Greetings. Welcome to the Take-Two Interactive first quarter 2013 results. 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 press 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 first quarter of fiscal year 2013, ended June 30, 2012. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer, Karl Slatoff, our Chief Operating Officer, 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'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 SEC, including the company's annual report on Form 10-K for the fiscal year ended March 31, 2012. These documents 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. 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 a high-quality product supported by a robust marketing campaign is a recipe for success, however, it's not always a guarantee. We firmly believe that Take-Two possesses all of the key attributes necessary to navigate through the inherent volatility of our core business over the long term. Our creative teams are among the best in the industry. We've built one of the strongest intellectual property portfolios in the business, including nine franchises with individual titles that have sold in 5 million or more units.
We have cutting-edge development tools and technology, 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 our upcoming releases, including "Borderlands 2," "NBA 2K13," "BioShock Infinite," and "Grand Theft Auto V," among others, will be just that. Our groundbreaking titles are not limited to new releases. Our diverse portfolio of catalog titles, especially "Grand Theft Auto IV" and "Red Dead Redemption," continues to attract new audiences years after launch. In fact, sales of both these titles grew in the first quarter versus last year, 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, 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 GREE's social networking platform, 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.
We announced a new slate of casual mobile games from our 2K 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 two 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-Two's history.
Consumer enthusiasm suggests strong demand for our extraordinary lineup of upcoming releases, particularly "Borderlands 2," "NBA 2K13," and "BioShock Infinite." Karl will have more to share about our upcoming releases shortly. The past five years has been a transformative period for Take-Two. We've strengthened every facet of our enterprise delivered some of the most critically and commercially successful titles in our industry. We understand that there will be challenging periods when our well-executed creative endeavors may not deliver their intended commercial results. We firmly believe that we have the correct strategy and resources to deliver profits and shareholder value over the long term. I'll now turn the call over to Karl.
Thanks, Strauss. 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 Pest starring Fiasco the Cat features state-of-the-art animation and stars a mischievous cat who will turn your house upside down in no time. GridBlock is an addictive puzzle game with a unique flipping mechanism. Herd Herd Herd is an original physics-based game where players attempt to herd farm animals into their pens in a race against the clock. 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-Two's 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 will launch Borderlands 2. Developed by Gearbox Software, Borderlands 2 allows gamers to play as one of four new vault hunters in seeking treasure and 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, pre-orders are currently the third highest of any title in Take-Two's history, behind only Grand Theft Auto IV and Grand Theft Auto: San Andreas. On October 2nd, 2K Sports will release NBA 2K13, the next installment of our number one-rated and number one-selling basketball franchise.
NBA 2K13 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' Derrick Rose. Consumer anticipation for this title is incredibly strong, with pre-orders 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 "Jay-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 2K Games' XCOM: Enemy Unknown.
Developed by Firaxis Games, the studio behind our Civilization franchise, XCOM: Enemy Unknown combines strategy with intense combat as players fight to control the fate of the human race by defending against a 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 Game Critics Awards and 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 Guppies, Dora and Team Umizoomi's Fantastic Flight, and Nickelodeon Dance 2, the sequel to one of Parents magazine's 15 best games of 2011.
BioShock Infinite is progressing in its development at Irrational 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. 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 XLGames 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. 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 2K Games franchise with XLGames are also proceeding as planned. We expect to have more to say about these in coming months.
Given the scale of the Asian market and 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 and 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-Two, 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 Payne Mobile, and Sid Meier's Civilization Revolution, as well as mobile releases of current sports titles, including NBA 2K12.
Releasing our rich catalog on mobile devices can deliver incremental revenue at high margins due to the relatively low cost of adapting these games for mobile platforms. As mobile technology continues to evolve, 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 franchises, we can surround the consumer with our brands and encourage game-related activity both at home and on the go. We will have more to say about some of these efforts in the weeks to come. The third component of our mobile strategy is to build new intellectual property, specifically for mobile devices.
Our new titles from 2K Play, which I discussed earlier, are just a few examples of our efforts in this area. The fourth 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 are very enthusiastic about the potential for our upcoming titles. We are also focused on delivering results from our online and mobile initiatives, which, coupled with our core business, provide a very positive long-term growth and profit outlook for Take-Two. Thanks, and I would now like to turn the call over to Lainie.
Thanks, Karl, and good afternoon, everyone. Today, I will review our results for the first quarter and then discuss our updated outlook for the full fiscal 2013 and our initial outlook for the second quarter. All of the numbers I will be providing today are non-GAAP results from continuing operations, unless otherwise stated. Our press release provides a reconciliation of our GAAP to non-GAAP measurements. Starting with our results for the first quarter of fiscal 2013, we delivered net revenue of $226.1 million, down 32% from the prior year. The decrease was primarily due to the releases of "L.A. Noire" 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: 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 33% year-over-year and accounted for 14% of net revenue, driven by offerings for the "Sid Meier's 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 from higher software development costs and royalties for our first quarter releases this year. Operating expenses were approximately $138.2 million, up about $18 million versus the prior year's first quarter, driven by the $15 million 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. non-GAAP net loss was $98.8 million, or $1.16 per share, as compared to non-GAAP net income of $2 million, or $0.02 per share in fiscal first quarter 2012. GAAP net loss from continuing operations was $110.8 million, 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, while our non-GAAP net loss per share was below the range by $0.41. Due to the lower-than-expected sales of Spec Ops: The Line and Max Payne 3 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 $367 million. Our accounts receivable balance increased to $72 million, primarily reflecting our first quarter releases. Inventory increased to $28 million, and software development costs and licenses decreased to $270 million, reflecting the amortization of development costs related to our first quarter releases. 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 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 $1.7 billion-$1.8 billion and non-GAAP net income to range from $1.75 per share-$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 Rockstar and 45% from 2K. We expect our geographic revenue split to be about 50% U.S. and 50% international. We expect gross margins in the low 40s. Total operating expenses are expected to increase by approximately 40% from fiscal 2012, primarily driven by higher marketing expense to support our new releases and the $15 million one-time contractual obligation recognized in the first quarter.
Selling and marketing expense is expected to be about 17% of net revenue using the midpoint of our outlook range. We project interest and other expense of approximately $13 million, tax expense of about $9 million, and fully diluted shares of approximately 118 million, which includes 6 million of participating shares for our unvested restricted stock grants and 26 million 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 million-$250 million, and a non-GAAP net loss ranging from $0.15-$0.30 per share. We continue to expect to be profitable on a non-GAAP basis in both the 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 second quarter gross margins in the low to mid-40s. Total operating expenses are expected to increase by approximately $45 million or 65% from the prior year's second quarter. Selling and marketing expense is expected to be about 29% of net revenue based on the midpoint of our outlook range. Our second quarter outlook also reflects interest in other expense of approximately $3 million, tax expense of about $2 million, and a share count of approximately 86 million. Take-Two's strong balance sheet and liquidity provide our organization with a sound foundation to pursue our many strategic initiatives. From 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, Karl 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. We'll now take your questions. Operator?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. 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 Justin Post of Merrill Lynch. Please proceed with your question.
Great. A couple things. First, you said you have a few unannounced titles in the second half. 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? If you're going to have to have something in the March quarter, when's as late as you can announce it and still get it out to retail and have a good marketing buzz around it? 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 the industry's receiving titles like that? Thank you.
Hey, Justin. Strauss. They're good questions. I'll beg the first question. It's not that delaying information is a problem for retail, it's that we tailor the information we divulge to enhancing retail. 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. Obviously, we wouldn't be in a position where we would be delaying information at the peril of the release. To the contrary, we schedule the information to enhance the quality of the release. On Max, what does it tell us about the industry?
I think what it tells us, first of all, is a 3 million unit initial ship is an excellent result by anyone's standards and certainly by the industry standards. 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. We think it's a stellar game. So do the consumers. The question that was posed was how high is up, and we're 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 for consumers. With a limited release schedule in the first half of the year, not just ours, but the industry's, there's less foot traffic. As a result, the bar is going to be higher. I think that's true going forward. It puts further emphasis on our stated strategy of putting out the highest quality titles in the business. That strategy has served us well. It 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. Our catalog sales are up 50% in the quarter year-over-year. Clearly, consumers want the titles that we have to offer, otherwise our catalog wouldn't be doing as well as it is.
Clearly, the bar is higher. We're mindful of that. We think that our upcoming releases surmount that bar. The initial look on Borderlands 2 is very positive, and we couldn't be more excited. Also true for NBA 2K13 and the way that upcoming releases, including XCOM: Enemy Unknown, are shaping up. 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. 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, 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. We're guiding on what we believe is realistic and achievable. We obviously don't guide to a disaster scenario, nor do we guide to a spectacular scenario. 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 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.
I've said on these calls many times, at times when we were doing well and I didn't need to say it, that times weren't always going to be great, and occasionally there are disappointments, 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. 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, Strauss.
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. When I look at your full-year guidance, basically, you missed the first quarter by about $0.50 of EPS, you only took about $0.25 out of your full-year number. What has changed in the last quarter? Can you give us a sense of what the puts and takes are as to where you're more optimistic now?
Sure, Eric. Since the last quarter, we revised some of our expectations for some of our upcoming releases for the rest of the year. The other thing that changes the sort of timing and the dynamics between the quarters is our capitalized development costs that we had scheduled for later in the year that got pulled back into the first quarter. Even though we missed by a big amount, a lot of that were expenses that were for later on in the year.
Okay, thanks. 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 when you recognize all the shipments that you expect for the game?
Yes, that's exactly what it is. Borderlands ships at the end of the quarter, all the marketing expenses related to it will be within the quarter, as well as some marketing for some of our Q3 releases. We also have a little bit left on the MLB losses that'll hit us in that quarter. 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 Capital Markets. Please proceed with your question.
Hey, guys. Strauss, we've heard next to nothing on Grand Theft Auto V development over the last couple of months. We've seen a couple of screenshots. The game is believed by The Street to be implied by your guidance for this fiscal year. What believability do we have at this point that this game is actually going to come out this year? 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 consoles?
Yeah. Mike, we just haven't talked about a release date, obviously we can't talk about the credibility of a release date that we haven't announced. In terms of the quality bar, that remark was not intended to send some internal signal to our teams to work harder or smarter. They do the very best job they can on absolutely everything they do. 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 saying that 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. Can you just walk us through the sort of communication you have with your Rockstar studio in terms of development of Grand Theft Auto V? 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 everyone knows that I feel that way. We have the best creative teams in the business throughout our company. At 2K, at 2K Sports, Visual Concepts, Irrational, Firaxis, Rockstar, 2K Marin, 2K Czech. It's an incredible group of people. 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. I say it here publicly, I say it privately, 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. Sometimes things don't go exactly as planned or as hoped.
It's the nature of an entertainment business, while we're not remotely cavalier about it, we are capitalized to withstand the ups and downs of this business.
Okay, thanks, guys. Best of luck.
Thank you. Our next question comes from the line of Arvind Bhatia of Sterne Agee. 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 of times. The pre-orders 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 Max Payne, just relative to where the market is and how you spoke to the challenges in the marketplace for AAA titles, some of the AAA titles. Has your expectation for Borderlands 2 been brought down just because of the market conditions, or do you feel even stronger given the pre-orders on Borderlands? Maybe one way to think about it is, although they're different titles, how does it look versus Max Payne in terms of the volumes you expect to do?
Arvind, it's Karl. I'll answer the question very directly, the last point. I think that the market conditions have not actually tempered our view on Borderlands 2. The consumer response, look, we mentioned pre-orders. 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 great window for us. 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 difficult in general, but great titles that are marketed well and are positioned well, can do well in the face of that. I think that this one is unique in that regard, just considering that there's really nothing else like it. It leads a genre. It's effectively the only game in its genre.
I understand that. I think, what I'm asking is in the context of pre-orders perhaps, are indicative of a certain amount of momentum. We saw that with Max Payne as well. Has the market shifted so much that pre-orders are maybe less of an indication? I know you're looking at other factors as well, I just would like a little bit more comfort that, what we saw with Max Payne, maybe there were some false positives, that's not the case here.
Well, look, I think strong pre-orders don't necessarily guarantee that you're going to have a 30 million-unit seller. There's no question about that. There's not a one-to-one correlation. I can tell you, I'd rather have the momentum being built. I'd rather have strong pre-orders this far out, have momentum going in the right direction than otherwise. Is there a change in the way that 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. Look, sports titles, also the pre-orders are a very different indication of how sports titles do. I think it really depends on the title and the nature of that title, and the nature of the fan base buying into that title.
Great. Last question. Is Agent still going to be in the pipeline for, I guess, in the next 12 to 18 months, or should we not consider that as a factor? Where are you on that title?
Yeah, 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, I think "GTA" fits that and certainly something like "BioShock" and "Red Dead" was a Western that really redefined the genre where there wasn't a lot of competition. "L.A. Noire," very original. Does the poor performance of something like "Spec Ops," which addresses a more traditional shooter category, military category game, does disappointment there make you rethink your title lineup overall, or as you go forward looking at green-lighting new projects, does it make you change that process at all?
Second question, the sales and marketing expense in the quarter, only up nominally year-over-year, but kind of going back over a 10-year history, even when you had a GTA, the marketing budget is a lot bigger than it has been. I'm wondering if you could address what's driving that or, in this quarter, was there an opportunity maybe to pull that back? Was it maybe sort of an overspend relative to the titles, or is that just the level of expense you need to make to get your voice heard in this environment? Thanks.
Hi, it's Karl. I'll take the first question, which is the innovation question. 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 a little bit different. They're not plain vanilla. "Spec Ops" is an interesting case because "Spec Ops" actually reviewed quite well, and I think most of the critics at least recognize there is some variation in the Metacritic scores, of course, but most recognize that "Spec Ops" was something very different than any other military shooter that was out there, and at least gave the title kudos for attempting to be different. Sometimes that resonates with consumers, sometimes it doesn't.
I think in the case of "Spec Ops," I think it was a fantastic game that is extremely different with a very strong storyline. It begs the question, does that ultimately matter in a military shooter genre? I think that in that specific case, 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 chances and innovating in the future because that's the only way that we're going to move our company forward creatively. That's how, frankly, we've had success in the past. If we let one title where innovation didn't create a breakout title for us, dictate the way we behave in the future, I think that'd be a huge mistake.
The marketing budget?
For the marketing, it's really on a title-by-title basis, it can change from quarter to quarter based on what title's released. Last year we had L.A. Noire and Duke Nukem, and this year we have Max Payne and Spec Ops. Each title has its own marketing budget that's built up by the labels based on what they think is required for the title. I wouldn't say it's necessarily a trending indicator 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 of Longbow Research . Please proceed with your question.
I just wanted to clarify, what was the guidance for the fiscal year on gross margin?
Bear with us.
One second. Just want to get it right. In the low forties.
Low forties. Okay, thanks. That's all I had.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. Our next question comes from the line of Michael Olson of Piper Jaffray. Please proceed with your question. Mr. Olson, your line is now live. You may ask your question. Again, Mr. Olson, your line is now live. I think we will move on to our next question in the meantime. Our next question comes from the line of Kyle Brandon of Smoking 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 COG?
Yeah. Can we move on to the next questioner, please?
Yes. Our next question comes to 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 going to be for the Asian initiatives that you have going. Is it going to be mostly a microtransaction type of business, or is it a subscription business, or does it be some sort of combination of the two? 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 tastes shift geographically. The Asian games in the Asian market are currently thought to be free-to-play, with the economic model being a microtransaction model.
Okay, thank you.
As a final reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. One moment, please, while we poll for any additional questions. 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. Thanks.
Hey, Tom. It's Karl. Look, I think there's a lot of research out there, and you should check that out yourself. But obviously, we look at this a lot, and one thing we can say is that tablet gaming, people tend to actually monetize better on tablets, and I think that's one of the most interesting facts that we've noticed to date. But look, it's still early, but I would encourage you to check out the research out there because it's pretty robust.
Operator, do we have any more questions?
There are no further 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 year.
Thank you. This concludes today's teleconference.