Universal Electronics Inc (UEIC) 2003 Q2 法說會逐字稿

Welcome to the Universal Electronics second quarter 2003 results conference call. At this time, all participants are in a listen-only mode. Following prepared remarks, we will hold a question and answer session. To ask a question press star followed by one followed by a star. If anyone has difficulty hearing the conference, press star, zero for operator assistance. As a reminder, this conference is being recorded today July 29th, 2003.

I will turn the conference over to Kirsten Chapman. Please go ahead, ma'am.

Thank you. Thank you and good afternoon thank you for joining us for Universal Electronics second quarter conference call. You should have received copies of the press release. If you have not please contact at 415-433-3777 and we will get a copy to you. This call is being broadcast live over the internet. The webcast will be replayed at www.uei.com at 12 A.M. Eastern. In addition a telephone replay will be available for 24 hours. To listen to the telephone replay, in the United States, please call 1-800-642-1687. Nationally dial 706-645-921. Enter access code 1557994.

Also, any additional or updated material nonpublic information that might be discussed during this call will be provided on the Company's website at www.uei.com shortly after the call will be remain there had for at least 12 months.

After reading a short Safe Harbor Statement I will turn the call over. During the course of this conference call, may make projections or other forward-looking statements regarding future events, future financial performance of the Company including the changes in the Company expectations under contract with customers that have been announced, development in products and technologies, continued and strength financial position. We wish to caution you that these statements are projections and that the actual results may differ materially. For details, we refer you to the press release I mentioned and the documents the company files from time to time with the SEC including the annual report on Form 10-K filed for the year ended December 31, 2002. These documents and identify various factors that could cause actual results differ materially for those that contain forward-looking statements. The Company undertakes no obligation update any such productions, statements reflect circumstance after the day on which such projections were made reflect the current state of events.

Now I will turn the call over to Paul Arling, Chairman and Chief Executive Officer of Universal Electronics.

Good afternoon and thank you for joining us today.

With me are Mark Belzowski, our Chief Financial Officer and Robert Lilleness, our President and Chief Operating Officer. After I open the call, Mark will review the financial statements and guidance and Rob will provide an operating activity update and I will conclude the prepared remarks and begin the question and answer section.

Our second quarter built upon the first quarter's achievements and we are quite pleased with our performance both this quarter and year to date. Our strategy has been to fortify our product pipeline, broaden our customer base and expand our reach into the emerging connected home space. As a result, UEI's software provides the intelligence inside not only remote controls but also consumer electronic devices, hand helds and personal computers. We have diligently worked to expand our intellectual property portfolio and leverage our technology.

This quarter we announced new product version and new technology uses. These new products have helped deepen relationships with customers including Hewlett-Packard, and others. In an announcement we made yesterday, Digio has selected us to provide a remote control for their moxie media center. This is all further proof that our technology in products have been adopted by companies introducing new ground breaking innovations in the battle for the living room.

I know many of you have wondered what the result of the AT&T ComCast merger would be for us and I'm delighted to give you an update at this time. We have been selected as one of ComCast's two vendors for ComCast standard digital remotes and we are nearing completion of the contract. Clearly, our long-standing relationship has paid off. Unfortunately we cannot provide any further details at this point. This is very surely represents a major win in our core business and we remain comfortable with our guidance for 2003.

Now, back to the second quarter. Our new product and market penetration progress, combined with our robust core business produced stronger results than we anticipated. Our sales for the second quarter of 2003 reached $27.7 million versus our guidance of 26 to $27.5 million, given at the end of last quarter. Our earnings per share performance of 9 cents per diluted share compares favorably to our forecast of 6 to 8 cents per diluted share.

Our strong sales reflect our investments in new products and technology. This dedication to product innovation has let UEI to increase our customer's effectiveness and has made us valuable to our customers. Overall product value and customer satisfaction have supported UEI through the tougher economic times. We believe our continued commitment to serving our existing customers and increasing our base by expanding into related technologies and industries will fuel our growth. Throughout the call, we will expand upon these topics.

With that, I will turn the call over to Mr. Mark Belzowski, our Chief Financial Officer.

Thank you, I will review the results for the quarter and 6 months ended June 30th, 2003 and then provide third quarter and full year 2003 guidance.

Net sales for the second quarter of 2003 were $27.7 million. Up 12.7% compared to $26.6 million for the same quarter last year. For the second quarter 2003, technology revenue represented approximately 72% of total sales, or $28.1 million. And retail revenue represented approximately 28% or $7.6 million. The revenue mix in last year's second quarter was 79% technology and 21% retail. The increased percentage of retail revenue in the mix reflects the increase in European retail sales throughout the past several quarters as we have continued to broaden our product lines, add new customers and enhance our position in major European markets.

Gross profit for the second quarter was $10.8 million. Gross margins for Q2 2003 came in at 39.1% slightly higher than the 38% projected in the last call primarily due to the positive effect of a stronger Euro and pound against the U.S. dollar on our sales and margins combine with a slightly more favorable product mix. SG&A including Research and Development came in at $9.3 million for the quarter compared to $9 million in the same quarter last year. This increase was primarily due to the stronger Euro against the U.S. dollar on our European expenses paid in Euros compared to the second quarter of 2002 as the U.S. dollar per Euro rate increased 24% in Q2 2002, to Q2 2003.

The effective annual tax rate remain the same as in Q1 2003 at 34%. Only slightly lower than 35% in Q2, 2002.

For the first 6 months of 2003, net sales were $54.6 million. Up 13.8% from $48 million for the same period of 2002. Net income for the 6 months ended June 30th, 2003 was $2.1 million or 15 cents per diluted share. This compares to $2.1 million or 14 cents per diluted share for the same period last year.

Our balance sheet remains stronger than ever. During the quarter we generated net cash of $2 million and ended the quarter with cash and short term cash investment of $45.3 million. DSO's came in at 32 in 2003. This compared to DSO's of 85 days in the 2002 second quarter. We anticipate the DSO's will move down during 2003 to approximately 78 to 80 days by the end of the year. Given the stronger retail influence.

And now for our guidance, for the quarter ending September 30th, 2003, we anticipate revenue will range between 29 and $31 million. Margins will be approximately 38% plus or minus, SG&A will be approximately $9.2 million plus or minus and EPS will range 9 cents to 12 cents per diluted share. Four Q4 2003 margins should be up a point plus or minus from Q3 and SG&A will be approximately $9.2 million plus or minus.

For the full year ending 2003, we project revenue will range between 113 and $119 million. And EPS will remain in the range of 38 to 48 cents per diluted share.

Now I will turn the call over to Robert Lilleness, our President and Chief Operating Officer to discuss the operations of the Company.

Thanks, Mark.

UEI is off to a strong start in 2003. Our results are due in part to our investment of new technology and product development which has enabled us to enter new markets, expand our reach in our current customer base and increase sales. This strength of our product is based on our core conductivity software. Our portfolio patents and intellectual properties and investments in new technology if in addressing the needs of the connected home space. This space is encouraging as we look to the rapid rates of adoption of digital video recorders, personal computers powered with TV tuners, consumer electronics with networking capabilities and networking in the home. Each of these new products offers UEI opportunities to add to our core software base and utilize our technology to control both devices and digital media.

During the second quarter, we added numerous function codes in the DVD, home theater and high definition television space. The database now contains over 155,000 codes representing a 21% year over year growth rate. Basically enabling Universal Electronics to speak the language of any device in living rooms around the world.

In addition to our conductivity software, our strength in intellectual property is also expanding. As the home is changing, we are hard at work developing novel means to harness the wireless networking, control IT products and manage digital media. During the second quarter, we filed for five new patents and were issued one patent bringing the total number of patents to 91. We have practically doubled our portfolio in the last two years. Most importantly, our technology exploration not only helps us develop new patents, but also supports the development of new products and technology to make UEI and our customers stronger in the marketplace.

On the customer front, we also continue to make great progress across the cable computing, retail and consumer electronics industries. New products have been a critical component of our expanding customer base and increased sales. In fact, new products contributed approximately 20% to our top line during the first half of this year. Nevo and Chameleon have led the way, and now our new cable product is joining the rank of these contributors.

During the second quarter, UEI added over 20 new cable systems to our customer base. New customers included systems at Time Warner, Adelphia and independent systems. Key to our expansion was our new atlas product line that supports digital video recording and other capabilities. We are pleased to have received our first order for cable Chameleon C-6 launched on June 9th. It's designed for cable companies to bundle with higher value services or to sell into their customer base.

We were also very pleased to report that our longstanding relationship with ComCast continues to grow as ComCast expands. We are selected as one of the two vendors of ComCast new customer remote. It utilizes UEI technology to give ComCast customers easy access to entertainment and revenue generating services.

We announced this week that Digio you which was founded by Paul Allen of Microsoft fame selected UEI for control technology for a very exciting new box that delivers personal video and high definition television as well as music jukebox, photos and gaming to any room in the house. Digio will utilize or multimedia protocol as part of the UEI remote.

In the computing industry, Hewlett-Packard announced integrated nevo, our graphic home control software into its latest pc hand held. HP says integrative applications like nevo help meet HP best meet its customers need. The 900 was recently heralded in U.S. News and World Report as a new smart remote with great software and PC magazine called nevo smart displays the money saving $1,000 remote comparing its capabilities to AMX who are high on manufacturer's of remote controls and home automation products.

In retail, UEI one for all product line has been an important factor in driving our growth this year and our product pipeline TPS to deliver. On June 30, we launched the one for all Chameleon 8 for North America which can be found in stores like Best Buy. The product offers unmatched wizard-like setup and is priced at an incredible value in the touch screen home theater space. We are targeting our media out reach for the gift guide publications in the fourth quarter and expect to see some great coverage.

In European retail, the strength of our one for all line and UEI technology continues to grow. In June, we announced our expanded relationship with V Side V, which operates the largest digital satellite plated form in Europe with over $6 million subscribers. They selected one for all to distribute the first ever line of sky branded digital accessories. This agreement is an example of our strong relationships bearing additional revenue opportunities and speaks to our ability to keep cable and satellite technology into the retail environment.

In consumer electronics, we recently announced the Balboa Dolphin Remote which UEI co-designed and manufactured specifically for Balboa. In developing the Balboa Dolphin, we developed a new node to the connective home and leveraged and deepened our expertise in radio frequency as a controlled protocol. We should know that supporting these efforts have been UEI emphasis to build awareness and marketing for UEI and increase dead Monday for our products. The results have been extraordinary. Since the beginning of the year, Universal Electronics products and technology have appeared in 77 publications in Spain. 33 in Britain, 74 in Germany and 44 in the United States. They include publications as Reader's Digest, Rolling Stone, Sound and Vision and the Wall Street Journal. Never before in the history of UEI have we reached so much coverage by the media and had millions of consumers reading about our products.

Overall in Q2, we move forward toward our 2003 goals. We continue to face the challenge of a difficult economic times, though our commitment two years ago to fortify our product line and technology has enables UEI to generate new revenue stream, increase our unit volumes and diversify our customer base. We have also worked hard to control expenses and utilize our unit volumes to reduce factory and component costs. As a result, UEI is more competitive and financially stronger than ever before. As we look toward the future, we look to our core business and our continued investment in the connected home space to deliver future growth and profitability.

Now I would like to turn the call back over to Paul.

Thanks, Rob.

Our continued financial success has been a result of our long term strategy to leverage our technology, to increase and diversify revenue streams by expanding our markets served, and creating new products to address each market's needs. Rob detailed great examples of our product and customer strategies at work.

Overall, during the quarter, we continue to deliver on three goals. First, to expand our cutting edge intellectual property portfolio and product line. We introduced new Chameleon versions and receive many consumer accolades.

Second to leverage our technology to help our customers win control of the living room and UEI as the supplier of choice. Our customers deliver to us because we deliver what they need and want. This quarter three large players, HP, ComCast chose UEI to help them differentiate their next generation products.

Third to manage the Company prudently. We reviewed our operations and financial controls. Our intent is to run a lean company and invest for the future. We are more than halfway through 2003, and you can see from our results that we are meeting and exceeding our product and customer milestones as well as our option projects. We are aware economic uncertainty may still arise. We have lived by the adage when times are tough, strong companies become stronger and we have proven our flexibility through the challenges. We have innovated more over the past two years than at any time in our history. And as we have said before, we believe the best is yet to come.

Thanks for joining us today. Operator, we are ready for questions.

Ladies and gentlemen, if you wish to register for a question for today's question and answer session, you will need to press star and then the number one on your telephone. You will hear a prompt to acknowledge your request. If your question has been answered and you wish to withdraw, you may do so by pressing the star and the number 2. If you are using a speaker phone, please pick up your hand set before entering your request. First question is from Amy Norilous from Pilot.

Great quarter. Could you be more specific on what you are doing with the home networking and home automation. Rob, you touched on it a little bit and who are the major players.

That's one area we are investing in the last two years looking at not only the pipes that are coming into the home but what type of data they are delivering. So certain things like video on demand is a clear thing that we are doing today in enabling video down to the box and having the consumer be able to select that. Other areas of emphasize are how do we stream digital compressed audio like MP 3 file from a PC on to your stereo system? How does IP addressable note like I think a good example is the Neptune server connect to other componentry in the house. How do protocols play an important role in the house such as Universal Plug and Play or technologies that are more proprietary like Hobby. So what we are doing is really investing deeply now and coming up with a novel ideas and patents in that space. Also in a very tangible fashion delivering video on demand with a very easy access for that remote control.

Who are the major players be?

There is -- it depends on the protocol level. There is consortium called Universal Plug and Play. Many players. Microsoft, Intel. Consumer electronic companies. In terms of delivering broadband in the homes the cable companies have a fat pipe going into the home and the telecom companies. The list is quite large. And then if you go finally to equipment providers, you can look to the set box top providers that are integrating not only IP addressable nodes into their boxes or modems or look to equipment players like Net Gear that is going public sometime this quarter and also companies like Links who were acquired by Cisco.

Keep up the good work.

Next question is from April Horace from Janco Partners.

Great quarter. Happy to see that. Couple questions on my favorite company, ComCast. You said you will be one of two vendors supplying it. How many were there before and when do you think you will start seeing the results of this selection?

I can answer that, April. They had at least two vendors before, probably more than that. We don't know exactly how many. We know at least two. And it will begin this quarter.

With respect to Time Warner using the remote control, do you anticipate seeing them using that new remote control in more and more systems over time? And will they start using that as a replacement remote control as opposed to trickling it out.

Actually, Atlas and Time Warner system. Now whether they use it for replacement remote or rolling it out with their new system, it's hard to tell at this point but we added a number of new systems, not only this quarter but last quarter.

You said 20 systems and last quarter was 20 systems for a total 40 new systems?

Yeah, probably more toward 45, 40 systems, somewhere in there.

April, in some of these are new customers and some of these are locations of existing customers.

And then last question, just noticed on your balance sheet as of December you are 22 1/2 million in short term investments and the remainder in cash, but this quarter was all categorized as cash and cash equivalents. Are you doing something?

We are just transitioning possibly to a new banking relationship. What we wanted to do was take our shorter term 30 day investments and put them in a more liquid cash.

Okay. Thanks, guys.

Thanks.

The next question is from Scott Ciccarelli, .

Hi. It's actually Rick Winer for Scott. Couple quick questions. First in your guidance for next quarter, actually the back half of the year, I haven't done the exact calculation but similar revenue growth around so% year over year. And I'm wondering if the breakout over that between the growth in the retail and technology we should expect that to be relatively similar to what we saw in the first half? In other words, 50% revenue growth or so in the retail area and then technology growing in low single digits and anything that above and beyond tech and the technology would be kind of above and beyond your guidance? Or what are you thinking in terms of the revenue guidance there?

I would say we were at for Q2 28% retail, 72% technology. We see as is typical with our business retail ramps up more in the back half. So I would say that you will have a range of 32 to 38% retail and more in the back half than in the rest technology.

Okay. And that I think is implying relatively robust growth in the retail continuing. Do you have any kind of a long-term forecast for that part of the business? What do you expect it could do in basically a normalized environment?

We haven't taken it out passed 2003 at this point.

Okay, great. My second question was in reference to a lot of your clients and MSO's have talked about rolling out the advance top boxes with the functionality and high definition. I'm wondering if you are seeing an uptick in your more advanced remotes and if there is any kind of differential that you can give between that and the a normal set top boxes where they are using your lower priced remotes.

In terms of high definition television we can still use our standard remote. However, with advance boxes like they are adding DDR, digital video recording so it requires a new remote whether that be an Atlas or customer remote to take advantage of DDR. And also, cable companies are looking to more prominently display revenue generating services such as Pay-per-view and Video On Demand. So customer modes and even standard remotes are being worked more prominently to display that.

Those remotes are usually the higher price points?

Our traditional price points.

And in terms of margins, those are generally the similar margins?

Yes.

So there is nothing we should take away in terms of mix as you see more and more of the atlas being picked up?

Correct.

Thank you very much.

The next question is from Brett Miller from AG Edwards.

Good evening, everyone. I was wondering if you could do a break out of the operating expense line. That's taking up as percentage of revenue and give us a break out of R and D versus SG&A kind of a feel of the SG&A fixed versus a variable or sales commission.

We do have a break out of the r and d of the income statement. We continue to look for ways to reduce our overhead, but we are trying to keep our investing in R and D and a little lesser sales adventure. It's been more difficult with the Euro gaining strength and so that's one of the areas we continue -- that's an unfavorable affect. But the variable side of our expenses is in the area of 10%.

Okay. And also if you can talk to us just about what was the depreciation and amortization for the quarter?

It was 900,000 total. A third amortization and a third depreciation.

Thank you very much.

Your next question is from Patrick Flavem with Flavem, Blake & Company.

Could you help me out with the logic of good sales growth year over year and virtually none of it coming down to the gross profit line, meaning gross margin shrunk markedly for both the six months and the quarter.

Yeah. That's a good question. I mean, we have found that the margins have come down quite a bit. There is a number of reasons for that. Year over year for Q2 competitive pressures. We introduced new product and we are trying to drive a higher penetration of the new product. Some of that is at lower margins, lower than average margins. And the product mix is also affected that. Again, some of this higher sales is a result of the increased strength in the Euro. But the same time it's also affecting our overhead unfavorably. So we were working hard to get price reductions, continue to get price reductions from our factories. We are trying to cost engineer the new product down and we are looking for ways to cut our overhead costs.

Okay. Just unusual in these days when you have a lot of companies that have sale shortfalls and are obviously under margin pressure to see a company with a 10% year over year sales gain and literally a 5 percentage point decline in gross margins. That would indicate you are manufacturing in a high cost area, which you are not, or that there is extreme price competition which given your technology proprietariness doesn't make sense either.

Patrick, one thing as opposed to a manufacturing company having worked in them before, when you have a sales uplift your margin do go up, because your spreading your fixed assets. In our business we don't actually own the manufacturing assets.

Understood.

We don't get -- we don't necessarily get an uplift from an overhead variance, a positive overhead variance at the gross margin line.

But does it mean you have a -- the faster your products grow, the lower the margin?

No. It doesn't mean that at all.

How would you get --

We were in an environment today and we talked about this over the last few quarters, in fact the expectation for Q2 was set at 38%. That we were in an environment today where on each new bid for business growth we will probably not on a larger account be able to enjoy in excess of the 40% mark in margins. And the more of that business one it pulls count your margin slightly and we enjoyed 39.1 in Q2 which we felt was appropriate given our guidance.

And I noticed that you were forecasting 38% for the coming quarter.

Correct. Plus or minus.

Which is a further decline. How does one price in your proprietariness then if the buyer of the product continually the center of the price but you have a proprietary product, how do you get your margin out of that?

Having looked at other companies in the industry, a commodity player will enjoy 20% or less margins. We believe that the value of the technology is priced in at these gross margin levels.

And then a final thing for you, Paul. Given the financial structure of the company, have you no inclination to initiate a dividend?

We would consider that given the recent tax change. We have considered for sometime quite honestly I think it is probably moved up the ladder as far as investment alternatives. It will continue to be considered.

Thank you.

Your next question is from Michael Won Kim from Roth Capital Partners.

Good afternoon, gentlemen. Nice quarter. Couple of questions. Just first off the top. Can you report what the 10% plus customers were in the quarter?

Yeah. We had two 10% customers. One was ComCast. AT&T combination and one was Radio shack.

Who was maybe the number two MSO customer behind the ComCast/AT&T combo.

We don't typically give that information out.

And turning to your newer solutions, I think like NEVO and Chameleon. You are seeing good progress there. I think you said 20% of revenues for the quarter. How you see that sort of trending out over going into next year? Do you see something north of 30% and have a target mix? And also can you maybe go into some color on in terms of margin delta between your core business and these newer solutions.

Sure. Looking forward, we wanted to do was we told investors over the past few quarters of our new product development during very challenging economic times. And then we took through the launch and now we wanted to share some of the success of our product more as anecdotal evidence. Not necessarily as something you would necessarily model. So the 20% increase in terms of the top 20% of the top line revenue from Chameleon and Nevo are to give you an indication these products are successful in the marketplace. In terms of margin, they have been definitely margin contributors, but we don't split out any individual product into its own category. Unfortunately we can't share that information.

If I were to model it and assume faster growth in the newer area, would it be unusual to assume gross margin expansion from this?

Yeah, I would say it will depend on the mix of our new products and demand on which products have little more successful with. But all in all, we do have products in the introductory phase that are at lower than average margin.

It depends. As we start to get -- these can be really seen as platforms. The Chameleon is a platform. It can power an AV receiver, a television, a plasma. It can power a number of different things. As we start to get greater volumes and cost engineer that product, it could potentially deliver higher gross margins. Also with the Nevo technology and the home space starts to develop over the next two, three, four years, if we are successful with the Nevo and a number of different display devices it could contribute to gross margins. At this time I think it's premature to unnecessarily guide you toward a higher or lower gross margin.

And within that 20% mix, was the majority of that Chameleon?

Unfortunately we don't break that out.

Within that product grouping?

We don't break that out.

And maybe if you talk about kind of more generally about expanding the Nevo platform on to the platform in the coming quarters. Hoping you could discuss on that.

Great question. Nev architected to transform any display device into really a platform for the connected home.

So whether the pocket PC?

So Palm is obviously a target for us as a potential and Sony and both Palm solutions group are key players there. And Palm OS is also --.

I think we lost you. Not good. Guys still there?

This is Kirsten Chapman, we are having technical difficulties. It will be a moment.

Miss Chapman, would you like us to call out to Paul?

Yes.

One moment, please. We are doing that now.

Sorry about the experiencing technical difficulty.

At least it's not from remote controlled.

Basically the Palm based operating systems is definitely an opportunity for us. Any display device entering the home is an opportunity for us.

Are you already talking to the guys over at Palm Source and trying to kind of see how that gets integrated?

Sure, we are talking to anyone with a display device that wants to enrich their product to offer home connectivity.

Do you ever see an opportunity down the road with some of the higher end cell phones as well from the smart phones?

It's interesting. As the U.S. is a bit behind in the whole cell phone race. If you go to Europe or Japan, color screen phones are becoming the norm. As it moves into the 3-G time frame sending digital media around is a capability. In Japan there is one phone now that has a very, very basic remote control built in to it.

So it really comes down to consumer choice. And consumers have a number of choices in terms of the type of handhelds and what they use them for and one can foresee using a cell phone to carry pictures. Send digital media around the home. Control the various devices that they have in the home and check and record a TV listing.

Interesting. Certainly we will stay tuned for that.

Last thing is about retail channel expansion for I guess proliferating especially Chameleon. Radio Shack has been a good partner in the domestic market. Can you talk a little of that where you start to see the foot weren't expand in the U.S.?

We recently announced our Chameleon One For all 8 which has a lot of -- it's a touch screen home theater remote control at the $99 price point and that has already been in Best Buy and it will be in a number of different retail locations.

Great. Thank you very much. Nice quarter.

Thank you.

The next question is from Vincent Skioli of Lord Abbott.

Good afternoon. Nice quarter. My question relates to the guidance you gave. I was wondering if you could be more specific between the ranges and the revenue in your earnings. I know you talked about economic activity in the second half. But can you be any more specific about whether or not how much the Euro changes in the Euro versus the dollar will affect that or the new ComCast deal. Any color there?

Well, I think as far as the Euro effect, it's a little complicated. On the top line we receive Euro, pounds and U.S. dollars in our European entity. All in all, maybe somewhere around half a million a quarter influence on the top line and then a little bit less on the overhead line going forward.

And as far as mix, it will depend on how successful we are in the retail side given the ranges that I gave earlier. And also at some good growth opportunities on the technology side could play out. So it will depend on many things.

We have run through a number of scenarios and that's how we came to the 113 to 119 range.

And you probably can't comment because you said you weren't. But as far as the ComCast, is that included in the guidance since you say it was going to start in the third quarter?

Yes, that is included in the guidance.

Thank you.

Once again, ladies and gentlemen, as a reminder to register for a question, please press star then the number one on your telephone. The next question is from Ian Corydon from B. Riley and Company.

During the second quarter did you see any sales of the retail product or the Digio product?

Not during the second quarter.

Did they both start in the third quarter?

Yes.

Are you seeing increased consistency with respect to the orders you are getting from the MSO customers or is it lumpy?

It can be a little lumpy and more consistent than two years ago but still relatively system by system, managed system by system here.

Thanks.

There are no further questions at this time. Proceed with your presentation or any closing remarks.

I want to thank everyone for participating today. We are available to answer any further questions in you have them and we look forward to seeing many of you during our Investor Relations travels or here at headquarters in you happen to be in southern California. Just give us advanced notice. Thanks very much for participating.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you