Vuzix Corporation
Q2 2016 Earnings Call Transcript

Published: 15 Aug 2016

[Operator:]

Greetings and welcome to the Vuzix Second Quarter 2016 Financial Results conference. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star, zero on your telephone keypad. As a reminder, this call is being recorded. I will now turn the call over to Mr. Andrew Haag, Managing Partner at IRTH Communications. Mr. Haag, you may begin.

[Andrew Haag:]

Thank you, Operator. Good morning everyone. I would like to welcome all of you to Vuzix’s second quarter 2016 financial results conference call. With us today are Vuzix’s CEO, Paul Travers and the company’s CFO, Grant Russell. Before I turn the call over to Paul, I would like to remind you that on this call, management’s prepared remarks may contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question and answer session, therefore the company claims the protection of the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these contemplated by any forward-looking statements as a result of certain factors not limited to general economic and business conditions, competitive factors, change in the business strategy or development plans, the ability to attract and retain qualified personnel, as well as changes in the legal and regulatory requirements. In addition, any projection as to the company’s future performance represents management’s estimates as of today, August 15, 2016. Vuzix assumes no obligation to update these projections in the future as market conditions may change. This morning, the company filed its quarterly results on Form 10-Q with the SEC and issued a press release announcing these financial results. Participants in this call who may not have already done so may wish to look at these documents as the company will provide a summary of the results on today’s call. Today’s call may include non-GAAP financial measures. When required, reconciliations to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found at the quarterly filings at SEC.gov, which is also available at www.vuzix.com. I would like to now turn the call over to Paul Travers, who will give a brief overview of some of the company’s business activities and developments during the second quarter. Paul will then turn the call over to Grant Russell, Vuzix’s CFO, who will provide an overview of the company’s second quarter financial and operational results. Paul will then talk in more detail about some of the more recent milestones and developments, as well as give more information on Vuzix’s programs and technologies. The company will then move the call into the Q&A portion for an update. Paul?

[Paul Travers:]

Thank you, Andrew. Hello everyone and thank you for joining our call today to discuss the company’s second quarter 2016 financial results and outlook for the remainder of 2016. As those who have followed our company for a while know, Vuzix has been working hard to bring a series of next generation wearable display products to market utilizing augmented reality and virtual reality technologies. We have made significant progress during the past few months and want to update you on these. At the end of Q2, Vuzix began to ship the first of its highly anticipated M300 smart glasses to developers and key partners in our VIP - Vuzix’s Industrial Partner program. The M300 represents the first major upgrade to our smart glasses and the first major product developed since we received the $24 million investments from Intel at the beginning of last year and began that relationship. As many of you know, the M100 enterprise smart glasses, one of the leading enterprise smart glasses in the world, was developed at a time when Vuzix was smaller and not as well capitalized, and when the smart glasses market was really in its infancy. Regardless, it became one of the best selling smart glasses in enterprise. These early efforts gave us a valuable feedback from partners and customers and helped create a high level of pent-up demand for a new solution that would solve the many problems that current smart glasses have. We believe the M300 does just that. As a result, we expect that over the coming quarters the M300 should far outpace the M100 in sales, both in units and in speed of its sales ramp. Based on preproduction orders and our discussion with existing M100 customers, we expect initial demand to be robust. I’ll share more on this, as well as on our new VIP program, later in the call, but first I’d like to turn the call over to Grant to review the financial results for the second quarter. Grant?

[Grant Russell:]

Thanks Paul. Good morning everybody. Before I begin, I’d like to point out that I’ll be rounding some of the discussed numbers to thousands and, in some cases, millions, even though we currently report in dollars. I also encourage interested listeners to review our 10-Q for a more detailed explanation on some of the quarter’s year-over-year variances, as I will just be highlighting just a few. For the three months ended June 30, 2016, Vuzix reported $561,000 in total revenues as compared to $428,000 for the same period in 2015, up by over 31% overall. While product sales were $421,000 and were roughly even with the prior year’s numbers, they were off by 1.5%. The slight decrease in sales was primarily the result of lower M100 smart glass revenues caused by existing and new customers choosing to defer further purchases until the new M300 smart glasses is available, along with the fact that only a conservative portion of M100 revenues is recognized on migration package shipments. Sales of engineering services were $139,500, primarily contributing to the 31% increase in total revenues for the quarter. Sales of our new iWear video headphones, which were not available in the same period in 2015, were 13% of product revenues for the three months ending June 16. Revenues from this product line were constrained due to production ramp-up issues. We expect substantial improvements in product availability here with this product line as we finish the move of our improved production processes and component changes from our Rochester facility to our volume manufacturing partner in China. In summary, monocular smart glass and Waveguide product sales were 83% of total revenues versus 84% in the prior period. The negative gross margin for the three months ended June 30 as compared to the 2015 period was primarily the result of revenues not being high enough to absorb our relatively large portion of fixed manufacturing overheads and amortization costs, as well as a temporary $107,000 increase in freight costs for the 2016 period. These freight costs were related to air freight shipments and expediting costs for the iWear video headphones. Actual product gross margins before any freight overheads and amortization were 39% for second quarter. This was down from the prior 2015 quarter as a result of the much lower margin currently earned on the iWear and slightly lower gross margins on the original M100 sales, particularly those that are recorded as migration packages. Clearly, we’ll have to achieve higher revenues to absorb all these overhead costs. We expect overall gross profit levels to improve in Q4 as our revenues pick up once the M300 begins volume commercial shipments to customers along with lower iWear video headphone production rework costs and air freight costs now that we feel production issues are fully addressed and economic sea shipments can be utilized. R&D costs for the three months ending June 2016 were $1,669,000 as compared to $732,000 in the same period in 2015. This increase represents our continued commitment to invest in our new technology and upcoming products. The two largest cost changes were an increase in product development and research costs of $534,000, primarily related to the new product development of our M300 smart glasses and expanded Waveguide research and development work as well as $279,000 increase in personnel salary and stock comp costs, primarily as a result of additional R&D staff versus the same period in 2015. Selling and marketing costs increased overall for the three months ended June 30, 2016 as compared to 2015 by $306,000 or 89%. This increase was primarily due to the following major factors

[Paul Travers:]

Thank you, Grant. I’d like to begin my update and outlook by talking about how far we have come in funding our development and production activities. As I noted earlier, last year Intel selected Vuzix as a strategic partner and made a $24.8 million strategic investment in the company. We’ve been able to utilize the Intel investment to fund our activities in 2015 and the first half of 2016. As Grant just mentioned, subsequent to the close of the second quarter of 2016, we also completed a $6 million equity offering. This was an underwritten offering through Oppenheimer. Shares were offered to both existing and new institutional shareholders and saw significant demand, reflecting growing interest in Vuzix and the conviction about our efforts to remain leaders in the wearable technology space. We decided to keep the book tight and small as we are seeing our business grow with the introduction of our new products, which is adding value to the company, and at the same time we see potential for other strategic developments on the horizon. Switching to the recent operational milestones, we launched our VIP - Vuzix Industrial Partner program during the quarter, an important element of our progressing to commercialization of the M300. The M300 smart glass and VIP program is an invitation-only opportunity for a limited number of our most successful M100 software application developers. We have hand-selected these partners and invited them to participate because they have demonstrated excellence in developing and deploying applications that have been tested in the field and proven to provide value and workflow efficiency in the enterprise space. Partners enrolled in the VIP program are receiving early access to the new Vuzix M300 smart glasses, a variety of co-marketing media opportunities, and dedicated engineering and customer service support from Vuzix. As they deploy current projects and develop and roll out new applications, we believe they will help us drive large increases in enterprise deployment in 2016, 2017 and beyond. Some of our early VIP partners include NTT DoCoMo, MS Solutions Corporation, Ubimax, who was our first partner to receive European shipments of the M300, APX Labs, and XOI are early VIP partners as well. In fact, the formal PR Vuzix has put out around the VIP program represents a fraction of the VIP partners that have received M300s to date. You can expect more announcements in the coming weeks. The initial response from our VIP partners has been great, with some of the feedback as follows. From Ubimax

[Operator:]

[Operator instructions] Our first question is coming from Rob Stone of Cowen & Company. Please proceed with your question.

[Rob Stone:]

Hi guys. Thanks for taking my questions. I wanted to just spend another minute on the iWear production transition. So it sounds like by late August, you’re going to be ramping up the new production process, so how should we think about the cut-over in terms of getting through the slower, costlier rework process, and air freight shipping to a more normalized business model for iWear?

[Grant Russell:]

Well, we’ve been expensing some of the one-time costs as we go along, and that was a big component in Q2 revenue, so the freight costs we’ve been choosing to expense just to be on the conservative side and not have the burden going forward. But the real cost savings should take place in Q4, because as Paul mentioned, at the end of August, first of September, the first sea freight shipments from China are going to come, and when they arrive - and that takes like 21 days - that is when we expect to start seeing the cost improvements and the quality--increased flow of quality components and products, and that’s going to be the last week of September, but really into Q4.

[Rob Stone:]

Okay, so there’s not really a freight cost overhang on the existing inventory. And then you mentioned that --

[Grant Russell:]

No, we chose to write it off, primarily a good chunk of what had already come in.

[Paul Travers:]

If I can add, we do have product here in Rochester that’s still going through that rework process, so this is stuff that’s happening in parallel. We’re still manufacturing at Vuzix here at Rochester, New York, and as that’s happening, we’re bringing up the Chinese facilities. That said, we’re no longer shipping product expedited from China to the U.S. That stuff is here, it’s baked in.

[Grant Russell:]

Yes, we put the kibosh on--I think the last shipments came in mid-July from China that were shipped by air of iWear, and everything is now going to be coming in by sea.

[Rob Stone:]

Okay.

[Grant Russell:]

We have a big enough cushion stateside that we can handle that transition, and that’s effectively--you know, it allows us to change over about the middle to the end of September.

[Rob Stone:]

Good. So you mentioned that excluding the fixed overhead and the extraordinary freight costs that the product margin is around 39%. How should we think about the margin model pre-spreading of overhead for M300?

[Grant Russell:]

The M300 should be in the high 50s for at least the first six to 12 months. It should be pretty good. The iWear is a lower margin, and we’ve said all the way along that’s going to be about 20 points of margin on average, we expect. But the blend is still to achieve hopefully around 40-plus on a product-only basis, and the M3000 will have another--should be in the low 60s before fixed overheads.

[Rob Stone:]

Right. You mentioned that operating expenses were up quite a bit year-over-year. They were up sequentially, roughly $250,000. How should we think about the run rate of expenses in the second half, Grant? Are you reaching a level that you need to be, or will there be quarter-on-quarter increases to come?

[Grant Russell:]

There shouldn’t be a whole lot of material increases in the sales and marketing costs, at least for the balance of the year. I mean, the timing of some trade shows kind of causes some spikes. G&A should be sort of consistent, the way it was in Q2; but that said, we’re probably going to face $100,000 per quarter increases related to--you know, we’re making some staff additions to complete our improved segregation of duties as part of our move to SOX compliance. As well, we have another quarter where we’re working with the engineers, but I think sales and marketing should be consistent in the similar range to where it was. R&D, I wouldn’t expect too much in the way of a big increase in Q3, Q4. We’re pretty well where we need to go. We’re expensing anything that isn’t tooling-related, like the M300, and then this quarter and next all those costs swing from the M300 to the M3000, so we’re expecting that to be relatively flat. It won’t be an increase of more than 10% at the most on those.

[Rob Stone:]

Okay. My final question for Paul is you mentioned that there’s a lot of pent-up demand now for M300 and the other products coming behind it, especially with the already established partner relationships. How should we think about your capacity, your ability to support increased volume and what sort of cycle time is it between, let’s say you get a big order and your ability to respond to that with product?

[Paul Travers:]

So, on the M300 side, it’s a significantly easier thing to produce than the iWear, one. The partner that’s doing that with us is--not that our Asian partner on the iWear side doesn’t do high volume also, but these guys are really good at doing that. The only issue is lead time on parts, and we tend to buy some of that in advance, the longer lead items. That said, if we had to hit the ground with nothing in the hopper, it can take 12 to 14 weeks, kind of a thing, to produce from a cupboard that’s bare.

[Rob Stone:]

But you’ve got a pretty considerable inventory of components and parts on hand right now

[Paul Travers:]

Right, long leads to the tune of 10,000 iWear or so--I’m sorry, M300s.

[Grant Russell:]

Yes, that’s our first current planned production build, so we’re keeping the pipeline primed for that. That doesn’t mean we can ship all 10,000 in one month, but we have the ability to act pretty quickly within that range.

[Rob Stone:]

Great. Thanks guys. I’ll jump back in the queue.

[Operator:]

Thank you. Our next question is coming from Kris Tuttle of SoundView Tech Fund. Please proceed with your question.

[Kris Tuttle:]

Hi. I just wanted to know if you look out a year to 2017, what’s your--I’m interested in knowing what do you think the breakdown is between your VR product set that’s related to drones and all that, and your enterprise business? Is it 50/50, 75/25? A little bit of help there would be great.

[Paul Travers:]

It’s going to be more like two-thirds, one-third. That said, we have--

[Grant Russell:]

Two-thirds being the enterprise smart glass products.

[Paul Travers:]

Thank you, okay. We believe on the VR side of things, there’s going to be--I think for some time now, the idea of people putting their head in these bigger sort of devices is going to be around, okay? But when people can wear a pair of fashion glasses, it begins to change completely what the consumer side can and will do in everyday use, and you will start to see in 2017 a shift at Vuzix into products that can support that sort of technology. So you could even see fashion glasses flying drones, kind of things. But of the current mix of products that we have, Grant is correct.

[Kris Tuttle:]

Okay, thank you. That’s very helpful.

[Operator:]

Thank you. Our next question is coming from Amit Dayal of Rodman & Renshaw. Please proceed with your question.

[Amit Dayal:]

Thank you. Congrats on all the progress, guys. Just in regards to iWear, what kind of numbers from a production perspective, as in minimums, do we have to commit to these manufacturers in China?

[Paul Travers:]

We’re in a position, Amit, we’ve committed to something like 10,000 pieces.

[Amit Dayal:]

Ten thousand per year, or per quarter? Can you give us any color on that?

[Paul Travers:]

Well you can--some of these guys--in fact, this particular partner, they’ll build 1,000 at a time, if we want to. It’s just a function of what happens to the price. It was a good mix for us, we thought, to make that level of going in with the level of interest we’re seeing in the marketplace and the time it takes to prime the pump. It was logical for us to make that sort of a first kick at the can.

[Amit Dayal:]

All right, understood.

[Grant Russell:]

We haven’t made any decisions on follow-on builds at this stage, though.

[Amit Dayal:]

Understood, okay. In regards to the iWear again, it looks like you seem to be prioritizing the drone market for this. Is this sort of the killer application for this product for you guys? Would you rather see larger market share over here versus, you know, diluting the effort for other applications?

[Paul Travers:]

We have actually activities going on in personal entertainment in the gaming space and in the drone space. As it happens, there is a shift happening in the drone space right now, and it’s a real opportune time for Vuzix because there’s not a lot of competitors that can deliver what we have in the drone space. You need 16x9 aspect ratio, you need zero latency. We have this wonderful field of view and this beautiful crisp image, and it works perfect here, so we are--you know, have a bit of a focus going on in that part of the space because it’s so opportune, but you’ll see, Amit, over the next week or two some other activities that are, I think, equally impressive in the entertainment side.

[Amit Dayal:]

Understood, thank you. Maybe one last question from me. In regards to your comment in the previous quarterly call, you had said you’re prioritizing around 50 top customers for these M300s. Have you shipped to all of them yet?

[Paul Travers:]

We’ve shipped to a large number of them, not all of them but a large number of them.

[Amit Dayal:]

Understood. Thank you, that’s all I have. I’ll follow up later as well, thank you.

[Paul Travers:]

Amit, we have way more than 50 that want product, actually. If you can imagine, this is a brand-new gizmo. It’s getting pretty high marks from our partners so far, so there’s guys are lining up. It’s just--you know, they’re EBTs, they’re expensive. There’s a lot of effort that goes into doing this sport, and it’s well worth that but we’re also right around the corner from DBT and production, so we have purposely chose to focus on what we’re doing at this point.

[Amit Dayal:]

All right, makes sense. Thank you for that.

[Operator:]

Thank you. Our next question is coming from Aaron Martin of AIGH Investment Partners. Please proceed with your question.

[Aaron Martin:]

Hi, good morning guys. I guess this is for Grant. In terms of the deferred revenue on migration shipments, can you quantify in terms of the effect on the gross margin, the fact that you’re not recognizing a full--the full revenue coming in there from those units, but you’re recognizing the full cost?

[Grant Russell:]

Well okay, the migration costs--

[Aaron Martin:]

I mean, what kind of percentage of the revenue coming in are we able to recognize in that kind of transaction?

[Grant Russell:]

Recognizing 40%, and effectively they're getting an M100 for that, and that equates--because the migration package sells for $1,500, we’re recognizing $600 on the sale of the M100, which normally sells for $1,000. But of course, we’re recognizing the full cost on that, so that has dragged down our average margin on some of the M100s.

[Aaron Martin:]

Got it. Now in terms of the cost of sales, are you able to break down between product versus engineering services?

[Grant Russell:]

Yes, our system does that, but we don’t currently report that level of detail.

[Aaron Martin:]

Okay. This question is for Paul. When you mentioned Pokemon Go, and obviously it’s created a lot of excitement and people realizing the potential here, can you help us quantify, call it the effect it’s had on Vuzix from a perspective of your discussions with other parties and stuff like that? Just any sort of way we can understand how that’s had an effect on Vuzix?

[Paul Travers:]

I can--yes, I’ll do my best on that one, Aaron. When the Pokemon Go thing happened, the whole world kind of lit up as everybody saw, I’m sure, and if you didn’t, it’s because you were probably on vacation and didn’t have a phone. The same thing is true in the corporate world, although I will say there’s always been this level of from the larger players, we need to ultimately be in this wearable display space. When events like that happen, our phone rings a bit more and there’s more knocking on the door and there’s more people visiting, and that’s been part of the results of that. It really shows the potential of where this stuff can go. I mean, the revenue generation off of the content is massive. You saw it - I mean, they had more users than Twitter overnight, so that wakes people up.

[Aaron Martin:]

Has that changed your discussions with third parties? Has it changed the amount of discussions you’re having? How does that really in real life make a difference for you?

[Paul Travers:]

It kind of pushes some people to accelerate their activities. It’s hard to get into lots of discussion around that, Aaron. I mean, we’ve already had a lot of people and have a lot of people on our front door. You’ve seen in the second quarter, we made an announcement with a global partner, and I can only say that that continues. It seems more feverish now than it was. I don’t know if I can attribute all of that to Pokemon Go, but it certainly is a stimulus.

[Aaron Martin:]

Okay, thank you, Paul.

[Operator:]

Thank you. Our next question is coming from Matt Margolis from Wall Street Forensics. Please proceed with your question.

[Matt Margolis:]

Hi Paul, Grant. Thanks for taking my question. So you guys recognized some of the engineering revenue in Q2, the 140. Can you kind of outline what this will look like over the remaining part of the year?

[Grant Russell:]

Yes, there will be similar engineering services amounts in Q3 and Q4 if the current program continues, which we expect it to.

[Matt Margolis:]

And was the initial payment based on a specific milestone, or is it kind of generic?

[Grant Russell:]

There’s milestones along the way, and some of it is general [indiscernible] on their implementation.

[Matt Margolis:]

Okay. Can you break down the inventory again? I think it’s $3.4 million between, I guess, the M100, M300 and the iWear?

[Grant Russell:]

The iWear would be the biggest component. It’s probably 60%, M300 would be, like--M100 would be another 25%, and the balance would be the start of procurement of materials on the M300.

[Matt Margolis:]

Okay. In your 10-Q filing, it mentions ramp-up in the M300 in October. Is that when we should look at--should we expect any kind of contribution in Q3, or is most of this going to be the EBT units at this point?

[Paul Travers:]

We are--as I mentioned in the conference call script, we are pushing so that a portion of the DBTs that we’re building could be moved in as a function of production. We’re not sure if we’re going to be able to do that or not, Matt, but we would love to be able--I mean, there’s people screaming at us that need product to get some of their programs going, and we don’t want to delay for them. But we’re just not sure if we’re going to be able to pull that off or not. It’s within a two or three-week window here, plus or minus that we’re kind of pushing through, so we don’t know yet. It’s almost impossible to miss the October time frame. We’re hoping to pull some into September.

[Grant Russell:]

And to quantify that, you know, there might be half a million dollars at most in play of revenue.

[Matt Margolis:]

From a pull forward perspective, or just in general for Q3?

[Paul Travers:]

From a pull-forward perspective.

[Matt Margolis:]

So my last question, just on the VIP program, right now you’ve done a lot of the software partners that will be--that are out there kind of selling your products, a couple end users. Is it kind of the remaining part of the program, are these really going to be the end users, those type of companies that we’re looking at for the remaining part of the VIP program?

[Paul Travers:]

A lot of it has to do with folks that have the potential to be the first guys to be rolling out in volume. When they move to the DBT devices, they are--as I said, they’re practically production ready, Matt, so it will start to shift into other folks that get them, but they may not necessarily be VIPs in the sense that they’re not necessarily developers, they could be end customers too.

[Matt Margolis:]

Okay, that’s all I have. Thank you.

[Paul Travers:]

Thank you, Matt.

[Operator:]

Thank you. Our next question is coming from John Heerdink with Vista Partners. Please proceed with your question.

[John Heerdink:]

Hi gentlemen, congratulations again on moving Vuzix forward and to the many different and wide applications. Quick question around you signed an agreement with a global consumer electronics and mobile firm to develop Vuzix and see-through optic technologies. Could you speak a little bit about that, and then secondarily, to be efficient, can you speak to the healthcare applications and maybe what we might see coming out of that sector?

[Paul Travers:]

I’m sorry, John, the first question again? I didn’t--

[Grant Russell:]

Cooperation partner.

[John Heerdink:]

Yes, you have the global consumer electronics and mobile firm that you signed this development and supply agreement. Could you speak to that and the see-through optics?

[Paul Travers:]

Yes. I mean, the folks--those folks see the value of see-through systems and wearable display technologies, and they see that Vuzix can deliver on the optics that they need, and this partnership revolves around that. Like I said, it’s really hard to get into a lot more. We’re developing with them something, and sometime in 2017 the intentions would be that it would be a product introduced by them into the mass markets. Again, it’s hard to say more than that. From the healthcare perspective, you guys saw that on the M100, we’ve got this low vision assist product. We have folks like AMA that are working in the medical space for remote telemedicine kinds of applications. We have folks in big pharma that are doing drug manufacturing with our iWear and all of the quality systems that are associated with that to make sure the drugs get built right, the systems get cleaned and put back together appropriately before they build their next batch, etc. So we have people that are looking at using them in the operating theaters, and we have folks that are writing applications around a patient-doctor visit, where you’re just recording what happens and doing the script of the doctor, recommending X,Y and Z, and it does the speech-to-text conversion so it’s all documented on the fly. So there’s multiple areas in the medical space. Did that help, John?

[John Heerdink:]

Absolutely. I think it’s such a significant market that sometimes doesn’t get as highlighted as the others, I think that healthcare area could have a real impact on Vuzix going forward, so.

[Paul Travers:]

I tell you, John, if you think about it, one of our competitors here, Google, their system is designed so that the eyepiece and the camera are bolted together and they’re pointed up like a unicorn, so it’s a horn that looks up. If you’re a doctor and you’re going to record an operation and you want to train others in how to do that operation, in order to use competitive products like Glass, you almost have to break your neck to look down at the patient where you’re doing the work. Again, the M300, we took this into account. You can literally just lower the thing down, look down through the eyepiece, the camera now points where the eyepiece is pointed, and it’s right down at the work surface, so it’s designed to do this job. The other piece is the video performance, it’s amazing how well this looks. The M100, it’s based on older stuff, and when you’re streaming video with it, if you’ve got the right software, and there are folks who can do this really well with an M100, it’s okay. But with this thing, man, it looks like you’re seeing HD streaming off of it - it’s beautiful. So we designed it specifically with that market in mind, one of a bunch of them.

[John Heerdink:]

Thank you.

[Operator:]

Thank you. Unfortunately, we are out of time for questions. I will now turn the call over to Mr. Haag for any additional or closing comments.

[Andrew Haag:]

Thanks Operator. I’d like to thank Paul, Grant, all of Vuzix’s shareholders, as well as the institutions and analysts that participated on today’s call. This concludes Vuzix’s second quarter 2016 conference call. Thank you all.

[Paul Travers:]

Thanks everybody.

[Operator:]

Ladies and gentlemen, thank you for your participation. This concludes today’s conference. You may disconnect your lines at this time and have a wonderful day.