Take-Two Interactive Software, Inc.

Greetings and welcome to Take Two Interactive Software, third quarter fiscal year of 19 earnings call. At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Hank Diamond, Senior Vice President of IR and Corporate Communications. Please go ahead Mr. Diamond.

Good morning. Welcome and thank you for joining Take Two's conference call to discuss its results for the third quarter of fiscal year 2019 and the December 31, 2018. Today's call will be led by Stroud Belnik, Take Two's Chairman and Chief Executive Officer, Carl Sladoff, our President, and Lainey Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our findings with the SEC, including the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, including the risk 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 -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. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at .take2games.com. And now I'll turn the call over to the press.

Thanks, Hank. Good morning and thank you for joining us today. I'm pleased to report that during the third quarter, Take Two delivered better than expected results, driven primarily by the record-breaking launch of Red Dead Redemption 2, as well as the strong performance of NBA 2K19. We generated significant cash flow and ended the period with $1.6 billion in cash and short-term investments after deploying $109 million to repurchase 1 million shares of our stock. On October 26th, Rockstar Games launched Red Dead Redemption 2, which set numerous records, including achieving the biggest opening weekend in the history of entertainment with over $725 million in sell-through during its first three days. In fact, Red Dead Redemption 2 sold in more units in its first eight days than its predecessor sold in its first eight years. The title has exceeded our expectations and to date has sold in over 23 million units worldwide. According to the MPD Group, based on combined physical and digital sales in the U.S., Red Dead Redemption 2 was the best-selling video game of 2018. A testament to Rockstar Games' unparalleled ability to create the highest quality entertainment experiences, Red Dead Redemption 2 received near-perfect critical reviews and multiple Game of the Year awards. The titles tied with Grand Theft Auto V are the highest rated title on PlayStation 4 and Xbox One with a 97 Metacritic score. In late November, Rockstar Games launched the Red Dead Online Beta, a new multiplayer experience set against the backdrop of Red Dead Redemption 2's enormous and vibrant open world. Free with the purchase of Red Dead Redemption 2, the Red Dead Online Beta is an evolution of the classic multiplayer experience in the original Red Dead Redemption, blending narrative with competitive and cooperative gameplay in fun new ways. Rockstar Games continues to refine the vast world of Red Dead Online and will deliver ongoing updates to grow and evolve this experience. I'd like to congratulate the entire team at Rockstar Games for the phenomenal critical and commercial success of Red Dead Redemption 2. Grand Theft Auto Online and Grand Theft Auto V remain significant contributors to our results more than five years after their launch. During the third quarter, Rockstar Games supported Grand Theft Auto Online with the Arena War update as well as Festive Surprise 2018, Halloween themed content, and more. During December, combined monthly active users across Grand Theft Auto Online and Red Dead Online took Rockstar to a new record. Rockstar Games will continue to support both products with innovative new content in order to drive engagement and recurrent consumer spending. We're very excited for the future of these two highly robust ongoing living game worlds. Turning toward industry leading basketball simulation, NBA 2K19 exceeded our expectations in the third quarter, driven primarily by strong growth and recurrent consumer spending. Sales of the game also surpassed our outlook. We now expect lifetime unit sales of NBA 2K19 to be slightly up over the prior year's release. According to the MPD Group, based on combined physical and digital sales in the US, NBA 2K19 was the best selling sports title in 2018 and the third best selling game overall. In addition, 2018 marks the third consecutive year that an NBA 2K title was the best selling sports game of the year. An important part of NBA 2K's success has been the increase in engagement over the prior year's release. In addition, NBA 2K19 has generated more than 50% growth in online multiplayer games per day and both daily active users and the number of games that they play have also increased meaningfully. We've also seen significant increases in engagement with the MyTeam mode for NBA 2K19, with daily average users up to 28% and games played up 46%. On average, nearly 12 million games of NBA 2K19 are being played daily, which reflects the many enhancements that 2K and visual concepts introduced this year. As a result of this strong engagement, recurrent consumer spending on NBA 2K grew 39% in the third quarter to a new record and was the largest single contributor to recurrent consumer spending in the period. We expect the net bookings from NBA 2K19, including recurrent consumer spending, will be the highest ever for a 2K sports title. On January 15th, 2K announced a significant multi-year partnership expansion with the NBA and the Players Association. The NBA has been an outstanding partner and we're thrilled to be in business with Adam Silver, Michelle Roberts and their teams and we're very pleased with the terms of our partnership expansion, which enabled NBA 2K to continue to grow and be highly profitable, both for Take-Two and the NBA. We have a broad range of basketball offerings across console, PC, mobile, online in China and eSports, and I'm confident that we'll continue to find new and innovative ways to captivate and engage fans and expand further the success of the NBA 2K brand. In early October, 2K launched WWE 2K19, the latest installment in our popular sports entertainment series. Developed collaboratively by Ux and Visual Concepts, the title received improved reviews and has been supported with a series of downloadable content, including the season pass. The WWE brand continues to expand worldwide and we believe there remains a substantial long-term opportunity to grow our WWE 2K series by leveraging further the development expertise of 2K and Visual Concepts. Our third quarter results were also enhanced by a variety of other offerings, led by Social Points mobile games, Sid Meier's Civilization VI for the Nintendo Switch, which significantly exceeded our expectations, and WWE SuperCard. At Take-Two, our goal is to serve our audiences by delivering the highest quality entertainment that exceeds expectations in terms of the value they receive from both the money and time that they spend on our products. If we deliver on that goal consistently, we'll engage our customers and provide returns for our shareholders over the long term. A hallmark of our approach is finding new and exciting ways to drive engagement through creativity and innovation. The execution of this philosophy results in our audiences remaining immersed in our titles well after their initial launch and has been a key driver of our ongoing success. This is reflected in the strong growth in engagement and recurrent consumer spending on our titles over the past several years. During the third quarter, recurrent consumer spending exceeded expectations, growing 31% to a new record and accounting for 22% of total net bookings. The biggest contributors to this outperformance were strong sales of the Red Dead Redemption 2 Special Edition and Ultimate Edition, which include additional content that is allocated to recurrent consumer spending along with robust growth in recurrent consumer spending on NBA 2K. In addition, recurrent consumer spending was enhanced by a variety of other offerings. In the -to-play category, SocialPoint once again was a significant contributor to our results through its two biggest mobile titles, Dragon City and Monster Legends. During the third quarter, combined net bookings from these titles grew sequentially. Recurrent consumer spending at WWE SuperCard grew double digits, netted platform fees, and 2K released the fifth season of its popular card battle game and several content updates. WWE SuperCard has now been downloaded nearly 18.5 million times and is 2K's highest-grossing mobile title. And net bookings from NBA 2K Online in China more than doubled, driven by the launch of NBA 2K Online 2 in August. Total combined registered users for NBA 2K Online 2 and its predecessor currently stand at 43 million, and the franchise remains the number one TT Online Sports game in China. Asia remains a significant long-term growth opportunity for our business. We're very encouraged by recent developments in China. Add-on content grew 9% led by offerings for Sid Meier's Civilization, WWE 2K19, and XCOM 2. As a result of our strong performance in the third quarter, we're increasing our outlook for fiscal 2019. Our long-term success has been the result of our creative team's ability to connect deeply with audiences across the myriad of platforms and offerings. As our industry continues to embrace new technologies that enhance consumers' experience with and access to interactive entertainment, we remain focused on broadening the reach of our content and expanding further globally. Take two is a better position than ever creatively, strategically, and financially to capitalize on the vast opportunities that will shape the future of our business and our industry. I'll now turn the call over to Karl.

Thanks, Riles. Today I'll begin by discussing our recent and upcoming releases for the balance of fiscal 2019. On January 31, SocialPoint launched Tatey Count, our latest -to-play mobile offering for iOS and Android devices. This all-new game enables players to fulfill their culinary dreams of designing and managing their own restaurant. In Tatey Count, players embark on an incredible journey from farm to table to build their gastronomic empire, including experiencing the joy of growing their own ingredients, hiring the best chefs, creating delectable dishes, creating and managing their own restaurant, and racing against the clock to serve meals with their food truck. In addition to Tatey Count, SocialPoint is focused on its robust pipeline of other exciting new games in development. On February 14, 2K and Firaxis Games will release Sid Meier's Civilization VI, Gathering Storm, the second expansion pack for the critically acclaimed and award-winning PC strategy game. Gathering Storm, the largest civilization expansion that Firaxis has ever created for any civilization game, will allow fans to explore and master the franchise's rich and strategic gameplay in all new ways. Gathering Storm also adds nine new leaders from eight new civilizations, a new diplomatic victory condition, and a variety of new units, districts, wonders, buildings, and more. This spring, 2K and Cat Daddy Studios will bring NBA 2K Mobile to Android devices. Downloadable for free, NBA 2K Mobile was released for iOS on November 19 and delivers console-quality graphics and lifelike NBA action on the go like never before. NBA 2K Mobile lets gamers experience their favorite NBA moments, collect player cards to build dream teams, and step onto the court in -on-5 matchups, including season play and a variety of game modes. The team at Cat Daddy Studios strives to match the quality bar set by our industry-leading basketball series, and we are excited to deliver this rich mobile experience to basketball fans around the world. Rockstar Games will continue to release an array of new content for both Red Dead Online and Grand Theft Auto Online. Given Rockstar Games' unique ability to keep consumers engaged by delivering innovative content and exciting new modes of play, we believe Red Dead Online is positioned to deliver continued growth and player engagement over both the short and long term. Turning to eSports, preparations are underway for the second season of the NBA 2K League that will kick off this spring. Last month, qualifying rounds began with more than 7,000 players across North America and Europe vying for a spot in the Combine and Draft. This past weekend, in a league first, an Asia-Pacific tournament was held at Hong Kong to identify five elite players from the region who will be eligible for the 2019 draft coming soon. With 21 teams competing this season, we are very excited about the continued progress and growth of the league, which has the long-term potential to enhance engagement and to be a meaningful driver of profits for our company. Now I would like to discuss our fiscal 2020 pipeline. At the Game Awards in December, Private Division announced The Outer Worlds, an upcoming new IP from Obsidian Entertainment that is coming to PC, PlayStation 4, and Xbox One. The Outer Worlds marks the reunion of Tim Cain and Leonard Wojarski, the original creators of Fallout, for this new single-player sci-fi RPG from the renowned team behind Fallout New Vegas, Star Wars Knights of the Old Republic 2, South Park, The Stick of Truth, and The Pillars of Eternity franchise. The announcement trailer for The Outer Worlds has tallied more than 12.6 million views, and the game is featured on this month's cover of Game Informer Magazine. Also at the Game Awards, Private Division announced that Ancestors, the Humankind Odyssey, will launch digitally on PC, PlayStation 4, and Xbox One in calendar 2019. Following the Game Awards, Private Division partnered with GameSpot to review the first 25 minutes of the game, which has been viewed more than 2.4 million times on GameSpot's YouTube channel. Ancestors is being developed by Panache Digital Games, an independent studio of 35 talented developers in Montreal, co-founded by Patrice Desaway, original creative director of Assassin's Creed. In addition, Private Division will continue to release updates for new content for the Kerbal Space Program, enhanced edition for Xbox One and PlayStation 4, as well as for the PC version. Going forward, Private Division will seek to add to its already impressive roster of development partners throughout the world, and we look forward to its future announcements. In addition, the unannounced title from one of 2K's biggest and most beloved franchises remains on track for launch during fiscal 2020. 2K will have more to share in the coming months. In furtherance of our goal to expand our development capabilities across our labels, on Monday, 2K announced the formation of a new development studio based in Silicon Valley. Industry veteran Michael Condry will serve as president of this -officially-named new studio. Michael is best known for co-founding Sledgehammer Games and leading development for the Call of Duty franchise, including Call of Duty Modern Warfare 3. Michael also served as chief operating officer and director of Visceral Games, where he played an integral role in establishing the popular Dead Space franchise. We are very pleased that Michael has joined our team to lead development on a new, unannounced project. We are confident that Michael's creative, production and leadership expertise will help position 2K for future success. Looking ahead, our labels have a strong development pipeline which includes titles from our renowned franchisers and groundbreaking new intellectual properties. We will continue to support virtually all of our titles with additional content designed to enhance players' gameplay experience and drive engagement. This is an incredibly exciting time for our company and industry. The promise of new technology, more powerful platforms and emerging distribution and business models, such as streaming and subscription services, all have the potential to enhance our growth rate and provide incremental margin expansion opportunities. We remain highly enthusiastic about our future and believe that with our industry-leading creative assets and commitment to innovation, we are well positioned to capitalize on the many positive trends in our industry and to provide value to our customers and returns for our shareholders over the long term. I will turn the call over to Lainey.

Thanks, Carl, and good morning, everyone. Today I will discuss our third quarter results and then review our financial outlook for the fourth quarter and fiscal year 2019. Please note that additional details regarding our actual results and outlook are contained in our press release. As Shrauz mentioned, our business delivered better than expected results in the third quarter. In the fourth quarter, total net bookings grew 140% to $1.57 billion, a new quarterly record and exceeded our outlook range of $1.4 to $1.45 billion, due primarily to the outperformance of Red Dead Redemption 2 and NBA CJ19. Digitally delivered net bookings also exceeded our forecast, growing 85% to a new quarterly record of $704 million and accounted for 45% of the total. During the third quarter, 31% of our sales of current generation console games were delivered digitally, up from 26% last year. Turning to some details from our third quarter income statement, gap net revenue increased to $1.25 billion and cost of goods sold increased to $898 million. Operating expenses increased by 46% to $299 million, due primarily to higher marketing spend. And gap net income was $180 million or $1.57 per share, up from $25 million or $0.21 per share in the prior year period. Gap net income included $109 million tax benefit, resulting from the release of certain valuation allowances on the company's deferred tax assets. Without the release of these valuation allowances, the gap tax benefit would have been $11 million. This had no effect on our management reporting tax rate, which is 20%. Our strong performance converted into significant cash flow. During the nine months ended December 31, non-gap adjusted operating cash flow grew 188% to $587 million. During that same period, we deployed $262 million to repurchase 2.6 million shares of K-2 stock. And as of December 31, we had $1.6 billion in cash into our term investment. Now we will review the highlights of our fiscal 2019 outlook, starting with the fiscal fourth quarter. We expect net bookings to range from $450 to $500 million, up from $411 million in the fourth quarter last year. The increase is being driven primarily by ongoing sales of Red Dead Redemption 2, recurrent consumer spending on Red Dead Online, and growth from NBA 2K, partially offset by lower results from Grand Theft Auto Online and Grand Theft Auto V. The largest contributors to net bookings are expected to be NBA 2K19, Red Dead Redemption 2, and Red Dead Online, Grand Theft Auto Online and Grand Theft Auto V, SocialPoint's mobile offerings, and WWE 2K. We expect both recurring consumer spending and digitally delivered net bookings to increase by around 10% each. Our forecast assumes that 44% of our current generation console game sales will be delivered digitally. We expect gap net revenue to range from $530 to $580 million, and cost of goods sold to range from $248 to $274 million. Operating expenses are expected to range from $205 to $215 million. At the midpoint, this represents a 21% increase over last year, driven primarily by higher marketing expense. And gap net income is expected to range from $76 to $89 million, or $67 to $77 cents per share. Turning to fiscal 2019, we are increasing our outlook primarily as a result of our strong as unexpected third quarter results, partially offset by the following factors. We believe that some of the forecasted sales of Red Dead Redemption 2 were accelerated into the third quarter. We have adjusted our fourth quarter expectations accordingly. Even with this adjustment, we expect fiscal 2019 sales of Red Dead Redemption 2 to be significantly higher than our forecast prior to launch. We expect new content releases for Red Dead Online to accelerate in the first quarter of fiscal 2020, and therefore we are shifting some of our net bookings expectations for the title into that period. And we have increased our marketing spend forecast for the fourth quarter. We are increasing our net bookings range from $2.89 to $2.94 billion, up from our prior outlook of $2.8 to $2.9 million. At the midpoint, this represents a 46% increase over fiscal 2018. Driven primarily by the launch of Red Dead Redemption 2 and expected growth in the NBA 2K, which we forecast to be partially offset by lower results from Grand Theft Auto 5 and Grand Theft Auto Online. The largest contributors to net bookings are expected to be Red Dead Redemption 2 and Red Dead Online, NBA 2K, Grand Theft Auto Online and Grand Theft Auto 5, WWE 2K, and SocialPoint's mobile offerings. We expect the net bookings breakdown from our labels to be roughly 60% Rockstar Games, 35% 2K, and 5% SocialPoint and other. And we forecast our geographic net bookings splits to be about 55% United States and 45% international. We are increasing our recurrent consumer spending outlook to growth in the mid-teens, and we are maintaining our 30% growth outlook for digitally delivered net bookings. We forecast that 37% of our current generation console games will be delivered digitally, up from 34% last year. We expect to generate approximately $740 million in adjusted operating cash flow, up $10 million from our prior outlook, and we plan to deploy approximately $60 million for capital expenditures. We have increased our gap net revenue outlook to range from $2.66 to $2.71 billion, and we expect cost of goods sold to range from $1.51 to $1.54 billion. Total operating expenses are forecast to range from $921 to $931 million. At the midpoint, this represents a 22% increase over the prior year, driven primarily by higher marketing, personnel, IT, and R&D expenses. And we have increased our gap net income forecast to range from $354 to $367 million, or $3.07 to $3.18 per share. For management reporting purposes, we expect our tax rate to be 20%. In closing, Take-Two is on pace to deliver one of its best years ever, highlighted by record operating results. Looking ahead with our world-class creative teams, focused on operational excellence, and strong financial foundation, our company is exceptionally well-positioned to deliver growth and margin expansion for our shareholders over the long term. Thank you. I'll now turn the call back to John.

Thanks, Lightning and Carl. On behalf of our entire management team, I'd like to thank our colleagues for their hard work in delivering another successful quarter. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Thank you. If you'd like to ask a question, please press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to move your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is coming from the line of Ryan G. with Barclays. Please proceed with your question.

Yes, hi. Good morning, everyone. Thanks for taking my question. I guess, you know, first on recurring consumer spend, it grew 31% in the quarter versus your guidance for flat. So clearly, you know, several products outperformed, and GTA Online and NBA 2K amongst them. So can you talk about the deceleration in 4Q? I know you mentioned Red Dead Online, you know, a little bit of that shifting to fiscal 20, but I'm curious why you wouldn't come out maybe a little bit more optimistic around that business given how well it performs. And then second, if I may, you know, I believe you said Red Dead sold in 23 million units, and that's probably as of today. So with, you know, roughly two months left in the quarter, what should we expect in terms of reorder demand or how's the channel looking at this point? Thanks.

So for recurring consumer spend in Q3, the app performance was driven by the strong sales of Red Dead Redemption 2 Special and Ultimate editions, which includes additional content that was allocated to recurring consumer spending, as well as growth from NBA 2K's virtual currency. In terms of Q4, we still expect NBA 2K to continue to grow, and that's being offset by lower GTA Online sales that we've talked about being lower this year, and it was lower in Q3 and in Q4. Now for Red Dead Redemption, you know, we still have, you know, strong sales and strong demand for the title. The 23 million units in Q3 was, you know, higher than what we expected, and, you know, based on that, we accordingly adjusted Q4.

Thank

you. Our next question

comes from the line of Tim O'Shea with Jefferies. Please receive your question.

Yes, so thank you for taking my question. My question is just about business models, especially free to play. EA just launched Titan Follipacks Legends. It's the same free model that Fortnite uses, and I'm just curious if you could help us understand how full price games can perform in an environment where AAA content is being given away for free. And as you look at your portfolio, what do you think is the right mix of business models going forward in terms of subscription, free to play, full price, et cetera? Just love to get an updated, hear your updated thoughts on that. Thank you.

Well, I appreciate it. But just in terms of console title being made available free to play, remember that Fortnite came about in a roundabout way. It was originally developed as a AAA game, and the free to play version that became such a huge hit and continues to perform well was actually originally a mode and then was developed into what it is now. I think that's sort of a stand-alone experience. I think it's hard to replicate, and it would probably be ill-advised to try to replicate it. The truth is that when you deliver an amazing AAA experience, consumers show up for it. And you've seen that with us over and over again, and you see it in these results, with the extraordinary results of Bed, Dead Redemption 2, the continuing amazing result of Grand Theft Auto V, and the results of our catalog, which sell pound for pound better than anyone else's catalog, which say units sold per SKU were the best in the business, or more recently NBA 2K19. So what we found is you give consumers what they want, and that's often reflected in reviews and Metacritic scores. And they read Dead Redemption 2, tied Grand Theft Auto V with a 97 score. They'll show up, and they show up in quantity. So I'm not worried at all about someone else establishing a free to play approach, as long as our quality continues to be stellar. And that's a very big as long as. That's what we have to execute against every day. Consumers aren't actually super price sensitive where entertainment is concerned. Or said another way, if we put out something that people don't want, you can kind of price it at whatever price you want. They're not going to show up for it. I wish it were different, but it's not like selling groceries or commodities. And when you give someone something that's phenomenal, it's our job to deliver vastly more value than what we charge, but price sensitivity declines. So I think this is all about quality. That's our approach, and that's why we're delivering these extraordinary results.

Thanks, Strauss.

The next question is from the line of Michael Eng with Goldman Sachs. Please receive your questions.

Great. Thank you for the time. I have three questions, one for Strauss, one for Collin, one for Laney. First, Strauss, I was just wondering if you could comment on the new development studio in Silicon Valley. Is there a rule of thumb in terms of how long it takes for a studio like that to ramp up, and when could we start seeing content coming out of that studio? And then for Carl, I was just wondering if you could comment on the promotional environment during the holiday. Was Red Dead more promoted than expected in the quarter? And then lastly for Laney, I think the previous full year RCS growth was for low teens, and based on the expectation for flat this quarter, I think that would have implied over 30% growth for the March quarter. Could you just talk about what changed from then to the updated view of 10% growth this quarter? Thank you.

Hi Mike, this is Carl. I'll take the first

question. So we are very excited to bring Michael Condry on board for us. It really follows our pattern of trying to attract and retain and develop the best talent in the industry. That's obviously something that's a very important part of our strategy, and we've been able to do that to date, and it's not by accident. So Michael joining us is, in my opinion, one of our best hires in a very long time. I'm really excited what he's going to do with the new studio. In terms of timetables, we're not talking about timetables, and frankly, every studio is different, and every game is different, so it wouldn't really help much anyway if I said something now, because it won't end up being that way. But just to rest assured that this is something that's very exciting for 2K and for our company.

Yeah, and on the second question, look, Red Dead is flying off the shelves. We sold in over 23 million units. It's performing vastly better than our expectations. It's continuing to sell. It's a massive hit. We definitely have marketed the title, but if I promote it, you mean discounted. We did not step in and have to price promote the title. The title is, generally speaking, being sold at full price.

And for the Q4 on recurrent consumer spending, as I mentioned previously, we looked at Red Dead Online. We expect their new content releases to accelerate into the first quarter, so we shifted some of the net bookings expectations for Red Dead Online into that period.

Okay, understood. Thank you. That was very helpful.

The next question comes from the line of Justin Post with Merrill Lynch. Please receive your questions.

Great. Thank you. A couple on Red Dead. First, congrats on the great launch. When you look at sales since launch and the first couple weeks, how have they trended versus other Rockstar titles? And I'm really trying to get at the reorder potential next year. And then online with Red Dead, are you seeing incremental players to GTA? You mentioned in your prepared remarks the total high has grown as far as the number of players. Can you give more color on that? And how do you feel about the online potential as you look at 2020 as far as recurrent spend for the title based on the users you're seeing today? Thank you.

So, we wouldn't really compare Red Dead to the last release, which is Grand Theft Auto. Grand Theft Auto stands alone. It is the most important product in entertainment history, the highest grossing product in entertainment history. And it's just phenomenal. Red Dead Redemption 2 is also phenomenal in its own way, and the sales have vastly exceeded our expectations. But I don't think we've learned much by tracking those sales to sales of any other release. Our expectations remain exceedingly high. Consumers are highly engaged. The title is continuing to sell actively. In terms of online, and I'm sorry, in terms of the outlook, you know, this is again vastly exceeding our expectations and we expect it to continue. Of course, that's very hard to call. And that would be driven by the consumers, but we feel great about it. In terms of online players that we've seen so far, remember Red Dead Online is in beta. It's really early days. It seems to be developing incredibly well for early days, but it is early days. We have no reason to believe that the overlap between Grand Theft Auto Online players and Red Dead Online players is necessarily substantial. Certainly nothing approaching 100%, which is implied in your question. So the answer is absolutely there are plenty of new players and we expect that to continue as well. And as we mentioned in our prepared remarks, in December Rockstar Games had the highest level of monthly active users ever had between Grand Theft Auto Online and Red Dead Online. So I think that tells you just how powerful this offering is. Look, stay tuned because the title comes out of beta, obviously. We've got a lot of content to come and we expect a pickup activity with content drops and then naturally monetization should follow accordingly in fiscal 2020.

Thank

you. The next question comes from the line of Brandon Ross with BTIG. I'll just use your questions.

Hi. Just a follow up on Red Dead Online. I mean, obviously, as you keep saying, it's still in beta. Can you talk about what you're seeing in the beta, what changes need to be made before you really launch the online game and how you compare the player behavior to GTA so far? And then I have a follow up.

Yeah, thanks. Look, Rockstar is going to talk about that in more detail. But I think as you'd expect, what's great about being in beta is you get feedback from your consumer and you're able to make improvements. And we've made no bones about the fact that this is a work in progress. Granted, I thought online was a work in progress. We listened to the market. We listened to consumers and we developed a great offering. One of the most exciting things about the way our business has evolved from what it was five, six years ago, you know, you work really hard, you make a title, you launch the title and you get great results, good results, bad results, but you're done. You know, there's very little you can do. And so in an online environment, we can engage with the consumer and we can get better and better and better. And you've seen the effects of that with Grand Theft Auto Online five years after its initial launch. It continues to show enormous engagement and therefore it also delivers networkings to us and drives profitability. So we have high hopes and expectations for Red Dead Online. It's super early to say that and more details will be forthcoming from the label.

Okay. And then just bigger picture industry question. We've seen some focus from the tech giants lately, Amazon, Google, obviously a lot more from Microsoft on video games streaming and subscription. How do you expect their focus to affect content creators and publishers like yourself? And do you expect that they will look to acquire content? Thanks.

So remember, streaming is a distribution technology, subscription is a business model of completely different animals. We could have a subscription program right now. You could do it with physical disks. That's after all how Netflix started with physical disks. So there's nothing magical about new technology with regard to a subscription business model. Will that business model develop? It will develop if it's really good for consumers and it's really good for people who create products. So it has to be good for both. And remember, people consume video games differently than they consume linear programming. So the average American household consumes about five hours of linear programming, what we used to call television programming, but through all sources, a day about 150 hours a month. And currently they consume about an hour and 20 minutes of interactive entertainment programming a day. So about 45 hours a month. Very big difference. And of course the biggest difference is with regard to linear programming, you're very unlikely to watch something twice. So in a given month, at five hours a day, you could be watching 75, 100, or depending on the length, maybe more than that, different products. In the case of the video game business, people may play the same title for the entire month. Maybe they play two or three titles, but they're not engaging with 75 or 100 titles. So you have to ask yourself whether a subscription model really applies to a video game consumer versus the possibility of engaging with a free to play title and paying as you go, or engaging with a title for which you pay, for example, like NBA 2K19, where you pay a meaningful price in the U.S., about $60 at retail, a little bit more outside of the U.S., but you might play that game for a year. And we have people stay engaged for a year. And it's a terrific deal if you stay engaged for that. So, jury's out on subscription models, but I would observe our strategy is to be where the consumer is. So if subscription models do make sense, could be an opportunity for us, but they need to make sense for everyone involved. Let's turn to streaming technology. Streaming technology should be an opportunity to bring interactive entertainment with virtually no friction to all devices in the world. Are there barriers to that? Yes, there are enormous technical barriers because you have to actually do that with low latency in a multiplayer environment. So that if Lainey's sitting here in New York and she's on a Dell computer and I'm in London on my iPad, we have to be able to play together. And we have to be able to play together without reducing the quality of the gaming experience. Is that doable? Technically, I believe it will become doable. Currently, it is not doable. How many companies can actually deliver such an experience? Well, you need to have hyperscale data centers all around the world. Who has that? Google has that. Facebook has that. Amazon has that. Microsoft has that. Very few other people have it or are going to have it. That gives you a sense of who can be a player in streaming. What will the streaming model look like? Remains to be seen. My guess is it will look a lot like providing Internet access over cable. Everyone here is a cable customer if you have Internet access at home. I believe that ultimately if you want to get streamed video games, you're going to be a customer of someone who provides streaming. But in order for you to play those games, you have to interact with us and that business model has to appeal to us. There are those who believe by making available our video games to a broad audience that we will automatically increase the size of our market accordingly. I wish I could take that position. I'm not sure I can, but I would observe any time you broaden distribution, it's a good thing for a provider of the products.

Thanks so much.

The next question is from the line of Ray Steltschel with Consumer Edge Research. Please proceed with your question.

Great. Thanks for all the color on the call so far and thanks for taking my question. I'm trying to think about how we should think about your commentary related to Red Dead Online and whether the shift in bookings is more related to a content drop or more related to your expectations for Red Dead Online overall and how that's tracking. And then I would like any commentary if possible on if the recent content drops for GTA Online overall were better or worse than your expectations and then overall whether or not this content drop was actually meant to be a little bit smaller year over year when we take a look at it versus the doomsday heist. It seems as if it's a little bit less content, but would love any opinion on your end.

Thanks. Okay. So first of all, Red Dead Online early days is going great. Our expectations for what will happen in 2020 are driven by enhanced content drops. We feel terrific about it. It is, however, early days. In terms of how GTA Online is doing, it's performing in line with our expectations. The only difference this year versus prior years is we've had expectations. The title would moderate in prior years and we were pleasantly surprised with the upside. We're still incredibly pleasantly surprised because GTA Online continues to perform so well. It is, however, moderating in accordance with our expectations. So I would say things are going certainly as good and in most instances better than expected in the case of the most recent content drops for GTA Online going at least as well as

expected.

Thank

you. Our next question

comes from the line of Brian Noack with Morgan Stanley. Please proceed with your questions.

Thanks for taking my questions. I have two. Just to ask sort of a broader picture question, Strauss, about sort of the pipeline of the overall company and how you think about the potential to sort of increase the breadth of the number of titles you put out and even maybe increase the cadence of content coming out of Rockstar given the headcount you have. I'm just curious to hear how you think about the next few years from a pipeline perspective. And then Lainey, I just, there's a lot of questions from investors and shareholders just kind of really trying to fully understand the bookings shift. So I know, you know, as previously mentioned how you implied 25% plus RCS growth before. Now it's around 10. Are there any other moving pieces there other than the Red Dead shift or is that the right way to think about the size of the shift? Thanks.

Hey Brian, it's Carl. In terms of our pipeline of the company, we are highly focused on increasing our releases. And I think you'll see our efforts, first of all our acquisition of SocialPoint and their robust pipeline going forward bring us a lot of opportunity to bring new releases in the near term. We've also got private division which we spent a lot of time talking about which you're going to see the first couple of releases coming out in the near term future. But there's more to come as well. We talked about the new studio led by Michael Condry. So just from a project based perspective, we are highly focused on bringing more titles into the mix for us. And you're going to, and look, not every title is going to come out in the next 12 months, but over time you're going to see a higher release of cadence from our titles because that's a stated objective of ours. There's also, obviously we're focused on M&A as well. And there's always an opportunity to bring in new projects that way and that's something that we've been focused on from day one. And again, SocialPoint is one example of that.

So for Q4, we talked about that there were units from Red Dead Redemption 2 that were in Q3 so they shifted out of Q4. And it was also offset by higher M&A expectations. So that's the overall change in Q4. It's driven by those items primarily.

Thank you. The next question comes from the line of Eric Handler with MKM Partners. Please, just a few other questions.

Yes, thanks for taking my question. This is for Lainey. I want to talk about the gross margin a little bit here. In the third quarter, your guidance is sort of implied something around 45%. You came in a little below that by about 150 basis points. Was there anything in the gross profit or in the cost of goods sold that resulted in the margin coming in a bit below expectations? And I'm curious as far as the amortization of Red Dead Redemption 2, are you willing to say how much of that amortization remains?

So in terms of the margin in Q3, it's really driven by the business mix and it was more weighted towards the new releases than we had expected. They have higher development costs associated with it and also higher internal royalties. So that is the difference in the gross margin and we should see that for the full year as well. And then, sorry, what was your second question? Oh, the amortization of Red Dead. We don't share that on a title by title basis, but are amortizing it in line with what the overall expectations are for the sales over a multi-year period. Okay.

And then just a quick follow-up. In terms of your deal with eSports and the NBA, last year when it entered its first season, there was no presence at all during any NBA games as far as I could tell. I'm just curious how some of the marketing plans are evolving for this season.

You know,

it's a very early day sort of thing. And the first season was a work in progress and we got great results. And we're going to continue to develop. Carl mentioned the fact that we have four more teams. We're heading into a draft. We're heading into all kinds of exciting opportunities around the second season. And, you know, stay tuned for more news on promotional opportunities as well.

Thank you. The next question is from the line of Ben Schachter with Macquarie Group. Pleased to see you with your questions.

A few questions if I could. First, could you just highlight how you think Fortnite is impacting the industry and yourselves? Second question, Strauss, the trade issues related to video games in China. Do you think any of these talks with the Trump administration could have a positive impact on how video games are brought to China? And then finally on buybacks, you bought back stock at about $108. Stocks indicating below $100. Should we expect you to see you in the market in any more meaningful way than you have been in the past? Thanks.

Thanks, Ben. In terms of Fortnite, you know, I've been asked about this before. I would just observe we continue to have stellar results despite the fact that there are competitive titles in the market, including Fortnite. There's also plenty of other competition. We get competition from every form of entertainment and other activities that people engage in that would take them away from consuming our titles. So, you know, there is no one for one comparison to the titles. I don't believe for a minute that our results when they're great or our results when they're less than great are being influenced positively or negatively by another hit title in the marketplace. It's just not the way entertainment works. So it was it's not the way the movie business works, not the way the television business works or the music business or the software business. So if you have something great, people will show up for it. If you don't have anything great, they're not going to show up for it. And just by way of example, just to look at the last fiscal year, you know, we had record results for Grand Theft Auto. We had record results for Grand Theft Auto online and Fortnite was booming. So there is room for plenty of hits in the marketplace. We just had a stellar third quarter. Fortnite continues to perform and we have these amazing results with Red Dead Redemption 2, NBA 2K19 and the rest of our lineup and our catalog. So I don't see any crossover and I think if you want to step back from it, you'd say it's almost certainly a good thing when there is a multiplicity of hits. It brings in a bigger audience, perhaps a more diverse audience. We think that's the case. So we're not concerned about competition. We are very concerned about what we do every day, which is why, as Carl said, you know, we're increasing our development, we're increasing our pipeline and we're utterly focused on quality and we're really proud of the quality of our titles and our recent releases because frankly, they've been very good for quite a long time. You know, we've had very few, if any, disappointments that I can think of. On China, we think Asia is an enormous opportunity. Specifically, China is a great opportunity. We're gratified that game approvals have been relaunched under a new method. We feel cautiously optimistic that there's great opportunity as a result. Tencent and others are engaging in developing new distribution platforms. And I do think actually as we look at trade, our government is focused on the fact that taking care of intellectual property, which is America's second biggest export after aerospace, is important. I think it's on the list of important things. So I think you'll begin to see some progress there. So I think there's a wonderful opportunity for us in China. There's a wonderful opportunity right now and absolutely if regulation softened, there'd be an even greater opportunity. But we understand we have to work within the environment that we find ourselves in there. Finally, with regard to buybacks, we've made it very clear that we have three uses for our cash. Supporting our organic growth story. That has been our story here. Eleven years ago when we showed up here, we had net revenue apples to apples of around $700 million, what we would call net bookings today. And we're going to be knocking on the door of $3 billion today. And that is almost all organic. We did buy SocialPoint. We acquired a few studios. But that is primarily organic growth. And that's a great story. So we want to support organic growth and support measured risk. And so far our measured risks have all paid off, which it's amazing that I get to say those words. We really have nothing that we're concerned about. And we have all these opportunities in front of us. That said, we also think with the $1.6 billion cash balance and no debt and plenty of cash flow that we have an opportunity to pursue inorganic growth. And certainly, you know, given market conditions right now, there's probably more opportunity facing us now than there was six months ago. And that's potentially exciting. But we're very disciplined. And if it needs to be said, we're only interested in the creative transactions like SocialPoint, which is an accretive transaction. And finally, we're interested in returning capital to our shareholders when it makes sense. You know, my philosophy about buybacks is well known, which is you do buybacks when you see deep value in the marketplace. And when we have seen deep value in the marketplace, we've acted against it. And I'll probably leave

it right there.

Thank you. Our next question comes from a lot of Mike Olsen with Piper Jaffrey. Please proceed with your question.

Hey, good morning. Without getting into the specifics of content releases, which I know you can't share, just wondering, should we expect a somewhat staggered approach to new content in GTA and Red Dead in order to kind of maintain engagement for each title or is really the focus to shift resources primarily towards new content for Red Dead? And then just very high level, there's been some increasing chatter about an idea that perhaps the industry is getting closer to kind of a ceiling in what gamers are willing to spend for in-game content. And the concept, I guess, really being that the significant growth of in-game content spent in recent years was maybe low hanging fruit. And now that opportunity is more saturated. I'm guessing you wouldn't agree with that line of thinking,

but just be interested in your take on it. Thanks. So in terms of content

drops for GTA Online, for Red Dead Online, or frankly for other of our titles, because we have opportunities to engage post-release with virtually everything that we put out. No, we wouldn't see that there would be any relationship between the content drop for one title inside our organization and any other title. So no, I think they stand alone. And what we're trying to do is engage and captivate consumers for every title and to optimize each one for its own consumer base and to grow that consumer base. With regard to in-game spending, I think you're talking about in-game spending, which really speaks to -to-play games. I don't think we're seeing any kind of a cap. I do think that consumers always pay attention to what they're getting and what they're spending. They're always paying attention to value. And you never ever want to be in a position of charging more than what you deliver. And you want everyone to leave the experience feeling great. So you know, even anecdotally, if you have a really great experience, but you feel you were charged too much for it, your emotional experience overall is not good, even if the thing itself is good. You get a restaurant, you get a great meal, but you feel like you were overcharged. It doesn't feel like a great meal when you leave the restaurant. So we want to make sure that our consumers always feel like we're taking great care of them and that our consumers understand that we have to pay our folks in order to deliver content. But we always want to deliver more than what we charge. And I do think that certain of our competitors have gotten that upside down. And they even say it. We're a data-driven business and we're trying to maximize our revenue. And then they back into the entertainment experience. We're an entertainment company. We're trying to build incredible experiences. We're trying to be the most creative company on earth. We believe we have the best creative teams on earth and we encourage them, in fact, require them to pursue their passion and not work on anything that they're not passionate about. And as a result, we think we have the best creative properties in the business and people will show up for those. But we have to be totally respectful of our customers. And that means delivering more than what we charge. And we're utterly focused on doing that. I think if you do that, there's plenty of room. And remember, the cohort's growing. So even if there's a particular pushback on how much any individual consumer will spend on any experience, and by the way, we're not seeing that, then what you have to do is create great experiences and encourage more consumers to get involved,

which is happening. Thank you.

Our next question is from the line of Todd Jungert with Stanford Bernstein. Please receive your questions.

Hi, I appreciate it. At this point in the call, I'll keep it to just one rather expansive one though. Strauss, I'm loving the conversations on value and pricing. I hope you don't mind if I flex it one level even further. When you talk about some of the premier properties from the Rockstar games, the Red Dead Redemption for instance, and you've commented that at a $60 price point, you believe that your consumers probably feel that's a fantastic value. And you said something's effective. It doesn't really matter what price you charge if the products are good. So let me challenge you. Have you thought about why $60? I suppose that lots of Red Dead Redemption players would have thought $100 US was a great value. But on the other end too, I wonder what the elasticity really is when you've thought about it. If it were free, would you have twice as many players because a bunch of people are not willing to pay $60 to find out how great it is? And as we think about revenue mouths going forward, I just wonder if there's going to be a lot more dynamism in sort of that upfront pricing relationship and what you really think, how do you USSE fold? Thanks a lot.

Yes, so I think there's the price discrimination in entertainment is really tricky. You know, the same question, I was asked the same question when I was in the movie business. You're putting out Home Alone 2, I'm aging myself, but it's all true. And you knew how Home Alone 1 did, so why don't you charge much more at the box office? And the answer is it's not really how consumers tend to see entertainment. They expect to pay the same price point for frontline entertainment and their expectations are that it's high quality. And of course in the video game business, because of meta-critic scores and reviews, they have some path to know typically what they're getting, more so than in many other businesses. So it seems as though your frontline pricing kind of has to be within a range without regard to the properties that you've developed, especially because we never want a consumer to feel as though we're taking advantage of them. And that includes even if there's a lot of demand. On your second point, your question resonates in great success, but when you don't have any knowledge about where you're going, it would be very difficult to pursue the model that you said. So the model works great retroactively and doesn't work at all prospectively. Because prospectively, you could be in a terrible position where your monetization levels are exceedingly low, as they are for free to play games, typically under 10% of the audience pays. And yet you went and spent the money to create an enormous frontline experience. So we think you have to find a middle path, which is charge a reasonable amount to get people in the door and give them phenomenal quality for that. And then for the people who choose to continue along with your additional content, whatever form it takes, an online offering or downloadable ad on content, you want to make the friction for that low as well. And of course, over time, typically there's discounting of the frontline product, and that will reduce the threshold for people who don't want to initially participate at a higher price. Although in the case of Grand Theft Auto, of course, our retailers maintain a very high frontline price for a very long time. So I guess the answer is we find a path in between.

Appreciate it. Thanks a lot,

guys. The next question is from the line of Mike Hickey with Benchmark Company. Please proceed with your questions.

Hey guys, thanks for taking my questions. Congrats on an awesome quarter, great release of Red Dead. Just two from me, curious if you could share with us your relationship with Gearbox, how stable that studio is. It looks like there's a fair amount of disruption internally. If you feel this is impacting the development timeline for Boilands 3. The second question, unannounced 2K game, it's already been delayed once. Sounds like it's on track. We still don't know what it is. I guess why the lingering mystery on what this game is. Thanks.

Thanks, Mike. Our relationship with Gearbox, which is an external studio, is excellent. The company is stable and they're doing a phenomenal job, as they always do, and we support them greatly. In terms of the unannounced 2K title, that is very much on track and we expect it to stay on track and we have very high expectations.

Thanks, guys. Thanks a lot.

The next question is from the line of Andrew Ergiewicz with Oppenheimer. Please proceed with your question.

Hey, just real quick on a modeling question. Maybe I missed it. You mentioned there was some recurring revenue that was pulled forward related to RDR. Could you let us know approximately how much that was and I have one big picture follow-up.

We don't share that level of detail on a -by-title basis, so I can't share that for these today.

Fair enough. Shrestha had a couple of questions around Private Division. Now that we're getting the two games launched this year, what were some of the industry trends you identified a couple years ago that made you want to build Private Division out, really aside from a focus on original content? As a follow-up, how do you think about building a studio as what you're doing with Mr. Condry versus finding third-party studios like what you're doing with Private Division? Thank you.

Hey, Andrew. It's Carl. So in terms of the idea behind Private Division, obviously we've been around the industry a long time and we see sort of ebbs and flows in terms of the amount of independent studios that are out there and also talent that's not necessarily associated with other enterprises. And just in the last few years we've seen an increase. And most of the people that we have that we've set up for Private Division, these are actually folks that have got real credibility in the industry and have done things before. And want to try a different creative approach than they have in the past and not necessarily work on titles with as big a budget as they've had in the AAA or Quad A world. So there's just an opportunity. It's really based on talent and the availability of talent. And like I said earlier, we pride in ourselves to be a home and to have the flexibility to be a home for creative talent to allow them to pursue those endeavors. And the key ingredient there is passion. And that really is probably 95% of it is passion. Do we believe in them? Do they believe in themselves? And can we find a way for it to work within a business model that works for both of us? And that idea is something that was born here and that we actually really believe, and once we saw it work once, we thought this could be a new business model for us. We could grow this out in so much bigger place because there has to be more than one or two of these folks out there that want to pursue this path. And as it turns out, we were absolutely right. And the pipeline has been incredible. And the number of titles that we've looked at is staggering over the past few years. There is no shortage of inbound interest for private division.

It appears we've lost our caller.

Our next question is from Drew Crum with Siegel.

Okay, thanks. Good morning, everyone. So I wonder if you could talk about your change view for the MBA 2K full game sales relative to your last update. What's led to the improved performance? Are you seeing an uptick in interest outside the U.S.? And then separately for Laney, can you talk about implications for gross margin given the seven-year renewal with

the MBA license? Thanks. Ladies and gentlemen, please stand by. We're experiencing technical difficulties. Ladies and gentlemen, please remain in line. We're experiencing technical difficulties.

Ladies and gentlemen, please remain in line. We're experiencing technical difficulties. Ladies and gentlemen,

please remain in line. Your teleconference will resume momentarily. Thanks. Please continue.

Sorry, I think we may have lost you. If there are any other people left in the line, apologies. We had a technical lapse and we'll be happy to continue with

the questions if anyone's here.

Thank you. Our next questioner is Matthew Hargum with Buckingham Research.

Thank you. Strauss, you have an unbelievably broad view of the entertainment business by virtue of your background. Do you have any thoughts on how you can better monetize the IP that you invariably have all the rights for in-house, even on the movie side, although everyone knows how difficult those adaptations can be? I know this is a little far afield, but what's your reaction to Bandersnatch and that trying to embark on sort of a new interactive entertainment genre? I don't know if it's at all pertinent to take two. I suspect it's not, but I'd be curious to sort of get your laboratory reaction on that one.

So all good questions. We have this wonderful intellectual property, more than 11 franchises that have sold at least five million units with one release, something like 60 releases that have sold at least two million units. So we have a terrific array of properties, and I think you've correctly noted that we have not exploited those in other media. I think the issue is that you have to make something great in every medium in which you operate, and if you're going to make a motion picture or television show based on the IP, it has to be utterly phenomenal, and we'd have to have a lot of creative control. We're not in those businesses, and they have different economic constraints and opportunities. What we have found so far is that licensing the IP to others with sufficient creative control and appropriate financial participation on our end is very challenging to do and isn't necessarily a great use of our time. We also, you know, we do very, very well in our core business, and it's behooved us to focus on our core business. And I'd also just note, it seemed to be very difficult creatively to take intellectual property driven by interactive entertainment and bring it to linear entertainment. There aren't so many examples of that being done successfully, and that gives us pause as well. In terms of, you know, sort of choose your adventure applied to television, I've always been a little bit skeptical because my concern is that the more engagement you have in the outcome of a linear fiction, the less likely it is that you can maintain the suspension of disbelief. But, you know, consumers like it. There could be something there. I think, you know, we'll find out if it's a novelty that's interesting as a novelty or if there's something there that's more long-lived. I'd probably fall on the camp of the former, but the whole point creatively is that you've got to be open-minded and pursue the passions of your creators. And I would note that the biggest hits are often the most unexpected. So I'd

be open-minded. Thanks,

Chris.

Our next question comes from the line of Evan Wingren with KeyBank. Please receive your questions.

Thanks. This one's for Lainey. Just a quick one. On Red Dead Redemption 2 and the recurrent consumer spending associated with the premium SKU units during the holiday quarter, I was just wondering if you'd give us a sense as to how much of a contributor that was to recurrent consumer spending exceeding your expectations, just recognizing that you don't get specific commentary, but some flavor would be helpful. And second, I think during the technical difficulties, Drew asked a question about the new MBA relationship and implications for margins as you go forward. I hope that was a good question. So I'm hoping you would address that too. Thank you.

So during Q3, the special and ultimate additions additional content that was allocated to recurrent consumer spending was a large portion of why we overachieved during the quarter. About 17% of...so the special and ultimate additions were about 17% of all of the units that were sold during the quarter.

And in terms of our relationship going forward with the MBA, we're thrilled to be in a long-term relationship with the MBA and the Players Association. We're grateful for their trust in us, and we're incredibly proud of what the league, the Players Association, and we have achieved in the past years, you know, delivering this industry-leading title over and over and over again. In terms of our expectations under the terms of the new deal, there's plenty of room for everyone to do well. That's the best kind of deal, and we expect that our margins will be maintained. We do not see any reason to believe that our margins will be changed in a negative way.

Thank you. The next question comes from the line of Derek Johnson

with BMO Capital Markets.

Please receive your question.

Hi, good morning. Thanks for the commentary on Private Division. But can you remind us the economic relationship between Take-Two and the companies in Private Division like Obsidian, and what do you get? What's your upside potential from Outer Worlds and games like that? Thank you.

I won't get into the specific economics, but generally speaking, all the Kerbal, these are situations where the independent studios that we work with, they actually maintain the ownership of the IP, but we have long-term publishing rights to that IP. We generally will fund developments and marketing of those titles, and once all of that is recouped, then there's typically a profit share. But I can't get into the specifics of what kind of profit share that is, etc., etc.

Okay, close enough. Thank you.

The next question is from the line of Doug Crowitz with Cal and Company. Please receive your question.

Hey, thanks. One of your competitors has made the decision to do a PC launch and an upcoming Matrix Play title exclusively through the Epic Store. Just wondering how you view the tradeoff of the potentially better economics there versus the importance of having your content on as many distribution platforms as possible. Thank you.

Well, generally speaking, our approach is to be wherever the consumer is, and we distribute very widely. Generally speaking, we have not been a believer in exclusive relationships, and I wouldn't comment on any particular store. But for example, the question's been raised about, you know, shouldn't you as a company be exclusively directed to consumer? And I think our experience is that consumers want to shop in a place where they can get a multiplicity of titles. We have terrific titles coming from all of our labels. We have a very broad offering, but there are other titles besides titles coming through the -to-enterprise that people want. So generally speaking, our strategy is to be broadly distributed. There are times when an exclusive distribution relationship can make sense. And, you know, I wouldn't be in a position to comment on what one of our competitors chose to do. But on balance, we're happy that, you know, the ethics going into the business, we're happy to have someone else at the table. Great. Thank you.

Thank you. At this time, I will turn the floor back to management for closing remarks.

First of all, I apologize for the fact that we lost you for a few minutes there, and we'll make sure that never happens again. Look, you know, we're proud of the quarter that we just reported on. We're incredibly excited that our outlook says we're going to have a record year for net bookings and adjust the cash flow provided by operations. We feel like we're firing on all cylinders, and the outlook is very strong. So we thank you so much for joining us today. I know it was a long call. Thanks for your support.

Today's conference has concluded. You may now disconnect your lines at this time. Thank you for your participation.