Tom Stanton - CEO Roger Shannon - SVP and CFO.

Ashwin Kesireddy - JPMorgan Michael Genovese - MKM Partners Doug Clark - Goldman Sachs George Notter - Jefferies Greg Mesniaeff - Drexel Hamilton Simon Leopold - Raymond James & Associates Rich Valera - Needham & Company Bill Dezellem - Tieton Capital Paul Silverstein - Cowen and Company Tim Savageaux - Northland Capital Fahad Najam - Cowen and Company.

Ladies and gentlemen, thank you for standing by and welcome to ADTRAN's First Quarter 2017 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

[Operator Instructions] During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known.

However, these statements involve risks and uncertainties including the successful development and market acceptance of core products, the degree of competition in the market for such products, product and channel mix, component cost, manufacturing efficiencies and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2016.

These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN. Sir, please go ahead..

Thank you, Robby. Good morning, everyone. Thank you for joining us for our first quarter 2017 conference call. With me this morning is Roger Shannon, Senior Vice President and Chief Financial Officer.

I'd like to begin this morning by discussing the details behind our first quarter results, and I will end with some comments on what we see for the future. Roger will then discuss our Q1 performance in more detail, and we will then open the call up for any questions that you may have.

As we stated in our earlier press release, revenues for the quarter were $170.3 million, a first quarter record and up 20% over the first quarter of last year.

Our total networking solutions revenues, including both international and domestic markets, came in at $143.6 million, overcoming our typical seasonal pattern growing 13% sequentially and 16% year-over-year. Total services and support revenues came in at $26.7 million, which is 46% ahead of the same period last year.

Revenues for our domestic markets came in at $119.3 million or 70% of the total, while our international revenues grew to $51 million for the quarter, or 30% of the total. On a year-over-year basis, our domestic revenues increased 3% as demand for our higher bandwidth vectoring and fiber solutions accelerated from Tier 1 U.S. carriers and cable MSOs.

We also saw continued growth in our Tier 3 business. We continue to be encouraged by the significant growth in our international business. International revenue grew 30% quarter-over-quarter and 97% over the same period last year, driven by increasing demand for our ultra-high-speed solutions in Europe.

Moving down a little deeper, our access and aggregation category had a strong performance, up 28% over the same period last year with growth both domestically and internationally.

Customer devices also saw a strength during the quarter, up 12% over the same quarter last year and 16% ahead of last quarter led by increasing demand for our fiber-to-the-prem solutions to both Tier 1 carriers and MSOs.

Finally, our traditional and other product category was down 13% versus the same quarter last year, due mainly to expected slowdowns in our older generation HDSL products, but up 16% compared to last quarter. During the quarter, we continue to advance our position in next generation access and software defined networking solution.

In Q1, we announced the industry’s first residential code implementation available in our award winning Mosaic cloud platform. This implementation allows carriers to immediately leverage the benefits of software control and application modularity and the deployment of next generation access networks.

This, when combined with our mobility access modules, allows carriers unprecedented flexibility in deploying networks today and will migrate to features, performance, and requirements of tomorrow.

We of course continue to move forward with our G.fast our super vectoring development as well as NG-PON 2 and 10G PON developments for both the carrier and the MSO market places.

We believe ADTRAN is the only access lender with SDN controls, software modularity, and application virtualization and continues to lead in the development of next generation access architectures.

Looking forward, our focus remains on being the world's most comprehensive access solution provider, with clear industry-leading solutions in fiber access and ultra-high-speed copper.

With the world's most complete access virtualization products, we believe we are well-positioned to capitalize on the evolution and access as carriers around the world upgrade their infrastructures to meet customer demand.

I would now like Roger Shannon to review our results for the first quarter of 2017 and provide some comments on the second quarter of 2017 as well. We will then open up the call for any questions you may have.

Roger?.

macro spending environment for the carriers enterprises, currency exchange rate movements; the variability of mix in revenue associated with project rollouts, professional services activity level, both domestic and international; the timing of revenue related to the Connect America Fund projects; the adoption rate of our broadband access platforms and inventory fluctuations in our distribution channels.

With that, I’ll now turn the call back over to Tom..

Thanks, Roger. With that Robby, I think we're ready to open it up for any questions people may have..

[Operator Instructions] We can take our first question from Rod Hall with JPMorgan. Please go ahead..

Hi, thanks for taking my questions this is Ashwin on behalf of Rod. Based on your guidance for Q2, it looks like you are forecasting slightly slower seasonal growth in spite of strong commentary on ongoing broadband spending. I just wanted to juxtapose these two and see where we may be missing something.

And also I want to touch on services gross margin.

It looks like it was just service and support gross margin was only 25% down materially from last year, just wondering what’s driving that?.

So let me talk a little bit about the growth. The - without a doubt, Q1 came in good, right as far as just the booking rate, and I think we may be even mentioned for the Q4 booking rate towards the end of Q4 was actually fairly strong too. So we just saw that consistently carry through the quarter and actually build.

So, little stronger than we had planned on and I think with just the fact that we have a lot of project related business that’s going throughout the rest of this year, I think we’re just trying to make sure that we’re in a good position to be able to continue to meet our expectations.

On a gross margin basis, I guess there is always a mix in gross margin, I am not sure Roger you want to touch on that..

Yes, so for Q1 we had kind of a continuation coming out at the end of last year of NI business, and that mix in NI seems to be lower compared to what we sometimes typically see at the beginning of the year where more engineering work happens. So, it’s a carryover of projects continuing out at year end..

Okay, thank you. Can I ask about the G.fast project in the U.S. are you seeing any activity there, can you update us a little more? Thanks..

Yes, so there is activity of course we had Tier 1 there build, and we have outer region and in region all of that is still on track, expecting to see some revenue before the half.

The outer region course is deploying first, and you probably if you are tracking that from the customer side have seen where they have announced the expansion in some of the cities that they are going to be rolling that product out initially.

And then from the other customer basis, we are seeing absolutely the Tier 1, the other Tier 1 that has got a heavily copper based thought process, also looking at that in the Tier 2. But right now our focus, the biggest activity is around that Tier 1, the large Tier 1 that we have already secured the award for..

Okay, great. Thank you..

Okay..

We got next question from Michael Genovese with MKM Partners..

Hey, thank you. I just wanted to ask about the Tier 1 projects, with not your big existing customer, but the other two and what the timing for each of those would be, where we would expect to see revenue ramps..

Are you taking about the U.S.

Tier 1s?.

Yes, the U.S. Tier 1s..

Okay, so first we have the one that is going on right now, which is that we are seeing and I know you are not specifically asking about that, but we are seeing just very good positive momentum in that one customer both from EPON basis and from a vectoring basis.

The G.fast customer, we expect it to start, it’s still expected to started seeing some shipments in the second quarter, and then we will see that ramp, the big ramp will probably be towards the tail end of the year or next year, but that’s just one of those that we really don’t have good visibility to the kind of - they tend to be flexible in the way that they forecast and schedule things.

The other one, which is an NG-PON 2 RFP is probably one that you are touching on, we have been and still expect to see an award this year, but we don’t expect to see material rollout until next year..

Okay, that’s great. Thanks, that’s all I have. Thank you..

Great..

We can take our next question from Doug Clark with Goldman Sachs. Please go ahead..

Great, thanks for taking my questions. My first one is on services, obviously saw it come down quarter-on-quarter in the first quarter. I am wondering if throughout the rest of the year you expect services to pick back up as a percentage of revenue if there was something else going on where that might trail off..

No I would expect it to pick-up, you may - the fourth quarter is probably the one that’s going to be the - it’s the one that’s less sure and it just depends on how much we get done before the fourth quarter. The majority of the services we have, our customers want them in as fast as we can do it.

So the biggest reason Q1 is down is it’s just a matter of ramping up after Christmas and after the weather breaks. Because there are some areas specially up in the North Midwest, northern regions where you just really can't do a whole lot until winter kind of subsides. So that’s expected and then you'll us ramp through the rest of this year.

I would expect fourth quarter to be very strong too just because we tend to try to really close out jobs, but a lot of that is going to be weather dependent..

Okay, that's helpful. And then internationally, obviously very nice sequentially and it sounds like largely driven by the major carrier in Germany there.

Can you talk about the visibility that you have for them throughout the rest of the year? And do you expect the similar pattern to prior years, which was strong first half and then kind of down in the second half?.

That's what I would expect right now, they surprised us last year, but right now I would expect that you would see the European business actually tail off in the second half of the year, and you’d see the - we'd see a stronger [indiscernible]..

Okay perfect. And then final question, actually on U.S., can you just kind of characterize or level set us on how the spending environment in the U.S.

either by Tier 1, 2 or 3 kind of progressed at the beginning of the year meaning were budgets released kind of on-time or as expected or was there a little bit of earlier than expected or later?.

Tier 1 was earlier, Tier 2 and 3 are what you typically see. So in fact I would probably even say that Tier 2s are probably a little slower than we typically see. But without a doubt the Tier 1 business that we have was kind of well promoted and came out of the gate pretty strong..

Perfect. Well, thanks for taking my questions..

Okay..

We can take our next question from George Notter with Jefferies..

Hi guys, thanks very much. I guess I wanted to just ask about the gross margin outlook for the balance of the year. Obviously you gave us the sense for the guide for Q2, but I was thinking more about the second half.

And I think if I go back to last quarter you guys have suggested that we could see margins kind of come back into the mid and high-40s as the year progresses.

Is that still kind of consistent with how you're looking at the back of the year at this point three months later?.

Yes, I don't know how high into those 40s George that we're talking about, but mid to high-40s I think is that still what we're talking about. So let's say we're expecting it to be - I don’t want to get too granular here, but let's say your comment is correct..

Okay, got it. And then obviously the drivers then would be lower mix of business Tier 1 business in Europe ramping line card sales in the U.S. and then the offset would be higher mix of services would give you a negative pressure there..

That's correct, that's correct. It's really the way I don’t really even think about line card versus non-line card business in the U.S. It's really U.S. versus European versus services, those are the three components..

Okay.

And then how does warranty expense figure in here? I know that you guys were expecting the warranty accrual to kind a roll off here in Q1, do that indeed happen? And then how are you thinking about that over the balance of the year?.

It did, definitely got better. I don't see it being a material impact to us going forward. I think we've kind of gotten through that portion there were some still some cleanup that we have to do, but I wouldn't expect that to materially change things..

Got it. Okay, thank you very much..

Okay..

And we can take our next question from Greg Mesniaeff with Drexel Hamilton. Please go ahead..

Yes, thank you. Question on the OpEx trends that we've seen recently, Tom you mentioned last quarter on the earnings call that OpEx was running a little hot. And just earlier today Roger guided to OpEx being essentially consistent with Q1 or maybe even a little higher.

I was wondering what you guys are thinking about in terms of where your target really is for OpEx levels and how you expect to manage that?.

Yes we have a long-term target and a near-term target. And without a doubt you're pointing out something that's correct, which is we're a little - we're hot on OpEx and I would like to be. If I look at the driver of that it’s very easy to see and it’s very much in our engineering or R&D budget.

And it is - I don’t want to say exclusively, but predominantly by far driven by some accelerations that we have for a Tier 1 customer here in the U.S. that has a positive impact on other Tier 1s both in the U.S. and outside of U.S. And so we’ll see some benefit from that, but it is predominantly driven by RFP in the U.S.

where they have got some accelerated - in fact recently accelerated milestones that we’re having to make sure that we actually hit the mark on. So that's what’s driving it.

And when that is over, we have this setup in a way where most of this if not and all of this higher than anticipated or higher than wanting a level we can actually bring down and fairly short after we finish those developments..

Got it. Okay, that's very helpful thanks..

Okay. Alright..

And we can take our next question from Simon Leopold with Raymond James. Please go ahead..

Thank you. Couple of things I wanted to make sure I understood here. One is in terms of the business with the Tier 1 in Europe, I think in the past you’ve indicated that you had an incremental opportunity not just to sell network here, but work with them selling I guess what you now call customer devices.

I just wanted to make sure I was up to date given the strength - relative strength on the customer device business in this quarter.

I want to see if we can associate those two projects or that segment with the European Germen project, is that correct?.

Yes Simon firstly you have a good memory and yes that that opportunity is there that opportunity by the way is still alive, it is and in fact it has been increased in priority within that carrier just recently it’s been kind of reiterated to us. But that opportunity is not shipping materially today.

So that is something that is still out in front of us. They as off the last time we spoke to them specifically about this was probably a month and a half ago and it is very high on their priority list they see our product set being the only one that gets them to market with the service that they feel they have to have.

But it is a solid year and a half or two years away. But that did not affected number for Q1..

So, that's good news and then it’s dry powder so then what was the source of strength for the customer devices in the March quarter?.

We saw a strength - I mention EPON is being one of those areas - drivers but we saw fairly good strength across the Board and within our customer devices, it’s routers and switches. But we have not only did we see strength in EPON business, but we also of course have a acquired RFoG business, which was beneficial as well..

Okay. And then in terms of your international business obviously it’s been very strong and we know about Germany.

So you haven’t broken out Germany as a region, I assume in the 10-K if Germany is over 10% you would break it out, could you give us an indication of what percentage of your business was specifically Germany in the March quarter?.

It was - let me just say it was the predominant piece of the European business..

Great.

And then just one last one, in terms of kind of a bigger picture trend and [indiscernible] print with some skepticism that 5G, so I’ll prefix with that, but if you could comment on your thoughts about the coming 5G build particularly in light of some of the commentary from horizon just the other day about deploying fiber in order to enable a 5G network.

But it seems like it would bode negatively for your product and your strategy, but if you could talk to how you think about that playing out over the coming years? Thank you..

I don’t think, but first of all I agree with I think your sentiment which is where 5G is going to be used and what is going to be used for is still debatable.

And then there is another debate as to when does it get deployed in a material fashion or is that do we see kind of pre-standard deployment or do we see post 2020 deployment where it really happens.

But in all of those cases, I see fiber access is being a fundamental component because of the bandwidth required and the number of endpoints actually envision being terminated that carry that you mentioned of course is also driving an NG-PON 2 RFP process, which is an integral part of at least in my mind, but I don't want to speak for them their mobility strategy.

And if you’ll notice I mentioned in my comments, our mobility access capabilities that we've added to our Mosaic could platform specifically to address mobility and the future implementation of 5G. So I think that it's actually that they're very much additive to each other and complementary.

And the thought deploying hundreds of thousands of 5G RF head ins or RF devices is a good thought in my mind..

Great, thank you for that..

Okay..

And we can take our next question from Rich Valera with Needham & Company..

Thank you. First, a question just on the expected margin trajectory with your large German customer. I thought last quarter you had mentioned that you expected the first quarter to be kind of the drop there as you shipped in sort of non-channel, I'm sorry non-channel card shipments in there.

And then you expect it to sort of ramp presumably in 2Q and beyond. Just wanted to see if that's still kind of what you're thinking in terms of that....

That is still what we're thinking. Gross margins were probably a little bit higher in Q1 than we thought we would have explicitly stated, but that is still what we're thinking. There was more line card shipments that we ultimately delivered in Q1 to that customer. But your thought process is correct..

Got it. And then there has been no mention of your other international I guess Tier 1 in Mexico. I know there has been thing have been kind of on hold down there.

Can you talk about the status of the couple of projects you've had sort of going through lab trials there and if you think there will be any contribution from them this year?.

The status of the - let me just say the regulatory environment in Mexico in my opinion has not gotten better. There was a point in time let's say six months ago where it was heading towards closure and we could actually - we were under the belief that things would lighten up.

They seem to be moving towards a much more regulated environment at this point where they're likely to spin-off the fixed assets and to separate entity and that has caused me to say a lot of confusion with that customer. So all of - there is not a thing that we are doing that has stopped as far as approvals and everything.

But as far as that customer getting into a position where they're going to actually kind of release capital and start spending again I still think that that’s the time that the way it’s off..

Is it fair to say you're not expecting significant contribution from them this year, I mean what are your expectations for that customer?.

We have not forecasted and honestly even coming into the year we didn’t forecast a lot because just the uncertainty. So our plan does not have a lot of sales to that customer..

Got it. And one more just with in North America you've been involved in a vectoring program which started last year with one of your large customers which is expected to ramp pretty significantly this year.

Can you give us any color on how that program is looking for the year?.

Are you talking about Tier 1 customer here in the U.S.?.

Tier 1 customer in the U.S., yes..

Okay, so we've got a couple right so we have one which is very, very vectoring focused and that one is pretty much right on plan in fact right on plan. And we would expect that to continue on over the next three years or so.

And then the other one we expect to start seeing some shipments, in fact depending on how you can and you could say we have seen some, but we'll start seeing some shipments in the first half. And then you'll see that ramp up from that point forward..

Got it. Okay, thank you..

Okay..

And we can take our next question from Bill Dezellem with Tieton Capital. Please go ahead..

Thank you, that’s Tieton Capital.

Group of questions, first of all if I could start with the timing of the Tier 1 R&D project ending that you mentioned was important that was causing your expenses to be inflated, when do you anticipate that’s going down?.

I think the question is at least from my perspective is it’s difficult to answer because of the fact that the requirements have changed. So I would have expected it to end in Q1 at least the materially incremental fees in Q1 until not withstanding to the changes in requirements that hit us.

So at this point in time I don’t see that ramping down before Q3 really..

Okay, so that answers the financial question. So thank you.

What is the business implications of that for ADTRAN both this year and over the coming years?.

So there is the one opportunity itself and it’s as you are aware it’s a large opportunity which has implications not just for the fixed capabilities, but also for the wireless capabilities as I had spoken to the Simon’s question.

So there is that piece itself, but I would tell you the function now that we are implementing both for mobility and for virtualized core functions that are in areas that we were not playing in before is very positive to us and not just for the customer.

In the sense of the virtualization of kind of some of the routing functions and some of the things that we are doing specifically for that customer there is a market way outside of just that one customer.

And there is not a single customer that we have spoken to and I think literally I haven’t spoken to all the customers but all of the feedback I have gotten on the implications of that feature being rollout to the larger market have been positive. So I think it is a direction we want to go, we are just doing it in an accelerated fashion..

That’s helpful. Thank you. And then a couple of additional questions.

First of all the service margin was down, but on higher revenues, clearly there is something going on there that I don’t fully grasp, can you shed some inside? And then secondarily what are the implications of the Vocus release that came out here earlier this month?.

Good question. Well Vocus first of all is yet another Mosaic customer. So we continue to see traction on Mosaic for especially if you think about how early that is in the lifecycle of the product and for those you don’t know Mosaic is our orchestration SDN software that’s used to manage infrastructure in a next generation environment.

So, that was a very positive, it’s not - as you know there are other customers in that region, one specific customer, which has a process that’s been elongated for some period of time, I will say we have also signed a contract with that customer as a Mosaic customer as well. And that is a large Tier 1 in the pack room [ph] area.

So, just the positive momentum we’re getting there is been very good. And then the second piece of your question was again services..

Service margin..

The only big difference versus where we would have saw last year, typically you will see Q1 have higher gross margin because the engineering work is typically done in Q1 and then you see them rollout. I think the difference this year is we had more activity in Q4 that basically just bridged over into the next year.

So we did more installation jobs than we initially expected to do. So, we still have engineering jobs that we are doing, but you saw that being diluted by the heavier than expected installation jobs of sales as we closed out stuff from 2016..

Great, thank you..

Okay..

We can take our next question from Paul Silverstein with Cowen and Company. Please go ahead..

Thanks guys. Sorry Roger if I could take you back to earlier question and I appreciate how hard it’s to forecast even a quarter out. So that’s looking on to the future, any thoughts on what you can do in terms of gross margin - what peak gross margin level is? And I appreciate that there are different levers in terms of U.S. non-U.S. services products.

But where can you get through from a peak perspective any thoughts on that? Thank you..

I would agree with what Tom said a few minutes ago, it’s and I certainly agree with your point on the difficult of projecting out past current quarter just to the nature of the timing of the book and ship on it. But it’s - what our expectations are is kind of to return to the mid to upper 40% range.

Last quarter you’ll recall we had kind of a surprise upside in international, but that had a - which typically would have a dilutive effect, but that had a positive mix component to it. So had a positive impact overall.

We’ve talked all along that we expected first quarter to be down and it was because of the mix of international whether it being beginning the shipments of the greenfield project and the equipment associated with that.

I think all I can say is at this point in time, is our expectations are that the gross margins will increase and our goal and our expectation is that mid to upper 40% range..

Yes, and just adding color to that those kind of got to be careful of that, but from what we can see today in the mix of the business we have today with no take into account the seasonality the 46-47 range seems to be a rationale number for us to be able to get to..

Okay.

And Tom from a beyond this year is there - I assume you guys are allowing for meaningful growth both services piece of business in the offsets more on the software side, is that the way to think about it in terms of the key leverage?.

Would you state that again, please?.

I assume your services are going to continue to grow, you still be able to [indiscernible] right and that’s going to have a dilutive effect.

I assume also to some extent as your Mosaic software, which I assume has significantly higher margin, is that the offset from the services piece?.

I think it’s that piece too, but I also think that we have some product specific business, for instance in G.fast that has a very smaller services component and without a doubt that the gross margin on that will be positive. So that’s probably a near-term driver than the aggregate software revenue impacting at this point for the near-term..

And I would add that we said all along and continue to say that while services is dilutive to gross margin level it’s accretive at the operating income level we continue to monitor that and believe that.

We have also stated and I would continue to reiterate that our services business has scaled rapidly and we certainly see opportunity as to improve gross margins through efficiencies and we are actively working..

I think that is a good point. It is much more difficult to optimize when you are growing as fast as we are growing. And we are putting things in place where this year I think you will start seeing us drive more efficiency out of that..

I appreciate, I will pass it on. Thank you..

Okay..

We can take our next question from Tim Savageaux with Northland Capital. Please go ahead..

Hi, good morning. Couple of questions, one just very quick and one maybe broader in focus. First on the tax rate sort of been lower than expected, these last few quarters guided to around the 30% range. For Q2, I wonder if you expect that level to maintain throughout the year, of you have any comments on outlook for tax rate throughout the year.

Second and broader question is maybe to relate some of the commentary you’ve had about NG-PON 2 RFP activity with a pretty interesting announcement yesterday from Verizon and Corning with regard to $1 billion purchase commitment over three years for optical fiber and whether that might provide us with an opportunity to try and size the equipment opportunity that you might be facing.

At Tier 1 carrier such as that feel free to say it's plus or minus $300 million a year. Or say in general if you don't want to be that specific maybe talk to how you perceive that move on Verizon’s part to kind of secure fiber supply that far out relative to the opportunity you might be facing in access infrastructure..

Right. So that is a good question. And just because of our history trying to peg revenue numbers down is very difficult. But I do think that that at least from our view the commitment that that customer is showing towards deploying their next generation fiber network is getting stronger every month.

Very rarely you see us materially change our OpEx over a long period of time for a customer. We're usually able to manage that within the normal operating model that we're trying to run under at any given time.

And the reason we're doing that here is twofold one is we really do believe that the opportunity is large and we believe that the opportunity is long-term and sustainable over a multiple years. And two, we think it's very much aligned with what customer requirements will be going forward.

And I'm really not specifically speaking just about the NG-PON 2 component because the NG-PON 2 component although it's hard drives some R&D effort by itself it’s really the whole backend with Mosaic top of the RAC data center implementation that's very complex and very much where people want to go.

And the acceleration of that something is that we're very much willing to do. Because we do think it will pay longer term dividends, but directly to your point I think that commitment is that you read about is in line with the feeling that we about that opportunity..

I'll address your question on the tax rate. Our guidance on Q2 being in the low 30s kind of recognizes again the international mix. And as Tom said just a few minutes ago to a previous question we expect that normal shift in international mix down the back half of the year to happen again and that would put some upward pressure on the tax rate.

So we see it notwithstanding any changes to the U.S. tax structure that may or may not happen this year kind of a slight drift back up over the course of the year..

Okay, thanks..

Okay..

We can take our next question from Fahad Najam with Cowen. Please go ahead..

Thank you for taking my call. Just a question on if you look at the broader tax strategy for the new administration. And if I am not mistaken you have manufacturing facilities in Mexico.

How should we be thinking about that as an impact? Have you factored that in to this year, can you provide some commentary there?.

I don't think - we're in a position right now as you may realized we have manufacturing facilities in Asia and Europe and here in the U.S., as well as in Mexico.

And I think one of the things that we've done a very good job over the last four to five months or so have been getting ourselves into a very flexible situation to where we can maximize with all the benefits we need to.

Any further comment on that Roger?.

Yeah and you are talking about any border adjustment policies. And I believe it's way too early to speculate on that. There was more talk about border adjustment early on I think the more that's been thought about. You're hearing less about that it's something we just got to wait and see.

But to Tom's point we think we're in a good position with our global distribution and manufacturing capabilities to be very flexible to do what we need to do. I have no idea what we do, but I think we may be able to actually maximize - we actually could see some benefit just because of the flexibility of that we had.

And we're kind of uniquely positioned, you do not see any people in our space that actually have manufacturing here in the U.S. and that's one thing that that has been kind of the differentiator for us (Inaudible)..

Okay. So just to be clear on the - if you were to build or manufacture in the U.S. for say the test to and the U.S.

deployment, would that be a meaningful implication on margin is that a headwind, would it be reasonable to estimate a percentage point headwind if you source all your manufacturing in the U.S.?.

I source all my manufacturing in the U.S. because my margins would go up because there will be some cause that would actually allow me to benefit why wouldn’t do it..

Go it. Thanks..

Okay. I think that covers our questions. So I appreciate everybody for joining us for the conference call today and we look forward to talking to you next quarter..

This does conclude today’s program. Thank you for your participation. You may now disconnect..