Q1 2022 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to the take 2 Q1 fiscal year 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
The new 1 should require operator assistance during the conference. Please press the star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Nicole Chevron's Senior Vice President of Investor Relations and corporate Communications. Please go ahead.
Good afternoon. Thank you for joining our conference call to discuss the results for the first quarter of fiscal year 'twenty 'twenty, 2 and the June 30th of 'twenty 'twenty..1 to the is Paul would be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl laid off of our President and then the Goldstein, our Chief Financial Officer will be available to answer your questions during the <unk>.
Q&A session. Following our prepared remarks before we begin I'd like to remind everyone that statements made during this call that are not historical facts are considered forward looking statements interest federal securities laws. These forward looking statements are based on the belief of the management as well as the assumptions made by and information currently available cash we have no obligations housekeeping sorry about the state.
Yeah.
Actual operating results may vary significantly from the forward looking statements based on the variety of factors the support.
These 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 that.
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.
The press release also contains the reconciliation of any non-GAAP financial measures to the most comparable GAAP measure. In addition, we have posted to our website slide deck that visually presents our results the financial outlook, our press release and filings with SEC, Inc.
From our website I think 2 games dot com and now I'll turn the call from Jeff. Thanks, Nicole Good afternoon, and thank you for joining us today.
I'm pleased to report the fiscal year 2022 is off to a great start.
Highlighted by first quarter, net bookings of $711 million, which exceeded our expectations.
As the World has moved towards the safer new normal we experienced strong engagement trends across most of our core franchises.
During the period, we took multiple steps to enhance our organization over the long term.
We invested further in talent and core infrastructure, which are important areas to support our expanse of multiyear pipeline.
Mobile remains a key growth opportunity and we believe that our acquisition of Nordea will enhance meaningfully our talents and expertise in this area.
With the larger mobile footprint, we've integrated social point played at the Nordea since T..2 mobile games. This structure will enable us to realize cost synergies leverage expertise and share best practices across our mobile teams.
I'm also proud of we deepened our focus on corporate responsibility and we've recently made several key hires to lead our efforts regarding diversity equity and inclusion.
Turning to our first quarter results are better than expected performance was primarily driven by Grand theft Auto online and Grand theft Auto 5 Red dead redemption, 2 and Red dead online and borderlands 3.
For nearly 8 years Grand theft auto of 5 and Grand theft Auto online have redefined the creative and cultural influence of interactive entertainment.
Setting new standards for multiple generations of consumers and gaming platforms sales.
Sales of Grand theft auto of 5 were significantly above our expectations. Once again and the title has now sold in more than 150 million units.
Rockstar games continues to keep its massive player base engaged with new content updates for Grand theft auto online, including 8 new stock races, 7 new arena for deadline mode, and regular Inc game bonuses and incentives.
This helped drive the title to its second highest first quarter on record for player audience and a third consecutive quarter of player growth.
In comparison to the first quarter of fiscal 'twenty 'twenty of Grand Theft Auto online achieved a 72% increase in its audience size of <unk>.
77% increase of new players and significant growth in recurring consumer spending.
In addition, Rockstar games continue to captivate and engage audiences with Red dead redemption, 2 which exceeded our expectations and the vast holding more than 38 million units Red dead online also enjoyed a strong quarter, thanks to new content offerings, including 8 new horse races, and of creative array of bonuses and incentives.
The game experienced strong performance as compared to the first quarter of fiscal 2020, including a tempering of growth in its audience is 26% growth of new players and outstanding growth in recurring consumer spending.
This performance was driven by both strong ongoing game sales and the continued influx of new players from the Standalone version of Red Dead online.
Turning to our sports offerings NVA to K 21 has sold in over 11 million units and remains the number 1 sports title in the U S and the age of case community continues to be highly engaged with more than $2.7 million users playing daily.
As compared to last year, the game experienced 13% growth in the first time spenders of nearly 30% growth in returning players.
We see a significant opportunity to grow the franchise further over the next few years as we provide unique and innovative experiences throughout the game.
Okay.
PGA tour to K 21 continues to exceed our expectations and expand its audience in June 2 K and Hp's Studios launched the community driven program that allows the top golf course designers from around the world to create and sustain the ideas for inclusion in the games online playlist. This program is enhancing the game's vast replayability.
Alrighty, while also driving player engagement and growing its global community.
Borderlands 3 had a strong quarter during the period to K and gearbox software released the director's cut out on providing new missions characters daily and weekly challenges and unique rewards. The game was also supported with an array of new free content offerings. The cave players more ways to perfect and expand their arsenals.
2 K and for access games launched Sid Meier's civilization, 6 anthology I'm Windows P C providing the ultimate package for players that have yet to experience the award winning critically acclaimed strategy title the.
Of the anthology includes the base game, all previously released TLC the <unk>.
Rise and fall and gathering storm expansions as well as the popular new frontier pass civilization, Texas all of them more than 11 million units outperforming its predecessor at the same point that's why cycle.
Later this year to Kane for access games will celebrate the 30th the anniversary of the civilization franchise and I'd like to congratulate our teams on this incredible milestone.
Kerbal space program, which are sold in over 5 million units celebrated its 10 year anniversary in June to Mark the milestone private division released of short documentary video detailing the achievements of the title as well as its impact on the aerospace industry.
Yeah.
1 of our key strategic priorities is to provide new and innovative ways for audiences to stay engaged with our titles in the communities built around them. After their initial launch during the first quarter recurrent consumer spending declined 25%, which was better than our expectations of of 30% decline.
And accounted for 69% of net bookings.
Overall, all evidence suggests the media consumption patterns are beginning to stabilize to a new normal.
And while down from the highs of the previous year recurring consumer spending in our products has leveled off and remains significantly higher than the first quarter of fiscal 2020.
The largest contributors to recurrent consumer spending in the period, where NBA to K and Grand theft Auto online. We also experienced strong performance across many of our free to play offerings.
<unk> and Dragon city exceeded our expectations with sequential topline growth compared to the fourth quarter of fiscal 2021. This performance was driven by strong live ops successful feature releases and significant marketing investments.
The <unk> celebrated its seventh anniversary in June the title performed well with positive momentum continuing from the second half of fiscal 2021.
WWE Supercars of has now been downloaded over 24 million times and remains <unk> highest grossing mobile title. The franchises had strong performance with the last 12 months, marking its sixth consecutive year of growth.
Following our acquisition of <unk>, we're encouraged by the performance of and the potential for top 11, including its use of seasonal live ops and new features.
NBA 2 can line of China outperformed our expectations. The title remains the number 1 online PC sports game in the region with nearly $54 million of registered users.
Turning to our outlook, we are reiterating our prior guidance of 3.2 to $3.3 billion of net bookings for fiscal 2022.
As we continue to develop our pipeline there's been movement in some of our planned releases, including 2 of our of more sort of core title of shifting to later in fiscal 2022 than our prior guidance had contemplated.
Our approach has always been to allow our labels to determine when projects are ready to bring to market to ensure the best quality and overall experience for players.
As Carl will discuss in greater detail, we're excited about our pipeline and the impact of our new releases will have on our business and financial profile in the years to come.
We believe the will achieve sequential growth in fiscal 2023, and establish new record levels of operating results over the next few years.
Looking ahead, we remain highly optimistic about the future of the interactive entertainment sector and our competitive positioning.
As we leverage our many advantages are leading talent focus on creativity incredible portfolio of of owned IP and strong balance sheet. We believe the take 2 is well positioned to drive long term growth and shareholder value I will now turn the call over to Carl.
Thanks Ross.
I'd like to thank our teams of our strong start to the year and their continued dedication to our business the.
We continue to believe that fiscal year 2022 will be a year of investments as marked by our recent acquisitions of new ideas and dynamics. We are thrilled to have both teams joined our family and we will continue to evaluate organic and inorganic opportunities to enhance our organization.
I will now discuss our recent releases.
Rockstar games continues to provide an array of free content for the vast and growing online communities.
In June Rockstar released 7 new arena for the fan favorite deadline of mode for Grand Theft Auto online.
This was followed by the low Santos tuners update the game's major summer launch in July which delivered an action packed street racing themed update into Grand theft Auto online the.
The update introduce elements of the tuner car culture to the game world, including the Alice Carmy of new heavily requested shared social space for players to get together to modify the personal vehicles lots of others modify their tuner vehicles in real time race and test various vehicles on the underground test track and much more.
In addition, the Los Santos Tuners update features 6 epic new robbery contract 6 new res types of 10, new highly customizable vehicles collectible USB sticks offering of new way to hear music from Moody man and set troxler and host of quality of life updates, including a new customizable radio station.
The launch of the Los Angeles Tuners set new records for Grand Theft Auto online, including the largest number of players and the highest level of net bookings for both day, 1 and during the opening week for any update and Grand theft Auto online history.
Looking ahead and the upcoming launch of the expanded and enhanced versions of Grand theft Auto online or Playstation 5 and Xbox series X and S systems. This November will allow for higher top speeds for select vehicles across the us more powerful systems.
And July Rockstar games released the blood the money update for Red dead online the <unk>.
Update introduced a series of criminal themed opportunities complex new missions, including the game's first train robbery and the quick drop off a series of 4 distinct rapid fire passes featuring criminal themed unlockable rewards bonuses edmar.
Blood money success, along with the additional influx of new players. Thanks to the launch of the Standalone version of Red Dead online led to the highest number of players on day, 1 for any update and Red dead online is history.
2022 is an exciting year for take 2 as we embark on our multi year strategy to deliver state of slate of releases more robust than any other time in our company's history.
While there has been some movement in our pipelines, including 2 of our immersive core title is shifting to later this fiscal year, we remain highly optimistic about our plans, including the introduction of several new franchises.
I'll now discuss details on our upcoming announced offerings for this year.
On August 13th Private Division will launch Haiti's on physical desk for Playstation and Xbox consoles developed by Super Giant games, Haiti, and the road like Dungeon crawler in which players seek freedom by battling the way through the treacherous underworld of greatness.
The physical retail edition will come with additional items for collectors, including the compendium booklet featuring the art.
Excuse me of the game and of code to download of soundtrack.
We are excited to launch <unk>, which previously won over 50 of game of the year Awards and earn impressive aggregate scores of 93, and 94 unmet of credit and open credit respectively.
In addition, during the second quarter of private Division will launch of murder on the <unk>. The second add on content offering for the outer worlds for the Nintendo switch.
On September 10th GKN visual concepts will once again set the standard for basketball stimulations and they've done as they've done for the past 20 years with the launch of NBA, <unk> 22 from Playstation and Xbox consoles switch and PC.
Featuring best in class visual presentation and player AI, our store teams and a wide variety of troops experiences and the <unk> 20 to replace the entire basketball universe in the players' hands.
Global phenomenon in 2 time NBA all star, our all Star Luka, <unk> well, great graced the cover of the standard edition and cross Gen digital bundle, while NBA legend, Kareem Abdul Jabbar, Dirk Nowitzki and Kevin to ramp will be featured on the premium NBA 75th anniversary edition.
In North America players can purchase of special version of the standard edition, featuring 6 time W. NBA, All star and WNBA champion, Kansas Parker on the cover available exclusively to the Gamestop and EBV games.
Parker's apparent is the milestone for the MBA true case series.
And Japan players can also purchase of special version of the standard edition that will feature Washington, Wizards really Hot Tomorrow of rising Star who is the first Japanese player to not only be drafted in the first round in 2019, but also to reach the NBA playoffs.
The MBA 75th anniversary edition and cross Gen Digital bundle bundle will feature cover artwork painted by renowned Atlanta based artist Charlie Palmer, who civil rights series of appeared on the cover of time magazine in July 2020.
This fall private division will introduce Kerbal space program enhanced edition for Playstation 5 and Xbox series X MFS the title of the benefit from multiple hardware advancements.
The provide upgraded resolution increased frame rate advance shatters better textures and additional performance improvements.
Players, who already own Kerbal space program enhanced edition for Jennie consoles will be eligible for a free upgrade to the new version of the game upon its release.
On November 11th Rockstar games will launch the expanded and enhanced version of Grand theft Auto of 5 congrats theft auto online Standalone for Gen 9 consoles.
Rockstar games will have more details to share about the eagerly anticipated launches in the coming months.
This winter private division will release role of 7 Ali Holywell digitally from Playstation and Xbox consoles, Nintendo switch and PC.
The title has received outstanding initial feedback from early media impressions, including praise for the bold new direction unique artstyle standout soundtrack and improve gameplay mechanics.
During the fourth quarter, 2 can gearbox software will launch an exciting new franchise tiny Tina's Wonderland is an epic adventure full of whimsy Wonder and high powered revenue set in an unpredictable of fantasy of World, where magic broad sword and bullets collide.
It is an entirely new game and a full standalone experience with a rich story, driven collab campaigns of up to 4 players as well as repeatable and game content.
In addition later this month to K will unveil unveil details of another exciting new franchise planned for launch during this fiscal year.
During fiscal 2020, 'twenty 'twenty, 2 WWE Teekay 20, kilo Mark the rebirth of our popular Wrestling series. We are very excited about the teams fresh approach to the franchise, including an array of enhancements and new features.
Teekay and visual concepts of share and a series of behind the scenes videos of their work on WWE <unk>, 'twenty, 2 including entrants and move animation as well as motion capture and facial scanning with much more to come.
Turning to mobile we are pleased to expand our offerings, especially given the strong momentum in this market segment players.
Players can look forward to new releases this year, which our teams will have more to share about in the coming months.
In addition, our labels continue to invest in technology and new games that they plan to deliver during the next few years.
Yes.
Turning to esports the MBA <unk> kicked off its fourth season on May 19th that will include on September 4 that will conclude on September 4th.
Where the league final was delivered by door dash.
This season games have been airing live on the league Twitch and Youtube channels and are also available on Atg network in Southeast Asia, Es Revolution Loco in India Sport, 1 in Europe and Dash radio.
The lead continues to grow its audience with more than 2 million followers on social media platforms, and nearly 470 million video views.
We are excited about the league's recent announcements that it's 2021 playoffs will take place of the mass gaming hub in Dallas, marking the first time that in person games will be offered since 2019 MBA 2 K League finals in New York City.
Looking ahead, we believe that the MBA to kaley and the long term potential to enhance engagement and to be driver of profit for our company.
In closing we are optimistic about the multiyear growth trajectory ahead of US we are positioning our business for growth and enhancing our enterprise by investing in talent and infrastructure with a robust pipeline of titles and content updates. We are confident that we can establish new record levels of operating performance over the next several years I'll now turn the call over to Lanny.
Thanks, Karl and good afternoon, everyone today, I'll discuss our first quite of bit of reveal our financial outlook for the second quarter and fiscal year 2022. Please note that additional details regarding our actual results and outlook are contained in our press release as Jos mentioned fiscal 2022 is the after a strong start with our first quarter of.
Operating results exceeding our expectations.
Net bookings of $711 million.
This was above our guidance of $625.675 million.
And marked our second highest Q1 on record our outperformance is primarily driven by Grand theft auto online, but the data 5 bad debt redemption, Kale and med debt online and borderlands 3.
During the period overall engagement exceeded our expectation the current consumer spending declined 25% as compared to our outlook of the 30% decline and accounted for 59% of total net booking our outperformance was primarily driven by of Grand theft out of online as well as the addition of Nordea.
It's really deliver net bookings declined 26% as compared to our outlet of of 30% decline and the accounted for 96% of the total. This result was better than our outlook, primarily due to the outperformance of our current consumer spending.
During the quarter, 78% of console game sales, we delivered digitally up from 71% last year.
GAAP net revenue declined 2% to $813 million, while consequent salt decreased 31% to $330 million.
Operating expenses increased by 15% to $313 million primarily.
Primarily driven by higher personnel and stock compensation expenses and so all of the addition of played out in the audience.
And GAAP net income of $152 million of $1.30 per share as compared to $89 million or 77 per share in the first quarter last year.
We ended the quarter with over $2.5 billion of cash and short term investments.
Turning to our guidance I'll begin with our full fiscal year expectation as Jeff mentioned, we are reiterating our net bookings outlook range of $3.2 to $3.3 billion.
Our first quarter results outperformed our expectations and our acquisition of million of benefit the year. This is being offset by some changes to our release schedule, including moving 2 of our immersive quartile of the later in fiscal 2022 and our prior guidance had contemplated we continued to be very excited about our pipeline and the net sales.
The growth that it presents of our company.
The largest contributors to net bookings are expected to the MBA teekay Grand theft out of online and grant identified Red dead redemption, 2 and Red dead online as well as some of our newer releases that are yet to be announced we expect the net bookings breakdown from our labels to be roughly 55% T K, 35% Rockstar games and 10% private division.
T mobile game.
The forecast the geographic net bookings to be about 60%, United States and 40% International.
At the results of our outperformance in Q1 as well as the addition of Nordea, we now expect recurring consumer spending to decline by 9%.
Compared to our prior outlook of the 15% decline in fiscal 2021.
As the percentage of net bookings the current consumer spending is expected to be relatively flat versus last year and represented 65% of total net bookings.
We now project digitally delivered net bookings to decrease by approximately 6% as compared to our prior outlook of an 8% decline as.
The percentage of our business digital is projected to represent 90% slightly above the 89% last year.
Our forecast assumes that 74% of console games out of the 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 of $170 million the capital expenditure.
The increase of our prior guidance relates to the acquisition of 2 office buildings in the U K is part of our business in the region.
We continue to expect GAAP.
GAAP net revenue to range from $3.4 to $3.4 billion.
We now expect cockpit sorts of rain the 1.4 to 144 billion.
Total operating expenses are expected to range from $1.48 to $1.5 billion representing.
Representing at the midpoint of 23% increase over the prior year. This increase reflects significant investment and marketing personnel stock compensation and it expanded doing our expansive multiyear pipelines market as well as the incremental expenses due to the addition of <unk> and a full year of play that.
We expect GAAP net income to range from $229 million to $259 million of $1.95 to $2.20 per share.
The management of appointing purposes, we expect our tax rate to be 16% throughout fiscal 2022.
Now moving to our guidance for the fiscal second quarter, We project net bookings to range from $815 million to $865 million as compared to 900 of $58 million in the second quarter of last year. Our guidance reflects the continued challenging comparisons from last year did of COVID-19.
Just contributors to net bookings are expected to the NBA <unk> Grand theft auto online and Grand theft Auto side Red Dead redemption tail end of Red Dead online Dragon City tap of 11, and 2 that we project for the current consumer spending to decline by approximately 11% and digitally delivered net bookings to decline by approximately 5% of fork.
<unk> assumes that 65% of console games out will be delivered digitally up from 57% last year.
We expect GAAP net revenue to range from $740.790 million and cost of goods sold arrangement that we entered in 2003 the $349 million.
Operating expenses are expected to range from $368 million to $378 million at the midpoint. This represents the 27% increase over last year, driven primarily by higher marketing personnel.
And research and development costs as all of the inclusion of play that annuity.
And GAAP net income is expected to range from 41% to $53 million or <unk> 35 to 45 per share and closing our first quarter results demonstrate the health of our business and the incredible execution from our talented colleagues across the world.
The capitalized on an industry strong talent combined with our unique business drivers, we believe that our company will deliver significant long term growth and margin expansion of our shareholder. Thank you I'll now turn the call back of the shaft.
Thanks, Lenny and Karl on behalf of our entire management team I'd like to thank our colleagues for delivering a strong start to the year and 2 of our shareholders I'd like to express our appreciation for your continued support we will now be happy to take your questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star 2 if you would like to remove your question from the queue for participants using speaker equipment.
It may be necessary to pick up of your handset before pressing the star keys, 1 moment, please while we poll for questions.
Your first question comes from the line of Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking the questions too.
So being the first of the major video game Publishers to report earnings this quarter volume.
To hear your thoughts regarding the recent developments within the industry on gender inequality.
He could share take 2 stance on this issue and if theres anything you can share in terms of impact or change that is expected to be within the company will be greatly appreciate it.
Thanks for the question.
Look our most important asset here is our people because they create everything that we're able to bring to consumers.
Where the asset light business, we are of business of intellectual property and our strategy. Our stated strategy has always been to be the most creative of the most innovative and the most efficient company in the business.
The diversity is key to our success, we need to have a diverse perspective and diverse voices in order to in order to create that quality. So it starts at the top our board of directors is diverse with respect to gender race and skill set of.
Our management team is exceedingly diverse from a gender perspective.
And our voices as a result of our diverse but we're not stopping there. We're also reaching into the community to create.
A broader more diverse pool from which we can recruit and our competitors can Richard going forward. So we worked together and company sponsored service projects in the communities in which we operate we encourage individual volunteerism and giving through our philanthropic and matching donation programs, we support organizations debt.
Our focused on enhancing diversity.
We are increase the candidate pool through scholarships to design students contributions to organizations, providing stem opportunities to children in underserved communities and delivering interview training of career counseling to young adults and this crosses genders, but in many instances. We're also focused on.
Young females as well so we're trying to do the right thing from the top of the company at the board level to the management team to even creating a pool from which we can recruit.
Along time into the future and even so I'm sure there's much more that we can do.
Great. Thanks, Josh.
The hearing and just 1 question for rainy.
The COVID-19 impacts and non recurrent consumer spending in the quarter.
With Harrington with consumer spending declines, 25% versus your guide of down Dirty wishes of smaller beat the unusual.
So given that fiscal <unk> was the first full quarter of copy of sheltering in place last year can you give us a little bit more color in terms of of how user engagement trended throughout the quarter.
The things get better or worse.
Any additional color would be helpful. Thanks.
Semi and definitely in line with what our expectations for the little bit better we saw better performance in the GTA online than we expected. We also had the addition of new Rds, which also helped our current consumer spending in the quarter and so it is definitely are seeing the engagement and alignment lovely.
<unk> and <unk>.
There really isn't any change than what we had guided tail from the beginning of the year.
Okay. Thanks, Tony.
Your next question comes from the line of Mike <unk> with Goldman Sachs. Please proceed with your question.
Great. Thanks for the question I also just have 2 first can you just talk a little bit about how the <unk>.
The success of GTA 5 in GTA online and forms.
Your interest or sorry of the interest levels from GE to enhance physician and how that could perform and then second just as the housekeeping item I was just wondering if your.
Going to provide the actual growth numbers for GTA online and Red dead online in the quarter.
And also your assumptions at least directionally for those businesses in the.
The September quarter guidance for Rcs. Thank you.
Thanks, Mike in terms of our expectations about any upcoming release.
Apart from what we've given guidance I don't tend to give any more color than that.
Grand Theft auto 5 and Grand theft auto online have.
Been out now for some 8 years.
And the performance has consistently been vastly better than our expectations.
I have no doubt that the enhanced edition will delight consumers I have no doubt that digital will be absolutely extraordinary how it will perform hard to say this is now the third generation in which the title has existed.
I'm, an optimist and I find that you never want to bet against Rockstar games. So I'm looking forward to the release and Lanny will take the second question.
So for GTA online in Q2 of our expectations are parts of the App in the quarter due to the update that has just released and we didn't have an update last year.
Difficult comp because of Covid, but since we had this update we expect it to be up versus last year and down for Red dead online ticket the difficult comp, we expect it to be slightly up but due to the update but not as of the GTA online versus last year.
Great. Thanks Strauss Thanks Lenny.
Your next question comes from the line of Matthew Thornton with Truest Securities. Please proceed with your question.
Hey, good afternoon Strauss Collyn Laney, maybe 2 quick ones.
First just on the delays you called out the 2 immersive core titles it sounded like maybe there might be some other stuff as well I'm just curious if there's any slippage without getting into specifics around some of the other new mobile titles or or extensions kind of plan for the year.
Any color there and then just secondly, I think you just talked a little bit about kind of engagement trends given the the pandemic normalization of it sounds like things are trending kind of as you thought 3 months ago I want to put words in your mouth, but I think that's the the interpretation there the other change in the corner was obviously around the Apple.
AT&T change of the idea of fee changes and the impact on the mobile side of the business I'm just curious on the mobile side of the business have you saw any.
Any impact there or I guess, how that tracked relative to your expectation of when we all sat here 3 months ago. Thanks, So any color there would be great. Thanks, guys.
Thanks Matthew.
We don't have any other expectations of delays so.
We've got we've mentioned, where we have as we always do in terms of how things are trending post pandemic. If you. If you call. This post pandemic and I hope we can remains to be seen the trend is almost exactly what we anticipated and what we've talked about now for over a year, which is we expected post pandemic demand to be higher than pre pandemic demand and.
The lower than the demand during the pandemic, which stands to reason because people have in many ways of returned to normal in most of the world.
That remains to be seen as to what will come in the future I'm hopeful that that will continue.
But clearly there's been the systemic shift in favor of interactive entertainment and it's now the number 1 entertainment vertical it's something like $180 billion market. It's a diverse market in terms of gender, it's a diverse market in terms of age.
So we couldnt be more optimistic about the market than we are.
And in terms of <unk>, it's still early days it remains to be seen we have not seen any negative impact on our business and I think that's really because we're big enough that we have lots of access to data we have a consolidated consumer database across all of our labels, which is very robust and if you have enough of your own.
Data and you have a solid.
Solid data analytics teams, which we have both of the corporate level and at the label level than a great deal of the information can.
It can be found in other ways and you can do appropriate marketing the protect consumers' privacy.
Without.
Without the resources that we had before from from Apple. So we're in a good place so far with regard to that change.
But it is still early.
Your next question comes from the line of Ann.
Drew <unk> with Jefferies. Please proceed with your question.
Hey, Thank you I just have 2 quick ones first of all of the thanks for Laney.
Could you on the on.
On the increased marketing spend is the delay.
The fact that.
Affect the way you're going to go to market with these titles.
And then secondly.
Has the return on marketing spend changed over the last several years has it gotten better or gotten worse any color there to kind of.
On how marketing is affected gain sales would be would be useful. Thank you.
So the increase in the marketing hasn't really changed.
A little bit of event timing changed from Q1 into the rest of the year and Theres a little bit of shift out of the year into next year, but that's being offset by some additional cost due to the acquisition of <unk> into the year.
So there is a little bit of an increase of the overall operating expense in the year versus previous guidance says the reduction of a little bit of marketing offset by the Nordea Essex Bank.
And in terms of the return on marketing spend I wouldn't say there is better or worse I would say that we're a little bit more targeted on how we're spending our marketing. So I would say we are getting a better return because we're able to really see how we're spending the marketing in a better way with better analytics of the last few years, but the spend continues to be a strong spend in R&D.
Did the best marketing for our titles, especially also with the mobile titles as well.
Got it thank you.
And then Charles I, just wanted to go back to the first question a bit.
<unk> had some of the issues that popped up as other other competitors, maybe you guys kind of rethink.
Some of your policies procedures, and then kind of along those lines.
Employee turnover is already.
Because of the history of low turnover because people enjoy working at take 2 is that still the case as turnover still pretty low.
Thanks for the question.
Look, let's just positive.
Inclusion diversity.
And the common decency is of Paramount importance to everyone here.
Specifically highly important to me and has been for the 14 years of we've been around this is nothing new for us.
The culture of the company is well known and the well known internally and reasonably well known externally all of that said, we can always do better and I think when we're known to be people, who will always want to be.
Doing better than ever 1 of our rests on our laurels.
We don't think that fostering an appropriate environment is the single set of actions or reflects.
1.1 day and the new cycle, we think it's a constant process of introspection and improvement there are always ways that we and the industry can do better we will listen to our colleagues and we'll work on this area of overtime.
But I wanted to be very specific because you asked the question about what we do around here and what we've always done.
The first is.
And I'll say it is black of morph away as I can we will not tolerate harassment or of discrimination or bad behavior of any kind of can we never have we set those expectations when people come on board here through our code of conduct.
And our anti harassment and anti discrimination policies all of which our colleagues are required to review and sign when they're hired.
All of our colleagues take anti harassment training at higher and bi annually after that.
And we make it clear through the training and through our policy. The if anyone does experience any inappropriate contact there are multiple avenues to report that and they'll never be retaliated against for doing so.
Those options include the management chain anyone in HR and anonymous complaint by phone or online through our third part party hotline and website reported.
Take 2 has the director of diversity and inclusion.
That remit includes developing executing and leading a global day Eni strategy and that supports our business objectives.
We also have multiple employee resource groups inside of the company and we have more growing all the time, which gives us all of our thrill.
No.
That's what we're up to very specifically.
Again is there more than we could do I'm certain areas.
Do we feel like we're in a pretty good place. We're grateful that we do feel that way right now.
In terms of.
Retention.
Our turnover rate is roughly half of the industries.
That's been true for about the past 18 months there have been times when it's been about 70% of industry levels. It's been trending down at a time when I think in general turnover is trending up so we feel good about that and that's another measure of how we're doing so we focus on it.
Got it. Thank you so much of the <unk>.
<unk>.
Your next question comes from the line of Martin Yang with Oppenheimer and company. Please proceed with your question.
Good afternoon. Thank you for taking my question My first 1 is about.
How you account for the shifts in business models of player taste.
For games on debt.
Have a much longer development cycle.
The typical annual releases and how much input the jury of central organization have in those directional changes on the market.
I'm not sure I entirely follow your question of the development cycles for our core.
Core immersive releases are still significant it takes some time to make.
We hope will be the best titles in the business and development cycles are not getting shorter for core immersive releases and I wouldn't necessarily expect them to I think what's changed is that in between big releases, we continue to engage consumers with add on content and with opportunities to engage in online versions of the <unk>.
In certain instances of multiplayer opportunities as well so that's what created.
The recurrent consumer spending, but much more importantly, recurrent consumer spending reflects consumer activity and engagement.
But that doesn't really change development cycles. So did I Miss your question in some way.
No I think you answered.
His heard of.
I have a follow up of 4 laney in terms of the marketing plan for the year Patil.
Particularly around the expanded and enhanced version of GTA do you treat that game release as a brand new gang around the marketing campaigns.
Campaigns around it or do you how do you see this enhanced versions in the.
The marketing.
Leading to the release.
All of it wouldn't be marketed as a brand new game.
Certainly as marketing around the game, but it wouldn't be as if it's a brand new release of the DTA property.
Got it thank you.
Your next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your questions.
Hi, guys, it's Matt on for Brian Thanks for taking the questions out of Q2.
The Strauss you made a comment about seeing signs of stabilization in media consumption pattern.
Obviously, it's under.
Most of your comments about how you expected to come to a lower rate.
<unk> pandemic than you saw during the pandemic, but I guess what are the things that youre seeing right now that are giving you confidence that youre seeing stabilization.
Just sort of being midway through sort of the.
Normalization process with a floor of some lower level and then the second question is just on the re organization of the mobile studios are there any new capabilities of our new goals for that organization now that you are centralizing all of the studios under 1 umbrella.
Is there anything that's new that's possible on the mobile side of the business because of that.
So in terms of the stabilization of media consumption patterns really what we're saying is is we can just see it in the numbers.
Obviously, we don't have the same kind of wind in our backs as we did during the pandemic itself, but now that the pandemic is hopefully over the <unk>.
People are getting back to normal.
We're experiencing what we expected, but we're also seeing instances like for example in the new release came out for GTA online, we're seeing record engagement.
So that in itself shows you that debt the sort of the.
This the moderation that we've seen is really coming to end the.
Because people are engaging with the content is released in the or engaging in a very significant way. So that gives us a lot of confidence that we're sort of debt that we may be per pack the.
I guess you'd call them the headwinds of of losing the tailwind of the pandemic and we moved on to where the titles are behaving as we would expect in a more normalized environment. So we can see it in the numbers themselves.
Terms of centralizing the studios mobile under 1 umbrella.
We do expect that there will be synergies across the organizations each of the studios has got.
Something to bring in terms of expertise, whether it's data analytics.
Whether it's different ways to create content.
There are a lot of things that where they can learn from each other and bring them together under 1 management umbrella really gives us the ability not to mention also on consumer data.
It gives us the ability to.
To pursue of best practices across the entire organization. So yes, we do expect there to be synergies based on this reorganization.
Ladies and gentlemen, as a reminder, please press star 1 to ask a question. We ask that you limit to 1 question to allow time for others to also ask questions. Your net.
Question comes from the line of Garrick Johnson with BMO capital markets. Please proceed with your question.
Great. Thank you very much.
So just wondering why these titles were delayed.
We needed more time to Polish them and make sure the the best titles of they possibly can be.
Okay. So no COVID-19 related delay then.
Now our team has been incredibly productive throughout the pandemic, even though we have a lot of work going on at home productivity is high.
Okay, great and is nearly as accretive.
Okay.
Okay.
And yes. This is an accretive acquisition for us.
Okay.
The next question comes from the line of Clay Griffin Louise Mofette net.
Nathan. Please proceed with your question.
Hey, good afternoon afternoon Strauss.
The Tony's, Jim Ryan, specifically, calling out Chinese demand per position 5.
You've been bullish on the long term opportunity in China in the sense of it opens up the western content.
At the same time, there's obviously been a lot of concern on a regulatory shift in China. The space of love to just get your current thoughts on the Chinese market and how you think take 2 is positioned to participate in that market over time.
It's a great market for US we of the number 1 PC online sports title in China with 54 million registered users NBA true can line continues to grow in China.
We also have console titles for China, and we of titles that are being approved we have great relationships in China, with Tencent and others and so we think theres plenty of upside going forward.
Okay.
Your next question comes from the line of Brian Fitzgerald with Wells Fargo. Please proceed with your question.
Thanks, guys from a social point to play darts to nor do you guys have always been really highly disciplined in terms of M&A activity.
<unk>, we wanted to ask what Youre seeing in terms of valuations on the mobile side of things or our platform changes like Apple as 1 of the AT&T is that making it increasingly harder.
Strauss to your point for small publishers in the studios to compete is that making it more frothy in terms of the.
Just the general environment for for acquisitions.
We haven't seen any change in the market, yet and valuations remain frothy I think because of the growth of the sector and the enthusiasm around the sector.
However, our discipline has really paid off in the past 14 years knock word we havent made of failed acquisition.
The acquisitions are accretive usually right away, sometimes it could take a little bit of time.
But we're happy that we've done every deal that we've done we did miss out on a few that we wish we had done but frankly not all of that money.
I think you raise a good point, which is over time will it be harder for smaller companies to compete in the space and I think that'll be true the answer will be yes, with regard to both mobile and console the resources required a significant the risk profile is significant.
<unk>.
The history of the entertainment business is the.
Over time, those that are very creative become very successful those that are very successful become bigger.
Of that are bigger have the opportunity to acquire smaller enterprises and as long as the focus remains on creativity innovation and efficiency in environment of the culture.
That has made the company successful in the first place is maintained there is an opportunity for continued success, even with scale and that's certainly how we see ourselves and how we envision our future.
Okay.
Your next question comes from the line of drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys. Good afternoon, so just going back to the GTA online can you talk about your expectations for the fiscal year.
Atlanta, I know you said, you're expecting growth in fiscal <unk>.
The Standalone version coming in November so with that in place can GTA online growth this year.
And then separately I know you guys don't like the guide on specific titles from Hades. It looks like it had a limited release previously but managed to shift the 1 million plus copies very high net of score can you talk about maybe at the high level of what your expectations on a per that game and the prospects for commercial success.
Okay.
Okay for GTA online our expectations for the full year is for it to moderate so for the full year, we expect moderation of the trends of benefited us from.
From the industry last year due to Covid and the sheltering at home. So Q1 was down versus last year, even though of beat our expectations and Q2 is going to be up because of the.
Update which is doing really well. So we do expect Q3 and Q4 right now to be down by the GTA online always surprises us.
It's still early in the in the ear sympathy what happened right.
Right now, we do have our expectations as it.
Being moderating for the year.
And in terms of the Haiti.
Look I mean, there are a lot of ways. This is 1 of the idea of projects for private division.
Sound of the division based on our effort to hook up with some of the best independent developers in the World and I would certainly categorize supergiant as 1 of those heydays.
<unk>, obviously has had a significant critical and.
And commercial success to date and with the digital release, and we're really excited to be part of it from the on the physical side and.
And we think there is a.
Significant market for that title.
That has just started the hassle of a good number of copies, but theres a lot of upside for us. So we're thrilled to be in business with supergiant. We think there's a great amount of upside for us and we're looking forward to the release.
Your next question comes from the line of Benjamin sauce with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks for the question just.
1 if I could I was just wondering how you guys think about the subscription model in gaming and where and if you see an opportunity there for you guys. Thanks.
Yeah, our views remain unchanged from we think that of subscription model can make sense for deep catalog titles, but it doesn't really make sense for frontline titles.
For any.
Business model would make sense in the entertainment business. It has to work for the creators of the entertainment as well as the consumers of the entertainment.
I think.
Catalog can make sense for the publishers can make sense for consumers, who are average who really want access to a lot of product.
But if youre getting into frontline product.
The economics are much more difficult to make sense of and remember consumers who are involved with interactive entertainment have different consumption patterns than those of our linear entertainment linear entertainment consumers.
Consume something like a 150 hours of programming of month, so thats, probably well over 100 different titles and.
In the case of interactive entertainment consumers.
<unk>.
Our consuming something like 45 hours, a month and that may be 1234 titles, but it's certainly not a 100 titles. So from a consumer point of view, it's not clear that the subscription model really makes sense for the bulk of consumers.
That remains to be seen we're open minded we have made catalog titles available for subscription services.
Ari occasionally we've made frontline titles available as well, but we do see this more as a catalog offering net of frontline offering.
Your next question comes from the line of Eric Handler with <unk> Partners. Please proceed with your question.
Good evening and thanks for the question.
2 questions first.
With regards to the.
The untethering of Red Dead redemption online.
Now that you've had this for a little while I'm just curious what are you finding with the game in terms of widening the funnel is it bringing new people in that is helping to sell more units of Red dead redemption 2.
Anything any color you can give us would be great.
It's been good news we've added players it's been good for the main game. It's been good for Red Dead online I think the timing was excellent again I think you can do almost anything.
Some of marketing point of view, if youre mindful of creating appropriate marketing windows.
Great and then just since the follow up I'm curious.
With Covid.
Ebbs and flows are your developers still completely working at home are you have you brought them back.
The in house at all or where do you stand there.
It's a mix of people are back of work in China. For example in other parts of the Globe are we have some people back at work at offices in the U S. As well and we are very mindful of what's going on our colleague safety and health comes first.
And thankfully everyone's highly productive wherever they are.
Your next question comes from the line of Mike Hickey with the Benchmark Company. Please proceed with your question.
In Strauss Karl lately, the cool congrats on the quarter guys. Thanks for taking my questions 2 from me.
First 1 of it looks like subsequent to quarter end.
Started using some of the MCA takedown request to remove all of granted bottom lots of sort of curious the catalyst for doing that.
Sort of the feedback from the player community.
Second question is on the <unk> opportunity it seems like you've sort of half of new frontier here for college sports and athletes and the third.
Alright, I guess your thoughts there and the.
Consideration.
Pipeline thanks, guys.
In terms of takedowns.
We are pretty flexible frankly.
That said if the economy is threatened.
Or if.
If there's bad behavior, and we know how to define that then we would we would issue of takedown notice I'm sorry, what was your second question Mike.
Second question was just from the collegiate opportunity Strauss sports from athletes of games.
And the opportunity with regard to what just so I understand your question.
Okay.
Obviously college basketball would be pretty Sweda. Thank you Jeff.
Sort of I guess expansion opportunities from your portfolio or working with athletes maybe from marketing.
And I'm not sure.
I'm not sure how to answer it and so I'm going to be judicious from probably not going to answer. It I will note that we were in business many years ago with the NCAA and we no longer are and we're always looking for opportunities to grow our business in our sports business.
Your next question is a follow up from Matthew Thornton with true of Securities. Please proceed with your question.
The next follow up comes from Garrick Johnson with BMO capital markets. Please proceed with your question.
Great. Thank you.
You were in especially the time here with Nexgen consoles rolling out and do you have GTA and NBA both have.
The titles coming out there, we'll take advantage of those of those consoles are you finding more deferral of.
The titles in general waiting for those next versions and the rollout of those of those consoles.
It's awfully hard to measure of something like that but demand for NBA <unk>. It's been very strong. This year, we've had a great year, we've sold in over 11 million units.
And certainly ongoing demand for Grand theft auto of 5 has been huge we sold in over 150 million units. So I'm not sure we've seen.
I'm not sure we could measured in any case I don't know the ore.
We'd have to do with seller research and of it still wouldn't tell us there.
Anything that we could do differently.
But.
I remain of the view that the enhanced edition of Grand theft Auto 5 will be highly appealing to consumers with next gen platforms.
More of now current Gen platforms.
But that remains to be seen.
Thank you.
Your next question is a follow up from Matthew Thornton with true of Securities. Please proceed with your question.
Hey, guys. Just 2 quick follow ups I guess staying on Newcastle for a second I'm just curious how youre thinking about the supply as we head into the holiday season, and then obviously, we've got the Nextgen Grand theft auto releasing them just kind of curious of the latest thoughts around council of supply and demand.
And then just secondly, you guys have talked a lot about the pipeline numbers of releases for fiscal 'twenty, 3 and fiscal 'twenty 4 you've talked about expecting sequential growth in fiscal 'twenty, 3 and you've talked about getting to new record operating results.
In the out years as well I'm, just curious of that last comment pertains to to that window that fiscal 'twenty 3 of fiscal 'twenty 4 window or if I'm reading the reading too much into that and thanks again guys.
We know the demand for consoles remains high that's not in doubt we're hopeful that the supplier will will be enhanced by year end and it will be in a good place.
But most importantly, the demand is there and.
In terms of the pipeline, yes, we said we expected sequential growth in fiscal 'twenty, 3 and we expect to set new operating records in the coming years, and we still have both of those expectations.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Strauss Zelnick for closing remarks.
Thank you so much for joining us today I want to as always emphatically. Thank all of our colleagues all around the world who delivered these great results and it has been a challenging time the deliver the results.
Our team shows often does their best work every day of work continues to pay off we're so grateful. We're also grateful to our shareholders. So supportive over over these years and I want to wish you all a happy healthy and safe remainder of the summer thanks for joining us.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
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