Gileon, You are so totally wrong and here is the proof.
USA Technologies' (USAT) CEO Steve Herbert on Q4 2014 Results - Earnings Call Transcript
Sep. 23, 2014 1:54 PM ET | 1 comment | About: USA Technologies, Inc. (USAT)
See red further below for your answer. Does your wife beat you this easily too.
Gileon, You REALLY don't get it. As mobile becomes more popular, more people will opt to use it and they spend more. Mobile beats cash by about 1/3.
"It would be very neat if you were the one to find it and post it for me. I would really respect that." I did this for you. Now you can apologize for being in the dark on this fact, respect me for doing your work, and leave personal insults out of our conversation.
Steve Herbert - Chairman and Chief Executive Officer
Dave DeMedio - Chief Financial Officer
Analysts
Mike Latimore - Northland Capital
Bill Sutherland - Emerging Growth Equities
Operator
Good day ladies and gentlemen and welcome to the USA Technologies’ Fourth Quarter and Fiscal Year End 2014 Earnings Conference Call. (Operator Instructions) Please note today’s conference is being recorded.
I would now like to hand the conference over to Stephanie Prince from LHA. Please go ahead.
Stephanie Prince - LHA Thank you, Karen and good morning everyone. This is Stephanie Prince from LHA and welcome to the USA Technologies’ fourth quarter and year end fiscal 2014 earnings conference call.
With me on the call this morning is Steve Herbert, Chairman and Chief Executive Officer of USA Technologies and Dave DeMedio, Chief Financial Officer.
Before beginning today’s call, I would like to remind everyone that all statements, included in this call, other than statements of historical fact are forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to business, financial market and economic conditions. A detailed discussion of the risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.
Listeners are cautioned not to place undue reliance on any such forward-looking statements which reflect management’s view only as of the date they are made. USA Technologies undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for understanding our operations. These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures, such as net income or loss. Details of these items and a reconciliation of these non-GAAP financial measures to GAAP financial measures can be found in our press release issued this morning and on the Investor Relations page of our website usatech.com.
I’d now like to turn the call over to Steve Herbert. Steve?
Steve Herbert - Chairman and Chief Executive Officer Thank you, Stephanie and good morning everyone. I will begin today’s call with a review of the accomplishments we achieved in fiscal 2014 and our progress toward achieving our long term goals, before discussing our operational plans for fiscal 2015. I will then turn the call over to Dave to review our financial results for the fourth quarter and our guidance for fiscal 2015.
USA Technologies made significant progress in fiscal 2014, ending the year with record new connection growth in the fourth quarter. We increased gross connections in fiscal ’14 by record numbers, adding 76,000 new connections equal to 41% year-over-year growth. 84% of these gross new connections went into our existing customer base. New connections increased each quarter setting records in both the third and fourth quarters, reaching 25,000 gross new connections in the fourth quarter.
At June 30, we closed fiscal 2014 with a new record of 266,000 connections to the ePort Connect service. We had anticipated stronger results for the fourth quarter and fiscal 2014, but the system integration for our most recent taxi partnerships is taking a bit longer than expected. As a result, revenue growth for the year came in slightly below our forecast of 20% to 23%. We now expect the integration work to be completed in the second quarter of fiscal ‘15 and to begin generating revenue from this effort in fiscal 2015.
Turning back to fiscal 2014 results. We achieved record connections by delivering value to our customers, leveraging key partner relationships and continuing to invest in our business with aggressive marketing programs. These programs were designed to promote greater allegiance among our existing customers, expand connections per customer and to sustain our lead over the competition.
We increased our customer count by 45% for the year, adding 2250 new customers and ending the year with 7300 total customers on our ePort Connect service. We had great success with our SMB or small to medium business sales initiatives. SMB accounted for 16% of our sales mix in fiscal ‘14 and we expect this contribution to increase going forward.
Costs of customer acquisition through this channel are low and we are continuing to expand this part of our sales team. For the full year, we handled nearly 170 million transactions equal to approximately $300 million, a 34% year-over-year increase.
Transaction value per connection has been increasing, demonstrating the increased volume that cashless payment generates. We believe that this has led to increased customer satisfaction and stickiness of our customer relationships.
In the fourth quarter, we handled 47 million small ticket unattended retail transactions, a 29% year-over-year increase. On a dollar basis, transaction volume totaled nearly $83 million, a 32% increase.
To broaden adoption of our ePort Connect solutions, extend our sales reach beyond vending into adjacent markets and remain innovative in our service offerings, we continued to leverage existing partnerships and signed new partnerships during the year with OEMs and other distribution and technology partners.
We’ve also been adding partners in mobile to fill out our service offerings. In the fourth quarter, we signed a strategic alliance with BYNDL, a provider of mobile marketing and support services for unattended retail. The BYNDL system delivers innovative offerings to consumers via mobile devices, collects data for data analytics and based upon these analyses, targets demand creations and loyalty programs, coupons and location-based offers.
One of our goals as a market leader is to stay ahead of the curve in introducing new value-added services. During fiscal 2014, we introduced and rolled out our MORE loyalty program with the fifth purchase free reward. We leveraged this capability to enable our partner Softcard’s mobile payment and loyalty program at 85,000 of our NFC-enabled locations nationwide. Softcard, one of our strategic partners and a joint venture among AT&T, T-Mobile and Verizon was formally known as Isis.
Our experience with about a half million Softcard mobile payment transactions, representing nearly of 100,000 reward purchases earned under the Fifth Purchase Free program -- in locations where mobile payment is available, average cashless, particularly mobile cashless transactions are significantly higher than cash and mobile payment transactions are also higher than standard credit/debit cashless payment transactions, validating one of our main selling points to our customers. For example, based on our experience with mobile payments thus far, the average ticket for mobile payment purchases in our customer locations is approximately $1.70 compared to an average cash purchase of $1.16 and an average credit/debit card purchase of $1.53.
We also introduced and rolled out our integrated payment services, which is opening additional avenues of growth such as micro-markets and dining services. This service integrates payments across our customers’ multiple point-of-sale locations, helping them to drive topline growth and participation.
Unlike our competitors, USA Technologies delivers a solution for each of these applications in one streamlined end-to-end solution, which gives us the significant competitive advantage. For example, in partnership with one of our customers, a vending operator, we are rolling out integrated payment services and our MORE loyalty program to the corporate headquarters of Sikorsky Aircraft. This solution allows us customer to drive efficiencies by combining cashless payments in their micro markets, dining and vending locations operated at Sikorsky into a single solution.
So not only is this integrated service highly efficient for our customers, enabling them, among other things, to account for and settle all cash and cashless transactions through our USALive reporting portal but at Sikorsky, it enables them to deliver the convenience of cashless payment at various types of locations, combined with our MORE loyalty program which spurs increased purchases and increased employee satisfaction through customer outreach loyalty rewards and cross-promotional opportunities.
In the fourth quarter, we introduced ePort Online, which expands the capabilities of our integrated payment services further by giving customers a convenient way to accept credit and debit payments for goods and services online from any computer or mobile device and to retain secure encrypted customer account information for scheduled and subscription payment. In less than one month, we signed up over 800 of our existing customers for this new service.
We are, of course, excited about the potential for ApplePay. Apple’s NFC based mobile payment system that is launching in several weeks is expected to galvanize consumer awareness of NFC-based mobile payments. Simply put, we think ApplePay marks a tectonic shift in our industry. Apple has built a strong foundation by partnering with the largest banks, payment processors and retailers to ensure buy-in from many of the key participants in the payments ecosystem.
We are going to accept ApplePay at our growing base of NFC-enabled locations. Since we currently have what we believe is the largest NFC-enabled footprint in the US payment industry with 150,000 locations, representing 70% of our installed base, we believe ApplePay would help validate and further fuel adoption of our services. And through our experience working with Softcard for the past three years, including driving adoption of mobile payments at 85,000 of our NFC-enabled locations nationwide for the past year, we believe we’re ahead of the curve in understanding the requirements and opportunities of wide scale implementation and adoption of NFC-based mobile payment and associated marketing programs such as loyalty.
Just yesterday, we announced an NFC-based mobile payment and loyalty program for the commercial laundry market in conjunction with our strategic partner Setomatic Systems. Setomatic expects that by the end of 2015, more than 25 of their SpyderWash Elite laundry locations supported by our ePort Connect service will support NFC-based mobile payments. We believe that like ApplePay, Setomatic’s use of NFC can only help propel growth for our services.
We're also nearing the completion of our integration work with our taxi partners which we expect to be completed in the second quarter. Once completed, we expect to have in place a strong foundation for growth in the taxi industry. With our ePort GO offering that was introduced last year and designed specifically for the $11 billion taxi industry and the partnership with Verizon’s wireless team to help drive sales, we anticipate capitalizing on this opportunity more fully in fiscal 2015.
At 266,000 connections to our service, we are now more than halfway to our three year goal of 500,000 connections to our service. For fiscal 2015, our growth strategy is centered around further advancement toward these goals by continuing to increase the number of new connections to our ePort Connect service, deepening penetration of our existing customer base and adding new customers, while continuing to bring new and innovative services to our customers.
We believe that our existing ePort Connect customer base that currently numbers around 7300 customers remains our most fertile sales territory with at least 2.25 million additional estimated locations that remain cash-only and a target for our solution.
In closing, we believe our expanding base of customers and connections represents a broadening adoption of cashless technology in the industries we serve and we see momentum continuing into new fiscal year with a robust pipeline, aggressive marketing initiatives and an important catalyst from ApplePay, we believe that we are well positioned to drive growth and strengthen our leading market position.
I am now going to turn the call over to Dave for comments on our financial results for the fourth quarter and our outlook for fiscal 2015. Dave?
Dave DeMedio - Chief Financial Officer Thank you, Steve. I am going to start by reviewing our fourth quarter results before briefly reviewing the full year and our outlook for fiscal 2015.
For the fourth quarter, total revenue was $11.2 million, an increase of 15.7% compared to $9.7 million in the fourth quarter of fiscal 2013. License and transaction fees were $9.5 million compared to $8.2 million in the year ago quarter, a 15.7% increase. These fees, which are comprised of recurring monthly service fees plus recurring transaction processing fees, accounted for approximately 84% of total revenue for both the current and prior year quarter. Growth was driven by the year-over-year increase in total connections to our ePort Connect service.
Equipment sales were $1.7 million compared to $1.5 million in last year's fourth quarter. Equipment sales benefited from the record number of new connections in the current fiscal quarter compared to last year. Gross connections during the fourth quarter totaled a record 25,000, a 39% increase from Q4 of last year with approximately 86% coming from traditional ePort vending customers and 14% from customers in other vertical markets such as amusement, gaming and laundry. Of the gross connections, 84% came from existing customers.
Net connections for the fourth quarter totaled a record 22,000, a 22% increase from Q4 of last year. The increase in gross and net connections we believe primarily reflects our success in increasing sales from our growing base of customers which grew to 7300 at June 30, an increase of approximately 45% from June 30 a year ago.
Moving down the income statement, gross profit was $3.7 million, even with the year ago quarter. The gross margin was 32.7% compared to 37.9% in the fourth quarter last year. Gross margin on license and transaction fees was 33.1% compared to 37.1% last year. The margin was impacted by the costs associated with connections under our extended grace periods as well as deactivations from one large customer that occurred during the fiscal year.
As you may recall, during the fiscal 2014 year, we offered extended grace periods for new terminal placements. This action had a two-fold impact: One, monthly service fees were delayed, and two, we recorded expense such as depreciation related to those terminals and cost of services. As a result, gross margins on recurring revenues were negatively impacted. However in fiscal 2015 we anticipate recognizing approximately $5.5 million in incremental annual license and transaction fee revenue from the units deployed during fiscal year ‘14 under the grace period program.
Equipment margin was 30.3% compared to 42.2% in the year ago quarter. This decline reflects certain sales incentives and to a lesser extent fewer sales of our higher-margin EnergyMiser equipment.
Operating expenses were $4.2 million in the fourth quarter compared to $3.5 million in the year ago quarter. Approximately $0.3 million of the $0.7 million increase over the fourth quarter a year ago related to the benefit from one-time expense reduction in the year ago quarter such as the reversal of an [indiscernible] expense as well as a contractual third-party reimbursement of certain development costs. The remaining increase of $0.4 million reflects increases of 0.2 million due to increased compensation expense predominantly as a result of an increase in employees, $0.2 million due to sales commission and other performance-based compensation arrangements arising from the record number of gross new connections for the quarter and $0.2 million in increased professional service and other miscellaneous expenses. These increases were offset by a reduction in depreciation and amortization.
For the fourth quarter, adjusted EBITDA was $1.3 million compared to $1.6 million in the comparable period last year. GAAP net income was essentially breakeven at a loss of approximately $39,000 or $0.00 per share. This was a result of a GAAP operating loss for the quarter of approximately $568,000 which was benefited by a reduction of approximately $542,000 in our tax expense provision for fiscal year 2014.
On a non-GAAP basis, net income was a loss of approximately $92,000, or $0.00 per share for the fourth quarter, compared to non-GAAP net income of $160,000, or $0.00 per share same in the same period last year.
For the full fiscal year, revenue was $42.3 million compared to $35.9 million in fiscal 2013, a 17.8% increase. License and transaction fee revenue totaled $35.6 million compared $30 million, an 18.6% increase.
Adjusted EBITDA was $6.5 million compared to $5.8 million last year. GAAP net income was $26.9 million or $0.78 per share compared $0.2 million or $0.01 per share for fiscal 2013. GAAP net income for fiscal 2014 includes $26.7 million or $0.75 per diluted share related to the partial recognition of our deferred tax assets. Non-GAAP net income and after preferred dividends, was $87,000 or $0.00 per diluted share compared to $250,000 or $0.01 per diluted share for fiscal 2013.
You may remember that in our third quarter of fiscal 2014, we recognized a $26.7 million benefit related to an approximate 57% reduction in our income tax valuation allowance. We did this as we expect to utilize this asset to tax protect future taxable earnings that we anticipate generating, having established a track record of GAAP profitability for the past two fiscal years. We will continue to evaluate the need to keep some or all the remaining $22.8 million valuation allowance on our deferred tax assets.
Our cash and cash equivalents at June 30 were $9.1 million, up $6.6 million at March 31, with proceeds from the sale-leaseback agreement contributing $3 million to this increase.
With respect to our capital resources, in addition to the cash on hand, in June 2014 we extended the maturity date on our line of credit with Avidbank till June 21, 2015. In addition, we were successful in expanding the availability on the line from $5 million to 7 million.
Also, in June 2014 we entered into an $8 million sale-leaseback agreement for our ePort devices with Varilease Finance. This transaction allowed us to finance our ePort JumpStart units that we ran to our customers over a long-term period with long term financing. The proceeds from the sale will be used to provide growth working capital. In addition, we are exploring utilizing a portion of these proceeds for other purposes, including the possible purchase of some of our outstanding securities.
We received a cash infusion of $8 million from the sale of approximately 30,000 ePorts, of which $3 million was received during fiscal year 2014 and the remaining $5 million in July 2014 or Q1 of our fiscal year ‘15. There are several impacts from the sale-leaseback transaction to the statement of operations moving forward. Essentially this transaction replaces an asset that we were depreciating the cost of sales with the cash rental expense.
The quarterly cash rent expense is approximately $660,000 which will be reduced by the amortization of deferred gain on the sale or approximately $210,000 per quarter for a net expense recorded of approximately $450,000 per quarter. Because this is a cash expense versus depreciation expense, we will not exclude this expense from the calculation of adjusted EBITDA as we did when we were depreciating the asset prior to the sale-leaseback agreement.
Lastly, the quarterly net rental expense of $450,000 which will be recorded to cost of services is approximately $165,000 greater than the quarterly depreciation previously being recorded, which will have an impact on gross margins from recurring license and transaction fee revenue, as well as net income over the 36 months agreement due to the higher expense.
Looking forward to fiscal 2015, we plan to drive connection growth through our expanding customer base, aggressive marketing programs and strategic partnerships. As Steve previously mentioned, we also expect demand for cashless payment systems to be bolstered by the recent announcement introducing ApplePay, a new NFC enabled mobile payment system.
We expect total revenue to be in the range of $51 million to $53 million for a growth rate of 20% to 26%. License and transaction fee revenue is estimated to grow to $44 million to $47 million for an increase of 24% to 31%. We expect net new connections in the range of 66,000 to 76,000 for an increase of 27% to 46%.
And with respect to profitability, as Steve has mentioned on previous earnings calls, in an environment of accelerating adoption in an emerging market for services such as ours, we're going to remain aggressive in investing on driving connections, penetration and share. We believe it is important to secure these connections and customers now in order to acquire the long-term benefit of recurring revenues and therefore we have made a strategic decision to sacrifice some near-term margin in order to more rapidly scale the business and realize the operating leverage of our business model.
That said, we do expect adjusted EBITDA to increase sequentially throughout fiscal 2015 and we expect to deliver growth in adjusted EBITDA and non-GAAP net income for the full year over fiscal 2014 results.
I would now like to turn the call back over to Steve.
Steve Herbert - Chairman and Chief Executive Officer Thank you, Dave and thank you everyone for joining us this morning. In closing, I just like to remember that we enter our new fiscal year with accelerating momentum for new connections coming off record set in the second half of fiscal ’14.
Other positive factors that we anticipate include our 85% recurring revenue base, the $5.5 million in revenue we expect to record for the year from the expiration of grace periods, our aggressive marketing efforts directed at further penetrating our customer base and the anticipated spur to industry demand from the ApplePay announcement, coupled with our industry-leading NFC experience and near-term increasing opportunities in adjacent verticals such as taxi.
With the achievement of critical mass with 266,000 connections and our growing market opportunity with new and existing customers, we foresee a clear path to the realization of our long-term goals.
We would now like to open up the call for questions. Operator?
Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Mike Latimore from Northland Securities.
Mike Latimore - Northland Capital Just on the delay of 5.5 million that you will recognize this year, that’s completely separate from the taxi revenue, is that right or is there some overlap?
Dave DeMedio - Chief Financial Officer Mike, that’s completely separate from any taxi revenue that we would expect for ’15, that’s just on the ePort terminals that were delayed under the service fee, grace periods.
Mike Latimore - Northland Capital And then with regard to ApplePay, can all your NFC devices in the field sort of immediately accept that or is there something you have to do to be able to accept ApplePay?
Steve Herbert - Chairman and Chief Executive Officer Mike, they – our plan is that they will accept ApplePay. It may require what we call an over the year update to push a piece of software from our server to our devices. But at this point, we are led to believe we are in great shape. So at the most we will have to push from our server to our devices in an automated fashion software update.
Mike Latimore - Northland Capital And just to make the gross margin a little more simple – what do you think the license and transaction gross margin, what kind of range are you thinking for this year?
Dave DeMedio - Chief Financial Officer Mike, the margins for license and transaction fee going into ’15 are going to be impacted by a couple items. Obviously any marketing programs that could be continued into ‘15 as we’re going to remain aggressive in getting connection and customer growth, in addition to sale-leaseback agreement, will impact gross margins to as much as the $165,000 per quarter. And then the mix of new vertical -- revenue from new vertical markets could impact this margin as well. So I think it will - I think margins will be stretched to get back to the 40% range that we were looking at achieving in ’14.
Operator
(Operator Instructions) And we have a follow-up from the line of Mike Latimore from Northland.
Mike Latimore - Northland Capital In terms of the operating expense in the fourth quarter, I know you went through a list but were there any one-time items that don’t repeat after the fourth quarter?
Dave DeMedio - Chief Financial Officer There were, Mike. There’s roughly going to be about $200,000 to $300,000 that we would not expect to come into Q1. Q1 of ’15 is going to be less by several hundred thousand dollars than what we experienced in Q4.
Mike Latimore - Northland Capital And then you may have said this, but what percent of the connections were on JumpStart in the quarter?
Dave DeMedio - Chief Financial Officer For the connections in Q4, they were a significant component of -- close to over 70% of our connection in Q4 were from JumpStart. As I think I’d mentioned in my script part that 86% of our gross connections came from traditional vending customers. So the majority of those connections came from our vending which took a greater reliance on JumpStart program.
Mike Latimore - Northland Capital And then with regard to the Setomatic deal, maybe getting 25,000 connections. How much of that would be incremental – and my recollection was you have several thousand already with them?
Steve Herbert - Chairman and Chief Executive Officer I think Mike, the incremental – and this is their goal, probably somewhere in the neighborhood of 16,000 to 17,000 would be incremental based upon the information that we have.
Mike Latimore - Northland Capital And then just maybe help us think little bit more about EMV, that’s potentially a driver for the US market. How do you view EMV as it relates to your business, your customers’ business, is that impactful, not impactful, how do you think about EMV?
Steve Herbert - Chairman and Chief Executive Officer Certainly for fiscal ’15, we don't see contact EMV being impactful to our business. Because there is also a contactless standard which gets delivered through NFC technology. So when people think about EMV in the industry, they really think of contact EMV. And that's just -- we don't believe that’s something that will overly affect our business. All of that said, if we have customers who want to implement contract EMV, we have a solution for that. So – but we just – we don’t see our customers going in that direction.
Mike Latimore - Northland Capital And then just last, I guess, you have a good connection outlook for the year. I assume it’s second half weighted as usual, no reason to think it’s more linear, anything like that?
Steve Herbert - Chairman and Chief Executive Officer Mike, typically we have seen connection – more of our connections coming in the second half of our fiscal year, January through June. We would anticipate the same thing occurring in fiscal ’15.
Operator
Thank you. And our next question comes from the line of Bill Sutherland from Emerging Growth Equities.
Bill Sutherland - Emerging Growth Equities Hey thanks. Just a couple, Mike kind of covered them all. But the deactivations at this point, is this kind of 2000 to 3000 a quarter, kind of a normal level you think going forward?
Steve Herbert - Chairman and Chief Executive Officer Bill, it’s Steve Herbert by the way. We have about – as of the June 30, end of our fiscal year, we had about 6000 deactivations -- we had about 6000 devices still on CCRs, the Coke bottle [ph] that we are talking about here, we have about 6000 units still on their system. We expect that over the course of the year and in fiscal ’15 they will continue to deactivate their devices, as they kind of go on their own way. But we really don't know how that will get spread out, if that’s what your question was.
Bill Sutherland - Emerging Growth Equities Well, obviously they have been the driving force of all that. But I was just wondering on a normalized basis, you’re going to have a little churn, just people going out of business and so forth. Does that -- about to maybe a 1000 a quarter kind of the normal routine stuff?
Steve Herbert - Chairman and Chief Executive Officer I think that’s probably a fair – that’s a fair estimation. There will be some level of churn and it’s really related more to customers moving things around, maybe deactivating things seasonally. It’s not so much from people walking away from our service. If you were to look at that retention rate, it’s a 99% retention rate. So the 1000 is really related to basically the movement of locations, just a fun fact for everyone. A vending machine moves 10 times in its life. And that’s a lot of locations. So things get moved around a lot and deactivate it, reactivate it and that alone will cause some churn.
Bill Sutherland - Emerging Growth Equities I may have missed this, Steve but did you have any commentary like an update on the integrated payment, the progress with that?
Steve Herbert - Chairman and Chief Executive Officer Well, we did. We actually did talk about that. An update – I know you are familiar since we’ve talked about it, you are familiar with integrated payment and the update was that one of our recent implementations, one of our vending operators was at Sikorsky Aircraft, where in their -- actually Sikorsky headquarters in their micro markets -- on their vending machines and in their dining facilities, we’re providing all of the cashless payment capability. So that the employees can buy in a cashless manner anywhere they want to, within the facility. And in addition to that, the umbrella over the whole thing is the MORE program and the employees get reward with points or whatever it might be. So it not only drives efficiencies for our customer in terms of pulling up all the funds from one place and one supplier like us. But in the case of Sikorsky, they are driving additional sales, they are driving employee satisfaction. So it’s kind of a real life example of how we and our customer have been able to leverage integrated payment as a point of difference.
Bill Sutherland - Emerging Growth Equities And then – thanks for that – Dave, I know you gave color on kind of how to think about gross margins this fiscal year. But just to add to that, should we look for some sequential improvement in the course of the year, is that how it lays out do you think?
Dave DeMedio - Chief Financial Officer There should be some improvement during the course of the year. A lot of it, though, has to do with any additional type of program that we may continue for ’15. But generally there should be some improvement particularly as these units from the grace period in fiscal year ‘14 start to build, because that ramp-up of $5.5 million through the year will be a slight ramp, it won’t be linear – it won’t be equal -- quarterly equal amounts through the fiscal year ’15, it’s going to be a slight building ramp over the fiscal year ‘15 as we build up the $5.5 million for the full fiscal year. So that should help with some sequential improvement.
Operator
Thank you. And we have run out of time for questions. I would like to turn the conference back to Steve Herbert for closing comments.
Steve Herbert - Chairman and Chief Executive Officer I just like to thank everyone for joining us this morning. We look forward to reporting back to you on our first quarter call in mid-November. Hope everyone has a great day.
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