Q4 2021 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to the take two.
Fourth quarter fiscal year, 2020 one earnings call. At this time all participants are in a listen only mode and 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. Please note. This conference is being recorded I will now turn the conference over to your host Nicole shut ins.
And your vice President of IR, and corporate Communications you may begin.
Good afternoon. Thank you for joining our conference call to discuss our results for the fourth quarter and fiscal year 2021 and at March 30, <unk> and 'twenty 'twenty. One of today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl laid off our president and leaning Goldstein, our Chief Financial Officer, we will be available to answer your.
And as 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 and 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 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 it.
And it seems and our press release, including the items that our management internally to adjusted our GAAP financial results in order to evaluate our operating performance and our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure and Additionally, we have posted to our website a slide deck that visually presents our results and financial outlook.
This release and filings with the FCC and May be obtained from our website at take two games Dot Com and now I'll turn the call over to Strauss. Thanks.
Thanks, Nicole and good afternoon, and thank you for joining us today.
Our strong fourth quarter performance concluded and exceptional year for our organization, we delivered net bookings of approximately $3 $6 billion.
Which grew nearly 20% from fiscal 'twenty, and 'twenty and were the highest ever and our company's history.
And on behalf of our entire management team I'd like to thank all of our colleagues around the world for helping us achieve these results despite such significant unforeseen and prolonged challenges.
It's truly a reflection of our collective Brazilians and singular commitment to excellence.
Our thoughts are with those who have been and continue to be affected by COVID-19, we hope to better days and comfort will come to you Sir.
Throughout the pandemic, our creative teams delivered consistently superlative entertainment experiences, giving players opportunities to have fun and the most difficult and time and stay connected with family and friends through shared experiences.
We grew our online communities meaningfully, including new and returning players, which helped drive recurrent consumer spending growth of 48% to reach a record high and represented 63% of our total net bookings for fiscal 2021.
During the year, we enhanced our organization from long term, we bolstered the depth of our creative teams by hiring more than 700, new developers, including through the acquisition of several talented studios, which will help us expand our capabilities and grow our business. We also broadened our portfolio of offerings and capitalized on diverse business models and made some.
<unk> investments and our operations and infrastructure.
Nearly all of our titles outperformed during the fourth quarter, including M. B, a T. K 21 Grand theft auto online and grabbed and about a five red dead redemption, two and Red dead online and Sid Meier's civilization sex.
The MBA two K series is known throughout the world for being the most authentic and most realistic and the most engaging basketball simulation experienced and our industry.
In addition to giving consumers the ability to step onto the court and their favorite NBA players, whereas themselves to K and visual concepts have created various game modes that offer interactive experiences and enable players to build deeper social connections.
NBA <unk> 21 was our first offering built from the ground up for Gen. Non platforms to date, the title has exceeded our expectations and sold and over 10 million units during.
During the fourth quarter net bookings for the series grew 37% and recurrent consumer spending and exceeded our expectations significantly growing 32% and 73% and the period and fiscal year respectively.
Yeah.
Excuse me.
Consumer engagement with M D. H U K remains incredibly strong with more than $2 3 million users playing the game daily.
We see a significant opportunity to grow the franchise further as we provide unique and innovative experiences throughout the game.
Once again Rockstar games iconic Grand theft Auto series exceeded our expectations expanded its audience and set new benchmarks and fiscal 2021.
Driven by an array of new free content updates and sustained interest and last holiday's higher politico.
Grand Theft auto online and benefited from strong engagement trends during the fourth quarter, including a record number of active players and the second highest quarter of recurrent consumer spending on record.
For the full year participation levels reached an all time high from both new and returning players and recurring consumer spending grew 31% achieving a new annual record.
Sales of Grand Theft Auto five also surpassed our expectations and to date the tie.
And it'll is sold and more than 145 million units worldwide.
Red dead online and exceeded our expectations during the fourth quarter with active players increasing significantly and recurrent consumer spending and performing above our plans.
Through and parts of the success of the recently released Standalone version of the game.
The period Rockstar games released new content updates for Red dead online, including brand new missions for solar players the outlaw pass number five and its new rewards and more.
Red Dead redemption, two continued to perform very well and to date has sold in over 37 million units worldwide.
During the fourth quarter, two K announced our acquisition of H B Studios, the developers of our highly successful golf game PGA Tour TK 'twenty, one which to date has sold and more than 2 million units and we're very excited about the growth potential for the PGA tour to case series, especially as Teekay has entered into and exclusive.
Long term agreement with golf Gladstone and icon Tiger Woods to serve as its executive director and consultant and which we believe will enhance the series of ongoing innovation and authenticity.
During the period to K and practice games released to Vietnam, and Kublai Khan and Portugal pack for Sid Meier's civilization six there were the final offerings for the game's incredibly successful new frontier pass civilization. Six is daily active users have grown steadily since the games released more than five years ago and to date the <unk>.
Total is sold and over 11 million units as.
As a result of the engagement from the past as well as the success of ex Comm Chimeras squad and XCOM, two and switch for access games had one of its best years ever. We expect this growth to continue as the studio has several exciting projects and development that will be revealed this year.
During the fourth quarter private division released murder on ever Donald and the final add on for their highly successful game, the outer worlds, which is sold and more than 3 million units.
The add on will also becoming switch later this year private division's 2019 release ancestors. The humankind Odyssey has now sold and over 1 million units, marking the third third titles from our label to achieve the million and milestone joining the outer worlds and Kerbal space program.
Providing new and innovative ways for audiences to stay engaged with our titles. After their initial launch with a key strategic priority of our organization and represents an important long term growth and margin opportunity.
Our record levels of recurrent consumer spending were largely driven by M. B, a T K and Grand theft Auto and line during the fourth quarter and were enhanced by the following offerings.
Social Point's live games led by Dragon City, and Monster legends exceeded our expectations.
<unk> seasonal content and features as well as increased marketing investments helped drive net bookings growth of nearly 30% for the period and 44% for the year. The studio is planning to release three new titles during the second half of fiscal 2022.
<unk> had a strong fourth quarter driven by the outstanding performance of two dots, which achieved sequential growth over the third quarter.
We expect played out to be a significant contributor to our results over the long term and look forward to its new release planned for the fall.
WWE Supercars and also outperformed growing 24% during the fourth quarter and 28% during the year.
The title has now been downloaded more than 23 million times and remains to case highest grossing mobile title.
And the H U K online and China grew 6% and 9% during the fourth quarter and year, respectively and remains a significant contributor to our results.
Title is the number one PC online sports game in China with more than 52 million registered users.
Turning to our outlook, we believe that the pandemic initiated a transformational shift and entertainment consumption, revealing the possibilities of interactive entertainment to a much broader market with interactive entertainment, becoming the number one entertainment vertical.
We anticipate that the overall addressable market for our industry will be notably larger going forward than it was pre pandemic.
However, as the world returns to a new normal we expect a moderation of the trends that benefited our industry over the past year.
We currently expect our fiscal 2022 net bookings to range from 3.2 to $3 3 billion marking.
Marking the second year in a row with net bookings in excess of $3 billion, we expect to achieve sequential growth in fiscal 2020 three and over the next few years. We believe that we will establish new records of operating results even above just spectacular performance. We delivered this past year.
And he will share more details about our outlook.
And.
As Carl will discuss in greater detail and fiscal 2020, two we plan to deliver and exciting array of offerings and <unk>.
Putting for immersive core releases from proven and new franchises.
And the strongest pipeline and our company's history, including many new releases planned for fiscal 2023, and 2024, we're highly optimistic about our growth trajectory and we will be making significant investments this year to enhance our enterprise and key areas such as creative talent.
And <unk> and other infrastructure.
In closing, we remain confident and our proven strategy and talented teams around the world.
As we continue to grow our business. We believe that take two is exceedingly well positioned to deliver long term growth for our shareholders.
Now I'll turn the call over to Carl.
Thanks Ross.
I'd like to begin by thanking our teams around the world for delivering a record year.
Thanks, Jordan and take two and 2007 I can't remember a year during which we were tested more greatly and performed as exceptionally as we did and this past year.
And our colleagues' commitment professionalism and talent are among the best and the industry and I could not be prouder and what we've achieved together and.
In addition, I want to thank our player can mean and ease for engaging with our experiences and making our games part of their lives and.
And now I'll discuss our recent releases.
On April 2nd two K and visual concepts once again expanded the breadth and depth of the MBA Teekay franchise with the release of NBA <unk> 21 for Apple arcade, our first offering for the platform.
And we took a 21 is the most advanced basketball simulation game available on Apple devices, featuring an all new graphics and that offers the highest possible resolution updated rosters and a variety of exciting game modes MBA.
And they took a 21 is currently the most popular game and Apple arcade.
On April seven two K and HP studio as it relates to the Travis Matthew and Puma Golf gear update for PGA Tour took a 'twenty, one which keeps players swinging a swag on the cutting edge of modern golf fashion.
And Travis Matthew collection includes new polo shirts, hats and shares marking the brand's PGA tour TK 'twenty one debut.
From a golf introduces and all new oversized hat and new footwear.
On April 8th two K and gearbox software continued to enhance the borderlands franchise with the release of the director's cut the fixed add on for borderlands three.
Good day and gearbox flow released two additional vault cards that will become available for owners of the director's cut before the end of calendar 2021, and all players can look forward to returning and in game events like revenge of the cartels.
In addition, our teams are continuing to explore cross play functionality and that will enable fans to play borderlands, three and with their friends across multiple platforms and we expect to have more to share in the coming months.
Anticipation is growing for Lionsgate full length live action film based on Borderlands and Filmless directed by Eli Roth and will feature some high what's favorite stars, including Cate Blanchett, Jamie Lee Curtis, Kevin Hart, Jack Black and Edgar Ramirez.
We believe that the film promise is to capture the thrills and distinct personality of the series and has the potential to introduce new audiences to the beloved world of board items.
Looking ahead, we are very optimistic about our growth opportunities and fiscal 2022 and beyond.
As Strauss mentioned that we have and exciting array of offerings planned for this year and our long term development pipeline represents the strongest and take two's history.
Okay.
For fiscal 2022, we have 21 titles planned for release, including for immersive core releases for purchase which include two new leases from new franchises and two titles from existing franchises.
One new independent title, Ollie Ollie World and private division, which will be available for purchase.
And free to play mobile games, including six titles from new franchises and four from existing franchises.
And six new iterations of previously released titles, which will all be available for purchase.
And while we are very excited and once again be working with the NFL and Nflpa. Our first title under these new partnerships is no longer expected to be released during fiscal year 2020 to two day, we'll have more to share on their plans for our football offerings going forward.
I'll now discuss details on our announced offerings for this year.
Rockstar games has massive new updates coming this summer to both Red dead online and Grand theft Auto online and will deliver fans most heavily requested additions and a host of new items, including quality of life updates.
On may 25th Red Dead online will deliver eight new races spanning iconic locations across the games five states, including standard open and target and open target races.
Later this summer fans can look forward to a host of new missions for scale and outlaws involving everything from quick holdups to larger high Stakes Robert from Big rewards.
Greg The total online continues to expand and evolve on May 27th Rockstar games will release, eight new stock races, which will introduce and array of white-knuckle trails for racers and and assortment of vehicle classes.
Fans of the futuristic deadline mode, we'll be happy to have seven new arena for combat coming soon.
Survival mode will also expand to new locations throughout Los Santos and Blaine County, and later this summer car culture, while we turn to Los Santos and new ways and Grand Theft Auto online next major update offering fans, a performance and customization upgrades and new opportunities to get together and show up there right.
This includes a new social space for car meets alongside new races, and raise types new vehicles to acquire and a series of new vehicle themed multipart Robert emissions.
Notably these major summer updates will continue to deliver additional surprises and the weeks and months after launch including special benefits from players when the enhanced version of Grand Theft Auto five and Grand theft Auto online arrive on Gen. <unk>. This November 11th.
Rockstar games will have more details to share about these eagerly anticipated launches in the coming months.
This year, we will have two sports releases from our popular franchises.
Okay and visual concepts are once again aiming to raise the bar for excellence with NBA <unk> 22, the latest offering and our industry, leading basketball simulation series. In addition to making the oncor and <unk> and even more authentic.
Kidney and.
And can look forward to new and fun ways to engage with various game modes.
Additionally, WWE <unk> 'twenty, two will mark the rebirth of our popular wrestling series.
During the broadcast of Wrestlemania 37, <unk> and visual concepts revealed the very first theater and video for the game featuring both live action and stunning and game footage of WWE superstar array material a high flying Lucha Libre legend, and one of the most exciting and decorated superstars and WWE history.
The teacher also highlighted WWE <unk> 22, this tagline and hit different which is reflective of both the new direction of the game and its supporting marketing campaign.
We're very excited about the teams fresh approach to the series and last week, our WWE took a 22 development <unk> and visual concepts kicked off the social media campaign frequently and behind the scenes.
Sneak peaks of the game and develop our diary venues.
Okay, we'll continue to unveil details in the coming months.
Okay. We will also introduce two releases from new franchises this year, including one from gearbox.
On June 24th private Division will celebrate the 10th anniversary of their release incredible space program Private division and hence to Mark the occasion with a weeklong celebration, including free content updates and more.
And this winter private division and roll seven or at least Ollie Ollie world digitally for consoles and PC Ali.
Ali Holywell mix marks a bold new direction for this critically acclaimed skateboard and franchise and is bursting with personality.
Players flipped and flow through Red Landsea, a vibrant world a full color characters as they search for the mythical skate guys on a quest for Nirvana.
And here and as dwellers are charmingly weird and crafted with a unique art style play.
Players can enjoy the games deep combo system and everything that has to offer while pros can really prove their skills and master a vast number of moves with access to millions of unique levels and the games sandbox mode.
In addition players can also compete against similarly skilled rivals around the globe and player links.
Fiscal 2022 will be a big year from mobile with 10, new free to play offerings, including new titles from two K social point and played out.
Well also have six iterations of previous release titles, including enhanced versions of Grand theft Auto five and a standalone version of Grand Theft Auto online for Gen. Non console, it's available for free three months from Playstation side players.
All of which will launch and the second half of this calendar year.
[laughter].
Looking ahead, we expect to deliver over 40 titles across fiscal 2023, and fiscal 2024, which gives us confidence and our ability to reach new record levels of operating results and the next few years.
Our current expected pipeline for fiscal 2023, and 'twenty four includes 19 immersive core releases.
Seven of which are sports simulation games.
15 of these will be available for purchase while <unk> four will be free to play.
Five independent titles, which will all be available for purchase.
And then free to play mobile games.
For mid core games, and this will all be available purchase and three of which will be sports oriented.
And three new iterations of previously released titles, which will all be available for purchase.
It bears, noting that these titles are snapshot of our current development pipeline and is likely that some of these titles will not be developed through completion or some may be delayed and we will also be adding new titles to our slate.
And the coming months Youll start to see our titles come to market and we'll aim to share similar updates going forward when we provide our year end results.
In addition to our total releases. We also continue to have significant long term opportunities to increase engagement and recurrent consumer spending.
Our focus on enhancing our data analytics and enabling us to deepen.
Our understanding of our player base and how they prefer to interact with our games, which.
Which is helping us to develop and most desirable products expansions and new content updates.
Turning to esports and the MBA <unk> laid will kickoff at fourth season on May 19th and continue for 16 weeks.
And the 23 teams will play 28 regular season games with each team beginning the 2021 season, and playing remotely and its local market.
For the first time, the NBA two day lag will be aligned into the eastern and western conferences game.
James will be simulcast live on the NDA to Calix, Twitch and Youtube channels and will be available on Dash radio Es Revolution.
Local and India and 401 in Europe.
Additionally, the league recently and announced a landmark multiyear partnership with Sony Interactive Entertainment that makes the Playstation five its official console that will be used by all teams and their 138 players doing all games and events. The partnership marks the first of its kind for Playstation five with and Esports League.
And our first concept partnership for the NBA to Caylee.
We remain very excited about the continued success and growth of the NBA <unk>, which has a long term potential to enhance engagement and to be a driver of profit for our company.
In closing we remain incredibly excited about the vast potential for our company to captivate and engage audiences around the world by delivering the very best entertainment experiences when and broadening the reach of our portfolio through new platforms business models, and distribution channels and pursuing organic and inorganic growth opportunities and expanding into emerging.
Markets take two is superbly positioned to capitalize on the many positive trends and our industry and to provide continued value and returns for our shareholders over the long term.
I'll now turn the call over and Laney.
Thanks, Carl and good afternoon, everyone.
And I'll discuss our fourth quarter and fiscal 2021 results and then review our financial outlook for the full year and first quarter of fiscal 2022.
Note that additional details regarding our actual results and outlook are contained in our press release.
<unk> mentioned, our strong momentum continued into the fourth quarter and we significantly exceeded our net bookings guidance for the fourth quarter and the year I'd like to thank our talented colleagues around the world for their passion and dedication has been inspiring, especially given the challenges that COVID-19 has presented at sweat.
Starting with our fourth quarter results total net bookings grew 8% to $785 million as compared to our outlook of $602 million to $652 million. These outstanding results marked our highest level of fourth quarter net bookings on record during.
During the period recurrent consumer spending grew 17% and accounted for 67% of total net bookings as compared to our outlook of 5% growth. Our outperformance was primarily due to the incredible performance of M. D ATK.
Digitally delivered net bookings grew 8% and accounted for 92% of the total this result exceeded our outlook of a 10% decline due to the outperformance of recurrent consumer spending and digitally delivered full game sales.
During the fourth quarter, 74% of console game sales were delivered digitally up from 63% last year.
GAAP net revenue grew 10% to $839 million.
While cost of goods sold decreased to $280 million, including a reversal of expense at $65 million related to forfeitures of previously granted stock awards.
Operating expenses increased to 25% to $304 million driven by higher marketing research and development and <unk> expenses as well as the addition of playback and.
GAAP net income grew 78% to $219 million or $1 88 per share as compared to $123 million or $1 <unk> per share and the fourth quarter at fiscal 2020.
Turning to our fiscal 2021 results total net bookings grew 19% to a new record of 355 billion.
This exceeded our initial guidance by approximately $1 billion, we experienced exceptional engagement during the shelter and place conditions and delivered extraordinary results across many of our franchises, including NBA <unk> Grand theft Auto Red dead redemption, Borderlands, and social Point's mobile games, and Sid Meier's civilization.
Our current consumer spending grew 48% and establishing a new record and accounted for 63% of total net bookings this exceeded our prior outlook of 45% growth.
Digitally delivered net bookings grew 27% to a new record of approximately $3 1 billion and accounted for 87% of the total and this also exceeded our prior outlook of 20% growth due to better than expected recurrent consumer spending and digitally delivered full game sales.
During fiscal 2021, 64% of console game sales were delivered digitally up from 55% last year.
Non-GAAP adjusted unrestricted operating cash flow with $920 million as compared to our previous outlook of over $750 million and marked a record level for our company.
During fiscal 2021, we spent $69 million on capital expenditures.
At fiscal year, and our cash and short term investments balance exceeded $2 7 billion.
GAAP net revenue grew 9% to 337 billion our.
While cost consult with flat at $1 5 billion.
Operating expenses increased by 8% to $1 2 billion.
And driven primarily by the addition of played at higher head count.
Research and development expense and charitable contributions, partially offset by lower marketing expenses, and GAAP net income growth, 46% to $589 million or $5.09 per share.
Our GAAP net income benefited from a $46 million gain on the sale of a long term investment and a reversal of expense of $70 million related to forfeitures of previously granted stock awards.
And maybe gave our initial outlook for fiscal 2000 from retail.
GAAP net bookings to range from three two to three 3 billion the second highest level of net bookings and our company's history.
This is partly driven by the exciting pipeline of new leases that we have planned for the year and the majority of our titles coming and the second half of fiscal 2022.
Additionally, we expect and engagement trends will be notably higher and they were pre pandemic. However, as it returned to normalcy continues and we expect a moderation of the trends that benefited our industry over the past year and <unk>.
Larger contributors to net bookings are expected to be and the ATK Grand theft auto online and Grand theft, terrified Red dead redemption, two and Red dead online as well as some of our new releases that are yet to be announced.
We expect the net bookings breakdown from our labels to be roughly 55% to 35% Rockstar games, and 10% private division social point and played out.
And we forecast our geographic net bookings to be about 60%, United States and 40% International.
We expect recurring consumer spending to decline by 15% as a result of the challenging comparisons from last year.
And consumer spending as a percentage of our business is expected to be approximately 59% versus 63% last year due to more new releases this year.
We project digitally delivered net bookings to decline by about 8% as a percentage of our business digital is projected to represent 87% which is in line with last year.
Our forecast assumes that 74% of console games out will be delivered digitally up from 64% last year.
We expect to generate more than $400 million and non-GAAP adjusted unrestricted operating cash flow and we plan to deploy approximately $100 million.
The capital expenditures and.
The increase and capital expenditures over the prior year is primarily due to continued spending on studio and office Buildout and expense to support our investment and talent.
We expect GAAP net revenue to range from $3, one four to $3 billion to $4 billion and parts of goods sold to range from $1 41214, 6 billion. Our total operating expenses are expected to range from 146 to $1 four $8 billion at the midpoint. This represents a 22% increase over.
The prior year.
Carl mentioned, we have over 60 titles that we plan to de lever over the next three years and we are making significant investments in key areas such as marketing personnel and 90 to bring our pipeline to market. Additionally, we will have a full year of expenses and played out while these investments will impact our operating results. This year, we are confident that our growing pipeline.
And enable us to scale, our business further and improve our margins and the next few years.
And we expect GAAP net income to range from $228 million to $257 million or $1 95 to two.
And $2 and <unk> 20 per share.
For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2022.
Now moving onto our guidance for the fiscal first quarter.
We project net bookings to range from $625 million to $675 million as compared to $996 million and the first quarter last year, which was the first full quarter at the COVID-19 related shelter and place condition. When we experienced strong initial surge and engagement.
And the largest contributors to net bookings are expected to be Grand theft auto online and Grand theft Auto five and <unk> 21.
Debt redemption, two and Red dead online and borderlands three.
We project, our current consumer spending to decline by 30% as we will start to compare against the record levels of engagement that we experienced and the first quarter at fiscal 2021.
We also expect digitally delivered net bookings to decline by approximately 30% of.
Our forecast assumes that 80% of console game sales will be delivered digitally up from 71% and the same period last year.
We expect GAAP net revenue to range from $730 to $780 million and cost of goods sold to range from $277 million to $303 million operating expenses are expected to range from $316 million to $326 million at the midpoint. This represents an 18% increase over last year.
<unk>, driven primarily by higher personnel and stock compensation expenses and the inclusion of playback and GAAP net income is expected to range from $116 million to $129 million or $1 to $1 <unk> per share.
And closing fiscal 2021 that was a record year for our business and we believe that we can exceed these levels of financial results and establish new record levels of performance in the coming years, our pipeline is robust and we couldnt be more excited about our new releases and fiscal 2022 and beyond as we continue to enter.
Hence our business by investing in talent, including growing our development head count and building our infrastructure. We are positioning our company for long term growth and success and we expect to deliver sustainable profitable growth our shareholder. Thank you I'll now turn the call back this Jeff.
Thank you Randy we will now take your questions operator.
And at this time and we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star and two if you'd like to remove your question from the Q2 participants using speaker equipment and may be necessary to pick up your handset before.
Christmas and our keys.
One moment, please while we pull for questions.
Our first question is from.
<unk>, Inc. With Goldman Sachs. Please proceed with your question.
Hey, good afternoon. Thanks for the question I just have two first I was just wondering if you could offer some thoughts about opportunities you see and user generated content.
<unk> economy is la.
Low code and no good game development put simply with the success of platforms like roadblocks that pay independent developers do you see and opportunity for a summary of your games to go down that Avenue.
And then second.
Now that we have the release date for the expanded and enhanced version of <unk> five and GTA online I was just wondering if you could talk a little bit about whether or not you would expect us to usher in the next seven years cycle for GTA online content updates and our sales growth or is the scope more narrow than that thank you very much.
Thanks for your questions.
Youre right Theres, an awful lot of interesting things going on and the world of user generated content and there had been for some time and.
And we're open minded and we want to support the community at the same time.
And it's it's terribly important and that we and others protect our intellectual property. So that's the rub the Rob is to find a way to engage consumers on the one hand and enable them to express their interests and even their creative desires and the context of our properties and there are numerous ways to go about that and.
And I believe we will explore and many of those waves again and the context of protecting our intellectual property.
With regards to our Grand theft Auto and May shock you to learn that I am probably not going to comment much on on content to come from Rockstar games.
So grateful for the extraordinary results that we've had with all Rockstar titles and in fact, all titles coming from throughout the organization Grand Theft Auto online set another record this past fiscal year, we've sold and over 145 million units, we're very optimistic about what there is to come including more content and stay tuned because rockstar games.
And we're talking more about that and the future.
Great. Thank you for the thoughts for us.
And our next question is from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking my questions I have one on the full year guide and whatnot and GTA.
So the first one on the full year guide the bookings number.
And when I compare it to fiscal 19 and 20.
Is much higher and why you reported non-GAAP EPS guidance is well below those.
Outlets and $4. So just just hoping that you could help provide any additional color to kind of bridge the booking strength to the EPS guidance I know you mentioned.
And that's and creative talent, but any additional commentary would be helpful.
It's really what I said in my prepared remarks.
It's really coming from the operating expense increases and those are really being driven by our investment and marketing personnel and <unk>.
And specifically about 55% of the increase and the expenses is coming from increases in direct marketing for our titles. So we're really investing in marketing our new titles. This year and also marketing for our fiscal 'twenty three titles as well.
Okay. That's helpful. Thanks, and then just a clarification question on GTA.
Excited to play and enhanced version on November 11.
And just curious.
And the exclusion of the PC version simply means there is no additional purchase the play that version or is that just coming at a later date.
Okay.
And we haven't we haven't announced anything about.
Changed PC version.
Okay. Thanks.
And our next question is from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
Thanks, guys, maybe two quick ones.
On the private division outer worlds apparel, and Gorgon and came in February and switch and then myrtle and her and murder and Aaron.
And Domino's.
<unk> and the middle of March.
Consoles and PC its coming later and switch.
How are you feeling about and it released in.
Steve I think and in October.
So wondering how you're thinking of that particular franchise and in general how you feel about the breath and progress with other studios you have and in private label.
Obviously, we're incredibly pleased with our <unk> and everything that it is broad it was.
I say that it was complete surprise out of the gate, but it was certainly wasn't something pleasant for us.
And a little bit unexpected.
The the the.
And the downloadable content has been really very well received and we take the franchises and outstanding shape at this point and.
And we will be participating and the franchise and whatever the future holds for that franchise and so we feel really good about it and we think that it is still building audience and it still does game itself has a lot of life left in it.
And the future we will see what the future holds for it but we do think it's a it's a long term franchise and.
And it is certainly something that we're pleased with the results in terms of private division.
We really couldn't be more pleased with the way private division is growing as Strauss said, we've already had three titles that are sold and excess of 1 million units each.
Which is which is there which is unusual for independent releases.
We have a lot of titles and process, we've got one coming up this year with Ollie Ollie world.
There are a lot of other deals and the pipeline we've talked about some of them most of them, we have not talked about yet.
And there they are varied.
Scales different sizes different shapes different kinds of experiences, which makes it very amish. It makes it very exciting and that team is growing.
Not only from a creative talent perspective.
The other day and supportive Kerbal space program, but also from a marketing and publishing perspective. So we expect the best is yet to come from private Division and we love how we're positioned right now.
Awesome. Thanks Carl.
And our next question is from Matthew Thornton with <unk> Securities. Please proceed with your question.
Hey, good afternoon, Strauss Karl and Laney.
And the comment around sequential growth in fiscal 'twenty, three and the next few years and establishing new records I thought was pretty pretty interesting and sounded very confident for teens and I, usually think of as being pretty conservative. So I thought that was very interesting.
In that context can you talk a little bit how you were thinking about the pipeline given kind of other prolonged stay at home COVID-19 impact tight labor markets. I'm curious just to see how you think you are kind of progressing against those against those headwinds.
And secondly, and somewhat related.
So just curious your appetite around M&A at this point and just to $2 7 billion on the on the balance sheet. At this point, just how that opportunity landscape, maybe it looks now versus three or six or nine months ago and and then just finally, a quick one on console shortages or tightness. This year I'm, just kind of thinking about how impactful that what's your outlook for fiscal 'twenty two or orders.
We're not any color there would be great. Thanks, guys.
Yeah.
So thanks for your three questions in terms of how we're doing despite the pandemic broke the team has just performed so well we were very fortunate our it group had us fully prepared for a disaster.
And we could never predict depend but a week after.
We had to start working from home we were all set up remotely and we were highly productive and we stayed high reproductive ever since we have virtually no slippage. The only title that actually moved as a result of the pandemic was kerbal space program two which.
Which moved out of this fiscal year and we're super excited about that title and.
And it will becoming the rest of our.
Production stayed on target and the quality has been amazing as we've seen and our results. We are highly confident and our pipeline going forward as Carl said, though.
And the price that we pay for being as transparent about our future pipeline is that certain things will change and we hope that certain things will change to the good certain things and May also disappoint us at this point and time, we feel very good about the way our production is unfolding and we don't see any concerns on the horizon.
With regard to M&A our strategy remains the same.
We have a very strong balance sheet, we have the ability to to do everything from modest add on acquisitions. For example, we acquired HP studios to more substantial acquisitions, such as the acquisition of <unk> last calendar year and prior to the acquisition of social point.
And there's no secret.
And that we wish to bulk up our mobile offerings and where.
And certainly trying to do that organically with many titles coming from mobile from social point and played out and two K.
And at the same time, we are open minded with regard to acquisitions.
Our lens is pretty disciplined and.
The results of that discipline lenses that and 14 years, we haven't had one failed acquisition I'm sure. We've also missed some opportunities by being overly disciplined but on balance it's worked out well for us.
Our capital is used for three purposes, returning capital to our shareholders, which we've aggressively done over many years, although opportunistically supporting organic growth, which is our story around here and allowing us to pursue inorganic growth opportunities on a selective and disciplined basis and I think that will continue to be the case.
Finally, with regard to console shortages. If there is no doubt supply chains were disrupted and the pandemic. They still remain disrupted there is the chip shortage.
But it's sort of a good news bad news thing the day.
Bad News I suppose is that you can't get a console for longer money and good news is that people really want these new consoles, we had a limited selection of releases for Nexgen and.
<unk> 21, which was built from the ground up for Nexgen and borderlands three.
We have obviously, many more titles coming and the future. We think the supply shortages will be resolved and consumers will be able to.
And so by their dream console. So over time, we're not worried about it and it didn't really hurt us short term either.
And our next question is from Gerrick Johnson with BMO capital markets. Please proceed with your question.
Hey, good afternoon, and thank you I just wanted to dig into the marketing spend and a core a little bit more up 30% and it's the highest it's ever been and in the fourth quarter is really no major leases come and so.
And what comprised that and then a second question on the pipeline update.
And just to be clear immersive core versus mid corps et cetera can you just give US. An example of what a mid core game you have in your portfolio is now so we know how are you.
And what that would look like and the future. Thank you.
So from that marketing and Q4 and into next year, it's really to support the pipeline of titles that we talked about it's for our recurring consumer spending titles and also far titles going into next year. So.
We're looking at our head count and the apps.
And our need for our teams to really look at our pipeline and the future it's become more and more.
It's to have the right support around the current titles that are out and the titles because it's not just titles that are coming out and releasing there they're being supported all throughout their lifecycle now so it's a very different type of marketing than it was in the past, where we would just market unreleased now other titles are being marketed auto.
And our lifecycle and so youll, probably see higher marketing going forward.
Understood and that makes sense. Thank you.
And in terms of just sort of some examples around immersive core versus mid court would be I'll start with the mid corps and <unk>.
<unk> will be something like.
The WWE UK battlegrounds and would be would be a good example of a mid core game and.
In terms of immersive core that really is a little more varied, but we do look at it as games that have and highly engaging gameplay people will spend hours and hours and hours added at a time.
So these would be examples and things like obviously grand theft auto.
Net debt redemption, and borderlands, but also things like our strategy games from for access and also <unk> and <unk>.
And our sports simulations.
Perfect. Thanks Carl.
Okay.
Our next question is from Doug <unk> with Cowen and company. Please proceed with your question.
Hey, thanks.
Interesting if you look at switch gear should for Grand theft auto over the last several months and truly explore and it's now the most viewed game on Twitch and I think.
Factor two over league of legends.
Is this something that the Rockstar teams are and leaning into it all sort of sparked any disc.
Discussions about what what Grand theft auto online might become or thoughts about maybe the next iteration of it because it is a very interesting trend.
Thanks.
Yes. Unfortunately, the answer to the question implies information that we haven't provided and don't expect to provide anytime soon.
And that said, we're gratified by exactly where you talked about which is how popular grand theft auto is on Twitch. We think the torch platform is amazing and it's a reflection of the popularity of the title and <unk>.
Rockstar has said they'll continue to support Grand theft auto online with more content to come.
Okay. Thanks.
Our next question is from drew Crum with Stifel.
Please proceed with your question.
Okay. Thanks, Hey, guys good afternoon.
And I wondered if you'd be willing to discuss your expectations for the GTA five franchise and fiscal 'twenty. Two and then you typically see this is going to be the year that the declines and you're also lapping it looks to be about 50 million units of the full game, but you also have some new content.
Later in the year, so number of puts and takes there where does that net out.
And then separately Strauss you noted that you've added 700, new developers over the last year, you've turned from your investment and create talent for fiscal 'twenty two is significant.
And on organic basis should we assume and uptick in fiscal 'twenty, two and I know and in the past you guys have noted the scarcity of quality developers.
Does that dynamic change or is it changing where the labor markets more favorable and conducive to accelerating hiring or is it more where you are and your content cycle. Thanks.
Yes. Thank you for your question there is more content coming for Grand theft Auto online and at the same time as we have set and the past we do expect recurrent consumer spending to moderate and the year and we'll see how that unfolds and title has been around for a very long time and.
And at some time John.
Generally speaking there was moderation we've been so fortunate to have had another record year at this past year, but it was awfully unusual year.
And in terms of development capacity, we have been investing for years and our development capacity and both from.
Organic hires and also through acquisition and we fully expect that that will continue into the future and it is our plan we have it baked into our plan to bring on more developers and again, we have youre right labor markets do get they do tighten up.
These folks are highly sought after but we have a really strong track record of attracting and retaining the best talent and the industry and part of that reason is because we provide a creative environment, where these folks can flourish and then we compensate them well and success and we and we align that compensation with our shareholders and we think Thats a recipe.
That works really really well and people love coming to take to across all of our labels because that culture permeates the entire organization and so it is tough to hire and retain key talent, but that is what we do and that's the that's the most important strategic advantage and I think that we have as a company and that's where we focus.
Okay. Thanks, guys.
Okay.
Our next question is from Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my question I wanted to ask just about marketing a little bit and landing when you go back to one of your one of your earlier answers. So the first one is on now that you've brought on so many new users and the ecosystem and throughout shelter and I'd be curious to hear about learnings you've had and how you're going to a higher marketing efficiency from all the user data and ways.
And what you've actually expose more people to your brands and to your great games and the second one just to sort of go back to that comment you made about 55% of opex being tied to marketing more recurring marketing spend for the titles. So are you, saying that you think the marketing intensity for your games is actually going to go up going forward or are you more saying that youre <unk>.
Pending ahead of new releases to kind of bring new users and what are you sort of intimating about higher spend even with older games.
So I'll take the first part you are right there are a ton and more users and our ecosystem and that just and not only just a number of users, but they're more engaged. So every time somebody is engagement with one of our games, we've got more data points and.
And the more data points that we have the more information that we that we have to know what consumers want when they want it and what kind of offers are going to make sense for them.
To make sure that we give the consumer exactly what they are looking for so the bigger that database and the stronger data analytics capabilities get and we've invested significantly in those kinds of and those kinds of resources not just tech, but also human beings and people, who really data scientists, who know how to analyze this data and and in my opinion we're.
And we're just scratching the surface.
And we're pretty good at it but I think theres a lot of room for us to get a lot better.
And the bigger that database gets and the more information, we get and the more reinvest it has just been.
Returning our investment tenfold, so we'd expect that to continue this year and well into the future.
And when it comes to what I was saying about the 55% of the increase of the Opex. This year was for direct marketing and that's because we have a lot of new releases and the CR. So and we have new releases, we tend to have and they campaigns around the newer releases. So since we have more and new releases this year and.
That's why we would have more marketing this year and our marketing is very efficient and around our titles and we also have a lot of marketing around our mobile titles. So we have a big and.
And portfolio of mobile titles, as well and Marvel titles coming out. So that's also have been driving our marketing spend as well.
Perfect. Thank you and New Orleans and mobile thank you very much for that.
Our next question is from Eric Handler with <unk> and partners. Please proceed with your question.
Good afternoon, and thank you for the question I wondered if you could drill down on your mobile business a little bit.
Since it is the fastest growing.
Segment within the <unk> space.
And I'm curious is all your mobile development currently within.
Played out from social point or you have Steve.
Studios within Rockstar and <unk> and we're also working on the mobile on their own mobile games.
We have work going on throughout the organization, obviously, social point and play darts are dedicated to.
Mobile experiences both mid core and casual and we have some mobile titles and <unk> as well in fact one of them.
And one of our biggest titles as their WWE Super card and.
And we have ongoing development throughout some of which has announced some of which is and has not yet.
Okay.
Okay, and just as a follow up.
The term.
Net averse has been used a lot.
And the last.
Three to five months or so and when you think about all of the people that are playing GTA online and GTA five.
But also red dead online.
How are you thinking.
Five years, plus down the road and sort of aggregating this pool of players and thinking about how you can.
A bigger type of platform experience for them.
We're going to create bigger experiences by encouraging our creative folks there's always to pursue their passions and to always think of that saying that no. One thought of before which is why our strategies and review the most creative the most innovative and the most efficient company and the entertainment business.
And I'm always allergic to buzzwords.
The buzzword of virtual reality didn't get percentage street very far.
Ah Hasnt really improve matters, either three D hasnt really done much for us.
What moves the dial and our business is amazing creativity.
Great characters, great stories, great graphics, great gameplay, and the ability to to to enjoy those experiences with other people all around the world and that's what really matters.
I think with the meta versus implies what we already do with Grand theft Auto online and with Red Dead online and what we do with NBA through K and what we aim to do with some upcoming titles and opportunity to exist and that fictional world and express yourself and ways that are challenging fun competitive and new.
And and.
And find ourselves.
And places doing things and we can't really do usually and the real world I think that's what it means I think when you get into conversations around are people are going to do conference calls and titles. While the answer is they can now, but who were not do I like we could I guess do this conference call and so I have one of our titles, but it's a bit more efficient to do it this way.
So.
And the problem I have is that if you sort of take.
Meta versus back and crypto currency and put them all together and five years will any of this matter I am not sure it will.
Thanks Jess.
And just as a reminder, we actually and everyone is asking the questions and please limit themselves to only one question just for time purposes and.
And our next question is with Benjamin Black with Evercore ISI. Please proceed with your question.
Great. Thank you for the question I just have one on Apple arcade curious to hear your takeaways. So far on the MBA <unk> 21, and it has it had positive implications for our Gainesville elsewhere and other platforms.
And I know you, obviously support many platforms, but how would you sort of frame the opportunity set for a potential new publishing more games and market. Thank you.
Yes, as I said in my remarks, we're very happy how MBA is doing on Apple arcade is the most popular game on and on the surface right now.
You can't ask for anything more than that.
It's still pretty early ultimately so is it having a huge impact on selling games across other platforms hard to tell at this point do we think that that certainly is a possibility I think absolutely because anytime you get people exposed to the game through new platforms and a platform where they otherwise may not have exposure to it that's a positive thing from a marketing perspective, so stay tuned on that.
Thank you.
Our next question is with Steven Ju with Credit Suisse. Please proceed with your question.
Okay. Thank you so Strauss I think.
And <unk> say that I think the go forward guidance parameters Vic and I think 80% of sales of gains I think coming from downloads. So.
And now that brick and mortar retail has completely day index.
As a relative contributor to your business over the last sort of console cycle, alright, and I remember when it was a dream to have it be greater than 50% and match, where the PC industry as you know.
It is today and towards the mix. So do you think this opens up the possibility for you to be more experimental with your pricing.
Particularly for those titles outside the core Rockstar and the <unk> property.
Especially as you think about expanding opportunity potential audience, particularly now that there is really a greater ability to monetize those users.
With recurrent consumer spend.
I think it's a really excellent point and I.
Thank you right. There there is a bit more flexibility when you can move quickly and you don't have to worry about stock that you shipped and ore price protection for example.
Which can be costly.
<unk>.
Undoubtedly we can move more with more agility and promote.
<unk>, so I think theres, a benefit but of course.
That benefit is swamped by the simple benefit that our margins are much higher with regard to digital distribution and physical.
That's the big difference and I think the other difference, which we haven't really talked about and there was obviously something that's going on and the market right. Now is we expect that the cost of distribution will decline and for any number of reasons and that also will go directly to the bottom line.
Thank you.
Our next question is with Andrew Merrick Lee Raymond James. Please proceed with your question.
Hi, Thanks for taking my question, so with another great quarter, and NBA to Kay and the fourth quarter and as the pandemic engagement surge starts to level out a bit and pardon me for mixing my sports metaphors here, but what inning are we and for monetization of the existing NBA player base and how much of the franchise's growth comes from audience expansion. Thanks.
And thanks for the question, we get that question a lot and it's tough to answer because every time I perspective seems to change.
And my answer is I feel like we're in the early innings and I'm not going to give you an exact inning, we're certainly not in the Senate and sending stretch and run out and the first ending it somewhere in between.
But I do think like I mentioned before our analytics capabilities are getting much more.
And much more sophisticated and not to mentioned we do have.
We have a lot of boats and our NBA game, and we have different ways for people to engage and therefore, we have different wafer to monetize and those modes and.
And just getting people to play more deeply engaged and the game and play across those modes and Theres a lot of opportunity right there in and of itself and so we're not stuck to one type of monetization for card packs et cetera like that we've got a we've got a lot of a lot of other opportunities. So that and also the fact that we still got a long way to go in terms of mastering the.
And our analytics capability makes me believe we're pretty early.
Got it thank you.
And our next question is from Mike Hickey with the Benchmark Company. Please proceed with your question.
And Strauss Karl and.
And Nicole Thanks for taking my question guys and congratulations on a great quarter.
Strauss, just curious may be sensitive but.
But.
Wondering your view on sort of assets.
Apple live debate on revenue share.
And if you think that.
This could encourage maybe structural to the digital stores mobile and console.
Net revenue share and competition similar to what we've seen M D C.
Yes, I think I alluded to that and my last remark.
Mike So I think.
And we're on the same wavelength.
I do believe that distribution costs will decline of course, I cannot opine specifically on that action.
Because I don't have any particular insight however between.
Regulatory authorities investigations and privacy concerns.
Clearly take rates are being examined.
But at the end of the day, it's the economy, the government and we are and a broadly competitive distribution environment and the goal of this organization has always been and remains be where the consumer is which means we will employ a broad array of distribution platforms, including our own direct to consumer platform and what that means over time.
And because it's going to be hard to have.
Take rate for distributors that is economically too high and that leads to an unstable system and thats what youre seeing now in my opinion I think this will be resolved relatively soon and it will be resolved and a favorable way and I think that take rates will decline meaningfully and that will of course benefit us it's not many of our guidance.
But it is and my expectations of course, we don't organize the company around my expectations, but you asked my opinion and so our share there.
Alright, Thanks, guys. Good luck.
And we have reached the end of the question and answer session and I'll now turn the call over to chairman and CEO Strauss Zelnick for closing remarks.
First of all I want to thank all of our colleagues all around the world nearly 7000 people.
For these amazing results.
Imagine if you will the extraordinary work and commitment and it has taken to deliver and these difficult times and.
And our team has just been stellar and has been smiling and the whole time, despite the challenges and the probation and in certain instances personal tragedies as well, which I know many of you have had also.
So thank you from from the bottom of our collective Hearts and the same time, we're so optimistic going forward and we're in a better place than we've ever been and before and we're in a pretty good place now.
We're incredibly excited about the upcoming products, we work and an organization, where we love to show up every day.
And we're blessed to be able to do so through from.
Colleagues all around the world.
Thank you to our colleagues thank you to our shareholders for your support.
And thank you all for joining us today.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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Yes.
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