Carparts.Com Inc (PRTS) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the US Auto Parts First Quarter 2010 Earnings Conference Call. (OPERATOR INSTRUCTIONS.)

This conference is being recorded today, Wednesday, April 28, 2010.

I would now like to turn the conference over to Shannon [Rourke]. Please go ahead.

Welcome to the US Auto Parts First Quarter 2010 Conference Call. On the call today from the Company are Shane Evangelist, Chief Executive Officer; and Ted Sanders, Chief Financial Officer.

By now, everyone should have access to the first quarter 2010 earnings release which went out today after market. If you have not received your release, it is available on the Investor Relations portion of the US Auto Parts website at usautoparts.net, by clicking on the US Auto Parts Investor Relations tab. This call is being webcast and a replay will be available on the Company's website through May 12, 2010.

Before we begin, we would like to remind everyone that the prepared remarks contain certain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and speak only as of the date hereof. We refer all of you to the risk factors contained in the US Auto Parts Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission for a more detailed discussion on the factors that can cause actual results to differ materially from those projected in any forward-looking statements. US Auto Parts assumes no obligation to revise any forward-looking projections that may be made in today's release or call.

Please note that on today's call, in addition to discussing the GAAP financial results and the outlook for the Company, the following non-GAAP financial measures will be discussed -- EBITDA and adjusted EBITDA. An explanation of US Auto Parts' use of these non-GAAP financial measures in this call and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in US Auto Parts' press release today, which again can be found on the Investor Relations section of the Company's website. The non-GAAP information is not a substitute for any performance measure derived in accordance with GAAP, and the use of such non-GAAP measures has limitations which are detailed in the Company's press release.

And with that, I would now like to turn the call over to Ted Sanders.

Thank you, Shannon, and good afternoon, everyone. On today's call, I will provide a summary overview of the first quarter 2010 financial results and operating metrics. I will then turn the call over to Shane, who will provide his thoughts on the quarter and the progress we are making on positioning US Auto Parts for long-term growth. We will then open the call up to take your questions.

Unless otherwise stated, "this quarter" refers to Q1 2010 and "last year" refers to Q1 2009, and comparisons are Q1 2010 compared with Q1 2009. Also, percentage and basis points discussed are calculated using net sales, with the exception of advertising, which is calculated using net internet sales.

Adjusted EBITDA for this quarter was $5.4 million. This compares to adjusted EBITDA of $3.0 million last year, an 81% increase. Adjusted EBITDA excludes non-cash share-based compensation of $900,000 this quarter and $1.0 million last year.

This quarter's net sales increased 41.8% from last year. Online sales increased 42.0% and off-line sales increased 40.7%. This quarter's gross margin was 35.2%, down from last year's 36.9%. Strategic pricing actions taken in the prior year and an unfavorable mix in common carriage freight versus parcel freight contributed to the margin decline.

This quarter's general and administrative expense decreased by 190 basis points to 10.1%, primarily from fixed-cost leverage on higher sales, partially offset by increased legal costs to enforce our intellectual property rights, and increased amortization from software deployments.

This quarter's marketing expense, excluding advertising, was 6.9%, unchanged from last year. This quarter's online advertising was 6.4% of internet sales, down 70 basis points from last year due to improved efficiencies.

Fulfillment expense was 5.7% this quarter, a decrease of 100 basis points from last year, primarily due to fixed-cost leverage on higher sales.

Technology expense was 1.8% this quarter, a decrease of 50 basis points from last year, also due to fixed-cost leverage on higher sales.

Amortization of intangibles for this quarter was 22 basis points, compared with 92 basis points for last year, primarily due to the full amortization of certain intangible assets.

Visitors increased for this quarter by 5.5% from last year to 28.6 million, which we attribute to greater online market penetration. Our conversion rate this quarter was 1.48%, a 31-basis-point improvement over last year, and a 1-basis-point sequential increase over the fourth quarter of 2009.

Orders placed through our e-commerce channel this quarter increased 34% to 423,000, and average order value declined by 0.8% to $119 from last year, both of which reflect consumer trends to in-source in tough economic times.

This quarter's customer acquisition costs decreased by $0.27 to $6.13 from last year from more efficient advertising spend.

Turning to the balance sheet, quarter-end cash and securities were $45.5 million, an increase of $3.9 million from Q4 2009. We generated $6.8 million of operating cash flow and invested $2.5 million in systems and equipment. Our cash and securities remain primarily invested in CDs guaranteed by the federal government and federal T-bills. Additionally, we have auction-rate preferred securities of $4.2 million, down $100,000 from Q4 2009 from a redemption. Although we continue to classify these investments as long-term, they have a cash value.

Our inventory this quarter was $18.0 million, a decrease of $600,000 from Q4 2009, but an increase of $6.6 million from last year, reflecting our private-label initiatives, bringing more branded products in-house to stock ship, and increasing stocking levels to meet an increase in demand. Accounts payable and accrued expenses were $22.0 million.

And now I'd like to turn the call over to Shane Evangelist.

Thank you, Ted, and thanks, everyone, for joining the call.

The year certainly has gotten off to a great start with record revenues and adjusted EBITDA. More importantly, we're extremely pleased with the incremental adjusted EBITDA flow-through on the sales increase over the fourth quarter of 2009. We had an incremental revenue of $10.4 million, which produced incremental adjusted EBITDA of $2.1 million. So we experienced roughly a 20% adjusted EBITDA flow-through on the incremental sales.

Our leadership team and their employees have delivered increased growth and profitability for the third consecutive quarter, and I am certainly proud to be a part of this very talented team and want to thank them for their superb leadership.

As Ted mentioned earlier, we experienced 42% revenue growth in the quarter. There were a number of factors attributing to this growth. First, the macro trends are in our favor. Visitors were up close to 6% year over year which supports the premise that more and more customers are shopping online for auto parts. Driving this macro trend are people keeping their car longer. The average age of the car on the road today is over 10 years and is around 100,000 miles.

Additionally, people [can] do more work themselves. In a recent survey we conducted, 42% of the people said they would do more work themselves this year on their cars than last year.

The second main driver of growth was improved conversion, which was up 26% year over year, being driven by also a number of factors. First, we continue to get year-over-year conversion benefits from the catalog improvements we made in the second quarter of 2009. Simply put, our catalog and data product presentation is in a far superior position than it was in years past. Second, we continue to be more aggressive with pricing. Third, our selection decreased during the quarter as we added over 200,000 new SKUS. And finally, our service levels continue to improve on the front-end web experience as well as the back-end delivery and returns experience.

And while we're benefiting from macro trends affecting the entire auto parts industry and the trend toward shopping online for auto parts, our conversion increases are a result of great execution by our employees. They have been following a strategy over the last two years to drive conversion, and this strategy has been to improve the customer experience, to lower prices and to increase selection.

These initiatives have been the foundation of driving growth and we believe will continue to drive growth going forward.

As it relates to gross margin, we did see a reduction from the previous quarter of about 80 basis points. The majority of the impact was from increased sales on lower-margin products, essentially a mix shift from more brand to engine sales in the quarter as a percent of revenue. We were comfortable with this reduction in gross margin percentage as it resulted in increased gross profit dollars and, more importantly, as mentioned earlier, adjusted EBITDA flow-through on the incremental revenues was around 20%.

The second major impact to gross margin percent was from increased freight expense as fuel surcharges increased during the quarter.

Now while we did experience a decrease in gross margin percentage in the quarter, and we may see a trend continue in the short term, we believe over the next few years we will see gross margins expand as we continue to optimize our supply chain.

One area we are optimizing our supply chain is in the direct sourcing of private-label engine parts from the Pacific Rim. We continue to make good progress toward this initiative. We now currently have around 3,000 SKUs on the site available for sale and another 3,500 on order.

EBITDA for the quarter was $5.4 million and nearing double-digit flow-through percentage of 9.7%. And again, I can't hit this point hard enough -- this is a result of a nearly 20% EBITDA flow-through on incremental revenues driven over the fourth quarter of 2009.

We are also seeing very good progress on our AutoMD initiative to become the consumer advocate for repair and maintenance. If you hadn't seen the recent CBS Early Show video on the need for a repair advocate, go check it out on the home page of automd.com. It truly points out the need for transparency in this industry, and our unique visitors for the month are nearing 250,000, so it shows that AutoMD is helping to provide this transparency. We will continue to invest in AutoMD as we see this a great media and lead generation platform going forward, as well as helping provide conversion benefits on our e-commerce site. And as always, I would encourage everyone listening to the call to go to automd.com and start saving money today.

Consistent with our standard practice, we will not be providing earnings guidance, but in the spirit of transparency, we will tell you that our year-over-year growth for the current quarter is trending around 30%. And we have mentioned earlier that in the back half of the year, end of this quarter, we will start to run into some tougher comps, but we do anticipate continued growth throughout the year.

As it relates to EBITDA, I think the best way for you to think about our business is using our fourth quarter 2009 results of $46 million in revenue and $3.4 million in EBITDA -- I'm sorry -- adjusted EBITDA, and you've had 20% flow-through for adjusted EBITDA on revenues above and below $46 million.

Specific to the second quarter, we will have an estimated $750,000 of negative impact to EBITDA over the first quarter of 2010. This impact will be approximately $500,000 of incremental legal expense over our current run rate in the first quarter to protect our intellectual property. We are very serious about protecting our intellectual property and we will be going to trial in June.

On a positive note, beginning the third quarter of this year, we will see a $500,000 pick-up over the first quarter of this year as the litigation expense comes to an end. So said differently, had we not had the litigation expense in the first quarter, EBITDA would have been around $5.9 million.

Second, we have about a $250,000 reduction in margin as a result of reduced revenue from our post-transaction process over the first quarter. We're hoping that by the end of the year, we will make up this $250,000 in incremental media revenue as our media sales continue to grow.

We continue to anticipate CapEx for the year to be around $10 million. We also anticipate a $3 million to $5 million investment in inventory for the year as we continue (inaudible) private-label engine parts and bringing brand to products in stock.

In closing, we were pleased with the progress we made on our strategic initiatives and the quarter's financial results. We are even more excited about the leverage of the business and the incremental adjusted EBITDA produced as revenues grow. Our team continues to work very hard every day to try to grow this company to be over -- over the next two to three years, to exceed $300 million in revenues with the kind of profitable and margin levels that we've begun to experience.

And with that, I'd like to thank you all for joining the call, and at this time, we'll now open the call for questions.

Thank you, sir. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS.) And our first question comes from the line of Jared Schramm with Roth Capital Partners. Please go ahead.

Congratulations on the great quarter, guys.

Thanks, Jared.

Thanks, Jared.

Could you just give us some color on how customer reaction has been to the introduction of the private-label parts here?

We're pleased with it. I think our customer base segments into consumers who really want branded product and then consumers that are looking for any type of a solution that's low cost with good quality. So the reason we continue to pursue that aggressively is the initial reaction has been very, very good.

Okay. And jumping over to AutoMD, can you discuss a little what you're doing to promote traffic to the site? Is it through an SEO or through some other kind of marketing effort? The CBS Early Morning Show was a great start there, I think.

Yes. So we got really good PR for sure. We actually do leverage our core site today, so if you go to Auto Parts Warehouse, you'll see some messaging to direct people over to Auto MD. We've got an e-mail list of 2 million people that we can discuss Auto MD with. We are starting the process to get SEO movement, and we're pleased with the direction in SEO movement. A little bit of SEM -- not much. It was probably less than $10 million total so far. So --

Ten thousand.

I'm sorry. $10,000 so far. I apologize for that. Yes, so that's what we're doing, right? Leverage the existing assets to get good word of mouth going and hope it just keeps taking off as the SEO gets better.

Okay. Same kind of question for the offline revenues base. A pretty impressive quarter on that regard. Could you kind of discuss some of the basics behind the revenue gains there in the offline segment?

Yes. It first starts with stock positions. We did a lot better job getting product in stock for our mirror line, as well as our body part line, coming into the quarter. So we actually captured all demand -- both online, but also through our wholesale channels. Second to that, these guys are just doing a great job. They are priced better in the marketplace. They're selling better in the marketplace. When we got here, wholesale wasn't a main focus for us, but over the last year or so, our guys have really spent some time on it and we're seeing the results and we like them.

Okay. And, I guess, lastly -- pretty anecdotally here -- cash balance and investments is getting up there. Are you seeing any attractive acquisitions, be it small or large, in the space right now?

Yes. So we've done a few acquisitions. We were very pleased with the integration that's taken place on those. It's truly been seamless. We've had absolutely no issues around integration. So our initial thinking was let's keep it small -- $3 million to $5 million companies. As those have progressed well, we'll look and certainly be interested in doing larger acquisitions. We're open to it. And no new news on that front at this point, but certainly we'll continue to look as acquisition's a way to grow.

Okay. That's it for me. Congratulations again on a great quarter.

Thanks, Jared.

Thanks, Jared.

Our next question comes from the line of Richard Fetyko with Merriman and Company. Please go ahead.

Hi. Good evening, guys. Congrats on the results. As you look across the key metrics -- the visitors, conversion rates and average order values -- what do you think will drive growth during the rest of 2010 and in what order?

So I think we'll continue to see unique growth. There's no indication that the industry's slowing down, so I think you'll see unique visitors grow, and I hope to see conversion increase as well. As we continue to get more price point-aggressive in the marketplace, we'll make the supply chain more efficient. And average order value -- actually, you may see a pick-up in that in the back half of the year. Our AOV decreased significantly last year and we've got a number of initiatives in place to try to address that in the back half of the year as well. So I don't know, Richard, which one's going to move fastest. I think that the most consistent one you're going to have clearly is going to be the demand for auto parts online, and then we hope the stuff that we're doing now can effectuate certainly more SKUs being added, lower price points. That should help conversion.

Okay. Then as a follow-up, on the eBay sales line, I'm just curious -- any -- what's your thoughts on the potential impact of eBay's change in their listings practices, weighing more -- lowering the listings fees on the front end and increasing perhaps the sales commissions on the back end?

So eBay's been -- was fantastic for us in the first quarter. They did, as you indicate, make some changes in the second quarter. We continue to see good comps on eBay on a year-over-year basis -- well over 30, even after those changes. So eBay's doing fine for us. As it relates to the bigger impact on our overall business because, as you indicate, more listings in the marketplace and we, fortunately, have a very, very good team around eBay, reacts very well to eBay. So we'll digest what's going on right now and then we'll start the process to react to it. But we're certainly not displeased with our year-over-year comps on eBay.

Okay. Good to know. Thanks.

Thanks.

Thank you.

Thank you. Our next question comes from the line of Christian Buss with Thomas Weisel Partners. Please go ahead.

Yes. Hello. Congratulations on the nice quarter.

Thank you, Christian.

Wondering if you could provide a little perspective on the mix shift and how you think about that going forward towards the lower-margin product?

So we saw engine up close to 10% as a percent of revenue on a year-over-year basis in the first quarter, and we think, long term, we're going to capture a lot more of that revenue with some private-label SKUs as that grows. But short term, you're seeing that -- you're seeing the shift come down. The gross profit dollars were up close to 4.4 -- $5.4 million for the quarter, or $5.2 million for the quarter. So we're pleased with the gross profit dollar increase and we'll take that trade-off all day long. I think shorter term, Christian, you're going to see margins around where they're at. They might suppress a little bit, and then longer term, I think you're going to see us expand margins.

Okay. And on a dollar basis on the advertising expense -- just kind of that $7 million run rate where you guys are targeting, or how do you think about allocating the ad spend?

Yes, so it's not targeted at a certain price point or dollar amount. We actually run it off the variable contribution margin of the incremental dollars spent being positive return, and it just happened to be that's where it's falling out right now. If we ended up with more gross profit dollars to spend, I think you'd see that number increase.

Okay.

So as we get the supply chain more efficient, I wouldn't be surprised to see the marketing dollars spend actually go up, but more drop-through.

And if I understand that right, you have the ability to dial that relatively quickly, correct?

Yes. Hourly.

Okay. Perfect. Alright. Thank you very much and good luck.

Thanks, Christian.

Thanks, Christian.

Our next question comes from the line of Gary Prestopino with Barrington Research. Please go ahead.

How are you guys?

Hi, Gary.

Great.

A couple of questions here. So you feel pretty strongly that anything above $46 million of revenues you're going to continue to convert that incremental revenue of 20% EBITDA margin?

That's what we experienced, Gary, and I think you're going to continue to see that grow in that manner.

Okay. But does that include the issue with increased legal expenses in this upcoming quarter?

Yes. That's one thing I was trying to -- maybe I didn't make it clear enough in the call there. You've got to back that off that number, so it would be up -- if you thought the number was going to be X, you'd back that off of that 20%.

And where would those expenses be -- just -- are they in G&A expenses?

Yes. That's in G&A, Gary.

(Inaudible.) Yes. The legal expense is in G&A. That 250 that we're going to have from the post-transaction process is in margin.

Right.

Okay. That's fine. And then are you still on track to have about 7,500 private-label engine part SKUs by year-end?

Yes. That's our -- that's still our goal. 7,000 to 8,000 is what we think we'll be doing. We have about 3,000 now -- 3,500 on order. The process takes a little longer than we'd like, but the good part about that is it's tough to replicate. The bad part is you have to wait a couple more months for your parts. But progress is good.

Okay. And then as far as stock versus drop ship, when we did our report, you were about 50/50. Has that changed materially at all in terms of a couple hundred basis-point-swing to stock versus drop?

Gary, it actually -- our stock shipments went up but at the same rate as our drop shipments as we increased sales, so the number was about the same. It just happened to be that they both grew at a similar rate.

Okay.

But we weren't upset with the fact that we'd stock shipped more product; it just happened to be that we also drop shipped more product as the tide rose for all.

Okay. That's fine. Alright. I think that's all I have right now.

Okay.

Thanks.

Thank you. Our next question comes from the line of Stephen Ju with RBC Capital Markets. Please go ahead.

Good afternoon. Congratulations on a great quarter, guys.

Thanks, Steve.

Thanks, Steve.

I think most of the questions were answered, but as you rolled into the second quarter, you were talking about around a 30% growth. How does that break down between volume growth and ASP growth? And as you're looking at the linearity of the first quarter, which months had the best -- which month had the best growth, I guess? And I guess this is more of a pie in the sky question. As you look at AutoMD, and we talk about the possibility of using that as sort of a lead gen platform for mechanics, but is there a possibility to open it up to other auto parts sellers as well who want to stock [products] for people, especially in such segments where you guys don't have your product? (Inaudible.)

Yes. So Stephen, let's go back to the first question --

Volume versus -- and when it happened. I think our March month was the strongest month out of all the months in the quarter, so we've definitely felt some acceleration in March. Obviously, in April, we're not feeling as much of an acceleration as we felt in March. Some of that could be because of seasonality, but clearly, that's kind of how the quarter started out. So we saw a big ramp in March.

Yes. March was 50 points up.

Right.

That was a huge month and --

Did Easter affect you guys because the timing -- I guess Easter fell, I guess, around the end of -- I guess it wouldn't affect you very much. I guess Easter fell at the end of the first quarter versus last year where Easter, I guess, was mid-April.

Yes. I don't think Easter was -- because Easter was like actually the last weekend of the quarter for us, and the year before, it was in Q2.

Right.

So we didn't -- Easter wasn't really much of an impact to us in Q1.

Alright. So we saw -- at this time last year on the call, we spoke about getting some more -- getting a little bit more competitive in the marketplace with pricing. We did that so we're starting to comp over a little bit of the pricing we started in the first half of the second quarter. But we're not upset with 30. 30 is a good number right now and we'll see how that trends through the quarter. As we've indicated before, we do run into tougher comps in the back half of this quarter and, of course, in the back half of the year. As it relates to AutoMD, yes, we're going to be open to selling all kinds of parts in AutoMD. For instance, we don't sell batteries. We don't sell fluids. So certainly partner with people that sell those are things that we'll look to do.

Understood. Thank you.

Thanks, Steve.

Thank you. Our next question comes from the line of George Kelly with Craig-Hallum Capital Group. Please go ahead.

Hi, guys. Mitch couldn't be on the call, but just a couple quick ones. Wondering -- just to go a little bit more on the revenue growth, wondering if you could talk a little more about second half 2010 -- just any idea of where you guys are thinking it could come in and just any more commentary on that?

Yes. I think that's difficult for us to know right now. I think, George -- I think the back half of Q2 -- against the month of June and certainly in July, so when we do our Q2 conference call, we'll have a much better visibility on what the back half of the year is. Clearly, we had 30%. We had 28% and then 36% growth in Q3 and Q4, so those obviously are going to be tougher comps. But like we said in the past, we did see an acceleration really happen in June of last year, so we'll be able to give you better visibility when we have our Q2 call.

Yes. With that said, we don't think demand's going to diminish in the back half of the year, and I hope that we're in a better competitive position with our private-label products as well as some pricing. So hopefully we'll continue to capture growth. I wouldn't set the expectation it's going to be 32 like it was last year, but hopefully -- we think we'll continue to grow.

Okay. Great. And then one other one. Where would you expect average order value to be in a more sort of normalized economic environment?

Well, it's been pretty consistent for us. I'm looking at [Jess] here. Since you've been here for five years, it's been around that number -- down a little bit, up a little bit. So I don't think it's -- under the current way we merchandise, which is not a lot of cross-sell and upsell today, I think that number's going to stay around there. Maybe comes down a little bit as we sell more of our own branded private-label products at lower price point. Over time, hopefully we see that move north as we do a better job of selling a job to a customer as well as kind of matching parts up.

Okay. So I could expect somewhere between 115 and 120 for the near --

That's probably right.

That'd be a good guess, George.

Okay. Great. That's it. Thank you very much.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS.) And our next question is a follow-up from the line of Gary Prestopino. Please go ahead.

Just two housekeeping questions. It looks like you had a 38% tax rate this quarter. Is that a good number -- percentage to use for the year, Ted?

Yes. That -- typically what happens is in Q1 with the auditors, we kind of set the tax rate in that quarter. So that's -- I would say that'd be a very good estimate for the year.

Okay. And then you mentioned there was another $250,000 of expense? I didn't get that in my notes.

Yes. No, I think what Shane was saying is web loyalty -- we expect our web loyalty revenues in Q2 to be $250,000 less --

Oh okay.

Than Q1. So we didn't really get the full impact of -- we did better in web loyalty than we expected, but we expect to feel the full impact of that in Q2. So that's about a $250,000 swing. It's not an expense that goes up in gross margin.

Okay. And then just in terms of AutoMD, have you -- there's something like 400,000 repair shops in the country. Have you got all of them loaded in or a certain percentage, or can you maybe talk a little bit about that as well as how often are you contacting these shops to refresh the information and then whether you're able to measure any kind of customer level of satisfaction from using AutoMD at this point.

Yes. So we've -- there is about 400,000 shops in the database. We've contacted well over 100,000. We've got information collected on about 100,000 as it relates to hourly rate, what kind of cars they work on, what types of service they do, what -- if they offer a shuttle service. So there's like 15 different variables we have on them. What you'll see us do in AutoMD in the back half of the year is start essentially a lead generation program through them through a subscription deal. So it's -- I wouldn't certainly factor anything financially into it this year, but we'll start the process of lead generation into the shops. And then as it relates to ratings, we have full rating capabilities on the site, and so as people start to use those shops as they get pushed over from AutoMD, then it'll act a little bit like Yelp. We actually in the quarter launched a thing called AutoAnswers, and within the first month, we've already had 5,000 questions asked and answered. So the community there is starting to build. And truth be told, on those shop sites, we have between 1,000 and 2,000 people a day looking at shops. So we like the progress we're making. We think we're setting ourselves up for good -- for a good customer experience as well as good customer feedback long term.

Okay. Thanks.

(OPERATOR INSTRUCTIONS.) Our next question comes -- is a follow-up from the line of Richard Fetyko with Merriman and Company. Please go ahead.

Hi, guys. With the back half of the year having tougher comps, I guess, maybe we can talk about seasonality business in the business that's normal. Last year was a little abnormal, I would think, in terms of the sequential increases in the third quarter. So maybe you can talk to the seasonality that, in the normalized environment, we should anticipate in the back half of this year versus the second quarter, or just even the second quarter perhaps.

Yes. Typically, you'll see the first quarter higher than the second quarter and then you'll start to see it fall off anywhere between 5% to 10% in the back half of the year. Now we didn't see that last year and that was because we had a much stronger offering in the engine business, Richard. So it's unclear to us exactly what that's going to -- how that's going to play out. Typically, you're going to see first quarter up, second quarter down a little bit. In 2007, it reversed a little bit. It was first quarter and then second quarter. So there is -- unfortunately, there isn't 5 years of consistent seasonality in the business, and part of the reason is changes have been made every year, whether it's up in marketing spend or whether it's increasing catalog. So I don't -- I can't give you a lot of consistency on that, but if I was going to guess, first half's going to be up about 10% over the second half from a seasonal perspective.

Right. Okay. Thanks.

Thank you. (OPERATOR INSTRUCTIONS.) I show no further questions in queue. I'd like to turn the call back over to management for closing remarks.

Well, we certainly are pleased with record revenues and adjusted EBITDA for the quarter. Look forward to getting back to you guys next quarter and give you an update. Take care.

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for using ACT Teleconferencing and you may now disconnect.