Kate Scolnick - VP, IR Steve Luczo - Chairman & CEO Pat O'Malley - EVP & CFO.

Aaron Rakers - Stifel Benjamin Reitzes - Barclays Rich Kugele - Needham & Company Keith Bachman - Bank of Montreal Monika Garg - Pacific Crest Securities Katy Huberty - Morgan Stanley Ananda Baruah - Brean Capital Sherri Scribner - Deutsche Bank.

Welcome to the Seagate Technology fiscal Second Quarter 2015 Financial Results Conference Call. My name is Kathleen and I'll be your coordinator for today. [Operator Instructions]. At this time I would like to turn the call over to Kate Scolnick, Vice President, Investor Relations. Please proceed, Kate..

Thank you. Good morning, everyone and welcome to today's call.

Joining me today from Seagate's executive team are Steve Luczo, Chairman and CEO, Pat O'Malley, Executive Vice President and CFO, Jamie Lerner, President Cloud Systems and Solutions, Dave Mosley, President Operations and Technology, Rocky Pimentel, President Global Markets and Customers and our General Counsel, Ken Massaroni.

We posted our press release and detailed supplemental information about our fiscal second quarter on our Investor Relations site at seagate.com. During today's call we will review the highlights from the December quarter and we will provide the company outlook for the third fiscal quarter 2015.

We will refer to non-GAAP measures which are reconciled to GAAP figures in our supplement. And after that we will open up the call for questions. We're planning for the call today to go approximately half an hour and we will do our best to accommodate your questions in that time frame.

As a reminder, this conference call contains forward-looking statements about the company's anticipated future operating and financial performance, customer demand and general market conditions. These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date.

Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings and supplemental information posted on the investor section of the company's web site.

Any non-GAAP measures referenced on the call are reconciled to GAAP figures in the supplemental information on the website. I would now like to turn the call over to Steve Luczo. Please go ahead..

Good morning, everyone and thank you for joining us today. Seagate demonstrated strong financial performance in the December quarter achieving revenues of $3.7 billion and on a non-GAAP basis, gross margin of 28.2%, net income of $452 million and diluted earnings per share of $1.35.

Our results this quarter reflect revenue in-line with our expectations and sequential margin improvement. We had record storage shipments of 61.3 exabytes, up 17% year-over-year, with average gigabytes per drive for the quarter increasing sequentially and continuing to average over one terabyte per drive.

Cash flow generation was again strong in the December quarter and we achieved $670 million in operating cash flow and $455 million in free cash flow excluding the partial payment for the arbitration award from Western Digital of $773 million.

Our non-GAAP operating expenses were $546 million, slightly lower than our expectations due primarily to expense control around the core business and commensurate with our revenue growth. Capital expenditures were in-line with our expectations and inventory both internally and externally are within manageable levels.

Our balance sheet remains healthy and we ended the quarter with $3.3 billion in cash and cash equivalents. We raised approximately $500 million in debt and retired approximately $375 million in principal of higher-cost debt this quarter, effectively staggering and extending our debt maturities.

We believe we’re the first high-tech BBB minus company to issue a 20 year coupon which is a testament to the market's confidence in our management team, the strength of our technology portfolio and our financial and business policies.

Turning to our outlook, while we're generally optimistic about calendar year 2015 in terms of the demand for storage and overall economic activity especially that of the United States, we're tempered somewhat by the instability of the European business environment as well as the commodity and currency volatility throughout the world.

For example, Europe represents approximately 20% of our revenues and in retail we would have historically experienced an increase of about 5% revenue in the December quarter and in fact it declined by about 5%.

While we expect Europe to be challenged economically for most of 2015, it's difficult to assess the degree of impact this will have on revenue and demand.

While Central Bank activity can alleviate some of the issues that are impacting specific country growth issues globally, these instruments are by design temporary and given the low level of interest rates we're now experiencing are by definition less effective at least on the measure of providing cheaper credit.

While our forecasting continues to maintain a sense of caution due to these macroeconomic conditions, the trends we're seeing in the marketplace continue to align with our long-term expectations for exabyte demand and the growing need for economical and efficient storage.

Industry estimates for the HDD market demand are forecasting a seasonal decrease and we believe TAM will be approximately 135 million units in the March quarter. This is primarily driven by a seasonal decline in the client and retail market which is also expected to be the low quarter for the calendar year.

The traditional enterprise market is estimated to follow seasonal patterns as well, although this market has been more resilient than we have forecasted over the last several quarters. The cloud enterprise market is estimated to be relatively flat, reflecting continued demand strength for high-capacity storage.

We anticipate the cloud market will exhibit relative strength throughout the calendar year as the acceleration which began last quarter continues. We're experiencing supply constraints in some key products for this market and we expect to be supply challenged for the next few quarters, based on current demand signals.

Pricing in the client and cloud enterprise market was slightly more aggressive than the December quarter than the five prior quarters. In some accounts we participated and in others we did not. As we look ahead, we believe this is a temporal issue related to specific industry conditions.

Given the increasing demand trend from a broad base of customers towards the higher capacity products, we also believe this level of price erosion is unsustainable to fund the required capital and R&D investments needed in our industry.

We anticipate we will need to drive margin expansion at least towards the higher end of our long-term range of 27% to 32% to fund the long-term capital and R&D budgets related to the increased demand for cloud-based storage products.

Seagate's product portfolio is well positioned competitively in this demand environment and we expect to achieve revenue of at least $3.45 billion in the March quarter.

We're planning our non-GAAP gross margin to be up sequentially and at least 28.5%, due primarily to seasonal product mix shifts, while also taking into account continued dilution impact from our recent acquisitions. We're planning for operating expenses of approximately $570 million in both the March and the June quarters.

These expenses include some increases in core R&D as we refresh nearly our entire HDD and SSD product portfolio this calendar year as well as investments in our new market adjacencies.

Based on customer engagements to date, we're encouraged that our value proposition for cloud computing is gaining traction and our revenue potential is likely greater than our original expectations. I thank our employees for their hard work and our customers, vendors and suppliers and shareholders for their ongoing support.

I'll now open it up for questions..

[Operator Instructions]. Our first question comes from the line of Aaron Rakers with Stifel. Your line is open. .

Steve, if you wouldn't mind if you could go a little bit deeper into the commentary around the pricing environment and specifically to the enterprise space. You had suggested that maybe there was some temporal issues.

Could you be more specific on what maybe you’re seeing from a competitive perspective? And then also on top of that, how should we think about the constraints that you might be seeing in that space? And how that might translate to pricing on a forward basis? Thank you..

Well I think the pricing discussion can't be limited to just the cloud space. I think it's really a relationship between the cloud space and the client space. And the client pricing, even though it's quite low continues to be strangely aggressive and the reason I say strangely is that most of those components are low-capacity for the most part.

You have a lot of single disc, two-headed products there. So you don't have a lot of cost opportunities. And yet in a demand environment that's been volatile, relatively fell flat both in notebook and desktop if you take a one year perspective.

There is not a lot of movement for absorption or cost reductions from especially the single part component companies.

So, continued price aggression there kind of doesn't make a lot of sense, but there are certain market segments for example in retail where a couple of our competitors seem to be battling it to the end of who can have the last 0.5 point of market share. It's just been kind of silly.

It relates to the cloud market in that people can manage their overall gross margin, obviously, because the cloud products by virtue of their increased difficulty of manufacture and test, do carry higher margins.

The reality is given the shift that we've had towards high-capacity we won't be able to match supply long term at these margin structures because the shift to high-end requires a lot more test, it requires a lot more heads of discs, they're harder machines to make and therefore we have to have margin structure I think in the 30% to 32% range to fund the mix change that we've seen already.

The mix change that we're at is probably a year ahead of where we thought we would be. So, I think we view it more holistically of what's happening across the portfolio and it just doesn't seem sustainable for the industry to continue like this.

I think as it relates to your specific topic, Seagate does have some product leadership in particular categories. Where we're very constrained, that obviously relates to pricing that remains more firm.

As I indicated, there is a couple of classes of product that we're effectively sold out through the rest of the year, subject to what we can do on the manufacturing side to increase supply.

So I do think that in the last few weeks we've seen some firming around the pricing on cloud, but I think the reality is, to really get the investment rates that we need long term, we're going to have to see an end of the erosion so we can basically rebuild the margin profile..

Our next question comes from the line of Benjamin Reitzes with Barclays. Your line is open..

Can you talk a little bit more about the client space? What are you seeing there sequentially? And with the weakness in desktops and some of the strong results in notebook and consumer, how do you see that playing out and impacting your business into the first half here? Thanks..

It's in flux. I think the whole balance between notebook and desktop has been interesting and dynamic over the last calendar year to say the least.

We had a start of the year that had a lot of relative strength in desktop especially relative to what people were projecting and then the second half of the year really flipped the other way where the relative performance was on the notebook side.

I think as we left the December quarter we were I suppose discouraged a bit by the lack of momentum in the client space which I think again, lends to some of the cautiousness that we're seeing as well as Intel's forecast was about 7% down on their revenue estimate and that's with the probably not nearly the pricing pressures we have.

So, I think the client space is a bit in flux. It feels for us right now that actually oddly enough, that maybe desktop demand is doing well already these few weeks in the quarter whereas notebook seems to be having troubles getting started, but I think it's just going to be this constant dance between the two.

And again, what you're probably looking at is relatively small growth, single, low single-digit percentages on a TAM basis through the calendar year and that just doesn't support the price aggression that we've seen in the market place. I think it's something the industry is going to figure out.

And I think our supply chain is being pretty firm with us, that they just don't have additional costs to give us especially again if they're single-part providers to each platform..

Okay.

Just to clarify though, you think the pricing there gets better as we go throughout the year as well though?.

I think the price erosion has got to stop..

Our next question comes from the line of Rich Kugele with Needham & Company. Your line is open..

Let's talk a little bit about the cloud system side. I think you talked about it being ahead of where you thought it would be from a demand perspective.

Any additional color you could provide? And how much did that weigh on gross margins in the December quarter?.

Well obviously again, Rich, those class of products carry higher margins just because they're much more complex machines to build and test and develop, that business began to pick up a couple of quarters ago after as we know a few quarters of less than expected growth.

We all talked about, was that a function of deployment? Was that a function of utilization rates? Or was that a function of time to deployment? Our thesis was probably time to deployment and utilization rates and that there would be an acceleration, that's what I think we're seeing.

I think the backdrop of end-user demand hasn't slowed and again, anything that's high-content video is going to drive more and more demand for that class of storage. So I think for Seagate, the portfolio is quite strong. Our position in 6 terabyte is really good and we see a big demand profile.

I think for a lot of the CSPs, especially the Top 15, they would almost take any amount of capacity per spindle that you could give them. If we had an 8 or a 10 terabyte drive, they would take it. They have software that knows how to manage that much data under a spindle now.

So as our portfolio shifts to that, I think we've had some relative advantage and that's helped the margin, but again the client space is aggressive and it all mixes up.

I think the other thing to remember though is on our new businesses and I'm not sure this has been modeled well but I'm not sure that we've been probably able to give you as much detail to model it well. So, I'm not being faultful, but our cloud business is dilutive to gross margin, that's a business.

I think that we've described we're going to grow into the margin. We're adding revenue. We have really excellent confidence in the revenue profile going forward. If anything like I said, I think we're probably either on the June quarter call or we'll do it at the analyst meeting, we'll reset our revenue expectations.

Again, that business comes in at a lower than corporate gross margin and we will grow into it. We will exceed the corporate margin when the thing is all fleshed out.

But I think that was probably a little bit heavier in the quarter than we would have expected and then the client pricing was a little bit heavier than we would have expected in the quarter. Those were the two main drivers offset as you point out by better margin from the higher demand for our cloud products..

And then what element of your manufacturing is the tightest to be able to produce the high cap cloud drives then? Is it test?.

For the competitive reasons Rich, I'm not going to specifically answer that question, but let me say this way, that product has long lead times on wafer and it has a lot of test. So between wafer and test, you're looking at 20 plus weeks of supply chain that has to be managed.

So if the customer set doesn't have that fully baked into their ordering system or if they are seeing demand increases that are inside those lead times, it creates a lot of stress on the system. So what we're seeing now is a lot of stress on the system for the demand that we see this quarter and next, let's say.

We can't really do much about this quarter unless we have yield improvements because you've either got a wafer issue or a test issue that's more than the quarter in duration. For next quarter we can start to line some things up.

But it's really all the work we have to do for the September quarter and the December quarter and of course for that, we have to go back to our customers and say these are pretty firm orders because we're going to do a lot of things to our supply chain to accommodate that demand which will impact our total portfolio.

So it's pretty dynamic right now and it's a good problem to have, but the lead times in this class of product, it's not like calling up and saying I need another million notebook drives. These are complicated machines..

Our next question comes from the line of Keith Bachman with Bank of Montreal. Your line is open..

I had two, if I could. Steve, I want to just talk about a comment that you made previously about you thought that TAM in calendar year '15 would grow. If I look at the March quarter guidance, you're actually guiding to TAM to be down on a year-over-year basis.

Where are the pockets of growth as you see 2015? Specifically, do you think as you get into 2015 that the client side on units actually grows?.

I think over the course of the calendar year it does, probably low single-digits. Again, we believe March is probably the low quarter. Actually, for the first time in as long as I can remember, we're looking at from the customer demand-side, it looks like June quarter will be up versus March on the client side.

Obviously, September and December are typically up as well. I think net-net, we will see a little growth.

I think the real issue is what's the nature of the growth and what's the class of machine that people are offering? I think the biggest opportunity the industry is going to see, I don't think it's a calendar '15 event by the way I think it's probably calendar '16 event, but there will be a smarter client.

If we believe half of what we say about the value of the cloud, while it does talk to in some applications, a lighter client, it also talks to a richer client.

So whether or not that's greater compute or greater storage or greater bandwidth capabilities, especially for the knowledge worker and the value creator, these machines have to get more sophisticated not less. I don't think that's really been thought through completely.

Things like Chromebook are gaining a lot of attention, but when you think about the use case of a Chromebook let just hope that's not where the world is going to check my email and weather and that's all I do. I want more faith in inhumanity than that.

I actually think we're going to see a big rotation in the client in '16, but I think in '15 it's probably going to be low single-digits and March is the low quarter..

Okay, well my follow-up relates to that Steve, if I could or Pat. In gross margin, you're guiding gross margins up sequentially, if you could review some of the puts and takes and what's the sustainability of that gross margin that you guided to given the comments you just made about TAM. And that's it for me, thank you..

Keith, this is Pat. I think, as Steve even highlighted in the revenue we see some levers there that are more apparent to us that help us manage it that even with the lack of visibility and some of the segments we would like, we still feel confident that's growing.

With the backdrop of that, we see where that revenue is coming from and how we model that. We feel pretty confident in this range. As Steve said that range needs to expand and that's the backdrop of the erosion comments because the costs to deploy these are getting greater and greater.

You see that in the gross margin and just as importantly is the OpEx, as we fundamentally refresh. I think we feel fairly confident on this gross margin and staying in this range, but that is on the backdrop that the erosion needs to slow down.

The cost take-downs continue to happen, but you remember, these products are long in the tooth and that's why you see the OpEx with the refresh of almost the entire portfolio this year. So that's part of that as well.

The gross margin I think, it's modeled pretty straight and it's the classic, how much price you can afford to make these investments, that's where it's lining up and so we feel pretty confident we can hit these numbers..

We have good cost opportunities in front of us in some of the near-term things that we can do, but we're also having this portfolio roll on us which always gives us an advantage as we wrap up the yield curve. Again, Seagate is the only company over the last 20 years has consistently rolled the portfolio across the company.

We're in one of those phases again. It hits us a little bit on OpEx in terms of some of things that we have to do to prep the lines and things like that which these are one, two quarter events, but then you roll into a new portfolio and that gives us a lot of room.

I think for the next couple of quarters we have underpinned cost take-downs that we're confident we can deliver relative to the shift in the portfolio and then after that, we get a whole new product line that's going to help us on both the HDD and the SSD side.

Then I think going forward, while that margin profile feels secure, my point was a little different. It's got to be higher than that though to maintain the level of investments that we need, if the shift to cloud versus client continues at the rate it is. I think that's the challenge for the industry..

Our next question comes from line of Monika Garg with Pacific Crest Securities. Your line is open..

My question is more on the OpEx, if you look the OpEx guidance is on 16% [ph] you talked about related more towards refresh your portfolio and investment in cloud solution segment. So maybe if you look last 7 or 8 quarters, revenue is more like flattish on the quarterly basis.

So maybe could you talk about all the investments we're seeing in the business, when can we see pick up in the top line? And the impact -- basic inflection in the revenue?.

Yes we'll provide another update again, depending on where we're at on the cloud business off the June quarter certainly at the September strategic update. Basically, we're engaged with a few significant opportunities that I think will put us in position of changing that revenue forecast and to-date the growth has been strong.

We're happy with the engagement that we have.

Even just based on what we've done, we would probably be ahead of what we anticipated we were going to be either for Fiscal '15 or Fiscal ‘16, but there are a few opportunities that could change that in a more material way which certainly justify the tiny incremental investment that we're making in the OpEx side.

Increasing the OpEx by $10 million to $15 million to get the type of revenue opportunity that we think is in front of us, we're quite confident is the right thing to do and hopefully we'll have more details on that, again, either off the June call or certainly at the September update..

Our next question comes from the line of Katy Huberty with Morgan Stanley. Your line is open..

Steve, with a consolidated market at inventory levels that has been quite rational the last year or so.

What do you think is driving the pricing behavior? And does it suggest that we need even more consolidation maybe vertical consolidation in the industry? And then secondly, why not buy back more stock in the December quarter given the payment from WD came in early in the quarter?.

Well I think in terms of the consolidation remember in the client space there is still five competitors. So a lot of people forget and I get it because of two of the entities owned by, if you will parent corps. But the reality is given the whole separate agreement that's been dictated by the Chinese government.

There are five competitors in the notebook space and in the desktop space, although Toshiba is maybe not quite as strong there as they are in the notebook space. So, I think until that gets resolved we're going to have this in balance and again it's just an economic dislocation of that. It will adjust one way or the other.

Secondly, I think in the retail space, there has been a battle between two of our competitors that just are refusing at this point to either give up share or not stop trying to gain share, at no matter what cost. We don't quite understand it, but that's okay.

We'll just walk away from business where it doesn't make sense and redeploy our assets in the products where we can make more money. Again, that will end up creating a shortage which then will be self-adjusting somewhere down the stream. In terms of vertical integration in the industry, it's an interesting point.

I don't know that it's necessary from what's happening with pricing, I think the real issue is around continuity of supply under critical key components. And especially again those components that aren't gaining the value that we gain at the drive level of the shift to the high end.

It's more heads and discs, that's our two most expensive areas for capital and R&D, if you take them together.

So we get the absorption we need with that shift, but if you're just selling just one part per device, it's a tough world when TAM is not growing and so that creates stresses on the supply chain that may need to either have tighter relationships in terms of the up and downstream suppliers or I guess theoretically could result in some types of consolidation in spaces that are critical components that either us or our competitors would worry about in terms of continuity of supply.

So more to come I suppose in terms of how does that really play out. In terms of buyback, I think we're still in the position that we were that when we had the last call and the stock was momentarily sub $60, we said at these levels we would be aggressive and that's still our position.

We will buy for anti-dilution and then will be opportunistic about buying below there. So we're thinking our buybacks over this fiscal year, next fiscal year and we want to continue to commit to return capital at the levels that we've indicated.

So I don't think we're going to disappoint anybody on that front either in terms of the buybacks or the dividends or the total amount of capital that gets returned to shareholders and we'll be advantageous where we can. But I think, like we said before below $60 we believe is pretty attractive and then it's just a function of timing..

Our next question comes from the line of Ananda Baruah with Brean Capital. Your line is open..

Steve or Pat, just in the context of the comments around getting the margins up to the 32% to 35% range to support cloud build and customer deployment in the second half of the year.

What are the levers that you envision I guess taking place to create energy in that conversation? Should we have an expectation the margins potentially could go up in the second half of the year? Thanks..

I don't know that we see an adjustment that quick or that it's needed that quick. I think the point is if the shift that's occurred continues at the rate it is then the margins have to adjust.

So I think we believe the industry should be behaving with a better sense of the long-term needs on R&D and capital and what our economic models have to look like to provide that and I think in the last couple of quarters, we haven't done that as well as we should have given the demand profiles.

I think we should certainly be trending that direction as soon as possible, but I don't think that means we get to the endpoint this year. By the way, it also drives revenue growth.

We keep talking about in the context of margin, but the reality is the industry should be exhibiting more revenue growth, given the shift in demand to the higher capacity and more complex devices and we're just not delivering to the extent that we should.

So I would like to hope that certainly for the sake of the long-term health of the industry that we start making those shifts..

Just a quick follow-up for Pat, if I could.

On the OpEx guide, as you guys roll the portfolio over the next couple of quarters, how long should we expect those levels to be the sustained levels for OpEx?.

Well as the model sits today, you would probably see a roll-off coming in the start of fiscal ‘16, but as Steve said we have opportunities in front of us that will continue to course and guide that way, but as we sit here today you should see a roll-off of that starting in fiscal '16..

Think of it this way. We would generally manage our core flat and in the next couple of quarters, there is a slight uptick in core to again prepare some of the things we have to for the roll.

So then we would expect that part of the portfolio to roll back to flat and then obviously, we go for leverage where we can there and that gets back to this dynamic around are we getting paid what we need to invest in the core products? And then we have the adjacencies, whether or not that's the PCI business or the cloud business that carry a different load of expenses, but are also driving a different revenue profile.

I think we all have to work together here over the next few quarters, as we manage the expense side and continue to try and provide you updates on the revenue and then we get more confidence.

At the end of the day, this model could be very different, but it would only be very different if we're generating the revenue growth and ultimately the margin growth that would sustain that type of OpEx increase. Right now we're feeling pretty confident about that.

So we want to make sure we continue the investments that Jamie needs for his business particular building the go-to-market capabilities, as well as some of the technical capabilities that are being put it front of us by a wide variety of customers whether they be OEM or end user or startups..

Our final question comes from the line of Sherri Scribner with Deutsche Bank. Your line is open..

I just wanted to ask you Steve, to remind us what your Exabyte growth expectations are for the business and thinking about the cloud Nearline Drives becoming stronger as we move through the year.

How do you see that playing out in terms of year-over-year growth?.

Obviously, exabyte growth on the consumer side is really high too. So depending on even the client products if you’re looking at a certain segment in the consumer area that's a lot of 2 terabyte drives get eaten up there and 3s and 4s for some of the consumer at-home applications.

So I don't want to not talk about desktop because it does drive a lot of high-capacity devices and in fact a lot of high-capacity devices. In the cloud, there seems to be 4s will be the predominant capacity I would think.

For the leading-edge companies, there is still a lot of 1s, 2s and 3s that are sold in the generation of cloud companies behind them whether or not those are private clouds or public and then the leading-edge ones are transitioning pretty quick to 6 and like I said, if we can make 8s and 10s, I'm sure they would take them.

I look at it more, is where is the exabyte growth overall relative to areal density growth? And then also thinking about it in terms of absorption of heads and disc channel capabilities and test and all of those measures are still moving in a way that says we're constrained.

Whether or not you think of it as heads and discs or test time or lead times or complexity channel or exabyte growth relative to areal density growth, they're all ahead of areal density growth that the industry can provide right now. So I think that's the dynamic we think about long-term..

Okay. Can I just ask quickly, I know we've talked about it a little bit but the TAM guidance was down 7% Q-over-Q after a pretty soft December quarter based on typical seasonality, it seems kind of high to me. We haven't seen that kind of decline since 2009. Just trying to understand what you're seeing that make you so cautious. Thanks..

We didn't say 7%, we kind of said, we think 135 million units. I had to rewrite that sentence. Sorry, I garbled it. We don't really know where December came in, is the issue and of course being the first reporter, it could be a 142 million units, it could be a 144 million units. Maybe when the dust settles in a couple of week, we'll know really.

But depending on that range and depending on what your expectation is for TAM next quarter, it kind of talks to 5% to 7%, I'm not going to debate that and that's kind of where we think. I think part of it is just again the momentum.

December is always a tricky quarter because sometimes the momentum accelerates and sometimes it decreases and then sometimes that impacts what happens in the March quarter and sometimes it doesn't. So it definitely slowed down on the client side in December, that has us cautious and frankly the issues around currency and what's going on in Europe.

I just think it's wiser to aim for the lower TAM and we can obviously leverage up a couple of million units pretty easily as an industry versus over-producing.

And again, I have to look at the Intel midpoint and that's a company that doesn't have a lot of price pressure and they kind of guided down 7% on the midpoint of the range, so we have to take that as input as well..

All right, everybody thanks very much. Sorry we went over here a little bit and we look forward to seeing you next quarter..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day..