Cnova's (CNV) CEO Emmanuel Grenier on Q1 2016 Results - Earnings Call Transcript

| About: Cnova (CNV)

Cnova (NASDAQ:CNV)

Q1 2016 Earnings Conference Call

April 26, 2016 10:00 A.M. ET

Executives

Christopher Welton - IRO

Emmanuel Grenier - CEO

Vitor Fagá - EVP and Group CFO

Stéphane Brunel - Deputy Group CFO and CFO, Cdiscount

Analysts

Ross Sandler - Deutsche Bank

Edward Hill-Wood - Morgan Stanley

Richard Cathcart - HSBC

Irma Sgarz - Goldman Sachs

Stephen Ju - Credit Suisse

Philipp Duffner - Aurelius Capital Management

Operator

Greeting, and welcome to Cnova First Quarter 2016 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Chris Welton, of IRO. Thank you. You may begin.

Christopher Welton

Thank you. Good day to everybody. Welcome to Cnova's first quarter 2016 financial results conference call. My name is Chris Welton and I will be your host on today's call. Joining me are Emmanuel Grenier, our Group CEO; Vitor Fagá, Group CFO; and Stéphane Brunel, CFO at Cdiscount.

The presentation slides that go with this call can be viewed at and downloaded from our Website. This call is also being audio Webcast, and a replay will be available on our Website about an hour after the conclusion of the call. The agenda for today's call is to go through the slides, highlighting key points, but reserving most of the time for the Q&A afterwards.

So on slide 2, we have our forward-looking statement disclaimer. I emphasize that this applies to the entire presentation and the related documentation and very strongly encourage everyone to fully read the disclaimer now.

On slide 3, we have an additional disclaimer in relation to the internal review that is ongoing in Brazil. As that review is still in progress we cannot assure that the figures related to 2015 that are presented here may not change. We have prepared them based on our best knowledge to date and to help you make comparisons with the first quarter of 2016.

Stéphane will provide an update of where the review stands a little later on. But first let’s turn to our CEO, Emmanuel Grenier who would like to provide you with some opening comments. Emmanuel?

Emmanuel Grenier

Thank you Chris and good day to everybody. Before we go over first quarter 2016 results I would like to give you an overall view of how things are going at Cnova. We have several piece of good news to tell you both in France and in Brazil. So starting with France as we say in French [indiscernible] there is things that are going well. One, GMV is up, net sales are up, and activity [ph] is up. Two, we continue to gain market share in the quarter and that follows market share gains that we have made in the fourth quarter of last year. This is good for volume.

Three, our market basis continue to grow and it is good for margin. Our fulfillment is effective [ph] and we are the only player who also fulfillment services due to run down for heavy items, furnitures, and large home appliances. Four, on the mobile front we are running out native technology, our unified mobile website and mobile app platform. And five, the number of subscribers to the loyalty program Cdiscount à volonté was up 160%. So our clients love it and they are increasing their repeat business figures.

Now turning to Brazil we are making progress with our research. First, the delivery delay problem has been sorted. Second, the orders of percentage is moving steadily down and will be at a more acceptable level in Q2. Third, we have been able to get through a 40% gain in productivity in our logistic processing in the first quarter of 2016. And fourth, our SEO strategy as you know is best in class in France. So we are transferring that know how in Cnova Brazil so that we can increase its level of free traffic. And finally we are working on synergies with [indiscernible]. Plus you can see things are going well in France and now improving in Brazil.

So with that I turn the floor back to Chris who will take you through the quarter’s results.

Christopher Welton

Thank you Emmanuel. Today we have separated our presentation into four sections. First, we’ll go over the key indicators for the quarter and then Vitor and I will go over in more detail the financial performance of the group. After that Stéphane will give a brief update on the internal review in Brazil and finally Emmanuel will come back and provide some closing comments on current trends in France and Brazil.

So on this first slide what I like here is that we have the first two columns that provide a very good overview of how things went in the quarter. We can see for example that GMV at the group level was 1.1 billion Euros while the marketplace share of GMV went from 16.7% in the first quarter of 2015 to 24.2% in the first quarter of 2016. Continuing down, total net sales were 742 million Euros with marketplace commissions growing by 63% year-over-year. Gross margin was up a 140 basis points to 12.6% with improvement coming both in France and Brazil. And finally free cash flow of minus 181 million Euros mostly due to the tough Brazilian context. Working capital was stable and in line with our asset light business model. CAPEX was 63 million Euros or less than 2% of net sales.

Now let’s look at little bit more in depth at GMV. We can see that in France we were up 18%, while from an operational standpoint we were down more than 10% in Brazil. The FX impact was substantially negative. It is worth pointing out that our marketplace sellers have grown to 11,500 while our overall product offering has doubled to 32 million items.

On the next slide our marketplaces are the source of good news across the board. The number of sellers is up 44%, product offerings have doubled as I mentioned earlier, share of GMV is up. This is all having a positive impact on gross margins as our commissions have grown by 59% in France and more than a 140% in Brazil. Additionally the number of foreign sellers is starting to become significant as well and our fulfillment service is ramping nicely.

On this next slide we can see that traffic is more than 16% year-on-year, up more than 16% year-on-year, while we have grown our active customer base to nearly 15 million. Our customer loyalty programs what Emmanuel mentioned earlier are driving both traffic and sales growth. As Emmanuel also mentioned our customer loyalty program in France Cdiscount à volonté has seen a 160% increase in subscribers since the last year. And our SEO expertise places us in front in France as well.

Very quickly on the next slide, here we can see clearly that France is doing quite well, while Brazil needs to improve. Placed orders for customer were up 7% in France, while the number of items sold was up 20%. At Cnova Brazil these were down 8% and 17% respectively.

Then on this slide -– the following slide, slide 11, it gives us a broader view as well as a little more detail on the first quarter P&L and cash flow. Now we're going to look at these in a little bit more detail on each of the following slides starting with the next slide on net sales. Here we see that net sales from operations were up strongly at Cdiscount, plus 15.3%. Our market shares grew both in January and February. Brazil is having a tougher go of it. The macro and the lagging effect of the correcting operational efficiencies led to a 20% decline in net sales. On top of that our headwinds induced from the weakness of the Real versus the Euro as well the tax – the sales tax increase known as ICMS, introduced at the beginning of 2016 which has not been passed on to our customers.

Turning to gross margin, so here is some good news as well. Increases across the board; we hit 12.6% at the group, 14% at Cdiscount France, and despite all the issues facing us in Brazil we were able to improve the margin to 10.2%. As Emmanuel mentioned, the marketplace is helping both in France and Brazil. The new installment payment plan and increased shipping revenue also contributed.

If we look closely at SG&A it’s a bit more of a mixed picture. We had good progress at Cdiscount as cost control measures taken there are bearing fruit. Brazil on the other hand took tax loss – tax and loss provisions, increased its marketing expenses to try and turn the tide in terms of net sales progression, and the development of the new ERP soon to be rolled out was also felt. If we look at operating EBIT, it was minus 31 million and most of that came from Brazil Cdiscount, France was in positive territory, I would remind you, for the second quarter in a row. And now Vitor will take us through financial expense and cash flow.

Vitor Fagá

Thank you, Chris. So in the next slide, slide number 16, we can see that due to the higher interest rates and negative free cash flow in Brazil and also the negotiations factor in contract in France our financial expenses climbed from 13.4 million Euros in 1Q 2015 to 22.4 million Euros in 1Q 2016.

In the next slide, slide number 17, we see a negative free cash flow mainly as a consequence of the negative net results and the CAPEX of 50 Euros [ph]. CAPEX represented 63 million Euros or around 2% of net sales which are in line with our asset line business model. And now I am going to turn the floor over to Stéphane who will give an update on the progress to date of internal review that’s going on in Brazil.

Stéphane Brunel

Thank you Vitor. I would also like to point out three things that we mentioned in the press release on this subject issued this morning. I would encourage our listeners to refer to that. First, we revised upwards the estimated adjustments that we booked in the fourth quarter of last year. You may remember that we have provisioned 177 million Reals. We have now increased that to 219 million due to two accounting errors related to under estimated freight cost and products in transit. This will be a portion to 2015 and prior years. We have made an estimate of what the impact could be in the first quarter of 2015 and that’s reflected in the numbers we are reporting today. I would remind you that this is a preliminary estimate and could change as the internal review in Brazil progresses.

Second, the review team has come across evidence that suggests that intangible assets have been improperly accounted for. They are also looking into whether some operational cost was deferred when they should not have been. At this stage it is too early to know if these will lead to further provisions and if so what the estimated rents of those could be -– goodwill a debt to market when we have more information. Finally, even if the review is lasting longer than expected, we currently do not anticipate being able to provide restated 2015 financial statements and a 20F sooner than June of 2016.

Now I will turn over to the call to Emmanuel who will finish the presentation and then we’ll take your questions.

Emmanuel Grenier

Thank you Stéphane. I am going to outline over the next two slides what our priorities are for 2016. Starting with Cdiscount France, we are concentrating on four value added initiative. First, improve the – services via our unique heavy items second day delivery service and continue to promote Cdiscount à Volonté which is -- two, we are the market leader in home furnishing and we are committed to increase or lead your expansion of the product offering and through more same day delivery.

Three, as far as our marketplaces are concerned we are targeting 40% share of GMV by the end of the year. We are offering more services to enhance profitability even more via fulfillment service with a special focus on heavy item delivery. And four, we are improving our mobile site and app by moving all of these to a single platform basically now as we speak.

Now turning to Brazil, we are making good progress on sorting out the internal issues. Our number one priority is to restore operational excellence. One, our delivery problems are a thing of the past. Two, the order of stock situation is greatly improved but we still have more to do there. Three, we are focusing on increasing the SEO portion of our traffic. Four, market base expansion is focusing on recruiting new vendor and improving quality control. And finally, we are reducing the cost of separating of the fees.

So to conclude Cdiscount is doing very well and is getting even better. Cnova Brazil is in operational reset mode and is getting better, and we are making progress on our strategic initiatives. The marketplace is expanding at a fast rate and we are proving a better mobile experience for our customers. Thank you. We are now ready to turn to the Q&A. Operator, may I have the first question please.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen. We will now be conducting our question-and-answer session. [Operator Instructions]. Our first question comes from the line of Ross Sandler from Deutsche Bank. Please go ahead.

Ross Sandler

Hey, guys. Just couple of questions on the Brazil side, I know it is still work in progress. But do you have any goals in mind as far as operating profit for 2016 or one that starts to stabilize a bit? And then the same thing for overall company cash flow, any goals for cash flow for 2016 would be helpful? That’s it, thanks.

Stéphane Brunel

Thanks, Ross. I'm going to take your first question around Cnova Brazil. So we said in the last conference call that all internal target is to reach close to zero EBITDA on the full year basis, which means basically close to minus 15 million Euros EBIT on a full year basis. Obviously it remains our internal objective. It has become more ambitious but we believe that we can reach breakeven in the last nine months of the year.

With respect to 1Q 2016 in our last results call, we told you that we expected 1Q 2016 gross margin to be close to 1Q 2015 gross margin level, which is actually the case. And Vitor take the question on cash flow.

Vitor Fagá

Yes. Ross, what we can say about the cash flow is that we still – it is important to highlight that the company’s still with a positive working capital equation which allow us to grow generating cash. And second, we are following the asset-light model. So as you could see the CAPEX of the last 12 months were around 2% of sales. So this can give you a view as well on the perspective that we have in terms of cash flow generation.

Operator

Thank you. Our next question comes from the line of Edward Hill-Wood from Morgan Stanley. Please go ahead.

Edward Hill-Wood

Hi, good afternoon, everyone. Just – I've got a couple of questions too please. Firstly, just looking at some of the issues around the resets or in Brazil on delivery, supply, etcetera could you potentially talk to when you expect to see or some evidence of that actually coming through in terms of what you're seeing the end of Q2, is there some metrics which provide you particular encouragement or do you think we will see that in Q2, in terms of either top line or possibly on the profitability?

Secondly, there's been a reasonable degree of talk about potentially splitting the group up into two units, possibly separating France, Brazil together apart. I was wondering if you could comment on whether or not there is any sort of major legal or barriers to that type of consideration?

And thirdly, you mentioned earlier that you are working to create synergies with the ratio [ph], I was wondering if you could just maybe elaborate on that a little bit in terms of specifics of what you're doing differently in 2016? Thank you.

Emmanuel Grenier

Yes. Emmanuel speaking, I going to inform you three questions. About the resets, the first priority was to deliver on time and now we are delivering on time. It was quick. It took one month but the delivery time of between four and five days to the customer. So this is behind us. In terms of out of stock, we were -– out of stock was above 30%. We are now below 20%. So we made a lot of progress and it should be even better at the end of Q2. Third, thing about SEO in traffic and free traffic, our SEO is increasing 40% compared to last year Q1. So these are very concrete figures to tell you that it is going better in Brazil. Now we should see the impact on Brazil during the second half of the year because we still have a lot to do as you can imagine on all this topics.

About the rumor, there are always rumors on the market. Now there are always a little rumors and we don’t comment from it. So it is going to remain on sale. And about [indiscernible] yes, we are increasing the synergies with them and we are doing what we said in the past. It means that one of the mention [ph] as he was in logistics and sport [ph] with both rationalization of logistics all over Brazil we are on no sharing for this with [indiscernible] and we will share 8 by the end of the year. So as we are sharing this season where housing cost are going down and because as well we are sharing this decision we are sharing transport from this business to the customer. Transport growth are going down as well.

Edward Hill-Wood

That’s great maybe just a follow up on that first question just on Brazil again. So do you think there is any evidence that we are at the bottom in Brazil in terms of run rate on GMV or revenue growth or would we still expect to see potentially another sort of leg down before it gets better in the second half? Thank you.

Emmanuel Grenier

What I can tell you is that what we can control we are at the bottom one and half months ago. It’s now improving. Now that is a macro we cannot control. So the macro is still challenging. So I can speak about what I know and what I can turn on and difficult for me to speak about the macro and how it’s going to look like in six months.

Edward Hill-Wood

Okay, thank you very much.

Operator

Thank you. Our next question comes from the line of Richard Cathcart from HSBC. Please go ahead.

Richard Cathcart

Hi guys, good morning. Just the first question on Brazil it looks as if the gross margin of the direct sales excluding marketplace -- the gross margin the direct sale side is around 50 basis points. Can you just talk us through what's going on there, is that still kind of a very competitive market, you haven't seen more promotions continue to reduce prices? And then the second question just kind of more broadly on your expecting France to get to 40% marketplace by the end of the year and you also mentioned getting to kind of breakeven at the EBITDA level. So, given that you are already at 40% marketplace participation in France which went to the high number, what is kind of -- what are the prospects of actually getting that EBITDA much, much higher over the next couple of years? Thanks.

Stéphane Brunel

Okay, thanks Richard and I will take the two questions. First, I think that you know we would like to underline that with respect to Brazilian gross margin, as you know we have been busting quarters above quarters of negative trends in terms of change in gross margins one quarter versus the previous year's single quarter. And for the first time it is not the case, gross margin is up. So we think that it’s a good sign and we no longer hide internal problems through heavy coupons or promotions. And gross margins now I think are much more under control.

Second, I think that maybe then I haven't been cleared. You are referring to the 40% share of marketplace as a percentage of GMV on one hand and referring to zero EBITDA for Brazil. And I think that yes, it is our objective to reach in the coming quarters the 40% threshold for marketplace as a percentage of GMV in France probably in the early months of 2017 or sometime in 2017 with respect to -- but France as you know is already in clear positive territory in terms of EBITDA. It was last year and it will be even more this year. Our objective of being close to zero EBITDA level is related to Brazil and to the full year of 2016, Brazil. It’s an internal objective. We are convinced it’s ambitious but it’s doable at the same time. Does it answer your questions?

Richard Cathcart

Yes, sorry. I mixed up the comments before about zero EBITDA. So I mean is there any guidance you can give us about EBITDA in France at the end of -– till the end of 2016, given that you have this target of 40% marketplace?

Vitor Fagá

We don’t – I think that we confirm our guidance that we shared with you on the last call which is an improvement in the French EBIT in 2016 versus 2015. We think that the first quarter shows and demonstrates that we are on this path and we don’t give more specific EBITDA guidance.

Richard Cathcart

Okay, thanks very much.

Operator

Thank you. Our next question comes from the line of Irma Sgarz from Goldman Sachs. Please go ahead.

Irma Sgarz

Yes, hi, good afternoon. Thanks for taking my question. Regarding Brazil, I was just trying to understand a little bit more when you say that you're confident or that you believe that for the rest of year you can get to breakeven on the EBITDA line. I was just trying to understand a little bit more that given that you are running at a 20% of sales SG&A level and I understand that obviously to the extent that sales, as they improve going forward then there could be a higher degree of dilution. But when I look at the gross margin at about 10% and then SG&A cost of at about 20%, it looks like you're still quite a way away from getting to breakeven. So I was trying to understand when we think about this trajectory towards breakeven, how should we think, is this an equal asset from both gross margin and bringing down SG&A or is the burden going to be –- the onus going to be more on the SG&A? And maybe to that question, maybe you could just split out to us when you look at the SG&A expenses for the first quarter, how much of that do you consider really recurring and how much of that was more really related to one off fixes that you needed to put in place to address the operational issues? So that’s the first question. And then the second question I was just – before you noted, you went from net cash to effectively net debt. So I was just curious how you would have us think about funding structure going forward?

Stéphane Brunel

Okay, thanks. So with respect to your first question I think that obviously in order to be as close as possible to our internal objective we need to make progress on three levels. The first one obviously is the net sales performance. As you know Q4 is a very important quarter, second half and especially Q4 is a very important quarter in Brazil because of Black Friday and Christmas. And as you know the fourth quarter for instance is probably close to 40% bigger than the second quarter if -– in terms of what is at stake. So the first level is of course, we expect improvement in net sales and change starting in the second half as Emmanuel mentioned before.

Second, what we said in our previous conference call remains true. We think that one key level will be to improve gross margin in Brazil, which was not satisfactory last year because of use of promotions and coupons which were we think and we believe hiding from a customers’ perspective, internal deficiencies. And third, it’s true that from an SG&A perspective we have two effects in the first quarter; first, we spend slightly more in absolute terms to fix the issues in terms of customer relationships, out-of-product stuff, and so and so forth. And second, since you measure it as a percentage of net sales of course we are impacted by the decline of net sales. So going forward we think that we don’t need to have this extra spend to fix the issues and will benefit from a little bit more wind on the commercial perspective. So these are three levels to reach our internal target.

Vitor Fagá

Irma, regarding to your second question it is important in the beginning that from the fourth quarter to the first quarter there is a strong seasonality effect. As you probably will follow, there is a strong seasonality in the fourth quarter, a positive seasonality and a negative seasonality in the first quarter in terms of cash flow, cash flow generation. So usually the first quarter is the weaker or one of the weakest quarters in terms of cash flow generations while the fourth quarter is very positive. But this is the first thing toward rational question. The second thing is we are still working with positive working capital equation and we expect to keep that. As well as the asset liability [ph]. With the level of CAPEX that is around 2% of sales. So considering all these elements is important to emphasize that. We expect to have positive free cash flow in France during 2016. And in Brazil as we discussed in the previous questions, ultimately the level of cash flow will depend on the results of the initiatives that we are implementing right now.

Irma Sgarz

Thanks Vitor and the level of gross receivable base in your Brazilian business because obviously the working capital equation hugely depends on the level of discounting that you do and the cost that is associated with that obviously comes through your financial expenses so, I think that opportunity needs to be taken into account when you talk about positive working capital equation. So if you could just shed some light on if we set for the reversing basically the receivables discounting what would your working capital specifically in Brazil has looked like?

Stéphane Brunel

Yes, you were right. I mean the level of discounts and receivable is also an important component. In that sense what is important to mention to you is that we have been able to gradually reduce the level of discounts of receivable especially by reducing the average number of installments. We are working right now with a level of installment that is lower than the previous -- the same period of last year and is around very close to seven installments on average. So these results are important component of the equation as you mentioned and we are keeping this level of around seven installments.

Irma Sgarz

Okay, that helps thank you.

Operator

Thank you our next question comes from the line of Steven Ju from Credit Suisse. Please go ahead.

Stephen Ju

Hi, I was wondering if you can give us some clarification, so if we are doing our math correctly it seems like your marketplace's revenue is increasing at a faster clip versus your marketplace at GMV, looks like so. I was wondering what might be happening with your commission rates or your take rates there that might be generating the discrepancy? Thanks.

Vitor Fagá

Yes, Steven you are perfectly right. Our marketplace commissions grows at a faster rate than our marketplace at GMV. For instance in France last year we increased commission twice, first time in March, second time in September. And we think that generally speaking we keep -- we still have rooms for further improvement in terms of overall profitability and that’s the same thing in Brazil. So you are right, commission rates of profitability generally speaking is increasing which explains why commissions grow at a faster rate than marketplace GMV.

Stephen Ju

Okay so this was an explicit hike to your commission rate. I think historically you guys have been at around 11% or so, where are you now and where do you think you are versus some of your competitors?

Vitor Fagá

So we are in France and in Brazil we are around 13% in both countries. And we think that basically we have room for further profitability, not only in commission rates but in offering of our services to vendors and in terms of adds visibility of that services in order to further enhance all marketplace commissions.

Stephen Ju

Thank you.

Operator

Thank you. Our next question comes from the line of Philipp Duffner from Aurelius. Please go ahead.

Philipp Duffner

Alright, could you please explain what led to the large cash outflow related to trade payables in Q1, in particular why was it so much higher than the year before?

Vitor Fagá

Yes, this is very related to the seasonality in which we have in the Q1 lower level of sales. As you can see the evolution in the first Q of the years are negative comparing to the first quarter of the previous year. This explains the majority of this effect.

Operator

Thank you. [Operator Instructions]. Our next question comes from the line of Richard Cathcart from HSBC. Please go ahead with your follow up.

Richard Cathcart

Hi, thanks very much. Just a couple of follow ups; one, just following up from Irma's question about greater margin in Brazil. I said in the initial question that I thought the gross margin of the direct sales had fallen in Brazil. Can you just let me know if that’s correct or if I'm looking at that in the wrong way? And then the second thing, can you just kind of go into a bit more detail about the couponing that happened last year, I mean did that build quiet aggressively through the year or was it more in the first quarter and just kind of how you're managing to kind of walk a fine line between bringing -- taking out those coupons and managing to maintain same level of sales growth? And then just the final thing picking up on Vitor’s point about reducing the number of installments to an average of seven, is that having a negative impact on your sales growth, do you think and is there any kind of potential for through the rest of the year and after then go back up in order to try and generate more sales growth or is the whole market pulling back on the average number of installments? Thanks.

Vitor Fagá

So perhaps I will take the first question on gross margin and we’ll let Emmanuel speak about the commercial policy in Brazil. Basically, what we say is that as you know earlier on or last year we were posting negative and significantly negative change in gross margin in Brazil year-on-year. Today we are posting a positive impact which means that if we exclude the impact of marketplace probably on one key product, yet we are close to last year’s level, and this is right and we think that it’s still a significant improvement versus the down in our trade [ph]. Second, just to say that we repeat that it’s our objective to continue to post in the short-term at least stable gross margin in Brazil before improving them in the course of the second half. I’ll let Emmanuel talk about the promotional policy.

Emmanuel Grenier

Yes, Richard, last year to hide internal efficiencies like deliveries not on time, like out of stock problem of operational problems, the company was pushing very hard on coupons. All the time, all day long, all night and all week long, and through all the channels, through direct traffic, through SEO, through SCM. So we stopped that and we went to healthier collateral policy, looking for this more coordination with [indiscernible] and something more which is even more structured. So we started that in the last month and we are keeping on improving that.

Vitor Fagá

And Richard, considering that your last question about the number of installments, as you follow, we have been doing that in the last 2015. So in the last several quarters very gradually, and very carefully of course it is then considered in different category and the impact of it in categories [ph], to that at the end of the day limited or no impact on sales, okay. So this is the way that we are doing it and we are following this trend and we expect to keep moving in that direction.

Richard Cathcart

Okay, thanks very much guys.

Operator

Thank you. Ladies and gentlemen there are no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Emmanuel Grenier

Thank you. We will conclude and so three main messages; France is doing very well, GMV net sales and EBITDA up, and we are gaining market share to 3.4 points in January to 1.5 in February. And our customers love it. Their purchase are increasing. Second Brazil including, there we did a [indiscernible] problems are improving and issues is being deployed. So we are on track. And on the strategic initiative point marketplace is expanding on both countries with fair commissions as well. Mobile traffic is growing as well, so mobile is a priority for us. Thank you very much.

Operator

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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