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Nuance Communications, Inc. (NASDAQ:NUAN)

Q4 2013 Earnings Conference Call

November 25, 2013 17:00 ET

Executives

Kevin Faulkner - President, IR

Paul Ricci - Chairman & CEO

Tom Beaudoin - EVP & CFO

Analysts

Richard Davis - Canaccord Genuity

Brent Thill - UBS

Shyam Patil - Wedbush Securities

Jennifer Lowe - Morgan Stanley

Nandan Amladi - Deutsche Bank

John Bright - Avondale Partners

Daniel Ives - FBR

Jeff Van Rhee - Craig Hallum

Greg Dunham - Goldman Sachs

Tom Roderick - Stifel Nicolaus & Company

Shaul Eyal - Oppenheimer

Operator

Ladies and gentlemen, thank you for standing by and welcome to Nuance's Fourth Quarter and Fiscal 2013 Conference Call. At this time, all participants are in a listen-only mode.

(Operator Instructions). As a reminder today's conference is being recorded.

With us today are the Chairman and Chief Executive Officer of Nuance Mr. Paul Ricci; CFO Mr. Tom Beaudoin; EVP of Corporate Strategy and Development, Mr. Bruce Bowden and Vice President of Investor Relations Mr. Kevin Faulkner.

At this time, I would like to turn the call over to Mr. Faulkner. Please go ahead sir.

Kevin Faulkner

Thank you. Before we begin, I'd remind everyone that matters we discuss this afternoon include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings for a detailed list of risk factors. As noted in our press release we also issued a set of prepared remarks in advance of this call, which are available on our website.

Those remarks are intended to serve in place of extended formal comments and we will not repeat them here. Now let me turn the call over to Paul Ricci.

Paul Ricci

Good afternoon. Before taking your questions, I'd like to briefly discuss our strategic and financial development. Our opportunities and our ambitions have never been greater. Building on our core speech and natural language technologies and are established business franchises and growing market we’re delivering complex new solutions to address some of the most important problems facing our customers. We are more convinced than ever that these opportunities are within our reach, and that we have the strategy, market position, technology and talent to win.

From our press release you saw that we ended the year we results consistent with our guidance, although fiscal year ’13 was a challenging year, we were able to achieve record revenues, but just as importantly, we brought innovative new solutions to market, delivered on major customer commitments and strengthened our leadership in helping the world's leading brands to serve critical market needs.

Consistent with our prepared remarks I would like to highlight three important trends driving our business and our financial performance over the past year and into the coming year. The first is the expansion of our solutions into new addressable markets that are adjacent to our existing markets. We have significantly expanded our healthcare business building from our core market to address a much broader opportunity with encoding clinical information management and billing. Owing to our unique clinical language understanding technology, healthcare providers can now eliminate the need to compromise between the quality of patient care and financial performance all in the face of increasing regulatory demands. In our mobile and consumer business we are the driving force behind the more natural relationship between people and their technology across mobile devices, tablets, PCs, automobiles and TVs. We’re creating an intelligent, intuitive dialogue to help consumers navigate their connected world.

And in enterprise we are redefining multichannel customer service by adding virtual assistance for customer care through mobile applications and websites with our Nina product families. These broader solutions expand our addressable markets and each of these markets we are uniquely positioned to deliver the vision, technology, implementation services and cloud based architectures that are required to lead. The second directly related dynamic is the expansion of our R&D implementation and infrastructure investments. These expansive new market opportunities require that we invest significant resources in R&D, services and platforms.

Third, we continue to evolve our business model from perpetual licenses towards recurring revenue types including on-demand, term-based, subscription and transactional pricing models. For example, in healthcare our Clintegrity products are sold as a term license, and we're also increasing term license and on-demand sales of our Dragon Medical and diagnostic solutions. In mobile and consumer many of our solutions now add cloud-based services and accompanying cloud-based revenue streams on top of and often in place of traditional perpetual licenses. In enterprise we are growing our on-demand voice biometrics and outbound businesses, in our Nina mobile and Nina web solutions are delivered as cloud-based solutions with on-demand pricing.

We are embracing this transition despite its effect on near-term revenues because our customers are demanding it and because we value the recurring nature, predictability and longevity of these revenue streams. In this context bookings are a valuable measure to track our progress towards stronger and more predictable revenue streams. We introduced bookings as a new reporting metric in the guidance section of our prepared remarks and provide a booking target for fiscal ’14 and going to switch to track our progress. In fiscal ’14 we are balancing near term financial performance against the medium and long-term strategic and financial success of the company. As noted in our prepared remarks we forecast that we will deliver mid-teens bookings growth which will set the company up for accelerated revenue growth and improved profitability in fiscal ’15 and beyond.

I remain very confident in our long-term prospects of the company that is uniquely able to reinvent the relationship between people and technology, and with that we will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And we will begin with the line of Richard Davis from Canaccord,

Richard Davis - Canaccord Genuity

So one quick question, so you bought Varolii at a good price and the firm as I recall is focused on kind of outbound customer service. So the question is where do you see your functionality going in other words where do you stop and other software products like call center, routing et cetera where do they stop, where do you start and where you kind of aspire to go on that side of the mobile house of your business? Thanks.

Paul Ricci

Well. Our belief is that what enterprises are looking for is a multi-channel solution that handles inbound and outbound solutions across a multitude of channels and we have been building towards that multi-channel solution beginning from a foundation of strength in the voice channel, but moving out now most recently to a web channel. And we intend to continue that expansion. We think that the ultimate solution that customers are going to use is going to be a solution; it looks like a virtual assistant that is available across for a customer in an integrated way across channels with both inbound and outbound capabilities.

Richard Davis - Canaccord Genuity

Got it and then a quick follow-up on the healthcare side as you kind a go to more complicated billing systems that are coming down the pipe. As an outsider, I applaud you for the billings numbers, should I as an outsider be thinking about the more complex billing as a primary driver of recovery on the healthcare side or is that the right way to think about it. Thanks. That's it.

Paul Ricci

There are several vectors of growth in the coming year in our healthcare business within our traditional transcription business we are expanding into the mid-market and the ambulatory markets and we expect to see growth there somewhat offset by the EMR erosion that we have described in our previously and in our prepared remarks in our base business. We expect to see continued growth in our Dragon Medical Solutions both on premise and cloud based solutions and that's directly linked to the same EMR growth that is causing the erosion. We also expect to see growth in our diagnostic, radiology solutions, which has been a very strong performer along with Dragon Medical force over the last year. And finally the revenue cycles solutions that you just alluded to the so called Clintegrity product solutions are an important source of growth as we look at revenues and bookings this year.

Operator

And we will now go to line of Brent Thill with UBS. Please go ahead.

Brent Thill - UBS

Paul just on the revenue for next year. One of the questions we get is, if you went to a pure subscription cloud model, could you envision seeing that going forward? And I guess why not be more aggressive in taking down next year to kind of set yourself up similar to some of the other companies that are making this transition. It doesn't seem like that and that is a real aggressive shift and correct me if I am wrong. But I'm just curious how you think about that that, it seems like you are doing that to the bottom-line, but the top-line why not more aggressive stance in making that move?

Paul Ricci

We have tried to moderate in our approach to the transition. And we've done so in part in respect for customer’s desires. Not everyone today buying Nuance's solutions wants a ratable solution or a cloud solution and so but we do see a trend and we also of course are bringing new services to market and in new markets we're only a term or a cloud based solutions available. So we've tried to find the balance that we think is the right balance to address existing customers in new markets.

Brent Thill - UBS

Okay and quick follow up on mobile I mean what's your senses this one from 20% plus organic business to almost down double digits this year what's your mile marker for looking at this stabilization of this business what needs to happen?

Paul Ricci

Well there are again several vectors of growth that are going to be important contributors as we look out this year and next year in mobile. First among those is the automotive business which has been a consistent performer for us and I think we'll continue to be given our market position there or the preference we have among global automotive manufacturers, the second is our mobile services which ended end of last year and the beginning of this year has continued very strong bookings performance and therefore I believe we will drive revenue growth as we look out across this year. The Dragon consumer product is going to depend upon the growth in the new market channels that we have opened over the last year which don't really kick in with a significant volume revenue until the second half of this year, and that's the virtual system solutions based on Dragon that we’re bringing in the market with Intel and that leads our smartphone business where as you know we enjoy a very privileged position with the world's largest smartphone manufacturers, but there has been a real consolidation in the industry beneath that and that has hurt us in conjunction with the migration from a royalty base to a on demand, to a cloud-based solution which of course protracts revenue recognition. So as we look out over the second, we will continue to find that particular segment of the business challenging this year, but as we look into the second half of this year and going into ’15 I believe that the accumulation of the revenues from cloud services and our penetration into the emerging participants in that market will contribute to growth.

Operator

We will now go to the line of Shyam Patil with Wedbush Securities. Please go ahead.

Shyam Patil - Wedbush Securities

Paul on the EPS outlook just curious you know what’s changed between you know now and three months ago, it seemed like you guys were expecting gradual margin expansion in fiscal ’14. Its like revenue outlook hasn’t changed much. Just curious you know what’s changed in terms of the margin outlook versus three months ago.

Paul Ricci

I think we outlined in our prepared remarks the three trends that are effecting our business and it really is the acceleration of three of those trends. I think most notably the level of R&D investment that’s required to bring to market and to meet the customer obligations that we have in our with our existing partnerships has increased substantially over the final quarter of this year as we look into next year particularly in healthcare and in mobile. And the investments that we’re having to make in our cloud-based infrastructure including services investments, platform investments, capital investments have also increased substantially in order to meet those commitments and then finally we're just seeing a faster acceleration of the model towards those trends. Than the recurring revenue trends than we expected.

Shyam Patil - Wedbush Securities

And then just a follow-up. Thanks for running [ph] the bookings metric, did you said that you can’t, could you talk just about how the 2013 bookings came in versus your original expectation and then also as we look out ’14 and beyond just how we should think about you know the flow of bookings to revenue on an annual basis and then also how you may take acquisitions in account for bookings going forward? Thank you.

Paul Ricci

Your middle question was again the what?

Shyam Patil - Wedbush Securities

The 2013 bookings versus expectation, how we should think about or if you can offer any guidance on how should we think about the flow of bookings to revenue kind of going forward and how you will take acquisitions into account?

Paul Ricci

With respect to the 2013 bookings we had relative to revenue the bookings were somewhat better than our ultimate revenue result in 2013 but bookings were lower than our initial expectation at the beginning of the year. Relative to your second question, we’re not publishing a number of a model of how the bookings flow out over subsequent years. I think we can tell you, however, that in fiscal ’14 between 60% and 65% of revenues in fiscal ’14 flow from backlog going into fiscal ’14 and with respect to acquisitions as those acquisitions come into the business their future bookings will be counted.

Operator

And we will now go to the line of Jennifer Lowe with Morgan Stanley. Please go ahead.

Jennifer Lowe - Morgan Stanley

I wanted to ask about the ICD-10 transition and I know that, that was something that they always thought with more of a fiscal '14 event for you all. But, one is what sort of an expectation is at this point, how much you will benefit from the investment that happens with the upgrades there? And then two, is that something that you think is more of a back half of '14 or is it when should we start to expect to see that contributing to revenue.

Paul Ricci

I might note in our prepared remarks we did sight that our Clintegrity solution set had delivered above our expectations and I think we've referenced the number of over $100 million in fiscal '13. And that in fact is being driven significantly by the sales of our computer coding solution which ran ahead of plan in bookings all year in fiscal '13. So, I think we expect to see a continued strong performance in fiscal '14 of that and there is no doubt that ICD-10 is in fact an important part of what's driving the interest in that product line. And with respect to timing in the year, I think it's very difficult to say, I think hospitals, large healthcare providers in North America are already quite focused on the ICD-10. So, I think it will be continuous throughout the year.

Jennifer Lowe - Morgan Stanley

And then just one last one for me around the repurchase. You continue to make progress on the 500 million allocations, but it's been more measured and especially where the stock is today. Do you see an opportunity to potentially get more aggressive with the buyback at these levels?

Paul Ricci

What we do expect to do further buybacks this year. We've already done some buybacks this quarter and we expect more buybacks and more share repurchases in the coming months I think it is a little bit for me to say exactly at what rate that's going to happen.

Operator

And we will now go to the line of Nandan Amladi with Deutsche Bank. Please go ahead.

Nandan Amladi - Deutsche Bank

I am trying to reconcile the two different metrics, obviously the bookings metrics is a new one but that's going to have on-demand term license, professional services everything in one. And then you have the three yea estimate for value on demand contracts which was a metric you were providing for a while and looks like your bringing it back after a few quarter hiatus. How should we think about that in the context of trying to separate out what portion will be on demand and term license over the next year or two actually?

Paul Ricci

I am looking around the table here no one is aware of the hiatus. We’re not quite sure what that reference is to. I’m unable to provide any more specificity with respect to the decomposition of the bookings into on demand or other elements. I think we do publish the on demand contracts three year value, but we are publishing the bookings and you may be able to do some modeling from that.

Nandan Amladi - Deutsche Bank

And then one question related to the healthcare segment. As you more beyond the transcription into the billing including revenue management, how are you differentiating your solution against vendors who've already been there specifically in revenue management?

Paul Ricci

Nuance's approach to the Clintegrity solution has been to differentiate based on providing an end-to-end solution for the physician that proactively deals with the quality of documentation and I think that positioning is really quite well articulated in the healthcare materials that are available on our website and I would encourage and refer you to those and also note that as we talked about many times in these calls, the natural language processing technology that Nuance has developed and pioneered is an important part of the clinical language understanding capability, but I think will be a technological differentiator in those solutions. So we begin with the very strong franchise we have in healthcare with physicians and we work forward from physicians in an intend solution that integrates into revenue cycle management using clinical language understanding and we are getting a very strong reception to that in healthcare providers because it combines the advantage of bringing efficiencies to the building process at the same time eliminating documentation errors through the clinical documentation improvement processes that we've embedded in the upfront part of our solutions.

Operator

And we'll go to the line John Bright with Avondale Partners. Please go ahead.

John Bright - Avondale Partners

Paul couple of questions. First question is on the healthcare piece of your business. And you're talking about some of the positive trends in your guidance being offset by the EHR erosion and the on-demand healthcare base. Can you put some numbers around how large that is? When it might base? Give us a context so we can evaluate that.

Paul Ricci

Yes. And maybe I could add a bit of texture to give you a broader picture. I think you should think the EMR erosion as being mid-to-upper single-digit annually. And I think you should model that as continuing, as you look out over the next several years. We did see some increase in that pace in fiscal '13 over fiscal '12. And we are modeling a slight increase in fiscal '14, but not a dramatic increased.

At the same time, I should remind you that that same EMR implementation which is causing erosion is also the foundation of the accelerated growth of our Dragon product and in fact I've talked in previous calls about the fact that Dragon itself is to some extent eroding the e-scription revenue base. And finally I want to add that while that erosion is real it is also the case that a material amount of the transcription market remains unautomated and available and the challenge we had in '13 was not so much that we suffered EMR erosion but that we would didn't really execute successfully on our mid-market approach to go after those additional volumes and I think we are going to perform better against that in '14.

John Bright - Avondale Partners

Are there some percentage of revenue number you can put around the parts that are going up, the parts that are going down. So we again then apply the percent to change thoughts to that?

Paul Ricci

Well, I think the only additional guidance I can give you is that the on-demand proportion of our healthcare business is about 40% of our healthcare business.

John Bright - Avondale Partners

Okay. Let me move onto the mobile segment of the business and the transition that we are going through. Some people will and respectfully say, well I say respectfully that if you've got the IP position that you have why is it beneficial to you to move to this connected services model or this royalty plus usage model or how appropriately should be describe versus saying this is the price for our capabilities and if you don't like that, you can go to the next best competitor which we don't think is very good.

Paul Ricci

We've had this dialogue in earnings calls before and I've stressed that our approach with customers has been to build long-term relationships and to evolve our business model in ways that are consistent with the technological underpinnings of the solution we're providing to them and as that solution is moving to the cloud and they are looking for a pricing that accommodates a cloud based solution. And we believe that the way to win long-term loyalty from our customers is providing the best solution we can at prices that are fair to us and fair to them and this has been a tough transition and the consolidation of the industry has exacerbated that transition. But we remain convinced that the quality of our solutions, our ability to provide those solutions on a global basis is going to revive this particular revenue stream as we look into the next couple of years.

John Bright - Avondale Partners

A question on the topic digital assistant or the usage of digital assistant is in its infancy today. What gives you the confidence that, that usage is going to accelerate and make up that difference in the overall license price?

Paul Ricci

Thank you for asking that I didn't mean to cut you off, I am glad that you asked that question. We mentioned that we provided a bookings number in this report in the prepared remarks this time. But we did actually provide an additional metric that for investors and that is some of the metrics around our mobile cloud services. And I think in particularly we noted that we processed 7 billion transactions last year, that was a 100% growth over fiscal '12. That we had achieved by September just this last September almost 90 million unique monthly active users and we gave you an indication we expected that number to reach to say a 100 million by the end of December. So, we're seeing growth rates in the number of unique users in our mobile cloud, we're seeing growth rate in the number of transactions of our mobile cloud that I think does suggest real usage of these virtual systems which we have been talking about some.

John Bright - Avondale Partners

Do you think if you took those numbers and looked in the rearview mirror that the pricing would have been comparable in the old pricing model comparable to the old pricing model?

Paul Ricci

I apologize John I don't know how to answer that question. I just don't have the analytics to answer that question.

Operator

Thank you. We will now go to line of Daniel Ives with FBR. Please go ahead.

Daniel Ives - FBR

How are you thinking about balancing growth and profitability going into next year I mean tell about the transition but could just talk about some of the puts and takes in how you are thinking about it from a high level?

Paul Ricci

Yeah. It's a very reasonable question and it's one that we focused on a great deal on the last several months. And in the end, we said we have to make the investments that we believe are necessary; number one, to ensure that we have the leading solutions that we envision that are possible as we look out over 12 and 24 months. And number two that on our commitments we have to large important partners throughout the mobile ecosystem and our partners in healthcare.

And so we felt that we had to make those investments irrespective of the challenges they oppose to near-term profitability and those investments come in the form of number one R&D and we are making significant investments in R&D personnel this year. And number two our connected infrastructure, the people to staff that infrastructure, the capital involved and managing and enabling that infrastructure. And secondly, we of course have to invest in the professional services growth, which we're going to see this year particularly in enterprise where we've had very strong professional services.

And on top of that, we felt that investments in some expansion of our sales organization particularly on globally and in some specific areas of healthcare we're going to be enabling of growth as we closed out fiscal '14 and went into fiscal '15. Beyond that we have tried to be as frugal as we can be in constructing our budgets for this fiscal year and we do believe that there are some opportunities of cost efficiencies that are not reflected in our budget. But the benefit of those cost efficiencies which we're moving to an act really won't achieve significant benefits until fiscal '15 and hence the guidance at the end of the prepared remarks about operating margin efficiency that we expect to achieve in fiscal '15.

Daniel Ives - FBR

Okay. And just on the mobile side, I mean, there has been a lot of talk about, there may be some mobile deals that you guys have walked away from because of price. Could you maybe just clear that up or talk to that think about how you balance the mobile deals versus price and honestly what economically smart for the organization?

Paul Ricci

In previous calls we have referenced that some deals have been deferred because we've insisted on a certain price discipline that was stricter than what we had perhaps in the past and that’s been true and we continue to do that and for example that was reflected in our guidance for fiscal '14 particularly the first half of fiscal '14.

And we think that's a smart strategy, we think that we have a better technology and the best solutions available and that letting those deals flow to differ for some time while we reach an agreement with our customers the right thing to do. Occasionally, we have walked away from deals particularly against some very low cost regional competitors but I think ultimately it is more about these deals being protected as we wait to achieve a price that we think is more reasonable.

Operator

Thank you. We'll now go to the line of Jeff Van Rhee with Craig Hallum. Please go ahead.

Jeff Van Rhee - Craig Hallum

Paul, the last quarter you called out a number of items in terms of headwinds that you commented on sales execution. Just give me your updated thoughts on sales execution

what you think of it here and if there are any structural changes going on?

Paul Ricci

Sales execution has been an issue. It has improved. We have made some structural and personal changes over the last six months and I anticipate additional changes. But it has improved and I think it will continue to improve as we look at over the next six months.

Jeff Van Rhee - Craig Hallum

Okay. And then in terms of the bookings, thank you by the way for the metric I think it will certainly be helpful. And is there any thought to being able to dial that and even a little more in terms of just giving a sense of organic there I know you had Varolii. I don't know if that was disclosed. I think we take some stabs at what it was but just any help there would be helpful?

Paul Ricci

Really don't intend to enhance that number in the short run. We have as you know a complex stream of revenues in the company and we've been very careful to aggregate them into an aggregate bookings number and we did that in order to address investor interest in additional metrics along with the mobile metric we're publishing this time and for the moment that's what we can offer.

Jeff Van Rhee - Craig Hallum

Okay. And then I guess last one from me just segment wise, in terms of the segment margins, pretty significant decline in the profitability particularly on the healthcare side from Q3 to Q4 and versus anything else, previously may you touched on because I know there are a lot of moving parts here but if you can just circle back to the margins on the healthcare side?

Paul Ricci

I think the primary issue there is increased investments in R&D and there are other factors Tom you want to mention?

Tom Beaudoin

I think it's a two factors, it's some of the gross margin factors that Paul talked about earlier and some of the investments that we are making and some of the new models that we are into in healthcare and then combined with the R&D and technical investments.

Operator

Thank you. We will now go to line of Greg Dunham with Goldman Sachs. Please go ahead.

Greg Dunham - Goldman Sachs

Yes thanks for taking my question. One other question, ask a question more on. You mentioned that you expecting organic growth to improve and you talked about profitability improvement in 2015, how should we think about this in the context of M&A. Should we think about the pace of M&A slowing to a certain degree or should we think these strategy there? Thanks.

Paul Ricci

Well as we've signaled in previous calls the relative contribution of M&A has slowed and you should expect that to continue, the distinction I am making is we may continue to do a meaningful volume of small transactions but the percentage contribution of revenue has come down considerably and you should continue to expect that it will be a relatively lower contribution as we look ahead over the next couple of years. And as I always say in this question is something could change, but that the likely cases that it will be relatively lower percentage of revenue.

Operator

We'll now go to line of Tom Roderick with Stifel. Please go ahead

Tom Roderick - Stifel Nicolaus & Company

So maybe I'm looking at the mobile and consumer segment here down 8% year-on-year organically. Can you give us a sense as to how much of that decline this year has been a function of lower royalty revenues or lower licenses versus lower professional fees attached to new design wins and then as we look at to next year is that a segment that you think can in fact grow organically? Thanks.

Paul Ricci

I don't have any color to add to the decomposition between royalties and professional services. The answer is that, we won't see organic growth. We won't see meaningful organic growth in the mobile phone segment of the overall mobile business this year. We will see growth in the automotive and we will see growth in the other segments of mobile. But I think not in the smartphone segment.

Tom Roderick - Stifel Nicolaus & Company

Okay. Richard, earlier I asked about Varolii, kind of curious if you can provide any insights into what you would expect that could contribute to the overall revenue stream for next year.

Paul Ricci

You should think of Varolii is contributing for perhaps of $40 million of revenue say in over the course of '15 or '14 rather.

Operator

We will now go to the line of Shaul Eyal with Oppenheimer. Please go ahead.

Shaul Eyal - Oppenheimer

I have the question regarding the mobile division; now in your prepared remarks you indicate that a growing portion of your customers are preferring royalty pricing model rather than fixed fee and because of that fixed fee decline in fiscal '13 will the decline fiscal '13 generate from multiple customers, those kind of just a handful of those just one, two, three something like that?

Tom Beaudoin

Well I think as Paul talked about a lot of the revenue trends out of the way, we are selling those business there has been a consolidation particularly in the handset business. But it's an overall trend. I don't think it's applicable to any one particular or small customer.

Shaul Eyal - Oppenheimer

Got it. One of the questions we keep getting is what is the current status, what's your current relation with Google?

Paul Ricci

Current what?

Shaul Eyal - Oppenheimer

Status, the current relations with Google.

Paul Ricci

We don't have any commercial relationship with Google of note.

Operator

Okay. And our final question will come from the line of Tavis McCourt with Raymond James. Please go ahead.

Tavis McCourt – Raymond James

I was wondering if you could talk qualitatively on capital spending in 2014 and kind of the case for building out your own datacenters versus if this becomes a raise on spending why not outsource to an AWS or another vendor that may make it faster and cheaper and then secondly any covenants on the debt that we should keep in mind financial related or at least relatively covenant like loans. Thanks.

Tom Beaudoin

On the debt all of our debt has covenant like and there are no fixed coverage ratios.

Paul Ricci

And on capital, I think you should think of capital spending in '14 has being somewhat enhanced from fiscal '13.

Paul Ricci

Okay. Then I want to thank you all for joining us on this call. And we look forward to speaking to you again next quarter. Thank you.

Operator

Ladies and gentlemen, this conference will be available for replay after 7 PM today through December 19th at Midnight. You may access the AT&T Teleconference replay system at any time by dialing 1800-475-6701 and entering the access code of 304712. International participants may dial 1320-365-3844. Those numbers again are 1800-475-6701 or 1320-365-3844 with an access code of 304712.

That does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

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