XPEL Technologies' (XPLT) CEO Ryan Pape on Q4 2015 Results - Earnings Call Transcript

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Xpel Technologies Corp. (OTC:XPLT) Q4 2015 Earnings Conference Call March 29, 2016 11:00 AM ET

Executives

Jen Belodeau - IMS

Ryan Pape - President and Chief Executive Officer

Analysts

Andy Preikschat - Partners

Operator

Greetings, and welcome to the XPEL Technologies Fourth Quarter 2015 Earnings Call. 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.

I would now like to turn the conference over to Jen Belodeau. Thank you. Please go ahead.

Jen Belodeau

Thank you. Good morning and welcome to our conference call to discuss XPEL Technologies’ financial results for 2015 fourth quarter and year end. On the call today, Ryan Pape, XPEL’s President and Chief Executive Officer, will review the company’s financial results and provide an overview of business opportunities and future growth strategies. Immediately after his prepared comments, we’ll take some questions from our call participants.

Let me take a moment to read the Safe Harbor statement. During the course of this call, we will make certain forward-looking statements regarding XPEL Technologies Corp. and its business, which may include, but not are not limited to anticipated use of proceeds from capital transactions, expansion into new markets, and execution of the company’s growth strategy.

Often but not always, forward-looking statements can be identified by the use of words such as planned, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations including negative variations of such words and phrases or state that certain actions, events or results may, could, would, might, or will be taken, occur or be achieved. Such statements are based on the current expectations of the management of XPEL.

The forward-looking events and circumstances discussed in this call may not occur by certain specified dates or at all, and could differ materially as a result of known and unknown risks factors and uncertainties affecting the company, performance and acceptance of the company’s products, economic factors, competition, the equity markets generally and many other factors beyond the control of XPEL.

Although XPEL has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended.

No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and XPEL undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

With that out of the way, I would like to turn the call over to Ryan Pape. Go ahead, Ryan.

Ryan Pape

Thanks Jen. Good morning and welcome to our quarterly earnings call. I trust most of you had a chance to review our fourth quarter and full year earnings release that we issued earlier this morning. Revenue for the fourth quarter of 2015 ended at $11.2 million, which was a 47% increase, as compared to revenue of $7.6 million in the same period of the prior year and a 3% increase sequentially from third quarter.

Overall, we saw good performance in most of our international regions, including China where we saw growth from the prior year as we had anticipated. We are pleased with the performance in Canada. We’ve seen continued growth despite some macroeconomic concerns in Western Canada. And while the numbers are still smaller comparatively we are very pleased with our performance in Europe, especially in the U.K. and then also beyond the U.K.

We’ve seen our installer footprint in the U.K. grow significantly in terms of number of outlets and each new customer helps spread the message, generate more awareness, more excitement and sort of get the snow ball moving in a market that can really use it. So, we’re very pleased with that. To that end as we also previously mentioned we are working on establishing our Netherlands based operation in connection with one of our current distributers. Our timeline slipped a bit from the end of last year, but we do expect to move forward and move forward shortly.

We are committed to that strategy, we believe it will enhance our presence in the overall European market and service good counter to what we get in the U.K. Due to that increasing international exposure in the U.K., but particularly in Canada starting last year in the third quarter we began presenting some of our key members on a constant currency basis. We feel that this helps give better visibility to the operations irrespective of the foreign currency environment. The constant currency members are non-IFRS measure and they represent the results as they would have been using the prior period, the comparative periods exchange rates.

In the fourth quarter of 2015, the Canadian dollar fell additionally a bit relative to the U.S. dollar and that’s on top of a year full of declines of the Canadian dollars most people are well aware. So, on a constant currency basis, our revenue increased 51% for the fourth quarter to $11.5 million. So, you can see that foreign currency continues to have a large impact on our results. Gross profit as a percentage of sales decreased to 25.2% from 31.2% in the fourth quarter last year.

The gross margin declined for several reasons. The margins declined with higher international sales on the quarter, which are definitely at the lower end of the range of margin we see on our transactions and then obviously throughout the year and in the fourth quarter the strong U.S. dollar negatively impacted our international subsidiaries, which then would consolidate lower gross margin.

In the fourth quarter, the gross margins also declined. As a result, we had a $125,000 sale of a developed metal product to a potential customer and under the terms of that project that was sold very near to cost, but if that’s commercialized in this year that would represent a $7 million annual opportunity. So, it’s well worth doing.

We also saw significant increases in the cost that make up our cost of goods over and above the cost of material, specifically including our production labor and shipping and logistics expense. As we discussed previously, throughout last year we have been implementing an enhanced logistics program to move our inventory closer to the customers that speaks to the type of customers we have and the need they have and our desire to serve them and try and serve them better and eliminate obstacles they have to grow and eliminate pain points for them.

The program has been exceptionally well received and we’ve used it a lot and that’s helped drive our shipping deficit, which is shipping income versus shipping expense help drive it higher, and higher than we forecast, substantially higher than we forecasted. This is an important program to the key differentiator, but as a key area of opportunity that we need to focus on controlling and we think we can, the shipping deficit currently exceeds $600,000 annually.

So, it’s a very large opportunity for us. It’s not a cost that we would ever expect to get to zero because that would supply strategically, but we do think there is substantial opportunity there, and we will be focusing on it. On the production labor, we’re transitioning to more full time employees and fewer contract positions. Now that we’ve made some operational changes and had a better idea what our staffing levels will be.

Throughout last year, as we were preparing for some of the changes we’ve made through turnover and people swapping in and out, we increased the number of contract positions which came at a higher cost on a temporary basis, but now that we know where our staffing levels will be there, we will be rolling that into full time and we will see some savings in the coming months from that.

And then finally to impact cost of goods, we had about $200,000 in true-up or various cost of goods accounts at the end of the year, specifically related to our kit cost for products we cut and ship and our installs don’t cost being through our installation centers. We manage every month hundreds and hundreds of roll that we keep open and after true-up the inventory on and we put in place a better system to manage that real time as we got inventory of that nature in so many locations and became online as part of our ERP implementation, but there was a true-up on that at the end of the year.

So, as we talked before and continue to talk about, we’ve focused a lot of our attention on SG&A and trying to view the SG&A expense and control the rate of growth to SG&A expense, which we’ve been focused on, but it is obvious that we need to direct as much energy to reducing and controlling the rate of increase or reducing some of the costs that comprise the cost of goods sold.

On SG&A side, those expenses for the quarter declined a bit as a percentage of revenue to about 24% as compared to 25.5% in the fourth quarter of the prior year. Now, we continue to work on aligning this cost structure as we grow the business. We invested significantly in technology and marketing in the back half of 2015. We talked about the ordering and account management portal that was implemented for our dealers.

This is something that they want that makes them that much more effective and high-grades their interactions with us, but it also serves as a method to control our customer service cost going forward while maintaining the highest service level we want. And to that end in that department even at the end of March, now we are actually down a position just through attrition, those may able to recover through better optimizing and better use of technology. So we see that trend continuing.

We also recently launched the new website. We’ve got a good content on there where we can share photos and videos and stallers, and share them with [indiscernible] (10:22) check it out. We were very pleased with the installation changes we make. It’s a long time coming for those of you who have followed that project, we’re very happy with it and we will be launching versions of that for our other international companies in the coming months and have a really unified and localized appearance.

So in the fourth quarter, our total SG&A level on a percentage of revenue declined slightly, global SG&A was similar to Q3 despite the fact that we had some one-time expenses in the Q4 SG&A, some increased legal with some projects we’re working on but not at the expense of future growth. To that end, in the fourth quarter, we increased our commitment to invest in the window film program by hiring a team of six that was up overseas sales, training and related matters as part of that product line.

While it’s still in the fourth quarter very small percentage of revenue, the complimentary product line the window film has been well received since its initial launch and we work to increase the availability and distribution of the product. And we believe that the window film will help drive growth and it further enhances our ability to win deals because there is a lot of deals that need those product lines. And we can compete, we are not disadvantage on those, we’re actually an advantage because we can offer a window film solution that’s better than a lot. So we’re encouraged by that and we’re happy to have this new team on board and we know we’ll see a return on investment with that window film team. And as a percentage of sales, we’ll see window film increase going forward, we expect.

From a bottom line standpoint, the net loss in the fourth quarter of $200,000 had a tax true up or income tax estimates in the quarter to a loss with our acquisition accounting transfer pricing studies throughout the year. We made best estimates on income tax as we go but we’re working on the integration of Parasol and related matters throughout the year and those at least get trued up at year end. We’ve also with our expanding footprint around the U.S. be it from sales people we hire or hired at various places or other space where we have operations, we continue to add Nexus in various states where we expand and we’ve got up on some of those and some state tax at the end of the year as well.

On a EBITDA basis we reported $400,000 for the fourth quarter as compared to $600,000 for the same period prior year on a constant currency basis, that was about a 16% increase to $700,000 in the fourth quarter. So as you can see, the level of profitability continues to be impacted substantially by foreign currency. On a currency adjusted basis, you see the business is performing well and the Canadian acquisition that we made was accretive. Just to give you answer to this, our purchase price of Parasol Canada was about $3.6 million as I stated at the end of the year, and we’re seeing a currency impact right now about $1 million a year. So it was a good strategic acquisition but ultimately it will be a good financial acquisition as well. We continue to monitor the market dynamics in Canada and the currency markets, and we do have a small price increase scheduled for April in Canada. We think it’s appropriate but there is limits to the fact that price increases that can be done in any market at any one time.

We continue to present dozens of industry events, enthusiast events which is part of some of our marketing strategy. In January, we exhibited Barrett-Jackson show which is a fantastic show. It attracts about 350,000 people. This is exactly where we need to be. These enthusiasts become believers of XPEL and it leaves go back to their communities and help drive awareness for paint protection film and awareness about XPEL. So it is still a cornerstone piece of our marketing strategy.

Additionally, we are continuing to evolve as a public company. We are looking to add to our Board of Directors and we’ve had some preliminary discussions with a few people, so this will be something we work on. We are also presenting at select investor conferences and we will be at the Sidoti & Company Emerging Growth Conference in New York this Thursday and we’ll be in Toronto next month as well.

Finally, as most of you know, 3M and an affiliate company filed a complaint in U.S. District Court for the District of Minnesota alleging that our ”XPF Paint Protection Film” has been and is infringing on their patent. As we stated, we denied the claims and we have very serious concerns about the validity of their patent in question. We have a multipart strategy around this litigation and we will defend vigorously. The business continues as usual. There should not be a lot of impact to our customers while this progresses. To that end, while the first quarter is not yet complete and our months tend to be back end loaded and our quarters tend to be back end loaded, we’re still seeing revenue growth 25% plus range. So we know that if the customers are with us, we had tremendous outflow and support from our customer base.

So while the suite was announced very publicly at the end of last year, we were only recently served and as such there is not yet a reply on file from us with the court. So our first objective is to preserve every opportunity to prevail in the litigation as quickly and cost effectively as possible. So to that end, we just can’t say at this point anymore publicly than what we’ve already said. So I ask that you expect – so we can’t discuss that further in the Q&A portion of the call.

So overall, we are pleased with strong growth. We are pleased to be able to bring the window film project to fruition. We are pleased to be able to evolve the brand and the public presentation with the launch of the website. We’ve got a great team and we continue to see great growth and we continue to work to refine the business and dig into the details where we can do better, but still being focused primarily on what’s going to drive growth to make us much larger company.

So with that, operator, we will open for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of [Adam Goldfein], a private investor. Please go ahead with your question.

Unidentified Analyst

Got a question about the why no reply has been filed? It looks like from the complaints that I read on the court website, it sounded like a reply was due a long time ago and the sentence was served a long time ago, what’s going on with that?

Ryan Pape

No, the service was just made within the past few days and so the time for reply starts at that point.

Unidentified Analyst

Okay, so there will be a reply within 10 days then?

Ryan Pape

I do not believe 10 days is a timeframe but the timeframe is set and there will be reply in the time acquired.

Unidentified Analyst

Okay. So you mentioned that this quarter, on a constant currency basis, the revenue growth was 51% whereas in the first quarter down to 25% approximately. Do you think that’s because of this – that deceleration is because of this lawsuit?

Ryan Pape

I think there is bound to be some impact from the lawsuit that we don’t know and can’t quantify. But generally, no, I don’t think so. The swings that we might see from quarter-to-quarter a lot of times have to do with international sales and/or distribution sales and whether those hit in certain quarter or whether they don’t. So I don’t read the whole lot into it but I think you have to expect that it’s possible there could be some impact but overall no I don’t think so.

Unidentified Analyst

Okay. Let’s say with the – the decline in the gross margin was pretty severe, normally the gross margin swings maybe a 100 basis points or something since I’ve been following the company. You gave a few of the reasons, can you give us some idea of what to expect going forward? Is it going to go back to being 30% plus or it’s like 25% gross margin the new normal do you think?

Ryan Pape

Well I can’t give you a definitive range in part because it depends on where we see the most growth and what type of revenue makes up that growth. So if we see really proportionately really large increases through our distribution channel, then that’s going to take you to lower end on the margin range. Yes, we see strong growth domestically than that’s what take you to the other direction. So you have that sort of the book ended and like we discussed before, we have projections when you have targets and when you have agreements on the distribution front that – it should give us some indication what those sales are and what their targeted fee. But at the end of the day those were independent businesses and we get extra volume, best rate and if they don’t meet their target then we deal with that. So it makes a lot to predict. I think – so that part we can’t control. What we can control are some of these other cost inputs into the cost of goods and the shipping best set that we mentioned and some of the other production related expense, these are cost have really escalated and they are ones that we’re going to be working or working really hard to get those down to a level that we’re happy with.

Unidentified Analyst

What was the true up amount – I think you said the shipping deficit was $600,000, was that for the year?

Ryan Pape

Yes. So that was just approximate annual number on the shipping estimate.

Unidentified Analyst

Okay.

Ryan Pape

Providing discounted shipping or providing shipping incentives or shipping programs, those are some things that you do to win business but there is also opportunities where your shipping cost is higher than it should be for some other reason. And so that’s where the opportunity is to really help manage that number.

Unidentified Analyst

Okay. And the true up amount, you may have said it but I missed it.

Ryan Pape

It was approximately $200,000 in the fourth quarter.

Unidentified Analyst

Okay. And last, I got a couple of questions about the window film. Is there any sort of synergy with the database in software, you have exactly we’re tried making a good database for the paint protection film. So is that software also used for the window film or is that a completely different animal.

Ryan Pape

No, it is used and generally speaking software on the window film side is not as necessary for all the installers. The window film products are easier to install without using precut patterns. However, for lot of customers particularly those that have not been in the window film business as long or they are trying to add new installers that are less experienced, then the patterns on the window film side become a big advantage. And we work very hard over the past year to enhance the pattern program around the window film patterns. We made a lot of progress. Historically, it was not any area that we were particularly strong. So we made a lot of progress and as part of the headcount additions we made last year. So now, we have a – or we think is a very good offering and that is part of the advantage with the program and part of the mechanism by which we will sell the window film.

Unidentified Analyst

Okay. The cost of those, the new team, is that part of the – I imagine that the cost to the new team, they have preceded the revenue from that. Is that port of the gross margin problem in the first quarter or not?

Ryan Pape

Most of that cost would not be in cost of goods.

Unidentified Analyst

Okay.

Ryan Pape

But you’ve connected a lot of fronts on the window film program we made investments ahead of revenue and at the end of the year it was very small percentage of sales and we expect that to go.

Unidentified Analyst

Okay. Are you going to start disclosing the percentage of sales maybe next year?

Ryan Pape

Yes. We are working on – as some have noticed, this year and the annual financial, there is some segment reporting that is mandatory under IFRS due to the fact that we now by virtue of those subsidiaries, by virtue of the acquisition in Canada and by virtue of the UK operation now reaching threshold to materiality. There is some segment reporting as the auditors would agree to satisfy that requirements. Now, we have the option to expand on that or change that with their agreement. If we think we can better describe, what the business is going, but now that also serves as a foot end of what’s required the county roles. So we’ll be looking at all of that and in the future other areas to decide. Going forward on what ultimately the best and it’s much useful presentation.

Unidentified Analyst

Okay. And my final question is about legal cost. Can you give us an estimate of what is the annual legal cost you would expect some on this litigation?

Ryan Pape

I can’t at this point, there is many different path that the litigation to take and a wide range of cost as a result. So I can’t say obviously we’ve depending on the it could take – it could be very extensive. And we have clients in place to respond to that agreement but it did now could be a very wide range based on the time involved and the actual strategy employed.

Unidentified Analyst

Okay. That’s all from me. Thank you.

Ryan Pape

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Andy Preikschat with Edgebrook Partners. Please go ahead with your question.

Andy Preikschat

Hello, hi, Rynan. One thing in the fourth quarter what of percent were from the U.S?

Ryan Pape

I’m sorry say that again.

Andy Preikschat

Yes. In the fourth quarter, what percent of sales were from the U.S. This point, we don’t break out sales by country primarily because there are a lot of international sales that originate and ship through the U.S. So that’s not a breakout I have for you right now. Probably historically you’ve shared that and that was about 70% and it’s still consistent.

Ryan Pape

We had that information about year ago that we provided prior to the Parasol acquisition, I think that to get a sense of the impact of the Canadian business, the UK business, you can review the segment reporting and then the balance in the U.S. would be U.S. sales and then our other international markets. Generally that range that sort of historical range is accurate in the 30% to 40% OU.S. but we see quite a bit of variation and there is some noise in that number due to U.S. shipments that we’re going ultimately shipped out of the country and what not which was a primary reason that we stopped intentionally trying to break it out.

Andy Preikschat

Okay. And just hard to see her, you said its sales growth about 25% and could you share a bit more about [indiscernible] industry is growing versus Comcast you’re growing and is that increasing units or is that more increased and the more installers.

Ryan Pape

It’s both, we continue to see a tremendous flow of new people coming into the industry. So generally it’s our experience that the majority of the established ice dollars, who has been in business for sometime. They don’t grow their business at 30% a year, 50% a year, most of them is down. They have a slower growth rate. So, a lot of the growth that we see and a lot of the growth that we believe the industry sees is a result of new people entering the business and that’s been a long term trend, but one that seems to continue in earnest and that’s - new businesses set up really primarily around this product, which we see some of, it is a lot of existing businesses in the automotive aftermarket that are adding this as a product line be it a Window Film shops or auto accessory stores or retailers etcetera. And then it is a realization by the dealerships and the new car channel that this is a really good product to sell as part of the new car sale and that drives the both way, that drives dealerships who are looking to have the product in-house and take the labor in-house and then a lot of them and the majority of them that want to offer the product, but outsource it to an independent installer, but overall the greatest driver of growth for us is and has been continuing to expand the channel with more points of distribution and more people entering the business.

Andy Preikschat

Okay, can you talk about the training - the process dealer capacity and what are the plans there on the training side?

Ryan Pape

Yeah, I mean we’ve been, I would say for the past six to nine months, we have been scheduled out about two months and pretty much that capacity every class both in the U.S. and in the U.K. U.K. training, which represents folks in the U.K. and beyond has been equally as full, not to the point that we may schedule out 30 or 60 days, but it is not so full that it is serving as a [indiscernible] people from coming, but it continues to support the idea that we are going to see and we are seeing the growth on these new entrants into the business.

Andy Preikschat

Okay. And then one last question on the, you had set a small price increase for Canada for April, is there any other price increases you expect effecting the U.S.?

Ryan Pape

Yeah, we intend, we are doing the U.S. pricing now and we do expect small increase in the U.S. in the next few months, how that will definitely effect customers in the U.S. How it effects distribution and customers beyond will be a case by case determination based on currency impact and pricing and discounts we may have provided must [explain].

Andy Preikschat

Okay. Thank you.

Ryan Pape

Thanks, Andy.

Operator

Our next question comes from the line of Jason Hershman, who is a Private Investor. Please go ahead with your questions.

Jason Hershman

Hi Ryan, thank you very much for the conference call this morning and really impressive top line growth. Actually just want to pick up on that comment you made to the previous gentlemen about the new business being set up and you see a lot of growth in there, are you seeing any change since the unfortunate [indiscernible] has been announced our new business not setting up with the same rate with you as previously?

Ryan Pape

No. From our sort of deal flow that we see and the increase we get, we’ve seen no slowing in that. In fact we’ve actually seen an increase since we launched the new website in a maybe not an ultimately significant way, but in a measurable way. So, we're not seeing that. The thing that I think we want to remember is that when we’re looking at the fourth quarter or we are looking at the first quarter, any particular quarter, the customers buying in that is the growth we see in that quarter it’s not necessarily representative of the work we’ve done in that quarter. I mean clearly there is always an attempt to move products and make sales in the quarter, but when you are talking about bringing new people in, this could be a 45-day to 120 day sales cycle. Someone is looking to get into this business. So, this is really keeping the pipeline full and continuing to move people through it.

Jason Hershman

Thank you. This is just a follow-up on that point. Are you seeing any kind of pickup, this is more just of a overall market question, I mean are people, what makes people leave the PPS? I mean there must be some turnover, is there any pickup and people just dropping out or I mean obviously some people have opted out?

Ryan Pape

Yes this is an interesting question and what we’ve actually found over time is that if you want to call it not a retention issue, retention rate with XPEL, but just an overall failure rate new entrants, new installers in the business. We’ve actually seen the failure rate decline over time. Many years ago when the industry was smaller we would see new people enter and fail more often. So that’s actually gone down. What drives it, you know it really depends on a lot of it are type of things that might trip up any small business. Some other things will see if someone is trying to have too many product lines being [indiscernible] and any other products to one business, this is something you need dedicated labor to, you need trained labor, skilled labor. So, if you try and do it as just an occasional business, it’s pretty hard to remain proficient in it. So that’s kind of one of the areas we would see, but beyond that not a lot of - not one large reason why someone would fail.

Jason Hershman

Okay. So a couple of questions on the logistics cost you mentioned 600,000 annually and obviously you want to make some improvement on that line, is that cost is part because of, it seems like every year UPS and FedEx are having more and more difficult [indiscernible] charging is that a large reason for it or because I would think that a lot of your customers are getting shipment to the ground and therefore you wouldn't really need additional shipping cost to reach them?

Ryan Pape

Well, yes it is a great point. I mean the shipping deficit exist for a variety of reasons. Part of it is intentional layer, there is some subsidized program or discounted shipping put in place and you know that is going to cost. Some of it might be cost related to returns are other things are there is no where there is no revenue attached, but one of the observation that we’ve been able to make is that’s not got obvious, but to counter to what you’ve said, the amount of express shipments that goes on in this business, given the profile of the customers is actually quite high.

If you take an $800 or $1000 roll of film and overnight it for Saturday delivery at a cost of $250, to me and probably to a lot of people that sounds crazy, but that is something that happens a lot and that’s a cost for the customers to bear, and you think that is their problem, but we want to help mitigate that on its own, but the other side is that when you got a super high-priority time sensitive shipment like that it puts a lot higher burden on us too, because we’ve got to make sure we do that right because there is so little for air and so little reflects in the schedule and if we don't meet that target for some reason there is big dollars associated with that. So, what we are trying to do is understand in plight of the fact that we know these installers, a lot of them don't have cash or a lot of inventory, they are going to buy it just in time and we either play to that as a strength and try and help them do that together as a benefit or we are just perpetuating the problem.

Jason Hershman

Thank you. Okay. I understand I mean there is a lot of, I might be this is called hand to mouth customers, so let me just ask you just one last question then, on China, can we expect China now to as basically stabilize this kind of year-over-year growth to continue borrowing some other unforeseen macro events?

Ryan Pape

Yes. We think there will be in growth with China this year, the entire year. It’s a large market an emerging market and while we have done well there historically, it still represents just a tiny fraction of what’s possible. So, we expect growth there throughout the year.

Jason Hershman

Okay and just one last question. The gross margin I mean you are trying to get access to that 30% or so, do you anticipate this piece of multi-year project or is it going to, I mean you obviously had the window film as probably lower margin, but in terms of core PPS that is getting back to 30, is there something we should model out or like that [indiscernible]?

Ryan Pape

I think it is two-fold truly which is that part of it depends on where we see most growth and as that come out of our higher margin accounts our lower margin accounts. Even from quarter-to-quarter we see swings in that that we can't always predict or explain. The fourth quarter was particularly strong internationally. The first quarter not as strong internationally. That in of itself doesn't mean a lot to me, but you know the facts behind it, but the point is, it’s hard to predict. What we know we can do is focus on the cost that we control directly that go into that and we made some progress on some of them and have a plan in place to do it and work on that side and we know we can help control on our own time and then some of the rest is going to depend on mix of business, ability to put in price increases, and then just where that plans out it’s hard to sort of say at this point.

Jason Hershman

Okay, thank you very much. I appreciate your answers.

Ryan Pape

Thank you.

Operator

Thank you. This concludes today's question-and-answer session. I would like to turn the call back over to management for closing remarks.

Ryan Pape

Sure. Thanks everybody for their participation and their support and we look forward to next quarter. Thank you.

Operator

Thank you. This concludes the conference. You may disconnect your lines at this time and thank you for your participation.

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