Aviat Networks Inc (AVNW) 2006 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome this the Stratex Networks Second Quarter Fiscal Year 2006 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will open up the call for your questions. Instructions for queueing up will be provided at that time. As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to Mary McGowan of the Summit IR Group.

Thank you for joining Stratex Networks today to discuss financial results for the second quarter of fiscal year 2006. On today's call will be Chuck Kissner, Chairman and CEO, and Carl Thomsen, Senior Vice President and Chief Financial Officer. They will review the results for the most recent quarter and our current business outlook followed by Q&A session.

During this conference call we may make forward-looking statements regarding our business in the wireless industry in general, including relating to our market share, future revenues, margins operating expenses and net income or loss, balance sheet improvements, DSOs and inventory turns, backlog, foreign taxes, anticipated introductions, performance, market acceptance and financial impact of new products, in particular the Eclipse product, break even and profitability, and future results of operation and cash usage. It is important to note that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include continuation or further tightening of global capital markets for telecommunications and mobile cellar projects and economic and political instability in the Middle East and other markets in which we compete or in which our products with manufactured. For a further discussion of these and other risks, we refer you to our press release issued today as well as other filings made with the Securities and Exchange Commission. In addition, please note that the date of this conference call is November 2, 2005, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events.

Now I would like to turn the call over to Carl Thomsen.

Thank you, Mary, and welcome to those of you listening in on this call. First I would like to provide a summary of our quarterly results for those of you who may not have had a chance to read our press release. I would also like to note that in the second quarter press release we have included both GAAP and non-GAAP results. We started this in anticipation for accounting for stock-based compensation next year. We believe it is appropriate to commence this reporting now as there was a $925,000 non-cash stock charge in the second quarter related to our restricted stock program. We believe the supplemental non-GAAP financial results reflect the basic operating results for the Company and facilitates comparison of operating results across reporting periods for use and comparison to prior periods of discussing the results based on a non-GAAP results which were included with the press release.

Second quarter fiscal year 2006, revenue was 56.6 million. This revenue substantially exceeded our expectations at the beginning of the quarter. 56.6 million is an increase of 30% compared to the same quarter last year. Gross margins on an non-GAAP basis were 27.1% compared to 19.3% in the same quarter last year and 23.1% in the prior quarter. Orders for the second quarter were strong at 58.8 million and backlog ended the quarter at 57.4 million.

I'd like to highlight the fact on a non-GAAP basis, excluding the stock charge, Stratex has positive operating income of just over $200,000 for the quarter. Positive operating income is a major milestone we have been focusing on for the past several years, and is a substantial improvement from the $6.1 million operating loss we reported in the same quarter last year and the $3 million operating loss we reported last quarter. This is the first quarter we had have positive income since the dramatic down tun in the telecommunication industry started in 2001. We are delighted to report the numerous changes implemented over the past several years at Stratex are now beginning to show in the financial results.

Now I'll review some specifics related to these results.

First, related to orders. By geographic area, orders were as follows in the Americas, 11.6 million, Europe, 18.5 million; Middle East and Africa, 16.1 million; and Asia-Pacific 12.6 million for the total of 58.8 million.

By product line Eclipse orders were 32.2 million, the XP4 and Velox products were 6.2 million, LPM product line was 9.3 million, DXR was 1.8 and services were 9.3 million for again a total of 58.8. As we remind you each quarter orders tend to be lumpy and thus can vary significantly from quarter to quarter. This is clearly evident looking by order business quarter over the past 18 months. Overall, however, the orders trends are certainly encouraging and on the right trend line.

The orders of 58.8 million in Q2 were very encouraging and resulted in higher than expected revenue as well. Orders for Eclipse at 32.2 million were up 20% from the 26.9 million reported in the prior quarter and are up over 250% from the 12.3 million in the same quarter of last fiscal year. Eclipse orders accounted for 65% of new product orders in the quarter. We also received several large orders for Altium during the quarter. These orders were primarily from one customer who we expect will be transitioning to the Eclipse platform early in the next calendar year. Orders for services at 9.3 million were higher than the 6.5 to 7.5 million we had been running for some time. This is due to two specific projects that will not repeat in the next quarter. The order pipeline for Eclipse continues to be very good, and gives us confidence in the continued success of this product line as well as continued improves in Stratex' financial performance for the balance of fiscal year 2006.

On the revenue results, by product line, Eclipse revenue was 30.9 million, the mid-capacity XP4 and Velox were 5.7 million, Altium was 6.1, DXR 4.6 million and Services 9.3. Total revenue of 56.6. By geographic area the Americans were 10.7 million; Europe was 14 million, Middle East and Africa was 14.5 million and Asia-Pacific 17.4 million. Eclipse revenue increased 25% from the prior quarter and was 65% of total product revenue in the quarter, up from 50% of product revenue in the prior quarter.

The new low end, low cost version of Eclipse is opening additional market opportunities particularly in Asia-Pacific. Gross margins were 27.1% in the second quarter, compared to 23.1% in the first quarter. This clearly is a major improvement from the 19.3% reported in the second quarter of last fiscal year. This trend reflects the impact of Eclipse margins on the overall company margins. For the third fiscal quarter we're forecasting continued improvement in gross margin, based on a current backlog and forecast product mix, I expect gross margins in the third quarter to be 27, to 29%.

Now let me turn to operating expenses. R&D expenses were essentially the same as last quarter at 3.6 million, selling general and administrative expenses were 11.5 million in the second quarter, compared to 12 million many any first quarter. Our guidance for this -- for SG&A in the second quarter was 11.2 to 11.5. We were at the high end of the guidance due to the higher selling expenses related to higher revenue. I'm forecasting R&D expense will be about the same level in the third quarter as in the second quarter. And SG&A expenses should decline to about 11 million, excluding any charges for the restricted stock plan.

As I indicated in my opening comments on a non-GAAP, basis we had positive operating income of $208,000 in the second quarter. Given the major improvement this represents, I thought I would mention it was more time.

Interest and other was a net expense of $1 million in the second quarter compared to net expense of 80,000 in the first quarter, the increase due to foreign exchange costs as well as letter of credit discounting fees. Tax expense for the quarter was $500,000, this higher than the forecasted expense due to increased profits in our foreign subsidiaries. With their improving results I'm now expecting income tax expense of $300 to 350,000 per quarter for the balance of the fiscal year. Net loss for the quarter on a non-GAAP basis was 1.3 million or a loss per share of $0.01 compared to loss of 6.8 million or $0.08 a share in the comparable period last year.

Now let me briefly review the balance sheet. The Company's cash balance was 46.5 million at the end of the second quarter of fiscal 2006. This was an increase of $1 million from the end of the prior quarter and includes a $1.6 million reduction in the term loan. Cash was favorably impacted by decrease in DSO to 52 days. Cash collections were excellent during the quarter and were impacted by the fact that a considerable number of sales in the quarter were under a letter of credit, which we were able to rapidly clear through the international banking system. As I indicated last quarter, going forward, we expect to move cash to a neutral deposit on operations other than working capital requirements. And of course, quarterly repayment of the term loan.

Changes in working capital, as you know are dependent on the projected and actual sales levels and timing of collections. We're continuing our focus on cash and the items that have the largest direct impact on cash, expenses, inventory, and receivable collections.

On accounts receivable, the total accounts receivable at the end of the was 32.9 million, and this is a Decrease of 3.3 million from the prior quarter. And day of sales outstanding declined to 52 days in the second quarter compared to 59 days at the end of the first quarter and 89 days at the end of second quarter of last fiscal year. So a major improvement as a result of excellent collection efforts. I expect receivable days sales outstanding to return to the 65 to 70-day typical range in the third quarter. The impact on cash of this increase of DSOs will be about $7 million.

Inventory increased to $35 million compared to $31 million reported at the end of the prior quarter due to increasing product demand. Inventory turns were at 5, the same as prior quarter and substantially better than 4.2 turns reported in the second quarter of last fiscal year. I expect inventory to increase slightly in the third quarter, reflecting growing demand for the Eclipse product.

Total liabilities increased $4 million in the second quarter, primarily due to an increase in accounts payable. I expect total liabilities, including the term loan, will decrease in the third quarter by 5 to $6 million.

Let me now give you a brief update and forecast. We're certainly gratified with the progress so far in fiscal year 2006, with the first two quarters showing significant financial improvements as we have projected, with solid revenue increases, continuing improvement in gross margin compared to prior quarters and the prior year, and of course Eclipse shipments and revenues increasing steadily. We expect Q3 will continue to show improvement in our overall financials. Due to the order levels in Q2, expected timing of new orders an any current quarter and customer installation schedules, we're forecasting total revenue of 53 to 58 million in the third quarter, gross margins as I indicated at 27 to 29%, and are expecting positive earnings. As we customarily provide a range for earnings per share due to normal business uncertainties for the third quarter of fiscal year 2006 that range is loss on $0.01 a their to net income of $0.01 a share.

I would now like to turn the call over to Chuck Kissner for an operational summary, comments on the Company's market position, Eclipse status, and our plans going forward.

Thanks, Carl for the financial overview. I'm going to make my comments organized around operations, the market, and then some more comments about the outlook. We should have ample time for questions after that.

With regard to our operations, I think on our last earnings call, you may recall, for Q1, we indicated that Q2 has already started strongly. The customer demand for Eclipse products has continued to accelerate, as you can see, in addition, a number of these improvements in terms of supply chain management, cycle times and overall operations has continued to improve our operational linearity. Many of these improvements are possible because of this design approach on all of the Eclipse products where many types of network applications can be provided by significantly fewer parts than our past products. Most of the Eclipse network Edge products that we introduced a few quarters ago, called the E100, that's the low end, lower capacity version, are now released and are shipping. Recall when we began to release the E100 a couple of quarters ago, as a line of lower cost, lower speed products, it was designed for network Edges.

As Carl indicated this has very successfully reopened some very price competitive areas in the world for Stratex. And one evidence of that is the strong showing in the Asia-Pacific area. Total sales for Asia-Pacific for the first half were up almost 250% compared to a year ago.

Other new Eclipse products also were introduced during the quarter. Some of these included new ring management features that enhanced network management of self healing rings. We introduced a new indoor processing unit that's cost optimized for up to 22 megabit channels, that's the lower end of product range. We introduced new software for enhanced ethernet performance statistics. We introduced a new feature that allows configurable ethernet package sizes all over the air. We introduced two more E100 frequency bands during the second quarter that were targeted for Asia and Europe, and I think you probably saw the announcement on our gigabit ethernet product, and we did also announce a couple of weeks ago about some very successful testing in this product in France under very stringent conditions. We're quite excited about that product.

Now Eclipse is obviously an advanced product line, but we've also committed to our customers, and also to our investors we are going to use this platform to continuously move this competitive bar higher now that we've got some momentum. Now there's new technology that is going to drive the next generation of Eclipse products. It is currently in development and is on schedule. I do expect to be able to discuss this new technology along with its launch date by the time of the next earnings call.

Production linearity, as I mentioned, was good in Q2. This has been possible due to a focus, but also the marginal nature of Eclipse and the shorter cycle times associated with improvements in our supply chain.

Unit volumes do continue to grow fairly rapidly. By next year we believe we're going to surpass the annual volumes that we were achieving during the boom days of telecom a few years ago. As I mentioned last quarter, we're very strongly focused also on achieving exceptional levels of customer satisfaction as a competitive weapon. The high reliability and the installation simplicity of the Eclipse product has created the potential to strengthen our market position. The documented field reliability for Eclipse products is well above the traditional point to point legacy products. We believe building on these strengths we're now creating shorter lead times, higher schedule reliability -- even though we're doing business in many areas of the world where logistics can be very challenging. This along with linearity and great collection has had a direct impact on our DSOs as an example.

Let me talk a little bit about the markets. The family of Eclipse products is clearly driving our total demand higher for our company. Our total fiscal '06 sales to date for first half were up almost $112 million, which is up 24% from the same period a year ago. Eclipse sales for the first half of the year were up over 330% compared to last year. We do believe our market share is continuing to -- to grow. The Eclipse family has now more than offset the legacy products that it was designed to replace. So we believe that's a milestone.

The demand for our traditional mobile telecom business is quite robust in certain ares of the world. Those include Africa, the Middle East, Russia, Eastern Europe, and Asia, with the exception of China. Demand for our new data products is quite strong in Western Europe. And interestingly, our North America business is growing, with first half sales up more than 50% compared to a year ago. North America is a small base for us, but we're still quite encouraged on a net strategic initiative.

Quite a few people have asked us about the software capability of this product, and our selling of software, so I just want to make a note of that. Software revenue is still not reported separately, but you probably know this is an area we expect to grow as the Eclipse install base grows and matures. There are some positive signs here, sales were a little over $1 million in Q2 for software only. The number of requests has definitely been growing. In fact, we did start getting requests to process software upgrades faster than we were doing, and we now understand that our order fulfillment on software needs to be a lot quicker than it is for hardware. When an upgrade is requested it's normally on a very short fuse, so during Q2 we also changed our processes to accommodate rapid turn around on software upgrades and encourage the sale of our software.

In terms of customers, last quarter we indicated that there were two large customers that were in the process of changing over to Eclipse. They did begin in Q2 to order Eclipse products at a modest level as we anticipated, and we expect that that will increase in Q3. At this point, there's now just one large customer still purchasing legacy products, as Carl indicated, and he said you could see this in the strong Altium sales as an example. Eclipse has now been successfully tested with the customer and is going through various approvals. We're quite optimistic this change over will occur certainly no later than the first half of calendar 2006.

In terms of the overall market, the international market does appear to be very robust right now. There are a number of long-term network build outs occurring in developing areas, and that's for both mobile and fixed wireless. The fixed wireless systems, in case you're interested, seem to be largely CDMA based for now. In the last quarter or so we have definitely seen an increase in 3G business, especially in Europe. It appears this is finally happening in earnest.

Let me talk a little bit about the outlook before we go to questions. We're obviously quite delighted with the progress of the team here that Stratex has accomplished. We have largely now completed this massive transition in how we run our business. We rolled out a very successful Eclipse family of products. We steadily moved toward profitability, and we've created some real market momentum now for the Company. At this stage of the introduction, Eclipse is the most successful new product introduction in the Company's history, and there are more capabilities and new technology to come. Financial performance is strong with Eclipse at about 39% overall gross margin in Q2. We're quite excited about new Eclipse-based technology that's going to be rolled out early next year. That's part of our plan and commitment to rebuild Stratex in into a sustainable enterprise.

So Q2 financial performance was a good step forward. The achievement of positive operating income was a major step in the turn around and the company repositioning strategy that we launched 3 years ago. We do continue to project profitability, improving financial performance, and stronger market penetration.

Just let me close by saying the entire team here at Stratex is totally dedicated to success, we're very happy to report to you that we've continued to make progress on our goals, and we're excited about the near term prospects for our investors. So that concludes our formal remarks. Operator, we're now ready to take questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Rich Valera with Needham & Company. Please go ahead with your question.

Thanks, congratulations on hitting the operating profitability there, guys. It has been a long road but well done.

Thanks.

First just on the quarter -- revenue for the quarter, can you talk about what drove the upside relative to your guidance you gave. It was pretty significant and you didn't really touch on that too much during your comments.

The simple answer was the service revenue was higher than we anticipated because of timing of projects. Some of these are a little difficult to project exactly when the completion dates are, and the other is we had stronger LTM sales, due to that one customer who is buying LTM, and to some extent also within -- we don't reveal it separately but our new Velox product line we introduced a year or so ago that had a little upside as well.

From a margin perspective can you give commentary on how the margins in sort of Eclipse, non-Eclipse hardware and service maybe were during the quarter? Any -- any color there on that at all?

Hang on a second. We took a vote and Carl is going answer.

On the services side, service margins were -- we break out hardware and software as you know, so services margins were 15.5% a bit higher than they were last quarter. Overall the other product lines were pretty much in line with what they have been with the Altium continuing to have very good margins in the high 30% -- mid-to high 30% range and the other legacy products generally, certainly below that.

And -- and Eclipse, was that sort of pushing the 40% level?

I think I indicated it was 39..

Oh, okay. Sorry I missed that. Okay.

And then Chuck your mentioned you are seeing a pick up in 3G in I believe Western Europe, which hasn't traditionally been a real strong hold for you. Are you doing anything different to compete more successfully in Western Europe? Are you partnering with anyone? What is leading to your success there?

I wouldn't call it a stronghold, but we have a long history in Western Europe, we have lots and lots of clients there. So I -- it's not the strongest area for us in the world, but I think we're reasonably well positioned.

Great. And with respect to cash, Carl, you made some comments about working capital usage next quarter. It sounds like you could pretty easily use about 15 million just in working capital changes. Is that a good ballpark number to assume for next quarter?

Yeah, I would say that's on the high end of the usage.

Okay. And then how would you see that, you know, trending the next quarter. I mean, it sounds like most things sort of went your way this quarter, they're going the wrong way next quarter. Do you see them sort of stabilizing so the cash usage goes down pretty dramatically after that.

Yes, I'd say that certainly the DSO, which is the biggest single driver would be stable after this -- we had a tremendous DSO number this quarter.

Right.

So staying at the 65-day type range is a little more normal. And I wouldn't expect -- I would expect that to stay there.

Okay. That's it for me. Thanks, guys.

Thank you, sir. Our next question comes from from Matt Robison with Ferris Baker Watts. Please go ahead with your question.

Let me congratulation you on the results as well.

Thank you.

To start off with can you characterize any shift in applications percentage. I think you talked about data versus voice in the past.

Well there's definitely more data, but the someone it has shifted somewhat in the last quarter is because the line is getting blurred on the 3G area. So in terms of a pure enterprise data kind of stuff, I don't think we has a percentage -- I don't think we saw much of a change in Q2, but there were applications that were actually data oriented went up because of the combination mobile and data on that.

Follow on to Rich's question, you know, why now for 3G? Are you just seeing these networks starting to get loaded up a little more with traffic? Or is it routing 3G deployment.

I think a lot of the 3G stuff that has happened up until now has been very low level. It hasn't been rolled out aggressively. But I think that -- the take-up rate on the 3G that has been rolled out has gone reasonably well, so the networks that have been had have been now increasing.

Well, it sounds like you are saying you are seeing -- you are actually getting good production traffic on your networks?

Yes.

How is the pricing environment? Are you seeing a -- any change there? Or it is -- my sense is it's a little less brutal an that used to be.

It's a little less brutal. I think for us the ASP -- if you look at the revenue, the ASP has come down faster than the market, but the only reason for that is we're now playing in price competitive areas we weren't able to play in a year ago. But in terms of if you took a specific area, almost any area around the world, we haven't seen the kinds of reduction we saw over the last couple of years.

You are saying you are gaining share back from places where you may have lost it in past years.

Right.

What -- did you have any customers more than 10%?

Yeah, we usually have at least one customer more than 10%. On the revenue side. I -- I have that data here.

And I -- I guess while you -- while you are look stuff up, Carl, if you could give us the specifics on the short and long-term debt, operating cash flow, and Cap Ex.

Let me get that. We had one customer who was over 10%, just barely over and then as usually had another four or five customers that were in the 5 to 10% range.

That customer distributor or end user?

No, no. End user, and that's -- that's as I said before is typical. We usually have one or two that are just over 10% and another four or five that are in the 5 to 10% range that sort of vary from quarter to quarter. But that was certainly true this quarter and it's true year to date as well. Then as far as the debt, we paid down about 1.5 million on the debt each quarter. 1.6 million or so, so that's pretty steady. And capital expenditures really aren't that significant it's usually a million or so a quarter or less depending -- it has been running less than that this year so far.

And OCF, operating cash flow?

We had positive cash flow this quarter, as we said in answer to the last call with the -- with DSOs expected to increase we'll -- we'll have operating cash usage the next quarter.

Okay. Have you had any -- any success getting any of your unutilized real estate sublet so we can see some cash coming from that?

Not any significant changes recently.

Okay. Thanks, congratulations again.

Thanks.

[OPERATOR INSTRUCTIONS] Our next question comes from Justin Martus with Graham Partners. Please go ahead.

Can you talk a little bit about what you expect for the Eclipse revenue guidance for next question, because it sounds like the services were a little bit stronger this quarter. Can you talk about how you break out revenue growth for the next quarter.

Justin, we do expect Eclipse to continue to grow next quarter. But we don't provide guidance by product line, only total.

Thank you this concludes the question and answer portion of our conference. I would now like to turn things back over to Chuck Kissner please go ahead, sir.

Thank you operator, and thanks for your questions and your continuing interest in Stratex. I just want to make a note we are going to be at a number of conferences soon. We hope to see some or all of you there. The AAA Financial conference is coming up in San Diego on November 8th and 9th, CIBC Best Ideas conference in New York is on November 29th, and the Needham Growth Conference is also in New York, that's on January 10th through the 13th. And operator if there are any more questions we can go ahead and take those.

Thank you, sir, we do have a question from Kevin Dede with Merriman. Please go ahead with your question.

Thanks, Chuck, sorry about that. You mentioned Velox popping a little bit for you in September. How much of that might have been related to some of the wireless testing that's going on in southern Louisiana as a result of Katrina?

I think there's a little bit there, but I think most of it is finally picking up momentum in the market, not just from the United States but also outside of the United States. We have some -- a very favorable view on this as being sustainable now in terms of some growth.

Okay.

Clearly there's a little pop there because of the emergency services that were required.

You think -- do you think your position in North America is -- well obviously you think it's improving. Is it improving because there is just more product or more brand recognition? Or what do you think is driving it?

Well I think the previous product lines we have had in the license point to point area really were highly prioritized for the international market. So we never really got around to filling the product line out for North America. We -- because of the way that Eclipse is designed we can design things much more quickly that are geographically specific. So we were able to recently rollout almost a complete product line for the U.S., so we have got a competitive weapon now we can use. So clearly the product line is much stronger.

Do you think there's just greater acceptance, too of a split mount design?

Yeah, I believe that's happening. I'm sure a number of people on the call don't know what that almost all of our products are splint-mount, which means that the radio is outside and the signal, a lot of the signal processing, the digital portion is inside, indoors. And that's not traditionally been the way it's been used in the United States, but I think the economics and the perception of reliability and so on are definitely matching the kind of products that we have rolled out in the marketplace. And I think the -- the competitors that are well positioned in the U.S., also I think have been pushing split-mount systems like ours so that clearly helps the acceptance.

You mentioned gigabit ethernet product testing in France. Have you seen orders for that yet?

Yes.

Are you prepared to fulfill orders?

Yes. Yes, we are.

Okay. You made -- you mentioned an improvement that you have made in the IDU, could you just sort of fill us in on what that is exactly?

I said we introduced a new IDU that was a 20 by 2.1 IDU so that's the lower end, so that's the lower megabit version. Is that what you're referring to? That was introduced during the quarter. So it's cost optimized around the lower end.

And you are shipping -- are you shipping that?

I think we are, yes.

Okay. Okay. Well, very nice job on the quarter.

Thank you very much.

Thank you. We do have another question from Rob Amman with RK Capital Management. Please go ahead.

Yeah, very nice quarter, congratulations.

Thank you Rob.

You mentioned Altium was an area of upside in the quarter, but it looks like the orders there were also quite strong, so 1.5 book to bill, should that up again next quarter? Or would you guess, given -- and would that be end of life with that one large customer?

I -- I think -- a number of those orders in Q2 were also Q2 revenue with Altium, but I would expect Altium to continue to be strong until they make the changeover so that would be one or two more quarters I would expect.

Okay. Great. And then how do you view the long-term gross margin opportunity on Eclipse, where do you think -- where do you target that longer term?

I think we have said all along it is in the low 40s in terms of the blended average, and very high standard deviation because of the wide range of applications that it serves.

Okay. In the gigabit ethernet orders which -- which product categories would those have shown up in?

Eclipse.

Eclipse. Okay. That's right, that makes sense. And any -- can you talk at all about -- you mentioned North American base is part of that driven by that test co-relationship, or even independent of that is it going pretty well.

It's both.

All right. Great. Thanks.

Thank you.

Thank you. We do have a follow-up question with from Matt Robison with Ferris Baker Watts. Please go ahead, sir.

You mentioned a couple of large orders this quarter, I think. Can you comment if you have completed the negotiation on that business? And if they might imply two 10% customers in the December quarter?

I'm not sure what you meant by negotiation, if it's an order, there's no negotiation any more. It's an order that's on the books. It's going to be shippable within the next 12 months, and most likely a heck of a lot sooner than that. But as Carl said I think we always have 1 or 2 that are in the 10% category. It's just keeps -- it changes every quarter or two. So I don't -- if you are asking is there going to be more customer concentration in Q2 than Q3, we don't believe so.

Okay.

Was that the point of the question?

You could look at it a couple of different ways, but that answers it so thank you.

Okay.

Thank you. At this time we have no additional questions. Please continue.

Again, ladies and gentlemen, thank you very much at your interest in Stratex, and we hope to see you at one of these financial conferences soon. If not, we look forward to talking to you on the next earnings call. Good day.

Ladies and gentlemen, this concludes the Stratex Networks second quarter fiscal 2006 conference call. Thank you for your participation. You may now disconnect.