GameStop Corp. (GME)

Investor Day 2016

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Apr 14, 2016

And gentlemen, please welcome the CEO of GameStop, Al Raines. Thank you. Thank you. Hi, welcome back. Welcome back. We hope you had a good tour and a great lunch. We spared no expense with lunch. I want to make sure you are fortified for the afternoon. Let's revisit what we saw earlier as we get into this. The 4 columns of businesses that we are in today, both inside our GameStop branded stores and outside of them. On the left, you see physical video games, which are sold in our GameStop stores and our websites. They are supplemented by our PowerUp Rewards program, our omni channel sales capabilities and community content such as our Game Informer Magazine. Moving over, digital and mobile games are sold both inside our GameStop stores and outside of them. Inside our stores and websites, we sell digital currency and downloadable content, while outside our stores, we are publishing mobile and indie games. Hopefully, you all got to see the Song of the Deep demo along with Sony Virtual Reality last night. The next column is Technology Brands, which is our largest unit outside of the GameStop branded stores, and it operates our Spring Mobile AT and T, Simply Mac and Cricket banners. Our collectibles business is fast growing inside our GameStop stores, but also outside our stores through the thinkgeek.com website and our ThinkGeek and Xing pop culture stand alone stores. You're going to hear lots of detail on these concepts today, and Rob will summarize this into financial models at the end of our session. My main goal is to get you thinking about the transformation of GameStop as going on both inside our GameStop branded stores and outside our GameStop branded stores so that you start thinking about GME in a new way. Many of you have asked, why are you branching out into other areas? Well, the answer is that our core physical game business is generating cash flows that we can deploy in other retail concepts to generate growth and continued value for shareholders. But additionally, we have several competencies as a specialty retailer that we can apply to other retail concepts. We did a lot of strategic work as we started down this path. And when we think about our transferable competencies, they break down into 5 areas. Real estate is number 1. With over 7,000 leases we hold around the world, we have developed formidable real estate knowledge and leverage. We can and do apply that competency to our GameStop branded stores, our technology brand stores and our standalone collectibles businesses. The second competency is store ops management and omnichannel. With deep expertise in running small box operations, we can transfer some of that skill set to tech brands as well as collectibles. We have also developed an innovative four direction omni channel that provides unique advantages versus competitors. Over 60% of our store transactions in GameStop stores involve an omni channel step in the sale. Our CRM or PowerUp Rewards program is a massive deep data tool. With 46,000,000 members worldwide, we can leverage that tool to micro target consumers in specific geographies or product segments. You will see detailed examples of how we have gained share using the PowerUp program. Buyselltrade is at the root of GameStop and we are applying it to all of our businesses in a multitude of ways. Last year, we handed out over $1,000,000,000 of trade credits to our customers, and they use that to purchase physical and digital gaming products, collectibles and some Apple and Cricket products. That trade currency is a massive advantage that we hold and you can be sure that we are working on ways to bring it to bear with virtual reality headsets and other new products. Lastly, we have been talking about being a strong cash flow generating business for a long time. I'd like to say that there's big piles of cash in Rob Lloyd's office and he sits on them and doesn't let go unless there's a good reason. We have had a good buyback program, our dividend has a great yield, and we have found some new opportunities to deploy capital into new mergers and acquisitions in the TEG brand space. So let's spend a little time on why we think PowerUp Rewards is such a so powerful an asset. We have developed a program with 46,000,000 members around the world in only 5 years. The growth has been fantastic, and we believe it is because our program is compelling and provides unique opportunities and value to consumers while keeping them in our ecosystem. 1 in 5 households in the United States are PowerUp members, representing 71% of sales. A PowerUp member spends 3x the average non member and is worth 5x the profitability of an average non member. As we go forward, we will leverage PowerUp into every business we enter, and you will see examples of how we are integrating, for example, historical data of thinkgeek.com with our data to provide unique insights for real estate and merchandising. I want to give you a few key takeaways that are woven throughout our presentation today. The first key takeaway is that we have added new businesses outside a new business outside our GameStop branded stores that will have a $1,000,000,000 run rate by the end of the year, and that is called Technology Brands. In that segment, we have 3 new businesses that will deliver growth. By 2019, we expect Tech Brands to deliver approximately $1,600,000,000 of sales $200,000,000 of operating earnings. The second key takeaway is that we have added $2,000,000,000 potential categories inside our core GameStop branded stores. In the digital space, we are already at $1,000,000,000 and in collectibles, we are well on our way to $1,000,000,000 business. Entry into these segments was enabled by the existing by the data residing in our PowerUp Rewards program from our existing gaming customers as we found compelling products in the digital and collectible space. Many have asked how can they keep their core GameStop stores viable going forward, and we think this answers that question very well. Remember my chart from earlier, including these 2 new categories, the profitability of our GameStop branded stores, not the technology branded stores, just the GameStop branded stores around the world will continue to increase over the next 4 years and we are at record levels of profitability in 2015 already. Despite industry headwinds in the physical gaming space, the message is we are leveraging our existing GameStop branded store base to increase company profitability. The 3rd takeaway from today is that physical video gaming is a solid business with a very long tail. We continue to expand margins on physical product and gain share. Over 60% of our transactions in GameStop branded stores involve both the web and the store, giving us a unique opportunity to gain share. Digital will continue to grow, but we see physical product as retaining the largest share long term. Lastly, we believe new innovation such as virtual reality and new consoles could mean acceleration of growth in the near future. My last takeaway is that GME is a diversified and growing company. We expect 3% to 5% earnings growth annually through 2019. We expect 50% of operating earnings to come from businesses other than physical gaming by 2019. We will return free cash flow to investors, while also investing in attractive growth opportunities. Our history shows that we have returned about $2,500,000,000 to shareholders in buybacks and dividends over the last few years. And you will see details on much of this material this afternoon. So we have some good speakers lined up for you today. Zay and our other senior staff will be available for questions during the session and at the end. We also have 2 guest speakers, 1 from AT and T and 1 from Sony. They will share with you insights about their companies and their partnerships with GameStop. The growth outside the GameStop stores will be led by presented by Jason Ellis, our Senior Vice President of Technology Brands. Growth inside the GameStop stores will be presented by Executive Vice President, Mike Hogan. Video Games: The Long Tail will be presented by our Chief Operating Officer, Tony Bartel. And then our financial outlook will be presented by our Chief Financial Officer, Rob Lloyd. With that, will now turn the presentation over to Jason Ellis. Thank you, Paul, and good afternoon. My name is Jason Ellis, and I'm excited to share with you the exciting growth in GME's Technology Brands division. Let me start by Let me start by explaining that Technology Brands is a specialty retail division that focuses on consumer technology. Spring Mobile is the name of our business that operates both AT and T and Cricket branded storefronts. Spring Mobile is America's largest and fastest growing wireless dealer. We are AT and T's largest authorized retailer with over 900 stores, doubling our store count from the end of 2014. These locations look like an AT and T store and are geographically complementary to AT and T corporate stores. We have a strong relationship with AT and T and a long term exclusive agreement. The Cricket division serves the prepaid wireless community and we have 70 retail stores. This is an aggressive growth concept that is owned by AT and T and we are optimistic about its future potential. GME acquired Spring Mobile in late 2013 when we had about 90 stores and we're AT and T's 4th largest authorized retailer. Our strategy was to grow by opening new AT and T stores and by acquiring other smaller authorized retailers. GME started opening Cricket stores at about the same time. Simply Mac is Apple's largest premier partner with 76 stores. These stores offer retail sales of new and used Apple products as well as warranty and non warranty repair of Apple devices. One figure you may not know is that Simply Mac provides 52% of the Apple warranty repairs in America that are not done in an Apple store. These stores are also geographically complementary to Apple and we work closely with Apple on current and future locations. GMA invested in Simply Mac in late 2012 with the purchase of 49% of Simply Mac when it had 8 stores. In late 2013, after opening another 15 stores, GME purchased the remaining 51% of Simply Mac. All three of these concepts were put under my direction in 2014 and now operate as GME's Technology Brands division. In each of these concepts, GME is utilizing its transferable competencies of deep real estate knowledge, rapid retail expansion, effective CRM and disciplined capital deployment to drive growth of these businesses. All three of these retail concepts have a strong consumer proposition evidenced by our forecasted earnings growth. As you can see from the graph, we anticipate significant growth in the earnings of our Technology Brands division. We anticipate completing several acquisitions this year and when combined with our current stores will result in 2016 operating earnings of $85,000,000 to $100,000,000 In addition to the anticipated acquisition, earnings growth will be accomplished through the maturing of stores built in 2015 and leveraging our fixed cost structure. As we look forward to 2019, we anticipate earnings growth to be above 200,000,000 dollars At that point, Technology Brands will account for over 25 percent of GME earnings, a primary contributor to the goal of having 50% of operating earnings coming from non physical gaming products and services. Since the majority of our investments thus far and in 20 16 are going to be in our AT and T division, I wanted to spend most of our time on why we believe this is a great opportunity for growth and shareholder return. According to the research firm Statista, the U. S. Smartphone market is approaching $250,000,000,000 and the user base is expected to grow by 9% in 2016. This growth is expected to come primarily from new customer subscribing and the conversion of existing feature phone customers to smartphones. We believe that AT and T is well positioned for growth in retail distribution as a key component of their overall strategy. Spring Mobile is the leading partner of any AT and T retail distribution. A significant opportunity exists to acquire profitable dealer stores and GME is the 1st mover in the strategy, to meet customer needs and selling the wide variety of products and services that AT and T offers. We expect to acquire 400 to 500 more stores in 2016 and as you know we have several acquisitions targeted to close this year. And as you saw on the store tour today, AT and T provides a strong pipeline for future same store growth with DIRECTV Digital Life and Connected Car. We will talk more about those opportunities in a few minutes. As mobile phones are becoming the remote control for your life, connecting consumers to so many additional great technologies, consumer spending has followed. IDC Research predicts that telecom spending will increase by 2019 consumer spending is anticipated to grow another $46,000,000,000 The driver of the increase in spending is the amount of data and particularly video that consumers are watching on their mobile devices. There will also be an increasing number of total connections to the network, some of which we will discuss later in the presentation. As spending in the category continues to increase, we have partnered exclusively with AT and T, a world leader in wireless and integrated mobile products. It is my pleasure to introduce you to Brian Shea, who is kind enough to join us for a few minutes today. Brian Shea is the President of Retail Sales and Service for AT and T. We ask Brian to share with you some forward thinking in regards to AT and T strategy and why GameStop is an important partner. Please help me welcome Brian Shea. Thanks. It's great to be here this afternoon with you. I apologize that I could not join you this morning for the visits to the stores. As a good retailer, I hope you all purchase something on those visits. But let me just talk to you about a couple of key areas that I want to cover today. First of all, I'll give you a little insight into our strategy and why GameStop and Technology Brands is so critical. 2nd, I want to talk a little bit about the evolution that's happening at AT and T from a wireless carrier to an integrated communications company and why that's such a great opportunity for us to continue to build on our partnership. Then I'll finish just touching a little bit about our strong partnership with GameStop and Technology Brands. So first of all, if you think about AT and T strategy in the marketplace, it's pretty simple the way we want to be where customers want to purchase, whether it's a call, whether it's a click or whether it's a visit. So we have big strong communications, distribution partners across all of those areas. But the area that is our largest and most important to us is our physical distribution, which is our AT and T branded stores. And what you probably don't know is that AT and T branded stores, our largest channel of distribution, 6 out of 10 of those stores are actually not operated by AT and T, they're operated by important partners like GameStop and Technology Brands. And so it's a really important part of our continued growth, almost a cornerstone of our strategy because customers want to continue to visit us in our stores, They want to continue to purchase products, upgrade. And as we transition from a wireless carrier to an integrated provider, I'll give you a little bit more insight into why our physical stores in our partnership with GameStop is so important. So if you think about that transition from wireless to integrated communications provider, we still think the wireless device is the and Jason used the term, which is perfect, the remote control for your life. It is the primary reason customers visit our stores, but we have an opportunity to introduce them into other products and services. So wireless as a category is still very strong in the postpaid business, very strong in prepaid, and we touched a little bit on our developing area of growth, which is our Cricket brand, as well as our GoPhone prepaid brand. GoPhone is a product we sell in our exclusive AT and T stores. Cricket has its own stores and own distribution partner, which GameStop is part of. So wireless, postpaid, prepaid and then another fast growing area for us that we're leveraging all of our points of presence is small business. So we've worked very closely with Jason and his team to continue to grow out that small business segment of our wireless category. The second category is entertainment. Entertainment, we believe that that device that most of you have checked during the course of my brief comments here is the television of the future, whether it's a smartphone or a tablet, and we, through our acquisition of DIRECTVIA, are in a wonderful position to help customers make that purchase and start to enjoy content on their tablets, on their smartphones. And so entertainment, whether it's video and or broadband, is another area of opportunity inside of our AT and T stores. The 3rd area is connected life. Probably the area that has the most opportunity and the one that I can get the most excited about because it's so early in its development. We have a product Digital Life that we do a wonderful job in our AT and T stores. Jason and his team lead all of our partners in their sales of digital life. We also have the Internet of Things business, which is growing very rapidly as well as our connected car business. All three of those represent additional revenue opportunities and additional opportunities for customers to visit and deepen their relationship with us. And then the last one, and I always touch on this one because people have a tendency to overlook it. I know Paul and I have had this conversation. Rob and I have had this conversation, and that's the accessories business inside of our stores. I've had a chance to see Jason's slide and it's not the largest of the 4, but there is a lot of opportunity inside the accessory business as customers start to enjoy their video, their wireless, their connected life, the accessories that they utilize to enjoy those products represents a significant revenue and profit opportunity. So just in quick review, you understand the importance of GameStop and technology brands to our strategy at AT and T. Secondly, you understand the evolution of AT and T from a wireless carrier to an integrated communications company. Finally, what I want to finish my brief remarks on is the importance of our partnership with GameStop and Paul and Tony and Rob and Jason, the entire team. I see Brett out there in the audience. We work very closely. You heard Jason say, the largest of our apartments, we have over 5,000 retail doors that are AT and T branded. I'm not afraid to say because we have many partners. This team is the strongest operator of any of our partners. They deliver outstanding sales performance. They're a strong partner. And most important to me, a little bit of an irritant is their outstanding customer experience. So you wonder why is it an irritant? Because the Jason is smiling because he knows where I'm going with this, because the AT and T authorized retail stores operated by Jason and his team actually get better customer service scores than my stores do. So it gives you a little insight into what a strong partner they are and what a strong operator they are. So really happy to be here today, really happy about the partnership that we have with GME and Technology Brands and Jason and the entire team. So thank you for the opportunity to speak to you and have a great conference. So, thank you again, Brian. And, as you can tell from Brian's presentation, we are very confident we have the right partner with AT and T. We share similar goals and values and we are well aligned to grow our respective businesses. Brian outlined AT and T's vision to be the world's premier integrated communications company through the expansion of the products and services you heard Brian discuss. Spring has a vision of becoming America's premier technology retailer. We plan to support that by continuing to drive AT and T's integrated communications vision, providing the very best customer experience results. Brian discussed the need for quality distribution that can invest in growth in order to drive new integrated products and service sales. We have invested over $400,000,000 in growing our AT and T store base with an average IRR of 28%. AT and T leaders value exclusive distribution that can provide a premier customer experience. Our stores utilize the AT and T brand, sell all AT and T branded products and services and are widely recognized for the customer experience. Finally, AT and T is very focused on growing their business by selling integrated products. As I mentioned, on average, Spring has increased total productivity of acquired businesses by 30% to 40%. This is accomplished through better execution inside of the retail stores, which includes old retail tricks like managing store hours, investing in employee training and proper inventory management, having the stores open when customers want to buy, having the appropriate assortment of product and investing training dollars into employees that are kind, smart and ambitious. We also use various forms of technology to communicate with our customers to ensure that the shopping experience is best in class. We are well aligned with our partner and our retail stores have become more than just a wireless phone store. As you saw during the store tour today, the retail stores have 4 primary categories to drive revenue: wireless, entertainment, connected life and accessories. Each of these categories have significant market size, creating real customer and profit opportunity. Our sales associates are friendly experts in each of these categories, which improves the shopping experience for our customers. As the products become more integrated, customers are becoming more interested in learning how they work together. A current example of this is DIRECTV, a product that was not sold in our stores a year ago at this time. As customers are becoming increasingly aware that DIRECTV can be purchased in an AT and T store, we are now selling thousands of pay TV subscriptions on a monthly basis. This is a great revenue and profit opportunity for our business. Now I want to share with you some average store comp metrics for the Technology Brands division. 2 of the key metrics that we use to determine the health of the business are retail traffic and gross profit dollars. For stores opened all of 2015, we expect same store traffic in 2016 to grow at least 5%, primarily driven by new product launch timing. As you can imagine, the Apple iPhone launches are significant traffic drivers. According to a recent UBS research report, consumers are holding on to their devices for a longer period of time, recognizing some monthly savings on their bill and patiently waiting for new innovation. We are set up nicely to see customers at the end of their next lease cycle to come back in and upgrade their phones with the newer version of devices that should launch this year. We expect same store gross profit growth to range between 3% 5% in 2016. We plan on updating these metrics in the future so that you have more information to track our success. And I want to remind everyone that some of our stores are over 20 years old and still have up to 10% year over year same store growth potential. We have received several inquiries in regards to how we make money in the wireless dealer business. There are 3 different types of revenue in our wireless stores. The first is common for retail, which is margin at the time the product is sold. This would apply to our accessories and some of our non contract product. On average, the margins in this category range from 35% to 65 percent. We also earn commission for customer subscriptions, which would be activating a new service or upgrading an existing service. The margins here can range from 65% to 100%. The final category is subscriber management fees or SMF, which is a recurring revenue stream, think of an annuity, that is paid based on subscriptions that our stores originate to the network. This is non transaction revenue, 100% margin and with low customer churn continues to grow. It is an important part of profitability. SMF is also a key component in valuing a potential acquisition and that it can be verified by AT and T and therefore is a key diligence item. We value other dealers based on a multiple of EBITDA and a multiple of SMF. As we experience higher customer traffic and sell more of these products in our existing stores, we will be leveraging our fixed cost structure to deliver higher four wall store contribution. We expect same store contribution to grow 20 plus percent this year from 121,000 between $145,000 $155,000 per store. In 2015, we invested heavily over $12,000,000 in incremental operating expenses in order to open 2 33 stores and acquire another 330. Growth in 2016 will come as we mature the 2 33 stores we opened last year and drive additional product and service sales. We forecast that the store contribution number will climb again by 14% to 20% between now and 2019. The primary driver of the growth will be increased sales of the products we have discussed during this presentation. We will discuss our contribution numbers in future earnings calls in order to provide you a store metric that allows you to see how our store base is performing. So we are confident in the profit opportunity, but another question we often hear is in regards to why GME is going to be successful in this space when several other companies have struggled or failed. Let me try to explain that through 5 success factors. To start, we have looked at AT and T and other industry research in regards to what retail looks like in 2020. Some wonder whether bricks and mortar will even exist. We believe there is a meaningful role for retail, especially experienced based retail where there is significant interaction between store associates and customers. We also believe that there is a growing trend in regards to where consumers prefer to purchase. The Wall Street Journal reports with latest data from consumer intelligence research partners that between 20132015, the number of customers in the United States who purchased an iPhone through carriers went up from 65% to 76%. Due to several factors, consumers have more purchasing confidence in a branded environment that they can trust. Our third success factor is that all of this great innovation needs distribution. There are several well known companies that have tried to launch new products exclusively online. To date none of them have been very successful. Examples include Google launching the Nexus and Amazon launching the Fire Phone. The reality is that consumers want to see and touch new technology before they make an important purchase. The greatest technology companies in the world are innovating new products to attach to the wireless network. We often get to show them to customers for the first time. That would lead us to the next key issue, which is that this technology is complex. An example would be a customer uses an Android phone and an iPad, but they want pictures to sync on both. Or maybe a customer uses a Windows computer with an iPad, but wants to sync their calendar with a significant other using an Android phone. Or oftentimes we hear, I upgraded my software last night and now my phone will not work. This technology is important to the daily lives of our customers. So the service and education we provide to them real time in stores is valuable. Last and most important to us, we are uniquely positioned to take advantage of this opportunity. We have the capital to grow. We are specialty retail focused. So unlike several others, selling mobile technology is all that we do. We are very good at it and plan to get even better by partnering with AT and T, by training our associates and by educating our customers. Thanks again for your time today. And we are now going to spend 10 minutes taking questions. Can you hear me? Yes. Why would AT and T decide to have a corporate owned store that they manage rather than outsourcing that function to you? In other words, how do they at what point do they make the decision? Is it geographic? Is it demographic? I think the answer is that the stores that they currently have, they're not building many, if any, new stores. So they have a current base of stores that they will continue to operate. At times, if they get below a certain volume threshold, those are stores that they'll transition to a dealer partner like us. But most, if not all of the store growth is coming through the dealer channel. Is it because they're underperforming stores that they decide to transition to GameStop or is that the main factor? A lot of it's based on performance and profitability for them as well. And a lot of their profitability is driven by volume and they've got certain stores that are already built. So they've got a fixed infrastructure and so if it falls below threshold and may make more sense for us to run it. Don't forget that they also have an $18,000,000,000 CapEx budget for their network and they have a very significant dividend service payment. So they have other needs for cash beyond just running retail stores. So that creates a little bit of a trade off. Hey guys. Just one follow-up on that. So this year after the acquisitions, I think you'll be close to 50% of the dealer network for AT and T. Help us understand where the incremental growth comes from there? Is it are you going to consolidate the rest of the 50% of their deals? Is the growth organic and you see incremental unit growth opportunities? Does AT and T want to give over more of their company operated stores? How should we be thinking about that? I think the answer is yes to all of the above. I mean, 2 years ago when we put a big number out here, I would have we didn't know if AT and T would buy us at 4 or 500 stores. Today, we have over 900 and we're headed to 1500. So I don't know that anybody has perfect number to as to where this is going to get. But we know they need distribution and as you heard Brian say, we're the best partner that they have. And just one follow-up. As we look at the operating margin targets provided for Tech Brands, I think it points to a 12.5% margin over the next few years. Can you help us bridge that to where you just were in the last year? I think it was 5%. Clearly, there are some investments and a little bit of a transition here, but what do you see as the key drivers to get us to that range? Yes. I mean, as we talked about in the presentation, last year was loaded with expenses associated with putting 500 plus stores on a base of stores that was not even that size. So the infrastructure costs to grow at that pace just weighed down the performance number. As those stores mature and run themselves out, if we looked at our base stores, it's not a stretch for us to get to the number that we've put up here. Paul, you talked about the success of buyselltrade for many years at GameStop. Is there any room for that in Spring Mobile and the strategy there? Well, Jason already runs the buyselltrade program except that AT and T receives all the phones. So we in the early days did a lot of that. I think today our thinking is more around how do we leverage some of the other accessories to create maybe a trade credit, how do we bring PowerUp Rewards. You saw Brian today here. We've had discussions with Brian around loyalty programs, for example. And of course, we don't have anything with them yet, but we are enacting some of those trade credits to bear, but nothing to report yet. He is getting the benefit of tremendous trade credits. It's just not coming to us. It's going to AT and T. Can you just quantify the impact of store opening costs in 2015, like the drag that you saw on margin to your question? Rob, do you want to take that one? Yes, I'm going to cover that a bit when I get to my presentation. Then just the 3% to 5% gross margin gross profit growth per store next year, can you just break that down a bit in terms of how much that is driven by just more opportunities per store versus gross profit per opportunity growing? Do you want me to just break down the 3% to 5% growth into the units? I mean Yes. I think it's going to be both and that's what will blend the average. I mean during product launches, we're going to see more unit growth, right, because those launches drive a tremendous amount of traffic. And when we're not handling large volumes of unit growth, we'll be having more time with associates or with customers to drive incremental product sales, which will increase the gross profit per transaction. So I think you're going to see a combination of both that will get us there. With regard to the acquisitions you've made, the aggregate numbers was quite good. We talked about the productivity better productivity you get out of these deals when you buy them. But maybe talk a bit about has there been any variability in performance of those acquisitions? Has there been one that hasn't worked for whatever reason or has not worked yet? I wouldn't say that we have any that haven't worked. Every one of them are profitable. They've all been integrated. We have a really intense integration program. So all of the businesses are integrated on the first day. So the culture is integrated. We've just had really, really good success. We like more mature businesses that have been in business longer and have more mature SMS bases. Those seem to have more stable customer bases and those that have just built new stores. But we've had really good success across the portfolio that we've purchased. And that's a pretty good sample size. I mean 32 24 or 28 months, it's been some heavy lifting and we've had really good success. One thing, Brian, is when we first met Jason, when we first started talking about this business, one of the things that was a surprise to us was the fragmentation of the dealer base. The dealer base with AT and T was highly fragmented at the time and it appeared to us and it was his thesis that we could roll up a lot of these dealers. Many of these dealers would have 3, 4, 5, 6, 7 stores. Many of them did not have succession plans. Many of them didn't want to invest in the new DIRECTV fixtures, all those kinds of things. And so we kind of came along at the right time. There's a saying in Costa Rica, where I'm from that says, which means hunger ran into a desire to eat. We needed growth. He had a thesis around how to run the business. He and Brett run an excellent business. And there was this highly fragmented AT and T dealer network that they were trying to solve. And so those things kind of came together and has really turned into a positive partnership. I think we have time for one more. Thanks. Joe Feldman, Telsey Advisory Group. Can you talk about maybe the back end of the stores not back end, but like sort of the infrastructure of the stores in terms of the training? Does AT and T pay for that? Do you guys what's necessary for that? And all that kind of support that goes along with mobile phone business? Yes, you bet. So we participate together in the store build and we work very closely on what that store where we want to put stores and how many we're going to build every year. And then once the store is built, the hiring and onboarding process has training on both sides. AT and T produces some training that we have to certify our associates through. We also have our own learning management system and our own proprietary training that we think is best in class and we run our associates through that at the same time. Okay. Thank you for that. We'll have more Q and A at the end. Right now, we're going to turn it over to Mike Hogan to talk about the growth inside. Good afternoon. I want to continue our discussion of changing the game by taking a deeper dive into our second key takeaway, namely that we've added 2 new categories to our core GameStop branded stores and these categories are or will soon be $1,000,000,000 businesses. 1st category is digital gaming. In a very short time, we have built from scratch a sustainable $1,000,000,000 digital business. The 2nd category is collectibles. This is a relatively new category for GameStop, and yet we are well on our way to $1,000,000,000 in sales, had profit margins well above video games. We will walk through each of these new businesses in detail. In addition, we'll take a closer look at PowerUp Rewards, which is GameStop's platform for customer engagement that gives us competitive advantage in these new categories. And as Paul said, including the growth in these new categories, core GameStop branded stores will continue to increase profitability per store despite industry software headwinds, and Rob will provide more detail on that later. The GameStop digital gaming business was launched in 2010. Our initial efforts were focused on digital currency in stores, but then grew to include downloadable content or DLC, the acquisition of Kongregate and ultimately full game downloads as well. As you can see on the chart, GameStop's digital receipts grew from only $290,000,000 in 20.10 to over $1,000,000,000 in 2015. This represents over 2 50% growth and is in line with the collective growth of the top 4 video game publishers. This means that GameStop is maintaining digital share even as the total market has grown dramatically. Now we are often asked why do so many consumers buy digital games and content at GameStop. But first, it's important to note that fully 95% of GameStop's digital receipts occur in a physical store. This seems counterintuitive, but upon further examination, it makes a lot of sense. As you can see on the right, 60% of our digital receipts are from non credit card transactions. Many consumers have a preference or a need for transacting without a credit card and this is a sustainable benefit. Keep in mind that non credit card includes cash transactions and gift cards, but also includes the use of GameStop's trade credit program, which offers over $1,000,000,000 per year of available currency to our customers. This chart shows the responses of our PowerUp members when asked where they go to buy digital content. You can see that after Sony and Microsoft, the GameStop store is very much top of mind as a place to buy digital. Gamestop.com is also a popular destination, but the store leads by a significant margin. Now let's take a little deeper dive into some of the reasons why consumers choose to buy digital at a physical GameStop store. We have spoken often about how our PowerUp Rewards program and the fact that we have relationships with over 46,000,000 members worldwide. So not surprisingly, PowerUp reward points emerged as the number one reason in the survey. The second most popular reason is the convenience of GameStop stores. The majority of Americans live within 5 minutes of a GameStop store, making the physical store an incredibly convenient option. In the number three reason, we see once again the power of GameStop's trade in program and the over $1,000,000,000 of credit we pump into the category every year. It's worth noting that over 12% of our digital transactions are fully or partially funded with trade credits. Reason number 4 is a relative newcomer. 2 years ago, this rarely made the radar screen, but it has become quite significant recently. We see more and more customers who are reluctant to use a credit card online or to allow their kids to use their card online. And reason number 5 is gift giving. Most consumers like the store option for gift giving because the recipient gets an actual gift card versus just a code. It's also more easily transferable. So these are the top reasons consumers cite for preferring to buy digital in the store, and they have this in common. They're all grounded in real consumer needs that are not going away anytime soon. Now let's turn our attention to GameStop's collectibles or loot business. This is an exciting new growth category for GameStop and one that we see growing quickly to $1,000,000,000 or more. Let's start with a few facts about the collectibles category. Most people are surprised to find that this category is already $1,000,000,000 just in the U. S. And this is a narrow category definition that includes only video game, movie and pop culture collectibles. The category has grown tremendously in recent years and is on pace to exceed $16,000,000,000 by 2019. You saw in the stores earlier today some of the products that allow our customers to express their fandom for their favorite properties. So a category is large, in fact nearly as large as video games, and it is growing. But equally important is the fact that GameStop is extremely well positioned to succeed here. When we surveyed our PowerUp Rewards members, we learned that 45%, nearly half of them already buy products in this category. And remember that PowerUp Rewards members are big category spenders. At their reported spend of $3.60 per year, this means that people who are already GameStop customers and PowerUp members account for up to 50% of the total category spend. Let me say that again. Based upon their reported spend, PowerUp members already account for up to half of the total category spend in collectibles. Clearly, GameStop has the inside track here with our existing customer relationships. And 82% of PowerUp members who have purchased a collectible indicate that they plan to do so again. So we have a large and growing category with highly accretive margins. We have a strong right to succeed given PowerUp Rewards and our customer relationships. The next piece of the puzzle is a powerful brand, which is ThinkGeek. ThinkGeek represents a big opportunity for GameStop because on the one hand, it has a lot of upside yet in terms of awareness. But amongst those who know the brand, it is immensely powerful and it inspires great loyalty. As you can see on the left, only about 1 in 3 collectibles purchasers is familiar with the brand. We think the GameStop system is a powerful tool for exposing this great brand to millions of new consumers. And on the right, we see ThinkGeek's net promoter scores, which are crazy high. This brand is in the same satisfaction tier as Amazon, Netflix and Zappos. So not everyone knows Stinky, but those who know us like us a lot. Collectibles is a growing category and it is still highly fragmented. There is no clear market leader in terms of where consumers go to shop for collectibles. Many players participate, but none dominates. Within this highly fragmented category, Thinky can become the clear market leader with the support of GameStop, PowerUp Rewards, our global store base and our omnichannel capabilities, we see ThinkGeek becoming the place where consumers go to shop for collectibles, whether online or in a store. While collectibles is an emerging category, it's important to note that it is grounded in multibillion dollar properties that have been around for a long time. Collectibles is a hot category, but it is not a fad. There are millions of consumers who are fans of Star Wars, Batman, Doctor Who and other enduring properties. What is new is the pace of product innovation, which gives these consumers many more ways to express their fandom personally and give great gifts to their friends. Now let's take a quick look at just one way in which we are leveraging PowerUp Rewards to capture the collectibles opportunity. One of the great advantages of PowerUp is that we can see which customers are fans of which properties based upon their prior purchase patterns. In addition, we do surveys, we look at online browsing behavior, etcetera. In this example, we can see that 29% of members have identified as fans of the video game Fallout. Most of these people reserved or purchased the game. We have a selection of Fallout themed collectibles, which we can offer exclusively to this group. For those who chose to add a collectible, average incremental purchase was around $23 Thus, we took the average sale from $60 for the game alone to $83 for the game plus an attached collectible. Across our customer base, this one example represents $30,000,000 to $75,000,000 opportunity. Using the same methodology, 44% of our PowerUp members base identifies the Star Wars fans. In this case, the dollar value attached is a little greater, $40 thus taking the total from $60 to $100 Now obviously, not all customers attach a collectible, but that's not the point here. The point is that we can offer every customer a relevant option for a collectible that appeals uniquely to their needs and adds incremental margin dollars to the transaction. One additional factor that GameStop is bringing to the category is a focused marketing calendar. In our core video game business, GameStop executes a year long calendar of marketing launches featuring major title releases as well as maximizing key events such as holiday gift giving. We're bringing the same disciplined focus to the collectibles business. As you can see, there are major events we can align behind such as Comic Con, May 4th Be With You, for those of you who are not Star Wars fans, look for it, Halloween and Christmas. And we have an expanded calendar of title focused events, video games with passionate fans such as World of Warcraft and Pokemon, movies such as Deadpool and Suicide Squad. Each of these represents a significant opportunity to give our existing PowerUp members more ways to express their fandom. The Thinking product lineup is already impressive, but we see many opportunities for expansion. We have robust licensing and product development capabilities, which allow us to capitalize on new IP as it comes to market in all forms. We are leveraging the power of GameStop to work more broadly with developers and publishers to bring items from video games to life in the real world, and we are testing subscription products as well. When we purchased ThinkGeek last July, the business was primarily e commerce. Since then, we have aggressively plugged into the full power of GameStop's omnichannel capabilities. We now offer the best selling ThinkGeek products on gamestop.com. This is particularly useful in terms of driving the attach of video game relevant collectibles. We introduced ThinkGeek products into our core GameStop branded stores around the world. Customers can shop directly or browse on their mobile device and pick up in store. We have found this channel to be highly incremental. The mix of products sold in stores vary significantly versus what sells online. As you saw earlier today, we have created ThinkGeek physical stores. The 3 stores in the U. S. Are in addition to our 30 plus Xyng Pop Culture stores in Australia and Europe, and they provide millions of collectibles fans and gift givers with a unique shopping experience. We have even introduced ThinkGeek products into our tech brand stores. A good example is the R2D2 car charger, one of ThinkGeek's best sellers and a great way to bring a little more fun to the wireless store experience. And of course, this is all integrated together with PowerUp Rewards and our capabilities such as web in store, pickup at store and ship from store. Tony will talk more about these in the next section. With the excitement of the category and the power of GameStop and the ThinkGeek brand, it's easy to see why we are so bullish about this business. As recently as 2014, global collectibles business was only $75,000,000 In 2016, we will be nearing the $500,000,000 mark, and we expect to exceed $1,000,000,000 by 2019. And it is worth pointing out that our gross margins on collectibles are well in excess of video game margins. On the right, we take a look at market share. Given an $11,000,000,000 U. S. Category today and about 2 thirds of our sales in the U. S, GameStop share of the collectibles category is only around 2%. Given expected category growth, in 2019 with $1,000,000,000 in sales, our share will have grown to about 4%. So even at $1,000,000,000 there's a lot of untapped upside for us. We see no reason why GameStop cannot command 20% or more long term. So we've talked through several of the key growth opportunities, and I want to take just a minute to illustrate how PowerUp Rewards is helping to bring all of these elements together. On the left, you see one of our personalized offers. We begin by identifying the subset of PowerUp members who are in the relevant target for a game, in this case, Star Wars, and creating a unique proposition, which in this example, we have a special preorder bonus. Now that we have a group of members who have purchased the game, we can provide relevant offers to extend the experience with digital content. In this example, we have DLC offered for the Star Wars game. Next, we continue the cycle by appealing to those same customers to trade the game in later on, which of course feeds our pre owned business and drives the category with trade credits. We can identify the exact individuals who own the game and offer them the most compelling trade value. And finally, we can reach those same fans once again and give them multiple opportunities to express their Star Wars fandom by purchasing exclusive collectibles. Now this is just a single example, but I think it illustrates just how integral PowerUp Rewards is to our new business efforts and how it allows us to leverage our passionate customer base across categories and provide unique and appealing opportunities. We will now take a 15 minute break. Thank you. Ladies and gentlemen, please welcome the COO of GameStop, Tony Bartel. Thank you. After that soft music to kind of get you all settled in, hopefully everyone is highly caffeinated for this event. So let's get started. Let me begin by addressing the elephant in the room because I can read the thought bubble out there and they're asking 2 questions. Aren't video games going the way of books, music and movies? And does GME have a future? Those are the thought bubbles. And the answer to both questions is yes. Video games are going to go more digital as they have been for several years and like books, movies and music, there will still be a sizable physical business left that we will continue to dominate. And as to our future, we continue to diversify both outside of our GameStop stores and inside our GameStop stores. This strategy is working to grow the company and also to leverage our GameStop stores, and we expect growth through the foreseeable future. Though the category is flat, GameStop is a market share leader in nearly every country that we do business in and is gaining share and is driving growth in sales and profits. We have an authentic relationship with the customer that others have tried but cannot emulate. In addition to the personal service connection that we offer through our talented associates, we also have a powerful global technology service platform through our PowerUp Rewards program. And digital growth is offsetting a decline in the physical category, maintaining a flat overall gaming market. We are participating in the digital business and we see additional opportunity for us to add value and increase our market share. Our pre owned business is healthy and outpacing the growth that we are seeing in the physical market as we introduce more gamers to our value ecosystem. And we wrap all of this in one of the most thorough omnichannel platforms in all of retail to meet the customers when they want and where they are. All of this adds to a thriving GameStop store business that will continue to grow through 2019. And although we have not modeled extensive growth from new innovation in this presentation, we are very pleased to see the introduction of technology like virtual reality and rumored new console launches, some of which seem imminent. The advent of this new technology is exciting and we will dominate these launches like we have dominated the recent console launch. So yes, we see digital continuing to grow and yes, we will continue to grow our GameStop business inside the store as well. Since 2012, the U. S. Video game industry has remained flat. However, because of our strong service driven culture, knowledgeable associates, buy sell trade model and PowerUp Rewards, we have significantly outpaced the market and have actually grown our video game business by 14%. We picked up 4 share points, and this represents $524,000,000 of incremental revenue growth in the U. S. Alone. As a result, we had record non GAAP revenue and record profit performance in 2015. Our share growth is not surprisingly directly proportional to our rise in PowerUp Rewards membership. PowerUp Rewards allows us to further personalize an already great high service experience for both software, the black line, and overall market share, the yellow line. Our PowerUp Rewards program is helping us drive share by taking the personalized service experience that we offer in our stores into a highly personalized omnichannel environment. So let's talk about digital. Mike shared with you that we are seeing growth in the category and that we are maintaining share as we grow as we are growing at the same rate as our top 4 publishing partners. While digital is growing and garners a lot of attention, it still represents about 20% of the $15,000,000,000 consoles video game category according to DSD Intelligence. And this is broken into 2 categories: subscriptions, microtransactions and downloadable content and full game downloads, AAA, catalog and indie. So let's break this down into a little more detail. The largest segment of the console digital market is subscriptions and microtransactions. We participate in this segment through marketing and selling Xbox Live and PlayStation Plus subscription cards, digital currency and Poza cards in our stores, and we have a dominant share among retailers. We estimate that we sell roughly 1 quarter of all subscriptions and microtransactions, and we will continue to grow this segment and educate the customer on all of the great options that are available. The next largest segment is Indian catalog games, and we have virtually no market share in this category today. Last night, those of you that were here, you met Mark Stanley, who is managing our publishing efforts, and you were able to see the first indie game that we were publishing, Song of the Deep by Insomniac. This is a first of several offerings, and we are working together with several established developers to help our customers discover great new IP. Our expertise is market creation and strong customer relationships. So we expect this business to continue to ramp and grow inside this large and expanding category. The 3rd largest category is downloadable content, and this is our strongest share category with an estimated share north of 40%. Since we entered this category approximately 5 years ago with proprietary technology developed in conjunction with Microsoft and Sony, we've actually accelerated DLC growth. The common belief before we entered this category was that our sales would be cannibalistic, but a courageous partnership of GameStop and Activision with Modern Warfare 2 proved that GameStop could indeed drive incremental sales as we added an entire new layer of DLC on top of what the publishers were already selling. Now, nearly every game is launched with some form of DLC, and we do a great job of helping people discover and afford downloadable content, especially at launch. As Mike shared earlier, we provide a non credit card solution to those who can't or won't put a credit card online. And we also leverage our knowledgeable associates, our buy sell trade program and PowerUp Rewards to drive market share. We see this as a category that we will continue to grow and in which we'll continue to gain share. The smallest category is the one that gets all of the attention and that's AAA full game downloads. We have less than a 5% market share in this category and we're clearly focused on growing this as we see continued upside in this area. We will have dedicated sections in all of our stores and have negotiated market agreements with our publishing partners to drive growth and share in this segment as well. So we see console digital continuing to grow and we are going to grow with it. It. There are good reasons that gamers choose to buy digital from our retail stores, and we see our digital receipts growing at or above the console digital category growth rate. So we've seen how total console digital breaks out, we've seen how GameStop is competing and growing in each of these segments. I want to take a minute now and offer a perspective on the future of digital downloads. A question many people ask is, what percent of the console game business is going to be downloaded versus sold physically? Or some even ask, will all games be downloaded in the future? In answering these questions, it seems reasonable to look at the actual digital experience and other relevant entertainment categories like books, music and movies. It surprises most people to see this, but the fact is that in each of these other categories where digital is well established, the percent of the total that is sold digitally is actually less than 50%. There are a lot of consumer driven reasons for this, including preference for physical product, gift giving and non credit card transactions. These are true today and they aren't going away. And then let's consider a few other factors that are unique to video games. Each of these categories have file downloads that are much smaller than gaming. A CD can be downloaded on average in under a minute, whereas a 40 gig game still takes several hours. And games have a unique element called residual value, which is what a consumer can trade in a physical game for. Now consumers tell us that they estimate this is about $20 per physical video game. The initial price point of $60 is far in excess of books, music or movies, and this residual value helps consumers afford the games that they want. All of these factors suggest that digital downloads in console gaming will stabilize at levels below what we see in books, music and movies. For this reason, we see continued growth in full game downloads. We see it stabilizing at around 25% to 30% similar to books. We will continue to have a robust physical market and participate in a growing digital market as well. Turning to pre owned sales, we continue to see growth that is outpacing our physical growth and we continue to see future opportunities for expansion. As we query our PowerUp Award customers, we find that their value perception of our pre owned products has increased dramatically in the last 2 years, rising from a top 2 box of 46% to 58%. This in turn drove purchase intent top 2 box from 48% to 52%. As a result, we actually grew our pre owned sales by 7% excluding FX, while our physical software sales declined by 10%, excluding FX, during the same time frame. This growth is even more pronounced in our international business. So you can see that there is a decoupling happening from the physical video game market growth as we find additional value product and we do a better job of communicating our strong value proposition. We will continue this expansion while still maintaining margins in the mid-forty percent range. While we're pleased with this progress, we still see that we have significant opportunity to increase our pre owned growth rate by effectively communicating our message and driving our purchase intent significantly higher. This chart shows the awareness of various customer groups about our pre owned proposition. As you can see, the average customer has only a 40% awareness, while our PowerUp Basic members are closer to 50%. Our most engaged customers, our PowerUp Reward Pro members, have a 78% awareness of our pre owned process. When you look at how much each group purchases in pre owned sales each year, a basic member spends more than twice a non member and a PowerUp Rewards Pro member spends nearly 6 times the amount of a non member. So our challenge is to continue to market our buy sell trade program more effectively inside our store and outside of our store to continue to outpace new physical video game sales for the foreseeable future. As Mike shared, we have a robust omnichannel technology platform, and we are deploying it globally. Customers can access our products when they want them, where they want them and on any connected device. They can purchase from gamestop.com through any connected device. And currently, nearly 60% of our customers access this from their mobile device. They can choose to ship the product to their home or they can hold it online and pick it up at one of our stores. If they're at a store and either can't find a product they want or they want to have a product shipped to their home, they can do that easily in our stores on over 18,000 SKUs, including an extensive list of products like some Think Eating products that we don't even carry in our stores. And finally, we've now opened up our entire U. S. Inventory to our online customers, allowing products to ship from either our warehouses or directly from our stores, increasing customer choice, reducing shipping times and reducing costs, all at full margins. Our omni channel platform drives sales throughout the system as 26% of customers who access gamestop.com buy a product in our store within 48 hours. These sales are more profitable than sales that come outside of our omni channel platform. And over 60% of our in store transactions include both gamestop.com and a physical store visit. This is one of the most productive omnichannel platforms in all of retail. Breaking apart the various technologies, we see that pickup at store provides customers with the best of both worlds. They get the convenience of knowing that their product is in stock with the benefit of immediate pick up. These customers are more profitable as they have a 34% higher order value than the average order, and they bring in trades twice as often as the average customer. So not only do they get a great value, but they also fuel our profitable buy sell trade engine. These are tech savvy customers as nearly 60% of them access our sites on a mobile device. And we are incredibly convenient. With the majority of the U. S. Population within 5 miles of the GameStop, we provide instant gratification and a great high service shopping experience that online only providers just can't replicate. If a customer is in our store either can't find what they are looking for or simply want to send that product to a different address, we can accommodate with our Web and Store platform. With Web and Store, we're never out of stock and we provide a virtual endless aisle of products, some of which we don't even carry in our stores. We have over 18,000 SKUs available online in every GameStop store, so we will find the customer exactly what they are looking for. In fact, nearly 1 third of our GameStop.com sales come from our web and store platform in 2015. With the acquisition of ThinkGeek, we have integrated them into this platform. So ThinkGeek lovers can now view and order these products in our stores while talking with other people who are equally passionate about ThinkGeek products. Finally, these are highly profitable sales. Over 50% of the orders from the Web in Store platform are pre owned products. In 2015, we rolled out our ship from store platform that allows us to provide more options to our customers with higher service levels and strong profitability. We get the product to our customers faster and cheaper. So this is truly a win, win, win. By developing a system that allows us to ship products, both from our 2 warehouses and all 4,000 of our GameStop stores, we provide customer access to all of the products that we have in our system. This more than doubled our online SKU count, providing customers access to hard to find product. Nearly one half of these products are pre owned products, so they generate high profitability and 43% of orders actually originate from other stores via our web and store platform. So our associates see great value in this program as a customer service tool. This change was a key impetus for driving 45% omni channel growth in the Q4 of 2015 and will continue to fuel growth in the years to come. So we are very excited about the plans that we have for growth inside of our stores. We grew GameStop per store profitability by 15% in 2015 and based on our continued diversification inside of our stores, we see that continuing for the foreseeable future. And we're not done growing yet. We are excited about the 3 new VR platforms that are launching this year and the expectations are very big for this new platform. With most of the launch ahead of us, there's a large variability among the forecast. But one thing is consistent, they all contain a B, meaning that everyone is predicting that these will be multibillion dollar platforms in the future. According to 2 sources that we referenced here, IDG and SuperData, VR will be between a $3,000,000,000 $6,000,000,000 category in North America in the 1st year of launch. And when we pull our PowerUp award customers, there's a high degree of awareness with nearly 50% of our members aware of the PlayStation VR and Oculus Rift. Clearly, there is a large opportunity to create awareness, provide information around these complex devices. And as we've shown in the past, there's no better place than GameStop to help consumers make the best entertainment decision. I'm sure that you're all aware of the 3 main VR devices and each have their distinct benefits and challenges. PlayStation VR will launch this fall with a price point of $3.99 and have the strongest slate of games and largest installed base. Key games include Star Wars Battlefront, Gollum and Riggs. Oculus Rift has already launched in small quantities at a $5.99 price point. This console requires strong computing power and is launching with games such as the Drift and Hero Bound: Spirit Champion. And HTC is launching 5 at a $7.99 price point. Again, the system requires strong computing power and is launching with games like Star Wars, Trials on Tatooine and Moon Strike. As supply of these products increases, you will see us be a key market maker as we demonstrate the various VR systems and provide great service from knowledgeable associates that will be unmatched in the retail environment. As I mentioned, Sony will have the strongest launch titles and the largest installed base of launch, and we are closely partnered with Sony to ensure will see us continue to drive the launch of PlayStation VR with our 46,000,000 Worldwide PowerUp Rewards members. Leveraging the success that we have with the console launches, we developed first to know pages for each VR platform to keep interested customers up to date on key information releases and launch dates. With the PlayStation VR, we provided a 30% trade up offer with each trade towards the PlayStation VR, and we expect trade credits to be a major currency as demand for these platforms heats up. Our associates will be the most informed salespeople in retail and our convenient store locations will provide ample opportunities to test these new platforms. Just to give an example of the excitement that exists about these products, over 1,000,000 PowerUp Rewards members have already expressed an interest in purchasing a VR product. Again, none of these rumored consoles or VR are in our forward projections, so there is clearly upside to the numbers that Rob is getting ready to present. But before Rob provides you with the numbers, it's my pleasure to introduce 1 of our great partners, John Kohler from Sony. John is the Vice President of Platform Marketing at Sony Interactive Entertainment, and John is a huge supporter of GameStop. He is here today to talk about the PlayStation VR and the way that Sony and GameStop are going to partner to make this a huge success. We have a great partnership as GameStop has been Sony's top retail partner for 4 years in a row. Now generally when John speaks in a GameStop environment, he's used to 5,000 passionate GameStop fans on their feet giving them a warm welcome. So let's do our best to give them a warm Sure not all of you are going to rush the stage after my presentation, but hopefully there's enough exciting things here to make you all smile and enjoy. I'm John Colerin, VP Marketing at PlayStation. It's good to speak with all of you. And I'm here to talk about our PlayStation VR aspirations and plans and the excitement that we all have around what we think is going to be an emergent incentive technology, one that we think is going to change the way that many of us consume and digest content. Much of what maybe many of you saw outside last night and if you haven't hopefully at E3 at other times, really sells you on the experience that you're transported to places physically that you actually emotionally feel like you're in another world And that's what we're really trying to do. And certainly with the help of all of our great retail partners and GameStop, particularly, we're going to be, I think, in a very good stead once we launch. PlayStation overall is in very good stead. We've been, I think, very clear about our intent to establish the best place to play and to do that in ways that really speak authentically to our gaming community. One way that we really look at doing that is through the launch of PlayStation VR, which is a technology that we announced launching in October. And it got a few key benefits that we think actually allow it to be certainly in the conversation, we think in the lead overall in terms of how gamers will accrue to the system. First is around the fact that it is a very easy plug and play into the PlayStation 4. It does not require anything else. PlayStation 4 is in 36,000,000 homes and is a very significant part of many gamers' lives. So being able to have that easy plug and play we think is very, very important. The second point I think probably most important is that as the most authentic gaming brand, the expectation from gamers is that we're going to have the best games, establish that best place to play. And so I'm going to show you here in a bit some of those experiences. But the fact that we have so many developers ready to go, we have 200 developers that are in the mix and 50 games are launching in our 1st 3 months. It's going to be a very, very special launch and one that I think as with all of our platform launches requires content and we're providing that content. I would add one associated point with this too. And that is that we do have such great relationships with our retail partners. And again, GameStop has been a fantastic partner of ours. And, the ability to effect trial and get people to try this and experience it is absolutely critical. And you're going to hear this peppered throughout my talk here, but trial is unequivocally the most important thing we can do for the technology and for our platform. And we're going to talk a bit about how that's going to work in market. So for us, the most important thing, obviously, we have a lot of experience in terms of launching new platforms. We've done it many, many times. And this is, I think, an obvious that we need to actually be out in front and certainly market to the fact that it's new platform, fantastic technology. But I think the second point and maybe the more important one is that we want to continue to reinforce the point that the future of gaming lives on PlayStation and look at that innovation and the path forward for our gaming community. This is something that as we kind of grow as a category and grow certainly a PlayStation, we think these types of technologies provide those experiences keep gamers within the ecosystem, keep them within the console market and certainly keep them within the PlayStation brand. So that's really, really important for us to establish and probably the most important thing about the PlayStation VR launch. So the target audience overall, and I will say that, we probably, in year 1 probably won't get past that primary target because we think we'll fill them up pretty quickly. But if you think about day 1 PlayStation 4 purchasers, they're standing in the snow in New York November 2013 at a GameStop waiting to buy PlayStation 4. That's the person that will be coming in to buy PlayStation VR day 1 and probably in year 1 as well. They're active. We actually can see the kind of behaviors that they're doing and they're very active buying a lot of games, and they love and really enjoy their PlayStation 4F high time engagement. That's the person we really think is going to come in and be an active PSVR consumer and one that we're already seeing, have generated a lot of interest in the new types of experience that PlayStation VR can provide. Now, the Tony brought up some of the challenges that VR has overall. The primary one that we see in our research is right there in that target insight. And that is that people say you've sold me on a lot of fabs before. It's been a lot of things in this category. You've tried to tell me about things throughout time here about why this is the next big thing in gaming. And is this the Holy Grail? And what we always say is try it. So when you try it and you and many of you did last night, you walk away, you have that we call it the PlayStation VR smile, but you actually walk out, you're like, wow, that is fantastic. I actually felt like I was being attacked by a shark. I actually felt like I was going to have motorcycles shooting at me in a panel van that opens up in the back end in Getaway and many, many other experiences. And selling them on that and having that kind of feeling of trial and you actually experience it is important. If you don't get to experience it, we need an advocacy measure. We need to be able to get people this other than me just telling you right now, measure. We need to be able to get people this other than me just telling you right now, PlayStation VR is pretty cool, you guys should all try it. We need people to actually show it. So we're experimenting with some ways to be able to kind of place people So we're experimenting with some ways to be able to kind of place people in an environment and actually clip that and have them send that around to their friends and show, I actually was in this Shark Tank. You've got to try that too. And I think that's really important. And again, our retail partners and again, what GameStop's established is really going to help us get there particularly on the trial. We need people to get out there and pick this up and play it. We need people to be transported. That transportation is what's so critical in VR overall. So how are we going to do it? Overall, we're very good at big TV spots and doing strong digital plays and all those things. We're going to still do that. But the more important thing I think again is when you pick it up and you try it and you're at point of sale and do you have the right people there telling you exactly what you need to know. Last night many of you tried it, you saw I think an example of the structure that we're going to have at retail and the associates they're ready to help you. And I think that's really important. This is something that requires people to kind of put the headset on for you and kind of walk you through the experience certainly at first. And so that kind of needs to be lived to be believed idea is really critical here. And the way that we look at this is if we have trial at the center of our communication strategy and we create the anticipation and we work with partners like GameStop and we look at the anticipation that we can drive to the stores, how can we create the scale after that to be able to ensure that enough people go, I want to try that too, A, or B, that they look at that and say advocates they are advocates for the experience. And so those are the things that we work on. Those are the things that we think about. The other thing I think that's important to note is around that content. And when you look at games like The Heist, many of you got to try this last night and it is an unbelievable experience. Games and non games are requiring changes in the way that developers and script writers put together ideas because the way that VR works is that the viewer makes the choices. So it's more of choose your own adventure. It's more of it's less rails and more choice. The heist is a great example. There's moments in this game where depending on where you look, the game will change. So it really is dependent on the way that you as the viewer want to be able to take the game. Same with a lot of non game work that we're doing. We're not deferring on that. I want to make that point very clear. But non game as well, if you look at what a lot of the work being done in Hollywood right now, a lot of that's being done is how do we write scripts that give the power to the viewer? It's fascinating. It's completely different than the way scripts have been written for decades. VR is going to really change the way that we all consume that content. Really, really fascinating area. Couple of other games I want to bring up. Gollum, you can see some of the beauty here, the scale. These are some real top tier developers that broke off from a very large developer and is creating Gollum. The game Valkyrie, which many of you have tried and played, no doubt, well known in the category certainly, but one that will be a very strong launch title. The Deep, which many of you tried last night, which is fantastic and gets many people yelling pull me up when you got the shark attacking you. Really, really fun experience for those who enjoy sharks. Rigs is a fascinating change in the way we are even thinking about VR. This is mechanized combat league 6 player, really, really fascinating way to kind of put together a VR world. And then lastly, Rush of Blood, which is a horror roller coaster game. So you can see that the way that we're marrying genres is completely different than maybe what you see in other areas, certainly that you see in kind of the normal console space. These are giving us opportunities to be able to kind of change the way that we look at creative. And again, a lot of that's because of the way that scripts are changing. So you can't do any of this without that trial. You need to be able to experience and I'm even telling many of you and I know there's some blank stares facing back and maybe you haven't tried it and those who have tried it are nodding. Those who are nodding understand that you actually have to be able to go to point of sale. You've got to be able to go into a GameStop and be able to try this. And I think that's really what I'm trying to convey here. Like we've got diversity and experiences. We've got content. We're going to have a fantastic technology, an Ascendant technology really, but you got to be able to get your hands on it and that's really the key thing. Couple of other points I want to make. We have been doing research on this for quite some time. And I can tell you really interesting one that we did, did some qualitative work a couple of months ago where we had people that were somewhat, unforgiving, I'd say. We have a lot of those in our category and they say, I'm not so sure. Just the Holy Grail. And we had them put it on and try it and then write a letter to themselves from an hour previous. So what would you want to tell yourself an hour previous before you put that headset on? And you get some of the things here. You get really interesting things. I love that I don't care much of this cost, I need it. But you have the feeling of freedom. Again, that kind of that pervasive thought around being able to have the choice to be able to go where you want is really, really critical. So what does this mean for retail, in particular our partners such as GameStop? I think you look at the amount of demos that we're going to do, we're going to kick this off in June and really be in market for some time. We have to do this prior to launch. I think that's critical. Again, my team will be out there working on a lot of the above the line thinking, but we need to be in store and we need to use things like you see here with CRM the Power of Rewards members to be able to help facilitate that. I think there's really no better way to get advocates and to really use some of those more passionate gamers that certainly accrued to the stores. Our reps will be delivering a lot of that training. You saw some of them last night. They're out there really helping and doing really good work. And again, I think that's important for this. So kind of to wrap up my portion, I think the important thing to take away is that it's a fantastic launch. It's a critical launch for us. It's got great content. We've got tons of fuel in the engine to be able to carry on from the development community, but we need trial. And without trial, it's really going to require a lot of heavy lifting in other areas and I think the trial is where we're going to really make it work and seeing and we need to have the GameStop and retail partner teams really help us to be able to get there. I will say that the messaging on advocacy is critical. And I'm going to leave you with a video that kind of captures a bit around how you can place someone into a world in a way that I think really captures that magic. Besides all this trial, clearly our retail partners are going to be selling games. So, we need to establish the marketing around those games like we do anyway, right? So this is one way to do that. And obviously, our goal is that the future of gaming lives on PlayStation. So I want to thank the GameStop management team for having me today and thank all of you. It's really been great to see all of you. I know some of you from past work and those who I don't, it's good to see all of you. And so let's roll that video please. Ladies and gentlemen, welcome to CFO of GameStop, Rob Lloyd. My walk on music was a little more lively than Tony. Well, good afternoon and thank you again for joining us today. I'm going to spend some time discussing the financial side of what you've heard today. Please note that we'll walk through some slides, but there are also some financial slides that are included in the appendix, which you can review on your own. You've heard and seen how we're changing the game both inside the GameStop branded stores and outside those stores in our other concepts. My role now is to tie things together and leave you with a picture of the company's future. But first, I want to talk to you about how we are using our capital to transform the company. For fiscal 2016, we expect to generate $400,000,000 to $500,000,000 in free cash flow, following an average of $478,000,000 over the last 5 years. And of course, we raised $475,000,000 in senior notes a month ago. We expect uses of cash as follows: We'll invest $400,000,000 for the 2 AT and T retailer deals we expect to complete in Q2. We've told you that we expect the income from the 2 deals for the back half of the year to exceed the interest incurred since the debt was issued in early March. More M and A is available in the AT and T reseller space beyond those two deals, but the amount has not yet been determined. There are still plenty of authorized retailers out there to acquire and improve. Please don't draw any inference from the size of the box on the page. We'll return roughly $155,000,000 to shareholders in the form of dividends at $1.48 per share. We're planning for around $500,000,000 or excuse me, dollars 100,000,000 in buybacks buybacks this year depending upon M and A activity. As we've told you in the past and as you've seen, we will adjust our buyback levels based upon our opportunities to drive greater returns through M and A. Our CapEx plan for 2016 reflects our focus on growth vehicles. We expect $25,000,000 to $30,000,000 of CapEx for Tech brand as we build 50 stores and invest in systems infrastructure, and we assume the need to relocate and remodel some of the 450 to 500 stores we are pursuing. We're forecasting $20,000,000 to $25,000,000 for collectibles as we plan to open 50 to 70 stand alone stores during the year and invest in distribution for ThinkGeek to drive efficiencies. We have also planned for additional stores near the end of the year if this format is working as successfully as we have seen so far. Our maintenance CapEx and spend on our GameStop branded stores will decline 6% to 7% in 2016. In the future, we plan to continue to grow our dividend and absent M and A opportunities return cash to shareholders through buybacks. Our debt level now sits at one turn of EBITDA. As we continue to diversify, we do not foresee taking on debt of more than 2 times EBITDA. As we look ahead to 2019, we project that we can generate $2,000,000,000 in free cash flow in the next 4 years. Paul showed you this slide earlier and what it shows is the profit resulting from our transformation inside the GameStop branded stores. It shows the 23% growth in store profitability since 2013 and how we got there by driving digital, collectibles, PowerUp and omni channel. As we look to the future, our in store transformation will continue and we project that we can grow that store profitability to between $190,000 $200,000 per store. This growth will come from increasing our collectibles business on its way to $1,000,000,000 continuing to grow our digital business and focusing on cost control. I want to note here that while we may invest in certain programs to support growth, we've built in 30,000,000 of cost reductions in our 2016 plan for our core video game business. This equates to about 1.5% of our SG and A. Building on these 2016 reductions, we have set a goal to remove a total of $100,000,000 from SG and A annually in our video games business by the end of 2019. The core GameStop branded stores will be thriving in the future. Jason showed you this slide earlier. As we transform outside the store in our AT and T Cricket and Simply Mac stores, we start with the 2015 achievement of 121,000 in average store contribution in our Technology Brand stores. As we scale in 2016, we project that average store contribution will grow 20% to $145,000 or more. As Jason alluded, we'll do this first by overlapping the roughly $15,000 per store infrastructure spend we incurred in 2015, opening over 230 stores and acquiring another 330. And also by driving productivity in acquired stores by reaching maturity in the stores we opened last year and through growth of new products and services such as the anticipated launch of the iPhone 7. You will find additional Per Store data by concept for Tech Brands in the appendix on Page 82. We're providing the data on Page 82 to help you in modeling the Tech Brands business. You've seen some of the data before, but the numbers here have been updated for our 2016 projections and we've added SG and A per store to help you model. Obviously, we've been changing GME for the past few years. With change comes a transition from the old school of thought about the world's leading retailer of video games to the new school of thought about a family of specialty retail brands making the most popular technologies affordable and simple. Today, you've heard about our new school of thought and how we're changing both inside the GameStop branded stores and outside them. You've heard about our growth in collectibles, digital and technology brands. With change in the company comes a new way to think about the metrics by which we are measured. The historical measures of what's happening with hardware, software and pre owned growth and movement in pre owned margin rates are less important to our overall story. These measures are less meaningful because we can use our diversified businesses to grow our revenues and profits, and that's exactly why we began to diversify 3 years ago. You will see some old school metrics on the left side of the slide, all related to the physical games category. To the right, you'll see new school metrics, all related to the overall health of the company, which includes GameStop branded stores, diversified businesses and overall profitability. There are always questions and concerns about our pre owned margin rate. As we discussed on our call 3 weeks ago, the pre owned margin rate declined 110 basis points for the Q4 and full year 2015. That's an old school metric. As you can see on the right, we expanded our gross margins by 130 basis points to a record 31.2% despite the decline in pre owned margin. That's new school. Software for this cycle never hit the growth any of us expected. We showed a decline last year of 0.8% before FX, again old school. Despite that, we posted record net income and expanded GameStop branded store contribution by 14.7%. That's new school. Here's more old school. Gross profit dollars from our physical game categories, hardware, software, pre owned and accessories declined 3%. Yet, we had record gross profit of $2,920,000,000 Our growth in non physical gaming business has been robust and as we move to 50% of profits from non physical gaming, new school metrics around company gross margin, non physical gross margins and profits will be more and more meaningful statistics. If you recall, we gave guidance on our earnings call that we project to increase operating earnings next year by 3% to 7%, which means a range of $685,000,000 to $715,000,000 This pie chart shows you that range and what we expect the breakdown to be by our 4 pillars of business. We expect 30% or more of our profits to come from non physical gaming sources. Tech Brands is expected to be approximately 12% to 14% of the total with, as we've mentioned, 50% to 60% growth in revenues to over $800,000,000 $85,000,000 to $100,000,000 in operating earnings or 10% or greater operating margin for that business. Collectibles, with sales between $450,000,000 $500,000,000 and operating profit of $45,000,000 to $50,000,000 is expected to be a high single digits percentage of our total profits. Our digital business, at already over $1,000,000,000 in annual customer receipts, is projected to be between 12% 13% of total profits. Physical will still be 65% to 70%, but dropping from the 75% it was in 20 15. The pie chart on the right shows you what we expect the breakdown to be as we move to 2019 and grow operating earnings 3% to 5% per year. You can see we expect operating earnings to range from $730,000,000 to 800,000,000 dollars Jason told you earlier that we expect Teck Brands to exceed $200,000,000 in operating earnings by 2019. We expect the sales to range from $1,500,000,000 to $1,700,000,000 You can calculate, as Seth did, that this could take the Tech Brands operating margin up to 12% or 13% by 2019. Tech Brands could range from 25 percent to 30 percent of our operating profit in 2019. We project collectibles revenues to reach approximately 1,000,000,000 dollars by the end of 2019. We project that operating income from collectibles could reach $110,000,000 or more for 2019 or a mid teens percentage of total earnings. Given gross margin rates, we expect collectibles to also be a greater than 10% operating margin business. Digital will continue to grow modestly and could be between 12% 14% of our operating profit. In total, Tech Brands, collectibles and digital could range from 50% to 55% of our operating profit by the end of 2019. Physical gaming, while still important, will decline in dollars and as a percentage of our profits. But you can see that we expect to be able to grow operating income 3% to 5% per year despite what happens in physical gaming. Growth of the company despite what happens in physical gaming is new school thinking. Further analysis on this slide would allow you to construct the sum of the parts evaluation for our business. Some of you have done work on this in the past year or so. As I see it, evaluation based on some of the four parts would produce a significantly higher value than today. All of these slides are on flash drives available at the end of the meeting and will be available on our website for some time for you to use for your modeling. On this slide, we're reviewing the results of an illustrative valuation sensitivity model applied to GME. An investment bank ran this for us. So of course, that comes with some disclaimers. Here goes. This share price sensitivity is illustrative and for discussion purposes only and reflects various assumptions relating to macroeconomic factors, cost of capital and forward looking assumptions about operating performance. In addition, because forward looking statements involve risks and uncertainties, there are many factors that could cause actual results to differ materially from those indicated above. I can see Dan Kaufman smiling. Now that that's out of the way. The y axis reflects the range of share prices. The x axis reflects an EBITDA growth rate. As you can see, in our case, the left half of the x axis reflects a decline rate for EBITDA. The other variable in this model is an EBITDA margin rate. Ours was 8.6 percent for 2015. We'll hold that steady for modeling purposes. As you can see, the model shows that our current stock price of about $30 reflects an assumption that our EBITDA will decline by about 5% per year for the foreseeable future. In our view, as you saw on the previous slide, we believe that we can grow EBITDA by 3% to 5% per year over the next 4 years. We've grown it by 2.5 percent per year for the past 2 years. Obviously, a growth of 3% to 5% would reflect a significantly different value for GameStop. As you can see, it would reflect a range of $50 to $70 None of the numbers on the road map of 3% to 5% earnings growth that I showed you included VR or any of the rumored new consoles. So let's go off road here and let me leave you with a view of what VR and consoles could do over the next few years. If we assume a console launch which performs like the current one did in the launch year plus the following 2 years, we could see an additional $15,000,000,000 in new console and software sales in the markets in which we operate. If we captured third or so of that in our market share, that's $5,000,000,000 in sales over 2 plus years. As we look at VR, there are a wide variety of estimates in the marketplace, but let's assume that between launch this year and the end of 2019, the market could sell $15,000,000,000 If we estimate our share of that at 20%, we could see $3,000,000,000 in additional sales. The roadmap I showed you shows 3% to 5% earnings growth. The point of this slide is to convey that we don't have VR or new consoles in that roadmap and either presents significant upside for GME. I'd like to turn it back over to Paul now for some closing remarks. Thank you, Rob. So we're on the final stretch here, and I want to talk about a few things and revisit a few messages that we've conveyed today. You've now seen our detailed plans for growing GME and you we expect that it will take some time for this amount of change to sink in and for you to absorb it. But remember the 4 takeaways. We have already added $1,000,000,000 run rate business outside our GameStop branded stores, and we call that business Technology Brands. We have added $2,000,000,000 category inside our GameStop branded stores in digital and collectibles. Those new businesses are giving our core stores added profitability and are actually growing our store productivity. Physical video gaming, while declining, has a long tail and will likely remain viable for many years. New platforms like virtual reality and new consoles also give us a long run rate for the future. We are today and will continue to be the dominant player in the physical category. And our cash flow has given us strength to return cash to shareholders and make investments in new opportunities as they arise. GME is a diversified and growing company. So these are significant takeaways from this meeting. So let me add one more for you to ponder. You saw in our recent debt offering that we're actively negotiating 2 AT and T dealers and there are many more on our list for consolidation. In partnership with AT and T and Apple, we continue to jointly believe we can be a solution for their fragmented distribution and expanding product and service offering. But looking beyond technology brands, we see many different opportunities. To date, we have analyzed hundreds of ideas and today our M and A team is very active across the landscape in the U. S. And overseas. We retain multiple investment banks to continue to search out new concepts that can leverage our stated competencies. We are being disciplined and deliberate of course in how we commit capital. The summary of all this is that GME is a company driving a high rate of internal change, much faster than the environment that surrounds us. Rob showed you some modeling on what our share price would be under a couple of scenarios, including VR and new consoles. We have also modeled several different acquisitions and we understand the impact of the profitability of our business, but we only give guidance to those areas where we have a high degree of certainty. We've learned that over time. We've had a lot of short interest in our shares through the years. And it reminds me of a joke I heard one time about an oil prospector who ironically was from Texas. So the Texas oil prospector dies and goes to heaven. And when he gets to heaven, he meets St. Peter at the pearly gates. St. Peter says, Oh, I'm sorry, sir, but we've got a pen over there where we keep all the oil prospectors waiting to get into heaven and it's full. We don't have any more room. So the oil prospector thought for a minute that, well, would you mind if I just said 4 words to all of those oil prospectors? Sure, said St. Pete. So the old timer cupped his hands and yelled out, oil discovered in hell. Well, immediately, the oil prospectors cut the lock off the door of the pen and out they flew flapping their wings as hard as they could to try to get to the lower region. St. Peter said, you know, that's a pretty good trick. Why don't you go ahead and move in? The place is yours. You've got plenty of room. The old Texas oil prospector scratched his head and said, no, if you don't mind, I think I'll go along with the rest of them. There may be some truth to that rumor after all. Famed investor Benjamin Graham once said that the stock market in the short term is the voting machine and in the long term is the weighing machine. And I think what he meant by that was that the short term price of an equity reflects emotion, while the long term share price reflects underlying substance. We believe that we have a lot of substance in our plan, and we are worthy of your consideration. Let's take a look at Rob's model slide one more time. If you look at this chart, it makes a compelling case for a stronger share price for GME. At current levels, GME is priced for profit declines in the future, yet we're coming off a record net income year in 2015, and we showed you today a solid 3% to 5% yearly EBITDA growth rate. The old thinking of declining physical gaming is outdated as of today. Since we showed you dynamic growth in digital gaming, collectibles and technology brands. Further, as proof points in the last 2 years, we have grown operating earnings by over $50,000,000 a 2.7% compound annual growth rate per year. I would challenge you in the upcoming Q and A session to ask us questions to probe the model we have created and test for yourself the probability of our hitting these targets. And of course, we're happy to schedule calls with other portfolio managers and analysts as needed. But here's the point, if we execute the plan and add to the plan the potential for virtual reality and new consoles, price of our shares could and should exceed the $50 to $70 range shown on this chart. We have a very bright future. So with that, I will now invite the team up on stage and we can begin the Q and A session to wrap it up. I'm being asked while we wait for the chairs to get assembled that we will be having our managers conference in Anaheim in September. So anybody who gets excited about Doctor or wants to see more of these cool products, join us then. All right. So let's get started. Who would like to take the first question? Yes, sir, Colin. We need to wait to get you to the mic. Is this on? Yes. Rob, just to clarify on the metrics, are you suggesting you're going to change the metrics you're reporting or is that just illustrative of the different dynamics of the business? And then secondly around new consoles, is that implied in your commentary the Nintendo platform that's coming or longer term obviously important to your businesses that there's a continuation console hardware with physical software. If you could talk about the longer term outlook for those platforms? Thank you. I think, let me just me just mention this, Antonio. I think on the console, we would just leave it at the fact that there are rumored new consoles and we'll let console makers make their own declarations on that. I've gotten in trouble for getting ahead of them on that, so I don't want to do that. But Rob, do you want to talk about the metrics? Can I get a vote on this? Our goal would obviously be to leave the old school metrics behind. We showed you in the Q4 that we can grow same store sales and sales and profits and EPS despite what happened in new software. And again, same numbers for the full year, growth in sales, comps and earnings despite a decline also in hardware for the full year. So I can't say that we're not going to report on the old metrics going forward, but obviously we're going to spend more of our focus on the new school metrics. So if I could, I'll start with a few questions on VR. That's my favorite subject and then a couple of others as well. On VR, Sony talked a lot about demos and letting people try it. You said 500,000 demos, but what does that mean for GameStop? What percentage of your stores might have demo kits in there? Will they be a one day Sony truck pulls up? Or are they going to be there sustainably? 2nd question on VR, how should we be thinking about the margins? Are these hardware margins? Are these accessory margins? And then a similar question on the software, should we expect Sony to be selling VR games at $60 for each of those games and it would just be a traditional software margin? Tony? Yes, those are all great questions. I don't have a lot of answers to those. Again, it's moving fast. I will tell you this, a few things that I can tell you. 1, we will have a significant number of our stores with demo stations in them. There will be a combination of what you said. We will have some dedicated demo stations. We will have some that are like you said, trucks that will pull up and show the new VR headset. But we clearly, as you can tell by what John had to say, we're clearly going to be a key launch partner and we fully expect to be the key launch partner and market maker. You also heard John say, we are going to be selling games in your store. So I think it's still yet to be seen. He said there were over 50 games of launch, I believe. Still not many of those have even been announced, much less priced. And after they get priced, then we'll focus on the margin. But there's a lot it's a fast moving target right now and there's a lot of information yet to come. So we can't share any of that information. We know as is usual, we know more than we can share, but that's all that I can share at this point. And one thing that's interesting to note though is if you we've looked at all the VR that's come through our office and we've tested them, we've all played them, our Chairman, everyone's played them. The setup time and effort required for Sony VR is significantly easier. The other thing you would have noticed last night, those of you who played the VR, the space required to demo it is much smaller than you think. Maybe a 5 foot square, right Tony, it's not a hugely difficult one. So I suspect we'll have a lot of demos in stores. Yes. Think of it similar to Connect, one of those that you remember the Connect launch in our stores. Think of it similar to that. Unlike the other 2 that are tougher. And just one quick follow-up. We haven't heard a lot about Apple today. Could you talk a bit about how you're thinking about that strategically? It wasn't a big focus of the presentation today. Yes. Jason, you want to start that out? Absolutely. We have a great relationship with Apple. We meet with Apple quarterly. And quite honestly, the market has presented bigger opportunities for us in the short term in the AT and T space, which is why we focus most of the presentation on that. But Apple is very much a key partner for us. We have a great healthy relationship with them. We have a great retail outlet specifically Mac and we still see that as a great growth platform for us. Right now the priority is the market opportunities here with AT and T. Yes. In the last year and a half, right guys, we've gobbled 3 acquisitions on the Apple front. We bought Mac Authority in Nashville, bought PeachMac in Atlanta and then we bought chain we bought in Seattle or Mac store. Mac store. So part of it part of what you're seeing is we're just trying to absorb that kind of growth even though it doesn't seem like a ton of growth. I mean you go from 7 or 8 stores to 76, that's a huge growth number. Of course, our Spring Mobile growth is also huge, but we had a little more scale and we're able to absorb it more and we've got better opportunities there. So that's why you didn't hear much about it. But you will in the future. We're not we're committed to the Apple relationship. We'll be strong there, etcetera. Paul, maybe one more note on Apple is for the group, which is there's a lot of service pressure inside of Apple. And we're seeing a lot of customers coming into our retail stores that just need to get their device we're seeing a lot of customers coming into our retail stores that just need to get their devices fixed. And as their penetration rate continues to grow inside of the U. S. Market, and there's more devices in the marketplace, customers are keeping those devices for a little longer, it creates more service pressure. So we think that there's a real solution there for Apple and we have some really unique skills that can help them. Keep going Ben, you can. This is the time. Okay. That's always a good question. Rob, you want to start that one out? Well, we've asked that question in the last couple of years. You can see we've been pretty active in the M and A space. And with the debt offering we did a month ago, our recognition is that the opportunities that face us there provide a better return for us. We've modeled it with buybacks, without buybacks, with growth in technology brands, and we think it drives superior returns to invest in technology brands. So we've used our leverage for that expansion. Yes. So this may be a follow-up somewhat to Ben's last question. But you're clearly excited about all the opportunities here. And I get a sense that you're attempting to adjust how the investment community thinks about GameStop, which is fair. What's the risk? If we're here, we keep putting everything out earlier than that. If GameStop doesn't achieve the goals in some of these new divisions, why will that happen in your mind? Well, I think a couple of things you got to remember and then I'll ask maybe Mike Hogan to comment on some of this as well. A couple of things you got to remember is, yes, there are always risks in a business. Ours is unlike is not unlike any other business. So there will always be risks. But I would say to you that the risks were maybe a few years ago. Today, we have a $1,000,000,000 digital business. So that's not going to disappear overnight. In fact, it's going to grow. We have a $300,000,000 collectible business. So that's not going anywhere. That exists today. I think one of the frustrations you may hear out of us is that we want to make sure people read the fact that this is not a transformation that you got to wait for. This is a transformation that's here and it's happening right now. So, we see a disconnect there. What are the risks? We've got a Power Boards program that helps us mitigate a lot of those risks. Mike, do you want to? Sure. I think the point I would emphasize to Carlos, Paul's comments, number 1, when we started talking about transformation 2 years ago, that was a promise then. And today, we have a lot we have the numbers to show for, right. 2 years ago, we had 100 Tech Brand stores and so you could see at risk today we have 1,000. The other thing I would add though is and of course Collectibles is growing as well. The other thing I would add is don't think that this is all that there is, right? This is what we've done in a relatively short period of time. And if you go back to those 5 core competencies that we've seen, not only do we expect continued growth in physical, not only do we expect $1,000,000,000 of collectibles, not only do we expect close to $2,000,000,000 of tech brands, but we continue to look every day and find lots and lots of opportunities. Just think about all the other places, all the places in which GameStop can leverage our core competencies. We will continue to be opportunistic about buying them, whether it is making more big acquisitions, tech brands or an acquisition in collectibles or something else. And of course, there's always risks in a business like ours. We have risk with our vendors, they'll change our terms. We have digital disintermediation risk that physical games decline faster than we've modeled. We have real estate risk. We have all kinds of risks. We manage risk for a living. I think it's what we do. But honestly, I think our situation today is much more favorable and it's been a long time. Yes, sir. Yes, Joe Feldman again. Hey, Chelsea. On the virtual reality stuff, the VR, how much of that is those numbers that you gave? Is that hardware versus software? Or is that just hardware? Or is it both combined? And if you could talk about that a little because and also how those forecasts do compare to the prior cycles that you've seen? I know you described the market share, but this most recent cycle wasn't quite as robust as we all thought, mainly because the legacy stuff didn't sell. So any thoughts about that as well? He didn't even include the aggressive model, which was the Goldman data, I think is the most aggressive data. But Rob, do you want to take that one or Tony? It includes both of the hardware and the software is the answer. And in terms of what we modeled and Rob what Rob modeled, he showed you exactly that we modeled it like the most recent launch of the consoles. And the reason we did that is there's variability. We showed you 2. We could have shown you 8 and all of them would have been extremely different. I'm sure that you all have seen that. You're seeing the same information we're seeing. So there's great variability, including the one that Paul referenced that's used out there. So again, key is it's going to be a multibillion dollar platform. How big it's going to be, we'll wait and see. And another key is we didn't include it in any of that forecast to get to 3% to 5% growth. Yes. Maybe you want to Rob, you want to address, it's irresponsible for us to try to model this before we have more data. But it would also be misleading for us not to point out the potential this has for our performance. Yes. The reason it's not in our forecast is because very little is known. We've spoken about the new consoles being rumored at this point. I think Nintendo is the one that's most imminently rumored, yet we don't have the data to put anything in a model beyond even that what you hear with other consoles, again, we don't have any data. There are a ton of models out there on what firms think that VR is going to do in the future. And we looked at some of those coming up with the number that I gave you of $15,000,000,000 over 4 years in the marketplace. But candidly, not much is known about how that adoption is going to take place or what sort of quantities are going to be available and things like that. So as Paul said, we don't model things that we don't have some sense of not certainty necessarily in terms of future performance, but certainty in terms of actual market delivery and the ability to sell the products. So I guess thinking about the digital business, you're not projecting a ton of growth, but I guess of the key segments you laid out, what do you think are the biggest drivers? And I guess is there any risk to the add on content given the trends in new software? And then just as a quick follow-up, where does Pro membership stand? And I guess how are you thinking about, I guess, potential growth? Tony, you want to start that? I missed the key word that you said. The pro membership before that. In the digital question, what was your could you repeat your digital question? I missed right before you asked. Sure. What are going to be the biggest drivers? And then are there is there any risk in the add on content? In the add on, because that's what I missed, the add on content. So, well, I think the drivers are exactly what they've been in the past that you're going to see people continue to offer some great content out there that's digital. We think the indie games are definitely as you get discovery and as you get affordability there, we think that that's a big opportunity for growth. And we think that AAA games like we talked about are going to continue to grow. We articulated that we think they'll get to 25% to 30% of the market and it will be consumer adoption of some of the digital downloads like we've seen in the last couple of years. I think that's why we've talked about the fact that in spite of the fact that we've seen a growing digital market, we still were able to grow 23% like we talked about. As to the add on content, I do think that if you see a physical game market that if you see fewer games that are out there, you may see a leveling out of the growth. But I think as digital continues to come in and as you have additional physical games in there, we have established in the minds of consumers that a great game has downloadable content at the point of launch, which is really where we do a great job. And a lot of people don't know about that downloadable content. So I think that if you do move games further into the digital realm, there will be fewer less attach of downloadable content because when we came into the marketplace, we added such an incredible layer on top of what was already being sold. So that is a risk to the move to digital as people just don't see the content and that's what we do incredibly well. Mike, do you want to talk about PowerUp Pro? Your question was what's going on with PowerUp and PowerUp Pro? Okay. Yes. So that continues to be a big business for us. And power members in total are over 70% of our sales, but the Pro members, which are less than half of that, are way more than half of that number. So they're clearly our best and most loyal customers with the highest repeat. I think the and what we've seen is, as you get cycles of activity, for example, a new console launch, etcetera, that brings new people into our stores, we tend to benefit in terms of that because there's a next generation of consumers coming and do that. I think our focus is really on taking what we've done so far and extending that. So just as a GameStop is becoming much more than physical games, we're focused on having a lot of much broader set of benefits for our Pro members. The most obvious example there would be collectibles. So what we're really focusing on now is really delighting those PowerUp Pro members every day, making sure that we're giving them the value each year, which significantly exceeds our expectations. And we see a lot of opportunities as we reach into these new categories, not only to leverage the members that we already have, but frankly to get new Pro members and continue to give them more value. And each new category to us is kind of like another stream of new products. So we think there's a lot of opportunities there to get a lot more Pro members. Another great point thing I would point out is that while the heavy GameStop user tends to be sort of sixtyforty or sixtyfivethirty five male, the ThinkE customer is actually more like sixtyforty or sixtyfivethirty five female. So there's a whole another group of heavy spending consumers in the category that we haven't yet reached with our program as we begin to integrate those big upgrades. The other point I would make on DLC, which is interesting, the old school, using Rob's analogy, old school, new school, the old school metric used to be what percent of new title launches actually had DLC available. We went through a period where publishers, we'd have kind of merchandising teams led by Bob Toussaint and his team. There'd be an argument over whether they're going to put DLC on a title. And people would say, well, we want to keep the value in the game. But now today, I think everyone is trying to put out DLC and now it's more of an attach rate discussion, those kinds of things. So I think that is changing category. When you talk about risk, that's one that is an interesting risk for us because there are many things that could happen here, but the most attractive part of that business is that we still see customers who spend they buy most of their digital content inside a GameStop store and I don't think that's going to change anytime soon. So as long as they're in the store we can do a lot with it. Yes, Steph? Thanks. So, just one follow-up on risks. You talked about the decoupling between new software and used. How long can that last? At some point, you run into an inventory issue and could that be a bigger risk over the next 12 months, 18 months before you really start to see some of these new initiatives pick up some of that slack? Rob and probably start with Rob and then maybe Tony. The only thing I would say just we've never had an inventory problem in use, okay. Through all the years and all the cycles and all the ups and downs, we've never had an inventory problem in use. I think the second point is we don't have to wait for those other initiatives to pick up the slack. We had a record net income year last year and I don't know if it's record store profit contribution, but it's close to it. So the transformation is here today. Rob, you want to talk about the inventory levels? Yes. What we've seen is, so far this year, our trades are exceeding our plan. And so our plans obviously take into account what's going on with trends, what's happening with titles and things of that nature. So we're pleased with what we're seeing so far. And as Tony pointed out in one of his slides, the pre owned business has outperformed the new software side of things for quite some time. So we expect that to continue. Yes. And you saw on the I think our biggest opportunity is awareness. You saw on the charts that we showed that there's a lot of awareness still out there. That's not just awareness of the fact that we have pre owned inventory. That's also awareness that there is trade currency to be had. And so think of VR as a great example. Let's say it does launch and launches big. It's going to be a huge influx of inventory that comes to pay for that VR, not just consoles, but video games as well. And so we see that as awareness goes up, every time awareness goes up, our inventory comes in and our pre owned sales go up. And that's what drives that decoupling. And so you saw that we have an awareness opportunity. Frankly, as long as I've been here, we've got an awareness opportunity. We've made progress on it every single year and we're going to continue to do that. One note on VR software too. We didn't talk about it today and they probably won't talk about it. But given the size of these files, we anticipate there will be physical media associated with them. There may be some downloads as well, but we think it will be a healthy buy sell trade market as well. And then just one follow-up for Rob. You talked about $100,000,000 in cost reductions over the next couple of years. Where are you finding incremental opportunities, particularly given that you are still investing in the store, still trying to drive higher productivity of collectibles and some of the other initiatives, where are you finding those opportunities? There are a number of areas that we look at. We continue to focus on our store labor models. We continue to focus on optimizing the store footprint to make sure that the stores that we have are as productive as they can be. While we continue to focus on what our cost structure is to support the video game business, recognizing that the other growth opportunities need to be separated from the video game business. And in terms of some of that cost management, what is it that we can do to make sure that we've right sized the video game business? Mike's got some comments around efforts in Europe, for example, to support those cost reduction initiatives. Sure. Just to touch on Europe has always had a difficult time leveraging fixed costs just because you've got many countries with smaller store bases. And about a year ago, we embarked on being more aggressive with shared services. So we're in the process now of consolidating 2 distribution centers. We're starting to we created a shared service center in Dublin where we're combining our back office finance functions, HR functions and IT. So there's a lot of effort to increasing the leverage of our fixed expense, which is one other way we're also mitigating risk. Yes, that's one of the risks in our business too is that we won't move fast enough to reduce the investment in the video game business and move faster to invest in the other business. And so we've worked very hard on that and I think it's something we got to keep focused on. So yes, sir, Omer? Just how important is the SFM to the contribution of profitability of the Tech brand stores? I think my script said that it's a meaningful part of profitability, But we're not at this point going to disclose what percentage of profitability or total revenue that number is. So does it hinge on if on the current economics, so let's say the economics are changed on it, just how profitable is the other parts of the business in order to Well, not to say that anything is forever, but SMF has been part of our relationship with AT and T for 14 years. It's built on it's a foundation of how the dealer industry is built. So I don't see if that's foundationally changed, I think you heard today from AT and T that the health of their distribution. So we anticipate the economics in that business to stay very healthy as their environment around them is very competitive, right? It's in their best interest to make sure that we're ready and willing to invest and grow our business. Yes, we don't expect any changes in that. That's I mean, those are risks. They will change some program emphasis. If they want to emphasize DIRECTV now, we've got some new incentives. If they want us to sell a particular accessory, Sometimes vendors will come in and sell and offer an incentive around, for example, LG will come in and they want to promote a specific phone, etcetera. But SMF has been in the industry for a long time. So never say never, but I don't think that's going to change. It is a very major part of the profitability of those businesses. Can you talk about the possibility of applying the buy, sell, trade model to digital, sort of beginning to end? Have you looked at the possibility? Is it technically possible? Is it possible from an intellectual property point of view? Yes. I'm going to let Tony answer that. But yes, we have looked at a lot of things. And in Europe, there's a lot of conversation. In the United States, it's wrapped up in a lot of issues. But we've had discussions, Tony, you want to? We have had discussions with the platform holders, publishers, obviously. It is much more difficult than on the physical side the business, Dan Kaufman would attest to that. So there are some significant barriers to that happening that would have to be removed and we don't see it on a lot of roadmaps in terms of development right now. But it's definitely something if it does ever happen, we'll be the first to be in it. And that's we're right around the basket, so to speak. I mean, we keep very close in contact with the platform holders, but I really do not see that happening in the short term. That's some collectibles questions. Somebody's going to have a good question, right? Yes. How do you pick the locations for the loot stores? You said, I think in the tour earlier that you're going to try to cluster some of them. But are there any other drivers, across the world? How do you select the location? That's a good question. We just had a real estate meeting this week, so it's very timely. Mike, maybe you want to take that? Sure. Well, there's a number of factors that we use. One of the drivers is the collectible business in our existing GameStop stores in those areas. We use the geographic locations in those areas that make sense if we're going to try to cluster these stores together and see what our penetration is. We also look at our online business, the thinkgeek.com business, to see what kind of penetration is around these potential sites. So by identifying those early on, then we actually go and visit the sites and walk the malls, walk the locations to make sure that the demographics make sense. We've Mark Summy, our Head of Real Estate, and I have spent about 5 days in different parts of the country just identifying these sites that we've got numerically where we've got data and then go and actually see them to make sure that they fit the criteria. Generally speaking, they're Class A Malls with a really nice diverse clientele. And we generally have pretty good GameStop stores in the location. That's kind of been the profile. And the exercise with ThinkGeek today is building the brand. Someone asked me at lunch, well, how do you decide whether you grow online or you grow stores? I mean, the reality is we want to grow the online business. And it's had a nice profile for many years, but we think that there is a market for the standalones. And as Mike said, he and Mark let me go, look, it is a brand building exercise, which leads you down to A mall path versus B and C malls and strip centers and all those other places. In our GameStop business, we're kind of going the other way. We're trying to leave A malls because our brand is very solid. I think it's number 14 brand or something in America. We're trying to move towards lower cost locations in strip centers. And of course, we use PowerUp to consolidate. But I would say ThinkGeek is very early on still in the real estate. So just another quick question I guess on the used business. Understanding that you guys have a lot of control over the input and, I guess, the output of the model, has I guess the trend of people holding on or playing games longer, whether through just their longer duration games or DLC, has that made the pricing dynamics any more difficult for you guys? Or is that not really a factor? I think I'll let maybe Tony can end. I mean, it's always difficult, right? That is another risk that we have. We have to have aggressive and speedy implementation of price changes and simple things like Super Bowl weekend. Madden used Madden copy sell well right up till Super Bowl weekend and then they just go off a cliff. So there's things in there that are risky. You want to talk about that? Sure. There hasn't been a significant decline in the percent of games that are brought back as a result of that. And so again, like you said, we control the input price and output price. That's a great model. We're able to manage that. It's not easy like Paul said, we spent a lot of time looking at it and we've managed it very, very well. Like he said earlier, we've never had an inventory issue, either having too much or too little on that side. But a lot of that has to do with what you mentioned, which is that we control the prices. So we've done a nice job of flexing our model to get back that inventory we're able to sell. The other thing I'm glad we're not talking about is, I've been to many of these meetings where Walmart, Best Buy and Amazon have announced buy, sell, trade and it was a big catastrophe for us, etcetera. And I think, if you go back and look at their share in the used business, it's minimal. And that's because of the excellent execution of our team. So I think we got time for one more, I'm told. Ben? Thanks. So when I look at your Tech Brands guidance for 2016 and then 2019, it appears based on the store growth guidance plus the revenue guidance, it seems like revenue per store is actually per average store is going to come down next year, just doing the division. And then the 2019 numbers actually embed sort of a major improvement from 2016 to 2019. Can you just talk through, A, what brings revenue per store down next year and then what brings how you reverse that trend and actually increase it in between 2016 2019? Sure. I think what you're getting in terms of 2016 is that we're only going to own the 2 big acquisitions we're going for half the year. So when you average across store base, you have to average across the sort of the number of stores in operation per month in order to get a number that makes more sense there. As you look at 2019, one of the things that you need to consider is the and I had this question a couple of times, just in between I guess on the break. You need to consider the number of stores that we opened in the last couple of years, very heavy last year and the ramp to maturity on those stores. So to get to where we think store maturity would be in 2019 on average per store, that ramp is impactful as well. The size of the deals that we're in discussions to get are very large and they're very mature dealers who've been in operation for a long time. So the average per store that they bring to the table is going to change our average as well. Okay. Well, I think that's all the time we have allotted. We want thank you for coming. We know everybody is busy and this is a major investment of time. We hope we shared enough information with you to help you understand what we're doing and how we're transforming GME. Thank you very much. Travel safe.

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