Q1 2020 Earnings Call
Greetings and welcome to the take two interactive software first quarter fiscal year 2020 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Any watch 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 Hank Diamond SVP of Investor Relations and corporate communications.
Good afternoon, welcome and thank you for joining take Two's conference call.
To discuss its results for the first quarter of fiscal year 2020 ended June Thirtyth 2019.
Today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer.
Carl slight up our president and Lainie Goldstein, our Chief Financial Officer.
We will be available to answer your questions during the <unk> session. Following our prepared remarks.
Before we begin I'd like to remind everyone that statements made during this call that are not historical facts are considered forward looking statements under federal Securities laws.
These forward looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us.
We have no obligation to update these forward looking statements.
Actual operating results may vary significantly from these forward looking statements based on a variety of factors. These important factors are described in our filings with the FCC, 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.
[laughter] 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 may that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance.
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 be obtained from our website at www Dot take two games Dot com and now I'll turn the call over to Strauss. Thanks. Thanks, Good afternoon, and thank you for joining us today.
I'm pleased to report that fiscal 2020 is off to a terrific start with first quarter operating results that exceeded our expectations. We delivered significant net bookings and cash flow growth driven by the performance of Grand theft Auto online and Grand theft Auto five mph, UK 19, the borderlands franchise and Red dead redemption, two and read data online.
As we approached the sixth anniversary of their initial launch sales of Grand theft auto five and recurrent consumer spending on Grand theft Auto online once again exceeded our expectations in the first quarter.
Net bookings from Grand Theft Auto online grew year over year, driven by the increased installed base of Grand theft auto five units as well as numerous reward bonus programs tied to game mode events and promotions.
Grand Theft Auto five also continues its unprecedented level of success charting in the top 10 games in five out of the past six months in the U.S. based on combining physical and digital sales. According to the NPD group.
The title is now sold in more than a 110 million units and remains one of the most revered and successful entertainment experiences across all art forms of all time.
Our industry, leading basketball series continues to set new benchmarks for excellence.
NVH UK 19 is now our highest selling sports game ever with selling to date of nearly 12 million units. During the first quarter net bookings from MBJ 19, more than doubled driven by strong recurrent consumer spending and increased unit sales.
Recurrent consumer spending on MBK grew more than 140%.
And was the single largest contributor to that part of our business.
Moreover, engagement with MDACC Canineteen continues to increase with average games played in daily active users growing 12% and 23% respectively.
This was driven by a variety of factors, including an enhanced mix of game modes. It appeals to a broader audience and play styles. The strong performance of recent sales promotions, new player virtual currency bundles and engaging late cycle my team content.
We expect the lifetime net bookings from MBS, you cannot Jean will be the highest ever for two k. sports title, including both record unit sales and recurrent consumer spending.
Leading up to the eagerly anticipated September launch of Borderlands, three which Karl will discuss shortly we have seen a significant increase in sales of our borderlands catalog offerings.
During the quarter, two k. and gearbox software release, the borderlands game of the year addition for Playstation four Xbox one MPC, which features all new ultra HD visuals numerous gameplay improvements and all previously released add on packs. In addition, we launched the ultra HD texture pack that increases the visual fidelity of borderlands. The handsome collection on consoles and provides a graphical upgrade for borderlands two borderlands the pre sequel.
And all of the add ons for both titles on PC.
Turning to Rockstar games latest creative and commercial masterpiece Red Dead redemption, two continues to expand its audience and todays has sold in approximately 25 million units worldwide.
On may 14th read that online exited its beta phase with a massive update that brought a host of new gameplay modes, including new cooperative story emissions free realm activities and the introduction of poker.
Along with a range of updates and improvements that strengthen and stabilize the foundational world of the Red dead online experience.
In addition throughout the quarter Rockstar games released additional content, such as numerous new weapons clothing remotes and more.
Both engagement and recurrent consumer spending in the game continue to gain momentum and rock star plans to continue to enhance and evolve the world of Red dead online with ongoing updates to drive growth over time.
On July 1st Rockstar games, and Twitch announced an exciting new program through its Rockstar games, Social club members and Twitch Prime subscribers receive free and game rewards bonuses and exclusive discounts in both Grand theft auto online and read that online simply by linking their twitch Prime and social club accounts benefits continue to for months to comment include special endgame benefits for both read that online and Grand theft Auto online.
Rockstar games plans to support both Red dead online and Grand theft auto online with much more content moving forward and we now expect combined results from these titles to grow in fiscal 2020.
Our first quarter results were also enhanced by social Point's mobile games, Wwb, Supercard and Wwb to Canineteen as well as Sid Meier's civilization six.
One of our key strategic priorities is to continue to drive growth and engagement with our titles. After their initial purchase our ability to achieve this goal consistently results from our firm committed and commitment to providing consumers with opportunities that are compelling of the highest quality and meaningfully add to their overall gameplay experience to that end during the first quarter recurrent consumer spending exceeded our expectations growing 55% and accounted for 67% of our total net bookings.
In addition, a virtual currency for MBS UK Grand theft auto online and read that online recurrent consumer spending was enhanced by a variety of other offerings in the free to play category Social point remains a meaningful contributor to our results through its two biggest mobile titles Dragon City, a monster legends as well as world chef and tasty town.
In May our Barcelona based studio successfully launched word life crossword game and continues to invest in its broad and innovative pipeline of new games planned for launch in the coming years.
Recurrent consumer spending on W.W. supercard exceeded our expectations.
Then the title has now been downloaded nearly 19.5 million times and remains to case highest grossing mobile title.
And recurrent consumer spending in EMEA too can line in China also outperformed growing 75% driven by the launch of MB two can line to an August last year.
Total combined registered users for MB two came online too and its predecessor currently stand at $46 million and the franchise remains the number one PC online sports game in China.
Asia and China in particular continues to be a significant long term growth opportunity for our business.
Lastly, add on content grew nearly 135% led by offerings for the borderlands franchise, and Sid Meier's civilization six.
As a result of our better than expected first quarter operating results in increased forecast for the balance of the year. We are raising our outlook for fiscal 2020, which is anticipated anticipated to be another great year for our organization.
Looking ahead, we have the strongest development pipeline in our history, including sequels from our biggest franchises as well as exciting new IP.
Take two remains exceedingly well positioned to creatively strategically and financially to capitalize on our industry has many opportunities and to deliver growth and returns for our shareholders over the long term.
With the promise of new consoles, along with emerging platforms distribution channels business models and markets, we have tremendous potential to engage and expand further our global audience to our development teams passion and vision for creative excellence.
I'll now turn the call over to Carl.
Thanks Ross.
I'd like to begin by thanking our teams for delivering a strong start to the fiscal year.
Turning now to our recent and upcoming.
On July 20, Threerd Rockstar games held the Grand opening of the Diamond Casino and resort for Grand Theft Auto online. The Diamond is the one stop destination for quality Entertainment high end living in a range of experiences that you won't find anywhere else.
Players can engage in a classic casino activities, such as three card poker blackjack, and roulette and a variety of slot machines are watched virtual horse racing at the inside track lounge.
Yes, looking for high end fashion can choose from a variety of new clothing accessories and the casino store.
Diamond also offers the most luxurious penthouse residences and all of Us Santos and others have the ability to customize the penthouse and enjoy VIP memberships at the resort, including exclusive lounges high limit tables aircraft limousine services and more.
This highly engaging update also features a series of new story based cooperate admissions over what activities and additional opportunities to earn special rewards.
The Diamond Casino and resort update was Grand theft auto online biggest launch ever delivering record player engagement in daily active users weekly active users and monthly active users.
Now that Red dead online has exited the database Rockstar games will continue to add more free content to the game.
Following the massive content drop in May later this summer the world will evolve again with the introduction of specialist roles, including tracking down wanted criminals as a bounty hunter.
Searching the world for treasure and other exotic items to sell as a collector or building a business as a traitor.
Throughout the year Rockstar games will continue to support both Red dead online Grand theft auto online with many more updates in order to drive engagement and player growth.
On July 20, Threerd, two K released the rise and fall expansion pack for Sid Meier's civilization fix on iOS.
Hey, aspire.
Okay also announced that they will bring all of the previously released add on content for Sid Meier's civilization six both iOS and attended a switch later this year.
Civilisations six is the fastest selling title in the history of the series a seller to date of more than 5.5 million units worldwide.
On August 27, private division will release ancestors humankind Odyssey for digital download on PC.
The title is the first release for Panache digital games the studio co founded by Patrice that delay the original creative director of these assets great franchise.
And ancestors the human side Odyssey plans are challenged to survive any evolve in the harsh yes beautiful land of Africa spanning from 10 million to 2 million years ago.
Ancestors will also be available for digital download on Playstation four Xbox one in December .
On September six two k. and visual concepts will launch NVCA to K 20, the next annual offering from our industry, leading basketball simulation for Playstation four Xbox One then tend to switch and PC.
The title will also be available for Google stadia on the platform launches in November 2019.
The EPA to pay 20 standard and digital deluxe additions will feature six time MBJ Allstar three time, all MD 80, Onest team three time MBA all defensive team in 2012 Olympic Gold medalist Anthony Davis on the cover.
The MBK 20 at legend edition will feature three time and be a champion 13 time MB Allstar 2008 Olympic gold medalist in 2006 and be a final NBP Dwayne weighed on the cover.
And the two K 20 will feature the most expansive soundtrack in the history of the series with 50 track some artists such as Drake MICC Mill really Irish Postma alone as of late and FC Hustle.
Additional zones will be dynamically added throughout the year across genres spanning hip hop RMB electronic pop and rock.
On September 13, two K. and gearbox software will launch borderlands three for Playstation four Xbox one and PC.
The title will also be available for Google stadia, when the platform launches in November 2019.
The borderlands franchise, which combines the exhilarating action of a first person shooter with a rich progression and lose systems have a role playing game has sold in more than 48 million units worldwide today.
In June any three more than 8000 consumers are able to experience borderlands three and the reaction was phenomenal.
Throughout the show there was enormous excitement around our massive high energy booth with feet, which featured larger than life statues and photo ops 100 gameplay stations and a 100 seat dental affair.
The global media and attendance lauded borderlands three with more than 53 award wins and nominations, including best in show non from IDN, Gamespot construct joint Ars Technica.
The Athree game critics and more.
In addition, during the month of June two can work with our first party partners to offer an array of low to no cost engagement opportunities, including the release of a new DLC campaign for borderlands, two and title commander Lillis and the fight for sanctuary.
Which provides a narrative lead into the advanced the borderlands three.
In addition, borderlands the handsome collection was added to X plus game pass and was included in the Playstation instant game collection for the month.
On PC, our entire borderlands two back catalog was made available at a deep discount for our retail partners. These efforts together with the launch.
Of the Borderlands game of the year addition in April has resulted in sell in of over 6 million units, a borderlands titles and over 4 million players and joined the critically acclaimed Commando Ela DLC.
Later this month borderlands, three will be a games in Germany, and tax Westin, Seattle, where we will share details on an expansive post launch content plan L. Key players engaged with new experiences well past September 13.
The consumer excitement leading up to next month launch borderlands three is incredibly strong and we very much look forward to the next chapter in the highly successful borderlands franchise.
On October 22nd two case popular W. W. E series will be back on W.W., we to K 20 launches for Playstation four Xbox one and PC.
Developed by visual concepts WWD to K 20 includes several franchise first alongside streamline gameplay in a variety of popular modes.
Current raw women's champion Becky Lynch and W. W. We superstar Roman reigns will serve as the game's cover superstars and ambassadors for its worldwide marketing campaign step inside which invites players to enter the world of WWD Superstars and face a variety of new and exciting challenges in the virtual right.
On October 25th private Division, where we leased the outer boroughs.
Developed by city and entertainment the outerwear marks the reunion of Tim came and led by our ski the original craters of fallout or introducing an entirely new single player sat Fi RPG experience.
Launching on Playstation four Xbox one and PC, the outer world as a dark and weighty player driven story set in the call on the at the farthest reaches of the Galaxy.
In addition, the title will be coming to the Nintendo switch following the launch on the other platforms.
At Ethree in June the outerwear was received for nominations from the game Critics Award for best of the three more than any other game and won the award for best original game.
Throughout fiscal year 2020, we will continue to support our titles with innovative post launch content designed to drive engagement.
In addition, social point into K., we'll continue to broaden our offerings for mobile devices.
Looking ahead to fiscal year 2021, private Division announced this integration a new site first first person shooter from day, one interactive the studio co founded by market Plato, former creative director at Bungie and co creator of Halo.
The title will be fully unveiled later this month and games come.
Private division will have more exciting news and announcements in the coming months.
Turning to E sports the second season of the MBK League, our joint venture with the MBA concluded this past weekend.
Just prior to playoffs, the league announced that 10 cents would be their first distribution partner in China and stream condense playoffs and final games to the hundreds of millions of daily users across 10 cents sports and video and Tencent News.
And the two Kaylee content has generated more than 243 million video views across all EMEA and being two k. Lee social media platforms.
In addition, MBS UK League viewership, both live and on demand continues to rise with the second season seeing 34% increase in views over season one.
We are very excited about the continued progress and growth of the league, which has a long term potential to enhance engagement and to be a driver of profits for our company.
Looking ahead, we will continue to focus on delivering the highest quality entertainment and to provide new and innovative ways to enhance players experience is with our games.
To that end, we are investing heavily in opportunities to grow our scale increase our presence in mobile and capitalize on emerging distribution channels and business models, such as free to play streaming and subscription.
The successful execution of this strategy will continue to engage our customers and generate growth and profits for our company over the long term.
I'll now turn the call over to Leeny.
Thanks, Karl and good afternoon, everyone.
Today, we'll discuss our first quarter results and then review our financial outlook for the second quarter and fiscal year 2020. Please note that additional details regarding our actual results and outlook are contained in our press release.
As Jeff mentioned fiscal 2020 is off to a terrific start.
First quarter operating results that exceeded our expectations.
Total net bookings grew 46% to $422 million as compared to our outlook of $310 million to $360 million.
This outperformance is driven primarily by better than expected results from Grand theft Auto online and Grand theft auto side, and the 2019 and the borderlands franchise.
The current consumer spending grew 55% and accounted for 67% of total net bookings as compared to our outlook of over 20% growth.
Recurrent consumer spending exceeded our expectations due primarily to the outperformance.
Federal nine an MD Eightys Kay.
Digitally delivered net bookings grew 51% and accounted for 91% of the total as compared to our outlook of over 20% growth.
This result exceeded our expectations due to the outperformance of recurrent consumer spending and higher than forecasted mix of digitally delivered full game sales.
During the first quarter, 75% of current generation console games, which delivered digitally up from 53% last year.
Turning to some details from our first quarter income statement GAAP net revenue grew to $540 million and cost of goods sold increased to $241 million.
Operating expenses increased by 33% to $247 million due primarily to higher marketing and R&D costs.
And GAAP net income was $46 million or 41 cents per share as compared to $72 million or 62 cents per share in the first quarter fiscal 2019.
Adjusted operating cash flow increased to nearly $47 million and we ended the period with $1.54 billion in cash and short term investments.
Now I will review the highlights of our fiscal 2020 financial outlook.
Starting with the second quarter.
We project net bookings to range from $860 million to $910 million.
From $583 million in the second quarter last year. The increase is driven primarily by the release of Borderlands Gray.
The largest contributors to net bookings are expected to be MBK 20, borderlands, three grand theft auto online and Grand theft Auto five Red dead redemption, two and Red dead online and social Point's mobile offerings. We project the current consumer spending to grow by over 20%. This growth is expected to be driven by MD 80, K. borderlands, three and Red dead on line as well as modest growth from Grand theft Auto online.
We expect digitally delivered net bookings to increase by more than 40%.
Our forecast assumes at 48% of our current generation console games will be delivered digitally up from 47% in the same period last year.
That GAAP net revenue to range from 855 $905 million and cost of goods sold to range from $415 million to $442 million.
Operating expenses are expected to range from $312 million to $322 million at the midpoint. This represents 37% increase over last year, driven primarily by higher marketing and R&D costs.
And GAAP net income is expected to range from $118 million to $130 million or one dollar and four cents to $1.14 cents per share.
For management reporting purposes, we expect our tax rate to 17% throughout fiscal 2020.
Turning to our outlook for the full fiscal year, we are raising our outlook as a result of better than expected first quarter operating results an increase forecast for the balance of the year.
We now expect net bookings to range from $2.6 billion to $2.7 billion up from our prior outlook of $2.5 million to $2.6 million.
Compared to the prior year, we expect MBK in WWD teekay to graph offset by lower results from Red Dead redemption, two and Grand theft identified and Grand theft Auto online.
That's the largest contributor to net bookings are expected to be MDACC K Grand theft Auto online grant identified borderlands, three red dead redemption, two and bad debt online the outerwear outs and Wwt teekay.
We expect the net bookings breakdown from our labels to be roughly 60% to K, 30% Rockstar games, and 10% private division social point another.
And we forecast our geographic net bookings, but to be about 65% United States and 35% International.
We now expect recurrent consumer spending to increase in the mid teens up from our prior outlook of low single digit growth.
Driven primarily by higher expectations for Grand theft auto online and the CK.
Importantly, we now expect combined results of Grand theft Auto online and Red dead on line to grow in fiscal 2020.
This growth excludes the value that was allocated to recurrent consumer spending from the Red dead redemption two premium additions.
We now project digitally delivered net bookings to grow in the high teens.
It's up from our prior outlook of low double digit growth driven primarily by our increased forecast for recurrent consumer spending and a higher mix of digitally delivered fulghum south.
Our outlook assumes at 55% of current generation console games will be delivered digitally up from 38% last year.
We expect to generate more than $450 million and adjusted operating cash flow and we plan to deploy approximately $90 million from capital expenditure.
We expect GAAP net revenue to range from $2.83 billion to $2.93 billion and cost of goods sold to range from $1.3 billion to $1.34 billion.
Total operating expenses are expected to range from $1.07 billion to $1.09 billion at the midpoint. This represents a 15% increase over the prior year, driven primarily by higher marketing R&D and personnel costs.
And we expect GAAP net income to range from $425 million to $454 million or $3.71 to $3.96 per share.
In closing fiscal 2020 is off to a fantastic start.
Poised to be another outstanding year for take two.
Driven by the talent of our creative teams and our managements unwavering commitment to operational excellence, we have a strong financial foundation that enables us to pursue a variety of opportunities to enhance our strategic positioning and increase our ability to deliver growth and margin expansion over the long term. Thank you I'll now turn the call back to Strauss.
Thanks, Lenny and Carl.
On behalf of the entire management team.
I'd like to thank our colleagues for their hard work in delivering an excellent start to the year to our shareholders I'd like to express our appreciation for your continued support and we'll now take your questions operator.
At this time, we will be conducting a question and answer session. If you would 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 dark too if you would like to move your questions on 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 the line of.
Eric handler.
With MKM partners. Please proceed with your question.
Good afternoon, and thank you for the.
Thank you for the question two things first I wondered if you could talk about Red dead redemption online.
And maybe you could give a few metrics about engagement or the ramp in revenue that you have seen.
Since the game has come out of beta and gone live and then secondly, wondered if you could give a little color.
About the private Division, obviously, you made a recent announcement for one game.
Coming out in fiscal 21, but at this point, how many games have you signed up.
For private division.
How big of an opportunity do you see that should be over the next 12 months.
Thanks, Eric This is strauss so on red that online we exited the beta phase on may 14th with a huge update and.
Create a lot of opportunity to enjoy the online world. We also introduced poker that time.
In addition throughout the first quarter Rockstar released additional content, including new weapons clothing, you modes, and others, which I mentioned earlier, we're not giving out any statistics. However, we're really thrilled with the sales of Red dead redemption, two at over 25 million units and were excited about the continuing momentum with Red that online. We've also said that we expect a rock star online, which is both red dead online and Grand theft auto online should be setting a new record. This year. So couldn't be more excited and Carl will talk about private division. So for private division, we've announced three titles to date.
We've been private division has been in existence for quite some time and we tend to only announce things when we are ready to announce things about games and selves.
We have a lot of other activity that we havent talked about private division, but those are the three games that we have announced.
Ancestors with Patrice has delay.
Panache games, we have data worlds with obsidian and we also have we just announced recently of this integration will be one which as mark was marketplace studio Thats. All we have to say at the moment, but you should expect more in the future.
Thank you very much.
Our next question comes from the line of Matthew Thornton with Suntrust. Please proceed with your question.
Hey, good afternoon, and thanks for taking the question and congrats on the strong results.
Maybe first on Borderlands can you help us maybe as we think about recurrent revenue on borderlands three how can we think about or maybe compare and contrast borderlands versus red dead. This year.
Yeah, obviously monitor that you talked about having about a 17% attach rate of premium skew is obviously the beta.
A couple of quarters, although there wasn't a lot of MTX per se. It's out there with a borderlands three will get DLC, but any comparing and contrasting on the recurring revenue for the key frontline releases there would be really helpful. And then just I'll throw it out there any any high level commentary would you be willing to offer on.
On the out years plays would be it would be great as well thanks guys.
Hi, Carl just in terms of borderlands, three we havent discuss too much about our plan for recurrent consumer spending, but as with most most our games if not all of our games, we have a robust plan around delivering post launch in game content to engage consumers.
And it's it will be quite a bit different than rather than read that on line for the most what we've talked about with DLC content. So story driven mission based content there'll be some cosmetics with borderlands, great, but it is a different kind of experience.
As we said before.
Two K is going to be announcing more about that and the not too distant future. So you'll get some more a little bit more clarity on exactly what we have to offer but if history and we don't really talk about engagement and attached but I think most of the people on the call know that borderlands has a very strong history of delivering a lot of downloadable content and having great success with that so obviously, we're very excited about that plan.
About R&D expenses.
Yes in terms of our out years release schedule, we've basically disclose everything.
Net we've already disclosed everything that we're talking about now so there's nothing more to say about that.
Other than the fact that we do have you can see in our numbers that we have talked about R&D expenses expenses going up on particularly this year, which will be indicative of investment in new IP and new titles.
So that is in fact, what's going on and we've got a very robust maybe our most robust line pipeline of all time.
Our new IP, a lot of Thats, driven a private division, but there is new IP throughout the entire company as well so again, you'll be hearing more about that soon in the future.
Our next question comes from the line of Ben Schachter with Macquarie Group. Please proceed with your question.
Hey, guys, Greg Congrats on the continued great execution two questions. One you raised the year by more than the beat on the quarter. So what specifically are you seeing and then perhaps related to that Rockstar stated that the casino expansion was the biggest effort ever and I think they were referring to overall players on day, one and during the week can you help translate that into how it impacts the monetization and how that influences guidance for the year.
And then separately Strauss.
Heading into the launch of cloud services, the new consoles next year and obviously the continued growth of mobile how do you think platform fees may evolve should we expect the platform owners to operate similarly to what we've seen in the past or do you think things are going to change. Thanks.
Okay.
For the fiscal year guidance increase is driven primarily by the first quarter beat but we've also updated our forecast for the remainder of the year and primary increases our gteighty five GTN line and borderlands three.
And then in terms of the new Casino update this has been our biggest ever for Grand theft Auto line, which was saying a lot and we're we've seen already is record player engagement and daily weekly and monthly active users with a lot of more content coming so it's looking just fantastic and of course were up year over year in the quarter just great.
Turning to platform fees look with competition I think you have to expect that.
We will do much better in terms of take rates.
You're already seeing some recently launched platforms have announced lower fees.
And if you go from an oligopoly environment to a broadly competitive environment I think that has to be your expectations and I would just note that that obviously that benefits the company directly as those fees decline.
And that's not even counting.
That doesnt account of course, the the volume so I think it's going to be sort of.
The food is both tasty and plentiful.
Which is which is which is nice.
Great if I could sneak one more in just leaning I think you mentioned Capex was 90 million can you remind me where it was last year and what are you spending the bolt on this year. Thanks.
Last year, it was $60 million for the year. This year. The increase is driven by some development kits as well as some build out with some new offices throughout the organization.
Our next question comes from the line of drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys. Good afternoon. So Strauss I understand you guys don't provide specific guidance on individual titles coming off a very strong performance for NV two k. 19.
Just conceptually what are your thoughts around for Aneel titles, and I guess sports included and how they perform late in the hardware cycle and whether or not they're more susceptible to weaker sales as consumers look ahead, the purchasing new console.
And I guess separately for Lainie.
Maybe less Ben's question, a little bit differently here, you're guiding rock star on line to be up in fiscal 20 does that include growth for GTN online. Thanks.
Thanks.
Thanks drew for your question we have been.
Blessed by the amazing work, the visual concepts and two K. do on NVH UK and we're having a record setting year again this year with MBS UK 19, which has sold in over 12 million units in recurrent consumer spending was up 140% in the quarter, just just amazing with extraordinary growth in average games played on daily active users really across the board and I attribute that to not only that we have the industry, leading Sim game, but that there you can inhabit this game and enjoy a its.
Sort of the lifestyle those offers for.
In addition to playing the same game itself.
I think six seven years ago basketball as a three month experience.
Now, it's a 910 months experience and we think it's going to grow to be a full one year experience to address your question, particularly the last console cycle will have no negative influence on us and frankly, not really much on the industry because the entire platform businesses diversifying and.
The PC format, particularly since that's now all digital has transformed.
The business that can be 40, 50% of a release of a console release now if you're out on all those platforms and that will continue to grow. So we expect that the new console generation will be a significant net positive and there is nothing about an annualized sports title that that would play out differently.
Perhaps are online for the fiscal year and 21st Yes, we expect the two games together to grow the DC eight online on debt for the full year will be well be down over last year Q1, and Q2 are up over the prior year. So it's still really early in the year. So we'll see how the rest of the year plays out but right now the two together.
Okay very helpful. Thanks, guys.
Our next question comes from the line of Brian Nowak with Morgan Stanley . Please proceed with your question.
Thanks for taking my questions I have two just to come back to Red dead online another incredible quarter out of out of GTN line. I was wondering could you talk to us at all about any differences you notice in player engagement or player behavior in Red dead on line that could change the way you think about the long term monetization opportunity for for a game like Red dead as opposed to a game with GCA was just continues to surprise to the upside and the second one on mobile Karl I think last quarter, you talked about there were 10 games in development at social point, just any update there and how you think about the timing of those releases in what's the impact from those in the in the full year guide for this year. Thanks.
Well. Thanks, you know with the with the game like Red There, where you can engage significantly with the characters in the games. We think there are wonderful opportunities for players to experience the red deadline online world on an ongoing basis, especially as new content has dropped and we don't we tend to focus on the experience first we want to make something that consumers love and engage with and the monetization follows but we do feel there there are and will be plenty of opportunities to create recurrent consumer spending based on the format of the the Red dead online World.
Let me turn to private.
Digital social point.
Yes, as you know our two main titles.
I continue to.
To perform very very well.
And we have announced that we had.
Approximately 10 games in.
In development that that hasn't really changed on games can come in can come out, but thats sort of reflects where the capacity is at for that division and in terms of having in things in different stages of the pipeline at any given point.
We did launch tasty town in January to a global launch and we also launched worried like in May.
So not every game makes it but the good news is we've got games that are actually coming out and are worthy of.
Global launch so we continue down that path and then like I said you will you can expect to see new games coming out of social point, all the time, but that 10 number still good number.
Great.
Thanks, guys.
Our next question comes from the line of Todd Juenger with Sanford Bernstein. Please proceed with your question.
Hi, Thanks.
Thanks for taking the question.
Notwithstanding the long list of sort of double digit growth rates in the quarter I did see those but I'd love to talk a little bit about growth over the horizon.
I guess Strauss, Karl who or whoever wants to take it.
If.
There's not that many examples I can think of companies in your business of your size or bigger that are able to organically grow overtime consistently.
I just wonder if I could.
Do you guys subscribe to a view that.
At a certain size it gets harder and harder for a company in your business to grow.
Or do you think that's a false SKU and.
It begs a follow on I'll, just keep it to one or two but yes.
Ken does it mean that you guys will have to perhaps start introducing more than one front line title other than MB two k. a year.
Does online services sort of change that need or replace extremely leases and that sort of growth algorithm and what does that mean for your organization just thinking over the horizon of how you keep this going thanks.
Well I really appreciate it and yes, you're right.
Last big numbers those numbers get bigger of course growing at the same rate will become more challenging.
But we have this wonderful situation in the marketplace, which is the sector has extraordinary tailwinds and we expect those to continue and that's driven by the growth in the cohort that enjoys video games.
Remember people consume for the rest of their lives the entertainment that they love the age of 17. The video game business has about 30 years old 35 years old effectively.
And the average Plainridge today is around 37 or 38, so plenty of room for growth as people age more people come into the market, but people don't stop playing video games. So for 20 or 25 years demographics will grow.
He will cause the industry to grow and industry participants, who do a good job will benefit from that we're also seeing growth from geographies that we're currently not involved in for example Africa India.
To a lesser extent, Russia, Russia, the middle East and of course, China, where we currently have a meaningful business, but we think there is a lot of growth opportunities there as well and third growth in new.
Business models, and new technologies, such as streaming and new kinds of games are just observed 10 years ago. There was no mobile business and today, that's 60 billion dollar marketplace and at the same time that sprung up and grown the core console and PC business has continued to grow at a rapid clip. So this industry is the most rapidly growing industry in entertainment and Thats not going to change for the next 10 2025 years now with that backdrop can we fail to execute of course, we can't so what are we doing about it first our focus is on being the most creative the most innovative and the most efficient company in the business, we take that incredibly seriously and the reflection of that are.
The quality of what we do most of the time and the reflection of that is in the financial results that were able to deliver more often than not.
Right now we are increasing to your specific question, we are increasing our investment in development, we are increasing our R&D investment.
We do expect to enhance our release schedule, we launched private division, we bought social point and I think you can expect opportunities are both driven organically and driven inorganically. So finally weve. When we took over this company roughly 12 years ago, we had $700 million in that revenue.
This year, we are projecting two 2.52 0.5 2.6 billion in net bookings.
That is primarily organic growth we've done a few acquisitions, but primarily that's organic growth and I'd be loath to give you a prediction of an annual growth rate I can't really do that but what I can tell you is we are duty bound to deliver new IP every year and new releases of franchise IP. We are duty bound to deliver the biggest and best titles in the business and it's our job to create hits and more often than not we do that if we do that.
We're going to have a great set of results and if we can add on somehow some inorganic growth, which is also part of our current strategy selectively in a highly disciplined way then we could deliver even more growth and one of the I'd like I always like to say.
You can listen to the words, but its always better look at the actions because that's probably what will be repeated and our actions are we deliver hits and we delivered organic growth.
Really appreciate that thanks, a lot for the thoughts.
Our next question comes from the line of Mike Olson with Piper Jaffray. Please brisket proceed with your question.
Hey, good afternoon, as you mentioned DTA is performing better than expected and I'm sure. The majority of that outperformance has to do with development of compelling content from Rockstar, but.
Just curious what while you don't directly monetize some of the things that have been going on with modeling et cetera.
How much of the strong recent interest in the title is from from those types of kind of out outside activities positively impacting GTN line and also helping maintain player engagement or reengaged the base.
We do think it's had a big impact along with the exposure of GTN and the popularity of GTN Twitch.
Which is.
So it has led to this relationship with towards Prime there were Super excited about so it is we're all astonished and delighted that six years. After the initial release Grand theft Auto five engraft online are even bigger cultural phenomenon than ever but as you pointed out what is that driven by that's driven by the content that rock star continues to deliver the audience and the respect a rock star shows its audience and the desire to keep being on the cutting edge of entertainment. That's our goal around here and Rockstar per personifies, the the execution of that.
Yes, absolutely and then as previously discussed on the call here, you've you've got some interesting private division titles coming out this year and next.
I know, it's really hard to say and you don't want to give specific guidance, but maybe just qualitatively what what's kind of the best way for investors to think about potential contribution from those titles like how additive do you think they can be versus some of your other titles.
Yes, the the structure of those titles economically are.
As we if we are able to create hits they have the same pound for pound economic benefit than any over other titles around here. So there is a great opportunity, but that option would be to deliver delivered to the extent that we deliver hits and we never claim success before we have it ever.
That said our expectations are high the buzz is very strong the team there led by Michael gross takes the quality part of our strategy exceedingly seriously. They are very disciplined and very very selective and we're grateful that we get to work with some of the best creators on Earth.
Thank you.
Our next question comes from the line of Ryan Gee with Bam. Please proceed with your question.
Yes, hi, good afternoon, thanks for taking the questions. So I wanted to understand the accelerating growth for NVH UK I know unit sales are up but beyond that how much has the performance there been.
Really a function of getting more players to go online versus really growth in ARPU.
For the existing players and if it is the latter.
What were some of the significant changes you guys have done and how much room do you think there is to push that.
ARPU button higher and then follow up I know you guys called out GT online has performed really well since the casino update in terms of player engagement and users, but I don't recall, if you said anything specifically about red dead.
Coming out of the the beta so two months on.
What are you guys seeing in terms of players and engagement for that title. Thanks.
So yes, I mean to say 19 is in fact actually exceeding our expectations and it's really changed over the year.
I don't know if you recall that we weren't necessarily project and then you guys would be higher than they were year over iteration of generation now we are significantly we're already.
Nearly 12 million units at this point.
So it is certainly growth in units that always helps and you've got a we've got a higher base of people.
Playing the game.
That creates this virtual virtual circle.
That's that's obviously had a positive effect on Rcs as well, so rcs is up 140% quarter over quarter.
Year over year for this quarter, that's a huge change for us and.
Yes of course, the number of units and getting more players in had lots of doing that but also I think how we're more effectively engaging folks because if people are engaged and we give them more things to do and ultimately that at least the positive things from an economic standpoint, some of the things that we've done because we've learned from the past is that distressed mentioned this before is that we're focused on trying to keep people engaged throughout the entire year to its high season, certainly through to the end through the summer in the play offs to the end of the season.
And then also through the summer and the way that we do that is first of all I think the MB two k. Lee has driven more interest in that engages folks other within the leak just and just a few weeks ago.
And also just a different mix of game modes that appeals to a broader audience in play styles.
Theres promotional activity that we've that we've tried over the past few months Im new player virtual currency bundles.
And also some.
Late cycle, Mike in content. So it's really a combination of a lot of things that helps drive people to the game, but also giving them more engaged in the game and if they are more engaged in the game and they are going to spend more money ultimately and there is a lot of dry powder that we're still I would say we're still in the early innings of learning how to do that the best way.
Yes, and with regard to read that online. We said that post are coming out of beta and May the title has been performing better and better and gaining momentum. We don't have any more statistics to share. It's absurd, it's going well continuing to go better and we're very very optimistic.
Okay, great and if I could just sneak one more in there lainie I believe that.
Yeah Borderlands three you guys feel better about it how should we think about the opportunity for that in fiscal 20 relative to the.
The 25 million plus that I think is sold in life to date that you guys recently disclosed thanks.
Importantly, since two we sold in today 22 million units and it's always our aim to grow its sequel of our franchises from innovation to duration and the consumer excitement is incredibly strong. So we're really excited about the title and when we looked at our numbers to the remainder of the year, we were able to bring up that.
The forecast based on what we've been seeing.
Our next question comes from the line of Mike Inc. with Goldman Sachs. Please proceed with your question.
Great. Thank you for the question I just have one for Karl and one for Lainie. Carl you mentioned that the borderlands franchise sold in about.
48 million units to date, and I think thats up from $41 million as recently as February .
Could you talk a little bit about how the 7 million units or so sold in last five to six months inform your view about borderlands three if at all and has that increased your confidence about the title and then for Lainie I think you mentioned the combined results for Rcs.
For GTN online and RDR will grow this year, excluding the premium unit headwind, including that would it still grow thanks.
So for the full support of history. We are very excited about where things are right now from a bus from a bus perspective, but also from an economic performance perspective, we probably would have never anticipated that our catalog sales from the previous quarter when leases would have accelerated as much as they did that did come without real effort planning.
But I think the response has been certainly outweighed our expectations. So I would say if anything the past couple of months of activity, which not just starting with the various market would be that the marketing team. Its UK has undertaken but the actual just the promotional activity that we've had and the reaction from consumers where they are actually opening up their checkbooks and spending money that bodes very very well for borderlands. Three so we're very excited about that.
So in terms of Rockstar online.
Yes, you said it would grow without the special edition VC allocation and if it's not growing at this moment, including it.
But it's still early in the year, So we'll see how the year such as App.
Great. Thank you both.
Our next question comes from the line of race Tatchell consumer edge. Please proceed with your question.
Great. Thanks for taking my questions. So digital grew in recurrent spending grew a lot is there any way that we can think about the gross margin contraction in the quarter. It looks like some heavy software development costs from royalties and then separately on the expense side is there any timing that you're calling out around marketing either pushed or pulled forward in the period. Thanks.
So in terms of additional and current consumer spending is continuing to help grow grow the gross margin and you'll see that on the full year in the quarter, we have a new release coming out and with that we have additional kept cap software expense and development costs, so that would be a little bit higher in the quarter.
In terms of the expenses in Q1, there was a little bit of marketing that didnt happened during the quarter, that's going to get pushed out to the remainder of the year, you'll see the biggest marketing in Q2 and Q3 around our biggest release as and then I'll come down a little bit in Q4.
Oh, great. Thanks again.
Our next question comes from the line of Clay Griffin with Deutsche Bank. Please proceed with your question.
Hi, good afternoon.
I know you all like for your labels to take the lead in announcing new content and fully appreciate all the color you guys have given on.
I'm on for the year, but I guess can you just help us think about maybe the relative scale and scope of the content. This plan for this year, perhaps you know relative to the past couple of years.
Lots more.
[laughter].
Okay, Great and then I guess, just with with stadia can you maybe talk about the relative ease or difficulty in taking red dead and even grand theft auto to that platform from a technical perspective, it would seem like the single player experiences at the very least what could potentially be very successful there.
Yeah, but it's technically there it's relatively seamless or some minor challenges nothing that we can't see them out. We are we are supportive of stadia, we feel really good about that release.
We've always said that you want to distinguish.
Distribution technology from a business model the business model that were using is one that is tried and true which is downloading.
Our streaming for sale and.
There's there's not a lot of friction to make our titles available on Google spent exceedingly helpful. We feel very good about the opportunity remains to be seen how the platform works.
They are awfully talented and they're very very committed so fingers crossed that meets and exceeds consumers' expectations.
Okay, great. Thanks.
And our next question comes from the line of Doug Creutz with Cowen and company. Please proceed with your question.
Hey, thanks.
One of the interesting things about this new console cycle is that you and your peers are going to say some need to migrate. These large online gaming communities from one gen. Two another one could think there might be some challenges with that especially for titles that don't come on an annual basis.
As far as read that online and GT online.
How are you thinking about that transition do you see any particular challenges or opportunities is separating the client for the online from the base games, something you'd consider to kind of ease that transition for players anything you can say on that would be helpful. Thank you.
Hi, It's Karl Cemetery.
The Tech perspective, one thing to keep in mind is generation is when you look at the release has that happened in the early part of the new generation versus the later part of new generation, it's not necessarily a hugely and what you see is generation leases at the end of generation 10 look very different than the release is mitigating generations. So when you're talking about trends with putting games onto.
Recent games in pre existing games or even games from here is that.
Before and you're doing a sequel, bringing them to the next.
Early on in the generation there is certainly technical challenges that you're not necessarily going to taking advantage of everything that those new generations has to offer so it's not as disruptive as you may think.
It also presents an opportunity to do something more with companies that out before because one thing is for sure. If you just take something and try to forward and over it's not necessarily going to generate any buzz.
And most of the platforms are really talking about backward compatibility. This time around as well so that certainly is not going to resonate.
So it is dark Alan just but it's not as disruptive as you may think right and just I mean wallet. So maybe not a perfect analogy, we launched and be a two k. online two in China, and then be aid.
And the two K. online. The first version is still end market theyre, both in market simultaneously and our recurrent consumer spending is way way up year over year, we have the highest registered user base. We've ever had so again I'm not sure. It's a perfect analogy, but when you give people something they love and then you continue to support US and then potentially offer a new version for whether it's a new version of the title itself or new version to reflect a new distribution platform or technology or console cycle. Your audience is going to expand and your second question about would you ever consider consider splitting your purchase of a game from an online community. When you use the word ever we will consider anything thats good for the consumer and make sense for us we're not a rule based organization.
I would just observe though that the metrics around free to play are very different than the metrics around.
Console or PC released with a subsequent online event.
Thats ongoing and it's nice to be in a position, where we deliver something that's of such high quality that consumers are prepared happily to pay an entry price and then we will stay engaged with a title that on a standalone basis could look a lot like a free to play title, but by tethering into the initial release, we prequalify the consumer and the economics are off obviously vastly more powerful. So we're open minded about any business model in the fall into some time, but I think our current business model is very receptive to the needs of consumers and also speaks to the needs of the producing organization and our creative folks and as I've said on numerous occasions. Whenever you are trying to assess whether a particular business model works and entertainment.
Look for that intersection of whats good first and foremost for the consumer and then secondly.
What's good for the producer in the distributor and you have to find the sweet spot that encompasses both of those things where you'll have an unstable environment, an environment that either can't support the consumer or can't support the producer distributor.
Thanks, its very helpful.
Our next question comes from the line of Alex Jama with Jefferies. Please proceed with your question.
Okay. Thanks for taking the question, maybe just going back to the question on annualized releases do you see an opportunity in the future to bring forward more annualized content outside of the W. W. E and BA I know historically, you said you don't necessarily believe in non sports annualized content, but then maybe on the sports side are there any opportunities you are seeing and maybe some other under monetized sports that might make sense to pursue and then quickly. If you guys can just provide an update.
On what you're seeing from Dnb initiatives in China. Thanks.
So you know I. We've said is we wouldn't expect to annualize any titles other than sports titles. We have represented other sports in the past we've had baseball we've have boxing.
We've had hockey we currently have golf.
And we're excited about expanding that business to the extent it makes sense for us and for the consumer but there really aren't that many powerful sports and right now the rights are spoken for by some of our competitors. So I don't think you should expect that you're going to see a big array of new titles in the sports environment for us, but we are ambitious and we are open minded and Reits became available.
I believe we would be at the front of the line given the quality of our development in terms of MB.
The Mds in China look MBS beloved in China, and MBK online in China reflects that and we think there's a lot of opportunity for growth, particularly in mobile and as I've said before I'm of the view and this has got to be a particularly unpopular view today.
That the Chinese market will soften will open up will be more congenial to all forms of Western entertainment.
And while that won't happen overnight.
We're we're good participants in the market Weve, great local partners, including 10 cents, we comply with government restrictions and we think that it is possible that that market will open up and we intend to be.
First in line to the extent that it does.
We also we'd love to see some engagement with regard to the MBK League in China. We think there is some potential opportunity there with Tencent.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.
We'd like to thank you all for your interest and for joining the call.
I think it bears repeating that all of these results are a reflection of the work done by some 5000 people in our organization worldwide first and foremost our extraordinary creative folks across all four of our label groups and then of course, our business folks who distributor market the products accounted for.
The numbers and provide legal services and keep all the trains running on time, we have an amazing culture here, we have an amazing array of colleagues. We're all aligned we're all heading in the same direction, we love what we do we do so with a smile on our faces and all of US here are so grateful for the work of all of our colleagues around the world and I hope that comes across.
I just want to also say it is not clear from this call. We're immensely optimistic about our prospects for the remainder of this year and for the years ahead.
To challenge every day, but it's a challenge that we relish and and we're proud of what we've been able to do so far and we all firmly believe this is just the beginning so thanks for joining us today.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.