CAMP4 Therapeutics Corporation (CAMP) Q2 2018 Earnings Report, Transcript and Summary

Welcome to the CalAmp Second Quarter Results Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded. I would like to introduce your host for today's conference call, Nicole Noutsios, Investor Relations for CalAmp. Nicole, you may begin your conference.

Thank you, operator. Good afternoon and welcome to CalAmp's second quarter fiscal year 2018 financial results conference call. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek; and Chief Financial Officer, Kurt Binder. Before we begin, let me remind you that this call may contain forward-looking statements. While these forward-looking statements reflect CalAmp's best current judgment, they are subject to risks and uncertainties that could cause actual results to materially differ from those implied by these forward-looking projections. These risk factors are discussed in our periodic SEC filings and in the earnings release issued today which are available on our website. We undertake no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Michael Burdiek will begin today's call with a review of the company's financial and operational highlights. Kurt Binder will then provide additional details about the company's financial results and outlook. This will be followed by a question-and-answer session. With that, it's now my pleasure to turn the call over to CalAmp's President and CEO, Michael Burdiek.

Thank you for joining our call today. We are pleased with our second quarter financial performance as we experienced accelerating momentum on multiple fronts. Each of our Telematics Systems and SaaS business segments experienced solid growth which on a combined basis increased 7% year-over-year to $89.8 million in the second quarter. We also expanded our blue-chip customer base resulting in a larger SaaS contract award in our company’s history. This was coupled with the expansion of our relationship with Caterpillar as well as the launch of a new program with another global heavy equipment customer. Overall, we continue to execute on our strategic initiatives and have established a solid foundation for long-term growth. Our Telematics Systems business continued the progress made in the beginning of the year as we grew revenue 3% sequentially and 8% year-over-year. MRM Telematics products revenue was the largest contributor to growth in this business up 7% sequentially and 29% year-over-year to a new quarterly record. Additionally, we are very pleased with our execution in the OEM and heavy equipment market, we made further progress with Caterpillar in the second quarter with revenue from this important customer reaching a new quarterly record of $10.5 million. We expect Caterpillar fiscal 2018 revenue growth of approximately 20% over last year which is at the top end of our earlier stated forecast range. On other fronts, we recently commence shipments with the new global heavy equipment OEM which is expected to contribute approximately $2 million in revenue in the second half of fiscal 2018. With this new customers' initial foray into Telematics and we expect steady revenue contribution overtime. On the product innovation front, we made progress on key strategic initiatives that leverage our comprehensive technology portfolio to deliver complete and differentiated solutions to our customers. For instance, we launched the V-Series ELD with application partners to address the trucking industry ELD mandate, which we believe to be a catalyst for revenue growth for the company both short and long-term. The three-part V-Series ELD bundle will be offered with either CalAmp or third-party hours of service applications and expands our comprehensive portfolio with unique new product category. On the SaaS front, during the fiscal 2018 second quarter, Software and subscription service revenue grew 5% year-over-year to $15.7 million. Our investments in SaaS offerings are yielding great results as the company achieved a significant milestone in the quarter by booking the largest SaaS contract in the company's history involving asset outlook and CalAmp Telematics cloud services. This is an exciting new engagement with a global freight transport company to track mobile assets across North America. This program rollout over the next few quarters and is expected to contribute 10% incremental growth in SaaS recurring revenue. Additionally, we've recently announced the availability of the comprehensive CalAmp Telematics suite that enables transportation, construction, government, energy and other companies to view detailed information about vehicles, equipment and Cargo with a single software platform. Another growth driver for CalAmp has been the continued expansion into international markets. In the second quarter we recorded international revenues of $24 million or 27% of consolidated revenue driven by ongoing strength in Europe and Latin America. We've recently announced Car Security, a LoJack licensing in Argentina has adopted CalAmp's comprehensive telematics technology stack including an extensive device portfolio and crash box vehicle risk management services. Our strategic partnership with Car Security expands our reach into Latin America to deliver connected car and insurance telematics solutions for consumers and insurance companies. This is an example of the tremendous opportunities available to us through our LoJack global licensing network. Our investments in establishing international sales channels are bearing fruit as we leverage these channels in our increasing global brand recognitions into both regional and global enterprise opportunities. And finally, our wholly owned LoJack Italian licensee had another solid quarter and grew revenues for the fiscal 2018 second quarter by 20% over the same period last year. Our Italian operations have created an ideal model to incubate innovative offerings built atop the CalAmp Telematics Cloud for both consumer and enterprise applications, which we can then commercialize with customers around the world. In summary, it has been a great first half of fiscal 2018 and I am excited about these significant opportunities that we are pursuing for the remainder of the year. With that, I will now turn the call over to Kurt Binder, our Chief Financial Officer for a closer look at our Q2 financial results and Q3 guidance.

Thank you, Michael. It is a pleasure to be here today. My commentary will include reference to the non-GAAP financial measures of adjusted basis net income, adjusted EBITDA, and adjusted EBITDA margin. A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our second quarter earnings that was issued earlier today. Consolidated revenue for the fiscal 2018 second quarter was $89.8 million, a decrease of approximately 1% year-over-year. However, excluding last year’s revenue of the satellite business, which ceased operations effective August 31, 2016, revenue in the latest quarter, was up 7% from $83.8 million in the second quarter of fiscal 2017. The second quarter, we completed the alignment of our operations into two reportable business segments, Telematics System and software and subscription services. This was done in order to drive profitable growth, global sales effectiveness and operational efficiencies. These two reportable segments are supported by one global sales organization, a structure, we put in place early in the second quarter. Telematics Systems revenue for the second quarter was $74.1 million, up 7.6% year-over-year, driven by our MRM telematics and OEM product sales. Revenue from MRM telematics products was a record $38.1 million or 51.5% of our Telematic Systems revenue. The increase is attributable to strong demand and increased sales volume from our top customers for our fleet management and asset tracking solutions. Sales of LoJack products and services including telematics sales to LoJack licensees were essentially flat to the prior quarter. We expect LoJack SVR product sales to remain roughly at second quarter level through the balance of the year as we augment legacy offerings with new telematics based technology solutions through our domestic dealership channel and LoJack licensee network. Network in OEM products revenue was up 15.2% year-over-year due principally to an increase in sales to our largest customer Caterpillar. Our revenue to Caterpillar was $10.5 million, up 7.4% sequentially from the prior quarter. As mentioned earlier, we have a very strong relationship with Caterpillar, which we believe will continue to contribute revenue growth in the second half of this fiscal year. We remain focused on growing our Software and Subscription Services revenue to provide a strong foundation of recurring revenue. Software and subscription services revenue was $15.7 million in the second quarter, up 5% year-over-year, due largely to an increase in our Subscription Services in the Italian market. Revenues from SVR services in Italy represents 24% of our Software & Subscription Services revenue for Q2. Across all of our SaaS and recurring service platforms, we have approximately 655,000 unique subscribers compared to approximately 646,000 subscribers in the prior quarter. The increase was driven principally by new subscriptions from our Italian operation. Consolidated gross profit for the second quarter was $36.8 million, a decrease of $0.8 million year-over-year. Consolidated gross margin was 41% in the second quarter, down from 41.6% year-over-year. Gross profit and gross profit margin performance was down primarily due to a decline in our domestic and international SVR product sale compared to the relatively strong second quarter of last year. These declines were partially offset by an increased gross profit for our network and OEM products due to favorable product mix and lower warranty expense. In OpEx, our R&D, sales and marketing, and G&A expenses in the second quarter as percentages of revenue were 7.5%, 13.9%, and 12%, respectively. Our R&D expenses increased year-over-year due to increased engineering headcount to support strategic customer engagement and our robust core telematics technology and solutions roadmap. For fiscal 2018, we expect that R&D, sales and marketing and G&A expenses as percentages of revenue will be approximately 7%, 14% and 13% respectively. While we invest in our growth initiatives, we will remain focused on keeping our cost aligned with revenue and rationalizing all investments to deliver long-term profitable growth. The GAAP basis net income in the second quarter was $12.2 million or $0.34 per diluted share compared to a net income of $0.5 million or $0.01 per diluted share in the same prior year period. The increase in GAAP basis net income is due to the $15 million gain on legal settlement for a battery claim with a former LoJack supplier announced last quarter. Non-GAAP net income for the second quarter was $9.6 million or $0.27 per diluted share compared to $10.1 million or $0.27 per diluted share in the same prior year period. The decline in non-GAAP net income is attributable to higher R&D expense and a slight decrease in gross margin. Adjusted EBITDA was $12.3 million in the second quarter with an adjusted EBITDA margin of 13.7% compared to adjusted EBITDA of $12.9 million and an adjusted EBITDA margin of 14.2% in the same prior year period due to the same factors cited for the lower non-GAAP net income. I will now move on to our liquidity position and balance sheet. at the end of the second quarter, we had total cash and marketable securities of $130.6 million and total outstanding debt of $150.5 million which represents the carrying value of our convertible unsecured notes that we issued in 2015. Net cash provided by operating activities was $36 million in the first half of fiscal 2018 which is attributable to our strong cash flows from operations plus the $15 million of net proceeds from the favorable settlement with the former LoJacks supplier in June 2017. Pursuant to the settlement we expect to receive approximately $31 million of additional net proceeds over the next four quarters, thereby further contributing to our strong free cash flows. These net settlement payments are due in three installments of approximately $13 million in October 2017, $13 million in February 2018 and $5 million in June 2018. Our consolidated net accounts receivable balance was $64.5 million at the end of the second quarter representing an average collection period of 59 days while total inventory at the end of the second quarter was $31.1 million representing annualized inventory turns of approximately 6.9 times. Our cash conversion cycle time was 47 days at the end of the latest quarter compared to 55 days in the prior quarter. For the first half of fiscal 2018, our GAAP basis effective tax rate was 20% as compared to 15% for the same prior year period. The higher effective tax rate during the second quarter is due to over half of the $15 million gain from legal settlement being taxable in United States. Now turning to our Q3 outlook, we expect third quarter consolidated revenues in the range of $89 million to $94 million. At the bottom line we expect third quarter GAAP basis net income to be in the range of $0.28 to $0.34 per diluted share which includes the contribution of approximately $0.28 from the expected receipt of the second quarter installment of legal settlement with LoJack's former supplier. We'd also expect third quarter non-GAAP net income in the range of $0.27 to $0.33 per diluted share and adjusted EBITDA in the range of $12 million to $14.5 million. The ranges for these non-GAAP measures excludes the effects of the expected third quarter receipt under the supplier settlement arrangement. With that, I'll turn the call back to Michael to provide some final comments before we open the call up for questions.

Thank you, Curt. We continue to make excellent progress in both the financial front as well as on our strategic roadmap. Our second quarter offered a clear evidence of the growing global recognition of CalAmp as a company that can provide complete future proved and secured solutions to large global enterprise customers at scale. We've built an unrivaled technology foundation and innovative roadmap endorsed by a growing number of blue-chip companies. We remain focused on delivering profitable growth and believe more than ever that we are well positioned for the future. Operator, please open the line for questions.

[Operator Instructions]. And your first question comes from the line of Mike Walkley.

Congratulations on the strong results everyone. My question is just on the sequential growth, maybe you could walk us through the areas driving the growth and, and this record SaaS contract is that already kicking into some of your growth and maybe margin expansion in the second half of the year?

Hello Mike. Let me try to answer those in the sequence you asked them. So, the key growth drivers, I think we articulated somewhat clearly in the prepared remarks. The MRM growth was solid in Q2 and obviously very solidly year-over-year. And we saw sequential quarter growth with Caterpillar not as much sequentially as we saw year-over-year. So those where the two primary growth drivers I’d say from a sequential perspective. As it relates to the large SaaS contract, there has been no material revenue recognized to date on that engagement.

And then with the uptick again sequentially, the continued strength in MRM and some of the new R&D initiatives you talked about starting to hit revenue are those still maybe future drivers in upcoming quarters?

As it relates to the investments we made, the incremental investments we made in R&D. Some of those did pay off in the second quarter, but I would expect there to be bigger pay offs in future quarters. And we would expect that through the balance of the year, the same growth drivers that grew sequential growth from Q1 to Q2 will be those things driving growth for the balance of the year.

And then last question, I’ll pass it on. Just on your MRM sales, record numbers. Is it a combination of just improved U.S. and international growth and maybe you can talk about the international pipeline to keep that business growing? Thank you.

Sure. And Q2 was primary driven by domestic opportunities. And in fact, overall international revenue on a consolidated basis and MRM specifically was pretty flat in Latin America and in Europe. I'd just like to point out, typically Europe is weak in our second quarter given the half of the continent takes part of the summer off and oftentimes business activity slow. So, I would consider that quarter-to-quarter performance as it relates to sales and Europe have been a success.

And then just some more clarification. The large SaaS contract, you talked about 10% incremental growth. Is that kind of from the run rate today or is that on a year-over-year basis? Just trying to clarify that. Thank you.

That’s in reference to our run rates today.

Your next question comes from the line of Jonathan Ho.

Congratulations on the quarter. Just wanted to start out with, maybe with the new heavy equipment customer OEM. How large of a customer could this become potentially over time?

Very good question. With the existing engagement and the parameters around existing engagement, and the equipment that we have been designed into, we would expect it to be in the neighborhood of a $4 million to $5 million a year type of opportunity. But we believe over time there could be opportunities to expand that relationship.

Got it. And then in terms of the ELD opportunity there’s been some talk of a delay and then it’s kind of inverted down. I mean how should we be thinking about the potential impact if there were to be a delay in terms of that implementation timeline?

Well, we have talked for some period of time about our disbelief that there would be a rush for the exit as it relates to compliance this year. We believe that it will play out over time. We think it’s given us a great opportunity to expand our product portfolio with the V-Series as an example to more comprehensively address the in cab driver experience. So short-term there may be a little bit of a catalyst as it relates to ELD but we believe that there is a longer-term trend to bring more capability and automation to the cab and we think we are well positioned to ride that trend.

Great. And then just one last one from me. Can you talk a little bit about the strength that we saw in Italy and may be what drove some of the strong sub growth in that area?

Sure. Well as a reminder, it’s follow on comments what I said earlier about Europe in Q2. Q2 for LoJack Italia is typically a seasonally weak quarter. This year was not an exception. We were down sequentially there. But the business continues to perform exceptionally well. And even though we saw sequential quarter decline in revenues from LoJack Italia, they were up solidly year-over-year. We think the business is well positioned to continue to perform as it has, given sort of the guidance range of 20% year-over-year growth we talked about in the prepared remarks.

Your next question comes from the line of Paul Coster.

Yes, thanks for taking my questions, a couple of quick ones. First off, obviously a lot of products in Telematics space this quarter. To what extent can you attribute that to the ELD [indiscernible] sales of that product?

I am sorry you were sort of chopped up there. I think your question related to what percentage of revenue was derived from ELD related product sales?

Yes, more specifically, yes, how much of the growth in the products can be attributed to…?

A very minor amount.

And then.

That was less than $2 million of revenue associated with anything we could categorize is earmarked for ELD specifically.

With ELD V-Series eventually [indiscernible] growth in Telematics. Can you explain that please?

I am sorry you chopped up again. Was the question related to Caterpillar?

No, the -- it was to do with the V-Series ELD product that you’re bringing to market and you see that as a catalyst to adoption in telematics, can you just talk through that?

Sure. We introduced a ruggedized MDT Android based tablet product in our portfolio about two years ago. But what makes the V-Series ELD different is it's actually a bundle which includes not only a ruggedized tablet, integrated telematics communication capability, an integrated cradle very clever mechanical design, and content whether it's CalAmp content, or partner content as a complete bundle. So fleet operators or trucking companies can through really a single transaction get a turnkey solution to support the basic requirements of ELD. Again, though we think this is a good long-term tailwind as it relates to ELD mandate and compliance there, we think it's an interesting product category and that platform is well suited to a whole range of different types of content including automated logging of hours of service.

And my last question as you had some success in bringing on this new SaaS customer. You've talked about the station periods of sales cycle.

The bigger they are the longer they take to fall. That was certainly true Caterpillar and this new SaaS contract was no exception. We've been engaged with this customer on this opportunity for the better part of two years. And engagement took on different forms over that two-year period to the point where we engaged with something a lot more comprehensive as it relates to telematics services as compared to where we started which was much more of a product focused engagement.

Your next question will come from the line of David Gearhart.

Hi good afternoon, Michael. My first question I kind of wanted dig in really quickly to the SaaS revenue line for the quarter. I know it was down sequentially just wondered if you could provide some color on what was causing the down sequential number?

Yeah, that was sort of baked into early comment about LoJack Italia. LoJack Italia was down sequentially. So that accounts for essentially all of the down tick sequentially.

Okay. And then I just wanted to ask about the -- going back to the SaaS customer win. Was that a Greenfield opportunity or were you replacing a competitor there?

It was mostly a Greenfield opportunity.

Okay. And it's also been a while since you provided an update on Smart Driver Club and I'm wondering if we can get a quick update there? And that's the last one from me.

Sure. Yes, Smart Driver Club has been making progress, been engaged with a number of different dealer groups on programs in the UK. But I think the focus there more recently has been around offering telematics based insurance services through aggregate or price comparison sites in the UK which is a common way for customers to shop for insurance. And they're making excellent progress as it relates to onboarding customers all of which are required to have as part of their policy of telematics service. So, it's giving the Smart Driver Club Folks and the Smart Driver Club entity that's part of Smart Driver Club the opportunity to really refine its driver behavior and driver scoring algorithms. And so far, based upon its book of business and utilizing that technology and the driver behavior analytics capability, they’ve been able to really keep their claims and the loss ratios is very low, which is very encouraging as they become a little more aggressive as it relates to the rollout telematics both direct-to-consumers through aggregator sites as well as through dealer club memberships sold through new and used car dealers in the UK. And just a follow-on point, as part of our engagement in our ownership structure we get rights to certain types of intellectual property. And we’re in the process of on-boarding SmartDriverClub, driver behavior analytics into our telematics service portfolio. And we anticipate that down the line, we’ll be able to bundle driving scoring with some of our own proprietary applications for both fleet and consumers, as well as offering driver scoring, driver behavior capability as and over the top service delivered through our CalAmp Telematics Cloud.

Your next question comes from the line of Mike Crawford.

Thanks. Maybe just a Segway from that last point. Can you talk about what your plans are with your new minority equity investment in ThinkNet?

Great question. That’s obviously a recent engagement. We’ve been engaged with ThinkNet for almost a year. ThinkNet has a very interesting go-to-market strategy. In Germany unlike the United States, when you go pull into a service station to fuel your car, you’re not able to pay at the pump using you credit card. And so, what ThinkNet did was leverage Telematics technology and online payment services and integrated those to give consumers the opportunity to pay at the pump without having to go inside or to a kiosk and obviously makes that fueling cost much more efficient. Now like SmartDriverClub ThinkNet's goal is to leverage that telematics platform, that sold or deployed primarily for -- at the pump fueling services into a range of different opportunities as it relates to ecosystem around that driver in that vehicle including online offers, insurance services and other things that can be facilitated through the Telematics capabilities that are part of their service.

And then on some of the initial additional applications you’re running through, your LoJack distribution channel, I think LotSmart would be way had to SureDrive but those two combined are probably still only rolled out at a handful of dealers or am I wrong there? Can you give any color or number of units that might deployed there so far and what the experience has been from the dealers who have adopted it?

Yes. I think a handful is a decent reference. You might recall on one of our earlier earnings calls that we had talked about redoubling our efforts and focusing on getting LotSmart price. Meaning getting the products features right, training the sales force to sell LotSmart in appropriate way for helping dealers on-board LotSmart was our belief that if LotSmart was successful in the dealer channel dealers would find a way of monetizing that investment with the sell-through SureDrive product. And I think Q2 has definitely supported that perspective and we had a lot of success in getting the product to sales training and the dealer on-boarding just right. And those dealers who have been most successful in deploying and leveraging LotSmart are also being surprising successful in some ways in selling through the SureDrive applications and the sell-through rates are very, very encouraging. So, I think our focusing efforts around LotSmart and getting that right will pay off very well down the line as it relates to SureDrive sell-through opportunities.

Okay, thank you. And then just widening the scope more broadly, I think you had talked about growing your own SaaS revenue from the $60 million to $65 million revenue towards the $100 million revenue over intermediate period of time. Any additional timeline you want to put on that type of growth?

Yes, it’s a medium-term objective. The SaaS contract announcement and award is obviously a nice catalyst towards achieving that goal.

Your next question comes from the line of Mike Latimore.

Hi, thanks. Yes, really nice quarter. I guess on the SaaS deal, with the competitive landscape there, were you sort of seeing as a potential internal development or were there third parties you are competing against? Maybe a little bit of color on the competitive landscape on this.

Sure, it’s a good question. This is a very large global enterprise player. When those types of entities start to consider these broad-based Telematics applications and deployments around the world, oftentimes they believe that they can tackle it themselves. I think this particular customer realized early on that that wasn’t going to be possible. However, we are offering a combination of asset outlook and CalAmp Telematics Cloud Services. So, there are certain types of assets which we will manage end to end with asset outlook and there are certain types of assets which the CalAmp Telematics Cloud will monitor and provide data feeds into other enterprise applications for that customer. We believe that that relationship can expand and we can play more active role as it relates to integration and application development for this customer as they realize some of the challenges that they are likely to face enrolling this out at the level they expect to.

Well, okay. Great. And then just to be clear on the CalAmp 10% incremental growth. So, you did 5% this quarter, so the idea this contract can get you up to 15% growth, is that the math?

No, sorry for that ambiguity. When we talked about 10% incremental growth we are talking about 10% incremental growth in SaaS revenue.

Okay guys. And then on the Argentina opportunity. Can you frame that a little bit how much revenue might deliver course of the year or so?

It’s a little too early to say but I would like to point out that Argentina and our relationship there is very healthy one and in fact Argentina will probably will be one of the broadest adaptors of CalAmp Telematics devices this fiscal year. The announcement we've made as it relates to the strategic engagement involving other services in Crash Box specifically will be a partnership that rolls out over a longer period of time.

Got it. And then just last on the new heavy equipment OEM, are the technology and the applications there very similar to what you done with Caterpillar or are there some other new ones there?

It's probably a little less bespoke than was the case with Caterpillar.

Your next question comes from the line of Greg Burns.

Good afternoon. Just in terms of your LoJack international licensees. Could you just remind me how many of those there are and what the pipeline or the conversations look like with some of these other international licenses in terms of expanding beyond the traditional SVR product?

I believe the number is around 10. Individual licensees that have operations in 30 countries. And we are in dialogue with each and every one of them as it relates to Telematics related opportunities.

Okay. Would you expect some similar type car security announcements over the next 12 months expanding with those licensees?

Hard to say. I would hope that overtime that the model that we're engaged with Argentina on will be one that the licensees would adopt broadly.

Okay. And just lastly on Caterpillar, 20% growth that seems to imply like the second half will be lower than the first half of this year, why would that be?

We don't want to lean too far forward as it relates to getting projections for Caterpillar in the second half of the year. I think what we're trying to communicate there is that the relationship is very solid. And there is growth potential left with Caterpillar, whether it occurs in second half of this year or it occurs over a longer period of time. So, we're intentionally leaving that a little bit ambiguous.

Your next question comes from the line of Andrew DeGasperi.

Yes, hi. Thanks for taking my question. Just I know most have been answered but maybe two quick ones. First, can you maybe identify on that specifically but through the global OEM is and what they are top 5 or top 10? And then secondly can you maybe tell us what tuck-in effects could have an impact in the second quarter and how should we think about it in the second half?

You're talking about the new heavy equipment OEM?

That's correct.

I don't want to give you specific rank orders where they are in the global tuck in order because that may help you to identify them. Top 20, that's good enough, top 20. What we talked about contribution of $2 million in the second half of the year. And I mentioned earlier that I think it could be $4 million to $5 million a year count. So, I think will be almost at, what I would consider to be the opportunity run rate beginning in Q3 and certainly by Q4.

Got it. And on FX?

FX.

Yes. I’m sorry, just a question on, if they had any impact relative to either the business side or from a financial standpoint?

To-date, are you talking about, sorry. Foreign exchange or was there…

Yes.

Foreign exchange, I’ll let Kurt answer that actually.

Thank you. So, as we track -- our business is done in U.S. dollars across the globe and we’ve had some favorable FX P&L impact here this quarter. Most that’s comes out of our business that we’ve done in Italy. But it’s fairly minor to our overall financial performance for the quarter.

And just one last question. If we think about expenses particularly R&D into next fiscal year. Should we be thinking about that potentially declining as a percentage of revenue or if you can maybe comment at all on that?

Sure, I can touch on that. So, you probably noticed in the second quarter, we did have a slight ramp up in R&D as a percent of our revenue. That was in an effort to really support a number of strategy initiatives that we’re working on, our headcount increase. But what we see for the balance of the year, is that normalizing and coming down to a level of the 7% range as I’ve communicated in our pre-recorded remarks.

At this time, there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to Michael Burdiek.

Thank you for joining us on today’s call. We look forward to keeping you apprised of our progress as we get further into the year.