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. 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.

Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 2024 ended September 30, 2023. 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. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the 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.

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 has sold 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 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 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 harnessed 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 who 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 in 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 growing year-over-year driven by the addition of Popcore, contributions from strategic partnerships, and our efforts to increase ad 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 hyper-casual 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.

Thanks, Strauss. I'd like to thank our teams for delivering another strong quarter and adding to the ongoing positive momentum of our business. I'll now turn to our recent and upcoming launches for fiscal 2024 and beyond. On October 3rd, Zynga Socialpoint Studio successfully launched Top Troops, a new mobile game that blends strategy, RPG, and merge mechanics to create a thrilling medieval fantasy adventure of combat and conquest. This marked the studio's first worldwide launch under Zynga following our combination last year. The game has seen positive player reception with an average rating of 4.38 on Google Play and 4.5 on the Apple App Store. Engagement has also been fantastic with over 2 million hours played in over 70 million battles fought since its worldwide launch date. 2K and Gearbox Software expanded the audience of our beloved Borderlands franchise with the October 6th release of Borderlands 3 Ultimate Edition for Nintendo Switch. The game now allows players to make the mayhem at home or on-the-go in a thrilling high-stakes adventure filled with genre-defining shooter-looter action. On October 20, 2K and Visual Concepts launched the WWE 2K23 Bad Bunny Edition across all platforms. Global phenomenon Bad Bunny is featured on the cover of the edition, which also includes a new playable version of this in-game character wearing the apparel that he wore during the WWE Backlash 2023 live event. Zynga's Peak Games studio, the makers of Tune Blast and Toy Blast, released Match Factory, a new puzzle game for mobile where players connect identical items, sort tiles, and clear the board in a mesmerizing 3D environment. In soft launch, we observed strong engagement and monetization metrics, as well as very positive player responses as indicated by App Store review scores, which gives us optimism about the long-term potential for this new mobile title. Private Division has several exciting releases planned for this fiscal year. On November 28th, Roll7 will release their critically acclaimed and wildly imagined third-person shooter skater, Rollerdrome, for Xbox Series X and S and PC as well as Xbox Game Pass for both platforms. Also during the fourth quarter, Evening Star, founded by the industry veterans behind Sonic Mania, will launch Penny's Big Breakaway, a kinetic Yo-Yo 3D platformer for PlayStation 5, Xbox Series X and S, Nintendo Switch, and PC. 2K and Visual Concepts are hard at work on WWE 2K24, the next installment of our popular wrestling series, which will launch during the fourth quarter. Looking ahead, we continue to see great engagement and feedback from audiences enjoying Star Wars Hunters in soft launch across multiple territories. There are several exciting new elements that we are working hard to get into the game, causing us to move the title's worldwide launch window to calendar 2024. Private Division is working with Weta Workshop on Tales of the Shire, a game set in the Middle Earth universe and inspired by the books of J.R.R. Tolkien. The team recently released a teaser trailer, showing fans a glimpse of the project, which is planned for release in calendar 2024 during our fiscal year 2025. Also, Zynga plans to globally launch Game of Thrones Legends, an all-new RPG puzzle-oriented mobile title. In addition to our full game releases, our labels will continue to provide new content and experiences that drive engagement and recurrent consumer spending across many of our key offerings. Our hyper-casual studio plans to release a steady cadence of mobile titles for games that have the potential for enhanced retention rates and a mix of in-app purchases and advertising to drive higher monetization and profitability. Looking at the balance of this fiscal year and beyond, we are highly optimistic about what we believe to be the strongest and most exciting development pipeline in our company's history. I'll now turn the call over to Lainie.

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 on to 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 in 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, Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Red Dead Redemption 2, 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. 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 are 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 is expected 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, Red Dead Online, Words with Friends, Merge Dragons, and Zynga Poker. We project 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 are 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.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for enabling us to achieve our goals and deliver another strong quarter. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions.

Thank you. Our first question comes from Andrew Uerkwitz with Jefferies. Please proceed.

Thank you for taking my questions. My first question is regarding your fiscal '25 and '26 guidance, which you reiterated last quarter. I believe Sam Houser mentioned that we'll see a trailer for Grand Theft Auto in December. How do you feel about those two years, and why did you specifically mention them in the guidance update?

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.

Got it. Thank you. And then kind of just turning to a high-level question. The acquisition of FiveM seems super interesting. In that it could allow you guys to maybe learn more about user-generated content and find ways to monetize that and expand your audience. What's the broader thought of making an acquisition like that and how it fits in, not just with Grand Theft Auto, but maybe the company as a whole?

We're really excited about it. 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 they are. For certain consumers, bonding is a really important activity. Finally, people are consuming our intellectual property, and we would like to monetize it if we can. We think this gives us an opportunity to do all of the above.

Got it. Thank you.

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

Good afternoon. Thanks for the question. I wonder if you could talk a little bit about what you're seeing with players who engage with GTA+? Are there different ways they interact with the game versus someone who's not a subscriber?

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 become more and more relevant to more consumers.

Then, Lainie, maybe you can just clarify. At least on a GAAP basis, advertising was down. Is there a difference between GAAP revenue for advertising and advertising bookings?

Yes. There is some deferral of advertising in the gap. That's the reason we showed growth in the quarter while the gap appears flat.

Got it. Okay. Thank you.

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

Hey, thanks. Just wondering if you could give any more color on the write-down you took in the quarter. I'm guessing that had to do with some of your mobile assets, but whatever other color you can give, that would be helpful.

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. 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.

Okay. Thank you.

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

Thanks for taking my questions. So over the last couple of weeks and months of trying out some different additions of content for GTA+ subs, thinking about the Trilogy in particular. What learnings have you had from the different types of content included in the subscription and how it drives uptake?

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 bodesreally well for the future.

Appreciate that. And then one more, if I could. I heard a lot about some of the coming titles in mobile, kind of a greater prominence of licensed IP with things like Star Wars, Game of Thrones, Lord of the Rings. Is there any difference in thinking as to the value of licensed IP on mobile versus console and PC? Thank you.

This is Karl. We truly see the value in both owned and licensed IP, as both can be extremely beneficial. Owning the intellectual property gives us higher margin potential since we fully control it. With licensed IP, we are required to pay royalties. Entering the mobile market with new IP is challenging because it is hard to capture attention. Having a recognized brand helps attract that attention. It's a balancing act. Our view remains unchanged; ideally, we would focus solely on owned IP. However, if we encounter a good licensing opportunity that aligns with a great game idea and Zynga is interested in bringing it to market, we will definitely pursue it.

Right. Much appreciated. Thank you.

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

Thank you so much for taking the question. Maybe one bigger picture, one first for Strauss. You've seen a lot of media inflation and increases in subscription prices, broadly in the media landscape. How do you think about striking the balance between pricing and attracting a wider array of audience when you think about the content pipeline you're going to bring to market over the next couple of years to capture the right mix between those two dynamics? And then second question would be, are there any guardrails we should be keeping in mind in terms of the evolution of the DTC platform and what piece or cadence that might continue to evolve as a percentage of the mix?

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 in 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. 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. 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. 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 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?

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.

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

Okay. Thanks, guys. Good afternoon. So Strauss, you mentioned that the business is well positioned for the holiday season. What's driving that confidence? And how would you assess the health of your consumer? And then separately, I know it's just a subtle change to RCS, but what's behind the adjustment to that figure for the second half, given your fiscal 2Q is in line? It looks like just based on the commentary around the net bookings mix of Zynga, but just want to confirm that. Thanks.

Speaking to the confidence of our holiday season, simply put, 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. Any time you're heading into a holiday season, 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 go-to titles for people to engage with. Besides, and also, 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. It looks like it's going to be a pretty good holiday season from a consumer perspective, particularly in the gaming space.

And for the RCS, the main driver is the reduction in Zynga's business for the remainder of the year. So we forecasted some of our titles, including a more muted expectation for the holiday based on the current trends. We're also continuing to focus on profitability in hyper-casual, which is reducing our top line but enhancing our margins. Additionally, there's also some shifts in the pipeline, including Star Wars: Hunters.

Our next question comes from the line of Omar Dessouky with Bank of America. Please proceed.

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 guidance 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.

Yes. We haven't even issued initial guidance for the year. We do that in the spring of the New Year, and that's when we'll give a lot more specificity around the release schedule. However, I want to reiterate, we are going to be shy of $8 billion in fiscal '25, but not materially so.

Okay. I'm really pleased to see Sam Houser's announcement regarding Grand Theft Auto VI and that the next trailer will be coming soon. On September 26th, SAG-AFTRA voted to authorize a strike for video game performers under the Union's Interactive Media Agreement. They haven't gone on strike yet, but negotiations are ongoing. I would like to know if a strike by voice actors and motion capture actors would impact the production of the next Grand Theft Auto at Rockstar. Does Rockstar have employment contracts that would enable the actors to continue working during a strike?

Negotiations are expected to resume next week. We're optimistic and value all of our talent greatly, and we value excellent labor relations, and we're looking forward to reaching an agreement that serves everyone well. That's always been my approach. I've been involved with labor negotiations in every entertainment industry there is in my career. They've always worked out just fine. In the event that they don't work out just fine, we are completely protected.

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

Hey, Strauss, Karl, Lainie, and Nicole. Great quarter, everyone. Thanks for taking my questions. I have two questions. First, Strauss, I’d like to hear your updated thoughts on AI. It seems like the technology is accelerating in certain use cases, particularly in terms of product and productivity, which is quite remarkable. I’m curious if your perspective on that has changed. My second question is about the trailer in early December. What kind of impact do you think that could have on the Rockstar product catalog? It's already strong, and I wonder if it could serve as a catalyst for your catalog. I'm also interested in the strategic value of Grand Theft Auto Online as a live service, especially given its importance leading up to the release of GTA next. This is a scenario you haven't encountered before. Thanks, everyone.

Mike, look, we've been in the AI business since the dawn of this industry. Our entertainment properties are created largely in and by computers, and we value tools and we create those tools internally, and we license external tools as well, and the new developments in AI are really exciting. I've said publicly and repeatedly that I believe that they'll help create efficiency and, in certain instances, allow us to do things that we haven't been able to do before. But it's going to allow that for our competitors as well. So I think the tool sets that come out of these recent developments will be commoditized quickly. The efficiencies that we see, others will see. Do I think that generative AI is going to make hit games? No. Do I think that the need for creative people will go away? Absolutely not. I think, if anything, better tool sets just raise the bar. They give us the opportunity to do more and do better. So the changes will be menial work probably being reduced or eliminated, high-level work is enhanced in importance. You'll see shifts in what we can do with our games. You mentioned product. I think you'll see some shifts in product, positive ones, I hope. And you mentioned productivity, and I think you will see shifts in productivity, but I'm not sure those shifts will drop to the bottom line because typically, when we've generated productivity with tool sets, we've just set our sights higher. That's our story. Our strategy is to be the most creative, the most innovative, and the most efficient company in the business, and AI, I think, probably ticks all three boxes. But don't expect the price tags to go down; just expect everything to get better and competition probably to become more intense for people who cannot avail themselves of the resources that we can afford. With regard to the expected trailer that Sam Houser posted about today, we're as excited as anyone else. Do I think there will be an impact on our catalog revenue? Potentially. Things are already going really well in that space. With regard to GTA Online, it's one amazing story that here we are 10 years later after the initial release, and GTA Online is going strong. Why is it going strong? Because it's phenomenal and because Rockstar continues to supply content and updates and engage consumers and entertain them more effectively than, frankly, anyone else in the business. As long as we keep doing that, we'll be very well positioned, indeed.

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

Yes, thank you. Good morning. I noticed that Nintendo has announced a live-action Zelda film. I know this question often comes up, but I'm curious about your and Rockstar's willingness to collaborate and explore ways to extend the Red Dead Redemption and Grand Theft Auto intellectual properties, given their past success. I would appreciate your updated thoughts on this.

We've discussed this multiple times. While we could use the company's balance sheet to finance a movie or a television show and potentially gain from its success, we are not inclined to take that risk because the return on investment doesn't appeal to us. These are challenging businesses, and although I've had success in them, they are not our focus. We prefer the more favorable risk/reward profile of our current operations. The only way for us to engage in that space is through licensing arrangements with third parties. To provide some perspective, Mattel recently announced that they expect to earn about $125 million from licensing the Barbie IP for the movie. Barbie has become an enormous hit, but we cannot assume that our properties would yield similar numbers even in the best-case scenarios. The licensing fees would likely be only a small fraction of that figure, not significant enough to impact our business. We also have to consider the potential for failure. The likelihood of success in the movie industry is substantially lower than in the interactive entertainment sector. Our hit ratios for console properties are between 80% and 90%, while a successful movie studio tends to have a hit ratio around 30%, implying a 70% chance that a licensed movie could fail. While success would offer some benefit to our financial results, it wouldn't be substantial for our overall operations. Additionally, failure could put our intellectual property at risk, which sets a high standard for us. We've licensed two properties so far: Borderlands to Lionsgate and BioShock, which we are eagerly anticipating. We are in discussions for other titles, but nothing is ready to announce yet. We plan to be very selective and cautious in our approach.

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

We've been seeing more discussion of intrinsic in-game advertising, things like in-game billboards. It seems like brand advertisers are getting more and more comfortable with in-game advertising. What are your thoughts on the broader opportunity there beyond mobile and beyond games within games, and maybe as well as your outlook for taking this owned ad business and how that evolves? Thanks and congrats on the quarter.

Thanks. I mean you understand what we're already doing in mobile, so I don't think you want me to cover 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. 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. It ruined the movie for me because 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 titles 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. 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 those results are driven by the creativity, 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. 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. I'm really proud of that. This is a really unusual place. If we pursue our strategy and do it in a way that's consistent with our culture, we've seen over and over again that we do well. We're proud of that, and we feel very optimistic about the future. Thanks so much for joining us today.

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