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spk17: Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to the Take-Two Interactive second quarter fiscal year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, you may press star 2. Also, today's call is being recorded, and if you should need any assistance during the call today, please press star zero. Now at this time, I'll turn things over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead, ma'am.
spk00: Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 2025 and in September 30, 2024. Today's call will be led by Strauss-Zelnick, 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 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 this 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 measure. 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 TakeTwoGames.com. And now I'll turn the call over to Strauss.
spk11: Thanks, Nicole. Good afternoon and thank you for joining us today. I'm pleased to report that we delivered strong second quarter results. Our net bookings of $1.47 billion were at the top end of our guidance range, driven by the continued success of the Grand Theft Auto and Borderlands franchises, and our operating results surpassed our plans, largely due to a shift in the timing of marketing expenses within the year. We're reiterating our fiscal 2025 net bookings guidance range of $5.55 to $5.65 billion, and we remain confident that we'll achieve sequential increases and record levels of net bookings in fiscal 2026 and 2027. Now, turning to our business highlights from the quarter. Sales of Grand Theft Auto V outperformed our expectations, and to date, the title has sold in more than 205 million units worldwide. Grant Theft Auto Online also exceeded our plans, driven by sustained engagement with the summer content pack bottom dollar bounties and an array of updates, including the new multi-stage assault on ATT16 mode and experience improvements, such as a new anti-cheat system for the PC version of Grant Theft Auto Online. Momentum also continued within GTA+, as Rockstar grew its membership by 35% over last year and added the classic title, Bully, to the library of available games. Red Dead Redemption 2 posted another fantastic quarter. The title has sold in more than 67 million units to date, and six years after its release still ranks in the top 10 for unit sales globally, according to GSD. Rockstar Games was pleased to expand its audience further with the successful launch of Red Dead Redemption and Undead Nightmare for PC on October 29th. On September 6th, 2K and Visual Concepts launched NBA 2K25, which scored among the highest ratings on new gen consoles in recent franchise history. Our teams continue to raise the bar for excellence with the addition of 9,000 new pro play animations that provide increased authenticity, an all-new dribble engine representing the biggest technological update in the series' 26-year history, and a more interactive and engaging experience in the city. To date, the title has sold in nearly 4.5 million units and achieved phenomenal recurrent consumer spending performance. Compared to NBA 2K24 for the same period last year, NBA 2K25 delivered meaningful double-digit growth in average revenue per user and 40% growth in average games per user. I'd like to congratulate 2K and Visual Concepts for another stellar launch in our industry-leading NBA franchise. Our catalog also outperformed, led by our immensely popular Borderlands franchise. Now that Gearbox has officially joined the 2K and Take-Two family, we're eager to capitalize on the many potential growth opportunities for Borderlands, Tiny Tina's Wonderlands, and other Gearbox titles. Zynga delivered another quarter of solid results. Match Factory is scaling rapidly and is on track to become Zynga's second largest title by the end of this year in terms of projected annual net bookings. The title grew approximately 16% over last quarter, driven by its engaging gameplay, including the recent Star Race Bowl beat and our strategic investments in user acquisition. Toon Blast is maintaining its fantastic path of growth, with net bookings increasing more than 50% over last year, as our teams deploy highly engaging new features, including new single-player and team-based events and social challenges. We're also achieving great results as we apply our learnings to other games in Zynga's portfolio, including Toy Blast. Our blended monetization efforts in Hypercasual are advancing well. In particular, ScrewJam remains a top 50 game in the U.S. App Lab store. We're encouraged by the net bookings and profitability milestones the title has reached, and we're optimistic about it going forward. Nordius released the highly anticipated 2025 edition of our popular soccer manager game, Top Eleven. Backed by a month-long marketing campaign, the release generated positive sentiment around the community, which helped solidify the largest in-app purchase spending per active user in the game's 14-year history. During the quarter, Zynga launched Game of Thrones Legends, and we remain excited about the label's future mobile launches, including CSR3 Streetcar Racing. We continue to expand our offerings within our highly accretive direct-to-consumer business. With our current success and new titles on the horizon, we're confident in the future outlook of our mobile business. In closing, we believe that Take-Two remains exceedingly well positioned for the balance of this fiscal year and for the long term. Our vision is clear, our talent is unparalleled, and we have one of the strongest portfolios of owned intellectual property in our industry. As we release our pipeline, including many of our industry's most highly anticipated sequels, we expect to deliver leading returns for our shareholders. I'll now turn the call over to Carl.
spk12: Thanks, Strauss. I'd like to thank our teams for consistently executing against our strategy and for positioning our company to deliver the strongest anticipated growth trajectory and multi-year pipeline in our history. Turning to our recent releases and announced games in development. On February 11th, 2K and Firaxis Games will launch Sid Meier's Civilization VII, the highly anticipated revolutionary new chapter in our epic 4X strategy game franchise. 2K has been promoting the title across many key activations, including a developer panel at PAX West and PAX Australia, various community live streams, a first look video series, and developer diaries. Firaxis recently revealed details about their partnership with the Shawnee tribe, featuring leader Tecumseh, who appears as a playable character. We can't wait for CIFF fans around the world to take one more turn and enjoy what promises to be the best title in the series' 33-year history. Later this fiscal year, Visual Concepts will launch WWE 2K25, which promises to take our successful pro wrestling franchise to new heights. 2K will have more to share about the game in coming months. Looking ahead, we expect fiscal 2026 to be a milestone year as we plan to release several blockbuster titles, including Rockstar Games' Grand Theft Auto VI in the fall of 2025, Borderlands 4, and Mafia The Old Country. The latter two were unveiled by 2K this past summer at Gamescom, with each announcement featuring a game trailer that received a tremendous reception from their dedicated communities of fans. Rockstar Games also plans to bring the much-requested PlayStation 5 and Xbox Series features of GTA Online to the PC platform in the new year. In addition, we recently made the strategic decision to sell our Private Division label to focus our resources on growing our core and mobile businesses for the long term. As part of this transaction, the buyer purchased our rights to substantially all of Private Division's live and unreleased titles. Take-Two will continue to support No Rest for the Wicked, which launched in early access on PC in April. We are grateful for the contributions that Private Division Team has made to our company and are confident that they will continue to achieve success in their new home. In closing, our teams are hard at work on the strongest and most diverse lineup in our company's history. As we deliver exciting new hits and pursue new business opportunities, we believe that we will achieve sustainable, profitable growth and shareholder returns. I'll now turn the call over to Lainey.
spk01: Thanks, Carl. Good afternoon, everyone. We achieved another consecutive quarter of strong results led by our diversified portfolio of industry-leading intellectual properties. During the period, we delivered exciting new offerings and continued to make great progress advancing our development pipelines which reinforces our confidence in our outlook for this year and our multi-year growth trajectory. I'd like to thank our teams for their consistent execution and unwavering focus on creativity, innovation, and efficiency. Turning to our results, we delivered second quarter net bookings of $1.47 billion, which was at the top of our guidance range of $1.42 to $1.47 billion, driven by the strength of the Grand Theft Auto and Borderlands franchises. Recurrent consumer spending rose 6% for the period, which was slightly above our guidance of 5% and accounted for 81% of net bookings. Mobile increased high single digits driven by the addition of Match Factory and strong growth in Toon Blast, which was partially offset by declines in our hyper-casual mobile portfolio and empires and puzzles. MBA 2K grew low single digits while Grand Theft Auto Online was relatively flat. During the quarter, we launched MBA 2K25 and Game of Thrones Legends. Gap net revenue increased 4% to $1.35 billion, while cost of revenue declined 29% to $625 million, as the prior year included an impairment charge related to acquired intangibles. Operating expenses increased by 7% to $1 billion. On a management basis, operating expenses rose 24% year over year. This was favorable to our forecast, largely due to a shift in timing of marketing expense within the year and drove operating results that were above our prior guidance range. Turning to our guidance, I'll begin with our full fiscal year expectations. Our business is performing well, and as Strauss mentioned, we are reiterating our net bookings outlook range of $5.55 to $5.65 billion, which represents 5% growth over fiscal 2024. The largest contributors to net bookings are expected to be MBA2K, the Grand Theft Auto series, Toon Blast, our hypercasual mobile portfolio, MASH Factory, Empires and Puzzles, the Red Dead Redemption series, Sid Meier's Civilization VII, and Words with Friends. We now expect recurring consumer spending to grow approximately 4%, representing 78% of net bookings. This is up slightly from our prior forecast of 3%, driven by MBA 2K. Our current consumer spending forecast continues to assume a high single-digit increase for mobile, driven by Match Factory and Toon Blast, partially upset by declines in our hyper-casual mobile portfolio and empires and puzzles. NBA 2K is expected to grow low single digits, which is up from our prior forecast of flat, while Grand Theft Auto Online is still expected to decline. We project the net bookings breakdown from our labels to be roughly 51% Zynga, 32% 2K, and 17% Rockstar Games. And we forecast our geographic net booking split to be about 60% United States and 40% international. Non-GAAP adjusted unrestricted operating cash flow is expected to be an outflow of $150 million, which is unchanged from our prior forecast. And we remain on track to deploy approximately $140 million of capital expenditures, primarily for game technology and office build outs. We continue to expect gap net revenue to range from $5.57 to $5.67 billion, while we now expect cost of revenue to range from $2.4 to $2.42 billion. Total operating expenses are now expected to range from $3.77 to $3.79 billion as compared to $5.83 billion last year. On a management basis, we continue to expect operating expense growth of approximately 10% year over year. This is largely due to an increase in ongoing marketing support for Match Factory, as well as other mobile and immersive core launches planned for the year. The addition of Gearbox and higher personnel costs partially upset by savings from our cost reduction program. Excluding incremental marketing and the addition of Gearbox, our operating expenses are expected to grow low single digits over last year. Now moving on to our guidance for the fiscal third quarter. We project net bookings to range from $1.35 to $1.4 billion compared to $1.34 billion in the prior year. Our release date for the quarter includes Red Dead Redemption and Undead Nightmare for PC, which launched last week. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, our hyper-casual mobile portfolio, Match Factory, Empires and Puzzles, the Red Dead Redemption series, Words with Friends, and Merge Dragons. We project the current consumer spending to increase by approximately 9%, which assumes a low double-digit increase for mobile, driven by the addition of Mash Factory and growth in June Blast, partially offset by declines in our hyper-casual mobile portfolio and empires and puzzles. We expect an increase for NBA 2K and a decline for Grand Theft Auto Online. We expect gap net revenue to range from $1.36 to $1.41 billion. Operating expenses are planned to range from $913 to $923 million. On a management basis, operating expenses are expected to grow by approximately 11% year over year, which is primarily driven by additional marketing for Match Factory and the addition of Gearbox partially offset by savings from our cost reduction program. In closing, there are many exciting upcoming catalysts that we believe will enable our company to achieve new record levels of net bookings performance. As we expand our product offerings and grow our scale, we expect to deliver strong operating leverage and robust shareholder value. I'd like to thank you all for your support and look forward to sharing more details on our groundbreaking pipeline in the coming months. Thank you. I'll now turn the call back to Strauss.
spk11: Thanks, Lainey and Carl. On behalf of our entire management team, I'd like to thank our colleagues for delivering another consecutive quarter of outstanding results that embody our core tenets of creativity, innovation, and efficiency. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?
spk17: Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1, and if you find your question has already been addressed, you may press star 2 to remove yourself from the queue. We'll go first this afternoon to Doug Krutz at TD Cowen.
spk02: Hey, thank you. Back in May, you had talked about having seven core titles for the year, and we've got about five months to go, and I think we've got line of sight on four that have either been already launched or we have clear dates on. Those other three, are they still in the software lineup for the year, or perhaps have they been moved out, and what kind of impact does that have on your overall guidance?
spk01: Our labels will provide more detail on the upcoming titles when they're ready to do so. Also, keep in mind that while we provided our pipeline expectations for fiscal 25 in May, we do not update our release expectations unless there is a financial reason to do so.
spk17: Okay, fair enough. Thank you. We'll go next now to Eric Handler of Roth Capital.
spk05: Good afternoon. Thanks for the question. We need to get focused in on mobile a little bit. How much of the growth do you say is specific to your two titles that are just doing absolutely great right now? How are you seeing the mobile industry in general doing? Do you feel like there's a lift going on, broadly speaking, that's helping as well as just sort of the strength of the games that you have?
spk12: So generally speaking, I would say we're obviously really excited about the performance of Match Factory and also Toon Blast as well. And we are seeing that is that's contributed significantly to our growth in the mobile space. It's not the only contributor, but it is certainly a big part of it at this point. In terms of the mobile industry, we're feeling pretty sanguine about things right now. One of the most, I think one of the things that we appreciate the most is that consumers are actually rewarding people for taking risks and releasing new titles that are compelling and engaging. And we're fortunate enough to have one of those titles. If, And hopefully, if not more than one. And we're really excited about new titles that are coming out, some that we've announced and some that we haven't. We always say that new IP is the lifeblood of the industry. And I think our commitment to investing in new IP is really serving us well. So I would say that's the biggest change in the mobile industry over the last couple of years. And it's not just with us. It's also across the entire industry as well. We've seen some other big hits in the market. It's very gratifying to see that at this point. What was the second to last part of the question? I think there was something at the end you asked, Eric. What was that?
spk05: No, no. It was just about what you're seeing and how you're seeing the industry in general. Why don't you just talk about your thoughts on mobile advertising and with user acquisition, what are you seeing there? And at this point, do you keep using ChartBoost, do you need more than just what ChartBoost can offer?
spk12: So in terms of, you're talking about on the customer acquisition side, not on the monetization side, correct? Correct. Okay, yeah. So we've always used more than ChartBoost, so I'd say working with third parties is something that we have done and will continue to do in the future. We would never rely just on one. We like to spread our business across several. So it's really, it's not just one specific strategy. It's a combination of both, including also our enormous internal database. We are, I would say, a little bit less reliant on third parties than some other of our competitors, just based on the fact that we've got such a broad portfolio of mobile games and such an enormous database across all of those games.
spk05: Thank you.
spk17: Thank you. We go next now to Colin Sebastian at Baird.
spk06: Thanks. Good afternoon. I guess a couple of high-level questions for me as well. We've been seeing this trend towards consolidating market share among a fewer number of publishers and games, obviously, including at Take-Two. But there are structural shifts underway in the industry in terms of cost of game development, maybe even changing distribution. So I'd be curious to hear maybe your thoughts if those forces could perhaps unlock more development, more new IP, or is it more about optimizing what you already have in terms of core franchises?
spk11: Look, this business is beginning to mature. And I emphasis on the beginning. This is still going to be the fastest growing part of the entertainment business for some time to come. But in the early stages of maturation, it shouldn't be surprising first that quality standards increase. Consumers always want higher quality products and that the big and good get bigger and better and the bad and small get worse and smaller. And that's just the history of the entertainment business. We're obviously proud of how we've done and we have grown meaningfully in the past 18 years, mostly organically until the acquisition of Zynga in 2022. And obviously that was a big inorganic step forward as well. Today, we find ourselves on the number two pure play in the industry worldwide. And we think we're incredibly well positioned going forward. First, because of our strategy of trying to be the most creative, innovative and efficient company in the entertainment business. And secondly, because we have this extraordinarily diverse portfolio that covers all bases in the interactive entertainment industry, driven by owned intellectual property. In fact, we're pretty sure we have the best collection of owned intellectual property in the business. We think that's a recipe for success. If we get it right, our earnings power should enable us to grow further. And what we've always said is we've used our capital first to support organic growth, secondly, selectively to support accretive inorganic growth, and third, to return capital to the shareholders on favorable terms. And I expect that we'll continue to try to do that. Does that mean life gets harder? Yes, it's harder and harder to make big hits. And we're so grateful to our creative teams because that's exactly what they focus on every day. You know, we get to do the easy stuff like talk to you all. They have to do the hard stuff, which is make the hits that drive this industry. That gets harder all the time, but it's a challenge that we accept with enthusiasm because it's what drives all of us, even those of us around this table who don't actually make video games day to day. And You know, that's our focus. That's the purpose of this enterprise. The purpose of the enterprise is to serve consumers with the best possible entertainment. Will that become harder, more complex, more expensive despite advances in technology, notably generative AI? Yes, that's the history of the entertainment business. But if you get it right, the opportunity is extraordinary, and we're trying really hard to get it right.
spk06: Got it. That's a very helpful perspective. Thanks, Strauss. One quick housekeeping question, the improvement in GTA performance versus being down in Q1, is that timing around the summer or I guess late summer release packs, or is that sort of more of a broad-based improvement?
spk01: I think it's more broad-based. The title has been doing extremely well. The engagement is there and strong. We're seeing that coming out of Q2, and we expect to see that through the rest of the year.
spk09: Thanks, Lainey.
spk17: Thank you. We go next now to Andrew Merrick of Raymond James.
spk03: Thanks for taking my questions. We see a lot of content now coming in in fiscal 26 with the announcement of mafia and borderlands in addition to GTA 6. So with the commentary about record net bookings results in fiscal 26 and 27, Just wondering if there's any sort of color or visibility you can give into kind of those assumptions built into 27 to see growth off of what's already quite a busy content slate in 26.
spk11: So let me get this straight. This used to be a company where we didn't mention anything until four months before release. And now I'm being asked, I understand. Why can't I have some insight into fiscal 2027? I mean, I don't even remember what I had for breakfast this morning. So I think the answer is we're really excited about the pipeline. And by giving the color that we've given on fiscal 27, we're making the point that this pipeline is, you know, is going to be robust and is going to be durable. And, you know, we take those statements seriously. But no, on this call, I will not be announcing our pipeline for more than two and a half years from now.
spk03: Well, much appreciated, but maybe a smaller question that can get a little bit more granular in the near term here. Saw the addition of that paid Gravity Ball mode in NBA 2K this year. Seems like a little bit of a new offering, maybe bigger than a microtransaction, but smaller than an expansion or a DLC. With what you've seen in Gravity Ball so far, how are you thinking about that sort of paid game mode concept in other franchises across the portfolio?
spk11: Thank you. You know, I mentioned our three-part strategy and the middle part being innovation. And I'm really proud that Visual Concepts in 2K decided to innovate with Gravity Ball, both most importantly, creatively, and then secondarily as a matter of business model. And, you know, we've already learned a lot. It's a great little minigame, really terrific. And I think consumers really like it. It's too early to say that, okay, our future is, paid mini-games inside bigger platform-type games. But I think it's a reflection of the fact that our creative teams are open-minded and are willing to try new things and aren't being precious about the IP that they create. To the contrary, they know consumers want to have fun with it, and so they equally need to have fun with it. So it's an exciting development, probably too early to call it a trend.
spk17: Thank you. We go next now to Corey Carpenter with JP Morgan.
spk16: Good afternoon. Thanks for the question. Hopefully you could elaborate a bit on your decision to sell private division. And then, uh, lady for you, there's any color you can give us in terms of how you expect this to impact the P&L. Thank you.
spk11: Uh, look, it's always hard to, to, to part with, um, friends and colleagues. That's actually the hardest thing that we have to do occasionally. And, um, we, um, we're really impressed with what Michael Warris and the team built at Private Division. They brought on board and launched a number of titles over the past several years, and virtually all of them worked out, and a couple of them were pretty big breakouts. At the same time, it became clear that our thesis, which is work with independent developers, bring them into this independently-minded division, and perhaps create new, huge, durable intellectual properties for the company, was going to be challenging at best because the titles, though big, were not big in the context of our core intellectual properties at 2K and Rockstar. And our job really is to focus on making the biggest and best hits for the marketplace. We don't, you know, we're not the long tail company. We are top 10 hit makers around here. That's who we are on the console side. That's who we are on the mobile side. And that is the core of any mature entertainment business, being a top 10 player. Those are the, those are the companies that matter. Those are the companies that grow. Those are the companies with operating margins. So that's what we need to focus on. That became clear. We're really thrilled that we, we found a great home for private division.
spk16: Thank you. And lady, any, any comments on the initial P&L impacts on that?
spk01: Sure. So the P&L impact this year is immaterial to the bottom line. There's a little bit of effect on the net bookings, but we were able to offset that by the strength of the MBA franchise.
spk17: Thank you. We go next now to Ed Alter at Jefferies.
spk07: Hi. Thanks for taking my question. MBA 2K this year got significantly better reviews. But I heard you guys say it looks like it sold four and a half million, which is flat year over year. How does, for an annual title like that, how does higher review scores translate to sales and RCS in your view?
spk12: Well, I agree. It's nice that you noticed the higher review scores. And the team at Visual Concepts and 2K worked very hard to put improvements into the game, not only bringing New modes and new opportunities and new content to the game, but also bringing back some beloved modes that were not in previous editions. So they did work very hard to make sure that they delivered the most engaging experience. And we're seeing that. Engagement on a player basis is up significantly over the last game, as well as RCS, recurring customer spendings. And that's a reflection of when people get into the game, they love it, they engage, and ultimately that leads to monetization. So I think really the reflection on the scores is a reflection of engagement, and that's what we're seeing, and we are seeing those economic improvements. In terms of sort of unit sale comparisons, et cetera, it's easy to focus on those things, but we also have, you know, obviously bringing the game to the Gen 9 on the PC had a significant positive impact for us on the PC version, but we still are dealing with the dynamic of the Gen 9 console business is certainly growing, but we're still being hurt, not at the same rate as the Gen 8 is declining. We obviously expect that that's going to reverse at one point in the future as Gen 9 continues to take a foothold and people have more and more reasons to move from Gen 8 to Gen 9.
spk07: Yeah, great. Great. Thanks. And just on the hybrid casual games, it looks like they're doing incredible. How much of that is from kind of direct revenue that was in the ads monetization strategy and how much of that is incremental from this new strategy on hybrid casual purchases?
spk12: So it's both. And we have said before that there's two things that are going on in our hybrid casual businesses. One, where obviously we have been focusing on profitability and that's been putting some downward pressure on revenues in general. But the other component is on this business has traditionally been almost 100 percent advertising. That's not the case anymore. We've got games. Screwjam is a perfect example of games where we're actually having significant success in-app purchases. And that's a reflection of the fact that these games are lasting for a longer period of time and they're more engaging than they have in the past. So whether it's in-app purchases or advertising, we're sort of indifferent. We'll take the revenue any way that we can get it. But what you're really seeing is a combination of both. And again, that varies game by game. Not every game is going to have in-app purchases, but more and more you see that happening.
spk07: Great. Thank you very much.
spk17: Thank you. We go next now to Benjamin Soft at Deutsche Bank.
spk08: Yep. Hey, guys. Thanks for the question. I wanted to ask about Borderlands. Can you please break out the contribution from the film? And did you see the benefit to gain sales from the film? And would you expect to maybe look at doing that a little bit more in the future, bringing more of your IP to movies or shows? And then for Lainey, I wanted to ask about the shift in timing from marketing expenses. Is there anything you can add as far as color there? Thanks.
spk11: Thanks for your question. With regard to Borderlands, we don't really need to break out the contribution from the film because while it was economically positive, it wasn't material to our results. Even though the film was disappointing, it actually benefited our catalog sales. So that is a sign that making a movie or a television show based on our very high quality IP can drive catalog sales and that can be a good thing. All that said, we're really selective And one of the reasons we have been so selective about licensing is we would really prefer that everything that comes out with our brands in it is really, really successful. And we can't guarantee that, especially when it's out of our hands. So we have licensed other titles. We'll continue selectively to do so, but emphasis on the word selectively.
spk01: And the marketing expenses in Q2 that moved out due to timing, it was a combination of some of our released titles and some unreleased titles. but all within the year.
spk08: Got it. Thanks.
spk17: We'll go next now to Mike Hickey of Benchmark.
spk15: Charles, Carl, Laney, Nicole, congrats on the quarter, guys. Thanks for taking our questions. Just curious on the new consoles coming to the market. We've got the PS5 Pro and the Switch 2, just broadly speaking, wanting your thoughts there. And if you see a commercial opportunity, I guess, from some of your catalog games, whether it's enhanced or special edition for the PS5 Pro. And if you think the Switch 2 is maybe a more viable platform than what we had with the Switch 1 for your game portfolio, follow up.
spk11: Yeah, we don't tend to comment meaningfully on the decisions of the hardware makers. I accept to say that successful platforms benefit the business and we support successful platforms. We're happy to do so. We don't have any product announcements to make. We don't make those announcements on these calls, as you know, Mike. And with regard to Switch, my view is never count Nintendo out.
spk15: Fair enough. I guess the next question on project ethos, you got some feedback from the market. Here is how you're sort of taking that feedback and thinking about maybe reshaping or the impact it's had on development of that game and maybe the release timing. Thanks, guys.
spk11: Look, I couldn't be more proud than I am of the team at 31st Union and what they brought to market and consumers embraced ethos and really enjoyed the playtest, and we were thrilled to see it in market. The whole point of a playtest is to get feedback and to engage the community in helping us make the best possible experience. And I know Michael, Condre, and the whole team were enthused about that feedback and found it really, really useful.
spk10: So we're off to a great start, and there's more to come.
spk16: Thanks, guys. Good luck.
spk17: Thank you. We go next now to Arthur Chu of Bank of America.
spk19: Hey, guys. This is Arthur. Thanks for taking my question. So it's good to see double-digit growth in average revenue per gamer for NBA. Would you expect the improvement in average monetization to be a greater driver of future growth for this particular franchise as compared to, for example, user growth? And I guess how should we think about some of the different drivers of monetization improvements going forward. Thank you.
spk11: Look, we're optimistic about user growth as well as spending per user, and they're driven by the same thing, which is quality. So, you know, the quality of the game, the quality of the in-game experiences that lead to recurrent consumer spending. As big as this title has been, you know, we still think there's a whole lot more ground to cover And the NBA is making big strides internationally and obviously made new broadcast deals that are very robust. There's every reason to believe that this is a huge growth business going forward. And we're thrilled to be in business with the NBA and the NBA Players Association. They're superb partners and support us all the time to the best of their abilities and then some. And we see the results. If we keep making a better and better game every year and the team at Visual Concepts is trying to do just that, then we'll be rewarded with a bigger footprint. And within that footprint, bigger engagement, and that will lead to more profitable revenue.
spk10: Got it. Perfect. Thanks a lot, guys.
spk17: We'll go next now to Eric Sheridan of Goldman Sachs.
spk14: Thanks so much for taking the questions. Maybe two if I could. First, just following up on the last question, and obviously moving beyond just NBA broadly, any updated views about the way you're thinking about the intersection between sports and gaming as a long-term opportunity and whether that would be an area for incremental capital and incremental investment in the business to grow the IP portfolio over the longer term based on what you were seeing in the market? And then I know we spoke earlier on the call about the consumer landscape, but in the last year we've spoken about whether the consumer was receptive or not to new IP as opposed to legacy IP. Have you seen any shifts in consumer behavior with respect to openness to experiment with newer titles as opposed to more legacy titles that might inform some of how you position IP going forward? Thanks.
spk11: I want to make sure I understood your first question. You were asking, uh, whether you think there's an opportunity for us to go our, our sports, uh, portfolio.
spk13: Yeah. What, why they're in the sports portfolio broadly Strauss. Thank you.
spk11: That's it. That's what I thought. And the answer is, um, sort of because the biggest sports are obviously baseball, football, basketball, and soccer. And, um, we do have other sports entertainment titles, for example, WWE, which is a really important title for us. Um, you know, we, we have our golf game, which is nominal game. Um, we have a tennis game. We have, we have lots of other titles in the past. We've done boxing and we've done hockey and we've done baseball. Um, but it's, it's the big four that really matter. And that's a pretty competitive space. And, um, you know, we're, very respectful of how hard it is to compete in those areas as people are where we dominate. So I think there's some selective opportunity, but the footprint is big enough now and the growth opportunities are great enough now that even working on what we have gives us plenty to do with plenty of opportunity leavened by great optimism. In terms of your question about new intellectual property, you know, we're different than a lot of other big companies. It's tempting for a big company to rest on its laurels. We have a lot of intellectual property. We know that if we put out a sequel, it's a lower risk proposition than new intellectual property. But everything degrades. And even though most of our franchise sequels tend to do better than the prior release, and we're really proud of that because that's not standard for the industry. The truth is, you know, There is this thing called decay and entropy, you know, and it's a feature of physics and human life and everything that exists on Earth. And so ultimately, everything does decay, including hit titles. So if we're not trying new things and making new intellectual property, you know, we're to say that we're resting on our laurels really understates it. We're really running the risk of burning the furniture to heat the house. And and, you know, that doesn't end well. So we do it, even though it doesn't always succeed. The good news is, like, frankly, our hit ratios are really high for this industry. And they're also high in mobile, thanks to our mobile team, led by Frank Jabot. And the recent hits in our mobile division are pretty stellar. So, you know, we have Match Factory from Peak. Toon Blast is not new, but it's a huge sort of revitalized success, also from Peak. And then many other titles, great success with Top 11 from Nordius and with ScrewJam from Rollick. So we have teams delivering new hits all the time in mobile and in console. We're really proud of that. It does mean the risk profile is higher. It does mean that when we get it wrong, and we will get it wrong now, and then we take a hit, and that affects our operating margins. But in the fullness of time, it's one of the key ways to create durable value And to be clear, if we had not been willing to create new intellectual property when we showed up here 18 years ago, when the risk profile of this enterprise was vastly greater than it is today, well, then none of us would be sitting here today. You wouldn't be listening to this call.
spk10: That's just a fact.
spk17: Thank you. Thank you. We go next now to Clay Griffin with Moffitt Nathanson.
spk04: Great. Good afternoon. Thank you for taking the question. You know, I'm curious, you guys are talking about how Gen 8 has been sort of pro and con in the sense that it's a, you know, a long-lived installed base, but harder to execute on some of the things that your teams want to do. And I'm curious, as we roll the tape forward into fiscal 26 and 27, when some of your marquee properties are coming out, which I'm sure will be groundbreaking in many respects, Curious if the bifurcation of the Xbox platform becomes a challenge and what the teams are doing to deal with that.
spk11: You mean a challenge because Xbox isn't performing as well as PlayStation, just so I can understand the question?
spk04: Well, just that Series S is by design a lower spec console and presumably GTA 6 will be push a lot of boundaries technically, I would suspect.
spk11: Yeah, look, we support the platforms where the consumers are for as long as they're there. And we find a way to support platforms despite different levels of tech. Our labels are really good at that. I'm not really worried. I've never worried about where hardware was going. And I've said this many times over the years, because first of all, I don't worry about things over which I have zero control. And secondly, because I do believe in the audience. The audience is going to show up if you have great properties. And so we just have to make sure to be on an array of platforms. And if one platform diminishes in value, there's always another one. So we're seeing great growth in PC right now, for example. And I have been of the view that open formats would continue to grow. PC is an open format. I do think PC will continue to be a more and more important part of the console business going forward. And that isn't complicated for us to support at all. So the bottom line is we are selective about which platforms we support. We make the tech work when we can make it work, as long as the audience is big enough to make that worthwhile.
spk04: That makes sense. And to that end, I guess, Strauss, maybe update us on the possibility. I know it's a U.S. jurisdictional issue only. in a limited basis, but just kind of what you're seeing on the Android side from kind of a proper capable third-party app store development, what that might look like over the next couple of years.
spk11: I'm sorry. I want to make sure I understand. Are you talking about take rates, or are you talking about the economics, or are you talking about the tech?
spk04: All of the above. Just, you know, your initial thoughts about the potential of having a more vibrant third party alternative app store on Android, even though that would be good news for us.
spk11: We support virtually all retailers. We are not beholden only to our own. Outlets, although we do have our own outlets, and that's proven for mobile to be very effective indeed at margin building. But we support all comers. We want to be where their consumer is. And on the economic side, you know, I have been a believer that take rates, distribution costs will continue to decline. There's a lot of evidence that that will be the case.
spk10: We're not counting on it. It's not in our numbers, but we do believe in it. Great.
spk17: Thanks. We go next now to Chris Scholl at UBS. Great. Thank you.
spk18: Lainey, using the midpoint of your guidance range, I believe implies an acceleration in bookings growth and fiscal 4Q. Can you just help us think through the drivers there? I recognize Civilization is launching, but any other drivers you're willing to flag at this stage? And then Strauss, Netflix called out that they learned how big existing games like Grand Theft Auto can be on the platform. Now that you've had some time to digest, what learnings do you take away from that partnership? And Recognize the deal is small overall, but do you see the opportunity to scale such efforts and license other IP going forward? Thanks.
spk01: So for Q4, yes, you're right. We have SIF 7 releasing. We also have our PGA title releasing in the quarter and our WWE title. And last year, we only had our WWE title. So that's a big difference between this year and last year. And it's also a reason why we have more new releases in Q4, which is why there's a bigger quarter in Q4 than Q3.
spk11: Sorry, what was the second question? If you don't mind repeating the second question.
spk18: Sure. Netflix called out that they learned how big existing games like Grand Theft Auto can be. Now that you've had some time to digest, Do you see the opportunity to scale these efforts and what plans do you have for maybe other IP and licensing in similar ways?
spk11: So we've shown a willingness to license to many other platforms, both because we thought they were good businesses or because they were friends and we wanted to support them or because, you know, we thought it was an interesting experiment and we wouldn't. We wouldn't talk publicly about upcoming deals until they're ready to be announced, and then typically they would, of course, be announced by our labels. But we think very, very highly of Netflix. We value the relationship with them greatly. I think it is pretty important for them to offer a robust array of of audio visual entertainment to their subscribers and that my definition has to include interactive entertainment and we think you know we have the best collection of own intellectual property in the business so no surprise that we're in business with them we hope to do more business with them hey great thank you very much thank you and seeing as there's no further questions at this time mr zelnick i'd like to turn things back to you sir for any closing comments I want to thank our creative colleagues at our labels who make the hits that we have the great pleasure of talking about in meetings like this. I want to thank all of our publishing folks who do a great job at marketing, our distribution team, which is unparalleled, and, of course, our corporate team who's represented here today. We're thrilled with our results, but we know that this is just the beginning of an amazing few years ahead of us. And we're excited to be able to share that news with you today. Thank you for joining us. Thanks for your support and happy holidays. And it's early, but a happy new year to all. Talk after the new year.
spk17: Thank you, Mr. Zelnick. Again, ladies and gentlemen, that will conclude today's Take-Two Interactive second quarter fiscal year 2025 earnings call. Again, thanks so much for joining us, everyone. And we wish you all a great day. Goodbye.
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