Transcripts

Take-Two F2Q07 (Qtr End 4/30/07) Earnings Call Transcript

Jun. 11, 2007 8:44 PM ETTake-Two Interactive Software, Inc. (TTWO)

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Take-Two Interactive Software, Inc. (NASDAQ:TTWO) F2Q07 Earnings Call June 11, 2007 4:30 PM ET

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Executives

Cindy Buckwalter - Investor Relations

Strauss Zelnick - Chairman of the Board

Benjamin Feder - Chief Executive Officer

Lainie Goldstein - Chief Financial Officer

Analysts

Heath Terry - Credit Suisse First Boston

Tony Gikas - Piper Jaffray

John Taylor - Arcadia Investment Corporation

Michael Savner - Banc of America

Evan Wilson - Pacific Crest Securities

Arvind Bhatia - Sterne Agee

Edward Williams - BMO Capital Markets

Operator

Greetings, ladies and gentlemen and welcome to the Take-Two Interactive conference call. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Cindy Buckwalter for Take-Two Interactive. Thank you, Ms. Buckwalter. You may begin.

Cindy Buckwalter

Thank you. Welcome and thank you all for joining us for today’s call. My name is Cindy Buckwalter, Executive Vice President for Take-Two Interactive. Today’s one-hour call will be led by Strauss Zelnick, Chairman of Take-Two; Ben Feder, our CEO; and Lainie Goldstein, our CFO. We are also joined by Seth Krauss, Take-Two's Chief Legal Counsel. The entire team will be available to answer questions you may have during the Q&A session following our prepared remarks.

Before we begin, I would first like to quickly review our Safe Harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us at this time. 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 our 10-K for the fiscal year ended October 31, 2006, which may be obtained from our website at www.take2games.com, or by contacting the SEC.

Now let me turn the call over to Strauss.

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Strauss Zelnick

Thanks, Cindy and good afternoon, everyone. Thank you all for joining us today. On our last conference call with you, which was back in April, we spoke about our determination to revitalize Take-Two. We also said that the new management team would take actions within our first 100 days to address the major challenges facing the company.

Now, we’ll still about a month shy of that official 100-day mark and our process is still ongoing. We’ve made progress on many fronts, which we’ll discuss in a few minutes. We’re also planning another conference call, which is now scheduled for July 9th, to provide further detail on our action plans.

Also in today’s call we’ll be reviewing the financial results of our second quarter, which were right in line with the expectations we provided in our April conference call. We’ll also discuss our financial outlook for the remainder of the year, which remains unchanged.

I would like to remind all of you of something we said on the last conference call. The focus of our efforts at Take-Two, our strategy here is to be the most creative, the most innovative, and the most efficient company in our industry. I am very pleased to say that two months into our process, we’re more confident than ever that the company can achieve these objectives and that we’re all on the same page trying to achieve the same thing. Our goal is to make great games and to delight consumers and in so doing, we expect to delight our employees and our shareholders.

As you know, our efforts during the initial period have been focused in five critical areas. First, ensuring that we have the right organizational structure to meet our goals; second, assessing all of our business units in developing strategic alternatives for any businesses that we determine to be non-core or unprofitable or marginal; third, taking steps to maximize the value of critical relationships, such as hardware suppliers and product licensors; fourth, reinforcing a disciplined product investment strategy; and fifth, working aggressively to resolve litigation and regulatory issues effectively and appropriately.

Ben’s going to talk about our progress in each of these five areas shortly. What I’d like to emphasize is how pleased we are with what we found at Take-Two so far. The senior management team is very professional, very confident, and very focused and committed to the success of the company. Our development teams are also highly focused on making great games -- it’s our watchword around here. There are many exciting products in the pipeline. All of the titles planned for fiscal 2007 are on track and look great, and throughout the company our people seem to be responding positively to the atmosphere of openness and communication and we hope that that’s becoming a distinguishing feature of this new Take-Two.

In short, the revitalization program is off to a very strong start. We really couldn’t have asked for any more. We’re confident that Take-Two is on track to become more responsive, more disciplined, more cost-efficient and that that will lead to reinforce and enhance our creative spirit that makes great games. We think efficiency leads to creativity and that they are firmly entwined.

With that said, I’d like to turn the call over to Ben.

Benjamin Feder

Thanks, Strauss. We’ve made solid progress in many of the critical areas that we targeted for improvement and we expect to accomplish even more in the remaining period of our 100-day plan. I’d like to personally thank the Take-Two team, which has devoted significant time and energy to this process.

Let me take you through five critical areas of focus. In terms of our first priority area, organizational structure, today we are announcing several significant restructuring initiatives. Overall, we expect these initiatives to reduce fixed overhead on an annualized run-rate basis by approximately $25 million by the end of fiscal 2008. Approximately 60% of this amount represents a reduction of operating expenses and the remaining 40% is a reduction of cost of goods sold.

I should emphasize that this figure represents only those cost reductions that we have identified to date as part of our restructuring plan. We are committed to continually pursuing opportunities to improve the efficiencies of our company.

As for the specific actions we are taking, first, we’ve significantly restructured our international operations to consolidate and align marketing and sales operations according to the business functions as opposed to geography. This has allowed us to eliminate an entire layer of management and to create a more efficient, responsive, and transparent international organization.

Second, we are consolidating on the west coast the management, marketing and business development operations of 2K and 2K Sports labels. This is expected to result in better communication with the 2K organization, move us closer to our sports development teams and other key resources, reduce our lease expense, and enhance overall efficiency. With our 2K operations centralized on the west coast, we can better focus on the growth opportunities in this business.

Third, all administrative functions for labels and studios, such as HR, legal affairs, finance and IT, will now report to Take-Two Corporate rather than their individual business units. This will improve control and accountability.

Fourth and finally, we’ve consolidated our third-party PC distribution business into our North American sales organization.

Excluding any asset impairments, we expect to recognize restructuring costs of approximately $50 million related to these actions. About half of these costs will be recognized during the balance of fiscal 2007 and the remainder in fiscal 2008.

While we are very pleased to have accomplished the significant realignment in such a short period of time, we will continue to explore additional opportunities to enhance the organizational effectiveness and productivity of our business. In addition to the organizational restructuring, we also pledge to assess all business units and develop strategic alternatives for any operations that are non-core, unprofitable, or marginal.

Now obviously, publishing is Take-Two's core business and that will be the primary focus of our resources and energies. Within publishing, we consider the Rockstar, 2K, 2K Sports, and Global Star labels to be core holdings.

We are in active discussions regarding possible alternatives for Jack of All Games and Joytech. However, I want to emphasize that we are supporting these businesses and we will continue to support these businesses and operate them if we cannot reach terms that make economic sense.

Our third priority is to maximize the value of critical external relationships, specifically with licensors. We are continuing to work on this important aspect of our business and we will provide an update on our July 9th call.

Reinforcing a disciplined product investment strategy is our fourth focus area. We have extensively reviewed the products in our pipeline. While we are comfortable with the economic assumptions underlying most of the titles, we did write off several products in development that were planned for release beyond fiscal 2007. More importantly, we are instituting a greenlight process designed to support and enhance our reputation for creativity and ensure the economic viability of every product. We’ll have more to say about the greenlight process on the July 9th call as well.

Finally, we’re committed to working aggressively to resolve our outstanding litigation and regulatory issues. We’ve been in regular contact with the Manhattan district attorney and the SEC to ensure them of our continued cooperation. While we can’t speculate as to the course of their investigations, we will continue to work with the DA and the SEC towards a resolution of any outstanding issue.

I would like to touch on two additional topics; our financial results for the quarter and our product pipeline. With respect to our financial performance, net revenue for the second quarter was $205 million, or about 23% below the same period last year and slightly better than we forecast on our last call. Our loss per share was $0.71, the same as last year, which was right in line with our expectations.

Non-GAAP net loss per share, excluding unusual charges on stock-based compensation in both the 2007 and 2006 periods, was $0.41 in the second quarter of this year versus $0.52 in the same quarter a year ago. Lainie will provide additional detail on our financial results in a moment.

We are reiterating our guidance that we provided on our last call. For the full year, we expect $1.2 billion to $1.25 billion in net revenue with break-even results on a GAAP basis. Note that both our revenue and earnings guidance exclude any potential impact from our restructuring. We’ve also provided initial guidance for our third and fourth quarters as detailed in our press release, and upon which Lainie will elaborate in a moment.

We are pleased to report our product pipeline for fiscal 2007 remains on schedule. We remain confident in the release dates of our key second-half titles, Grand Theft Auto 4 for X-Box 360 and PlayStation 3, and BioShock for X-Box 360 and PC. We look forward to the release of two new sports titles this summer, the BIGS and All Pro Football 2K8.

To summarize, we have made great progress in a short period of time to deliver on the strategic actions to which we committed previously.

I would like to echo the point Strauss made about our confidence in the future and our high regard for the people at Take-Two. Together, we are making great strides in revitalizing the company and building on a great creative organization.

Now, it gives me great pleasure to turn the call over to Lainie Goldstein. As you know, we announced today that Lainie has been named our CFO. The decision to promote Lainie reflects her talent and professionalism and our confidence in her, as well as her contribution since taking on leadership of the finance team on an interim basis during the challenging period for the organization. So with that, Lainie.

Lainie Goldstein

Thanks, Ben and good afternoon, everyone. I will be covering several topics today: first, a review of second quarter results and second, our outlook for the remainder of fiscal 2007. Before we begin, I would like to note our new financial statement presentation in the financial tables of our press release. In addition to reporting our GAAP financial results, we have also provided detail on various non-recurring and/or non-cash charges, such as professional fees related to our stock options investigation and various unusual regulatory matters, expenses relating to our management and board changes in Q2, stock-based compensation expense and related tax effects. We have provided this information in order to better reflect the performance of our business on an operating basis. We have also provided a reconciliation for our non-GAAP results to our GAAP results.

Now, to our Q2 results; net revenue was $205 million, compared with $265 million a year ago. Our GAAP net loss, which includes a total of $21.6 million in unusual charges and stock-based compensation expenses, was $51 million, or $0.71 per share. This compares to the net loss of $50 million, or $0.71 per share in the second quarter of 2006. Our 2007 Q2 net loss included an $18.9 million valuation allowance against deferred tax assets and caused us to realize no tax benefits for the carry-forward tax effect of this loss.

Looking at our results on a pretax basis, our loss from operations was approximately $51 million compared to $77 million last year. Our decline in revenue year over year was primarily due to the strong sales last year of the Elder Scroll 4 Oblivion, which was launched in the 2006 second quarter and represented about $81 million of revenue in that period.

Offsetting the decrease from the Elder Scrolls, our leading titles this quarter were Grand Theft Auto: Vice City Story and Major League Baseball 2K7, each of which sold over 1 million units in the quarter. Our sports business was once again a strong contributor to revenue. Sports titles represented over 35% of our publishing revenue in the second quarter.

Looking at the breakdown of our total business, publishing revenue was 75% of the quarter’s revenue, with distribution revenue at 25%, about the same as Q2 last year. Our distribution business decreased by about 21% from last year’s second quarter, due primarily to the decline in volume and average selling prices of legacy platform titles.

In looking at our consolidated results, our total gross profit margin for this quarter increased significantly this year to 22% compared to less than 7% last year. This increase was due to above average royalty costs for the Elder Scrolls and approximately $18 million of impairment charges in Q2 last year, primarily related to our studio closures, compared to a $5.2 million impairment charge this year.

Additionally, this quarter we enjoyed a significant increase in the gross profit margin of our sports product, primarily Major League Baseball 2K7, NBA 2K7, and College Hoops 2K7, all of which had higher sales than their prior versions and comparable software development costs.

Also, per unit royalties were lower for our Major League Baseball 2K7 title this year. Since we have one additional MLB title planned for release this summer, the BIGS, our minimum annual royalty for MLB is amortized over a greater number of units, which reduced the per unit royalty costs.

Our operating expenses in the second quarter were approximately $97 million, up about $2 million from last year’s second quarter. This was primarily driven by $9 million of charges related to the management and board changes this quarter. Additionally, G&A expenses rose this year, largely due to higher professional fees associated with the option investigation and responses to the SEC and the Manhattan DA.

Our R&D expenses declined as a result of our development studio closures in Q2 2006 and higher costs last year related to severance expenses. Our selling and marketing expenses also declined year over year, due primarily to a significant marketing campaign last year in connection with the launch of the Elder Scrolls. Lastly, we realized impairment charges of about $6 million in Q2 last year from write-offs of intangibles and trademarks.

The last area of discussion on our income statement relates to taxes. You will see that our effective income tax rate for our second quarter is negative 3%, a significant reduction from our 35% effective tax rate in Q2 2006. As a reminder, as we discussed on our year-end call, in light of our domestic cumulative losses for the past three years, we are required under FASB-109 to record a valuation allowance to reduce our deferred tax assets. Basically, what this means is that in fiscal 2007, despite our book loss, we are not recognizing the tax benefit of this loss, which would have reduced our net loss. Instead, we effectively incurred a non-cash income tax expense of $18.9 million, or $0.26 per share, due to our inability to record a benefit for the 2007 U.S. losses. It’s important to note that as we generate taxable income in the U.S. in future periods, we will realize the benefit of the reversal of the valuation allowance.

Moving on to our balance sheet, at the end of Q2 we had approximately $108.5 million in cash. Net accounts receivable at the end of the second quarter were approximately $70 million compared to $143 million at the end of Q4 and $130 million at this time last year. Our DSO in Q2 were approximately 31 days, compared to 48 days in the fourth quarter and 44 days in the second quarter last year. Our accounts receivable reserve sat at $53 million at the end of the quarter, representing approximately 43% of gross receivables. Our Q2 reserves were approximately 11% of trailing six months revenue and about 7% of trailing nine months revenue, lower than last year’s Q2 levels as many of our publishing titles were introduced at lower average selling prices this year due to the industry’s console transition.

Inventories at the end of the quarter were approximately $80 million, down significantly from $96 million at year-end and $92 million at Q2 last year, due to our reduced sales volume and continued focused on managing Jack’s inventory level.

Our software development costs and licenses totaled about $156 million at the end of the quarter, compared to approximately $117 million at year-end and about $106 million at this time last year. The increase was primarily related to the key titles planned for release over the next 12 months, including Grand Theft Auto 4, BioShock, and All Pro Football 2K8. We currently have over 35 titles in various stages of development on current and next-gen platforms.

Now a few comments about our guidance, as detailed in our press release. For fiscal 2007, we have reiterated our full-year guidance of break-even on a GAAP basis, including stock-based compensation expense of $0.22 per share but excluding any reorganization and restructuring charges, and $1.2 billion to $1.25 billion in revenue. Included in the reorganization expenses is additional stock-based compensation of $0.03 per share. Additionally, fiscal 2007 estimates only reflect tax expense for the company’s international operations.

For Q3, we expect net revenue in the range of $195 million to $215 million, with a GAAP net loss per share in the range of $0.60 to $0.65, including stock-based compensation expense of $0.06 per share but excluding any reorganization and restructuring charges. Additionally, third quarter estimates reflect no tax benefit, as discussed earlier.

For Q4, we expect net revenue in the range of $520 million to $550 million, with GAAP net income per share in the range of $1.35 to $1.40, including stock-based compensation of $0.06 per share but excluding any reorganization and restructuring charges. Included in the Q4 reorganization expenses is additional stock-based compensation of $0.03 per share. Fourth quarter estimates reflect only tax expense for our international operations as well.

Let me provide some additional data points on our 2007 outlook. We expect our total revenue mix to be split about 75% publishing and 25% distribution. This is fairly comparable to what we experienced in 2006. However, the projected mix of business in publishing will be more favorable from a margin standpoint.

On a blended basis for publishing and distribution, we expect gross margins for fiscal 2007 to be in line with the levels we achieved in Q4 of 2006. A significant portion of Rockstar’s revenue will come from our premium priced Grand Theft Auto 4 on next-gen platforms compared to 2006, when a large part of Rockstar’s business was lower priced catalog products on current-gen platforms.

For 2K Games, we expect a greater percentage of sales to come from higher margin, internally developed and owned titles led by BioShock.

Now let me give you an idea of where we see our operating expenses trending. We are obviously coming off a recent period of high G&A expense based on some of the regulatory challenges we’ve had along with our business reorganization. We see Q3 levels improving slightly compared to Q2 based on reduced professional fees.

Selling and marketing is closely tied to our product releases, so you can expect a larger marketing spend overall in 2007, about in line with the prior year’s selling and marketing as a percentage of sales.

R&D will fluctuate from quarter to quarter based on what products our teams are working on but on an annual basis, we would expect R&D to be about comparable to 2006.

Depreciation and amortization should grow at about the same rate as last year.

As for taxes, you can expect any additional current year U.S. losses to be recorded without tax benefit while future profits will benefit from the reversal of the valuation allowance on our deferred tax assets. As a result, our losses in the short-term are magnified as income earned in all jurisdictions outside the U.S. should result in tax expense.

Taking these factors together, we believe we can show a meaningful improvement in our operating performance in the balance of 2007. Looking into 2008, with the additional opportunities to capitalize on the strength of our core franchises and our sports business, and while the benefits of our restructuring will begin to be realized in fiscal 2007, the impact of these operational changes will be reflected more significantly in our fiscal 2008 results.

At this point, I will turn the call back to Strauss.

Strauss Zelnick

Thanks, Lainie. I would like to conclude the formal portion of the call by reminding everyone that we do wish to maintain open lines of communication in the weeks and months ahead. We’ll be communicating with you again very soon, in early July. We will provide additional elements for our 100-day plan. We’ll also be in touch with you at E3.

We hope that your takeaway from the call is that we’re moving ahead very aggressively. We’ve already made a lot of progress on the initiatives that we outlined and we think those initiatives will lead to enhanced profitability and enhanced shareholder value.

We’d now be happy to take your questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Heath Terry with Credit Suisse. Please proceed with your question.

Heath Terry - Credit Suisse First Boston

Thank you. I was wondering if you could give us an idea, or talk about what kind of progress you’re making on the licensing front, particularly getting any kind of relief from your partners on the sports side and to the extent that that’s actually an important goal for you. Also, if you could give us an update on, at least now that you’ve been in the role for a while, how your philosophy around licensing products, like the upcoming Fantastic Four movie and some of the other licenses the company’s done in the past has changed.

Strauss Zelnick

In terms of the sports business, we’ve expressed the commitments of that business going forward. We’re trying to optimize the business and there are a couple of ways you optimize the business. The first and most important thing is make the best titles in the business and the company already achieved that goal and frankly, not on our watch. Our games rate about 20 points on average more highly than our big competitor in this space and we think consumers are going to come to the conclusion that these are the games to have. And we like the business. It’s an annual business. We also have exclusivity in a key business, which is the baseball business.

So we think we’re set up in many ways to build a good profitable business there, and some of the progress we are going to make is simply going to be volume related. As we sell more units, as these new platforms grow and as people begin to realize their expectations for a great sports games are more closely in line with the games that we produce.

There are potentially opportunities to enhance the nature of the relationships we have with licensors. We don’t have anything to announce right now. Obviously it’s something that we’re focused on but I don’t think it’s the be all and end all of the business. I do think if we can achieve a win-win situation with licensors where we sell more games and they are great games and they do well and we do well, everyone should be happy and that’s part of our goal.

On the licenses side, I feel really good about Fantastic Four. I’m not sure what else I could tell you about it. Our core business around here is creating our own intellectual property. There are also certain instances where licenses can be very valuable to us. Generally speaking, the experience that I’ve had and we’ve had in the videogame business is a good license in a bad game doesn’t yield a good result. A great game without a license yields a great result. A great game and a great license can indeed yield a great result so you can take away from that sort of how I feel about the business. At the end of the day, what’s the common element of success? A great game.

Heath Terry - Credit Suisse First Boston

Sure. And then, as you look at the business longer term, is there anything about what you found about Take-Two that would suggest that over time your margins are going to be in line with those of the other companies your size in the industry, besides obviously the component of your business that’s distribution?

Strauss Zelnick

If you pull out the distribution business, then the question would simply be is there any reason for our costs of operating and our gross margins to be different? The only thing that would change it is if we made choices that meant we operated either more or less expensively than our competitors.

There’s one material difference, which is that we do have a stated strategy which is not everyone’s strategy, to make the very best games in the business for next-gen consoles and that’s an expensive proposition. We try to be efficient in the way that we do it. We’re very focused on efficiency. We think efficiency and creativity go hand-in-hand, that they’re not at all in conflict. But everyone knows that producing games for next-gen consoles is complex and expensive, not everyone can do it. That is what we do and we think if you are going to make the very, very best games you have to put your resources there and if that includes hiring and attracting the very best personnel, then that could change your percentage margin but hopefully you’d be doing it, if you’re rational, to increase profitability.

One of the things I’ve encouraged analysts to think about as they look at our company is while margins are interesting, at the end of the day, what do you really want to know about? You want to know about your return on invested capital and how much cash flow we’re generating in a given year and are we going to make more money around here than this company used to make.

Sitting here at the cusp of enormous growth, without regard to Take-Two, in the next-gen consolers, this is going to occur. I’m not saying we’ll benefit from it. I believe we will but I can’t -- I don’t have a crystal ball. I can only tell you we’re doing the best we can but all of us have enough of a crystal ball to know that the next several years is going to be a period of wonderful growth driven by next-gen consoles and there are only a small handful of us who are competing aggressively in this space.

It may on a pound for pound basis therefore cost us more to compete to make a great game and market it but if we made the right decision and the market grows, and I believe we did and I believe it will, then we are going to make more cash flow and that’s what I think everyone ought to be focused on. Obviously at the end of the day we’ll be judged on what happens to our stock price and our stock price will reflect all of those things.

So I’m a little bit less focused on operating margins, although it is certainly not irrelevant, than I am focused on our return on invested capital, the value of what we are creating in terms of cash flow on an ongoing basis and what happens to our stock price.

Heath Terry - Credit Suisse First Boston

Thank you.

Operator

Thank you. Our next question comes from the line of Tony Gikas with Piper Jaffray. Please proceed with your question.

Tony Gikas - Piper Jaffray

Good afternoon. Thanks for taking my questions. A couple of questions; do weak sales of the PlayStation 3 hardware system at a high price point impact the launch of GTA 4 at all in your view? The second part of that question, will there be any premium versions that you can talk about yet and will the PS3 or X-Box 360 versions be differentiated in any way? And then I have a quick follow-up.

Strauss Zelnick

In terms of the release date, no, we’re confirming the release date and we’re going to meet the release dates, so let me just say that clearly.

We think that frankly, the release of Grand Theft Auto 4 is going to have a materially beneficial impact on the sales of PS3. Certainly if history is any guide, that’s going to be the case. We think this is a must-own title that will help the platform.

I think plenty’s been written about the price point. I probably don’t need to jump on that bandwagon but I think if you look at history, next-gen consoles sell in at certain price points. They are often introduced at high price points. Those prices tend to be reduced and when they are reduced, selling increases.

Obviously we’ve episodic content coming for X-Box 360 for the title and because the consoles do differ, there will be some differences in the games. My kids actually have three game consoles at home and sometimes play the same titles on different consoles and they see some differences and they find that compelling. So there’ll be -- these obviously are not going to be identical experiences but they are going to be very, very close.

Benjamin Feder

In terms of the premium version, we’ve announced a special edition for GTA 4 that will be premium priced and very nicely packaged actually. I’ve seen a mock-up of the package. It’s a beautiful, beautiful product. That’s been previously announced, Tony.

Tony Gikas - Piper Jaffray

Yes. Will the premium version be perhaps the only version available in the first weeks of the launch or will both versions be available?

Benjamin Feder

It’ll be day and date.

Tony Gikas - Piper Jaffray

Day and date. And then, could you just help us, a housekeeping question with the tax rate for next year -- will you be paying taxes?

Lainie Goldstein

We won’t be paying taxes in the U.S. but we will continue to pay taxes in our international operation.

Tony Gikas - Piper Jaffray

Okay, and how about your view of software growth in the market this year for the overall industry, looking at calendar ’07 and perhaps calendar ’08, if you have an opinion?

Benjamin Feder

We focus on Take-Two primarily and would not want to opine on the industry, although as Strauss said, we think that we foresee growth for the next couple of years based on next-gen consoles. We’re pretty sanguine about the prospects for growth industry wide. I wouldn’t comment on specific growth rates.

Strauss Zelnick

Tony, I probably read the same research you do. I think most people feel like the titles per platform are going to go up with the next-gen console. There were an average of roughly 10 the last time around. A lot of analysts feel the number is going to be more like 12 or 13.

I think as consoles get better and you can do more with them as the population of gamers gets broader and as we go from early adopters into general population, you may well see that happen. I certainly hope so. I will tell you our plans are not driven by that.

Tony Gikas - Piper Jaffray

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of John Taylor with Arcadia Investment Corporation. Please proceed with your question.