Greetings, and welcome to Take-Two Interactive Software's Second Quarter Full Year 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded..

I would now like to turn the conference over to your host, Mr. Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications. .

Good afternoon. Welcome, and thank you for joining Take-Two's conference call to discuss its results for the second quarter of fiscal 2021 ended September 30, 2020. .

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 on 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 measures. .

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 www. take2games.com. .

And now I'll turn the call over to Strauss. .

Thanks, Hank. Good afternoon, and thank you for joining us today. I'd like to begin by acknowledging those who have been affected by the global pandemic. On behalf of our entire management team, I'd like to express our deepest sympathies and shared hope that in time, this crisis shall pass.

We remain immensely grateful to everyone who serves on the front lines caring for those in need and helping the world navigate these challenging times..

Trilogy. .

Our ability to deliver the highest quality entertainment experiences to our audiences during these challenging times is a reflection of the professionalism and the passion of our entire organization. I'm immensely proud of our teams throughout the world that embody our core tenets of creativity, innovation and efficiency. .

On September 4, 2K and Visual Concepts launched NBA 2K21, the latest installment in our industry-leading basketball simulation series for PlayStation 4, Xbox One, Nintendo Switch, PC and Stadia. The title is off to a remarkable start, and net bookings from the title have outperformed our expectations.

To date, NBA 2K21 has sold in over 5 million units..

As compared with the second quarter of fiscal 2020, net bookings for the NBA 2K series grew 28%, and recurrent consumer spending significantly exceeded our expectations, growing an incredible 76%. Consumer engagement with NBA 2K continues to increase with daily active users, MyCAREER users and MyTeam users growing significantly.

Moreover, NBA 2K21 users have been more deeply engaged with the game, with average games played per user up 21% as compared to NBA 2K20 in the same period. .

Next week, NBA 2K21 will launch for next-gen platforms, which Karl will discuss shortly. I'd like to congratulate 2K and Visual Concepts for delivering another outstanding entry in this beloved franchise..

Seven years after its initial release, Grand Theft Auto V continues to grow its audience. The title has now sold in over 135 million units and remains one of the most successful and iconic experiences in all of entertainment.

In addition, recurrent consumer spending on Grand Theft Auto Online outperformed our second quarter forecast and was entitled the best second quarter ever in terms of both active players and new players. .

During the month of August, Rockstar Games released the Los Santos Summer Special for Grand Theft Auto Online, featuring a ray of new vehicles, co-op missions, business battles, racetrack, the open-wheel race creator and more. We continue to expect Grand Theft Auto Online to establish a new net bookings record in fiscal 2021..

Red Dead Redemption 2 also outperformed, and to date, has sold in over 34 million units worldwide. Net bookings from Red Dead Redemption 2 grew an outstanding 124%, including 106% growth in full game sales.

Engagement with and recurrent consumer spending on Red Dead Online continues to increase, with net bookings from the title surpassing expectations, growing 96%..

Furthermore, the title grew 28% in audience, and growth in new players was 47%.

During the second quarter, Rockstar Games added new content to Red Dead Online, including the natural list update, a new specialist role, including the ability to hunt, track and study legendary animals as well as new poaching missions and free roam events, 2 new weapons, the advanced camera and more, including the latest addition of Outlaw Pass, The Outlaw Pass #3..

Throughout the coming year, Rockstar Games will continue to support both Red Dead Online and Grand Theft Auto Online with more content updates to keep new and returning players excited and engaged..

In late summer, 2K enhanced further our sports simulation offerings with the release of PGA TOUR 2K21 for PlayStation 4, Xbox One, Nintendo Switch, PC and Stadia. Developed by HB Studios, PGA TOUR 2K21 was universally lauded by consumers and critics, including game and former Golf Digest in U.S.

day to day for being an incredibly fun, realistic and engaging entry into the category. The title has exceeded our expectations and to date has sold in over 1 million units. .

According to the MTD Group, PGA TOUR 2K21 was the fastest-selling golf game by units over the past 10 years. And in addition, according to Metacritic, the title is the highest-rated golf simulation of the current console generation.

I'd like to congratulate the teams AT 2K and HB Studios who are continuing to support the game with additional post-launch content..

During the second quarter, 2K also released WWE 2 Battlegrounds, a completely new WWE game featuring arcade-style brawling action for PlayStation 4, Xbox One, Nintendo Switch, PC and Stadia.

We're very pleased to expand our WWE offerings with a title that provides both casual gamers and die-hard wrestling fans with an over-the-top, pick-up-and-play experience. The title has exceeded our expectations and is being supported with post-launch content. .

Trilogy, a collection featuring definitive editions of all 3 Mafia titles. The definitive additions of Mafia, Mafia 2 and Mafia 3 are available individually or as part of the trilogy. To date, these titles collectively sold in over 2 million units..

Turning to Private Division. During the second quarter, the label released Peril on Gorgon, a narrative expansion for their award-winning RPG, The Outer Worlds, from Obsidian Entertainment. Peril on Gorgon is the first of 2 expansions that can be purchased individually or bundled at a discount in The Outer World's expansion pass.

The Outer World's continues to outperform our expectations and has now sold in over 3 million units..

Our second quarter results were also enhanced by a variety of other offerings, led by Borderlands 3, Social Point's mobile games and Sid Meier's Civilization VI..

in the free-to-play category, Social Point's live games, including Dragon City, Monster Legends, World Chef, Tasty Town and Word Life outperformed during the second quarter, matching the net bookings record achieved in the previous quarter.

Live games delivered new fresh content, events and experiences to boost engagement and enhance the customer experience, and net bookings grew 55%. The studio continues to invest in its broad and innovative pipeline of more than 10 new games planned for launch in the coming years..

WWE SuperCard also outperformed during the second quarter, growing 24%. The title has now been downloaded more than 22 million times and remains 2K's highest-grossing mobile title. Later this month, 2K will deliver season 7 of our popular free-to-play sports entertainment mobile game. .

And NBA 2K Online in China grew 13% and remains a significant contributor to our results. The title is the #1 PC online sports game in China with more than 50 million registered users. Add-on content grew 254% and outperformed expectations, led by offerings for the Borderlands Series and Sid Meier's Civilization VI..

As a result of our better-than-expected second quarter performance and improved outlook for the back half of the year, we're increasing our outlook for fiscal 2021, which we expect to deliver a new record for net bookings of over $3 billion..

In September, as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings, we acquired Playdots, a long-standing leader in the mobile puzzle genre.

Founded in 2013 and based in New York City, Playdots builds mobile games with unique and thoughtful designs. The studios created 3 hits, Dots, Two-Dots and Dots & Co., which have collectively been downloaded over 100 million times.

They're best known for Two-Dots, which has been downloaded over 80 million times since its launch 6 years ago, and that continues to engage deeply audiences throughout the world. .

Playdot's near-term strategy for growth includes live ops technology and the addition of numerous features to its core games, such as scavenger hunts and social leader boards, which are driving meaningful long-term consumer engagement. .

In addition, Playdots will remain focused on existing IP and will continue to create new properties as they've done since their inception. We're very pleased to welcome Nir Efrat and the entire team at Playdots to the Take-Two family and are excited by the potential of their development pipeline and positive long-term contributions to our business..

It bears noting that next week, we'll enter in an exciting new era in the history of our industry. The eagerly anticipated launches of 2 new gaming platforms from Microsoft and Sony marked the latest technological advances that promise to provide our world-class development teams with better platforms on which to captivate and engage our audiences.

We're both prepared and thrilled to take this next step, and Karl will have more to share about our offerings for this next generation..

As we've seen over the past several months, consumers' appetite for and participation in interactive entertainment has never been stronger. We believe that this trend, coupled with the fervor for new gaming platforms, bodes well for the upcoming holiday season, and that interactive entertainment will be among the most popular gift-giving items. .

Looking ahead, Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP. We continue to make great strides to increase the scale of our enterprise, both organically and through selective inorganic accretive opportunities..

In closing, our company remains superbly positioned creatively, operationally and financially to capitalize on the many positive trends in our industry and to deliver growth and returns for our shareholders over the long term. .

I'll now turn the call over to Karl. .

Thanks, Strauss. I'd like to begin by thanking our teams for continuing their stellar work in achieving strong results that are lining up to deliver a record year for net bookings.

Our culture of collaboration, coupled with the company's commitment to creating the best entertainment experiences, is driving our ongoing success and the ability to engage with audiences more deeply than ever before..

I'll now discuss our recent and upcoming releases. As Strauss mentioned, we are very excited about next week's introduction of 2 new leading-edge gaming platforms. Through these new robust platforms, our development teams have an even greater ability to captivate and engage audiences with our renowned franchises and new intellectual properties.

We are thrilled to deliver at launch 2 of 2K's most successful and popular franchises, NBA 2K and Borderlands for both platforms. .

NBA 2K21 was built from the ground up for next-generation consoles and will once again redefine the standard for sports simulations.

In addition to unparalleled graphics and loading speeds, NBA 2K21 will introduce several initiatives to bridge current and new console generations of the game, including MyTeam cross-progression and the shared VC wallet within the same console families. .

Furthermore, NBA legend Kobe Bryant's lifetime achievement of basketball excellence is celebrated with the NBA 2K21 Mamba Forever Edition, which will provide players with seamless access to both current and next-generation versions of the game..

Just yesterday, 2K released the trailer for The City, featuring a completely overhauled park experience, exclusive to NBA 2K21 on next-gen consoles.

Originally introduced in NBA 2K14 for Xbox One and PS4, The Park helped push 2K forward by creating a competitive online basketball environment that allowed our quickly growing community to compete against each other outside of the authentic NBA experience.

This experience has evolved over the years into the neighborhood and now what we have proudly introduced as The City, which is many times larger and more immersive community-based experience, only possible on next-gen consoles. It is Visual Concepts' most ambitious execution of a virtual basketball community..

Borderlands 3 has been fully optimized for next-gen consoles, so Mayhem will be bigger and bolder than ever before. All players who own the game on current gen will be able to download the next-gen upgrade within the same console family for free.

This free next-gen upgrade will add a number of exclusive features, including 4K resolution at 60 frames per second in single player and online co-op plus support for 3 and 4 player split-screen co-op. .

In addition, Rockstar Games has announced that they will bring their iconic Grand Theft Auto V to the next generation of consoles in the second half of calendar 2021 during fiscal year 2022.

The new generation versions of the game will feature a range of technical improvements, visual upgrades and performance enhancements to take full advantage of the latest hardware, making the game more beautiful and more responsive than ever.

For the community of Grand Theft Auto Online, the journey for this ever-evolving world will continue on the next-generation consoles with more new updates, including additional content exclusive to the new consoles and PC.

There will also be new stand-alone version of Grand Theft Auto Online coming in the second half of calendar 2021, which will be available for free exclusively on PlayStation 5 during the first 3 months. Rockstar Games will share more details on the new versions of Grand Theft Auto V in the months ahead..

Driving long-term consumer engagement with our titles after their initial launch remains a key strategic priority for our organization. There are a myriad of ways that our creative teams strive to do this.

However, we are always focused on designing games with the goal of giving players experiences that far exceed their expectations and importantly, are worthy of their time and money. To that end, we recently released an array of add-on content for some of our key titles..

Last month, 2K and HB Studios released 2 updates for our popular golf simulation, PGA TOUR 2K21. The 3 whole matchmaking update allows players to play a quick multiplayer around with friends. Two weeks ago, the team launched the Halloween update, featuring fun holiday theme cosmetic items to customize players and courses.

Players can expect additional content to be released for PGA TOUR 2K21 throughout the year. .

In addition, the Private Division, in partnership with the European Space Agency, released their shared Horizon update for Kerbal Space Program for PS4 and Xbox One. The update celebrates the agency's contributions to space exploration and is free for all players of the critically acclaimed physics-based space simulation game.

Private Division's new development studio, Intercept Games, remains hard at work on Kerbal Space Program 2, which is now planned for release during fiscal 2023..

Tomorrow, 2K will release the first update for their new wrestling title WWE 2K Battlegrounds. The update features new superstars and legends that will be made available throughout the month, adding to the game's outrageous in and out of the ring action.

2K will make additional superstores available in December and will share more details in the coming weeks. More than a year after the initial launch of Borderlands 3, engagement with the title remains incredibly strong.

Next week, due to the immense popularity and success of the title's add-on content strategy in Season Pass, 2K and Gearbox Software will launch a second season pass for the game. The Season Pass 2, which will be available for all previously released and all next-gen versions of the game, will include 2 brand-new content add-ons.

The designers cut add-on will add all new ways to play Borderlands 3 by introducing a new skill tree for each ball hunter, a new stand-alone mode called Arms Race and more, while the Director's Cut add-on includes additional missions, end-game content and behind the scenes extras.

Designers cut will be available for purchase starting on November 10, while Director's Cut is planned for release in spring of next year..

Rockstar Games has announced that both Grand Theft Auto Online and Red Dead Online will receive major updates later this year, featuring an extension to existing frontier pursuits for Red Dead Online as well as Grand Theft Auto Online's biggest update ever, which will feature a new take on heists in a new location.

Praxis Games will continue to deliver new content for Sid Meier's Civilization VI as part of their new Frontier pass for PlayStation 4, Xbox One, Nintendo Switch, PC and mobile, featuring new civilizations and leaders that will be made available on a bimonthly basis through the end of March 2021.

Later this year, the new Frontier Pass will come to mobile platforms, and each pass will be available for individual purchase..

And during the first half of calendar 2021, Private Division will release The Outer Worlds Murder on Eridanos, the second narrative expansion for their successful RPG from Obsidian Entertainment.

The expansion will be available individually or at a discount as part of The Outer Worlds Expansion Pass, which also includes the previously released Peril on Gorgon..

Turning to eSports. The NBA 2K League concluded its third season on August 28 with Wizards District Gaming winning the 2020 NBA 2K League Championships.

All 2020 season games aired live on the NBA 2K League's Twitch channel in addition to select games airing live on ESPN2, ESPN digital platforms, Sportsnet in Canada and the NBA 2K League's YouTube channel, and on delay on eGG Network in Southeast Asia and local in India. Dash Radio's nothing but net channel also provided live game coverage.

The NBA 2K League has begun the trial process for its fourth season set to take place in 2021..

The new format will include more than 35 program tournaments hosted by league teams as part of the NBA 2K League Draft Prospect Series, featuring a first of its kind NBA 2K League combine.

The league will enable 2K fans and players to engage with the league and showcase their excitement throughout the off-season by awarding draft eligibility on a rolling basis to members of the 2K community who excel in the tournaments as part of the draft prospect series. .

In addition, we continued to develop and showcase female 2K players. The league is involved with several elite all-women 2K teams who are participating in Pro-Am 2K tournaments throughout the year.

We are very excited about the continued success and growth of the NBA 2K League, which has the long-term potential to enhance engagement and to be a driver of profits for our company..

Looking ahead, we have the strongest pipe -- development pipeline in Take-Two's history as well as significant potential to drive increased engagement and recurrent consumer spending. In addition, we are investing in a number of emerging opportunities that have the potential to enhance our growth rate.

Whether transitioning our audiences seamlessly onto new platforms, capitalizing on new business models and distribution channels or increasing our presence in emerging markets, Take-Two is exceedingly well positioned to generate value to consumers as well as growth and margin expansion for our company..

I'll now turn the call over to Lainie. .

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss our second quarter results and then review our financial outlook for the third quarter and fiscal year 2021. Please note that additional details regarding our actual results and outlook are contained in our press release..

Trilogy. Digitally delivered net bookings grew 14% as compared to our flat outlook and accounted for 83% of the total. This result exceeded our outlook, primarily due to the outperformance of our current consumer spending. During the second quarter, 59% of sales of current generation console games were delivered digitally, up from 51% last year..

Recurrent consumer spending grew 43% as compared to our outlook of 10% growth and accounted for 64% of total net bookings. This growth was driven primarily by NBA 2K, Social Point's mobile games, Red Dead Online and Red Dead Redemption 2 and Sid Meier's Civilization VI. .

GAAP net revenue was $841 million and cost of goods sold was $433 million. Operating expenses decreased by 7% to $293 million, due primarily to lower marketing expense. And GAAP net income grew to $99 million or $0.86 per share as compared to $72 million or $0.63 per share in the second quarter last year..

Now to our guidance, starting with the fiscal third quarter. We project net bookings to range from $675 million to $725 million compared to $888 million in the third quarter last year, which benefited from the launch of Red Dead Redemption 2 on PC and The Outer Worlds.

The largest contributors to net bookings are expected to be NBA 2K21, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Social Point's mobile games, Borderlands 3, Sid Meier's Civilization VI and PGA TOUR 2K21.

We expect digitally delivered net bookings to be down approximately 15% due to lower digitally delivered sales of Red Dead Redemption 2 on PC and The Outer Worlds, which launched last year..

Digitally delivered net bookings are projected to account for 82% of the total compared to 78% last year. Our forecast assumes that 71% of our current generation console in sales will be delivered digitally, up from 44% last year. We project recurrent consumer spending to grow by approximately 5%.

We expect GAAP net revenue to range from $760 million to $810 million and cost of goods sold to range from $291 million to $317 million..

Operating expenses are expected to range from $325 million to $335 million. At the midpoint, this represents a 4% increase over last year, driven primarily by the addition of Playdots, higher research and development and IT expenses, partially offset by lower marketing and stock compensation expenses.

And GAAP net income is expected to range from $128 million to $140 million or $1.10 to $1.21 per share..

Trilogy. We expect growth over the prior year from NBA 2K, Grand Theft Auto Online, Red Dead Online and Social Point's mobile games to be offset by lower results from Borderlands 3, Grand Theft Auto V and Red Dead Redemption 2. .

The largest contributor to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Social Point's mobile games, Borderlands 3, Sid Meier's Civilization VI and PGA TOUR 2K21.

We expect the net bookings breakdown from our labels to be roughly 55% 2K, 35% Rockstar Games and 10% Private Division, Social Point and Playdots. .

And we forecast our geographic net bookings split to be about 60% United States and 40% international. We now project digitally delivered net bookings to increase by approximately 15% as compared to our prior outlook of 3% growth. This growth is being driven by recurrent consumer spending and digitally delivered sales.

As a percentage of our business, digital is projected to represent 87% of net bookings, up from 82% last year. .

Our forecast assumes that 70% of current generation console game sales will be delivered digitally, up from 55% last year. We now expect recurrent consumer spending to grow by approximately 30% as compared to our prior outlook of 15% growth and to represent approximately 63% of net bookings as compared to 51% last year.

This growth is being driven primarily by NBA 2K, Grand Theft Auto Online, the addition of Playdots, Social Point's mobile games and Red Dead Online. We are increasing our non-GAAP adjusted unrestricted operating cash flow outlook to more than $650 million, up from our prior outlook of more than $500 million.

We plan to deploy approximately $75 million for capital expenditures. .

We expect GAAP net revenue to range from $3.05 billion to $3.15 billion and cost of goods sold to range from $1.44 billion to $1.49 billion. Total operating expenses are expected to range from $1.21 billion to $1.23 billion.

At the midpoint, this represents an 8% increase over the prior year driven by the addition of Playdots, higher headcount, research and development expense and charitable contributions, partially offset by lower marketing and stock compensation expenses.

And we expect GAAP net income to range from $372 million to $403 million or $3.22 to $3.49 per share..

In closing, fiscal 2021 is poised to be another year with record net bookings, despite a late release date.

With our industry-leading creative assets, sound financial foundation and unwavering commitment to operational excellence, our company is superbly positioned to navigate these uncertain times, capitalize on positive industry trends and to deliver strong results for our shareholders over the long term. .

Thank you. I'll now turn the call back to Strauss. .

Did you all hear that? Sorry, I apologize. Thanks, Lainie and Karl..

On behalf of our entire management team, I'd like to again thank our colleagues for their hard work, commitment to excellence and for delivering another exceptional quarter. To our shareholders, I would like to express our appreciation for your continued support, and we'll now take your questions and apologies for my failure with the mute button. .

[Operator Instructions] Our first question comes from Mario Lu with Barclays. .

Great. I have one on NBA and then one high level. So the one on NBA, The City does on next-gen was pretty amazing, and you're also bringing back affiliations, which is exciting. I believe this year is all the first time NBA 2K will have 2 different NBA seasons within 3 months of its release.

So with that being said, anything you could provide in terms of the lift unit sales from both The City and the second NBA season and their impact on its fiscal 3Q guide would be helpful. .

And then secondly, Strauss, just curious if you have updated thoughts on the overall subscription model within video games. I think I agree with you that subscription may not translate well in this industry since users only play a few titles a year. But we've seen recently companies like Microsoft push hard with its game pass subscription.

And then with the overall gaming audience expanding due to shelter-in-place and more casual titles like Fall Guys and Among Us being more popular.

So just curious if your stance has -- on subscription has changed at all?.

It's Karl. I'll take the first question on NBA. Obviously, yes, this is really the first time that we've got this kind of overlap in the season -- not only just our own, not only just the basketball seasons itself, but in our own game.

Obviously, with what Strauss has said before, it's had a really positive impact with us because the net bookings for our series grew 28%, and recurrent consumer spending grew, I think, it was 76%. So these are really incredible results, and it's really exciting, but it's a bit of uncharted territory.

And I can tell you that we couldn't be more thrilled about it. Because with the new platform coming out and with the NBA 2K21 being built from the ground up and also all of the new features that are coming up, well, I don't have specific lift numbers for you that are associated with The City itself.

Obviously, that was a huge commitment made by the team at Visual Concepts and the 2K, and we're really, really excited about it. And anytime you do come out with something that could be a game changer for any game, but specifically for our game, we tend to see really excellent results.

And we've already seen great results, and I think it's going to be even better when we launch our next-gen platform, and we're very excited about it. .

And Mario, regarding your question on subscriptions, no, I don't think our views have changed much. We're open-minded.

We're highly skeptical that subscriptions will be the only way or the primary way that interactive entertainment is distributed, and that's because of the way people consume it and the price point for owning a title, which is very reasonable and very, very low, actually on a per hour basis.

So I think it's unlikely that subscription sort of supplant frontline video game sales as the primary business model. Subscriptions can play a role in delivering catalog. We've supported numerous subscription offerings with catalog titles. I imagine we'll continue to do so.

And in any case, at the end of the day, the consumer will decide, and we will be where the consumer is. .

Our next question is from Eric Handler with MKM Partners. .

Wondered if you can give us any updates about your thoughts on pricing. You've announced NBA 2K is going to have a $10 price increase console versus console system or next-gen versus current-gen. How are you thinking with that? And then I'll have a follow-up question. .

Yes. Thanks, Eric. Pricing is determined on a title-by-title basis.

We already explained that the reason for the price that we set for NBA 2K21 for next-gen reflected the fact that there hasn't been a frontline price increase since 2005, and yet production costs have gone up 200% or 300% on the one hand, also because we believe we deliver vastly more value to the consumer than the price we charge, that's our goal at all times.

As I said, on a per hour basis, interactive entertainment is an incredible bargain, and the U.S. has the lowest frontline pricing of anywhere on earth. So we think it makes sense, and we believe consumers are fine with it as a result. .

Okay. And then as a follow-up, Playdots, looks like it's potentially a very nice tuck-in acquisition.

As you look at the M&A landscape, is there much out there for additional acquisitions? It seems like there's more mobile-type deals to be had rather than console-specific type companies, but I wonder if you could just give us some color on the M&A landscape. .

Look, we have seen an acceleration in M&A activity.

Obviously, Microsoft is acquiring Bethesda, for example, which is a significant, I believe, $7-some-odd billion transaction, and so I think you're going to continue to see increased M&A activity just because of the heat around the category and the amount of capital that's being deployed by big companies to pursue it.

From our point of view, we have almost $2.4 billion in cash. We have no debt, and we are anxious to build our business and aggressively doing so. And we use our capital to support organic growth, our primary story at Take-Two.

We also will use our cash to acquire companies when they're strategically consonant and when those deals are accretive, and we return capital to the shareholders on a regular basis through buybacks. And that'll continue to be our approach. .

Our next question is from Drew Crum with Stifel. .

For Strauss or Karl, can you comment on cross-platform play and how you think about this across your portfolio? And specifically, if the next-gen version of GTA V will feature cross-play? And then I have a follow-up. .

Joe, it's Karl. We do think about cross-play a lot. And I think for a lot of games that are out in the market that do support cross-play makes a lot of sense. It's certainly something that's very intriguing to us. It's something that we're capable of doing. And obviously, it's not just our decision alone, there's platforms involved as well.

We haven't made any specific announcements about cross-play. We are enabling certain cross-generational opportunities within our games. But in terms of cross-play, it's very interesting. I think it's from a player liquidity perspective, it can be a very compelling thing. But it also has some -- for some games, it also has certain limitations.

If you're cross-playing between mobile and console games, it's not always the best experience for everybody. So there are considerations that you have to make when making those types of decisions. But obviously, we do consider it, and it's a great opportunity for our industry, in general, going into this next generation. .

Got it. Okay. And Lainie, if I heard you correctly, you indicated the RCS would be up 5% in the December quarter.

Is that correct?.

Yes, that's correct. For the third quarter. .

Can you talk about the assumed deceleration and how that aligns with the timing of the big updates for Rockstar Online?.

So for GTA we have -- for Q3, we have it coming down in the third quarter versus last year. And when we look at GTA, we always sort of look at it being out for 7 years, and we think about the quarters going forward.

And since it's something that has been out for so long, we tend to forecast it as coming down each quarter, and it always beats our expectations. So when we go out into the future, that seems to be have -- we guide for that title. .

Okay. Okay. .

And the growth in the quarter is coming from the NBA title. .

Our next question comes from Mike Ng with Goldman Sachs. .

Modern Warfare, would it ever make sense to make a free-to-play component available for GTA or NBA 2K?.

Well, look, we're pretty open-minded. And at the same time, we deliver the highest quality experiences in the business, and we charge much less for them than we believe they are worth to consumers, and then we deliver typically an ongoing component that is free. And that's already a great deal of value. Any monetization, of course, is totally optional.

And unlike many sort of casual titles, the monetization is not necessary to enjoy the experience. It's an additional benefit, but there are no toll booths in any of our online games that are attached to our core games.

We have, on occasion, promoted our games very cheaply or in a couple of instances, free, which effectively means you have access to the online component free as a promotion, and I wouldn't rule out the possibility of doing that.

And of course, Rockstar has announced that GTA Online will be a stand-alone experience for next-gen coming in second half of 2021, and that it will be free for PS5 users for about 3 months..

So as you can see, we're open-minded about our business model, and I wouldn't rule out the possibility that at some point, certain experiences can become free as a matter of the entry point. I like what I consider sort of tethered free-to-play, where 100% of the people acknowledge the value of the title and pay to play it.

And on an ongoing basis, you have what is effectively a free-to-play experience attached that can go on for many years. Grand Theft Auto Online, of course, has been successful for 7 years and is expected to set a new record in this fiscal year, amazingly enough.

I think that you're also implying another question, which is some of our competitors have taken legacy IP and created stand-alone mobile free-to-play titles related to that IP and branded that IP. And we have not done that yet, and we have not announced any plans to do it.

And in the world in which we would do it, of course, would be when our labels are excited by the opportunity creatively and when we think we can deliver something to consumers that's absolutely stellar. .

Our next question is from Gerrick Johnson with BMO Capital Markets. .

On NBA 2K, I have a 2-part question. So you decided to not offer free upgrades on the current to next-gen, but you did release Mamba Forever dual access for $100.

So what did you see people do? Do you see people mix up immediately to Mamba Forever or maybe delay the purchase of 21 until next-gen comes out, so maybe we see a second wave?.

I mean I don't have any specifics to share -- this is Karl, by the way. I don't have any specific -- it's a great question. I don't have specifics to share with you about what activity we've seen.

And by the way, it's kind of hard to know because we're still pretty early in it, and we've sold already 5 million units, and we've had lots of nice action around all of our SKUs, but we don't know what people would otherwise be doing.

So it's sort of hard for us to know whether people are waiting or whether they're going for the Mamba now or they're just buying the current gen and they'll buy the next-gen later or just buy current gen.

It all remains to be -- it's a little bit of uncharted territory, and it remains to be seen, but what we were very gracious for and proud of is the fact that the activity and the engagement around what we've seen so far has been incredible. So no matter how much it breaks down by SKU, I think we're looking at a really good release for NBA 2K21. .

Okay. And by the way, there's $100,000 worth of virtual currency in Mamba Forever.

So how much of that contributed to the 76% recurrent consumer spending growth in NBA?.

We don't share that level of detail. .

Our next question is from Brian Nowak with Morgan Stanley. .

It's Matt on for Brian. So kind of following up on The City content in NBA 2K.

Are you seeing any new types of behavior, particularly in the last few months inside of the games, whether it's people socializing more rather than just playing games or kind of like new use cases that you're noticing players eke out and is The City's kind of an opportunity to expand on that and sort of like keep users stickier by adding new sorts of in-game activities?.

And then just secondly, I was just wondering if you could provide an update on the progress with some of the newer studios like 31st Union and Cloud Chamber.

Is everything in place to sort of hit the pipeline you guys shared earlier this year?.

Matt, it's Karl. In terms of The City, I think the real quick answer to the question is, really since The Park came back out in '14, we've seen more social activities in NBA, generally speaking. And as the environment has got more sophisticated and there is more things to do, that social activity has been increasing all along.

And you see big jumps in that as well. When you come out -- when we move from The Park to the neighborhood, we saw a market difference in how people play in the game. You create events. People create their own events within the communities themselves.

And the more that you give -- more that you content you give within these communities and within these spaces, within these worlds, it encourages people to spend more time there.

And that's a really great thing from an engagement perspective because, number one, I think it does actually, people love it and driving engagement also drives economics for us, and that's one of our objectives. So building out The City was a huge endeavor that VC took on. We think it's going to be really well received.

We think people are spending a lot of time in The City, and it really will take that whole concept of open world social gaming to another level in the context of NBA. So we're very excited. .

Yes, in terms of how things are going at our studios, particularly in our new studios, the answer is very, very well. We have an extraordinary pipeline. We've doubled our prior pipeline of releases over the next 5 years. You mentioned 2 of our studios, I'd really talk about all of our studios, and there are many now.

And everything is looking great and is on target. We do not expect to see any slippage. And while I think working from home is really tough, and I admire our colleagues for doing such a great job doing it. It isn't the same as being in the office and yet we have not seen any slowdown in our expected cadence of releases. .

Our next question is from Todd Juenger with Sanford Bernstein. .

One sort of high-level one and then one housekeeping. The higher-level one, just following on, you've been asked so far about subscription and free-to-play and really every permutation of business model and platform.

I'm going to ask sort of the mobile question version of that, if you don't mind, especially given you've seen some other AAA publishers be very aggressive, and you could argue successful in taking what used to be console IP, finding a big home for it, relatively big home for it in mobile.

When you start to think about the role of mobile across your IP portfolio and studios, I wonder if you have any big ideas there, I think that fits for any of your big IP? And if so, do you have the sort of resources you need in-house to make that sort of development effort?.

And then the super quick one is, if you don't mind, so I know typically you guys aim to release a AAA frontline title generally every year outside of U.K. NBA 2K, you didn't have one this year.

I wonder when you look at next year, do the remastered versions of GTA and RDR, does that fit your definition of a AAA console release or not?.

Yes, thanks.

In terms of the portfolio of owned intellectual property, which we're very proud, we have 11 franchises that have sold over 5 million units with an individual release and over 60 that have sold over 2 million units, and they're some of the most extraordinary franchises in the entertainment business, never mind, the interactive entertainment business.

I think I alluded to this earlier, we wouldn't rule out the possibility of making a stand-alone mobile title based on that intellectual property. It would be driven by the label's creative desire to do so in a belief that we can do an extraordinary job at it.

We have a lot of talent in the mobile space now at numerous labels, Playdots, Social Point, 2K and others. And I don't doubt that we could put together the resources for the properties that make sense. So stay tuned on that topic. It is not lost on us that the biggest hits in the mobile business are native to the mobile business.

They are not based on licensed IP, they're not based on console IP. The biggest hits are native to the business..

And in terms of our ongoing lease schedule, we haven't said very much at all about fiscal '22. We have said that GTA Online and GTA V are coming for next-gen in the second half of calendar '21. We said the Kerbal Space Program 2 is coming in fiscal '23, but we will be talking about our release schedule for '22 in due time.

And our goal remains the same, but it's too early to comment on what the release schedule will look like. .

And to answer your question specifically, Todd, about the platform extensions and whether we consider them the part of our core gaming experience, we do. So we did say before the 93 titles, 63 that we mentioned that are in our pipeline, which is more than double what it was 5 years ago, by the way.

63 of those are core gaming experiences, and that includes 15 platform extensions. .

[Operator Instructions] Our next question is from Alex Giaimo with Jefferies. .

Strauss, I think the messaging recently has been -- has still been for growth from the company as we think about next year, as we think about fiscal '22.

Does that change at all as you continue to beat and raise expectations this year and the comp gets any more challenging or is the expectation still for growth next year?.

So for fiscal year '22, given that we now expect net bookings of over $3 billion this fiscal year, it's too early to predict whether our business will grow next year. Our results this year have benefited from sheltering-at-home, and it remains to be seen whether that will continue to last into next year.

So it's just a little bit too early to call at this point. .

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Strauss Zelnick for closing comments. .

Thank you very much. On behalf of everyone at Take-Two, I'd like to wish you all a very happy and healthy holiday season. These are extraordinary times, and I wish you all the best through them. And once again, I'd like to thank all of our colleagues for their incredible work and for these extraordinary results. Have a great evening. .

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation..