Q3 2021 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to the take two Q3 fiscal year 'twenty one earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Now my pleasure to introduce your host Nicole Shannon Senior Vice President of Investor Relations and corporate communications. Thank you Nicole you may begin.
Good afternoon, I recently joined take two and I'd like to thank you for joining our conference call to discuss our results for the third quarter of fiscal year 'twenty 'twenty. One ended December 31st in 'twenty 'twenty I'm thrilled to join the team and look forward from working with all of you today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer.
Carl laid off our president and Lee Goldstein, our Chief Financial Officer, we will be available to answer your questions. During the Q&A session. Following our prepared remarks 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 laws. These forward looking statements are based on the beliefs of our managed.
And 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 are described in our filings with the SEC, 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.
I'd also like to note that unless otherwise stated all numbers, we will be discussing today are GAAP and all comparisons are year over year additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contain.
A reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release on filings with the SEC may be obtained from our website at take two games Dot Com and now I'll turn the call over to stress.
I'd like to welcome Nicole to our team and I'm confident the chill enhance our investor relations efforts going forward.
On behalf of our entire management team I'd like to acknowledge those who've been and continue to be affected by the global pandemic.
No words can bring comfort to those who suffered.
However, we do remain hopeful that better days lie ahead and that we all may return to and enjoy our lives as we once did we remain immensely grateful to frontline workers, who are carrying selflessly for those in need and trying to vaccines are being delivered and administered and helping the world navigate further these troubling times.
Turning to take to.
Due to an incredibly strong holiday season, coupled with our ability to provide consistently the highest quality entertainment experiences, especially as many individuals' continued to shelter at home take two delivered operating results that significantly exceeded our expectations.
The outperformance of Grand Theft Auto online Grand theft auto five M. B, a two K the mafia definitive additions of Mafia trilogy, and Red Dead redemption, two reflects our development team's boundless passion creativity and commitment to captivate and engage audiences.
In the history of the entertainment industry, there's perhaps no experience that's more loved more expansive more critically acclaimed and more successful than Rockstar games' Grand theft auto.
Grand Theft auto fiber remains one of the most iconic title ever released and continues to exceed our expectations, having sold in over 140 million units.
In fact in calendar 2020 more copies of Grand theft Auto five were sold than in any other year, except for 2013, when it first launched on Playstation three and Xbox 360.
In addition, recurrent consumer spending on Grand theft auto online outperformed our third quarter forecast.
<unk> grew 28% year over year.
In December Rockstar games, released Grand Theft Auto Online's biggest update to date, the Cairo per Rico hoist.
Featuring a radical new approach to hoist design as well as a new tropical island to explore the Cairo per eco highest is an all new Grand theft auto online adventure on which players can choose to take on a highest with a crew of up to four or for the first time plan prepare and execute the daring island hoist all on their own.
Notably more than 50% of those playing the Cairo per eco hoist are engaging with this as a new single player experience.
<unk> also introduces an array of exciting new weapons and vehicles, our new virtual nightclub and social space for players to get together on experienced the world's best D. J's.
Plus a host of updates across the entire world.
In addition, overall engagement with Grand Theft Auto online continues to set new benchmarks as the title had more players in every month and for the entirety of calendar 2020 than in any other year since its launch.
'twenty 'twenty also mark Grand theft auto on line highest participation rate ever by both new players and reactivated players who returned to experience Rockstar games array of new content offerings.
Grand Theft auto on line is expected to achieve a new net bookings record in fiscal 'twenty 'twenty one.
Red Dead redemption, two also outperformed and to date has sold in over 36 million units worldwide.
In December Rockstar games released a standalone version of Red Dead online on Playstation four Xbox one and PC that for the first time allows new players, who do not already own Red dead redemption, two to experience everything Red dead online has to offer including access to all future content updates.
Players also have the option to unlock Red dead redemption, two story mode via an array via an additional purchase.
In addition, during the quarter Rockstar games released an array of content updates for Red dead online, including new legendary animals in sidings missions for the naturalists roll action packed new missions for the bounty Hunter role with the addition of the prestigious bounty Hunter license plus outlaw pass number four and an assortment of new clothing weapons enhancements and more.
As a result of these offerings engagement with Red Dead online reached new Heights, and there were more players, including more new players in the month of December than in any other month since its beta launch in 2018.
In addition, Red dead online grew its audience and had more overall players in calendar 'twenty 'twenty than 2019, Rockstar games will continue to support both Red dead online and Grand theft Auto on line with more content updates throughout calendar 'twenty 'twenty, one to keep new and returning players excited and engaged.
Another beloved franchise, that's both the perennial favorite among consumers and an integral contributor to our ongoing success is M. B, a two K from Teekay and visual concepts.
Renowned for being our industry's leading basketball simulation series each year M. D. ATK continues to reinvent how people experience basketball and its rich culture and influence.
N D. H K 21, once again raise the bar for the series and was our first offering that was built from the ground up for next generation consoles.
Little both groundbreaking technological advancements new modes, and many exclusive robust features.
To date M. B, a two K 21 has exceeded our expectations and is sold in over 8 million units across all platforms in.
In addition, during the third quarter net bookings for the M. B, a two keys to K series grew 48% and.
And recurrent consumer spending significantly exceeded our expectations growing 67 per cent.
Furthermore, consumer engagement with M. B a T K remains incredibly strong across daily active users my career users M.
My team users.
Moreover, M. B, a two K 21 years have been more deeply engage with the game with average games played per user up 14% as compared to M. B a two K 20 in the same period during.
During the quarter two K expanded further the breadth of its M. B, a two K offerings with the releases of M. B, a supercars and M. B H U K mobile season, three for iOS and Android devices.
During the third quarter, two K bolstered our initial offerings for Playstation five and Xbox series X with our beloved shooter Looter title Borderlands three.
The title was fully optimized for next generation consoles, making may have bigger and bolder than ever before.
All players who own or purchase the game on prior consoles will be able to download the new platform upgrade within the same console family for free.
This free upgrade will add several exclusive features including four K resolution at 60 frames per second and single player in online co op plus support for three and four players split screen co op.
Order line Three's launch for next generation platforms. It was well received and we've seen the game's user base growth steadily.
K supporting the title with in game events, and new content, including the release of the designers cut which is the first of two offerings as part of the season pass too for all versions of the game.
Our third quarter results were also enhanced by a variety of other offerings led by the Mafia definitive editions and Mafia trilogy, the WWE series, Sid Meier's civilization six M P J towards <unk> 21.
Driving engagement with our titles. After initial launch remains among our most important long term growth on margin opportunities and is a key strategic priority of our organization. We now support virtually all of our new releases with innovative offerings to achieve this goal that said, we're highly mindful that first and foremost we're an entertainment company.
And we're in the service of our audience, we strive to give consumers more of what they love and the ability to stay captivated and engage within their favorite experiences and passionate communities to that end during the third quarter. We released an array of free and paid add on content for our popular hit releases, including Kerbal space program PGA tour too.
K 21, Sid Meier's civilization, six and WWE two K battlegrounds.
During the third quarter recurrent consumer spending exceeded our expectations growing 30%, which was double our original outlook and accounted for 58% of net bookings.
In addition to M. B, a two K Grand theft auto online on Red Dead online new recurrent consumer spending was enhanced by the following offerings.
Social Point's live games, including Dragon City Monster Legends word life World Chef Tasty town outperformed during the third quarter and exceeded expectations.
Live games delivered new fresh content events and experiences to boost engagement and enhance players' enjoyment.
And net bookings grew 39%.
The studio continues to invest in its broad and innovative pipeline of new games planned for launch in the coming years.
<unk> completed the rollout of their biggest feature updated the year for their popular two dots title, including competitive leaderboards.
This update played a key role in driving average revenue per daily active user up 12% as compared with the second quarter of fiscal 'twenty one.
Two dots is now experiencing its highest player conversion rates ever as a result of these new and expanded live ops features which continue to perform very well. We expect played out to be a significant contributor to our results and expect growth over the long term.
WWE Supercars also outperformed during the third quarter growing 16%.
During the period to K launched Stevens season, seven of this popular free to play Sports Entertainment Mobile game. The title has now been downloaded more than 22 million times and remains to case highest grossing mobile title.
And M. B a two can line in China grew 49% and remains a significant contributor to our results. The title is the number one PC online sports game in China with more than 51 million registered users.
Add on content grew 8% and outperformed expectations led by offerings for the Borderlands series.
And Sid Meier's civilization six.
As a result of our better than expected third quarter performance and increased forecast for the remainder of the year. We're once again raising our outlook for fiscal year 2021, and we expect to achieve record net bookings of $3 three $7 billion to $3.42 billion.
In closing take two is exceedingly well positioned to capitalize further on the positive trends of our industry to pursue our core mission to become the most innovative creative and efficient entertainment company in the world and to deliver growth and returns for our shareholders over the long term on.
Now I'll turn the call over to Carl.
Thanks Charles.
I'd like to begin by recognizing the ongoing work on our teams around the world.
Moving to deliver incredible results that are a testament to take this unwavering commitment to quality are deeply rooted culture and collaboration in a singular drive to achieve our goals.
Our unique ability to captivate and engage audiences has never been more evident nor more important than in these challenging times.
And we remain immensely grateful to our player communities from making our games part of their lives.
I'll now discuss our recent and upcoming releases.
On January 27, two current released the fourth roster update for WWE to K battlegrounds, which adds to the game's outrageous in and out of the ring action.
The update which features many popular superstars and legend, including China, Marc Henri Christian and more.
On Wednesday to Kate will released the fifth update that will feature even more fan favorites and they will share details shortly.
On January 28, two came for access games released the Vietnam and Kubla Khan pack for Sid Meier's civilization, six as part of the new frontier path for Playstation four Xbox one and Nintendo switch M. P C.
Each pack in this past features new civilizations and leaders and is also available for individual purchase.
The final frontier pack pack will be released next month and Tuesday, we'll have more to share about that in the coming weeks.
In addition last week private division launched their beloved space simulation Kerbal space program on 10 cents, we game platform in China. We are very pleased to build upon our successful partnership with Tencent and believe that released incredible space program on weight gain represents a great opportunity to expand the global community and bolster our.
Our offerings in China.
On February 10th private Division in Obsidian Entertainment will release, the outer worlds parallel on Gorgon. The first narrative lead expansion for the critically acclaimed darkly humorous SIFI RPG from the Nintendo switch.
The expansion was released previously for Playstation four Xbox one and PC and its available individually are at a discount as part of the outer worlds expansion pass, which will also include the outer worlds murdered on Arizona. The second expansion set to launch on Playstation four Xbox one and PC This fiscal year and on Nintendo switch later on Cal.
Under 2021.
This spring to cable released the director Scott the new add on content for season pass two for Borderlands, three and will be available for all released versions of the game.
The director's cut add on will include new mission and game content and behind the scenes extras.
Half of our team I would like to congratulate gearbox software on their recently announced merger with embrace there.
This marks an exciting new chapter in the studio's history, and we look forward to continuing our successful partnership with gearbox, including the long term publishing relationship for the borderlands franchise going forward and some unannounced projects that we believe will be revealed over time.
Throughout the year Rockstar games will continue to support both Grand theft Auto online and Red dead online with more content updates to keep new and returning players excited and engaged.
In addition, during the second half of calendar 2021, Rockstar games will bring the blockbuster hit Grand theft auto five to the latest generation of consoles the NAV.
Margins 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.
With an expanded community of Grand theft Auto online the journey through this ever evolving world will continue on our latest generation consoles with additional new updates, including content that is exclusive to the new consoles and PC.
They will also be a new standalone version of Grand theft Auto online coming in the second half of calendar 2021, which will be available for free exclusively on Playstation five during the first three months.
Rockstar games will share more details on the new versions of Grand theft Auto five in the months ahead.
Turning to esports the NDA to K League is gearing up for its fourth season that will take place later this year.
After a series of pro M tournament, and a first of its kind Lee combine during the fall. The league is currently prepping for this year's upcoming player draft.
As part of the Leafs continued commitment to identifying the best players in the World. This off season. The league is hosting a series of online qualifying events for international players and will award draft eligibility the top performers from each event.
In addition, I am pleased to share that for the second consecutive year. The MBA two can't League was given top honors at the Tempest Awards as part of the annual esports business Center.
I'd like to congratulate Lee President Brendan Donohue and his team on these honors.
We remain very excited about the continued success and growth of the MBA to kaley, which has the long term potential from enhance engagement did they drive on a profit for our company.
Looking ahead. Our organization is currently undertaking numerous initiatives that we believe will add scale to our business and drive continued success.
Entertainment Company, our lifeblood is a world renowned creative talent and portfolio of owned intellectual property.
With nearly 4900 colleagues around the world and our development studios that are home to some of the most commercially and critically successful brand in our industry. We are significantly expanding the breadth and depth of our offerings and currently have the largest most diverse long term product pipeline in our history.
While we are excited by the potential of these future releases, we're still pursuing our goal of creating a more consistent release schedule and increasing our development capacity.
To that end, we continually explore both organic and inorganic opportunities and maintain a highly disciplined approach to ensure that our investments will be accretive to our shareholders and consistent with our strategy.
In addition, we are always maintain a willingness to explore and experiment with new markets and business models that can both expand the reach of our content and broaden the scope of our audience.
We are investing prudently to enhance our global infrastructure and resources that support our creative endeavors, including data analytics and in game engaged on the players.
Through all of these efforts, we believe that take two is poised to generate growth and margin expansion over the long term and now I'll turn the call over to Laney.
Carl and good afternoon, everyone today I'll discuss our third quarter results and then review our financial outlook for the fourth quarter and fiscal year 2021.
Please note that additional details regarding our actual results and outlook are contained in our press release.
Net bookings were $814 million. This result exceeded our outlook of $675 million to $725 million driven primarily by the outperformance of Grand theft Auto online on Grand theft Auto five Mafia definitive additions and Mafia trilogy M. B, a T K and Red dead redemption two.
Digitally delivered net bookings declined by 4% as compared to our outlet at that 15% decline and accounted for 82 per cent of the total. This result exceeded our outlook primarily due to the outperformance of our current consumer spending our third quarter results last year benefited from the launches of Red dead redemption, two on PC and the outerwear.
World.
During the third quarter, 56% of South of console games were delivered digitally up from 44% last year.
Current consumer spending grew 30% as compared to our outlook of 5% growth and accounted for 58 per cent of total net bookings. This growth is driven primarily by grant that's out of online an M. B a T K.
GAAP net revenue was $861 million and consequent solid with $346 million.
Operating expenses increased by 7% at $339 million due primarily to the addition of play that higher personnel costs and it expenses, partially offset by lower marketing expenses and.
And GAAP net income grew 11% to $182 million on $1 57 per share as compared to $164 million of $1 43 per share in the third quarter last year.
Our GAAP net income benefited from $40 $6 million.
Liaison unrealized gains on our long term investment.
We ended the quarter with $2 $14 billion of cash into our term investing now included in this balance is the cash portion of our offer to acquire Codemasters, which was included in restricted cash had this amount not been considered service checked it as of December 31st our cash and short term investments for the quarter and but it's been two points.
$7 million as of January 13th 2021, the offer lapsed in the cash is no longer restricted.
Now to our guidance starting with the fiscal fourth quarter, we project net bookings to range from $602 million to $652 million compared to $729 million in the fourth quarter last year.
Last year's fourth quarter benefited from the back of ignition of higher license fees from digital partners to provide free download of certain games on their platform and from the launch of Borderlands three on steam. This decline is also due to the initial surge in digital downloads at the onset of shelter at home orders in March 2020.
We expect digitally delivered net bookings to be down approximately 10% digital's projected to represent 92% of total net bookings, which is in line with last year.
Forecast assumes at 73% on console game sales will be delivered digitally up from 63% last year.
Free cash recurrent consumer spending to be up approximately 5% due to continued engagement in our title group.
First of all currency is driving this increase and is partially offset by lower add on content due to last year's launch of the second DLC for borderlands three.
The largest contributors to net bookings are expected to be M. D. ATK 21, Grand theft auto online and Grand theft certified Red Dead redemption, two and Red dead online social Point's mobile games to that borderlands, three and Sid Meier's civilization six.
We expect GAAP net revenue to range from $700 million to $752 million and cost of goods sold to range from $267 million to $293 million.
Operating expenses are expected to range from $316 million to $326 million.
At the midpoint. This represents a 32% increase over last year, driven primarily by higher marketing and research and development expenses and the addition of played out.
And GAAP net income is expected to range from $102 million to $113 million or <unk> 88 to 98 per share from.
From management reporting purposes, we expect our tax rate from 16% throughout fiscal 2021.
We are again, increasing our full year outlook, which now include record net bookings and operating results. This will be the fifth consecutive year. These two metrics have grown our net bookings outlook range is now $3 37 to $3 $42 billion up from our previous guidance of $3, one five to $3 $5 billion and a rich.
<unk> guidance of $2, five 5% to $2 $65 billion.
This is being driven by our third quarter outperformance along with an updated forecast for the fourth quarter, which has improved primarily due to higher recurrent consumer spending from Grand theft auto online and M. B ATK and saw strong performance from Grand theft Auto five and Red dead redemption two.
We expect growth from the prior year from M. B, a T K Grand theft auto online and Grand theft Auto five and social Point's mobile games to be offset primarily by lower results from borderlands three.
The largest contributors to net bookings are expected to be M. D. ATK Grand theft auto online and Grand theft Auto five Red dead redemption, two and Red dead online social Point's mobile games Borderlands, three Sid Meier's civilization Mafia.
The Mafia definitive additions and Mafia trilogy, and PGA tour TK 'twenty one.
In fact, the net bookings breakdown from our label, we roughly 55% T K, 35% Rockstar games, and 10% private division social point and played a M.
And we forecast our geographic importance, but to be about 60% United States and 40% International.
We now project digitally delivered net bookings to increase by approximately 20% as compared to our prior outlook of 15% growth as a percentage of our business digital is projected to represent 87% of them bucking up from 82% last year.
Our forecast assumes that 63% of console games out will be delivered digitally up from 55 per cent last year.
We now expect our current consumer spending to grow by approximately 45% interest there to our prior outlook of 30% growth and new.
Represent approximately 64% of net bookings as compared to 51% last year.
Growth is being driven primarily by MBA Teekay Grand theft auto online the additional played out and social Point's mobile games.
We are increasing our non-GAAP adjusted unrestricted operating cash flow outlet to more than $750 million up from our prior outlook of more than $650 million.
We plan to deploy approximately $75 million for capital expenditures.
We expect GAAP net revenue to range from three to four to $3 billion to $9 billion and cost of goods sold to range from one five to 215 $5 billion.
Total operating expenses are expected to range from one point to two to $1 billion to $3 billion.
The mid point this represents a 9% increase over the prior year driven by the addition of play that higher head Count I T research and development expense and charitable contributions, partially offset by lower marketing expenses.
And we expect GAAP net income to range from $472 million to $484 million or $4 eight to $4 18 per share.
In closing we are very pleased with the ongoing momentum that we have experienced so far in fiscal 2021, including our expectations to deliver both record net bookings and operating results for the full year, we remain extremely confident in our long term growth trajectory and our ability to deliver shareholder value driven by our key competitive advantages.
Our incredible portfolio of creative assets, our strong fundamentals and healthy balance sheet and of course, our industry leading talent. Thank you I'll now turn the call back to Jeff.
Thanks, Lenny and Carl.
And behalf of our entire management team I'd like to thank our colleagues for their hard work commitment to excellence and for delivering another outstanding quarter.
To our shareholders I want to express our appreciation for your continued support.
We will now take your questions operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is on the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
One moment, please while we poll for questions.
Thank you. Our first question comes from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking my questions.
Have one high level strategy on M&A question and the second one on GTA.
So the first one on you guys mentioned more copies of GTA five sold into 2020 in any year since launch and then similarly Red dead online saw more players in the Sunbury awesome swash. So it seems like you guys are Dennis any well on the trend that gamers are gravitating towards the largest gaming franchises.
So that being said curiously share while your overall deal is on ground on your core franchises and potentially expanding them into new platforms and business models versus expanding your portfolio with new IP, either organically or through M&A.
Yeah.
And then I have a follow up.
Great well thanks Mario.
All of the above so it's exciting that we have these extraordinary franchises that keep captivating and engaging consumers. Many years after launch and the reason that that's occurring is first of all the initial quality, which is unmatched in our business and second because our our labels growth Rockstar games and.
<unk> continued to deliver content on an ongoing basis that further causes captivate shouldn't and engagement and if we keep doing that then we'll continue we think to have similar results.
I think youre right to consumers yet.
Really comfortable with and excited by specific franchises and if you keep delivering great content. They will they will maintain their involvement on an ongoing basis, we're seeing that.
And all forms of the entertainment business at the same time, we always have to create new titles both.
Both new iterations of existing beloved franchises and new intellectual property and if we don't do that then we're burning the furniture so to that end in the next five years, we expect to bring 93, new releases to market, which is more than double what our development capacity was just a few years ago. So we're both excited by.
<unk> continued growing engagement in our existing entities as well as what the future can bring with new releases.
Great and then second question on GTA online on the you guys mentioned over half of your players.
The recent heightened on a low.
Presently surprised that number since more and more players are playing games as a means of social connection so how did that percentage.
Compare versus your internal expectations and does that change how you do single player opportunity either in existing online environment like GTA online.
Well no. This wasn't coincidental I mean, the folks of Rockstar Games' Inc.
<unk> tended to create a powerful single player experience a story driven experience and Rockstar has always been known for great stories and grade single player experiences and then developed.
In addition, a massive multiplayer.
Opportunity over the past years.
And I think it's a reminder, not that we needed one that Rockstar games can do both of those things at the highest possible level of execution on our business.
There was I think it was an argument just a couple of years ago not around here not in this shop with them.
And some of our competitors officers that single players dead. It's all about multi player. We didn't believe that I said, specifically and publicly that we didn't believe that our labels don't believe that and we deliver an array of experiences that range from hyper casual mobile to the most complex. The most robust single player on multiplayer player.
And we intend to continue doing that.
That's helpful. Thank you.
Thank you. Our next question comes from Mike M with Goldman Sachs. Please proceed with your question.
Great. Thank you very much for the question.
I was just talking about how the success.
GTA five units this year as well as any learnings from the Standalone Red dead online experience.
Forms your view about.
What GTA enhanced edition in the Standalone GTA online should look like or will look like next year and perhaps how it should perform thanks.
Well really appreciate the sentiment behind the question.
I'd sort of put it in the category of how high is up.
We don't we don't tend to speculate and we haven't offered any initial guidance for for next fiscal year either.
So we will sharpen our pencil on the coming months and of course, we'll create initial guidance and that will reflect partially that performance.
But in general if history is any guide it will be very successful indeed and I.
No that wouldn't surprise me.
Great.
Thanks, I can certainly appreciate that.
And just as a another question could you talk a little bit about the music locker experience within.
GTA online obviously.
It's it feels like it's somewhat unique is there an opportunity for rockstar or two K to incorporate.
Even more interest for a lack of better words.
Real world elements or real World partners into virtual worlds like GTA online. Thanks.
Hi, it's Karl speaking, yes, but obviously the music locker experience is very unique.
A terrific application and then and and GTA.
Music has always been a really really important part of the Grand theft Auto franchise and it will continue to be it's always been part of the culture of the Grand theft auto franchise and people explored and enjoyed them and found new music through the franchise over and over again.
I don't want to speculate about what's in rock stars plans as it relates to music, but rest assured music is always has always been and will always be a large part of with GTA is all about.
Great. Thanks, Karl Thanks Jess.
Thank you. Our next question comes from Colin Sebastian with Robert W. Baird. Please proceed with your question.
Great Good afternoon, everyone.
Two questions from me first off as you look back at the pricing strategy for M. B a over the holidays. So is it safe to say you feel that that was the right strategy and I guess does it set a new bar for AAA frontline contents on Nextgen nextgen platforms.
And then secondly, bigger picture just given the ongoing industry consolidation Strauss in the interest you've shown in participating that activity are you.
Seeing still compelling opportunities out there in the market even as competition for deals seems pretty intense and in valuations look like they're also on the rise any commentary there would be helpful. Thanks.
Yeah.
Yeah in terms of frontline pricing for M. B, a two K 21, I think that worked out very much as expected and as planned.
A premium offering.
At the highest possible level. The title was built from the ground up for Nextgen to first title here that has has been created that weighing and the acceptance by the consumer. So it's been nothing short of extraordinary the titles sold in over 8 million units.
We havent talked about pricing on on other titles.
So it would be premature to discuss that we'll talk about that on a title by title basis going forward.
In terms of consolidation you've seen a lot of deals out there you know most recently embraceor is is merging with gearbox.
On a company near and Dear to our heart and we're grateful that will still be in business with the gearbox and they'll still be working with us on borderlands on on other titles.
We acquired played out just a few months ago and we're excited about how that deal is gone.
We lost the Codemasters deal to our friends out west that was disappointing but reflects our discipline in such matters. So there is an awful lot going on I tend to agree column that pricing can be pretty heavy and we have a stated strategy and.
A disciplined approach it served us well.
We have yet to make an acquisition that that hasn't worked out and we're looking for great teams, great intellectual property and for our current arrangement that would be accretive to shareholder value.
And we you know we will we will look for that and times aggressively.
But we have sort of them from we have firm grasp on the hand calculator on one hand on on our approach strategy and tactics in the other.
Alright, Thanks Ross.
Okay.
Thank you. Our next question comes from Doug Crudes with Cowen <unk> Co. Please proceed with your question.
Hey, Thanks, you've always been known for take two has always been known for putting out some of the deepest and.
Most complex schemes in the market and there's been a debate I think emerging in the industry about whether their current pace, a AAA game development and sustainable Booth I think forgetting games out the door and then the sensor life services are becoming more and more of a of an arms race in terms of who can put the most current down quicker.
Was that a competing game that came out recently that was highly anticipated where I think it was a clear case of.
That's studios reach exceeding their grasp what what have you been doing and what are you doing sort of operationally structurally to make sure that your ability to keep raising the bar on your entertainment experiences doesn't run on file with some of these issues. Thanks.
Well first of all you never want to.
Sit back and just say, we've always been able to do it's totally fine it'll be fine going forward. We're always looking over our shoulders. We're always trying to figure out what we can do better where I think the most self critical group I've ever run into.
How do we maintain our commitment to quality.
By making sure that on.
Our our creative teams pursue what they're passionate about and don't pursue something they're not passionate about and by maintaining operational and financial discipline at the same time and the effect of that is we can have long development cycles and we've been criticized for that but I think the case that you're alluding to reflects the fact that you're.
We're always better serve to wait for perfection, if you can create perfection.
And all of our labels are seeking perfection and we don't we don't always succeed sometimes we fall short, but that's the goal and if anything these times caused us to to sharpen our minds further and sharpen our disciplined further.
And try harder so yeah, I mean, it's great that Rockstar games continues to put out add on content on additional content.
For Grand Theft auto online and for Red Dead online.
But they put out material that they really believe in that they are passionate about and that is of the highest possible quality and that means we're not on a weekly cadence and we're not going to be and that means we don't necessarily know the exact release day, but what we do know is that we will wait for it to be as close to perfect as anything can be.
And that is true to K and that's true at social point and that's through a private division.
And that's on the unwavering commitment as part of our strategy and it comes from the top of the company and we are prepared to accept the results. When we fall short in terms of timing or when we sometimes spend a little more than we would like because it always pays off.
Thanks.
Thank you. Our next question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my question I just.
I wanted to dig a little more into the the 93 pipeline number you are you mentioned earlier Tonight again, Yeah, I think it's very similar to what you guys did last year. So I guess the question is is this the same 93 titles, we had a year ago or some being shut down on you have new ones in there and then just the way that we can kind of better understand how do we think.
Breaking that apart any way you'd like to between categories between mobile between AAA between more mid tier games, just how should we think about what what's in this this 93 titles.
Hey, Ryan it's Karl I'll take this one.
So to answer the first part of the question.
The 93 titles that we put out there it was a snapshot it was a moment in time and we really haven't given any updates on that since then of course things move in and out all the time it hasn't really been that long. Since then so you can't really expect that theres going to be a significant amount of movement, but I can tell you for sure. There are some things that have fallen out on some things that are back in but generally speaking.
These are still pretty good numbers.
In general.
But again, we do expect that this that this pipeline will be fluid.
As we get things to various milestones so it will be changing over time, but we haven't provided any additional update.
Other than the 19th day initial announcement that we made and just to break it down a little bit for you in terms of what what comprises that 93.
So on a high level of <unk> 63 of those titles of the 93 or we would consider core gaming experiences.
17 of them are sort of mid core arcade style experiences and 13 of them are what we would consider to be casual experiences.
About half of them 47 of the titles are from existing IP or sequels and the rest of them are from our new intellectual property. So we are making investments in new IP very important spoke about that earlier.
And then in terms of platforms 72 of the 93 titles are planned for a console or PC or streaming including seven of those that will also be available on mobile. So that would leave 21 that are that are on the list for specifically from Marvell.
And also from a business model perspective, 67 of the 93 are they required the purchase and 26 are completely free to play.
So that's the breakdown as it was the last time, we did it but we do expect that that will be moving around as we go deeper into the leap to enter that pipeline over the next few years.
Okay. Thanks Carl.
Thank you. Our next question comes from Bryan Kraft with Deutsche Bank. Please proceed with your question.
Hi, good afternoon.
Would love to understand at this point your latest thinking about the mobile gaming opportunity for you in terms of what kinds of IP and games are likely to succeed how much capital and resources. It makes sense to put behind mobile.
And you know what the broader strategy is going forward in the mobile space. Thank you.
Hi, it's Karl again, so obviously the mobile the mobile component of our business is becoming more and more important with our acquisition of social point and dot. So we're we're very committed to it not to mention mobile activity on our label levels, specifically at Teekay with.
With WWE, Supercars et cetera, and it's an NDA properties. So we are we are highly invested in the mobile business and we expect that it'll be.
Even growing part of our investment going forward.
But it really does boil our strategy boils down to a few components in the first really as it focuses around new eye, creating new IP for the mobile space and that's around our social play and play Das business. So it's IP, that's created specifically for the mobile environment.
And you know we've been investing in that obviously over the past couple of years.
Specifically to M&A, but also now organically now that we've got a pretty sizable platform between those two acquisitions.
The second component is bringing.
Bringing our core franchises to the mobile to mobile platforms. So these are games that are more or less ports. So there could be slight variations of games existing content that exists. So we've done that quite successfully for many many years.
And we will continue to do so where its appropriate and then the third component is really just bringing our core is integrating our mobile experience with our core experiences. So these are.
Things like companion apps, which we've done effectively with Red dead redemption amazing with Mafia. So we've done it with a number of our franchises where you can have a separate mobile experience that you can use and it can be used to enhance your core experience pretty much at the same time or maybe offline.
When youre not in front of your TV set of your console.
So those are really the components of our strategy, but obviously, it's a it's a growing part of the industry, we're very tapped into it and we're investing more and more.
Okay.
Thanks Carl.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is from Matthew Thornton with Truth Securities. Please proceed with your question.
Hey, good afternoon, everybody. Thanks for taking the question, maybe maybe two if I could maybe for either Strauss Karl.
First one is just higher level you referred to the pipeline to 93 projects a little bit earlier I'm. Just wondering if there's any color you can offer just as to how we're kind of progressing and maybe it's a little early but just any incremental thoughts as to what the linearity is shaping up to look like there and any color around the pipeline would be helpful. There and then just secondly.
PGA tour, it's fairly small again, but it was route well reviewed so it looks like.
Access will buy by all accounts I'm curious if that was successful number of our large enough where it could actually become a recurring title and enjoying NBA and WWE in that regard any thoughts there. Thanks guys.
Yeah.
So on the first part of the pipeline I really don't have more information I can give you in terms of the pace of that pipeline and win new titles coming out, but rest assured you will be hearing a lot more about that and in the coming months.
And as we as we talk about our release schedule and so unfortunately, I don't have any more to give you on that.
And then in terms of.
The PGA tour to Kate <unk>.
Okay.
Incredibly excited about that the performance of that title and I'd like to say that we're not surprised but I am personally a little bit surprised it's done fantastically well we sold.
Around 2 million units or so which is a fantastic result, and we're just really getting started so we do think that there's a future in this in this franchise for US we haven't really announced much about what specifically that means but without a doubt. This is something that we feel like it merits investment from our side and that's something that we can really turn into very profitable on exciting franchise for us going forward.
For many years.
Yes.
Thank you. Our next question comes from Benjamin Black with Evercore ISI. Please proceed with your question.
Great. Thank you for the questions.
Obviously, the gaming category as a whole has benefited from these extended stay at home provisions, but as we.
We look to calendar 'twenty one.
I'll be curious to hear what data points or trends, you're seeing that could give us.
Some from some confidence in the sustainability I was wondering strength, we're seeing today.
And then secondly, I was wondering if you could talk a little bit more about the decision to disaggregate read that on line from the core game.
That's one of the key findings you have there and curious to hear how red dead online.
Relative to GTA online.
From a stage of its life cycle. Thank you.
Yeah.
Sorry on on the first question.
I'm hard pressed to know what data that would be ex.
But we continue to do very well.
And on engagement is very high.
We had not planned in our numbers for the fourth quarter.
On to see growth driven by the pandemic on that has not been our approach but of course, we continue to outperform in the net bookings that we're guiding to for the physical and our $800 million higher than our original guidance. So we're grateful for the growth I think under any circumstances post.
Pandemic.
And hopefully there will be post pandemic.
<unk> will be higher than pre pandemic demand I think it's quite clear that that theres been a systemic shift in favor of interactive entertainment on activator on media consultancy confirm that.
But I don't know whether there'll be some fall off as people are out and about and doing you know doing things outside of the home. It wouldn't surprise me if there were.
But as long as we continue to deliver great experiences I think we'll see continued growth what was your second question again.
Second question was really around the decision to disaggregate Red dead online.
And also how Red dead online now is fairing relative to GTA online under the comparable stage of its lifecycle.
So theyre very different titles and they're really not comparable in any way or both massive hits.
And the decision I think was based on offering more opportunities to engage with the title title has been in market for some time and Rockstar has shown a willingness to experiment with different marketing models. All in an effort to enhance the size of the audience and to increase customer engagement and enjoyment and I think it's working out really well and I'm looking forward to.
Seeing how grand theft auto online fares when it too is available as a standalone experience in fiscal 'twenty two.
Excellent. Thank you very much.
Thank you. Our next question comes from Mike Hickey with the Benchmark Company. Please proceed with your question.
In Strauss Laney call on the call. Thanks for taking my questions guys. Congrats on on Carnival quarter on Guy.
I know, it's early but as we sort of Inc.
That's cool.
<unk>, obviously got a lot of momentum on your live service.
It looks like you have up here on engagement is going on.
You do have some visibility on the pipeline. Obviously you have more I'm just curious if you think you can grow.
School year 'twenty two and.
Sort of cash.
Exactly answer that maybe just keys to grow obviously growth is generally a good thing, but looking forward to.
The second question is you know the work from homes deny on duration has continued to the sort of expense here.
Sort of curious.
The impact that has gone on to develop a culture.
Productivity when you look sort of in that medium term pipeline. Thanks, guys.
Hey, Mike and sales for fiscal year 'twenty, two and at this point, it's a little early for us to provide fiscal 'twenty two guidance on.
We're also currently in the practice of completing our detailed budget for fiscal 'twenty, two and as you know we typically guide for the next fiscal year on record.
Our fourth quarter earnings in May but.
But it's important to keep in mind that this is clearly a record year for us partly driven by the benefit of individuals' sheltering at home and it remains to be seen how long. These trends will go on and when we originally projected sequential growth for fiscal 'twenty tail versus fiscal 'twenty one.
Our fiscal 'twenty, one guidance was projecting a decrease from fiscal 2020 and now we're expecting record net bookings for fiscal 'twenty, one, which represents 30% growth of our original guidance and year over year growth compared to fiscal 'twenty.
And also we expect record adjusted unrestricted operating cash flow over $750 million, which is more than double our original estimate.
So we'll see.
Well ill give you a little bit of an update at that point. So that's when we'll give you some more details on 22.
And Mike with regard to working from home I can't predict how much longer you know that'll be the case we follow.
What what government requirements and suggestions are and we follow the science on the facts.
Some of our offices are open and no one is obligated to come to the office if they're uncomfortable in doing so.
That said.
We've been extraordinarily productive our it team did a on a plus job, making remote work possible for our company we've moved over to remote work within a week of needing to shelter at home and we haven't missed a beat not even not not at all we had one title that was delayed kerbal space program two that was it.
And more importantly, the quality of our releases has been extraordinary.
I appreciate the question about culture, I think it's actually difficult.
To build a culture.
And a remote work environment, but I don't think it's impossible to do that when you've already gotten to know each other when you built a powerful company with a powerful business model and a powerful team I think to the contrary.
In a challenging time, everyone pulled together new that it was our collective job to make sure. The company didn't you didn't have any issues and in fact continue to grow and that's exactly what happened, but and so if any in any case I think morale may actually be stronger, but it's not something that camera should last forever and it hasnt been taxing and I think people are actually.
Looking harder at home than they did in offices, even though there is no commute I think it creates a lot of challenges and I'm looking forward to it ending so no you're not we're not one of those companies, where we believe like Oh. This is a great idea everyone. On just work from home I think certain people may be able to work from home more if that's truly are their interest I think generally speaking will bend.
<unk> from being together as a group.
Okay.
Thank you. Our next question comes from Eric Handler with M. K M Partners. Please proceed with your question.
Yes, Thank you and I appreciate the question.
Thinking about the <unk>.
Rent theft auto franchise, and the fact that we've now sold over 140 million units of the game and granted there's probably some overlap where people have more than one copy of the game.
It seems like there is a huge audience of people.
That will probably never played GTA for or any of the other prior GTA games.
That came out.
Before that and I just wonder how do you think about the obviously, there's a huge appetite for GTA content and whats your perspective, there in terms of thinking about re mastering.
Prior games.
All right.
It's a great and encouraging question I'm I'm kind of inclined to leave it more as a statement than a question.
And any update.
<unk> on our on our release schedule will come from Rockstar games.
Fair enough. Thanks, a lot.
Yeah.
Thank you. Our next question comes from Stephen Ju with Credit Suisse. Please proceed with your question Okay.
Okay. Thank you so much Strauss.
Over the last few years I think the industry has gone from new.
Leading to acquire customers with massive advertising campaigns every time, there wasn't new iteration of the game to.
That was set up where you are in front of your user base. All the time and you just called out that didn't get a player.
Or again captivate showed an engagement.
With what is now basically a perpetual service model. So do you anticipate going forward potentially further operating margin benefits due to what.
What might be a decrease new for marketing spend.
And I guess building on one of the M&A questions earlier, and this is definitely not an either or question, but do you think your time in take two's capital are probably better served.
Adding to the teams you already have at Rockstar or T. K, two K, where there already seems to be a pretty good culture of excellence there. Thanks.
Yeah.
Thank you for the question.
I don't think youre going to see a reduction on our marketing spend because we're launching new iterations of existing franchises and we're launching new intellectual property and a highly competitive market and I think we'll continue to spend to support those releases. So I don't think youll see leverage there where you see leverage though of course is when you sell more units. So if you make bigger hit.
And we make bigger hits than anyone else on the market.
And then obviously, you're amortizing that marketing spend across a larger number of units. So our marketing spend as a percent of your net bookings can be lower to the extent that you have greater success and that's certainly our goal and in that event of course, we would have higher operating margins and you've seen that reflected in the growth on our operating margins as you've seen the growth on our <unk>.
Hits in the last 14 years.
And I would hope that that will continue.
Tirelessly driven by whatever success, we have or don't have.
Where you can have a little more confidence around growth from the margins would be in the shift to digital distribution, which is an extra bowl and which is happening digitally distribute products were 82% of our net bookings in the quarter and.
We think that the world is heading towards.
More than that.
And that will help our margins as well as our competitors' margins.
Also of course, our recurrent consumer spending is higher margin because the cost associated with the content that drives recurrent consumer spending is lower than the costs related to an initial large release so to the extent that we continue to deliver add on content two beloved titles, which is our goal.
You could see an increase in operating margins coming from that as well, but again, that's reliant upon creating hits on that won't occur. If we don't create morehead so everything comes down to creating bigger and bigger hits and that's our goal and our strategy.
There's billing sorry, and I think on your second question. Thanks for the reminder, Carl.
It's all of the above we are adding to the teams at two K on at Rockstar as they work on more properties in bigger properties.
We are adding to the team at social point on private division selectively as we as we work on new properties and we have shown a willingness to acquire companies and add that way as well.
On a very selectively so we're a growth business and youll see that on our head count I'm hopeful that our head count essentially goes to production capacity engineering capacity and doesn't go to fixed corporate overhead.
Thank you.
Thank you our last question comes from Ryan Gee with Bank of America. Please proceed with your question.
Hey, guys. Thanks for squeezing me in right. There first one for Laney, we're about a month away from you know last year when most of US were all center doors.
And we saw that increased demand for gaming content. So just so we're all on the same page here do you mind refreshing us how much may be GTA online NBA to U K online MBA teekay, perhaps outperformed your expectations in the March quarter last year or maybe it was actually more on the June quarter, but if you could try and quantify that.
So that we can have our model set up accordingly that would be fantastic.
And then a question for either Strauss or Carl you guys acquired a ruffian games of Rockstar acquired Ruffian late last year.
I believe that they have a history in the shooter category with the Halo franchise, specifically so.
Are they coming on board to broaden rock stars reached to genres like that or or what role do you anticipate they will play in the future of that studio either supporting or.
Or more of a lead development rule. Thanks.
We're thrilled to welcome the ruffian team to Rockstar games and to take too and we think they're on extraordinarily talented team and we're looking forward to to them, becoming a part of Rockstar games.
And beyond that.
There'll be more announcements in due time.
Yeah.
Okay.
And Ryan on the title by title on that and for the fourth quarter last year I don't have that information in front of me, but we can follow up with you on that.
But lately all of our titles, adding over performed in that quarter and that on a title by title basis on.
If it's a significant over achievement, specifically on GTA online and for M. P eights okay.
Fair enough thanks, guys.
Well. Thank you all very much for joining us today, obviously, we're really proud of what the entire team has achieved.
The results are extraordinary and all of US are so grateful to our colleagues around the world and of course, we're grateful to you for joining us today. Thanks, so much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful evening.