Gaia Inc (GAIA) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gaiam Incorporated Second Quarter 2012 Conference Call. During today's presentation all participants will be in a listen-only mode. And afterwards we will conduct a question and answer session. At that time if you have a question please press the one followed by the four on your telephone and if at anytime during conference you do need to reach an operator, please press star zero. As a reminder, this conference is being recorded, Thursday, August 9th, 2012.

And I would now like to turn the call over to Mr. Norberto Aja with Investor Relations. Please go ahead, Mr. Aja.

Thank you, operator. Good afternoon, everyone, and thank you for participating in Gaiam's 2012 second quarter conference call. Joining me on the call today is Gaiam Chairman, Jirka Rysavy; Gaiam's CEO, Lynn Powers 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 risk and uncertainties 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 SEC reports. The Company does not undertake any obligation to update forward-looking statements.

With this, I would not like to turn the call over to Gaiam's Chairman, Jirka Rysavy. Please go ahead.

Thank you, Norberto, and good afternoon, everyone. So revenue for the second quarter, which ended June 30th, increased 48% to $45.4 million from $30.8 million in the same period in last year.

Internal revenue growth was 27%, which was meaningfully above our expectation and guidance. In addition, revenue reflects $6.3 million contribution from Vivendi Entertainment acquisition for the quarter.

Revenues for the first half of this year rose 36% to $92.8 million, reflecting steady 25% plus internal growth.

Gross profit rose to $28 million from $17.2 million with the gross margin improving 550 basis points to 61.6%. At the same time, our expenses as a percentage of revenue decreased 740 basis points driving $3.3 million improvement in operating income and $4.2 million improvement in EBITDA excluding Real Goods Solar.

EBITDA rose to positive $0.3 million from a loss of $3.9 million in Q2 of 2011. This comparisons assumes that consolidation of Real Goods Solar happened at beginning of 2011 and but it also includes all the one-time Vivendi Entertainment acquisition related expenses.

We recorded non-cash loss of $0.9 million related to net operating results of Real Goods Solar, which we [did] consolidate for accounting purposes of beginning of 2012.

Real Goods recently signed a new CEO, Kam Mofid. He was previously President of Mainstream Energy, the parent company of REC Solar and AE Solar.

Related to acquisition of the Vivendi Entertainment [buy or trade] division we incurred in the second quarter approximately $1 million of expenses primarily for (inaudible) and operating and integration costs that have been eliminated by now.

The combination of our media distribution business with Vivendi Entertainment positioned Gaiam as the largest independent non-theatrical distributor in the United States and through the first half of this year as the second largest non-theatrical distributor in the US. When we acquired the company we were actually third. We're currently second only after Warner.

Gaiam distribution network currently consists of approximately 60,000 retail doors, 15,000 stores within a store and 5,600 media category management locations plus all our digital distribution platforms.

We continue to expect Vivendi Entertainment to contribute approximately $25 million in revenue and equal amount of gross profit for the first 12 months of our operation of the business.

Our trade and DRTV subsidiaries recently secured a new three-year $35 million revolving line of credit from PNC Banks. The new facility will expire in July 2015 and did replace the Gaiam $15 revolving credit line that was due to expire in this November.

In July we finished a beta stage period for Gaiam TV and are entering the marketing phase. Marketing will be low for a few months but increase in November when we expect to have close to 5,000 video for exclusive streaming.

Our higher than expected internal revenue growth for the first half of 2012 provides us with added confidence to meet our guidance of mid teen internal growth, internal revenue growth, for this year. This will bring Gaiam to revenue about $200 million that excludes real goods for 2012, to which we will add about nine months of revenues for Vivendi Entertainment.

The significant improvement to our bottom line in our secondly weakest quarter, second quarter, together with the new executive management of Real Goods Solar, are very good sign for us for us for the second part of the year. And, with that, I'll turn the call over to Steve, who will review the financials for the quarter.

Thank you, Jirka. Let me spend a few minutes reviewing the financial results in greater detail and offering some added perspective to our performance in the quarter. Beginning with the income statement, 2012 second quarter net revenue was $45.4 million compared to $30.8 million for the second quarter of 2011.

In sequential terms it's important to remember that we typically experience a drop in sales from the first quarter to the second. Net revenue from our business segment, which is comprised of sales to retailers, increased 96.1% to $28.5 million, compared to the year ago period, driven by the Gaiam Vivendi Entertainment business we acquired at the end of March and our continued success in our core health and fitness product business at large retailers, including Target and Amazon.

Net revenue in our direct-to-consumer segment, which includes contributions from our direct response television business, our ecommerce sales and Gaiam TV digital subscription platform, increased 4.4% to $16.9 million in the second quarter as we experienced ongoing success with the Jillian Michaels program.

Gross profit increased to $28.0 million for the second quarter of 2012 versus $17.2 million during the comparable quarter last year. Gross margin increased to 61.6% from 56.1% during the same quarter last year. The improvement in gross margin primarily resulted from the Gaiam Vivendi Entertainment business and increased sales in the higher margin direct response television business.

Moving down the income statement, selling and operating expenses increased in the quarter to $26.9 million from $20.4 million in Q2 2011 but as a percentage of revenues selling and operating expenses were 59.2% of net revenue in the 2012 second quarter versus 66.3% during the same period last year.

This 710 basis point improvement was despite the fact that we incurred approximately $0.8 million in non-cash amortization expense in the second quarter of 2012 related to our acquisition of Vivendi entertainment earlier this year.

In addition, during the quarter we incurred approximately $1 million of non-recurring integration expenses related to the acquisition of Vivendi Entertainment. It's important to note that with consumers being distracted by the Olympic Games and political elections, our media spend during the coming quarters will be adjusted to better maximize our media buying strategy with a goal of optimizing the profitability of this business for the next two quarters rather than driving revenue.

As Jirka noted earlier, our investments to further develop Gaiam TV and our digital delivering strategies were higher than they typically have been and for the second quarter such expenses were approximately $1.4 million.

Corporate, general and administrative expense increased $0.9 million from the same quarter last year. As a percentage of net revenue, corporate, general and administrative expenses decreased to 6.8% from 7.0% in 2011.

Inclusive of $0.8 million in new amortization expense following the Vivendi acquisition, depreciation, amortization and stock compensation expenses totaled $2.3 million for the second quarter of 2012 compared to $1.7 million in the year ago period.

Capital expenditures were $0.9 million and media rights costs were $0.8 million. Q2 2011 CapEx was $0.8 million and media rights were $0.5 million.

Operating loss for the second quarter of 2012 totaled $2 million compared to $5.3 million during the same quarter of last year. Including an unconsolidated non-cash equity investment loss of $0.9 million, net loss in the quarter was $2.1 million compared to a loss of $3.9 million in Q2 2011.

As a quick reminder, we converted our Real Goods Solar Class B shares to Class A shares on December 31st, 2011 reducing our ownership in Real Goods to 38%. For 2012 reporting purposes Real Goods Solar results are de-consolidated and shown as an equity line item in our financials. Our line-by-line analysis of our financial results are as if Real Goods Solar had been de-consolidated as of the beginning of 2011.

Moving the balance sheet, we ended the second quarter with $11.5 million in cash versus $14.5 million on December 31st of 2011. This leaves our current ratio at approximately 1.9, a metric that underscores the health of our balance sheet and our continued ability to fund current operations as well as support our investment in value creating initiatives.

Inventory turns for the second quarter of 2012, 2.3 times, compared to 2.2 in 2011. As you may remember, in order to fund the acquisition of Vivendi Entertainment, we drew $14 million on Gaiam's credit facility and issued a note for the working capital. I am pleased to report that at the end of June the working capital note has been fully retired from cash flow in the quarter and certain of Gaiam's subsidiaries have replaced the previous $15 million credit facility with a $35 million asset based facility maturing in July of 2015.

The new credit facility provides for advances at interest rates of prime plus 75 basis points, or LIBOR plus 225 basis points. The new facility with PNC Bank provides the Company with the working capital and financial flexibility to continue pursuing our strategies for increasing shareholder value. We drew $14.2 million on the line at closing on August 1st.

With regard to Gaiam Vivendi Entertainment, we are in the process of finalizing the working capital and beginning balance sheet amounts and should have the last of the financial systems migrated and integrated very soon.

Before turning the call over to Lynn, I just want to reiterate that our business fundamentals remain strong and that we will continue to focus on balancing our long-term growth and execution.

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. Echoing Jirka and Steve's comments, I am pleased by our 2012 second quarter results and I am confident in our performance for the balance of the year as we continue to focus our attention on our top three priorities; growing our unique Gaiam brand, evolving and expanding our distribution and licensing business and launching our subscription services.

Let me begin by reviewing our business segment, a segment that continues to perform very well for us with internal revenue growth of 52.8% compared to the second quarter of 2011. I am particularly pleased with the [point] integration between Gaiam and Vivendi Entertainment to date.

With this recent acquisition we'll have an additional sales volume of approximately $20 million units and expected annualized net revenue and gross margin of approximately $25 million while significantly increasing our ability to leverage from [economies] of scale and other operational efficiencies through reduction in third-party distribution costs, lower post production at digital distribution costs and the elimination of redundant overhead. This is important as operational efficiencies and digital positioning will help offset any top-line DVD headwind and become a crucial competitive differentiator that will further help position Gaiam Vivendi Entertainment as the largest independent and the second largest overall media distributor in the US for non-theatrical content.

There's also some very good industry news this year. According to IHS Screen Digest after several years of decline total revenue from home entertainment content was projected to rise 3% in 2012 in their May report and has since been revised to rise 8% in their July report with the expansion of Blu-ray and digital offsetting DVD decline. Blu-ray sales are up 13% with digital content up 22% for the first half of 2012 based on information supplied by Digital Entertainment Group.

I am also pleased to announce the renewal of our licensing agreement with Discovery, which includes all the Discovery Channel brands, including TLC, Discovery and Animal Planet. We have also secured an agreement to distribute the Olympic Games highlights and Collector Series, which is already receiving preorders on Amazon in Blu-ray and DVD, and will be available for the first time ever for digital purchase and rental on iTunes, Amazon, Xbox, Sony Play Station, Vudu and Google Play.

Importantly, as we secure new agreements we are having success with also securing digital distribution, an important driver for our future business. I'll look forward to announcing additional new partnerships in the coming weeks.

We continue to expand our media category management role that we started in 2009. We now have over 5,600 doors in the US under management including being one of two independent aggregators for media in the Target entertainment department and the sole aggregator in Target for fitness media.

In terms of market share, according to Nielsen's Video Scan for second quarter, Gaiam remains at the top of the charts in fitness with 43% market share, which is up from 33% last year and double our nearest competitor. Additionally, as of the end of second quarter, the Gaiam Vivendi is the number two distributor in non-(inaudible) with [15%] market share, up from 11% last year with only Warner Studios ahead of us.

In addition, as noted earlier, we continued to invest in our digital asset management and delivery platform having direct agreements with all major digital players and further strengthening our media business to support a robust digital future. We retained a great digital team with our acquisition of Vivendi Entertainment and are leveraging their expertise and digital footprint.

With regards to our efforts to continue to grow our business segment, we're seeing strong customer demand across Gaiam branded accessories. Our top 25 retailers are up over 30% in the aggregate for the quarter with some retailers reaching 50% increases.

Sell through also continued to comp well with retailers that report those statistics to us.

In regards to our fitness products, we continue to see great success from our restore line of at-home rehabilitative and restorative accessories along with our Gaiam Sol Premium Yoga line and our Spry Professionals line. Our Restore products have two of the top SKUs in Target and are among the best performing at other Gaiam stores and store locations and our Spry brand is expanding to 400 Sears stores this fall. We will continue to grow these lines of products during 2012, both in terms of SKUs as well as retail locations.

We also continue to focus much of our efforts in our Stores-In-Store concept, which is now in place at over 15,000 doors during the quarter. We expect to utilize this strategy across our new categories, such as the Gaiam Restore brand and the Spry brand as well as for our studio partners.

Turning now to the direct-to-consumer business, which had a 3.4% internal growth, we plan to follow up on the success of the Firm Express and the early February airing of the Gaiam branded Jillian Michaels' product line with new fitness content that will allow for continued growth from the segment as we enter the second half of the year.

Of course, ecommerce is an integral part of what we do. During the first quarter we repositioned our ecommerce business to shift towards proprietary branded products and apparel and started work on our new web platform and creative look. Gaiam customers will now have a greater on line assortment and an overall more engaging shopping experience. The new website, which we expect to launch in the fourth quarter, will enable us to be even more connected and accessible to our customers, including through a mobile friendly design for the iPhone, iPad and Android devices. These initiatives are now well underway and should be ready to launch in the coming weeks and begin to yield results in the fourth quarter of the year as we enter the holiday shopping season.

That's also been the thinking behind one of our more exciting businesses, Gaiam TV. As Jirka mentioned, we're finished with our beta stage and should be entering the marketing phase in the next couple of months with an increased marketing spend towards the end of the year. The investment in Gaiam TV in Q2 was approximately $1.4 million in negative operating income.

We have a one-of-a-kind library of digital titles across fitness, health and wellness and personal development, which together with our in-house capabilities to create compelling content with low incremental costs, should make Gaiam TV a very appealing offering to consumers interested in learning more about these areas and bringing the world a fitness, health and wellness and personal development closer to them through their computers, mobile devices, tablets and on their TVs.

While this business has had a negative impact on operating income, we believe it's an exciting new initiative that will have great drop through as soon as we hit breakeven on subscribers.

In closing, we're focused on the fundamentals of executing our multichannel business, expanding our product assortment and improving the customer experience. I am both confident and excited at the potential for all three of our main businesses from our ability to develop our Gaiam brand halo across product lines and channels to being an aggregator that packages and markets content across all distribution channels including digital and non-traditional retail to Gaiam TV, which is quickly becoming a key part of how we build our brand in the digital world.

Gaiam is a mainstream brand oriented licensee and distributor of non-theatrical content, a market leader in the fitness and wellness programming and branded equipment and a pioneer in digital distribution and subscription services. We're taking decisive actions to position and grow the business, strengthen our balance sheet and create shareholder value. \ Of course, none of this would be possible without everyone at Gaiam coming together to achieve these results and I'd like to take this opportunity to thank the entire team at Gaiam for their continued dedication and amazing talent. We look forward to being active in our investor outreach over the coming months and hope to see many of you at various conferences and investor events throughout the balance of the year, including our upcoming attendance at the [Tel C] Advisory Group's Third Annual Fall Consumer Conference, which will be held October 2nd and 3rd in Las Vegas.

Thank you for your continued interest in Gaiam and your participation today. With that, I'd like to turn the call back to the operator and take this opportunity to answer questions. Chantalle?

(Operator Instructions). And we have our first question from the line of George Kelly with Craig-Hallum.

A couple of questions for you; first, wondering if you could sort of help with this seasonality with the Vivendi acquisition and specifically how do you kind of expect revenues to trend here in the third and fourth quarters?

Well, Vivendi would have similar seasonality to the Gaiam business. It will be heavily fourth quarter weighted, which is similar to what we have right now. As far as our outlook for third and fourth quarter, we're certainly continued to be pleased with our progress, not only with the Vivendi integration but also the acceptance of some of our new product lines and we expect to continue to see comp growth.

Great, that's helpful and then maybe I missed it in your prepared remarks but did you give an update at all about your retail stores? Is there any news there?

No we're just -- right no we've been a little bit busy with our -- with the integration and so the retail, we still just have the one retail store open. It's doing fine. We'll look at additional opportunities when we get later on the year and we get through this integration.

Sure it makes sense and then lastly, wondering if you could give out any details about the Gaiam TV, whether -- you know, number of paying subs or conversion, any of that stuff that you can give out.

We can give you some kind of peak. It's still kind of early in it. We -- as I say, we just took beta off a couple weeks ago. We're starting to market like next week so for right now it was mostly internal. We have about 10,000 paying subs and but we accept that that will start to change as we start to market. The conversion rates are well above what we expected from the free trial. We kind of hoped to 30% conversion and it's running above 70%. It's retention more than double over last four months and it's kind of increasing pretty much every week as we track it.

Obviously we're adding a lot of content. We started when we cannot just list it internally with a couple thousand titles, what we have. We're adding like 100 a week right now. We expect to have about 5,000 titles for exclusive streaming. That means it's not -- you cannot find in those services like Netflix at all and it's also a very different model because our content, the way how we do the deal, it's kind of 10 years. Some of them are longer and it's all up front and there is a participation, which is pretty low. It's a very different economic model than Netflix so our revenues, I mean cost the goods is pretty steady so we pretty much are pretty eager to see how the paying subs start to grow and we expect this to be a net contributor to the Company by end of the next year and have a very significant (inaudible) after that.

Great and just to make sure I heard you right, you said that the advertising is pretty pressured right now so you're not going to heavily advertise until November. Is that correct?

Well, it's more it was a comment of our DR TV.

Yes.

But it's more that you want to test what's actually when we start to do and right now it will be more skewed towards like our search engine and optimization of that kind of line but we also want to kind of see from different lines, see what's actually paying because the beauty of our being digital, you can track everything, right, so you try different campaign and see that. And so it's kind of the campaign is to be kind of tweaked towards the end of the year when we kind of get all the content what we own currently, which is about 5,000 titles. They all will be live and we should have also the good response from the campaign and we kind of also have enough subscribers right now to see what they are actually watching so it's more that than the competing for the space in the media. It's more in our -- their response in television.

Okay great thank you.

(Operator Instructions). Mark Argento, MA Research.

First question on the in stock rates, I know they've been kind of returning to normal after a couple down quarters. How do you feel or how are in-stock rates, replenishment rates at some of your key retailers?

Yes we've seen them bounce back up. Right now they're a little bit low in a couple of places where they're preparing for the big September reset where we launch a lot of new products but overall we're pretty pleased with them. I think that because not only are you seeing really nice comps on sell in but we're seeing nice comps on sell through so the improved stock levels have certainly helped that as well.

Great and then in terms of getting back to Gaiam TV, can you talk a little bit about your go-to-market strategy on the marketing side and who is really kind of a target customer? Is it a Gaiam -- kind of that Gaiam customers, predominantly female, 35 and up? Maybe you could give me a little bit of idea of your go-to-market and more particular who you think your target customer is there.

So so far the marketing was mostly internal so the answer would be yes that's pretty much today probably half of that current big subscribers are from our existing base. The -- also it has led a search engine that people kind of find us so far kind of on their own and from the statistics you kind of see kind of you have lot of males late 20s or mid to late 20s. Those are two predominant groups right now who are the subscribers more than say who we will target. Well, I can tell you more after the first few months of campaign to see what's actually working because, as I said, the beauty of that that you can know exactly but from our current viewers that's kind of what it is and it is right now about -- without trying it's about 15% international over about 70 countries.

And when that business starts to scale is that an 80%, 70% gross margin business? I know you mentioned something about content costs. How or what's your content cost via the percent of sales in that business over time?

Well, the content cost right now is because we're still dominated mostly by our internal titles it's more like probably average around 5% to 7% but as we sign something of the maximum participation is 20 so let's say the participation between nine and 20 so we'll probably come closer to 10 as an average but the cost of the goods sold, which is mostly the digital delivery, it's right now because there's a lot of fixed costs maybe if we kind of look at it this month is maybe like 22%.

Next year probably by end of the year should be more like 11%, 12% and next year should be probably 7% so you're going to have the margin let's say the gross profit if you put the participation cost in it, will be kind of below 20%. So you kind of say -- and but you also because you have credit cards, you have about 2.5% credit card fees, even they don't really go to cost of dues sold as a reporting, I'd consider them pretty much still kind of cost because it's kind of lower revenue. Even they are reporting operating expenses so you kind of say about 20% between all of that and then you have roughly 30% what we're thinking, you know, to start.

Marketing in our overall digital marketing right now for our online business it's about 25%. And then you look for maybe when to stabilize this like 10% operating so our stabilized business should have about 40% pretax of revenue.

That's helpful and then, Steve, quick one for you, in terms of the new credit facility, what are the basic terms on that facility?

It's basically a revolver, three-year term, asset based based on receivables and inventories and then the -- it's got layers of interest rates. The two -- it's based on a one, two or three-month LIBOR plus 2.25% or prime plus 0.75.

Okay and can you use that--

(Inaudible).

Can you use that for -- can you tap that for acquisitions as well or do you have to do that with something separate?

It's tied to the trade business assets and so it's really devoted to those businesses. But yet it's available for whatever working capital needs we have.

But also, Mark, because it's done in a subsidiary level, so it can't also -- the previous line, which was 15, was done at parent level and tied kind of all company assets. This is basically the subsidiary level and just tied to receivable inventory so all assets like the inventory and direct business and building, our land what we own, and those kind of investments are free to have a separate line if you want.

Got you. That's good to know. NOLs, where do you guys stand right now in terms of tax loss, carry forwards or NOLs?

I think we still are in a position where we've got NOLs to cover us for the foreseeable future.

Yes I think last time it was like 45?

I think so, gross.

About 45 million. Yes, it's probably about 45 yes.

And then last one for Lynn, kind of apparel? I know it's something that you guys have been looking at more and more. Any thoughts around apparel, either to doing it yourself or partnering with somebody regards to an apparel line or--?

We're testing a lot of different concepts right now, Mark, on our direct business when we get ready to go forward and take it out to the trade business or any more at retail we'll look at all options. Whether it's a partnership or trying to do it ourselves, we're still looking at both of those. Again, when we free up time after we get this integration complete, we'll turn our attention back towards retail and apparel.

Great. I appreciate it.

Robert Routh, Phoenix Partners Group.

Sorry, I joined a little late. Quick question, first obviously, given what you're doing with Gaiam TV, the niche based nature of the customer base and obviously it's global and people there are very loyal that like to watch that kind of -- that content, and it is evergreen.

At the same time, would it make sense given in recent announcements like Liberty just made to split Stars off into a separate asset backed security to work with someone like that that also has a similar type product where you can piggyback on their content? They can piggyback on yours and basically knows how to strategic investment by another entity and one plus one is greater than two because of the breadth of content. Would that make more sense than kind of going it alone with the Gaiam TV product long-term?

It definitely makes sense to think about that. It's the -- you know, it's still early product so it's like it's good to kind of show right now what we have since we spent all the money to build it, minimum for valuation purposes, so but it's definitely we can talk about these various ways to look at it but I would definitely want to kind of go through this next phase to kind of put more revenue on the table and see what's actually happening because it's so -- you know, each thousand customers has a big impact to the bottom line.

Right, right but would you consider or take seriously a strategic investment by another partner that does similar things or can leverage off what you built and -- or at this stage you wouldn't because you don't think the stock reflects that? I guess that's kind of the breadth of my question.

You know, from simply the kind of subscription assets it makes sense to look at that. I think it's also question how we manage the rest, all the assets and because obviously where the stock is right now it makes it -- you know, it depends how you look at the pieces but it's definitely something worth getting several people where we have here very excited. We recently talked a lot to the people like we launched right now Gaiam TV and it launched in July in [Fire] which is digital business for Verizon, digital--

[FiOS].

FiOS, yes it's competing with the cable company pretty much and same when we had discussion with Microsoft and Sony so it's definitely a lot of interest when they see the technology how far we are in the process and how we are (inaudible) compared to existing models to what's out there so we'll definitely have some of these discussions.

Right, okay great and on another note, in terms of what you're doing in -- and obviously you do have direct response television but it seems a lot of your products would fit better on a home shopping network. Have you had any discussions with HSM, GVC or Value Vision or have you thought about that, having the Gaiam health and wellness hour once a week, something like that to really build the brand even more as a -- and drive revenues or do you think a relationship like that might not make sense?

No I think a relationship like that absolutely does and we have -- we're actually talking to a consultant about that right now so that's something we've got in the works to at least make a pitch on that.

Okay great. And then two questions and if you answered this one prior to my getting on I apologize. I know in the last call we mentioned the idea of annuity products. They're obviously something that you guys could do, given your brand and the niche market you serve. Is that something that we could see near term or not and I know skin care is what you talked about before but there obviously are a plethora of different things you could do. I am just curious as to how aggressively you want to get into it, the annuity type non-consumable business, and how fast we could see that.

We're looking at that for 2013 and we are -- we would think probably second, third quarter of 2013 we'd have something ready to go on that.

Fair enough, fair enough and another one you're not going to like but I have to ask it, given where your stock is and the lack of liquidity and what the intrinsic value of the Company probably is, which is materially higher, why don't you go private? Or consider it, or consider it, you know, tender at a [fixed] because right here you're return on equity that's probably the best use of your cash given where the stock is and sending a message to investors along those lines could make a lot of sense. Just curious as to your thoughts?

It's something what we obviously talk over it several times and we have Board Meeting coming up in a month so we kind of probably -- it's always on a discussion table. Actually it's not a new topic. We kind of look at it from different ways what's the right way and it's just like, you know, have definitely for and again so I am sure we will keep discussing it.

Okay that's -- and along similar lines, if you weren't to do that, which obviously would probably make sense for you as largest shareholder and controlling shareholder and others just the value of the business eventually will be realized. I think it's a liquidity issue. If you chose instead to address that, have you ever considered doing a non-detachable rights issuance contained with simultaneously with a tender for stock so if people want to sell their stock you'll buy it at [$4.50] but otherwise they get the right to buy on a one-for-one or two-for-one basis in incremental share and discount to market so you're rewarding loyal holders forever and increasing liquidity because they can buy it at a discount and can't strip it out and it seems like something like that can't hurt given how well you've done and yet the stock seems to not react.

You know, from technical answer is yes so like anything is something like that is like my mind, [self], is interested in it but you have to kind of say for the size of the Company and where we are currently kind of creating any complex structure I think will be more problem than help. We might look at something but if we can -- because now we have a lot of things going so if -- there are several ways to kind of approach it and I would be kind of hesitant to create a really complex structure but we committed to do something right now to really enhance the shareholder value.

Right that's always -- I totally understand and obviously doing a secondary at this price would be ridiculous because it's a very expensive currency but rewarding existing holders of the stock that have been patient by giving the opportunity to buy another share at a big discount, and non-detachable so it can't be hedged, might make sense, bring a lot of cash into the Company and let them average down as well as if they sold some, get some more liquidity and catch a higher multiple and if they don't -- it's just a thought that can't hurt. I wouldn't think could hurt and could possibly help reward people that have been loyal and it wouldn't be -- but they don't want to sell but they can't buy more because of the lack of liquidity. It's an idea.

It's definitely an idea. You know what, I'll bring it into the Board as on option. If it's okay I'll quote you.

Okay great. Well, thank you very much and congratulations on everything and we'll see what happens in the future.

And, Ms. Powers, there are no more questions on the phone lines at the moment. I will now turn the call back to you. Please continue with your presentation or closing remarks.

And I would like to thank everybody for being with us and thank you very much. Hopefully you'll be with us next quarter and hopefully we have right now things going in a Company right direction and so we can reverse what happened over the market over the last couple of years and I was really pleased to see that report for the content because it's much easier to do something with winds on the back than opposite, how it was over the last three years.

Thank you very much.

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