles, so mayhem will be bigger and bolder than ever before.
Last month, two K. and H.B. Studios released two updates for our popular Gulf simulation PGA tour to K 21.
The three whole matchmaking update allows players to play a quick multi play around with friends.
Two weeks ago, the team launched the Halloween update featuring fun holiday theme cosmetic items to customize players and courses.
Players can expect additional content to be released for TJ Tor two K 21 throughout the year.
In addition, private division in partnership with the European Space Agency released their share horizon update for Cripple space program for PS four and Xbox one.
The uptick celebrates the agency's contributions to space exploration and is free for all players of the critically acclaimed physics based space simulation game.
Content for semi or civilization, six as part of their new frontier passed for Playstation for Xbox One Nintendo switch P C and mobile featuring new civilizations and leaders that will be made available on a bi monthly basis through the end of March 2021.
Later this year, the new frontier pass will come to mobile platforms and each pack will be available for individual purchase.
And during the first half a calendar 2021 private division were released the outer world murder on aerodynamics. The second narrative expansion for their successful RPG from Obsidian Entertainment.
The expansion will be available individually or at a discount as part of the outer worlds expansion pass, which also includes the previously released parallel Gorgon.
You must not to new platforms, capitalizing on new business models and distribution channels or increasing our presence in emerging markets take two is exceedingly well positioned to generate value to consumers as well as growth and margin expansion for our company.
I'll now turn the call over to Lainie.
Thanks, Karl and good afternoon, everyone.
I'll now discuss our second quarter results and then review our financial outlook for the third quarter and fiscal year 2021. Please note that additional details regarding our actual results and outlook are contained in our press release.
As Jeff mentioned, we delivered second quarter operating results that significantly exceeded our expectation.
Redemption to RPC and the outer world.
And stock compensation expenses.
And GAAP net income is expected to range from $128 million to $140 million or one dollar and 10 cents to $1.21 per share.
For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2021.
We are increasing our full year outlook, which now includes record net bookings this will be the third consecutive year that net bookings have grown.
Our net bookings outlook range is now $3.15 billion to $3.25 billion up from 2.8 $2.9 billion. This is being driven by our second quarter outperformance along with an updated forecast for the balance of the year, which has improved primarily due to higher recurrent consumer spending from NVH UK Grand theft auto online.
Red Dead online and the addition of played up as well as strong performance from Red Dead redemption, two PJ toward two K 21, and the Mafia definitive edition and Mafia trilogy, we expect growth over the prior year from M&A, two K. Grand theft Auto online Red dead online and social Point's mobile games to be offset.
Lower results from Borderlands, three Grand theft auto five and Red dead redemption two.
The largest contributor to net bookings are expected to be and the two k. Grand theft auto online and Grand theft Auto five Red dead redemption, two and Red dead online social Point's mobile games, Orlando, three denial civilization sick and BJ store to K 21.
We expect the net bookings breakdown from our labels to be roughly 55% to K, 35% Rockstar games, and 10% private division social point and played up.
We forecast our geographic bookings split to be about 60%, United States and 40% International.
We now project digitally delivered net bookings to increase by approximately 15% as compared to our prior outlook of 3% growth.
This growth is being driven by recurrent consumer spending and digitally delivered sales.
As a percentage of our business digital is projected to represent 87% of net bookings up from 82% last year.
Our forecast assumes that 70% of current generation console game sales will be delivered digitally up from 55% last year.
We now expect recurrent consumer spending to grow by approximately 30% as compared to our prior outlook of 16 present growth and to represent approximately 63% of net bookings as compared to 51% last year. This.
This growth is being driven primarily by MD 82, K. Grand theft Auto online. The addition of played up social Point's mobile games and read that online.
We are increasing our non-GAAP adjusted unrestricted operating cash flow outlook to more than $650 million up from our prior outlook of more than $500 million, we plan to deploy approximately $75 million for capital expenditures we.
We expect GAAP net revenue to range from $3.05 billion to $3.15 billion and cost of goods sold a range for $1.44 billion to $1.49 billion.
Total operating expenses are expected to range from one point to $1 billion to $1.23 billion at the midpoint. This represents an 8% increase over the prior year driven by the addition of played up higher head Count research and development expense and charitable contribution partially offset by lower marketing and stock compensation expenses.
And we expect GAAP net income to range from $372 million to $403 million or $3.22 to $3.49 per share.
Our first question comes from Mariel Lu with Barclays. Please proceed with your question.
Great. Thanks for taking the questions have one on M&A and then one high level.
<unk> grew I think was 76%. So these are really incredible results and it's really exciting, but it's a bit of uncharted territory and I can tell you that we couldn't be more thrilled about it because we have a new platform coming out and with the MB two K 21 being built from the ground up and also all of the new features that are coming up on why don't have.
Specific lift numbers for you that are associated with the city itself.
Alright.
Alright, Thank you bye.
Our next question is from Eric Handler with M. K M Partners. Please proceed with your question.
Yes. Good evening. Thanks for the question Uhm wondered if you could give us any updates about your thoughts on pricing you've announced N. B a two K is gonna have at $10 price increase console. The console system now or next time versus current jam.
Mm higher thinking with that and then all of a follow up question.
Yeah. Thanks are you know pricing is determined on a title by title basis. We already explained that the reason for the price that we sat for M. B a two K 21 for next Gen reflected the fact that there hasn't been a from I'm price increase since 2005 and.
That'd take too.
We also will use our cash too acquire companies when they're strategically consonant and when those deals are accretive and we return capital to the shareholders on a regular basis through buybacks.
And that will continue to be our approach.
Thank you.
Our next question is from true Crumb with Stifel. Please proceed with your question.
In the third quarter versus last year.
A benefit but there there are no toll booths in any of our.
In any of our online games that are attached to our core games.
We have on occasion promoted our games very cheaply.
We're in a couple of instances free which effectively means you have access to the online component tree as a promotion.
I Wouldnt rule out the possibility of doing that and of course, Rockstar has announced that GT online will be a standalone experience for next gen coming in second half of 2021.
And then it will be free for PS five users for about three months. So as you can see we're open minded about our business model.
Mix up immediately to MABA forever or maybe delay the purchase of 21 until next year. It comes out so maybe we'll see a second wave.
Proceed with your question.
Moving on to the part to the neighborhood, we saw a market difference in how people playing the game.
Located in separate leases.
Great. Thank you.
Our next question is from Todd younger with Sanford Bernstein. Please proceed with your question.
Hi, Thanks.
All about fiscal twenty-two we have said that G. T. A online and G. T. Five are coming for next Gen and the second half of calendar 21.
We've said to Cuddle space program too is coming in physical twenty-three, but we will be talking about a release scheduled for 22 in due time and our goal remains the same but it's too early to comment what they're really schedule will look like.
I have to ask you a question specifically, though about the plot humming Sanchez and whether we consider them the part of our core gaming experience we.
We do so we did said before the 93 title sixty-three that we that we mentioned that are in our pipeline, which way more than double what it was five years ago by the way.
63 of those are core gaming experiences and that includes 15 platform extensions.
Yeah.
Got it that's helpful and start sorry, trying to redundancy on the mobile there, but I I appreciate that the additional comments those helpful. Thanks, everybody.
[noise] as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. One one moment, please while we pulled up for questions.
Our next question is from Alex Jama with Jefferys. Please proceed with your question.
Great. Thanks for the question. So I also I think the the messaging recently has been it's still been for for girls from the company as we think about next year's we think about fiscal 22 does that change at all you know as you continue to to beat and raise expectations of this year and the cop gets any more challenging or you know is is.
The expectation still for for growth next year. Thank you.
Yeah, it's funny kill give it about me now.
$3 million.
Fiscal year, it's too early to predict whether a business well grounded next year irons off this year have benefited from sheltering at home and it remains to be seen whether that will continue to last into next year. So it's just a little bit too early to call at this point.
Got it thanks Lady.
We have 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 very much on behalf of everyone to take two I'd like to wish you all a very happy and healthy holiday season. These are extraordinary times and I wish you all the best through them and once again I'd like to thank all of our colleagues for their their incredible work in for these extraordinary results I have a great evening.
<unk>.
This concludes today's conference you may disconnect. Your lines at this time I'd be thank you for your participation.
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