卡洛馳 (CROX) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by.

Welcome to the Crocs, Inc., fiscal 2008 fourth quarter and year-end earnings call.

(Operator Instructions).

Before we begin, I would like to also remind everyone of the Company's Safe Harbor language.

Please note that some of the information provided in this call will be forward-looking statements within the meaning of the securities laws.

These statements concern plans, beliefs, forecasts, guidance, projections, expectations and estimates for future operations.

The Company cautions you that a number of risks and uncertainties could cause Crocs' actual results to differ materially from those described on this call, including the retail environment and global economic conditions.

Crocs has explained some of those risks and uncertainties in the Risk Factors section of the Annual Report on Form 10-K and in its other documents filed with the SEC, and you are encouraged to read that section and all other disclosures appearing on our filings with the SEC.

Crocs intends that all of its forward-looking statements will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934.

Crocs is not obliged to update its forward-looking statements to reflect the impacted future events.

I would now like to turn the conference over to the President and Chief Executive Officer, Mr.

Ron Snyder.

Please go ahead, sir.

Thank you for joining us to review our fourth quarter and fiscal 2008 results.

With me on the call today is Russ Hammer, our Chief Financial Officer, and John McCarvel, our Chief Operating Officer.

As you saw from our press release, sales for the fourth quarter were $126.1 million, above our guidance range of 100 to 120 million.

For the quarter, we reported a GAAP net loss of $33.2 million, or $0.40 per diluted share.

Included in these results were $21.1 million in non-cash foreign currency exchange losses, primarily on the inner Company loans, and $.9 million in restructuring charges related to the shutdown of our production facility in Brazil.

Excluding the foreign currency exchange losses, our non-GAAP loss per diluted share amounted to $0.20.

So I want to be crystal clear.

Our GAAP loss per diluted share amounted to $0.40, and our non-GAAP loss per diluted share amounted to $0.20; and both the GAAP and the non-GAAP loss per diluted share were significantly better than our loss per share guidance of $0.50 to $0.65.

Obviously, our guidance did not contemplate most of these non-cash charges, which is why we are providing this comparison for you.

Sales for the year decreased 15% to $721.6 million compared to $847.4 million in fiscal 2007.

2008 was a challenging year for our Company and we are disappointed with our full year results.

As a result of the global slowdown in consumer retail spending, our revenues came in well below our initial forecast.

Despite significant efforts to adjust our business, we operated most of the year with excess cost.

However, we anticipate that we are in better shape as our expense structure is now aligned with our expected 2009 volume level.

While we felt the effects of the global economic recession in 2008, we still ended of the year with more than $720 million in worldwide sales; our balance sheet remains healthy with $52 million in cash $22 million in debt; and our inventory position is down more than 42% compared with this time the year ago.

In addition to rationalize our inventory in 2008, we reacted quickly to reduce our operating platform as sales trended below plan.

The steps taken throughout the year included the shutdown of our Canadian and Brazilian manufacturing facilities as we consolidate our production needs with most of our third-party manufacturers in order to decrease our fixed cost burden.

In Q4 2008 and into 2009, we expect to build over 80% with our outsource markers, primarily in China.

We continued to consolidate our global distribution centers and warehousing, thereby decreasing in our fixed costs through the reduction of our global footprint of warehouse space.

We reduced our non-retail global headcount by approximately 2,000 people in 2008, and we postcode our apparel initiatives and shutdown some smaller non-core businesses.

Before doing a wrap up, I am going to turn it over to John McCarvel, our COO, who will now discuss our global business.

Thanks, Ron.

Our footwear products remain popular, and we continued our leadership position in the casual footwear market in 2008.

Independent market research firm U.S.

Department Store Markets Consumer Data listed Crocs in its rankings as follows, based on dollar sales sales for 2008: Number Three Casual Footwear Brand; Number Four Adult Casal Footwear Brand; Number One Children's Casual Footwear Brand.

In addition, our Cayman model was the number one shoe sold on Amazon in 2008.

This data shows that Crocs continues to be a popular brand in a number of age groups.

In fact, our business continues to be well balanced, comprised approximately of 70% adult and 30% kids.

Furthermore, much of the success we saw with new styles in 2008 came from our adult collections.

This included the Santa Cruz and Yukon for men; the Malindi, Cyprus and Nadia for women.

For kids, new styles that sold well included the Baya, our new kids clog; Nadia girls' winter boots, and various models from our entertainment and sports licensed collection.

The performance of our recent introduction has allowed us to further diversify our business and become less reliant on just a few key products.

Here the U.S., as everyone is aware, the retail environment continues to be very challenging.

Buyers remain extremely cautious about placing any significant inventory commitments, preferring to wait and to order closer to season.

We have received positive feedback on our new additions to the spring/summer 2009 line, and we have received strong pre-bookings is for these new offerings.

We believe flexibility and at-once delivery capability will be critical to servicing the wholesale market in this environment.

As we approach spring, we're comfortable with our current mix of inventory and believe we are well-positioned to capture upside demand given our flexible manufacturing model, inventory in our distribution centers and the proximity to the U.S.

of our Company-operated production facility in Mexico.

We also have a number of new strategic marketing initiatives with our major retail partners for the upcoming year to better merchandise the wide portfolio of products Crocs offers today.

Our expansion in the Americas continued through 2008.

We continue to sell in major markets -- Canada, Mexico and Brazil -- and have begun to distribute new markets -- Argentina, Chile, Panama and Costa Rica, just to name a few.

While these will not be major markets for Crocs, the strong interest and demand for Crocs has provided us with the opportunity to grow and expand the brand.

Europe remains a challenging retail environment.

The macro effects of the global recession are affecting countries and markets differently, some more severely than others.

We have little visibility at this time into the retail environment for the summer quarters.

However, we are seeing pockets of strength in certain areas, such as Germany, Spain and Italy.

As a reminder, Europe has historically been more seasonal than the U.S.

and Asia, as many of our smaller retailers there do not carry our winter styles.

Asia was our best performing region in 2008, with full year sales up 22% over 2007 despite the global slowdown.

Japan continues to be our strongest market in Asia, and we experienced solid growth in newer emerging markets -- China, the Middle East and Korea.

In 2008, Crocs experienced significant growth in both our direct, retail and Internet businesses.

Revenue from our Company-operated stores and kiosks increased approximately 69% to approximately $125 million, while our eCommerce sales were up approximately 39% to $44 million.

We are very pleased with this growth, especially considering the global retail environment.

As we've previously discussed, we're seeing better results when we are able to enhance our visual merchandising platforms to more effectively display our broader assortment of footwear.

This market data is helping our wholesale customers make product planning decisions for their respective businesses.

More than half of the over 475 Crocs-branded retail locations worldwide are in Asia.

We believe our growth and our brand strength in this region is partially attributable to this retail presence.

In the fourth quarter, we opened full price stores in Panama City, Liverpool, London and Ottawa, just to name a few.

We also opened 12 outlet stores in the U.S.

in the fourth quarter.

As Ron addressed earlier, we're pleased with the cost reduction programs in our operational areas in 2008.

Additionally, we continue to analyze our SG&A expense in order to better align our cost structure going forward.

Russ will go into further detail in his presentation.

I will turn now turn the call over to Russ.

Thanks, John.

Good afternoon to each of you, and thank you for joining us.

I will provide specific details on our financial results, the impacts of our cost actions and the impact of one-time charges and non-cash charges for both the fourth quarter 2008, as well as fiscal year 2008.

I will also provide detail on our regional and channel revenue results.

Our total sales for the fourth quarter 2008 were $126.1 million compared to $224.8 million a year ago.

However, our fourth quarter 2008 sales exceeded our Company-issued guidance 100 to 120 million.

Our total sales for 2008 year decreased 15% to $721.6 million compared to $847.4 million a year ago.

2008 annual sales in Asia increased 22% to $204.9 million.

Sales in Europe were down 16% to $150.7 million, and sales in the Americas were down 27% to $366 million for fiscal year 2008.

Due to the weakening retail environment, many of our wholesale accounts continued to be very cautious in their orders, choosing to work down existing inventory to much leaner levels.

We experienced a decrease in 2008 annual sales for our wholesale channel by 25% to $552.1 million from fiscal 2007.

We did see some positive sell-through data from several accounts indicating continued consumer demand for our products in selected regions and channels.

We also saw growth in our Company-operated retail channel.

Our annual 2008 sales from our global retail channel increased 69% to $125.8 million from fiscal '07, and our annual 2008 global Internet sales increased 29% to $43.7 million from fiscal '07.

On an annual basis, footwear sales accounted for approximately 90% of our revenue and represented 35.3 million units, for an average selling price of $18.35.

Core products represented 57% of our unit sales, and sales of our classics represented 25% of footwear sales.

Sales at full retail price through our Internet site and Company-operated retail stores grew to approximately 38% of our total sales during the fourth quarter.

Now turning to our results from operations, our net loss for the fourth quarter 2008 was $33.2 million, $0.40 per diluted share compared to our net income of $38.3 million, $0.45 per diluted share in Q4 2007.

This result also was better than our guidance for the fourth quarter of a net loss of $0.50 to $0.65 per diluted share.

The Q4 '08 loss includes approximately $21.1 million in pretax foreign currency exchange rate losses, and approximately $.9 million in pretax restructuring charges primarily related to the shutdown of our manufacturing facility in Brazil.

Excluding these foreign currency non-cash losses of net of tax effect of the loss of $0.20 per diluted share, our non-GAAP loss per diluted share amounted to a loss of $0.20.

I'll refer you to our press release for a reconciliation between GAAP and non-GAAP disclosures.

Our 2008 total year end net loss was $183.6 million, or $2.22 loss per diluted share compared to net income of $168.2 million for 2007.

The $183.6 million includes approximately $145.2 million of pretax items as follows: $25.4 million in non-cash foreign currency exchange rate losses, primarily an inner-Company balances; $8.6 million in restructuring related to the shutdown of the Company's manufacturing facilities in Brazil and Canada; $65.4 million net change for non-cash writedown charges of inventory and inventory purchase commitments; and $45.8 million in non-cash asset impairment charges related to goodwill, intangible assets and the writeoff of excess equipment or tooling.

Excluding these non-cash charges, non-GAAP net loss for 2008 was $37.2 million or $0.44 per diluted share.

Gross profit for the fourth quarter of fiscal 2008 was $56 million, or 440% of revenue compared to $125.8 million or 56% of revenue in the fourth quarter of 2007.

Gross profit for the year ended December 31st, 2008 was $234 million or 32.4% of revenue compared to $497.6 million or 58.7% of revenues for the year ended December 31st, 2007.

Q4 2008 SG&A expenses, including foreign currency exchange rate gain or loss, were $97.6 million or 77.4% of revenues, compared to $71.9 million o 32% of revenue in Q4 '07.

2008 annual SG&A expenses, including foreign currency exchange rate gain or loss, was $368.8 million 51.1% of revenues, compared to $259 million or 31.7% of revenues for 2007.

On a non-GAAP basis, Q4 2008 SG&A expenses, excluding foreign currency exchange rate gain or loss, decreased approximately $13.3 million to $76.5 million from the $89.8 million in Q3 '08 as a result of cost reduction actions in the following areas: Sales and marketing, corporate sponsorships, trade shows, stock comp expense, legal expense, consulting and contract labor, travel expenses, reduction of our global headcount and reduction in our capital expenditures from initial plan levels.

It is important to note that included in our 2008 annual SG&A is approximately $72 million of retail costs, including salaries, space and other retail-related costs.

Turning to the balance sheet, we continue to manage our balance sheet closely.

We increased our cash and cash equivalents to $51.7 million in 2008 from $36.3 million in 2007.

Borrowings under the Company's credit facility were $22.4 million at year-end compared to $7.1 million at the end of 2007.

The Company extended its bank credit facility through April 2nd, 2009, and is in current discussions with other lending institutions to arrange an asset-backed borrowing facility.

Our accounts receivable decreased to $35.3 million at year end compared to $153 million at the end of 2007.

Our days sales outstanding decreased to 25.8 days in Q4 '08 from 37.5 days as of Q3 '08, and from 62.6 as of Q4 '07.

Our inventories decreased 42.4% to $143.2 million at December 31st, 2008, from $248.4 million as of December 31st, 2007, partially due to our inventory writedown in Q3.

We were able to reduce our capital expenditure spending from a beginning 2008 annual budget of $126.6 million, to an actual spend level in fiscal 2008 of $81.4 million.

Now to our outlook.

For the first quarter ending March 31st, 2009, we expect revenues in the range of 110 to $135 million, with a loss per diluted share of $0.32 to $0.17.

Our guidance includes an estimated non-cash foreign currency exchange loss of $10 million.

Due to global market uncertainty, we are not providing annual guidance at this time.

Now I will turn it back to Ron for some closing remarks.

Thanks, Russ.

We began 2009 with a different mindset and cost structure than a year ago.

We are still optimistic about the long-term potential of our business and we remain confident about the strength of our brand.

However, given the current environment, our primary focus has shifted from expanding our global operations to generating cash and driving profitability on a smaller revenue base.

Our strategy includes increasing productivity by rationalizing our SKU count in order to dedicate more of our capitol and manufacturing resources to our higher volume products.

We also plan to leverage the success of several key styles by incorporating new materials, new prints and new colors to build seasonal collections so the brand and product remain fresh and relevant year-round.

We are also working to drive improved productivity in our wholesale business by focusing on larger retailers that have the ability to merchandise a broader assortment of Crocs footwear.

For 2009, we updated a number of marketing programs and systems, including the merchandising system, enhanced point of sale displays and channel-specific consumer marketing campaigns.

At the same time, we have implemented a more disciplined distribution strategy for many of our new products as part of our plan to design specific styles for target audiences.

While we did not expect to grow in 2009, we do see opportunities for growth in certain areas of the business, and we will be making strategic investments accordingly.

This includes our retail and Internet division, which represent approximately 40% of our total sales -- represented approximately 40% of our total sales for Q4.

While we have slowed our near-term expansion plans and related capitol spending due to the current environment, we will continue to make strategic investments in our retail and online business.

In closing, the entire organization is committed to our primary goal of generating cash and returning to profitability in 2009.

With that ,we are now ready to take questions.

Operator?

(Operator Instructions).

And the first question comes from Steph Wissink of Piper Jaffray.

Good afternoon, guys.

I just have a couple questions, particularly on the SG&A line, so Russ, maybe these are best for you.

If you could just give us some insight into how we should think about the FX loss on a quarterly basis through '09 or even in total.

I am not sure how to think about that anniversarying when that started to flow through last year.

And then secondly, the cost reductions that you implemented in the fourth quarter and listed in your press release, how many of those will carry through in 2009, and how should we think about the cost base in total?

Thanks.

Thanks, Steph.

So let me start first with the FX question.

So we do business, as you know, in 90 some-odd countries and 17 different currencies, and we have inner-Company balances between many of those entities.

The first seven months of 2008, we experienced gains, and then the dollar changed the last four months and went the other way.

As we enter '08, the dollar has weakened a bit as you can see.

But we will continue to monitor that.

We don't forecast the exchange rate, so as I articulated, we only have put in $10 million in 2009 at this time.

But we will continue to look at our inner-Company balances and where we do business and where our natural hedges are; and we have done forward contracts in the past when it has been appropriate for us.

But as far as your modeling going forward, we don't forecast foreign currency exchanges going forward, other than what we already know of.

And then on the SG&A, the items that I mentioned are all ongoing savings for us in 2009.

So we have counted on those, but we have also increased our investment in 2008 and going into 2009 in retail and Internet.

So for example, all of our cost reduction activities account for almost $60 million in savings.

However, going forward we are investing $15 million to $20 million in retail, and the Internet eCommerce global expansion as well.

So I am not sure if that helps you, but those are the -- the savings are all going forward, and the investments are also going forward.

Okay, then just to follow up on that 15 to $20 million of investment, can you give us some sense of how much of that is capitalized versus what is actually flowing through the P&L, and what your CapEx assumptions are then for '09?

Sure.

So most of the investment is in our retail expansion, and most of it -- as we mentioned earlier -- is in the outlet areas that we are investing.

So we do have capital there.

We also have lease costs, and we have some rack in building out.

And we also have the IT investment as well in building out the systems for our Internet retail and manufacturing warehouse.

Okay.

Thanks, guys, good luck.

Thanks, Steph.

The next question will come from Reed Anderson with D.A.

Davidson.

Good afternoon.

Thanks for taking my questions.

Russ, the -- maybe you gave it -- I jumped on the call late.

But you gave the full year retail sales, as well as the growth, as well as Internet.

Could you give those numbers for the fourth quarter?

The growth and the revenue numbers?

Sure.

It was -- retail and Internet were 40% of our business.

Russ is pulling out the specific numbers now.

And retail business in the fourth quarter was $35.2 million, and Internet was another $13 million.

And what were the growth rates?

The respective growth rates?

So retail -- over '07, the retail business was $22.4 million in the fourth quarter of '07, just to give you an idea on retail.

Okay.

Okay, all right.

And the -- okay, that's helpful.

And so that's really a piece where you are kind of shifting, and that's where you're going to focus on growing.

So to what extent, then, does -- did that essentially margins -- gross margins -- in the fourth quarter?

Because what I am trying to figure out too, is, what is -- I know you don't have -- it's hard for anybody to have any decent outlook or visibility at this point, but what makes sense for just a sustainable level for gross margins here as we think about '09 in total?

Well, as we continue to shift our mix to more retail and Internet business, we obviously sell at full price in those channels, so we do get a little bit better gross margin, which was built into our '09 plan.

So we would hope to be running at 50, 51% type level.

That is obviously offset by some of the mix that we have now.

We had -- when we had all molded products in the early days, our margins were much higher.

Now, we have (inaudible) incorporated into our products, so the margin of that line of products is more in the mid-40s.

So we had the mid-50s combined with the mid-40s, which averages around 50, 51%.

Okay, got it.

And then, the cost piece you gave, Russ that talked about allocating -- I think you said it was $72 million essentially of costs, SG&A-related embedded to your retail business.

Is that also the same costs -- or inclusive in that, I guess, is what's running your Internet business, as well as when you say retail, you mean retail and Internet?

Or was there another piece of cost attributable to that as well?

When I gave that number, that was purely retail.

And some businesses include a lot of the retail costs up in their cost of goods sold.

We have all of ours today down in our SG&A.

Okay, that's also helpful.

Thank you.

And then I guess from -- lastly, could you just repeat the data on -- again, I jumped on late, I apologize -- but you gave by classics and just a couple other statistics in terms of percent of the business.

Could you just repeat that for me, please?

Yes, one moment.

No, what we shared was that the annual basis of footwear sales accounted for 90% of revenue -- it was 35.3 million units -- for an average selling price of $18.35; and core products represented 57% of the unit sales, and sales of our classics represented 25%.

Okay, and then lastly, Ron -- I mean, given everything you know today, do you think that as we sit here a year from now, do you think ASPs will actually be up or down versus where they stand today:?

Just overall on average?

I would say as we exit '09, that our ASPs will increase.

You know, we have a lot of products that are coming out with higher ASPs.

That's going be somewhat offset during '09 by discounting -- we're doing some of that out in the markets for some of the older products that we've got, and it's just a requirement now -- just a reality now in the marketplace.

But you think even with the discount, you think you could still see ASPs up a little bit this year?

I would say they would be more flat this year, and probably going up in 2010.

Okay, good.

That's it for me.

Thank you.

And moving on, the next question will come from Jim Duffy of Thomas Weisel Partners.

Thanks.

Hello, everyone.

Hey, Jim.

A question for you on the reduction in SKUs as you streamline the SKU count.

What did those SKUs which you'd be eliminating represent to revenue in '08?

Was in a meaningful amount?

Are you asking how much the revenue went down as a reduction in SKUs?

So you were talking about in 2009 planning a reduction in SKUs, so I am wondering what revenue from those SKUS which you are eliminating will you be anniversarying?

Do you follow my logic?

Yes.

As -- you know, we're not giving guidance for '09 right now, for a full year, because it's just too unclear.

However, we do have new products that are taking the place of old products.

We will discontinue a particular model from even '06 and '07.

We won't be offering it in '09, but it would probably still be sold in our outlet stores, and we have about 52 new models coming on for '09.

So kind of hard to tell.

No, I got you.

And then, so you know, those SKUs which you're end of [lifing], you will continue to sell them through outlets?

Have you -- was that the large component of the inventory writedown that you took in the third quarter?

That was certainly some of it.

We wrote off products that weren't as relevant anymore, and we wrote off some colors and size mixes that were also felt to be excess and obsolete.

Okay.

And then Russ, looking at the current working capital situation, has that handicapped your ability to build inventory in products that you think are going to be strong for the early part of the year here?

Not at all, not at all.

Our working capitol has improved dramatically, as I walked through some the key components on receivable inventories and capital, and it has not hindered us at all.

Okay, and then how much cash do you think you need on the balance sheet to operate the business?

Well, that depends on your sales levels, obviously, and the investments in the new products coming out, and we're not giving guidance for '09; but we feel confident in our ability to continue generating cash as we do each quarter with this business, and we are very comfortable with that.

Great.

Thanks very much, and good luck.

Thanks, Jim.

(Operator Instructions).

Moving on, this question comes from Richard Dearnley with Longport Partners.

Good afternoon.

Could -- you'd mentioned that you were comfortable with your inventory.

And the SKU question, taking off on that just slightly, are -- have you weeded out the SKUs that you don't want?

Are you where you should be on SKUs and on plant and equipment now for the future?

I'm sorry, this is Russ.

I didn't catch your name?

Richard Dearnley.

Hey Richard, and who are you with?

Longport Partners.

Thank you, Richard.

So Richard, I am not sure you were at our investor conference recently, but --

I wasn't.

Okay, so let me share a little bit with you.

So we have a process that we go through with our product steering committees and with our customers, and we look at our products and we go through and we'll end of life models -- as Ron just articulated -- that are getting -- that are older styles and refresh them so we have products that are particular for spring or for summer or for fall; so in the fall, we'll have winter products that are aligned, in the spring we have more colors for the spring, and then we end of life products each spring/summer season and each fall/winter season, so it's a very systematic process where we introduce new styles and end of life styles each season.

I see.

But at one point in '07 and '08, there was just a proliferation of Crocs inventory kind of everywhere you went in any beachside location.

Is that inventory in the channels now where you want it?

Yes, I think if you look -- and this is Ron -- If you look at our global wholesale business, certainly there's pockets where like some of the wholesalers, some of our retailers have a little bit too much inventory.

But in the main -- you know, we think it is now at a level that they can move into 2009 confident that they have the right amount of our classics and core styles, and they have got cash available to take on our new product.

And keep in mind that our model is such that when some of our new products have some success, we are able to make more of those and ship them in season in 2009, so we still have that as a potential.

And the next question will come from David [Epstein], Wedbush Morgan.

Great, thanks for taking my question.

I was just looking for a little more color on your retail plans for 2009?

Maybe how many openings are you planning and what types of stores, and maybe what countries you are planning on opening in?

Yes.

First of all -- this is Ron -- I'll address the -- in the U.S., we're going to go slow, frankly.

We are going to open a few in the U.S.

in very strategic locations where we can have -- that have an immediate impact on our business and are not big capital outlays to open them.

That said, we are continuing to open outlets in areas that we don't have outlets today.

We will be taking that up by about -- probably about 10 or 12 outlet stores in the U.S.

for '09.

John is here, too, and he runs Asia as well.

I will let you address the Asian retail expansion.

So Asian retail expansion, I think, comes in two different avenues.

One is in markets where we sell direct.

Our intention there is to expand about 10 to 15 stores -- again, as Ron said -- in the U.S.

It would be strategic locations in Japan, in China, in Hong Kong, in major markets in Australia where we're doing very well from a brand building standpoint and the demand is there.

We also have quite a significant investment from our distributor partners in Malaysia, Thailand, Indonesia, Philippines, the Middle East, where we don't have great visibility into the number of stores that they are going to expand into.

However, they are all very bullish on the brand today.

The market has not taken the same financial hit yet as the U.S.

marketplace, and retail is still doing fairly well there.

So they continue to plan to invest in in retail in 2009.

Okay, great, thank you.

And the final question will come from Christopher Donnelly with Pacific Rock Capital.

Thanks, guys, for taking my question.

I was a little late joining the call.

I was just hoping to get a few housekeeping items.

Can you just provide me with the cash flow from operations for the fourth quarter and then for the full-year 2008?

Well, our cash flow that we reported was $51 million for fourth quarter.

That is our cash balance, not the cash flow.

Cash flow from operations, I apologize.

I'm sorry, one moment.

Our cash at the end of Q3 was 57 and ended with 52 --

Okay.

-- end of Q4.

And for the year, it was in the release as well, we ended with 52, and that was compared to $36 million at the end of -- or at the beginning of the year.

Okay.

Can you give me some, I guess, expectations for how CapEx, you think, looks in 2009?

Yes, we are going to be down significantly again from '08.

Right now, our plan is under $40 million.

Okay.

And just looking at the fourth quarter revenues of $126 million, if you take the mid-point of your guidance for the first quarter, it's roughly approximately $122 million.

I know it's -- I understand it's obviously a difficult environment and visibility is limited; but it seems like -- at least just looking at the trajectory of numbers -- that we've at least hit a base in regards to where revenues are, and I'd like to see if you could provide some color on that, given the fourth quarter numbers and where guidance is going for the first quarter?

Did you not see our guidance for the first quarter?

No, I did -- that's what I'm saying.

So the fourth quarter number was $126 million; if you take the midpoint of the guidance for the first quarter at $122 million, what I am saying is, looking at past quarters and past revenue trajectory, we're starting to see an improvement -- or at least a stabilization, I should say -- in regards to revenue.

And I understand it's a difficult environment and visibility is not terrific now, but just was hoping to get a sense if you feel like the business has started to hit a trough here.

You know, what we're doing is, it's still a -- quite an uncertain market, as you probably heard in just a few other calls; so we provided a range that we feel very comfortable with on both the top line and the bottom line.

So our business continues to grow in Asia -- as John alluded to -- however, that is not the case in Europe and the U.S.

right now.

Okay.

Can you just, I guess, update us with all the cost-cutting that the Company has been doing?

Can you give us a sense where you think break-even levels would be from a revenue standpoint on net income?

You know, we don't really have that, because it is such a -- I mean, it's such a complex model with all of our businesses around the world.

That said, we are pretty confident in our numbers that we have taken out the proper costs for 2009 to get back to profitability.

Okay, and when you say back to profitability, are you thinking more towards the back half of the year, or just kind of full year?

Can you give us just a little bit more color on that?

Well, you know, you can look at some of the historic levels.

Our Q2 and Q3 numbers are typically higher than Q1 and Q4.

Okay.

And you know, obviously I saw the 8-K that came out the other day in regards to extending the maturity date on the credit line.

Can you just give us a sense, your ability to kind of keep pushing that data out?

And if I understand it correctly, there are no covenants attached, correct, to that credit line?

That's correct.

Okay, and just -- can you give us just a sense on your -- the ability to continue to keep rolling that over or extending the maturity date?

No, we work very closely with our banks on our cash and cash needs, and we have a very good working relationship with both Union Bank and J.P.

Morgan, and we are continuing to work with other lenders at this time towards and asset-backed line.

Okay.

So your view under both of those scenarios -- the ability to continue to extend the maturity date and then look at an asset based line -- would kind of remove any risk you would see at this point in regards to any type of equity type of offering to raise capital?

Yes.

We are not planning that at this time, so no comment on that.

Okay, fair enough.

Thank you very much.

All right.

Well, thank you, everybody, very much.

We'll talk to you next quarter.

And that does conclude today's conference.

Thank you for your participation today.