Nautilus Inc (NLS) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Nautilus, Inc. Q2 2012 conference call. (Operator Instructions). I would now like to turn the conference over to John Mills with ICR. Please go ahead.

Thank you. Good afternoon, and welcome to Nautilus second quarter 2012 conference call. Participants on the call from Nautilus are Bruce Cazenave, Chief Executive Officer; and Bill McMahon, Chief Operating Officer.

Remarks during today's conference call may include forward-looking statements concerning the Company's prospects, current or future financial and operating trends, or new product introductions. These statements along with other information presented that are not historically fact or subject to a number of risk and uncertainties. Actual results may differ materially from these forward-looking statements.

Nautilus undertakes no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after they are made or to reflect the occurrence of unanticipated events. Please refer to our quarterly and annual reports filed with the SEC for more information about the risk and uncertainties that could cause actual results to differ. Unless other wise indicated all information and comments regarding our operating results pertain to our continuing operations.

With that, with it is my pleasure to turn the call over to Bruce. Go ahead , Bruce.

Thanks, John. Good afternoon everyone , and thank you for joining our call today. Overall we are very pleased with our second quarter results and the performance of our business in the first half of fiscal year 2012 . Our solid second quarter results reflect the steady progress we have made in many key focus areas of our business.

As we discussed in the last couple of calls theses key initiatives include, first, the ramp up of new product development and expansion of the our product portfolio; secondly, to stabilize and improve our product margins; and thirdly, to continue to tightly manage our operating costs to leverage our business across higher sales in the long term. We believe that execution on these three initiatives will improve the health and overall position of our business and put us on a path for long term success. We are proud of what we have accomplished to date, but we still have work to do ahead of us.

We have recently completely a comprehensive market and brand research mentioned in our past earnings call. This research will guide us to deliver superior innovative products, help us determine how to best leverage our strong portfolio of brands, and finally give us the basis for pursuing further successful licensing opportunities. As Bill will discuss during his remarks, we had exciting products in the pipeline and our research gives us confidence that our new product offerings are in line with consumer demand.

Now let me provide some further detail on our financial result in the second quarter. In the second quarter net sales totaled $39.6 million an increase of 14% as compared to the same period last year. Gross margin proved 150 basis points to 43.4% versus 41.9% last year.

Loss from continuing operations improved to $486,000 for the second quarter 2012 compared to loss of $2.2 million in the second quarter last year. The diluted loss per share from continuing operation for the second quarter was $0.02 compared to a loss of $0.07 per share for the second quarter last year. The significant improvement in results from continuing operations reflect increase sales, improved margins in the direct business and a 470 basis point decrease in operating expense as a percentage of sales reflecting improved marking efficiency as well as our ability to leverage our G&A cost across higher sales volume.

The second quarter is our seasonally slowest quarter and it is gratifying for our team to have made such strong improvements in sales growth and gross margins overall that enabled us to nearly reach break even profitability during this traditionally weakest financial quarter. We reported total net loss including discontinued operation of $164,000 for the second quarter 2012 which compares favorably to a net loss of $3.3 million for the same quarter in the prior year.

Diluted net loss per share for 2012 second quarter was $0.01 as compared to diluted net loss per share of $0.11 for the same quarter last year. The net loss of $164,000 for Q2 2012 included income from discontinued operation of $322,000 which equates to $0.01 per per diluted share discontinued as compared to loss from our discontinued operations of $1.1 million or loss of $0.04 per diluted share last year. We continue to make steady progress towards closing down formed subsidiaries connected with our former commercial equipment business.

Total operating expenses for the second quarter as percentage of sales decreased to 44.9% from 49.6% in the second quarter last year underscoring the results of our efforts to leverage our operating infrastructure across higher sales. Sales and marketing expenses totaled $12.6 million or 31.7% of sales for the second quarter compared to $12 .2 million or 35.2% of sales for the second quarter last year. General and administrative expenses amounted to $4.3 million or 10.8% of sales for the second quarter which is flat on a dollar basis compared to the second quarter last year, but 150 basis points improvement as a percentage of sales due to the higher sales level.

Now turning to our segment results. Net sales in the direct business totaled $24.7 million for the second quartera 10% increase over the same quarter last year. The sales increase reflects continued strong demand for our cardio products and is also partly attributable to increase advertising effectiveness and higher consumer credit approvals rate. Credit approvals rates in the U.S. rose to 30% in the quarter up from 24% the same period last year.

Our direct team continues to do an excellent job of balancing the right creative content, media mix and placement to generate strong leads and drive our top and bottom line improvement for this segment of our business. Operating income for the second quarter in our direct segment improved to $1.0 million compared to an operating loss of $1 million in the prior year. This improvement is due to the increase of sales , improved gross margin and more effective media advertising content. The gain in media efficiency drove a 180 basis points improvement in selling and marketing spend as a percentage of direct sells. Gross margin for our direct business was 55.1% for the second quarter anincrease of 510 basis points from comparable period last year.

Net sales in our retail segment in the second quarter were $14.0 million and increase of 22.9% compared to the second quarter last year. This strong year-over-year increase is partly attributable to a shift in buying patterns of some of our retail partners who accelerated their buying in advance of the price adjustments we previously disclosed. While this will put some pressure on our comparable retail sales result in the back half of 2012, our business is in a healthier position overall following the price adjustments.

Operating income for the retail segment in the second quarter 2012 was $1.1 million an increase of 24.8% compared to the prior year period. Retail gross margin was 19.2% for the second quarter 2012 a decrease of 250 basis points forthe second quarter last year. We believe that we have made the appropriate changes to see improvements in retail gross margins in the coming quarters.

Turning now to our consolidated balance sheet. Cash and cash equivalents were $16.1 million as of June 30, 2012 with no debt compared to $17.4 million at the end of 2011 with $5.6 million of debt and $15.1 million of cash and cash equivalents with $5.4 million of debt same time last year. Inventories were $12.6 million as of June 30, 2012 compared with $11.6 million at the end of 2011 and $12.5 million dollars same time last year. We believe that we have adequate inventory levels to support demand levels.

Trade receivables were 10.6 million at the end of June up from 7.9 million the same time last year. Also it is worth mentioning that we have 79 million in federal net operating loss carry forwards available to offset future taxable income.

In summary our teams hard work and successful execution of key initiatives that started last year and carried through the current quarter has enabled us to deliver a strong first half to fiscal year 2012 . I will provide some additional qualitative commentary on our outlook for the second half of the year in a moment. At this time, I would like to turn the call over to Bill McMahon our Chief Operating Officer, who will provide some additional insights into our business and key product initiatives.

Thank you, Bruce. I would like to make a few comments about our operations to provide additional background on our Q2 results.

Our direct channel continues to experience strong growth primarily driven by the performance of our cardio product lines. Also contributing to our sales growth were improved direct to consumer sale conditions across all categories in the Canada market. We are launching new advertising and creative content for the Nautilus CoreBody Reformer in the third quarter and we expect that our new TV advertising will help bolster awareness in sales of this product.

For the last several months we have exclusively used online and product placement advertising for this product, and we have been pleased with those results. However we expect the CoreBody Reformer sales will accelerate in the second half of 2012 with the promotional support and our new creative and offer message. CoreBody Reformer serves as a great platform for us to develop and sell lower price products and our experience gained will benefit future product launches. We are committed to additional product launches in both business segments over the next several quarters.

In the direct business we are pursuing a strategy of product diversity across multiple segments and price points. By doing so we will better leverage our media investment and drive improved conversion near term as well as creating long term customer relationship. To that end , we have identified an opportunity to enter the consumer exercise programming via DVD market, and we will do so with a unique product planned to launch in Q4. This effort will include television, online, public relations and social media advertising. We feel it is an excellent opportunity to apply our marketing capability to a fast growing market segment that is incremental to Nautilus. We plan to provide more detail on this product and its launch in our November earnings call.

Additionally we continue to cultivate new product ideas and are currently developing potential direct product in both the strength and digital exercise tracking categories. We plan to launch products in each of these areas within the next few quarters. It is important to note that not all direct product launches require television advertising at introduction. Some products may serve to complement existing T.V. categories and as follow on sales offerings to our existing customer database of several million names. We will provide details on these additional products and their specific launch strategies as we approach their deployment date.

Turning to our retail business. Our sales Q2 reflected strong increases compared to the prior year period, and this is likely due to orders moving from the back half of the year into Q2 as our retail partners adjusted their buying patterns in anticipation of price increases. As well as some shifting of orders from the first quarter to the second quarter as we previously mentioned in our May earnings call. These price adjustments are an important step towards the long term profitability of our business . We now have the necessary pricing in place to support healthier margins going forward. Another key initiative for us has been to identify way to leverage our in house marketing capability in support of retail product launches.

Earlier this year we launched the Bowflex BodyTower in the retail space and provided online marketing and public relations support for this product. We are pleased to note that this product has now been picked up by a national retailer and will displace two competing products from their floor. We will continue to explore similar opportunities to support our future retail product launches. Up coming launches this year in retail include a new commercial grade Schwinn Airdyne bike the AD6 the first update to this popular product line in many years as well as the introduction of a new to Schwinn product modality in the 520 recumbent elliptical machine.

We are facing significant challenges near term in the retail space. We anticipate that our retail segment revenues will fall short of prior year comparable over the next few quarters. This is due to several factors including uncertain economic conditions, some emerging competitive challenges in the brick and mortar space and the growth of online retail. While we have made some stride in gaining share within some product categories overall , we are not content with our current position. We face increasing competitive challenges to our bike and elliptical machine offerings. Armed with our new market research data and enhanced product capability , we feel we will be better able to compete for sales and placement in this space. However these efforts will take a full product development cycle to complete and bring to market.

Meanwhile we continue to see encouraging growth with our e-commerce partners, but we are also aware of the impact that online seller success can have on the brick and mortars side especially smaller specialty and regional sellers who are less able to compete on price in the online search environment. Our bricks and mortar partners are employing a variety of the tactics to address this issue ranging from rationalizing their offered product lines and adjusting floor space devoted to fitness hard goods, to increased reliance on private label or exclusive store brands to insulate themselves from comparison shopping online. We have lost some floor placement with a national retailer in the coming season due to such a decision. As these trends play out we expect to experience continued turbulence in the retail market. We are closely evaluating our retail efforts to ensure we are applying effort and resources to the categories and with the partners where we can best compete in a profitable manner.

We remain committed to our long term strategy of enhancing our product development capability and launching innovative products in the retail space. Compelling products that are based on our market research insights into consumer preferences should drive improved sales in the future. One tactic we will specifically not employee is to reduce our wholesale prices in an attempt to buy floor space at unacceptable levels of profitability. We feel such an effort runs counter to our overall goals and will provide only a limited short term benefit. It is important to note that while we face obstacles in the retail space at the moment historically this segment has been quite profitable for us and we anticipate that this trend will continue. Our efforts are focused on stabilizing profitability now via our new pricing model, and positioning the channel for growth in the future via new product investment. We remain very bullish on the potential of our retail brands and products in the future.

In addition to market research and product development investments we have discussed in recent calls, we are also aggressively pursuing cost optimization across our business. This includes identifying savings in all aspects of our operations as well as devoting engineering and supplier resources towards product cost reduction. We have made good strides in this area year-to-date which will begin to pay dividends moving forward. Though already a portion of our current margin improvement is attributable to these efforts.

In summary, we have made quite a bit of progress towards achieving our strategic objectives in the first half of 2012, and I'm proud of the Nautilus team and their accomplishments to date. We have exciting new product in the pipeline for the second half of 2012 , and we will deploy strong creative content to support these products as they come to market by continuing to execute and improve upon our three key initiatives of expanding our product portfolio, stabilizing and improving margins and leveraging our operating costs we are positioning our business for success in the long term.

Now I would like to turn the call back over to Bruce for his final comments. Bruce?

Thank you, Bill. Before opening up the call for questions, I would like to make a few comment regarding the second half of fiscal 2012. While we do not provide specific guidance, I would like to provide some color on the our expectations for the second half of the year and some factors that are important to consider in modeling our business.

On the direct side as we stated earlier, we intend to launch several new products in the second half of this year. Our direct business is generated solid profitability improvement . We will be using some of this profitability and investing it into our launch efforts to drive awareness and sales of more new products. While this will impact our bottom line in the third and fourth quarters, it is an important investment in our future as we diversify our product offers and build more profitability into our business. Where as the creative costs associated with the launch of a new product are generally onetime expenses, the media support are ongoing and initial financial returns on these costs are lower than usual as awareness is being created.

Turning to retail. It is important for modeling purposes to keep in mind that some revenue shifted into Q2 due to the change in our retail partners buying patterns and this will have impact on the back half retail segments sales. Overall the retail environment remains challenging given the uncertainties in the broader economy and we recognize that all of our retail partners are proceeding cautiously as to their overall plan and the level of inventory risks they are prepared to take. With the previously discussed price adjustments and new product development efforts we have taken the necessary steps to position ourself to succeed in the retail environment and this will have an impact on our near term result especially when comparing to year ago period.

Again we are encouraged by our year-to-date accomplishments. By continuing to focus and execute on our key initiatives mentioned at the beginning of this call we are building the capability to sustain healthy growth over the long term. I am extremely proud of our team and the progress we continue to make. While the back half will be challenging whether it be because of investment in new product launches or choosing not to pursue incremental but likely unprofitable pieces of the retail or direct business our decisions are all grounded by the course we have outlined to achieve our desired long term profitable goals.

With that, I would like to open up the call for questions. Operator?

Thank you. (Operator Instructions). Our first question comes from the line of Reed Anderson with Northland Securities. Please go ahead.

Thank you. Good afternoon . Thanks for taking my questions.

Hi , Reed, good afternoon, Reed.

Nice progress in the quarter. I'll start first, I want to focus a little bit on the margins. You gave some good detail. If I dissect between the segments. If I look at direct what was very impressive to me was you are up over 500 basis points what arguably is obviously your lowest volume quarter. I am curious has something changed there , were their timing factors or are those types of margin improvements are we going to see that amplify as we move into the second half because I would have never thought you would be at that kind of margin in this quarter. I want to get a sense of what the implications for Q3, Q4.

Hi , Reed, this is Bill. On the direct margin what we saw was a pretty low comp to start with from prior year where there was some very heavy promotion going on to achieved the sales numbers achieved a year ago. We didn't see the need to promote to that level at all. In fact we felt the organic performance of the channel was strong enough to achieve our sustainable growth targets without any of the usual measures we might try in the off season to boost things up , so that was heartening. But that is also a comp issue to the prior year. On an ongoing basis we are still driven for sustaining the margins we have grown to now in direct.

So if we think about your business as we look out in to next year and beyond, is it a situation were once we kind of normalize a lot of theses things and the price development is consistent and your marketing is consistent , et cetera that we won't have near the variability on quarterly basis inside of that direct gross margin not that it would be spot own but it is not going to be these hundreds of basis points difference. Does that make sense?

Any time we launch a new product we are always looking to raise the bar on the product line margin overall. So we are hoping to continue to drive reasonable improvements, but I think you are hitting on a key point which is some of the large changes perhaps you can't count on, but we are always striving to increase margins and profitability as you might guess. A lot of things about our business are not always going to be linear, but certainly we are always striving to achieve that.

That makes sense. And then the other side if you look at the retail margins obviously down then but in a quarter you pulled some sales forward certainly was ahead of where I was thinking . Is that a reflection of also kind of the promotion related bringing some of those sales in and won't be repeated. Just think about the same idea how do we think about that?

The first thing it is not considering a pulling forward, Reed, this is a natural reaction typically retailers have when they know of an up coming price increase. They try to bring in inventory to the degree so that they aren't bringing in inventory at a higher cost to them. As you know we have announced this well back months ago and what we saw was them in anticipation they order earlier some of their Q3 volume . We don't know exactly how much. But we do know there was a certain factor that helped the Q2 revenue in retail. That speaks to the revenue side. On the margin side as we have set out from the beginning we had issues in terms of cost , product cost, on retail and that is part of the reason we took the price increase and price adjustment that we put in place for the back half. So you should see as we said before you should see improvement in the retail margin going forward from here on end.

Okay. Just a couple more. Then if we look at the second half you gave some good color on expectation that sort of thing. If you think about direct and you think about that business Q3 Q4 or if you want to look at it on a half basis. Just trying to understand given the timing of new product it launches and promotional spend related et cetera. Is it your sense the growth rates you have seen in direct in the second half would be similar in the third and fourth quarter or would it be skewed to once versus the other?

We won't be able to give you the exact quarters in terms of we don't provide that kind of guidance as you know. I would say the product will be hitting more in the fourth quarter than the third quarter in terms of some of the new launches that Bill elude to. Maybe that can give you some help there in terms of when.

That is fine. That is what I was getting at. You would have the timing there and I think that will be a factor. The last question is there is probably not a lot you can say but any top of mind thoughts, I am sure you have a lot of data you are sorting through with the survey and the process you went through to get that information. Any call outs or anything you can share with us, Bruce, that are interesting . I am sure you are going to give us a lot more information as time goes on. But any thoughts you can share with us would be great. Thank you.

I think that is great question. The first thing is the research did validate a number of our operating assumptions in terms of what our brands mean and the power of brands. That was kind of helpful to get that validated in our minds. But I think as we take the research and integrate it into our product development and innovation strategies that is where you are going to really see some power coming out going forward. And frankly some of the things Bill eluded to that are going to be hitting the market later this year. Including the exercise DVD we talked about, a new very unique type of approach , that all came out of at least confirmed our feelings this would good space and how we can target that space in a unique kind of way successfully.

Everything from validation of the brand and the brand equities we have we have some of the strongest brands in the fitness equipment market period end of story. And secondly is how we take some of the needs and wants that came out of it by various user groups and integrate that it into product, product features and actually positioning of the product through messaging whether it be advertising or point of sales material. That is how the whole thing is going to be utilized. We are very pleased with the way it came back. There were some new learnings that we are exploring further. All in all we consider it a very good investment for our Company.

Thank you. I will stop there let somebody else jump in. But best of luck

Thank you, Reed.

Our next question is from the line of Joseph Munda with Sidoti & Company.

Good afternoon , guys , thanks for taking my questions.

Hi Joe.

Real quick roughly what was CapEx through the half?

I know in the quarter it was about $620,000. And we are on track to roughly be at the same level of CapEx that we spent last year about $2.5 million for the full year.

Okay. So there is no significant uptick there on based on the new product launches all that investment occurred before hand?

There is not because of the nature of some of the product there is not a lot of CapEx to support the new product.

Okay. You spoke a little bit about the consumer DVD . I know you had mentioned you would go into further detail in the third quarter call, but I'm just wondering on the content is it mostly cardio focused or is there going to be equipment involved or a mix of both?

It is primarily a stand alone DVD with some resistance involved, so it is cardio and strength combination. Certainly it will give us the opportunity to leverage a customer relationship beyond the purchase, but it will not require necessarily a specific piece of equipment purchased from us to use.

So similar to P90X that kind of thing , is that what you looking at?

Yes , certainly that type of segment of video from P90X to some of the others are very rapidly growing in the market or have achieved a lot of success. We feel that our approach here is unique with a very compelling product and we are looking forward to see how it does.

I'm guessing that is probably going to be heavily weighted towards the direct , right, towards the direct consumer a lot of marketing involved? Is that where the uptick in marketing is going to be , due to the DVD?

It will be definitely be direct focus out of the gate to help build awareness overall. There is some creative and initial media expense up front , and to Bruce's comments when you are initially out of the gate and building awareness on a product the media efficiency you see is not the same as what for example we see in our cardio products. In essence you are investing median growth for the future.

Okay. And I was just wondering did you guys add any new retail partners in the quarter?

I don't know. In the quarter probably not , not just in Q2, no.

Okay. And you guys had spoken to the possibility or the opportunity to market your product with online retailers and that is causing some push back from some of your retail partners, correct? And you are losing floor space because of that.

That is one of the possible out comes that happens when you have products that sold on the floor as well as online, and I suspect that is not necessary unique to our own environment. So part of the challenges we face in retail is , A ,to be the best partner for both sides of the house on that , and, B , what to do if a specific retail partner decides that they want to go private label or completely insulate themselves from the online market. If we are not the supplier of that product , that can have some impact on it.

Okay. I'm just spit falling here, but have any of your retail partners come to you with any anything like that, like an exclusivity or we will it carry along with the other retail partners but you can't sell it to an online retailer. Have any of them come back to you with any of that?

Certainly we have ongoing discussions. Some retailers will want unique product for themselves that is specifically not carried in certain online retailers. But some of the other retailers actually want they recognize the power of the consumer review online and recognize that as an ongoing reality of selling fitness equipment. So it is interesting to which all that play out. We are just doing our best to meet the needs of each of our partners as they express them.

Okay. And just to recap the new launches are the bikes primarily, correct, and the DVD, but mostly the bike that you are coming out with?

In the retail space we are launching Airdyne bike as well what is called a recumbent elliptical, which is a pretty intriguing product. In the direct market we have several things on the docket but the nearest term is the DVD series.

Okay. Thanks guys. I will hop back in queue.

Joe, just to get back to you the CapEx for the quarter was $621,000 and the year-to-date $1.1 million. Like I said we are on track to have the same sort of level of CapEx as we had last year.

Okay. Great, thank you.

Your welcome.

Our next question is from the line of Jason Stankowski with Clayton Partners. Please go ahead.

Hi , guys. Nice quarter. Couple of things. Wonder if you could follow-up on Reed's comments about product development. Have you seen any licensing opportunities from the study you did or is that not kind of made itself to maturity yet?

There definitely served up some opportunities on the licensing front, Jason. I would say it is going to take a little time to mature. Because of the power of a number of our brands we feel it has extension capabilities in to other areas. We will be pursuing that, and we will keep you posted in terms of developments in that area.

Okay. And also on the new product side, for instance the DVD , how much capital does it take to get behind that in the startup phase? Is that like $1 million of operating expense through the DVDs and are creative and everything. How much are you willing to put in an idea like that before you know it is really working and get the feedback loop going?

Jason, I'm not going to abate the answer, but it is more along the lines it depends on how far developed is the idea when we take it over. For us it is in the 7 figures to do this. I am not sure that any of these opportunities in that type of world would be more than $1 million. In that type of world would be more than a $1 million.

Okay. And has there been any progress made in the quarter on the commercial Treadclimber? Just curious if you guys have seen that progress and if you expect that to contribute in 2013.

I'll answer the second part first. I would definitely expect in 2013 to see contribution from it. In this quarter myself and our senior leader in our product development area were actually on the prototypes for that product , and we were very pleased with the progress to date being made by our partner, and we fully expect to have a very viable compelling product in the near future, but I will let them announce that.

Right. Lastly, just curious, kind of a housekeeping thing, do you know if your GAAP tax dollars will be similar to what they were in 2011?

Actually we do expect that in 2012 we are predicting that due to a couple of the tax positions we have that there will be a small benefit on the tax line essentially eliminating certain positions that were not necessary. It is important to note that due to our NOL carry forward , we don't look at it so much as a rate , Jason, it is more of a fixed cost because of a few items we have like Canada income that we are not offset by the NOL. So 2011 was a fairly normal years on many of these item, but these uncertain tax positions as we find out about them or release them et cetera will effect the absolute number each quarter going forward . But we do expect a benefit this year.

So from a gross dollar standpoint you are at something like $670,000 you expect that to be actually lower this year because of FIN 48 reversal stuff?

That is correct. And we actually we are expecting a small benefit. Correct.

Okay. Any update on the CFO, and I will get back in the queue. Thanks.

Thank you, Jason. We expect to make our announcement on our new CFO here very shortly. We are working out some personal details and will have some news on that shortly.

Thanks.

We are very pleased with the addition we will get there.

Our next question is from the line of Dan Mendoza with Prospect & Capital . Please go ahead.

Good afternoon. Jason I think just covered most of my questions, but just in terms of the exercise DVD. Can you help us out with when we might start to see media?

This is Bill, Dan. I can say it will be in Q4 of this year.

Okay. I guess any sense of when you will be able to get more specific?

In our November call we will have more details , and it may in fact already be on the market by that point.

Okay. That is helpful. Is that going to be a Nautilus product or what will that be launching under?

It will be a Nautilus endorsed product and have a unique product name similar to CoreBody Reformer.

Okay. And is the person hosting that will that be a new name to people?

We would rather not comment on that for competitive sensitive stance. We will provide more details on the tactics of the approach as we get closer to the November call.

Okay. And last question on it. Can you talk a little bit about the consumer testing you have done or whatever kind of focus groups you have done to get you excited about it.

Our overall market research that we have done has certainly identify this segment as a growing segment and specifically the sorts of activity this DVD will involve are part of that growing segment. This combined with also SGMA data which would indicate this is a rapidly growing area in interest. Combine that with the series will involve something that is a well establish exercise program in a certain part of the U.S.A. So we have a wealth of success stories to call upon. We are pretty excited about what we are going to bring to the table here , and we think certainly for us it will be very incremental.

Great, super. Thanks.

Thank you, Dan.

There are no further questions at the moment. I will now turn the back to you for your closing remarks.

Thank you everyone for participating in our call today. We are very positive about what we have accomplished in the first half, and where we are headed as a business. Our plan we feel is the right one. And we will continue to stay the course. I would like to thank everyone again for their participation and interest in our call today, and we look forward to updating you further on our progress during the third quarter conference call in November. Thank you all.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect the line.