Heelys Q3 2007 Earnings Call Transcript

Nov. 7.07 | About: Heelys, Inc. (HLYS)

Heelys, Inc.(NASDAQ:HLYS)

Q3 2007 Earnings Call

November 7, 2007 4:30 pm ET

Executives

Mike Staffaroni - President and CEO

Mike Hessong - CFO

Analysts

John Rouleau - Wachovia Securities

Mitch Kummetz - Robert Baird

Jennifer Childe - Bear Stearns

David Meier - Greenbury

Operator

Good day, everyone, and welcome to the Heelys, Inc. Third Quarter2007 Earnings Call. At this time all participants are in a listen-only mode.Following the presentation, we will conduct a question-and-answer session.Instructions will be provided at that time for you to queue up for questions.(Operator Instructions) I would like to remind everyone that this conference isbeing recorded.

I would now like to turn the conference over to Mr. MikeStaffaroni, Chief Executive Officer. Please go ahead, sir.

Mike Staffaroni

Thank you, operator, and thanks to everyone for joining uson today's call. On October 24th we reported that our preliminarythird quarter sales and earnings results would fall below our previously statedexpectations, and during the quarter, while we did work closely with our retailpartners to bring inventories more in line with what we are seeing is firstcurrent sell-through rates, including acceptance and cancellations on futureorders and rescheduling deliveries. We aggressively increased our marketing andadvertising spend over the last year’s level primarily on national TV ads andwe increased programs like different purchases, point-of-sale materials andother more customer specific programs to help move inventory.

Sales of retail did increase during the higher on theback-to-school season, consistent with what we have seen historically betweenmid-August and early September, but that wasn't enough to offset the slow startthat we saw to the quarter overcome the inventory bubble at retail or addressthe challenging retail environment so much the athletic footwear market thisyear.

As a result, we experienced higher than anticipated levelsof order cancellations, and, in the later weeks of the quarter, we saw someprice actions from certain retailers. This led us to a decision to offer someof our key retail partners' discretionary marketing assistance beyond ouroriginal budget, which negatively impacted our gross margins. But that resultedin inventory levels in our domestic channels of distribution coming down sinceearly August, but there is still more work to be done.

We are cautiously optimistic that based on historicalsell-through rates during the holiday season combined with the continuedconsumer efforts that we are seeing for wheel footwear in our sales andmarketing initiative that we’ll exit this year with retail inventory at moreappropriate levels.

I’ll turn the call over to Mike Hessong now, who will reviewthe financials in more detail and update our outlook for the remainder of theyear.

Mike Hessong

Thank you, Mike. All right: Net sales for the third quarterwere $49.9 million compared to net sales of $72.5 million in the third quarterof 2006.

For the quarter, our domestic net sales were $40.4 millioncompared to $61.4 million last year. And international sales were $9.5 millionversus $11.1 a year ago.

When you compare our year-over-year results, it's importantto remember that in 2006, we estimate roughly $20 million of net sales shiftedout of the second quarter and into the third quarter as a result of the lateshipments as we tried to meet the surging demand for the brand last year.

Gross profit for the third quarter of 2007 was $15.9million, or 31.9% of net sales compared to $24.9 million, or 34.4% in the thirdquarter of 2006. This decrease in gross profit as a percentage of net sales wasthe result of an increase in our discretionary marketing assistance that weprovided to many of our retail customers, as well as an increase in ourinventory reserve.

Total SG&A for the quarter was $6.3 million or 12.7% ofnet sales, compared to $6.5 million or 9% of net sales in the correspondingperiod last year. Income from operations for the quarter was $9.6 million, or 19.2%of net sales versus $18.4 million, or 25.4% of net sales last year.

Net income was $6.6 million compared to $11.8 million a yearago. And fully diluted earnings per share were $0.24 versus $0.48 in the thirdquarter of 2006.

With regard to our balance sheet, our financial condition at9/30 is very strong, with stockholders' equity of $123.2 million and workingcapital of $121.2 million. The company is also debt free.

At September 30th, we had cash and cash equivalents equal to$89.4 million, this compares to $54.2 million in cash at December 31, 2006. We ended the thirdquarter with inventories of $16 million compared to $12.8 million at 9/30/06. This increase wasprimarily the result of some cancellation that was accepted from some of ourretail facilities.

Now to guidance: As Mike mentioned earlier, we did make someprogress reducing the level of inventory in our current channels ofdistribution, but unfortunately it was not to the extent we had expected whenwe updated our guidance from our last earnings call back in early August. We donot anticipate shipping a significant amount of product beyond our currentlybooked fourth quarter orders, as we are very committed to work with ourretailers towards turning their inventories to more appropriate levels by yearend.

However, we will have domestic inventory position to supportimmediate orders to retailers as needed during the upcoming holiday season.Based on our updated visibility we now expect net sales for fiscal 2007 will beflat compared to 2006 and net income for the fourth quarter to be roughlybreakeven, as we more aggressively increase our marketing and productdevelopment efforts, work with our retail partners to create inventory in aneffort to return to a more normalized supply-demand conditions in 2008.

I'll turn it back to Mike.

Mike Staffaroni

Thanks Mike. We are surely not satisfied with our thirdquarter results or the revised outlook for the year. We are dedicated to takingall the necessary steps toward improving the recent trends in our business overthe near-term, including how to further reduce inventory in the domestic retailchannels while our long-term focus is in on evolving Heelys' brand are toexpand our core wheeled footwear business and leverage our position intraditional categories and growth vehicles.

First, we are incorporating new technologies and materialsand installing it to keep our wheeled footwear fresh and relevant with ourtarget consumer. We are excited by the retail reactions to our Spring '08collection which is our broadest and most compelling line ever. Key stylesinclude the Rumble, which is our first ever hiking boot with wheel and a Ninja,which is our first low-profile skate shoe to feature a faster, smoother mega Wheeltechnology. Both the Rumble and Ninja are great examples of the excitement andinnovation coming out of our R&D team. In fact, we received several requestfor forward limited amount of deliveries on these new products for the upcomingholidays.

Another new style, that we'll begin shipping early next year,is the [Fango],which features a hard nylon grind plate in the outer sole area which helpsfacilitate tricks used by some of our more advanced skaters, and we areparticularly optimistic about new vulcanized collection of skate shoes at $599,which we feel addresses many of the prevalent low profile is now in trendscurrently popular particularly in the skate shoes market.

We are working hard to capitalize on the popularity of ourproducts by increasing our domestic penetration. We've recently announced thatwe're opening two new key accounts in the fourth quarter, Famous Footwear andShoe Carnival, both leaders in the family footwear distribution channel. Webelieve Famous and Shoe Carnival represent an ideal footwear use and provide additionalopportunities for us to reach our target demography. We anticipate having wheelfootwear on the shows at all the 25 Shoe Carnival occasions, and approximately400 Famous Footwear locations by mid-November.

Overseas, our performance in Europethis year has exceeded our expectations. That was led by the United Kingdom. We are nowbeginning to see increased demand for Heelys on the continent, particularly Germany and France, underscoring our beliefthat this market can one day be as big if not bigger than our domesticbusiness.

John O'Neil, our Vice President of International is on theground overseeing our steady relationships and working hard to improvesynergies between each country, so that we can deliver a cohesive andconsistent brand message to consumers in Europe.John is also continuing to identify ways for us to distribute our Heelys brandmore efficiently, to get our retail prices more in line with the bigger buyingopportunities.

We continue to expand our warehouse capacity. In Belgium we are now into entering its second yearin operation to meet the rising demand we see in Europe.It further helps support our future growth plans in the region, and in thisyear we will open a new European sales office headed by John also, in Belgium.

We are also committed to increasing awareness of our brandand products. During the fourth quarter, we are more than doubling ouradvertising spend versus 2006 with all the television ads leading up to andthroughout the holiday season. Our commercials began airing on October 28th andwill continue into early January, primarily on the Cartoon Network andNickelodeon.

This new campaign features three of our hottest [sportstars] that does a great job of highlighting the lifestyle nature of our brandand the fun and exciting aspects of a real footwear. We also air a separatecampaign to support the launch of the Gamer by Heelys, which I will touch onmore in just a moment.

Early next year, we are going to kick off the Heelys Kids'Race & Roll as part of our partnership with Disney's Wide World of Sportswho are the title sponsor of their Endurance series Kids Races and with ourreal footwear, you imagine would bring a whole new outlook to these eventswhich will take place at the Wide World of Sports Complex in Orlando, Floridathroughout 2008.

We are also pleased to announce that our cross promotionwith Disney for their DVD release of the extremely popular High School MusicalII. Heelys is going to be featured on the advertising panel and in more than 2million DVD. And our consumers are going to have an opportunity to enter HighSchool Musical 2 sweepstakes where prices are going to include this.

We're also enhancing our PR effort: we just recently hired Edelmanas our new public relations agency. Found in 1952, it has got headquarters in New York and Chicago.Edelman is a leading independent peer firm with offices around the globe.

Over the years Edelman has represented many of the worldleading consumer brands, we're confident that their industry expertise willbenefit our company as we grow, continue to grow and evolve our business.

A key component for our long-term strategy is penetratingthe much larger non-wheel footwear in the market. This month, we'll launch ourfirst line of Heelys branded non-wheel footwear called the Gamer by Heelys,which can now be viewed at www.heelysgamer.com.

The line will feature two styles six color combinations forboth boys and girls all of which are very lightweight and washable. As wedetailed during last call, we moved up the introduction in time for theholidays based on request from several of our key retailers.

We're encouraged with the early feedback on the Gamer, andwhile the initial launch will be limited with select accounts this year,including Finish Line at Hibbett's, we look forward to a broader rollout in2008. We're committed to strategically evolving and expanding our footwearcategory in the years ahead.

We also still believe there is a large market opportunityfor Heelys branded apparel. To-date, our apparel offering has been limited tobasics such as T-shirts, hats, and accessories and it has proven to be a niceand albeit small compliment to our footwear business, and help tighten ourbrand awareness particularly among the 6 to 14 year old target consumer.

We also have some very exciting new projects in development.They extend the Heelys brand more onto the directions of skates. Given theunique nature of our wheel footwear, we feel we have the license to extend thebrand in a number of different ways, this is one.

Before we open the call to questions I just want toreiterate a few keys points. First our entire organization is focused onimmediate task to further improving our current situation of building astronger, more balanced company as we move into the future and we continue tobelieve that Heelys wheeled footwear has a lot of fields growing front bothdomestically and the faster growing international market place.

Our brand equity provides us with growth prospects inmultiple areas, which we have already begun to address namely non-wheeledfootwear, apparel, back packs and accessories and next frontier which wouldinclude wheeled products are in development, they are targeted for introductionin the second half of '08 and following with almost $90 million in cash in ourbalance sheet and the history of consistent profitability and no debt, we havethe available resources to capitalize on the many opportunities that we believestill lie ahead.

Operator we will takequestion now.

Operator

Ladies and gentlemen before we open the lines to questions,I would like to remind everyone of the company's Safe Harborlanguage. Please note that this call will include forward-looking statementswithin the meaning of the securities laws. All forward-looking statementsincluded in this call are based on information available to the company on thedate of this call, the company's current expectations and various assumptions.The company believes that there is reasonable basis for its expectations andbeliefs, but they are inherently uncertain. The company may not realize itsexpectations and its belief may not prove correct.

For a list of important factors that could cause thecompany's actual results to differ materially from the forward-lookingstatements in this call, please refer to the company's public filings with theSEC, including the risk factors contained in the company's annual report onForm 10-K. You are encouraged to read that section and all of the company'sother filings with the SEC. The company intends that it's forward-lookingstatements in this call will be protected by the Safe Harborprovision of the Securities and Exchange Act of 1934.

The Company undertakes no obligation to publicly update orrevise any forward-looking statement as a result of new information, futureevents or otherwise. All subsequent written and oral forward-looking statementsattributed to the company or persons acting on the company's behalf areexpressly qualified in their entirety by the cautionary statements containedthroughout this call and the company's public filings with the SEC.

Question-and-AnswerSession

Operator

(Operator Instructions) We take our first question today fromJohn Rouleau with Wachovia Securities.

John Rouleau -Wachovia Securities

Hi guys, tough sliding.

Mike Staffaroni

Hi, John.

John Rouleau -Wachovia Securities

Hi. So in the past you have given us some idea upon doorcount, accounts and stuff like that, and obviously you received somecalculations and some push outs in orders, just wondering if you’ve had anymajor account or semi-major account, drop the line or maybe dramatically changea number of doors and what they are carrying. Can you just give us some ideawithout maybe giving the exact numbers the feel for what that looks like?

Mike Staffaroni

We don't have a single major account natural or key regionalchain that has -- tell us that they are not moving forward with the brands. Andso this is time where you show your partnership with your retail customers andwork through some challenging issues together, and we have rough patches in theroad before, and we’ve we worked [real hard] and come out healthier.

So, we don’t see this is as any difference. So door countremains pretty consistent and, of course, with the addition of the 700 or sodoors that I mentioned with Famous and Shoe Carnival, we expect it to be up inthe high 6000s by the end of the year.

John Rouleau -Wachovia Securities

Okay. And then regarding Famous and Shoe Carnival, I mean,you know, obviously, there are some good stores or probably a good partner foryou guys, but there is also a little bit of discussion about what does thatmean to, maybe, some of the more better doors that you already extend -- sellto.

Do you anticipate any channel conflict as a result of that? Andwhat are your thoughts in terms of servicing both of those channels, you know,with them? I’m assuming that there is going to be similar type products?

Mike Staffaroni

Well retailers, in general, never like it when you add moredoors in the market place.

John Rouleau -Wachovia Securities

Sure.

Mike Staffaroni

But we are very cautious, and you know, we have beenthroughout our history leading to our distribution strategy. In this case, itis no different. We are very cautious about adding more doors. We looked at thelocations of Shoe Carnival and Famous Footwear, and had all that stacks up withthe rest of our distribution, our regional bases are more comfortable that weare getting into a lot of new areas with these stores, and we had a goodconversation with Famous Footwear, so that we are living against the initialroll out here to 400 doors, and most of the doors are strip malls avoiding anyof their outlet stores and most of their multi stores.

John Rouleau -Wachovia Securities

Okay. And at what point might you expect to be back in? Andlet’s call it a more normalized kind of re-order type position. And I am notreally asking normalized sales, but I mean in a pattern where you are notfilling orders at a back stock, and you are producing goods, you know, over inChina pursuant to a re-order type cycle. Do you think that might be reasonablein the early part of next year, back half of next year, what are you thinkingthere?

Mike Staffaroni

I don't think we've got a “normal year” in a seven plus-yearhistory.

John Rouleau -Wachovia Securities

Yeah. Good point.

Mike Staffaroni

But most of that would depend on how we can efficiently movethrough the inventory bubble that we're seeing in our retail. As you knowholidays has been a big season for us historically.

John Rouleau -Wachovia Securities

Right.

Mike Staffaroni

And, of course, we are counting on that. Again if we havereal strong holiday that will certainly help position us better as we move into2008. Of course getting 85% of our orders in our futures basis is probably notsomething that a brand like Heelys can sustain on along-term basis.

So we'd be shifting to, what I wouldcall: “more normal balance of futures” and I want this business as we moveforward at '08.

John Rouleau -Wachovia Securities

And does that impact your ability? Thetiming of when you maybe introduce new styles next year? The production cycleassociated with that? Does that push that back a little bit or are you still ona similar cadence to put some new styles out there for spring of next year?

Mike Staffaroni

Not similar cadence, February 1, we'regoing to be delivering fresh product into the marketplace from our spring '08line, and then again we'll come back at back-to-school like we've donehistorically.

And, of course as you know, we supplementthose inline collections with special makeup products for some of our keycustomers as well. And so you can find every 30 days some fresh product in themarketplace from one retailer or another.

John Rouleau -Wachovia Securities

Right. Okay. Well, good luck. I'll hopoff, and give other people a chance, thanks.

Mike Staffaroni

Thank you, John.

John Rouleau -Wachovia Securities

Sure.

Operator

(Operator Instructions) We'll go next forour next question to Mitch Kummetz with RobertBaird.

Mitch Kummetz - Robert Baird

Yeah, thank you. Few questions, I want toask you first about the inventory levels at retail, because from where I'mstanding, it looks like the businesses of Heelys have gotten morepromotional, particularly with certain accounts. It seems like there is a lotof product in the marketplace that 30/9/09 for retailers. Seem like their overall sort ofinto at that level. I am just curious: at what point would you hope or expect thatyou could see some more normal pricing out there?

Mike Staffaroni

Well, you know, this time of the year particularly, Mitch asyou know, it’s seasonally slow particularly after back-to-school, beforeholiday shopping kicks in. And so we started our national televisionadvertising a week ago Sunday and we are already starting to see some responseto that ad; that we find encouraging.

And so, as we move closer into holiday Black Friday weekend,typically can be that you could find some aggressive promotions during thatperiod, but we certainly hope as we get close to holiday and Christmas inparticular that we see inventory levels come down to levels that our retailersare comfortable with and we'll see prices go back up.

Mitch Kummetz - Robert Baird

Okay. And can you talk little bit about you've added Famousand Shoe Carnival? Can you talk about what impact that edition has had on yourQ4 revs and how would you expect to grow that business? You said you are in 700stores. Where are you looking to take that business, into the spring and intothe next year?

Mike Staffaroni

Well from the revenue standpoint, of course, we are doing anice loading with those stores, but it's a conservative load-in to get themstarted. We would hope they would see some nice initial sell through andpossibly come back for some reorders prior to holiday. So it will impact thefourth quarter somewhat, but again as we are just getting started with them.

Mitch Kummetz - Robert Baird

Okay.

Mike Staffaroni

Mike you want to take the second part.

Mike Hessong

Well it’s still a way to go with those chains Mitch. We arepretty comfortable with this initial door count and we like the source, we likethe business model they have, and the penetration it gives us to set some ofthese regional areas. We feel as there is an opportunity, and we arecomfortable with the door count we have right now. So, that’s as far as we planis in terms of planning with those two of course we were all in the ShoeCarnivals. So, there is no place left to go other than maybe more SKUs.

Mitch Kummetz - Robert Baird

Okay. And on a way another visibility you have at thispoint: can you talk a little bit about what your spring season book orders looklike and what sort of window you are looking at in terms of gathering thatorder book and network points? Does that order window close for you guys onspring?

Mike Staffaroni

Spring, as I said, our first deliveries will be February 01for new product, and, of course, we don’t disclose backlog during this time. Wedisclose it at the end of year. We feel that the response to the line has beengood, but, of course, many retailers are still taking a latency attitude as faras holiday sell-throughs.

Mitch Kummetz - Robert Baird

Right. And so at what point is it has become too late foryou guys to receive a Spring order?

Mike Staffaroni

While we are taking position on Spring, where a 90 dayslead, time pretty typical, shorter for the West Coast to coast, but you don’thave it today, you could still give an order for February delivery.

Mitch Kummetz - Robert Baird

Okay. Alright. Bye, good luck. Thanks.

Mike Staffaroni

Thanks.

Operator

(Operator Instructions) Yeah, we do have a question from JenniferChilde with Bear Stearns.

Jennifer Childe -Bear Stearns

Hi, thanks. Can you give us the international/domesticbreakdown in pairs?

Mike Staffaroni

For the quarter, the domestic share count was roughly $1.4million, and international was roughly 300,000. And, while, of course, when wefile our Q next week it will have a little bit more information regarding paircount in there.

Jennifer Childe -Bear Stearns

Okay. Can you give us a little bit more color oninternational environment, and why you are seeing a decrease in these newmarkets in Europe, exceeded your expectations?

Mike Staffaroni

I think one thing that’s important to notate is that acouple of things. Our international sales are actually still up year-to-date.They were down slightly during the quarter, but that’s due to really onedistributor, which is in Canada, like they are experiencing some of the same,there were issues that we are having here in the United States with theirinventory levels, and so they are not buying at the same level they were lastyear.

So they were a significant part of the quarterly sales lastyear and for the same quarter, I mean, take Canadaout of the equation and look at the rest of all of our distributors around theworld and particularly in Europe, they are upsignificantly year-over-year and continue on that path. So, we are seeing somereally nice growth especially in the Europemarket that we have mentioned.

Jennifer Childe -Bear Stearns

Okay. And were accessory apparel sales large enough to tellus?

Mike Staffaroni

Well they are still -- we are still early on with that. Youknow there is nice branding opportunity for us. We’ve seen some good growth inthat, but it takes a lot of units at the dollar levels that they are at, soit’s a small percentage of our sales, still in the 1% to 2% range, but we areseeing some nice growth there.

Jennifer Childe -Bear Stearns

Okay. And could you share with us the sell-through levels atretail, maybe if you have that?

Mike Staffaroni

Yeah. I mean that's customer-by-customer, region-by-regionquestion really. And as I said, we saw the lift at back-to-school where it wasconsistent with sort of historical levels. And we're just starting to get intothe early days of holiday shopping here and of course it doesn’t really kick inat full force until mid-November.

So, you know, as Mitch pointed out previously, we saw someprice action taken during the flat weeks of after back-to-school andpre-holiday shopping. And so that's all what we can comment on, Jennifer. Ofcourse we hope to see that pickup as we move towards the Thanksgiving week.

Jennifer Childe -Bear Stearns

Okay. And are you seeing any more pushback from retailers orcustomers because of safety concerns?

Mike Staffaroni

Not really. We've read that safety reports consistently overthe last few years, and we continue to present the facts, and, as you know,it's, statistically, a very, very safe product; far safer than any other wheelsport or skiing sports for that matter. It's safer than tennis, safer thanbadminton, so statistically, we are very proud of our safety record.

And you count on us to continue, to continue to set and totell our side of the story. Of course, signing a high powered PR firm like Edelmanwe think: “wow, this will effectively get our side of the story out there infront for the media”. But better than that, something that our retailers tellus has been a significant problem.

Jennifer Childe -Bear Stearns

Okay. Maybe just one more: You guys kind of have so many newSKUs every year, in this environment would it make sense to limit the number ofSKUs?

Mike Staffaroni

Well you know we have always been cautious about how manySKUs, we want to make sure that every SKU that we introduce has a reason forbeing, by making it difficult as possible for a buyer to say no with somespecific styles because they all make sense in some way. But we are alsofinding that style is becoming more and more important part of the purchasingdecision. So while we want to watch the SKU count and continue to manageinventory effectively, styling has become so important. I feel like we probablyhave to turn styles quicker to keep pace with the consumer taste.

Jennifer Childe -Bear Stearns

Okay fair enough thank you.

Mike Staffaroni

Thanks Jennifer.

Operator

And we have a follow up from John Rouleau with Wachovia.

John Rouleau -Wachovia

Yeah hey guys one more. It sounds like you are working onsome stuff along the lines of the wheeled category or different wheeledcategory. Obviously you've got some cash in the balance sheet. As far as theacquisition strategy is concerned can you just give us an idea of may be howyou are thinking about that? Something to help diversify obviously may be adifferent brand or something that you can incorporate in under the HEELYS brandor anything just to help us think may be what you might be targeting orthinking about?

Mike Hessong

Yeah. While the cash position is very strong and again thehistory of profitability and the fact that we are debt free, that puts us in agood position and we said pretty consistently, we feel the same today that ifthe right acquisition comes along, we would be interested.

If we can take advantage of our infrastructure, ourdistribution network, some of our know-how and to the extent that there is anacquisition out there that fits that criteria, then we would certainly beinterested. But we don’t feel any immediate pressure to run out there. To makethe deal we want to make sure it's the right one.

John Rouleau -Wachovia

Got it. Okay and then Mike quickly the Mike Hessong, thatis, that can we look at the gross margin range in the third quarter and kind ofuse that as a kind of go forward reasonable rate? Can we assume that maybethere is some additional promotions and stuff that’s going to come out of thatfor the fourth quarter?

Mike Hessong

Yeah, I think for the fourth quarter, I think, it will besimilar or slightly less. Again, as we, you know, our goal is to get throughthe quarter, have these inventory levels cleaned up, and come out of the yearready for '08. So, I think that’s a fair assessment of the two portfoliosthere.

John Rouleau -Wachovia

Okay, I appreciate that. Thanks.

Mike Staffaroni

Thanks, John.

Operator

(Operator Instructions) We will go now to David Meier withGreenbury.

David Meier -Greenbury

Hey guys.

Mike Staffaroni

Hi, David.

David Meier -Greenbury

Just a quick question for you. This revenue guidance thatyou are giving for fiscal year '07, it sounds like your [trending] sales forfourth quarter will be down about 80%, is that right?

Mike Staffaroni

We are -- based on the situation we are looking at now, theyare going to be down significantly again. We are coming into the quarter withsome backlog, but with the inventory levels at the level they are at, we wantedto make sure that it cleaned up by year end. So, that’s why we are predictingit to be a lot softer in the fourth quarter.

David Meier -Greenbury

Alright, and can you break that down between domestic andinternational, just out of curiosity, do you expect like another 15% declineinternationally for fourth quarter?

Mike Staffaroni

We haven't typically, and won’t be doing it now breakingdown the revenue guidance between the two markets.

David Meier -Greenbury

Alright, that's it.

Mike Staffaroni

Okay, thanks David.

David Meier - Greenbury

Thank you.

Operator

And this does conclude our question-and-answer session. Iwill turn the call back to our speakers for any closing remarks, you may havegentlemen.

Mike Staffaroni

Well, thank you everyone again for participating in the calland we will sign off. Thank you, operator.

Operator

This does conclude our conference. We appreciate yourparticipation. You may disconnect at this time.

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