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

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2023 ended June 30, 2022. Today's call will be led by Strauss

Thanks, Nicole. Good afternoon and thank you for joining us today. I'm pleased to report that Fiscal 2023 is off to a great start, highlighted by first quarter Net Bookings of $1 billion. Our performance demonstrates the quality of our games and our ability to engage audiences across the globe, despite the impacts of various macroeconomic and geopolitical factors. This has been a milestone period in the history of our Company, as we closed our combination with

Thanks, Strauss. I'd like to begin by thanking our teams for a great start to the year driven by their tireless passion, creativity and commitment to deliver the best entertainment experiences in the world. I'll now discuss our recent releases. On July 7, 2K and Supermassive Games launched an update to the popular horror experience, The Quarry, which introduced several new features, including Wolfpack, a new online multiplayer mode where the host can invite other players to help shape the story as a collaborative group. In addition, all six episodes of the Bizarre Yet Bonafide podcast featured in The Quarry are now available in-game and in their entirety. The podcast, which was previously available only on select streaming platforms, follows two fictional paranormal investigators as they delve into the troubling secrets of The Quarry. On July 19th, 2K and Visual Concepts released the fifth and final DLC pack for WWE 2K22, entitled “The Whole Dam Pack.” The update features pop-culture icon Machine Gun Kelly, social media megastar Logan Paul, and high-flying, hard-hitting WWE Hall of Famer Rob Van Dam, alongside franchise debuts from LA Knight, Xia Li, Commander Azeez, and Sarray. We are very proud to have delivered such a stellar WWE offering this year and to support the title with our fans’ most beloved superstars. On July 26th, Rockstar Games continued to grow and evolve the world of Grand Theft Auto Online across all platforms with the launch of The Criminal Enterprises, a sweeping update bringing new business prospects for Criminal Careers, plus new, elaborate Contact Missions, auto showrooms to test drive and purchase vehicles, and many other upgrades rolling out all summer long. The update also delivers highly-requested experience improvements as well as increased payouts across a range of gameplay, offering players more choices and freedom as they climb their way up the criminal ranks. We remain incredibly excited about our pipeline for Fiscal 2023 and beyond. On August 16th, Private Division and Roll7 will release Rollerdrome, a brand-new third-person, single-player shooter. This stylish, high-octane game combines adrenaline-fueled skate stunts with intense combat in a retro-futuristic world. The title will be available on Steam and for PlayStation Plus members for an introductory price just under $20, after which it will retail for $29.99. Additionally, PlayStation Plus Premium members will be able to play a free trial of the game when it launches. On September 9th, 2K and Visual Concepts will launch NBA 2K23, the next offering from our industry-leading NBA series. Phoenix Suns’ shooting guard, three-time NBA All-Star, and 2021-22 Kia All-NBA First Team selection, Devin Booker, is featured on this year’s Standard Edition and cross-gen Digital Deluxe Edition. The Iconic Michael Jordan appears on the cover of the NBA 2K23 Michael Jordan Edition and the brand-new NBA 2K23 Championship Edition, which retails for $149.99 and delivers incredible value by including a 12-month subscription to the NBA League Pass for the first time. In the U.S. and Canada, players can purchase the WNBA Edition as a GameStop exclusive, featuring Phoenix Mercury superstar Diana Taurasi, along with Seattle Storm legend Sue Bird. 2K has partnered with Every Kid Sports to support greater representation of females in basketball with a $100,000 donation that will enable girls across the U.S. to participate in youth sports. 2K will reveal more details of NBA 2K23 in the coming weeks. We have made the decision to move back the launch timing of Marvel's Midnight Suns to ensure the teams at Firaxis Games and 2K deliver the best possible experience for our fans. The title will launch later this fiscal year on Windows PC, Xbox Series X|S, and PlayStation 5. The Xbox One, PlayStation 4, and Nintendo Switch versions will follow at a later date. During the fourth quarter, Private Division and Intercept games will launch Kerbal Space Program 2 on PC. The game’s dedicated community can look forward to more information about the game and its new features from the title’s ongoing gameplay reveal video series. 2K’s teams at Visual Concepts and HB Studios remain hard at work on their upcoming launches of WWE 2K23 and PGA TOUR 2K23. 2K will have more to share on these annual sports offerings shortly.

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our first quarter before reviewing our financial outlook for the fiscal year 2023 and second quarter. Please note that our first quarter results include

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering an excellent start to the year. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Our first question comes from Eric Handler with MKM Partners.

Two questions. First, Lainie, I wonder if you could sort of size the changes in guidance in terms of how we might have been thinking about Marvel's Midnight Sun versus what's changed with FX and macro.

So for the difference in the pre-combination business, we had some shifts in the pipeline for the year. And then there was a movement in the foreign exchange rates. And then there's also the uncertain macroeconomic backdrop. So I would say that the shifts in our pipeline were the most meaningful to our numbers. So I would say we had some titles that moved within the year. And that was Marvel Midnight Sun’s and then there was an unannounced title that moved out of the year as well. So I would say definitely the pipeline changes that were the most -- to the change in the guidance.

Great. And then Strauss, I wondered if you could talk a little bit about the state of the mobile industry right now. There has been a little bit of headwinds with growth for the industry in this year. And wondering as you look at

Thanks, Eric. There's a lot there. We are seeing some softness in the mobile market. The good news is, I think we're doing better than most, if not all. And I think we're seeing an offsetting increase in our market share. I think the reason we're seeing probably a bit more softness in mobile than in console is in console to participate you have to buy. And in mobile, by definition, you're in a free-to-play environment. You can play without paying if you are feeling the pinch of inflation, specifically with regard to nondiscretionary expenditures like fuel and food, you could imagine that if you're playing the game, you might choose to spend a bit less or spend a bit less frequently. That said, we think

Our next question comes from Matthew Thornton with Truist Securities.

Maybe two, if I could. First one, Lainie, I've been wondering if you'd be able to give us what the RCS percentage of bookings was for legacy Take-Two for the quarter. I think it was 73% total with

In terms of the RCS for the pre-combination, we're not really breaking that out anymore. We're really looking at the business overall as one business. But I can tell you that we did outperform NBA 2K 22, Tiny Tina's Wonderland and top 11 versus our guidance for the quarter. So those 3 titles did better than we had expected.

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

Our next question comes from Matthew Cost with Morgan Stanley.

I have 2. So I guess just kind of following up on the Chartboost point. I think you mentioned in the prepared remarks and then just now in the Q&A about leveraging those marketing capabilities inside

Look, I think to the extent that

Our next question comes from Mario Lu with Barclays.

Great. The first one is just a follow-up on the full year guidance, the updated one with

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

Okay. And then a follow-up on the recurring consumer spending. I just wanted to make sure for mobile advertising revenue, that's all included, right, in RCS? Or is that categorized somewhere else?

Yes, it is indeed .

Our next question comes from Doug Creutz with Cowen.

First, I was just wondering if you're willing to share what

We're going to manage their business as one combined entity. So therefore, we're not going to break out the

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

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

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

So in terms of chartboost, chartboost does actually deals third parties today. We certainly haven't announced any changes. But that is one area that we're very excited about. Look, the bigger the business is, the more valuable the platform is going to be. It's going to be certainly valuable from a tech perspective internally. But we think it's a great product and whether or not it's got great growth prospects to the third-party market remains to be seen, but that's certainly something that we're -- that is under consideration.

Okay. And then the second question is with regards to the mobile game market and specifically the

In terms of the changes in the -- in our guidance, it's -- when we're looking at our OpEx, there's an increase in terms of our expenses from

And on the revenue side, there are -- obviously, there are some things that happen in the short term that Lainie and Strauss have always spoken about that can affect what our expectations are, where they are today in the short run versus where they were in January. But overall, our mid- to long-term prospects, growth prospects for the business have not changed. We're still very excited about the prospects.

Our next question comes from Martin Yang with Oppenheimer.

My first question is on your investments into the development resources in the future. Can you maybe talk about your plan for mobile or for

I think the good news is that we have a very robust team now. We have 11,000 colleagues around the world. And we have the ability to pursue a very ambitious program of development and publishing. And at the same time, we're a growth business, and we expect to continue to grow. So we don't have expectations that we will significantly increase our headcount anytime soon. At the same time, assuming we grow in the way we expect to, and we have an expectation to grow very significantly in the next 3 years, I assume we will increase our development headcount somewhat.

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

Yes. I mean it really is simply that the game is -- to the extent that we're moving games -- shifting later, which is when we have pipeline shifts, that's typically the case. We typically don't move games up. But that is really based on where the game is in development. We would not hold a game that's ready to release based on any overall economic trend or something going on in the market. Potentially, we would maybe move a game a week or 2, depending on -- for marketing windows. But generally speaking, when the game is ready, that's when we release it.

Our next question comes from Brian Fitzgerald with Wells Fargo.

A couple of quick ones. Maybe rifting on that macro theme. For a long time, we've accepted the narrative that gaming spend is really resilient in a recession because of the low cost per hour of entertainment. But at the same time, the model has shifted towards digital and RCS. Strauss, you hit upon mobile consumer discretionary, mobile advertising. How resilient do you think overall RCS consumer, PC would be if we came into more of a macro environment? It seems that would be a little more resilient than free-to-play type of models on the mobile side. And then a quick follow-up, kind of an odd question. Does your PGA Tour business, is it seeing any impact from the Live Tour and the noise around that?

So on your first point, I've been asked about the potential impact of the recession on our business since I started with these conference calls some 15 years ago. And over and over again, I said I don't believe the entertainment business is recession proof or even necessarily recession resistant. And I think we're seeing now the decline in consumer spending and increase in inflation will have an impact on the industry. You've seen it from our report today and from our competitors' reports as well. I think conceptually, the impact is probably greater on free-to-play for the reasons that I said earlier in the call, that you can play those titles without spending money. And you may just decide to spend less frequently or less in aggregate. With regard to the console experience, you have to buy the game to play. And so I think if you want the title, you're going to buy it. And as you point out, it's a very good value for consumers. And on your second point, no, we haven't seen any impact on our ongoing sales or engagement with PGA Tour based on, as you put it, the noise around this new offering.

Our next question comes from Matti Littunen with Bernstein.

A question on IDFA. Now you pointed out your outperformance on mobile. Now I was just wondering if the Chartboost stacked at

Look, the change in IDFA is the new reality. And we've been operating within that new reality for some time. I do think that our massive consumer database gives us a benefit in that we have all kinds of in-house proprietary information that will help us with our marketing. I do think that the ad tech platform that

Our next question comes from Eric Sheridan with Goldman Sachs.

Maybe I'll ask a big picture one. Strauss, we're coming up on the beginning of the third year of this console cycle at the end of this year. Any thoughts about what you've seen from new console adoption and what it's meant for overall gaming habits among your users? And how do you think longer term about aligning some of your more interesting content until we get much deeper into the penetration curve because this console cycle has been very different because of elements around the supply chain dynamic.

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

Our next question is from Mike Hickey with the Benchmark Company.

Congrats on the quarter and congrats on your acquisition, pretty exciting. Two questions for me. First one on your new mobile games from existing IP. Are we -- are you sort of thinking casual spin-offs here like a Red Dead Poker or GTA Casino? Are you thinking more core mobile game releases off your IP? If it is core, do you feel like you have the resources now that you've added

So thanks, Mike, for your comments and your question. With regard to the creation of new mobile titles based on legacy Take-Two IP, it remains to be seen what those expressions will look like. It will be driven by the passion and the talent of the teams. And to your question regarding whether

Our next question is from Drew Crum with Stifel.

Maybe for Strauss or Karl. Guys, are you seeing any changes with the development cycle? And specifically, has COVID in any way elongated the time it takes to complete a game? And is that something that could put the development pipeline at risk? And then separately, guys, what is the company's plan around debt reduction for fiscal '23?

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

In terms of debt reduction, we have a strong cash flow. The business will be generating a lot of cash this year. We look at paying down as much debt it makes sense to at the end of the year. But at the same time, we look at acquisition opportunities as well. So if there's something that makes sense for us to buy during the year, we would also look to do that. So I'd love to see what it looks like at the end of the year based on what the needs are during the rest of the year.

Our next question is from David Karnovsky with JPMorgan.

Just following up on mobile advertising at

So in terms of the advertising business, yes, the overall advertising market, generally speaking, has experienced year-over-year declines due to ad tech consolidation and the lower spend on digital advertising. Our advertising revenues have -- the growth has decelerated from the last quarter, but they grew notably versus last year. And we believe we outperformed the industry trends. We expect this trend to improve over the course of the year with natural seasonality and optimizations we're making in our network mix and pricing. So what was the second question? Yes, in terms of Star Wars: Hunters release, it really is just a matter of making sure that the game is delivered at the highest possible quality, and we have not changed anything around platforms.

Our next question is from Andrew Marok with Raymond James.

Two for me, please. Given the Criminal enterprises in the last few GTA Online expansions have been received pretty well, how should we be thinking about the GTA Online content pipeline or philosophy as development on the next premium GTA ramps and resources are reallocated? And then second, could softness in the ad market create opportunities for lower-cost marketing or changed marketing strategies ahead of some of your frontline releases?

Thank you. The Rockstar Games has been supplying ongoing content updates for Grand Theft Auto Online since its release in 2013. The most recent one was well received and they continue to put out terrific content. Any announcements about upcoming properties do come from the labels. So we don't tend to talk about them here. And a great question about advertising cost. I think it's a fair one, which is if you're seeing softness in the market, does that mean you can market your titles more cheaply going forward? And the answer is we might see some minor adjustment in the cost profile. But at the end of the day, we spend a lot to support our console -- big console launches. And I don't think that softness in the ad market would probably have a material impact on that.

Our next question is from Clay Griffin with MoffettNathanson.

Notwithstanding the impact of the higher ASP on the Championship Edition of 2K, I'm just wondering if you're seeing any material change in mix as we head into this kind of preorder window? I guess in light of some of the softness in free-play mobile. I guess the question back, do you have any flexibility to maybe go a bit more aggressively with bundled virtual currency in the preorder window?

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

And no real change in mix versus last year, normalizing for this championship position?

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

We have reached the end of the question-and-answer session. I'd like to turn the call back over to Strauss

We'd just like to thank you all for joining us. We're really proud of how the company is performing. Our combination with