Dolby Laboratories Inc (DLB) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussion for fiscal year first-quarter results. During the presentation, all present participants will be in a listen-only mode. (Operator Instructions) As a reminder, this call is being recorded Wednesday, January 21, 2015. I would now like to turn the conference over to Elena Carr, Director of Corporate Finance and Investor Relations for Dolby Laboratories. Please go ahead.

Good afternoon. Welcome to Dolby Laboratories' first-quarter 2015 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories' President and CEO, and Lewis Chew, Executive Vice President and Chief Financial Officer. As a reminder, today's discussion will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. A discussion of some of these risks and uncertainties can be found in the earnings press release that we issued today, under the section captioned risk factors, as well as in our most recent Form 10-K. Dolby assumes no obligation and does not intend to update any forward-looking statements made during this call as a result of new information or future events.

During today's call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available on our earnings press release and in the Dolby Laboratories investor relations data sheet on the investor relations section of our website.

As for the content of this call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal 2015 outlook, and Kevin will finish with a discussion of the business.

So with that introduction behind us, I will now turn to call over to Lewis.

Thanks, Elena. Good afternoon, everyone. Let's start with first-quarter revenue, which came in at $234.2 million for the quarter. Within that total, licensing was $216.6 million, and products and services were $17.6 million. The licensing revenue was above the high end of our projected range, while products and services fell short. So let me review the revenue in more detail starting with our licensing, which I'll discuss by major markets.

broadcast represented about 41% of total licensing in the first quarter. Revenues in this market were down sequentially by about 9%, driven by lower unit volume and less back payments. Year over year, Q1 broadcast licensing grew about 21% as the attach rates increased in both set-top boxes and TVs.

PC revenues represented about 16% of total licensing in the first quarter. They were down about 12% sequentially and about 18% compared to last year's first quarter. Both of these declines were greater than the overall PC market mainly because of lower mix of optical disc-enabled PCs that were reported to us, which affects the revenue per unit that we receive.

Consumer electronic revenues in Q1 were about 15% of total licensing. They were up about 11% sequentially, driven by higher volume across a broad variety of home electronics. But year over year, consumer electronics decreased about 21% due to lower back payments and lower volume in Blu-ray, DVD, and home theater in a box.

Mobile devices represented about 16% of licensing revenue in Q1. They were up more than 40% sequentially and also up 11% year over year, as we benefited during the quarter from higher HE-AAC royalty streams due to timing under our contract with a licensee.

Now, this level won't repeat in Q2, and therefore we anticipate that mobile will drop back down to around 12% of our total licensing in the second quarter.

Revenues in other markets represented approximately 12% of total licensing in the first quarter. Revenues were up about 37% sequentially in Q1 and more than 40% year over year, driven by higher revenues from gaming, Dolby Voice, and automotive.

Product and services revenue was $17.6 million in Q1, which was slightly below Q4 but down about $8 million year over year. This was lower than we had projected due to a combination of the following factors. In early November, we completed the acquisition of Doremi Labs, and sales of Doremi products post acquisition were below the original estimates as we worked our way through the first couple of months of transition.

In addition, market demand was a little softer than expected, which impacted Dolby mature products. However, sales of Dolby Atmos products were on track with our original projections.

Total gross margin in the first quarter was 91.7% on a GAAP basis and 93% -- 93.0% -- on a non-GAAP basis.

Product gross margins on the GAAP basis was 5.1% in the first quarter compared to 25% in Q4 and 23.8% in last year's first quarter. Product gross margin on a non-GAAP basis was 17.2% in the first quarter compared to 31.9% in Q4 and 28.9% last year of Q1. And the decrease was primarily driven by excess and obsolete inventory charges.

Operating expenses in the first quarter on a GAAP basis were $161.3 million compared to $156.2 million in the fourth quarter. And on a non-GAAP basis, operating expenses were $141.7 million in Q1 compared to $138.4 million in Q4.

Operating income in the first quarter was $53.5 million on a GAAP basis, or 22.9% of revenue, and $76.1 million on a non-GAAP basis, or 32.5% revenue. The effective tax rate for the quarter was 22.8% on a GAAP basis and 23.1% on a non-GAAP basis. Our Q1 taxes benefited from a retroactive reinstatement of 2014 R&D tax credit that was signed into law during December.

Net income in the first quarter was $41.4 million on a GAAP basis, or 17.7% of revenue, and was $58.5 million on a non-GAAP basis, or 25% of revenue. Diluted earnings per share in the first quarter were $0.40 on a GAAP basis compared to $0.44 in the fourth quarter and $0.43 in Q1 of last year. And on a non-GAAP basis, Q1 diluted earnings per share were $0.56 compared to $0.58 in Q4 and $0.59 in Q1 of last year.

Cash flow from operations was only a few million, but that included about $68 million of minuses just from changes in receivables and accrued liabilities, which was related mainly to timing issues specific to Q1. And I don't expect that every quarter. So if you add some or all of that back to normalize it, you would get an operating cash flow that looks a lot more typical for us.

During the quarter, we repurchased about $17 million of our common stock and have $243 million of remaining stock repurchase authorization. And we also today declared a cash dividend of $0.10 per share, similar to last quarter, and this dividend will be paid on February 10, 2015, to shareholders of record on February 2, 2015.

As of the end of Q1, we had $939 million in total cash and investments, which includes cash and cash equivalents as well as both short- and long-term marketable securities.

So looking forward, here is the outlook for Q2 and the full year. In the second quarter, we estimate that total revenue will range from $260 million to $270 million. Within that, we anticipate that licensing revenue will range from $230 million to $240 million, and products and services revenue combined will be about $30 million.

We anticipate that our PC licensing revenue will decrease by 15% to 20% from last year's Q2, mainly because of lower mix. And also worth mentioning in the broadcast category, our second-quarter revenue will be down year over year, but only because of the $25 million back payment that we received last year in Q2 that won't repeat this year. Excluding that item, broadcast revenues should grow in Q2.

Gross margin in the second quarter is estimated to range from 90% to 91% on a GAAP basis and 91% to 92% on a non-GAAP basis. Operating expenses in the second quarter are projected to range from $171 million to $175 million on a GAAP basis and from $152 million to $156 million on a non-GAAP basis. Other income in the second quarter is expected to be approximately $1 million, and our effective tax rate for the second quarter is estimated to range from 25% to 26% on both a GAAP and non-GAAP basis.

So based on a combination of the factors I just went over, second-quarter diluted earnings per share are projected to range from $0.45 to $0.51 $0.51 on a GAAP basis and from $0.60 to $0.66 on a non-GAAP basis.

Moving on to the full year, we estimate that total revenue for fiscal 2015 will range from $970 million to $1 billion. And within that, we anticipate that licensing will range from $860 million to $880 million, and products and services combined will range from $110 million to $120 million for the year. Full-year operating expenses are estimated to range from $664 million to $674 million on a GAAP basis and from $585 million to $595 million on a non-GAAP basis. We estimate that full-year gross margins on a GAAP basis will range from 89% to 90%, with non-GAAP gross margins roughly about a point higher. Other income is estimated to be around $4 million for the year, and the effective tax rate for the year is estimated to range from 24% to 26%.

So now, I would like to turn the call over to Kevin Yeaman. Kevin?

Thank you, Lewis. Good afternoon, everyone. We made good progress this quarter on our new initiatives that are aimed at delivering long-term sustainable growth. At Dolby, we focus on creating and enabling compelling experiences built on our audio, imaging and voice platforms. Most recently, we announced Dolby Cinema, a branded premium cinema offering for exhibitors and moviegoers that combines spectacular images and sound technologies with inspired design.

I'm going to talk to you more about this in just a few minutes as well as the momentum we have coming out of CES around Dolby Vision and Dolby Atmos for the home.

Let me start with an update on our audio licensing business. Broadcast grew 21% this quarter. We continue to extend our presence in digital broadcast. A large focus of our efforts is to drive the adoption of Dolby technologies in emerging markets where the transition to digital broadcast is underway. We are in a good position in India, where 12 of the largest operators use Dolby. Leading operators Hathaway and Den Networks began shipping HD set-top boxes with Dolby Digital Plus during the quarter. The number of HD channels broadcasting in Dolby continues to grow, and this quarter Epic Channel, a new Hindi entertainment channel, launched in Dolby Digital Plus.

In China, we continue to see an increase in both the amount of local Chinese content and the number of channels on air in Dolby. This quarter, China Telecom included Dolby Digital Plus in its Internet smart TV specification.

Dolby is also well positioned in Africa to be a part of the transition to digital broadcast throughout the region. Dolby Digital Plus is currently included in broadcast standards in South Africa, Ghana, Kenya and Nigeria. Recently, MultiChoice, one of the largest pay-TV operators across Africa, adopted Dolby in its HD platform.

Now let me touch on our mobile segment. Dolby technology enriches the mobile entertainment experience with premium sound, which significantly enhances the overall experience. This month, HTC announced that they will be adopting Dolby technologies on their new Desire 826 Smartphone. Additionally, Lenovo has continued to adopt Dolby on its line of tablets. This quarter, the Yoga II and Yoga II Pro tablets, which both include Dolby audio, have started shipping. Dolby was also included in the ZTE Grand S2 and the Tesco Hudl 2, both of which launched this quarter. In addition, the Amazon Fire HDX 8.9, which is the first tablet to include Dolby Atmos, has received excellent reviews for its audio quality.

We also saw a lot of momentum around Dolby Atmos for the home at CES just a few weeks ago. Nearly a dozen existing and new partners demonstrated Dolby Atmos for the home in their products, many of which were available over the recent holiday shopping season. This includes AVRs from Denon, Onkyo, Marantz, Pioneer, Integra, and Yamaha as well as Dolby Atmos-enabled speakers from Pioneer, KEF, Triad, Atlantic Technology, Definitive Technology, and Onkyo.

This is just the beginning, and we expect more products to launch this year supporting Dolby Atmos for the home.

The content ecosystem, meanwhile, for Dolby Atmos in the home continues to grow. Paramount, Warner Bros., and Lions Gate have publicly committed to release Dolby Atmos Blu-ray titles. The first have already been released. Additionally, VUDU is the first streaming service to support Dolby Atmos for the home.

We also continue to see an increase in the adoption of Dolby Atmos in the cinema. We have great momentum with studios, content creators, post-production facilities, and exhibitors. Currently, there are around 900 screens committed globally and more than 230 titles released or announced in Dolby Atmos. 13 of the 15 highest-grossing titles in 2014 were in Dolby Atmos. Recent releases include The Hobbit: The Battle of the Five Armies, American Sniper, and Unbroken. Just last week, all three of these were nominated for Academy Awards in the sound categories.

Within the cinema market, we see the highest growth coming from the premium large-format segment. Exhibitors are making large investments in this space to create new and more exciting venues that will attract more moviegoers. In recognition of this, we introduced Dolby Cinema this quarter, a solution that uniquely incorporates our leading audio and imaging technologies. Dolby Cinema is a highly differentiated experience. It combines Dolby Atmos for immersive audio, Dolby Vision laser projectors for an unparalleled visual experience, as well as inspired design. Through Dolby Cinema, exhibitors are able to offer a unique premium experience. Moviegoers experience the cinema the best way they can, and Dolby is engaged with the content community to further develop the pipeline of content in Dolby Vision and Dolby Atmos.

In December, JT Bioscopen in the Netherlands opened the first Dolby Cinema with very positive reviews. We will keep you posted on future Dolby Cinema sites.

Beyond bringing Dolby Vision to the big screen, we continue to make progress on bringing Dolby Vision to the home. Dolby Vision is our end-to-end imaging solution which gives creative teams the freedom to use the full gamut of colors, brightness, and contrast, resulting in an enhanced entertainment experience.

We kicked off the high dynamic range conversation last year at CES with the announcement of Dolby Vision. This year at CES, HDR demonstrations were seen everywhere, and it appears that the market is now ready for Dolby Vision. What we are offering with Dolby Vision is a scalable, commercially available, end-to-end solution from content creation through delivery and playback. Another sign that the market is ready for HDR is the movement from the industry to create the UHD Alliance. Dolby is one of the founding members of the UHD Alliance and will contribute to establishing standards to support innovation in video technologies which will include HDR for broad adoption.

Warner Bros. has recently announced that they'd be mastering titles in Dolby Vision. The first slate of titles will include recent blockbusters like Edge of Tomorrow, Into the Storm, and The Lego Movie. At CES, Netflix announced plans to stream content in Dolby Vision in 2015. We are well on our way to creating a strong pipeline of Dolby Vision content for the cinema and the home. We continue to expect the first TV using Dolby Vision to ship in the first half of calendar 2015.

Lastly, let me touch on Dolby Voice. This quarter, we began shipping the Dolby Conference Phone, which further extends the quality and experience we can provide with our offering.

So let me wrap up with a few reflections as we enter the new calendar year. As you know, we have gone through a cycle of R&D investment in order to fuel innovation and open up new areas for growth. At the same time, we significantly expanded our presence in online, mobile and digital broadcast, offsetting secular declines in PC and optical disc and developing new ecosystems in which to deploy our new solutions. These efforts have resulted in platforms for breakthrough audio, imaging and voice experiences which have yielded the offerings we have discussed today: Dolby Atmos, Dolby Cinema, Dolby Voice, and Dolby Vision. In the year ahead, I expect our efforts to result in commercial wins, further giving you data points on our progress towards establishing a strong foundation for long-term revenue growth. I look forward to keeping you updated through the year.

Operator, we are ready for questions.

(Operator Instructions) Mike Olson, Piper Jaffray.

Good afternoon. A couple of questions. First of all, broadcast continues to be an area of strength. Is that primarily due to international penetration in new markets with digital broadcast standards that include Dolby? And if that's the case, can you just talk about maybe where we are on that spectrum at this point for worldwide penetration?

Yes, it is adoption in international markets -- emerging markets, in particular, which is driving the growth in broadcast. We are still in terms of the rollout of digital broadcast and use of digital broadcast -- it's still in the pretty early stages in markets like China and India and Africa, the areas I highlighted on the call. Our attach rate is actually a little ahead of that adoption, given some of the manufacturers that have gone to a single SKU of Dolby Digital Plus around the world. But we still see a really good opportunity for growth in emerging markets over the coming years as we continue to roll out there, and we continue to set our sights on new offerings for those markets as well.

Thanks. And you talked a lot about Atmos, Dolby Vision -- I realize those can be for both home or cinema. But you also just talked about Dolby Cinema overall. Between that and the Doremi acquisition, would it be fair to suggest that the Company is shifting focus to some degree back towards theatrical technologies -- maybe slightly less emphasis on the in-home market?

Well, we have always been focused, first and foremost, on delivering compelling experiences and working with the content community, whether that's theatrical, episodic television, sports, and looking beyond that -- we are looking to apply our science of sight and sound to deliver compelling experiences. And our aim is to do that across all the channels and all the use cases through which customers enjoy that.

So I wouldn't say that this represents a change in focus at all, but I do think it is a result of the innovation that we've invested in the last several years. We have a really unique and differentiated experience to offer to the theatrical industry at a time where exhibition is really investing in differentiated experiences. The premium large-format market is an area where they are seeing some growth and seeing that when they invest in the experience, that moviegoers respond. And we are seeing excitement from Hollywood and from content creators around the world with the opportunity to really expand their palette with Dolby Vision and Dolby Atmos. And of course, at the same time, we are looking at developing that pipeline of content and bringing those experiences to the home with consumer Atmos for the home and Dolby Vision.

All right. Thanks very much.

Paul Coster, JPMorgan.

Yes. Thanks very much. I've got three questions, actually. Let's see if I can sneak them in. First one, you talked about higher attach rates -- set-top boxes and TVs. Can you also talk about the value of the attach per unit as you go into emerging markets? Are we including Dolby Vision in that number? Is it a material amount?

Hi, Paul, this is Lewis. As you know, we don't historically break out ASPs. But I would say as a general comment that the broad profile of our ASP doesn't change dramatically with what we talked about this quarter. And none of that attach rate is Dolby Vision. ASPs already are sort of mixed across different customers and regions, and there is no major shift this quarter.

Okay. Dolby Vision -- my experience from CES is the products that I see at CES is the product I would probably see on the shelves in the holiday season of the same year. And although you've got a couple of Dolby Vision adopters out there, the mainstream high-definition 4K TVs, which probably represent the next upgrade cycle in North America and Europe, don't look like they are going to be including Dolby Vision, at least this year. Am I correct in saying that? And really when we think of Dolby Vision, are we to think of it as a calendar year 2016 opportunity?

I think when I look at -- first of all, I think the prominence of HDR at CES really speaks to the market readiness for a high-contrast, wide-color gamut solution like Dolby Vision. And I think when I look at the -- on the content side of things, we are going to see OTT content available this year in Dolby Vision. I think that whether we look at terrestrial broadcast, pay-TV operators, Blu-ray, all are in discussions or involved in those discussions and collaborating with those industries as to the best way to deliver HDR content to the home.

And so I think that what you are seeing on the TV side is it's becoming clear that it's a worthwhile investment to start thinking about higher brightness, higher contrast televisions because the content is going to be coming. I think by the time it all comes together on a broad scale, yes, 2016 is probably a good way to think about it. We are going to see -- in the first half of this year, you will see the first Dolby Vision TV and you will see content available for that TV.

Okay. Last question. You talked of this investment phase, R&D phase that we've been through. And yet, looking forward, the pro forma operating expenses continue to escalate. Shouldn't we see a moderation moving forward?

Well, the investment in R&D and also in sales and marketing as we bring these to market is we still continue to plan on investing in these opportunities. What you should see is the early data points would show that this is leading to where we intend it to lead, which is returning to sustainable, long-term, double-digit revenue growth. That's where we intend to be, and we see signs that our investment of the last several years is poised to pay off as we enter 2015, looking to garner -- to build on the momentum we've gained in each of these new initiatives.

Okay. Thanks. I'll jump back into the queue.

Steven Frankel, Dougherty & Company.

Good afternoon, Kevin. Let's start with Doremi. So the weakness in the quarter, is that the sign of a market that's close to saturation, or perhaps just integration slash execution issues that got in the way of doing business?

Steve, this is Lewis Chew. Yes, I would say that a more minor element of that story was market driven. I would actually take that on our side that we optimistically felt like we just hit the ground running on day one. And as is always the case when you close a deal mid-quarter, there is some transition time. But we feel pretty good about understanding what that was. And in fact, one of the things we discovered was some of the Doremi customers were ordering product just slightly in advance of the close of the deal just in case there was any logistical transition issues, and that affected the total amount of shipments we were able to make during the quarter.

But, yes, we feel very good about the Doremi product line, that we are obviously going to do a deal like this -- going to look at rationalizing between product lines. The ultimate premise of the deal that was that we could uniquely offer combined integrated solutions that would be very desirable to our customer base, and that's what we are going to push forward for.

Okay. And Kevin, I know you are loath to do this, but maybe you could help us a little bit understand the business model for Dolby Cinema. And in the US, the chains have spent a lot of money building their own brand. Do you think you end up co-branding in the US if you are successful selling in here? Or do subsume your name to an RPX or an ETX?

So to answer the first part of your question, we see this will be a revenue-sharing model with exhibitors. And we do think that the experience is very compelling -- it will be very attractive to North American exhibitors as well as exhibitors around the world. We expect it to carry the Dolby Cinema brand. And I think the extent to which how that interplays with any existing (inaudible) brands, I think we have to -- I don't want to speculate on that.

Okay. Thank you.

Ralph Schackart, William Blair.

Good afternoon. Just looking at the licensing guide-up for the year, just curious what the factors were behind that? Was it mainly broadcast driven? Maybe just sort of bolting onto that question, Lewis, you called out Voice in the other category. Just curious, is that sort of contributing on a measurable basis now to the financial results? Thanks.

Hi, Ralph. Yes, so in the quarter if I look at all of our different markets, the two that actually ended up being on the positive side, as I reported, was broadcast and mobile. And then on the minus side, PC. And net net, what we are seeing for the full year is that the net positive wins over the negative. Yes, broadcast is clearly our most steady growing business right now. We actually have a slight uptick in the year versus our original expectations on mobile. And then, what was the second half of your question again, Ralph?

On Voice, is it at a point now where (multiple speakers) -- yes.

Yes. So Voice, we did see revenue in the other category this quarter. And as I said probably before, we'll keep that in other until it becomes big enough to break out similar to what we did with mobile. When it got to a significant enough percentage, we broke that out. A chunk of that revenue came from contractual licensing arrangements we had with our customers, and I think it will be further down the road when we see more revenue coming purely from the revenue share model that we have.

Okay. Thank you.

Jim Goss, Barrington Research.

Thanks. I've got a few about Dolby Vision and Dolby Cinema. First, with Dolby Vision, does it complement or compete with 4K and 8K advancements? My understanding is it's broader color, color palettes, more subtleties. So does it just basically make greater use of the greater resolution, and that's that how this form works?

Great question. It is complementary to resolution. It can be complementary to 2K, 4K, 8K. It's not dependent on a particular display type. The way to think about it is that in -- for many years now, the industry has been capturing more dynamic range, more contrast, wider color gamut than consumers have been able to see on their displays at home or in the cinema. And so most of that information, the higher dynamic range, was getting left on the cutting room floor to fit into the formats for delivery that were developed, in many cases, decades ago.

So what Dolby Vision does is it allows one to master the content, to take advantage of the full dynamic range and the color gamut. It allows one to deliver that content through OTT, through broadcast, through the cinema delivery chain. And then it allows you to play it back on the other side, bring it to full life including for TV displays, being able to do display management, to take that signal and optimize it for the capabilities of that display. I think this opens up a really exciting area of innovation for TV because it is absolutely complementary to resolution, 3-D, all the other features that we talked about. And we've been working on this for really over five years, probably about seven years now. That's when our team first really focused on the area of HDR and contrast as the dimension that could have the single biggest impact on the quality of the viewing experience. And that's what we are so far seeing in our interactions with the creative community and with the initial -- what we are seeing on displays.

Okay. And would it incorporate or obviate the need for 3-D? I know you have had a position in 3-D. It has really started taking a back seat, I think, lately. Once you get the subtleties that Dolby Vision can create, does it create the depth perception that you might need without going to 3-D? And therefore, that would change that dynamic?

So it is -- I said earlier -- it is a complementary to dimension and to depth. I will say that when done really well, with high-contrast ratios and wider color gamut, you begin to perceive depth. And it is not 3-D per se, but the brain responds to the higher-contrast details and the higher color range by beginning to perceive more depth in the picture. So that said, it is complementary, but I think that we believe that this is a real wow factor as people think about the next generation of theatrical and consumer delivery content.

Okay. Finally when you mentioned a revenue share model, do you envision a premium price for Dolby Vision-enabled films or Dolby Cinema with that plus Atmos? Or do you think it just sort of works into the model over time? And do you think the theater owners would be happy enough to have this imaging that they would share some of the ticket price?

Well, we do see it as being an offering in the what's known as the premium large-format market. That market is characterized by higher prices than your standard screens. In the case where somebody is converting an existing PLF to a Dolby Cinema, I can't really speculate on whether they would further increase the price or not. I think in the case where they are converting, creating a new PLF, we would expect that would be at a premium price. That is part of the value proposition is to create a highly differentiated experience that moviegoers will take notice of and want to experience, want to come back to, and that creators are going to be excited about taking advantage of.

All right. Thanks very much.

Paul Coster, JPMorgan.

Thanks very much. The guidance for the year and the quarter suggest to me that we've seen over the last few quarters the year-on-year revenue growth decline, the rate of growth decline. But it looks to me like the guidance sort of looks for a reacceleration in the second half of the fiscal year. Is that correct? If so, what do you think the drivers of that reacceleration are?

I think that's a fair question, Paul. The level of precision you are referring to is a little tricky because the numbers didn't move around that much. Our guidance that we are giving this quarter for the full year is the same as we gave last quarter, recognizing of course that this quarter, we fell slightly short of that. So I don't know that there is a big change.

I think I had an earlier question about what was causing us to feel more optimistic and what areas were going up. And I said that broadcast continued to be a strong area, that mobile is a little bit stronger for us this year, as I sit here right now, than we thought at the beginning of last quarter. It's really hard for me to characterize anything as reacceleration. I do think as we work our way through the year there is more opportunity for some of these things that we have already talked about that Kevin alluded to start showing revenue. In fact, I had that specific question on Voice. And it's really hard for me right now to give a lot of specifics on Voice because it is lumped into other. But clearly, we see Voice as being something going forward as fundamentally only a growth story. There is really nothing to come down from. It's a secular positive in every way shape for us.

Product is something right now that is a little bit bumpy because we just acquired another company. We are very optimistic going forward about we can sell. But in the near term here, we have actually throttled back a little bit for the year our product expectations until we work our way through this transition.

Maybe if we get further down into the year, Paul, it may be easier for me to address that as we see more of the year play itself out.

Very good. Thank you very much.

(Operator Instructions)

Well, great. Thank you, everybody, for joining us today. As I said, we are excited as we move into calendar 2015 with the new offerings we've got, these new experiences which we look forward to sharing more with you about as we go throughout the year. Thank you for joining us.

Ladies and gentlemen, that does conclude today's presentation. We appreciate everyone's participation.