Allot Ltd (ALLT) 2012 Q4 法說會逐字稿

Thank you very much and thank you all for joining us on our fourth-quarter 2012 conference call today.

My name is Jay Kalish and joining me today are Allot's President and CEO, Rami Hadar, as well as our Chief Financial Officer, Nachum Falek.

The press release announcing our fourth-quarter and full-year results is available on the Investor Relations section of our website at www.allot.com.

All results and expectations we review on the call are on a non-GAAP basis unless otherwise described as GAAP.

Non-GAAP net income and non-GAAP net income per share exclude the impact of share-based compensation, early repayments of the Israeli office of the Chief Scientist, revenue adjustment due to acquisitions, expenses related to M&A activity, deferred tax assets and amortizations of certain intangibles.

Please note that all earnings per share amounts are on a fully diluted basis.

Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information.

I direct your attention to the risk factors contained in today's press release and in the Annual Report on Form 20-F filed by Allot with the US Securities and Exchange Commission.

With that, I would now like to turn the call over to Rami.

Thank you, Jay, and thank you all for joining us today.

During the fourth quarter of 2012, we achieved a record non-GAAP revenue level of $28.5 million, which is 2% over the third quarter and 29% over Q4 2011.

EPS came in at $0.14 per share, a slight decline over last quarter, mainly due to the full inclusion of operating expenses from the Oversi acquisitions.

Overall, we managed to complete these two acquisitions with minimum dilutive effect in 2012 and hope there will be one of our growth catalysts in 2013.

Despite the challenging macro environment, Allot continued to grow aggressively during 2012.

For the year, revenues grew from $77 million in 2011 to $107.1 million in 2012, representing 38% growth, an EPS increase from $0.46 in 2011 to $0.59 in 2012.

Given the (inaudible) financials and the fact that we elected to repay OCS government grants, and ceased to pay 3.5% royalty on revenues, there is a wide difference between GAAP and non-GAAP results.

Nachum will take a few minutes to walk you through these various accounting issues.

What the revenue increase does show is that Allot continues to grow marketshare in the [salvage] market.

We reached an important milestone in the Company's history by exceeding $100 million of revenues in 2012.

According to the strategy analytics, we are the market leader with over 40% marketshare.

The book-to-bill ratio was below 1 for the quarter.

This is mainly due to negative macro positions in our European region.

These market conditions have recently started affecting spending patterns of our customers in Europe.

From a revenue point of view for the whole of 2012, we have EMEA down to 44% from 61%, but roughly flat in absolute terms.

APAC grew to 25% of revenue and Americas grew to 31% of revenue with APAC and Americas region growing 92% and 97%, respectively, in absolute terms.

During the fourth quarter, we did not have any 10% customer, which demonstrates healthy customer diversity.

For the whole year, we have won over 10% mobile service provider customers, which, in absolute revenue terms, grew by 27% in 2012.

We continue to have a healthy funnel of expansion opportunities with this customer, mainly due to mobile data growth and adoption of new value-added services delivered by our Service Gateway.

During the quarter, we received large orders from 14 service providers, three of which were from new customers.

Nine of these orders were from mobile operators and two of these represented new customers for Allot.

During the year, we completed and achieved final acceptance of our US Tier 1 mobile projects.

We believe that our successful delivery proven installed base of two national US mobile operators puts us in a favorable position to win further business with Tier 1 US mobile operators in the future.

While we are pleased to see our strategy materialize by Allot winning business with Tier 1 service providers worldwide, and large orders becoming an increasingly larger part of our business, [standing] of these large orders are hard to predict and thus increase the risk of potential lumpiness in our business.

We believe this was also one of the factors that affected the book-to-bill ratio during the quarter.

2012 was an important year for Allot in positioning the Company for further growth.

With the continued dramatic rise in video traffic, we made two critical acquisitions of video caching and video optimization solutions.

Moving forward, I expect that these solutions will be important parts of our value-added service offering.

During the second half of 2012, we saw $4.3 million revenue contribution from video optimization and $3.2 million from video caching, in line with our estimate earlier this year.

During the fourth quarter, we won two mobile deals, which included a combination of our Service Gateway for policy and control applications integrated with video caching solutions.

What I can add today is that both solutions are well-integrated from both an operation and Product point of view and are showing a healthy and growing pipeline.

An increasing number of our customers are realizing that by using Service Gateway as an intelligent platform that includes value-added services in areas such as video, charging and security, they are able to avoid installing multiple in-line services and other ancillary equipment.

We believe that these solutions are becoming a real differentiator for us with service providers and substantially increase our total addressable market.

Looking into 2013, I believe that driving fundamentals of mobile data traffic space, the 10% (technical difficulty) our business in 2012 has not changed.

I see a healthy funnel of opportunities throughout the world with more activity and more RFPs that last year.

However, we may continue to see lumpiness in our booking patterns as these large deals materialize.

In summary, we reported another quarter and year of sustained growth.

We believe that our expanded product offering and roadmap, coupled with diversifying our salesforce into growing markets in APAC and Americas, will help us mitigate macro economy affects in Europe and sustain our momentum.

I will now hand the call over to Nachum for a short financial review.

Nachum, please go ahead.

Thanks, Rami, and welcome, everyone.

Let me take a few minutes to review the results we published earlier today.

I will be discussing non-GAAP numbers, which exclude the impact of share-based compensation, early payment of grants to the Israeli office of the Chief Scientist, revenue adjustment due to acquisition, expenses related to M&A activity, deferred tax assets, amortization of certain intangibles.

I will more fully explain the different one-time issues which impact our results.

A full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued today.

Now let me walk you through the results for the quarter.

Revenues for the fourth quarter on a non-GAAP basis increased to $28.5 million, up 29% over the fourth quarter of 2011, a 2% increase from the third quarter of 2012.

The reason for the difference between GAAP and non-GAAP revenues is the revenues adjusted for impact of fair value adjustment to acquired deferred revenues relating to the acquisition we did in 2012.

As a percentage of our revenues, (inaudible) Americas accounted for 28%, EMEA 31%, and Asia-Pacific 41%.

We had no 10% customers during the quarter.

Out of total revenues during the quarter, Products were 74% and Services 26%.

Just to clarify, Services include maintenance and professional services, while Product includes platforms such as Service Gateway and value-added services such as video.

Gross margin for the fourth quarter was 75.8% and most of the improvement versus last quarter was due to lack of royalties provision to the Israeli Office of the Chief Scientist or OCS.

As many of you know, in the past, we received a grant from the OCS, which represented as a credit to our R&D line item, which is why we presented the R&D expenses as a net amount.

This grant program is subject to payment of annual royalties of 3.5% of revenues and the accrual was presented as part of (inaudible).

The grants also accrue interest.

During the fourth quarter, we recorded a liability for early payment of $15.9 million due to settlement with the OCS, representing the full balance of the contingent liability related to the grants received, which will be paid during the first half of 2013.

Upon making this payment, the Company will eliminate all future royalty obligation related to its anticipated revenues and save associated future interest payment related to such obligations.

Going forward, we will not accrue 3.5% of royalties payment, but on the other end, we will not receive the R&D grants we received in previous years.

As part of the new arrangement, we will apply and might get smaller grants, which are not subject to repayment obligations.

Our operating expenses increased to $17.4 million from $15.5 million in the third quarter and in line with our expectations.

Our total headcount is now 442 employees.

For the quarter, we reported earnings per share of $0.14, down slightly from the third quarter, but including the full impact of additional operating expenses from Oversi.

During the quarter, we recorded net deferred tax assets in the amount of $900,000.

The deferred tax is part of the tax benefit line item on the P&L and we reconciled this income on the non-GAAP adjustment.

On the balance sheet side, cash balances declined slightly to $143 million from $144 million, mainly due to net working capital needs of the acquired companies.

Our DSO declined to 65 days from DSO level of 75 days we had in the third quarter.

Deferred revenues went down by $3 million, mainly due to recognized projects of orders from (inaudible) and Oversi, which you could see on the GAAP to non-GAAP revenues adjustment.

That concludes my remarks and we will now open the call for questions.

(Operator Instructions).

Today, we would like to restrict questions to two.

(Operator Instructions).

Daniel Meron, RBC Capital Markets.

Thank you.

Hi, Rami and Nachum.

Can you provide a little bit more color on a regional basis on the dynamics that you're seeing?

I think, Rami, you mentioned that Europe was a little bit slower in the quarter -- in the last six months, actually, when you look at it.

But then you did have a pretty good spike in Asia-Pacific.

So if you can just talk a little bit more in detail about regional dynamics and on what you see from various service providers in general in your discussions.

Okay, yes.

Thank you, Daniel.

So in absolute terms, what I said is that Europe was more or less flat in absolute numbers and given the top-line revenue growth became smaller in percent as of revenues.

What we have seen in Europe and mainly in Western Europe is, as we mentioned in prior quarterly calls, projects are not being canceled.

The need is there, but we are seeing across the board people being more diligent about budget spending, taking more time, negotiating pricing and thus deals are closing slowly.

In Americas, South America is very healthy and growing.

North America has grown nicely, mainly due to the contribution of our two recent mobile wins.

In APAC, it's across the board.

APAC has been growing in the past years nice and steady and did so last year.

Again, a couple of nice large deals, both in fixed and mobile, helped APAC grow as well.

As I said, in absolute terms, in revenue terms, these two regions, Americas and APAC, grew about 90% year-over-year.

And were there any particular deals that helped that?

I mean, Asia-Pacific at least, when I do the math, it sounds like it was a pretty big spike sequentially.

How do you think that these trends will play out?

And when it comes to the follow-on orders from the recent deals that you had in the Americas, is there anything that necessarily signals or provides a milestone for follow-on orders as you look into the next few quarters?

Or maybe what could be the demand drivers as you -- what comes up in your discussions with carriers?

So in APAC, fundamentals haven't changed.

The need is there.

APAC is not a very homogeneous market.

It stayed amongst many, many countries, totally in Southeast Asia, except, of course, China.

The growth [upgrade] is related to ability to penetrate new mobile operators while growing installed base continues to expand.

We've talked about migrating an installed base from 3G to 4G and LTE deployments and that certainly continued in the past two quarters as well.

In Americas, South America continues to have interest across the board.

We see healthy demand for our new caching solution.

And in North America, as I said, it really is about being able to leverage on our initial success and be able to continue getting expansion orders from our first initial two wins.

And hopefully, penetrate other new accounts as well.

Okay.

I've got a few more questions, but I'll join back later on.

Thank you, Rami, good luck.

Thank you, Daniel.

Alex Henderson, Needham.

Thanks.

If I could just address the technical issue around the R&D and the royalty piece.

So it sounds like you have a benefit to cost of goods sold associated with eliminating the royalty and you're also saying you are losing an R&D credit.

Can you size those pieces for us?

Is the R&D credit similar in size or is that a net positive to the numbers?

And, if so, what's the magnitude on a percent of revenue or some other metric?

Hi, Alex.

So I would say that, if I am looking at the last couple of years, we, on an average, got a grant from the OCS between $2 million to $3 million per year, which was an offset to our R&D expenses.

On the other end, part of the (inaudible) include a 3.5% out of revenues and accrued for royalties.

Taking into account those two effects on our P&L, it's already part of -- or it's already included on our non-GAAP P&L for the fourth quarter.

Meaning, on the fourth quarter, we didn't accrue the 3.5% royalties to the OCS and we didn't get any new grants from them as well.

Okay.

Great.

Thanks.

Going back to the question just asked about demand conditions, you talked about need, but can you talk a little bit more about what you are actually seeing in your funnel of activity and deals that you are chasing?

The obvious question here is, given the softness that you experienced in the December quarter, did it hollow out your funnel of activity or do you still have a very robust amount of activity going into the upcoming year that you could translate into business over the next three, six, nine months?

How do we think about the degree to which the softness was just timing of closure versus the amount of activity that's in the book that you're chasing?

Yes.

Thank you, Alex.

So trying to quantify funnel is a very subjective and (inaudible) exercise.

Nevertheless, if I look at the funnel of activities, RFPs, POCs, demonstrations and what not, now versus a year ago, it's definitely higher.

Hard to quantify exactly by how much, but there is a lot of activities worldwide in all of our regions, including Europe and obviously, one can't guarantee, but can expect that a reasonable part of these RFPs and trials will translate into revenues.

Certainly, the amount of activities, the interest we are seeing out there is healthy and greater than what it was this time last year.

Having said that, in one of our regions, fortunately, our largest region, Europe, we are seeing deals take more time to close and we are seeing customers spend more time negotiating these things.

This is really the fundamental change versus the two fiscal quarters ago.

Okay.

Thank you.

Tal Liani, Bank of America.

Hey, guys.

Can you hear me?

Yes.

Oh, good.

I have two questions, please.

Both of them on North America.

So North America was down substantially sequentially, and I'm trying to understand if you can discuss the subregion within -- sorry; Americas were down.

Is it US specifically?

Is this the source for weakness in the Americas region?

Second question is related to that.

US is going through lots of changes with M&As and investments in certain carriers, so what is the situation right now with the US wireless carriers?

I know you don't discuss customers by name, but can you at least generalize and tell us how is the demand and what are the -- what's the progress you've seen over the last year?

Thanks.

Okay.

So to answer your first question, and Nachum can come in, as we said, on a full-year basis, Americas, South and North, coupled together have grown very nicely in absolute terms.

You are right that, from quarter to quarter, North America declined mainly because the recognition of a large North American mobile carrier happened mostly in -- or all in Q3 of this year and was not contributing to revenue numbers in Q4.

That's the technical decline from Q3 to Q4.

Regarding our progress in North America, the fundamental need for our products in North America is no different than any other place in the world.

Mobile data is growing very rapidly.

Introductions of new balance-hungry devices is fueling the growth over mobile data and thus, the need for optimization and monetization solutions.

The only difference in North America is the famous topic of net neutrality.

We have spoken a lot about that.

From a regulatory point of view, there hasn't been any major progress, positive or negative.

Net neutrality, the jury is still out on where this is going.

What we have done in the meantime is introduce more functions and more value-added services that cannot reside in a Service Gateway and these functions don't read on net neutrality and thus, (inaudible) two wins with functions which are not related or have any imposition on net neutrality wins.

This will be our strategy -- our forward-going strategy in North America until we see the net neutrality [shoo] up and out.

Good.

Was there any impact of the M&A activity in North America?

Was -- I'm trying to understand whether the -- first of all, I'm trying to understand whether you missed the numbers -- we missed our expectations.

Whether you missed our expectations because of North America or that was precisely in line with your expectations and the miss was the decline in Europe.

And then if it was in North America, did it have a temporary impact, meaning because of some M&A activity, things that pushed out or it's not about that, it's about longer cycle to take decision?

In terms of the major underlying reason, I think I was clear on the call.

The weakness we are seeing across the region is mainly in Europe.

In North America, without being too specific, I would say in the general terms, obviously, when you have a customer, that customer goes through an M&A activity, then that specific customer is -- you are typically not inclined to make a new acquisition -- a buying decision in the short term.

So that might potentially have an effect.

Our growth in North America will be really dependent if we can leverage on our first two initial wins and continue to win large projects in this region.

Okay.

So last question from me.

Within Europe, did you -- and I apologize.

I joined the call a little bit late, so I apologize if you discussed it.

You have a very big customer in Europe that you disclose every year.

Did the decline happen because this -- did the decline happen because new customers that were supposed to kick in didn't kick in?

So Tal, on the call, I did say that we had one 10% customer for the year.

That's the very large mobile operator in Europe.

And that customer on absolute terms -- in absolute revenue terms grew by 27% in 2012.

So they were not the point of weakness.

Looking into 2013, we do believe that through our needs of expansion and introduction of new value-added services, we believe that customer will stay significant for us in 2013.

So again, we don't think that was the point of weakness in the European region.

Got it.

Thank you.

Thank you, Tal.

Joseph Wolf, Barclays.

Thanks.

Question on the size of the deals.

You talked about the large deals making the planning process or the signing process longer.

Could you guys frame maybe the size of these large deals in the context?

When you say large deals now, and you have more large customers, how big are those deals that we should be thinking about?

An (inaudible) analogy, when we say 14 large deals, in our vocabulary, it's any deal over $250,000.

And that hasn't changed with the new dynamic of your customer base?

No.

We have been increasing the threshold of large deals in the past and the threshold was $200,000.

Now it's up to $250,000.

Now, these are bundled out of different sized deals.

I mean, there were deals there that are a couple of million of dollars, and there is deals which are $250,000 and above.

Obviously, when I mentioned our strategy to move into larger deals, and their contribution to our booking growth, we are talking about expecting that, in every quarter, we do land one, or two, or three even multiple million dollar deals.

But in terms of counting the 14 large deals, anything above $250,000.

Okay.

And then just you talked about the strategy and where you save customers with your integrated approach I guess on the box count by putting multiple services in the Service Gateway.

Could you address that and perhaps in the context of the Oracle acquisition that was announced yesterday?

It's very hard to create a direct correlation because I'm not really sure what are Oracle's intentions.

It seems that they are looking for a growth space within networking, certainly in areas with layer 7 functionality.

We have encountered some activity with Oracle where we integrated our Service Gateway with their PCRF function -- policy (inaudible) function, which is a complementary product to ours.

So we could see this might be the beginning of Oracle's interest in certain areas of data, networking, maybe mobile.

Certainly, as things become more in [social-oriented], which is in a way our direction with the value-added services, we can incorporate these functions either internally into a Service Gateway or externally virtualize and running on blade servers anywhere in the network, right next to us in the core or in the cloud.

The fact that we have a very strong layer 7 steering function within the Service Gateway allows us to direct various types of traffic or users to these value-added services.

So all in all, it seems that virtualization (technical difficulty) components and growing segments within mobile data networking seems to be kind of the common theme in this same activity.

Okay.

Great.

Thank you.

Thank you.

Matt Robison, Wunderlich.

Hi, guys.

First, just to check my arithmetic, your commentary on optimization and caching, it implies the core business was $23 million in the fourth quarter.

Is that right?

Roughly, yes.

More or less, yes.

You have had a pretty significant sequential recovery from Europe in the first quarter in recent years and I think some of your commentary implied that your big customer in that area is staying with you and has more to do with value-added features.

Should we be anticipating a meaningful sequential increase in Europe this quarter?

Matt, I hesitate to give specific items on the region certainly in times of this kind of a macro economy, but you did pick up on the fact that our core customers, the very two large mobile operators we have in Europe, have stayed with us and actually both came back, at different levels, but both came back with expansion orders.

But that's good enough to more or less achieve in absolute terms flat results.

The point is if we want to continue growing at the rate we've been doing the past couple of years, Europe -- just getting expansions from existing customers is nice, but not good enough.

We need to be able to win new accounts as well.

And that was what was lacking in the last quarter.

So just to give us kind of a qualitative feel, where should we expect the regional -- what should be the better performers regionally in the first half of this year?

Matt, very hard to predict.

Again, $2 million or $3 million or $4 million could swing in different ways, but I do expect EMEA to remain our largest region.

And potentially, depending on a couple of these which are in the pipeline, could swing back into our growth and therefore stay and may hopefully resume growth in the first part of 2013.

Thank you.

Thank you, Matt.

Catharine Trebnek, Northland Securities.

Good morning, Rami and Nachum.

Quick question.

What motivated you to do this with the OCS and is there any other motivation behind this besides better growth margins, etc.

because doesn't this eliminate the approval for the Israeli government to actually approve a merger and acquisition or a take-out?

Thank you.

Hi, Catharine.

So first, no, what will be the settlement with the OCS doesn't mean anything regarding tax benefit or (inaudible) prize or something like that, which is completely different taxation in Israel.

As for your first question, I think that, first of all, as we mentioned, we are saving the interest that accrued.

Getting to your P&L question, so if I am trying to estimate impact on 2013 P&L, think of something that is 3.5% to even 5%, in some cases, royalties out of revenues.

So let's say it's $100 million leverage, at least $3.5 million to $5 million of an expense that should go straight to the COGS.

Why we are waving on one end the grant of between $2 million to $3 million, that's what we experienced in the last couple of years.

So the net effect on this year's P&L, the estimated is a positive effect on the P&L.

Okay.

And then the other question, Rami, are you seeing any of the carriers looking at WiFi?

Do you think that's complementary to DPI and -- or do you think it's a little bit causing some of the problems with the slowness in Europe?

Thanks.

Definitely, many carriers are looking at WiFi as a complementary strategy to their wireless coverage totally in hot zones of congestion.

All in all, it's neutral.

There's different flavors to WiFi, whether it's WiFi in Starbucks where the carrier is not even involved and aware of these data stations, or it's WiFi deployed by a large mobile operator, for example, Orange in France.

We have numerous examples where our Service Gateways are scalable enough to take on data traffic, coming both from 3G and from 4G and from WiFi networks and do both a policy in charging from traffic coming from all three access same technology.

So in some cases, it calls for an expanded deployment, so we can take on more traffic.

In some cases, the carrier doesn't see the traffic and therefore we don't see it.

So all in all, it's net neutral at this time

All right.

Thank you very much.

I'll pass it on.

Thank you very much, Catharine.

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my question.

Rami, you mentioned that decisions are taking a little longer.

Trying to drill down here, is this because the marketplace is a lot more competitive or are there more competitive bids out there for carriers to choose from, and that's taking more time?

Or is just macro conditions being weak, meaning the capital expenditure is not as quick as it used to be?

My subjective analysis is that it's more economy and budget.

Obviously, the fact that there is competition allows the service providers to negotiate, but I don't see any major change in the competitive environment.

I mean the pure plays are the pure plays.

There is no new players on the floor.

The alternative solutions -- the integrated solutions from large and system integrators is there and I believe continues to lose marketshare to the pure play, both us and our competitors.

So I don't see any shift in competition, therefore, it seems to me more if you -- obviously, you are reading the news like I am.

Some of Europe's largest operators are either doing layoffs or downsizing in CapEx, and we've gotten to the point that it's deep in all budget items.

And things that we are able to duck earlier this year are starting to creep up.

So, again, I think it's more economy and it's about, if any, about competition.

All right.

Speaking of competition, one of your competitors last month acquired a company and that gives them entry into the enterprise market through an OEM channel.

I guess the question is what does that do to your strategy in terms of addressing that market and does that -- is that of concern to you?

It's more or less neutral to us.

I mean a small part of our business does come from large enterprise, but if you've been listening to our calls, our strategy is more and more deeper into large service providers.

So this entry to enterprise channels is fairly neutral to us.

Okay.

Last question.

You talked about how this year you're going to be needing to look at adding more customers and sort of just expanding in current customers.

What are some of the strategies you are taking?

I guess the real question is what are the challenges in terms of customer acquisition and how do you hope to address that?

Right.

So first, to quantify the challenge, as I mentioned in the past, in difficult quarters, we get about 70% of our revenues from expansion deals and 30% comes from new deals.

Obviously, expansions are more predictable and more manageable, where expansions totally -- where new deals totally with large service providers always have a timing issue.

In order to continue growing at the pace that we have been growing in the past couple of years, we need to execute well on both fronts, keep our customers happy, keep getting these expansion orders on one hand and be able to continue winning medium and large sized service providers worldwide.

That's certainly one strategy we are doing.

Part of our drive to add more and more value-added services to the Service Gateway is, one, to create differentiation.

But, second, to have more things to upsell to our existing customers, which is a strategy that has worked out for us very nicely.

We've all been tracking our very large mobile customer in Europe and part of our ability to keep that customer engaged is because we keep on bringing more and more function and value-added services to our offering and creating upsell opportunities.

That's one product customer point of view and, from a geography point of view, as I said on my talk, the strategy is really follow the money.

So growth areas are now in Americas and APAC -- well, that's where we are going to beef up our sales and technical assets.

Okay.

Thank you.

Thank you very much.

Brent Bracelin, Pacific Crest.

Thank you for taking my question.

Wanted to go back to Europe, if I could.

Rami, you had clearly talked about kind of lengthening deal cycles about six months ago in Europe.

On an absolute basis, it looks like here it's the lowest kind of quarterly level in a couple years, lowest percentage of the revenue in quite some time.

As we think about -- I know you're having trouble wanting to kind of predict given the macro here, but as we think about Europe trending this year, would you be disappointed if Europe was flat again?

And as we think about the pipeline in Europe, do you have visibility with some new customers that suggest you could actually grow your European business this year or is it, again, too early to tell?

I think it's almost yes to all of your answers.

Will I be disappointed if Europe stayed flat?

Yes.

Do I see a funnel that would allow Europe to resume growth?

That's a yes as well.

And the bottom line would be, obviously, our execution and products being able to show financial justifications from customers to both expand and buy into a new product in Europe.

Okay.

Helpful.

And just as a follow-up relative to the lengthening sales cycle kind of commentary, is that isolated to Europe today or are you seeing any sort of signs the macro is also starting to lengthen deal cycles in Americas or Asia-Pac?

Right now, it's mainly Europe.

I hope it stays this way.

Also, a comment both on new person now and before, I have mainly analyzed on my talk the whole year and I did that on purpose.

Given our size and given the fact that we are dependent on a certain amount of larger deals, sometimes analyzing just one quarter and creating a trend out of it could be very misleading.

Numbers can fluctuate just because we recognize a certain large project here and there.

That's why I think analyzing a year and taking the conclusions there is the more stable and predictable exercise.

And, as you've seen in my analysis, what we've seen is flat in EMEA and very nice growth in APAC and in Americas.

We need to be able to continue that growth in these two regions and get Europe back to growth.

Very helpful.

Also, I wanted to follow up on kind of the seasonality question here.

While I appreciate the annual comments, I have to model on a quarterly basis, so as we think about typical March seasonality, should we look at Q4 revenue, take out the deferred revenue, kind of adjustment of $2 million, and look at the current run rate of about $26 million a quarter?

And if we take that current run rate of $26 million a quarter, what should we be thinking about relative to seasonality in the March timeframe?

Historically service provider, CapEx spending is slow in March.

Should we assume a potential sequential decline in line with more normal seasonal trends in kind of the March quarter, or how should we think about looking at modeling revenue for the March timeframe?

Any color there would be helpful.

Yes, so, obviously, the exercise is too complicated and I can't go into quantitative measures.

What I would say is that, as we, again, focus more on larger and larger service provider deals, these tend to be less -- not absolute, but less seasonal.

There is a small element of our business, which is seasonal where Q4 and Q2 quarters are stronger than Q1 and Q3.

But that part of our deal is mainly with small service providers ongoing, incrementally small size deals that sometimes are channel-dependent and tend to be seasonal.

So there is some seasonality in our numbers, but not on the very large deals.

Okay.

Great.

My last question is really around competition.

Obviously, Sandvine, for the first time, is going to show a bit of a return to growth for the first time I think in a little over two years.

Are you seeing them show up in more new deals or have you seen a change in the win rate at all or do you kind of see it as business as usual?

Three main competitors in this space show up and there's really no change?

Just trying to help understand kind of why we are seeing a return to growth there and if you've seen any sort of change in the competitive environment.

Yes, I have to say, with our limited view, I always had a respect to Sandvine as a competitor.

I think they were overpunished in the past.

I'm encouraged to see them going back to growth and see our whole space get back to growth.

So no fundamental change in the various strengths or weaknesses of these three co-players.

My strong belief that -- actually only three players in the pure play is fairly favorable to our competitive environment and as long -- and the growth area is really for us three to continue taking marketshare from the integrated players versus from one another.

Okay.

Helpful.

Thank you.

Thank you.

Dov Rozenberg, [CALF].

Thank you.

First of all, just on housekeeping, I missed Product and Services.

Can you just tell me what the breakdown was?

Sure, Dov.

74% were Product and 26% were Services.

Okay.

Great.

Thanks.

Now we talked a lot about the funnel, etc.

I was wondering, as far as the acquisitions pipeline, in other words, looking into 2013, is that also what you had expected -- the opportunities within video caching and optimization looking forward?

Yes.

They came in more or less as we expected in terms of revenue contribution and converting backlog into revenue.

Looking into 2013, they both have a pretty good pipeline.

Probably caching better than video optimization given that caching is a little bit more of a maturing market, which has its upsides and downsides as well.

So both the funnels are caching greater than optimization.

Okay.

And then do you expect the enterprise -- we mentioned it before.

Do you think it will be 20% also going forward -- also 2013 and beyond?

Yes, that's more or less a rough estimate and sometimes the line even blurs.

I mean if you are selling a device, say, to large service providers, data center, because of their cloud strategy, is that an enterprise dealer or a service provider deal?

But more or less, that's the area.

It's been stable for a couple of years.

But, again, the focus and the growth and the roadmap is into our service providers.

Okay.

Great.

Thanks.

One last question from me, just we talked a lot about Europe and I just wanted to make sure, looking into 2013, and not specifically numbers, but do you expect all the regions to grow, say, in the first half of next year or in 2013?

Not giving any guidance.

Obviously, if we want to continue to grow, we need to see these two regions and then hopefully Europe resuming growth.

The challenge will be definitely Europe.

Right.

Okay.

Thank you very much.

Thank you.

Sanjit Singh, Wedbush Securities.

Thank you for taking my questions.

I was wondering if you could give us an update on the Product roadmap.

Is there any install base upgrade potential with any new products that are coming out this year?

That's my first question.

We will be announcing several interesting roadmap announcements in the coming Mobile World Congress in Barcelona, so I suggest -- I don't want to take any thunder from our Product Management group, but we have a couple of very exciting functions and value-added services that we are planning to release some of them, actually even getting a headstart in terms of winning deals.

And we will announce them in the months from now in Barcelona.

Great.

And then on value-added services, what was the percentage of revenue this quarter?

I think you mentioned it last quarter.

Do you have a value-added services contribution this quarter?

Yes.

I'm sorry.

I don't have that figure right now.

We did break out the video products for the past six months because, obviously, they are a point of interest.

Starting next quarter, we will get back to -- we will put video delivery as part of value-added services and we will break it out on percentage.

At this point, I apologize.

I don't have the numbers.

No worries.

And then on your thoughts on M&A, are we still looking at potential deals adding to the value-added services portfolio or are you looking to take a pause on the M&A front?

So we have been in Product mode, if you may, in the past couple of months.

We've just seen the two acquisitions we just discussed.

I believe we are now at the point of almost being done with this same phase.

And hopefully, we'll have the bandwidth and attention to pursue other interesting complementary functions to our offerings totally around more and deeper value-added services.

Whether they happen in the short term or longer term or in 2013, I cannot say, but we will be back in hunting mode by the end of Q1.

And, Nachum, my final question.

If you could update us on the accretion (inaudible) for both Oversi and Ortiva, if you could.

Is that a Q1 timeframe or --?

Do you mean in terms of EPS (multiple speakers) improvement?

Yes.

That's exactly right.

Oversi, no, as Rami mentioned, both acquisitions (inaudible) according to our estimate on the top line and, just to remind you, both of them, we said breaking even by the end of the year.

So actually if you're looking at the Oversi, on a standalone basis, which obviously is a little bit complicated, looking into it was kind of breaking even and even profitable during the quarter.

Thank you so much.

As there are no further questions, I would like to turn the conference back over to your host for today for any closing or additional remarks.

Thank you very much for joining us all today.

We look forward to meeting with you during the quarter and welcome you back, of course, to the next quarter's conference call.