Nautilus Inc (NLS) 2004 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to The Nautilus Group Q1 earning conference call. [Operator Instructions] As reminder this conference is being recorded today, Thursday, April 29, 2004.

I would now like to turn the conference over to Mr. Greg Hammann, President and Chief Executive Officer . Please go ahead sir.

Thanks Erica, I appreciate it. Good afternoon and thanks for joining us for the review of our first quarter which ended March 31, 2004.

With me today is Rod Rice, our Chief Financial Officer. On the call today we're going to talk and update everyone on the progress of our strategic turnaround. How we believe we are continuing to better position Nautilus for longterm diversified growth opportunities.. Rod's then going to take us through operating and financial results for the first quarter of 2004 and we'll provide guidance. I'm then going to conclude this section of the call with a review of our business and a summary of the current trends in our overall business. We are then going to open the call up for questions.

Before I get started I'd like to review the Safe Harbor statement and I would like to remind everyone that our prepared remarks contain forward-looking statements. We make addition forward looking statement in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance on them should not be placed. We refer all the of you to the most recent periodic reports on form 10-K and 10-Q as filed with the SEC. For more detailed discussions of the factors that factors that could cause actual results to differ materially from those projected on our forward-looking statements.

Okay, with that out of the way.

I am encouraged by our results from the first quarter and the fact that we out performed our top line expectations. We delivered 130.9 million in revenue for the first quarter by maintaining our focus on the customer and addressing demand for Nautilus strength and cardiovascular equipment. in the appropriate distribution channel. It is important to note that our first quarter 2004 revenue was a above the first quarter revenue for 2003. This is the first file first time if if over a year revenue growth has exceeded previous growth in the previous 4 quarters. So that is a good sign.

Also, our cash flow from operations was approximately 22.9 million, which is an increase compared to this period last year. Our cash position is now 92.1 million, which is a a 27% increase from last quarter. Our company continues to make progress on our turnaround plan. And we are completing the game control phase of this plan. We are now entering the second phase which is the stabilized phase of our turnaround.

As we discussed in the third quarter conference call in 2003, in the latter part of 2003 we will begin to implement the 3 phase approximate 18 month turnaround plan to reposition our brands and improve our sales channels in order begin to grow revenue and earnings again. Those 3 phases were gain control, stabilized and then grow again.

Since we are now completing the phase one gain control phase, we are now entering the stabilized phase of the our turnaround.

During the first quarter our goal and focus in the gain control phase was to improve operating efficiencies, diversify revenue, and increase cash flow. By leveraging each sales opportunity from our performing brands, we managed to exceed our revenue goal for the first quarter. In the phase 2 component, or stabilize, we begin increasing our focus on diversification, development and repositioning of your brands and leveraging those brands in each one of our sales channels. Our goal is to have healthy brands with differentiated consumer focused products being sold through the appropriate channels that will contribute to our growth and improve our performance.

We are now undergoing a sales channel and brand shift from primarily the direct channel to a more diversified and balanced penetration in retail, commercial, and direct, while simultaneously creating a better balance between our cardiovascular and strength training products. We have been primarily focused on selling strength products through our direct channel in the past, but our research shows that 80% of our consumer target market buys fitness products through the retail channel and 60% of those dollars are spent on cardiovascular products. We've got a lot of work to do before we are able to to be properly positioned in the market place to provide the consumer the Nautilus strength and cardiovascular equipment they want, in the appropriate distribution channels, where they chose to shop and purchases our brand.

In order diversify our product offering and to capture a greater portion of the $5 billion fitness equipment market we will continue to diversify in those sales channels and continue to diversify our earnings across the brands and distribution channels. A number of our brands performed particularly well in the first quarter, which Rod's going to go into detail on in a few minutes.

The final phase of the turnaround is when we begin to experience meaningful growth. And as we have previously stated, we believe this will not begin until about the fourth quarter of 2004. This final phase is when we have repositioned our brands, we've fully diversified and differentiated ouf sales channels, and we are offer the consumer products they want, where they shop. We must be able to leverage all aspects of our organization's competencies so we are working as one powerful company. And our goal is to be firing on all cylinders, so to speak, by the end of 2004. Now I am encouraged by our accomplishments in the first quarter, but we still have a lot of room for improvement in our company.

Before I get into more detail about our strategic initiatives for 2004, I'd like to turn the call over to Rod who is going to take you through a review of our operating and financial results for the first quarter: Rod's also going to provide you with guidance.

Thanks Gregg.

After we look at financial and operational results for the first quarter of 2004 we are beginning to see the initial results of a turnaround plan. During the quarter a number of our brands performed very well including the TreadClimber, the Bowflex and our improved Nautilus strength line Nitro Plus. Nitro Plus is benefitting from it's redesigned new sleek look. This improvement is directly due to our increased focus in investment and research and development.

In the past few quarters we have been increasing our spending on research and development and we are beginning to experience the early benefits of this investment.

Our Bowflex brand has stabilized with sales of 30,000 units through our direct channel and 29,000 sold through retail channel in the first quarter. We are experiencing positive results in our retail channel.

In part, due to our direct channel advertising and strong brand recognition. Also our ASP for our Bowflexes above $1,500, through our direct channel. We are encouraged by this turnaround in sales trends for this brand, and we are looking forward to a bright future for Bowflex. We have innovated this product more in the last 8 months than we have in the previous five years. This innovation strategy, along with strong Bowflex brand, should allow us to to maintain leadership position in home gym market even though our patents have expired on the Bowflex product.

The TreadClimber contributed $13.3 million in revenue for the quarter. This is a 39% increase over the fourth quarter. We're excited about this potential. This newly created brand will offer for years to come and we are comfortable with our projections we gave at the beginning of the year of reaching approximately $60 million in revenue in 2004 for this product. We also continue to diversify revenue for a channel perspective. The commercial retail segment increased by almost 36% compared to same period in 2003. Commercial and retail made up over 52% of our over all revenue for the first quarter of 2004.

Turning to our financials. Our revenue slightly exceeded our guidance we gave at the beginning of the year and our earnings were in-line with our guidance. Net sales for the first quarter were 130.9 million compared to to 129.4 million for the corresponding period last year. Net income during the period was 6.4 million. And earning per share for the first quarter were 19 cents per diluted share compared to 13.7 million or 42 cents per diluted share for the corresponding period in the previous year. Gross profit margin for the first quarter 2004 was 43.4% compared to 55.1% for the first quarter of 2003.

The reduction of gross profit margin was mainly due to a more diversified sales mix, we have higher sales in our retail channel, which they have lower margins than our direct channel. Also the cost of doubling the Bowflex warrantee for five to ten years and also the safety reinforcement program. The only marketing expense for the first quarter was 35.7 million or 27.3% of net sales compared to 39.5 million or 30.5% of net sales for first quarter of 2003. These expenses are down in part because our direct advertising is having a positive effect on our sales [inaudible] Bowflex product. Not only in our direct channel, but also in commercial or retail channel as well. In essence we are leveraging our direct advertising investment and seeing the benefit of our retail business.

General and administrative expenses for the first quarter were 7.2 million up from 6.9 million for the same period in 2003. The increase in G&A expense is primarily due to cost associated with strengthening in our management team..

Research and development expenses were 1.8 million compared to 1.4 million for the same period in 2003. We will increase our investment in R&D, especially since we are already beginning to see the early signs of the benefits from this investment. Consolidated operating income for the first quarter was 9.8 million, equating to a 7.5% operating income margin, compared to 21.5 million and 16.6% operating margin for the first quarter of 2003.

Now I'd like the discuss revenue and earnings by segment.

For the first quarter of 2004 net sales from our direct segment were 62.2 million compared to 78.9 million for the first quarter in 2003. Direct segment earning per share for the first quarter of 2004 were 8 cents, compared to 37 cents for the same period last year.

We sold 30,000 units of the Bowflex product direct in the first quarter. This is compared to 32 ,000 units in the the fourth quarter of 2003 and 29,000 units during the third quarter of 2003. Our commercial retail segment net sales for the first quarter were 68.7 million, compared to 50.5 million during the same quarter last year. Commercial retail segment earning per diluted share for the first quarter were 15 cents, this is compared to 8 cents for the same period last year. Also Bowflex retail sales equated to 15.8 million or 23% of overall commercial retail sales in the first quarter of 2004.

I believe it is important to reiterate that our commercial retail revenue accounted for proximately 52% of our overall revenue in first quarter up from approximately 39% in the the first quarter of 2003. And non-Bowflex revenue accounted for 52% in the first quarter of 2004 compared to 42% in 2003.

This is pointing out of our goal diversifying our revenue is occurring. The operating expenses for the holding company in the first quarter were 2.1 million compared to 1.6 million in the first quarter of 2003. This increase is primarily due to cost of strengthening our management team.

Our cash and short term investment position improved to 923.1 million at the end of first quarter 2004 compared to 72.6 million at the end of 2003. This is a 27% increase after paying 3.3 million in dividends. Our accounts receivable, at the end of first quarter, were 55.9 million compared to 75.5 million at year end 2003. The decrease is really due to seasonality. Our DSOs on the direct side averaged about 7 days. On the commercial retail side DSOs were 68 days in the first quarter.

Inventory decreased to 50.8 million at the end of the first quarter from 53.1 million at year end 2003.

Our cash flow from operations was 22.9 million for the first quarter of 2004, compared to 19.2 million for the same period last year. We continued to generate positive cash flow to pay our dividends to shareholders, invest in our future, and at the same time increase our cash position. We are pleased that our cash flow from operations was an improvement compared to this period last year. We believe this is a direct result of our turnaround efforts as we're starting to recognize more efficiencies in our operations and our team is managing our balance sheet better than ever before. We are more aligned with our overall company goals .

Moving to guidance, I would like to elaborate on a few factors that we considered determining our guidance.

First, in the current turnaround position, we remain remain cautious about guidance and believe it is prudent at this time to provide only guidance for the second quarter. Second as we move to a more diversified revenue stream we expect to experience seasonality similar to the retail/commercial channel sales. We believe our revenue and earnings will be lower in the first half of 2004 compared to the latter half of the year with the the second quarter experiencing most softness due to seasonality. Third, as Gregg discussed, our company is in the beginning stages of phase two of the turnaround process. And while we're encouraged by our progress today we do not believe that we will begin to experience meaningful growth until the fourth quarter of 2004.

Now, our second quarter revenue is expected to be in the range of 90 to 100 million. With EPS in the range of 4 to 6 cents. We are projecting our gross profit margin to be in the range of 45-48% with operating cash flow of 4 to 6 million. We expect to provide more specific guidance for the year as well as update you on the progress of our turnaround during our second quarter conference call.

The company announced today that our Board of Directors has declared a regular quarterly dividend of 10 cents per common share, payable June 10, 2004, to shareholder's of record as of May 20, 2004..

Now I'd like to turn the call back over to Greg to discuss the trends of the business. Greg?

Thanks Rod. Okay, so I'd like to quickly highlight a few of the first quarter results that Rod mentioned.

And the first one being, I'm pleased to announce that we increase revenue year over year for the first time in four quarters, I think that is a good sign of our progress. Also it is very important to note that operating cash flow actually improved compared to the same period last year. Where we achieved over 22.9 million in operating cash flow. This is a very positive step in the right direction for our company and its a, I think, a great example of what our company and shareholders can expect more in the future as we realize the power of one company working together. Also, during the first quarter our company in cooperation with the CPSC began offering a safety reinforcement kit to customers that own our Power Pro Model with the Lat Tower. I was very pleased with how the team, both responded and handled this safety reinforcement program and the fact that this event did not effect our sales during the first quarter.

Our team sold 30,000 Bowflex units direct and 29,000 units through our retail program. This is the most combined units we have sold in a quarter on Bowflex in over a year. We believe in the quality and durability of that brand and in our Power Proline so much that we went forward and extended the warrantee on that product from 5 to 10 years during the first quarter. We are focusing our efforts on all of our brands too make sure they meet the Nautilus standard of quality and durability and I believe this effort will set us even further above the industry standard as a leader in the quality and durability of fitness equipment. As part of this effort we are formally setting a new standard for qualify and safety in industry, the Nautilus standard.

Part of our turnaround is based on continually improving innovation throughout our company. And I'd like to highlight a few of the innovations we experienced during the first quarter. First, we're beginning to innovate and differentiate our product lines more by sales channel, example of this is the Bowflex brand. Previously we were selling the same product, the Power Pro, through our retail and direct channels. Going forward we will sell the new, innovative Extreme 2, with no cable change technology through our direct channel and move the Extreme Bowflex products, first introduced in our direct channel to retail. This strategy allows our company to create demand and awareness for a product through television advertising, then position it in retail to leverage our advertising investment across our sales channel. Importantly it also helps us work in partnership with our retail customers to drive traffic into their stores.

All right the second one, the most innovative product we've introduced in the last year is the TreadClimber. With sales up 39% in the first quarter compared to the fourth quarter, we continue to be very comfortable with the upper range of 60 million in revenue for 2004 from this product. We redesigned our packaging on the TreadClimber during the quarter. We now ship this product to customers in 3 boxes, which makes it easier for them to deliver and setup the product, and also help us us from a warrantee and shipping damage that had occurred.

Next, our innovation in other products is also starting tor get noticed. Our commercial business we launched the new Nitro Plus Commercial Strength Equipment line. We began production on this new strength line at the end of the fourth quarter and initial feedback has been very strong from the club owners. This is our most popular line that combines all the benefits of legendary Nautilus engineering and functionality with a great new look.

Looking forward we recently showed our new commercial TreadClimber at the International Health and Racquet Sports Association (ERSA) annual trade show. Where it received a strong reception from club owners. This product is expected to ship by the end of the first quarter in 2005. In addition, we also showed the Stairmaster Variable Stride Elliptical Trainer at ERSA and we expect to begin shipping this product at the end of 2004.

We are seeing innovation in all channels and all product lines, verified by our more diversified revenue channels. Last year in the direct channel, it was about 61% of revenue in the first quarter. This year the first quarter, it was roughly 48%. We will continue to introduce new innovative products throughout our direct channel for years to come, but we also think it is important to have a diversified product offering and innovation for the customers throughout all of our channels. For many years our company has done a good job of offering strength products through the direct channel, but by not focusing some of our ability on cardiovascular products and the retail channel, we were not addressing the biggest opportunity for our company. As we get the brands positioned in retail and take advantage of the operating efficiencies our gross profit margins will improve.

Our progress during the past few months would not be possible without the exceptional team we've established here. As we expand existing markets and enter into new markets such as retail and offer more brands and products we'll continue to strengthen our management team. During the first quarter we added two experienced managers to our team. To enhance our strategic planning and international business we recently hired Darryl Thomas, as Senior Vice President of Strategic Planning and Project Management. Darryl has served a variety of executive and strategic planning positions with companies like Levi Strauss and Coca-Cola. Darryl's experience in strategic planning and sales management and sales training is over 20 years at this point and his experience and focus is going to help us insure we have a strong and methodical approach to our strategic planning process.

To build upon our strong sales channels we also recently hired Tim Hawkins as our Chief Customer Officer. Prior to joining Nautilus, Tim was a Vice President of Sales for Levi Strauss and company. From '97 to 2002, Tim held various national accounts sales group positions for the Coca-Cola company. Prior to Coca-Cola Tim held executive marketing positions with Famous Footwear and sales management position with Ray-O-Vac Corp.. His leadership and experience with customers and developing programs to meet their needs will help our company to enter into many new opportunities.

So, our company's excited about these experienced leaders and having them join our team and we sure look forward to their contributions to Nautilus.

Now in summary, we are encouraged by the progress we've made in our turnaround plan and believe that Nautilus' strong portfolio of health and fitness brands, fiscal discipline and commitment to increasing shareholder value will enable the company to be the innovator and brand leader in the health and fitness industry for years to come. We will continue to face challenges during our turnaround plan, but I believe we are on course, and I also believe we can deliver more results like the ones you've just heard about. And we expect to continue to generate positive operating cash flow throughout 2004.

The plan we embarked on over 8 months ago is rigorous undertaking. But, I have confidence that the brand and channel segmentation work we initiated will create the leading health and fitness company and deliver longterm value for our shareholders and employees. We're excited about our prospects as we continue to build on our solid foundation with a blue print based on financial rigor, innovation, trust, and a drive to be number one in the categories we compete. Through careful planning and consistent execution we expect to deliver both sales and earning growth over the longterm. We have the infrastructure, balance sheet and management team to support this growth. Over the next 9 to 12 months we intend to continue to lay the foundation for clear and sustainable progress and we look forward to showing measurable results from these efforts in the latter part of 2004 and beyond.

Now I would like to open the call up for questions.

Thank you sir. Ladies and gentlemen at this time we will begin Q&A session. [Operator Instructions] One moment please for our first question.

Thank you, our first question comes from Caroline Buyers with RBC Capital Markets. Please go ahead.

Hi, actually this is Andrew Hutson [ph] for Carol Buyers. I was just wondering if you can give us any kind of anecdotes on retail sell through, what you are seeing there.

Hey Andrew, how are you.

All right, how are you doing.

All right, tell Carol I said hello.

Will do.

On the retail sell through -- actually -- right now it is pretty solid. We've got -- from what we're seeing with a couple of our key customers the sell through has been pretty strong. We are not seeing a lot of inventory build up although -- you know we have had inventory issues with Costco, which is one that we're still working through on discontinuing as we moved out of the Power Pro line. We put some product in there, so we are a little heavy there today, and I think we've got a plan in place here to help clean that up. I think in the rest of our customer base and, especially retail side as well as with some of the sporting goods customers we are seeing pretty solid sell through, so inventories are actually what I would call a little bit light right now, I think, at retail.

Great thanks, quickly what are you thinking for media cost or advertising costs, in the direct channel for kind of the duration of the year.

As you go into an election year you always -- get into some issues there. What we're trying to do in proactively managing this, we've looked another all the elements of our media mix in leveraging both the print side, direct mail side, as well as the electronic media components of it. Although we see expenses on the electronic media side going up slightly or -- and in some cases on the local networks go up pretty substantially, we're trying to work around that to make sure we maximize opportunity for us.

Okay, great, thanks a lot.

Thank you next question is Karen la Mark from Merrill Lynch. Please go ahead.

Hi, I would like to start first with gross margin. There is a lot of, sort of, moving parts here and I wonder if you can give us insight into where you expect to shake out and why, it sounds like you might have been disappointed and yet, Bowflex stabilized and increased -- second quarter you are expect gross margins to up versus the first, so if you can just kind of talk about how the mix shakes out and how you expect to grow the gross margins second quarter versus first.

Sure, I'm going to break it down into four components for you. Really, when are you look at the gross profit margin, you know, sales were relatively flat. If you compare to the first quarter of 2003 to 2004 you are going to see a difference of roughly $14 million, 7 million of that is due to channel mix. What I mean by that is we're selling more product in the commercial and retail than we are on the direct side of Bowflex. You seen some advantages of our expense. But, $2.5 million of that is due to increased warrantee expense. We doubled our Bowflex warrantee from 5 to 10 years during the quarter we believe that was the right thing to do for our brand. And $2 million is due to CPSC. We have one of the highest response to a product voluntary reinforcement kit, recall that they've ever seen. We have a response of over 50%. We are planning response of 30%. They typically see 15%. What that means is we are a little bit under accrued there. We are fully accrued at the end of the first quarter and what it means is we have more people using our product than we expected. Then the last component. About $2.5 million of that is due to product mix. For example the TreadClimber is doing extremely well, it almost grew 40% -- it was 39% from the fourth quarter to the first quarter. As we're growing this, and we just moved to 3 boxes at the end of the quarter you are going to see margin improvement. But when you look at the margin of that product, which is high 50s, you know very close to 60% and you look at Bowflex 70 you are seeing some shift in margin. Now, we do expect the TreadClimber, by the end of this year, to be in the mid to upper 60s. So we are making progress on that. I think with initiatives we have a place going to 3 box on the TreadClimber and we increased our warrantee in the first quarter and the CPSC issue, you should see margin improvement in the second quarter and for the rest of the year.

But, you are only looking for the slight improvement in second quarter and it sounds like that would be absent some of these pressures. Is it the mix that is going to primarily drive down the gross margin, assuming that, well let me look at the bad, is it the mix more than anything else that is going to pressure what could have been greater gross margins gains in the second quarter.

Really what it did is due to leverage in the first quarter we did 130 million in revenue and the second quarter we're predicting 92 to $100 million. And we do have manufacturing facilities . So you are seeing a leverage issue, it is the slowest quarter of the year for us.

Okay, and on that I wanted to ask about the seasonality. Is it just people buy less gym equipment at this period of the year?

Absolutely you can look at gym memberships. What happens -- it is kind of the inverse of what a lot of people think -- is once it gets warm out people go outside and they don't do as many indoor activities. So that includes getting in shape for summer. And that is what you see, and the retailers know that so you don't get a lot of sell in retail and your sell through is pretty light too. Also the fact that you have all your new products come out about September for the new season too. So your retailers tend to keep pretty light inventories. And what they will do -- we will get good sell in in September, because they expect to start getting their sell through in October. Then when you look at the direct side of the business what happens is we advertise on national cable TV and its sweeps month on the networks, so you have you have a viewing audience that will actually change from cable to the networks. Then the other factor is when it is nice outside in the spring, people don't watch as much TV. In the third quarter you get some benefits, it rerun on the networks and you get new shows on cable. So that is what really the seasonality is, but a lot of it is due to the retail environment.

On retail, just to get a little bit more color, what have you learned and also maybe just suggest what channels are specialty channels; however you want to chap it up, that seem to be working better or maybe worse than others for selling big ticket product.

Let me try to answer that one here. I think on the specialty side of our business we're starting to see the sell in on some innovative products that we have so that the price points are actually holding and starting to climb up a little bit. So we feel pretty comfortable on that end. I think the key here is not so much the price pressures that we've seen in the industry over the last six to 12 months. It is how how you fight against that. What we're trying to to do is make sure we have got the innovation in the product line to really deliver against programs and hold those price points and actually start to elevate them.

Are there any particular retail channels for example warehouse clubs versus sporting goods stores that work better or worse for you.

I think actually we are starting to see the specialty business pick-up. We've seen some pretty good sell through results with some of our key customers there. On the sporting goods side, we're still in the ramp up phase so you're seeing a lot of expanded distribution there. We are in limited stores for the sports authority on certain product lines as we expand those across their entire chain you are seeing the initial distribution throw there, or filling the pipeline as I call it, so I think we are early on the sporting good side to say whether or not we're driving increased business there or how much of that is really associated with the pipeline.

Lastly, just a couple of data point on the balance sheet. Do you have the prior Q1 2003 figures or receivables, inventory and payable.

I actually do not have those -- those in front of me. But when you look at accounts receivable for example, our DSOs were a little bit better than they are now. They were 64 days in Q1 last year. We are doing a better job on the inventory side and also on the payables side. If you give me a call I can run those numbers through with you.

Thank you.

Thank you. Our next question is from Blain Marter with Lowe Partners, please go ahead.

Hi guys. A couple questions. First of all, as you are expanding now in the commercial channel you have a well entrenched competitor there -- very large competitor with a corporate parent that's much larger than yourself. Are you seeing resistance or are you seeing acceptance among your commercial clients -- is there a real need there that needs to be filled?

I think you are probably referring to Life Fitness, is that correct?

Yes, yes.

Yeah. Life Fitness is a great company they are doing a very good job, I think, in the commercial channel. If you look at that business, if there is -- in the United States alone it is about a billion dollar business. I think what we're seeing with our Nautilus Nitro Plus line, for example, is when you bring innovation to the marketplace customers respond to it pretty aggressively, and we saw that club owners get very excited about our Nitro Plus line. We think that there is large up upside potential in that, we are continuing to take more orders on that product. Second, on the commercial TreadClimber we got a great response on that. And then on the variable stride elliptical we are getting a great response. So I think, Life Fitness, great company, doing a great job, and certainly are the large largest competitors in that segment, but when you bring innovation to the marketplace like we are right now the commercial club owners are responding to it and I think we are getting some pretty good penetration there and we feel solid about our business going forward.

You were just referring to pipeline fill and the number of doors. Can you give us a sense of how many doors you will add this year approximately.

I don't want to throw a number out off of the top of my head and there is a couple of things we are still working on there that we will come back and talk to you about at the end of the Q2 conference call here, so we've got a few things going on that I thing are pretty positive. But, work to be done, so I'll hold off on that one, Blain.

Okay and in the selling and marketing expenses you dropped on and absolute dollar basis pretty substantially sequentially here and I am just wondering the level of SG&A we need -- how much of that is fixed and how much is variable for the rest of the year.

The reason that number dropped, I think, is as we get -- we've been going back through each one of our media buys for example, and looking at the efficiencies there and were we really getting a return on our investment and making sure that we maximized that. So, part of the reason you're seeing that is, I think, as part of our turnaround process here, the gain control phase was really making sure we understood where every dollar was being spent. That is at least a part of what we are looking at here. I think as we go forward you going to see us get more strategic on some of these placements and then how we placed across the brands as well.

Okay, just one final question for Gregg, strategically you are sitting here on almost $100 million of cash and your thought's of deploying that, and perhaps giving it back to shareholder's versus doing acquisitions.

We have had several opportunities for acquisitions that we've looked at that we didn't think were an incremental benefit to the company. From a shareholder perspective our commitment has been that anything we go out and buy will be incremental contribution to earnings and will not pull it down, so until we find that right combination we going to either sit on the cash or look at potential stock buy backs or dividend increase going forward, so we'll keep you posted on that. There isn't anything right now I would say in the hopper for us from an acquisition standpoint.

Okay I think shareholder base would appreciate some sort of repurchase or dividends to show kind of confidence that your turnaround plan is taking hold.

I appreciate that input there Blain, thanks.

Thank you. Gentleman we have no additional questions please continue.

Okay if there are no further questions we will conclude the first quarter conference call. I sure appreciate everybody dialing in for this today. Rod and I will be available for additional questions if anybody wants to give us a buzz and talk about any specific. Thank you very much and thanks Erica for the help.

Ladies and Gentlemen of the Jury this concludes the The Nautilus Group Q1 earnings conference call.