Twin Disc's (TWIN) CEO John Batten on Q2 2016 Results - Earnings Call Transcript

| About: Twin Disc, (TWIN)

Twin Disc, Inc. (NASDAQ:TWIN)

Q2 2016 Earnings Conference Call

February 02, 2016 11:00 AM ET

Executives

Stan Berger - IR

John Batten - President and CEO

Jeff Knutson - VP of Finance, CFO, Treasurer and Secretary

Analysts

Josh Chan - Baird

Steve McManus - Sidoti & Company

Walter Liptak - Seaport Global

Mario Gabelli - Gabelli & Co.

Brian Rafn - Morgan Dempsey Capital Management

Operator

Please standby. We’re about to begin. Ladies and gentlemen, welcome to the Twin Disc Fiscal Second Quarter 2016 Investor Conference Call. As a reminder, today’s conference is being recorded.

At this time, I’d like to turn the call over to Mr. Stan Berger of SM Berger. Please go ahead, sir.

Stan Berger

Thank you, Aaron. On behalf of the management of Twin Disc, we’re extremely pleased that you have taken the time to participate in our call. And thank you for joining us to discuss the company’s fiscal 2016 second quarter and first half financial results and business outlook.

Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that states management’s intentions, hopes, beliefs, expectations or predictions for the future, are forward-looking statements. It is important to remember that the company’s actual results could differ materially from those projected in such forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company’s annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. By now, you should have received a copy of the news release which was issued this morning before the market opened. If you have not received a copy, please call Annette Mianecki at 262-638-4000 and she will send the copy to you.

Hosting the call today are John Batten, Twin Disc’s President and Chief Executive Officer, and Jeff Knutson, the Company's Vice President of Finance, Chief Financial Officer, Treasurer and Secretary.

At this time, I will turn the call over to John Batten. John?

John Batten

Thank you Stan and good morning everyone. Welcome to our fiscal 2016 second quarter conference call. As usual, we will become with a short summary statement and then Jeff and I will be happy to take your questions. Looking at our second-quarter results. Sales for the 2016 fiscal second-quarter were $44.8 million versus $72.7 million a year ago, a decrease of about 38%. Year-to-date sales were $82.8 million versus $137.5 million in fiscal 2017. FX had a negative impact on sales at $2.8 million and $6.8 million on the quarter and year-to-date numbers respectively. Looking at our product end markets, the biggest year-over-year decline continues to be our transmission business, which continues to suffer from the dramatic slowdown in the North American and Asian oil and gas market. When compared to the first half of fiscal 2015, this business is down almost 50%.

We are able to book and to ship a small number of 8500s in the quarter; unfortunately we did not replace these with any new orders. The further downward pressure on oil and gas continued to pull our marine markets down as well. And we saw about a 30% decline versus the previous year in those markets. Like transmission markets, most of this impact was felt in North America and Asia. Our industrial business had about a 20% decline versus last year, but a lot of this decline was a result of inventory being reduced at all levels of the channels and markets. In relative terms, these markets are in better shape than the oil and gas counterparts.

When looking at our sales geographically, it is not surprising that the biggest declines versus 2015 came in North America and Asia in terms of volume and in sheer dollars which saw nearly 50% reduction in volume. Sales into our European markets were down about 24% and the biggest year-over-year declines were in our South American markets, which were down about 90% when compared to last year. Gross margins for the quarter were 25.9% compared to 30.4% a year ago and 20.9% in the previous quarter. Obviously, mix and volume are the two main factors for the decline year-over-year but we did see improvement from the first quarter, primarily in our North American operations where we got almost a full quarter of cost reduction benefit and we only had a three-day shutdown versus a month-long shutdown in July.

Second-quarter spending in marketing, engineering and administrative or ME&A expenses decreased by $1.9 million versus the same period last year from $16.5 million to $14.6 million. Spending also reduced $600,000 from the previous quarter and was the lowest quarter in ME&A spending since our fiscal 2010 year. The decreased spending was a result of reduced bonus expenses, headcount reductions, FX and general cost containment activities but was slightly offset by increases in pension expenses and corporate development activity. Net earnings for the quarter were negative $2.3 million or $0.21 a share compared to $3.7 million last year or $0.33 per share. Year-to-date, the losses are negative $6.6 million or $0.59 a share compared to $7.8 million or $0.69 a share for the first half of fiscal 2015.

During the quarter, we enacted further cost structure actions and reduced expenses by another $4.3 million on an annual basis. And this was in addition to the $6 million announced last June. As we mentioned last quarter, we have identified additional steps to improve our global cost structure. During the quarter, we worked with our lenders on a new short-term banking agreement that will allow us some flexibility in making some of these needed changes. And I will come back to this at the end of my comments.

Looking at our balance sheet, we ended the quarter with a total debt of $17.4 million, up from $13.8 million from the end of the prior fiscal year and cash at $20.6 million which is down slightly from $22.9 million at the end of the prior fiscal year. Our six-month backlog decreased to $34.6 million from $37.5 million and it’s essentially flat now to the end of fiscal 2015 year end. As I previously mentioned, the book and build of the 8500, our lead times on all products are well within our 12 week window, so that we can ship any product within a quarter and not have it show up necessarily in the quarter [indiscernible] backlog.

Looking at the outlook, over the last two conference calls, we talked about how the first two fiscal quarters of 2016 would be our most challenging. This is our assumption given $50 oil. $30 oil has only pushed this reality out further and we do not see any year-over-year comparable improvements until fiscal 2017.

What management can do is focus both on a cost structure improvement and growth opportunity. This is why the board elected to temporarily suspend the cash dividend. This was not a decision predicated by our lenders, but a prudent capital allocation choice made by the board given the uncertainty of our end market. We have several new industrial marine products in the pipeline, but there may be some strategic corporate development targets that become available. We think that this temporary suspension is in the best interest of all shareholders given the outlook over the next few quarters.

As I mentioned earlier in the call, during the quarter we worked with our lenders in a new short term banking agreement which will allows us some flexibility to arrive at the right long term banking arrangement to achieve our long term goal. The information on this agreement was released in an 8-K this morning.

That concludes my prepare remarks and now Jeff and I'll be happy to take your question. Erin, please open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will go first to Josh Chan with Baird.

Josh Chan

Hi, good morning, John, Jeff.

John Batten

Good morning, Jeff.

Josh Chan

Hi. Just first question on demand, I understand that a lot of the end markets remain very depressed and that's really understandable, but I think even with that, though, your business typically has a little bit of a pickup in the second half from a seasonal prospective. I was just wondering if that would still be the case this year.

John Batten

I would expect – yeah, Josh, it usually picks up particularly in just general aftermarket activity and industrial. And we foresee that happening and if I kind of put in order where I see the markets returning, it would be industrial first growth, then marine and then transmission oil and gas. I would say that there are a couple projects out there in oil and gas for land-based pressure pumping. That could pop in the third quarter or the fourth quarter, but in general it will be industrial coming back, marine and then transmission. That’s how we see it. And seasonally, typically the fourth quarter, heading into the summer months on equipment and rebuilds, so that's where we'll see kind of a general increase. So we expect at least on the top line improvement in the second half of the year.

Josh Chan

Okay. Does it imply that maybe a little bit less of an improvement in the third quarter particularly?

John Batten

I think the third quarter given what we know now is going to be a lot like the second quarter on the top line, maybe some improvement maybe - it's tough to tell because our lead times are so short. The people are ordering just when they needed. So I think the third quarter is probably going to be at least on the top line very much like the second quarter. We will have the cost reduction that we announced in the second quarter and the first quarter will be flowing through in the third quarter. More of it will drop to the bottom line.

Josh Chan

Okay. Yeah, that kind of bridges to my second question which is basically since you are going to see the full benefit of your cost actions, does it make sense that gross margin perhaps only improve from here, because you get those actions and then also the seasonal pickup in Q4?

John Batten

Yeah, provided there is not a dramatic change in the mix, I would expect our gross margins to improve in the third quarter, yes.

Josh Chan

Okay. And then just can I get your thoughts on the second half in total and whether you think you can be profitable and also from a free cash flow perspective what you might be expecting there in the second half?

John Batten

I do if - I would say the best shot at a profitable quarter is going to be the fourth quarter. I hope we will be closer to breakeven in the third quarter. But the fourth quarter is just we see some of the volume coming back particularly in industrial, the fourth quarter is a much better bet. I'll let Jeff answer the cash flow.

Jeff Knutson

On the free cash flow, Josh, I think we're looking to be positive in the second half. I think in the first half we had some fairly significant payouts related to restructuring charges at the end of last year and the bonus accrual coming into the year, hurting our free cash flow in the first half. I think we will drive some inventory improvement through the second half. Part of the challenge in the first half; a little bit of a maybe misleading item is the reduction in inventory related to the sale of Twin Disc Southeast doesn’t flow into our free cash flow. We are showing a pretty good inventory reduction not getting carded for necessarily in free cash flow. I think we will continue to drive inventory reduction. We don’t have the significant outflows related to the accrual. So I think we will be generating some positive free cash flow in the second half.

Josh Chan

Okay, that’s good to hear. And then just, John, you elaborated a little bit. But just wanted to get some thoughts behind the dividend suspension and what the Board’s thought process was behind that and the timing? And then also either John or Jeff kind of maybe a comment on your confidence in kind of [indiscernible] longer term financing by the end of the fiscal year. That would be appreciated. Thanks.

John Batten

Sure. Well, the discussion on suspending the dividend, which was not taken lightly was just the uncertainty, we built a business plan, forecast on oil prices that was significantly higher in activity and marine and transmission that was going to be higher, and I think everyone has been surprised, breaking the $50 barrier and the $30 barrier. And just into the next few quarters, a general – you can’t bank on a lot of forecast on what experts are going to predict in the market. So I guess, in discussions with just cash flow in general, we thought it would be better to take this type of decision before it was ever needed and be conservative and make sure that we have capital available a) for growth whether its new projects or – sorry, new products coming out or the right corporate development activity or on the balance, further cost reduction activity to bring inline the cost structure, this is where we are going to be for substantial amount of time. And substantial, I mean, two, three, four quarters. So I do think it’s the right decision. We have a very strong balance sheet. Obviously, this strengthens it on the quarters going out where there is no dividend, but I do believe when we come out of this, we are going to be a much stronger company. And it is a temporary suspension and I don’t want to predict when it will come back, this is not seen as a long-term action, but a short-term action given just the uncertainty of where we are at this point.

Jeff Knutson

And Josh, I can just comment on the – I think, your second part was the confidence in achieving our long-term financial solutions, is that right?

Josh Chan

That’s correct, yes.

Jeff Knutson

So we have been working with our lenders early since the end of the first quarter and I think in a very productive way and we – step 1 was really to get a short-term amendment to provide covenant released for a few quarters, as we continue to work on that longer term solution, it will quite likely be an asset-backed solution, obviously something that we haven’t done in sometimes. So as a company we want to make sure we arrived at the right solution that provides us with the right level of flexibility and comfort. So I think, we are well along that path and quite confident, we will be in line to have something in place before the end of the year.

Josh Chan

Thank you for most of your time, and best of luck.

John Batten

Thanks, Josh.

Operator

We will go next to Steve McManus with Sidoti & Company.

Steve McManus

Good morning guys. Thanks for taking my question.

John Batten

Thanks. Steve.

Steve McManus

So first one, can you give us an idea of how much non-energy related industrial makes up the current mix and maybe a potential target of where you can see that going maybe by the end of the year?

John Batten

Non-energy industrial, it’s probably in the neighborhood of a quarter of our overall business right now. Problem with our industrial products, clutches, PTOs, torque converters, gear boxes, they have a lot of industrial applications, but they also did use them – if not in the energy oil and gas business, but certainly in the industries that are supporting it, construction, things like that. So I do see that just a general – everything goes into a slight recession other than our end-markets in the next couple of quarters then it would also be the first to kind of come out of it. So, we have new products coming out, hydraulic PTOs, some remotely actuated PTOs, and some other things that are going to be new products and market share gain potential for us. So, we're going to put the big push behind these new products coming out, because this is where we see the best opportunity obviously and also looking for some key corporate development initiatives in this space as well.

Steve McManus

Okay. And how does the margin profile in some of those newer products compare to the core products right now?

John Batten

The ones that we're coming out with are in a higher horsepower range and as a general rule, the higher up you go in horsepower, the better margin that we have in those products. So I expect those to come in and help the gross margin percentage.

Steve McManus

Okay. And then, when can we expect a full run rate with respect to the 10 million in cost savings recently put in place?

John Batten

You will see those starting to flow in the third and fourth quarter and we've been working essentially the calendar, our second quarter, on the new banking agreement and working with the vendors now on a long-term solution. So, we didn't enact anymore cost, I would say, cost cutting activities other than that we previously announced. Now that we have this short-term agreement and are finalizing a long-term one, I think you’ll also see some further cost reduction activity around the world.

Steve McManus

Do you have kind of like a ballpark range of where you think ME&A will end for the year or even as a percentage of revs?

John Batten

Well, it's probably -- it will end up, just as a share number, under 60 million. And I would foresee that the run rate then going into 2017 will probably be lower than that and as the timing of when that will happen, I can't specify an exact date, but yeah, so if you count on under 60 million, exclusive any one-time charges for the run rate for fiscal ‘16 and then I would suspect it will be slightly lower than that going into ‘17.

Steve McManus

Okay. And then the last one for me, any changes with respect to CapEx guidance for the year?

John Batten

Not from what we said at the end of the first quarter.

Jeff Knutson

Yeah. We're just under 3 million through the first half I think, we'll probably be somewhere between 2 million and 3 million in the second.

John Batten

Yeah.

Steve McManus

Okay, great. Thanks a lot guys. I appreciate it.

John Batten

Thanks, Steve.

Operator

And we'll go next to Walter Liptak with Seaport Global.

Walter Liptak

Hi, thanks. Good morning, guys.

John Batten

Good morning, Walt.

Walter Liptak

Hi. I wanted to ask about cash inflow and maybe going back to your comments on inventory and other working capital accounts, how much can you bring down inventories and then I wanted to ask about receivables and just any issues with bad debts increasing, your days getting extended from your customers?

John Batten

Yeah. It’s John, Walt. We are -- I think some conservative plans that we make is another 7 million coming down, which is primarily in our North American operations. We've had some changes that we've enacted here and we saw actual real inventory improvement in the second half of the quarter and there are some -- we're moving a distribution depot warehouse that we had in Florida, back up here to Racine. So we're going to see some inventory improvement there as well, not holding as much as we had in the past.

So you'll see it primarily in North America in our manufacturing operations and then working through some sales at our distribution subs primarily in Singapore, but also in Pacific Northwest, I think you will see some inventory reductions flowing through there. So there will be real cash inflow from inventory reduction in the second half and then I'm sorry, Walt, I forgot the second part of your question.

Walter Liptak

Just on the receivables, just any thoughts about collections and --.

John Batten

I would say this, right now we are in a – macro, we are in a much better position than we were back in 2009, 2010. We have one I would say significant oil and gas receivable but that is with a survivor in the frac world. So, it's probably is going to take a little bit more time to get that one paid down but it’s the company that’s going to survive. And so, we’re really tackling one but you know the days outstanding have increased and has been primarily from a receivable at one customer but we are working that issue.

Walter Liptak

Okay, got it. Okay, great. The comments that you made about industrial seasonally picking up in the back half. I wonder if you could talk a little about how things were trending at the end of the year and in January. And, just a little bit more color on may be pricing that you're seeing as we move forward?

John Batten

We had a just a color on the kind of the influx of orders over the last I would say month. We had a half week shutdown in December; we kind of extended the Christmas shutdown here. So, we’re really only shipping here and seeing for the first half of December. And orders were very light and I think people assumed that everyone was gone for the month but it picked up in the first part of January but then leveled off. So it is – well, it is very, very up and down. And we see just a lot more orders for industrial products, the absolute just in time.

And as I mentioned in the script at the beginning of the call, we see a lot of inventory reduction activities whether it's at the equipment OEM, our distributor or an engine dealer and they’re typically working down their inventory of PTOs and the industrial products preserving their own cash flows. So we see those inventories working down and that along with seasonal activity and market recovery leads us to believe the order trends in general will pickup in our second half of the year, particularly in the fourth quarter.

Walter Liptak

Okay, alright sounds good. And then, just on pricing, I guess how is pricing looking on orders or the backlog pricing, what’s the pricing strategy been here?

John Batten

Well, there is good news bad news. We haven't had a significant amount of pricing pressure on existing prices, there is certainly been a lot of resistance on future pricing action. So, it is very much project oriented, particularly in marine, where you’re bidding on a project and you’re having – if it’s produced in the US, you bidding against potential products that are priced in euro. So I would say that the bigger impact right now is on global tenders which we seen in marine, it’s the dollar to the euro impact right now.

Operator

[Operator Instructions] We’ll go next to Mario Gabelli with Gabelli & Co.

Mario Gabelli

Sorry, I couldn't hear you.

John Batten

Hi Mario, it’s John and Jeff.

Mario Gabelli

Hi, John and Jeff, listen I have been following the company for 50 years and congratulations on having another cycle. Your decision to eliminate the dividend or suspend it was appropriate and very necessary. But you mentioned several times about, being prepared for a corporate development, can you kind flush that out a little more. I mean you must be seeing a lot of opportunities what's so different that might want to do it now?

John Batten

Well, Mario the last time we went through a cycle and it wasn't anything like you may be experienced in the early 80s, I was there just in high school watching.

Mario Gabelli

Oh, stop bragging, stop bragging will you.

John Batten

No, but I think that in 2009 and 2010, we let some opportunities may be slip by -- we didn't pursue them. And rightly so, we are focused on our own balance sheet and our own P&L and just getting through it. And one of things that we don't want to let a crisis go by is if there are companies and products.

Mario Gabelli

That I got it.

John Batten

That is strategic that we can add, we'd like to be able to do it. That's obviously one track. The other reason to enhance our own internal product development, the other is obviously working on our cost structure and if this is a paradigm shift where the markets, energy markets and the adjacent markets are going to be smaller for the next few quarters, then we’d like to add that –

Mario Gabelli

Yeah, we are interested in the next five years, so just so I can pick and tie our number together your under-absorbed burden because you are reducing overhead and it’s an element, but I didn't get the best case for six months out which is $73 billion of inventory and the balance sheet might look like?

John Batten

Well, I would like to have the inventory down another $7 million to $10 million and a lot of that’s predicated on sales at our distribution companies.

Mario Gabelli

Yeah, I got it. And just one other one, you said one major customer under your accounts receivable that you narrowed down to it, since receivables are downturn $10 million anyway just to how big is that, 10%, 15% of the receivables or?

Jeff Knutson

10%.

John Batten

10%.

Mario Gabelli

All right, hey guys I hate to say, but as a buyer of your stock, you got to play these cycles. Thank you. Listen, I’d love – if you have any ideas and you need money, our clients want to buy your rights on the rights offering or do anything you need to help you finance it. Take care.

John Batten

All right, see you later this month at the conference.

Operator

And we will go next to Brian Rafn with Morgan Dempsey Capital Management.

Brian Rafn

Good morning, guys.

John Batten

Good morning.

Brian Rafn

Let me ask, in your oil and gas side, you see recovery, what specifically for your markets would, I'm guessing rig transmissions, pumpers, how much potential overhang and used equipment might there be early on in the recovery?

John Batten

I am glad you asked that question, because with that respect I firstly am getting more positive about the recovery of the North American shale players. And that’s because you’ve seen a lot of stuff in the news about the consolidation of the frac fleet. I know that a lot of stuff equipments has been bought for pennies on the dollar whether $0.10, $0.18, but the good equipment is going for what it’s worth. And I'm happy to say that our transitions are on a lot of that equipment. So what we are seeing is a consolidation of the inventory that’s out there. And I think a lot of the stuff that’s been purchased for pennies on the dollar may or may not make it back into the fleet.

So I think on the next up-cycle whenever that is, there is going to be a right-sized fleet out there and if the blend of stuff purchased on pennies of dollars makes it into that fleet, the cost structure and the breakeven point for the pressure pumping fleet will come down. And so when we started the cycle and the breakeven point was x, it's going to be x minus some percentage now. So I am more optimistic there that there will be a healthy – there will fewer players, there will be fewer rigs, but we will have healthier players in the next cycle.

Brian Rafn

Okay. I appreciate the clarity. Let me ask from the standpoint and maybe it’s maybe more of a three or five year question. Historically, if we throw the bums out of Washington, how much potential military sales might you have if any – if we get a different defense budget?

John Batten

Brian, that’s a tough one. Most of our stuff is legacy, actually all of it for the US Military land base is legacy, but I would just throw out there that the number of projects that we pay attention to vehicular has come down significantly. I mean, to your point, there's a lot of I would say pent up demand for new equipment for the Army and the Marine Corps in general, trucks and vehicles. So I think a change in Washington will be significant for a lot of players. I don’t know how much we would participate in that forward market activity, but it certainly will be interesting to look at. A lot of the projects that we have quoted on five years ago, 10 years ago, 15 years ago, they actually never change to fruition period, and things like our XT-1410 into the equipment. We are in vehicles that were designed 30, 40 years ago, but it’s still in production. So the fleet does need modernizing. That would probably benefit some of the engine guys and our competitors more than it would us though.

Brian Rafn

Yes, let me just as an adjunct to that, beyond just vehicular trucks, marines have been talking about a new amphibious landing craft, the army is looking at the third generation Abrams tank. When you get up in that really big name battle tank, is that something that your transmissions would have a market for, are you strictly just like Humvees and MRAPs?

John Batten

I mean, that is the size and power range that we could do. The tanks are typically cross-drive transmission and we do produce the cross-drive transmission, but it’s a design that we purchased from someone years ago, so we have not been in the business of -- to date of designing cross-drive transmission for truck vehicle. So I wouldn’t necessarily – I wouldn’t put that at the top of our list for potential.

Brian Rafn

Okay, fair enough. And then just finally, with the restructuring, what – how has the headcount say changed from maybe your post ’07, ’08 mortgage crisis, the last time we had tough markets, the peak post that to say where the headcount is today?

John Batten

Sure. Globally, we’ve had no acquisition since then. We are down versus where we were in 2010. To put into perspective, we are down just about, I would say company wide, 10% versus say June of 2015, with primarily most of that in North America here. So we are down about – I would say just about 25% in North America from June of 2015.

Brian Rafn

Okay. And then just one final one. What’s kind of your attitude relative to some of the best acquisitions, price wise might be purchased in markets where there is a lot of trepidation? How sensitive, what’s your attitude, certainly you got a great balance, obviously there may be some issues relative to your bank covenants or your financing. What’s available? How do you see it pricing or is that something you’re really not looking, you’re more or less looking at just the general cost structure now.

John Batten

Always looking, again, Brian, it’s just – if it’s a product in a market and the business that our entire management team and we are familiar with in terms of manufacturing and marketing through our distribution subs, we have more of an appetite to look at something bigger, something significant. If it is something that we are – that’s new or stepping like maybe one or two steps away from what we’ve traditionally done in the past, our appetite or a new technology that hasn’t been fully developed, the appetite would be a little bit smaller. So we are looking at everything, whether it’s a small technology acquisition that we can apply to many of our products or if it’s a complete product line that comes with a facility and everything. So in the last 18 to 24 months, we have looked at everything like that, small acquisitions to much larger ones. But I would say, just given where we are right now, we want to have that long-term agreement signed before we would make any move.

Brian Rafn

Okay. I appreciate the clarity. Thanks.

John Batten

Thank you, Brian.

Operator

And we will go back to Walter Liptak with Seaport Global.

Walter Liptak

Hi, thanks. I think in the beginning, you talked about the regions and how much each of the regions were down, I didn’t catch you on China and maybe the product mix and how things are trending in China, we know they’re bad, but just what kind of trends did you see?

John Batten

That’s down just about 50%, in the mid-40s and – excuse me, it’s marine-based, so offshore, oil and gas, cold barge type activity and then also the onshore, the land based energy. So it really -- very balanced in how much it’s down, if I could say that. Everything was down significantly over second quarter of last year.

Walter Liptak

Okay, good. Any trends that it would stay about the same with last quarter or with…

John Batten

I would think certainly -- yeah, the trends for China, with Asia in general would continue through our third quarter. So, I mean if we’re looking for any improvement in China, it really will be to the calendar second and third quarter of 2016.

Walter Liptak

Okay. All right. Thank you.

John Batten

Thanks.

Operator

And we have no questions holding at this time.

John Batten

Okay. Thank you, Aaron. Thank you for joining our conference call today. We appreciate your continuing interest in Twin Disc and hope that we’ve answered all of your questions. If not, please feel free to call Jeff or myself. We look forward to speaking with you again in April following the close of our fiscal 2016 third quarter. Aaron, now, I’ll turn it back to you.

Operator

And, ladies and gentlemen, this does concludes today’s conference call. We thank you for your participation. You may now disconnect.

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