Take Two Interactive Software Inc (TTWO) Q3 2021 Earnings Call Transcript

Greetings and welcome to Take-Two Q3 Fiscal Year '21 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. 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, Nicole. You may begin.

Good afternoon. I recently joined Take-Two and I’d like to thank you for joining our conference call to discuss our results for the third quarter of fiscal year 2021 ended December 31, 2020. I’m thrilled to join the team and look forward to working with all of you. 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. I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under Federal Securities Laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that unless otherwise stated all numbers we will be discussing today are GAAP and all comparisons are year-over-year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at take2games.com. And now, I'll turn the call over to Strauss.

I’d like to welcome Nicole to our team. And I am confident that she will enhance our investor relations efforts going forward. On behalf of our entire management team, I'd like to acknowledge those who have been and continue to be affected by the global pandemic. No words can bring comfort to those who have suffered. However, we do remain hopeful that better days lie ahead and that we all may return to and enjoy our lives as we once did. We remain immensely grateful to frontline workers who are caring selflessly for those in need, ensuring the vaccines are being delivered and administered and helping the world navigate further in these troubling times. Turning to Take-Two, due to an incredibly strong holiday season coupled with our ability to provide consistently the highest quality entertainment experiences, especially as many individuals continued to shelter at home, Take-Two delivered operating results that significantly exceeded our expectations. The outperformance of Grand Theft Auto Online, Grand Theft Auto V, NBA 2K, the Mafia Definitive Editions and Mafia Trilogy and Red Dead Redemption 2 reflects our development team’s boundless passion, creativity and commitment to captivate and engage audiences. In the history of the entertainment industry, there's perhaps no experience that's more loved, more expansive, more critically acclaimed and more successful than Rockstar Games' Grand Theft Auto. Grand Theft Auto V remains one of the most iconic titles ever released and continues to exceed our expectations, having sold in over 140 million units. In fact, in calendar 2020, more copies of Grand Theft Auto V were sold than in any other year except for 2013 when it first launched on PlayStation 3 and Xbox 360. In addition, recurrent consumer spending on Grand Theft Auto Online outperformed our third quarter forecast and grew 28% year-over-year. In December, Rockstar Games released Grand Theft Auto Online’s biggest update to date, The Cayo Perico Heist, featuring a radical new approach to Heist design, as well as a new tropical island to explore. The Cayo Perico Heist is an all new Grand Theft Auto Online adventure in which players can choose to take on a Heist with a crew of up to four or for the first time plan, prepare and execute the daring island Heist all on their own. Notably, more than 50% of those playing The Cayo Perico Heist are engaging with this as a new single-player experience. Cayo Perico Heist also introduces an array of exciting new weapons and vehicles, a new virtual nightclub and social space for players to get together and experience the world's best DJs plus a host of updates across the entire world. In addition, overall engagement with Grand Theft Auto Online continues to set new benchmarks as the title had more players in every month and for the entirety of calendar 2020 than in any other year since its launch. 2020 also marked Grand Theft Auto Online's highest participation rate ever by both new players and reactivated players who returned to experience Rockstar Games' array of new content offerings. Grand Theft Auto Online is expected to achieve a new net bookings record in fiscal 2021. Red Dead Redemption 2 also outperformed and to date has sold in over 36 million units worldwide. In December, Rockstar Games released a standalone version of Red Dead Online on PlayStation 4, Xbox One and PC that for the first time allows new players who do not already own Red Dead Redemption 2 to experience everything Red Dead Online has to offer, including access to all future content updates. Players also have the option to unlock Red Dead Redemption 2 story mode via an additional purchase. In addition, during the quarter, Rockstar Games released an array of content updates for Red Dead Online including new legendary animals and sighting missions for the Naturalist role action pack, new missions for the Bounty Hunter role with the addition of the prestigious Bounty Hunter license, plus Outlaw Pass No. 4 and an assortment of new clothing, weapons enhancements and more. As a result of these offerings, engagement with Red Dead Online reached new heights and there were more players including more new players in the month of December than in any other month since its beta launch in 2018. In addition, Red Dead Online grew its audience and had more overall players in calendar 2020 than 2019. Rockstar Games will continue to support both Red Dead Online and Grand Theft Auto Online with more content updates to our calendar 2021 to keep new and returning players excited and engaged. Another beloved franchise that's both a perennial favorite among consumers and an integral contributor to our ongoing success is NBA 2K from 2K and Visual Concepts. Renowned for being our industry's leading basketball simulation series, each year NBA 2K continues to reinvent how people experience basketball and its rich culture and influence. NBA 2K21 once again raised the bar for the series and was our first offering that was built from the ground up for next generation consoles. The title boasts groundbreaking technological advancements, new modes and many exclusive robust features. To date, NBA 2K21 has exceeded our expectations and has sold in over 8 million units across all platforms. In addition, during the third quarter net bookings for the NBA 2K series grew 48% and recurrent consumer spending significantly exceeded our expectations, growing 67%. Furthermore, consumer engagement with NBA 2K remains incredibly strong across daily active users, MyCareer users and MyTeam users. Moreover, NBA 2K21 users have been more deeply engaged with the game with average games played per user up 14% as compared to NBA 2K20 in the same period. During the quarter 2K expanded further the breadth of its NBA 2K offerings with the releases of NBA SuperCard and NBA 2K Mobile Season 3 for iOS and Android devices. During the third quarter, 2K bolstered our initial offerings for PlayStation 5 and Xbox Series X with our beloved shooter-looter titled Borderlands 3. The title was fully optimized for next generation consoles, making mayhem bigger and bolder than ever before. All players who own or purchase the game on prior consoles will be able to download the new platform upgrade within the same console family for free. This free upgrade will add several exclusive features including 4K resolution at 60 frames per second in single player and online co-op plus support for three and four player split-screen co-op. When Borderlands 3 launched for next generation platforms it was well received and we've seen the game's user base grow steadily. 2K is supporting the title with in-game events and new content including the release of the Designer’s Cut, which is the first of two offerings as part of Season Pass 2 for all versions of the game. Our third quarter results were also enhanced by a variety of other offerings led by the Mafia Definitive Editions and Mafia Trilogy, the WWE series, Sid Meier’s Civilization VI and PGA TOUR 2K21. Driving engagement with our titles after initial launch remains among our most important long-term growth and margin opportunities and is a key strategic priority of our organization. We now support virtually all our new releases with innovative offerings to achieve this goal. That said, we're highly mindful that first and foremost, we're an entertainment company and we're in the service of our audience. We strive to give consumers more of what they love and the ability to stay captivated and engaged within their favorite experiences and passionate communities. To that end, during the third quarter, we released an array of free and paid add-on content for our popular hit releases, including Kerbal Space Program, PGA TOUR 2K21, Sid Meier’s Civilization VI and WWE 2K Battlegrounds. During the third quarter recurrent consumer spending exceeded our expectations growing 30% which was double our original outlook and accounted for 58% of net bookings. In addition to NBA 2K, Grand Theft Auto Online and Red Dead Online, the recurrent consumer spending was enhanced by the following offerings. Social Point’s live games including Dragon City, Monster Legends, World Land, World Chef and Tasty Town outperformed during the third quarter and exceeded our expectations. Live games delivered new fresh content events and experiences to boost engagement and enhance players’ enjoyment and net bookings grew 39%. The studio continues to invest in its broad and innovative pipeline of new games planned for launch in the coming years. Playdots completed the rollout of their biggest feature update of the year for their popular Two Dots title including competitive leaderboards. This update played a key role in driving average revenue per daily active user up 12% as compared with the second quarter of fiscal ‘21. Two Dots is now experiencing its highest player conversion rate ever. As a result of these new and expanded live ops features, which continue to perform very well, we expect Playdots to be a significant contributor to our results and expect growth over the long term. WWE SuperCard also outperformed during the third quarter growing 16%. During the period 2K launched Season 7 of this popular free-to-play sports entertainment mobile game. The title has now been downloaded more than 22 million times and remains 2K’s highest grossing mobile title. And NBA 2K Online in China grew 49% and remains a significant contributor to our results. The title is the number one PC online sports game in China with more than 51 million registered users. Add-on content grew 8% and outperformed expectations led by offerings for the Borderlands series and Sid Meier’s Civilization VI. As a result of our better than expected third quarter performance and increased forecasts for the remainder of the year, we're once again raising our outlook for fiscal year 2021. And we expect to achieve record net bookings of $3.37 billion to $3.42 billion. In closing, Take-Two is exceedingly well positioned to capitalize further on the positive trends of our industry to pursue our core mission to become the most innovative, creative and efficient entertainment company in the world and to deliver growth and returns for our shareholders over the long term. I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to begin by recognizing the ongoing work of our teams around the world who continue to deliver incredible results that are a testament to this unwavering commitment to quality, our deeply rooted culture of collaboration and the singular drive to achieve our goals. Our unique ability to captivate and engage audiences has never been more evident nor more important than in these challenging times. And we remain immensely grateful to our player communities for making our games part of their lives. I’ll now discuss our recent and upcoming releases. On January 27, 2K released the fourth roster update for WWE 2K Battlegrounds, which adds to the game's outrageous in-ring and out-of-the-ring action. The update features many popular superstars and legends including Chyna, Mark Henry, Christian and more. On Wednesday 2K will release the fifth update that will feature even more fan favorites and we will share details shortly. On January 28, 2K and Firaxis Games released the Vietnam & Kublai Khan Pack for Sid Meier's Civilization VI as part of the New Frontier Pass for PlayStation 4, Xbox One, Nintendo Switch and PC. Each pack in the pass features new civilizations and leaders and is also available for individual purchase. The Final Frontier Pass pack will be released next month and 2K will have more to share about that in the coming weeks. In addition, last week, Private Division launched their beloved space simulation Kerbal Space Program on Tencent's WeGame platform in China. We are very pleased to build upon our successful partnership with Tencent and believe that releasing Kerbal Space Program on WeGame represents a great opportunity to expand the global community and bolster our offerings in China. On February 10, Private Division and Obsidian Entertainment will release The Outer Worlds: Peril on Gorgon, the first narrative-led expansion for the critically acclaimed, darkly humorous sci-fi RPG for the Nintendo Switch. The expansion was released previously for PlayStation 4, Xbox One and PC and it's available individually or at a discount as part of The Outer Worlds Expansion Pass, which will also include The Outer Worlds' Murder on Eridanos, the second expansion set to launch on PlayStation 4, Xbox One and PC this fiscal year and on Nintendo Switch in calendar 2021. This spring 2K will release the Director's Cut, the new add-on content for Season Pass 2 for Borderlands 3 that will be available for all released versions of the game. The Director's Cut add-on will include new missions and game content and behind-the-scenes extras. On behalf of our team, I would like to congratulate Gearbox Software on their recently announced merger with Embracer. This marks an exciting new chapter in the studio's history, and we look forward to continuing our successful partnership with Gearbox, including the long-term publishing relationship for the Borderlands franchise going forward and some unannounced projects that will be revealed over time. Throughout the year, Rockstar Games will continue to support both Grand Theft Auto Online and Red Dead Online with more content updates to keep new and returning players excited and engaged. In addition, during the second half of calendar 2021, Rockstar Games will bring the blockbuster hit Grand Theft Auto V to the latest generation of consoles. The new version will feature a range of technical improvements, visual upgrades and performance enhancements to take full advantage of the latest hardware making the game more beautiful and more responsive than ever. For the expanded community of Grand Theft Auto Online, the journey through this ever-evolving world will continue on the latest generation consoles with additional new updates including content that is exclusive to the new consoles and PC. There will also be a new standalone version of Grand Theft Auto Online coming in the second half of calendar 2021 which will be available for free exclusively on PlayStation 5 during the first three months. Rockstar Games will share more details on the new versions of Grand Theft Auto V in the months ahead. Turning to eSports, the NBA 2K League is gearing up for its fourth season that will take place later this year. After a series of Pro Game tournaments and the first-of-its-kind league combined during the fall, the league is currently prepping for this year's upcoming player draft. As part of the league's continued commitment to identifying the best players in the world, this offseason the league is hosting a series of online qualifying events for international players and will award draft eligibility to top performers from each event. In addition, I'm pleased to share that for the second consecutive year, the NBA 2K League was given top honors at the Tempus Awards as part of the Annual eSports Business Summit. I'd like to congratulate League President Brendan Donohue and his team on these honors. We remain very excited about the continued success and growth of the NBA 2K League which has the long-term potential to enhance engagement and be a driver of profit for the company. Looking ahead, our organization is currently undertaking numerous initiatives that we believe will add scale to our business and drive continued success. As an entertainment company, our lifeblood is our world-renowned creative talent and portfolio of owned intellectual property. With nearly 4,900 colleagues around the world in our development studios that are home to some of the most commercially and critically successful brands in our industry, we are significantly expanding the breadth and depth of our offerings, and currently have the largest most diverse long-term product pipeline in our history. While we are excited by the potential of these future releases, we are still pursuing our goal of creating a more consistent release schedule and increasing our development capacity. To that end, we continually explore both organic and inorganic opportunities and maintain a highly disciplined approach to ensure that our investments will be accretive to our shareholders and consistent with our strategy. In addition, we have always maintained a willingness to explore and experiment with new markets and business models that can both expand the reach of our content and broaden the scope of our audience. We are investing prudently to enhance our global infrastructure and resources that support our creative endeavors, including data analytics and endgame engagement with players. Through all these efforts, we believe that Take-Two is poised to generate growth and margin expansion over the long term. I'll now turn the call over to Lainie.

Thanks, Karl. And good afternoon, everyone. Today I’ll discuss our third quarter results and then review our financial outlook for the fourth quarter and fiscal year 2021. Please note that additional details regarding our actual results and outlook are contained in our press release. Net bookings were $814 million; these results exceeded our outlook of $675 million to $725 million, driven primarily by the outperformance of Grand Theft Auto Online and Grand Theft Auto V, the Mafia Definitive Edition and Mafia Trilogy, NBA 2K and Red Dead Redemption 2. Digitally delivered net bookings declined by 4% as compared to our outlook of a 15% decline and accounted for 82% of the total. This also exceeded our outlook primarily due to the outperformance of recurrent consumer spending. Our third quarter results last year benefited from the launches of Red Dead Redemption 2 on PC and The Outer Worlds. During the third quarter 56% of sales of console games were delivered digitally up from 44% last year. Recurrent consumer spending grew 30% as compared to our outlook of 5% growth and accounted for 58% of total net bookings. This growth was driven primarily by Grand Theft Auto Online and NBA 2K. GAAP net revenue was $861 million and cost of goods sold was $346 million. Operating expenses increased by 7% to $339 million due primarily to the addition of Playdots, higher personnel costs and IT expenses partially offset by lower marketing expenses. GAAP net income grew 11% to $182 million or $1.57 per share as compared to $164 million or $1.43 per share in the third quarter last year. Our GAAP net income benefited from $40.6 million of realized and unrealized gains on a long-term investment. We ended the quarter with $2.42 billion of cash and short-term investments. Not included in this balance is the cash portion of our offer to acquire Codemasters which was included in restricted cash. As this amount was still restricted as of December 31, our cash and short-term investments for this quarter end would have been $2.7 billion. As of January 13, 2021, the offer lapsed and the cash was no longer restricted. Now to our guidance, starting with the fiscal fourth quarter, we projected net bookings to range from $602 million to $652 million compared to $729 million in the fourth quarter last year. Last year's fourth quarter benefited from the recognition of higher license fees from digital partners to provide free downloads of certain games on their platform and from the launch of Borderlands 3 and its timing; this decline is also due to the initial surge in digital downloads at the onset of shelter-at-home orders in March 2020. We expect digitally delivered net bookings to be down approximately 10%. Digital is projected to represent 93% of total net bookings which is in line with last year. Our forecast assumes that 73% of console game sales will be delivered digitally up from 63% last year. Recurrent consumer spending is expected to be up approximately 5% due to continued engagement in our titles. Virtual currency is driving this increase and is partially offset by lower add-on content due to last year launch timing for Borderlands 3. The largest contributors to net bookings are expected to be NBA 2K21, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Social Point’s mobile games, Two Dots, Borderlands 3 and Sid Meier's Civilization VI. We expect GAAP net revenue to range from $702 million to $752 million and cost of goods sold to range from $267 million to $293 million. Operating expenses are expected to range from $316 million to $326 million. At the midpoint this represents a 32% increase over last year, driven primarily by higher marketing and research and development expenses and the addition of Playdots. GAAP net income is expected to range from $102 million to $113 million or $0.88 to $0.98 per share. For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2021. We are again increasing our full year outlook which now includes record net bookings and operating results. This will be the fifth consecutive year that these two metrics have grown. Our net bookings outlook range is now $3.37 billion to $3.42 billion, up from our previous guidance of $3.15 billion to $3.25 billion and original guidance of $2.55 billion to $2.65 billion. This is being driven by our third quarter outperformance along with an updated forecast for the fourth quarter, which has improved primarily due to higher recurrent consumer spending from Grand Theft Auto Online and NBA 2K as well as strong performance from Grand Theft Auto V and Red Dead Redemption 2. We expect growth from the prior year from NBA 2K, Grand Theft Auto Online and Grand Theft Auto V and Social Point’s mobile games to be offset primarily by lower results from Borderlands 3. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Social Point’s mobile games, Borderlands 3, Sid Meier’s Civilization VI, the Mafia Definitive Edition and Mafia Trilogy and PGA TOUR 2K21. We expect the net bookings breakdown from our labels to be roughly 55% 2K, 35% Rockstar Games and 10% Private Division, Social Point and Playdots. And we forecast our geographic net bookings split to be about 60% United States and 40% International. We now project digitally delivered net bookings to increase by approximately 20% as compared to our prior outlook of 15% growth. As a percentage of our business, digital is projected to represent 87% of net bookings from 82% last year. The forecast assumes that 63% of console game sales will be delivered digitally up from 55% last year. We now expect recurrent consumer spending to grow by approximately 45% as compared to our prior outlook of 30% growth and represent approximately 64% of net bookings as compared to 51% last year. Growth is being driven primarily by NBA 2K, Grand Theft Auto Online, the addition of Playdots and Social Point’s mobile games. We are increasing our non-GAAP adjusted unrestricted operating cash flow outlook to more than $750 million up from our prior outlook of more than $650 million. We've planned to deploy approximately $75 million for capital expenditures. We expect GAAP net revenue to range from $3.24 billion to $3.29 billion and cost of goods sold to range from $1.52 billion to $1.55 billion. Total operating expenses are expected to range from $1.22 billion to $1.23 billion. At the midpoint this represents a 9% increase over the prior year driven by the addition of Playdots, higher headcount, IT, research and development expense and charitable contributions, partially offset by lower marketing expenses. And we expect GAAP net income to range from $472 million to $484 million or $4.08 to $4.18 per share. In closing, we are very pleased with the ongoing momentum that we have experienced so far in fiscal 2021, including our expectations to deliver both record net bookings and operating results for the full year. We remain extremely confident in our long-term growth trajectory and our ability to deliver shareholder value driven by our key competitive advantages, our incredible portfolio of creative assets, our strong fundamentals and healthy balance sheet and of course our industry leading talent. Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for their hard work, commitment to excellence and for delivering another outstanding quarter. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Thank you. We will now be conducting a question and answer session. One moment please while we pull for questions. Thank you. Our first question comes from Mario Lu with Barclays. Please proceed with your question.

Great, thanks for taking the question. So I have one high-level strategy and M&A question and the second one on GTA. So the first one, you guys mentioned more copies of GTA V sold in 2020 than in any year since launch. And then similarly, Red Dead Online saw more players in December since launch. So it seems like you guys are benefiting well on the trend that gamers are gravitating towards the largest gaming franchises. That being said, curious to hear what your overall view is on growing your core franchises, and potentially expanding them into new platforms and business models versus expanding your portfolio with new IP either organically or through M&A? And I have the follow up.

Great, thanks, Mario, it's sort of all of the above. So it's exciting that we have these extraordinary franchises that keep captivating and engaging consumers many years after launch. And the reason that that's occurring is first of all the initial quality, which is unmatched in our business. And second, because our labels, both Rockstar Games and 2K continue to deliver content on an ongoing basis that further causes captivation and engagement. And if we keep doing that, we think we'll continue to have similar results. I think you're right that consumers get really comfortable within and excited by specific franchises. And if you keep delivering great content, they will maintain their involvement on an ongoing basis; we're seeing that in all forms of the entertainment business. At the same time, we always have to create new titles — both new iterations of existing beloved franchises, and new intellectual property. And if we don't do that, then we're burning the furniture. So to that end, in the next five years, we expect to bring 93 new releases to market which is more than double what our development capacity was just a few years ago. So we're both excited by the continued growing engagement in our existing entities as well as what the future can bring with new releases.

Great. And then the second question on GTA Online, you guys mentioned over half of your players did the recent heist solo. So I'm personally surprised by that number since more and more players are playing games as a means of social connection. How did that percentage compare versus your internal expectations? And does that change how you do single-player opportunity, even in an existing online environment like GTA Online?

Well, no, this wasn't coincidental. The folks at Rockstar Games intended to create a powerful single-player, story-driven experience. Rockstar has always been known for great stories and great single-player experiences and then developed in addition a massive multiplayer opportunity over the past years. I think it's a reminder — not that we needed one — that Rockstar Games can do both of those things at the highest possible level of execution in our business. There was, I think, an argument a couple of years ago in some competitor offices that single-player is dead, that it's all about multiplayer. We didn't believe that — I said specifically and publicly that we didn't believe that, our labels don't believe that. And we deliver an array of experiences that range from hyper casual mobile to the most complex, most robust single-player and multiplayer experiences. We intend to continue doing that.

That's helpful. Thank you.

Thank you. Our next question comes from Mike Ng with Goldman Sachs. Please proceed with your question.

Great. Thank you very much for the question. I was hoping you could talk about how the success of GTA V units this year, as well as any learnings from the standalone Red Dead Online experience, informs your view about what GTA Enhanced Edition and the standalone GTA Online should look like or will look like next year and perhaps how it should perform? Thanks.

Well, I really appreciate the sentiment behind the question. But I sort of put it in the category of how high is up? We don't tend to speculate and we haven't offered any initial guidance for next fiscal year either. So we'll sharpen our pencil in the coming months and of course we will create initial guidance and that will reflect partially that performance. But in general, if history is any guide, it will be very successful indeed. And I would not be surprised.

Great. Thanks, I can certainly appreciate that. And just as another question, can you talk a little bit about the Music Locker experience within GTA Online? Obviously, it feels unique. Is there an opportunity for Rockstar and 2K to incorporate even more use of, for lack of better words, real-world elements or real-world partners into virtual worlds like GTA Online? Thanks.

Hi, it’s Karl speaking. Yes, obviously the Music Locker experience is very unique. It's a terrific application in GTA. Music has always been a really, really important part of the Grand Theft Auto franchise and it will continue to be; it's always been part of the culture of the Grand Theft Auto franchise, and people explore it and enjoy and find new music through the franchise over and over again. I don't want to speculate about Rockstar's plans as it relates to music, but rest assured music has always been and will always be a large part of what GTA is all about.

Great. Thanks, Karl. Thanks, Strauss.

Thank you. Our next question comes from Colin Sebastian with Robert W. Baird. Please proceed with your question.

Great. Good afternoon, everyone. Two questions from me. First off, as you look back at the pricing strategy for NBA over the holidays, is it safe to say you feel that that was the right strategy and I guess does it set a new bar for AAA frontline content on next-gen platforms? And then secondly, bigger picture, just given the ongoing industry consolidation Strauss and the interest you've shown in participating in M&A activity, are you seeing still compelling opportunities out there in the market even as competition for deals seems pretty intense and valuations look like they're also on the rise? Any commentary there would be helpful. Thanks.

Yes, in terms of frontline pricing for NBA 2K21, I think that worked out very much as expected and as planned. It's a premium offering at the highest possible level; the title was built from the ground up for next-gen, and acceptance by consumers has been nothing short of extraordinary — the title sold in over 8 million units. Now, we haven't talked about pricing on other titles. So it would be premature to discuss that; we'll talk about pricing on a title-by-title basis going forward. In terms of consolidation, you've seen a lot of deals out there, most recently Embracer is merging with Gearbox, a company near and dear to our heart and we're grateful that we'll still be in business with Gearbox and they'll still be working with us on Borderlands and on other titles. We acquired Playdots just a few months ago and we're excited about how that deal's gone. We lost the Codemasters deal to our friends out west — that was disappointing but reflects our discipline in such matters. So there is an awful lot going on. I tend to agree Colin that pricing can be pretty heavy. We have a stated strategy and a disciplined approach. It has served us well. We have yet to make an acquisition that hasn't worked out. We're looking for great teams, great intellectual property and for an arrangement that would be accretive to shareholder value. We will look for that and at times aggressively. But we have a firm grasp on the calculator in one hand and our approach, strategy and tactics in the other.

All right, thanks, Strauss.

Thank you. Our next question comes from Doug Creutz with Cowen & Co. Please proceed with your question.

Hey, thanks. You've always been known for putting out some of the deepest and most complex games in the market. There's been a debate emerging in the industry about whether the current pace of AAA game development is sustainable both for getting games out the door and because live services are becoming more and more of an arms race in terms of who can put the most content out the quickest. There was a competing game that came out recently that was highly anticipated where I think it was a clear case of that studio's reach exceeding their grasp. What have you been doing operationally and structurally to make sure that your ability to keep raising the bar on entertainment experiences doesn't run afoul of some of these issues? Thanks.

First of all you never want to sit back and just say, 'we've always been able to do this, it'll be fine.' We're always looking over our shoulders. We're always trying to figure out what we can do better. We're, I think, the most self-critical group I've ever run into. How do we maintain our commitment to quality by making sure that our creative teams pursue what they're passionate about, and don't pursue something they're not passionate about, and by maintaining operational and financial discipline at the same time? The effect of that is we can have long development cycles. We've been criticized for that. But I think the case that you're alluding to reflects the fact that you're always better served to wait for perfection if you can create perfection. All of our labels are seeking perfection. We don't always succeed, sometimes we fall short. But that's the goal. If anything these times have caused us to sharpen our minds further and sharpen our discipline further and try harder. So yes, it's great that Rockstar Games continues to put out add-on content and additional content for Grand Theft Auto Online and for Red Dead Online. But they've put out material that they really believe in that they're passionate about and that is of the highest possible quality. That means we're not on a weekly cadence and we're not going to be. It also means we don't necessarily know exact release dates, but what we do know is that we will wait for it to be as close to perfect as anything can be. That's true at 2K, Social Point and Private Division. It's an unwavering commitment and it's part of our strategy. It comes from the top of the company. We're prepared to accept the results when we fall short in terms of timing or when we sometimes spend a little more than we would like because it always pays off.

Thanks.

Thank you. Our next question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.

Thanks for taking my question. Strauss, I wanted to dig a little more into the 93 pipeline number you mentioned earlier tonight — I think it's similar to what you said last year. So is this the same 93 titles we had a year ago or are some being shut down and new ones added? And how should we think about breaking that apart between categories — mobile, AAA, mid-tier games? How should we think about what comprises that 93 titles?

Hey, Brian, it's Karl. To answer the first part, the 93 titles that we put out was a snapshot at a moment in time and we haven't given any updates on that since then. Of course, things move in and out all the time. It hasn't been that long since then, so you can't expect a significant amount of movement, but things do shift as projects hit milestones. Generally speaking, these are still pretty good numbers. We do expect the pipeline will be fluid as we get things through various milestones and it will change over time. To break it down a little bit, on a high level 63 of those titles of the 93 are what we would consider core gaming experiences. Seventeen of them are mid-core arcade-style experiences and 13 of them are what we would consider casual experiences. About half of them — 47 of the titles — are from existing IP or sequels, and the rest are new intellectual property. So we are making investments in new IP, which is very important. In terms of platforms, 72 of the 93 titles are planned for console, PC or streaming, including seven of those that will also be available on mobile. That leaves 21 that are specifically for mobile. From a business model perspective, 67 of the 93 require purchase and 26 are completely free-to-play. That's the breakdown as it was the last time we disclosed it, but expect movement as we go deeper into the pipeline over the next few years.

Okay. Thanks, Karl.

Thank you. Our next question comes from Bryan Kraft with Deutsche Bank. Please proceed with your question.

Hi, good afternoon. We'd love to understand your latest thinking about the mobile gaming opportunity in terms of what kinds of IP and games are likely to succeed, how much capital and resources make sense to put behind mobile, and what the broader strategy is going forward in the mobile space? Thank you.

It's Karl again. The mobile component of our business has become more and more important with our acquisition of Social Point and Playdots. We're very committed to it, not to mention mobile activity at our label levels, specifically 2K with WWE SuperCard and some NBA properties. We are highly invested in mobile and expect it to be an even larger part of our investment going forward. Our strategy boils down to a few components. First, creating new IP specifically for the mobile space, which is centered on Social Point and Playdots. We're investing there both via M&A and organically. Second, bringing our core franchises to mobile platforms — these can be ports or variations of existing content, which we've done successfully for years and will continue where appropriate. Third, integrating mobile experiences with our core experiences, such as companion apps — we've done this effectively with Red Dead Redemption and Mafia, where a separate mobile experience can enhance the core experience when you're not in front of a console or PC. Those are the components of our strategy. It's a growing part of the industry and we're increasingly tapped into it and investing more.

Thanks, Karl.

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

Hey, good afternoon, everybody. Thanks for taking the question. Maybe two if I could, for either Strauss or Karl. First, you referred to the pipeline, the 93 projects a little earlier. Any color as to how we're progressing and any incremental thoughts as to how linearity is shaping up? And any color around the pipeline would be helpful. Secondly, PGA TOUR — it was fairly small but well reviewed. It looks successful; is it large enough to become a recurring title and join NBA and WWE in that regard? Any thoughts there? Thanks, guys.

On the first part of the pipeline, I don't have more detailed timing information to share right now about the pace. Rest assured you will hear more about the release schedule in the coming months. Unfortunately, I don't have more to give you at this time. On PGA TOUR 2K, we are incredibly excited about the performance of that title. I'd like to say we weren't surprised, but I am personally a little bit surprised — it's done fantastically well; we've sold around 2 million units which is a fantastic result. We're just really getting started. We do think there's a future in this franchise for us. We haven't announced specifics about what that means, but it's something we feel merits investment and could become a profitable and exciting franchise for many years.

Thank you. Our next question comes from Benjamin Black with Evercore ISI. Please proceed with your question.

Great, thank you. The gaming category has benefited from extended stay-at-home patterns. As we look to 2021, what data points or trends are you seeing that give confidence in sustainability of these trends? Secondly, could you talk about the decision to disaggregate Red Dead Online from the core game — what were the key findings there? And how is Red Dead Online faring relative to GTA Online at a comparable stage of its lifecycle?

On the first question, it's hard to point to a single data point; we continue to do very well and engagement remains very high. We had not planned in our numbers for the fourth quarter to see pandemic-driven growth; that has not been our approach. But of course we continue to outperform and the net bookings that we're guiding to for the fiscal year now are $800 million higher than our original guidance. So we're grateful for the growth. I think post-pandemic demand could be higher than pre-pandemic demand; there's been a systemic shift in favor of interactive entertainment. There may be some fall-off as people get back out and about, but if we continue to deliver great experiences, we expect continued growth. On Red Dead Online, the titles are very different and not directly comparable. Both are massive hits. The decision to offer Red Dead Online standalone was based on offering more opportunities to engage with the title; the game has been in market for some time and Rockstar has shown a willingness to experiment with different marketing and distribution models to enhance the size of the audience and increase customer engagement and enjoyment. I think it's working well and I'm looking forward to seeing how Grand Theft Auto Online performs when it becomes available as a standalone experience in fiscal 2022.

Excellent. Thank you very much.

Thank you. Our next question comes from Mike Hickey with The Benchmark Company. Please proceed with your question.

Strauss, Lainie, Karl, Nicole thanks for taking my questions. Congrats on an incredible quarter and guide. I know it's early, but as we think about fiscal 2022, you have a lot of momentum in live service and engagement is stepping up. You also have visibility on the pipeline. Do you think you can grow in fiscal 2022? Also, the work-from-home scenario has continued to expand; what's the impact on developer culture and productivity when you look at the medium-term of your pipeline? Thanks, guys.

Hey, Mike. For fiscal 2022, it's a little early for us to provide fiscal 2022 guidance. We're currently completing our detailed budget for fiscal 2022, and as you know we typically provide guidance for the next fiscal year when we report our fourth quarter earnings in May. It's important to keep in mind this is a record year for us, partly driven by individuals sheltering at home, and it remains to be seen how long those trends will continue. When we originally projected sequential growth for fiscal 2022 versus fiscal 2021, our fiscal 2021 guidance was projecting a decrease from fiscal 2020. Now we're expecting record net bookings for fiscal 2021 which represents 30% growth over our original guidance and year-over-year growth compared to fiscal 2020. We also expect record adjusted unrestricted operating cash flow over $750 million, which is more than double our original estimate. We'll give more details on fiscal 2022 at our May call.

Mike, regarding working from home, I can't predict how much longer that'll be the case. We follow government requirements and the science. Some of our offices are open; no one is obligated to come to the office if they're uncomfortable doing so. That said, we've been extraordinarily productive. Our IT team did an A-plus job making remote work possible for our company. We moved to remote work within a week of needing to shelter at home and we haven't missed a beat — not at all. We had one title that was delayed, Kerbal Space Program 2, that was impacted. More importantly, the quality of our releases has been extraordinary. On culture, it's difficult to build culture purely remotely, but it's not impossible when a company already knows each other and built a powerful business together. In these challenging times everyone pulled together to make sure the company didn't have issues and in fact continued to grow. Morale may actually be stronger, but it's not something that should last forever — it has been taxing and many people are working harder at home than they did in offices despite no commute. It creates challenges and I'm looking forward to returning to more regular in-person collaboration. We don't believe full-time remote for everyone is the right permanent model; generally speaking we will benefit from being together as a group.

Thank you. Our next question comes from Eric Handler with MKM Partners. Please proceed with your question.

Thank you. Thinking about the Grand Theft Auto franchise and the fact that we've now sold over 140 million units of the game — and granted there's probably some overlap where people have more than one copy — it seems like there is a huge audience of people that have probably never played GTA IV or other prior GTA games. How do you think about remastering prior games in the franchise?

That's a great and encouraging question. I'm inclined to leave it more as a statement than a question. Any updates on our release schedule will come from Rockstar Games.

Fair enough. Thanks a lot.

Thank you. Our next question comes from Stephen Ju with Credit Suisse. Please proceed with your question.

Thank you. Strauss, over the last few years the industry has gone from needing to acquire customers with massive advertising campaigns every time there was a new iteration of a game to being in front of your user base all the time. You called out captivation and engagement with perpetual service models. Do you anticipate going forward potentially further operating margin benefits due to decreased need for marketing spend? And building on M&A, do you think Take-Two’s capital is better served adding to teams you already have at Rockstar and 2K where there's a culture of excellence? Thanks.

I don't think you're going to see a reduction in our marketing spend because we're launching new iterations of existing franchises and new IP in a highly competitive market. I think we'll continue to spend to support those releases. Where you do see leverage is when you sell more units — if you make bigger hits, you're amortizing marketing spend across a larger number of units, so marketing as a percent of net bookings can be lower if you have greater success. That's our goal and could lead to higher operating margins; you've seen that reflected in our operating margin growth as our hits have grown over the last 14 years. The shift to digital distribution is another advantage and is happening — digitally distributed products were 82% of our net bookings in the quarter — and as the industry moves more digital, that helps margins. Recurrent consumer spending is also higher margin because the costs associated with add-on content are lower than costs for initial large releases. To the extent we continue to deliver add-on content to beloved titles, you could see an increase in operating margins. But all of this is reliant on creating hits. Everything comes down to creating bigger and bigger hits; that's our strategy.

And to add to that, we're adding to teams at 2K and Rockstar as they work on more properties and bigger properties. We're also adding selectively to Social Point and Private Division as we work on new properties. We have shown a willingness to acquire companies selectively. We're a growth business, and you'll see that in our headcount focused on production and engineering capacity rather than fixed corporate overhead.

Thank you.

Thank you. Our last question comes from Ryan Gee with Bank of America. Please proceed with your question.

Hey, guys, thanks for squeezing me in. First one for Lainie — we're about a month away from last year when most of us were sent indoors and saw increased demand for gaming. Can you refresh us how much GTA Online and NBA 2K perhaps outperformed your expectations in the March quarter last year or maybe in the June quarter? If you could quantify that so we can model accordingly that would be fantastic. Second, for either Strauss or Karl — you guys acquired Ruffian Games or Rockstar acquired Ruffian late last year. They have history in shooters with the Halo franchise. Are they coming on board to broaden Rockstar’s design repertoire or what role do you anticipate they'll play at the studio — supporting or lead development? Thanks.

We're thrilled to welcome the Ruffian team to Rockstar Games and to Take-Two; we think they're an extraordinarily talented team and we're looking forward to them becoming part of Rockstar Games. Beyond that, there will be more announcements in due time.

And Ryan, on title-by-title specifics for the March or June quarters, I don't have that detailed breakout in front of me now, but we can follow up with you on that. All of our titles overperformed in those quarters, and specifically GTA Online and NBA 2K had significant overachievement.

Very nice. Thanks, guys.

Well, thank you all very much for joining us today. Obviously, we're really proud of what the entire team has achieved. The results are extraordinary. We are grateful to our colleagues around the world and to you for joining us today. Thanks so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.