Take-Two Interactive Software Management Discusses Q1 2013 Results - Earnings Call Transcript

Take-Two Interactive Software (TTWO)

Q1 2013 Earnings Call

July 31, 2012 4:30 pm ET

Executives

Henry A. Diamond

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

Karl Slatoff - Chief Operating Officer

Lainie Goldstein - Chief Financial Officer and Principal Accounting Officer

Analysts

A. Justin Post - BofA Merrill Lynch, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Michael Hickey - National Alliance Capital Markets, Research Division

Arvind Bhatia - Sterne Agee & Leach Inc., Research Division

Daniel Ernst - Hudson Square Research, Inc.

Phil Anderson - Longbow Research LLC

Thomas Andrews

Thomas C. White - Macquarie Research

Presentation

Operator

Greetings, and welcome to the Take-Two Interactive First Quarter 2013 Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications for Take-Two Interactive. Thank you. Mr. Diamond, you may begin.

Henry A. Diamond

Good afternoon. Welcome, and thank you for joining Take-Two's conference call to discuss its results for the first quarter of fiscal year 2013 ended June 30, 2012. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our Chief Operating Officer; 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'm obliged to review our Safe Harbor statement by reminding 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, 2012. These documents may be obtained from our website at www.take2games.com.

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

Strauss H. Zelnick

Thanks, Hank. Good afternoon, and thank you for joining us. Our results for the first quarter of fiscal 2013 were below expectations, primarily due to lower-than-anticipated sales of Spec Ops: The Line and Max Payne 3. As a hit-driven entertainment company, not every title that we produce will meet our sales targets. Delivering high-quality products supported by a robust marketing campaign is a recipe for success. However, it's not always a guarantee.

We firmly believe that Take-Two possesses all of the key attributes necessary to navigate through the inherent volatility of our core business over the long term. Our creative teams are among the best in the industry. We've built one of the strongest intellectual property portfolios in the business, including 9 franchises with individual titles that have sold in 5 million or more units. We have cutting-edge development tools and technology, and our strong balance sheet and liquidity provide a strong financial footing.

Today, consumers are increasingly discerning and have an appetite for only the highest quality games that are true leaders within their genre. We believe that their upcoming releases, including Borderlands 2, NBA 2K13, BioShock Infinite and Grand Theft Auto V, among others, will be just that. And our groundbreaking titles are not limited to new releases. Our diverse portfolio of catalog titles, especially Grand Theft Auto IV and Red Dead Redemption continues to attract new audiences years after launch. In fact, sales of both these titles grew in the first quarter versus last year, and our overall catalog sales were up 50%.

In addition to growing our core console and PC business, we're actively investing in digitally delivered content for online and mobile platforms. These emerging areas of interactive entertainment are high growth, not tied to the console cycle and present opportunities to generate more stable, higher-margin revenue streams over time.

Some of our recent achievements include the following. We entered open beta for NBA 2K Online, our free-to-play MMO game, on the Tencent Games portal in China. Early user metrics for the game are encouraging. We released our first mobile social game for Japan, NBA 2K All Stars, on GREE's social networking platform and announced our partnership to offer additional mobile social games in select global markets, including Pirates! Legends and Civilization. We expanded our lineup of core mobile titles with the release of Max Payne mobile for iOS and Android devices, and we announced the new slate of casual mobile games from our 2K Play division, including our recently released COMEDY CENTRAL'S Indecision Game, which is our first mobile social offering for the U.S. Karl will talk about our online and mobile strategy in more detail later in the call.

We continue to find ways to streamline our operations and enhance efficiency. Earlier this month, Rockstar Games announced that it's expanding its development capabilities in Toronto due in part to financial support and tax incentives that were provided by the Ontario government. In conjunction with that expansion, Rockstar is combining its Vancouver and Toronto development teams in a new facility. Bringing these 2 groups together should make for a powerful creative team on future projects.

Despite our disappointing results for the first quarter, we continue to expect fiscal 2013 to be one of the best years in Take-Two's history. Consumer enthusiasm suggests strong demand for our extraordinary lineup of upcoming releases, particularly Borderlands 2, NBA 2K13 and BioShock Infinite. Karl will have more to share about our upcoming releases shortly.

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