Allot Ltd (ALLT) 2013 Q4 法說會逐字稿

Thank you very much, and thank you all for joining us on our fourth-quarter 2013 conference call.

My name is Rami Rozen, 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 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 stock-based compensation expense, revenue adjustments due to acquisitions, expenses related to M&A activity, deferred tax assets, and amortization of certain intangibles.

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

A reconciliation of each non-GAAP measure to its nearest GAAP equivalent is available in the press release containing our fourth-quarter results.

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 judgments based on currently available information.

I refer specifically to the discussion of our expectations and beliefs regarding our pipeline and funnel of potential future business.

Our actual results may differ materially from those projected in these forward-looking statements.

I direct your attention to the risk factors contained in the Annual Report on Form 20-F filed by Allot with the US Securities and Exchange Commission, and those referenced in today's press release, both of which detail factors which could cause our actual results to be materially different from those projected in the forward-looking statements.

Allot, ClearSee and website are trademarks for Allot Communications.

All other trademarks are the property of their respective owners.

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

Thank you, Rami.

And thank you all for joining us today.

In today's call, I will highlight Allot's results and achievements for the fourth-quarter of fiscal year 2013.

I will also discuss recent industry trends that will influence our business in the mid and long-term.

Then I will hand over the call to our CFO, Nachum Falek, for a short review of our financial performance for the fourth-quarter and fiscal year 2013.

Our fourth-quarter results came in at $27.3 million, up $13.3 million sequentially.

For the fourth consecutive time, book-to-bill was above 1. The strong booking momentum is mainly attributed to our expanding VAS product offering relating to security and TV applications.

These offerings improve our differentiation, stickiness, and allow us greater upsell revenues.

We expect that the strength of our business momentum we are currently experiencing will translate into growth in revenues during 2014.

Summarizing 2013, the weakness in revenues during the first half of the year was the result of the booking weakness we felt during the second half of 2012.

At the same time, we sensed a strong bookings environment, and achieved a book-to-bill ratio of above 1 in each and every quarter throughout the year.

The improvement in bookings is already impacting our quarterly performance, and we expect it to support our growth during 2014.

Our backlog at the end of 2013 is much stronger than it was 12 months ago at the end of 2012.

During the fourth quarter, value-added services represented 36% of our bookings and 32% during 2013.

VAS booking during 2013 has more than doubled compared to 2012.

We are pleased with our performance in this segment.

We expect VAS to continue to be key growth catalysts forward.

Upselling value-added services to existing clients is the fulfillment of our Service Gateway vision, and as a key differentiator, enhances our gross margin.

During the quarter, we received large orders from 18 service providers, one of which is a new customer.

12 of these orders were for mobile operators and six were from fixed line operators.

This quarter, we had two 10% customers and three 10% customers on an annual basis during the entire year.

All of them are Tier 1 service providers.

This year, the number of large multimillion dollar deals has increased compared to prior years.

This reflected successful implantation of our direct touch go-to-market strategy, and our expanded VAS offering that allows us to increase the number of new deals and follow-on orders with Tier 1 service providers.

Moving forward, we believe that our expanded portfolio and growing installed base of Tier 1 referenceable accounts is a good foundation to continue our direct strategy of winning and supporting Tier 1 mobile operators.

Nevertheless, we cannot rule out future lumpiness due to the unpredictable timing of these large deals.

During 2013, we launched ClearSee, our advanced analytic platform.

And during the fourth quarter, we announced two new large deals with the new analytics platform.

We believe that our vantage point in the carrier network where all Internet-bound traffic flows through our Service Gateway, our ability to extract real-time analytics from terabits of wirespeak data in a scalable way.

And coupled with our unique application awareness, puts our analytics tool in a very advantageous position versus fragmented and limited solutions that exist today.

From a service provider point of view, having a best-in-class networking subscriber analytics tool is a must for any marketing product development team within a carrier that plans to develop new monetization products and strategies.

Moving forward, we expect that ClearSee, our analytics product, will be pivotal and instrumental in our VAS upsell strategy.

In addition to ClearSee, we've introduced WebSafe Personal, a network-based malware and parental control solution.

It is fully integrated with Allot Service Gateway.

The solution includes updating services and self-customization that generates revenues while increasing customer satisfaction and protection.

Both products have already been deployed by leading mobile operators in multiple regions across the globe.

We expect both products' platforms to have a positive impact over our VAS booking growth going forward.

The positive feedback we received from our new VAS offering goes hand-in-hand with growing demand from our customers for monetization services.

In fact, the demand for monetization-based services is growing nicely, fueled by the competition between service providers and our collective ambition to become digitalized care providers rather than dump-I providers.

These operators seek new ways to improve customer loyalty differentiation that increase their declining ARPUs.

We expect this market trend to accelerate as well during 2014.

A great example of our monetization strategy is Application-Based Charging, ABC.

For the past two years that we have been talking about Application-Based Charging and zero-ready programs as a simple example of that.

In fact, two years ago, we released our mobile transport showing the gradual move by mobile service providers from flat rate plans to volume-based plans, i.e., bandwidth caps, and thereafter to value-based plans.

With recent industry announcements, we are pleased to see that the vision is gradually gaining acceptance.

Two great examples are Google has launched Google Free Zone Service, which empowers service providers to apply their rating to certain Google applications within the Free Zone.

Our ABC functions can support such monetization use cases, and we're in the process of implementing such plans with several of our mobile customers.

This is on top of zero-rated social network applications already implemented by some of our Tier 1 mobile customers.

The second example which we are not involved in, but we see -- we do see it as a major step in the right direction, is the recent sponsored data announcement by AT&T.

This is really the incarnation of 1-800 numbers in the data world.

Contract providers are eager to seek out and potential customers consume data from the website, and consume -- can assume the data ports, thus reducing inhibitors from end-users to access high-end multimedia-rich websites.

We see that as a perfect example of how end-users can gain better Internet experience, and reduce costs as a result of collaboration between content providers and service providers.

We hope to see similar strategies taken by mobile service providers.

Our Application-Based Charging enables service providers to launch similar offerings in the scalable way to many content providers seamlessly.

The second example is the recent court decision in favor of Verizon essentially canceling net neutrality for signaturization improves the business environment and outlook for application of our solutions in the US market.

Although this might not be the last shot in the long battle, and in many case, Tier 1 service providers will move forward cautiously, being careful how these new initiatives will be perceived by end-users, the end result is net positive to our industry.

And finally, a few words about our video VAS acquisition.

Here also we are pleased with our product targets and market trends.

Video traffic growth continues to outpace the growth in overall data over mobile traffic.

According to recent Cisco VNI reports, video traffic was 50% of mobile Internet traffic in 2013, and a growth of 70% in the next four years.

In the quarter, we announced that our video optimization solution was chosen by an EMEA-based mobile virtual network operator, MVNO, to optimize its video and web traffic, reduce operating costs and provide in-depth analysis of traffic and usage patterns.

Also, we have received a follow-on order from our core video optimization mobile customer.

In summary, 2013 was a transition year for Allot, coming out of the booking weakness in the previous year, which impacted our first half performance, but at the same time break will be excellent booking performance throughout the year.

As we enter 2014, our final goal opportunities and growth directions is both healthy and diversified.

And we expect this to drive our performance going forward.

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 any active share-based compensation, revenue adjustment due to acquisition, expenses related to M&A activity, deferred tax assets, and amortization of certain intangibles.

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 were $27.3 million, up 13% versus the third quarter of 2013.

As a percentage of our revenues, sales in Americas accounted for 12%; EMEA, 32%; in Asia-Pacific, 56%.

During the quarter, we had two 10% customers.

Out of total revenues during the quarter, products were 74% and services 26%.

Gross margins for the fourth quarter were 76%.

Our operating expenses were $17.7 million versus $17.5 million in the third quarter and in line with our expectations.

For the quarter, we reported earnings per share of $0.09 and OpEx stayed almost flat versus the third quarter.

The increasing revenues affect the bottom line, keeping the gross margins at the level of 76%.

On the balance sheet side, cash balances were $121 million.

As for our cash flow, we were cash positive.

And during the fourth quarter, we generated $7 million from operating activities.

Our DSO went down to 59 days versus 89 days we had in the first quarter.

Deferred revenues went up by $2 million during the quarter, mainly due to prepaid invoices which were not recognized yet.

That concludes my remarks.

And we will now open the call for questions.

(Operator Instructions) Matt Robison, Wunderlich Securities.

Congrats on the sequential improvement in earnings, a big drop in DSO, and significant improvement in cash flow.

Also, it looks like you tied a prior record for service provider orders in the quarter.

But non-GAAP gross margin was up year-over-year a little bit, but -- and within what I'd expect, but I'm hoping you can comment on why it was down sequentially?

Also, given the drop in DSO, would be good to know about the linearity and tone of activity so far this quarter.

Also, can you say if you've made any progress in decreasing the sales cycle?

And Nachum, if you could repeat the regional breakdown in sales, it'd be helpful.

Sure, Matt.

I'll start -- I think best is I start from the end, answering your geographic split.

So Americas accounted for 12%; EMEA, 32%; and Asia-Pacific, 56%.

That was the last quarter.

Looking at the DSO, so DSO went down.

You can see it from both Accounts Receivable, DSO and the cash flow, the positive -- there is only positive cash flow we had during the quarter.

Basically, it's a cash flow issue.

I don't think we'll be able to maintain such a low DSO level.

And I think that we will be closer to what we had in the last year.

It was a very good quarter in terms of collections.

But other than that, I don't believe we will be able to maintain such a low level in terms of our DSO.

In terms of the gross margins, so we are keeping the level of 76%, 77% in the last half of the quarter since the repayment of the Chief Scientist that we did.

But basically, I think that we talked about the level of 75% to 76% -- 77%, and that's the level that we are trying to keep.

Obviously, depends really on the mix of products, whether it's more total value-added services versus hardware and et cetera.

So, no major change during the quarter.

(multiple speakers) The mix shifted more towards the platform technologies in the fourth quarter from the third quarter?

A little bit, yes, but again, I mean, gross margins were very similar to the second quarter, so there wasn't any major change in trend or in general.

I mean, the level of 75% to 77%, that's what we are seeing in the last 12 months.

Okay, so linear -- was the quarter particularly front-loaded?

Or was it all just about collections?

Mostly, I would say getting the ATPs on time and collections.

What's the tone of the March quarter been so far?

And can you comment about the sales cycle, which stretched significantly during 2013 with the change in mix towards value-added?

Yes.

Sorry, Matt.

No comments on Q1.

The market dynamics in the last two or three quarters remain the same, and so our sales cycle -- our operational goal is obviously to have a diversified enough funnel.

So with certain deals that take longer than others, they come in to support the quarter.

So, no fundamental change in market conditions.

Thanks.

Thank you, Matt.

Ittai Kidron, Oppenheimer.

Congrats on a good quarter and execution.

Rami, I wanted to talk to you about your new customer additions.

It sounds that from your prepared remarks that you're doing a very good job in upselling products into your existing customer base, which is great.

At the same time, though, I'm looking at your new customer additions, and that number has been declining on a consistent basis for two years now, if not longer, with only one in this quarter.

So I'm trying to understand -- are we getting to a point where you're pretty much doing all that you can with your existing portfolio?

I'm a little bit confused as to why, with all the good commentary you have about the market, we're not seeing an acceleration in new customer additions.

Why does that number continue to decline on a year-over-year basis for multiple quarters now?

Yes, I wouldn't read too much on the new additions -- they're coming.

I think that -- as we focus more large area customers versus smaller ones, when you're chasing very small Tier 3 customers, then maybe you can get a couple of them every quarter.

But as you chase the medium and the large ones, other obviously -- our decision cycles, the trials and so on, take longer.

That's the only fundamental element I can imagine.

Also, keep in mind that when we count these 18 service provider deals, we count only deals which are double -- a quarter of $1 million.

And in fact, we used to quote them anything above $200,000.

So, that is also a testimony of our focus on greater and larger customers.

So, I wouldn't read too much into that in terms of our competition, to our competition position and market dynamics; just more of our focus.

On the other hand, realize that from operational efficiency and leveraging the business, upselling to customer is the most profitable theme we can take, both from the sales cycle, the profitability of closing the deal, and eventually given that many of these upsell deals that tend to be licensed, the contribution to gross margins.

So we like that, and we certainly direct the sales team to upsell while going out and chasing new customers as well.

But I think you should expect moving forward that we certainly don't want trends to stay in one large new win per quarter.

Right.

Well, if you don't think it's a good metric, if I were you, I would stop giving it.

Maybe you should think about giving revenue, just absolute dollars, you know, what percent is coming from new customers versus existing.

Maybe that's going to be a better indicator going forward.

But going back on the latter part of your comments right now, you've done an excellent job from an OpEx standpoint this quarter, keeping it almost completely flat on a quarter-over-quarter basis.

So I know you're not commenting on revenue into 2014 timeframe.

I guess maybe can you talk about your OpEx plans?

Your hiring plans?

How do we think about OpEx movement through the year?

So without any forward guidance here, but if you remember our strategy during 2010, 2011 and 2012, where OpEx grows only when revenue grows, and even then, some of that flows to the bottom line.

So, more or less, you can say that if OpEx grows, it's only if revenue outpaces that growth or vice versa.

Very good.

All right, good luck, guys.

Thank you.

Thank you, Ittai.

Mark Sue, RBC Capital Markets.

It's Amit Daryanani calling on behalf of Mark Sue.

Just a quick one on value-added services and the continued traction you're seeing there.

Is there -- is it mostly with existing customers?

Or is it something that you're seeing more of with some of the newer customers?

And sort of is the value-added services, is it potentially driving demand for some of your other products?

And has anything changed competitively in this sort of segment, please?

So, first, regarding value-added services, and certainly the profile of the quarter, value-added services were more dominant with existing customers.

Usually in the first penetration phase into a new customer, they would adopt the fundamentals of our service and our gateway, mainly adopting one or two value-added services day one, but will come back to us to buy more after the initial deployment is done.

So, totally I don't have the exact breakdown but that tends to be more into existing customers.

In terms of the competition, I won't comment specifically on our competitors, but I would say that the two additions that we came to market with on the value-added servicing side, let's take the personal with trying to control anti-malware, the great analytics tools that we announced enhance our competitive positioning for the better.

And we totally expect more good products to come down the road.

So, definite improvement in product offering and competitive positioning.

Great.

And I apologize if I missed this, but could you maybe provide some details on the -- and recognizing the lumpy nature of the business, but can you provide some details on the dip in the Americas business, please?

Mark, can you repeat that question again?

I just wanted to sort of check whether you could provide some details on the dip in the Americas business, recognizing sort of the lumpy nature of the business?

Sorry, Mark.

There are problems hearing the questions.

You ask about lumpiness in --?

If you could just provide some details on the dip in the Americas business?

Oh, in the Americas, yes.

I would say this.

If we analyze the geographies, we should analyze them on an annual basis.

If you look at 2013 versus 2012, EMEA was 48% in 2012 and it was 42% in 2013, so slightly down.

We mentioned that the weakness in bookings back in 2012, and therefore, the revenues in 2013 was primarily due to Western Europe weakness.

APAC was up primarily due to one Tier 1 customer who is a 10% customer, and APAC went up from 21% to 31%.

Americas is slightly down on a year-to-year basis from 31% to 27%.

So, not major changes between the two, but the big gainer is APAC, both EMEA and the Americas slightly down.

I don't see any fundamental business environments in that.

In fact, Americas in 2012 almost doubled versus 2011.

So, they experienced significant growth as you penetrated Tier 1 mobile account in Americas.

And what we're seeing in the past here is just small fluctuations.

Okay.

Thank you and good luck.

Thank you.

Kiera Kilkowski, Bank of America.

Thanks for taking my questions.

I just have a few quick ones for you today.

You sort of -- just a follow-up on what you were just saying about initial signs of improvement that you've been seeing in the EMEA region.

Could you maybe just provide a little bit additional color on that?

And then, in Q3, you spoke about a large win with a cloud provider in the US.

And I was wondering if you could talk about that as a potential expansion opportunity for you in 2014?

That vertical in general.

Thanks.

Okay.

So, yes, first one was actually EMEA, and what we have seen, actually the improvement in EMEA took place already in 2013.

And the weakness we said was primarily in the bookings in the latter part of 2012, the second part of 2012, which affected our revenues in the first part of 2013.

We have seen improvement back in 2012, some major mobile operators in EMEA were downsizing CapEx budgets and even OpEx, and letting go of some of the stuff.

So, pretty tough in the EMEA and pretty tough environment.

And that improvement started in 2013.

I'm not sure we are out of the woods yet, and Western Europe is still yet to be seen if the improvements will continue.

But certainly our environment in 2013 was better than in 2012, because we hope that it continues to show in 2014.

Regarding cloud, yes, we spoke about it at length in the last quarter.

We see a cloud phenomenon in enterprises.

Moving applications to the cloud is more positive to all those.

Obviously, it increases the WAN traffic, which is good for us.

We see more investment in building data centers, certainly with our telco sales provider customers that are building data centers in cloud offerings to their enterprise customers.

And you're right.

You mentioned one example in Q3, but actually one of -- we had another fairly large deal with a service provider in APAC; also a data center deal as well.

So it's fair to be a serious part of our revenues but we continue to see the growth and we are certainly investing to improve our offering there.

In certain ways, large data centers are also fixed service providers, and we think that those are in some of our value-added services are relevant to data center environments as well.

Got it.

Thanks and good luck.

Thank you, Kiera.

Alex Henderson, Needham.

I was wondering if you could just give the VAS percentage in the products services percentage again?

I had a little bit of a static on the line when you gave those numbers.

Sure, Alex.

So products were 74% in the quarter and services 26%.

Regarding VAS, value-added services, they were 36% in the quarter and 32% overall of 2013.

So you said 36% in the quarter?

Yes.

Of bookings.

Thanks.

This is a bookings VAS.

Bookings, right.

A question I've been hearing for the large systems vendors are starting to do more with Linux-based switching technologies, and doing -- enabling what I would describe as DPI light functionality on those boxes.

And also you're seeing a big push towards NFV.

Can you talk a little bit about whether you're seeing any of those trends impacting your business positively, negatively?

Or whether it's causing any delays or acceleration in the spending of the service providers?

Yes.

So large system players have always been offered some form of it like DPI ever since I've been onboard in a lot of the past eight years, so no significant change in that.

We still operate.

We still see that as competition.

If a service provider goes out and issues a specific RFP, then usually a pure play DPI and provider will win the day because of the breadth and scalability of the features.

Yes, when these facilities disclose huge deals, sometimes we can get away with giving a very light DPI for free initially, but again many of them come back and realize they need a purer and more elaborate solution.

So nothing changed in that dynamic.

We are still fighting that trend, and really that's where our growth will come from -- converting operators from doing nothing or doing like DPI versus taking market share from our competition.

I believe there is growth for all three companies in our space.

Regarding NSV, not related to the prior acquisition, I think it's still early days.

There is initial trials going on.

We are playing in them as well.

But at the end of the day, NSV -- the value in NSV is more around potential and CapEx and OpEx efficiency.

The fundamental value propositions don't change and that's what we focus on.

So, if we manage to keep from sort of functionality point of view our distance from these light DPI solutions, we should be okay, whether we provide a solution on a ATC platform or on an NSV platform.

If I can go back to the question that was asked earlier on the cloud market, you kind of left it hanging a little bit.

Clearly, data center to data center traffic is growing.

I don't think anybody would doubt that.

But the question really is, do you see additional nonconventional service providers, such as the Infrastructure-as-a-Service players such as the Web 2.0 players, becoming additional customers to you guys over the course of 2014, beyond the one that you've already announced?

Is that a potential for a new customer category to develop in a meaningful way?

Or do you think the contract win that you had is a one-off type of event?

It's certainly not a one-off.

And the two trains, let me reiterate.

One is simply traffic growth needed for traffic management, and therefore a net positive for us.

Investment in infrastructure, you need to handle traffic in a more smarter and efficient way, then it's net positive for solutions like ours.

The second phenomena, which is closer to home, is that we are seeing service providers invest in building out data centers.

And given that we have relationships with some of them, that's a natural way for us to penetrate that segment to the market, which has not been a natural marketing one for us.

So these are the two trains which get us closer to the data center market.

Great.

And one last question.

Any change in the pricing environment?

And then I'll cede the floor.

Thanks.

No.

I think the best indicator of the pricing environment is really our gross margin.

As long as we can keep that in the 75%, 76% range, then we can assume that overall mix of products is a good one.

And in fact, I mentioned that, on average, day one deals, they tend to be below the average, and follow-on orders tend to be above the average.

And the overall -- our result is where we are today, which has been stable for the past many years.

Thank you.

Thank you, Alex.

Joseph Wolf, Barclays.

Another question on the value-added services portion of the business.

Given the size and the bookings, and the contracts that you're seeing, what do you think the underlying growth rate is for Allot?

Or what was it in 2013 for the core DPI product?

Or perhaps have you already shifted your thinking about what the core Allot revenue mix and base is, as you move into 2014?

And what do you think happened in terms of market share in 2013?

So, in terms of value-added services, obviously, we would like to see our both value-added services and the core basically policy control and charging functions of our business and grow.

In 2013, from revenue point of view, given that it was a down year versus 2012 in overall, I would say that while policy control and charging went down, value-added services did go up.

I would say probably this is true also on the bookings front.

As I mentioned in the past, we feel that DPI for a traffic shaping is becoming a more stable state market, and really the focus is monetization and value-added services.

In terms of market shares, I don't have the numbers in front of me, but on absolute levels, I think one of our competitors went down, the other one recovered from a slowdown and went up.

So, overall, we probably should be more or less in the same -- give or take, in the same market share in numbers.

Okay, that's helpful.

And then I guess -- I think you touched on this briefly with the parental control and the analytics, but of that 36% of the bookings, what percentage of those -- or how many value-added services are you selling?

And are the top two or the top three products in that category 50% or 60% or 70% of the value-added service bookings?

We deliberately don't break that down, obviously -- and two factors.

One is we don't want to stick our hands and share with our market and competition which value-added services are hot and which are less.

And also, but I can say that all of them are active and successful.

And in some quarters, we get a big deal and denial of service attacks is very strong.

And then the next quarter it could be anti-malware trying to control or video-caching thieves.

All of them are active, all of them are selling.

It's still early days and it's -- yet to call out a trends, but again, I'm not sure that we will share the detail of these trends openly.

I guess just one other way -- are there different trends geographically with the VAS product?

Too early, Joseph.

That element we can probably discuss openly when it's there, but I think it's a little bit too early and it will be misleading to break it down.

All right.

Thanks, guys.

Thank you, Joseph.

Catharine Trebnick, Dougherty Markets.

Nice quarter.

Quick question, Rami.

Could you go back and discuss if you are seeing -- or what are the key value-added services that you're seeing in Europe versus North America versus Asia-Pac, to give us a little bit of idea of which countries might be driving towards increased ARPU, and are more attractive to your value-added services?

Thanks.

Yes, Catherine, like Joseph, I mentioned that it's still early days to discuss a breakdown of value-added services over geographies.

But just to give you a little bit since it's the second question, I can say that the large deal that we had in APAC, actually denial of service was -- security was the big value-added service in that deal.

I can tell obviously that the cycle of solutions that we sell in the US, for example, in our nothing but touch on metal products, but you can deduct from there or try to guesstimate what it is.

In Europe, it's pretty much all over.

Maybe on caching, it's less interesting in Europe and advanced countries as the backhaul data is less expensive and caching is more successful.

In developing markets like Asia, Africa, Latin America, would be I'd say the most obvious phenomenon.

Okay.

Thanks.

I'll take some other questions with you off-line.

Appreciate it.

Okay.

Thank you, Catharine.

Sanjit Singh.

Thank you for taking my questions.

I wanted to see if you could describe how the competitive environment progressed throughout the year and into Q4, if you saw any changes, whether it was the number of competitors in RFPs or pricing, discounting or any sense of the competitive environment?

No fundamental changes.

I'm kind of looking from the sidelines on our other two competitors.

As I mentioned before, we've seen one do a nice recovery while the other went down.

As I mentioned, in the past and also on this call, we focused our efforts really on -- obviously on winning our piece, but also on converting customers with who have now decided to deploy any solution, whether it's because they haven't realized the need or have got some kind of a -- like DPI solution from existing value-added vendor.

And we need to convert them; certainly our expanding value-added service offering is improving our competitive position.

We play through that.

We've seen some of our competitors, they rush to team externally with other solutions.

But we believe that teaming, which is an option, but nevertheless, it provides a very cumbersome and not well-integrated solution to the customer.

And therefore, we believe that providing a combined solution and being one focal point with the Service Gateway does give us a competitive edge to our pure play solution.

And also, as I mentioned, that's an actual opportunity once we win the account.

This is also very relevant to existing router vendors who offer ITPI.

They are certainly not able to offer a vast offering of value-added services on top of the router.

So, the strategy differentiates us not only from the pure play but also from system integrators.

Great.

And as it relates to net neutrality, what is the Company's sort of base case dealers in terms of how this will play out?

Or, if you don't want to answer it that way, have you had an initial discussions post the announcement with some of your mobile operators in North America?

Has there been any type of initial discussions on how things potentially might move forward?

So, starting from the latter, yes, we are obviously -- we have been talking about potentially considering services which are application and were on the task, but highlighting these discussions since the announcement.

Having said that, as I mentioned on the script, these large service providers, they move slowly and cautiously, because not only about the SEC but also how end-users and public opinion will perceive their new offerings.

Having said so, our best case, we hope the underlying decision is a signal to market that, let's say, competitive environment take its course and there's no need to intervene with regulations.

Certainly, in the mobile market, there is plenty of competition, and if a customer doesn't like a certain offering, then they can move across the street to a different one.

So, best case scenario that this is it, and the SEC will take the sidelines and let the market play out.

And only, there is any threat of monopoly or unfair play to content providers, will they consider interfering again.

This will allow the service providers to gradually make plans and test the waters and move forward.

Certainly, all over the world, outside the US, that has been the case.

And I hope that the US will take the task as it were.

So best case scenario is really for the US to align with the rest of the world.

But again, that's might take some time.

Perfect.

And my final question is, as you start a new fiscal year, and given that the business has basically been recovering in terms of revenue and bookings, how do you think -- how do we think about seasonality in 2014?

Is it kind of the typical seasonality that we experienced before the recovery of bookings or before the downturn in the second half of 2012, when we saw maybe some seasonality in Q3 and potentially Q1 as well?

Or is that kind of the seasonality is still difficult to figure out?

Let's put it this way.

The dynamics that caused seasonality in the general telco space has not changed for the better or for worse in the past quarter.

Okay.

Thank you.

Okay.

Thank you, Sanjit.