Take-Two Interactive (TTWO) Q2 2027 earnings call transcript

Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 2027 and it's September 30, 2026. Today's call will be led by Strauss Zellnick, Take 2's Chairman and Chief Executive Officer, Carl Sladeoff, our President, and Laney 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 an information currently available to us. We have no obligations 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 10K and quarterly report on Form 10Q, including the risk 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 GAP 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 GAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAP financial measure to the most comparable GAP 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. We delivered second quarter net bookings of $1.6 billion, which was slightly below our guidance range of $1.62 to $1.67 billion, while MBA2K27 launched successfully and achieved the second highest net bookings performance in the history of the series, it was below our forecast for the period. Our mobile business performed in line with our plans and the Grand Theft Auto series exceeded our forecast ahead of next week's eagerly anticipated launch of Grand Theft Auto 6. We're reiterating our fiscal 2027 outlook for net bookings of $8.2 billion. Pre-orders for Grand Theft Auto 6 are tracking far in excess of our initial expectations and we know that the numbers will speak for themselves soon enough.

Our outlook also includes the launches of new mobile and previously announced sports titles and growth in recurrent consumer spending for MBA2K27 during the second half of our fiscal year driven by the largest slate of post-launch content in franchise history.

Turning to highlights from the period, Grand Theft Auto 5 continued to expand its audience and to date the title is sold nearly 235 million units worldwide. The series grew a double digit percentage for both recurrent consumer spending and average monthly members for GTA+, as players enjoyed the latest major update the court center heist along with monthly events, new races, and more. In September, Rockstar Games unveiled No Pixel 5, the next evolution of Grand Theft Auto 5's role play community with an entirely overhauled experience, new locations, and graphic enhancements focused on player immersion. To celebrate the launch throughout the month, players were able to earn exclusive items within Grand Theft Auto Online by watching select role play streamers on Twitch.

Rockstar Games will continue to support Grand Theft Auto Online with new content and ongoing events for its vast community. Grand Theft Auto 6 coming to the world on November 19th promises to be not only highly engaging, but in fact the biggest and most detailed groundbreaking experience of Rockstar Games has ever created. As you've undoubtedly seen, marketing for the title is well underway across the globe and has included an extended look at the game which premiered on Netflix and became the platform's most viewed title for the week, drawing in 31 million consumers in just its first four days. An array of in-depth features and magazine covers, the reveal of the official soundtrack which included three tracks that debuted in the top 10 of their respective billboard charts.

The announcement of a special Night and Vice City in partnership with the NBA where the Miami Heat will play as Vice City versus the Milwaukee Bucks and a series of unique in-person activations celebrating Vice City in Miami. We're immensely proud of the team at Rockstar Games for their unparalleled commitment to and passion for elevating our art form and all entertainment. 2K and visual concepts once again delivered to the most realistic and authentic NBA experience in interactive entertainment with NBA 2K 27 which has sold over four million units so far. The launch window is unusually busy with numerous entertainment experiences competing for players' attention. We expect an acceleration of netbookings and engagement during the second half of the year as 2K and visual concepts plan to introduce a robust slate of in-game content including exciting themed seasons, all new college basketball experiences and innovation within my team.

During the quarter Borderlands 4 offered new downloadable content and introduced several promotions which are driving improved engagement and player retention. The Borderlands franchise has now surpassed 100 million units sold marking an incredible milestone for Gearbox and 2K. We look forward to even more content for Borderlands 4 and what lies ahead for the series. During the period, 2K released add-on content and updates from Lafayette the Old Country, Sid Meier Civilization 7, PGA Tour 2K and WWE 2K which enhanced gameplay and player engagement further for these titles. Mobile performed in line with our expectations underscoring the importance and impact of our diversified business as we had anticipated netbookings for color block jam decreased double digits compared to its peak performance during last year's second quarter.

Netbookings for tune blast grew 4% over last year's record second quarter results driven by a new in-game feature called Beam which assists players while solving puzzles and has been increasing engagement and level progression. Words with friends benefited from a multi-platform collaboration with the hit TV show Wheel of Fortune including a dedicated on-air theme week and in game puzzles and online events for players which drove netbookings growth of 6%. Our advertising business improved sequentially as we successfully attract new partners and increase add yields. 2K's mobile offerings also continued to perform well with solid downloads and engagement across key titles. NBA 2K All-Star are a mobile title in partnership with Tencent and China surpassed 11 million registered users since launching last year and is yielding strong profit margins.

We continue to see strength in our mobile and direct consumer channel which remains a significant driver of revenue and margins as we include new titles, foster direct relationships with players and reduce payment friction to enhance the user experience and drive repeat purchases. These efforts position our direct to consumer platform as a durable and expanding engine for netbookings growth and long-term profitability.

Looking ahead Zingit continues to develop and test many new titles and several are promising based on their initial performance and soft launch including top goal. We believe that fiscal 2027 will be an historic year for take two driven by our unwavering commitment to delivering the highest quality entertainment experiences guided by our core pillars creativity innovation and efficiency. We're confident in our ability to build on this incredible year and to set new benchmarks as we deliver on our plan for long-term success. I'd like to express my gratitude to our 13,000 colleagues around the world for their dedication to our common mission and for making our company what it is today and what we will be tomorrow.

I'll now turn the call over to Carl.

Thanks, Strauss. I'd like to thank our teams who do their best work every day in the pursuit of our creative, financial and operational goals. I'll now discuss our recent and upcoming releases.

On October 8th, 2K and Gearbox released Risk of Ring 2 hallowed concepts which introduced two new playable survivors, new regions to explore and expanded gameplay mechanics to deepen the player experience. 2K continued to innovate its mobile offerings for the NBA 2K franchise. On October 20th, NBA 2K Mobile Season 9 launched with new modes that connect in-game action to real-world NBA schedules, a rewind feature that allows players to enjoy historic and iconic NBA moments and real-time PvP matches. Additionally, NBA 2K 27 Arcade Edition made its debut last week, offering WNBA PlayNow, new expansion teams, deeper career journeys and progressions, a new 5v5 experience and exclusive GOAT skills and rewards. On October 28th, 2K and visual concepts continued their post-launch content for WWE 2K26 with a release of Ringside Pass Season 6 and the standalone Street Fighter Elite Pack, which marks our first-ever collaboration with Capcom and includes signature character moves and themed cosmetic creation parts.

2K also released Season 13 for WWE Supercard last week, which has now been downloaded nearly 40 million times since its initial launch. For Access announced new content for Sid Meier's Civilization 7 for 2027, including Arc of Tomorrow, a comprehensive free update extending gameplay into the Atomic Age and Earthrise, the title's first major premium expansion featuring extended core mechanics and space-era progression. These additions will provide players with more ways to take one more turn in this iconic strategy series. In the coming months, 2K will provide updates on PGA Tour 2K27 and WWE 2K27, both of which are slated to launch later this fiscal year.

Zingo will continue to focus on enhancing its existing mobile portfolio with bold beats and updates, as well as releasing new titles, including Top Goal, which is currently in soft launch.

It's incredibly exciting to be just days away from Rockstar Games' launch of Grand Theft Auto 6 and preloads are rolling out across the world. This is a defining moment for our company and the entertainment industry, and our teams are proudly supporting this global phenomenon.

Without robust and diverse long-term product development pipeline, we are well positioned to capitalize on our many opportunities on the horizon to engage audiences throughout the world. I now turn the call over to Lenny.

Thanks Carl, and good afternoon everyone. Our second quarter net bookings were $1.6 billion, which was modestly below our guidance range of $1.62 to $1.67 billion. Recurring consumer spending was down 9% for the period, compared to our guidance of a 5% decline, driven by MBA2K and accounted for 81% of net bookings.

Compared to last year, MBA2K and mobile each decreased, while the Grand Theft Auto series was up, gap net revenue would decrease 16% to $1.5 billion, cost of revenue decreased 20% to $637 million, and operating expenses decreased 9% to $978 million. On a management basis, operating expenses declined 9% year over year. This was favorable to our forecast due to lower personnel and user acquisition costs. Turn to our outlook. We are exceedingly optimistic about the rest of the year, and are reiterating our fiscal 2027 net bookings outlook range of $8 to $8.2 billion. The launch of Grand Theft Auto 6 is only 10 days away, and the level pre-orders generated is extraordinary. Additionally, 2K and visual concepts plan to deliver the most innovative array of in-game content ever released for MBA2K, which gives us confidence that recurrent consumer spending for the franchise will accelerate during the second half of the year.

The largest contributors to net bookings are expected to be the Grand Theft Auto series, MBA2K, Tumplast, Match Factory, Empires and Puzzles, Words with Friends, Red Dead Redemption series, Color Block Jam, WWE2K, and Zingapoker. We continue to expect recurrent consumer spending to be in line with fiscal 2026, representing 65% of net bookings. This assumes strong growth for the Grand Theft Auto series largely due to our outlook of robust sales of Grand Theft Auto 6 Ultimate Edition, which includes add-on content, and high single digit growth for MBA2K. We continue to expect it to client a mobile due to last year's success of Color Block Jam and an assumption that trends will moderate for several of Zingap's mature mobile titles.

We project the net bookings breakdown from our labels to be roughly 37% Rockstar Games, 34% Zingap, and 29% 2K. We remain on track to deliver operating cash flow in excess of $1 billion and to be in a net cash position by the end of the fiscal year. Our expectation to deploy approximately $290 million of capital expenditures is unchanged.

We expect gap net revenue to range from $7.98 to $8.18 billion, cost of revenue to range from $3.68 to $3.8 billion, and operating expenses to range from $4.08 to $4.1 billion.

On a management basis, we now expect operating expense growth of approximately 5% year over year, which is favorable to our prior forecast due to lower user acquisition costs, part of which is related to timing. The expense growth compared to last year is primarily driven by marketing for Grand Theft Auto 6 and higher R&D costs.

Now moving on to our guidance for the fiscal third quarter, we project net bookings to range from $3.35 to $3.5 billion, compared to $1.76 billion in the prior year. The largest contributors to net bookings are expected to be the Grand Theft Auto series and be a 2K, team blast, match factory, empires and puzzles, words with friends, red dead redemption series, color block jam, singer poker, and toy blast.

We project recurring consumer spending to increase by approximately 12%, which assumes significant growth for the Grand Theft Auto series, driven by sales of Grand Theft Auto 6, ultimate addition, growth for MBA 2K, and its decline in mobile. We expect gap net revenue to range from $3.27 to $3.42 billion, costs of revenue to range from $1.65 to $1.73 billion, and operating expenses to range from $1.16 to $1.18 billion. On a management basis, operating expenses are expected to grow by approximately 21% year over year, which is primarily driven by marketing costs to support the launch of Grand Theft Auto 6.

In closing, we are extremely optimistic about our path ahead, and next week's launch of Grand Theft Auto 6 is just the beginning. We believe that we can take our core franchises to the next level of success by releasing engaging new content and enhancing our live service offerings, all while launching new hit titles, expanding our geographic footprint, and pursuing a creative M&A. As we execute this extensive multi-faceted strategy to drive growth, we feel confident in our ability to unlock greater earnings power and deliver long-term shareholder value. I'd like to thank our talented passionate colleagues around the world for their hard work and for getting us to this pivotal moment in a multi-year growth story. I'll now turn the call back to stress.

Thanks, Lady and Carl. On behalf of our entire management team, I'd like to once again thank our colleagues for their contributions to our success. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

We do track awareness and anticipation and everything is trending very positively. Great. Then maybe a kind of related question perhaps, but without commenting on the timelines of any specific titles, I was wondering if you could speak to this concept of AI assisted reverse engineering and decompilation of games. How does that affect your approach to things like development, security measures and things like that? Thank you. I really focused on that. Obviously, look, this business has been largely immune to piracy concerns forever because of file sizes, complexity of piracy being connected to servers and the like.

Undoubtedly, it would be very difficult to replicate the experience of consuming our game as intended because of technical limitations. That said, it's going to become more of a challenge, as you said, and we're aware of that. We are utterly focused on enhancing our technical defenses and enhancing our legal activities appropriately. At the same time, without being cavalier, every entertainment business that exists is subject to some element of piracy. This is likely to invade our business to a greater or lesser extent. I think it will be manageable and we are focused on it.

I'm not going to give you guidance for fiscal 28 today. We have said that we expect to set a new baseline for performance going forward, and we do think that there's a great opportunity for growth. There are so many wonderful things ahead for us. We have the most diverse and powerful portfolio of intellectual property in the industry, and there's more than one sort of defining item of what's next for us. So many elements of our business plan offer opportunity for higher net bookings and earnings power. So despite the fact that many of our franchises, and to be clear, we have 15 that have sold at least five million units in an individual release in our PC and console business.

Despite that, so many have achieved this massive commercial scale. We think there's an enormous opportunity ahead for many of them, including GTA. We think the world's going to look dramatically different over the next decade, because with the backdrop of our commitment to releasing the highest quality entertainment experiences, we think we'll be able to reach gamers in new ways, for example, including streaming in new geographies, and also we'll be able to continue to engage with consumers post launch, which is a state of part of our strategy since the beginning of what we call our current consumer spending. We're also one of the few interactive entertainment companies who's willing and able to take the risk of investing in new intellectual property.

It is the riskiest thing that we do. It's also paid off for us mightily over the past 19 years, even though we certainly haven't always been successful. In addition, we've taken a disciplined approach to M&A. Our deals have been creative and successful across the board. We think there are selective opportunities going forward, especially because our balance sheet is aimed at being very conservative and very strong. By year end, we expect to be in the net cash position. Again, right now we're geared at less than one times LTM EBITDA. And finally, we have numerous strategic initiatives working on the range from big to very big to huge that are under consideration and in development.

So we think the future is really bright across the board. Great. Thank you.

Yes. So the add-on content can be also purchased separately, so it's allocated to RCS.

This is Carl. First of all, it is the second highest launch we ever had. We're very excited about the launch, and we do expect MBA to accelerate going to the second half of the year. We've kind of seen this before on a number of different occasions, and it's really hard to know exactly what has caused a little bit of softness versus our expectations in the launch. There's other things going on in the market, both inside and outside the gaming media, but given the slate of content that's coming up and the hard work that VC is doing right now on the game over the next half of the year, we're pretty confident that we're going to see a rebound, which we've seen before in the past as well.

So we're very excited about it. MBA is also a great start, and we think it's going to get even better as the year goes on.

Thanks, Chris. On the first point, we're days away from the launch of GTA 6, and we tend to avoid claiming success before it occurs. So as soon as we have some experienced post-launch, we're going to be very happy to describe what's going on and how we see it. There was really no need to update numbers right now. On the second point, any information about new SKUs and like, we'll always come from our labels.

For a student, I'm the next of the business, and it's being offset by some changes in the operating expenses.

We're really excited about the launch of No Pixel 5, which is really a professional version of the RPG business that we purchased with 5M. And look, we're thrilled that there are hundreds of thousands of consumers who like to engage with Grand Theft Auto in mind in this way.

And we think there's plenty more opportunity to be seen here. So, it's early days, and it remains to be seen how this develops. Anytime our community wants to engage with our intellectual property, we want to be supportive if we can be. And I think this is a great example of that.

Sure. We talked about the operating expenses being a little bit lower, and that was due to lower user acquisition costs, and some of that was due to timing. And that is mostly due to some of the movement and some of the new releases for our mobile titles.

Look, the title is so widely anticipated, and consumers appear very, very excited, and all the press so far has been universally positive. So, it makes me nervous even saying those words, Mike, but they are true, and we still aren't ready to declare victory. Hopefully, we'll be able to do that in the fullness of time, and we'll have to wait too long. I don't think. Pretty exciting. I guess maybe this last topic, question, Strauss. Maybe if you could just speak to Rockstar's competitive advantage, as you see it moving forward, especially in an AI-influenced world that seems to be evolving right in front of us. Thank you. Look, technology benefits us. It's always been true. We've always created our entertainment inside computers with technology.

All advances have benefited us, and I don't expect that that will change. In fact, I hope it'll accelerate. I think at the same time, what we're known for here is the desire to make the best entertainment on Earth, and the fact that more often than not, we succeed, and the creativity that drives that success is human creativity, harnessing technology. And I think that's what it'll see in the future. Undoubtedly, some of the most recent technological advances that you've seen have made it easier to create assets. Well, that is consistent with the story of our business. When I started an interactive entertainment longer ago than I would like to say, it was really difficult to create an asset in a computer today.

It's a whole lot easier. But you know, it's not easier making a big hit. Making a big hit was hard then. It's hard now, and it's going to be hard in the future. And hit creation remains the purview of human beings.

I have some specifics to share. That's sort of the picture I painted of the future, but not so many for what I hope are obvious reasons. So making more and better hits for our current platforms, obviously, is the first order of business. And you can see in the past years.

Second, there are new opportunities to reach consumers, distribution technologies, streaming among them. If streaming, for example, comes to fruition that could vastly expand the size of our market. Other distribution opportunities include reaching new geographies economically that we have not been able to reach economically in the past. So there's a massive population of people who play video games in India and Africa and Asia outside of the countries we currently monetize, which include China, South Korea, Taiwan, and Vietnam, but not so many others. We don't sell much in Russia right now for obvious reasons, not much in Latin America.

So our business still remains largely US, UK, and Western Europe business with a couple of pockets in Asia. And yet, interactive entertainment is the world's pastime and is only becoming more so in the future. So if we can find out how to reach people who don't necessarily have the latest and most expensive technology, and if we can reach people outside of the most developed geographies, we could see our business grow materially. Equally, we think that we haven't yet scratched the surface on what's potentially available creatively. And the current expression of interactive entertainment through PC, console, and mobile is super exciting, but we haven't reached the creative asymptote that other entertainment industries have. And I don't think we will for years.

That's what we call around here, the unknown, unknown, and Lord knows we're trying to. And then there's a whole bunch of other stuff we're working on that I'm not going to share with you.

It's not a transition. It's an evolution. And we still have third-party partners. We value them greatly. We don't expect to transition away from them. We have not described the percentage of our business that comes direct to consumer mobile. It is significant and it is growing, and it obviously has a very meaningful margin and bottom impact. It also allows us to interact directly with our consumers to market to them directly. And that's positive as well.

Okay. There is a change to what we said last quarter to what we're saying now. We talked about the Ultimate Edition last year because we have the last quarter. We have a review plan, and we said that it had additional add-on content. And since I mentioned before, that could be purchased separately. So that was allocated to the RCS, and that was the only component that was in the RCS included as well as DTA line. And that hasn't changed.

You just described an array of high-class problems. So look, there's so much to be done in all things Grand Theft Auto. I've literally never had to answer the question about what do we do when we finished because you can always keep going.

It's much fun to be had. I think that'll be the case in this situation as well.

We haven't spoken about budgets at all. Obviously, we've invested have data six nights in the fullness of time that will prove to be sound investment. I would like to point out that something is not more than something does not mean it's close to something, half of something, a quarter of something, or a tenth of something. So I wouldn't arrive at a conclusion based on what the correct answer to that question before.

Look, we've said since the launch of our current consumer spending that our goal is to stay engaged with our consumers in between huge releases. And now of course our business has been transformed. The vast majority of our bookings comes from recurrent consumer spending comes from ongoing live engagement with our hit titles. And big huge releases are additional tent poles to support that. And I think what I was saying earlier is that I think that this model will continue to evolve. And that our teams more and more have the ability to, because of the quality of our franchises, to engage with consumers in a way that consumers love and want more of. If you're making something that's no good, no one wants any more.

If you're making something that's great, people want more of it. And if you're making something that's the best in the world, then there's nearly an unlimited appetite, as long as everything else you make remains, the best in the world. Is technology our partner in accelerating this engagement and accelerating this development and accelerating the marketing related thereto? Yes, it is. But at the end of the day, what's going to drive this success is our human creativity, harnessing the technology at hand, focused on making the best entertainment on Earth.

Yeah, I think we're really only talking about our mobile business here, or largely about our mobile business here. And I do think there's a great opportunity for advertising, and I'm historically advertising in the mobile has been endemic. It's been advertising in mobile games for mobile games. And I think more and more brands are seeing an opportunity to engage with consumers through the lens of their love for interactive entertainment. If we're able to expand our business meaningfully into brand advertising, and we already have started, then that should be a terrific opportunity. We ought to be monetizing all of our engagement. You know, historically, mobile video games monetize under 20% of the audience, typically 10% of the audience through in-app purchases.

We have the ability technically to serve people what they want. And if they want a free experience, they can be served ads. And if they want an ad free experience, they can make purchases. But what you know, what doesn't make a whole lot of sense is serving consumers for free at a cost to us. So I think there's a huge opportunity for us in the ad business. Our numbers reflect that. And I also think the nature of the business will change in a way that's positive for us.

Well, I understand that it would benefit your models. It really doesn't do anything for us. So we don't spend a lot of time on it. You know, our job is to make the best entertainment and then bring it to consumers around the world. And obviously the better we do with that job, the more units we're going to sell. As we provide guidance, naturally, we have to look at the install base to make sure that what we're projecting is sensible. And we have done that. But we tend not to be slavishly devoted to as high ratios because it doesn't change anything that we're going to do around here. So right now, Rockstar has completed the development of GTA 6 that may not come as a surprise to you since we're 10 days away from the release.

They have done their very best work and it's going to come to consumers soon. And they're in the middle of their marketing campaign, which also, unsurprisingly, is fully baked. So at this point, it's the job of the organization to make sure that we do an A-plus job, technically, in delivering this product to consumers. And then, of course, Rockstar will focus on what comes next. And we'll announce that in the fullness of time.

It's mostly being driven by increases in R&D, as well as some modest growth in selling and marketing, and also investment in ITH.

I'm not sure I agree with the way you phrase that. I do think certain titles, for example, Civilization is a title that existed on PC and then spread out to console. There are other titles like NBA 2K, which are available on basically all platforms simultaneously. And of course, GTA 6 is available on two consoles, went and launched on November 19. So it really varies title by title. But generally speaking, the experiences on console and PC tend to be roughly the same. You know, it disconverry. But generally speaking, the capabilities of PC platform today are different materially from console capabilities.

The majority of the marketing will be around the launch in Q3, but we will have some ongoing marketing in Q4, but most of it will be in Q3.

It's a really great question. And again, our purchase of 5M reflected our support of consumers, certain consumers, desires to engage as a creator with our intellectual. And we've allowed modding in many of our other games. We're just not religious on the topic. The 5M business is a profitable business force. It does create an economic opportunity. But the way we run the business around here, and I think it's the last question. So I'll finish on this thought is being very repetitive, the mission of this company is to create the best entertainment on Earth and bring it to consumers around the world. If we do that right, the monetization takes care of itself.

And I think that you're going to see that from us in this fiscal year and in future fiscal. I think we're likely to be off to for the rest of this year very shortly.

First, thanks for joining us today. And thank you so much for your patience during our technical labs. Again, I apologize for that. I want to just take a minute to express my gratitude to our 13,000 incredibly hard-working, dedicated, and committed colleagues around the world. It's a great quarter. We've rest of the year and the years forward. And the only way I can say those words confidence is because of the A-plus team that shows up every day. Our creative group, our executive groups in numerous offices. I also want to say thank you to our shareholders for their support. And thank you today for attending the call. I want to wish you a happy and healthy upcoming holiday season.

And I know you're going to have a great time playing GTA 6, logging for the holidays. Thanks everyone.