Extreme Networks Inc (EXTR) 2014 Q3 法說會逐字稿

Good day everyone and welcome to the Extreme Networks third quarter 2014 earnings results conference call. This call is being recorded.

With us today from the company is the Chief Executive Officer, Chuck Berger, Chief Financial Officer, John Kurtzweil, and Eric [Bylan] from Investor Relations.

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

Thank you, Nova, and welcome to the Extreme Networks third quarter fiscal 2014 earnings conference call. This conference call is being broadcast live over the internet and is being recorded on behalf of the Company. The recording will be posted on Extreme Networks' website for replay shortly after the conclusion of the call and will remain there for seven days.

The presentations and the recording of this call are copyrighted property of the Company and no other recording or reproduction is permitted unless authorized by the Company in writing.

By now you have had a chance to review the Company's earnings press release. For your convenience, a copy of the release and supporting financial materials are available in the Investor Relations section of the Company's website at ExtremeNetworks.com.

I would like to remind you that during today's call, Management will be making forward-looking statements within the meaning of the Safe Harbor provision of the Federal Securities Laws regarding business and financial outlook.

These forward-looking statements involve a number of risks and uncertainties some of which are beyond our control which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call.

For a detailed description of these risks and uncertainties please refer to our most recent report on Form 10-K filed with the SEC as well as our most recent Form 10-Q filed with the SEC in addition to our earnings release posted a few minutes ago on our website.

Throughout the conference call the Company will reference some financial metrics that are derived in accordance with Generally Accepted Accounting Principles, or GAAP, while other metrics are not in accordance with GAAP. This approach is consistent with how Management measures the Company's results internally. However, non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies.

Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. Reconciliation of the non-GAAP information to corresponding GAAP measures is in the slide presentation under the Investor Relations tab on our website and accompanying our press release.

Our non-GAAP results exclude stock based compensation, acquisition and integration costs, restructuring charges, amortization of intangibles, purchase accounting adjustments, litigation settlements, and a gain on the sale of facilities.

Now I will turn the call over to Chuck Berger for some opening comments.

Thank you, Eric, and thanks to everyone on the call for joining us this afternoon.

Let me start with the financial highlights for our third fiscal quarter ended March 31.

Non-GAAP revenues were $143.7 million, within the guidance range for the fourth successful quarter. This represents revenue growth of 3% over the prior year's $139.5 million which we were able to achieve in spite of the seasonal downturn and extensive integration activities during the quarter.

The revenue growth was experienced across all four of our sales regions. Non-GAAP earnings per share were $0.02, again in line with the guidance we provided in February. As we have discussed in past calls, our target for synergy savings as a result of the acquisition of Enterasys continues to be in the range of $30 million to $40 million per year. We are more confident than ever that we will achieve at least that amount.

The bulk of the synergies will be realized once we have completed the integration onto one ERP system that will allow us to truly operate as a single Company. We are ahead of schedule for this project and now believe we will cut over to a single system early in the first fiscal quarter of 2015. Overall, the integration of the two companies is going well and is on track or ahead of our expectations.

We recently launched several important new products into the market, demonstrating our ongoing innovation and continued engineering execution. Extreme Networks introduced a simple, fast and smart software defined architecture comprised of unified software and high performance hardware offerings that enable the IT organization to meet the ever growing user needs and expectations.

While hardware has been Extreme's mainstay for many years, the software that controls and provides visibility across networks will continue to play an increasingly important role in the future.

We had meaningful product releases this quarter that position us well in this evolving market. It starts with the software defined architecture, or SDA, that we announced at Interop in April. We have unified our network management to provide simplified operation and optimization through NetSight 6.0 for centralized management, Purview for application analytics, and Extreme SDN, or software defined networking.

We release NetSight 6.0 at Interop. This software unifies Extreme and Enterasys' hardware in a single pane of glass network management system that provides visibility and control for the data center all the way to the wireless edge. The intelligence, automation and integration of NetSight enable IT organizations to optimize the efficiency of network operations and reduce total cost of ownership. This is an important step towards an integrated product line for us as well.

We also release Purview, software combined with our core (inaudible) which is to give the customer extensive application analytics. It is a first of kind network powered analytics and optimization tool that integrates with the network data that carries context of users, devices, locations and the applications that are in use. Purview captures network data and then aggregates, analyze and reports this data. This provides the user an unprecedented insight into how their networks and users are performing.

Purview was selected as a finalist for Best of Interop in the Management category and was used by the NFL at Super Bowl XLVIII at MetLife Stadium.

On the hardware side, we continue to develop market leading products that underpin our software defined architecture. We recently announced two important new hardware products aimed at the datacenter but strong and high performance computing and IXP environments, the Black Diamond X8 Cloud-Scale datacenter which provides a low latency, high performance [switchback] fabric with high density wired speed, ten gig, 40 gig, and now 100 gig connectivity with up to 20 terabytes of capacity for edge to core applications in a compact footprint using only one-third of a standard rack. The X8 was named a Hot Product at Interop where we announced the availability of our new 100 gig blade.

We also introduced our 802.11ac wireless access points, purpose built for high density deployments. These access points are designed to operate in best user and mission critical environments such as healthcare facilities, universities, conference centers, arenas, and stadiums.

The IndentiFi wireless LAN system won Network Computing's UK Wireless Product of the Year who touted it as a significant offering in the closely watched mobility space.

During the quarter we also had a number of key customer wins. Following on our prior successes with the NFL, the Tennessee Titans chose Extreme's IndentiFi solution to equip their stadium with networking and wireless. Nearly 70,000 fans will enjoy high capacity wireless through this deployment and the Titans will use the analytics capability of Extreme NetSight and Purview to understand what applications fans are using, allowing them to maximize the fan experience.

The stadium wins are indicative of competitive advantage we have when we engineer solutions for a specific venue. We worked closely with the Titans to perform extensive testing on the interactions of the wireless signals in a venue like a stadium and tailored a solution to meet the requirements of the customer.

The Titans say that our Wi-Fi performance in high density environments as well as a single pane of glass to your net site provides for both wired and wireless reporting and analytics as key factors in choosing Extreme.

In Incheon, Korea Extreme was chosen to support the Asian Games that begin in September 2014. Working with SKG, the largest mobile carrier in Korea we will deploy the Black Diamond 8000 and Summit series to bolster the IT infrastructure for the games in the city of three million people.

We also continue to perform well in the education vertical. In Q3 we had big wins with the University of Tulsa and Troy K through 12 public school system, in each case displacing Cisco.

At the University of Tulsa we are helping bring the campus mobile, data, voice and video with a suite of switches and identifying APs with software to control all of it.

In the Troy school system we launched our first K through 12 Purview installation, running a broad set of Extreme switches and identified wireless APs to handle 24,000 authenticated users.

While there is nothing new to report in our relationships with Ericsson and Lenovo, we continue to invest in these partnerships which we believe will have a significant impact on revenue in the second half of fiscal 2015 as we have talked about in the past.

Finally, today we are announcing two significant organization changes which I believe will position us well for ongoing success. Over the past year that I have been at Extreme it has become increasingly clear that the CEO and CFO need to be in the same location. As most of you know, I operate out of our San Jose headquarters and John is in our Raleigh, North Carolina facility. To bring the two roles together we announced today that John Kurtzweil will assume the role of Special Assistant to the CEO beginning June 2, continuing to assist me in the integration of the two companies and other special projects through the end of September.

I am also very pleased to announce that Ken Arola, most recently CFO at Align Technology, will be joining us in our San Jose headquarters on June 2 as our new CFO. I want to personally thank John for his many contributions over the past two years, not the least of which was playing a major role in the acquisition and the financing needed to complete the acquisition.

We are also announcing that Chris Crowell will be leaving the Company effective today. Chris led Enterasys as their CEO for nearly six years and has been instrumental in the integration efforts to date.

As we move on to the next phase of the integration I feel that it is critical that I stay close to our field organizations particularly in North America where we have experienced some integration issues. The field organizations and corporate marketing will report directly to me effective today.

I want to again reemphasize our plan and our commitment to attain double digit revenue growth by the second half of 2015 as we complete the integration, realize the benefits of our key partnerships like Lenovo and Ericsson, and align our efforts between the growth opportunities in the wireless and datacenter segments.

Over the same period we are committed to achieve a 10% operating margin on a non-GAAP basis. My belief in our ability to achieve these goals has only strengthened since our last earnings call.

Now, John will give you details of the financial performance of the third fiscal quarter and our outlook for Q4. John?

Thank you, Chuck. Before I talk about the numbers I have a few personal comments.

I am confident that Extreme Networks' best days are ahead as they leverage the size and scale of operations, breadth of technology, a doubling of the number of customers and a solid employee base after its most recent acquisition.

In June, having the CEO and CFO in the same location will benefit all of the stakeholders. I personally have had a great experience over the past two years. I want to thank the entire Extreme team and I am proud of what we have accomplished together.

I will now provide a review of our fiscal Q3 financials and the financial targets for our Q4 of fiscal 2014. As a reminder, this is the first quarter that we are reporting full quarter combined results. When I speak of year over year comparisons or sequential quarter comparisons I am doing so on a pro forma basis as if the two companies were historically one.

GAAP revenues for Q3 fiscal 2014 were $141.8 million and non-GAAP revenue for $143.7 million which is within our guidance range for non-GAAP revenue of $140 million to $155 million.

Year over year revenue on a non-GAAP basis increased 3% from $139.5 million. On a non-GAAP basis, product revenue was $109.9 million, an increase of 4% year over year and service revenue was $33.8 million, an increase of 3% year over year.

Looking at how we performed in different regions, we saw growth in all geographies in Q3 and with nearly the same revenue split as the year ago quarter.

Americas' non-GAAP revenues were $73.3 million or 51% of our revenue. EMEA's non-GAAP revenues were $54.7 million or 38% of our revenue. Asia Pacific non-GAAP revenues were $15.7 million or 11% of our revenue.

Overall GAAP and non-GAAP gross margins were 50% and 53%, respectively, and within our targeted non-GAAP range of 55% to 57%.

GAAP operating expenses were $94.2 million. Non-GAAP operating expenses were $76.1 million, flat year over year.

Non-GAAP R&D was $22.8 million. Non-GAAP sales and marketing was $42.9 million and non-GAAP G&A was $10.4 million.

Non-GAAP operating expenses in the quarter included approximately $2 million in synergies achieved partially offset by additional marketing activities and higher travel.

Third quarter GAAP operating income was a loss of $23.4 million and non-GAAP operating income was $3.3 million or 2.3% of revenue, roughly the same as the year ago quarter.

Other expense for the quarter was $800,000 and was primarily related to interest expense. Taxes were $900,000 which is as we expected and is primarily related to our foreign income.

GAAP net loss for Q3 was $25.1 million or $0.26 per basic share. Non-GAAP net income for the quarter was $1.6 million or $0.02 per diluted share, within our targeted range of $0.01 to $0.06 per diluted share.

The larger items included in GAAP and excluded from non-GAAP are as follows -- the deferred revenue adjustments of $1.9 million, purchase price accounting adjustment of $1.9 million related to the step up value of acquired inventory which is now fully completed, stock based compensation of $4.8 million, acquisition and integration related expenses of $6.4 million and the amortization of intangibles of $11.7 million. Please see the reconciliation in the press release and on our website for greater details.

At this time I will give you an update on our integration efforts. The integration is going very well, as Chuck noted earlier. Total integration savings in the P&L through synergies during the quarter were approximately $2 million. Based on actions taken as of today, we target to realize $5 million of synergy benefit in the fourth fiscal quarter and we expect to exit the fiscal year at a sustainable run rate of approximately $6 million per quarter or $24 million annually which is over half of our targeted savings which we are on pace to achieve the committed amount of $30 million to $40 million and this is going to be on an annual basis. We project we will realize that rate of savings by the end of Q4 of fiscal 2015. Between now and then we expect there to be a reasonably steady ramp of these savings.

Executing our plan for synergies is dependent on the successful integration of our ERP systems. We are on track to finish the merging and testing of the two ERP systems in our first fiscal quarter. This will allow us to continue our ramp of synergy savings by lowering IT and administration expenses across the Company beginning in our second fiscal quarter.

Exacting cost savings is not limited to our current synergy efforts but an ongoing process in the Company that is quickly becoming part of our culture. Over the last year we have talked about underfunded areas in the Company and we have made some necessary investments back into the business.

In Marketing, you have seen our new logo and website and the marketing agreement we have had with the NFL is getting a lot of attention. In sales, we have increased our staffing related to inside sales to drive lead generation and the team should be fully staffed by the end of June.

And in Finance, we have had to increase our financial compliance expenses for both internal and external audit.

Turning to the balance sheet, total cash and investments for the quarter ended at $106.1 million as compared to $112 million at the end of last quarter. During the quarter we drew down $24 million on our line of credit which was repaid in early April.

The major uses of cash during the quarter were the final working capital payment related to the Enterasys acquisition of approximately $5 million, higher inventory payments than anticipated of $18 million primarily related to the inventory intake during the first few months after the acquisition to ensure we would be able to meet our customer demands, advanced payments on several marketing activities that will benefit the Company going forward -- this includes such items as our marketing agreement with the NFL -- that will be amortized over time, integration related expenses including consulting and employee severance of approximately $4 million in cash related charges, and repayment of term debt according to the schedule and interest of $1.5 million.

For the fourth fiscal quarter we target to be cash neutral including the ongoing integration expenses that we expect to incur.

Accounts receivable were flat at $94.2 million with non-GAAP DSO of 59. This is an increase of one day from the prior quarter. Inventory was up slightly with our non-GAAP days of inventory related to product inventory of product sales of 104 days, an increase of 16 days from the prior quarter.

I will now provide guidance for our fourth fiscal quarter.

We are targeting GAAP revenue in the range of $143 million to $148 million with non-GAAP revenue of $145 million to $150 million. This is an increase quarter over quarter of between 1% and 5%. When we look at the fourth fiscal quarter of 2013, the pro forma revenue would have been $169 million. Year over year, revenue is estimated to be down 11% to 14%. The is primarily due to considerably lower K through 12 spending in the U.S. which is related to a lack of E-rate funding which is expected by many to be restored to previous levels in the next funding year which begins in October.

Last year, we estimate that the fourth fiscal quarter had a positive impact related to E-rate spending in the low teens.

While we expect all geographies to be flat to up year over year in our fiscal Q4, execution in North America is a primary driver for the remainder of the year over year decline.

As previously mentioned, we are investing in our lead generation engine, something that was cut deeply a year ago when we focused on short term profitability.

GAAP gross margin is targeted to be 50% and non-GAAP gross margin is targeted to be 55%. GAAP operating expenses are expected to be in the range of $89 million to $92 million. On a non-GAAP basis we see expenses increase to between $76 million to $78 million with R&D targeted to come in between $24 million and $25 million depending on NRE related to various projects hitting certain milestones.

Sales and marketing is targeted to come in between $42 million and $43.5 million depending on revenue and G&A is targeted to come near $9.5 million.

Interest expense and other is targeted to be approximately $0.7 million. This includes interest expense related to the debt incurred in relation to the acquisition. The all-in annual percentage rate of the debt is approximately 3%.

Tax expense is targeted to be approximately the same as last quarter at $0.9 million.

GAAP net loss is expected to be between $16 million to $19 million or $0.16 to $0.20 per share. Non-GAAP net income is expected to be between $2 million to $4 million or $0.02 to $0.04 per share. The GAAP and non-GAAP net income targets are based on an estimated 96 million and 100 million average shares, respectively.

At this point I will bring to a close our prepared remarks and will now open the call for questions. Nova, would you please start the polling? Thank you.

(Operator Instructions) Our first question comes from the line of Simon Leopold of Raymond James. Your line is open.

This is Victor Chiu in for Simon Leopold. I'm sorry, I might have missed this when you were speaking about it earlier. Can you just provide some more color around the seasonality in the June quarter and what the impact was? I think I heard something about E-rate spending but I don't think that I quite got all of that.

Sure, this is Chuck. I would be happy to comment on that. Against our goal of maintaining revenues flat through the fourth quarter, as you can tell from the forecast we are actually forecasting down revenues with virtually all of that coming out of the U.S. market. If you look at last year, both companies prior to the acquisition had extremely strong June quarters, a significant amount of which was based on K through 12 deals that were related to E-rate funding.

If you are familiar with E-rate it is a program whereby last year the Federal government would pay up to 90% of qualified network investments by K through 12 school districts. That program has completely gone away for this year. While we expect it to come back, it contributed to revenues last year in the fourth fiscal quarter in the low to mid-teens of millions of dollars so the biggest chunk of revenue that we'll be missing versus the prior year is that E-rate business.

So when you say you expect it to come back do you mean, what is the time timeframe that you expect to recover in that?

It is hard to predict the federal government but they usually make these decisions in the October timeframe. The tax that creates the fund for E-rate continues to be levied. It is a charge on all of our phone bills so we should see that in that timeframe.

That said, our E-rate business definitely spiked last year in the fourth quarter so when you are doing year over year comparisons, you won't see nearly as much of it in the September or December quarters.

And then just on going back a few years, it seems like in 2011 and 2012, the June quarters seemed like a sequential increase in the mid to high teens so it seems like it was outside of just last year, it just seemed like that is kind of a seasonal part of your business. Was last year weaker then I guess if you excluded that business?

Certainly, we have shown a strong fourth quarter in the past. There are other factors beyond E-rate involved in that. I would say it is safe to say that Enterasys was putting a more than usual full court press as they were in the middle of the process of selling the company. It of course is our fiscal yearend as it was last year and there were a number of salespeople, again particularly in North America, that were close to hitting accelerators so we saw a push from that.

I think we had a seasonally strong business in the fourth quarter of 2013. We just have not done as good a job as I would have liked to have seen which is why I am going to get much more involved with the North American sales organization in filling the hole created by the E-rate business, or the lack of E-rate business.

I'm sorry, what was the dollar impact last year from that?

Low to mid-teens and millions of dollars.

Was this primarily Enterasys or Extreme or kind of what was this, I guess, between the impact -- you just mentioned that Enterasys was doing particularly well. Was it mostly more from Enterasys that we are seeing this impact or is it kind of split evenly between the lakes?

It was definitely across both companies, probably slightly weighted towards Extreme but not by a huge amount.

Our next question comes from the line of Christian Schwab of Craig-Hallum Capital Group. Your line is open.

Just a follow up on the previous stated questions on the E-rate funding, was this legislation supposed to be passed in the last quarter and that it was pushed out or delayed? I am just slightly confused on why this wasn't brought more to everyone's attention last quarter.

This is not new news. As I said, the decision on this was made back in the October, November timeframe. I think until our recent quarterly business review meetings which we had last week, we had hoped we would be able to fill in that hole in the revenue and at least the current revenue forecast from the region is not showing that so that is our challenge for the remaining two months in the quarter.

As it relates to your confidence in double digit revenue growth in the second half of '15, is that primarily driven by the competitive nature of your products versus your peers' and expectations on [TM] and accelerations of business profile at that point better positioned with the likes of Lenovo or Ericsson? I am just curious what gives you that type of conviction of double digit revenue growth in the second half of '15 or is that more of something that we should be thinking about as just a management objective or goal?

It is certainly a Management objective and goal but it is one we have a lot of commitment to and I believe is absolutely attainable and as I said in my prepared remarks, in order of importance, we expect the relationship with Lenovo in particular as I have said for the last several calls, to have meaningful revenue impact in the second half of fiscal 2015. We will be certainly through the integration of the salesforces and the channel by that time. We are well down the path of developing plans which I have also been talking about, to align the Company behind the growth opportunities ahead of us including wireless and the datacenter and continue to bring out strong product offerings in both particularly not just on the hardware side but on software with products like NetSight. Those three or four factors give me a lot of confidence in that forecast.

Great, and then you talked earlier, Chuck, about having some North America integration issues. I am just wondering what type of integration issues you are experiencing, if you could elaborate on that for us.

The North American sales organization is our largest sales organization by far. It probably has the strongest differences in culture that we are working through and I think that will be, as we exit the fourth quarter we should have that in alignment and (inaudible) widely new organization to make sure I am personally involved with what happens.

And my last question is who is going to be in charge of growing the wireless business? Who within Extreme Networks is now in charge of running the wireless access product division?

We are finalizing our organization structure for that. It says we get to the end of the year. We've got our business plan reviews coming up with our Board and we will be able to announce who that is as we exit the fiscal year.

There is a group in Toronto of 100 engineers that handle it from a product side and our product line management group which is headed up by a gentlemen named John Hanahan owns the product marketing piece of this and the product management piece of this but we will be more clear on that as we finalize our plan for 2015.

Our next question comes from the line of Matt Robison of Wunderlich. Your call is now open.

Chuck, what do you think are the biggest factors that kept you from doing midrange or better on revenue for the quarter?

I think the biggest factor is we were still struggling with forecasting. We had just put the two sales organizations together at the time we made this forecast. The fact that we did better than last year and were able to show year over year growth I think is quite an accomplishment but again, and at this point was consistent across all four of our geographies so as the integration at least got started we were doing well but we were a couple million short, as you know, of consensus on the revenue line.

Was there any particular -- it sounds like regionally, it was sort of a balanced disappointment, for lack of better words. Were there any verticals that were particularly conspicuous?

Not in the third quarter, no.

What can you tell us about the contribution of wireless and datacenter?

Wireless, as we have talked about in the past, continues to be in the neighborhood of about $15 million of revenue a quarter and datacenter which is a little more difficult to track is in that same neighborhood.

When you look at the pipeline of business, which do you think looks like is likely to accelerate more and has shorter sales cycles?

Wireless is clearly a shorter sales cycle. We are in the process of training as fast as we can, not as fast as we would like, the Extreme partner base and Extreme sales and systems engineers on wireless. The upgrade to 802.11ac is in its early stages with another ac2 upgrade coming shortly behind that and there continues to be pretty rapid growth in wireless as BYOD and ability continue to outstrip existing networks' capacity to handle the increased number of devices as well as the increased richness of content people are accessing on a regular basis.

With Mr. Crowell gone, who will be looking after Andover?

We've got a number of senior people there. Our CMO, Vala Ashfar, is there. Our Head of Corporate Development who has been a direct report of mine since the beginning is there, Norman Rice, who among other things is responsible for the NFL successes we have had. We have a number of one tier down from that VPs and Senior Directors there and we are fortunate that we have Raleigh close by so Ed Carney, our Head of Engineering is up there pretty much on a weekly basis and I am out there at least once a month.

So Ed Carney also will be looking after things in Raleigh?

He is based in Raleigh but he's got a large number of engineers from the legacy Enterasys organization that are in Salem so he is up there nearly every week for a couple days. He is up there right now, I believe.

Our next question is from Marc Kelleher of D.A. Davidson. Your line is open.

Just as kind of a follow up on one of the last questions, you introduced some new products at Interop a little while ago. How is the uptake of those going? I would think those might help give a push into the June quarter. How is that progressing?

The market reception has been good. We just introduced them about three weeks ago at Interop in Las Vegas. I was actually with two of our reps here in Miami where three of us are sitting right now in advance of an Investor Conference tomorrow. They are very excited about Purview and NetSight, in particular, but our sales cycles are generally 90-plus days and so we haven't seen a huge uptick in orders yet but we are beginning, particularly with Purview as well, beginning to see, as I mentioned, Troy public school district, our first K through 12 Purview sale.

And on the cost side, you mentioned $5 million of synergies in the June quarter. That is $3 million on top of the $2 million in this quarter. Is that right? That's the way to look at that?

Yes, that is $5 million in total.

And that $3 million incremental, is it fair to look at that as being reinvested in other places or should there be a $3 million benefit to cost?

In our guidance, what you are going to see is that we actually have G&A coming down so G&A is coming down and then there are some NRE programs, some products for engineering that are going to come in during the quarter that will be onetime costs that will be offsetting a portion of that.

And as we look further out to additional synergies, should we look to the SG&A line? Where would we look for the most bang for the buck there?

I think where you would get the most bang for the buck as we move forward and as the Company grows, you will get it out of COGS and then you will also get it out of the G&A side and in particular, after the ERP systems are integrated into one and that will be sometime after the end of the first quarter of FY15 before you will start to see it show up in the P&L.

(Operator Instructions) And I am showing no further questions in the queue at this time. I would like to turn the call back to Chuck Berger for closing remarks.

Thank you, Nova, and again thanks everyone for your continued interest in Extreme. We are strongly confident of the success of the integration of these two companies and the financial results it will produce. We are moving ahead of plan on almost every front as we have finally gotten to truly integrating the North American salesforces and allocating quotas and territories. We have seen an impact along with the E-rate funding in North America but we think that is short term and you can see that we are taking organization maneuvers, organization changes to make sure that we address that including myself getting much more close to the sales organization.

Our conviction over our goals for the second half and the impact that some of the growth engines like Lenovo, wireless, datacenter, and completion of the integration will bring to the Company has not weakened at all. In fact, if anything, it has strengthened and the fact that we are two months ahead on our ERP integration I take as a very positive sign for that and that even in the midst of this integration we were able to show revenue growth in this quarter so we will keep pushing ahead and I look forward to talking to you in three months.

Ladies and gentlemen, this does conclude our conference. Thank you for participating. You may now disconnect. Everyone have a wonderful day.