Gaia Inc (GAIA) 2010 Q1 法說會逐字稿

Welcome to the Gaiam first quarter 2010 financial results conference call. All lines have been on a listen-only mode until the question-and-answer session. (Operator Instructions) Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would like to turn the call over to Mrs. Christine Gleim from ICR. Ma'am, you may begin.

Thank you. Thank you, everyone, good afternoon. The following constitutes the Safe Harbor Statements 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 risks 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 the forward-looking statements.

On the call today representing Gaiam is Mr. Jirka Rysavy, Chairman, Lynn Powers, President and CEO, and Carole Buyers, Vice President of Corporate Finance and Investor Relations. Now I would like to turn the call over to the Company's Chairman, Jirka Rysavy. Please go ahead Jirka.

Thank you, Christine. I'd like to welcome you on our regular quarterly call and I'm pleased to say again that we are happy with our double-digit revenue growth and the significant improvement in our operating performance. Revenue for the first quarter increased 11.2% to $66.2 million from $55.9 million in the same quarter last year.

This increase was all internal and marks our second consecutive quarter of double-digit internal revenue growth which is back in line with our historical growth rates. It was a strong quarter for our business segment which grew over 20%. We are especially pleased with our operating expenses declining by $4.4 million from the same quarter a year ago even with 11% growth. As a percentage of revenue, our total operating expenses improved 1380 basis points to 52.7% from 66.5%. The combination of increase of revenue and decrease of expenses reduced our net operating loss to $250,000 or $0.01 from $3.1 million or $0.13 in the first Q of last year.

We ended the quarter with $48 million in cash, even after paying about $2 million for purchase of Discovery Media Catalog Library. We still have no debt. In the quarter, growth in our media boosted Gaiam to number four US ranking in non-theatrical DVD segment with 10% market share, which is dramatic improvement from number six and 5% market share which we had in 2009.

During the quarter, we also grew our branded store-in-store presentation to 12,000 doors from 11,000 doors which we had at end of the last quarter. In the latter half of the year we also see the benefits of additional Discovery title releases and also a launch of Reebok Fitness accessories media which will give us additional 12 feet to our Target store presentation. We are also focusing our digital market, our digital media market, and plan to on to Gaiam TV as a flagship for our digital library during the third quarter.

In March, we commenced an annual dividend, cash dividend, of $0.15 per share. The purpose of dividend is to cover the cost of capital for our shareholders without limiting our growth opportunities. The first annual dividend was paid to shareholder record of April 1. As we stated on our last call, our goals for 2010 are double-digit revenue, internal revenue growth, which shall bring our revenue for the year to over $300 million, to continue improvements in our operating result and grow our overall market share in non-theatrical media. It's also meaningful to point out that because our deferred tax assets, the next $30 million of the our income will be tax free. Now I will turn the call to Carole who will provide more details on the numbers and then to Lynn for an operational review. So Carole?

Thank you, Jirka. For the first quarter of 2010, net revenue was $62.2 million, an 11.2% increase from $55.9 million for the first quarter of 2009. Net revenue from our Business segment increased 20.7% to $22.6 million for the first quarter of 2010 from $18.7 million for the same quarter last year. The revenue growth in our Business segment reflects our success within media category management and increases in Discovery sales coupled with some improvement in the retailer climate.

Net revenue from our Solar segment increased to $15 million for the first quarter of 2010 from $9.5 million for the same quarter last year. For more information concerning the results of Real Goods Solar, a separate earnings call will be held tomorrow May 6th at 8:30 AM Pacific Time.

Net revenue generated by our Direct to Consumer segment for the first quarter of 2010 decreased 11.1% to $24.6 million from $27.7 million for the first quarter of 2009 as we continue to strategically reduce our catalog circulation. In the quarter we reduced circulation by approximately 21%, Lynn will elaborate further on our business in Direct to Consumer segment results in just a moment.

Overall gross profits for the first quarter of 2010 was 51.8% on net revenue compared to 55.4% of net revenue for the same quarter of 2009. Excluding our Solar business, gross profit for the first quarter of 2010 was 59.7% compared to 61.8% for the same quarter last year. A higher mix of media category management sales reduce gross profit margins modestly for the quarter.

Our selling and operating expenses for the quarter of 2010 decreased 12.3% to $29.8 million from $33.9 million for the first quarter of 2009, even with 11% growth, reflecting a current run rate well in excess of the $10 million in annualized cost savings initiated in the first quarter of last year. Corporate G&A expenses decreased approximately $300,000 to $3 million for the first quarter of 2010 from $3.3 million for the same quarter in the previous year. Total Company expenses as a percentage of sales decreased to 52.7% in the first quarter of 2010 compared to 66.5% in the first quarter last year.

In a seasonally weak quarter for us, our operating loss for the first quarter of 2010 improved to a loss of $563,000 from a loss of $6.2 million during the same quarter last year. We recorded a net loss of $250,000 for the first quarter of 2010, or $0.01 a share, compared to a net loss of $3.1 million or $0.13 per share for the first quarter of 2009.

As of March 31st, 2010 our balance sheet remains healthy. We ended the year with $48.1 million in cash and we continued to carry no debt. While we generated $2.1 million in cash from operations, we invested $2.4 million in media content. In the quarter we acquired the licensing rights for the Discovery Channel's catalog from it's previous licensee. This increases our exclusive licensing rights from new releases to the entire library of Discovery Channel's programming.

Inventory turns for the first quarter of 2010 improved to 4.7 times from 2.7 in last year's first quarter reflecting a broadened strategy to improved inventory management across all divisions. Our day sales outstanding for the first quarter of 2010 increased to 62 days from 46 days in the first quarter of 2009, reflecting higher receivables from large retailer accounts which are on longer pay cycles and an increase in Real Goods Solar receivables which was driven by a large commercial project. Approximately 84% of our receivables in the trade division are comprised of our top ten customers. Overall we are pleased with the collection efforts and our ability to minimize credit risk.

Depreciation, amortization and stock compensation expense totaled $2.4 million for the first quarter of 2010, capital expenditures were $463,000 and video production costs were $673,000. We had 23.2 million outstanding common shares as of March 31st, 2010.

As I mentioned in our last call, for 2010 we are comfortable with growing our revenues in the double-digit range. We expect a tax rate of approximately 36% and the current seasonality in our business makes the earnings more concentrated in the back half of the year. In a seasonally weak quarter we improved our operating performance significantly, with a continued focus on diversifying our consumer offerings and reducing costs, we expect to reduce the seasonality over time. We look forward to the latter half of the year with the continued growth of Discovery titles and the expansion of our footprint at Target by 12 feet with Reebok. Now I'll turn the call over to Lynn to provide more detail on our growth initiatives by business segments.

Thanks, Carole. We delivered solid results in the first quarter. Our net revenue increased over 11%, our Business segment revenue increased over 20%, and we reported a 1380 basis point improvement in expenses. As the US emerges from this economic downturn, we believe we're well situated to build on on our operational strength both internally and externally.

From an internal perspective, while we've dramatically cut costs over the past year, it's important to note that we've also improved the efficiency of our organization. We've consolidated businesses and realigned our assets with the mission of one Company, one brand. As a result, best practices are being recognized in among and between our Business and our Direct to Consumer segments.

From an external perspective, while the downturn has weakened the competitive landscape and accelerated the progression towards a more efficient digital media model, we are poised to leverage our strong market position to become a premiere non-theatrical content provider in all channels of distribution. Our unique multi-channel business model and sound balance sheet will enable us to adapt and prosper in the changing environment.

Now, I'd like to review the results for our Business and Direct to Consumer segments, as well as focus on the opportunities that lie ahead for us in 2010. First, I'll provide you with a little more detail on the results for our Business segment.

In the first quarter sales for the Business segment increased 20.7% versus the first quarter of 2009. We continue to be encouraged by retailers buying patterns as well as retail sell through to the consumer. Our revenue growth in the quarter was broad based in nature as growth was fairly consistent among our top 25 accounts, and our sell through was consistent with our sell in at retail. During the quarter we continued to ship titles from Discovery franchise licensing deal and we are seeing the relationship with Discovery help grow our non-theatrical market share and increase our high-margin media sales.

Our store-within-store and category management initiatives are key strategies in maintaining our status as the clear leader in fitness media. Our store-within-store initiative continues to enhance the quality of our distribution which increased over 12,000 doors as of the end of the quarter, up from 11,000 at the end of first quarter last year. In addition, our category management program is in 4500 doors up from 4,000 in the end of the first quarter 2009. Our store-within-store and category management initiatives resulted in driving market share in fitness media category this quarter to over 41%.

Fitness media also experienced a growth of almost 4% for the quarter, according to Nielsen's Video Scan, against the decline in overall DVD sales. In addition, with our category management strategy, our controlled market share improved to 72% in the first quarter of 2010 from 61% at the end of 2009. As Jirka mentioned, our non-theatrical market share improved dramatically to 10% in the first quarter of 2010 from 5% in 2009.

As previewed in our last quarter comments, the shakeout in retail store fronts has lowered our total domestic retail distribution to 67,000 doors as compared to 70,000 doors last quarter. Most of the decline in doors was attributable to Hollywood Video and Blockbuster store closing, which are not in our top 25 accounts. As a result, these closures have not had an impact on revenue.

In regards to future opportunities in our Business segment, we expect double-digit revenue growth in 2010 to come primarily from this segment. We will achieve this through three main initiatives. First, continue to focus on additional space for store-within-store exposure both with current retail partners as well as new store growth. Despite store closures and consolidation among retailers, our brand continues to perform well at retail and we expect to be able to expand in new categories and enlarge our footprint with our current partners. In addition we'll continue to focus on content. With our studio complete and the remainder of our currently owned content in the final stage of being digitized, we're now focusing on utilizing our studio asset to produce lower cost, low cost content for kids, DVDs, online courses and web downloads.

Second, we expect to expand our revenue and market share in non-theatrical with the Discovery Channel brands. We're pleased to announce that during the quarter we acquired the back catalog licensing rights for the Discovery Channel HG Theater, Investigation Discovery, Science Channel and the Military Channel. With this investment, we now have access to the entire Discovery library. Previously we would only obtained catalog rights when the old licensee rights expired.

With respect to the other Discovery Channels, Animal Planet and TLC, we've had access to new releases since November and the catalog library since January. This represents a huge win for us and provides a platform for growth in non-theatrical content while continuing the long-standing tradition we have for providing customers with the highest quality authentic content that matters.

In 2010, we intend to launch not only new release titles with Discovery but to work towards creating non-theatrical store-within-store concepts now that we have access to the entire library. As we've shown in fitness media by creating a managed home for a category of media, we can help grow the category even in a down market.

Third, Gaiam will gain revenue and market share by launching Reebok, fitness media and accessories in the last half of the year. Overall, we're excited about the new Reebok product line we created with the Reebok team. The result is improved product, packaging and innovation with respect to the breadth and depth of the product offering. The teams tapped into Gaiam's extensive knowledge of the fitness market, it's unique merchandising strategy, which incorporates media with fitness accessories, and has combined it with Reebok's incredible marketing power and new technology.

In June we will begin to ship the first phase of Reebok distribution to Target, which includes replenishment of the current product lines sold at Target. The second phase of our Reebok distribution will begin in August when we ship product to Target in preparation for it's annual September reset. The September reset will be our first opportunity to implement a full scale store-within-store concept accompanied by a complete rebranding of Reebok packaging and at creating a new, exciting and meaningful destination for the Reebok consumer. In total, we expect the 12 foot Reebok store-within-store to begin to materially impact sales in late third quarter of 2010.

Next I'd like to review our Direct to Consumer segment first quarter results. In the first quarter of 2010 revenue in our Direct to Consumer segment declined 11.1% as compared to the first quarter of last year on a planned catalog reduction circulation of 21%. Much of this revenue decrease was self-initiated as we once reduced prospecting and optimized our sales on the web. As we circulate fewer catalogs and become more efficient with web marketing, we continue to grow our Internet revenue. In this segment, we focused on a number of strategies to help reduce costs and improve profitability. We continue to optimize circulation and prove the efficiency of prospecting on the Internet. We also continued to reduce distribution and inventory costs. As a result, in the quarter we were able to improve the operating loss in this segment by $1.4 million despite a sales reduction of $3.1 million.

Now in turning our attention to future opportunities in the Direct to Consumer segment. While the growth in 2010 will come primarily from our Business segment, the growth in 2011 and beyond will also come from our Direct to Consumer segment. We believe in investing in it's future prospects and are committed and on our way to achieving profitability in this segment. We'll achieve this with the following initiatives. Continuing to optimize our catalog business through additional web marketing and further cost reductions, beginning to utilize our retail packaging to highlight our digital content and market the Gaiam brand and story, improving the look and feel of the Gaiam website by June 1st.

We'll achieve this through incorporating a number of initiatives we've shared with you over the past two quarters. First, improving the marketing of our corporate brand and mission. The website will better represent our vision of one brand, one Company. Over the past year we've consolidated a number of businesses under the Gaiam brand and are focused on synergies between our Direct and Business segments.

Second, launching our digital platform. We're prepared for the transition from DVDs to digital distribution by continuing to digitize Gaiam, Discovery and other partners content and launching our own platform called Gaiam TV.

And third, transitioning our commerce portal to Gaiam Life, a related web portal that utilizes digital content to create relationships, add members and sell medium products. As a result, our commerce portal on gaiam.com will be more solutions oriented versus transaction oriented.

Overall, we continue to focus on cost reductions across our organization. In Q1 2010 we reported cost saving run rates in excess of our anticipated $10 million on an annualized basis. We continue to seek new efficiencies and cost reductions and expect to realize another $2 million in annualized cost saving benefits beginning in Q3 with the completion of our warehouse consolidation. The cost reduction and consolidation will have a one time cost of approximately $0.01 in June. However, this consolidation even without additional revenue growth will make our seasonally weak first and second quarters profitable in 2011.

In conclusion we remain focused on our business strategies in a modestly better retail climate. Our distribution footprint at retailers and our strong balance sheet will afford us the opportunity to grow revenues through our new partnerships and titles. Our leaner cost structure will allow us to leverage our business model as we look ahead to the latter half of this year and continue to focus on profitable growth. Thank you, and now I'd like to open the call up for questions. Ashley?

We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Mark Argento. Your line is open.

Hi, good afternoon.

Hi, Mark.

Could you talk a little bit about now that you have the full Discovery product line in terms of the catalog and then of course the new releases as well, some of the things that you're doing, innovative things in terms of being able to market that into the retail channel and maybe demonstrate a couple-- maybe a program or some traction that you've had with some retailers in terms of that new offering?

Okay well a couple of things. First of all we're in the process of going out and marketing the ability to have a category managed section for Discovery Channel. We're testing this right now in Target and we've had exposure, it's supposed to end in April and it's now been continued through July, so that's a good sign. We're also going out to places like museums and pet stores and trying to put together store-in-store displays. Like in PETCO, it would be for Animal Planet. In museums it would have all the back catalog of Discovery Channel products.

And as we've shown with fitness, when we do that, we can help grow a whole category. Because consumer finds a home and comes back and buys more product from that home. In this down DVD market, fitness grew up 4% last quarter. There was no other category of DVD that grew. So, it's a great concept and the retailers are buying into it.

Sure, sure. In terms of the-- it sounds like you kind of-- you're under a buy in or take it earlier than maybe you had originally thought the back catalog as well. Was that-- I mean how did that transaction come about was it just a situation where the previous owner was ready to part with it, or what's the opportunity with that?

We approached the previous owner because we felt we had more opportunity when we had the entire back catalog to create the store-within-store, so we approached them and were able to work out a deal.

Great, okay. And then in terms of Reebok, you talked a little bit in your prepared remarks, it sounds like August for the September reset should be a time where we're going to see a lot more, or be able to start to see that product and in particular, the refresh product at Target. Any opportunity to leverage some the work you put in in terms of the new branding and what not in terms of selling that to say other mass-- through other mass channels, or retailers, sporting goods, what are the opportunities to really expand that product line into other retailers as well?

We're absolutely working on that right now. We've taken it out to several sporting goods accounts, and we definitely believe there's opportunity for that by fourth quarter.

And in terms of you, I know when you originally had consummated that relationship with Reebok in terms of the license deal, there was the opportunity to do some maybe some media with the Reebok brand there. Any further thoughts to that, and would that roll out kind of consummate with the new product set this fall?

Yes, we actually shot some of the Reebok media in our new studio last week.

Great, and in terms of the distribution channel there any-- would there be an opportunity to do any Direct to Consumer with that, or would that all be pretty much retail?

We'll do both, Direct to Consumer and retail, absolutely.

All right. And let's see. you touched on fitness category growing, was it 4% in the quarter, is that right? Is that right.

That's correct.

And do you happen to have the dollars versus units, was that dollar growth of 4%.

It was unit growth.

Unit growth. And then when we think about overall kind of trends at retail that you're seeing, clearly retailers have restocked after kind of burning down all their inventory, I think I asked this question last quarter, but how do you feel about where the retailers inventory levels are right now and especially given what looks to be a little bit better more healthy consumer environment? Do you-- guys in out-of-stock situation, or do you think they're at a decent level?

We're actually very pleased to see that our sell-ins and sell through were pretty close this quarter. So I think everybody's caught up on their inventories and now this is true internal growth.

Got you. All right and then, Jirka I know you've been focused more and more on the, some of the other Direct to Consumer strategies, the Internet, online initiatives. Anything to report there in terms of, I know you talked about the Gaiam TV, but anything else that we could sink our teeth into in terms of opportunities of start to see some revenue contribution maybe later this year or in 2011 from some of those initiatives?

Well I mean there's a lot of-- obviously we, as Lynn kind of mentioned, we kind of start to see a gain, push of growth in our Direct segment as we kind of tried to take the expense out of it. And so now obviously the digital strategy when we can go Consumer Direct with our 10 million customers and we own pretty much rights to content to most of our products which is very different than most of our studios. So we are really focusing on that and Gaiam TV is just kind of the name to kind of cover all of the initiatives under that kind of approach. So there's probably several initiatives will come out of that as we try to take a more aggressive role and maybe play a consolidator or service house for bigger retailers. Because there's lot of parts of technology on this continuities and stuff what's not available on the market where you have to set up. So it's a quite project, but we will see that later in the year what we're actually doing. And I think the presentations going to be pretty compelling.

Sure, okay. And then just lastly in terms of Real Goods, it looks like they put their numbers out, look like a pretty solid quarter even made I think a little bit of money which is surprising, typically in Q1 I know it's difficult from a seasonality perspective so that's great. But any thoughts in terms of the opportunity there, strategically what makes sense with that business relative to your pretty sizable ownership stake?

It's-- we glad it's growing. It's third quarter, they actually do pretty well and we kind of open and kind of see how the markets will happen there. It's kind of good initiatives right now where most of the states are or people even counting California are getting money to finance the Solar by effectively appropriate tax levy which definitely changing the game especially in a residential market is very helpful. And so with the extension of the credit, it's definitely a good market right now to sell into. Also we expect the cost there of panels will keep declining. So it's a good opportunity so we have to kind of see how the market places sell out and when would we do. So I would kind of (inaudible) just to watch.

Great. Well, thanks. Looks like things are going well. Congratulations on the decent quarter. Appreciate the answers.

Thank you, Mark.

Your next question comes from Jim Duffy. Your line is open.

Thanks. Mark covered a number of my questions. I will say it's nice to see the early success you have on being test established for store-in-store presence is outside the fitness category. I wanted to talk a little bit about the catalog business in improving (inaudible), what your thought process is with regards to perhaps increasing distribution given that consumer spending is loosening up there might be some improved yields on that?

Jim, we are actually looking at that for holiday right now. It-- we had planned to continue to decrease, but we're seeing pockets of consumer spending. So we're analyzing right now what our circulation will be for holiday.

Okay. And then Lynn you mentioned something that I though was interesting, saying that the downturn you feel accelerated the progression to digital delivery. Beyond just what you're seeing with the closures of stores like Hollywood Video, what is the evidence that see of that in your business or specific to the fitness category?

I-- in the fitness category it's actually opened up an opportunity for us. Because what happened is as they were contracting DVD space in the entertainment section, it opened up the opportunity for us to create a store-within-store where the consumer is actually shopping for fitness media within either a sporting goods department or a fitness department. And based on that, we're actually seeing growth in the category. So I think there is a whole new business model here of creating store-within-store where the consumer is looking for it.

And also you kind of saw that you grew 1,000 doors for our store-in-store, which is pretty big for us. And this kind of tougher economy kind of weakened a lot of our competitors, so our control shares kind of grown nicely so we have more to say what's going there and a charge for controlling this space. So kind of-- and it's because the category is still growing, it's going to create some opportunity for us, but we really want to use that strength and really forge ourself into the digital front.

Is there any evidence other than maybe anecdotal that consumers are spending less on health clubs and more on fitness at home?

I don't have any stats, just anecdotal information.

Okay well nice to see the fitness category up as well. Thanks for taking my questions.

Thanks, Jim.

Your next question comes from [Andrew Burns]. Your line is up.

My questions have been answered. Thank you.

Your next question comes from Robert Routh. Your line is open.

Yes, good afternoon, guys. A few quick questions. I mean first strategically when you look at the landscape and we see what's going on with libraries and valuations and you guys have done a great job, and you kind of have a different model than everybody else and different kind of content, it's non-controversial with any (inaudible) especially now. What do you see out there as far as opportunities to grow?

I mean we know Miramax is for sale, they're no bidder to the right price, MGM, (inaudible), Time Warner said, or (inaudible) said yesterday, it's over priced and everybody's knows that it is, Lionsgate, what's going to happen there with ICON, [Peakette], I was wondering if you guys have any discussions with them about possibly acquiring their fitness library because and I don't think (inaudible) would want it, and I don't think it's strategic to Lionsgate. Stars media, heard there's no bids out there, but there's certain things for sale there.

I'm just curious it seems with your cash balance and your expertise, it's kind of in your favor, it's a buyer's market and you can kind of go in and cherry pick, thus I'm wondering if you could give us any sense as to if you've done anything along those lines, or there's (inaudible)?

Yes, you're absolutely right. There's definitely-- there's opportunity on buyers side start to be very interesting. And-- because a lot of the players are strapped with the debt and the cash flows are, while we have a good cash flow and definitely right now capability, we kind of took a little breather from acquisition which consolidated our expenses, which I'm glad we did because it's like much easier to operate with so much less expenses and hopefully we brought the Company to a point that, as Lynn mentioned, right now with the additional savings that we kind of run all the quarters profitably. And so we definitely are looking in some of these opportunities as you mentioned, the question, what do we take? Do we take pieces like what we just took from Discovery, which those are kind of no brainers and that's kind of good and safe for us to do or do we take a bigger play? And I think over the next six months it would be interesting.

And there's also what we really watch, who owns which digital rights because that's kind of as you know kind of really questions because a lot of the people when the time the contracts, they don't exist, so it's kind of questionable who owns what. And so with our good positioning and kind of expanding our control space like the store-in-stores, we can play increasing role in kind of all the segments. But how this all shaped up with different players like Lionsgate, Miramax, yet to be seen. And we kind of be talking to a couple of players right now and we'll see where it goes because it's definitely getting more and more interesting as money is kind of harder to come by, and we probably are the only Company with good balance sheet.

Okay. And just as a follow up to that, would you consider under the right structure, for example, if you're taking a look at Lionsgate with ICONs situation and knowing what they're going through, they're clearly cleaning their house and trying to get things done., or with Liberty Media, given their desire to avoid taxes at all costs, would you consider exchanging Gaiam equity for titles or for subsidiaries say with Liberty and align yourself with company in that way as a way to both get titles, increase the shares outstanding and be able to kind of leverage your expertise with another company or is that something you wouldn't consider?

We actually looked at that for especially a reason, we kind of have plenty of cash, so we prefer to pay cash and also we have issue with liquidity so that will open the question depends who it is and how it plays, but it's definitely opportunity. We get approached by a few players too who try to put some more money in our Company for stock, but it will depend on some kind of a larger deal. But I think that liquidity is something what we have in mind. And-- but it's all-- overall it's going to be a question of the right price and right opportunity.

Okay. So but if the right opportunity did present the right price and you were comfortable, you wouldn't mind something like Liberty or Lionsgate or whoever owning a percentage of your Company in exchange for titles in an expanded relationship, you would entertain that?

Yes, we would entertain that, for sure.

Okay, great. And one other follow-up question on kind of a different topic but similar. Obviously you've gotten a lot of celebrities to come and endorse the Gaiam brand, this is kind of a two part question. The first is we saw the bundling of your move to videos and the products like Marisa Tomei and the hula hoops and things like that. I'm wondering if you can talk about how-- what the opportunities are given what you're doing going forward for more Trudie Stylers and Marisa Tomeis to kind of endorse the brand and align it with a product?

And also along those lines, what you plan on doing, I know you have one brand kind of motto other than Reebok, the Gaiam brand, what is Management's plan to increase possible awareness of that brand over the next 12 months and get to realize the value of the equity just inherent in that?

Well first of all, as you know, up until this past year we can of avoided any kind of bringing in personalities with the Gaiam brand. But particularly in someone like a Trudie Styler, we felt she certainly had the authenticity to combine her with the Gaiam brand and we found that it's worked really, really well. There's a couple of other things like that that we're working on, it's great exposure for us. And Trudie has been terrific about hitting the PR trail and really working the daily talk shows and all and promoting the Gaiam brand. So it's worked, and we see other opportunities to do that.

We also think we have a tremendous opportunity just to start utilizing a little bit more on our retail packaging and branding on our DVDs to promote the Gaiam brand and who we are as a lifestyle Company. And I don't think we've done enough of that. And also to promote the opportunities in digital. And we have enough of that in digital, to be a DVD with free digital copy and start really letting people know who we are. So we have plans with it, some of them I can't talk about right now, but it was a test this past year and it's working.

Great. ANd just one quick one. You probably don't have an answer to this, but I focus on the brand because you guys are kind of like the Nike swoosh footwear in terms of what you do. Nobody else has a brand or an identity like you do and yet public awareness of it isn't what it should be. Have you ever done any internal evaluation or (inaudible)? What do you think it would cost to build a brand like Gaiam from scratch. What is it worth what you've built, the infrastructure, the brand, the relationships?

Lionsgate I know did an analysis of this awhile ago and they told investors, hey cost over $250 million just to build our distribution infrastructure, they get no credit in the stock price. I'm curious just to get a sense as to what you think you guys have invested in the Gaiam brand and billing this Company since inception to give the census to what may or may not be reflected in the value.

We won't give you a number of what it will cost because we never kind of look at it what it will cost to duplicate. But we actually did over last Board meetings to really kind of decided to kind of spend more time and more money in the branding. So in this year's budget, we have some branding initiatives kind of behind what we're doing this year more than we ever did on increasing the visibility of the brand because I think we kind of have a brand but we never really spend time to marketing the brand per se. We kind of build it. But-- so we kind of try to round it up so its more visible and more clear. So it's a big initiative for this year. But to kind of make an estimate of what it will cost, we can take a shot at it but we never did that.

And I think the other thing is at what price authenticity. Because it's one thing that we have brought the brand up with is the authenticity. And in many cases we have in the past foregone revenue in order to maintain the authenticity. So the brand has a tremendous brand integrity. So we want to make sure that yes we really want to grow it and we really want to make make people aware of it, but not at the cost of the integrity we've built over the last 15 years.

Okay, great. Thank you very much.

That now concludes the Q&A portion. I would now like to turn the call back over to Mr. Rysavy.

Well, we'd like to thank everybody for being with us and hopefully you with us the next quarter. Thank you very much.

Thank you for participating in today's conference call. You may disconnect at this time.