Greetings, and welcome to the Take 2 Interactive Software Fourth Quarter Fiscal Year 17 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Hank Diamond, Senior Vice President of Investor Relations.
Mr. Diamond, you may begin.
Good morning. Welcome, and thank you for joining Takeu's conference call to discuss its results for the 4th quarter fiscal year 2017 ended March 31, 2017. Today's call will be led by Strauss Zelnick, Teektu's chairman and chief executive officer, Carl Sladoff, our president, and Lainie Goldstein, our chief financial officer. We will be available to answer 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 most recent annual report on Form 10 k and quarterly report on form I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP and unless otherwise stated, all comparisons are year over year. 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 morning, and thank you for joining us today. Before we begin, all of us here at Take 2 all around the world, want to acknowledge, and express our sympathy in the wake of these terrible and tragic attacks in Manchester. Terribly sad that at an entertainment event, we're people, went to be pleased and delighted that this terrible thing occurred. And we're deeply saddened by it and obviously puts into context, the conversations that we're having today.
So with that said, we'll turn our attention to business. Consumer demand for our offerings remained exceedingly strong in the 4th quarter. Finishing off another outstanding year for organization. During fiscal 2017, we delivered bookings that significantly exceeded our expectations along with revenue growth and margin expansion. These results were driven by the continued extraordinary performance of Grand Theft Auto 5 and Grand Theft Auto Online a diverse array of titles from 2 k and record digitally delivered revenue and bookings, including our highest ever from recurrent consumer spending.
Our business performance converted into substantial cash provided by operating activities grew 27 percent to $331,000,000. We invested our capital to grow and diversify our business further including acquiring Social Point, a leading free to play mobile game developer. As of March 31, 2017, we had $1,400,000,000 in cash, and short term investments. Grand Theft Auto5 and Grand Theft Auto Online outperformed our expectations during the fourth quarter as they have in every period since their release Grant Theft Auto Five remains our industry standard bearer for creative excellence and the highest rated game of the current console generation with sell and now surpassing 80,000,000 units. The title continues to attract and delight new audiences, especially as the installed base of PlayStation 4 and Xbox 1 expands further.
In addition, Grand Theft Auto Online again delivered year over year bookings growth in the fourth quarter substantially exceeding our expectations. And was the single largest contributor to recurrent consumer spending. Rockstar Games has driven sustained engagement through the ongoing release of wide array of free additional content. Most recently, the Cunningham's special vehicle circuit update followed by the land grab and tiny racers modes. In total, Rockstar Games released 12 significant updates during fiscal 2017, coupled with a regular weekly schedule of new content offerings, and has much more planned going forward.
It's a remarkable achievement that recurrent customer spending on Grand Theft Auto Online has grown every year since its release, and reached record levels in fiscal 2017 more than 3 years after its initial launch. Our results also benefited from 2 k's robust holiday lineup. NBA 2 k 17 remains a top rated sports game of the current console generation, and is poised to become our highest selling sports title ever with selling sedative nearly 8 million units. Engagement with and recurrent consumer spending on our industry leading basketball series continues to grow with over 2,000,000,000 games of NBA 2k17 played on PlayStation 4 and Xbox 1, up 16% over NBA 2k16. More than $1,300,000,000 of these games were a multiplayer of 40 percent increase and the average time the consumer spent playing multiplayer games increased by nearly 30%.
This remarkably strong engagement helps to drive record recurrent consumer spending on NBA 2k, which grew 71% during fiscal 2017. Furthermore, we're thrilled to broaden our industry leading basketball brand and expand our footprint in the evolving world of competitive gaming with the upcoming launch of the NBA 2K Esports league which Carl will discuss in more detail. Mafia III was praised by the media and consumers alike for setting new creative benchmarks through its deep storytelling diverse characters, and authentic period setting. The title is being supported by downloadable content, including a season pass that delivers 3 narrative focus to experiences, which expand the world of new bordeaux with thrilling new story lines alongside characters both familiar and new. Matfya 3's add on content also brings fresh new locations to explore gameplay mechanics, weapons, vehicles, outfits and activities, proud of Hanger Thirteen's inaugural release, which is now sold in more than 5,000,000 units.
WWE 2K17 to continue to build on success of our popular sports entertainment series and has sold in approximately 3 million units to date. Developed collaboratively by YOOX and Visual Concepts, WWE 2K17 is being supported with downloadable add on content, including a season pass. We believe there remains a substantial long term growth opportunity for the WWE 2K series by further leveraging the development and marketing talent of 2K and visual concepts which are responsible for the tremendous success of NBA 2k. Sid Meier's Civilization Received stellar reviews and is the fastest selling title in the history of the series with sell into date of nearly 2,000,000 units. The robust post launch content for civilization 6 includes the Australia civilization and scenario pack and the Persia and Macedon civilization and scenario pack.
In addition, 2 more civilization and scenario packs will be added automatically for owners of this civilization 6 digital Deluxe edition at no extra cost. We're immensely grateful to Sid and the team at Fras Games have captivated audiences for more than 25 years and continue to raise the bar for beloved strategy series, which is sold in more than 40,000,000 units worldwide. In addition, a number of other releases and catalog titles contributed to fiscal 2017 results, including NBA 2k16, Bioshock, the collection, and Xcom 2. We continue to benefit from our industry's ongoing transition to digital distribution. In fiscal 2017, we delivered record digitally delivered revenues and bookings, driven by growth in both full game downloads and recurrent consumer spending.
Recurring consumer spending grew 52% to its highest level ever and accounted for 57% of digitally delivered bookings or nearly 1 third of total bookings. In addition to record sales of virtual currency for Grand Theft Auto Online and NBA 2K, Recurrence consumer spending was enhanced by a variety of other offerings. Starting with the free to play category, WWE SuperCard delivered its best year ever with bookings up more than 70% and total downloads now exceeding 14,000,000. During fiscal 2017, we released 3 updates for the title that significantly enhanced this popular card game card battle game. NBA UK online, which remains the number one PC online support game in China with approximately 35,000,000 registered users.
Also enjoyed record results including strong double digit bookings growth. And social point, which we acquired in January, already is outperforming our expectations. Bookings from its 2 biggest games, Dragon City of Monster Legends grew in the fourth quarter, and daily average revenue per user increased nearly 30%. We expect this acquisition to be a significant contributor to recurrent consumer spending in fiscal 2018, and a meaningful growth opportunity over the long term. In the downloadable add on content category, bookings grew substantially, led by offerings for Sid Meier's civilization, WWE 2K, and Exxon 2.
As announced yesterday, Rockstar Games is decided to move the release of Red Dead Redemption 2 to spring 2018. Red Dead Redemption 2 will be their first game created from the ground up for the latest generation of console hardware and some extra time is necessary to ensure the best experience possible. Such decisions are not made lightly and are driven by our teams unwavering commitment to unparalleled quality. That said, we still expect fiscal 2018 to be a year of strong earnings and cash provided by operating activities for Take 2, despite an unusually light release slate. Our ability to project significant profits would line up that solely includes new frontline releases of our annual sports entertainment titles, reflects the strength of a robust catalog led by Grand Theft Auto and a substantial contribution we now receive from recurrent consumer spending.
While we still have much opportunity significantly higher margin business than at any time in its history. Looking ahead to fiscal 2019, We expect to deliver both record net sales and record net cash provided by operating activities, led by the launches of Rockstar Games Red Dead Redemption 2, and a highly anticipated new title from continues to grow and our industry leverages new technologies. Take 2 is benefiting from these positive trends in numerous ways. Whether a broader canvas on which we can create groundbreaking entertainment or digital distribution channels, new business models, and emerging platforms that are expanding the way consumers experience our games, there's never been a more exciting time for our company and our industry. Take to a superbly positioned to capitalize on all these opportunities creatively, operationally, and financially and continue to deliver value to our customers and returns for our shareholders over the long term.
I'll now turn the call over to Carl.
Thanks, Strauss. I'd like to begin by congratulating our teams on delivering a very strong 4th quarter and another exceptional year for Take 2. Our fiscal 2017 results reflect our company's ability to deliver the highest quality entertainment experiences across a variety of genres, platforms, and distribution channels. Moreover, we continue to find new and innovative ways to increase our audience's engagement with our renowned brands. It is our team's creative vision and tireless dedication to excellence that drives our success, and they continue to set new benchmarks groundbreaking entertainment that captivates players around the world.
I'll now discuss our recent strategic accomplishment the formation of the NBA 2K Esports an incredibly exciting opportunity for both our industry and Take 2. According to Research Firm Newsu, audience for competitive gaming has grown to over 250,000,000 people, nearly half of which are avid viewers that watch major international events. In addition, the financial opportunity is substantial as the competitive gaming market is expected to reach $1,100,000,000 by 2019. While our initial forays into this space were tournaments for NBA 2K1617 that were designed to benefit marketing and the brand, We believe that with the right partner, competitive gaming could be a direct driver of revenues and profits for our company over the long term. To that end, we were thrilled to announce in February an exciting joint venture with the NBA to create and launch the NBA 2K Esports league.
This partnership builds upon the success of our NBA 2k brand and relationship with the NBA to bring together the best basketball gamers in the world marking the 1st official competitive gaming league that is jointly owned by a U. S. Professional sports league. The NBA 2 KE Sports league will launch in 2018 17 out of the NBA 30 teams will participate in the inaugural season. Teams will be comprised professional esports players who will play NBA 2k as user generated avatars in a 5 on 5 format.
The teams will compete head to head throughout a regular season, which will culminate with bracketed playoffs and a championship matchup. We believe that the NBA 2 K E Sports league has the long term potential to generate significant revenues and profits through broadcasting rights, ticket sales, pay per view events, sponsorships, advertising, and merchandise, just like any other professional sports league. We recently announced the appointment of Sports Industry veteran and MBA executive, Brendan Donahue, as the lead's Managing Director, and we will have more updates to share about the league's progress in the coming months. Turning to our fiscal 2018 lineup. 2K and Visual Concepts are hard at work NBA 2k18, the latest installment of our industry's perennial number 1 rated and number 1 selling basketball series.
Earlier this month, 2K announced that 2016 Hallistamer and 15 time NBA All Star Shaquille O'Neal will be on the cover of this year's Legend Edition And Legend Edition Gold, which will retail for $99 $149 respectively. NBA 2K18's Legend Additions follow the success of prior special additions and represent the franchise's increased focus on premium consumer offerings with more virtual currency and digital items bundled together from maximum consumer value. These collections will include special Shaq themed memorabilia and content, celebrating his legacy as one of the most dominant centers in NBA history. NBA 2k18 will be available on September 19th for PlayStation 4, PlayStation 3, Xbox 1, Xbox 360, Nintendo switch and Windows PC. 2K will have more to share about the title, including announcements including announcing the cover athlete for the standard edition in the coming weeks.
This fall, our popular simulation based WWE series will return with WWE 2k18. Featuring authentic, hard hitting action, fan favorite game modes, match types, creation capabilities and everything players have come to love from the series, WWE 2K18 looks to bring everyone closer to the in ring action than ever before. In addition to our annual sports titles, we will have new downloadable add on content for recent frontline releases. Next week, hangar 13 and Ju Kay will launch stones unturned, the second of 3 story driven add ons from Lafayette 3. Tute also will soon reveal more about the 3rd and final expansion sign of the times, which is planned for release later this summer.
And in the coming months, 2 Ks for access teams will release 2 additional civilization and scenario packs for Sid Meier's Civilization VI. That will introduce 3 new leaders representing civilizations from Africa and Southeast Asia. This content will be available automatically at no extra cost for purchasers of the Civilization 6 digital deluxe edition upon their release. Social Point is also hard at work on its robust development pipeline and has a number of exciting games planned to launch over the next 2 years. Next month at E3 in Los Angeles, we will have a corporate booth on the show floor.
We will not be showing any new products, but we will be holding business development, investor relations, media and sales meetings throughout the show. Looking beyond the current fiscal year, we have a strong development pipeline across both of our labels, include new releases from our popular series, along with groundbreaking new IP. We remain focused on delivering the highest quality titles, supporting them with digitally delivered offerings that provide additional value to consumers as well as drive engagement and recurrent consumer spending. Coupled with our emerging opportunities in competitive gaming, mobile, and geographic expansion, our potential for growth over the long term is better than ever. I'll now turn the call over to Lainie.
Thanks Carl and good morning everyone. Today, I'll discuss our fourth quarter fiscal year 2017 results, and then review our financial outlook for the first quarter fiscal year 2018. Please note that additional details regarding our actual results and financial are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Mentioned by Strauss, our fiscal fourth quarter provided a strong finish to another great year for Take 2. Sales of our offerings exceeded our expectations due primarily to the continued outperformance of Grand Theft Auto V and Grand Theft Auto Online.
Total bookings growing 14% to $371,000,000 in the 4th quarter. Of this amount, 72% was digitally delivered booking, which grew 28% to $267,000,000 as we continue to benefit from growth in recurrent consumer spending, as well as our industry's ongoing transition to folding downwards. While the performance of our business exceeded our expectations as reflected in our strong bookings and cash flow growth, this outperformance was not reflected in our GAAP results to achieve reason. 1st, our bookings outperformance was driven by titles that we are required to defer, and therefore, our revenues and profits won't benefit from these bookings until future periods. And second, because of the better than expected performance of Grand Theft Auto V and Grand Theft Auto Online, we recorded higher than forecasted internal royalties, which are calculated using results that are adjusted to exclude the impact of deferral and unlike certain other costs of goods sold are not deferred.
Turning to some details from our 4th quarter income statement. GAAP net revenue grew by 52%, $572,000,000, and cost of goods sold increased 50% to $315,000,000. This growth was driven primarily by the recognition of previously deferred revenues and costs from mafia 3. Operating expenses increased by 18 percent to a $145,000,000 due primarily to higher stock based compensation, legal, and IT expense. And GAAP net income increased by 114 percent to $99,000,000 or $0.89 per share.
For the full fiscal year, we delivered bookings and cash provided by operating activities that substantially exceeded the original outlook we gave last year. These results were driven primarily by the sustained outperformance of Grand Theft Auto Five in Rant Theft Auto Online. Coupled with better than expected sales of NBA 2K and record recurrent consumer spending. Total bookings grew 19 percent to $1,800,000,000, driven primarily by the launch of the mafia 3 and Finmeyr civilization 6, along with growth of bookings from NBA 2k and Grand Theft Auto Online. Of this amount, 55% were digitally delivered bookings, which grew 25% to a new record of $987,000,000.
Our better than expected bookings converted into strong net cash provided by operating activities. Which grew 27 percent to $331,000,000. We spent $21,000,000 in capital expenditures, and we acquired Social Point $175,000,000 in cash, along with 1,500,000 shares of Take 2 common stock. As of March 31, our cash and short term investments balance was $1,400,000,000. Turning to some details from our fiscal 2017 income statement.
GAAP net revenue and cost of goods sold each grew 20 percent to $1,780,000,000 $1,020,000,000, respectively, due primarily to the launches of MOPHIA 3 and Sid Meier Civilization VI. As well as the recognition of higher revenues and costs from the growth of NBA 2K. Operating expenses increased by 9% to $665,000,000, due primarily to marketing expenses for our fiscal 2017 release slate and Red Dead Redemption 2 as well. Expense, professional fees and stock based compensation expense, partially offset by the absence of a business reorganization charge recorded in fiscal 2016. GAAP net income increased to $67,000,000 or $0.72 per share, up from a net loss of $8,000,000 or $0.10 per share.
As noted in our press release, starting with our financial outlook and results for fiscal first quarter 2018, we are replacing bookings of net sales as an operational metric. The company is making this change in order to increase transparency and to be consistent with the operational metrics provided by our peers. Net sales is defined as the net amount of products and services sold digitally are sold in busically during the period. Unlike bookings, net sales include licensing fees, merchandise, and game advertising strategy guides, and publisher incentives. Now I will review the highlights of our fiscal 2018 financial outlook.
Further details are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Starting with the fiscal first quarter. We expect net sales to range from $240,000,000 to $290,000,000. The largest contributors are expected to be Grand Theft Auto V and Grand Theft Auto Online, NBA 2K17 and WWE 2K17. We expect GAAP net revenue to range from $390,000,000 to $440,000,000 and cost of goods sold to range from $147,000,000 to $175,000,000.
Operating expenses are expected to range from $160,000,000 to $170,000,000. At the midpoint, this represents a 4% increase over last year. Driven by the acquisition of Social Point. And we expect GAAP net income to range from $74,000,000 to $85,000,000 or $0.65 to $0.75 per share. Turning to our outlook for the full fiscal year.
We expect net sales to range from $1,420,000,000 to $1,520,000,000. This is expected to be down from fiscal 2017 due to fewer new releases and moderating sales from Grand Theft Auto5 and Grand Theft Auto Online. Partially offset by growth from our NBA 2K and WWE 2K series, as well as the acquisition of Social Point. We expect digital to increase as a percentage of net sales and to be down slightly on an absolute dollar basis. The slight decline in digitally delivered net sales expected to be driven by lower full game downloads due to our lighter release slate, which is expected to be largely offset by mid single digit growth in recurrent consumer spending.
The largest contributors to net sales are expected to be NBA 2K, Grand Theft Auto5 and Grand Theft Auto Online and WWE 2K18. We expect the net sales breakdown from our labels to be roughly 60% 2 k, 34% Rockstar Games, and 6% social point. And we've set our geographic net sales split to be about 65% United States and 35% international. We expect to generate approximately $150,000,000 in net cash provided by operating activities, and we plan to deploy approximately $60,000,000 for capital expenditures. We expect GAAP net revenue to range from $1,950,000,000 to $2,050,000,000 and cost of goods sold to range from 671 to 7 $12,000,000 GAAP net revenue is expected to increase due to the recognition of previously deferred revenues from Grand Theft Auto5 and Grand Theft Auto Online, as well MBA 2K.
GAAP cost of goods sold is expected to decrease primarily due to lower software development costs and lower internal royalties. Total operating expenses are expected to range from $720,000,000 to prior year, driven by the acquisition of Social Point. And we expect net income to range from $504,000,000 to $540,000,000 of $4.35 to $4.65 per share. In closing, our ability to deliver consistently the highest quality interactive entertainment experiences, balance with a disciplined focus and operational excellence, and it will take to deliver growth in revenue, earnings and cash flow of 2017. Fiscal 2018 is poised to be another strong year for K2, despite an unusually light release slate.
And fiscal 2019 promises to be one of our best years yet, with net sales and net cash provided by operating activities, expected to exceed $2,500,000,000 $700,000,000 respectively. Over the long term, our company is better positioned than ever to generate growth and margin expansion for our shareholders. Thank you. Now I'll turn the call back to Jeff.
Thanks, Carlo Manning. On behalf of our entire management team, I'd like to thank our colleagues, delivering another outstanding year. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions.
Thank you.
At this time, we'll be conducting a question and answer session. You.
We'll take the first question, please.
Thank you. Our first question comes from the line of Mike Olson with Piper Jaffray. Please proceed with your question.
Hey, good morning. Thanks for taking the question. I don't know what you can say around this, but I'm sure there can be various reasons for seem to be delayed some good in the sense that you could be adding more content or other features or it could be that there's something mechanically wrong with the game. Can you provide any context around what the kind of category this delay would fall into? And then secondly, as you said, recurrent consumer spend for GT online has grown every year since launch.
Does the fiscal 2018 revenue guidance assume that GTA Online specifically grows or declines year over year? Thanks.
Hey, Mike. It's Strauss. You know, I think the the purpose of the delay for Red Dead Redemption 2 is to make sure that we deliver the most extraordinary experience we're capable of providing. We haven't run into particular issues. We are building a new game from the ground up for the first time for new generation consoles.
And the pressure that we put on ourselves to deliver excellence and to delight consumers is extraordinary. And, we wanna make sure that the appropriate time is taken to do the very best job we can. And I think that's what consumers expect of Rockstar Games and that's what Rockstar Games typically delivers. So we support, emphatically the labels decision and, and we're utterly confident that it'll prevent in time to be wise, 1st and foremost, creatively and artistically, and economically as well. And to your second question, Lynn, you'll take that.
Our guidance assumes that GT Online will moderate in a nonfiscal year 2018 It did grow significantly in 2017. And we continue to support it, but since it's unlike anything else that we've ever had and we have very little visibility into how long it will continue this trend of growth, we've included it as moderating in this year's guidance.
Thank you. Our next question coming from the line of Tim O'Shea with Jefferies. Please proceed with your questions.
Yes. Good morning. Thank you for taking my questions. I just have 2, one for Strauss and 1 for Lainie. So Strauss, just you know, I hope I was just hoping you could share how anticipation is building, ahead of the big Red Dead launch and maybe what kind of signals are you tracking from the community that might help give us confidence around how big of a launch this might be?
And then just for Laney, obviously, you're shifting Red Dead into fiscal 'nineteen, but as you think about outlook, I'm just curious if there are any costs embedded in that fiscal 2018 outlook around Red Dead maybe for marketing or something like that? Thank you.
Yeah. You know, Tim, I appreciate it. It's not really my nature or our nature to claim victory before it occurs. More nature to do the very best we can to delight consumers and then report the results. To say that we're highly confident about Red Dead Redemption 2 is an extraordinary understatement.
I'm not sure that really matters. You know, in the fullness of time, the title will be released and and consumers get to vote. Is no doubt that the engagement with the materials that were released is extraordinary. The screenshots are beautiful. The buzz is palpable and growing.
But beyond that, Rockstar Games will talk about, how the titles progressing and how consumers, are responding in the fullness of time. So it does fall into the category of how high is up it is a highly anticipated title. That's an understatement. But it's our style to say, look, we do the very best we can and the results will speak for themselves.
And we are including marketing for, Red Dead Redemption 2 in our fiscal year 2018 guidance. Since the spring release, we would certainly see some marketing for the title during the fiscal
year. Thanks so much.
Our next question is from the line of Drew Crum with Stifel. Please proceed with your question.
Okay. Thanks. Good morning, everyone. So I wanna go back to GTA online, talk about what rock stars plans are for content in fiscal 'eighteen. If there's any change there given the timing of Red Dead 2.
And then separately on Social Point, can you remind us what the earn outs are for calendar '17'eighteen, what's embedded in guidance? And it looks like there's no new games planned for Social Point, but You know, will you follow the same protocol, rely on them to make the game announcements and then expound upon those with with earnings calls? Thanks.
Hey, Drew. It's it's Strauss. On GT online, you know, we have said that plenty more content is coming. More announcements will be made by Rockstar Games. The title is absolutely being supported by the label consumers love it.
It remains a enormous focus of everyone's attention. We remain very excited about it, even though our financial results are expected to moderate. In terms of Red Dead Redemption 2 coming, that's unrelated to GTI online. As I've said many times before, all entertainment from all enterprises competes with everyone and competes with no one. Entertainment stands on its own No one ever needs another entertainment property.
When there's nothing in the marketplace that excites us, we stay home. When there's plenty in the marketplace that excites us, we buy as much as we can afford. So I don't believe there's any connection between Grand Theft Auto Online And Red Dead Redemption 2. And certainly, here at our enterprise, we're full steam ahead supporting all of our successful properties and always trying to make more as we go along.
And just to address your question about the earnout, so So the the sellers are eligible to receive an earn out. They it breaks it's a public. You can you can look it up yourself, but it it's basically four and a half times every dollar of EBITDA. Earned by Social Point in excess of $32,500,000 in 20 17, and, $38,500,000 in 20 18. And that maximum that amount is capped at $25,900,000.
That's how they earn And what was your last what was your other question about Social Point? I missed that one.
So you haven't it looks like you've not announced any new games as part of fiscal 'eighteen. Is it possible some slipped into this year or should we not assume anything for fiscal 2018?
What we have said is that that Social Point has got a couple has got a pipeline of games that are coming out over the next couple of years. We have not announced timing about when those games are. There are games in various stages of development, and testing. It's a little bit of a different process than we filed with our with our other 2 labels, just given the nature of the games themselves, it's more of an iterative development and release strategy. But rest assured, there are games in the pipeline over the next couple of years.
Okay. And Carl, just
to go back to the first part of the question, the $32,000,000 $38,000,000 respectively of EBITDA, are you assuming that Social Point hits those thresholds as part of your guidance?
We we're not commenting on on where it fits.
Okay. Thank you.
Our next question is from the line of Eric Handler with MKM Partners. Please proceed with your question. Mr. Hamler, your line is live for questions this morning.
Oh, sorry. I had mute on. When you look at, your your full game digital downloads, where are you right now, you know, as you end fiscal 2017 with, like, what percentage of your games are getting the full download, versus what you are implying with your guidance for, fiscal our fiscal 'eighteen and how you think that trend is progressing. Secondly, with regards to your statements about fiscal 2019. The last time you guys generated, $700,000,000 of operating cash flow was the launch year for, GTA 5 and you did $4.26 that year.
I'm just curious. Is that sort of like a good baseline to think about for EPS in fiscal 19?
Thanks, Eric, and really appreciate the sleutin. On full game downloads, digital distribution is responsible for roughly 25% of our console sales. And about 90% of our PT sales for frontline, for catalog, it's obviously greater. We expect that in our numbers to be roughly the same going forward. Strategically, however, over time, we think digital distribution grows as a percentage of total revenue.
For fiscal 2019, we're not commenting on EPS. I think we've given a good deal of visibility, already.
Next question comes from the line of Justin Post with Merrill Lynch. Please proceed with your question.
Oh, great. Thank you. Two questions. First, does the delay of, Red Dead impact any of other rock stars other projects? And then secondly, could you help us frame the opportunity for NBA Esports relative to the current revenues that the franchise is generating.
Like, how would you think about the incremental revenue opportunity? Thank you.
Thanks, Justin. The the, decision to move the release of Red Dead Redemption 2 will have no impact on any of Rockstar Games other activities. With regard to our Esports, venture about which we're we just couldn't be more excited. Actually just met yesterday with with Brendan and with the commissioner, and for our standard, catch up meetings. And, we're just thrilled with the progress that the venture is making, and there'll be more said about that in the future.
However, we're not including, that progress in our outlook. And, that's not because we're not optimistic. We are. It's just too early to size it. We know that if we get this right, there's an amazing for the fans and therefore an amazing economic opportunity.
That's always how we look at the world. However, we have not included it in our outlook.
Any way of frame it, like, 3 to 5 years out? Like, how you think about it?
It's it's so tempting, to to, to, to share my views, but it sort of falls in the category of, you know,
You
know, I'm an optimist, couple of the folks sitting around the table with me here are pessimists, but it doesn't matter. And we've proven in the 10 years that we've managed this business that our opinions are relevant. We show up every day as do 3400 of our colleagues. We work super hard to be the most creative, efficient, and innovative organization in the entertainment business. Sometimes we get it wrong and we take responsibility more often than not, we get it right and we see the results.
That's what we're trying to do here. I I'm really confident that we will get it right. And if we do, I think the economic results for both the venture and for our game related to the venture will be nothing short of astonishing. But that's just what I think. And frankly, I wouldn't put a whole lot of stock in that.
We're moving in that direction and certainly our goal into our collective goal and, and look, we're the 1st professional sport to launch a competitive lane, gaming league. And the excitement is among the fans, among the teams, at the NBA and here at 2K and take 2 is palpable. It's our job now to hunker down and turn that into reality. And and the money will follow.
K. Thank you.
Our next question is from the line of Sam Fan with Mizuho. Please proceed with your question. Hi. I
was just wondering, can you tell us how much of the growth in NBA 2k unit sales is coming from the U. S. Versus international? And then the second question is something more broad. I was just curious, is the ongoing success you've seen recurrent digital spend, change your view and strategy with frontline title releases in any way.
Thank you.
So we don't break out international or domestic sales for NBA. However, international growth has been a big benefit for us. We are focused on it. We focus more on localization. We have local commentators.
As the sport grows overseas, so does our game and there's an enormous amount of ongoing opportunity. In terms of our current consumer spending, yes, we have said that as we look at future releases, All of them are built with an eye towards ongoing engagement. So this business used to be a business where We did our best to create this extraordinary experience. The experience was finished. We launched it into the market.
The consumer voted we went on to the next and we had a catalog. And because the technology is constantly changing the caps of limited value, all of that has now changed. In reverse order, catalog now has much more value. We have the highest selling catalog for SKU, frankly, because we have the highest metacritic scores and our quality. Holds up over time.
People wanna play our games many, many years after after they're released. And equally, we now can look at a hit game and say, you have a hit title, people want to stay engaged. So we have to plan ahead and say, are we going to have meaningful ongoing opportunities to engage? Each game is different. So we each game looks at those meaningful opportunities, through a different lens.
It could be the lens of a multiplayer version online that would have For example, virtual currency, sales could be a free to play title launched by Social Point, which has in game purchases. It could be NBA 2 can line in China, has in game purchases. It could be WWE SuperCard, which has in game purchases. It could be downloadable add on content for which one pays. It could be free on content.
Anything that delights consumers and keeps them engaged with our titles and our brands is good for them and therefore good for us and we find that the monetization follows. We're definitely getting better at the data surrounding this. We're getting better at translating engagement into monetization, but at the risk of being repetitive, at this company, 1st and foremost, we focus on the consumer and the monetization follows.
Trust, so given that your catalog sales are growing, you're getting more existing engagement on existing your growing engagement and existing titles, you know, does it mix, could we see you possibly maybe releasing the big bigger titles for their parts than we would've we would've been years past?
You know, we stated a strategy not to annualize any titles apart from sports entertainment titles 10 years ago, and the market has moved in our direction as it's become more complex to deliver big titles and more difficult and more time consuming to create a plus quality, which is what the market demands. Our cadence isn't expected to change. And in certain instances, we hope that time in between releases will actually decrease. I don't expect at the time in between releases will increase.
The next question comes from the line of Ray Stochel with Consumer Edge Research. Please go ahead with your questions.
Good morning. Thanks for taking the question. I guess this is going off of the last subject, but do you have any update on the digital strategy for Red Dead Redemption 2?
Yeah. We've said that there will be an online component, and we'll leave the rest of that discussion to rock star games.
Got it. And then, quick bigger picture follow-up. How are you thinking now about your PC distribution strategy as you grow and increasingly become more relevant in the market? What are the pro cons of owning your own platform?
Well, we do have our own platform. We consumers can buy directly from our store and that's it's a small part of our business. In general, it's our view that consumers want to go to a place where they can buy multiplicity of titles and the notion of only being able to buy one company's title isn't really the way entertainment is typically consumed. We're quite happy to share with our distribution partners. It's the nature of the entertainment business.
And our strategy as opposed to trying to grab all the margin and distribute directly is try to be a really great and trusted partner to every possible storefront on earth. We've always taken the view that we want to be wherever the consumer is And, you know, the economics of our physical business include sharing. The economics of our digital business include sharing. We'd love, of course, to increase the percentage that we keep, who wouldn't. But the most important thing, economically speaking, are the dollars that we generate and we believe that the widest possible distribution is the way to do that.
So we know a couple of our competitors have tried really hard to focus entirely on direct distribution. Certainly, the, there are elements of the free to play mobile business that can look a lot like that, but there sharing is always someone you have to share with there. So again, we focus less on what percent we have to share in order to get distribution and more on the dollars that we generate
That's great. Thanks. Thank you. Our next question is from the line of Ben Schachter with Macquarie. Please go ahead with your questions.
Hi. I have a few, quick modeling questions for Lenny and then one for Strauss lady. Can you help us with, the change in deferred revenues for FY19? And, also, what what's the tax rate we should be using for 18 and 19? And then, also, in the initial guide for FY19, what's the relative size of Red Dead versus the 2 K game discussed in the press release?
And then Strauss, can you discuss Rockstar's capacity to work on more than 2 franchises at one time. You know, we obviously know they're working on Red Dead and continue on GTA. Do they have enough resources to be working on other titles at the same time? Thanks.
So for the change in deferred revenue for 2019, we haven't given out any additional details on 2019. Other than what we expect in terms of net sales and the cash from operations. And for our tax rate for 2018, we're using 22%. For our management reporting. And for 2019, again, we weren't giving any information than what we've given already.
And in terms, Ben, of Rockstar's capacity, yes, Rockstar and 2K both have the capacity to work on a multiplicity of projects. There's a attention, of course, in that as we and we've shown an ability and a willingness to hire plenty of creative talent, the the growth in our headcount over the past 10 years is largely in creative headcount. There is attention in finding the best talent in the business. We've made no bones about that. It's true for our competitors as well.
We're only looking for the best and the brightest. That said, both 2K and Rockstar have the ability to work on a multiplicity of projects simultaneously. And the question for both of them is, how do you direct your resources on the one hand to supporting something that's working mightily now and on the other hand, to something that will we hope work mightily in the future. And that's a decision that is a challenging and complex one that one makes with, limited information at every entertainment enterprise. But resources aren't our issue and, ambition isn't our issue.
Probably, you know, to the extent we have a problem, it's a high class problem. We have 11 extraordinary franchises that have each sold over 5,000,000 units in an individual release. We have something like 55 that have sold at least 2,000,000 in individual release That's pretty different state of play than just a few years ago at this enterprise. We think we have the best collection of owned intellectual property in the business And basically our business is exploding in every area, whether that's sports, entertainment, whether that's free to play, whether that's mobile or whether that's GTA online, whether that's a sale of GTA5 itself, nearing 80,000,000 units and the list goes on. So the question for us is always, how do we reach a new height.
And that's what we're focused on at 2 K, that's what we're focused on at Rockstar. And certainly, that's what we're focused on at Social Point. And finally, at take 2.
Great. And, Krause, if I could just speak one more in, can you remind us how you think about fast fashion terms? One times of dividends, buybacks, you know, just in general, your your philosophy on on what to do with excess cash. Thanks.
Yeah. Thanks. I guess it is a natural question when we when we talked about what fiscal, 18 looks like generating about a 100 $50,000,000 of cash flow from operations in fiscal 2019 where the initial outlook sitting here today is $700,000,000 of cash flow from operations. So it's a fair question since we just reported of $1,400,000,000 in cash, and we just spent $250,000,000 on an acquisition a few months ago. I observed these are high class problems.
We've said over time that there are 3, areas in which to deploy capital. The first is to support organic growth this company's story has largely been an organic growth story. And we now have the ability to take measured risk when we believe there's a great opportunity for return. And that's has really worked out very well for us. 2nd, we've said we are now in a position seriously to consider accretive inorganic opportunities.
And we're acting, accordingly with the acquisition of Social Point. And I think our view is many more opportunities will present themselves. What's our lens? We're highly disciplined strategically. We're highly disciplined economically.
We said we would do deals when they're accretive Social Point is immediately accretive to cash flow from operations and soon will be accretive to actually revenues and earnings. And we look through that lens. We're not interested in buying the sky. We're not interested in, talking about strategy and overpaying for something. We're certainly not interested in buying a money losing enterprise.
Finally, we've shown a willingness to return a capital to our shareholders we'll do buybacks when we can execute them to keep value in our view and in any scholarly view of merit the only time it ever makes sense for an organization to do a buyback. We've done 2, both at deep value and with hindsight. And of course, we didn't have hindsight when we made the decision. And we would contemplate other forms of returning cash to the shareholders. Right now, we still have a convertible bond that we have to take care of.
That'll clean up our balance sheet and leave us entirely debt free. And so these are issues that we will continue to contemplate going forward. But that's how we look at the world. Specifically, just for transparency, hard for me to believe that a one time dividend will make sense.
Thank you. Our next question is from the line of Steven Xu of Credit Suisse. Please proceed with your question.
Hi, guys. Chris on for Steven. I'm curious about the launch window for Red Dead. Is there something about this game that you feel would make it better for a summer launch versus in the winter and kind of how your expectations have changed since we last talked.
Yes. Yes. For a title like this, I don't think the launch window really matters. And obviously, red dead redemption went out in May and was an extraordinarily successful title. Consumers are consuming entertainment year round.
Now they don't stop in the summer months. And, you know, we believe that if you give people an extraordinary experience, they will show up for it. Okay. Thank you.
Thank you. I will now turn the floor back to management for closing remarks.
We just want to thank everyone for joining us today. Obviously, we have a lot going on here. Really pleased to report the results that are meaningfully ahead of our initial expectations. We're looking forward to a fiscal year that despite a rather light frontline release schedule, looks incredibly sound economically. And naturally, we're all super excited about our upcoming release schedule and what that'll bring in fiscal 2019 and in the years beyond.
Thank you so much for joining us today.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.