Electronic Arts Inc.
Q4 2012 Earnings Call Transcript

Published: 8 May 2012

[Operator:]

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the meeting over to Mr. Rob Sison, Vice President of Investor Relations. You may begin.

[Rob Sison:]

Thank you. Welcome to EA's Fiscal 2012 Fourth Quarter Earnings Call. With me on the call today is John Riccitiello, our CEO; Ken Barker, Interim CFO; Peter Moore, COO; and Frank Gibeau, our President of Labels, who'll be joining us for the Q&A portion of the call. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call and a transcript. This presentation and our comments include forward-looking statements regarding the future events and the future financial performance of the company. Actual events and results may differ materially from our expectations. We refer you to our most recent Form 10-Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of May 7, 2012, and disclaims any duty to update them. Throughout this call, we will discuss both GAAP and non-GAAP financial measures. The comparable GAAP measures for certain non-GAAP measures to be discussed are

[John S. Riccitiello:]

Thanks, Rob, and good afternoon. I'd like to start with a short review of our recent history before addressing our FY '12 performance, our FY '13 guidance and turning the call over to Ken Barker. For those on the call, I might suggest you take a look at the slides we've posted on our website. They'll help you track this a little bit better, particularly the last few years review I'm about to do now. As all of you know, these past few years have been very dynamic for companies competing in the fast-changing game industry. 4 years ago, we set out to turn around our core console game business while transforming EA from a packaged goods company to a truly global digital pure play. Throughout this time, we never lost our ambition to position EA as a global leader in digital in the same way we led the packaged goods market during the PS2 era. 4 years ago, our strategies could be described as essentially defensive, mostly about our turnaround and getting a start in digital. At the time, we had 3 strategies

[Kenneth A. Barker:]

Thanks, John. Starting with a review of Q4. EA's overall performance was in line with the guidance we provided on our last earnings call. Total Q4 non-GAAP revenue was $977 million. We came in slightly ahead of the top end of our guidance due to the successful launches of Mass Effect 3, FIFA Street 4 and Kingdoms of Amalur

[Peter R. Moore:]

Thanks, Ken. Today, I'm going to provide some context and proof points to the strategic priorities John laid out

[John S. Riccitiello:]

Thanks, Peter. To summarize, fiscal '12 was a great year, but fiscal '13 will be much better, an historic year for EA. This is a year that we break away from the pack with a very different profile than the traditional game companies we grew up with and with access and capabilities that none of our new digital competitors can match. A dozen powerful brands projected over a variety of devices by a powerful direct-to-consumer network. More than 220 million consumers registered and linked by infrastructure that recognizes their game identities, preferences, rewards and friends. Every event captured, measured and reported with meaningful metrics. All of it created and maintained by the industry's most talented people. The key is digital revenue, which has a multiplier effect on our business. Digital revenue provides top line growth on a cost structure that creates improvements in gross profit and operating margins. Better margins allow us to invest in the future in big opportunities like Gen 4 consoles. We've been through a lot of change, change we undertook to drive greater shareholder value. Let me finish by saying it's a good time to be at EA. We're well on our way to having transformed our business model, changed the company from Tower Records to iTunes, from Blockbuster to Netflix, from Sears to Amazon. But unlike many of our digital competitors, we draw our growth from more than one revenue source. We have a much more diversified revenue base, with each digital segment growing rapidly, including our own direct-to-consumer services. Moreover, we are building this digital business more organically than most, and our vast portfolio of great brands enables us to do it more artfully and we believe in a way that is far more likely to win the test of time. We've got the right brand, the right strategies and most importantly, the right talent. Years of investment are starting to pay off. From here, we capture the rewards. With that, we'd be happy to take your questions.

[Operator:]

Our first question comes from Edward Williams of BMO Capital Markets.

[Edward S. Williams:]

A couple of quick questions. First of all, can you just comment a little bit about the Star Wars trend lines, what we saw out of paying subs kind of since the game kind of call it since February 1 to now? So as the first billing cycles go past through, how those paying subs for Star Wars settled down? And then also looking at the digital revenue, can you give us some color as to whether or not digital at this point in fiscal '13 should be above, in line with or below kind of the core operating margins of the company?

[John S. Riccitiello:]

So it's a couple of questions there. Maybe Frank and I will split the Star Wars question. I'll start on the broader margin issue and may be Ken can help us out. But Frank, you want to start on the Star Wars trend line?

[Frank D. Gibeau:]

Yes, sure. Ed, this is Frank. The trend line on Star Wars is as follows. When we launched the product back in December, it was an event launch. We brought in a lot of users, and with a brand like Star Wars, it reaches out much past the hardcore MMO fan base into the broader market. And as the service evolves from here, what we're seeing is that some of the initial casual customers have gone through a billing cycle and decided not to subscribe to the game. But for the most part, we're seeing very good retention amongst core MMO users, which has given us a solid base of around 1.3 million subscribers. So the percentage of paying subscribers from our peak until now has actually gone up, and the folks that we have are as engaged as they were when they first bought the product. And if fact, if you look at how we're going to be releasing content going forward, we have a lot of elder game play, a lot of extension content that will keep them engaged and continue to grow on subs. Make no mistake, BioWare intends to grow subscribers. This quarter alone, we released 2 major content upgrades designed to drive subscription loyalty, and again, we've got many more plans throughout the year. We're also having a lot of success with our free-to-play weekends and buddy key promotions, which is helping us drive acquisition and we'll continue to hit those. And we're actively planning territory and platform expansions and extensions in Europe and Asia for Star Wars

[John S. Riccitiello:]

This is John. A couple quick thoughts on Star Wars before we turn to digital margins. I understand that a lot of investors are very interested in Star Wars. I just want to put a couple of thoughts in perspective. I think somebody -- this is something Ken mentioned of the call. First off, Star Wars performance right now is very much in line with our original assumptions and the assumptions and where we're guiding folks over the last couple of years. Where that puts it in our portfolio is, in terms of profitability from a franchise, is in our top 10 but it's not in our top 5. So it's a business contributor, while important, is not as important as Medal of Honor or Battlefield or FIFA or Madden or The Sims or SimCity, but it's more important than Tiger Woods PGA Golf. So while I understand there's an enormous amount of interest, I don't know that it warrants as much as what we're seeing right now. But we love the franchise, we're going to grow the franchise and just like we want to see Tiger Woods Golf grow or SSX grow, or Madden for that matter, we're going to drive this one for growth. The second thought that I would throw your way relates to your second question which is digital margins. I would give you 2 bits of context, where we are in terms of putting our digital services in the marketplace and how profitable they are long term. In a number of cases, we have -- we haven't yet launched the product. There's more in front of us than are behind us. The overall business sector, for example, social is less profitable than our console business as that when it carries everything going forward that we've got on our development pipeline. But as we model the business, as it scales, when these new products get into the marketplace and start generating revenue, it's a more profitable business. And in fact, if you track EA's gross profit trends and operating margin trends over the last 3 years, the key contributor to having our gross profit percentage rise and our operating margin percentage rise has been the addition of digital revenue streams that makes us more profitable. Some businesses get to a great profit profile very quickly, like Play4Free. Others are breaking through and getting good profitability like Origin. Mobile's in a good place. Social's moving to a good place, but all in all, it's a net plus in a big, big way. I think Ken thinks I covered it there. So next question?

[Operator:]

Our next question comes from Neil Doshi of Citigroup.

[Neil A. Doshi:]

Just another question on Star Wars, John. With the large competing brand coming out later this year potentially, what else can you do to kind of maintain and grow subs through the back half of the year? And then secondly on mobile, we saw kind of nice growth in the 20%-plus range now for 2 quarters in a row. Is that the type of growth we should be thinking about going forward?

[Frank D. Gibeau:]

This is Frank. I'll take the Star Wars question. Yes, I think what's important in an MMO is to continually update the game and add new experiences and new features and elder game play that keeps people retained and keeps the viral component of the service active. And from that perspective, we have a very aggressive release plan of content for the rest of the year and beyond. And it's mainly focused in on adding a lot of new elder game content around PDP, around achievements and a lot of other feature sets that the fan bases are asking for. It's also important that we're going to be giving the guilds a lot of features and components that they're requesting as well. So we are cognizant of competitors coming, but none of them quite fit in the same competitive category as Star Wars. They're just different fantasies. They're not the Star Wars fantasy. It's not the big expansive universe that appeals to so many people worldwide. And as you know with MMOs, every day you're in operation to get better and better and better. You continually perfect the experience. You continually improve the acquisition component. And so building from a base that we're at right now, we feel very confident that this business is going to continue to stay competitive throughout the remainder of the year.

[John S. Riccitiello:]

You've asked the question about ongoing growth of 20%, but I didn't hear the sector you're referring to, Neil?

[Neil A. Doshi:]

That's on the mobile side.

[John S. Riccitiello:]

All right. So think of mobile as 2 businesses, just to get a sense of it. There's the traditional marketplace by Java Brew, the old feature phone business, and then you got the smartphone business. In our most recent year-end quarter, we had better than 80% growth on the smartphone business. If you take a look at the slide, you'll see better than 90% growth. So we are absolutely killing it there, and we're seeing strong expansion. What it blends down into the 20s is because we're still living with the tail end of Java Brew but starting to evaporate. But we're doing, frankly, fantastically well on the smartphone business.

[Peter R. Moore:]

Neil, this is Peter. Just let me refer you to the slides as well for a little bit more color and texture on mobile. If you go to Slide 22, you'll see the representation of our titles across not only mobile but social and free-to-play. 25 of the 41 we feature there and the phasing is on Slide 25 is mobile. And what I can tell you is that the quality of the brands that we're linking mobile to in fiscal year '13 is faster period than we did in FY '12. So the concept in mobile tying into our brand universe element is spot on. So look at that breakdown. You can see that 25 mobile titles being launched in FY '13.

[Operator:]

Our next question comes from Arvind Bhatia of Sterne Agee.

[Arvind Bhatia:]

Couple of questions. One, I wanted to be sure I understand the revenue guidance for next year a little bit better. I think, John, you guys had talked about double digits before. You mentioned a shift of a title. Is there anything else that we should be factoring in the delta versus the prior guidance? And then second question on the next gen, is it fair to think that the next gen will not see the same step function increase that we saw in the prior cycle? Or help us understand how we should think about that.

[John S. Riccitiello:]

Step function increase in what, I didn't quite understand.

[Arvind Bhatia:]

In the cost -- I'm sorry, in the development cost per title, you mentioned the $80 million that you're investing this year. I'm wondering, and maybe it's early, but just as you think about the next generation, what sort of cost increase we should be factoring in on a per title basis?

[John S. Riccitiello:]

Okay. So in terms of -- your first question was about our guidance. I enumerated a number of considerations that went into our FY '13 guidance in the prepared remarks. I'd say the biggest one versus my prior expectation in terms of the one downward movement was we removed a major packaged goods title. And in parallel with that, we added significant R&D for Gen 4. In a lot of ways, they're sort of offsetting. We believe we're heading into a world where we won't have strong digital growth, partly offset by console declines. We believe we're entering a world where we're going to have strong digital growth complemented by strong console growth. And that console, as it is today, will be a blend of digital and packaged goods. In terms of next-generation content, I really wouldn't want to get into that more than we are right now. But we're confident that EA is going to be able to continue to grow, accelerate that growth and accelerate our margin expansion.

[Operator:]

Our next question comes from Colin Sebastian of Robert Baird & Company.

[Colin A. Sebastian:]

So obviously, FIFA and Battlefield are 2 success stories you have in transitioning franchise to the hybrid online and traditional business model. Was curious about the timing of this transition for some of the other core EA games, and if that represents a big part of the digital growth you're expecting in the year ahead.

[Frank D. Gibeau:]

This is Frank. We are definitely taking the model for Battlefield and FIFA and applying it to franchises like Need for Speed. Mass Effect obviously just released with multiplayer and MTX, and we're having great results with that. So this is definitely a model that works for us, and you'll see that expanded across the entire lineup of console products going forward.

[John S. Riccitiello:]

So think of it as it's far from the first inning here. The middle of our range this year, I think it's fair to say is fourth or fifth inning. You'll see lots of pieces. E3 will be an eye-opener. But we think EA is doing this uniquely since our competition doesn't have strength in console, PC, mobile, social, microtransaction, subscription, packaged goods, et cetera, we do, and it's a rare exception for franchises not really hitting on the majority of those plus points in fiscal '13.

[Colin A. Sebastian:]

And maybe just as one follow-up, perhaps update your views on the state of the social game market, at least on browsers. There was a little bit of a sequential slow down in credit revenues reported by Facebook and potentially some regulatory issues coming out of Japan, if you could maybe just address that.

[Peter R. Moore:]

Colin, it's Peter, I'm not sure about the second half of your question but certainly, when you look at the lineup we've got, we certainly expect to grow very strongly our share on Facebook this year. Based on the strength of what we're seeing in our social lineup, again, bringing brands to play and tying into Frank's earlier comments of tying those brands together, increasing the funnel, making sure that we're delivering, I guess, more free-to-play experiences for a broader base of users and you can expect us to see that turn into market share growth in the Facebook platform in particular. I can't comment on your second question about regulation. I'm not sure what that's all about. May be we can get back to your on that.

[Frank D. Gibeau:]

One point to note there is that we do think the browser is broader than just Facebook. If you look at our Play4Free platform, we're offering quite a few game services there that are now operating native through Explore, Safari, Chrome, whatever. Those are actually considered platforms for us, and they're very profitable and very global. So when we think of browsers, they're not strictly limited to Facebook.

[John S. Riccitiello:]

Yes, there's a slide in our presentation, if I could find it, I think it's Slide 17. Think of Play4Free as EA's own, that's the bottom right slide, think of that as EA's own social network. And within EA's own social network, which is PC-centric, we've seen an 80% growth in weekly revenues from Q4 FY '12 to Q4 F'11, but we're also very successful partnering with Neowiz in Korea, GREE in Japan. There's no question that relative to Japan, one of the challenges is the mobile -- is the social business is a little bit trapped on the feature phone. The transformation to mobile and smartphones is going to be an interesting one. I know that we're sort of in a win-win situation. We do well on the feature phone, and we do well on the smartphone. So we're not particularly anxious about that transformation. My sense is over time, now to get to your question, that we're looking at the broader definition of what operates like a social network, a microtransaction-based model that's delivered free-to-play to consumer that's supported for us on a microtransaction business in a largely social format. We're going to see Facebook to be an important partner, our own platform likely to be our largest business. And then we're going to be partnering, as we do today, with Tencent and GREE and Neowiz and others. So it will be a multipartner plus EA direct-to-consumer model.

[Operator:]

Our next question comes from Justin Post of Merrill Lynch.

[A. Justin Post:]

John, looks like we're maybe approaching the third cycle. I've been sort of been following the industry here, and usually earnings really get hit hard during the console cycle because the costs go up and you sell fewer units on the new platform. Could you talk about maybe whether you already have the development kits? Is fiscal '14 kind of the transition year, and maybe why EA could be better positioned for this cycle than prior cycles? And then I have one follow-up.

[John S. Riccitiello:]

So usually, relative to what we know about the hardware and what's coming, et cetera, I really wouldn't want to get into that. I think I'd like to refer you to Sony, Microsoft, et cetera. I would say if you were going to try to analogize where we are today, this would be a down year for us, fiscal '13. When we're investing the $80 million, we would be otherwise reflecting a negative EPS trend. We are absolutely a different company in a different spot. In the face of, unfortunately, somewhat of a headwind relative to console, we're getting top line growth, robust digital growth, robust margin expansion, robust EPS growth, while affording the investment in the next-gen console. I don't think, going back to our foundation in '82, that's ever happened before. So what we are guiding for is entirely unprecedented, and it's a function of everything we've been saying on the call so far. We've built that digital business. We're tethered to consumer. We're monetizing in a very different way. Remember, we're not transitioning in the past 50, 60 individual packaged goods game. We've got -- think of it as being 20-ish core intellectual properties that are running across mobile, social, PC, console, microtransaction subscription, packaged goods revenues and a lot of that packaged goods revenue is actually digital straight through the Origin store. So a very, very different business. It's our hope to be able to accelerate top line through a transition and accelerate bottom line growth through a transition because we won't be facing sort of negative console compares.

[A. Justin Post:]

Okay, great. And then a couple other questions. A couple of success stories you've had on digital are FIFA and I think Battlefield. Maybe you could talk about what margins look like for the entire franchise for those versus when they were just packaged goods? And then I think you said 5 Facebook games on the last call. Is that still the number for the year and the first one is still in Q1?

[John S. Riccitiello:]

So Justin, we haven't put out -- great question. We haven't put out overall franchise profitability. But if you think about the fact that we've gone from 67 titles where we were making $0.30 a share and now we've got 14 titles that we're guiding to well north of $1 a share, obviously, franchise profitability is sky high in terms of where we were and where we are. So I mean, the numbers have got to be virtually off the chart because we've got 1/3 as many titles or 1/3 as many franchises generating 300% of the income. So I'm very confident, without having the data at my fingertips, that these things are moving up into the right in a truly fantastic way. In terms of launches on social, 5 is conservative. We've given you a combined number for mobile social, and I hate to keep referring you to the slides, but it's listed in the slides. And the reason we're not trying to give much more guidance on mobile social title is there's an awful lot of circumstance today where 4, 6, 8 weeks in front of a launch, people will sort of copy your name and take a spot in the App Store of certain of our partners and/or Facebook with a look alike, sound alike, feel alike. So we don't do sort of the advanced communication of the individual titles so much as a surprise launch. We're not looking to get ambushed by folks that are trying to benefit from dropping in under our marketing window.

[Operator:]

Our next question comes from Brian Karimzad of Goldman Sachs.

[Brian Karimzad:]

2 questions, the first one and apologize if this was touched on in the remarks about guidance. But when you look at the $2.5 billion of non-digital revenue for this year from the publishing side, looks like you've cut the title count by about 1/4 and then backing in at $2.5 billion. Looks like it's down about 15% or so. What are you guys kind of baking in for like-for-like growth in packaged goods, either in your industry outlook or title versus title where you have an even compare? Just to get a sense of what you're baking in given what we've seen in the first quarter so far even in high-def packaged goods being weak. And then the follow-up would be on your decisions for investment in social versus mobile, as you decide of which one of those to put in incremental dollar towards, on one side with smart phones, there really is no clear leader there. Whereas in social, you certainly have one and they have some interesting advantages. How do you guys take that into consideration, and how has that evolved over the last year?

[Peter R. Moore:]

So Brian, this is Peter, let me get that first question at least. We're projecting single-digit declines in packaged goods this year and of course, high double-digit growth in the digital space. And that's something that we've seen over the last couple of years. We expect that trend to continue. We've got a very strong lineup of titles, and again, I'll refer to E3 and see our lineup then which will be presented fully and you'll get a taste of that at the investor breakfast on the Wednesday morning. But as I say, bottom line is we're looking at again single-digit decline in packaged goods, high-definition packaged goods and strong growth in digital. As regard to making decisions, investment decisions on social, mobile, it's really a difficult question to ask. It depends on where we are, what device, what is the brand, where we see the best return, what is the game play mechanic. It's a lot of things that we do. But I'll refer you once again to the slide deck. You can see the amount of games. We're doing 41 across that titles, and you can see the phasing as well on Slide 24 of where we're bringing it all to bear. So Frank, I don't know if you've got any...

[John S. Riccitiello:]

This is John. One addition, just in terms of the sector performance and high-def, low-def for the year. I don't think our industry forecast of down single digit is different than most. It's been a little weaker so far this year. That's more of a function of sort of industry level content availability. We've got strong compare to some titles last year and then first couple of months of the year. And as we expect to move on later this year, we expect to see the compares favor '12 over '11. So I think we're solid there, and we're basically anticipating roughly holding share in packaged goods against a smaller title count, so our revenue per title is rising dramatically. In terms of mobile, social, here's one thought for you. We're tending to bring the same intellectual properties to mobile and social, and we're increasingly getting very similar with the product execution because the mechanics, the amount of time people spend on and the type of mechanics that's working, the business model, the free-to-play market transactions working across mobile and social and we're really programming, again, the Asian opportunity, the western social opportunity, Android, obviously, iOS.

[Operator:]

Our next question comes from Atul Bagga of Lazard Capital.

[Atul Bagga:]

I have a couple of questions on the platform side. So you mentioned on Origin your install base. Can you talk a little bit about what is the active user base? And also, in terms of revenue, what was the breakup of revenue within first-party titles versus third-party?

[Peter R. Moore:]

Atul, it's Peter. So yes, there are 11 million installs of the Origin client active on desktops today. As regards to your second question, the overwhelming majority right now of the revenue is first-party as you might imagine. We are anticipating very strong third-party growth. You can watch it every week as the number of third-party titles come onto the Origin client. I know you're a customer, Atul, and you can see as we grow our portfolio that third-party in fiscal '13 will be a stronger part of our portfolio when we think about our growth in Origin. But for fiscal '12, it was overwhelmingly first party, and of course, you might imagine Battlefield and Star Wars.

[Frank D. Gibeau:]

The one thing to add, as you look at games as a service, Origin is one part of the platform. When you're looking at the total audience size, again, the Nucleus account data is really representative of the consumer base that we're marketing into which is over $220 million as reported this quarter. So as we look at the cross-platform execution and our key franchises like FIFA, Need for Speed, Battlefield, there's an Origin component to that, but then there's also an in-game commerce component to that. And we're actually building audiences that we're carrying from version to version in a much more efficient and leveraged way. So to your first part of your first question, it's a component of Nucleus and Origin that we look at in terms of how we're deploying our platform.

[Atul Bagga:]

And how does Play4Free fit into this? Do you expect it to become 2 separate platforms, or do you have any plans to merge these 2? And maybe if you can give some breakup of Play4Free, what's the current user base and how is that broken into eastern market versus the western market?

[Frank D. Gibeau:]

Yes, the Play4Free platform has about 60 million registered users right now, and it's predominantly western-focused. I'm not including the FIFA Korea data in that. If you include FIFA Korea, it takes that number up substantially. But in general, it is a platform that appeals to emerging markets as well as first country markets, like U.S. and Germany as an example. It's growing aggressively, and it's a key component of our cross-platform strategy to bring Battlefield not only to the Play4Free category but also on the consoles, and we're able to track users that are in either platform -- either game service and be able to upsell and cross sell them into the other one. So it's a highly monetizable platform. How it evolves from here with regards to Origin and the rest of the platform, that's something that we're actively working on right now.

[John S. Riccitiello:]

One thing for those of you who haven't attempted to take a look, if you just type in EA Play4Free, that's play with the number 4 free, you can see the platform, play it and try it. It's all up there. It also gives you an awful lot of data about who's doing what and when. So for those of you that are asking questions have been -- if your haven't had a chance to take a look at it, we essentially modeled this off of some very success -- companies that we admire that were generating strong digital revenue

[Operator:]

Our last question comes from Doug Creutz of Cowen and Company.

[Douglas Creutz:]

If I look at the App Store today, roughly 3/4 of the games that are in the top 20 grossing titles at any given moment are from smaller developers that aren't part of larger well-capitalized entities. There's been 2 fairly major acquisitions in the space announced in the last 6 weeks. I'm just wondering right now how are you looking at potential M&A opportunities in the mobile space, and how you're feeling about that for the next year?

[John S. Riccitiello:]

So top line for me on this. So first off, we're the leader in all mobile iOS and Android on a 2011 basis. We're second in social. Our competitors in San Francisco have a very strong lead in social, and best I can tell, they are #2 in mobile and my guess is we're going to trade leads and we're going to gain share in social. So I guess the first observation is that a very large portion of the business comes from just the 2 of us, and I think we're pretty well capitalized. Here, just not to disagree with the thesis, but I think there's a lot coming from the leading players. As is, I would expect it to consolidate more and more around leading players, leading brands taking more and more share. In terms of acquisition, to be honest with you, I'm pretty anxious about acquiring instant one hit wonders in the space. There's an awful lot of noise that grows up around individual franchises that rises, less so in that individual franchise when it declines. A lot of times, I think when people are acquiring individual new intellectual properties in mobile and social, they try to put an earnings multiple on it, should be a 10x or 20x. But the problem is to put anything on it more than a 3x or 4x, you have to have a belief that this thing is going to last a very, very long time. If something is going to come and go in 3 or 4 years, you can't put a multiple, you've got to add up 3 or 4 years profitability to figure out what to pay for it and then do some sort of a risk-adjusted discount on that. We actually think with Sims, SimCity, what we've got in Bejeweled and the rest of the PopCap IP, we are blessed with an unbelievable portfolio of brand. We don't need to buy a brand just to get a temporary lead on top of the charts for whatever is hot this quarter. That doesn't mean that we would never buy or never invest. We would. But right now, what I'm starting to see is valuation expectations that assume that these things are all hockey stick moving up into the right with no end in sight, and I think those are bad assumptions. Some of them will work, some of them won't, but they can't all be worth the multiple that I'm seeing in the market right now.

[Rob Sison:]

[indiscernible], I think you can cut if off now.

[John S. Riccitiello:]

Thanks very much.

[Operator:]

This concludes today's conference. Thank you for your participation. You may now disconnect.