Take-Two Interactive Software Inc

NASDAQ:TTWO

Earnings Call Transcript 2022-Q2

[Operator]

Greetings and welcome to the Take-Two Second Quarter Fiscal Year 2022, earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star [ Operator Instructions ]. As a reminder, this conference is being recorded, it is now my pleasure to introduce your host, Nicole Shevins. Thank you, Nicole, you may begin.

[Nicole Shevins]

Good afternoon. Thank you for joining our conference call to [Indiscernible] our results for the second quarter of fiscal year 2022 and September 30, 2021. 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 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 most recent Annual Report on Form 10-K and quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk Factors.

I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP. And all comparisons are year-over-year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance.

Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measures. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with SEC may be obtained from our website at.com. And now, I'll turn the call over to Strauss.

[Strauss Zelnick, Chairman and Chief Executive Officer]

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we delivered another outstanding quarter, highlighted by net bookings of $985 million, which greatly exceeded our expectations and increased 3% over last year.

We experienced consistently strong engagement trends across our key franchises, underscoring the durability of our offerings in the deep relationships that we've established with new, existing, and returning players. We believe that we can maintain these favorable engagement patterns as we continue to deliver the highest quality entertainment experiences that are driven by our team's passion and commitment to creativity and innovation.

We've been taking key actions to execute on our long-term strategic vision, we continue to enhance and diversify our pipeline across an array of platforms, business models, and [Indiscernible]. To support this, we're investing in our infrastructure and making key hires ranging from senior, talented, or labels to the addition of more than 350 new developers during the second quarter.

We're pleased with the progress of T2 Mobile games, which is helping us leverage our team's expertise across our enterprise. Additionally, Nordeus is already reached key integration milestones. We continue to build upon our ESG efforts and we hope to share more in the coming months. Given our strong confidence in our Company, we opportunistically repurchased 1.26 million shares of our stock during the second quarter for approximately $200 million, with an average share price of $158.67.

This marks the first time in over 2 years that we repurchased our stock, underscoring the deep value that we observed in our share price. In November, our Board of Directors authorized an additional $7.4 million shares of the Company's permitted to repurchase, resulting in $10 million shares remaining available for repurchase as of the date of the additional authorization.

Turning to our second quarter results, our better-than-expected performance was driven primarily by Borderlands 3, NBA 2K, and Grand Theft Auto V, and Grand Theft Auto Online. On September 10th, 2K and Visual Concepts successfully launched NBA 2K22, with more players hitting the digital hard court in its 1st month than any prior release of the game. The title enjoyed outstanding initial success with over $5 million units sold in to-date.

Players are deeply engaged and we're experiencing. Growth in daily active users and daily games played per user compared to NBA 2K21 are in the same period. For the quarter, the NBA 2K series delivered exceptional results that were significantly above our expectations. NBA 2K22 experienced growth from a current consumer spending, as well as a 4% in increase in total in-game purchasers, and a 58% increase in new users spending.

I'd like to congratulate the teams at 2K Visual Concepts for once again, delivering such a stellar basketball experience. We see a meaningful opportunity to grow the franchise further over the next few years as we provide engaging and frequent content updates throughout the game. Sales of Grand Theft Auto V continue to exceed our expectations and to date, the title is sold in more than 155 million units worldwide.

During the period Rockstar Games launched another major update for Grand Theft Auto Online's evolving world. The Los Santos Tuners update brought a renewed focus to the underground street racing was scene and introduced a host of innovative and highly requested features, including the LS Car Meet, a shared social space where players can get together to modify, test, and race their cars, get tattoos, and more.

Los Santos Tuners also added 17 highly customizable vehicles, a purchasable auto workshop, new robbery contracts, and street races, and the ability to add music in a new way through collectible media sticks. Recurrent consumer spending increased 33% and active player audience increased 11%, representing the strongest second quarter on record for both metrics.

To success of Los Santos Tuners demonstrates Rockstar ability both to anticipate the needs of its players and to respond to player feedback with an ongoing stream of high-quality and engaging content. During the quarter, Red Dead Redemption 2 also significantly outperformed our expectations, and to date has sold in more than 39 million units worldwide.

Momentum continue on Red Dead Online with the introduction of the Bloody Money update in July, which introduced a series of new criminal themed opportunities, complex new missions, including the game’s first train robbery, and the Quick Draw Club, a series of 4 distinct rapid-fire passes featuring criminal themed unlockable rewards, bonuses and more.

As a result of the Bloody Money update, as well as the influx of new players attributable to the standalone version of Red Dead Online, we experienced a 26% increase in active players and a 29% increase in new online player acquisition. Recurrent consumer spending for the Series was also notably above expectations.

In August, Private Division expanded their portfolio with the physical release of Hades for PlayStation and Xbox platforms. Title continues to earn positive praise from the gaming community and is currently Metacritic highest rated game for the PlayStation 5 and Xbox Series X. In September, the labor released Murder on Eriadanos, a final expansion for the Outer Worlds for the Nintendo Switch.

We're pleased that the Outer Worlds continues to grow its audience and to-date the title has sold in over 4 million units. Also in September, Private Division launched Kerbal Space Program enhanced addition for Gen 9 console, taking advantage of the latest performance and the visual enhancements to provide players and exciting new way to experience this beloved space flight simulation game.

During the quarter, recurrent consumer spending rose 7%, which was significantly ahead of our expectations of an 11% decline and accounted for 69% of net bookings. As I mentioned earlier, our consumer engagement trends were consistently strong even as people resume more normal socialization patterns and as schools and workplaces began to reopen.

We're very optimistic about our continued ability to keep players engaged and capitalize further on our massive audience size. For the period NBA 2K and Grand Theft Auto Online were the largest contributors to recurrent consumer spending. Many of our free-to-play offerings were also notable drivers.

Top 11 exceeded our expectations, driven by strong seasonal Live Ops and features optimized marketing activities, and enhanced user quality. Dragon City and Monster Legends perform well, thanks to strong Live Ops, new updates in future releases, and increased marketing investments.

Two Dots achieved its highest ever net bookings since our acquisition, which we attribute to new in-game events such as scavenger hunts and curated seasonal content. WWE SuperCard has now been downloaded more than 24 million. In times and remains 2K's highest grossing mobile game. NBA 2K Online in China outperformed our expectations and remains the number one online pc sports came in the region with nearly 55 million registered users.

We continue to monitor to the regulatory environment. It bears noting that China represent 3% of our net bookings in fiscal 21. While we remain optimistic about China, and we'll pursue further opportunities there, we believe that our exposure to the region will remain limited in the context of our growing overall net bookings.

Turning to our guidance, as a result of our second quarter outperformance, along with our updated forecast for the balance for the year, we're raising our outlook for fiscal year 2022, and we now expect to achieve net bookings of $3.3 to $3.4 billion. Lainie will provide more details shortly.

With the strongest multiyear pipeline in our Company's history, we continue to believe that we'll achieve sequential growth in net bookings in fiscal '23 and established new records of operating results over the next few years. Our focus on bringing new intellectual properties to market will help us diversify our portfolio further and build lasting franchises that we believe will enhance our financial profile for years to come.

At the same time, our teams are hard at work developing sequels to many of our beloved franchises that we know are consumers will be eager to play. As we execute on our strategic vision and maintain our commitment to an outstanding and collaborative culture, we believe that we will significantly grow our operations and drive long-term shareholder value. I will now turn the call over to Karl.

[Karl Slatoff, President]

Thanks, Strauss. I'd like to thank our teams for all their contributions, as well as their continued passion and dedication to our business. Unique and collaborative culture continues to be a key driver of our success. I'll now discuss our recent releases. On October 1st, 2K and Hangar 13 launched the Mafia III: Definitive Edition for Stadia.

Previously released on other platforms, the definitive edition offers many additional features and post-launch content that has since been incorporated into the game. We're pleased to continue our support for Stevia and expand the mafia franchise to new audiences. On October 11th, Nordeus has released Top11 2022 on IOS and android. The latest installment of the world's most successful soccer management game.

Top11 2022 delivers a significant updates to the game-play in soccer management experience. Painting aspiring soccer managers against one another in league, cup and friendly matches. Top11 2022 to also provides a significant new layer of depth to play or development via the play styles feature, which helps to enhance the soccer fantasy that top 11 has been providing to fans for more than a decade.

On October 14th, 2K and HB Studios launched the PGA Tour 2K21 of baller edition. Which includes the base game, all previous release, the LC courses and game modes, and assortment of Adidas apparel and gear, and the golden touch pack that features a gold powder and driver. In addition, PGA Tour 2K21 offers new multiplayer courses each month, designed by a group of international content creators.

We're thrilled that the community continues to grow, with the title selling in over 2.5 million units to date. On October 19th, 2K launched NBA 2K22 arcade edition for Apple Arcade building on the success of its predecessor, which continues to be listed as one of the platforms top games with an average of 4.6 out of 5 stars across more than 85,000 ratings.

NBA 2K22, arcade addition expands the franchises addressable market with new modes and features, including the association, MyCourt and Marvel. Rockstar Games continue to provide an array of free content for their vast and growing online communities. To celebrate Halloween, Grand Theft Auto Online had a series of random events to shock and surprise players, including driverless phantom killer cars, superhuman slashers, UFOs, and more, including bonuses on alien survival modes and a new arcade game.

Players will also be able to experience an all-new adventure in the Grand Theft Auto Online later this year as they help some well-known context as familiar faces with many more surprises yet to be revealed. Now I'll discuss details on our upcoming announced offerings for this year.

Rockstar Games will digitally launched Grand Theft Auto, the trilogy, the definitive addition this November 11th for PlayStation 5, PlayStation 4, Xbox Series X and S, Nintendo Switch, and Rockstar Games launch it for PC. The definitive addition will feature across-the-board upgrades for all three games, including graphical improvements and modern controls, while still maintaining the classic and distinct aesthetic of the original games.

Grand Theft Auto, the trilogy, the definitive addition, will launched physically for consoles on December 7 and will release for IOS and android devices in the first half of calendar 2022. As part of the celebration of the recent 20 anniversary, Grand Theft Auto 3 fans can also collect an array of special commemorative gear in Grand Theft Auto Online throughout a series of upcoming events this fall.

On November 12, 2K and Gearbox Software will release limited quantities of Borderlands 3, ultimate addition physically, for PlayStation 5 and Xbox Series X. Avid Vault Hunters and newcomers alike are sure to enjoy this quintessential Borderlands 3 experience, featuring the award-winning base game plus all 6 content add-ons and the full collection of bonus cosmetic backs.

The ultimate addition is optimized to take full advantage of the Gen 9 hardware’s processing power, enabling gameplay add up to 60 frames per second in 4k resolution during single-player and online Co-op. Ollie world, the skateboarding action platform or developed by roll seven, launches this winter in the fourth quarter of fiscal 2022 on PlayStation 4 and 5, Xbox 1, Xbox Series X and S, PC and Nintendo Switch. On March 25th, 2K Gearbox Software will launch an exciting new entry from the Borderlands universe.

Tiny Tina's Wonderlands. And September the team unveil the game as brand-new mechanics and all-star celebrity cast, including Will Arnett, Ashley Burch, Andy Samberg, and Wanda Sykes. Fans reactions to the first look at the game-play was extremely positive, reflecting the growing excitement for this fantasy fuel to take on the popular [Indiscernible] genre. In addition, 2K and Visual Concepts remain hard at work on WWE 2K 22, which will be released in March.

Our partners at WWE have done amazing things with their brands, resulting in a passionate and deeply engaged community and then providing tremendous support to maximize our campaign through all their platforms, including social media, digital programming, talent in arena, and more.

Visual Concepts is gearing up for a major reveal of the games key features in January, which we look forward to sharing with fans, followed by the biggest WWE 2K launch to-date. Rockstar Games is thrilled to launch the expanded and enhanced versions of Grand Theft Auto V and Grand Theft Auto Online standalone for Gen 9 consoles in March.

Players will enjoy a range of technical and graphical improvements across the entire experience, including performance enhancements for select vehicles and Grand Theft Auto Online, and much more. Rockstar Games will have more details to share about these eagerly anticipated launches in the coming months.

As we noted in our earnings release, Marvel's Midnight Suns from Firaxis Games is now expected to be released in the second half of calendar 2022 during our fiscal year 2023. While we don't take delays lightly, we know that our proven success has been rooted firmly in our player first approach and unwavering commitment to delivering the highest quality entertainment experiences.

We believe it's far better to provide the extra time needed for our products, especially in new IP, to reach its full potential and drive long-term success as a permanent franchise in our industry-leading portfolio. As gaming platforms continue to evolve, technological advancements allow us to design experiences that are more immersive and engaging than ever before.

While this has enabled us to significantly grow our franchises over time, game development has become more complex, especially with many of our colleagues still working remotely. We continue to evaluate and optimize our game creation processes to enhance the ways that our teams collaborate, share best practices, and leverage technologies and expertise.

Turning to Esports, the NBA 2K league concluded its fourth season attracting more than 18 million unique viewers and over 2 million hours of games watched on Twitch during the playoffs and finals, nearly 4 billion unique viewers tuned in as Wizards District Gaming won their 2nd consecutive championship.

In addition, the league hosted their inaugural All-Star Game held at Brooklyn Steel in New York. As part of the league's continued global expansion, Mexico's Duke's gaming will launch a team this spring, marking the 24th team and the first to participate from [Indiscernible]. We're thrilled to see the lead continued to grow both its audience and global presence.

In closing, we have a strong foundation for success that has helped us curious a portfolio of highly engaging franchises that transcend console and player generations. As we continue to harness and enhance our competitive advantages are incredible creative talent, best-in-class marketing, and technology, and strong Balance Sheet, we will introduce new entertainment experiences that we believe have vast commercial potential and the ability to drive long-term engagement and recurrent consumer spending.

We also expect to continue to attract the very best creators who share in our vision to set new benchmarks and captivate audiences throughout the world. I'll now call turn the call over to Lainie.

[Lainie Goldstein, Chief Financial Officer]

Thanks, Karl, and good afternoon, everyone. Today I will discuss our second quarter results and then review our financial outlook for fiscal year 2022 in the third quarter. Please note that additional details regarding our actual results and outlook are contained in our press release. As Strauss mentioned, our business fundamentals remain exceptionally strong across our key franchises.

Net bookings were $985 million, which was significantly above our guidance of $815 to $865 million and up 3% as compared to last year. Our out performance was primarily driven by Borderlands 3, NBA 2K, and Grand Theft Auto V, and Grand Theft Auto Online. During the period, overall engagement was outstanding, with the recurrent consumer spending increasing 7%, compared to our outlook of an 11% decline, and accounting for 69% of total net bookings.

Our out-performance was primarily driven by NBA 2K. Digitally delivered net bookings increased 9% compared to our outlook of a 5% decline and accounted for 89% of the total. This result was better than our outlook primarily due to the outperformance of recurrent consumer spending. During the quarter 65% of costs games sales were delivered digitally, up from 57% last year.

GAAP net revenue increased 2% to $858 million while cost of goods sold increased 6% to $457 million. Cost of goods sold included a $53 million impairment charge related to our decision not to proceed with further development of unannounced titles in our pipeline. Operating expenses increased by 30% to $381 million.

The variance is driven by higher personnel marketing and IT expenses, the addition of Playdots in Nordeus, and the revaluation of the Nordeus earn-out. And GAAP net income was $10 million, or $0.09 per share, as compared to $99 million, or $0.86 per share, in the second quarter last year.

We ended the quarter with approximately $2.3 billion of cash and short-term investment. We repurchased $1.6 million shares of our stock during the quarter were approximately $200 million with an average share price of a $158.67. Turning to our guidance, I'll begin with our full fiscal year expectations. We are raising our net bookings outlook range to $3.3 billion to $3.4 billion.

This is up from our prior outlook of $3.2 billion to $3.3 billion due to our second quarter outperformance, along with our updated forecast for the balance of the year, which includes the move of Marvel's Midnight Suns into fiscal 2023. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online, and Grand Theft Auto 5, Red Dead Redemption 2 and Red Dead Online and Borderlands 3.

We expect the net bookings breakdown from our labels to be roughly 50%, 2K, 40% Rockstar Games, and 10% Private Division and T2 mobile games. We forecast to geographic net bookings split to be about 60% U.S. and 40% international.

We now expect recurrent consumer spending to decline by 6% compared to our prior outlook of a 9% decline versus fiscal 2021 as a percentage of net bookings recurrent consumer spending is expected to represent 66% of total net bookings, slightly above 65% last year. We'll now projected digitally deliver net bookings decreased by approximately 4% compared to our prior outlook of a 6% decline as a percentage of our business, Digital is projected to represent 90%, slightly above 89% last year.

Our forecast assumes that 73% of console game sales will be delivered digitally, up from 64% last year. We expect to generate more than $400 million in non-GAAP adjusted, unrestricted operating cash flow, and we plan to deploy approximately a $170 million for capital expenditures.

We're raising our GAAP net revenue outlook to $3.35 to $3.45 billion while we announced that cost of goods sold to range from 1.51 to $1.55 billion. Total operating expenses are expected to range from 1.47 to $1.49 billion representing at the midpoint of 22% increase over the prior year.

This increase reflects costs relating to marketing personnel, stock compensation, IT and research and development, to bring our expansive multiyear pipeline to market, as well as incremental expenses due to the edition of Nordeus full-year Slatoff. Our operating expense expectations have improved compared to our prior guidance, driven by lower marketing expenses due to the movement in our release schedule.

And we expect GAAP Net Income to range from $320 to $350 million or $2.75 to $3 per share for management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2022. And now moving to our guidance for the fiscal third quarter, we project net bookings to range from $800 to $850 million compared to $814 million in the third quarter last year.

The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online, and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online and Grand Theft Auto: The trilogy - The Definitive Edition. We project the current consumer spending, are up slightly compared to last year and digitally deliver net bookings to increase by approximately 5%.

Our forecast assumes that 61% of console games sale will be delivered digitally, up from 56% that last year. We expect GAAP net revenue to range mid-$840 to $890 million and cost of goods sold to range from $344 to $370 million. Operating expenses are expected to range from $378 to $388 million.

At the midpoint, this represents a 13% increase over last year, driven primarily by higher personnel, research and development and IT expenses, as well as the inclusion of Nordeus. And GAAP Net Income is expected to range from 99 to $111 million or $0.85 to $0.95 per share.

In closing our second quarter results demonstrate the health of our business and our continued ability to engage our players with exciting and innovative new content. As we continue to capitalize on organic and inorganic growth opportunities, we believe that we will greatly expand our scale and deliver long-term growth to our shareholders. Thank you. I'll now turn the call back to Scott.

[Strauss Zelnick, Chairman and Chief Executive Officer]

Thanks, Lainie and Karl on behalf of our entire management team. I would like to thank our colleagues for delivering another strong quarter. And to our shareholders, I want to express our appreciation for your continued support. Will now take your questions, Operator.

[Operator]

Thank you, we will now be conducting a question-and-answer session. If you would like to ask a question, [Operator Instructions]. A confirmation tone will indicate that your line is in the question queue.

You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before person to start this one moment, please, while we pull for questions. Thank you. Our first question is from Mario Lu with Barclays. Please proceed with your question.

[Mario Lu, Barclays]

I have one on NBA 2K and then another high-level question. The first one, NBA 2K, I believe you guys mentioned 58% increase and new user spending. So just curious if you could provide any additional color or specific features that was introduced in this game this year that attributed to this large increase.

[Karl Slatoff, President]

Hi, it is Karl, Mario. I wouldn't necessarily want to attribute any specific features to the increase, I don't want to tag it, but there have been, certainly, a lot of additions to the game that we believe have increased engagement. Specifically -- just generally speaking, the game is fantastic. I mean, the reviews have been great.

User, feedback has been great engagement has been really, really strong. One thing to note is that we did add the seasons feature to my player this year, which obviously created a lot more content drops and a lot more of we're supposed to do every time you increase content, deliver content that obviously leads to increase engagement and tends to lead to increased monetization.

So it's really a combination of the game, just being better. We had a lot of wind at our backs to from an increased player base, generally speaking, and it's just been a great execution and people are really enjoying the incremental content.

[Mario Lu, Barclays]

Thanks, Karl, and then, Facebook or Meta recently announced a partnership with Rockstar or GTA San Andreas on the quest. Just curious what's the background of this partnership was and do you now think either VR or building a Meta verse could be growth drivers for a Take-Two as a Company going forward?. Thanks.

[Strauss Zelnick, Chairman and Chief Executive Officer]

We're really excited about all of our partnerships, so we have numerous partnerships. We've always said that we want to be where the consumers. And when VR first emerged as a potential technology, while I expressed some skepticism about it becoming a very broad-based consumer application, I also thought it was really exciting technically and said that we would participate on -- Rockstar has already brought L.A. Noire to VR.

NBA 2K has come to VR. I'm sure we'll have more VR titles in the future as well. So we're always excited when our creative teams can flex their collective muscles and do different things. And remains to been seen just how big that can be. We never make projections like that, but we're very excited about the opportunities.

[Mario Lu, Barclays]

Got it. Thanks, Jeff.

[Operator]

Thank you. Our next question is from Mike Ng with Goldman Sachs. Please proceed with your question.

[Mike Ng, Goldman Sachs]

Hey, good afternoon, thanks for the question. I just have 2, first with the upcoming launch of GTA trilogy on mobile. Can you talk a little bit about your ambitions to create immersive core games on mobile, and whether this foreshadows more mobile content in the future that may have historically been reserved for a PC and Console, and then second, just a housekeeping question on the improvement and guidance.

What's driving the back-half improvement despite the push out of Marvel's Midnight Suns are there any improved expectations by franchise your call out? Thank you.

[Karl Slatoff, President]

Hey, Mike, it's Karl. Just to answer your first question about Mobile, we are actually obviously very excited about the trilogy coming to the mobile devices, it's actually not the first time we've had our franchises doing this, and we’ve done this since the very beginning of our mobile days, both on the Rockstar and the 2K side. And we have a long history of bringing our franchises to the mobile space when we've done that in various different ways. Obviously, we brought older games onto mobile platforms.

We've done [Indiscernible] companion apps and we've brought modify games or different iterations of franchises like WWE SuperCard, or NBA SuperCard, so we're no stranger to bringing our core franchises to the mobile space, and we definitely think that there's an opportunity for us to do more. We've nothing to announce on the call, but, look, obviously we've invested significantly in this space, both through acquisition and also organically. We don't expect that to stop anytime soon.

[Lainie Goldstein, Chief Financial Officer]

In times of the back half of the year and the forecasts, we are seeing a lot of improvement in the forecasts and have a lot of ups and downs, mostly ups and we're netting up on the titles are looking great, engagement is great. We don't have any specific things to call out, but overall the titles are doing great.

[Mike Ng, Goldman Sachs]

Great. Thanks, Karl. Thanks, Lainie.

[Operator]

Thank you. And our next question comes from Matt Cost with Morgan Stanley. Please proceed with your question.

[Matt Cost, Morgan Stanley]

Hi, everyone. Thanks for taking the questions, I have two. So can you just talk about your expectations over the next call it a year or two, obviously, you've brought on a lot of heads, you have a lot of content and development, there's a decent amount of it hitting between now and the end of the fiscal year, and then obviously more to come in the years following.

What do you guys at a high level in terms of like the margin impact. I would imagine there would be something along the lines of an increase in marketing as you bring games to market, but then benefits from scale as those heads actually produce content that is out, and engaging people, and monetizing actively. Then just the second question is on China.

Obviously you quantified that at about 3% of your business and mentioned how you expect the exposure to remain limited. Should we interpret that to mean that you don't intend to launch games in China in the future or under certain circumstances? And what's driving your strategy there going forward? Thanks.

[Lainie Goldstein, Chief Financial Officer]

So in terms of the margins in the next couple of years, as you know, this year is a big year of investment for us in terms of our headcount and our space and IT expenses, and our marketing expenses, so we have been talking about that a lot and we've seen that this year, and next year, we'll see some annualization of lot of those costs as we go into next year.

But as we continue to build scale with our pipeline of titles over the next few years, we expect those margins to continue to grow for us. So that's our plans for the near and the future of the next couple of years.

[Strauss Zelnick, Chairman and Chief Executive Officer]

In terms of China, I was making the point about the percent of our net bookings that come from China and it's quite small, roughly 3% at the moment. We expect our net bookings to grow. We expect sequential growth. We're really excited about our future, and at the same time we're very focused on the region, and particularly on the country, in the context of what we're able to do and being compliant with regulations.

We remain highly optimistic about China. We absolutely would be very happy to launch additional and new titles there we expect to do so. In fact, we remain optimistic on simply making the point. It is a small part of our business.

[Matt Cost, Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. Our next question is from Martin Yang with Oppenheimer, please proceed with your question.

[Martin Yang, Oppenheimer]

Good afternoon. Thank you for taking my question. I have 1. Just curious about your philosophy on remaster of games. How do you pick and choose, from your pretty substantial library, what games to bring back on. And as a follow-up on how the re-mastering games compete with resources for development of new games. Thanks.

[Karl Slatoff, President]

Sure. This is Karl Martin, I'll answer the question, I'll answer the second one, they're actually related because the truth is, remastering games unless you really go truly out to third-parties, which we've done in the past, but even in that case, you are actually competing that resources and therefore, that goes into your decision making of which ones you bring to market.

And it purely is an economic decision. And the economic decision's based on what we believe that the fan base to be, how much is it going to cost for the game to be remastered, are we going to make other changes to the game to enhance the experience, because typically just purely masters.

Just ports don't really perform as well as something that's truly remastered or truly enhanced. All of those, all of those factors go into those decisions. But in the end, it is an economic decision and it is a resource allocation decision. And that's just math that we do.

[Martin Yang, Oppenheimer]

Got it. Thank you.

[Operator]

Thank you. Our next question is from Drew Crum with Stifel. Please proceed with your question.

[Drew Crum, Stifel]

Thanks, guys. Good afternoon. Maybe a follow-up to an earlier question. Some of your peers have suggested challenges around recruiting talent, but it sounds like you've had a different experience if I heard correctly, you added 350 developers during the quarter. What do you attribute that to? Are labor markets improving, is reopening helping, and if the macro picture is getting better, is your plan to accelerate new hires? And I have a follow-up.

[Strauss Zelnick, Chairman and Chief Executive Officer]

Thanks for your question. Look, we're so grateful that we continue to attract the industry's top talent. In fact, we've hired over 1500 developers over the last 2 years, and we've more than doubled our internal developer account in the last five years, and I don't want to overstate the case and so much always has to be done on a daily basis regarding culture.

But I do think that that's a reflection of who we are and I think ultimately everyone knows who you are. People inside and people outside and we're really proud of the culture that we built. A culture that starts with creativity, innovation, and efficiency.

Very importantly, includes accepting everyone as they are, as they show up as long as they are equally focused on very high ambition for excellence and hard work, a willingness to be honest and open and transparent, and collaborative.

The agreement that we have with one another that will treat everyone with decency and kindness, and I think at this point we're known for that. We're imperfect, and there's much more than we can do at any given time. We are highly focused on this culture, and it has served us very well.

[Drew Crum, Stifel]

Thanks for that, Strauss and my follow-up concerns the headlines related to FIFA. Just curious around your interest in furthering your exposure to soccer beyond Top11.

[Strauss Zelnick, Chairman and Chief Executive Officer]

We're so thrilled to have Nordeus in the Take-Two family. They're just crushing it, which is great. Top11 is a great title, a beloved title. I just couldn't be happier to be in the soccer manager business through Top11 with the Nordeus team. That's a big step forward for us. We haven't been in that sport before, and I think I'll leave it at that today.

[Drew Crum, Stifel]

Thanks Strauss.

[Operator]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Strauss Zelnick for any closing comments.

[Strauss Zelnick, Chairman and Chief Executive Officer]

Well, thanks, everyone for joining us. That was a -- an incredibly short call for us. So you all must have better things to do for the rest of the day. We wish you very well. we're obviously really pleased with the results and what that leads me to say is how grateful everyone here is to our teams who deliver these results or work hard every day to make this phenomenal entertainment that drives the success of the Company on an ongoing basis.

It's incredibly hard. We don't take it for granted and we never take success for granted. And so thank you to all of our colleagues who are listening today, and the ones who aren't listening because they are hard at work. Thank you all so to our shareholders for your ongoing support.

[Operator]

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