Gaia Inc (GAIA) 2008 Q4 法說會逐字稿

Good afternoon, and thank you for standing by for the fourth quarter 2008 financial results. (Operator Instructions). And now I'd like to introduce Mr. John Mills. Mr. Mills, you may begin.

Thank you. Good afternoon, everyone., and welcome to Gaiam's fourth quarter and full-year 2008 earnings conference call. The following constitutes the Safe Harbor Statement of the Private Securities Litigation Reform Act of 1995. Except for historical information contained herein, the matters discussed in this call are forward-looking statements that involve risk and uncertainties, including but not limited to, general business conditions, integration of acquisitions, the timely development of new businesses, the impact of competition, and other risks detailed from time to time in the Company's SEC reports.

The Company does not undertake any obligation to update forward-looking statements. On the call today representing Gaiam is Jirka Rysavy, Chairman and Chief Executive Officer, Lynn Powers, President, and Vilia Valentine, CFO. And now, I'd like to turn it over to the Company's Chairman and CEO, Jirka Rysavy. Go ahead Jirka.

Thank you John. So as widely discussed in the media, as you probably know consumers took very conservative approach to holiday buying and retails heightened the focus on inventory. So our revenue for the quarter which ended December 31, decreased about 8.9% to $74.5 million, from $81.8 million which we reported in the same period of '07. And also driven by the decline in our market price of our common shares, in the fourth quarter, we have to look at FAS 142 and take a goodwill impairment charge of about $42.3 million, of which about $27.2 million was from consolidating our 56% on SOL subsidiary impairment charge, and $15.1 million was related to impairing goodwill in our direct segment of Gaiam. Equal to this charges, we reported a net loss of $30.1 million, or $1.26 per share. Excluding these charges, and disposed businesses and loss from consolidating of real goods, we have about $0.05 loss for the quarter.

For the year, our revenue was $257.2 million, which is 2.2% decreased from $262.9 in '07. Included impairments, and we reported a loss of $35.5 million on $1.45 a share. Excluding these impairment charges and disposed businesses and loss from consolidating real goods, the (inaudible) would report an income -- net income of $800,000 or $0.03 per share for year. This impairment charge is generated $8.4 million tax refund, and also $7 million tax credit, both of those you can see is in a separate line in our (inaudible) on the balance sheet. We continue to evaluate the opportunities which this environment brings companies like ours. I mean, the Company that this, no debt and good balance sheet and good cash position.

We still see additional opportunities to drive additional controlled space at retailers. And also expand our category management program. But store-to-store is definitely going to be our focus. We ended the quarter with 10,000 stores-within-a-store, which is up from 7,000 at the end of '07. And we right now over 3,000 doors of category management, which is obviously dramatically up from none that we had years ago, because this program, its relatively new for us. When we compare our results to the market, and to our competitors, we actually deliver superior sell-through for most our retailers, so we expect to gain additional stores. We also continue the transformation of our direct business from transactional selling to relationship model, through our communities and subscription club.

And as of December, it grew the membership to over 250,000. And but because of the current state of the economy, we are changing our focus from rapid growth to foster elimination of our P&L losses in our community business. The losses were $0.04 in fourth quarter, and $0.14 for the year. Our cash position remains strong with $32 million. And we also have additional $5.4 million of unrecorded deferred tax benefit lines as I mentioned, was which 8.4 is the tax refund, and 7 is the credit. We still have no debt. We have a current ratio of 3.9 and untapped $15 million line of credit. Free cash flow, which define -- we define as cash flow from the operation, operation less Capex, it's our new mantra. That's where we want to focus company on right now. We are already in process of streamlining our business units that experience the negative cash flow last year.

We also restructured company into big savings from our payroll and Lynn will cover that. But Lynn, who is our President and CEO of North America for many years. And she's my only report for last probably 4, 5 years, she will assume a CO title, in addition to her title as the President. She will continue to report to me. Lynn, is going to be focusing on making 2009 our highest revenue and best cash flow year ever. And I will on growing our community and making it an income contributor.

Because of our 2008 initiatives, especially our aggressive expansion, our store-in-store, and the category management concepts, we believe that even without, even without an improvement in the raw economy, that 2009 is going to be our best year ever, in both revenue and free cash flow. We expect that our free cash flow for the year will be over $20 million. And depreciation and amortization are stuck on, will be approximately $9 million, with Capex maybe half of that. Now I will turn it to Villia, who will provide you more details with numbers, and Lynn for overview of business.

Thank you, Jirka. As Jirka mentioned, while the first half of 2008 was profitable, the second half was impacted by the economic downturn. For the full year 2008, revenue was $257.2 million, a 2.2% decrease from $262.9 million in 2007. Revenue from our solar segment increased from $18.9 million to $39.2 million, reflecting the acquisitions of three California-based solar companies in 2008. For more information concerning results of Real Good Solar, a separate earnings call will be held tomorrow, Wednesday March 11th at 8:30 Pacific Daylight Time. Revenue generated by our direct and consumer segment decreased 2% to $129.8 million from $132.5 million in 2007.

We reduced and focused our catalog circulation and direct response marketing spend to improve our return during this challenging retail time. Revenue from our business segment decreased 20.2% to $88.9 million during 2008, from $111.5 million last year, primarily due to conservative retail buying in the second half of the year, and lower international revenues. International revenues were $5.1 million compared to $32.7 million in 2007, as we shifted to an international licensing model and disposed of our UK operations in March 2008. Excluding our international revenue, our business segment revenue increased 6.4%.

Overall gross margin was 58% of revenue, compared to 64% of revenue in 2007, with our lower margin solar business growth accounting for over 50% of the decline. Other factors contributing to the march in decline include, discounting early in the fourth quarter to promote products and reduce inventory levels, a shift in our retail product mix to include lower margin category managed fitness media associated with our category management roles, and store-within-store strategies. In connection with the strategies, we incurred charge backs from our retailers. We also made a decision to scale back our high margin DRTV business due to the high cost of the media during the election and holiday season.

Our selling operating expenses decreased 1.6%, to $142.4 million from $144.8 million in 2007 reflecting cost control initiatives, including reduced target catalog circulation, and media spend and payroll reductions. Offsetting these improvements was the year-over-year increase in our reserve for bad debts. We increased our bad debt reserves by approximately $1.4 million, bringing our reserve balance from $1.3 million at the end of 2007, to $2.7 million as of December 31st. Although historical bad debt experience has been good, current market conditions changed dramatically in 2008, and as a result, additional reserves were required to minimize these new risks.

Our corporate, general and administration expenses decreased slightly to $13.1 million, from $13.2 million in 2007. As Jirka mentioned we recorded non-cash charges of $82.9 million for the full-year, consisting mainly of impairments of goodwill, intangible assets, including media library acquired from the GoodTimes and Lime acquisitions and other related assets. The good will impairment resulting from applying the standards of FAS 142, is primarily driven by adverse financial market conditions that have reduced our market capitalization below the net carrying value. The non-cash impairment charge does not affect our cash balances, liquidity or operating cash flows, but does effect our income statement. The operating loss for 2008 was approximately $89.1 million, compared to income of $10.5 million for 2007.

Turning to the fourth quarter, we reported revenue of $74.5 million, down 8.9% from $81.8 million in the fourth quarter 2007, due to decrease in consumer and retail spending, as well our shift to international licensing model and sale of our UK subsidiary in the first quarter of this year. For the fourth quarter 2008, revenue from our solar segment increased $7.7 million, from $5.8 million to $13.5 million, reflecting acquisitions of California-based solar businesses during the year. Revenue generated by our direct and consumer segment decreased 16.1% to $34.4 million, from $41 million in the fourth quarter 2007, in part due to our decision to reduce catalog circulation and direct response marketing media spend, as well as the overall economic environment.

Revenue from our business segment decreased 24.1%, to $26.6 million during the fourth quarter of 2008, from $35 million in the comparable period last year, due to the conservative holiday orders from our retail customers. These results include the acquisition of SPRI, and sale of our UK subsidiary, both in our first quarter, as well our move to licensing arrangements. Our gross margin was 51.4% of revenue for the fourth quarter of 2008, compared to 62.5% of revenue in the fourth quarter 2007, reflecting the growth in our lower margin solar business, absorption of increased raw materials and freight costs, and our aggressive approach to retail expansion.

Our selling and operating expenses decreased 3.7% to $39.7 million, from $41.2 million in the same period last year, reflecting the impact of cost control initiatives, partially offset by an increase in bad debt reserve. Our corporate general and administration expenses increased slightly to $3.5 million, from $3.3 million in the same quarter last year. For the quarter, depreciation, amortization, and stock compensation expenses totaled $2.1 million. During the quarter we recorded in other expense, a charge of $42.3 million, consisting of mainly of impairment to our goodwill and intangible assets. Of this amount, $27.2 million related to goodwill impairments from our 56% owned solar subsidiary, RealGood Solar and $15.1 million related to goodwill and intangible asset impairments in our direct segment.

Our interest income for the fourth quarter 2008, decreased to approximately $220,000, from $773,000 in same period last year, reflecting a decrease in short-term interest rates, and lower cash investments. During the year we used cash to acquire our new headquarters in Colorado, repurchase our shares, acquire businesses and invest in infrastructure. Included in the impairment charges, we record a net loss of $30.3 million in the quarter or $1.26 per share, compared to earnings of $4.2 million or $0.17 per share in the fourth quarter of 2007. As of December 31, 2008, our balance sheet remained healthy. We ended the year with $32 million in cash and cash equivalent, no debt, and no amounts outstanding on our revolving credit facility.

Our inventory increased by $0.9 million, from $29.8 million at the end of 2007, to $35.7 million at the end of 2008. Including inventory acquired in the acquisitions by products, inventory for the business segment ended the year at $17.3 million, compared to $14.4 million at the end of the prior year. The extraordinary retail climate that developed toward the end of 2008, led many of our key retailers to initially postpone holiday purchases, as they sought to take a conservative position on inventory. However in the first quarter 2009, we expect to recover some of these delayed orders from our large retailers. Our business segment inventory has already been reduced by over $3 million as of today. Our success in reducing direct segment inventory levels, mitigated higher inventories in the business and solar segments. Our total company inventory turns remained relatively constant at 3.4 times, and 3.5 times in the prior year.

Depreciation, amortization, and compensation expense totaled $10.1 million for 2008. Our 2008 capital expenditure totaled $28.9 million. These expenditure includes $19.4 million for our new corporate facilities and related equipment, and $6 million of media library additions. Our total expenditures for 2007, were $9.5 million. Our day sales outstanding for the fourth quarter of 2008 increased to 48 days, and 38 days at the end of 2007, primarily due to increased accounts receivable associated with recent acquisitions. Approximately 72% of our receivables in the trade division are comprised of our top ten customers, household names such as Target, Wal-Mart, Dick's and Amazon.

In 2008, we repurchased 1.3 million shares of our Class A common stock for total of $18.4 million. We had 23.9 million of shares of common stock outstanding as of December 31, 2008. We are now highly focused on free cash flow and prudent cash management. Our solid liquidity affords us the flexibility to both sustain a prolonged downturn in the economy, and to continue grow market share and build brand loyalty with our customers. We are taking the right steps to position Gaiam for long-term growth when the economy improves and consumer spending resumes. Now I will turn the call over to Lynn, to supply more detail in our growth initiatives and business segment.

Thanks Vilia. In the midst of the adverse macroeconomic conditions, we remain focused on the core growth strategies that we've discussed on past calls. These strategies will leverage our sound financial position to capture additional market share, increase sales, expand our role as category manager, and enhance existing distribution to the store-within-store concept. In addition to these growth strategies, we're mindful of the revenue impact of the current macroeconomic shift that has occurred, and have implemented cost savings measures, aligning our overhead structure with the revenue base, ultimately realizing meaningful efficiencies.

This year we'll focus our efforts on free cash flow, and run the business accordingly. We are committed to a long-term outlook of growth and profitability, while maintaining a strong commitment to our brand and mission, to provide products and services that better the lives of our customers, especially in times like this, where consumers are faced with ever increasing financial pressures and stress. I would now like to provide you with some more detail on the results by business segment. In 2008, comp sales for the domestic business segment were flat year-over-year, reflecting strong first half performance of 25% comps, highlighted by the launch of our fitness media category management initiative, followed by a difficult second half that was impacted by adverse effects of the economic downturn, which began in third quarter and intensified in the fourth quarter.

For the last half, comp sales in the business segment declined 16%, reflecting the conservative inventory positions taken by many of our retail partners leading into the holiday season. Many of our largest retail partners cut their buying significantly in the fourth quarter, resulting in low stock positions at retail, that were carried through the holiday buying season. While we seen some nice resurgence with certain accounts after year-end, the overall retail environment remains cautious. While many of our retail partners took a very conservative approach to holiday buying, our consumers maintained their commitment to Gaiam at retail.

For the year, our sell through, with our largest account was up over 30% with every month ahead of 2007 on a comp basis. With a 43% market share in fitness media, our position in the market relative to other fitness media players is strong. Continued growth in our category management and store-within-store initiatives are a key strategy in maintaining our status as the clear leader in fitness media. After successfully implementing media category management with Target, we have secured future expansion of this strategy in sporting goods and our racked accounts. With our recent roll out of category management, we have now implemented this strategy in over 3,000 doors. We continue to expand our retail distribution, and ended the fourth quarter with placement in over 73,000 doors, compared to 70,000 at the end of '07.

Our store-within-store growth continues to enhance the quality of our distribution, with over 10,000 doors as of the end of '08, up from 7,000 at the end of '07. This is an essential part of our long-term retail strategy, and a key step, in securing additional shelf space during this market downturn. Although costs are incurred as a result of expanding this strategy, we are committed to this presentation as a means of capturing additional market share, and maintaining our status as the leader in fitness media for the long-term. As part of our aggressive retail approach, we continue to absorb all costs increases from our manufacturers, due to currency fluctuation and the increased costs of raw materials and freight.

We felt it was important that we maintain our retail price point, and contract our margins, in order to build our long-term branded presence at retail during these difficult times. The recent uptick in the dollar has aided in our efforts to renegotiate manufacturing and freight costs, which will offset the effects of maintaining retail prices, after we move through our inventory in early 2009. Given the deteriorating risk environment, we're focused on maintaining strong relationships with our top retail partners, and closely monitoring the market for potential retail failures.

We've not been immune to the effects of retail fallout in 2008, however, we were very successful in closely monitoring those partners that were at-risk, and managing our exposure. Despite large accounts such as Linens 'n Things, Mervyns, Got Chalk?, Busy Body and Circuit City filing for bankruptcy protection, and in some cases liquidating, we managed our exposure well in this era of heightened credit risk. As Vilia discussed earlier, we took action in the fourth quarter to closely analyze our exposure in this climate, and to increase our reserves, feel we have adequately reserved for this risk as we move into 2009.

Our direct-to-consumer segment, which includes results from direct mail, internet sales, community subscriptions and our direct response campaign, experienced some contraction, as a result of tempered consumer spending amid the economic downturn. In 2008, we streamlined our direct-to-consumer segment in a number of ways. First, we made the decision to consolidate our catalogs under a single Gaiam brand. Second, we reduced total circulation by 16%, or approximately $2.5 million catalogs, reflecting our shift away from direct mail prospecting, toward on-line prospecting. Prospecting through the web, yields similar response rates, greater flexibility, and costs that are less than half that of direct mail.

Finally we focused our efforts to drive growth in our subscription and community-based services. In the direct segment, we also initiated a number of cost cutting strategies that were implemented during 2008 and early '09. These strategies includes renegotiating our inbound and out bound freight contracts to take advantage of lower fuel costs, renegotiation of manufacturing costs, consolidation of our mail order catalog, implementation of a reduced, optimized circulation plan, inventory reduction strategies, and overhead reductions associated with under performing direct divisions.

Some of our overhead reductions were completed in '08, with the benefit realized in the fourth quarter. And we further reduced overhead in March, in an effort to right size this segment, and better position it for profitability. We achieved a 50% reduction in onhand inventory year-over-year in the direct segment, by implementing new inventory management and purchasing strategies. In the fourth quarter, revenue comps for the direct segment declined 15.8%, on a planned 30% reduction in catalog circulation, and overall slower consumer spending in the quarter. Similar to the widely publicized strategies that were employed at retail during the holiday season, we chose to sacrifice some margin, to drive traffic through aggressive pricing and additional free shipping promotions in the fourth Q.

Within our direct-to-consumer segment, direct response revenue declined 15.3% reflecting our decision made in the third quarter to reduce media spending, as media air time costs spiked due to election campaign advertisements. While this decision impacted our revenue in second half of '08, we felt it necessary to reduce the negative impact on operating income. We continue to assess the return on investment, based on market pricing of air time. In summary, we believe we have a strong brand recognition, and momentum that we will continue to leverage during 2009.

We'll focus on the following strategies for growth. We'll increase our media management footprint, by adding specialty, sporting goods and rack stores to our mix. With increased pressure on retail to cut their overhead, this management strategy works well in the current environment. We'll focus on additional space for store-within-store exposure, both with current retail partners as well as new store growth. As our brand continues to perform well at retail, we expect to be able to expand in new categories, and enlarge our footprint with our current partners. We are looking to add titles, or a new brand to our Conscious media library of titles.

We'll add a new brand to our fitness portfolio to expand our demographic to men and younger women. We will continue to extend our reach in other categories, such as wellness through content, as well as licensing, to expand internationally with a focus on Europe and Asia, to grow our subscription base and subscription products, including on-line dating and fitness DVD clubs, add advertising revenues to our direct-to-consumer segment, and build a digital download site, and expand our on-line store-within-store capabilities.

While we remain focused on growth opportunities at the same time we're reviewing every expense line to look for cost savings. We have already taken action on the following items, reduction in force that occurred in late 2008 and in March 2009, which will reduce payroll from by $6.5 million on an annual basis. We also reduced expenses through a consolidation of all of our hosting sites, a renegotiation of our freight contracts, paper and printing costs, decreases associated with our strategy to produce one catalog title versus two, the total reduction in cost for all these initiatives is approximately $8 million on an annual basis. All of these costs reductions should be fully appreciated by Q2. Starting with the UK, and business publications in Q1 of '08, we disposed of several business units, that accounted for approximately $2 million in operating losses for the year.

We are also renegotiating all of our product costs to improve our margin by mid 2009. In conclusion, we believe we are well positioned to continue our strong brand momentum and leadership in the LOHAS industry. We are committed to expanding our high quality, socially responsible content and brands, and will continue to review and revise strategy across all of our business units, to better position Gaiam for future growth and a return to profitability. The solid financial foundation we have built continues to afford us flexibility in the consumer market, that many highly leveraged companies do not have in this difficult climate. We continue to push aggressively to gain placement and market share in retail, creating a distinct competitive advantage for the company today, and in the years to come. We intend to focus on free cash flow, and believe 2009 will be our best year ever, in both revenues and free cash flow. I would now like to open the call up for questions. Operator.

(Operator Instructions). Our first question comes from Mark Argento.

Hi. Good afternoon.

Hey.

Questions around, kind of trends you're seeing, kind of selling versus sell through. I know you had mentioned some numbers for '08. But can you talk,can you give us any granularity around kind of the severity of the kind of pull back in terms of buying in Q4, relative to kind of sell through? And maybe what you're seeing in (inaudible) able to gain back some of those sales that might have slipped out of Q4.

Mark. This is Lynn. In our largest account, our sell through comp in fourth Q was over double digit. And then their orders to us, were a negative double digit comp, so that gives you some indication the consumer was still buying, but the retailers were limiting their inventory purchases.

I assume at some point they run out of inventory, so have you seen a pick up then, a corresponding pick up for Q1 in terms of replenishment.

We seeing some nice resurgence there. And there were definitely some out-of-stocks, that I noted throughout fourth quarter in many of our major accounts.

In terms of the new, I know you guys, it looks like you did a good job in terms of getting additional store-to-stores, even despite tough environment. I'm sure retailers took you up on your offer in terms of moving some product through, and taking some shelf space but any specific new accounts that you can talk about, and what brands you have with those accounts?

Most of the gain came from our racked accounts, which is mostly drug and grocery and that would include mostly The Firm brand.

The Firm, is that brand performing, better or worse in this environment? I know it's more of a value focus, mass market brand, is that brand people trading down to that brand?

I think it's more, we look at the brand by channel. And we keep the Gaiam brand in Target and above in your specialty retailers, in your sporting goods. And then we use the Firm brand more in the grocery and drug channel. So as people change the channel in which they shop and trade down, we are seeing growth in the Firm brand.

The catalog, it looks like you went from one catalog, or excuse me, two brands to one brand. Is that impacted at all in terms of, your customer acquisitions vehicle, I know that's always been a key vehicle for you guys is the catalogs. Any thought about how you, could continue to drive customers even though you might have fewer, one less brand and fewer catalogs out there?

As, y I stated earlier, we're really moving from prospecting through direct mail to prospecting through Internet. Or we're using affiliate marketing, search engine marketing, email campaigns to acquire customers. It's about half the cost of traditional direct mail, and it's working very well for us right now.

Okay. Okay. And then Jirka in terms of communities,s it seems like that's still going to be increasingly bigger focus for you. Can you talk about some of the ways, you are going to be able to whittle down the losses in there? I think you said, it was a $7 million loss if I'm not mistaken for the full-year '08. Anything you can point to there in terms of ability to, to take down those, that burn rate?

Yes. You're exactly right. My focus will be, yes, I mean, we try to really aggressively build it this year. And we kind of said, we kind of have a lot of cost, we kind of launch couple new program actually recently right now in fourth quarter. Right before Christmas we launched Illumination University, which is kind of an educational. And just right now in the first Q, we launched Gaia Soul Mate, which is dating site. And so we go into probably pair down to the new club developments, and because that's mostly a lot of that cost is, and development and testing new clubs. So rather than that, then we kind of plan to also in fourth Q before aggressively market, but it was the consumer spending, we decided not to do that. And while we want obviously grow the communities, we really kind of refocus on the clubs that they kind of already established and more profitable. And counted costs from the development and new clubs and so that's most saving will come from. But we want to put several club together, and to start to do more like offering across, across the clubs.

We spend a lot of money to putting new community, new, continuous system for the community, because we couldn't really get one on the market. There's not one existed, so we have to write it. So we did it. And as soon as all this launch, we'll cut -- the additional clubs launches. And so that's mainly most of the savings will come from. So it's not we don't want to keep growing it. But we really want to make it as soon as possible income contributor, rather than chasing the number of members, we really want to get positive cash flow as soon as possible.

In terms of, when you had mentioned you guys had reduced payroll by over $6 million. What, in what areas did you find that you could trim back, and not really jeapordize the future growth of company?

We trimmed back in all areas. with the exception of sales.

We cannot trim [ MULTIPLE SPEAKERS ]

Part of it came from integration of acquired businesses, such as SPRI and New Mart, bringing them all in house, and really leveraging our corporate facility and shared services here in Colorado.

Basically, consolidation acquisition was the big part. We don't really planning, not saying we won't do, but we won't definitely focus acquisitions. And so we tried kind of tried to reap the benefit from the work we already did. But so have have in mind, a lot of you know the savings actually came now, just recently in March, so there's also some severances and stuff like that.

And anything --

On a net, it's possible $6.5 million dollars annual basis -- annualized basis obviously from like now going on -- going forward.

The freight paper printing, what have you, that takes that number up to $8 million for the full year?

That's correct.

And then last, in terms of -- it sounds like you're going to be more focused on trying to generate cash, especially in this environment. What, is this operating cash flow, less CapEx, kind of pre-capsule matrix, if I look back in '07 you guys did over $13 million in operating cash flow, so it's basically that number less whatever CapEx that you spend, that's how you guys define free cash flow? I just want to make sure I'm looking at this the right way going forward.

Yes, it comes right from our cash flow statement in the Qs. Okay? So basically you take the cash flow from operation, less CapEx. So that's how we define it. So you can kind of see it right, its technically a reported number.

For '09, so you had mentioned about, it was $4 million, $4.5 million in CapEx is kind of your, your assumptions. I think you said $9 million in stock comp, half of that in CapEx.

Yes that's roughly, our maintenance CapEx is probably, like $2 million minus. The rest is kind of the new titles for our media, and we also probably going to have this year like $1.5 million to finish our facilities. So we can do all the production and catalogs, photographs, everything in house. And so they will be still, well its pretty much already finished, but it's kind of run through this first quarter but ex that, it's probably less than $4 million.

Last question in term of any of the additional writedowns. I know in the last couple quarters you took some impairments, and you were able to generate some tax benefit. Any additional tax benefits from any of the additional writedowns that you took in the quarter?

Not really meaningful because this was really goodwill, and so the good will was pretty much just driven by the FAS 142. Which because our stock price went so low, that our carrying value, the book, is effectively higher than market value, so goodwill is in excess. And so in the segments where we experience losses like solar and direct, we basically had to impair goodwill. So there's really no saving, tax saving on that. But basically we generated $15 million, $15.5 million of tax. And the order received for $3 million from IRS. And now we're still going to get another 5.5. And, so it's go -- it's obviously cash flow position, it's going to be -- end-of-year was 32. And so we, it's really the question, are we going to have a really nice cash flow this year? I said we expect of over $20 million of free cash flow. So that should stay in the balance sheet, unless we buy shares or do something like that.

Great. I appreciate it. Thank you.

(Operator Instructions). Our next question comes from Ed Aaron.

Thanks. Good afternoon everybody. Congrats Lynn, congrats on the promotion.

Thank you.

I'm trying to better understand your retail strategies. And I was just hoping you can help me get my head around some of the structural differences between the category management, and the store-within-a-store? And also could you maybe give me a sense of where the penetration rates on both of those could go over time, and what that might mean for margins from a mix standpoint.

First the category management strategy or media category management is. where we go in and offer to manage the media section for a retailer. By doing this we bring in third party product to round out the assortment, and on the third party product we take a lower margin. But we do then control the space, and we manage it for the retailer. It's been very successful for us at Target, and we're looking to really grow that business particularly in the sporting goods channel. We're talking to most of our major, sporting goods retailers about this kind of category management right now.

So that's one position. Then on the store-within-store, which is really all Gaiam-branded profit, Gaiam branded, or Firm branded, or a combination of the two, there's still additional growth just within even our own retailers, that we already have store-within-store, by expanding our footprint. We're working with several of our sporting goods chains right now to develop yoga shops versus just the fitness category, and to expand our footprint with in the book channel with our personal development media. So lots of opportunity with current retailers and then expansion in grocery and drug with our mass market brand under the Firm.

Okay. How much of your sales falls into what you call an other bucket, so not a store-within-a-store, and not category management?

I don't have a break out on that.

We never really looked at it this way.

We never looked at it this way, but our largest accounts all do store-within-a-store, with the exception of Wal-Mart. It buys individual titles.

Yes.

Okay. And then just one last question on it, did you see any differences in the inventory destocking when you compare, when you compare category management versus store-within-a-store versus other?

In the destocking?

Yes. Well.

Restocking?

It sounds like, your retail accounts were working down inventories in last quarter. I was just wondering if that was, if that consistently happened, regardless of the way you service those accounts? Or if where you manage a store-within-a-store, that maybe it would have been less?

Well we did rack. Where we did the racking, then we control that inventory, and yes we saw that those were filled in because we actually do the racking and write the orders. But any of the other retailers, I believe it probably came down from upper management to cut their inventories, and it doesn't matter where, they just had to cut their buying.

Understood. Thank for taking my question.

Thanks, Ed.

Next we have Michael Harkins.

Thank you. But my questions been about the destocking, it's really quite remarkable, but you've answered it. Thank you very much.

We have no other questions in queue at this time.

Thank you we would like to thank everybody for being with us, in these difficulty times, hopefully you will be with us next time. Thank you very much.

The call has ended. Please disconnect.