Take-Two Interactive Software’s (TTWO) CEO Strauss Zelnick on Q1 2015 Results – Earnings Call Transcript

August 6, 2014 6:41 am | By More

Source: Seeking Alpha

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Take-Two Interactive Software (NASDAQ:TTWO)

Q1 2015 Earnings Call

August 05, 2014 4:30 pm ET

Executives

Henry A. Diamond – Senior Vice President of Investor Relations & Corporate Communications

Strauss H. Zelnick – Chairman, Chief Executive Officer, Member of Executive Committee and Member of Special Litigation Committee

Karl Slatoff – President

Lainie Goldstein – Chief Financial Officer and Principal Accounting Officer

Analysts

Andrew E. Crum – Stifel, Nicolaus & Company, Incorporated, Research Division

Thomas F. Andrews – BMO Capital Markets Canada

Brian Patrick Fitzgerald – Jefferies LLC, Research Division

Zachary Arrick

Ryan Gee – BofA Merrill Lynch, Research Division

Operator

Greetings, and welcome to the Take-Two Interactive Software First Quarter Fiscal Year 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications for Take-Two Interactive. Thank you, Mr. Diamond, you may begin.

Henry A. Diamond – Senior Vice President of Investor Relations & Corporate Communications

Good afternoon. Welcome, and thank you for joining Take-Two’s conference call to discuss its results for the first quarter of fiscal year 2015 ended June 30, 2014. 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 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 annual report on Form 10-K for the fiscal year ended March 31, 2014.

I’d also like to note that, unless otherwise stated, all numbers we will be discussing today are non-GAAP. Please refer to our earnings release for a GAAP to non-GAAP reconciliation and further explanation. Our earnings 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 – Chairman, Chief Executive Officer, Member of Executive Committee and Member of Special Litigation Committee

Thanks, Hank. Good afternoon, and thank you for joining us today.

Take-Two’s fiscal year 2015 is off to a solid start, with the first quarter marking our eighth consecutive period of better-than-expected results. I’m especially pleased to report that we’re able to deliver non-GAAP revenue growth without the benefit of any major new releases, driven by our expanding portfolio of digitally delivered offerings, continued growth in our NBA 2K franchise and persistent demand for Grand Theft Auto V.

NBA 2K14 continues to expand its global audience and has become our first sports release to cross the 7 million unit selling mark. The title has captivated gamers on both current and next-gen platforms, surpassing both FIFA and Madden as the third highest unit selling title of any genre on PlayStation 4 and Xbox One in the United States. Over the past 5 releases, the NBA 2K franchise has grown at a compounded annual rate of 35%, reflecting the consistent ability of 2K and Visual Concepts to raise the bar for excellence and build the series into one of our company’s most important and durable franchises.

Last September, Grand Theft Auto V delivered the most successful launch in the history of entertainment, achieving $1 billion in retail sales in only 3 days. Nearly a year later, the title continues to attract new audiences in Xbox 360 and PlayStation 3, with worldwide selling now surpassing 34 million units. Fans can look forward to Rockstar Game’s release of the PlayStation 4, Xbox One and PC versions this fall, which Karl will have more to share about shortly.

During the first quarter, digitally delivered revenue grew 43% year-over-year, to $106.4 million. Nearly 90% of this growth came from recurrent consumer spending, which accounted for approximately 60% of our digitally delivered revenue during the period. The remainder came from full game downloads across console, PC and mobile platforms. The largest contributor to recurrent consumer spending was virtual currency for Grand Theft Auto Online and NBA 2K14.

Grand Theft Auto Online continues to outperform our expectations and was once again the single largest contributor to digitally delivered revenue. During the first quarter, Rockstar Games released several updates, including the Capture Creator, highlight pack, I’m Not a Hipster pack and the limited time Independence Day Special, which contributed to players’ ongoing strong engagement with Grand Theft Auto Online. We’re highly enthusiastic about the future of Grand Theft Auto Online, including its upcoming fall launch on PlayStation 4, Xbox One and PC

Recurrent consumer spending for NBA 2K also continued to grow during the first quarter, with revenues up 150% year-over-year. Online play, including multiplayer gaming, has become an important enhancement to most players’ engagement with our industry-leading basketball franchise.

Downloadable add-on content for our frontline titles is also a key contributor to recurrent consumer spending. During the first quarter, we broadened our offerings with the release of Borderlands 2, Headhunter 5.

Recurrent consumer spending was also enhanced by our free-to-play online games in Asia. In particular, NBA 2K Online, which we launched in partnership with Tencent in China, continues to deliver growth and revenues and player engagement. Gamers in Asia can also look forward to the commercial launch of Civilization Online, our massively multiplayer online game based on our successful Sid Meier’s Civilization franchise, which is being delivered — being developed by MMO design luminary Jake Song and his team at XLGAMES in Korea.

Catalog sales accounted for nearly 55% or $82.7 million of our first quarter revenue, led by the Grand Theft Auto series; Borderlands 2, which is now sold in more than 10 million units; Sid Meier’s Civilization V which is now sold in over 6 million units; and BioShock Infinite, which is now sold in nearly 7 million units.

Our company continues to benefit from creating the highest-quality titles that attract new audience as well after their initial launch. For the calendar year-to-date through June, Take-Two was the #1 third-party publisher in the United States in terms of catalog unit sales per SKU across Xbox One, Xbox 360, PlayStation 4 and PlayStation 3.

Take-Two had phenomenal success at this year’s E3 show in Los Angeles, which featured the first reveal of Rockstar Games’ Grand Theft Auto V for PlayStation 4 and playable demos from 2K’s extraordinary lineup. Our booth attracted thousands of attendees each day, who waited hours to experience 2K’s titles, which in total won more than 100 editorial awards and honors. Evolve won more than 50, including the coveted Best of Show Award. We’re incredibly proud of this achievement and believe that it bodes well for the title’s February lunch, which Karl will discuss shortly. I’d like to congratulate both Rockstar Games and 2K on their stellar performance at E3.

Fiscal 2015 is poised to be another strong year of revenues and profits for our organization, highlighted by a diverse array of new AAA releases and innovative digitally delivered offerings. With 16 titles we’ve announced to date, we’ve disclosed our complete frontline release schedule for the current fiscal year. There are no longer unannounced titles assumed in our guidance. The outlook for our lineup is stronger than ever, which, coupled with our better-than-expected first quarter results and current business trends, enables us to maintain our guidance for the full fiscal year. Our ability to project these strong results illustrates how our company has been transformed into a diversified interactive entertainment enterprise with numerous successful franchises and meaningful profits from recurrent consumer spending.

Looking beyond the current year, Take-Two has the 4 key attributes that should enable us to maintain our positive momentum: the best creative talent in the business, the strongest portfolio of intellectual property, leading-edge technology and ample cash. We have numerous titles in development, including both groundbreaking new intellectual properties and offerings from our established franchises. As a result, we’re well-positioned to deliver non-GAAP profits every year for the foreseeable future and returns for our shareholders over the long term.

I’ll now turn the call over to Karl.

Karl Slatoff – President

Thanks, Strauss. Today, I’ll provide an update on our release schedule for the remainder of fiscal 2015.

On October 7, Visual Concepts will step onto the court to continue our NBA 2K franchise’s resign as the #1 basketball game in our industry. NBA 2K15 promises, once again, to set new benchmarks for sports realism and game play on both current and next-gen consoles and PC. Oklahoma City Thunder superstar, 4-time NBA scoring champion and 2014 NBA Most Valuable Player, Kevin Durant, will make his solo debut as the game’s cover athlete and this year’s release will include more teams and players from the Turkish Airlines euro league. In addition, internationally renowned music artist and producer Pharrell Williams will curate the most extensive and unique soundtrack compilation in NBA 2K franchise history. 2K and Pharrell will unveil the soundtrack later this summer.

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