Helix Energy Solutions Group, Inc. (HLX) Q2 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2014 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded, Tuesday, July 22. Thank you. I would now like to turn the call over to Terrence Jamerson.

Okay, thank you. Good morning, everyone and thanks for joining us today on our conference call for our second quarter 2014 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Tony Tripodo, CFO; Cliff Chamblee, Executive Vice President and Chief Operating Officer; Alisa Johnson, our General Counsel; and Erik Staffeldt, our Finance and Treasury Director. Hopefully, you all have had an opportunity to review our press release and related slide presentation released yesterday evening. If you do not have a copy of these materials both can be accessed through the Investor Relations page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today’s webcast icon. Before we begin today’s prepared remarks, Alisa Johnson will make a statement regarding forward-looking information.

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call and in the associated presentation other than statements of historical facts are forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in our Slide 2 and in our Annual Report on Form 10-K for the year ended December 31, 2013. Also during this call certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation materials provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliation along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website. Owen?

Good morning, everyone. We will start with Slide 5, which is a high level summary of Q2 results. We followed very good first quarter with an even better Q2. EBITDA increased to $109 million from $93 million in Q2 and when adjusting for the insurance recovery contribution in Q1, EBITDA excluding this item, was actually $86 million and $74 million in Q2 of 2013. EPS came in at $0.55 per share. Revenues increased to $306 million in Q2, up from $254 million in the prior quarter. Both the well intervention and the robotics business contributed nicely to this 20% sequential increase in revenues. Of note, our consolidated gross margins increased 600 basis points to 36% in Q2. Turning to Slide 6, Q2 certainly benefited from having the H534 in the fleet for a full quarter as well as the Well Enhancer, which spent much of January in the scheduled drydock. You may recall the H534 did not enter service until the middle of quarter one. The well intervention business realized a remarkable 100% utilization for our three North Sea based vessels during Q2. We also realized a much higher level of revenue producing days for our rental IRS unit, which as we have indicated in the past produces nice margins for us. The robotics business also saw significant increase in revenues in Q2, some of which is seasonal and some of which can be attributed to a very active trenching market, a business we certainly excel in. Our robotics chartered vessel fleet realized 89% utilization in quarter one, up from 80% in Q1. It should be noted that we achieved a fair amount of utilization on spot market vessels to take advantage of the strong market environment for ROV services. Cliff will address the robotics business in more detail later. On the operational side, we took delivery of the T1500 trencher mid-quarter and our newest trencher was immediately placed into service and performed well from the get-go. There has all been significant blemish to Q1 results relates to the relatively high amount of bad debt reserves recorded during the quarter, which were $5.2 million. Our bottom line also benefited from a slightly lower tax rate at 23.3%. Tony will discuss this in more detail later as well. From a balance sheet perspective, our cash and liquidity levels remained very strong. Cash increased to $501 million and that along with the unused portion of our credit facility kept total liquidity at fairly consistent levels of approximately $1.1 billion. Net debt dropped to $57 million and net debt to book cap also dropped to the 3% level at the end of the quarter. I will now turn the call over to Cliff for an in-depth discussion of the contract and services results.

Okay, thanks and good morning. Yes, we have had a good start to the first half of this year across the board Well Ops and Canyon Robotics business as well. Across all segments, $306 million in revenue with a 36% gross margin was a very strong quarter for us. This comes after Q1 which is also a very good quarter. I am pleased with the performance and the uptime on the H534 after entering the market in the middle of February. And in fact, all five of our well intervention vessels are operating well. For the second quarter, we achieved near full utilization of 98% uptime across the entire well intervention fleet. Last quarter, the Skandi Constructor completed us West Africa campaign and following a brief return for a project in the North Sea. She is now working in a new market for us off the East Coast of Canada, which is expected to continue until mid-August. We are also bidding on work in the Gulf of Mexico for the Skandi Constructor, which she would be available for after her scheduled drydock in the fourth quarter. I expect to have a better update on this during the next quarter’s call. On the Canyon Robotics side, we had a record-breaking quarter in terms of number of vessels operated. We actually operated 14 vessels periodically 9 spot vessels plus the 5 vessels we currently have under long-term charter, with nearly 90% utilization. In production facilities, one of the production hubs, Marco Polo was down for almost half of Q2, although the financial impact to us was marginal, basically just a delay or small amount of equity and earnings moving to the right. Beyond that, we did not have any cost obligations for repairs needed to return the platform to service earlier this…

Thanks, Cliff and good morning. Please turn to Slide 14. Slide 14 provides an illustration of our debt instrument maturity profile at June 30. Debt reduction during the quarter was a result of the required quarterly payments of our term loan. Moving on to Slide 15, we provide some update on our year end growth and net debt levels historically and at June 30. We continue to maintain a strong liquidity position with approximately $1.1 billion of liquidity. Our net debt level was approximately $57 million remaining fairly constant quarter-over-quarter. Year-to-date operating cash flow increased to $140 billion driven by our strong operating results. We have used cash from operations to fund $97 million of capital expenditures, $10 million of debt repayments and $7 million of stock repurchases. Our cash position has increased $23 million year-to-date. However, we expect to make two milestone related shipyard payments during Q3 for the Q5000. At quarter end our net debt to book capitalization ratio was a conservative 3%. Tony?

Thank you, Erik. Let me move straight to Slide 17 which presents our updated 2014 guidance. With the first half of the year producing $202 million of EBITDA, we now expect the full year 2014 to be better than we have previously guided. Aside from the strong first half, the strong demand and high backlog for our Well Intervention business gives us an expectation that we will exceed our previous guidance of $350 million of EBITDA for the full year. And we are now suggesting EBITDA for the full year will be greater than $360 million. We expect quarter three to be consistent or better than quarter two absent any operational hiccups. In quarter four we expect to see the typical seasonal drop off in the robotics business. And as we have previously stated both the Seawell and the Skandi Constructor are scheduled to enter dry dock in the quarter. Thus we expect our results in quarter four to fall from quarter two, quarter three levels. Following suit, we have tweaked our EPS guidance upward a bit and are now providing $1.65 to $1.75 range dependent upon our tax rate. We are still guiding our full year tax rate somewhere between 25% and 30%. We did see a 23% tax rate in Q2, but that was the result of settling some prior year tax returns that allowed us to release some tax reserves that were setup for those years under audit. However, we still feel 25% to 30% is a good go forward range based on our current geographic mix of earnings. On to Slide 18, Slide 18 outlines the backlog visibility for our Well Intervention fleet. Not much has changed from a quarter ago, so we will leave the specifics outlined in this slide for your reference. Slide 19…

Thanks Tony. Q1 was good, but Q2 was even better. Revenues were up 32% year-over-year for the second quarter and EBITDA was up by 47%. These results have exceeded our own expectations. We always assume that there will be a certain level of operational incidents when setting expectations. However, we managed to avoid any major incidents that impacted our results to any serious degree. Looking forward we do expect another strong quarter in Q3. However, we do have upcoming dry docks with Seawell and Skandi Constructor in Q4 with the Seawell being on an extended period to undergo a life extension upgrade. Thus I would caution investors to take the first half of the year – not to take the first half and extrapolate the results for the second half. We have increased annual guidance to be greater than $360 million, but there is obviously an opportunity to beat $360 million. We do have the headwinds of the dry docks in Q4. The more important note to take away from this quarter’s results is that the growth plan that we previously outlined is in progress and its going well. As good as all this is we are still hearing expressions of concern over rig rates and the potential impact to our business model. We don’t feel that it’s our place to question anything that’s been written by others on softening rig rates. Our own position continues to be that if rig rates do soften they will have little near term impact on our business and growth path. First, much of our well intervention fleet has contracted backlog with rates substantially set for the next few years. Second, we planed our growth based on direct discussions with our clients. We have undertaken substantial addition of new assets, but not on a…

Thank you. (Operator Instructions) Your first question comes from the line of Jim Rollyson (Raymond James & Associates). Jim Rollyson - Raymond James & Associates: Good morning, Owen.

Good morning, Jim. Jim Rollyson - Raymond James & Associates: I guess, Owen, just paraphrasing what I think I heard you say, so it sounds like ROV strength that you saw in 2Q continues through 3Q or most of 3Q and then seasonally falls off. And from an earnings and EBITDA guidance, I guess the implication for your new range is that 4Q, because of the seasonality and the drydocking kind of compounded on top of that brings your 4Q probably as your lowest quarter of the year. Did I hear that right, basically?

Yes, Jim. This is Tony. We expect the fourth quarter to be the lowest quarter this year for the factors that you just mentioned. Jim Rollyson - Raymond James & Associates: Okay. Just making sure I heard that right, when we look at the step up in the robotics business revenues, you were in the first quarter $88 million, last year same quarter $88 million, almost $120 million, how much of that is just the market picking up versus maybe your new alliance with McDermott, just trying to get a sense of as we think about this going forward beyond just the third quarter into next year, how sustainable should we think about that kind of run rate?

Yes. Well, I think as Owen mentioned, we have had a really good trenching season this year on all the trenching assets that we had. We have added a new trencher the T1500 went straight into service and has been working virtually everyday since it went into service in May. So, that’s been the one big drivers of trenching market has been up this year compared to last year. And we have also had good utilization on the vessels, where last year in the first quarter, we have really struggled on utilization in the winter on those vessels. Jim Rollyson - Raymond James & Associates: Okay, Tony, any color on SG&A took a big step up and maybe what we should think about that for going forward?

Yes, sure. I think there were really two factors that affected SG&A in quarter two. One was we mentioned that we booked a little bit over $5 million of bad debt reserves during the quarter that hit the SG&A line. And because we have a stock compensation plan that will vary in expense with our stock price fluctuation, the fact that our stock price went up during quarter two also impacted the SG&A line as we have to book more stock compensation expense. Hopefully in the future, we are going to see the kind of bad debt reserves that we booked going forward. So, I would expect SG&A to come down from quarter two. We have always guided 8% to 10% range for SG&A. And I still think that’s a pretty good range going forward. Jim Rollyson - Raymond James & Associates: Okay, great. And the last one, Owen, any color on maybe the update on the timing of when you guys will find out about the Shell tender for the Gulf of Mexico for your potential Q6000?

The tender is still in process. We are still in the mix. We have had some recent meetings, but now that the process is just going to have to play out at shells pace. Jim Rollyson - Raymond James & Associates: Great. Good quarter guys. Thank you.

Your next question comes from the line of Jeffrey Campbell (Tuohy Brothers).

Good morning. First, I want to ask a question referring to the Canyon McDermott contract and also the earlier Technip contract. If there is other opportunities like that out there, is there a certain percentage of growth services that you are targeting I would like to see locked up in longer term contracts?

Well, I guess the reality we’d like to have all locked up in long-term contracts provided those, the long-term contract rates are what we’d expect. But we have always kind of been more of a spot market player on the construction side of the things and we – I think we mentioned last quarter we are trying to focus a little bit more on longer term contract. So, this is our second real stab at longer term loans. The other long-term contracts, that really exist outside that is the drilling side of it which we – hasn’t been a market for us.

Okay.

I also said I don’t know that it’s an either/or situation though, but in the case of Technip and McDermott upon award of those, we are fortunate enough to have the balance sheet strength that allows us to go out and immediately add to our fleet. So, they are both growth adding contracts. So, I don’t know that it’s a certain percentage that we are targeting it’s just additional work on top of what we already do historically.

Okay, well that’s interesting color. If I could I will ask one more question, a little bit more high level, but I think you guys may have a unique viewpoint on this. Yesterday, FMC announced that they are in a project with four major offshore operators to develop the new generation of high temperature, high pressure, subsea installations and they added the additional expectation of further standardization of materials process is interfaces. Broadly to what degree do you find subsea production equipment already standardized and how much more do you think it can be standardized and overall is this trend positive for Helix over time?

That’s a lot.

I will make it short. Is standardization good?

I’d say one of the biggest challenges facing not only ourselves, but the equipment manufacturers and everybody is the lack of standardization. I think there has been a certain amount of movement towards it, but I personally might view is that there is a long ways to go before there is – I don’t think you could even remotely call the industry standardized on subsea equipment these days. The implications to us are – it’s not that significant, we are fortunate enough to have been working on all of the equipments, so we have all those necessary crossovers and the experience with all the manufacturers’ equipment. So, the lack of standardization I guess actually gives us a slight competitive advantage over others wishing to get into the intervention market. Having said that, the industry is moving to try and standardize more. This is an area of probably the greatest pioneering area in our industry right now. So, it also means that we have to dedicate, that’s one reason why we formed the Subsea Intervention Group, so that we could have a dedicated group to developing new innovative ways forward on working with some of these moves in modifying the subsea equipment. And of course, we work closely with the service companies. Again, we are a deployment of specialist company. So, it’s a matter of staying on top of what the service companies are doing and the manufacturers are doing and then maximizing our delivery process for the greatest efficiency. That’s basically what we focus on.

Okay, great. Well, that’s great color. I appreciate it. Thank you.

(Operator Instructions) The next question comes from the line of Martin Malloy (Johnson Rice).

Congratulations on the strong quarter.

Thank you.

Could you give us an update in terms of how you are looking at the market for additional IRS systems that you might rent or charter out?

I think I have said in the past that this is an area that I consider – I have mentioned one of the things that we are going to be evolving to is creating a greater service line around our heavy marine assets. And this is one area that I do think has a lot of legs and one that we are focused on. We are looking at the best way forward to provide more systems on a rental basis and support those systems with the maintenance and the personnel and everything. So I do think there is room for us to add, it’s just a long process to build one of these things. And right now we are sort of – all of our resources are committed to building the systems necessary to fit our vessels. So as time and resources allow, we do have the intention to build additional rental units.

Okay. And then the production assets that you all have, I am just looking at the multiples the MLPs are trading for these days, is there – is it – is there any thought towards perhaps monetizing those assets at this point?

Marty, I will say this where we fully entertained any offers that were legitimate and have reasonable value. Again we all get asked this question often, this is a business line that produces a healthy amount of free cash flow with very little management attention required. So it’s nice mailbox money so to speak. On the other hand we don’t consider it a core business. So if somebody wanted to step forward and offer us real value for it I think we would have to entertain it, that hadn’t happened yet.

Okay. Thank you.

Your next question comes from the line of Ole Slorer (Morgan Stanley).

Thank you very much. Just back to the robotics business again and the vessels ROV support vessels, the revenue beat in the quarter at least versus what we have been modeling was pretty substantial about 30%. And looking at your utilization numbers, I mean they did have nice upticks sequentially 73% to 78% and 80% to 89%, but was this the main driver or was it that of the business is changing with this heavier trenching assets entering the fleet, because I can’t quite guess there assuming that there is no real sort of quarter-on-quarter pricing, I can’t quite get to the blowout number based just on the tweaking in the utilization on the same store basis?

Yes. Well, it was we have had a good season in trenching market and we added another trencher the T1500 we mentioned to us. So we had exceptionally actually good trenching these. And we have had a good run of utilization on the high trencher as well, so that’s part of it. The other part of it that we had several spot market vessels as I mentioned especially in the Gulf of Mexico where we don’t have any cost for them when they are idle that these vessels are all outside for us because we only get them when we have work for them, we don’t have any work for them. So that’s the two drivers I think.

That’s 161 days, you haven’t given the number like that before I think, so could you give us some color on whether how big or a small number that is compared to what would be a normal run rate?

Well, it’s a pretty big number for a spot vessel because we haven’t had the vessel in the Gulf, we have had our assets tied up for most part over in the North Sea and in West Africa and Middle East regions. So it’s driven the spot costs were mainly driven by the Gulf of Mexico, not having a vessel here. And we do plan to bring a vessel back over here in the third quarter and stall her back over here. And we will supplement that with spot vessels as the need requires.

So what’s changed in your business is basically the additions sequentially of the heavy transfers and on the other hand you have this pick up in spot activity, how did those two I am – so I am thinking about what’s kind of sustainable and what might be the exceptionally and usually strong for this quarter can talk a little bit on that?

Yes. Well as Tony said, our fourth quarter is usually our weakest quarter and in the ROV side of it fourth quarter and first quarters has lot more seasonable – seasonal than the well intervention business. So we do expect to not sustain second and third quarters, I think will be higher than what the fourth and the first quarter of next year.

Okay. Just one more question on the Q7000, could you just remind us from an operating capability, where is this vessel capable of operating or where is not capable of operating?

Well, it’s basically capable of operating worldwide, but some of the unique designs that we put into it were setup for Western Shetlands and North Sea, but it can work worldwide.

Including Norway?

Yes.

Okay. And okay, thanks for that. And finally when are you going to sort of embrace this standardization concept and they kickoff the 6,000?

I am sorry, say that again.

There is a question earlier on, on standardization as to just you can help the industry by getting going on the 6,000, what would the likely timeline be?

We have the Q6000 fully engineered and ready to kickoff, but that the timing of that is – and the balance sheet can certainly take the addition of the new asset, but the timing of that is totally market dependent on discussions with the clients and the upcoming demand.

And Owen, back to this debate again on idle DP rigs versus your specialized vessels, do you have any further data points as of late discussions, other examples maybe you can kind of help shed some lights on your latest thoughts as you have anything kind of mark-to-market on that?

I will be honest with you. We don’t – we see what’s written by the analysts and we see some data points from our perspective, it’s been a little mixed. You have seen some renewals at higher rates and some at lower rates. We haven’t seen any rates that we would consider alarming. But then again, that’s assuming that they were going to encroach in our market. But I think our consistent position has been that, no matter what the rigs do, the clients are now in the phase of our industry’s growth, where they are looking for a long-term solution for an ever increasing amount of low intervention work. And I think that sort of precludes the clients looking first at a cyclical softening of rig rates as the ultimate long-term solution. So, I really don’t – I think it’s a misconception on the investment community’s part and comparing well intervention with drilling market. It’s only – it’s the comparison – it’s understandable, because it has been drilling rigs that have historically done the well intervention work, but the well intervention work historically has been a fraction of what the well intervention work is going to be going forward. And I think the market is truly diverging and the well intervention and drilling are two separate markets that really defy comparison.

I agree with you. And I mean, if you look at that contract in Brazil, which I found particularly interesting in that regard. Because in Brazil, Petrobras have historically been a user of drilling rigs for well intervention and it shows a newbuild contract with you guys at the same time as rigs like the Ensco 7500s are with DP capability stack down there. So, I mean that tells an interesting signal I think?

Well, I think that’s only part of the picture though. If you look at Petrobras historically, Petrobras is actually one of the first pioneering producers to actually dedicate vessels to doing work over and intervention only. If you go back almost I guess over a decade, now they had the Amethyst originally and then they had to build series of the mega semi-submersibles. All of those have been dedicated to work over and intervention primarily on the shelf. What’s happening now is that with the Tupi field in the pre-salt, they are now looking at their deepwater future intervention needs and that reflects the new contracts.

Okay, thanks. That’s all.

Sure.

Your next question comes from the line of Michael Marino (Stephens Inc.).

Thanks. Good morning. Just wanted to get some color, get to make sure I understand things correctly on kind of next year if you will. Any significant dry-docks other than the Seawell extension project, which I believe spills over well into ‘15. I mean, is the Well Enhancer, the H534, Q4000, are those all kind of more normal?

Yes. The Seawell goes into drydock, probably mid-December and is scheduled to be in for about 4 months. And then later in the year which we haven’t scheduled we have got another - we had to bring the Q4000 out of service as well for it won’t be as long, it’s like maybe two or three weeks.

Okay. And then on the Q5000 you mentioned delivery still on-time Q1 delivery, but what does that mean in terms of revenue generation does that mean Q3 revenue generation or is there acceptance testing period that you need to go through?

I will answer that. The scheduled delivery time that we – I will keep talking about is delivery date from the shipyard, where we take control of the vessel. From there we still have some run up activities plus a delivery schedule of the vessel from Singapore to the Gulf of Mexico. So as far as revenue generation that would not occur until Q3.

Okay. And just one final one kind of in terms of the Q – potential Q6000, would you move forward on that without a contract on the Q7000?

It depends on what day you ask me. I don’t mean to be facetious. The market conditions are changing, there is pretty – well I will be transparent on this. The shell contract is a big event for us. I think it’s important to just watch the market demand. We have ongoing dialogue with a number of producers right now that I think are still uncertain enough now that it wouldn’t warrant pulling the trigger. Now, as I have said in the past we did pull the trigger on the Q5000, the Q7000 based on the discussions. Right now, I think the market, we don’t see – before there was pretty much a no-brainer on the regions we were looking at. Right now, I would say for the Q6000, we need some resolution to certain issues in the marketplace before we would be willing to pull the trigger on the Q6000. Unless of course somebody stepped up and give us the full contract and then all bets were off.

When you talk about certain – it would be a certain – is there a certain market that you want to see more acceptance in or I mean is that what you are alluding to?

Yes. I think there is a number of markets that have we have identified future needs. We have entered into discussions with the clients about those needs. I think it’s obvious that it’s going to happen, but it’s probably not developed to the stage yet where it warrants pulling the trigger on cutting steel because we are at the point of the design on the Q6000, where we could immediately start cutting steel. So it’s a matter of just waiting for the market demand to give us the indication that there is a fairly certain possibility of a full contract for.

Since you brought it up and if I would asked you three months ago do you feel better about it today than you did three months ago?

I am about the same place. I think our outlook is that the market is probably going to something like 20 vessel market by 2018. And I think targeting anything more than 50% of the market is starting to flirt with utilization risk. We have – once the current builds are in-service we will be up to 9 vessels. That gives us room for one additional under the guideline. And I think that’s where I have been for a while. But between now and 2018 there is no reason to be in a rush over it. And I think it’s proven to just be now that we have established a clear dominance in the growth of the company and the credibility in the market. It probably is prudent to wait for a little more certainty before pulling the trigger on the last vessel here.

Got it. Makes sense. Thank you very much.

Your next question comes from the line of William (indiscernible).

Good morning everyone. Congrats on the good quarter.

Thank you.

What is the plan for the Skandi Constructor after it completes its Canadian campaign and dry dock, does it now have a contract extending into 2015 as well?

After it’s finished in Canada it’s got to back to the UK for some committed project work that we have got there. And then as mentioned, it’s got a drydock. And then it’s fairly open for a few months and then it’s got more committed work in the North Sea, but we do have a open slot we are right now and we are in negotiations with a client to take that slot as we speak.

Alright.

That’s basically first quarter of next year.

Okay, thank you. Can I get some color on the decision on moving the REM installer to the Gulf of Mexico and the opportunities that you see there?

Yes. I guess, we haven’t had a permanent vessel here in several months and so we have been using these spot vessels that we have been pretty successfully using these spot vessels, but we have also had to turn down quite a bit of work and we got some clients asking us for work that they would prefer to use us and it’s just a matter of demand. We need a vessel. And that’s the first one, it’s going to break lose and we can bring back.

Okay. For the Grand Canyon, T1200 and the I-Trencher, what was the reason for the reduction in term?

Say that again.

Of the reduction in firm, I noticed that it reduced terms through 2015 last quarter in Q2 2015 that was in the presentation this quarter.

I am not following your question, the term of what now?

For the Grand Canyon that the T1200 in the I-Trencher. Last quarter, you all said it was had a contract through 2015 and then this quarter you also had the contract through Q2 2015 so…

Okay. Yes, it’s frame agreements that we have through ’15, but that’s not a consistent steady work haul on the crew, I think it’s what you are asking or referring to.

Okay. So, it still has visibility through 2015, it just – it wasn’t firmed up through 2015.

Yes. There is frame agreements to do work for multiple clients through 2015, but it’s a not a steady utilization for those clients all the way through. So, we break off and go do other work and come back to it.

Okay. Last one for the ROV contract with McDermott, you expected this contract to begin mid-2014. Can we just give an update of the timing and the number of ROVs and then any other color you’d like to provide on that.

Yes, it’s just adding vessels. I mean, ROVs as they – requires them. So, I think right now I think we have got four vessel – four ROVs on two different vessels and we will be adding more later this year and potentially more into next year as well.

Okay, I appreciate the color. Thank you guys.

I am sorry. You do have a follow-on question from the line of (indiscernible).

I know yes, just with regards to the guidance that you did gave, did you say that, sorry, the third quarter will be stronger than the second, but the fourth quarter will be the weakest for the quarters. I am just trying to figure out what was actually said.

We expect the third quarter to be strong, similar to quarter two and quarter four to be the weakest quarter of the year.

Okay, I got it. Thank you.

And there is no further audio questions at this time.

Okay. Well, everyone thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our third quarter 2014 call in October. Thank you.

Thank you for joining today’s conference call. You may now disconnect your lines.