Greetings, and welcome to the Take 2 Interactive Software First Quarter Fiscal Year 2015 Earnings Conference Call. At this time, all participants are in a listen only mode. 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 2 Interactive. 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 2015 ended June 30, 2014. Today's call will be led by Strauss Zelnick, Take 2's Chairman and Chief Executive Officer Carl Slados, our President and Lainie Goldstein, our Chief Financial Officer. The Q And 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 ended March 31, 2014. I'd also like to note that unless otherwise stated, all numbers we will 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 dotcom. And now, I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon, and thank you for joining us today. Take 2's fiscal year 2015 is off to a solid start with the first quarter marking our 8th consecutive period of better than spectrum results. I'm especially pleased to report that we're able to deliver non GAAP revenue growth without the benefit of any major new releases, driven by our expanding portfolio of digitally delivered offerings, continued growth in our NBA 2k franchise, and persistent demand for Grand Theft Auto V. NDA 2K14 continues to expand its global audience and has become our first Sports released across the 7,000,000 unit selling mark.
The title is captivated gamers on both current NextGen platform surpassing both FIFA and Madden as the 3rd highest unit selling title of any genre on PlayStation 4 and Xbox 1 in the United States. Over its past five releases, the NBA 2K franchise has grown at a compound annual rate of 25%, reflecting the consistent ability of 2K and visual concepts to raise the bar for excellence and build this series into one of our company's most important and durable franchises. Last September, Grand Theft Auto5 delivered the most successful launch in the history of entertainment, achieving $1,000,000,000 in retail sales in only 3 days. Nearly a year later, the title continues to attract new audiences in Xbox 360 and PlayStation 3 with worldwide cell announcing 34,000,000 units. Fans can look forward to Rockstar Games release of the PlayStation 4, Xbox 1, and PC versions this fall, which Carl will have more to share about shortly.
During the first quarter, digitally delivered revenue grew 43 percent year over year to $106,400,000. Nearly 90% of this growth came from recurrent consumer spending, which accounted for approximately 60% of our digitally delivered revenue during the period. The remainder came from full game downloads across console, recurrent consumer spending was virtual currency for Grand Theft Auto Online and an NBA 2K14. Grand Theft Auto Online continues to outperform our expectations and was once again the single largest contributor capture creator, High Life PAC, I'm not a hipster PAC and the limited time Independence Day special, which contributed to players' ongoing strong engagement with Grand Theft Auto Online. We're highly enthusiastic about the future of Grand Theft Auto Online, including its upcoming fall launch, on PlayStation 4, Xbox 1, MTC.
Recurrent consumer spending for NBA 2K also continued to grow during the this quarter, with revenues up 150 percent year over year. Online play, including multiplayer gaming, has become an important enhancement to most players' engagement with our industry leading basketball franchise. Downloadable add on content for our frontline titles is also a key contributor to recurrent consumer spending, During the first quarter, we broadened our offerings with the release of Borderlands 2 had under 5. Recurrent consumer spending was also enhanced by our free to play online games in Asia, In particular, NBA 2KL9, which we launched in partnership with Tencent in China, continues to deliver growth in revenues and player engagement. Gamers in Asia can also look forward to the commercial launch of civilization online, our massively multiplayer online game based on our success Sid Meier's Civilization franchise, which is being delivered being developed by MMO Design Luminary Jake Song and his team at XL Games in Korea.
Catalog sales accounted for nearly 55 percent or $82,700,000 of our first quarter revenue, led by the Grand Theft Auto Series, Borderlands 2, which is now sold in more than 10,000,000 units, Sid Meier's Civilization5, which is now sold in over 6,000,000 units and BioShock infinite which is now sold in nearly 7 million units. Our company continues to benefit from creating the highest quality titles but attract new audiences well after their initial launch. For the calendar year to date through June, Take 2 was the number 1 third party publisher United States in terms of catalog unit sales for SKU across Xbox 1, Xbox 360, PlayStation 4, and PlayStation 3. Take to a phenomenal success with this year's E3 show in Los Angeles, which featured the 1st reveal of Oxstar Game Grant Theft Auto V for PlayStation 4 and playable demos from 2 Ks extraordinary lineup. Our boots attracted thousands of attendees Day who waited hours to experience 2K's titles, which in total won more than 100 editorial awards and honors, Evolve won more than 50, including the coveted Best of Show Award.
We're incredibly proud of this achievement and believe that it bodes well for the title's February launch, which Carl will discuss shortly. I'd like to congratulate both Rockstar Games and 2K on their stellar performances at E3. Fiscal 2015 is poised to be another strong year of new AAA releases and innovative digitally delivered offerings. With 6 new titles we've announced to date, we've disclosed our complete frontline release schedule for the current fiscal year, there are no longer on announced titles assumed in our guidance. The outlook for our line up is stronger than ever, which coupled with our better than expected first quarter results and current business trends enables us to maintain our guidance for the full fiscal year.
Our ability to project these strong results illustrates how our company has been transformed into a diversified interactive entertainment enterprise with numerous successful franchise and meaningful profits from recurrent consumer spending. Looking beyond our positive momentum, the best creative talent in the business, the strongest portfolio of intellectual property, leading edge technology, and ample cash. We have numerous titles in development, including both groundbreaking new intellectual properties and offerings from our established franchises. As a result, we're well positioned deliver non GAAP profits every year for the foreseeable future and returns for our shareholders over the long term. I'll now turn the call over to Carl.
Thanks, Ralph.
Today, I'll provide an update on our steps will step on to the court to continue our NBA 2K franchises reign at the number one basketball game in our industry. NDA 2K15 promises once again to set new benchmarks for sports realism and gameplay on both current and net Jen Council, MPC. Oklahoma City Thunder superstar, 4 time NBA scoring champion, and 2014 NBA most valuable player, Kevin Durant, will make his solo debut as the game's cover athlete, and this year's release will include more teams and players from the Turkish Airlines Euroleague. In addition, an internationally renowned music artisan producer, Pharrell Williams will curate the most extensive and unique soundtrack compilation in NBA 2K franchise history. 2K and Ferrell unveiled the soundtrack later this summer.
On October 14th, 2 cable release borderlands, the pre sequel for Xbox 360, PlayStation 3, and PC. For the first time in the series, Borderlands of Pre Sequo will transport players to Pandora's moon, where they will experience intense, gravity bending gunfights using an array of all new weapons and loot co developed by Gearbox Software in 2K Australia. The title takes place in between the stories of the original Borderlands Borderlands 2 and will continue to franchise its tradition of innovative, cooperative multi player action. The Borderlands Universe has become of our company's most popular series and we're thrilled to provide fans with even more ways to experience its incredible gameplay. On October 24, 2K will build on the successful civilization franchise, which has entertained audiences for nearly a quarter of a century and sold in more than 25,000,000 its worldwide, with the release of Sid Meier's civilization beyond Earth for PC.
The title will feature the core and tactical elements for which the series is famous while propelling players beyond the traditional timeline of a civilization game by exploring humanity's future on the Alien world. Beyond Earth generated tremendous buzz at E3 winning more than 18 awards globally, including best strategy game honors from the E3 game critic Game and 4, former, ign, destructoid, and game revolution. On October 28th, 2 K's WWE franchise will make its next gen debut with the release of WWE 2 K15, which promises to take this series to new heights. 15 time WWE World Champion John Cena will be the cover athlete and Sting, one of wrestling's most beloved competitors will play a key role in the title pre order campaign. This fall, Rockstar Games will launch the blockbuster hit Grand Theft Auto 5 on PlayStation 4, Xbox 1, and PC.
Bringing across the board graphical and technical enhancements to the game's already breathtaking open world experience. The current community of players will have the ability to transfer the Grand Theft Auto Online characters and progression to their choice of either PlayStation 4, Xbox one or PC. All content and gameplay created for both Grand Theft Auto V and Grand Theft Auto Online will also be available to PlayStation 4, Xbox 1 and PC, with more to come. Rockstar Games will continue to support both Grand Theft Auto V and Grand Theft Auto Online new offerings throughout the year, including regular content drops and limited time event updates. The loss of Evolve coming from 2 K has been moved to February 10, 2015.
When we first acquired Evolve, we believe that Total Rock was creating something truly unique which was poised to redefine the shooting genre. Coming including its numerous awards speaks volumes about its potential in the market. We are encouraged by the overwhelmingly positive response from press and fans and believe that extending while enabling us to take advantage of a favorable release window. We very much appreciate consumers' anticipation for you both, and we're confident that they will be well rewarded when the game launches in February. Our robust development pipeline extends far beyond fiscal 2015.
We have numerous titles planned for the lease during fiscal 2016, such as 2Ks Battleborn, an all new intellectual property developed for NextGen and PC by GearBot Software the creative team behind our Borderlands franchise. Battle Born is a highly stylized blended genre game, which combines frenetic first person shooting, cooperative and an expansive collection of diverse characters to deliver a never before played hero shooter experience. The title was featured on the cover of the August issue of game in farmer, which provided an in-depth first look at the game. 2K will have more to share about Battleborne in the coming months. Next week, 2K will have a major presence at Gamescom, Europe's largest annual interactive entertainment event, which attracts more than 300,000 attendees, including media and consumers.
We will offer playable demos of NBA 2k15, WWE 2k15, Borderlands the pre sequel and Evolve. As well as private press and retail showings of Cision Minor Civilization Beyond Earth. Heading into this holiday season, we will fully leverage our worldwide marketing and distribution expertise to create must have moments at retail and also continue to complement our core titles innovative, digitally delivered offerings. Rockstar Games and 2 cable roll out campaign that span all forms of traditional and online media ushers in what we believe is one of our most diverse and strongest lineups ever. In closing, I'd like to join Strauss's thanking all of our colleagues around the world for their contributions and delivering a strong start to the year.
I'll now turn the call over to Laney.
Thanks, Carl, and good afternoon, everyone. Today, I'll review our results for the fiscal first quarter and then discuss our outlook for the fiscal second quarter full year 2015. All of the numbers I'll be providing today are non GAAP results from continuing operations and all comparisons are year over year unless otherwise stated. Our press release provides a reconciliation of our GAAP to non GAAP measurements. Starting with our results for the fiscal first quarter, net revenue increased 5 percent to $151,600,000, This exceeded our outlook range of $120,235,000,000 due primarily to the continued strong performance grant Theft Auto5 and Grand Theft Auto Online.
Digitally delivered revenue grew 43 percent to $106,400,000, the largest contributors with the Grand Theft Auto Series, the NBA 2K franchise and offerings for Borderlands 2. Approximately 3 60% was derived from recurrent consumer spending, including virtual currency, add on content, and online gains. Talowoc sales accounted for $82,700,000 in net revenue led by the Grand Theft Auto Series, Borderlands 2, Did Meyer, Civilization V and BioShock Infinite. Gross margin increased 22.7 percentage points to 58.1% due to the absence of $29,000,000 impairment of capitalized software development costs, which was recognized during the first quarter last year. Operating expenses were 95,800,000 dollars, up by $2,200,000 due to higher personnel expense and depreciation.
Interest and other expense was and non GAAP net loss narrowed to $11,200,000 or $0.14 per share as compared to a loss of $47,100,000 or $0.54 per share in fiscal first quarter 2014. This result was better than our projected loss of $0.25 to $0.35 per share. On a GAAP basis, we reported of $125,400,000 and a loss in continuing operations of $35,400,000 or $0.45 per share. Turning to some key items from our balance sheet at June 30, 2014, compared to March 31, 2014. Our cash and short term investments balance decreased to $841,400,000.
Our accounts receivable balance decreased to $43,200,000, primarily reflecting the collection of receivables from our fourth quarter and holiday sale. Inventory decreased to $23,100,000 due primarily to continued sales of Grand Theft Auto Fox. And software development costs and licenses increased to $265,600,000, reflecting the development efforts around our pipeline of upcoming releases. Now, I will review our financial outlook for the second quarter fiscal year 2015, which is provided on a non GAAP basis. Starting to the full year, we are reiterating our financial outlook, including non GAAP net revenue of 1,350,000,000 $1,450,000,000 and non GAAP net income per share of $0.80 to $1.05.
The majority of our revenue expected to come from new releases, including NBA 2k15, Grand Theft Auto V for PlayStation 4, Xbox 1, MPC, evolve wwe 2k15, Borderlands of Pre Seaport and Civilization Beyond Earth, and catalog sales led by the Grand Theft Auto Authority. We expect the revenue breakdown from our labels to be roughly 40% from Rockstar Games and 60% from 2K. We expect our geographic revenue split to be about 60% United States and 40% international. We expect gross margins in the mid-40s. Total operating expenses are expected to increase by approximately 4% driven primarily by rent for largest studio locations, personnel expense due to increased headcount and higher depreciation expense.
Selling and marketing expense is expected to be about 17% of net revenue based on the midpoint of our outlook range. And we project interest and other expense of approximately $9,000,000 tax expense of about $37,000,000 and weighted average fully diluted shares of approximately $14,000,000. And just on the convertible note, net of tax is approximately $7,400,000 which will be added to net income to calculate net income per share under the if converted method. As a result of working capital needs, We continue to expect our operations to use a modest amount of cash in fiscal 2015. However, we expect to generate cash from operations in fiscal 20 16 under the net cash flow positive over these 2 fiscal years.
Turning to the second quarter. We expect non GAAP net revenue to range from 95 $110,000,000 and non GAAP net loss per share to range from $0.60 to $0.70. Revenue in the 2nd quarter is to be driven by catalog sales, but by the Grand Theft Auto Series, NBA 2K14, and Borderlands 2. 2nd quarter gross margins in the low to mid only 27%, primarily due to lower marketing expense for Grand Theft Auto5 as compared to the second quarter last year. Selling and marketing expense is expected to be about 55 percent of net revenue based on the midpoint of our outlook range.
Our 2nd quarter outlook also reflects interest and other percent of approximately $2,000,000, a tax benefit of $2,000,000 and weighted average shares of approximately $80,000,000. Additional details about our financial outlook or in the press release reporting our first quarter results, which was issued shortly before this call. In closing, we are pleased that fiscal 2015 is off to a solid start. With better than expected first quarter results. Our industry leading creative and intellectual property assets coupled with an ample reserve of cash provide Take 2 with a strong foundation to continue to execute our proven strategy and deliver positive results, both this year and over the long term.
Thank you. And I'll turn the call back to Josh.
Thanks, Carl and Amy. On behalf of our entire management team, I'd like Thanks for their hard work to our shareholders. I'd like to express our appreciation for your continued support. We'll now take your questions.
We will now A confirmation For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Drew Crum with Stifel. Please proceed with your question.
Afternoon, everyone. So I want to understand what the impact of moving evolved from the fall to the February time frame, is on revenue guidance. You guys beat your first quarter guidance, but you're reiterating, for the full year. So I just want to understand what impact that has on how you're thinking about revenue for the year?
Paul, we don't give out our guidance on a title by title basis. The title did move, but we had a lot of movements in our guidance from this quarter versus when we previously gave out our, our initial guidance. And we beat Q1, we also adjusted all our, estimates for our titles for our, pipeline coming out in fiscal 2015. And there was also some changes to our release schedule, as we mentioned.
Okay. Fair enough. And then, you know, some of your competitors have seen a weakness on new releases on past gen systems. Just want to get a sense as to what your anticipating for border lands, which will not be available on on next gen systems.
Yes. We've definitely seen other reports on, largely on catalog. And I think our view is that if you give consumers what they want, they come out for it. Our catalog sales have done very well. It's what we announced in this quarter.
It's one of the key reasons that we were able to beat in the quarter. And, with a lot of faith in the Borderlands franchise, there's still a huge installed base of consumers. Borderlands is beloved. It's sold something this borderlines too. It's sold something like 10,000,000 units to date.
And so we have a very high hopes for the pre sequel, for for current gen platforms and MPC, indeed, but it'll be relying on quality and we expect to deliver really high quality game.
And I think one of the differences that we may have from our competitors is this is a fresh new experience that's meant just for that's built, for this current gen system. Which is not been the case with our competitors. Typically, the competitive the weakness that the competitors have seen is on when you're coming out with both titles on current gen and next gen, and it does not affiliate distinction between the 2.
Got it. Okay. And then one last question. I apologize if I missed this in your remarks Carl, but is there anything contemplated in the fiscal 2015 guidance with respect to DLC for Grand Theft Auto Five.
We don't have anything in there for a grant of 505. There may be some, free downloadable content that's given out during the year, but anything that, that brings revenue to the top line hasn't been nothing announced today.
Okay.
Our next question comes from the line of Edward Williams with BMO Capital Markets.
Hi, everybody. This is Tom Andrews standing in for Edward tonight. Just a couple of quick questions. 1, can you go into a little bit of a detail about the revenue breakdown in terms of what was generated from the, from your 2 k portfolio versus what was generated by the Rockstar portfolio. And then, just one housekeeping item.
Can you go through the, individual, stock option expense lines for the quarter?
We wouldn't normally go through that kind of detail on the call, can follow-up separately. We with Hank if you wish. And Lainie can respond to the 2K versus Rockstar split in the quarter.
All right. For Q1, Rockstar was approximately 45% and 2K was 55%.
Great. Thank you very much.
Our next question comes from the line of Brian Fitzgerald with Jefferies. Please proceed with your question.
Thanks guys. When you look at the nice digital revenue you had plus 43 on year over year. You mentioned in the release, it was driven by GTA, MBA and border lands. Could you maybe give us some of the mix there? I know you highlighted, GTA virtual currency in NBA, but maybe some color on mix split including borderlands.
And then Strauss, you've had great success with NBA 2k. You highlighted the $7,000,000 benchmark. How do you think about entering sports categories going forward. And obviously, you're doing, very well with WWE right now. Thanks.
Yes, we appreciate the question. We don't break out, how the titles are doing specifically. And I know people would like that color, but we're still in the middle of exploiting these titles and delivering, delivering fantastic experiences to consumers. So it's still a work in progress. However, we are very pleased with how all of it's going, very, very pleased with our current consumer spending in general.
Very pleased with the virtual currency sales, very pleased with Grand Theft Auto Online's metrics across the board and very pleased with how NBA 2K is doing. So it's an excellent story across the board. We don't break it out title by title. In terms of our sports business, thank you for the the complement disguised as a question. I'm happy to have it.
And naturally, we're trying to grow the business. And we're doing so selective What we found is that when we're a leader in the space, we do really, really well. When we're also ran in the space, we don't do well. And one of the things that we try to do around here, start from the point of delighting audiences and putting out the highest quality products and then thinking about making money. But equally, we really, the objective of losing money.
The bulk of what we do around here is owned intellectual property by definition of sports business as a licensed property. We have to be exceedingly selective in our licenses. And the company's had some history around that. So generally speaking, I think this is a very disciplined sometimes to a fall management team. And that applies to the sports business, but I don't want that to be confused with the lack of ambition because indeed we're very, very ambitious to grow the enterprise.
Our next question comes from the line of Zachary.
You tell us the reason for the delay, the pushback in the release date for Evolve?
Yeah. Absolutely. We've primarily decided that the title deserves and should have more time to be polished so it can reach it's an absolute, optimal state before we release it. And historically, we've always benefited from giving the creative teams more time to polish the titles. We've never regretted it.
It's not a meaningful amount of time. The title is still coming out in the fiscal year. And, we're really excited about the title. Coming out of E3, where we won best of show, it felt like the right thing to do is make absolutely sure this title can be its very best. At the same time, I I do believe February is a a pretty terrific release window.
It's not at all crowded, and we will then from the fact that there are a lot of holiday sales of consoles. So the installed base will be bigger and it should be pretty open time to release And if you look at our history over the past 7 years, we're a company that's often released major titles outside of the holiday season. In fact, we typically are not very active in the traditional holiday season. So having such a robust release schedule for October is somewhat unusual for us. We're really excited about it.
But, I for 1, I'm glad that we have evolved coming in February for any number of reasons.
Our next question comes from the line of Justin Potez with Merrill Lynch. Please proceed with your question.
Yes. Hi. This is Ryan calling in for Justin. Just wanted to go back to GT online real quick. If you could talk about maybe what's the content that's probably coming out in the next quarter, or for the rest of the year that we should maybe keep an eye on.
And if you could talk about GT Online and what that could be as a as a piece of that 40 percent of revenue that will come from Rockstar this year? And then I have one follow-up.
Yes. We're not really able to give much more color on to Airline. It's not for one of excitement. We have a great deal of excitement, but when we start getting into content and marketing announcements that's really driven by the label. We have said though, and I want to reiterate that the release of GTA Online has been, extraordinarily favorable for consumers and for us, we're immensely grateful to Rockstar for the incredible product that they deliver the incredible consumer experience.
And we remain optimistic about what GTI online can be both for current gen and for next gen.
Okay. That's fair. And then, for Lainie, maybe, can you remind us what you said about the quarterly run rate the recurring revenue in the GT online and whether it's reasonable to expect that once it comes out on NextGen, if that quarterly run rate should see a step function up or not?
Fine. We think about specifically for DTA online. We did say that 6 3% of the overall digital came from the recurrent consumer spending. And that includes our virtual currency add on content and online gains.
So we're not making any projections about the run rate of anything that we've put out before.
Mr. Zelnick, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.
Well, thank you so much for joining us. Obviously, we're thrilled to have beaten our projected outlook for something like eight quarters in a row and to reiterate our financial guidance for the year. We have a lot of great things coming up and we're grateful to the shareholders for their Thanks for joining us today.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time