Universal Electronics Inc. (UEIC) Q1 2016 Earnings Report, Transcript and Summary

And good day, ladies and gentlemen, and welcome to the Universal Electronics 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 may be recorded. I would now like to turn the conference over to our host of today's call Mrs. Becky Herrick, of LHA. You may begin.

Thank you, Lathania. And thank you all for joining us for the Universal Electronics first quarter 2016 financial results conference call. By now you should have received a copy of the press release. If you've not, please contact LHA at 415-433-3777. This call is being broadcast live over the Internet. A webcast replay will be available for one year at www.uei.com. In addition, any additional updated material non-public information that we discuss during this call will be provided on the company's website, where it will be retained for at least one year. You may also access that information by listening to the webcast replay. After reading a short Safe Harbor statement, I'll turn the call over to management. During the course of this conference call management may make projections or other forward-looking statements regarding future events and the future financial performance of the company, including the company's ability to maintain and build its relationships with key customers; the company's ability to anticipate the needs and wants of its customers, and timely develop and deliver products and technologies that will meet those needs and wants, including two-way RF technologies, voice control, QuickSet Cloud, QuickSet 3.7, home security, home automation, wireless sensors and other technologies identified in this call; the significant percentage of its revenues attributable to a limited number of customers, and particularly the sales growth and benefits of the company's relationship with Comcast; the timing of new product rollout orders from the company's customers, as anticipated by management; the continued trend of the industry and providing consumers with more advanced technologies; the company's expansion into the home security space; management ability to manage company's expansion into the home security space; management's ability to manage its business to achieve its revenue margin and earnings as guided; the continued ability to identify and execute on opportunities that maximize stockholder value, including the effects repurchasing the company's shares have on its stock value; and other forward-looking statements described in the company's filings with the U.S. Securities and Exchange Commission. The actual results the company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. Management wishes to caution you that these statements are just projections and actual results or events may differ materially and the company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date. For further detail on risks, management refers you to the press release mentioned at the onset of this call and the documents the company files from time-to-time with the SEC, including annual report on Form 10-K for the year-ended December 31, 2015. These documents along with the risks identified earlier contain and identify various factors that could cause actual results to differ materially from those contained in management's projections or forward-looking statements. In management's financial remarks it will reference adjusted pro forma metrics. Management provides adjusted pro forma metrics because it uses them in making financial, operating and planning decisions, and in evaluating the company's performance. The company believes these measures will assist investors in assessing the company's underlying performance for the periods being reported. A full description and reconciliation of these adjusted pro forma measures versus GAAP is included in the company's press release issued after the close of market today. On the call today are Chairman and Chief Executive Officer, Paul Arling, who will deliver an overview; and Chief Financial Officer, Bryan Hackworth, who will summarize the financials, Paul will then return to provide closing remarks. And it's now my pleasure to introduce Paul Arling. Please go ahead, Paul.

Thank you, Becky, and thank you all for joining us today. For the first quarter 2016, we reported record net sales of $151.5 million, reflecting 14% growth over the same quarter last year. We also reported EPS of $0.50 per share, also a first quarter record for UEI and reflecting a 9% growth over the first quarter of 2015. UEI's focus on creating the world's best user experience within home entertainment has us ideally positioned as the industry trends towards more sophisticated products and solutions. Our subscription broadcasting business in particular benefits from this industry transition as our customers are rolling out new platforms around the world that are changing the landscape of home entertainment. These platforms feature UEI's advanced AV control software and hardware, which enable users to operate the devices within their home entertainment setup more easily than ever before. To provide you with more color on this significant opportunity it's important to look at the overall market opportunity within the subscription broadcasting channel. There are approximately 600 million subscribers in the subscription broadcasting industry worldwide, companies that represent roughly one-tenth of those subscribers, around 57 million have already began rolling out advanced remote control technologies incorporating solutions. This provides a significant growth opportunity for us as they continue to deploy these products across their entire subscriber base in the coming months and years. Companies representing another approximately 55 million subscribers are at various stages of implementing similar advanced technologies. These customers begin to plan rolling out these next generation projects later this year and into 2017. In essence UIE is or will be supplying our advanced remote control technology to customers representing more than 110 million subscribers or nearly 20% of the entire world subscriber base over the next few years. While we are still at the early stages of this trend and these customers will take time to roll out these new platforms across their entire subscriber base, this provides a near term and a long-term impetus for growth and we are very excited about the opportunity before us. Throughout 2016 and beginning in the second quarter we will be rolling out our exciting new portfolio of Ecolink home security monitoring and control solutions. This new suite of intelligent sensing technology combines with our home entertainment control innovations, to provide customers a more complete smart home solution. On March 10, we announced we signed an exclusive distribution agreement with Interlogix, to make our innovative wireless sensing and control products available exclusively through all Interlogix sales channels, within the residential and commercial security segment. We expect this agreement to significantly expand our presence in the home security space. Our traditional customer base, with the introduction of the cloud connected two way platforms discussed previously, provide an enormous opportunity for UEI to add its new home security products to their offerings. Our innovative solutions and strong customer relationships provide us with a great advantage in building our share of this new and exciting market. The newest innovations in our QuickSet suite continue to set the benchmark, for phenomenal user experience in the home entertainment. New products powered by QuickSet were recently introduced by leading names in home entertainment, such as Samsung and Sony. We are already receiving positive feedback on the devices powered by QuickSet. For example, in an April 20 product review in the Wall Street Journal, Geoffrey Fowler reviewed Samsung's new TV in which our QuickSet technology is embedded. Fowler stated, and I quote "when Samsung told me, it built a remote that automatically controls almost anything you plug into its 2016 TVs, Blu-ray players, Apple TVs, Xboxes and pretty much every cable box in America, I didn't believe it." Fowler went on to say, "Samsung fixed the most annoying thing about TVs. This tech development will have a pretty immediate impact. Behind the scene of a TV was labeling each input and wirelessly teaching its remote the language of its corresponding device. Samsung's TV and remote are your universal translator. All of this happens without tapping any special buttons. Things just work when you need them. This is certainly a ringing endorsement of our QuickSet technology and the full review is available on our website. Another reviewer from CNET stated and I quote, amazingly the TV itself can recognize your external devices as you plug them in, and program the TV's remote to control them automatically, eliminating set up. No other tech device I know about can do anything like that. This feedback speaks to the many years of experience we have in developing the kinds of innovative products and technologies that anticipate our customers and consumers future needs. It affirms that UEI has created the easiest, most intuitive user experience in home entertainment control, that has once again elevated the state-of-the-art in our industry. Our team is proud of what they have created, but we are far from done. We continue to work on enhancements and expect more market penetration of these technologies in the coming months and years. On March 9, we announced our relationship with our long-standing customer Comcast took a major step forward. After expanding our development and supply collaboration agreement, in which we supply the voice remote as part of Comcast X1 Entertainment Operating System, we entered into a warrant agreement. This new agreement provides Comcast with the opportunity to acquire shares of our capital stock tied to the fulfillment of predefined purchase milestones. In anticipation of our continued sales growth with Comcast, particularly as we will be now providing them with innovative products across their XFINITY home platform, we believe this agreement is of significant benefit to UEI, Comcast and our shareholders. With that, I'd now like to have Bryan Hackworth, our CFO take you through the financial results.

Thank you, Paul. As a reminder our results for the first quarter 2016 as well as the same period in 2015 will reference adjusted pro forma metrics. First quarter 2016 net sales were a $151.5 million, an increase of 14% compared to $132.7 million for the first quarter 2015. Business Category net sales were a $141.5 million, compared to a $121.5 million in the prior year. This increase represents the continued transition customers from the lower-end platforms to higher-end platforms, including features such as two-way RF technology and voice control. Consumer Category net sales were $10 million compared to $11.2 million. Gross profit was $38.9 million or 25.6% of sales compared to a gross margin of 28.4% in the first quarter of 2015. Much of the impact to our gross margin rate is a result of a decrease in royalty revenue, primarily in the mobile space relating to a significant brand name. This created difficult comp in the first quarter. However the year-over-year impact of royalties for the remaining quarters of 2016 is minimal. Also affecting our gross margin rate is a fact, a higher percentage of our sales were made to large customers who received favorable pricing, because of higher volumes. As mentioned on our earnings call in February we expect our gross margin rate to improve throughout 2016, as the previously discussed mix impact diminishes as the year progresses. Operating expenses were $29.5 million, compared to $28.6 million in the first quarter of 2015. Breaking down our operating expenses, R&D expense was $5.1 million, an increase of approximately 17% compared to $4.3 million in the first quarter of 2015, as we continued to develop technology, that enhance the user experience in both the home entertainment and home security channels. SG&A expenses were relatively flat at $24.4 million, compared to $24.2 million. Operating income was $9.4 million, compared to $9.1 million in the first quarter of 2015. The effective tax rate was 25.7% compared to 21.1%. Net income for the first quarter of 2016 was $7.3 million, or $0.50 per diluted share, compared to $7.4 million or $0.46 per diluted share in the first quarter 2015. Next I will review our cash flow and balance sheet at March 31, 2016. We ended the quarter with cash and cash equivalents of $56.1 million, compared to $53 million at December 31, 2015. During the first quarter, we repurchased approximately 33,000 shares for $1.7 million, representing an average price of approximately $52 per share. We have approximately 375,000 shares remaining on our share buyback program. Depending upon the market conditions, we may buyback our shares in the next few months. DSOs were approximately 66 days at March 31, 2016 compared to 64 days a year prior. Net inventory turns were approximately 3.8 turns at March 31, 2016 compared to 4 turns a year prior. Now turning to our guidance; in the second quarter of 2016 we expect net sales to range between $167 million and $175 million, compared to $147.6 million in the second quarter of 2015. EPS for the second quarter is expected to range from $0.71 to $0.81 compared to $0.67 in the second quarter of 2015. As a result of the continued adoption of higher end platforms by domestic and international customers, as well as the recent customer wins in the home security market, we expect our earnings growth to accelerate in the second half of 2016. I would now like to turn the call back to Paul.

Thanks, Bryan. The trend toward easier set up and intuitive control of devices and services in your home, plays right into UEI's core strengths. For years we have redefined what a remote control is and what it is capable of doing. The home is beginning to transform with a series of cloud connected two way devices that will bring entertainment and services not available before. We are leading the industry and creating the products and embedded technologies that make these new options easier to set up and use than ever before. As I stated earlier, we have already elevated the state-of-the-art in the industry, with our latest product and technology solutions but we are far from finished. We are excited to play such a key role in the exciting evolution of home entertainment, home safety and home security. And we believe the best is yet to come. Stay tuned. I would like to now open it up for questions. Operator?

[Operator Instructions] Our first question comes from Mike Olson of Piper Jaffray. Your line is open.

Good afternoon. I had a couple of questions for you. When you look at the operators representing $57 million subs that are currently using UEI to roll out next-gen remote out of that $600 million, Comcast would maybeaccount for half of those subs I guess, but can you tell us what operators are the other subs coming from and atwhat stage of rollout are those service providers at?

Yes, Comcast would actually be less than half of that, I believe on the dataset we look at first-of-all. Second-of-all, a lot of the names still haven't allowed us to go public. I guess the only one I could name, that is public is Cox. Cox is using a version of the X1 platform. So that's the only one at this point that I can recognize publicly. But together, the operators that we have currently, which is a few, total almost 10% of the market. We have 10% more that are close and will roll out later this year in to 2017.

Okay. So when you were describing that 55 million subs that are currently in advance phases of testing, is that consistent with what the language you just used related to their close and they will be rolling out later in the year?

Correct. Yes, the projects are being worked on, are at various stages of completion. Some will be coming out sooner, some later in the year. But throughout the remainder of this year and few into next year those projects will roll out. But we're working on with the operator now. They're finalizing design of everything. Those we really can't talk about because many of those platforms are not public yet.

Okay. Makes sense. And then what percent of those $600 million total subs are in the U.S. and do you believe your opportunity in the U.S. is more tangible than getting next-gen remotes pushed out to international subs or is the interest equivalent both domestically and internationally?

No. I would say, it's – many of the wins we have and there's over ten of them that we haven't announced yet are – many of them are outside the U.S. I would say that it's mostly in the higher ARPU markets. We have a lot of wins in Europe. There are some in the Asia-Pacific region as well. But clearly, the U.S. is the key market, because of the higher ARPU here. So we think that this is a market, where in the next few years this could become 100% of the market, whereas other markets make move to 50% or more percent, but it will take a long time for them to get to a 100%. I liken it to the advent of the universal remotes, Mike where, when they first came out that the market segment first were North America, then into Western Europe and major markets in the Asia-Pacific region, but it spread from there to nearly a 100% now. So the advanced remotes will probably follow the same path. They'll be more prominent in North America, Western Europe and major markets of Asia-Pacific, but then we'll grow from there. The important thing though is that, we're winning a lot of customers here. I've mentioned this before. I kind of want to put some numbers around it, so people could get an idea of how this trend is progressing. And it looks like right now UEI Technology will be powering these next-generation platforms over the next couple of years with 20% of the worlds – companies representing 20% of the world's subscribers.

Okay. And -

The U.S. market by the way is between 110 – North America, rather is between 110 million and 115 million subs. So the ones we've closed are about the size of the entire U.S. market, are equal to - the ones we won were in Europe, and a handful in Asia-Pacific region.

Okay. And then, one last one I missed the very beginning of the call. I think the midpoint of your guidance for Q1 was somewhere around $157 million, I think if I remember right it was reported $151 million. The $6 million kind of delta there versus the midpoint of the guidance, what was that attributed to?

Yes, I was probably little aggressive on the forecast in terms of sales. The earnings came in right at the midpoint at $0.50. It was a little bit in – in Latin America. I mean right now Latin America is a tough environment. So Brazil and Argentina are struggling a little bit compared to our forecast. There was really a small thing. We had a – a retailer go bankrupt in Australia that, that hurt the consumer business a little bit. Europe fell short a little bit about a $1 million. But we thought we'll grow 15% to 21% on the top line, and we came in at 14%. So I – we – a little bit short of the bottom end of the range but by one percentage point. But again the earnings came in at $0.50 right in the middle and as Paul has outlined, the year looks really good. I mean the number of customers we have that we launched – obviously we came out this year with one large customer, very large customer, and we added three additional in Q4 and then as Paul has mentioned we got 10 additional that were in different stages that are going to be launched in 2016, and a few in 2017. So the year is really shaping up well. So I'm excited about it.

All right. That's great. Thanks very much.

And our next question comes from Les Sulewski from Sidoti. Your line is open.

Yes. Thank you. Hi. So on the gross margin side, and you mentioned a follow-up in the royalty revenue. Can you talk a little bit more about what happened there on the royalty side specifically I guess, it's regarding smart devices and how will that impact margins moving forward?

Yes. We talked about before where the – the comp for Q1-over-Q1 was very difficult because the royalty that were received in Q1 of 2015 were so significant, and it related to a mobile device manufacturer, a large brand name, I can't say the name. But that went away. So that was a hole in Q1 which made the comp difficult from a gross margin grade. Now as the year progresses, we it was mentioned, we came out this year with a large customer with the hiring platform that, because of the volumes they purchased the gross margin rate was lower than the company average. But as the smaller companies – customers adopt, the rate will be not as favorable, which should put upward pressure on our margins, which is good. The other part that's going to help the margin rates is the home security channel, which yields a higher gross margin on a company average as well. So second half of the year we should ramp nicely in that category, as we recently issued a press release stating one of the wins that we've had. So I expect the back half the gross margin rate will increase and the earnings will accelerate in the back half for the year.

Okay. So if I get it right, the royalty revenue was primarily from smart devices and I guess maybe from a high level standpoint if you can talk about some of the adoption rates on the smart devices. Are you more – are you I guess less bullish than say you were a year or two years ago?

Well, yes, I would say this that there was a major player who had this as a feature and has now dropped it. So the overall volume is tougher but we've had a number of wins with smaller providers. So it would be interesting to see how it unfolds as the next five years to 10 years goal. But one of the major companies in the industry, drop the feature. So that's what caused our royalty to surge in Q1 of last year and have it be absent this year. We understand the latest model has -- does not have the feature.

Got it. Okay. As far as the deal with Interlogix goes, did I understand you correctly? I mean, will this be your exclusive distributor, and I mean if not, are you – are you going to be working with others? And then maybe talk about some of the wins there that – you announced one, but didn't quite get specific details. If you could provide any, that would be great?

Yes, Interlogix may not be the only company we work with. They will be providing their third-party product, provided by us. There are others we could work within that industry. And then of course, as I outlined in the prepared remarks, there is – there are traditional customer base, some of whom have already announced that they are in this market or moving into it, provides a huge opportunity. Because they are all putting in place in architecture within your home, that would allow them to add this service relatively easily. But the thing that they will need to do it, are the products similar to what we make, which are the sensing products. Just like in video, they need to control products. In safety and security, they need to provide sensing products, window sensors, door sensors, motion sensors, a key tab to control to it. All of which are quite frankly similar in nature to the remotes that we make on the video side. So, we think that is also obviously a huge opportunity. The Interlogix window gives us volume and a big win in the traditional market, which we told people don't overlook that either, there are growth opportunities there as well. So after six months or more of being involved with Ecolink, we've made a lot of progress as far as market development is concerned. And as I said earlier and we did in the press release on Comcast XFINITY Home, where they will also be working with us on these products as well.

Great. Thank you for that color, Paul. I guess last one maybe for Bryan here, a two- part of question. First on the – as far as repurchases go, I think you slowed down a little bit in Q1. I guess as far as modeling purposes probably keep the share count at this level, and then you also mentioned the EPS growth rate to accelerate in the second half of the year? How can we look at that, this is the double-digit growth in EPS, is that something that's safe to assume?

Well, I'm not going to give a number. But if you look at the Q1 and then Q2 sequentially, than Q3 and Q4 accelerated even more than that. As I mentioned, I think the driver behind this can be the gross margin rate. Because, the smaller customers are coming on board, that's going to put up pressure on the gross margin rate as well as the sales into this home security channel. So it's playing out well, and we feel pretty confident that the growth rate will accelerate from an EPS level.

So if I understand you correctly, you're mentioning the growth rate accelerating sequentially first half over second half, not year-over-year?

Correct.

Okay. Got it. All right. Thank you guys.

[Operator Instructions] Our next question comes from Steven Frankel of Dougherty & Company. Your line is open.

Good afternoon. Bryan, could you start by telling us what Comcast and DIRECTV were in the quarter?

Yes, Comcast was 26% and DIRECTV was 11%.

Okay. And the tax rate was a little higher in Q1, is that the new rate for the year or is there's something in particular in the quarter that popped it up?

No, compared to last year we had a tax refund come in Q1. So that's why year-over-year it's a little higher, but for the full-year I still think it'll come in around the 23% give or take a little bit. It's just more of a timing thing, but full year I think it will be in the 23% range.

Okay. And then, Paul on Interlogix does that relationship begin in Q2 or do those products start to ship later in the year and how material are they going to be as a customer for you?

Well, the products will start shipping now, but it will ramp as the year goes on, because there are in some cases qualification process that some of the products will still have to go through. So, it will ramp as the year progresses.

And kind of is that a – are they a big enough customer that it can be material, are you the only supplier of these products to them or you are one of several, help us understand the potential of this relationship?

Yes, well as the products get qualified we'll become the only supplier of the product. But it will – I think the earlier question is how material is this? I guess it depends on what we mean by material. I don't know that we have in our forecast any specific security customer becoming 10% customer of UEI in the short-term, because with annual sales in excess of $600 million. It's unlikely that any of these customers will become a 10% customer this year. However we do expect significant growth in this business over a relatively small number, annualized for last year, a number as we said, when we purchased Ecolink, that was below $10 million. We expect a significant growth and an enormous growth rate over that level of sales from the prior year. But we're gaining traction in this business and it will have significant growth this year.

Right, and just to help me understand Interlogix a little better. So, they supply into the traditional security channel. And if I'm an ADT dealer, is that the only place I go for these devices or I might have half-a-dozen suppliers that Interlogix being one of my distributors?

Well no, an ADT could buy from others. This is a deal with Interlogix. So we're utilizing their – I think, it's about 60 sales representatives nationwide to sell this to, obviously the channel-led, – it actually comes out to your house to install and they provide service so they are competitors.

Okay. And then back to the advanced remote business. Is this, you got a big backlog of customers. Where does this go three years from now? Are there other things that you're working that can help these companies keep innovating or this is the big innovation and it's all about implementation from here?

No. There's a lot of things that we are working on as are our customers because they're – some of them the world's leading home entertainment companies are focused on bringing an ever better user experience, an ever better entertainment experience to your home. Many of them, if not most of them have shared some of their plans with us and we are working on next generation products to make it end technologies, to be embedded in to their products, their converters, set-top boxes, TVs et cetera, to make the experience even better is the core focus of UEI. And we're seeing a lot of traction as we announced on the call. You've probably seen the reviews of the Samsung product, but we think that there is still more innovation in this area to come. I think that the rollout however just the ones we're doing now, provide a significant impetus for growth. Because these companies who represent 20% of the world's subscribers, it will take some time, months and years to fully turn over their subscriber base, to these new technologies. This isn't something that they do in a month. It will take time, which provides growth, over a multi-year period. And you focus on the next 20%, which we're – we're not done there yet either, with other customers that are going to see, what's going on with the leaders in the industry and say we want to have this as well. Again as I said earlier, just it does remind of many decades ago, the advent and popularity of the Universal remote itself. It comes out. The leaders implement it. Others see it, and then slowly, but surely it becomes de facto standard. I think that what's becoming of these cloud connected to a platform, that allow things like QuickSet to occur, because, it's difficult to argue that things like QuickSet aren't what people want, to be able to plug-in your TV at the – in the simplest in the sense, and have it automatically be recognized and the remote automatically setup. It's kind of difficult for people to argue, no that's not what people want. So I think, these products at reasonable cost, which is what we have, we can implement this technology reasonably. I think, it's beginning to take hold, which is why we're winning the leaders in the industry, 10%, the companies representing 10% of the subscribers. I've also closed on 10% more. And we don't think, it stops there. So there is multi-years, we think of rollout, of wins and rollout that are in front of us.

And given how public Comcast has been on how satisfied they are with the XR-11. Has that helped you win new customers that you've been knocking on the door for a while, but haven't been able to win previously?

Well, sure. Yes. But I mean, I think, they see the success and how aggressively Comcast has rolled this out and that's all public now. We don't like to talk about specific customers. But I think, it's a very public, what's going on at Comcast and I think, not just here in the U.S. either, I think the other companies worldwide are aware of what's going on here, have seen the platform, have seen how great it is, and have seen how integrated the remote control experience has become to the overall home entertainment experience and how it can make it better. So yes, I think, this is a good example of how things can be. And I think the Samsung TV – what I had mentioned on the call is another example of how great things can be. So it does affect the others in the industry. The other potential customers of ours or current customers, who have debated whether or not to upgrade to this type of technology, sometimes are pushed to action by seeing what others are doing.

Great. Thank you.

Your next question is coming from Edison Chu of G2 Investment Partners. Your line is open.

Hi, it's actually Josh Goldberg, and how are you guys doing?

Hi, Josh.

How's everything?

Good.

Paul, everything okay.

Extremely good.

Good. Just a couple of questions I guess first obviously the Comcast relationship with the warrant seemed to – it just sounds like it expanded your relationship and deepened it, and I know that there was some concern before the beginning of the year that, we didn't know when they are going to peak and if they are going to peak around, the $40 million, $42 million number. Your comments today sound like you're continuing to work with them on the Ecolink and the security side. Are you comfortable that you're going to see Comcast increase their business with you throughout the rest of this year from where there were in March and I have a follow up?

Sure yes, I – we don't like to talk specifically about the growth rate of any specific customer. But I supposed that we have announced that we're involved with the X1 and are making, what we refer to as the XR11, are working on successor products. We are also working on other products with the XFINITY Home platform rolled out to the Comcast subscriber base. The warrant agreement does call for predefined milestones that go as high as a $170 million a year to receive the full or the last tranche of warrants. We're not going to give a forecast for the customer but I think if you look at the type of numbers that are in the warrant agreement it might give you an idea of what they may be contemplating...

Right.

How deep this relationship could go as far as an ongoing multi-year agreement. It was three, two year agreements for a total of six years with very similar sales milestones in it. So we won't venture to forecast for Comcast if they would like to release a forecast they can. But I do think the intent of the agreement is to have a much deepened partnership over a six year timeframe.

Okay. Great, and then, two questions for Bryan, I guess. First, you talked about the gross margins improving, and I know, not to give us an exact number but your range of margins last year every quarter was from 27% to as high as 28.5% and here you came in at 25.6% this quarter, which you talked about being anomaly, comparing it to last year's first quarter. But even after last year's low first quarter you had 27%, 27.5% and 28%, is that a more reasonable number to think about going forward?

Yes. I think, that's – I am not to going to give you an exact number but I think, back half of the year we'll get to a more normalized rate about 27% plus. But it could be above that as well. And I think we said in Q4 we were higherthan that. So I think if it's not distressed I think that will approximate that this year.

Okay. And last one for me, just so I'm absolute – I understand what you're saying. You said that you're expecting your earnings per share growth to accelerate, in the back half of the year versus the first half. And then, you also said you think it's going to accelerate from the second quarter. Based on the midpoint of your second quarter guidance, not saying that it's going to happen, but if you take the midpoint of so for around 15% earnings growth rate. So you're saying is that the third quarter and fourth quarter should be greater than 15% earnings growth as you look at it out? Just so I understand that.

We're not providing forward guidance for Q3 and Q4.

I know but you said, that it's going to grow, or you're saying it's going to grow off of the second quarter, or growing off year-over-year?

Year-over-year earnings growth should – we expect it, according to our forecast to improve as the year progresses.

From the second quarter?

Well, as the year progresses. This quarter was 9%. We gave guidance for Q2, which as you pointed out -

Right, 15%.

Is 15%. So that's the numeric guidance we're providing.

That's right.

Okay. Perfect. Thank you so much.

And I'm showing no further questions at this time. I would now like to turn the call back over to Paul Arling for closing remarks.

Okay. Thank you for joining us today and for your continued interest in the company. We will be participating in the 17th Annual B. Riley Investor Conference on May 25 in Hollywood; the Robert W. Baird Global Consumer, Technology & Services Conference on June 7 in New York City; and the Citi 2016 Small and Mid-Cap Conference on June 9, also in New York, the same week. We hope to see you at one or all of these events. Thanks for being on the call today, and talk to you next quarter. Goodbye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.