Q3 2022 Take-Two Interactive Software Inc Earnings Call

Greetings and welcome to the Take-Two Q3 full 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.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note this conference is being recorded.

I will now turn the conference over to your host Nicole Shevins, Senior Vice President.

Of IR and Corporate Communications. You may begin.

Good afternoon. Thank you for joining our conference call to discuss our results for the third quarter of fiscal year 2022 ended December 31, 2021. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer, Karl Slatoff, our president and Lainie 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 considered 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 regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation.

of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted [on our website] a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at taketwogames.com. And now I'll turn the call over to Strauss.

Thanks, Nicole. Good afternoon, and thank you for joining us today.

I'm pleased to report that we delivered another strong quarter highlighted by net bookings of $866 million, which exceeded our expectations and increased 6% over the prior year.

Our outstanding holiday season results were driven by our new and existing titles as well as strong ongoing engagement from our player community to continue to immerse themselves in their favorite experiences and exciting new content updates.

We continue to position our company to deliver on its long term pipeline build scale and gain market share.

During the quarter, we grew our pool of creative talent with the addition of more than 300 developers.

This includes our highly complementary acquisitions of Elite3D and Roll7.

Based in Valencia, Spain Elite <unk> is one of the world's leading creative studios. It is dedicated to innovative two D and three D or artwork for the interactive entertainment industry.

ALLETE Treaty will form a second office for <unk>, 31st Union studio and serve as a new publishing location for two case Global services Division.

<unk> seven is the Baxter award winning studio behind all the all of the World, which is launching tomorrow.

Going forward the team will help support private division's mission to bring games to market from the industry's top creative studios as well as to broaden our labels portfolio of owned intellectual property and internal development capabilities.

Our most significant recent development was our agreement to combine with Zynga, which we expect to close during the first quarter of our fiscal 2023.

We're very excited by the prospect of this transformative combination, which will significantly diversify our business establish us as a leader in mobile is the fastest growing segment of the interactive entertainment industry and greatly enhance our positioning as one of the world's top three pure play publishers of interactive entertainment.

We believe there will be tremendous strategic and financial benefits for our company and we've already identified $100 million of annual cost synergies that we expect to achieve within the first two years post closing and over $500 million of annual revenue opportunities that we can deliver over time.

We look forward to welcoming the team zynga into the take two family in the coming months.

Turning to our third quarter results, our better than expected performance was driven primarily by Grand theft Auto the trilogy, the definitive edition Red Dead redemption, two and Red dead online and NBA took a 22.

N D H U K 22 continued to exceed our expectations and according to the MPT group. It was the number one selling title in the U S across all new releases in calendar 2021.

In addition, the game achieved a new franchise record for experiencing the largest number of users in the shortest amount of time.

This performance helped solidify M D Hek's legacy as the top basketball simulation experience in our industry with over 8 million units sold in to date worldwide.

Players remain deeply engaged at an average of 1.9 million users are playing the game every day, which is up 10% compared to M. B a two K 21 in the same period last year.

This helped drive better than expected recurrent consumer spending growth of 10% year over year, even as we faced challenging comparisons from the Gen. Nine launch of the game last November .

In addition, N D H U K 22 experienced an 8% increase in total in game purchasers and a 30% increase in new to franchise spenders.

<unk> expanded the brand's addressable market further with the launch of M. D. H U K twenty-two arcade edition for Apple arcade. The title continues to sit at the top of the arcades top game chart and has an average score of 4.7 out of five across more than 35000 ratings.

We continue to be pleased with the ongoing innovation of visual concepts brings to the series annually and look forward to seeing how they'll deliver new experiences to NVA TK in the future.

Sales of Grand Theft Auto five continue to be strong and to date. The title has sold in more than 160 million units worldwide.

Since its launch in 2013 Grand theft Auto five is remain within the top five best selling titles for each calendar year.

Across the Americas, including in the U S and over 50 major territories across Europe , The Middle East Africa, and Asia Pacific.

2021 marked another excellent quarter for Grand theft Auto online with the title matching 2000, Twenty's record setting monthly audience size Grand theft Auto Online's engagement was driven by an array of free content updates, including new events around Halloween, new vehicles and clothing options for the rates creator.

And the contract update featuring Grammy Award, winning artist legendary producer in this year's Super Bowl halftime show headliner, Dr. Dre, which were all released during the third quarter.

In particular, the contract broke new ground for Grand Theft Auto online from a design standpoint, but its deep story elements and increased access for solo players. While also advancing Rockstar games' unique ability to innovate through incorporating elements of pop culture and music into their experiences.

The update also features co op story missions with Grand Theft Auto five protagonist, Franklin and sidekick Lamar as playable characters, a new social space record a studios, where players are able to hang out with Dr. Dre and special guests a new radio station hosted by global pop stars Rosalia marker.

Called modem Mani Los Santos named after Rosalia is forthcoming album updates to two existing radio stations from L. A D J royalty D J crew in Big Boy.

<unk> exclusive new tracks by Dr. Dre, which officially released the streaming services this past Friday, and new purchase of all properties vehicles and more.

In addition, Rockstar games celebrated the 20th anniversary would be the launch of Grand theft Auto three with the release of Grand Theft Auto the trilogy. The definitive edition for current and prior Gen consoles and PC via the Rockstar games launcher with the title significantly exceeding our commercial expectations.

Red Dead redemption, two also had an excellent quarter titles outperformance was primarily driven by strong holiday sales and to date. It has sold in nearly 43 million units worldwide.

In addition, red dead online outperformed our expectations due to strong sales of Red dead redemption, two and the continued influx of new players alongside a series of updates, including the fourth installment of the quick draw club all Hallows called arms, the Halloween past II and the holiday call to arms.

Two K and gearbox software expanded our popular borderlands series further with the release of Borderlands three ultimate edition.

Our teams also we released the 2013 fan favorite tiny team as assault on dragging keep a Wonderland, one shot adventure on a standalone basis, which exceeded our expectations and is helping set the stage for next month's eagerly anticipated launch of tiny Tina's Wonder labs.

During the third quarter recurrent consumer spending rose, 2% over last year, which was in line with our expectations of a slight increase and accounted for 57% of net bookings our.

Our ability to captivate and deeply engage audiences with our offerings remains a distinguishing characteristic of our enterprise N D HEK and Grand theft Auto online were the largest contributor to recurrent consumer spending and many of our free to play offerings were notable drivers as well.

Where do you delivered a strong quarter as its newly released top 11 2022 achieved record high seasonal net bookings driven by new features gameplay improvements and enhanced live operations.

<unk> posted record net bookings results attributable to additional in game events curated seasonal content and successful marketing activations dragged.

Dragon City and Monster Legends performance was driven by enhanced live operations, new event types and strong seasonal content.

Two K launch season, eight for WWE Super card, which has now been downloaded more than 25 million times and remains to Kay is highest grossing mobile game.

N D HEK online in China outperformed our expectations. The title remains the number one online PC sports game in the region with over 55 million registered users.

Turning to our outlook as a result of our third quarter outperformance along with our updated forecast for the balance of the year. We are once again, raising our guidance for fiscal year 2022, and we now expect to achieve net bookings of 3.3 dollars 7 billion to $3 four 2 billion.

Mainly we will provide more detail shortly.

Looking ahead, we remain highly optimistic about the future of the interactive entertainment industry and our multiyear growth trajectory, we have the strongest and most diverse pipeline in our company's history comprised of new intellectual properties as well as sequels to many of our beloved franchises. We look forward to delivering many of these titles.

The coming months and beyond.

We're also confident that we can emerge as an even stronger player within our industry and deliver long term value for our shareholders. Following the anticipated closing of our transaction with Zynga with greater scale extensive synergies and a more diversified portfolio of industry, leading titles, we believe that together our two companies will far exceed our.

We'll goals, we'd like to thank all of our stakeholders for their continued support.

I'll now turn the call over to Carl.

Thanks Ross.

I'd like to thank our teams for delivering another outstanding quarter, driven by their continued commitment to excellence and dedication to our business.

I'll start by discussing our announced offerings planned for the remainder of this fiscal year.

Tomorrow Private division and our recently acquired <unk>, seven studio, where launch Ollie Ollie world on Nintendo switch, Xbox and Playstation consoles and steam.

This skateboarding action performer has been eagerly awaited by fans and received significant critical praise for its unique art style and tight gameplay mechanics.

We have used for Ollie Ollie world have been extremely positive with multiple sites are recommending our calling the title in our central purchase with a game currently scoring and 85 on an open credit at 84 unmet a critic.

Thrilled to add this popular series to our portfolio and to pursue exciting new projects with the talented team at <unk> seven.

In early March Teekay, and visual concepts will launch WWE, UK 22, which we believe will set a new benchmark in quality for the series the.

The game offers more features and enhancements than any prior WWE UK release, including a redesign gameplay engine new controls foundational improvements upgraded visuals and an array of features specifically requested by our passionate player base.

WWE <unk> 'twenty, two will hit definitely giving players complete control of the game universe, including a new look and feel accessible the challenging gameplay and significant replay value.

Raymond area, one of the most renowned and respected WWE icons of all time, well graced the cover of this year's game and true Lucha Libre fashion.

We can't wait for players to step into that range with WWE <unk> 'twenty to an experienced all the groundbreaking enhancements on which our teams have been tirelessly working.

On March 15th Rockstar Games will launch Grand theft Auto five Playstation five and Xbox series X and X, bringing a blockbuster entertainment experience to an unprecedented third console generation.

This new release features new graphics mode.

These are new graphics modes with up to four K resolution up to 60 frames per second texture and draw a distance upgrades ACR options and ray tracing as well as faster loading time immersive three D audio platform specific features and much more.

We're also excited for new players to join a thriving grand theft auto online community on the latest hardware on a standalone offering is released in March with Grand theft Auto online pre authorization.

Yes.

Sure.

Efficient four and Xbox one players eager to continue their journey on the newest generation of hardware will be able to transfer both the grand theft Auto a five story more progress and their current Grand theft auto online characters and progression to Playstation five and Xbox series X and S. We're the one time migration at lunch.

On March 25, 2 billion and gearbox software up and launched an exciting differentiated from the borderlands universe tiny Tina's Wonderland, the highly anticipated fantasy field at all new take on the leadership genre.

During the game awards in December Teekay debuted a story trailer introduced on a stage by members of tiny Tina's Wonderland, All star Celebrity task.

On the heels of the Star Saturday Night player excitement for tiny penis Wonderland is at an all time high.

We expect the assignments and continue to build as we grant access to media and content creators for extended previews and reviews and renewed reveal new gameplay details in the coming weeks.

We are looking forward to wrapping up our fiscal year with a tent pole release.

Looking ahead to fiscal year 2023, Rockstar games will launch Grand theft auto the trilogy, the definitive edition for iOS and Android devices in the first half of calendar 2022.

Who came for access games remain deeply immersed in the development of Marvel's midnight.

One of our most exciting upcoming releases with the loss of this fall.

The team is diligently working to add more story content cinematics and overall polished of the game given the immense global popularity and cross media presence of the Marvel Universe, coupled with practice of games proven success and creating deeply immersive games. We believe this title has the potential to appeal to a broad audience that we'll enjoy experiencing some of <unk>.

Most legendary heroes and an all new way.

Private division and interest up games remain hard at work on Kerbal space program, two the next generation and our beloved space exploration stimulation service.

We will have more to share about our fiscal 2020 same pipeline in the coming months and during our fourth quarter call in May.

Turning to esports the MBA <unk> is gearing up for its fifth season. This will provide a thrilling tournament centric structure, including 300 gameplay amateur teams versus NBA teekay lead teams and a significantly higher price point.

On February 26, and contributing to the league Twitch and Youtube channels to watch its draft on livestream.

Keeping with its ongoing commitment to women in esports last month. The league held its third annual women in gaming development camp and brought together top amateur female MBA Tucows K players to compete alongside and learned from lead players and coaches and to participate and off court development sessions focused on amplifying the voices in women in gaming.

In closing we believe there is a vast potential for our company to continue captivating and engaging audiences around the world by delivering the very best Entertainment experiences.

The next few months represent an exciting time for take two as we released many of our new titles and prepare for our transformative combination with Zynga, which brings with it a diverse portfolio of titles impressive data science capabilities industry, leading publishing and live operations, a massive customer database and they're leading advertising platform practice.

Together, we expect to benefit from substantial cost and publishing synergies, while also unlocking significant new revenue streams, and reaching new audiences around the world.

As we capitalize on these and other opportunities. We believe we will deliver long term value for our shareholders I'll now turn the call over to Randy. Thanks.

Thanks, Carl and good afternoon, everyone today I'll discuss our third quarter results and then review our financial outlook for fiscal 2022 and fourth quarter. Please note that additional details regarding our actual results and outlook are contained in our press release at.

As Jeff mentioned, our holiday results were outstanding driven by strong engagement across our key franchises.

Bookings were $866 million, which was above our guidance of $800 million to $850 million and up 6% as compared to last year.

Our outperformance was primarily driven by Grand theft auto the challenges the definitive edition Red dead redemption, two and Red dead online and NBA to gain 22.

During the period recurrent consumer spending increased 2% compared to our outlet or a slight increase and accounted for 57% of total net bookings digitally delivered net bookings increased 12%, which was above our outlook of a 5% increase and accounted for 88% of the total our outperformance was primarily due to higher there.

Expected digitally delivered full game Sal.

During the quarter, 63% of console games were delivered digitally up from 56% last year.

GAAP net revenue increased 5% at $903 million and cost of goods sold increased 1% to $350 million.

Operating expenses increased by 18% to 399 million.

Primarily driven by higher personnel and stock based compensation expenses. The addition of <unk> and the revaluation of its earn out partially offset by lower marketing expense.

GAAP net income was $145 million or $1 24 per share as compared to $182 million or $1 57 per share in the third quarter last year.

We ended the quarter with approximately $2 $5 billion of cash and short term investments.

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

We are raising our net bookings outlook range to $3 37 to 3.42 billion. This is up from our prior outlook of $3 three eight between $4 billion due to our third quarter outperformance along with our updated forecast for the fourth quarter.

The largest contributor to net bookings are expected to be NBA, teekay Grand theft auto online and Grand theft, <unk> Red Dead Redemption tale and Red Dead online Borderlands, three and Grand theft Auto the trilogy, the definitive edition <unk>.

The net bookings breakdown from our labels to be roughly 50% Teekay, 40% Rockstar games, and 10% private division and T. T mobile game, the forecasted geographic net bookings, but to be about 60% United States and 40% International we now expect recurrent consumer spending to decline by 5% compared to our prior outlook after <unk>.

6% decline and represent 65% of net bookings, which is in line with last year. We now protect digitally delivered net bookings to decrease by approximately 3% compared to our prior outlook of a 4% decline.

90% of our net bookings are expected to be digital slightly above 89% last year.

Our forecast assumes at 69% 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 $3 four 1% to $3 $46 billion and we now expect cockpit sold to range from $152 billion to $154 billion.

Total operating expenses are expected to range from $1 48 to $1 $49 billion.

Which at the midpoint represents a 23% increase over the prior year.

This increase includes investments in marketing personnel and research and development that will help us deliver our extensive multiyear pipeline. It also reflects the addition of new audience and a full year of play that as well as an increase in stock compensation expense.

Our operating expense expectations are slightly above our prior guidance, primarily driven by the transaction costs associated with our anticipated combination with zynga.

We expect GAAP net income to range from $361 million to $373 million or $3.10 to $3 20 per share.

But my management reporting purposes, we expect our tax rate to be 16% for the remainder of fiscal 2022.

Now moving to our guidance for the fiscal fourth quarter.

We project net bookings to range from $808 million to $858 million compared to $785 million in the fourth quarter last year.

The largest contributors to net bookings are expected to be NBA, <unk> Grand theft auto online and Grand theft satisfied which includes Grand theft auto five Playstation five and Xbox series X tiny Tina's Wonderland Red Dead Redemption tale and Red Dead online Grand theft Auto the challenge as the definitive edition and WWE <unk>.

Okay 22.

We project recurrent consumer spending to be down 3% compared to last year and digitally delivered net bookings to increase slightly.

Our forecast assumes at 77% of console game sales will be delivered digitally up from 74% last year.

We expect GAAP net revenue to range from $835 million to $885 million and cost of goods sold to range from $380 million to $406 million.

Operating expenses are expected to range from $389 million to $399 million at the midpoint. This represents a 30% increase over last year, driven primarily by higher marketing expenses to support our fourth quarter release late edition of nowhere and yet and transaction costs associated with our anticipated combination with zynga.

GAAP net income is expected to range from 53% to $65 million or <unk> 46 to 56 cents per share.

You had we have many exciting projects underway across all of our label and we plan to make continued investments next year to prepare for some of our major launches with our incredible portfolio of creative assets are significant growth opportunities, including our robust pipelines and our strong balance sheet. We remain highly confident in our long term growth trajectory and our ability.

<unk> to deliver shareholder value.

Before I turn the call back over to Jeff I'd like to reiterate that we are very excited about our anticipated combination with zynga. We believe that the proposed transaction will not only bring together our highly complementary portfolios of will also significantly increase take to scale and provide many new growth opportunities as we disclosed in our January 10 announcement.

We expect the combined business to deliver a 14% compound annual growth rate for the three year period from our fiscal 2021 through 2024, excluding any of the proposed transactions revenue opportunities or any future acquisitions.

In terms of next steps, we expect to file our joint S. Four which includes the proxy statement and prospectus with the SEC in late February or early March and our stockholder voting will occur in the spring. We continue to expect the transaction to close in the first quarter of our fiscal year 2023. Thank.

Thank you I'll now turn the call back to Jeff.

Thanks, Lenny and Karl on behalf of our entire management team I'd like to thank our colleagues for delivering another outstanding quarter and to our shareholders I want to express our appreciation for your continued support we will now take your questions operator.

At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

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

Great. Thanks for taking the questions.

Maybe first on NBA G. K you guys mentioned that you use and bookings were up 10% year on year. So just wondering if you could dig a little bit deeper into whether this.

Growth was due to macro based factors are new merger to the game anything that you can point to that suggests that this growth is that sustainable long term.

Hey, Martin with Carl I'm, not sure that there is any room macro issues that are going on that I would attribute to the game I'm sure. Obviously, the MBA is having.

Incredibly successful and having growth so that always helps.

We're thrilled with that partnership.

So it's great. When the game is really out of the gate performed fantastically well I think people are reacting.

First and foremost to the quality of the game and also to the expansive amount of content in the game.

And we're just really focused on driving engagement I mean every year. The team added visual concepts K continues to add more and more content more modes and actually enable those both to work more seamlessly together.

With innovations such as the city neighborhood et cetera, So really for us it's about the quality of the game and driving engagement through offering more and more and better content and that's really what we see driving growth and we're not finished I mean those were not nowhere near saturation point at this point, there's a lot of there's a lot of greenfield in front of us.

And as long as we continue to deliver on the quality of the content than we expected growth to continue for the foreseeable future.

Got it thanks, Karl and then maybe one on GTA.

So playing Devil's advocate here, a little bit so one of the main drivers of outperformance. This quarter did you guys mention was the trilogy.

But I believe there was there were a number of bug launch that affected gameplay. So.

No. One has this issue has been fixed and then two more importantly has there been any changes made to the QA process to ensure that this does not happen to feature launches such as GTA enhanced next month and the next entry in the series thereafter.

Thanks for the question, Yes, we are totally focused on quality here and we always want to deliver the best possible experience very occasionally we fall short and I think controller G was an example of that in the.

The title was launched with some issues we've addressed many of them. There are more fixes to come going forward. We remain highly focused on quality and we are exceedingly confident in all of our upcoming releases.

Okay. Thanks Charles.

Our next question is from Matthew cost with Morgan Stanley . Please proceed with your question.

Hi, everyone. Thanks for taking the questions I have two so I guess on on the 14% CAGR guidance I think it implies something like $9 billion of revenue for the combined entity and in fiscal 'twenty four I guess that seems to imply a pretty significant amount of top line growth kind of for the core <unk> business excluding zinc.

So I guess, what would you call out as kind of the biggest most important drivers over the next two years to get to that higher revenue base.

And which are the most important ones to get there and then I guess secondarily on Zynga.

You've talked about the opportunity to drive revenue synergies by maybe using the tool that zynga to bring some of your tent pole ip's onto mobile and in a bigger way than they had been in the past.

How long do you think that would take what does it look like how much investment would it take to get there. Thanks.

I'm Matthew I'll start with the unfortunate mistake CAGR and when we're talking about take two's pipeline of titles, we haven't given any detail deeper than that but we have been talking about and the growth as our pipeline over the last couple of years in the 'twenty titles per year that we've been.

Growing over time, and that's really what's in those numbers and we talked about more immersive core titles and how we were supporting the pipeline of titles and that's really where that growth is coming from.

And with regard to bringing take two's core intellectual property to mobile with Zynga has helped look we think that's one of many great opportunities.

We've already said that we expect to achieve $100 million in cost synergies annually over the next couple of years.

Additionally, we've identified at least $500 million of annual run rate revenue synergies many of which are unrelated to new game launches many of which are unrelated to bringing take to IP to mobile. However that is an opportunity and while we haven't identified any heroics within there. We do think it's an interesting op.

<unk> on a selective basis in the coming years the actual investment.

There is not significant compared to our core investment in console and PC IP.

Thank you.

Our next question is from Colin Sebastian with Baird. Please proceed with your question.

Oh, Thanks, and good afternoon guys.

I guess first off I'm, just wondering for if you have any industry level observations on the quarter that just passed.

Several high profile new releases in the industry underperformed expectations.

I'm just wondering if there was a common denominator that you saw that might explain that or if they were really just title specific and then secondly on the mobile business and I know, we're looking past the close of the acquisition, but just curious to learn a little bit more about the road map.

For converting.

Bunch of your really strong console and PC franchises to mobile how quickly you think that can develop.

Thanks for your question.

Look this is it's really hard to make hits in any entertainment industry, It's really hard to make video games and now and then we fall short now and then our competitors fall short we.

We don't believe there's any trend in the industry. We just think that over time as entertainment industries mature consumers expectations always increase and they should so it's always our goal to do better with each iteration of a franchise or with each launch of a new intellectual property I mean, one of things, we're really proud of our track.

Record is with regard to our franchises and we have 11 franchises. For example that has sold over 5 million units with an individual release.

Each iteration has always sold more than the prior iteration, which is not always true for the industry and lately has really not been true for the industry, but it is true for us, but it will only remain true for us if we continue to focus on quality mightily and that's job number one around here.

In terms of bringing take two's core intellectual properties to mobile that remains a very interesting opportunity.

As I said earlier, we've identified.

Round $500 million of annual run rate revenue synergies to be achieved in the coming years and the combination with vanguard and additional $100 million of annual run rate cost synergies and only a small portion of those synergies on the revenue side are attributable to new releases based on core take two IP. So we have not.

Densify any heroics, we know it will take some time the financial investment in the context of our investing in the console and PC titles is not significant because obviously the creation of a mobile title is not as heavy lift are equally the hit ratios are not as strong in the mobile space.

I think we have a sober view of where we can go in the future and we're really excited about we think zynga.

Extraordinary developers and their extraordinary publishing abilities will enhance our ability to bring core intellectual property to the mobile market.

Alright, Thanks Ralph.

Our next question is from Doug <unk> with Cowen <unk> Co. Please proceed with your question.

Hey, Thanks, a couple of questions on Rcs first if you could just.

Confirm what the Rcs growth rate would have been on an organic basis without nordea.

And then secondly, just remind I know the tiny teen is shipping with the premium edition that includes access to the season pass how will that impact your rcs bookings in the fiscal fourth quarter. Thanks.

Okay.

Alright.

Yes.

We didn't break we don't break that out.

<unk> and so for.

For the quarter.

We had 2% app versus slight increase but I don't have it broken out without knowing yet but in total for the year, we expect rps to be slightly down by about 5% than we originally expected it to be 15% to Rcs has been pretty strong for the year and beating our expectations for.

The ESL fire, so we're pretty happy with the performance to Rcs for the air and for tiny team as well.

We're not breaking.

Breaking out the premium edition and how much that will impact Rcs. So they are not giving that level of detail either.

I'm not asking for detailed just conceptually if you sell a cream of distant past that that $30 incremental buyer, but presumably some of that does benefit George yes.

Revenue in the quarter correct.

Some of that well and be added into the Rcs.

Okay. Thanks.

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

Hi, Thank you for taking my question I was under the impression that GTA five because is not available for purchase yet can we confirm that and how do you think about the pricing strategy for the shaking hands relative to GTA five premium.

Do you intend to use pricing to differentiate the different value proposition.

The upcoming enhance the vision.

The current edition.

So that they can be enhanced so the next gen version of the <unk> are not in fact available for purchase yet, but they will be.

And in terms of pricing, we haven't discussed any pricing models around this.

Okay.

So conceptually how would you market the hence division versus the premium edition. So besides the classic changes in content is there any.

Hmm.

Any reasons, you would give the upcoming.

No potential buyers to purchase the premium edition also.

Yes, it's an enhanced version four gen nine consoles.

And there'll be a lot of upgrades and plenty of reason to two <unk>.

Purchases and Rockstar, obviously, we'd be talking about that in the marketing materials.

Thank you.

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

Okay. Thanks, Hey, guys good afternoon.

Sure with Us where the company is in terms of returning to the office or studio and your confidence in your labels ability to hit the title Count you presented in the slide deck, you see ongoing work from home as a risk to that.

And then separately I think in past quarters, you guys have said that you expect fiscal 'twenty three to see a reacceleration in growth.

Does that guidance still holds.

Yeah.

Yes, So look returned to office as a sort of location by location question, depending on the state of affairs in each location and what the local authorities are saying and obviously, we comply with all local regulations. The expectation is that we're even back now or we will be back in the coming months in <unk>.

The case the company's proven that we can be very effective without regard to where people are working from we've had great success in the context of remote work.

And while I think all of us are anxious to get back to the office as soon as we possibly can we're also mindful of the science and the circumstances.

We haven't had a quality lapse, we haven't had a timing lapse, we haven't had a financial apps and we don't expect it.

So in terms of advanced fiscal year 'twenty three so it's a little early in practice start give detailed guidance for next year, but we plan to share that on our year end earnings call in May.

Can't tell you that on a standalone basis, we do continue to believe that we will achieve sequential net bookings growth in fiscal year 2023, driven by some of the exciting <unk> releases that our labels have been working on and at the same time, we will make continued investments next year in marketing talent and IP and space expansion as you prepare for some of the main.

Our launches that our teams have underway, which we project will enable us to deliver record levels of operating performance in the next few years.

Okay.

Our next question is from Matthew Thornton with Tour Securities. Please proceed with your question.

Hey, good afternoon, everyone.

It's obviously, it's fiscal 'twenty has been interesting year in Strauss I was wondering if we can get maybe your latest thoughts on maybe where we are in terms of reopening obviously, we had data privacy changes that had some impact on the mobile sector and just kind of your thoughts as to maybe where we are there and then just youre hiring and retention has been challenging.

Don't think that's gaming specific anything thats broad brush, but just curious to get your kind of latest take on some of those countervailing forces. This year. Thanks.

Well in terms of reopening as I as I, just said certain of our officers are fully open and others will be opening in the coming months, depending on what happens in the marketplaces, we will listen to local authorities, we will pay attention to the science and we're mostly sensitive to the health and wellbeing of our colleagues around the <unk>.

However, my belief is that we will largely be back an office within the next couple of months, but I think the broader point is it working remotely has not been an issue for the company in terms of quality or performance. So we'd all love to be back in the office, they're our team today, who is on this call were altogether in the office today, and we like it that way in terms.

A data privacy.

We have not had any issues coming out from the change in <unk> and we have an extraordinary customer database.

And then the combination with Zynga, we expect to have more than 1 billion customer records, which gives us some massive opportunity from a marketing point of view. Despite the change in <unk>. So we feel just fine about being able to market and at the same time to maintain customers privacy, which is an important value of ours.

With regard to hiring we brought on 300, new developers in the quarter, we continue to grow and grow rapidly.

And.

That's been a good news story, because we think people really like working at this company.

And with regard to retention, it's an even better story I think we have one of the lowest attrition rates in the industry if not the lowest I know our attrition rate is about half that of the industry average.

Earned the right to say that every single day, we're really proud of our culture.

Paramount importance to us.

As Charles just to just one point of clarification I guess on the reopening point.

Kind of curious maybe from me from the player side, just where you think we are in terms of engagement trends are we kind of backed away.

Quote unquote norm I'm, just kind of curious your latest thoughts there. Thanks again.

Yes, I think I don't think we're seeing enhanced demand because of because of the pandemic I think we're seeing normalized demand at this point.

Okay.

Our next question is from Brian Fitzgerald with Wells Fargo. Please proceed with your question.

Thanks, we wanted to ask about.

The platform is a little bit maybe like stadia google's reportedly diminishing the gaming focus there and maybe they just never had enough critical mass in terms of subs is is there just a limit in terms of a market opportunity for that type of device or experience or yet another platform in the market maybe gamers are more excited about and how.

<unk> versions for the Gen nine platforms versus cost.

And then maybe a related topic.

How do you view, the recent market activity and the notion of <unk>.

Exclusive titles or features of release Windows is cross platforming really just diminishing the need actually the ability to have exclusive.

On the first point.

There is always a marketing story does you're in this business and we're usually very sober about them and a couple of years ago.

The marketing story <unk> was how cloud gaming would completely transform the industry and multiply demand by 'twenty X and we said on these calls was we'd love to subscribe to that view, but we didn't subscribe to that view that we thought streaming and cloud distribution was super interesting, but probably wouldn't change the market size materially and that.

It's exactly what we've seen in Super interesting and it's not changing the market size materially.

So there's broad distribution for our products now for those who want them.

Uh huh.

I don't think that anything will occur on the platform side that will significantly change the marketplace going forward the marketplace will change by virtue of putting out hits or not putting out hits.

Thank you alluded to that so as between platform driven growth or.

Product event, driven growth I'm going with product driven growth.

Which means that.

Those who are great, we'll do great and those who are good we will have problems.

Hard for me to to opine about exclusive titles I think.

In the event that a platform company acquires a label in that labels intellectual property, one could imagine those titles, becoming exclusive in certain circumstances, I think outside of that less likely although there may be short term exclusivity deals still as there always have been and I do think cross platform play is the is the wave of the future.

And youre going to see more and more because consumers will demand it.

Thanks, Jeff.

Our next question is from Benjamin soft with Deutsche Bank. Please proceed with your question.

Hey, everyone. Thanks for the question.

Okay.

I could ask a little bit about Rcs.

It was sort of in line with your expectations, whereas over the past few quarters, you've posted more meaningful outperformance. So the question is were there any surprises either positive or negative that impacted Rcs this quarter and I've got a follow up after that.

So for Rcs this quarter MBA, Teekay 22 outperformed its violence and Red dead online and GTA online was in line with our strong expectation. We had some mobile titles that were modestly came in below our expectation. So net net we were slightly above our expectations, but when we had.

<unk> forecasted for this quarter.

We knew that Q3 Q2, we had been so much higher so we put some strong expectations on the page so thats why we didnt.

We're excited as much as we did last quarter.

Yeah.

Got it and then just.

How should we think about the trajectory of margins for the business over time, specifically what are the puts and takes that we should be mindful of as you guys.

Bringing to market a much larger number of games in the coming years.

And so in terms of our bottom line margins our expectation is as they don't scale for the business is for our bottom line margins to continue to expand so this year and next year. We have some investments that we're doing in terms of our operating expenses to drive our top line in terms of art.

<unk> growth in our pipeline of titles as we had been talking about and as that continues to build our expectations are for our bottom line margins. They continue to expand and we've seen that on years, where we've had some big hits and we continue to expect to have those and we expect to have some record years in the next couple of years and with that we look for.

To see our Bottomline margins expand.

Our next question is from Eric Handler with MK and partners. Please proceed with your question.

Yes, good afternoon, and thanks for the question.

Talk a little bit about Red dead redemption two.

Looks like you sold on a quarter over quarter basis, an incremental 4 million units your best quarter in <unk>.

Little bit quite some time I'm curious was there anything special that led to the increases in unit sales or was this sort of you know.

Seasonality around the holidays, and secondly, I'm just curious what youre seeing from new cohorts spending on Red dead online versus sort of existing cohorts spending.

So for Red Dead redemption, two we had a lot of non holiday promos during the Christmas season, and that really drove a lot of the units as well as we had a series of updates and sell a lot of people are playing the game. So that really drove a lot of empty units.

And in terms of on the new cohort spending you don't have any real details on that.

Okay. Thank you.

Our next question is from Mike Hickey with the Benchmark Company. Please proceed with your question.

Hey, Strauss Karl Andy Congrats on the quarter guys. Thanks for taking my questions two I'm not sure if you have.

Given us.

And on this that the GTA trilogy for mobile ads.

Free to play or is that a.

Premium.

Offering.

Then second question just looking at sort of.

Microsoft's acquisition of that division, maybe filling in that condition.

Excuse me acquisition of LNG thinking about through the rise of subscription plans over time thinking sort of three to five years, how you think that sort of changes the competitive landscape, maybe in particular sort of the Midland budget.

Gains if they can still be competitive.

Outside of that subscription plan Thats, obviously flying with a lot of content.

Thanks, guys.

So we haven't discussed pricing for trilogy for mobile yet and on the competitive landscape.

Hard to know really.

I think.

There are probably puts and calls.

I think assuming the Microsoft acquisition of Activision closes that means there'll be really two very powerful leading pure play interactive entertainment companies.

And we will be one of them.

And I think that.

That probably means.

There are some advantages in terms of attracting talent and.

And being able to invest and really great experiences and to market them powerfully.

At the same time, our platform enterprise, having an even more robust product slate.

There'll be benefits, some and again, perhaps there'll be some detriments I think we're very focused on that which we can control and we tend not spent a lot of time worrying about things that are out of our control whats within our control is making hits and as long as we maintain our approach which is try to be the most creative the most innovative and the most efficient company in the business.

As long as we focus mightily in quality, we do well and if we have a lapse if we miss a step.

If we divert our attention from that strategy, we don't do as well. So we have our work cut out for us and we're focused on that work.

Thank you.

Our next question is from Stephen Ju with Credit Suisse. Please proceed with your question.

Okay. Thank you so much so strauss and Karl I want to put you on the spot a little bit.

It seems like there has been.

<unk> continues to be a lot of potential for private division publishing opportunities for the company, but there doesn't seem to be a ton of studios out there that you may want to look to acquire maybe so can you square that dynamic with US is it just that access to capital was easy and for the most part these independent studios value there.

Freedom, and maybe want to remain that way.

Well the good news is that private division's business model doesn't require us to own the studios. We're in business with in fact to the contrary private division was set up to offer fantastic publishing marketing services and financing to creators who wanted to stay independent over the larger enterprises.

In micro <unk> and the team have done a great job building a business that does just that at the same time, we are able to own certain intellectual properties like Kerbal space program, and we've just announced that we required roll seven which makes all we all of the world, which is being launched tomorrow Incidentally and has great Metacritic scores on switching.

We couldnt be more excited about it so I think right now private division is able really to offer.

Opportunities for those who want to stay independent and opportunities for those who wanted to be part of the private division system. We obviously have plenty of capital to deploy when the opportunity presents itself to own intellectual property.

<unk>.

And the Sky's the limit it's still early days for private Division, we're really excited about what work will come in the future.

Thank you.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

Our next question is from Andrew Merrick with Raymond James. Please proceed with your question.

Hi, Thanks for taking my question, what the performance of the contract so far and it's greater emphasis on single players I guess, how does that inform your roadmap for future GTA online content releases and doesn't necessarily say anything about the appetite for single player experiences more broadly thanks.

Yeah.

There was a time when.

And when a couple of our competitors were taking a position that single players was that we never took that position. We know that there is a role for a single player.

I believe there will be a role going forward. Then there are certain games that are meant to be only multi player experiences.

<unk> is known for its storytelling, yes. Rockstar is also known for these fantastic open world experiences. They clearly do both really well and.

And the contract shows as you just said that.

Consumers are really excited about Rockstar storytelling ability and at the same time, we had a great quarter with Grand theft Auto online. So there's a lot of excitement there. So the answer is sort of what we're doing.

All of the above.

Yes.

Our next question is from David Karnofsky with Jpmorgan. Please proceed with your question.

Thank you just to follow up on the GTA trilogy question from earlier I believe worked for the game was largely outsource and I think you've noted for remasters report, sometimes thats best for from a resource.

Standpoint.

Question is does the experience with trilogy lead you to rethink this model at all or is this just an isolated case.

We've had precious few quality lapses at this company.

So anytime that we've fallen short from a quality point of view. It has been an isolated case and we aim to keep it that way.

However, we're not changing our business model.

Okay.

Our next question is from Clay Griffin with multi Nathan LLC. Please proceed with your question.

Hi, Good evening <unk> question.

On the M&A call.

<unk> kind of one of the key strategic.

Benefits of the deals that now that you can address a market that was previously.

Previously not available to U E outside of Amendment.

The console market the high end kind of AAA gaming as it.

Close.

Yes, how do you view that taking shape I mean, obviously that market has access to mobile games now it seems like implicit in that assumption that you feel that there's demand for kind of what I call the core take too.

<unk> experienced that but just curious if you view kind of the experiences of the gains that you are thinking about when you think about that market opportunity. If there's any kind of delineation between what you do now obviously with AAA games and mobile is a white space kind of in between those two things where you think that's where the real opportunity is.

Hey, Glenn it's Carl I think look we.

Supporters and big part of the mobile market for quite some time I think that's exhibited in our acquisition strategy over the past few years, and obviously with our announced.

Acquisition of Zynga.

It's actually it's really exciting for us and it's not just about the casual space of the mid core space and of course base, we actually think the mobile market.

Is that room for all of the above as it relates to that.

How many more sophisticated the technology is getting better there is more cross platform opportunities. There are more examples of the market for mid core and core franchise is having success obviously call of duty is a perfect example of that fortnite as well so.

So we really do think that there is an opportunity for us to play along the entire spectrum of global opportunities, which is hyper casual, which we've never really been involved with that much tissue to casual and mid core to even core experiences.

If you look down the line.

One of the benefits of a cloud should that ever should that ever come about which we do hope that it is is that it does take some of the <unk>.

The stress off of being remote device and allows a lot of the intelligence to be done.

And the cloud and that enables folks to us to tap into that market all the more easier.

Other words, you don't have to buy a console or a high RPC in order to play sophisticated games.

So we really don't think theres any limitation at all in the mobile space for any of our content, whether it behavior all the way from hyper casual too.

Our most core assets.

It makes sense and do you think that that take shape, primarily by the way in the way of life services gains or do you feel like that there is obviously opportunity in kind of the the red.

That redemption type games as well.

Yes.

Look I mean, obviously most of the mobile space right now is more in the live services business. So there's clearly an opportunity there, but I wouldn't say that single player story content doesn't have a role in mobily ire.

Again, I wouldn't I wouldn't count on either one of those categories.

Okay. Thanks very much.

We have reached the end of the question and answer session and I will now turn the call over to Strauss Zelnick, Chairman and CEO for closing remarks.

Thanks, so much for joining today, we are really grateful to all of our colleagues for delivering another stellar quarter and for the great outlook going forward.

Thank you.

To our shareholders for your continued support and have a great evening.

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

Yeah.

[music].

Okay.

[music].

Yes.

[music].