Standard BioTools Inc. (LAB) Q1 2016 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen, and welcome to the Fluidigm First Quarter 2016 Financial Results 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 call is being recorded. I would now like to turn the conference over to your host, Ana Petrovic, Director of Corporate Development and Investor Relations.

Thank you. Good morning, everyone. Welcome to the Fluidigm first quarter 2016 earnings conference call. Before the market opened today, Fluidigm released financial results for the first quarter ended March 31, 2016. During this call, we will review our results and provide commentary on recent commercial activity and market trends. Following these comments we will host a Q&A session. Presenting for Fluidigm today will be Gajus Worthington, our President and CEO; and Vikram Jog, our Chief Financial Officer. This call is being recorded and the audio portion will be archived in the Investor section of our website. During the call and subsequent Q&A session, we will be discussing plans and projections for our future business – I am sorry for future financial results and market trends and opportunities, including among other statements regarding the anticipated impacts of recent organizational changes, and other business strategies, expectations for the single-cell biology and applied markets and prospects and growth opportunities in such markets, our anticipated product launches and impact of our product pipelines, the impact of product performance, our views of our competitive market position and the impact of competition, seasonality and product revenue trends, and current estimates of 2016 total revenue, including in particular expectations with respect to revenue growth in the second half of 2016. The seasonal and/or unusual nature of certain SG&A expenses, GAAP and non-GAAP operating expenses, stock-based compensation expense, depreciation and amortization, interest expense capital spending, cash and cash equivalents, and investment balances and currency-related impact in 2016 revenues. These statements are forward-looking and are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results. Information about risks and uncertainties and other information affecting our business and operating results are contained in our Annual Report on Form 10-K for the year ended December 31, 2015 and our other filings with the SEC. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the year ended March 31, 2016 to be filed with the SEC. We advise investors to review these risk factors carefully. The forward-looking statements in this call are based on our information available to us as of today’s date May 5, 2016. Fluidigm disclaims any obligation to update these forward-looking statements except as maybe required by law. During the call, we also plan to present certain financial information on a non-GAAP basis. This non-GAAP financial information discussed during the call excludes the impact of among other items various non-cash and other one-time charges. Fluidigm has chosen to provide this information because it believes it enhances an understanding of our ongoing economic performance and because it permits investors to perform comparisons of operating results in a manner similar to Fluidigm’s internal operating analysis. Reconciliation between GAAP and non-GAAP results are presented in a table accompanying our earnings release, which can be found in the Investors section of our website. I will now turn the call over to Gajus.

Thank you, Ana. Good morning everyone. In the back half of 2015, we stabilized our business. 2016 is about returning to growth and with that objective in mind, 2016 is off to a good start. Our first quarter revenue of $29 million was up 9% from the year ago period. Growth drivers were those that we projected for this year, namely single-cell biology, production genomic consumables and new products launched in 2015. Before I go through the highlights of the first quarter, I’d like to update you on our strategic initiatives to realign our commercial organization begun a year ago. We made the decision to build out a dedicated team for our production genomics business to enhance our focus on this distinctive customer group and to enable our sales force on the single-cell side to concentrate on research-focused customers. By the end of the fourth quarter of last year, this commercial reorganization was essentially complete. This included a number of new hires of senior commercial leadership and the build out of sales, support, and marketing with these areas in mind. We believe we entered 2016 with strong experience and dedicated teams on both sides of our business. The strategic rationale to build a commercial team dedicated to production genomics was motivated by the fact that purchasing decisions in this customer group are distinct from single-cell customers in academic research. However, over the past year, we saw the adoption of single-cell technologies expanding into the Applied markets, especially, biopharma and CROs. As a result, classifying accounts by single-cell for production techniques was less relevant and it became more sensible to orient our commercial organization based on whether the target customer was in an academic research or in Applied setting. Single-cell has become central to both. It’s exciting to see the drug discovery paradigm in several key areas including immunology and oncology beginning to embrace single-cell to the more fundamental practice. So we made the decision last year to task the team we built formerly focused solely on production genomics with Applied markets. Hence this morning, in our earnings press release, for the first time, we are externally reporting our product revenue categorized by research or Applied markets to align with the new structure of our commercial teams. The research markets refers to our customers principally in academia, making ground-breaking discoveries with our platforms. Applied markets refers to the businesses that we historically refer to as production genomics including clinical labs and ad Ag-Bio, but with the addition of biopharma and CRO customers. Importantly, we still plan to provide our current single-cell biology metrics. These metrics will continue to be directly comparable for those we have previously provided. Total product revenue, which excludes service from research customers was $15.7 million revenue up approximately 3% or $0.5 million year-over-year driven by customer higher instrument sales. Total product revenue from Applied customers was $9.7 million, up approximately 10% or $0.8 million year-over-year, driven by higher consumables sales. As I mentioned earlier, the main growth drivers were exactly what we projected during our last earnings call and I’ll now go through some detail on each. Most importantly, single-cell biology product revenue was up approximately 15% year-over-year. Our proteomics product line delivered solid year-over-year growth in both instruments and consumables across research and biopharma customers. Adoption of our single-cell technologies and biopharma is a major opportunity for us and this has only just begun. In the context of our performance in single-cell biology, I’d like to take a moment to share our progress on resolving the C1 doublet addition. As part of our customer outreach programs, we have now spoken with hundreds of customers. We are grateful that by and large our efforts and communications have been met with support and expressions of competence. Last week, we began shipments of a new medium-cell 96 IFC with substantially improved single-cell captures based on an optimized capture site architecture . The performance of this IFC demonstrates that we can address this issue, not only for this IFC, but also for the medium-sized high throughput IFC. On that note, when we introduced the medium cell 96 IFC we also announced that we fast track the development of a new small cell high throughput IFC, which we now expect to introduce in early Q3. That is, we change the order of the medium and small high throughput IFCs in our development pipeline simply swapping their availability dates. As a result, we now expect the medium cell high throughput IFC to be introduced in early Q4. After our announcement of the availability of the new IFC and the timelines for these other IFCs there was some speculation that we had run into technical challenges for medium-sized high throughput IFCs and that was in fact the reason for the change in schedule. We simply re-prioritized the small cell IFCs due to growing interest in the field of immunology, and immuno oncology. There was also a conjuncture that this schedule implied a slip in our 10,000 cell chips, that’s also not the case. These two projects are independent and both are proceeding apace. We are pleased to report production genomics consumables overall rebounded in the first quarter delivering robust growth of over 30% year-over-year driven by increased sales of genomics analytical IFCs. This is a welcome result, but as we have noted in the past, consumable streams can fluctuate quarter-over-quarter and we expect that pattern to continue as our Applied markets team gets fully productive. While genomics analytical consumables are up year-on-year, our pull-through for preparative system is down. This is partly due to the effects of the doublet issue on C1 consumables with actually more the results of decline in access ratio. We are generally guiding our customers through a transition from the access ray that you know, we believe the shortfall will be temporary that may continue in the near-term. Encouragingly the Juno platform which includes new preparation chemistry and new IFCs has been well received. Our enthusiasm is bolstered by the pipeline of opportunities building for Juno, especially in our Applied Markets group and anticipate the impact to build over the course of the year. New products, which include Juno, Polaris and Callisto were another primary contributor to growth in Q1. Customers are starting to have meaningful success with Juno and Polaris in particular and based on this, and our pipeline, we feel confident that these new products will contribute to growth in 2016 as we have previously guided. For 2016, our revenue guidance of $124 million to $128 million is unchanged. We continue to expect that our guidance will be supported by growth in single-cell biology, growth of consumables and Applied markets, and new products launched in 2015. Notwithstanding our results in Q1, we still expect growth to be concentrated in the second half of the year. Historically, our revenue contribution in the first half has been approximately 45% of our total and we expect 2016 to reflect this pattern. In closing, we had a solid start to 2016 and are continuing our efforts to lay the foundation for sustained growth in our target markets.

Thanks, Gajus, and good morning, everyone. I will now walk you through our first quarter 2016 operating results and highlights. For the first quarter of 2016, total revenue of $29 million was up 9% year-over-year. Total instrument revenue of $13.8 million increased by 5% or $646,000 year-over-year in the first quarter, primarily due to sales of Helios systems and contribution from other new products launched in 2015. Approximately 65% of the BioMark HD systems sold during Q1 were motivated by single-cell research and approximately 15% of C1 systems sold in the quarter were combined with a BioMark HD system. Total consumables revenue of $11.6 million, which includes IFCs, assays, reagents and antibodies, increased by 7% or $730,000 year-over-year for the first quarter, primarily from increased sales of genomic analytical IFCS and proteomics reagents. Sample prep IFCs revenues declined year-over-year. Our genomics analytical IFC pull-through for the first quarter tracked within its historical ranges of $25,000 to $35,000 per system per year, while our genomics preparatory IFC pull-through tracked below its historical range of $15,000 to $25,000 per system per year. Our proteomics analytical pull-through tracked slightly above its historical range of $50,000 to $70,000 per system per year. Total service revenue of $3.5 million increased by 34% or approximately $892,000 year-over-year in the first quarter. Total product revenues by customer, which excludes service revenue for the first quarter 2016 were as follows; total product revenue from research customers was $15.7 million, up approximately 3% or $526,000 year-over-year, driven by higher instrument sales. Total product revenue from Applied customers were $9.7 million, up approximately 10% or $848,000 year-over-year driven by higher consumable sales. Our total instrument install base was approximately 1,700 instruments at the end of the first quarter of which approximately 850 systems were designated for single-cell biology research. Approximately, 880 units of the install base were analytical systems, compared to approximately 855 units at year end 2015 with the balance comprising preparatory systems. Geographic revenues as a percentage of total revenue for the first quarter 2016 were as follows; United States 45%, Europe 32%, Asia-Pacific 21% and 2% other. Please note that Japan represents a 6% of total revenue and is included in APAC. Going forward, we plan to discontinue reporting Japan separately. Geographically, the year-over-year total revenue growth rates for the first quarter 2016 were as follows; Europe, up 35% and Asia-Pacific up 15%, United States down 5%, and other down 39%. Japan now reported as part of Asia-Pacific was down 5%. Net loss for the first quarter of 2016 was $19.9 million, compared to a net loss of $15.9 million in the year ago period. Non-GAAP net loss for the first quarter was $11.5 million compared to the $7.3 million non-GAAP net loss for the year ago period. GAAP product margin was 58% for the first quarter of 2016 versus 58% in Q4 of 2015 and 59% for the year ago period. Non-GAAP product margin was 72% for the first quarter of 2016, compared with 74% in the year ago period and 70% in Q4 of 2015. The sequential increase in non-GAAP product margin was primarily due to favorable reagent manufacturing costs and higher instrument selling prices. The year-over-year decline in non-GAAP product margin was mainly due to lower instrument capacity utilization. Turning now to OpEx. Research and development expenses were $10.4 million in the first quarter of 2016, compared to $9.7 million in Q4 2015 and $10 million for the year ago period. Both the sequential and year-over-year increases were due to higher personnel costs. SG&A expenses were $25.5 million for the first quarter of 2016, compared to $22.1 million for Q4 2015 and $20.1 million for the year ago period. The sequential increase in SG&A expenses was primarily due to increased personnel cost. The year-over-year increase in SG&A expenses was mainly due to higher headcount. Please note that historically, SG&A expenses in the first calendar quarter are seasonally higher compared to subsequent quarters. In addition, Q1 2016 also included certain unusual expenses including severance cost. The aggregate seasonal and unusual expenses in Q1 2016 were approximately $2 million. Moving on to the balance sheet. Total cash, cash equivalents and investments were $95.2 million at the end of the first quarter of 2016, compared to $101.5 million at the end of Q4 2015, a decline of $6.3 million in Q1 2016. Notably, our accounts receivable decreased by $5.8 million improving DSO by 14 days to 61 days as compared to 75 days at year end Q3 2015. We also received a $2.3 million final milestone payment related to the sale of our investment in Verinata. This was offset by an increase in inventory of $1.7 million. Net cash used in operating activities was $7.8 million for the first quarter of 2016, versus $9.8 million in the prior year period and $4.4 million in the fourth quarter 2015. Moving on to our financial guidance. Our financial outlook for the full year 2016 is as follows; we expect revenue to be in the range of $124 million to $128 million. We now expect the currency-related impact on 2016 revenue to be minimal. Operating expenses are now projected to be between $132 million and $137 million on a GAAP basis compared with our prior range of $134 million to $138 million. On a non-GAAP basis, operating expenses are projected to be between $114 million and $118 million. Our non-GAAP operating expenses exclude approximately $5 million of estimated depreciation and amortization expense and $14 million of estimated stock-based compensation expense. Our prior stock-based compensation expense estimate was $16 million. Interest expense is projected to be $6 million, capital spending is expected to be between $4 million to $6 million. Total cash outflow for 2016 is expected to be between $25 million and $30 million. Cash, cash equivalents and investments are expected to be approximately $70 million to $75 million at the end of 2016. I will now turn the call over to the operator to open it up for questions.

[Operator Instructions] Your first question comes from Bryan Brokmeier from Cantor Fitzgerald. Your line is now open.

Hi, good morning.

Good morning, Bryan.

So given the change in the currency rates, you are effectively reducing your constant currency growth forecast. Are you seeing anything to cause that growth outlook to be lower or are you just reluctant to increase total revenue growth forecast given that you expect growth to be concentrated in the back half of the year.

Bryan, this is, Gajus. So, I think your question, you are talking about currency, but I think your question is, why is guidance remaining unchanged generally? Is that right?

Yes, that’s generally, because, previously you are expecting currency to – believe to be 2%. Now you are saying relatively no impact on the full year and so, effectively the organic or the constant currency growth forecast is coming down.

It’s not that impact is zero, it’s just minimal if you are talking circa 1% or so. So, it’s just within the guidance that we have previously issued, it’s just not a big number, one way or the other.

Okay, and APAC ex Japan, is strong, turned around in the quarter from a quite a few quarters in a row that you had a decline. Is that largely Chinese academic market and could you talk about any trend that you are seeing?

Yes, China has been strong for us and that is actually both within the academic research markets and in particular for single-cell biology within the academic research market. But also, it’s been healthy from an Applied markets perspective as well with the adoption of our technology for various types of testing.

Okay, thanks a lot.

Sure.

Your next question comes from Dan Leonard from Leerink Partners. Your line is open.

Thank you. First off, Gajus, can you give us an update on your market development efforts for Polaris?

Sure. So, one notable thing that is an update for Polaris is that that we are starting to have customers now who are presenting their results, good results at that periods different gatherings around the world. And so, we are pleased by the fact that we do have customers now that are doing really important experiments and they are getting good data off of that. That’s important – that actually is a very important development in the market and development of products is one of the things that you really don’t have control over, but that is frankly necessary when you are developing the market for a new product is having very reputable, ideally key opinion leader customers who isn’t are very successful and start to talk about and show what can be done with it. The pace in which that happens is completely unpredictable because it relies on – the entire reliant on the design of experiments by your customers and then ultimately that those things work and obviously they are doing biology – we are doing science and sometimes the fundamental hypothesis don’t fair out. But in any case, that’s a positive development for Polaris and one of the things that gives us confidence that as stated, when we first issued guidance for the beginning of the year, that new products will be contributors to growth during fiscal year 2016. The new products includes of course Polaris.

Okay, but it sounds like your ability to influence that pace is limited, you are more reliant on your customers there?

Well, it’s out of our control, meaning we can’t schedule it, but we definitely can influence it and we do the best that we can there. You can influence it by customer support and even the collaborations in some cases. So I don’t mean to say that it can influence, it definitely can influence it, just that we can’t schedule it. We can’t make it happen on a day it’s certain, but we can definitely make it happen more quickly than it would otherwise and we are absolutely doing that.

Okay, and then my follow-up question, it sounds like Japan was still weak in the quarter, can you comment on your outlook for that region?

That really hasn’t changed. It’s volatile and it continues to be that way. There continued to be uncertainties related to budgeting cycles, and even when some confidence first to build about a release of budget. There is an underlying fear that that will be reversed as it has been in the past. So, we remain very cautious about Japan and I wouldn’t – we were certainly not ready to declare, nor do we expect it will be for some time that things have really stabilized and started to be predictable there.

Okay, thank you.

Sure.

Your next question comes from Sung Ji Nam from Avondale Partners. Your line is open.

Hi, thanks for taking the questions. First of all, congratulations on the quarter.

Thank you.

I was wondering in terms, we talked about single-cell biology being up 15% year-over-year, is that largely due to the Helios product line or maybe could you talk about how the single-cell genomics performed in the quarter understanding that there was some issues you guys were working through the doublet issues on the C1, but just for your BioMark system and others?

Sure, so the growth was largely due to the adoption of the Helios system and I know you kind of laid it out exactly the way it played out. We are still working through the – during the quarter, still working through the launch and the availability of the first medium IFC that was free of a doublet issue. And that was definitely a headwind for C1 and one that we anticipated. So, it wasn’t anything other than what we expected. The BioMark continues to be very relevant – very important tool for single-cell biology and particularly as we move into fields where it was more acumen in cell biology unless that is conventionally associated with genomics, it’s quite appealing and it’s appealing versus next generation sequencing, because of the still radical complexity associated with analyzing dataset by next generation sequencing. So, we are – I am not calling BioMark as a growth driver, but it remains a solid contributor and in particular in single-cell. I am sure you also saw that 60% of the biomarkers that we sell were motivated by single-cell. That’s been a solid trend for quite some time now.

Okay, great. And then, Vikram, maybe could you talk about, in terms of gross margins, what were the key drivers for the decline year-over-year? Thanks.

Yes, the year-over-year decline for the non-GAAP product margin was mainly due to lower instruments capacity utilization. So, the year-over-year, it rounds to two, but it’s actually about 140 basis points margin reduction and the bulk of that is for the reasons I just mentioned.

Okay, thank you.

Your next question comes from Bill Quirk from Piper Jaffray. Your line is open.

Yes, thanks. Good morning everyone.

Good morning.

Just a question on – just kind of what the deal pipeline is looking like, Gajus? And as I am thinking specifically around kind of some of the single-cells prep instrumentation obviously you had a competitive announcement that AGBT, congrats on obviously releasing the upgraded IFCs regarding the doublet issue and it just kind of given those kind of two moving parts, just kind of curious, like I said, what the deal funnel looks like at this point?

Well, hi Bill, it looks like what we had anticipated. So, we are now four months starting early in the fifth month of the year and things are unfolding the way that we have planned. And so that the pipeline that we see for the C1 going out through the remainder of the year is very much consistent with the plan that we put together late last year, early part of this year. There are those two dynamics that you mentioned. We are not alone in this market anymore. And frankly, we were alone a lot longer than any of us expected that we would be. And the doublet issue was an unfortunate thing that we had to field with and I think, I am very, very pleased with how our R&D team and our commercial teams have done that. I think we’ve earned ourselves considerable credibility with our customers with transparency and so forth and we have a problem and we are on up to and we fix it. However, the C1 remains totally unique in its breadth of capability for single-cell biology for doing targeted genom sequencing, whole genom sequencing, whole Ag sequencing to single-cell level micro RNA, targeted gene expression and the data quality from the C1, frankly is unrivaled. So, there are these other dynamics that you refer to however, the C1 continues to be the broadest and in our opinion, the best system for doing single-cell sample preparation for genomics and these attributes continued to make it, in our opinion the most important technology for sample preparation out there right now.

Got it, and then, just two quick ones on a couple of new products. Can you talk, maybe certain minutes just on the Helios upgrades? Kind of what interest level are you seeing there? And then secondly on Polaris, obviously, very innovative system. Can you just talk to the initial customer groups? Are these predominantly people that have previously had some single-cell experience or are you picking up some new to the category of customers as well? Thanks.

Sure, so, there definitely is interest in Helios upgrades from our legacy first generation and second generation CyTOF install base. I wouldn’t characterize it as a major driver right now. Certainly there, the interest is certainly there and we do upgrades, but when we are referring to growth drivers within that Helios product line, it’s really primarily due to adoption by new customers or customers increasing their stable of Helios systems. With respect to Polaris, I’d make the same comments that I did earlier that the new news is that we’ve got customers now that are reporting really interesting results and those customers are people that have done single-cell biology before. So, the strategy with Polaris was to take the experimentation of single-cell biology from, what I’ll call is sort of two-dimensional experimental regime which is some amount of stimulation followed by genomic measurements to a level where you can do those things, essentially simultaneously where you can control the environments that the cell is subjected to the conditions that the cell is subjected to while making measurements and making observations. And we think that that is the way that single-cell biology is going to move in the future. So, consequentially, the initial install base of Polaris systems is almost entirely people who already have done single-cell biology experimentation and we don’t expect it to generate new entrants into the market for a while.

Got it. Appreciate the color. Thanks guys.

Sure.

Your next question comes from Eric Criscuolo from Mizuho. Your line is open.

Good morning. Thank you for taking the question. Just on the – I guess, the US and research or I guess, kind of the sluggish parts of the business, was that due entirely to the doublet issue? Or were there other factors in those markets that kind of suppressed growth a little bit this quarter?

Yes, it really, it wasn’t in – it wasn’t just that, it was also the continued play out of time constant, if you will, associated with the issues that we had last year that we are continuing to resolve. So, and as I mentioned in previous situations, some of those were organizational, some of those were related to the structural orientation of the sales force with respect to single-cell versus production genomics. And so, and frankly, really not unexpected or that is to say, rather expected in the guidance that we had given at the beginning of the year and that we’ve reiterated in our press release and in this call. Excuse me, and we feel good about the prospects for North America, but as I mentioned several times, and want to reiterate that we continue to believe based on all of our forecasting and internal processes which certainly over the last three quarters have proven reliable that the growth will be concentrated in the back half of this year.

Okay, thank you. And then, now that you are kind of bifurcating the research and the Applied businesses, did that involve any further reorganization of the sales force? And is there some type of risk involved in that is, if those sales forces did get restructured again?

There was additional restructuring and certainly, by definition when we expanded the remits of what have been production genomics to include biopharma and CROs and that’s clearly a change, a necessary one for the reasons that I laid out earlier. Those customers in biopharma and CROs have similar purchasing criteria as their kindred spirits and other parts of production genomics. Changes is always involved with it some amount of risk, there is no two ways about that. However, it’s something that Fluidigm is very accustomed to. We’ve been through many inflection points during the course of the company’s history as we’ve evolved from developing basic technology to commercializing it to figuring out the first killer ops to developing those and those all – every one of those phases involves some kind of meaningful organizational and cultural change and this is another example of that, but it’s one that is a familiar territory to us. So, indeed, while every organizational change involves some amount of risk. We are very confident that we are navigating it well.

Okay, thank you.

[Operator Instructions] Your next question comes from Doug Schenkel from Cowen and Company. Your line is open.

Good morning. So, first question is on C1 utilization. This was below expectations in the quarter. You provided a few explanations. It seems fair to conclude that this is mostly, but not solely, but mostly related to the doublet issue. So, maybe you can correct me if I am wrong on that and then, I guess, the second part to the C1-specific question is, given your description of and your positioning of the progress addressing the doublet issue, and your positive characterization of customer feedback in spite of the change in utilization. Can we assume that your guidance still incorporates the assumption that this doublet issue and the impact that it’s had on C1 utilization will subside and as a result, C1 utilization will rebound over the course of this year?

So, first, the impact on pull-through with C1 is really entirely due to doublet phenomenon. And again something that was expected in the guidance that we provided earlier – in the early part of this year and it played out essentially the way that we thought based on early customer feedbacks, which frankly was more positive with respect to that and then continued use of the product than we and maybe others had expected. And then going forward, our guidance assumes that things will better. But we are not going to declare ourselves out of the woods and we are not going to assume and we don’t expect to be frankly for some time. And that will be towards the end of the year and we’ll want to see in our reported results some consistent behavior on the part of our customers that really shows that indeed based not only on the feedback that we are receiving, but on the use of the product that we’ve put that entirely behind us. So, with the launch of our upcoming products, the small-cell high throughput chip, then followed by the medium high throughput chip and then later much higher throughput solutions in combination with all the other attributes which I laid out earlier, we believe that the C1 is very well positioned. But those things for the most part are coming in a very – in the back half of next year and some of them are coming really at the very end of next year or the early part of the following year. So, it will be some time before the C1, in our views in a position of being a major contributor to growth. But, we feel pretty good about the way things are going with it right now.

Okay, thanks for that. But just to be clear, the expectation is that, for the year, C1 utilization will still be in your prior guidance range in terms of pull-through per instrument, per year and if so, I just want to make sure that any exchange programs we’ve heard about those in our checks that some of the chips that are out there, that have not worth the spec will be replaced over the course of the year at no cost for the customers. I just want to make sure, that that’s fully captured in that dynamic? Thank you.

Yes, and as our practice with the previous quarters, we don’t change our pull-through metrics until we’ve got some multiple quarter behavior that has been consistent over – for similar reasons. So, we are not updating our pull-through, we are not updating our historical pull-through rates at this point in time. And indeed, the remediation programs that we provided for our customers are things that we fully contemplated at the beginning of the year.

Okay, thank you.

I am showing no further questions at this time. I would now like to turn the conference back to Ana Petrovic.

We’d like to thank everyone for attending our call. A replay of this call will be available on the Investors section of our website. This concludes the call and we look forward to the next update following the close of the second quarter of 2016. Good morning, everyone.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.