AudioCodes Ltd (AUDC) 2009 Q3 法說會逐字稿

Greetings and welcome to the AudioCodes Third Quarter 2009 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.

It is now my pleasure to introduce Erik Knettel, Investor Relations for AudioCodes.

Thank you, Mr.

Knettel.

You may now begin.

Thank you, Rob.

I'd like to welcome everyone to the AudioCodes Third Quarter 2009 Earnings Conference Call.

Let me begin the call today with a brief Safe Harbor Statement concerning AudioCodes business outlook, future economic performance, product introductions and plans and objectives related thereto and statement 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 US 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 and uncertainties and factors include, but are not limited to the effects of current global economic conditions and conditions in AudioCodes' industry and target markets, bankruptcy of AudioCodes' largest customer and their ability to raise additional financing, the likelihood that we may be required to repay our senior convertible subordinated notes in November 2009.

Shifts in supply and demand, market acceptance of new products and continuing product demand, the impact of competitive products and pricing on AudioCodes and 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 Third Quarter 2009 Conference Call.

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

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

I will then review the business highlights for the third quarter.

We will then turn it into the 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 third quarter pro forma results reflect adjustment for the following three non-cash items -- stock-based compensation expense, which totaled $400,000, amortization expenses relating to the acquisition of Nuera, Netrake and CTI, which totaled $400,000 and non-cash interest expenses relating to FASB to APB 14 of $600,000.

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 yesterday.

Getting to our quarterly results.

In the third quarter, revenues were $32.1 million, which represents 6% increase from the last quarter.

In the percentage of our revenue, sales in America accounted for 54%, Europe 23%, Asia-Pacific [16%], and Israel 8%.

We had one customer above 10%.

Our top 15 customers accounted for 50% of our revenue compared to 46% in the previous quarter.

In terms of revenue by business group, in the third quarter, our technology business group accounted for 27% of revenues and our networking business group accounted for 73% of revenues.

In the third quarter of 2009, pro forma gross margin was 56.3% compared to last quarter, pro forma gross margin of 56.2%.

On a GAAP basis, gross margin was 55%.

Our total pro forma operating expenses were $16.5 million compared to $16.3 million in the second quarter of 2009.

Headcount decreased this quarter by two employees, which brings us to a total of 572 employees.

Pro forma net income for the first quarter was $1.5 million or $0.04 per share.

Short-term and long-term cash balances were $116 million compared to $115 million last quarter.

The increase in cash balances is attributed mainly to the positive cash flow from operating activity, which was offset by retainment of a loan bank.

DSO came in at 63 base compared to 62 base last quarter.

Our guidance for the fourth quarter is as follows.

Based on our visibility at this time, we forecast revenues for the fourth quarter to be around 5% more than the third quarter revenues level.

This guidance is based on an initial backlog that's above 50%.

The fourth quarter backlog is also higher percentage-wise than the backlog we had over the last year.

As for our non-GAAP operating expenses, OpEx for the fourth quarter should be in line with the third quarter OpEx levels.

I will now transfer the call to Shabtai.

Thank you, Nachum.

We are pleased to report a second quarter of growth and improved performance across all of the company key financials and operational parameters.

On the heels of the second quarter 2009, which was the first sign for us for initial recovery in reversing the trend towards positive growth, the third quarter 2009 performance marks and underlines a more consistent major positive trend in progessing our business for coming quarters.

Trying to assess the bigger picture, we do believe that we can identify that all of the major ingredients which are needed to support such an optimistic approach to the market in our performance and to get us much more encouragement for what's upcoming ahead, let's look at the following points.

The telecom market as a whole showed more robustness in this downturn.

(inaudible) We see a very healthy VoIP market, both in the enterprise sales and the Sevice Providers space.

We have identified weakening trends in our competition.

We see more partnerships and leading vendors focus on their other competencies and turn more and more into outsourcing VoIP expertise.

We kept sustained and more focused investment in our business throughout this downturn.

We have not laid off many people so we kept our investment in product development, in building our sales force, in building our support and invest in our operations.

We have a pipeline of new solutions in products slated for market entry in 2010 to support further growth and establish ourselves as a stronger and more meaningful market share player with our customers.

We've had a better built and streamlined operations in terms of the organization and the expense structure and levels.

So, we believe that going forward we should see rising revenues and very sound and solid retribution on the operation side.

Now to some key financial indicator for the quarter.

We grew in the top line in revenues 6% quarter-over-quarter.

Gross margin was sustained about 56%.

OpEx grew only about 1% from previous quarter.

As a result we showed operating margins growing to 5% from 2.5% in the previous quarter and operating income almost tripling from the previous quarter.

We showed very strong positive cash flow, generating $5.6 million from operations.

as mentioned by one of our analysts, this marks 10 consecutive quarters of positive cash flow, even during the downturn, which shows a very good cost and expense control.

Backlog, as Nachum mentioned, is very strong this quarter, above 50%.

This is an openning purchase order level that we have not seen in the previous six or seven quarters.

In view of the bigger picture I presented earlier and in view of our financial performance in the present quarter, I would like to draw your attention to the performance that we already have exhibited in the three-year period of 2004 to 2006 when we emerged from the former crisis - the 2001- 2003 telecom crisis.

I think that our performance then speaks for itself and that was mainly based on the fact that we have not reduced our investment and we kept building our strength for the years coming up after the crisis.

This is exactly what we are doing now and we believe that will pay off.

In those years, 2004 to 2006, we grew substantially faster, growing about 25% organic growth on the top line for three consecutive years.

And then earnings growing substantially faster than that.

And so, we believe that we are built right and we will try to replicate that type of success in 2010 and beyond.

In terms of some of our visibility into our operations in the third quarter, I'll focus first on sales.

(inaudible) Most notably, North America sales improved substantially, about 15% quarter-over-quarter.

We believe that that is mainly due to better organization.

We have manned the organization we lacked in the past and our go-to-market on the enterprise level and service providers levels.

And on the OEM activity we have there, as far as that and will keep paying for us in coming years.

Latin America was relatively weaker compared to the previous two quarters.

We relate that to delay of some projects we had.

And we may need to look into the next quarter to see whether we can recover from that in the fourth quarter.

Asia Pacific was relatively flat.

It was mentioned, in the coming moment, we have to invest much in Asia Pacific in order to stir up an attrition into the most largest economies that are growing these days.

And in the near last year, this year, we grew naturally about 5%.

In North America, we mentioned mainly that -- or operations improved substantially on the enterprise front.

We also have been able to improve some of our sales in the technology space, basically for subsidiary in the leverage space.

Markedly, one of our latest customer or the largest one on the sale grew substantially this quarter.

We don't know yet what that figure is, but actually this is a sign for a return to some normal [activities] in some of our -- the divisions that are now in the process of merging into other operations.

In Latin America, as I have mentioned before, we suffered from delay in some key projects.

In EMEA, we saw an improvement, substantially with one carrier where sales grew substantially.

In Asia Pacific, we believe that we will have to invest substantially to improve our operations with some of the countries, notably China and Southeast Asia.

On the other front in India, we grew nicely and we have a reason to believe that our operations in India are coming fairly well and growing nicely.

More insight into the product line.

Technology, we have been able to recover with about 10% in our technology field, which is a good sign for some of our customers making a comeback and recovery in their sales.

On the enterprise space, we saw continued projects in partnership with our logics OEM, [Via] and Alcatel-Lucent.

We have been selected by another big enterprise where that does not work with us until now.

And we are optimistic that we may be able to improve, that's true at that partnership.

Our [outlook] went this quarter into our new product announcement that we have not made yet and will be basically introduced to the market in 2010.

We'd like also to mention that we have done progress on the residential side as far as business and side-by-side with selling our current products, we are in the process of increasing our progress in this market by coming up with a new product that targets Tier 1 customers.

And we believe that we should be pick up in sales in the residential part of the business in 2010.

As to our [telecom] business group sales, we saw steady performance.

We saw progress in one of our partner, mainly in the government space.

As I mentioned before, the sales came strong.

All in all, we do many investments these days including our ability to provide solutions and technology and products in the area of IP to IP capabilities and in the area of special motor controls for large enterprises initial.

In the government space, we believe that that is going to be one of our growth hedges in the coming year.

We've done well with our partners, extremely so in the third quarter.

Initial deployment of our products is the project that in terms of development the last two years and now we start to see the grass roots of that.

And we believe in 2010 and '11 that's a project that should be approximately between $10 million and $20 million over those years now.

We do believe that we will see more success.

We have a few more new initiatives.

We believe that the various entry into that market is very high due to the very unique requirements in that market.

That explains the large development and investments we made in the last few year.

And we believe that we have been saving for us a basic maturing of income for many years going forward.

We also had initial contact with two new players in that government space.

Now, I'd like to go into the announcement that we made this morning, which for us is very substantial.

This morning, we have announced our Multi-Service Business Gateways PLUS, another platform for unified communications.

It's one of our enterprises.

This platform represent true convergence of underlying networking infrastructure and applications and we believe that that's a trend that this market we will evolve into.

The market is looking into highly integrated cost effective and application rich solutions.

And that is for that.

That product basically is an evolution for current Mediant 1,000 and MSBG.

With an improvement advanced gateway with all-in-one network capabilities.

It's combined with the gateway and enterprise class session border controller, a data router, firewall, LAN switch, WAN access and standalone survivability.

It facilities and uses the new platform for users, general computing several margins that, with a large instruction of many enterprise applications, hooked up with some very efficient, very cost effective underlying networking platform.

We have validated that combination in the past and we have the [end yields] by companies such as Microsoft and [Sheercom projects].

And we believe that by itself is going to be very substantial, very potentially for other players.

In terms of evolution, just to remind everybody the Mediant 1,000 Gateway was introduced back in 2005, representing the best-in-class Media Gateway, multilayer, very strong growth rate for build view and combining media functionalities.

From that we go into the end of the G, which has integrated.

On top of that, the router and the data functionalities in various equity options.

And now, when we add marketing open up application options, model options, we believe that we are basically bringing that product with substantially higher level of productivity and effectiveness which is there.

Example, so a couple of applications that could be embedded and run on top of that bottom or connectivity in switching, in terms call manager of core control applications, including the implication conferencing, messaging, blogging, factoring the branch survivability.

And in doing that, what we are able to see pretty weak an OEM honor.

To add this application on top of the platform, we basically include lever to leverage on our past reference applications honor to market and sell our products, which could be a huge leverage for us.

So, one of the things we're looking to add more application ability in those platforms, obviously, we need to look into -- even to get into that or high definition voice capabilities, which are becoming more and more -- being looked at into the market.

We're looking to add some mobility functionality into it and obviously to include [various] diversified communication applications, which targets.

And with that, I've basically completed my initial covering and I would like to turn it to the Q&A questions.

Thank you.

(Operator Instructions).

Thank you.

Our first question today is from the line of Ittai Kidron with Oppenheimer & Company.

Please proceed with your question.

Thank you.

Shabtai, I could make out only about half of your comments.

The quality of the line is very, very poor.

But maybe you can talk about the growth in your business.

When you look at the splits between the networking and technology, it really seems like the technology business has been outpacing and driving the growth over the last couple of quarters.

Frankly, networking has been somewhat flattish for three quarters in a row now, but very low single digit -- 2% sequentially.

Why has the networking business -- why hasn't it seen more progress to date?

Some of your peers have already, on the equipment side, have already shown material improvements, especially in this quarter.

And you don't seem to show that.

And also with regards to your December guidance of 5% growth, what's driving that?

It is technology again or you see networking growing faster than the 5% and technology kind of reverting back to mean?

Well, I think we need to compare notes, but I don't see networking equipment not on track.

I think you need to take into account all the customers and sales went down substantially in previous quarters and that affects a lot of our sales.

So, if you just take that, that would, in fact affect networking there by itself.

Nachum has mentioned, I think, many times in the past in situations with our customers, when to be [letting] same customer into the core.

That can explain what you consider to be a slight growth in effort, actually into our other businesses the company grows very nicely.

Actually, the growth this quarter was basically a combination of both in the networking and technology.

As mentioned, technology improved about 10%.

There is substantial -- if you take in the second quarter [after that 10%], you'll find out if you want to networking in the fourth quarter.

Now at the fourth quarter, very simply we have got very strong backlog.

The backlog is substantially more on the technology side and the networking side is better.

And we don't see, basically, anything that grows on the networking side.

Okay, I can barely, barely understand.

Again, quality of the line is very, very poor.

Is the 10% customer, is that Nortel this time?

Yes.

And they were not a 10% customer last quarter -- correct me if I'm wrong.

They were below 10% last year.

Well, actually, last quarter it was below 10%.

Below 10%.

So, how much of the growth sequentially from June to September within networking was -- came from anyone else?

It seems like you have around $0.5 million to $800,000 -- correct me if I'm wrong -- sequential growth in networking.

Wasn't that all of Nortel?

Did the rest of your business grow?

I don't have that information right now in front of me, but I'm sure Nachum will get back to you after the conference and we will inquire those numbers to you.

All in all, within our networking system.

Okay.

How do you expect Nortel business to behave going forward?

Very hard to tell.

I mean, we need to live quarter by quarter.

I mean, this is an operation that has been split into various divisions, each is doing their migrate to another company.

However, hard for us to say just what will happen going forward.

I will only say that I suspect following quarters to be more or less as based on because how you relate the decrease in the first and the second quarter more to the fact that the company was under a court management, and therefore I would assume that the last emphasis are proving to develop into business and making sales in investments.

So, saying the third quarter represents emergence from that period and I would sense that same that going forward that level will be a [factor].

Very good.

Good luck, guys.

Thank you.

Thank you.

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

Please proceed with your question, sir.

Thanks.

I'd actually suggest that you might want to put the call on hold and hang up and dial back in, Shabtai because you sound like Charlie Brown's teacher in the Peanuts.

I mean, I can hardly hear anything you say.

That said, I guess a couple of questions.

One is can you give me an outlook for CapEx in the fourth quarter?

It was down substantially in the third and I'm kind of curious what you think you'll be spending in the fourth quarter and perhaps maybe on an annualized basis in 2010.

Number two is I think you might have answered this in the last question, but I couldn't tell.

But what was the growth in revenue and, in particular, in networking when you back out Nortel?

And then, number three is in your prepared comments you spent a fair amount of time talking about the government business and some of the opportunities there.

And I couldn't hear a thing you said and I was wondering if you could review that.

But again, I think it may be worthwhile for us to just pause for a second and let you actually hang up and dial back in because the quality is terrible.

It's clearly someone else's gateway they're using.

Okay.

First, I hope you hear me okay.

We have difficulties, too, hearing you.

We will try maybe to hang up and dial in again.

Erik, can you hear us?

Hi.

Yes, sir.

This is the operator.

Yes, so it looks like we will try to log off and then log on in a minute or so because the line is a poor line, obviously.

Okay.

Okay, everyone.

I'll make -- stand by.

I'll look out for you to reconnect with us.

Okay.

Thanks for doing that.

Thank you.

Ladies and gentlemen, please stand by.

We are having some technical difficulties with our speaker.

Please stand by a few moments.

Ladies and gentlemen, thank you for standing by.

Our speakers are back with us on the line.

You may continue.

Good day, everyone.

You may continue the conference.

Hello, Ted?

Yes, your lines are live with our participants again, gentlemen.

Okay.

Hello, Ted?

(Operator Instructions).

Thank you.

Mr.

Jackson, your line is back in conference.

Please continue your question, sir.

Thanks.

Shabtai, I can hear you perfectly now.

Great.

Okay.

So, yes.

What I had asked -- I don't know if you could hear me or not.

I suspect you could, but I was curious -- CapEx was down substantially in the third quarter.

I wanted to know the outlook for that in the fourth quarter and maybe an annualized number for an outlook in 2010.

Number two was I'm pretty sure you said that Nortel was 10% customer for the quarter.

And I wanted to get a sense in terms of the revenue growth that you put up.

How much of that growth came outside of Nortel, particularly as it relates to the enterprise.

And then, number three is you had a pretty long dialogue relative to government spending and I couldn't -- in your presentation -- and I couldn't hear anything you said about it.

But it sounded significant so I thought maybe if you could review that again it would be helpful.

Thanks.

Right.

Okay, Ted.

Okay.

So, on the operating expenses side, basically what we mentioned is that in the third quarter, our expenses were roughly in line with expenses in the second quarter.

They grew about 0.9%.

Basically, we forecast for the fourth quarter the OpEx will remain substantially similar.

Could be a slight increase, but again, maybe a 1% or less than that.

Actually, I'd asked about the capital expenditures.

Oh, okay.

Okay.

Hi, Ted.

It's Nachum.

So, it's true, obviously, CapEx was down on the third quarter and if you look at the first nine months, it was down versus 2008.

I think that the annual for 2009 will be four times the average quarterly that we did in the first three.

Going into next year, it will probably be a little bit more than we had in 2009.

I can only estimate it will be below $2 million -- around $2 million on an annual basis, for next year, I mean.

Okay.

Okay.

Referring to your second question regarding Nortel.

Nortel has been less than 10% in the second quarter and was above 10% in the third quarter.

Actually, we saw recovery and comeback on purchases from the sale.

We have no specific information regarding that.

The only assumption we can make -- part of the purchases came from a one specific big project in Europe.

Above that, I would only comment that we believe that now that some of the divisions that have worked with us or are to be merged with other businesses, it could be that what we saw in the first or second quarter basically reflected the fact that the oppression was under the court management and therefore there were less investments and developments work.

And we believe that some of those issues were resolved and these divisions are planned to merge with other businesses.

We believe that some of the more, if you will, normal activities took place and that, basically, is the source for the comeback in the first quarter.

Now, we do believe that we will not see the decrease in Nortel and my opinion is, basically, that we will see roughly a good performance that's not reflected in the previous two quarters.

On the government side, what I've mentioned is that we are very successful in a project that we invested in the past, for the past two years.

And in the first quarter, we saw the first deployments of equipment in that project that represents between $10 million and $20 million for the next two years.

We made progress with another big contractor in a different market which will give us further lag for revenues going forward.

Beyond that, I have mentioned that, due to the large investment that we make in those years, we believe that we have created a very high barrier for entry.

There are not too many players.

Actually, I think beyond us we have -- describing those applicable deals, but nobody else.

And beyond that, we also made -- we made first contact with two new contractors in this market.

So all in all, we believe that with the need for government agencies and military organizations, moving through next gen advanced communication networks, we have credit for ourselves and save for us a stream of revenues in coming year.

Great.

Thanks very much.

I'll get out of line.

Sure.

Thank you.

(Operator Instructions).

Our next question is from the line of Vivek Arya with Bank of America.

Please proceed with your question.

Thank you.

Hello, Shabtai.

Hello, Nachum.

Hi, Vivek.

Shabtai, your Q4 outlook of about 5% sequential growth, do you expect networking or technology to grow faster?

We believe that we will see growth on both fronts.

Networking is growing nicely.

Actually, we have a new product coming to the market, so we don't see -- we kept in the last two, three quarters, I think, a division of technology of between 25% and 27% of our revenue, in networking at 75% to 73%.

And we believe we will remain in the same type of mix in the fourth quarter.

I see.

Where is the growth coming from in the technology side?

Because the segment was not doing so well for a couple of quarters and now we are starting to see some growth?

How sustainable is that?

Are those just one-off projects or what's going on there?

Okay.

So very simply, we have some big customers, less diversity in the technology space.

We believe that much of the decline in the first two quarters of 2009 was related to those customers' inability to sell well in the downturn.

We saw some recovery and comeback from those customers, which is -- that explains the growth.

So actually, I would tell you that another fact that one of these customers, which is very big, actually has decided, as was mentioned in the beginning of my presentation, to basically abandon internal development and is coming back to us.

They explained to us that they look to focus on their constituencies and start to outsource that type of product.

So, while the overall technology market may not be growing, I would expect more and more players to decide that they are not going to invest in those type of products, namely blades and basically outsource them from us, where we still, of course, keep working on that.

Got it.

How realistic is double-digit sales growth for next year?

What would be sort of the upside drivers and downside risks to them?

Okay.

So obviously, the downside I would tend to relate substantially to the overall market.

Otherwise, unless we see a change from current trend, which is positive slow growth, we believe this will grow mainly due to several factors.

One is more product is going to be introduced just like the one we have announced today.

Government -- first in the government space is going to be substantially larger in 2010.

We believe that our enterprise sales efforts much more focused these days.

We invested a lot in building a North America trial sales team.

Just in the first quarter, we added between three and four people.

We're going to enhance that.

So, enterprise sales in North America will be larger.

We do intend to replicate that type of special care enterprise sales, not only in North America, but basically copy that methodology to other regions.

And third, we believe that due to the fact that we are bringing more product and we have a larger portfolio, that makes us much more attractive to some of the Tier 1 system integrators that, in the past, have not been working too well.

We believe that we just had a meeting here with an Israeli Tier 1 system integrator who in the past has not shown any interest in working with us.

But once presented with our offering at the end of 2009, we saw his interest in training his sales force and his support group and basically taking us to market in 2010.

And we believe that replicating that process with service providers and system integrators in 2010 in other regions will pay.

So all in all, we're very optimistic and we believe that we can indeed deliver a two-digit growth in 2010.

Got it.

And just a last question.

If, let's say, we assume that your mix stays relatively what it was in Q3, so whatever -- say, 25% technology, 75% networking, is there any reason to expect gross margins would dip below the 56% or so level?

Are you seeing any price pressure anywhere?

Or are any of your new products getting lower margins?

Okay.

So, it's a complicated answer.

We don't see pressure on one end.

But as we sell more and more into the enterprise, the S&B market and residential business, we may see some lower margins.

If you remember, in the past, I've always said that, in terms of gross margins, in terms of terms of how would I formulate our financial model going forward, I would tend to think that in 2010 we should look for a range of 54% to 56%.

And I think that's still a valid range for planning for 2010.

So, we believe that due to -- not due to pressure on prices, but really due to expansion of sales and a higher mix of lower margin products, will basically make our margins slightly lower in 2010.

Okay.

Great.

Thanks.

Good luck.

Sure.

Our next question is from the line of Jonathan Kreizman with Oscar Gruss.

Please proceed with your question.

Hi.

This is Dafna on behalf of Jonathan.

My first question is what is your current book-to-bill ratio?

I'm sorry?

Can you repeat, please?

Yes, my question was what is your current book-to-bill ratio?

We are not monitoring the book-to-bill.

It's above 1%, obviously, and as we mentioned, getting into the fourth quarter was nice.

That level is above 60% of the focus that we gave.

And as we mentioned, we didn't see such a nice backlog in the last year or even more than that.

Thank you.

Operating margin grew to 5% this quarter.

I was wondering what level of revenues these OpEx levels tend to borrow and also how much you expect OpEx to expand as revenues growth accelerates?

Yes, so without getting into the revenue forecast for 2010, as we mentioned for the fourth quarter, we do think that top line will grow 5% while OpEx will stay at -- in line with what we saw on the third quarter.

And it's obviously the -- these OpEx level can support higher revenue level and, at the end of the day, [tell] where and when to invest more into R&D sales and marketing, et cetera.

Okay.

You also mentioned in the past the OCS channel is performing well.

As the channel is recovering, what is your dominance in this channel, opposing your competitors?

I'm sorry, we had trouble hearing you.

Again, can you repeat the question?

Yes, sure.

I was wondering what is your dominance in the OCS channel?

Are you referring to the OCS channel?

Yes.

Okay.

Without getting into specific details on that, so far the relationship are doing very well, working very closely with them.

And we already started to generate revenues, although we cannot provide exact numbers at this point.

All right.

Thank you.

That's it for me.

Okay.

Great.

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

Please proceed with your question, sir.

I just wanted a quick update relative to the convertible note repayment.

I noticed in the risk section you talked about perhaps the need to raise capital.

I assume that's boiler plate.

But could you just give us a quick update on how you see your cash position shaping up and your ability to get out of the converter, et cetera?

Sure.

So Ted, we've got $160 million.

The converter is due in a week or so and the price amount is $72 million right now that we have outside.

We will repay probably when the bondholders will ask for the money.

It's still colorized now.

And once they ask for it, we will repay.

We have enough money.

We are profitable.

We are generating cash.

As Shabtai mentioned in the last 10 quarters, we are generating cash from operating activities.

So, there isn't any immediate need to do anything.

That's it, I think, basically.

Okay.

My other follow-up got asked.

Thanks.

Sure.

Thank you.

There are no further questions at this time.

I would now like to turn the floor back over to Mr.

Shabtai Adlersberg for closing comments.

Thank you, operator.

We'd like to thank everybody for attending our conference call today.

And we look forward to have you on our next call in January.

Thank you very much.

Bye-bye.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.