Q1 2023 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to take two is first quarter of fiscal year 'twenty twenty-three conference 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. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Nicolas Chevron's Senior Vice President of Investor Relations and corporate communications.
Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2023 as of June 32022, today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl slate of her president and many Goldstein, our chief financial Officer will be available to answer your questions during the Q&A.
Especially following.
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 our beliefs about management as well as assumptions made by them and information currently available to them.
We have no obligation to update these forward looking statements actual operating results may vary significantly from these solid 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.
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 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.
Press release also contains a reconciliation of any non-GAAP financial measure to the most profitable and.
In addition, we have posted to our website a slide deck that visually presents our results and financial outlook our press.
Press release and filings with the SEC, maybe maybe I'll take my website.
And now I'll turn the call over to Sean Thanks, Nicole Good afternoon, and thank you for joining us today.
I'm pleased to report that fiscal 2023 is off to a great start highlighted by first quarter net bookings of $1 billion.
Our performance demonstrates the quality of our games and our ability to engage audiences across the globe. Despite the impacts of various macroeconomic and geopolitical factors.
This has been a milestone period in the history of our company as we closed our combination with Zynga. This.
This transaction firmly establishes take two's position as one of the largest pure play interactive entertainment companies in the world.
We're home to the industry's top creative talent, and we own and control an exceptional diverse portfolio of intellectual properties encompassing all key platforms.
Yes.
We're exceedingly optimistic about the long term growth potential for the mobile industry as well as our ability to create greater shareholder value as a combined entity.
Over the past few months, we've made significant progress in our integration efforts zynga.
Zynga, which is being run by the labels President Frank Gibeau established his ongoing leadership structure.
Alongside Frank we're fortunate to have numerous proven senior executives, who will be instrumental in overseeing zynga is day to day operations and taking our combined mobile business to the next level of success.
The integration of our corporate functions and systems has been tracking well and we're pleased that our day. One plans are executed seamlessly with no disruptions to our business operations our player communities.
While it's still early we're confident that we can realize $100 million of annual cost synergies within two years post close and we're exploring additional areas of efficiencies.
Our creative teams are in active discussions about the types of projects and we remain committed to delivering over $500 million of annual net bookings opportunities overtime.
There are several meaningful drivers in mobile that we believe our teams can begin to activate this fiscal year, including implementing new bold beats driven by new content and other large service enhancements user acquisition optimization.
Creating a centralized library for development technologies and tools.
Enhancing the monetization of in game advertising and continuing to invest in our AD tech platform with charters.
Over the intermediate and long term our vision is to introduce mobile games for some of our most popular improving intellectual properties that have the potential to be greatly additives to our financial profile.
We've observed positive signs that some mobile players are looking for more sophisticated and immersive content and we look forward to participating in this trend that should continue for the foreseeable future.
We also see a tremendous opportunity to establish a more meaningful presence in key mobile first emerging markets.
Turning to our first quarter results on a pre combination basis, our net bookings of $731 million were within our previously stated outlook range led by the outperformance of NBA <unk> WWE UK 22.
Zinc is offerings complemented our results significantly for the period.
N D. H U K 22 continues to dominate as the industry's leading basketball game with selling of over 12 million units to date exceeding the series selling from the prior year.
During the first quarter engagement with the title remains strong with average games played per user increasing 16% year over year.
In addition, NBA <unk> 'twenty two arcade addition remains the number one game on Apple arcade since its launch in October 2021, and downloads a N D. H U K mobile remained robust driven by the court side past updates and content surrounding the NBA playoffs and finals, our partnership with the NBA remains incredibly strong and we look forward to the launch of M. D. H U K 23.
<unk> in September .
Throughout the first quarter, two K and visual concepts released a series of DLC packs to support WWE, <unk> 22, which brought even more fan favorite superstars into the ring for what has been hailed by critics and consumers alike, because our best WWE offering and the series engagement with the title has been outstanding.
With more than 330 million in gain match was played it and over eight 5 million hours of WWE to take 22 content viewed on Twitch, we greatly value our partnership with WWE and we're thrilled about the long term opportunity to grow the franchise further together.
Rockstar games capitalized on the momentum from last quarter's releases of Grand theft Auto five for Playstation five and Xbox series X and S.
Grand Theft auto online Standalone and the launch of GTA plus as the experience continues to captivate players.
<unk> generation console players of Grand Theft Auto online grew over 40% this quarter and are monetizing at a rate of 36% higher than players on the previous generation.
<unk> plus the premium membership available exclusively on those consoles has seen consistent growth since launch.
The GTA online community remains strong and its audience size is operating in a new normal that is 49% higher than the pre pandemic first quarter of fiscal 2020.
Sales of Grand Theft Auto five also remained strong and to date. The title has sold in nearly 170 million units with.
With development of the next time period, and the Grand Theft Auto series well underway. The Rockstar games team has determined once again set creative benchmarks for the series our industry and for all entertainment just as a label is done with every one of their frontline releases.
We were also pleased with the performance of Red Dead redemption, two which continues to expand its audience and to date has sold in more than 45 million units worldwide.
Tiny tuners Wonderland has exceeded our expectations and continue to sustain healthy player engagement due in part to its robust post launch content, which will continue throughout the fiscal year entitled.
The title has resonated with core fans and new audiences with nearly 40% of players having never before played a borderlands title.
Additionally, finally team is one of the landslides on steam and Jan alongside its previously released DLC offerings.
Also in June two K, and supermassive games launched Macquarie and all new horror narrowed a game, where every choice bigger small shapes your story and determines who lives to tell the tale.
Title launch the strong reviews with MTR, declaring this summer's best horror game and variety of calling it every horror fans dream video game.
Private Division released void riders the first expansion for their critically acclaimed skateboarding action title Ollie Ollie world from roll seven the expansion on that 87% opening credit, which was even higher than the base games excellent review scores private division will share more details regarding the game's second expansion later this year.
Recurrent consumer spending rose, 48% and accounted for 73% of net bookings this was significantly above our prior guidance due to the inclusion of Zynga for part of the quarter, which was not included previously as well as outperformance from our core portfolio.
During the periods and you continue to experience strength in player engagement and retention and we believe that we're maintaining our healthy market share on a global basis. Additionally, we delivered significant growth in advertising net bookings, which was offset by some pressure on in app purchases due to macroeconomic conditions and seasonality.
Some key highlights of our mobile offerings. During the quarter include Harry Potter puzzles installs featured an in game event to celebrate the cinematic release of fantastic beasts, the secrets of Dumbledore.
Empires <unk> puzzles introduced the game's fifth season timing Steve Jones.
Zynga Poker released the Omaha, giving players a new way to enjoy the popular game.
Words with friends introduced clubs, a new feature that expands again, social experience by offering shared spaces.
Layers can enjoy together.
Rolla Squashed 11 games in the quarter and color runners reached the number one top free downloaded games position in the U S. App store in June .
Turning to our outlook, we now expect to deliver net bookings of $525 9 billion.
Which includes zynga for part of the year.
Our pipeline for the year continues to look very strong and we're excited to expand significantly our mobile presence with a best in class platform.
Our new forecast also takes into account some movement on our release slate for the year foreign currency pressures and macroeconomic uncertainty lanny will provide more detail shortly.
Looking ahead, our long term vision is clearer than ever and we believe that our combination with zynga will enable us to capitalize better on the evolving dynamics of the interactive entertainment industry as we deliver our expansive diverse pipeline and pursue the vast opportunities that we've identified through our combination with zynga, we see a path to engage even greater.
And so as around the world grow our scale and enhance our market.
I'll now turn the call over to Carl.
Yes.
I'd like to begin by thanking our teams for a great start to the year driven by their tireless passion creativity and commitment to deliver the best entertainment experiences in the world.
I'll now discuss our recent releases.
On July seven two km supermassive games launched an update to the popular our experience Macquarie, but to introduce several new features including <unk>, our new online multiplayer mode, where the house can invite other players to help shape. The story, it's a collaborative group.
In addition, all six episodes of the bizarre Bonafide podcast Patriot in Macquarie are now available in game and in their entirety.
The podcast, which was previously available only on select standing path platform's parallel.
Two external paranormal investigators as they Dallas troubling secrets at Macquarie.
On July 19th Chintung and visual concepts.
And final DLC packs for WWE <unk> 'twenty, two entitled the whole damn pack.
I'll take pictures pop culture icon machine gun, Kelly, Social media Negaton Logan Paul.
At high Flying Hurricane WWE Hall of Famer Rob then Dan alongside franchise is an early night with ILD.
Our knee.
Okay.
We are very proud to have delivered such a stellar WWE offering this year to support the title with our fans most beloved superstars.
On July 26, Rockstar games continues to grow and evolve the world of Grand Theft Auto online across all platforms with the launch of the criminal enterprises are sweeping update bringing new business prospects for criminal careers, plus new elaborate contactless auto showrooms to test drive and purchase vehicles and many other.
Falling out all summer long.
The update also delivered highly requested experience improvements as well as increased payoffs across a range of gameplay offering players more choices and freedom as they climbed our way up the criminal acts.
We remain incredibly excited about our pipeline for fiscal 2023 and beyond.
On August 16, private division will release Rolling out a brand new they're person single player shooter.
The stylish high octane game combines adrenalin field scale.
With enhanced combat retro futuristic world.
The title will be available on a scale for Playstation plus members for an introductory price just under $20 after which it will retail for 2000 1999.
Additionally, Playstation plus premium members will be able to play a free trial of the game when it launches.
On September nine Tuesday, additional concepts will launch NBA to take 23, the next offering from our industry, leading NBA series.
Phoenix finished shooting three time NBA all star in 2021 22 here all NBA first team selection Devin Booker is featured on this year's standardization and cross Gen Digital Deluxe edition.
The iconic Michael Jordan appears on the cover of the NBA Teekay twenty-three, Michael Jordan edition, and the brand New NBA took a 23 championship edition, which retails for 149 99 and 10.
There is incredible value as well.
Our subscription and NBA League pass at the first time.
In the U S and Canada players can purchase the WNBA edition as a gamestop exclusive featuring Phoenix Mercury Superstar Diana to Rafi, how long with Seattle Storm licensing Baird.
<unk> has partnered with every Kid sports to support greater representation of females in the basketball, but at $100000 donation that will enable growth across the U S to participate in youth sports.
Teekay will reveal more details of NBA <unk> 23 in the coming weeks.
We've made the decision to move back the launch timing of Marvel's midnight to ensure the teams at for access games and Teekay deliver the best possible experience for our fans.
The title will launch later this year on Windows, PC, Xbox series X and S and Playstation five.
The Xbox one Playstation four and Nintendo switch versions will fall at a later date.
During the fourth quarter private division and intercept games will launch Kerbal space program two L. P C.
Name is dedicated community can look forward to more information about the game and its new features and the title ongoing gameplay reveal video series.
Two case teams, therefore concepts <unk> studios and they are hard at work on their upcoming launches of WWE Teekay twenty-three and PGA tour TK twenty-three.
Teekay will have more to share on these annual sports offering shortly.
I think I have a handful of games that are currently in soft launch with more on the horizon and we expect some of these titles will begin launching worldwide in our next fiscal year.
Star Wars factors, such as continuing to regularly rollout new content updates and features as it progresses through to a more mature phase a soft launch in strategic territories.
At the same time wireless will continue to release a high volume of mobile titles as it has done previously.
Turning to esports, the NVA to Cagny Championships kickoff will take place in Indiana Indianapolis at the pavilion at Pan Am with three D. Three play August 17th through the 20th and five feet five play August 24th through the 27th.
Remain excited about the continued success and growth of the MBA to cave.
In closing, we believe that our company today is the strongest and most diverse it has ever been with approximately 11000 of the industry's best and brightest talent and most exciting and commercially successful portfolio of owned intellectual property and the ability to lever deeply captivating and engaging entertainment experiences on any platform.
Anywhere in the World, we believe that we are well positioned to deliver long term value for our shareholders.
I'll now turn the call over to Ray.
Thanks, Tyler and good afternoon, everyone and discuss the key highlights from our first slacks fly reviewing our financial outlook for the fiscal year 2023, and second quarter. Please note that our first quarter results include Zynga financial performance at 39 days in the quarter, which impacts the comparability of our results relative to last year.
It's about to our prior guidance, which did not include the contribution from Zynga also any references to take two's pre combination results background to our financial performance, excluding the acquired going to bid adieu.
Additional details regarding our actual results and outlook are contained in our approximately.
As Jeff mentioned this is a momentous quarter for our organization.
That transaction was anger and made significant progress on our integration effort. Our teams created detailed plans to be at least $100 million of annual cost synergies and we continue to expect approximately $15 million to be achieved within the first 12 months post close.
Our largest opportunities include reducing duplicative corporate overhead and contract consolidating systems rationalizing, our real estate footprint and leveraging zynga marketing functions across our I don't know if a panel. We are also exploring additional areas of inefficiencies.
At the same time because of a strong first quarter results driven by net bookings of $1 billion.
Pre combination basis, our net bookings were $731 million, which grew 3% compared to last year than our guidance range of 700 759 feet high.
The movement in foreign currency exchange rates negatively impacted our net bookings by approximately 1%.
It also places dangerous contribution to part of the quarter with consumers today navigating various macroeconomic and geopolitical factors, we believe that our financial performance truly demonstrate the resiliency of our business model driven by the incredible quality of our games and the significant value that our interactive entertainment experiences right.
Our players.
During the period, the current consumer spending the 48% and accounted for 73% of net bucket.
This is significantly above our prior guidance due to the inclusion of didn't get the part of the quarter as well as the outperformance of our pre combination portfolio led by MBA Teekay 22, tiny penis Wonderland and top 11.
We delivered net income grew 41% and accounted for 95% of the charter.
During the quarter, 77% of cracker being south because of her digitally up from 73% last year.
Net revenue increased 36% to $1 1 billion.
Cost of revenue.
2% to $436 million, which included a $20 million impairment charge related to my decision not to proceed with further development of the title on.
Announced new franchise.
Operating expenses increased by 125% $704 million.
The merit driven by the addition of dengue and a full quarter of Navios.
Acquisition costs, and higher personnel and marketing expenses.
Our GAAP net loss was $104 million 76 per share which would largely.
Largely impacted by a $117 million and the amortization of acquired intangible and $165 million.
This acquisition class.
Our GAAP net loss benefited from a reversal of expense of approximately $48 million.
And from a return of previously granted stock awards in the first quarter last year, our GAAP net income.
$152 million or $1 <unk> per share.
Our management tax rate for the period was 18% as compared to 15% in the prior year as a result of our combination with Zynga.
On a pre combination basis and manage.
As a result, certainly impacts everything the transaction exceeded the high end of our guidance range by 6%. Despite the impairment charge taken during the quarter and the higher tax rate.
Yeah ended the quarter with over $1 $8 billion of gas into our chairman, Katherine and $3 $3 billion of debt.
Turning to our guidance I'll begin with our fiscal year expectations.
I think as Chad mentioned, we are initiating new guidance that includes the combination was being empire approximately 10 months of our fiscal year.
We now expect to deliver net bookings at 585 9 billion.
Our assumptions take into considerations and shifts in our pipeline for the year as well as movement in foreign exchange rates and the uncertain macroeconomic backdrop.
<unk> contributed just didnt expect the NDA Teekay Grand theft auto online and Grand theft, <unk>, and Paragon puzzle fabric casual mobile portfolio, Jim Black and Red Dead redemption, two and Red dead online.
We expect the net bookings breakdown from Monday about a 25% Zynga. It includes the former T mobile title, 37% U K, 17% Rockstar games, and 1% private division, we forecast our geographic net bookings to be about 60%, United States and 40% International.
We now expect recurrent consumer spending to grow approximately 10% and represent 77% held on that booking.
Additionally, delivered net bookings are expected to grow by approximately 80% and represent 96%.
Our forecast assumes that any proper center console games will be delivered digitally up from 58% last year.
We expect to generate $700 million and non-GAAP adjusted unrestricted operating cash flow and we expect to deploy approximately $135 million for capital expenditures.
We expect GAAP net revenue to range from $5 seven to eight to $5 $88 billion.
Since revenue to range from $2, seven and for us $2 $79 billion, which.
This includes approximately $700 million and the amortization of acquired intangible.
Total operating expenses are expected to range from $8, three 7% to $8 $8 million as compared to $1 $5 million last year. This increase reflects income.
Inclusion of Zynga is this acquisition costs and higher personnel marketing and 19 expenses, which was slightly offset by anticipated cost synergies for the year.
And we expect a GAAP net loss ranging from $398 million to $438 million or $2 52.
Five per share, which assumes a basic share count of 159 2 million shares.
We expect our management tax rate to be 18% throughout the year.
Now moving to our guidance for the fiscal second quarter.
We project net bookings to range from one five to 155 billion compared to $985 million in the second quarter last year.
The largest contributors to net bookings are expected to be NBA teekay and that's that are online and grand theft, <unk> empires <unk> puzzles.
Hyper casual mobile portfolio and team that we put.
Recurrent consumer spending to grow approximately 85% and digitally delivered net bookings to increase approximately 70%.
For our Kansas stands at 73% of console games will be delivered digitally up from 65% last year.
We expect GAAP net revenue to range from $1 37 to $1 $14 billion and positive revenue to range from 700 $719 million, which is.
It was approximately $200 million the.
The amortization of acquired intangible.
Operating expenses are expected to range from $849 million to $859 million.
At the midpoint this represents a 125% increase over last year.
The increase reflects the inclusion of Zynga and business acquisition costs as well as higher marketing and personnel expenses, which we believe will be slightly offset by the realization of some of our anticipated cost synergies and.
GAAP net loss is expected to range from $144 million to $160 million or <unk> 86 to 96 cents per share, which assumes a basic share count of $166 4 million shares.
In closing, we had a great start to the year.
I'll leave that are common kitchen, with vanguard will enhance our positioning as one of the top interactive entertainment companies in the world.
Our teams continue to leverage the core competencies and biggest publishing platform. We believe that we will be able to engage our player base more deeply and new dimensions to our existing portfolio and deliver significant long term growth and margin expansion. Our shareholder. Thank you I'll now turn the call back to Jack.
Excellent and Karl on behalf of our entire management team I'd like to thank our colleagues for delivering an excellent start to the year.
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'll be conducting a question and answer session. If you like to ask a question. Please press star one on your telephone keypad.
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. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Eric Handler with <unk> Partners. Please proceed with your question.
Good evening and thanks for the question two questions first Lady I Wonder if you could sort of size of the changes in guidance in terms of.
How are you.
We might have been thinking about Marvel's midnight SUNS versus what's changed with FX and macro.
So for the difference in the.
The pre combination business, we had some shifts in the pipeline for the year and then there was a movement in the foreign exchange rates and then there's also the uncertain macroeconomic backdrop. So I would say that the shifts in our pipeline, where the most meaningful to our numbers.
I would say.
Yeah, we had some titles that moved within the year and that was done Marlboro Midnight Sun and then there was an unannounced titles that moved out of the area as well so I would say definitely that pipeline and changes that way that the most meaningful to.
<unk> change in the guidance.
Great. Thank you and then Strauss I Wonder if you could talk a little bit about the state of the mobile industry right. Now there has been a little bit of headwinds with growth for the industry and Oh This year and wondering as you look at.
Zynga is a portfolio of.
And combining it with your portfolio how fast can you integrate.
You know sort of the AD network are things changing relative to what you were thinking maybe at the time the the acquisition closed or maybe even when you first made the acquisition.
Oh, Thanks, sorry, if theres a lot there we are seeing some softness in the mobile market. The good news is I think we're doing better than most if not all and I think we're seeing an offsetting increase in our market share I think the reason, we're seeing probably a bit more softness in mobile than in console is in console to participate you have to buy and in mobile baidu.
Finish and Youre in a free to play environment and you can play without paying.
You are feeling the pinch of inflation.
Specifically with regard to non discretionary expenditures like fuel and food you could imagine that if you're playing the game you might choose to spend a bit less or a spend a bit less frequently.
It says we think Zynga is highly diverse portfolio of terrific games is a meaningful offset and as I've said I think we're outperforming the market. That's our belief. We're also seeing growth in advertising revenues and because I think we under index in advertising, that's an opportunity that will be offsetting took a broader market, even if we see them.
Going softness, but as you know we always we always call it the way we see it.
What we're seeing is overall some softness in the marketplace.
When you have 50% of Big Bank economists, saying, we think we might be in a recession in the next quarter or two of my attitude is the market believes we're in a recession right now and as a consumer facing company. We are seeing some softness with regard to the integration.
I'm not sure you asked about how it's going but it's going really well and we expect to meet or exceed our cost synergy expectations. Both in terms of magnitude and timing.
And more importantly, we fit really well together culturally and I think all of us.
And now all of us to take to are very excited about the combination of where things are going and how well the teams do fit together and we had a sense of that during the diligence period, but it's always nice to know post closing that that's the case.
And I think you alluded to whether we can sort of create one broader integrated platform. As you know Q2 mobile games has been folded into the Zynga Division, which is operated by approach of our and his team highly independently in one of their key priorities is to create an integrated platform that will bring the best in all of our games so enhance our.
Acquisition and enhance our conversion enhance our retention enhance our lifetime value.
And also enhanced as I said, our advertising revenue at.
Zynga has a proprietary AD tech platform driven by their chart Bruce Division and we're excited about what that can bring to zynga. It also brings all the picture.
Yeah.
Our next question comes from Matthew Thornton with true with Securities. Please proceed with your question.
Hey, good afternoon. Thanks for the question maybe.
Maybe two.
Two if I could first one leaner wondering if you'd be able to give us what the rcs percentage of bookings was for a legacy take toothpick, where I think it was 73% total with with zinc I'm curious kind of what that number was down for the quarter and then just secondly.
Strauss any movement any out your pipeline, if we think about how things are progressing and in developing I guess, what's your general sense about your progress maybe when we last talked three three months ago that'd be that'd be helpful. Thank you.
In terms of the Ics for a pre combination we're not really breaking that out anymore, but really looking at the business. Overall is one is that but I can tell you that we did outperform on NBA Teekay 'twenty, two tiny teenage Wonderland, and top 11 versus our guidance for the quarter.
So Dennis three titles did better than we had expected.
And then in terms of the pipeline, yes. So by any measure we did have a number of titles that are in fact that is shifting around and that affected our pipeline.
Some of our.
Results for fiscal 'twenty three generally speaking, we obviously don't take these shifts lately, we have seen them before the most important thing for US is always to put up the best we possibly can.
That's what build franchise value and ultimately that's what drives the success of our organization.
It's worked the way typically.
Is the best economic decision that we can make.
Excuse me.
And I would say that I'd characterize the pipeline shifts is while these things can move around and you may have that may in fact, a specific year. It does hasn't really changed at all our overall perspective on the growth in the intermediate or long term.
Okay.
Our next question comes from Matthew cost with Morgan Stanley . Please proceed with your question.
Hi, everyone. Thanks for taking the questions I have two so I guess just kind of following up on the chart boost point I think you mentioned in the prepared remarks, and then just now in the Q&A about leveraging those marketing capabilities inside zynga across other titles.
I guess, what are you envisioning that looks like and is that something that can be used to promote titles or cross promote titles on PC and console. In addition to mobile.
And then just on the commentary I think in the press release about the $500 million of synergies now that you've kind of have your.
Your hands Dirty you've gotten under the Hood with Zynga.
Do you have a sense of how long it will take to establish feasibility and start working through those projects to get a sense of how long they might take is it a five year process to just to get those done what what might that timing look like thank you.
Okay.
Thanks, I look I think to the extent that Zynga has succeeded in building a robust.
AD tech platform than it will affect all of our live services businesses Nachos Zingers live services businesses.
And we're really optimistic about that to be clear, we haven't baked any of that into our cost synergy expectations and as you know we've not we've not included a revenue synergy expectations in our forward looking projections.
So that's that's all upside if we're able to achieve that but I feel very good about the the exercising yes. It will crossover to the entire company is a lot of services offerings.
In terms of the timing for new projects very hard to call that now there's a lot of excitement internally, we're working on a lot of interesting potential ideas and certainly the development for mobile is much quicker than it is for console, but it would be premature to state in a particular time and of course, all product announced.
Vince do come from our labels.
Yeah.
Our next question comes from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking the questions. The first one is just a follow up on the full year guidance.
And one would think.
Just was hoping you could help kind of clarify a.
What items are kind of moved around within the Zynga Si.
I know the Star Wars hunters got pushed back.
Sounds like macro.
Weakness deep.
Deep into a little bit so any other color you can provide.
In terms of the Zynga side would be great.
Sure there was and there were some movements in their pipeline.
There is some changes in the FX rate that Russia, south removed from their financials and then also there was some overall ad market.
The AD market has experienced some pressure to that.
Most of the changes that we saw in their numbers.
For the last.
A few months.
Okay, and then follow up on the recurrent consumer spending I just want to make sure.
For mobile advertising revenue.
All included right in Rcs or is that.
Categorized somewhere else.
Yes, it is indeed.
Okay.
Our next question comes from Doug Crudes with Cowen. Please proceed with your question.
Yeah first I was just wondering if you're willing to share what I think is a pro forma Rev would have been for the entire quarter and then secondly.
Google is implementing some advertising formatting changes and there's been some speculation that this could negatively impact of hyper casual AD business. Just wondering what your take is on that do you see any risk there or is it something you think you can manage through.
Yeah.
So we didnt manage their business as one combined entity. So therefore, we're not going to break out and the zynga piece for the quarter and so it's not been our packet can you breakout or adults.
Friday with our prior acquisitions, so we're not going to do that here as well and with.
Regards to a change in AD formats with Google I don't know if a point of view yet about how that may or may not affect us I would say, we're not we're not concerned at the moment.
Okay. Thank you.
Our next question comes from Omar <unk> with Bank of America. Please proceed with your question.
Hi, two questions.
So just a little bit of clarification on the business plan for chart boosts, specifically could you could you clarify whether you're intending to turn that into <unk>.
Third party broker advertising network that cross promotes third party games on third party AD inventory similar to companies like iron source, App loving or unity.
Or it's more of an internal advertising technology tool.
My first question.
So in terms of the charters truckloads, there's actually a third party is today, we certainly haven't announced any sort of changes, but that is one area that we're very excited about the data the benefit is the more valuable the plaque.
Tom is going to be.
Gonna be certainly valuable from a tech perspective internally, but we think it's a great product.
Whether or not it's got great growth prospects third party market remains to be seen but thats certainly something that we're that is under consideration.
Okay. Thank you very much and then the second question is.
With regards to the mobile game market and specifically Zynga assets.
If you think about you know what your outlook for the growth and the expense base was in January when your mouth, when you announced the acquisition.
<unk>.
You know what you're guiding today is it is it about the same as it significantly lower.
You know given that in the first half of the mobile video game market seems to have not.
Not performed terribly well.
Okay.
In terms of the changes in the in our guidance.
It's what we're looking at our Opex there is an increase in terms of.
Our expenses from Zynga, but then also in terms of against our guidance and we have some lower marketing and Sam.
Our head count expenses.
Last new hires due to timing so that's the big changes between our operating expenses between this guidance and last guidance.
And on the revenue side. There obviously there are some things that happened in the short term debt that Lady in south of already spoken about that can affect what our expectations are where they are today in the short run versus where they were in January but overall, our mid to long term prospects growth prospects for the business have not changed we're still very well so very excited.
About the prospects.
Our next question comes from Martin Yang with Oppenheimer. Please proceed with your question.
Oh Hi, Thank you for taking my question. My first question is on your <unk>.
Investments into the development resources in the future can you maybe talk about your plan for mobile or for Zynga, particularly versus the rest of our more PC and console facing part of it to take two.
In terms of headcount increase or any other supporting infrastructure you have in plan after integration.
I think the good news is we have a very robust scheme that we have 11000 colleagues around the world and we have the ability to pursue a very ambitious program of development.
Publishing and at the same time, we're a growth business and we expect to continue to grow. So we don't have expectations that we will significantly increase our head count anytime soon at the same time.
Assuming we grow in a way that we expect to them, we have an expectation to grow very significantly in the next three years I assume we will increase our development head count somewhat.
Yeah.
Thank you.
One more question if I may can you maybe give us some more details on the pipeline shift.
Take two is there more conventional reasons like the game is not ready or is there any you know any macro factors play into that position in terms of you know you feel that market isn't ready for the game you want to wait until the broader consumer spending environment.
The environment becomes more friendly to the games release.
Yes.
Yeah, I mean, it really is simply that the game is so extensive removing gaming. So shifting later, which is why we have pipeline shifts. That's typically the case, we typically don't lose games up.
But that is really based on where the game is in development, we would not hold a game.
That's that's already released based on any overall economic trend or something going on in the market.
Potentially we would.
Maybe move a game of weaker change depending on the marketing windows that generally speaking when a game is ready that's when we release it.
Yeah.
Our next question comes from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
A couple of quick ones, maybe repeating on the macro theme for a long time, we've accepted the narrative that gaming spend is really resilient in a recession because of the low cost per hour of entertainment, but at the same time the model has shifted towards digital and RCI Strauss you've hit upon mobile consumer discretionary mobile advertising.
How resilient do you think overall Rcs consumer P. C would be if we came into more of a macro environment. It seems that would be a little more resilient than free to play type of models on the mobile side.
And then quick follow up kind of an odd question.
Let's go to the PGA tour business isn't seeing any impact from the from the live tour and the noise around that thanks.
So on your first point I've been asked about the potential impact of the recession on our business. Since I started with these conference calls some 15 years ago and over and over again.
I don't believe the entertainment business is recession proof or even necessarily recession resistant.
And I think we're seeing now.
Decline in consumer spending and increase in inflation will have an impact from the industry you've seen it from our report today and from our competitors' reports as well.
I think conceptually.
The impact is probably greater on free to play for the reasons that I've said earlier on the call, but you can play those titles without spending money and you may just decide spun less frequently or less in aggregate with regards to the console experience you have to buy the game to play.
So I think if you want the title.
We're going to buy it and as you pointed out it's a very good value for consumers and on your second point no. We haven't seen any impact on our ongoing sales of our engagement with PGA tour <unk>.
Just on.
Based on as you put it the noise around this new offering.
Our next question comes from Matti, let young with Bernstein. Please proceed with your question.
Hello, Good evening.
A question on <unk> now you pointed out your outperformance on mobile.
No. It was just wondering if the chalk booster stack that Zynga has would've helped you perhaps navigate some of the headwinds that some of your mobile peers have pointed out with regards to <unk>. So that the user acquisition advantage may be and helps there.
Outperformance and then.
Just to check on that macro pressure on the business and are there any interesting geographic trends are in terms of differences for example between the U S market and elsewhere and as you look at those macro headwinds you're seeing so far this year. Thank you.
Yeah.
Look the change and the idea of FA is the new reality and we've been operating within that new reality for some time I do think that our massive consumer database gives us some benefit in that we have all kinds of in house proprietary information that will help us with our marketing.
I do think that the AD tech platform that Zynga has and is building further including chart boosts will help us as I said earlier do even better.
Don I'm I'm really not concerned about this post <unk> world and in terms of the macro trends now the world tends to kind of move in lockstep on an economic basis. So we don't see any.
We don't see any particular geographic changes that meaningfully influence our company.
Okay.
Our next question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question.
Thanks for letting me ask a question maybe I'll ask a big picture one stress you know we're coming up at the beginning of the third year of this console cycle at the end of this year and we talked about what you've seen from new console adoption and what it's meant for overall gaming habits, among new users and how do you think longer term about aligning some of you.
More interesting content.
Until we get much deeper into the penetration curve because this console cycle has been very different because of elements around the supply chain dynamics. Thanks, so much.
I think you nailed it it's hard to call what's going on because it would normally be early three years, but it has been because of the incredible supply constraints.
What we have seen though is and when people are buying new consoles are highly engaged so the users for example of GTA five.
Who are on new Gen are much more engaged than prior gen. Users now that may simply be because they have new machines and they are excited about some but it may also be and it wouldn't surprise me. If this were the case that because of the new consoles offer a better experience, it's a more engaging experience and that historically has been the case.
Our business has grown coincident with the growth and exploitation of increasingly robust technology and I would expect that to continue for some time to come.
Yes.
Our next question is from Mike Hickey with the Benchmark Company. Please proceed with your question.
Thank you Strauss carlini, congrats on the quarter guys. Congrats on your acquisition pretty exciting.
Two questions from me.
First one on your new mobile games.
From existing I E are we are you sort of thinking casuals spin off here like a red dead poker or GTA casino or are you thinking more core mobile game releases off your IP.
If it is core.
Do you feel like you have the resources now that you've added thing that just to make the kind of core mobile games or would you need to be in a position to hire.
Well for me.
Teens or partner, that's sort of the first question.
Second question.
Gen Z.
Jan Alpha.
Rising very useful when you think about your biggest IP and where you've had the.
Most last year over the decades I'm curious what you think your biggest opportunities and challenges for emerging.
Emerging new generation of gamers thanks, guys.
Okay.
Okay.
Thanks, Mike for your comments on your question with regard to the creation of a new mobile titles based on legacy take two IP. It remains to be seen what those expressions will look like it'll be driven by the passion and the talent of the teams.
And to your question regarding whether Zynga has the ability to do that development in house I think the answer is unquestionably. They do zynga has any number of talented studios all around the world that distinguishes us from virtually all other mobile developers and publishers and it's one of the things that we find most exciting about about the company now.
Now the label.
In terms of the next generation of gamers I mean, the evidence is that they play more they're more engaged and they play more and that makes sense, because what was new technology 15 years ago.
For them, it's just part of the landscape they've grown up in I'm, sorry, fish and water.
People.
Kids started playing with smartphones as early as they can play with with blocks. So I have to believe that interactive entertainment will continue to grow disproportionately to the rest of the audio visual entertainment businesses. There's ongoing evidence there is and will remain the fastest growing segment with.
The entertainment industry and I think this next generation module.
Finer and finer point on that.
In terms of what we have to give them to engage them. If that is still the same which is the highest quality entertainment experience that is available on the face of the Earth and that's our job that's our mission and that's what drives US all every day.
Our next question is from drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys. Good afternoon, maybe for Strauss or Carl.
Guys are you seeing any changes with the development cycle and specifically <unk>.
Does COVID-19 in any way elongated the time it takes to complete a game and is that something that could put the development play plan at risk and then separately guys. What is the company's plan around debt reduction for fiscal 'twenty three.
Okay.
So in terms of development cycles, I think look I think.
Development cycles are ever changing and obviously it varies game by game the gains are getting bigger they're getting more complicated there's new technology out there that we can avail ourselves to so and all of that the learning process and that learning curve is often very steep.
And but I would say, there's nothing specific about that changing development cycles that we hadn't seen before it's just that the games are bigger and more complicated and theres more to do and that's actually what makes our business so exciting.
In terms of debt reduction.
And have a strong cash flow the business to be generating a lot of cash this year. So they looked at look at paying down and it's nice that it makes sense to at the end of the year, but at the same time, we look at acquisition opportunities as well. So there's something that makes sense for us to buy during the year, what else I would love to do that so.
Let's just see what.
But it looks like at the end of the year based on what the needs are during the rest of the year.
Yes.
Our next question is from David Karnofsky with J P. Morgan. Please proceed with your question.
Hi, Thank you just following up on mobile advertising at Zynga. I think you mentioned you were up year over year, given the overall mobile environment has seen macro pressure I'm. Just wondering how you kind of reconcile that with the advertising games is that about market share and then wanted to see if you could just speak to the decision to delay the full launch of Star Wars hunters beyond its initial.
Timeline and as that game is still slated for cross platform just because the platform is listed as TBA and the release.
So in terms of the advertising business, yes, the overall advertising market generally speaking has experienced year over year declines.
AG Tech consolidation and a lower spend on digital advertising.
Our advertising revenues.
The growth has decelerated from the last quarter, but they grew notably versus last year.
And we believe we outperformed the industry trends and we expect the trend the trend to improve over the course of the year.
With natural seasonality and optimizations, we're making in our network mix or pricing.
As far as the second question Oh, Yes in terms of the Starwood hunters delay. It really is just a matter of making sure that the game.
At the highest.
Hospital quality, and we have not changed anything around platforms.
Our next question is from Andrew Morocco with Raymond James. Please proceed with your question.
Hi, Thanks for taking my question two for me please given.
Given the criminal enterprises in the last few GTA online expansions have been received pretty well how should we be thinking about the GTA online content pipeline or philosophy as development on the next premium GTA ramps in resources and reallocate It and then second could softness in the AD market create opportunities for lower cost marketing or.
<unk> marketing strategies ahead of some of your frontline releases. Thank you.
Thank you.
Yeah.
Rockstar games has been supplying ongoing content updates for Grand theft auto online since its release in 2013.
The most recent one was was well received and they continue to just put a terrific content.
Any announcements about upcoming properties do come from the labels, we don't tend to talk about them here.
And the great question about advertising costs and I think it's a fair one which is if you are seeing softness in the market does that mean you can mark is your titles more cheaply going forward and the answer is we might see some minor adjustments in the cost profile, but at the end of the day, we spend a lot to support our console big console launches and I don't think that.
Softness in the AD market, we'd probably have a material impact on that.
Our next question is from Clay Griffin with Moffett Nathan. Please proceed with your question.
Hi, good evening.
Notwithstanding the impact of the higher ASP on the championship edition.
Okay, and just wondering if youre seeing any material change in mix as we head into this kind of pre order window like I guess.
In light of some of the softness in free to play mobile I guess the question back to you do you have any flexibility to maybe go a bit more aggressively with bundled virtual currency.
In the preorder window.
Yes, I think I don't know if theres anything specifically in the market that would change our philosophy on how we package our products I think.
We always are trying new models and new pricing.
So you could try to optimize the situation, but I don't really see a market driven a specific opportunity arises, but you'll see us experimenting all the time.
And no real change in mix versus last year normalizing for this championship edition.
There'll be there'll be some mix changes in mix, but.
We haven't really talked about it at this point.
Okay. Thanks.
We have reached the end of the question and answer session I'd like to turn the call back over to Strauss Zelnick for closing comments.
We just like to thank you all for joining US we're really proud of how the company is performing.
Our combination with Zynga is off to a terrific start culturally financially strategically and creatively.
And I want to reiterate my appreciation to our colleagues all around the world, we will be talking to all of them tomorrow or in our various town Hall meetings. These results are thanks to their hard a dedicated and creative work. Thank you all.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Today's conference has ended please disconnect your lines at this time. Thank you.