Allot Ltd (ALLT) 2015 Q3 法說會逐字稿

Good day and welcome to the Q3 2015 Allot Communications Limited Earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Rami Rozen. Please go ahead, sir.

Thank you very much and thank you all for joining us on our Third Quarter 2015 conference call. My name is Rami Rozen and joining me today are Allot President and CEO, Andrei Elefant, as well as, our Chief Financial Officer, Shmuel Arvatz.

The press release announcing our third quarter result is available on the Invest 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 stock base compensation expense, revenue adjustment due to acquisitions, expenses related to M&A activity, amortization of certain intangibles and inventory write-offs.

Please know that all earnings per share amount 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 third 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 judgment based on currently available information.

I will refer specifically to the discussion of our expectations and beliefs regarding our pipeline and final potential future business. Our actual results may be differ materially from those projected in these forward-looking statements.

Certain material factors or assumptions were also applied in drawing the conclusion or making the forecast or projection and reflected in such forward-looking information. I direct your attention to the risk factors contained in the annual report on Form 2A filed by Allot with the U. Securities and Exchange Commission, and those referenced in today's press release, most of which deter factors which could cause our actual results to be materially different from those projected in the forward-looking statements.

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

Thank you, Rami, and thank you all for joining us today. In today's call, I will highlight Allot's results and share with you some of the achievements in the third quarter. Before I [drive] down into Q3, I would like to mention the announcement we recently made for Q4, an extension deal for over $10 million.

This mobile operator is an existing customer for the last few years hasn't been a 10% one. Combined with the improved bookings of Q3, we are answering Q4 with a positive momentum and plan to recognize revenues from this folder in 2016.

After I complete my thoughts, I will hand over the call to our CFO Shmuel Arvatz for a short review of our financial performance for the quarter. During the quarter, we continue to execute on our growth strategy.

First, the $8 million win we announced a month ago continues to demonstrate the value-added services benefit of our installed base. Second, we are encouraged by the increase in bookings for security products. And third, as I said in the previous call, we continue to maintain tight control on expenses and intend to make continuing increasing efficiencies across the business.

Third quarter results came in at $23.5 million and the net loss of $.7 million or 2 cents per share. Looking at the top line, we guided for revenues of $100 million to $105 million for the year. From our experience shows that Q4 revenues are typically higher than Q3, so we believe that we are on-track to misguidance.

Now, for the bottom line. Most efficiencies we've implemented and our high growth margins have positively impacted the bottom line and we believe that we will gain more leverage going forward.

Growth margins was a healthy 77%, up 3% from last quarter, another strong validation of our [VAS] strategy and business directions. And on top of that, we had the string of cash flow -- some cash flow of $2.9 million.

Now, let's look at our bookings. On the last call, I said that during Q2 bookings picked up. In Q3, we continue to see bookings trending up despite the longer sales cycles which I had described in the last call.

Book to bill was above one. This quarter we saw a nice mix between new and existing customers. We are winning new customers based on our extended VAS of frame with the focus and security on monetization.

For example, we won a new customer where we were asked to replace both their security as a service solution and the policy control vendor based on our superior combined solution. This seven-digit deal is part of our strategy to increase our install base, achieving greater stability in revenues.

In addition of winning new customers, we demonstrated our ability to both cross-sell and up-sell into our install base. During the quarter, we landed an $8 million deal as part of the revenues recognized during the quarter.

Large deals reached 18 in total, 4 of which will present new customers, 7 came from mobile operators, 7 from fixed line service providers, and 4 from public and private Cloud operators. We sold more Cloud deals this quarter than in previous quarters, and we intend to continue pursuing this sector.

In the value-added services businesses, we continue to see significant activity during the quarter. VAS represented 38% of overall bookings, continuing the positive trend. Year-to-date, our VAS business represents about 40% of our overall business compared to 31% in all of 2014.

To remind you, our VAS category is divided into four groups, Security, monetization, analytics and optimization. VAS continues to be our main business driver and more specifically, the security and monetization categories.

In Q3, we sold security and monetization accounting for 80% of VAS bookings with security along accounting for 55%. This continues to reflect -- to reflect this trend that we are seeing in the market and validates our plan to capitalize on the growing demand for these services.

Mobile and Cloud operators use our security as a service solution to growth their album, improve customer loyalty, and significantly improve the value of their brand.

Now, to NAV. Earlier this month, we announced our service gateway virtualization and natural evolution of our service gateway, which introduced us a new framework for fast and efficient rollout of new services in an NAV network, this new offering is based on our innovative technology and that will involve our operators to further accelerate rollout of new services improving their competitive market position.

We continue to work closely with dominant players in the sector system as we are recognized as a significant value-add. A great example of the service gateway virtualization benefits is demonstrated in the collaboration we are doing with Checkpoint, which we announced earlier today.

We partnered and demonstrated security as a service implementation in a mobile NAV network allowing mobile operators to deliver quickly and efficiently security services to their customers.

Though we are not yet seeing significant revenues from NAV, we believe that once NAV will be widely adopted by operators, we will be well-positioned to capture significant market share accelerating our growth.

Moving to OpEx. As I said, we continue to maintain tactical control on expenses and intend to continue efficiencies across the business. As part of our overall strategy and in line with market trends of our Legacy business, we are streamlining results in that area.

We continue to increase our focus and shift resources to faster growth areas such as security and monetization, thereby continually improving efficiency. This results in a 9% improvement in OpEx compared to the same quarter last year, even after integrating the alternate team.

With regards to buybacks, the authorization of our buy it plan is in process and we hope to report on it shortly. Before summing up, I will turn the call over to Shmuel for a view of our financial reports.

Thank you, Andrei. We are pleased with the progress we've made in the third quarter in terms of revenue growth and higher booking level compared to the second quarter. We improved our growth margin, as well as, generated positive cash flow from operations.

Before I begin with doing the financial results for this quarter, I would like to inform everyone that on this call, unless otherwise noted, I will refer entirely to the non-GAAP financial measure when discussing operational results.

Non-GAAP financial measures deferring certain respect from a generally accepted accounting principle and excludes share-based compensation expenses, revenue adjustment due to acquisitions, expenses related to M&A activity, and amortization of certain intangible assets.

Turning to our third quarter results, revenue for the quarter were $23.5 million, down 22% year-over-year, and up 9% sequentially. As a percentage of revenue, sales in the Americas accounting for 16%, in Amia 38%, and Asia-Pacific 46%.

On a constant dollar using the currencies as prevailed in the third quarter of 2014, revenues were negatively impacted by about $1 million. Book to bill ratio in the third quarter was above 1. Product revenues for the quarter accounted for 64% of revenues while service revenues were 36% compared to 69% and 31% split during the third quarter of 2014.

Moving on, the growth margin for the quarter was particularly strong at 77% of revenues compared to 75% during the third quarter of 2014. The increase -- the increase is a result of more favorable product mix.

As growth margins may fluctuate on a quarterly basis, we continue to view a typical range of growth margins at 74% to 75% of revenues. Operating expenses during the quarter were $17.9 million, down $1.7 million compared to the same quarter last year and down $1 million sequentially.

The year-over-year reduction in operating expenses was mostly due to efficiency measures implemented, decreasing topline resulting in less variable expenses, and the weakening of main currencies against the US dollar.

During the quarter, we incurred the financial loss of $892,000 compared to financial income of $224,000 in the same quarter last year. The financial expenses in the quarter result in mostly due to foreign currency exchange rate differences.

Our headcount by the end of the third quarter was 513 employees compared to 517 employees end of -- the end of the second quarter of 2015, and up 58 employees from the end of 2014 mainly as a result of the acquisition of Optenet.

Net loss for the quarter was $741,000 or 2 cents per diluted share compared to net profit of $3.1 million or 9 cents per diluted share in the same quarter last year. Turning to the balance sheet, our cash reserves comprising of cash equivalents and investments total $122.8 million, up $2.2 million sequentially.

We recorded $2.9 million of cash flow from operations. DSO was 86 days down from 104 days in the previous quarter, which is in line with our typical range of 75 to 90 days per quarter. As to the buyback plan, it was submitted to the court approval and we hope to update you soon.

To conclude, we continued our recovery in booking and have started the -- that have started and have started the fourth quarter very strong -- very, very strongly. We are pleased with many of the financial metrics achieved during the quarter such as growth margin, OpEx level, cash flow from operations and the increase of our cash balance.

With that, I will turn the call to Andrei.

Thank you, Shmuel. To summarize, during the quarter, bookings continue to grow. We are closing large deals with existing customers and netting new customers, which validates the value of our offering.

We continue to see our security solutions as very attractive and gaining momentum with our extended install base. As I said, we expect it to become a more meaningful part of our business in 2016.

With that, I will open the call to Q&A. Operator?

+++ q and a

Thank you. (Operator Instructions).

And we'll take the first question from Joseph Wolf of Barclays. Please go ahead. Please go ahead, Joseph. Your line is now open.

Hi. Can you hear me?

We can.

Yes. Hi, Joseph.

Good morning, good afternoon. Could you elaborate on the press release with Checkpoint? It's written as a collaboration, but I'm wondering if you could tell us what the go-to market strategy would be?

Is that through Checkpoint or is that the operator? How would that be sold and what kind of timeframes do we have per revenue from that collaboration?

Thanks. Okay. So I would like to divide my answer into two. First, a more general statement, part of our strategy and being able to extend our reach, we are investing more in building strategic partnerships with leading players in our domain, and the latest release that we did this morning is part of that effort.

We also announced earlier in Q3 some joint work that we are doing with HP and we have some other enforces. So overall, we are investing more time and more effort to build the strong partnership and go together to the market with some of the leading players.

And like I tell you that they are also finding our solution very interesting and with a lot of benefits to complete our -- to complete their offering in the market that we are operating in. So this is a more general effort that we are doing and this is a big part of our strategy.

Specifically for the partnership and for the work that we are doing with Checkpoint is specifically to us we announced this morning we are working with them on this demonstration to build an offering that is targeting [NAV] network and this is part of some other work that we are doing with Checkpoint.

In general, the idea here is to build a combined solution with -- which provides a greater offering to the mobile operator, allowing them to run security as a service more efficiently and having a [third part] all out of this services, and in terms of go-to market, it's a bidirectional effort.

So either we or our partner can bring us to-market based on the opportunity that we see. The reason the overlap in the solution, we complement each other very nicely.

Okay. So what -- so -- but they have to come together in a sale? I mean, in the end for you to sell it out -- in the end for you to sell, this -- the operator has to buy both Checkpoint and Allot for an optimal solution or they could also go to a different security network?

It can go with any security vendor. Of course, with the partners that we have, we have tighter integration and some additional benefits, but the concept of the service gateway of virtualization allows almost any vendor, any solution to run in an NAV environment and expedite the integration there for it and as a result of that, they are brought out of the service in the mobile NAV network.

Understood. A question on the continued move towards the -- to the VAS, the value-added services. Just as you think about the core DPI and the VAS, is that kind of merging together? Can we think about them separately anymore?

And are you experiencing any changes in the way your customers are ordering in terms of as a service or that the -- sort of the booking of the revenue and the way it runs through your PNL is going to change over time, and how does that impact the backlog and the bookings that you're talking about?

So let's start with the first part. We had some projects that the solution is the combined. Of course, there are some benefits and advantages in combining the security service with our service gateway as we have already done the integration with many companies in the operator's infrastructure like policy control and charging and so forth.

However, we do have projects on the security side where we are selling only the security solutions and because it can run also as a standalone offering and deployed in a mobile environment or Cloud environment.

So this is in order to answer the first part. The second part, how we structure the deal. We are moving towards the more term licenses, mainly on the security offering, the security as a service offering, and we already have some projects and some of the bookings that we are doing are using this new pricing model.

It is not yet material enough to divide the bookings. I believe that sometime in the future we start to give stronger indication of the ratio of those types of bookings from the rest of the book.

That's helpful. And then just finally if we look at the absolute, well, what is the best way to think about the OpEx going forward? You're controlling their costs. Should we be looking at that as a percentage of the revenues if we see revenues going up or for the near-term, can we look at the absolute dollars as kind of the base case without much growth and expenses?

I think that the low OpEx has some -- of course, has some relation to the relatively lower revenue; however, some of the measures that we implemented we are going to benefit from them also when revenues will grow. What we have done is we moved with forces and efforts from growth from non-growing businesses to growing businesses, and we believe that the investments that are doing now in those growing areas will result in the growing of that business without the need to continue to do -- have investments going forward.

So there is some correlation with the revenues, but they believe that some of the efficiencies that we did will help us to gain greater leverage going forward.

All right. Thank you.

Thank you. We'll take the next question from James Kisner of Jefferies.

Thank you, Joseph.

Hey. Thanks for taking my question. So I guess I was hoping first to ask you about the $7 million order that you mentioned with the mobile operator. Can you talk a little more about the application, perhaps also talk about, you know, is it for a specific geography, and if it is, is there potential for expansion beyond that geography?

Hi, James. You are -- you are referring to the one that we just announced in Q4?

Yes.

Okay. So the main -- the magnifications there are monetization and analytics, and this is a very large mobile operator. They have dozens of millions of subscribers running in the LTE network, and they want to use our plus form in order to deliver different services. They started with some charging monetization applications and some analytics applications.

However, we are continuing the discussions with them on other services including security services; however, this hasn't material yet to [frame] orders.

Okay. That helps. So your book to bill obviously improved this quarter. I'm just hoping you talk about the environment in general. We're seeing a lot of new com equipment companies guide down in Q4. There's obviously a lot of concerns about macroeconomic weakness globally.

I'm just wondering if you could talk a little more about kind of the environment and what you're seeing globally, and I guess related to that, I mean, I think, you know, back in July, you said you thought you could return the growth next year. Do you still think that?

Yes. So as I said in the end of Q2, we said that the first half of the year we experienced longer sales cycles, and I have to say that we are not back into the levels that we expected to see end of last year, but we definitely see an improvement case for our business versus the way that we started the year.

So in general, we continue to see that sales cycles take longer. It takes us also longer to close deals; however, I think that our focus changed over the last 18 months and I believe that in the areas where we see the growth situation is better than in the markets that we call our Legacy business, which is policy control and traffic management.

So I guess, you know, I'm looking at your geographic. I think you said 46% was in Asia and I guess that's a -- that's a reasonably strong number for Asia. It sounds like you're not really seeing any particular slowing in your business there; is that fair?

Yes, in Asia we, in fact, see a nice pickup in the business, and in general, we see some large opportunities in Asia.

Is that also being driven by the security applications? Is there any kind of different mix in Asia versus other regions?

Well, it depends on the -- on the country. The security and -- the security applications is the same mall on the developed countries, while some of the monetization applications we see them more on the developing countries, and we see the same is also in Asia.

And this is, again, a very high level statement because there are some exceptions, but the general trend is ....

Yes, thank you very much for answering my questions.

Thank you, James.

Thank you. We'll take the next question from Matthew Robison of Wunderlich. Please go ahead.

Hey, thanks. The -- Shmuel, you talked about the sales cycles taking longer. Do you mean that in the context of third quarter and fourth quarter versus second quarter, or do you mean that in a more historical perspective?

So maybe if you can go back over this what the -- what the latest kind of developments are and the tone of the business both in terms of deal size and sales cycle? And then I've got a follow-up.

So we continue to see longer sales cycles, longer compared to last year. So that trend is ...

(Multiple Speakers)

Okay. So there's -- so there's stretching even from the -- you know, from the June period? They got longer in the September quarter?

No, I wouldn't say they have got longer. We still see that...

Okay.

... it takes -- it takes some time to -- it takes longer to approve the budget and to approve certain P.O., and again, it depends on the deal and it depends on the -- on the exact case. I mentioned that in Q2 that we expected to sell out our -- one of the largest deals earlier in the year.

Eventually, we closed it, but it's, again, two cuts smaller than we expected. Even though we saw a very nice improvement in bookings, there was still some bills that were pushed out into Q4. So part of the reason why we started very nicely Q4 is because of some bills that reached out from Q3.

So I'm encouraged by Q3 because bookings continue on the right trend, and -- but some of them slipped into Q4 and some of them we already closed at the beginning of Q4.

So with that strong start to the quarter, should we expect continued improvement in DSO and another -- and another good cash flow quarter this quarter?

We don't know to say exactly where we'll land in nature of the metrics. We can say only that on the -- on the bookings, we started very -- in a -- in a very positive way the quarter.

There's still work to translate some of these orders to revenues, so I think it's starting to give fair indications about development of each of the financial metrics.

Is -- have you had any headcount changes in your efficiency measures?

Overall, we haven't done a significant change in the number of employees, but the mixture is different and the -- and the investments that we are doing in certain areas grew significantly compared to some other areas.

So we are moving resources. And also, in terms of the cost of labor, we are doing some optimizations there in terms of where we booked the resources, and -- but in terms of the overall headcount, there was no significant change versus last quarter.

Do you expect to have any headcount reductions?

Looking at the developments of the business, we are -- we see that we're going back to growth. So what we are -- what we are trying to do is to keep on being efficient, but not to reduce any efforts in investing in the growth areas.

So the answer -- the answer that's in the -- assuming the business continues to develop the way that we see it today, we are not trying to do any significant reductions. Again, we are moving -- we are moving resources, we are optimizing the resources, and -- but reduction in manpower we are not planning for the near-term.

And this proof of concept you're doing with Checkpoint, it -- is there a confluent to that involving subscriber management that you're doing or is the main thrust the virtualization?

Actually, it's both in some addition of capabilities. Integrating into mobile environments in an NAV environment, there is integration with many components, you know, frustrations, the policy control, the charging some RSS and BSS components.

What we have done with the service gateway of virtualization is that we allowed the operator to do that integration once, and then run different type of services in that -- in that framework without the asset or the efforts to do multiple integrations, with multiple vendors, and to demonstrate the value of that, we are -- we worked with Checkpoint where they are bringing the security as a service solution and we enabled these to be deployed very quickly and efficiently in a mobile environment.

So we delivered the subscriber management integration, and then integration with the orchestration, and some other components.

Thank you.

Thank you, Matt.

Thank you. We'll take the next question from Tal Liani of Bank of America Merrill Lynch. Please go ahead. Please go ahead, Tal. Your line is open. Please ensure your mute function is switched off.

There we go. Can you hear me now?

Yes, we can.

Yes. Hi, Tal.

Sorry about that. There's a button called mute on this phone. I want to ask about 4Q. If I do the math, you're expecting to grow 19% sequentially in fourth quarter, and I'm wondering this is a very high growth.

I know that 4Q is seasonally up, but it's very high growth and I'm wondering if you can tell us a little bit about the visibility that you have into fourth quarter. I think one of the questions was kind of around it, but not exactly the visibility you have into the fourth quarter and what gives you the confidence in the numbers.

And maybe also, a little bit about the profile of the growth, kind of what's causing the growth next quarter and what kind of project, et cetera. Thanks.

So as I -- as I said in the previous statement, we continue to provide the guidance we provided to their year and end of Q2 with an annual guidance of $100 million to $105 million. We know that we need to demonstrate growth versus Q3 and as I said, this is also based on, you know, the history of the company and the story of our business.

We usually see Q4 stronger than Q3. We have the backlog building up back nicely, and after we lost some of the backlog in the first quarter, and this gives us the good signs that we'd be able to miss the guidance, and to give the exact flavor of the nature of the growth in terms of type of services, I think it's too early to provide that.

I believe that we see a similar mix to what we saw in the -- in the last two quarters, not something that is very, very different, but to provide the more accurate details on how it exactly will be structure, I think it's too early.

Do you -- do you have visibility from the backlog in booking you already had? They have visibility into the fourth quarter that is above normal visibility or below? I'm just trying to get the flavor of the weakness in revenues this quarter versus keeping the guidance, so that means that now the fourth quarter -- implied fourth quarter growth is higher than we thought before.

So I'm trying to understand if your visibility into the fourth quarter is also higher or that there is -- you still need to get orders in the fourth quarter in order to make it? And again, all what you thought at the beginning of the year.

Yes. So when we had provided the guidance, we had certain visibility towards the beginning of Q3. We definitely had better visibility into Q4 compared to the point where we were -- when we provided the guidance.

So far, I think developed in the -- in the course of action that we anticipated and it looks like it continues on the right trend, we also said back then that Q3 is typically lower than Q4. So what we see now is what we expected and, of course, the visibility that we have for the rest of the year is greater than what we had when we provided the guidance, and we continue to keep the guidance that we provided.

What I said is that giving exact color around the type of revenue and how exactly they will be structured I think is too early, but the confidence of waiting the guidance, of course, given the time that passed and what we achieved so far increased.

Next year, just if you -- without talking about the numbers, but rather more about the trends, how do you think next year will shape up from a products point of view? What are the areas that you've seen quill accelerating growth in order of the areas that you've seen decelerating growth?

I'm trying to understand how if we stand at the same time kind of next year and look back, what would be the difference in the demand for products between the years?

I believe the value-added services mainly in the categories of security and probably some of the monetization will demonstrate a greater growth compared to the other sections.

We'd probably see some growth from the analytics. There will be some areas that will be steady or even slight decline, and I'm referring more to the Legacy business of traffic management. So solutions in those areas.

We see that the -- there is kind of steady, and in some cases, decline of those type of services, but in the areas of monetization and security, I believe this will grow our business in those areas. We are also doing investments in those areas. One of that was you saw with the press release today we have many other activities around that to (inaudible) better into next year.

Great. Thank you.

Thank you, Tal.

Thank you. We'll now move to Catharine Trebnick of Dougherty and Company. Please go ahead.

Yes, thanks for taking my question. I have a couple, but the first one is just a housekeeping question.

What did you say the -- how much of VAS bookings were there? Could you re-give me that number, please?

VAS booking, 38% of full-grown bookings.

And that's compared to what last year?

It was 34% in the same quarter last year.

All right. Thanks. Shmuel, thank you. And the other question has to do with this going back to your partnerships. I think it's good that you guys are executing on these partnerships.

You know, one of the things I'm trying to figure out is the one with Checkpoint particular. Could you describe, like, a basic use case with the mobile operators and the -- and the target segment that you're really heading towards? That would be very helpful in understanding it because I'm trying to figure out on the mobile operators are you really looking as the end customers being consumer so it's a managed security service for consumer, or are they looking to do something more on the enterprise level?

So if you could talk about the use case, that would be helpful. Thank you.

Okay. No problem. So in general, I think the securities for us on the mobile side were not addressed so far properly, and I believe that specifically security threats that you need to protect against through different network solution, network base solutions, are not available in many cases.

If you think about that, most of the security solutions deployed in an enterprise environment are deployed on-premise, and once the employee leaves the office and goes with his mobile phone into mobile network, unless his traffic is redirected back to the office, there isn't any point in the network that will give the protection that he -- that is needed.

We believe that mobile operators will play a key role in providing that additional protection element and they will do that by integrating different security solutions and services provided by some of the security players in the market.

Without service gateway platform, we can enable those mobile operators to easily integrate such product or solutions into their network, and allow security services to be provided both to residential users and to business users.

And we demonstrated that by doing that with our service gateway where we saw own offering because we have also some security products; however, we do understand that in some cases there will be needs for additional security offerings and therefore, we are partnering with additional players in the market to provide a more complete equity stem that will address, again, both the consumer market and, of course, the business customers which is the natural target for some of these security vendors.

All right. Thank you. And then the last question is it looks like you're really concentrating on these partnerships. Is that -- you know, are you ready to talk about growth potential from these, I mean, partnerships that you're doing with HP and Checkpoint?

I believe it's too early to talk about the exact revenues, but I think that continuing with that direction eventually will result in a -- in revenues and additional bookings because we see some additional parts of the market that are not accessible to us at this point.

Traditionally, we used to rely mainly on our sales team to bring most of the deals and part of our strategy to grow is to partner with bigger players that have a greater reach and can bring us part of the deals.

But we believe eventually it will translate to additional business, but it's too early to give exact indications.

So would you say that even after the trials this is maybe six to nine months out and maybe the end of the year you'd be better prepared to give opportunity assessment?

We will provide exact opportunity assessment as -- and the exact numbers regarding the potential when we will feel that we have enough information and solid information to provide accurate numbers. We are in the path to achieve that, but again, too early to provide the exact numbers.

I hope that in the timeframe that I -- you described we would be able to get some better visibility, but we don't have the exact time for when we'd be able to provide that information.

All right. Thank you very much.

Thank you, Catharine.

Thank you. We'll take the next question from Michael Leonard of Oppenheimer. Please go ahead.

Hey, guys. Thank you. I want to ask there's obviously a pullback in OpEx the last couple of quarters and how should we think about OpEx and margins going as we get growth back in the later quarters in '16?

As I mentioned earlier, some -- and I Shmuel, I think, mentioned that as well -- some of the OpEx -- below OpEx is a result of the lower revenues and part of that has also contributed to some efficiencies we make. I believe that the efficiencies we make will provide us greater leverage going forward; however, given the revenues that we grow, I believe that we'll see some growth also in OpEx.

Okay. And last question. How should we think the -- for the financial income line? Was this quarter kind of an apparition for the most part? Are we hovering around that minus 150 to 200?

Yes, I think that the run rate of positive financial income as we head into first and second quarter are representing the run rate we expect also in Q4 and going forward.

All right. Thanks, guys. Good luck.

Thanks, Michael.

Thank you. As there are no further questions, that will conclude today's Q&A session and today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.