NETGEAR, Inc. (NTGR) Q1 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to NETGEAR Inc. First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Genualdi, Investor Relations Manager. Please go ahead sir.

Thank you, operator. Good afternoon and welcome to NETGEAR’s firth quarter 2016 financial results conference call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO and Ms. Christine Gorjanc, CFO. The format of the call will be a little different than in the past, we’ll lead off with a review of the financials for the first quarter provided by Christine and followed by details and commentary on the business provided by Patrick and finish with second quarter guidance provided by Christine. We will then have time for any questions. If you have not received the copy of the release please call NETGEAR Investor Relations or go to NETGEAR’s corporate website at www.netgear.com. Before we begin the formal remarks, we advise you that today’s conference call contains forward-looking statements. Forward-looking statements include among other things statements regarding expected revenue, operating margins, tax rates, expenses and future business outlook Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR’s periodic filings with the SEC, including the most recent Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the non-GAAP to GAAP measures can be found in our press release on the Investor Relations' Web site at www.netgear.com. At this time, I would like to now turn the call over to Ms. Christine Gorjanc.

Thank you, Christopher. For the result of the first quarter of 2016 came in slightly above the high end of our guidance, we’re pleased to each of our three business units met or slightly exceeded our expectations for the quarter. For the first quarter ended April 3, 2016 net revenue was $310.3 million which is slightly up on a year-over-year basis and down 14% on a sequential basis. As noted on the prior earnings call expected a step down in our service provider revenue run rate during the Q1 and the sequential decline in revenue both reflect this as well as typical Q1 seasonality for retail and commercial. NETGEAR net revenue by geography reflects our continued strength in North America. Net revenue for the Americas was $193.9 million which is up 11.5% year-over-year. On a sequential basis the Americas revenue was down 16.4% which reflects the aforementioned step down in service provider as well as normal seasonality for retail and commercial business. EMEA net revenue was $64.5 million which is down 27.6% year-over-year and down 25.8% quarter-over-quarter, similar to the Americas the drop quarter-over-quarter in EMEA reflects reduced service provider revenue and normal seasonality for our retail business. Our APAC net revenue was $51.9 million for the first quarter of 2016 which is up 12.2% from the prior year’s comparable quarter and up 23% quarter-over-quarter and we saw growth in all the major countries and the impact region during Q1. For the first quarter of 2016 we shift a total of approximately 5.5 million units, the net revenue split between home and business products was about 77% and 23% respectively. Product introduced in the last 15 months constituted about 43% of our first quarter shipments, while product interrogated in the last twelve months consequent about 31% of our first quarter shipment, from this point on my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our preliminary financial statements released earlier today. The non-GAAP gross margin in the first quarter of 2016 was 33.3% compared to 27.7% in the prior year comparable quarter and 30% in the fourth quarter of 2015. The year-over-year gross margin improvement reflects the reduction in service provider revenue which typically carry the lower gross margin while the sequential improvement reflects a significant reduction in the use air freight and leveraging our investment in inventory. Total non-GAAP operating expenses came in a $66.5 million which is up 4.9% year-over-year and down 3.7% sequentially. During Q1’16 we reduced the operating expenses in our service provider business unit to correspond with the reduced revenue outlook. Our head count decreased by net 26 people to 937 due to the previously announced restructuring of the service provider business unit. Our non-GAAP R&D expense for the first quarter with 6.9% of net revenue, as compared to 6.3% in the year ago comparable period and 6.2% of net revenue during Q4 2015. We believe our investment in R&D is key to our business. Our non-GAAP tax rate was 33% in the first quarter 2016. Looking at the bottom line for Q1 we reported non-GAAP net income of $24.6 million and non-GAAP diluted earnings per share of $0.74 per diluted share. Turning to the balance sheet we ended the first quarter of 2016 with $333.3 million in cash, cash equivalents and short term investments, for the first quarter of 2016 we generated approximately $59.8 million in free cash flow. We continue to remain very confident in NETGEAR’s ability to generate meaningful levels of cash. During the trailing four quarter we generated approximately $162.2 million in free cash flow, we continue to be focused on optimizing the business and generating free cash flow which gives us flexibility with our operational needs as well as the ability to strategically deploy cash to enhance shareholder value. In Q1 we spent $10 million to refer just approximately 280,000 of NETGEAR common stocks and average price of $35.70 per share, which resulted in no benefit to non-GAAP diluted earnings per share for the quarter. Since the start our repurchase activity in Q4 2013, we’ve repurchased approximately 8.9 million of shares and our diluted share count is lower by 15.1% as compared to the beginning of that period. Now turning to the results of our three business units the recall business units or RBU generated net revenue of a $157.5 million during the quarter, which is up 30.2% on a year-over-year basis and down 20.2% sequentially. The commercial business units or CBU generated net revenue of $68.4 million for the first quarter of 2016 which is down 5.9% on a year-over-year basis and up 7.1% sequentially. I would like to highlight that received stock for your U.S. distribution channel stabilizes during Q1 at 5.6 weeks which is relatively flat with the prior quarter of 5.7 weeks. We believe the channel inventory level receiving you are now better aligned with market demand. For our service provider business unit or SPDU net revenue came in an $84.3 million with the first quarter of 2016, this is down 27% year-over-year and down 15.2% on a sequential basis. We deliver revenue about our Q1 forecast largely due to the fulfillment of upside demand from lot of our international service provider customers. This fulfillment of upside demand coupled with the completion of restructuring activities that we undertook early in the quarter, increased the business unit’s profitability for Q1, as we’ve mentioned we continue to closely mange the service provider business with the focused on profitability and we continue to expect that our service provider business will generate approximately $75 million in revenue per quarter for the remainder of 2016. I will now turn the call over to Patrick for his commentary on the results of the three business unit as well as the overall business. After which, I will then provide guidance for the second quarter of 2016.

Thank you, Christine and thank everyone for joining today’s call. I’d like to use this opportunity to discuss a few key topics, which are the allusion of the Home WiFi market, our continued success with Arlo, the dynamics of our commercial business unit and Q1 highlights for the Service Provider Business Unit. As the numbers show, our retail business unit continues to demonstrate impressive year-over-year growth driven by our focus on providing premium Home WiFi solutions and unique animation for the Smart Home. The proliferation of connected devices streaming media in the home continues to drive our Home WiFi business. According to our market study, there are about dozen connected devices in the average home today in North America and we expect that number will only continue to grow. As we have spoken about several times in prior call. We view WiFi as the backbone of home connectivity. Well, the 802.11ac WiFi standard has been available to consumers for some time now, we believe that still early in its adoption. Our estimate suggest that 802.11ac is installed less than 30% of homes with broadband in the United States, which highlight just how much runway we have ahead of us in this upgrade cycle. For the last two years, our original Nighthawk router as dominated the market the Home WiFi. We put a significant amount of R&D into not only the original Nighthawk, but also the subsequent Nighthawk product released with the believe consumers will be willing to pay a premium for a better Home WiFi experience. This effort is paid off as our WiFi Router average selling price have increased approximately 50% during the last two years. We have witnessed a paradigm shift as Home WiFi has been elevated beyond utilitarian connectivity is about innovation not only speed and range, but WiFi stability, data traffic segmentation, ease of setup and use and overall user experience. We’ve stayed ahead of our competition by being first to market with key technology such as Active Antennas and Tri-band, both of which are features in highest end Nighthawk the X8. Rest assured we will continue to innovate and stay ahead in Home WiFi, just as we have done for over 20 years. As you all know NETGEAR is no longer sold via the networking company. Last year, we entered the Smart Home market with a product that fundamentally changed, what was possible in home security. The ability to put our wire free Arlo cameras outside of the home unthreatened from power outlet, made a true home security system, something that the average consumer could afford. We expanded that line with the release of Arlo Q in January. And just this month, we announce the release of the third member of the family Arlo Q Plus. Arlo Q Plus provide Power Over Ethernet and local recording backup in addition to 1080p High Definition Video, 2 Way Audio, Night Vision and Free rolling 7-day video cloud storage. It can be connected and powered over existing network infrastructure using a single Internet cable. Making it the ideal solution for shots and small emphasis. I’d like to especially thank our tight net Arlo team, which has been working tirelessly to make Arlo the number one do it yourself, IP camera in both the North America and European retail market. Next I’d like to provide a few words on the commercial business units. We are pleased with the 7.1% sequential growth generated by CBU as Christine has pointed out. We believe the U.S. distribution channel has been stabilized and de-stocking especially completed. Looking at the big picture. While large enterprise and making the shift the 40 gig and 100 gig switching, small, medium businesses are upgrading to multi-gig and 10 gig switching. Here at NETGEAR, we have focused on providing these SMBs with the equipment they need to make this upgrade as easy and affordable as possible. As alluded to you on our prior call, switching currently make-up the bulk of our commercial business. We recently with this two new series of switches for SMB, one of which the multi-gig switch is specifically designed or latest in Wave 2 wireless AC deployments. With more new products to come for the rest of the year, we are looking for to a successful 2016 for the commercial business units. Last but not least, we will extremely please with the performance of our Service Provider Business Unit or SPBU during the quarter. SPBUs revenue benefited from unexpected upside demand during Q1, while we continued to focus on generating increased profitability within the business unit. I’d like to highlight that during the quarter we launched the world’s first vDSL Wave 2 WiFi Gateway for small businesses with Telstra. We also launched the Unit Explore with AT&T, which is the blazing fast LTE Advanced mobile hotspot that is ruggedized for the outdoors. Both of these products are hit with our customers. Also both are design with the latest and greatest in wireless technology, LTE or WiFi. Which allows us to set ourselves a part from other vendors in the service provider space. As I have said on prior earnings call, our service provider business unit is focused on high value-add, cutting edge technology, such as LTE Advanced, DocSys 3.1 and vDSL rather than low margin commodity technology. To summarize, we have all three business units performing to or above our expectations and we continue gaining share in Home WiFi, home security cameras and switching. I will now turn the call back to Christine for our Q2 guidance.

For the second quarter of 2016, we anticipate revenue will be in the range of approximately $290 million to $305 million. Second quarter’s non-GAAP operating margin is expected to be in the range of 9.5% to 10.5%. Our non-GAAP tax rate is expected to be approximately 34% for the second quarter of 2016. Operator, that concludes our comments and we can now take questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. And your first question will be from Tavis McCourt of Raymond James. Please go ahead.

Thanks for taking my question. I’ve got a couple of them. First on the financials this quarter, the gross margin was obviously much higher than we had in our model and especially considering the outperformance in the service provider business a bit surprising. You mentioned specifically less airfreight this quarter. Is there -- was there anything artificial or one-time in those gross margin levels as well though, where should we expect those the level out as the year progresses?

I think it’s really related to just supply chain efficiency, in main lead freight in Q1, which was lower than we would expected to be going forward. And you can see that inventory total on the balance sheet.

Yes. And then couple of product question Patrick.

Sure.

On the DocSys 3.1 on the slide and the presentation it indicates you’re working with the large cable provider to make your 3.1 available at retail. But you also pursuing service provider channel distribution for that or will you be slowly at retail with that product. And then Arlo Q, I guess is more targeted to the commercial channel, I guess talk a little bit about the distribution strategy for that product and if you have any insight into the size of the commercial market for security cameras versus the consumer market, we’ve been in previously. Thanks.

Sure. On the first one definitely, we are doing the DocSys 3.1 on all channels, not only the retail channel, clearly we see ourselves have opportunities shipping that to operators, cable operators around the world. Secondly, regarding the commercial side of the camera, I mean as a matter of fact, the commercial side of video surveillance security may on bigger then Home Security and then clearly the channel that are very, very important for this is the security installing, people who traditionally install security alarm and sensors and cameras, auto cameras, those are very, very important to us. And as a matter of fact that’s why we participate in those specific trade shows, we did participated one call idea west just a few weeks ago. And there is a lot of interest in Arlo Q and you exactly right, we intend to use Arlo Q to really break until the small medium businesses commercial segment. And we do believe we have a lot of advantages in our Arlo Q and Arlo Q Plus over competition and is applicable worldwide, we’re looking forward to really good ramp of this product on top of the Arlo wire free.

The next question will come Ryan Hutchinson of Guggenheim. Please go ahead.

Okay, great. Good afternoon guys. I guess sort of a follow-up to the last question. Gross margins obviously are the best they’ve been since 2010. And service provider drove the bulk of this upside this quarter, plus you have the air freight you talked about and I understand you guide in the business to operating margins. But is it fair to assume that these gross margins are sort of the new norm as we think about the business with the lower contributions and service provider?

No, I really think, we will see the air freight and a few other supply chain efficiencies in there, it was very efficient in Q1, we brought in a lot of inventory at the end of Q4 and that’s -- I believe that is not going to maintain that 33%.

Okay. And just I guess some sort of guidance is it more back towards where we were last year?

Yes. More towards Q4 in last year.

Okay, okay. And then just as far as this new mix and revenue as we think about the business overall versus historical seasonality, has anything change or are we still operating with the assumption that this is going to be weakest quarter followed by the back half being the strongest and so on and so forth. So is there modest adjustment to seasonality given the new level with regards to service provider or not?

No, I think actually seasonality is a little more, a little higher, when you look at the Q1 and Q2, as -- its 50% of the business RBU. But we still expect to back half of the year to be better than the first half and Q2 are toughest quarter. You can see the guidance there and that’s always a tougher quarter, because retail seasonality goes down in Q2.

Okay. I’ll get back in the queue and I got a couple more. Thanks.

Our next question will come from Hamed Khorsand of BWS Financial. Please go ahead.

I just want to first far for the number I think, I didn’t hear or you didn’t say, how many units were shift during the quarter?

I believe it was 5.5 million units.

Okay. And then my other question was, can you talk about Europe and the step down and revenue, your commentary was, there was international in the service provider. So I’m assuming the retail segment Europe was significantly weak in the quarter, I’m just trying to get a gauge as to what’s going on there?

I’ll say when I look at the step down in revenue on the AMEA side. It’s probably bring down half service provider and then normal seasonality. So we really saw normal seasonality in Europe also in Q1 and then step down in service provider.

Okay. And as far as the ac units that we’re going 11ac, are you able to providing any color as to if you’re seeing anymore uptick and demand from the higher price point versus the lower price point in Nighthawk?

Well as a matter of fact, I mean thanks to, the considered asset of channel and it was our competitors as well. The unit and the revenue shifted more to 11ac and it’s going to band 11n as a matter of fact more than half the market is shifted towards products that are over $100. So we definitely see the market shifting. Is just like what I’ve been saying before, when smartphone was introduced than the whole market shifted to higher priced smartphone away from the cheap dump phone. And I believe that same is true now for routers that people are shifting to these multi-band 11ac routers instead of the single band dump end routers.

Now Pat, if you could provide us some sort of depth to the mix as far as the consumers are shifting away from buying $200 Nighthawk routers versus your $300 Nighthawk router?

I just said that now more than half of the market is shifting to buying routers which are over $100 than before. So clearly in the market shifting to the higher price products.

Got it, alright. And then my last question is are you going to see any kind of benefit from commercial side as far as the readjustments that you’ve done. Is there going to be on an ongoing basis, now after given what you saw in Q1?

Well, I mean we certainly pleased with the sequential growth from Q4 to Q1 and given the fact that there is no additional destocking. So there is no increase in inventory level. So that means the growth from Q4 to Q1 is truly reflective of what’s in market sales. So we are very encouraged with that and clearly we announced quite a few new products just recently. For example our all bunch of 10-gig switches and PoE switches were announced just recently. Some of them are really groundbreaking. So like the multi-gate switch we just announced and it is groundbreaking. So we do believe our new products from CBU and the pipeline of new products for the rest of the year, we continue to enhance our chance of having a successful year for CBU.

Right. And Hamed just reiterate we had said prior to this call, but we believe the RBU and CBU combined with grow 10% during 2016 and obviously CBU part of that.

Okay, great. Thank you.

And the next question will be from Rohit Chopra of Buckingham Research. Please go ahead.

Thank you. Christine housekeeping question wireless note, can you give that number, do you have that?

I will get that for you, I don’t have it in front of me right now, I’ll get it, I’ll back to you.

And then the --.

4.2. Rohit, its 4.2 million note.

4.2 wireless, okay. That’s great. I appreciate that. And then question I had was on competition in retail and you see put that are coming out with home mesh network. So everybody seems to be following your strategy of trying to push per higher ASPs in retail market. Can you tell us your strategy with this home mesh network and if you’re seeing that competition at all, eat into your numbers in certain area?

So first and foremost, we welcome new entrance into the market especially as even higher ASP. So that’s good, so that’s again, I mean as you say validates our strategy, I mean nothing is better from a flatter standpoint on somebody copying your model. We do believe that providing Home WiFi coverage eliminating, dead spot is the way to go. And this mesh network concept we introduced it last year with our Dead Spot Terminator under the joint branding of best by Geeksquad and NETGEAR and it’s been very successful. I guess, that prompted our competitions of copy copycat and we will welcome any copycat, because that validates our strategy. So we will continue to do, I mean on a single router expand the coverage with the Nighthawk series. And then of course, we will continue to develop our mesh network along the line of the Dead Spot Terminator where you have multiple units to cover the house. So as far as competition is concerned, we actually saw our market share ticked up in Q1 both in North America as well as in Europe. So I think the new entrance compare the old competitive more than us.

And the next question will come from Kirk Adams of Rosenblatt Securities. Please go ahead.

I’d love to hear more about APAC and was it successful there and did you expect that. And then also can you talk about foreign exchange and what’s the impact of that is in the quarter and going forward?

I’ll let that Christine talk about foreign exchange, because I don’t know much about it.

Sure. The effect [ph] it had was not a lot from Q4 to Q1. I mean, so and really year-over-year it’s not a lot. So we’re just really not talking about it.

Okay.

And Asia-Pacific, I mean as you could see the percentage of revenue drive from Asia-Pacific market is perking up year-after-year and we’re very pleased that in Q1 it culminates to 17%. I remember many years ago, I talked about that evenly Asia will represent 20% to 25% of our total sales and we clearly marching towards that goal. Clearly, if you look at the pure economy, I mean Asia is the biggest, if you combined Japan and China and India it’s definitely bigger than Europe, bigger than the U.S. and population is not even comparable. So naturally that should be a very lucrative market and also unlike Europe and the U.S., while the economy is kind of growing at a very snail pace. Asia-Pacific economy, if you look at China and India still growing at 6%, 7% we talked about recession, but for 6% and 7% we’ll take it any day. So and also the most important thing both in these market of China, India is that the middle class is growing rapidly. And more and more affluent people servicing, I mean as a matter of fact the last report I read is that there are more billionaires in China than in the U.S. now. So there all bodes well for us, because we not selling cheap stuff, we’re selling the most expensive high-end aspiration products. So all of those elements benefit us and we believe that our Nighthawk routers, our Dead Spot Terminator, our Arlo security cameras will play really well. And for the Asian market and we expect that will continue to take share away from our competitors both from the U.S. as well as from the local Asian vendors.

And the next question will come from Rob Cihra of Sterne Agee CRT. Please go ahead.

I have two questions if I could. One on service provider and may sound silly. But if you look at the leverage you got this quarter with the upside off with the lower cost structure you now have. I mean is there any chance you look at that, you say maybe we can actually go after lower price business that we would have otherwise, because we now have the floor cost structure or was this just a one-time boost and that’s too optimistic? And then separately, if I could just with Arlo, now anniversarying the cameras from, you went through with the cameras last year. Can you tell us anything in terms of your, maybe tell us your next category that you would get into, but maybe what you learnt from RO in terms of giving a direction on your next category? Thanks.

Yes, I mean for the service provider definitely, if you have the fixed cost structure and on your existing product line and especially on the leading edge pipeline all of the sudden you get a blue bird order that’s very-very high leverage, because you have no additional cost, but at the front end of the margin and you get extra revenue, we’ll take it any day. Now but those opportunities of are far and few in between and the main reason that we could take care of it is because our competitors just did not have that kind of logistics excellence that we could do. Absolutely, if there is such a blue bird coming in every quarter we’ll be more than happy to take it, but on the other hand I am not going to lower our margin to try to catch this type of business, but the good thing is -- I mean the product that we are shipping is leading edge, so the margin is good. But you are right, definitely our objective is now after we pair down the credit lines for service provider and really leave it just through the high value add differentiated high margin products we absolutely will look for opportunities everywhere and if we could grow that business of course we would do that alright. And then the in terms of Arlo, yes I mean clearly Arlo fits right into our channel, the strength of our channel. We’re very strong in retail, we have a fantastic brand around the world, we have a very strong wall based, alright. So that's why when we create Arlo wire free and then Arlo Q, we just inject them into the channel and then channel would take it from there. As long as our products are differentiated leading edge and provide real value to our customers, our channel will be able to take it as far as we can. We will use that same experience to develop our next category of products in the smart home or in the smart office as I said it in the prior two earnings call, we are really focused on a product category that we see, are already growing, but we would be able to provide a highly differentiated products that would add significant value and fulfill a significant unmet need from our customers in that category that would just command a premium and it’s a higher ASP. So we are scanning many of the categories and there are few that we are putting our eyes on and we would come out with new products, but we cannot disclose what it is until it’s out.

And the next question will be a follow up from Tavis McCourt of Raymond James. Please go ahead.

Just had a couple of more as I look to the results more, Christine the DSOs were down quite significantly in the quarter and I think there are about as low as they've been since about 2011 in my model so if there is any specific reason for that and any kind of guidance going forward that would be appreciated and then Patrick on a business that we don’t talk about too much the LTE business I'm not sure the markets for LTE gateways really took off like you would anticipated but we are hearing from a lot more carriers talking about 5G as a potential fixed wireless solution and I know it's years ahead, but I guess what is your view point on, I guess first of all LTE gateways still as a viable market and then if the carriers wait till 5G, is that something that you are willing to spend on ahead of the market to stay involved in fixed wireless? Thanks.

Let me answer DSO quickly, two things on that the lower the service provider usually the better with DSO and secondly when we look at our retail quarter, we do give holiday payment terms to some of the large retailers and most of that money than comes in, in Q1 so they get extended terms once a year. So I’d say our range is still 65 to 75 and you can see that if you look over history we have to be at the lower end of the range this quarter.

As far as LTE, I mean clearly our expertise is actually in wireless, be it in the license, the band for LTE advance or the unlicensed band for Wi-Fi. And 5G is being talked about and the standard is not really finalize and the format is not finalized, but no matter what we will believe that we will be as the leading edge because frankly there is not a single competitor in our space how knows more about both the license and the unlicensed band of wireless as much as we do. And we have very close relationship with auto chip vendors that provide wireless technology in these areas of mainly Broadcom and Qualcomm and we believe that we will be at the full front of the technology and we would be very focused on making sure we are a leader in the 5G technology. And you are right LTE gateway in the developed markets did not pan out as well as we would have liked and the emerging market is still pretty emerged in the old 3G technology which is very low margin which will not be open for us to go in, but you hit it on the head with the new LTE technology, not only in 5G, but even in 4G, I mean the LTE advanced continues to progress. I mean the next milestone is the gigabit of Cat15 and then also there is this CatM, M1 and M2 coming along for these turns which will open up tremendous opportunity in what we call the mobile IOT area again, I mean nobody could compete with us, if you look at on the low power wireless technology, we had it all. We’ve been doing years in the mobile hotspot and now with Arlo wire free all these are very tricky, low power wireless technology, I don’t think any of our competitor have any parallel to our expertise over there. So we look at LTE as a tremendous opportunity in all three areas. The existing LTE advance, the incoming LTE in 4G in CatM and then the upcoming 5G, so it’s a tremendous opportunity for us to branch out and capitalize on all these new final alternatives in the future.

[Operator Instruction] and I’m showing no additional questions at this time. I would like to hand the floor back over to Patrick Lo for any closing thoughts.

Yes thank you everyone today and I think we all very excited about our Q1 performance as well as more importantly the strength of our channels and the strength of our new product which validate our strategy in really focusing on what we do the best. Which is wireless and switching in the leading edge category and give them opportunity to branch all into new product category but utilizing our existing strength in both brand and channel which we are happy to see that is not only resonating in our traditional market in North America and Europe but it’s clearly now resonating in Asia as well and in the emerging markets. We are very pleased and we will continue to follow this path and in the next earnings call we will talk more about more new, exciting new products and expansion of channels. Thank you very much and look forward to talking you again in July.

Thank you, sir. Ladies and gentlemen the conference has concluded, we thank you for participating in today’s event you may now disconnect your lines.