AudioCodes Ltd (AUDC) 2013 Q3 法說會逐字稿

I would like to welcome everyone to the AudioCodes third-quarter 2013 earnings conference call.

Let me begin the call today with a brief Safe Harbor statement.

Statements concerning AudioCodes' business outlook, 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 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, uncertainties and factors include, but are not limited to, the effect of current global economic conditions and conditions in general and in AudioCodes' industry and target markets in particular, shifts in supply and demand, market acceptance of new products and the demand for existing products, 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 need for additional financing, the ability to satisfy covenants in the Company's loan agreements, possible disruptions 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 US Securities and Exchange Commission.

AudioCodes assumes no obligation to update that information.

In addition, during the call AudioCodes will refer to non-GAAP net income and net income per share.

AudioCodes has provided a reconciliation of non-GAAP net income and net income per share to its net income and net income per share according to GAAP in its press release and on its website.

Joining us today from AudioCodes we have Shabtai Adlersberg, President and Chief Executive Officer, and Guy Avidan, 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, Eric.

Good morning and good afternoon, everybody.

I would like to welcome all to our third-quarter 2013 conference call.

With me this morning is Guy Avidan, Chief Financial Officer and Vice President of Finance.

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

I will then review the business highlights and summary and then we will discuss trends and developments in our business and the industry.

We will then turn the call into the Q&A session.

Guy?

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 as well as non-GAAP pro forma numbers.

Our third-quarter non-GAAP pro forma results reflect adjustments for the following two non-cash items -- stock-based compensation expenses which totaled $462,000, and amortization expenses relating to the acquisition of Nuera, Netrake, CTI, and MailVision assets for a total of $361,000.

Full reconciliation of the non-GAAP results discussed on this call to our GAAP results is currently available for review on our website and in the press release issued earlier today.

Getting to the numbers, third-quarter revenues were $35 million which represents a 4% increase from the sequential second quarter of 2013.

Year-over-year revenue rose 11.7%.

We saw continuing demand for our core networking recruitment group business with an increase of 13.4% in revenue compared to the year-ago quarter.

Sales of our unified communication, Enterprise SBC and multi-service business router offering drove the increase following the growing demand for Lync Unified Communications and SIP Trunk services.

In terms of revenues by business group, in the third quarter our networking business group accounted for 82% of revenues and our technology business group accounted for 18% of revenues, compared to 86% in our networking business group and 14% in our technology business group in the second quarter of 2013.

Revenues from our networking business group in the third-quarter held steady compared to the second quarter of 2013.

Revenues associated with our growing managed and technical services business line were 17% of total revenues, or $6 million, in the third quarter of 2013, up from $5.7 million in the third quarter of 2012 or 18% of total revenue.

Managed services and professional services helped further by an articles' high value relationship with its customers.

Service revenues are also beneficial in that they are typically characterized by high gross margin and are based on our extensive experience and know-how accumulated in the Company.

As a percentage of revenues, sales in the Americas accounted for 49%; Europe, the Middle East and Africa 34%; and Asia-Pacific 17%.

Our top 15 customers accounted for 55% of our revenues compared to 54% in the previous quarter.

In the third quarter we had a single distributor in North America that accounted for 14% of revenues compared to 18% in the previous quarter.

GAAP net income for the third quarter was $935,000 or $0.02 per diluted share basis, an increase of $2 million versus the year-ago quarter and an increase of $494,000 sequentially.

Non-GAAP income for the third quarter was $1.8 million or $0.04 per diluted share, an increase of $2.2 million versus the year-ago quarter and an increase of $726,000 sequentially.

In the third quarter of 2013 on a GAAP basis gross margin was 56.3%, non-GAAP gross margin was 57.1%.

GAAP operating expenses were $19 million compared to $18.8 million in the second quarter of 2013.

Our total pro forma operating expenses were $18.5 million compared to $18.3 million in the second quarter of 2013.

Headcount held steady this quarter with 611 employees, of these 22 relate to the MailVision asset purchase completed in the second quarter of 2013.

Net cash provided by operating activities was $1.6 million this quarter compared to $4.1 million last quarter and net cash used in the operating activities of $1.2 million in the year-ago quarter.

Short-term and long-term cash balances at quarter end were $58 million compared to $57.5 million at the end of the previous quarter.

DSO came in at 73 days compared to 72 days last quarter.

In May 2013 AudioCodes completed the asset purchase of its affiliate Company MailVision.

MailVision is an Israeli Company which develops markets and licenses voice over IP solutions for mobile, PC, Web and tablet devices for telecom operators, service providers and telco over-the-top.

While we expect demand for our new product and solutions to grow into a double digit compounded annual growth rate over the next three to five years within this large growth trend, for our new product and solutions we do anticipate some of this growth to be offset by a decrease in demand in our technology and legacy products.

As for our guidance, we would like to upgrade our annual revenue guidance for 2013 as follows.

On an annual basis we forecast revenue for 2013 to be between $136 million to $138 million.

We are narrowing the range of our full-year 2013 guidance for non-GAAP earnings per diluted share and forecasted to be at the higher end of our guidance, upgraded in the previous quarter to be in the range of $0.13 to $0.15.

I will now transfer the call to Shabtai.

Thank you, Guy.

We are very pleased to report another quarter of growing revenues and earnings.

This quarter marks the fifth consecutive quarter of continued growth since we started the turning around of the Company in middle of 2012.

Refocusing our business model, aligning our efforts with new emerging market segments and, above all, executing on our plans and partnerships have been key in setting this new course for growth in coming quarters.

This series of successful quarters thus illustrates the ability of AudioCodes to continue and deliver consistent growth and success for years to come.

Two major factors support this trend of growth in our business.

First, the multi-year evolution and growth in the markets we serve, the unified communication and collaboration market and the contact centers.

More recently we have diverted our attention to a new fast-growing unified communication as a service market.

The voice over IP business services market evolves quite rapidly as business access lines in the US and other regions start to migrate to voice over IP and [offset] services and cloud services.

According to analysts, IP-based business access line on a global basis penetration is only about 13, so there is much more room for growth.

Second, it is our focus on complementing as an infrastructure player in our ability to forge partnerships and execute on them with the leading application players in the field.

Now before I move to highlight our achievements in the third quarter from a financial perspective, I would like to take this opportunity and expand on our underlying strategy.

In the third quarter of 2013 we have made very important steps reinforcing our strategic initiative where we said the Company to become the one voice Company for the VoIP business services.

In a world that is rapidly transitioning from an old enterprise telephony paradigm to a Unified Communications collaboration driven world and with the migration from pure on prem isolated enterprise telephony systems towards globally managed voice metrics, the focus of investment shifts dramatically.

Companies are investing more and more in mobile and cloud, deleveraging away from proprietary (inaudible) solutions and investing in productivity tools that support communications enabled business processes, social tools, analytics and security, all of which accommodate the needs of a drastically changing workforce.

One Voice is our strategy intended to support this organization as a transition in their journey to an all IP network.

The One Voice strategy is meant to help enterprises and service providers in achieving that goal.

Key to understanding the underlying value we bring requires a more deeper look into the new evolving voice network infrastructure.

Large enterprises these days are highly distributed businesses, both globally and on a nationwide basis.

We also see mixed networks comprised of on prem, public cloud, private cloud, etc.

And in addition, enterprise mobility and remote access becomes much more mainstream.

Now with that new evolving world of Unified Communication and Unified Communication as a service, that poses several (inaudible) challenges.

Let me count a few.

Any CIO, any IT manager in charge of this voice network has to ask himself, how do I maximize network performance and quality?

How do I protect prior investment and take care of integrating with existing infrastructure to achieve best total cost of ownership?

How do we deal with network complexity?

What would be the most cost-effective way to scale?

How do I enable high quality of voice?

So all of that is not trivial.

And this is exactly where One Voice is meant to solve all these issues.

AudioCodes One Voice solutions are designed from the ground up to be highly scalable for large enterprise deployments and are well-suited for emerging Unified Communications as a service services.

These solutions are comprised of a combined package of services and a diverse set of comprehensive portfolio of products.

And so, we are no longer a pure product play Company, but rather an end to end full-service voice solution Company.

The One Voice strategy and go to market as an infrastructure Company dictates that we focus on developing and executing on a partnerships and alliances strategy.

And we seek to align ourselves with leading voice over IP application service companies such as Microsoft, BroadSoft, Interactive Intelligence, Genesis and others.

Overall innovation remains the foundation of our growth strategy.

And so, with the rapid changes in technologies in our space, the transition to cloud, pure cloud, hybrid cloud, on prem solution, WebRTC, Session Border Controllers, over-the-top solutions, high definition voice, etc., our position as a provider of a full solution helps us gain in all of the different product lines.

The first step in the One Voice strategy direction was made in early 2013 when we announced the One Voice for Lync program.

This is one of our most important programs which has created a very strong (inaudible) for us in the market.

We are on track to grow this year about 25% and we believe that we will enjoy similar such growth in coming years as the market accelerates.

I will touch the markets of Lync market further in the introduction.

Today I am glad to say that we now believe that in the third quarter 2013 and early Q4 we have created a second very strong (inaudible) for the Company.

A program that targets the fast emerging market for hosted PBX services and SIP Trunking for IP-based business access.

Now let me refer to the highlights of our financial performance in the third quarter of 2013.

Sales were on track with 2013 budget plan exhibiting 4% increase over the second quarter this year.

Net income came at $1.8 million; this is 70% over the past quarter, very impressive growth.

Gross margin was lower than anticipated, 0.4% decline from Q2, this is mainly due to product mix.

OpEx think we did good control before operating expenses, we said it is around $18.5 million.

Cash flow was positive; we have generated $1.6 million from operations.

Our net cash grew by $2.2 million; we now stand at almost $42 million net cash.

Inventory stayed flat at $13.4 million, same for headcount.

Now in terms of our focus going forward we put a lot of emphasis on developing relationships and alliances with leaders with large ecosystems in our world.

We are working with Microsoft; we're working with companies like BroadSoft, Genesis.

We do have a plan to grow that Company (inaudible) and be able to sign more One Voice programs for more players.

This is the emphasis in the Company.

We believe that our portfolio of products and service complements their offering as a key switching and application server.

We do transition to focus much more on solution and managed services rather than products in the past.

We do intend to go also for cloud implementations.

And I think that this quarter we will introduce the first two beta for [alpha] cloud-based application in a few weeks from today.

Now to the product line behavior in the quarter.

Networking was 82% of revenues, that is flat in terms of quarter over quarter with the second one this year.

In terms of per amps Lync contact centers and services were on track for continued long-term growth.

In terms of our business services, Session Border Controllers, we had a mild quarter.

We did not grow in the third quarter of 2013.

We do expect to introduce an access SBC that is (inaudible) cloud and asset application.

We are already (inaudible) to beta customers in that space.

One very nice achievement in the quarter is that we have announced a few months ago our software [ISBC] product and we announced a target to reach 10,000 concurrent session in January 2014.

I am glad to say that according to the current development in our plans, we will be able to present much larger density in early 2014.

We shoot for 16,000 concurrent channels in early 2014.

Practically that is almost unlimited scalability in terms of the needs in SIP Trunking today.

Two very successful product lines for us in the past quarter are, A, the line of the multi-service routers.

This segment of products, which targets the branch office segment, has shown very nice growth.

And based on filing a new (inaudible) in the space we do expect that we will more than double our sales in 2014.

This is a relatively very new product line for us.

We just initiated sales this year.

We will get close to $5 million.

The number of customers we're getting both in Europe, Latin America and the US is very impressive.

And we believe that being a very complex product, integrating both routers, SBC, gateways and functionality and more, then (inaudible) Company is capable of generating it and that will definitely create a differentiating factor for us in both service provider application and in cloud services application.

Second line that has been very successful for us in the third quarter was the active online.

We have seen strong growth over second quarter.

I am glad to say that we achieved certification with Microsoft on one of our models.

That will definitely contribute to growth of sales in the (inaudible) Lync environment.

Now one very important category that allows us to judge the progress we are making with our development activity is we have defined a category that's called new products.

And in that category of new products we count a combination of Session Border Controllers, multiservice routers and IP phones.

I'm glad to say that we have seen very steady growth for the past five quarters; we grew 150% year over year in the third quarter of 2013.

And in terms of contribution to the overall revenues of the Company we grew from 7% contribution a year ago to 16% in the third quarter.

That shows that our ability to benefit from the investments we're making in the new product lines pays us very nicely.

Now let's get to Lync.

Before I get to our activity I would just like to quote some interesting data points we have heard recently.

A Microsoft blog claims that at this stage Microsoft is now shifting more enterprise voice lines than any other technology company in the world.

That is a very impressive achievement.

More specifically, they claim that this year almost 60% of enterprises accounting more than 500 SIP's, surveyed or are deploying or planning to deploy Lync and that is up from only 45% a year ago.

Also in the past the proportion of enterprises which had no plans to deploy Lync was 21%, this year it dropped down from 21% to 7%.

So we know very impressive growth for Lync.

Another quote we have seen is that Microsoft is now growing above and beyond their competitors.

In enterprise of voice revenues they are growing close to 60% on an annual basis and if they continue to grow as they are trending it is very likely that they will surpass Cisco for total collaboration revenues very soon.

Now to our performance in that space.

We are very successful in the Microsoft Lync environment, we are probably number one in the voice category there, we have -- we grew 10% in the third quarter over second quarter, and we are at 15% growth from Q1-Q2 run rate.

Lync growth territories remained the US and Western Europe, but we do expect pick up in Asia-Pacific, we have seen already signs for that for 2014.

As I mentioned before, we completed certification for IP phone the first model of the 400 series.

So One Voice for Lync is proving worthy to customers and we have a few customers that basically where we have deployed a combination for our products and services.

And that basically concludes my introductory presentation for today.

And I would like to move the call to the operator for the Q&A session.

Operator?

(Operator Instructions).

Andrew Uerkwitz, Oppenheimer & Co.

Just one of the biggest positives for you guys this year I think was increased visibility as you got longer deals.

So this is a two-part question.

Is there any update on some of these larger deals you guys have signed?

And then secondly, kind of public visibility or how comfortable do you feel about 2014 so far?

Okay.

Regarding the first one, actually good question because when we talk about Lync activity one needs to know that when large companies deploy that solution it takes years for a complete solution to be deployed.

Usually it starts with a proof of concept, then with gradual incremental deployment.

Think about the companies with more than 100 different branches all around the world.

So what we are seeing is continuing and somewhat accelerated deployment in those branch offices and those deals that we have signed are going well and we're basically building the base, the branch offices base on (inaudible) basis.

The second question related to 2014.

So my answer to that would be very simple.

We have done and executed on our plan in 2013 mainly growing the Lync One Voice for Lync program and completing the developments we needed to have on the new lines which are the SBC, the multi-service routers and the IP phones.

Entering 2014 we'll be in much better shape.

Lync will accelerate for us we believe.

We have a new program targeted at PBX services which will bring another strong (inaudible), more sales to service providers.

And the importance of our new product portfolio, namely the SBC, the writers and the IP phones, that plays to the tune of cloud emerging as the key area for services.

So we believe that we will enjoy a very strong 2014 based on what we already completed in 2013.

Great, thanks, I appreciate it, guys.

Congratulations on a good quarter.

Les Sulewski, Sidoti & Company.

Just quick -- quick ones.

On the -- can you tell me a little bit more about the feedback you have been receiving on the Voice One for hosted services?

Yes, actually, that announcement was not made in the [void].

We had discussions with potential partners around the time of the announcement.

We do see feedback -- we're participating in some partners' end-user events, there's good feedback and we believe it is catching up.

There is definitely a need.

I will tell you why.

Hosted services companies tend to be primarily software companies -- strong product, very strong product but still it is a software solution.

Now that solution is being deployed in the cloud, those companies usually tend to have less ability to either service the products to install it, provisioning, maintain it, upgrade it, deal with existing infrastructure.

So our ability to come up with the complementary product portfolio and provide services through our very large network of partners, that is a key value.

And we have seen that playing for our self for that target.

Thanks.

And with Verizon taking share of the wireless package, which should roll out to LTE quicker and accelerate opportunity for mobile, how will this affect your mobile platform?

I do believe that LTE will be a major driver in the evolution of hosted services.

And with our product line, mainly the routers, we believe that we will definitely be a player, we've already been approached by a few wireless companies who provide wireless service looking into our product as a possible solution.

Usually you need a link to the wide area network, usually it is either a DSL -- when you're talking wireline you're talking DSL or fiber or other means.

But in the age of LTE there will be also a wireless link very wide band.

So that is why that is in the interest of the wireless companies.

And one last one.

You mentioned two programs coming into effect this quarter for cloud.

Can you shed a little more color on that?

Yes, I will just mention briefly we will make an announcement in due time.

We have been working substantially in our mobility -- enterprise mobility programs.

We do expect to deploy a beta version of it; it is already in use in Israel.

We will deploy it later this year.

And there is another application that helps travelers with mobile being bubbled to voice tile their PBX and not having to key in the numbers again, that is a very successful service that we have already sold in Israel, it is a pilot, we do intend to go cloud by the end of this year.

All right, excellent, thank you.

Dmitry Netis, William Blair.

So I just wanted to get to the bottom of sort of your long-term operating metrics and certainly showing five consecutive quarters of solid performance, a lot of it is probably reflected in the stock price.

So the question is what should drive interest going forward?

So perhaps you can refresh your long-term operating metrics and kind of give us a sense of where you are today and how close are you to those metrics?

That would be kind of one question for now.

Thanks.

Hi, Dmitry.

So looking at the long-term model -- obviously, as Shabtai mentioned before, we are looking to grow revenue especially on the networking segment.

And gross margin wise we believe at least in the next coming few quarters gross margin will not change dramatically from what we reported in the last two quarters, meaning 57% to 57.5%.

Obviously by growing revenue bottom-line will grow.

And we did not announce yet our guidance for 2014.

But it is going to be more -- definitely more profitable than this year.

Got it.

So I mean right now I think you're operating somewhere in the single-digits operating margin.

I mean where those margins can possibly go over time?

I don't know, what is your target -- three, five years?

I mean if you could give us a sense of what you're operating this business to?

Obviously on three to five years we are aiming to double-digits -- double-digits higher than 10%.

Okay, that is helpful.

Thank you.

And then a lot of also metrics were provided and we appreciate that.

But one thing I wanted to kind of clarify is I think you mentioned 25% growth from your new products.

I just want to make sure I am getting this correctly.

And that contributed around 16% this quarter?

So if I did the math that is roughly what, $5.6 million?

So is that correct?

And then also another metric was thrown out, I think it was with regard to Lync, that you grew about 10% -- I'm sorry, 150%, and then there was another metric for 10%.

So I apologize for putting all those out.

But if you could just sort of give a sense of what all these different metrics are and what are you tracking specifically as far as the product categories?

Thank you.

Sure.

We were talking about the new product category.

We're counting that the routers, the Session Border Controllers and the IP phones all are new growth engines.

The combination of all these products contributed, as you have mentioned, $5.6 million this quarter, which represents 16%.

Comparing to a year ago where their combined level was about $2.1 million, $2.2 million which was only 7%.

So there is a measure, a metric that relates to the content of the new products in the mix of revenues.

That is one number.

The second one related to our Lync activity, our Soft Lync environment.

We have been growing 10% in the third quarter compared to the second quarter.

And on an EBIT basis we do plan to grow more than 25% in 2015 over 2012.

Okay, so just to get it right -- so the new products will grow 25%, is that what you are basically saying?

Or is that the Lync category that will grow?

No, no, no, no, no, no -- those are two -- those are really two different things.

In the new products we refer to the combined revenue that came out from three product lines, that is one thing.

In the Lync category we basically count all of the sales into One Voice for Lync, meaning both products and services.

Now products may contain also gateways and services such as implementation and remote monitoring and others.

So the Lync number really gives you a flavor for the combined overall sales into the markets of Lync environment projects.

That is not a product sales measure.

Understood, okay.

That is helpful.

Thank you very much.

And that category is growing -- what is the expectations for that Lync category?

So you grew 10%, what is your expectation sort of going forward that that category will continue to be in that low single -- low teens, high teens, mid-teens?

I mean what are you guys projecting this One Lync for Voice can possibly grow?

So, this year we expect that category to grow 25% over last year.

We do believe that going forward we will be able to sustain similar such growth trends simply because (technical difficulty) of Lync deployment grows and accelerate essentially.

And that would be the pace we would look to achieve in coming years.

Okay, great.

Thank you so much and keep up the good work, gentlemen.

Sure, thank you.

Rich Valera, Needham & Company.

Just a follow-up on that.

Could you give us an estimate of what Lync will be as a percentage of your total sales in 2013?

Roughly we think it should be about 15%.

Is that 1-5?

1-5.

Yes.

Now, correct me if I am wrong, I thought Lync was North of 20% at one point?

I guess I was mistaken on that.

Is this it's peak?

We were talking more of a target of $20 million -- about $20 million.

So maybe this is where the confusion comes from.

Okay, so 15% of sales for all of 2013 is a rough number there?

Is that right?

Right, yes.

Okay, thank you.

And then just wondering how to think about the margin profiles of these different products, I guess particularly as you look at your new products.

Do these all have similar gross margin profiles?

I mean I would just think intuitively that IP phones would not have the same kind of gross margins as an SBC or even a multi-service router.

So just wondering how to think about the gross margins either in aggregate of that group versus the corporate average or any color on individual gross margins for those products.

Right, you are mostly right, Rich.

Those would be different gross margins.

Since we do not have those numbers with us right now I prefer that we do -- we do some work and build that gross margin model and then discuss it.

I don't think we are ready to give you a complete breakdown of the gross margin going forward at this stage.

We do not -- simply do not have the full metrics.

That is fair.

But it sounds like over the next few quarters you expect gross margins roughly stable with where you were in 3Q, is that a fair statement?

Yes.

Okay, thanks very much, gentlemen.

Catharine Trebnick, Northland Securities.

A quick question on the products that Microsoft Lync focuses on.

Is that basically your small end products?

And then who do you see competitively in the Microsoft Lync relationship when you sell into that -- through that channel?

Thanks.

Sure.

Okay, so basically it is a combination of products.

It entails gateways that combine our analog gateways, some of which are 24 lines used in large institutions.

Digital gateways, Session Border Controllers, not always a low-density, some of which are higher densities.

IP phones and services.

And -- yes, so it's a combination.

It is not only just the low end stuff.

Well, then -- but in the relationship with Microsoft Lync is it mostly -- where would you say that which vertical market or is it the SMB, the midsize SMB or the large size that you get the most traction with and with your combined group of products?

Oh, okay, so basically Microsoft is targeting large enterprises.

I mean, this is where they fight to achieve the largest market share.

So we sell through -- we talked about our wins through AT&T at Ernst & Young and a few other accounts.

So we're selling into those large enterprises.

At the same time we have a more independent go-to-market for the mid-market.

And the sweet spot there would be companies that are larger than SMBs.

SMBs we believe will be served mostly from the cloud implementation of Lync.

Okay.

And then competitively who would you say you run across?

Do you see [Jenben], Sonus?

Do you see any Acme Packet anymore in this channel or how do you think the competition stacks up?

So we see mainly Sonus in most of the Lync accounts.

We do not see Jenben; they do not sell into that space.

Acme we see rarely.

Acme is, at this stage at least, focusing more on the higher density Session Border Controller applications.

Okay, and then the last question is -- is there any change in the ASPs in the sell-through or is it pretty stabilized?

It is pretty stabilized.

The gross margin's small decline this quarter is attributed to a mix of products where we had a low-margin product from the residential line affecting the results.

All right, thanks a lot.

Patrick Metcalf, Halcyon.

Congratulations on a good quarter.

I just want to ask you a question.

In May you talked about hockey stick growth potentially out about 12 months from the May conference call.

And since then in the third quarter you said you are approaching larger deals with the Microsoft Lync.

When do you see the potential for hockey stick growth to hit the quarterly results?

Hi, Patrick.

Not sure we said hockey stick because that is not our nature.

We definitely believe in growth.

And as I've mentioned, if you take the Microsoft Lync environment, sales tend to be incremental but very steady.

So we will see growth in the basis of sales, but we will -- I don't think we will see hockey stick (inaudible) phenomenon.

Okay.

And then secondly, the BroadSoft announcement, who is BroadSoft doing business with prior to you guys signing this relationship?

And how do you see this relationship developing into revenue?

Do we see it in the fourth quarter, Q1, Q2, etc.?

Okay.

So we have not announced BroadSoft, we announced (inaudible) services.

BroadSoft is one good partner of ours in that space.

We do believe that our work in the (inaudible) services market will start to translate into sales in 2014, more middle of the year and then the second half.

We definitely see huge potential there but it always takes time to develop.

Okay, thank you.

There are no further questions in queue at this time.

I would like to turn the call back over to management for closing comments.

Thank you, operator.

I would like to thank everyone who attended our conference call today.

Based on current business outlook in early Q4 we believe we are on track to continue our trail of growth and success and continue to build a sustainable, profitable operation for coming years.

We look forward to have you on our next quarterly conference call.

Thank you very much.

Bye-bye.