Earnings Call: Q4 2012

Mar 28, 2013

Good morning. Welcome to GameStop Corporation's GameStop's 4th Quarter and Full Year 2012 Earnings Conference Call. Today's conference is being recorded. At the conclusion of the announcement, a question and answer session will be conducted electronically. Remind you that this call is covered by the Safe Harbor disclosure contained in GameStop's public documents and is the property of GameStop. It is not for rebroadcast or use by any other party without the written consent of GameStop. At this time, I would like to turn the call over to Paul Raines, Chief Executive Officer of GameStop Corporation. Please go ahead, sir. Thank you, operator, and welcome to the Q4 year ending earnings call for GameStop. As we begin our call, I want to thank our GameStop, EB Games and Micromania associates around the world for their deep commitment to our customers. I am pleased to announce that 2012 is officially over. We just concluded the 7th and final year of the previous console cycle and can now see that 2013 will be the beginning of the next cycle for console gaming. We will share with you today some commentary on our results for the past year as well as outlook for the current quarter year. As has become our custom on this year ending call, we will also spend some time outlining some of our strategic thinking about the future of GameStop. So this call will be a little longer than our regular ones, but we think you will get a lot of value out of it. In recent years, we have described for you a strategic plan for the transformation of GameStop that was launched in 2,009 and continues today. Foreseeing a decline in the console cycle, we laid the groundwork for market share gains through loyalty, developed new digital and mobile businesses and implemented a shareholder friendly capital allocation plan. As we sit here in 2013, that strategy has not only preserved the profitability of GameStop, it has positioned us well for the new technology cycle in gaming. You will hear today from Rob Lloyd on Financial Metrics, Tony Bartel on Domestic Performance, Digital and Mobile Businesses and Mike Mahler on International Strategy and Execution. I have also asked Mike Hogan, our Executive Vice President of Strategic Business to give you some details on our internal console forecast and how we see the next couple of years unfolding on that critical segment of our business. Through extensive market research and proprietary historical data, we have built a rich model and we believe we can remove some of the uncertainty about the future and also support the investor case for GameStop by sharing parts of that model with you. But first, let's talk about 2012. Without question, a very challenging year for the console gaming industry. NPD data for the industry indicates a 21% decline in software and a 25% decline in hardware in the past year in the United States, with similar numbers in our other geographies. GameStop outperformed the industry globally confirming once again the unique nature of our business model and position in market. If we deconstruct the past year, we see 6 indicators of the strength and innovation we have built into our business model. These six elements will amplify the impact of new technologies from our console partners. First, the dramatic increase in market share and gross margins we experienced in 2012, extending our streak of continuous market share growth in video gaming with over 30% software market share in most of the 15 countries in which we operate. Our gross margins expanded again in 2012 and since 2008 have expanded 400 basis points, one of the largest in hardlines retail over that period. These share and margin growth trends are happening in our international segments as well as our domestic business. GameStop is the dominant gaming retail player in most Western geographies and we are increasing our competitive advantage. The second strength in the GameStop business model are our customer relationships. In terms of customer relationships, we have built the dominant CRM programs in gaming around the world with over 30,000,000 members in our PowerUp, MegaCart, EB World and GameStop Plus programs in the United States, Europe and Australia. Now these types of enrollments don't happen by accident and we are using PowerUp Rewards and its various versions around the world to consolidate our customer loyalty in ways that are constantly evolving. Working closely with our partners at Sony, the PlayStation 4 First to Know list now has nearly 900,000 members and we will share with you how we plan to win the next console cycle by leveraging those assets. A 3rd positive sign is our innovative and fast growing digital business. We have created from scratch a unique DLC in store and online selling model, leveraging the store experience and complete 360 degree platform to introduce gamers to new properties and the DLC experience. We have extended that to include add on accessories and toys related to games through our web and store technology at gamestop.com. Our PC digital business is also expanding rapidly as we bring both our own PC download engine as well as external services like Steam to our GameStop customers. Kongregate grew 48% during the year, proving we can successfully grow that gaming platform. Game Informer continues its extraordinary journey as the number 3 physical magazine in the United States and possibly the number 1 digital magazine in the world with over 3,000,000 paid digital subscribers. If you are a fan of digital businesses, GameStop has built one that surpassed $630,000,000 in sales last year and is growing at a 48% compound annual growth rate for the last 2 years. A 4th strength is the creation and aggressive growth we have in our mobile business segment and the better than category pre owned video game business. As you saw in our release, our Mobile segment reported $184,000,000 of global sales in only its 2nd year of operation at accretive margin rates. We are going to be a strong player in launches of new tablets and mobile devices and we are already the top destination for trading of old electronics, a market that is large and only getting larger. Our pre owned game business has slowed with the decline in new titles. Despite that decline, our pre owned video game business has performed far better than the new software category and we expect that business to return to growth as consoles accelerate. Pre owned video games continue to be a large profit contributor to GameStop and we have found ways to expand margin rate of that category. As we demonstrated in the Mobile segment, we have the entrepreneurial flair and execution discipline to create new disruptive business models with little capital outlays by leveraging our physical and online footprint. It is also important to note that all the factors I've just walked through are performing internationally as well or better than our U. S. Segment, indicating that we have the execution discipline to leverage our best practices around the world. The 5th sign of the health of GameStop is our flexible real estate portfolio. Far from being a liability, our store footprint is a strategic weapon with 97% of our stores profitable and our average lease terms at slightly over 2 years. We have developed proprietary technology that allows us to consolidate customer traffic and increase profitability as we close redundant stores. As we develop new business concepts, we can easily find the most productive locations and move quickly to meet customer demand. Finally, our 6th strength is our capital discipline. We have returned over 100% of our significant cash flow for the last 3 years to shareholders and expect that strategy to continue. Our share buyback has created value and we have increased our dividend twice since launching it only a year ago. Our board and management team are committed to driving value and returning cash to shareholders. And a new console cycle will only make that process more productive for growth, now broadening our funnel far beyond only digital gaming. As our approach has evolved to include re commerce and beyond, we continue to meet with startups to explore emerging concepts that pique our interest. We are prepared to invest our capital strategically to drive multichannel revenue growth. I will now turn the call over to Rob. Thank you, Paul. Good morning, everyone. I'd like to start by briefly recapping our Q4 fiscal 2012 year end results. Then I'll provide our outlook for the Q1 fiscal 20 13. In the Q4, total global sales decreased 0.5% from the Q4 of 2011 to 3,560,000,000 dollars We outperformed previous quarters due to the extra week in the quarter as part of the 53 week year and the Wii U launch. Comparable store sales for the quarter were down 4.6% and were not affected by the extra week. Excluding impairment charges, earnings per share for the quarter were $2.16 compared to $1.73 per share in the Q4 of last year. EPS were up $0.43 or 24.9 percent over last year's quarter with approximately 0 point 26 approximately $0.08 per share due to the extra week and the remainder due to margin expansion and expense control. Excluding impairment charges, net earnings for the quarter increased 9.5 percent to $262,300,000 from 230 $9,500,000 During the Q4, we incurred impairment charges of $1,900,000 for normal ongoing store evaluations. This amount would not normally be noteworthy, but is broken out in our financial statements to ensure comparability and classification to the $81,200,000 in impairment charges incurred last year. The full year impairment amounts include the goodwill related charges taken during our Q3. For the full year, sales decreased 7% from $9,550,000,000 in fiscal 2011 to $8,89,000,000 in fiscal 20 12 due to declines in traffic and demand in the late stages of the console cycle. Comparable store sales for the year were down 8% with U. S. Comps down 8.7% and international comps down 6.4%. Earnings per share improved 10.5% over last year to $3.17 excluding impairment and restructuring charges. According to NPD, the U. S. Hardware market declined 15% in the 4th quarter. Our U. S. Hardware sales increased in the 4th quarter on the strength of the Wii U launch, even without the extra week. This demonstrates the power that a console launch can have on sales. The challenges in hardware sales during the year extended to new software, which was down 2.8% for the quarter and 11.5% for the year. New software outperformed previous quarters when compared to the prior year due strong titles like Call of Duty: Black Ops 2, Halo 4 and Assassin's Creed 3. We outperformed the market in both the quarter and the full year and increased our 4th quarter hardware and software market shares in the U. S. By 360 basis points and 4 70 basis points respectively. The pre owned business declined 7.9% for the 4th quarter and 7.2% for the year. Sales in the other category increased 21.6% in the 4th quarter and 21.2% for the year due to the growth in the mobile business. Our mobile revenues were 100,000,000 the Q4 compared to $9,000,000 in the quarter a year ago. Full year mobile revenues were 184,000,000 dollars up from $11,000,000 in 20.11 and at the upper end of the guidance we gave at the beginning of the year of 100 and $50,000,000 to $200,000,000 Digital GAAP revenues increased $18,000,000 in the quarter $25,000,000 for the year. Tony will talk more about our digital business. Sales of toys, primarily Skylanders also contributed to increases in the other 170 basis points for the full year. Our sales mix shifted from new hardware, new software and pre owned to the other category due to the late stages of console cycle and due to the growth of our mobile and digital businesses and sales of Skylanders Toys. We had margin improvement in new hardware, new software and pre owned during both the quarter and full year. The margin in the other category declined slightly as our mobile business grew. Our mobile business generated a 28.8 percent margin rate, while our digital revenues accounted for $134,000,000 in gross profit at a gross margin rate of 58%. In the 4th quarter, gross profit was up $31,700,000 or 3.4 percent due to the extra week and the expansion of the margin rate. For the year, gross profit was down $28,000,000 or 1% as decline in sales year over year more than offset the expansion of the margin rate. SG and A expenses for the 4th quarter were up slightly due to the extra week, while the full year was down slightly despite the extra week. This is reflective of cost control efforts throughout our operations. Excluding impairment charges, our 4th quarter operating earnings increased $30,500,000 or 7.9 percent from the previous year due to $16,000,000 in earnings from the extra week and the remainder from margin expansion and cost control. For the full year, our operating earnings excluding impairment charges declined $11,900,000 or 1.8%. Compared to the 7% decline in revenues, our operating earnings were aided by the extra week margin expansion and cost control. At the beginning of the year, we set a target for operating margin of at least 7%. I'm pleased to say that we achieved 7.2%, our 2nd highest operating margin ever. During 2012, we decreased total store count by approximately 1.2%, in line with guidance we gave throughout last year. We opened 95 stores and closed 173 in the U. S. Internationally, we opened 51 stores and closed 54. Only 3% of our stores are unprofitable. Our capital expenditures and other investments for 2012 totaled 100 and $51,200,000 in line with our guidance at the beginning of the year. We generated record free cash flow of $481,200,000 slightly less than the $500,000,000 we projected for 2012. During the Q4, we repurchased 3,200,000 shares at an average price of 23 point $4.1 for a total of $74,700,000 under the share buyback authorization from November 2012. For the full year, we repurchased 19,900,000 shares at an average price of $20.60 for a total of 409,400,000 dollars Thus far in the Q1 of 2013, we've repurchased 1,000,000 shares at an average of 25 point $6 for a total of $25,000,000 We have $400,000,000 remaining available under the latest authorization. Since we began our buyback program in January 2010, we've repurchased 55,000,000 shares or over 30% of our beginning outstanding shares at an average price of $20.56 totaling over $1,100,000,000 On February 19, we increased our dividend to $0.275 per quarter, which we paid on March 19. Now I'd like to cover guidance for 20.13. Let me start by saying that Mike Hogan will be sharing with you our view of the market for the video game category for the next 2 to 3 years. As we disclosed in the press release, we expect the first half of the year to be very difficult as we wait for the next console cycle to begin and face the decline in in demand that typically occurs after new consoles are announced. With Grand Theft Auto V and Battlefield 4 releasing in the Q3 and the PlayStation 4 launching in the 4th quarter, we expect to return to growth for the back half of the year. We expect our revenues to decline between 6% and 8.5% in the 1st quarter and comp sales to decline 5.5% to 8% as we face declining demand. We expect EPS to be between $0.38 $0.43 per share using weighted average shares outstanding of 119,500,000 based on share buybacks done to date. For the full year, we expect revenue to be in a range of down 8% to flat and comps to range from negative 6% to +1.5%. Keep in mind that revenue and earnings comparison include 50 2 weeks for fiscal 2013 versus 53 weeks for fiscal 2012. We expect gross margins to be comparable in 2013 as we grow our mobile business and launch at least 1 console in the fall. Given the challenges we face in the first half of the year, we expect full year net income to decline between 7% 18%. We expect EPS to range from $2.75 to 3 point 13% to 1%. Please note that the impact of the 53rd week in 2012 was about 0 point $8 per share. We are using weighted average shares outstanding of 120,000,000 based on share buybacks Currently, the consensus 2013 fiscal year estimate assumes a share count of approximately 115,500,000 or about 4% less than our guidance. As of now, there's been one console announced for a 4th quarter launch. Guidance at the low end of the ranges reflects that one console coming to market. Guidance at the high end of the ranges reflects the launch of a second console should one be announced. We are making broad assumptions about launches within the guidance as we do not have launch date information or quantities, prices or available software. We are projecting capital expenditures of approximately $135,000,000 to $140,000,000 for 20 13. We are continuing to reduce our spend on new stores, but as our stores age, we will invest in remodels and in fixtures and technology for our new lines of business. For 2013, we will open about 50 stores in the U. S. And close about 200. Continuing to use PowerUp Rewards to transfer sales and drive profits. We have acquired 44 former game stores in France. We'll open 10 to 20 stores internationally and close about 50. The result is a decline in global square footage of about 2%. We expect free cash flow of between $425,000,000 $475,000,000 in 20.13. We continue to focus on increasing shareholder return and unless we see some opportunity to drive that return better than buybacks, we will continue to return 100% of our free cash flow to shareholders in the form of buybacks and dividends. The last couple of years in the video game market have been very challenging for developers, publishers, retailers and investors. As we've said many times, we are at the tail end of a console cycle of unprecedented length. As I told you a moment ago, we see these challenges continuing and affecting our results until we see the launch of the PlayStation 4 at the end of 2013. This is the 4th console cycle I've experienced and that gives me great confidence as we look to late 2013 beyond. In addition to our strong market share, I'm also confident in our future because of all the profitable new businesses we've built in the last 3 years, like a $600,000,000 digital business and a $180,000,000 mobile business. As I mentioned before, Mike Hogan will walk you through what we see for 2014 2015. I'd like to remind each of you to take the time to review the positive impact on the industry and on GameStop when a new console cycle begins. Credit Suisse did some great work on this last year with an analysis of the multiple expansion that took place with past console cycles. I'll now turn it over to Tony for his comments. Thanks, Rob, and good morning, everyone. Despite of continued category weakness in our Q4, we significantly outperformed the rest of the U. S. Market, producing a modest 3% software decline versus the 23% software decline that our competitors saw. As a result, we increased our software market share by 4.70 basis points during our 4th quarter. As expected, our digital revenue growth accelerated in the 4th quarter, growing 60% over Q4 of last year, with console digital growing at 52% and PC digital growing at 84%. Our continued console digital growth is partly driven by the fact that nearly every major new game release now contains sellable DLC at the time of launch. Our international business continued to implement best practices and their digital revenue growth surpassed the U. S. In the 4th quarter growing at 71 percent compared to the U. S. Growing at 58%. For the full year, we ended at the high end of the range that we provided in Q3 at 6 $30,000,000 of digital revenue and an annual growth rate of 39% over fiscal year 2011. On a 2 year basis, our compound annual growth rate is 48%. We anticipate that our growth rate in 2013 will be between 25% 35% due mainly to continued challenges in the video game category. As details of the new consoles are announced, we will provide additional guidance on our digital revenue expectations for 20 Our PC digital download sales grew 68% in the Q4 and the ability to fund Steam wallets in nearly all of our stores globally is driving PC customers into our stores. On a full year basis, the combination of PC downloads and Steam Wallet funding resulted in a quadrupling of our PC download revenues over 20 11. Congregate grew 64% during the quarter and 48% on a full year basis. Growth continues to be driven by games with in game transactions as this revenue grew 116% during the quarter. Moving now to our Mobile segment, which includes the sales of pre owned electronics as well as new tablets, we generated $100,000,000 of mobile revenue in Q4 and 184 $1,000,000 of mobile revenue for the full year. We now sell new Android based tablets in all U. S. Stores domestically and in over 1,000 stores internationally. Our buy our buy sell trade model to be a premier launch partner for new tablet technology and we will see this area continue to expand in 2013. Based on the success that we are seeing in the trade in of pre owned smartphones, media players and tablets, we have expanded the list to include the top selling Android phones by Samsung, HTC and Blackberry and are now accepting over 300 consumer electronic devices in trade in all of our U. S. Locations. We are utilizing proprietary POS technology to provide the most up to date trade pricing availability and we monitor competitive sites daily to ensure that we are providing top trade value for each device. In addition, our central refurbishment center and the high quality technicians that work there provide us with a world class refurbishment, repair and most importantly data wiping process that ensures the security of our customers' information. Our trade in process is also helping the environment we recycled more than £2,000,000 of e waste through our refurbishment operations in 2012. We have converted 334 existing stores to include a selection of pre owned and new mobile devices and related accessories. These stores have an average of 11 linear feet dedicated to mobile devices and early results show a sales lift of approximately 5% in the converted stores on a very small investment. Market model, we estimate that over $10,000,000,000 of unused smartphones alone exist in the U. S. And we believe that the U. S. Retail market for pre owned between 30% 40% over 2012, while targeting a 28% to 30% gross margin. Looking forward, we are excited to be in impact that new innovation will have on the video game category. The announcement and ultimate launch of the new PS4 is an highly aligned with Sony's low friction, gamer centric and developer friendly go to market strategy. We have partnered closely with consumer demand. While we're not at liberty to share specific details of our joint plans, we have developed a complete marketing plan that will roll out the next few months that takes advantage of our buy sell trade model and our PowerUp Rewards program in very unique ways. It will also leverage our ability to deliver digital assets. At a recent Sony event, we were able to speak with all of our major publishing partners and they are very excited about their plans to leverage this new technology. As an example of consumer demand for this new innovation, we are seeing strong purchase intent for the PS4 as evidenced by the fact that we now have nearly 900,000 PowerUp Board members who have signed up for the 1st to note list. This service provides them not only with unique and timely information about the PS4, but also will inform them when they can preorder and pick up their new systems. It will also provide them with relevant buy sell trade deals that will drive value that can only be delivered by GameStop. Although we have been given official numbers by Sony, we do believe the demand will far outpace the supply of this product during the launch window. The innovation that we have executed globally throughout our stores, websites and apps in the last few years has us at record market share levels on physical sales and ready to benefit from growing digital sales. And we are excited about the strong title lineup in the back half of the year as well as the imminent console launches. With that, I'll turn the call over to Mike Mullen. Thanks, Tony. Good morning, everyone. In 2012, all businesses increased operating earnings by 9% over prior year to $132,000,000 As Paul mentioned earlier, despite European economic turmoil and overall industry declines of 20% to 30% in most markets, the international businesses held comparable store sales to minus 6.4 percent in 2012, gaining significant market share in most markets. Our international performance in 2012 was driven by a strong focus on cost control, a 190 basis point increase in gross margin percent and the execution of our strategic initiatives with the most significant improvements generated by our German, Canadian, Irish and Spanish businesses. The strong focus on the basics positioned GameStop to continue to gain market share during a difficult year as our competition pulled back or discontinued operations in several important markets. As a reminder, over the last 12 months, we restructured our businesses in Spain and Northern Europe, where we consolidated operations in Ireland and we exited the poorly performing Portugal and U. K. Markets, resulting in significant reductions in SG and A. During this time, we have continued to focus on sharing best practices and driving profitability in the pre owned business. And I'm pleased to say that in 2012, international pre owned margin rates increased 3 70 basis points over prior year and are now in line with U. S. Pre owned margin rates. In 2012, we made significant progress with key strategic initiatives. Through investments in technology improved integration with our stores, international e commerce sales grew 36% during the year. We continue to invest in growing our console and PC digital businesses through improved technology and stronger partnerships with the publishers, which resulted in digital sales accelerating throughout the year with Q4 growing at 71% versus 2011. These stronger and better coordinated publisher partnerships also helped us bring our customers more global exclusives and unique content on new releases than ever before, resulting in margin improvements and greater sales on key titles. In 2012, our investments in new businesses continued to pay off, where we realized significant sales increases in new mobile devices, re commerce, headsets and video game related toys and collectors items. Finally, we continue to invest in the global expansion PowerUp Rewards in new markets. Whether the program is called Mega Cards in France, EV World in Australia or GameStop Plus in Spain, Italy and Germany, GameStop's customer centric loyalty program is the most powerful tool for us to be closer to our millions of worldwide customers and to fully engage them in our multi channel ecosystem of products and services. This will play a critical role in the success of the next console cycle. Our loyalty program expansion has also allowed us to continue to expand Game Informer in and the rapid execution of GameStop's strategic transformation is driving profitability not only during the bottom of the current cycle, but will ensure that GameStop remains the international leader as we enter the next console cycle in the latter half of twenty thirteen. And now I will turn it over to Mike Hogan for his comments. Thanks, Mike. There's been a lot of discussion recently regarding forecast for category growth in 2013 2014 and I'd like to update you on the GameStop market model and our projections. Before I go on, I should mention that we have some slides that are available. If you go to investor. Game stuff.com, There's 2 slides there which provide a little more detail and visual around some of these numbers we're going to present here in just a minute. Although NPD is a reliable source for tracking historical sales in physical gaming, it was clear to us several years ago that we needed a much broader picture and one that looks forward as well as backward. For this reason, we built our own proprietary market model, which we have been using and refining for the last few years. The GameStop market model pulls together data from over 20 different sources and using this we produce what we believe is the most comprehensive overview of the categories that are relevant to our business including both physical and digital and including both historical and projected sales. Today, I want to 0 in on the console games category and address GameStop's outlook for North America for 2013 through 2015. Console gaming includes console hardware, console software and console digital. The key inputs that are driving this forecast model include the timing, price points and success rates of new consoles including software attach rates trends on current consoles and historical growth curves for console launches and the number of new titles introduced each year and the relative success of those titles including digital content and subscriptions. Considering all of these factors, our model projections for console gaming are as follows for North America. These numbers are shown on the first chart with the green and blue areas. Console hardware and software are shown in blue and console digital is in green. In 2013, for hardware plus software, we project single digit decline. That's the blue area. When you add console digital to that, the total growth would be closer to flat. We expect hardware will be negative for most of the year, reflecting the sunset of the console cycle with strong growth in Q4 given the introduction of at least 1 and possibly 2 new consoles. Software will decline through the first half, offset somewhat in the second half due to strong new title releases and new console software. In 20 14, the model projects extremely strong growth. In this scenario with 2 new console introductions in 2013, both would have a full year positive impact on 2014 and console hardware plus software growth not including digital, we would expect to be in the plus 20% to 30% range. We expect console digital growth to exceed that. In fact, 20% growth for console hardware and software for 2014 is actually somewhat on the conservative side. In the 1st full year of the PS3, which was 2,007, Sony hardware and software grew plus 31%. In the 1st full year of the Xbox 360, which was 2,006, Microsoft hardware and software grew by 59%. The trend continues in 2015. The model projects a 2nd consecutive year of positive growth for hardware and software in the range of +8 compared to what we experienced in the prior console cycle. Console digital should be in the high 20s, putting the total console category at +10 percent to 15%. By 2015, console digital should be nearing $4,000,000,000 much of which will be sold in stores. Assuming Assuming continued share increases, GameStop growth would exceed the category numbers. Let's look in detail at a few of the key inputs that drive the model projections. The most critical input is the timing of new console launches. Please note that while any new console introduction will have a positive impact on 2013 sales, the impact will come late in the year, it will be primarily hardware and there may be an offsetting negative early in the year as some consumers choose to hold off on the purchase of current generation consoles and wait for the new ones to come out. We would expect price reductions on current generation consoles and that would drive higher unit sales, but at a lower price per unit. We know that Sony will introduce PlayStation 4 globally in 2013, but we are still waiting to see what Microsoft's final plans are. We have scenarios with 1 console introduction as well as with 2. Even a single launch in 2013 will drive double digit console growth in 2014 and 2 launches as noted above would likely drive the console category north of 20% growth. The net of this is we expect new console introductions to have a slight positive impact on the category in 2013, but a significant positive impact for 20142015. It's worth noting that the impact of the Wii U launch was sufficient to drive GameStop U. S. Hardware sales positive during the Q4 of 2012. This is due to 2 factors. The first is the category impact of the new console and the second is GameStop market share, which on the Wii U hardware is roughly 50% higher than it was for the original Wii launch in 2,006 and 'seven. GameStop's share of Nintendo software has nearly doubled during that time frame. Thus, GameStop is benefiting disproportionately from even modestly versus the prior generation. Our consumer research shows extremely strong consumer interest in the new consoles. Let's take a look at the second slide. This looks at purchase interest for a number of products among PowerUp Rewards members. In this case, purchase interest means do they plan to buy in the next year. As you can see, purchase interest for the new PlayStation 4 is very strong. In fact, across a wide range of products, including new smartphones, new tablets, laptops, etcetera, the PlayStation 4 is by far the top scoring item. This is further supported by the fact that nearly 900 1,000 members have already signed up for the PS4 First to Know list on PowerUp Rewards as Paul and Tony noted earlier. We've chosen to be somewhat conservative in our model due to the fact that there are still significant unknowns such as price point, game price, number of titles available in the 1st year, etcetera. In addition, our consumer research indicates that up to 60% of consumers would be significantly So in summary, we anticipate the console category will perform better than what we saw in 2012, but expect single digit declines in 2013 as the cycle winds down. Even with relatively conservative assumptions around the success of new Sony and potentially Microsoft consoles, the console category should deliver very strong growth of +20 percent to 30 percent in 2014 followed by strong growth again in 2015. And GameStop stores will additionally benefit from increased sales of console digital in our stores. The second topic I want to cover today is a brief update on PowerUp Rewards. PowerUp Rewards continues to grow and recently passed the 23,000,000 member mark. For full year 2012, PowerUp represented roughly 70% of all GameStop U. S. Sales, an increase of 10 points over 2011. The PowerUp continues to attract the heaviest spenders in the category with an average annual spend of $3.66 which is more than 3 times the category average. Our database of member game library continues to grow and we now have an accurate record of over 425,000,000 products across the membership base. We are leveraging this data to drive both current and new businesses in a number of ways. We've recently updated the libraries to include data on new categories. In addition to consoles and games, we have added data on tablets, smartphones, downloadable content and points cards. PowerUp members benefit directly from this rich data with relevant product offers, awareness of new games or new categories and specific trade in values on items that they own. In 2012 PowerUp member spend significantly outperformed the category, the industry and the rest of GameStop. As you know according to NPD, NPD, total physical category sales declined by 22% for full year 2012. In comparison, PowerUp member spend grew plus 4% over the same time period. There are many reasons for this. We have seen considerable success in our ability to drive increased spend and share of wallet among PowerUp members through better communication, targeted offers, unique value and exclusive products and promotions. A good example of this is our marketing go big title launch promotions. We have the ability to communicate directly with our members well in advance of a new title launch, targeting the members most likely to want that specific title, highlighting the gameplay and the GameStop and PowerUp exclusives. This has helped to drive the share gains we have seen on software, which totaled 360 basis points for full year 2012. A second example is the unique value PowerUp provides to our Pro members. The program, as you know, costs $14.99 per year. We found that members were getting far more value than they realized. In fact, the average Pro member realizes over $40 in value per year. This is the actual value realized by the member, not just offers presented. We recently rolled out a program to show each member the value they have personally received and we are seeing a significant increase in renewal rates as a result. Lastly, we are seeing a lot of success in leveraging PowerUp to cost effectively expand into new growth categories such as DLC and re commerce. In 2012, PowerUp represented in the U. S. Nearly 70% of DLC sales and over 60% of re commerce sales. We continue to find more ways in which to leverage PowerUp to drive our strategic growth businesses. I will now turn it back over to Paul. Thank you, Mike. We took some extra time today to walk you through our results and a little bit of our thinking about the future. And as a reminder, the slides that Mike Hogan referenced are available at investor. Game stop.com and you can see those some of those data points there. These are exciting times for us here at GameStop with what seems to be a new announcement in the press almost every week. We have been at this juncture before and we understand the incredible potential of a new console cycle. By all measures, console launches historically improved valuations of most players in the gaming sector and GameStop is the world's largest gaming retailer. Our new businesses are growing nicely and our financial position is strong and allows us flexibility. So while the first half of twenty thirteen will not be easy, our business has a very bright future. And with that, operator, I believe we are now ready for questions. Thank And we'll take our first question from Brian Nagel with Oppenheimer. Hi, good morning. Good morning, Brian. Question I had, you spent a lot of the time in the conference call discussing the new console cycle. And so I guess as you look at the PS4 potentially other machines, I mean, clearly your data suggesting that we're getting early indications of good demand from your customers for this. But what do you think is the most compelling feature for customers right now? Or is it more a function that there hasn't been a console launch for so long that it's just right for 1? Let me start launch for so long that is this right for 1? Let me start us off and then maybe Tony can talk about the features, because we've spent a lot of time with Sony on this going way back into last fall. And I think, Brian, if I look at it, we have held for a while that what was missing in this category has been innovation. There's been a lot of talk about how it was the end of the console era. There would never be another console and that now has become will these consoles be as compelling? What we believe is that there's been a lack of innovation because of the length of the cycle. And we're in a tablet business where we see innovation really rapid fire. And in the phone business, we see a lot of innovation. So to us, the most exciting part of what's coming is the fact that we're reintroducing first see or what our team is seeing in the device that's pretty compelling that we can discuss? Sure. Sure. I think the things that we can discuss are clearly the power that the new consoles have are really driving a whole new wave of developer innovation. And so based on early games that we've seen running on the new platform, the physics are absolutely amazing. I mean, the games are getting to be so realistic and movie like. It's absolutely amazing. Social the tie in of social features is very strong. The ability to share the game, the kill shot that you've just executed and to share that with your friends immediately is amazing. And then the connectivity I think has come a long way. Gaming as you know is incredibly social. I think the new platforms add to that and that connectivity will be easier than it's ever been. And those are definitely the key things. I think that the controller that Sony has rolled out, the proprietary controller, the new controller that they have is very clever. And I think it's very it will make gaming a whole new experience. 2 things. The only other thing Brian I think too we should point out is that it's hard for us to gauge because we don't spend a ton of time with developers. We do speak with them. But what we understand in talking to the Sony executives to Andy House and his team around the world Ryan and Jack Triton. This is a very developer friendly device. We haven't seen how that's going to unfold. But all the feedback from developers is it's a tremendously friendly device to code for and to really create innovation for. So they're really making a big push around making it a developer friendly gaming device. So that's all of that rolled up is a pretty compelling proposition. Got it. That's helpful. Just to follow-up. And so this on the Sony side, this will be the 4th iteration of PlayStation. As you look back over the last decade or more, I mean, do you think this going from 3% to 4% is a bigger step up in innovation than going from 2% to 3%? That's tough to say, right? Rob, you are our Rob is our besides CFO, he is the resident GameStop historian. What do you think? I mean, we're so much more dominant than we used to be in this launch. It's hard to gauge. Yes. I think from a technology perspective, the jump from PS2 to PS3 and the move to 1080p and Blu Ray was significant. But as pointed out, the moves here in terms of the game play and the realness of what you're looking at as well as the social and connectivity features is important as well. Well, thank you. Thanks, Brian. And we will now take our next question from Tony Weisel with Janney. Good morning. Can you guys comment on why you would want to wait till 20 14? I'm sorry, have the new consoles out before commenting on digital for 2014? Is there something in those systems that you'd like to see before laying down some expectations? And then I have a follow-up. Yes. Tony, you want to take that? Sure. I think the key is just we're trying to understand as we work with the publishers exactly how they're going to leverage DLC. And that on the launch like we shared every game that comes out right now has DLC Practically every major game has DLC associated with it. Like Mike shared, we think that there will be an acceleration in the digital sales that we will participate in. The problem is that we just we have one console and we have some knowledge that we can share more knowledge that we can't. We also have knowledge of the second console, but I'd rather that that be out in the public before we discuss our digital goals for 2014. One thing Tony that's happening to us around the world and we DLC was something really unusual for us 2 years ago. It was something really different. Today, it's just part of the package. BioShock on Monday night, you can buy the DLC Season Pass. You can buy the related accessories and replica weapons and you can do it in store or you can do it web in store. I think the thing about digital content and console is it's right in our wheelhouse now. And even in the organization every merchandising team the way we're structured every merchant basically negotiates DLC along with the opening order and the POs around physical games, right Tony? Yes. And I think that's example of what happens when GameStop gets behind a launch, because roughly about 1.5 years ago basically no one was launching DLC at launch. In fact, it was almost taboo in the industry. We came out and really made it a market. And now what you see is on the last in the last 2 weeks, we've launched 2 games that had season passes both for $20 each, BioShock Infinite, Gears 4, Judgment. In both of those, we sold DLC to more than a third of all the people that bought it at midnight and on the day of launch. So not only did we have a massive market share on the physical product, we had a very dominating market share on the DLC. So it's more a matter of just we want to see how the publishers are going to expand their use of DLC and launch and how we market that together with them. But like Paul was saying, I mean, BioShock Infinite is a great example of how we bring all of our assets to play. There was a trade in value towards the game. You could buy things through web and store, like the Skyhook, the BioShock Infinite Skyhook, we'll ship that to you later on. I mean, we have several items that we can now sell. We can sell the entire franchise when people come for a midnight launch when they come pick it up at GameStop. And we think we're very unique in that. And much of that inventory is not going to the store because we're selling it as a web in store item. So we're bullish on what's happening. Just don't have an update yet, Tony. That's really helpful. Last question here is, when the process of a console launch, do you definitively know about the used specifics? In other words, there's a lot of speculation about used blocking, people saying that it will happen, others saying that it won't happen. When do you definitively sit down with Sony or Microsoft and know whether or not there is going to be a feature or not have a feature? Well, it's funny. The people love to speculate on that stuff. 2 things on that. One is, it's clear that consumers have stayed I think Mike Hogan pointed this out. Consumers have a very strong point of view around this. They want portability of their games and they like trade credits etcetera. So that's been clear. That's not a debate. That's obvious. But as far as the Sony product and we really have had lots of discussions with our partners at Microsoft, but I'd rather let them lead the way on their own processes. But as far as Sony goes, we are crafting trade promotions around the PS4 launch as Tony said and he can talk about more of those. Mike in Europe is doing the same thing. So we have a high degree of confidence around the Sony product and its ability to play use. So I would say that we're in the process now Tony of crafting the launch of the product and it includes trade promotions around those devices. Fair anything to add guys? I think there's a clear understanding among the platform holders that their consumers 60% of consumers have serious concerns that there is not transferability in the game. Don't forget that trade credits make video gaming $1,000,000,000 bigger business, because we provide that trade credit back. The other thing that's interesting to us is this consumer electronics trade credits are becoming a massive driver of console software sales as you go into a new cycle. The amount of customers who will bring us electronics to buy a PS4 is going to be a big number. And all of our console partners want a part of that and they see the benefits of that. Got it. Thank you. Thanks, Tony. And we will now go to Anthony Chukumba with BB and T Capital Markets. Good morning. Thanks for taking my question. Wanted to just talk a little bit about the Wii U. I mean, I think it's pretty safe to say that it's been fairly disappointing. And I was just wondering, I'm just sort of contrasting the performance you've seen with your very bullish outlook on the PS4 and Xbox 720. I mean, I guess, what do you think that Nintendo potentially did wrong that makes or are there other factors that just make you a lot more bullish it sounds like on the PS4, Xbox 7 20 than on the Wii U? Thanks. Yes. I think maybe let's start with Mike Hogan. Do you want to give us your thoughts on sort of what the intent to purchase stuff is and then let Tony talk about the Wii U? Sure. Sure. I mean, why do you think that the customers are so strong on that Sony intent to purchase? Yes. I think so I'll talk about the why are people excited about the PS4 and then to turn it over to Tony. We've been doing this research going back more than a year. And I think the thing that first excited us was almost a year ago when we did this for the first time, frankly well in advance of Microsoft or Sony saying anything about a new console, we are seeing really, really strong interest among gamers in general for a new console. And I think to Paul's point what it highlighted was how much technology has changed over the last 6 or 7 years and the appetite for some of that innovation to be translated into a new console. And then I think as the sort of the rumors have become more reality, we've actually seen that grow. And to me the probably the most important thing is not so much how does the PS4 compare to a Wii U, it's how does the PS4 compare it against anything else people can spend their money on. Right. And if you think about a lot of what's happened over the last couple of years, certainly people have bought iPhones, they bought tablets, they bought a lot of other things. So the thing for me the real benchmark is the fact that our power members are saying that they're much, much more likely and more excited about buying a PlayStation 4 even then around getting a new smartphone, a new tablet, a new laptop all the other things they could buy. So I think for a lot of the reasons we mentioned earlier they're seeing whether it's the gameplay, the connectivity or whatever they're very excited and ready for it. And as to the launch of the Wii U, let's go back to what Mike said earlier and I think Rob said it as well. The Wii U actually exceeded our expectations at launch. So I think there's 2 issues here. 1 is what happened at launch. We were actually out of stock early on in the launch period, so we could have sold more Wii U's than what we did sell during the launch period. And so we actually had a very successful launch of the Wii U. However, it has been disappointing over the last since the beginning of the year. And I think that there are two reasons for that. 1, I still think that there is tremendous opportunity gameplay works. I think that the marketing is not broken through to the level that it needs to. And in spite of the efforts of our team to really talk about that and educate consumers about that, I think that we still have an education process we need to go through. More importantly, I think where you're really going to see We Do take off is when there is a strong first party title. That's what we've always seen. And the fact that we really launched without a strong first party title, I think we're seeing the ramifications of that today. So those are two things that we do expect to be remedied later on in this year. But there's no doubt that the launch was strong for us, but it has been disappointing since 1st of the year. And don't forget Nintendo has massive IP. I got a Wii U for Christmas and I played Super Mario for a while and we'll play when we get the next first party titles outside. I think there's lots of opportunity for that platform still. Okay. That's helpful. Thank you. Thanks, Anthony. And we will now go to Colin Sebastian with Robert Baird and Company. Good morning. Thanks for taking my question. I just want to go back quickly to the used game on the next gen consoles. And from what we understand both platforms will allow used, but I do have a couple of specifics on that. I guess first off wondering what impact will the lack of backward compatibility on the PS4 have on the used business? And then charge consumers a fee to access on a used game, the multiplayer or other online services, wondering what impact that might have on the used business? Thanks. Maybe we start with the second one, Tony, on we've had online passes and we merchandise that. And it's part of our business model and we figured out a way to make it work. Do you want to comment on how that would work? Sure. I think like Paul said, we have seen that. It does introduce friction into the process. And I think what consumers have told us is that they want to have a frictionless environment. Sony has been very clear that what they want to do is produce a friction free environment and be very gamer centric. So I think in terms of an online path, if that happens that's definitely something that we can accommodate. Our digital the way that we deliver digital codes today will accommodate that very easily. So we'll have a minimal impact on our business. In terms of how we service the customer, we are concerned that the same 60% of customers who are concerned about purchasing a console that would block or hinder or provide friction to the used game process That same percentage would also be concerned if any friction like that was introduced into games. And I'll let Mike answer the first question. Sure. So as far as backwards compatibility, there's certainly arguments on both sides, right? There's one argument that says, if it's not backwards compatible, everyone will trade in everything and move quicker. There's another one that says people might hold on to their old system longer. So I think we see upside frankly either way. I think the things we would talk about though are the way we want to take advantage of the situation is through trade promotions. And the opportunity to bring in their current system in a number of games, you could easily offset the entire cost of your new system. So I think Tony and Paul both mentioned earlier that we're working with Sony on some aggressive promotions. And I think what we want to be able to do is make it affordable as possible for people to get a new platform. The other thing I'd say that's an interesting thing that's more of an industry thing than a game something is the lack of bad work compatibility essentially removes the switching cost of moving from one platform to another. So someone who is on another platform that wants to move to a PlayStation 4, if the platforms don't have for backward compatibility, your switching cost is essentially 0. And that could actually accelerate the adoption of that, particularly given how high the appeal of PlayStation 4 is. Right. All right. Thanks. But I guess maybe more specifically, do these types of things with use do they potentially dilute the value of the used game either on a retail basis or with a trade in? In? I guess the important point to think of there is that even under the most optimistic scenario, the percentage of consoles in the market next year that are going to be the market next year that are going to be the next generation is still a very, very small piece of the total. I mean, by way of comparison, I guess the best answer I can give you there is we still have a pretty vibrant pre owned business in PlayStation 2 and that's I don't know how many years we're seeing after. But certainly Colin anything that introduces friction as Tony said devalues the trade value. And we are a significant market maker. That's the other thing that's frequently missed. We are a significant market maker in this business and we manage a very detailed pricing model and we price in value. So anything that takes value away from consumers is not going to be good for the new sales either. Right. And Collyn to that point, I would say it doesn't devalue the used as much as it may devalue the new. People see friction and they say, hey, I'm not sure that I can get the trade value that I thought I was going to get from GameStop. I actually think it might be harder to sell the new game. All right. Fair point. Thanks a lot. Thanks. And we will now take our next question from Arvind Patil with Stern AG. Thank you very much. I wanted to ask a question on the re commerce business that you're growing rapidly. Can you provide some color on kind of the long term goals there? You're expanding space that you're providing. I think Tony you mentioned another 400 stores with the expanded space and getting I think a 5% lift. Where do you see that in 3 to 4 years? How much of the store how many stores could have this? And what percentage of the store could have this in it? And just some long term goals behind this? Let me start us off and Tony can talk about and then I'd like Mike Mahler to talk about how well penetrated internationally we have done this on re commerce. I don't think we're ready to talk about 3 to 4 years out. We have an internal debate though, which is how many stores do we expand in? And Tony will tell you about that. How do we fixture? And frankly, as this re commerce business grows, because as I think Rob and Mike Hogan pointed out or Tony, it is a very large market for refurbished re commerce of electronics. So you may have an idea of a new concept store. I mean, we have acquired By Mitronics. You may have seen here in Dallas we're doing some experimentation with a little store concept we call Buy Mitronics which is a buy sell trade electronics store. So I think those are debates that we've not settled yet. And so we need time to figure that out. We certainly have pretty good visibility to the growth. Tony, you want to talk about what we're doing this year and next? And then maybe Mike can talk about international. Sure. This year and next, we're going to continue to expand. I feel like we have a we have our first wave of merchandising that we're using today in all of our stores. And then we have the 3 44 stores that I talked about that have 11 hold are going to continue to remerchandise the rest of our stores and continue to evolve that. But 100% of our stores today are involved in re commerce and we're constantly looking at the return on investment that we get for expanding that space within our stores. So as that business continues to grow, which we see it continue to grow for several years, definitely for the next year, it will be another fast growth year for us. We will continue to look at the wall space that we give to it and we will continue to expand it as it continues to expand as part of our business. I'll let Mike share with you what we're doing internationally. Sure. Internationally, we rolled out re commerce about 6 months after the U. S. Started their test last spring. And at this point starting last spring, we started taking trades really in every store globally. And as we build inventory, we are rolling out the sale of iDevices as well. So we currently have about 20 percent of our chain internationally that are selling used tablets and smartphones and that's growing rapidly. I will also add that the sale of new mobile, we're seeing that really does have an impact on the trades of smartphones and tablets. And so we currently as Tony had mentioned, we have about 1,000 stores right now internationally where we carved out space to be able to sell new tablets and smartphones. And we're taking more trades in those stores, which will accelerate the iDevice sales and we'll be expanding that as well as Tony mentioned the U. S. Is doing. The other thing I'd like to mention is we're also expanding the accessories to go along with it. For instance, we now offer Net10, a prepaid phone plan through all of our stores in the U. S. And so that clearly makes us a very, very strong alternative for a value buyer. We Arvind, we gave you a target I think last year of $500,000,000 $550,000,000 $550,000,000 to $600,000,000 20 14. We still like that target. Not ready to update it, but we owe you some guidance there. But I would say watch this space closely. There's a lot of people in it. We have jumped in and become the £800 gorilla very quickly and a lot of it has to do with PowerUp Rewards and our various loyalty programs. A lot of it has to do with our in store service model is really superior to what the online marketplaces and some of the big boxes can do. So we're very bullish on the category. One last one on full game downloads. I remember at your Analyst Day a few years ago, we had the demo on how much time it takes for a full game to unload. I'm just wondering how you think about this in the coming generation? Well, I don't think it's gotten that much easier. Games are getting bigger. Broadband assumptions have changed some, but I don't think our point of view is very different, Arvind, from what it was except that we're selling PC downloads in our stores and we also to be bigger and more complex as well and that provides some headwind to that. But we're not in the business Arvind as you know because you know us well. We're not in the business of saying that no one will ever buy a download because we know people do, we do, our employees do. We're just saying that it's not a very large business yet. And we're in the download business. And as it grows, we will participate in it. But it hasn't gotten a lot easier. Great. Very helpful. Thank you. Thank you, Arvind. We have time for 2 more questions. We will take our next question from Bill Armstrong with C. L. King and Associates. Good morning. So if we look at your total profit potential from any given AAA title as we move into the next generation, you're getting profit opportunities from new, you're getting profit opportunities when it gets traded in and you resell it from DLC and from your higher market share. So it would seem that a AAA game early in the next console cycle compared to maybe an earlier iteration of that title at the same point in the previous cycle, it would seem that there would be a lot more profit opportunity from that title as a whole for GameStop this time around than previously. Tell me if I'm on the right track with that and if there are any offsets to that and then if there's any way to attach a to quantify that? Yes. Bill, we're going to let Rob take that because I'm getting a little nervous. He hasn't had to work very hard today. That's unusual Rob. Why don't you talk about that? Okay. Yes. We see great profit opportunity off of the games that are coming out now and will be coming out in the future. And it starts with the sale of physical game, the customer lining up at midnight, the kinds of things that we see that the customer is interested in buying when they're at the midnight launch. Tony and Paul talked about a couple of things that were available with BioShock just this week and some of the ancillary products that we've got. We also have DLC, which is improving the profit potential not only for GameStop, but for the publishers as well. And then of course there's the pre owned business. And we've talked about Sony and the PS4. We see that we'll continue to have a vibrant pre owned business for a long time with respect to today's generation of consoles as well as the new ones that are coming. Mike Hogan talked about the fact that we're I think 13 years in nearly on the PS2 and it still sells well in many of our stores. So we see great profit potential in this business. And I'll remind you that we built other businesses as well in store that bring us additional profit potential. Bill, I know you're a BioShock fan. I just want you to know our friend to take 2, you can buy web in store a CD with all the music from BioShock. So we've got opportunities for you there. Okay. Great. And then a quick follow-up. On a GAAP basis, what were your digital revenues and gross profit in Q4? Give me just a second on that. So while you're thinking about that also I would say that with the increased traffic that comes with the new games, now we have all kinds of additional offerings like all of our re commerce. So as that traffic comes into our store, we're actually monetize the customer in many different ways as well. These titles become lifestyle kind of titles. If you've been waiting a year for BioShock or Batman or Call of Duty or Battlefield which is coming up, you want everything that is available for that title. I mean, I'm still playing Far Cry 3 right? And somebody's got to do an intervention, but I would buy everything you could give me on it. I'd wear a costume if they had one, right? So Mike Smith? Yes. I was going to add to that. We actually have a word for this. We call it franchise marketing. And so within PowerUp, we actually track this by every person. So we know, for example, within a franchise or a title, how many units you're purchasing. And we if you think about these across the time line, when you find out about the new game months in advance of it, we can introduce you for example to pre owned copies of prior versions of the game that you may not have played. As you get closer, there's all the added add on items we have. Paul mentioned the music CD. There's lots of figures and other kinds of items. You can purchase the game. We know the right time to market to you the DLC, if you purchased it at launch or we can introduce you to it later. We figure out the right time for you to turn in the game. We track your digital purchases as well. So one of our internal goals is to track that and increase essentially units member within a franchise. And we're doing that worldwide. That's great. Rob, do you have the answer to the Yeah. The GAAP digital revenues in Q4 were 83,000,000 $232,000,000 for the full year. $232,000,000 okay. And do you have the gross profit numbers by any chance? $49,000,000 in the 4th quarter $134,000,000 for the year. Great. Thank you very much. Thanks, Phil. And we will take our last question from David Magee with SunTrust. Yeah. Hi, guys. Thanks for all the information. My question really has to do with congregate. I'm curious how fast it's growing relative to the market out there where there's gaining share and whether there's a profit picture developing there and just sort of positioning against your other initiatives, how excited are you about that business right now? Well, we see it this is Tony. I'll let Mike answer that report's up through him. But we see it as a very strong growth vehicle. In fact, we see it as really the largest site for games for the core gamer in their genre. So when you think about the growth that they've experienced, especially they've changed their business model to a free to play model, we're seeing over 100% growth. I think that's doing very, very well far outpacing the category. Mike, do you want to add anything to that? Yeah. Agreeing with Tony, I think we saw very strong growth from Concrete last year. It's planned for similar levels of growth year. I think the other thing to mention is that the browser business is growing very well and part of the reason it's growing well is because they're doing a great job of finding the right games and really monetizing the in game purchases and we expect that business to grow. The other thing that's important to mention about congregate is back in I think it was early February we had the announcement about the game development fund for mobile gaming. So, Kongregate is not only player in browser gaming, but they're also going to be becoming a significant player in mobile gaming. And we had that $10,000,000 development fund. We've gotten an overwhelming response from mobile game publishers. They'll be introducing the first couple launching the first couple of games pretty soon. And we think that the power of GameStop, the power of rewards stores etcetera behind the congregate there is really going to generate a lot of growth. So we see an expansion in the categories Congregate is going to be in and probably strong growth in each of them. One cultural point on this David, it's GameStop has a history of acquisitions and entrepreneurial acquisitions. It's very important that Jim and Emily Greer run Kongregate where we can support them here. On GameStop, we will. But that's very much an entrepreneurial game platform based in San Francisco. Mike Hogan supports them as needed, but they are definitely running that show with a lot of success. How does the profit picture look for that? What have we disclosed? We haven't disclosed anything on that. But in game currency is the largest part of their profit picture and it's growing very nicely. So I don't think we've broken it out of the segment yet. But it's not it's we're very happy with our performance at Congregate. Thank you. With that, I think we will wrap up the call. Thanks very much for your support at GameStop and we look forward to speaking with all of you and perhaps seeing you at E3. Thanks very much. Ladies and gentlemen, this concludes today's conference. We thank