Gaia Inc (GAIA) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gaiam First Quarter 2012 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, May 9, 2012. I would now like to turn the conference over to Norberto Aja, Investor Relations. You may begin, sir.

(Inaudible - technical difficulty) 2012 First Quarter Conference Call. Joining me on the call today is Gaiam's Chairman, Jirka Rysavy, Lynn Powers, Gaiam's CEO, and Steve Thomas, Gaiam's CFO. Before we get started, however, I would like to take a minute to read over the Safe Harbor language. The following constitutes the Safe Harbor statement of the Private Securities Litigation Reform Act of 1995. Except for historic information contained herein, the matters discussed on 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 business, the impact of competition, and other risks detailed from time to time in the Company's SEC filings. The Company does not undertake any obligation to update forward-looking statements.

With this, I would now like to turn the call over to Gaiam's Chairman, Jirka Rysavy. Please go ahead, Jirka.

Thank you, Norberto. And good afternoon, everyone. 2012 started for us on a positive note. Revenue for the quarter increased 26% to $47.3 million. Internal revenue growth was a strong 25%. This direct segment growing organically by 19% and the business segment by 30%.

Gross profit rose over 30% to $27.1 million with the gross margin improving 150 basis points at the same time as our overall expenses decreased 350 basis points, driving a $2 million improvement in operation income. The operating income improved from a loss of $1.6 million to an earnings of $0.4 million, and EBITDA to $2.6 million from a loss of $49,000 in the first quarter 2011. Net income for the quarter was $500,000 or 2,000--or $0.02 per share, as compared to a loss of $1 million, or $0.04 per share in the same quarter last year.

These comparisons of what I just quoted assumed the deconsolidation of Real Goods Solar at the beginning of 2011, and also omits the one-time acquisition related to Vivendi charge.

Our first quarter operation results were pretty much independent of any contribution for Vivendi Entertainment, which we acquired on March 28, and which contributed only like $300,000 for revenue into this first quarter. We have recorded a one-time charge of $1 million--of $1.7 million for the Vivendi acquisition, reflecting primarily the banking, legal, and audit fees.

The combination of our trade business with Vivendi positions us as the largest independent and third largest overall non-theatrical media distributor in the United States, behind Warner and Disney. We expect Vivendi to contribute approximately $25 million in revenue and about equal amount in gross profit for the next 12 months.

We are obviously happy with our strong quarter results and especially because we achieve it while executing on our previously announced expansion of Gaiam brand to apparel, skincare, and media subscriptions. During the quarter, also, our Gaiam branded store-in-store presentation grew to almost 15,000 doors.

In summary, the result of the first quarter provided us--providing us with added confidence that we're going to meet our expectation of mid-teens internal growth revenue for the year, which should bring Gaiam revenue, excluding the deconsolidated Real Goods Solar contribution to approximately $200 million, plus the additional nine months revenue from the Vivendi acquisition, which is up from $165 million in 2011, not counting Real Goods.

So the Real Goods Solar, which we have reconsolidated for accounting purposes, is also expected to grow organically very strong to about 20%, and to about $145 million for the year, for 2012, which is up from $109 million in 2011 as reported, or $122 million, if you count pro forma full year revenue for acquisition of Alteris, which was down in second quarter in 2011.

And with that, I'd like to turn it over to Steve, who will give you kind of a review of financials for the quarter. Steve?

Thank you, Jirka. Let me spend a few moments reviewing our financial results in order to offer some additional perspective to our performance in the quarter. As a reminder, we've converted our Real Goods Solar Class B shares to Class A shares on December 31, 2011, reducing our ownership in Real Goods to 38%. From a reporting standpoint, Real Goods Solar results are deconsolidated and are now shown as an equity line in our financials. All the numbers and prior period comparisons we will discuss today and going forward will exclude contributions from Real Goods Solar.

Beginning with the income statement, first quarter net revenue was $47.3 million in Q1 2012, compared to $37.4 million for the first quarter of 2011. Net revenue from our business segment increased 32% to $25.8 million, compared to the year ago period, driven by our success in the target media aggregator business, as well as growth in our core business at large retailers, including Target, Amazon, and Wal-Mart.

Net revenue for our direct-to-consumer segment increased 20% to $21.5 million in the first quarter, on the back of our ability to reposition the business, including our success with the Jillian Michaels program. Gross profit increased to $27.1 million for the first quarter of 2012, from $20.8 million during the comparable quarter last year. Gross profit as a percentage of net revenue increased 160 basis points to 57.3% from 55.7% during the same quarter last year.

The improvement in gross margin primarily resulted from the increased sales and the higher margin direct response to television business. Moving down the income statement, selling and operating expenses increased in the quarter to $24.2 million from $20.1 million in Q1 of 2011, decreasing 270 basis points to 51.1% of net revenue versus 58.--53.8% during the same period last year. The 270 basis point improvement was primarily the result of the optimization of advertising spend for DR TV, partially offset by additional investments to further develop Gaiam TV and our digital delivery strategies.

Corporate, general, and administrative expense increased $.2 million from the same quarter last year. As a percentage of net revenue, corporate, general, and administrative expenses decreased 80 basis points to 5.4% from 6.2% in 2011.

Depreciation, amortization, and stock compensation expenses totaled $2.2 million for the first quarter of 2012, compared to $1.6 million in the year ago period. Capital expenditures were $.5 million, and media rights costs were $122,000. Capital expenditures in the first quarter of 2011 were also $.5 million and the media rights expenditures were $.4 million.

Acquisition related costs totaled $1.7 million during the first quarter of 2012 as a result of the purchase of Vivendi Entertainment. Including the acquisition-related costs, operating loss for the first quarter of 2012 totaled $1.3 million, compared to $1.6 million during the same quarter of last year. Excluding the acquisition-related costs, operating income for the quarter was $.4 million. In addition, we recorded a non-cash loss from the equity method investment of $.7 million, representing Gaiam's portion of Real Goods Solar's net loss for the quarter.

Moving to the balance sheet, we ended the first quarter with $13.8 million in cash versus $14.5 million on December 31, 2011. This leaves our current ratio at approximately 1.7, a solid metric that underscores the health of our balance sheet and our ability to fund current operations, as well as support our investment in value creating initiatives. Inventory turns for the first quarter of 2012 were 2.8 times, compared to 2.6 in 2007.

To fund the acquisition of Vivendi Entertainment, we drew $14 million on our credit facility and issued a $19.3 million note for the working capital. We are in the process of finalizing Vivendi's working capital and beginning balance sheet amounts. Subsequent to the acquisition date, UMG will continue to collect receivables and apply a portion of the funds against the working capital note. We are currently working to replace our existing credit facility with a larger one and anticipate having the expanded facility in place around the end of the month.

We believe the new facility will provide for additional liquidity as we continue to expand our business and look for other growth opportunities.

With that, I will now turn the call over to Lynn, who will provide more detail on the overall status of the industry and our growth initiatives. Lynn?

Thanks, Steve. We're pleased by our 2012 first quarter results and confident in our performance for the balance of the year. We continue to focus our attention in growing our three core businesses - the Gaiam brand, distribution and licensing, and subscription services. I'd like to start by reviewing our business segment, which I'm happy to say is up 30%, excluding any revenue from Vivendi when compared with first quarter of 2011. The acquisition of Vivendi Entertainment from Universal Music Group not only brings additional sales volume of approximately 20 million units, an expected net revenue and gross margin of approximately $25 million annually, it also provides the scale to position Gaiam Vivendi as the largest independent and third largest overall media distributor in the United States for non-theatrical content, with over 7,000 titles, and the only independent with direct relationships with Target, Wal-Mart, Kmart, and all meaningful digital retailers.

This is important because as DVD volumes decline, operational efficiencies will help offset that topline headwind and become a crucial competitive differentiator. This acquisition will provide us with larger economies of scale from which to leverage our operating structure and increase the depth of many of our relationships with content creators and retail partners that will help us drive our media content distribution business and the overall visibility of Gaiam. It will help us reduce third party distribution costs, lower post production and digital distribution costs, and to eliminate a significant amount of redundant overhead, replication, warehousing, and other costs.

We expect operating margins will benefit this year from operational synergies. I'm particularly pleased with the seamless integration between Gaiam and Vivendi Entertainment to date.

The acquisition also gives us a unique in market share. According to Nielsen's Video Scan for the first quarter Gaiam Vivendi remained at the top of the charts in fitness with 40% market share, which is up from approximately 30% last year and 17 points higher than our nearest competitor. Although we ended 2011 with the combined entity at number three in non-theatrical market share, to date in 2002 we're actually number two with only Warner Studios ahead of us. Also noteworthy is that the combined entity actually increased the number of units sold from Q1 2011 to Q1 2012, even if the overall market declined.

The acquisition also positions us to leverage our unique non-traditional distribution channels like direct response TV, store-within-store relationships, category management, subscription services in over 60,000 storefronts, to further drive revenue for the Gaiam Vivendi studio partners. In addition, we made some significant progress across a number of initiatives that I'd like to comment on in a bit more detail. Starting with our goal of growing our media business, our recent launch of the media aggregator role at Target continued to contribute to revenue in the quarter and to bring on new distribution relationships, increasing from the nine studios announced last quarter to 12 in the current quarter. We also saw broad-based improvements across a number of key product segments at Target, including Gaiam branded accessories, fitness media, and key brand relationships, such as the Reebok product line.

This helped drive sales growth from our top three accounts of 20% to 50%-plus. In addition, we continued to invest in our digital asset management and delivery platform, signing new agreements with major digital players and further strengthening our media business to support a digital footprint. With regard to our fitness products, we saw great success from our Restore line of at home rehabilitative and restorative accessories, along with our Gaiam Sol premium yoga line, which launched in the fourth quarter of 2011. Our Restore products have been among the top performers in Target and other Gaiam store-within-store locations. We will continue to expand this line of products during 2012.

Gaiam Sol still has a lot of room to grow, both in SKUs and placement across high-end sporting goods stores, natural grocery, and e-tailers. We also continued to expand our successful store-within-store concept and reached close to 15,000 doors during the quarter. We expect to utilize this strategy across our new categories, such as the Gaiam Restore brand, as well as for our studio partners.

Turning to our direct to consumer business, which had a 19% internal growth, we followed up on the success of the Firm Express program on direct response television by launching 2012 with the early February airing of the Gaiam branded Jillian Michaels Body Revolution product line, a 90-day fitness and weight loss program starring one of the most respected and recognized talents in the fitness world. We expect to continue to see strong growth from this product as we look for it to hit retail in the second half of the year.

We also expect a lot from our upcoming launch in the third and newest version of our healthy cooking product, Platinum Express, and remain optimistic in our ability to develop and bring to market a line of skin care products, as well as additional fitness programs and potentially a branded media program with one of our studio partners for release in the second half of the year. During the quarter, we continued the repositioning of our e-commerce business to shift towards proprietary branded products and apparel. We are also launching a new web platform and creative look in the third quarter. We expect to begin to see the results from these efforts in the last half of the year.

Lastly, Gaiam TV, which we launched in beta version in September of 2011, is a full featured video streaming service, boasting over 3,000 exclusive titles and offering viewers a unique selection of fitness and entertainment titles targeted at our direct to consumer customer. Available on the web, across mobile devices, Roku box and Samsung SmartTVs, Gaiam TV is quickly becoming a key part of our goal to build our brand in the digital world and to transition the availability of our content libraries and rights from physical DVDs to digital media. We believe our investment in digital, streaming, exclusive content, and custom apps, place us at the forefront in the (inaudible) industry. In first quarter, our investment in Gaiam TV had a negative impact on our operating profit of approximately $1 million.

With regard to the deconsolidation of Real Goods, we believe that this will make our business more understandable for investors and help bring focus to the performance and value of our core businesses - the Gaiam brand, distribution and licensing, and subscription services.

In closing, we feel very comfortable with all three of our main businesses. We are confident about the opportunity inherent within our Gaiam brand and in our ability to develop that brand halo across additional product lines. We're also very excited about being an aggregator that packages together an incredible set of content, provides a great value for consumers, and brings visibility to our brand partners. And finally, we are pleased with our progress on some of the key initiatives for 2012 that we laid out in our 2011 year-end conference call, including the successful integration of the business of Vivendi Entertainment, leveraging our digital infrastructure, releasing branded direct response products with mass retail potential, seeking broader placement of Gaiam branded products with the release of the Restore and Sol line, moving out of beta on Gaiam TV in July, and achieving double-digit organic revenue growth to name a few.

With that, I'd like to turn the call back over to the Operator and take this opportunity to answer questions.

Thank you. (Operator Instructions) Our first question, from the line of Mark Argento from Craig-Hallum Capital. You may proceed.

Good afternoon.

Hey, Mark.

A question on your--it sounds like you saw pretty good results on the retail side of the business. Could you talk a little bit about in-stock rates and the growth you saw in the quarter? Does that kind of backfill kind of lower inventories? What's your expectations for that channel for the rest of the year?

Yes, Mark. Particularly at our largest retailers, we saw, like I said, between 20% and 50%-plus increase in revenue in the quarter. And we saw that not only in our revenue, but also in the point of sale revenue. They were definitely--had better in-stock positions than what we saw last year, but we're also just seeing a greater acceptance to many of our new products, so we expect that to continue for the balance of the year.

That's good to hear. And then, in terms of the Vivendi business, mentioned $25 million over the next 12 months. Is that business highly seasonal, and so should we assume that the $25 million we should probably include--instead of just taking 75% of that, we should include a little more because we're catching Q4 in the seasonal period in the 2012 numbers?

It's definitely a very--it's a seasonal business as our business is a seasonal business, which is heavily fourth quarter loaded. However, they've had--they did have a very good first quarter as well.

Okay. And then, in terms of the--it sounds like 100% gross margin, what kind of expenses should we put against that business? In other words, what kind of operating margin should we be thinking of when we model that?

I think in the last call we talked about between synergies and operating margins we projected an EBITDA of around $10 million annualized (inaudible).

Okay, annualized. All right. And then, on the subscription side of the house, I know you've spent a lot of time and money on Gaiam TV. It sounds like you've got some other more direct potential clubs that you're going to launch. Are we--or have you spent--are you at the tail end of the spending on Gaiam TV or do you still see incremental spend there? And then, what type of go-to-market strategy or marketing customer acquisition profile or business model are you going to use there?

So the--for our beta stage, we recently added to all Android based phones and also international before we end beta. So recently, we'll be out of beta, kind of relaunching the site in kind of early July. And so far, the results are actually very encouraging. We kind of--are kind of going at expected conversion from--we have a 10-day free trial--to the subscription. I was kind of feeling that if you get 20, we'd be happy. Now we're kind of thinking we're going to be north of 50% and we actually currently are running over 70% conversion, but because we right now as a beta focus mostly on our internal people, I expect that will come down. But it's three times as good as we kind of thought when we kind of put the beta up. So it's kind of probably the most important launch--I mean part. From the titles mentioned, we have about 3,000 title--exclusive titles live. There is probably 95% of the titles are exclusive for streaming. There's a few titles that you can also see on Netflix, but it's probably less than 100 or somewhere in that range. But it's 3,000 currently.

And we also already have in--more than an additional 1,000 in various stages of transcoding, putting on a site, so we should have--when we kind of take beta out--over 4,000 titles. And it's also obviously causing, by adding more titles and cleaning the offerings, our retentions, as we can tell because it's way too early, but it's climbing every week. So it's also kind of a good point. And so, I think I believe that the technical--the big technical spend would be done pretty soon and then will be more about marketing.

And in terms of the monthly subscription rates, is it going to be a flat rate, or are you going to have a tiered pricing model?

Well, right now, it's $10 a month pretty much. Pretty much all our subscribers are at $10 a month.

And then, in terms of the Gaiam TV, that's a subscription service. But you're going to also have various titles available on Gaiam TV. You have those available on all the different--all the other different platforms like Netflix and some other, the streaming services. And is that--.

--There are those--.

--A per--go ahead.

No, Mark. Those are--what we have are exclusive titles with none of that except the 100 will be in the Netflix. You can buy them in services like--.

--iTunes.

Or Amazon.

VUDU, Amazon, and then a couple of them would be on Netflix, like Jirka said, like 100 titles that we overlap. But other than that, Gaiam titles are only through download to own.

Got you. And then, ultimately, I know one of the ideas over time was you--since you guys are shipping 20 million disks or whatever the number is now a year, there's a lot of collateral opportunity to market the Gaiam TV product. Have you thought anything more about including any marketing collateral within any of the DVDs or any of your fitness or yoga products?

Yes. So (inaudible) can you a little more be specific--but I think we're kind of having right now pretty much all the new disks, as they're duplicated, we're kind of having a Gaiam TV offering. But we're not taking out of inventory what was printed, so we're just adding when we run our inventory. The Gaiam TV will be on pretty much all the disks when it makes sense, because on some disks it kind of doesn't really fit. But all the things--what makes sense, we are clearly doing it. And it's in a process. We started doing it already a few months ago, so it's in process. But we also went out to--before we started to have Gaiam more stabilized so we know what to promote because some of these disks--physical disks will be--might sit in stores for a while. And on digital, it's much easier--more easy to change it if you do the digital sales and we include a promo that's different. But the DVDs ones that get to the stores, you never know how they look to sit there. But I don't know, Lynn, how far is this process. What do you say?

The way we're approaching it, Mark, is anytime that we are reordering a Gaiam DVD, we will put the promo on the master and duplicate based on having the promo on the master and anything that we're producing on our own will definitely have the Gaiam promo. So you should start seeing it in the stores soon.

Great. Thank you very much.

(Operator Instructions) Our next question, from the line of Robert Routh from Phoenix Partners Group. You may proceed.

Yes. Good afternoon, guys. A couple of quick questions. First, as far as this new facility you're putting in place or looking to put in place, can you give us any sense as to how big you're looking and what the rate is you think you can get? Given how low interest rates are and given how asset rich you are, I would think you could get a pretty good deal at a low rate. But just for modeling purposes, what are we looking at say if you get what you want in a year on that perspective? And then, I have a follow-up to that.

Yes, as far as size market, it's in the neighborhood of 2x what we currently have. And as far as rates, it's--we're very happy with the proposed rates and it's a market rate.

Okay, fair enough. And as far as other opportunities, obviously you guys are doing a lot of stuff, but the company still is a little confusing given its size and the different businesses you're in. When you look at the media business, and then you look at the other side of the business, where do you think as opposed to direct consumer and business, how do you think investors should be looking at it - more as a media company or more as a consumer products company? How internally do you look at yourselves, given Vivendi Entertainment acquisition, how much that's going to add and the high margin there?

You should look at it as a branded company. It's--so that's how we look at ourself. We are brand.

And when you look at the media business, Rob, you'll also see that the studio partners that we have are brands within themselves. That's what we're really good at. We know how to build brands, and whether it's our alternative distribution channels or ability to build out a store-within-store and creating a home for that consumer to find that brand, that's what's going to be the real push for us to bring on large studio brands and be able to help them build that presence within the store. So you have the Gaiam brand, which has done that, and then our media brands that we will help to do that same thing in the coming years.

We pretty much kind of have the Gaiam brand side, and then the other brands.

Okay, great. So it's kind of like an umbrella organization of the Gaiam brand, and you develop and nurture these other brands, as well as the ones you represent. That's kind of a good way to look at it?

That's correct.

Okay, great. And then, as far as new initiatives, I mean, obviously, years ago you had some international stuff and now a lot less. So I'm wondering, going forward, now that you do have Vivendi Entertainment distribution and some other things that I see that are out there available for sale that you may or may not have interest in, et cetera, where do you see as your opportunity to grow internationally in areas where it makes sense over the next three to five years? And as something kind of related to that, when it comes to the products you have, it seems like they're really--I mean, obviously you've had the direct response television business for years. But in terms of home shopping networks, like HSN, QVC, ValuVision, it would seem many of them would love to carry your products for an hour or two a week as Gaiam branded because the stuff would sell and it's got a name and there's a high degree of value there. I'm just curious, have you approached any of those partners potentially to have the Gaiam Hour on the ValuVision or HSN or QVC, or is that something you wouldn't have any interest in doing 24/7 in your home shopping network?

We believe that there is a lot of opportunity with the shopping networks to really--particularly as we build our portfolio through the direct response television. As you know, we repositioned that last year and we're really building a nice products--stream of products that carry the Gaiam brand. We think it's an opportunity that--now to go back to an HSN or a QVC and create some kind of a partnership there probably later on in the year. Also, we do believe right now there is no one who owns the Mind Body Fitness as a brand internationally. That is on our slate for later on this year after we complete the integration of Vivendi--we don't want to take our eye off the ball on that--but to really build out our international business because there is no competitor.

And also on the digital side, as I mentioned, we kind of delay (inaudible) for--to beta, because cleaned their international offering. And as we put it up, I think we already have probably I expect right now 15%, 20% of the subscribers this year will be from international.

Wow. Okay. Yes, that's--what I was asking before, it seems QVC given--especially them--their international presence in the U.K., Japan, Germany, Italy, and now the joint venture in China, an interesting way for you to get a footprint in there in a very low risk way, and then grow it from there. So that's what I was seeing--.

--Yes--.

--Just as an aside.

Me, three.

Great. No, it makes sense - low risk. And one final question. Could you give us an update on your buyback, what's left under the authorization, and what your plans will be? Obviously, this year you guys are digesting a lot with this acquisition, your credit facility, but moving forward just in terms of what your plans would be once you become free cash flow positive.

We actually are going to have--right now after shareholder meeting, we have a board meeting which we added some people on the board, so we would discuss it then to kind of define where it is. We need to kind of finalize what the--how much totally we are actually going to cost as in cash for the Vivendi deal, as you know, (inaudible) Vivendi's kind of collecting money, so we need to see what the difference is. And so, we need to kind of see where the position is and we'll decide it in our June meeting.

Okay, great. Thank you very much.

Thanks, Rob.

(Operator Instructions) Our next question, from the line of Eric Alexander with Stifel Nicolaus. You may proceed.

Good afternoon, everyone. Congrats on the solid quarter. Definitely made some good progress. Looking at Vivendi, I know you guys had provided some EBITDA guidance. Is it--from a longer term synergy standpoint--synergistic standpoint, you guys--do you guys have anything that you're targeting maybe out in fiscal year '13, improving that 40% EBITDA margin upward, and what kind of ramp you're thinking maybe it will take to get there?

I think that the Vivendi was the first step for us because now it gives us the scale. We're now, as we said before, the third largest non-theatrical distributor in the U.S. That allows us to have the scale that we bring--to be able to bring on additional studio partners. So we will try to leverage that to increase our studio partners. As I said, we went from nine to 12 between our last conference call and this conference call and we think there is opportunity to add a lot more to that. That would help bring that margin up.

Also, when Gaiam TV gets to profitability, it's also--probably model what--the cost of the goods sold is going to be somewhere about 10--long-term, 10%, 12%. So we need to go through breakeven so it should to contribute to that line.

Okay, that's helpful. And then, just a follow-up on the--with regards to the business segment. Looking at--it sounds like you guys are happy with the inventory levels at the retail channel. How is--how are the sell through trends looking? Obviously you guys had really strong numbers. Just help with kind of Target, Amazon, and Wal-Mart, how your sell through trends--I guess Target and Wal-Mart more specifically, how the sell through trends looked in the first quarter and maybe how that could potentially set up a capacity for reorder second quarter?

Yes. We definitely had double-digit point of sale sell through increase year on year in our two major retailers. So that's very good news.

All right. Yes, congrats. All right. And then, thinking about fiscal year '12 gross margin, you guys had a good improvement, direct response marketing was out--sounds like that was a good contributor. Thinking out to the cadence for the rest of the year, any help there? Should we be thinking we should continue to see some continued improvement on a year-over-year basis? I know you guys have given some direction on operating margin, but just help there would be helpful.

Well, I mean, that's kind of a relatively easy answer because we're adding, as we kind of said, nine months of $25 million annual run rate at GP of 100%, right? So you kind of clearly can calculate a trend.

Sure. So--okay, so I guess--.

--You have no sales pretty much - it's about $300,000 of the Vivendi in the first quarter. So that obviously will trend up pretty strongly as it is because first we believe that as we kind of--as our direct businesses start to get back in line with expectation and they carry--it doesn't matter if it's DR TV or Gaiam TV, and all that stuff, they come with very high margins on like 80%-plus--80% to 90% and--on the gross profit line. And so, then you add Vivendi at kind of 100, so it's definitely--that will be very strong improvements on gross profit line, is what you are asking.

Sure. No, that makes sense. I guess organically speaking, if I'm looking at the two businesses, I know you guys--they're bringing it on together. But you--are you guys expecting some organic improvements that we should contemplate or be considerate of when we're modeling out here?

Yes, we've stated that we believe we will have mid-teens double-digit comp growth on revenue--on the revenue side.

Okay. All right. Then last question, just thinking about the Borders wraparound as the year goes on. When do you guys think that's most impactful (inaudible) comparisons, maybe it wasn't a large enough business to be too meaningful? But as I imagine second half '12 you guys are going to be facing a little bit easier comparisons as a result of some softness there last year. Is that correct in my--in the thinking there?

That's correct, but we had a 30% internal organic growth in our business segment in first quarter and we still had Borders in there, so I don't think we should model it that high going forward. But I--yes, you won't see much from Borders after third quarter of this year.

Okay. That makes sense. Thank you and best of luck, guys.

Thank you.

Thank you.

Mr. Rysavy, there are no further questions at this time. I'll turn the call back to you.

Thank you very much. Thank you, everybody, for being with us, and we'll talk to you in the quarter. Thank you very much.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation, and kindly ask that you please disconnect your lines. Have a great evening, everyone.