美商藝電 (EA) 2009 Q1 法說會逐字稿

Good day, everyone.

Welcome to the Electronic Arts first quarter fiscal year 2009 earnings conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like it turn the call over to Miss Tricia Gugler, Senior Director of Investor Relations.

Please go ahead.

Welcome to our first quarter fiscal 2009 earnings call.

Today on the call we have John Riccitiello, our Chief Executive Officer, Eric Brown our Chief Financial Officer, John Pleasants our Chief Operating Officer, and Peter Moore our President of EA Sports.

Before we begin I would like to remind you that you may find a copies of our SEC filings, our earnings release, and a replay of this webcast on our website at investor.EA.com.

Shortly after the call, we will post a copy of our prepared marks on our website.

Throughout this call, we will present both GAAP and non-GAAP financial measures.

Non-GAAP measures exclude the following items; amortization of intangibles, stock base compensation, acquired in process technology, restructuring charges, certain litigation expenses, losses on strategic investments, and the impact of the change in deferred net revenue related to certain packaged goods and digital contents.

In addition starting with its fiscal 2009 results, the company began to apply a fixed long-term projected tax rate of 28%, to determine its non-GAAP results.

Prior to fiscal 2009, the company's non-GAAP financial results were determined by excluding the specific income tax effects associated with non-GAAP items.

And the impact of certain one time income tax adjustments.

Our earnings release provides a reconciliation of our GAAP to non-GAAP measures.

These non-GAAP measures are not intended to be considered; an isolation from, a substitute for, or superior to our GAAP results, and we encourage investors to consider all measures before making investment decision.

All comparisons made in the course of this call, are against the same period for the prior year, unless otherwise stated.

This quarter we've expanded the supplemental information on our website.

In addition to the details GAAP to non-GAAP reconciliation, and our trailing 12 month segment shares, we've also added our SKU count, and a summary of our financial guidance.

During the course of this call, we may make forward-looking statements regarding future events in the financial future performance of the company.

We caution you that actual events and results may differ materially.

We refer you to our most recent Form 10-K for a discussion of risk factors that could cause our actual results to differ materially from those discussed today.

We make these statements as of July 29, 2008 and disclaim any duty to update them.

Now I would like to turn the call over to John.

Thanks, Tricia.

Briefly on our agenda for today.

I will start with an update on the quarter and the year.

Eric when then discuss our Q1 results, and provide our detailed guidance for FY '09.

Peter Moore will update you on our sports business, and then I will wrap up with a few closing thoughts.

After that Eric, Peter, John, and I will be happy to take your questions.

Let me start with the quarter.

We beat our expectations on the bottom line, and came in slightly below on the top line.

Top line results were driven by Battlefield Bad Company and UEFA Euro 2008, and continued strong sales of Rock Band offset by weaker than expected catalog sales.

Our bottom line performance reflected expenses coming in below plan.

Other key metrics we follow, from on time delivery, to product quality were strong.

Overall we had a very solid quarter.

Eric will cover this in more detail, however at this point we feel good about the year, and are maintaining our top and bottom line non-GAAP guidance for fiscal '09.

There are four areas that will determine the shape of our fiscal '09 year, and that are critical for us to deliver on for our plan.

EA Sports, our FY '09 slate, our Nintendo products, and our digital direct to consumer businesses.

Let me talk about each of these four areas.

First, EA sports.

The early indicators for EA Sports business are mixed, with two positive and one negative.

Peter will get into this in more detail, but I will touch on these indicators briefly.

The first indicator is quality, and that's up.

Quality on NASCAR and NCAA, is up reflected by stronger Metacritic scores.

We expect this trend to continue as we launch the rest of sports full slate, especially with Madden which is looking particularly strong.

Frankly I'm pleased with the level of quality and innovation on our EA Sports title across the board.

Special thanks to go to our Tiburon studio for stepping up the innovation on our '09 football titles.

Second key indicator is preorders, and they have been down both on NCAA and Madden.

Preorders are not a hard metric of performance, but they are one external measure we follow very carefully.

The third and very important indicator is sales.

On NCAA sell through is consistent with last year.

Although still early, this suggests that preorders are not the whole story.

Consumers seem to be responding to a better and more innovative game.

This year even though preorders are down on our football titles, it feels like we have the quality to deliver.

Now let me talk about the rest of our FY'09 ' slate.

It's strong.

Some of you had a chance to see and play many of our games at E3 a few weeks ago.

I feel more bullish about the innovation and quality of our slate than I did three months ago.

Let me hit on a few recent launches.

Battlefield Bad Company from DICE, has exceeded our sales expectations, and had a strong average Metacritic rating of 84.

Boom Blox from EA Casual continues to sell well, and is judged by many, to be one of the best Wii titles so far this year.

SPORE Creature Creator from Maxis, is incredibly innovative, addictive, and fun.

Today, 2.5 million trialed and paid versions are in the hands of users, and this gives us confidence in the prospects for SPORE.

We are off to a great start this year and will only get better from here.

For the same of brevity, let's me talk about a few games that I'm excited about, and which will help drive our sales growth in fiscal '09.

Dead Space and Mirror's Edge two entirely new IPs that showed well at E3.

"Harry Potter and the Half-Blood Prince," this year our Harry Potter game shifts day in date with the movie, in the peak holiday season.

From the Sims label we are launching the Sims 3 Q4.

Our entire lineup represents a significant step up in innovation and quality from a year ago.

While we are still waiting for the details of the critic awards, and their final decisions, we are pleased with several outlets including nominated for SPORE, Dragon Age, Mirror's Edge, Warhammer, Dead Space, and NBA Live for top honors.

And that the early nominations which were received earlier today from the critics awards, suggests that we've been nominated for over 21 awards this year.

That's a record for Electronics Arts, and number one in the industry.

Realistically critics don't pay our bills but others are recognizing the uptick in quality at ES.

Frankly, I'm very proud of the many games we've shipped and I'm even more excited about the line up that's coming.

I think we were in very good shape here.

Third, our progress on the Nintendo platforms.

We have over 40 SKUs slated to ship in the year, up from 26 last year.

It's not just about quantity.

It's about quality, and this year we have both.

Most of our slate is specifically designed for these platforms.

We believe this will pay off in greater sales and share.

We shipped two key retitles in the quarter, and are doing quite well.

Rock Band was the top selling re-titling game in North America, and Boom Blox is chartered at number ten.

We have much to come.

Let me focus on two important entries, Skate It, a new take on our successful skate franchise, but this time designed ground up for the Wii and NDS.

Wii version will take advantage of the Wii fit board.

In My Sims, introduced last year selling over 2.5 million copies on the Nintendo platform.

This year we're back with My Sims Kingdom and My Sims Party with both the Wii and NDS.

These entries and others promise to make FY '09 a good year for EA on the Nintendo platforms.

Finally, I want to touch on our digital direct to consumer businesses.

This is a strategic initiative for Electronic Arts.

During the quarter we generated 90 million in digital direct to consumer sales, up 21% year-over-year.

Let me hit on a few highlights.

POGO continues to grow with subscriptions in micro transactions driving the business.

On Mobile, our business is back on track delivering growth of 33% year-over-year.

Mid session games, we launched FIFA Online 2 in Korea last fall, and sales continue to expand, both direct to consumer and in game rooms.

Today NBA Street On-line has gone to open beta in Korea, and we are looking forward to expanding the game to other Asian markets.

We are also planning to launch Battlefield Heroes globally this fiscal year.

Warhammer Online.

EA is getting back into the MMO space in a meaningful way, with one of the most anticipated on-line titles in the industry, from our (inaudible) studios.

And recently we gave you an early look at key aspects of our on-line strategy, including our nucleus registration system, and the community features we are building across our games.

We just [built] the Sims store, which is off to a great start.

We look forward to updating you on our plan in the months ahead.

Net, we delivered a solid Q1, and feel good about the balance of the year.

The industry is robust and we have a competitive slate.

On balance we were tracking on each of the core drivers, and we need to for us to deliver on our FY '09 plan.

From EA Sports, to our non-sports slate, from Nintendo titles to our digital direct to consumer initiatives we look forward to updating you on our progress.

Now I would like to pass the call over to Eric.

Thank you, John.

Good afternoon everyone.

During the quarter several titles stood out.

Battlefield Bad Company sold 1.6 million copies.

Exceeding our expectations, with only one week of sales it wasp top five title in the month of June, in both North America and Europe on the PS3 and Xbox 360.

UEFA Euro 2008 sold 1 million copies, charting in the top ten in Europe on the Xbox 360, PS3, PS2, and PSP during the quarter.

NASCAR '09 sold nearly 500,000 copies.

Boom Blox sold 450,000 copies, meeting our expectations.

In North America it charted at number seven on the Wii in May, and number ten in June.

And finally, Rock Band continued to gain momentum.

During the quarter, Rock Band sold over 800,000 copies.

Rock Band debuted on the Wii in June, and was number one title on this platform.

Now I would like to spend time discussing Q1 in more detail.

Please note that all the following references to first quarter results are non-GAAP, unless otherwise stated.

Non-GAAP revenue is $609 million.

As expected, our Q1 revenues primarily driven by the launches of Battlefield Bad Company, UEFA Euro '08, and the continued sales of Rock Band.

Relative to internal expectations, non-GAAP revenue came in slightly lower than expected, due to lower catalog sales which were partially offset by higher front line revenue.

On non-GAAP EPS we came in above our expectations as result of a shift of expenses to later in the year, and some cost savings.

By geography, North America non-GAAP revenue is $340 million, up $169 million or 99% primarily due to growth and distribution in console revenue.

International non-GAAP revenue was $269 million, up $9 million or 3%.

Excluding a $26 million positive impact from foreign exchange versus last year, international non-GAAP revenue would have decreased 7%.

Revenue is driven by Euro UEFA 2008, Battlefield Bad Company and Rock Band.

Partially offsetting the strength of Harry Potter last year.

Moving to the rest of the income statement, GAAP gross profit in the quarter was $508 million, up 122% primarily due to the benefit from the deferred revenue rollout, and greater overall net revenue.

GAAP gross margin was 63.2% versus 58%, up 5.2 points.

Non-GAAP gross profit was $317 million, up 17% year-over-year.

Non-GAAP gross margin was 52.1% versus 63.1%, down 11 points due to a higher mix of co-publishing and distribution revenue.

Operating expenses.

Before getting into the details, let me remind you that this year we are reporting our bonus expense in a straight line fashion, instead of recognizing the expense in proportion to quarterly profitability, as we have in the past.

This impacts the quarterly phasing over bonus expense, as we said on our last call, this change will negatively impact Q1, Q2, and Q4 '09, and have corresponding favorable impact on expenses in Q3.

During the quarter, this results in $26 million overall increase to operating expenses year-over-year.

Marketing and sales.

Non-GAAP marketing and sales expense was $123 million, up $45 million primarily due to increased advertising to support our Q1 releases, and higher personnel related costs, including the bonus phasing.

During the quarter we released seven titles, versus three titles last year.

Non-GAAP G&A was $74 million, up $11 million.

The increase was driven by higher personnel related costs, including the bonus phasing.

And research and development.

Non-GAAP R&D was $322 million, up $88 million.

Of the $88 million, $35 million is related to the acquisition of EGH and $18 million is related to bonus phasing.

R&D head count ended the quarter at roughly 7,200 up approximately 1,100 from a year ago.

Excluding the impact of acquisitions head count was up 5% year-over-year.

Restructuring.

During the quarter, we recorded $20 million in restructuring expense, primarily related to additional impairment on our [Churzey] facility that was restructured under our previously announced reorganization plan.

Below the operating income line, non-GAAP other income expense was $15 million, down $12 million from a year ago, due to a decline in interest income.

Income taxes.

On a GAAP basis we incurred $7 million of tax expense, including $25 million of tax charges associated with the integration of EGH.

On a non-GAAP basis we recorded taxes at 28%.

GAAP diluted loss per share was $0.30, versus diluted loss per share of $0.42 a year ago.

Non-GAAP diluted loss per share was $0.42 versus diluted loss per share of $0.22 a year ago.

Our trailing 12 month operating cash flow was $239 million, versus $243 million for the prior period.

Capital expenditure for the quarter was $31 million, versus $14 million a year ago.

Turning to the balance sheet.

Cash and short-term investments were $1.95 billion at quarter end, down $340 million from last quarter, due to cash used in operations, and the acquisition of Hands On Mobile and ThreeSF.

Marketable equity securities and other investments were $752 million, roughly consistent with the balance at year end.

At quarter end, we had a net unrealized gain of $505 million comprised of a $516 million gain on [ubesoft] in The9, and an $11 million loss on Neowiz.

Gross accounts receivable were $455 million versus $299 million a year ago, an increase of 52% primarily due to the growth in revenue, and the timing of our release schedule.

Reserves against outstanding receivables totaled $186 million up $10 million from a year ago, reserve levels were 12% of trailing six month non-GAAP revenue, down 5 points.

As a percentage of trailing nine month non-GAAP revenue, reserves were 6%, down two points.

Inventory was $223 million.

Up $55 million sequentially, primarily due to Rock Band inventory.

Ending deferred net revenue from packaged goods, and digital content was $192 million, down $195 million sequentially, primarily due to the rollout of deferred net revenue recognized in Q1.

Now to our outlook.

And let's start with the industry.

Calendar year to date, software sales are up 38% in North America.

And we estimate up 28% in Europe.

Even though we are coming up against harder comparables, we are feeling more bullish about the industry.

We now expect software sales to grow 20% or more this year combined, for North America and Europe.

Up from our previous expectations of 15% to 20%.

Now our guidance.

Let's start with GAAP.

For the full year we expect GAAP revenue to be between $4.9 billion and $5.15 billion.

GAAP EPS to be between $0.21 and $0.48.

We have lowered the range by approximately $0.04, primarily due to additional impairment on our [Churzey] facility.

GAAP gross margin to be between 55% and 58%.

And diluted share count to be approximately 331 million shares.

We expect to end the year with roughly $500 million in deferred net revenue, related to on-line enabled packaged goods.

Now, our non-GAAP guidance.

For the full year we are confirming our guidance.

We expect non-GAAP revenue to be between $5.0 billion and $5.3 billion.

Non-GAAP EPS to be between $1.30 and $1.70 per share.

Non-GAAP gross margin to be between 57% and 59%.

And we continue to expect our gross margins will be in the low 60s for the second part of the year.

And diluted share count to be approximately 331 million shares.

Please see our press release for the difference between our expected GAAP and non-GAAP guidance.

Let me provide additional detail on our guidance.

On non-GAAP revenue we now expect Tiberium to ship in FY'10.

In digital direct to consumer, we continue to expect generate over $450 million in non-GAAP revenue up 35% versus fiscal '08.

In on-line, we estimate our on-line non-GAAP revenue will be in excess of $285million up approximately 50% year-over-year.

In EA Mobile we expect our wireless non-GAAP revenue will be in excess of $185 million, up approximately 20% year-over-year.

On non-GAAP expenses, R&D, consistent with our original guidance we expect non-GAAP R&D will increase roughly 30% year-over-year, confirming what we said on our last call.

$120 million of the increase is driven by our acquisition of the BioWare and Pandemic studios, which includes developing an MMO that will launch in a future year.

Keep in mind, although we are incurring 12 months of expense for this acquisition, the bulk of the revenue will be recorded in the back half of the year, given the timing of their release schedule.

$40 million of the increased relates to our R&D expenses in Hasbro games.

Even with these costs we expect the profit margins on our Casual label to increase year-over-year.

Excluding the foreign exchange impact on expenses and the assumption of funding bonus at 100%, R&D in the rest of the business will be up about 10% year-over-year related, to new IP investments and our on-line and Mobile initiatives.

In on-line addition to investing in communities and features that cut across all of our games, we are also supporting a second new MMO, Warhammer launching later this year.

We expect sales and marketing to be down one point as a percentage of revenue versus last year, and we expect G&A to be down 1 to 1.5 points as a percentage of revenue, versus last year.

On non-GAAP operating margins we continue to expect non-GAAP operating margin of 12% to 14% for FY '09, for an increase of four to six points from fiscal '08.

Below the operating income line we continue to expect non-GAAP other income and expense will be roughly $50 million this year, down significantly as a result of a steep decline in interest rates.

In income taxes for FY '09 we expect a GAAP tax rate range of 40% to 55%, which includes the tax charges associated with the integration of EGH.

Excluding EGH tax charges, our gap tax rate range is 27% to 32%.

Our rate will fluctuate from quarter to quarter.

For non-GAAP, we expect our rate for FY '09 to 28%.

You can also use this 28% rate to model the quarters, including last quarters.

Finally, two things you need to keep in mind for fiscal Q2.

First, we project a non-GAAP loss of the quarter, and second on bonus phasing, we expect to incur $35 million to $40 million in bonus expense, versus none in the prior year, due to the straight line recognition of bonus expense which began this year.

Now our Q2 releases.

Expect to ship 13 titles and 36 SKUs in Q2, versus 13 titles and 45 SKUs a year ago.

To date, we have already shipped NCAA '09 on five platforms.

We also expect to ship the following.

Madden NFL '09 on seven platforms.

Madden NFL Collector's Edition on the Xbox 360 and PS3.

Madden NFL '09 in Spanish on the Xbox 306 and PS3.

NFL Head Coach on XBox 360 and PS3.

SPORE on the PC and NDS.

Tiger PGA Tour '09 on five platforms.

FaceBreaker on XBox 360 and PS3.

Mercenaries 2 on four platforms.

NHL '09 on the XBox 360 and PS3, Sim City Creator for the Wii and NDS.

Sims 2 Apartment Life expansion pack for the PC.

Sims 2 Apartment Pets for the NDS.

Brain Quest on the NDS.

From EA Partners we expect to ship Crisis War Head expansion pack.

Rock Band expansion pack.

Rock Band 2 in North America on the Xbox 360.

Rock Band on the PS3 in Europe.

And for EA Mobile we launched three games for the iPhone.

Tetris, Scrabble, and Sudoku, and expect to launch an additional eight games in the quarter.

On wireless devices, we also plan to release eight games, including SPORE, Life, and Madden.

Please note FIFA '09 is shipping in Q3, globally this year.

Last year it shipped in Europe in Q2.

That concludes our guidance and outlook commentary.

I would like to now turn the call over to Peter Moore, President of our EA Sports label.

Thanks Eric and a good afternoon to everyone.

At EA Sports our strategy remains the same, as we outlined in the February analyst day.

We working along two paths to accelerate profitable growth.

First, improve the innovation and quality in our core franchises, with a special focus on the Wii.

Second, make our business more digital and direct to consumer, with new business models.

So where are we today?

We are pleased with the quality and innovation in our sports titles this year.

For example, NCAA received an average Metacritic rating of 83 on the Xbox 360 and PS3.

Up five points from the PS3 from last year, and up two points on the XBox 360.

The early reviews on Madden NFL '09 are strong, and I'm confident that we will beat last year's Metacritic rating.

In NBA Live, dynamic DNA is one of the most innovative features we've added to the franchise in years.

We think it will resonate with consumers, and help set our game apart from the competition.

FIFA '09, Tiger PGA Tour '09, and NHL '09 also look great.

We are also pushing on wholly owned IP and the Nintendo platforms with FaceBreaker, our first new wholly owned game since 2002.

Our all play rebrand targeted against the Nintendo audience, and another yet to be announced title we expect to ship later in the year.

We expect the quality and innovation in our games to take a leap forward this year and I couldn't be more proud of our creative teams.

Now as John indicated one area we are spending time understanding is the preorder activity on NCAA and Madden.

On NCAA Football, preorders were down 20% year-over-year.

However, sell through for the first two weeks are consistent with the last year.

Preorders of Madden are also down, although the number of preorders have risen sharply in the last week.

Gamers are smart, and we believe the higher quality will translate into long-term equity for the franchise.

We can't be 100% sure, but we are hopeful for Madden, like with NCAA, quality will prove the more relevant indicator of sales.

Net, the key indicators to date are mixed and are difficult to interpret.

This year we conservatively planned our core franchises, NCAA, Madden, Tiger, FIFA, NBA, and NHL.

Expecting total units to be roughly flat year-over-year.

We expect a single digit revenue increase for our core sports franchises given higher ESPs on current generation platforms.

We aren't changing our forecast today, but we are watching it carefully.

If quality and innovation don't trump preorders, than we have some exposure which is currently reflected in our guidance range.

And finally, we have been making strides to drive our business digital direct to consumer.

In a digital world, we think we can augment our retail packaged business with profitable direct to consumer revenue streams, that expand the whole category .

Our mid session games, we expect to expand our portfolio beyond FIFA Online 2 and beyond Korea.

This year we plan to expands FIFA as to Thailand, Vietnam, Singapore, Taiwan, and China.

And we expect to commercialize NBA Street in Asia, later this year.

As many of you probably noticed, this year we cut back on our PC sports games, but only for a year.

We were retooling these titles to take advantage of the on-line connectivity in a bigger and more meaningful way.

Stay tuned for more on this.

And finally we were working on subscription programs that will provide our large base of the EA sports consumers, with greater value for their loyalty.

To sum it up, we are making good progress on the call, starting with game innovation and quality.

We were going after wholly owned properties and the Nintendo opportunity in a bigger way, and creating new direct to consumer revenue streams to augment our great packaged goods business.

Now I would like turn it back

Before we take your questions I want to emphasize a few quick thoughts.

2008 is another strong year for the interactive entertainment industry.

We have previously expected to see a growth range of 15% to 20%, and now feel confident in raise our expectations to 20% or more.

EA set strong goals for FY '09, targeting non-GAAP revenue growth for over $1 billion, and doubling of our non-GAAP operating profit, showing the start of the operating leverage a great [company] can deliver.

On a non-GAAP basis we reconfirm the year, top and bottom line.

And we got our eye on FY '11 and we are taking the steps now to drive both our core business and increase our digital direct to consumer revenue, to meet the FY '11 targets we set in February of this year.

With that, we will be happy to take your questions.

Thank you.

(OPERATOR INSTRUCTIONS).

And we will take our first question from Arvind Bhatia, with Sterne, Agee.

Good afternoon.

The first question is on the catalog side of the business.

You indicated it was weak than expected.

Can you tell us what it represented this quarter, and what your expectation is for the year?

And my second question is, what is your pieces and why this sports business at this point, the preorders at least on Madden appear to be a little bit tough?

Sure.

This is John Pleasants.

I will start off and will pass it to Peter here as it relates to the Madden question.

On our catalog, I think John and Eric both mentioned that we had stronger front line sales.

And slightly down catalog sales, and obviously those two things offset each other a bit.

Again, we were talking about very small differences in the two, so these are really not big differences.

And the only thing we can say is that, we have seen a little softness in catalog overall for the industry because we had such a strong quarter with both our line up, our strong front line as well as competitive front line with GGA, Mario Kart, Wii Fit and then Gears.

Something we were keeping our eye on, but kind of marginal differences.

Great question.

We are watching this very closely.

I think in a world where we now do a lot of street datings, we build events around our launches, consumers are feeling less pressed to actually place preorders.

You may know we never done anything in the example of Madden, to actually spur preorders during events.

We have been doing launches recently with Game Stop, which I'm sure you have seen with ads in Sports Illustrated, and other consumer magazines.

But I think NCAA has taught us a couple lessons.

A, that preorders aren't the key indicator that they may have been in the past, and secondly they shouldn't be seen as indicator for sales for the first couple of weeks.

We were down over 20% in preorders, and yet here we were in week two, entering into our third week, and we were actually flat year to year.

Some people watching, and I think we will have a better idea once we see where we see the Madden numbers lie in the next few weeks.

Peter, what about the Special Edition, what do you think that will represent as percentage of that category?

It's a good question.

We are not quite ready to talk about the percentage yet.

I will have some better ideas after it ships.

I think it's one of those where people will see it in-store, and be tempted to actually sell up if you will.

When they see it, versus the regular version.

Early days yet, certainly have some information for you in the next four or five weeks on that.

Final question, is on the second quarter rough guidance you guys provided on the loss for the quarter, is that an operating loss, or is that a net income loss you are expecting?

Hello, this is Eric, it's specifically a non-GAAP EPS loss.

And to give you the specific number for your catalog question, it was 26% in the current quarter versus 46% in quarter year ago, and 36% in the last Q4 FY '08.

Next question, please, operator.

We will move on to Brent Thill with Citi.

Thanks.

There have been a lot of questions around your fiscal year '09 guidance.

And if you get to the midpoint, you are assuming a high 20% year-over-year growth rate.

Can you walk through how much wiggle room you've baked in to certain things, such as provided evidence around sports franchises?

It seems like it's gotten off to a slower start, than most would have hoped.

Can you walk through the second half of the year, and as it relates to how much wiggle room there is to this?

Specifically in regards to sports, the data we have in hand on NCAA is that sales are consistent with the year-over-year.

So that's the data point that we do have here.

In terms of the overall guidance, what we have done is, we have collected all the information we had for certain titles that might slip out of the air.

We announced one.

We are also factoring in operating expense control.

We realized and seen some of that in Q1 already, and so we think it represents a fair and balanced view of our latest expectations for FY '09.

This is John, just a little bit of color.

The original plan for EA Sports was essentially flat units in the core franchise, and then growth coming out of the new franchise we are putting in the market.

And then that cascades as Peter mentioned, into some direct to consumer initiatives, and it will augment and expand the growth in years to come.

And we feel that's the right story, and of course Peter was careful because the biggest event of the year for us in North America is (inaudible) in front of us.

In terms of the wiggle room, I iwouldn't know how to frame wiggle room exactly, as a tight guidance statistic.

But would point out that really starting with Mercenaries this year, there are a number of things that are new and incremental for Electronic Arts for prior years.

With Mercenaries and SPORE coming out this summer, what we have got titles like-- Mirror's Edge, Dead Space, we have our own MMO coming with Warhammer.

Frankly you see the quality and the depth of our line up, take a qualitative shift.

Sort of starting in the July, August, September window, and moving from there, which is why we are confident in guiding to $1billion plus in growth.

Thanks.

We will move to Jeetil Patel, with Deutsche Bank.

Hello.

Couple questions.

I guess can you clarify the comment on NCAA, was that flat on dollars or flat on units, since I guess industry looks still pretty healthy on growth, and then I'm trying to understand whether units are down and sales are flat?

Secondly, I'm just not to be any more of a cynic here than I have been.

You had just a largest quarterly loss that you ever had in the company's history this past quarter.

Do you think this is the old strategy working itself out of the system right now?

And just had a bit of a hard time branding up in terms of operating leverage.

I know it's usually a light quarter, but I just want to get your thoughts on that.

Thanks.

The answer to the first question is units.

We are flat year on year on units.

Terms of the quarter, realistically what it is, we are in a 12 month business.

One of the reasons we pulled back on quarterly guidance, is we tend to think quarters are a little bit hard to use as a predictive measure.

You need to add a few of them together to get a good picture.

In this quarter in particular, we made some accounting shifts, including moving the way we recognize our bonus adding $26 million in expense for the quarter.

And for those tracking GAAP it's particularly complicated because of revenue recognition.

Where we are right now is we guided to move of 8% pre-tax margins to a range of 12% to 14%.

That's in fact leveraged, and indicated we would be seeking as we entered into this planning process, and announced our guidance for the year remaining consistent with that.

And this, for what it's worth, relative to our own internal expectations, and we had, if you will, as good of information as any of us could have, and full visibility on how we were moving things like bonus around, which is not a cash charge but a recognition of a later obligation.

We came in ahead of our bottom line expectations.

And quick follow-up, just take the loss for the second quarter that you just talked about, that implies that's 80% incremental margin in the back half of the year, to get to your guidance at midpoint or so.

Is that how we should think about the business, that it should have that high type of leverage in this kind of business?

I know you have those charges that are being spread out.

Assuming the back half looks to be relatively smooth on that basis, it seems like a fairly high leverage starting point.

There are two factors going on.

I would tell you, I'm not working with your model, so I can't give you precisely how you want to adjust it because I don't have it in front of me.

The way I would think about it is, that we have let people know the second half of the year has better gross margins, and percentage of revenue, and that we have a back ended year relative to revenues.

And that's a consequence of shipping a number of very important wholly owned properties at the back half of the year.

Including titles like SPORE, Dead Space, Mirror's Edge, et cetera.

This is what drives the complexion of the year, is the combination of moving bonuses around, to come out of Q3, goes into Q4, Q1, and Q2, and then it's our title slice.

I think to try to describe this as leverage, quarter to quarter, would be of a pure spreadsheet exercise, and I don't think indicative of the way the business works.

We have roughly 150 SKUs, a few more than that, and this is really where they are falling in the quarter, and how we were required to reflect our expenses including non-cash charges like bonus.

Next question.

We'll move on to Edward Williams, with BMO Capital Markets.

A couple of questions.

First of all, Eric, can you clarify, to be clear you're expecting a gap Q2 loss, as well as non-GAAP loss?

We always said we are expecting a non-GAAP EPS loss in Q2.

Couple questions for Peter, if you could.

Comment a little bit about the non-core sports properties this year.

How significant could they be?

How material would all properties on Nintendo platform be, and what sort of life cycles should we look for on the all play, is that more of a casual life cycle, or more of a typical sports property like you are expecting?

Let me take that last question on all play.

We just shipped two weeks ago our first of the all play titles.

Five, as you know slated for this year, Edward.

And NCAA shipped.

I think that when we see the balance, particularly the big dogs in Madden, and FIFA go out, we will have a better indicator.

I see less of a core cycle, and more Wii typical cycle, which we aren't expecting (inaudible) in the first weeks, but more of a consistent sell through, particularly as we get through to the holidays.

From the perspective of the upside, which we've talked about repeatedly over the last few weeks, we truly believe that there is tremendous upside for EA sports on the Wii platform.

As you know this is the first year we are building the games from the ground up.

So it's going to be a great set.

This is really a crawl, walk, run.

We invested 15 years into building EA Sports to what it is, which is authentic simulated sports games, and we're now re-adjusting that brand image to this new consumer that's coming in, with a new game mechanic.

In regards to the new IP, FaceBreaker will be the first of that.

As you may have read coming out of E3, we have tremendous response from what was previously a cynical group of press reviewers, and we are expecting to get the first reviews in the next few weeks.

We think it's a great opportunity for us, not only to show to a new batch of consumers a new side of EA Sports.

Of course it will be the first title we ship on the Freestyle sub brand, but also the ability to apply technology with our gamer face, that you can drop on to the-- any of the boxes in the game itself.

It's the first new IP that we at EA Sports have shipped in six years.

So I think it's a great test, and obviously it will be integral to us building margins going out in the next few years.

We'll move on to Douglas Creutz, with Cowen and company.

Hello, thanks.

I think the FTC is due to make a determination on the [paint] chip proposal fairly soon.

Are you frustrated with the pace that's going on there, and do you think once they do make a determination that could be a gauge for progress to be made on your decision of what to do with the bit?

Thanks.

Realistically, we aren't putting out new information at this point regarding the process with the FTC or interaction with pay two.

We have all the required information, and unfortunately we aren't prepared to go further today.

I don't think we can address your question head on.

Next we will take John Taylor with Arcadia.

Hello.

I have a couple of questions.

The first one I wonder if you could segment your R&D head count, between low and high cost locations.

While we find the exact detail, go on to your next question.

Next question is, in your forecast you talked about sales and marketing coming down as a percent of revenue.

This is a-- you guys are in the middle here, of ramping up as new a slate, or large a mix of new product I've seen in a long time, and yet that number will go down.

I wonder if you can talk about that a little bit.

How do you launch all this new stuff, keep your ad budget at a lower level as a percent of revenue?

And maybe address if you were to take out the affiliate label, or co-publish, maybe talk about what's going on with percent of published revenue, or EA created product?

I will take the first part of that and then have John pick up there, and Eric will answer your question on head count.

The broad point about marketing sales as a percentage of revenues is frankly scale leverage, we're adding north of $1 billion of revenue.

We need to do the math.

We just get a pick up there.

And then some titles like sport, et cetera, tend to be less TV intensive, and I think that's actually the bigger answer.

Is we are working to transform some of our marketing mix to more efficient vehicles, and John might want to expand on that a bit.

I think it (inaudible) is probably one of the better ones, which if you think about what we've done with SPORE in launching the Creature Creator as an advance release, it's really marketing and PR, and promotion for the game that's forthcoming.

In this case, it's actually a revenue generating prequel to the game itself.

So we have been spending a lot of time on things like that, and we're looking across all of our portfolios, of what we can do with viral and on-line and community applications, which is why we invested some real capital in that this year, to go ahead, and over time be able to adjust our marketing mix to get more efficiencies out of it, lower cost of acquisition for our customer, and start to think of our business that way.

Cost of acquisition and lifetime value of customer.

So, we're putting a real emphasis on that.

Back to John's main point again, we have a lot more titles, and a lot more revenue, and for the revenue mix of hard dollars is staying basically equivalent.

And then to respond to your R&D question, to recap, we ended the quarter with just under 7,200 people in R&D.

And 16% of those personnel were in low cost locations.

Next question, please operator.

Next we will move to Mike Hickey, with Janco Partners.

Thanks for taking my question.

I'm curious on SPORE if you could break out on how many uses were paid, versus unpaid, and then if you can give us any qualitative or quantitative data on how the users break out across North America, Europe, and Asia?

Also curious if you can quantify what Madden preorders are down year-over-year, and then the last question on the-- you increased your guidance for the market to 20%, but nothing flowed through to your sales guidance for the year.

I'm curious why there is no movement there?

And for Q2 looking for $0.10 you said--

Repeat some of these questions, because this is the longest fastest list of questions we've had in awhile.

Even the rest of the listeners on the call are keeping track.

Hard to take notes on you guys, too.

Let's take the first three or four and I'll ask you to repeat them as we go along.

I didn't learn shorthand in college, and I was losing track there.

On SPORE, what I would tell you, we did not, and have not released break between paying and nonpaying.

What we are pleased with is, it has gotten really strong pick up both in North America and Europe.

We will tell you that some of the sites from which it downloads are hard to read, as to their location.

And so we don't have precise figures.

Another factor that we are pleased by, is what we have seen I believe, shows us about two-thirds male and one-third female.

We thought it was more strongly tilted toward male, given the science fiction story line, but apparently the creator part is there.

And reminding you why we don't give out enormous (inaudible), it's a PR program.

It wasn't really a business move.

It happens to have come with revenue which we were pleased with.

Sort of a self-paying program.

But it was more about generating awareness.

And sort of a good feeling, and recognition of what the product has become.

What's the second question?

Madden, if you can quantify what the preorders are?

I know that NCAA are down 20% year-over-year for preorders can you quantify what Madden is tracking at right now?

I can't give you the actual-- what I will tell you is we are better shape three weeks out than we were with NCAA.

We have yet to our demo launched, that launch is on August 1.

It's a spectacular demo, that plays into the adaptive AI message we have been hammering home with our consumers, and in the next two weeks you will see every Game Stop, every Best Buy, every Wal-Mart, have end caps featuring the game itself, as well as 7/11's and Blockbusters all converting to Madden headquarters, and then all of this culminates on August 11, with Madden the loser at the Rose Bowl.

When we look at the activities we have over the next few weeks we are incredibly optimistic we will continue to catch up.

My original point of not reading too much into preorders is backed up by the sales we were seeing on NCAA, versus where we were on preorders when we actually launched the product which was down over 20%.

I wanted to add one notion on Madden that's interesting.

I'm not sure everybody captures what we mean when we say adaptive AI.

If you ever were to sit in a focus group, or review research on Madden, what you discover is there is a core of consumers that absolutely love the product.

But one of the big challenges with the product, is that you feel like you need a PHD in football-ology or whatever.

It's a particularly demanding product both in skills and football knowledge.

And consequently it feels a little bit standoffish relative to new consumers, or consumers that may have lapsed.

One of the most incredible things our team has done, is built a game that adapts to you.

Meaning it plays you competitive no matter where your skill set is, and there is a number of features from a holographic interface for training, to a rewind clock that allows you replay certain parts of the play, to get better.

This is probably the first time the video game of this caliber teaches you how to play, and teaches you how to get better.

I personally find that very rewarding, and a big step up in sports innovation, and am very proud of our team for delivering it.

I think it will help us this year, but I also think it's going to be the kind of innovation that puts Madden back on top, after a few years.

It's sort of an open door, versus sort of a velvet rope over the door, to get into the franchise.

I would encourage you all, I know many of you during E3 and during the analyst day have expressed your concerns about how hard the game was.

You recall I talked about a lot the last few weeks about approachability and accessibility.

The demo will actually feature the holographic train that John has just referred to, and will actually allow you to set your football line queue going into the launch of title August 12.

Want to try one more before we pass on to someone else with a list of questions?

Thank you very much.

On the (inaudible) market growth expectations at 20%, but no flow through into your sales expectations for the year.

Just curious as to why.

Again, this is John Pleasants.

We believe our forecasts are accurate.

We still believe that we are going to be picking up share for the year.

Again, what we took up if you remember, we were taking up our estimate for industry for the calendar year.

And in this calendar year, we were still projecting we will increase our share by at least a share point.

We feel comfortable with that.

And all of our numbers that we were guiding to, are fiscal numbers, so there is a quarter difference and obviously a big difference in the rhythm of those two businesses.

Apples to apples comparison, we believe that the industry is up for the calendar year, and we believe we are taking our share up for the calendar year, at least a point.

We will move on to other folks now.

Next question, operator.

We will move on to Tony Gikas, with Piper Jaffray.

Hello, good afternoon guys.

I want to continue a couple more questions on the sports franchises.

With the Playstation 3 and Xbox 360 hardware sales in US down roughly 40%, 45% at this point in the cycle, compared to where the PS2 and the XBox were at the same point in the last cycle, how are you dealing with this?

Because the core gaining communities historically, for these sports franchises was on the Playstation and XBox platforms is there is any risk of losing those core customers?

Have any of those core customers move to the Wii?

Can the Wii offset some of that?

I know there is a big shift to the Nintendo platform this time around.

And how are you getting there?

Marketing efforts, et cetera?

And then last question, where do you expect units would be up for the sports franchise?

Will that be next year?

So, Tony, let me start at the beginning there.

Your question on this year with the hardware.

We certainly, and it all focuses on having the opportunity for us to have a bigger impact than we have had in previous years on the Wii, and it all boils down to making games from the ground up, and packing of course with the all play brand that we launched this year.

We're doing well on both the Xbox 360 and the PS3.

The PS2 of course was pretty much where EA Sports and in previous generation, really showed outstanding growth.

We are looking to continue to see positive migration from the PS2 to PS3.

But recognize that some PS2 owners are moving over to the Wii.

I think that again per my earlier comments about being early, obviously, with all play, there is a huge opportunity for us to have an impact on the Wii, much more so than we've had in the previous couple of seasons.

Watch out for what we are doing particularly I think, on Madden, and FIFA on the Wii.

And then the ability for us to continue to build on the XBox 360, our on-line efforts, and to make that XBox live consumer keep coming back for more, will be very important for us going forward.

We are feeling good so far about our impact on the Wii.

There is a lot of upside potential for us, and hopefully we see ourselves moving toward some stronger growth in units over the next fiscal year or so.

As it currently stands I think it's early Tony, right now, and check back with me after we ship Madden.

Okay.

Last question.

Any update on the next Rock Band SKU, and launch?

Rock Band?

This is John.

We have announced that our-- excuse me, MTV has announced that there will be Rock Band 2 coming to North America in this second quarter, in September.

And we will expect to extend that across additional platforms, as the year goes on.

That's the information we have today to share.

Okay.

Thanks, guys.

Move on to Ben Schachter, with UBS.

Couple questions on sports, to beat a dead horse, and some other broader questions on pricing.

For the sports, remind us what percentage of total revenue is sports, and what percentage of sports is Madden, and then also give us an update on marketing dollars that you spend on Madden this year versus last?

We don't break that out Ben.

As I think you know.

One of the things I want to go back to John's earlier point, we are finding a better media mix with our sports titles.

You see with NCAA which you been seeing, we are doing TV, and a lot more on a percentage basis on-line, and getting directly to the consumer.

We don't break out sports as overall revenue, nor do we break out individual franchises, as percentage of the sports label.

Sorry.

We have gone on that is, at the analyst day we did show rough shape of the top line.

If you go back to the video which is still on-line, you will see that sports is approximately a quarter, but we didn't anything in fine tuning and we don't use the forecast, there is a place to look for a bit of a hint if you want to get to the rough shape of it.

Okay.

And then given all the anticipation for Madden, can we expect an update on sales before the MPD release in September, and then one follow-up on pricing?

No we don't update private MPD.

But based on the activities we have over the next few weeks, there are great reasons for optimism here, and if we do have something to announce, if we hit milestone earlier, I think typically EA has announced some major milestones in sales, and if that happens, certainly we will make an announcement.

And we'll move to Justin Post with Merrill Lynch.

Two things.

First on FIFA, did you say you pushed that out into the holiday quarter, and is that a change versus last year, and how much dollars did it contribute last year, if you can give us a range on that?

And then secondly, John, bigger picture question, about $1 billion growth.

I'm assuming that's all publishing.

Can you just simplify that for people, and say it's this many SKUs, or this many new titles?

Can you provide any help, helping understand where that billion dollars will come from?

As regards to FIFA, it was always planned for Q3.

Very early in Q3, but it was always planned for Q3.

It did come in Q2 of last year, but in the final week of Q2.

For what it's worth one of the reasons we've always been a tad discomforted by quarterly guidance is, we can move the title into the industry too, and substantially shift the year-over-year compare, which we think can often be very misleading, and sometimes yields an inappropriate outcome.

We think it's actually a better window for FIFA to be in the early part of Q3, than the tail part of Q2, relative to market demand.

And so we think we are in a better place, and we made a better business decision.

In terms of the billion dollars in year-over-year growth, what I can give you, a little bit of color, but I think without necessarily wanting to apply a peanut butter answer, I think you would see that we're driving growth across the board in Electronic Arts.

Our packaged goods business, our digital businesses.

In terms of the single largest component of that, it would be the EA Games label.

And what's driving the EA Games label, yes, there are some (inaudible) in there, but what's really in that, and driving it, is new (inaudible).

And principal among those IP's are Dragon Age and Mercenaries 2, that come by way of the acquisition of EGH.

It's Mirror's Edge and Dead Space which are brand new IP's created by EA Studios.

It's War hammer which comes from Mythic, which gets us back into the MMO space.

We mentioned, for example, in our script earlier that we were showing 33% year-over-year growth in Mobile.

We have big growth plans in Pogo.

We have growth really across the board.

So I think in answering your question, what I would tell you is that if it's not one part of our business that is leaping forward, and driving it for us, it is exactly what we would tell you.

Driving our packaged good business across our labels, and we're driving through that digital direct consumer to augment packaged goods revenue trends, and right now you're not going to show it much working well.

And this is John Pleasants, I just would add that there are 15 new titles in the lineup this year, which may have been mentioned earlier, and our SKU count itself is up 30%, and when you mentioned publishing that strong growth is occurring across all three of our publishing territories.

Whether it's Asia, North America, or Europe, all three are balanced, and all three are growing strongly.

Next one we will move to Colin Sebastian, with Lazard Capital Markets.

Thanks for taking my questions.

Just quickly as a follow-up to an earlier question on leverage, not with standing the quarterly volatility or change of margins.

I am wondering though, if there are any specific steps you are taking in the near term to rationalize the cost structure, or if this is the wrong time in the development cycle for your new IP to be more aggressive on that front?

Secondly, on Battlefield Heroes, it sounds like that may be taking a little longer than expected in development, or maybe you can talk about how the beta is progressing there, and related to on-line if you could talk about SPORE and on-line components of that franchise?

Thanks a lot.

This is Eric.

I will take the first half of that question.

So in regards to cost control and leverage.

Our approach is the following.

We started the year with internal operating plan.

And soon we put the plan together, and began to look for ways to reduce costs and reface costs.

We were happy to report that through these efforts in the first 90 days, we were able to reduce cost by about $20 million to $25 million versus order internal expectations, and so we're doing a wide range of things.

We are questioning every additional head count that's added, either incremental or backfill.

We've talked about our commitment to taking more of our R&D offshore, in the lower cost locations.

We were making progress there as well.

And we are renegotiating virtually everything we procure in our per unit basis, to get better pricing consolidate vendors, et cetera.

There is no one, two, or three things, that we are doing.

It's literally dozens, if not hundreds of things.

Bottom line is that we are committed to meeting the overall top and bottom line number for the year.

And we expect to apply this inspection to our cost structure throughout the entire fiscal year.

So thanks Eric.

On heroes, the answer I give you is this.

We put the product in the beta.

We got some good information back as to what the consumer liked.

We decided to increase its focus on some of the social networking features, that we think will enhance the experience.

And we are launching the product toward the end of this calendar year.

That is roundabout what we had planned.

At one point we talked about it internally, as being sometime late Q2, maybe Q3.

The intention was always calling (inaudible) from the beta, because it's the first time we've seen products like this.

And we have gone back, and are trying to apply that money in a diligent and intelligent way.

That product feels like it progressing much like we would have anticipated for it.

And to be frank with you guys, I think it's spectacular.

I had a chance to play it.

It's a lot of fun.

Very inviting.

Got a good business model.

Last thing we want to do is jam it in the marketplace, we want to make sure we get it out there in the right way.

Vis-a-vis SPORE, job one with SPORE is to make the launch successful.

It is something that I would love to imagine, that two years from now, or a year from now, the debate is whether we will need a SPORE label, because the back end system works so well, that we are able to monetize if you will body parts, plant parts, car parts, and plan it as a way to generate incremental revenue off an install base of seven million active users.

But it's a little bit like pool.

I'm a little afraid if we spend way too much time setting up the second shot, we will miss the first shot, and I don't know if that metaphor works for you.

It's all hands on deck, and making September 7, the event that matters, and make that work.

Yes, we've got clear and obvious and very compelling post launch monetization opportunities, but this is a game where basically the parts are what make the sum of the product work.

So selling parts as we do with the Sims store on-line right now, with Sims 2, is incredibly obvious.

We have all of the technology for it.

But that's really not what the overwhelming portion of our focus is on right now.

It's on making that a successful launch, and making sure we have the right to ask ourselves that question down the road.

Okay, we will take one more question, please.

That will be from Shawn Milne with Oppenheimer.

Thank you.

Eric, I just want to go back to your last comment.

I'm not sure I fully understand that.

You indicated that you had found way to reduce cost by $20 million to $25 million.

Can you give us a sense where-- what line items that would be hitting, and I guess would be in the second half of the year?

And then just again, need to go back to what J.T.

was talking about, in terms of sales and marketing.

This may have been lower than what you expected, or you may have had a lower bottom line loss than what you were forecasting.

The sales and marketing line was higher than what we were looking for.

I'm trying to understand that line item a little bit better.

Thanks.

I will answer the first part of that.

The savings we did realize, were specifically, they're head count related, so salaries and benefits and outside contracted services.

And is that coming in the second half or will we start to see that a little bit in September?

We are committed to looking for similar savings in each and every quarter going forward.

We will be questioning the head count ramp, new additions and backfill additions on the head count front, and we are renegotiating with all vendors that we can find to reduce costs of everything that we procure, outside services and other items.

When we put together our February analyst day.

What we sketched out for folks, was basically three years.

Designed to get us to level of profitability, we wanted to see with the business.

And we know that these things are never smooth.

What drives R&D as percentage of revenue by way of example, more than almost anything, is the revenue part.

Getting five million units out of a game, versus three million units out of the game, drops the R&D as a percentage of that total, substantially in this case 40%.

It's a very big deal.

And so, I think one thing to be cautious about is percentages.

Especially when taken in the quarter.

If you look at this particular quarter, I think people had a hard time understanding it, because we'd taken some non-cash charges in the quarter that we hadn't previously, and make the comparison awkward, and frankly noncomparable.

When it comes to marketing and sales for the quarter, our marketing and sales tends to be lowest on our highest revenue titles, and higher on our lower revenue titles.

I would seem obvious to most folks.

What happened in Q1 is we titled-- we launched seven titles versus three in the prior year, and most what we launched that was high marketing spend was right at the end of the quarter.

Marketing spend has a more profound effect on our Q2 outcome in Q1, but the expense is recognized in Q1.

Again, we tend to caution away from, sort of some of the ratio analysis on too short a time frame, which is why we retreated to emphasizing that our guidance for the year is valid.

That we are basically we confirming, and reaffirming that guidance.

That it involves a 400 to 600 basis point pick up, and again if you go back to the February analyst day, and our first quarter call, we stated specifically that we expected to get leverage out of both marketing and sales and G&A, both of which are in this year's guidance.

So it's always been the plan.

We are comfortable with it.

Now, through the year, you also expect when we have titles to consider, that we're perhaps putting more marketing against the titles, and we think it can yield the payout.

That can also affect percentages.

You can expect us to sign titles that can cost money.

You can expect us to reduce expenses in some areas where a team or product isn't performing as well as you like.

There will be adjustments for the year, but the broader shape of this, is we feel comfortable about picking up gross margin this year, over last year as a percentage, which is really a result of if you will, exporting cogs into R&D, or actually getting R&D leverage this year, we made that explanation in the past relative to VGA, and that's about half of our pick up.

Half of that basis point, closer to 300 basis points of the 400 to 600, and the balance coming out of G&A and marketing and sales leverage, which is a consequence of scale product mix, and exactly when our products hit, so we thought carefully about that.

We know we are only one quarter into the year, so I don't want to get too precise with it, but that story remains 100% consistent.

Okay,thank you.

And thank you everyone for joining us today.

We look forward to updating you on our progress.

That does conclude today's call, we do thank everyone for your participation.