Greetings, and welcome to the Take 2 Interactive First Quarter 2013 Results. At this time, all participants are in a listen only mode. A brief question and answer session will follow 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, Mister Diamond.
You may begin.
Good afternoon. Welcome and thank you for joining Take 2's conference call to discuss its results for the first quarter of fiscal year 2013 and to June 30 2012. Today's call will be led by Strauss Zelnick, Take 2's chairman and chief executive officer. Carl Sladoff, our Chief Operating Officer and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during Q and A session following our prepared remarks.
Before we begin, I'm obliged to review our safe harbor statement by reminding 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 2012. These documents may be obtained from our website at www.take2games.com.
And now, I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon and thank you for joining us. Our results for the first quarter of fiscal 2013 were below expectations, primarily due to lower than anticipated sales of spec ops, the line and Max Payne 3. As a hit driven entertainment company, not every title that we produce will meet our sales targets, delivering high quality products supported by a robust marketing campaign is a recipe for success. However, it's not always a guarantee.
We firmly believe that Take 2 possesses all of the key attributes necessary to navigate the inherent volatility of our business, including 9 franchises with individual titles that have sold in 5,000,000 or more units. We have cutting edge development tools and technology, and our strong balance sheet and liquidity provide a strong financial footing. Today, consumers are increasingly discerning and have an appetite for only the highest quality games that are true leaders within their genre. We believe that their upcoming releases, including Borderlands 2, NBA 2K13, BioShock Infinite, grant Theft Auto5, among others, will be just that. And our groundbreaking titles are not limited to new release Our diverse portfolio of catalog titles, especially Grand Theft Auto 4 and Red Dead Redemption continues to attract new audience as years after launch.
In fact, sales of both these titles grew in the first quarter versus last year and our overall catalog sales were up 50%. In addition to growing our core console and PC business, we're actively investing in digitally delivered content for online and mobile platforms, These emerging areas of interactive entertainment are high growth, not tied to the console cycle and present opportunities to generate more stable, higher margin revenue streams over time. Some of our recent achievements include the following. We entered Open Beta for NBA 2k Online, our free to play MMO game on the Tencent Games portal in China. Early user metrics for the game are encouraging.
We released our first mobile social game for Japan, NBA 2K All Stars on Greece social networking platform, and announced our partnership to offer additional mobile social games in select global markets, including pirates, legends, and Civilization. We expanded our lineup of core mobile titles with the release of Max Payne mobile for iOS and Android devices, and we announced a new slate of casual mobile games from our 2 K Play division, including our recently released Comedy Central's indecision game, which is our first mobile social offering for the U. S. Karl will talk about our online and mobile strategy in more detail later in the call. We continue to find ways to streamline our operations and enhance efficiency.
Earlier this month, Rockstar Games announced that it's expanding its development capabilities in Toronto, due in part to financial support and tax incentives that were provided by the Ontario government. In conjunction with that expansion, Rockstar is combining its Vancouver and Toronto development teams in a new facility. Bringing these 2 groups together should make for a powerful creative team on future projects. Despite our disappointing results for the first quarter, we continue to expect fiscal 2013 to be one of the best years in Take 2's history. Consumer enthusiasm suggests strong demand for our extraordinary lineup of upcoming releases, particularly borderlands 2, NBA 2K13, and BioShock Infoon.
Karl will have more to share about our upcoming releases shortly. The past 5 years has been a transformative period for Take 2. We've strengthened every facet of our enterprise and delivered some of the most critically and commercially successful titles in our industry. We understand that there will be challenging periods when are well executed creative endeavors may not deliver their intended commercial results. We firmly believe that we have I'll now turn the call over to Carl.
Thanks, Ralph. I'd like to begin by discussing our announced lineup of upcoming releases. Beginning this summer, 2K play will launch a new slate of titles for smartphones and tablets. House pests starring Fiasco, the cat, features state of the art animation, star is a mischievous cat who will turn your house upside down in no time. Grid block is an addictive puzzle game with a unique flipping mechanism.
Herd, heard, heard is an original physics based game where players attempt to herd farm animals into their pens in a race against the clock. And Carnival games mini golf is based on our million unit selling miniature golf title for the Wii. These titles, along with our recently launched Comedy Central's indecision game, are just a few instances of take to his overall mobile strategy, which I'll discuss in greater detail in a few minutes. This summer and fall, Rockstar Games will release several Max Payne 3 downloadable content packs on Xbox Live, PlayStation Network, and PC, which will feature new multiplayer maps, modes, bursts, items, playable characters, and challenges. On September 18th, 2K games were launched Borderlands 2, developed by Gearbox software, Borderlands 2, allows gamers to play as 1 of 4 new Vault hunters and seeking treasure in mayhem on the untamed planet of Pandora.
This title had an excellent showing at E3 2012, winning more than 20 awards, including best shooter from game informer. Consumer anticipation is phenomenal, and preorders are currently the 3rd highest of any title in Take 2's history behind only Grand Theft Auto Four, Grant Theft Auto San Andreas. On October 2, 2K Sports will release NBA 2K13. Next installment of our number one rated and number one selling basketball franchise. NBA 2k313 is poised to once again raise the bar for sports video games.
This year's game features a trio of players who represent the new dynasty of NBA future legends. Oklahoma City Thunder's Kevin Durant, Los Angeles Clippers, Blake Griffin, and the Chicago Bulls Derek Rose. Consumer consumer anticipation for this title is incredibly strong with preorders up significantly as compared to NBA 2K12. Later today, 2K Sports will kick off the NBA 2K13 campaign by formally announcing an unprecedented partnership with entertainment mogul, Sean J. Z.
Carter that will intrigue gamers of all kinds, even if they don't currently play sports video games. On October 9th, one of gaming's most beloved franchises will make its eagerly awaited return with 2 k games ex com enemy unknown. Developed by Firaxis Games, the studio behind our civilization franchise, Xcom enemy unknown combined strategy with intense combat players fight to control the fate of the human race by defending against the terrifying global alien invasion. The title generated tremendous buzz at E3 winning more than 20 awards, including best of show from game informer and electric playground, and best strategy game from critics from game critic awards in IGN. In addition, 2K Marin continues to move forward with the development of Xcom, a tactical squad based shooter offering a strong character driven experience, which is planned for release during fiscal year 2014.
In November, 2K play will release Nickelodeon titles for consoles and handhelds that highlight the imaginative and educational worlds of HIT Television preschool series, including Bubble Guppy's, Dora and team Umizumi's fantastic flight, and Nickelodeon dance 2, the sequel to one of Parent Magazine's 15 best games of 2011. BioShock Infinite is progressing in its development of rational games and is planned to launch on February 26, 2013. This first person shooter was voted the most anticipated game by IGN users in a May 2012 poll and is already generating strong consumer response. And Grand Theft Auto V is in full development and making substantial progress. Rockstar recently released some new screenshots from the game that illustrate its vast detailed open world setting.
Now I'd like to discuss our strategy to further diversify our business by expanding our digitally delivered offerings for online and mobile platforms. To date, our online game strategy has focused on Asian markets. Several years ago, our team recognized the potential to leverage our proven development expertise and renowned franchises in order to capitalize on the world's largest and fastest growing markets for free to play online games. Our partnerships with the region's leading developers and publishers, including Tencent in China and Nexon and Excel games in Korea have enabled us to benefit from a wealth of market expertise and technology, while mitigating our risks, and retaining significant financial upside. We recently launched an open beta for NBA 2k online on the Tencent games portal in China.
And early user metrics have been encouraging. Our projects in Korea to develop an online baseball game with Nexon and an MMOG based on a leading Kate Games franchise with Xcel Games are also proceeding as planned, and we expect to have more to say about these in coming months. Given the scale of the Asian market, In the favorable prospects of our content in the region, these initiatives have the potential to be significantly accretive to revenue and earnings while providing a more predictable, recurring revenue stream to complement our core business. As Strauss said earlier, we believe that the popularity of video games on mobile platforms especially tablets will grow at a rapid pace. This represents an exciting opportunity for Take 2, which we're actively pursuing through a multifaceted global strategy.
The first component of our mobile strategy is to bring our core gaming franchises to smartphones and tablets Our releases to date have focused on popular catalog titles, such as Grand Theft Auto III, 10th anniversary edition, Max Pay Mobile, and Sid Meier's Civilization Revolution, as well as mobile releases of current sports titles, including NBA 2k12. Re leasing our rich catalog on mobile devices can deliver incremental revenue at high margins due to the relatively low cost of adapting these games from mobile platforms. As Mobile Technology continues to evolve, we will we fully expect to be releasing our most groundbreaking and immersive new titles on every mobile device that core gamers choose to embrace. The second component of our mobile strategy is the integration of mobile applications with our core console releases. By linking the mobile and console experiences of our of our franchises, we can surround the consumer with our brands and encourage game related activity both at home and on the go.
We'll have more to say about some of these efforts in the weeks to come. The 3rd component of our mobile property, specifically for mobile devices. Our new titles from 2 K play, which I discussed earlier, are just a few examples of our efforts in this area. And the 4th component of our strategy is to pursue partnerships on mobile platforms in markets that require specific expertise, which we don't currently have in house. Our partnerships with leading mobile social players in Asia, such as Gree, are enabling us to expand the reach of our brands and participate in an exciting and lucrative market.
Beginning with NBA 2K All Stars, Pirates Legends and Civilization. In closing, we're very enthusiastic about the potential for provide a very positive long term growth and profit outlook for Take 2. Thanks, and I'd now like to turn the call over to Lainie.
Thanks, Carl, and good afternoon, everyone. Today, I'll review our results for the first quarter and then discuss our updated outlook for the full fiscal 20 13 and our initial outlook for the second quarter. All of the numbers I'll be providing today are non GAAP results from continuing operations unless otherwise stated. Our press release provides 2013, we delivered net revenue of $226,100,000, down 32% from the prior year, The decrease was primarily due to the releases of Eleon Noir and Duke Nukem forever in the first quarter of fiscal 2012, which had higher combined sales than our first quarter fiscal 2013 releases. The strongest contributors to revenue for the quarter were the release of Max Payne 3 catalog sales led by the Grand Theft Auto franchise and Red Dead Redemption, the release of spec ops of the line and continuing sales of NBA 2K12.
Catalog sales grew 50% year over year and accounted for 26% of net revenue. Revenue from digitally delivered content grew 30 3% year over year and accounted for 14% of net revenue, driven by offerings for the Sid Meier Civilization, Grand Theft Auto and Max Payne franchises Gross margin for the first quarter was 20%, down from 38% in the prior year's first quarter. The decrease resulted primarily higher software development costs and royalties for our first quarter releases this year. Operating expenses were approximately $138,200,000, of about $18,000,000 versus the prior year's first quarter, driven by the $15,000,000 one time contractual obligation and higher marketing expenses. Interest and other expense increased primarily due to the convertible notes that we issued in November 2011, and non GAAP net loss was 98.8 or $0.02 per share in fiscal first quarter 2012.
GAAP net loss from continuing operations was 110 $8,000,000 or $1.30 per share. Compared to the outlook we provided in May, our first quarter revenue was at the low end of our outlook range or our non GAAP net loss per share was below the range by Xp3 in the first quarter, we have lowered our outlook for continued sales of these titles. As a result, we amortized a higher than projected proportion of their capitalized development costs during the first quarter rather than later in the year. Turning to some key items from our balance sheet at June 30, 2012, as compared to March 31, 2012. Our cash balance decreased to 3.67 $72,000,000, primarily reflecting our first quarter releases.
Inventory increased to $28,000,000, software development costs and licenses decreased to $270,000,000, reflecting the amortization of development costs related to our first quarter releases. Now I'll review our financial outlook for the full year and second quarter of fiscal 2013, which is all provided on a non GAAP basis. We are revising our financial outlook for the full year of fiscal 2013 to reflect a lower than expected results for the first quarter, partially offset by our strong outlook for our upcoming slate of new releases. We now expect revenue to range from $1,700,000,000 to $1,800,000,000 and non GAAP net income to range from $1.75 per share to $2 per share. Turning to the details of our full year outlook, our expected revenue range assumes the on time release of the titles we have announced to date, as well as other titles yet to be announced for release during fiscal 2013.
We expect the revenue breakdown from our labels to be roughly 55% from Roxar and 45% from 2K. We expect our geographic revenue revenue split to be about 50% United States and 50% international. We expect gross margins in the low quarter. Total operating expenses are expected to increase by approximately 40% from fiscal 2012, primarily driven by higher marketing expenses quarter new releases and the $15,000,000 one time contractual obligation recognized in the first quarter. Selling and marketing expense is expected to be about 17% net revenue using the midpoint of our outlook range.
And we project interest and other expense of approximately $13,000,000 tax expense of about $9,000,000 and fully diluted shares of approximately 118,000,000, which includes $6,000,000 of participating shares for our unvested restricted stock rands and 26,000,000 shares, representing the potential dilution from our convertible notes under the if converted method of accounting. Turning to our outlook for the second quarter of fiscal 2013. We expect to deliver revenue ranging from $200,000,000 to $250,000,000 a non GAAP net loss ranging from $0.15 to $0.30 per share. We continue to expect to be profitable on a non GAAP basis at Third And Fourth Quarters of fiscal 2013. The majority of our revenue in the second quarter is expected to come from the release of Borderlands 2.
We expect 2nd quarter gross margins in the low to mid-40s. Total operating expenses are expected to increase by approximately $45,000,000 or 65% from the prior year second quarter. Selling and marketing expense is expected to be about 29% of net revenue based on the midpoint of our outlook range. And our 2nd quarter outlook also reflects interest and other expense of approximately $3,000,000 tax expense of about $2,000,000 a share count of approximately $86,000,000. Take 2 strong balance sheet and liquidity for broader organization with a sound foundation to pursue our many strategic initiatives.
For product development to new online and mobile platforms, we believe that our ability to aggressively invest in our future will deliver positive results over the long term. Thank you. Now I'll turn the call back to Strauss.
Thanks, Carl and Lainie. We're exceedingly optimistic about our long term outlook for growth and profitability. Our ability to leverage our creative expertise expand the global audience for intellectual property and capitalize on traditional emerging platforms is more promising than ever. I'd like to thank our colleagues for their hard work and dedication and our shareholders for their valued support.
Thank you. Our first question comes from the line of Justin Post of Merrill Lynch. Please proceed with your question.
Great. A couple of things. First, you said you have a few unannounced titles in the second half. Obviously, maybe Rockstar is dictating when you can announce those, but when does it become a problem for retail and planning purposes, when you haven't announced something? And, like, if you're going to have to have something in the March quarter, when is as late as you can announce it and still get it out to retail and have a good marketing buzz around it, And the second question is obviously Max Payne was disappointing versus expectations in the quarter.
What does that tell you about the industry and the opportunity for some of your, titles, including GTA, just as far as how they, how the industry is receiving titles like that. Thank you.
Hey, Justin. It's Strauss. Good questions. You know, I'll beg the first question. It's not that, you know, delaying information is a problem for retail.
It's that we tailor the information we divulge to enhancing retail. So Our announcement about upcoming schedules is obviously a conjunction of our desire to be transparent and our desire to do what's right for the title. But obviously, we wouldn't be in a position where we would be, delaying information to the pair at the peril of the release to the contrary we we scheduled the information to enhance the quality of the release. And on Max, what does it tell us about the industry? I think, what it tells us, first of all, is Now a 3,000,000 unit initial ship is an excellent result, by anyone's standards and certainly by the industry standards.
And we don't want to imply otherwise. We're really proud of the work the team did. It's a highly rated title that got amazing reviews, and we think it's a stellar game and so do the consumers. The question that was posed was how high is up and were somewhat disappointed that up wasn't higher than it's turned out to be at least so far. I think what it does tell us is consumers at this stage in the hardware cycle are more selective than ever.
These are expensive propositions consumers. And with a limited release schedule in the first half of the year, not just ours, but the industries, there's less foot traffic. And as a result, the bar is be higher. And I think that's true going forward. So it puts further emphasis on our stated strategy of putting out the highest quality titles in the business.
And that strategy has served us well, served us well in terms of our results over the past years. It continues to serve us well. It's reflected in the fact that our catalog sells so well. It's a very high percentage of our overall revenue, and our catalog sales were up 50% in the quarter year over year. So clearly, consumers want the titles that we have to offer.
Otherwise, our catalog wouldn't be doing as well as it is. And clearly, the bar is higher, and we're mindful of that. We think that our upcoming releases from out that bar, you know, the initial, the initial look on border lands too is very, very positive. And we couldn't be more excited also true for NBA 2k13 and the way that, upcoming releases, including ex COM enemy unknown are shaping up. So it looks very promising, and that's why we're able to have guidance for the year that's as strong as this guidance is, albeit somewhat lower than it had been before this quarter.
All
right. And maybe a follow-up, obviously, a few disappointing quarters in a row here. When you look at the pre order data, and you've given your guidance, I mean, is there room for these titles to exceed and what would drive that as you look forward over the next three quarters?
We always aim to guide based on what we perceive, to be the case. And so we're guiding on what we believe realistic and achievable. We obviously don't guide to a disaster scenario nor do we guide to a spectacular scenario. And by the way, to be clear, you're quite right. We had a disappointing year last year, and now we've had a disappointing first quarter.
And, you know, we take that on the chin. We acknowledge it. I'm frankly disappointed by it. Moreover, I take responsibility for it. That said, we have a company that is capitalized to withstand the normal ups and downs of a pure play entertainment business.
And I've said on these calls many times, times when we were doing well and they didn't need to say it, that times weren't always going to be great. And occasionally, their disappointment and we've had a few in a row. And, we take them all real seriously. That said, the right thing to do is to recognize our many strengths celebrate those strengths, and move forward productively to our next body of releases, which look fantastic. And as I said, if you need evidence that people show up for good titles, take a look at our catalog sales.
People are actively buying our catalog titles as we speak. Thanks, Gus.
Thank you. Our next question comes from the line of Eric Handler of MKM Partners. Please proceed with your question.
Yes. Thanks for taking my question. So when I look at your full year guidance, you, basically, you missed the first quarter by about $0.50 of EPS. But you only took about $0.25 out of your full year number. What has changed, you know, in the last quarter, or can you give us a sense of what the puts and takes are as to where you're more optimistic now?
Sure, Eric. In the and since the last quarter, we've revised some of our expectations for some of our upcoming releases for the rest of the year. The other thing that changes the timing and the dynamics the quarters is our capitalized development costs that we had scheduled for later in the year that got pulled back into the first quarter. So even though we missed by a big amount, a lot of that were expenses that were for later on in the year.
Okay. Thanks. And then as one follow-up in terms of the second quarter, you do expect losses. And you obviously have one of your bigger games of the year with Borderlands 2 coming out. Is part of it just timing in terms of advertising and, you know, when you recognize when you recognize all the shipments that you expect for the game?
Yes, that's exactly what it is. Borderlands shifts at the end of the quarter and all of the marketing expenses related to it will be within the quarter. As well as some marketing for some of our Q3 releases. And we also have a little bit left on the MLB losses that'll hit us in that quarter. So that's what's affecting it.
Great. Thank you very much.
Thank you. Our next question comes from the line of Mike Hickey of National Alliance Securities. Please proceed with your question.
Hey, guys. Strauss, we've heard nothing next to nothing on GTA5 development over the last couple of months. We've seen a couple screenshots. The game is believed by the street to be implied by your guidance, for this fiscal but what believability do we have at this point that this game is actually going to come out this year? And especially when you say the bar is higher, reflecting on the performance of Max, how do your teams balance getting that quality bar higher versus the perceived need to get the game out before next gen console?
Yes. I mean, Mike, we just haven't talked about a release date. So obviously, we can't talk about the credibility of a release date that we haven't announced. In terms of the quality bar, you know, I wasn't sending, as I've remark, was not intended to send some internal signal to our teams to work harder, smarter, they do the very best job they can on absolutely everything they do. And I think we have the best people in the business and I think many, if not, most people would agree with me.
I'm just, I'm just saying that, you know, the standards are getting higher and that affects us as well. Our teams are already trying to do groundbreaking work on absolutely everything they do. Sometimes we succeed. Sometimes we succeed mightily. And occasionally we're disappointed.
And we'd like that to be even more occasionally than it has been of late.
Okay. Fair enough. And then I'm guessing that you're consistently. Can you just walk us through the sort of communication you have with your rock star studio in terms of development of GTA5? Mean are you getting kind of consistent updates in terms of that game's pacing of development?
Has anything changed in the last couple of months?
Mike, we wouldn't talk publicly about the way that we communicate with our teams internally we're blessed to be in business with the Rockstar folks. And And, you know, everyone knows that I feel that way. We have the best creative teams in the business throughout our company, you know, at 2K, at 2K sports, visual concepts, rational for Axis, Rockstar, 2K Marin, 2K check. It's an incredible group of people. And, how do we communicate?
We have about as transparent a company as anyone has. And we encourage people to pursue their passions and to make hits. And, you know, I say it here publicly, I say privately, you know, I'm boringly consistent. That's what we try to do. As I said, we're not always successful.
That's part of pushing the envelope. And, sometimes things don't go exactly as planned or as hoped. To nature of an entertainment business. And while we're not remotely cavalier about it, we are capitalized to withstand the ups and downs of this business. Our next question comes
from the line
of Arvin Bhatia of Stern AG. Please proceed with your question.
Okay. Thank you very much for taking the question. I wanted to go back to Borderlands real quick. I heard you guys talk about it a couple times, you know, the preorders are looking pretty good. That's what we pick up as well.
Maybe if you can provide a little bit more color in light of what's happened with, with Max Payne, you know, just relative to where the market is and how you spoke to the challenges in the marketplace for triple 8 titles, you know, some of the triple 8 titles, has your expectation for Borderlands to, being brought down just because of the market conditions, or do you feel even stronger given the preorders, on border lines? And maybe one way to think about it is, although there are different titles, how does it look like versus, you know, look versus Max Payne in terms of
the volumes you expect to do?
I mean, I'll ask, I think I'll I'll it's Carl. I'll answer the, the question very directly at the last point. I think that the market conditions have not actually tempered our view on our borderlands too. The consumer response, look, we mentioned preorders. There's other buzz factors that we look at.
It's been really, really fantastic. The title is a very unique title. There's nothing else like it out there. It's a it's a great window for us. So I would say that the momentum continues to build for that title, not in the other direction.
Yes, we do think that the market conditions are relatively, the relatively difficult in general, but great titles that are that a marketed well and a positioned well, can do well in the face of that. And I think that this one is unique in that regard, just considering that that there is really nothing else like it. It, it leads a genre. It's effectively the only game in its genre. I
and I and I understand that. I think, what what I'm asking is in the context of, preorders, perhaps, you know, are indicative of, you know, certain amount of momentum. We saw that with Max Payne as well. Has the market shifted so much that preorders are maybe less authentication and I know you're looking at other factors as well, but just would like a little bit more comfort that, you know, what we saw with Max Payne, maybe there were some false positives that that's not the case here?
Well, look, I mean, I think strong preorders don't necessarily guarantee that you're going to have a, you know, 30,000,000 unit seller. There's no question about that. There's not a 1 to 1 correlation. But I can tell you, I'd rather have the momentum being built. I'd rather have strong preorders this far out have momentum going in the right direction than otherwise.
So is there a is there a change in the way the pre orders are that way the pre orders predict what's going to happen in the release? I don't believe that there's a market change in that. I think it's really title by title. You know, look, sports titles, also pre the pre orders are a very different indication of how sports titles do. I think it really depends on the title, on the nature of that title and the nature of the fan base buying into that title.
Great. And last question,
you know, is agents still going to be in the pipeline for, you know, I guess, in the next 12 to 18 months, or should we not consider that as a factor? Kind of where are you on that title?
Yes, we haven't announced anything about the title yet. Okay, great. Thanks
guys.
Thank you. Our next question comes from Daniel Ernst of Hudson Square Research. Please proceed with your question sir.
Yes. Good evening. Thanks for taking the call. Two questions, if I might. First, looking at where you've done, exceptionally well, as a company in putting out very creative titles that are different than what's in the market, even, you know, I think GTA fits that.
Certainly, something like bioshock and and Red Dead was a Western that really, you know, redefined the the the genre where there wasn't in LA nor very original. Does the poor performance or something like spec ops, which addresses a more traditional, you know, or category, you know, military category game does the disappointment there, make you rethink of your your title lineup overall, or, you know, as you go forward looking at green lighting new projects, it does, you know, make you change that process at all? Then second question, the sales and marketing expense in the quarter you know, only up, nominally year over year, but, you know, kind of going back over, you know, you know, 10 year history, even when you had a a GTA, you know, the the marketing budget is, a lot bigger than, than it has been. I wonder if you could address kind of what's driving that or, you know, in in this quarter, there an opportunity to maybe to pull that back? Was it maybe sort of an overspend relative to the titles or or was that just the level of of expense you need to make to, to get your voice heard in this environment?
Thanks.
Hi, it's Carl. I'll take the first question, which is the innovation question. Look, I would say that we will never stop trying to innovate in titles. And, I think you've got it exactly right. Most of the titles that we do try to do something little bit different if they're not plain vanilla.
And spec ops is an interesting case because spec ops actually reviewed quite well. And I think most of the critics, at least recognize there was some variation in the Medicare scores, of course, but most recognized that spec ops was something very different than any other military a shooter that was out there, and at least gave, and gave the title kudos for attempting to be different. Sometimes that resonates with consumer. Sometimes it doesn't. And I think in the case of spec ops, I think it was a fantastic game that is extremely different with a very, very strong story line.
And it begs the question, does that ultimately matter in a military shooter genre? So I think that in that specific case that that's an interesting case study, but I think it is the only case study, and it would never prevent us from taking risks and chance and innovating in the future because that's the only way that we're going to move our company forward creatively. And that's how, frankly, we've had success in the past. So if we let if we let one title that where innovation didn't move didn't create a breakout, title for us dictate the way we behave in the future. I think that'd be a huge mistake.
And the marketing budget?
Oh, so for the marketing, it's really on a title by title basis. So it can change from quarter to quarter based on what title is released. So last year, we had L. A. Noir and Duke Nuka.
And this year, we have Max Payne and spec ops. So each title has a this own marketing budget that's built up by the labels based on what they think is required for the title. So I wouldn't say it's necessarily like a trending indicator on a on a quarter by quarter basis. You'd have to really look at each title.
Got it. Thanks.
Thank you. Our next question comes from the line of Phil Anderson Will Research. Please proceed with your question.
Yes. I just wanted to clarify. What was the guidance for the fiscal year on gross margin?
Bear with
us for one second. Just wanna get it right. In the low 40s.
Low 40s.
Okay. Thanks. That's all I had.
Our next question comes from the line of Mike Olson of Piper Jaffray. Please proceed with your question. Mister Olsen, your light is now live. You may ask your question. Again, Mister Olsen, your line is now live.
We will move on to our next question in the meantime. Our next question comes from the line of Kyle Brandon of Sloping Joe's. Please proceed with your question.
Yeah. From a business standpoint, what would you say is your best selling game and the most professional game you have out there with the cock.
Can we move on to the next questioner, please?
Yes. Our next question comes from the line of Thomas Andrews of BMO Capital Markets. Please proceed with your question.
Hi, everybody. I'm just standing in for Edward Williams tonight. I was wondering if you could maybe elaborate a little bit if you can on, what your business model is gonna be for, the Asian initiatives that you have going, is it gonna be mostly, you know, a micro transaction type of business or is it a subscription business or does it be, you know, some sort of combination of the 2? And does it matter on geography at all?
Certainly, it matters on geography because we tailor our offerings and our business models to consumers wherever they are and taste shift geographically. The Asian games in the Asian market are currently thought to be free to play with the economic model being a micro transaction model.
Okay. Thank
It appears there are no further questions at this time. Excuse me, we do have a question from the line of Ben Schachter of Macquarie. Please proceed with your question, sir.
Hi, thanks for taking my question. This is Tom White on for Ben. I was hoping you guys might be able to provide maybe some early comments on differences in mobile usage across smartphones and tablets. I guess maybe around engagement, monetization and maybe any demographic information that you might have between those two platforms.
Hey, Dominic. It's Carl. Yeah. Look. We you I think there's a lot of research out there, and I would I would you should check that out yourself, but, obviously, we look at this a lot.
And one thing we can say is that people tablet gaming tend people tend to to actually monetize better on tablets. And I think that's one of the most interesting, That's one of the most interesting facts that we've that we've noticed to date. But if you look, it's still early, but I would I would encourage you to check out the results out there because it's pretty robust.
Are there operator? Do we have any more questions?
At this time. I would like to turn the floor back over to management for any closing comments.
Okay. Well, thanks all for joining us. And, we are looking forward to delivering on what we believe will be a very successful