Ziff Davis Inc (ZD) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Second Quarter Earnings Conference Call. It is my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global. Thank you, Mr. Turicchi, you may begin.

Thank you very much. Good afternoon and welcome to our Investor Conference Call for the third fiscal quarter of 2014. As the operator just mentioned, I'm Scott Turicchi, the President and CFO of j2 Global; and with me today is Hemi Zucker, our CEO.

This was another very strong quarter for both our Cloud and Media businesses both financially and with respect to our M&A activity. We will discuss all of that in greater detail as well as provide the Q3 results and an update on our two business segments. I would note that our Board has increased the quarterly dividend to a payout of $0.285 per share.

We will use the presentation as a road map for today's call. A copy of which is available at our website. When you launch the webcast, there's a button on the viewer on the right-hand side which will allow you to expand the slides. If you've not yet received a copy of the press release, you may access it through the website at www. j2global.com/press. In addition, you will be able to access the webcast from this site.

After completing the formal presentation, we will conduct a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. However, at any time, you may email questions to us at investor@j2global.com.

Before we begin our prepared remarks, allow me to read the Safe Harbor language. As you know this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.

Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our various SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as additional risk factors that we've included as part of the slide show for the webcast. We refer you to discussions in those documents regarding Safe Harbor language, as well as forward-looking statements.

Now if you would turn to slide five, I will briefly review the quarterly results for Q3 of 2014. As you know we operate in two business segments, the Cloud Services segment and the Media segment. Let's start with the Cloud. The Cloud had $108.7 million of revenue 16.4% growth versus Q3 of 2013. EBITDA margins remain strong producing aggregate EBITDA slightly in excess of $51 million. The other piece of our Cloud segment is our IP Licensing group, which had $1.1 million of revenues and $816,000 of EBITDA. As we have stated before, the IP Licensing business will generally produce $1 million to $2 million in revenue and 72% to 90 some percent EBITDA margins depending upon our rate of reinvestment in that business. As we stated last quarter we are currently reinvesting in the IP Licensing to launch new programs next year.

The total Cloud segment produced almost $110 million in revenue and approximately $52 million in EBITDA for the quarter. Our Media produce $43.2 million of revenue and $12.7 million of EBITDA, a record for a non-fourth fiscal quarter and almost 29% EBITDA margins for the quarter. Consolidated j2 produced $153 million of revenues in the quarter, $64.7 million of EBITDA for approximately a 20% top line growth, 22% EBITDA growth. Then taking into account depreciation and amortization and taxes we produced net income slightly around $40 million or $0.83 on an adjusted non-GAAP basis and $0.60 on a GAAP basis.

Our free cash flow for the quarter was $39 million up 75% from the third fiscal quarter of 2013. I would remind you we have $684 million of cash and investments available. The vast majority of which are U.S. based. We spent $53 million of cash during the quarter, $13 million approximately on our quarterly dividend and $40 million on M&A.

For more detail now I will turn the call over to Hemi who will take you through the business segment.

Thank you very much Scott, and good afternoon everybody. Now that Scott is also the CFO we are the two of us and I will talk and discuss a little bit more on the numbers than I used to do before. Let's start with page seven, and I will talk about our total j2 Global numbers. We set a quarterly revenue record of $153 million. Last quarter to remind you was $145.7 million, so we are more than 5% Quarter 3 over Quarter 2. Our quarterly revenue is up $26 million or 21% versus Q3 last year. September revenue was a record month of around $53 million, and for Q4 our run rate should be at the level of the $55 million per month. This is mostly because we have added the Excel Micro and Web24. Excel Micro was actually acquired in October. I will discuss it in page 11, and on top of everything we continue to grow organically.

Our email security and hosting business is nearing $30 million revenue for the year. This is the current run rate (inaudible) for Q3 and for Q4 with Excel Micro those businesses are representing now $45 million run rate as of October. So our total Cloud quarterly revenue was up $16 million or 17% versus Q3 2013. Media did even better, revenue was up $11 million or 32% versus Q3, and the important fact to mention here that the EBITDA for the Media grew to 29% versus only 17% last year, which is 70% EBITDA growth for the media.

Now I will walk you there page eight and then page nine, which is our DID business. Our DID business and our marketing team there is doing excellent job focusing on growing and promoting our lead brands which are eFax, eVoice, eVoice and eReceptionist. Fax and Voice grew $6.2 million or 2%. Year-over-year the eFax run rate grew 6%, corporate Fax run rate grew 9% and our Voice the leading brands are eVoice and eReceptionist are18% up, strong growth both in the U.S. and in Europe. Fax is still growing. Fax is now only 47% of the total revenues and the run rate level and to remind you it was 57% of the total revenue just last year, so still growing but only 47% versus 57% a year ago.

Let's go to page ten when I will discuss about the non-DID business. Our non-DID business revenues are up $14 million or 193% almost double versus last year. Online backup revenue is up $11.2 million or 500% versus Q3 2013. And by now we are fully integrated with our recent acquisitions of BUMI. I recently visited them in the New York office. They moved to the New York office of Ziff Davis and also I visit last quarter Norway. They are now rebranded as KeepItSafe Norway.

LiveDrive is launching its version 2 next month and it is very important because now we have reramped the entire design of the desktop and the mobile. In the past our mobile app was actually allowing customers to view the backup they did on the desktop. Now the mobile is also backed up itself. The installation is much simple. Once you install it, it starts to automatically does it only file selection automatic backs it up and it is acting now on the mobile side more like in the desktop where it is pull versus push of the data. It automatically picks it up whenever it feels you are in the right (inaudible).

Our email and security -- our email which is built on security in email marketing Q3 revenue is up $2.3 million versus last year. And our annualized run rate revenue is $24 million $5 million more than last year. In the security revenue up 279% versus prior year, and email marketing 25%. Both as I said before, are $45 million of revenue growing both organically and (inaudible).

Page 11, I will discuss our recent two acquisitions. Excel Micro was actually purchased in the last day of the quarter, which has impacted our cash because we paid in the last day of the quarter but revenue contribution actually starts in October. We bought a company that is a significant supplier on the internet security market out of Philadelphia. Their exceptional team with established channel partners, strong sales team that are growing the business organically, full suite of services including security and archiving. And we are now already in M&A situations to continue and grow and acquire some of Excel Micro competitors.

Next acquisition was done the last half of September. It is a company called Web24 out of Australia, Melbourne base. I am going to visit them next week. Web24 is an infrastructure service provider and they're hosting solution for SMB and enterprise customers. They offer services like shared hosting, VPS, dedicated servers and as you know j2 will continue and acquire our competitors in this space as well.

Let me go through page 12 and then 13 when I will discuss about our Media. As I said before, the Media revenue is 32% Quarter 3 over Quarter 3. Usually our past experience taught us that the Q4 is the strongest quarter for the Media. And EBITDA as I said before, is also 17% up from previous to 29%. The Media we are very happy with our Media business. It continues to demonstrate strong fundamentals. Revenues grew up $10.6 million and 68% of the incremental year-over-year revenue flows to the EBITDA. This is a very important. Revenue per 1000 visit is $72 which is important of 32% versus last year.

Important to mention the Media is continuing to be performance focused. As you know performance means when you are paid for results versus when you are paid just for views. And the performance revenue in the Media now is larger than 30% of the Q3 revenue. We are very proud of this achievement. PC Magazine, AskMen and IGN delivered 4.7 clicks to retailers, and we have launched a new CPA initiative as you can see in the right-hand, this rectangular here. It is basically a high value B2B categorize when you recommend a service. In this case it is web hosting. And we are paid by all the web hosting companies too small to see them for our ability to generate customers for them.

We have continued with our global expansion of our brands. IGN launched in Latin America, PC Magazine and AskMen will follow this year as well. IGN launched in Portugal and in Greece. And PC Magazine launched in Australia.

Next page when I will focus on the IGN only results. As you know video is the key, it is the future, success of online advertising. Q3 video is up to $441 million 35% growth versus last year. And (inaudible) is getting better videos becoming more important. IGN You Tube channel surpassed 5 million subscribers which is 44% versus last year same quarter. IGN video contact expands to the Sony PlayStation 3 as well. We are now the third most popular console after the Xbox 360 or what I wanted to say the PlayStation is now the third console after Xbox and PS4. We now already have 1.7 million console downloads. And during the quarter we have live stream eSport and gaming contact from a Gamescom International Tokyo Game Show and EVO. And lastly IGN, AskMen and PC Magazine passed the 12 million social followers mark, up from $10, so 20% in only one quarter of growth in social media.

With that, I will pass the conversation to Scott.

Thank you, Hemi. If you turn to slide 16, we are reaffirming the annual guidance, which I will remind you calls for revenues for the fiscal year to be between $580 million and $600 million and our adjusted non-GAAP EPS to be between $3.23 per share and $3.47 per share. I would note that we issued the convert in June of this year, so just remind everybody that we have now total interest expense pre quarter pretax on a non-GAAP basis of about $8.7 million. And the convert itself translates into about $0.05 per share on the bottom line until those funds are reinvesting in what we would expect to be M&A activities.

Then I would point to slide 17 and following which are a combination of the consolidated metrics of j2, specific metrics for the Cloud Services and Media businesses. And then the reconciliation of the various non-GAAP measured views in the presentation such as EBITDA and free cash flow to their nearest GAAP equivalents. And at this time I would ask the operator to come back on the line and to instruct the participants for the queueing of questions.

(Operator Instructions). Our first question is from Walter Pritchard of Citigroup.

[Jim Fish] on for Walter. Looks like a pretty descent quarter. I just had a couple of questions in regards to a few of the metrics. It looked like ARPU was up quarter-over-quarter again. What drove this higher, was it more the mix of back up or what was the driver there?

Yes. It was up modestly on a quarter-to-quarter sequential basis. What has been occurring both over the last four quarters and even within Q2 to Q3 is more of our incremental revenue in the Cloud business is coming from the non-DID based piece of it, specifically the backup piece. And as we noted on the last earnings call that has generally a higher ARPU particularly if it is in the KeepItSafe piece of the business which is backing up the servers. Those tend to come around $80 per account, per month in terms of ARPU.

Welcome to our new analyst. And also I wanted to mention as I said, we are focused more on our more prominent brands like eFax. And they get higher ARPU as well versus the less prominent brands.

Great. Thanks for the welcome there, Hemi. And then also on the cancel rate, it was up compared to last quarter whereas the overall trend has been typically down I mean flat year-over-year. But was there anything that drove this up within the quarter as well?

This is perfect question. I was waiting for it. Let me explain you, in the past most of our revenue and most of our (inaudible) came from the Fax and Voice and usually we have a metric we give you the first months or two free, sometimes three months, and then if you cancel, we (inaudible). In the LiveDrive situation we decided to give some customers even longer period before we call them to pay or go away. The reason is as we were testing it, we found out that in the backup it is better for us to wait a little bit, get the backup up and running, get the customer more engaged and then force them to pay. So therefore there is a little uptick on the churn but just because of the change of method that is driven by the LiveDrive which is a different product if you understand what I was saying.

Yes, that is very much clearer. It just sounds as if you are offering more of the premium version just for a longer period of time --

Exactly.

-- and that just lead to a little bit of a fall off.

The other thing I would note is that our cancel rate is always really looked at in a range. Right now we are in the 2% to 2.25% cancel rate range, and it will fluctuate within that based on in part operational decisions we make and then also the aggregate mix business because there are different cancel rates not only across different service sets but in different parts of the world.

I also want to tell you that in the backup it is a bit different. So the backup is done and the cost is one we have (inaudible) in our back up. In the old days we used to threaten to cancel and then keep the back up for another 90 days in case you change your mind. Now what we have decided to give you another one or two months of latitude and then delete it after 30 days. So actually the (inaudible) are the same. It is just the critical point is moot because we believe it is pointless to keep 90 days after you didn't show us money but it is beneficial for us to give customers more chance especially as I mentioned that we have a new app that we just launched. The new app the special thing about the new app is that it has built in reminders. So it is going to be the ultimate save features to increase commitment of our customers.

Great. Thank for the additional color on that. And then one final question from me. You guys disclose the cross sales between customers as well as the organic net ads. I assume for the most part given that Excel was so late that it really wasn't meaningful in terms of net ads, but can you guys give us a since where those two metric where the cross sale as well as the organic net ads on the quarter?

Yes. So first of all is new and it didn't impact on the quarter. And we are continuing to do the cross sales, and I just read yesterday the reports on our customer supported. It is actually the cross sales are even better. The increase in the eVoice is there but we just decided to stop following on the metric. Originally we followed up with the metric just to make sure everybody is doing its job, actually it is continuing in the same trend with some improvements that I am anticipating because now with Excel Micro and the Web24 and the other thing we will have basically more product in the bucket to offer. And maybe I will bring it back next year as a metric, but definitely this metric should do nothing but get better and better as we have more to offer in more markets. And by the way, backup is something that everybody needs. You know Fax, Voice do I need it, no, but everybody needs backup. And I believe once we focus on it -- because now we are really focusing on integrating the new acquired company, but once we have a moment to spend time on it (inaudible).

Great. Thanks Scott and Hemi.

Thank you.

Welcome.

Our next call is from Shyam Patil of Wedbush Securities. Please state your question.

Hi, guys, good quarter. I wanted to focus on the Media business to start. The fourth quarter is a big quarter just wondering if you can give us some insight on how things are looking thus far? What are the important weeks to monitor for the fourth quarter for that business?

So we get weekly numbers from (inaudible) and the Media team. Actually the day before yesterday we got the October numbers, and we feel that Q4 like before will be a strong quarter. The strongest quarter of the year. There is several points like Black Friday and all of those things that we kick in later this month but all the indication traffic and orders everything else are very good.

In terms of the timeframe sort of the depending on when Thanksgiving and Black Friday falls usually the third week of November through Christmas and a couple of days after Christmas that four to five week period is the most important period in Q4. SO although we have come out with a good October in growth versus October of a year ago, it is that five week period that we are about to enter that is the most important for the Media business in terms of the kinds of properties we have.

Great. And then the revenue for 1,000 visits for Media looks very strong. Do you know how that compares to your peers? I know that some of those metrics may not be readily available, but any sense of how those compare to peers? And where do you think that metric can go in terms of a ceiling over the long-term?

Okay. I don't know versus peers, but I know it's 32% better than we had been doing ourselves a year ago, so when you go 32% it is definitely important. The world is tired of just simple views, view abilty is the next big thing, so we are trying to focus more (inaudible) generate more profit base on performance when they pay for results. Because when you are being paid for results it is the best situation in good or in weak economy. I don't know if I actually answered your questions, but basically we are moving towards a more quality versus quantity which is always a good thing.

Got it. Makes sense.

I think you are right. It is hard necessarily to teeth it out particularly at the larger companies where not all of their revenue may be applicable to the visits they report if they do in fact report that. I would say that given the nature of the verticals that we are currently involved in and the nature of the content that we create which is really to drive decision-making and that is really the whole key on all the M&A we have done in this space to enhance that overall revenue per visit. We believe we are bringing valuable content that is aiding people in making a decision and when they make that decision that makes them the advertisers want to come back and take more. That has really been the focus. We've talked about it before. It has been a big emphasis with the IGN property that we bought in February 2013, and the first phase, the first six months or so was really a right sizing of the cost structure which ended literally about a year ago in the September timeframe of 2013. But the next 12 months bringing us through where we are today has been focused heavily on this concept of not so much growing the page views and visits but the improvement of the monetization of the traffic that was already resident there. And that is clearly starting to bear fruit. You can see if you track this metric over time over the last four to five quarters. And it is being driven in large part not exclusively but in large part by IGN.

That is very helpful. And maybe just last one on M&A, what you are seeing out there in terms of valuations across the U.S. and International and across the various business segments and maybe how you characterize your pipeline for large and midsize opportunities that this point?

As you know it has been a very choppy stock market. So there have been some in our view very good days when the Dow has been down 300 points but then it seems like pops back within a matter of few trading days. And of course now we are trending at or near all time highs on most of the major indexes domestically. What that has done is I think the volatility has opened up the opportunity domestically somewhat, and I think we are little bit more positive on domestic opportunities for medium to larger size M&A. Having said that though, the vast majority of our focus and time continues to remain in the international marketplace where valuations are depending on what country we are in any where from $0.40 to $0.60 on the U.S. dollar. So we will continue to look in a multiplicity of jurisdictions certainly on a selective basis in the United States or if there is a more major correction maybe on a more systemic basis we would allocate more time to the U.S.

The pipeline is very big. We have several deals in LOI, some of them are more advanced than the others. We have to be careful when we talk specifics, but I would be surprised if we will not do another few deals in the $10 million range revenues and up during the Q4.

Great. Thank you guys. Congrats on the quarter.

Thank you.

Our next question is from Greg Burns of Sidoti. Please state your question.

Good afternoon. Web hosting is a new market for you. Can you just talk about what the characteristics of that market are and why that was an attractive area for you to get into and maybe expanded it beyond the New Zealand market?

It Australia market.

Australia sorry.

It Australia market. We consider we have management we call A&Z Australian, New Zealand. So web hosting for sure is very big and exiting market in the U.S. they are significant players and we didn't see ourselves getting into these markets with valuations that are robust. There is an IPO of (inaudible), but we did find is in other foreign markets j2 earnings -- the name j2 Global is earned by our ability to operate in foreign markets in a very effective way. So in those markets the competition for the assets is very low, much less. They speak English. We have significant, robust head quarters there. So we went there. The Company that we bought Web24 is a very neatly organized top tier company. They basically have basics for everything else, and it will be our launching pad to more. And as we said, we went there, the EBITDAs are nice, the space is growing and we believe that instead of focusing in the U.S. on everybody is chasing -- I mean we tried to buy some U.S. companies, and we were really going above our standard valuations and still we were beaten. Somebody really -- I don't know what I can say. But basically we lost by a mile. So now we go to those markets when there are less competition and we get very attractive builds and using our foreign cash, which is always something we prefer to use over our U.S. cash to bring a contribution, taxation is better. All the good reasons to do it.

The other thing too I would point out on the web hosting, I think looks very much like when we bought KeepItSafe in Ireland back in late 2010. We knew we wanted to be in the backup business, I would say at the time we were not as sensitized to the different types of customer bases and the types of backup they were using, ranging from the individual all the way up through the enterprise, but we got a tow-hold in by buying KeepItSafe. And you are always going to understand a business much better by owning the asset versus being on the outside and looking in through diligence and third party research reports. And so obviously you know what happened, that business now is almost a $60 million revenue global business from an initial seed in Ireland that started out at $2 million of revenue. So we are doing the same thing with the web hosting, we already appreciate the gradation of the business that exists from the lower end on the pure domain side than the web hosting then more of the solutions of infrastructure and solution and then you have got some very high-end opportunities that include even renting out a data center space, which is not something we do or intend to do. But by being in the business we'll get a look at all the different types of hosting that is available and also look at it in different parts of the world to see not only if there is different behavioral differences, margin differences but also valuations differences. And right now clearly our focus is outside of the United States for this category, initially in Australia and New Zealand. Stay tuned, after we do more there, we'll see if we want to export that to other parts of the world.

Thanks. And then on the Fax business it looks like your primary properties are growing much faster than the consolidated rate so is there some dynamic outside of those primary propertied where you are seeing declines or attrition?

Not a decline, but some of the brands that we acquired we no longer sale.

We are running them off.

So they can go only one direction. If you are not selling a brand it can go only down or stay if you are lucky. So the eFax brand is $16.95 some of the brands that we bought are like $6 so that is what you are seeing.

And that is also true in the Voice, because those two are reported together under the Cloud. And there is brands that we acquired like part of [Partaprotis], MyOneVoice, PhonePeople which was a separate acquisition, all of those are being runoff. That is why you are seeing for certain brands higher growth rates than for the consolidated whole.

And also you know it has sometimes good impact on the ARPU.

Thank you.

Your welcome.

Our next question comes from the line of Daniel Ives of FBR Capital Markets. Please state your question.

This is actually Jim in for Dan. Could you talk a little about maybe your priorities when it comes to M&A, and whether you are targeting Media versus Cloud specifically what the puts and takes are there when you think about that?

As you know, we sit on approaching $700 million of cash. So both of the groups have been charged and they obviously know our overall financial wherewithal and they also know that we are not limited to the $700 million. There would be access to more if we needed it. So both of them since we raised the convert back in June understand that it is our preference at the parent to deploy the capital back into the two groups where we know the businesses and management teams the best. That would be Digital Media and it would be our various Cloud base services. So in terms of between the parent is really agnostic. We looking for our expected rate of return on that capital. The standard is the same for the two segments of the business, so each of them are going out there trying to find deals whether they be large or medium or a series of small deals that can meet our criteria. As I have said before, I would love to be faced with a situation where there are so many large deals that we actually have a really tough internal debate as to who is going to get the last marginal dollar of capital because we have literally expended all of our funds and our all of our proceeds. But I would say that given the earlier comment I made on valuations domestically, I don't think that is a near term likelihood that we will quickly spend $684 million of cash. But we are looking as I say aggressively on both sides of the house for deals to put that money to work.

Okay, thanks. And then can you also talk about the pricing trends and maybe competition around the backup business just given your comments that it helped out ARPU?

We actually don't see competition on the backup business. Most of the companies out there organic growers with their own technology that are limited to their own strategically planning and geographic area. And we saw some companies that chose to go into market that we are not interested in. But it is just a matter of execution. We are doing some business too small to mention, but we are doing it in a way that doesn't even bother us and continue to strengthen our situation. And in certain markets we already out deal our displayer and continue to be aggressive about it.

Great. Thanks very much.

Before we take the next question, we do have a couple of questions that have come in via email that I would like to address. One of them I think we just talk about which was in the Cloud business the growth rate of some of the brands relative to the total. There was a question about the EBITDA margin specifically for the Cloud business. It is the case that from Q2 to Q3 it is down a couple of hundreds basis points or year-over-year a little bit more. The primary reasons for that are severalfold. One is on a quarter-to-quarter sequential basis FX had an impact of about $700,000 to the top line and about $250,000 or so to EBITDA, so it is a small contributor but a contributer to the EBITDA margin.

We also have somewhat higher G&A expenses driven by legal which tends to come and go on a quarter-to-quarter basis, as well as bad debt expense which normalized in Q3. It was somewhat abnormally low in Q2. The ongoing mix of the business within the Cloud towards the email, email marketing and online backup where the contribution particularly for a newly acquired asset will generally be on the lower end of our spectrum. That business the non-DID based business on average contributes about 40% EBITDA margin of its revenue, but when we newly acquire an asset we have things like transition services agreement, which are basically costs that we are bearing until we migrate to our platform and that creates a drag on the contribution in the near term. So we will have some assets that only contributing 20% until they are fully integrated.

And then it is the quarter -- Q3 is the quarter where effectuate our salary raises and we do various things like bonus true-ups which were negative to us in Q3 of this year versus Q3 a year ago or versus Q2. So those things make up a couple hundred basis points difference on the EBITDA.

In terms of the Media business being strong, I think Hemi addressed that, really driven by the focus on the getting more out of the revenue per visits and the performance based marketing. And we are expecting as Hemi mentioned, a strong Q4 for the Media business as well as for the Cloud as a whole. There was a question I will just reiterate, someone asked about our interest expense, I will remind you it is a combination of the $250 million of 8% notes at the Cloud services level which is $20 million a year in cash interest expense a little bit more in the total expense because we are amortizing the fees for which that deal got done. And then the $402.5 million at three-and-quarter those are the converts plus their fees, so that total is about $8.7 million a quarter of interest expense. Let's see. That's it. We will go back to any live questions.

Our next question comes from the line of James Breen of William Blair & Company. You may state your question.

Thanks. Just a couple of questions. One, to clarify, Scott, did you say that you spent $40 million on M&A in the quarter?

Approximately, yes.

Approximately. Can you talk about maybe a split there in terms of between the Media and Cloud if it is all in the Cloud segment or not?

The eMedia was done in Q2 in May, that is the media deal that has been done this year. So everything that was done in Q3 was done in Cloud albeit as Hemi pointed out Excel Micro was done, it closed in the very last day of the month. The cash is out as it relates to Q3 but no revenues or profits are in.

Okay. So the $40 million that you spent this quarter we'll see revenue in the fourth quarter from those in the acquisition?

Yes, correct.

Okay. And then on the free cash flow in general I think it was down a bit sequentially quarter-to-quarter. Can you talk about some of the puts and takes there and maybe as we look toward the fourth quarter are there anything like interest expense whatever that happen this quarter won't happened next quarter so we will see a rebound there? Thanks.

You pointed out interest expense for us on our various notes occurs predominantly in Q3 and Q1. So we do take some seasonality hit if you will on the overall free cash flow. You saw that last year although it was much less dramatic this year than last year. That is why free cash flows were up about 75% on a year-over-year basis. And then there are some normal things that will ebb and flow in terms of the payables and the receivables. Last year which was punitive to Q3 there was a big contraction of about $11.5 million that hit cash flows. The other thing that occurs in Q3 are the payment of taxes, so whatever our true-up if any on our tax bill we file our fiscal year return which is usually in mid September those will be either potential inflows or outflows. It depends how much has been already paid in as estimated tax payments versus what is actually due when we file the return. So those are some anomalies that occur in Q3, sometimes they are to our benefit sometimes they are to our detriment but those are things that are unique to Q3.

Great. Thanks.

There are no further questions at this time. I would like to turn the floor back to management for closing comments.

All right. Thank you. We appreciate your participation in the Q3 earnings call. Look for some releases coming out over the next several weeks about conferences that we will be participating in now through the end of the year as well in earlier January. We don't have a date set yet for the Q4 earnings call, but that is a likely to be in mid February. At that time obviously we will review the fourth quarter and full fiscal year results also release guidance for fiscal year 2015. If you do have any further questions, feel free to contact us either by email or calling us. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.