Take-Two Interactive Software Inc (TTWO) 2015 Q3 法說會逐字稿

Greetings and welcome to the Take-two Interactive Software third-quarter fiscal year 2015 earnings call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications for Take-Two Interactive.

Thank you.

Mr. Diamond.

You may begin.

Good afternoon.

Welcome and thank you for joining Take-Two's conference call to discuss its results for the third quarter of fiscal year 2015 ended December 31, 2014.

Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer.

We will be available to answer your questions during the Q&A session following our prepared remarks.

Before we begin, I would like to remind everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws.

These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us.

We have no obligation to update these forward-looking statements.

Actual operating results may vary significantly from these forward-looking statements based on a variety of factors.

These important factors are described in our filings with the SEC, including the Company's annual report on Form 10-K for the fiscal year ended March 31, 2014, including the risks summarized in the section entitled Risk Factors, and the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2014.

I would also like to note that unless otherwise stated, all numbers we will be discussing today are non-GAAP.

Please refer to our earnings release for a GAAP to non-GAAP reconciliation and further explanation.

Our earnings release and filings with the SEC may be obtained from our website at www.taketwogames.com.

And now I will turn the call over to Strauss.

Thanks, Hank.

Good afternoon and thank you for joining us today.

I'm pleased to report that Take-Two built on its positive momentum in the third quarter, delivering exceptional results that exceeded non-GAAP expectations for the 10th period in a row.

As a result of our strong earnings at quarter's end, we had nearly $1 billion in cash and short-term investments.

This outstanding performance was driven by one of the most diverse holiday lineups in the Company's history, led by Grand Theft Auto V for PlayStation 4 and Xbox One, NBA 2K15, WWE 2K15, Borderlands: The Pre-Sequel, and Sid Meier's Civilization: Beyond Earth.

The stellar debut of Grand Theft Auto V on next gen consoles illustrates why this series is our industry's most iconic brand.

The title is the highest rated game today on both PlayStation 4 and Xbox One with a near-perfect 97 meta-critic score and is widely considered to be one of the greatest interactive entertainment experiences ever created.

Grand Theft Auto V already has sold in nearly 10 million units on PlayStation 4 and Xbox One, bringing total sell-in of the title to more than 45 million units across all consoles.

And we continue to see strong demand for Grand Theft Auto V in the current quarter.

NBA 2K15 enriched our franchise's legacy as the number one basketball simulation that sets new benchmarks for realism with each annual release.

The title was the highest rated sports game of 2014 based on average meta-critic score across consoles and PC and already has sold in approximately 5.5 million units to date, continuing the franchise's trend of year-over-year growth.

With the NBA season approaching its midpoint, demand for NBA 2K15 remains high, reflecting the game's position as a perennial favorite among sports fans.

The WWE 2K franchise has quickly proven to be a highly successful addition to our annual offerings.

This year's launch of WWE 2K15 outperformed our forecast with sell-in to date up more than 40% compared to last year's release.

We believe a substantial opportunity remains to grow our wrestling series meaningfully over time.

Finally, the launches of Borderlands: The Pre-Sequel and Sid Meier's Civilization: Beyond Earth added successful new titles to two of our most popular series.

We are gratified that consumers remain dedicated to these brands many years after their initial release, and our teams are deeply committed to taking these beloved experiences to exciting new heights in the future.

Our strategy is to create permanent franchises, and it appears we are achieving that goal.

During the third quarter, digitally delivered revenue grew 64% year over year and accounted for 23% of our total non-GAAP net revenue.

We benefited both from robust digitally delivered sales of our holiday releases and catalog, as well as continued growth in recurrent consumer spending, including virtual currency, add-on content and online games.

The single largest contributor to consumer spending was Grand Theft Auto Online, which continued to deliver stronger-than-expected results.

Consumer engagement was enhanced by the game's launch on PlayStation 4 and Xbox One, as well as Rockstar Games release of two updates, the Last Team Standing update and the holiday-themed Festive Surprise.

Consumers on all platforms can look forward to the release of more Grand Theft Auto online content, including Heists.

Recurrent consumer spending has been a growing enhancement to the success of our NBA 2K series, including NBA 2K15.

During the third quarter, it increased nearly 90% year over year, benefiting from both online play and significant engagement with the MyNBA 2K15 companion app.

A variety of other offerings also contributed to recurrent consumer spending in the quarter, including downloadable add-on content, WWE SuperCard which has been downloaded nearly 6 million times since its release last August, and NBA 2K Online in China, which now has nearly 24 million registered users.

Creating opportunities for consumers to engage with our titles after their initial purchase is an important high-margin growth opportunity and, therefore, a key strategic focus for our teams.

We plan to support virtually all of our new releases with innovative offerings designed to drive meaningful revenue and profits from recurrent consumer spending.

From an industry perspective, we are very pleased with the performance of the new hardware to date, which has exceeded our expectations.

Consumer demand for the PlayStation 4 and Xbox One appears to have been strong throughout the holiday season with the combined installed base of these platforms exceeding 29 million worldwide at the end of December, according to IDG estimates.

The ongoing success of next gen consoles underscores the vibrancy of the core gaming market and represents a significant growth opportunity for Take-Two.

I'd like to congratulate our teams around the world for delivering a great quarter and successfully launching five outstanding titles during one of the busiest periods for our industry.

As a result of our better-than-expected third-quarter non-GAAP results, we once again have raised our outlook for fiscal 2015, which is poised to be one of our best years ever.

Our fourth quarter should provide an exciting close to the fiscal year.

Next week's eagerly anticipated launch of Evolve, coupled with the March release of Grand Theft Auto V for PC and an array of other offerings, should continue to set standards for creative excellence and delight audiences worldwide.

With our world-class creative teams, robust development pipeline, leading-edge technology and ample cash resources, Take-Two is superbly positioned to deliver growth, profits and returns for our shareholders over the long-term.

I will now turn the call over to Karl.

Thanks, Strauss.

I would like to begin by congratulating our worldwide teams for delivering an outstanding third quarter.

From development to marketing to distribution, every facet of our Company worked in lockstep to achieve these results, which has enhanced our outlook for the year and also strengthened Take-Two for the long-term.

On the heels of an enormously successful holiday season, we've kicked off the fourth quarter with the release of downloadable content offerings with WWE 2K15, including the New Moves Pack and the Showcase: One More Match, as well as the Lady Hammerlock Pack for Borderlands: The Pre-Sequel.

Each of these expansions will enable fans to deepen their engagement with these beloved franchises.

Next Tuesday, February 10 will mark the launch of Evolve, the only game in history to win Game of Show Honors at both E3 and Gamescom in the same year.

Last month 2K launched an Open Beta, and the feedback was enthusiastically positive and well received by the press.

During the five-day beta test, YouTube content creators and Twitch streamers generated an enormous amount of content, resulting in over 3.7 million unpaid YouTube views and 1.7 million unique viewers on Twitch.

In keeping with our focus on driving recurrent consumer spending, Evolve will be supported with a robust array of additional content, including a value-packed season pass that features four new playable Hunter characters available this spring, and three exclusive Monsters skins available at launch.

In addition, 2K recently released the Evolve: Hunters Quest companion app, which links directly into the main game for an expanded experience that can be enjoyed on the go.

We are encouraged by the game's reception among press and consumers and look forward to a strong global launch for Evolve.

I'd like to thank Turtle Rock and 2K for their tireless dedication in bringing to market this important new intellectual property for our Company.

On March 24, Rockstar Games will launch their record shattering hit, Grand Theft Auto V on PC.

Purchasers of the title will also have access to Grand Theft Auto Online at launch, which will support up to 30 players.

We look forward to bringing this even further enhanced version of the Grand Theft Auto V experience to PC gamers next month.

Also on March 24, 2K will release Borderlands: The Handsome Collection, bringing the critically acclaimed series, which is sold in nearly 23 million units worldwide, to next gen consoles for the first time.

The Handsome Collection includes Borderlands 2 and Borderlands: the Pre-Sequel, along with all of the downloadable content for both titles.

This represents over $100 of current value on prior gen consoles but now with the graphical fidelity of next gen consoles for $59.99.

The pedal also features the ability for players to transmit or save data across console generations, along with four player split screen callout play, a franchise first.

We think the collection will appear to loyal Borderlands fans who want to experience the series on their new systems, as well as to those joining its universe for the first time.

In spring 2015, 2K will launch Sid Meierbs Starships, a new turn-based adventure-driven strategy game set in the Civilization: Beyond Earth universe.

Starships lets players command a fleet as they embark on a series of missions to explore the galaxy, protect planets and their civilizations and build a federation to usher in a new age of peace.

The game will be available for PC, Mac and iPad and will be sold only through digital download.

Civilization: Beyond Earth fans who purchase Starships will uncover a cross connectivity with the two games that will enhance and expand the depth of both experiences.

During the fourth quarter, 2K also will continue to support its titles with additional downloadable content, including the WWE 2K15 showcase, Hall of Pain pack, and an exciting new path for Borderlands: The Pre-Sequel, which 2K will unveil in the coming weeks.

In fiscal 2016, consumers can look forward to the launch of Battleborn, an all-new intellectual property developed for next gen and PC by Borderlands' creators, Gearbox Software.

The title is a blended genre game that combines first-person shooting, cooperative combat and an expansive collection of characters to deliver an all-new heroes shooter experience.

In addition, consumers can expect new annual releases from our NBA 2K and WWE 2K series, as well as exciting, yet to be announced titles from other popular franchises.

We will also continue to invest prudently in online gaming experiences for Asian markets.

During fiscal 2016, we expect to launch Civilization Online, a mass multiplayer online game being developed in partnership with XL Games.

The title is planned for initial launch in Korea, and we are exploring its potential in other Asian territories as well.

Looking further ahead, we have a robust long-term pipeline of titles in development, including groundbreaking new intellectual properties and new releases from our proven franchises.

For example, we can confirm that 2K and Gearbox Software will develop an all-new Borderlands game built specifically for next gen consoles.

In addition, we have numerous unannounced titles in development, as well as innovative offerings designed to maximize player engagement and drive recurrent consumer spending.

We will have more to announce about our future lineup in coming months.

I will now turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone.

Today I'll review our results for the third quarter and then discuss our outlook for the fourth quarter and fiscal year 2015.

All of the numbers I will be providing today are non-GAAP, and all comparisons are year over year unless otherwise stated.

Our press release provides a reconciliation of our GAAP to non-GAAP measurements.

Starting with our results for the third quarter, non-GAAP net revenue increased 24% to $954 million versus $767.7 million in last year's third quarter.

This resulted in our outlook range of $745 million to $760 million, due primarily to the outstanding launch of Grand Theft Auto V for the PlayStation 4 and Xbox One, as well as continued strong engagement with Grand Theft Auto Online and robust holiday sales of WWE 2K15.

Digitally delivered revenue grew 64% to $217.2 million, up from $132.8 million last year.

Revenue from recurrent consumer spending, including virtual currency, downloadable add-on content and online games, grew 23% and accounted for 36% of digitally delivered revenue.

The largest contributors to digitally delivered revenue were offerings for the Grand Theft Auto series, NBA 2K15, the Borderlands franchise and Sid Meier's Civilization: Beyond Earth.

Catalogue sales accounted for $103.7 million of net revenue, led by the Grand Theft Auto series and offerings of Borderlands 2.

Gross margin increased slightly to 45.7%.

Operating expenses were $157.2 million, up by $40.2 million, due to higher marketing expense for our third-quarter releases.

And non-GAAP net income increased to $211.6 million or $1.87 per share, up from $210.7 million or $1.70 per share, for fiscal third-quarter 2013.

This result exceeded our outlook range of $1.35 to $1.45 per share.

On a GAAP basis, we reported net revenue of $531.1 million and net income of $40.1 million or $0.42 per share.

Turning to some key items from our balance sheet, at December 31, 2014 as compared to September 30, 2014, our cash and short-term investment balance increased to $976.6 million.

This equates to net cash of approximately $8.57 per share, which includes the potential dilution from our convertible notes.

Our accounts receivable balance increased to $435.7 million, reflecting holiday sales.

Inventories decreased to $24.6 million, due primarily to shipments of our third-quarter titles.

As software development costs and licenses decreased to $294.8 million, reflecting the amortization of capitalized costs for our recent releases.

Now I will review our financial outlook for the fourth quarter and fiscal year 2015, which is provided on a non-GAAP basis.

Starting with the full fiscal year, as a result of our better-than-expected non-GAAP third-quarter performance, strong current business trends, and positive sales outlook for our upcoming releases, we are increasing our outlook for both revenue and net income per share.

We now expect net revenue to range from $1.65 billion to $1.7 billion, up from the prior range of $1.4 billion to $1.5 billion, and net income to range from $1.65 per share to $1.75 per share, up from the prior range of $1.05 to $1.30 per share.

Turning to the details of our full-year outlook.

We expect the revenue breakdown from our labels to be roughly 50% from 2K and 50% from Rockstar Games.

We expect our geographic revenue split to be about 60% United States and 40% international.

We expect gross margins in the mid to upper 40s.

Total operating expenses are expected to increase by approximately 11%, driven primarily by personnel expense on the higher headcount, higher professional fees and higher depreciation expense.

Selling and marketing expense is expected to be about 14% of net revenue based on the midpoint of our outlook range, and we project interest and other expense of approximately $10 million, tax expense of about $70 million, and weighted average fully diluted shares of approximately 114 million.

This reflects weighted average basic shares of approximately 80 million, 8 million participating shares and 26 million shares representing the potential dilution from our convertible notes.

Interest on the convertible notes net of tax is approximately $6.8 million, which should be added back to net income to calculate net income per share.

Turning to the fiscal fourth quarter, we expect net revenue to range from $410 million to $460 million, and net income to range from $0.15 to $0.25 per share.

The majority of our revenue is expected come from Grand Theft Auto V, Grand Theft Auto Online, Evolve and NBA 2K15.

We expect gross margins in the low to mid 40s.

Total operating expenses are expected to increase by approximately 64% from the prior year's fourth quarter, due primarily to higher marketing expense for our upcoming releases and high research and development expense for titles that have not yet reached technological feasibility.

Selling and marketing expense is expected to be about 15% of net revenue based on the midpoint of our outlook range.

Our fourth-quarter outlook also reflects interest and other expense of approximately $2 million, tax expense of $13 million and weighted average fully diluted shares of approximately 115 million.

This reflects weighted average basic shares of approximately 81 million, 8 million participating shares and 26 million shares representing a potential dilution from our convertible notes.

Interest on the convertible notes net of tax is approximately $1.7 million, which should be added back to net income to calculate net income per share.

We expect our operations to be approximately cash flow neutral during the fourth quarter, and we continue to expect to generate cash from operations in fiscal 2016.

As a result of the creative excellence of our development teams, who produced an extraordinary holiday lineup, fiscal 2015 is poised to be one of the most successful years in the history of Take-Two.

Looking ahead, our industry-leading creative assets and strong balance sheet provide a solid foundation for our Company to continue to deliver long-term growth, profits and returns for our shareholders.

Thank you.

Now I'll turn the call back to Strauss.

Thanks, Karl and Lainie.

On behalf of the entire management team, I'd like to again thank our colleagues for their contributions to our success.

To our shareholders, I want to express our appreciation for your continued support.

We will now take your questions.

Operator?

(Operator Instructions).

Eric Handler, MKM Partners.

Thanks for taking my question.

So, at the beginning of the year, you guys sound a little bit cautious with what you were going to do with your cash, because you are the start of a new cycle, and you thought at the time you were going to be using a modest amount of cash.

Now that you know it looks like you're going to be nicely cash flow positive this year, you should be cash flow positive next year, your unencumbered cash is about $1 billion, obviously a lot more than you really need.

Maybe can you talk about some updated thoughts about the potential returns of capital to investors?

And then secondly, how do we think about GTA Online going forward in terms of content updates on a long-term basis?

Thanks for your question.

In terms of use of cash, obviously it's good to be in the position that we are in as a reflection of the team's great work and the results that we've had.

So now we have, as you said, nearly $1 billion on the balance sheet.

We've said over and over again that cash here is used for potentially three purposes: supporting organic growth and the Company's story has largely been an organic growth story and one of which we are very proud; supporting return of capital to shareholders and we've done that in a big way as well -- relatively recent times, we've purchased almost $280 million worth of stock back -- and we have the opportunity also to support our growth with inorganic acquisitions.

We have a very tight funnel, we are very disciplined folks, we are focused on building our core business, and if we were to do any kind of acquisition, it would have to be strategically powerful and accretive.

And that's, I think, the appropriate lens through which to look at any potentially inorganic opportunity.

And that remains unchanged.

So this is -- it's a high-class problem, one that we take seriously, but those options certainly remain -- sort of remain our landscape.

In terms of GTA Online, GTA Online continues to exceed our expectations and delight us, and that's because it delights consumers.

And we are thrilled with what the team at Rockstar has done and continues to do.

There's more content coming.

The Heists are coming.

I'll let Rockstar talk more about that.

It's not for this call.

But I do think it is for this call just to acknowledge the extraordinary work that the team has done and the results that it has delivered.

This is a living, breathing entity that continues to delight consumers day after day, week after week, month after month.

Thank you.

Mike Olson, Piper Jaffray.

Good afternoon.

How would you describe the trends for legacy gen software in the December quarter and so far in the March quarter?

Specifically is the decline in legacy gen easing to some degree as we push farther into the next gen cycle?

So that's one question.

And the second one would be for Sid Meierbs Starships, is that included or not included in the March quarter guidance?

In other words, by a spring launch, do you mean after March?

Thanks.

In terms of legacy or old gen products, we are still seeing very robust demand for our current gen -- our legacy gen product.

We have heard of lots of rumors -- not rumors but anecdotes of people having difficulty selling through.

We are not experiencing that.

I think it speaks to the quality of our product.

That being said, without a doubt, as we go forward and the next generation continues to grow and we expect it to and we are very excited about it, it's inevitable that sales of legacy gen are going to decline over time.

How quickly that happens remains to be seen.

I can tell you right now we still see a robust market for legacy gen products, and we'll continue to put them out for as long as it makes sense.

Can you repeat your question on Starships again?

I didn't quite pick up the whole thing.

It's basically by -- I think you said spring launch in the press release, does that mean in the March quarter or after the March quarter?

In other words, is it factored into the March quarter guidance or not?

We just said spring at this point.

Okay.

All right.

Thank you very much.

Drew Crum, Stifel.

Okay.

Thanks.

Good afternoon, everyone.

Could you comment on your channel inventory given you sold in nearly 10 million units of Grand Theft Auto V for next gen, as well as the NBA 2K15 update you provided nearly 5.5 million units sold in to date?.

That's my first question.

And then a second question for Karl, you mentioned Borderlands with Gearbox.

Is that a fiscal 2016 launch, or is that yet to be determined?

Thanks.

In terms of the channel inventory, right now I think you specifically asked about GTA and NBA.

We are very pleased obviously with our selling and also sellthrough.

So we don't see any real channel inventory issues at all on any of our products.

So that's not a concern of ours.

And I think our retailers are very happy with our sellthrough in general and, again, speak to the quality of our titles and the strong season we had over the holidays.

And in terms of the new Borderlands title, we have not announced a date for that.

Okay.

Thanks, guys.

Justin Post, Merrill Lynch.

Thank you.

Congrats on a good holiday versus expectations.

Can you talk about next year you obviously have a really tough holiday comp.

Do you need a big blockbuster title in the second half of next year to kind of grow?

How are you thinking about that, or can you make it up with a lot of small titles?

And then can you talk a little bit about digital download percentage of games for the full game?

Is that growing for you, and how will that affect your margins over time?

Thank you.

Mathematically, as you said, it's a tough comp.

We had a very big holiday lineup, five titles, and we are thrilled that they did so well.

So math is math, and this year is penciling out very well.

And naturally, if you look at it as a comp problem, it's challenged, but it is not really how we look at it.

We have a desire to bring consumers the best in interactive entertainment.

We have 10 franchises that have each sold more than 5 million units on an individual release, 40 multimillion unit franchises, and we have labels with 2000 creative folks who are actively working on a number of projects that we believe can and will be the highest quality projects in the business.

So we don't tend to measure ourselves based on annual growth, although it would be very nice to deliver that year in and year out.

We measure ourselves on doing the very best work that we can over the long-term, and that's worked out really well for us over the past seven years.

So you're right.

It is a tough comp.

We have a lot of wood to chop.

We feel very, very confident.

We are confident enough to say that we expect the Company to be profitable next year and for the foreseeable future.

We've certainly talked about some titles already, so we feel great about it.

But we don't see our mission as necessarily delivering quarter over quarter, year over year, top-line and/or bottom-line growth.

That isn't the mission.

The mission is to delight audiences and then good things, including good economic things, will flow from that.

In terms of your question about digital downloads as a percentage of revenue, Lainie will take that.

For the digital business, we do continue to see it growing quarter over quarter.

It depends on what the mix of the overall business is, but we do see the digital business in general growing.

And as we focus more on the current consumer spending, we are seeing higher margin come from that business.

So as that continues to grow, we expect our digital margins as a whole to continue to grow as well.

But generally speaking, consumers are migrating to digital distribution of entertainment products, and we are part of that.

Thank you.

Daniel Ernst, Hudson Square.

Yes, good afternoon.

Thanks for taking my questions.

Two quick ones, if I might.

First or maybe re-ask the digital question.

Can you give us a general sense of the mix of your digital revenues of full game downloads, micro-transactions and DLC, kind of what's the rank order bucket or some general size of the mix?

And then secondly, more broadly, Strauss, used to be one of the takes on Take-Two was you had an overconcentration of revenues and profits in one franchise, that being GTA.

And we have been arguing and you have been delivering a broadening of that portfolio with things like Borderlands and the relaunch of Red Dead and BioShock, and so you have done that.

But the problem is GTA has grown much, much faster.

It actually has continued to, as you say, delight and surprise, and so we still have this problem.

Is that just a high-quality problem and you don't deal with it, or are you almost just want to double down on that franchise?

Tell me how you think about allocating resources to your portfolio.

Thanks.

The digital, so we talked about in this quarter that 23% of the quarter was digital business.

36% of it was for recurring consumer spending, and we don't break out the pieces of the recurring consumer spending.

But the majority of it came from the GTA Online was our biggest component.

And then the remainder of the digital, the full game downloads, is approximately 50% of overall total sales for the quarter.

(Operator Instructions).

I have the second question to your question, Daniel.

In terms of the overconcentration of Grand Theft Auto as a contributor to our revenues and profits, as you pointed out, that's a high-class problem, to use the phrase for the second time in the call.

And remember, our goal is to make every one of our releases as big as it can possibly be.

That would be everything from Grand Theft Auto to all the other hits that we have around here.

And the fact that Rockstar keeps making Grand Theft Auto more and more relevant, that it attracts more and more consumers, Grand Theft Auto V has sold in roughly 45 million units for this -- for legacy and next gen consoles, is nothing short of extraordinary.

We have a great story to tell with our other intellectual property tiers as well, and they continue to grow.

So, if someone is looking at the Company and saying, you have this massive industry hit and then you have an array of simply huge industry hits, it's very difficult for me to see bad news in there, as long as we keep delivering more and more successful franchises.

And every year since 2007, this Company has successfully launched at least one new megamillion unit selling franchise.

It's our goal to keep doing that.

Can't guarantee we will always do it, but it is our goal to keep doing it.

And if we do that, I think we are doing our jobs well, and it's reflected in our revenues and profits.

And if we are fortunate enough that Grand Theft Auto can also grow simultaneously, that would only be a good thing.

I can't find anything bad about it.

Thanks for the color.

(Operator Instructions).

Ben Schachter, Macquarie.

Hey, guys.

Congratulations really on a couple of years of just excellent execution.

I know you're not going to announce the specific title on the earnings call, but for holiday 2015, should we expect a significant new title from Rockstar?

And then literally, when should we know the holiday lineup?

Do we wait for the next earnings call, or should we expect that before then?

And Lainie, if you could let us know the FX impact on the quarter and FY 2015 guidance?

And finally, just to clarify what you said on the previous question about 50% of total sales digital downloads, I wasn't sure what that was.

Thanks.

We are not going to talk about Rockstar's upcoming releases in the call.

And I know everyone would like us to, but it's just not the way that we tend to do.

We like to leave those announcements to our labels.

And certainly when we provide our initial guidance for the year, you can expect some more color on what the release schedule looks like for the Company as a whole.

To just clarify on the digital, so what I said was the full game downloads represents 15% of our overall revenue in the quarter.

So is that clear?

(technical difficulty)

For the FX impact on the quarter, it was immaterial.

And in terms of looking forward with the FX changes, we are pretty much naturally hedged everywhere.

So we do have a hedging program to cover our balance sheet items.

But, in terms of our overall operations, we have a natural hedge that we feel very comfortable with.

Arvind Bhatia, Sterne Agee.

Thank you.

I'd like to add my congratulations on a fantastic quarter.

I wanted to actually just continue on this discussion of digital downloads.

We are getting some questions on that.

So I think if you just clarify that it was 15% of the quarter?

And just wondering this quarter you had Civilization as well, and how that impacted that percentage.

You see it obviously tends to be higher mix digitally.

And maybe if you can talk about GTA V on the next gen specifically, what trends you saw in terms of full game downloads on that one?

And lastly on GTA Online, you have that sort of full quarter last year and this year, wondering if you would give us some color on kind of the year-on-year growth.

I know it's been growing every quarter, but just kind of where that ended up this year in Q4 in December versus last year.

So for the full game downloads, we don't break that out on a title by title basis, but you're correct.

It is the fifth title during the quarter, being a PC title, is heavily weighted towards digital, and that would drive that full game download percentage higher than typically in this quarter.

And when we talk about the GTA Online this quarter, it's sequentially been rising each quarter, and it has been up from last year.

We also introduced it onto the next gen this quarter.

So that also drove more online revenue and virtual currency revenue, as well as updates during this quarter.

I know you're not getting specific by title, but could you kind of generally talk about where you see full game downloads going, just on consoles alone, say over the next 12 months?

We continue to see it rise on a quarter-to-quarter basis, so we would expect it to continue to juice up.

Thank you, guys.

Brian Fitzgerald, Jefferies.

Thanks, guys.

Curious around what type of interest or engagement you've seen around the new set-top boxes, like the Kindle Fire.

Have you seen anything noticeable regarding platform uptake from NBA to GTA to most recently Evolve Hunters?

And then does it impact digital downloads or purchases the Amazon versus other channels?

Thanks.

So on your first question, you ask if we've seen any uptakes.

I think those platforms are still a little bit -- they are early, but we actually think that they might be very interesting for us.

And obviously we will support them with titles to the extent they become relevant.

In terms of specifics, our specific experiences, we are not seeing a huge amount of activity because we don't have a huge amount out there right now for people to actually engage with.

So I'm not really the best person to give you any real color on the market there.

I'm sorry, the second question?

It's just related to those boxes, Karl, and whether or not it drives purchasers to Amazon to purchase their kind of right out of the Kindle Fire.

I imagine it does, but I really don't have any real clear perspectives to give you there.

But it certainly makes intuitive sense that it would.

Great.

Thanks, guys.

Mike Hickey, The Benchmark Company.

Hey, guys.

Great quarter.

Thank you for taking my questions.

Appreciate it.

Strauss, I was hopeful you could remind us on how you and maybe your Rockstar team think about the appropriate pacing between mega-franchise titles like GTA and Red Dead and so forth into this sort of cycle?

That, I guess, would be the most (technical difficulty) at this point.

I don't think we think about pacing in a traditional way.

We have said that we think big tentpole releases should not be annualized except for sports titles because we think it's valuable to build in anticipation and because it takes some time to make the highest quality products in the business.

But apart from that, I wouldn't say we overthink pacing.

I think we bring the titles to market when they are ready to be marketed.

Okay.

Thank you.

And then on Evolve, I am sort of curious how that title is shaping up into the release obviously as next week and a fair amount of buzz around.

I'm curious if there's any sort of -- there's a bit of negative feedback, I guess, in the DLC strategy.

I'm wondering if that's had any sort of impact on the game and the launch here.

You're right, Mike.

There was some controversy stirred up by an online post.

And I guess, you know, controversy generally speaking is a good thing.

People can argue about the business model.

I think we are delivering a fantastic title that's well worth what consumers will pay for it, and all signs are extraordinarily positive.

I never like to claim success before it's occurred.

This looks to be a good news event.

I'm going to leave it at that.

Hopefully in our next call, we will have great news to report.

But certainly the title won Best of Show at both E3 and Games Comments -- never been done as far as we know in the same year -- and the buzz is massive.

So we will wait until consumers tell us what they think, and all body parts are crossed around here.

Fair enough.

Best of luck, guys.

Ben Pham, BMO Capital Markets.

Hi, this is [Oslan] in for Ed Williams.

I'm curious if you could share what your thoughts are on what you are seeing as the overlap between Grand Theft Auto sales on next gen, if how many of them are net new buyers versus maybe an overlap on legacy console.

Give a little bit on legacy consoles.

It's a good question.

It's difficult to say.

I think it's a mix, and it's very hard for us to determine which it is.

We do -- we think there are 45 million units sold, but there are billions of people on the face of the earth.

So we have got plenty of room.

And I was wondering, do you see any trends as to how the next gen players are spending versus the new legacy players?

So maybe in the month of December versus last year.

It is early.

They are both fully engaged, and I wouldn't say that at this early point we have a perspective on a difference.

And then just one final question for Lainie.

Can you just tell me remind me of the percentage of cash you have offshore?

Sure.

Exactly 25% of our cash is held internationally.

I'm sorry.

Can you say that one more time?

25% is held offshore and 75% is domestic.

Okay.

Thank you.

Steven Ju, Credit Suisse.

Thanks.

Hi, guys, and congratulations on a well executed quarter.

So, Strauss, I wanted to make sure I heard you correctly.

I think you just mentioned that the PC version of GTA V will have the online version packaged in there with it.

And is this a simultaneous global release that you're planning for the title?

And secondarily, how will the PC version of GTA Online be different from the console version, if at all?

Thanks.

Yes, the detail line will be available with the release of PC.

I think the last component was, what are the differences between the two?

For PC and the Online version is you can play 30 players at the same time.

So that's a difference.

But other than that, there's not really much to say in that regard.

And what was the middle question?

Is this the simultaneous global release (multiple speakers) across all territories?

Yes.

Thanks.

Larry Haverty, GAMCO.

Hi.

Two quick questions.

One, do you folks have any strategy for the convertible?

I would just assume that left the balance sheet, but that's essentially your call.

Are you going to just let it run, or can you maybe force it at some point?

And then I have a follow-up question.

Our $250 million convert matures in 2016.

It doesn't make sense economically right now for us to take it out until that time, but we continue to evaluate options to see if there is an opportunity to make any changes to our capital structure, and when it makes sense, we will do so.

And second question, which is pretty far away from the first.

In the last few weeks, Take-Two -- or not Take-Two, Tencent has announced significant more involvement with the NBA.

Could you update us on what's going on with your online game and whether this increased involvement with Take-Two -- or with Tencent and the NBA means that that product perhaps has much more potential than we might have imagined?

We've always been optimistic about the opportunity with NBA 2K online in China.

We now have 24 million registered users.

It continues to generate revenues and profits for us.

We are very, very happy about it.

In terms of Tencent and the NBA, two very big important organizations, we have relationships with both.

I'll let them comment on their own activities.

Probably better not for me to do so.

Thanks.

We have no further questions in queue at this time.

I would like to turn the floor back over to Mr. Zelnick for closing remarks.

I just want to thank everyone for joining us today.

We are very gratified by the results.

Once again, how we do around here is generated first and foremost by 2000 highly creative people who dedicate their lives to working here under our auspices in partnership with us, and we couldn't be more grateful for their activities.

And, of course, they are supported by an equally dedicated group of people who market and distribute those products and then people who make sure that the trains run on time around here, including people sitting with me today.

We are phenomenally proud of what our team collectively has built here at Take-Two.

We are all grateful to have an opportunity to work here, and we are happy to be able to deliver these results for ourselves, for our colleagues and for our shareholders.

So thanks so much for joining us today.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.