Greetings and welcome to the Take 2 Interactive Software Third Quarter 2010 Results Conference Call. At this time, all participants are in a listen only mode. A brief As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edneb, if
conference call. Today's call will be led by Strauss Zelnick, Chairman of Take 2, Ben Feder, our CEO and Lainie Goldstein, our CFO. Our team will be available to answer your questions during the Q and A session following our prepared remarks. Before we begin, I'd first like to quickly review our Safe harbor statement by reminding everyone that statements made during this call that are not historical facts are considered forward looking statements securities laws. The forward looking statements are based on the beliefs of our management as well as assumptions made by and information currently 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 for the fiscal year ended from our website at www.take2games.com. And with that, I'll turn the call over to Strauss.
Thanks, Ed. Good afternoon, everyone, and thank you for joining us. Today, we're financial performance is a clear reflection of the company's focus on several key objectives, building on the talents of our world class creative teams to produce AAA titles, increasing the diversity and breadth of our product portfolio and delivering it to a broad range of audiences, pursuing emerging opportunities in new distribution and regions by leading with our proven intellectual properties, establishing a solid financial foundation characterized by more efficient operations and a strong cash position. I'll briefly review our results for the third quarter, then I'll highlight some of our team's recent recent accomplishments and our strengthened outlook for fiscal 2010. Net revenue was 354,100,000 was $26,000,000 or $0.28 per share.
We ended the 3rd quarter with $232,000,000 in cash. In particular, our third quarter results were driven by the exceptional performance of Rockstar Games Redemption, which is one of the highest rated titles of this console the game has sold in more than 6,900,000 units worldwide. Red Dead Redemption illustrates from the continued strength of Take 2's catalog, including Grand Theft Auto episodes from Liberty City, Grand Theft Auto 4, NBA 2K10, and border lands. Digitally delivered offerings again were a meaningful contributor to our results. We continue to capital as a new and emerging opportunities to maximize the value of our frontline releases and leverage the strength of our brands through digital channels.
As a result of our
one of the paramount goals that this management team set on day 1 to operate the company profitably in a year without a new Grand Theft Auto release. This will mark the first time in 2, and through the hard work of all of our colleagues, we're poised to reach that milestone. We continue to believe that the for the industry as a whole and for our company. And therefore, we're maintaining our prudent approach to the business. Third quarter results and our full year outlook demonstrate that we're well on the way to creating a new take too, one that can deliver performance from a diverse portfolio of world class titles.
While there's understandably strong interest in the timing of our next Grand Theft Auto title, we've shown that our business is much more than that iconic brand. Includes Red Dead Redemption, Bioshock, borderlands, NBA 2k, Midnight Club, Sid Meier's Civilization, and games. Each of these titles ranks among the industry's most successful properties and each of our labels is contributing to our success. Red Dead Redemption is an excellent example of what we can achieve, delivering an absolutely superb entertainment experience. We believe that Take 2 now has the strongest intellectual property portfolio in the business, and that portfolio translates into profits.
Now I'll turn the over to Ben.
Thank you, Strauss. I'd like to begin by saying how incredibly proud I am of our third quarter results and the improved outlook for the fiscal year. Our performance and especially our ability to deliver profitability in a non GTA year underscores the progress that we've made in building K2 for the future. Today, we are better positioned creatively, financially, and geographically than in any other time in the company's history. We're also more diversified than in any other point in our business.
Like to review some of our recent products that have led us to this point and then discuss some of our upcoming releases. Fred dead redemption is an ongoing phenomenal success and illustrates our ability to deliver games that raise the bar for excellence in our industry. At a time when consumers have continued to be highly discerning with the way they spend their money, Rockstar Games has proven that innovative AAA's experiences can still command a blockbuster audience and market share. In addition to Red Dead Redemption's strong single player into the multiplayer game has kept users coming back for more from a steady stream of downloadable context. With more compelling DLC on their horizon, we believe that Red Dead Redemption is poised to remain one of the most played titles of the year.
Gamers are eagerly looking forward to the liars and cheats pack and the undead nightmare packer, which will introduce zombies to the wild west setting of the title. Rockstar is also for pairing for the eagerly anticipated launch of Red Dead Redemption in Japan. We're enthusiastic about the reception that title has received from the first party in tailors leading up to its October 7th launch. Initial indications are very strong, and we are anticipating a buster launch that will build upon our success in North America and Europe. Our catalog continues to be one of the strongest in the industry.
Sales of our Grant Theft Auto, NBA 2K10, and Borderlands titles illustrate the importance of having established brands that remain relevant to consumers and offer value. New platforms, business models and territories. Multiple packs and full PC games to offerings for the iPhone and iPads, we always leave with our brands to make our content available to consumers where, when, and how they want this. These initiatives coupled with our strong relationships and marketing programs with traditional retailers ensure that we are taking advantage of launched mafia 2, the eagerly anticipated sequel to mafia. We're very proud of the game, which features incredible action, including car chases, explode of gunplay, compelling characters and an engaging narrative that meticulously recreates the 1940s 1950s.
Mafia 2 was developed by 2K check an extremely talented studio. Based upon the initial launch, we expect this to be another profitable title for Take 2. We announced that a rational game is currently working on the next game in the highly acclaimed BioShock franchise. BioShock infinite. The game will present an entirely new narrative experience that lifts players out of the familiar underwater city of rapture seen in shock and BioShock 2 to Columbia, an immense city set in the sky in the year 1912.
It's being developed by the team franchise, and the initial response from the gaming community has been incredibly positive. The game was the talk of the recent games con events in Germany and won IGN's Aylock show award. It'll also be featured on the cover of this month's issue of Game And Fort magazine. Shock infinite is planned for release during calendar 2012. On August 24th, 2 k sports released NHH L2K11.
It's 3rd groundbreaking hockey release exclusively for the week. Fans of true simulation sports will quickly appreciate the game compatibility with Blue Motion Plus that provides intuitive 1 to 1 motion control. In addition, NHL 2k11 will introduce the all new road to the cup mode, featuring me characters battling in mini games, trivia challenges, and skills competitions.
Now let's look
at our lineup for the balance of the year. As noted in today's press release, we're now expected we now expect to ship Ellen Wars the first half of calendar 2011. Using groundbreaking proprietary technology, LNY will deliver a evolutionary gameplay experience that has never been seen before in our industry. We show the game at a recent GameStop Manager's meeting where it was an incredible response. We're confident that the investments of additional tile will translate into another commercial and critical 5th for our company.
Doc Storable released Grand Theft Auto Chinatown Wars HD for the Ipad in early September. The game was originally released on the Nintendo DS in March 2009. Since then, it has launched on multiple platforms, including Sony PSP, iPhone, and ipod touch, and have sold in more than 2,200,000 units worldwide. We're excited to bring the ultimate handheld grants to experience
graphics.
2 Ks Forage is gearing up for the October 5th launch of NBA TK 11 featuring NBA and Michael Daugherty. This year's game promises to build upon the commercial and critical success of our industry's number 1 rated and number 1 selling basketball franchise. Preorders for NBA 2k11 have been very strong. The title will feature the Jordan Challenge mode that allows game to relive 10 of his most famous games and an unlockable MJ creating a legend mode, which enables him to play on any today's NBA teams. NBA 2k11 will be our first title to support the new PlayStation Move controller and 3 d graphics to PlayStation 3.
We're very excited to be incorporating these new technologies into our titles and our confidence that it will enhance what promises to be another season for, of NBA 2K Basketball. For those gamers that can't wait until the launch, NBA 2K Sports will release a playable demo on Xbox 360 and PS 3 later this month. On September 21st, 2K games will release Sid Meier's Civilization 5, one of this year's most eagerly anticipated PC titles. The civilization franchise, which has sold millions of units worldwide, is one of the industry's most successful and strategy game series and is famed for its addictive just one more turn gameplay. Civilization 5 takes this game in new directions with the introduction of hexagon tiles that allow for deeper strategy, more realistic gameplay, and stunning organic landscapes for players to explore as they expand their empire.
The game won numerous awards during E3 including best strategy games from the E3 critics, IGN, Machinima, and game informer, who also gave the title its best PC game award. Building upon those accolades, civilization 5 is featured on the cover of this month's PC Gramer Magazine, who gave the title their Energous Choice Award and a fantastic review score of 93. We're very proud of Sid Meier in the of Paracas, we believe that this further demonstrates our unique ability to deliver multiple high quality titles. We'll also introduce new bio shock 2 and Borderlands, downloadable content packs that will enhance and deepen those gameplay experiences. This fall, 2K games will build a their success with Borderlands by releasing a special game of the year edition that will include the full version of the game, tokens to download all four add on packs, and a special map of the Endgame World.
We think that this definitive collection will provide gamers who haven't yet played Borderlands season. New Carnival games for the WYNDES will build upon our popular franchise that has sold more than 6,000,000 units worldwide and are among the best selling third party Wii titles of all time. Developed by our Cat Daddy Game Studio, the team behind the original title, new carnival games in moves more than 30 new games and attractions and hundreds of prizes. In addition, the game will feature expanded multiplayer gameplay and compatible with the We Motion Plus. 2K play will also introduce our company's first foray into the fitness category, Nickelodeon Fifth.
It's exclusively for the We and compatible with the We Balance Board, the Colombian fit provides a new way for kids to stay physically active as they engage with their favorite characters, Dora, Diego, Kylon, and the Backyardigans. Developed in collaboration with physical education and exercise science experts, Doctor. Jackie Goodway. Nickelodeon 5th features 30 exercise games. Excited to introduce a product that helps address the need for children to engage in physical activity and begin a path to a health and lifestyle.
2K play also will have an entirely new lineup of Nickelodeon Title featuring Dora, the Explorer, Diego, and Mega Blocks build and rescue, which will enable them to celebrate cultural diversity, learn new skills, and experience adventures with their favorite characters. I'd like to add one point about operations as part of our ongoing commitments to improve the efficiency of our business. We implemented a targeted staff reduction at our Rockstar San Diego for Access And Visual Concepts Development Studios in order to properly align the resources their current and future goals. I wanna thank our employees for their hard work. For the past 3 years, they've been focused us on execution, creativity, and innovation, and that has resulted in an incredible quarter and a very strong outlook for the year.
We have made and continue to make significant progress and we provide providing a solid foundation for our future. We'll aim to build successes and continue to strengthen Take 2's potential as a leading global interactive entertainment company. Thank you like to turn the call over to Lane.
Thanks, Ben, and good afternoon, everyone. Today, I'll review our 3rd quarter results and then discuss our outlook for the remainder of the year. All the numbers I'll be providing today will be results from continuing operations. Discontinued operations in our financial statements are related to the jack of all games such as business, which we sold in February. In addition, all of the numbers that I will discuss are non GAAP unless otherwise noted.
Other than net revenue, which is not affected by any non GAAP reconciling items. The tables included in our press release provide a complete reconciliation of our GAAP to non GAAP numbers. Net revenue was 354,100,000 dollars for the comparable period a year ago. Non GAAP net income for the quarter was $26,000,000 or $0.28 per diluted share compared to a non GAAP net loss of $52,300,000 last year or a loss per share of $0.68. I was significantly exceeded guidance with the performance of Red Dead Redemption being the key factor.
In addition, we have increased our lifetime projections for the title, which pops of our development costs in the third quarter. Other contributing factors were overall operating the legal settlement and expense savings due to cost cutting initiatives. Selling and marketing expenses were lower than we expected due to the timing marketing expenses for current and future releases. Dollars higher than forecasted, primarily as a result of the quarter's performance. Our GAAP results for the 3rd quarter were income from continuing operations of 12.4 dollars per share in the third quarter of 2009.
Leading the 3rd quarter sales for Red Dead Redemption, Grand Theft Auto episodes from Liberty City, Grand Theft point 04 Major League Baseball 2K10, NBA 2K10, and Borderlands. Our digitally delivered results are strong this quarter. Digital revenue was about $18,000,000, up by $11,000,000 as compared to the same period last year. Non GAAP gross margin for the 3rd quarter was approximately 34%, up from 20% in the third quarter of the prior year, primarily due to the successful launch of Red Dead Redemption. We did not have any key releases in the same period last year.
Non GAAP operating expenses in the third quarter rose from same period of the prior year mostly due to a $22,000,000 increase in selling and marketing expenses. Majority of this increase for marketing and sales support related to Red Dead Redemption. G and A expenses decreased by about $3,000,000 or 12 percent. The improvement included approximately $2,500,000 of income due to a legal settlement and lower salary expense as a result of our cost cutting initiatives. Although this is partially offset by increased performance based leases.
Interest and other expense was relatively in line with the prior year. Moving on to our balance sheet. At the end of the third quarter, we had approximately $232,000,000 in cash. Percent of gross receivables, largely related to the retail performance of BioShock 2. Inventory at the end of the quarter was approximately 1,000,000, slightly lower than year end and last quarter, primarily due to higher inventory reserves.
Inventory was up from Q3 2009 due to the increase in titles released this year. Software development cost licenses were slightly down compared to the 2nd quarter. The amortization of development spend on Red Dead Redemption, offset by our continued development costs on key future releases compared year end, Q3 2009, software development costs were hired due to the continued investment in our pipeline. Accrete expenses and other and fees due to the company's performance in the quarter. Now to our outlook, which is provided on a non GAAP basis.
We are increasing our fourth quarter and fiscal year twenty and 10 guidance significantly and are and strength of Red Dead Redemption, increased expectations for our Q4 releases, and changes in our release schedule. In addition to our release schedules, assumptions, expected results may be affected by variability in foreign exchange rates. Our guidance is based on spot rates as of the time we finalize our forecast. For the full year, we expect non GAAP net income per diluted share in the range of $0.60 to $0.70 $1,000,000,000 in net revenue. This excludes stock based compensation expense of $0.30 per share and expenses of $0.18 per share related to certain other non cash and nonoperational gains and losses that are detailed in the press release.
We continue to expect our baseball business is approximately $30,000,000 to $35,000,000 or $0.30 to $0.35 per share on a non GAAP basis, which is included in fiscal year guidance. Our fiscal 2010 guidance reflects tax expense of about $7,000,000, largely attributable to our international operations. We estimated share count is approximately 98,400,000 for fiscal 2010, including 6,000,000 of participating shares of our invested restricted stock grant. We share count also includes 13,000,000 of diluted shares underlying our convertible bond. If converted, the higher share count would be offset by a reduction in debt.
For Q 4, we expect non GAAP net income in the range of $0.20 to $0.30 per diluted share on $270,000,000 to $320,000,000 in net revenue. This excludes stock based compensation expense of $0.06 per share and expenses of $0.03 per share related to certain other non cash and non operational gains and losses as detailed in the press release. Our key releases in Q4 are mafia 2, NBA 2K11, civil station 5, new Carnival games, Nickelodeon's debt, and NHL 2k11. Based on the mix of the above Q4 releases, As well as continued sales of Red Dead Redemption, we expect gross profit margins to increase into the low 40s for the quarter. We expect overall operating message to increase in Q4 as compared to Q2 and Q3, primarily driven by significantly higher selling and marketing to support the launch of our Q4 and holiday season title.
G and A is forecast to increase in Q4 by approximately 17% is compared to Q3, primarily as a result of approximately $2,500,000 of income due to a legal settlement in the third quarter. R and D expense and depreciation and amortization in the fourth quarter should remain relatively flat as compared to the third quarter. Based on our Q4 forecast, we expect to show about $1,000,000 of tax expense, primarily attributable to our international operations. Our estimated share count is approximately 98,800,000 for Q4. This includes 6,000,000 of participating shares for our unvested restricted stock grants and 13,000,000 of diluted shares, a underlying our convertible bond.
As mentioned earlier, if converted, the higher of a fourth quarter fiscal year, building on our focus on AAA gains, increasingly diverse portfolio, growing distribution and improved operating efficiency. We are and future releases on our next conference
to build a new Take 2. We're very proud of our accomplishments and excited about our prospects for the balance of this year and beyond as we continue to strive improve and grow
A confirmation questions. Our first question comes from Mike Hickey from Janco Partners.
Hey, it's Jonathan, Lainie and Ed. Congratulations on your turnaround. I'm curious, Lainie, if you mentioned what catalog was for the quarter, And then Strauss, it looks like kind of the major franchises from Rockstar are coming every 3 years or so. And I was wondering if that is kind of just a philosophical pacing from the Rockstar team in order to kind of manage the fatigue level there? Or is that just capacity constraints?
Hi, Mike. It's Lainie. The catalog for the quarter was 14% of, publishing sale. That was, the dollars were pretty wrong, but as a percentage of overall sales, due to red dead redemption, the percentage was lower than it was prior in the prior year.
To your point about franchises, I wouldn't really distinguish between 2 K and Rockstar. I I think you're right the bulk of what we do because we aim to to produce and distribute only the highest quality titles in the business. The bulk of those are are really not suitable for for annualization, although there are exceptions. We think first of all, if you're really putting out something groundbreaking consumers, you run the risk hiring consumers if you do it annually. Secondly, it takes time to do something groundbreaking over and over and over again, but we know we're not on a fixed, a fixed schedule all, we really, we really want to take the appropriate time to to create the title and then give the title an appropriate rest from a any point of view?
I'd add to that,
Strauss, that, you know, we believe Take 2 now has the strongest portfolio, I think, in the business. Not only does that portfolio targeted to profits, but it enables us to give the franchise the time that it needs because we can fill in other products. We don't we don't have product company, 2 product company to be multiple product company, and we can afford to give the product, give individual franchise the time that they need to develop.
Thank you. Our next question comes from Arvind Batya from Stornyji.
You. I'd like to add my congratulations as well guys. A couple of questions here. First one on Japan the launch of Red Dead Redemption, should we assume that the pricing and economics are going to be very similar to what you have here? My first question.
Then the shift of Eleon Noir into next year, can you talk about, kind of the reasoning behind it? I know, typically, it's, you know, you want to give the game more time, but, is it also any timing, issues in terms of when you want to launch it? Is that a better window? And then last question is on headcount. If you could just touch on, what the headcount is in development right now?
Thanks, Arvin. I'll answer the question about Japan. Strauss will answer your your question. On Japan, there are, 2 distinguishing things, economic factors that you should bear in mind. One is that Take 2 became a publisher in Japan, a few quarters ago, which, lead us to lead that territory to provide higher margins for us.
We rely on the 3rd party due to physical distribution and the actual sales, but we are a publisher with respect to 1st party and that leads to higher markets. That's number 1. Number 2, in case, you're not aware Japan is distinguished because it does it's not a it's a no returns, territory. So while we have price protection and sometimes potential on return, especially on PC products, point when retailers take it, they take it. And, yeah, we don't have any further responsibility for it.
Arvin, thanks on LA and you are, yeah, obviously, when when we when we schedule a title, we're trying to be mindful of of of lead these 2 issues. First, how long does it take to put out an a plus title? And when you're trying to do something groundbreaking, it can take a while and I think, you know, we have tried very hard to balance appropriately a desire to have a, rational release schedule with a desire to put out trip titles. Every time we push the envelope, creatively, it takes it takes a while. And, in this particular instance, you know, I'm not gonna disclose all the all the advancements.
They're pretty extraordinary. They are complex and, worth waiting for. Equally, you're right. We do try to pick the right marketing window. That is important.
One of the things that we're proud of around I think we've we've extended the market window. I think we've shown the market that if you put something fantastic out, people will come out for it. And that's true pretty much year round. Said, we do wanna be mindful of what the competition is doing and we don't wanna stack up a release unnecessarily. These are expensive And one of the things I think we found with Red Dead to our to our happiness for from our point of view is that, we were able to out some of the competition because, the best title in the market, you know, won the day.
You
know, we get, criticized often for, for, for titles movement and I'll not be on time and on a budget. I pointed out in the past, but our very worth repeating on the call that Red Dead Redemption took down any number of titles that were both on budget and on time. In so while we always strive to achieve greater predictability in our business, and it is a goal of our company to, to get better at predictability, if a title needs more time and need more time. I'm willing to give it. We serve no wine before its time.
I will say about L. A. N. Wire that as I look around competitively at the marketplace, there's not else quite like it. In terms of the game play and in terms of the technology behind it, there really is nothing quite like it.
And we won sure we get it absolutely right.
In terms of the development personnel, currently, at the end of the quarter, we had 16 our next
comes from Daniel Ernst from Hudson Square Research.
Three questions if I might. The first question is a little difficult to ask and probably reasonably difficult to answer, but if we look at the concept of take to delivering material profits in a non GTA year and that was the thesis you guys joined. And it was certainly, our thesis a year ago, and us and a lot of people had numbers around the 5th the $0.60 range for this year, which we were all disappointed to lower to a 30 dollars, 40 loss and now we're back up to even better than we were a year ago, $0.60.70 profit, sort of, you could take me through that progression. I don't think it's just Red Dead to sort of comment on that. And then my second question, I sort of hate to ask, which is what's next question, Can you give us a little bit of thoughts on how you're thinking about FY 'eleven?
I know we know some of the titles like L ANOR which you just talked about and we had special ops and and max pain, but how you're feeling about the profitability, again, absent what we do or don't know about another title. And then the 3rd question, just talk a little bit about gaming on the iTunes or app platform. You've got civilization up there already and now you're launching the GTA top down game for the Ipad So can you comment on what you're seeing on progress on the revenues from Apple? Thanks. Daniel,
on the plane 8, the, take 2, when you look at the numbers for what we gave out not in December versus where we are right now, the you know, Red Dead is a huge success for us. So, obviously, that is the big driver of us turning to profitability. But when we look back at that time, if you think about some of the other titles that we had in the sched in the release schedule that didn't actually make the year, I mean, that's really those titles, as well as the economic environment, and what we were seeing, some of our other titles and how they've performed. I mean, it's really it's not about, you know, one specific title when we put our numbers together. It's a intuitive title and one title hitting big can really change the landscape, which it did for us this year.
For fiscal year 2011, we are currently in our budgeting process. So we're not, you know, ready to really talk about much details there, but we have announced that, spec ops is going to be in the here at Ellen Noir and also mentioned that XCOM will be in the calendar year 2011. So those are some titles that you can look forward to in the near future?
And I'd probably add on, on, I'm
not sure what the nature of your question is on the Apple Iphone. I think, So when we look at new opportunities, we look 1st and foremost to leading with our brands. We don't lead with our capital. We lead with our brands. And if you look at the top, as apps for games on the Apple platforms.
They're almost all brand extensions of, games that are successful in the awful market. And we'll continue to do that. We'll continue to develop our brands, close the existing ones and develop new ones on console market, and bring them over to the Appleize, the, the iPad and the iPhone and the I touch. And, to see, we think it's a fantastic market that Apple is doing is unbelievably amazing. We're big fans.
We just need to make sure that our brand that we manage our brands appropriately and that the game that the experience matches expectations and matches price points.
Great. Thanks for the color.
Thank you. Our next question comes from Doug Crutze from Cowen and Company.
Thanks. Your new fiscal Q4 guidance is a pretty big lift from where you had implied it was going to be before. Wondering on the revenue line, how much of that you think is going to be coming from your downloadable content slate, which is pretty robust? And maybe if you could give some color about how the Legends and large packet done, had it done since you released it. Thanks.
Yeah. This is Lenny. And for Q4, we do have some additional digital offerings that are going to be in the quarter, but we don't give any detail on a title by title basis. There's a lot of other things that are really driving that MBA looks amazing. Our preorders are up from last year, and MAFU2 is really off to a great start, as well as higher expectations for Red Dead Redemption in the quarter.
Does that mostly, you know, those are the big drivers.
Alright. Thanks.
You. Our next question comes from apuva from ThinkEquity.
Hey guys, thanks for taking my call and congratulations on a great quarter. A couple of questions for you. So Digital, you mentioned it's 18% of revenue. I was wondering if you can share how much of that is VLC and what percentage of that is, Apple and and other platforms. And what is your philosophy on on the Facebook and Apple games?
Is it more about broadening the funnel that, did you see this becoming a meaningful revenue opportunity for you?
For the digital, for the quarter, we don't give a big detail on how we break that down, but overall, it was $18,000,000 in the quarter, which was up from last year at this time.
And and on face and other platforms that I think Ben said it well. We we make it our business to bring our intellectual property to tumors around the world, when, how, and in what form they want it. Long as it meets our standard of delivering a AAA experience, what we're not doing is taking our properties and porting them to dumb down versions of a great game. Everything we do has to stand on its own as a superb experience for consumers. The Facebook platform to date has really been largely a social gaming platform.
Those have typically been pretty light games, pretty addictive games, and and no doubt a lot of people have made of money doing that, we're beginning to experiment. And, you know, we're bringing civilization to social gaming, and we're looking forward to seeing how will do. The same way we brought our titles in really high quality ways to to other platform was whether that's the DS or the iPhone or the iPad. In instances, we're going to be driven by a desired delight consumers and and a desire to do something that's really high quality. And as Ben said, we're leading with our brands, with our development, with our marketing, we're not leading with our capital.
So we'll Facebook be an interesting platform for us. You certainly don't want to, turn from a platform that has 500,000,000 users. It's a wonderful opportunity. At the same time, we have to deliver AAA experience, and that's what we're focused on figuring out. And you'll, you'll hopefully look forward to seeing this experiment.
Right now, small profit contributor, in the future, perhaps a larger one.
Makes sense. And and the second question, specifically, I mean, how should they think about number of titles launched in any year? How many new IPs or non annual release status that you plan to launch in any given year?
The release schedule kind of shapes up, over time. And we don't, we don't specifically have a number of titles that we try that we target to release in the year. We're very developed oriented job, as Josh said, it's, with AAA, we're convinced that even in social gaming and Facebook gaming that, all those games are gonna have to go into, AAA land. And creating 90 plus games is hard, hard, work. And, and we wouldn't want it any other way.
So we wouldn't want to sort of say, look, we're gonna deliver 80 games, but we're gonna deliver 5 of them a year or 10 of them a year. We focused on delivering, titles when they're ready, focusing on delivering great experiences. And as you map that against a catalog that continues to perform strongly, it gives us greater visibility, less volatility as the catalog becomes more and more important, and greater profitability. And think, you know, as we focus on, we've never gone wrong by focusing on on great quality, and that's gonna guide us not any particular volume of titles being released at a given year.
I think you pretty much look forward to seeing we've You know, the SKU counts are going to be roughly what it is. We've prided ourself on launching a couple of new intellectual properties here and more to the point on launching big hits every year. And this year's, you know, this year's a standard bear for that with the launch of Red Dead Redemption, and not just Red Dead Redemption. I'll it's 2.
Thank you. Thank you. Our next question comes from Eric Handler from MKM Partners.
Thanks for taking my call. Two questions. First, just to sort of size the Japanese market, one that you could sort of, give them $30,000,000 in cash, thoughts on how you might use that cash or your excess cash, going forward. Thanks, Eric. On the on the side of GTA and, the question is GTA 4 in Japan?
Yes.
For that.
You
know, we'll get back to you on it. It's, I don't have it in front in front of me. I'd say, well, I won't give you order of magnitude, but we'll get back to you on the number.
Okay.
I also want to talk that cash?
Yeah. In in terms of cash, obviously, you know, the reflection of the cash reflects back that we're having a profitable business and when we building up our our cash reserves. We have an exceedingly solid balance sheet. We think that's important in a business where there is an element of risk. There's an element of volatility, and these titles expensive to produce in market.
So we feel like we're in very sound shape. I think it is worth pointing out that this does give us a good deal of flexibility as opportunities present themselves And, and it's allowing us to be expansive in our expansion around the world, our expansion into other markets, our expansion, into new and intellectual properties and just as, you know, as one small example of that, you know, our efforts in China to build and launch a massive multiplayer game in association with consent with MBA. Now it's consistent with our strategy of geographical expansion. It's consistent with our strategy of expanding the type of products we do, and yet we are leading with the brand not primarily with capital. Good news is we have the capital if we need it.
Oh, I would say, Eric, that, you know, 2:30 in cash. There's a convert out there, but there's also an there's a there's a credit facility that's completely undrawn. So we have, you know, a lot of flexibility.
Our next question comes from Edward Williams from BMO Capital. Just
a follow-up, first of all, on, on, Strauss, your answer, Eric's question. Can you give us an update as to where you are with NBA 2 today in Tencent in China? And we'll, you know, what the next milestones might be that we hear about?
Ed, Ben, we're not, they put it this way. Things Gressing. It is a strategic priority for the company. I'd say that our relationship our development relationship with Tencent is, is as good as it It's not to say there aren't issues every now, and I think it's as good as these relationships go. We think we're going to deliver a top notch game think that we've got the right partner, we think that it could be, tremendously successful.
Having said that, it's the first time we've taken a AAA kind of game the way NBA 2K is AAA game and putting it on top of an online platform. And, the way these things roll out is not going to be launched, it'll go to, you know, consumer testing and closed beta, and then beta. And we're not announcing a closed so we're not announcing the closed beta yet. When we do, we'll get back to you, but we're working diligently to get to that point.
And then just to to to follow-up to that. I assume that that at some point, you may wanna take this game outside of China and if that is the case, can you talk about how that may happen? Do you have the rights to the to the MMO version of NBA 2k outside of China, or is it something that you'd sharing with Tencent?
I'm I'm I could you I I didn't catch the question. Can you repeat it?
I I'm curious to see if you're going to take the MMO first of NBA 2 k outside of the Chinese market. Is that something that you owned rights to, or is that something that you'd be sharing with Tencent?
We're not prepared. We're not it's it's a it's a detail of the company that we're not prepared to discuss publicly.
Okay. Alright. And then just a couple of other questions. If to look at the, the iPhone and the iPad, can you comment a little bit about what sort of an impact you've seen the Apple platform have on the DS and the PSP. And then as a follow-up to that, do you see, using windows of available as you as you take properties through various platforms, especially as a means of combating a potential issue with the price point of the Ipad software.
Yeah. I I don't have a sense of how the platforms will interact. The good news is there's no extraordinarily large demand for of entertainment. It's growing rapidly. It's really the only growth area in entertainment.
And each of these platforms is good at doing different things. What's interesting a tablet in general and the iPad specifically is the screen size, and and, potentially the processing power. And that tells you that it's gonna have the different creative capabilities than a small screen. No question about it. How it's used, remains to be seen, how deep the remains to be seen.
I I suspect tablets will be largely a portable device, and therefore games probably will be consumed differently than they consoles, but I could be mistaken about that. And and, it's kind of irrelevant from our point of view because we have the ability to do both. We can do we've shown we can do casual games in our 2K play division and we certainly know how to make AAA games. We were prepared to do both to the extent the platform makes it available. Your point about win doing sort of, a different windowing applies really to providing the same product on different screens if different times at different price points.
And windowing, is is a legal and appropriate way of price discriminating also. In other words, you can you are able to charge a high price for an a plus and then as the experience becomes less A plus you charge a lower price and therefore different consumers can consume at different points to different price points. But generally, windowing refers to the same left. Right? One motion picture first in the cinemas then pay television uninterrupted by commercial, then free television, and then who knows how it's how it's, consumed.
In in our instance, it's different because while the the brands may be the same, the themes may be similar and characters may be similar. Grand Theft Auto for for a console is simply different than Grand Theft Auto for a handheld. It just has to be. Screen as processing power, memory, and engagement of the consumers. So windowing plays a different role.
And I I think I think your instincts are right, which is the platform that gives us the biggest economic opportunity is probably where we'll start, but the industry, our industry has move towards simultaneous releases. If the releases are simultaneous, generally speaking, the price points are similar. So this is stuff we have to work out, but I think what what drives us 1st and foremost is meeting consumers where they are, both geographically and economically, bringing our intellectual property to them across platform and across economic model, with a a constant unwavering focus on quality, both from a development point of view and a marketing point of view. And, look, you know, no one's perfect. We have our lapses, but we're we're certainly moving in the right direction.
Thank We appear to have no further question I'd like to turn the call back over to the speakers for closing comments.
Just before we do that, Eric Hannah, I have a number for you in your 400 K or so in Japan, and, and that was the highest selling Western Develop title on this generation.
So, you know, speaking for all of us here today, first of all, I wanna thank you for joining the call. Secondly, this is this is been a hard one, quarter and a hard one game. And, really, all the credit for the success that we're talking about today goes to our colleagues all around the world. It starts with phenomenal properties and amazing development, and I I can't stress enough how difficult and how much commitment and time and energy and engagement takes to do that. Sometimes I think for our development it feels like a thankless task.
So we specifically wanna, be to be thankful and show our gratitude. It's it's incredibly to be part of this organization. It's incredibly rewarding to see results, and thank you for joining us today.