Turtle Beach Corporation
Q1 2015 Earnings Call Transcript

Published: 10 May 2015

[Operator:]

Good day, ladies and gentlemen. And welcome to the Turtle Beach First Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a Question-and-Answer Session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Tom Naples, please go ahead.

[Tom Naples:]

Thank you. Good afternoon everyone and welcome to the Turtle Beach Corporation’s first quarter 2015 earnings call to discuss the financial results. Before we get started, we will be referring to the Press Release filed today with details of results which can be downloaded from the Investor Relations page of our website at corp.turtlebeach.com. In addition, a recording of the call will be available on the Investor Relations section of the company’s website later this evening. Please be aware that some of the comments made during our call may include forward-looking statements, they involve risks and uncertainties regarding our operations and future results that could cause Turtle Beach Corporation’s results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statements contained in today’s press release and on our filings with the Securities and Exchange Commission, including without limitation our most recent Form 10-K and our other periodic reports, which identifies specific risk factors that also may cause actual results or events to differ materially from those described in forward-looking statements. We also note this call contains non-GAAP financial information. We are providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to our reported GAAP results in the reconciliation table provided in today’s earnings release. And now, I’ll turn the call over to Juergen Stark, the company’s Chief Executive Officer.

[Juergen Stark:]

Thanks, Tom. Good afternoon and welcome everyone on the call with us today. John Hanson, our Chief Financial Officer is here to cover our financial performance and outlook after I’d share some highlights of our business. I will then give some concluding starts before we open up the call for your questions. Our first quarter sales results were toward the high end of our projected range. The market forces were – for the most part as anticipated in the quarter played out as we expected. Our performance was driven by sales of our new Xbox One and PlayStation 4 headsets, several of which feature first in only innovations, partially offset by the declining demand for previous generation products. This dynamic will continue to shape our top line until the new console user base surpasses the previous generation user base, planned to happen later this year. On a reported basis, our bottom line results reflected changes in foreign currency exchange rates in reserve for products associated with legacy licensing contract that we recently decided not to renew. The licensing rate also impacted gross margins, excluding these items net loss in adjusted EBITDA were within our guidance ranges. The quarter was also highlighted by good progress for the launch of our HyperSound healthcare products scheduled for later this year. This included further building out of the senior leadership team, formalizing our go-to-market strategy enclosing our first two healthcare channel agreements for HyperSound. Shifting back to the headset business, we are pleased with the start to 2015, the first quarter is historically our lowest volume period of the year, as you will recall last year’s Q1 included the industry leading launch and initial selling of our Xbox One compatible headsets. While this created a tough year-over-year comparison and provided us a first mover advantage that we capitalized on throughout last year to establish the broadest, most compelling line of next generation headsets available at retail today. According to NPD through March 2015, we have sold over 1.2 million next generation headsets in the U.S. alone, nearly twice as many as the next closest competitors. That’s a remarkable achievement given some of the steep discounting from a number of brands, particularly in the $50 to a $100 price band where the majority of volume is concentrated. During the first quarter based on NPD sell through data six of the top 10 console gaming headsets sold at retail in the U.S. where from Turtle Beach when measured by dollar share, including two of the top five PlayStation 4 headsets and three of the top five Xbox One headsets. As we previously stated, we won’t respond a heavy promoting and chase unprofitable and brand diluted sales. While this decision is impact near term results, we believe it helps strengthen Turtle Beach’s position as an industry leader within the gaming community where we believe positive word-of-mouth is critical to driving success over the long-term. During the quarter as I mentioned, we also decided not to renew some license deals that we felt would not be favorable to our economics and have take reserves for those deals accordingly. Later this month we are launching the Turtle Beach Elite 800X, our fully wireless flagship headset for Xbox One, featuring DTS Headphone

[John Hanson:]

Thanks, Juergen. In my presentation, I will be discussing the consolidated results on a year-over-year basis. So beginning with the top line, net revenue in the first quarter of 2015 totaled $19.7 million compared to $38.3 million a year go. The lower comparative revenue was due to the industry leading launch and initial selling of our Xbox One compatible headsets in the first quarter of last year. First quarter 2015 net revenue was towards the high end of the guidance range of $18 million to $20 million driven by strong consumer response to the company of Xbox One and PlayStation 4 compatible headsets, partially offset by a decline in sale for previous generations headsets. Gross profit for the first quarter was $3.1 million compared to $12.3 million in the same period in 2014. Gross margin was 15.8% in the first quarter compared with 32.1% in the same period a year ago. I should note, the Q1 2015 gross profit includes $1.5 million of reserves for products associated with multiple legacy license agreement that we have decided not to renew. Excluding the reserve, gross margins were 23.4% and it is slightly below our guidance of 26% to 28% due to the timing of cost associated with the change in contract manufacturers. We still expect margins for the year to improve to the low 30% range. Operating expenses in Q1 were $15.7 million compared with $16.8 million during the same period in 2014. The decrease in operating expense was due to lower business transaction cost compared with a year ago, partially offset by higher cost associated with additional headcount, severance cost and investments in personnel and product development of HyperSound. We reported a net loss for the first quarter of $10.6 million or $0.25 per diluted share based on $42 million average shares outstanding compared to a net loss of $2.9 million or $0.09 per diluted share based on 33.7 million average shares outstanding in the same period a year ago. Excluding the $1.5 million of legacy license agreements related reserves and $0.6 million of unexpected declines due to changes in foreign currency exchange rate first quarter 2015 net loss was a negative $8.5 million or $0.20 per diluted share at the midpoint of our guidance range of negative $9.5 million to $7.5 million. Q1 2015 adjusted EBITDA for the headset business was a loss of $6.6 million compared to adjusted EBITDA of $4.8 million in the first quarter of 2014. Adjusted EBITDA on a consolidated basis was a loss of $9.7 million reflecting investments of approximately $3.1 million in the HyperSound business during the quarter. Excluding the $1.5 million of legacy license agreement related reserves and $0.6 million of unexpected declines due to changes in foreign currency exchange rates adjusted EBITDA on a consolidated basis was a negative $7.6 million towards the higher end of our guidance range of a negative $9 million to a negative $7 million. Please note, that we provided a reconciliation of GAAP reported results to adjusted EBITDA in the accompanying tables at the end of the press release we issued today. Now turning to balance sheet, starting with our cash position, at the end of the first quarter we had cash and cash equivalents of $2.1 million compared to $7.9 million at December 31, 2014. Cash and available borrowings as of March 31, 2015 totaled $3.6 million compared to $22.9 million at year end. Our cash position at the end of Q1 was lower than we planned due to extra cost incurred during the fourth quarter to expedite shipments as a result of the West Coast Port congestion and incremental cash needs in the first quarter to accelerate the transition of our contract manufacturing partner. I want to walk through the specifics of our current liquidity situation and the steps we are taking to improve our cash availability during our seasonally slow time of year. Following the fourth quarter, when we generate more than 50% of our annual revenues, accounts receivable decreased $45.6 million or 74.7% to $15.4 million as of March 31, 2015 compared to $61.1 million as of December 31, 2014. During the same period, inventory decreased 5.7% to $36.2 million. As expected and in line with the seasonality of our business, the borrowing availability on our $60 million asset based credit facility with Bank of America came down to approximately $24.7 million at the end of March. At the same time, our outstanding debt level was at its lowest point in three years after we paid down $21.3 million of borrowings on the facility. Outstanding debt defined as the revolving credit facility, term loan and subordinated notes was $23.2 million at March 31, 2015, a decrease of 47.8% compared to December 31, 2014 and a decrease of 55.5% compared to March 31, 2014. As we have discussed on previous calls, due to the high concentration of sales and more so EBITDA in our fourth quarter we are pursuing a $20 million term loan to augment our ABL facility with Bank of America and provide the business with the ample liquidity, particularly during the first half of the year when the gaming headset industry is at its seasonal low point. Capital needs this year are higher due to the need to purchase significant inventory in advance to support the transition to our new manufacturing partner and to fund the investments in HyperSound ahead of the expected launch of the healthcare product in Q4. In the meantime, following the end of the first quarter, we issued a $5 million subordinated note to SG VTB Holdings, our largest shareholder at favorable terms for an unsecured loan without covenants based on current market prices. Given that we are actively engaged to secure a term loan we are very familiar with market prices and conditions for similar loans. This transaction is a first part of the final liquidity improvement efforts and what we expect will be the last step in an 18 month process to restructure our balance sheet. We hope to complete this process in the near future and while issuing debt is our primary objective, we are committed to pursuing all options to ensure that the company has sufficient liquidity and is appropriately capitalized. Now turning to outlook, starting with the full year, we expect 2015 headset revenue to be approximately flat compared to 2014. Adjusted headset EBITDA margins are still expected to be in the 8% to 9% range compared to 6.5% in 2014 with gross margins improving into the low 30% range. As a reminder, our projections are highly dependent on the projected rate of growth of our next generation headsets versus the decline of our previous generation headsets in potential negative impact from changes in foreign currency exchange rates. The stronger U.S. dollar has a translational impact in our results as well as affect sales volumes and margin for our international distributors. If exchange rates stay where they are, we could realize a $3 million to $5 million hit to revenue and a $1 million to $2 million hit to adjusted EBITDA over the course of the year. With regard to HyperSound, as Juergen mentioned, we remain on schedule for the fourth quarter launch of our HyperSound Hearing Product and therefore we are still forecasting a few million dollars in HyperSound revenue late this year. Our gross margin target for HyperSound remains 50% or better. On an adjusted EBITDA level, we are committed to managing our net investment in HyperSound not to exceed $9 million in 2015. For the second quarter 2015, we currently expect net revenue for our headset business to be in the range of $23 million to $25 million, which would represent a 7.6% increase over the same period a year ago at the midpoint of the range. Net loss for the second quarter is projected to be between a negative $7.5 million and a negative $9.5 million and adjusted EBITDA is expected to be between a loss of $7 million to a loss of $9 million, which includes approximately $4 million in planned HyperSound investment. During the second quarter, we are marking additional investments in our headset supply chain to facilitate our transition to a new contract manufacturer along with the deleveraging of fixed cost and lower sales volumes, like we saw in Q1, which can bring gross margins in the first half of the year down eight to nine percentage points below our full year average. These investments will pressure near term gross margins, however we expect to start realizing the benefits of these actions in the second half of 2015, which will take us into the low 30% range for the full year. Now I’ll turn the call back over to Juergen for some closing comments.

[Juergen Stark:]

Thanks John. Before we take your questions, I want to reiterate the key goals for the year that I outlined on our last call. Number one, continue to lead in product portfolio [Indiscernible] in innovation for the new generation consoles. Number two, improved margins and profitability of our headset business including cost reductions in our old generation console headset business. Number three, successfully launch the HyperSound Hearing Product. I hope you gathered from our comments on this call that we are moving towards accomplishing these goals within our target timeframe. We remain confident that the success of the new generation gaming consoles will continue to drive sales of our industry leading gaming headsets and of course, we are looking forward to launching HyperSound and introducing this incredible technology to a much wider audience. Operator, we are now ready to take questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Sean McGowan with Needham and Company. Your line is now open.

[Sean McGowan:]

Thank you. I have couple of questions, but I’ll start with asking to just clarify something that you said during your prepared remarks, Juergen. Talking about the premium segments share going from 15% to 30%, did you mean of Turtle Beach sales or in the industry?

[Juergen Stark:]

No, Turtle Beach market share. Recall Sean that we were largely absent from that year during a lot of last year until we launched the new products above $200 at holiday and those products have now done – done very well and we are up to 30% market share in above 200.

[Sean McGowan:]

Okay, so that’s Turtle Beach’s share of that market not that portion of the market share of the total market?

[Juergen Stark:]

That’s correct.

[Sean McGowan:]

Okay, alright. Okay, thanks for clarifying that. Then and my other questions were, could you quantify what additional, especially non-recurring cost that may have been in the quarter related to the West Coast Port issues where on the P&L does that show up, and how much were they? And then, I have one other question.

[Juergen Stark:]

Port cost, the port cost in the first quarter?

[Sean McGowan:]

Yes.

[Juergen Stark:]

They were fairly [Indiscernible] in the $100,000 range.

[John Hanson:]

So, not a material impact.

[Sean McGowan:]

Okay.

[John Hanson:]

We had managed through most of that in Q4 and because we – you recall that I think we were one of the first companies to mention on an earnings call that that we were going to run into these issues, which means we probably may be had a little bit of ahead start over others and so by the time we got into Q1 that we were largely passed the issue.

[Sean McGowan:]

I thought you said at the time that you’ve got some of that might point or so what’s I was asking so – and is that all behind us now, and so nothing lingering into the second?

[Juergen Stark:]

Yes.

[Sean McGowan:]

Okay, and then my last question is, the tax rate - the rate is a percentage of the loss was quite a bit of lower than I would have expected. Can you talk about what you expect sort of the full year tax provision or benefit as a percentage of the pretax loss to be for the year and if it was lower in the quarter, why would that have been?

[John Hanson:]

Yes, sure so I think the tax rate based on GAAP taxable income was approximately 29%, Sean and so that’s we believe for 2015 that’s a good proxy for where it will be for the full year. We have a number of expenses that are – that reduced the GAAP – the GAAP taxable income that are not tax reductions when they are realized under a GAAP accounting. And so, the federal – our effective tax rate on taxable income is about 35%, but when you take it net of those adjustments it is about 29%.

[Sean McGowan:]

I guess when I’m looking at the P&L it looks like income tax benefit has a percentage of the pretax loss looks like – more like 25%.

[Juergen Stark:]

You want to look it and just get back to them?

[John Hanson:]

Yes, yes, yes.

[Juergen Stark:]

We will take a look at that, Sean.

[Sean McGowan:]

Okay, all right thanks. I’ll jump back in the queue. Thank you.

[Juergen Stark:]

Thanks Sean.

[John Hanson:]

Great, thanks, Sean.

[Sean McGowan:]

It’s actually 24 by my calculation. You will get back to me. Thank you.

[Juergen Stark:]

Yep.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of [Indiscernible]. Your line is now open.

[Unidentified Analyst:]

Thanks and thanks for taking my question. And just a couple of housekeeping items, I just want to make sure I got this right, the low 30s gross margin is a full year average this year, not an exit rate, is that correct?

[Juergen Stark:]

Correct.

[John Hanson:]

Correct.

[Unidentified Analyst:]

Okay and then sort of in the same [Indiscernible] thinking about margins, so Q2 guidance you got revenue about 20% higher at the mid point sequentially from the first quarter, but pretty much the same profit. So this quarter we had – Q1 we had the extra the $1.5 million of legacy license agreements that were exited and the FX headwinds, what is that that makes margin so low in Q2?

[Juergen Stark:]

So our HyperSound investment is going to go from $3.1 million in the first quarter up to $4 million in the second quarter.

[Unidentified Analyst:]

Okay.

[Juergen Stark:]

As we are ramping.

[John Hanson:]

And the revenues by the way, I think the revenues are up about 15% over Q1 if that’s what you are looking at, James?

[Unidentified Analyst:]

So 24 is the midpoint and the 20 – 20 to 24, right?

[John Hanson:]

Yes, right, right.

[Unidentified Analyst:]

Thank you.

[Juergen Stark:]

Whatever that works out to be it’s an increase.

[Unidentified Analyst:]

And the bottom line seems to be about flat, so I’m just wondering what if some of the components of that?

[Juergen Stark:]

Sure, we have – we have higher HyperSound investment in second quarter as well as we also have – yes we also have the E3, which is really the biggest annual gaming show. So we always have higher marketing cost in the second quarter than in the other quarters and then we also have higher cost associated with the contract manufacturing transition as we ahead into the second half, but we start realizing the benefits from that work we have been doing over the last two or three quarters.

[Unidentified Analyst:]

Okay, sort of a one-time or soft of an annual event on the game show on the E3 and that the manufacturing transition you should be finished by the end of Q2?

[Juergen Stark:]

No, but Q2 is the prior – the heaviest period for us, because the new manufacturing will start in Q3. They start preparing shipping, some volume of shipment for the holiday.

[Unidentified Analyst:]

Okay and then if HyperSound is $4 million, when you say net investment where is there any revenue at all from HyperSound in the quarter or in Q2?

[Juergen Stark:]

Yes, there are some commercial HyperSound revenue, but it is not super meaningful and as I think I mentioned on the last call, our focus is on driving the healthcare product. The pipeline for commercial by the way is – I mean the revenues have been small, but the pipeline is actually growing at a good steady rate. And so we are going to continue to keep an eye on that business, but all of our resources and efforts are going into preparing for the healthcare launch.

[Unidentified Analyst:]

Okay, but when you say net investment that would net of any revenue that was generated, right?

[Juergen Stark:]

Correct, net of the small amount of revenue.

[John Hanson:]

Yes.

[Unidentified Analyst:]

Okay, would so those add up – the Q1 and Q2 adds up to 7.1 that would imply that these investments are largely finished for the year, couple of million more in Q3 when you launch, is that the plan?

[Juergen Stark:]

Well, the big difference is that we start generating meaningful revenues in Q4 when we launch. And so the net investment goes down once that happens. We remember that HyperSound gross margins we expect to be at 50 plus percent. So we start getting very quick leverage on net investment or the EBITDA level as soon as we start generating revenue.

[Unidentified Analyst:]

Understood, and then my final question is on the transition in the market from old generation to new generation in terms of install base on headset?

[Juergen Stark:]

Sure.

[Unidentified Analyst:]

I just wonder you say that we should reach the tipping point sometime during the year. Can you put me more of final point on that and say whether you adjusted that point like slipped it one way or the other in time?

[Juergen Stark:]

Yes, so a couple of things, James so first of all, it’s not our point. It actually comes from DFC, we use their forecasts. They provide forecasts of what’s called active installed base. So that’s important that means basically how many people are using the console, not how many have been sold overtime. And I think the latest estimates we have from them are from Q4 and it shows that next gen Xbox One and PlayStation 4 reach about 60 million and last gen reaches about 60 million, last gen is obviously declining and that point is suppose to happen this year, which would mean given at holiday it is a big selling time for consoles as well, I would guess sometime in Q4. When it happens precisely is not super important to us, it’s just that going into next year you have the – the majority of the installed base, these lines are crossing. They are also when the investor document by the way, if you want to actually see that at curves [ph]. Every – in the last 18 months obviously, old gen has dropped off very rapidly for us and for everybody else. I think the common theme if you listen to other large industry leaders in the gaming segment is that new consoles are selling really well, old consoles are dropping off faster than expected, that’s a very good long-term trend, but it compresses the transition basically, because you got a recapture the revenues from new generation sales while your old gen is dropping off and that’s certainly what we have experienced last year and that continues. But that’s now kind of bake into our view of this year and the primary driver frankly of why we are guiding to a roughly flat year. It’s a – that’s comprised of rapidly growing and highly successful next gen console headset business were offset by the declining old gen business.

[Unidentified Analyst:]

Tremendous, thank you very much.

[Juergen Stark:]

Sure.

[Operator:]

Thank you and our next question comes from the line of Mark Argento with Lake Street Capital. Your line is now open.

[Mark Argento:]

Yes, hi, good afternoon guys. I apologize [Indiscernible] this is duplicative I apologize in advance, but in terms of the balance sheet I know there is a little bit of [Indiscernible] that capital on. Can you just talk to me or review a little bit about how you feel about working capital going into this holiday season?

[Juergen Stark:]

Yes, I can summarize and John can provide some color commentary. So working capital really comes from our line with [Indiscernible], right. $60 million of global line we worked very hard last year to replace the old line that we had and put them in place. So that provides our ability to borrow against inventory and receivables as we had into peak. And that – that’s include shape – we don’t – that doesn’t need any further work, it provides us enough working capital for both the headset business and a reasonable growth scenario for the HyperSound business. If HyperSound suddenly pitched off more rapidly than we expect, we would need more working capital and we would try to predict that ahead of time and work it if necessary. The capital structure comments that John made your call marked that we have been true like of 18 plus month process to restructure the debt and essentially recapitalize the business, we paid down long-term debt $35 million roughly since the beginning of 2013. And we have always had a plan to put some permanent debt onto the balance sheet, especially to fund HyperSound and just have an appropriate amount of debt on the balance sheet that’s what we are working on. And it’s important for the company to get that capital put in place, so we can fund the first two quarters of the business, which are generally at a loss and need to be – we need to have funding for those fund the HyperSound investment. And we also have a – actually quite a significant incremental cash or capital need during the summer here right now and going into the summer where we are, essentially having to buy inventory ahead of time from our old manufacturer, while we are ramping up the new manufacturer. Yes, the old – we are buying stuff ahead at time and we are creating above for stock to make sure that we don’t run a risk of running out product.

[John Hanson:]

And so just to amplify that Mark, what I’ve always said is that, the headset business due to seasonal nature of the revenue streams really needs a permanent piece of capital in the $15 million to $25 million range that the company can use in those first two quarters, which are – which is the slow revenue period for the headset industry. And so – and then use the ABL to be flexed for the holiday, which is a 6-month period of time, right. So this is – this last step is moving from an ABL only where the availability of funds is tied to AR in inventory levels, right and have that more prominent piece of capital available for those slower first two quarters.

[Mark Argento:]

Gotcha and obviously it should be some type of a high yield instruments or what – what’s the flavor?

[Juergen Stark:]

Yes, we are looking at term loan, but as John mentioned, we were looking at all options and opportunities to add the required capital to the business. It is important that we do that, because we are heading into the HyperSound launch, heading into the summer months and being appropriately capitalized given the prospects we have in the business for both the headset business and HyperSound is high priority for us.

[Mark Argento:]

So any opportunity to reach out and work with some of your launch partners on the – here in health product and see if they – you can offer up and exclusively for here in investment or a prepayment or some tight manage through the capital needs of the business?

[Juergen Stark:]

Yes, that’s an interesting thought and so that the challenge there is that no – the largest provider has about 30% market share, right. And so, we don’t want to do something which could create a negative impact on the rest of the players, does that make sense? If we start aligning to one of the leaders that could actually hurt our business, we wouldn’t want to do that. So if we partnered with someone and something like that it would have to be someone who is a major provider into the hearing aid industry versus one of the channel leaders or a hearing aid companies.

[Mark Argento:]

Alright, that’s it from me. Thanks guys.

[Juergen Stark:]

Thanks Mark.

[John Hanson:]

Thanks Mark.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Sean McGowan with Needham and Company. Your line is now open.

[Sean McGowan:]

Hi guys a couple of follow-ups. So John on the – at once you were just talking about on permanent capital, would – if you secure your term loan, would that be in addition to or would it replace the [Indiscernible] that just was put in?

[John Hanson:]

Yes, I think for now, it would be incremental, but we would use that facility in the cash flows as we come out of this period. What we are going to have exceptionally higher levels of cash flow in order to again work through the contract manufacturer, transition and then in the launch of healthcare products. I think coming out of that period, certainly we would expect to be in a position where that capital could be repaid.

[Juergen Stark:]

Yes, so their objective is that that would stay in for a maximum of one year.

[Sean McGowan:]

Okay.

[Juergen Stark:]

By this time next year, remember by Q1 we were collecting all the receivables from the holiday sales. Our borrowing base on the ABL is typically the slow point, we generate cash. So that’s right a 10% terms are very friendly and we don’t really pay attention of the 20% after a year, because we have no intention of keeping it out that long.

[Sean McGowan:]

Alright, okay and then I don’t know if you made any exclusive comments earlier that might have missed, but can you talk about what the impact was on both the top and bottom line during the quarter of changes in currency rates and what you expect that for the full year impact might be relative to let’s say the prior year are not necessarily – however you want to address that. What you think the impact is going to be of currency for the full year and what was it in the quarter?

[Juergen Stark:]

Sure, so quarter was about 600K that was a – an adjustment for what do you call a balance sheet items or…?

[John Hanson:]

Yes, it’s really the inter company balance is between us and our U.K. subsidiary…

[Sean McGowan:]

So that’s an impact on profits right? That’s an impact on profits?

[Juergen Stark:]

Yes.

[John Hanson:]

Yes, exactly.

[Sean McGowan:]

What was it on [Indiscernible]…?

[Juergen Stark:]

So, yes if you look at – we have looked at annual impact if the exchange rates John mentioned in his section, I’ll try to summarize here. If the exchange rates stay at their current levels, we would be – about a $3 million to $5 million revenue impact for the year and a $1 million to $2 million EBITDA impact for the year. That could of course move if the exchange rates move during the year, but that’s we have been asked this multiple times, that’s why we prepared that’s the impact. For Q1 it’s about $400,000 it is just the currency change impact for the quarter.

[Sean McGowan:]

Is that the $400,000 on revenue?

[Juergen Stark:]

On revenue, yes.

[Sean McGowan:]

Okay and what was the full year – I know you said this early in the prepared remarks, but what was the full year EBITDA impact if rates stay at the current level?

[Juergen Stark:]

$1 million to $2 million on EBITDA, $3 million to $5 million on revenue.

[Sean McGowan:]

Okay, that’s compared to your guidance or compared to like would it have been at the old rates, so what’s base you wanted use…?

[Juergen Stark:]

Compared to guidance, so if the rates stay that would create pressure on the guidance. We are not changing our guidance right now, because those rates may move back around, but we have been asked a couple of times before the call to make sure we are able to articulate and I know everybody else was on their earnings call, what the potential risk is in and that’s why we have those numbers. We are not changing our guidance though based on that at this time.

[Sean McGowan:]

Okay, thank you.

[Operator:]

Thank you, and at this time I would like to turn the call back to Juergen Stark.

[Juergen Stark:]

Great, just want to thank everybody again for joining the call. And I look forward to speaking to everybody next quarter. Thanks.

[Operator:]

Thank you ladies and gentlemen. This concludes today’s call. You may all disconnect.