PolarityTE Inc (PTE) 2011 Q4 法說會逐字稿

Hello. This is the Chorus Call operator and welcome to the Majesco Entertainment fourth quarter 2011 financial results conference call. As a reminder, all participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. And now I would like to turn the conference over to Todd Greenwald, Director of Investor Relations and Strategic Planning. Please go ahead, Mr. Greenwald.

Thank you, and good afternoon. I would like to welcome you to Majesco Entertainment's conference call. Before we get started, I'd like to remind you that the call is being recorded and the audio broadcast and replay of the teleconference will be available in the Investor Relations section of the Company's website.

As a reminder, this call may contain forward-looking statements, including statements regarding management's intention, hope, expectations, representations, plans, or predictions about the future. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results or actual future results to differ materially from the expectations set forth in the forward-looking statements. Factors that could cause actual results to differ materially are specified in the Company's annual report on Form 10-K for the year ended October 31, 2011 and other filings with the SEC. The Company does not undertake and specifically disclaims any obligation to release publicly the results of any revision that may be made to any forward-looking statements to reflect the occurrences of anticipated or unanticipated events or circumstances after the date of such statements.

To facilitate a comparison between the reported periods, the Company has presented both GAAP and non-GAAP financial measures. GAAP financial measures include expenses related to non-cash compensation, changes in the fair values of warrants, severance costs, and the benefit from the sale of certain [stated test] benefits derived from net operating losses. Operating income, net income, and diluted income per share have been adjusted to report non-GAAP financial measures that exclude these items. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance and the Company's prospects for the future. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute or superior to GAAP results. Reconciliation between GAAP and non-GAAP financial measures is included in the press release issued earlier today.

With me on the call are Jesse Sutton, Chief Executive Officer; and Mike Vesey, Chief Financial Officer. I would now like to turn the call over to Jesse.

Thanks, Todd. I'll open the call with an overview of our performance in the fiscal year and some highlights from the holiday season. Mike will follow with the financial review, and I'll conclude with an update on our product slate for the rest of the year. I'm also pleased to welcome our Senior Vice President and Chief Marketing Officer, Christina Glorioso, who will spend a few moments discussing a unique partnership we've established with Microsoft. I would also like to introduce Jeff Anderson, our Senior VP of Social and Mobile Games, who will discuss our progress in that area, after which we will be happy to take your questions.

In 2011, we experienced a strong year, fueled by the stellar performance of the industry's leading fitness and dance title, Zumba Fitness, as well as the release of two Cooking Mama titles. Sales grew over 65% to $125 million, and our gross margin expanded to 36%, up from 24% last year. This resulted in a non-GAAP EPS of $0.28, up from a loss of $0.04 last year. These results include a non-cash charge of $2.7 million to reflect an impairment taken for a few titles released in Q1 2012 that did not meet our expectations.

We continue to be pleasantly surprised by the success of Zumba Fitness. Zumba Fitness finished the year as the industry's number one fitness title across all platforms and is now one of the best selling fitness video games in history. In North America, Zumba was the industry's number three best selling title on the Wii and the number 12 best selling title across all platforms. In the UK, Zumba was the number one title on the Wii and the number four title across all platforms competing against the industry's biggest blockbuster hits and proven franchises. In 2011, Zumba Fitness took the motion-based gaming world by storm. To date, over 6 million units have been sold worldwide and the sequel is currently outselling the original.

Furthermore, we believe the Zumba brand is still in the early stages of its growth curve. Today, there are more than 12 million Zumba enthusiasts taking classes weekly in over 110,000 locations across more than 125 countries. These numbers are up significantly from a year ago. This holiday, we released Zumba Fitness 2 on the Wii, which surpassed 1 million units on one platform faster than it did a year ago across three platforms. Additionally, Zumba Fitness 1 continues to sell well alongside Zumba 2, as it benefits from the brand's overall marketing campaign and its significant presence at retail.

Finally, there are more catalysts coming up for our Zumba franchise. Zumba Fitness Rush comes out in February, exclusively on Kinect for Xbox 360, and we're very excited for its release. We will discuss this title in greater detail later on the call. Finally, this holiday season saw a large release slate from us, with several titles that did well and should continue to see healthy reorders throughout 2012. We were happy to see Cooking Mama launch on the 3DS for the first time and believe that sales for that title will continue to grow with the expansion of that platform's installed base.

Camping Mama, launched on the DS, and was once again a big hit with the Cooking Mama fan base. We were also pleased with the sale of the Alvin and the Chipmunks. Chipwrecked! which launched on three platforms including Kinect and allowed hundreds of thousands of Alvin fans to sing and dance along with their favorite Chipmunks and Chipettes. That wraps up our fiscal 2011 and holiday season. Now, I would like to pass the call to Mike Vesey, our Chief Financial Officer, to provide a financial review of our fourth quarter and fiscal 2011 results. Then I'll come back to talk about our pipeline for the rest of the year. Mike?

Thank you, Jesse. First, I'll recap our results for the quarter and fiscal year, then close with some comments about our outlook for 2012. As I discuss our financial performance compared to the prior year, I will use non-GAAP results in both periods. Revenues for the three months ended October 31, 2011 were $25.1 million, an increase of 8% over the $23.4 million reported in the comparable quarter last year. With several new releases in the quarter, including Hulk Hogan's Main Event and Motion Explosion for the Microsoft Kinect, Camping Mama for the Nintendo DS, and Pet Zombies on Nintendo 3DS.

Comparably, a year ago, our Q4 releases included Greg Hastings Paintball 2! for Xbox 360 and Wii, and My Baby 3 and Crafting Mama for the Nintendo DS. Sales of our Zumba Fitness products, first released in November 2011, accounted for approximately 58% of our sales in the quarter. I will note that no sales for our Zumba Fitness sequel titles are included in the fourth quarter results, as Zumba Fitness 2 for the Nintendo Wii had a street date of November 15 and will be included in our first quarter of 2012 and Zumba Rush for the Microsoft Kinect is scheduled for the release in our second quarter of 2012.

Our gross margin for the quarter was 17% compared to 16% same period a year ago. Gross margins included a $2.7 million charge to cost of sales to write down capitalized software and prepaid royalties for three of our titles released in the first quarter of 2012. We evaluate these balances quarterly on a title-by-title basis. In cases where projected cash flows for an individual title do not exceed net book value that we previously capitalized, we write the balance down to net realizable value. Of the 10 titles that we released in Q1 of 2012, we included the amount of capitalized software and royalties for three of the titles exceeded the estimated net realizable value. Accordingly, we wrote those balances down at October 31, 2011.

This charge had a negative impact on our gross margins for the quarter of approximately 11 percentage points, and a negative impact of approximately $0.07 per share on our non-GAAP earnings. Operating expenses, excluding non-cash compensation expenses, increased approximately $1.8 million to $6.8 million, primarily due to increased research and development expenses related to our social games business, increased selling and marketing expenses related to our new releases, and increased bonus expenses related to our operating profits. Research and development expenses include approximately $800,000 of salaries and subcontract expenses related to the development of social and mobile games.

We started this business in 2011 and, accordingly, had no such expenses in the fourth quarter of the prior year. Sales and marketing expenses increased approximately $500,000 due to advertising costs, primarily related to the release of Hulk Hogan's Main Event. Non-GAAP net loss for the quarter, including the impairment charge, was $2.7 million compared to a loss of $1.5 million in the prior year, same quarter prior year. Non-GAAP diluted net loss per share for the quarter was $0.07 compared to a loss per share of $0.04 in the same period in the prior year. Now reviewing the year-to-date results, revenues for the year ended October 31, 2011 were $125.3 million, an increase of 66% over the $75.6 million reported in the prior year. Revenue increased primarily due to sales of our Zumba Fitness titles that were released in November of 2010.

Our gross margin for the year was 36%. This is up from 24% in the same period a year ago. The increase is mainly due to relatively higher pricing on our Zumba Fitness products on the Nintendo Wii and Microsoft Kinect. These products continue to sell at their original retail price of $39.99 and $49.99, respectively. Operating expenses were $34.1 million, an increase of $13.6 million from the prior year. Approximately half of the increase is due to advertising and sales costs related to the higher revenues, and $2.5 million is the result of our investment in our social games business. The remainder is primarily due to higher profit-based bonus expenses. As a result, non-GAAP net income for the year increased to $11.1 million compared to a loss of $1.3 million in the prior year. Non-GAAP diluted earnings per share for the year increased to $0.28 compared to a loss of $0.04 for the prior year.

Turning to our balance sheet, we closed our fourth fiscal quarter ended October 31, 2011 with $13.7 million in cash and equivalents and an additional $6.4 million available to us under our accounts receivable factoring agreement, leaving us total cash availability of roughly $20 million. This compares to the prior year's cash and availability of approximately $11.5 million.

As of October 31, we had approximately $12.6 million invested in capitalized software and prepaid royalties, with another $3.4 million committed to complete these games. The majority of this balance was for our games released in the first quarter of fiscal 2012 and our Zumba Rush title, scheduled for release in the second quarter of 2012. We had $11.6 million of inventory at October 31, 2011 compared with $8.4 million at the same date in the prior year. Now for our 2012 outlook, we currently expect sales of approximately $125 million to $140 million for the fiscal year compared to $125 million in fiscal 2011. We expect this to result in non-GAAP EPS in a range of $0.25 to $0.35 compared to $0.28 in fiscal 2011.

Included in our guidance is a net investment of approximately $4.5 million to build our social and mobile games business during the year, impacting our earnings per share by approximately $0.10. I will now review several metrics to help you in modeling our business going forward. We plan to release two sequels to Zumba Fitness during the fiscal year, Zumba Fitness 2 for the Wii released in November of 2011, and Zumba Fitness Rush for the Microsoft Kinect in February 2012.

Our revenues were approximately 70% Zumba and 30% for Mama and our other titles in 2011. For 2012, we're planning for a similar revenue distribution. Overall, we expect our gross margins to be comparable to the levels achieved in 2011. We expect higher advertising and marketing expenses, reflecting advertising programs related to the launch of our Zumba Fitness sequels and our other new product launches in the first quarter. I'll now turn the call back over to Jesse.

Thanks, Mike. I will now provide some comments on our lineup for the rest of 2012. Obviously, Zumba will play another big role for us in 2012. Zumba Fitness 2 has gotten off to a strong start in its first two months, selling over 1 million units thus far. Looking abroad to Europe, sales are quite strong there as well.

Keep in mind, this was the first holiday season for Zumba Fitness on the Wii in Europe, as the original title did not launch there until spring of 2011. This leaves us very excited for the upcoming release of Zumba Fitness Rush. For this title, let me turn the call over to Christina Glorioso, our Chief Marketing Officer. Christina?

Thanks, Jesse. Microsoft and Majesco have teamed up to bring an exclusive Zumba Kinect experience to fitness fans around the world. Zumba Fitness Rush will launch on February 13 exclusively on the Kinect for Xbox 360 platform. This game is the most technologically advanced Zumba Fitness game to date, as well as the most feature-rich addition to the Zumba Fitness franchise. Zumba Fitness Rush was designed from the ground up for Kinect, fully utilizing the platform's full-body motion sensing capabilities and voice recognition, as well as the HD graphics and online functionality of the Xbox LIVE platform.

In addition to the advanced technology, this game will also have a significant amount of exclusive content, 10 additional songs and routines, more venues and new celebrity instructors. Also, an important digital component is built into Zumba Fitness Rush. There will be multiple pieces of premium downloadable content to come later this year for sale in the Xbox LIVE marketplace. In collaboration with Microsoft, the game will be supported extensively around the world through a comprehensive marketing campaign which will include television, print advertising, events, exposure through the Xbox LIVE marketplace, a social media push, messaging throughout the extensive Zumba instructor network, and collaborative retail promotions.

The February launch of Rush is the Company's largest integrated marketing program to date and we're thrilled to have Microsoft support around the world to bring this exceptional product to market. With that, let me turn the call back to Jesse.

Thanks, Christina. Beyond these two exciting sequels, rest assured that we are working hard on our future SKU plan for Zumba. We have clearly invested in the Zumba brand and aim to continue to capitalize on that in the future. We are hard at work on another iteration for this coming holiday and we'll have more to come on that on future calls.

While it is a still a bit early for us to talk about the rest of 2012 product pipeline in detail, I would like to highlight a few partnerships we have signed recently that should result in several innovative, new and exciting video game properties. We previously announced the partnership with Harley Pasternak, an acclaimed celebrity trainer and fitness and nutrition specialist, and are working to produce an interactive motion-based game based on Harley's 5-Factor Fitness Program. Harley is a preeminent Hollywood trainer, responsible for some of the best celebrity bodies on stage and on screen, including Katy Perry, Megan Fox, Lady Ga Ga, Robert Pattinson.

Harley should also begin seeing increased awareness as a result of his new daytime show on ABC called "The Revolution," which he is co-hosting with Tim Gunn and other top lifestyle experts. The show just premiered yesterday at 2.00 PM and we are very excited to be working closely with Harley. We also recently announced the partnership with the NBA to develop an innovative motion-based game unlike any other traditional sports video game. While our plans for this exciting new game yet are still highly confidential, we will be announcing more details shortly, so please stay tuned.

Finally, in the midst of everything else we accomplished this year, we are proud to have built a social and mobile games business at the same time, making a highly strategic acquisition of Quick Hit Games led by Jeff Anderson, who I will now turn the call over for an update on this business. Jeff?

Thank you, Jesse. We remain committed to our small but growing social and mobile games business. Last year we released Cooking Mama Friends' Cafe, Parking Wars 2 on Facebook, and continue to operate Quick Hit Football. Over this period, we've improved the title's retention, virility and monetization, all of which will benefit our 2012 launches.

It is clear that the social gaming space continues to be competitive with many successful companies. We feel there's still a good opportunity for innovative titles and overlooked genres. To that end, we plan to release Majesco's first internally developed Facebook title in the third quarter. This title will combine the learning from our previous games and deliver a fresh experience on Facebook. We will talk more about this title in the near future.

Likewise, the Company is excited about the industry's growth in mobile. Majesco has historically done very well with its titles in the handheld space and we feel that this experience will translate very well in the mobile market, especially with smartphones and tablets. Key to our plan will be leveraging Quick Hit's understanding of the free-to-play business model. We feel that there's tremendous amount of untapped growth and potential in the premium market. To that end, we plan to release about four mobile titles this fiscal year, with about half of our titles launching in the free-to-play business model. Thank you for your time, and I would now like to turn the call back to Jesse.

Thanks, Jeff. In summary, we believe 2011 was a breakout year for Majesco and one which leaves us very well positioned for future growth and profitability. We are excited about the rest of our release slate for 2012 and are primed to take advantage of all of the new emerging platforms in this industry. That concludes our formal remarks. Operator, if you could review the Q&A instructions, please.

We will now begin the question-and-answer session. (Operator Instructions) And our first question will come from Nick Mauro of Sidoti & Company. Please go ahead.

Hey, guys. How are you doing? I'm calling in for Joe. I'm going to be working with him on this for a little while. I just have a quick question about the Zumba Rush. With the Xbox and the Wii markets -- target markets a little different, how do you think it's going to compare to how well the Zumba did on the Wii?

Hi, Nick. This is Jesse.

How are you doing?

Well, I guess the way we're viewing it is we're very pleased with the current results of the sequel to the initial Wii product that we launched last year, and Zumba Rush, we're expecting -- we're going to be investing a lot in the marketing of Zumba Rush on Kinect. We think it has every chance to be a major success on the platform, as the platform install base continues to grow and Zumba becomes even more important brand.

Okay. Do you see yourself going forward putting out more games for Microsoft and possibly even for the Sony PlayStation?

Well, we have announced that we're going to be continuing to support the Kinect platform. We think that the motion-based -- we think motion-based games are here to stay and with the success that we've had so far on the platform, especially with fitness products, with practically all motion-based games, we will continue to support it. As far as the move is concerned, the demographic that the Sony PlayStation has historically focused on has been more of the hard core demographic, but we will continue to monitor that situation as we have had success on the Zumba Move SKU.

Okay, and then lastly, because, obviously, you could do more with the Kinect than with the Wii. How are the differences in costs in terms of producing a Zumba game for the Kinect versus the Wii?

There is a difference in cost. Kinect games usually cost a little more. It's not that significantly more. Really, what you're dealing with is dealing with the HD component of it, building a more beautiful graphical display that the 360 takes advantage of, but the overall costs -- we've talked about this in the past -- the overall costs being anywhere between about $1 million to $1.5 million, potentially as high as $2 million.

Okay, all right. Thank you. That's all.

Our next question comes from Amit Dayal of Rodman & Renshaw. Please go ahead.

Thank you. I missed the color you gave on the write-off. Is this an annual exercise that basically comes up to be addressed in the fourth quarter? And then in line with that, because we saw more titles positioned for the first quarter of 2012, how that might play out for fiscal 2012 period?

Yes, hi, Amit. It's Mike. We review the capitalized software balances every quarter. As you know, we had a lot of our slate this year focused on the holiday season just because they are mass audience-type products and we feel it's a better time to release them. So, just by the nature of things, when we review our balances for our October year end, we have sales results in hand for the release of all the products. So we have a portfolio approach where we might release 10 products. We expect -- we want three to do very well maybe, a bunch in the middle, maybe a couple don't do so well.

Because we have sales data in hand for those titles, we ended up taking a charge at October for the ones we knew didn't work out according to our original forecasts. It's done every quarter, but I think there was more in our fourth quarter because, just because of the seasonality. Now your second question is what does that mean for 2012 because you had a lot of titles released in 2012. The other side of the statement I made before is, we already evaluated all our balances for the titles released in the first quarter with sales data in hand. So we wouldn't expect that any of our titles released in the first quarter for the holiday would incur any more impairment charges. So there's not a higher risk in Q1 because we released a lot of titles. That was really taken care of in our fourth quarter of 2011.

That was really helpful. Thanks. And in addition, some of these marketing, advertisement-related costs going into the holiday season, did we see some of that take place in the fourth quarter as well for you?

Yes, we had an increase in our marketing costs in the first quarter. I mean in the fourth quarter of 2011, for sure. And we'll really be continuing those programs through the first quarter because of the -- we like to advertise around the initial release of our product.

Okay, and this is the last question, how much are you expecting any relation to the guidance, the revenue guidance for the fiscal 2012 period coming from social games, et cetera?

Yes, we're not planning for substantial revenues in our guidance for our social games. What we're really doing is planning for the expenses and very, a very moderate level of revenue. So we think there will a net loss or a net investment of $4.5 million without planning for big revenue upside. To the extent we do develop successful games, we would think the majority of the revenue would be in end of the year or 2013 anyway.

Okay. Thank you so much.

Our next question comes from John Taylor of Arcadia investment Corp. Please go ahead.

Hi. I've got a couple of questions, too. Could you review for us, please, the, what the international split was in last fiscal year? And then, you guys had licensed that, as I recall, a number of properties to somebody else to publish in Europe. So are you capturing all that? And give us an update on where the product line stands relative to your own, capturing full distribution revenue from that? That's my first question.

Yes, hi, John. It's Mike. So first, addressing 2011. So 2011, yes, we had a licensing agreement with 505 Games and about 12% of our revenue came from the international side of the business. Now, when we distribute titles, it's really a year-by-year, title-by-title arrangement.

So for our next fiscal year and our Zumba sequels, for the English-speaking countries in Europe, we're going to be selling into the same partner, but through more of a distribution arrangement where we have the goods manufactured and sell through them at a wholesale price. So next year, we're projecting that our sales from international markets will be more 20% or a little more of our overall revenues.

Okay, great. Okay. And then you guys, in the last year, have been really disciplined in watching your operating expense. And it sounds like you've got a couple of investments going on now, what with the social and mobile effort you've got and the marketing to support Zumba on 360. I'm wondering if you could give us a sense of what the difference is in operating run rate that you're thinking about for fiscal '12 as opposed to what you booked in 2011, or if you want to use a baseline of 2010, that would be okay, too.

Yes, sure. I think we'll -- the best way to look at it is probably use 2011 for a baseline. So our selling and marketing expenses in 2011 were about $16 million. We expect that to increase next year due to the Zumba launches. We expect the increase to be in the 20% range, on that number. And we'll monitor it as we go through the year. But we will definitely have an uptick in the first quarter and going into Q2 with our -- the release of the Kinect product and then monitor where we need to go -- do going forward from there.

Okay, and the R&D increase, is that a net difference of about $2 million? Did you say $2.5 million goes to $4.5 million?

On the R&D?

Yes. Actually, no, the investment in social and mobile.

Yes, social/mobile, so it will be about $4.5 million net spend. We did probably $2 million, $2.5 million this year.

Okay. All right, so the combination of those two is going to capture most of the OpEx increase?

Yes.

Okay, all right. And then let's see, the -- do you guys have the Cooking properties, the Mama properties for mobile and social?

No, we don't have the rights to that on mobile and social. However, we are -- we continue to work with the creator of the brand to bring that brand to all the different platforms. So there's nothing to talk about today as far as mobile and social. I'll have you know, we already launched a Cooking Mama game on Facebook. So there's a history there and as we have more information to discuss with that brand, we'll bring it to the investment community.

Okay, all right. Good. And then it seems like in holiday of 2010, fitness and dance were both really vital subcategories, particularly for Wii. And then in 2011, it seems like dance kind of pulled ahead of fitness and people were more interested in that. I wonder if you agree with that, if you, if you're concerned about that or whether you think the Kinect title can actually reverse that for some reason?

That's a good question, John. In all honesty, I think you really have to take that on a title-by-title basis as much as you look at the category as a whole. Some of -- the dance category's really dominated by two brands, and the fitness category is probably a little more crowded than it is today. And with -- led by Zumba, and so I think that as more products come out in the fitness category, as fitness becomes more of an accepted experience on the Kinect, which I strongly believe will happen over the course of the next 12 to 18 months, I think the fitness category has a long way to go before it slows down.

Okay. Last question, follow-up on that. So are you aware of some kind of a strategic push by Microsoft to make sure that people think of Kinect and fitness in the same thought?

Well, I think it's, it's no secret that in their presentations of it, they have shown fitness as an important component of the userability of the platform. So I would say, from the, everything that's been out there in the public, yes. I have no confidential information that I can talk about that, I can allude to anything alongside that, though.

Okay, thank you.

And our next question comes from Mark Gomes of Pipeline Data. Please go ahead.

Hi, folks. It appears based on your commentary that the Zumba franchise is off to a much stronger start than it was for the last fiscal year -- a multiple of units, in fact. So looking at your guidance, calling for even the 70/30 split as you put in last year, how do you reconcile between the much faster start-up for Zumba and the split in your guidance?

Well, I think a few things come into play with that. One is that the platform itself, the Wii platform is another year older. So we take that into consideration as to what the year will look like. We try to take as reasonable an approach as possible as it relates to that, like we felt like we did last year, with our approach to Zumba 1. And the Kinect SKU hasn't launched yet and until we get some real initial feedback to how well that does, it's hard to really get too bullish on it until we really get some feedback, which is the way we've historically managed our forecasting for these things.

All right. So it sounds like a bit of conservatism there?

Yes, reasonable.

Yes. Looking at -- can you repeat what you said earlier about the relationship you have with 505 in Europe? Sounds like -- is it safe to say that you're going to be increasing your revenue per unit and if so, is there a commensurate increase in the gross margins there?

Yes, hi. The revenue per unit will be higher because we'll be selling a finished good into the higher price. The profit per unit will be slightly higher, but not in measure with the revenue. You're going from a royalty based on a percentage of a net profit to now selling in a product with the cost of sales. And the overall percentage margin will actually be a little bit lower, right, because before we were just getting commission with really no cost. So all in all it's more profitable on a per-unit basis and because of the revenue dynamic, a slightly lower percentage margin than the prior year.

Okay, fair enough. Looking at any channel feedback, is there any cause for conservatism based on any feedback you received in the channel for the Zumba titles that are in the marketplace today?

I would say that for us we try to be reasonable with our forecasting. And there's a lot to be played out for the rest of this year and as we get through each quarter, which we've done last year, we'll bring everybody up to speed as to where things are at. By the end of usually our first quarter, usually our first quarter earnings call is in the middle of March, we usually bring people up to speed. We'll have a lot to talk about then with regard to the launch of the Kinect version, it will be out for about a month at that point, and we'll have a lot more sales [guidance] to discuss with the sequel of Zumba 2.

Yes, understood. But my question was more around the sales channel feedback to the games to date.

Well, the reviews and the sales channel feedback has been good. We have -- as we said earlier, the first -- the sequel has outsold the first one at the same amount of time, to date, that it's been on the market. So that's good. But again, telling the future is always pretty difficult, but, yes, it's been positive.

I think the other thing to note is we have sales channel information on the Wii product which is already released, obviously, in hand. What we don't have is any new data for the Kinect. It's the second year, or second holiday that the hardware was sold. We don't know what the impact of the holiday is, necessarily, on the installed base and the software pickup on that. So I think from the standpoint of the Kinect title, we just don't have information and anything we know about the release of the Wii is obviously incorporated into our forecast.

And then one thing we do know is that Microsoft had a fantastic holiday as it relates to Kinect hardware sales, and how that translates into future software sales still remains to be seen.

Good. That's very helpful. Thanks. One more question and I'll sign off here. Looking at Zumba 1, as you continue to see a resurgence in sales there, what kind of impact will that have on your gross margin, given the way that you amortize the development costs? Thanks.

Yes, I think that the reality is the majority of the development costs for that Zumba 1 title were amortized off in our first quarter of last year, so the margins for Zumba 1 that we sell now will be similar to what you saw for the second three quarters of last year, barring any movement in price. As you know, we've kept Kinect and the Wii product at full retail since launch. So we want to see how that goes through the rest of the year.

Thanks a lot, guys. Appreciate it.

(Operator Instructions) Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Management for any closing remarks.

I want to thank everybody for joining our call today. And we look forward to updating everyone on our first quarter call in March, where we have a lot of exciting things to discuss.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.