Take-Two Interactive Aktie

All right. Thank you all for being here today. My name is Doug Creutz. I'm the senior media and entertainment analyst here at TD Cowen. As PSA, I'm sure you all know the Extel voting window is open. TD appreciates your vote as do I. And I'm very pleased to have with me here today the Chairman and CEO of Take-Two Interactive, Strauss Zelnick.

Thanks, Doug. Nice to be here.

I have been joking with clients that artificial general intelligence is like GTA VI. It's always 12 to 18 months away. But I'm going to have to retire that joke because we are now less than 6 months away from GTA VI. We do think it's going to be the biggest entertainment launch of all time, which is a high bar. So how do you define success for a product like that beyond revenue units? And how does Rockstar define success? And what's their ambition for the product?

Well, we are aiming to make in everything that we do, the greatest entertainment on earth. That's our goal. Our goal is to make phenomenal entertainment. And our strategy is to be the most creative, the most innovative and the most efficient company in the entertainment industry. And each of our labels in its own way tries to create something extraordinary in everything that they do. And sometimes we fall short, of course. And that you probably put a fine point on that at Rockstar, given the critic scores that they've always enjoyed and the breathtaking success of Grand Theft Auto and Red Dead and other intellectual properties that Rockstar has brought to market over its 25-year history. So you can imagine that the ambitions are very, very high and both for Rockstar and for Take-Two. But I think you would define success. You can't help it in terms of the scores that it gets the reviews it gets and the unit sales.

Do you think about it in terms of engagement over the long term?

Well, of course, we can't help thinking that way because Grand Theft Auto V has thrived through 3 console generations and is sold in 230 million units. So -- and has been around for the better part of 13 years and shows no signs of abating. And Grand Theft Auto Online, of course, remains a very powerful property. And you've seen the economic effect of that title when Rockstar generates meaningful unit sales year in, year out and also has significant recurrent consumer spending year in, year out. And we've also guided to significant recurrent consumer spending going forward for Rockstar.

Yes. And you anticipated my next question you had on your earnings call last week.

It's amazing how you can anticipate the next question when you provide them to our Head of IR, Nicole, in advance. It's extraordinary -- I have this incredible mental capacity to read.

You're giving away our secrets. So yes, you did guide to GTA.

I want to see if you guys are awake. And these conferences, like it's just to get a smile out of you all is challenging. So I'm so gratified to do eventually. I don't want to be in the third slot today. Sorry, go ahead.

So you did talk about GTA recurrent consumer spending growing this year. And I know you're not going to divulge sort of what the plans are for the GTA VI launch. But can you talk about what Rockstar has learned from GTA Online and Red Dead Online in terms of running a successful live service title? What they may have learned from observing other parts of your portfolio like NBA 2K and Zynga or even looking at some other high-profile live service launches in the last few years that haven't gone well?

So remember, we have live services at Rockstar now, right? We have GTA Online, we have GTA+. We have the FiveM business. So we already have that in market, and we expect those businesses to continue to thrive. There would be no reason that they would not. And what have we learned? Give consumers something great and they show up for it. We've learned the oldest lesson in the entertainment business.

In terms of how getting the mix...

By the way, that leads me to a story, which is true. So I started in the movie business and the television business. And Columbia -- I worked at Columbia Pictures and the -- I bet there's no one here who knows this. But the head of Columbia Pictures in its heyday, Columbia Pictures was a B studio going back into the old days. And the head of Columbia Pictures was a guy named Harry Cohn. Anyone know this? This is a true story.

And Harry Cohn was detested, reviled in the movie business by everyone. And so much so that there was some amusement at the fact that people were at his funeral. And -- two stories about that. One is someone said to, I think, Jack Warner, but I'm not sure, why do you think there's so many people at Harry Cohn's funeral? And he did say, give people what they want, they come out for it.

And true story. And the rabbi who officiated at the funeral was a famous rabbi in Los Angeles named Rabbi Magnin. And someone went up to him and said, rabbi, you must be able to say something nice about Harry Cohn. I mean this was the rabbi at the funeral, and he said, he's dead. Okay. But I digress. Anyway, you give people what they want, they come out for it.

That is true. If we look...

You can look it up. Both are true stories.

If we look beyond GTA VI, I'd imagine a few things are probably...

I'm trying to divert you. It's just not working.

I know. I know. I know. I'm going to talk -- we'll move on from this for just a second. I would think Rockstar would probably, beyond GTA VI, not like to have another 13-year gap between GTA releases. Maybe not. I mean, obviously, GTA V has done very well. And I assume Rockstar has other ideas that they like to pursue beyond just GTA. So how are you and they thinking about how they evolve over the next 10 or so years to best serve their audience and create value for the company organizationally?

The only way I can answer that is to say these are the very conversations we always have with all of our labels, Rockstar included. And we have a plan. And our plan might not be to have a specific cadence around our properties because we're not a cadence-driven company. We never have been. We -- I didn't show up at Take-Two nearly 20 years ago and say, the way everyone else was. We're going to annualize our products like clockwork to the contrary, and I was an outlier at the time. I said the only products we're going to annualize are sports entertainment properties. We are specifically not going to do it with everything else. That was very unheard of in the business at the time.

And the thesis was that if you do that, a, you're going to burn off your intellectual property because you're in market too often; b, you can't possibly deliver the kind of quality you need to deliver an A+ property by doing that. And I'm not going to name the properties, but we've seen that some very competitive properties have had good annual releases and bad annual releases because it's just so hard to do. And also, if you take a look at the intellectual property landscape when I joined Take-Two at 2007, GTA was not the #1 property. It was a top 5 property, but it was not the #1 property. And take a look at what happened to the properties that were higher up in the food chain that were annualized to see what happens.

So we set a new standard in the business, which is you have to make stuff that's great and creating some anticipation on the part of the consumer is a good thing. That doesn't mean that we said there should be an eight-year gap between releases. What has driven the gap is the amount of time it takes to do something that is as good as it can possibly be for that intellectual property. And sometimes, for example, with Borderlands, Gearbox has done a great job coming to market somewhere between 2 and 4 years after a release and generally speaking, succeeded mightily at doing it. And in other instances, for example, BioShock it's taken longer than we would like.

In the case of GTA V, it was not a simple story of like, wow, guys, took you a long time to come back to market because look at what Rockstar launched. Again, they relaunched and they actually remade the title for PC. They relaunched and remade the title for each new generation, and they launched GTA Online plus other services that were either acquired or launched. To the extent that GTA has become a thriving business, that's an ongoing business. So it's not as simple as, wow, what have you been up to for 13 years? The answer is they've been up to quite a lot. And I think one of the reasons that GTA VI is so widely anticipated is that we now have a GTA ecosystem that Rockstar built.

I would imagine that it's not as simple as saying, oh, let's just pour more resources into Rockstar that they probably are finding the right people to work in that environment probably not the easiest thing in the world.

Look, we -- again, I'm not to name names, but a very big resource-heavy company went into the video game business about, what, 12 years ago. And they've had one title that was moderately successful. It is not about headcount. It is not about technology. I know you'll get to that. It is about the intersection of talent, passion and resource that creates hits. And so it isn't as simple as let's hire more people. Obviously, you have to hire the right people and then manage them the right way with the right creative vision in the first place and then with daily attention to execution, which is ultimately my job, right?

Let's move on to NBA 2K, another very big franchise. You had a tremendous run over the last couple of years, double-digit RCS growth. Can you talk about...

And a huge year this year.

Yes. What they've gotten right to drive all that growth? And you did guide to, I think, 7% growth in the coming fiscal year. What lends you the confidence that you can continue to grow it off of such a tough comp for last year?

We hate talking about what we got right because I'm a big believer that arrogance is the enemy of continued success. And the team at Visual Concepts, if Greg Thomas were sitting here, he would be happy to tell you all the things that we got wrong and all the things that we need to do better at. And I sort of would dive in. But because I didn't actually create the title, I can compliment the team appropriately.

I think what they got right is this wonderful intersection of phenomenal sports simulation game with the creation of a culture and the importation and enhancement of the world surrounding basketball and that you have the ability to show up in that title in NBA 2K and NBA online and play the game or engage with the culture of the game or both. And I also think that Greg and his team at Visual Concepts do a great job of listening to the consumer and making sure that enhancements are in service, not of like enhancing revenue, but in service of creating a better experience, if we create a better experience, the revenue should follow.

So while we're happy here at an investor conference to talk about setting records for unit sales and revenue related thereto and recurrent consumer spending, that comes from meeting the consumers' needs, exceeding their needs, exceeding expectations and getting up the next day and doing it again. And in certain instances, making changes when we've gotten feedback, they're like, no, this isn't what we want. So I think the reason the game has done so well in the past couple of years, it's an amazing game. Just a great, great game. By the way, not the only great game in market. We're running scared at all times. And our friends at EA have the #1 sports title worldwide in FC. So we know the competition has, and we know what we got to do to continue to win.

Do you feel like there's still a lot of untapped opportunity outside the U.S. with NBA?

Huge. I mean basketball is a growth sport. It is growing outside. There's no secret that there's a lot of attention around growth in Europe. And we're very optimistic about where European growth could lead, but also growth in developing markets. And that's a broader theme at Take-Two, where we're very focused on growing developing markets. So remember, the nature of a multinational interactive entertainment company today, unless you're a Chinese company, is that 80% of your revenue comes out of the U.S., U.K., Western Europe and a little pockets of Asia.

And you're not serving at all in a meaningful way, Russia, Latin America, India, Africa and the Middle East. And we want to change that. And so we're aggressively building up our international markets presence, which is challenging because it requires you to invest in advance of revenue, something we hate doing, but we are doing that.

And can you talk a bit about opportunity with college basketball that you see?

Well, I mean, there was a mode. I think the team at 2K and Visual Concepts did a great job getting to market so quickly on college basketball and the consumers loved it, but it's early days. There's much more to come. I think there were 16 or 17 universities represented. It was a really great start.

As a Duke basketball fan, I'm excited to see what you bring.

More to come, much more to come.

Let's talk about some other things that you've talked about coming in the AAA side. You've announced Judas, you've announced Project Ethos. I think you said last week that you would have 7 AAA sequels in total in fiscal '28 and '29, which I assume includes the BioShock sequel that you've talked about. And as you mentioned earlier, BioShock has been brewing for a long time. Judice, I think you announced in 2022. When you think about value creation at the company beyond GTA, how important are these titles to that?

Incredibly important. And I mean, Lainie is sitting here, but I think in the past few years, GTAs total business has been less than 15% of our overall net bookings, if I have that right. So 85% of the company has not been about GTA. And that is in no way to detract from its importance as title. Obviously, it's to make the note that we're a big diversified company with lots of hits, and we have -- half of our business is mobile, of course, and half is console and PC.

So our job is to grow in all directions because we're serving consumers everywhere, every kind of consumer wherever they are and however they want to engage. That's our job. That's what we're trying to do. That's our mission. And in this past year, past fiscal that we just reported, of course, all of our labels did better than expected. So the goal is not to work on one title at a time, right? The goal is to build up our business by delivering great hits and to have largely owned intellectual property that we can bring to the consumer over and over again. So we have 11 franchises. Do I have that right, that have each sold over 5 million units? I think it's -- sorry. It's up to 13.

And those -- when I showed up here, the number was 1, to be clear,. And it's really hard to do. And I'm not really in the business of patting our collective selves in the backs, but no one else has done that, no one else has done that. And we have invested heavily and sometimes had failures and missteps in so doing. But the reason our company is as valuable as it is, is because we have all these franchises that deliver over and over again. And in most instances, actually sell more units with the new iteration in the prior release, not every situation, but most, which is a real outlier in the business. And again, a reflection of our willingness to invest behind quality.

I'm sure you've seen some execs and former execs in the last several years have said that they think AAA development costs are becoming unsustainable in terms of the amount of money that has to be poured in and the risk of failure. Like, how do you think about that?

They're not wrong. I mean -- but this is -- it's odd that you would say this, but the cost of making the best entertainment on earth is actually an entry barrier. And so -- you don't want to go up against that from the outside. But when you're in the inside, if you're judicious and you're careful about your capital allocation, one could argue it's actually a benefit because you have fewer high-end competitors. That's reliant upon the fact that the money is well spent, which is to say that you're making hits.

So it is a game for the big boys. The entertainment business at maturity is always a top 10 or 20 business, always. And if you think otherwise, you're kidding yourself, is not a long-tail business. It's a long-tail business when you're in the top 10 business. That's great. Like, we have a terrific catalog. It generates revenue and cash flow year in, year out. We have terrific live services, generates revenue and cash flow year in, year out. But the locomotive for all that is the front line and the front line has to include sequels and new intellectual property if you want to be in a more powerful position in 10 or 20 years than you are today, and that's our goal.

We've been -- this management team has never looked at the business quarter-to-quarter. As you know, I don't. And as you know, we're willing to do things that other people would see as unnatural acts because we don't look at things quarter-to-quarter. We're building this business for 5, 10, 15, 20 years, hence, even though the odds of my sitting in the seat in 20 years are reasonably low, but hey, you never know. So -- but that's the goal. And the reason that we have the market cap we have today is because I looked at that 20 years ago when we had a $700 million market cap. I wasn't playing quarter-to-quarter. We've made a lot of really hard decisions.

And by the way, we were in the wilderness for quite some time. And then we were undervalued for quite some time where people are like, is this real? And then finally, it began to come to fruition, but did not happen overnight. And now we're in this incredible position of luxury, what a terrible shame it would be if we incinerated by now thinking short term. So yes, we're going to have to invest a lot of money behind our creative teams if we still want to be delivering the best entertainment on earth.

We have to be judicious about capital allocation. We have to be thoughtful. And at times, we're going to have to take hits because we were wrong. But if we get it right, and I do believe we'll get it right with Grand Theft Auto and with BioShock and I hope with Ethos and with many other titles, we do get it right with NBA 2K. These are immensely profitable enterprises despite high production costs and high marketing costs.

I've always said to clients, there's no amount of money you can spend on a hit that's too much and no amount of money you can spend on a flop that's too little.

That's right.

And that's just how you have to approach the business.

We try not to spend much on flops. The best thing is like when you put out something that doesn't work and you run into someone -- this has happened to me also in the movie business more typically. But you run someone at a cocktail party and they're like, why did you make that horrible flop? It's like because I thought it was going to be a hit. Like, what do you think? I thought like that would be a good idea. Let's do that even though it's going to be a flop because I thought it was going to be a hit.

Where it's a little more complicated is mobile because you kind of don't know. So the way we have addressed that is meaningfully to reduce our exposure prelaunch in mobile. When we took over Zynga, they had a couple of projects that had huge numbers attached to that were legacy projects. We don't do that anymore because the hit ratios are so low in mobile, it just doesn't make sense. And really to focus mightily on fewer than 10 new launches a year in hopes of having 1 or 2 hits a year. And that strategy has paid off. It's what led to Color Block Jam and Match Factory and some titles that are doing really well that are somewhat smaller than that. And we hope that we'll be able to do that year in, year out.

But what we have done in mobile is gotten out of the business of spending massive amounts of money where the hit ratios just don't bear up. And mobile is essentially a direct marketing business on the marketing side, whereas PC and console releases feel more like brand marketing. So we do a bunch of performance marketing. But when you market a PC or console title, it's a lot like marketing a movie release in the old days for me, whereas marketing a mobile title is much more performance -- direct marketing. And I have a whole history in the old-fashioned direct marketing business. And one thing about direct marketing is it's very difficult to predict. It's the data that tells you the answer.

So if you're in a situation where you can't predict, like we doubled down on GTA because we believe, okay, if we get this right, it should do really, really, really well. But you can't double down on the mobile title because the hit ratios are just too low. So I can't tell you the numbers, but it cost us -- I mean, it was like a rounding error to get to market on Color Block Jam. It was just very, very, very low. Now then you have to invest in marketing. So equally, Match Factory, it wasn't a rounding error, but it was an inexpensive title, but then we had to really spend on marketing, and we made no bones about it. We were public about it. And it takes a while to get your money back when you do that, too.

Yes. And you had a great year in mobile. You grew 13%.

Yes, Frank Gibeau and the team at Zynga have done a phenomenal job.

You've also -- I mean, you talked about your new titles, Toon Blast, which is a much older title.

That's 14 years old and just set a record, it's incredible.

Yes. I mean, what's been the driver of that incredible growth spurt this long after launch?

It's been engaging with the legacy consumers. It's less about DAU growth and much more about engaging with the consumers who love the title and giving them what they want.

Do you feel like -- you talked about how much you have to invest in marketing to have a mobile title have a chance of success. Is that as much of a barrier to entry on mobile as development costs are for console?

It's a great question. And the answer is yes, it really is. So the good news is you can actually -- especially with AI, you can develop a mobile title really cheaply and get it to market. But if the payback period for the marketing is 2 years, and there are companies that think 2 years is too short. So we have direct competitors who spend up to like 5-year paybacks as far as we can tell, which we think is insane. But either way, think about what you have to spend to start getting positive cash flow.

So there's -- the entry barriers are enormous unless you create something that's actually a viral hit, and that doesn't really happen anymore. I mean, there are outliers, but they really are very few and far between. I can't think of one. So our friends at Scopely, for example, spent a massive amount of money on MONOPOLY GO. Now it paid off. It's a very profitable title. It's a huge title, but they spent an enormous amount of money supporting the marketing before the money came back. And we spent a lot of money on other titles.

So yes, it's a huge barrier to entry in mobile. There's a whole lot of business actually growing up of independent companies that are financing UA for mobile companies. So I don't know if you know this, but they're all private. So I'm not going to help you all out. But there are probably 5 companies that have raised private capital and they finance UA and then they take it back off the top.

Is their edge that they are really skilled at it? Or is this...

But that's their idea. I mean, if they're not really skilled at it, they're not going to be around very long. But so far, one of them used to -- one of the guys doing it that used to work for me is super talented. And it's still a small business because he does have to be very selective, but it's working.

You've talked about direct-to-consumer as an important margin growth vector for mobile. And we've seen -- there are some companies that report their DTC as a percent of total revenue. It does seem like there's been a big acceleration at companies like Playtika in the last year in terms of they're getting up to 40%. How is that going for you? And do you see a lot of continued runway there as a margin growth driver?

It's going really well. We are not direct-to-consumer in every one of our mobile titles, but we're nearly there. We don't talk about the percentage, but it's meaningful. And in fact, if you go back to the comments I made during the Zynga acquisition, when we talk about synergies and particularly revenue synergies, I outlined as one of the areas of revenue synergy going direct-to-consumer. And we vastly exceeded our expectations that we laid out at that time. Because at that time, direct-to-consumer at Zynga was 0% of their revenue. So it's a whole lot higher than that.

At the same time, we are not -- our strategy is not bring people to our company store to increase margin. Our strategy is to be the best entertainment company on earth by delivering more hits than anyone else and delivering them to consumers where they are and how they want to consume our titles. That's our job. And so if they want to buy stuff from a store, as long as that store treats us fairly and protects our intellectual property, we're going to be in business with that store.

I do think that third-party distribution costs will go down, partially for regulatory reasons, partially as a result of litigation and partially and probably most appropriately as a result of competition. And -- but third-party stores are important to us because they market our titles, too, and they are really good partners to us. So you can't ask someone to be a good partner on the one hand and then grab their wallet on the other hand. So we're -- it's a balance. There are consumers who want to engage with us directly, great. We'll do that. There are consumers who want to buy through the store, we'll do that. Just want to be treated fairly when we're at the store.

Do you feel like the third-party distributors are already becoming better partners because of the pressure that they're seeing from potential?

Well, they've always actually been really good partners. They've just been pricey partners. And I do think that they're -- but I do think third-party distributors understand now that those costs have to come down.

Okay. Just stepping back a bit, there's been a lot of hammering about the video game industry over the last few years. Obviously, there's been a lot of layoffs across the industry, at least a perceived lack of market growth, whether that's true or not.

It's actually not the stats I've recently seen from Newzoo, like the growing market.

I mean, I agree, but this is what I hear and -- we really read the headlines...

To what Matthew Ball wrote.

Yes.

But actually, it's not been borne out in what we're seeing. We've done incredibly well. And much as I would love to take full credit for that, I think we have felt industry tailwinds. We really have. We certainly have not felt headwinds. We felt a lot of headwinds in 2022, mid-'22 in both mobile and console. We saw it post pandemic. That's not what we're seeing now. We're feeling modest tailwinds.

So you feel -- if you looked at the next 5 years, where you think the opportunity is for the industry, you feel good about...

Oh my God. I mean it's breathtaking for -- and I'll give you 2 big reasons. put everything else to the side, streaming and developing markets. Those are 2 areas of focus for us. So will streaming technology bring PC content to consumers who previously couldn't get it because they didn't have PCs? You bet. What is a big barrier? It's obviously latency. And there are numerous companies, both domestically and internationally that are addressing that. And in the U.S., I think it will be edge network driven. Outside of the U.S., it will be driven by things like Starlink.

And it won't work for every title, but it will work for some. And it certainly does not mean if you've got whatever, I don't know, there are 8 billion people and you got like 2 billion or 3 billion phones and you've got an installed base of console of under 200 million, it does not mean you're in a 10x the market, obviously, because avid consumers are in the console business or in the PC business.

It does mean, though, that I think you're going to meaningfully address consumers who previously could not consume your products. So streaming should be really huge for us. And then the second thing, as I mentioned earlier, developing markets. We've got well over 1 billion people that we can serve in India that we do not serve now. Just by way of one example, 500 million people in the Middle East. So we do serve the Middle East, but not as effectively as we aim to do in the future.

So we can't have a TMT conference these days without discussing AI.

No. By the way, I got invited to a dinner, and it was like one of these think tank dinners. It was like, would you please come to dinner in [indiscernible], a small group of people to talk about AI. And I am a very polite person, which you know. And generally, I would say, I'm sorry, thank you very much for the invitation, but I can't make it. But I just couldn't help myself. I wrote back and I said, I can't spend 5 minutes having another discussion about AI, but thank you for the invite. I did actually say that I cannot do it. And clearly, the person I sent it to did not read the response. Like oh, you'll come another...

It was probably an AI bot.

Not to discuss AI, I won't. But anyway, I'm going to -- we only have 25 seconds.

We have 25 seconds.

[indiscernible] board. I've never eyed the clock so much. Please go ahead.

And the executive and other company I cover said that AI is ultimately going to allow a team of 3 people to develop a GTA class game within a week. What's your view on that?

That would be -- wouldn't that be great for us? No, that's not can't achieve. Anything that we have 3-part strategy, be the most creative, be the most efficient, be the most innovative. And if we have tools that allow us to be more innovative, more efficient and more creative, we're all in. That's what we've used tools for before.

I think the problem with the conclusion that people reach when the executive says that is, and therefore, they will make a hit that's as big as GTA, and there's 0 evidence for that. Because we've had technology forever that would allow people to recreate what we do. Maybe it's not done in a week, but who cares? Given how much GTA is worth, if you could make something that's as good as GTA and performs as well, would it bother you that it currently takes 13 years? Of course, not. Like why wouldn't you do that? So -- and people have tried. Anyone running into Assassin's Creed?I mean, people have tried to make titles that competed directly with GTA.

And by the way, this isn't by way of my saying no one could ever compete with us. To the contrary, I'm simply saying that the ability to use tools to create intellectual property is totally different than creating hits. It's just a different exercise. And there -- anyone see the 007 early reviews and early scores, like it was done by my friend, Casper Daugaard and his team, and it looks phenomenal. It looks great, and they're outside of the major studio system.

It is absolutely possible to make something of great quality. And if tools allow you to do that great, but they'll also allow us to increase our quality and increase our efficiency. Making a hit is different than making an asset. They're just different things. And I have no doubt that technology is going to allow us to make better assets more efficiently, like that's the history of technology. But making hits, making hits seems to get harder and harder and harder as entertainment industries mature. We do not have a monopoly in hit creation. As I said earlier, arrogance is the enemy of continued success.

I don't believe for a minute that technological advances give someone else an edge or give us an edge. It's just the tool set. It's available to everyone. And the key thing is that all of this is going to be totally commoditized. Show me one AI company, just one, who's offering their services or products to companies on an exclusive basis. They don't exist. So when that executive has that button to push, I'll have the same damn button. And the folks at Rockstar seem to be able to make these massive hits and lots of other people have tried, lots and lots, including former Rockstar employees. And so far, they haven't been able to do. It doesn't mean they can't in the future.

By the way, we're always running scared. But it won't be technology that changes the game. That won't be the change. What will change is that some extraordinarily creative individual or individuals are going to show up and do something astonishing. Our goal is to get those people to work within the Take-Two system. If we fail to do that, we fail. If we continue to be the home of creativity, the company that welcomes and encourages and supports and finances the best talent in the business, then the rest will take care of itself. And technology is in service of those goals, not at odds with them.

That's great. I don't think that was 5 minutes. Thank you so much.

Thanks for having me. Thanks so much. Thanks all.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter and fiscal year 2026 and Take-Two Interactive Software Results Call. [Operator Instructions] I would now like to turn the call over to Nicole Shevins, Senior Vice President, Investor Relations and Corporate Communications. Nicole, please go ahead.

Good afternoon. Thank you for joining our conference call to discuss our results for the fourth quarter and fiscal year 2026 ended March 31, 2026.

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 states 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.

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we concluded fiscal year 2026 with excellent results, including fourth quarter net bookings of $1.58 billion which was above the high end of our guidance range. Net bookings for the full fiscal year were $6.7 billion, which was approximately $750 million above the initial guidance we provided last May. .

NBA 2K delivered record net bookings and recurrent consumer spending. Zynga achieved its highest level of net bookings since we acquired the business in 2022 and the Grand Theft Auto series, once again exceeded our expectations and continued to drive significant net bookings and deep engagement with its passionate community of players.

Fiscal 2027 is poised to be a breakout year for Take-Two, led by the November 19 release of Grand Theft VI, arguably the most anticipated entertainment property of all time and we're excited that Rockstar Games will start their marketing campaign this summer. Our initial financial outlook for fiscal 2027 includes record net bookings of $8 billion to $8.2 billion. This reflects meaningful growth over last year, led by the launch of Grand Theft Auto VI, along with the successful execution across our entire portfolio.

We expect to sustain this higher level of scale and generate strong cash flows well into the future as we release our robust long-term development pipeline and capitalize on new opportunities across our highly established multifaceted business. Turning to highlights from the quarter. I'll begin with our fantastic mobile performance. Toon Blast grew approximately 25% year-over-year as Peak introduced new events and features, including Temple Guardians, Deep Quest and refined level experiences. Match Factory! continued to perform with players responding positively to its live service execution and a continuous pipeline of play-friendly features such as the collectible album.

Empires & Puzzles outpaced our forecast and grew 5% over last year, driven by a robust slate of in-game events celebrating the Titles Nift anniversary. Color Block Jam grew 15% year-over-year and remains the highest grossing title in Rollic's history. Top Eleven delivered its strongest quarter ever after 16 years in market, driven by superb performance of the Bundesliga and live operations innovation. 2K's mobile offerings posted another solid quarter with WWE SuperCard reaching nearly 39 million lifetime downloads.

NBA 2K Mobile continuing to expand its audience. NBA 2K26 Arcade edition maintaining its top 5 position on the Apple Arcade charts and NBA 2K AllStar in China growing to nearly 10 million registered users for just 1 year end market.

Our direct-to-consumer channel continues to drive net bookings and margin growth as we integrate additional mobile titles from our portfolio and deepen our relationships with players by reducing payment friction and enhancing the end-to-end user experience, which is generating movements in conversion and customer loyalty. As the regulatory landscape continues to evolve, we're even more confident in the sustainability and growth profile of this platform.

The Grand Theft Auto series continues to outpace expectations significantly and demonstrate incredible momentum leading up to the launch of Grand Theft Auto VI on November 19. Recurrent consumer spending grew 5% year-over-year with strong engagement in GTA Online, driven by a Safe House and the Hills, one of the best-performing updates in its history. This content offering provided a wide range of community-requested features including mansion properties, the return of Michael Disanto from Grand Theft Auto V, all new missions, vehicles, exclusive GTAs benefits and the powerful new Rockstar mission creator that allows content creators to make their own GTA experiences.

Sales of Grand Theft Auto V advanced further with nearly 230 million units sold in to date. GTAs continues to see significant growth year-over-year led by the holiday update and highly attractive monthly benefits such as the inclusion of NBA-2K26 and its games library. In addition, Rockstar Games Red Dead Redemption to achieved its highest level of annual unit sales since its launch year, with over 85 million units sold in to date. During the quarter, our sports offerings also performed well. NBA 2K26 continued to expand its audience -- to date, the title has sold in over 10 million units, representing a 5% increase over NBA 2K25.

Recurrent customer spending grew 10% as we benefit from higher daily active users and games played per user. In keeping with our strategic focus on innovation, Visual Concepts launched season NBA 2K26, their first-ever college themed offering featuring 16 iconic universities, which was welcomed by NBA 2K's vast community and provided a glimpse of what's to come in college basketball for next year and beyond. I'd like to thank our partners at the NBA and the NBA Players Association for their continued engagement and support in our collective mission.

On March 13, 2K and Visual Concepts launched WWE 2K26, which was well received by critics and consumers alike. Engagement has been excellent with recurrent consumer spending up 20% year-over-year and more than 85 million matches played an increase of 7% compared to WWE 2K25. 2K is supporting the title with multiple updates through its ringside pass. I'd like to thank Nick Con and his team at for their unwavering support and partnership as we continue to evolve this series further for fans of the game.

PGA Tour 2K25 enjoyed a fantastic resurgence. 2K captured an influx of new players and drove strong organic interest by aligning Season 5 with the start of the PGA tour season in January and including the title on PlayStation Plus. During the quarter, our consumers played 60 million rounds of golf representing a 110 [indiscernible] increase over the third quarter. 2K will support the franchise throughout the year with several more content updates.

In closing, we're incredibly excited by the promise of our future for our players, our organization and our shareholders. This year has the opportunity to be a major inflection point for our company. defined by groundbreaking entertainment experiences, creative and operational excellence and record net bookings. With our flexible balance sheet, our strong cash position and our expectation that we'll generate over $1 billion in operating cash flow this fiscal year. We believe that we're extraordinarily well positioned to take measure, creative risks, to pursue accretive M&A and to invest in technology that will unlock greater creative capabilities and operational efficiencies across our organization.

I'm immensely proud of our teams and exceedingly optimistic that we'll continue to drive greater success and shareholder value for the long term. I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams for another strong quarter and for laying the groundwork for an exciting chapter in our company's history. We are extremely optimistic about our upcoming pipeline, which includes 29 titles through fiscal 2029. In the interest of Precision, we are now only counting mobile games in our pipeline that have been specifically scheduled for worldwide launch within the 3-year window. Our teams continue to develop and test many new titles not reflected in this outlook, some of which may be added to our multi-accounts.

Fiscal 2027 is set to be a milestone year led by the launch of Grand Theft Auto VI on November 19. We plan to release 6 additional titles during the fiscal year. including 2 mobile titles, 3 sports titles, which are NBA 2K27, PGA Tour 2K27 and WWE 2K27 and 1 platform extension. Our labels will also continue to provide new content and experiences that drive engagement and recurring consumer spending across many of our previously released titles.

Looking ahead, we currently expect to deliver 22 titles throughout fiscal 2028 and 2029, including 1 mobile title, 5 sports titles -- new IPs and 13 core existing IPs, which includes 7 sequels and 6 Remix remasters and platform extensions. We look forward to sharing more about our groundbreaking pipeline, which we believe will drive a new period of growth and long-term returns for our shareholders.

I'll now turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. Fiscal 2026 was an exceptional year for Take-Two as we achieved record net bookings and operating performance. Each of our labels significantly outperformed the initial forecast we provided last May as our teams maintained their focus on product innovation and delivering the highest levels of quality and value. I'd like to thank our teams for their passion and dedication to embark on this milestone year marked by the highly anticipated release of Grand Theft Auto VI and strength across our core businesses results.

We delivered fourth quarter net bookings of $1.58 billion, which was above the high end of our guidance range of $1.51 billion and $1.56 billion. This reflected better-than-expected formats from the Grand Theft Auto series, several mobile titles and the Red Dead Redemption series. Recurrent consumer spending growth was strong, increasing 7% over last year and accounting for 82% of net bookings. This included 7% growth from mobile and 5% growth for Grand Theft Auto Online, both of which surpassed our expirations.

NBA 2K increased 10%, which represented one of the strongest fourth quarters franchise history but was softer than anticipated as trends moderated from the extreme growth we achieved during the second and third quarters of the year. During the quarter, we launched Sid Meier's Civilization 7 for Apple Arcade, PGA Tour 2K25 for Switch 2 and WWE 2K26.

GAAP net revenue increased 6% to $1.68 billion, while cost of revenue declined 5% to $741 million. Operating expenses decreased significantly to $928 million, as last year included a $3.6 billion impairment expense related to goodwill and acquired intangible assets. On a management basis, operating expenses declined 2% year-over-year. which was favorable to our guidance due to lower marketing expenditures, some of which shifted out of the period.

For fiscal 2026, we achieved net bookings of $6.72 billion which was above the high end of our guidance range of $6.65 billion to $6.7 billion. Recurrent consumer spending grew 17% and accounted for 78% of net bookings. NBA 2K grew over 30% and Mobile increased 13% and Grand Theft Auto Online increased 6%, all sharply exceeding our initial May guidance. Operating cash flow was $624 million compared to our forecast of $450 million reflecting our fantastic fourth quarter. We spent approximately $163 million in capital expenditures, which due to timing is favorable to our forecast.

GAAP net revenue rose 18% to $6.65 billion, and cost of revenue increased 11% to $2.8 billion. Operating expenses decreased significantly to $3.9 billion due to the impairment charges that I mentioned previously from -- fourth quarter. On a management basis, operating expenses rose 7% year-over-year, which represented strong leverage over the prior year. Today, we are providing our initial outlook for fiscal 2027. We project net bookings to range from $8 billion to $8.2 billion, which reflects approximately 20% growth over fiscal 2026 and primarily due to the launch of Grand Theft Auto VI on November 19, along with successful execution across our entire portfolio.

The largest contributors to net bookings are expected to be the Grand Theft Auto series, NBA 2K, Toon Blast, Match Factory, Empires & Puzzles, the Red Dead Redemption series, Words with Friends, Color Block Jam and Zynga Poker. We expect recurrent consumer spending to be flat in fiscal 2026 and to represent 65% of net bookings. Our current consumer spending forecast assumes NBA 2K is up high single digits, the Grand Theft Auto series up and mobile is down due to last year's success of Color Block Jam and our assumption that trends will moderate for several of Zynga's mature mobile titles. We expect the net bookings breakdown from our labels to be roughly 36% Rockstar Games, 35% Zynga and 29% 2K.

We have forecast operating cash flow in excess of $1 billion, and we expect to be in a net cash position by the end of the fiscal year planned to deploy approximately $200 million of capital expenditures for game technology and office build-outs. We expect GAAP net revenue to range from $7.9 billion to $8.1 billion and cost of revenue to range from $3.5 billion to $3.62 billion. Our total operating expenses are expected to range from $4.18 billion to $4.2 billion. On a management basis, we expect operating expense growth of approximately 8% year-over-year. which represents significant leverage over fiscal 2026. This growth is largely due to higher marketing expense to support the launch of Grand Theft Auto VI and our new mobile releases as well as higher R&D costs.

Now moving on to our guidance for the fiscal first quarter. We project net bookings to range from $1.32 billion to $1.37 billion compared to $1.4 billion in the first quarter last year. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory!, Empires and Puzzles, the Red Dead Redemption series, Color Block Jam, Words with Friends and Zynga Poker. We project recurrent consumer spending to decline approximately 3%, which assumes high single-digit growth for NBA 2K and declines for mobile and the Grand Theft Auto series.

We expect GAAP net revenue to range from $1.5 billion to $1.5 billion and cost of revenue to range from $578 million to $594 million. Operating expenses are planned to range from $926 million to $936 million. On a management basis, operating expenses are expected to grow by approximately 3% year-over-year, primarily driven by a modest increase in personnel costs. In closing, fiscal 2027 will introduce a new level of operating performance which we expect to sustain well into the future driven by a robust pipeline and expansion opportunities across our core franchises with the first on incorporating new technologies and tools, we feel confident in our ability to scale our business generate operational efficiencies and leverage the power of our balance sheet, which we believe will drive long-term shareholder returns. Thank you.

I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues around the world for their commitment to excellence and to our strategy of being the most creative, the most innovative and the most efficient company in the entertainment industry. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator? .

[Operator Instructions] Your first question comes from the line of Eric Handler with ROTH Capital Partners.

Lainie, just a couple of things within the guidance. It looks like, at least on a non-GAAP basis, your operating expenses are looking, let's call it for round number purposes, about $3.8 billion. That's a $300 million incremental increase on a year-over-year basis. How much of that is due to marketing. And when you look at sort of like the trend for the next couple of years for G&A and R&D, what do those trajectories look like? I assume it'll be much smaller than revenue growth.

Yes, that's correct. So we expect to have a lot of leverage over the next couple of years as we continue to scale the business. And for the $300 million higher for this coming year, about half of that is for selling and marketing expenses for the entire company as we have significant marketing for our entire pipeline of titles that are coming out this year. .

Okay. That's helpful. And then as a follow-up, how should we think about RCS and once GTA 6 comes out, how are you sort of thinking about the trajectory of GTA Online when that game is launched?

Rockstar will provide more details on the GTA series when they're ready to talk about that.

Yes. I think you're asking, though, what do we expect to happen with the recurrent consumer spending regarding GTA Online? And look, I think to say that everyone has been pleased by the ongoing trajectory of GTA Online, Red Dead Online, the sales of GTA V, the sales of Red Dead would be a great understatement. These titles have proven to be vastly more resilient than anyone expected. And I think it's a reflection of the quality of work that Rockstar has done despite the fact that Grand Theft Auto V is now has been in market for 3 console generations, it continues to sell. It's now up to 230 million units, Red Dead at 85 million units. So we're extraordinarily pleased with how Rockstar's titles have performed. It's difficult to know exactly how Grand Theft Auto Online will do after the release of Grand Theft Auto VI. But certainly, it will stay in market. And certainly, there are many, many consumers who love the title.

Your next question comes from the line of Colin Sebastian with Baird.

Congratulations on the year. I have a couple of questions as well. I guess, first off, as cash flow and flex in the -- for the guidance for the coming fiscal year, how are you guys thinking about capital allocation between returning to shareholders versus other uses? And I have a follow-up.

So this will sound only consistent with our answer to this question. It's the same as it has been for as long as we've been in the position of having positive cash flow and positive cash balances. There are 3 uses of our capital here first, to support organic growth. This company's story has largely been an organic growth story. And we certainly have expectations for organic growth in fiscal '27 and we believe that fiscal '27 is setting a new benchmark and a standard for this company going forward. And that's all organic. But as you can see from the numbers, we have to invest to be in a position where we can grow in that way. And our balance sheet and our P&L allows us to do just that, that will continue.

The second use of our capital is very selectively when it makes strategic sense and let me emphasize this when it's accretive we are willing to engage in inorganic opportunities, the most recent meaningful one was, of course, the acquisition of Zynga in 2022 for $9.7 billion in cash and stock, and then more recently, the acquisition of gearbox. And so I'm proud to say that all of our acquisitions have turned out to be accretive and successful over nearly 2-decade period. That's pretty breathtaking for corporations, not generally a case. And I think that's because we're immensely disciplined. You're not going to see us doing deals hand over fist. But assuming our balance sheet continues to improve, I think you could imagine more inorganic growth in the future as well.

And we've already said in this release today that we expect to be in a net cash position by the end of the fiscal year. And finally, we've earned capital to the shareholders when it makes sense. So far, we've done that through share buybacks, and they are opportunistic, and we believe that share buybacks make sense for our shareholders when they were executed at deep value. Our last buyback was done at $158 a share. We'll see how the stock opens tomorrow, but I think what that was a pretty good plan on our side. So like all stocks, they move around different price points. Our stock traded down as low as, I think, $195 in the last 6 weeks. And there is an opportunity to return capital to the shareholders when it makes sense.

Thanks for the reminder on those Strauss. I guess maybe as a follow-up and maybe some of the structural issues in the industry including sales of current-gen consoles. I'm just curious how that impacts your thinking or your assumptions in terms of establishing pricing and preorder expectations for titles like GTA VI in the coming year?

Sorry, what would the relationship be from your point of view?

The number of -- the installed base of hardware may not be as high in this current console generation as it might otherwise have been -- certainly value price points for certain titles have done well versus premium pricing. So those considerations.

Look, when we look at pricing, I would not say we look at it in the constant of the installed base. We absolutely look at pricing in the context of the property itself. And so we want to do every situation, whether that's console, mobile, PC, frontline or catalog is delivered to the consumer vastly more entertainment value than what we charge. We want the consumer to have a great experience. So we think a consumer experience is the intersection of what you get and what you pay for it. .

And probably a great example of that is Mafia the old country, which is a terrific title. But it's not a 100-hour experience, not a 50-hour experience. And so we price the title at $50 and consumers were thrilled and we had a massive hit. Now I suspect we could have priced at a higher level. We wanted to make sure that consumers loved it and part of loving something is feeling good about what you pay for.

Your next question comes from the line of Doug Creutz with TD Cowen.

I wanted to ask in the context of your guidance at mobile, you're assuming is down this year based on some attenuation in the performance of older games. Is that based on anything you're seeing in the year-to-date? Or is that more of a, hey, these are older titles, let's be prudent in our outlook. Similar to, I think, for many years, you guys sort of said we expect GTI line to be down because it's a many year old live service game and then would typically do better. Can you just give some context around that? And then also what you might be assuming for your 2 new mobile launches within that guide?

So it's a very fair question. We had a great year at Zynga, and I think it's more the way you characterize it, which is we're not prepared to guide to continually beating expectations materially to any business unit. So we do guide as we see it, and this is how we see it. However, as you said, it is a reflection of the fact that some titles that were newer last year or older this year. Now all that said, Tom Blast was up 25%, and it's a very old title. So we do have opportunities to exceed our expectations now and then. But this is our best estimate sitting here today.

As far as our expectations around new launches, we -- in the mobile side, particularly, we never anticipate huge numbers because it's just impossible to do so. Hit ratios are just too low. So our guidance would typically reflect our expectations around the marketing spend in the year because we don't -- we would never guide around doing something silly in the mobile business, if you're getting bad immediate results from a marketing spend, you stop doing it. And our dev costs are pretty manageable in the mobile world. So I would say unlike say, console where -- you have a big release growth. I'm not going to give you the example you want. So we have basketball coming up, like we know how many units it's sold so far, 10 million units sold in today. The prior year, the year before that, we have a sense of the market like we can estimate that pretty well with an event. But with mobile, we just don't have the ability to do that. So I think it is you're correctly intuited that our mobile numbers would not include an expectation for some massive new release yet.

Your next question comes from the line of Cory Carpenter with JPMorgan.

I have 2 questions on NBA 2K. Clearly, I think, record year for the franchise this year. But hoping you could expand a bit on the trends you saw in the quarter. I think they moderated in the prepared remarks, a little more than you had expected. So what did you see there? And then -- and Karl, maybe could you talk a bit about the engagement that you saw with the initial college basketball rollout.

So for NBA, this is one of our strongest quarters for Q4 in the franchise history. In terms of looking at our expectations, this reflects the extreme growth of Q2 and Q3, where we saw a high concentration of spending our most engaged players early in the year, which left less upside opportunity heading into Q4. So that's really what we saw in Q4 this year. .

And on the college piece, yes, we are very excited about our college release for Season V. I would describe at this point is it's a taste of what's to come. We did a deal with feature 16 universities. It's basically validated our expectations and the opportunity that we think will be very meaningful for us going forward. So the short answer is stay tuned. It's very exciting for us, and we're very happy how things have turned out so far.

And maybe as a follow-up, Strauss, on the last earnings call, Google Genie had just launched in beta. There's been some conversations more recently around the ability for AI to perhaps create GTA VI in a couple of months. I know this is a bit of a generic high-level question you've touched on before, but just given this remains a pretty big debate among investors, I thought it would be helpful to hear your latest views just around what you're seeing in AI and how you expect it to change the gaming industry and Take-Two in particular?

We remain enormously optimistic. Technology helped build this company. Video games are created largely inside computers and always happen. When I started in the video game business in 1993 we were making 32-bit games, and they certainly look at anything like they do today. That's all driven by tech. I think the sort of confusion around the belief that somehow more efficient asset creation puts us at some disadvantage or creates a competitive advantage for someone else. And I don't just don't believe that's the case -- to the event that technology allows anyone to do a better job in asset creation, naturally will avail ourselves with the same technology.

If you take a look at the tech end market that is currently licensed for the creation of video games, it's licensed broadly, no one exclusively licensed this technology for video games. So if a competitor has access to AI and that allows someone to do something better quicker, cheaper than we would have access to the same thing. The second point that I've made that I would stand behind is that the asset creation is not same as hit creation. So the entire story around the Gemini release was when you can create assets that look like video games more easily than it could be for it. I hope that's true because that will benefit us naturally.

We have 3-part strategy, data most created would be the most innovative to be the most efficient seems to me that even if it doesn't help with creativity, it certainly should help with efficiency and innovation. So that could be thrilling, but we do have to remind ourselves asset creation is not the same as the creation. And the best example of that is, there are thousands of new move releases a year, but there's a handful of new mobile hits a year, and we make some of them. Despite in fact, everyone has access to the same tech because everyone likes it's exactly the same underlying technology for the creation of mobile titles as we do, right?

So I remain highly optimistic. Now I'll give you a real-world example. I was visiting one of our studios, and they showed me some advertisements that they were putting together to advertise their games. And these were live action ads, and they were funny in 15- to 30-second ad units that you've seen a zillion times. And they were all created with licensed AI, legal AI. And the script was done in-house for free, well, people colleagues who work in the company already. And the software [indiscernible] the AI software use the entire cost of making the spot was 0 and previously, we hired third-party companies to actually create those with human beings, and those spots could cost $25,000, $50,000, $100,000.

Now please note we -- not only were we not interested in resuing our head count to make this happen. We don't have the opportunity to produce our head count to make this happen. The entire marketing team at this particular studio is 2 people. They're doing a great job. But what does AI as allowed them to do be more efficient, make great stuff and do it cheaper. And this is all the benefit to our company.

Your next question comes from the line of Chris Schoell with UBS.

Strauss, I believe it was a few quarters ago, you mentioned your expectations for GTA VI continue to increase. Any updates you can provide on your general expectations and levels of confidence for the franchise based on the indicators you have at this point? And how do you expect that this title will perform relative to GTA 5 and then Lainie, maybe I know there's a lot of noise to margins this year with the marketing and the software -- I believe I heard you said there's a lot of leverage over the next few years, but can you just remind us how you're thinking of the ability to return to the historic margin levels that Take-Two used to see? .

I don't recall the comment you alluded to. I'm pretty much -- I think I've always said the same thing, which is we're all -- how could we not be we're all extraordinarily excited about what Rockstar Games is working on. We're all incredibly enthusiastic about the upcoming release. And equally, this is a management team that never claim success before it occurs. And I'm pretty sure that every time we've had the luxury of having a conversation about an upcoming release that looked good, I've said we absolutely never opine on how high is up.

We certainly work toward the best result and hope for the best result. But that is out of our hands, it's in the hands of Rockstar from a development point of view and a marketing point of view is trying to make the best entertainment property that possibly can and then bringing it effectively to consumers all over the world. That's what we aim to do. And we do feel really, really good about it.

Margin improvement remains a key priority in our financial strategy, but we recognize that margins will fluctuate over time based on a variety of factors. In fiscal 2027, we're reaching a new level of operating performance, which we expect to sustain well into the future, driven by a robust pipeline and expansion opportunities across our core franchises. So as we operate at this new level and generate operational efficiencies through reduction efforts and leveraging technologies, including AI, we aim to enhance our margin profile over time. .

So if you think about our operating expense leverage, it represents our largest opportunity, which we believe we can achieve as we grow our sales both organically and inorganically. We've mentioned previously that gross margins on many of our titles are affected by the increasing cost of development -- so we've been making many structural improvements, including the driving efficiencies and reducing expenses. So you've seen some of that coming through the P&L in the last couple of years and the leverage we've seen in the last year in terms of our operating expenses. Also the DTC efforts in mobile, that's also working towards improving our margins. So this was a year where we scaled the business meaningfully, and we achieved strong leverage on our expense structure. So we'll continue to do that as we look into the future.

Your next question comes from the line of Andrew Marok with Raymond James.

Maybe one on the Rockstar Mission creator. I know Strauss called that out in the prepared remarks is an interesting factor. I guess are there any learnings from the early days of that and some of the recent missions that were created as you look to sale UGC and some of your Rockstar properties? And then I have a follow-up.

Look, we're trying to meet players where they are. And to the extent that people want to have a hand in creation there are numerous opportunities for them to do so. So I just think it's incredibly exciting, and our company embraces these advances. So we're not precious about what we do or we're open-minded. An example -- another example of that is the 5M business. Where this started as sort of a business that was outside of our 4 walls. And now it's a business that's inside our walls. And we're thrilled that it is .

Okay. And then maybe one more on mobile, if I could. I know that there has been some kind of correlation between the mobile business and macroeconomic factors as I guess what level of conservatism might you be baking into the guide around general economic conditions as it relates to the mobile business?

Well, look, we we're not economists at we certainly point of view about where the economy is going. And that is one of the factors we consider when we build guidance. .

Your next question comes from the line of Matthew Cost with Morgan Stanley.

Strauss, there's a comment you made in the prepared remarks about your expectation to sustain higher levels of scale going forward. Just given the potential for Grand Theft Auto performance this year, that's a high bar to clear going forward. So as investors think about the opportunity to sustain your scale off of that base, how should they think about the mix between just an ongoing significant revenue contribution from Grand Theft Auto versus the pipeline that you went into some good detail in the prepared remarks discussing. And then I have one follow-up.

It reminds me of my it's Box D, all of the above. .

Your next question comes from the line of James Heaney with Jefferies.

Yes. Great. Maybe just diving in again on mobile. I mean, it's been impressive to see continued growth of Toon Blast and Match Factory! as kind of the biggest drivers for the segment. I was just hoping you could go in some detail about the unique drivers across those franchises that you think has sort of enabled them to continue growing this far after the initial launch.

Well, actually very different. So Toon Blast has been around for a really long time. Match Factory! Is relatively new. So Match Factory! last year was still in growth mode and we projected that it would moderate, and we'll see what actually happens. Toon Blast is legacy title. And with regard to Toon Blast, what you're seeing is a title where the consumers who are involved are getting more and more involved. And that's a reflection of the content that Peak is putting into the game and offers that are made to consumers. So basically, with regard to legacy title, where you might have a sharp growth curve on DAUs, you will have an effort to actually serve the consumers we have much more effectively.

And I think that's what you're seeing in Toon Blast. Match Factory! is still in pretty steep early. It's not that older title. So it's very different. We need to be muscular in both areas. We need to be able to run our live services businesses really well for a long, long time, and Zynga does a phenomenal job with that. But by the way, so does Rockstar, right? GTA Online is a live services business. It's 13 years old, that online is a legacy live services business. So NBA2K online is a live services business. We have to do everything well here. It's what makes us place an exciting place to work.

We've got a pipeline of frontline titles. We've got to turn them into hits. We don't always succeed, but we have to try. We have live services business that I just mentioned, we have to optimize those across both mobile, console and PC and then, of course, we have a catalog. And when you add it all up and we do a good job across the board, you get the kind of year that we got last year, and we now expect to make a meaningful step up, obviously driven largely by the launch of GTA VI, but also driven by performance of the rest of the business.

And then we expect to set that as a new base from which to -- and that's a reflection of firing in all cylinders. Undoubtedly, we'll have some lapses along the way. We don't know where the lapses will be. But if history is any guide, we'll also have some titles that will meaningfully beat expectations going forward. And part of our [ 35 ] strategy of being the most created and most innovative and the most efficient is indeed to be the most innovative. And if you look at the history of the company, we've been a leader in innovations, whether that's cost developing development or marketing. And that in the coming years, we'll be able to innovate further.

And I don't know exactly what form that will take, but I would just note that this company doesn't look anything like it did 19 years ago despite still being in the interactive entertainment business. Lots of what we do here didn't even exist back then. And this industry, never mind the company is still on a sharp growth curve in terms of its cohort of engaged consumers and the opportunities to do new things and bring those new things to people in new ways.

Your next question comes from the line of Jason Bazinet, Citi.

I just had a quick historical question. In the past, when you've been confronted with these big titles like, I don't know, whether it's GTA 4 or 5 or the last 2 Red Beds, how accurate would you say your firm, your management team was in terms of predicting how well these titles would do? Were there some that's sort of disappointed or others that really beat? Or were they sort of all within a pretty tight confidential in terms of your own internal expectations?

So with regard to the titles you mentioned, as it happened, they all performed better than we had expected, but we've had plenty of other titles that disappointed candidly. Thankfully, not of late, and they tend to be few and far between. But it would not be accurate to say that our expectations are always exceeded, not accurate in the least. And that's why we are, I think, appropriately humble around here. This is the entertainment business. It is unforgiving. We try our hardest. We do not always succeed.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

I think I want to maybe try to ask Colin Sebastian's question in a little bit of a different way. I think that there's been a lot of conversations in the industry over the last several months. The growth of roadblocks on the growth of lower priced games on steam in the $10 to $20 price point and it seems like it's mostly driven by younger gamers. I mean, obviously, Take-Two doesn't participate meaningfully in those categories. You have a couple of lower price games that fits -- like Mafia. I think the question is like what is the level of confidence that the newer cohort of gamers will graduate into more premium AAA experiences over time? Like I think the question is like is the young person that's playing Roblox, are they going to want to play $80 Grand Theft Auto VI when they grow up? Or might they be habituated onto lower fidelity titles? Any thoughts there would be helpful.

So actually, it's the contrary. When entertainment properties are aimed at children, I don't know if you have children, but right around the age of like 10 or 11, they do not want to be children anymore. They want to be teenagers. And so one of the issues, and this is not by way of being critical of anyone else in the industry. But one of the issues children's programming, whether that's linear entertainment or interactive entertainment is that children reach a certain point, they don't want to be engaged with kids programming anymore even if it's appealing to them. It's not that a certain kind of kids-oriented interactive entertainment is necessarily a feeder to what we do in certain parts of this company, but we also do make plenty of entertainment [indiscernible] that's available for all audiences. .

But with regard to our rated titles, it's not necessarily the case that something else is a feeder to it. It's a different business. But it is a business that is only available if you're 17 or above. And I think if you engage with Interactive Entertainment and you are 17 or above, it's very difficult for me to imagine that you wouldn't be incredibly interested in RM-rated titles, specifically one that is coming up.

Your next question comes from the line of Eric Sheridan at Goldman Sachs.

May be we'll dig on 2 of the topics we've talked about on the call. So far with respect to mobile advertising and building additional optimization around user acquisition, how are you thinking about the signals as more mobile advertising becomes driven by AI and machine learning, with respect to either being able to deploy more dollars at a higher return on ad spend or possibly becoming more efficient with respect to advertising? And if possible, another quick follow-up.

Well, we certainly try to do that. When we work with [indiscernible], and we are trying to advise of course, our return on ad spend. And sometimes are doing really well in the market and at other times you are frustrated in the market, depending on what's going on. There have been moments for example, when we really couldn't get out there and spend because we didn't -- we could not have inventory at a price that made sense. There are other times when we can do that change. It's our job to make sure that we understand the payback period on what we're spending. And we have very tight guidelines about that but you have to be on top of it all the time because when you spend money in mobile, as you know, you're spending it based on an expectation and you'll earn it back over a period.

And that expectation is based on prior history, but prior history isn't always just positive with regard to what happens in the future. So we are constantly on a daily basis, tuning up our models that will inform how we spend money on user acquisition. As I said, sometimes it's greater, sometimes it gets lower. We also have this weird anomaly, which I'm sure you're aware of, which is if we're out of the UA business for a period of time because we don't like it, of course, we make more money because there's no UA that spend that comes back the same day in its entirety. Sometimes you get a really quick payback periods. We have experiences where the payback period as been as quick as 90 days. And I don't think we talked publicly about our expectations around the payback period in general. But let's just say, I think we're more conservative than most.

To answer your question, are there new opportunities to be more efficient in this area, guess, I believe so. And of course, it's not lost on anyone that after Apple changed their attribution characteristics, the entire industry is challenged, but you can see from our own results, with Zynga last year that we have surmounted those challenges, and we feel pretty good about how the business operates now.

Great. And if I could just ask one more. With respect to your approach to go-to-market with DTC, any new learnings about what the opportunity set might look like or the ceiling of that opportunity might be to grow the percentage of mix from DTC over time?

Well, look, I've been saying for a long time, I thought of sort of the competitive landscape and the regulatory landscape will be favorable with regard to our overall distribution cost and taking as part of our overall distribution cost, our D2C costs, which is materially lower than third-party costs, but multiplied by the share of market related to DTC. And we have said that, that share has been growing. We have not talked about what percent it is or where it's going. What we want to make sure though is two things. Number one, we want to be where the consumer is. The goal of this company is not to control distribution. The goal of this company is to [indiscernible] and bring them to consumers wherever they are, however they want them. and of course, to do so on economic terms.

We value our third-party retailers greatly. We especially value them when they provide marketing opportunities for us. And we understand that there's a value in the marketing that third-party retailers can provide. And that would intersect with how much they charge us for access to their consumers. So the more value a third-party retailer provides to us from a marketing point of view, the more comfortable we are working with them -- at the same time it is a role for direct-to-consumer opportunities. For us, it's all of the above.

Your next question comes from the line of Mike Hickey with StoneX.

Strauss, Karl, Lainie, and Nicole, congrats guys on a great year and a great guide, very exciting. Just 2 questions, Strauss first. I think you referenced before being astonished by Rockstar's marketing creativity. Clearly, you've got precedent there. Can you talk, I guess, philosophically about how Rockstar thinks about building anticipation for a game launch of this scale and how beneficial that marketing effort can be in terms of sustaining or even building demand for around the current GTA ecosystem? And if that ancillary benefit is baked into your guidance? I have a follow-up.

Well, look, thanks for the question. I'm obviously not going to go into detail. What we've said about marketing GTA 6 is that marketing will start this summer. And as you know, any information around releases and marketing comes from our labels. And that shouldn't be news to you. That said, is there -- do we see in any release no matter how highly anticipated it is both the need to market the title and the opportunity in marketing the title, we do. And I was asked about this earlier because I absolutely refused to use a title of ours as an example, or someone else's. And I said, so there's a new release of mission impossible, and it's starring Tom Cruise, we all know what that looks like and I for when I'm going to see that movie, like I'm going to see that movie. But Paramount still spend a whole lot of money to market that to make sure that people know it's out. It's great and it's worth seeing.

And I think that's the sort of the entertainment business. So I don't think there's any situation where one can expect to have a massive hit and not engage heavily in the marketing. And that will be true for this company across the board. And I think, again, at [indiscernible], actually, I think I think this company does spectacular marketing and whatever we did last year, we got to do better this year ever, we do this year to do better next year. We demand it of ourselves and frankly, the market demands it of us.

Nice. On AI stats, not to be redundant, you gave a really thorough answer, but maybe just for clarification. Do you feel like at this point you've got broad buy-in from your studio leadership around the use of AI tools, not just in marketing but in game development. And when you think about these tools over time, I know you're doing a lot in terms of investing in product tools related to -- do you think this will allow you and your studio teams to unlock maybe some dormant franchise IP or even new -- that may not have been produced over the last decade plus due to resource constraints. And if that's the case, would you look to build head count into that opportunity?

I think that everyone is bought into the possibilities of technology. And I think there are times when some of my colleagues think I'm too conservative on the topic. I've actually never been accused internally like going too fast or doing crazy stuff. I think I probably err on the side of being a little more conservative. Think about it. The people who are on the front lines of developing here are absolute experts in software, in heart and in video games. And the way they got the job to work at a company like this is because they were on the front lines and because they were innovating and they were highly creative and because they're more efficient.

So you have to assume that they're going to be the first people to embrace new technology that allows them to do a better job. That said, we're known for making these beautiful handcrafted titles around here. And any technology that we use, I think, will be in the hands of necessarily creative people, and we'll take the form of handcraft. Our art is created in computers. It always has been. But our is created by human beings using computers. And I believe that will continue to be the case.

Your next question comes from the line of Brian Pitz from BMO Capital Markets.

I'll try a couple here. Any big color you can provide on GTA 6 around your framework for the PC release as well as if the game has any chance of being cross platform. Also, any best estimates on when we could see a presale launch for the game? If not, perhaps you could at least provide your best estimate of timing on hearing more details.

Yes. As you know, look, the PC market is a great market, and it's growing for console type titles and it's a market we serve avidly. And virtually all of our hit titles end up on all platforms over time. That said, Rockstar Games has announced GTA 6 for console only so far. And we're excited about our November 19 release. .

Your next question comes from the line of Ron Song with Wolfe Research.

Just turning back to NBA. I know Lainie talked about the fourth quarter, but as we look at fiscal '27 and lapping that 30% RCS growth, I guess -- is there anything you can like share a breakdown on what gives you the line of sight to being able to sustain like the high single digits? I guess I'm really trying to get at how you think about the stage of growth for monetization and engagement for the basketball franchise noting what Karl said about the state teamed comment?

So we're pretty proud of NBA 2K's fiscal 2026 record-breaking results, and we're applying the successful learnings of our strategy for this year. including within NBA 2K27. And while fiscal 2026 set records, we have a consistent track record of delivering strong sustainable RCS growth and are confident in doing so in fiscal 2027. So when BC looks at the game each year, they just do not sort of rest on their laurels. They continue to make this game bigger and better every year, and we've seen that time and time again. .

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

I have one question on mobile. Zynga has meaningful presence in Turkey with Rollic and peak. Can you maybe comment on whether those studios have benefited from the local government policy that favors developers that was released this year.

So obviously, we've had a lot of great success in the Turkish market from a development perspective. Some of our biggest and best titles in our studios are in Turkey. We have a fantastic relationship with our developers there. And we love being in that environment. In terms of sort of the government opportunities, to the extent that there are opportunities in any jurisdiction where we operate, we would take advantage of those as much as we possibly can. Local jurisdictions are very important business partners to us, and it's something that we take very seriously because it's an opportunity. It's not only good for us, but it's also good for the local markets. .

Your next question comes from the line of Omar Dessouky with Bank of America.

So Strauss, I was in the audience at a conference you spoke at recently. And you made a couple of comments that really caught my attention. So one comment was that you'd price your games to reflect the value that they provide for consumers. And then a second comment was that the retail price of video games has gone down in real terms over the years. So do your comments imply that you also believe a $70 price tag would be too low for GTA 6 relative to its value to consumers. Because by that logic, a $70 price tag applies to me that the consumer value of GTA V will also go down. Now if I misheard your comments, I apologize. However, if my logic is flawed then what would a $70 price tag imply about the consumer value of GTA 6 relative to its predecessor.

I think what I was trying to get at was on real terms, video games from a better and better deal for consumers over a period of time. And that that's a good thing. So I don't think the comments are in conflict. In other words, if you can give people something really great, and you can offer it on really favorable economic terms, that's a win-win. So I was really trying to make the point that even though I think the value has grown materially, certainly, a video game release today is vastly more exciting, compelling intriguing and longer-lasting entertainment than it was when I was at Crystal Dynamics in 1993.

But in real terms, frontline prices have declined. I was using that as a backdrop to point out that we think that the most important thing is to deliver the best entertainment on earth. And then the second most important thing is to do it on really favorable economic terms. But I didn't mean to guide in any way how you should think about our upcoming unannounced price on any release, that will become clear to the market in the fullness of time. whatever it is, though, we wanted to represent enormous value to the consumer.

Your next question comes from the line of Clay Griffin with MoffatNathanson LLC.

You all had such success with I think you coined the phrase actually tethered free-to-play with GTA Online. It helped you sell full game units and full game unit sales helped onboard people on the GTA Online. I know the industry has changed a lot over the years, but -- and you haven't announced any pricing or packaging as it relates to this topic. But just curious if there are dynamics evolutions in the industry that would make that decision different than the decision you so successfully used with GTA 5 and GTA Online the tethered free-to-play strategy.

I think, of course, not having announced any online version for GTA 6. It certainly would be premature to talk about an upcoming business model for something that we haven't talked about. But I think conceptually, what we pride ourselves on here is being thoughtful and open-minded and trying to meet consumers where they are and trying to optimize the entertainment or experience for those consumers. And that's where we've been talking about a lot on this call. When it really comes down to what does this company think about?

24/7, what do I think about? I think about making sure that this is an enterprise that more so than any other entertainment at [indiscernible] focuses on making hit properties that excite and engage consumers. That's what we all think. Right now, I'm in a room with our staff, right? We don't -- in this room, we're executives, right? The IR team and the finance team, the operations team, legal team. But our job, we don't make the titles here. We don't market, not [indiscernible], not the room this talking you today. But our mission is to make great entertainment properties. And if we get that right as an organization, all 14,000 people, full-time colleagues and contractors associated with Take-Two in our affiliates, focus on making the best entertainment on earth then everything else will take care of itself.

Naturally, we have to be the most thoughtful people, the most aggressive people with regard to market and distribution, by the way, legal activities, finance activities, accounting activities, tax activities as well. That's our job. The mission of the organization is to make great entertainment. And having spent a long time in every entertainment business risk, I can tell you one thing, hits your alls, make great hits over and over and over again, you're an upgrade enterprise. And we're so proud of everything this body does, and we're so proud of the culture in which we do it. But if we don't get up every day and make it, none of that matters. So that's our job. That's what we focus on.

And frankly, the results that we're talking about today and the guidance that we gave you for tomorrow, all of that is based on having made hits, having delivered its and an expectation, but we are going less -- an expectation that we're going to continue doing just that at a higher and higher level.

Your next question comes from the line of Andrew Crum of B. Riley Securities.

So looking at your net bookings guidance, how, if in any way, is potential cannibalization from GTA VI influencing your view or range of outcomes you see for fiscal '27?

Look, cannibalization doesn't really apply to the Entertainment business. In the Entertainment business, you compete against everything, you compete against your competitors, you compete against yourselves. You compete against nothing -- choice to do nothing. So if you're in the grocery business, like everyone needs to eat, so you're competing with the grocery store next store. With regard to entertainment, if there's something that you want in the market and then there's something else that you want you'll try to buy both. And if there's nothing that you want, you won't buy either. So there's no one-to-one cannibalization.

And in fact, history shows that when there's a big hit in the market, you know what it does, energizes consumers around the entertainment market, and they consume more. So I actually think we were fortunate enough to have the kind of year that we expect we'll even do a little better than we expect. It's not just going to be good for Take-Two and our labels. It's going to be good for the industry as a whole.

That concludes our question-and-answer session. I will now turn the call back to Strauss Zelnick for closing remarks.

I've spoken an awful lot today. And as you pointed out, I've been in a bunch of conferences lately, too. So maybe no one needs to hear any more than -- more from me. I would like to say this, though, we delivered great results that we talked about today. And we set our guidance that reflects great results going forward. All of that comes from our colleagues around the world.

So I want to take a minute to express -- this management team's enormous gratitude and my personal gratitude to our creative teams, our marketing teams and our distribution teams and our finance teams and our operations teams all over the world more than 100 offices around the world, if I'm not mistaken, who work incredibly hard and an incredibly dedicated way to support our collective mission. All of this is because of their work. I just -- I get to organize the victory lap.

So thank you to our team. And then I'd like to take a moment also to thank our shareholders and everyone who supports us and the people who attended this call. It's always nice to have a good news call, and we're really happy to share it with you all.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Fiscal Year 2026 Quarterly Earnings Results Call. [Operator Instructions]

I would now like to turn the call over to Nicole Shevins, Senior Vice President, Investor Relations and Corporate Communications. Nicole, please go ahead.

Good afternoon. Thank you for joining our conference call to discuss our results for the Third Quarter of Fiscal Year 2026 ended December 31, 2025. 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.

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we delivered another outstanding quarter, including net bookings of $1.76 billion, which surpassed meaningfully the high end of our guidance. All of our labels outperformed substantially our expectations and contributed to our ongoing success. Due to our strong results and positive momentum that has continued into the current quarter, we're once again raising our outlook for the full fiscal year. We now expect net bookings to range from $6.65 billion to $6.7 billion which represents 18% growth compared to fiscal 2025. At the midpoint, our revised net bookings forecast is approximately $725 million above the initial outlook we provided in May 2025 which reflects the creative passion, hard work and consistent execution of our teams.

Turning to highlights from the period. I'll begin with the fantastic performance of our mobile business. Peaks forever franchise, Toon Blast grew 43% year-over-year and surpassed $3 billion in lifetime net bookings, an extraordinary achievement for a title that has been engaging players for more than 8 years. The game continues to rank among our most valuable franchises, showcasing the long-term value of our Match 3 portfolio. Match Factory! another hit from Peak grew approximately 17% over last year. The title remains a top contributor 2 years after its launch, affirming our strategy of building a diverse portfolio of games with vast global appeal. Color Block Jam remains Rollic's all-time top-performing title and was featured in Apple's 2025 free games list in the U.S., underscoring the title's success.

Empires & Puzzles and Words with Friends grew 11% and 6%, respectively, over last year. Advertising revenues grew 10% over last year, driven by higher average revenue per daily active user and we're highly confident in the future of this component of the business. 2K's mobile offerings also had another solid quarter with WWE SuperCard surpassing 38 million lifetime downloads. NBA 2K Mobile continuing to expand its audience NBA 2K26 Arcade edition holding its top 5 position on the Apple Arcade charts and NBA 2K All-Star in China growing to nearly 9 million registered users after less than 1 year in market.

Our mobile direct-to-consumer business delivered its strongest quarter on record. We've introduced recent enhancements that enable more personalized offers, flexible pricing, reduced payment friction and alternative payment methods. With the regulatory environment becoming even more favorable to us, we view direct-to-consumer as a meaningful growth driver that will help accelerate net bookings, margins and profitability. NBA 2K26 delivered another stellar quarter, yielding significant upside to our forecast. To date, the title was sold in approximately 8 million units, representing a high single-digit percentage increase over NBA 2K25. Recurrent consumer spending, daily active users and my career daily active users all grew 30% year-over-year. Based on its phenomenal year-to-date performance, NBA 2K is on track to generate the highest level of annual net bookings and recurrent consumer spending in franchise history. I'd like to thank the NBA and NBA Players Association for their extraordinary partnership and support.

The Grand Theft Auto series also vastly outpaced our forecast with recurrent consumer spending growth of 27%, led by GTA Online, a Safe House in the Hill's update which featured long-awaited mansion properties and the return of the fan favorite protagonist, [ Michael Besanta ]. Full game sales of Grand Theft Auto V remains strong, with the title now having sold in over 225 million units since its launch in 2013. GTA+ continues to thrive with membership levels nearly doubling over the same period last year, and we're excited about its potential to add even more value to the player experience in the future.

In December, Rockstar Games expanded Red Dead Redemption and On Dead Nightmare to new platforms, bringing these classic blockbusters to PlayStation 5, Xbox Series [ X Nest ], Nintendo Switch 2 and iOS and Android mobile devices for Netflix subscribers. We're immensely proud of our teams and their ability to deliver consistently the highest quality and most engaging entertainment experiences. As we continue to explore and invest in new technologies particularly AI will unlock greater efficiencies that will allow our talent to focus on the kind of innovation that has enabled us continually to set new creative and commercial benchmarks in interactive entertainment.

Our execution throughout fiscal 2026 has been extraordinary, and we're highly confident as we approach fiscal 2027, which promises to be groundbreaking for Take-Two and the entire entertainment industry led by the November 19 release of Grand Theft Auto VI with Rockstar's launch marketing set to begin this summer, with ongoing momentum in our business, coupled with our robust forward release schedule, we continue to project record levels of net bookings in fiscal 2027, which we believe will establish a higher financial baseline set us on a path to enhanced profitability and further provide balance sheet strength and flexibility.

I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams for delivering another fantastic quarter, which reflects our world-class talent and the breadth and depth of our portfolio.

I'll now discuss our recent and planned product offerings for the balance of fiscal 2026. On January 14, 2K and HB Studios announced an array of new content for PGA Tour 2K25 including 3 new courses for the 2026 major champion chips. The 2026 PGA Championship at [ Oronamin ] Golf Club, the 126th U.S. open at [ ChinaCache's ] Golf Club and the 154th open at Royal [ Birkdale ] Golf Club with more to come, including new seasons. Additionally, we look forward to growing the community with the launch of PGA Tour 2K25 or Nintendo Switch 2 on Friday.

[ Praxis ] Games will continue to deliver a steady cadence of updates for [ Sidmeyers ] Civilization 7. And on Thursday, 2K will launch Civilization 7 for mobile devices exclusively on [ APA ] Arcade representing an exciting opportunity to expand the civilization audience. On March 13, 2K and Visual Concepts will once again raise the bar for our wresting franchise with the release of WWE 2K26. Featuring the biggest roster in the series history, players will be able to choose from over 400 legends and current superstars and enjoy new customization options throughout the game. We plan to support the release with a new ringside pass live service model and a series of add-on packs that can be purchased individually or together as part of the season pass.

[ Duke ] and Gearbox Software will continue to support Borderlands 4 with new content and updates and we expect the title to achieve strong sell-through over its lifetime. Zynga will continue to deliver new features and drive innovation across its live services as well as pursue the development of new titles. Looking ahead, we believe strongly in our upcoming launches and will provide our initial 3-year pipeline for fiscal 2027 through fiscal 2029, with our Q4 results in May.

I'll now turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. Our third quarter results were fantastic with all of our labels delivering excellent results, and we are pleased to once again raise our outlook for the fiscal year. With many of our core franchises continuing to thrive, fiscal 2026 is on track to be one of our strongest years in recent history. And I'd like to thank our teams for their vision, passion and dedication.

Turning to our performance. We delivered third quarter net bookings of $1.76 billion, which was significantly above the high end of our guidance range of $1.55 billion to $1.6 billion. This reflected better-than-expected performance from NBA 2K, the Grand Theft Auto series and several mobile titles, including Tune Blast, Empires & Puzzles and Top 11. Recurrent consumer spending rose 23% for the period. We strongly outperformed our guidance of 8% growth and accounted for 76% of net bookings. NBA 2K grew 30%, Grand Theft Auto Online increased 27% and Mobile increased 19%, all of which exceeded our expectations.

During the quarter, we launched WWE 2K Mobile for Netflix and Red Dead Redemption and [indiscernible] Nightmare for several new platforms. GAAP net revenue increased 25% to $1.7 billion. Cost of revenue increased 26% to $754 million, and operating expenses increased 10% to $984 million.

On a management basis, operating expenses rose [ 12% ] year-over-year, which was in line with our guidance and represented significant operating expense leverage on our fantastic top line growth.

Turning to our guidance. I'll begin with our full fiscal year expectations. We are once again raising our net bookings outlook and now expect to achieve $6.65 billion to $6.7 billion, which represents 18% growth at the midpoint over fiscal 2025. The increase reflects our third quarter outperformance and higher expectations for several of our key titles during the fourth quarter. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, [ Nash ] Factory, Empires & Puzzles, Color Block Jam, Borderlands, the Red Dead Redemption series and Words with Friends. We now expect recurrent consumer spending to grow approximately 17% and represents 78% of the bookings. This is up significantly from our prior forecast of 11% driven by strong momentum across most of our major franchises.

Our advised recurrent consumer spending forecast assumes that NBA 2K grows approximately 37%. Mobile increases approximately 13% and Grand Theft Auto Online increases slightly. All of these expectations are raised from our prior forecast. We project the net bookings breakdown from our labels to be roughly 46% Zynga, 38% 2K and 16% Rockstar Games.

We are raising our operating cash flow forecast to approximately $450 million, which is up from our prior expectation of $250 million, with the increase reflecting the strength in our business. We remain on track to deploy approximately $180 million in capital expenditures. We are also updating our forecast for GAAP net revenue, which is now expected to range from $6.55 billion, $6.6 billion of revenue, which is expected to range from $2.78 billion to $2.8 billion.

Our total operating expenses are now expected to range from $3.96 billion to $3.97 million compared to $7.45 billion last year, which included a $3.6 billion impairment of goodwill and intangible assets. On a management basis, we now expect operating expense growth of approximately 8% year-over-year which is down slightly from our prior forecast due to a shift of some marketing expenses into next year. Given our strong net bookings outlook, this assumes meaningful operating expense leverage over last year.

Now moving on to our guidance for the fiscal fourth quarter. We project net bookings to range from $1.51 billion to $1.56 billion compared to $1.58 billion in the prior year. Our release slate for the quarter includes [ Sid Meier's Civilization VI ] for Apple Arcade, PGA Tour 2K25 for Switch 2 and WWE 2K26. The largest contributors to net bookings are expected to be NBA 2K and the Grand Theft Auto series, Toon Blast, Nash factory, WWE 2K, Empire on Puzzles, Color Block Jam, Red Dead Redemption Series and Words with Friends.

We project recurrent consumer spending to increase by approximately 7%, which assumes a high 20% increase for NBA 2K, mid-single-digit growth for Mobile and a modest decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.57 billion to $1.62 billion and cost of revenue to range from $675 million to $692 million. Operating expenses are planned to range $973 million to $983 million. On a management basis, operating expenses are expected to grow by approximately 3% year-over-year, which is primarily driven by higher performance-based compensation and user acquisition investments to support robust performance in our mobile portfolio, which is partly offset by lower production expenses.

In closing, our business momentum remains outstanding. We are very confident in our future. With Grand Theft Auto VI and other eagerly anticipated titles on the horizon, we believe that we will generate higher earnings power, strengthen our balance sheet and deliver sustainable shareholder returns.

I'd like to thank you all for your support and look forward to sharing more details in the coming months including our initial outlook for fiscal 2027 when we report our fourth quarter results in May.

Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for their shared commitment to excellence and Take-Two's long-term success. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Doug Creutz with TD Cowen.

The last few days, the equity markets have really punished your stock and those of other video game makers because of fears about what AI means for your business. I wondered, Strauss, if you'd like to expound upon whether you think what's happening in the market is an accurate reflection of the threats and opportunities you see coming from AI.

Thanks, Doug. I have to admit, I'm a little confused. The video game business, since its inception was built on the back of machine learning and artificial intelligence. We create our games in computers with technology. And ever since questions began about generative AI about 18 months ago, I've been incredibly enthusiastic about what the future can bring.

As it happens now, we're actively embracing generative AI. We have hundreds of pilots and implementations across our company, including with our studios. And we are seeing opportunities to drive efficiencies, reduce costs and create the opportunity to do what digital technology has always allowed which is the mundane tasks become easier and less relevant, which frees up our creators to do the more interesting tasks of making superb entertainment. The history of the interactive entertainment business has been one of great creators using technology to do amazing things to please audiences, and that's our job round here, and that remains unchanged, except perhaps accelerated.

Just a reminder, our strategy has 3 parts: be the most creative, be the most innovative and being the most efficient company in the entertainment business. And generative AI squarely falls within the category of innovation and is already moving into the category of efficiency. I'm hopeful that it will also move into the category of creativity as it allows our creators to use digital tools to expand what we do to make it even more beautiful and even more engaging and even more exciting.

Our next question comes from the line of Eric Handler with ROTH Capital Partners.

Strauss, you just had another really strong quarter with Mobile. And Mobile has just been on a very big payer for the last 7 quarters now. Wondering if you could talk about some of the initiatives or bold [indiscernible] used to call them that what are you finding us really resonating? What is keeping these games that have been out for a number of years still relevant and drawing in new players?

Well, our Zynga team still refers to bold beats. They're a big part of what we do. And just to put a fine point on it, you're right. Our Mobile business is up 19% year-over-year. Toon Blast was up 43%, Match Factory! 17%, Empires & Puzzles 11%, Words with Friends 6%, and Color Block Jam is a huge hit for Rollic. And that really is the tip of the iceberg. We really are firing on all cylinders. At Zynga and also with 2K's mobile properties.

What do I think is going on? Look, I think we are actually making hits. And that is still pretty unusual. In the Mobile business, the hardest thing to do is create new hits in the Mobile business. And Zynga has proven an ability to do so by doing what we do, which is creating a home for the best talent in the business, encouraging them to pursue their passions and supporting them and marketing with an A+ structure and a really strong balance sheet. It's really hard to do that. There aren't very many companies that we're doing. And I believe we're the only company that's doing it over and over again.

You are right also, though, that the backdrop is strong. There was a disappointing moment in mid-22, which as it happens when we acquired Zynga, where for the first time the Mobile market was down post-pandemic and it was down more than we expected, and it took a while to rebound. The market has rebounded. There are tailwinds. And so much as I'd like to take credit for all of the team's success, a, that's not really my style. B., I do think a rising tide [indiscernible] ships, and we are benefiting from consumer engagement with mobile games.

Great. That's helpful. I also wondered, would you be willing to sort of give some type of indication of what percentage of your mobile recurrent spending is coming from direct-to-consumer?

It's meaningful. We haven't actually given a number. The environment for direct-to-consumer is improving. It has been a big strategy since we acquired Zynga. You may recall, when we talked about the synergies that we would find on the revenue side, I said in calls right after the acquisition that we thought the potential for direct-to-consumer could be seen as a revenue synergy because that effectively what happens is we actually capture a higher share of those revenues and enhance our margins. The recent regulatory environment has become much more favorable, and we also predicted that. And I do think we're going to continue to see third-party take rates decline, which will drop to the bottom line.

Your next question comes from the line of Colin Sebastian with Baird.

A couple of questions for me. And maybe first, continuing on the RCS theme of growth. Maybe you could expand a bit on the safe house expansion in terms of driving higher levels of engagement. Are there specific learnings from that informing other future content updates? And I guess, secondly, maybe to Strauss, how are you thinking about capital allocation priorities with the growing cash balance which is likely also going to expand quite a bit later this year?

So what we learned from a Safe House and Hill's update is that when you deliver great material consumers show up, and Rockstar always aims to do the best possible work. Some of the content updates have performed better than others, and this one has been nothing short of stellar. But I think the broader point is the one that matters, which is as we head into the release of GTA 6, I think there was some trepidation on the fear of market participants that GTA 5 or GTA Online would somehow become less relevant. And I think the contrary is true. The anticipation is yielding even more engagement with GTA. GTA 5, of course, has now sold in 225 million units.

What's it is all driven by? The reason that GTA is so extraordinary is because Rockstar makes an extraordinary game and continues to make extraordinary features and additions and opportunities and Safe House update basically shows that. So this is an example of where our strategy pays off. We're focused on creativity pays off.

Yes. I'm sorry, on your second question, [indiscernible]. Sorry, I was so excited with my words there. I got diverted from your second. I thought that was pretty poetic myself. But in any case, capital allocation remains unchanged. So we have 3 uses of our capital, and I agree that if things go well and as planned our cash balance should continue to grow. And of course, we are generating significantly more operating cash flow than expected this year with these results.

The first is, of course, to support organic growth. That's been our story here. This is an organic growth company with a handful of very selective acquisitions, thankfully, all accretive ones, most notably the acquisition of Zynga in 2022. So that leads me to the second use of our capital, which is inorganic growth opportunities, and we'll continue to pursue those in just a selective and disciplined way, and we are looking only for accretive opportunities.

And the third is to return capital to the shareholders, which we've done over and over again. We've typically done so opportunistically with buybacks. And thankfully, our buybacks have all turned out to be good for the shareholders in the fullness of time. I am a believer that you do buybacks when your balance sheet can afford it on the one hand and when you can do so at deep value on the other hand. Our most recent buyback was executed about $158 a share. There were some moments where people thought that was a bad thing. Turns out it was a very good thing.

Your next question comes from the line of Chris Schoell with UBS.

You've seen consistent outperformance with NBA 2K and continue to post very strong growth despite the difficult comparisons. Could you just touch on what is resonating most do you think, with players. And as you think about the next leg of growth for the franchise, what do you see as the biggest opportunity? Is it going to be growth internationally, expanding the user base or enhancing monetization?

So it's hard to say that one particular thing is driving the success with NBA. Obviously, it's been an incredible year for us. selling a lot of units and also the performance of RCS across the board and engagement has been off the charts, 30-plus percent year-over-year on basically every mode that we have. Those things don't come easy. And I think the best way to describe why this works for us is because it's the way that DC and 2K run their business, which is really in the state of perpetual diligence. They're constantly communicating with the consumers, seeing what the consumer is doing, watching how they play, seeing what works, doesn't work and refining the game year after year. And it's that maniacal attention to detail. When you add it up year-over-year, that culminates in so much success. And this is one of those years where everything was just humming in the right direction.

And on top of that, there's always an effort every year to do something a little bit different and a little new. For example, Cruise this year, which is a really interesting concept. People can pair up together with 50 people, play against other teams, and it's a really exciting thing, a social thing, which has had a pretty big impact on my career mode. So it's not one thing, it's everything. And I'd say it's culture as much as it is anything else.

I think there was a second part. Biggest opportunity. Well, first of all, the biggest opportunity is to continue to do more of what I just described. which will lead to a higher installed base of folks and also to higher engagement, which ultimately leads to higher monetization. I do believe that there is a significant international expansion opportunity. The MBA continues to be an amazing partner for us. They're expanding internationally. Basketball is a global sport, and we've got that going for us. So I think that will help us drive and just without regard to just the [ NBA ] expanding, there are lots of opportunities for us to expand also in North America as well as we grow with a brand in partnership with NBA.

So at this point, I think the sky is still the limit. We surprised ourselves every year. The game does better and better. So we're very optimistic about the future basically.

Your next question comes from the line of Andrew Marok with Raymond James.

Maybe specifically, again, back to the commentary on generative AI, we hear loud and clear Take-Two's ability to harness that. But maybe on [ Genie ] specifically, we've been getting a lot of questions from investors about the similarities and differences between world models and game engines. Can you maybe give us an overview of what you think tools like [ Genie ] can and cannot do as it relates to some of the proprietary game engines that you operate?

So in terms of commenting on the specific technology, I think -- I don't think we're going to go into the great details about the tech differences because, frankly, [ Genie ] are early in its iteration at this point and trying to make a comparison to a game engine is just really -- they're not even in the same ballpark. Genie is not a game engine. And I would -- it's very exciting technology, and I think it's -- the question is how tenant benefit our creators. And I think there will be a moment in time that will become more defined. It certainly doesn't replace the creative process.

And I would say, look, I mean, it looks to me more like a procedurally generated interactive video. At this point, there are limitations, and Google has said as much. So to compare the technologies, I think there's really no way to do that because they're so far apart. And there are so many more elements to game development that go beyond world creation. And the question is what is the world creation. so even beyond world creation, there's everything else that's involved. There's the storyline, there's emotional connection, there's vibe, there's mission structure. All of those things, you cannot capture through AI and certainly not through a world builder. So that's just a very, very small component of what we do. And if this tool bears out, it will make a component of what we do all that much better and more efficient.

Your next question comes from the line of Ed Alter with Jefferies.

Thanks for the question. I want to dig into your mobile advertising results. I think it's the second time that you guys have grown that year-over-year since acquiring Zynga. I just wanted to dig into what's going so right there and where kind of the opportunity for continued growth in the mobile advertising space is for you guys?

That's pretty simple. When we took over Zynga, there weren't a lot of ad units in most of the games, and we have selectively added ad units pretty much across the board, not entirely certain games don't merit that.

Also, I think Zynga has been very smart about the way they go ahead -- go about monetizing that advertising, and there really is much more opportunity there without interfering with the experience at all. The strategy ultimately is to make sure that one way or another, we monetize the bulk of our users. As you know, in the mobile games business, viewer than 20% of your users actually engage with you to pay and without creating any friction in the experience, we think there's an opportunity selectively to apply advertising to the part of the market that doesn't currently want to pay.

So experiences have to be great across the board. That's our job, right? We deliver great entertainment experiences. And equally, we have an obligation to monetize those experiences so that we can pay our creators and keep making hits.

Great. And given your comments on how the impending GTA VI is a positive for GTA Online in current form, what -- what is your view on what GTA Online is going to continue to be the current iteration once GTA VI does come out?

Look, Rockstar Games is the locus of information about where the titles go, content and marketing. And generally, we have a pretty light touch when we talk about the label's creative activities. At the same time, I have every reason to believe we'll continue to support GTA Online. There's a great community that loves it, it stays engaged. And again, in this quarter, Rockstar has shown that when you deliver great additional content, despite how long GTA Online has been a market, people show up.

Your next question comes from the line of Jason Bazinet with Citi.

I think this is a while back, but I think when you first talked about GTA 6 coming out, you noted that -- or you expected your non-GAAP earnings to grow the year after it was released not just for your release being the base. I just wonder, is that still true? And do you mind just sort of unpacking sort of the main drivers of that? Presumably, one of it is just getting 4 quarters attribution, but what else would you say are the key drivers of that expectation if it is still true?

What we have been saying is that we expect that our release schedule is going to drive sequential growth next year. And then that will bring us to establish a new baseline for our business going forward. So we haven't really been talking about detailed guidance beyond fiscal year '26. And now in our May earnings call, we'll give you our guidance for fiscal year '27. And we're not planning on providing detailed guidance for any years beyond that at this time because our lease schedule includes numerous titles each year and even modest shifts can have significant effect on results in any given period.

So all of our years will be driven by our release schedule, and we have a very robust release schedule over the next couple of years, and that's what's really driving the growth in the business.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

It seems like the market is creating potential opportunities for M&A. So in that light, can you maybe refresh our understanding of what makes the studio appealing to Take-Two? You noted in response to a prior question that any M&A has to be accretive. And so with that said, what are the other qualities in the studio you look for?

Well, if you're right to ask that because of accretive is a financial calculation based on the decision to proceed. The decision is based on the talent, the technology and the intellectual property. And we think there may be some opportunities out there that you have to be incredibly selective. Broadly in the market, as you know, most corporate M&A fails because most corporate management teams love the notion of presiding over a bigger and bigger empire. We don't look at the world that way.

Our job is to entertain the world. Our job is to make the most creative properties that anyone can make and to bring them to consumers wherever they are. If there is an enterprise available on favorable terms that sits within that strategy and can operate within our unique culture then it's potentially interesting to us.

Your next question comes from the line of Mike Hickey with Benchmark Company.

Good quarter guys, congratulations. I guess the first question, you've got two is on GTA 6. Glad to hear that summer marketing is going to start here, that's encouraging. But just sort of curious, Strauss how much marketing you really have to do here, if there's leverage versus prior releases, just given the strength of GTA 5, GTA Online effect that this is a massive pent-up demand for will be part of the [indiscernible], does it seem like you have to market much. So just curious, you would be there.

And then I guess on the top of affordability, which is obviously very topical, certainly within the video game space, just curious your specific thoughts given that we're sort of year 5 here approaching your [indiscernible] of the current console cycle and pricing and consoles are going up. We've got now memory cost issue. So they can even go up further by the time the GTA 6 comes out. We've also seen some inflation on software. So just broadly speaking, how you think your consumer fits within that affordability picture and how you think about providing value, which knows the centerpiece of what you've done historically?

Mike. I mean I love your question, your first question, like are we just going to sit back and relax as we head into the release of GTA 6? And I think the opposite is true. You're talking to a team that you've known for 17 years, and we're in the business of eating red meat for breakfast. I think we'll be having a lot more red meat in the coming months.

So there -- we are very fortunate that consumer anticipation for GTA 6 is indeed huge. And one does have to be judicious in the way one markets such an extraordinary property. But rest assured that I think you'll be pretty astonished by the creativity that Rockstar's marketing team brings to consumers in the coming months.

On the affordability question, we do feel a compact with the consumer. We've talked about for a very long time to deliver way more value than what we charge. I think we're known for that. And we're in the business of entertaining people. We're not in the business of creating revenue. Revenue comes from entertaining people. And interactive entertainment on a real basis is getting more and more affordable all the time because we offer extraordinary value for the money. People engage with our properties for hours and hours and hours, and on a real basis, frontline prices have declined in the past 20 years, meaningfully declined.

So we see it the same way, which is we do believe in democracizing access to what we do around here, we want everyone to be able to engage. I just mentioned in terms of mobile. You want to have a great mobile experience. We offer the best mobile experiences on earth free. And you can play them have a wonderful experience completely free. On the console side, of course, that's not expected by consumers because of the deep value that we bring. And consumers do expect to pay for that. But on a real basis, we're making it more and more affordable and more and more accessible.

Your next question comes from the line of Drew Crum with B. Riley Securities.

So you have a few undated mobile titles as part of your frontline release schedule, recognizing it's been a tough launch market for new titles for a while now. based on the strength they're experiencing with your mobile business, can you comment on what you're seeing in terms of market dynamics for launching new games and whether the backdrop is more [indiscernible] of delivering new hits.

There are really only 2 companies in the mobile space who are delivering new hits in the last 5 years, we're one of them. it's super hard. It's incredibly hard. It's been hard. You're quite right. Ever since you had a pay for user acquisition, which is the better part of, I guess, 9 years, it's become much more difficult. And the early days of mobile, of course, was a new market and people are very accepting of new IP and new markets. So we're exceedingly respectful of the difficulty of launching any new hit, and that includes in our mobile space.

I do think the Zynga team has come up with an approach that is more likely to succeed more regularly than our prior approach because [indiscernible] awhile to arrive at this. And once again, it sort of be selective and focus on the best talent in the business and make sure that talent pursues their passion and then, of course, listen to the data and iterate according to the data. But you can't iterate at the beginning to create a hit. You need to create a fashion to create the hit from which you build.

Your next question comes from the line of Brian Pitz with BMO Capital Markets.

Strauss, we saw our recent announcement of CFX Marketplace, which appears to be a push in the direction of UGC gaming. Can you talk more about this launch and how you're thinking about the broader opportunity? And also maybe any insights around developer economics in the marketplace with respect to bookings?

I mean, I think that we've always welcomed for quite some time, user-generated content. We have that in numerous parts of our business. Of course, we have the role playing server business at Rockstar. So we see this as an important and interesting development with more opportunity to come. At the end of the day, what we're known for here is our creators making the very best in entertainment, and that's our job. And we think that, that never goes away as a driver of the business. At the same time, there are users who want to create and engage and we want to create a home for them as well. And tools that make that more viable and more accessible could be an opportunity for us.

Your next question comes from the line of [ Martin Yang ] with Oppenheimer.

I have a question on engagement and then follow-up on monetization. First on engagement, can you maybe talk about how the GTA player base are you engaging with the game? Is it primarily on GTA Online? Or do you see still the full game getting substantial playing hours or user or [ MAUs ]?

Look, we sold a whole bunch of units of GTA 5 in the quarter, and Rockstar continues to bring new consumers into the tent. So it's both. It's the full game, and it's the online version, which was up meaningfully year-over-year, about 27%.

Your next question comes from the line of Omar Dessouky with Bank of America.

It's Omar Dessouky. So I think you mentioned that Zynga comprised a little bit less than half of your revenue of the entire business. Over the last couple of years, it's been well known that solutions to avoid app store fees would become commercially available and there have been in several that have been announced, such as, for example, [ Unity's ] cross-platform e-commerce solution that would help reduce the amount of fees that game developers have to take to the app stores.

How much of your fees -- the distribution fees that you pay to the app stores do you think are addressable through such a third-party solution outside of the fact that you already have growth in your own DTC channel, are the 2 mutually exclusive? And how much do you think you can save? And how much time will it be before you implement such a third-party solution?

So I'm not really going to comment on third-party solutions. And the fact is a lot of our [ DSC ] efforts, we really do in-house at this point. That's not to say that their port solutions can't be helpful now or in the future. But primarily, this is an internally driven thing for us.

And in terms of the opportunity, I think we've said before, right now, it's still pretty early. It's growing in terms of not all of our games, even some of our really large games are not -- don't have D2C components to them. I think all of them at one point could. We'll see how that shakes out. So we're pretty early in the process, and we think there's a lot of growth ahead of us. But it's something that we're certainly excited about. It improves our margins and the -- as Strauss mentioned earlier, the legislative environment has been favorable towards that.

That concludes our question-and-answer session. I will now turn the call back over to Strauss Zelnick for closing remarks.

Thank you so much for joining us today. Obviously, we're thrilled with the company's results. We're thrilled with our revised outlook for the rest of the year. And we're beyond thrilled with our expectations for next year, including WWE coming up this year. And of course, NBA 2K and then most notably GTA 6.

I want to just take a minute to thank our teams, our creative teams for showing up every day, bringing their passion to the table, not taking no for an answer and always willing to push as far as they can to deliver the most extraordinary entertainment experiences. And I want to thank our executive teams who subscribe to our strategy of creativity, efficiency and innovation and will also show up every day doing their very best work in service of our collective goal to be the best entertainment company on earth.

Thank you to our shareholders for your support. These are really exciting times, and we're happy that you're along for the ride.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Carla, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter fiscal year 2026 Earnings Call for Take-Two Interactive Software. [Operator Instructions]

Thank you. I will now like to turn the call over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 2026 ended September 30, 2025. 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 take-twogames.com. And now I'll turn the call over to Strauss.

Thanks, Nicole. Good afternoon, and thank you for joining us today. We delivered fantastic second quarter results, including net bookings of $1.96 billion, which vastly exceeded our expectations and represent the best second quarter of net bookings in our company's history. We have many achievements during the period. 2K launched 3 major titles, including NBA 2K26, which set multiple records and has been delivering an unprecedented level of in-game spending. Our mobile business outperformed substantially driven by our teams unparalleled innovation and live services and Grand theft Auto online continued to benefit from its highly engaged community. .

Due to these outstanding second quarter results and our optimism for the balance of the fiscal year, we're again raising our net bookings outlook for fiscal 2026 to $6.4 billion to $6.5 billion. Rockstar Games has announced that Grand Theft Auto V will now be released on November 19, 2026, giving the team some additional time to finish the game with a high level of polish players expect and deserve.

Rockstar has our full support, of course, and we're confident they'll deliver an unrivaled blockbuster entertainment experience. Turning to highlights from the period. Our mobile business delivered another quarter of excellent results. Peaks Forever franchise Toone Blast, grew 26% year-over-year and approximately 90% over the past 2 years, driven by new gameplay elements and meta-game features such as card collection.

Match Factory!, another hit title from Peak, achieved record net bookings and grew 20% over last year. Players responded positively to innovative new features, including the Super Bowl Power Up which increased engagement and monetization within the game. Rollic's hit title, Color Block Jam continues to engage and grow its audience with new features and levels and remains the highest grossing title in the studio's history. In addition, Rollic surpassed 3.8 billion lifetime downloads and achieved a new net bookings record for the quarter.

The CSR franchise achieved $1 billion in lifetime in-game spending with more than 180 million players worldwide since its launch in 2012, which we believe indicates great momentum ahead of the release of CSR 3. Zynga Poker launched on Steam with full cross-functionality enabling players to enjoy the game freely across mobile, web browsers and PC. 2K's mobile offerings had another strong quarter with WWE SuperCard surpassing 38 million lifetime downloads. NBA 2K Mobile continued to grow its audience and the 2K26 Arcade edition holding its top 5 position on the Apple Arcade charts and NBA 2K All-Star in China, capturing 8 million registered users after just 6 months in market.

We continue to focus on our mobile direct-to-consumer business and are achieving higher conversion driven by new offers, events and enhanced personalization. Also as a result of recent legislative changes, our teams have rolled out new technologies that enable direct transactions and new payment mechanisms, including solutions designed to support international growth, which should help us expand meaningfully net bookings and margins via this highly accretive channel.

With the record-breaking launch of NBA 2K26, 2K and Visual Concepts proved once again their ability to create phenomenal gameplay, innovate with new features and optimize live service offerings. To date, the title is sold in over 5 million units, representing a double-digit increase over NBA 2K25 and with average selling prices reaching an all-time high, led by higher sales on premium additions. We were pleased to see daily active users and MyCAREER daily active users grow nearly 30% and nearly 40%, respectively, which contributed to recurrent consumer spending growth of 45%.

Players love many of the game's new features, including a thriving hub of competition, a more accessible layout, all new rewards and fresh cosmetics. I'd like to congratulate 2K and Visual Concepts for once again delivering a superb basketball experience led by innovation and an unwavering commitment to excellence.

2K and Gearbox Software lunch Borderlands 4, the latest offering in our beloved looter shooter franchise. The game received high critical praise, with many reviewers calling it the best Borderlands yet. The series highly active community eagerly welcomed the title. And during its opening weekend, it reached the largest concurrent player count on Steam in franchise history. Borderlands 4 also dominated YouTube with 300 million views and are in the #1 spot on Twitch during its launch, underscoring the franchises enduring mass appeal.

While we experienced some challenges with optimization and performance on PC, Gearbox has been addressing these issues and releasing updates to improve gameplay. We're confident that Borderlands 4 will achieve strong unit sales over its lifetime. We're immensely proud of Gearbox and look forward to robust post-launch content offerings that will support the game in the months ahead.

2K and Hangar 13 released Mafia: The Old Country, the first new entry in our popular organized crime franchise in nearly a decade, which earned the vast praise from critics and consumers alike. The title quickly surpassed our internal expectations and affirmed our belief that consumer demand remains strong for premium narrative-driven experiences that overindex on value. The team at Hangar 13 will continue to push the boundaries for cinematic experiences in this series and in future creative pursuits.

Grand Theft Auto V continues to grow its audience. And to date, the title has sold in more than 220 million units worldwide. Players remain deeply engaged with Grand Theft Auto Online, which added holiday theme jobs and rewards as well as new vehicles, community events and outfits. GTA+ continued to increase its membership achieving over 20% growth year-over-year. We're pleased with the consumers' ongoing passion and engagement with the franchise, which we believe will help usher in a record-breaking launch for Grand Theft Auto V.

In closing, we're very pleased with our position as one of the largest, most diversified companies within the interactive entertainment industry, a sector that we believe will enjoy robust growth. As we embrace our core values and focus on delivering the most captivating and engaging entertainment experiences, we expect to achieve record levels of net bookings in fiscal 2027, establish a new baseline for our business, and enhance our profitability. I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams for delivering another terrific quarter, which reflects our unique ability to consistently deliver the highest quality entertainment experiences. Our teams plan to sustain this momentum over the balance of the year by releasing an array of new content and product offerings. Following the successful launches of Mafia: The Old Country, NBA 2K26 and Borderlands 4, 2K plans to release new content and updates for each game that will provide our fans with even greater opportunities to engage with these franchises.

Zynga will continue to enhance its portfolio with the introduction of new features and innovation in live services, while also pursuing new titles. During the fourth quarter of our fiscal year, 2K and Visual Concepts will launch WWE 2K26, the next installment in our popular wrestling franchise. Since taking over the series, Visual Concepts has immersed players in the most intense and realistic action that the Squared circle Can hold.

And WWE 2K26 will continue this legacy. 2K will have more to share about the game shortly. Looking ahead, we believe strongly in our long-term pipeline, which includes the release of Grand Theft Auto V on November 19, 2026 as well as the future launches of Judas, Project ETHOS, CSR 3, [indiscernible], the next BioShock and many other exciting new titles from across our labels.

In closing, we are thrilled with our performance for the first half of fiscal 2026. As we continue to execute our proven strategy and capitalize on emerging opportunities, we expect to achieve a period of meaningful long-term growth and shareholder returns. I'll now turn the call over to Lainie. .

Thanks, Karl, and good afternoon, everyone. Our second quarter results were truly fantastic. We are excited to raise our annual net bookings outlook for the second consecutive quarter. Our outperformance was driven by many of our key titles, which underscores the strength of our core franchises and the power of our diverse portfolio of owned intellectual property. .

I'd like to thank our teams for their outstanding execution and unwavering focus on creativity, innovation and efficiency. Turning to our results. We delivered second quarter net bookings of $1.96 billion, which was significantly above our guidance range of $1.7 billion to $1.75 billion. This reflected better-than-expected performance from NBA 2K, Mafia: The Old Country and several mobile titles, including Toon Blast, Color Block Jam, Match Factory! and Empires & Puzzles, which more than offset softness in the initial launch of Borderlands 4.

Recurrent consumer spending rose 20% for the period, which outperformed our guidance of 1% growth and accounted for 73% of net bookings. NBA 2K grew 45%. Mobile increased mid-teens and Grand Theft Auto Online declined as expected. During the quarter, we launched Mafia: The Old Country, NBA 2K26 and Borderlands 4. GAAP net revenue increased 31% to $1.77 billion, cost of revenue increased 27% to $793 million, and operating expenses increased 5% to $1.1 billion.

On a management basis, operating expenses rose 13% year-over-year, which represented significant operating expense leverage on our strong top line growth. Operating expense dollars were above our forecast due to incremental user acquisition investments to support robust performance in our mobile portfolio and higher performance-based compensation, which was partly offset by a shift in some console marketing and IT expenses into the second half of the year.

Turning to our guidance. I'll begin with our full fiscal year expectations. Our momentum is strong, and we are raising our net bookings outlook range to $6.4 billion to $6.5 billion, which represents 14% growth over fiscal 2025 and at the midpoint. The increase reflects our second quarter outperformance and higher expectations for many of our core franchises for the second half of the year.

The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory!, Borderlands 4, Color Block Jam, Empires & Puzzles, the Red Dead Redemption series and Words with Friends. We now expect recurrent consumer spending to grow approximately 11%, representing 77% of net bookings. This growth percentage is more than double our prior forecast of 4%, driven by NBA 2K and higher expectations for several mobile titles. Our revised recurrent consumer spending forecast assumes that NBA 2K now grows in the mid-20% range.

Mobile increases approximately 10% and and Grand Theft Auto Online declines, which is unchanged from our prior forecast. We project the net bookings breakdown from our labels to be roughly 46% Zynga, 39% 2K and 15% Rockstar Games. We are raising our operating cash flow forecast to approximately $250 million, reflecting the strength in our business. We now expect to deploy approximately $180 million in capital expenditures which is above our prior guidance due to the acquisition of an office building to support our global footprint. We're also increasing our forecast for GAAP net revenue, which is now expected to range from $6.38 billion to $6.48 billion and the cost of revenue, which is now expected to range from $2.66 billion to $2.69 billion.

Our total operating expenses are expected to range from $3.98 billion to $4 billion compared to $7.45 billion last year. On a management basis, we now expect operating expense growth of approximately 9% year-over-year, which represents notable operating expense leverage on our higher net bookings outlook. Our forecast for operating expense dollars is increasing due to incremental marketing to support our mobile portfolio and higher performance-based compensation.

Now moving on to our guidance for the fiscal third quarter. We project net bookings to range from $1.55 billion to $1.6 billion compared to $1.37 billion in the prior year. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory!, the Red Dead Redemption Series, Color Block Jam, Empires & Puzzles, Borderlands 4 and Words with Friends. We project recurrent consumer spending to increase by approximately 8%, which assumes low double-digit growth in mobile, a mid-single-digit increase for NBA 2K and a decline for Grand Theft Auto Online.

We expect GAAP net revenue to range from $1.57 billion to $1.62 billion. Operating expenses are planned to range from $980 million to $990 million. On a management basis, operating expenses are expected to grow by approximately 12% year-over-year, which is primarily driven by incremental user acquisition investments to support our robust performance in our mobile portfolio and higher performance-based compensation.

In closing, we are thrilled with the strength in our business today, and we are extremely optimistic about the future ahead. As we execute on our strategic priorities, which include expanding our core franchises to even greater levels of commercial success, releasing groundbreaking new heads, driving efficiencies and capitalizing on new business opportunities we believe that we will meaningfully grow our scale and our profitability. I'd like to thank you all for your support and look forward to sharing more details on our exciting pipeline in the coming months. Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for continuing to deliver outstanding results for Take-Two. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator? .

[Operator Instructions] Your first question comes from Colin Sebastian with Baird.

Great. I guess, I mean, on the RCS performance, I mean that's really, really strong. And I'm curious if there are any common denominators across NBA Mobile, other titles where you're seeing that strength, anything specific you've learn from that, that maybe you can apply to other franchises going forward? And then considering the change in release date for GTA, just curious, does that change the cadence of content updates or marketing support for the existing franchise for GTA Online over the next year as we -- as you work to maintain engagement in the meantime.

So on the second question first, I don't think you'll see any change and Rockstar has a history of supporting GTA Online and of course, the title continues to perform incredibly well. I also know the GTA+ was up 20% year-over-year in the quarter, which is just great news. So -- and Grand Theft Auto V has now sold 220 million units. It's a pretty great story. We expect that story to continue in a similar way. In terms of your first question, I think are you asking whether we think there are sort of industry tailwinds that are driving recurrent consumer spending across the board?

Well, actually, it could be that or more specific to the way that you're developing games is there something within RCS within the mechanics that you're seeing is resonating with with gamers in particular? Or maybe they're just specific to those titles?

So my sense is that despite what some industry observers are saying that there are modest tailwinds in the business. I think we're seeing those. And equally, look, our approach here is to seek perfection in everything we do and to try to engage and captivate our consumers. And when we do that effectively, monetization follows. And - so I don't -- none of us is in the business of taking victory laps, even though we're very proud of the quarter. But I think the answer to your question is that our creative teams are delivering and they're delivering at the highest possible level.

And so when I see commentary in the industry that's negative about what's going on, I think if you try to correlate quality with performance, you're going to find SOME exceedingly positive correlation. And actually, I think you can find causation there as well, gives people something great, they're going to come out for it.

Your next question comes from Doug Creutz with TD Cowen.

It appears that you're soon going to be the last publicly traded stand-alone publisher of scale standing. I wondered your view on how that affects your ability to attract talent, your ability to place games in the market? Just sort of is there anything about that strategically that affects your competitive position?

I think the answer is I'm not sure. We're always running scared around here. I'm fond of saying arrogance is the enemy of continued success. And I do think we're in a terrific position. We're performing much better than expected economically, and that's because we're performing better than expected creatively. And that's always our story around here. And if we can maintain that, then we have a wonderful future ahead of us. It is true that at year-end, we're really very under-leveraged.

It is true that in relatively short order, we expect to be a net cash company again. And it's true that we're independent and we have a publicly traded security. And I think all of those things can be advantageous in the right hands. But none of that will will lead us to claim success before we deliver it. And whenever we have good results, our [indiscernible] is to take no victory lap, get up the next day and try to do it again. So that's what we'll keep doing. We do think we're well positioned.

Your next question comes from Chris Schoell with UBS.

Great. We saw 1 of your peers see outperformance on mobile margins due to the recent iOS changes. Can you just walk us through how widely available open payment mechanisms are across your portfolio today? And does that provide any uplift to gross margins in the quarter or your expectations for the year? And maybe just along these lines, any thoughts on the recently proposed changes to Google Play and what it means for your business?

Look, I've been saying for years that I expected the cost of third-party distribution to decline. And as soon as we close the Zynga transaction, we launched a direct-to-consumer initiative that has been successful. We value our partnerships with retailers. We don't have any reason to believe that those will ever become extent. At the same time, distribution costs naturally will decline with competition. and in certain instances with litigation and legislation.

And you're seeing that now. So our direct-to-consumer business is doing really well, if it's been rolled out almost across our entire mobile portfolio, not the entire portfolio because it doesn't necessarily fit everywhere. And the most recent litigation result definitely puts us in a stronger position. And not only will net bookings rise more rapidly than expected, but margins too will rise with them. So it's all good news. We're not specifically calling out how that margin change will affect our year, except obviously, we've increased our guidance for the year.

Got it. And if I can just fit in one more, maybe just on the new GTA time line. Anything you can share as to what the drivers were and what gives you confidence that the state will stick?

Yes, the drivers are a desire to deliver as perfect an entertainment experience as we possibly can and to try to live up to consumers' extraordinary expectations and then exceed those expectations. And it's always painful when we move a date. We have done so occasionally in the past, and we've never regretted it in retrospect. I would like to point out that we have some competitors that in the event where more polish was required and the required slipping a date, they chose not to slip the date, and they did so at their peril.

Your next question comes from Andrew Marok with Raymond James.

Maybe 1 on NBA and one on Borderlands. As it relates to NBA, we saw some of the metrics that you disclosed today. We're not well -- they were well above what you would normally consider for kind of a mature sports franchise. So I guess -- where are you getting these incremental audiences from? Are there new cohorts of players that you're expanding into? And I guess, what inning would you say that you're in, in terms of accessing the total NBA audience? And then I'll follow up with the Borderlands question.

So in terms of the cohorts that we're seeing, obviously, returning players are a huge cohort for us. And I would say we're -- every year, we're getting a little better at bringing people back into the game. But -- and -- but there's still a lot of opportunity to improve on that. So you asked about what inning we are. We are certainly not getting 100% of our people back every single year.

If we were to do -- be able to do that, we would have substantial, substantial upside. And I'm not saying that we will be able to do that, but there is certainly a lot of room for improvement there. In terms of other players, we're having some success internationally as well, but also getting more engagement of the player base that we have. That's been a significant part of our ability to drive recurrent consumer spending in NBA which has had significant improvements year-over-year.

We're doing more interesting things like bringing people in earlier for early access with premiums and just making the game tighter and listening to our audience base. And like we always say, higher the engagement, the more engagement, the monetization follows. It's not the other way around, and that's been our mantra pretty much from day 1. So I'd love to say we're in the first inning, that's probably not true, but we're certainly not even to the seventh innings stretch at this point. So it's probably somewhere in between.

Got it. Really appreciate that. And then on Borderlands, in these kind of longer-lived titles, how important is the launch period? And I guess, to the extent that the PC issues caused a little bit of a drag, how does player behavior change in one of those titles versus maybe an annual release or maybe you don't have as much time to sort of make up anything that sell short of expectations around the launch period?

Well, we see -- I mean your question implies that we see this the same way. The release was a bit softer than we would have liked for the reasons that you said. Gearbox has been addressing the PC challenges. And I think in retrospect, we feel there are things that we could have done better, but we intend to do better in the future. In the fullness of time, we think the unit sales on this title will be very solid, and the economic results will be in line with our expectations.

Your next question comes from Matthew Cost with Morgan Stanley.

I wanted to ask a little bit about mobile and Zynga. Obviously, it's been a stretch here of really strong outperformance for that business versus the broader mobile gaming market. So 2 parter. One, what is your level of confidence in their ability to sustain that continued outperformance of the market versus the market? Do you see that as a function of new game launches growing existing titles and then connected to that. Is there an opportunity to do M&A in the mobile gaming space something that as an independent company, Zynga [indiscernible] success with, is that something you're considering doing more of to build on the momentum that Zynga has today?

Yes. I mean what do I attribute their outperformance to, great leadership, great execution. So Frank Gibeau, who's our -- the CEO of Zynga, he's doing a terrific job, leading the team. and our creative teams, Pete, Rollic, all of our studios, frankly, right now are doing a wonderful job, both running live services on existing titles and launching new titles. So we have to keep doing more of that. What gives me confidence that we can. I think our approach has been narrowed and honed down at the label where we're being very careful economically. We're pursuing far fewer titles at once.

We're willing to walk away from titles that don't work earlier and focus on our winners. I also think our creative teams have really hit their stride. That said, we take none of this for granted. And we know that looking backwards is not going to help us accept to learn from our errors and to a lesser extent, our successes. We have to look forward, and we have some great releases coming up. So we're focused on those. So we have Topical coming from [indiscernible] and other titles coming out, which we're very optimistic. But the fact that I'm optimistic is relevant what's relevance to what the consumer says.

On the M&A side, we're very selective here. We're very proud of the fact that I don't think we have had an acquisition in our history that didn't work out. And that's an enviable and unusual track record for any corporation, any public company. We'd like that to continue. How do we do that? Well, make sure something is strategically aligned, of course, don't step outside of that zone, make sure that the cultures fit or can fit so that the integrations make sense and make sure that the deal is immediately accretive, if not to GAAP earnings, at least to management and cash flow.

So that has been our rubric and seems to have worked. So I guess what that implies is discipline and selectivity, which has served us well. Good news is we have a really strong balance sheet, and we have been able to do acquisitions in the relatively recent past. It wasn't that long ago that we bought Gearbox.

Your next question comes from Eric Handler with ROTH Capital Partners.

Straus, you've been very vocal on AI and how it's not a positive for creative development for video games. But I'm curious if you're having any success implementing AI in other sort of noncreative parts of the video game development, be it QC, be it artwork or whatever? And how you're adding it to what your developments?

Yes. To be clear, I didn't say that -- I didn't say it as a positive. What I said was that AI is based on backward-looking data sets, meeting compute meeting LLMs. and none of that replaces forward-looking genius. That's not an opinion. That's actual. I define anyone to controvert those facts. Of course, technology drives a lot of what we do around here. Now creativity is the lifeblood of the organization.

But how do we express our creativity. We do so with computers, with technical tools. We always have. So as tool sets improve, we can become more efficient, we can become more effective and our creative people, therefore freed up to be more creative. So AI depending on how you define it and properly deployed, of course, is positive for creativity and therefore, is, of course, positive for game creation. To your question

about what's the nature of rollout, we have seen some efficiencies. I think there are plenty of areas of business where the tools that we have rolled out at the enterprise are helping us we are not either using this as an excuse to or, frankly, seeing the opportunity to reduce headcount. We are seeing this as an opportunity to take our very talented people and release them for more mundane tasks so they can do more creative and more interesting tasks, and we can work better as an organization. But if you said, can you cut your cost profile by 5% tomorrow by using all things AI, the answer is no. .

Our next question comes from Ed Alter with Jefferies.

I appreciate the mention of the pipeline and specifically BioShock, you guys made a pretty key hire there with [ Rod Burgers ] during the quarter. I'd love to just get an update on that title and kind of what his mandate is at the studio.

Sure. Yes, we're very excited that we brought Rod on to the Cloud Chamber, and he is the new Head of the BioShock franchise. He's obviously an incredible industry veteran. He's got history with the Bioshock franchise, specifically with Infinite. He's also been involved with Gears of War and Diablo and it's -- we're just so grateful that he's come to work with us at Cloud Chamber. .

Bioshock is a very important franchise for us. It's one of our U.K.'s biggest franchises, and we're very excited about the release of the next BioShock. We've made some changes in the organization. We're shifting some things around. But right now, we feel that the game is on a great track for us to deliver something that's going to exceed consumers' expectations. So not much more to update other than that and the fact that the next Bioshock is going to take the franchise to the next level, which is always our ambition with all of our franchises.

And then on ad revenue, it's been up 2 quarters and now for timing quite a while. Can you talk about what's going right there? Is that Color Block Jam? Or is there a broader Rollic portfolio just performing across the board?

It's really across the entire mobile business, particularly Rollic, though, they've achieved fantastic performance, and this is what's driving the higher ad revenue for the quarter.

Your next question comes from Michael Hickey with Benchmark.

Yes. Congrats guys in the quarter and raising your numbers for the year. Obviously, sorry to hear the the delay of GTA V, but November next year strauss going to be pretty awesome. Just curious, I guess, internally how the Rockstar team is holding up with the delays. I'm guessing it could be challenges on motivation or culture. I don't know, but I'm guessing it's hard on them to have to deal with the delay as well.

I'm sure they're very excited to get the game out. And then in terms of Polish, I mean, I think I know what that means, but just sort of curious what Rockstar brands is polished. And then how much of -- they have a huge team now. So how much of the team, Strauss, as much as you can tell us as focused on polish versus maybe other content ideas or projects that could be part of that GTA ecosystem or otherwise.

Yes. obviously, Mike, you know us well. You know me well, I can't talk about how the inner workings of the studio are reflected in current activities. So I can't -- I wouldn't answer that question. On the first point, I think the culture of Rockstar is extraordinary, and we're all pushing hard to seek perfection. And that's not just words.

I mean the Metacritic scores of Rockstar releases are generally speaking [indiscernible], with very few exceptions have been over 95%. And GTA V, you know, has been the standard bearer, not just for our company but for the industry through 3 console generations. And to this day, is still, I would argue, the most technologically advanced title in the marketplace despite it's more than a decade old. And that doesn't happen by accident. So it's -- Rockstar's culture is one of performance. Take-Two's culture as a whole, which is reflected in all of our labels is one of seeking excellence, teamwork, and kindness.

And that's a recipe that works really, really well. I can't deny that at any given time, if things don't go exactly as you like, but there's some disappointment but we're pretty good about brushing ourselves off and picking ourselves up and playing another day. And we've always done that. We learned from things that don't go as well as we'd like. And we aim to exceed all expectations, our own and those of our consumers. And we, frankly, rarely fall short, but we don't let that divert us either because we just try to order. I think that defines what Rockstar is doing now and they're feeling now.

Your next question comes from Martin Yang with Oppenheimer.

Can you talk about the premium SKU mix in NBA this year? How much is it higher than previous years? And then can you also talk about impact of having more season passes embedded in the premium SKU, whether or not that's a material uplift to your RCS growth for 2K26.

So 1 of the drivers -- So generally speaking, the more -- a bit higher the mix of the premium SKUs, obviously, the average selling price is higher. That is certainly a case this time around, and we've seen some really great reactions to our premium mix SKUs. And we believe, at least partly, if not in large part, was the effect of offering 7 days of early access to our players, which is longer than we did last time. And there is some RCS embedded in that as part of that package. So we it would have a really significant impact, and I think that's overall helped our average selling price. So it was certainly a successful strategy that we entered this year.

Your next question comes from Alec Brondolo with Wells Fargo.

I appreciate it. I actually want to go back to the first question that was asked and maybe actually ask about macro in the mobile game or in the game category in general. I think people consider this pure category, maybe low single-digit grower, but Take-two RCS is up 20, we have mobile game ad networks growing well in excess of 20%. [ Road Block ] seems to be growing bookings 50% or 60%. And so from our [indiscernible] perspective, is it possible are you may be starting to feel like we're entering a more positive cycle for industry growth? And to the extent that's true, perhaps you might opine on what the consumer behavior behind that is.

I do sense their tailwinds as much as I would love to take credit for everything good that's going on and disclaim responsibility for anything bad going on. No, I sort of agree with you. I think it feels like there is -- the consumers are once again moving in our direction sort of how it felt at the beginning of pandemic, maybe not quite as much enthusiasm. And we're unaccustomed to the world fueling this way because, of course, there was a decline in mid-'22 and took a while to settle out and then there was a return to modest growth. But as you yourself said, these are pockets of growth. And these pockets are defined by quality. And so we have to still be an outlier to deliver results like these. And that's our goal.

Your final question comes from Clay Griffin with MoffettNathanson.

I just want to circle back on mobile. Strauss, you had all of the points in terms of the margin improvement in the near term, but also over the course of the last several fiscal years. It looks like rough math that the mobile business in general will be pretty close to where it was on a pro forma basis, call it in '22. I just would love to ask you maybe you could just level set in terms of all of the -- whether it's the discipline in the titles, whether it's the efficiency and the UA spend, whatever, it does seem like there's been a pretty notable expansion in margins from then to now, notwithstanding the opportunities that you called out, but wondering if you could maybe just give us a framework in terms of the overall improvement maybe in mobile margins from, call it, 2, 3 years ago to now?

Look, we're -- honestly, we're just executing better. There were things that we were doing upon the acquisition that we either stop doing or we're doing a whole lot more efficiently and effectively. And one of the reasons that, that transaction came about is that we had like-minded cultures. And I think we aligned on the culture I described earlier and we aligned on our pillars of creativity, innovation and efficiency.

And we have an extraordinary leadership team that is open-minded and wants to win. And then we have amazing creative people throughout the organization who are bound and determined to do the very best work anyone can in the space. I think that's what it comes down to. And all of that done right is reflected in things like net bookings and margins. When you think about all these calls we've been doing for all this time, we talked about the numbers quite correctly, I think, as a result of what we do, not a driver of what we do.

None of us wakes up in the morning and says, let's talk about where our stock price ought to go. We talk about where our company ought to go. And if we get that right, the stock price is going to do just fine. I think and Nicole, our Head of IR, is sitting with me that in the 18 years that this management team has been responsible for overseeing our stock has appreciated something close to 5,000%. And that's a result of our strategy. That is not our strategy. And what we aim to do around here is make the best entertainment on earth and bring it to everyone on earth wherever they want it, whenever they want it, however they want. If we do that right, if we keep doing that right, if we're willing to question ourselves and always try harder and try again when we fall short, probably ought to see continued performance

There are no further questions at this time. I'll now turn the call back over to Strauss for any closing remarks.

I'd just like to take a moment once again to express my gratitude for the nearly 13,000 people who devote their careers to Take-Two and all of our affiliates all over the world because they're the ones who've delivered these amazing results. I want to thank the team at Rockstar who is diligently working on delivering the best entertainment experience of all time. And of course, I want to thank our shareholders for all of their support. So thank you for attending the call today. We really appreciate it. .

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year '26 Take-Two Interactive Software Earnings Call. [Operator Instructions]

It is now my pleasure to turn the call over to Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. You may begin.

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2026 ended June 30, 2025. 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.

Thanks, Nicole. Good afternoon, and thank you for joining us today. Fiscal 2026 is off to an excellent start, reflecting ongoing demand for our core franchises and the increasingly diversified successful nature of our business. Net bookings for the first quarter exceeded $1.4 billion, which was meaningfully above the high end of our expectations, led by the outperformance of several Mobile titles as well as the continued success of NBA 2K and the Grand Theft Auto series. We're optimistic about the year ahead, and we're raising our net bookings outlook for fiscal 2026 to $6.05 billion to $6.15 billion.

We have great confidence in our long-term pipeline and expect to achieve record levels of net bookings in fiscal '27 that we believe will establish a higher baseline for our business and set us on a path of enhanced profitability. I'd like to express my gratitude to all of our teams across our worldwide organization for their deep passion and intense commitment to our collective vision. We strive daily to do our best work and to exemplify our core pillars of creativity, innovation and efficiency, all in service of our goal to make the biggest and best hits in the entertainment business.

Turning to highlights from the period. Our Mobile business vastly exceeded expectations. Peak's successful forever franchise, Toon Blast, grew 22% over last year and nearly 75% on a 2-year basis, driven by the Seasonal Collection feature that provided a new avenue of engagement for the game's millions of active players. Match Factory!, another hit title from Peak, achieved record net bookings as the title grew 33% over last year. Players experienced new features such as the Treasure Cave event as well as new levels.

Rollic's newest hit, Color Block Jam, maintained its positive momentum and has become the highest grossing title in the studio's history. Throughout the quarter, Color Block Jam remained at the top of the app charts, demonstrating its strong market position and mass appeal. Rollic supported the title with its first bold beat, Pilot's Drop, where players receive progressively larger rewards with each consecutive win, amplifying engagement and monetization.

2K's mobile offerings also had a great quarter, including WWE SuperCard, which remains the label's most successful mobile game with over 37 million lifetime downloads. NBA 2K Mobile has been steadily growing its audience with new content and challenges, while NBA 2K25 Arcade Edition continues to top the Apple Arcade charts, and NBA 2K All-Star in China has been posting strong and profitable results since its launch in March.

We continue to focus on our mobile direct-to-consumer business, and we're achieving better conversion driven by new offers, events and enhanced personalization. In the context of recent court rulings, we see ample runway for further growth in this area. The Grand Theft Auto series once again exceeded our expectations. Momentum remains exceptionally strong, and to date, Grand Theft Auto V has sold over 215 million units worldwide. During the quarter, engagement for Grand Theft Auto Online benefited from the record setting launch of Grand Theft Auto VI Trailer Two and the successful release of the Money Fronts Summer Content Pack, which culminated in higher-than-expected recurrent consumer spending growth. We're pleased that new player accounts for GTA Online grew over 50% year-over-year.

NBA 2K25 delivered another quarter of fantastic results. To date, the title has sold over 11.5 million units, and engagement grew significantly year-over-year, with daily active users and MyCAREER daily active users each up 30%, which helped drive 48% growth in recurrent consumer spending. We're thrilled that 2K announced a new multiyear global partnership expansion with the NBA, NBA PA and WNBA PA and extended its long-standing relationship with the NBA G League and USA Basketball. We're excited to continue our highly successful partnerships and look forward to building upon the record-setting achievements that we've accomplished together.

Engagement with our other sports titles has been healthy, including WWE 2K25. The title launched on Nintendo Switch 2 in July, which expanded its audience and featured same game modes that are available to players on PS5 and Xbox Series X and S.

Firaxis Games continues to introduce monthly updates for Sid Meier's Civilization VII. In addition, the studio released the title for Nintendo Switch 2, our first offering for the platform, featuring new mouse controls that offer a more intuitive gameplay experience. We're very pleased to continue supporting Nintendo with additional titles launching throughout the year.

In closing, we're thrilled with our company's positive momentum and have enormous anticipation for this quarter's launches of Mafia: The Old Country, NBA 2K26 and Borderlands 4. We remain deeply committed to excellence, to delivering the highest quality entertainment experiences for all of our audiences and to driving meaningful returns for our shareholders.

I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams for delivering a fantastic start to the year and for setting the stage for what promises to be an exciting chapter in our history. I'll now discuss our upcoming releases. Tomorrow, 2K and Hangar 13 will once again immerse players in the detailed, rich and storied world of organized crime with Mafia: The Old Country. With more than 2.5 million wishlists across all platforms, community sentiment for this linear, narrative-driven action game is very strong. 2K unveiled a new story trailer during the Annual Summer Game Fest show and provided the press with early play time, which resulted in glowing impressions and previews. We are very excited to expand our beloved franchise and help the players feel the passion and pride that our team brought to this exciting release.

On September 5, 2K and Visual Concepts will release NBA 2K26, which promises to once again raise the bar for our top-selling basketball experience. The title will be available on Early Access on August 29 and will be the first game from our series to launch on Nintendo Switch 2, offering the complete Gen 9 experience for the platform. With all new Pro Play features, players on Gen 9 will experience our immersive technology like never before, including revamped size ups and fast-paced dynamic movements. Fans can build a transcendent MyPLAYER as they strive to reach the pinnacle of NBA stardom and a reimagined MyCAREER journey and team up with friends to battle rival squads in a fresh and more optimized city.

NBA 2K26's MyTEAM will put past and present legends to test in new single and multiplayer modes while also offering 30 unique storylines to win a championship. More details on NBA 2K26 will be shared in the coming weeks.

On September 12, 2K and Gearbox Software will launch Borderlands 4, the eagerly anticipated next entry in our iconic looter-shooter franchise. Recently, global press and content creators played the game for the first time, and response was extremely positive, with some calling it the best in the series. In June, our team hosted the first ever Borderlands Fan Fest, where attendees played a demo of Borderlands 4 and generated over 600,000 hours of streams and videos. With the title launching on Nintendo Switch 2 in October, we are excited to harness the power of the new console and allow players to enjoy our mayhem fueled looter shooter at home or on the go.

Later this fiscal year, 2K and Visual Concepts will once again challenge players to step into the squared circle with WWE 2K26, the forthcoming installment in our popular wrestling franchise that continues to set new standards for excellence with each release. 2K will have more to share about this game in the coming months. This is one of the strongest lineups of 2K's history, positioning us to deliver best-in-class game play for our players and outstanding financial results.

Zynga will remain focused on continuing to enhance its existing portfolio and releasing new Mobile titles. In closing, we are deeply excited about this year's release slate and our ability to deliver entertainment experiences that captivate and engage audiences throughout the world. As we continue to execute our proven strategy and capitalize on emerging markets and opportunities, we believe that we will achieve a period of meaningful long-term growth and shareholder returns.

I'll now turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. We achieved outstanding first quarter results, driven by our strong franchises, talented teams and unwavering commitment to our strategic vision. Our performance was broad-based across our labels, as we engage players with exciting new game features and content updates while also advancing development of our highly anticipated pipeline. I'd like to thank our incredible teams worldwide for their hard work and passion for our business.

Turning to our results. We delivered first quarter net bookings of $1.42 billion, which was significantly above our guidance range of $1.25 billion to $1.3 billion. This reflected better-than-expected performance from several Mobile titles, including Toon Blast, Match Factory!, NBA 2K All-Star and Color Block Jam, as well as NBA 2K and the Grand Theft Auto series.

Recurrent consumer spending grew 17% for the period, which was meaningfully above our guidance of 7% growth and accounted for 83% of net bookings. Several of our businesses outperformed, including NBA 2K, which is up nearly 50%, Mobile, which grew low teens, and Grand Theft Auto Online, which increased low single digits.

During the quarter, we released Civilization VII for Meta Quest VR and Nintendo Switch 2. GAAP net revenue increased 12% to $1.5 billion, while cost of revenue declined 1% to $559 million and operating expenses decreased 3% to $923 million. On a management basis, operating expenses rose 3% year-over-year, which was slightly above our forecast of 2% growth, primarily due to higher personnel costs. Total marketing expenses were within our forecast range for the quarter. Zynga made incremental user acquisition investments to support its robust performance, which was offset by 2K shifting some marketing out of Q1 into later this fiscal year.

Turning to our guidance. I'll begin with our full fiscal year expectations. We are raising our net bookings outlook range to $6.05 billion to $6.15 billion, which represents 8% growth over fiscal 2025 at the midpoint. The increase predominantly reflects our strong first quarter performance and to a lesser degree, updates to our forecast, including FX. The largest contributor to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Borderlands 4, Match Factory!, the Red Dead Redemption series, Color Block Jam, Empires & Puzzles and Words With Friends. We now expect recurrent consumer spending to grow approximately 4%, which is revised upward from our prior forecast of flat, representing 76% of net bookings.

We expect NBA 2K to grow mid-teens, Mobile to grow low single digits and Grand Theft Auto Online to decline. We expect the net bookings breakdown from our label to be roughly 45% Zynga, 39% 2K and 16% Rockstar Games.

We continue to expect operating cash flow of approximately $130 million and capital expenditures of approximately $140 million. We now expect GAAP net revenue to range from $6.1 billion to $6.2 billion and cost of revenue to range from $2.55 billion to $2.57 billion. Our total operating expenses are now expected to range from $3.84 billion to $3.86 billion compared to $7.45 billion last year. On a management basis, we expect operating expense growth of approximately 5% year-over-year. This is up slightly from our prior forecast due to higher personnel costs as well as increased marketing spend to support our Mobile portfolio and [ netbacks ]. I'd like to point out that our earnings per share calculations reflect our higher share count following our recent equity issuance.

Now moving on to our guidance for the fiscal second quarter. We project net bookings to range from $1.7 billion to $1.75 billion compared to $1.47 billion in the second quarter last year. Our release slate for the quarter includes Mafia: The Old Country and NBA 2K26 and Borderlands 4. The largest contributors to net bookings are expected to be NBA 2K, Borderlands 4, the Grand Theft Auto series, Toon Blast, Match Factory!, Empires & Puzzles, Color Block Jam, the Red Dead Redemption series, Words With Friends and Mafia: The Old Country.

We project recurrent consumer spending to increase by approximately 1%, which assumes a low single-digit increase for NBA 2K, slight growth for Mobile and a decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.65 billion to $1.7 billion.

Operating expenses are planned to range from $1.02 billion to $1.03 billion. On a management basis, operating expenses are expected to grow by approximately 7% year-over-year, which is primarily driven by marketing to support our strong release slate during the period.

Looking ahead, our confidence in our outlook is exceptionally strong. Our company is set to deliver the most ambitious pipeline in our history, which we believe will unlock a new record level of scale as well as enhanced profitability. As we release exciting new hits and explore additional growth opportunities, both organic and inorganic, we expect to achieve meaningful returns for our shareholders.

Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering a stellar start to what is poised to be an outstanding year for Take-Two. To our shareholders, I want to express our appreciation for your continued support.

We'll now take your questions. Operator?

[Operator Instructions]

Our first question comes from the line of Eric Handler with MKM Partners.

Strauss, I wonder if you could talk a little bit about NBA 2K? You've sold about 0.5 million more units than last year overall. RCS in the quarter, up 48%. That's -- you said an acceleration of growth from not just last quarter, but 2 quarters ago as well. Is there something within the RCS that's particularly resonating this year that you can point out to?

Eric, it's Karl. Look, I mean, we're obviously very thrilled with the performance of NBA 2K. We've sold in over 11.5 million units. And engagement is just across the board, up significantly year-over-year. And it's really not necessarily any of our single mode. It's really both of our primary RCS generating modes, which is MyCAREER and also -- MyCAREER and our -- MyTEAM, sorry about that. So it's really -- over time, we're getting much, much better about managing and reading our in-game telemetry, knowing what the consumers like to spend money on, what they like to engage with. And 2K and the folks at VC have done an amazing job managing that process. So we continue to get better and better every year. And this is a really great title.

So there's nothing really specific that one can point to other than the fact that folks have really reacted positively to the efforts that we've made in the development process, and we still think there's a lot of greenfield in front of us.

Our next question comes from the line of Doug Creutz with TD Cowen.

I couldn't help noticing that your advertising revenue was flat year-over-year and up sequentially, which I think is the first time we've seen that in a long time. Can you talk about whether we're seeing finally a bottoming in that market? Or is this maybe due to some game specific things that impacted the quarter?

Yes. I think for us, it's really that we adjusted our approach to advertising by moving from hyper-casual to hybrid-casual and that hybrid-casual too. And at this point, I think we feel very good about sort of where we're at, and we would certainly hope to grow from here.

Your next question comes from the line of Chris Schoell with UBS Financial.

Great. Thank you. So Mobile did come in much stronger than we expected for fiscal 1Q with the low teens growth, but your guide does imply deceleration from here. Can you just kind of walk us through the drivers there and why you anticipate that the momentum you saw in fiscal 1Q might not repeat?

Yes, Q1 was fantastic. We've seen so much momentum in a lot of our big titles and some of our titles that have really started take off since Q4 of last year and into this first quarter. But we do see some mature titles that have achieved outstanding results on a multiyear basis. And given the age of these titles, we really still expect moderation even though we haven't really seen it over the course of the fiscal year. And we also have some hyper and hybrid-casual titles that have performed really well. And when we forecast those titles, we're looking at the life cycle and the sales curve of prior hyper and hybrid-casual titles. So we have to build that into our forecast. So that's what we're seeing right now. But hopefully, it will continue to go in the same momentum, and we'll see some great surprises towards the end of the year.

Great. And if I can just fit in one more. Just as the free cash flow generation of the business scales here in the coming years and leverage is now coming down following the equity raise, can you just remind us how you're thinking about capital allocation going forward and where potential shareholder returns might fall into your list of priorities?

Yes, great question. And just to put it in context, right now, we've had $2 billion in cash, and our net leverage is about 1.2 turns. So we feel like we're pretty conservatively geared, which is our goal. You're right that our expectations obviously, would be over the next few years, that we'll build up our cash balance to strengthen our balance sheet further, which is a position we like to be in. And our approach to capital allocation is unchanged.

There are really 3 uses of our capital, first to support organic growth. That's been our story out here. We are largely an organic growth story. Secondly, selectively and on an accretive basis only, to support inorganic opportunities that are strategically sound, and we're really proud of the fact that pretty much everything we've done in that area has worked out. You see in this quarter that we're now reporting just how well our Mobile approach is working out just how wonderful in addition it is to this enterprise.

And it's always our goal to make sure that inorganic growth is sound. It's atypical for industry. But typical for us. And our most recent deal, the acquisition of Gearbox has also been stellar for the company.

And third is returning capital to the shareholders, which we've done regularly over the years, typically in the form of buybacks, which are opportunistic, and we do aim to purchase shares at deep value. So far, we've found that right 100% of the time, which is kind of amazing. So that remains unchanged, and we feel good about being able to actually execute against all 3 approaches in the coming years.

Our next question comes from the line of Andrew Marok with Raymond James.

I guess thinking about what went into the decision to price Borderlands for $70, I guess more broadly, when a peer came out with full games at $80, it seemed like a foregone conclusion that the rest of the industry would follow, but now we've seen that not necessarily be the case. So I guess from your seat, what is the pricing environment? How do you feel about the ability to take price? And when do you think the player is ready for that to be born?

Well, I think our approach may be a little bit different. We believe that any consumer experience is the intersection of the thing itself and what you paid for the thing. So our goal is to vastly exceed expectations. We want to put out the best entertainment on earth, and we want to deliver more value than what we charge for. And we think we've generally speaking, gotten that right.

Variable pricing has been the nature of this industry forever. Most frontline releases, we'll go out at a higher price, so sometimes with special additions. And then over time, usually, the price is discounted to optimize for the largest possible market. And I don't think that's going to change anytime soon. But the rubric that informs us is really that of delivering more value than what we charge.

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

Yes, thanks, Strauss, Lainie, Karl, Nicole. Great quarter, guys, and nice to see the raise in your '25, fiscal '26 numbers. Just in that sort of area, the raise in your guidance here, just given the macro backdrop trials, just July jobs report, which is obviously weak, and then we saw the revision down pretty meaningfully, obviously, in May and June job numbers. Are you concerned that this all signals a broader economic slowdown? And how you think that could impact your business. Obviously, entertainment has been somewhat defensive historically, but also vulnerable.

Thanks, Mike. I'm not sure anyone really wants to listen to my macroeconomic guidance, but I'll share it anyhow. And after negative GDP growth at the end of last year, we've seen a return to positive GDP growth in the first quarter of 1% to 2%. And I think we're going to see positive GDP growth. There's headwinds in tariffs, there are tailwinds in stimulus. I think they're probably going to balance out in favor of modest growth. I think you're probably going to see a 3% increase in consumer spending, which is about what we've been accustomed to. I agree with you that unemployment probably goes up a bit, it's 4.2% and it probably goes up to 4.5%. That's my own view. And I think you'll see 50 more bps of Fed rate cuts between now and year-end. You can ignore all of that or do with it as you please.

What that implies is much more soft landing than anything else. It's unbalance, acceptable, it's not booming, it's not -- certainly not busting. And I do think that there is some risk, which you, I think, alluded to in your question, that consumers are going to be a little more careful with their spending. And what happens when they're more careful? Well, it's not true that entertainment is countercyclical. It's not even true that entertainment is recession-resistant. It is true that people still consume entertainment even in tough times. They're just going to be much more selective. So where are they going to go? They're going to go to quality. And that's a trend that's already been occurring in our business because our business is maturing. And as entertainment businesses mature, there's a flight to quality thankfully, we think a head around here.

And 18 years ago, when we came here, we made sure that the strategy of the company was not to put out the biggest number of releases, but rather to put out the best releases and only to put out the best releases. And then, of course, over time, when we established an ability to come out with the highest quality titles reflected in our leading Metacritic scores in our revenues, we were able to build up our pipeline further and to diversify further. And now we actually have an incredibly robust pipeline going forward and one that we believe is identified by the hallmark of great quality. If we're right about that, then even in more challenging macro times, our micro behavior should be industry-leading.

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

I want to ask about your view on the size of your addressable players versus the absolute quality you can deliver. So when it comes to new game releases, would you, at most times, sacrifice the potential addressable player base to prioritize on the quality of the game in the sense that sometimes you will want to maybe sacrifice your target a narrower console or PC player base in order to deliver the quality. So that's -- yes, so just general sense on how do you think about new games and the player base they will support.

Look, in general, we aim to be wherever the consumer is, and most of our releases end up on all platforms that have any kind of consumer attention. And we've announced, for example, 4 titles for Switch 2 and have supported Nintendo with new platform releases we've supported Sony and Microsoft, we're on Steam and numerous other digital platforms within the PC format. So I don't really think there's a trade-off between our focus on quality and how ubiquitous we are in terms of release platforms. And I don't see it that way. It is possible that our labels might stage a release so that they can focus on, for example, core console platforms. But generally speaking, in the fullness of time, our titles find their way to all the viable platforms.

Got it. A quick follow-up. So you talked about meeting players where they are. I think in the past, you have expressed or you view platforms like Roblox as a very low priority platform where you would put your content on. Is there any change to that view? Do you feel that there are players that you are currently not accessing by not putting content on Roblox? Or do you think that you're pretty well covered in terms of all the players and where they are?

Well, I mean, I didn't realize you're referring to Roblox as a platform. But for the sake of argument, let me accept it as one for the purpose of your question. Roblox is aimed at kids largely. And not all of our games are rated E. So we're a highly compliant company. We market to appropriate audiences we work with the ESRB here and with IARC outside of the U.S. and other local ratings agencies to make sure that our titles are properly labeled and properly marketed. So even if a platform like Roblox, as you put it, were viable for some of our releases, not all of them would be appropriate for Roblox. But Roblox is not a platform in the way, say, Steam is a platform. Roblox is a certain type of environment. not all of our games would work on Roblox, whether that's work technically, work artistically or work commercially.

But in terms of platforms that don't have their own creative offering, so for example, Steam. Steam doesn't opine as to who it serves. It has all different kinds of releases. So we're going to be on Steam or other similar digital platforms most of the time, just as an example.

[Operator Instructions]

Our next question comes from the line of Clay Griffin with MoffettNathanson.

Strauss, you mentioned it in the open, but just maybe if we could get your thoughts on the court rulings, specifically related to alternative app stores on Android. How do you see that progressing from here? Does it make sense to build your own app store within that environment? And then as a follow-on, what do you think it will do to sort of the user acquisition channels that had existed prior to this development?

It's less about user acquisition and more about user monetization, just to be clear. I think that we're going to continue to cooperate with all of the app stores. They are really important partners. And at the same time, the sort of the momentum of court rulings is in service of making sure the market is open and fair to all as it ought to be. I've been saying for years that I believe that systems -- distribution systems in our business would move from closed to open and the cost of distribution would decline. And we are seeing those 2 things happen, whether that's driven by financial necessity, whether that's driven by opportunity, whether that's driven by regulation or whether that's driven by litigation, it's kind of unimportant to us that the movement is all in the same direction, and that direction is what's good for the consumer. What's good for the consumer is open distribution.

And is that something that you see an opportunity to do yourselves? Or does it make sense to partner with others?

So all of the above, for example, you can buy currency on our own web stores now for most of -- not all, but most of our mobile games. I see that continuing. We have a launcher inside the Rockstar Social Club, for example. So we don't intend to integrate forward into retail distribution, and we certainly don't intend to eat retails' lunch because they're valued distribution partners for us. We want to be wherever the consumer is. Where they want to go to Best Buy, they want to go to Steam, they want to go to Microsoft or Amazon. We want to be there as long as we're treated fairly. But the emphasis is on being treated fairly. And there's a distribution cost that's fair and there's a distribution cost that is less fair. And the world seems to be moving in the direction of more fair and the courts are helping.

Sure. And then I've got a quick follow-up on NBA 2K, if I can. Just exceptional growth there. I'm curious, I know that you had 2K24 in PlayStation Plus last year around this time. I don't know if there's any special differentiation in terms of the tiers that were available in June. But I mean -- but Karl, maybe if you could speak to just if there was any impact from PlayStation Plus year-over-year that would have contributed to growth numbers like this.

So we do put our titles occasionally into some of the subscription services. They're great partners for us. And in many cases, they're great. We wouldn't do it unless it was a good economic deal and the platforms wouldn't do it either. So we do take advantage of that, and it's been compelling from us from an economic standpoint. As it relates to NBA, we have done it in the past, and we don't really talk about whether we're going to do anything in the future. But when you do put something into a channel like that, it generates obviously, engagement, it generates income for us, and it's something that we consider and we do if the time is right and if the math makes sense.

And just to be clear, year-over-year, was there a meaningful delta in the way that it came to that service?

A meaningful delta over what?

Just how it was presented last year.

Yes. I'm not sure I'm understanding the question. I apologize. Just could you restate it one more time?

Yes. Just trying to understand if there was any change in the economics, the contribution from that relationship with Sony year-over-year that would have contributed to the exceptional growth at...

No, I understand that. Okay. I'm sorry. You were asking a very straightforward question, and I thought it was more complicated. The answer is no.

And with no further questions in queue, I will now turn the call back over to Strauss Zelnick for closing remarks.

Thank you so much, everyone, for joining us today. Obviously, we're thrilled with our first quarter results, and we have great confidence for the outlook for the rest of the year. All of this is tribute to the superb work that is done by our teams all over the world, our development teams who are the most creative and talented in the business, our marketing and distribution teams who are innovative in the extreme, don't take no for answer, of course, our business teams who work hard every day to make sure that we're highly compliant, highly organized and highly effective. Thanks to everyone, and we wish you all a great summer.

This concludes today's conference call. You may now disconnect.