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Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Take-Two Interactive Software, Inc. third quarter fiscal year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the call over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. You may begin.

Good afternoon. Thank you for joining our conference call to discuss our results for the third quarter of fiscal year 2025 ended December 31, 2024. Today's call will be led by Strauss

I'm pleased to report that we achieved solid results during the holiday season. Our net bookings of $1.37 billion were within our guidance range as significant outperformance in NBA 2K helped to offset moderation in some of our mobile franchises. At the same time, our operating results surpassed expectations led by the upside from NBA 2K, as well as a shift in timing of expenses that benefited the quarter. We're reiterating our fiscal 2025 net bookings guidance of $5.55 to $5.65 billion and our outlook for full-year operating performance. While third-quarter operating results exceeded expectations, we expect the fourth quarter to be affected by the continuation of current mobile trends as well as the shift of some operating expenses into the period. Looking ahead, this calendar year is shaping up to be one of the strongest ever for Take-Two Interactive Software, Inc., as Sid Meier's Civilization VII launched in early access today with the official launch. We also plan to release Mafia: The Old Country in the summer, Grand Theft Auto VI in the fall, and Borderlands 4 before year-end. We also remain confident in

I'd like to thank our teams for delivering another strong quarter and for continuing to captivate and engage our player communities with the highest quality entertainment. We are excited to bring to market several releases during the remainder of fiscal 2025. On February 11th, 2K and Firaxis Games will launch Sid Meier's Civilization VII, a highly anticipated revolutionary new chapter in our epic 4X strategy franchise. The reception for the game within the media has been very positive, including GameSpot, who said that its gameplay remains unrivaled and engaging for countless hours. Civ VII has already set a new franchise record for preorders, and player sentiment is extremely positive. With the title recognized as the most anticipated game of 2025 during the DC Gaming Show in December. We'd like to thank the entire Firaxis team for once again challenging players around the world to take one more turn in this beloved series that has engrossed players for more than thirty years. On February 28th, 2K and HB Studios will launch PGA Tour 2K25, the latest entry in our golf simulation franchise that will appeal to both casual and hardcore golf fans. The title features three of the major championships with their respective courses for the 2025 season, several franchise advancements, a more immersive and customizable MyCareer experience, and a robust suite of creation tools from leading equipment and apparel brands. In addition, fans can look forward to a diverse roster of pros at launch, including executive director and all-time great, Tiger Woods. On March 14th, 2K and Visual Concepts will launch WWE 2K25. Players on PS5 and Xbox Series X and S will enjoy the island, an all-new interactive and online WWE-themed world that provides an immersive experience where players can prove they're worthy of the attention of the tribal chief. WWE 2K25 will also include an all-new Bloodline theme showcase, new brawl environments, match types, and stipulations, and the largest ever roster with over 300 playable superstars. WWE 2K25 will be supported with a series of add-on packs that can be purchased individually or together as part of the season pass. In addition, 2K and Netflix are collaborating to bring WWE 2K exclusively to mobile devices this fall. Looking ahead, we are highly optimistic about our planned pipeline for fiscal 2026, which includes Grand Theft Auto VI launching this fall. This summer, 2K and Hangar 13 will transport players to the brutal underworld of 1900 Sicily in Mafia: The Old Country, which builds upon the legacy of 2K's popular organized crime franchise that has sold in more than 35 million units. Our announcement trailer received an outstanding response, and we expect the excitement to grow as 2K and Hangar 13 unveil more. 2K and Gearbox Software are creating something truly special with Borderlands 4, which promises to take the series' signature gameplay and storytelling to an all-new level. At the Game Awards, 2K and Gearbox revealed a new trailer which introduced the exciting new world of Kairos and a brand new villain, the Timekeeper. Borderlands 4 has quickly become one of this year's most anticipated games, and players can expect an incredible action-packed experience from Gearbox, the studio that created the looter shooter genre. In closing, we look forward to releasing these groundbreaking titles in the coming year that will set us in motion to deliver the strongest multiyear growth trajectory and pipeline in our company's history. I'll now turn the call over to Lainie.

Thanks, Karl. Good afternoon, everyone. We delivered solid third-quarter results led by the power of our diversified business. During the period, our teams brought innovation to our existing franchises, enhanced our relationships with our player communities, and made outstanding progress on our eagerly anticipated pipeline. I'd like to thank our teams for their disciplined execution and continued focus. Turning to our results. We achieved third-quarter net bookings of $1.37 billion, which was within our guidance range of $1.35 billion to $1.4 billion. We delivered outstanding performance in NBA 2K, which helped offset moderation experienced in some of our mobile franchises. Recurring consumer spending rose 9% over last year, which was in line with our guidance and accounted for 79% of net bookings. NBA 2K grew over 30%, which greatly surpassed our forecast by new features and innovation in our game modes. Mobile increased 6%, driven by the addition of Match Factory and strength in Tune Blast and Merge with Friends. However, this was below our guidance of low double-digit growth, primarily due to underperformance in our hyper-casual mobile portfolio and Empires and Puzzles, and as anticipated, Grand Theft Auto Online declined. GAAP net revenue was $1.36 billion and was flat to last year. While the cost of revenue declined 13% to $600 million, as the prior year included an impairment charge related to acquired intangibles. Operating expenses increased by 10% to $892 million. On a management basis, operating expenses rose 8% year-over-year. This was favorable to our forecast largely due to a shift in timing of expenses into the fourth quarter. This shift, along with the outperformance of NBA 2K, drove operating results that were above the high end of our guidance range. Turning to our outlook. I'll begin with our full fiscal year expectations. As Strauss mentioned, we are reiterating our net bookings outlook range of $5.55 to $5.65 billion, which represents 5% growth over fiscal 2024. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Tune Blast, our hyper-casual mobile portfolio, Match Factory, Empires and Puzzles, the Red Dead Redemption series, Sid Meier's Civilization VII, and Words With Friends. We're raising our recurring consumer spending forecast to 5% growth, which represents 78% of net bookings driven by the phenomenal performance we are experiencing in NBA 2K, which we now expect to grow low double digits. Mobile is now expected to grow low single digits as we are factoring in the current business trends. Grand Theft Auto Online is still expected to decline. We project the net bookings breakdown from our labels to be roughly 49%

Thanks, Lainie and Karl. On behalf of our entire management team, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one if you would like to join the queue. And your first question comes from the line of Doug Creutz with TD Cowen. Your line is open.

Hey. Thank you. When you originally bought

Thanks for your question. Actually, at the time, I was pretty clear that while bringing legacy core IP to mobile could be an opportunity, I also noted that the biggest hits in mobile are native to mobile. And there are precious few examples in the marketplace of very big mobile successes that are based on core game IP, Call of Duty Mobile being one of them. That said, we actually are working on some interesting projects that we have not announced yet, which we feel good about. What I did identify as an area of revenue synergies though has come to fruition, which is building our direct-to-consumer business inside our mobile business, which was a combined project between Take-Two Interactive Software, Inc. and

Great. Thank you.

And your next question comes from the line of Eric Handler with Roth Capital. Your line is open.

Good afternoon. Thanks for the question. I'm gonna keep it on the mobile side of things as well. You had said Match Factory was, I believe, gonna be either breakeven or profitable at the end of fiscal 2025. Is that still the case? I have a follow-up.

Yes. So Match Factory towards the end of the year is gonna start to turn profitable. You know, the title is doing extremely well. We're continuing to do a lot of marketing for the title. So it definitely is towards the very end of the year where it's turning profitable. But the game is continuing to do better and better as the game stays in the market.

Okay. And then just broadly speaking with mobile, it did seem like there was some broad-based weakness just overall. Are you seeing this market becoming just more bifurcated, that you know, it's only the biggest games that are doing well now, and you have to keep spending a lot to keep those games doing well?

No. That's actually not the case. It's still a pretty broad-based business at

That's helpful. Thanks, Strauss.

And your next question comes from the line of Andrew Marok with Raymond James. Your line is open.

Hi. Thanks for taking my question. One on NBA to start. Obviously, seeing some pretty good rebound there, no pun intended. But how much of that do you think is just kind of one, the comp effect, the gen eight transition issues that you had last year, and how much is just kind of an underlying resonant success with the NBA fan base?

So I think on the, certainly on the PC side of the business, it's a lot. It has to do with gen eight versus gen nine, and we're benefiting from that without question. But, honestly, the game is just continuing to innovate. And the quality is amazing. And the folks at 2K and Visual Concepts have year upon year proven that they've been able to come out with new modes, new innovations. Not everything works all the time, but this team is just they define what sports gaming is, and they define what innovation is. And I think there are enough design changes in this game that have really just accrued to our benefit. And we're really excited about that, and we still feel that we've got a lot of upside from where we are right now. So generally speaking, we're very pleased about the performance in NBA. We think there's a lot of greenfield in front of us. And the gen eight to gen nine piece was a bit of a headwind for us historically, but no longer.

Alright. Much appreciated. And then maybe one more kind of along those lines. But with your franchises that have bigger audiences but maybe take a little while between releases, thinking like Mafia and Borderlands, how does your approach to building excitement around those launches differ for franchises with faster release schedules? And how is the response to those two games been among their communities versus your hopes? Thanks.

Look. I think we market everything as though it's a brand new title. We never sort of draft on prior success. And we also need to communicate to consumers that there's an element of what is tried and true and beloved and that there's an element of new. Which is, for example, what we always do in Civilization, but today it's early access day for Civ VII. And once again, the team at Firaxis has pushed the envelope. And, you know, it's mostly been really, really well received. It's also received a little bit of criticism too. So I think in all instances, we benefit by having a franchise that gives us a marketing umbrella, but we never rest on those laurels. We still have to be very engaged with our consumers to let them know what we have when it's coming, and that it's worth engaging with.

And your next question comes from the line of Cory Carpenter with JPMorgan. Your line is open.

Hey. Good afternoon. Thanks for the questions. Karl, could you just expand a bit on the NBA game changes the team has made that are resonating with the players beyond the gen eight to gen nine console change? And, Strauss, for you, now that we have more details on the Switch 2 that have been released and confirmed, just curious how you think about the opportunity to expand your relationship with them going forward. Thanks.

I'm sorry. But take the second one first. Expand our relationship with whom?

Oh, now that we have the details on Switch 2.

Sorry. I missed the Switch 2 part. Look, we've had a obviously, a long-standing relationship with Nintendo, and we've supported the platform when it made sense for the individual release. There was a time when Nintendo platforms were really geared at younger audiences, and that was reflected in our release schedule. And that, you know, now today with Switch and potentially with Switch 2, the Switch device can support any audience. And as you may have noted, Civ VII is available now on Switch. So while we have nothing specific to report, we actually would fully expect to support Switch. And Karl's gonna comment on your question regarding which elements of NBA 2K really have excited the consumers this time around?

Sure. So we introduced a bucket of new features that were designed for the core players. And I think like the new shooting and dribbling mechanics, there's a new badge progression system that was very well received. A smaller city, which really concentrates the activities so you don't have to run around as much to get to the interesting things that players can do. There is a return of the old NBA 2K parks courts that people love. And there was also a full overhaul to the MyTeam mode. So quite a bit of innovation for us.

Okay. Thank you, we have another question?

Your next question comes from the line of James Heaney with Jefferies. Your line is open.

Okay. Great. Yeah. Thanks. Thanks for the question. Lainie, can you just talk about the right level of marketing spend needed to support the launches of your new titles? Soon before launches should we expect you to begin ramping up your marketing efforts, and how does that impact the ramp of expenses? Thank you.

So in terms of the marketing, it usually it's around the launch of the title, but in more recent years, it has spread a little bit further along, especially if there's an online environment or recurrent consumer spending with the title. So the title's budgets are usually around the same size as they were in the past. They really haven't gotten smaller. Even when we have titles that are new versions of previous releases, there's just so much importance in terms of marketing and getting people excited about the titles. And it's just usually different types of marketing. It's been in the past. So, there's a lot more digital marketing and marketing to our consumers and analytics and different ways of getting to our consumers than we have in the past. So it's usually a bigger amount at launch and then spread over a period of time, that the title's life cycle.

Great. Thank you.

And we will take our next question from the line of Matthew Koss with Morgan Stanley. Your line is open.

Hey. Thanks everyone for taking the question. On the Netflix partnership for WWE, I'm just wondering how do you evaluate the attractiveness of those opportunities in terms of partnering with new distribution modes like Netflix, you know, and if those will become material or if they're more nice to have going forward and how you think them through, that's question one. The second question is just about some media reports in the past couple of months that you may have started using a new mediation partner for your ad inventory at

I'll take the first question and Lainie will take the second. We have numerous distribution partners in the business, and we have a great relationship with Netflix in particular, and we'll evaluate an opportunity primarily to see if it benefits our consumers. We want to be where our consumers are. We're not precious or religious about limiting them to a particular platform. Or, for example, even our own platform, we have an opportunity for consumers to come directly to a store that one of our labels has. Or obviously to work through the app stores to work through third parties. We have physical distribution. And we've also worked with subscription services, and we've worked with Netflix before. In every instance, there are obviously economics related to the particular opportunity, and we try to tailor the opportunity to the consumers who we're trying to reach.

So when it comes to the mediation, I'll take the question about mediation. Yeah. So in terms of the economics of the deal, you know, we haven't given any detail on, you know, what they were around this deal. But when we do account for things like that, it is usually spread along with the value of the overall deal to the organization.

Great. Thank you very much.

And your next question comes from the line of Chris Schoell with UBS.

Great. Thank you. Lainie, I recognize in recent years you've been investing ahead of the new pipeline, and as we start to see the benefit of these immersive core titles coming to market, can you just revisit how you're thinking about cash flow generation relative to the guidance you had given historically? And alongside this ramp, how are you thinking about capital allocation and the options you have available to you? Thank you.

Sure. So when we think about going forward in the next couple of years and the strong cash flow that we expect to generate from our pipeline, our capital allocation plan is definitely to include paying down some of our debt over the next couple of years. But we also have a lot of acquisition opportunities available to us. So it's possible that if we make some acquisitions, the timing of the capital allocation plans could be adjusted based on that. So I think there's a lot of things that are big opportunities for us going forward. And, you know, all of that will be available to us.

Great. Thank you. And if I can just send in one more. With Civ VII launching, can you just help us think through the uplift you're factoring into your guidance? And how does that expectation compare to prior to franchise? Thank you.

So if you're referring to next year, we're in the middle of our budgeting process right now, so we're not providing any guidance. We do expect to give that out during our May call. But with that said, we're really excited about the pipeline that's forecast to release next year and also that's released in this quarter. And as we've mentioned, we remain highly confident that we'll achieve sequential increases in record levels of net bookings in fiscal 2026 and 2027.

Okay. Great. Thank you.

And your next question comes from the line of Michael Hickey with Benchmark. Your line is open.

Hey, guys. Strauss, Karl, Lainie, Nicole. Nice quarter. Thanks for taking my questions. Just two from us. Curious on your fiscal 2026 pipeline to three games, are you reaffirming launch and timing expectations, or is this more of a continuation of the previously provided slate? With updates to come from your studios as new information becomes available. And the second question is on Project Ethos. It looks like Michael's now gone from 31st Union. So just curious how leadership is transitioning within the studio. And how this impacts the future of the game. Thanks, guys.

So on the first point, yes, we did today reaffirm our schedule through the remainder of the calendar year. I think we're pretty clear about that. And regarding 31st Union and Project Ethos, we are super grateful to Michael for the great work he did in bringing this project to us and spearheading it and getting it to the stage that it's at. He's going to continue in his advisory role, and for that, we're also grateful. The transition leadership will be provided by a combination of 31st Union and 2K executives. And we feel highly confident that we're gonna deliver a great project over time, and we remain fully committed to Ethos. We're still really excited about it.

Awesome. Thanks, guys.

And your next question comes from the line of Jason Bazinet with Citigroup. Your line is open.

I just had a very simple question. The $1.9 billion that sits on the balance sheet for capitalized software, should we look at that as sort of the apples to apples in terms of your accounting policy versus where you were five years ago, or is there some change in accounting that would cause that number to be large? I'm just trying to get a sense of it. Should investors look at that as indicative of potentially the quality or number of games that are gonna unspool onto the income statement over the next couple of years?

No. Nothing has changed in terms of our policies. That's the capitalized software for the games that have been put up on the balance sheet based on the technological feasibility of those titles. And they'll get amortized as those titles release over the lifetime of those titles.

Understood. Thank you.

And your next question comes from the line of Omar Dessouky with Bank of America. Your line is open.

Hi. Thanks. So glad to see GTA VI reaffirmed for a fall 2025 launch. I wanted to ask, you know, how much of the total number of fans that have ever touched GTA and have brand awareness of GTA could potentially be reactivated once this GTA VI launch actually happens? I gather that there is a much smaller percentage of those fans that today are highly engaged, you know, but with the launch of GTA VI, it will become an intergenerational franchise, the first title having been released around the year 2000. So I could very easily see a dad playing GTA with his son after having not played the game for a couple of decades. So do you have a sense, you know, of relative to the current base of players that's highly engaged, what the base of lapsed players that may potentially come back could be? Like, is it one times as big, twice as big? Any kind of framework there to help us think about this launch would be great.

Well, I appreciate the question and the sort of the sentiment underlying the question. It sort of falls into the category of how high is up, and I decline to ever predict that. We believe that arrogance is the enemy of continued success. We run scared. We're looking over our shoulder. Our competitors are not asleep. And so what do we do about that? Try to be the most creative, the most innovative, and the most efficient company in the entertainment industry. And Rockstar Games, in particular, seeks perfection in everything they do. And we believe that if we do that right, and we focus on delivering for consumers, that's our best opportunity to succeed. To answer your question mathematically, it's pretty interesting if you look at GTA V because that title crossed three console generations and still remains a best-selling title having sold in over 210 million units. GTA Online, now over ten years old, still has enormous ongoing engagement. So there's certainly evidence that if you give consumers what they want, they will show up for it and they will stick around loyally for a very long time. Equally, we have enormous respect for how hard that is to do. With regard to the upcoming release of GTA VI, obviously, this is a console release. We know what the current and next-gen console installed base looks like. So, you know, there's the broad universe of console owners to look at, and that is something to be mindful of. At the same time, we don't spend a lot of time looking at sort of attach rates, which I think is basically the question you're posing. Because it'll take care of itself if we do a great job. Now, are we aware of who our consumers are, and do we know how to market to them and target them? We do. We have an extraordinary corporate consumer database with, I think, nearly a billion records in it. We observe, of course, all privacy regulations, but we are able to market to a significant portion of that database. So we are mindful of who's been engaged with GTA and GTA Online previously. We're mindful of those who we believe will be interested in the title going forward, and we can tailor our marketing accordingly. But we genuinely don't spend a lot of time thinking about, well, is this gonna be, you know, x number of units or y number of units? Because that doesn't change anything that we can do. We focus on what we can affect, and we let the outcomes take care of themselves. And I'm sorry. I said a million consumer records. I meant a billion.

Thank you for your response. I was only off by three digits. So, yeah.

And your final question comes from the line of Clay Griffin with MoffettNathanson. Your line is open.

Great. Good evening. Thanks for taking the question. Strauss, I'd love to get your impression of the momentum of the Roblox app platform. You talked about, hey, we'll be wherever our consumers are. You know, is that do you view that as a substitute product? And what's your vision? What would have to happen for you guys to develop content for that platform? Is it a viable destination for the type of content that Take-Two Interactive Software, Inc. produces?

Look. Roblox is a combination of a platform and a collection of games, user-generated games largely. And I understand that they market themselves as a platform. However, from our point of view, you know, it is a competitive situation. So while I wouldn't rule anything out, it's hard to imagine that we would see Roblox as a destination for a Take-Two Interactive Software, Inc. labels game. But, again, if there's a reason for us to be there, then we would contemplate it.

Understood. And then just maybe turning back to NBA 2K. I know I've assumed that you're aware of kind of mid-quarter slip that happened at your competitor's live service. You know, and credit to the team at Visual Concepts for a great product, but it does seem that we're seeing kind of small-ish changes to these live services are driving bigger results than what we're used to kind of inter-quarter. I wonder if that's your impression. I know it's like as you add complexity, perhaps maybe we're all losing a little bit of visibility. Is that your impression, or is that it's just a function of NBA 2K executing at a really high level versus maybe some mistakes elsewhere?

Yeah. I mean, I really can't speak to competitors and the decisions that they've made, but certainly it's very important in these types of live services games that the development of the game and the actual monetization piece of the game are hand in hand, and you really can't have one without the other. And one thing that we've learned over the years is that the most important thing about developing particularly for sports games that you can't have massive innovation year over year. And you have a significant live services component, is that engagement is everything. And the more the consumer engages, the more, ultimately, that you're gonna be able to benefit from the economics of the business. So for us, it's not we don't necessarily look at the business about tweaking the economy. Of course, we do that. But the idea is really more focus of the team's marketing and development is to increase engagement, and that's all about the quality and the execution. It's very it the tweaking of the economy does never is the leading factor. It's always about engagement and quality experience. And I think if you stray from that, that's when I think you run into trouble.

Totally understand that, Karl. I just I think, you know, I was maybe referring to kind of tweaks and actual gameplay. You mentioned some of the improvements that were made at NBA 2K seem, you know, I wouldn't call them, you know, massive changes, but it had an outsized effect. And it sounds like we saw the opposite of your competitor. And so the question is, like, are you starting to see that as a general rule where perhaps maybe you're losing some visibility maybe even internally, for some of these live services inter-quarter?

I'm gonna take that. No. I don't feel that way. I think we are utterly focused on trying to present the very best possible experience. Sometimes we fall a bit short in certain areas. Sometimes we miss the boat a little bit. Of our competitors as well, but I think the focus remains intense on every part of the experience.

Understood. Thanks, guys.

And that concludes our question and answer session. I will now turn the conference back over to Mr. Strauss

Well, first, thank you for attending, and I'd like to apologize to all of you for our technical difficulties today. Hopefully, the message came across despite that because the message is a powerful one. We had a solid quarter, for which we're very grateful, and we have what we believe is an extraordinary release schedule through the rest of the calendar year. And of course, our expectations are very rosy indeed for fiscal 2026 and 2027, where we expect sequential increases in net bookings, and we expect to set new financial records. All of that is a reflection of what our creative and business teams do every day, which is to seek excellence in everything they do. And none of us could be more proud than we are of those teams and their commitment, their loyalty to this enterprise. And we are so grateful. So I just want to say thank you to all of my many thousands of colleagues around the world, many of whom are listening right now. Thank you for your fine work. I'd also like to thank our shareholders for your support over these many years. We aim to continue to deliver and hopefully to over-deliver going forward. So thank you all.