Take-Two Interactive Software Q4 2022 Earnings Call Transcript

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Provided by Quartr
May 16, 2022

Key Takeaways

  • Take-Two closed FY22 with Q4 net bookings of $846 million and GAAP revenue of $930 million, up 11% YoY, delivering EPS of $0.95 as new releases topped expectations.
  • Announced pending Zynga acquisition set to close May 23, poised to expand mobile bookings, deliver cost synergies and accelerate margin growth by combining Take-Two’s console IP with Zynga’s user base.
  • Provided FY 2023 standalone guidance of $3.75–$3.85 billion in net bookings (≈11% growth at midpoint) and over $350 million in operating cash flow, supported by a pipeline of ~69 titles through FY 2025.
  • Recurrent consumer spending declined 6% in Q4 to 60% of net bookings as strong full-game releases and post-pandemic normalization reduced live service engagement.
  • Engagement drivers remained robust, led by NBA 2K22 with 10 million units sold, 6% higher active days and 13% more games per user YoY, while NBA 2K Mobile downloads rose nearly 25%.
AI Generated. May Contain Errors.
Earnings Conference Call
Take-Two Interactive Software Q4 2022
00:00 / 00:00

There are 13 speakers on the call.

Operator

Greetings, and welcome to Take 2 Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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, you may begin.

Speaker 1

Good afternoon. Thank you for joining our conference call to discuss our results for the Q4 fiscal year 2022 ended March 31, 2022. Today's call will be led by Strauss Zelnick, Take 2's Chairman and Chief Executive Officer Carl Sladoff, our President and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q and 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.

Speaker 1

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 ks 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.

Speaker 1

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

Speaker 2

Thanks, Nicole. Good afternoon and thank you for joining us today. Our strong Q4 results concluded another highly successful year for our company. We delivered net bookings of $3,400,000,000 which reflect our creative team's unwavering commitment to quality and the ability to deliver captivating and engaging entertainment experiences that transcend geographies and generations. On behalf of our management team, I'd like to thank all of our colleagues around the world for helping us to achieve these results, especially as we continue to navigate through the new normal following the pandemic.

Speaker 2

During the year, we positioned our organization strategically for long term growth. To that end, we bolstered our creative teams by adding nearly 1,000 new developers, including through the acquisition of several talented studios, which will help us expand our capabilities and support our growing pipeline of offerings. We broadened our portfolio further with the introduction of new intellectual properties and business We agreed upon our pending combination with Zynga, which will grow our audience significantly and increase exponentially our net bookings for mobile, The fastest growing segment in interactive entertainment, while also providing us with substantial cost synergies and revenue opportunities. As we build our scale, we believe that we can grow our margins meaningfully. Lastly, we advanced our ESG efforts and I'm pleased that we recently published Our first dedicated report, which includes information on our initiatives to date as well as our roadmap for the future.

Speaker 2

During the quarter, our newly released WWE 2K22 and Tiny Tina's Wonderland outperformed our expectations as did Red Dead Redemption 2. NBA 2K22 continued to grow its audience, with the title selling in over 10,000,000 units to date and exceeding sell in from the prior year. During the Q4 engagement remained very strong with average active days of playing up 6% And average games per user up 13% year over year. In addition, NBA 2K22 Arcade Edition Continues to hold the number one position on Apple Arcade's top game chart and for the full year, downloads of NBA 2 ks Mobile increased nearly 25% as compared with fiscal 2021. We see a significant opportunity to add unique and innovative experiences throughout the game and focus on expanding our player base.

Speaker 2

On March 11, 2 ks and Visual Concepts returned triumphantly to the squared circle with the eagerly release of WWE 2K22, which achieved the highest Metacritic scores on both Xbox and PlayStation platforms in franchise history. Setting new benchmarks for quality, the title offers more features and enhancements than any prior release in the series, including a redesigned gameplay engine, new controls, foundational improvements, upgraded visuals and an array of options requested by our passionate player base. Notably, WWE 2K22 sell in 1st 4 weeks exceeded the levels achieved for both WWE 2K19 NWWE 2K20 even with the revised release window that was not during the holiday season. Consumer engagement with the title has been outstanding with over 140,000,000 in game matches play to date And over 5,600,000 hours of WWE 2 ks22 content viewed on Twitch. I'd like to thank 2 ks And the WWE team of Visual Concepts for their commitment to reestablishing this incredible franchise.

Speaker 2

We greatly appreciate WWE's immense support in launching this year's game and look forward to continuing and building upon our successful partnership in the years to come. On March 25, 2 ks and Gearbox Software released Tiny Tina's Wonderlands, an all new fantasy fueled has taken our partnership with Gearbox to new creative heights and is viewed as the best new franchise launch from 2 ks in several years. The title has resonated with core fans and new audiences alike with nearly 30% of players having never before played a Borderlands title. To date, Tiny Tina's Wonderland has exceeded our expectations and is being supported with cross play functionality, an array of post launch content And a season pass. I'd like to congratulate 2 ks and Gearbox on delivering another stellar game and we look forward to the possibilities for this new franchise in the years to come.

Speaker 2

During the Q4, Rockstar Games expanded the reach of their iconic entertainment experience Grand Theft Auto V with the release of new versions of the game upgraded specifically for PlayStation 5 and Xbox Series X and S. This marked the 3rd console generation for which the game has been made available since its initial launch in 2013. And to date, The title is sold in more than 165,000,000 units. Also for the first time ever, Grand Theft Auto Online was made available as a standalone title For the latest generation consoles, featuring an array of graphical and technical enhancements, a new career builder, new vehicles and more, These versions were well received by the game's vast community of players. In the period, Grand Theft Auto Online maintained its massive audience size from the prior year, While growing 8% and 74% as compared to the 4th quarters of fiscal 2020 2019 respectively.

Speaker 2

In addition, Rockstar Games launched GTA Plus, an all new membership program that's exclusive to Grand Theft Auto Online players on PlayStation 5 and Xbox Series X and S Consoles whereby participants can receive a range of valuable player friendly benefits, including a monthly deposit of GTA dollars and other bonuses designed to help players Everything Grand Theft Auto Online has to offer, including access to major content packs like last holidays, the contract. Initial conversion has been above our expectations, which we believe bodes well for this to be an ongoing engagement driver over time. Red Dead Redemption 2 continued to expand its audience and to date have sold in more than 44,000,000 units worldwide. Results for the series were notably above our expectations for the period, which is further proof of the ongoing popularity of Rockstar's blockbuster entertainment experiences. Turning to Private Division, the label's recently acquired studio Roll 7 successfully launched OlliOlli World in February, which received significant critical praise for its unique art style and impressive gameplay mechanics.

Speaker 2

We'll support the title with its first expansion, Void Riders in the first half of this Championing the best independent talent in our industry, Private Division recently signed 4 new publishing agreements with leading independent developers, DiCout de Fabrique, Evening Star, Piccolo Studio and Yellow Brick Games. We look forward to working with these talented teams. During the Q4, recurrent consumer spending declined 6% over last year and accounted for 60% of net bookings. Over the past few months, the consumer has seen a wide array of long awaited high quality new releases in the market, including several of our own exciting titles That have not deployed significant live service offerings. We believe that this dynamic has impacted our overall recurring consumer spending.

Speaker 2

NBA 2 ks and Grand Theft Auto Online were the largest contributors to our current consumer spending during the Q4 and many of our free to play offerings were notable drivers as well. Top Eleven continued to perform very well following our acquisition and was our number one mobile title during the Q4. 2 Dots delivered notable year over year growth and posted its best ever net bookings performance driven by new in game events and successful marketing activations. Dragon City and Monster Legends delivered a solid finish to the year supported by enhanced live operations. WWE SuperCard has now been downloaded more than 20 6,000,000 times and remains 2 ks's highest grossing mobile game.

Speaker 2

And NBA 2 ks Online in China outperformed our expectations. The title remains the number one online PC sports game in the region with nearly 57,000,000 registered users. We're incredibly excited about our future path of growth, including our pending combination with Zynga. We believe that this will be a transformative moment Take 2 as we continue to build upon our core tenants to become the most innovative, the most creative and the most efficient entertainment company in the world. Combined, we'll create a powerhouse of industry leading titles that span key platforms and genres across interactive entertainment, developed by some of the most creative and forward thinking talent within the industry.

Speaker 2

Later this week, our respective shareholders will vote on the transaction, which assuming such approvals are obtained, we anticipate will close on May 23, 2022. On a standalone basis for fiscal 2023, we expect to achieve a new record of $3,750,000,000 to $3,850,000,000 in net bookings as we plan to deliver many new exciting releases during the year. Looking ahead and excluding the impact combination with Zynga, we expect fiscal 2024 and fiscal 2025 to set even higher records of net bookings for our company alongside a significant ramp up and profitability. Lainie will provide additional details on our outlook shortly, while Carl will share an update on our exciting diverse multiyear pipeline, including approximately 69 titles that we plan to release through fiscal 2025. In closing, we're highly optimistic about our future.

Speaker 2

As we continue to expand our enterprise and execute on our growth strategies, we believe that Take 2 remains incredibly well positioned to increase its scale and prominence within the industry, expand margins and deliver long term value for our shareholders. I'll now turn the call over to Carl.

Speaker 3

Thanks, Ross. I'd like to begin by thanking our teams around the world for delivering another outstanding year for our company. Strong results were driven by our colleagues' passion, Creativity and commitment to deliver value for all of our stakeholders. I'll now discuss our recent first quarter releases. On April 21, 2 ks and Gearbox Software released Coiled Captors, the first of 4 exciting downloadable content packs In the Tiny Tina's Wonderland season pass, featuring a new environment, Boston counter and legendary loot, The offering represents an innovative post launch experience from this exciting new franchise.

Speaker 3

On April 26, 2 ks and Visual Concepts launched the Banzai Pack featuring 5 playable superstars plus MyFaction EVO cards for each. This is the first of 5 downloadable planned content offerings for WWE 2K22, all of which will be available individually and as part of the game season pass throughout Looking ahead, fiscal 2023 will be another exciting year for Take 2 as I'll now provide details on Take 2's fiscal 2023 pipeline on a standalone basis, which includes 18 planned releases. We expect to deliver 6 immersive core offerings, all of which will be available for purchase. These include The Quarry, It is an all new horror narrative game from 2 ks and Supermassive Games, where every choice, big or small, shapes your story and determines who lives to tell the tale. Featuring an iconic ensemble cast of Hollywood stars, including David Arquette, Ariel Winter, Justice Smith, Brenda Song, Lance Henriksen, Lin Hsieh and more.

Speaker 3

The Quarry will launch on June 10 for PlayStation and Xbox consoles and Windows PC via Steam. Marvel's Midnight Suns is planned for release during the second half of calendar twenty twenty two and is one of this year's most anticipated games. The title is being developed by Firaxis Games, the acclaimed studio that brought audience to such iconic franchises as Sid Meier's Civilization and XCOM and features the Marvel Universe's most revered heroes and entirely new gameplay experience. TK will have more to share in the coming months. Kerbal Space Program 2, which is coming from private division in Intercept Games, is now expected to launch on PC in early calendar 2023 And on consoles later in calendar 2023.

Speaker 3

Anticipation for the title is high with more than 12,000,000 views of the announcement trailer. The dedicated Kerbal community can look forward to more information about the game and its new features from the title of ongoing gameplay reveal video series. Turning to our annual sports offerings, fans can expect all new releases from our popular sports series, including NBA 2K23, WWE 2 ks23 and PGA Tour 2 ks23, which will debut legendary golf icon Tiger Woods as the game's Executive Director. 2 ks will have more to share about these titles shortly. Continuing with our fiscal 2023 pipeline, We plan to release 8 mobile titles, including 4 from new franchises and 4 from existing franchises And 3 mid core arcade titles for purchase, which include 1 new sports title from 2 ks, a new franchise from Private Division And a new Tales From the Borderlands game, which will feature new characters and stories set in the Borderlands universe.

Speaker 3

And lastly, we'll have one new iteration of the previous release title available for purchase. Our labels will continue to provide new content and experiences that drive engagements and recurrent consumer spending across many of their hit franchises, including NBA 2 ks, Grand Theft Auto Online, Red Dead Redemption Online, WWE 2 ks, Tiny Tina's Wonderland, OlliOlli World and more. Excluding our pending combination with Zynga, we expect to deliver 51 titles throughout fiscal 2024 and fiscal 2025, which we believe will pave the way for us to achieve a strong acceleration in net bookings and growth and profitability. This includes 18 immersive core releases, 7 of which are sports simulation games. 16 of these will be available for purchase while 2 will be free to play: 10 independent titles, which will all be available for purchase 12 free to play mobile games 4 mid core games for purchase, 2 of which will be sports oriented and 7 new iterations of previous Premier League titles, which will all be available for purchase.

Speaker 3

It bears noting that these titles are a snapshot of our current development pipeline. It is likely that some of these titles will not be developed through completion, that launch timing may change and that we will also be adding new titles to our slate. In addition to our full game releases, we will continue to offer post post content from many of our releases ranging from virtual currency sales to DLC packs And the season passes. Turning to esports. The NBA 2 ks League kicked off its 5th season on March 23 And included new sponsors such as Google and Coinbase.

Speaker 3

This year, the league has partnered with the city of Indianapolis to bring all tournaments as well as Playoffs and finals to its new home at the Pavilion at 10 AM. The league's overall prize pool has increased to $2,500,000 this season, The largest since its inception. We remain very excited about the continued success and growth of the NBA 2 ks league, which has a long term potential to enhance engagement and to be a driver of profits for our company. In closing, as we execute on our organic growth initiatives To unlock new opportunities presented by our pending transaction with Zynga, we believe that we can broaden our portfolio and capitalize further Business Models, Emerging Markets and Distribution Channels. As we deliver on these growth opportunities, we believe that Take 2 is exceedingly well positioned to

Speaker 4

our Q4 fiscal 2022 results and then review our financial outlook for the full year and Q1 of fiscal 2023. Please note that our initial outlook does not include Zynga in our projected results or the interest expense on the notes that take 2 issued in April to fund the cash portion of our pending acquisition of Zynga. Additional details regarding our actual results and outlook are contained in our press release. I'm extremely pleased with the accomplishments that Take 2 delivered during the Q4 fiscal year. We posted strong financial results, Took exciting steps to position the company for long term growth and announced our transformational pending combination with Zynga, which brings massive potential to our portfolio and financial profile.

Speaker 4

I'd like to thank our teams for their passion, commitment and for continuing to help Take 2 deliver its strategic vision. Starting with our Q4, total net bookings grew 8% to $846,000,000 Our newly released WWE 2K22 and Tiny Tina's Wonderland outperformed our expectations as did Red Dead Redemption 2. During the period, digitally delivered net bookings grew 4% and accounted for 91% of the total. This exceeded our outlook of a slight increase due to the outperformance of digitally delivered full game sales. 75% of console game sales were delivered digitally, up slightly from last year.

Speaker 4

As Jeff mentioned, over the last few months, there's been a wide array of long awaited high quality new releases in the market, including several of our own exciting titles that have not deployed significant live service offerings. Accordingly, our current consumer spending declined 6% and accounted for 60% of total net bookings. GAAP net revenue grew 11% to $930,000,000 while cost of goods sold increased 43% to $399,000,000 driven by amortization of software development costs for our 4th quarter release. Operating expenses increased by 32% to $403,000,000 driven by the addition of Nordeus, including its earn out as well as higher marketing and transaction costs. And GAAP net income was $111,000,000 or $0.95 per share compared to $219,000,000 or $1.88 per share in the Q4 of fiscal 2021.

Speaker 4

Turning to our fiscal 2022 results. Total net bookings were $3,410,000,000 as compared to $3,550,000,000 in the prior year. As we expected, throughout the year, our engagement trends were notably higher than they were pre pandemic. However, as the world began settling into a new normal, There was a moderation of the trends that benefited our industry during the height of the pandemic. As a result, digitally delivered net bookings declined 2%, slightly outperforming our guidance of a 3% decline and accounted for 91% of the total.

Speaker 4

68% of our console game sales were delivered digitally, up from 64% last year and recurring consumer spending declined 6%. Non GAAP adjusted unrestricted operating cash flow was $425,000,000 as compared to our outlook of over $400,000,000 During fiscal 2022, we spent $159,000,000 in capital expenditures. At fiscal year end, our cash and short term investments balance was approximately $2,600,000,000 GAAP net revenue grew 4% to $3,500,000,000 While cost of goods sold was flat at $1,500,000,000 Operating expenses increased 24% to $1,500,000,000 driven primarily by the additions of Playdots and Audius, including the revaluation of its earn out, higher personnel, stock compensation, Marketing and IT expenses and higher transaction costs. And GAAP net income was $480,000,000 or $3.58 per share as compared to $589,000,000 or $5.09 per share in the prior year. Today, we provided our initial fiscal 2023 outlook for Take 2 on a standalone basis.

Speaker 4

We project net bookings to from $3,750,000,000 to $3,850,000,000 which is a new record level for the company and implies strong growth of 11% at the midpoint. We have an exciting pipeline of releases that we expect to bring to market during the year, including 6 immersive core titles, which is twice as many as we delivered in fiscal 2020 The largest contributors to Netflix are expected to be NBA 2 ks, Grand Theft Auto Online and Grand Theft Auto 5, Red Dead Redemption 2 and Red Dead Online, 90 Tina's Wonderland, Marvel's Midnight Sun and VGA Tour 2K23. We expect the net bookings breakdown from our labels to be roughly 60% 2 ks, 30% Rockstar Games and 10% Private Division and T2 Mobile Games. And we forecast our geographic net bookings split to be about 60% United States and 40% International. And We expect recartens to be flat compared to fiscal 2022 and represent 58% of net bookings, down from 64% last year due to a greater number of new releases.

Speaker 4

We project digitally delivered net bookings to grow 10% and represent 90 1% of net bookings, which is in line with last year. Our forecast assumes that 71% of console and gate sales will be delivered digitally, up from 68% last year. We expect to generate more than $350,000,000 in non GAAP adjusted unrestricted operating cash flow and we plan to deploy approximately $120,000,000 of capital Thank you, Charles. We expect GAAP net revenue to range from $3,670,000,000 to $3,770,000,000 and cost of goods sold to range from 1.66 to $1,700,000,000 Our total operating expenses are expected to range from $1,740,000,000 to $1,760,000,000 At the midpoint, this represents a 17% increase over the prior year. As Carl mentioned, we have approximately 69 titles that we plan to deliver over the next 3 years.

Speaker 4

We will be investing behind our pipeline in key areas such as marketing, personnel and IT. And we expect GAAP net income to range $223,000,000 to $252,000,000 or $1.90 to $2.15 per share. For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2023. Now moving on to our guidance for the fiscal Q1. We project net bookings to range from $700,000,000 to $750,000,000 as compared to $711,000,000 in the Q1 last year.

Speaker 4

The largest contributors to net bookings are expected to be NBA 2K22, Grand Theft Auto Online and Grand Theft Auto 5, Tiny Tina's Wonderland, Red Dead Redemption 2 and Red Dead Online, The Quarry and WWE 2K22. We expect digitally delivered net bookings to increase 2%. Our forecast assumes that 78% of console game sales We'll be delivered digitally, up from 73% in the same period last year. We project recurrent consumer spending to decline by 10% As we believe that the momentum behind our own exciting titles that have not deployed significant live service offerings will continue into the Q1. We expect GAAP net revenue to range from $810,000,000 to $860,000,000 and cost of goods sold to range from $307,000,000 to $333,000,000 Operating expenses are expected to range from $387,000,000 to $397,000,000 At the midpoint, this represents a 25% increase over driven primarily by higher personnel and marketing expenses as well as transaction costs.

Speaker 4

And GAAP net income is expected to range from $93,000,000 to $105,000,000 or $0.80 to $0.90 per share. In closing, we have great confidence in our ability to drive Accelerated growth into fiscal 2023 and beyond. And we believe that our pending combination with Zynga will take our business to an even greater level of scale And profitability, as we execute on our strategic initiatives, we believe that we can deliver sustainable, profitable growth for our shareholders. Thank you. I'll now turn the call back to Jeff.

Speaker 2

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering another outstanding year. And to our shareholders, I'd like to express our appreciation for your continued support. We'll now take your questions. Operator?

Operator

Thank you. At this time, we'll be conducting a question and answer A confirmation tone will indicate your line is in the question For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Andrew Urquowitz with Jefferies. Please proceed with your question.

Speaker 5

Great. Thank you. Just two quick ones. The first one on RCS, it looks like you're guiding that flat and It's down in fiscal 2022. Is that more a product of quantity?

Speaker 5

Or is there something you're seeing in the underlying Engagement stats that can give you comfort that lapping some tough COVID comps during the first half are doable?

Speaker 2

Thank you.

Speaker 4

Yes. So the 1st year is definitely due to the comp against the year with COVID from last year. So we had a really strong Q1 and so comping against that quarter was very difficult. And then this quarter, we were seeing a lot of people Playing on the full games that we put out as well as some of our competitors, so that also affected RCS in the quarter.

Speaker 5

Got it. And then in the guide then, just trying to understand why the guide was flat And for the it just seems like it's still fairly tough. So is it comfort coming back of more RCS for 2023 or something else?

Speaker 4

So in Q1, we're expecting to be down by about 10% and that's the ongoing, of what we're seeing in Q4, which is, The player is playing the full games, of our games and some of our competitors. So that's we're continuing we've seen that in Q1 and we expect to see that. For the full year, we expect to see it flat for the full year. So some of our new games that are coming out don't have any Recurrent consumer spending associated with it, we expect NBA to be up for the year and then GTA Online and Red Dead Online, we expect to be down for the year.

Speaker 6

Got it. Thank you so much.

Speaker 5

And then Strauss, you did a wonderful podcast earlier in the month, I think, with LionTree. In it, you discussed M and A, and the importance of listening to offers. Just out of curiosity, With the changing valuations we've seen across the landscape and the market that we're in, what are your broader thoughts on M and A activity here at the current levels and volatility in the market?

Speaker 2

Well, no one likes to see their stock price experience a drawdown, but we ultimately will always trade on our fundamentals and that's how we look at the company. So we have a really strong company. We continue to perform and outperform expectations as we have in this quarter and in this past fiscal year. We've just issued initial guidance, which is a very positive look at our company and at the market. So we remain in a very optimistic place and I think similarly situated companies probably feel the same way.

Speaker 2

When the overall market rerates, There's nothing that we can do about it nor something that we would wish to do about it. We don't need to access the capital markets at this price level. We're under leveraged under No matter how you look at it, we have a small amount of investment grade debt coming with the closing of the Duzinga transaction and then we have a really powerful company that we expect to Continue to fire on all cylinders. So momentary changes in the market are kind of irrelevant to us. Got it.

Speaker 2

Thank you guys so much.

Operator

Our next question comes from the line of Eric Handler with Kilometers Partners, please proceed with your question.

Speaker 2

Thank you very much. I appreciate the question. Two questions. Strauss, maybe

Speaker 3

you could start off, Do

Speaker 2

you think there's any type of shift going on in preferences among gamers to for more Story mode type of play versus, let's call it, the live services type of play and people are just sort of craving that

Speaker 3

It's Carl. Actually, I think that we never as an industry went away from The attractiveness of the story mode content, we've always said that we believe in that kind of content. We've always delivered on that as Company, it feels like an entertainment experience. And I think what you're seeing is you're just seeing some other games in the market capitalize on that. I think there are a number of I'm out there right now, so maybe it looks that way, but when you look at it over time, story driven content has always been a significant amount a significant portion of the Activity and also the economy behind the industry, and we expect that to be the case going forward.

Speaker 2

Great. Thanks. And just as a second question, Comparing your guidance to what was in the S4 from a few months back, I'm curious if there was when you look at the sort of puts and takes, it looks like the bookings guide is a little lower than your internal budget. The EPS guide is a little better than internal budgets. Anything you could talk about maybe what's changed on the margin since then?

Speaker 4

The projections that we gave in the F4 were not exactly our guidance because these numbers reflected our internal estimates As of the point in time, which was back in December 2021, so there's always some fluidity in our lease fleet, our marketing plans, the overall Operating expense needs, and those can change our projections over time. Also like our net bookings guidance was affected By the Russia Ukraine situation, so those numbers are not included in our projections and in our guidance right now. So that really affected it. So there's always Shifts in our impact on our software development costs and marketing expenses, which also affected the bottom line. So those are some of the differences between

Operator

Our next question comes from Matthew Thornton with Truist Securities. Please proceed with your question.

Speaker 7

You hit on a little bit, but, Lainie, I'm wondering if you Maybe quantify some of the discrete items that have kind of been going on the last 3 months and what I'm getting at there is Russia, as you alluded to, As well as currency, how can we think about that headwind maybe versus where we were 3 months ago? And then maybe more broadly, I don't know if this is for Strauss or Carl, any latest thoughts on just where you think we are in the reopening? Are we At a normal run rate? And similarly, just player behavior, obviously, there's a lot going on again on the macro front. I'm kind of curious your thoughts on what you're seeing in And the player behavior more broadly.

Speaker 7

Any color there would be very helpful. Thanks guys.

Speaker 4

So for the first one, Russia and Ukraine is not a big Material number for us, but it is something that did change between the S-four and our guidance. Probably a bigger difference in the with more of some of the fluidity in our release schedule. In terms of the currency, it wasn't a huge change for us between those Few months, we have a pretty big natural hedge. So there really isn't a big change between then and now for us. When we set our guidance, we set it based on the Spot rate at the time.

Speaker 4

So any major changes from the time that we set our forecast, that couldn't be a difference going forward. But as of right now, it's based on that spot rate.

Speaker 3

And in terms of the post COVID outlook, it does feel like we basically are in a normalized situation right now. And I actually think that that worked out basically as we thought they would. We expected that our audiences would stay with us and they have. And we also expected that we would see some level of pullback in terms of engagement amongst that audience, which we've seen some of that. And I think you can see that reflected across the entire industry.

Speaker 3

At this point, I would characterize it as we sort of normalize, we're stabilized, And I think we're back on the growth trajectory that we were all anticipating a year ago when we expect when we felt that would occur this way.

Operator

Our next question comes from Mario Lu with Barclays. Please proceed with your question.

Speaker 8

Great. Thanks for taking the questions. I have 2 on GTA. So for GTA Plus, you mentioned Gen Zek conversion rate came in above your expectations. So is there a possibility of that subscription kind of being offered to the current gen players as well?

Speaker 8

Sure. And then secondly, you mentioned that I believe the full year guide for GTA recurring service spending is going to be down this year. So how should we think about the savings of updates this year for GTA Online and going forward in terms of current gen versus next gen? Thanks.

Speaker 2

Yes, we haven't given any news about broadening the subscription offering. We're thrilled about how It's been rolled out so far. We're thrilled with the conversion rate and it's clear that consumers really like the opportunity to engage with roxis with GTA Online and they value What we're offering through a subscription. And with regard to ongoing content updates, Rockstar has said there's more content coming and we're excited about that.

Operator

Our next question comes from Colin Sebastian with Baird. Please proceed with your question.

Speaker 9

All right. Thanks. Good afternoon, everybody. Maybe just a follow-up on the normalization of Usage and engagement monetization trends. I guess, we're looking at mounting concerns about a recession, maybe even stagflation.

Speaker 9

I I think historically, the industry has performed pretty well in economic slowdowns, downturns. But curious, Strauss, I guess, how you're thinking about the macro environment? Are there Scenarios where we could see an impact to the growth in investment strategy, on the horizon. And related to that on the mobile side, I mean, there are concerns that the softening we saw in the March Quarter might continue through the year. So curious if that impacts at all your plans for Zynga integration and the synergies?

Speaker 9

Thanks.

Speaker 2

Thanks for your question. Look, people would like to claim that entertainment is countercyclical or Immune to cyclicality, that is not the case. The entertainment business will be affected by an overall economic slowdown. However, we can be seen as resistant to such a slowdown. So for example, if you go back to 'eight and 'nine, the market actually grew in 2,008 by 20%.

Speaker 2

It did decline in 2009, but the 12% drop was less pronounced than many other business segments. And after September 11, The U. S. Gaming market actually grew by 14% in 1 and 11% in 2. So in the event of a consumer recession, and I'm not going to opine on that because I'm not sure my opinion is very valuable.

Speaker 2

In such an event, I think we will be But we can withstand any such slowdown without a problem. And look, if you put out great entertainment, people will come out for it and they'll come out in good times and in bad sometimes, they'll Come out more in bad times. By the way, I don't think there's any evidence that we're going to have stagflation. I mean, stagflation referred to a time when there was Both high unemployment and high inflation. And by high inflation, mortgage rates were over 16%.

Speaker 2

We're not in that ballpark. We're not close to that ballpark. And we have very low unemployment rates in this country right now. So stagflation doesn't seem to me to be a meaningful risk. Some kind of moderate recession, I think, I suppose is conceptually a risk, but it wouldn't have An impact on this business that we can perceive at the time.

Speaker 2

In terms of mobile games, T2 Mobile Games did just fine. They're performing incredibly well and continue to perform well in the Q4. So if that's any guide about how we're going We feel just great about the pending combination with Zynga, and we think there's wonderful opportunities there. And we think that some of the challenges, for example, the post IDFA world actually create opportunities for a company that has the kind of Consumer database that we collectively have with Zynga, I mean data analytics that we have to help us navigate that database.

Operator

Our next question comes from the line of Omar DeSouki with Bank of America. Please proceed with your question.

Speaker 6

Hi. Thanks very much. There's been some debate in the market as to the size of the total addressable market For Grand Theft Auto VI, which was discussed in the blog post by Rockstar, because it will launch into The Gen 9 console cycle, whereas the Grand Theft Auto V launched slightly before PlayStation 4 and Xbox 1 were launched. So will such a graphically intensive game be as performance on Xbox 1 and PlayStation 4 or even the Nintendo Switch as it will be on Xbox X and PlayStation 5. And the streaming technology has the potential to make older generation console and mobile devices capable of a satisfactory performance for such a state of the art game.

Speaker 2

Well, in reverse order, there are no really aren't very many streaming platforms that are up and running right now. Stadia is still up and running. They don't have that many titles and they have relatively small audience. We've been very supportive of Stadia, but it's a tiny portion of our business to be clear. And of course, there's Xbox, but these are not meaningful markets right now.

Speaker 2

I'm not sure I understood the question. If you're asking like, Will the launch of the next update in the Grand Theft Auto series, which has been discussed by Rockstar in a blog post as you pointed out, Have a salutary effect on the launch of upcoming platforms. Is that your question?

Speaker 6

No. It's really the question of whether the installed base, we should think about the installed base As the Xbox 1, sorry, Xbox 1 PlayStation 4 plus Xbox X PlayStation 5 or only Xbox X PlayStation 5, in which case the TAM would be smaller.

Speaker 2

So Rockstar hasn't talked about Any details at all about the next iteration of Grand Theft Auto. So, there'll be more information to come. But I have no doubt that when that moment comes and there is another iteration that we'll be releasing through a very robust market. Could I just ask

Speaker 6

you also a quick follow-up? In terms of your capitalized development expenses, do those typically accelerate As you head closer towards the launch of a big game like Grand Theft Auto 6 or are they relatively flat over time?

Speaker 4

It depends on what games are being worked on and, what the how big the teams are that are working on the games. So over time, the On the balance sheet will go up and down based on what titles are releasing and how the games are being developed, But it doesn't go in line with any one specific game. There is a lot of games being worked on. As Carl mentioned, there is a large amount of titles that Are in the pipeline and, most of those are capitalized other than our mobile titles.

Operator

Our next question comes from Benjamin Soff with Deutsche Bank. Please proceed with your question.

Speaker 10

Hey, guys. Thanks for the question. So just now that the FIFA license is officially kind of up for grabs, I wanted to gauge Your interest in building out a soccer franchise, either simulation or non simulation? And if you've looked into it

Speaker 3

or thought about it, How do

Speaker 10

you see the different opportunities and challenges there? Thanks.

Speaker 2

Well, we noticed And we tend to be thoughtful about our business at all times. We're excited about building out our sports business And we don't have much else to say at the moment.

Speaker 8

Okay.

Operator

Our next question comes from Brian Fitzgerald with Wells Fargo. Please proceed with your question.

Speaker 2

Thank you. Tiny Team is sold on Dragon Keep. It was featured in the PS5 PlayStation Plus and it included a pre order from Wonderland. So just wondering if That Dragons Keep engagement corresponded with pre ordering eventually drove conversions, if that was a unique dynamic, if that was helpful To how the that particular marketing program works. And then Strauss, you highlighted cross play functionality with China.

Speaker 2

Is there anything notable to call out with Back to what you're seeing in the cross platform play there, either versus other Prior games or other cohorts of players because you've mentioned a nice influx of those who had not previously played Borderlandscapes?

Speaker 3

I'll take the second part of the question first in terms of the cross site. Look, the cross Play component of Tiny Kids Wonderland is terrific, and we're really excited about that. We think cross play generally is great for the consumer. To have people being able to play against each other with each other across console and PC, that's an ideal situation. And we do think That ability has helped with Heinekena.

Speaker 3

I don't have any specific data to share of how many of the new people was For the cross play, that part I don't have to share, but I can tell you, obviously, it's a good component, and it is very well executed by Gearbox. And I just could ask you just for I didn't really quite understand the first part of the question about the assault and dragons. What was the Is there a question there?

Speaker 2

So there was if I recall correctly, there was a it was highlighted Assault and Dragon was highlighted in PS5 and the PlayStation Plus and it included a Wonderland's preorder screen. So I'm just wondering If that engagement with Dragon Keep kind of built momentum and drove conversions in terms of people pre ordering and or even Engaging with that and then eventually buying Wonderland.

Speaker 3

Yes. Again, I don't have numbers specific numbers to share with you, But that was a significant marketing feat for us. Anytime that we can reengage a consumer base into a franchise, particularly to launch a new franchise, it's going to have A very positive effect. And obviously, we were blessed to have Tiny Tina because that's one of the most beloved characters in the Borderlands series. So to have access to that and to put out some content prior to the release of Wonderland, obviously had a positive impact on us and drove momentum prior.

Operator

Our next question comes from Matthew Cost with Morgan Stanley. Please proceed with your question.

Speaker 2

Hi, everyone. Thanks for taking the questions. I guess just on the hiring front, you mentioned in the prepared remarks that you added 1,000 developers to the The developer base this year. What are you seeing in the way of competition for those developers and wage inflation? And if you are seeing any To wage inflation, is that impacting your outlook for hiring for the rest of the year?

Speaker 2

And then on the M and A front, obviously, you're Still in the process of closing the Zynga deal, but it does seem like we're in a moment, after many years of running the business with very little leverage and cash On the balance sheet, like there are opportunities out there to go after assets that depress valuations. So I guess, are you On the hunt post Zynga or more focused on kind of the integration effort in the near term? Thanks.

Speaker 3

Sure. In terms of the wage inflation, I think like many other companies, we are feeling the impacts of wage inflation and particularly since the labor market is pretty tight right now. That being said, we really do believe that we're very well positioned to attract and retain talent. We offer Highly competitive compensation packages, benefit packages, many of which include profit sharing and equity. So when the company succeeds, our employees succeed.

Speaker 3

And that is very well appreciated. And there's also the element of our culture where people come here because they like to work here. And they can and particularly on the creative side where they have the freedom to Pursue their passions in a way that also enables them to enrich themselves at the same time. So yes, I would say everybody in the entire market is feeling Some impact of the tight labor market, but I think generally speaking, we're pretty well positioned because we consider that a competitive strength of ours.

Speaker 2

And on the M and A side, our story has mostly been an organic growth story for a very long period of time. We've selectively acquired Companies that have great intellectual property and great teams. And then of course, we acquired Social Point, Playdots and Nordeus in order to enter the mobile business and most excitingly, we expect to close our combination with Zynga next week. But over the 15 year history that this management team has been here to take to, The bulk of our growth, the bulk of our success has been organically driven. And I think that will continue going forward.

Speaker 2

And we have great opportunity because Combined with Zynga, we have the best collection of owned intellectual property for PC and console and mobile in the business and I think The most talented creative people, the most talented executives. And of course, I'm speaking from our perspective, but I believe that and I think we have to deliver on that promise And we will do so organically. I don't know what opportunities exist given what I hope will be a short term rerating of Interactive Entertainment stocks, ultimately all securities will trade on their fundamentals and the fundamentals in this business are Quite strong and I think we'll continue to be strong. That said, we have the ability in a highly disciplined way to do more inorganic Growth transactions and if they make sense to us, we will pursue them. It's probably not the first order of business.

Operator

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

Speaker 7

Hey, good afternoon guys. A couple of quick follow ups. Just going back to the capital allocation question there, Strauss. I think a couple of quarters back, It might have been the fiscal Q3. You actually bought back some stock for the first time in several years.

Speaker 7

I think you guys have typically done that pretty opportunistically. So my first question here is, given the pullback in the shares after you kind of closed the Zynga deal, would buybacks or opportunistic buybacks be something you'd entertain? Or are you trying to Perhaps bring leverage down faster, just kind of any thoughts there? And then just secondly and relatedly, Post close of Zynga, would you wait till the following quarter to issue pro form a guidance? Is that something you might entertain intra quarter?

Speaker 7

Just any way for us To think about that would be helpful. Thanks again everyone.

Speaker 2

Yes. We've said that we believe in returning capital to the shareholders when it makes sense Economically, and we've done buybacks on an opportunistic basis. Generally speaking, when we perceive There would be a deep value opportunity in the marketplace. We perceived such deep value at $158 a share sitting here today. We were wrong about that.

Speaker 2

But it's still this management team's view that that represents deep value of this company for what that's worth. We are heading into a transaction. We have the leverage on the company for the first time ever. And so I think, Again, buybacks won't be our first order of business, but we do retain the flexibility to pursue buybacks if we decide to do so.

Operator

Our next question comes from the line of Mike I'm sorry, were you still

Speaker 2

Sorry, we still have Lane even answer the second part of the question. My apologies.

Speaker 4

No problem. So for the guidance of Zynga, we plan to provide consolidated guidance when we report our Q1 results in early August.

Operator

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

Speaker 11

Hey, thank you. Ace, Strauss, Karl, Wayne, Nicole, nice quarters guys. Congratulations and Thanks for taking my questions. Two questions. The first, I'm not sure how much you can speak to this, but sort of, Laney, maybe your philosophy on Guidance as it relates to mobile, do you think there's much of a delta there in terms of what Zinca has provided to the Street Historically.

Speaker 11

And then more, I guess, higher view, when you look at the mobile market through the Q1 here, How are you reflecting on growth of mobile and is it meeting expectations? And I have a follow-up.

Speaker 4

In terms of our guidance process in terms of mobile, we haven't closed the transaction yet. So we'll start to work with Zynga closely and get a chance to get under the numbers with them and make sure we have a consistent approach towards how we plan all of our business. So that's the plan right now.

Speaker 2

And then

Speaker 11

Strauss, did you have a view just on mobile market growth, if it's Still tracking where you thought it would be or Q1 end, has changed your view at all?

Speaker 2

Yes. We don't track growth statistics quarter to quarter. Long term, we believe that There's a wonderful opportunity in interactive entertainment generally and that mobile will continue to be a rapidly growing segment of the marketplace.

Operator

Our next question comes from the line of Doug Creutz with Cowen and Company. Please proceed with your question.

Speaker 2

Hey, thanks. One of Zynga's key executives recently left to go to the CEO role of another company. Just wondered if you could give any update on your plans for how the mobile business is going to be run assuming the transaction closes? Thank you. It's a little early to have that conversation because the transaction is not closed yet.

Speaker 2

Zynga has been operating successfully as an independent company for approximately 15 years and they have highly experienced key personnel across all areas of their business. Under Frank Gibeau's leadership, Zynga has a deep bench of talent, including many executives who aren't exactly public facing in their roles, But they are running the business on a day to day basis. So we're highly confident that there are plenty of talented executives at the what will become the Zynga division of Take 2, Assuming everything goes according to plan. And we're very excited about the future together and we'll have much more to say about that company after

Operator

Our next question comes from the line of Martin Yang with Oppenheimer.

Speaker 2

This is a more of a longer term question for Strauss. Can Can you maybe share with us how would you characterize the impact of great individual creators, their impact on the commercial And has that really changed since you started working in the industry? Well, I think we have we put more focus on creative talent Here, take 2 of them perhaps any other company in the Interactive Entertainment business and our success has reflected that choice. It's an easy thing to say. It's a hard thing to do.

Speaker 2

We truly encourage the most creative People in the industry to come to our company and work on what they're passionate about and we make decisions that are in service Of that approach, that strategy and our goal to make great art as well as to make great hits. The work is done by teams. All the work here is done by teams, but the leadership is crucial and we have great creative leadership across the board and we're really, Really proud of that great creative leadership and grateful to them for the results that they continue to deliver here.

Operator

Our next question comes from Andrew Maroc with Raymond James. Please proceed with your question.

Speaker 3

Hi, thanks for taking my questions. You mentioned that you saw some success in the standalone GTA Online version. I guess Who are the players that are getting into GTA Online at this point? How do they differ from the legacy GTA Online players To the extent that you can provide quantitative chat around that as well. And then secondly, is there any update that you guys have to share maybe on your NFL partnership?

Speaker 3

Thank you.

Speaker 2

Yes. I think on the GTA players, I think what's most interesting is that the market continues to grow, We've sold in 165,000,000 units of the title even though it was launched in 2013. The title has dominated now 3 console generations. And when we created a standalone version of the Grand Theft Auto Online, lots of people showed up to play it. So clearly, the market is huge and continues to grow.

Speaker 2

And I think Rockstar has done a great job in continuing to Make the market accessible for people over a long period of time. But no, we don't have anything specifically to say about Particular people who've shown up, even though we have a lot of good data. Our next question And we don't have anything right now to say about the NFL We're excited about it. I'm looking forward to the releases that will come in the future.

Operator

Our next question comes from Clay Griffin with MoffettNathanson. Please proceed with your question.

Speaker 10

Yes. Hi, good afternoon. Just a point of clarification there. I know it was late in the quarter, but the standalone price for Gethalmann, is that I'm assuming that's getting booked at RCS or maybe there's some nuance there, just to confirm that. And then Just I'm curious if you could maybe put some thoughts around just the strategy around that.

Speaker 10

I think, Charles, you've called The combination of the full game online of Tether and free to play, just how successful that's been in the past obviously. But any thoughts around should we assume that that Kind of the MO, I guess, for future titles of this size or ilk.

Speaker 2

Sorry, I apologize if you can. What was your question about pricing?

Speaker 4

On standalone.

Speaker 10

I was just curious if the standalone pricing for GTL Online, is that getting booked as recurring consumer spending or is that being booked as Full game, I guess, is the first question.

Speaker 4

And the

Speaker 10

second question?

Speaker 4

So the standalone game itself It is a full game, but if you're playing it online and buying, virtual currency, that's RTS.

Speaker 2

And your second question, I'm sorry, I missed the second one as well.

Speaker 10

Sure. No, just general thoughts on Considering the relative success of tying GTA Online to GTA V, if we should expect that that's the kind of modus operandi For games of this stature for your biggest IP going forward?

Speaker 2

We have said that we expect to offer opportunities To engage with our titles on an ongoing basis after release, we aim to provide such opportunities and to monetize them when it makes sense. But There are different ways to do that. That could be downloadable add on content or that could be an online multiplayer game. It really depends on the title. And As the labels get ready to market and release titles, that will generally be made clear.

Speaker 2

So it varies title by title. There's not going to be just one Singular approach going forward.

Operator

Our next question comes from Drew Crum with Stifel. Please proceed with your question. Hey, thanks.

Speaker 12

Hey, guys. Good afternoon. So I know there's some commentary in the preamble about ramping up Profitability in fiscal 2024 and 2025, is that solely a function of scale or do you also anticipate slowing down the investment And where will we see fluctuation in investment spending going forward? Thanks.

Speaker 4

It's a combination of scale and also the investments other than direct marketing. We would expect those to slow down. The direct marketing will be in line with what titles come out, But the other expenses like headcount and IT expenses and rent, we would expect that to slow down.

Speaker 2

Okay. Thanks. We want to thank you all for your questions today, for your attention, for joining us and for your support. We really appreciate it. Thanks all.

Operator

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

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