Avid Technology Inc (AVID) 2010 Q3 法說會逐字稿

Good day everyone, and welcome to the Avid Technology third quarter 2010 earnings results conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Tom Fitzsimmons. Please go ahead, sir.

Good afternoon. I'm Tom Fitzsimmons, Director of Investor Relations for Avid. I'd like to welcome you to today's call. With me are Gary Greenfield, Avid's Chairman and CEO; and Ken Sexton, Executive Vice President, Chief Financial and Administrative Officer.

Before we begin, please note that this call includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about our performance. There are a number of factors that could cause actual events or results to differ materially from those indicated by these statements, such as competitive changes, our ability to execute our strategic plan, or adverse changes in general economic conditions. Other important events and factors appear in our filings with the US Securities and Exchange Commission. In addition, our forward-looking statements represent our estimates only as of today, October 21, 2010, and should not be relied upon as representing our views on any subsequent date. We undertake no obligation to review or update these forward-looking statements.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, and may not be comparable to similar non-GAAP measures used or reported by other companies. The non-GAAP measures do not reflect all the costs associated with the Company's operations determined in accordance with GAAP, the most directly comparable financial measures calculating in accordance with GAAP, and a reconciliation of GAAP to non-GAAP measures are contained in our press release announcing this quarter's results and are available in the Investor Relations section of our web site at www.avid.com.

For the purpose of understanding our future business model, we will also provide some forward looking analysis on this call on a non-GAAP and GAAP basis. Some of our GAAP financial measures are not accessible on a forward looking basis, and the differences between our future GAAP and non-GAAP financial measures could be substantial.

And now, I would like to turn the call over to Gary.

Thank you, Tom. And welcome to the conference call for the third quarter of 2010.

Avid delivered solid revenue growth and improved profitability in the third quarter. We reported year-on-year revenue growth of 9% for the quarter, and had another quarter of profit improvement. Our GAAP operating loss is reduced by over 60% year-on-year, and excluding certain items that Ken will review, we had a non-GAAP operating profit of $4.9 million, the highest since 2007. While we have significant work to do to achieve our longer term financial goals, the third quarter results represent a key milestone in our transformation.

I will discuss more about the business in a moment, but will over to Ken so he can discuss our financial results in more detail.

Thank you Gary. And welcome everyone on today's call.

Revenues for the third quarter $165.1 million, as compared to $152.1 million for the same period in 2009. The GAAP net loss for the third quarter was $10 million, or $0.26 cents per share. This compares to a GAAP net loss in the third quarter of last year, of $17.2 million, or $0.46 cents per share. Our non-GAAP net income for the quarter excludes amortization of intangible assets, stock based compensation, restructuring charges, acquisition costs, gain on asset sales, and legal settlement and related tax adjustments. Our third quarter non-GAAP net income was $1.6 million, or $0.04 cents per share. This compares to a non-GAAP net loss of $0.01 per share for the same -- for the third quarter of 2009. The third quarter non-GAAP EPS is the highest for the Company since 2007.

The items excluded from our non-GAAP results for the third quarter totaled $11.6 million and include amortization of intangibles of $3 million, stock based compensation of $3.6 million, restructuring costs of $185,000, acquisition related costs of $56,000, $527,000 of the gain on sale of assets, a legal settlement of $5.6 million, and related favorable tax adjustment of $399,000. The legal settlement concerns a breech of contract claim which relates to activities that occurred at Pinnacle System, prior to our acquisition in 2005. This settlement will have no impact on our business going forward.

I will now discuss the results in greater detail. From an overall standpoint, the revenue for the third quarter was up 9% year-on-year, and up 6% on a year-to-date basis. The third quarter growth represents our highest year-on-year revenue growth since the third quarter of 2006. We experienced growth across the business. We had year -- a year-on-year increase for the quarter and on a year-to-date basis for audio and video, products and services, and our three major geographies. Revenues from acquisitions contributed 3 percentage points of growth, while the changing currency exchange rates adversely impacted revenue by about the same amount as compared to the last year's third quarter.

Video revenues were $102.1 million -- $100.2 million, up 8% compared to third quarter 2009. We continue to see good growth in most of our video product categories. Professional Editor sales were up year-on-year and sequentially as we continue to experience strong customer response to Media Composer version 5.0 which was released in June of 2010. We continue to see increasing sales per shared storage products and a strong quarter for the broadcast market helped drive good growth for our news and interplay related products. Sales of our consumer video editing products were down year-on-year as we seen an overall market weakness in this area.

In audio we had another solid quarter. Third quarter revenues were $64.9 million, which represents a 9% year-on-year increase, and a year-to-date basis audio revenue up over 10%. Audio revenue for the third quarter benefited from several new product releases which Gary will speak about in a moment. We were pleased with the revenue contribution to the audio business from our recent acquisition of Euphonix.

As indicated in earlier quarters this year, we have experienced certain supply chain issues primarily in the audio space. Although we made substantial progress in this most recent quarter, these issues did negatively impact our year-to-date revenue. At our current inventory levels, we believe we are well positioned to better meet product demand in the fourth quarter. Overall product revenue for the third quarter was $134.2 million, up 9% year-on-year, and our overall service revenue, which includes maintenance contracts, professional services, and training, was $30.8 million, an 8% improvement over last year.

Now I will discuss our results beyond revenue on both the GAAP and a non-GAAP basis. The GAAP operating loss for the quarter was $7.1 million. An improvement of $12.1 million year-on-year, and our lowest GAAP loss since the fourth quarter of 2007. Our non-GAAP operating profit for the third quarter was $4.9 million, which represents a $6.7 million improvement compared to the third quarter of 2009. On a GAAP basis, we reported gross margins as a percentage of revenue of 51.9%, down 1.3% year-on-year, but up over 1 percentage point sequentially. Our non-GAAP gross margin was 52.7%, down about 1 percentage point year-on-year and up over 1 percentage point sequentially. The year-on-year decline was largely attributable to the unfavorable impact of the strengthening US dollar, and a higher proportion of professional services revenue. The sequential improvement was favorably impacted by the improvements in our service gross margins, selective pricing actions, taken early in the quarter, and foreign exchange rates.

Our GAAP operating expense was $92.8 million for the third quarter, down $7.4 million year-on-year, and down $2.3 million sequentially. The $5.8 million sequential increase in GAAP, general and administrative expenses was driven by the $5.6 million legal settlement I mentioned earlier. Our non-GAAP operating expenses for the third quarter was $82 million. This was down about $1.5 million year-on-year, and over $3 million on a sequential basis. $1 million of the third quarter decrease related to the sale of certain assets, which we didn't -- which we would not expect to occur in future quarters. Even without this benefit, operating expenses were down. The year-on-year decrease is significant in light of the fact that our third quarter expenses include cost related to the acquisitions, and higher compensation costs related to the reinstatement of compensation practices, which were not included in last year's number. We continue to focus on the improving cost structure and improving our productivity.

Now turning over to the balance sheet. We ended the third quarter with $34.4 million of cash, which is down about $12 million from the beginning of the quarter. Cash used for operations was $12 million for the third quarter, and included $5.6 million for the legal settlement, $2.4 million of payments related to restructuring, and $3.3 million related to our move in Burlington. We expect our cash balances to increase by year end 2010, primarily due to cash generated from operations.

Earlier this month we established a $60 million line of credit with Wells Fargo, which is secured by receivables and inventory. The line of credit provides us with additional flexibility relating to capital requirements in operating our business. While we currently have to specific plans to draw on this line -- on this credit facility, we may use this line from time to time to cover short-term cash requirements in certain geographies.

Our inventory at quarter end was $96.3 million, which is up about $17 million from June 30, 2010. I indicated during our last call that inventory levels would probably increase in the second half of 2010, as we rebuild stocking levels to better meet current demand. We also built inventory levels for several new products introduced in the latter part of the quarter. I would expect a modest increase in our inventory levels during the fourth quarter, the annualized inventory turns for the third quarter were 3.32 -- 3.3 turns.

Our accounts receivable balances of $89.7 million represent 49 days sales outstanding, which is down 7 days from the end of last quarter and more in line with our historical experience. On the personnel side ended the waiter with 2009 employees and 492 contractors.

And now I would like to hand things back over the Gary who will provide an update on the business. Gary?

Thanks Ken.

As mentioned earlier, we are pleased to report the highest non-GAAP EPS since 2007. The year-on-year revenue increases are positive indicators that our markets are improving. We continue to see growth across Avid's audio and video businesses, particularly in the broadcast post and government segments. As Ken mentioned earlier, the broadcast sector continues to grow in the US with a slight lag in Europe. According to a report that appeared in Broadcast Engineering Magazine in July, 2010, research firm BIA/Kelsey has raised its 2010 broadcast TV station revenue outlook and now projects an overall US industry revenue growth of $18.1 billion, which is a 10.9% increase from 2009. And many of our own broadcast customers, including CBS Corporation, [Sinclair] Broadcast Group, DIRECTV, Discovery Communications, and Cable Vision Systems have reported increased rev-- revenues this year.

We are seeing more of our customers invest in infrastructure to facilitate the transition to HD and deliver content to multiple mediums. We met with several of these broadcasters at IBC in Amsterdam last month, and there were a lot of discussions about multi-platform content delivery, media asset management, and transition to file based hi-def work flows. At the show, we introduced a number of new solutions that allow these customers to solve these complex business problems including an updated version of our AirSpeed Multi Stream Server, which enables broadcasters to easily record feeds, temporarily store files, and playback news in either HD or SD, hi-def or standard def, on the same channel. News Vision, and end to end digital news production solution, that allows local and regional broadcasters to increase the quality and speed of their hi-def file based productions at a compelling price; and the Isis 5000, our new open-shared storage solution, that brings the power of best-in-class shared storage to local and regional broadcasters and post production facilities at a lower cost.

We also had some significant recent broadcast wins including finished broadcaster, Wiley, who is building a new production facility that consists of Isis Interplay, AirSpeed Multi Stream, Media Composer and ProTools; and KMSP TV in Minnesota who's building a complete hi-def work flow using Interplay, Isis, and Archive. We are also continuing to see growing interest from the government sector. Increasingly, these organizations are looking for ways to manage the massive amounts of media they have acquired or investing in our broadcast and post-production solutions to more cost effectively and efficiently catalog, store, and retrieve their media. We have entered into a strategic alliance agreements with SRA International, a government systems integrator, and believe this partnership will open new revenue opportunities for Avid, particularly in media asset management.

This quarter also brought continued growth in our post-production and editing systems. A recent report from Frost & Sullivan indicated that the overall non-linear editing market had more than $600 million in revenues in 2009, is expected to grow at annual rate of 7% over the next six years. Media Composer version 5.0 continues to gain traction in this market thanks to features like script sink, AMA, and our new smart tool. In April, we also introduced DS 10.5, the first software only version of our all-in-one visual effects finishing and conform solution.

We had some significant wins in our own post-production segment with this quarter including an upgrade to an [eight] hi-def work flow at Warner Brothers, Extra TV show, and proper films like The Town, Iron Man 2, and the Twilight saga, Eclipse, are -- all relied on Avid audio and video solutions in the post process. The US MI channel continues to show modest growth with most of our key categories trending positively according to a July MICLs track report. Avid continues to maintain the number one position in the studio monitor market in the US in terms of total units sold, this includes our BX and Studio File family of products.

Q3 was also a busy and productive quarter for audio developments at Avid. In September, we introduced a new ProTools Mbox family, and ProTools SE bundles, both are geared towards customers making music at home or on the go. One important thing to note is that we have opened Mbox up to work with a variety of third party digital audio workstations. Now customers can use the Mbox hardware with software like Apple Logic and Steinberg Cubase to add more flexibility in the way they work. Orders for both Mbox and the ProTools SE bundles have been strong from retail partners and educational institutions, and we are optimistic that they will sell well through the holiday retail season.

We also introduced a series of newly designed hardware and software solutions designed to enhance the quality and performance of ProTools HD. The new interfaces, HD io, HD Omni, and HD MADI, offer customers flexible configurations to support a -- support a variety of analog and open digital formats for audio recording, mixing and play back. Avid customer M3, or Music Mix Mobile, recently purchased fifteen MADI interfaces to output their mobile remote recording trucks to dramatically improve the audio quality and reliability of live broadcast events, like the Grammy and Country Music Awards. Rounding out our audio news, we introduced ProTools HD Native earlier this month, and they have been a growing market of music and post-production professionals to tackle demanding audio products using the full capabilities of ProTools HD software running entirely on computer -- on computer CPU power.

The light system market continues to do well. Our year-to-date revenue is up 30%, and we expect to see continued growth here for the remainder of the year. Venue systems were once again used at a number of music festivals, and on tours this summer including Rock In Japan 2010, the [Bonarogue] Music Festival, and Dave Matthews tour, Venue SE48 was also just named audio product of the year by AV Magazine in the UK. In addition, we have made great progress on the integration of Euphonix, which we acquired in early Q2.

We continue to expand our Yukon partner roster. Yukon, as you may know, is our high speed ethernet protocol that enables our line of control services to work with a variety of third party software. We now offer support for Autodesk Smoke for Mac, the Foundry Storm, and Reds, Reds-- [Redson's] X calibrating software applications. The market continues to respond favorably to the openness, as well as breadth and depth of features our controlled services can deliver to creative audio and video professionals. Yukon will continue to be a key driver and empowering Avid to deliver me engineering Yukon will continue to be a key driver in empowering Avid to deliver more open solutions to the market.

Finally, Avid celebrated a few other notable successes this quarter. We were honored by the Academy of Television Arts and Sciences in August 2010 with two MA awards. We received an ME Engineering plaque for Avid's Media Access, AMA, for its role in dramatically improving the process of working with tapeless media. Avid also shared the reception of this year's television academies Philo T. Farnsworth award, named for the televisions inventor which honors an agency, company, or institution whose contributions have significantly affected the state of television technology, and engineering over a long period of time. The award also recognizes the Company's ongoing industry importance. Avid acquired DigiDesign in 1995, and therefore recognition extends to Avid for its continuation of the DigiDesign tradition and its ProTools digital audio workstations. And last, but not least, Interplay was also honored by Cable and Satellite Magazine International for best media asset management solution. Overall, the progress we've made in the past quarter is promising, and we are optimistic about what this means for Avid's path forward.

Now I'll turn it back over to Ken to provide some context for the remainder of 2010.

Thank you, Gary.

While we are not providing specific guidance for the balance of 2010, we want to reiterate our comments from our previous 2010 earnings calls. Our break-even point for non-GAAP operating income in 2010 remains at the annual revenue level of $645 million to $655 million. Revenue in excess of this threshold should generate 50% or higher contribution to our non-GAAP operating profit. For the full year 2010, we expect to report a non-GAAP operating profit. We expect our non-GAAP interest, or net interest and income taxes for 2010, to be about $10 million. Therefore, operating results at a non-GAAP operating break-even level would result in a non-GAAP net loss of $10 million, or approximately $0.26 cents per share loss.

The non-GAAP net loss of $10 million excludes the following GAAP adjustments. Restructuring charges and other charges, stock based compensation, amortization of intangibles, acquisition related costs, the loss or gain on asset sales, legal settlement cost, and related tax adjustments. Based on what we know today, we would expect these items to be about $37 million to $39 million of charges for 2010. Including these costs would result in a GAAP net loss of approximately $47 million, to $49 million, assuming the same level -- same revenue level.

Before we move to Q&A, I would like to remind you that our 2010 Investor Day will be held on Friday, or Thursday, November 11, 2010, here at our new Burlington location. More information and registration is available on our IR page of our web site. I hope you will be able to join us. Also please note that our fourth quarter earnings call will be held on a Friday, February 4, 2011 at 8.00AM Eastern Standard.

This concludes our remarks, and we would now be happy to take your questions.

(Operator Instructions) Our first question will come from Paul Coster with JPMorgan.

Hi. Mark Strauss on behalf of Paul. Thank you for taking our questions. The question on spending at the local TV stations, it seems that there has been a firming in the, the ad budgets and obviously a surge in [pelocal] spending. Are you guys seeing any kind of trickle down effect from that? At the local level?

We -- We indeed are. I, you know, I mentioned to you a couple of examples, Sinclair is an, you know, Sinclair is an example, and we also talked a about the broadcast industry as a whole being up. Not that much different than us, in fact even moreso than us. You know their -- you know a drop in advertising revenue hits profits 100% similarly this increase in the broadcast industry and advertising is a big multiplier effect. So, indeed, you know we talked about -- we talked about Sinclair, we talked about an individual, and individual station in the Midwest, we are seeing a lot of activity and a lot of decisions being made, and we had not seen these decisions being made for either station groups or individual stations for, for sometime. So we are seeing a lot of acti-- a lot of activity there.

All right. Okay. Couple more if I can. Just -- can you guys just give an update on the competitive landscape especially with regards to Omnion Harmonic? And then it seems like we've seen a flurry of contract activity with Grass Valley Group in the last couple of months. Just comment on anything there?

Yes. I don't think the marketplace in terms of competitive activity has really changed. Omnion and -- Omnion and Grass, we, we compete -- both compete with and compliment on the server side, so it's not unusual to find a, a work flow that would, you know, might include Omnion or Grass Valley and Avid, or -- so it would be unusual to see all three -- three, but certainly not unusual to see Avid mixed in with those. I mean the Harmonic acquisition only completed a month ago or so. So we certainly have not seen, seen anything, you know, any different in the marketplace. Both companies are -- both Omnion and Grass are good companies as is Harmonic. So I wouldn't anticipate anything changing. I think the activity for Grass, again, is, is not any, is not any different than we've seen before. We -- I -- we've seen them in competitive situations, but we continue to hold our own -- har-- hold our own there. But clearly they are good companies.

Okay. Thanks. Last one for us. Just a mix between hardware and software on the Media Composer side. Is that now stable, or are we still seeing some shift towards software? And I guess if there is a shift, can you just talk about potential impact on margins?

Well, is -- we -- the -- whenever we release a new release of Media Composer the shift looks a little heavier towards software. We did a release in mid-June and, and that upgrade cycle will continue but certainly you would have -- we would have got a good part of it in late June and the early part of the year. So you do -- so you do see a tickup in software for Media Composer in that time frame which does, of course, result in improved margins. As you can imagine the margins on software only sale versus software with hardware is, is higher.

I think overtime we will see, we will continue to see that shift not just an during upgrade cycle, but more permanently. For a variety of reasons we've, we've set a price point for Media Composer to make it attractive as we did for DS -- soft-- for D-- created a software version only of DS by creating attractive price points for people to start to be able to use it in a -- as students, to be able to use it in a, on a note-- on a notebook, to allow broadcast facilities to be able to put people in the field -- folks in the field using it. So I think we've tried to encourage more software.

Another example is we talked about in the last call was creating a third party interface -- allowing a third party to create interface for io for video, for video io, and other io for Media Composer. So as we open it up to that world, we, we would hope to see more software sales as I commented that does improve our gross margins.

Got it. Okay. That's it for us. Thank you very much.

We will go now to Mike Olson of Piper Jaffray.

Thanks, good afternoon. Just question about revenue mix, I think this is the first quarter since late '08 that video revenue growth outpaced audio revenue growth, and audio revenue growth decelerated in Q3 for the third quarter in a row. Do you think video can continue to grow in the mid to high single digits based on the improving broadcast environment? And will audio potentially reaccelerate with the supply chain issues that you mentioned getting worked out?

Ken do you want to comment on that first?

Sure. So first off I will talk about the audio, and audio -- the audio growth rates were hurt this year due to supply chain, as, as you had indicated, and as I indicated in the call. And, you know we expect to be better positioned, or whatever, to really kind of meet the demand in the fourth quarter. As I said we did catch up with a lot of it here in the third quarter, but in some cases people may have delayed orders too because of other backlog. So you know I -- so from that standpoint, I think that audio has been pretty much more of a steady grower over time and I would expect that and I would expect slight upticks and down ticks each quarter. I think on the video side, it was probably hurt more by the downturn that happened in 2009 and I think that we, you know, I think that we have seen indications of our customers recovering and spending more, and in some cases maybe it takes a while before they start the spend more money, and I think we are starting to see that. It's hard to make a long-term prediction off of a short-term, or a one quarter result growth rate, but we are certainly encouraged by it.

Okay. And then another question. As we look out to modeling Q1 operating expenses, I was wondering if you could share your approach to NEB this year? Should we expect a large Avid presence at NEB in 2011? I guess, maybe one way to look at it is how will it compare to last year?

You know, I think, you know, you will see a comparable, comparable presence. We were very pleased by the, by the turnout of our customers at NAB, and the number of -- not just on the floor, but scheduled customer meetings. We had a similar experience at IBC a month ago. So customers, clearly, are in -- clearly are willing to take the time to not just come and knock on the doors, but to have meaningful meetings. So I think you will see a, a comp at this stage of the game. Our plans would be for a comparable presence.

Okay, thanks very much.

And we will move now to Andrew Abrems with Avian Securities.

Hi guys. I just wanted to talk a little bit about the consumer side. Maybe you can kind of walk through what you are seeing there, why things have been, you know, kind of on the weak side, what fourth quarter looks like in terms of the consumer business because that tends to be the, the better quarter, and what you are seeing kind of you know at a longer term basis for that part of the business?

Yes, the, so when we speak to the consumer side, Ken commented a little bit when he was talking about the audio video mix. We did see some -- we have seen some strength during the first half of the year on that consumer side and I think there still is, is -- remain strengths out there. Pinnacle Studio, Ultimate is an individual skew, as an example, continues to do well on the video side.

On the, on the audio side, we introduced a series of products. We, we did face, during the quarter,and Ken commented on in the script, a shortage of product and that had to do with some of the supply chain shortages that we, that we spoke to. That impacted a couple of areas. One was the consumer side. I think the macrotrends that we are seeing for our own business are comparable to what one is seeing in the market. We've talked to the retailers. The retailers have said they do expect -- they don't -- they do expect this year to be better than last year, but no one is anticipating to be back at the levels of a couple of years ago. So we are seeing a trending upward, we are seeing people starting to not just buy, but buy larger size, you know larger keyboard instead of the smaller keyboard. You know, that type of activity there.

So the -- I would say the single biggest thing during the quarter is that we were impacted by some of the supply chain challenges, which we identified on the last call.

If we break out the consumer business now, or, or what I guess you would classify as a consumer business, is there a way to balance out what the ratio of hardware to software would be, and that kind of part of the business?

In that business, you know we tend to send bundles -- sell bundles. If you think about it, you know, you are selling the keyboard that -- you are selling the keyboard, we are selling -- you know, we talked about ProTools SE on the call, but ProTools SE is really sold in conjunction -- in conjunction with, with musical devices, With MI devices. So there is really not a way to separate hardware versus software. We do sell some pure software for our consumer product, consumer video editing product. Of course, we sell some mixture -- surprisingly, I'll tell you, hardware has been very strong in the consumer video hardware area, as -- under our different brands. So it's -- there is no real way to go X versus Y for the consumer things. Because it's the nature of what the products are.

Just one last question on dealer network, you've been kind of trimming your dealer network, or at least if cutting your dealer network. Can you kind of give us update on how that's been going? What are the good points, what are the bad points?

Did you just say -- ask that again. I just -- I'm not quite sure I --

On your dealer network. You -- you've kind of trimmed your dealer network or focused dealer network over the last couple of months -- last couple of quarters? And just wondering how that's going.

What are the good points and bad points on that, I just wanted to be sure. Yes, so we have been doing -- you know it's just not -- it's -- really what we've done in terms of our dealer network, is we've both trimmed, but we've also identified who our, who are lead partners are so that we, as an organization, are providing more help both in terms of training -- you know when we rolled out some of our ProTools products, we were on the phone at literally 5.00 in the morning helping train some of our, our partners, our dealers on that. So it's really that we created a tiered model. And that tiered model is going well because it allows us -- it's the 80/20 rule -- allows us to focus on the 20% with the 80%, you know with the 80% of the effort, we -- because of part of the world, or because of smaller geographies, or whatever reason, there is still the other important -- still the other important 20, 20% of the revenue. But it's a tier.

You know, had we had some folks don't understand, I've been selling your products for umpteen years, and why -- you know why me. Answer is why me is because you are not, you are not producing. And what we've done with those, it's not that we've eliminated them, we've moved them to third - to two- tiered distribution. So that, so that in fact they can still acquire our products, but we don't have to, we don't have to worry about shipping one -- one-offs to those folks, we let organizations that are more efficient to do that. So, while they may gone out of our direct management, they may still be selling Avid products.

So -- wait, just so I understand that part of it. There is another third party between you and those third tier resellers?

Right, as an example, you know, as an example, Tech Data.

Oh. Okay. Okay, I got it. Okay. So it's a standard third tier, got it. Thank you.

Yes, yes, it's not that we've created something new there --

Right. It's not our organization that built this. It's an existing organization.

Correct.

Got it. Thank you.

And then we treat them as one large partner, we help them, but they are just more efficient at that.

Right. Great, thank you.

(Operator Instructions) We will go now to Steven Frankel with Dougherty and Company.

Good afternoon. Traditionally this broadcast business operated with a lot of visibility and backlog. Given what's happened over the last few quarters, are you now seeing an uptick, but it's more, kind of, book and ship business and you are in the process of building backlog? Or, or do you have some good visibility going up the next couple of quarters?

Yes, I would say that we are, we have seen particularly on our video side, or broadcast side, we have seen -- and we didn't speak to it explicitly in the script this time, but we did last quarter. But we have seen more bookings, in fact, sometimes when we talk about some wins, they're wins where we haven't recognized revenue yet. You know, we are frequently asked the question why do we, you know, why do we think XYZ quarter will be a little stronger versus whatever. And it is because of the bookings backlog. And we have seen, we have seen pretty strong bookings backlog for that.

So we have both the, the -- what you refer as the ship and book business. Ship and recognize it. But typically it's editors, storage, items of that. The integrated work flow typically takes at least one quarter to recognize as revenue. It's not unusual to take even three or four quarters if it's a large installation. But that, that has been growing. And without speaking to who it is, because (inaudible), example is a station group that we, that we have won, but they are going to roll out one station at a time. And we'll recognize that revenue over the, over the implementation as work flows at each individual station. That has been positive.

You say we used to have good visibility. That obviously was before Ken and I had a chance to join the organization. So not sure we are quite back to perfect visibility, but it is clearly improving visibility.

Okay. From an industry perspective, where do you think you are in terms of local news producing stations broadcasting in HD? Do you have any numbers for how many stations it is (inaudible) today?

Well, I think the real question is, that you are asking is the -- really about the news versus just broadcast. I mean, everyone is broadcasting in HD, I shouldn't say everyone, but most stations have some type of broadcasting. But part of the question is are they in HD, but part of the question is are they creating content locally, which is where our rev-- which is, what our drives our revenue, is that local news station, et cetera, and it's in the 35% to 40% range here in the United States. Overseas, it's, it's not that far in, in most regions overseas, it's not in the regional organizations it's not that high at this stage of the game.

On the audio business, you talked about the new Native ProTools system. Do you think going forward that's going to be the majority of the way it's used at the high end of the market?

Could you ask that one more time? What about being used at the high end?

In other words, the professional customer that used to load up with HD cards, HDX all cards, whatever you were calling them, do you think they will be exploiting the new Native software only?

New Native software for ProTools? You know, we have actually spent quite a bit of time with our Customary Advisory Boards on, on that. And the -- I think that you are going to find some cannibalization of the high end, of the high end where we sell our TDM -- where we have traditionally sold our TDM product. But we also been told about the very high end that they clearly continue to want, to want a TDM product.

One of the reason that folks wanted the Native card is it is actually to open up an audience that was using our, our -- the standard product, our just ProTools without -- we call it ProTools LE, but we call it just ProTools today -- using that standard product that they could do a little bit better, a little bit better mix, or little bit better, better work flow. The second thing a lot of the HD players say we want to be able to do this at home. And we want to have just a simple board -- and the board is really just a -- is it hooks up to io, so that we can do this at home where we don't have to have the entire rig. So we are going to capture both part -- we're going to capture a little cannibalization for new user, a little bit of folks that we're going to -- want to have a second option, because one of the things ProTools does is does, does allow you to -- there -- if you -- if the vendor provides a plugin that works both with TDM as well as with RAZ, RTAZ, will substitute those in so you can use software base plugins versus the hardware based plugins. And then we are going to pick up some folks that want to come up from the, you know, from just the standard product. So it's a mixture.

Okay. And then one more question, because in the past the Company has been tricked up on the plugin transition. Where are the key plug in vendors in this transition to your new product? Do you have those plugins today?

There's nothing -- these work with -- the, the, the answer's the current plugin vendors are there. There's a lot of plugin vendors that are out there, and they all, they all are at different stages. The answer -- but there is a wideset of plugins available today for them.

As you know, one of the great things about ProTools is it's wide audience of, is it's tremendous developer network, so different people are in different stages of validating that, but ProTools continues to be -- continues to help that group, so most of the -- most of those will continue to work with existing software based plugins.

Okay. Great. Thank you.

And we have no other questions at this time. Mr. Greenfield, I'll turn the conference back to you for closing remarks.

Well, thank you all, thank you all for joining us, we are pretty, I think we are pretty pleased with the, with the quarter. We think that the types of things that we've spoken to you about in terms of, in terms of the operating leverage that we do have in the business. We've seen that demonstrated, in terms of the growth of both the audio and video businesses, the, the outstand-- the best performance since 2007. So we are pleased with where, where we are today. And should you all have any follow-up questions, please let us know. We'll be -- we will be available for follow up after today's call.

I hope you all will join us on Thursday November 11, 2010 for the Investor Day. We'd love to have you there and share with you some of the new products and some of the new things that we are doing.

Thank you all for joining.

Again, that does conclude our conference. We thank you for joining us.