Harmonic Inc. (HLIT) Q2 2014 Earnings Report, Transcript and Summary

Welcome to the preliminary earnings conference call. My name is Dakiba and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now turn the call over to Blair King. Blair King, you may begin.

Hello, everybody. With us in our headquarters today in San Jose are Patrick Harshman, our CEO; and Carolyn Aver, our CFO. I'd like to point out that in addition to the audio portion of this call, we have provided slides, which you will see by going to the Investor Relations page on harmonicinc.com and clicking on Quarter 2014 Preliminary Results call button. Now turning to Slide 2, let me remind you that during this call, we will provide projections and other forward-looking statements regarding future events and 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 documents that Harmonic files with the SEC, including our most recent 10-Q and 10-K report. In the forward-looking statement section of today's preliminary results 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, the financial metrics we provide you on this call are determined on a non-GAAP basis. That these items, together with corresponding GAAP numbers and a reconciliation to GAAP, are considered in today's preliminary results press release, which we have posted on our 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 the recorded version of this call on our website. And now with that, I'll turn the call over to you, Patrick.

Well, thanks, Blair, and thank you, everyone, for joining us today, particularly on short notice. Given the softer than expected preliminary second quarter results and outlook for the third quarter, we thought it important to share this information with you as soon as possible. At the same time, we also believe it was appropriate to take enough time to really understand and be able to share with you the dynamics impacting our business, and that's our goal here on this call. As we'll explain, we believe the softness impacting our video business is primarily a precursor to the market move to the new video technologies we've targeted for growth. That is to move to virtualized infrastructure, where our dear [ph] pipeline has grown much faster than expected. The adoption of the new HEVC compression standard and the upgrade of broadcast centers to support Ultra HD. A secondary source of challenge during the quarter was unforeseen weakness in the EMEA. And we'll discuss both of these dynamics in some detail. With that, though, let's first turn to Slide 3 and take a look at our preliminary results for the quarter, which really reflect the disappointing setback to our near-term financial growth agenda. Revenue is now expected within the range of $108 million to $110 million. And business in the Americas continues to outpace last year's results, and results at Asia Pacific are largely in line with expectations. EMEA fell short of expectations with several large projects deferred in the final weeks of the quarter. In terms of customer verticals, business from our service provider customers were solid, reflecting a very strong quarter in our Cable Edge business, while business from broadcasting media customers was softer than we anticipated. Our second quarter bookings were approximately $113.4 million, down about 10% year-over-year, while our first half bookings were up approximately 1% for the first half of last year. Relative to our expectations, EMEA was the primary source of bookings weakness. Our book-to-bill, however, was slightly above 1%, as our service business continues to grow and we also continue to see a strong mix of project-based deals. And consequently, our backlog and deferred revenue finished at approximately $132 million, up about $6 million from this time at the beginning of the quarter. Gross margin for the quarter is expected within the range of 49% and 51%. Reflecting the mix shift to more Cable Edge products and specifically not fully licensed NSG Pro blades [ph] and lower-than-expected video product revenue. With lighter revenue and gross margin, we anticipate non-GAAP earnings in the range of $0.00 to $0.02 a share. However, we generated healthy cash from operations and repurchased 3.6 million shares during the quarter for approximately $25.7 million. Carolyn will provide further details and commentary on these operating results in just a few minutes. Now turning on Slide 4. As context from my comments in the quarter and our outlook, I'd like to refer back to the strategic overview we presented at our Investor and Analyst Day in mid-May. At that time, we reframed our business as being the sum of our related but distinct video and Cable Edge businesses. And we detailed the disruptive transitions impacting and our corresponding new strategic platforms addressing each of these strategic markets. Despite a choppy and disappointing second quarter, we believe our strategy remains sound, our technology and competitive fundamentals positive, and that we remain solidly positioned to accelerate earnings growth in the mid to long term. So how do we reconcile a weak Q2 with this continuous strategic conviction? So let's turn to Slide 5, and I'll describe what we see going on in each of our 2 businesses. So the video business was our problem child in the quarter and this was due to a combination of market dynamics and execution challenges. As you may recall, during the first month of the quarter in mid-April we announced our new architecture and platform for the entire video chain, all virtualized on software, which we call VOS. In an industry steep to proprietary hardware and bespoke features, we expected customers to be positive about the vision but slower in planning for adoption. Well, as the quarter progressed, we were surprised to see more customers wanting to move in this direction more quickly than we anticipated. That as a consequence, our VOS deal pipeline is actually running significantly above where we expected it to be. And that's certainly the good news here. The bad news is that from -- for a service provider and media customer, transitioning to a cut [ph] server and data center operational model is a major change requiring extensive planning and preparation. Consequently, our second quarter bookings and our expectation for third quarter bookings have been negatively impacted by this acceleration of serious interest and our customers transitioning to virtualized software. Now with many of our Tier 1 customers, this virtualization transition pause is actually being exacerbated by coincident planning for the refresh wave to Ultra-High Definition or 4K and for the next generation of video and compression known as HEVC. Specifically during the quarter, for the first time we saw several of our Tier 1 broadcast and service provider customers actively engaged in the planning process to deliver Ultra HD and HEVC services. The Sony advertising blitz for their 4K TV is around the World Cup in Brazil further bolstered this effect. Now at the same time, but quite separately, we also experienced an unexpected slowdown within the EMEA region over the last month of the quarter. Specifically, we saw several anticipated deals get postponed. Now EMEA, for us, has a strong -- has been a strong performer over the past couple of years. And this change in business conditions certainly heightened our caution as we enter the back half of the year. Turning now to execution. We saw the newly announced PURE Compression Engine, announced as a component of our VOS virtualized architecture and platform win its first video quality shoot-outs against the best of the rest in the industry. Now this is significant and most of our Tier 1 competition is proprietary hardware-based. And therefore were positioned uniquely, as offering both unrivaled video compression efficiency and future-looking virtualization capability. But based on this positive traction and despite our customers operational transition challenges, we do expect a couple of our most advanced customers to be installing and deploying VOS technology by the end of the quarter. Also as mentioned a moment ago, we've seen accelerated market interest in both Ultra-High Definition and HEVC. And specifically during the quarter, we won an important contract to supply the world's largest transcoding firm with HEVC encoders in support of the Ultra HD video delivery streamed over the top. This marks our first scale Ultra HD and HEVC win, further illustrating Harmonic's distinct technology leadership in video quality and compression, which I see becoming a real and increasingly important competitive advantage. Now in the context of this call, I certainly don't want to overstate our success. These new technology trends have undoubtedly created more turbulence in our business than we anticipated just 1 month ago. Some of our largest and most thoughtful customers are stepping back to actively consider new approaches to video delivery. And with VOS in its first substantiation, Electra XVM, we're seeing sales cycle elongate as customers turn their attention to the operational aspects of shifting hardware-based video processing infrastructures in the software. And looking ahead to Ultra HD and HEVC, we're also seeing customers pull back spending plans, as they prepare new deployments based on these new technologies. So from a broader strategic sense, we're very pleased to see this activity and are encouraged by the clear trends. We're seeing a near-term transition trough in our business and this is an area where we will sharpen our execution to navigate successfully. Now finally regarding the video business, we recognized during the quarter the breadth and complexity of our business in Europe, Middle East and Africa across both developed and emerging markets warranted structural changes to enable better coverage, visibility and ultimately growth. Consequently, 2 weeks ago, we've reorganized our EMEA sales organization, and after some stabilization, we expect improved visibility and to be better positioned to again drive our performance across this region. So let's pivot now to our Cable Edge business where we're quite pleased with our preliminary top line results. People are really starting to see the heavy investment we've made in this business over the past 2 years beginning to pay off. From an overall market perspective, cable operators worldwide are deploying much more powerful and user-friendly content navigation guides for accessing their own content, driving the accelerated consumption of traditional video-on-demand services. And with new cooperative agreements between cable operators and over-the-top service providers, bit rates and stream quality is increasing, creating demand for scalable modular CMTS edgeQAMs. These and similar trends are accelerating the shift to CCAP-enabled architectures. And as some of you already know, CCAP is a term used by the cable industry to describe a flexible all IP-converged video and data network. And here Harmonic's NSG Pro is increasingly at the forefront of this investment cycle, representing an eventual addressable market of roughly $1.6 billion and really 5x the traditional edgeQAM market we've historically served. Now as the shift to CCAP occurs, we're also seeing growing momentum for Layer 2 virtualized CCAP-based solutions. Further enhancing the overarching theme of enabling flexible and cost-effective network capacity. In this light, we see ourselves well positioned for both centralized and distributed architectures with our NSG Pro and the more recently introduced NSG Exo. Both of these platforms leverage the virtues of standards-based Ethernet connections to existing edge router ports and control plane software in the network, simplifying operations and reducing costs for our cable customers. So with that background, let's talk a little bit more about our progress executing on our edge plan and the growth that we're seeing. The second quarter represents our third volume production shipping quarter for the NSG Pro platform. In early June, Infonetics Research asserted that during the first quarter, NSG Pro was the only CCAP-enabled product which gained share on a like-for-like revenue basis. So we remain very encouraged by this early success and I'm pleased to report that the momentum for the NSG Pro, in particular, accelerated throughout the quarter. Once again, contributing meaningfully to the strengthening of our overall Cable Edge business. Although I regret not having the precise revenue number to share with you today, we do know that we delivered a record quarter in Cable Edge sales in Q2. And as we enter the third quarter, our pipeline of new Cable Edge opportunities was quite healthy. Now as a reminder, initial shipments of the NSG Pro do yield well below our corporate average margins. We've been seeding the market with our NSG Pro for the past 7 months, while gaining valuable real estate along the way. In the second quarter, we shipped a record number of hardware plots [ph]. This real estate is valuable because once the NSG Pro is inserted within the network, it can grow and expand capacity by adding more cards or just software licenses, which turn on more capacity for the cable operator and in turn yield very high margin sales for us in the future. So again we're quite pleased by the early success and extensive footprint we're establishing with the NSG Pro platform. Now earlier, I believe, we briefly touched on our Layer 2 virtualized distributed CCAP solution, the NSG Exo, which we'll begin shipping later this quarter. We introduced this product in the market in mid-May, and I'm pleased to report that customer engagement and reception has been quite positive. This distributed approach to CCAP extends our ability to penetrate the market by placing DOCSIS functionality closer to subscriber, while let again leveraging standards-based Ethernet connections to existing edge routers in the network, providing the means for cable operators to not only drive more bandwidth deeper in the network, but further reduce the operational complexity of more traditional DOCSIS deployment scenarios. So we see a growing pipeline for this new project and anticipate the NSG Exo to contribute incremental revenue to our Cable Edge business in the back half of this year and throughout 2015. Finally, regarding key milestones directed towards achieving CMTS upstream functionality on the NSG Pro platform, I'm pleased to say we remain on schedule to deliver production-ready cards into customer labs by the end of this year. So summarizing our Cable Edge business, our edgeQAM and CCAP program results certainly represented a bright spot in the business throughout the quarter. And we see the network footprint we've acquired and solid demand trends validating the investments we've been making, capture a greater share of this growing market. So let's now turn to Slide 6. We're -- listen, in light of the softer-than-expected performance during the quarter, I really want to step back and summarize our focused efforts and direction in the last couple of years. If you go back to 2012, we view this CCAP market as a solid opportunity for our business and we charted a course toward an aggressive but disciplined investment process to deliver both the NSG Pro and the NSG Exo to address the CCAP business. Along the way, we stayed close to our customers, understood their requirements, and received outstanding feedback as we chipped away feature development. As our first CCAP product is near completion, our cable customers paused purchases of our heritage edgeQAM products, and many of you remember that our Cable Edge business flagged during 2013. Well, today, our Cable Edge business is seeing strong market appeal and we're in the very early innings of an all-IP and data-network convergence that we're clearly positioned to benefit from. With all that said, the same story we believe can be painted for our video business. The investments we've been making in virtualization, next-generation compression, Ultra HD and HEVC are solid. Our customer base is actively engaged and our pipeline is building faster than we anticipated. Here again, as we await customer planning cycles that incorporate these new technologies, our VOS platform, Ultra HD and HEVC technologies, our video business visibility and deal flow is likely to be impacted and somewhat turbulent, just as we saw with the Edge business a year ago. However, as that recent history has demonstrated, we still have a clear view to ensuing success and strong demand trends ahead. So we're clearly disappointed in our second quarter results and near-term outlook, our strategic direction remains focused and firmly intact. We're armed with a competitively differentiated and largely refreshed product offering, we're prepared now with a growing pipeline of exciting new business opportunities and a stronger than ever leadership position in the markets we address. And as such, we're no less optimistic about what lies ahead and ultimately, the achievement of the operating objectives that we've outlined to you. And on that note, I'll now turn the call over to you, Carolyn, to talk more about the preliminary results of the quarter and our financial outlook.

Thank you, Patrick. Let's move to Slide 7. Our preliminary results indicate revenue will be in the range of $108 million to $110 million, falling below our expectations for the quarter. As Patrick said, the weakness reflects the combination of overall softness in our video business, as customers evaluate our new VOS encoding platform across all regions and more specific softness in our EMEA business. The bright spot in the quarter was the continued strength in our Edge business delivering their best quarter. Our only 10%-plus customer for the second quarter of 2014 was Comcast. We anticipate our book-to-bill ratio in the quarter to be slightly above 1. Backlog and deferred revenue of approximately $132 million is expected to be up sequentially, and virtually flat year-over-year. The sequential improvement is principally due to an increase in SOA renewals in our support business. Our gross margin for the second quarter is expected to be within a range of 49% to 51%, also below expectations at the end of the quarter. The decrease in gross margin this quarter is largely due to a greater portion of our revenues coming from our edge product line in general, including an increase in the shipment of our NSG Pro products. This increase was primarily due to stronger-than-expected demand from our North America cable customers. As described in previous calls, our edge -- our Cable Edge products carry below corporate average gross margins and this is particularly true in the early innings of a product launch, where we typically improve margins as we ramp to scale. Notably, with early NSG Pro production costs largely absorbed in the quarter, the product gross margin did begin to improve as expected. However, when paired with softer-than-expected video product revenues, a quarter with relatively low software and firmware revenue, and lower factory overhead absorption in our video business, our overall gross margin was negatively impacted. While this was certainly not anticipated, we don't see it as a sustained trend. Looking ahead, we continue to see growing demand for license sales into our deployed license base of products, spanning both our video and Cable Edge businesses. And in fact, we're quite pleased with the footprint we're establishing today in the CCAP market, as Patrick just discussed. In addition, we continue to see benefits by several initiatives we've undertaken to reduce cost through operational efficiency and supply-chain management. We anticipate these benefits to become more transparent in our results, as we move through 2014 and beyond. Finally, with respect to margin. We're strategically focused on innovative products and solutions that deliver a differentiated value to our customers. Our focus continues to be to deliver more of this value through software, also driving higher margins. Non-GAAP operating expenses for the quarter are expected to be in the range of $52.5 million to $53.5 million. This is well below our guided range of $54.5 million to $55.5 million for the quarter. As is customary, we maintained good cost controls throughout the second quarter and anticipated our operating expenses to come in at the lower end of our guidance range. The decrease from the low end of the guidance range is associated with the reduction in our performance-related compensation. Headcount was 1,040 in Q2 compared to 1,042 in Q1, and 1,078 at the end of last quarter. Non-GAAP net income per diluted share is expected to be within a range of breakeven to $0.02 per share. Now turning to Slide 8. You can see we continue to drive a strong balance sheet. We anticipate ending the quarter with cash of $133 million to $135 million, down from the previous quarters $147.7 million, but reflecting $25.7 million used for share repurchases, which I'll discuss in more detail momentarily. Our receivable balance is expected to be in the range of $78 million to $80 million. DSOs are expected to be in the range of 66 to 68 days in line with our expectations. Inventory is anticipated to be within the range of $29 million to $31 million with inventory turns in the range of 7x to 7.5x for the quarter. Capital expenditures for the second quarter of 2014 are expected to be approximately $3 million. Moving to Slide 9, I'd like to update you on our share repurchase activities during the quarter. In the quarter, we repurchased 3.6 million shares for a total of $25.7 million. This brings our total shares repurchased from inception of the program to date to 31.3 million shares for a total of $193 million and brings our shares outstanding down to 92.5 million shares. At the end of Q2, we had $107 million available from our board-authorized program for continuing repurchases. As some of you may recall, this is up from the $52.7 million exiting the first quarter with our board authorizing an additional $80 million for repurchase during the quarter. Turning to Slide 10. As we look into the third quarter of 2014, we expect our revenue to be in the range of $103 million to $113 million. As Patrick noted earlier, this outlook, paired with softer than expected second quarter results, certainly represents a setback to our near-term financial growth agenda. The turbulence at our video products business in general and in Europe more specifically, add an element of caution to our near-term revenue outlook. However, looking beyond the third quarter, we do anticipate sequential improvement, although our ability to achieve mid-single digit revenue growth in 2014 is unlikely. This is primarily a result of elongated sales cycle for new video processing technology and the relative weakness we're seeing in Europe versus our expectations for the year. We anticipate non-GAAP gross margin in the third quarter in the range of 52% to 53%. This increase is based on the NSG Pro margins achieving their production level target, increased support revenue and margin and the benefits resulting from our supply-chain efficiency programs we've been working on. We could achieve the higher end of the range with a modest shift back to video products. As we bring a new strategic product, Patrick discussed earlier, to market, we have leveled off our R&D investment and has moved some investment focused to go-to-market activity. We also continue to focus on optimizing our G&A costs and with softer-than-expected preliminary second quarter results and outlook into the third quarter, we've already undertaken steps to further tighten our belts in 2014. We have targeted our non-GAAP operating expenses for the third quarter to be $51.5 million to $52.5 million. Finally, we anticipate our non-GAAP tax rate for 2014 to be 21% subject to the domestic versus international flip. With that, I'll turn the call back over to Patrick for his closing remarks before we open to Q&A.

Well, thanks, Carolyn. In summary, our preliminary second quarter results are not what we had anticipated, even just a few weeks ago in mid-June. Although we're disappointed with the outcome of the quarter, we're no less optimistic about what lies ahead. Harmonic is delivering industry-leading innovation at the right time, evidenced by active customer engagements and a growing pipeline of new technology opportunities. While the pace of our customers' transition to next-generation video processing technology has slowed our near-term financial growth agenda, we see ourselves exiting this lull as better positioned than we've ever been to deliver on our promised and targeted operating goals. Our strategy remains sound. Our fundamentals are positive. You'll see us continue an aggressive stock repurchase program and we built leverage into our business to drive strong earnings growth and committed to making all of this happen. And with that, we'll wrap up our prepared remarks here and open it up to questions.

[Operator Instructions] Our first question is going to come from Mark Sue of RBC Capital Markets.

This is Amit in behalf of Mark Sue. I think you mentioned the challenges in video delivery to persist in the near term, just wanted to check how long do you expect the planning stages to continue? And when do you expect the video delivery sort of solutions business demand and revenue sort of to return?

It's a transition process that play out differently for different customers. As I highlighted, we expect some of our most forward-looking customers -- they're quite far along and we expect to see our first sales and deployments in the current quarter, which is quite exciting. I would say the center of gravity, though, of the customers are probably still 3, 6, 9 months out. We see the U.S. operators, for example, being more further along than those overseas. So that's why we've given a softer guidance for the third quarter, but we're still not calling the fourth quarter. And it's certainly as an optimistic scenario that says that things really start to move. And we're doing everything we can from the execution perspective to be ready.

Okay. And just to confirm the challenges in EMEA related, limited only to delivery solutions or were they more broad based in both businesses?

No, that's broad and quite distinct from any particular technology. We did see a trend and particularly in some emerging markets of the EMEA that we had not anticipated of customers delaying deals. And to be clear, we feel very strong competitively. We feel that these deals are going to us, but for budget or other reasons, we see customers calling a delay. And that, as we said, has led to some caution, but that's really unrelated to any particular technology. Or put differently, we saw that across different -- a couple of different customer verticals and technology product areas.

Okay. So and just finally, could you provide some granular details on the Cable Edge, again, you mentioned in terms of maybe customers or regions and anywhere, just any granular details there, please?

Our Cable Edge product, as you know, going to just cable operators, and I'd say the U.S. is certainly leading the way. And that's where we see really a little bit of a renaissance of video-on-demand and we see strong over-the-top video trends putting a lot of pressure, creating a lot of opportunity for expanding bandwidth in the access network. That being said, we're making good progress with cable operators right around the globe. And we saw some very important new wins overseas as well during the quarter. So that business -- we like the momentum worldwide. The U.S. leads the way by virtue of having the largest and the greatest preponderance of cable operators, but it's a worldwide momentum that we're seeing there. And if I could go back to your first question, I also want to emphasize that while I -- on the virtualized video, well, I said that the U.S. operator scene is somewhat further along. The very strong pipeline that I mentioned is actually populated by customers from all regions. We see some of our key Tier 1 customers in Europe, Asia Pacific, as well as the Americas occupying prominent places on this bigger-than-expected pipeline for virtualized video solutions. So that's also a very much of a global phenomena.

And our next question is going to come from Simon Leopold of Raymond James.

This is Victor Chiu in for Simon Leopold. Gross margin, you guys came down a bit also. Is this a reflection of the slowing volume? Or is it driven more by the transition to virtualized solutions. Can you just give us more color around the gross margin?

Yes, it was not my intent to take gross margin guidance down from a long-term perspective. All along, we've said we targeted gross margin to be 53% for the year, with 53% in Q1. Obviously, down because the mix in Q2. Even with a more heavily edge-shifted mix in Q3, we're still projecting 52% to 53%. It is possible depending on the amount of rebound in video that we don't get all the way to 53% for the year. But there's nothing fundamental underlying a change in our outlook to gross margin by the individual businesses and expect that we'll continue to drive gross margin up. In this case, it's really a mix shift because of the heavy amount of edge as the percentage of revenue.

So the transition to virtualized products doesn't have any impact, I mean, it would [indiscernible]...

That's a positive impact. Yes, that's a positive impact.

Okay. Got it. Let me see, I guess, I'm not sure if I missed this earlier, but can you provide us, I guess, an updated view on your expectations or growth for the full year, if mid-single digit isn't in the books for you guys. Can you give us kind of an updated view of what we should we be expecting, I guess?

Well, I think that at this point, what we've done is we've given you a Q3 guide number and we've said we expect Q4 to be up sequentially. I think 2 weeks into the quarter and understanding the miss, it's too soon to give any more of a number for the year other than to say we've given you a Q3 guidance range. We expect Q4 to be up sequentially. Patrick talked about the reasons why we believe both businesses are intact from a growth perspective. But I don't think we're quite ready to talk about where the year will be exactly.

Okay. And just really quick, are you seeing any changes in the competitive landscape in the encoder business. Is that having any impact on the softness?

No significant changes. I think that this technology transition, if any does, it creates opportunities and dynamics but no real difference. I will remind you, going back to our discussion at the Analyst Day, that even in historically encoding base technology where most market research calls us out as a leader, our share is, in general, below 30%. So there are other competitors out there. We compete generally, favorably, that being said, there is a market share opportunity, and that's -- although we talked largely here about are technology trends. We're very focused on also strengthening our go-to-market execution in capturing more market share. And if you're 30% owner of a market, that means you don't participate or you don't win 2 out of every 3 deals that goes down. So there are a lot of competitors, there's a lot of opportunity there and we're very focused on. And frankly, with our new VOS platform, it's not just that it's virtualized, it's a highlighted fantastic new compression capability, et cetera. We've started winning shoot-outs with that platform. We believe that our competitive positioning is going to be further strengthened relative to our traditional as well as new competitors in the space.

There are no additional questions at this time. And I'd like to turn it back over to you, Patrick.

Well, thank you very much again, everyone, for joining us particularly here on short notice. I want to emphasize on one hand our disappointment with the results of the quarter and our strong conviction to do everything we can from an internal execution point of view to press the advantages we have and get back on the right track. That being said, the fundamentals of the business are very much in place. Our technology vision, our strategy and the opportunity in front of us is as real and in some ways more real than we've previously understood. So it's no way around it. We're going to see some turbulence over the next period or 2, as a lot of these transitions play out. We're determined to lead. We're determined to execute well and take advantage of these transitions. And on the other side, as often happens in this tech space, I think there's some very good possibilities. We'll see a more software-centric business. We see a more flexible business and we see a business that really goes to the heart of the areas where our customers want to invest. On one hand, the CCAP, next-generation infrastructure for Cable Edge and on the other hand, flexible, virtualized high definition, more compressed video services for all of our customers, broadcast, media, service provider. We're going to continue to do everything we can to take advantage of these opportunities to drive improved short-term as well as long-term performance. We appreciate your support. And we look forward to keeping you updated on our progress. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.