Harmonic Inc. (HLIT) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the first-quarter 2013 Harmonic earnings conference call. My name is Ellen, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Carolyn Aver. Ms. Aver, you may begin.

Thank you. Hello, everybody. With me in our headquarters in San Jose California is Patrick Harshman, our CEO. I'd like to point out that in addition to the audio portion of this call; we've also provided slides, which you can see by going to the Investor Relations page on harmonicinc.com and by clicking on the first-quarter earnings call button. Now, turning to slide two, let me remind you that during this call we will provide projections and other forward-looking statements regarding future events or the future financial performance of the Company. We must caution you that such statements are only current expectations, and actual events or results may differ materially. We refer you to the documents that Harmonic files with the SEC, including our most recent 10-K report, and the forward-looking statements section of today's earnings press release. These documents identify important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Please note that unless otherwise indicated, all the financial data provided has been revised to reflect the sale of the Cable Access business. In addition, the financial metrics we provide you on this call are determined on a non-GAAP basis. These items, together with corresponding GAAP numbers and a reconciliation to GAAP, are contained in today's earnings press release, which we have posted on the website and filed with the SEC on Form 8-K. We will also discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in the press release, and the remainder of the information will be available in a recorded version of this call on the website. With that, let me turn the call to over to Patrick.

Well, thank you, Carolyn, and thank you, everyone, for joining us today. Turning now to our slide three. Today, we reported our results for the first quarter of 2013. It reflects mixed fortunes for the Company and the market over the three-month period. As Carolyn just mentioned, the results I’ll discuss here exclude our Cable Access operations, which were divested during the quarter. Quarter-to-quarter comparisons should therefore be made on restated numbers ex-Access. With that being said, revenue was $101.7 million within but in the lower end of our expected range. Business from our international customers contributed 58% of our revenue, reflecting on one hand continued international market momentum, but on the other hand challenges in our domestic service provider business, continuing the trend we saw of last quarter. Without the Access business and in a soft domestic market, cable customers represented just 39% of revenue during the quarter, virtually equivalent to our revenue from broadcast and media customers, while satellite direct to home and telco customers contributed 23% of revenue. Untangling the Access business from the rest of Harmonic had some impact on operations during the quarter, but we believe those effects are now largely behind us. Our first quarter bookings were $110.1 million, at the high end of our expected range and significantly exceeding revenues. In particular, we saw growth in international orders, driven largely by improvement in the Europe, Middle East, and Africa region, both sequentially and year on year. Our broadcast and media market segments, or the Omneon acquisition, first gave us a solid position, also realized bookings growth in the first quarter of 2012, and service bookings were also seasonally strong. Consequently, backlog in deferred revenue increased to $126.3 million, in part a reflection of our evolving strategic role with customers, as we continue to…

Thank you, Patrick. Let's move to slide 11. I'd like to note that we completed the sale of the Cable Access HFC business on March 5th. Accordingly, we have shown that business in the discontinued operations section of our P&L, not only for the first quarter of 2013, but for all periods presented. We have provided historical income statements and other financial metrics reflecting the sale of the Access business with our earnings release and posted on our website. So, you can go to our website and see all of the pro forma financial statements that reflect the sale of the cable business. Our net revenue for the first quarter was $101.7 million, compared with $118 million in the fourth quarter and $116 million in the first quarter of 2012. Our bookings were $110.1 million, slightly lower than the fourth-quarter bookings of $110.8 million but providing a 1.08 to 1 book-to-bill ratio. Backlog in deferred revenue was $126.3 million at the end of Q1, compared to $119.5 million at the end of Q4. Our non-GAAP gross margin was 51% this quarter, a decrease from 56% in the previous quarter but an increase from 49% in the first quarter of 2012. Remember that our Q4 gross margin was unusually high and not expected to be repeated in the first quarter. Non-GAAP operating expenses for the first quarter of 2013 were $55.2 million, up from $54.6 million in the fourth quarter of 2012 and up from $54.3 million in the first quarter of 2012. Our headcount was 1,096, slightly up from the 1,081 at the end of the previous quarter. Non-GAAP net loss from continuing operations for the first quarter was $2.7 million or a loss of $0.02 per share, compared with a net gain of $2.2 million or $0.02 per diluted…

Okay, thank you, Carolyn. Listen, in summary, we've come through a mixed quarter in which our domestic service provider business struggled over our international business and our domestic broadcast and media business showed encouraging signs of growth. While cognizant of our challenges, we feel positive about the future opportunities for the Company and, therefore, its shareholders. We believe our value creation agenda, our growth strategy and the associated coming technology transitions, our focus on cash flow and capital structure, and continuing in support of the evolution of our Board of Directors, focuses all on the key elements for success. And with that, we'll end the formal portion of the call, and we’ll now open it up to any questions that you might have.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Simon Leopold with Raymond James. Please, go ahead. Victor Chiu – Raymond James: Hi, guys. This is Victor Chiu in for Simon Leopold. I wanted to ask you about your cable business. The Cable business seems to continue to slow quite a bit, but the major cable operators have forecasted CapEx spending that's been relatively encouraging that Comcast, for example, guided their 10% increase in CapEx for the year. So, I guess my question is why isn't Harmonic seeing upside from this outlook?

Victor, historically the CapEx is not uniformly spread over different programs and different initiatives. So, yes, we talked about this on the last call as we forecast the – we gave our guidance for this current quarter. If you look back a year ago, there was tremendous wave of investment in edge, for example. And there just isn't that much activity going on in that particular area at the current point in time. We don't believe that the overall need for edge capacity is slowing down, but we are in a cycle right now where it's not as necessary. And you know, it's also true that in the cable space, particularly as we consider about CCAP – and I don't want to overstate this – but you'll see it in the press, et cetera., that some of the industry is beginning to look ahead to some of the new technology. And that's something we have to manage our way carefully through, and really we're trying our best to do that. And hence, I think the importance of my earlier comment in prepared remarks – that we do expect our first CCAP platform-based order this quarter, and in fact we expect it from one of our top five cable customers. So, we're encouraged or hopeful that the demand trend around the edge will turn more positive for us. Victor Chiu – Raymond James. : Do you expect it to be more positive in the back half of this year, or is it just the outlook is still not certain about what the demand for the edge looks like?

We are cautiously optimistic that the demand profile in that category will indeed improve in the back half of the year. Historically, the cycles are a couple of quarters, but they aren't years, number one. And number two, as I just mentioned, we believe that – well, we know that our CCAP technology will be out there. And we believe that we do have some customers who are looking ahead to that technology. So, for the both of those reasons we are more optimistic about the prospects of cable spending in the edge area in the second half of this year. Victor Chiu – Raymond James: Okay. And just a quick question on the new encoding technology that you discussed, like HEVC. I guess if the new encoding technology is really as efficient as you describe it. And would it be reasonable to expect a material drop in a legacy encoding business before revenue from the new – the next-generation technology kicks in? I guess how material can you expect the new technologies to contribute in 2013?

So, yes, it would. And in fact, frankly, we're living through some of that right now. In the period of time before MPEG-4 took off, there was an understandable slowing in investments by several of our customer groups, perhaps notably the satellite direct-to-home guys in MPEG-2 technology. We noted in our last conference call as we surveyed the year that we were impacted by two things last year; a slowdown in our European business and a significant slowdown in our domestic satellite business. And we think in part that is where we are in the upgrade cycle and some of our customers looking ahead to this quantum leap forward in compression technology. It should be noted that this technology does not require a decoder chip. So we do see the potential uptake of it being more quick. At the recent NAB show, for example, we showed HEVC content being decoded in software on an off-the-shelf iPad. So it's – we definitely have customers who are looking forward to it. And yes, this coming technology cycle unfortunately creates a little bit of a drought as the market transition begins to happen. Victor Chiu – Raymond James: While how well is the business currently oriented from a logistics standpoint? I guess the ramp of demand for the new equipment in terms of manufacturing?

Well, we’re releasing our product, which I think in July or maybe August; I think I said I said in Q3 – and we see healthy demand starting to line up for that. We, as I mentioned in my prepared remarks, we saw strong interest at the recent NAB show, and there's quite a bit of demand both domestically and internationally. I should also add that our first-generation of these products, including the pretty nice demonstration we just did with SES in Europe, are all based on a software platform, in fact, our existing ProMedia family. So, our ability on our end to kind of get that rolled out – the bar is low by historical standards. Victor Chiu – Raymond James: Great, thank you.

Our next question comes from Richard Ingrassia with ROTH Capital Partners. Richard Ingrassia – ROTH Capital Partners : Hi. Good afternoon, everybody.

Good afternoon. Richard Ingrassia – ROTH Capital Partners : Patrick, can you talk about the day-to-day mechanics of the sales effort, if you will? So specifically, leadership there, organization, and support? And then, I guess, would it be fair to say that you're playing some catch-up in the over-the-top multiscreen segment? And how is the issues at KIT digital and your partnership with them affected the sales effort, if at all?

Okay. Help me if I forget some of the nuance there. I think the first part is on the sales organization. As we talked about last quarter, we're actually still in the midst of a search for a worldwide sales leader. That being said, I think that situation was not a particularly strong impact on our effectiveness this quarter. And in fact, we largely delivered on what we saw as possible from a new order bookings perspective. So, I think the sales machine is doing fairly well. We continue to think that in most markets we are gaining market share. Certainly that is true overseas. It's a little harder to say that in the domestic space. We think we've been a little bit slower. Richard Ingrassia – ROTH Capital Partners: And have there been changes, or do you expect to make changes in the way it's organized and supported?

You know with… Richard Ingrassia – ROTH Capital Partners: Either by segment or by region?

There's no specific changes to discuss today. We’re organized largely geographically, Richard. Of course, we bring on a new worldwide leader, and they'll inevitably put their input on it to some effect. I'm not sure what level of detail you want to get into. Carolyn's just reminded me here that we did change the way India was currently managed, and India is now rolling up Asia – under Asia. I don't know if that's the kind of level of detail you're talking about. But certainly there's always those kinds of adjustments, but there's nothing profound or I think really noteworthy at 10,000 feet, Richard, in terms of the way the sales force is organized. I mean, look, we believe that we executed fairly well in terms of gaining market share last year. So, I – in general, nothing is perfect, but I give our sales force fairly high marks for winning new accounts and taking advantage of the opportunities that are in front of us based on the technology we have and the spending that our customers are doing. Perhaps it's a segue into the second part of your question is on multiscreen? Look, our view is that multiscreen is still a fragmented space. We think that we've got pretty good market share. Certainly, we don't have as much as we have had historically in the broadcast market, but we do quite well. And frankly, I think in the – if we look back now in the mirror of time, we can see that there's some others in this space who were undoubtedly overhyping the situation year ago. Speaking very bluntly, I think we got hammered a little bit by saying that we saw it as a somewhat challenged market due to business model challenges and uncertainty, etc. Others were…

All right, thank you, Richard.

Our next question comes from James Kisner with Jefferies LLC. Please, go ahead. James Kisner – Jefferies LLC: Hi. Thanks for taking my questions. Just first – just on what sort of happened here in the last quarter. I mean, you guys had guided on the 19th to $100 million to $110 million. You obviously came in on the light side of that. I just want to verify that you basically, in this last month, despite strength in the orders, it didn't give it as much as you thought? Like where was the shortfall? Yes, you were in the range, but yet you were on the low side of the range. What happened versus your expectation since the announcement of the divestiture?

The bookings came in at the high end of that range, as we mentioned, at $110 million. So, I think the delta really comes down to revenue recognition, and sort of happening and not. As I mentioned, we are overall seeing a greater and greater mix of our business slosh towards projects with more complicated revenue recognition. Accruals – we are delivering more services, as evidenced by the numbers that Carolyn discussed. 19% of the revenue in the quarter actually was associated with services of one kind or another. And so there's no fundamental thing there, James. We simply recognized less than we originally anticipated. James Kisner – Jefferies LLC: Okay, that helps a lot. Quick housekeeping, guys. There were new 10% customers, right?

Correct. James Kisner – Jefferies LLC: Okay. And I was a little bit – I mean, the headcount went up sequentially. I remember you said there was going to be some transition services. You know, is there – I'm just wondering how much of that was kind of – could you just talk to what happened with the headcount and how much of that really was an organic increase in Harmonic's future underlying headcount?

Yes, so that is the – there are definitely a group of people that are on a transition services agreement. Both of the – so the growth comes in the non-Access part of the business, of course. James Kisner – Jefferies LLC: Okay. So just in general, I guess I'm little surprised to hear you say that Europe is sort of bottoming here. Yet we just saw – I think it was a private sector manufacturing for Germany contract for the first time in five months. It's clearly very choppy data globally. I'm just wondering, do you kind of feel like this truly is a bottoming and improvement in the Europe situation? Or could it just be a blip? Any thoughts around that?

So, I mean, you're right. The crystal ball is a little bit cloudy, but the data is the data. And it was a strong demand quarter for us – the strongest since 2011. I think that's encouraging. And frankly, the outlook and the pipeline are relatively healthy. So, it remains to be seen, but based on the data that we have in front of us we are encouraged. I mean I should acknowledge – I mean we should recognize that lion's share of this demand is coming from north Europe, also the broader EMEA region, Eastern Europe, Russia, etc. So, we're not sitting here saying we're seeing great orders coming out of Greece or Spain. But as a combined region, going back to Richard's sales question, I'm impressed with the way our sales organization is getting after the opportunities that exist and has delivered some very solid order input the first quarter and has got a good pipeline heading into the second quarter. James Kisner – Jefferies LLC: That's helpful. Just a final thought here.

James, let me just – it occurs to me – so, the headcount numbers we disclosed reflect, again, the sale of the Access business. So, our actual headcount on December 31 was 1148. And that's down now to 1097 or down about 50 heads. So, I think that's what you're asking is – so there was a headcount decrease from a consolidated to excluding Access business. Does that make sense? James Kisner – Jefferies LLC: Yes, that does help, actually. Thank you.

Okay. There you go. James Kisner – Jefferies LLC: That makes sense. So, lost my train of thought there. All right.

I'm sorry. James Kisner – Jefferies LLC: All right. Just on video processing – yes, no problem at all. Video processing, really quick here. I mean, it was obviously done a town sequentially, and will you explained why. But I mean, is this the business that we assume – can we safely assume this business will be down year over year for the full year? I know you're probably not excited about giving me a full year guide on this business, but it seems like it would be challenging to grow it. And just sort of relatedly, I'm just wondering, is there any way to dimensionalize perhaps your sort of longer-term growth rate? I assume it's accelerated with the divestiture of Access, potentially. Does it add a couple of points, you think, to your sort of – I think you said you grow 10% in your end markets. Longer-term, should we be thinking about a little faster growth rate?

Let's take the first one first. I don't think we yet have any assumptions about the overall growth rate of our video processing business during the year. We certainly don't have an assumption that for the full year it's going to be down. Certainly, it depends to what extent the HEVC that we talked about really starts to move in the second half of the year. And also, it depends on the extent to which the sectors that are moving, which are international markets, broadcast and media, continue to grow and consume our video processing products. So, you know, a little bit difficult to forecast exactly what’s going to happen looking out, for example, in the fourth quarter. But regardless of whether the absolute spending level out the market is a little higher or a little lower, we're convinced going to be gaining market share. And maybe to your question about headcount, we're convinced that the right thing to do is invest and make sure we are there with Ultra HD and HEVC. We saw how much the Company was able to grow, how much we benefited in that last cycle of MPEG-4 and HD, and we're committed to being really on top of that wave as it crests. You know late 2013, early 2014, it's a little bit hard to forecast that the right decision for us is to be there. It's to be in a leadership position, and that's the way we're positioning the Company. Overall growth rate, you know, I don't think we have a number that we can yet share with you. James Kisner – Jefferies LLC: Okay, but I tried. Thanks a lot.

(Operator Instructions). The next question is from Andrew Storm with Cortina. Please, go ahead. Andrew Storm – Cortina : Hi, guys. Thank you. First, it was actually very nice to see you lay everything out. I thought that was a good overview; a nice change of pace. A few questions on some of the details that you gave. So your bookings are down, but your backlog is up. And looking at the business that was sold, how much of that is impacting that? Does that bring bookings down? And if so, how much as I look year over year?

I'm sorry, I didn't understand the question. Can you try that again?

Sure. So as I looked at the earlier slide, I think your bookings were $132 million a year ago, and they are down about $20 million something year over year.

Yes.

Is that due to the sale of the business, or is that due to something else?

No. That those – these are all for – these are all excluding the Access business. Sorry, Patrick was saying no.

No – Andrew just referenced $132 million.

A year…

That $132 million number from a year ago definitely includes the Access business.

Sorry, okay. Andrew Storm – Cortina : It does.

Okay. Andrew Storm – Cortina : Okay, perfect. Did you have a sense of how much? Was there $20 million, $40 million? Just any sort of ballpark?

You’re talking bookings. Andrew Storm – Cortina : Yes, because your backlog in deferred was up.

Yes. Andrew Storm – Cortina : But your bookings were down. And I'm trying to understand the organic.

Yes, so the $132 million of bookings a year ago does exclude the Access business. Andrew Storm – Cortina : OK.

I'll come back and update you if I don't have that correct. But I believe that is the case. Andrew Storm – Cortina : Okay, got it. And then, looking at your backlog and deferred, then. You said that you had several large projects that were moved out. Can you give us a sense of the size of that, and is that something abnormal? Because I think once is usually a seasonally weaker or so was there something surprising or was it kind of par for the course?

No, it was actually they are bookings we actually booked at the latter half of last year, and we talked about this even in Q4. Andrew Storm – Cortina : Yes.

So, there’s some – there are deals that we booked last year and that are being booked on a completed contract basis. So, we’re delivering and providing services over the course of several quarters. And then that will all get booked in one quarter or recognized, I should say, in one quarter, which we expect to happen in the second half of this year. Andrew Storm – Cortina : Okay. Can you just give me a…

So, from time to time, we have these – sometimes deals are percentage of completions, sometimes they're completed contracts. It depends on the specific underlying fact pattern. Andrew Storm – Cortina : I know.

And so, from time to time we have this. Andrew Storm – Cortina : Can you just give me a size of this? Because I think it throws the normal seasonality off even more.

It does. Yes, you are right. Andrew Storm – Cortina : (Inaudible). I mean is it $5 million, $20 million? Just something…

Yes. So, it's not $20 million, but is north of $5 million. Andrew Storm – Cortina : Okay, I guess that’s somewhat helpful. And then just – again, I appreciate the comments about all the different things you have going on in the back half into ‘14, with Ultra HD, CCAP. And I imagine that's pretty intensive in terms of R&D to get ready for those. But as I look at the Company, you guys laid out a pretty aggressive operating margin target two years ago and have gone the other direction. So, is this what we need to get to those old targets? And do you get there – does OpEx stay flat going forward? Does it come up? I mean, how do we kind of bridge that gap to where you thought you would be today versus where you are and kind of where you are going?

Yes. So, even my guidance for Q2 implies OpEx down a bit from where they were. Andrew Storm – Cortina : I know.

And it would be our general expectation that those would not increase until we see the benefit of the revenue increasing and leveraging operating margin. Andrew Storm – Cortina : Okay. I mean, it kind of seems like this is almost peak R&D, just given all the things you have going on. Is that right way to think about it?

Yes, I mean, especially on a percentage of revenue basis the – on a dollar basis, it's holding. And we've reduced it for the Access business. But certainly because of where revenue is, on a percentage of revenue basis it is. We would expect certainly on a percentage of revenue basis that it isn't going to go up from here. Andrew Storm – Cortina : Right. I mean, I would imagine so. I was just curious more on an absolute level. And in thinking about capital allocation plan that you have laid out, does this effectively put M&A off the table for the next couple of years?

I think our position on M&A hasn't changed that we’ve not said that it's definitively off the table, and I think that position hasn't changed. That being said, we see ample opportunity the technology we have under the roof and the opportunity we have to bring that technology to market. Our focus has been and continues to be very much on the organic development of our market. Andrew Storm – Cortina : Right. Okay.

The organic pursuit of these opportunities. And so… Andrew Storm – Cortina : Okay. But given the pro forma cash that you need for $100 million, you're probably not going to do anything large in the next year or two, and the opportunity go ahead of you?

I don't anticipate that we would, and we have had not anticipated that for some time. Andrew Storm – Cortina : Okay, that's helpful. And then, the services business has been a pretty nice surprise that has been able to grow. Can you give us an idea of how big that could be and kind of what it takes to get that? I don't know what the organic growth rate is, but if you could kind of lay that out and where that can be in the next few years, I think it'd be very helpful. Thank you.

I mean, as we look at the broader space in which we operate, and maybe even a little beyond where we operate, we think it's not unreasonable to see services at 20% or north of 20% of the overall combined revenue. As a company, we're coming from a place where was closer to 10% or 12%. So, I think about – I think financially, I think about it in those terms. So, I think there's still considerable head room for growth, so let's say accelerated growth relative to the overall growth profile of the product side of the business. Andrew Storm – Cortina : Okay. But it was 19% this quarter.

I think I might have said it's very important to understand that although it does cost us a little bit in terms of the revenue recognition, as we're talking about here and as we're experiencing it a little bit, it really is kind of a glue that binds you a little bit closely to your customers. We're more deeply entrenched, we are more closely partnering on the implementation and the rollout of very fundamental services. So, there's two parts to the upside, from our perspective. One is, as you say, the financial piece. But almost equally important for us is the strategic value that it's giving us in terms of changing the nature of the relationship we have with our customers. And we think it's very important from that perspective as well. Andrew Storm – Cortina : Got you. It was 19% last – in this quarter, is that – did I get that right?

Approximately, in terms of revenue, yes. Andrew Storm – Cortina : Perfect Yes. Got it.

Yes. Andrew Storm – Cortina : Got it. Okay. And then, just broadly, I think a lot of companies have been surprised by the weaker overall economy. As I look at this quarter and the guidance just for the next quarter, have your expectations for the full year changed that much, or is this really revenue recognition in your minds?

You know, our expectations have not changed that much. I mean, going into – on our last earnings call, we frankly said that we saw 2013 as being somewhat of a transition year. Our view was we didn't see it as a down year, but we thought that the name of the game for us strategically was about positioning ourselves around these big technology transitions, which we think are going to drive growth of the overall market and therefore create an opportunity for us. I would say that overall perspective hasn't changed. Based on the reasonable bookings performance and the pipeline we see, that's still largely our view. Andrew Storm – Cortina : Got you. Okay. Thank you.

The next question is from Randy Baron with Pinnacle Associates. Please, go ahead.

Hi. Good afternoon.

Hi, Randy.

Yes. Can you hear? Hi, how are you? I’d like to just piggyback on that last question with – I have two questions. One is a macro one, and then a specific one. The macro one deals with cash. I'm trying to reconcile – you have $228 million of cash at the end of the quarter. You say you need $100 million and the tender is for roughly $100 million. Does that mean that once the tender is completed there will be some sort of true up with the remaining $28 million for a repurchase plan? Or is it related to that question? Is it because 2013 is positioning you guys in your transition year? You need that cash kind of going to 2014?

You know I – meaning, why didn't we make the tender $120 million or something?

Well, I'm just saying, you said you need $100 million on the balance sheet. What is going to happen with that extra $30 million?

Yes.

We're going to continue buying on the open market is the tentative plan right now, as we tried to speak to in the opening remarks. We don't see the tender as the end of that effort, but it's an opportunity for us to kind of move decisively with this magnitude of the buyback.

So, do you think in Europe – do you think you – sorry, go ahead.

On a go-forward basis, we continue to expect to generate cash, and we expect that this point in time to be able to continue with a go-forward buyback program beyond the (tenth).

So, at year end, you would imagine cash would be at or above $100 million?

Yes. I mean, I think obviously we have to think about exactly business needs. But generally, yes.

Okay. And then my specific question is – relates to Voce Capital and your Board update. Was that decision made in conjunction with Voce? And maybe you could just talk about where your interaction stands with them and just kind of update all the shareholders on that.

Sure. The – no, the Board transition that we discussed was not in conjunction with Voce Capital. I tried to lay out in fact what Board has been doing is a process that's kind of extending back over 18 months. You may recall that in January, one of our long-standing Board members announced he was stepping down from the board. A second, to my predecessor Tony Lay didn't stand for reelection a year ago. We brought on two new – we brought on one new Board member, Sue Swenson. And then, more recently – I don't know, six or nine months ago, Mitzi Ray joined the Board, and Lew has just announced that he's stepping down after 10 years on the Board. So, I think the Board has been quite thoughtful and deliberate in effecting a transition that has really been rolling out over the past 18 months. I think the right way to view these – Lew's decision to step down this in the context of that process that the Board has been thinking through, and talking through, and acting on over the past 18 months.

And then just on the question of your interaction with Voce. I just want to make sure we're not missing a public filing of your response letter to them?

No, we have not filed any response letter to Voce Capital. We're always interested in a dialogue with our shareholders, big, small, and frankly, prospective shareholders, and we continue to talk to anyone who's got interesting ideas, and we'll continue that stance.

Okay. So, then last question, and then I'll hop off. But when – since you're speaking with every shareholder, when is the last time you spoke with Voce?

Last conversation was sometime within the last month.

Okay. Thank you.

That was the last question. Now, I'd like to turn the call back over to Mr. Harshman for closing comments.

Okay. Well, I would like to thank you all for joining the call today. And I want to reiterate that we’re confident in our operational and value creation strategies that were outlined today. And we'll be presenting at the upcoming Jefferies and RBC conferences later this quarter, and if we don't talk to you sooner, we look forward to seeing you there. Thank you again, everybody, for your support and your interest in our business.

Thank you, ladies and gentlemen. This concludes the first-quarter 2013 Harmonic earnings conference call. Thank you for participating. You may now disconnect.