Greetings. Welcome to the Take-Two Interactive Software third quarter fiscal year 2016 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please push star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications for Take-Two Interactive. Thank you, Mr. Diamond. You may begin.
Good afternoon. Welcome. Thank you for joining Take-Two's conference call to discuss its results for the third quarter of fiscal year 2016, ended December 31st, 2015. 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 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 31st, 2015, and Form 10-Q for the fiscal quarter ended September 30th, 2015, 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 non-GAAP. Please refer to our earnings release for a GAAP to non-GAAP reconciliation and further explanation. Our earnings release and filings with the SEC may be obtained from our website at www.take2games.com. Now I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon. Thank you for joining us today. Over the past few years, we've seen demand for Take-Two's core offerings steadily accelerate, enabling our company repeatedly to exceed expectations. Today, I'm pleased to report another quarter of better than expected revenue and earnings, which reflect immense consumer appetite for our products throughout the holiday season. Our strong earnings converted into significant cash flow, and as of December 31st, we had over $1.2 billion in cash and short-term investments. The largest contributors to our outstanding results were Grand Theft Auto V, NBA 2K16, and WWE 2K16, along with record revenue from recurrent consumer spending. Grand Theft Auto V and Grand Theft Auto Online continue to captivate new audiences and have exceeded our expectations in every period since launch. Grand Theft Auto V has now sold in over 60 million units worldwide.
In addition, consumers remain highly engaged with the vast open world of Grand Theft Auto Online, which achieved its best week ever for both revenues and active players during this holiday season, more than two years after launch. In the third quarter, the game was not only the single largest contributor to recurrent consumer spending, it also generated its highest revenue ever. Rockstar Games has driven sustained engagement with Grand Theft Auto Online by delighting audiences through the ongoing release of free additional content and regular in-game events. During the holiday season, Rockstar Games supported Grand Theft Auto Online with a rich array of updates, including Festive Surprise 2015, Executives and Other Criminals, Lowriders, and Halloween Surprise, all of which were key contributors to the game's record results.
Rockstar Games has continued to add new content in the current quarter with an update on January 28th that featured the new Drop Zone adversary mode, two new high-end vehicles, and additional improvements. As a result of its continued outperformance, we're now forecasting that revenues from Grand Theft Auto Online will be up year-over-year in fiscal 2016. NBA 2K16 is poised to become the most successful release in the history of our industry-leading basketball series. To date, the title's sold in more than six million units, which is up double digits versus the same period last year and has exceeded our expectations. Revenues and profits from NBA 2K16 have grown at an even higher rate as we continue to drive increased player engagement along with rising sales of virtual currency.
During the third quarter, recurrent consumer spending on NBA 2K grew 72% year-over-year, driven both by online play and the MyNBA2K companion app. These strong engagement trends have continued in the fourth quarter, with concurrent and daily active users both hitting new all-time highs for the series in January. In addition, we're seeing expanding interest in NBA 2K from mobile gamers, with sales of NBA 2K16 for iOS and Android up more than 60% versus last year's release. The NBA 2K experience has expanded well beyond being a traditional sports simulation, and that evolution has been an important driver of the series' growth. Through features like the MyCAREER mode, NBA 2K has become a true sports role-playing game that incorporates deep storylines infused with pop culture and music.
In recent years, icons such as Spike Lee, Jay-Z, and Pharrell have contributed to the game and helped broaden its mass appeal. WWE 2K16 has continued to build on its successful October 27th launch, achieving significantly improved review scores and sales growth versus last year's release. In addition, we've driven increased recurrent consumer spending on the title through the popularity of downloadable add-on content offerings, including the Season Pass. We believe a significant opportunity remains to grow to the WWE 2K series further by leveraging the development and marketing expertise of Visual Concepts in 2K, who are responsible for the incredible success of NBA 2K. We recently announced the long-term extension of our thriving partnership with WWE and look forward to many more years of collaboration and growth. A variety of other titles from our diverse portfolio also contributed to our third quarter success.
On October 9th, 2K launched the massive expansion pack, Sid Meier's Civilization: Beyond Earth – Rising Tide, which earned rave reviews from top critics and enriched our iconic PC strategy series that has sold in nearly 33 million units. We also continue to expand our offerings for mobile devices, highlighted by the release of Grand Theft Auto: Liberty City Stories for iOS. Over the past few years, we've been able to generate meaningful high-margin revenues by bringing many of our older Grand Theft Auto and other catalog titles to mobile platforms and to newer generation consoles. For example, the updated versions of the PlayStation 2, Xbox, and PC classic Grand Theft Auto: San Andreas that we released for PlayStation 3 and Xbox 360 alone have sold in more than three and a half million units.
Grand Theft Auto: The Trilogy was recently brought to PlayStation 4 through the release of select PlayStation 2 titles on the PlayStation Network. Our ability to expand audiences for our titles years after their original launches underscores the enduring appeal of quality entertainment and the durability of our brands. We continue to benefit greatly from our industry's ongoing transition to digital distribution. During the third quarter, digitally delivered revenue exceeded our expectations and accounted for $213.6 million, or 44% of our total net revenue. Most importantly, recurrent consumer spending grew 45% year-over-year to its highest level ever and accounted for 24% of our total net revenue. In addition to virtual currency for Grand Theft Auto Online and NBA 2K, recurrent consumer spending was enhanced by a variety of offerings.
These included add-on content led by Civilization: Beyond Earth – Rising Tide, along with downloadable offerings for WWE 2K16, the Borderlands series, and Evolve, WWE SuperCard, which has been downloaded more than nine million times, and NBA 2K Online, which in late December achieved record peak concurrent users of nearly 1.4 million and remains the number one PC online sports title in China. Driving engagement and recurrent consumer spending is a key strategic priority of our organization and one of our company's most significant growth opportunities. As a result of our outperformance in the third quarter and solid forecast for the balance of the year, we're once again able to raise our financial outlook. Fiscal 2016 is poised to be another year of strong profits for Take-Two, underscoring the successful transformation of our company into a consistently performing higher margin enterprise.
Looking ahead, Take-Two has an extensive development pipeline and is better positioned than ever to deliver revenue growth, margin expansion, and returns for our shareholders over the long term. The foundation for our continued success remains our world-class creative teams and their tireless commitment to delivering the highest quality entertainment experiences, coupled with our strict focus on operational excellence. Our strong balance sheet provides our company with the flexibility to explore opportunities to increase our scale and diversify our business. I'll now turn the call over to Karl.
Thanks, Strauss. I'd like to begin by discussing our recent releases and pipeline for the remainder of fiscal 2016. In December, 2K expanded its initiatives in Asia with the commercial launch of Civilization Online, our free-to-play massively multiplayer online game, which was developed in partnership with renowned South Korean studio XLGAMES. In addition to Korea, we have plans to bring Civilization Online to Taiwan, Hong Kong, Macau, and China through our publishing partnerships with GamersFirst and Qihoo 360. This Friday, 2K will launch XCOM 2 for PC, the sequel to the 2012 Game of the Year award-winning strategy title, XCOM: Enemy Unknown. Developed by Firaxis Games, XCOM 2 features deep replayability and a high level of modding support. Early review scores for XCOM 2 have been outstanding, with Game Informer, GameSpot, and IGN each scoring the title in the 90s.
According to IGN, quote, "XCOM 2 is an amazing game," while Game Informer called it, quote, "One of the deepest and most rewarding strategy games on the market." I'd like to congratulate the teams at 2K and Firaxis Games for once again delivering a stellar title and expanding this beloved series for our company. Earlier this week, 2K announced a new esports program featuring NBA 2K16. Beginning on February 15th, players on PlayStation 4 and Xbox One can form their own teams and compete in a series of in-game events to qualify for the tournament to win a $250,000 grand prize and a trip to the NBA Finals. The qualifying events will be featured on 2KTV, followed by playoff and championship broadcasts on Twitch for audiences to enjoy.
We're thrilled to bring our flagship sports brand to the emerging world of esports by offering this unique opportunity to our series' most dedicated fans. I'll now turn to the new releases that we've announced to date for fiscal 2017. Anticipation continues to build for 2K's May 3rd launch of Battleborn, the new first-person hero shooter from Gearbox Software, the creators of Borderlands. This groundbreaking game features 25 unique characters, each with distinct weapons and skills, who fight for the dominance of their respective factions as all life in the universe teeters on the brink of extinction. Battleborn will include a story mode with a heroic narrative campaign, which can be enjoyed cooperatively or as a single-player experience, as well as three different competitive five-on-five multiplayer modes full of intense team-based action.
Prior to its launch, Battleborn will have an open beta across all platforms to which PlayStation 4 owners will receive early access. The title will be prominently displayed at PAX East in Boston, held from April 22nd through the 24th, where attendees can experience the game hands-on. Those consumers who can't make it to PAX will still be able to enjoy all of the action at 2K's booth via live streams from some of our industry's most popular broadcasters. Substantial buzz is building for Mafia III, the next installment in our successful organized crime series, which is currently in development at 2K's Hangar 13 and planned for launch during calendar 2016.
Situated in a reimagined New Orleans setting circa 1968, Mafia III features a new playable protagonist, Lincoln Clay, who is an African American Vietnam vet determined to take revenge on the Italian mob for betraying and murdering his cronies. Mafia III promises to take the series in a bold new direction by combining the best of cinematic storytelling with a dynamic open world that responds to player choice. 2K and Hangar 13 will reveal more details about this exciting new title in the coming months. Our robust long-term development pipeline also features numerous unannounced projects, including offerings from our renowned franchises and new intellectual properties that will complement our diverse portfolio. In keeping with our strategy to promote consumer engagement with our brands, we will continue to support virtually all of our recent and upcoming titles with innovative offerings designed to drive recurrent consumer spending.
We remain highly focused on our creative vision to captivate consumers by delivering the most immersive and engaging entertainment experiences wherever and however they choose to play. I'll now turn the call over to Lainie.
Thanks, Karl, good afternoon, everyone. Today, I'll review our results for the fiscal third quarter then discuss our outlook for the fourth quarter and fiscal year 2016. All of the numbers I'll be providing today are non-GAAP and all comparisons are year-over-year, unless otherwise stated. Our press release provides a reconciliation of our GAAP to non-GAAP measurements, on our website, we have provided additional details regarding the non-GAAP components of our cost of goods sold and operating expenses. Starting with our results for the fiscal third quarter, net revenue was $486.8 million as compared to $954 million in last year's third quarter, which had benefited from a more extensive release slate. This result exceeded our outlook range of $400 million-$410 million due primarily to stronger-than-expected revenues from Grand Theft Auto V and Grand Theft Auto Online. In addition, NBA 2K16 exceeded our expectations.
Digitally delivered revenue was $213.6 million accounted for 44% of our total net revenue. 64% of digitally delivered revenue was derived from recurrent consumer spending, which increased 45% year-over-year. The largest contributors to digitally delivered revenue were Grand Theft Auto, NBA 2K, and WWE 2K. Catalog sales accounted for $235.3 million of net revenue, led by Grand Theft Auto and Borderlands. Gross margin decreased slightly to 44.8%. Operating expenses were $129.8 million, down by $37 million, due primarily to higher marketing expenses in last year's third quarter from the launch of Grand Theft Auto V for PlayStation 4 and Xbox One. Interest and other expense was $2.1 million. We recorded a tax benefit of $13.4 million, which included $32 million in tax benefits related to video game development costs. These benefits were $12 million higher than we had forecasted.
Non-GAAP net income was $99.7 million, or $0.89 per share, as compared to $211.6 million, or $1.87 per share in the prior year's third quarter. This result exceeded our outlook range of $0.40 to $0.50 per share due to our strong business performance, coupled with the higher-than-forecasted tax benefit and lower-than-expected research and development expense. On a GAAP basis, we reported net revenue of $414.2 million and a net loss of $42.4 million, or $0.51 per share. GAAP net loss was negatively impacted by $71.2 million of business reorganization charges due to the reorganizing of one development studio and the closing of two development studios, which were partially offset by $25 million in tax benefits. Turning to some key items from our balance sheet as of December 31st, 2015, as compared to September 30th, 2015. Our cash and short-term investment balance increased to $1.21 billion.
This equates to net cash of $10.66 per share, which includes the potential dilution from our convertible notes. Our accounts receivable balance increased to $263.7 million, and inventory decreased to $20.2 million due to holiday sales. Software development costs and licenses increased to $381.9 million, reflecting the development efforts around our pipeline of upcoming releases. Now I will review our financial outlook for the fourth quarter and fiscal year 2016, which is provided on a non-GAAP basis. Starting with the fourth quarter, we expect net revenue to range from $260 million-$310 million, and net income to range from $0.15-$0.25 per share. Revenue is expected to be driven primarily by Grand Theft Auto V and Grand Theft Auto Online, NBA 2K16, and XCOM 2. We expect gross margins from low to mid-50s.
Total operating expenses are expected to decrease by approximately 4%, due primarily to lower marketing expense. Selling and marketing expense is expected to be about 15% of net revenue based on the midpoint of our outlook range. We project interest in other expense of approximately $2 million and weighted average fully diluted shares of approximately 114 million. Our effective tax rate is expected to be 17%, including $2 million in benefits related to video game development costs. Interest on the convertible notes, net of tax, is $1.4 million, which should be added back to net income to calculate net income per share. We expect to generate modest cash flow in the fourth quarter. Turning to the full year, we are raising our financial outlook to reflect a better-than-expected third quarter results and strong forecast for the balance of the fiscal year.
We now expect to deliver net revenue of $1.48 billion-$1.53 billion and net income of $1.65-$1.75 per share. We expect the revenue breakdown from our labels to be roughly 50% 2K and 50% Rockstar Games. We expect our geographic revenue split to be about 55% United States and 45% international. We expect growth margins in the upper 40s. Total operating expenses are expected to be flat. Selling and marketing expense is expected to be about 13% of net revenue based on the midpoint of our outlook range. We project interest in other expense of approximately $8 million and weighted average fully diluted shares of approximately 114 million. Our effective tax rate is expected to be 10%, including $34 million of benefits related to video game development costs in the second half of the year.
Interest on the convertible notes, net of tax, is $5.5 million, which should be added back to net income to calculate net income per share. As a result of our consistent execution over the last three quarters, fiscal 2016 is poised to be another strong year for Take-Two. Our ability to balance our creative team's passions with a disciplined focus on profitability continues to enhance our results and bolster our foundation for long-term success. Thank you. Now I'll turn the call back to Strauss.
Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering another strong quarter for our company. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?
Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please push star one on your telephone keypad now. A confirmation tone will indicate your line is in the question queue. You may push star two if you would like to remove your question from the queue. For any participant using speaker equipment, it may be necessary to pick up your handset before pushing the star key. One moment while we pull for questions. Our first question comes from the line of Arvind Bhatia from Sterne Agee. Please go ahead.
Thank you very much. Congratulations, guys, on a very solid quarter. I have a couple of questions. First one's just more housekeeping for Lainie. Just trying to get to an apples-to-apples EPS number. I know based on emails, a lot of people are trying to do that. If you can just maybe parse out the tax benefit at the EPS level and just maybe give us an apples-to-apples versus your $0.40-$0.50. Secondly, obviously very strong. You mentioned the strongest recurrent spending quarter for you in your history, and you mentioned some numbers on GTA or generally mentioned GTA. Is there any way to think about the year-on-year growth on GTA Online, kind of like the way you talked about NBA? Those are my two questions. Thank you.
For the first question, Arvind, on the tax credit in the third quarter, we recorded $12 million higher than what we had forecast, that's about $0.11 of the beat for the quarter.
Arvind, it's Strauss. On the second question, what we've said, and obviously it's great news, is that the holiday season brought us the highest revenues yet on Grand Theft Auto Online, and we have the highest level of engagement in terms of number of active users. Beyond that, we're not going into more detail on metrics, but it is good news.
Got it. Let me just try a slightly different one. On digital downloads, are you guys able to share what you're seeing on average percentages for your key titles? Some companies have talked about 20%-30% of the mix coming from digital downloads. Can you guys share some of that with us?
Yeah. For consoles, frontline is around 20% digital distribution. It can be higher depending on the title. This past quarter, it looked to be about 20%. For PC titles, it's 90% plus is digitally distributed.
Great. Thank you so much, and good luck.
Thank you. Our next question comes from the line of Eric Handler from MKM Partners. Please go ahead.
Yes, thanks for taking my question. First, looking at esports, now that you're getting involved with esports with NBA, have you thought about how you can maybe transition this from being more of a marketing tool to a revenue-generating tool? Can you also apply some of those esports activities maybe with GTA Online and, I don't know, gangs versus gangs or what, but I'm sure you have people that are smart enough to figure that out. Is that something that's being considered with GTA? Secondly, for Lainie, just a little housekeeping question. Can you talk about maybe which of those studios you are shuttering with the business reorganization? Does this streamline anything? How does this impact the financials going forward?
Thanks, Eric. It's Karl. I'll take the esports question. In terms of the esports question, you got it right. So far, we see it really as a great marketing tool, and it's an additional way to gain exposure for our games and to expand our audience. That really has been and continues to be our primary focus at this point. Obviously, there is an economy out there. There's been some information in the press talking about how big the economy is. I think the jury is still out at this point. It remains to be seen whether or not it would be a real direct generator of revenues for our company. Rest assured, we are certainly looking at it.
I think that the announcement that 2K just made around our NBA tournament, while it's not what I expect it to be an enormous contributor to our economics, it certainly is making us think more and more what the opportunity economically might be for the company. Stay tuned.
Eric, in terms of the studios, all we're saying is that it was a reorganization of a development studio and closing of two studios in China. The costs that are in this quarter are the majority of the cost, but there could be about $8 million more to go forward.
Obviously, there are ongoing savings once we're through the one-time costs.
Thank you. Our next question comes from the line of Brian Fitzgerald from Jefferies. Please go ahead.
Thanks, guys. Strauss, maybe on the digital downloads again, in terms of the percentage of units that are downloaded digitally, does that plateau at a certain level? Do you see consoles eventually reaching that 90% that are on PC? Maybe during the holiday season, do you see some shift to physical as people are gifting before it starts ratcheting back up? Maybe a little more color there would be great. Thanks.
Yeah. Thanks for the question. We are believers that digital distribution will continue to grow. That's been true ever since digital distribution began. It's been true for every other media business. We're pretty sure it'll be true for us. Hard for us to project what the percentage will be or the time will be. It's worth emphasizing that physical distribution still is the lion's share of our console business and a very important distribution channel for us, and we expect that to remain the case for some time. As we transition to digital, we do enjoy higher margin percentages, and we enjoy higher margin dollars. It's a good thing, we're certainly happy about it. Remember, we meet the consumer where the consumer is. We can't tell the consumer where to go.
Our job is to be where the consumer is, and we're ecumenical about types of distribution, business models, channels, and even territories. I'm sorry, I think I lost your second question.
Oh, the second one was just specifically around the Q4, and you have the holiday season.
Oh, right
a shift to physical as people are gifting, and then it starts ratcheting back towards digital?
I'm not sure we have seen that, actually. I suppose it's possible intuitively, but we haven't seen it.
Great. Thanks.
Thank you. Our next question comes from the line of Ben Schachter from Macquarie. Please go ahead.
Hey, guys. Congratulations on another good quarter. A few questions. One, on the pipeline. In the past, I believe you said that you try to have at least one new AAA title annually. Is that something that we should still consider likely for Take-Two? Second question, at a high level, Strauss, given your media background, how are the catalog and IP values evolving for the game industry versus what you've seen in the past for some other media? Finally, my favorite subject, VR. I know it's early, but have you seen anything over the past few months that makes you more or less bullish on VR's potential for games and Take-Two in the future? Thanks.
Yeah. On average, we have indeed been able to launch one new successful IP since 2007. Today we have 11 franchises that have each sold at least five million units with an individual release and 45 that have sold several million units for an individual release. The strategy seems to be working. The next new intellectual property that we're launching is "Battleborn." We have very high hopes for it. That's obviously in the next fiscal year in this calendar year. We remain on track. We'll see how it all pencils out, but it feels good. In terms of catalog, I think this is a point that's near and dear to my heart. We've talked about this, actually.
The notion that successful, reliable entertainment businesses are businesses in which the catalog or library can be accounted for year in, year out to deliver a certain amount of revenue. Historically, the change in the technology for interactive entertainment meant that most companies didn't expect catalog to amount to much. In this last quarter, for example, for us, catalog is 48% of our non-GAAP net revenue. Clearly, catalog really matters to us. I think it does matter to us disproportionately because we seem to have the highest unit per SKU count sales for catalog in the industry. I think that is driven by quality. For great, reliable media businesses, catalog or library can be well over 50% of revenue period in, period out, even with strong frontline releases.
I do think that's something that one can aspire to in our business with a couple of key caveats. First of all, obviously, you have to continue to deliver quality. Secondly, we have to begin to see sort of a technological asymptote being reached on the hardware side. Very difficult for us to call the latter, very important for us to focus on the former. In terms of virtual reality, let's put personal opinions to the side. It's our job to be at the front lines of everything that goes on in the industry. We've made no secret of the fact that we're doing some investigation and some R&D. We don't have much more to say about that because our labels talk about the release schedules, and we try not to do that here.
Of course, there is no real commercialized hardware in the market yet. Will there be? Unquestionably. Will it be an interesting platform for interactive entertainment? Challenges notwithstanding, I think most people feel it will be. Our personal opinions aren't really relevant. The key thing is that to the extent VR platforms become interesting and an important part of the interactive entertainment business, we'll be there because we're always there for consumers. I have zero doubt we'll be able to be there and be there in a competitive way. It is early and perhaps irrelevant for me to state an opinion on how it's going to go.
Good luck.
Thank you. Our next question comes from the line of Neil Doshi from Mizuho. Please go ahead.
Great. Thanks, guys. Congrats on the quarter again. Strauss, can you talk a little bit about the engagement on GTA Online? Is it fairly constant or does it kind of ebb and flow with the release of content? Secondly, any thoughts around DLC for GTA, given the success that you've been having with online? Does it necessarily even make sense to launch standalone DLC? Thanks.
Undoubtedly, engagement ebbs and flows with the nature of the content. When we do release new content for GTA Online, we do see enhanced engagement. Virtual currency sales will reflect that enhanced engagement. The approach of our company broadly remains delight consumers first. If you do that over and over again, if you delight them, if you engage them, if you think about delivering a great experience, then the monetization, the revenues, the profitability won't be far behind. What we don't do at our company, it's terribly important not to, is focus on monetization leading to data, leading to content. We don't do it that way. We really do it the other way around. I think that that's the nature of any true entertainment company. You have to focus on the experience of engaging with and entertaining your consumers.
Frankly, that's what's most exciting about GTA Online. Yes, it's great to talk about the numbers. That's what we do in this call. Remember, those numbers are driven by record levels of consumer engagement over two years after the initial launch of the title. That's a sea change for us. It's a sea change for the industry. It bodes very well for the future. As far as content, I can talk about what we've done so far. We've put out this free content I just described for GTA Online. It's driven great engagement, it's driven great results. It continues to astonish us in a positive way. Anything else that comes for the game will be announced by the label in due time.
Thank you. Our next question comes from the line of Mike Hickey from The Benchmark Company. Please go ahead.
Hey, guys, great quarter. Thanks for taking my questions. Sort of curious on the recent leadership turnover from Rockstar North, if you could provide some color on Leslie's departure. If you could speak maybe to the relative stability of other Rockstar leadership, mainly Sam and Dan, perhaps the broader Rockstar developer base, that'd be helpful. Thank you.
Thanks, Mike. We're really proud of the team approach that we have here at our company, and we have a very broad and deep team. I can confirm that Leslie Benzies went on sabbatical in September of 2014. He's decided not to return to Rockstar Games. Since that time, Rockstar North is and will continue to be under the leadership of Aaron Garbut and Rob Nelson. We're so proud of the deep and broad pool of creative talent. It's our job to move ahead day and night without ever missing a beat, and that's what we're doing. In terms of our colleagues here at every level, we enjoy long-standing relationships with all the people who make this organization tick. We aim to be the best place in the business to work at.
We are imperfect, of course, and I'm especially imperfect, but our track record speaks for itself, and we have extraordinarily long-term relationships, and I'm highly confident that they will continue.
Thanks, Strauss. One quick follow-up. This may be hard to answer, but are you aware if Leslie plans to continue developing games? I guess the presumed risk would be him potentially drawing out other Rockstar devs from your North studio. Thank you.
listen, I have all the respect in the world for Leslie and for everyone else here, both current and former colleagues, and of course, I wish him all the best. I can't comment on his plans.
Thanks, guys.
Thank you. Our next question comes from the line of Justin Post from Merrill Lynch. Please go ahead.
Thank you. Strauss, a couple questions. I think earlier this year you commented this was kind of a light release schedule for Take-Two this year. Congrats on earnings above $1.50. Could you comment at all about the pipeline over the next few years, how robust it is? Are you still hoping to get one new Rockstar title out a year? Any thoughts there would be helpful. Just what drove, do you think, the NBA 2K growth year-over-year? Thank you.
We are excited about the pipeline. We've made some announcements, of course, about upcoming titles. We talked a bit about XCOM 2, which is coming very soon and has gotten great reviews so far. We're really excited about that. That's coming from Firaxis. We have Battleborn coming in May, which will have powerful single-player and multiplayer approach. This comes to the market from Gearbox, the people who brought us Borderlands, and they're immensely talented folks, and we have high hopes. We've talked about Mafia III coming in calendar 2016. Of course, we have basketball and wrestling in our catalog. We have NBA 2K Online in China. We've launched Civilization Online in Korea. We have GTA Online ongoing and performing super well, and we have our catalog. The good news is we have a backdrop at this company against which to populate additional titles.
We have not announced our full release schedule. We have not talked about the year after next. What we have been willing to say, though, is we have an enterprise now, which is solid, well-financed, highly creative, stable, and rational, and that enterprise is yielding great results year in, year out, results that generate high revenues, blazing trails in digital distribution and recurring consumer spending, high profitability, and strong cash conversion. We have over $1.2 billion in cash because of the way we account for our convert. We have no debt in that context. You have to give that background. I know the market would love it if we would talk about titles coming up the next couple of years, but we make our announcements in an effort to market our titles most effectively, and that's proven to be a sound strategy.
One of the things that I do like saying is, "Don't look at what I say. Look at what I do. I'm likely to do that again." We've described our strategy over and over again. It's to be the most creative, the most efficient, and the most innovative company in the business. It's to deliver a limited number of the highest quality releases from both of our labels year in, year out, and it's to annualize our sports and our sports entertainment titles, but not to annualize our action and adventure and other titles. That's a strategy we're pursuing, and it's yielded not only great hits from our franchises, but great new hits every year since 2007. I can't guarantee it'll keep happening, but certainly, that's what we're aiming towards.
We're doing that while we build these new businesses, these businesses that are free to play, these businesses that take place in Asia, these businesses that are massive multiplayer businesses. That's as much as I can say about the pipeline. As you can tell from my voice, we're super excited about it. Specifically, with regard to any of the labels, they'll talk about their own plans. What Rockstar has been able to achieve with GTA Online, which if you did look at a standalone basis, you'd say, "My, that's an incredibly extraordinary, powerful, and profitable release." Again, more than two years after the release, well, that's something to be very proud of indeed.
Okay, maybe one follow-up, from a 2K perspective. How much lead time do you need for the press and retail to formally announce a title before launch? Do you think about four months, six months, or longer? Thanks.
Historically, it's been somewhere between four and nine months, depending on the label and the release. By the way, I know I skipped over your basketball question. I didn't mean to. I guess at the risk of sounding over-promotional, which really isn't my style. We sold in over six million units. This is the industry-leading title, the team of Visual Concepts have done an amazing job. The scores are up again this year. We tend to be people who the question we like to pose most frequently is, what are we missing? What can we do better? I promise you, the team Visual Concepts and 2K will only try to make that title better and better, and if we succeed, it'll continue to perform. That's also reflected in recurring consumer spending for the title. Our sale of virtual currency is up 72% year-over-year.
Again, since we're not organized around those percentages, they're a reflection of what we're doing. I think it's a reflection specifically of just how much consumers love the title.
Great. Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please push star one. Our next question comes from the line of Doug Creutz from Cowen and Company. Please go ahead.
Yeah, thanks. Obviously, this business has changed a lot over the last few years in the sense that when a studio works on a game, when it ships, they're not done, that there's a lot more content that can be made, that can be sold to consumers, and you've had a lot of success with that with Grand Theft Auto Online. When you think about resource allocation, how has your sort of philosophy towards that changed over the last few years in terms of what you want people working on, how to size the teams? In the past, you talked about wanting to invest internally in your business. Are you at a point where it makes sense to invest even more heavily in sort of ongoing live service teams so that you can maintain your ability to keep a steady pipeline?
Do you feel like you're in good shape in that regard? Thanks.
It's a really great question. I think if you take a look at our headcount, our investment has been in the development side. When we showed up here in 2007, I think we had about 1,100 people who were involved with development, and now it's about 2,000 people, maybe even a bit more. You should expect that to continue to grow. What we try to keep as modest as possible is fixed overhead that is not responsible for either creating intellectual property or exploiting that intellectual property. Some of our competitors made a good deal of noise around building service centers, data centers, call centers, and the like, and we'd like nothing more than to have none of that infrastructure here, although we do have some. You're right, we have had to build some expertise on the service side. I think we're proud of what we built.
Pound for pound, I'm quite certain we have a much leaner service team than any of our competitors, and we want to keep it that way. It means we have to be smarter, we have to innovate. We're pretty well allergic to fixed costs and to non-revenue-generating overhead.
Okay, thanks.
Thank you. Our next question comes from the line of Larry Haverty from GAMCO. Please go ahead.
Yeah. Hi, Strauss. First question on esports. If you look at it currently as marketing, could you give us perhaps dollars that are likely to go into this last year, this year and next year? I'm curious, you've got this alliance that you announced with folks in South Korea, and that is probably the most intense economy in the world for these kinds of activities. Could that partnership materialize into significant esports commerce in South Korea? Is that not even on the planning horizon?
Thanks, Larry. In terms of our financial commitment in the esports space, it's not significant at all at the moment. Doesn't mean it won't be in the future. In fact, it's been a net contributor because we were an investor in Twitch early on, and we had a great return on that investment. We bet very early on the space, and it worked out super well for us. No, this is not a meaningful commitment, and the risk is de minimis. Absolutely de minimis. That's how we like to do things, unless and until we're convinced that an economic opportunity exists. Our view in the business is since only we can exploit our intellectual property, we have the ability to be somewhat judicious as businesses are developing and then step in when there is an opportunity.
I think there could well be an opportunity for esports in Korea. It remains to be seen. It's a very active market, and we consider ourselves reasonably expert. We have a terrific partner there. We know the market well, and we have an on-the-ground presence. It's a little early to say.
For Lainie, because she's not getting enough activity yet. Is there any plan to make the convertible debt disappear from the balance sheet?
Oh, sure, Larry. For the convert, our 1.75% convertible notes mature in December, and to date, it hasn't made economic sense to take them out before the maturity date. We definitely are going to keep an eye on it as it gets closer to the maturity, and we have the option to settle it in either cash or stock. When we get closer to the date, we'll see what the best option is for us at that time.
That's December this year, right?
Yes, it's December of this year.
Okay, great. Thanks, Lainie.
Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.
Thank you, everyone, for joining us. We are thrilled with the results that we've just reported. We appreciate your engagement and support. Once again, to all of our colleagues, thank you for all the great work.
Thank you, ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.