Q4 2022 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to take to fourth quarter and fiscal year 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Nicole Shannon Senior Vice President of Investor Relations and corporate Communications you may begin.
Good afternoon. Thank you for joining our conference call to discuss our results for the fourth quarter and fiscal year 'twenty 'twenty. Two ended March 31, 2022, today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl Slate up our President and Lee Goldstein, Our Chief Financial Officer 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.
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.
This 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 and financial outlook, our press release and filings with the FCC may or may be obtained from our website at take two games Dot com and now I'll turn the call over to Strauss.
Thanks, Nicole good afternoon, and thank you for joining us today.
Our strong fourth quarter results concluded another highly successful year for our company.
We delivered net bookings of $3 $4 billion, which reflect our creative teams unwavering commitment to quality and the ability to deliver captivating and engaging entertainment experiences with transcend geographies in generations.
On behalf of our management team I'd like to thank all of our colleagues around the world for helping us to achieve these results, especially as we continue to navigate through the new normal following the pandemic.
During the year, we positioned our organization strategically for long term growth.
To that end, we bolstered our creative teams by adding nearly 1000, new developers, including through the acquisition of several talented studios.
Which will help us expand our capabilities and support a growing pipeline of offerings.
We broadened our portfolio further with the introduction of new intellectual properties and business models to drive player engagement.
We agreed upon our pending combination with Zynga, which will grow our audience significantly an increase exponentially our net bookings for mobile is the fastest growing segment in interactive entertainment, while also providing us with substantial cost synergies and revenue opportunities.
As we build our scale, we believe that we can grow our more margins meaningfully.
Lastly, we advanced our ESG efforts and I'm pleased that we recently published our first dedicated report which includes information on our initiatives to date as well as a roadmap for the future.
During the quarter, our newly released WWE <unk> 22 in China, Chinas Wonderland outperformed our expectations as did Red dead redemption two.
N D H U K 20 to continue to grow its audience with the title selling in over 10 million units to date and.
And exceeding sell in from the prior year.
During the fourth quarter engagement remained very strong with the average active days and playing up 6% and average games per user up 13% year over year.
In addition, N D H U K twenty-two arcade edition continues to hold the number one position on Apple Arcade stop game chart and for the full year downloads of M. D. H U K mobile increased nearly 25% as compared with fiscal 2021.
We see a significant opportunity to add unique and innovative experiences throughout the game and focus on expanding our player base.
On March 11th <unk>, and visual concepts returned to triumphantly took the squared circle with the eagerly anticipated beliefs of WWE, <unk> 22, which achieved the highest Metacritic scores on both Xbox and Playstation platforms in franchise history.
Setting new benchmarks for quality. The title offers more features and enhancements in any prior released in a series, including a redesign gameplay engine new controls foundational improvements upgraded visuals and an array of options requested by our passionate player base.
Notably Ww reach UK 22 cell and first first four weeks exceeded the levels achieved for both WWE UK 19, and W. W. E T K 'twenty, even with the revised police window that was not during the holiday season.
Consumer engagement with the title has been outstanding with over 140 million in gain matches played to date.
And over $5 6 million hours of WWE, two K 22 content viewed on Twitch.
I'd like to thank you Kay and the WWE team of visual concepts for their commitment to reestablishing. This incredible franchise. We greatly appreciate WWE is immense support and launching this year's game and look forward to continuing and building upon our successful partnership in the years to come.
On March 25, two K and gearbox software released tiny changes wonder lapsed and all new fantasy fueled offering that has taken our partnership with gearbox, New creative Heights and is viewed as the best New franchise launch from two K in several years.
The title has resonated with core fans and new audiences alike with nearly 30% of players having never before played a borderlands title.
They are tiny Chinas Wonder labs has exceeded our expectations and is being supported with cost play functionality and array of post launch content and a season pass I'd like to congratulate <unk> and gearbox on delivering another stellar game and we look forward to the possibilities for this new franchise in the years to come.
During the fourth quarter Rockstar games expanded the reach of their iconic entertainment experience Grand theft auto five with the release of new versions of the game upgraded specifically for Playstation five and Xbox series X MFS.
This marked the third console generation for which the game has been made available since its initial launch in 2013 and to date.
Title is sold in more than 165 million units.
Also for the first time ever Grand Theft Auto online was made available as a standalone title for the latest generation consoles feature.
Featuring an array of graphical and technical enhancements, a new career builder new vehicles and more these versions were well received by the game's vast community of players in.
In the period, perhaps I've thought of online maintained its massive audience size from the prior year, while growing 8% and 74% as compared to the fourth quarters of fiscal 2020 and 2019, respectively. In addition, Rockstar games launched GTA plus an all new membership program, that's exclusive to Grand theft Auto online players on Playstation five and <unk>.
X box series X MFS consoled, whereby participants can receive a range of valuable player friendly benefits, including a monthly to positive GTA dollars and other bonuses designed to help players experience everything Grand theft auto online has to offer including access to major content packs like glass holidays the contract.
Initial conversion has been above our expectations, which we believe bodes well for this to be an ongoing engagement driver over time.
Red Dead redemption, two continued to expand its audience and to date has sold in more than 44 million units worldwide results for the series were notably above our expectations for the period, which is further proof of the ongoing popularity of rock stars blockbuster Entertainment experiences.
Turning to private division the labels recently acquired studio roll seven successfully launched all the all the world in February which received significant critical praise for its unique art style unimpressive gameplay mechanics.
We'll support the title with its first expansion void writers in the first half of this fiscal year.
Championing the best independent talent in our industry Private Division recently signed four new publishing agreements with leading independent developers <unk> fabric evening Star Piccolo studio and yellow brick and we look forward to working with these talented teams.
During the fourth quarter recurrent consumer spending declined 6% over last year and accounted for 60% of net bookings over the past few months to consumers in a wide array of long awaited high quality new releases the market <unk>.
Including several of our own exciting titles that have not deployed significant live service offerings. We believe that this dynamic has impacted our overall recurring from Mr. Maurice Patrick.
And the HEK and Grand Theft Auto online were the largest contributor to recurrent consumer spending during the fourth quarter and many of our free to play offerings. One notable drivers as well.
Top 11 continued to perform very well following our acquisition was our number one mobile title during the fourth quarter.
Two dots delivered notable year over year growth in post posted its best ever net bookings performance driven by new in game events and successful marketing Activations Dragon.
Dragon City, and Monster Legends delivered a solid finish to the year supported by enhanced live operations.
WWE Super card has now been downloaded more than 26 million times and remains two cases highest grossing mobile game.
And then B, a two K online in China outperformed our expectations a title remains the number one online PC sports game in the region with nearly 57 million registered users.
Okay.
We're incredibly excited about our future path of growth, including our pending combination with Zynga. We believe that this will be a transformative moment for take two as we continue to build upon our core tenants to become the most innovative the most creative in the most efficient entertainment company in the world.
Combined will create a powerhouse of industry, leading titles that span key platforms and drivers across the interactive entertainment developed by some of the most creative and forward thinking talent within the industry.
Later this week, our respective shareholders will vote on the transaction, which assuming such approvals are obtained we anticipate will close on May 23 2022.
On a standalone basis for fiscal 2023, we expect to achieve a new record of $3 $75 billion to $3 $85 billion in net bookings as we plan to deliver many new exciting releases during the year.
Looking ahead and excluding the impact of our combination with Zynga, we expect fiscal 2024 and fiscal 2025 to set even higher records of net bookings for our company alongside a significant ramp up in profitability.
Lanny will provide additional details on our outlook shortly while Karl will share an update on our exciting diverse multi year pipeline.
<unk> approximately 69 titles that we plan to release through fiscal 2025.
In closing, we're highly optimistic about our future.
As we continue to expand our enterprise and execute on our growth strategies. We believe that take two remains incredibly well positioned to increase its scale and prominence within the industry expand margins and deliver long term value for our shareholders.
I'll now turn the call over to Carl.
Thanks Ross.
I'd like to begin by thanking our teams around the world for delivering another outstanding year for our company.
Strong results were driven by our colleagues' passion creativity and commitment to deliver value for all of our stakeholders.
I'll now discuss our recent first quarter releases.
On April 21st Tuesday in here about software it really captures the first of four exciting downloadable content packs and the tiny peanuts, London landscape.
Featuring a new environment, Boston counter and legendary.
The offering represents an innovative post loss experience on this exciting new franchise.
On April 20, <unk> and visual concepts launched the Bondi pack featuring five playbook superstars as my faction Evo cards for each.
The first of five downloadable planned content offerings for WWE, <unk> 22, all of which will be available individually and as part of the game season pass throughout the year.
Looking ahead fiscal 2023 will be another exciting year for take two as we delivered captivating new entertainment experiences for our players while also growing our business through our pending combination with zynga.
I'll now provide details on take two's fiscal 2023 pipeline on a standalone basis, which includes 18 planned releases.
We expect to deliver six immersive core offerings, all of which will be available for purchase.
These include the quarry.
Is an all new par narrative game from Teekay and supermassive games, where every choice bigger small shapes your story and determined and led us to tell the tale.
Featuring an iconic ensemble cast in Hollywood stars, including David Arquette, Ral Winter Justice Smith brand New song Lance Hendrix.
Then shay and more the Korean will launch on June 10th of Playstation and Xbox consoles and Windows PC the esteem.
Michaels and the Nexsan <unk> is planned for release during the second half of calendar 2022, and the front of this year's most anticipated games.
Title is being developed by for access games, the acclaimed series that brought audience iconic franchises.
Sid Meier's civilization, and Exxon and features the Marvel Universe is most severe heroes an entirely new gameplay experience teekay.
Teekay will have more to share in the coming months.
Treble space program to which accounted for monetization.
And now expected to launch on PC in early calendar 2020, great and on console later in calendar 2023.
If a patient for the title is high.
The $12 million gain on the announcement trailer.
The dedicated hard working at any can look forward to more information about the game and its new features from the titles ongoing gameplay you heal video series.
Turning to our Angeles annual sports offering fans can expect all new releases from our popular sports series, including NDA Teekay 23, WWE to take 23, and PGA Tour TK 23, let's will debut legendary golf icon Tiger Woods is the gains executive director.
Okay, we'll have more to share about these titles shortly.
Continuing with our fiscal 2023 pipeline, we plan to release eight mobile titles, including four from new franchises and far from existing franchises and three mid core R. K titles for purchase.
Include one new sports titles from two K, a new franchise from private division and a new tales from the Borderlands game, which will feature new characters and story set in the Borderlands universe.
And lastly, we'll have one new iteration of the previous release titles available for axis.
Okay.
Our latest who continued to provide new content and experiences that drive engagement and recurrent consumer spending across many of their head franchises, including MDA to K Grand theft Auto online Red dead redemption online WWE two K tiny thing this wonderlands Ollie Ollie world anymore.
Excluding our pending combination with data, we expect to deliver 51 titles throughout fiscal 2024, and fiscal 2025, which we believe will pave the way for us to achieve a strong acceleration in net bookings growth and profitability.
This includes 18 immersive core releases seven of which are sports simulation games.
16 of these will be available for purchase while two will be free to play.
10, independent titles, which will all be available for purchase.
12 free to play mobile games.
For mid core games to purchase two of less lumpy sports.
Oriented.
And seven new iterations of previous I mean, these titles, which will all be available for purchase.
The bears, noting that these titles are snapshot of our current development pipeline. It is likely that some of these titles will not be developed through completion that launch timing may change and that we will also be adding new titles to our slate.
In addition to our full game releases will continue to offer post launch content from many of our releases ranging from virtual currency sales the downstate packs and season passes.
Okay.
Turning to esports, the NVA to kaley kicked off its fifth season on March 23rd and included new sponsors such as Google and quite nice.
This year. The Lee has partnered with the city of Indianapolis separate alternatives as well as playoffs and finals, so its new home as Brazilian.
<unk>.
Overall crime pool has increased to $2 $5 million. This season, our largest center conversion.
We remain very excited about the continued success and growth of the MDA TNK. Lee. This is a long term precursor to enhance engagement and to the driver of profits for our company.
In closing as we execute on our organic growth initiatives and unlock new opportunities presented by our pending transaction with Vega. We believe that we can broaden our portfolio and capitalize further on your platform business models emerging markets and distribution channels.
As we deliver on these growth opportunities. We believe that take two is exceedingly well positioned to deliver long term value for our shareholders announcement niccolo.
Thanks, Kyle and good afternoon, everyone today, I'll discuss our fourth quarter and fiscal 2022 results and then review our financial outlook for the phone here and first quarter of fiscal 2023.
Please note that our initial outlook does not include that in our projected results are the interest expense on the notes that take two issued in April to fund the cash portion of our pending acquisition of Zynga additional details regarding our actual results and outlook are contained in our press release.
I'm extremely pleased with the accomplishments that take details ive heard during the fourth quarter and fiscal year, we posted strong financial results took exciting step to position the company for long term growth and announced our transformational pending combination with dengue, which brings massive potential.
Potential for our portfolio and financial profile.
I'd like to thank our team for their passion commitment and for continuing to help take to deliver its strategic vision.
Starting with our fourth quarter total net bookings go 8% to $846 million, a newly released WWE Teekay 'twenty, two and tiny penis Wonderland outperformed our expectation as it were dead redemption two.
During the period, we delivered net bookings grew 4% and accounted for 91% at Dakota. This exceeded our outlook of a slight increase due to the outperformance has really delivered full game sales.
75% of console games were delivered digitally up slightly from last year.
As Jeff mentioned of the last few months there has been a wide array of long awaited high class quality new related in the market, including several of our own exciting titles that have not deployed significant my San Frans offering accordingly, our current consumer spending declined 6% and accounted for 60% of total net bookings.
GAAP net revenue grew 11% to $930 million, while cost of goods sold increased 43% to $399 million driven by amortization of software development costs, our fourth quarter at least.
Operating expenses increased by 32% to $403 million driven by the addition of nordea, including its earn out as well as higher marketing and transaction costs and GAAP net income was $111 million or <unk> 95 per share compared to $219 million or $1 88 per share in the fourth quarter of fiscal two.
Thousand in 'twenty one.
Okay.
Turning to our fiscal 2020 results tell them that up into three <unk>, four 1 billion as compared to $3 $55 billion in the prior year.
We expected throughout the year are engaged and tanks are notably higher than they were pre pandemic. However at the world began settling into new normal there was a moderation of the trends that benefited our industry. During the height of the pandemic as a result digitally delivered net bookings declined 2% slightly outperforming our guidance of a 3% decline and accounted for 91% of the total.
68% of our console games were delivered digitally up from 64% last year and recurrent consumer spending declined 6% non-GAAP adjusted unrestricted operating cash flow was $425 million as compared to our outlook of over $400 million.
During fiscal 2020, we spent $159 million in capital expenditures at fiscal year end, our cash and short term investments balance was approximately $2 $6 billion.
GAAP net revenue grew 4% to $3 5 billion.
<unk> fits also flat at $1 5 billion.
Operating expenses increased 24% to $1 $5 billion driven primarily by the addition of play that's annuity, including the revaluation of the earn out higher personnel stock compensation marketing and <unk> expenses and higher transaction costs.
And GAAP net income was $480 million or $3 50 per share as compared to $589 million or $5.09 per share in the prior year.
Today, we provided our initial fiscal 2023 outlet for take two on a standalone basis.
We project net bookings to range from $3 75 to $3 $85 billion, which is a new record level for the company enterprise John growth of 11% at the midpoint.
We have an exciting pipeline of leases that we expect to bring to market during the year, including six immersive core title, which is twice as many as we delivered in fiscal 202010.
The largest contributors to net bookings are expected to be NBA teekay standup that are online and grand theft auto.
Red Dead redemption, two and Red dead online any tenants under than Marvell Midnight Sun and PGA tour TK twenty-three.
We expect the net bookings breakdown from our labels to be roughly 60% U K, 30% Rockstar games, and 10% private division and <unk> mobile games.
We forecast our geographic net bookings to be about 60% of the United States and 40% International.
Ami.
Yes.
We expect with Pan consumer spending to be flat compared to fiscal 2020 and represent 58% and that bucking. This is Dan.
And 65% last year.
Radio net revenue was 80.
If we get digitally delivered net bookings to grow 10% and represent 91% of net bookings, which is in line with last year.
Our forecast assumes a 71% of console game sales will be delivered digitally up from 68% last year.
Back to generate more than $350 million and non-GAAP adjusted unrestricted operating cash flow and we plan to deploy approximately $120 million for capital expenditures.
Is that GAAP net revenue to range from $3 67 to $3 $77 billion and cost of goods sold a range from one six to one $7 billion. Our total operating expenses are expected to range from $1 74 to $1 $76 billion at the midpoint, it's represented 17% increase over the prior year.
As Carl mentioned, we have approximately 69 titles that we plan to deliver over the next three years and we will be investing behind our pipeline in key areas, such as marketing personnel and <unk> and we expect GAAP net income to range $223 million to $252 million or $1 90 to 2015 cents per share.
Good management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2023.
Now moving on to our guidance for the fiscal first quarter, we project net bookings to range from $700 million to $750 million as compared to $711 million in the first quarter last year.
Largest contributors to net bookings are expected to be NBA, <unk> Grand theft auto online and Grand theft set aside tiny Chinas Wonderland Red dead redemption, two and Red dead online the quarry and WWE <unk> 22.
We expect digitally delivered net bookings to increase 2% our forecast assumes that 78% of console games will be delivered digitally up from 73% in the same period last year.
We project recurrent consumer spending to decline by 10% as we believe that the momentum behind their own exciting titles that have not deployed <unk> service offering will continue into the first quarter.
We expect GAAP net revenue to range from $810 million to $860 million and consequent salt to range from $307 million to $233 million.
Operating expenses are expected to range from 387 $397 million at the midpoint. This represents a 25% increase over last year, driven primarily by higher personnel and marketing expenses as well as transaction costs.
And GAAP net income is expected to range from $93 million to $105 million or 80 to 90 per share in closing we have great confidence in our ability to drive accelerated growth into fiscal 2022, a M beyond and we believe that our pending combination with zynga, let's take our business to an even greater level of scale and profitability.
As we execute on our strategic initiatives, we believe that we can deliver sustainable profitable growth for our shareholders. Thank you I'll now turn the call back to Jeff. Thanks.
Thanks, Lenny and Carl.
Behalf of our entire management team I'd like to thank our colleagues for delivering another outstanding year and to our shareholders I'd like to express our appreciation for your continued support.
We will now take your questions operator.
Thank you at this time, we'll 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 he 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.
Our first question comes from Andrew <unk> with Jefferies. Please proceed with your question.
Great. Thank you just two quick ones. The first one on Rcs, you're it looks like your guide and that's why it was down in fiscal 'twenty two is that more.
A product of of quantity.
Or is there something you're seeing in the underlying.
Engagement stats I can give you comfort that a.
Lapping some tough COVID-19 comps here in the first half.
Or are doable.
Thank you.
Yeah. So the first year is definitely due to the comp against the average COVID-19 from last year. So we had a really strong Q1, and so comping against that whatever it is very difficult and then this quarter. We were seeing a lot of people playing on the full game that we put out as well as some of our competitors. So that also affected <unk>.
In the quarter.
Got it and then in the guide then.
Just trying to understand why the guy, who was flat and and and for them. It just seems like it's still pretty tough. So is it is it comfort coming back of of more of more rcs for 'twenty, three or or something else.
So in Q1, we're expecting to be down by about 10% and that's the ongoing of what we're seeing in Q4, which is the players playing the full games of our games in some of our competitors. So that's continuing.
In Q1, and we expect to see that for the full year, we expect to see it flat for the full year. So some of our new games that are coming out and don't have any recurrent consumer spending associated with that we expect NBA to be up for the year, and then GTA online and Red dead online, we expect to be down for the year.
Got it. Thank you so much and then stress you did a wonderful podcast earlier in the month I think with line three and it you've discussed M&A and importance of listening to offers just out of curiosity, what with the changing valuations we've seen across the landscape and the market.
We're in a what are your what are your broader thoughts on an M&A M&A activity here at the current levels and and volatility in the market.
While no one likes to see their stock price experienced the drawdown, but.
But we ultimately will always trade on our fundamentals and that's how we look at the company. So we have a really strong company and we continue to perform and outperform expectations as we have in this quarter in this fiscal this past fiscal year.
We've just issued initial guidance, which.
It was a very positive look at our company and the <unk>. So we remain in a very optimistic place and I think similarly, situated companies probably feel the same way when the overall market re rates.
Theres nothing that we can do about it nor something that we would wish to do about it we don't need to access the capital markets at this price level, we're under leveraged under no matter, how you look at it.
We have a small amount of investment grade debt coming with the closing of the Zynga transaction and then we have a really powerful company that we expect to continue to fire on all cylinders. So our.
Momentary changes in the market are kind of irrelevant to us.
Got it. Thank you guys so much.
Our next question comes from a line of Eric Handler with M. K M Partners. Please proceed with your question.
Thank you very much I. Appreciate the question two questions first maybe you could start off do you think there's any type of shift going on in preferences. Among gamers to for more story mode type of play versus let's call. It.
The live services type of play and Pete you know people are just sort of crazy that the storm a little bit more of it lately.
Hi, it's Karl actually I think that we never had an industry went away from the the attractiveness of the story around content. We've always said that we believe in that kind of content. We've always delivered on that as a company.
The ultimate entertainment experience and I think what Youre seeing is youre just seeing some other games in the market and capitalize on that I think there are a number of them out there right now so maybe it looks that way, but when you look at it over time, starting different content has always been a significant amount a significant portion of the activity and also the economy behind the industry and we expect that to be.
In the case going forward.
Great. Thanks, and just as a second question.
Comparing your your guidance to what was in the.
The S. Four from a few months back.
I'm curious if there was you know when you look at the sort of puts and takes it looks like the bookings guide is a little lower than your internal budget. The EPS guide is a little better than internal budgets anything you could talk about maybe what's changed on the margin since then.
The projections that we gave in the S. Four were not exactly our guidance because these numbers reflected our internal estimates as of a point in time.
Back in December 2021, so there's always some fluidity in our lease fleet are marketing plans the overall operating expense needs.
It can change our projections overtime I'm also like our net bookings guidance is affected by the Russia, Ukraine situation. So those numbers are not included in our projections in our guidance right now and so that really affected it. So there's always shifts in our impact on in software development costs and marketing expenses, which also affected the.
Bottom line. So those are some of the differences between guidance and the S. Four.
Thanks Lynn.
Our next question comes from Matthew Thornton with true with Securities. Please proceed with your question.
Let me hit on a little bit but leaning.
I'm wondering if you could maybe quantify some of the discrete items that I've kind of been going on in the last three months and what I'm getting at there is Russia as you alluded to as well as as well as currency. How can we think about that headwind maybe versus where we were three months ago and then maybe more broadly I don't know this for Strauss Karl.
Any latest thoughts on just where you think we are in the in the quote unquote reopening are we at a normal run rate and suddenly just player behavior. Obviously is a lot going on again on the macro front kind of curious your thoughts on what youre seeing in the in the in the player behavior more broadly any color there would be it would be very helpful. Thanks guys.
The first one in Russia, and Ukraine is not a big material number for us, but it is something that didn't change between the S. Four and our guidance and a bigger difference in the top line, but is more on some of the fluidity in our release schedule.
In terms of the currency that wasn't a huge change for us between those.
A few months, we have a pretty big natural hedge.
It isn't a big change between then and now for us.
When we set our guidance we set it based on the spot rate at the time, so any major changes from the time that we set our forecast that could be a difference going forward, but as of right now it's based on that spot rate.
And in terms of the post Covid outlook. It does feel like and we basically are the.
In a normalized situation right now.
And actually.
Basically as we thought they would we expected that our audiences would stay with us and they have and we also expected that we would see some some level of pullback in terms of.
Engagement amongst that audience, which we've seen some of that.
And I think you can see that reflected across the entire industry. At this point I would characterize it as we sort of normalize or stabilize and I think we're back on the growth trajectory that we were all anticipating.
A year ago, when we when we expect when we met with them.
Currently sites.
Yeah.
Our next question comes from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking my question.
GTA.
Separately.
But you mentioned.
They came in above your expectation.
There is a possibility of that subscription kind of being offered to their current gen players as well sure.
And then secondly, you mentioned that I believe the full year guide.
Right.
Yeah this year.
So how should we think about this.
Yeah Yeah.
Online and going forward in terms of Nextgen.
Thanks.
Yeah, we haven't given out any news about broadening our subscription offering we're thrilled about how it's been rolled out so far we're thrilled with the conversion rate and it's clear that consumers really like the opportunity to engage with Rockstar games with GTA online and they value the <unk>.
What we're offering through a subscription.
And with regard to ongoing concept updates Rockstar has said there is more content coming the more excited about that.
Yeah.
Our next question comes from Colin Sebastian with Baird. Please proceed with your question.
Alright, Thanks, good afternoon everybody.
Just a follow up on on the normalization of of usage and engagement and monetization trends I guess.
Looking at mounting concerns about a recession, maybe even stagflation I think historically the industry has performed pretty well in an economic slowdowns downturns, but curious droughts I guess, how youre thinking about the macro environment are there scenarios, where we could see an impact to the growth and investment strategy on the horizon and related to that on the mobile side.
I mean, there are concerns that the softening we saw in the March quarter might continue through the year. So curious if that impacts at all your plans for Zynga integration and the synergies.
Thanks for your question look.
People would like to claim that entertainment is counter cyclical or.
Immune to cyclicality that is not the case.
Entertainment business will be affected by an overall economic slowdown. However, we can be seen as resistance is such a slowdown. So for example, if you go back to Oh wait no nine the market actually grew in 2008 by 20%. It did decline in the one nine Bucks a 12% drop was less pronounced than many other business segments and.
After September 11, the U S gaming market actually grew by 42% and a 111% now too so in the event of a consumer recession or not.
I'm not going to opine on that because I'm not sure my opinion is very valuable.
In such an event I think we will be resistant not immune but we can withstand any such slowdown without without a problem and look if you put out great Entertainment people will come out for it and they'll come out in good times and in bad sometimes will come out more in bad times.
By the way I don't think there's any evidence that we're gonna have stagflation stagflation referred to a time.
When there was both high unemployment and high inflation and by high inflation and mortgage rates were over 16%. We're not in that ballpark, we're not close to that ballpark and we have very low unemployment rates in this country right now so stagflation doesn't seem to me to be a meaningful risk.
Some kind of moderate recession I think.
I suppose is conceptually risks, but it wouldn't it wouldn't have.
<unk> on this business that we can perceive at the time.
In terms of mobile games teach.
Teacher mobile games to do just fine.
They are performing incredibly well and continued to perform well in the fourth quarter. So.
That is any guide about how we're going to do we feel we feel just great about the pending combination with Zynga and we think there's wonderful opportunities there and.
We think that some of the challenges for example, the post <unk> world actually create opportunities for a company that has the kind of consumer database that we collectively have with zynga data analytics that we have to help us navigate that database.
Our next question comes in the line of Omar <unk> with Bank of America. Please proceed with your question.
Hi, Thanks very much.
There's been some debate in the market as to the size of the total addressable market for Grand Theft Auto six which was discussed in our blog post by Rockstar.
Because it will launch into the Gen nine console cycle, whereas the Grand theft Auto five launched slightly before Playstation four and Xbox One were launched so will such a graphically intensive game performance on Xbox one and Playstation four or even the Nintendo switch.
As it will be on the Xbox Xbox and Playstation five and to streaming technology have the potential to make older generation console and mobile devices capable of a satisfactory performance for such a state of the art game.
Yeah.
Well in reverse order there are no.
Really aren't very many streaming platforms that are up and running right out stadia is still up and running.
They don't have that many titles in that relatively small audience, we've been very supportive of steady, but its a tiny portion of our business to be clear and.
And of course, Theres, Xbox but these are not meaningful markets right now I'm not sure I understood. The question, if you're asking like Wil will though the launch of the next update in the Grand Theft Auto series, which has been discussed by rocks on the blog post as you pointed out have a salutary effect on the launch of upcoming platforms does that your question no.
Talking about it's really the question of whether the installed base. We should think about the installed base has the Xbox one sorry, Xbox one Playstation four plus Xbox Playstation five or only Xbox ex Playstation five in which case the Tam would be smaller.
So rockstar hasn't talked about any details at all about the next generation of Grand theft auto so.
There'll be more information to come but I have no doubt that when that moment comes and there is another iteration that we will be releasing through a very robust market.
Okay could I just ask you also a quick follow up in terms of your capitalized development expenses do those typically.
Accelerate as you had closer towards the launch of it became like Grand theft auto six or are they relatively flat over time.
And it depends on what games are being worked on and might be and how big the teams are embarking on the game. So over time the balance on the balance sheet will go up and down based on Montana doesn't really saying and how the games are being developed but it doesn't go in line with any one specific <unk>.
Tim There is a lot of games being worked on as Carl mentioned there.
The amount of titles that are in the pipeline and most of those are capitalized at the Danaher mobile titles.
Our next question comes from Benjamin soft with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks for the question. So I'm just now the FIFA license is officially kind of up for grabs I wanted to gauge your interest in building out a soccer franchise, either simulation or nonstick stimulation and if you've looked into it I've thought about it how do you see the different opportunities and challenge.
Is there thanks.
Well we noticed.
And we tend to be thoughtful about our business at all times.
We're excited about building out our sports business.
<unk>.
And we don't have much else to say at the moment.
Okay.
Our next question comes from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
Thank you.
Tiny team as a celadon dragging keep is featured in the in the past five Playstation plus and it included a preorder from Wonderland. So just wondering if that if that dragons keep engagement corresponded with preordering eventually.
Drove conversions if that was a unique dynamic if you if that was helpful to how the that particular marketing program works and then Josh you.
You highlighted cross play functionality with <unk> is there anything notable to call out with respect to what Youre seeing in the cross platform play there.
Either versus other prior games or other cohorts of players because you you've mentioned a nice influx of those who have not previously played.
Borderlands game.
I'll take the second part of your question first and turns into cross selling both the cost component of his Wonderland is terrific and we're really excited about that we think cross play generally is great for the consumer to have people being able to play against each other with each other across console and PC.
That's an ideal situation and we do think that that that that that ability has helped with tiny Tina I don't have any specific.
That are the share of how many of the new people because of cross play that part I don't have to share, but I can tell you. It's obviously, it's a good component.
And it was very well executed by gearbox and I just wanted to ask you just for I didn't really quite understand the first part of the question about our Solomon Dragons.
What was the specific question there.
There was a if I recall correctly there was a it was it was highlighted.
So on Dragon was highlighted in <unk>, five and the Playstation plus and it included a Wonderland preorder screen. So I'm just wondering if it's that engagement with Dragon keep you know kind of.
Built momentum and drove conversions in terms of people preordering and or even engaging with that and then eventually buying Wonderland.
Yeah.
Again, I don't have numbers specific numbers to share with you, but that was a significant marketing day for us anytime that we can reengage.
And so the franchise, particularly to launch a new franchise its going to have the same.
A very positive effect and obviously, we were blessed to have tiny peanuts.
One of the most beloved characters and the Borderlands series.
So to have access to that and to put out some content prior to the release of Wonderland, Obviously had a positive impact on us and drove momentum prior.
Our next question comes from Matthew cost with Morgan Stanley . Please proceed with your question.
Hi, everyone. Thanks for taking the questions.
I guess just on the hiring front you mentioned in the prepared remarks that you added 1000 developers to the Belford base this year.
What are you seeing in the way of competition, you know for those developers and wage inflation and if you are seeing any amount of wage inflation is that impacting your outlook for hiring for the rest of the year and then on the M&A front, obviously, obviously youre still in the process of closing the Zynga deal, but it does seem like we're in a moment.
After after many years of.
Running the business as you know very little leverage and cash on the balance sheet I'm you know like there there are opportunities out there to go after assets at depressed valuation. So I guess are you are on the Hunt post Zynga, we're more focused on kind of the integration effort in the near term.
Sure in terms of the wage inflation I think like many other companies, where we are feeling the impact of wage inflation and particularly since the labor market is pretty tight right now.
Being said, we really do believe that we're very well positioned to attract and retain talent.
We offer highly competitive compensation packages benefit packages.
Many of which include profit sharing and equity so when the company succeed our employees succeed and that is very well appreciated and there's also the element of our culture, where people come here because they like to work here.
And particularly on the creative side, where they have the freedom to pursue their passions.
<unk> also enables them to enrich themselves at the same time.
Yes, I would say everybody in the entire market is feeling some.
Some impact of the tight labor market, but I think generally speaking, we're pretty well positioned because we consider that a competitive strength of ours.
And on the M&A side.
Our story has mostly been an organic growth story for a very long period of time we.
We have selectively acquired companies that have great intellectual property and great teams.
And then of course, we acquired social point play Darts annuity is in order to enter the mobile business.
Most <unk>.
Bitingly, we'd expect to close our combination with Zynga next week.
But over the 15 year history that this management team has been here at take two the bulk of our growth for bulk of our success has been organically driven and I think that will continue going forward and we have great opportunity because combined with Zynga. We have the best collection of owned intellectual property for PC and console and mobile.
In the business and I think the most talented creative people the most talented executives.
Of course, I'm speaking from our perspective, but I believe that and I think we have to deliver on that promise and we will do so organically.
I don't know what opportunities exist given the.
What I hope will be a short term rewriting.
Interactive entertainment stocks ultimately all securities will trade upon their fundamentals and the fundamentals in this business are quite strong and I think we'll continue to be strong.
That said, we have the ability.
Highly disciplined way to do more inorganic.
Hum.
Growth of transactions.
And if it makes sense for us we will pursue them, but it's probably not the first order of business.
Okay.
Our next question comes from the line of Matthew Thornton with Truest Securities. Please proceed with your question.
Hey, good afternoon, guys. A couple of quick follow ups, just coming back to the capital allocation question. There Strauss I think a couple of quarters back it might've been the fiscal third quarter, you actually bought back some stock for the first time in several years I think you guys have typically done that pretty opportunistically.
So my first question here is given the pullback in the shares after you kind of closed the zynga deal with buybacks or opportunistic buybacks be something you would entertain or are you trying to perhaps bring leverage down fast or just just kind of any thoughts there.
And then just secondly, and Relatedly.
Post close of Zynga would you wait to the following quarter to issue pro forma guidance is that something you might entertain intra quarter does it any way for us to think about that would be helpful. Thanks again, everyone.
Yes, we have.
<unk> said that we believe in returning capital to shareholders when it makes sense.
Economically and we've done buybacks on an opportunistic basis.
Generally speaking when we perceive there to be a deep value opportunity in the marketplace, we perceived such deep value of $158 a share sitting here today, we were wrong about that but it's still this management team's view that that represents the value of this company for what that's worth.
We are heading into a transaction we have put leverage on the company for the first time ever and.
So I think.
Again buybacks won't be our first order of business, but we do retain the flexibility to pursue buybacks. If we decide to do so.
Our next question line of Mike I'm, Sorry were you still sorry, we still have lane even answered.
And part of the client apologies.
So.
The guidance is that we plan to provide consolidated guidance. When we report our Q1 results in early August .
Okay.
Our next question comes from the line of Mike Hickey with the Benchmark Company. Please proceed with your question.
Hey, Thank you a strauss Karl.
Nice quarters, guys, congratulations and thanks for taking my questions two questions. The first.
I'm not sure how much you can speak to this but sort of Lady maybe your philosophy on guidance as it relates to mobile do you think there's much of a delta there in terms of what Zynga has provided to the street historically and then more I guess higher view when you look at the mobile market through the first quarter here.
How are you reflecting on growth of mobile and is it meeting expectations and follow up.
In terms of our guidance past that in terms of mobile.
Haven't closed the transaction yet so we'll start to work with Zynga closely and get a chance to get under the number in Sudan and make sure. We have a consistent approach towards have we plan all of our business.
So that's that's the plan right now.
Charles as you know with you just on mobile market growth.
Tracking where you thought it would be you know first quarter end.
This changed your view at all.
Yes.
Don't track.
Growth statistics quarter to quarter, but long term, we believe that there's a wonderful opportunity in interactive entertainment generally in the mobile will continue to be a rapidly growing segment of the marketplace.
Our next question comes on the line of Doug Crudes with Cowen and company. Please proceed with your question.
Hey, Thanks, one of the thing gets key executives are recently lost to go to the CEO role at another company.
Wondered if you could give any update on your plans for how the mobile business is gonna be run assuming that transaction closes. Thank you.
It's a little early to have that conversation because of it.
The transaction is not closed yet.
Zynga has been operating successfully as an independent company for approximately 15 years and they are highly experienced key personnel across all areas of their business under Frank Gibeau leadership, Zynga has a deep bench of talent, including many executives who aren't exactly public facing in their roles.
But they are running the business on a day to day basis. So we're highly confident that that there are plenty of talented executives.
What will become the Zynga division of take two.
Assuming everything goes according to plan.
We're very excited about the future together and we'll have much more to say about that.
After the deal closes.
Okay. Thank you.
Our next question comes on the line of Martin Yang with Oppenheimer. Please proceed with your question.
Hi, Good afternoon. Thank you for taking my question. This is a more of a.
Longer term questions. Ms trials can you maybe share with us how would you characterize the impact great individual creators.
Is there any impact at all the commercial outcome was the games and has that really changed since you started working in the industry.
Well I think we have.
We've put more focus on creative talent here take care of them, perhaps any other company in the interactive entertainment business.
Our success is reflected that choice, it's an easy thing to say, it's a hard thing to do.
We truly encouraged the most creative people in the industry to come to our company and work on what they are passionate about and we make decisions that are in service of that approach that strategy and our goal to make great art as well as to to make great heads.
The work is done by teams all the work here is done by teams, but the leadership is crucial and we have great creative leadership across the board, we're really really proud of that great creative leadership and grateful to them for the results that they continue to deliver here.
Our next question comes from Andrea <unk> with Raymond James. Please proceed with your question.
Hi, Thanks for taking my questions. You mentioned that you saw some success in the Standalone GTA online version I guess, who are the players that are getting into GTA online at this point, how do they differ from the legacy GTA online players.
To the extent that you can provide quantitative that around that as well and then secondly is there any updates that you guys have to share maybe on your NFL partnership. Thank you.
Yes, I think on the GTA players I think what's most interesting is that the market continues to grow that we sold in 165 million units of the title even though it was launched in 2013.
Title is dominated now three console generations.
And when we created a standalone version of Grand Theft Auto online lots people showed up to play it. So clearly the market is huge and continues to grow and I think Rockstar has done a great job in continuing to make the market accessible for people over a long period of time, but we don't we don't have.
Specifically to say about that particular people who've shown up even though we have a lot of good data.
Our next question and we don't have anything right now to say about the NFL partnership although we're excited about it.
Going forward to the releases that will come in the future.
Our next question comes from Clay Griffin with Moffett Nathan. Please proceed with your question.
Yes, hi, good afternoon disappoint any clarification there.
I know it was late in the quarter, but the Standalone price for GTA online was that I'm, assuming that's getting booked at Rcs or maybe there's some nuance there just to confirm that.
And then just.
I'm curious if you could maybe put some thoughts around just the strategy around that.
Charles just called the.
The combination of the full gain on online to tether in free to play and just how successful that's been the path, obviously, but any thoughts around should we assume that that is kind of the Mou I guess for future titles.
Size of ilk.
Sorry, I apologize if you can what was your question about pricing and alone.
I was just curious as to the Standalone pricing for GTA online is that getting booked.
Recurrent consumer spending or is that being booked this ball game I guess is the first question.
The Standalone game itself.
It is the fault game, but if you're playing in online and buying in functional currency that's Rts.
And your second question.
I'm, sorry, I missed the second one as well.
Sure No just general thoughts on <unk>.
Considering the relative success of tying GTA online to GTA five.
If we should expect that that's the kind of modus operandi for games of this stature for your biggest IP going forward.
We have said that we expect to offer opportunities to engage with our titles on an ongoing basis. After release, we aim to provide such opportunities and to monetize them when it makes sense or they're all different ways to do that that could be downloadable add on content or that could be an online multi player game. It really depends on the title and.
As a as the labels.
Get ready to market and release titles that will generally be made clear. So it varies title by title Theres not going to be just one singular approach going forward.
Our next question comes from drew Crum with Stifel. Please proceed with your question.
Thanks, Hey, guys. Good afternoon. So I know, there's some commentary in the preamble about ramping up profitability in fiscal 'twenty four 'twenty five is that solely a function of scale or do you also anticipate slowing down the investment spend and where will we see fluctuation investment spending going forward. Thanks.
It's a combination of scale and also the investments other than direct marketing, we would expect that let's just go down the direct marketing will be in line with my titles come out, but the other expenses like head count and expenses and then we would expect that to slow down.
Okay. Okay. Thanks.
We want to thank you all for your questions today for your attention for joining us and for your support we really appreciate it thanks Paul.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.