Take-Two Interactive Software, Inc.
Q2 2006 Earnings Call Transcript

Published: 9 Jun 2006

[Operator:]

Greetings, ladies and gentlemen, and welcome to the Take-Two Interactive Software second quarter fiscal 2006 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Cindi Buckwalter, Executive Vice President of Take-Two Interactive Software. Thank you, Ms. Buckwalter, you may begin.

[Cindi Buckwalter:]

Thank you. Good afternoon, and thank you all for joining us today. Before we begin, I would first like to quickly review our safe harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us at this time. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including our 10-Q for the first quarter ended January 31, 2006, which may be obtained from our website at www.take2games.com, or by contacting the SEC. Today’s call will consist of a presentation by our management team, followed by a question-and-answer period. With me today from Take-Two are Paul Eibeler, our President and CEO, and Karl Winters, our CFO. At this time, I am pleased to introduce Paul Eibeler. Paul.

[Paul Eibeler:]

Good afternoon, and thanks for joining us. I would like to first summarize a few highlights that we will be discussing today. We made strides in streamlining our global organization. Karl will provide more details shortly, but the reductions we have already made, including those during the current quarter, will result in over $28 million in annual savings. These actions, including closing some development studios, were difficult, but were necessary steps as we continue to manage our business through this tough console transition. We are fortunate to have the industry’s best development talent, the cornerstone of our plans. From Rockstar’s Table Tennis to 2K’s BioShock, we showcased the innovation and quality of our product development teams at E3 last month. This continued focus on creating compelling content will enable Take-Two to grow and gain market share. Finally, we are pleased to announce that the Federal Trade Commission inquiry is closed. There were no fines nor penalties. As always, we are committed to supporting the ESRB educate parents and consumers about the rating system. Let me hand the call over to Karl.

[Karl Winters:]

Thanks, Paul, and good afternoon. Before we review our operating results for the quarter, I would like to provide some insight into the cost-cutting and other initiatives we implemented in Q2 and Q3, and provide details regarding the financial impact on our results. As we mentioned in our Q1 earnings call, the console transition has proven to be more difficult than we and others in the industry had expected, and as a result, we determined it was necessary to streamline our business so that we are better prepared for the opportunities we see ahead of us next year and beyond. We took a hard look at our global operations across all functional areas, and closely examined our product release schedule for both current and next-gen platforms, including reevaluating sales expectations for our titles. Based on that analysis, we made some very difficult decisions, including the decision to close three of our development studios -- Indie Built, Rockstar Vienna, and Frog City -- along with consolidating some of our smaller PC studios into our premier Firaxis Studio. While these decisions were very difficult, since they involve lost jobs along with a short-term financial plus to the company, we believe they are the right long-term decisions given the current market conditions. These are just our most visible cost-saving initiatives. There have been other expense reductions as well. We believe these actions will lead to over $28 million in annual savings going forward. As mentioned in the press release today, the total charge in the second quarter from our asset write-offs and studio closings was approximately $26 million, of which $24 million are non-cash items. When I review the quarter’s results in a minute, I will provide details on how these charges impacted our income statement. In addition to the second quarter charges, we expect to incur approximately $3 million of charges in Q3, when the balance of our planned initiatives are completed. We are also in the process of relocating our international publishing headquarters to Geneva from the U.K. This move is not only a cost-savings measure, but it should also benefit us in several other ways. Switzerland provides a more central location to support our growth in Europe, it offers a favorable business environment, and it is in close geographic proximity to attractive emerging markets. We expect this relocation to result in approximately $3 million in charges in fiscal 2006, spread over the third and fourth quarters. Now, moving on to our Q2 operating results. Net sales for the second quarter were $265 million compared to $222 million a year ago. Our net loss for the quarter was $50 million, or $0.71 per share, compared to a net loss of $8 million, or $0.12 per share in the second quarter of 2005. Total revenue in the second quarter was up 19% compared to Q2 last year due to a 36% increase in our publishing business. Publishing revenue was led by the sales of The Elder Scrolls IV

[Paul Eibeler:]

Thanks, Karl. FTC -- I want to revisit the news announced by the Federal Trade Commission today. As you can imagine, we are pleased that the FTC has concluded its very thorough investigation and that the matter has been resolved. We recognize the importance of the FTC investigation and the necessity of maintaining public confidence in the ESRB rating system, and helping the ESRB educate parents and consumers about the rating system. We look forward to putting this behind us and focusing on what we do best -- creating interactive entertainment. Our outlook for the industry is unchanged. Beyond the short-term challenges and uncertainty, we continue to have great confidence in our long-term prospects for ’07 and beyond. We are driven by the exciting technological capabilities of the next-gen systems, the growing installed base of hardware with the increase in online adoption rates, the consumer appetite for compelling content and most importantly, the talent of our product development organization. Our job now is to prepare for the next wave of growth by continuing to manage through the transition and focus on three strategic priorities. First, continuing to support our high-quality, diverse product line-up for ’06. Second, improving the efficiency of our operations and leveraging our strength as a top-tier publisher, and third, maintaining our investment in strong development resources. Content -- the Take-Two story is, and always will be, about exciting quality product. We are continuing to create an increasingly diverse line-up based on strong established brands and compelling new titles. Our product strength was evident in the quarter. Elder Scrolls IV

[Operator:]

Thank you. (Operator Instructions) Our first question comes from Mr. Heath Terry of Credit Suisse. Please proceed with your question.

[Heath Terry:]

Great, thank you. Karl, could you give us a little bit more detail on the decision to break out deferred revenue? How much of that is directly tied to the Microsoft deal in terms of you providing online content to that versus being tied to the in-game advertising deals that you have put together?

[Karl Winters:]

We are excited to be in a variety agreements that really cover the online content, the in-game advertising, the licensing of IP -- we think this has shown a material trend for us for the future. We have chatted about this at E3. We have chatted about it in the recent past and we think we are at a point where it is becoming meaningful and significant in terms of revenue capabilities for this company and really leveraging that IP in a variety of new ways, and we talked about the sports titles included there-in. I think in respect to some of the confidentiality and competitive nature of the business, we are not going to break out details player by player, but there are a number of players involved in those revenue streams, and you can imagine from sports and the other pieces of IP that we have, that people would find that interesting. I am afraid we cannot give you much more color than that.

[Heath Terry:]

Is there an anticipated life of that $35 million in deferred revenue that you can’t talk about?

[Karl Winters:]

I think other than to say that we will appropriately match it in the future when we have provided services for the agreements represented by that number. We certainly are talking about fiscal ’07 and things like that in terms of timeframes.

[Heath Terry:]

Okay. Paul, the $18 million charge for writing off products and development, can you talk about how many products that represents? Are there any of those that you all put a name to before? One change that I think we are noticing in the product line-up is previously you talked about an unnamed Rockstar sequel coming out for the current generation this year. Was that one of the titles that was written off, or has that simply been pushed to fiscal ’07?

[Karl Winters:]

I think the titles that we are talking about in terms of write-offs were about a half a dozen, and then Paul, with regard to the release schedule for the future.

[Paul Eibeler:]

Going back to the cost-savings, the cuts that we made were part of a long process. It was very difficult because of the growth path that we have been on. We continue to be extremely prudent, and we are examining every cost and every expense as we go through this transition. Period. In terms of the Rockstar line-up, we traditionally play that line-up fairly close to the vest. As we have evaluated the market place, we have made some decisions and are in the process of making decisions with some products, of whether they belong on existing gen or whether we can use those assets and move them to next-gen. We are real pleased with the Table Tennis. We clearly identified the Vice City Stories for the back half of the year and identified Bully, and additional products from Rockstar. We will give more color as we go through the year.

[Heath Terry:]

That one title though, specifically, the one that on previous calls you had talked about coming out this year, was that one moved or was that one…?

[Paul Eibeler:]

That one was planned for existing gen, and we will have to follow-up with you depending on what happens in the near future, with the market place and some things we are doing in product development.

[Heath Terry:]

Okay, but it is definitely off the table for this year?

[Paul Eibeler:]

Correct.

[Heath Terry:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Mr. P.J. McNealy with American Technology Research. Please proceed with your question.

[P.J. McNealy:]

Good afternoon. I think there is a little bit of frustration over the lack of guidance. I mean, the EPS for this quarter, for example, was not anywhere near where you guys came in. When you look out and can see that fiscal year ’07, that you can have some profitability in the sports line, and fiscal year ‘08’s titles, why not give guidance for the coming quarter and for the fiscal year and set expectations at this point?

[Karl Winters:]

P.J., as you know, we have not been providing guidance in the recent past. We are trying to provide meaningful data points or mileposts for the future. The analysts estimates are obviously a product of everyone’s individual research, and there is a pretty big range of estimates out there, even for the current quarter that we just concluded. The results last quarter included over $26 million worth of charges for our right-sizing the portfolio and addressing the strategic interest that we want to pursue for the business at hand. We continue to really try to work to improve the financial performance. We do have that optimism for the future, and when we feel comfortable that we understand the install base and the hardware launches and consumer behavior at a tighter level, we will get back into that in a more meaningful way.

[Paul Eibeler:]

We do share your frustration, but there are a lot of uncertain factors, or uncertainty in the market place right now. We are very excited. We just shipped Liberty City Stories, which got some very, very good reviews and ratings for a game that was the No. 1 title on the PSP and we moved it to the console. We think it is going to be a big seller, but we do not have the confidence right now to actually put a number out there for you, so we are taking a small break from the guidance, and as we get into some more normalized business factors and conditions, we will make that decision to go back and give guidance. [multiple speakers] …an October year that presents an additional problem in terms of the guidance that is different from some of our competitors.

[P.J. McNealy:]

Are you concerned with the market conditions with high-brow units in the second half of the year with the X-Box 360?

[Paul Eibeler:]

We feel long term the market conditions are great, but short-term, just availability, ship dates, launch quantities, presents some real issues for us in terms of giving short-term guidance.

[P.J. McNealy:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Edward Williams with Harris Nesbitt. Please proceed with your question.

[Edward Williams:]

Good afternoon. Karl, can you just give us some color on the $28 million savings. Where exactly will we see it on the income statement? Also, if you could just talk about the 2K sports product in ’07, just to make sure I am clear with this, the $45 number that you gave out, that is retail price that you are looking for, on average?

[Karl Winters:]

Yes, answering the last one first, the $45 was the average retail price that we would expect based on the mix of product. Paul alluded to some additional expansion in our sports area, more titles to come, including those as well. With regard to the breakdown of the charge, again, it was approximately $18 million run into the gross margins, and $8 million running through the operating expenses, with approximately $6 million of that running through depreciation/amortization, and $2 million through G&A.

[Edward Williams:]

I was actually looking more for the savings. Where will we see it?

[Karl Winters:]

Oh, the savings, I’m sorry. The savings would show up -- it would principally show up in the G&A and the R&D, into the extent that we are no longer building products there, obviously. We do not have the payroll to run, so you are going to see it really through the operating expense lines.

[Edward Williams:]

Along the lines with the R&D, what do you have right now in Shanghai as far as headcount is concerned? Looking at headcount in general, is the 1,100 a number that we are likely to see constant through the end of the current fiscal year, or is that a number that could fluctuate some more?

[Karl Winters:]

It might trend upward just a bit from the 1,100. We currently have about 20 or 30 people on the ground in Shanghai, and we have plans to expand that somewhat modestly, but this is really sort of our initial entry into that part of the world, and we are going to be prudent about how we approach that. We believe we have the right balance of internal resources and external relationships to really run the portfolio for the near-term here.

[Edward Williams:]

What are your plans as far as the Nintendo Wii? Paul, you alluded to how you could take some of your sports properties, or some of your more family-oriented games towards it. What level of sport do you think Take-Two can provide for Wii? How significant can the Nintendo console really be for you in fiscal ’07, or are we going to have to look out to the later, or beyond?

[Paul Eibeler:]

The positive for us is that we have not been a big player in the Nintendo platform, and the reception that this platform received at the E3 show is one that makes us take a real strong look at it. As we grow our sports business, there are opportunities with our sports games to extend them to the Wii system, particularly if you look at baseball, where we have an exclusive arrangement, as well as some of the other sports games, which would play extremely well on the Wii product, the non-licensed league ones. Some of the 2K products will have an opportunity on the Wii. It is really probably a late ’07 and ’08 opportunity for us, but it presents an additional revenue stream that we did not have before.

[Edward Williams:]

Final question is looking at inventory levels in general, you indicated that Jack’s had gone down, but what was Jack’s in the quarter, and where should we see inventory as the year progresses?

[Karl Winters:]

The inventory split, distribution versus publishing, was about 50-50, so right around the $45 million range.

[Edward Williams:]

Where should that number be as we look toward the end of the year?

[Karl Winters:]

We would expect to maintain it, although we would grow it somewhat in anticipation of the holiday season, given our October 31st year-end. That normally is a balanced working capital position that we can maintain.

[Paul Eibeler:]

In terms of the inventory for the distribution business, that presents a real opportunity for us because that inventory is all quality product. We are selling that and turning that in the market place, but there have been opportunity buys that we can take advantage of for the Jack business. We are running that business very cautiously and really watching all the expenses and really focusing on valuated services to the retail market place.

[Edward Williams:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Mr. Tony Gikas with Piper Jaffray. Please proceed with your question.

[Anthony Gikas:]

Thank you. Just as it relates to the charges in the quarter, what was the change in the headcount of the production staff? Could you identify what the cash flows were during the quarter? Sorry, I missed that, if you mentioned it. Were there any changes to management that we should be aware of, relative to the restructure?

[Karl Winters:]

We’ll take it in the order you laid out, Tony. It was about 200 people. We were marginally cash flow positive for the quarter. We have not announced any executive or senior level changes in management.

[Anthony Gikas:]

Could you just give us a quick update on how sales of The Da Vinci Code have been in the last few weeks?

[Paul Eibeler:]

We shipped it to make the launch of the movie. We have product in full distribution, and it is a little bit early to tell, but we are a little bit cautious right now.

[Anthony Gikas:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from the line of Elizabeth Osur with Citigroup. Please proceed with your question.

[Elizabeth Osur:]

Thank you. Just a couple questions. Karl, you mentioned other opportunities in the sports business, like advertising and online transactions. Are those critical to your getting profitable in the sports business in fiscal 2007?

[Karl Winters:]

I do not think they are critical. We tried to portray the picture for sports that we are confident that given the number of units we have been able to ship to date and the units that we would foresee in the future for profitable performance, gives us the ability to make such a statement. Those added revenue streams can only advance the ball further -- no pun intended.

[Elizabeth Osur:]

I know you are not looking to give guidance for future years, but is it possible for you to give us some sense of the number of titles that might come out in this year and the next two years?

[Karl Winters:]

I think I would prefer that we defer that for perhaps the next call. We usually do more of an update into, since our fiscal year touches two holiday seasons at the same time in the September time frame, but we wanted to try to address the market place as best we could see it today.

[Elizabeth Osur:]

Final question, on the charge in the second quarter with regard to where that was allocated in the different cost of sales lines. Could you provide a little more detail there?

[Karl Winters:]

The charge really ran through the software development costs.

[Elizabeth Osur:]

All of it?

[Karl Winters:]

Yes.

[Elizabeth Osur:]

Okay, thank you very much.

[Operator:]

Thank you. Our next question comes from the line of Mr. John Taylor with Arcadia Investment Corporation. Please proceed with your question.

[John Taylor:]

Hello. I have a couple of questions too. You are going to put some deferred revenue on the balance sheet, awaiting your fulfillment of certain things. I am wondering, how should we think about the margin contribution as that starts to come into revenue as you book that? Do you expect there to be much variability over time? Maybe talk around some of those issues. I have a couple after that. Thank you.

[Paul Eibeler:]

For all the different people on your other call, we would be disappointed if you did not have at least four or five questions.

[Karl Winters:]

We’ll take a few more after this one. Obviously, depending on whether we are talking about online content, which implies development costs and monies to be spent, versus the placement of in-game advertising or just the sheer licensing of IP, you will get the different margin assumptions. I think it is fair to note that all would be expected to be very high margin opportunities, and therefore we would not foresee unusual variability that in one period, it would suddenly dip to a low-end of the publishing margin returns versus the high-end in the next quarter. They are going to be specifically related to the shipment of individual games or delivery of content in the future as we approach each unique piece of IP. I do not know that I can break that down for you neatly in terms of this group is in that percentage, or you know, but as you can imagine, there is not a lot to be done with certain segments of that by way of added cost.

[John Taylor:]

Can we assume that if you were to work some of that off on a sports product, because there is some participation from the leagues, there is the contribution from that particular segment would be less than what you might be able to get out of one of your own IP’s?

[Karl Winters:]

I think to the extent that you certainly have the possibility for sharing in certain arrangements, and you should expect that.

[John Taylor:]

Okay. Second question is, you are moving international to Geneva and closing a couple of studios and so on. Are there any other kind of big strategic things that have yet to be addressed, or is that pretty much the heavy lifting that you are going to be doing this time around to get positioned for the next cycle?

[Paul Eibeler:]

That is the majority of the heavy lifting right now.

[Karl Winters:]

We are mindful of the current burn rates and where we are putting our investments, but we really have taken a good hard look recently and we will still be opportunistic if anything strikes us as such.

[John Taylor:]

Okay, and the studios that you closed, were there any titles in particular that those studios were famous for?

[Karl Winters:]

There were about a half-dozen pieces of IP that we had in various stages of development. Some are more significant, perhaps, than others, but for the ones that we think have unique value by way of franchise association, we certainly reserve the right to bring them into the market place with alternative development resources, whether internal or external. If we have more color on that in the future, we will let you know.

[John Taylor:]

Last question, you gave us the split between Jack and publishing on inventory. Could you give us the same thing on receivables, please?

[Karl Winters:]

The receivables tipped a little heavier towards Jack. Its business ramps up a little bit more in the second half of the second quarter with the spring break holiday, Easter season. The publishing business was shift a little bit more evenly throughout the quarter.

[John Taylor:]

Okay, so there is a higher waiting?

[Karl Winters:]

There is a higher waiting of receivables towards distribution than publishing.

[Paul Eibeler:]

It is really just a timing issue of what they ship versus what publishing ships.

[John Taylor:]

Okay, thank you very much.

[Operator:]

Thank you. Our next question comes from the line of Mr. Daniel Ernst of Hudson Square Research. Please proceed with your question.

[Daniel Ernst:]

Good afternoon, thanks for taking the call. Two questions, if I might. Looking at margins, if I back out the charge there, margins is at 13%, still markedly lower than where you have been historically. Can you talk about what else happened in the quarter? I realize there was certainly the large percentage of co-published games, which as you said was in turn towards the bottom end of your range in the 20% to 40% margin, but still that is well above the normalized margin we’re calculating here of 13%. Maybe talk a little bit about what else happened in the quarter than what your expectations are in the near-term, without giving guidance, on the bottom line. At least give us some sense of where you think margins are turning in the near-term, then I have a follow-up. Thank you.

[Karl Winters:]

Daniel, it is a reasonable question. We tried to provide a few points in the prepared comments. Really what occurred during the quarter, if you start with the various segments of the publishing business, about 20% of our publishing business came from a wholly-owned internally developed IP. Having said that, that 20% was really catalogue sales from products released in holiday ’05 or earlier. While that is still a nice margin business, it is not as robust as launch quantities on big titles that we might be bringing out, for instance, in the holiday season, or with our premiere pieces of IP franchises. So margin is somewhat compressed within that segment. The sports business, I think as you observed, and others have observed, does not behave at the same level, given the licenses and the royalties that are involved there. So for instance, during the quarter, we had $82 million worth of royalties, against $200 million or thereabouts of publishing business. That is a significant percentage, and the sports business will carry much lower gross margins as a result. Finally, of the 50% or thereabouts remaining, of we’ll call it licensed or externally developed product, about 80% of that number came to us by way of Oblivion, which we said on the call tipped well towards the low-end of the 20% to 40% range of gross margins. When you add all that up, we are somewhat absent this quarter of our higher margin opportunities with our bigger, wholly-owned properties. At this point in the cycle, that is probably appropriate, and we certainly believe that for holiday ’06 and getting into ’07 as we get more next-gen materials and return to premium pricing and an install base that we can really sell too at a profitable level, that margin will expand. Even in the near-term, we have such titles as Liberty City Stories on PlayStation 2. Limited development resources had to be expended to bring that product into the market place. We have such things as Bully, Table Tennis -- these products carry much higher margins and will behave accordingly.

[Daniel Ernst:]

Agreed, but if you look ahead to what you have lined up that has already come out in this quarter, what you have for the current quarter, based on where you are, internal versus external, what do you think margins should shake out in the current quarter?

[Karl Winters:]

We think margins will increase from the current quarter given the mix of product that we expect to have and the nature of it.

[Daniel Ernst:]

Second question, if you look at your strategy for diversification and looking at the sports and that is more easily defined in terms of market and what the expectations are relative to your competition. As you do new things like move titles, The Da Vinci Code, and you have a meta-critic rating there in the 50’s, what are you doing in terms of quality control in order to ensure that as you diversify, you are putting out those tier 1 titles that you are known for on the Rockstar side. Is there something you can do strategically to alter that path, rather than spin your wheels on developing titles that do not have that attraction to the market place, really, because maybe in part because the quality is not what you are known for?

[Paul Eibeler:]

I think you have to break the business components down a little bit. When you look at our sports business, our sports games have always been highly rated and we have made significant improvements in any of the games that were not highly rated. We believe the Visual Concepts and KUSH and those studios are a great asset and make great products. The Da Vinci Code, when you look at a licensed product, the key to that is making a good product that ships timely with the event, and the event in this case was the movie release. We still think we put a pretty good product out in the market place for that, but you are going to get a different type of review from that gaming editor who likes different types of products. I think Civilization, I think Elder Scrolls, Prey, BioShock -- those products and the quality of those products are really evident in our commitment to delivering compelling content. I think you should reexamine the whole picture and break it out. We do have some games like Family Guy from Fox, which is a different type of audience, and we believe we will put out a very good product, but that product might not get reviewed the same way as BioShock gets reviewed. Our Rockstar guys have always put out tremendous, meta-critic, high-ranking type of games and they will continue to do that. One thing we have done with the Rockstar development is give them all the resources during this cycle to continue that and to actually put out a stronger flow of product as we move into next-gen. Also, Sid Meier. His association with not just Civilization but with our 2K games area -- he is one of the industry greats. He is a real strong asset for us to make compelling content.

[Cindi Buckwalter:]

Operator, at this point, we will take one more question.

[Operator:]

Thank you. Our final question comes from the line of Mr. Chris Kwak with SIG. Please proceed with your question.

[Chris Kwak:]

Can you hear me okay? Just a couple of questions. On the deferred revenue, if we could just revisit that and just ask, is it going to be broken out into long-term, or is everything short-term in terms of the deferred revenue? Should we assume that the cash is going to be collected up-front?

[Karl Winters:]

If we have the deferred revenue on the books, it is fair to assume we have the cash in hand. In terms of the timing of the realizability of the deferred revenues, we will address that appropriately with our disclosures and on the face of the balance sheet as necessary.

[Chris Kwak:]

Okay. Turning to LCS on the PS2, we haven’t really -- can you guys just help us think about what you are expecting or what you think is a reasonable expectation for that, relative to what is on the PSP, for example?

[Paul Eibeler:]

We are very excited about the launch extending the brand, especially at this point in the cycle. We are pleased with some of the great reviews that we received on the product, although it is a smaller product than traditionally we have put out on the console business. We have a fairly large launch quantity. Retailers are excited about it, but it has only been out there a day or to in the market. We think it will have a very long life, especially at the significant value pricing that it is at throughout the fall period. We are just a little bit cautious given the uncertainty in the market place, but I certainly -- the response I heard from retail is that it is one of the must-have products and will be a great incremental sale to anyone shopping for video games for existing generation.

[Chris Kwak:]

Just a follow-up on that, can you give us any guidance or a sense for is this near-herculean waters in terms of margins? Is it similar to the margin structure that you have either on the PSP or the PS2 and the prior iterations? Thank you.

[Karl Winters:]

It is more similar than not. At that price point, it is somewhat compressed, but it is certainly on the healthy end of the publishing margin.

[Chris Kwak:]

Great, thank you.

[Cindi Buckwalter:]

Great. Thank you all for joining us today. We look forward to speaking with you next quarter. Good-bye.

[Operator:]

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may disconnect your lines at this time.