Greetings and welcome to the Take-Two Interactive Software First Quarter 2017 Fiscal Year Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Hank Diamond. 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 first quarter of fiscal year 2017 ended June 30, 2016. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that 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 on -- as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that, unless otherwise stated, all numbers we will be discussing today are GAAP. Our press release provides a reconciliation of our GAAP to non-GAAP measurements and further explanation. And on our website, we have provided additional details regarding the non-GAAP components of our cost of goods sold and operating expenses. Our press release and filings with the SEC may be obtained from our website at www.take2games.com. And now, I'll turn the call over to Strauss.

Thanks, Hank. Good afternoon, and thank you for joining us today. I'm pleased to report that fiscal 2017 is off to a solid start, with first quarter net revenue up 13% year-over-year. Our results were driven by the continued strong performance of Grand Theft Auto V and NBA 2K16, coupled with growth in recurrent consumer spending, including record bookings from Grand Theft Auto Online. Grand Theft Auto V and Grand Theft Auto Online once again performed significantly better than we had anticipated and continued to generate remarkable results, as they have in every quarter since their release. According to new data from the NPD Group, which combines physical sales and full game downloads, Grand Theft Auto V was the #2 selling game across all platforms in 2015 and is the #3 selling game of 2016 year-to-date through June. In addition, Grand Theft Auto Online continues to grow, with the game delivering record bookings in the first quarter. Rockstar Games has driven sustained engagement and increased recurrent consumer spending by exciting audiences with the ongoing release of a rich array of free additional content, most recently with the further adventures in Finance and Felony, Power Play and Cunning Stunts updates and has many more updates still to come. The incredible staying power of Grand Theft Auto V and Grand Theft Auto Online nearly 3 years after their original release reflects that these titles remain the standard bearers for excellence in our industry and underscores consumers' tireless passion for this iconic series. In another testament to the strength of Rockstar Games created portfolio, the highly demanded 2010 classic Red Dead Redemption was made available to play in Xbox One as part of Microsoft's Backwards Compatibility program on July 8. Red Dead Redemption remains one of the most critically acclaimed entertainment experiences ever…

Thanks, Strauss. Today, I'd like to discuss our recent releases and upcoming lineup for the holiday season. On July 7, 2K and Turtle Rock Studios launched Evolve Stage 2, a new free-to-play version of Evolve exclusively for PC through Steam. Evolve Stage 2 features a completely overhauled experience, including a new game design and mechanics as well as improved gameplay, balance and system performance. Players who previously purchased Evolve on Steam as well as any add-on content such as skins or characters, will be granted Founder status and all of their paid content will carry over into Evolve Stage 2. In addition, Founders will get exclusive badges and other items at launch as well as additional new content as the game is updated over time. Evolve Stage 2 welcomed over 1 million new players in its first week of availability and continues to attract new fans. On September 13, 2K will release BioShock: The Collection for PlayStation 4, Xbox One and PC. For the first time, BioShock, BioShock 2 and BioShock Infinite will be made available in 1 collection, complete with all previously released single player downloadable add-on content, all completely remastered for new generation consoles in full high resolution with up to 60 frames per second. In addition, BioShock: The Collection includes a never before seen video series Director's Commentary: Imagining BioShock, which features insights from the creator of this years, Ken Levine. Consumers who already purchased the PC versions of BioShock, BioShock 2 and/or Minerva's Den through Steam will be able to upgrade to the remastered versions for free. The BioShock series remains one of the most beloved franchises in gaming and great care has been taken to meticulously preserve the developer's visions for the unforgettable worlds of Rapture and Columbia. On September 20, 2K released NBA 2K17,…

Thanks, Karl, and good afternoon, everyone. We'll begin by discussing the changes to our non-GAAP financial metrics, and then turn to our fiscal first quarter results and financial outlook for the remainder of the year. As announced earlier this week, we are no longer reporting non-GAAP financial measures just for the net effects from net revenue and related cost of goods sold. We're making these changes to comply with the SEC's updated compliance and disclosure interpretation issued on May 17. These changes to our non-GAAP measures will have no effect on Take-Two's business, GAAP net revenue, GAAP earnings, cash flow, balance sheet or how our management and Board of Directors evaluates the company's performance. In order to help investors who may wish to continue to evaluate our company's performance based on the same measures that we focus on internally, we are providing the following additional metrics: the change in deferred revenue, which can be added to our GAAP net revenue to arrive at the metric that we formally reported as non-GAAP net revenue; the change in deferred cost of goods sold, which can be added to our new non-GAAP cost of goods sold to arrive at our old calculation of non-GAAP cost of goods sold; and the net effect from deferral of net revenue and related cost of goods sold, which can be added to our new non-GAAP net income to arrive at our old calculation of non-GAAP net income. Please note that we do not defer all cost of goods sold related to deferred revenue, including internal and external royalties, which are calculated based on the performance of our business under our old non-GAAP metrics, and will continue to be calculated that way going forward. In addition, we are introducing a new operational metric, bookings, which represents the total…

Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering a strong start to the fiscal year. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Eric Handler of MKM Partners.

Yes, I've got 2 questions for you. First, just related to the full year guidance. Maybe, Lainie, you can help me. Did you say the old guidance of $1 to $1.20 is equal to the new guidance of $2 to $2.25? And can you help me get to reconcile that? And then secondly, with regards to Mafia III, it seems like you did get some good buys out of E3. Amazon had it as the #3 most anticipated game of games that were shown at E3. And, I'm just curious, how that -- how E3 maybe has changed or caused you to adjust maybe some of your expectations for the game?

Well, Eric, let me start with the guidance for next year. So the $2 to $2.25 is based on the new non-GAAP metrics, and that's what we'll be using going forward. So that compares to $1 to $1.25 that we gave out on our last call. And the sales is up slightly, and that's driven by our Q1 results and our increased recurrent consumer spending and that's offset by some additional marketing expense in the year.

Right. But how do I -- and maybe I just got spend more time with the press release, but how do I reconcile -- how do I -- what do I need to do in my model so that the $2.25 becomes $1 to $1.20?

If you take a look at the press release, you'll see where we broke out, what the deferred revenues are, the deferred cost of goods sold, and then what that impact is on the net income, and that will help you reconcile it.

Okay. And Eric, if you have follow-up questions, you can give Hank or Lainie a call, we'll be happy to go through it, and that would be true for anyone else on the call as well. And this is Strauss. On Mafia III at E3, yes, we had a great show. We're really excited about it. We're really proud of the way we showed of the title. And what can I say? Something like 60 awards -- 60 accolades and 12 awards, and enormous buzz, lots of press and that's one of the things -- one of the many things that E3 is good for. So this is a title that we put a lot of investment in and in terms of development and marketing, both current and upcoming, and we have high hopes for it. So stay tuned.

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

Close enough. A few questions here. One, so Lainie, if I just heard you correctly, the no upside on EPS, that's -- is that, essentially, all driven by increased marketing spend? Or is there just an increased level of conservatism, for any other reason? And then Strauss, post E3, any change to the way you're going to market with Mafia? Was there anything that you saw that made you say, "We would want to come at it in a different way?" And then, also on marketing. I noticed -- just happened to notice sort of seeing these in different ways, is the marketing for GTA Online on Facebook and Instagram and some other areas, you know, it seems to be doing a pretty good job. Do you think that marketing has been particularly successful? And do you expect to be increasing that for GTA Online and possibly for other future additional add-on content?

Let me address first on the guidance for fiscal year '17. So we did keep the bottom line the same, as we said, and the revenue is higher, and that is being offset by the marketing expenses. In terms of conservatism, it's still pretty early in the year. We have several titles still to be released, including Mafia III, NBA, WWE and Civilization VI. So it's still early in the year, we're pleased with the first quarter and we'll have to see how the rest of the year pans out for us.

Yes, and then, Ben, in terms of Mafia III coming out of the show, I think we were highly optimistic going into the show, and if anything more so after the show. We already have a very significant marketing budget against the title, as we do for all of our AAA releases, but we do try to structure our marketing budgets flexibly so as we learn more, we can adjust them. But I think it's safe to say that we're really stepping up and getting behind this title because we really believe in it. To your point on GTA Online and other releases, you know I -- you're obviously very expert in these matters and you and I have talked about them. But we are -- we, like our competitors, are trying hard to be expert in reaching the consumer wherever the consumer is, and social media is a great way to do that, but you do have to be a very expert in the area. And I think we are increasing that expertise of the company broadly, and in both of our labels, and you're seeing that in our results. So what drives the results of any given title, GTA Online included, is how it speaks to consumers and it's the creativity in the title and the extraordinary experience of that game, and that experience that has drive record results in the quarter. I know we said we expected results to moderate and they haven't, we had record results again. And certainly marketing plays a role in that. But at the end of the day, of course, the product itself it is what speaks to the consumer and the marketing is getting that message out. It's our job to do A+ work with both. And I think around here, we always feel like we can do more. But yes, I think we have made some progress in social media marketing.

Our next question comes from the line of Tim O'Shea of Jefferies.

So obviously, you guys have had a lot of success developing new franchises over the past few years. But more recently, it seems like new IP, like Battleborn is seeing greater challenges at launch. So the question is, now you have 9 or 10 large franchises, does it start to make sense to prioritize investment towards that existing IP instead of trying to launch new franchises? I do appreciate Strauss' comments about the importance of creativity and maybe not how everything works out, but I'm just curious how you think about this, and whether your thinking has evolved over time?

Tim, it's a fair question. And I think one has to be careful with the success we've had because we've launched at least 1 new hit IP every year -- nearly every year since 2007, not every year but nearly every year. And obviously, that's why we have titles like Red Dead and titles like Borderlands and BioShock and more recently why we were able to add WWE to the mix, Shaun, because of that willingness, that openness and frankly, our risk profile. And we are capitalizing now to take on that risk. So tempting as it maybe to rest on our laurels, and we do have 11 franchises that have each sold over 5 million units in individual release. There's something like 60, that have sold, I think, 2 million units at least -- 60 releases that have sold at least 2 million units. It's tempting to do that. But of course, at the end of the day, you run the risk that they -- that the enterprise doesn't grow in that circumstance. So while one would -- one definitely has a reduced risk profile when you put out a sequel versus new IP, I think it's both our obligation and our opportunity to do both. How we do that is an open question. And there are opportunities to moderate risk, and so doing. And also, the world allows you now -- the world of interactive entertainment allows you now to have more than 1 bite of the apple. So with regard to Battleborn, we're being very frank about where we are because we're a transparent company. We're still delivering new content to Battleborn. Audiences love Battleborn. We still have virtual currency coming from Battleborn. We are not counting it out for a minute. We're just telling you where we're at now. And equally, we just launched Evolve Stage 2, which is another way to express the IP of Evolve. And we've had over 1 million people sign up to play Evolve Stage 2, and that's super exciting. So the world has changed. It's unforgiving in that we invest a lot of money in new IP. It's much more forgiving in that we can have consumers be part of our release, we can iterate with them, we can come back and play another day. And if your watchword is quality, they're great opportunities. Say what you will, the consumer's actually really have said great things about Battleborn, as have the critics. So we're still encouraged by our approach to bringing back beloved sequels while creating new intellectual property. And we do have to be careful, of course, to balance our investment and our risk with the opportunity. And that's -- there's a little bit of a science in there, a little bit of art in there, but that's one of the things we do every day.

Our next question comes from the line of Ryan Goodman of Bank of America.

I had one on the new bookings metric. So if I look at the quarter, the bookings were down quite a bit year-over-year just because of the GTA V comp, which makes sense. So I guess, 2 questions, if the annual outlook implies flattish, I believe, was in the comments. What does the September outlook for $350 million to $400 million imply on a year-over-year basis? And how should we expect the year-over-year trend to change over the course of the year? What are the key drivers there?

Can you repeat that question? I'm not sure I'm understanding.

Sure. I'm just looking -- I want to make sure I'm understanding the metrics right. But I see like bookings for this quarter were $253 million, and I believe that was down 25% to 30% year-over-year because of the GTA 5 comps. And I thought in the prepared comments that the $1.5 billion to $1.6 billion was flattish year-over-year. So I'm just trying to understand, how we get from down 30% to there. What happens between here and there over the next few quarters?

So yes, it is flattish from this year to last year. And it's driven by our release schedule that we have coming up for the rest of the year. We have Mafia III coming out, NBA, WWE, we have Civilization VI and some other titles. So it's being -- we have a very heavily weighted fall season. And that should -- that would make up the difference for the year.

Okay, I guess, just for a historical perspective for next quarter, the $350 million to $400 million, if you hit the midpoint of that, can you share what the year-over-year comp would be?

I don't have that in front of me, but if you follow up with us after the call, we could get back to you.

Our next question comes from the line of San Dan of Mizuho.

This is San in for Neil. I was just curious to see if you expect to see an impact to the recurring digital spend in the quarter from the Olympics? And you know there's a gap before NBA 2K17 comes out, but do you expect any impact to that launch as well?

Honestly, if the political season hasn't taken away activity, I certainly don't think the Olympics will. Consumers really love what we have to offer. And when consumers love entertainment, they consume a lot of it. It does not appear to be substitutable. So, no. Exciting as the Olympics may be, I don't think it will affect us even in the smallest way.

There are no further questions at this time during the audio portion of the conference. I would like to turn the conference back over to management for closing remarks.

We would just like to thank everyone for joining us today. We had a good solid quarter, a great start for the year. We've revised our revenue outlook up. We're highly optimistic about what will be one of our strongest fall and holiday release schedules ever. And we want to thank all of our shareholders, for their continued support.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.