Take-Two Interactive Software, Inc. (TTWO) Q2 2013 Earnings Report, Transcript and Summary

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

Good afternoon. Welcome, and thank you for joining Take-Two's conference call to discuss its results for the second quarter of fiscal year 2013 ended September 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'd like to remind everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's annual report on Form 10-K for the fiscal year ended March 31, 2012. These documents may be obtained from our website at www.take2games.com. And now, I'll turn the call over to Strauss.

Thanks, Hank. Before we get started, I'd just like to take a minute to acknowledge that those of us who are here in New York have witnessed and experienced a pretty tough couple of days with the storm that just came through here. Our team has been very fortunate. We are not unmindful of the fact there's been a significant loss of life in this tragedy, a great deal of loss of property and a great deal of displacement and dislocation. Our own headquarters have been displaced by the events. We're located downtown. And I think our team has done an extraordinary job of conducting business as usual despite that, for which I'm immensely grateful. I did want to acknowledge, in the light of that, what we're about to talk today is business. And our business is that of providing people with light entertainment. We take it very seriously but it is -- pales in comparison to the seriousness of these events and we want to acknowledge that. That said, it's our job to go on with things and we aim to do that. In that context, I'm pleased to report that Take-Two delivered exceedingly strong results for the second quarter of fiscal year 2013. Our revenue and our earnings beat guidance due to the success of 2K's Borderlands 2, along with robust demand for our catalog and our digitally delivered offerings. Borderlands 2 has become one of the most critically and commercially successful releases in 2K's history. The title received stellar reviews from the media and consumers alike, achieving an average Metacritic score of 90, including a perfect 100 from PlayStation: The Official Magazine, and a near-perfect 98 from Game Informer. It's already sold more than 5 million units worldwide and consumer demand for the title remains strong. Like its predecessor, Borderlands 2 is being supported by an array of downloadable add-on content that promises to keep consumers engaged with the title for many months beyond its launch. I'd like to take a minute to congratulate the teams of 2K and Gearbox for building upon the successful franchise with another superb entertainment experience. Digitally delivered content for both traditional and emerging platforms represents an important component of our strategy to drive growth and profits. During the second quarter, our revenue from digitally delivered content more than doubled year-over-year and accounted for 20% of non-GAAP net revenue. The largest contributor was full game downloads of Borderlands 2 as well as strong demand for our PC titles, add-on content offerings and mobile titles. We expect digitally delivered revenue to continue to grow significantly over time, particularly once our online projects in Asia reach critical mass. Our diverse portfolio of catalog offerings is an important asset that differentiates Take-Two from our competition. During the second quarter, we continued to benefit from strong demand for our most iconic titles, including Grand Theft Auto IV and Red Dead Redemption, which are still generating meaningful revenues and profits years after initial launch. Building upon the momentum of Borderlands 2, 2K has delivered a winning trifecta of stellar releases with the October launches of NBA 2K13 and XCOM: Enemy Unknown. NBA 2K13 has once again raised the bar of excellence for our basketball franchise and further cemented its well-earned place in pop culture. The title received critical acclaim, including a perfect 10 from PlayStation: The Official Magazine, who said that the game's improvements, "elevates 2K13 beyond mere annual greatness and into a Hall of Fame consideration." In addition, this year's version breaks new ground with the introduction of NBA 2K Everywhere. This multi-platform offering gives fans the opportunity to experience NBA 2K via an all-new mobile companion app, a social game on Facebook, and a full feature version of the game for tablets and smartphones. During the first week after its release, NBA 2K13 sold through 49% more units than the franchise's previous fastest seller. Moreover, in-game purchases are exceeding our expectations and, for the first time, are poised to be a meaningful contributor to the game's bottom line. I'd like to congratulate the team at Visual Concepts for delivering what is shaping up to be our most successful sports release ever. XCOM: Enemy Unknown marked the return of one of the interactive entertainment industry's most beloved franchises. The game has received rave reviews, yielding an average Metacritic score of near 90. Game Informer called the title a singular achievement that every gamer deserves to experience and awarded it their game of the month honors and a 9.5 out of 10. XCOM: Enemy Unknown is generating particularly strong digitally delivered sales and promises to be another commercial success for 2K. I'd like to congratulate Firaxis Games on reimagining this franchise and creating a truly one-of-a-kind experience for consumers. Looking ahead, we have a strong pipeline of announced and unannounced titles in development, which we're confident will continue to delight and captivate consumers around the world. Without question, our most eagerly anticipated release is Grand Theft Auto V, which Rockstar Games yesterday announced is planned for worldwide launch during spring 2013. While the current fiscal year began with a disappointing first quarter, today our business is firing on all cylinders. Our second quarter results and recent business trends have exceeded our expectations, and the outlook for our upcoming releases such as BioShock Infinite is stronger than ever. As a result, we continue to expect to deliver revenue growth and non-GAAP profits for fiscal year 2013, even without a major new release of Grand Theft Auto, and we're positioned to generate substantial revenue and earnings growth in fiscal 2014. I'd like to turn the call now over to Karl.

Thanks, Strauss. I'd like to join Strauss in congratulating 2K and teams at Visual Concepts, Firaxis Games and Gearbox Software for delivering such an incredible array of titles over the past 6 weeks. I'll now turn to our upcoming releases. 2K will build on its success with Borderlands 2 by launching a series of downloadable add-on campaigns for the game. Our first Borderlands title redefined add-on content and, according to research from EEDAR, was able to achieve attach rates more than double the industry average. Earlier this month, 2K released a fifth playable character class, the Necromancer, as well as the first add-on campaign, Captain Scarlett and Her Pirate's Booty, which immerse players in an all-new storyline, expansive environment and hours of additional shooter-looter action. A second add-on campaign will be released soon and all 4 planned add-on campaigns will be available by June 2013 and can be purchased at a discounted price through the Borderlands 2 Season Pass. Today, 2K launched Borderlands Legends, an all-new action-packed Borderlands experience designed specifically for mobile devices. Legends is available for iPhone, iPad, and iPod touch, and 2K is exploring bringing the game to additional mobile devices. An action RPG-strategy hybrid with intuitive touch-based commands and a slick user interface, Borderlands Legends combines the inventory and skill tree management that gamers love about the franchise while adding a layer of strategy that resonates well on mobile devices. 2K is supporting XCOM: Enemy Unknown with 2 new downloadable add-on content packages available this year, along with additional content planned for 2013. The first of the 2 new packs, the Slingshot Content Pack, will be available soon and includes 3 linked council missions with new maps, a new playable squad character with a unique story and voice, and new character customization options. In addition, players can now purchase the elite soldier pack, which was originally available as part of the game's pre-order and launch program and includes a classic XCOM soldier, soldier decal packs for customization, and complete color customization to soldier armor suits. Yesterday, Rockstar Games released the Hostage Negotiation downloadable content pack for Max Payne 3 on Xbox LIVE, PlayStation Network and PC, featuring new multiplayer maps, items, weapons, avatars and more. Later this year, Rockstar will release 2 additional downloadable content packs for Max Payne 3. The Painful Memories Pack adds even more maps and other content to multiplayer, while the Deathmatch Made in Heaven Pack adds new multiplayer modes, including the highly anticipated inclusion of co-op play. On November 6, Rockstar Games will release the Rockstar Games Collection Edition 1. This premium box set for the Xbox 360 and PS3 contains 4 of the label's most popular and critically acclaimed titles, including Red Dead Redemption, Grand Theft Auto Episodes from Liberty City, L.A. Noire, and Midnight Club: Los Angeles Complete Edition. At a suggested retail price of $59.99, this collection is both an incredible value and perfectly timed for the holiday season. Also this fall, in celebration of the title's 10th anniversary, Rockstar Games plans to release a mobile version of Grand Theft Auto Vice City for a wide range of iOS and Android devices. This will be our second offering of a full console experience of Grand Theft Auto designed for tablets and smartphones, joining Grand Theft Auto III: 10th Anniversary Edition, which has been our highest selling mobile release to date. On November 18, 2K Sports will release our first offering for the Wii U, NBA 2K13, as part of the anticipated launch of Nintendo's new console. Also in November, 2K Play will launch our 2012 lineup of Nickelodeon games. Nickelodeon Dance 2 for consoles will keep gamers active with new songs and dances, while our handheld games will highlight the imaginative and educational worlds of Dora; Team Umizoomi; and its newest hit preschool program, the Bubble Guppies. BioShock Infinite is progressing in its development at Irrational Games and is planned to launch on February 26, 2013. We recently announced our pre-order incentives, revealed our special editions and launched a new trailer, which is showing high levels of engagement from consumers and media alike. As GameSpot put it, "The latest trial for BioShock Infinite has exploded online and it packs one hell of a punch." 2K Marin continues to move forward with the development of XCOM, a tactical squad-based shooter offering a strong character-driven experience, which is planned for release during fiscal year 2014. And as most of you probably know, Rockstar Games yesterday announced the exciting news that Grand Theft Auto V is planned for worldwide launch during spring 2013. Beginning November 5, fans worldwide can pre-order the title and more information will be revealed in first-look previews releasing throughout November, starting with an 18-page spread in the next issue of Game Informer, which debuts November 8. Now I'd like to highlight some recent progress on our initiatives to broaden the company's offerings for online and mobile platforms, which are in addition to those already discussed by Strauss. One component of our global strategy has been to partner with local experts to develop online and mobile games for Asia. Just last week, we revealed that the massively multiplayer ongoing game we've been codeveloping in Korea is based on 2K's successful Civilization strategy franchise. Our Firaxis Games studio is working in partnership with renowned South Korean-based studio XLGAMES to design the title from the ground up as an entirely new online-only entertainment experience for the Asian market. The project is being led by XLGAMES CEO Jake Song, who is famous for his integral role in creating the popular Korean massive multiplayer online role-playing game Lineage, which has attracted 43 million players. Mr. Song is leading a team of more than 100 people in Seoul, making it one of the most ambitious online game development initiatives in South Korea. Earlier this month, we announced that Pro Baseball 2K, our online baseball simulation game for Korea, which Visual Concepts is developing in partnership with Nexon Corporation in Seoul, is expected to enter open beta during spring 2013. Pro Baseball 2K will deliver the high-quality presentation and simulation game play that 2K Sports is known for, featuring authentic and true-to-life representations of professional players of the Korean Baseball Organization. On October 24, NBA 2K Online launched commercially on the Tencent Games portal in China. Codeveloped by Visual Concepts and Tencent, this free-to-play game brings the basketball excitement of our NBA 2K franchise to Asia in a massively multiplayer online game format. Results from the open beta phase of the development were encouraging and we are enthusiastic about the prospects for this game to deliver meaningful revenue and profits over time. And in July, 2K Sports released Take-Two's first free-to-play mobile social game for Japan, NBA 2K All Stars, on the GREE social networking platform. This surprise hit attracted more than 300,000 users in 60 days. 2K is also partnering with GREE to develop mobile social games based on its Civilization and Pirates! franchises. In addition, 2K Play will continue to add it to its portfolio of games for mobile devices with a launch of titles including Herd, Herd, Herd, an original property developed by its Cat Daddy Games studio, which will be available for iPhone, iPad, iPod touch and Android devices. If successful, our online and mobile projects will meaningfully enhance our core business with revenue and profit streams that are higher-margin and more stable over time. In closing, we are focused on delivering the highest quality interactive entertainment to consumers regardless of platform or region. From groundbreaking console games and add-on content, to mobile and online experiences that bring our renowned franchises to new audiences on the go, Take-Two is delivering content that attracts the mind share of consumers and drives growth and profits for our shareholders. Thanks, and I'd now like to turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. Today, I'll review our results for the second quarter and then discuss our updated outlook for the full year fiscal 2013 and our initial outlook for the third quarter. All of the numbers I'll be providing today are non-GAAP results from continuing operations, unless otherwise stated. Our press release provides a reconciliation of our GAAP to non-GAAP measurements. Starting with our results for the second quarter of fiscal 2013, we delivered net revenue of $288 million, up 169% from the prior year. This result exceeded our outlook range of $200 million to $250 million due to the breakout success of Borderlands 2, along with better-than-expected catalog and digital sales. Catalog sales accounted for 28% of net revenue, led by Grand Theft Auto IV and Red Dead Redemption. Revenue from digitally delivered content grew 108% year-over-year and accounted for 20% of net revenue, driven by offerings for the Borderlands franchise, in particular digital sales of Borderlands 2, as well as the Grand Theft Auto franchise, the Sid Meier's Civilization franchise and Max Payne 3. Gross margin increased to 43.7%, up 13.1 percentage points year-over-year, as this year's second quarter revenue mix was heavily weighted towards higher-priced new releases versus lower-priced catalog titles in last year's second quarter. Operating expenses were approximately $112 million, up about $44 million versus the prior year's second quarter, driven primarily by higher marketing expenses to support the release of Borderlands 2. Interest and other expense increased versus the prior year, primarily due to the convertible notes that we issued in November 2011. And non-GAAP net income was $10.2 million or $0.11 per share as compared to non-GAAP net loss of $39.4 million or $0.47 per share in fiscal second quarter 2012. This result is significantly better than our outlook range, which projected non-GAAP net loss of $0.30 to $0.15 per share. On a GAAP basis, we reported a net loss from continuing operations of $12.4 million or $0.15 per share. Turning to some key items from our balance sheet at September 30, 2012, as compared to June 30, 2012. Our cash balance decreased to $328.3 million. Our accounts receivable balance increased to $155 million, primarily reflecting the release of Borderlands 2 near the end of the second quarter. Inventory increased to $60.6 million, primarily due to stock on hand for our October releases of NBA 2K13 and XCOM: Enemy Unknown, and replenishment orders of Borderlands 2. And software development cost and licenses increased to $281.4 million, reflecting the significant development efforts around our pipeline of upcoming releases. Now I will review our financial outlook for the full year and third quarter fiscal 2013, which is all provided on a non-GAAP basis. We are updating our financial outlook for fiscal 2013 to reflect our revised assumed release schedule, partially offset by our better-than-expected second-quarter results, strong current business trends and robust sales outlook for the remainder of the year. We now expect non-GAAP revenue to range from $1.1 billion to $1.2 billion, and non-GAAP net income to range from breakeven to $0.20 per share. Turning to the details of our full year outlook, our expected revenue range assumes the on-time release of the titles we have announced to date, as well as other titles yet to be announced for release during fiscal 2013. We expect the revenue breakdown from our labels to be roughly 25% from Rockstar and 75% from 2K. We expect our geographic revenue split to be about 60% United States and 40% international. We expect gross margins in the low 40s. Total operating expenses are expected to increase by approximately 30% from fiscal 2012, primarily driven by higher marketing expense to support our new releases and the $15-million onetime contractual obligation recognized in the first quarter. Selling and marketing expense is expected to be about 22% of net revenue, using the midpoint of our outlook range. And we project interest and other expense of approximately $13 million, tax expense of about $7 million and fully diluted shares of approximately 92 million, which includes 6 million of participating shares for our unvested stock-based compensation awards. Turning to our outlook for the third quarter of fiscal 2013, we expect to deliver non-GAAP revenue ranging from $325 million to $375 million and non-GAAP net income ranging from $0.45 to $0.60 per share. The majority of our revenue in the third quarter is expected to come from the release of NBA 2K13, continued sales of Borderlands 2 and the release of XCOM: Enemy Unknown. We expect third quarter gross margins in the upper 40s. Total operating expenses are expected to increase by approximately 40% from the prior year third quarter, driven primarily by higher sales and marketing expense to support our recent and upcoming releases. Selling and marketing expense is expected to be about 17% of net revenue based on the midpoint of our outlook range. Our third quarter outlook also reflects interest and other expense of approximately $3 million, tax expense of about $2 million and a share count of approximately 118 million, which includes 6 million of participating shares for our unvested stock-based compensation awards and 26 million shares representing the potential dilution from our convertible notes under the if-converted method of accounting. In closing, we are pleased with our recent business performance. Our better-than-expected results in the second quarter and strong sales outlook are enabling us to overcome our first-quarter loss and continue to project a profitable fiscal year 2013 on a non-GAAP basis, even without a major new release of Grand Theft Auto. We expect to deliver significant revenue and earnings growth in fiscal 2014 and return to our shareholder over the long term. Thank you. Now I'll turn the call back to Strauss.

Thanks, Karl and Lainie. Our recent results underscore that Take-Two possesses the key attributes necessary to succeed in today's challenging environment: world-class creative teams, the strongest intellectual property portfolio in the business, a measured strategy to invest in digitally delivered content for both traditional and emerging platforms, and a sound financial footing. We remain committed to delivering the highest quality entertainment experiences that translate into growth and profits for our shareholders. I'd like to thank our colleagues for their hard work and dedication, especially during these trying times. Everyone has come together as a team, working in some instances remotely, and making sure that the business continues without missing a beat. It's pretty extraordinary. And for that, the entire management team is immensely grateful. I'd also like to thank our shareholders for your continued support for joining us today, and I wish you all safety and soundness for yourselves, your homes, and your families. And with that, we'll take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Justin Post with Merrill Lynch.

I have just 2 questions on guidance. First, for the holiday quarter, could you tell us what NBA has sold in the past? And then maybe help us understand how you could hit the low end of guidance, I think it's 3 25, with NBA selling very strong, Borderlands presumably getting reorders and XCOM commercially successful. It seems pretty low. Maybe you could kind of -- what would have to happen to hit the low end? And then secondly, when you guided fiscal '13 originally, I think it was over 1.5 years ago, you were willing to guide $2 for that. I'm just kind of wondering, now the GTA has shifted out to fiscal '14, why you can't guide that year at this point?

It's Lainie. For the holiday quarter, we don't give out on a title-by-title basis how the revenue comes together. But I can tell you that it's based on our best estimates as of right now and how we're selling into the market and what our anticipating is going to be with the holiday season, which we think will be very strong. This is done by a title-by-title basis and rolled out. In terms of fiscal year '14, we're not at the stage right now to give out guidance for that year. So we're not doing so at this time.

Okay. And maybe a follow-up. Just to hit the low end though for the holiday quarter, like, would it have to be tough market conditions or would the catalog for NBA really have to fall off? Or what kind of scenario do you see for the low end?

We're not trying to parse it more specifically than that. As Lainie said, we aim with guidance to give our best estimate of where we'll land without too much conservatism or too much optimism. We try to hit what we think will be the case.

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

Wondered if you could sort of help us think about how we can start modeling in Asia and particularly with NBA now going live in China. And how you're looking at that business, I guess, I'm assuming from a royalty standpoint.

Eric, it's Lainie. For Asia, we haven't really shared the details on how the economics are going to work for us yet. So I can't really explain exactly how to model it in. For fiscal year '13, it's a pretty small part of our business, but we plan for it to be bigger in the future years.

Our next question comes from the line of James Hardiman with Longbow Research.

A couple questions here. I guess, this is a little bit of a follow-up to Justin's question. Can you break down to whatever level possible what's changed since the last earnings call in terms of your outlook? I mean, you touched on it a little bit in the prepared remarks, but you basically beat the second quarter by $0.33 at your midpoint. You're bringing down the full year by $1.70. So basic math would suggest you've basically shifted $2 out of this year and into next. Is it as simple as that? Or are there some other takes, some other things on the negative side of the ledger that I should be considering as I think about earnings power this year and next?

James, this is Lainie. The difference between the 2 periods, there's a lot of missing -- there's a lot of pieces that go back and forth each quarter as we update our number. The biggest driver is obviously GTA V is now fiscal year '14, and we've announced that it's during spring 2013 release time period, not in this fiscal year. The revised estimates are mostly the updates on our currently released titles. Obviously strength from Borderlands and NBA and our catalog. But there's also other titles that will go up and down depending on how they're performing in the marketplace. And we also feel our -- we have continued strength in our catalog into Q3 and Q4 that's included in our numbers for this year.

Fair enough. Let's talk a little bit about the fourth quarter sort of implied guidance. Obviously, with BioShock Infinite coming out, you guys feel pretty good about how the fourth quarter is shaping up. If I sort of back into a sales number, I'm looking at about $286 million, which is pretty close to what you guys made in the second quarter. But the earnings power seems to be a lot better. How should I think about sort of the margin profile in the fourth quarter? Does that say anything about Borderlands versus BioShock? Or is it -- are there some other margin factors that allow you to generate a little bit more on a similar top line in the fourth quarter?

For the fourth quarter, which we're not giving guidance out for right now, I can tell you the big drivers will be BioShock Infinite, continued sales of NBA and Borderlands 2 and XCOM. There are some titles that we haven't announced yet. There's also going to be some significant marketing cost during the quarter for some titles for that quarter, as well as for future -- like, future periods right after that.

So should I take that to mean that given a spring release of Grand Theft Auto, that we're going to see some significant marketing spend this year for a next year release for GTA?

I'm not going to share that level of detail at this time, but it definitely includes marketing for some of our key titles that would be coming in the future.

Our next question comes from the line of Arvind Bhatia from Sterne Agee. Arvind Bhatia - Sterne Agee & Leach Inc., Research Division: A couple of things here. One, I wanted to see if you could give us a general idea of how many, say, AAA titles you might be thinking of in fiscal '14. I know you're not giving specific guidance. But just for all of us to be in the ballpark of how you're modeling outside of GTA V, of course you're going to have the annual titles, the NBA, et cetera. But could you at least, at a high level, give us that sense? And then on GTA V, what's the reason that you're not giving a specific date at this point? And logically, this is going to be in the first quarter of next fiscal. But is there any reason why you're not announcing a specific date today?

Thanks, Arvind, for your questions. We have announced, for fiscal '14, XCOM coming from 2K Marin. And obviously, Rockstar has announced GTA V. And we said before, our release schedule includes announced and unannounced titles. We're not giving more color on fiscal '14 right now, but obviously, we will in the future as we would in the normal course. And with regard to the date for Grand Theft Auto V, spring 2013, we make those announcements based on what we think is best to market the title. And that we think that, that's the right way to describe it and we're just thrilled with the way that is shaping up. Arvind Bhatia - Sterne Agee & Leach Inc., Research Division: Last question. On BioShock, you mentioned some of the reasons you're feeling stronger. Can you quantify the pre-order trends that you might be seeing with BioShock right now?

We're not giving out that information right now.

Our next question comes from the line of Douglas Creutz with Cowen and Company.

I was wondering if you could give any color on how the Borderlands 2 Season Pass is progressing. If you're willing to give an attach rate, that'd be great. And then if you could discuss how the accounting for the digital revenue is going to flow through your P&L. I assume it's going to be amortized out over several quarters. But if you could just talk about that, that'll be helpful.

Yes, like everything Borderlands and Borderlands-related, the Season Pass is phenomenally successful. Borderlands -- the first Borderlands really set the standard for how downloadable content could be released and how consumers would pay for it and enjoy it. And Borderlands 2 is seeing extraordinary success with its downloadable content, extraordinary success. So we feel just great about that. And Lainie will address the amortization issue.

Sure. For the past [indiscernible] free item. During this quarter, for GAAP purposes, it'll be recognized when it's delivered, which is in Q3. But for non-GAAP purposes, it's included in our numbers in this quarter.

Our next question comes from the line of Ben Schachter with Macquarie.

I was wondering if you could help us just understand the potential for the online Asia games going into next year. If you think about how should we rank order them or maybe think about how you're allocating marketing spend or are you involved in those discussions? Are you involved in putting marketing dollars to work there? And then, separately on GTA V, how differently should we think about the online potential there versus the online revenue of the last generation?

Thanks, Ben. We are involved with all the key decisions on all of our titles. These are partnerships with the strongest local partners in the various local markets in which we operate. And they are real partnerships. So we're involved with every part of the decision-making. We wouldn't normally give details on how much we're spending on any given title. What is nice about online titles is that consumers are involved with the development in a way because you go to beta and you begin to see metrics from the title, and the online titles can be living entities -- living, breathing entities where what the consumers are doing can influence exactly what we're delivering to consumers before we actually go live. And then when we're actually live -- for example, we're now live in China as of the 24th -- we can still further iterate the title to meet consumers' needs and expectations to drive results. So how much we spend on marketing will reflect in no small measure consumer uptake of the title on an ongoing basis. So our expectations prior to launch wouldn't really be that valuable except to say the resources are there to support these titles as they roll out. And the initial indications from China are excellent and very encouraging. And we feel quite encouraged about what we're seeing coming out of Korea as well, and how that might translate to the rest of Asia. I think the second question was about the potential for digital content for Grand Theft Auto V, and it's way too early to discuss those plans. And of course, those discussions would come from Rockstar in the normal course. I think you can safely assume Rockstar, as the label that led the charge in downloadable content with Grand Theft Auto IV, I think you have every reason to believe, particularly because of the groundbreaking nature of the title itself and the multiplayer in the title, that there's going to be a lot of interesting stuff. But I'll leave that to Rockstar to announce.

Our next question comes from the line of Brian Fitzgerald with Jefferies. Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division: Maybe a little drill down on -- to follow up to Doug's question in terms of the Borderlands pass, is it safe to assume that you're encouraged enough to say, "Hey, we ought to do other pass type of programs with some of our other titles." And then, second question. Initial takes on your thoughts -- with the upcoming Wii U and the Microsoft SmartGlass products, how are you thinking about those and their impacts on the industry?

Yes, we have actually had other season passes. Rockstar has had season passes, and we've been involved with them before and with varying degrees of success. It falls in the category of give consumers what they want at a fair price, and they'll come out for it. In the case of all of our downloadable contents across all of our labels, our goal is always to give consumers more than they pay for, so that when they show up -- when they keep the title as opposed to turning it in, and when they stay involved with the title, we're going to make that really worth their while. And that's true across our entire company. And I think Borderlands is a great example but certainly not the only example of that. Turning to your question about Wii U, we are supporting Wii U. We have NBA 2K coming out for Wii U on the 16th of November, and we're very excited about that. We'll see how it does. In terms of particular devices, I'm a huge believer in tablets. We've been very supportive of all things tablet and mobile-related and we think the world of Microsoft. So we assume they're going to figure it out. They always seem to.

Our next question comes from the line of Atul Bagga with Lazard Capital Markets.

A couple of questions on China and Asia business. Can you give us some more color on NBA in China? How big -- what's the user base now? And what kind of monetization you're seeing in China? And second, based on your initiative in China, any plans for bringing NBA free-to-play in the Western market? And lastly, 2, 3 years from now, how do you see -- what could be the scale of this business in China, Korea, Asia?

Thanks, Atul, for your questions. I can't really help you out. We don't typically give that level of detail and it would be premature to do so anyhow. Obviously, the China market is very, very significant in scale and free-to-play massive multiplayer games can do very well. At any given time, 10 or 20 of them are performing quite well in that marketplace, which creates a business opportunity vastly larger than anywhere else in the world. We have no -- we haven't discussed any plans to bring NBA online elsewhere. We have a great relationship with the NBA and we aim to delight consumers. I think whatever we do will be market-specific. I don't think you'd see a simple port of a title from one market to another. We would tailor anything we do to the needs of the particular market. And in terms of the scale, again, we haven't contemplated, and I think part of that is our approach in general to projections. This is a volatile business. We've said it before. In many instances, we've done better than expectations. In certain sad instances, we've missed our expectations. And we seem to be in a very good period right now and we like that. What we try not to do is -- we try to talk about what we're up to in a way that provides transparency, but not claim success until we actually deliver it. That's typically our approach. So the potential scale for any business in China that's successful is obviously enormous. The potential scale for our businesses there, it remains too early to say. We are trying very hard. We have great partners. We have great intellectual property. I am really proud of what we've been able to do from a standing start. I'm particularly proud because we did it with such limited risk. And that's very important as stewards of other people's capital and our own capital as well, since we're all shareholders here on the phone today. That's a crucial way to look at it and it is the way we look at it. But we try to do the best job we can and success will take care of itself.

Our next question comes from the line of Colin Sebastian with Robert W. Baird. Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division: As we're now looking ahead to the big launch next fiscal year, it brings up a question more generally, I think, whether there's any added pressure at the developer level to deliver key titles in advance of next-gen console launches, or even if that plays a part in how you're determining launch windows. And related to that, I wonder how we should think about the ramp-up in operating expenses over the next year on new platforms, if that might mitigate some of the shift in EPS that we see moving out of fiscal '13.

Yes, in terms of timing. I think we are very mindful of the potential console transition. Of course, we rely on the information we receive from our hardware partners, as does the market, and we typically don't comment on it. We are very mindful of an upcoming transition. And the consumer behavior puts a fine point on that because as we head into the maturation of the cycle, we see tie ratios come down and you've seen what happens when that happens. It fits very well with our stated strategy, which is we try really hard to do only the highest-quality titles, the titles that consumers will show up for without regard to where you are in the hardware cycle. In that way, we can really benefit from a large installed base, which we already have and which will grow larger through the holidays for today's hardware. And we are -- while not immune, we are less at risk for the lower tie ratios because we're putting out must-have product. If we don't put out must-have product, we too will be hurt by the fact that people are more selective in their purchases as you head into the end of the cycle. Everyone in our company is mindful of that, not the least our creative teams. So we're all very, very mindful of that. In terms of your second question, we don't have a ramp-up of operating expenses for next generation. Like everyone else in the business, except one of our competitors, once we reach technical feasibility, we capitalize our software development. And at that point, it no longer hits our P&L until we release the title, at which point we amortize it in accordance with GAAP, as you know. So we wouldn't expect our operating expenses to increase. And I think I'll answer a question you didn't necessarily pose, which is -- has been posed, which is, do we believe the titles to be a whole lot more expensive to make for next gen? And the answer is, we do not. In many instances, we believe that it may be somewhat easier to make titles for next-gen, depending on how the technology comes together.

[Operator Instructions] Our next question comes from the line of Mike Olson with Piper Jaffray.

Just a question about the kind of general pipeline, not necessarily games-specific, but any color that you could provide as far as recurring seasonal strategy for your games? Obviously, you've got NBA 2K, and should we think about May as always including a major Rockstar title like L.A. Noire or Red Dead, or just in general how you're thinking about kind of the annual strategy for some of those games?

Well, as those of us -- those of you who have followed us for the last 5 years know, we aim to diversify the products of the company and to build up and diversify the release schedule, while staying true to the company's DNA of focusing on owned intellectual property and only the highest quality interactive entertainment. And the company has been extraordinarily successful at diversifying its release schedule. Since 2007, we've released at least one multimillion unit selling title, new intellectual property every year, sometimes more. At the same time, we do not have a strategy of annualizing our titles apart from our sports titles, which are naturally annualized. And the reason is that -- really several-fold. The first is, we want to put out the highest-quality titles and we think it's tough to do that annually, although one of our competitors in particular does a very good job of it. The second is that we think you preserve the lifespan of the intellectual property by limiting the releases to less than annually. And the third is that primarily, we're focused on quality and we put out a title when it's really great and really ready to go. That said, the release schedule is much more robust than it used to be and I expect that to continue to be the case. With regard to our label strategy, first of all, probably better that our labels should talk about it and they do. That said, again, we have -- the commonality we have across the company is to try to be the most creative shop, the most efficient shop, the most innovative shop. And I feel that while we can always do better, we're making strong progress across all 3 of those dimensions.

Mr. Zelnick, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Once again, I'd like to thank all of our colleagues at Take-Two for stepping up at this very difficult time. I'd like to thank our shareholders for joining us and we wish you well.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.