Q1 2019 Earnings Call
<unk> 19 earnings release conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period, then to ask a question today. Please press the star and one on your Touchtone phone.
During the course of the conference call <unk> Representatives expect to make forward looking statements, which reflect managements best judgment based on factors currently known.
However, these statements involve risks and uncertainties, including the successful development and market acceptance of core products. The degree of competition in the market for such products, the product and channel mix component costs manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December .
31, 2018, these risks and uncertainties could cause actual results to differ materially from those in the forward looking statements, which may be made during the call and.
In addition entry and we'll webcast. This conference live through our website at Www Dot AD trend dot com it.
It is now my pleasure to turn the call over to Tom Stanton Chief Executive Officer of <unk>. Sir. Please go ahead.
Thank you Priscilla and good morning, everyone. We appreciate you joining us for our first quarter 2019 conference call and I am joined today by Airtran CFO micro Yano.
Following my opening remarks, Mike will review the quarterly financial performance in detail and then we'll take your questions.
We are pleased with our progress in the first quarter of 2019, we executed well towards our goals to meet our financial objectives strengthen our customer product and geographic diversification.
For a seamless integration of our smart RG team in their first full quarter as part of that trend and accelerate customer traction with our fiber broadband and subscriber experience solutions.
From a top line perspective revenue for the quarter was $143 8 million up 19% on a year over year basis.
Network solutions accounted for the majority at $125 8 million, a 19, 5% increase over the same quarter in 2018.
Global services and support revenue contributed $18 million or 12, 5% of total company revenue for the quarter. This is a 15, 5% year over year increase.
The timing of key customer infrastructure projects resulted in nearly 50% of our revenue for the quarter coming from international markets.
We finished the quarter with 310% of revenue customers located in three different markets, Latam Europe and North America.
Underscoring the impact <unk> is having as we help our customers build their best networks.
I'd like to mention a few achievements from Q1 that highlight our focus to help our customers grow revenue further simplify network operations and accelerate service velocity.
A central focus for us over the last few years has been to expand our PON portfolio and fiber to the premise customer base.
I am pleased with our progress as our fiber to the pen product revenue grew more than 52% year over year and we now have partnered with well over 300 different operators to roll out PON to enable residential business and mobile applications.
We continue to gain momentum in selling software applications that enable service providers to use intelligence within their network to dramatically improve their business operations.
An example from Q1 is one of our regional cable operators is now utilizing mosaic subscriber insight for monitoring and billing across 150000 of their broadband subscribers.
This enables them to eliminate hardware based solutions with high annual maintenance costs.
We've consistently demonstrated our ongoing commitment to ensuring the broadband is available across rural America to.
To help further this commitment <unk> introduced during the quarter a comprehensive connect America fund monitoring and performance test solution that enables service providers to meet and manage FCC requirements with minimal inconvenience and without raising privacy concerns.
All while offering enhanced data analytics to help improve their customer experience.
The end to end network performance test solutions enables recipients of Caf funds to meet their requirements that go into effect July one of 2019 as described in the FCC order.
It also accommodates those service providers looking to meet alternative connect America cost model, a cam requirements detailed in that same order as well as future testing regulations that may develop be developed in other countries.
In addition to tremendous customer engagement at mobile World Congress, we are proud to make three key announcements.
We partnered with Telefonica to successfully demonstrate 10 gig PON and an open disaggregated architecture as part of their <unk> showcase.
They now plan to move forward into field trials as they embark upon an upgrade to one of the world's largest fiber to the premises customer subscriber bases across Spain, and Latin America.
To help our customers maximize the <unk> opportunity and trend also announced an extension of our fixed wireless access portfolio with the addition of new millimeter wave mesh and point to point.
Point to Multipoint solutions that enable rapid deployment of dense <unk> networks.
We also announced a collaboration with Iot next a leading internet of things technology company in South Africa to help carriers and enterprises around the world designed new services and solutions by bringing various streams of Iot devices.
And their data together with a single easy to use platform.
This collaboration with Iot <unk> is one example of the power of <unk> Smart OS with its software development kit frame.
Framework.
<unk> will now be able to provide both enterprise and carrier customers with smart streamlined management of Iot data that will help drive better and more informed business decisions. Our solution has already been selected by Vodacom, a leading operator with over 55 million customers and Servicers services across 32.
Two African countries.
I'm also pleased to report that recently, we surpassed the 20 million port milestone for cumulative <unk> Vectoring port shipments.
Our traction with cable and the cable MSL market continues to gain momentum during the first quarter a tier one cable operator continue to ramp their weekly subscriber count on AD trends 10 gig PON solution towards their target of a 10 times subscriber growth in 2019.
We were also pleased to be invited into the lab phase with a third tier one cable operator, with our 10 gig PON solution.
We continue to see strong traction with our <unk> 10 gig PON solutions, as well and a growing variety of market segments with announced wins during the quarter in Europe and North America.
At our broadband business and solutions summit. This week the team outlined the next round of exciting enhancements in our PON portfolio, which we will publicly announce throughout this year.
As most of you know at the end of last year, we acquired smart RG and innovative company that leads the market in helping service providers better leverage the connected home opportunity to improve and monetize the subscriber experience I.
I am pleased to report that the promise we saw it and its teams solutions and technology is already having a positive impact on how our customers view this rapidly emerging opportunity.
As 10 gig moves from the network planning stage to real World deployments, we see interest from and deployments by a wide wide range of service providers.
For our market, leading <unk> PON solutions, especially in North America and Europe .
But we are also seeing emerging opportunities in Australia, the Middle East Africa, and Latin America.
From zooms deployments across the UK targeting 1 million homes to most networks upgrading its network to better serve rapidly growing bandwidth demands from the rural communities. They serve in Virginia.
Our industry, leading 10 gig solution portfolio is enabling our customers to push more robust fiber services further.
In summary, we are pleased with our progress in the first quarter of 2019, our revenue was diverse and well balanced with material contribution contributions across Latam EMEA, North America, and the Pacific rim regions.
Furthermore, our broad portfolio continues to gain market traction with a growing number of customers and an expanding range of market segments.
This progress underscores the company's global impact as we help our customers build their best networks.
Before I turn the call over to Mike I'd like to acknowledge and express my Thanks to Bill marks who is retiring from Ed Trans Board of directors.
Bill has served on the board since 1993 and has been a tremendous asset to the board the company and to me, we wish Bill all the best and with that Mike will review the financials and we'll then be happy to answer any questions you may have Mike.
Thank you Tom and good morning, everyone.
I'll review, our first quarter results and discuss what we see for the next quarter.
My report I will be referencing both GAAP and non-GAAP results. The differences between reported GAAP and non-GAAP includes stock based compensation acquisition related expenses and amortization restructuring expenses amortization of pension actuarial losses.
Noncash changes in fair value of equity investments for our deferred compensation plan.
Gain on bargain purchase of a business.
As Tom stated AD Trans first quarter revenue came in at $143 $8 million compared to $141 million last quarter and $120 8 million for the first quarter of last year.
Breaking this down across our divisions, our network solutions revenue for the first quarter was $125 $8 million versus $116 $9 million reported for Q4 of 2018.
$105 $3 million in Q1 of last year.
Our global services and support revenue in Q1 of this year was $18 million compared to $23 2 million reported for the fourth quarter of 2018 and $15 $6 million in the first quarter of last year.
Across our revenue categories access and aggregation revenue for quarter. One of 2019 was 99 $8 million.
Compared to $105 million last quarter, and 81 $7 million in quarter one of 2018.
Revenue for our subscriber solutions and experience category was $36 8 million for the quarter.
Versus $31 2 million for quarter, four of 2018 and $31 million for quarter one of last year.
Traditional and other products revenue for the quarter was $7 $3 million compared to $8 3 million for quarter four of 2018 and $9 million for quarter one of 2018.
Looking at our revenue geographically domestic revenue for Q1, 2019 was $72 $5 million versus $74 8 million reported in quarter, four of 2018 and $62 $1 million in quarter one of <unk>.
Last year.
Our international revenue for.
For quarter, one of 2019 was $73 $1 million compared to $65 3 million for quarter, four of 2018 and $58 $7 million in quarter one of 2018.
We've published the reporting of each of these categories on our Investor Relations webpage at Www Dot AD trend Dot com.
As Tom stated in his opening remarks, we had 310% of revenue customers during the quarter.
Our GAAP gross margins for the first quarter of this year were 42, 2% compared to 39, 5% last quarter and 32, 9% reported in the first quarter of 2018.
non-GAAP gross margins for quarter, one were 43%.
Versus 40% in the prior quarter and 35% in the first quarter of last year.
The quarter over quarter and year over year increases in our gross margin were primarily driven by our domestic product mix and increased weighting of our network solutions portfolio.
Total operating expenses were $66 $8 million for quarter, one of 2019 compared to $59 2 million reported last quarter and $66 4 million for quarter one of last year.
On a non-GAAP basis, our first quarter operating expenses were $65 million compared to $60 2 million last quarter and $69 million in quarter one of 2018.
The slight non-GAAP quarter over quarter increase in operating expense.
Primarily the result of a full quarter of incremental expenses related to the smart RG acquisition.
And increased marketing expenses, partially offset by reductions in organic contract services labor selling and insurance expenses.
The non-GAAP expense year over year decrease is primarily attributable to decreases in labor fringes and contractor expenses, partially offset by the addition of operating expenses from the Smart RG acquisition.
Operating income on a GAAP basis for the first quarter was a loss of $6 2 million compared to an operating loss of $3 8 million in the prior quarter and a loss of $26 $6 million reported in Q1 of last year.
non-GAAP operating income for quarter, one of 2019 was one $4 million compared to a loss of $4 2 million.
In Q4 of 2018, and a loss of $18 $7 million in quarter, one of last year.
The quarter over quarter increase in non-GAAP operating income was driven by improved gross margins in our product portfolio and increased sales volumes, partially offset by a full quarter of incremental operating expenses associated with the smart RG acquisition.
The increase in our Q1 non-GAAP operating income as compared to Q1 of 2018 operating loss is attributable primarily to higher sales volumes with higher gross margins in both our products and services portfolios domestically and internationally.
And lower operating expenses.
All other income for quarter, one of 2019 was $7 2 million compared to a loss of $6 8 million last quarter and an income of $11 9 million for quarter. One of 2018, which included a bargain purchase gain of 11.
$3 million associated with the acquisition of the North American <unk> PON assets from Sumitomo electric.
The other income in the quarter was primarily from market driven unrealized gains in our equity investment portfolios as well as the receipt of insurance proceeds from a life insurance policy.
Our non-GAAP other income for the quarter that just ended was $5 3 million.
Compared to a loss of $3 million last quarter and income of $1 million for quarter one of 2018.
The shifts in non-GAAP other income were primarily driven by fluctuations in our equity investment portfolios.
The company's GAAP tax provision for quarter, one 2019 was $308000 as compared to $2 $1 million tax benefit in the fourth quarter of 2018, and a benefit of $3 $9 million in the first quarter of 2018.
The shift to a tax expense in the quarter as compared to a benefit last quarter and in Q1 of 2018 was primarily driven by the return to profitability in the quarter.
GAAP net income for quarter, one of this year was $770000 compared to a loss of $8 $4 million last quarter and a loss of $10 8 million for the first quarter of last year.
non-GAAP net income for the first quarter of 2019 was $4 9 million compared to a loss of $5 8 million last quarter and a loss of $15 8 million in quarter one 2018.
Earnings per share on a GAAP basis were two <unk>.
Compared to a loss of <unk> 18 per share last quarter and a loss of 22 per share in the first quarter of 2018.
non-GAAP earnings per share for the first quarter of this year for <unk>.
Compared to a loss per share of 12 last quarter and a loss of 33 per share in quarter one of last year.
We've provided a reconciliation between diluted GAAP earnings per share and diluted non-GAAP earnings per share and our operating results disclosure.
Now turning to the balance sheet unrestricted cash and marketable securities net of debt totaled $174 7 million at quarter end after paying $4 3 million in dividends and repurchasing 13000 shares of common stock for $184000.
During the quarter.
For the quarter, we generated $5 5 million of cash from operations.
Net trade accounts receivable were $99 million at quarter end.
Resulting in a DSO of 62 days compared to 65 days last quarter and 60 days at the end of the first quarter of 2018.
The decrease in DSO.
Versus last quarter is mainly attributable to the earlier timing of international shipments during the quarter and customer mix.
The lower DSO in Q1 of 2018 was driven by customer specific payment terms that are no longer in effect.
Inventories were $93 6 million at the end of the first quarter compared to $99 8 million last quarter and $120 million at the end of quarter, one and 2018.
Looking ahead to the next quarter, the book and ship nature of our business the timing of revenue associated with large projects the variability of order patterns and the customer base.
Into which we sell as well as the fluctuation in currency exchange rates in our international markets may cause material differences between our expectations and the actual results.
However, our current expectations are that our second quarter 2019 revenue will be in the range of $154 million to $158 million after taking into account the potential effect of currency exchange rates and anticipated mix.
We expect that our second quarter gross margins on a non-GAAP basis will be in the low forties.
We also expect non-GAAP operating expenses for the second quarter of 2019 will be up slightly over the first quarter amount.
Finally, we anticipate the consolidated tax rate for the second quarter of 2019 on a non-GAAP basis will be up sequentially in the high <unk> to 30% due to increased income and restructuring charges in our European operations.
We believe the significant factors impacting revenue and earnings realized in 2019 will be the following.
The macro spending environment for carriers and enterprises currency exchange rate movements, the variability of mix in revenue associated with project Rollouts.
The proportion of international revenue relative to our total revenue.
Professional services activity levels, both domestic and international <unk>.
The timing of revenue related to connect America fund projects.
The adoption rate of our broadband access platforms and inventory fluctuations in our distribution channels.
Additional financial information is available on AD trends Investor relations website by going to Www Dot <unk> dot com and follow the Investor Relations link.
With that now I'll turn the call back over to Tom Tom.
Tom.
Thank you Mike.
At this point, we are ready to open it up to any questions people may have.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone telephone.
You may withdraw your question at any time by pressing the pound key.
Once again to ask a question. Please press the star and one on your Touchtone phone.
We will take our first question today from Rod Hall with Goldman Sachs. Your line is open.
Hi, Thank you for taking my question. This is ashwin on behalf of Rod.
I wanted to ask about visibility heading into second half of this year, particularly in Australia in Latam.
Maybe Tom.
On Australia.
Note that there is a big phase two opportunity there could you comment on.
What youre seeing there in terms of activity in your visibility and related to Latam.
Hi.
I understand that the customer there is probably a little bit more lumpy than other customers.
I'm just wondering how you're thinking about the customer for second half of this year.
And then I have a follow up.
Sure so as.
As far as Australia as you know we have.
A large customer there that were shipping family G fast ADSL to their actual and that that business.
Is ongoing and we there are there is a phase two of that project, which.
We feel.
We feel very good about so.
But there are also a couple of other opportunities within that customer.
That we.
Expect to be shipping in the second half of the year as well. So we're feeling good about Australia, whether or not intellectually.
Equate to.
The Q1 performance.
Yes, I would expect actually from our visibility today that we would actually expect it to be up in the second half versus first half.
Latam.
Thing that we're going through a build out right now with a large customer in Latam.
We have other customers in Latam other than that one but that one is definitely oversized compared to the rest.
There is.
Ongoing there is a.
Push for Vectored, <unk> and 435 BV DSL.
They have shared with us their plans right now, we're expecting kind of solid strength through the year with that customer.
Got it.
My follow up is on U S.
Revenue was up nicely in the quarter.
I know last year was tough.
Besides easier comps.
Wondering if you could comment on drivers of this trend here domestically.
And.
Growth expectations.
And kind of related to that.
We knew that calix kind of had supply issues and they're wondering if you could comment on whether or not you are seeing any incremental opportunities.
Yeah.
Route.
I mean, there are always opportunities that pop up and whether or not theyre driven by any particular supply issues with a competitor or not is.
It's kind of hard to specifically say.
<unk>.
I don't see a big.
I didn't see a big impact in Q1 because of the supply issues. So.
I think we just had other things that we're taking root and we had won some customers in.
As I mentioned on my call. We are in the lab with some new customers that.
May be beneficial to us, but I don't think they were directly supply related.
We do expect the U S to actually see growth in the second half you expect to probably to be sale more seasonal pattern of growth rate. We will you will see a peak in the third quarter.
Some of our customers are you know are going through.
Different processes.
But our communications with that particular customer are strong and they still have plans to continue to grow and we're in a good position with them.
As you know our largest customer in the U S. Our traditionally largest customer in the U S.
Typically starts off a little slow and then you see them incrementally increase through the year and Thats exactly what we expect this year.
Okay. Thank you I'll add one other piece, which is that the warnaco piece of that.
Our cable piece is actually doing very well right now.
Got it okay. Thank you okay. Okay.
Our next question today from Paul Silverstein with Cowen Your line is open.
Hey, guys.
Apologize if you all have already said this.
Tom I know, there's sensitivity on a customer by customer basis, but is there any insight you can share with us.
The big customer in the U S that project Thats been on the come for a while but seems like it hasn't driven hasnt gone to the meaningful growth stage yet.
John I apologize, if you've already spoken about it.
Well I have I guess, I guess give me a little more which technology are you talking about.
Talking about the GFS Philadelphia protocol.
Paul.
No no no material change there.
Our other places now where of course G fast is taking hold.
Both in Australia and in Europe .
And we in for that.
We have new renewed interest in actually forecast for Latin America, but the specific customer youre talking about not a material change.
Cash a broader question.
What are you most excited about over the next <unk>.
Six and 12 months in terms of driving revenue growth you've got a number of big projects that offers that have offered for some time.
Prospect of significant incremental growth I know, there's always a timing issue with these two customers, but when you look at those projects. What are you. Most excited about what are you most confident in terms of material drivers over the next six to 12 months.
Exciting and confidence are two different things right.
Please answer Budd.
Yes.
I know the ones, you're the most nervous about but.
So I'm very happy with what we've been able to accomplish in Australia, and I and I think we're positioned well to actually grow not only.
And the base of customers or excuse me in the base of product that we're shipping there today, but I.
I think we're well positioned to grow in other areas. So I feel good about Australia.
Over not just over the long term.
Not just not just what we're going to do necessarily this year I feel the same way about Latin America.
That customer the big customer there has been kind of closed up for a period of time and they have very.
Clear and strong plans to increase their broadband.
So I feel good about the opportunity there im not saying that we've got everything.
Everything inked down because it's a.
It's a large customer with a lot of plans, but we're very well positioned there and I think right now we're doing a good job.
And then the European carriers that I talked about on the last call.
I had mentioned one of them I think today in my notes, but there are there is a ton of activity going on in Europe right now.
Mainly centered around <unk> PON.
And so if I think about the long term prospects there.
We're positioned today, where our technology is with our disaggregated solution, where our where we're positioned from a.
Geopolitical perspective.
<unk>.
I feel I feel very good about that.
And those are probably the things that are to me feel like the hottest thing set.
That will most move the needle.
Tom One last question for me with respect to that.
Customer historically, that's been your largest in the U S.
The change in visibility as to their plans over the course of this year.
For better or worse now.
Not a lot I mean, they're continue I talked about them.
Looking forward with a trial and are.
Doing some.
Some increase in Vectoring, which we saw last year were actually doing some some completion of that this year and then them going through an evaluation phase.
Yes.
I do think that the PON business, there is actually doing well and it should grow we expect that customer to grow throughout the year.
But no real change I think there hasnt been a C.
A C change in.
And their mindset at this point in time.
Do you think they were up this year over last year.
I would think so but we'll see how it plays out I mean in a lot of that our business with them is multi fold. One is we have vectoring the others we have caf.
The third is as we are doing a.
A growing services business with them. So we're not only doing installation services for our own product, but we're doing installation services across the board from a turf footprint.
And we have recently just won some new business on the services side that will actually start shipping in the second half.
No.
I'm not expecting huge growth out of that but.
But.
I think I think it will do well I think when I had mentioned in prior quarters that we kind of hit the bottom of that.
We kind of hit the floor, there and we expect it to go.
From there I still feel I feel good about that.
I appreciate it thank you I'll pass it on.
Sure.
Yes.
Thank you we'll take our next question today from Michael Genovese with <unk> Partners. Your line is open.
Hi, Thanks, very much first question this 10% customer in Latin America, It sounds like it's.
A customer in a country that would be in NAFTA.
I just wanted to verify and ask have they ever been a 10% customer before or is this the first time ever.
Yes, and yes.
We have both in G fast and and and Super Vectoring that those were stronger.
But if we smoothed it out beyond just a quarter and kind of looked on an annual basis. So it it it doesn't sound like one is much much bigger than the other is it is it sort of 50 50 L project I hate.
So project oriented so I would say if you looked at over the year you are probably correct that you'll see.
More commonality are numbers that are.
Closer to the quality there, but on a so and the reason I'm, saying that is if you think about the customer base. So if you look at our biggest European customer they're Super Vectoring. Today, then they're moving to G fast and they're moving to fiber.
And they have very well stated plans on that so.
We have a strong quarter, there with that customer you're going to see higher vectoring shipments.
Latin America does a little of both are without a doubt the biggest piece that they are doing with us today is and the Vectoring front.
So has that project happen, that's that's going to drive.
Drive for more for the copper piece, what's driving the pond piece today is predominantly the U S.
But I had previously talked about the ex Gf's push.
And that will happen that will be.
The counter to that as we expect the <unk> pawn business to continue to grow so it really it really does depend on a kind of project by project basis on where customers are in network evolution.
Got it that's helpful. Last question for me you'd previous I think you previously talked about cave.
Cable MSL could be 20% of revenues. This year is that is that a correct target.
Anything there changed.
Nothing's changed in our cable forecast on I don't recall, the 20% but.
Nothing has changed in our outlook on cable.
Great. Thank you very much.
Okay.
[noise] and wellness next to rich Valera with medium your line is open.
Thank you Tom I'm not sure if you've given an update on your large historical European customer, but it sounds like they were were strongest quarter, but can you give us a sense of how you see them for the balance of the year.
Yeah actually it's going to be.
A little different this year, we're expecting more strength in the.
The second half of the year than in the first half of the first quarter was not a bad quarter.
Second quarter, we kind of seem to be kind of in line with the first quarter, then we'll actually see a little pick up in the third.
Fourth is still kind of far out there but.
I think I answered your question.
Yeah. So just just you've mentioned I guess.
At least a couple of customers that are engagements you expect to be up in the second half first first so I'm just wondering if you'd be willing to say anything about seasonality relative to the queue to levels. It sounds like you're not expecting that traditional kind of fall off in three Q from your European customers. So.
Maybe would at least be looking at more like flattish sequentially from Q2.
From the European customer you are out you are correct.
At this point in time, and then we typically don't give.
Guidance that far out but at this point in time, we're we're seeing.
An uptick in a European customer.
We typically see in the us an uptick as well.
So so those two will be the biggest drivers the two that we don't know yet about where the seasonal patterns would be because they are under specific kind.
Kind of project.
Related build out and it has to do with how fast they can install.
Or Australia in Latin America.
And I think that's just going to be related to how quickly they can get things in.
And both of those cases, there is a demand and theirs.
And they have to say it to us.
With different levels of specificity, what they would like to do in the second half and in the third quarter, specifically about whether or not they hit the third quarter of fourth quarter, where that makes it that I don't know.
Got it.
That's helpful.
I was wondering if you were willing to see how much smart RG contributed in the first quarter relative to your initial expectations, I think which was $78 million I believe.
They were.
They were in the six ish.
So and that's.
We have specific rationale specific reasons for that some of that has to do with just the integration of us get a things bolted together. So they were in the six years, but we expect them to return back this quarter.
Got it.
Yeah.
And then with respect to the.
<unk>.
[noise] early exact wording, but it sounds like you expect that to be up some sequentially and I was just trying to get any sense of.
Magnitude there are we talking sort of a couple million dollars a million or two or for any any granularity you'd be willing to give on the opex quarter over quarter be helpful.
Yeah. The languages was kind of meant to say a million or two ish.
Got in.
[laughter] that's helpful and then the the tax rate.
That kind of high 20% to 30% tax rate is that do we think that's the right.
Tax rate for the balance of the year or is that going to bounce around do we think.
That will bounce around in a probably hopefully go down I mean, there are some things in that tax rate.
That hurt us.
No.
We stayed is explicitly but we did we did in Q1 incur some restructuring charges and our European operation.
We closed down one of the locations in Europe .
Of course, because it's Europe . It takes a long time for that to happen. So.
And it's been an ongoing process and we will see some of those restructuring charges in the second quarter as well and in fact will actually pick up in the second quarter little on the gap basis.
Which negatively hurts or non-GAAP , but.
Those will be predominantly done.
Second quarter should be the biggest.
We expect them to be basically material going forward. So hopefully you will see that tax rate go down.
Got it okay. Thank you gentlemen, I appreciate it.
Okay.