AxoGen, Inc.
Q4 2013 Earnings Call Transcript

Published: 7 Mar 2014

[Operator:]

Good day, ladies and gentlemen and welcome to your AxoGen Incorporated Fourth Quarter 2013 Results Conference Call. At this time, all participants will be in a listen-only mode. (Operator Instructions) And as a reminder, today’s conference is being recorded. And now, I would like to turn it over to your host, (Doug Sherk) [ph].

[Unidentified Company Representative:]

Thank you, John and good afternoon everyone. Thank you for joining us today for the AxoGen conference call to discuss the financial results for the fourth quarter and full year of 2013 recent corporate developments and management’s perspectives on 2014. This afternoon, after the market closed AxoGen issued its results release, which is posted on the company’s website at www.axogen.com. In addition, the company’s 10-K for 2013 was filed with the SEC this afternoon. Today’s call is being broadcast live via webcast which is available in the AxoGen website. There will be a taped replay of this call, which will be available approximately 1 hour after the call’s conclusion and will remain available for 7 days. The operator will provide the replay instructions at end of today’s call. Before we can start, I would like to remind during the course of this call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company’s past and future filings with the SEC including, without limitation the company’s Forms 10-K and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development, product potential, regulatory environment, sales and marketing strategies, capital resources or operating performance. And with that out of the way, I would like to turn the call over to Karen Zaderej, President and Chief Executive Officer of AxoGen.

[Karen Zaderej:]

Thanks, Doug and good afternoon everyone. Welcome to our fourth quarter and our full year 2013 conference call. Joining me today is Greg Freitag, our CFO and General Counsel. During the year, AxoGen has been focused on pioneering the development of the peripheral nerve repair market. We made significant progress commercializing our Avance Nerve Graft, AxoGuard Nerve Protector, and AxoGuard Nerve Connector product lines and grew total revenue by 42% for the year and 46% in the fourth quarter. As a result, we are emerging as the leading company dedicated to meeting the needs of the $1.6 billion nerve repair market. In addition to our revenue growth, AxoGen achieved a number of other milestones during 2013. We completed a successful capital raise and moved to trading on NASDAQ. We attracted new long-term oriented institutional holders. We expanded our presence in and sales from international markets. We increased the number of surgeons using our products. We increased our surgeon advocates and expert surgeon panel participants and furthered our preliminary investigation work on potential expansion opportunities beyond our current addressable market of upper extremities. We were also recognized as the 19th fastest growing company in North America by Deloitte’s Technology Fast 500 and received from Frost & Sullivan their 2014 Product Innovation Leadership Award for the Avance Nerve Graft in peripheral nerve repair. We were able to achieve these milestones, because during the course of the year, surgeons chose our products for thousands of patients to surgically repair their nerves to reduce pain, restore feeling and/or the use of fingers, hands, arms, legs, feet and face. Many, if not most of these patients would have faced reduced quality of life if these nerves were not surgically repaired. Our portfolio of regenerative nerve repair products provides the surgeon the opportunity to repair the nerve with the convenience of off-the-shelf, easy-to-use products that protect the nerves, allow for tension free repair, and provide optimal nerve size matching. Our mission is to provide patients the best options in peripheral nerve repair by educating surgeons on best practices, driving procedure volume and developing AxoGen products to become the standard of care. Our entire team is dedicated to achieving this target. We have significant challenges to overcome, but we believe we are on the right track and that will lead to substantial gains for our shareholders over the long-term. As I mentioned earlier, during the fourth quarter, revenue was 46% higher than last year. Sequentially, revenue was up slightly. While Greg will provide more details on our financial performance, I’d like to focus on our growth strategies and sales approach. The team here has made significant progress in 2013. We have been continually examining and modifying our strategies in order to increase our opportunities for success as 2014 unfolds. As a result, we believe the consensus analyst revenue targets of approximately $16 million that have been established for the full year 2014 are achievable. During the past year our organization has been doing a lot of pioneering work in the field of nerve repair. There has never been a company exclusively focused on selling to the nerve repair market. And there are always challenges in developing a new market. We have and we will continue to challenge the traditional approaches and thinking in nerve repair. Changing the mindset of surgeons to consider the benefits and convenience of off the shelf products and encouraging those that opt to leave certain injuries unrepaired that AxoGen products offer another alternative. At the same time we are working to ensure that patients seek treatment and demand to be provided choices and treatment options. In short both surgeons and patients should demand more from the repair of peripheral nerve injuries. AxoGen is providing the products, the awareness and education to drive this evolution. Of course, shifting the fundamental beliefs of the market has its challenges. During the past year, we’ve had to modify and retest our strategies. We have made a lot of progress responding our go-to-market strategy and capitalizing on the unique benefits that the AxoGen product portfolio brings for the surgeon and their patients. As a pioneer in this market, our strategy is a combination of four major elements

[Greg Freitag:]

Great. Thanks, Karen. Good afternoon everyone. Given that we have filed our news release and 10-K this afternoon, I’ll focus my comments on financial highlights during our fourth quarter and full year, as well as provide some color on how we’re looking at 2014. Our total sales increased at 46% during the fourth quarter as compared to a year ago result primarily from a 40% increase in domestic sales. Approximately 2% of our fourth quarter sales were derived from grant revenue which is funding some of the development work Karen will review in a few moments. One point about our revenue growth that I’d like to highlight is that for both the quarter and the full year as a percentage increase of total sales was greater than the percentage increase and total expenses as we began to gain some leverage off of our G&A infrastructure. Our gross margin in the fourth quarter was 80% higher than our target of 75% due to product sales mix, increased efficiencies and manufacturing, and grant revenue which contributed about 2.3% of gross margin. Turning to the company’s operating expenses during the fourth quarter, we continue to make significant strategic investments in the sales organization and marketing programs. In addition we expanded investments in development activity that we believe could generate significant returns to shareholders over the long-term. As a result of this investing total operating expenses during the fourth quarter increased by 36.5% as lower outside services and materials and supplies expenses were offset by higher sales payroll and commission. Our R&D spend during the fourth quarter was up 67.8% due largely to expansion of preliminary investigative programs. Similarly, sales and marketing expenses increased about 56% as compared to the fourth quarter of 2012 due to the expanded sales force and increased use of outside services to support sales growth. Our administrative expenses for the fourth quarter were essentially flat at $1.48 million versus $1.45 million during the fourth quarter a year ago as we gained efficiencies through the increase in revenue. Finally other expenses in the fourth quarter which represent interest expense and interest expense deferred financing costs were down about $0.5 million to $1.34 million due to a write-down of unamortized cost associated with previous debt in the fourth quarter of 2012 which should not reoccur in 2013, offset by an increase in interest expense associated with our PDL agreement. We used $2.5 million in cash during the fourth quarter and ended the year with $20 million in cash. For the year we grew 42.3% to almost $11 million and our gross margin increased to 77.7% as compared to 74.5% for 2012. Again this increase in gross margin was largely due to product sales mix, marketing efficiencies and a small contribution by grant revenue. Total expenses increased at 33.7% with sales and marketing up 49%, R&D up 48.9% and G&A up 9.4%. Total interest expense was approximately $4.82 million in 2013 as compared to approximately $1.39 million for the year ended December 31, 2012. This increase was primarily due to accruals related to a PDL royalty contract transaction for the full year 2013. As a result of the accounting treatment for the PDL transaction interest expense for 2013 included $3.8 million of non-cash that is expected to be paid in the future based upon terms of the PDL transaction and increases in action revenues. The $3.8 million of non-cash expense was derived from taking the total amount of imputed interest for 2013 on the PDL agreement plus the actual cash payment made to PDL for the year. Other than this $3.8 million non-cash expense, the remaining $1 million in interest expense for 2013 is related to cash paid to PDL. In the fourth quarter of 2014, we have a minimum repayment obligation to the PDL totaling $1.25 million and our current plan is that we will use some of our existing cash resources, which stood at $20 million as of December 31, 2013 to meet this obligation. As Karen mentioned, we believe that analyst consensus revenue number for 2014 of approximately $16 million is an achievable goal based on what we know today, but that the revenue ramp will increase as the year progresses. Achieving $16 million in total sales would mean a year-over-year increase of approximately 60% versus the 42% year-over-year growth reported for 2013. Additionally, it is important to note that we expect our gross margins to now be approximately 75%. From a strategic capital generation perspective, we believe it is important to recall that the Board of Directors chose in 2012 to fund the company’s operating capital needs by entering into the royalty contract transaction with PDL, which also owned 6.7% of AxoGen’s outstanding common shares. As a result, our 19.6 million fully diluted shares is a relatively low number at our stage of development. Our strategy is to meet our obligations to PDL through a combination of resources generated through increased revenue growth and the use of financing strategies that minimize solution to our shareholders while providing the company with a working capital to maximize our opportunities in the $1.6 billion U.S. nerve repair market. At the same time, we like to note that based on our current business outlook, we have the resources on hand to execute our operating plan for at least the next 12 months. I’d be delighted to answer any specific questions regarding our financials during the Q&A discussion, but we will now turn it back to Karen.

[Karen Zaderej:]

Thanks, Greg. While we remain focused in the execution of the extremity nerve repair market, I’d like to briefly update you on the initiatives we have underway that investigates the potential for extending our technology to other parts of the body. We have already begun to commercialize once such initiative through our use of products by surgeons during oral and maxillofacial surgery. We continue our clinical investigation work on the potential for nerve repair and prostate cancer procedures with a small technique development study at Vanderbilt. Each one of these 12 patients has undergone a prostate cancer procedure calling for a wide resection around the prostate resulting in a loss of a (indiscernible) nerve bundle. These subjects were robotically repaired using the Avance Nerve Graft to restore the nerves. Enrollment in this study is completed and a 2-year follow-up is underway. Data analysis of this preliminary study should be completed by the first quarter of 2015. In addition to this study, we are looking at the potential of expanding our products into other surgical areas, including surgical intervention for pain generated from nerve entrapment and then the reconstructed breast market allowing the patients following mastectomy the opportunity for sensory recovery. We are also pursuing low cost strategies to expand our product pipeline, including grants supporting AxoGen products with Brigham and Women’s, Vanderbilt and Wake Forest. We will keep you informed as we learned more about these new opportunities. Before we open the call up for questions, let me summarize where we are. 2013 was the year of great progress for AxoGen. And we have positioned ourselves for continued strong growth in 2014. We are a pioneering company with a truly disruptive technology and we are seeking to change surgical practices. Our product lines bring an enormous amount of benefit to patients as well as to surgeons. Our team is driven to capitalize on the opportunities that we have in front of us and in doing so are confident that we will continue to build value for our shareholders. So with that, operator, we are ready for questions.

[Operator:]

Okay. (Operator Instructions) So we will take our first question from Jeffrey Cohen from Ladenburg Thalmann. So Jeffrey, please go ahead.

[Jeffrey Cohen:]

Hi, thanks for taking my questions. Good afternoon.

[Karen Zaderej:]

Hello, Jeff. How are you?

[Jeffrey Cohen:]

Good. So is the ‘16 number guidance or goals?

[Greg Freitag:]

It is guidance and it’s at this point is what we are providing based on the consensus that’s out there.

[Jeffrey Cohen:]

Okay, that’s helpful. Could you talk about spending levels going forward for 2014 versus 2013, I know that spend across the board was up 33% compared to 42% for growth on the top-line. Would you expect similar metrics I mean the number 16 gets you up 45%, 48%. So should we expect to see 32% to 35% on the spending levels for SG&A, R&D and G&A?

[Greg Freitag:]

Yes. So I am not going to be that specific. What we are looking at is during the first part of the year we are going to probably be up slightly in our cash spend, and then leveling off as the year is completed.

[Jeffrey Cohen:]

Okay. So what was the number of sales folks all told for the end of the year at your current levels?

[Karen Zaderej:]

We ended the year with 24 direct associates and 21 independent distributors.

[Jeffrey Cohen:]

24 direct total and 21 distributors and that was as of the first of the year?

[Karen Zaderej:]

Right.

[Jeffrey Cohen:]

Has that changed in the past six weeks?

[Karen Zaderej:]

Actually it has. We’ve been going through some strategic replacements in a few territories and so we’re actually at 22 today, 22 direct and the same number of independents, we’ve moved a few of the independents as well as the same number.

[Jeffrey Cohen:]

Okay. So and would you expect the sales force to increase as the year goes on for a total in 14, are you expecting to be approximately the same size as 13?

[Karen Zaderej:]

I do expect to continue to add some sales associates not obviously at the same percentage growth. We started 2013 with 16 reps ended at 24. We’ll probably add again a few a quarter. So it’s obviously not at the percentage growth that we’ve had, but we’ll end up with 8 to 10 additional folks through the year.

[Jeffrey Cohen:]

So we may end up 32 to 34 total?

[Karen Zaderej:]

Right.

[Jeffrey Cohen:]

Okay. And can you talk about the or could you talk about the composition of revenue in particular for Avance, I know that historically over the past year or so it sounds like you spent about a third to a 40% on average. Is that still the case?

[Greg Freitag:]

Yes. So we – in overall revenue about 60% to Avance, 40% to the AxoGuard products, we don’t break out the AxoGuard products but quite frankly there can be a 10% change in that depending on the period you’re looking at. So there is some fluctuation as much as that 10% in there, but that’s still pretty consistent to what we continue to see.

[Jeffrey Cohen:]

Okay. So Avance was approximately 60% of total revenue for 2013?

[Greg Freitag:]

Yes.

[Jeffrey Cohen:]

And could you talk about percent of international revenue, I didn’t get a chance to look through the whole K for 2013. What percent was international as far as sales goes?

[Karen Zaderej:]

International is a very small percentage. We haven’t broken it out because it’s not material. What our goal is in international both and the work that we did last year to start and the work we’re going to do through 2014 is to really get a good footprint to build what I think are some of the key things to develop that market, so that in 2015 and beyond we’ve got a good platform for growth. So while we’re selling there our primary goal is building the key opinion leader base and surgeon advocates in those markets. And so the selling is really to be able to provide them products that then we have advocates to clinical conferences going forward. So again it’s a small amount.

[Jeffrey Cohen:]

Okay. And just two more, sorry about that. Could you talk about the two arms that you added on to RANGER? How many are in those arms now? And could you talk about what’s being measured as far as autograft and hollow tubes?

[Karen Zaderej:]

Sure. It is still small. So it’s – we’re in actually the very beginning initiation phases of that study. So at this point we have 35 repairs, so we have 349 Avance, but only 35 total of the autograft and hollow tubes. I think that will grow fairly quickly because again it’s a retrospective review. So when we get a center initiated we can go in and randomize their previous repairs and pull those results fairly quickly. The outcomes are just like in the RANGER. This is a retrospective review so we measure the outcomes of – from the standard of care looking at the nerve and classifying them under the MRCC scale of meaningful recovery. And that’s a standardized scale determining meaningful recovery. What that really adds for us is traditionally or historically we have looked at historical controls to look at autograft and conduit outcomes as compared to Avance. This in addition to that will give us some contemporary controls in the study to be able to directly compare.

[Jeffrey Cohen:]

Okay, got it, and lastly any commentary how Q1 is looking thus far?

[Greg Freitag:]

[Inaudible] at this point.

[Jeffrey Cohen:]

Okay, thanks for the questions.

[Greg Freitag:]

Thank you, Jeff.

[Operator:]

Okay. Thank you, sir. And our next question is coming from Dave Turkaly from JMP Securities. Dave, please go ahead.

[Dave Turkaly:]

Thanks. I was wondering would you be willing to help us a little bit between your mix from direct sales or distributors?

[Karen Zaderej:]

Sure. Hi, Dave.

[Dave Turkaly:]

Hi.

[Karen Zaderej:]

We– as I said before most of our growth comes from our direct reps, although I have been fortunately surprised over the last year with a few of our longer term independent distributors showing some nice growth in their territories. Having said that, if we look today we are still about two-thirds of our sales at this snapshot, are coming from direct reps and most of the growth is coming from the direct reps.

[Dave Turkaly:]

And then I know you have talked in the past about taking down something like 12 months to get up to speed or so. How many of the 22 that are on right now are at that point?

[Karen Zaderej:]

Good question. And I am looking quickly at my notes, average tenure today is about 19 months and the majority of our reps are past that 12 months period.

[Dave Turkaly:]

And then as we look at, you did give us a lot of detail on this call, lot of data which is helpful, you mentioned new accounts I think were up something like 40% in the year, can you just ballpark how many that is versus how many you think are out there, I am just trying to get a feel for where we stand from a penetration standpoint I imagine it’s pretty early still, but if you could help us with that I would appreciate it?

[Karen Zaderej:]

Yes, for competitive reasons I don’t really want to put out the numbers of accounts and at this point it’s something that’s a great idea. If I look at the universe of accounts they are actually if you look at the universe of surgery centers and hospitals there is a little over 5000, but we don’t target that and that’s what I meant when I talked to about breadth, depth and quality is that what we are really targeting are the level one and level two trauma centers. And the larger centers in terms of discharges and emergency room visits that create the highest volume of trauma. And so we are going to be targeting in the end less than a thousand of those 5,000 hospitals or surgery centers. But in terms of actual penetration into them, I think at this point that are not put out there.

[Dave Turkaly:]

Okay, thanks a lot.

[Operator:]

Thank you, sir. And we will take our next question from Nathan Cali from Nobel Financial. Nathan, please go ahead.

[Nathan Cali:]

Hey guys. Thanks for taking the questions.

[Karen Zaderej:]

Hi Nathan.

[Nathan Cali:]

Just a couple of follow-ups most of the questions have been answered, but two more questions as far as the BLA study, any updates there and then prostate nerve repair, how do you guys see that market and based upon the study you are currently doing when can you guys start selling into that market? Can you do that before or you need the data to go in and sort of be able to penetrate that market and how do you expect to see that evolve?

[Karen Zaderej:]

Great. And so the two questions were the BLA clinical study and then the prostate surgery markets, so let me start with BLA study. I had anticipated that we will be starting that study now the FDA has approved. The FDA did come back to us and asked us to do some additional characterization work. If you remember we are doing this a little bit out of order and that we are doing the IND in the same time actually after we did our FDA and clinical trial approval. We are wrapping up that work, but at this point I would expect us to be starting that BLA study in third or fourth quarter of this year. So it will not be in the early part of the year. The study design has been changing and all of the parameters that we have talked about before are still the same and that is to randomized prospective clinical study comparing against hollow tubes and digital nerve injury. So all that’s the same. In the prostate cancer market in that work from a regulatory claim standpoint we’re still repairing peripheral nerve discontinuity so there is not a regulatory claim that we would need to do the clinical study work on prior to selling into that market in effect, Vanderbilt is using it with this clinical study and there are two other centers that have started to adopt it, but having said that, I do believe from talking with the surgeons that we are going to need to get some clinical data for them to feel like they are making the best choices for their patients. So we will need to have data from at least this preliminary study and perhaps an expanded study in order to get good adoption into that market. Those are the things that we’re really considering as we weigh that relative to some of the other opportunities that we have as to where we prioritize our initial marketing efforts.

[Nathan Cali:]

Okay. When did you guys start that study the one that you’re doing now with the two year follow-up?

[Karen Zaderej:]

Gosh, Nathan you’re testing my memory.

[Nathan Cali:]

That’s okay. How many patients are in that?

[Karen Zaderej:]

It’s small.

[Nathan Cali:]

Okay.

[Karen Zaderej:]

It’s only 12 patients.

[Nathan Cali:]

Okay.

[Karen Zaderej:]

We’re already a year plus into the follow-up period. But from an enrollment standpoint we started the enrollment – I just don’t remember when we started it. It took a while to enroll this study partly because we got busy working on RANGER and didn’t give it a lot of priority ourselves. But again the last patient and was about a year in a quarter ago or so.

[Nathan Cali:]

Okay. So you would be essentially using the same product that you used across the board right now?

[Karen Zaderej:]

Yes.

[Nathan Cali:]

See this in surgeries?

[Karen Zaderej:]

Yes absolutely. One of the big things for us and this wasn’t so much testing the product. It was testing that you could place the product using the da Vinci robot and so that was an important part of this for us is to be able to make sure that you could do this robotically as most of these procedures have moved robotically. And I’m happy to say that we feel very comfortable that we’ve got a good placement procedure and technique.

[Nathan Cali:]

Okay, great. Thanks a lot for taking the questions.

[Greg Freitag:]

Thanks, Nathan.

[Operator:]

Okay. Thank you. (Operator Instructions) And I am showing our next question from Doug Selander from DCS Brokerage. Doug, please go ahead.

[Doug Selander:]

Good afternoon.

[Greg Freitag:]

Hi Doug.

[Doug Selander:]

Karen and Greg. Question being is this, actually when did Shawn McCarrey come on as Head of sales?

[Karen Zaderej:]

Just about a year ago. It’s in February of this past year.

[Doug Selander:]

Okay. And at that juncture how many sales people did he have there?

[Karen Zaderej:]

So I don’t remember exactly the date that he started. But in January we had 16 and so we’ve upped the number now as I said we’re at 22 today. But in addition one of the other changes that Shawn made was in – working and expanding our sales management. So at the time Shawn came we had two Regional Sales Directors, we’ve increased that so that we have one Regional Sales Director in-charge of the independents. And now four directors managing regions across the – that directs across the country. And the reason that’s important is we realized with a young sales team and with the developing market that we needed to give more direct attention to make sure that their time as spend in accounts and again going back to the breadth, depth and quality but following the sales direction. And so we did hire those folks that Shawn came in and have gotten them up to speed at some point as well.

[Doug Selander:]

But (indiscernible) when he came on, what I’m hearing is for a sales person to be seasoned, they made at least 12 months under their belt, right?

[Karen Zaderej:]

Yes.

[Doug Selander:]

Okay. So as he move forward if I heard it correctly there was about 16 sales people that and that 12 months under their belt?

[Karen Zaderej:]

Well we’ve had some turnover in that group. So some of the group that was there in January are no longer with us.

[Doug Selander:]

Okay.

[Karen Zaderej:]

Again through some strategic decisions to decide to make some changes, but I would say that roughly half of our sales team has that.

[Doug Selander:]

Okay. So my question being kind of looking at a dynamic company in a huge space with somebody having sales and see sequential growth from the end of June 30, 2013 being at $2.8 million, September 30, 2013 being at $2.9 million, then all of a sudden for the next year just reported $3 million. I mean, what kind of growth is that? I mean, I would just (completely) to see sequential growth that, that’s ecstatic, nothing is happening, anything it’s more a repeat orders than getting new things?

[Karen Zaderej:]

So as we talked about Doug, we are really in the pioneering space of trying to build both the number of accounts, but even importantly as you said repeat business, because at the end of the day, the solid foundation that we are striving for is both a breadth across the number of the target accounts that we are looking for and we have made good progress in getting into new accounts. And now we need to convert those accounts to get the sequential growth that you are striving for and we are striving for is to get those accounts ordering on a regular repeat basis that establishes a strong platform of predictable sales. So what we have done in each of the quarters is looking at where we are going to set ourselves up for growth. The first step of that is getting into the right accounts. The second step is to getting them fully converted and giving the penetration within the accounts that we are in.

[Doug Selander:]

So with that said, we have looked at SG&A on a monthly basis escalate to, correct me if I am wrong, but 1.2 to 1.3 a month?

[Karen Zaderej:]

Right. As we are adding headcount, of course the sales go up, the commissions go up and the headcount goes up, so all of those things contribute to increase SG&A.

[Doug Selander:]

Well, which is great, but the offset of that would be greater sales and we are not seeing that.

[Karen Zaderej:]

Right. And our investment in the sales team is to do that so that we can drive that greater sales.

[Doug Selander:]

Well, hopefully we see this soon, because I think there needs to be a lot of accountability, I mean at the sequential growth for the next quarter is $3 million, $3.1 million, $3.2 million, we are not going to make it’s going to be hard to obtain guidance as we move forward?

[Karen Zaderej:]

Well, we certainly are driving as building growth. And I would say I think we are going to see accelerating growth through the end of the year, so that we see that in this pioneering work that we are doing that you are going to have some investments that you are making now to help drive those types of revenue growth for the full year.

[Doug Selander:]

Well, I guess time will tell, but I do think there needs to be some accountability in this regard, so what assessments – excuse me, at the end of this quarter?

[Greg Freitag:]

I am sorry, Doug, repeat that last part?

[Doug Selander:]

Well, no, what I am saying is moving for accountability and what I am saying we are in the first quarter of the 2014. Hopefully, we can see much greater sequential growth when this is reported sometime ago on April and now?

[Greg Freitag:]

Yes. So part of this also and I realized that we are looking at sequentially as compared to looking at the year-over-year and quarter-after-quarter growth. But you also had similar patterns that you see in your comparison to 2012 and 2013, okay. So one of the things that you are really looking at is breaking what has been a pattern of growth historically into driving the third and fourth quarters of the years beyond the second quarter growth that you have historically seen. And that’s really what this year and when you look at what we are saying with regards to accomplishing $16 million and then some is to look at breaking that flatter sequential pattern that you have seen at the end of the years.

[Karen Zaderej:]

So again, I think Q1 will be obviously if we are looking at growth will be the low quarter of the year, but we do see and expect based on patterns that we have had that will continue to seek growth and we have traditionally seen a nice bump in the second quarter.

[Greg Freitag:]

This year is breaking the pattern that we have had in 2012 and 2013, which is we have continued to show very good growth year-year and quarter-quarter, but where the extra growth is going to come that we anticipate this year is going to come from finally breaking that sequentially flat cycle that we have seen in third and fourth quarters.

[Operator:]

Okay, thank you. So that does conclude our Q&A session for today. I would like to turn it back to management for any concluding remarks.

[Karen Zaderej:]

Thank you everybody for joining us for this call.

[Operator:]

Okay. Ladies and gentlemen, that does conclude your conference. You may now disconnect and have a great day.