Martha Stewart Living Omnimedia's (MSO) CEO Daniel Dienst on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: Martha Stewart (MSO)

Martha Stewart Living Omnimedia, Inc. (NYSE:MSO)

Q2 2014 Results Earnings Conference Call

July 29, 2014, 08:30 AM ET


Katherine Nash - IR

Daniel Dienst - CEO

Ken West - CFO


Robert Routh - National Alliance Capital Markets

Michael Kupinski - Noble Financial Group

Larry Yavner - LBY Partners


Good morning and welcome to the Martha Stewart Living Omnimedia Second Quarter 2014 Earnings Conference Call and Webcast. All participants will be in a listen-only mode until the question-and-answer session of the call. At the request of Martha Stewart Living Omnimedia, this call is being recorded. Anyone with objections should disconnect at this time.

At this time, it is my pleasure to introduce Katherine Nash, Investor Relations, Martha Stewart Living Omnimedia. Katherine, you may begin when ready.

Katherine Nash

Thank you and good morning, everyone. Welcome to Martha Stewart Living Omnimedia's second quarter 2014 earnings conference call.

Before we begin, let me remind you that our discussion will contain forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, many of which are described in our SEC filings, which we encourage you to read.

Thank you. And now, I will turn the call over to our Dan.

Daniel Dienst

Good morning, everyone and thank you for joining our second quarter earnings call. I am joined by Ken West, our Chief Financial Officer, who will take you through the details of our quarterly financial performance shared with you this morning. After that, we'll take some Q&A.

As we sit before you this morning, at the midpoint of calendar and fiscal 2014, albeit by webcast, I should note that we were at a critical inflection point in our company's history and evolution; this inflection point is probably the [fourth and involve] (ph) our investor's minds.

In trying to read your minds, you likely have two basic questions. First, have the rationalization activities been successful and secondly, when can we expect the next leg-up as the company moves from a foundation building and stabilization to execution on growth initiatives in both our media and merchandize verticals. So let me try to address these questions and of course we can explore this a bit further in Q&A after Ken's financial overview.

First, have the rationalization activities been successful? I would answer, yes, a resounding yes and instead of CEO speak, I would ask you to look at two basic metrics. One metric cash because cash is king and the second metric would be our swing deposit EPS for Q2.

Now obviously these positive metrics didn't come from any new blockbuster growth initiatives, but evidences our ability to [rango] (ph) control of our operations as we begin to gain traction on our push out of the old line sluggish media model and get closer to a performance trajectory for merchandise that reflects the inherent value of a multibillion dollar brand.

Apart from the financial metrics of Q2, these are of course just words on our webcast until we announce and ultimately generate earnings from new profitable growth initiatives.

I would like to share a few more observations before Ken gets into the nittier and grittier details. Many of you are largely focused on merchandise growth and I will speak to that in a moment, but such focus on merchandize growth does not exclude your Management team's focus on the media side of the business.

There is a business there and it is incumbent upon us to have mitigated loss-making attributes not solely by cost cutting that will only take us so far, but by being more dynamic thinkers about how a relatively small player with exceptional content wins at the game.

To that end, you will suddenly and not so suddenly see us to continue to migrate our business to where the opportunities exist for profitability. We will play and win at the highest margin, most integrated tip of the value pyramid with initiatives with our advertising partners who recognize the compelling value-added [powers] (ph) of our brand and founder, while at the same time broadening in an accelerated fashion, our competitive position at scale.

Look at the beautiful and mutually rewarding multi-year campaign we just executed with Triscuit Crackers and also note that in the coming weeks and months, we'll be launching our contributor network of curated and top edited third party content.

We're also [avoiding in the media verticals and noble] (ph) near term aspiration, but we want more. We want each of our businesses and verticals to be profit centers and our goal is for just that.

Our media teams are embracing some early small victories and we're pleased to see digital delivering 9% improvement in revenue in the quarter over the prior year and encouraged about how it's pacing for the remainder of the year.

We of course had a keen eye on mobile, which we suspect will see the largest growth in audience and engagement in the long term and it's already starting, with traffic on mobile devices up 18% over the prior year's quarter.

This resonance spills back over to our core [iron] (ph) line properties, where we continue to focus on new ways to feed our highly engaged consumers with new and relevant content.

As it relates to merchandise, we're excited by what we see in front of us both internationally and domestically, yet domestically as well. On the domestic front, namely the U.S. and Canada, we're close to exploiting some new white space opportunities and are deeply grateful for the commitment we see from existing partners to reinvigorate our lines and collectively drive the Martha Stewart brand to loyal, retail consumers.

I would like to see our domestic business grow year-over-year starting next year at mid-to-high single digits. The opportunity for more juice or more explosive growth in our merchandise vertical will likely come from the international arena. The level of dialogue, planning and opportunities adding is ongoing at a breakneck pace.

Talks with key manufacturing partners, license partners and large offline and online retail players in places like the People's Republic of China continue at pace. We are not lacking our opportunity. Instead we are in the process of narrowing down the right players and partners to ensure a mutually beneficial long-term relationship.

Do not also be surprised by potential media venture. As in the developing parts of the world, how to and educational content teach, inspire and then drive commerce.

This opportunity potentially doors the opportunity that existed in the U.S. when our Founder started her empire 25 years ago. It's not as noisy, it's not as crowded and we have a chance to lead and dominate.

Fundamentally, we remain a company that is without peer in designing and creating ideas and inspirations. Our goal is to ensure that such ideas and inspirations are properly valued and monetized by serving our loyal consumers in whatever verticals and whatever geographies.

Ken will now take you through the details of our 2014 Q2, but I'll close by reiterating that the second quarter was early, much strong indication that the changes we implemented several months ago have put our company on the right track and our 389 employees, myself included, are extremely excited to mark our progress with you over the coming quarters. Ken?

Ken West

Thank you, Dan, and welcome to today's call. I'll spend a few moments to address our business progress in the second quarter and then Dan and I will address questions as time permits.

Revenues totaled $37.6 million in the second quarter of 2014, compared to $42.2 million in the second quarter of 2013, due to lower publishing and merchandising revenues.

As anticipated, merchandising revenues are down from the prior year second quarter, principally due to the impact of the renegotiated deal with J.C. Penney with the initiation of the royalty stream during the company's second quarter last year and inclusion of the catch-up adjustment, which resulted in a much larger royalty payment than what was recognized in the third and fourth quarters of last year.

Digital revenues were slightly above the prior year's second quarter and are expected to be on the upswing for the balance of the year. For the first time in a long period newsstand revenues were actually up approximately 16% over last year's second quarter.

While we're encouraged by newsstand sales this quarter, mostly attributable to improved cover design and content, we're facing a consolidation in newsstand distribution, which may make new newsstand sales a little lumpy over the short term.

Overall, second quarter results signal traction on our rationalized cost base as we outlined at the beginning of the year, notably we saw impactful decreases in production and distribution expenses, coupled with strategic headcount reductions across our publishing and merchandising businesses.

Consolidated operating results turned positive to $2.2 million, as compared to an operating loss during last year's second quarter of $0.6 million. Earnings per share turned positive, commensurate with operations, but basic and diluted net income per share of $0.03 this quarter versus a loss per share of $0.02 in last year's second quarter.

Let's turn now to our segment performance beginning with Publishing. Publishing revenue was $22.2 million compared to $24.2 million in the prior year’s second quarter due to fewer advertising pages sold at slightly lower rates from Martha Stewart Living and Martha Stewart Weddings.

Categories such as pets were strong while we saw weakness in the volume of ads purchased by national retailers, a trend echoed by our larger industry peers.

On the digital side however, advertising revenue increased $0.5 million due to higher display advertising units sold and as Dan mentioned, we continue to see strong traffic to our website via mobile devices.

We continue to benefit from lower editorial expenses resulting from the restructuring activities taken at the end of last year combined with ongoing reductions and continuing expenses. Operating loss in Publishing was $1.8 million for the second quarter of 2014 compared to a $5.7 million loss in the prior year period.

Merchandising revenues decreased 9% to $14.7 million for the second quarter of 2014 as compared to $16.1 million in the prior year’s second quarter, principally due to the impact of the renegotiated terms with J.C. Penney eliminating certain product categories from the agreement.

As a reminder, our revenue recognition for merchandize royalties with J.C. Penney commenced last year during the second quarter. Additionally, we experienced softer sales at the Home Depot in the categories noted in the past, principally paints, special order carpets and outdoor furniture.

Merchandizing operating income amounted to $11 million for the second quarter of 2014 as compared to $11.7 million in the second quarter of last year.

Broadcasting revenue in the second quarter of 2014 was $0.7 million, compared to $1.9 million in the second quarter of 2013. Last year's second quarter included revenue from Martha Stewart's cooking school, which aired on PBS. There was no comparable sponsorship or programming revenue in the second quarter of this year.

Operating income for Broadcasting was a loss of $0.1 million for the second quarter of 2014 compared to operating income of $1.1 million in last year's second quarter. Viewership remains extremely high at approximately $1.8 million weekly viewers for both Martha Bakes and Martha Stewart's Cooking School.

Lastly, related to corporate expense for the second quarter, expenses were $6.9 million compared to $7.7 million in the prior year, principally due to lower legal and occupancy cost.

Looking at the balance sheet, we ended the quarter with cash, cash equivalents and short-term investments of $61.7 million, up $15.5 million from year end 2013. We maintained a healthy working capital position and remained debt free.

Now, for our outlook on the third quarter, while we work to grow our business, we will continue to see the benefit on the cost side from initiatives we've already implemented. Publishing revenue for our traditionally softest quarter is expected to be down year-over-year due to lower print advertising revenue, partially offset by an expected increase in digital advertising revenue.

Merchandising revenue is expected to be down over the prior year’s third quarter consistent with my early remarks about the modified agreement with J.C. Penney and fewer product categories with the Home Depot.

In Broadcasting, we continued to anticipate non-material revenues and an operating income level in line with last year’s third quarter and corporate expenses will continue to be lower due to our hard line focus on controllable cost and expenses.

That concludes my prepared comments. And I would now like to turn the call back over to the operator for questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Your first question comes from the line of Robert Routh with National Alliance. Your line is open.

Robert Routh - National Alliance Capital Markets

Yes. Thank you and congratulations on making money. Couple of quick questions. First could you talk a little bit about the litigation? I know for a long time that's been an overhang, but it seems as though most of that's behind you. I am just curious is that the case? Is all the litigation basically behind the company? Are you now free to sign licensing and merchandizing deals with anybody or is there still anything out there that's material and then I have one follow-up?

Ken West

Good morning, Rob. This is Ken. As you stated, the major litigation that we had with Macy's is totally behind us, but we do have a commercial dispute with one former partner. We didn't like to be terminated and that contract is over and other than that, we are open in regard to any opportunity with any other future merchandize partner.

Daniel Dienst

And Rob, I'll add one thing to it, its Dan here. This company due to litigation over the past few years was not prohibited from entering into any other outside relationships, but it can probably be a bit toxic.

Now that is behind us now. As you know we settled up all that business with Macy's and J.C. Penney at the end of last year. The calendar year and pulled ourselves out of that rip van winkle sleep if you will. So I would also add that tremendously great though when I said that my commentary about the renewed sort of energy and inspiration we are feeling from our former litigation adversaries that we were involved with.

So things are more than back on track with existing partners and we've unshackled ourselves from any perception that we are a difficult partner.

Robert Routh - National Alliance Capital Markets

Okay. Great and then given the fact your used tax NOLs, I know your cash balance is getting very large given the number of shares you have outstanding, is there any chance that you guys would consider of putting a buyback plan in place in the future of putting a special dividend as you did once before or what are your plans with that cash given the [efforts you are paying] (ph) federal taxes anytime soon or have any debt, it seems you're in a good position from our perspective?

Daniel Dienst

Yes Rob, its Dan again. It's their question. What I do is ask you to beg off for a quarter or two as we look at that stability in our business and how we decide to invest that capital. Historically, other companies that I've been associated with, we've been pretty aggressive.

We purchased the shares. We've done dividend, extraordinary or ongoing, but these are early days or basically in the numbers you see, six months into the redo of the business and I would like to see a bit of time further to till we see the opportunities to deploy that cash at high returns or return to shareholders, but I think it's early days to make that call right now.

Robert Routh - National Alliance Capital Markets

Okay. Great. Fair enough and then just one more if I may is you mentioned a little bit about international opportunities and I think at the moment you don't get very much of anything from merchandize internationally, could you give us a sense as to what percentage of your revenue does come from international sources at the moment and then how soon do you think it might be before we might see something on that front as far as beneficial amounts related to international merchandizing deal?

Daniel Dienst

I'll answer it this way. its interestingly that we’re starting -- not starting, we see almost 35% to 40% of our traffic digitally coming from overseas markets. So, there is an awareness there, we try not to just backslap ourselves and say we have this great brand that people are globally aware of.

So we actually went out to the market and hired some consultancy firms to do -- we’re not big fans of consultant I should add, but we did do some data checks around the world in places particularly in developing parts of the world and I want to say surprised, but not really surprised in places like China where our brand has sort of a 63%, 64% awareness in a developing part of the world with intent to purchase behind that 92%, 93%.

So very strong awareness, very strong brand believers out there and we need to get there. So, as I said in my commentary, what’s happening in places like China and again I don’t want to be a macro theorist here but with $300 million, $350 million middle-class Chinese consumers who are looking for inspiration how to starting to live if not Western, certainly modern.

We think there’s an extraordinary opportunity there and we are -- the amount of activity internally here on getting idea at large offline partners, online partners, license partners, we're really trying to narrow that down right now and pick the right few horses and that is a top, top priority for us though.

I can’t put a timetable on it. We have just got started over the past few months. I've spend about 15 years there. I see what’s happening and very optimistic of that opportunity to actually execute and then perform.

Robert Routh - National Alliance Capital Markets

Thank you very much.


Your next question comes from the line of Michael Kupinski with Noble Financial Group. Your line is open.

Michael Kupinski - Noble Financial Group

Congratulations on your quarter, terrific results, I appreciate that. Quick question, in terms of, can you guys remind about the corporate headquarters, were you able -- do you have the top four sub-leased at this point? And then if you could just chat a little bit about the prospect of further cost cutting on the corporate expense side right there?

Ken West

Michael good morning this is Ken. We did announce last quarter and maybe even on the yearend call that we had gotten out of the sub-lease associated with our occupancy of the 10th floor, which was about 22% of our total lease commitments. So, we’re totally out of that and that gives rise to about $1.6 million or $1.7 million worth of annual cash savings.

Michael Kupinski - Noble Financial Group

And the authority reflected in this last quarter?

Ken West

That’s correct.

Michael Kupinski - Noble Financial Group


Ken West

And as you know we are always focused on reducing cost wherever we can find some opportunities and we continue to do so.

Michael Kupinski - Noble Financial Group


Daniel Dienst

Michael, the only thing I will add to that is I think what you see certainly in the Q2 is that we found a tension point here in the business and that tension point is sort of we are now torqued to exactly where we need to be to continue to make beautiful brilliant inspirational content, throw a huge amount of design resources at our retail partners and we found that again, tension point, right balance in the business right now where we also have some latitude to grow.

So, I wouldn’t expect as we sit here today unless the world falls apart to wheel the hatchet aggressively here over the next quarter or two.

Michael Kupinski - Noble Financial Group

On the publishing revenue side, revenues came a little bit better than what I was looking for there and certainly even if you factor in the upside in the digital business you’re still a bit better than I was looking for and especially in a very, very weak national advertising environment were there anything specific in that quarter that would have accounted for your revenue performance being a little bit better than I think than maybe what you didn’t thought when you gave some indicative guidance from the last quarter?

Daniel Dienst

The only thing that we’re very, very pleased with is our digital ad sales performance. We still have high hopes in regard to the print marketplace, but as you noted on a national basis, there is a lot of pressure against the major advertisers coming into the benefit of most of the major print titles.

So, it’s a challenging environment and we’re fighting it as a small publisher.

Michael Kupinski - Noble Financial Group

And in terms of the 500 -- I guess it was like the $0.5 million increase in revenues for the digital side, correct me if I’m wrong in that, but was that what we were anticipating given the increased cost that you had in terms of your sales, digital sales infrastructure?

Daniel Dienst

Yes, it’s the beginning of what we’re expecting. So, we continue to push for more and more penetration into the consumer marketplace for higher digital opportunities.

Michael Kupinski - Noble Financial Group

And you mentioned that publishing will be down in the third quarter, I know it’s your seasonally weak quarter, but can you add any color on the pace of the revenue decline, kind of like what you’re anticipating?

Daniel Dienst

No. I think the direction is really what I wanted to communicate to the Group, but this is really no other further comments that I think should be shared at this moment.

Michael Kupinski - Noble Financial Group

Would it be a sequential decline versus what we’ve just seen in the second quarter?

Daniel Dienst


Michael Kupinski - Noble Financial Group

Okay. And then in terms of the potential publishing deals that you have guys have some terrific and very valuable content and I know that you’re pursuing the merchandising opportunities internationally but what might you be doing on behalf of publishing side?

Daniel Dienst

We already spoke I guess in our prepared comments about how do we monetize and value what we believe is superior content and I believe over the coming as a relative new expert in the business that there’s going to be a land grab over the next 18 months for branded content and we said very well into that potential macro development.

So, our mission right now is to make sure that we continue to produce that high value content and we get paid for it. We’re going to get paid for it as I said in my comment -- opening comments at the very high tip of the value pyramid where we have big integrated relationships, high margin business, but also at the same time migrating to the bottom of the pyramid and playing because we have to fight the fight on the commodity business, the low CPM business and we’ll do that cost effectively by bringing in contributors that we will curate and top added if you will and make sure it is on brand.

So, it’s not going to be free for all and we’ll continue to build that pace of viewership and consumers of you will and there we’re starting to see some traction, certainly on the top end of the pyramid that may have contributed to some of what you saw on the print side, digital side and basis the kind of discussions we’re having with advertisers who are starting to realize that this black box of just buying against data is not really getting them what they want, okay.

And they want to have a consumer that is inspired and they’re not just sort of again black box trading like the New York Stock Exchange became so there are people out there who believe in inspiration and want to pay for it and we’ll then measure that success as we go forward. So, that’s the mission at hand right now.

Michael Kupinski - Noble Financial Group

Dan, in terms of prospect of having content deals in the publishing division, would you say that you’re more likely to see dealer and merchandising before we see something on the publishing side?

Daniel Dienst

It’s a very good question. As George Jones said, the race is on and we’ll see what prints first.

Michael Kupinski - Noble Financial Group

And in terms of the -- obviously the difficulty of Home Depot with lower numbers of skews and so forth as we cycle to 2015, is that relationship with Home Depot kind of begin repaired or is it, where we can actually see growth in skews as we go into 2015, are we more likely to see more of the same as we go into next year?

Daniel Dienst

Let me just rephrase your question if I may respectfully. There is no repair to be done with Home Depot. Home Depot is an extraordinary partner and what makes them an extraordinary company is just how disciplined they are as they run their business, very decentralized, their merchants have tremendous amount of authority and latitude to make decisions about what’s working and what’s not working.

And what I am really pleased about with Home Depot is when we collectively decide that a particular skew or line is not performing to meet their high returned expectations for the Home Depot shareholders, then we have a discussion about it and that’s why we can ask for in a partner and they are really good at that.

So if paint is not working or pieces of patio are not working, let’s talk about it, let’s figure out one cannot be reinvigorated or is something macro, noisy crowded that presents the high returns and if we can’t get there, then we should know, so we can reallocate resources accordingly.

And so what you may see and I think we spoke about this on the last call, if we decide collectively to call particular skew, it gives us the ability to be nimble and reallocate resources that may be out -- banging out, let’s say paint colors and tints and the like.

So it gives us a chance to be ahead of that decision and part of that decision and also credit to the Home Depots that they will unshackle us if you will from concepts of exclusivity because they are not interested in penalizing partners, that are actually interested in our success as well.

So nothing to repair there, really happy with the relationships.

Michael Kupinski - Noble Financial Group

But I guess Dan and just to follow-up, at this point -- if you should have some visibility I would imagine on the types of products and skews that you’re going to have going into next year, do you anticipate the Home Depot will actually show revenue improvement or given what you might be seeing at this time in terms of the number of skews the prospect is that we might see further revenue decline?

Daniel Dienst

It’s a good question. All right, so the way I look at it the swing-through as you know there are lead times on many initiatives. So we have collectively I hate to speak, too specifically about one partner, we have collectively decided to invest in what's working, grow our kitchen business, holiday is an enormous business for us there. We'll continue to grow that business and grow through maybe some of the tripped or cold lines that weren’t working there.

Michael Kupinski - Noble Financial Group

And in terms of just looking at J.C. Penney’s for a moment - given the fewer product skews that revision in the contract and so forth, is there any opportunity with the product skews that you currently have in J.C. Penney’s that you will actually be able to over achieve the royalty guarantee?

Ken West

Mike, it’s a little bit premature to draw conclusion as to whether we’ll have that ability at this moment. J.C. Penney is still somewhat struggling as I read in the newspapers and the financial press.

So, we continue to provide them excellent designs and are one of the leading brands associated with their window treatments as they are leader in that marketplace in the U.S. and other categories. So, we’re doing our part and we’re just hoping that they economically prosper and succeed and we’ll do that with them.

Michael Kupinski - Noble Financial Group

And just one final question, in terms of -- Dan you had mentioned in your comments that Home Depot is kind of relieving you of the exclusivity of certain product lines, would one of those product lines be the prospect of your outdoor furniture being able to -- is there any outdoor furniture at this point going into Home Depot?

Daniel Dienst

There is. There is, but I’ll just advise you to stay away from the nitty-gritty of the exclusivity but they are a good partner. If we have home that we’re working on in a different type of environment, we’re free to go do there and we’re grateful for their graciousness in giving us the latitude to do so.

As you know I think most large retailers even offline that were mostly offline are struggling with the patio category, it's faulty. It’s big seasonal inventory risk and so return adjusted I think there is a lot of thought out there in retail land about how to do patio and we’re certainly here to help on designs and inspirations and we have beautiful library and archives of work that we have done for years here and we’ll find the right home.

As we said on prior call, right product, right home and we’ll continue to push forward on those ideas.

Michael Kupinski - Noble Financial Group

Thank you for taking all the questions, appreciate it.

Daniel Dienst

Thanks for the interest.

Ken West

Thanks Mike.


(Operator Instructions) Your next question comes from the line of Larry Yavner with LBY Partners. Your line is open.

Larry Yavner - LBY Partners

Hey guys, I know you touched on this a little bit Dan in your opening remarks, but I was hoping to get a little more specific and with the sale of majority stake in Forbes Media valuing the company at $475 million, I was wondering if you could share your views on how to extrapolate that towards the valuation of your media business because it would be helpful to try to look at MSO on some of the parts basis between media and merchandizing.

Daniel Dienst

Okay. That's a new one for us in terms of questions and thank you for that. Obviously not a lot of data and we probably don't have a lot of data that you don't have. It's been written publicly about that transaction. As I understand it and correct me if I am wrong, auction by the family there, it was started probably 18 months ago. Initial bids came in, sort of circa with a two handle on them, $200 million or something around that level.

And they really worked hard and became sort of a leader on digital. Again high value sponsored content native and really migrated up the value chain in their digital business and low and behold I guess a week or so ago, they print the transaction that I guess rumored or reported to be wrapped $475 million.

So if I understand your question, if we were just sort of separate on a value basis, the high free cash flow merged this and that aside and look at whatever metrics it may have because we don't have views and the EPS or earnings for Forbes. We know that and I looked this a while ago, let's say unique visitors per month for circa $25 million and we are sort of tracking in that $15 million to $17 million back of the envelop, but our visitors are extremely engaged and I remember the Forbes page views per visit were around four or five and when a visitor comes to a Martha Stewart properly, they're wickedly engaged and we have about 16 page views per visit.

They may have a higher demographic in terms of earnings but we have a very strong solid economic demographic of our visitors and so you start to roll in impressions, unique how engaged these visitors are and if we are not $475 million Forbes, but even if you took let's say half of that back of the envelop, we're adjusting for some of these metrics.

You basically in that kind of analysis I am telling you correctly saying that our current market cap plus cash gives you a free option on the merchandize business. I don't know if that's sort of the kind of analysis that you are looking for, but that's how…

Larry Yavner - LBY Partners

That's exactly what I was looking for. So if you value that, you kind of get the merchandizing business for free if you will.

Daniel Dienst

Correct and I am making some assumptions that we can actually be successful. So you would have to risk adjust if you will certainly and that's how you knock down the $475 million as we get some scale as you'll see over the next coming quarter or two as we continue to penetrate as I spoke to earlier of the high value place, the high margin integrated kind of deals we're doing.

It could be -- it could be interesting, but risk adjusted even backing way off of $475 million you back into a value. Using your analysis, I think a lot of the market actually values our merch business and use media as a drag, but taking it the way you're looking at or your question looked at you sort of say market cap plus cash sort of values if branded content we have if you will and merch is a free option if you will.

Larry Yavner - LBY Partners

Okay guys, thank you.

Daniel Dienst

All right. Thank you.


There are no further questions at this time. Thank you ladies and gentlemen for joining us today. This concludes today's conference call. You may now disconnect.

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