Q2 2022 Take-Two Interactive Software Inc Earnings Call

November 3, 2021

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Good day, ladies and gentlemen, and welcome to the tutor Perini Corporation third quarter of 2021 earnings Conference call. My name is Kyle and I'll be your coordinator for today. At this time all participants are in a listen-only mode. Following management's prepared remarks, you'll be opening the call for a question and answer session. As a reminder, this conference call is being recorded for replay purposes. At this time, I will turn the conference over to your host for today, Mr. Jorge Casado, vice president of Investor Relations. Please proceed.

For replay purposes at this time I will turn the conference over to your host for today, Mr. Jorge Casado, a vice president of Investor Relations. Please proceed.

Hello, everyone and thank you for your interest and participation. With us on today's call or Ronald Tutor, Chairman and CEO and Gary Smalley Executive Vice President and CFO.

Before we discuss our results I will remind everyone that during this call we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that are actual results could differ materially. You could find our disclosures about risk factors that could potentially contribute to such differences in our Form 10-K, which was filed on February

24th 2021, and the Form 10-Q that were filing today. The company assumes no obligation to update forward-looking statements, whether as a result of new information future events or otherwise other than as required by law. With that, I will now turn the call over to Ronald Tutor. Thanks and good afternoon and thank you for joining us.

As anticipated we had a strong third quarter of new award bookings, which totalled $2.1 billion and drove a 12% quarter over quarter increase in our backlog to a very solid level at 8.4 billion.

Major New awards included the Cedars Shining Marie Cedar Sinai.

Marina del Rey replacement Hospital, Los Angeles County for Rudolph and slept in the 471 million dollar L. A X airport Metro connector.

For the Los Angeles Metropolitan Subway District.

The 220 million dollar I 70, Missouri River Bridge for London construction.

122 million dollar military firing range project in Guam, and a 98 million dollar military housing project in Guam for Black construction.

And of course, our $71 million share of the Frank Kern Canal project in California.

Cause your demand customer demand for our construction services remains very strong.

As evidenced by the extraordinary sustained pipeline of large projects that we had been bidding recently and will continue to bid over the next several quarters.

Currently we are awaiting decisions and subsequent awards.

Over several projects bid in the last 45 days those projects being the 3 billion dollar plus J F. K terminal one project.

And that two plus billion dollar, Maryland Purple line I like excuse me light rail project and the two plus billion dollar Metro North Penn station access project in New York City.

In addition, we are optimistic that the substantial incremental funding expected do eventually fro flow from the proposed.

Federal infrastructure Bill will result in significantly extended duration of even greater demand with a large number of high margins civil projects that we will be able to pursue as well as free up resolves of ongoing projects as all.

Most every one of our agencies will receive further funds.

Until recently the COVID-19 pandemic has had an adverse effect on both the volume and timing of New awards with New awards and bid projects basically frozen for the last 18 months until the last 60 to 90 days.

In other words that go of it not occurred.

Obviously, a backlog would be substantially higher today because of the frozen period of 18 months, where very little work was awarded.

Our third revenue or a third quarter revenue as a result thereof came in below budget.

Partly as a result of these impacts but also due to lower than anticipated contributions from certain building projects in California, and the Gulf coast that were delayed.

Compared to last year's third quarter, which was particularly strong revenue wise, we experienced reduce activity.

And this year's third quarter on various building segment projects in California.

In Oklahoma that have recently completed or will complete very shortly.

However, now that our backlog has started growing again and we anticipate further increases significantly.

As we win are expected share we believe our revenues should begin to stabilize and eventually grow again.

As it did last year.

With more substantial growth starting in the first quarter.

As anticipated when these construction phases hit.

Our backlog.

Are strong civil segment operating margin of 11.9% through the first nine months of.

2021 continues to reflect a favorable mix shift toward higher margin projects.

This margin is up 100 basis points compared to the first nine months of 2020.

A certain lower margins civil projects wind down that were previously awarded years ago.

That work is being replaced by newer high margin projects in California, and Guam and with the surge of work in New York, Hopefully New York.

Major projects contributed to our third quarter revenue included California, I speed rail.

Purple lines sections, two and three for La Metro and Division 20 portal widening project in Los Angeles again for Los Angeles Metro.

The San Francisco Central Subway project as it nears completion.

But my neck, Minneapolis Southwest Light rail project and.

And the new Newark Airport terminal one.

Our earnings per share for the third quarter also came in below budget largely due to certain project write downs that we recorded in the special contractors.

Segment.

Next I will update you on the status of some of the major projects that we've recently bid and are preparing to bid over the coming months.

Teams selections and contract awards for the aforementioned JFK terminal one in Maryland Purple line projects are imminent.

Earlier this week on November 1st we submitted our bid for the Metro North Railroad Penn station asks as project.

In addition, we expect debate several other large projects in the first quarter of 2020 do including the 1 billion first phase of the Maryland Express lanes.

Or accelerate Maryland partners.

As well as the 700 million dollar Inglewood automated people mover in Los Angeles, and a 600 million dollar government facility in Northern California for Sonoma County.

The 1.4 billion dollar Newark are trained replacement will bid in April of 2022 with that award decision expected by the third quarter.

The Laguardia Airtrain has been put on hold pending a new governmental assessment of the project.

Finally, black construction or Guam subsidiary is still awaiting the outcome of recent bids for major military projects exceeding 550 million as we continue to bid one and two military projects every month and Guam.

Based on our results to date through the third quarter and our outlook for the remainder of the year, we have determined to adjust our EPS guidance for 2021 to a range of.

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Earnings call at this time, all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now.

My pleasure to introduce your host Nicole Shannon. Thank you Nicole you may begin.

Good afternoon. Thank you for joining our conference call.

For the second quarter of fiscal year 2022.

<unk> 2020, while today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carlos laid off our president and <unk> Goldstein, our Chief Financial Officer, we will be available to answer your questions. During the 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 <unk>.

Forward looking statements under federal Securities laws. These forward looking statements are based on the beliefs of 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.

Guarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results.

<unk> and financial outlook, our press release and filings with the SEC may be obtained from our website at <unk> Dot Com and now I'll turn the call over to Sean.

Thanks, Nicole good afternoon, and thank you for joining us today I'm pleased to report that we delivered another outstanding quarter highlighted by net bookings of $985 million, which greatly exceeded our expectations and increased 3% over last year, we experienced consistently strong engagement trends across our key franchises.

Underscoring the durability of our offerings and the deep relationships that we've established with new existing and returning players.

We believe that we can maintain these favorable engagement patterns as we continue to deliver the highest quality entertainment experiences that are driven by our team's passion and commitment to creativity and innovation.

We've been taking key actions to execute on our long term strategic vision, we continue to enhance and diversify our pipeline across an array of platforms business models and genres.

To support this we're investing in our infrastructure and making key hires ranging from senior talent at our labels to the addition of more than 350, new developers during the second quarter.

We're pleased with the progress of <unk> mobile games, which is helping us leverage our team's expertise across our enterprise. Additionally, <unk> has already reached key integration milestones.

We continue to build upon our ESG efforts and we hope to share more in the coming months.

Given our strong confidence in our company, we opportunistically repurchased one 6 million shares of our stock during the second quarter for approximately $200 million with an average share price of $158 67.

This marks the first time in over two years that we repurchase our stock underscoring the deep value that we observed in our share price in November our board of directors authorized an additional seven 4 million shares that the company is permitted to repurchase resulting in 10 million shares remaining available for repurchase as of the date of the additional authorization.

Turning to our second quarter results, our better than expected performance was driven primarily by borderlands, three NBA <unk> and Grand theft auto five and Grand theft Auto online.

On September 10th <unk>, and visual concepts successfully launched NBA <unk> 'twenty two with more players hitting the digital hardcore in its first month than any prior release of the game.

The title enjoyed outstanding initial success with over 5 million units sold in to date players are deeply engaged and we're experiencing growth in daily active users and daily games played per user compared to <unk> 21 in the same period.

For the quarter the NBA to case series delivered exceptional results that were significantly above our expectations.

NBA <unk> 'twenty two experienced growth in recurrent consumer spending as well as a 4% increase in total in game purchasers and a 58% increase in new user spending.

I'd like to congratulate the teams at <unk> and visual concepts for once again, delivering such a stellar basketball experience, we see a meaningful opportunity to grow the franchise further over the next few years as we provide engaging in frequent content updates throughout the game.

Sales of Grand Theft Auto five continued to exceed our expectations and to date. The title has sold in more than 155 million units worldwide.

During the period Rockstar games launched another major update for Grand theft Auto Online's evolving world. The low Santos tuners update brought a renewed focus to the underground Street racing scene and introduced a host of innovative and highly requested features including the <unk> car Mead of shared social space, where players can get get together in a modified testing rates there.

Cars get tattoos and more.

Santos Tuners also added 17 highly customizable vehicles, our purchase of auto workshop.

New robbery contracts and street races, and the ability to add music in a new way through collectible media sticks.

Recurrent consumer spending increased 33% and active player audience increased 11% representing the song the strongest second quarter on record for both metrics. The success of Los Angeles Tuners demonstrates <unk> ability both to anticipate the needs of its players and to respond to player feedback with an ongoing stream of high <unk>.

Quality and engaging content.

During the quarter Red Dead redemption, two also significantly outperformed our expectations and to date has sold in more than 39 million units worldwide.

Momentum continued and Red dead online with the introduction of the blood money update in July which introduced a series of new criminal themed opportunities complex new missions, including the game's first train robbery and the quick drop club a series of four distinct rapid fire passes featuring criminal themed unlockable rewards bonuses and more.

As a result of the blood money update as well as the influx of new players attributable to the Standalone version of Red Dead online, we experienced a 26% increase in active players and a 29% increase in new online player acquisition recurrent consumer spending for the series was also notably above expectations.

In August private division expanded their portfolio with the physical release of Pds for Playstation and Xbox platforms.

It'll continues to earn positive praise from the gaming community and is currently Metacritic highest rated game for the Playstation five and Xbox series X and September the Labor released murder on <unk>. The final expansion for the outer worlds for the Nintendo switch. We're pleased that the outer worlds continues to grow its audience and to date. The title has sold in over four.

Million units.

Also in September private Division launched Kerbal space program enhanced edition for Gen. Nine consoles, taking advantage of the latest performance and visual enhancements to provide players an exciting new way to experience this beloved space flight simulation game.

So during the quarter recurrent consumer spending rose, 7%, which was significantly ahead of our expectations of an 11% decline and accounted for 69% of net bookings.

As I mentioned earlier, our consumer engagement trends, where consistently strong even as people resume more normal socialization patterns and as schools and workplaces began to reopen we're very optimistic about our continued ability to keep players engaged and to capitalize further on our massive audience size.

For the period NBA <unk> Grand theft Auto online were the largest contributor to recurrent consumer spending many of our free to play offerings were also notable drivers top 11 exceeded our expectations driven by strong seasonal live ops and features optimized marketing activities and enhanced user quality Dragon City and Monster legends performed well.

Thanks to strong live ops, new updates in future releases and increased marketing investments.

Two dots achieved its highest ever net bookings since our acquisition, which we attribute to new in game events, such a scavenger hunts and curated seasonal content.

WWE Super card has now been downloaded more than 24 million times and remains <unk> highest grossing mobile game.

NBA to K online in China outperformed our expectations and remains the number one online PC sports came in the region with nearly 55 million registered users.

We continue to monitor the regulatory environment. It bears, noting that China represents 3% of our net bookings in fiscal 'twenty, one while we remain optimistic about China and will pursue further opportunities. There. We believe that our exposure to the region will remain limited in the context of our growing overall net bookings.

Sure.

Turning to our guidance as a result of our second quarter outperformance along with our updated forecast for the balance of the year, we're raising our outlook for fiscal year 2022, and we now expect to achieve net bookings of three 3% to $3 4 billion.

Lenny will provide more details shortly.

With the strongest multiyear pipeline in our company's history. We continue to believe that we'll achieve sequential growth in net bookings in fiscal 'twenty, three and establish new records of operating results over the next few years.

Our focus on bringing new intellectual properties to market will help us diversify our portfolio further and build lasting franchise that we believe will enhance our financial profile for years to come at.

At the same time, our teams are hard at work developing sequels to many of our beloved franchises that we know our consumers will be eager to play.

As we execute on our strategic vision and maintain our commitment to an outstanding and collaborative culture. We believe that we will significantly grow our operations and drive long term shareholder value.

I'll now turn the call over to Carl.

Thanks Ross.

I'd like to thank our teams for all their contributions as well as their continued passion and dedication to our business.

<unk> and collaborative culture continues to be a key driver of our success.

I'll now discuss our recent releases.

On October one two K and hangar 13 launched the Mafia III definitive edition for stadia preview.

Previously released on other platforms. The definitive edition offers many additional features and post loss content that has since been incorporated into the game. We're pleased to continue our support for stadia and expand the Mafia franchise to new audiences.

On October 11th Nobody gets released top 11, 2022 on iOS and Android the latest installment of the wells and a successful stock management game.

Top 11, 2022 delivers a significant update to the gameplay and soccer management experience painting aspiring soccer managers against one another in league Cup and friendly matches.

<unk> 2022 also provides a significant new layer of depth and player development via the Playstyles feature which helps to enhance the soccer benefit the top 11, providing defense for more than a decade.

On October 14th.

And HP Studios launched the PGA tour TK 'twenty, one bottler edition, which includes the base game all previous release DLC courses and game modes, and assortment of Adidas apparel and gear and the Golden touch pack that features a bolt cutter and driver.

In addition, PGA tour TK 'twenty, one offers new multiplayer courses each designed by a group of international content creators.

Thrilled that the community continues to grow with a title selling over $2 5 million units to date.

On October 19th two K launched NBA <unk> arcade edition for Apple Arcade building on the success of its predecessor, which continued to be listed as one of the platforms top games with an average of four six out of five stars across more than 85000 ratings.

And the HSA 22 Arcade addition, expand the franchise's addressable market with new modes and features including the association, Mike and Mark.

Rockstar games continues to provide an array of great content for their vast and growing online communities to.

To celebrate Halloween Grand theft Auto online had a series of random events, the shock and surprise players, including driverless Phantom killer cars simply Jimenez, Slashers, Ufos and more including bonuses on aliens survival, Nellix and our new arcade games.

Players will also be able to experience an all new adventure and the Grand theft Auto online later this year as they help some well known context and familiar faces with many more surprises yet to be revealed.

And now I'll discuss details on our upcoming announced offerings for this year.

Rockstar games will digitally launch Grand theft auto the trilogy. The definitive edition this November 11th or Playstation five Playstation four Xbox series X and S. Xbox one Nintendo switch and the Rockstar games launcher for PC.

The definitive edition or feature across the board upgrades for all three games, including graphical improvements in modern controls, while still maintaining the classic and distinct aesthetic of the original game.

Frankly, I thought of the trilogy. The definitive edition will launch physically for consoles on December seven and will release for iOS and Android devices in the first half of calendar 2022.

As part of the celebration of the recent 20th anniversary Grand Theft Auto III fans can also collect an array of special commemorative gear and Grand theft auto online throughout a series of upcoming events. This fall.

On November 12, two K and gearbox software will release limited quantities of Borderlands three ultimate edition physically a Playstation five and Xbox series X.

<unk> content and newcomers alike are sure to enjoy this quaint potential borderlands three experience featuring the award winning based game plus all six content add ons and the full collection of bonus cosmetic bags.

Ultimate edition is optimized to take full advantage of the Gen nine hardware processing power, enabling game site at up to 60 frames per second and four K resolution doing single player in online co op.

Ollie Ollie World and escape Boughting action platform developed by raw seven launches. This winter in the fourth quarter of fiscal 2022 on Playstation four and five Xbox One Xbox series X and S T SEC and Nintendo switch.

On March 25, two <unk> and gearbox software will launch an exciting new entry from the Borderlands universe tiny penis Wonderland.

In September the team unveiled the game is brand new mechanics, and all star celebrity cast, including will Arnett, Ashley Birch, Andy Samberg, and Wanda Sykes fans.

<unk> reaction to the first look at the game plan was extremely positive reflecting the growing excitement for this fantasy fuel to take on the popular leadership in China.

Okay.

In addition to <unk> and visual concepts, we remain hard at work on WWE, <unk> 22, which will be released in March.

Our partners at WWE have done amazing things with their brands, resulting in a passionate and deeply engaged community and providing tremendous support to maximize our campaign to all of their platforms, including social media digital programming talent and arena and more.

Visual concepts is gearing up for a major reveals the game's key features in January which we look forward to sharing with fans followed by the biggest WWE <unk> launch to date.

Rockstar games is thrilled to launch the expanded and enhanced versions of Grand theft Auto <unk> and Grand Theft Auto online Standalone are gen nine consoles in March.

Players will enjoy a range of technical and graphical improvements across the entire experience, including performance enhancement for select vehicles and Grand theft online and much more.

Rockstar games will have more details to share about these eagerly anticipated launches in the coming months.

As we noted in our earnings release, Marvel's Midnight for access games is now expected to be released in the second half of calendar 2022 during our fiscal year 2023.

While we don't take delays lately. So we know that our proven success has been rooted firmly in our player first approach and unwavering commitment to delivering the highest quality entertainment experiences.

We believe it's far better to provide extra time needed for our product, especially in new IP to reach its full potential and drive long term success as a permanent franchise and our industry leading portfolio.

As gaming platforms, continuing to evolve technological advancements allow us to design experiences that are that are more immersive and engaging than ever before.

While this has enabled us to significantly grow our franchises over time and development has become more complex, especially with many of our colleagues working remotely.

We continue to evaluate and optimize our game creation processes to enhance the way that our teams collaborate and share best practices and leverage technology and expertise.

Turning to esports the NBA <unk> concluded its fourth season, attracting more than 18 million unique viewers and over 2 million hours of games watched on Twitch during the playoffs and finals nearly 4 million unique viewers tuned in as lasers District gaming won their second consecutive championship.

In addition, the league hosted their inaugural all Star game, how that Brooklyn steel in New York.

As part of the lease continued global expansion Mexico's Duke's gaming will launch date.

And this spring Mark in the 2014 and the first to participate from Latin America.

We are thrilled to see the league continue to grow both its audience and global presence.

In closing we have a strong foundation for success that has helped us curing a portfolio of highly engaging franchises that transcend console and player generations as we continue to harness and enhance our competitive advantages are incredible creative talent best in class marketing and technology and strong balance sheet.

We will introduce new entertainment experiences that we believe have vast commercial potential and the ability to drive long term engagement and recurrent consumer spending.

We also expect to continue to attract the very best creators who share in our vision to set new benchmarks and captivate audiences throughout the world.

I'll now turn the call over to Lanny. Thanks.

Thanks, Karl and good afternoon, everyone today I'll discuss our second quarter results and then review our financial outlook for 2022, and the third quarter.

Please note that additional details regarding our actual results and outlook are contained in our press release.

As Jeff mentioned, our business fundamentals remain exceptionally strong across our key franchises.

Net bookings were $985 million, which was significantly above our guidance of $815 million to $865 million.

And up 3% as compared to last year.

Our outperformance was primarily driven by borderlands, three and the ATK and Grand theft, <unk> and Grand theft Auto online.

During the period overall engagement with outstanding with recurrent consumer spending increasing 7% compared to our outlets of an 11% decline in accounting for 69% of total net bookings our outperformance was primarily driven by MBA T K.

Digitally delivered net bookings increased 9% compared to our outlook of a 5% decline and accounted for 89% of the total. This result was better than our outlook, primarily due to the outperformance of recurrent consumer spending.

During the quarter at 65% of console game sales were delivered digitally up from 57% last year.

GAAP net revenue increased 2% to $858 million, while cost of goods sold increased 6% to $457 million.

Cost of goods sold included a $53 million impairment charge related to our decision not to proceed with further development of an unannounced titles in our pipeline.

Operating expenses increased by 30% to $381 million.

The variance is driven by higher personnel marketing and it expenses. In addition to play that annuity and the revaluation of the annuity it's earn out.

And GAAP net income was $10 million or <unk> <unk> per share as compared to $99 million.

<unk> 86 per share in the second quarter last year.

We ended the quarter with approximately $2 3 billion of cash and short term investments.

We repurchased one 6 million shares of our stock during the quarter approximately $200 million with an average share price.

At $158 67.

Turning to our guidance I'll begin with our full fiscal year expectations.

We are raising our net bookings outlook range to three three to $3 4 billion.

This is up from our prior outlook of $3 two to $3 3 billion.

As to our second quarter outperformance, along with our updated forecast for the balance of the year, which includes the mood of Marvell and the <unk> into fiscal 2023.

The largest contributors to net bookings are expected to be NBA, teekay Grand theft auto online and Grand theft, certify Red dead redemption tale and Red Dead online and Borderlands three we expect the net bookings breakdown from our labels to be roughly 50% teekay, 40% Rockstar games, and 10% private division and <unk>.

Mobile games.

Forecasted geographic net bookings split to be about 60%, United States and 40% International.

We now expect recurrent consumer spending to decline by 6% compared to our prior outlook of a 9% decline versus fiscal 2021.

As a percentage of net bookings recurrent consumer spending is expected to represent 66% of total net bookings slightly above 65% last year.

We now project digitally delivered net bookings decreased by approximately 4% compared to our prior outlook of 6% decline as.

As a percentage of our business digital is projected to represent 90% slightly above 89% last year.

Our forecast assumes that 73% of console game sales 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 $170 million for capital expenditures.

We are raising our GAAP net revenue outlook to 335% to 345 billion, while they announced that cost of consult to range from 151% to 155 billion.

Total operating expenses are expected to range from $1 47 to $1 49 billion.

Representing at the mid point of 22% increase over the prior year. This increase reflects costs relating to marketing personnel stock compensation and research and development to bring our expanded multi year pipeline to market as well as incremental expenses due to the addition of new audience and a full year later.

Our operating expense expectations have improved compared to our prior guidance driven by lower marketing expenses due to the movement in our release schedule.

And we expect GAAP net income to range from $320 million to $350 million or $2 75 to $3 per share.

For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2022.

And now moving to our guidance for the fiscal third quarter.

We project net bookings to range from $800 million to $850 million compared to $814 million in the third quarter last year.

Larger contributors to net bookings are expected to be NBA, teekay Grand theft auto online and Grand theft, <unk> Red dead redemption, two and Red dead online and Grand theft Auto the trilogy, the definitive edition <unk>.

<unk> current consumer spending slightly compared to last year and digitally delivered net bookings to increase by approximately 5% at.

Our forecast assumes that 61% of console games out will be delivered digitally up from 56% last year.

<unk> GAAP net revenue to range made entered $40 million to $890 million and cost of goods sold arrangement that we entered in $44 million to $270 million.

Operating expenses are expected to range from $378 million to $388 million at.

At the midpoint. This represents a 13% increase over last year, driven primarily by higher personnel research and development and <unk> expenses as well as the inclusion of Nordea.

And GAAP net income is expected to range from <unk> $99 million to $111 million.

<unk> 85 to 95 per share.

In closing our second quarter results demonstrate the health of our business and our continued ability to engage our players with exciting and innovative new content.

As we continue to capitalize on organic and inorganic growth opportunities. We believe that we will greatly expand our scale and deliver long term growth for our shareholders. Thank you I'll now turn the call back to Scott.

Thanks, Lenny and Karl on behalf of our entire management team.

I'd like to thank our colleagues for delivering another strong quarter and to our shareholders I want to express our appreciation for your continued support we will now take your questions operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Thank you. Our first question is from Mario Lu with Barclays. Please proceed with your question.

Great I have one.

Okay and then another high level question. So the first one on <unk> I believe you guys mentioned, 58% increase.

Easier spending so just curious if you could provide any additional color or specific features that we introduced in this game. This year that attributed to this large increase.

Hi, it's Karl Meyer I wouldn't necessarily want to attribute any specific features to the increase I don't want to tag it to visit but there has been certainly a lot of additions to the game that we believe have increased engagement.

Specifically just generally speaking the game is fantastic reviews have been great user feedback has been great engagement has been really really strong.

One thing to note is that we did add the season's feature to my players this year, which obviously created a lot more content drops and a lot a lot more folks to do that every time you increased content deliver content that obviously leads to increased engagement and tends to lead to increased monetization.

So it's really a combination of the game just being better we had a lot of wind in our backs to from an increased player base generally speaking and it's just been a great execution and people are really enjoying the incremental content.

Got it thanks, Karl and then.

Facebook recently announced a partnership with Rockstar.

Andrea on the quest.

Just curious what the background of this partnership was then do.

Do you now think either VR or building a better version could be growth drivers for take two out of the company going forward. Thanks.

We're really excited about all of our partnerships. So we have numerous partnerships. We've always said that we want to be where the consumers and win via our first emerged as a potential technology, while I've expressed some skepticism about it becoming a very broad based consumer application.

I also thought it was really exciting technically and said that we would participate Rockstar has already brought <unk> to VR imba two K has come to VR I'm sure. We will have more VR titles in the future as well. So we're always excited when our creative teams can flex their collective muscles and do different things.

And it remains to be seen just how big that can be we never make projections like that but we're very excited about the opportunities.

Got it thanks Darren.

Okay.

Thank you. Our next question is from Mike <unk> with Goldman Sachs.

Please proceed with your question.

Hey, good afternoon. Thanks for the question I just have two first with the upcoming launch of GTA trilogy on mobile can you talk a little bit about your ambitions to create immersive core games on mobile and whether this foreshadows.

More and more content in the future that may have historically been reserve for PC and console and then second just a housekeeping question on the improvement in guidance.

What's driving the back half improvement.

Despite the push out of Marvel Midnight tons are there any improved expectations by franchise you call out. Thank you.

Hey, Mike It's Carl just to answer your first question about mobile.

Obviously very excited about <unk>.

<unk> coming to the mobile devices.

Actually not the first time, we had our franchise is doing this we've done this since the very beginning of our mobile days on both on the Rockstar and the two case side and we have a long history of bringing our franchises to the mobile space.

We've done that in various different ways, obviously, we brought older older games onto mobile.

Now onto mobile platforms.

We've got a companion apps.

Brought modify games are different iterations of franchises like Ww Supercars NBA Super card.

So we are no stranger to bringing our core franchises to the mobile space and we definitely think that there is an opportunity for us to do more.

Nothing to announce on the call, but obviously, we've invested significantly in this space both through acquisition and also organically and we don't expect that to stop anytime soon.

In terms of the back half of the year and the forecast.

We are seeing a lot of improvement in the forecast.

I have a lot of ups and downs, mostly optimer netting up on the titles are looking great engagement, it's great and so we don't have any specific things to call out but overall the titles are doing great.

Great. Thanks, Karl Thanks Lenny.

Thank you. Our next question comes from Matthew cost with Morgan Stanley. Please proceed with your question.

Hi, everyone. Thanks for taking the questions I have two so.

So can you just talk about your expectations over the next call late year or two obviously you've brought on a lot of heads you have a lot of content in development, there's a decent amount of it hitting between now and the end of the fiscal year and then obviously more to come in the years following.

What do you guys expect at a high level in terms of like the margin impact I would imagine there would be something along the lines of an increase in marketing as you bring games to market, but then sort of benefits from scale as those those heads actually produced content.

Alison and engaging people in monetizing actively.

Just the second question is.

On China.

Obviously, you quantified that at about 3% of your business and you mentioned, how you expect the exposure to remain limited should we interpret that to mean that you know.

You don't intend to launch games in China in the future or under certain circumstances and sort of what's driving your strategy there going forward. Thanks.

So in terms of the margins in the next couple of years as you know this year is a big year of investment for us in terms of our head count in our space and <unk> expenses.

And our marketing expenses. So we have been talking about that a lot and we've seen that this year and next year well see some annualized <unk> have a lot of those costs as we go into next year, but as we continue to build scale with our pipeline of titles over the next few years, we expect those margins to continue to grow for us. So that's our plans for the <unk>.

And the future of the next couple of years and in terms of China.

I was I was making the point.

About.

The percent of our net bookings that come from China.

Quite small roughly 3% at the moment, we expect our net bookings to grow we expect sequential growth. We're really excited about our future and at the same time, we're very focused on the region and particularly on the country in the context of what we're able to do and being compliant with regulations. So we remain highly opt.

Domestic about China, we absolutely would be very happy to launch additional new titles are we expect to do so in fact, we.

We remain optimistic on simply making the point that it is a small part of our business.

Great. Thank you.

Thank you. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.

Good afternoon, and thank you for taking my question I have one just curious about your philosophy remastered games, how do you pick and choose.

So pretty substantial library.

What games completed backhaul and Paulo.

A follow up.

How does remastering gains compete with resources.

For development.

Yes.

Sure.

Carl Martin I'll answer the question I'll answer the second one interactive related because the truth is methane games.

Unless you really go truly out to third parties, which we've done in the past.

But even in that case, you are actually competing with other resources and therefore that goes into your decision, making on which ones you bring to market and it's purely an economic decision.

On the economic decision is based on what we believe the fan base to be how.

How much is it going to cost for the game to be remastered are are we going to make other changes to the game to enhance the experience because typically just purely a pure remasters without just ports don't really perform as well as something thats truly remastered are truly enhanced.

So all of those all of those factors go into those decisions, but in the end.

It is an economic decision and it is a resource allocation decision and Thats just math that we do.

Got it thank you.

Thank you. Our next question is from drew Crum with Stifel. Please proceed with your question.

Okay. Thanks, Hey, guys. Good afternoon, maybe a follow up to an earlier question.

Some of your peers have suggested challenges around recruiting talent, but it sounds like you've had a different experience I heard correctly you added 350 developers during the quarter, what do you attribute that to our labor markets improving is reopening helping and if the macro picture is getting better or is your plan to access.

<unk> new hires Nigel.

And as a follow up.

Thanks for your question look we're.

So grateful that we continue to attract the industry's top talent in fact, we've hired over 500 developers over the last two years and we've more than doubled our internal developer count in the last five years and.

I don't want to overstate the case.

So much always has to be done on a daily basis regarding culture, but I do think that that's a reflection of who we are and I think ultimately everyone knows who you are people inside and people outside and we're really proud of the culture that we built.

A culture that starts with creativity innovation and efficiency.

Very importantly includes.

Excepting everyone. As they are are they show up as long as they are equally focused on.

A very high ambition for excellence and hard work.

Our willingness to be honest and open and transparent and collaborative.

And the agreement that we have with one another one another that will treat everyone with decency in Congress.

And I think at this point, we're known for that and were imperfect and there's much more that we can do at any given time. We are highly focused on on this culture and it has served us very well.

Thanks for that trial as soon as my follow up.

CERN the headlines related to FIFA just curious around.

Your interest in furthering your exposure to soccer beyond top 11.

And we're so thrilled to have <unk>.

And the take two family.

And they're just they're just crushing it which is great top 11th great title, a beloved title and.

And I just couldn't be happier to be in the soccer manager business.

Through top 11 with minority his team.

That's a big step forward for us.

We haven't been in that sport before and.

And I think I'll leave it at that today.

Thanks Charles.

Thank you there are no further questions at this time I would like to turn the floor back over to Strauss zelnick for any closing comments.

Well, thanks, everyone for joining us that was an.

An incredibly short call for us. So you almost have better things to do for the rest of the day. We wish you very well, we're obviously really pleased with the results and what that leads me to say how grateful everyone.

Everyone here is to our teams who deliver these results who work hard everyday to make make two phenomenal entertainment that drives the success of the company on an ongoing basis, it's incredibly hard we don't take it for granted and we never take our success for granted.

And so so thank you to all of our colleagues who are listening today and the ones who are listening because they are.

They are hard at work. Thank you also to our shareholders for your ongoing support.

Yes.

This concludes today's call you may disconnect your lines at this time. Thank you for your participation.

Q2 2022 Take-Two Interactive Software Inc Earnings Call

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