Richard J. Thompson - President, Chief Executive Officer
Linda C. Heller - Chief Financial Officer
Kristyn Hutzell - Investor Relations
Jimmy Kim - RBC Capital Market
Todd Cooper - Stephens Inc.
Power-One Inc. (PWER) Q3 2008 Earnings Call October 23, 2008 5:00 PM ET
Good day, ladies and gentlemen and welcome to the Power-One third quarter 2008 earnings conference call. My name is [Emily] and I will be your coordinator for today. At this time, all participants are on a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator's instruction)
I would now like to turn the presentation over to your host for today's call, Mr. Kristyn Hutzell. Please proceed.
Good afternoon everyone. Thank you for joining us today to discuss Power-One 2008 third quarter results. Joining me today are Richard Thompson, Chief Executive Officer and Linda Heller, Chief Financial Officer. By now you should have received the copy of today’s press release. If not, it is available on the Company’s website at www.power-one.com.
Before we begin, I would like to remind you that this conference call may contain forward-looking statements reflecting Power-One’s current views of future events, projections or expectations. Any such forward-looking statements may deal with or include matters which involve risks and uncertainties. Power-One’s actual results may differ materially from those results just discussed or information provided in the forward-looking statements.
We refer you to the Company’s reporting documents filed with the SEC to discuss risk factors that may have a material impact on results. Additionally, in adherence with regulation FDs we have opened up this call so that all interested investors are free to listen in. The press release and this conference call will be our only forum to answer questions regarding our estimated performance going forward. Consequently, should you have any questions regarding our estimate of sales on profits or other financial matters for the upcoming quarter as well as how they may affect our income statement models and balance sheet. This is the time that we are able to respond to these questions.
I will now turn the call over to Richard Thompson, the Company’s Chief Executive Officer. Please go ahead Rich.
Thank you, Krystyn. Good afternoon and thank you for joining us on our third quarter 2008 financial results teleconference. I will begin this call with a review of the Company’s performance and then provide an update on recent developments and share with you the progress we are making in our recovery. After my remarks, Linda Heller, our Chief Financial Officer will provide greater detail on the financial results for the third quarter and discuss our outlook for the fourth quarter. We will then be happy to answer your questions.
Before I begin, I would like to introduce Linda Heller. Linda joined Power-One at the end of July having previously served in senior management roles in Applied Materials, Amgen, Johnson & Johnson, and Silicon Graphics, among others. We are very fortunate to have Linda on the Power-One team.
Today we reported net sales of $140 million for the third quarter of 2008 up 7% versus a year ago and a net loss of $0.02 per share which represents a significant narrowing over a loss of $0.07 in the year ago quarter. In a difficult economic environment, and with the Euro weakening during the quarter, our results were within guidance on both revenue and operating results and we improved our working capital position. The results confirmed that we are indeed making progress towards returning the Company to profitability and positive cash flow.
During the third quarter, bookings and backlog were up modestly year over year but as a result of unclear demand, backlog entering Q4 is lower than Q3. Revenues in North America increased during the quarter; however, we are experiencing order softness across most of our markets. In our core market, sales in telecommunications were slightly off while our other traditional Power product lines are showing some weakening.
On a more positive note, renewable energy delivered another outstanding quarter with year over year growth of 400%. As we expanded our solar product line, our geographic footprint and our market penetration, we anticipate that sales of renewable energy products will end 2008 at the revenue run rate of more than 10% of the Company’s total sales. Renewable energy inverter sales should surpass $100 million dollar mark in 2009. This business has a great future and I will discuss it in more detail in few moments.
Our growth margin improved in the quarter both on a year over year basis and sequentially despite seasonally lower volumes and a weaker Euro. Additionally, we further reduced operating expenses to 21% of sales down from 23% a year ago. First last year, the gross margin benefit from higher volumes and component cost savings realized from our supply chain initiative but were offset by continuing manufacturing inefficiencies. We have a long way to go toward correcting our manufacturing inefficiencies and as Linda will discuss when she analyzes the profit and loss statement, we are also incurring manufacturing and inventory expenses at two locations for some product lines tied to the transfer of production from the Dominican Republic to China. This transfer should be completed by the end of the fourth quarter or early in 2009.
As I did in the last quarter’s conversation, I will review the four key initiatives we are implementing to improve operating performance, while we have not met all of our original six months goals which we said at the outset were aggressive, we are achieving cost reductions from the ongoing actions and we are on track to meet these goals over the next several quarter.
During Q3, we made significant key management changes and I believe, with the new team in place, our progress will accelerate. We have hired several other extremely talented executives, each with unique qualification and track records in their fields of expertise. Gerry Kelleher is now leading our supply chain; Glenn Grindstaff is now leading our human resources efforts; and Neil Dial, our global operations as well as Linda Heller who I introduced at the beginning of this call.
Our first initiative is to grow revenues faster than the market and our goal was to increase revenue by 8% to 10% this year. We believe we are growing faster than the market. Our renewable energy business is outpacing the market growth rate by 10x and the revenue initiatives are likewise in place in our Power business. Our ongoing initiatives to improve customer service and work closely with our customers to create solutions for them using our leading edge technology are helping us win orders in a very competitive environment. However, the economy is having an impact on our growth. We anticipate that we will fall short of the 8% to 10% goal this year and end the year with 5% to 6% year on year growth despite exiting low margin, slow growth product models
Our second initiative is to significantly improve gross margin. Delays in the transfer of manufacturing to Asia and lower than anticipated demand will impact our goal of achieving mid 20s gross margin by year end but we expect continued progress. Once we complete the transfer of product to China, we will eliminate the redundant cost of manufacturing certain product line in the Dominican Republic while ramping up our currently underutilized China factory and as a result, we expect that gross margin will improve quickly.
We are working to position China as our high-volume factory, utilize Asia’s subcontractors where appropriate and better utilize our high-mix, low-volume plant in the Dominican Republic. We have initiated senior management changes in our global supply chain. We expect these changes will accelerate our supply chain initiatives including consolidating our material spend with fewer vendors and reducing sole source components.
We are repairing our vendor relationships and will speed our efforts to qualify vendors nearer to our manufacturing plants. This will reduce shipping and handling expense while significantly improving component availability and reducing inventory. We are working toward our goal to have vendors within a 100 mile range on average of our China plant. Longer term, our goal is to reduce the number of components we use from roughly 40,000 to less than10,000 over the next few years with initial progress in early 2009. As materials account for the largest element of our cost of goods sold, this represents an enormous long term opportunity for Power-One.
Our third initiative is to improve on-time delivery to our customers and during the third quarter we continued to implement specific improvement actions. We significantly reduced past due orders during the quarter and modestly improved our on-time delivery percentage to our customers. We remain committed to our goal of improving on-time delivery to 90% or higher. This is one of our most difficult challenges, as I have discussed previously, due to the multiple corrective actions required. New supplier managed inventory programs in Asia rolled out during the third quarter to support the ramp up in China and will be more of a factor in the fourth quarter and beyond as the factory becomes fully loaded.
In the area of demand planning, we initiated an SNOP process on a limited scope in July which will enhance our demand planning and supply planning processes. And we expect to initiate this process globally in Power-One during Q4. In order to improve master scheduling, we are implementing features in our ERP system to allow level loading and to balance the capacity across all four of our plants and our EMS partners. Our goal is to operate each plant at 85% capacity to create flexibility to address un-forecasted customer demand.
Our final initiative is to increase working capital efficiency. During the quarter, our accounts receivable and inventory investments were lower in dollars allowing us to reduce our vendor payables and still generate operating cash flow. We are changing our business processes to actively manage these areas to generate cash in support of our initiatives and to strengthen our balance sheet.
Let me conclude by discussing our renewable energy business. Last quarter as we announced, we launched five new solar inverters in the Aurora product family including our new 10kW and 12kW photovoltaic string inverters. These products are seeing excellent market reception. We are qualifying the solar product line for a number of countries while we add sales of support infrastructure to broaden our reach to residential and commercial customers and channel throughout Europe as well as to independent power providers and utilities.
We continue to grow our business in Germany, Italy and Spain. We have started building sales and support infrastructure in France, Greece, Portugal, the Benelux countries and Eastern Europe and we are qualifying product and assessing markets to expand globally. Our engineering capabilities match the needs of the market well and we have introduced best in class products that have a reputation in the marketplace for industry leading efficiency and reliability. As a result, our investment in sales and support is driving what we expect will be a substantial market share gain in Europe this and next year.
We are not only doing well in the distribution channel that sells products and inverters for our residential and commercial solar application, but we are having success with large power providers. We anticipate that we will repeat this success as we have seen in Europe and the rest of the world and we believe we can become a worldwide leader in renewable energy inverter within the next three to five years.
In addition, we are designing products for wind turbine OEMs that we expect to introduce next year. These will address the market for large wind projects which is roughly equal to the worldwide solar market and heretofore has been largely a captive inverter market.
There is still significant progress to be made on our strategic initiatives but our processes to improve operational performance and drive long term growth and profitability are in place. We believe we are on the track to recovering and look optimistically toward continued improvement in Q4.
I will now turn the call over to Linda for a detailed discussion of the Q3 financials and our guidance for Q4.
Thank you, Rich. During the third quarter of 2008, we recorded revenue of $140.1 million, an increase of 7% from last year’s Q3 revenue of $131.5 million and a loss of $0.02 versus a loss of $0.07 last year. Our results were within the guidance range we projected last quarter despite the challenging economic environment. These results are largely attributable to the operational initiatives we have implemented which are positively contributing to Power-One turnaround.
I will start our discussion on the results by breaking down sales by market segment, sales channels and geography. In terms of market segments, the communications market sales were $70 million or 50% of sales compared to a $63 million or 48% of sales during Q3 of last year up 11% year over year. Instrumentation and industrial market sales were $23 million, a decline of $3 million compared to the same period last year. This decrease reflects, in part, our decision to only selectively pursue new business opportunities in this market.
Renewable energy sales came in at $19 million or 14% of sales versus $4 million or 3% of net sales in the third quarter of last year. The renewable energy business continues to expand in terms of both customers and market share. Sales to the server storage and computer market were $10 million or 7% of sales, a decrease of approximately 47% from $20 million or 15% of sales during the same quarter last year, due to timing issues with phasing out older products and the introduction of new products. Other markets represented the remaining sales of $18 million which was flat against last year.
In terms of sales channel, the OEM was predominant with 76% or $106 million of total sales followed by distributors at $29 million and service providers with $5 million. Q3 sales in North America and Europe rose by 18% and 13% respectively year over year while Asia declined 17%. Europe’s increase was driven primarily by the increase in renewable energies that was partially offset by weakness in the Power Systems business from a delay in the product launch which has now been resolved. Asia’s sales also were impacted by the delay in the Power Systems product launch as well as by a shift by the OEM customers of their business from Asia to North America.
Our 90-day backlog at the end of Q3 was approximately $93 million, 11% above Q3 2007 90-day backlog of $84 million. Net bookings for the quarter came in at $121 million, a 3% increase over last year’s third quarter bookings of $118 million. Based on our strong product offering and product roadmap, we expect to gain market share in key segments particularly renewable energy despite the economic environment.
Progress continues to be made on our gross margin which was 21.4% of sales in Q3, a 40 basis point increase over last year’s third quarter result and a 90 basis point improvement from the second quarter of 2008. The improvement was due to favorable product mix, selective price increases, and material cost savings and was partially offset by an asset write off from the closure of our Hungary operations and delays in transferring production to our low cost plant in China.
Operating expenses were tightly managed during the quarter with SG&A totaling $18.2 million which was slightly higher than SG&A in the third quarter of last year but lower as a percentage of net sales. Non-recurring severance and other costs associated with the executive management reorganization added $0.7 million to expenses in the third quarter of 2008.
Engineering and quality assurance expenses for the quarter were slightly lower year over year and the team remains focused on high opportunity projects and enhance quality initiative. Although Power-One is committing additional investments in our renewable energy business, we expect continued SG&A and engineering costs discipline. As a result of the improvement in gross margin and the reduction of operating expenses as the percentage of sales, Power-One achieved breakeven operating incomes despite the non-recurring cost and a negative foreign exchange impact.
Our consolidated tax benefit for the quarter was $0.1 million versus a provision of $1.1 million in the same quarter last year. This quarter’s tax benefit was comprised of an estimated tax provision offset by the reversal of the FIN 48 Tax Reserve which was released as a result of the completed tax audit and a closure of certain open tax years at one of our foreign locations.
As mentioned, net loss for Q3 was $1.7 million or $0.02 per share versus a loss of $6.5 million or $0.07 per share for the same period last year, which last year’s figure included a $0.02 loss from restructuring and impairment cost.
I would like to now move on to discuss the cash flow and the balance sheet. Our cash balance was $39.4 million at the end of Q3, an improvement of $1.7 million from $37.7 million at the end of Q2. The Company’s improved margins and management of working capital drove positive operating cash flow $1.6 million. Cash also increased from the exercise of the over allotment options of $4.8 million related to the debt refinancing which closed in the second quarter which was offset by the capital expenditures of $2 million and debt repayment of $1.4 million.
One of our key initiatives is to improve working capital and we have implemented a number of projects to optimize cash usage. Progress has been made although it is not reflected in our day’s working capital which was up six days to 87 from 81 in the second quarter. Concerted efforts were made to reduce our receivables and inventory balances both declining over $7 million which in turn allowed us to significantly reduce our accounts payable and foreign debt balances.
Despite the payables and debt pay down, we were still able to generate the $1.6 million in operating cash flow. DSOs were approximately 91 days, up one day from 90 in the previous quarter. We improved our collections in North America while DSOs in Asia and Europe stretched due to said decline in sales quarter over quarter.
During the quarter, we also substantially improved our inventory position. The inventory balance at the end of Q3 was $113 million, down from $120 million at the end of Q2. Terms remain flat at 3.9 despite having to hold the redundant inventory for some product lines as we transferred product to the lower cost facility in China.
We believe that as we improve our planning and achieve manufacturing and efficiency, complete product transfers and execute various supply chain initiatives, inventory terms will improve. Payables at the end of Q3 were $111 million versus $121 million at the end of Q2. We reduced payables to improve our relationships with suppliers.
Next, I will review our guidance for the fourth quarter. Given that we are experiencing some impact from a weaker economy, particularly in North America which incurred a quarter over quarter drop in orders, we expect that our Q4 2008 revenue will be in the range of $130 to $136 million. This brings our full year revenue guidance to a year over year revenue growth of 5% to 6% versus our previous range of 8% to 10%. Despite lower volumes, our margins should increase based on improving manufacturing efficiencies and pro-active expense management.
Consequently, we forecast that in Q4, our earnings per share will be in the range of a loss of $0.03 per share to earnings of $0.01 per share. The forecasted full year 2008 net loss is in the range of $18 to $22 million as compared to our previous guidance of $12 million to $20 million. Although the environment is more challenging today than when we exited Q2, we are focused on the many initiatives underway to improve the top line of our margins and our management of working capital. We will control and reduce expenses and analyze our cost to ensure that we employ our resources in the most effective manner. We will continue to streamline and optimize operating and business processes. As Rich has emphasized, we are in the position to take actions that will build long term shareholder values, strengthen our market position and create a lean cost structure.
At this time, we would be glad to answer your questions.
(Operator instructions) Your first question comes from the line of Jimmy Kim - RBC Capital Market.
Jimmy Kim – RBC Capital Market
I have a couple of questions for you. First, you talked about getting your on-time shipping up to 90%. What is that number currently?
Yes. Right now, this is Rich Thompson; we are basically operating in near 70% range. We have improved that dramatically from when we started this project. But we certainly have a long way to go. We are not by any stretch of imagination finished with this project.
Jimmy Kim – RBC Capital Market
Okay. And any sort of timeline as to when you anticipate being at 90%?
Yes. Our goal was to be at 90% by the end of this year. We think, we are a bit behind and we should be able to improve it dramatically but it will be next year before we get to 90%. What has improved and is not shown in the percentages we just discussed is the degree of how much past due we are. It was weeks when we started this process, now it is two days past due. So in some instances, we are a just a day or two past due and we count that as being past due in the percentage.
Jimmy Kim – RBC Capital Market
I see. Let us see. So if the tech cycle were to get softer, and it looks like there is a pretty serious recession looming, does Power-One, would you need to do further restructuring of your manufacturing base?
Yes. I think that is a very good question. It goes to reason, our goals is to be profitable and as our top line growth changes, well obviously we have to take steps to match our cost basis. So, we will aggressively match our revenues streaming and our cost basis. So if you saw a significant drop-off in revenue, you would see actions from us.
Jimmy Kim – RBC Capital Market
I see. And as far as the renewable energy markets, can you give us some kind of idea of what we could expect in 2009?
Sure. What we disclosed in the Q last time is that we hit approximately $19 million to $20 million in revenue in Q2. Q3 was very similar to that. The difference being in Q3, we did not have any very large projects in Q2 and partially in Q3, we completed delivering inverters to a large side in Spain for a customer called [Isolat]. Now we have a much broader base so we are looking forward to avoiding lumpy performance in the future which we would associate with the startup business. We are broadening our bases, we mentioned into Europe, our qualifications, our products are being qualified now into the U.S. and we look forward to a great year in renewable energy. As I said in my comments, we would expect renewable energy to be a significant portion of the Company next year and to exceed $100 million dollars in revenue.
Jimmy Kim – RBC Capital Market
Okay. I guess I will jump back in the queue.
Your next question comes from the line of Zach Schafran - Waddell & Reed.
Zach Schafran - Waddell & Reed
Good afternoon Rich and Linda. Just two questions please. One, can you comment what you have seen thus far in the first three weeks or so here of October just in terms of business trends and then more specifically maybe Linda, from a financial perspective if you had some meaningful inflows of cash since the end of the quarter?
Okay, let me address the business first, Zach. We have not seen anything out of the extraordinary in the first few weeks. Our order rate is still strong. We saw a softening throughout last quarter with certain customers but certainly not geography or industry specific as of yet. So, we were expecting as you saw a little softer Q4, but we have not seen a large flight from the OEMs basically stopping business. Our products go into server storage and networks and renewable energy and it looks like there are still capital available at this time for those companies to continue to expand and to strengthen their businesses and market position.
So, business as usual today, we are certainly watching it on a daily basis. We went and before we gave you this guidance, we did another check as we do with our sales and operation planning process. We went and reviewed all of our orders with our customer base and their forecasted demand to us before we gave you this range. It does not mean it will not change tomorrow but we feel that today we have shared with you the best data available to us. Linda?
In terms of our cash flow, we are following our typical pattern within a quarter of our cash. We have had no new major inflows in terms of any sort of financing and we are following our typical cycles as it relate to sales and inventory based on our terms. And as we said before, we are working on our working capital to improve that and to be able to use that in the best manner possible for our business.
Your next question comes from the line of Todd Copper - Stephens, Inc. Please proceed.
Todd Cooper – Stephens Inc.
Just at the risk of asking a similar question that Zach asked but to satisfy my own curiosity, Rich. When did you see the weakening in orders begin? And I asked that because our various channel checks led me to believe that between about two weeks ago, you were seeing some weakening but not to a degree reflected in your guidance. So is that a fairly recent phenomenon or were my checks just off?
No, I think your information is correct. We have seen some weakening. We have expanded that into what we thought would be a realistic range for the quarter. We have seen some softness redistribution as you know to us that is one of our key indicators. We look at distribution as a much broader section of business and just our key target markets. So, we have projected that softness into our numbers. So, it is really been business as usual, Todd. I think your checks were correct, there were some softness the last few weeks of the quarter three but in the quarter four, it has not accelerated to any appreciable amount.
Todd Cooper – Stephens Inc.
Okay. And I will jump around a little bit but can you describe some of the problems that you have experienced in moving production from the DR to China?
Yes. Basically, when you look at our factory in China, it has been a receiving factory versus the sending factory where we have been having the difficulties. We have had to improve our processes substantially in our factory particularly on our quality systems. That does not mean that poor quality products were escaping the system but the customers who were going to use the factory wanted to make sure our processes were robust enough that if we did run across a quality issue that we could report it and address it in a very timely issue and fashion.
So, most it has been working on putting the right resources in place. We put new leadership in the quality organization and by one and also getting our supply chain more responsive to the site which we have done as well. I visited the site just two weeks ago and I was very pleased at the progress the factory has made. It actually looks very close to a world-class manufacturing factory today. We still have some positions though that we need a stronger depth on our team and certain of our positions but the processes are getting in place and I think that if you saw it, you would agree that it looks like a grade-A power manufacturing plant.
Todd Cooper – Stephens Inc.
Well, how far away are you from achieving your goal of 85% capacity utilization in that main China facility?
We are off. We are only operating at about 35%-40% capacity in China now. We are moving our high runners from DR to China as our plan in the fourth quarter and completing in the first quarter, I think even with those transfers, Todd, we will still only be about 75% utilized. Also we will still have an opportunity to put more capacity in that plant. We will wait for Neil Dial to do his work as he goes through the company and we would expect to see a plan within, say, 90 days of how he expects to best utilize our current capacity.
Todd Cooper – Stephens Inc.
Okay, and can you quantify the progress? Or is there any way to quantify the progress made today in your vendor reduction program?
Really, there is not. We are making a lot of progress. Vendor reduction takes a couple turns. Most of it is concentrating your spending into certain types of components and using few components, say resistors in examples. So, having a fewer suppliers to a range of performance in resistors or capacitors; that will take some time. Product line generally turns over three to five years. So, as I have said, it will take a long time for us to get any appreciable progress in that area. What we are focusing on though, Todd is counter-mending sole-source situation. We have suffered somewhat in Q3 and somewhat in Q2. Sole source vendors whose quality or production capabilities were limited damaged our on-time delivery and we are working very diligently to try to get sole source out of our supply base, having said that, unfortunately, again, that will take time as well because it would require some redesigns of certain products to design how to sole source. So working on both front, say, as you know if you experienced some power, that those were tied to the designed cycle of the products and takes a bit of time.
Todd Cooper – Stephens Inc.
Now let me play devil’s advocate because in the years I’ve covered your industry, I think, you know, we know, 70% approximately of cost of good sold or in components and in companies have always tried to reduce the number of vendors and that kind of thing, and I have just never seen that ever come to a meaningful end. How would you respond?
Well, that is a good comment and I think of previous companies that I have been at; it did come to a great reduction in the number of components. It requires the diligence of your design team, at the same time, please keep in mind that Power-One is a technology leader, and as a technology leader we will be adding components to be able to put that technology into our products solution for our customers. So our product line, the components used are growing because of: a. renewable energy and b. because of the use of digital control throughout all of our power products. So, fortunately, our list of parts will grow as unique parts are required to deliver that technology. On the other hand, capacitors, resistors, and things like magnetics can certainly be reduced.
Todd Cooper – Stephens Inc.
Okay, switching to the photo voltaic inverters, you stated last quarter that you expected at the end of the third quarter to have a full line of products all the way from 1.5kW to 30 kilowatts. Did you meet that goal?
Yes, we did. Our products particularly going into the U.S, we have to, we are in the process of getting U.L. certification for our products into the U.S. So we feel very comfortable with the product line we have today and we are making great strides already into wind. I cannot discuss the clients but we are working with some large OEM’s now who are very appreciative of the technology we bring to the table and it has caused them to re-think the whole strategy of whether they should be captive or not.
Todd Cooper – Stephens Inc.
Since you brought up wind, I know that you have, what you call, a wind box that is basically connected to a solar inverter and capable of handling up to 10 kilowatts. Are you talking about something different, an inverter that is exclusively designed for wind turbines as opposed to kind of an add-on?
Right. It is not the humming bird kind of concept. This is a true inverter that is actually in the tower itself. It is a very complex product; it is delivered in megawatts versus kilowatts and it is a significant investment both in engineering and because of our efficiency both in gathering the power and of converting the power, we have some technological advantages. This product also requires more complex software, we have increased our engineers that are dedicated to software design, and we are making a lot of progress here as well. So we are really excited about the RE area both in solar and in wind. I think it is going to make Power-One a different kind of company in the years to come. Having said that, we are now at abandoning power any way shape or form, we are investing heavily in processes to get our power into a competitive positioning, continue to grow that market place as well.
Todd Cooper – Stephens Inc.
In the renewable energy segment of your business, do - I guess you considered SMA Solar Technologies as one of your cheap competitors?
Yes. SMA would certainly be the leader in Europe and in Germany. Other companies like Kaco and Fronius as well.
Todd Cooper – Stephens Inc.
SMA, since they went public not too long ago, we cannot get information on them, how far away is your business from their business with regard to the margin profile?
Well, you know, that is an interesting question. Obviously, we do not disclose that, Todd, but if you think about the business, we have technological advantages. We have been able to bring that to market in a very efficient way. So, I think overall there is probably not any significant difference in the profiles of the company. I would say criticizing Power-One versus SMA, SMA probably has a better service organization than what we have. I do not know what the profitability is on their service offering so that is probably one difference as you would think about our numbers versus theirs. But generally, I think we are not too far off of what an SMA might look like.
Again, to ask a question, please key star followed by one. I think there are no further questions.
Thank you, ma’am. Without any other questions, I would like to thank you for listening to our third quarter earnings’ release. I look forward to meeting some of you on the road. We, of course, will be at the Stephens Conference in November and we’ll also be at the Barkley’s Technology Conference in December, and we hope to start reaching out in getting on the road a little bit more to engage our investors. So, thank you for listening, I hope to see you in the near future. Good bye.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good-bye.
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