May 13, 2014
Executives
Hank Diamond - SVP of Investor Relations Strauss Zelnick - Chairman and CEO Karl Slatoff - President Lainie Goldstein - CFO
Analysts
Eric Handler - MKM Partners Justin Post - Merrill Lynch Daniel Ernst - Hudson Square Research Arvind Bhatia - Sterne Agee Drew Crum - Stifel Tim O'Shea - Jefferies Yung Kim - Brean Capital Neil Doshi - CRT Capital
Operator
Greetings, and welcome to the Take-Two Interactive Software Fourth Quarter Fiscal Year 2014 Earnings Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. (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.
Hank Diamond
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'll 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'll be discussing today are non-GAAP.
Please refer to our earnings release for GAAP to non-GAAP reconciliation and further explanation. Our earnings release and filings with the SEC maybe obtained from our Web site at www.take2games.com.
And now, I'll turn the call over to Strauss.
Strauss Zelnick
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 billion dollars in sales, faster than any entertainment release in history.
NBA 2K14 enjoyed the franchises' 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 a billion dollars in cash after spending $277 million to repurchase our stock at a meaningful discount to today's share price.
The highlight of our fiscal year was the worldwide launch of Grand Theft Auto V. This extraordinarily 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 is sold in more than 33 million units worldwide, and continues to attract new fans.
Rockstar Games is hard at work on the upcoming lineup, and we are excited about what they have in store for the new generation of systems for this fiscal year.
Our fiscal 2014 results also benefited from the successful launch of WWE 2K14 and continuing demand for Grand Theft Auto IV, BioShock Infinite, which is now sold in more than 6 million units, and offerings for Sid Meier's Civilization V. The February release of Civilization V, a complete edition marked the final offering for this title which is sold in over 5 million units and it's supported by two critically claimed expansion packs along with the selection of downloadable content.
The civilization franchise will move forward this fall with the launch of Civilization: Beyond Earth. Creating opportunities to drive ongoing engagement with our titles is a key strategic focus for our company, and we've started to generate significant revenue and profits from recurrent consumer spending, including Virtual Currency, downloadable add-on content and online gaming.
During fiscal 2014, recurrent consumer spending accounted for nearly 50% of our record $435 million in digitally delivered revenue, and approximately 75% of its growth. Revenue from Grand Theft Auto online outperformed our expectations in the fourth quarter, and was the single largest contributor to our digitally delivered revenue in the fiscal year.
More than 70% of those who played Grand Theft Auto V while connected to the Internet played Grand Theft Auto online. Rockstar Games has supported this vibrant universe with additional content including The Valentine's Day Massacre Special, The Business update and today's release of the High Life update, and has much more to come.
Rockstar Games have also given players tools to create and publish their own in-game content. As a result, players have created over 7 million pieces of content for Grand Theft Auto online to-date.
We look forward to the future of the ever evolving world of Grand Theft Auto online. Online play by fans of our basketball franchise including multiplayer gaming grew significantly with the release of NBA 2K14, and was a key contributor to the growth in recurrent consumer spending during the past fiscal year.
Sales of the games Virtual Currency increased more than 150% over NBA 2K13 as players continue to customize their experience and deepen their engagement with the NBA 2K brand. Add-on content was also an important driver of growth in recurrent consumer spending.
In addition to Borderlands 2, we released successful downloadable offerings for BioShock Infinite, Sid Meier's Civilization V and WWE 2K14. We'll continue to support many of our new releases with immersive add-on content.
Finally, our online projects major contributed to growth in recurrent consumer spending. In particular, usage in player engagement with NBA 2K online continued to gain momentum, and it's now the number one PC online sports game in China with 19 million registered users.
Full game downloads across console, PC and mobile platforms also help in digitally delivered revenue. We're committed to providing our products on all relevant platforms regardless of the screen size.
During the past year we released multiple titles for tablets and smartphones including core titles such as Grand Theft Auto: San Andreas, XCOM: Enemy Unknown; and NBA 2K14 along with a slate of offerings designed exclusively to these devices. Over the past several years, Take-Two has been transformed a company that was dependent on one series into a financially strong global interactive entertainment enterprise with numerous successful franchises encompassing a variety of genres.
Today our company is defined by its top creative talent, unwavering commitment to quality and world-class marketing that turns product launches into pop culture events. Our diverse portfolio of intellectual property includes ten franchises with at least one 5 million unit selling release, and more than 40 individual multimillion unit selling titles.
In addition, we complemented our core release schedule with numerous successful offerings that drive recurrent consumer spending. Looking ahead, we have more than 10 unique next-generation title development including unannounced releases planned for fiscal 2015.
The successful evolution of Take-Two and its vast potential is reflected in our significant profit outlook for the current fiscal year, as well as our expectation for continued non-GAAP profitability every year for the foreseeable future. I'll now turn the call over to Karl.
Karl Slatoff
Thanks, Strauss. Today I'll provide an update on our robust development pipeline for fiscal 2015.
On October 7, Visual Concepts will enhance their unparallel 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 four-time NBA scoring champion and recently crowned 2014 NBA Most Valuable Player, Kevin Durant will make his solo debut as the games cover athlete.
We're thrilled to have him aligned with our brand, which underscores 2K's commitment to continually strengthen the franchise for the integration of the NBA's best athletes. 2K has kicked off with preorder campaigns, and we are confident that NBA 2K15 will once again set new benchmarks for sports realism and game play.
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 collaborative and competitive multiplayer resulting in a fast pace and deeply fun entertainment experience.
Set on a frontier planet on the edge of the galaxy, players will have the opportunity to be one of four hunters, each with their own special abilities who will work together to fight a powerful constantly evolving player-controlled monster in the unique four versus one game play experience. The media's response to Evolve has been very positive with GameSpot declaring, "Evolve is one of the most unique ideas we've seen in a while, and a well executed one at that.
Definitely one to watch." And Entertainment Weekly writing, "Evolve feels like a real evolution of the co-op shooter genre."
Also this fall, Borderlands: The Pre-Sequel will be available for the Xbox 360, PS3 and PC. For the first time in the series, Borderlands: The Pre-Sequel transports players to Pandora's moon, where they will experience intense gravity-bending gunfights using an array of all new weapons and loot.
Co-developed by Gearbox software and 2K Australia the title takes place in between the stories of the original Boderlands and Bordelands 2 as players take control of handsome Jack's four lieutenants and experience the fan favorite villains' rise to power. Borderlands: The Pre-Sequel will continue to franchise this tradition of innovative cooperative multi-player action allowing players to drop in and drop out of the game online or to play together via split screen.
The Boderlands universe has become of our company's most popular series, and we're thrilled to provide its passionate and dedicated fans with even more ways to experience its incredible game play. Firaxis Games will also send players into space this fall, with the launch of Sid Meier's Civilization: Beyond Earth for PC, a new science fiction themed entry into the award wining franchise that has entertained audiences for nearly a quarter of a century and sold in more than 24 million units worldwide.
Beyond Earth features the core and tactical elements for which the series is famous, while propelling players beyond the traditional timeline of civilization game by exploring humanity feature on an alien world. For the first time, players will lead factions divided by contrasting cultures and evolve their new civilizations to reflect their chosen destiny.
Players will experience an array of new game play possibilities in an alien world that will change the very identity of each faction based on the choices they make. I'm pleased to share that Beyond Earth will be featured on the cover of the July issue of PC gamer magazine which will include an in-depth preview of the title.
Evolve, Borderlands: The Pre-Sequel and Sid Meier's Civilization: Beyond Earth were featured last month at PAX East in Boston. It annually then provides consumers with the opportunity to meet some of our creative talent and get hands on time with our new titles.
The response was fantastic. There are thousands of fans coming to 2K's booth each day, many standing in line for over three hours just to see our games.
IGN's readers voted 2K as having the best booth of the show, and Entertainment Weekly, Game Informer and Kotaku each listed our titled among their favorites at PAX. 2K experienced similar fervor at previous PAX shows for titles such as Borderlands 2, BioShock Infinite and XCOM: Enemy Unknown, which help set the stage for the successful launches.
Next month, 2K will have a large presence at E3 featuring many of our upcoming releases. We encourage you to stop by our booth and see how we are build and are trying to delivering the most groundbreaking offerings in our industry.
Rockstar Games will continue to support both Grand Theft Auto V and Grand Theft Auto online with new concept updates including the upcoming launch of cooperative high commissions which will allow players to work together in new ways for substantial rewards. In addition Rockstar Games plans to release more updates throughout the spring, holiday themed event updates and story mode content.
We will have more to share about our unannounced fiscal 2015 releases in the coming months. Fiscal 2015 is forced to be another strong year for our organization highlighted by a diverse array of the highest quality new releases and innovative offerings that drive incremental profits from recurring consumer spending; a positive outlook in extent well beyond this fiscal year as we enter an exciting new chapter for Take-Two.
In closing, I'd like to join Strauss in thanking all the colleagues around the world for delivering a record year and for their dedication to our continued success. I'll now turn the call over to Lainie.
Lainie Goldstein
Thanks, Paul, and good afternoon, everyone. Today I will review our results for the fourth quarter and fiscal 2014, and then discuss our outlook for the first quarter fiscal 2015.
All the numbers that I will be providing today are non-GAAP results from continuing operations and all comparisons are year-over-year unless otherwise dated. Our press release provides a reconciliation of our GAAP to non-GAAP measurement.
Starting with our results for the fiscal first quarter, net revenue decreased 23% to $233.2 million as last year's fourth quarter quarter benefited in 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 contributor to digital sales with the Grand Theft Auto series, the NBA 2K franchise, and offerings to Borderlands 2; approximately 60% was divided from recurrent consumer spending.
Catalog sales accounted for $75.7 million of net revenue led by Borderlands 2, BioSchock 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 $88.1 million down by $16.7 million due primarily to our marketing expense. And just in 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.
This result exceeded our outlook range of breakeven to $0.10 per share. On a GAAP basis, we reported revenue of $195.2 million (indiscernible) from continuing operations of $30.8 million or $0.40 per share.
Turning now to our results in the full year; net revenue increased 97% for a record $2.4 billion. This growth is driven primarily by the extraordinary success of Grand Theft Auto V.
Revenues in digitally delivered content grew 65% and accounted for $435.1 million of net revenue. The largest contributor to digital sales for offering of the Grand Theft Auto series, Borderlands 2, the NBA 2K franchise, Civilization V and BioShock Infinite.
Nearly 50% was derived from the current consumer spending. Gross margin decreased 0.7 percentage points to 41.5% due primarily to higher internal royalty.
Operating expenses were $468.5 up by $1.7 million in the higher personnel expenses in our development studio, higher professional fees and IT expenses and higher research and development costs, which were offset by lower selling and marketing expense and the absence of the $15 million one-time contractual obligation recognized in fiscal 2013. Interest and other expense was $10.8 million and non-GAAP net income of $510.7 million or $4.26 per share as compared to $33.1 million or $0.36 per share in fiscal 2013.
On a GAAP basis, we recorded revenue of $2.4 billion and income from continuing operations of $361.7 million or $3.20 per share. Turning to some key items in the balance sheet at March 31, 2014 as compared to December 31, 2013; our cash balance decreased to $935.4 million.
Accounts receivable balance decreased to $53.1 million primarily reflecting a collection of receivables associated with our third quarter releases and holiday sales. Inventory decreased to $29.8 due primarily to shipments for the replenishment order of Grand Theft Auto V.
And software development cost and licenses increased to $225.7 million affecting the developing efforts around our pipeline of upcoming releases. Now, I'll review our financial outlook for the first quarter in fiscal 2015, which is provided on a non-GAAP basis.
Starting with the full year, our initial outlook is non-GAAP net revenue to range from $1.35 billion to $1.45 billion and non-GAAP net income to range from $0.80 per share to $1.05 per share. Turning to the details of our full year outlook, majority of our revenue is expected to come from a state of announce new title including NBA 2K15, Evolve, WWE 2K15, Borderlands: The Pre-Sequel and Civilization: Beyond Earth, new releases that we have not yet announced and catalog sales led by the Grand Theft Auto series.
We expect revenue breakdown from our owned labels to be roughly 45% from Rockstar Games and 55% from 2K. We expect the geographic revenue split to be about 55% United States and 45% international.
We expect gross margins in the mid to upper 40. Total operating expenses are expected to increase by approximately 14% driven primarily by higher selling and marketing expense to support our fiscal 2015 release schedule.
Selling and marketing expense is expected to be about 20% of net revenue based on the mid point of our outlook range. New projects, interests and other fronts of approximately $9 million, tax expense is about $32 million and weighted average per diluted share is approximately 189.
This reflects weighted average base of shares of approximately 81 million, 11 million participating shares for our unvested stock-based compensation awards, and 26 million shares representing the potential dilution from our convertible note under the "if-converted" method of accounting. As a result of working capital needs, we currently expect our operations do the modest amount of cash in fiscal 2015.
Although we expect to generate cash from operations in fiscal 2015 and to be net cash flow positive over these two fiscal years. Turning to the first quarter, we expect non-GAAP net revenue to range from $120 million to $135 million and non-GAAP net loss to range from $0.25 to $0.35 per share.
Majority of our revenue in the first quarter is expected to come from NBA 2K14 and Grand Theft Auto series and Borderlands 2. We expect first quarter gross margins in high 50.
So, operating expenses are expected to increase by approximately 4% from the prior year's first quarter, primarily due to additional staffing at our studios to support all of these schedules. Selling and marketing expenses is expected to be about 30% of net revenue based on the midpoint of our outlook range.
Our first quarter outlook also reflects interest and other expense to approximately $2 million no tax expense and weighted average shares of approximately 79 million. In closing, Take-Two's record results for fiscal 2014 would be to a global organization's ability to deliver the highest quality interactive entertainment within a disciplined fiscal framework.
We had entered the current year with the strongest financial foundation in the hedging of our company. As a result, Take-Two is well positioned to proceed with numerous creative endeavors and also continuing to generate positive results for shareholders both in fiscal 2015 and over the long term.
Thank you. Now, I'll turn the call back to Strauss.
Strauss Zelnick
Thanks, Karl and Lainie. On behalf of our entire management team, I would like to thank our colleagues for delivering a record year and setting the foundation for a consistent long-term success.
And to our shareholders, I want to express our appreciation for your continued support. We will now take your question.
Operator?
Operator
Thank you. We will begin the question-and-answer session.
(Operator Instructions) Our first question comes from Eric Handler with MKM Partners. Please proceed.
Eric Handler - MKM Partners
Yes, thanks for taking my questions. 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 were pleased that you guys returned some of the 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 a need to just sit on that level of cash right now?
Strauss Zelnick
Thanks, Eric for your question. We said before about the cash balance, and this is the high cost problem to have is that there are at least three potential users.
One is to support our organics growth, and our history of organic growth around here is pretty great actually if you look over the course of the few years, the bulk of our growth indeed has been organic. And in certain instances, for example, our Asia initiatives we turned 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 are 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 is the opportunity for inorganic growth driven by acquisitions. We've been really selective about acquisitions and I don't expect that our discipline will be in any way reduced.
Historically when we acquired something as the intersection of our high quality team with high quality owned intellectual property and that is to lens through which we tend to look at the world. And we are 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 fulsome way. And finally, in the last year we had demonstrated a desire to return cash to the shareholders by buying back $277 million of our stock.
We do have an open authorization for share repurchase, and we 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 the nice position to be in.
Eric Handler - MKM Partners
Okay. And then just as a follow-up more for Lainie.
Your G&A in the fourth quarter was $51 million and 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?
?
Lainie Goldstein
G&A usually stays pretty flat from quarter-to-quarter and that will probably in line with next year's -- with last year's balance. The way to look at it though is it can depend on -- there is a one-time write off or something in last year in 2013, we had a one-time $15 million contractual obligation that we had written off during that period, but otherwise it should be pretty flat to last year's number.
Eric Handler - MKM Partners
Okay, thank you.
Operator
Thank you. Our next question comes from Justin Post with Merrill Lynch.
Please proceed.
Justin Post - Merrill Lynch
Thank you. Obviously you have 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? Thank you.
Strauss Zelnick
Yeah. I think when you talk about digital, I assume you mean recurring consumer spending related to Grand Theft Auto online, and we've said as that continues to be a very good story indeed and if anything has exceeded our expectations.
It's early days yet. And there was a lot of great content out there.
There is great engagement. We all are anxious to see how that develops, but by any standard that's a very good story and Grand Theft Auto online, the big generator for recurring consumer spending for us.
And I'm glad you are optimistic about what next-gen, your next-gen rollout looks like in the coming calendar year. We tend to he 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 number one sports title for next-gen and the number to be tighter 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 are hard at work and their current lineup, and we are very excited about what they have in store through for next-gen systems in this fiscal year.
Justin Post - Merrill Lynch
Great, and maybe one follow up. Will Rockstar have a presence at E3 this year?
Karl Slatoff
Hi Jeff, this is Karl. This far Rockstar hasn't announced that they are going to be attending E3.
Justin Post - Merrill Lynch
Thank you.
Operator
Thank you. Our next question comes from Daniel Ernst with Hudson Square Research.
Please proceed.
Daniel Ernst – Hudson Square Research
Yes, good evening. Thanks for taking my call.
A couple questions if I might, first, if you look at your line up for this coming year, you have a very balanced portfolio of titles coming out, which is a nice thing following 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, can you just give us a sense of how you're timing and allocating resources to have a more consistent earnings schedule?
And then as 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 previously successful IP? Thanks.
Strauss Zelnick
Yeah, thanks Daniel. I think you have identified the way that you are penciling out, and it's a reflection of our strategy.
So historically what we found when we came to the company some years was a company that we dominated by one franchise and operated within one business model. Everyone knows what franchise was and the business model was clearly game, and put in the box and you ship it, and then maybe you ship with budget addition or again your addition.
And perhaps you ship some expansion packs. Well, in the past seven years we have 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 are diversified, so that we have revenue that comes after the initial release of the game.
It's not related just to the sale of a full game whether that's digital or physical governor. And we call that recurring consumer spending.
What's exciting about the coming year and subsequent years is in sort of both of those features that will release in the balance portfolio of franchises year in year out in addition to new intellectual property that we hope will become new franchises. And we are aggressively pursuing this new business model, which means that we make the game available physically, we make it available digitally, we make downloadable content available when it made sense.
And we are going to make sense, we allow consumers to engage in the game both in terms of game play and in terms of spending money. We call that recurring consumer spending.
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 the question about balance sheet.
Lainie Goldstein
So in the R&D, the capitalized in the expense, we haven't shared before the breakdowns of new and versus of old IP. But both of our labels work on new and all that new IP and then all franchises all the time, so that's all included in that balance.
Karl Slatoff
Dave, I'll say -- its Karl talking. We said this many times before that we have a very strong philosophy around how you can just come out and just re-release franchises over and over and over again.
It's very important to us to constantly be investing in new IP. That is the state of the objective of our company.
We don't feel comfortable sitting on our accomplishments and not trying to push the bar forward or not only to ban with those franchises but obviously coming up with new franchises as well. You got to keep the pipeline going and that's all we want to do.
Daniel Ernst – Hudson Square Research
Good. That's great, Karl.
And if I could just have one other question; if you look at your planned split for domestic versus international 55, 44 a lot of media internet companies is kind of a flip-flop from that. What are the prospects of moving towards having a bigger presence overseas than you do domestically?
Strauss Zelnick
Yeah. 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 made a big push internationally by aggressively focusing on Asia, 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.
Daniel Ernst – Hudson Square Research
Great. Thank you.
Operator
Thank you. Our next question comes from Arvind Bhatia with Sterne Agee.
Please proceed.
Arvind Bhatia – Sterne Agee
Yeah, thank you. I'd like to say congratulations on making up another solid quarter.
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, I think about 18% to 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 percentage of your game is on that game are full game downloads, what you are hearing maybe from other companies?
And then lastly in the fiscal '15's late, 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. Thank you.
Strauss Zelnick
Yeah, in terms of percentage of revenue attributable to digital distribution, it's a work in progress. There is no doubt in the year when we initially launched Grand Theft Auto V shipping 33 million units, that's the year that's going to skew the physical distribution.
So, as revenues are lower as one could imagine digital revenue is being somewhat higher, but that remains to be seen and 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 unannounced titles, it's tempting to be flippant and say everything we do is going to be a hit. We know that, much as we'd 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. We're right much more often than we're wrong.
And according to Metacritic, we have the highest Metacritic scores for the past six years, including this past year. 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 A titles. We only work on AAA titles.
Arvind Bhatia – Sterne Agee
So it is more than one AAA title that's in the guidance?
Strauss Zelnick
Yes.
Arvind Bhatia – Sterne Agee
Okay. Thank you, guys.
Operator
Thank you. Our next question comes from Drew Crum from Stifel.
Please proceed.
Drew Crum – Stifel
Okay, thanks. Good afternoon, everyone.
So I wonder if you could talk about the confidence in the fiscal 2016 positive cash flow guidance that you mentioned, Lainie. And then separately, Strauss, could you talk about maybe it's better asked of 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? Thanks.
Lainie Goldstein
Drew, our outlook for fiscal '16 and going forward where we say that we plan to be profitable in the foreseeable future, it's based on a multiyear plan, which gets ongoing profitability for the company, and in '16 it also showed positive cash flow. In addition, our development pipeline which extends out further gives us confidence in our ability to remain profitable over the long-term.
Drew Crum – Stifel
Lainie, are there any other working capital items or one-time items that are influencing that guidance?
Lainie Goldstein
When we look at '15 we were growing our capitalized software balance to support our exciting pipeline of titles, and then -- and 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 should be collected in '16 as well as the profitability ongoing in '16 will affect the overall two-year cash flow.
Karl Slatoff
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 gotten a lot of great press about it, there is a great buzz and there will be some more about on E3, and hopefully I'll get a chance to check it out because it really is a fantastic title, and the bottom line is the strategy. That's the next-gen game built on a next-gen engine and it's meant for next-gen.
That's truly taking 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 multi-player to a new level.
So, it really fits best on next-gen consoles. In terms of Borderlands, really the opportunity there is you've got an enormous install base, and you've got a platform where there is a lot of folks out there they're still hungry for content and there is 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.
Drew Crum – Stifel
Okay, thanks guys.
Operator
Thank you. Our next question comes from Tim O'Shea with Jefferies.
Please proceed.
Tim O'Shea - Jefferies
Yeah, hi, thanks for taking my question. Just today all the fiscal '15 titles are coming out of 2K, I'm 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%, thanks.
Strauss Zelnick
Yeah, we basically said that Rockstar is hard at work on their lineup and there is news to come for this fiscal year, and we expect Rockstar to account for about 45% of the year's revenue.
Tim O'Shea - Jefferies
Fair enough, thanks.
Operator
Thank you. Our next question comes from Todd Mitchell with Brean Capital.
Please proceed.
Yung Kim - Brean Capital
Hi, this is Yung Kim for Todd. Just quick question in 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 two?
Lainie Goldstein
It's a cash balance of about 194 million. It's for payment of certain software development royalties and those are included in our accrued expenses at the end of the year.
Yung Kim - Brean Capital
Great, thank you.
Operator
Our next question comes from Neil Doshi with CRT Capital. Please proceed.
Neil Doshi - CRT Capital
Great, thanks guys. 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? Thank you.
Karl Slatoff
Thanks, Neil. So, in terms of Evolve, you're right there are lots of products coming up 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 will be talking about games and they'll be buying a lot of games. We happen to believe 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, and 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 this game specifically will stand out in a cloud. We actually like the fact that there are lot of games coming out because, again, it gets people on the stores and it gets people buzzing about the industry.
Strauss Zelnick
This is Strauss, in terms of Google, Apple and others perhaps seeking developer exclusivity, it remains to be seen. Our stated strategy is to make our products widely available, 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 rule-based in that way. Generally speaking, we look for wider rather than narrower availability.
If for some reason the business evolved differently then we'd evolve with it. I doubt that it's going to become a business of platform exclusive; that would be costly and it's hard to imagine that would really benefit consumers.
And the analogy is pay television. In the early days of pay television there was not a 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 with that's how the business will develop, but if it does develop that way we will take the opportunities as we find them.
Operator
Thank you. There are no further questions.
I'd like to turn the floor back over to management for closing comments.
Strauss Zelnick
Well, I want 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 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 are 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 are 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 then 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 the work that we're passionate about, 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.
Operator
This concludes today's teleconference. You may disconnect your lines at this time.
And thank you for your participation.