Greetings, and welcome to the Take-Two Interactive Software Fourth Quarter Fiscal Year 2014 Earnings Call. [Operator Instructions] 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. Thank you.

Good afternoon. Welcome, and thank you for joining Take-Two's conference call to discuss its results for the fourth quarter and fiscal year 2014 ended March 31, 2014. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's annual report on Form 10-K for the fiscal year ended March 31, 2013, and Form 10-Q for the fiscal quarter ended December 31, 2013. I'd also like to note that, unless otherwise stated, all numbers we will be discussing today are non-GAAP. Please refer to our earnings release for a GAAP to non-GAAP reconciliation and further explanation. Our earnings release and filings with the SEC may be obtained from our website at www.take2games.com. And now, I'll turn the call over to Strauss.

Thanks, Hank. Good afternoon, and thanks for joining us today. Fiscal 2014 was a record-breaking year for Take-Two. Rockstar Games' Grand Theft Auto V reached $1 billion in sales, faster than any entertainment release in history. NBA 2K14 enjoyed the franchise's strongest launch. Borderlands 2 became 2K's top-selling title, and our digitally delivered revenue grew to its highest level ever. As a result of these achievements, we generated record revenue, earnings and cash flow for our shareholders. We ended the year with nearly $1 billion in cash, after spending $277 million to repurchase our stock at a meaningful discount from today's share price. The highlight of our fiscal year was the worldwide launch of Grand Theft Auto V. This extraordinary title, which received more than 300 perfect scores, illustrates Rockstar Games' unmatched ability to deliver creative excellence. Grand Theft Auto V has been a commercial blockbuster that shattered numerous entertainment industry records. To date, the title has sold-in more than 33 million units worldwide, and continues to attract new fans. Rockstar Games is hard at work on their upcoming lineup, and we're excited about what they have in store for the new generation of systems this fiscal year. In sports, it's a monumental achievement to win a championship 2 years in a row. 2K and Visual Concepts have done just that for 13 consecutive years by consistently delivering the highest-rated and top-selling basketball video game. NBA 2K14 was our first next-generation title and already has surpassed NBA 2K13 as the top-performing release in the franchise's history, with sell-in of more than 6.5 million units to date. Moreover, the title has dominated next-generation sports sales, surpassing both FIFA and Madden as the third highest selling title of any genre on PS4 and Xbox One in the United States, according to the…

Thanks, Strauss. Today, I'll provide an update on our robust development pipeline for fiscal 2015. On October 7, Visual Concepts will enhance their unparalleled basketball legacy with the launch of NBA 2K15 for PS3, PS4, Xbox 360, Xbox One and PC. Last week, 2K announced that Oklahoma City Thunder superstar, 4-time NBA scoring champion and recently crowned 2014 NBA Most Valuable Player, Kevin Durant, will make a solo debut as the game's cover athlete. We're thrilled to have him aligned with our brand, which underscores 2K's commitment to continually strengthen the franchise through the integration of the NBA's best athletes. 2K has kicked off their pre-order campaign, and we're confident that NBA 2K15 will once again set new benchmarks for sports realism in gameplay. Wrestling fans can look forward to a new annual release from our WWE 2K franchise, which promises to take the series to new heights. This will be our first next-generation WWE 2K title, and also the first in the series to leverage the development expertise of Visual Concepts, which has made NBA 2K a perennial favorite and one of our most successful franchises. This fall, 2K will launch Evolve for Xbox One, PS4 and PC. Developed by Turtle Rock Studios, the creators of the cooperative-shooter classic, Left 4 Dead, Evolve is a new intellectual property that blends first-person and third-person shooter action with cooperative and competitive multiplayer, resulting in a fast-paced and deeply fun entertainment experience. Set on a frontier planet on the edge of the galaxy, players will have the opportunity to be 1 of 4 hunters, each with their own special abilities, who will work together to fight a powerful, constantly evolving player-controlled monster in a unique 4-versus-1 gameplay experience. The media's response to Evolve has been very positive. With GameSpot declaring, "Evolve is…

Thanks, Karl, and good afternoon, everyone. Today, I'll review our results for the fourth quarter and fiscal 2014, and then discuss our outlook for the first quarter of fiscal 2015. All of the numbers I'll be providing today are non-GAAP results from continuing operations, and all comparisons are year-over-year, unless otherwise stated. Our press release provides a reconciliation of our GAAP to non-GAAP measurements. Starting with our results for the fiscal fourth quarter, net revenue decreased 23% to $233.2 million as last year's fourth quarter benefited from the release of BioShock Infinite and we had no significant releases during this year's fourth quarter. This exceeded our outlook range of $170 million to $200 million, due primarily to the continued strong performance of the Grand Theft Auto series. Digitally delivered revenue grew 51% and accounted for $122.3 million of net revenue. The largest contributors to digital sales were the Grand Theft Auto series, the NBA 2K franchise and offerings for Borderlands 2. Approximately 60% was derived from recurrent consumer spending. Catalog sales accounted for $75.7 million of net revenue, led by Borderlands 2, BioShock Infinite, the Grand Theft Auto series and Civilization V. Gross margin decreased 1.9 percentage points to 47.7% due primarily to higher internal royalties. Operating expenses were $88.4 million, down by $16.7 million, due primarily to lower marketing expense. Interest and other expense was $2.2 million, and non-GAAP net income was $21.5 million or $0.21 per share, as compared to $42.9 million or $0.38 per share in fiscal fourth quarter 2013. These results exceeded our outlook range of breakeven to $0.10 per share. On a GAAP basis, we reported revenue of $195.2 million, a loss from continuing operations of $30.8 million or $0.40 per share. Turning now to our results for the full year. Net revenue increased 97%…

Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering a record year and setting the foundation for consistent, long-term success. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

[Operator Instructions] Our first question comes from Eric Handler with MKM Partners.

Two things. First, when you look at your cash on hand, you're now sitting at about -- over $8 of cash. And I think investors are pleased that you guys returned some of that capital this year through your buybacks in the third quarter. But fourth quarter, there was no buybacks. And given all the cash that you're sitting on and understanding that you're not expecting to generate any positive free cash flow in fiscal '15, is there anything in particular that you feel need to just sit on that level of cash right now?

Thanks, Eric, for your question. We said before about the cash balance, and this is a high-class problem to have, is that there's at least 3 potential uses. One is to support our organic growth, and our history of organic growth around here is pretty great. Actually, if you just look over the course of the few years, the bulk of our growth indeed has been organic. And in certain businesses, for example, our Asia initiatives, we turn to partnerships to make sure that we could both mitigate the risk and fund those growth opportunities at the time when we were capital-constrained. Thankfully, those constraints were lifted. Those opportunities have largely turned out to be very beneficial, and now we are in a position to finance more organic growth internally. Secondly, there's the opportunity for inorganic growth, driven by acquisitions. We've been really selective about acquisitions, and I don't expect that our discipline would be, in any way, reduced. Historically, what we've acquired -- when we've acquired something is the intersection of a high-quality team with high-quality owned intellectual property. And that is the lens through which we tend to look at the world. And we're not interested in pie-in-the-sky deals. We are only interested in accretive deals. But again, our balance sheet now gives us the opportunity to look at those deals in a more wholesome way. And finally, in the last year, we have demonstrated a desire to return cash to the shareholders by buying $277 million of our stock. We do have an open authorization still for share repurchase and will contemplate that as well. So there are any number of options in front of us, and that's the palette from which we can choose. It's a nice position to be in.

Okay. And then just as a follow-up more for Lainie. Lainie, your G&A in the fourth quarter was $51 million. That seems to be a line item that fluctuates quite a bit quarter-to-quarter. How should we think about that line as we sort of progress through fiscal '15?

Usually -- G&A usually stays pretty flat from quarter-to-quarter and it will probably be in line with next year's -- with last year's balance. The way to look at it, though, it can depend on if there is a onetime write-off or something. In last year--in 2013, we had a onetime $15 million contractual obligation that we had written off during that period. But otherwise, it should be pretty flat to last year's number.

Our next question comes from Justin Post with Merrill Lynch.

Obviously, you have a quite an installed base for Grand Theft Auto V, and not a lot about your plans there. I'm sure Rockstar is part of that, but what can you tell us about how digital is tracking versus your expectations and how that has factored into your guidance for next year? And then, bigger picture, next year, 2015, it's expected to be a big year for the console cycle, so next calendar year. How are Rockstar and Take-Two approaching what could be, finally, a growth year for software sales next calendar year?

Yes. I mean -- I think by -- when you talk about digital, I assume you mean recurrent consumer spending related to Grand Theft Auto Online. And we've said that, that continues to be a very good story, indeed and, if anything, has exceeded our expectations. It's early days yet. And there's a lot of great content out there. There's great engagement. We're all anxious to see how that develops. But by any standard, it's a very good story, and Grand Theft Auto Online is a big generator of recurrent consumer spending for us. And I'm glad you're optimistic about what next gen -- the next-gen rollout looks like in the coming calendar year. We tend to be highly optimistic as well. We have more than 10 titles in development for next-gen. We've had a great experience with our basketball title, which is the #1 sports title for next-gen and the #3 title overall for next-gen from last fall. So we've announced a number of titles. We've said we have more titles to announce for this fiscal year and for the future. And the fact that the installed base looks sound and growing is potentially a benefit for us. As far as Rockstar goes, we've confirmed that they're hard at work on their current lineup, and we're very excited about what they have in store for next-gen systems in this fiscal year.

Great. And maybe one follow-up. Will Rockstar have a presence at E3 this year?

Justin, it's Karl. At this point, Rockstar hasn't announced that they're going to be attending E3.

Our next question comes from Daniel Ernst with Hudson Square Research.

A couple questions, if I might. First, if you look at your lineup for this coming year, you have a very balanced portfolio of titles coming out, which is a nice thing following up a big blockbuster year with GTA. Without giving guidance beyond that, is that kind of a balanced-portfolio approach that you can have in subsequent years, where you don't have as big of swings in between the GTA years? Can you just give us a sense of you're -- how you're timing and allocating resources to have a more consistent earnings schedule? And then, as a related question, if you look at your R&D budget, including capitalized expenses, how much of that is dedicated towards new IP versus putting out new versions of a previously successful IP?

Yes. Thanks, Daniel. Look, I think you've identified the way the year is penciling out, and it's a reflection of our strategy. So historically, what we found when we came to the company some years ago was a company that was dominated by one franchise and operated within one business model. Everyone knows what the franchise was, and the business model was you can create a game and you put in a box and you ship it and then maybe you shipped a budget edition or Game of the Year Edition, and perhaps you shipped some expansion packs. Well, in the past 7 years, we've launched a multiplicity of new franchises. The company now has 10 franchises that have each sold at least 5 million units for an individual release. And in terms of business model, we, and frankly the rest of the industry, have diversified so that we have revenue that comes after the initial release of the game that's not related just to the sale of the full game, whether that's digital or physical revenue. And we call that recurrent consumer spending. What's exciting about the coming year and subsequent years is it's sort of both of those features that we're releasing a balanced portfolio of franchises year in, year out, in addition to new intellectual property that we hope will become new franchises. And we're aggressively pursuing this new business model, which means that we make a game available physically. We make it available digitally. We make downloadable content available when it makes sense. And when it makes sense, we allow consumers to engage in the game, both in terms of gameplay and in terms of spending money. We call that recurrent consumer spending. And that's become a very powerful engine here, both creatively and economically. Of course, we start with the creative engine and then we move on to the economic engine. And Lainie can answer your question about the balance sheet.

So in the R&D, the capitalized and the expensed, we haven't shared before the breakdown for new one versus old IP, but both of our labels work on new and old -- new IP and then old franchises all the time. So that's all included in that balance.

Again, though, I will say -- it's Karl talking. We've said this many times before that we have a very strong philosophy around that you just can't come out and just re -- and rerelease franchises over and over and over again. It's very important to us to constantly be reinvesting in new IP. And that is a stated objective of our company. We don't feel comfortable just sitting on our accomplishments and not trying to push the bar forward. Not only with them, with those franchises, but, obviously, coming up with new franchises as well. You've got to keep the pipeline going, and that's the only way to do it.

Good. That's great color. And if I can just have one other question. If you look at your planned split for domestic versus international, 55-45, a lot of media and Internet companies is kind of flip-flopped from that. What are the prospects of moving towards having a bigger presence overseas than you do domestically?

We've already moved that number meaningfully in the past few years. And remember, that includes our sports revenue, which does tend to skew for us still towards the U.S. We've made a big push internationally by aggressively focusing on Asia. We have headquarters in Singapore and offices over much of Asia. And we mentioned the progress we've made with NBA 2K Online. So that's just one reflection of the progress we've made in the market. But international, we are a worldwide company, and international revenue should continue to increase.

Our next question comes from Arvind Bhatia with Sterne Agee.

I was wondering if you might be able to give us some more color on digital that's baked into your fiscal '15 guidance. Should we be thinking, in terms of the percentage, I think about 20% of your fiscal '14 was digital or think about 18%, 19%? Is that the right way to think about it? And then, I know you had NBA 2K14 on the next-gen. Are you able to tell us what percent of your games on that game were full game downloads? What you're hearing maybe from other companies? And then lastly, in the fiscal '15 slate, the unannounced titles, can you talk to whether -- how dependent that is on AAA titles versus, I don't know, AA or more average-type titles.

Yes. In terms of percentage of revenue attributable to digital distribution, it's a work in progress. There's no doubt, in the year when we initially launched Grand Theft Auto V, shipping 33 million units, that's a year that's going to skew the physical distribution. So as revenues are lower, one could imagine digital revenues being somewhat higher. But that remains to be seen. It depends on our release schedule and how our recurrent consumer spending develops. But I wouldn't want you to extrapolate from this past fiscal year to the subsequent fiscal year. In terms of a breakout for NBA full game downloads versus virtual currency, we haven't broken that out. And in terms of our unannounced titles, it's tempting to be flippant, saying everything we do is going to be a hit, we know that -- much as we love to say that, that isn't always the case, but it's very much our goal. And we really only work on AAA titles, and our teams only work on titles they're passionate about, and they only work on titles they believe can and will be massive hits. And we are right much more often than we're wrong. And according to Metacritic, we have the highest Metacritic scores for the past 6 years, including this past year. And that's a reflection of both that objective and the execution of the objective. That doesn't guarantee that everything we'll do in the coming year will be a hit, but that certainly is our goal. We don't have AA titles. We don't have single-A titles. We only work on AAA titles.

So it is more than one AAA title, though, that's in the guidance?

Yes.

Our next question comes from the Drew Crum with Stifel.

So I wonder if you could talk about the confidence in the fiscal 2015 positive cash flow guidance that you mentioned, Lainie. And then, separately, Strauss, could you talk about -- maybe it's better asked to the studios, but you got Evolve on new gen and Borderlands' sequel on past gen, what's the philosophy behind not making them available on both generations of systems?

Drew, our outlook for fiscal '15 and going forward, where we say that we plan to be profitable on the foreseeable future, is based on a multiyear plan which tracks ongoing profitability of the company. And in '15, it also shows positive cash flow. In addition, our development pipeline, which I said that further gives us confidence in our ability to remain profitable over the long term.

Lainie, are there any working capital items or onetime items that are influencing that guidance?

Well when we look at '15, we were growing our capitalized software balance to support our exciting pipeline of titles. And then, when we look at the timing of our new releases, which is why we're, modestly, going to be down in '15. And then, that cash flow will be collected in '16, as well as the profitability ongoing in '16 will affect the overall 2-year cash flow.

And, Drew, it's Karl. In terms of Evolve and Borderlands for next gen, current gen. So for Evolve, this is a title we're obviously extremely excited about. We've got a lot of great press about it. There's a great buzz and there'll be some more about it on E3. And hopefully, you'll get a chance to check it out because it really is a fantastic title. And the bottom line is -- the strategy there is that, that's a next-gen game built on a next-gen engine and it's meant for next-gen. If you truly take advantage of what the game has to offer, and I think you'll understand more about that as you get to know the game better, I think you'll understand what we mean, because it really is something that we think is going to take the cooperative and competitive multiplayer to a new level. So it really fits best, the experience will be best on next-gen consoles. In terms of Borderlands, really, the opportunity there is you've got an enormous installed base. And you've got a platform where there's a lot of folks out there, they're still hungry for content. There's not a lot of other content coming out that's exclusively for -- or specifically for current-gen consoles. And we just saw a market opportunity and we think that our title fits very, very well in that regard.

Our next question comes from Tim O'Shea with Jefferies.

Just today, all the fiscal '15 titles are coming out of 2K. Just wondering the likelihood of seeing a Rockstar title in fiscal '15. I may have missed exactly how much full year revenue, Lainie, said to expect from Rockstar, but I think it was 45%.

Yes. We basically have said that Rockstar is hard at work on their lineup, and there's news to come for this fiscal year. And we expect Rockstar to account for about 45% of the year's revenue.

Our next question comes from Todd Mitchell with Brean Capital.

This is Yung Kim for Todd. Just a quick question with regards to the balance sheet. There were some step-ups in both restricted cash and for accrued expenses. Could you walk us through what drove those 2?

Specific cash balance of about $194 million is for payment of certain software development royalties, and those are included in our accrued expenses at the end of the year.

Our next question comes from Neil Doshi with CRT Capital.

Karl, just another question on Evolve. It's going to face probably some tough competition this fall in the shooter category. How should we think about the opportunity for this franchise? And then maybe a question for Strauss. Google and Apple are now trying to strike deals with developers for exclusivity. How do you think this impacts the industry and impacts Take-Two's business?

Thanks, Neil. So in terms of Evolve, you're right, there are a lot of products coming out this fall, and I think it's going to be a really great year for the entire industry. And in general, I think that's a really good thing because a lot of people will be in the stores and they'll be talking about games and they'll be buying a lot of games. We happen to believe that Evolve is so different and unique that the game will stand on its own. And in general, we understand that there is the notion of consumer wallet share out there, and people only have a certain amount of money that they're willing to spend on entertainment experiences. But we really don't see ourselves as specifically competitive with any other company or any other game, with the exception, perhaps, maybe in the sports business. But in general, we don't really fear the competition in that way. And we think that this game, specifically, will stand out in a crowd. And we actually like the fact that there a lot of games coming out because, again, it gets people in the stores and gets people buzzing about the industry.

And -- this is Strauss. In terms of Google, Apple and others perhaps seeking developer exclusivity. Look, it remains to be seen. Our stated strategy is to make our products widely available on whatever platforms consumers are using. And we're flexible about the nature of the platform, the size of the screen, as well as the business model. So we're not really based in that way. Generally speaking, we've look for wider rather than narrower availability. If, for some reason, the business evolved differently, then we would evolve with it. But I doubt that it's going to become a business of platform exclusives, that would be costly. And it's hard to imagine that would really benefit consumers. Now the analogy is pay television. In the early days of pay television, there was an awful lot of exclusive content and exclusive deals. And pretty quickly, the pay television services determined that didn't make a whole lot of sense. So I'm skeptical that, that type of business will develop. But if it does develop that way, we will take the opportunities as we find them.

There are no further questions. I would like to turn the floor back over to management for closing comments.

Well, we wanted to thank you, first of all, for joining us today, and just take another moment to express gratitude to our entire team worldwide, many of whom are on the call today. We've had an amazing time of development and growth and success, driven, of course, first and foremost, by the incredible creative efforts of our teams at both Rockstar and 2K. And we're immensely grateful to the folks who show up at work every day and try to think out-of-the-box and do something that's never been done before. And we're equally grateful to our marketing, distribution and business teams who make sure that we get the very best out of those products as we market and distribute them around the world, and as we run this business in a very high-class way. And I think all those efforts are reflected in the results that you see. It's a lot of work every day, but it's work that we're passionate about and that we love. And we very much appreciate all of our shareholders' support, and we endeavor to deliver another great year for you. Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.