Check Point Software Technologies Ltd (CHKP) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

My name is Sandra and I will be your conference facilitator today.

At this time, I would like to welcome everyone to your Check Point Software Technologies Q1 2006 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Ms. Ann Marie McCauley.

Ma'am, you may begin your conference.

Thank you, Sandra.

Good morning and afternoon.

I am Ann Marie McCauley, Director of Investor Relations for Check Point Software.

Thank you for joining us to discuss the first-quarter 2006 results.

As a reminder, this call is being webcast live from our website and is being recorded.

To access the live webcast and replay information, please visit the Company's website at CheckPoint.com/IR.

The replay will be available through May 8.

If you would like to reach us after the call, please contact the Investor Relations department at 650-628-2050.

On the call with me today is Gil Shwed, Chairman and CEO;

Jerry Ungerman, Vice Chairman and Eyal Desheh, Executive Vice President and CFO.

Before we start our management presentation, I would like to read the following disclaimer.

During the course of this call, the Company will make certain forward-looking statements.

Forward-looking statements include statements regarding Check Point's expectations regarding operating results for the second quarter of 2006 and for the full year 2006, growth and product revenue, impact of deferred revenue on future periods, new initiatives for sales of expanded solutions, timing of delivery of product introductions, enhancements and product acceptance, new activities with channel partners, continued importance of security solutions, activities with Sourcefire and potential acquisitions.

Because these statements pertain to future events, they are subject to various risks and certainties and actual results could differ materially from Check Point's current expectations and beliefs.

Factors that could cause or contribute to such differences include, but are not limited to, the impact on revenues of general market conditions in the Company's industry, the mix of sales of new products and long-term subscriptions, economic and political uncertainties, the impacts of political changes and weaknesses in various regions of the world, including the commencement or escalation of hostilities or acts of terrorism, the inclusion of network security functionality and third-party hardware or system software, any foreseen and unforeseen developmental or technological difficulties with regard to Check Point's products, changes in the competitive landscape, including new competitors or the impact of competitive pricing and products, rapid technological advances and changes in customer requirements to which Check Point is unable to respond expeditiously if at all, a shift in demand for products such as Check Point, factors affecting third parties with which Check Point has formed business alliances, timing availability, features performance and customer acceptance of Check Point's new and existing products, the amount of equity-based compensation charges, the ability to recognize deferred revenues and other factors and risks discussed in Check Point's annual report on the Form 20-F for the year ended December 31, 2005, which is on file with the Securities and Exchange Commission.

Check Point assumes no obligation to update information concerning its expectations.

Now, let me turn the call over to Eyal Desheh for the financial review.

Thanks, Ann Marie.

Good morning and afternoon, everyone.

Let me share with you the results of the quarter and provide some more detail on the financials.

Our first-quarter results are in line with our preliminary results, which we previewed earlier this month.

We are encouraged by the strength of our subscription businesses driven by customer loyalty, the success of our SmartDefense program and the resulting strong operating cash flow and increase in deferred revenue.

This quarter, we included for the first time the impact of FAS 123R in our GAAP financial results.

In our press release, we are presenting GAAP and non-GAAP results and reconciliation tables, which highlight this data.

Let me share with you the financial details for the first quarter of 2006.

Revenues for the first quarter were $134 million compared to $138 million in the first quarter of 2005.

GAAP net income for the first quarter of 2006 was $62 million compared to $74 million in Q1 last year.

Equity-based compensation accounted for $11.1 million in this quarter.

Please note that this expense does not appear in the parallel quarter.

Non-GAAP net income, excluding acquisition-related and equity-based compensation charges, were $75 million compared to $76 million in the first quarter of 2005.

GAAP earnings per diluted share for the first quarter of 2006 was$0.25 compared to $0.29 last year.

The impact of equity-based compensation expenses was approximately $0.05.

And finally and most important, non-GAAP earning per share, excluding acquisition-related and equity-based compensation charges, were $0.31, an increase of 3% compared to $0.30 in the first quarter of 2005.

Deferred revenue this quarter were $179 million, an increase of $10 million or 6% over the fourth quarter of 2005 and an increase of 19% over Q1 2005.

This was the result of many annuity-based deals for subscription support and consumer products that will experience the impact on our revenue in the coming quarters.

Operating expenses were $72.9 million compared to $61.3 million in Q1 2005.

The difference is attributable mostly to equity-based compensation expenses, which are included for the first time this quarter as a result of adopting FAS 123R.

Excluding equity-based compensation and acquisition-related charges, operating expenses were $58.8 million, similar to Q1 last year.

Total operating income, excluding acquisition-related charges, were $75 million compared to $79 million in the first quarter of 2005.

As a result, operating margins were 56% compared to 57% last year.

Our effective non-GAAP income tax rate was stable at 17%.

Cash collection and cash flow continued to be strong.

For the first quarter, our days sales outstanding, DSO, was 61 days compared to 63 days in the first quarter of last year as the quarter was back-end loaded.

We generated strong cash from operating activities of $112 million.

Total cash flow without share buyback was $130 million, a 26% increase over Q1 2005.

Our cash and investment balance at the end of the quarter was almost $1.8 billion.

During the first quarter, we purchased approximately 3 million shares for a total cost of $64 million as part of our share repurchase program.

Our first-quarter revenues again were well diversified with the Americas leading the way contributing 47% of revenues.

EMEA contributed 41% and Asia-Pacific and Japan region contributed 12% in total of our revenues this quarter.

In the first quarter, our large orders, which are greater than $50,000, accounted for roughly 26% of (indiscernible) orders.

We continued to grow our installed base bringing the total to over 480,000 security (indiscernible).

In summary, while revenues did not meet our original expectation, we did see encouraging trends and results.

Among them, good business in America, some growth in Asia, $10 million increase in deferred revenues and the largest cash flow in our history.

Now Jerry and Gil will speak more about the business and strategies.

Jerry, please go ahead.

Thank you, Eyal and hello, everyone.

Thank you for taking your time to be on the call with us today.

I would like to spend my time today sharing with you my perspective on the market and our results this quarter, as well as some insight into our plans going forward.

During the first quarter, we again introduced new products and technologies across the various security segments we addressed to our expanding portfolio of security solutions.

A few highlights include first we enhanced Connectra, our remote access SSL VPN solution with new security, application and performance features.

Second, we launched Eventia 2.0, a simplified security event management product that automatically prioritizes security events for decisive, intelligent action.

This solution extends support to the endpoint and correlates data for antivirus applications, personal firewalls and operating systems.

And finally, we unveiled VPN-1 Edge NGX, extended security for remote offices with advanced intrusion prevention and antivirus to complement its firewall and VPN technologies and ensure branch offices have protections from worms and viruses.

These announcements are important long term as they add to our expanding security offerings and reinforce the substance and uniqueness of our unified security architecture.

We have talked in the past about the importance our customers and partners place on having an understanding of where we're going with enhanced security -- security solutions that they can grow into over time and is more than just a collection of point solutions.

And most importantly, they want the ability to manage from a single console a wide range of integrated security solutions that share the same code base, can be updated dynamically and be deployed across multiple layers of the network architecture.

In addition, we hear many positive comments regarding our flexible approach in allowing our customers to deploy our solutions on open servers or prebundled in a hardware appliance.

We believe this dual strategy is important in reaching more of the market and we will continue to offer a wide selection of deployment options.

We continue to hear very positive feedback regarding our new direction and new products.

And while interest and activity are high, it appears that it has taken customers longer than we had originally thought to replace their various point products with our newer, integrated technologies.

They like the direction and the implications associated with the unified security architecture and what they perceive to be better security at a lower total cost of ownership, but it will take them more time to transition from today's installed product to a more complete Check Point solution.

While we have talked about a general softness we're experiencing in the market today, I believe security is still a very important area of investment and our challenges on the execution side to ensure we can enable our customers to get to tomorrow sooner.

In this regard, we have a number of new initiatives we're working on and we will be making announcements about in the near future to help make it easier and cost-effective for our customers to buy our expanded solution set sooner rather than later.

This will include things like packaging, positioning, pricing, and promotions.

In addition, we have a number of potential new ideas to help our channel partners as they go through a similar transition.

These are currently being worked on now and we will be piloting the top ideas in the coming weeks and months.

As mentioned previously, this past quarter, we had very good results in the United States and in the Asia-Pacific region.

I was especially pleased to see the strong growth this quarter in Asia as that has been an area of concern for some time and it appears the management restructuring we put in place a year ago is now starting to pay off.

On the other hand, we are still not performing as well in Japan as we have historically and this is being given a lot of management attention regarding a new structure here as we did last year in Asia.

However, while product revenue was lower than we expected for the primary reasons we have previously explained, we continue to do very well with our subscription business.

And part of the reason that subscription is going up and products not growing as fast is the business model change we incorporated with our new EBS programs two years ago.

Many of you have heard us explain this program before, but for those of you who are relatively new to the story, let me offer again a short explanation on the shift of revenue from the product lines to the subscription line.

The first explanation is relatively simple.

One of our fastest-growing products is a security service called SmartDefense.

When we announced this product, instead of selling a perpetual license at time of acquisition, we instead only offer the product on an annual subscription basis.

The second key reason for the switch from product to subscription revenue is because of the success of our EBS enterprise-based subscription program.

This annuity-based program allows our customers for an annual subscription fee to be able to upgrade their existing installed software to our newest version without paying an upgrade fee.

Historically, part of our installed base didn't have full subscription coverage and used to buy product upgrades.

This would be recorded as product revenue.

Many have now moved to our subscription program, EBS, so they no longer need to pay for upgrades and generate more revenue to us under the subscription line.

But given the business model change and the shift of revenue from product to subscription, which we think is healthy and positive, we still believe that we can and will grow product revenue with a better market environment, but most importantly with better execution.

In summary, I am optimistic about our long-term future.

Security is and will be important across all market segments and geographies.

Our unified security architecture is being well-received.

A flexible deployment option of either hardware or software is appreciated and I truly believe that we are developing some new plans and programs that will lead to our long-term growth and success.

Thank you again for being on the call with us today and now let me turn it over to Gil for additional comments and insights.

Thank you, Jerry and good morning, everyone.

It looks like the beginning of 2006 was characterized by similar trends to what we've seen in the past; business that is more back-end loaded within the quarter and throughout the year, good traction and overachievement in our subscription program, including the continued strength of the SmartDefense sales.

With that said, we are still working very hard to drive the growth of new installations with a variety of solutions available as part of our unified security architecture.

For this quarter, we are planning a significant change with the rollout of our next version of our core product VPN-1 NGX.

The new VPN-1 NGX line will include significant changes to the technology and to the way it is being offered and packaged.

We will elevate the features and functions available to different types of users.

We will continue to increase the level of security, continue to expand the unified management capabilities with more integration of Endpoint Security and we will increase the level of performance that certain products can deliver.

We expect that these changes will drive a lot activity in the marketplace during the second quarter and will drive the agenda for Check Point's Experience conferences that will take place between mid-May and the beginning of June.

We also continue to develop our IPS capabilities and while our decision to withdraw the Sourcefire transaction will have some impact on the progress we make in that space, we continue to pursue partnership options with Sourcefire and enjoy great success with our unique IPS capabilities as evidenced by increasing sales success with our SmartDefense offering enjoyed.

While it continues to be difficult to predict the market take over, the IP market in general and the security space in particular, our sales force continues to be optimistic about the prospects of the year.

We already provided updated revenue and earning forecast for the year and now we have some outlook into the second quarter.

We expect Q2 revenues to be in the range of $137 million to $145 million.

GAAP EPS in the range of $0.25 to $0.28 and non-GAAP EPS, excluding the effects of stock-based compensation and acquisition-related charges, to be in the range of $0.31 to $0.34.

That concludes my comments and with that, I would like to open the call for your questions.

(OPERATOR INSTRUCTIONS).

Gregg Moskowitz, Susquehanna Financial Group.

Maybe just if we could start on the guidance now that we have a little bit of a better framework for Q2.

To get I guess to the mid to high end of the revenue or the EPS range for the full year, it has implied a pretty significant second half ramp.

Just wondering if you can talk about what drives that growth and helps you get to that potential mid to high end of that range.

I think it is a little bit early to give specific breakdown of things in the third and mainly fourth quarter of the year, but as I said in my comments and as we have seen previously, we are working with larger projects, we are working with more sophisticated architectures and installation and the market as a whole tends to be more back-end loaded.

Last year, we had a very, very strong fourth quarter.

This year, the trend seems to be heading in the same direction, which means, as I said, both quarters that are back-end loaded within the quarter, but even more so back-end loaded towards the year-end.

So I think that is the general trend that we are seeing.

Okay.

And then historically, Gil, I know that a number of the EBS renewals typically end up falling into the Q1 instead of the Q4.

Was the renewal activity this quarter that you saw typical to prior Q1s or was there any change there?

The renewal activity, which we saw, was typical to the quarter.

We had a great fourth quarter.

I think, in Q1, our deferred revenue grew by about $9 million.

In Q4, deferred revenue grew by $20 some million, about $24 I think million.

So that shows you the impact of Q4 and how big it is compared to any other quarter.

And maybe just lastly a question for Eyal.

Looking at Asia-Pacific, it sounds like you are fairly pleased overall, although revenues were still down I think about 14% sequentially, 17% annually.

I know that is probably due to the weakness in Japan.

Just wondering if you could talk about how big roughly at this point Japan is as a percentage of total Asia-Pac revenues and when do you think we might see some improvement in that region.

We have never broken down Japan and Asia-Pacific.

We are giving this as one number, but the assessment is right.

While we are seeing very good results in management replacement and realignment that we have done in Asia-Pacific, we are seeing very nice traction, mostly in China, in India, in Australia and other parts of Asia.

In Japan, we have not come to that phase yet and we are working very hard to get Japan up and running as fast as the rest of Asia for.

We think we're going to see the results pretty soon.

But your assessment is correct.

Asia in general was very strong.

Japan was soft.

The overall result for Asia was okay, but can't be looked at as one unit.

Sarah Friar, Goldman Sachs.

Just a couple of questions.

So firstly, I think on the preliminary call, we had asked whether the softness was large customers, mid-size/small customers and you hadn't really had a chance to parse through the results at that point in time.

Was there anything that particularly stood out in terms of where softness came from in the quarter?

I don't think so.

I think that we can highlight one particular area as you saw.

The average number of the average revenues coming from the large deals were 26%, which was higher than last year.

So it's not large customers or small customers.

We have looked at the geographical areas that we can definitely see some areas that were strong.

The U.S. is doing I think very well by all comparisons.

So it is an average; it's not something that really stands out that we could put our finger on and say here is a major problem.

There isn't.

Got it.

And then just, Jerry, thank you for the kind of walking through the changes why subscription is stronger for you guys with ESB program and so on, but I think on the preliminary call, you talked about SmartDefense -- the contribution from SmartDefense in the subscription line being around $10 million this quarter.

I would presume that is up pretty nicely from a year ago.

But I the question is underneath SmartDefense, does that mean that subscription revenues is in decline when I ex out SmartDefense or how should we be thinking about that on a year-over-year basis?

Is that also being impacted by some of that linearity that Gil talked to?

SmartDefense is not yet $10 million a quarter, but I think heading there.

I don't have the specific numbers (multiple speakers).

(multiple speakers) revenues because revenues (multiple speakers)

And in revenues, again remember, in revenues, it's still not there because SmartDefense is also amortized.

Both softer subscription support programs and SmartDefense all grew year-over-year.

So the trend is overall very positive and I think we made our plans on all those three elements in the first quarter.

Sarah, we didn't answer it correctly if you heard that all $10 million was SmartDefense-based.

Okay.

Got it.

So it should be more thinking that it is headed in that direction, but also because it is amortized, it is not that strong as a percentage of total revenue?

Subscription itself was well up also and has been.

Got it.

And then just one final one.

On Zone Labs on the consumer side, I think you mentioned an increase in subscriptions from consumer in your preliminary comments.

Again, could you talk a little bit about what is going there?

You haven't mentioned it so much recently, but is that still a strong area of focus for you?

First, both the consumer products also have a subscription component and the new license component.

What is important is the amount of subscription and support to previous consumer products percentage wise is higher than the regular enterprise product.

That is important to note.

The general consumer market is doing okay.

We are selling more.

We are winning a lot of awards.

We are pleased with the progress that we make there as well.

Great.

Thanks for your help.

Steve Mahedy, Banc of America.

My first question would be for Jerry where you mentioned packaging, positioning, pricing and promotion.

Can you give us maybe a little more detail?

It sounds like some of that is in the works, but specifically how that would have an impact in reenergizing top-line opportunity?

Steve, I would love to, but I can't preannounce it yet, but it's going to be coming out very, very soon.

We are looking across the board at all the products, the positioning, where we stand relative to the market, working with our resellers, some of the insights we have as to where the slowness is coming from and why some of the delays in implementing some of these big projects we are working on.

We just think we can be more proactive in a number of different elements and like I said, we touched on four Ps, if there is such a thing, of packaging, pricing, promotions and positioning and we have done a lot of work over the last three weeks on that.

I am here in Israel.

We're doing work on it again this week.

But I think we will be announcing some things -- a variety of things over time, but some coming fairly soon that I think will help stimulate both the resellers and the customers and hopefully try to shorten their decision cycle in their purchasing.

When you look at that and you think about the various growth rates for other firewall VPN versus perhaps authentication, what is it that you could do on the distribution side or is it more still a function of the technology on the product side that is coming forward?

I don't know if I understand the last part about is it the technology side.

Well, it's a function of -- is it the product backlog that eventually really makes a difference or is it the current product offering that you have and just doing a better job of communicating and educating the end-user market?

I think it is the technology we have today and how people can transition to it along with some of what Gil said in his comments about coming out with some new versions, some new pricing that we are going to do with the whole VPN-1 NGX line that I think will help our partners get our customers there sooner rather than later by making it easier and more attractive for them.

But I think we have the products and technologies in place today and that is why we're looking at how we can better position it.

Then just one follow-up question relative to Gregg's initial question on the back-end ramp and Gil had noted that's more so with customers.

How should we look at the September quarter now if we have an up June quarter slightly?

Last year, we saw a down September quarter.

What is the expectation relative to some of your modeling on what the September quarter would look like perhaps relative to June?

I think it is hard to predict right now, but I wouldn't predict a strong Q3.

Q3 tends to be slow and again maybe as we get into Q3, we will have a different assessment, but at this point without knowing much, we don't anticipate very strong Q3 numbers.

Dino Diana, UBS.

Can you remind us first on the EBS side what percentage of your customers are under contract and also can you just give us some color if you talk about -- when you have a customer that before wasn't on the EBS program, if you took four years to upgrade, are you seeing anything in terms of -- now it is taking -- newer product update is maybe three years or is there any kind of metrics you can provide along that front?

In terms of our installed base, over 70% of our installed base is under subscription.

And what we have seen, and I think Jerry mentioned that in his part, a consistent trend.

It's not a revolution; it is in the evolution of customers.

It used to come every three or four years and buy an upgrade to the version that they were using, moving to EBS program and doing upgrades through their free upgrade price that comes with that program.

That is a trend that we are seeing and as a result of that, there is a move from product revenue that used to appear when the upgrade was purchased into the EBS where upgrades are being done by using the service.

Okay.

Well, I guess one other question separately.

If we just look at your guidance for the full year and we look at software subscriptions close to the double-digit range, that would imply license growth of I guess down 9% or so.

Can you just give us some sense of -- I think you mentioned in your comments you are looking to get license revenue back to growth and just kind of give us some help understanding is it going to be NGX that does that?

What are the things that you look for that is going to get you there?

I think there are several things that are going to help us grow.

I think first let's not forget the general market trend as people are going to deploy more Internet security, as people are going to connect more and put more applications on the Internet.

I think that is the most important factor that we have seen over the last few quarters, maybe more than even few quarters.

I think that is the main thing that we are dependent on and we spent a lot of time recently analyzing the general industry trend and so what you're speaking is the general industry trend.

Even with that, we are trying to obviously do more regardless of the industry trend to be better than the industry averages.

I think first new versions and new product lines that are going to do and our core product lines are going to cause more people to buy those and upgrade to those and that is going to be helpful.

I think we're still seeing a lot of interest and a lot of evaluation of some of our emerging products from the Endpoint product all the way to our InterSpect Internal security product and through the SSL VPN Connectra, Eventia for security event management.

So the entire portfolio that we have has a lot of activity.

So that is another area.

Jerry I think touched about the most important point and that's not just a point product implementation, but that goes into the factor about companies that are more and more deploying overall security strategies.

I think right now we are very uniquely positioned to deliver on those.

I don't think that there is any other competitor that has a fully integrated security system that works together that, based on the same architecture, that is focused on it and that is a very unique value proposition that Check Point has.

I think that will be long term what's going to be the primary driver for our growth compared to the rest of the industry.

Chris Hovis, Morgan Keegan.

Good morning.

This is actually Zenobia.

A quick question on the cash balance.

Obviously looking very attractive.

Any further plans that you can share with us in terms of uses of cash, any thoughts on dividend or potentially increasing the buyback or other acquisitions?

In the past 2.5 years, we have spent between $600 million to $700 million in various cash activities.

Some of it on acquisitions, some of it -- most of it on the stock buyback and we intend to continue in all those things.

There's nothing particular right now that I can elaborate on except that we will continue to -- we continue every quarter to look at the options in all these areas and we will continue to use our cash in certain ways.

But I think we have done a lot over the last two years in utilizing our cash and we intend to continue to do so.

Erik Suppiger, Pacific Growth.

First off, can you just comment about the Nokia relationship, how that is progressing?

And then secondly, any comments in terms of Europe, where you saw any pronounced weakness or anything like that?

Regarding Nokia, things are working great with Nokia.

We have a good relationship with them like we had before.

The mix of our appliance platform continues to be -- not our appliance platform -- the mix of our platform continues to be very balanced between open servers, Nokia systems, systems from cross beam, systems from other vendors, but Nokia is clearly the largest appliance partner that we have today.

We are involved doing some very interesting and advanced projects with Nokia.

Unfortunately, I cannot share any of those with you at this point, but there are more interesting and exciting projects that we're doing with Nokia.

Regarding Europe, I think what we saw in the first quarter in Europe was sort of an average quarter.

I think the U.S. and Asia-Pacific did better in Europe this quarter, but there was nothing major happening in Europe for good or for bad so far.

No country stood out --

No country stood out in a major way or no region.

What contribution was Nokia in terms of the -- I know you don't sell directly to them, but do you have a sense for how much of your appliance-based revenues would have been on Nokia platforms?

It was 25% to 30% of our gateways are currently being sold in conjunction with the Nokia appliances.

It is not necessarily translating one to one to revenues, but it's historically the gateways that we sell.

Todd Raker, Deutsche Bank.

A few questions for you.

Can you comment -- you have said that the Sourcefire transaction is going to morph into a partnership.

What does that mean and how are you guys going to work with Sourcefire going forward?

And secondly, can you just comment more broadly in terms of your ability to acquire U.S.-based companies?

Do you think there are any constraints on that given the political environment?

I don't think there is any constraint on our ability to acquire U.S.-based companies and we've actually developed good relationships with certain agencies of the U.S. government.

So we know better now how to address many of the issues and how to work these things out better.

We don't have yet also -- we also don't have yet the new partnership or what will be, if at all, the partnership we have with Sourcefire, but we remain with very good terms with Sourcefire.

We are starting to work together to evaluate the different options for partnership and hopefully within the coming weeks and months, we will be able to announce more about that.

And then one follow-up question.

What do you guys feel is the right amount of cash to maintain on your balance sheet?

At what point in time does it become too much?

I don't think there is too little or too much at this point.

There is too little of course, but I don't think we're heading in that direction and I don't think there is too much.

I think at any given point we are evaluating what is the best use and by the way what is a reasonable use because it is not just to determine today that a certain amount is the right amount and to get there will be in a month.

It is also how much we can get there and let's say we want to invest in a lot of acquisitions, we have to find quality companies that will fit our portfolio to invest them.

The same thing in stock buyback.

We have to do it under a certain rate and terms and with a lot of responsibility to all the shareholders about how slowly or how quickly we do things.

So I don't have any number in mind what is the right amount given the point we are today.

Katherine Egbert, Jefferies.

Thanks for taking my question.

Just to follow up on an earlier question.

Can you maybe talk about your ability to acquire maybe not just in the U.S. but to any company that sells into the U.S. federal government?

And then also to follow up on the use of cash question, can you just talk about -- you're increasing your cash balance somewhere between 5% and 10% a quarter and the buyback program doesn't exactly match that.

Would there be any aging the buyback program to maybe match the cash generation in the interim until you find opportune uses for that?

Let's talk to the first topic.

We sell a lot to the U.S. federal government and I don't think that, as I said, that we have much restrictions in terms of dealing or acquisition with that regard.

As far as the cash balance goes, as I said, we're continuing to evaluate that.

We will continue this quarter and if we have any different announcement to make about the uses of cash balances, we will.

This quarter, we did intend to spend approximately $200 million on acquisition, which didn't happen as you know.

So that is affected somewhat having a slightly higher cash balance that we could anticipate.

Okay.

Can you just talk briefly about how much is left in your current buyback program?

Right now, from the last time that the board approved a program, we have about $50 million available.

Was that 50, 5-0?

Yes.

Any plans to increase that?

We might.

I mean the Board will discuss that and unfortunately, we cannot speak on behalf of the Board at this point, but once the Board decides to announce something, we will share it with all of you.

I would like to thank everyone for your participation.

If you want to speak to management or to our Investor Relations department following this call, please call our Investor Relations department in Redwood City at area code 650-628-2050.

Again, area code 650-628-2050 and will be very happy to take your call and answer that.

Thank you very much and we will talk to you next time.

Thank you, everyone.

Thank you.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.