AudioCodes Ltd (AUDC) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Greetings, and welcome to the AudioCodes first quarter 2008 earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

On behalf of AudioCodes, I will now turn the call over to Mr.

Erik Knettel.

Thank you, Mr.

Knettel, you may begin.

Thank you.

I'd like to welcome everyone to the AudioCodes first quarter 2008 earnings conference call.

Let me begin the call today with a brief Safe Harbor statement concerning AudioCodes business outlook or future economic performance, product introductions and plans and objectives related thereto, and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters.

These are forward-looking statements as that term is defined under U.S.

Federal Securities law.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.

These risks, uncertainties and factors include, but are not limited to, the effect of global economic conditions in general, conditions in AudioCodes' industry and target markets in particular, shifts in supply and demand, market acceptance of new products and continuing product demand, the impact of competitive products on pricing and AudioCodes, its customers, products and markets, timely product and technology development, upgrades and the ability to manage changes in the market conditions as needed, possible disruption from acquisitions, the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes' business, and other factors detailed in AudioCodes' filings with the Securities and Exchange Commission.

AudioCodes assumes no obligation to update that information.

In addition, during the call we will refer to non-GAAP net income.

We have provided a reconciliation of non-GAAP net income to our net income according to GAAP in our Press Release and on our website.

Joining us today from AudioCodes we have Shabtai Adlersberg, Chairman, President and Chief Executive Officer and Nachum Falek, Vice President, Finance and Chief Financial Officer.

I would now like to turn the call over to Shabtai Adlersberg.

Mr.

Adlersberg, please go ahead.

Thank you, Erik.

Good morning and good afternoon everybody.

I would like to welcome all to our first quarter 2008 conference call.

With me this morning is Nachum Falek, our Vice President for Finance and Chief Financial Officer.

Nachum will start by presenting a financial overview of the quarter.

I will then review the business highlights and the developments in our business for the first quarter of 2008.

After that, we will move the session into a Q&A session.

Nachum?

Thank you, Shabtai, and good morning everyone.

Before beginning the financial overview of the quarter, I would like to note that the following discussion will include GAAP numbers and pro forma numbers.

Our first pro forma results reflect adjustment for the following two non-cash items; stock based compensation expenses which totaled $1.8m in the first quarter of 2008, and amortization expenses relating to the acquisitions of Nuera, Netrake and CTI which totaled $800,000 in the reported quarter.

Full reconciliation of the pro forma results discussed in this call to GAPP results is currently available for review on our website and in the Press Release issued yesterday.

Getting to our quarterly results, in the first quarter revenues were $43.7m, which represents 2% increase from the last quarter.

As a percentage of our revenues, sales in America accounted for 57%, Europe 23%, Asia Pacific 12% and Israel 8%.

We had one customer above 10%.

Our top 15 customers accounted for 49% of our revenues, which is similar to the previous quarter.

In terms of revenue by business group, in the first quarter our Technology business group accounted for 35% of revenues compared to 32% in the previous quarter.

And our Networking business group accounted for 65% of revenues compared to 68% in the previous quarter.

In the first quarter of 2008, pro forma gross margin was 57.8% compared to last quarter's pro forma gross margin of 58.1%.

On a GAAP basis, gross margin was 56.3%.

Our total pro forma operating expenses increased from the fourth quarter level to approximately $22.3m in the first quarter of 2008.

On a GAAP basis, operating expenses for the first quarter were $24.3m.

As of the end of the first quarter, we had 688 employees, which is unchanged from the fourth quarter.

Pro forma net income for the first quarter was $3m, or $0.07 per share.

The GAAP net income for the first quarter was $400,000, or $0.01 per share.

Short-term and long-term cash balances were $137m compared to $143m last quarter.

The decrease in cash balances is a tribute mainly to a positive cash flow from operations, which were offset by a negative cash flow related to investment activities and financing activities.

During the quarter we paid the last payment of $5m due the acquisition of CTI, and we did a buyback of our shares in the amount of $4.2m.

We have recently secured a $50m bank loan for five years in order to improve our balance sheet plan.

DSOs came in at 50 days compared to last quarter DSO of 54 days.

As for our guidance, we wish to reiterate our annual guidance for 2008.

On an annual basis, we forecast revenues for 2008 to be in the range of $180m to $185m and non-GAAP earnings per share of $0.34 to $0.37.

We also estimate our GAAP earnings per share to be in the range of $0.12 to $0.15.

I will know transfer the call to Shabtai.

Thank you, Nachum.

We are very pleased reporting this record quarterly revenues, essentially growing 20% year over year over the first quarter of 2007.

As noted by the analysts now, it tends to be a very strong and good start for the year and with the current quarter, the second quarter of 2008, nice buildup along similar lines, we believe that we are on track to meet our 2008 plans.

In the first quarter of 2008 we continued to experience very solid business momentum in the Networking space and also enjoyed very nice stability on the Technology business front.

Comparing our quarterly Networking business year over year, we have witnessed growth of 30% compared to the first quarter of 2007.

We continue to enjoy very nice momentum in the space.

We enjoyed new customer wins both in the enterprise and the service provider space.

This is a result of leveraging a very broad, very strong product portfolio, a growing global presence of sales and customer support and also our ability to work nicely with a range of owners from the system integration and the OEM community.

We made this quarter two very important steps in two key venues.

On one hand we've been able to continue to make a strong cooperation with our OEMs and software application partners, such as Microsoft, where we saw increased joint sales and business activity worldwide.

We are now basically achieving on a monthly basis new design wins on that front.

We also enjoyed increased cooperation with large enterprise-focused system integrators who helped us in fulfilling projects in various regions, various countries in the world.

That is another leverage that we enjoy coming further into 2008.

All in all, the first quarter of 2008 performance was in line with what we planned.

Our focus is on CPE devices for service providers, OEMs and application partners.

We've reached -- that has reached a level of 35% of our revenues and that is exhibiting right now the fastest growth in our business line.

We also enjoyed select wins with our mid-density Media Gateways in the field.

We see at the beginning of the second quarter similar trends with the CPE and the mid-density products.

On the sales front, all regions performed fairly well.

Asia-Pacific exhibited very strong growth, mainly in China, and that activity in China is growing more for the last two quarters.

That has been a very nice recovery compared to the first quarter of 2007, where we have witnessed a momentary drop in sales in Asia-Pacific.

We also saw very strong sales in Latin America and strong OEM activity in North America.

I'm also glad to report that we have been successful in turning the Nuera business around and getting into a positive position.

We've downsized the operation, we've stabilized it and for the last three quarters we enjoyed growing and profitable operation there.

We've gained from that acquisition customer base both in North America and in South Asia-Pacific, and I think we will see more and more growth coming from those two areas.

At Netrake, our Dallas operation, the session border controller operation, we're still in investment mode.

We work hard to integrate that technology into our integrated low and mid-density products.

On a management level, we had our focus mainly on OpEx reduction, budget control and we'll see the benefit of that in the coming quarters.

We've also been investing a lot in adjusting our product road map and investment going forward.

And we do plan to introduce in the second half of this year a new product line and new capabilities early next year in 2009.

With regard to our activity in North America we have built a management team in New Jersey, which is functioning and making our North America operation much more stable and focused.

We've completed, or almost total completion of the manufacturing restructuring in North America, basically, consolidating three different manufacturing plants into one operation in New Jersey.

And we do believe that in 2008 we will see some nice upside to our CPE business in the cable space.

All in all, the strongest business lines for us has been the CPE, which is growing nicely.

That business line has exhibited more than 30% growth in 2007, and we believe that in 2008 we should be able to achieve a similar rate of growth.

We've been very successful with some of our key OEM accounts.

All of them are basically still in incubation phase and we do believe that, with our continuing the work and cooperation with Microsoft, Nortel and a few more partners in the enterprise space, we will gain more momentum and success.

At the same time, as I've mentioned before, we continue to invest a lot in developing relationship and work in the field with world-class system integrators who help us sell projects into the enterprise space.

And that's a leverage.

We do believe that our ability to sell through those OEM accounts into enterprises will open for us the door for repeated sales of more CPE devices and more opportunities within the same accounts, based on the design wins we enjoy today.

On the Carrier side, we continue to enjoy good momentum of sales with current accounts.

We also have signed a very important contact in the government space, which we believe will represent for us a new $10m to $20m opportunity starting in 2009.

We are -- in the first quarter, basically, we've been able to develop and grow some new enterprise accounts, some of which we have never had access to.

All in all, we remain focused on -- basically enhancing and improving our business.

While we keep investing a lot on the Voice over IP space and the Gateway space, we do invest a lot in integrating more functionalities into the same product lines.

We build a lot on coming up with what's called business gateway capabilities that will integrate more data functions, such as browsing, switching, security and a few more applications.

We are investing substantially into our Technology front and believe that we will come up in a few months with more and new technology that will enable much better quality and better performance on IP network.

Like to mention that during the first quarter of 2008 we have announced our Board of Directors' decision to approve the stock repurchase program that authorizes us to purchase up to 4m of our shares.

As of -- as we reported yesterday, as of April 28, we have implemented almost 50% of that plan.

I believe that that speaks for itself toward the confidence we have in our ability to continue to grow and get the Company to a more advanced stage.

Just to reiterate our plan and growth for the 2008 plan, we do plan on growing revenue this year by about 15%, as Nachum mentioned, between $180m to $185m.

Earnings will probably be almost doubling this year compared to 2007.

We do believe we are growing market share, definitely in the enterprise space through our partners.

And, all in all, our 2008 should be a very good year of growth.

Before I conclude my part, I'd like to take the opportunity to thank Ben Rabinowitz, our Vice President and General Manager of Session Border Controllers and Media Servers Business, who has been with us for the last eight years and has been sitting with us in those conference calls.

Ben has successfully managed our North American business and sales operation for many years and, most recently, has added the successful integration of Netrake into AudioCodes.

Ben has decided to move on to new challenges, a new step in his career, and I would like to take this opportunity and thank him very much and wish him success in next endeavors.

And, with that, I have ended my part, and we will move to Q&A.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS).

Thank you, ladies and gentlemen.

Our first question comes from the line of Vivek Arya with Merrill Lynch.

Please proceed with your question.

Thank you.

Hello, Shabtai and Nachum, a couple of questions.

First is, in the last two years you have grown roughly 5% sequentially from the first to second quarter.

Can we expect a similar growth rate this year?

That is the plan, yes.

We usually see the first quarter a bit weaker, traditionally in the telecom space, but we do plan to continue to grow about 5% each quarter in the coming quarters, yes.

And secondly, Shabtai, your Networking sales fell slightly sequentially, but Technology segment grew well sequentially.

It's sort of the opposite of trends that we have seen in the last few quarters.

Was there any specific reason for that trend, or was it just the timing of deals?

Actually, it's both.

A, it's timing, B, also there's one business line that's not core that has showed a decrease of about $500,000, $700,000 this quarter.

We believe this is seasonal in Q1, so we really do not pay any specific importance to that.

I see.

And, Shabtai, are you noticing any improvement in the Voice over IP market?

Your tone sounds somewhat more positive.

What is the basis for that?

Are you seeing more deals, more visibility?

Is it Carrier, is it Enterprise?

Can you just please talk about the market and which parts of the market are giving you this confidence you can grow this year?

Yes.

We believe that Voice over IP is getting to next stage gradually, because in our -- in each country you'll find a large number of service providers.

And I think when you come to think of that, you gradually see more and more service provider moving into Voice over IP space.

Just taking Israel as an example, we had the first service provider, [Paxx Telecom] in the cable space moving into it about two years ago.

We've seen Smile Telecom, 012, moving into it about six months ago.

We know of a large cellular company that has just received its level service license.

And we believe similar progress takes place in other places.

So, on the service provider side, it's simply increasing market share of Voice over IP over previous.

Also the fact that Broadband is becoming more ubiquitous and with more voice over broadband being deployed, we will see continued growth in that space.

And we believe that being one of the few companies that survived the long years of investment and emerging out as a very strong and successful company, we will be enjoying a lot of that new opportunity and [wave] going forward.

So, all in all, we believe -- take cable space in North America.

Until now cable MSO basically were focused on the residential business.

This year, we see a lot of activity on the business communication side, which is a completely new market.

So we do see increase in use of Voice basically in many different areas.

As you look at 2008, if I were to, for example, segment your drivers into, for example, direct carrier sales or sales through the OEM partners you have, and then you look at the Enterprise, can you qualitatively rank them, which would grow much faster, which would --which would grow the fastest among these different drivers?

We've not done that analysis and it's quite difficult for me to give you a specific answer on that.

I'll simply say that on the Enterprise space we enjoy the fact that we work as a partner with Microsoft and a few more OEMs that expand operation.

We are successful with our direct sales force also on the service provider front.

So we may look and do more analysis here, but I think growth really comes from many different facets.

There's no one that's prominent in that space.

And just one last question.

Nachum, gross margin have been strong, but they had been actually declining over the last few quarters.

Is that a mix issue or are you seeing any pricing pressure?

Can you just discuss why we are seeing those kind of trends in gross margin?

It's true that gross margin went down a little bit, a few basis points.

And, as you mentioned, Vivek, it's basically a mix issue.

That's the change that we experienced in this quarter, and you know that fact was mostly mix between products and not related to you know any price pressure or something like that.

Okay, thank you.

Next question.

Thank you.

Our next question comes from the line of Ittai Kidron with Oppenheimer.

Please proceed with your question.

Thank you, and congratulations guys on a good quarter.

Thank you.

Nachum, can you go a little bit into the operating expenses?

You've had your headcount flat but your OpEx went up by $1m.

Was that mainly exchange rate driven, and how should we think about -- it seemed like in your commentary, Shabtai, you've alluded to a more -- some cost cutting and, perhaps, potentially some headcount reductions.

If you can you add a little bit more color around that going forward, that would be appreciated.

Yes, sure.

So it's true, as you mentioned, part of the increase in the OpEx is due to the exchange rate differences.

But, on the other hand, it's true that we had the same headcount at the end of the quarter but, during the quarter, in the first quarter, we had more people.

If you will go and count full-time employees, we had more people during the first quarter and, therefore, expenses were a little bit higher in terms of total wages payment.

We had some more increases during the first quarter related to [Malcom] activities, etc.

And on one hand, it's true that exchange rates will drive our OpEx at this point a little bit higher but, as Shabtai mentioned, we are doing internal activities in order to make sure it will stay flat or increase a little bit quarter over quarter.

Okay, so we should see a flattish trend then for OpEx going forward?

Yes.

Okay.

And with regard to the share count, as well, you purchased a nice size of shares, yet sequentially dropped just a little.

Does that mean we should see the full impact of that purchase mainly in the June quarter?

Or what should we think about share count for June?

Yes, we bought around a million, a little bit more than a million during the first quarter but in terms of share count you take it on an average basis.

So basically it only diluted a little bit.

Full impact will be during the second quarter and, moving on, you will see the entire impact on our EPS which will be one to one basically, at this point, minus [10m].

So around 43m then for the next quarter?

Yes.

Okay.

And, Shabtai, with regards to you know there's been a lot of discussion on the macro environment and what are you hearing?

How are your customers thinking about the macro environment?

It seems like it hasn't impacted their purchasing decisions, but in what context do they put it in making their purchasing decisions?

Or is that not really much of a relevant indicator for them?

Okay, so I've not -- either directly in or through my sales force, we've not received any indications with regard to any effect of the economic prices or the slowdown [and/or] the financial crisis.

On the Enterprise space, I think we're dealing with a very solid, I would say, profitable and strong community.

So Enterprise, in order to increase productivity, needs to move to Voice over IP just to be much more competitive.

I think we're seeing the same with service provider because, for them, it's really reducing and lowering operating expenses.

Move to Voice over IP really allows you to gain much in operating expenses and be competitive on the charges and prices front.

So, while I'm trying to understand myself why we have not seen those indications, a, we have not received them and, b, when you come to think about it Voice over IP is enabling also a reduction in cost and prices.

And, therefore, I think we will continue to see a good market in front of us.

Very good.

Good luck, guys.

Thanks.

Thank you.

Our next question comes from the line of Troy Jensen with Piper Jaffray.

Please proceed with your question.

Congrats on a nice quarter, gentlemen.

Thanks.

Thanks.

So, Shabtai, you had some nice things to say about the new era business kind of back on track, growing for you profitably here.

I'm just curious where you guys are with the product line consolidation.

Are you still carrying the ORCA products?

Is there any chance that some time soon you'll be able to consolidate into one telco system versus [carrying] multiple ones?

So we have downsized the business but we continue to carry and actually win new accounts with -- actually, there were two main products for which there still is a customer base, which is expanding and/or growing its network.

So we continue to sell into them.

Actually, we are hopefully close to winning a new large project in Asia, based on their product.

So what we have done, basically, we have not continued the evolution of those product lines.

But, at the same time we need to continue to maintain them, support our customers and keep the operation.

So we have downsized the operation substantially and I think, while doing that, we got to the level of an operation that's profitable and sustainable.

And, as you say, you never judge an acquisition on its first year.

So I think when we do our five-year analysis, I think we'll find out that we may have overpaid here a bit, but we definitely gained a profitable business.

And we gained a very good and solid customer base.

And, all and all, that is opening the door for our other products to be sold through that customer base.

So, all in all, I think we're coming into a good era now with the [newer] acquisition.

And then the government deal that you alluded to, was that in a partnership with Nortel?

We cannot comment on who are partners are, but we do work with a partner on that [particular], yes.

Okay, perfect.

And then just quickly for Nachum.

Can you give us any color on book to bill or backlog coming into the June quarter here?

Yes.

So, basically, we went into the second quarter with our usually 50% backlog and taking into account the growth that we're expecting.

So, obviously, book to bill is higher than one.

Perfect.

All right, guys, keep up the good work.

Thank you.

Thank you.

Our next question comes from the line of Ted Jackson with Cantor Fitzgerald.

Please proceed with your question.

Nachum, Shabtai, congratulations on a very solid quarter and also on the guidance.

And I'm sorry to see Ben depart, but I know he'll shine wherever he goes.

And I wish him the best, also.

Thank you.

And in terms of my questions, I have a couple of things for you.

One is just listening to the presentation from you, Shabtai, I was curious if you could provide a little bit more color relative to the new product line that you're working on for the second half?

And then, I do have a follow-up after that.

Yes.

I think I've basically hinted that we intend -- actually, we've done already a very small part of it, but the full blown introduction of that new functionality basically is turning our Voice Gateway into a much more functional complete business communications device that will enable handling of data and security and a few more new functionalities.

I believe that will open up for us a completely new market segment that today is not open for us.

Based on analysts, that market segment these days is about $600m, $700m, but they project that space to grow to more than $2.5b in three years.

So I think we will be opening for us new opportunities on that business on our service gateway.

So, I'm a simple man, so I'll put it in simple terms; are you talking about perhaps integrating some of your gateway media server capabilities, maybe your SEC capabilities into a single box to go after the Enterprise market?

Yes, definitely.

That would be part of the plan, yes.

Okay, okay.

That would be interesting, and I think a good idea.

My second question it's kind of a softball for you maybe, but the tech business is where a lot of the upside for the quarter came.

I'd be curious to know what drove the strength in that business.

It's a business that, at best, we've be hoping to see stay flat.

And the fact is you put up such a good quarter I think, at a minimum, it suggests that that business still has some legs to it.

And perhaps you could talk a little bit about what made the quarter strong and how you see that side of your business playing out as we roll through 2008?

Thanks.

Right.

So coming into 2008 the plan was to try and keep the Technology business at its level, end of 2007.

And I think that we were a bit surprised by the strength of that business in the first quarter.

So we will be able to maintain it flat.

We may enjoy some upside but that is not -- we still need to see whether the blades could be used more with some of the servers, but that is yet to be seen.

What could be an upside, but that would take a bit of time, is really more the chip side.

We kept investing on the chips in adding more voice compression technology, more unique functionalities to it.

And we kept it shy throughout the year because it's a small one, growing from about $7m two years ago to about $15m last year.

But we do believe that in coming years we'll see chips continue to grow at least 20% to 30% a year.

So, all in all, we have a good chance of, not only maintaining Technology, but also maybe growing it 5% a year or so.

But, all in all, it's more a defensive play here and our key focus -- all of our efforts, all of our expansionist management and bandwidth is really targeted towards the Networks business.

Great.

Thanks very much.

I'll get out of line.

Thanks.

Thanks.

Thank you.

Our next question comes from the line of Irit Jakoby with Susquehanna Financial.

Please proceed with your question.

Hello, thank you.

And, again, let me add my congratulations on a good quarter, Shabtai and Nachum.

Shabtai, you mentioned that you feel strongly that you're gaining market share.

And I wanted to ask who do you think you're taking market share from?

Is it from smaller players or from the NEPs?

I think, first, there's some very fundamental changes in the market, take the small companies.

We've seen them throughout the year losing market share.

Not capable of investing and not capable of making cost reductions, not capable of growing sales force.

All those small organizations decrease slightly and gradually, we believe, will disappear.

We are becoming more effective in the Business side than the Enterprise side, simply because our gateway these days contain much more functionality, such as IP-to-IP connectivity and security and support of Fixed to Mobile convergence.

So we're gaining from more functionality and more features on the box.

We also enjoy the fact that the Gateway market specifically is not a huge market and, therefore, the big guys have less appetite of targeting that market segment.

So, whereas, these companies have been building and investing in that space, in the beginning of this decade we see less desire and appetite.

Actually, if you watch announcement by Siemens and by [others, I think] [Mitel], a lot of companies are now moving into what they call software (inaudible) solutions.

So if you take the recent unified communication campaign promoted by those companies, they do promote and teach mainly software solutions.

They do need hardware owners.

We do -- our devices do represent such a very intelligent, sophisticated and capable hardware platform.

And therefore we're gaining market share, simply because we've started to be used more and more by partners in the Enterprise space.

So, all in all, I believe that the trends do work towards our benefit.

Okay, great.

And then, with respect to new products, can you give us an idea in terms of the timeline of when you expect to have new product launches and when do you think that this will have a contribution to revenues?

Yes.

We believe that we will start going into (inaudible) in the second half, probably towards the beginning of the fourth quarter.

We do believe that that will give us a lot of momentum and market share gain in 2009.

Okay, great.

Thank you.

(inaudible).

Thank you.

Our next question comes from the line of Anton Wahlman of Thinkpanmure.

Please proceed with your question.

Yes, Shabtai, first of all, regarding Microsoft OCS, when do you think the volume deployments could start there?

And at some point you had talked about your market share being pretty significant there.

I forget if you said 50% or something like that.

What's your latest view on the competitive landscape in supporting Microsoft OCS rollout, and when do you think that could start [to vault]?

Right.

So, indeed, we are one of the strongest partners of Microsoft in that space.

We do enjoy some nice wins, some -- let's take the first quarter of 2008.

I believe that in that quarter we enjoyed between five and 10 new Enterprise wins.

Those wins usually tend to take a few months for trial and then, after about six to nine months, you'll start to see some deployment.

So you're talking about very large enterprises.

So we do believe that more effect from the Microsoft activity would probably start to be seen second, and more to the end of this year, but definitely in 2009 we should enjoy substantial gains from (inaudible) sales of that product.

And a second question on Enterprise grade SBC technology.

You mentioned earlier integrating it in certain other boxes.

But in terms of the road map there, how significant is this for you in terms of the opportunity compared to many of the other markets that you pursue?

It seems to me like this has got a pretty high ceiling in terms of your ability to gain a lot of that market.

Right.

So, we have relatively large R&D force, close to about 250 engineers.

Until lately most of the focus was on developing Gateway Technology.

We are shifting resources into the Session Border Controller space and, indeed, integrating that technology into our Enterprise SBC devices.

We do believe that IP-to-IP connectivity on various forms will become very essential from 2009 and on.

So we do believe that we will -- that investment and transition to IP-to-IP connectivity will become very meaningful in 2009.

Yes.

Very finally, and somewhat generically, in terms of strength of Carrier-class products versus Enterprise-class products, in terms of the overall shift for the Company there, any further commentary you'd like to make on relative emphasis on Carrier-class versus Enterprise-class products?

No.

Our emphasis really is on CPE devices and CPE devices are being used both in the Enterprise and the service provider space.

So, all in all, we do enjoy the play on those two fronts and it's hard to make a distinction as to which market segment is more active and more successful for us.

That's fair.

Thank you very much.

(inaudible)

Thank you.

Our next question comes from the line of Ted Jackson with Cantor Fitzgerald.

Please proceed with your question.

Yes, I just had a follow-up.

We hadn't heard much about what's going on with CTI Squared, and you did do your final payout for that acquisition.

I just wanted to see if we could get an update relative to progress within that business.

Thanks.

Right, so, CTI Squared has been integrated into our sales force and support activity towards the end of 2007.

Thus far, it's been quite good in terms of new design wins.

That has still not translated into a meaningful revenue stream, but we do see new wins in that space.

And we believe that through 2008, hopefully towards the end of this year, this operation will turn break even and/or profitable.

And where do you see that break even being for CTI Squared?

I mean on a quarterly basis, what does it need to hit to start making money?

Basically, we need to reach a level north of $3m a year.

And I think we're not far from that.

Okay.

Okay, thanks, Shabtai.

Sure.

Thank you, ladies and gentlemen.

There are no further questions at this time.

I'd like to turn the floor back over to Mr.

Adlersberg for closing comments.

Thank you.

I'd like to thank you all for attending our conference call today.

And, again, it was a very successful quarter for us.

We feel very strong going forward into 2008.

And we look forward to seeing you on our next conference call.

Thank you very much.

Goodbye.

Ladies and gentlemen, this concludes today's teleconference and you may disconnect your lines at this time.

Thank you for your participation.