Topgolf Callaway Brands Corp (MODG) 2003 Q4 法說會逐字稿

Good afternoon. My name is Amanda and I will be your conference facilitator. At this time I would like to welcome everyone to the Callaway Golf Fiscal year 2003 earnings conference call. All lines have being placed on mute to prevent any background noise. After the speakers remark, there will be a question and answer period. If you would like to ask a question during that time, simple press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

I would now like to turn the conference over to Brad Holiday, Chief Financial Officer. Please go ahead sir.

Thank you and welcome everyone to Callaway Golf Company’s fourth quarter and fiscal year 2003 conference call. I’m Brad Holiday, Senior Executive Vice President and Chief Financial Officer of Callaway Golf Company. Joining me today is Ron Drapeau, Chairman and CEO of Callaway Golf Company. During today’s conference call, Ron will provide a brief overview of our 2003 results and current trends. I will provide more detailed comments about our financial results and Ron will then conclude our prepared comments with some thoughts on Callaway Golf Company in 2004. We will then open the call for questions.

Before we begin, I would like to point out that any comments made about future performance, events or circumstances included estimates of sales, gross margins and earnings per share information for 2004 and estimates of capital expenditures, depreciations and amortization expenses and the Top Flight integration charges for 2004 as well as statements concerning the anticipated elimination of golf ball losses are forward-looking statements subject to Safe Harbor Protection under the Federal Securities Laws.

Such statements reflect our best judgment today based on current market trends and conditions and are subject to certain risks and uncertainties which could cause the actual results to differ materially from those projected in the forward-looking statements. For details concerning these and other risks and uncertainties you should consult our most recent Form 10-Q filed with the SEC as well as the company’s other reports subsequently file with the SEC from time to time. In addition, during the calls, in order to assist interested parties with period over period comparisons, we will provide certain Pro Forma information as to the company’s performance excluding the effects of Top Flight integration in 2003 and the effects of the company’s warranty reversal in 2002. This information may include non-GAAP financial measures within the meaning of regulation G.

The earnings release we issue today include a reconciliation of such non-GAAP financial measures to the most directly comparable financial measures compared in accordance with GAAP. The earnings release is available on the Investor Relation’s portion of the company’s website at www.callawaygolf.com. With that, I will turn the call over to Ron.

Thank you Brad and thanks to everyone for joining us today. As you know, in mid-December we provide an update estimate of our expected results for 2003 as well as an initial outlook for 2004. The 2003 estimates was exactly that, an estimates based on many variables with the expectation that some would change before we finalize our results. If you recall, our updated estimates was that net sales would be approximately $810m with earnings per share of 65 cents to 67 cents including various charges associated with the integration of our new Top Flight operations.

I’m pleased to report that our actual net sales were $814m and earnings per share were 68 cents, both slightly higher in our earlier estimates. Included in the 68 cents are expenses associated with the integrations of our September acquisition of Top Flight. If you exclude these charges, our Pro Forma results from an operating perspective were 93 cents per share which compares to the 88 cents to 90 cents per share we had estimated in December.

Going to a further level of detail, if you eliminate the losses from the Top Flight operations and look just at the operating results for our Callaway Golf business, our pro forma earnings would have been $1.06 per share. This is a 22% increase over operating results for Callaway Golf in 2002 after excluding the favorable impact of the warranty reserve adjustment taken in that year. Brad talks more about this later. I am very pleased with these results and the efforts of our employees in delivering them in what has been a mixed marketplace. The economy has been somewhat confusing all year with the war in Iraq and uncertain employment numbers that has finally started to trend more positively over the past few months. Rounds played has been down 17 out of 19 months through September of this year but that trend has reversed in the past 2 months with a 5.6% growth in both October and November, this is encouraging.

We were able to complete the acquisition of Top Flight this past year and are progressing well in the integration of our two companies. We told you last year that we would eliminate the losses on our Callaway ball business in 2004, and this acquisition not only allows us to achieve that goal but positions us well in a consolidating marketplace to take advantage of a recovering economy with a stronger portfolio of brands and products.

In addition to the financial news I want to share with you some other positive information about our company. Those of you who visit our website and read my shareholder letters know that corporate governance and ethics are important to our company and to me. We have shown a lot of leadership in this area. Thus we are pleased that in late 2003 our company was awarded the San Diego Better Business Bureau Regional Torch Award for marketplace ethics for companies with over 1,000 employees. In today’s environment this is a nice recognition for the high standards that we at Callaway set for our company and our effort to continue that philosophy.

I will turn the call over to Brad now, who will cover some of the details of our financial results. After he finishes, I’ll have a few comments on the upcoming year.

Thanks Ron. Let me first review our reported consolidated results which includes the results of both Callaway Golf and Top Flight. Full year consolidated net sales were $814m an increase of 3% while fourth quarter sales increased 19% to $147m. As Ron mentioned these are in line with our mid-December update of $810m. In constant dollars full year sales declined 1% and fourth quarter sales increased by 14%.

Consolidated gross margins were $369m or 45% of net sales for the year compared to 50% in 2002. Please keep in mind that 2003 results include Top Flight’s operating results since the September acquisition and $24m of expense associated with the integration of Top Flight. As well as 2002 results include only our Callaway business and also the $17m reversal that we have discussed several times in the past.

Excluding these items from reported results, Callaway Golf proforma gross margins were $383m or 49% of net sales in 2003 flat when compared to 2002 results on a 2% decrease in net sales. Total operating expenses were $303m or 37% of net sales compared to $289m last year, an increase of 5%. This increase is due to the inclusion of three months of Top Flight operating expenses in 2003, with no comparable expenses in the 2002 base. If you exclude Top Flight, then the 2003 Callaway golf pro forma operating expenses would have decreased 3% to $280m.

Our fully diluted earnings per share for 2003 were $0.68, slightly exceeding our mid-December update of $0.65 to $0.67 and includes the pre-tax charges of $24m or $0.25 per share associated with the integration of Top Flight, as I already mentioned. As Ron mentioned, excluding these charges, our 2003 fully diluted earnings per share would have been $0.93, exceeding the guidance we provided in mid-December of $0.88 to $0.90. I would refer you to our press release where we have included a table that reconciles our GAAP results to pro forma results, excluding these non-operating types of expenses. As we have said in the past, we do not intend to break out our future results by brand, meaning by Callaway Golf and Top flight but will report as we do today by reportable segments such as clubs and balls. However, given all of the changes to our business with the acquisition and to help better understand results for 2003 compared with prior years, I will provide some additional details and comments about our 2003 results. So first, looking at just our Callaway golf business, full year net sales were $774m, a decline of 2% when compared to last year. Fourth quarter sales were $112m compared to $123m last year, a 9% decline due to the difference in shipment of new products last year versus our shipping of new products this year. Last year as you may recall, launched GBB2 Titanium drivers beginning late in the third quarter.

For Callaway Golf only, full year sales of woods were 31% of total sales at $252m compared to $310m last year, a decrease of 19%. This decline is attributed to lower steel product shipments this year as we entered the second year of our steel head 3 line and the absence of a super premium priced wood product offset (technical difficulty) increased great big bertha 2 titanium sales.

Wood sales decreased 27% in the fourth quarter versus last year primarily due to the difference in new product shipments year over year. As you know, in 2004 we have a multi-level product strategy for wood to offset these declines and recapture market share. Sales of irons were $268m during the year versus $244m in 2002, an increase of 10%. Iron sales represent a 33% of the total sales mix during 2003. The increase was due to strong sales of our X16 irons which more than offset the decline of Hawkeye VFT and X14 irons.

Sales of golf balls declined $44m from $66m last year. This decline can attributed to the number of rounds played being down for the year, the uncertainty surrounding the status of our golf ball business for most of the year and the fact that we did not introduce any new products during the year. We plan on reversing this trend in 2004 with the re-launch of several of our current products and introduction of our new Big Bertha and Hex tour golf balls. With regards to operating results to the Callaway golf ball line, the loss for the year was approximately $26m excluding the charged I covered earlier. We’re still committed to eliminating these losses in 2004 excluding integration charges. We believe we can accomplish this with increased sales of new products and lower product cost as we leverage and take advantage of Top Flight, low cost manufacturing base.

Sales of putters, accessories and other products increased 21% to $209m for the year. Growth in Oddessy putters led by the two ball putter accounted for a majority of this growth. Our licensing business continued to grow with royalty more than doubling in 2003 to $2.7m compared to $1.1m last year. Ashworth continued to do a great job with our brand from an apparel perspective and our footwear line has gained positive acceptance at retail during its first year. We have expanded licensing agreements to include watches as well as a limited line of travel bags.

Turning to our international business, sales for the year increase 1% to $357m and represented 46% of our business. International sales for the fourth quarter was $60m flat with prior year. Net sales by market for the full year were as follows, Europe increase 4% to $142m, in constant dollars Europe decreased 5%. Japan declined 1% to $1.1m in constant dollars Japan decreased 9%. The rest of Asia including Korea was flat year over year in constant dollars the rest of Asia decreased 2% and US sales decreased 5% to $417m.

Turning to earnings, there a couple of items in the reported results that are confusing from an ongoing operations perspective so bear with me while I try to explain the results. Our 2003 fully diluted earnings per share for just Callaway golf was $0.81 compared to $1.03 last year. The 2003 results include $24m of integration charges I’ve already mentioned while the 2002 results include the positive earnings impact of the $17m warranty reserve adjustment we took in the third quarter of 2002. Excluding these adjustments, which tend to be non-operating in nature, 2003 earnings would have been $1.06 compared to $0.87 in 2002, an increase of 22%. I would again refer you to our press release that includes a table showing these adjustments. Turning to top Flight’s results, as you recall, we closed on the domestic business in mid-September and on the international segments on October 1st. So these are limited results with no year over year comparison. To summarize the final details of the transaction, we paid $154m in cash for Top Flight. For that purchase price we received $44m in accounts receivable, $33m in inventory, $1m in other current assets, $57m in property, plant and equipment and $48m in intangibles for a total of $183m in assets. We assumed $23m in liabilities resulting in net assets acquired of $160m. Net sales for Top Flight from the date of acquisition were $40m with the loss of $9m or 13 cents per share in line with our mid December update. The integration is moving along nicely with a good portion of our Callaway golf balls currently being manufactured at our Top Flight facility in Massachusetts. We continue to cast the cover, finish and package our three piece balls here in Carlsbad and would anticipate doing this until sometime during the second half of this year. We continue to be excited with the addition of Top Flight brand to our portfolio and the progress we are seeing on the integration plan.

Now turning back to total consolidated results, other income for the year was $2m compared to $600,000 the previous year. This increase is due to gains on the bird compensation plan investments as well as smaller foreign exchange losses. We ended the year with a strong balance sheet, cash was $47m a decrease of 56% over last year due to our cash purchase of Top Flight. We ended the year with virtually no debt and $253m of net working capital. Accounts receivable DSO was 66 days, slightly higher than last years 63 days. This DSO excludes Top Flight because to include the acquired receivable without the associated sales would distort the results. Capital expenditures for the year and quarter were $8m and $3m respectively with annual depreciation and amortization of $44m.

In 2004, we expect depreciation and amortization expenses excluding integration charges of approximately $40m to $45m and capital expenditures of approximately $20m to $25m. During the fourth quarter we repurchased an additional 96,000 shares of our common stock at an average price of $15.98. For the year, we have invested $5m to repurchase a total of 372,000 shares at an average cost of $12.77 per share. This concludes my remarks. I would now like to turn the call back over to Ron.

Thanks Brad. Because so many things happened in 2002 and 2003 that were not a part of our ongoing operations, it is challenging to make year-over-year comparisons. I hope Brad’s report adds some clarity for you. As Brad mentioned, in our press release, we included some tables to help you reconcile actual and pro forma results. Of course, all the GAAP numbers are provided. The bottom line in my view is that we have delivered solid financial results in a volatile marketplace over the past year. Let me briefly comment on our expectations for 2004. Our estimates have not changed but let me review them with you again. Net sales are expected to be approximately $1.03b plus or minus 3%, a 27% increase over 2003.

Fully diluted earnings per share for 2004 are estimated to be between 82 cents and 97 cents, including additional charges associated with the further integration of the Callaway Golf and the Top Flight operations. These charges are projected this time to negatively impact earnings by approximately 33 cents per share. Excluding these charges, fully diluted earnings per share for 2004 are estimated to be between $1.15 and $1.30. In addition to eliminating the losses on our ball business, one of our key objectives moving forward is to regain the wood share we have lost over the past few years.

We have been and will continue to invest in the tour to drive consumer validation around the technology we bring to the market. We have extended our wood line for 2004 covering multiple price points. In the super premium category is our ERC fusion driver, which is retailing at $499, which brings the latest technology available to consumers. In the premium category, we have the Great Big Bertha II offering that retails at $399 that includes last year’s model as well as the new 415cc model. At the moderate price point, will be our new Big Bertha line of wood, which features a titanium driver retailing at $249 as well as matching stainless steel fairway woods. These offerings along with our trade-in trade-up program, position us to take advantage of the recovering economy that we hope will continue to gain momentum. In addition, we have introduced Big Bertha Irons with a new and improved constant lit sole and a line of Callaway Premium Putters in addition to [Indiscernible] tube ball extensions. Top Flight will see a full year of their new infinity line plus new Ben Hogan FTX and VFT Hybrid irons, as well as an extended line of Ben Hogan [Indiscernible] Putters.

As always, our commitment to our shareholders is that we will work hard and ethically to drive long-term increases in shareholder value. This concludes our prepared remarks. I would like to thank you for you participation in today’s conference call and your continued interest in the company. We will now open the call for questions.

+++ Questions & Answers

At this time I would like to remind everyone, if you would like to ask a question, please press * then the number 1 on your telephone keypad. We’ll pause for just a moment to compile the Q & A roster. Your first question is from Alexander Parris with Barrington Research.

Good afternoon, nice quarter.

Thank you Alexander.

Just - - this is kind of a big question that I’ve got. On the integration, is it going to be - - I know it all - - you’re always be making changes but will the substantial amount of integration be done by the end of this year?

Yes Alexander, we expect and plan to have it completely behind us as we enter 2005.

And as you look at all these new pieces - - the combined businesses, would you guess there would be any negative changes plus or negative in things like your gross margin, operating margins, SG&A to sales or are the just fairly similar so that there wouldn’t shouldn’t be any change once you’ve got everything together.

Well we will expect that as you look at the product by product, generally they would be similar with where we currently are as you, as we indicated in the call we are planning on going after and growing our market share in woods, which would have a positive impact on total margins for the company and as we consolidate and take advantage of the infrastructure in golf ball at the Top Flight operations we of course would get improved margins out of that compared to our struggling Callaway operation.

And your global distribution would change a little may be for the positive this, would it reduce your exposure to Japan when you put the two companies together.

No it won’t reduce any exposure what it will do we believe is give it the opportunity to have a bigger footprint in all of the markets with a stronger sales force, bigger numbers of people and an opportunity to grow the brands.

But Japan would probably be a smaller part of the overall with the combined company than it is now, given that Callaway has been so popular in Japan?

Well initially it will be because we’re stronger internationally than the top five brands have been. So in 2004/2005 that’s probably true but we would plan on growing the Japanese presence for Top Flight and Hogan.

Ok thank you very much.

The next question is from Kenny Abram from Borrington Management

Hi guys, a couple of things. One Brad, first just on the numbers. I know for the DSOs you took the Top Flight out, but in the balance sheet that I see, out there 03 versus 02, are those Top Flight assets included.

Yep

So if I eyeball it right there is $44m of AR and $32m of inventories so you know (inaudible) that looks when I look at the working capital it doesn’t, looks like inventory and receivables are basically kind of in line with last year.

Yeah, actually I think our inventory is down slightly from last year Kenny.

Ok and then my next question is just its interesting too, I having been paying attention to monthly rounds played and it has been negative for so long, you know the two, last two data points which you saw which were positive, which I would have to tell those of us in Boston with the below 0 winds chills find it hard to believe but what are your green grass guys telling you? You know cause that’s, do they think, they see things getting better for the whole year, is there something seasonally in the calendar that we should be aware of, what’s you know, what’s happening?

Well I think Kenny your point about the fact that the whole country is not open as one that’s well taken, its probably really too early to predict ongoing success with rounds played but its nice to see year over year that the losses that we were seeing in rounds has stopped. I think we’ve got to wait until Spring develops to really get a feel on all that’s going to play out when everything opens up.

Ok and then final question is, in terms of the new ball entries both the black, tour ball if you will and the two new Big Bertha entries, are those both available for selling this quarter?

yes, we’re delivering products now.

ok thanks.

You’re welcome

The next questions is from Brett Jordan with Advest

A couple of quick questions and actually one just following up on Kenny’s question just occurred to me. Given the fact that last October and November were pretty bad from a weather standpoint in this part of the country, you’ve had statically significant the rounds played number that you think this is a macro-trend or are we that affected from the fact that it started snowing in September and stayed snow through April last year.

I don’t think its any kind of an indication of a trend at this point it’s just nice that the bleeding stopped.

Ok, I guess I have a question on market share since your looking at organic growth in 04 versus 03 do you have a feeling recently on any shifts of market share that you’re picking up? You know you’ve got a couple new products out recently, is there any data in yet?

No it’s too early to tell were just selling in and fitting products on the shelf now with our new offerings. So we won’t start to see any meaningful market share movements probably until March, April.

Okay but you do expect to turn the trend up again?

Yes we do.

And I guess on the trade in trade up, you mentioned it briefly is that a business that’s profitable I mean sort of controlling the secondary market in your equipment, is that generating revenues and contributing to profit and is this something at some point you’re going to have to show on a line item on the P&L?

Well understand the pre-owned Callaway Golf Pre-owned Callaway.com is not our business that’s a third party relationship we have that runs that business. We benefit from the fact that the trade-ins that come into that system are traded in for new Callaway products.

And so when you adjusted the Frog Trader business you didn’t take anymore ownership of that line, it’s still a third party sales?

We’ve not made any adjustments to the Frog Trader business since the initial set ups.

Okay I guess you change the site name and that was it?

Yes that’s correct.

That’s great and then I guess on the last question on the charge is, the $35m you expect to do this year how much is cash and non cash just to refresh my memory?

It’s about a 50,50 split.

Alright thanks.

Okay you bet.

The next question is from Tim Conder with AG Edwards.

Hi gentlemen great job overall on a difficult environment for the year.

Thank you Tim.

Couple here. Could you talk a little bit about where you see your Woods, Iron, ball mix and P&A going forward, obviously we’ve anticipated the woods becoming a greater part of that mix but maybe just directionally anything you want to offer there? And then Brad if you could break down the Top Flight balls and then other sales in the fourth quarter specifically that’d be helpful? And then Ron I noted that as you’ve noted in the press release you did do some repurchase in the fourth quarter a little bit there. You’d indicated before that probably you would not do that again until the third quarter of ’04, any change in your philosophy there or are you still looking more towards the third quarter towards doing that a repo opportunity?

Okay well a lot of question let’s see if I can get them all. Directionally on the product side we specifically entered the market with the Big Bertha line to go after a piece of the market place that have been a staple for us. If you go back to Callaway Big Berthas and WarBirds and Steel Head lines this has been a big part of our business and we lost some of it in the last year to competitors that had a Titanium Driver, Cast Titanium Driver that was competing against our driver piece of that metal wood segment. So we specifically brought to market the Big Bertha line which has a cast Titanium Driver and Fairway was (inaudible) made of steel that are attractively priced to go after that business that was ours. And we want back and we think that’s going to be a big part of driving our wood share back up along with the new platform of the ERC fusions which no one else has.

We are alone there by ourselves in a category that we’ve created and we’re excited about it, we think our opportunities with that, because specifically its new technology is very visible, will be played on tour, is being played on tour as we speak and we think it’s going to create some interesting buzz in the market place because of its performance characteristics. So we see the wood side of the business directionally going up, we also see the ball business for Callaway directly going up because we’ve been absent for a year, as we were trying to figure out what to do to resolve our losses in golf ball. We brought no new products to market and because of that we were pretty low in the radar in terms of marketing, advertising exposure.

We’re going to get back into that with the new offerings of the X-tour balls and the Big Bertha balls, so we see those two products of the business generating increased up side direction for our Callaway side of the operations. That’s the first question.

Regarding the repurchase, a point I made last time was that because of seasonality and now with Top Flight in the picture and we’ve drained some of our cash this year, we’d probably would not feel comfortable not being in the position with excess cash on hand until we get to the third quarter, at that point in time if the normal season develops as it is, we’re at a point where we generate a lot of cash starting in that period and that’s when we’d consider share repurchase again.

And Tim this is Brad with regards to sales, I’m won’t give you the specific details by Top Flight but just so you know we did $35m in Top Flight in the fourth quarter, $5m in the third quarter for that short time we owned them and I would tell you in the fourth quarter that balls represented a bulk majority in kind of that 80% range of sales.

Okay and then do you see any distribution different as you look at the normal selling season? Concerning material difference between the timing as to when Top Flights products hit the market and sell through at retail verses Callaway brand given the somewhat difference in distribution channels and targeted customer base?

Well there is a difference Tim it’s driven more by the mix of products than it is by distribution channels. The fact that Top Flight is heavily weighted in the Golf ball segment versus Callaway golf, their first quarter sales are generally not as high a percentage as we have been. As we’re filling the shelves. The retailers are waiting until the snow melts before they’re putting in our golf balls on the shelves. And then they also generally experience a little stronger Christmas business because we do because of gift items for golf balls. Other than that the general seasonality that the industry is affected by, affects both of us.

Okay great, thank you.

You’re welcome.

Your next question is from Casey Alexander with Guildford Securities.

Hi good afternoon.

Hi Casey.

Hey this is probably not important but I’m just trying to understand the receivable and the inventory that you acquired and I know that you adjusted the amount that you paid in cash. The result I would assume of this was around $20m below what was originally estimated when the deal was struck. Was there a change in the composition or were there valuation changes? I mean how did that come about?

Well the deal was struck based on financial statements and as it turned out at the end of the day the – and particularly from the foreign subsidiaries the estate could not deliver all the assets that were good and saleable and usable in the business and so we didn’t buy them.

Casey it’s Brad. Also I think basically you know the first numbers were estimates and as we got into it and finally started clean up some of those estimates the amount that was actually delivered to Ron’s point was less. And then when we set up our initial opening balance sheet we put reserves on things that we think were you know didn’t add as much value as perhaps they thought. So a part of it is just the reserve balance as we put on also.

Okay so there were some valuation changes when you got in there and looked at some of the stuff that was on the shelves?

Yes, I mean when they sold it, I mean it was an estimate bases on their book values.

Right.

We went in and re-evaluated it based on the quality of the inventory that we took. We added some reserves.

Right, okay. Secondly in the fourth quarter I mean again, I know that you guys don’t want to do this, but if you kind of ex out the Top Flight business where was the Putters business versus your change versus ’02 if you get rid of the Top Flight business in the scheme?

In the press release Casey it shows that putter business is $24.7m in the fourth quarter.

Right I see that, there were --.

The lion share of that is Oddysey.

Okay there is not much (indiscernible)already in there?

No there isn’t.

Okay. Alright that’s great, thank you.

Okay Casey.

Again if you would like to ask a question please press star then the number one on your telephone key pad. Your next question is from Paul Hogan with Fennimore Asset Management.

Good afternoon. Just a couple of questions for you, first on the Top Flight – on the patents that you acquired there will there be any new products coming out in that line this year? Or will you wait until ’05?

We have not announced any new products at this time coming out of that patent portfolio.

Okay but you would expect to – you would expect some new products going forward or are those patents just protecting the products that you acquired?

No there is a lot of IPs there that has not been brought to market.

I see, okay. And going into this year would there have been any disruption in the channel where Top Flight during the transfer to Callaway?

Probably but hard to estimate – it’s hard to say. You know we’re all pretty busy during that period of time, their executive and our executives. So hard to say if there was any disruption but there probably was. We were all working very diligently on this deal.

Sure, understandable. And are you going through any systems changes with the integration or will you be waiting till the fall?

We will be taking systems integration as we move forward to 2005. We haven’t yet but we’re looking hard at those because we have duplicate systems around the world. And there is going to be some opportunities for us there.

Okay and then finally on your cash balance, can you review some of the factors that contributed to that decline in – I thought at first glance that may have been from the acquisition of the – in international operations, but I see that was accounted for as a pre-paid investment in the third quarter.

The year-over-year members and cash decrease $61m year-over-year. We bid about $154m for the Top Flight, do (indiscernible) at Top Flight we had the $90m increase in cash.

Okay. Okay and then you paid dividend?

Yes.

Right, thanks again.

You’re welcome.

You have a follow up question from Brett Jordan with Advest.

I have a couple more quick ones just saw that Top Flight contribution on the international side to reconcile the $6m benefit from FX, how much of that would have been Top Flight versus your quarter line?

You know what Brett quite honestly we didn’t break it out.

Okay and then I guess on the big birth of where the $249 product how does that compare gross margin wise to the GBDII?

We really don’t disclose that -.

(indiscernible) carry a similar margin despite the reduced price point?

We really don’t disclose gross margins of our product.

Okay thanks.

At this time there are no further questions. Are there any further remark?

Yes I would like to just thank everyone for their participation in this call. Thank you for the interest in the company and for our share holders who have participated thank you for your support. And we’ll talk to you in April.

This conclude today’s conference call, you may now disconnect.