Aviat Networks Inc (AVNW) 2012 Q2 法說會逐字稿

Welcome to the Aviat conference call. At this time, all participants are in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to [Cindy] Johnson, Director of Corporate Communications. Cindy, you may begin.

Thank you, operator. Good afternoon, everybody and welcome to our second quarter fiscal year 2012 earnings call. This is Cindy Johnson and I am joined by Mike Pangia, President and Chief Executive Officer and Ned Hayes, Senior Vice President and Chief Financial Officer.

During this conference call, we may make forward-looking statements regarding our business, including statements relating to projections of earnings and revenues, business drivers, the timing and capabilities of new products, network expansion by mobile and private network operators, and variations of economic recovery in different regions. These and other forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and filings made by the Company with the SEC. These can be found on the Investor Relations section of our website, which is www.AVIATnetworks.com.

Now I'd like to turn the call over to Mike Pangia, President and CEO of Aviat Networks. Mike?

Thanks, Cindy. And thank you all for joining us today. I'm pleased to report another very solid quarter in terms of our financial performance. Our results landed within our revenue guidance range, coming in at $105 million and an orders book-to-bill above 1. Mainly owing to a favorable business mix, gross margins were above expectations at 31.4% and we generated positive cash flow from our core operations earlier than expected. In addition, we secured a steady flow of new customer wins, have began ramping shipments of our new outdoor RF unit which we call the ODU 600 and have a pipeline of more new products to further advance our position in both the mobile and non-mobile markets. Our restructuring efforts are largely behind us and we are now laser focused on our core competency of microwave transmission. As such, moving forward, we are excited to discuss the future.

Now I'd like to provide an update on our view of the microwave transmission market. In general, the overall market for microwave backhaul continues to represent a great opportunity. We continue to see strong investments in LTE mobile backhaul deployments worldwide and continue to hold the strong position with our existing customers in the mobile market. We have now deployed microwave backhaul and support of seven LTE mobile networks worldwide including the largest deployment of its kind in North America. With customers in various stages of LTE rollouts, including trials and live deployments across the globe, we have evolved from being LTE ready to being LTE proven. This is a major milestone.

In the non-mobile market, we continue to experience steady growth in the public safety and utility segments, especially in North America. Also in North America, Q2 marked the introduction of Aviat as a serious contender in the emerging low latency high frequency trading market and we have secured initial orders for our products and services. Request for turnkey services have also grown with new opportunities emerging in both the mobile operator and private network segments. As noted in our recent press release, we have now fully recovered from the flooding disaster in Thailand and have returned production to our original manufacturing facility. In general, our delivered performance is returning to our normal lead times. Our materials management processes are still under transition as we look to minimize the effects of any extended lead times or shortages of locally sourced components still impacted by the lingering effects of the flood.

Now I would like to comment on some specific activities by sector. In the Middle East and Africa sector we continue to secured significant orders for our West African customers. During the Q2 period, larger operators continued to increase capacity and improve their network quality. While some of the smaller operators focused on minimizing both CapEx and OpEx due to the competition and pressure to reduce tariffs. Business within South and East Africa exceeded our expectations and remain a key focus. Demand for high-capacity transmission remains strong, however, competition within this market space has increased and pricing levels remain under pressure. In the Middle East, we are seeing some signs of that spending tightening due to the ongoing political uncertainty. However, we do remain optimistic about the region given the visibility of some key opportunities scheduled to close in the latter part of the fiscal year.

In Europe, key customer validations of our latest indoor unit, the IDU GE3 and new Eclipse software releases were completed in the quarter. These validations should enable us to secure new phases of project expansions. In addition, the ODU 600 was successfully introduced in the quarter with a key public safety defense customer who plans to take advantage of the product's enhanced capabilities, which is a key aspect of Aviat's going forward value proposition. In Asia-Pacific, we recorded our strongest bookings quarter for some time. In this region we have focused on our existing Tier One operator customers and as a result, have been awarded large network modernization expansion projects using our existing IP packet node and hybrid platform. All of these contracts were based on turnkey solutions inclusive of our local services and support capability.

In Asia-Pac, we also had early success in introducing our new and higher performing outdoor units. In North America, we had another solid quarter with further new wins in some non-mobile segments to augment good ongoing business with our mobile operator customers. Along with a number of small to medium-size opportunities, we also finalized a multi- year contract with a large utility based in the Midwest. For this customer, we will upgrade from legacy TDM to hybrid IP capable microwave backhaul as the network is modernized and upgraded to support smart grid and mobile workforce applications. We also continue to see a steady increase in business from the mobile operator segment in support of the LTE Push which is now making its way into secondary and rural markets.

Now I would like to provide an update on our product and services. As I've already touched on a few times, I'm very pleased to report good progress in the introduction of our new universal ODU 600 outdoor unit. The ODU 600 delivers market leading RF performance through our unique flexible power mode feature. In Q2, we successfully completed the introduction of the next two frequency bands, so we are now shipping four out of the six highest volume frequencies with the remaining two high volume bands due out this current quarter. We are on track to transition customers over to the ODU 600 as planned and to date, we have orders from 25 customers including 6 of our top 10 key accounts. We are now entering a customary transition period, where we will manage the rollout of new products and absorption of legacy products with the intent to achieve optimal financial performance. We expect validation and acceptance by all key accounts by the end of fiscal year 2012.

Our WTM 3000 family of all outdoor all IP radios remains an important part of our diversified product portfolio to address the growing deployments of all outdoor 3G- and 4G-based stations. We anticipate orders for this initial product before the end of the fiscal year 2012. In line with having our first orders this business this year, we have WTM 3000 customer trials scheduled for the coming quarter. The Eclipse IRU 600, all indoor radio continues to drive our renewed success and competitiveness in North America. The Eclipse IRU 600 provides a compelling feature set, permission critical microwave applications including market leading RF performance, reliability and security. Last quarter we introduced a number of new features on the IRU 600 that improve system performance and ease of maintenance. Both translating to direct OpEx savings for our customers. It's evident from their new success in North America that we have a leading solution for the region.

We plan to release further enhancements to the IRU 600 during this fiscal year that we expect will further drive down the total cost of deploying and operating microwave transmission solutions. Worldwide, Eclipse is being deployed in increasing volumes for the backhaul of ethernet traffic. In calendar 2011, we have more than doubled the number of GigaNet, Gigabit Ethernet ports shipped both in hybrid and all packet microwave configurations. A recent major software release further enhanced the embedded carrier ethernet capabilities of the platform. This, along with the next phase of secure management and secure payload encryption features, will maintain the Eclipse's platform strength in the mobile and non-mobile markets.

Now I would like to provide an update on how we are progressing against our fiscal year 2012 key objectives. We continue to move forward with our plans and have made solid progress in each of the key objective areas which are, one, acquiring new customers. Two, focusing on improving costs and operational efficiencies. Three, continuing to accelerate innovation in wireless transmission and four, investing in our service capabilities to strengthen our competitive position. In Q2, we added 36 new customers, which were up slightly from 34 in Q1 as expected, given our technology leadership, these additions were heavily weighted to North America in the non-mobile vertical. In engineering, we continue to focus on accelerating innovation while reducing product cost to improve the bottom line.

Our overall product road map remains on track and we are executing the key milestones against this plan on a quarter to quarter basis. With the initial success, we are experiencing in the low latency market, we have now added some key product deliverables for this application to our technology road map. In services, we see a growing demand for our turnkey business and opportunities beyond standard product support and maintenance. This appears to be a result of our ongoing investments in strengthening our service capabilities.

Looking ahead, we remain cautiously optimistic about our near-term business opportunities while remaining focused on executing our fiscal year 2012 plan. Longer-term, we continue to be confident that the rollout of our new products and the upcoming platform refresh will restore our competitive advantage and provide the industry's leading value proposition on a global basis. Now, I would like to turn the call over to Ned for an overview of our financial results. Ned?

Thanks, Mike. Our GAAP financial statements along with a reconciliation of non-GAAP financial measures are included in our press release. I would like to take a few minutes to summarize our non-GAAP financial performance at a high level. As Mike previously mentioned, we had a very solid quarter and the key highlights were, revenue of $105 million, which was at the midrange of our guidance. Gross margins of 31.4% were above our guidance range. We had a very favorable mix of product sales, wherein we delivered more of our higher margin products in our North America sector. We also saw an increase in service revenue volumes which improved absorption of fixed support cost, favoring service margins as well. Operating expenses for the quarter ran at the higher end of our guidance range at $32.4 million. Non-GAAP net income was positive at $300,000. Cash use in the quarter was $3.3 million, which was better than our guidance range. Cash usage during the quarter associated with restructuring, discontinued ops and exiting the North America legacy product line was approximately $5.7 million as we guided.

Having said that, our core business generated net cash of $2.4 million. Accounts Payable decreased $19.4 million quarter-over-quarter due almost entirely to inventory receipts running about $16 million lower than our normal run rates. This decrease in receipts stemmed from the supply chain disruptions experienced by our contract manufacturers in Thailand as well as continued initiatives to drive efficiencies in inventory management. Additionally, we paid down some final balances of approximately $2 million in the quarter, related to previous purchase commitments on the WiMAX and North American legacy product lines. Finally, one note regarding our GAAP results. In the quarter, we undertook a goodwill impairment evaluation. The result of this evaluation was the write-down of the remaining $5.6 million in goodwill and a corresponding charge to our GAAP results. We now do not have any goodwill remaining on the books.

Now, let me conclude the financial section of the call with our guidance for our fiscal third quarter. Based upon current trends, our revenue outlook range is in the $100 million to $110 million range. We expect Q3 gross margins to be in the 29.5% to 30.5% range. As we stated on the call last quarter, we drove sales of our existing product line in Q1 and Q2 and will phase in our new cost reduced products as they become generally available. While we do expect modest gross margin improvement, one should note that as we experienced in the second fiscal quarter, mix can have an impact in one direction or another. Given variability in product mix, geographic mix, service volumes, carrier choppiness, and pricing this gradual improvement in margin may very well not be linear. But our general trend, longer term, we'll see our gross margin targets move to the mid-30% range to be attain primarily through the introduction of our next generation of products that are currently in development. We expect that our operating expense spend will be in the range of $31.5 million to $32.5 million for the third fiscal quarter.

On a go forward basis, opportunities remain to further optimize and better align our spending and ensure that we are investing in those key areas supporting our long-term objectives. Again, this review of our current spend rate and realization of these optimization opportunities are some of my early initiatives here at the Company. We are anticipating reasonable cash collections again in the third quarter given the Accounts Receivable profile. Our expectation is that cash flows related to restructuring activities will significantly diminish. And looking ahead, we are reiterating our previous guidance that our objective will be to generate cash in the second half of the fiscal year. Cash flow for the upcoming quarter is expected to be in the range of minus $2 million to plus $2 million and will be impacted by a couple of one-time items and seasonal issues.

So as an example, we have an extra payroll period in the US, consuming $2.2 million. It's like a reset in the new tax year, and we'll incur a higher employer taxes than in the back half of the calendar year. Our annual insurance renewal of $800,000 was due and our annual property taxes totaling $1.25 million are likewise due in the quarter. Finally, as we previous announced through an 8-K, we have redeemed preferred shares of $8.2 million this week. And funded that redemption through a 2-year term loan of the same amount. Those shares bore a 12% coupon, our term loan is priced at 5%. The short-term portion on our balance sheet as of today is $4.1 million. Quarterly repayments of principal and interest will be about $1 million a quarter and we anticipate a prorated payment of about $350,000 in Q3. And so with that I will turn the call back over to Mike for his management summary. Mike?

Thanks, Ned. As mentioned earlier, I'm very pleased with our financial performance in Q2 and the consistency we are demonstrating in meeting our previously stated commitments and objectives. I would now like to conclude the management overview with several investment considerations. We have a solid $100 million plus business that is breakeven to slightly profitable on a non-GAAP basis. Margins should improve over time as we continue to introduce and increase the mix of our new products. We intend to manage our OpEx tightly, looking for further opportunities to our optimize our investments. This means as revenue grows, investors will see earnings leverage and we have a solid balance sheet and are focused on generating positive cash flow for the second half of fiscal year 2012. In conclusion, these are some tangible proof points that we believe will create shareholder value going forward. Now, I would like to turn the call over for questions. Operator, you may now proceed with the Q&A.

(Operator Instructions) Barry McCarver, Stephens.

Good afternoon, guys and good quarter. I guess, first off, Michael, can you go back to your comments regarding the North American rollout of the 4G LTE and the progress there, can you give us a little bit more detail about where you are in the cycle, in the ramp up of that rollout for that customer?

Well what I said specifically was we've got -- we've been involved in seven LTE network rollouts. One of them being one of the largest deployments of its kind. So when we say -- I'm not quite sure what you referred to and where you are in the cycle?

I thought you said the largest ever was a North American contract and I was curious as to if the revenue from that contract is fully ramped, if that's going to increase. The next step --

No, that's ongoing. That particular case, we have been in the LTE rollout mode for a few quarters now and that continues on, now going into the secondary and rural markets.

Okay. So the strength in revenue from the North American market we saw in this quarter, pretty strong versus fiscal first quarter, would you expect that to continue to move upward, is that a big piece of the growth going forward?

So I would expect that we would continue to see success in North America in both mobile and non-mobile. We have a leading technology position and we are getting great traction with our customers. So, I would expect us to continue to be successful in North America.

Okay. And then my second question really involved, I guess gross margins. If you think about the guidance for the next quarter versus the gross margin you put up in the second quarter, you are certainly guiding for it to come down a little bit. I know you mentioned several moving parts there. In relation to just supply chain costs, can you give us a little more granularity about where the potential decline in margin could be coming from?

Let me just -- one part of the question. So you had mentioned some supply chain related costs?

Yes.

Specifically are you referring to anything in particular?

Yes, Thailand.

Thailand specifically. Okay, yes. We did incur some costs related to Thailand specifically as incremental in the quarter, not quite as we expected, but we did incur some costs and I will hand it over to Ned here to articulate again the way the margins work.

Yes, so we were very successful I think with our ops team on the ground. Especially with materials marshaling to avoid a lot of the upticks and a lot of the premiums that some of the companies in the hard disk drive sector certainly found themselves facing. But in our particular space, thanks again to some terrific leadership and some management with our CMs and by ourselves, we were able to avoid a lot of the cost of goods sold increase going up or having premium specifically coming out of the Thailand flooding. What I would like to state is that given the margin performance this quarter versus the coming quarter, as we stated in our prepared remarks, we do expect gradual improvement over time, but it may not take place in a linear manner quarter-to-quarter. There are some differences in the mix of customers from Q2 to Q3 and the volumes and margins on specific orders that we are seeing going into revenue in Q3 are different than Q2.

So in short, it's a different -- there's a difference in terms of mix of the business. We don't think that's unusual. Back to my comments, you got product mix, you've got geographic mix, you've got services mix, you've got pricing, and all those things come into play. What I would like to completely put in front of you all today in a public forum, is some information that you'll be seeing in the Q, that we'll be filing a week from today. With regard to product and service split data and what that GAAP gross margin impact was and some of the reasons why. So the split-out of the $105 million we saw on revenue was approximately $74 million on products and $31 million on services. Q2 service volume is way above Q1 and a higher percentage of sales. Largely due to very successful project completions in North America and very successful project work in Africa.

When we take a look at that product and service revenue split, it's 71% and 29%. With regard to GAAP gross margins, we also saw a very nice uptick in services margins per se. Better average costs we are seeing in terms of completing our projects but also that significantly higher volume allowed us to spread fixed support costs which led to higher GAAP margins. So GAAP margins that we saw in the products space were proximally 30%, GAAP gross margins for services were closer to 31% versus previous quarters. As you take a look at $101 million that our total non-GAAP adjustments at the GAAP gross margin level to non-GAAP gross margin level, most of those non-GAAP adjustments serve to increase product gross margin. So I just wanted to make sure that everybody was aware in terms of the information we will be seeing in the Q a week from now. You had that at your disposal.

Matt Thornton, Avian Securities.

Good afternoon, guys and nice quarter in a tough environment. First housekeeping question, any 10% customers in the quarter?

No, none this quarter, Matt. We had a pretty good diversification in our customer base.

Okay. Terrific. Second, maybe for Ned, on the cash side of things, the guide for negative $2 million to positive $2 million I am assuming that's operating cash flow and not free cash flow.

Correct. Having said that, Matt, CapEx is $1 million or less. It's quite de minimus in our model.

Okay. That actually helps one of my forward questions. Is that a number we can use on a go forward basis, that $1 million roughly?

I think so, yes.

Okay, terrific. The large receivable in India, any progress or update on that front?

We continue to maintain the guidance that we will substantially collect that by the end of the fiscal year.

Okay. Terrific. Then finally on the cash side of things, working capital net, I guess. Anything we should expect in the coming quarters here, any room for improvement anything that should drive again negative or positive contribution for any reason?

You're going to have a couple of plays on accounts payable and inventory given the Thailand situation. So as I mentioned, during the prepared comments, we did have a rather extraordinary reduction in receipts. That led to a relatively extraordinary reduction in accounts payable. So I think as we replenish the factories you are going to see accounts payable go up. Now having said that, we've completely paid off the fairly sizeable amounts related to the discontinuance of WiMAX in North America. So they're largely gone. But higher inventory purchases associated with higher shipments are probably going to bring that back to perhaps somewhat lower levels than what we've seen struck historically. And then inventory as well. I think we have got ongoing programs to improve operational efficiency in our supply chain, but going forward, I think we can expect inventories to be at somewhat less than the previous levels.

Okay. That's helpful. A couple more if I could. On Thailand. Any impact on the March quarter? I guess what I'm getting at is any revenue that could not get recognized from the December quarter that gets pushed into the March quarter and any costs that are lingering in the March quarter, or are we pretty clean here?

I would say for the most part, we are pretty clean.

All right. Finally if I could just quickly, Mike, I know you touched on some of the different geographies and what you're seeing there. I don't know if we can do this, but if you look at calendar 2012 versus calendar 2011, which markets would you point to where you are confident you will see growth year-on-year?

Calendar year over calendar year, I mean I would have to --

We don't have those splits.

I would probably have to look at it in that way to give you something reasonable. I just -- I wouldn't have it split out that way.

I would speak to relative strength, Mike.

Relative strength, clearly I would say North America. North America and probably Asia-Pac seem to stand out in terms of improvements. Then I would say that Africa, Europe, the Middle East, pretty steady. In the Africa situation, the carrier choppiness is difficult when you are halfway through a fiscal year, sometimes that's a challenging part to give an assessment on. And then that's pretty much it. Once again, North America and Asia-Pacific, I would say would probably be the ones that stand out the most in terms of improvements.

Rich Valera, Needham & Company.

Question on the revenue line, it sounds like you guys have had good bookings for five of the last six quarters you talked about a positive book to bill, five of the last six quarters. Your revenues averaged about $114 million over those six quarters which would suggest bookings somewhere around that level on a quarterly basis. But it looks like we could be looking at the second quarter in a row at about the $105 million level. So just wondering what's going on there. Are you guys building nice backlog here and building visibility so you are going to have better quarter-to-quarter visibility. Should that ultimately translate into higher revenue levels as that backlog starts flowing out?

First off, we don't -- this is an ongoing question that we get in terms of trying to understand that. We don't break out the degree of above or below, first off. So it's difficult just to use that metric on its own and then of course you are looking at different conversion rates at orders at any point in time. I would say that the best thing to be focused on is a couple things, one is that we have given our guidance for the next quarter, which we have the most visibility. We continue to drive our business to be cash generating break even to positive on a quarter-to-quarter basis. And that's really pretty much all I can say on that part. We have not seen necessarily any major deviations on entering into the quarter in terms of what comes out of the backlog than what we have to do from a book and ship perspective, those remain pretty constant. There's not much more -- I don't think I can give you on that, Rich.

The only thing I would add would be that, we have terrific success sustaining business with our existing customers. We are adding new customers. Our unit volumes and numbers of radios delivered up year-over-year and continue to rise. As we have often mentioned, this is a competitive business. Price competition exists and has an effect on the top line. So business as usual.

Is my way of thinking about this incorrect? I mean you have had, presumably, bookings per quarter at something north of $110 million per quarter or am I mistaken on that? Is there something I'm missing in this? I'm just trying to understand if I'm thinking about that the right way.

I think you are in the ballpark. But again, back to Mike's point, the composition of how that gets realized, product versus services, versus turnkey projects is not a linear issue. It is again, back to a mix issue.

Right. Okay. No, that's fair. And then I just wanted to touch on that receivable, the WiMAX receivable again. As I understood it, that was something around a $40 million receivable and I think if you collected that the whole thing, you'd owe about $5 million to the party that bought that business from you, leaving ballpark something like $35 million, I think.

Let me just interrupt you there, we have never characterized it, as being the $30 million to $40 million. That was in an equity research report; we never commented upon it. I would advise you that given what we've got on our books, you can expect it to be single million digit. The amount.

Okay. In terms of the remainder left be collected?

Which we think we will substantially collect between now and the end of the fiscal year.

Okay. That's helpful and then finally on the gross margin, I understand you're expecting a sort of gradual progression here prior to the rollout of the next gen product. Can you just give us an update on how you see the rollout of the next generation project playing out as we move into the next fiscal year?

So I mentioned that we'll have, by the end of our third fiscal quarter, we will have the top six volume bands available from a production perspective. And it's a -- there's further bands beyond that. There's several bands, there's well above 10 bands that need to be rolled out over time. So as we have with the existing six and a further wants to come out, it's really a transitionary process where as you go quarter-to-quarter, you start working with existing customers on validating the new products. You start shifting taking orders for new products versus the old. But it does take several quarters to really flush through for a combination of reasons. One is that we have to also manage the transition and the phasing out of our existing product line. You might have some customers who would prefer to have the complete set of bands rather than just the few that might be available at a point in time. So it really differs.

As I said earlier I would expect that the validation process and acceptance process would be complete by the end of the fiscal year. But the phasing in of the new products for a complete replacement of the existing will still take -- will still go quarters beyond that. To tough to predict exactly which quarter will be fully cut over. But as we go quarter-to-quarter, I'll obviously be able to provide further information around where we stand there. I think you've recognized that we have come a long way from the last quarter in terms of where we stand with ODU 600, based on the number of customers that have secured orders as well as our production and shipping capability.

Michael Engellant, DA Davidson & Co.

Sitting for Aalok today. Just a few quick questions we had here. One of them would be, what geographies or geography will you see being critical into 2012?

I think if we stand back and just look at our, first off, our installed base which we're very diversified as it is, so all geographies are important to us that we are currently doing business in. So it's not as if we are going to defocus any of our existing business activities. Having said that, with our product rollouts combined with where we see strength from a technology perspective and penetrating new customers, we see North America and the non-mobile space in particular as being probably the most attractive opportunities for us in the near term followed by non-mobile internationally. As we look at bringing on new Tier One customers, mobile customers that have never done business with us, that is probably the last leg of new customer acquisition we would be looking at. That will be highly dependent on the complete refresh of our portfolio which we're still out beyond the next fiscal year. Hopefully that helps provide a bit of color to your question.

Absolutely.

The only other color I'd add would be that we do see some slowing in the Middle East. To Mike's point in his prepared comments with regard to the political risk that's there.

Okay. Then just another quick one. Just in terms of the overall market for backhaul, how's the pricing environment then?

Pricing environment continues to be intense. This is another one of those equations that depends on how you look at the landscape. If you are looking at -- there might be some markets that we're not participating in right now because we don't see the economics being attractive. Not going after business in some of those markets, per se, could have an impact on how you measure pricing. But I would say that in general it continues to be intense and we would expect that to continue for the foreseeable future.

Okay, any kind of color on those markets that you're alluding to?

Well for example, we currently don't do backhaul business with -- in India as an example. It would be difficult therefore to encapture and that is a fairly price sensitive market as an example.

Gunther Karger, Discovery Group.

Yes, good performance, gentlemen. Two questions. The employment headcount this year versus last year, what is the difference and number two, the percentage of total business in North America this year versus last year?

Yes. So on the headcount, I don't know if we give headcount detail out.

Gunther, I think you can clearly take a look at the amount of restructuring that we've spent here in the last 12 to 15 months and there have been significant reductions in headcount to be able to get us to where, now, we can deliver non-GAAP profitability. Deliver positive cash flow within the revenue streams that we are seeing right now, which is in a range between $100 million and $110 million. I think that's a very important move that we had to get to and we have been successful to get there. Having said that, Mike and I are still about optimizing our spend both above the line and below the line to deliver on our performance to modestly improve gross margins and to continue to generate cash in the future.

On the mix of revenue, North America versus the rest of the world, I think that would be published.

That would be published I believe in the tables of our press release and our Qs in terms of sector revenue.

Matt Thornton, Avian Securities.

Hey, guys, just a quick follow-up on guidance. I think it was alluded to earlier. I was a little bit surprised that you were able to guide flattish into the March quarter, historically it's always a seasonal weak quarter. So I guess the question is, these days what is seasonality in the March quarter and is it more of a bookings issue than it is a revenue issue for you guys at this point?

Sorry, can you give me that again?

The guidance for the March quarter, you guys are guiding essentially flat revenue sequentially. When you look historically both for you guys and in the industry, March is typically a down quarter from a seasonal standpoint. So my question is, what is seasonality -- typical seasonality for the March quarter and is it more of a bookings issue at this point as opposed to a revenue decline or are you just not seeing seasonality in your business in the first quarter?

Yes, so Matt, that flattish aspect of next quarter versus this quarter, I think more is a function of what we saw in this quarter than what we are looking at in the third fiscal quarter. Our seasonally strongest quarters are generally the second and fourth fiscal quarter. Your December ending quarter and your June ending quarter. The December ending quarter because of the budget flush, the June ending quarter because that's our fiscal year end. I think we were capacity constrained here in the current quarter. And that as we take a look at what we are looking at in Q3, those are normal results.

Okay. We should view this as, okay, December a little bit constrained; March gets back to normal. Okay, all right. That is actually helpful. And then just one other follow-up on maybe just the competitive landscape in general. Obviously you guys have two competitors that are about to get together, one pure play, one integrated player getting together here. Ceragon's obviously now on the tail-end of integrating NERA. I'm just curious what you're seeing new on the competitive landscape, given some of these deals and proposed deals?

With respect to that specific deal, there's nothing that we have seen in one way or another that's affected our positioning or our strategy or our execution.

I would like to turn it back over to Management. Please go ahead.

Thanks everyone for your participation. I just want to give you a quick update on our upcoming investor conferences and meetings. On February 8, we'll be in Portland, Oregon. February 27 to March 2, we'll be at Mobile World Congress 2012 in Barcelona. March 13 and 14 we'll be in New York City and Boston. I would like to turn it back over to you, operator to close to call.

Ladies and gentlemen, that does conclude today's teleconference. If you'd like to listen to today's replay, the phone number is 1-800-406-7325, access ID 4503833. Thank you for your participation. You may now disconnect.