TTWO - NASDAQ

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

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2024 ended June 30, 2023. 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 2024 is off to a strong start, highlighted by first quarter net bookings of $1.2 billion, which was at the high end of our expectations, and management results were in line with our plans. Grand Theft Auto Online and Grand Theft Auto V, and NBA 2K23 exceeded our projections, which illustrates the long-lasting benefits of producing the highest quality offerings and amassing one of the strongest and most diverse portfolios in entertainment. In keeping with our core values of creativity, innovation, and efficiency, this quarter, we introduced new intellectual properties, advanced the development of our eagerly anticipated pipeline, and maintained our vigilance with cost management initiatives across our organization. Turning to the results from our titles for the period. Grand Theft Auto V continued to outperform and to date, the title has sold-in more than 185 million units. On June 13, Rockstar Games launched San Andreas Mercenaries for Grand Theft Auto Online, which offers six new major story-based missions, as well as new Los Santos operations, Hangar upgrades, Smuggler Source and Sell Missions, seven new vehicles, and more. The update also includes a range of fan-requested experience improvements, as well as the Career Progress feature, offering players a new way to track their progression across criminal careers and claim rewards. San Andreas Mercenaries continues to deliver high value content post-launch using a phased approach that is driving sustained engagement and Recurrent Consumer Spending. This June, Grand Theft Auto Online recorded more players than any other June in its history outside of the height of the pandemic. GTA+, Rockstar’s premium membership service for GTA Online on PlayStation 5 and Xbox Series X and S, offered exclusive options for members to test drive and purchase an array of vehicles, and we are continuing to see strong growth in GTA+ adoption with each passing quarter. We were pleased with the performance of Red Dead Redemption 2, which has sold-in more than 55 million units to-date. Rockstar Games continues to support Red Dead Online with new bonuses and rewards, including free apparel inspired by the RedDeadFashion subreddit, and seasonal content such as April’s Condor Egg Freemode Event. NBA 2K23 exceeded our plans and the title has now sold-in over 13 million units, representing a 11% year-over-year growth, driven by higher demand, especially on Gen-9 consoles, as well as a more tailored promotional cadence. This incredible performance marks the title’s second-highest sell-through ever -- with only NBA 2K20 achieving higher unit sales. Engagement with NBA 2K23 remains strong, with approximately 2.6 million Daily Active Users delivering Recurrent Consumer Spending that exceeded our expectations. Our franchise extensions with the NBA continue to perform extremely well and NBA 2K23 Arcade Edition remains one of the top games on Apple Arcade. WWE 2K23, which is the highest-rated game in our wrestling franchise’s history and the second highest-rated sports simulation title of the year, experienced strong engagement throughout the quarter, with players logging nearly 22 million hours of gameplay and facing off in 170 million matches. 2K and Visual Concepts continue to support the title with a series of 5 DLC packs that can be purchased individually or as part of a Season Pass. 2K also continues to support PGA TOUR 2K23 with additional pros, courses, and Clubhouse Passes. In May, 2K and Visual Concepts launched LEGO 2K Drive, the first game in a multi-title partnership between 2K and the LEGO Group. Following the launch, our teams released the first of four Drive Pass Seasons for the title, which features 100 levels and new content inspired by the Fast and the Furious Saga. Also in May, Private Division and Piccolo Studio launched After Us on PlayStation 5, Xbox Series X and S, and PC, which has been praised by critics for its striking visuals and game world.

Thanks, Strauss. I’d like to thank our teams for a strong start to the year. Turning to our announced launches for fiscal 2024. Yesterday, Rockstar Games announced that the beloved Western experiences, Red Dead Redemption and Undead Nightmare would be coming to the Nintendo Switch and PlayStation 4 for the first time in a new single package, arriving August 17. In a new conversion by Double Eleven Studios, the Switch and PS4 versions bring the two classic experiences together again for new players and original fans to enjoy across modern consoles, including backwards compatibility with the PlayStation 5. On September 8, 2K and Visual Concepts will celebrate the 25th anniversary of our industry defining NBA 2K series and once again redefine basketball simulations with the launch of NBA 2K24, featuring the iconic Kobe Bryant as the game’s cover athlete for the second time in the history of the franchise. Players will be able to celebrate Bryant’s legacy and replicate his skills in the brand-new Mamba Moments mode. Players in the U.S. and Canada can also purchase the WNBA Edition of the game exclusively at GameStop, featuring WNBA All-Star Sabrina Ionescu, as this year’s cover star. NBA 2K24 will introduce cross-play, a community requested feature for PlayStation 5 and Xbox Series X and S. Available in every multiplayer mode, players will be able to compete with or against others from around the world in dynamic co-op matches, thrilling online tournaments, or casual pick-up games between new generation consoles. The title will also introduce ProPLAY, a groundbreaking new technology that directly translates actual NBA footage into gameplay. 2K will have more to share on NBA 2K24 in the coming weeks. In addition, 2K and Visual Concepts remain hard at work on WWE 2K24, the next installment of our popular wrestling series, which set new creative and critical benchmarks with last year’s highly successful release. In June, Private Division and Evening Star announced Penny’s Big Breakaway, a new 3D action platformer from the team behind Sonic Mania. This kinetic yo-yo adventure is expected to launch in early 2024.

Thanks Karl and good afternoon everyone. Today, I’ll discuss the key highlights from our first quarter before reviewing our financial outlook for the full year and second quarter of fiscal 2024. Our combination with

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

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

Yeah. I just have -- I just had one question. Lainie called out consumer weakness kind of continuing. Could you just give an update on where you think the consumer is at. Is there a particular segment that's weaker than others? Just kind of an update on where you think the consumers are today. Thank you.

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

Got it. And then just one quick follow-up on that with -- around media, I guess, if Hollywood stays in a recession, is that a positive, negative or does it not matter for video games?

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

Got it. Thank you so much guys. Appreciate it.

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

Good afternoon and thank you for the question. Strauss, I wonder if you could just talk about with mobile advertising how much -- how many of your games beyond the hyper casual business have integrated advertising now?

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

Thanks. And just as a follow-up, I wondered if you could -- willing to give any specifics about how much of the mobile revenue at this point is on the DTC platform and how that's progressing?

So we don’t actually give out that percentage. Some of our competitors do. And so one of our biggest competitors, I think, has gone on the record to say it’s about 25% and I think that’s a good number. We’re not remotely in that vicinity. There’s plenty of room for growth. I would note that

Thank you.

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

Hey. Good afternoon, Strauss, Karl, Lainie. Two quick ones for me. Last quarter, we talked about obviously achieving north of $8 billion in bookings next year and north of $1 billion in operating cash flow. I'm just kind of curious if those are still the right boggies for next year. And then just secondly -- and I apologize if I missed this. Any changes to this year? Is it slate? I saw we've got the $18 million impairment charge here. But I guess relative to where we were three months ago, is there any change to this year's release slate. Thanks so much.

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

Sure. So for question two, there has been some movements within the back part of the year within the slate, but we’re still able to achieve the same guidance for the year, so reiterating our guidance. So just some small changes within the slate, but it has nothing to do with the impairment charge. So the year is still the same.

Perfect. Thank you.

Our next question is from Matthew Cost with Morgan Stanley. Please proceed.

Hi, everybody. Thanks for taking the questions. Maybe I'll start just by asking about mobile M&A. I mean that was historically a very big part of

So on the deal side, it's hard to know. In terms of our strategy, we think we're in a position to grow organically. We have a lot of new releases coming from

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

Thank you.

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

Hey. Thanks. You alluded to this a little bit earlier, you and others have talked about how difficult it is to launch a new mobile title these days. We did see, however, a few months ago, competitive of yours launched scope we launched MONOPOLY GO, which is shot to number one in the App Store charts rapidly, has had a lot of success. As you have observed that, is there anything that you would sort of any lessons you would draw from their success that you think could -- you could apply to your own games that you have coming out soon?

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

Okay. Thank you.

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

Thanks so much. Maybe just one bigger picture question. As you continue to sort of integrate

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

Thank you.

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

Hey. Thanks for taking the question. The first one is on NBA 2K. You guys mentioned the upcoming cross-play feature was largely asked on by the community. So that being said, curious if there's any data points you could share in terms of how impactful this speech will be in terms of user engagement or recurrent consumer spending? And then is there any reason why it was not included on PC in the last June?

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

Got it. That makes sense. And then just on a separate note, in terms of the topic of charging a higher price for users to get access to a game like early access during the launch, I noticed it wasn't included NBA 2K preorder pricing. Is this an opportunity in the future or is just something you guys opted out of? Thanks.

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

Got it. Thank you.

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

Thank you. Just on the bookings by label, I wanted to follow up on the guidance for

So for the bookings for

And then in terms of the hyper casual business, what we've seen is that there are some gains, particularly with the acquisition of Bapcor that are a bit stickier than the typical hyper casual business. And they have the opportunity to engage consumers for longer periods of time and also potentially lead to not just necessarily monetizing through advertising, but also monetizing through in-out purchasing. So we're starting to see that. We're starting to experiment with that. And we think that there's a market there for us. I think that people have been -- we've been calling is the hybrid casual market where you have the ability to not only monetize with advertising, but also in out purchases just because the experiences are a bit deeper and they last a little bit longer. So we think that's very exciting. I don't know that it's going to necessarily impact the advertising opportunity overall, but it certainly creates new opportunities within that purchases for us.

Thank you.

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

Hi. Thank you for taking question. So you didn't change your full year guidance. And I wanted to know, I think David Karnovsky asked the question and you talked about

So we just mentioned that

Organically?

Organically, yes.

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

Yes, I do understand what you mean. It really varies game by game. So if the game is not suited to direct-to-consumer and it may not be because of its style, it's the interaction that consumers have with the title, then there may not be an opportunity even though it's a big title and then there are other titles where it's a terrific opportunity. Again, we haven't established a number that we're shooting for, but I did quote the number that a competitor has outlined. And I think that number is kind of the high end of the possibility.

Thank you.

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

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

Thanks, Mike. We think it's probably a relatively small opportunity economically. We're not going to use our balance sheet to invest in film and television projects. Those are typically very challenged asset classes with which I'm quite familiar. And to point out two success as notable as they may be, lies the fact that there are many, many failures where money was lost. So far, we've taken a very selective approach to licensing and we do have a Boelens (ph) movie coming from Lionsgate, and we have BioShock movie coming as well. We're excited about both. And selectively, we could see licensing in the future when there's a creative imperative and an economic opportunity. I think you're right. The reason there's been success lately was because you had great IP and then there was a great project that was made from it. And the reason you've had failure in the past is that the expression of the IP just wasn't very good despite people's best efforts. It's a really hard business. And we're not going to bet this company's future or the value of our intellectual property based on someone else's execution in another area of the entertainment business. So we'll continue to be very selective indeed. Even if we did take a broad-based approach -- in the absence of investing ourselves, the economic opportunity in the context of the much greater economic opportunity for our core business is limited.

Thank you.

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

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

So on the first question, by phased approach, I was referring to delivering somewhat smaller chunks of really high-quality content as opposed to waiting for a longer period of time to deliver something that's much larger. And both approaches can work and of late, the phased approach has been working really well. However, there's not one right approach. It varies with what the team has in mind creatively at any given time.

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

Awesome. Thanks, Karl. Thanks, Strauss.

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

Hey, guys. Thanks for the question. Just wanted to dig back into the revenue breakdown by studio. It looks like the percentage for Rockstar and other went up. And I'm just wondering if that's a function of sheer shift from the things you talked about with mobile or if your expectations for those segments that actually improved? And if so, could you talk a little bit more about that? Thanks.

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

Okay. Got it. And then just can you talk broadly about the competitive environment in the industry and whether you think it will be sort of at this level more competitive, less competitive, six months or 12 months from now?

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

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

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