Greg Klaben - Vice President of Investor Relations S. Kenneth Kannappan - Chief Executive Officer, President and Executive Director Pamela J. Strayer - Acting Chief Executive Officer, Chief Financial Officer and Senior Vice President.

David M. King - Roth Capital Partners, LLC, Research Division Gregory Burns - Sidoti & Company, LLC Michael Latimore - Northland Capital Markets, Research Division Daniel Toomey Rohit N. Chopra - Wedbush Securities Inc., Research Division Josh Goldberg - G2 Investment Partners Management LLC.

Good afternoon, my name is Lucy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plantronics Quarter 1 Fiscal Year 2014 Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Mr. Greg Klaben. You may begin your conference..

Thanks, Lucy. Good afternoon, and thanks for joining us today. Welcome to Plantronics' Call for the First Quarter of Fiscal Year 2014. Joining me today are Ken Kannappan, Plantronics' President and CEO, who's on a temporary medical leave of absence; and Pam Strayer, acting CEO, Senior Vice President and CFO.

I'd like to remind you that during the course of today's conference call, we may make certain forward-looking statements that are subject to risks and uncertainties as outlined in today's press release. As we've highlighted before, the risk factors in our press release and SEC filings are not standard boilerplate.

We update these risk factors quarterly for material changes, adding and dropping language and changing the order depending upon our assessment of the timing and potential impact of risks.

We believe forecasting our results of operations is difficult, and we ask you to focus particular attention on these risk factors that could cause actual results to differ materially from our current expectations. For further information, please refer to our Forms 10-Q, 10-K, today's press release and other SEC filings.

For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income and EPS. We've reconciled these measures on -- in our earnings press release and in our quarterly analyst metric sheet, both of which are available on the Investor Relations page of our website.

Unless stated otherwise, all comparisons of the first quarter fiscal 2014 financial results are up to the same quarter in the prior fiscal year. Plantronics' first quarter fiscal 2014 net revenues were $202.8 million compared with guidance provided on May 7 of $198 million to $205 million.

GAAP's diluted -- Plantronics' GAAP diluted earnings per share was $0.62 compared with $0.55 in the same quarter of the prior year. Non-GAAP diluted earnings per share for the first quarter was $0.70 compared with $0.63 in the prior year quarter.

The difference between GAAP and non-GAAP EPS for the first quarter fiscal 2014 consists of charges for stock-based compensation, early exit lease termination, accelerated depreciation, amortization of purchased intangible assets and restructuring other related charges all net of the associated tax impact, as well as the tax benefits from the expiration of certain statutes of limitations and other tax benefits that are not reflective of ongoing operations.

Please refer to the full reconciliation of GAAP to non-GAAP in our earnings press release. With that, I'll turn the call over to Ken..

Thank you, Greg. I'm very happy to be on the call with you today. My treatments are going well, and the doctors believe my recovery is on track. The difference you can hear in my voice is not a reflection of cancer, but rather, a side effect of the treatments and will improve.

I remain actively involved in the management of the company to the extent I've been able. We will be able to communicate more about my return to full-time work following the results of diagnostic tests towards the end of September. The team has been quite busy during my leave, delivering steady results and showing wonderful progress in all fronts.

I'm excited to share the financial highlights of our first quarter. We continue to evolve our UC ecosystem and strengthen our position to take advantage of the growing market with our innovations and contextual intelligence.

Our first quarter fiscal 2014 revenues and earnings per share met our expectations as result of improved economic conditions in the U.S. and a mostly stable economic environment in the rest of the world.

We achieved record Office & Contact Center revenues, highlighted by UC revenues growing 51% to a quarterly revenue record of $42.1 million, which represented 28% of our OCC revenues. OCC revenues, excluding UC, or as we refer to it, core OCC revenues, grew year-over-year for the second consecutive quarter.

We believe the growth in core OCC is attributable to a favorable timing during the quarter. This is only our second quarter of year-over-year core OCC growth. It remains unclear if this will continue as a trend. We remain optimistic that business conditions in the U.S.

will remain favorable in Q2, however we anticipate the core OCC revenues will be down in the September quarter, given the favorable timing we experienced in Q1. We believe our product set -- feature set and innovation advances are allowing our OCC product category to realize stable margins and ASPs.

This is also true in a very competitive UC market, where we continue to benefit from a price premium through product differentiation. We expect continued strong growth in UC in fiscal 2014 and believe that the majority of the UC market opportunity is still to come.

As we reviewed last quarter, we expect the average CAGR for UC revenues is roughly 40% over the next 5 years with growth slower in the earlier portion of this timeframe. While we exceeded this growth rate in Q1, we've refrained from making quarterly forecast for UC.

The UC market is still in its nascent stage, susceptible to uneven growth quarter-to-quarter, making it challenging to forecast. In the Mobile product group, revenues grew 15% year-over-year as we saw a continued but diminished lift from the hands-free driving law in China.

Additionally, our 4 flagship Voyager Legend Bluetooth headset continues to enjoy global success. We recently announced an update for the stereo wireless category with our BackBeat GO 2, which is receiving great reviews.

It provides improved sound and new power management features including DeepSleep technology, allowing the earbuds to keep it charged for up to 6 months. It also comes with a charging case that, when fully charged, can triple the battery life while concurrently providing users with safe and convenient storage.

Additionally, we added voice prompts, popular in some of our other products, to alert users the amount of battery life remaining and to which external device it is paired. We continue to invest in our UC ecosystem to improve the contextual intelligence we provide to our UC partners.

This ecosystem consist of hardware and tools for developers and integrators. The platform for development is our headset, whose features and capabilities allow for functions significantly exceeding conventional communications as a result of our open APIs and Spokes software.

Our strategy is to connect our devices to applications, platforms in the cloud to make our devices indispensable for users, simplifying everyday activities to increase productivity. The Voyager Legend platform is the starting point for our investment in advanced headset capabilities, and we're exploring the potential for other form factors as well.

This platform has crossover success from the consumer market to the UC market. It started with the prerequisite for headset success, superb audio quality. We then built on that core capability with sensors to capture user information and provide a development platform for our partners and developers upon which they could create custom applications.

In Q1, we made strides in harnessing and delivering contextual intelligence to improve the offerings of our UC partners. At Cisco Live, we demonstrated new proximity features of the Voyager Legend and how it is uniquely integrated with the new Cisco DX650 desktop IP phone with HD video.

One feature we exhibit was Smart Lock, the ability of our headset to utilize proximity information and voice authentication to lock and unlock the new Cisco phone. We also demonstrated our Smart Transfer feature, allowing users to seemly transfer mobile caller ID from your mobile handset to the DX650.

At the Wearable Tech Expo, we unveiled a new concept device based on the Voyager Legend, which integrates sensors, such as a gyroscope, a compass and a pedometer, which will allow us to track head orientation in 3 dimensions. Our demonstrated integration of this with Google Street View earned us an award for Best Application at the event.

We believe there is potential for a multitude of applications through such real-time device orientation data streams, including head gesturing that can provide instructions to an application, such as answering a call, advanced gaming functions, real-time navigation, for instances, when GPS isn't available, and a pedometer for health tracking.

While the term is relatively new, we've been building wearable technology since our inception. Over the years, we have broadened our scope and introduced a number of new technologies that position us as a leader in this space. Our goal is to provide relevant information about a personal and physical world into applications.

This marks a dramatic shift from decades of working with closed telephony systems and then serving as a catalyst for increased innovation.

We continue to aim for a balance between the right level of investment in UC and ongoing innovation activities while maintaining non-GAAP operating margins of 20% to 23%, and we expect to achieve this range in fiscal 2014. At Plantronics, we take pride in utilizing the full potential of UC to enhance our workplace and corporate culture.

Besides the upgrades to our facilities and Smarter Working environment, our aim is to empower our associates or, as we put it in one of our fiscal year 2014 goals, optimize the culture. Our unique culture is gaining a global reputation for excellence.

We were recently recognized by WorkplaceDynamics as one of the top 20 best places to work in the San Francisco Bay Area. Similarly, for the third consecutive year, we've been recognized as the best place to work in Mexico.

We continue to attract world-class talent of all levels, which is crucial to our ability to adapt and grow for the upcoming UC opportunity. Other goals for fiscal year 2014 are to deliver profitable growth, extend our brand, expand consumer reach and scale for growth.

We believe achievement of these goals will allow us to continue to increase long-term stockholder value and cash flow generation. On behalf of everyone at Plantronics, I want to thank you for your continued support.

We're very excited about our upcoming product introductions in all of our product groups and sharing further innovations and contextual intelligence with you. With that, I'd like to turn the call over to Pam to discuss our first quarter results in more detail..

Thanks, Ken. I want to start with an overview before getting into more details the financial results for the quarter. First quarter net revenues were approximately $203 million, representing 12% growth over the prior year. Non-GAAP operating income of $42.4 million is an increase of $5.5 million or 15% versus a year ago.

Non-GAAP EPS of $0.70 is $0.07 higher, an increase of 11%. As Ken had said, we're very pleased with this quarter's results, we had record-high revenues in the Americas region and strong growth in UC, both of which were driven primarily by growth in the U.S. Our revenues in the U.S.

did benefit this quarter from a handful of large deals, more than we typically see in a single quarter. A quick note on gross margins before I get into revenue detail. Our gross margins in the first quarter were 52.6%, a decline from 54.3% in the prior year.

We're seeing the impact this quarter as UC product mix has grown to a record 28% of OCC revenues. Now I'll cover revenue in more detail. Total net revenues for the first quarter of $202.8 million were up $21.4 million or 12% compared to the first quarter last year.

While all of our regions experienced growth, the revenue strength in Q1 was driven primarily by the U.S., which grew 17% overall. The following are key product line comparisons to Q1 last year. OCC net revenues of $151.2 million were up roughly $17.2 million and 13%.

Net revenues from OCC products had good growth in the Americas, but were relatively flat in the rest of the world. UC was the major driver of OCC growth, up roughly $14 million and 51% over Q1 of the prior year with strong double-digit growth in both the Americas and our Europe and Africa region.

Revenue from core OCC products also grew by about 3% on strength in our CS500 family of products. Net revenues from Mobile products were up roughly $5 million and 15% compared to a year ago. This makes Mobile revenues roughly 20% of our total revenues, consistent with Q1 of last year.

Mobile revenues were down as we expected from the peak in Q4 when we saw significant benefit from China's hands-free law, and we expect the current sales rate in China to be similar to this level going forward. Non-GAAP gross margins was down 170 basis points compared to Q1 of the prior year.

Product mix was a significant factor, as I discussed earlier. In the June quarter, UC was 28% of total OCC, up from 21% in Q1 of last year. In addition to the mix change, we recorded approximately $1.8 million in excess and obsolete inventory this quarter, which is significantly higher than what we recorded in Q1 of the prior year.

Non-GAAP operating expenses were $64.2 million in the first quarter, up $2.7 million or 4% versus the prior Q1 and dropping from 33.9% of net revenues a year ago to 31.7% in the quarter just ended.

The major drivers of the $2.7 million increase were headcount associated with R&D investments and the expansion of our sales and marketing capabilities around the world. Our non-GAAP operating margin was 20.9%, 60 basis points higher than in Q1 last year on lower gross margins. Our effective non-GAAP tax rate for the quarter was 27%.

As a result of all of these items, our Q1 non-GAAP net income of $30.6 million was 14% higher than a year ago, yielding non-GAAP EPS of $0.70, up $0.07 from last year's Q1 results. Now turning to the balance sheet and cash flow highlights.

We finished the quarter with $444 million in cash and investments on our balance sheet and generated over $34 million in cash flow from operations during that period. Of the $444 million in cash and investments at quarter end, $41 million was domestic. DSO was flat at 54 days compared to Q1 of the prior year.

Net inventories were up $6.4 million versus a year ago and down about $2 million from March at $65.3 million. Inventory turns were up to 6.0 compared to 5.7 in Q1 of last year. Turning to our capital expenditures. Our Q1 investment was $13 million or 6.4% of net revenues.

Approximately half of that investment relates to our new building in Tijuana, Mexico. Depreciation expense on a GAAP basis for Q1 was $4 million and was only slightly higher than in the first quarter of last year.

During July, we completed the move of our manufacturing operations into the new building, and I'm happy to say it was a smooth process with no impact to our customers. Turning to the outlook. There continues to be mixed economic news. The economic environment remains uncertain in Europe while the tone in the U.S. is cautiously optimistic.

Our second quarter is typically characterized by a slow start with low bookings in July and early August with an expected pickup by September, when people return from summer vacations. As a result, we typically experience a small seasonal decline in Q2 compared to Q1.

Although we remain very optimistic for the full fiscal year and beyond and we continue to see UC adoption grow, typical seasonality, in addition to the handful of large transactions we booked in the first quarter that are not likely to recur in Q2, are resulting in the expectation of a new decrease in Q2 from Q1.

We believe total net revenues for our second fiscal quarter ending in September will be in the range of $192 million to $200 million. This forecast assumes similar growth margins as we experienced this quarter. Depending on revenue mix and other factors, we believe non-GAAP operating income will be approximately $36 million to $40 million.

Based on all the above, we currently expect non-GAAP EPS to be $0.62 to $0.68 on average diluted share outstanding of approximately 44.1 million.

The GAAP reconciling items we expect in the coming quarter include approximately $7 million in stock-based comp expense, accelerate depreciation, early exit lease termination charges and amortization of purchased intangible assets. Therefore, we expect GAAP EPS of $0.51 to $0.57 for the September quarter.

With that, I'll turn it back over to the operator for the Q&A..

[Operator Instructions] And your first question come from the line of Dave King with Roth Capital..

I guess first off, just on the gross margin. Pam, in some of your comments -- I'm not sure if I heard it correctly. Did you say there was a write-off of obsolete inventory in the quarter? And maybe -- and I think you said it was higher than last year.

Maybe -- can you quantify to what extent that weighed on the gross margin this quarter, if at all?.

Yes. I think -- so the write-off was $1.8 million this quarter. And in the prior year, I don't remember exactly, but it was below $500,000. So it was pretty low..

Okay, okay, that helps then. And then in terms of the Mexico facility, it sounds like you completed that move in July.

How should we think about that benefiting you guys on the cost front going forward? When should start to take hold, and what do you guys think in terms of potential cost savings there from doing so?.

Yes. So in the past, we have estimated an annualized savings of a couple of million, $2 million to $3 million, and that's still a good estimate. I wouldn't expect to see the savings of that for a full quarter until Q4. We're still consolidating some of the buildings. We still have some operating expenses for multiple buildings.

So -- and we're still installing solar panels. So that's going to take a little while. We'll see about that..

That helps. And then, Ken, maybe -- or Pam, the -- just more of a general question kind of away from UC. Just to -- I don't know if we've focused on this as much recently.

But just in terms of the Gaming business and the Clarity business, can you guys talk about some of the initiatives you guys have there? Maybe talk about some of the -- I think there was a revenue decline in the Clarity business, for example, this quarter.

Maybe just talk, generally, about how you guys are thinking about those businesses in the overall scheme of things at this point? And what, if any, investments you're making there at all and just how you think about the prioritization versus some of your other businesses?.

Sure. First, let me just hit the Clarity business very quickly. Of course, it's been very hard hit because it is a business that, although it serves a very favorable demographic market, which are people with hearing impairments and with the aging of society, it's basically a growing demographic.

The -- many of the products are distributed for free by state programs, and that funding has been clearly severely impacted. And then particularly, a couple of the programs, they also did some restructuring some of their business activities that bit -- created a bit of a hold in the market.

We've come out with some great product innovations there though, that are very exciting in terms of taking advantage of some of the new platforms that are available for people on tablets and other technologies.

So we feel very, very good about the business and its long-term demographic appeal, even though it is going through a rough patch at the moment. And we continue to be the leaders in that market, although the market is certainly depressed for now. But we do view it as one with good, profitable, long-term growth potential.

Relative to the gaming market, we are very, very pleased with the position that we're in. We had a partnership with the League of Legends people. We've got some new products that we're getting ready to launch.

We see there's a market that has got excellent growth potential and one that is -- at the end of the day, for the high-performance gamer, they're interested in winning, and we can provide the best products. And therefore, we think that we have some tremendous strategic fits with that market.

I don't want to kid you, our priority remains UC, and after that, it remains OCC. But having said that, we think we have enough room to fund these and to sustain these investments as well..

And your next question come from the line of Greg Burns with Sidoti & Company..

Just another question about the gross margin. I guess, Pam, you mentioned the mix of UC impacting the gross margin. But within UC, what are you seeing? I know historically, you've talked about seeing higher gross margins than you would expect over the long term.

Can you just give us some more color on what's going on within UC itself in terms of the gross margins you're seeing?.

Sure. So in -- within UC, our ASPs and our gross margins are holding up very well. We haven't seen any significant changes there at all. And consistent with what we've said, our long-term model assumes UC becomes a larger portion, and the 50% to 52% is what our UC products will support.

So our standard margins or our product margins there, we're not forecasting for those to change dramatically. It's just going to be a larger portion of our total revenue..

Okay. And with the -- I guess a few larger than expected orders hitting this quarter in OCC. At least, by my model, it's looks like the Mobile segment came in a little under what we were looking for.

Now did the China fall off a little more than expected? Could you just give us any color on what's happening in China?.

Actually, we weren't 100% sure what to expect in China. The fact is that what we have experienced with hands-free laws, we did not have experience in a country of the nature of China, and we were not sure the degree to which, in a slightly less developed country, we would see -- how we would see the pattern of revenues.

In fact, it wound up following the developed country model. And so actually, it was very close to what we have actually expected would occur in China. But we weren't 100% confident with the forecast we have..

And your next question come from the line of Mike Latimore with Northland Capital..

The -- did you comment on, generally, what you expect the Mobile business to do in the September quarter? I thought you said something, but I might have missed that. Just from a general kind of sequential trend..

Yes. So we don't provide forecast at that level, by product category. But generally, I think what I had said -- what I was talking about was seasonality overall in total revenues, in that we typically see some decrease in revenues from Q1 to Q2. And I think Mobile follows that seasonality as well..

Okay. And then are you seeing either in -- actually, in Europe, in particular, but maybe U.S.

as well, just kind of a refresh cycle in some of the traditional product areas? Meaning, just employees being allowed to buy, upgrade traditional headsets, non-UC?.

We had a little bit of that helping us and, as we said in the last quarter, where there was a little bit of pent-up demand and some budgets allowed people to do that. I think that having said that, in general, that business remains more steady than volatile..

I got it. And then any view as to the federal budget sequester impact or furloughs? How do you view that impacting, particularly, the U.S.

market, I guess?.

Sure. We still think that's something to worry about. But having said that, we don't actually believe at this point in time, it's likely to affect our September quarter. It seems at this point in time, we're only less than 2 months that are left, that very little is really likely to have an impact.

But I think beyond that point in time, there's still a significant risk that the sequester will affect some of the defense prime contractors, as well as some federal government expenditures..

And just last, the -- how many salespeople are you adding this fiscal year?.

Well, we're adding sales headcount globally. I don't have the exact number in front of me. We'd get back to you on that..

It did -- it's also dependent on revenue growth. We did highlight in the call that we're targeting that target operating margin range of 20%, 23%. So it's somewhat dependent on that..

Your next question comes from the line of Daniel Toomey with Raymond James..

Most of it has been covered so far, but I guess if you could just give a little more color on the large onetime orders and if you have any sort of visibility on any of those in future quarters..

Sure. We always get a certain amount of onetime deals, and it was just a quarter that was a little bit stronger, in that, again, I think there was a little bit of pent-up demand. It wasn't all end market orders.

It was also some that was just timing from the standpoint of the channel, not that the channel inventories were up, but just there was a little bit there. So between the 2 of it, it just wound up being a quarter that was a little bit better than normal from the standpoint of larger types of buys..

Okay.

And as far as your guidance goes, is next quarter's operating expenses going to be roughly in line with the current -- recent quarter, or are there any changes going on there?.

There will be an uptick in operating expenses that's built into our guidance. There's a couple of things going on there. We continue to invest heavily in sales and marketing, but Q2 is also our first quarter where we've got full quarter of merit salary increases for our staff. So there's items like that that's going to increase OpEx..

And your next question comes from the line of Rohit Chopra with Wedbush..

Ken, I hope you're going to be well soon. I had 3 questions. I just want to come back to large deals.

We -- I know you didn't mention this, but are these related to the new Microsoft Lync released in first quarter? Anything coming out of that? Any growth?.

No. Actually, related to other things. And one of them related to a product that we launched, and there was some pent-up demand for that. Some of it just related, as I said, I think to some pent-up upgrades, actually, some of that being, again, in the core OCC legacy, things where people got budgets and just went ahead with existing upgrades.

We obviously had a good quarter for UC, but that's not as much of the -- at some of the large deals, but it's not as much as the change in the large deals..

Right. And so is Lync becoming a contributor? Do you see that in your pipeline with the new....

Absolutely. Lync has been a big contributor in the UC growth. It's been a big contributor. But we were talking about the change in the large deal part..

Yes. And then there was something else you mentioned, and you talked about wearable technology. And I know you guys put out a press release on this, but it's been something big.

Should we think about the company strategically moving into or further into that direction related to, say, biometrics, where you would compete with, say, Fitbit, Jawbone, Nike.

Is that an area that you're looking to get into?.

Well, it depends how you phrase it. Yes, we absolutely believe that biometric is -- can be part of the information that we intelligently provide. Is the goal to compete with Fitbit or Nike? Not necessarily.

Perhaps we would look at it as being something where we should be complementary to the things that people want to have and the things that we can provide..

okay. My last question, Pam, this just comes back to you. I know you don't do this by category, but I'm just trying to get the implication here with the guidance.

Does that mean that UC is actually flat, or do you still expect UC to grow sequentially next quarter?.

Yes. Well, that's hard to say. let's say even worst case, if UC was flat, it would still represent 40% year-over-year growth rate for the quarter. So not a bad result. But yes, it's hard to know how the revenues are going to fall between our different product category..

And your final question come from the line of Josh Goldberg with G2 Investment Partners..

Ken, glad you're feeling better. Just a couple of quick questions. First, I guess, as you go back almost 3 or 4 quarters now, you've been near the high end of your original guidance range. This quarter, you came in more in the middle of the range.

Can you just tell me, kind of in terms of the puts and takes, what came in sort of less than what you expected? It sounds like UC was better. Where kind of did you see some pockets of weakness? And I have a follow-up..

Well, first of all, it's -- probably seems to you like we have a really wide target. To us, it seems like a really narrow target, where it's $7 million and we're predicting pretty far in advance. And $203 million or something like that when the range was $198 million to $205 million, to us, it's really pretty close there.

We certainly had potential in the higher numbers that we would see less falloffs in the China number for Mobile, because we weren't really sure what kind of pattern we would see with that. But there are other variables, too. Certain regions, globally, India and Japan have gotten a little bit weaker. There's been some volatility.

But having said that, again, there's also been strong areas. So to me, that variation is pretty small for us predicting it, at least, in our minds, for a quarter result..

Okay. And then just to follow up. I mean, obviously, without the inventory reserve in your gross margin, your gross margins moving closer to 53%, a little over 53% and you're guiding next quarter to be roughly the same number on gross margin percentage.

I'm just wondering why that would be the case with, obviously, Mobile being lower again this following quarter. Your higher-margin businesses should be a bigger part of the mix.

What -- where are we missing that would cause your margins to be roughly in line with this quarter, with the inventory being less of an issue and Mobile being less of an issue?.

Well, I am including a conservative estimate in there for more E&O charges going forward. As our -- as we continue to innovate in our products and our product life cycle shorten, forecasting that demand and managing those product transitions are becoming very challenging for us. It's an area that we're working on.

But I just included conservative E&O numbers there. So overall, it's -- and by product mix, I mean, it's hard to know. Our gross margins change a lot based on what our product mix comes in at. But it's primarily E&O for next quarter..

Can you give us a rough sense of how much you're expecting that to be next quarter? So that way, we realize how much it's going to affect you. I mean, you called out a $1.8 million this quarter..

Yes. I don't think I'd want to try and guess at that number. I don't -- yes, I don't want to forecast. I don't make a habit to forecast that number..

Okay.

And in terms of the tax rate, is it still going to stay around 27%?.

Yes. That's our current estimate for the full year..

I guess the last question -- obviously, your cash balance continues to grow nicely, over $100 million in the last four quarters. Can you give -- I know you bought back some stock this quarter.

Can you give us any other color on your cash balance at this point?.

Yes. So we are continuing to repurchase shares with that cash. And in the last quarter, we repurchased over 300,000 shares and spent $11 million on share repurchases. And we'll continue a similar approach going forward, as well as returning cash to shareholders through our dividend, which we've been doing for some time now..

We now have a follow-up question from the line of David King..

Actually, my follow-ups just got asked and answered on gross margin and cash..

We have no further questions at this time..

Okay. Thanks very much for joining us, everyone. And if you have any follow-up questions, you can reach Pam and myself after today's call..

This concludes today's conference call. You may now disconnect..