Operator:

Greetings and welcome to the Take-Two Fourth Quarter and Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Strauss Zelnick :

Thanks, Nicole. Good afternoon and thank you for joining us today. I'm pleased to report that we concluded fiscal 2024 with strength, including net bookings of $1.35 billion, which exceeded the high end of our guidance range. Contributing to our positive results was the outperformance of NBA 2K24, Zynga's in-app purchases, led by Toon Blast and our newest hit, Match Factory, and the Red Dead Redemption and Grand Theft Auto series. During Fiscal 2024, we generated net bookings of $5.33 billion, driven by our high quality titles and our ability to engage consistently our player communities. With fiscal 2025 underway, our portfolio is gaining momentum and we have many exciting releases planned for the year. We expect net bookings to be in the range of $5.55 billion to $5.65 billion, representing 5% year-over-year growth. Our outlook reflects a narrowing of Rockstar Games' previously established window of Calendar 2025 to fall of Calendar 2025 for Grand Theft Auto VI. We're highly confident that Rockstar Games will deliver an unparalleled entertainment experience and our expectations for the commercial impact of the title continue to increase. As we release our groundbreaking pipeline, we expect to achieve tremendous growth, including sequential increases in net bookings in fiscal 2025, 2026, and 2027. We've been executing our substantial cost reduction program, which we now anticipate will result in over $165 million of annual cost savings from our current and future expenses. This will enable us to run our business more efficiently and achieve greater operating leverage as our large-scale titles come to market. Now turning to our performance during the quarter. NBA 2K24, which remains the number one basketball simulation experience in our industry, surpassed our expectations as players responded to our promotions, in-game content strategy, and updates within seasons. To-date, the title has sold in over 9 million units. Engagement remains high with nearly 2 million consumers playing daily. Our industry-leading NBA 2K brand also continues to expand its audience through several innovative mobile experiences including NBA 2K24 MyTEAM, the new free-to-download mobile experience that allows players to sync progress between console and mobile devices, as they play their favorite MyTEAM modes on the go, NBA 2K Mobile and NBA 2K24 Arcade Edition, which is consistently in the top five on Apple Arcade. The Grand Theft Auto series delivered another fantastic quarter, partially driven by an array of free content updates for Grand Theft Auto Online, including new vehicles, drag races, holiday themed items to celebrate Lunar New Year and Valentine's Day, new community series jobs, and more. Unit sales for Grand Theft Auto V exceeded our forecast, and to-date the title is sold in approximately 200 million units worldwide. We're thrilled that more than a decade after their initial releases, Grand Theft Auto V and Grand Theft Auto Online grew their audience size by an incredible 35% and 23% respectively for the full year. Grand Theft Auto V also reclaimed its top spot as the most watched video game across all platforms according to StreamHatchet, thanks largely to the tremendous viewership from the series' thriving role-play community. Rockstar’s premium subscription service, GTA+, also continues to grow, with membership for the quarter almost doubling over the same period in the prior year as Rockstar continues to add valuable benefits to players. Red Dead Redemption 2 also surpassed our expectations and has sold-in nearly 64 million units worldwide. We continue to expand the audience for the series, with Red Dead Redemption and Undead Nightmare, recently added to the roster of games included within the GTA+ library. Borderlands 3 outpaced our forecasts and we are thrilled that Randy Pitchford and Gearbox Entertainment are slated to join officially 2K’s renowned internal studios in the coming weeks. We have already identified many potential growth opportunities for the Borderlands series and Gearbox’s catalog, which we plan to pursue once the studio is integrated into our organization. We are also excited to see growing buzz for the star-studded Borderlands feature film which is planned for release by Lionsgate this summer. WWE 2K24 has been a resounding success and is the highest rated sports simulation of 2024. The title is also the highest-rated installment in the history of our popular wrestling franchise on Xbox, with an 83 average Metacritic score. Engagement has been exceptional with players logging over 11 million hours across more than 110 million played matches. In addition, the [40 years] (ph) of WrestleMania Pack has the highest attach rate for a Super Deluxe DLC in the series’ history, with more than 25% of WWE 2K24 players owning it. 2K and Visual Concepts are continuing to support the title and will have additional packs launching throughout the Fall. I’d like to thank our friends, Nick Kahn and Ari Emanuel over at WWE, TKO, and WME for their continued support. Additionally, I’d like to express our immense gratitude to our team at Visual Concepts for their outstanding work on our WWE 2K and NBA 2K franchises, which are both important annual contributors for our Company. Zynga delivered outstanding results for the period, led by robust in-app purchases. Match Factory is accelerating and proving to be a hit, already establishing itself as a Top 20 grossing game in the US Apple App Store and reaching millions of new users with its launch on the Google Play store. We are pleased that new bold beats and other exciting features have propelled average daily play time to around 60 minutes per user. Toon Blast maintained its positive momentum, achieving nearly 20% growth of in-app purchases compared to the third quarter, driven by a new Dragons’ Treasure competition and many other features. We’d like to congratulate the team at Peak for their incredible performance. Top Troops launched several content updates, as well as a major cross-media collaboration with the popular influencer, MrBeast. The team plans to release additional enhancements to core gameplay and progression systems to drive further growth. Momentum continues at Rollic, with the studio crossing 3.5 billion all-time downloads and announcing a new partnership with Mattel to introduce a mass-market Barbie mobile game later this calendar year. Our blended monetization efforts in hyper-casual are progressing well within Rollic, which has resulted in Twisted Tangle and Screw Jam both becoming Top-100 grossing games on the U.S. Apple App Store. Our direct-to-consumer business continues to grow, and our teams are working actively to add more titles each quarter to this highly accretive, owned distribution channel. Looking ahead, Zynga has numerous titles in development and soft launch that we are eager to release worldwide this fiscal year, including Star Wars Hunters and Game of Thrones

Lainie Goldstein:

Thanks Karl and good afternoon everyone. We delivered a strong finish to Fiscal 2024 and are entering Fiscal 2025 with momentum, including healthy trends across our key franchises. Throughout the year, we released successful hit titles, engaged players with a steady cadence of in-game content, and continued to position our organization for the long-term. We also deepened our commitment to efficiency and made some decisions that, while difficult will align our resources with the initiatives for which we have the highest levels of conviction. We are confident that, over time these steps will drive our scale, enhance our margins, and deliver industry-leading returns for our shareholders. I’d like to thank our teams for their vision, passion, and dedication. Turning to our results, we delivered fourth quarter net bookings of $1.35 billion, which was above our guidance range of $1.27 billion to $1.32 billion. This reflected better-than-expected results from NBA 2K24; Zynga’s in-app purchases, led by Toon Blast and Match Factory; the Red Dead Redemption series and the Grand Theft Auto series. Recurrent consumer spending declined 2% for the period and accounted for 79% of net bookings. This was above our outlook, driven by the outperformance of NBA 2K, Toon Blast, and Match Factory. Recurrent consumer spending declined for Grand Theft Auto Online, although it was up for virtual currency and GTA+. NBA 2K was in-line with the prior year; and mobile increased slightly. During the quarter, we successfully launched WWE 2K24, which demonstrates 2K and Visual Concept’s ability to raise the bar further for our popular wrestling series. GAAP net revenue decreased 3% to $1.4 billion, while cost of revenue declined 24% to $930 million and included an impairment charge of $304 million related to acquired intangible assets. Operating expenses increased by 244% to $3.2 billion, due to a goodwill impairment charge of $2.2 billion and $93 million of business reorganization expenses related to our recently announced cost-reduction program. On a management basis, operating expenses rose 20% year-over-year, which was slightly above our guidance, due to higher personnel and IT expenses, and professional fees. For fiscal 2024, we achieved net bookings of $5.33 billion, which was slightly above our revised guidance range of $5.25 billion to $5.3 billion. Recurrent consumer spending grew 2%, which exceeded our outlook, and accounted for 78% of net bookings. Recurrent consumer spending for mobile increased high single-digits; NBA 2K virtual currency and seasons was up slightly; and Grand Theft Auto Online virtual currency and GTA+ membership was flat. Non-GAAP Adjusted Unrestricted Operating Cash Flow was $42 million as compared to our outlook of approximately $100 million due to higher external developer advances, cash tax and interest payments. We spent approximately $142 million on capital expenditures, primarily for game technology and office build outs. GAAP net revenue was flat at $5.35 billion, and cost of revenue increased 1% to $3.1 billion, which included an impairment charge of $577 million related to acquired intangible assets. Operating expenses increased 69% to $5.8 billion, due to an impairment charge of $2.3 billion related to goodwill and a $105 million business reorganization charge related to our cost-reduction programs. On a management basis, operating expenses rose 15% year-over-year and were slightly above our guidance, due to the factors I mentioned earlier that affected the fourth quarter. Today, we provided our outlook for Fiscal 2025. We project net bookings to range from $5.55 billion to $5.65 billion, which represents 5% growth over Fiscal 2024. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Empires & Puzzles, our hyper-casual mobile portfolio, Match Factory, the Red Dead Redemption series, an unannounced immersive core title from 2K, and Words With Friends. We expect recurrent consumer spending to be up approximately 3% compared to fiscal 2024, and to represent 76% of net bookings. Our recurrent consumer spending forecast assumes high single-digit growth for mobile, a slight increase for NBA 2K, and a decline for Grand Theft Auto Online. We expect the net bookings breakdown from our labels to be roughly 50% Zynga, 31% 2K, 17% Rockstar Games, and 2% Other. And, we forecast our geographic net bookings split to be about 60% United States and 40% International. We expect Non-GAAP adjusted unrestricted operating cash flow to be an outflow of $200 million, and we plan to deploy approximately $140 million for capital expenditures, primarily for game technology and office buildouts. We expect GAAP net revenue to range from $5.57 billion to $5.67 billion and cost of revenue to range from $2.43 billion to $2.46 billion. Turning to operating expenses, we recently implemented a cost reduction program that is expected to deliver over $165 million of annual cost savings across our entire business. As part of these efforts, we have eliminated several projects in development that we did not anticipate would meet our financial benchmarks. We also took actions to streamline our organizational structure, which reduced both existing headcount and future hiring needs. Our total operating expenses are expected to range from $3.56 billion to $3.58 billion as compared to $5.83 billion last year. On a management basis, we expect operating expense growth of approximately 7% year-over-year, which is largely due to an increase in ongoing marketing support for Match Factory, as well as other mobile and immersive core launches planned for the year, partially offset by savings from our cost reduction program. Looking ahead, and as Strauss mentioned earlier, we have narrowed the previously established release window for Grand Theft Auto VI to Fall of Calendar 2025 from Calendar 2025. As development advances, our confidence in the title and its potential commercial impact continue to grow. That said, we are not providing specific guidance beyond fiscal 2025, as our release schedule includes numerous titles each year and even modest shifts can have a significant effect on results in any given period. Our outlook for the lifetime value of our pipeline remains as strong as ever and we expect sequential growth in net bookings in Fiscal 2025, 2026, and 2027. Now, moving onto our guidance for the fiscal first quarter. We project net bookings to range from $1.2 billion to $1.25 billion, compared to $1.2 billion in the first quarter last year. Our release slate for the quarter includes TopSpin 2K25, No Rest for the Wicked on Early Access for PC and NFL 2K Playmakers, all of which have already released, and Star Wars Hunters. The largest contributors to Net Bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Empires & Puzzles, our hyper-casual mobile portfolio, Match Factory, the Red Dead Redemption series, Words With Friends, and Zynga Poker. We project recurrent consumer spending to increase by approximately 1%, which assumes mid single-digit growth in mobile, flat results for NBA 2K, and a decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.3 billion to $1.35 billion. Operating expenses are planned to range from $928 million to $938 million. On a management basis, operating expenses are expected to grow by approximately 14% year-over-year, which is primarily driven by additional marketing for Match Factory, partially offset by our cost reduction program. In closing, we believe that we are very well positioned to deliver the highest quality content in our industry and to enhance our profitability, as we grow our scale and maintain our focus on efficiency. We are extremely excited about our path for the future, and we look forward to sharing more details about the many catalysts ahead for our Company. Thank you. I’ll now turn the call back to Strauss.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Eric Handler with Roth MKM. Please proceed with your question.

Strauss Zelnick:

Thanks, Eric. What I was referring to is when asked, when Gearbox was sold to Embracer whether that caused us to have any concern, my response was no because we have a long-term publishing agreement, and that's been mutually beneficial for our company and for Gearbox and as it was for Embracer. However, when the opportunity presented itself for us to acquire the company on terms that we felt were reasonable, we frankly jumped at the opportunity. We have all the respect in the world for Randy Pitchford and his team. He has the ability to bring AAA products to market, responsibly and on a very reliable and rather rapid cadence. And he is a hit maker. And it's very hard to make a new hit, and [Tiny Tino] (ph) was a new hit. And of course, Borderlands just goes from strength to strength. So we're thrilled to have Gearbox in the family.

Lainie Goldstein:

So we'll start to see it in fiscal '25, but we'll see a full annualization of it in fiscal year '26. So the majority of the plan was executed in Q4 and Q1, but pieces of it will come through this year.

Doug Creutz:

Hi, thank you. The ability of Rollic to launch top 100 grossing games is a really pleasant surprise. Just wondering if you could talk about how to think about the life cycle of those games. Typically, Rollic's games are sort of -- they're hot for a while and then they move on to something next, something else. Is this going to be the case for these monetizing games as well? Or is it a plan to have a longer life cycle. Thank you.

Doug Creutz:

Thank you.

Colin Sebastian:

Thanks, good afternoon. Maybe a couple for me. I guess, first off on the change to the guidance and the outlook. What is your level of confidence, Strauss, in the calendar '25 launch of GTA VI. And is there anything else more specific you can talk about that's behind that postponement. And then secondly, on the high single-digit mobile growth. I'm curious how much of that is related to any recovery you're seeing broadly in mobile gaming? Or is that more specific to the increase in marketing spend and these titles that are outperforming your expectations for this year? Thank you.

Colin Sebastian:

All right. Thank you.

Matthew Cost:

Hi, everyone. Thanks for taking my question. I guess between the success you've had with Match Factory! and some new launch titles setting release date for Star Wars Hunters and then the incremental marketing behind mobile. It seems like there is definitely more momentum in that business, which is great to see. I guess when we think about your analytical framework for investing in the marketing behind mobile, what are you targeting from a margin or payback perspective? And when should we expect to see this investment turn into a profitable flow-through from the mobile side?

Matthew Cost:

Great. Thank you. And when would you expect to see mobile this investment that you’re making in mobile flip from a cost center due to driving incremental profit?

Matthew Cost:

Okay, thank you.

Drew Crum:

Thanks. Hi guys, good afternoon. So could you address your forecast for NBA 2K RCS in fiscal '25 for a slight increase, is low single digits growth the new normal for this going forward? Or is there something unique in fiscal '25 that's influencing that view? Thanks.

Operator:

Our next question comes from the line of Benjamin Soff with Deutsche Bank. Please proceed with your question.

Lainie Goldstein:

So for fiscal year '25, the outlook reflects a narrowing of Rockstar Games previously established window from the calendar 2025 to fall, as we mentioned, also some other movements within the release schedule and also with our cost-cutting plan that is also part of the overall results for that year.

Lainie Goldstein:

No, it is not included since the transaction hasn't closed yet. So we will expect to include it next quarter when we close, and we expect it to be slightly accretive to our management results.

Operator:

The next question comes from the line of Martin Yang with Oppenheimer. Please proceed with your question.

Strauss Zelnick:

So Rockstar hasn't given any details on what its expectations are for the release. It's been a wonderful trailer that they put out that broke the Internet, and more news will come from Rockstar in the fullness of time.

Karl Slatoff:

I'm sorry, was your question about the transition from console generation from the last transition to this transition?

Karl Slatoff:

Okay. So that's going back quite some time. And frankly, I don't have the exact figures in front of me. But generally speaking, I would say that the delta between the games in this year, the Gen 8 game is much broader. And I think that creates a more obvious difference between the two-- to do two games. And frankly, I can't remember if we had two completely separate games back then. But in any case, the Delta is quite significant this time around. So I would expect that the transition is more the effect of the transition is more pronounced in this console generation. And I forget your second question. Was there another one?

Karl Slatoff:

Yes. We're not really commenting on our competitors. And most of our other studios, we don't have as much NBA comes out every year. So you're going to see that transition more rightly. We don't have the same effect in most of our other games. Occasionally, we would, but they wouldn't be comparable games to NBA anyway. And again, like I said we don't really comment about the -- our competitors and their experiences.

Operator:

Our next question comes from the line of Mike Hickey with Benchmark. Please proceed with your question.

Strauss Zelnick:

Thanks, Mike, for those questions. I think our confidence continues to increase just because Grand Theft Auto V continues to perform so well. We've now sold in over 200 million units. And every quarter, we continue to be pleased by the ongoing sales of the full game and engagement in the past fiscal year with Grand Theft Auto V was up about 35% with Grand Theft Auto Online was up about 23%, I believe. That's extraordinary growth at this stage again more than 10 years after the initial release. So I think we feel as though the market's anticipation is at a fever pitch. And of course expectations are very high everywhere in this boardroom and all around the world for the perfection of what Rockstar typically delivers. In terms of your question, I think you were asking your second question, why didn't we provide very specific guidance for a top-line number going forward? And the answer is, generally speaking, we have not done that except when it was necessary to clarify where we felt the company was going. We think now we are being very specific about this fiscal year and about the next couple of fiscal years by saying we expect relating to your third question, sequential growth on top-line. And we think that pretty much answers the question. Finally, the second part of your third question is that driven by the GTA ecosystem. The answer is certainly, we have expectations for that ecosystem. And again, given that full game sales continue to be strong for GTA V this many years later. At the same time, we also have a number of other powerful releases coming about which we're highly optimistic. And of course we have [car hits] (ph) in the marketplace. Match Factory is a huge hit and only accelerating.

Operator:

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.

Karl Slatoff:

So in terms of looking at our pipeline, I mean this is not really new to us. This is a process that we go through that we've been going through for at least the last 17 years as I've been here. And -- but what we're looking for specifically around this -- the look that we just took is that we're looking look -- we understand in the industry right now that the biggest games are winning, and they're taking more share. And that's obviously a fact that we noticed and take us very seriously. We're simply looking for the projects that we think have the highest chance for commercial success and for critical success. And going through and coming through those and going through and then making the tough choices. It's always difficult to cancel any projects. But in this context, it was something that was necessary and really part of our normalized process. So we absolutely expect that, that will continue in the future. This was a pretty tough look and a pretty big look. So I think most of that is behind us. But we will be adding, and we will be subtracting over the next few years, and that's part of what we do. And it will be both with will continue to invest in new IP as well. That is not off the table for us. That's very important. That's the life level blood of the industry. And if you're not investing in new IP, we think it's a biggest [stack] (ph).

Jason Bazinet:

I just had one question on GTA VI. This narrowing from calendar '25 to the fall of 25%. Do you think there's an ancillary benefit of that of sort of syncing up with the holiday season? Or do you feel like GTA is such a powerful franchise that it really doesn't confer any sort of incremental benefit .

Jason Bazinet:

Okay, thank you.

James Heaney:

Yeah, thank you for taking the question. What have been some of the unlocks on the mobile side of the business. You did call out the better-than-expected results in Zynga's IP business, but just curious if there's anything you could say specifically on the advertising side of the business. Thank you.

James Heaney:

Thank you.

Clay Griffin:

Yes, good afternoon. Thank you. I'm curious if you guys would talk about the broader PC strategy. I know that there's just tons and tons of engagement, particularly for GTA on PC, not all of that gets monetized. I think in the past, you've describe that as maybe it's a good thing to have that there. You don't necessarily need to monetize all of it. But there are some interesting products out there over Wolf and the like. And so maybe I'm just curious what you guys are seeing or thinking about your opportunity to unlock monetization on PC. Thanks.

Clay Griffin:

Great, thanks Karl.

Chris Schoell:

Hi, great. Thank you for taking the question. We saw Rockstar announce a price increase for GTA. I recognize it's been 7 years, but can you help us think through the rationale? And as you look at GTA VI, so what are your latest thoughts around the pricing dynamics for the franchise or your portfolio in general as these games continue to get larger with more robust experiences? Thank you.

Chris Schoell:

Great. Thank you.

Omar Dessouky:

Sure, I have two questions, one on mobile and then just one again on the sequential growth. So is there any more color at all you can give us on how you're going to grow sequentially in fiscal '27 after lapping just such a tough comp in fiscal '26 when GTA VI is going to launch. It just seems counterintuitive. When I look back at the last 2 times, Rockstar released a mega title, Red Dead Redemption in fiscal '19, fiscal '20 did not grow. And Grand Theft Auto V in fiscal '14, fiscal '15 was down 30% I'm just kind of trying to square those couple of things there. Will it be Rockstar that continues to drive that sequential growth in fiscal '27? Any more color there would be really great.

Omar Dessouky:

Okay. And along kind of the same lines, I think a lot of people are going to be super excited about GTA VI coming out. Do you make any assumptions about the perhaps a reacceleration of growth in the console installed base or console sales, because your title may bring a lot of lapsed gamers back into the ecosystem in your forecasts.

Omar Dessouky:

Thanks a lot. Appreciate it.

Strauss Zelnick:

Before we sign off, I just want to thank everyone who works at Take-Two in all of our affiliates. These have been challenging times. And in addition to delivering hits, we've asked everyone to dig deep and make sure the business is highly efficient, rightsized. And that's challenging. And one of the most extraordinary things about our organization is the amazing morale and focus on the common good. We are here for our customers for our first and foremost for our colleagues who deliver to our customers every day and for our shareholders. And we're extraordinarily excited both about the position we're in, about the fiscal year in which we're currently operating and about our amazing pipeline in the years ahead. Thank you for joining us today.

Operator:

Greetings. Welcome to Take-Two’s Third Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference call over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Strauss Zelnick:

Thanks, Nicole. Good afternoon and thank you for joining us today. I’m pleased to report that we achieved solid results, including net bookings of $1.3 billion. Our performance reflects our unwavering commitment to quality, the ongoing contributions from our outstanding portfolio, which is one of the strongest and most diverse in the entertainment industry, and our immensely talented creative teams. During the period, Grand Theft Auto V, Grand Theft Auto Online, the Red Dead Redemption series and Zynga’s in-app purchases, led by Toon Blast, exceeded our plans, driven by engaging new content, partnerships and activations. This was partially offset by some softness in mobile advertising and sales for NBA 2K24. 2K is implementing measures to enhance performance for the title, such as offering new events and promotions and delivering an exciting and engaging content lineup. We expect lifetime net bookings for the title to be in line with NBA 2K23. Due to these factors, a planned release moving out of the fourth quarter and increased marketing for Zynga’s new hit mobile title Match Factory!, we’re lowering our full year outlook. While the timing of Match Factory!’s user acquisition expense will reduce our profitability in the current fiscal year, we believe that this investment will allow us to grow our audience meaningfully and increase the lifetime value of the Match Factory! franchise. We have always managed Take-Two for the long-term and we have great confidence in our groundbreaking pipeline for fiscal 2025 and beyond, which we believe will enable us to grow our net bookings, increase our scale and enhance our profitability. At the same time, our teams are always looking for ways in which we can operate at the highest level of efficiency, which is one of our core tenets. We’re currently working on a significant cost reduction program across our entire business to maximize our margins while still investing for growth. These measures are incremental to and even more robust than our prior cost reduction program, and we aim to achieve greater operating leverage as we roll out our eagerly anticipated release schedule. Turning to the performance of our titles during the quarter. Momentum for Grand Theft Auto remains phenomenal. Sales of Grand Theft Auto V exceeded our expectations during the holiday season, and to date, the title is sold in more than 195 million units worldwide. During the quarter, Rockstar Games released its holiday update for Grand Theft Auto Online

Lainie Goldstein:

Thanks Karl and good afternoon everyone. We delivered solid holiday results, including net bookings of $1.34 billion, which was within our guidance range. I’d like to thank our talented teams for their commitment to creativity, innovation, quality and value, which allows us to provide outstanding entertainment experiences for our players across the world. Grand Theft Auto V, Grand Theft Auto Online, the Red Dead Redemption series and Zynga’s in-app purchases, led by Toon Blast, exceeded our expectations. This was partially offset by softness in mobile advertising in NBA 2K. Recurrent consumer spending declined 7% for the period and accounted for 75% of net bookings. This was slightly less than our outlook, driven by weakness in mobile advertising and NBA 2K, which was largely due to the effect of lower unit sales on its in-game monetization. Recurrent consumer spending for Grand Theft Auto Online, virtual currency and GTA+ membership was up notably. During the quarter, we launched several mobile titles, including Top Troops, Match Factory! and NBA 2K24 Arcade Edition for Apple Arcade as well as Borderlands 3 Ultimate Edition for Switch. GAAP net revenue decreased 3% to $1.37 billion, and cost of revenue declined 1% to $688 million, which included an impairment charge of $53 million and $177 million of amortization of acquired intangibles. Operating expenses decreased by 10% to $808 million. On a management basis, operating expenses rose 4% year-over-year and was favorable to our guidance due to lower marketing and personnel expenses. Turning to our guidance, I’ll begin with our full fiscal year expectations. As Strauss mentioned, we are lowering our outlook to reflect the softness we are currently experiencing in mobile advertising and NBA 2K24, a planned release will be out of the fourth quarter and increased marketing for Zynga’s new hit mobile title Match Factory!, which we believe will enable us to scale it more meaningfully to reach its full long-term potential. Our revised net bookings forecast is $5.25 billion to $5.3 billion. We expect the net bookings breakdown from our labels to be roughly 51% Zynga, 30% 2K and 19% Rockstar Games. And we forecast a geographic net booking split to be about 60% United States and 40% international. We are projecting recurrent consumer spending of 1% compared to fiscal 2023, which includes a full year of Zynga, partially offset by a slight decline in NBA 2K. Grand Theft Auto Online is expected to deliver modest growth for virtual currency and GTA+ membership. RCS is expected to represent 79% of net bookings. We plan to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow and to deploy approximately $150 million for capital expenditures, primarily to support our office build-outs and larger footprint. We now forecast GAAP net revenue to range from $5.27 billion to $5.32 billion. Our total operating expenses are now planned to range from $3.55 billion to $3.56 billion as compared to $3.45 billion last year. On a management basis, we continue to expect operating expense growth of approximately 14% year-over-year due to a full year of Zynga and increase in personnel marketing expenses and higher depreciation, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our prior cost reduction program announced last year. Now moving on to our guidance for the fiscal fourth quarter. We project net bookings to range from $1.27 billion to $1.32 billion compared to $1.4 billion in the fourth quarter last year. Our release slate for the quarter includes WWE 2K24 as well as Penny’s Big Breakaway from Private Division. The largest contributor to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Toon Blast, our hypercasual mobile portfolio, Empire & Puzzles, WWE 2K24, Red Dead Redemption 2 and Red Dead Online, Words with Friends and Match Factory!. We project recurrent consumer spending to decrease by approximately 5%, which assumes flat results for Zynga and a decline for NBA 2K with Grand Theft Auto Online, virtual currency and GTA+ membership are expected to be up. We project GAAP net revenue to range from $1.32 billion to $1.37 billion. Operating expenses are planned to range from $896 million to $906 million. On a management basis, operating expenses are expected to grow by approximately 17% year-over-year, driven by the additional marketing expense for Match Factory! that I mentioned previously, higher personnel costs and an increase in depreciation, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our prior cost reduction program that we announced last year. Looking ahead, our teams remain committed to efficiency. We’ve begun a rigorous analysis to identify additional areas for cost optimization. The expected savings are incremental to our previously announced cost reduction program, and we expect that it will be more expansive. We believe that these measures will enhance our margin profile and position our business for greater operating leverage in the future. In closing, while we are disappointed to have lowered our outlook for the year, we are exceedingly confident in our growth prospects. With our industry-leading portfolio and passionate teams, we believe that we are poised to deliver the best content in our industry, reach new record levels of operating performance and deliver long-term value for our shareholders. Thank you for your continued support. I’ll now turn the call back to Strauss.

Operator:

Thank you. [Operator Instructions] Our first question is from Eric Handler with ROTH MKM. Please proceed.

Strauss Zelnick:

Lainie will take that.

Eric Handler:

Helpful. And then with regards to the advertising weakness that you are seeing, is that all related to what’s going on with the hypercasual business or does it extend also to in-game advertising for casual games?

Eric Handler:

Thank you.

David Karnovsky:

Thank you. I guess, first, with some of the momentum and investment for Match Factory! and the game delay, is there any update to your fiscal ‘25 or ‘26 forecast?

Lainie Goldstein:

Currently, it’s the middle of our budgeting process. At this time, the number is tracking a little above $7 billion for net bookings for the year and given the typical shifts and tweaks that occur in our forecasting process. And this amount is still huge growth over this year. And our pipeline is groundbreaking for next year and beyond, and our teams are making excellent progress on game development. And nothing material has changed with regard to the lifetime value of our portfolio. And both will provide our initial outlook for fiscal year ‘25 when we report our Q4 and full year fiscal year ‘24 results in May.

Strauss Zelnick:

I think so. I mean, I’ve said repeatedly in the past few years that the hardest thing that anyone in the industry can do is create a new mobile hit. It’s super hard. And so much so that one of our big competitors just decided they weren’t going to try it anymore. It was off the table. We stuck with it and so did some of our competitors. So clearly, the market’s becoming more receptive and more reactive. There’s a big title from one of our competitors, Monopoly GO!, which is a huge hit. And we’re gratified obviously here to see so much traction already in Top Troops and Match Factory!. And Match Factory!’s already a top 30 title in the U.S. and UK Apple App Stores with lots of continued traction in the rest of the world, and it’s really just beginning. We are supporting the title in the quarter, and that’s not money that we could possibly recoup in the quarter. So to put some color around the guidance change, that’s really good news, not bad news. That’s going to be a very profitable expenditure that will come back to us in the next fiscal year. Because of the way we structure UA, we structure for relatively quick paybacks compared to the industry because we’re conservative. So I do think – look, I think the team in Zynga is doing a phenomenal job delivering great properties. It starts there. It always starts there. And yes, I also believe the market’s becoming more reactive. Remember, the market was down for the first time in its history in 2022, and it was flattish after that. And there were no new hits for years from us or anyone else. That’s clearly changing. I think it puts further evidence on the table that being exposed to mobile through the Zynga acquisition was a really, really good thing for this company, and we’re highly optimistic going forward.

Operator:

Our next question is from Doug Creutz with TD Cowen. Please proceed.

Strauss Zelnick:

Lainie?

Doug Creutz:

In that order?

Doug Creutz:

Okay.

Andrew Marok:

Hey, thanks for taking my questions. Good commentary on the Netflix tie-up with the GTA Trilogy. I guess going back to maybe how that came about, what made you guys want to partner with that kind of fledgling mobile gaming platform and be one of the first major third-party titles out there?

Andrew Marok:

Great. And then maybe a little bit more of an esoteric question, but interested to maybe dig into that hypercasual commentary. Is there anything that’s maybe changed in the last few months or quarters with player behavior in hypercasual games that they’re now willing to do in-app purchases?

Andrew Marok:

Great. Appreciate the detail.

Benjamin Soff:

Hey, guys. Thanks for taking the question. A follow-up on the GTA Trilogy for mobile. Does this provide a blueprint for how to bring more of your titles to mobile in the future? And just curious if you see an opportunity for additional partnerships with Netflix for additional mobile titles going forward as well? Thanks.

Operator:

Our next question is from Drew Crum with Stifel. Please proceed.

Karl Slatoff:

So – I’m sorry. Sorry, Strauss. The NBA has – the game has been incredible for NBA 2K24, and that continues to be the case. We still have very strong momentum around RCS, also driven specifically by our Season Pass. The Gen 9 SKU is performing incredibly well. We’ve got double-digit growth over 2K23 at this point. Yet, the real story here is that Gen 8 is actually underperforming our expectations. And I think as people transition more towards Gen 9 and experience all that NBA, the franchise, has to offer in the Gen 9 SKU, then you’re going to see continued growth in that franchise. So we feel really great about where the engagement is. Engagement in the title is fantastic. It really is – any sort of softness that we’re seeing is really a story about the Gen 8 product at this point.

Operator:

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

Strauss Zelnick:

Look, we’re really gratified that the announcement of the trailer was a huge event online, and then the trailer debut between YouTube and other marketing partners set a record for a video to view. So we couldn’t be happier or more excited by the initial trailer. And I do think that excitement around GTA VI has had a halo effect on the entire franchise. We’ve now sold in 195 million units of GTA V, and GTA Online continues to perform above our expectations. So I do think all things GTA lead to more excitement. As far as the marketing programs, I think Rockstar is particularly expert in marketing their titles and, I think, is considering all the appropriate angles.

Strauss Zelnick:

Marketing is really driven by our labels and our studios, and we don’t have a fixed march to a release from particular marketing needs.

Operator:

Our next question is from Timothy O’Shea with BMO Capital Markets. Please proceed.

Strauss Zelnick:

It is possible to do research around that. And our sense is that the anticipation is much higher, much, much higher. On the other hand, 195 million units to date is nothing to sneeze at. So we stopped well short of making predictions about how the title will do, but clearly, anticipation is running very, very high.

Strauss Zelnick:

We’re seeking perfection. And when we feel we’ve optimized creatively, that’s the time to release. So – and we’re all in this together. In terms of motivations and incentives, the financial incentives of everyone who works at this company are aligned with those of the shareholders. So we essentially have – call it what you will, we have profit sharing plans throughout the company at the operating level. And at the senior level, compensation is driven largely by TSR. So our goal is to align the interest of everyone who works there with the interest of the shareholders. That keeps us all pointing in the same direction. So you are right, there is inherent tension potentially between getting something to market and creating perfection, but this company errs on the side of perfection.

Operator:

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

Strauss Zelnick:

Lainie?

Strauss Zelnick:

And Mike, in terms of cost reduction, as I have said and as you know, we have a three-part strategy that’s supported us well through thick and thin. And that is, first and foremost, to be the most creative company, also to be the most innovative and, finally, always to be the most efficient company in the entertainment business. And that’s a big challenge. And we mean it, and everyone here means it. And I think that it’s time to take another look at efficiency and make sure that everyone is focused on the things that really matter and only the things that really matter and put ourselves in a position where we have the opportunity for great operating leverage as these titles come to market and as the revenues flow through the system.

Operator:

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

Strauss Zelnick:

It’s a good question. I only know what I read in the release and what you also read. What I read was that they are making an investment in a leading company, Epic, which is – obviously has a spectacular franchise in Fortnite. And then there was some talk around sort of creating a Fortnite/Disney ecosystem. And I don’t know exactly what that means, but I am not betting against my friends at Epic or Disney. And I wish them well. So, I guess it remains to be seen, but they are two fine companies. I think anything that’s good for consumers and it creates excitement in our industry is good for Take-Two because it keeps people engaged with the properties that we bring to market, and we have the best collection of owned intellectual property in the business, bar none. And we are the number two player in the space, so – and we would like to go from here. So, I see it as a net positive for the business, and we will see how they do with it. But I am certainly not betting against them.

Operator:

Our next question is from Omar Dessouky with Bank of America. Please proceed.

Strauss Zelnick:

Great. That’s Lainie.

Omar Dessouky:

Okay. So, maybe riffing off of Brian’s question about kind of Epic and Disney, thinking about Grand Theft Auto online, do you see any potential for Grand Theft Auto to be a trans-media property, which maybe involves brands and IP from franchises outside of Take-Two? Yes, that’s the question.

Omar Dessouky:

Appreciate it. Thank you.

Chris Shaw:

Great. Thank you for taking the questions. Just going back to the Zynga deal, at the time, you had talked about revenue synergies that would come through in time. Can you just remind us where those initiatives stand today and how your thoughts might have evolved since you closed the deal? And then second question, just any early learnings you can give us on the iOS fee changes in Europe and how this might inform your mobile strategy going forward? Thanks.

Chris Shaw:

Great. Thank you.

Clay Griffin:

Great. Thanks. Good afternoon. Curious if you guys have a reaction to speculation. I suppose that Microsoft maybe looking to take some of the titles that were formerly exclusive to the Xbox platform and making those more widely available. It seems at least part of that rationale, if it’s true, maybe around just the cost to develop big titles. And Strauss, love to get your thoughts on particular areas of development that are particularly sticky as it relates to cost? Thanks.

Clay Griffin:

Great. Thanks.

Strauss Zelnick:

First, as always, I want to thank our teams for delivering such great work, with such extraordinary commitment. Everything that goes on here is a team effort and we are all aligned, all in this together and all working to do our level best to create the best entertainment for our consumers and to do it within the four walls of superb company with a great culture. I also want to thank our shareholders for their continued support. We are really excited about what is to come. Thanks for joining us today.

Operator:

Greetings and welcome to the Take-Two Interactive Second Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications.

Strauss Zelnick:

Thanks, Nicole. Good afternoon and thank you for joining us today. We delivered another consecutive quarter of excellent results highlighted by net bookings of $1.44 billion, which was at the high end of our guidance and management results that exceeded our plans. While we expect continued macroeconomic uncertainty, we believe that we're well positioned for the holiday season and are reiterating our fiscal 2024 net bookings guidance of $5.45 billion to $5.55 billion. Looking ahead, I'm exceedingly optimistic about our company's multiyear growth trajectory and our ability to deliver long-term value to our shareholders. Our development pipeline is robust and diverse and we're getting closer to delivering the groundbreaking titles that our audiences throughout the world have been anticipating eagerly. Our unwavering commitment to being the most creative, the most innovative, and the most efficient entertainment company gives us great confidence that our offerings will surpass our players' expectations and set new standards of creative excellence in our industry. Now turning to the performance of our titles during the quarter. Grand Theft Auto V and Grand Theft Auto Online continue to surpass our expectations, an outstanding achievement for two titles celebrating their tenth anniversaries. To-date, Grand Theft Auto V is sold in approximately 190 million units. Grand Theft Auto Online experienced continued momentum due to the rollout of new gameplay and items from the San Andreas Mercenaries update with new seasonal events, vehicles, modes, clothes and weapons driving sustained engagement and net bookings. Our GTA+ membership program continued to grow and we're deepening our relationships with our player communities through new offerings, which now include access to a rotating assortment of classic Rockstar Games titles. During the quarter, Rockstar Games announced that CitizenFX, the team behind the FiveM and RedM role-playing communities for Grand Theft Auto V and Red Dead Redemption 2, officially joined the label. With their immense passion and creativity, CitizenFX has been pivotal in expanding the possibilities of user-generated content around Rockstar's leading titles. We're excited to see them continue to build these creative communities and help them thrive into the future. We're also thrilled by today's announcement from Rockstar Games founder Sam Houser that the eagerly anticipated first trailer for the next Grand Theft Auto will be revealed this coming December. As the label approaches its 25th anniversary next month we congratulate Rockstar Games on their constant innovation in the pursuit of the highest quality interactive entertainment. Red Dead Redemption 2 surpassed our plans and has sold in more than 57 million units to date. Rockstar Games continues to support Red Dead Online with new content including bonuses for the naturalist and bounty hunters, and new free roam missions and events. In addition, Rockstar Games expanded the audience for the franchise with the launch of Red Dead Redemption and Undead Nightmare for PlayStation 4 and Nintendo Switch. On September 8th, 2K and Visual Concepts once again redefined the number one NBA simulation experience in our industry with the successful worldwide launch of NBA 2K24. With exciting new features and next generation enhancements, the title is off to a great start and to date has sold in over 4.5 million units. NBA 2K24 features new season pass options that provide players with the opportunity to earn even more rewards as well as a new seasonal progression that tracks and combines my career and my team into one linear reward system. Engagement has been phenomenal with season pass and virtual currency bookings exceeding our plans and driving double growth in ARPU compared to NBA 2K23. Our franchise extensions continue to perform extremely well including NBA 2K Mobile, NBA 2K Online in China, and the recently launched NBA 2K24 Arcade Edition on Apple Arcade. I'd like to thank 2K and Visual Concepts for continuing to bring innovation and creativity consistently to our beloved franchise. 2K continues to support LEGO 2K Drive with its second drive pass season and the Creators Hub and PGA Tour 2K23 with additional pros and gear. In addition, the label harness the power of our industry leading catalog with the launch of the Borderlands Collection Pandora's Box, which bundles together all six acclaimed Borderlands Games and their previously released add-on content into a single offering at an amazing value. We have great respect for the team at Gearbox, and we value deeply our long-term relationship. Zynga once again delivered solid results during the quarter and we remain pleased with its ongoing performance. We continue to benefit from Zynga's ability to create engaging new games, which is a distinguishing capability of our mobile business. For example, Rollic successfully launched PowerSlap, based on the world's first regulated and sanctioned slap fighting promotion. The title is highly entertaining and to date has experienced more than 1 billion slaps across training and matches. With the launch of this new mobile game, Rollic has now had 22 titles reach the number one or two spot in the US Apple app store. We'd like to thank the entire team over at TKO including Ari Emanuel and Dana White for their strong partnership as well as our colleagues at Rollic created this title from inception to release in just eight weeks. Zynga also recently launched Top Troops and Match Factory, both of which delivered excellent KPIs and soft launch and appear to have strong long-term potential for our portfolio. And Star Wars Hunters continues to hit important milestones as we approach its planned release date in calendar 2024. Karl will discuss these titles in greater detail. Other highlights from our mobile business this quarter include our advertising bookings grew year-over-year driven by the addition of Popcore, contributions from strategic partnerships and our efforts to increase adamant inventory in many live games. We continue to make excellent progress in our profitability initiatives, including expanding the number of mobile games to leverage our direct-to-consumer platform. As we convert additional players, we're gaining new insights that we believe will better serve our players' preferences. We remain optimistic that over the next few years, most of our mobile games will leverage this highly accretive owned distribution channel. In addition, we continue to enhance the profitability and performance of our hypercasual business with multiple new games scaling rapidly and several games generating revenue from in-app purchases in addition to ads. Our live games portfolio also continued to deliver. Social Casino maintained steady performance coming off a great first quarter driven by new bold beat features which drove strong results, particularly in Zynga Poker. Additionally, we implemented new updates and events across many games, including Top Eleven and Dragon City, which drove audience growth as well as increased engagement in core systems, leading to better retention and monetization. We stand at an exciting time in our company's history with numerous growth opportunities ahead of us. As we deliver on our strategic priorities, we have the potential to create unparalleled entertainment experiences, engage broader audiences throughout the world and ultimately enhance our scale and margin profile. I'd like to thank all of you for your continued support, and we look forward to delivering our next phase of growth. I'll now turn the call over to Karl.

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights of our second quarter before reviewing our financial outlook for the full year and third quarter of fiscal 2024. Additional details regarding our actual results and outlook are contained in our press release. We delivered another great quarter, which demonstrates the enduring strength of our catalog, our ability to deliver deeply engaging post-launch content and our commitment to disciplined execution. At the same time, our teams continue to make excellent progress advancing our development pipeline, which gives us confidence in our multiyear growth trajectory. I'd like to thank our incredible teams worldwide for their hard work and passion for our business. Now moving onto our results. We achieved net bookings of $1.44 billion, which was at the high end of our guidance range. Our performance reflects better-than-expected results from Grand Theft Auto V and Grand Theft Auto Online and Red Dead Redemption. During the quarter, we released NBA 2K24, Red Dead Redemption and Undead Nightmare for Switch and PlayStation 4. Borderlands Collection, Pandora's Box and PowerSlap. Recurrent consumer spending declined 7% for the period, which was in line with our outlook and accounted for 78% of net bookings. GAAP net revenue decreased 7% to $1.3 billion, while cost of revenue increased 24% to $884 million, driven by an impairment charge of $220 million and $190 million amortization of acquired intangibles. Operating expenses increased by 3% to $959 million and included $165 million of loan impairment, representing a partial impairment of one of our reporting units. On a management basis, operating expenses were flat year-over-year, which is favorable to our guidance. This was driven by lower marketing expenditures, some of which shifted to later this year. Turning to our guidance. I'll begin with our full fiscal year expectations. As Strauss mentioned, we are reiterating our net bookings outlook range of $5.45 billion to $5.55 billion. The largest contributors to net bookings are planned to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Red Dead Redemption 2 and Red Dead Online, Words with Friends, Merge Dragon and Zynga Poker. We expect the net bookings breakdown from our labels to be roughly 49% Zynga, 31% 2K, 18% Rockstar Games and 2% other. And we forecast our geographic net booking split to be about 65% United States and 35% international. We are projecting the current consumer spending growth of 4% compared to fiscal 2023, which assumes an increase for NBA 2K as well as Zynga since we will own the business for a full 12 months this year. For Grand Theft Auto Online, Virtual Currency and GTA+ membership is expected to be flat. RCS is expected to represent 78% of net bookings. We plan to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow and to deploy approximately $150 million for capital expenditures, primarily to support our office build-outs and larger footprint. We continue to forecast GAAP net revenue to range from $5.37 billion to $5.47 billion. Our total operating expenses are now planned to range from $3.53 billion to $3.55 billion as compared to $3.45 billion last year. On a management basis, we continue to expect operating expense growth of approximately 14% year-over-year due to a full year of Zynga, an increase in personnel and marketing expenses and higher depreciation of office build-outs and capitalized IT expenses, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our cost reduction program. We remain vigilant in our efforts to optimize our cost structure and reduce discretionary costs where possible, while still investing for growth. Now moving on to our guidance for the fiscal third quarter. We project net bookings to range from $1.3 billion to $1.35 billion compared to $1.4 billion in the third quarter last year. Our release date for the quarter includes two mobile titles Top Troops and Match Factory as well as Borderlands 3 Ultimate Edition, all of which have been released. The largest contributor to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon blast, Red Redemption 2 and Red Dead Online, Words with Friends, Merge Dragons and Zynga Poker. We project the current consumer spending to decrease by approximately 5%, which assumes a modest decline in our mobile business, which is being partially offset by expected growth in NBA 2K. The Grand Theft Auto Online, virtual currency and GTA+ membership is expected to be up. We project GAAP net revenue to range from $1.29 billion to $1.34 billion. Operating expenses are planned to range from $826 million to $836 million. On a management basis, operating expenses are expected to grow by approximately 7% year-over-year driven by higher personnel and depreciation expenses, which are being partially offset by the Zynga synergies and our cost savings initiatives. In closing, there are many exciting upcoming catalysts that we believe will enable our company to achieve new record levels of financial performance. Powered by our incredible talent, we believe that our projects in development will set new standards for creativity and engagement in our industry while also significantly enhancing our financial profile. We'd like to thank all our stakeholders for being on this journey with us, and we can't wait to share more details with you. Thank you. I'll now turn the call back to Strauss.

Operator:

Thank you [Operator Instructions] And our first question comes from the line of Andrew Uerkwitz with Jefferies. Please proceed.

Lainie Goldstein:

Due to shifts in our pipeline, our expectations are that net bookings will now be below $8 billion, but not necessarily. So it really isn't a big change, and we expect growth in 2016 as well.

Strauss Zelnick:

We're really excited about it. I mean, to be clear, this is a small economic opportunity right now and a small cost to us. We want to be where the consumer is and what's going on in role playing and really in two ways. Number one, the people are actually playing in old playing servers and number two, the people are watching what they're doing on Twitch. Both are really interesting. The actual people playing is a relatively modest audience. It's in the hundreds of thousands. But the people watching, that's a huge audience. And we're interested in first of all making sure that our intellectual property is protected. We're also really interested in meeting the consumer where the consumer is. And for certain consumers bonding is a really important activity. And finally, people are consuming our intellectual property, we would like to monetize it if we can. We think this gives us an opportunity to do all of the above.

Operator:

Our next question comes from the line of Eric Handler with ROTH MKM. Please proceed.

Strauss Zelnick:

We don't see materially different behavior. We think it's a great addition. We're thrilled to engage with our consumers in this way. And it's a learning experience, but it's also gratifying that GTA+ continues to grow and be more and more relevant to more and more consumers.

Lainie Goldstein:

Yes. There is -- in the gap there is some deferral of some of the advertising. So that's the difference between us being up in the quarter versus the gap showing flat.

Operator:

Our next question comes from the line of Doug Creutz with TD Cowen. Please proceed.

Lainie Goldstein:

So we recorded an impairment charge of $220 million related to intangible assets and $165 million of goodwill representing a partial impairment of one of our reporting units. And this is as a result of an updated long-term projection for that reporting unit, but we're not giving any more details other than that.

Operator:

Our next question comes from the line of Andrew Marok with Raymond James. Please proceed.

Strauss Zelnick:

That's the kind of detail that we typically leave to our labels. So we probably don't have much more to add today except what I said earlier which is we are thrilled that Rockstar is offering a subscription to avid consumers, and we think it bodes really well for the future.

Karl Slatoff:

So this is Karl. The fact is we do value both, both can be very, very valuable. Obviously, owning the IP in any context and also in mobile, the margin potential is much higher because you own it full and outright. Obviously, with licensed IP you have to pay royalty. But the mobile market is tough to break new IP. It's tough to get attention. And it comes out -- you can't argue with the fact that having a known brand out there is a way for you to get attention. So it's a give and take. I would say our perspective hasn't changed. In a perfect world, we would focus exclusively on owned IP. But the truth is when we see a good license that we think would have -- we have a great idea for a game for and if Zynga folks want to take it to market, then that's something that we're going to continue to pursue.

Operator:

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed.

Strauss Zelnick:

Yes. I mean you don't want to generalize to our business too much from what's going on in linear entertainment because the increase in subscription pricing and linear entertainment is really a reflection of the fact that too many streaming services were underpricing to acquire customers and then they realize those customers were not durable and the LTVs were upside down. So they were basically adjusting their pricing to make sure that the LTVs are potentially positive. And I think there's still more pain to come for some of those services, and I can wax eloquent if you want, although it has nothing to do with our business. In terms of pricing for any entertainment property, basically the algorithm is the value of the expected entertainment usage, which is to say that the per hour value times the number of expected hours plus the terminal value that's perceived by the customer in ownership if the title is actually owned, not say, rented or subscribed to. And you'll see that, that bears out in every kind of entertainment vehicle. By that standard, our frontline prices are still very, very low because we offer many hours of engagement. The value of the engagement is very high. So I think the industry, as a whole, offers a terrific price-to-value opportunity for consumers. That doesn't necessarily mean that the industry has pricing power or wants to have pricing power. However, there is a great deal of value offered. And look, it's our strategy here to deliver much more value than what we charge consumers. It's always been our strategy here. We want to make sure the experience is first class, and the nature of the experience is not just the quality of what we offer, it's also what you pay for it, everyone knows that anecdotally. So that's how we look at it. There have been precious few price increases in the business. The price increase, for example, the $70 for certain frontline products was the first price increase in many years after many generations. So again, I think we offer a terrific value to consumers. On the second question?

Strauss Zelnick:

Regarding the direct-to-consumer platform, we think there continues to be a great deal of upside there, again, for consumers and also for our margins. It's still a relatively small part of our business. There's a great opportunity for growth. To be clear, we will always work with third-party retailers. We want to be where the consumer is. We value our third-party retailer relationships, they do provide marketing support. That's important to us. There are times when consumers want to have a direct relationship. We can do both. We can do all of the above. It is not our strategy to bring everything in-house.

Operator:

Our next question comes from the line of Drew Crum with Stifel. Please proceed.

Karl Slatoff:

So speaking to the confidence of our holiday season. Look, simply, I think it's the strength of our catalog and the strength of our products and a lot of our releases are must-have releases. And any time you're heading into a holiday season, and I think everyone around the table and on the phone is hopeful that we're going to have a very strong hardware season this year. We do have a lot of titles that we think are sort of go-to titles for people to engage with. Besides -- and also, you're obviously -- we're also working off of the results that we've had to date, which are very strong. So the momentum feels positive. We've got a great lineup in place. And it looks like it's going to be a pretty good holiday season from a consumer perspective, particularly in the gaming space.

Drew Crum:

Helpful. Thanks, guys.

Omar Dessouky:

Hi. Thanks so much for taking the question. I just wanted to get a little bit of clarification on what you said about shifts in your pipeline causing your fiscal '25 guide to be not materially below $8 billion. Is that because of shifts in your very largest AAA games in the pipeline, your smaller AAA games in the pipeline or your mobile games? If you could provide some clarity on that, I'd appreciate it. Then I have a follow-up. Thanks.

Omar Dessouky:

Okay. Right. No problem. So then the other question is, obviously, super happy to see Sam Houser's message about Grand Theft Auto VI -- next Grand Theft Auto trailer coming soon. On September 26th, the SAG-AFTRA voted to approve strike authorization for video game performers covered under the Union's Interactive Media Agreement. Now they haven't actually strike yet, but there are negotiations. And I wanted to know whether if voice actors and motion capture actors were to go on strike, would it slow down the production of the next Grand Theft Auto at Rockstar. Does Rockstar have the type of employment contracts that would allow the workers, the actors to work through a strike?

Omar Dessouky:

Thank you.

Mike Hickey:

Hey, Strauss, Karl, Lainie and Nicole. Great quarter guys. Thanks for taking my questions Two questions. The first one, Strauss, I'd be curious sort of your updated thoughts on AI here. It seems like the technology is -- at least the unlock here is accelerating in some of the use cases that we're seeing in terms of product and productivity seems very remarkable. So just curious what you're thinking there, if that's different or not? And then the second question, on the trailer in early December, curious what sort of impact you could think -- you think that might have on other Rockstar product catalog product. Obviously, it's already been strong. And I'm curious if that would be a catalyst boost for your catalog. And I'm curious on Grand Theft Auto Online, the sort of the strategic value of that live service given the vitality it has into the release of GTA next. Obviously, that's the set up you haven't experienced before. Thanks, guys

Operator:

[Operator Instructions] And our next question comes from the line of Clay Griffin with MoffettNathanson. Please proceed.

Strauss Zelnick:

We've spoken about this many times. If we're willing to use the company's balance sheet to make a movie or a television show, then in the event of great success, we would benefit from it. But we're not prepared to use the company's balance sheet that way because the risk/reward profile is unappealing to us. They're very difficult businesses. I've been in them successfully. They're super challenging. They're not what we do. We'd much prefer the risk/reward profile of the business we're in. So that means that the only way we can be in that business is through a license arrangement with a third party. And let's put it in context. Mattel announced, they said that their profits -- expected profits from licensing the Barbie IP for a movie would be about $125 million. Now Barbie is a massive, massive hit and it's extraordinary hit. So you don't want to posit a massive hit and look at the numbers that way. Even in a really good news scenario, the license fees would be a fraction thereof for many of our properties, not really enough to be meaningful here. And we have to weigh that too against the risk of failure. And the hit ratios in the motion picture business are vastly lower than they are in the interactive entertainment business. Our hit ratios for console properties are in the 80% or 90%. The hit ratio for a well-run movie studio is around 30%, which is to say there's a 70% chance that the movie that we license could fail. And so in success, the number, in terms of the benefit to our bottom line, is it's not de minimis, it's not 0, but it's not really material to what we do around here. And in failure, we run the risk of compromising the underlying intellectual property. So it's a high bar. We have licensed 2 properties. We've licensed Borderlands to Lionsgate's picture coming. We've licensed BioShock. We're looking forward to that as well. And we have other titles in discussions, not anything ready to announce, but we're going to be very, very selective and very careful.

Operator:

And our next question comes from the line of Brian Fitzgerald with Wells Fargo.

Strauss Zelnick:

Thanks. I mean you understand what we're already doing in mobile. So I don't think you want me to cover that. You alluded to that. With regard to console titles, we have advertising when it makes sense creatively and feels organic to the title. So for example, in NBA, if you go to a basketball game, you're going to see advertising in the arena. So it's perfectly reasonable to see the same kind of advertising in our game. But we're not going to do product placement where it's inappropriate, so that we can create a small amount of revenue. First of all, the numbers aren't huge. But secondly, anything that we do that takes a consumer out of the experience is problematic. So years ago, and I don't mean to take a potshot, but I'll do it anyhow. Years ago, there was a Bond movie, and James Bond, everyone knows he only drives an Aston Martin. He's only ever driven an Aston Martin. I don't know which iteration it was, but there was one iteration where they clearly made a deal with BMW and all the cars in the movie were BMW. And look, it ruined the movie for me. Because I -- to me, every time I saw BMW, I was like, wow, look, a little bit of product placement right there, a little bit of an advertisement. That's a disaster. So it's perfectly fine in basketball. It's perfectly fine in WWE. It's not perfectly fine in that title where advertising doesn't fit. As a result, I don't think you should expect that the numbers will be really material, although again, we do have an advertising business when it makes sense. That's completely separate, again, at the risk of being repetitive, from the mobile advertising business. That's a growth category for us. Our mobile advertising was up year-over-year. We feel really good about that.

Strauss Zelnick:

I think those are all the questions we have. I just want to say thank you again for everyone joining us today. We're thrilled with the results, and the results are driven by the creativity and passion and commitment of our colleagues, all 12,500 of them all around the world. They work really hard every day, and we get to talk about it here. But the work is done at the studio level, at the label level, at the corporate level. This is a company of great commitment to our strategy of creativity, innovation and efficiency, and we have a culture of ambition, hard work, excellence, seeking and kindness. And I'm really proud of that. This is a really unusual place. If we pursue our strategy and we do it in a way that's consistent with our culture, we've seen over and over again to do well. We're proud of that, and we feel very optimistic about the future. Thanks so much for joining us today.

Operator:

Greetings. Welcome to Take-Two Interactive's First Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Nicole Shevins, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Strauss Zelnick:

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that fiscal 2024 is off to a strong start, highlighted by first quarter net bookings of $1.2 billion, which was at the high end of our expectations, and management results were in line with our plans. Grand Theft Auto Online and Grand Theft Auto V, and NBA 2K23 exceeded our projections, which illustrates the long-lasting benefits of producing the highest quality offerings and amassing one of the strongest and most diverse portfolios in entertainment. In keeping with our core values of creativity, innovation, and efficiency, this quarter, we introduced new intellectual properties, advanced the development of our eagerly anticipated pipeline, and maintained our vigilance with cost management initiatives across our organization. Turning to the results from our titles for the period. Grand Theft Auto V continued to outperform and to date, the title has sold-in more than 185 million units. On June 13, Rockstar Games launched San Andreas Mercenaries for Grand Theft Auto Online, which offers six new major story-based missions, as well as new Los Santos operations, Hangar upgrades, Smuggler Source and Sell Missions, seven new vehicles, and more. The update also includes a range of fan-requested experience improvements, as well as the Career Progress feature, offering players a new way to track their progression across criminal careers and claim rewards. San Andreas Mercenaries continues to deliver high value content post-launch using a phased approach that is driving sustained engagement and Recurrent Consumer Spending. This June, Grand Theft Auto Online recorded more players than any other June in its history outside of the height of the pandemic. GTA+, Rockstar’s premium membership service for GTA Online on PlayStation 5 and Xbox Series X and S, offered exclusive options for members to test drive and purchase an array of vehicles, and we are continuing to see strong growth in GTA+ adoption with each passing quarter. We were pleased with the performance of Red Dead Redemption 2, which has sold-in more than 55 million units to-date. Rockstar Games continues to support Red Dead Online with new bonuses and rewards, including free apparel inspired by the RedDeadFashion subreddit, and seasonal content such as April’s Condor Egg Freemode Event. NBA 2K23 exceeded our plans and the title has now sold-in over 13 million units, representing a 11% year-over-year growth, driven by higher demand, especially on Gen-9 consoles, as well as a more tailored promotional cadence. This incredible performance marks the title’s second-highest sell-through ever -- with only NBA 2K20 achieving higher unit sales. Engagement with NBA 2K23 remains strong, with approximately 2.6 million Daily Active Users delivering Recurrent Consumer Spending that exceeded our expectations. Our franchise extensions with the NBA continue to perform extremely well and NBA 2K23 Arcade Edition remains one of the top games on Apple Arcade. WWE 2K23, which is the highest-rated game in our wrestling franchise’s history and the second highest-rated sports simulation title of the year, experienced strong engagement throughout the quarter, with players logging nearly 22 million hours of gameplay and facing off in 170 million matches. 2K and Visual Concepts continue to support the title with a series of 5 DLC packs that can be purchased individually or as part of a Season Pass. 2K also continues to support PGA TOUR 2K23 with additional pros, courses, and Clubhouse Passes. In May, 2K and Visual Concepts launched LEGO 2K Drive, the first game in a multi-title partnership between 2K and the LEGO Group. Following the launch, our teams released the first of four Drive Pass Seasons for the title, which features 100 levels and new content inspired by the Fast and the Furious Saga. Also in May, Private Division and Piccolo Studio launched After Us on PlayStation 5, Xbox Series X and S, and PC, which has been praised by critics for its striking visuals and game world. Zynga had a solid start to the year, performing in-line with our plans, and we are pleased with the ongoing progress of our mobile business. Ad revenue grew approximately 11% year-over-year, driven by the addition of Popcore and our ability to open new inventory supplies in our portfolio. Toon Blast has been introducing strong feature releases such as the Toon Race event, which drove outperformance versus our forecasts and helped the game recently surpass $2 billion in lifetime gross bookings. We made excellent progress on our profitability initiatives in mobile. We expanded our offerings on our direct-to-consumer platforms and continue to believe that, over the next few years, the majority of our mobile games will leverage our highly-profitable, proprietary distribution channel. We continue to enhance the performance and profitability of our hyper-casual business, with multiple new games scaling quickly and several titles generating bookings from in-app purchases in addition to ads. A few key highlights of Zynga’s live services during the period include

Lainie Goldstein:

Thanks Karl and good afternoon everyone. Today, I’ll discuss the key highlights from our first quarter before reviewing our financial outlook for the full year and second quarter of fiscal 2024. Our combination with Zynga closed on May 23, 2022, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. We had a strong start to the fiscal year, powered by our portfolio of iconic, industry-leading intellectual properties. As we approach our next phase of growth, our teams continue to make excellent progress advancing our development pipeline and capitalizing on our revenue-driven opportunities and synergies. We also partnered together to maintain our focus on efficiency amidst the challenging macroeconomic backdrop and cautious consumer spending trends. I’d like to thank our incredible teams worldwide for their determination and passion for our business. Now, moving onto our results. We achieved net bookings of $1.2 billion, which was at the high end of our guidance range. In the current backdrop, many consumers are purchasing established franchises and those that offer great value, and our catalog stands at the intersection of these two trends. Accordingly, our performance reflects better-than-expected results from Grand Theft Auto Online and Grand Theft Auto V, and NBA 2K23. During the quarter, we launched Marvel’s Midnight Suns for Gen 8 consoles, Lego 2K Drive, and After Us. Recurrent consumer spending rose 38% for the period, which was above our outlook of 35% growth, and accounted for 84% of net bookings. The outperformance was primarily driven by Grand Theft Auto Online and NBA 2K23. GAAP net revenue increased 17% to $1.28 billion and cost of revenue increased 39% to $606 million, driven by $187 million of amortization of acquired intangibles. We also recorded an impairment charge of $18 million, related primarily to capitalized software and development costs for an unreleased title, which affected our management results compared to our guidance. Operating expenses increased by 25% to $883 million. On a management basis, operating expenses grew by 46%, which primarily reflected a full quarter of Zynga, higher personnel costs, and depreciation related to office buildouts and capitalized IT expenses. Turning to our guidance, I’ll begin with our full fiscal year expectations. As Strauss mentioned, our business is performing well, and we are reiterating our net bookings outlook range of $5.45 billion to $5.55 billion. Largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Merge Dragons, Words With Friends, Red Dead Redemption 2 and Red Dead Online, and Zynga Poker. We expect the Net Bookings breakdown from our labels to be roughly 51% Zynga, 30% 2K, 17% Rockstar Games, and 2% Other. And, we forecast our geographic net bookings split to be about 65% United States and 35% International. We continue to forecast recurrent consumer spending growth of 5% compared to fiscal 2023, representing 78% of net bookings. Mobile trends are projected to remain stable, with Zynga’s ad business continuing to deliver growth. We expect to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow, and deploy approximately $180 million for capital expenditures, primarily to support our office buildouts and larger footprint. We continue to expect GAAP net revenue to range from $5.37 billion to $5.47 billion. Our total operating expenses are expected to range from $3.38 billion to $3.4 billion as compared to $3.45 billion last year. On a management basis, our operating expenses are expected to grow by approximately 15% year-over-year, due primarily to a full year of Zynga, an increase in personnel and marketing expenses, and higher depreciation of office buildouts and capitalized IT expenses, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our cost reduction program. As we announced previously, our teams are taking extensive measures to review our cost structure and reduce discretionary costs whenever possible to offset the current consumer backdrop and inflationary environment, while still investing for growth. Now moving onto our guidance for the fiscal second quarter. We project Net Bookings to range from $1.4 billion to $1.45 billion, compared to $1.5 billion in the second quarter last year. Our release slate for the quarter includes Red Dead Redemption and Undead Nightmare for Switch and PlayStation 4, and NBA 2K24. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Words With Friends, Merge Dragons, Red Dead Redemption 2 and Red Dead Online, and Zynga Poker. We project recurrent consumer spending to decline by approximately 7%, which assumes modest declines in our mobile business; NBA 2K, driven by changes to its summer promotional cadence; and Grand Theft Auto Online; as well as a reduction in DLC revenue from several titles that were released in prior years. We expect GAAP net revenue to range from $1.26 billion to $1.31 billion. Operating expenses are expected to range from $811 million to $821 million. On a management basis, operating expenses are expected to grow by approximately 5% year-over-year, driven by last year’s acquisition of Popcore and higher personnel costs, which are being partly offset by the Zynga synergies and our cost savings initiatives. In closing, we are confident that the actions our teams are taking this year are preparing us for a strong trajectory of growth. Through our collective efforts, we continue to believe that we are positioning our business for a significant inflection point in fiscal 2025 that will culminate in us delivering new record levels of operating performance next year and beyond. We thank all of our stakeholders for their continued support, and we look forward to delivering on this exciting next chapter. Thank you. I’ll now turn the call back to Strauss.

Operator:

Thank you. [Operator Instructions] Our first question is from Andrew Uerkwitz with Jefferies. Please proceed.

Strauss Zelnick:

Yeah. I mean I love that people are debating whether we're going to be in a recession from the point of view of a digital entertainment company, we've been in a recession for the better part of 18 months. The market for interactive entertainment was down meaningfully in 2022, down for the first time in the history of the mobile business over 10%, pretty much across the board. Things are looking a lot better. The year-over-year comps have stabilized. We're seeing growth in the console market. It's early, but we are seeing some growth. Mobile sort of flat, slightly down. We hope that will improve. I do feel like we're all seeing some green shoots across the economy. But it definitely is a mixed picture depending on the U.S. So in the context of the entertainment business, live entertainment is doing great. But in the context of entertainment that people consumed at home during the pandemic, it's been challenging for a while. And again, I think it's beginning to normalize, but it's early days yet. When asked a couple of calls ago what I thought would happen in the economy, I said that I thought it would bottom out in June, July. And that by the end of calendar '23, we begin to see some good news and then we'd be in reasonably good position from an economic point of view in early '24, and I continue to believe that that's what will happen.

Strauss Zelnick:

Look, we live within the entertainment ecosystem. So we would never wish for any other industry to have a problem. But if the strike means that new content can't be delivered, then I suppose it could be some small positive benefit for our business. But we aren't counting on that. We're certainly not hoping for it.

Operator:

Our next question is from Eric Handler with ROTH MKM. Please proceed.

Strauss Zelnick:

Some, and we are moving in that direction selectively. Look, historically, for games where you could make in app purchases, less than 10% of the audience actually spent. So we are fielding a game for 100% of the audience and monetizing 10% or so, perhaps a bit more often a bit less. And it's our view that we ought to be monetizing 100% of the audience. So if someone's going to spend, that's great. And if they're not going to spend, then we ought to be able to monetize through advertising. The question is how do you do that and create a high-quality experience. And I think the answer is we can do that. We can distinguish among those audiences. We're not there yet, but I think we're moving in that direction.

Strauss Zelnick:

So we don’t actually give out that percentage. Some of our competitors do. And so one of our biggest competitors, I think, has gone on the record to say it’s about 25% and I think that’s a good number. We’re not remotely in that vicinity. There’s plenty of room for growth. I would note that Zynga’s advertising net bookings were up 11% year-over-year. So it’s really good news. And we’re really happy about the growth of our direct-to-consumer platform and what that can mean for consumers and also for us.

Operator:

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

Strauss Zelnick:

So the answer to question one is, yes, and Lainie will answer question two.

Matthew Thornton:

Perfect. Thank you.

Matthew Cost:

Hi, everybody. Thanks for taking the questions. Maybe I'll start just by asking about mobile M&A. I mean that was historically a very big part of Zynga's business. It seems like the market may be starting to fall out there in terms of deal activity after the three for the past year or two. I guess do you see an opportunity to lean back into M&A at the Zynga business number one. And then number two is just, Lainie, you mentioned in the prepared remarks that some changes to the promotional cadence for NBA 2K. I was wondering if you could just give a little more detail about what those changes are and the size of the financial impact? Thank you.

Lainie Goldstein:

So on NBA 2K 24, we expect to be up from 2K23 -- but 2K23 versus 2K22, there is some less promotional timing in this quarter versus what we did with 22 last year. So that's why we expect the title to be a little bit down versus last year.

Operator:

Our next question is from Doug Creutz with TD Cowen. Please proceed.

Strauss Zelnick:

Look, I think it's an established intellectual property that's been known and beloved for a very long time. And if you combine that with a high-quality expression, I think you can do very well. We don't -- we obviously don't know what they're spending to be in the position that they're in. I do know that we're very focused on profitability. So we're being careful to make sure that our user acquisition spending reflects a high lifetime value for our customer.

Operator:

Our next question is from Eric Sheridan with Goldman Sachs. Please proceed.

Strauss Zelnick:

We continue to believe there's an opportunity there. We do have titles coming that will offer an opportunity to engage on console and also in mobile. We don't think it's something that you have to offer, each title will stand alone. And a question you didn't ask, but we've also discussed the possibility of creating new mobile titles based on core Take-Two intellectual property. And that's something that we're also potentially excited about. In all instances, the consumer experience, the quality of the title is what governs, not the business model. So we have to create something great that consumers want. If we do, they'll show up and if we don't, they won't.

Operator:

Our next question is from Mario Lu with Barclays. Please proceed.

Karl Slatoff:

So this is Karl, Mario. So look, we're very excited about cross play. It's something that our customers have been asking for and something that's natural for NBA. So obviously, we don't do anything in -- we don't put any new boats into a game unless we think that's going to have a significant impact on the experience for the consumer. That's something the consumer is going to love. And as end up leading to increased engagement. And obviously, as we say, when you get increased engagement, you get increased monetization and then everyone's happy in that regard. So all of these decisions are economic decisions, but it starts off first with the experience itself. And at this point, we're very confident that 2K is tracked and not on cross play experiences, and we're looking forward to that. And as it relates to PC and Ogan (ph) in terms of -- it's really just again allocation of resources, these decisions.

Karl Slatoff:

Yeah. We have – most of – it’s funny you say a higher price because when we have some early access games in the market right now, we typically would offer them at a lower price because it would imply that there’s more to come in the game, and it’s not necessarily the final version. We have seen the early access models out there in terms of holding back access and making people pay more for earlier access – that’s not something that we’ve done to date. I would never say never. But honestly, that’s a marketing decision. And our priority is really making sure that the game comes out, comes out in a timely fashion as the best experience possible. That’s something that makes sense. So it’s down the line, we could experiment with it. But to date, that has not been something that we’ve looked at.

Operator:

Our next question is from David Karnovsky with JPMorgan. Please proceed.

Lainie Goldstein:

So for the bookings for Zynga for mobile, there are some game shifts within the year. So there was some reforecasting of some of the existing games, and that's what has changed within mobile.

David Karnovsky:

Thank you.

Omar Dessouky:

Hi. Thank you for taking question. So you didn't change your full year guidance. And I wanted to know, I think David Karnovsky asked the question and you talked about Zynga a little bit. I wanted to know what -- whether your implied like-for-like guidance on mobile has changed at all since the last time you guided. And then within that, do you expect advertising to grow on an organic basis, that is excluding Bapcor. And I have one more question.

Omar Dessouky:

Organically?

Omar Dessouky:

Okay. Great. And then the other part of the question I wanted to ask was in terms of your direct-to-consumer channel, I think Strauss said that the majority of mobile games in a few years will leverage that channel. So you have a lot of games. We've counted well over 100. Not all of them are your big winners. I think there's a long tail of games. So I guess I wanted to ask, is it that the biggest games -- the biggest games are going to be on your DTC platform or is it just the sheer number of games? Because I'm trying to get a sense of how much revenue could potentially flow through that channel, if you understand what I mean?

Omar Dessouky:

Thank you.

Michael Hickey:

Thanks, Strauss, Karl, Lainie, Nice quarter, guys. Thanks for taking our questions. Curious Strauss, sort of big picture -- pardon upon, Curious what you're thinking on film opportunity. I know you're not Trim bandwagon guy, so -- but maybe this isn't that hard not to notice the results here from Super Mario Brothers and The Last Of Us. And this is an area where historically, it's been a challenge for Game IP to have success in new mediums. It looks like the formulas kind of involved the creative piece to the original game and have great story lines. And when you look at your portfolio of IP, you've got a ton of opportunities. It would seem like you certainly have a creative talent, you definitely have a great storyline. So two questions on that Strauss. Curious if your creative teams are motivated to expand their IP into new entertainment mediums like film or streaming episodic content. And then curious if you think IP expansion into new beam-like film can sort of complement your growth strategy over the long term. Thanks, guys.,

Michael Hickey:

Thank you.

Brian Fitzgerald:

Thanks. Two quick ones. Strauss -- not to get wrapped around the axle with semantics, but you said, hey, we had a phased approach when you were talking about GTA Online. Anything to call out there is a difference or an evolution how you're marketing and delivering incremental content or now it's just more of the normal MO? And then second question is on NBA 2K23 added to PlayStation Plus game of the months, that kind -- that definitely contributes to strong engagement, but we're curious whether or not you also see a meaningful uptick in RCS there among those PlayStation plus players, point being, if they are waiting to engage with it once it's in subscription service. Is there a lower propensity to spend in the game or no, actually, we see an uptick in RCS there as well.

Karl Slatoff:

And then in terms of the things like subscription services or game in a month, where the consumer is necessarily buying the individual game. Obviously, we don't do these things unless we think there's a significant economic opportunity for us to do so. So you can -- if you see it going in some of those services, you can assume that, that math has been done. And yes, we do see an uptick in recurrent consumer spending generally because we bring a lot of new players. And those players are valuable players. And as long as they’re engaged with the game itself, the engagement is strong and the conversion to RCS is very strong. It’s all about – and again, it varies cohort to cohort and varies game to game. But if we do drive significant engagement from folks who are coming into the game, we are seeing very favorable reserves as it relates to monetization.

Operator:

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

Lainie Goldstein:

So the update for Rockstar is based on the momentum in their current business. So there's some GTA 5 unit sales, some the Red Dead updates and some virtual currency with the GT Online updating. So it's just overall reforecasting of the business.

Strauss Zelnick:

I think it will be about the same. It's always hard to know. It's a very competitive business at any given time. But ultimately, we're really competing with ourselves because if there's a lot in the market that consumers want, generally speaking, they'll go consume it. And if there's nothing that they want, it's not like they consume the next best. They just stay away. So we have to deliver the highest quality properties. And if we do that, they'll show up in good times and in bad. I mean you're seeing that even in a mixed economy. The best titles still full big audiences.

Strauss Zelnick:

I just want to take a minute to thank our teams again for delivering a superb quarter, and we're really thrilled with the way this year is unfolding. Our titles continue to be a phenomenal quality. We're really excited about our upcoming releases. And obviously, very excited about the future beyond this fiscal year. And we also want to thank all of you for attending the call for your great questions. And naturally, we're grateful to our shareholders for their continued support. So thanks so much, and have a great evening.

Operator:

Greetings, and welcome to the Take-Two Q4 Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Nicole Shevins, Senior Vice President of IR and Corporate Communications. Thank you, Ms. Shevins, you may begin.

Strauss Zelnick:

Thanks, Nicole. Good afternoon and thank you for joining us today. I'm pleased to report that we concluded fiscal 2023 by delivering strong fourth quarter results, including net bookings of $1.4 billion, which were above the high end of our expectations. On behalf of our management team, I'd like to thank all of our colleagues around the world for helping us achieve these results and supporting our vision to become a more scaled, diverse industry-leading organization especially as we navigate an oftentimes volatile and uncertain economic landscape. With fiscal 2024 underway, our initial expectation is to deliver full year net bookings in the range of $5.45 billion to $5.55 billion. We're assuming a continuation of the current challenging consumer backdrop within our forecast. Additionally, the development timelines of some of our titles lengthened especially as we strive to redefine the creative standards of excellence of our industry, which affect our release slate for the year. Looking ahead, fiscal 2025 is a highly anticipated year for our company. For the last several years, we've been preparing our business to release an incredibly robust pipeline of projects that we believe will take our company to even greater levels of success. In fiscal 2025, we expect to enter this new era by launching several groundbreaking titles that we believe will set new standards in our industry and enable us to achieve over $8 billion in net bookings and over $1 billion in adjusted unrestricted operating cash flow. We expect to sustain this momentum by delivering even higher levels of operating results in fiscal 2026 and beyond. I'd now like to discuss several key highlights from fiscal 2023, which was a milestone year in the 30-year history of our organization. We delivered net bookings of $5.3 billion, which reflects both the transformative evolution of our company through our combination with Zynga, and our ability to create market and distribute the highest quality entertainment experiences. We made excellent progress integrating Zynga. The combination has been highly accretive to our business as we've embarked on new revenue-driven opportunities, exceeded our anticipated cost synergies for year one and enhance further our mobile platform through select acquisitions. As we approach the one-year anniversary of our combination, we're immensely proud of the trajectory of our integration and the strength of our shared culture and values. Our headcount now stands at nearly 12,000 talented individuals, including approximately 9,000 developers in our studios throughout the world, which positions us exceedingly well to reach the full potential of our pipeline. And we've maintained our focus on our core tenet of efficiency. We've taken a rigorous approach to our cost reduction program announced in February, which we believe will surpass meaningfully the $50 million in annual savings that we originally anticipated. Our fourth quarter outperformance was led by strong results from Grand Theft Auto V and Grand Theft Online, Red Dead Redemption 2 and Zynga's mobile portfolio. Broadly speaking, the macroeconomic environment remained relatively consistent with what we experienced throughout the third quarter holiday season, while consumers continue to exercise restraint with their purchasing behaviors they prioritized blockbuster franchises and titles that offered great value. As a result, our vast catalog of proven high-quality titles achieved strong results. As part of our ongoing portfolio management measures, we made the decision to cancel several unannounced titles in development, which we believe will enable us to tighten our focus and reallocate resources to projects for which our creative teams have higher levels of conviction expectations of success. Excluding the associated write-offs, our fourth quarter and full year management earnings results were above the high-end of our guidance. We manage our pipeline actively, sometimes making difficult decisions to ensure that we're meeting our creative standards and achieving financial returns that are consistent with the goals of our company. We believe that an evolving robust pipeline is an essential part of our long-term strategy to expand, enhance and diversify our portfolio to grow our player base and to launch a multitude of new hit franchises across an array of platforms and business models. Turning to the performance of our titles for the period. Grand Theft Auto V exceeded our expectations, and to-date, the title has sold in more than 180 million units worldwide. As hardware supply constraints receded, Grand Theft Auto V and Grand Theft Auto Online adoption on the latest generation of platforms continued to grow. For the first 3 weeks of Grand Theft Auto Online's Holiday update, PlayStation 5 and Xbox Series X/S consoles grew to 14% of its audience penetration and 25% of its revenue penetration, up from 11% and 20%, respectively, versus last summer's content update for the comparable period. During the period, Rockstar Games continue to support the passionate global Grand Theft Auto online community with an array of new content offerings, including The Last Dose an epic finale of the Los Santos Drug Wars update as well as the roving Gun Van, Taxi Work Missions, a new 50 Car Garage, new vehicles, clothes, weapons, modes and much more. Los Santos Drug Wars introduced a phased approach to delivering high-value content, creating a much longer tail of sustained engagement in net bookings than we've seen with previous content updates. Additionally, GTA plus Rockstar's premium membership program continues to perform well, driven by a positive response to monthly events since the launch of Los Santos Drug Wars. Red Dead Redemption 2 outperformed our plans and to date, the title has sold in more than 53 million units worldwide. We're also pleased with the continued engagement of players with Red Dead Online as demonstrated by its 10% year-on-year increase in new online players on all platforms. NBA 2K23 continues to grow its audience with the title selling in over 11 million units to date, a record for the series at this stage and achieving its highest ever virtual currency sales. In addition, engagement with NBA 2K23 remained incredibly strong, with approximately 2.3 million daily active users, including growth in The City, MyCAREER and MyTeam users. NBA 2K23 arcade addition continues to bring the best basketball experience to mobile devices and has maintained its number one position on Apple arcade. Building upon Visual Concepts’ resounding success and reinvigorating our WWE franchise last year, WWE 2K23 enjoys the highest metacritic review score average in the history of the series. Engagement with the game has been outstanding, players logging nearly 8 million hours of gameplay and facing off of more than 100 million matches. 2K is supporting the title with a series of add-on content that can be purchased individually or as part of the season pass. We value deeply our relationship with the WWE and look forward to continuing and expanding upon our successful partnership in the years to come. Private Division and Intercept Games launched Kerbal Space Program 2 in early access for PC on Steam, Epic Games Store and other storefronts. Our teams are encouraged by the incoming player feedback, and we've already implemented several updates with more on the way as development continues. Last week, Private Division announced a partnership with Game Freak to publish their upcoming new action-adventure IP, which is one of Private Division's most ambitious projects to date. In addition, Private Division and the Roll7 studio were recently honored with 2 prestigious industry awards, the BAFTA for Best British game for Rollerdrome and Best Sports Game at DICE for OlliOlli World. Zynga's mobile business had a strong finish to the year. In-app purchases were above our expectations. Momentum has continued and we were pleased to experience strong demand over the Easter holiday. Efforts to increase our advertising business are tracking well with ad revenue growing quarter-over-quarter and accounting for approximately 27% of Zynga's net bookings. Our teams are successfully increasing advertising supply in our games, investing in optimization and implementing new ad products, which are helping us monetize a much broader cohort of users. Our direct-to-consumer efforts are tracking well with numerous titles currently in our platforms and plans for nearly all mobile games across our labels to leverage our highly profitable proprietary distribution channel over the next few years. A few highlights of Zynga's offerings during the period include Empires and Puzzles, Zynga's highest grossing title drove engagement through its new in-game event, Season of Love. Zynga's social casino portfolio had its best quarter in nearly two years, driven by record performance from Game of Thrones Slots Casino and strong overall results from Zynga Poker, Hit it Rich! and Wizard of Oz Slots. Top Eleven had a robust quarter and launched its Proving Ground

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our fourth quarter and fiscal 2023 before reviewing our financial outlook for the full year and first quarter of fiscal 2024. Please note that our results include our combination with Zynga, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. I'm so proud of our team for their strong execution and unwavering focus throughout the year. We made fantastic progress on our integration with Zynga delivered incredible high-quality content and announced several exciting new games from our pipeline. Efficiency was also a major area of focus. We announced our cost reduction program in February, and as part of our ongoing portfolio management process, we canceled several titles that we anticipated would not meet our internal hurdle rates. We are confident that all these steps will help grow our scale, enhance our long-term margin structure and ultimately deliver sustainable returns for our stakeholders. As Strauss mentioned, we finished fiscal 2023 with momentum and delivered fourth quarter net bookings of $1.39 billion, which was above our guidance range of $1.31 billion to $1.36 billion. This reflected better-than-expected results from Grand Theft Auto V and Grand Theft Auto Online, Red Dead Redemption 2 and Zynga's mobile portfolio. During the period, recurring consumer spending growth 115%, which was above our outlook of 105% growth and accounted for 78% of net bookings. The outperformance was primarily driven by Zynga and Grand Theft Auto Online. Digitally delivered net bookings increased 76%, above our guidance of 70% growth and accounted for 97% of the total. During the quarter, 78% of console game sales were delivered digitally, up from 75% last year. GAAP net revenue increased 56% to $1.45 billion, and cost of revenue increased 207% to $1.22 billion which included impairment charges of $465 million related to intangible assets acquired from Zynga, reflecting forecast changes for a few titles and $54 million relating to capitalized software and development costs for unreleased and canceled console and PC title, a lot of which was included in our management results. Operating expenses increased by 130% to $926 million, which primarily reflected the addition of Zynga, which is partially offset by lower marketing expenses. And GAAP net loss was $610 million or $3.62 per share, which includes $302 million of amortization of acquired intangibles and $45 million of business acquisition costs. Excluding the $54 million impairment charge, our management earnings would have been above the high end of our guidance range. Turning to our fiscal 2023 results. Total net bookings were $5.28 billion, which was above our guidance of $5.2 billion to $5.25 billion. While the challenging macroeconomic backdrop affected certain components of our portfolio, we experienced favorable performance within our catalog of industry-leading intellectual properties and Zynga had a strong finish to the year. The recurrent consumer spending increased 88%, which was slightly above our outlook of 85% growth and accounted for 78% of net bookings. Digitally delivered net bookings increased 63%, which was also above our guidance of 60% growth and accounted for 95% of the total. And during the year, 74% of our console game sales were delivered digitally up from 68% last year. Non-GAAP adjusted unrestricted operating cash flow was $56 million as compared to our outlook of over $400 million. During fiscal 2023, we spent $204 million on capital expenditures. At fiscal year end, we had cash and short-term investments of approximately $1 billion and debt of $3.1 billion. GAAP net revenue grew 53% to $5.35 billion in cost of revenue income 100% to $3.1 billion, which included impairment charges of $465 million related to intangible assets acquired from Zynga and $79 million related to capitalized software and development costs for unreleased and canceled titles, the latter of which was included in our management results. Operating expenses increased by 131% to $3.45 billion, which primarily reflected the addition of Zynga as well as higher personnel, stock compensation and IT expenses. And GAAP net loss was $1.12 billion or $7.03 per share, which includes $1.04 billion of amortization of acquired intangibles and $270 million of business acquisition costs. Today, we provided our initial outlook for fiscal 2024. We project net bookings to range from $5.45 billion to $5.55 billion. The largest contributors to net bookings are expected to be NBA 2K, and Grand Theft Auto Online and Grand Theft Auto V, our Hyper-Casual mobile portfolio, Empires & Puzzles, Toon Blast, Words with Friends, Merge Dragons, Red Dead Redemption 2 and Red Dead Online and Zynga Poker. We expect the net bookings breakdown from our label to be roughly 53% Zynga, 31% 2K, 15% Rockstar Games and 1% other. And we forecast our geographic net booking site about 57% in United States and 33% international. We saw recurrent consumer spending to be up approximately 5% compared to fiscal 2023 and represents 79% of net bookings. Our forecast assumes 76% of console game sales will be delivered digitally. We expect to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow, and we plan to deploy approximately $180 million for capital expenditures. We expect GAAP net revenue to range from $5.37 billion to $5.47 billion and cost of revenue to range from $2.51 billion to $2.54 billion. Our total operating expenses are expected to range from $3.39 billion to $3.41 billion as compared to $3.45 billion last year. At the midpoint, this represents a 1% reduction, reflecting lower acquisition costs, the realization of synergies from our combination with Zynga and savings from our cost reduction program, which are partly offset by a full year of Zynga, higher stock compensation and personnel expenses driven by the annualization of new hires and the effect of inflation on other business operating expenses primarily reflected in IT costs. We expect the GAAP net loss ranging from $477 million to $518 million or $2.80 to $3.05 per share, which assumes a basic share count of 170.1 million shares. For management reporting purposes, we expect our tax rate to be 18% throughout fiscal 2024. I'd like to acknowledge that our current forecast for fiscal 2024 reflects the continuation of the challenging economic environment as well as an extension of the development time lines for several high-profile and long-awaited titles. While this affects our expectations for our current fiscal year, our high degree of visibility into our pipeline gives us confidence that we are approaching a significant inflection point in our business where we will achieve new record levels of results for our business next year and beyond. Now moving on to our guidance for the fiscal first quarter. We project net bookings to range from $1.15 billion to $1.2 billion, which reflects the full quarter of Zynga compared to $1 billion in the first quarter last year. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online, Grand Theft Auto V, a Hyper-Casual mobile portfolio, Empires & Puzzles, Toon Blast, Merge Dragons, Words with Friends, Zynga Poker, Red Dead Redemption 2 and Red Dead Online. We project recurrent consumer spending to increase by 35%. Our forecast assumes that 79% of console game sales will be delivered digitally, up from slightly from 77% in the same period last year. We expect GAAP net revenue to range from $1.21 billion to $1.26 billion and cost of revenue to range from $572 million to $592 million. Operating expenses are expected to range from $827 million to $837 million. At the midpoint, this represents an 18% increase over last year, which reflects the full quarter of Zynga and higher stock compensation, personnel and IT expenses based on the factors I mentioned previously. And GAAP net loss is expected to range from $161 million to $178 million, or $0.95 to $1.05 per share, which assumes a basic share count of 169.4 million shares. The good thing is we believe that we are very well positioned in our industry to deliver the highest quality content, gain market share and enhance our profitability as we grow our scale and maintain our focus on efficiency. We're extremely excited about our next chapter of growth, and we look forward to our label, sharing more detail about the many exciting projects we have underway. Thank you. I'll now turn the call back to Strauss.

Operator:

Thank you. [Operator Instructions] Our first question comes from Andrew Uerkwitz with Jefferies. Please proceed with your question.

Strauss Zelnick:

Yes, you're right. It's very uncharacteristic of us to talk about subsequent years at this time. We're doing so because we've been investing in a pipeline for a long time. And we now have a great deal of confidence that, that pipeline will be delivered in the next 3 years, 12 titles in fiscal '24, 36 in the following 2 years, up 44% of that is new intellectual property. The rest is new iterations of existing franchises, and that's mobile, console, PC and numerous business models. We couldn't be more excited, fiscal '24 titles look good and as I said, we're very confident in the years to come as well. And we thought it was important to convey that with transparency today.

Karl Slatoff:

So as you know, new IP is always a little bit of a wildcard, and it's difficult to predict exactly how it's going to behave. Obviously, we're not completely flying blind because we do have a pretty comprehensive process of doing comps in the market. But you really just never know, which is one of the reasons why when we model out in our product investment review process, new IP, we typically -- actually, we never model out big hits nor its upside. I don't want to necessarily call it a conservative approach, but we don't look at any sort of outlying success. Obviously, everything that we invest in and everything that we release, we're looking to achieve that outlying success, and we know for a fact that not every single one of our titles will achieve that. But that is the game we're in, and that's why we're making these investments in new IP, which ultimately is the lifeblood of our industry, and that's why we're still very much dedicated to doing that.

Matthew Thornton:

Maybe two from me. Strauss has been another 3 months and AI remains a hot topic. I'm sure you and team have had more time to digest and think about it. I'm just kind of curious of your latest thoughts on how you think it will influence the business and the industry. And then just secondly, as we think about the headcount and the infrastructure that we now have in place, are we kind of at a place where you have what you need to pursue this aggressive pipeline? Or do we still need some more investment. I'm just trying to think about the OpEx leverage and how to think about that as we kind of flow through the out years?

Karl Slatoff:

So your second question in terms of costs. I'm not sure exactly what you meant by operating expenses. So I'll just kind of break it down about overhead. So publishing, overhead and corporate overhead. I would say, generally speaking, we're kind of at scale. We have what we need that's not to say - to achieve our plan over the next few years. That's not to say that we won't still be investing in those areas, and there will be cost increases associated with that. We're always looking for efficiencies but people do get raises, and we find needs as new opportunities arise. So I can't stand here and say that we don't have any more investment on publishing and corporate overhead, but we certainly believe that we're at scale. And we also believe that that's an opportunity for us to expand our margins based on the fact that we are at scale or very nearly at scale in that regard. On the development side, we do intend over the next few years to continue to add to our development capacity. That's something that we have been able to do successfully about 9,000 developers in-house today. That doesn't include our third-party relationships, which are vast and strong. And part of our plan is to continue investing in that area.

Matthew Cost:

The first one is just about the long-term guidance. I think you mentioned growth in fiscal '26 off of a base in fiscal '25. Presumably, there's quite a few units of new games that are being launched in that year. I guess when you think out into fiscal '26, what are the moving pieces that you see driving growth year-over-year off of what looks to be based on the numbers you've just provided a very, very strong year in fiscal '25. And then the second question is just on mobile. You announced that you're going to be launching Star Wars Hunters this fiscal year, I think the game has been in development for some time. Are you seeing something in the mobile gaming market as sort of stabilization or improvement of marketing efficiency that makes you feel this is the right time to come out with the game?

Strauss Zelnick:

Yes. On Star Wars, Hunters, you asked about the market backdrop. We are seeing some improvement in year-over-year comps. Mobile really was under a lot of pressure. The market is recovering a bit. It's still down year-over-year. In certain instances, we appear to be overperforming. And we're excited about many developments at Zynga. For example, advertising penetration, advertising that represents 27% of Zynga's net bookings, which is great. That will continue to improve. We're excited also about our direct-to-consumer platform, which obviously has an effect on our margins, a beneficial effect on our margins. So I think the backdrop is stable and perhaps improving a little bit. At the end of the day, what will matter, of course, is the quality of the title. Mobile is a very competitive space. We feel really good about Star Wars Hunters.

Colin Sebastian:

Strauss, you talk about setting new standards in the industry, and I know quality is a big piece of that. But would be also curious to know beyond that, what specific areas of innovation within your games, you would say, keep the portfolio ahead of the competition? And then, regarding the fiscal '25 commentary, I'd just be curious how of that more than $2.5 billion in incremental bookings next year. What portion of that should we think of as falling into RCS versus, I guess, unit sales? Thank you.

Lainie Goldstein:

So for fiscal year '25, we are really excited to talk about it. It's a highly anticipated year. And we're really happy to talk about us hitting $8 billion in net bookings, but we aren't talking about what the detail of that is at this time.

Doug Creutz:

I just wanted to talk about your adjusted operating cash flow margins for a minute. If I go back to fiscal '18 through fiscal '21, you were pretty consistently in the low mid-20% range. It slipped down below then since then, I think, is a function of you investing against your future pipeline. Your fiscal '25 guide is over $1 billion in OCF against over $8 billion in bookings, which is still only about a 12.5% margin, if my math is correct, which seems low. Do you expect that in fiscal '25, you're still going to be investing heavily against future opportunities? Do you expect to get back to that 20% plus range in '25 or thereafter? Any kind of color you've given that would be great.

Clay Griffin:

I guess I'm thinking about the marketing strategies for some of these big highly anticipated title is different now than they were, say, maybe in the Red Dead 2 launch. I mean, notwithstanding the fact that a larger number of titles ought to bring a higher level of marketing support in the aggregate. I'm curious if the overall level of marketing efficiency against bookings is materially different now maybe the prior generation, I guess, in other words, awareness of your IP is already quite high. So just curious on that.

ClayGriffin:

Got it. And there was some commentary about what sounded like a onetime cash tax issue in Q4. I just wanted to confirm that. And maybe just give us a sense of I mean what that was, we expect that to repeat? And just kind of general framework for thinking about cash taxes going forward? Thanks.

Clay Griffin:

But the rate that you guys have been speaking to is there's no sense that that's moving one direction or the other.

Operator:

Our next question is from Omar Dessouky with Bank of America. Please proceed with your question.

Lainie Goldstein:

Can you repeat the first question? I'm sorry.

Lainie Goldstein:

Yes. So on a like-for-like basis for a comparable 12 months, the Zynga mobile business is up year-over-year.

Karl Slatoff:

Hey. It's Karl. So in terms of some of the cadence around the $500 million revenue synergies, obviously, we're still very committed to that, and we feel very good about those opportunities for us. I think in the near-term, there are several meaningful opportunities that we believe our teams can actually start to begin to activate this fiscal year. And those are really more around expanding our D2C efforts more meaningfully in some of our other games. And also things like implementing new bold beats, marketing beats across the company, user acquisition optimization, creating centralized library of customer data across the company, integrating the Take-Two databases with the Zynga databases. All those things we're going to be able to start realizing some of that in this fiscal year and then obviously accelerate that into the next few years as well. In terms of the immediate and long-term, I think this will answer I think both of your questions. We do have a vision to introduce mobile games to some of some of our most popular properties on the T2 side into the mobile space. That's something that we're having conversations right now, nothing to announce specifically but the conversations are happening, and I would characterize them as very positive, and people are excited about that opportunity. I'm not really sure I understood the sort of reference to Asia and high fidelity, et cetera. But these are intellectual properties think about them as some of our more core type games. And by definition, you would expect and again, I don't have anything to announce right now because we don't have any games necessarily in development in that regard, that those games would be a little bit more upmarket because we do believe that there's a market for that. You've seen some success in the mobile space with other folks bringing their titles to market. Call Duty is a perfect example of that. We think that there is several of our titles that have that kind of opportunity. And I would expect those games to be a little bit more towards the mid-core arena. I hope that answers your question.

Martin Yang:

First question on Zynga, can you tell us that Zynga's developer headcount growth since it was acquired?

Martin Yang:

My second question is broader. I want to get your broader view on console cycles. When do you plan to stop supporting past gen consoles? And what goes into the decision of stopping for the past gen consoles for certain franchise or for overall Take-Two release games?

Operator:

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

Strauss Zelnick:

Yes. We've talked about this in the past. I mean, to take your second question first. We do think that live services spending is probably more affected by macroeconomic conditions because you don't need to spend. If you have the game, you can enjoy the game. There are certain titles that we don't really put ours into this category where you kind of have toll boots. If you don't pay, you really can't play, but that doesn't describe any of our titles mobile or console. So we think spending in a live services environment is a nice to have for the consumer, not a must-have. And as a result, if the consumer is feeling a pinch that might be an area that would be more likely to be influenced negatively. In terms of the pricing point that you raised, we're not seeing a pushback on frontline price. What we're seeing is consumers are seeking to limit their spending by going either to the stuff they really, really care about blockbusters or to value. And sometimes it could be both. And the good news is like we have a bunch of blockbusters, and we have a wonderful catalog. The other news is we also have a robust frontline release schedule and without regard to price, there has been some pressure as a result. If a consumer sees something is interesting but not necessarily yet a huge blockbuster. We think that will change. This is a growth business, and this is a unique market. And nothing that's going on now is inconsistent with the view that we outlined during the pandemic. We said at that time, we were benefiting greatly from people being at home and an odd turn of events. And we set our expectations post-pandemic, as an industry be in a better place than pre-pandemic in a worse place than during time when people were sheltering at home. And that's exactly what's happened exacerbated by a challenging mixed economy and what I believe is a recession, at least if you look at it through the lens of people who purvey digital entertainment consumed at home and e-commerce suppliers. There's a lot of pressure in those markets. But the overall tailwinds of the industry will continue. This is a growth business. It will remain fastest-growing part of the entertainment business for the next 20-plus years. And we will have those tailwinds. Now we still have to deliver in that context, and we intend to. But to torture the metaphor, the winds at our back.

Mike Hickey:

Congrats on your '25 guide, no pressure guys on $8 billion in revenue. Just curious, you didn't guide to profitability expecting to now that $8 billion was a little bit above consensus view. Just curious how we should think about profitability, I think consensus for is over $8 in EPS. I don't expect you to confirm that either way, but just thoughts on how we should think about profitability on '25, especially given that we have extended timelines now on development and what impact that could have? And then the second question, just another one on AI, Strauss. I'm glad to hear your positive on it. That's nice. Just curious on the mobile side with AI and barriers to entry. Just curious if you think that will have any challenges in terms of more competitors coming to the market? Thanks guys.

Operator:

[Operator Instructions] Our next question is from Gerrick Johnson with BMO Capital Markets. Please proceed with your question.

Karl Slatoff:

So we haven't disclosed what our target is. We do think it's a significant opportunity for us. So it certainly is greater than zero and less than 100%. We don't think that it makes sense in all cases to go to direct-to-consumer, but we do think there's a lot of room for us to grow from where we are right now. I think it's the second question. What was the second?

Gerrick Johnson:

Margin list.

Operator:

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

Karl Slatoff:

It's a funny question you asked because we've debated this exact thing internally, whether or not like a LEGO title, for example, is a mid-core/arcade or is it immersive. And it really isn't a question of quality and the amount of gameplay that's involved. So the $70 price point, I would say, is a bit of a red herring. We think that the game is certainly worthwhile with that experience. But the experience itself when you look at sort of the over -- if you compare that experience to a Grand Theft Auto, for example, obviously, there's a big difference. In the depth of the storyline, the vastness of the world, et cetera, LEGO Drive is an open world driving experiences, but it's not Los Santos, so there's quite a bit. It's probably not even the City with NBA. So the term is probably a little bit of art in terms of how we classify things. But in this particular case, just given the look in the field of the game, we thought that mid-core/arcade was the right categorization of it. But there's no specific guideline other than kind of in this particular case, it kind of felt that way. And I should also say, sorry, Lainie was about to answer the other question. Whether it's mid-core or arcade versus core or immersive, that doesn't necessarily indicate our expectations about commercial success because you can have a commercially successful title, that's mid-core or casual.

Lainie Goldstein:

For fiscal '26, what we've said is that we expect net bookings and operational results to be higher than fiscal '25. So that would imply that both would be growing.

Stephen Ju:

Okay. Thank you. So Strauss, I certainly do not want to put words in your mouth, but your answer to one of the prior questions. It sounded like you were talking about incremental barbelling of industry dollars, I guess, similar to what you were seeing during the financial crisis. And then I guess in an environment where only the AAA and the value games are going to capture dollars and the stuff in the middle may be in some trouble. So what are you doing at the studio level that is different now to maybe adjust for that environment. And Karl, like what are you doing at the private division level to adjust to what might be the new normal? Thanks.

Operator:

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

Strauss Zelnick:

Our strategy has always been to have the broadest possible distribution. We were a leader in digital distribution in the very beginning. And one of the reasons we did so well is that we basically were willing to do business with everyone whose terms made sense to us and who were good market participants in terms of security and compliance. And to the extent that streaming is a viable business opportunity and technology for our industry. Of course, we'll avail ourselves of it. And I'm certain we'll work with third parties as we have in the past. We were I think the first license for Stadia, for example, sorry, didn't work out, but we were there to support the effort. And equally to the extent that it makes sense to have our own platform, we will do that, too. But we're not very unlikely to be exclusively limited in one direction or the other. We want to be where the consumer is.

Operator:

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

Operator:

Greetings, and welcome to the Take-Two Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nicole Shevins, Senior Vice President of IR and Corporate Communications. Thank you, Nicole. You may begin.

Strauss Zelnick:

Thanks, Nicole. Good afternoon, and thank you for joining us today. During the third quarter, we continued to execute on our ambition to create the highest quality, most engaging interactive entertainment franchises in the industry to deliver them across an array of platforms and to captivate our global audiences. All of our new game releases and post-launch content have received significant critical acclaim, and we're pleased to have the highest catalog sales based on units sold in the Americas. The strength of our portfolio reflects the passion, vision, artistic acumen and hard work of our world-renowned development teams and studios, and we're immensely proud of our long-standing commitment to quality. Notwithstanding our creative achievements, our third quarter net bookings of $1.38 billion were slightly below our prior guidance. We believe that as a result of macroeconomic conditions, consumers shifted holiday spending toward established blockbuster franchises and titles that were offered with pricing promotions. While our catalog benefited from this trend, it affected the performance of certain of our new releases and recurrent consumer spending for some of our console and PC games. Despite the current market, we believe that our long-term success will be driven by our consistent ability to create the best entertainment experiences, including sequels of our beloved franchises and the introduction of engaging new intellectual properties. Sales of Grand Theft Auto V exceeded our expectations during the holiday season. And to date, the title has sold in more than 175 million units. During the quarter, Rockstar Games released an array of new content for both, Halloween and the holiday season as well as a new story-driven update Los Santos Drug Wars. The update launched in December and continues to deliver exciting new story and gameplay features to players across the winter season, including a new business, tax emissions and much more to come, which is continuous to drive stronger engagement with our player race. We were also pleased with the performance of Red Dead Redemption 2, which outpaced our expectations driven by successful holiday promotions and events. To-date, the title has sold in more than 50 million units. During the quarter, Rockstar Games continued to release new updates for Red Dead Online, including a new Halloween Hardcore Telegram Mission and new Call to Arms locations for Halloween and the holidays. We remain incredibly pleased with the enduring quality of these entertainment experiences. Grand Theft Auto V was ranked number three for units sold in the US during calendar year 2022 on all platforms and was number two overall for 2022 on Steam. Additionally, 2022 was GTA V's tenth consecutive year in the NPD top five for unit sales. Red Dead Redemption 2 also continues to resonate strongly with players, ranking as the number one selling game on Steam for the quarter end, number three for 2022. NBA 2K23, which remains the number one selling sports title in North America continues to expand its audience and to date has sold in over 8 million units. Full game sales for NBA 2K23 are up 3% year-over-year, and MyTEAM users grew more than 50% over last year, as players enjoyed assembling the rosters of the NBA's all-time greatest stars to dominate the competition. In addition, NBA 2K23 Arcade Edition remains the number one game in Apple Arcade since its launch in October. 2K and HB Studios supported PGA TOUR 2K23 with the limited-edition holiday bundle that included NBA 2K23 and new content featuring branded gear from Barstool Sports, 100 Thieves, and Dude Perfect. HB Studios will release more content and features, including the addition of Pebble Beach, cosplay functionality and ranked patch making. On December 2, 2K and Firaxis Games launched Marvel's Midnight Suns on Windows PC via Steam and Epic Games Store, PlayStation 5 and Xbox Series X|S. The title launched a critical acclaim with BGC rating at a five out of five, calling it a modern strategy classic. PC Gamer said it was completely brilliant, scoring at 88 out of 100 and Rock Paper Shotgun called it one of the best Superhero games. The title is being supported with a series of post-launch content that can be purchased individually or as part of the game seasons pass. During the quarter, Zynga's in-app purchases performed in line with our expectations, and we saw mobile trends improve from prior lows, particularly during the holiday season. The label continued to experience strong engagement among its active players and we believe that we're maintaining our global market share. Our advertising business outpaced the broader industry, as we continue to introduce new ad supply and products, optimize our networks to increase ad yields and roll out Chart boost throughout our inventory. A few key highlights of our mobile offerings during the quarter include Empires & Puzzles was a top performer due to strong seasonal content and Black Friday offerings. This is one of our first titles to leverage our direct-to-consumer platform for in-app purchases, which we believe can enhance significantly the margins for our mobile portfolio over the next few years. Rollic’s Balls’n Ropes reached the number one spot for most downloaded game in the US in December, giving Rollic a look a total of 20 games that have reached the number one or number two spot in Apple's US App Store. We acquired Popcore, which offers a unique balance of hyper-casual experiences that also prioritize long-term player retention rates. This strengthens our leadership among hyper-casual publishers with respect to downloads in revenue. Following the acquisition, Popcore's game Tap Away reached the number one spot for most downloaded game multiple times throughout the quarter in Apple's US App Store. Zynga's casino titles remained resilient with Game of Thrones Slots posting its best quarter ever. Top 11 had a strong quarter, driven by various in-game updates celebrating the World Cup. CSR Racing 2 released Race Pass, which features innovative new rewards that are driving stronger retention and monetization. Our combination with Zynga remains highly accretive to our business. We remain committed to delivering our planned synergies, and we're well on our way to exceed our target of $100 million in annual cost savings within the first two years post close. During the quarter, recurrent consumer spending rose 117% and accounted for 78% of net bookings. Turning to our outlook. We're operating in an environment that is, in many ways, more challenging than we anticipated. And we're lowering our fiscal 2023 net bookings guidance to $5.2 billion to $5.25 billion to take this backdrop into account. To be clear, I take personal responsibility for our revised downward guidance. We believe there's always more to achieve, particularly when we fall short of our expectations. We've embarked on a company-wide cost reduction program that will optimize our expense structure, while also positioning us to deliver on our anticipated growth trajectory. We expect to achieve savings in excess of $50 million as a result of this initiative. Our balance sheet remains strong, allowing us to navigate these uncertain times with confidence. We've always managed our business for the long term as we achieve the powerful synergies from our combination with Zynga, release new titles from our robust multiyear pipeline and execute on our cost savings initiatives we expect to deliver sequential growth and record performance over the next several years. Our business and creative teams have done a phenomenal job during these challenging times, and I'd like to thank all of our colleagues for their tireless work. I'd also like to thank our shareholders for their continued support. I look forward to sharing our progress with you on all of our key initiatives. I'll now turn the call over to Karl.

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our third quarter, before reviewing our guidance for fiscal year 2023 and our fourth quarter. Please note that our third quarter results include our combination with Zynga, with respect to the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. As Strauss mentioned, we delivered net bookings of $1.38 billion, which was slightly below our prior guidance, as consumers displayed more cautionary purchasing behaviors during the holiday season. As in prior periods of economic headwinds, full game sales from our catalog of industry-leading intellectual properties were relatively resilient. However, we felt pressure on some of our newer releases that are in earlier stages of building their player base, alongside softness in recurrent consumer spending. During the period, recurrent consumer spending rose 117% and accounted for 78% of net bookings. Zynga’s in-app purchases performed in line with our revised expectations. However, this was offset by weakness in recurrent consumer spending for several of our console and PC games. Digitally delivered net bookings increased 72% and accounted for 95% of the total. During the quarter, 69% of console game sales were delivered digitally, up from 63% last year. GAAP net revenue increased 56% to $1.41 billion, and cost of revenue increased 97% to $692 million. Operating expenses increased by 123% to $889 million, primarily driven by the addition of Zynga, as well as higher marketing and stock-based compensation expenses. The GAAP net loss was $153 million, $0.91 per share, which was impacted by $302 million of amortization of acquired intangibles and $24 million of business acquisition costs. Our management tax rate for the period was 18% as compared to 60% in the prior year as a result of our combination with Zynga. We ended the quarter with over $1.1 billion of cash and short-term investments and paid down $200 million of revolver borrowings, reducing our debt to $3.1 billion. Turning to our guidance. I'll begin with our full fiscal year expectations. We now expect to deliver net bookings of $5.2 billion to $5.25 billion. Our forecast takes into account the current economic environment and consumer purchasing trends that we have been experiencing, which we expect to continue into the fourth quarter, including lower expectations for some of our recent game releases and softer recurrent consumer spending as well as the shift of an unannounced mobile title and a focus on enhanced profitability for our hyper-casual business. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Empires & Puzzles, Toon Blast, Rollic’s hyper-casual mobile portfolio, and Red Dead Redemption 2 and Red Dead Online. We expect the net bookings breakdown from our labels to be 46% Zynga, 36% 2K, 17% Rockstar Games and 1% private division. We forecast our geographic net bookings split to be about 65% United States and 35% international. We expect recurrent consumer spending to grow by approximately 85% and represents 77% of total net bookings. Our digitally delivered net workings are expected to grow by approximately 60% and represent 95% of the total. Our forecast assumes that 74% of console game sales will be delivered digitally, up from 68% last year. We expect to generate more than $400 million in non-GAAP adjusted unrestricted operating cash flow, and we expect to deploy approximately $170 million for capital expenditures. Our GAAP net revenue to range from $5.24 billion to $5.29 billion and cost of revenue to range from $2.53 billion to $2.55 billion, which includes approximately $694 million of amortization of acquired intangibles. Total operating expenses are expected to range from $3.4 billion to $3.41 billion as compared to $1.5 billion last year. This increase reflects the inclusion of Zynga, business acquisition costs and higher personnel compensation and marketing expenses, which we anticipate will be slightly offset by our expected cost synergies from our integration with Zynga. As we've mentioned on prior calls, in light of the current backdrop, we have been evaluating cost savings opportunities that can structurally enhance our margin and make our company more efficient and nimble for the long-term. After a comprehensive review, we now believe that we can deliver over $50 million of annual savings, which we will begin to execute on this quarter opportunities include personnel, processes, infrastructure and other areas, particularly in publishing and corporate funding. This program is in addition to the over $100 million of annual cost synergies from our combination with Zynga and is not expected to impact the delivery of our robust multiyear pipeline. We expect the GAAP net loss ranging from $704 million to $721 million or $4.40 to $4.50 per share, which assumes the basic share count of 159.8 million shares. We expect our management tax rate to be 18% throughout the year. Now moving to our guidance for the fiscal fourth quarter. We project net bookings to range from $1.31 billion to $1.36 billion, compared to $846 million in the fourth quarter last year. The largest contributor to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, and Empires and Puzzles, Toon Blast, Rollic’s hyper-casual mobile portfolio, and WWE 2K23 We project recurrent consumer spending to grow approximately 105% and digitally delivered net book to increase approximately 70%. Our forecast assumes that 80% of console game sales will be delivered digitally, up 75% last year. We expect GAAP net revenue to range from $1.34 billion to $1.39 billion and cost of revenues to range from $688 million to $708 million, which includes approximately $198 million of amortization of acquired intangibles. Operating expenses are expected to range from $871 million to $881 million. At the midpoint, this represents a 120% increase over last year. This increase reflects the inclusion of Zynga, business acquisition costs and 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 $197 million to $214 million of $1.17 to $1.27 per share, which assumes a basic share count of 168 million shares. In closing, while we are disappointed to have lowered our outlook for the year, we are highly confident in our long-term growth potential. We believe that the actions we are taking now will position us to deliver sequential growth and record performance over the next several years, which we anticipate will drive meaningful shareholder value. I'd like to thank all of our stakeholders again for their support. Thank you. I'll now turn the call back to Strauss.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Eric Handler with MKM Partners. Please proceed with your question.

Strauss Zelnick:

Thanks, Eric. I appreciate it. To answer your question, we have enhanced advertising within the Zynga portfolio. Certain titles within that portfolio did not have advertising and now do. And at 2K, with regard to their mobile titles, there's no change. With regard to console titles, we have a limited amount of advertising, but there's no change there as well. With regard to direct-to-consumer, that's a new initiative for us and for the team at Zynga that's being rolled out modestly. We are seeing early signs of success. And obviously, that has a very significant effect on our contribution margins.

Operator:

Thank you. Our next question is from Matthew Thornton with Truist Securities. Please proceed with your question.

Strauss Zelnick:

Well, I'll see how I do it then you can determine what your follow-up is like. So in terms of the mobile market, look, the reason we were interested in combining with Zynga is we believe that mobile will continue to be the fastest-growing part of the interactive entertainment business, and we still are of that belief. Yes, there's been some year-over-year pressure, which is, in our view, related to the economy primarily and to a lesser extent, probably, sort of, post-pandemic changes in demand. We think those are near term. And in fact, the trends recently are quite positive in terms of demand. And Zynga has the best portfolio of mobile games in the business. Most of our competitors, good as they may be, have one, two, three, four titles that matter. We have a whole lot more than that. We have these forever franchises. And we also are blessed with phenomenal leadership in that division. So we remain highly optimistic about the growth in the future. I'm not sure I can give you an exact growth rate, but I do think it will continue to be a rapidly growing part of the business. It also diversifies us. We attach a different audience on the mobile side, skews more female. It skews older. And by having a diverse company that has console and PC and mobile titles, we address every part of the interactive entertainment business, and we find ourselves as one of the top three pure plays in the business. With regard to our expectations about in-app purchases and ad revenue going forward, look, in-app purchases still are only relevant for about 10% of the market for 90% of the users, that's not something they're interested in. So if you're selective and careful about how you target it, advertising makes all the sense in the world, because we ought to be able to find a way to monetize all of the viewing, all of the engagement, not just the engagement that leads to spending, particularly because we're not in the toll booth business. We're in the entertainment business. And we want to be able to deliver titles that consumers can enjoy without regard to spending. Spending should enhance the experience for sure, and it does. But in order to be commercial, we should have a robust advertising business that's not intrusive, that's positive for the consumer than consumer experience, and that's exactly what Zynga is building. With regards to new IP -- I'll finish your, I wrote down your questions. So let me just grab you on new IP and then I'll stop talking. On new IP, that remains the biggest challenge in the mobile business. And making new hits in mobile is really, really, really hard. We're working on a bunch of titles about which we're very excited, but it's super hard to make hits. Hit ratios in the business are low.

Strauss Zelnick :

What we said today is we expect sequential growth and record results over the next couple of years, and that remains our expectations. We'll give you exact outlooks, including guidance in the coming months.

Matthew Cost :

Hi, everybody. Thanks for taking the questions. Could you go into a little more detail about where you saw the strength in PC and console versus where some of the softness was? Was it more on recurrent consumer spending or unit sales? And how does that compare to past periods of macro weakness that you've seen?

Matthew Cost :

Great. Thank you. And then just on the cost savings side, is the cost reduction program, is it particularly focused on the mobile business or various areas? Or is it kind of just general corporate overhead?

Matthew Cost :

Great. Thank you.

Drew Crum:

Okay, thanks. Hey, guys, good afternoon. Just sticking with Zynga, I think you mentioned in your preamble that mobile trends had improved, maybe a little bit more detail there? And can you comment on whether Zynga's net bookings were up quarter-on-quarter. And if you've seen this improving trend line continue into the current quarter? And then I have a follow-up.

Drew Crum:

Okay. And then Strauss, some of your competitors have suggested the market is shifting towards these mega franchises. Curious if you agree with that premise? And does this in any way if you do, impact how you invest across your development pipeline? And are you inclined to hold back with the launch of titles until market conditions become more favorable? Thanks.

Drew Crum:

Thanks, guys.

Omar Dessouky:

Hi, everybody. So I'm looking at your grid, the grid of games that you plan to release from fiscal 2023 to fiscal 2025 and next to mobile, you have 38 games. And it looks like 10 of them were not Zynga Games. Are you still confident that you can get all those games to scale? And is $100 million in annual bookings still the level that you aspire to as it was for Zynga's forever franchises prior to the acquisition? And then I have a follow-up, please.

Omar Dessouky:

Okay. And it's -- do you think versus when you acquired Zynga, it's going to be harder to get to that $100 million threshold, and will that affect kind of the number of new games that you guys will be potentially launching over the next year or two?

Omar Dessouky:

And just as -- I have one quick follow-up here. So some experts have noticed that Google has begun sending rejection notices for ads exposures and formats that are not compliant with its new better ads experience policy. This poll this allows interruptive interstitial ads among other practices, and it was announced back in July. So are you starting to see the effects of this policy for Rollic hyper casual games on Android?

Omar Dessouky:

Okay. That's my question. Thank you.

Mario Lu:

Great. Thanks for taking the question. The first one is on RCS this quarter in terms of the growth came in a bit below expectation. You mentioned that Zynga was in line and the weakness was from console PC. Any franchise to highlight that kind of came in below expectations or any factors that led to this underperformance.

Mario Lu:

Okay. Got it. And then just a follow-up on NBA 2K. You mentioned that MyTeam's players were up 50% year-on-year, which is a fairly large amount. So are there any kind of main drivers to highlight there? And were these gains partially offset by declines potentially in MyCAREER mode? Or was it mostly additive? Thanks.

Mario Lu:

Great. Thank you.

Eric Sheridan:

Thank you for taking the questions. Maybe two, if I could. First, on the mobile front, obviously, we've lapped the launch of IDFA. And I wanted to get your perspective on whether you feel like, in terms of driving a mixture of user growth and in-game monetization and in-game engagement, whether you've successfully sort of realigned your marketing strategy in mobile to address a post-IDFA world or whether you're still thinking it's sort of a work in progress, so that once demand is back in the mobile landscape, you can sort of capitalize on it? That'd be number one. And number two, a competitor of yours talked about withdrawing or pulling back from the mobile shooter market earlier in the earnings season. I'd love to get your perspective on how you think about developing, implementing and sort of launching AAA titles either alongside traditional PC console titles in the mobile format? Or how we should be thinking about even mobile-only formats of what historically have been AAA type quality titles? Thanks, so much.

Strauss Zelnick:

Yes. And on the second part of the question, we've said all along, and I said it today, the hit ratios in the mobile business are very low. And when we announced the combination with Zynga, the most current question was, well, obviously, you're going to take Take-Two IP to mobile is not great. And my answer was, that is potentially a very exciting opportunity, but it's really, really hard to do. One of our competitors has done it really well with the title, and we're impressed by that and admire it. But we have a healthy respect for how difficult it is. The vast majority of hits in mobile are native to mobile. They are not based on existing IP. They do not come from a console. I'm very optimistic that we're going to give it a try, and I'm really hopeful that we'll do well with it. But it's not a slam dunk.

Operator:

Thank you. Our next question is from Doug Creutz with Cowen and Company. Please proceed with your question.

Strauss Zelnick :

It's a really good question. What causes us to believe that it's macro related is that we don't just pull our expectations out of the year. We based our expectations on prior performance of similarly rated titles within that genre. And so in the case of certain of these titles, we've had great scores and terrific critical acclaim and yet the unit sales were lower than expected on an apples-to-apples basis by comparison to prior releases and prior periods. So that is -- that sort of leads us to believe, okay, that's probably a macro result. But I don't mean to imply for minute that quality doesn't matter, quality does matter and the biggest titles will obviously continue to perform with regard to market conditions. So what you're saying is, does that mean you should only put out blockbusters and anything that's short of an expected blockbuster, you can't put out. I think the answer is semi-yes. We can't put out something that we think is going to be a B title. It's never been the case. We have to put out AAA titles. However, not everything is ever going to be Grand Theft Auto. It just isn't going to be that way. And we have shown that we have the ability to launch new franchises. In the case of Borderlands or more recently, Tiny Tina's Wonderlands. Going back farther BioShock, from Rockstar, Red Dead Redemption. These are new intellectual properties, and we were willing to take the risk and support our creative team's vision and passion, and we've been able to create big hits. That's not changing. And there's nothing in our recent performance that leads us to say, we shouldn't invest in this way to the contrary. I believe we should continue to invest in this way. But right now, is the market more selective? Sure. In tougher times when food and fuel is more expensive and people are a little worried, they're going to be more selective. And when they're more selective, they're going to go to promotional titles and they're going to go to blockbusters.

Operator:

Thank you. Our next question is from Clay Griffin with MoffettNathanson. Please proceed with your question.

Karl Slatoff :

Engagement has definitely been strong across the board. And I would characterize it certainly as a modernization -- as a monetization issue. And we've seen that not just on the PC and console business, but also in the mobile business as well. So, that is specifically engagement that seems to be -- is not the issue for us.

Strauss Zelnick:

I don't really think so. I mean, we don't make our frontline titles available day in date. We're thrilled to be in business with subscription services for our catalog titles at the appropriate time. We think that's the right way to support subscription. And subscription is still a relatively small business -- you're talking about businesses. I think the last announcement of Game Pass was 25 million subs. We're not talking about huge broad-based business yet. And in any case, no, I don't believe the business is cannibalizing our business.

Operator:

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

Strauss Zelnick:

No, we're not seeing any regional differences, particularly. I'm not sure we've been looking for them though, because it's really early still.

Strauss Zelnick:

I don't think that discounting in particular is driving our expectations for the quarter. What's driving our expectations for the quarter is just our perception of market demand.

Operator:

Thank you. Our next question is from Matti Littunen with Bernstein.

Strauss Zelnick:

No, we didn't change our approach to marketing. Our marketing approach varies title by title and reflects our view at any given time for what the opportunity is and in the context of the cost of the marketing programs. But if your question is, did we create a sort of self-inflicted wound by somehow spending less, for example, on marketing and getting worse results? The answer is no. But equally, it's not like we've created a self-inflicted wound by spending more on marketing and not getting results. We tailored the marketing to the opportunity. Unfortunately, the opportunity set was a little smaller than we thought.

Operator:

Thank you. Our next question is from Mike Hickey with Benchmark. Please proceed with your question

Lainie Goldstein:

So for the quarter, our NBA business was in line with our expectations. Our other titles were a bit lower than what we had expected. As I mentioned, our PC and our console business for RCS was overall lower than what we had expected. And for the $50 million, this is like an ongoing cost reduction initiative. So we expect this number will grow over time. So efficiency is one of our core tenants as a company. So we're always looking for efficiency throughout the organization. And these are permanent and structural changes to the organization's overall corporate overhead structure, so these are expenses that we expect to reduce our overall structure over time.

Operator:

Thank you. Our next question is from Jason Bazinet with Citi. Please proceed with your question.

Strauss Zelnick:

Yes. I mean, we’ve been believers in our gaming. We were one of the first licensees, if not first license -- licensor, sorry, to Stadia, to support that project. But remember, cloud gaming is a technology. It's not a business model. It's a distribution technology. And our view is, broader distribution is always a good thing in the entertainment business. If we can reach more consumers with our properties, we're happy to do it as long as the terms make sense. And I think broader distribution over time probably benefits us in any number of ways, including the cost of distribution, which I believe will go down over time. That said, I've never felt like cloud gaming would be size -- would represent a seismic change. Because I think if you're prepared to pay $60 or $70 for frontline title, you're also prepared to buy a console. And I think Stadia found that out. So bringing high-quality titles to consumers who don't have consoles will probably have an effect around the edges, but I don't think it will be a revolution in the business, I think it will be more an evolution in the business. And there's still technical challenges to be addressed.

Operator:

Thank you. Our next question is from Matthew Thornton with Truist Securities. Please proceed with your question.

Strauss Zelnick:

You know, I'm the first person to be skeptical of other people's side. And I would like to note that, AI stands for artificial intelligence, and there is no such thing as artificial intelligence. All that said, I'm really excited about what we're seeing right now with ChatGPT and other leaps forward in artificial intelligence and machine learning. And I do think that we'll be and others will be creating tools that will enhance our development and probably reduce some of the costs for what we have to do today. But I don't think you're going to see it have an effect on the overall cost structure of the business, because I think it will just raise the bar. I think any time you make things easier, we're going to want to do more and our teams will want to do more. The belief among college students, the ChatGPT is not going to allow them to just make a query in sending their homework. The problem is -- the question is describe what actually happened on the night of Paul Revere's ride, if that's the question, and everyone gets the same question, which you do in class and everyone uses ChatGPT, whoops, everyone's going to submit the same assay last time I checked. And so ChatGPT is today's hand calculator. When I was a kid, there was no such thing. I hate to admit, but it's true. So I had to do math longhand. And then hand calculators came along and parents were up in arms that thought, 'Oh, kids won't have to learn math anymore. And the answer is yes, you still have to learn math, turns out. You absolutely have to learn math. Like you have a tool that makes it easier to do. And ChatGPT is the same thing. We are ushering in a very exciting era of new tools. And they're going to allow our teams and our competitors' teams to do really interesting things more efficiently. So we're going to want to do more. We're going to want to be even more creative. And no, it's not going to allow someone to say, please develop the competitor to Grand Theft Auto that's better than Grand Theft Auto, and then they will just send it out and ship it digitally and then that will be that. People will try, but that won't happen.

Strauss Zelnick :

We've been pretty flexible about return to office, and our teams have been great. One of the many wonderful things about working at Take-Two, the amazing people that we work with. We're more than 11,000 people strong around the world. And our attrition rate remains much, much lower than the industry average. And I think that's because -- this is an extraordinary place to work where we seek the best and the brightest on both the business and the creative side, and we encourage people to pursue their passions and excellence at the same time. So productivity is strong. Performance is strong. We probably never had a period this long with all of our titles showing up or performing. I believe in the last two years, we've had the best reviews and the best scores we've ever had. And that's why the business challenges are a bit frustrating, because our people are delivering. And we will deliver over time as long as we keep doing that, and that's the plan.

Strauss Zelnick:

Thank you for joining us today. I wish we were giving you better news across the board. There is so much good news here, and we're really proud of it. As I said just a minute ago, the thing we're most proud of is our phenomenal colleagues all around the world to whom all of us are so grateful. And as for our results, we plan to do better. We thank you for your support.

Operator:

Good afternoon, and welcome to the Take-Two Interactive Software Second Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to our host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Strauss Zelnick:

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we delivered another consecutive quarter of solid results with net bookings of $1.5 billion. We experienced healthy player engagement, driven by exciting new game releases, post-launch content updates and bold beats for many of our mobile offerings, even as consumers continue to navigate the effects of various macroeconomic and geopolitical factors. We made excellent progress with our integration of Zynga, and we remain highly optimistic about the vast long-term growth potential for the mobile industry, which is expected to reach over $160 billion in gross bookings within the next four years. Some of our key achievements in the period include

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our second quarter before reviewing our guidance for fiscal year 2023 and our third quarter. Please note that our second quarter results include our combination with Zynga, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. As Strauss mentioned, our combination with Zynga is tracking very well, from the progress we are making against our integration milestones with the net bookings and cost synergy realization that we are working towards and our highly complementary company cultures. We have great confidence that over the long term, our portfolio is poised to benefit from the significant expected growth in mobile gaming, evolving player dynamics towards more immersive mobile content and our massive combined scale, which will enable our teams to cross-promote titles and build stronger tools to connect with new users. During the quarter, we identified additional cost savings opportunities, and we now feel confident that we can deliver over $100 million of annual synergies within the first two years post close. We're also evaluating other efficiencies across our core businesses while ensuring that we have the appropriate resources to deliver on our significant growth prospects. Our second quarter results were solid, and we delivered net bookings of $1.5 billion, which was within our prior guidance range. The movement in foreign currency exchange rates negatively affected our net bookings by approximately 1%. With consumers navigating ongoing macroeconomic uncertainties, we believe that our financial performance truly demonstrates the incredible quality of our games and the significant value that our interactive entertainment experiences provide to our players. During the period, recurrent consumer spending rose 76% and accounted for 80% of net bookings. NBA 2K and Rollic’s hyper-casual mobile portfolio outperformed our plans, while we experienced some softness across other parts of our portfolio as the interactive entertainment industry faced continued headwinds. Digitally-delivered net bookings increased 62% and accounted for 94% of the total. During the quarter, 73% of console game sales were delivered digitally, up from 65% last year. GAAP net revenue increased 62% to $1.4 billion and cost of revenue increased 56% to $714 million. Operating expenses increased by 144% to $932 million, primarily driven by the addition of Zynga; and business acquisition and higher personnel costs; which was partly offset by lower console and PC marketing expenses. And, GAAP net loss was $257 million, or $1.54, which was impacted by $320 million of amortization of acquired intangibles and $37 million of business acquisition costs. Our management tax rate for the period was 18% as compared to 16% in the prior year as a result of our combination with Zynga. We ended the quarter with over $1.3 billion of Cash and Short-Term Investments and $3.3 billion of debt. Turning to our guidance, I’ll begin with our full fiscal year expectations. As Strauss mentioned, we are revising our guidance, and we now expect to deliver net bookings of $5.4 to $5.5 billion. Approximately 70% of the downward revision reflects lowered expectations for our mobile business and shifts in our release slate, while the balance reflects an updated view for the rest of our portfolio, based on current business trends across the interactive entertainment industry. Our guidance reflects $50 million of FX headwinds. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Empires & Puzzles, Rollic’s hyper-casual mobile portfolio, Toon Blast, and Red Dead Redemption 2 and Red Dead Online. We expect the net bookings breakdown from our labels to be 45% Zynga which includes our former T2 mobile titles, 36% 2K, 18% Rockstar Games, and 1% Private Division. We forecast our geographic net bookings split to be about 60% United States and 40% International. We now expect recurrent consumer spending to grow by approximately 90% and represent 77% of total net bookings. Our digitally-delivered Net Bookings are expected to grow by approximately 70% and represent 96% of the total. Our forecast assumes that 75% of console game sales will be delivered-digitally, up from 68% last year. We expect to generate more than $650 million in non-GAAP adjusted unrestricted operating cash flow and we expect to deploy approximately $150 million for capital expenditures. We expect GAAP net revenue to range from $5.41 billion to $5.51 billion and cost of revenue to range from $2.61 billion to $2.64 billion, which includes approximately $694 million of amortization of acquired intangibles. Total operating expenses are expected to range from $3.4 billion to $3.42 billion as compared to $1.5 billion last year. This increase reflects the inclusion of Zynga; business acquisition costs; and higher personnel, marketing, and IT expenses; which we anticipate will be slightly offset by our expected cost synergies. In light of the current economic backdrop, we continue to monitor our costs prudently to find potential areas of savings this year, while being mindful of the resources we need to support our robust multiyear release schedule. And, we expect a GAAP net loss ranging from $631 million to $674 million, or $3.95 to $4.22 per share, which assumes a basic share count of 159.8 million shares. Our revised forecast includes an increase in amortization for intangible assets acquired from Zynga based on updated valuation estimates. We expect our management tax rate to be 18% throughout the year. Now, moving to our guidance for the fiscal third quarter

Operator:

[Operator Instructions] Our first question comes from Eric Handler with MKM Partners.

Strauss Zelnick:

Look, engagement is very stable. We got a lot of terrific hit titles at Zynga. It's what we like about the company. Unlike many mobile businesses of this kind of scale, our bookings are not concentrated in two or three titles. We have more than 10 big titles and more coming. So engagement is incredibly solid. We are seeing some pressure on in-game spending. We also have a great story in advertising bookings because our advertising bookings are up mid-double digits year-over-year. And so there are plenty of bright spots in the business as well. The most important spot, people love mobile games. They love our mobile games, they continue to play them, and we're seeing no significant change in engagement across our titles. In terms of what I expect to change, look, it's very hard to say. I think that's -- it's anyone's guess what the economy will do. My own opinion, and it's really just one person's opinion, as we're looking -- we should be looking at three to six more months of downward pressure. And I expect by the end of '23, we'll be in good shape.

Strauss Zelnick:

It is. We have 87 titles coming across mobile, PC and console. And it's the most robust pipeline we've ever had certainly and one would argue, one of the most robust pipelines in the industry.

Andrew Uerkwitz:

I guess there's a lot of frustration. You had the S-4 out earlier in the year. We've gotten two cuts here. And the move in the pipeline around is part of the blame. What -- is there anything you guys can share that gives you confidence that there's going to be growth next year, especially in the core Take-Two? It looks like part of the cut is half 2K, if I'm doing my math right. So just curious, what is giving you that confidence or anything you can share that gives us the confidence to go along with it here?

Andrew Uerkwitz:

Got it. And then if I could just throw one follow-on there. You guys are known for quality and I'm sure a lot of the delays or shifts are related to polish. But is there something you guys are seeing that's -- it's just too much going on? Just kind of just walk us through kind of the thought process behind it. It just seems like -- was COVID a bigger impact? This will be, I think, two or three years now with record pipeline and so far, just we're all being patient here.

Operator:

Our next question comes from Eric Sheridan with Goldman Sachs.

Karl Slatoff:

It's Karl. So really, what it means to us, what we're working on building is Zynga and this is what's happening obviously well before we merged with the company, as we're working on building the mobile platform. And one of the most exciting things and obviously, Zynga has got some amazing forever franchises and some great IP and some good titles and some great titles coming out. But a huge part of the value is that platform and the ability to manage the customer life cycle very effectively. And you can see the company investing in that over time and we continue to invest that. And as we bring together the databases across our entire company, that power of data management, particularly in the context of IDFA and some of the challenges that privacy rules may sent to us, the better your data, the broader your data set and the better the bigger and broader your platform and the more capabilities you have in your platform will enable you to mitigate those effects. And we're already seeing some of that. And that's been a focus for Zynga for quite some time, and we're going to continue to invest in that. You saw it with the acquisition of Chartboost, the acquisition of Storemaven, but also bringing all of the Zynga portfolio and the new Take-Two portfolio onto the centralized Zynga platform is going to yield significant results for us.

Matthew Thornton:

Maybe two, if I could. One for Strauss. Strauss, you talked about sequential years of growth and a record performance. I guess the question there is, what are you alluding to? Is that EBITDA, earnings per share, margins? Any meat you can kind of put on that would be helpful. And then just second one for Lainie. Lainie, I think you called out $50 million in -- I interpreted that as incremental currency headwind impacting the full year guide, but you also alluded to pipeline moving around. Could you quantify what that impact is and kind of what that is for the year?

Lainie Goldstein:

Yes. And for the full year, I mentioned that about 70% of the downward revision is the mobile business and the release slate together, and about $50 million is for the FX currency headwinds.

Lainie Goldstein:

Sure. For -- the changes in release schedule, there are several changes that happened during the quarter. So there was one mobile title from 2K that moved and Gen 8 and Switch versions of the Marvel's Midnight Suns moved into fiscal '24. And also KSP2 has now shifted to early access this year. So those are the major changes in the release schedule.

Matthew Cost:

Just on the PC console business, are you seeing a divergence between the performance of Grand Theft Auto and NBA 2K, specifically where NBA 2K RCS is outperforming Grand Theft Auto? And if so, can you give any more color on the player and consumption dynamics you're seeing in GTA? And then on the mobile side, you highlighted how the advertising business is hanging in there and growing a fair bit better than that purchases. Do you expect the advertising to materially outperform in-app purchases over the next couple of quarters? The reason I ask is because presumably, a lot of those ad dollars are coming from other game companies. And then I wonder if eventually that feels the pain from in-app purchases across the industry going down.

Operator:

Our next question comes from Drew Crum with Stifel.

Lainie Goldstein:

So for RCS, we did lower our expectations. Most of it was for mobile since our prior guidance assumed that mobile would experience some improvement in the second half of the year. But we no longer expect that since the current data for the industry and our real-time performance has shown that we think it will lower in the second half of the year. But we are also assuming some softer performance for several of our large non-mobile titles that are meaningful contributors to RCS. So that's why our expectations for RCS are to come down in the second half of the year.

Operator:

Our next question comes from Mario Lu with Barclays.

Lainie Goldstein:

So Mario, 70% is mobile and the movement in the release schedule, so it's a combination of both of those two items. So it's not only mobile. But you're right, Rollic did outperform in Q2 so that business is doing really well.

Mario Lu:

Yes, the question was, your thoughts on potentially leveraging the success of Rollic to cross-promotion or view that as an acquisition channel to other mobile…?

Operator:

Our next question comes from David Karnovsky with JPMorgan.

Strauss Zelnick:

Yes. On the first question, yes, there are a number of early opportunities that we've identified, including our approach directly to the consumer on the mobile business, which is pretty exciting and could generate material benefits. And we're working on a number of properties as well. It will take longer to bring some titles to market but that's super exciting.

Operator:

Our next question comes from Doug Creutz with Cowen.

Strauss Zelnick:

It's the former.

Martin Yang:

My first question is on NBA 2K's ASP trends. You mentioned there's some year-over-year improvement. Can you maybe dig into details on what contributed to the ASP improvement?

Martin Yang:

Got it. And then a follow-up question regarding your mobile synergy. Is there any milestones you could share with us updating where the teams are at? Are new teams being formed to build mobile game space on your core IP? Is there any games in aviation phase or any other milestones will be appreciated?

Operator:

Our next question comes from Matti Littunen with Bernstein.

Strauss Zelnick:

Yes. It's roughly the same number of units year-over-year and virtual currency spending is up. And we don't split out the spending in the different modes for the purpose of this call.

Brian Fitzgerald:

Lainie, you talked to this a little bit. But in terms of labor, how do you think about things improving as the market cools off a bit for tech employees? And how are you thinking about headcount growth and retention from here? Does the cooling labor market give you any leverage in terms of getting developers back to the office? Does that help things? Any color there would be great.

Operator:

Our next question comes from Omar Dessouky with Bank of America.

Karl Slatoff:

Just to be clear, you define advertising efficiency as in-app purchases divided by advertising spend?

Karl Slatoff:

Right. So I think, look, we don't break -- we're not necessarily breaking that out specifically and I'm not sure that I would characterize that as efficiency, but it certainly would be an interesting measure to look at. And as we said before, we've experienced pretty strong growth in our advertising business and we've had some pressure on in-app purchases. So it stands to reason that, that ratio would probably be going more in favor of the advertising business versus in-app purchases. That isn't necessarily a long-term trend. That's just something that we're seeing in the short run. We fully expect in-app purchases to come back at one point in the future. As Strauss said before, a little hard to gauge that when that may happen, but that is our expectation. So those ratios, I don't believe are necessarily going to be fixed over time or necessarily moving in a specific direction, again, depending on what happens in the broader market.

Karl Slatoff:

Yes, I don't think the mix in terms of where we're spending concentrating has changed dramatically based on anything that we've seen in the market. You can certainly expect that day-to-day, quarter-to-quarter, month-to-month, you're going to see variations depending on where media opportunities exist. So I'm sure you're going to see some variation depending on what happens in specific media outlets. But I don't see a broader trend that's pushing us towards any particular asset versus another.

Michael Hickey:

The first one is on your guidance for '23. I mean, obviously, a couple of revisions here. Do you feel like you're sort of being conservative enough? Obviously, a lot of uncertainty on the macro mobile, but is there still downside risk and where would that be? And then on '24, you said growth sequentially. You've given us some data on the S-4 and I think on your presentation with Zynga. Street is looking for $8 billion in revenue, [759] in ETFs. Obviously, that's a pretty big step-up. Guessing it's coming from premium as mobile is slowing here. Obviously, live service is not great. Is it just one, two, three titles on premium or any sort of granularity, I guess, on the '24 growth would be great. And then the second question is on the very unfortunate GTA League. Just curious how you and your teams are sort of managing through that impact, if you feel that there's a residual advantage or not and how you sort of move forward and think about timing.

Strauss Zelnick:

And with regard to the leak, it was terribly unfortunate and we take those sorts of incidents very seriously indeed. There's no evidence that any material assets were taken, which is a good thing. And certainly, the leak won't have any influence on development or anything of the sort. But it is terribly disappointing and causes us to be ever more vigilant on matters relating to cybersecurity.

Clay Griffin:

I guess two. It seems like the legacy Take-Two mobile games are holding in a bit better than the legacy Zynga. I guess, what would you attribute that to? Is it just kind of a life cycle of where those titles are relative to kind of when IDFA ATT dropped? And then secondly, just curious, Strauss, I think Phil Spencer was talking about Game Pass and essentially implying that they were nearing saturation, I guess, relative to kind of where the Xbox console installed bases. Just curious if your thoughts about subscription models relative to the traditional premium window have changed over time? I think his comments generally, I think, could be characterized as lining up maybe what your view of the value proposition for a subscription product.

Strauss Zelnick:

It's all one, it's all Zynga. It's managed by the Zynga team and we have a lot of great titles.

Strauss Zelnick:

And on the subscription side, look, we've been very cooperative with both Sony and Microsoft on their subscription offerings when it makes sense for us. And my own views have not changed at all since I first started talking about subscription, which is now, I want to say, probably four years ago. The interactive entertainment business is very different than the linear entertainment business. People consume far fewer hours of interactive entertainment in a given month than they do of linear entertainment. And within that consumption, there are far fewer titles consumed in interactive entertainment than there are with linear entertainment. So I, at least, pose the question as to whether subscription makes as much sense for interactive entertainment as it does for linear entertainment and registered some skepticism, which I still hold. I think the second area of skepticism was whether it made sense -- and this is a rhetorical question because I think the answer is no, to offer frontline titles [day and day] with titles on a subscription service. I don't think that ever made sense. I still don't think it makes sense. And I believe that it's now becoming obvious that it doesn't make sense. It's just a lost opportunity for the publisher. So I wouldn't want to speak for my friend, Phil, but our views remain unchanged. There probably is a subscription business. It's a catalog business. It's probably best aimed at very avid consumers because those are the consumers who are interested in playing catalog titles, implying a whole bunch of different titles in a given month. But I don't think it's a mass market service that supplants the interactive entertainment business as we know it at all. And I don't think there's any evidence to the contrary so far.

Matthew Thornton:

Maybe two quick follow-ups. First one on coming back to mobile, again. Maybe this is for Strauss. How do you think about what's currently going on from a macro perspective as opposed to just a user acquisition perspective, given what's going on in the iOS environment, in particular? Is there a way to tease apart what percentage of the pressure is from one versus the other? And relatedly, what's your level of confidence that we come out of? I mean, macro will resolve itself. But from a UA perspective, from an ecosystem perspective, what's your level of confidence that you can kind of control coming out of this doldrum? That's the first question. The second one is a really easy one. Given where the stock price is, I'm kind of curious your appetite around buybacks. I know you guys have been fairly opportunistic in the past. Obviously, we've taken on some leverage with Zynga, but I'm kind of curious how you're thinking about that, given where the share price is.

Lainie Goldstein:

Sure. So we continue to believe in returning value to the shareholders and via share buyback, but we'll only do so when the conditions are right. And obviously, we believe that there is deep value in our market price currently. But in order to do a share repurchase, we would need to do it in an open trading window and also have the optimal capital structure that supports the purchases. So we'll see when it makes sense for us to do it. So that's how we see it.

Martin Yang:

This is a question referring to your earlier definition of Take-Two’s identity as a hit factory. I want to know if you hold a similar view over your mobile game portfolio. Do you feel there's a need for a portfolio review on mobile games based on the quality and future potentials?

Operator:

Our next question comes from Omar Dessouky with Bank of America.

Strauss Zelnick:

I think it's a great question, thank you. And I think the bottom line is you're probably not going to convert a console player to become a mobile player. You have to appeal to a mobile player. And we believe that legacy IP, when properly developed as a great title, can do just that. But it's not a SLAM DUNK by any means. It's still got to be a great game. But you're not going to convince someone who never plays a mobile title to play a mobile title just because it's based on console IP.

Strauss Zelnick:

Want to thank everyone for joining us today. I want to say thanks particularly to our dedicated team of colleagues all around the world who continue to do a great job. While it would be nice always to have the best possible news in an upward sloping curve, this is a business that occasionally does present us with challenges. This team is well suited to challenges. We have a great pipeline, we have a great team. We have the ability to deliver, and we wish you all a great holiday season. Thank you joining us. And thank you for your support.

Operator:

Greetings, and welcome to Take-Two's First Quarter Fiscal Year 2023 Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications.

Strauss Zelnick :

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 transaction firmly establishes Take-Two’s position as one of the largest pure-play interactive entertainment companies in the world. We are home to the industry's top creative talent and we own and control an exceptional, diverse portfolio of intellectual properties encompassing all key platforms and genres. We are 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 have made significant progress in our integration efforts. Zynga, which is being run by the label’s President, Frank Gibeau, established its ongoing leadership structure. Alongside Frank, we are fortunate to have numerous, proven senior executives who will be instrumental in overseeing Zynga’s 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 are pleased that our Day 1 plans were executed seamlessly, with no disruptions to our business operations or player communities. While it’s still early, we are confident that we can realize $100 million of annual cost synergies within two years post-close and we are exploring additional areas of efficiencies. Our creative teams are in active discussions about potential projects, and we remain committed to delivering over $500 million of annual Net Bookings opportunities over time. 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 live-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 Chartboost. Over the intermediate and long-term, our vision is to introduce mobile games for some of our most popular and proven intellectual properties that have the potential to be greatly additive to our financial profile. We have 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 2K22 and WWE 2K22. Zynga's offerings complemented our results significantly for the period. NBA 2K22 continued to dominate as the industry's leading basketball game, with sell-in of over 12 million units to date, exceeding the series’ sell-in from the prior year. During the first quarter, engagement with the title remained strong, with average games played per user increasing 16% year-over-year. In addition, NBA 2K22 Arcade Edition remains the #1 game on Apple Arcade since its launch in October 2021, and downloads of NBA 2K Mobile remained robust, driven by the Courtside Pass 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 NBA 2K23 in September. Throughout the first quarter, 2K and Visual Concepts released a series of DLC packs to support WWE 2K22, which brought even more fan-favorite superstars into the ring for what has been hailed by critics and consumers alike as our best WWE offering in the series. Engagement with the title has been outstanding, with more than 330 million in-game matches played and over 8.5 million hours of WWE 2K22 content viewed on Twitch. We greatly value our partnership with the WWE and are 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 V for PlayStation 5 and Xbox series X/S, Grand Theft Auto Online standalone, and the launch of GTA+, as the experience continues to captivate players. Latest generation console players of Grand Theft Auto Online grew over 40% this quarter and are monetizing at a rate 36% higher than players on the previous generation. GTA+, 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 at a new normal that is 49% higher than the pre-pandemic first quarter of fiscal 2020. Sales of Grand Theft Auto V also remained strong, and to date, the title has sold-in nearly 170 million units. With development of the next entry in the Grand Theft Auto series well underway, the Rockstar Games team is determined to once again set creative benchmarks for the series, our industry, and for all entertainment, just as the label has done with every one of their frontline releases. We were pleased with the performance of Red Dead Redemption 2, which continues to expand its audience and, to date, has sold-in more than 45 million units worldwide. Tiny Tina’s Wonderlands exceeded our expectations and continued to sustain healthy player engagement, due in part to its robust post-launch content, which will continue throughout the Fiscal Year. The title has resonated with core fans and new audiences, with nearly 40% of players having never before played a Borderlands title. Additionally, Tiny Tina’s Wonderlands launched on Steam in June alongside its previously released DLC offerings. Also in June, 2K and Supermassive Games launched The Quarry, an all-new horror narrative game, where every choice, big or small, shapes your story and determines who lives to tell the tale. The title launched to strong reviews, with NPR declaring it “this summer’s best horror game,” and Variety calling it “every horror fan’s dream video game.” And, Private Division released Void Riders, the first expansion for their critically acclaimed skateboarding action title, OlliOlli World, from Roll 7. The expansion earned an 87 on OpenCritic, which was even higher than the base game’s 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 period, Zynga continued to experience strength in player engagement and retention, and we believe that we are 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 current macroeconomic conditions and seasonality. Some key highlights of our mobile offerings during the quarter include

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our first quarter before reviewing our financial outlook for the fiscal year 2023 and second quarter. Please note that our first quarter results include Zynga's financial performance for 39 days of the quarter, which impacts the comparability of our results relative to last year, as well as to our prior guidance, which did not include the contribution from Zynga. Also, any references to Take-Two’s pre-combination results are referring to our financial performance excluding the acquired Zynga business. Additional details regarding our actual results and outlook are contained in our press release. As Strauss mentioned, this was a momentous quarter for our organization as we closed our transaction with Zynga and made significant progress on our integration efforts. Our teams created detailed plans to realize at least $100 million of annual cost synergies and we continue to expect approximately $50 million to be achieved within the first twelve months post-close. The largest opportunities include reducing duplicative corporate overhead and contracts, consolidating systems, rationalizing our real estate footprint, and leveraging Zynga's marketing functions across our other mobile titles. We are also exploring additional areas of efficiencies. At the same time, we delivered strong first quarter results, driven by Net Bookings of $1 billion. On a pre-combination basis, our Net Bookings were $731 million, which grew 3% compared to last year and was within our guidance range of $700 million to $750 million. The movement in foreign currency exchange rates negatively impacted our Net Bookings by approximately 1%. We were also pleased with Zynga’s contribution for part of the quarter. With consumers today navigating various macroeconomic and geopolitical factors, we believe that our financial performance truly demonstrates the resiliency of our business model, driven by the incredible quality of our games and the significant value that our interactive entertainment experiences provide our players. During the period, 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, as well as the outperformance of our pre-combination portfolio, led by NBA 2K22, Tiny Tina’s Wonderlands, and Top Eleven. Digitally-delivered Net Bookings increased 41% and accounted for 95% of the total. During the quarter, 77% of console game sales were delivered digitally, up from 73% last year. GAAP net revenue increased 36% to $1.1 billion and cost of revenue increased 32% to $436 million, which included a $20 million impairment charge related to our decision not to proceed with further development of a title from an unannounced new franchise. Operating expenses increased by 125% to $704 million, primarily driven by the addition of Zynga and a full quarter of Nordeus, business acquisition costs and higher personnel and marketing expenses. And our GAAP net loss was $104 million, or $0.76 per share, which was largely impacted by $117 million of amortization of acquired intangibles and $165 million of business acquisition costs. Our GAAP net loss benefited from a reversal of expense of approximately $48 million related to forfeitures of previously granted stock awards. In the first quarter last year, our GAAP net income was $152 million, or $1.30. Our management tax rate for the period was 18% as compared to 16% in the prior year as a result of our combination with Zynga. On a pre-combination basis, our management results excluding the impacts of the Zynga transaction exceeded the high end of our guidance range by $0.06, despite the impairment charge taken during the quarter and the higher tax rate. We ended the quarter with over $1.3 billion of cash and short-term Investments and $3.3 billion of debt. Turning to our guidance, I’ll begin with our full fiscal year expectations. • As Strauss mentioned, we are initiating new guidance that includes our combination with Zynga for approximately 10 months of our fiscal year. We now expect to deliver Net Bookings of $5.8 billion to $5.9 billion. Our assumptions take into consideration some shifts in our pipeline for the year, as well as movement in foreign exchange rates and the uncertain macroeconomic backdrop. The largest contributors to Net Bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Empires & Puzzles, Rollic’s hypercasual mobile portfolio, Toon Blast, and Red Dead Redemption 2 and Red Dead Online. We expect the Net Bookings breakdown from our labels to be 45% Zynga, which includes our former T2 mobile titles, 37% 2K, 17% Rockstar Games, and 1% Private Division. We forecast our geographic Net Bookings split to be about 60% United States and 40% International. We now expect recurrent consumer spending to grow by approximately 110% and represent 77% of total Net Bookings. Our digitally-delivered Net Bookings are expected to grow by approximately 80% and represent 96% of Net Bookings. Our forecast assumes that 74% of console game sales will be delivered-digitally, up from 68% last year. We expect to generate more than $700 million in 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 $5.73 billion to $5.83 billion and cost of revenue to range from $2.74 billion to $2.79 billion, which includes approximately $700 million of amortization of acquired intangibles. Total operating expenses are expected to range from $3.37 billion to $3.38 billion as compared to $1.5 billion last year. This increase reflects the inclusion of Zynga; business acquisition costs; and higher personnel, marketing, and IT expenses, which is slightly offset by our anticipated cost synergies for the year. And, we expect a GAAP net loss ranging from $398 million to $438 million, or $2.50 to $2.75 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

Operator:

Our first question comes from Eric Handler with MKM Partners.

Lainie Goldstein :

So for the difference in 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 were the most meaningful to our numbers. So I would say we had some titles that moved within the year. And that was Marvel Midnight Sun’s and then there was an unannounced title that moved out of the year as well. So I would say definitely the pipeline changes that were the most -- to the change in the guidance.

Strauss Zelnick:

Thanks, Eric. There's 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, by definition, you're in a free-to-play environment. You can play without paying if you are feeling the pinch of inflation, specifically with regard to nondiscretionary expenditures like fuel and food, you could imagine that if you're playing the game, you might choose to spend a bit less or spend a bit less frequently. That said, we think Zynga’s highly diverse portfolio of terrific games is a meaningful offset. And as I 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 to the broader market even if we see ongoing softness. But as you know, we always call it the way we see it. And 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 2, 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 at Zynga and now all of us at Take-Two are very excited about the combination of the way 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, Take-Two Mobile Games has been folded into the Zynga division, which is operated by Frank Gibeau and his team, highly independently. And one of their key priorities is to create an integrated platform that will bring the best out in all of our games. So enhance our acquisition and enhance our conversion, enhance our retention, enhance our lifetime value and also enhance, as I said, our advertising revenue. Zynga has a proprietary ad tech platform driven by their Chartboost division. And we're excited about what that can bring to Zynga and also bring to all of Take-Two.

Matthew Thornton :

Maybe two, if I could. First one, Lainie, I've been wondering if you'd be able to give us what the RCS percentage of bookings was for legacy Take-Two for the quarter. I think it was 73% total with Zynga. I'm curious kind of what that number was without the quarter. And then just secondly, Strauss, any movement in the out-year pipeline if we think about how things are progressing and developing. I guess what's your general sense about progress maybe when we last talked 3 months ago, that would be helpful.

Strauss Zelnick:

And in terms of the pipeline, yes, as Lainie mentioned, we did have a number of titles that have effect that has been shifting around that affected our pipeline and some of our results for fiscal '23. Generally speaking, we obviously don't take these shifts lightly. We have seen them before. The most important thing for us is always to put up the best game we possibly can because that's what builds franchise value and ultimately, that's what drives the success of our organization. So it's worth the wait. Typically, that is the best economic decision that we can make. And I would say that I'd characterize the pipeline shifts as well these things do move around and you may have -- that may affect a specific year. It does -- hasn't really changed at all our overall perspective on the growth in the intermediate and long term.

Matthew Cost :

I have 2. So I guess just kind of following up on the Chartboost 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 kind of have 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 5-year process to get those done? What might that timing look like?

Operator:

Our next question comes from Mario Lu with Barclays.

Lainie Goldstein :

Sure. There were some movements in their pipeline. There was some changes in the FX rate. The Russia sales were removed from their financials. And then also, there was some overall ad market that the ad market has experienced some pressure. So those are most of the changes that we saw in our numbers over the last few months.

Strauss Zelnick:

Yes, it is indeed .

Doug Creutz:

First, I was just wondering if you're willing to share what Zynga's 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 the hypercasual ad business. Just wondering what your take is on that. Do you see any risk there -- you think you can manage through?

Strauss Zelnick:

And with regard to a change in ad formats with Google, I don't have a point of view yet about how that may or may not affect us. I would say we're not concerned at the moment.

Omar Dessouky:

Two questions. So just a little bit of clarification on the business plan for Chartboost specifically. Could you clarify whether you're intending to turn that into a third-party broker advertising network that cross promotes third-party games on third-party ad inventory similar to companies like ironSource, AppLovin or Unity. Or it's more of an internal advertising technology tool? That's my first question.

Omar Dessouky:

Okay. And then the second question is with regards to the mobile game market and specifically the Zynga assets. If you think about what your outlook for the growth in the expense base was in January when you announced the acquisition versus what you're guiding today, is it about the same? Is it significantly lower given that in the first half, the mobile video game market seems to have not performed terribly well?

Karl Slatoff :

And on the revenue side, there are -- obviously, there are some things that happen in the short term that Lainie and Strauss have always 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 excited about the prospects.

Martin Yang:

My first question is on your investments into the development resources in the future. Can you maybe talk about your plan for mobile or for Zynga, particularly versus rest of more PC and console facing part of Take-Two in terms of headcount increase or any other support infrastructure you have in plan after integration?

Martin Yang:

One more question, if I may. Can you maybe give us more details on the pipeline shift in Take-Two? Is there more conventional reasons like the game is not ready? Or is there any macro factors play into that decision in terms of you feel that market isn't ready for the game, you want to wait until the broader consumer spending environment becomes more friendly to the games released?

Operator:

Our next question comes from Brian Fitzgerald with Wells Fargo.

Strauss Zelnick:

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 said I don't believe the entertainment business is recession proof or even necessarily recession resistant. And I think we're seeing now the decline in consumer spending and increase in inflation will have an impact on 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 said earlier in the call, that you can play those titles without spending money. And you may just decide to spend less frequently or less in aggregate. With regard to the console experience, you have to buy the game to play. And so I think if you want the title, you're going to buy it. And as you point 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 or engagement with PGA Tour based on, as you put it, the noise around this new offering.

Matti Littunen:

A question on IDFA. Now you pointed out your outperformance on mobile. Now I was just wondering if the Chartboost stacked at Zynga would have helped you perhaps navigate some of the headwinds that some of your mobile peers have pointed out in regards to IDFA. So could that user acquisition advantage maybe help there with the outperformance? And then just to check on that macro pressure on the business. Are there any interesting geographic trends in terms of differences, for example, between the U.S. market and elsewhere, as you look at those macro headwinds you're seeing so far this year?

Operator:

Our next question comes from Eric Sheridan with Goldman Sachs.

Strauss Zelnick:

I think you nailed it. It's hard to call what's going on because it would normally be early 3 years in, but it has been because of the incredible supply constraints. What we have seen though is when people are buying new consoles, they're highly engaged. So the users, for example, of GTA 5 who are on NuGen are much more engaged than prior gen users. Now that may simply be because they have new machines, and they're excited about them. But it may also be, and it wouldn't surprise me if this were the case, that because the new consoles offer a better experience, it's a more engaging experience. And that historically has been the case, that 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.

Michael Hickey :

Congrats on the quarter and congrats on your acquisition, pretty exciting. Two questions for me. First one on your new mobile games from existing IP. Are we -- are you sort of thinking casual spin-offs here like a Red Dead Poker or GTA Casino? 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 Zynga just to make kind of core mobile games? Or would you need to be in a position to hire or create new teams or partner? That's sort of the first question. And the second question on Gen Z and Gen Alpha. Besides being very useful when you think about your biggest IP and where you've had the most last year over the decades, curious what you think your biggest opportunities and challenges are for sort of this emerging new generation of gamers.

Operator:

Our next question is from Drew Crum with Stifel.

Karl Slatoff :

So in terms of development cycles, I think development cycles are ever changing. And obviously, it varies game by game. The games 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's a learning process. And that learning curve is often very steep. And -- but I would say there's nothing specific about the changing development cycles that we haven't seen before. It's just that the games are bigger and they’re more complicated and there's more to do. And that's actually what makes our business so exciting.

Operator:

Our next question is from David Karnovsky with JPMorgan.

Karl Slatoff :

So in terms of the advertising business, yes, the overall advertising market, generally speaking, has experienced year-over-year declines due to ad tech consolidation and the lower spend on digital advertising. Our advertising revenues have -- the growth has decelerated from the last quarter, but they grew notably versus last year. And we believe we outperformed the industry trends. We expect this trend to improve over the course of the year with natural seasonality and optimizations we're making in our network mix and pricing. So what was the second question? Yes, in terms of Star Wars

Andrew Marok:

Two for me, please. 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 and resources are reallocated? And then second, could softness in the ad market create opportunities for lower-cost marketing or changed marketing strategies ahead of some of your frontline releases?

Operator:

Our next question is from Clay Griffin with MoffettNathanson.

Karl Slatoff :

Yes. I think -- I don't know that there's anything specifically in the market that would change our philosophy on how we package our product. I think we always are trying new models and new pricing practices to try to optimize the situation. But I don't really see a market-driven specific opportunity arising. But you'll see us experimenting all the time.

Karl Slatoff :

There'll be some mix -- changes in mix, but we haven't really talked about it at this point.

Strauss Zelnick:

We'd 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'll be talking to all of them tomorrow in our various town hall meetings. These results are thanks to their hard, dedicated and creative work. Thank you all.

Operator:

Greetings, and welcome to Take-Two's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Nicole Shevins:

Good afternoon. Thank you for joining our conference call to discuss our results for the fourth quarter and fiscal year 2022 ended March 31, 2022. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks.

Strauss Zelnick:

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

Lainie Goldstein:

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss our fourth quarter and fiscal 2022 results and then review our financial outlook for the full year and first quarter of fiscal 2023. Please note that our initial outlook does not include Zynga in our projected results or the interest expense on the notes that Take-Two issued in April to fund the cash portion of our pending acquisition of Zynga. Additional details regarding our actual results and outlook are contained in our press release.

Strauss Zelnick:

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering another outstanding year. And to our shareholders, I'd like to express our appreciation for your continued support.

Operator:

[Operator Instructions] Our first question comes from Andrew Uerkwitz with Jefferies.

Lainie Goldstein:

Yes. So the first year is definitely due to the comp against the year with COVID from last year. So we had a really strong Q1. And so comping against that quarter was very difficult. And then this quarter, we were seeing a lot of people playing the full game that we put out as well as some of our competitors. So that also affected RCS in the quarter.

Lainie Goldstein:

So in Q1, we're expecting to be down by about 10%, and that's the ongoing of what we're seeing in Q4, which is the players playing the full games of our games and some of our competitors. So that's continuing. We've seen that in Q1, and we expect to see that. For the full year, we expect to see it flat for the full year. So some of our new games that are coming out don't have any recurrent consumer spending associated with that. We expect NBA to be up for the year. And then GT Online and Red Dead Online, we expect to be down for the year.

Strauss Zelnick:

Well, no one likes to see their stock price experience a drawdown, but we ultimately will always trade on our fundamentals, and that's how we look at the company. So we have a really strong company. We continue to perform and outperform expectations as we have in this quarter and this fiscal -- this past fiscal year. We've just issued initial guidance, which is a very positive look at our company and at the market. So we remain in a very optimistic place and I think similarly situated companies probably feel the same way.

Operator:

Our next question comes from the line of Eric Handler with MKM Partners.

Karl Slatoff:

It's Karl. Actually, I think that we never, as an industry, went away from the attractiveness of the story mill content. We've always said that we believe in that kind of content. We've always delivered on that as a company. It's the ultimate entertainment experience. And I think what you're seeing is you're just seeing some other games in the market capitalize on that.