Nautilus, Inc.
Q2 2017 Earnings Call Transcript

Published: 31 Jul 2017

[Operator:]

Good day and welcome to the Nautilus, Inc. Second Quarter 2017 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Mills with ICR. Please go ahead, sir.

[John Mills:]

Thank you. Good afternoon, everyone. Welcome to Nautilus' second quarter 2017 conference call. Participants on the call from Nautilus are Bruce Cazenave, Chief Executive Officer; Sid Nayar, Chief Financial Officer; and Bill McMahon, Chief Operating Officer. Our earnings release was issued earlier today and may be downloaded from our website at nautilusinc.com on the Investor Relations page. The earnings release includes a reconciliation of the non-GAAP financial measures mentioned in today's call and with the most directly comparable GAAP measures. Remarks on today's conference call will include forward-looking statements within the meanings of the Securities Laws. These include statements concerning financial projections, operating trends, anticipated growth and profitability, anticipated new product introductions, anticipated capital expenditures, and anticipated results of new product and business development initiatives. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from these statements. For more information about these risks, please refer to our most recent Annual Report on Form 10-K. Nautilus undertakes no objection to update or otherwise publicly release any revision to forward-looking statements to reflect new information, events, or circumstances after they were made; or to reflect the occurrence of unanticipated events. All information and comments regarding our operating results pertain to our continuing operations unless otherwise noted. And with that, it is my pleasure to turn the call over to our CEO, Mr. Bruce Cazenave. Go ahead, Bruce.

[Bruce Cazenave:]

Thank you, John. Good afternoon, everyone, and thank you for joining our call today. I'd like to start by providing a general overview of our second quarter and then we'll turn it over to Sid Nayar to review our financial details in more detail. Bill McMahon will then provide details on the business segments as well as updates on product activity. Finally, I will provide some closing remarks before we open up the call for more questions. The second quarter 2017 results are right in line with our expectations. Our retail segment delivered solid double-digit revenue growth and this growth came from both the organic retail business as well as the Octane business. Total growth of 13% for the segment reflected robust increases across multiple products and a number of key customer accounts. Retail margins also increased by a 100 basis points, primarily due to improved product mix. In our direct channel, we had a successful launch of the new Bowflex Hybrid Velocity Trainer or HVT, which generated incremental sales in the quarter and complemented other core existing products that achieved increased revenue as well. Overall however, our total revenue in the direct business declined year-over-year as anticipated due to continued lower sales from the TreadClimber product line as that metro products shifts into a different marketing strategy with less TV media support. As a reminder, the second quarter is our seasonally slowest quarter and where much of the focuses is to position our businesses to optimize the much larger back-half. From that standpoint, our second quarter performance gives us the confidence to reiterate our 2017 full year guidance of 5% to 7% growth in both revenues and operating income. Importantly, we continue to anticipate a return to double-digit top-line growth in the back-half of 2017 due to a number of factors that Bill will discuss in greater detail in a few moments. Now I'd like to turn the call over to Sid. Sid?

[Sid Nayar:]

Thank you, Bruce. Net sales for the second quarter totaled $77 billion a decrease of 1.9% as compared to the same period in the prior year, reflecting 13% sales growth in the retail segment offset by a 13% sales decline in the direct segment. For the first six months of 2017 net sales were a $190.3 million, a decrease of 4.6% over the same period last year. Second quarter gross margins decreased 380 basis points in the Direct segment to 63.3% and were up a 100 basis points in the Retail segment to 34.5%, when compared to the same quarter last year. On an overall basis, total company gross margins for the second quarter of 2017 decreased by 350 basis points to 49.8% versus the same period prior year, reflecting the shift in channel mix to an increased percentage of Retail segment revenues. Year-to-date 2017 gross margins of 52.6% are 170 basis points lower than 2016 year-to-date gross margins, primarily reflecting the shift in mix to more Retail sales coupled with lower Direct margins. Total operating expenses for the second quarter of 2017 as a percentage of net sales decreased to 44.8% from 44.9% in the same period last year, primarily reflecting lower sales and marketing expense. Total operating expenses for the first six months of 2017 as a percentage of sales were 43.9% as compared to 41.3% for the same prior period. Sales and marketing expense for the second quarter of 2017 were $23.6 million or 30.7% of net sales, as compared to $24.7 million or 31.5% of net sales in the same period last year. The lower dollar spending primarily reflects settlement of a royalty dispute resulting in a reserve reversal of $1.4 million coupled with lower finance fees. The decrease in sales and marketing as a percentage of sales reflects the same factors. For the first six months of 2017, sales and marketing expenses totaled $61.3 million or 32.2% of net sales compared to $59.9 million or 30% of net sales for the same period in the prior year with high media spending of $2.6 million being the main driver. General and administrative expenses were $7.3 million or 9.5% of net sales for the second quarter of 2017, which compares to $7.2 million or 9.2% of net sales in the same period last year. The increased dollar spending in G&A primarily reflects higher litigation related spending partially offset by lower stock compensation and amortization expenses. General and administrative expenses for the first six months of 2017, as a percentage of net sales totaled 7.8% as compared to 7.7% for the same prior period, reflecting the decrease in net sales. Research and development cost in the second quarter of 2017 were $3.6 million or 4.7% of net sales compared to $3.4 million or 4.3% of net sales in the same period last year. The dollar increase reflects our continued investment in the engineering and design resources required to continue to innovate and broaden our product portfolio. Research and development expenses for the first six months of 2017 as a percentage of net sales totaled 3.9% as compared to 3.5% for the same prior period. Operating income for the second quarter of 2017 decreased to $3.8 million as compared to operating of $6.6 million in the same quarter of last year. The decrease reflects decline in direct revenues and margins partially offset by improved Retail segment operating margins. Operating margin for the second quarter of 2017 was 5% compared to 8.4% for the same period last year. EBITDA from continuing operations in the second quarter of 2017 was $6.2 million versus $8.5 million for the same quarter of the prior year. For the first six months of 2017 operating income was $16.5 million or 8.7% of net sales compared to $25.9 million or 13% of net sales for the same period last year. Year-to-date EBITDA from continuing operations totaled $21.1 million versus $29.6 million in the same period last year. Income from continuing operations for the second quarter of 2017 was $2.6 million or $0.08 per diluted share as compared to $3.7 million or $0.12 per diluted share for the same period last year. For the first six months of 2017 income from continuing operations was $10.8 million or $0.35 per diluted share, a decrease of 29.6% over the same period last year. The effective tax rate for the second quarter of 2017 was 31.1% compared to 38.3% in the same period last year. Tax expense in the current quarter was partially reduced due to the company's adoption of accounting guidance in 2017, allowing for the deduction of excess tax benefits related to stock-based compensation. Total net income included discontinued operations for the second quarter of 2017 was $2.5 million or $0.08 diluted share which includes a $0.1 million loss net of taxes from discontinued operations. This compares to the second quarter last year, where we reported total net income including discontinued operations of $3.5 million or $0.11 per diluted share, which included a net loss from discontinued operations of $0.2 million. Year-to-date net income for 2017 totaled $9.6 million or $0.31 per diluted share versus $15 million or $0.48 per diluted share for the same period last year. Turning now to our segment results. Net sales in the Direct business totaled $39.1 million for the second quarter of 2017, a 13% decrease over the same quarter last year. Direct segment sales were impacted primarily by a continued decline in TreadClimber sales. The launch of the Bowflex HVT product line and the results cardio series coupled with stronger performance of the strength category helped to mitigate some of this decline. Year-to-date sales of $113.8 million or down 9.8% year-over-year reflecting the same factors impact in Q2. Gross margin for the Direct business declined to 63.3% for the second quarter of 2017 compared to 67.1% in the same quarter last year, due to higher discounting of TreadClimber products and the unfavorable operations cost leverage impact of lower sales. The prior year also included a favorable impact of warranty reserve adjustments. Operating income for the second quarter of 2017 and our Direct business was $2.5 million compared to $7.5 million in the same quarter prior year. Operating income was negatively impacted by the lower net sales in gross margins in the second quarter of 2017 coupled with incremental creative expenses related to the HVT product launch. Year-to-date 2017 operating income for the Direct segment totaled $17.9 million, 15.7% of net sales compared to $28.7 million, 22% of net sales in the same prior period. Net sales in our Retail segment for the second quarter of 2017 were $37.1 million an increase of 12.7% compared to $32.9 million in the second quarter of last year. The increase in Retail net sales reflects broad-based sales growth in both the traditional Retail and Octane businesses. Gross margins for the retail business improved by a 100 basis points to 34.5% in the second quarter of 2017, as compared to 33.5% for the prior period, mostly due to improved product and channel mix. Year-to-date 2017 gross margins for retail totaled 33.2% up a 160 basis points versus the same period the prior year primarily driven by the same factors. In the second quarter of 2017 operating income for the Retail business totaled $6.1 million as compared to $4.1 million in the same period of last year. The increase is attributable to the higher revenue in gross margins along with the previously mentioned $1.4 million reserve reversal related settlement of a royalty dispute. Year-to-date 2017 operating income for the Retail business totaled $8.3 million versus $8.1 million for the same period in the prior year. Now turning to the consolidated balance sheet, cash and investments totaled $85.4 million as of June 30, 2017 with $56 million of debt, this compares to $79.6 million in cash and debt of $64 million at December 31, 2016. Inventories were $42.3 million as of June 30, 2107 compared to $47 million at December 31, 2016 and $43 million at June 30, 2016. The decrease in inventory versus year-end 2016 relates the seasonality of the business. Trade payables were $46.9 million as of June 30, 2017 compared to $66 million at the end of 2016 again reflecting seasonality of purchases. Capital expenditures totaled $1.1 million for the six months ended June 30, 2017 with spending primarily on product tooling and IT assets. We anticipate full-year CapEx to be in the range of $6 million to $7 million. At this time, I'd like to turn it over to Bill McMahon, our Chief Operating Officer, who will provide additional insights into our business and key products. Bill?

[Bill McMahon:]

Thank you, Sid. Good afternoon everyone. I'd like to provide further background on our results and provide commentary on our outlook for the second half of 2017. Starting with our Direct segment, our Q2 sales declined versus prior year was primarily driven by the continued decline in Bowflex TreadClimber sales. As we noted in our Q1 results earnings call, we have adjusted downward our direct media investments in the TreadClimber category and are cascading the product into other channels of the business. This step well prudent did further impact Direct channel revenue negatively. We anticipated this impact when issuing our guidance for the full year of 2017. And Direct channel revenues are still in line with our outlook of returning to growth in the second half. We do anticipate the new product launches will offset declines in TreadClimber performance in the future. During Q2, we'd launch one of the key products in that effort with the premier of the Bowflex Hybrid Velocity Trainer or HVT. We're very encouraged by the early performance of HVT in several key areas including consumer response rate and the cost per interaction to achieve that response. HVT is already delivering strong lead generation efficiency and doing so ahead of our expectations. With that said, launching in the spring season does allow us to use the summer and early fall to test areas, we'd like to improve regarding this product, which is primarily in the areas of matching direct marketing messaging to demographics and insuring those messages resonate and drive strong conversion in the coming fall season. But based on early performance, we anticipate stepping up spend in HVT advertising throughout the remainder of the year to drive growth and awareness. Meanwhile Bowflex Max Trainer sales continue to deliver the majority of sales in our direct segment in Q2. Max Trainer sales significantly increased for Nautilus overall in Q2, but we're down slightly in Direct with the largest contributor being that the prior Q2, prior year Q2 sales benefited from carrying a back order Max Trainer M7, coinciding with the large demand of that SKU. This effect was anticipated in our guidance for the full year. The Direct channel continues to deliver growth in the strength category both selectorized weights and Home Gym sales grew in the quarter. The Bowflex SelectTech 560 was the key driver of that growth, though our legacy Rod Gyms also grew year-over-year. We feel this growth in the strength category represents a continuing participation trend wherein consumers are seeking strength training solutions to add to their existing cardio regimen. In the second half of 2017, we'll enter a period where our Direct business is comparing to a prior year that was influenced by significant consumer response headwinds surrounding the Presidential Election. The impact of which we have outlined in the prior earnings calls, we've launched a major new product in our credit approval levels along with the general credit environment remain excellent. Turning now to our retail segment our Q2 revenues were up 12.7% year-over-year and in line with our expectations, Retail growth was broad-based spending both online in bricks and mortar accounts as well as in domestic and in international markets. Additionally, our sales in especially in commercial channel also grew year-over-year during the quarter and we're pleased to see a consistent return to growth in this segment. While certain competitors continue to use online promotional strategies involving deals of the day and deep incentives, we're relying on the quality and value proposition of our products to resonate with consumers. Our point of sale performances driven by positive consumer reviews leading to our lift in sales without sacrificing the margin gains of the past year. Also of note as we enter the second half of the year, we feel that the inventory balance adjusting by certain retail partners is complete and purchasing as return to a pattern in line with point of sale performance. In terms of product performance retail sales in the second quarter were helped by growth of variety of categories including Max Trainer, treadmills, Schwinn bikes, Bowflex Home Gyms, Schwinn Airdyne Pro and the Octane Zero Runner ZR8000. Additionally TreadClimber is a category delivered growth in the retail channel last quarter. In our prior earnings call, we outlined several product launches for the second half of 2017. These included the Bowflex result series cardio line of treadmills and elliptical. The Schwinn 87 consumer grade Airdyne bike along with our new full featured and upscale commercial Airdyne, the Octane Airdyne X which combines the latest in Airdyne technology with the full commercial club warranty package and is backed by the industry leading Octane service team. Additionally, we planned to launch the new Octane ZR7000 which is the second machine in our full commercial club rate Zero Runner line and we'll enter new categories with the launch of a mass retail targeted rowing machine, the Schwinn Crewmaster and a new incremental price point addition to our consumer indoor cycling line with the Schwinn IC3 bike. Further to the top of new categories, we'll also enter the hand held and show our fitness market with the launch of our new Modern Movement products, the M-Board and M-Pad, which provides smartly designed go-anywhere exercise tools that integrate with free apps to deliver a dynamic digital experience. Finally, we also planned to launch updated versions of our very successful Schwinn 70 series and Nautilus 6 bikes, ellipticals and treadmills reflecting our commitment to supporting successful existing product platforms, while further expanding our market share in new categories. Based on our current understanding Retail plan, retailer plans in the ongoing point of sale performance of our products, we anticipate strong retail growth in the back-half of 2017 driven by gains in retail floor placement key national accounts, as well as with new products online and this is reflected in our guidance. In terms of inventory and supply chain, we are well balanced and well positioned to meet our needs. Our suppliers are equipped and prepared to support our growth plans. And in addition to the product launches occurring this year, we have a robust multi-year product roadmap in place and we're already preparing for new products in 2018. I'm very grateful for the efforts of our global Nautilus team of employees and I'm optimistic as we head into the back-half of the year. At this point, I'd like to turn the call back over to Bruce for his closing comments. Bruce?

[Bruce Cazenave:]

Thank you, Bill. I'd like to make a few final comments before we open up the call for questions. Since early in the year, we communicated how we saw the year unfolding with a slow first half followed by returning to double-digit growth in the back-half and the reasons for that expected trajectory. The good news is we are tracking as planned and we are well positioned to deliver the back-half growth that supports the full year guidance we have provided. In our Direct segment, expected growth from multiple product offerings including our Bowflex Max Trainer and the added new HVT offering combine with easier TreadClimber comps will enable us to return to growth in this segment. In our retail segment, we anticipate continued solid results driven by expanded product offerings from our Octane, Nautilus and Bowflex brands that are expected to garner additional, commercial, traditional retail and e-commerce placements this fall. For years now, our standard operating mode has been to focus simultaneously on both near term execution of our plans, well also building and investing for long-term continued growth. That approach has worked well and we are pleases with the momentum our company currently has on both of those fronts, driving innovation and commercializing the robust pipeline of new products in our three year roadmap remains our top strategic focus area. Other near-term priorities particularly in 2017 and 2018 are to accelerate the growth in international markets and to optimize the opportunities that the acquisition of Octane affords us. In closing, I‘d like to thank all of our dedicated employees who are instrumental in our successes and how it made the company stronger every quarter, as a result of their efforts and initiatives. That concludes our prepared remarks, now I'd like to open up the call for questions. Operator?

[Operator:]

Thank you. [Operator Instructions] We'll go first to Frank Camma with Sidoti.

[Frank Camma:]

Good afternoon guys.

[Bruce Cazenave:]

Good afternoon, Frank.

[Sid Nayar:]

Good afternoon, Frank.

[Frank Camma:]

I was just wondering if you could talk, you guys gave a lot of comments on the Retail channel obviously there was a start this quarter, could you just talk about the health of the specialty channel that Octane sells there and sort of how you comped against last year, as I know there was some disruption there, can you talk a little bit more about that?

[Bill McMahon:]

Yes. We saw, hey Frank its Bill, I appreciate the question. We did see growth in the consumer side of specialty, especially overall. We are starting to see stability in that channel and segment, still more work to do to get back to where we were let's say. But, happy to see some growth coming back on that side.

[Frank Camma:]

Okay. And the bricks and mortar side is pretty well publicized, but you seem to be confident on the inventory level, can you talk about sort of ecommerce side of retail and perhaps like what growth you are getting there, is there way that kind of pull that out?

[Bill McMahon:]

We don't break out as you know by individual sub-segments in terms of performance. We did grow in ecommerce and did grow with our large accounts during the quarter.

[Frank Camma:]

Okay. My other question is just on the new products that you called out familiar with us. But, can you -- are those retail products that the board and the price points, can you just refresh my memory on that?

[Bill McMahon:]

Yes. The boards will run roughly between $69 and just below $100 and they will be placed in retail bricks and mortar and in online, but also will run our own ecommerce efforts and digital advertising to support awareness of those products.

[Frank Camma:]

Okay. But, it's not -- is that a Nautilus brand product or is that Bowflex brand product?

[Bill McMahon:]

It's actually going to be branded moderate moment, which is a brand that we acquired along with the intellectual property. We do think they are unique brand for this type of product is the fitting. It represents a different type of exercise from say either traditional Nautilus strength and/or both Bowflex Puretech focus.

[Frank Camma:]

Got it. Thanks guys.

[Bruce Cazenave:]

Thanks Frank.

[Operator:]

We will take our next question from Michael Swartz with SunTrust Bank.

[Michael Swartz:]

Hey, guys. Good afternoon.

[Bruce Cazenave:]

Hi, Michael.

[Michael Swartz:]

Hey, Bill. Just wanted to follow-up on HVT, you gave some color on that product but maybe help us understand, maybe relative to prior product introductions in the direct business, maybe how that's trending? And then, the second question on HVT is, could you break out how much you actually spent in kind of pre-launch cost?

[Bill McMahon:]

Thanks Mike. I think its okay, since we say that on the creative side we spent about $1 million in terms of creating the initial videos, commercials and web advertising assets that we used. And that definitely impacted the profitability direct in the quarter. In terms of performance of the product where we are very happy with it as compared to anything else we launched. We do use NPS now or Net Promoter Score. And we do look very closely at consumer acceptance and HVT is getting the highest scores we have seen in any product that we have launched so far. So we are happy that the consumers love it, the people who have it, want to recommend it. A strong majority of people who have bought the product have expressed that they would recommend the product to a friend. As I mentioned in my remarks, we like the consumer response and we like the price that we are paying in terms of lead generation for that response where it's a little bit slower than say a Max Trainer launch, it's been conversion out of the gate. We are not surprised at that because HVT is behaving more similar to TreadClimber to answer your question. It's a more considered purchase. And I think to be blunt, we need to do some education to the market and they need to get used to what this type of product can do for them. And that's what we mean by looking at our messages through the summer here in terms of hitting on what are the themes that allows the best get that message across and then turn drive. Higher conversion as we spend more against the product in the fall.

[Michael Swartz:]

Okay. That's extremely helpful. And then, second question for Sid, I think in your prepared remarks you mentioned you are comfortable, you can get back to double-digit top line growth in the back half of the year. I didn't hear you say but are you also comfortable you can get back to double-digit bottom line growth as well?

[Sid Nayar:]

Yes. So, I think we are comfortable with -- and that would allow us to effectively drive to 5% to 7% bottom line growth for the full year.

[Michael Swartz:]

Yes. Then on the TreadClimber I think obviously with the strategy there taking some of the product into the retail channel. Is there a way we can look at that product line holistically cross both, was it flat during the quarter or would it still have been down?

[Sid Nayar:]

It still would have been down.

[Michael Swartz:]

Okay, great. That's all from me. Thanks guys.

[Bruce Cazenave:]

Thanks Mike.

[Operator:]

[Operator Instructions] We will take our next question from George Kelly with Imperial Capital.

[George Kelly:]

Hi, guys. I apologize I have turned late, so you might have to repeat yourself with it, but the new Bowflex treadmill and elliptical lines that you launched recently, can you talk about how those started and you talked I think it was on the last conference call. But, expecting a good launch with e-retailers this fall? Is that still something you are expecting?

[Bruce Cazenave:]

Hi, George. First of all, we are fully confident that Bowflex result series as we call the new treadmills and ellipticals. We have placement online and in-store this fall. I think prominently so, so we are looking forward to see how they perform. But, something as you picked up on our last call, we talked about indirect, we did something unusual for us which is to do some digital promotion more traditional or standard fitness products and we felt these two products deserve that. The contribution from those products are part of the growth side of what happened in direct in the quarter. We are seeing some continued improvement and performance of the result series for direct. But, it's important to note it's not a TV product, so it's not going to be a major needle mover. But, we are pretty happy to see that the team can sell treadmills and ellipticals as well as the more exotic Bowflex products.

[George Kelly:]

Okay. And then, it takes one of the partners for in-store retail?

[Bruce Cazenave:]

Yes.

[George Kelly:]

Okay. And then, can you say anything else about, do you still expect to launch another major direct product next year and can you say anything about what that product could look like?

[Bill McMahon:]

Yes and no.

[George Kelly:]

I know you just launched HVT, but it's coming.

[Bruce Cazenave:]

Yes. I think George, important to know we would like to increase our cadence on direct launches. We felt the time between max and HVT was perhaps not optimal. And we do have another direct product plan for next year. But, we are not ready yet to talk anything about it.

[George Kelly:]

Okay. And then, last question for me, the approval percentage in the quarter?

[Bruce Cazenave:]

Was 52.2% versus last year same quarter Sid?

[Sid Nayar:]

Yes, was 52 versus 47.3

[Bruce Cazenave:]

47.3 last year.

[George Kelly:]

Thank you.

[Bruce Cazenave:]

On the credit, the gains and credit were primarily gains in Tier-1 improvement, so we continue to have a strong relationship with our Tier-1 provider.

[George Kelly:]

Great.

[Bruce Cazenave:]

Thanks George.

[Operator:]

Our next question will come from Michael Kawamoto with D.A. Davidson.

[Michael Kawamoto:]

Hey, guys. Michael on for Andrew today. Thanks for taking my question.

[Bruce Cazenave:]

Good morning, Michael.

[Michael Kawamoto:]

I was wondering if you have seen any shift in the competitive landscape especially on the higher end part of the market.

[Bruce Cazenave:]

No. If any particular categories you are interested in or we haven't seen any macro change.

[Michael Kawamoto:]

Just in relation to like Peloton or I saw Johnson Health and the Matrix?

[Bruce Cazenave:]

Yes. We definitely see Peloton creating awareness and certainly congrats to them on creating a lot of brand awareness. But, we haven't seen impact to -- we are addressing different consumers in a lot of ways with our products. Matrix does have a new line of products that they have launched in the specialty space. And they are carrying them in their company owned stores. However, we are in close communication with Johnson who is the company that owns the Matrix brand. And we continue to have a strong partnership with Johnson in their second wind stores for octane product. So, we are certainly aware of that new product, but we wouldn't call that a macro change for us.

[Michael Kawamoto:]

All right. Thanks so much guys.

[Bruce Cazenave:]

Thanks Michael.

[Operator:]

We will now take a question from Chris Krueger with Lake Street Capital Markets.

[Chris Krueger:]

Hi, good afternoon guys.

[Bruce Cazenave:]

Hi, Chris.

[Chris Krueger:]

Hi. Pretty much all my questions are already been asked and answered, but I do have one, did you guys do any share repurchase activity during the quarter and how much and what still authorized?

[Sid Nayar:]

The answer is no. There was no share repurchase activity we got 19.6 million still open, which includes the $15 million that we authorized in early Q2.

[Chris Krueger:]

Okay. That's all I got. Thanks.

[Bruce Cazenave:]

Okay. Thanks Chris.

[Operator:]

We will now pause for any additional questions. And that concludes today's question-and-answer session. At this time, I will turn the conference back to Bruce Cazenave for any additional or closing remarks.

[Bruce Cazenave:]

Thank you. Thanks again all for participating in our call today and your interest in Nautilus. We look forward to reporting more progress on our third quarter call in late October. Hope everyone has a great rest of the day. Thank you.

[Operator:]

This concludes today's call. Thank you for your participation. You may now disconnect.