Rimage Corporation Q1 2008 Earnings Call Transcript

Apr.23.08 | About: Qumu Corporation (QUMU)

Rimage Corporation (RIMG) Q1 2008 Earnings Call April 23, 2008 10:00 AM ET

Executives

Bernard P. Aldrich – President and Chief Executive Officer

Robert M. Wolf – Chief Financial Officer

Manuel M. Almeida – Executive Vice President of Sales and Marketing

Analysts

Chuck Murphy – Sidoti & Company

Gerry Heffernan - Lord, Abbett and Company

Greg McKinley – Dorothy & Company

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Rimage Corporation first quarter earnings conference call. During today’s presentation all participants’ lines are muted. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded Wednesday, April 23, 2008. I would now like to turn the call over to Bernie Aldrich, President and Chief Executive Officer. Please go ahead, sir.

Bernard P. Aldrich

Good morning and thank you for taking the time in our first quarter earnings conference call. Joining me today is Rob Wolf, our Chief Financial Officer who will review our recent operating results in some detail. Also with us Manny Almeida, our Executive Vice President of Sales and Marketing. We’ll be pleased to take your questions at the conclusion of our opening remarks.

Since Regulation FD prohibits us from providing any forward-looking statements unless they are simultaneously released to the public, we have provided financial guidance for the second quarter of 2008 in this morning’s release. It is important to understand that this guidance is subject to a number of risks that could affect our anticipated performance. These risks are set forth in our filings with the Securities & Exchange Commission which we urge you to review.

Turning now to the subject of this conference call, our first quarter sales rose 6% to $22.7 million from $21.5 million in the year earlier period. Our earnings came to $1.8 million or 18 cents per diluted share, down from the $2.1 million or 20 cents per diluted share in the first quarter of 2007. Our first quarter revenues were adversely affected by lower than anticipated sales of disc publishing hardware including our high end Producer family. We believe this hardware shortfall resulted primarily from the impact of the weakening economy, which has caused some distributors to adopt a more cautious approach to their purchasing decisions.

As a result, consumable supplies rose significantly as a percentage of our total sales for this period. This shift in our sales mix resulted in some gross margin erosion which caused earnings to fall below previously forecasted levels. I want to stress that our first quarter results are not indicative of any fundamental problem with Rimage’s operations. To the contrary, our pending business activity is encouraging. Even though economic conditions may result in longer selling cycles. Efforts aimed at strengthening our European operation are working as planned.

We are continuing to invest in our growing Asian business, which we view as a major opportunity. We have significantly strengthened our sales force over the past year by adding seven new sales representatives. In addition, we have further strengthened our sales channel by adding three new distribution partners. A significant portion of Rimage’s highly profitable growth over the past few years has been generated by our ability to successfully penetrate the retail and medical imaging markets with our digital publishing solutions.

Our equipment has become the retail industry standard for the on-demand publishing of digital data on CDs, DVDs and blue-ray discs. The same is true of our digital publishing solutions in the medical imaging market, where our systems have become the industry standard for pax installations in large U.S. hospitals and clinics. We continue to see good opportunities in these markets, both here and overseas and we will pursue aggressively in the years ahead. We believe business services applications, including media and broadcasting, law enforcement, education, government, software and professional services represent our next growth opportunity.

The applications that we are targeting in the business services market involve managing, archiving and distributing large amounts of data. Today, most data is stored on hard drives and we believe this media will remain the primary archiving media. However, downloading stored data onto DVDs and blue-ray discs enables companies and organizations to free up high-cost computer memory. Since much data is not required for immediate use it can be cost effectively and conveniently stored on optical discs for future use.

Moreover, the use of optical technology for archiving data is particularly compelling for small and mid-size businesses that are unable or unwilling to make substantial investments in high capacity computer storage. In addition, using optical technology for disaster recovery whereby discs are stored at off-site locations is a related cost effective technique for organizations of all sizes.

The opportunity for our optical technology is particularly significant in the broadcasting and media market. Large production houses currently use DVDs for editing, producing, distributing and archiving video content. Many of these large operations, including Disney, are already penetrated with Rimage’s CD and DVD digital publishing systems, but they now will be transitioning to high-capacity blue-ray technology. This conversion process will require new or additional Rimage equipment from these current customers.

However, our greatest opportunity in the broadcasting and media market involves thousands of small and mid-size pre- and post-production houses. In the past, many of these studios archived and distributed their video content on magnetic tape. With the conversion to digital and high definition formats, these facilities are converting to DVD and blue-ray discs as their preferred output. To help Rimage capitalize on these opportunities, we plan to introduce new software later this year that is designed specifically for Mac-based audio visual production environments. This is critically important since Apple has close to a 50% share of the video editing market. This Mac-based software will seamlessly integrate into the Apple environment and workflow.

In addition, our new Everest 600 color disc surface label printer which generates superior color graphics at faster production speeds than its predecessors, has been integrated into our Producer equipment line. The Everest 600 exceeds the most stringent expectations for print quality and return on investment. We expect to integrate the Everest 600 into our Professional series mid-range line of disc publishing systems later this year. All in all, we believe the business service applications will drive a significant portion of Rimage’s future growth and we plan to focus our resources towards building growing positions in these markets.

Now I will turn to the financial guidance contained in this morning’s release. Given the fact that we provide capital equipment to businesses, prevailing economic conditions could continue to have an impact on the purchasing decisions of our customers. Reflecting this possibility we are forecasting earnings of 22 cents to 27 cents per diluted share on revenues of $24 million to $26 million for the second quarter of 2008 ending June 30th.

During such times as today it is our job to work harder and smarter as well as continuing making the investments in our business that will pave the way for strong results over the long term. We are fully committed to doing exactly that. Thank you and now Rob Wolf will review our first quarter results in some detail.

Robert M. Wolf

Thanks Bernie. First, I will run through a few highlights of our first quarter sales. Recurring revenues including sales of printer ribbons and cartridges, parts, blank CD/DVD media, and maintenance contracts increased 27% in the first quarter and accounted for 62% of sales compared to 51% in the first quarter of 2007. In our last conference, we said that we expected consumable sales growth to accelerate in 2008 as our equipment was installed in the stores involved with significant retail orders that we received in 2007.

That proved to be the case in this year’s first quarter and we expect consumable sales growth to remain robust in 2008. However, as a percentage of total sales, consumables are expected to decline in coming quarters based on our outlook for improving hardware sales.

International sales increased 14% in the first quarter and accounted for 43% of total sales compared to 41% in the first quarter of 2007. This increase was due primarily to foreign currency effects. Rimage’s growth margin was 43% in the first quarter, down from 48% in the fourth quarter of 2007 and 45% in the first quarter of 2007.

As Bernie mentioned previously, our gross margin in this year’s first quarter was affected by the shift in our sales mix toward consumable supplies which carry lower gross margins than those associated with disc publishing hardware. We anticipate an improved gross margin in the mid-40% range in this year’s second quarter.

Moving the P&L first quarter R&D expense came to $1.4 million, up modestly from $1.3 million in last year’s fourth quarter and down from $1.6 million in the year earlier period. The year over year decrease in R&D reflects the completion of several important product development initiatives in 2007. R&D spending in the second quarter of 2008 is forecasted to be at or near the first quarter level.

Selling, general and administrative expense totaled $6.6 million in this year’s first quarter, compared to $6.1 million in last year’s fourth quarter and $5.8 million in the first quarter of 2007. Substantially all of the sequential in year over year increases in SG&A were driven by continued expansion of Rimage’s sales and marketing organization. We believe second quarter SG&A will be at or near the first quarter level.

We recorded an effective income tax rate of 36% in the first quarter compared to 37% in last year’s fourth quarter and 33% in the first quarter of 2007. The lower tax rate in the prior year’s first quarter was primarily affected by the elimination of certain tax reserves. We believe our effective income tax rate for 2008 will be in the range of 35 to 37%.

Turning now to our balance sheet. Cash and investments totaled $92.4 million at the end of this year’s first quarter compared to $94.2 million at the beginning of 2008 and $83.5 million at the end of the first quarter of 2007. The sequential decline in cash between the first and fourth quarters was attributable primarily to the payment of income taxes and annual incentive bonuses. A nominal amount of cash was used to repurchase 26,000 Rimage shares during the first quarter under two existing 500,000 share buy-back authorizations. Nearly all of the 1 million shares under these authorizations remain available for repurchase.

Stockholders’ equity came to $108.6 at the end of this year’s first quarter, up from $105.1 million at the end of 2007 and $100.3 million at the end of the first quarter of 2007. That wraps up our formal remarks and now the conference call operator will poll you for any questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. (Operator instructions) Our first question is from Chuck Murphy with Sidoti & Company. Please go ahead.

Chuck Murphy – Sidoti & Company

Good morning, guys. Could you just elaborate a little bit you know how much of the weakness do you think is related to the economy versus discount of your typical lumpiness?

Bernard P. Aldrich

Chuck, this is Bernie. I think you’re seeing a combination of factors. The first quarter of the year particularly over the last three to four years has always started out rather soft for us. We find distributors you know have inventory, they are coming off a strong fourth quarter. And so it is always one challenge has always been to make sure that inventory’s at the proper level, which is one thing we monitor very closely with our channel. I think one of the changes we have seen is I think distributors are becoming better business people, they are watching their inventory even closer and particularly in tough times where money is tight and were as we’ve been seeing, the cell cycle seem to lengthen out slightly. They are even more cautious on their desire to hold any significant amount of inventory. And I do think that you know I’ve never liked to use the economy as an excuse. I think that’s why we’re constantly out there looking at new applications, working hard at being integrated into new work flows. Looking at new geographic opportunities and it is also another reason why we are spending a considerable amount of time really working on developing our operations in Europe, in Asia, and we in the first quarter have also spent considerable time looking into Mexico and South America. That’s a market that we really have no tapped into yet. So I think that the economy definitely had an impact. I also think, like I said, first quarter can be it is always more of a challenge for us. There was no, you know as far as the hardware business, there was no hardware really going into the retail sector in the first quarter. So, it all contributes.

Chuck Murphy – Sidoti & Company

Okay. So aside from retail, were there any other verticals that were particularly slow for you this quarter?

Bernard P. Aldrich

No, I think everything else maxed [ph 15:30] pretty close which you can see by the revenues. But we were, you know we did notice it as we stated in our release, the hardware sales were you know, lower as a percent of our total sales. And again a lot of that has to do with the fact that we’re just not seeing, first of all people are pushing out there buying decisions. Second of all, our distributors are taking a real hard look at their inventory levels that they are carrying.

Chuck Murphy – Sidoti & Company

Okay. And how long do you expect SG&A to be kind of at an elevated level?

Robert M. Wolf

I think if you look at it, Chuck, you know the primary component of the SG&A expense is going to be head count. So we have been adding our sales people. Basically looking at driving additional revenues from those new hires. So going forward I see that that expense line for those new hires will continue to be there and then of course what we hope to get out of that is that increased revenue over time. Especially in the areas that Bernie had just mentioned.

Bernard P. Aldrich

Yes. I think the other thing to add is that during the first quarter of this year we did do our national sales meeting which last year occurred in the second quarter. We also did our two major shows. One in the U.S. the PMA which is a photo show and then we participated in CBEC [ph 17:00] in Europe. So those are our two most significant shows, our two most costly shows and they roll into the first quarter.

Chuck Murphy – Sidoti & Company

Okay. And my final questions here. I know it is one that I’ve heard a lot of people say recently. I mean what are your thoughts you know on having the company put up for sale. I mean, does it make sense for you to be part of a larger entity?

Bernard P. Aldrich

At the present time, I would say no. I mean we’re very focused on driving this business. As I said, looking at new applications, new geographic opportunities. Looking at, I mean if you look at the way our business is moving, we are becoming a much more solutions oriented type of company. It is not about just selling the box. Look where we’ve added people. We’re putting a lot of emphasis on our application engineering. We’ve done, you can see with the Mac client development that we’ve recently got involved with, that we’re moving in a little different direction and all of that is about moving this business. Because we’re about managing information. We’re not just an optical output company. I don’t know, Manny if you have anything to add there.

Manuel M. Almeida

Sure, Chuck it is Manny Almeida. I think it is important to note that yes, there’s been an economic impact but the economic impact can manifest itself in a number of ways. It is not cancellation of orders, it is the lengthening of the order cycle and we do sell capital solutions which can take anywhere from three to five months to consummate a deal. And it is just taking longer at this point. So we don’t feel like all of a sudden we’ve run out of solutions. We continue to find new applications and new solutions. Bernie mentioned median broadcasting. We see some very significant opportunity in this area. That’s why we’ve invested in developing a Macintosh solution. We’ve never had a Mac client before. We entered this market if have of the addressable market is Macintosh-based. The market that we’ve never touched. So there is potential. Yes, it is more difficult to get the order but it is not impossible to get the order.

Chuck Murphy – Sidoti & Company

Okay. All right. I’ll turn it over to somebody else. Thanks.

Operator

Our next question comes from Greg McKinley with Dougherty. Please go ahead.

Greg McKinley – Dougherty & Company

Thank you. Guys I just wanted to clarify a couple of comments. I know on the one hand we’ve talked about more challenging economic backdrop but I also know the company just made comments that it is pretty encouraged about its pending business activity and is certainly expecting a nice sequential rebound in gross margins which would imply a recovery or stabilization in the Producer line products. Does that mean you guys have some visibility or some backlog on that Producer line as you head into Q2 and what is giving you sort of increased confidence that those margins will bump back up with sales mix.

Manuel M. Almeida

Greg, it is Manny again. Like any company that sell capital equipment and that has a fairly lengthy sales cycle, we track that information. We call it a pipeline. You think of it like a funnel which is how most companies would treat it. You put things into the top of the funnel and it is at the very beginning stage, so they don’t all happen. As we track the progress through that funnel and what comes out on the bottom is an order. It is a real physical purchase order. We’re finding that the funnel is getting longer. It is taking longer to consummate the sale. But, yes, we are tracking a pipeline. The pipeline is increasing. We continue to do business with major corporations with large entities that need our equipment and where we fit into a solution that solves a business problem. Well that’s the reason why we’re bullish. So we can’t sit here and tell you we have visibility that 90 days out we’re going to sell X amount of product. We have this anecdotal visibility that we continue to get more leads, work on closing more sales and they are just taking longer to close than ever before.

Greg McKinley – Dougherty & Company

Okay.

Bernard P. Aldrich

The point Greg, is that you know we have added seven new sales people over probably the last five months and this is more or less an education process and to get these people up to speed where they are fully productive, it does take time. As well as the three new distribution partners we’ve put on. And we find that your know when we add new partners, we add new sales people, there is a learning curve involved till they are fully productive. And so we anticipate that to continue to improve as we go forward as well. Which in turn will lead to stronger sales results.

Greg McKinley – Dougherty & Company

Are those distributors focused on any particular end market?

Bernard P. Aldrich

Yes, a couple of them are very focused on the video market. Which is again, as we source out new applications we are really finding that we need partners who are extremely well versed in that particular technology or application. It is much like we have discovered whether you go into retail, you go into medical, you go into video. You have got to have partners who are extremely focused on that market and application.

Greg McKinley – Dougherty & Company

And so, as you’re working with those new video focused distributors I would image that is probably aligned a little bit with your upcoming introduction of Mac-based software. Can you talk a little bit about, you know help us understand the size of the opportunity around video editing with your new software as well as, you know, we’ve talked generically about a conversation opportunity with blue-ray. How quickly both of those new products you think can get some traction?

Manuel M. Almeida

Well ,it is a crystal ball because no data really exists to support how quickly the adoption rate is gonna happen on the industrial side, but certainly what we see from the research we have done into the production facilities and the questions that we ask is that they are converting to Blu-ray, they need Blu-ray.

The other thing that I think is rather interesting about video and broadcast is they still depend on physical media. So where you look at many of our other applications, look at medical for example we have been very strong in radiology and converting from film to optical media, but lets be totally truthful about it there is a choice. You can upload the images on film, you can put the images out over web space. Where in the video space they primarily are using some type of physical media and that is changing from tape to DVD and Blu-ray.

So we know the opportunity is significant, it is difficult to size but certainly it is a significant market that certainly is as large as some of our other key applications areas.

Greg McKinley – Dougherty & Company

Yeah.

Manuel M. Almeida

I think the other thing on Blu-ray the reality is you are probably not going to see significant opportunities in that arena until most likely more towards the fourth quarter of this year, and that is based purely on the availability and the population of drive availability in the marketplace.

Greg McKinley – Dougherty & Company

Okay, and then last question in terms of your expense outlook. I know as we headed into Q1 the belief was that we would be relatively flat sequentially with Q4 and we had I think roughly a half million dollar up kick. I know you have talked about some of the reasons why but I am wondering if you could just help us get a little more comfort around how you measure ROI on the incremental expenses. As you consider the sales are margin dollar pay back and should we be looking for moderated expense growth as we head forward.

Bernard P. Aldrich

This is Bernie, you know one thing that I think we have always a very good job within this organization is managing expenses, and I think when we come through a quarter just as we have. I think it if it does anything, it really forces you to step back and really truly ask the exact questions you’re asking. We know we have to continue to invest to really begin to penetrate these new markets and these new applications. We also have to keep in mind that we also have to manage the expense side of the business, and I think what it is forcing us to do is take an extra hard look, to take a second look at where we have some of the monies. Maybe we are going to have to move something’s around, we may defer a couple things, but I can assure you that we will be watching our expenses very closely as we go forward here.

Greg McKinley – Dougherty & Company

Thank you

Operator: [operator instructions] Our next question is follow up from Chuck Murphy, please got ahead.

Chuck Murphy – Sidoti & Company

Yeah guys just kind of curious, in talking to your customers and distributors how would you weigh the current sentiment among them compared to 2001?

Bernard P. Aldrich

That is a good question I would have to, for me I have to think back now that is seven years ago.

Chuck Murphy – Sidoti & Company

I guess the last time that we were faced with the kind of economic conditions that we are now?

Bernard P. Aldrich

I guess, this is hard for me to think back but it was like seven years ago. But I can remember speaking about the same issue, was the lengthen of the sales cycle and what could we do to shorten that sales cycle. That was really our thrust back then, and it always goes hand in hand with inventory management. That is there concern, and particularly when you are dealing with products like we have, where if you have inventory that sits on the shelf too long you may end up with an obsolete piece of equipment. SO that is why we are really sensitive to that, that is why they are really sensitive to it, and I think that is where the seminaries are. I am no sure that, I don’t know if Manny you have any thoughts there. I just have a hard time thinking if there is a whole lot of dissimilarity.

Manuel M. Almeida

Yeah Chuck it is a difficult question in trying to draw the comparison because many of our applications are different today. We still have quite a few customers particularly in banking and finance area and some in the medical that were around at that time. But that was a long time ago in the optical world and again what we are not seeing is customers coming back and saying "you know what, I am not going to do anything in optical because there is this other technology, whatever it might be." What we are seeing is purchase orders that used to require some level of sign off, now may require one or two levels higher of sign of, so there is a great deal of scrutiny on how they are spending their budgets and this is lengthening some of our purchase orders. We had for example, a purchase order for multiple unit, for ten units that we started to work on last summer that was to close in the fourth quarter that did not close until the end of the first quarter. Totally unanticipated, if you would have asked that in October of last year we would have said nope, this will close we will have it in, it has all been vided [ph], but it took an extra three months after we got the order.

I think the other thing, when I think back to 2001 that was when the dot com bubble burst and that was the pretty singular focus. I think today you have different factors, I mean it is the price of oil, its the home mortgage crisis, its people are worried about the cost of food on the table. You still have the war going on , you have got an election year, I think there is a number of factors, I will say this I think that we are perhaps better buffered due to the fact that our international exposure is larger today, and we have much more business coming out of Europe, beginning to come out of Asia and I think that is also the reason why we are putting additional focus into Latin America. Because I do think that tends to provide a more balanced business plan. [audio gap] plan as we expand internationally.

Chuck Murphy – Sidoti & Company

Okay, I mean any sense of how the distributors inventories are these days compared to back then. I mean, does it feel like they are not as overloaded as they were before?

Manuel M. Almeida

Overloaded would be completely the wrong word to use in this case, they are very light.

Chuck Murphy – Sidoti & Company

So, I mean it would sound like then that maybe, it is not like they would have to pull back all that much more from here and not for that long, is that some what accurate?

Manuel M. Almeida

We certainly don't expect so at the same time, we as a company have made a conceded effort that we are focused on sell through. It is all about getting it to the end user, so you are not going to see a significant push from us to once again increase distributors inventories dramatically, because we all know what happens when the bubble bursts. I think the other thing we have done, we have become a much better company in our manufacturing processes and we are able to build to order very quickly, our distributor partners know that as well and we can fulfill orders in very, quite frankly very little notice. Our real challenge comes when there is a retail rollout, we have to make sure that we have allowed and planned for that. And it is not so much again the, our labor component is not that heavy it is more about scheduling in the raw materials. Particularly single source items, or items coming out of age where you have longer lead times.

Chuck Murphy

Okay, and my final one whets the competitive environment like in Europe and Asia versus the US?

Manuel M. Almeida

Great question, it differs by country in Europe it is very, very similar to the US we face some what the same companies and quite frankly we have our nitch. We do very well on the high end, we do very well in complex applications that require unique business solutions and we don’t yet see any other company that is putting their efforts behind the complex solutions, the complex applications. In Asia it is dramatically different, and in Japan Inkjet is very much an accepted product cause it is the home country for a number of the Inkjet companies. In India for example, which is just explosive growth if you take a look at the Indian market where you can buy a automobile made in India for $2995 it is rather difficult to sell a $20,000 to $30,000 publishing system. You know to automate a process where the labor rate is less than $0.35 per hour. So we have to pick and choose our geographies very carefully, so we would not be spending a lot of time in India over the next few years trying to penetrate that market. But probably spending considerably more time in Australia where we already have a good vibrant business, but we think there is still opportunity. And in China where that market is changing very rapidly and there is opportunity, particularly in the coastal areas.

Chuck Murphy

That is all I had thanks.

Operator: Our next question comes from Gerry Hefferner with Lord, Abbett and Company. Please go ahead.

Gerry Heffernan- Lord, Abbett and Company

Good morning Gentlemen, just trying to review the two different segments the products versus the consumables. You may comments as to what percentage of revenues where made up by consumables, so we can certainly do the math and break out. I would like to understand the gross margin result a little better though, we had 270 basis point drop, 280 basis point drop in the gross margins. Did the gross margins within those two segments stay consistent or how did the gross margin within the two segments move.

Robert M. Wolf

This is Rob, the gross margins within the two segments were very consistent with previous years first quarter, it was just the mix being less hardware and more consumables that contributed to the 270 basis point decline.

Gerry Heffernan- Lord, Abbett and Company

okay, really that is saying something for product if on a 18% percent drop in revenue the gross margin was able to stay consistent, how were you able to pull that off?

Robert M. Wolf

I am sorry an 18% drop in revenue?

Gerry Heffernan- Lord, Abbett and Company

For product yes.

Robert M. Wolf

Oh for product, well if you look at the product mix and where we have been in the past we have had decreases across the board and some of that decrease was in our desktop line which does carry a lower gross margin. That decrease made up probably the majority of it, in terms of percentage standpoint.

Gerry Heffernan- Lord, Abbett and Company

Okay so within the product group the lower gross margin product had the largest negative effect on the downward move in the revenues.

Robert M. Wolf

Yes.

Gerry Heffernan- Lord, Abbett and Company

The consumable gross margin that helps steady from period to period?

Robert M. Wolf

Yes, correct.

Gerry Heffernan- Lord, Abbett and Company

Okay, why do we not have any leverage there, if we saw the revenues move up 28% there, you would you think we would get a little bit of an increase wouldn’t we?

Robert M. Wolf

Well I think that we did, but if you look at again the hardware piece of it is the main component so that is going to out weigh that increase.

Gerry Heffernan - Lord, Abbett and Company

I understand that I was going back to your statement that you said gross margins were consistent period to period. And I mean giving that why would they be consistent from period to period in the consumables when you had a 28% increase in the revenues in the consumer [inaudible].

Robert M. Wolf

As the gross margins on the consumables are consistent, in terms of where there are no price adjustments on the consumables themselves, the product mix within the consumables did change. So that would have lead to some derogation in margin.

Gerry Heffernan - Lord, Abbett and Company

Okay, so that is why we did not get any leverage out of the 28% increase in revenues.

Robert M. Wolf

Yes.

Gerry Heffernan - Lord, Abbett and Company

Okay, in regards to the selling general and administrative expense line where period to period it is up 810,00, also just looking sequentially from the fourth quarter to the first quarter. Now you mentioned that you had two large shows and I think you mentioned was it an internal annual meeting that was in the second quarter of '07, but the first quarter of '08?

Robert M. Wolf

Correct.

Gerry Heffernan - Lord, Abbett and Company

Can you, did those shows occur in the first quarter of '07 also?

Bernard P. Aldrich

Yes, but we did incur greater expense this year, than last year. There is about a $200,000 impact on the operating expenses and the selling expenses there as a result of the Euro dollar conversion. Which also contributed to that increase, and so if you take the show expense, the meeting expense, the Euro that is over $400,000 of the increase.

Gerry Heffernan - Lord, Abbett and Company

Okay, and just clarify the item that you said was a meeting that occurred in 1Q '08, but incurred in 2Q '07, could you just clarify that please.

Bernard P. Aldrich

That’s our national sales meeting where we bring all of our people together from Asia, Europe and the US, and we do that one time a year to review prior year. More importantly to set out the plan for the new year and to layout new products, new applications and new target markets.

Gerry Heffernan - Lord, Abbett and Company

And I do have that right that occurred on 2Q '07 versus 1Q of '08?

Bernard P. Aldrich

That is correct.

Gerry Heffernan - Lord, Abbett and Company

Okay and can you assign an expense level to that approximately?

Bernard P. Aldrich

Roughly $100,000.

Gerry Heffernan - Lord, Abbett and Company

Okay, and lastly going through the cash and mark up security balance, mark up security is not current are there any amount in there of securities that are in some way troubled, or in a liquid market. Whether they be option race securities or municipal bonds or anything like that. That is currently the subject of much negative news [inaudible].

Bernard P. Aldrich

No, there isn't.

Gerry Heffernan - Lord, Abbett and Company

Okay so we are all clean on the cash balances?

Bernard P. Aldrich

Correct.

Gerry Heffernan - Lord, Abbett and Company

Okay thank you very much I will get back in queue.

Operator: Our next question comes as a follow up from Greg McKinley. Please go ahead.

Greg McKinley – Dorothy & Company

I just wanted to take some notes on some numbers around Cap X depreciation and stock comp expense route. Do you have those handy?

Robert M. Wolf

I can tell you on depreciation amortization was right around 350, 000. cap back very minimal, I would have to get back to you on that, and stock comp would be in that $200,00 range to 250,000.

Greg McKinley – Dorothy & Company

Thank you.

Operator: At this time I am initially no further questions in thein queue. I would like to turn the call back over to Mr. Aldrich with any concluding remarks you may have.

Bernard P. Aldrich

Well thank you for taking your time to be with us this morning and we look forward to sharing time with you at the end of the second quarter.

Operator: Ladies and gentlemen this does conclude the Rimage Corporation First Quarter Earnings conference call. (Operator instructions) and thank you for using ACT.

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