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Take-Two Interactive Software, Inc. (TTWO)

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Take-Two Interactive Software, Inc. (TTWO)

Q1 2018 Earnings Call

August 02, 2017 4:30 pm ET

Executives

Henry A. Diamond - Take-Two Interactive Software, Inc.

Strauss H. Zelnick - Take-Two Interactive Software, Inc.

Karl Slatoff - Take-Two Interactive Software, Inc.

Lainie Goldstein - Take-Two Interactive Software, Inc.

Analysts

Eric O. Handler - MKM Partners LLC

Timothy O'Shea - Jefferies LLC

Michael J. Olson - Piper Jaffray & Co.

Justin Post - Bank of America Merrill Lynch

Benjamin Schachter - Macquarie Capital (USA), Inc.

Raymond L. Stochel - Consumer Edge Research LLC

Mike Hickey - The Benchmark Co. LLC

Doug Creutz - Cowen and Company

San Q. Phan - Mizuho Securities USA, Inc.

Drew Crum - Stifel, Nicolaus & Co., Inc.

Steve D. Ju - Credit Suisse Securities (USA) LLC

Evan Wingren - KeyBanc Capital Markets, Inc.

Presentation

Operator

Greetings and welcome to the Take-Two Interactive Software First Quarter Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow formal presentation. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Hank Diamond, Senior Vice President of Investor Relations. Thank you. You may begin.

Henry A. Diamond - Take-Two Interactive Software, Inc.

Good afternoon. Welcome and thank you for joining Take-Two's conference call to discuss its results for the first quarter of fiscal year 2018 ended June 30, 2017. 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 the statements made during this call that are not historical facts are considered forward-looking statements under federal securities law. 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 the 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 unless otherwise stated, all comparisons are year-over-year. Our press release and filings with the SEC may be obtained from our website at www.take2games.com.

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

Strauss H. Zelnick - Take-Two Interactive Software, Inc.

Thanks, Hank. Good afternoon and thank you for joining us today. I'm pleased to report that fiscal 2018 is off to an excellent start, with our business's positive momentum continuing to exceed our expectations in the first quarter. Take-Two delivered growth in both net sales and net revenue, as well as margin expansion.

Grand Theft Auto V and Grand Theft Auto Online continued to outperform our expectations during the first quarter, nearly four years after their initial release. Grand Theft Auto V remains the highest-rated game of the current console generation and the must have title for gamers on both console and PC.

Grand Theft Auto Online delivered its best quarter ever, substantially exceeding our net sales expectations, and was once again the single largest contributor to recurrent consumer spending. Rockstar Games has continued to drive sustained engagement and growth in recurrent consumer spending through the ongoing release of free additional content, most recently the Dawn Raid, Overtime Rumble, and Power Mad updates.

On the heels of the June 13 release of the substantial Gunrunning update, June and July successively became our two biggest months ever for Grand Theft Auto Online monthly active users. And Rockstar Games will continue to support the game going forward. As a result of Grand Theft Auto Online's performance in the first quarter, we now expect the game to deliver net sales growth during fiscal 2018, another consecutive year of record results.

NBA 2K17 remains the top-rated sports game of the current console generation and is now our highest-selling sports title ever with sell-in to-date of more than 8.5 million units. In addition of robust demand for the game itself, net sales from our NBA 2K series continue to benefit from strong engagement and recurrent consumer spending. During the first quarter, recurrent consumer spending in NBA 2K once again exceeded our expectations and grew 64%. NBA 2K has been a tremendous success and we believe that the series can continue to grow both unit sales and recurrent consumer spending for years to come.

In addition, a number of other titles from our diverse portfolio contributed to our first quarter results, including Social Point's free-to-play mobile titles, WWE 2K17 and WWE SuperCard, Mafia III and Sid Meier's Civilization VI. Digitally-delivered net sales exceeded our expectations in the first quarter, driven by growth in both recurrent consumer spending and full game downloads. Recurrent consumer spending increased 71% and accounted for 58% of total net sales.

In addition to virtual currency for Grand Theft Auto Online and NBA 2K, a variety of other offerings contributed to recurrent consumer spending. In the free-to-play category, Social Point continues to outperform our expectations, with net sales from its two biggest games; Dragon City and Monster Legends, growing double-digits in the first quarter. We view Social Point as an important long-term growth opportunity for Take-Two.

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