Nautilus Inc (NLS) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Nautilus Third Quarter 2012 conference call. (Operator instructions) I would now like to turn the conference over to John Mills, please proceed.

Thank you. Good afternoon, and welcome to Nautilus' Third Quarter 2012 conference call. Participants on the call today from Nautilus are Bruce Cazenave, Chief Executive Officer, Linda Pearce, Chief Financial Officer, and Bill McMahon, Chief Operating Officer.

Remarks during today's conference call may include forward-looking statements concerning the Company's prospectus, prospects, current or future financial and operating trends, or new product introductions. These statements, along with other information presented that are not historical facts, are subject to a number of risks 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 risks and uncertainties that could cause actual results to differ.

Unless otherwise indicated, all information and comments regarding our operating results pertain to our continuing operations. With that, it's my pleasure to turn the call over to Bruce. Go ahead, Bruce.

Thank you, John. Good afternoon, everyone, and thank you for joining our call today. Overall, we're pleased with our third quarter results and the performance of our business in the first nine months of Fiscal 2012.

Our progress is the result of improvements in many focus areas of our business and successful execution on the three key initiatives we have outlined previously. One, the ramp-up of new product development and expansion of our product portfolio -- two, improved margins -- and three, continue to tightly manage operating costs to leverage our business across higher sales in the long term.

In the third quarter, executing on these initiatives enabled us to deliver top-line growth, improved gross margins, and generate a significant 4 times improvement in net income as compared to the same period of last year. We continue to build a stronger foundation for our business that puts us on a path for long-term success.

Linda Pearce will provide more detailed discussion of our financial results in a moment, but I would like to call attention to a few highlights that underscore our progress.

Our Direct business continued to perform very well as sales for this segment increased 11% year-over-year, while gross margin for Direct increased 590 basis points to 57.9%. We believe that we are well-positioned to continue on this positive path going forward for our Direct business.

As mentioned previously, as previously disclosed, our retail business was impacted by a shift in some of our retail partners' buying patterns, which accelerated revenue into the second quarter from the third quarter.

Even with this shift, which contributed to having less volume to absorb fixed costs versus the same period prior year, our retail segments margins stabilized compared to the prior year period. Retail continued to contribute positively to our overall profitability in the quarter and with some of the adjustments we are in the process of implementing, we believe our retail business will be better-positioned going forward to deliver higher margins consistently.

On a more strategic level, we completed the comprehensive market and brand research mentioned in our past earnings calls, and our learnings from this study will be extremely beneficial over the next several years. This is helping guide our overall brand strategy and allows us to better target new product efforts and better position them when they first come to market.

Also, given our findings as to the strength of our brands with consumers, we are encouraged as to the potential of expanding into additional licensing opportunities to increase our royalty revenue stream in the future.

As we enter the fourth quarter 2012 and look forward to next year, we are focused on continuing this momentum and we see significant potential for further improved results over the next several years.

Before I complete my remarks, I would like to introduce Linda Pearce, our Chief Financial Officer. As many of you know, Linda joined Nautilus in August, just shortly after our last earnings conference call. We are extremely happy to have Linda on board. Her strong financial background and operational experience is exactly what we were looking for in a CFO, and she has already become an integral part of our team and we will continue to benefit from her experience going forward.

With that said, I would now like to turn the call over to Linda to discuss our financial results for the quarter in more detail. Linda?

Thank you Bruce, and good afternoon, everyone. I would like to begin with saying how happy I am to join Nautilus during an exciting time in the Company's history. I have already met and spoken with many of you listening today, and I look forward to meeting many more of you over the next several months.

Now, turning to our financial results for the third quarter. In the third quarter, net sales totaled $38.1 million, an increase of 1.7% as compared to the same period last year. Gross margins improved 650 basis points to 48.7% versus 42.2% last year. Income from continuing operations improved to $1.2 million for the third quarter of 2012, compared to $0.3 million in the third quarter last year.

The diluted income per share from continuing operations for the third quarter increased to $0.04 compared to $0.01 per share for the third quarter last year. The improvement in results from continuing operations primarily reflects improved gross margins and higher operating income in the Direct business.

We reported total net income including discontinued operations of $1 million for the third quarter 2012 which compares favorably to net loss of $0.1 million for the same quarter in the prior year. Diluted net income per share for the 2012 third quarter increased to $0.03 compared to essentially break-even for the same quarter last year.

The net income of $1 million for Q3 2012 included loss from discontinued operations of $0.3 million, which equates to $0.01 per diluted share as compared to a loss from discontinued operations of $0.4 million, or a loss of $0.01 per diluted share, last year.

We continue to make steady progress towards closing down foreign subsidiaries connected with our former commercial equipment business and look forward to updating you on this progress in the coming quarters.

Total operating expenses for the third quarter as a percentage of sales increased slightly to 46.9% from 44.1% in the third quarter last year, primarily due to lower sales in retail compared to last year and investments in creative content for the launch of our new products during the quarter.

Selling and marketing expenses totaled $12.4 million or 32.7% of sales for the third quarter, compared to $11.5 million or 30.8% of sales for the third quarter last year.

General and administrative expenses amounted to $4.4 million, or 11.5% of sales for the third quarter, which compares to $4.1 million, or 11.1% of sales, in the prior year period. Now turning to our segment results.

Net sales in the Direct business totaled $25.1 million for the third quarter, a 10.9% increase over the same quarter last year. The sales increase reflects continued strong demand for our cardio products and is also partly attributable to increased advertising effectiveness, and higher consumer credit approval rates. Credit approval rates in the US rose to 31% in the quarter, up from 27% 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 improvements for this segment of our business.

Operating income for the third quarter in our direct segment improved to $1.9 million compared to $0.2 million in the prior year. This improvement is due to the increase in sales and a strong improvement in gross margin, highlighting our success on our key initiatives of improving product margins.

As Bruce stated, gross margin for our direct business was 57.9% for the third quarter, an increase of 590 basis points from the comparable period last year.

Net sales in our retail segment for the third quarter were $11.4 million compared to $13.7 million in the third quarter last year. This year-over-year decline was expected and is partly attributable to the shift in buying patterns of some of our retail partners who accelerated their buying into the second quarter in advance of the price adjustments we previously disclosed on our prior call.

While this affected our comparable retail sales results 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 third quarter of 2012 was $0.8 million compared to $1.3 million the prior year period. Retail gross margin was 21.4% in the third quarter of 2012 compared to 21.6% in the same quarter of last year. Retail margins were adversely affected by less absorption of fixed costs due to the lower volumes in the quarter versus the same period last year.

Turning now to our consolidated balance sheet, cash and cash equivalents were $15.2 million as of September 30, 2012 with no debt compared to $17.4 million at the end of 2011, with $5.6 million of debt.

Inventories were $16.9 million as of September 30, 2012, compared to $13.5 million same time last year. We believe that we have adequate inventory levels to support current demand levels. Trade receivables were $11.7 million at the end of September, up from $11.5 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, we are in a strong financial position as we begin the fourth quarter of Fiscal 2012. We have continued to deliver steady top-line improvements and generated significantly higher net income compared to prior year periods. We also have a strong, clean balance sheet which gives us the financial flexibility to make necessary and strategic investments into our business to support future top and bottom-line growth.

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. Bill?

Thank you, Linda. I'd like to make a few comments about our operations to provide additional background on our third quarter results.

Our direct channel continues to experience strong growth primarily driven by the performance of our cardio product lines. Late in Q3 we launched a new advertising campaign for the Nautilus CoreBody Reformer. We are in the very early phases of evaluating this campaign so it's too soon to draw firm conclusions, however, I can say that we have seen very positive movement in response and conversion to date following deployment of this new creative, as compared to our prior television efforts.

We need to continue to build on those gains. For the last several months we have exclusively used online and social media advertising for this product, and we have been pleased with those results. We do expect CoreBody Reformer sales will accelerate in the coming quarters driven by the return of television advertising and our new creative message. As we have noted in prior earnings calls, the CoreBody Reformer serves as a great platform for Nautilus to develop and sell lower-priced products in the direct channel. Our experience gained today will benefit future product launches.

In the Direct business overall, 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 stronger, long-term customer relationships. One incremental market segment we have not previously competed in is the exercise DVD programming market.

Our research shows that there are market segments where consumers actively seek variety and social motivation in their workouts. Our unique DVD program is an ideal solution for these consumers. This week we are launching the Peak Fit System DVD program. Peak Fit System features the successful interval training solution developed by Michelle Dozois. The program has been proven to deliver results in hundreds of live classes at her Southern California studio.

As background, for years interval training, which involves moments of high exertion followed by brief periods of rest, has been considered one of the best ways to lose weight and stay in shape due to the high calorie burn. However, these intervals can jolt and shock the body quickly, especially for those less experienced with fitness in trying to take their first steps towards a healthy lifestyle.

This leads to a less effective workout. The Peak Fit system is differentiated from other products on the market and that Michelle's unique combination of strength and cardio will move the participant through progressive stages of intervals, leading to optimal performance and better ability to stay with the program no matter what their starting fitness level is, from beginner to veteran.

Further, the program is designed to deliver results in 60 days, and will sell for $89.85. The quick 60-day timeline for results and the value price point make the Peak Fit system quite competitive for this market. This program is available at PeakFitSystem.com and we will be supporting this launch with long-form television, online, public relations and social media advertising. We are very excited to enter this important market segment.

Peak Fit System, along with CoreBody Reformer, give us two cardio-oriented products that are both cost-effective and not limited in their potential due to third-party consumer financing approval rates. However, our focus is not purely on cardio products. The Bowflex Heritage was founded on innovation in the home gym and select-rise dumbbell strength categories.

Our market research efforts earlier this year once again confirmed Bowflex as the number one most recognized brand in consumer fitness. This research also found significant consumer participation and interest in the strength category, especially in non-traditional approaches such as when one's own body weight is used as resistance.

We feel that the combination of an innovative strength solution along with the awareness built into the Bowflex brand, would be a successful mix. As such, Nautilus will launch a lower-price-point innovative strength solution in the first half of 2013. This product will be supported via television, online, and social media advertising, as well as via internal marketing to our valued list of several million Bowflex strength leads. More information on this product, its features and its positioning will be provided in the Q4 results earnings call.

With all of our planned product launches, we know it's critical that we consistently uphold our quality and efficacy standards. One of the other products we have been pursuing is the unique version of a digital caloric tracking device, and we have openly discussed our desire to launch this product near-term. However, we have decided to delay the launch of this device for now. The development team and our management are not yet satisfied with the latest iteration and prototypes for the product. We will continue working on the concept and we will update status when we feel we have a compelling product worthy of our brand. We will not compromise our principles for any product launch, even if we had previously communicated our intention to launch.

Please note that this device was not planned for TV advertising so this ship does not materially impact our marketing roadmap.

Turning now to our retail business, as you recall we posted strong year-over-year increases in retail in Q2 and our sales in Q3 reflected the fact that some of our retail partners accelerated their buying into Q2 in anticipation of price increases. We believe that this impact is largely behind us, and we are now in a much better position going forward to achieve healthier margins for the retail segment. These price adjustments were an important step towards the long-term profitability of our business.

We have introduced several new products into the retail channel this fall including the Schwinn 86 Airdyne, our first commercial-grade Airdyne product update in many years, as well as the Schwinn 520 Recumbent Elliptical Machine. Many of our long-time retailers who sold Airdyne products were extremely devoted to the legacy Schwinn product, so we fully expected some critical reviews of the new machine. However, I am very pleased to say that the product was received well at a recent trade show and we anticipate both products will gain traction in the coming months.

Sales within our online e-commerce partners remain encouraging and are growing on a full-year basis. We continue to realize gains in this important segment. In brick and mortar retail, we continue to address the challenges outlined with some detail on our prior earnings call.

With that said, I want to reiterate that our retail business, which is essentially flat year-to-date in sales, continues to strongly contribute to our overall profitability and we remain very bullish on the potential of our retail brands and products in the future.

Lastly, we continue to pursue additional royalty opportunities. Our commercial channel TreadClimber machine licensee, Star Trac, recently unveiled their latest prototype at the Club Industry Show in October. Many commercial club representatives were in attendance and interest in the product was very encouraging. Star Trac has publicly communicated their plans to launch the product officially at the IHRSA Trade Show in early 2013. Nautilus will begin to derive royalty revenue on commercial sales on a quarterly basis following the product launch.

In summary, we continue to make progress towards achieving our goals for Fiscal 2012 while positioning Nautilus for long-term growth and success. I am very proud of the Nautilus team and their accomplishments to date. We have a healthy pipeline of product ideas and opportunities which we plan to introduce to the market with a regular cadence. We remain fully focused on executing on our three key initiatives of expanding our product portfolio, stabilizing and improving our margins, and leveraging our operating costs.

And now, I'd 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 take a few minutes comments regarding the fourth quarter of fiscal 2012. While we do not provide specific guidance, I would like to provide some color on our expectations for the final quarter of the year and some factors that are important to consider in modeling our business.

Despite the large quarterly swings in Q2 and Q3 created by the back half price increase as Bill and Linda mentioned, the retail business is roughly flat year-to-date. While we expect there will continue to be quarterly fluctuations as is natural in any business impacted by seasonal factors, we believe they should be relatively minor compared to earlier this year.

All along the way, we continue advancing our initiative to improve the profitability per transaction in retail and position ourselves for growth in the next retail new product cycle in the fall next year. Our direct business has generated solid profitability improvement and we plan to invest further in it to launch and drive awareness and sales of more new products.

There are product opportunities in the works that span the strength, cardio and alternative fitness markets, which will enable us to achieve our stated goals of diversifying our product offerings and building more profitability into our business.

Again, we are very 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 excited about the outlook for our business in the future.

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

(Operator instructions) Our first question is from Reed Anderson, with Northland Securities, please proceed.

Good afternoon, can you hear me okay, Bruce?

Yes we can hear you Reed, thank you.

Good, hey, congrats on a very good quarter, nice job.

Thank you.

A couple questions. One you kind of answered, one of my questions, was your closing comments there Bruce, talking about some color on retail, but if I could just maybe carry that logic a step further -- like you kind of said, you see some stabilization there, particularly in the fourth quarter compared to like the first nine months. Would that logic hold into next year as well? I don't want to get too precise here, I don't need that but again because it is still, feels like with the product repositioning it makes more sense that you'd be down there. I'm just curious if you expect that stabilization, if we've kind of reached that inflection point. Now, in retail, specifically.

Yes Reed, this is Bill, thanks for the question. Yes, retail, we anticipate that the fluctuations will be lower, but we still have some of the same challenges that we talked about previously near-term, but certainly we should expect to see our margin improvement that we've taken steps to achieve and we hope to minimize the fluctuations going forward.

And then just to finish kind of the thought on the revenue kind of trend here, again, very good on the direct side, much better than we thought, and sounds like Bill from your comments, you feel very good about where you're positioned here early in 4Q with everything. You know, does it feel like, because you had a very good fourth quarter last year in Direct, and I guess does it feel like momentum from a growth standpoint in Direct should be building from here? Just what would be some thoughts on that, on the Direct top line over the near term, Bruce?

Reed, we're certainly happy with how Direct's performing year-to-date, and as we stated previously we hope to continue to drive that same level of growth going forward. Some of it depends on beginning to blend more new products into the mix but certainly, we think the offerings we have are strong and should be contributors going forward.

Okay, and then on the margins, the gross margins obviously fantastic number. Is it -- Linda, is that more a reflection just of having that good growth in direct, or where there's some cost factors, was there any one-timers, anything in there because when you look at from a modeling standpoint being that much better than I was anticipating, it's really -- makes me want to take up margins in the forward quarters, but so I want to get a sense of where we're at relative to where you want to be.

I think it's a couple things, and this is Bruce, Reed. I think it's a good question. I think that certainly the 500, 600 basis point improvements are pretty step-function plus improvement year-over-year. As you go forward with the -- we already have higher margins to comp against. If you looked at, I think it was our fourth quarter last year, and the first half of the prior year, part of what's happening is we do have cost improvements that we've been putting in place since late last year, product improvements etc., that yield better costs. The other thing is, remember, we launched the TreadClimber, the whole new lineup of TreadClimbers in the fourth quarter last year at higher margins than its predecessors, and now we're starting to reach the period in this quarter that we're in now where we're anniversarying that kind of improvement in margins because of the TreadClimber business.

So, for those couple of reasons, I can say that it's probably going to be very challenging or difficult to have 500 and 600 basis point improvements year-over-year, but we still believe that there is improvement to be had, yet. Does that help answer your question?

Yes, very good, that's very helpful, and right, I -- don't worry, I'm not going to hold you to those type of gains every quarter. It was just, it was, it feels to me like you're much further along than I would have thought at this point, six months or a year ago, and you answered that, so that's very helpful.

Okay, thank you, Reed.

Just a couple more and I'll let somebody else jump in. On the inventory, you look at that year-over-year growth, obviously I'm guessing all the new product you've got coming has to play a role in showing that big number. Would it be possible to kind of quantify or even just provide some brief color, what amount of that inventory's really related to new product, and you've got so much more of this, you know, over the next several months than you would maybe have had a year ago?

I'm sorry, we can't do that, Reed. I can say that we do feel like we have the right kind of inventory number going into what our expectations are as far as sales both for new product and existing product going forward, so that's -- we can't really share the elements in terms of new product versus existing product in the mix.

That's fine, I understand completely. I'll stop there, I'll let somebody else jump in and I can come back for round two, thanks.

Thank you, Reed.

Our next question is from the line of Chris Armbruster from B Riley & Company, please proceed.

Hey guys, congratulations on a great quarter.

Thank you, Chris.

So I guess my first question is going to be on the licensing, the corporate royalties. They're up pretty significantly year-over-year. Is there anything in there that's kind of one-time in nature, or are we kind of going to look to kind of reset to a new level? What, can you give us any more granularity there?

I can answer that for you. In Q3, we had a one-time true-up of our intellectual property licensing, and this won't be repeated in Q4, so I think if you were modeling you probably would want to model royalties, we -- to fairly flat going forward.

Okay.

It's tough to predict, Chris.

Right, and then on the commercial TreadClimber when it's launched next year, how do the royalties, the timing of the royalties work with your partner? Are they going to come in with contracts that they sign in advance of the trade show, or are they going to kind of trickle in, in that first quarter, and then really ramp up in Q2?

It's actually based on -- Chris, this is Bill. It's based on net sales of actual shipments in per quarter.

Okay, of actual shipments, okay.

Yes, so it's trued up every quarter with the partner, and then the royalty is paid on actual sales that have occurred.

Got it, okay. And then I'm curious, you guys have a great relationship with Amazon and sell a lot of products through them. Is there, would there be any impact of the new sales tax regulations on them for your products?

Certainly Amazon has not communicated any plans to change their behavior other than potentially charge for that tax. Our own websites for reference have always charged sales tax, so we would not anticipate any impact on us, on our direct side. Then with Amazon, it's too soon to say. We don't have any indications that there'll be any change in their behavior. Certainly they have the ability to retain some margin and adjust their pricing strategy to adapt to the sales tax issue.

Okay, and then just one more. Johnson Health Tech has a relationship with Lance Armstrong and the Livestrong-branded bikes. With all the controversy surrounding them, have you heard of any chance to maybe gain some market share there, or any trouble that they're having with consumer reaction to that?

Chris, we're hesitant to predict the behaviors of our competitors or comment on what strategies they may be pursuing. I can say if opportunities do present due to any changes due to this or anything else that comes up, we are certainly intending to be a player in those floor space opportunities.

Okay, thanks again and congratulations on a very strong number.

Thank you, Chris.

(Operator instructions) Our next question is from the line of Joe Munda from Sidoti, please proceed.

Good afternoon, guys.

Hi, Joe.

Real quick, Bruce, any early indicators on the holiday shopping season? Are you seeing any trends, any patterns that you can, you know, share with us?

Thanks Joe, yes, it's very early to project that out right now, but certainly we're in November and between the end of November versus the beginning of November we start to get better indications, so but at this point in time it's still a little too early to say what kind of environment we're going to be dealing with. I think it'd be more, if I were to default, I'd say that it's more or less the same sort of environment that we faced going into the latter part of last year, as well. Similar.

Bruce, one other question. Do you guys happen to know how much revenue was derived possibly from the northeast?

Do you mean in terms of impact from the storm, Joe?

Yeah, exactly.

Yes, we're watching that closely. It potentially impacts us in a couple-fold ways. We did modify some of our marketing behavior in regards to the storm so as you know, not to play too much in an area that was going to have other things on their mind in the near term, and we're not seeing anything material at this point. However, there's also a logistic side of making sure you know where your inventory's at at any given time, is there anything in transit, and all those factors. We're on top of that now, and certainly Nautilus and all of our employees wish the best for the folks in the Northeast impacted by the storm and really our thoughts are with them in terms of digging out and recovering.

Okay. Did you guys record any DVD sales in the third quarter?

No.

No, so, this is coming out with a clean launch in the fourth quarter?

That's correct.

Okay, I -- any insights into how the sales are going? You know, without going into the numbers, better than expected, are they meeting expectations?

I appreciate your anxiousness, Joe, and we are anxious as well, but as Bill said, the product is just being launched actually this coming weekend so there's really no sales per se, yet.

Okay, and only, only plan right now is to sell it directly, correct?

That's correct.

Okay, and then how did you guys find -- my last question, how'd you guys find Michelle Dozois?

We have a lot of contacts in the industry Joe, and a lot of times we do, are the point of first referral for people who are looking for a way to market their good ideas and fitness and we can't disclose specifically how we heard about Michelle, but certainly it's due to our position in the market as far as being that first point of contact.

Okay. And I'm sorry, one last question, you guys talked about you guys are looking to implement [processes] in retail, can you give us a little bit more color on that? What, what type of [processes] are you talking about?

Oh, in terms of a continuation of some of the existing processes that we have to improve profitability and margins and retail. That's all our cost improvement efforts that we've had under way, both primarily from a product value standpoint, those are some of the key things that we mentioned there. The price increase has been in effect for a while now, so that's not incremental price increase. That's already been in place so it's more a matter of as we go into the bigger quarters of the year for retail, is we'll have more volume going through the warehouse and absorbing fixed costs, etc., so that's why we said that we expect to see more of the true margin read of our price increase and cost improvement efforts when we get into the larger quarters.

Okay, thanks, guys.

Okay Joe, thank you.

(Operator instructions) We have a question from the line of Jason Stankowski from Clayton Partners, please proceed.

Hey guys, great quarter.

Thank you, Jason.

I was curious, on the CoreBody Reformer, you kind of were happy last year with the initial launch but not happy enough to continue to put dollars after it until you improved some things, and it looks like you've done that. Can you compare and contrast a little bit the results you're seeing from the new creative, and whether you feel like you know enough yet to -- whether it'll be a year-long type of product marketing, or kind of what insights have you gotten so far from the new creative and the new offering?

Well Jason, unfortunately it's a little too soon to make long-term judgments on how well CoreBody's going to do, but as you know I believe we have several hurdles we look at early on and products that we want to achieve in order to continue spending on them. In the very early going with the new creative, we've definitely seen the conversion improvement as well as the response improvement that we're looking for. There's always more to get, and it's early on, but as compared to our prior TV efforts there's a stepped improvement here. We just need to -- it's important to emphasize we need to build on that going forward. So, doing well early is fine but it needs to continue to sustain and grow, and that's what our task is now.

And has our spend been, have you -- have you kind of had the normal spend in advertising on that product or have you kind of held back a little bit while you test new versus old and other things like that, and perhaps for the election, would that be, that spend kind of be rising here into year-end post-election?

The short answer is yes. The longer answer is, is, as you know I think we do test. We did test old creative versus new creative, as well as some of the messaging and offers, so we're comfortable with our early-on conclusions here on where to invest, and then as you might guess as we get into the fitness season we would plan to invest further and in larger amounts on CoreBody.

Okay, so the metrics are good enough to at least continue that, that, that path.

Yes, yes. The early indications are we, we feel comfortable in growing our spend against CoreBody at this point.

Great. Good quarter, congratulations, and have a great afternoon.

Thank you, Jason.

There are no further questions from the phone lines.

Very good. I wanted to thank everyone for your participation and interest in our call today. We look forward to speaking with you at our next call at the, for the year-end in 2012 for '13. Thank you very much.

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