Take-Two Interactive Software Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications
• Strauss Zelnick, Chairman and Chief Executive Officer
• Karl Slatoff, President
• Lainie Goldstein, Chief Financial Officer

Analysts

• Mario Lu, Barclays PLC
• Michael Ng, Michael Ng
• Matthew Thornton, Truist Securities
• Andrew Uerkwitz, Jefferies Financial Group Inc.
• Martin Yang, Oppenheimer & Co.
• Matt, Morgan Stanley
• Gerrick Johnson, BMO Capital Markets
• Clay Griffin, MoffettNathanson
• Brian Fitzgerald, Wells Fargo Securities
• Drew Crum, Stifel Nicolaus
• Benjamin Soff, Deutsche Bank Research
• Eric Handler, MKM Partners
• Mike Hickey, Benchmark Co.

Presentation

[Operator]

Greetings, and welcome to the Take-Two Q1 fiscal year 2022 earnings call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

[Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications at Take-Two Interactive Software]

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2022, ended June 30, 2021. Today's call will be led by Strauss Zelnick, Take-Two's chairman and chief executive officer; Karl Slatoff, our president; and Lainie Goldstein, our chief financial officer. We will be available to answer your questions during the Q&A session 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 the section entitled Risk Factors. I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP and all comparisons are year over year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP 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 take2games.com.

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

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that fiscal year 2022 is off to a great start, highlighted by first quarter net bookings of $711 million, which exceeded our expectations. As the world has moved toward a safer new normal, we experienced strong engagement trends across most of our core franchises. During the period, we took multiple steps to enhance our organization over the long term. We invested further in talent and core infrastructure, which are important areas to support our expansive multi-year pipeline. Mobile remains a key growth opportunity and we believe that our acquisition of Nordeus will enhance meaningfully our talent and expertise in this area.

With a larger mobile footprint, we have integrated Social Point, Playdots, and Nordeus into T2 Mobile Games. This structure will enable us to realize cost synergies, leverage expertise, and share best practices across our mobile teams. I'm also proud that we deepened our focus on corporate responsibility, and we have recently made several key hires to lead our efforts regarding diversity, equity, and inclusion.

Turning to our first quarter results, our better-than-expected performance was primarily driven by Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, and Borderlands 3.

For nearly eight years, Grand Theft Auto V and Grand Theft Auto Online have redefined the creative and cultural influence of interactive entertainment, setting new standards for multiple generations of consumers and gaming platforms. Sales of Grand Theft Auto V were significantly above our expectations once again, and the title has now sold-in more than 150 million units. Rockstar Games continued to keep its massive player base engaged with new content updates for Grand Theft Auto Online, including eight new stunt races, seven new arenas for Deadline mode and regular in-game bonuses and incentives. This helped drive the title to its second-highest Q1 on record for player audience and its third consecutive quarter of player growth. In comparison to the first quarter of fiscal 2020, Grand Theft Auto Online achieved a 72% increase in its audience size, a 77% increase in new players, and significant growth in recurrent consumer spending.

In addition, Rockstar Games continued to captivate and engage audiences with Red Dead Redemption 2, which exceeded our expectations and has now sold-in more than 38 million units. Red Dead Online also enjoyed a strong quarter, thanks to new content offerings, including eight new horse races and a creative array of bonuses and incentives. The game experienced strong performance as compared to the first quarter of fiscal 2020, including 18% growth in its audience size, 26% growth in new players, and outstanding growth in recurrent consumer spending. This performance was driven by both strong ongoing game sales and the continued influx of new players from the standalone version of Red Dead Online.

Turning to our sports offerings, NBA 2K21 has sold in over 11 million units and remains the #1 sports title in the U.S. NBA 2K's community continues to be highly engaged, with more than 2.7 million users playing daily. As compared to last year, the game experienced 13% growth in first-time spenders and nearly 30% growth in returning players. We see a significant opportunity to grow the franchise further over the next few years, as we provide unique and innovative experiences throughout the game.

PGA TOUR 2K21 continues to exceed our expectations and expand its audience. In June, 2K and HB Studios launched a community-driven program that allows the top golf course designers from around the world to create and submit ideas for inclusion in the game's online playlist. This program is enhancing the game's vast replayability, while also driving player engagement and growing its global community.

Borderlands 3 had a strong quarter. During the period, 2K and Gearbox Software released the Director's Cut add-on, providing new missions, characters, daily and weekly challenges, and unique rewards. The game was also supported with an array of new free content offerings that gave players more ways to perfect and expand their arsenals.

2K and Firaxis Games launched Sid Meier's Civilization VI Anthology on Windows PC, providing the ultimate package for players that have yet to experience the award winning, critically acclaimed strategy title. The Anthology includes the base game, all previously released DLC, the Rise & Fall and Gathering Storm expansions, as well as the popular New Frontier Pass. Civilization VI has sold-in more than 11 million units, outperforming its predecessor at the same point in its lifecycle. Later this year, 2K and Firaxis Games will celebrate the 30th Anniversary of the Civilization franchise, and I would like to congratulate our teams on this incredible milestone.

Kerbal Space Program, which has sold-in over 5 million units, celebrated its 10-year anniversary in June. To mark the milestone, Private Division released a short documentary video detailing the achievements of the title, as well as its impact on the aerospace industry. One of our key strategic priorities is to provide new and innovative ways for audiences to stay engaged with our titles and the communities built around them after their initial launch.

During the first quarter, recurrent consumer spending declined 25%, which was better than our expectations of a 30% decline, and accounted for 69% of net bookings. Overall, all evidence suggests that media consumption patterns are beginning to stabilize to a new normal, and while down from the highs of the previous year, recurrent consumer spending in our products has leveled off and remains significantly higher than the first quarter of Fiscal 2020.

The largest contributors to recurrent consumer spending in the period were NBA 2K and Grand Theft Auto Online. We also experienced strong performance across many of our free-to-play offerings. Monster Legends and Dragon City exceeded our expectations, with sequential topline growth compared to the fourth quarter of fiscal 2021. This performance was driven by strong LiveOps, successful feature releases, and significant marketing

Investments.

Two Dots celebrated its seventh anniversary in June. The title performed well, with positive momentum continuing from the second half of fiscal 2021. WWE SuperCard has now been downloaded over 24 million times and remains 2K's highest grossing mobile game. The franchise has had strong performance, with the last 12 months marking its sixth consecutive year of growth. Following our acquisition of Nordeus, we are encouraged by the performance of and the potential for Top Eleven, including its use of seasonal LiveOps and new features. NBA 2K Online in China outperformed our expectations. The title remains the number one online PC sports game in the region with nearly 54 million registered users.

Turning to our outlook, we are reiterating our prior guidance of $3.2 billion to $3.3 billion in net bookings for Fiscal 2022. As we continue to develop our pipeline, there has been movement in some of our planned releases, including two of our immersive core titles shifting to later in Fiscal 2022 than our prior guidance had contemplated. Our approach has always been to allow our labels to determine when projects are ready to bring to market to ensure the best quality and overall experience for players. As Karl will discuss in greater detail, we are excited about our pipeline and the impact our new releases will have on our business and financial profile in the years to come.

We believe that we will achieve sequential growth in fiscal 2023, and establish new record levels of operating results over the next few years. Looking ahead, we remain highly optimistic about the future of the interactive entertainment sector and our competitive positioning. As we leverage our many advantages, our leading talent, focus on creativity, incredible portfolio of owned IP and strong balance sheet, we believe that Take-Two is

Well-positioned to drive long-term growth and shareholder value.

I will now turn the call over to Karl.

[Karl Slatoff, President at Take-Two Interactive Software]

Thanks, Strauss. I would like to thank our teams for a strong start to the year, and their continued dedication to our business. We continue to believe that fiscal year 2022 will be a year of investments, as marked by our recent acquisitions of Nordeus and Dynamixyz. We are thrilled to have both teams join our family, and we will continue to evaluate organic and inorganic opportunities to enhance our organization. I'll now discuss our recent releases.

Rockstar Games continued to provide an array of free content for their vast and growing online communities. In June, Rockstar released seven new arenas for the fan-favorite Deadline mode for Grand Theft Auto Online. This was followed by the Los Santos Tuners update, the game's major summer launch in July, which delivered an action-packed, street-racing themed update into Grand Theft Auto Online. The update introduced elements of the tuner car culture to the game world, including the LS Car Meet, a new, heavily-requested shared social space for players to get together to modify their personal vehicles, watch others modify their Tuner vehicles in real-time, race and test various vehicles on an underground test track, and much more. In addition, the Los Santos Tuners update features six epic new robbery Contracts; six new race types; 10 new highly customizable vehicles; collectible USB sticks offering a new way to hear music from Moodymann and Seth Troxler; and a host of quality-of-life updates, including a new customizable radio station wheel. The launch of the Los Santos Tuners set new records for Grand Theft Auto Online, including the largest number of players and the highest level of Net Bookings for both Day One and during the opening week for any update in Grand Theft Auto Online's history. Looking ahead, the upcoming launch of the expanded and enhanced versions of Grand Theft Auto Online for PlayStation 5 and Xbox Series X and S systems this November will allow for higher top speeds for select vehicles across these more powerful systems.

In July, Rockstar Games released the Blood Money update for Red Dead Online. The update introduced a series of criminal-themed opportunities; complex new missions, including the game's first train robbery; and The Quick Draw Club - a series of four distinct, rapid-fire passes featuring criminal-themed unlockable rewards, bonuses, and more. Blood Money's success, along with the additional influx of new players, thanks to the launch of the standalone version of Red Dead Online, led to the highest number of players on day one for any update in Red Dead Online's history.

Fiscal 2022 is an exciting year for Take-Two, as we embark on our multi-year strategy to deliver a slate of releases more robust than any other time in our Company's history. While there has been some movement in our pipeline, including two of our immersive core titles shifting to later this fiscal year, we remain highly optimistic about our plans, including the introduction of several new franchises.

I'll now discuss details on our upcoming announced offerings for this year. On August 13th, Private Division will launch Hades on physical disc for PlayStation and Xbox consoles. Developed by Supergiant Games, Hades is a rogue-like dungeon crawler in which players seek freedom by battling their way through the treacherous Underworld of Greek myth. The physical retail edition will come with additional items for collectors, including a compendium booklet featuring the art of the game and a code to download its soundtrack. We are excited to launch Hades, which previously won over 50 Game of the Year awards and earned impressive aggregate scores of 93 and 94 on Metacritic and OpenCritic, respectively.

In addition, during the second quarter, Private Division will launch Murder on Eridanos, the second add-on content offering for The Outer Worlds, for the Nintendo Switch. On September 10th, 2K and Visual Concepts will once again set the standard for basketball simulations, as they have done for the past 20 years, with the launch of NBA 2K22 for PlayStation and Xbox consoles, Switch and PC. Featuring best-inclass visual presentation and player AI, historic teams, and a wide variety of hoops experiences, NBA 2K22 will place the entire basketball universe in the player's hands. Global phenomenon and two-time NBA All-Star, Luka Doncic, will grace the cover of the Standard Edition and Cross-Gen Digital Bundle, while NBA legends

Kareem Abdul-Jabbar, Dirk Nowitzki, and Kevin Durant will be featured on the premium NBA 75th Anniversary Edition. In North America, players can purchase a special version of the Standard Edition featuring six-time WNBA All-Star and WNBA Champion, Candace Parker, on the cover, available exclusively through GameStop and EB Games. Parker's appearance is a milestone for the NBA 2K series, marking the first female cover athlete in the history of the franchise. In Japan, players can also purchase a special version of the Standard Edition that will feature Washington Wizards Rui Hachimura, a rising star who was the first Japanese player to not only be drafted in the first round in 2019, but also to reach the NBA Playoffs. The NBA 75th Anniversary Edition and Cross-Gen Digital Bundle will feature cover artwork painted by renowned Atlanta-based artist, Charly Palmer, whose Civil Rights series appeared on the cover of TIME magazine in July 2020.

This fall, Private Division will introduce Kerbal Space Program Enhanced Edition for PlayStation 5 and Xbox Series X and S. The title will benefit from multiple hardware advancements, which will provide upgraded resolution, increased frame-rate, advanced shaders, better textures, and additional performance improvements. Players who already own Kerbal Space Program Enhanced Edition for Gen 8 consoles will be eligible for a free upgrade to the new version of the game upon its release.

On November 11th, Rockstar Games will launch the expanded and enhanced version of Grand Theft Auto V and Grand Theft Online, standalone for Gen 9 consoles. Rockstar Games will have more details to share about these eagerly anticipated launches in the coming months. This winter, Private Division will release Roll 7's OlliOlli World digitally for PlayStation and Xbox consoles, Nintendo Switch, and PC. The title has received outstanding initial feedback from early media impressions, including praise for its bold new direction, unique art style, standout soundtrack, and improved gameplay mechanics.

During the fourth quarter, 2K and Gearbox Software will launch an exciting new franchise. Tiny Tina's Wonderlands is an epic adventure full of whimsy, wonder, and high-powered weaponry set in an unpredictable fantasy world where magic, broadswords, and bullets collide. It is an entirely new game and a full standalone experience, with a rich, story-driven co-op campaign for up to four players, as well as repeatable end-game content. In addition, later this month, 2K will unveil details of another exciting new franchise planned for launch during this fiscal year.

During Fiscal 2022, WWE 2K22 will mark the rebirth of our popular wrestling series. We are very excited about the team's fresh approach to the franchise, including an array of enhancements and new features. 2K and Visual Concepts have shared a series of behind-the-scenes videos of their work on WWE 2K22, including entrance and move animations, as well as motion capture and facial scanning, with much more to come.

Turning to mobile, we are pleased to expand our offerings, especially given the strong momentum in this market segment. Players can look forward to new releases this year, which our teams will have more to share about in the coming months. In addition, our labels continue to invest in technology and new games that they plan to deliver during the next few years.

Turning to eSports, the NBA 2K League kicked off its fourth season on May 19th, that will conclude on September 4th with the League's finals Delivered by DoorDash. This season, games have been airing live on the League's Twitch and YouTube channels, and are also available on eGG Network in Southeast Asia, ESRevolution, Loco in India, Sport1 in Europe, and Dash Radio. The League continues to grow its audience, with more than 2 million followers on its social media platforms and nearly 470 million video views. We are excited about the League's recent announcement that its 2021 playoffs will take place at the Mavs Gaming Hub in Dallas, marking the first time that in-person games will be offered since the 2019 NBA 2K League Finals in New York City. Looking ahead, we believe that the NBA 2K League has the long-term potential to enhance engagement and to be a driver of profits for our company.

In closing, we are optimistic about the multi-year growth trajectory ahead of us. We are positioning our business for growth and enhancing our enterprise by investing in talent and infrastructure. With our robust pipeline of titles and content updates, we are confident that we can establish new record levels of operating performance over the next several years.

I'll now turn the call over to Lainie.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Thanks Karl and good afternoon everyone. Today I'll discuss our first quarter results and then review our financial outlook for the second quarter and fiscal year 2022. Please note that additional details regarding our actual results and outlook are contained in our press release. As Strauss mentioned, fiscal 2022 is off to a strong start, with our first quarter operating results exceeding our expectations.

Net Bookings were $711 million, which was above our guidance of $625 million to $675 million and marked our second-highest Q1 on record. Our outperformance was primarily driven by Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, and Borderlands 3. During the period, overall engagement exceeded our expectations. Recurrent consumer spending declined 25%, as compared to our outlook of a 30% decline, and accounted for 69% of total net bookings. Our outperformance was primarily driven by Grand Theft Auto Online, as well as the addition of Nordeus. Digitally-delivered net bookings declined 26%, as compared to our outlook of a 30% decline, and accounted for 96% of the total. This result was better than our outlook primarily due to the outperformance of recurrent consumer spending. During the quarter, 73% of console game sales were delivered digitally, up from 71% last year. GAAP net revenue declined 2% to $813 million, while cost of goods sold decreased 31% to $330.

Operating expenses increased by 15% to $313 million, primarily driven by higher personnel and stock compensation expenses, as well as the addition of Playdots and Nordeus. And, GAAP net income was $152 million or $1. 30 per share as compared to $89 million or $0.77 cents per share in the first quarter last year. We ended the quarter with over $2.5 billion of cash and short-term Investments.

Turning to our guidance, I'll begin with our full fiscal year expectations. As Strauss mentioned, we are reiterating our net bookings outlook range of $3.2 billion to $3.3 billion. While our first quarter results outperformed our expectations and our acquisition of Nordeus will benefit the year, this is being offset by some changes to our release schedule, including moving two of our immersive core titles to later in fiscal 2022 than our prior guidance had contemplated. We continue to be very excited about our pipeline and the next phase of growth that it presents for our company.

The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, as well as some of our new releases that are yet to be announced. We expect the Net Bookings breakdown from our labels to be roughly 55% 2K, 35% Rockstar Games, and 10% Private Division and T2 Mobile Games. We forecast our geographic Net Bookings split to be about 60% United States and 40% International. As a result of our outperformance in Q1, as well as the addition of Nordeus, we now expect recurrent consumer spending to decline by 9%, compared to our prior outlook of a 15% decline versus fiscal 2021. As a percentage of net bookings, recurrent consumer spending is expected to be relatively flat versus last year and represent 65% of total net bookings.

We now project digitally-delivered net bookings to decrease by approximately 6% as compared to our prior outlook of an 8% decline. As a percentage of our business, digital is projected to represent 90%, slightly above 89% last year. Our forecast assumes that 74% of console game sales will be delivered-digitally, up from 64% last year.

We expect to generate more than $400 million in Non-GAAP adjusted unrestricted operating cash flow and we plan to deploy approximately $170 dollars for capital expenditures. The increase over our prior guidance relates to the acquisition of two office buildings in the U.K. to support our business in the region. We continue to expect GAAP net revenue to range from $3.14 billion to $3.24 billion0, while we now expect cost of goods sold to range from $1.4 billion to $1.44 billion.

Total operating expenses are expected to range from $1.48 billion to $1.5 billion, representing at the midpoint a 23% increase over the prior year. This increase reflects significant investments in marketing, personnel, stock compensation, and IT expenses to bring our expansive multi-year pipeline to market, as well as incremental expenses due to the additionof Nordeus and a full year of Playdots. And, we expect GAAP net income to range from $229 million to $259 million or $1. 95 $2.20 per share. For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2022.

Now, moving to our guidance for the fiscal second quarter. We project net bookings to range from $815 million to $865 million compared to $958 million in the second quarter last year. Our guidance reflects the continued challenging comparisons from last year due to COVID-19. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Dragon City, Top Eleven and Two Dots. We project recurrent consumer spending to decline by approximately 11% and digitally delivered net bookings to decline by approximately 5%. Our forecast assumes that 64% of console game sales will be delivered digitally, up from

57% last year.

We expect GAAP net revenue to range from $740 million to $790 million and cost of goods sold to range from $323 million to $349 million. Operating expenses are expected to range from $368 million to $378 million. At the midpoint, this represents a 27% increase over last year, driven primarily by higher marketing, personnel, IT and research and development costs, as well as the inclusion of Playdots and Nordeus. And, GAAP net income is expected to range from $41 million to $53 million or $0.35 to $0. 45 per share.

In closing, our first quarter results demonstrate the health of our business and the incredible execution from our talented colleagues across the world. As we capitalize on our industry's strong tailwinds, combined with our unique business drivers, we believe that our company will

Deliver significant long-term growth and margin expansion for our shareholders.

Thank you. Ill now turn the call back to Strauss.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks, Lainie and Karl. On behalf of our entire management team, I would like to thank our colleagues for delivering a strong start to the year. And

To our shareholders, I'd to express our appreciation for your continued support. operator?

Questions and Answers

[Operator]

[Operator Instructions] Your first question comes from the line of Mario Lu with Barclays. Please proceed with your question.

[Mario Lu, Analyst at Barclays]

Great, thanks for taking the questions. So being the first of the major video game publishers to report earnings this quarter, wanted to hear your thoughts regarding the recent developments within the industry on gender and equality? If you could share take two stance on this issue and if there's anything you can share in terms of impact or change does expected to be within the company will be greatly appreciated?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks for the question. Look our most important asset here is our people because they create everything that we're able to bring to consumers. We're the to asset light business. We are business of intellectual property and our strategy, our stated strategy has always been to be the most creative, the most innovative and the most efficient company in the business. Diversity is key to our success. We need to have a diverse perspective and diverse voices in order to create that quality. So it starts at the top. Our Board of Directors is diverse with respect to gender, race and skill set. Our management team is exceedingly diverse from a gender perspective. And our voice as a result are diverse. But we're not stopping there. We're also reaching into the community to create a broader more diverse pool from which we can recruit and our competitors can recruit going forward. So we work together on company-sponsored service projects in the communities in which we operate. We encourage individual volunteerism and giving through our philanthropic and matching donation programs. We support organizations that are focused on enhancing diversity. We increased the Canada pool through scholarships to design students contributions to organizations providing stem opportunities to children in underserved communities and delivering interview training and career counseling to young adults, and this crosses genders. But in many instances, we're also focused on young females as well. So we're trying to do with the right thing, from the top of the company at the Board level, to the management team, to even creating a full from which we can recruit a long time into the future. And even, so I'm sure there is much more that we can do.

[Mario Lu, Analyst at Barclays]

Great. Thanks, Strauss. That's glad to hear it. And just one question for Lainie on the COVID impacts and on recurrent consumer spending in the quarter. Recurrent on consumer spending declined 25% versus your guide down to 30, which is a smaller beet than usual. So given that fiscal 1Q was the first full quarter of copying shelter-in-place, can you give us a little bit more color in terms of how user engagement trended throughout the quarter. The things get better or worse and any additional color would be helpful? Thanks.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

I'm definitely in line with what our expectations were. It's a little bit better. We saw better performance in GTA online than we had expected. We also had the addition of Nordeus, which also helped our recurrent consumer spending in the quarter. So it's definitely are seeing the engagement in line with what we had expected, so there really isn't any change than what we had guided to from the beginning of the year. Okay. Thanks, Lainie.

[Operator]

The next question comes from the line of Mike Ng with Goldman Sachs. Please proceed with your question.

[Michael Ng, Analyst at Michael Ng]

Great, thanks for the question. I also just have two. First, could you talk a little bit about how the success of GTA V and GTA Online informs your interest, or sorry, the interest levels for GTA Enhanced Edition and how that could perform? And then second, just as a housekeeping item. I was just wondering if you're willing to provide the actual growth numbers for GTA Online and Red Dead Online in the quarter? And also your assumptions at least directionally for those businesses in the September quarter guidance for RCS. Thank you.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks, Mike. In terms of expectations about any upcoming release apart from giving guidance, I don't tend to give any more color than that. Grand Theft Auto V and Grand Theft Auto Online have been out now for some eight years and the performance has consistently been vastly better than our expectations. I have no doubt that the enhanced addition will delight consumers. I have no doubt that it will be absolutely extraordinary. How it will perform, hard to say. This is now the third generation in which the title has existed. I'm an optimist and I find that you never want to bet against Rockstar Games. So I'm looking forward to the release. And Lainie will take the second question.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

So on GTA online in Q2, our expectations are for it to be up in the quarter due to the update that has just released. We didn't have an update last year. It is difficult comp because of COVID. But since we had this update, we expect it to be up versus last year. And for Red Dead Online since it is a a difficult comp, we expect it to be slightly up, but due to the update, but not as up as GTA Online versus last year.

[Michael Ng, Analyst at Michael Ng]

Great. Thanks, Strauss. Thanks, Lainie.

[Operator]

Your next question comes from the line of Matthew Thornton with Truist Securities. Please proceed with your question.

[Matthew Thornton, Analyst at Truist Securities]

Hey, good afternoon, Strauss, Karl and Lainie. Maybe two quick ones. First is on the delays. You called out the two immersive core titles. It sounded like maybe there might be some other stuff as well. I'm just curious if there's any slippage without getting into specifics around some of the other new mobile titles or extensions kind of planned for the year? Any color there?

And then just secondly, I think you, you just talked a little about kind of engagement trends given the the pandemic normalization. It sounds like things are trending kind of how you thought three months ago. I want to put words in your mouth. But I think that's the interpretation there. The other change in the quarter was obviously around the Apple ATT change, IDFA changes and the impact on the mobile side of the business. I'm just curious on the mobile side of the business, if you saw any impact there or guess how that tracked relative to your expectation when we all sat here three months ago? Thanks. Any color there would be great. Thanks guys.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks, Matthew. We don't have any other expectations or delays. So we've got, we've mentioned what we have as we always do, in terms of how things are trending post pandemic, if you call this post pandemic and I hope we can remains to be seen. The trend is almost exactly what we anticipated and what we've talked about now for over a year, which is we expected post pandemic demand to be higher than pre-pandemic demand and lower than the demand during the pandemic, which stands to reason because people have in many ways returned to normal in most of the world. That remains to be seen as to what will come in the future. I'm hopeful that that will continue. But clearly there has been a systemic shift in favor of Interactive Entertainment, it's now the number one entertainment vertical. It's something like $180 billion market. It's a diverse market in terms of gender, it's a diverse in terms of age. So we couldn't be more optimistic about the market than we are.

And in terms of IDFA, its still early days. It remains to be seen. We have not seen any negative impact on our business and I think that's really because we're big enough that we have lots of access to data. We have a consolidated consumer database across all of our labels, which is very robust. And if you have enough of your own data and you've solid data analytics teams which we have both at the corporate level and at the label level, then a great deal of the information can be found in other ways. And you can do appropriate marketing that protects consumers privacy without the resources that we have before from Apple. So we're in a good place so far with regard to that change, but it is still early.

[Operator]

Your next question comes from the line of Andrew Uerkwitz with Jefferies. Please proceed with your question.

[Andrew Uerkwitz, Analyst at Jefferies Financial Group]

Hey, thank you. I just have two quick ones. First one, I think its for Lainie. Could you, on the increased marketing spend is the delay effect that affect away you're going to go to market with these titles. And then secondly, has the return on marketing spend changed over the last several years? Has it gotten better, gotten worse? Any color there to kind of on how marketing has affected game sales would be useful? Thank you.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

So the increase in the marketing hasn't really changed. There is a little bit of timing change from Q1 into the rest of the year. And there is a little bit of shift out of the year into next year, but that's being offset by some additional costs due to the acquisition of Nordeus into the year. So there is a little bit of an increase in the overall operating expense in the year versus previous guidance. So it's a reduction of a little bit of marketing, offset by the Nordeus expense.

In terms of the return on marketing spend, I wouldn't say there is better or worse. I would say they were a little bit more targeted on how we're spending our marketing. So I'd say we're getting a better return because we're able to really see how we're spending the marketing in a better way with better analytics over the last few years, but the spend continues to be strong spend in order to do the best marketing for our titles, especially also with the mobile titles as well.

[Andrew Uerkwitz, Analyst at Jefferies Financial Group]

Got it. Thank you. And then Strauss, I just wanted to go back to the first question a bit. I mean, has had some of the issues that popped up as other competitors, maybe you guys kind of rethink how some of your policies, procedures and then kind of along those lines, I believe employee turnover is -- I think it does have a history of low turnover because people enjoy working at Take-Two. Is that still the case? Is turnover still pretty low?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thanks for the question. Look, just positive inclusion, diversity and common decency is of paramount importance to everyone here and specifically highly important to me and has been for the 14 years that we've been around. This is nothing new for us. The culture of the company is well known and well known internally and reasonably well known externally. All that said, we can always do better. And I think we're known to be people who will always want to be doing better and never want to rest on our laurels. We don't think that fostering an appropriate environment is a single set of actions or reflects one day in the news cycle. We think it's a constant process of introspection and improvement. There are always ways that we in the industry can do better. We'll listen to our colleagues and we work in this area over time. But I want to be very specific because you asked the question about what we do around here and what we've always done. The first is and I'll say it in as black and white away as I can. We will not tolerate harassment or discrimination or bad behavior of any kind, we never have. We set those expectations when people come on board here through our code of conduct and our anti-harassment and anti-discrimination policies, all of which our colleagues are required to review and sign when they're hired. All of our colleagues take anti-harassment training at hire and by annually after that. And we make it clear through the training and through our policy that if anyone does experience an appropriate contact, there are multiple avenues to report that and they'll never be retaliated against for doing so. Those options include management chain, anyone in HR, an anonymous complaint by phone or online through our third-party party hotline and website reporting. Take-Two has a Director of Diversity and Inclusion and that includes developing, executing and leading a global DE&I strategy and that supports our business objectives.

We also have multiple employee resource groups inside the company and we have more growing all the time, which gives us all a thrill. So that's what we're up to very specifically, again is there more that we could do. I'm certain, there is. Do we feel like we're in a pretty good place. We're grateful that we do feel that way right now.

In terms of retention, our turnover rate is roughly half of the industries that's been true for about the past 18 months. There have been times when it's been about 70% of industry levels. It's been trending down at a time when I think in general turnover is trending up. So we feel good about that. And that's another measure of how we're doing. So we focus on it.

[Andrew Uerkwitz, Analyst at Jefferies Financial Group]

Got it. Thank you so much for that clarity.

[Operator]

Your next question comes from the line of Martin Yang with Oppenheimer and Company. Please proceed with your question.

[Martin Yang, Analyst at Oppenheimer & Co.]

Good afternoon. Thank you for taking my question. My first one is about, how you account for the shift in business models and player taste for games that have a much longer development cycle than a typical annual releases and how much input does [Indecipherable] as central organization have in those directional changes on the market?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

I'm not sure I entirely follow your question. The development cycles for our core immersive releases are still significant. It takes some time to make what we hope will be the best titles in the business and development cycles are not getting shorter for core immersive releases and I wouldn't necessarily expect them to. I think what's changed is that in between big releases, we continue to engage consumers with add on content and with opportunities to engage in online versions of the game, in certain instances multiplayer opportunities as well. So that's created recurrent consumer spending. But much more importantly, recurrent consumer spending reflects consumer activity and engagement. But that doesn't really change development cycles. So did I miss your question in some way.

[Martin Yang, Analyst at Oppenheimer & Co.]

No, I think you answered it. I have a follow-up for Lainie, in terms of the marketing plan for the year, particularly around spend and enhanced versions for GTA. Do you treat that game release as a brand new game around the marketing and campaigns around it? Or do you -- how do you see this enhanced versions and marketing leading to the release?

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Would be to market as a brand new game. There certainly is marketing around the game, but it wouldn't be as if it's a brand new release of a GTA property.

[Martin Yang, Analyst at Oppenheimer & Co.]

Got it. Thank you.

[Operator]

Your next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your questions.

[Matt, Analyst at Morgan Stanley]

Hi guys. It's Matt [Phonetic] on for Brian. Thanks for taking the questions. I have two. So Strauss, you made a comment about seeing signs of stabilization in media consumption pattern. Obviously, understood your comments about how you expected to come to a lower rate post pandemic than you thought during the pandemic. But I guess what are the things that you're seeing right now that are giving you confidence that you're seeing stabilization as it was just sort of being midway through sort of a normalization process with a floor at some lower level?

And then the second question is just on the reorganization of the mobile studios. Are there any new capabilities or new goals for that organization now that you're centralizing all the studios under one umbrella? Is there anything new that's possible on the mobile side of business because of that? Thanks.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Hi, Matt. So in terms of the stabilization of media consumption patterns, really what we're saying is, we can see in the numbers. Obviously, we don't have the same kind of wind in our backs as we did during the pandemic itself, but now that the pandemic is hopefully over as people are getting back to normal. We are experiencing what we expected. But we're also seeing instances, like for example, when the news came out for GTA Online, we're seeing record engagement. So that and itself shows you that that the sort of the moderation that we've seen is really coming to an end, because people are engaging when the content is released and they engaging in a very significant way. So that gives us a lot of confidence that we may be we're past the, I guess you call on the headwinds of losing the tailwinds of the pandemic and we moved on to where titles are behaving as we would expect in a more normalized environment. So we can see it in the numbers themselves.

In terms of centralizing the studio's in mobile under one umbrella. We do expect that there will be synergies across the organizations. Each of these studios has got something to bring in terms of expertise, whether it's data analytics, whether it's different ways to create content. There are a lot of things that they can learn from each other and bring them together under one management umbrella really gives us the ability, not to mention also consumer data, really gives us the ability to to pursue best practices across the entire organization. So yes, we do expect there to be synergies based on this reorganization.

[Operator]

[Operator Instructions] Your next question comes from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your question.

[Gerrick Johnson, Analyst at BMO Capital Markets]

Great, thank you very much. First, I was just wondering why these titles were delayed?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

We needed more time to polish them and make sure the best title they possibly can be.

[Gerrick Johnson, Analyst at BMO Capital Markets]

Okay, so no COVID related delay then.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

No, our team has been incredibly productive throughout the pandemic and even though we have a lot of work going on, productivity is high.

[Gerrick Johnson, Analyst at BMO Capital Markets]

Okay, great. And is Nordeus accretive.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Yes, Nordeus is an accretive acquisition for us.

[Operator]

Your next question comes from the line of Clay Griffin with MoffettNathanson. Please proceed with your question.

[Clay Griffin, Analyst at MoffettNathanson]

Hey, good afternoon. Strauss, I noted Sony's Jim Ryan specifically calling out Chinese demand for position V. You've been bullish on the long-term opportunity in China in the sense that it opens up to us in content. At the same time, there's obviously been a lot of concern on a regulatory shift in China of the space. I'd love to just get your current thoughts on the Chinese market and how you think is Take-Two positioned to participate in that market over time? Thanks.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

It's a great market for us. We are the number one PC online sports title in China with 54 million registered users. NBA 2K Online continues to grow in China. We also have console titles for China and we have titles that are being approved. We have great relationships in China with Tencents and others. And so we think there's plenty of upside going forward.

[Operator]

Your next question comes from the line of Brian Fitzgerald with Wells Fargo. Please proceed with your question.

[Brian Fitzgerald, Analyst at Wells Fargo Securities]

Thanks, guys. From Social Point to Playdots to Nordeus, you guys have always been really highly disciplined in terms of M&A activity. We wanted to ask what you're seeing in terms of valuations on the mobile side of things?. Or are platform changes like Apples with AT&T, is that making it increasingly harder, Strauss, to your point for small publishers and studios to compete? Is that making it more frothy in terms of just the general environment for acquisitions?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

We haven't seen any change in the market yet and valuations remain frothy I think because of the growth of this sector and enthusiasm around the sector. However, our discipline has really paid off in the past 14 years northward. We haven't made a failed acquisition. Our acquisitions are accretive, usually right away. Sometimes it can take a little bit of time. But we're happy that we've done every deal that we've done. We did miss out on a few that we wish we had done, but frankly not all that many.

I think you raised a good point, which is over time will it be harder for smaller companies to compete in this space. And I think that will be true. The answer would be yes with regard to both mobile and console. The resources required are significant. The risk profile is significant. And the history of the entertainment business that over time those that are very creative become very successful. Those that are very successful become bigger. Those that are bigger have the opportunity to acquire smaller enterprises and as long as the focus remains on creativity, innovation and efficiency and as long as the culture that has made the company successful in the first place is maintained, there is an opportunity for continued success even with scale. And that's certainly how we see ourselves and how we envision our future.

[Operator]

Your next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

[Drew Crum, Analyst at Stifel Nicolaus]

Okay, thanks. Hi guys, good afternoon. So just going back to GTA Online. Can you talk about your expectations for the fiscal year. Lainie, I know you said -- you're expecting growth in fiscal 2Q. You have the standalone version coming in November. So with that in place, can GTA Online grow this year? And then separately, I know you guys don't like to guide on specific titles, but on Hades, it looks like you had a limited released previously, demands just shift a million plus copies, very high meta score. Can you talk about maybe at a high level what your expectations are for that game and and prospects for commercial success? Thanks.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

For GTA Online, our expectations for the full year is for it to moderate. So for the full year, we expect moderation of the trends that benefited us from the industry last year due to COVID in the sheltering at home. So, Q1 was down versus last year, you know it beat our expectations and Q2 is going to be because of the update which is doing really well. So we do expect Q3 and Q4 right now to be down. But GTA Online always surprises us. So, it's still early in the year. So we'll see what happens. But right now, we do have our expectations as it being moderating for the year.

[Karl Slatoff, President at Take-Two Interactive Software]

And in terms of Hades. Look, I mean, there are a lot of ways this is one of the ideal projects for private division. I mean, we found that the division based on our effort to hook up with some of the best independent developers in the world and I would certainly categorize Supergiant as one of those. Hades, obviously has had a significant critical and commercial success to date with the digital release and we're really excited to be part of it on the physical side and we think there's a significant market for that title that has just started, they have sold a good number of copies, but there's a lot of upside for us. So we're thrilled to be in business with Supergiant. We think there's a great amount of upside for us and we're looking forward to the release.

[Operator]

Your next question comes from the line of Benjamin with Deutsche Bank. Please proceed with your question.

[Benjamin Soff, Analyst at Deutsche Bank Research]

Hey guys, thanks for the question. Just one, if I could. I was just wondering how you guys think about the subscription model in gaming and where and if you see an opportunity there for you guys? Thanks.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Yeah, our views remain unchanged. We think that a subscription model can make sense for deep catalog titles, but it doesn't really make sense for frontline titles. And for any business model to make sense in the entertainment business, it has to work for the creators of the entertainment as well as the consumers of the entertainment. And I think catalog can make sense for the publishers. It can make sense for consumers who are avid, who really want access to a lot of product. But if you're getting into frontline product, then the economics are much more difficult to make sense of. And remember consumers who are involved with interactive entertainment have different consumption patterns than those involved with linear entertainment. Linear entertainment consumers consume something like 150 hours of programing a month, that's probably well over 100 different titles. In the case of interactive entertainment, consumers are consuming something like 45 hours a month and that may be one, two, three, four titles. But it's certainly not 100 titles. So from a consumer point of view, it's not clear that a subscription model really makes sense for the bulk of consumers. That remains to be seen. We're open minded. We have made catalog titles available for subscription services very occasionally. We've made frontline titles available as well, but we do see this more as a catalog offering than a frontline offering.

[Operator]

Your next question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

[Eric Handler, Analyst at MKM Partners]

Good evening, and thanks for the question. Two questions, first, with regards to the untethering of Red Dead Redemption Online. Now that you've had this for a little while, I'm just curious what are you finding with the game in terms of widening the funnel? Is it bringing new people in that's helping to sell more units of Red Dead Redemption 2. Anything, any color you can give us would be great?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

It's been good news. We've added players, it's been good for the main game, it's been good for Red Dead Online. I think the timing was excellent. Again, I think you can do almost anything from a marketing point of view if you're mindful of creating appropriate marketing windows.

[Eric Handler, Analyst at MKM Partners]

Great. And then just as a follow-up. I'm curious with COVID ebbs and flows, are your developers still completely working at home?. Are you -- have you brought them back in-house at all? Or where you stand there?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

It's a mix. People are back at work in China, for example, and other parts of the globe. We have some people back at work at offices in the U.S. as well. We are very mindful of what's going on. Our colleague safety and health comes first. And thankfully, everyone's highly productive wherever they are.

[Operator]

Your next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed with your question.

[Mike Hickey, Analyst at Benchmark]

Hey Strauss, Karl, Lainie, Nicole, congrats on the quarter, guys. Thanks for taking my questions. Two from me. First one, it looks like subsequent quarter end you started using some of the NCA take down request to remove all of Grand Theft Auto Online. Just sort of curious the catalyst for doing that and sort of the feedback from the player community?

The second question is on the collegiate opportunity. It seems like you sort of have a new frontier here for college sports and athletes and so I guess your thoughts there and any consideration in your pipeline? Thanks, guys.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

In terms of take-downs, we are pretty flexible, frankly. That said, if the economy is threatened or if there is bad behavior, we know how to define that, then we would issue a take down notice. I'm sorry, what was your second question, Mike?

[Mike Hickey, Analyst at Benchmark]

Second question is just on the collegiate opportunity, Strauss, for sports and athletes for games.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

And the opportunity with regard to what, just so I understand your question?

[Mike Hickey, Analyst at Benchmark]

NBA, obviously college basketball would be pretty sweet. I think, just sort of I guess expansion opportunities for your game portfolio or working with athletes maybe for marketing or game, I'm not sure.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

I'm not sure how to answer it and so I'm going to be judicious and probably not going to answer it. I will note that we were in business many years ago with the NCAA and we no longer are. And we're always looking for opportunities to grow our business and our sports business.

[Operator]

Your next question is a follow-up from Matthew Thornton with Truist Securities. Please proceed with your question. Next follow up comes from Gerrick Johnson with BMO Capital Markets. Please proceed with your question.

[Gerrick Johnson, Analyst at BMO Capital Markets]

Great. Thank you. You are in a special time here with next-gen consoles rolling out and you have GTA and NBA both have new titles coming out, we'll take advantage of those consoles. Are you finding more deferral of those titles in general waiting for those next versions and the rollout of those consoles?

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Its awfully hard to measure something like that, but demand for NBA 2K has been very strong this year. We've had a great year. We've sold in over 11 million units and certainly ongoing demand for Grand Theft Auto V has been huge. We sold in over 150 million units. So I'm not sure we've seen. I'm not sure we have measured in any case. We have to do Feller [Phonetic] research and it's still wouldn't tell us anything that we could do differently. But I remain of the view that the enhanced addition of Grand Theft Auto V will be highly appealing to consumers with next-gen platforms more now third gen platforms. But that remains to be seen.

[Gerrick Johnson, Analyst at BMO Capital Markets]

Thank you.

[Operator]

Your next question is a follow-up from Matthew Thornton with Truist Securities. Please proceed with your question.

[Matthew Thornton, Analyst at Truist Securities]

Hey guys, just two quick follow-ups, I guess, staying on new consoles for a second. I'm just curious how you're thinking about supply as we head into the holiday season and obviously, we've got the next-gen Grand Theft Auto releasing, just kind of curious of the latest thoughts around console, supply and demand?

And then just secondly, you guys have talked a lot about the pipeline numbers of releases for fiscal '23 and fiscal '24. You've talked about expecting sequential growth in fiscal '23 and you've talked about getting to new record operating results in the out years as well. I'm just curious if that last comment pertains to that window that fiscal '23 to fiscal '24 window or if I'm reading too much into that? Thanks again, guys.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

We know the demand for consoles remains high, that's not in doubt. We're hopeful that supply will be enhanced by year-end and that will be in a good place. But most importantly, the demand is there. And in terms of the pipeline, yes, we said we expected sequential growth in fiscal' 23 and we expect to set new operating records in the coming years. And we still have both of those expectations.

[Operator]

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Strauss Zelnick for closing remarks.

[Strauss Zelnick, Chairman and Chief Executive Officer at Take-Two Interactive Software]

Thank you so much for joining us today. I want to, as always, emphatically thank all of our colleagues all around the world who delivered these great results and it has been a challenging time to deliver the results and our team shows up and does their best work every day and their work continues to pay off. We're so grateful. We're also grateful to our shareholders who have been so supportive over these years. And I want to wish you all a happy, healthy and safe remainder of the summer. Thanks for joining us.

[Operator]

[Operator Closing Remarks]