Amdocs Ltd (DOX) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to this Amdocs third-quarter 2005 earnings conference call. Today's call is being recorded and webcast. At this time I would like to turn the call over to Mr. Tom O'Brien. Please go ahead sir.

I'm Tom O'Brien, Vice President of Investor Relations for Amdocs.

Before we begin I would like point out that during this call we will to discuss certain financial information that is not prepared in accordance with GAAP. The Company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant onetime events that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the Company's business and have a meaningful comparison to prior periods.

Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material.

Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions and such other risks as discussed in our earnings release today and at greater length in the Company's filings with the Securities and Exchange Commission, including in our Annual Report on Form 20-F filed on December 30, 2004 and our Form 6-K furnished on February 14, 2005 and May 16, 2005.

Participating in the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Management Limited; Eli Gelman, Executive Vice President; and Ron Moskovitz, Chief Financial Officer. Following Dov and Ron's comments we will open the call to Q&A. Now let me turn the call over to Dov Baharav.

Thank you, Tom. Good afternoon, ladies and gentlemen.

We are pleased to report that this was a very significant quarter for Amdocs in a number of areas. Our financial results this quarter demonstrate success in our business as revenue grew 12.7% and earnings per share excluding acquisition-related items grew 27.6%. We signed some important new contract this quarter, including a win at Beijing Mobile, our first in mainland China. More than this, we improved our strategic position and our long-term growth prospects through our M&A activity.

As we said at our industry and analyst day in May, our strategy includes using acquisition to expand our addressable market and improve our long-term competitive position. The acquisition of DST Innovis and Longshine are great examples of how this works.

With the acquisition for DST Innovis Amdocs establishes itself as the leader in the broadband industry, which is undergoing revolutionary changes. MSOs are facing tremendous challenges as they move towards triple and quadruple play offerings. Major wireline carriers are competing by rolling out IP networks which can support IP TV and data services. All of these drive the carriers' need for a system to support this complex offering as they compete for customers. The combination of products and industry expertise of DST Innovis in broadband, cable and satellite, combined with the deep experience and industry leading telephony offering of Amdocs will allow us to offer products and services across markets that can not be matched by our competitors.

In addition, we entered the Chinese market with our win at Beijing Mobile, which is a subsidiary of China Mobile, the largest mobile provider in the world, and with our agreement to acquire Longshine. It's important to know that we used our standard Amdocs license and services model in the sale to Beijing Mobile. This sale is a signed that the Chinese market appreciates the values that our products and services can bring to their businesses.

In Longshine we add a Company that serves three of the four largest communications services providers in China and gives us the local presence that is required for success in this market. With the strength in customer relationship of Longshine, the presence in China Mobile through our Beijing Mobile win, and the products and services of Amdocs, we are well positioned for growth in China.

We're pleased with these two acquisitions, and we will continue to use M&A as a tool to execute our strategy.

Including Beijing Mobile, we had eight key wins in this quarter. And we disclosed details on some of them in our press released today. What's important to know about our wins in Q3 is that they are across geographies and products, and they include both new logos and growth with existing customers. We expect to continue this broad mix of new activities as our pipeline is robust and we have improved our positioned strategically, especially in broadband industry and in China.

On another subject, many of you have asked us about our future at Sprint-Nextel. Last week the shareholders of Sprint voted overwhelmingly in favor of the merger. As I said last quarter, we continue to work hard for Sprint and Nextel, and we leave it up to them to decide what they want to say about the plans for their systems.

Market conditions are good for us now, but we continue to watch carefully developments and uncertainties in the market. We strengthened Amdocs strategically this quarter, and that improved our prospects for our future. We believe that we can integrate DST Innovis and Longshine as we have done successfully with previously acquired companies. Looking forward, we believe that even from this higher base we can continue to grow faster than the market.

Let me now turn the call over to Ron Moskovitz for the financial review, and then I will come back with some concluding remarks.

Thanks Dov. Our third-quarter revenue was $507.4 million, representing growth of 12.7% over last year and sequential growth of 3.9%.

Our EPS, excluding acquisition-related charges, net of related tax effects, was up 27.6% to $0.37 per diluted share. After taking into account acquisition-related charges, GAAP EPS was $0.36 per diluted share.

Operating margins were up 30 basis points this quarter to 18.6%, primarily due to additional leverage on the operating expense line.

We experienced a slight decrease in R&D spending as Amdocs 6 has been released to the market.

Gross margins were down slightly as we continue to invest in our consulting business and our development center in India.

We expect a slight increase in the operating margins again next quarter in our core activity, but this will be offset by the lower initial margins from the DST Innovis business. For Amdocs in total, we should see operating margins of slightly above 17% next quarter.

Other income was $4.3 million this quarter, down from last quarter. This line was impacted in Q3 by capital losses that we recorded on some of our cash investments which were liquidated at the end of the quarter in anticipation of the DST Innovis purchase in July, and also by some foreign exchange costs. We expect other income to be up slightly next quarter.

DSO at the end of the quarter was 53 days, up slightly from last quarter's 49 days.

As we indicated before, deferred revenue decreased slightly this quarter in the normal course of business.

During Q3, we used $100 million to repurchase approximately 3.5 million shares at an average price of $28.33 per share.

We ended the quarter with a cash balance of $1,290,000,000, a decrease of $43 million from the last quarter's balance.

Our 12-month backlog, which includes contracts committed to revenue from managed services contracts, letters of intent, maintenance and estimated ongoing support activities, was $1,590,000,000 at the end of the quarter, an increase of $40 million over the March quarter. DST Innovis, which has a business model incorporating strong recurrent revenues will contribute to backlog beginning in the fourth quarter.

Regarding the SEC investigation, we are not aware of any substantive development since last quarter's conference call.

Looking forward, our guidance for the fourth quarter of fiscal 2005 is for revenue of approximately $573 million and EPS of $0.38, excluding the effect of acquisition-related charges net of related tax effects. Diluted GAAP EPS will be lower than this, but we cannot give guidance on this today as we need to complete our preliminary purchase price accounting for DST Innovis, including determining a size of the expected write-offs for items such as in-process R&D. Our EPS guidance is based on a fully diluted share count estimate of approximately 219 million shares.

Our guidance includes an estimate of the impact of the Innovis business purchased area this month, which we estimate will contribute around $51 million of revenue in Q4. This conservative estimate is at the lower end of the 50 to $55 million range we shared with you before. This also included a relatively minor impact of the Longshine acquisition expected to close during this quarter.

With that, let me now turn it back to Dov.

This was a milestone quarter for Amdocs, and we're looking forward to additional success in the coming quarters. With that, let me now open the call to Q&A.

(OPERATOR INSTRUCTIONS) Julie Santoriello, Morgan Stanley.

Ron, I wonder if you could touch bottom the impact on margins from DST Innovis in the fiscal fourth quarter. I was a little surprised to see the guidance of -- I believe you said 17% or so, and a little bit less than what I would have thought. Can you just walk us through some of the issues there, what you see in terms of DST's current margin and if you are assuming at this point any additional integration costs and eventual synergies in the quarter? Thanks.

As we said in the earliest call, we expect the DST Innovis addition in Q4 to be neutral to EPS which means that the contribution to the margin is going to be negative. It's going to be EBIT positive of about $2 million as we incur integration costs during this quarter. So the integration costs are included in this number. So mechanically if you add this business with about $2 million of operating income, you end up with a reduction of Amdocs's operating income, or operating margin, to 17% plus.

Just a quick follow-up of the integration plans. Can you share with us any timetable that you may have for completing the integration of the Innovis and potentially what that could mean in terms of cost synergies? Thanks.

In terms of the integration plans, we have (indiscernible) plans as you know that we closed and signed on the same day. We're going to have a relatively slow integration. We want to make sure that we don't have any interruption to the current business and that DST Innovis has with their customers. We're going to put a lot of emphasis on integration of the product as the market expects us to integrate eventually both the old products of Innovis and the new product of Innovis with the Amdocs ICM portfolio. And overall duration of the overall integration probably will take several good quarters.

Thank you.

Ashwin Shirvaikar, Smith Barney.

Nice quarter. Congratulations. I wanted to get a little bit more into detail in terms of the revenue estimate for the fourth quarter. If I take out $51 million for DST Innovis and a modest amount for Longshine, I still come in considerably above my prior estimate for organic growth. What is driving -- what are the factors driving that growth? Is it the new contract that China Mobile, or is it continued share gains at Cingular? What are the factors if you to get into that?

When we see the growth of the third quarter and anticipate the growth of the fourth quarter, the main reason for this solid growth is the traction that we through our ICM concept in the market. The fact that major carriers in the industry are going through substantial transformation of their business from network provider to IP broadband providers like SBC, that they're now rolling out at light speed, and some other carriers that are looking for transforming their business, and our unique offering to the market of the pre-integrated platform, plus the services, plus the SI (ph) services that we added lately, all that together creates a unique offering that is second to none and is the main enabler for the major Tier 1 carriers to move to the new paradigm of business. And we felt the growth in the last few quarters, and we believe it will be a main driver for our growth moving forward.

One add-on, if I may, on the 12-month backlog. You mentioned that next quarter it will include DST Innovis. If you could give some idea of the revenue visibility at Innovis on a 12-months timeframe, so that could give us some idea of the delta there.

First of all, because of the recurring nature of their business it's going to be relatively high visibility. At this point we cannot give concrete numbers since we're only a few days after signing and closing the deal. So we're working to get accurate numbers and to see that we are reporting the same methods that we used to do in Amdocs. So we will have to wait patiently until the end of the next quarter to give you some numbers.

Thank you.

Liz Grossom (ph), Goldman Sachs.

On your services gross margin, it still remains somewhat depressed. You mentioned both building out the development centers in India and also your consulting staff. Can you give us a sense organically on an Amdocs basis what you foresee for that services gross margin going forward? Will we start to see expansion in your services margin in the next few quarters? And what are your plans in the build out in India?

We have said previous times before we're doing some investments in the business. We're investing in expanding our presence in India, we are investing in our establishment in the growth of our consulting practices. And as we said before the additional acquisition of DST, we expect to see margin expansion through 2006 and to exit 2006 with higher margins, and that includes also expansion in -- some expansion of the service margin.

As for plans in India, we expect to end fiscal 2005 with about 900 employees there. And we expect during 2006 to keep on growing this development center at a similar pace.

How many people do you have in India currently?

About 700, 6 or 700 employees.

And then in China, you mentioned the Beijing you're selling on your typical software and services business model. Can you tell us what's changed in that market with the acquisition of Longshine, and how you're entering that market more successfully now with that acquisition, and where you're seeing demand within the Chinese market, whether it be wireline or wireless, and with what products you're having success out there?

In terms of the acquisition and the way the acquisition helps us with China -- Beijing and Beijing Mobile, obviously having hundreds of people (indiscernible) but more specifically customer care and billing applications, knowing the language, that we're going -- that are going through some specific training on Amdocs products right now and will be very handy for us serving BMCC, Beijing Mobile customers.

The software and services that we provide there is the normal Amdocs 6 components, mainly on the billing side and some additional components -- AR and accounts receivable and a few others. And on the services side we will actually get quite a lot of help from Longshine.

In terms the traction in the market, it's a little bit too soon to share data and I'm sure it's statistically correct. But we see a lot of interest around this acquisition and around (indiscernible). This is a lucrative market, it's a lucrative company that we penetrated.

We completed the phase of the design, and we believe that we can serve this market well. The requirements are quite sophisticated. And that was important to us for us to see because that shows there is a need in this market, that it expands and becomes more and more competitive.

In terms of specifics, we'll be more than happy to share with you some specifics when we get them.

Maybe to add regarding the potential in China, there is the Olympics in 2008 that they actually is part of the willingness of the Chinese to have the best cellular company in the world, the best wireline company in the world, and maybe the best systems in the world. So they are in a process of improving an attempt to have the best in class systems. And so we see growing demand by the large carriers to sophisticated systems, so we believe that we have an opportunity here.

Great. Thank you very much.

Michael Turits, Prudential Equity Group.

Most of the margins for next quarter, if you're going to end up with just 2 million in EBIT as they were doing around 7 million in EBIT it looks like 5 or $6 million in restructuring costs, does that all get done at the restructuring -- those restructuring costs all get done in this first quarter? And should you therefore get back more to the Company's stand-alone EBIT margins at the very least (indiscernible) DST's by the following quarter?

We're going to have some -- so in terms of restructuring costs, there is one element of some write-off that are going to be reported only in the GAAP numbers, so --

Right. I mean non-GAAP.

We're going to have some integration costs, which I would say will take a few quarters to absorb. So it's not only one quarter. But when we said that the first quarter is going to be neutral in terms of EPS and the next -- in 2006 we are going to be accretive between $0.02 to $0.03, for the entire year actually we have taken into account all these costs.

Do you have a sense for when you would at least get Innovis back to its stand-alone margin? And then the next follow-up question to that is you guys have said 20% operate margins exiting '06. Do you think you can still do to a combined basis?

With a respect -- on a combined basis, no. We believe that we can do it on the core business. We said also that on a long-term basis we believe that we can bring the Innovis, the incremental business, to comparable margins. So of course this addition will delay the target date for getting the corporate-wide 20% margin, but on the core business we believe that we are on track to get there.

Let me add some comment. We bought and we acquired this Innovis in order to add a growth engine the Company. So the idea is not to keep them as they are and just make some efficiencies and have some more efficiency and get a few more dollars from Innovis. We would like to leverage the synergies of our experienced products and services from telecommunications, their presence in the broadband, and actually to create substantial synergy. In order to create it we will have to do some investment and integration, especially working with the customer, merging the two line of products to one line of product. So we assume that during 2006 we will in the first quarter of -- the first quarter of 2005 we will at some investment that will generate this growth engine.

Any particularly promising opportunities for revenue synergies that would come from those estimates -- from those investments, selling into the existing base, CRM, anything like that?

We naturally are going to offer the wide breadth of products and services to current existing Innovis that Amdocs has on the -- for example, on the sales service and other components, we're going to operate to the current customer base of DST Innovis, including DirecTV and Comcast and Cablevision and others and internationally as well. And we're going to leverage this knowledge and huge talent of people in the broadband cable and satellite into all the bids and all the contacts that we have today in the world in Europe, in the Far East, and in North America. So both combined give us the feeling that we can expand revenue.

Thanks very much.

Thomas Ernst, Deutsche Bank.

This is actually Joseph Borie (ph) covering for Tom today. The question we have is just a follow-up on the Chinese market opportunity, if you allow us. One last question is you announced two things in the last weeks. One was the acquisition of Longshine and the other one was the win with HP China. How should we be looking going forward your relationship with third-party vendors like HP China, because it looks like you're going to be pondering more with Longshine itself?

The answer is quite simple. We have good relations with HP all over the world, including in China. From the beginning, ever since we announced it in the same week you would imagine that we worked on these two deals -- one is the win with a customer and one is an acquisition -- for quite some time before that, and we knew some of it. So there was (indiscernible) the way we are splitting the work with HP China is such that we are not going to interrupt (indiscernible) with the fact that we acquired Longshine.

Moving forward, Amdocs obviously wants to have the freedom to offer products and services in China with or without partners. So that in terms of our relationship with HP China and in terms of Longshine, we related before we believe that the fact that we will have local presence, 800 people or so in China, will be very handy and very instrumental for us expanding our business in China.

Great. Thanks. If you will allow me just one minor detail question? Would you mind providing the geographic distribution of your revenue for this quarter?

North America was 68%, Europe 25%, and the rest of the world 7%.

Okay great. Thank you very much.

Richard Sherman, Janney Montgomery Scott.

My question was around the IP TV opportunities beyond SBC. Could you maybe talk a little bit about the pipeline there and when we might see some more meaningful wins around the IP TV initiatives?

We have today several prospects, some of them among very large carriers, some of them in maybe Q2. And I would say that we see a lot of interest. And it's not -- when you say IP TV, one might conclude that it is just a point solution for IP TV.

The solution that we provide -- that we're providing SBC actually is a blueprint for the future telco. It is the business processes and the products that will enable a carrier to provide IP TV and Voice over IP and data services and games and ring tones and whatever and even incorporating the wireless to the same system. And that is the strength. Our system is an integrated customer management system, and not -- which enables IP TV, but not only IP TV. So we see a lot of interest among large carriers.

Now the timing, that's much more difficult to say. But I would say that we have some prospects that are in advanced stage, some them are in not so advanced stage.

Of those in the advanced stage, are they mostly North American? Can you give us some kind of flavor here about the geographic distribution? And those are my questions. Thanks very much.

We have prospects on all over the world. This is a technology and a marketing offering that many companies around the world are looking into.

And just to add to Dov's comments, you need to realize that IP TV is IP TV implementation on Amdocs 6 platform. And that's why it so powerful, because once you implement it you implement today IP TV on the same platform and tomorrow you can implement any other IP service or any other service in general. As you know, Amdocs 6 is being used all across the world for wireless and wireline and ISPs and IP technology and what have you. So IP TV is one single implementation on Amdocs 6, and it's not a silo point solution that was tailored to the IP TV.

Very good. Thank you.

Scott Sutherland, Wedbush Morgan Securities.

Just a couple of questions. A quick question. I want to get your CapEx number and operating cash flow. And then second question is now that you have penetrated China, in particular your HP relationship at Beijing Mobile, what does it take to penetrate other provinces of China beyond the Beijing area? Is there any sort of blanket or do you have to go and penetrate each one individually?

Let me take -- the time that Ron to pick up all the numbers that you asked for, let me take the second part of the question about China.

It's actually not very different from penetrating or selling into the Vodafone group or selling into the PMO group and the like. We always believe that you need to prove yourself and prove the value in each one of the carriers, but also convince their corporate and their corporate-level engineers that this is the best solution for them in order to give them some commonality among different operations. So the answer is that to expand this relationship with China Mobile into other provinces we're talking and we are in contact with the headquarter function of the organization, as well as with some of the specific provinces.

With regards to the cash flow type numbers, CapEx was about 18 million, depreciation and amortization about 22, and the free cash flow was 57. So working backwards from there and through the debt numbers, you can get to the operating cash flow. I don't have a debt number that I can give you today on the payments on capital leases, but I think you can see we're fairly consistent quarter-to-quarter there. With that, you can back your way into it.

Yes, that gives me enough to get there. Thanks.

Mike Latimore, Ramymond James Associates.

Very nice quarter. Can you give us a percent of revenue that is related to managed services and directory? And then on the managed services piece of the business, is there any sort of material uptick in operating margin on any of the deal in the second half of the year, or kind of normal progression there?

Managed services represents today approximately 40% of the business, consistent with the previous quarter. Directory is about 13% of the business.

As for the margins in managed services, as we said in the previous quarter, we're very close to the corporate -- to our target margin, which are comparable to the corporate average.

Thank you.

Shaul Eyal, CIBC World Markets.

Congratulations on a another good quarter. Good guidance as well. A quick question. What's that kind of thinking with respect to the MVNO market? What is Amdocs doing on that front?

The MVNO market is an emerging market and right now most of the players are small ones. Amdocs traditionally focuses on the Tier 1, Tier 2 customers, the guys with the many millions subscribers. So right now we do not have too many customers that are MVNO.

We're watching this growing market, and we might offer some services to maybe some large MVNO. Right now we do not see it as a substantial growth engine for Amdocs. However, we might get into it once we see some large MVNO growing.

We provide systems for this market in two other ways. First of all, the carriers themselves need to have some billing systems to actually charge the MVNO. So we provide them the (indiscernible) system so they can actually charge the MVNO. On top of it, we provide some of the carriers a full billing system or a full ITM (ph) system with that they can serve as a service bureau for the MVNO. And that's something that we are doing to some carriers. So to some extent our customer is the traditional carrier, but they will use our system to serve the MVNO So we see some small growth opportunity for us and we will make sure that if there is a growing market we will be there.

Fair enough. Just kind of quickly back to the IP TV opportunity with SBC, you touched ion that, Dov, before. What's the current status specifically with SBC? A lot of noise throughout the quarter. Anything has changed on that front?

Not really. Actually there are I think some delays at the Microsoft side or some here and there. But overall the product is moving forward with full steam ahead and we're very encouraged with the progress there.

Finally, Ron, kind of just a housekeeping. I didn't think I got it correctly. You said 219 million shares outstanding for the next quarter?

Yes.

Thank you very much. Congrats again. Good job.

Peter Jacobson, Kaufman Brothers.

Any new developments in the financial services vertical?

Well, yes. We're doing very well with ABN AMRO where we have our project moving forward, and actually we feel that the direction that we have is a quite valid and needed by the financial services market.

The important thing is that we replace the -- or we changed the management of our financial services by nominating Michael Blum that came to us from IBM where he led the financial services of IBM and he is now leading our effort in this regard. So we are now start of moving forward with a new leadership, and we hope to see progress in 2006. However, the progress it will have in 2006 will be such that will build our ability to increase the business and create the financial services growth engine for the Company. It's not going to be substantial revenue in 2006. However, from strategic point of view, we expect 2006 to be a very important year for financial services. So actually I hope that you ask me this question next year and I will be able to share with you the important developments in this area.

I will do that. Thank you.

Tom Roderick, Thomas Weisel Partners.

In thinking about the guidance that you've laid out here for DST for 51 million here for the next quarter, can you give us some more detail on the break out how we should think about the mix of licensed to services in that business that would help for modeling purposes going forward?

At this stage I would put very little into total license for the first quarter. Keep in mind that their business is mostly at this point recurring revenue and we're hoping with synergies and additional ICM components to increase license component over time. On top of that, we're doing this quarter as part of the integration effort some analysis -- further analysis into the breakdown of licenses and services from the accounting standpoint, so we will have to wait until the end of the quarter to give you a better number.

DST Innovis has not reported licenses separate of the services. So it was -- you know they blended everything together as one number. But our accounting policy is different, so we will have to look at each contract and analyze what should be attributed to license and what should be attributed to services.

On a combined basis is there reason to believe that license revenue -- at one point you suggested it could get into the 6% or above range as a percentage of total revenue. Do you still think that on a combined basis with both companies that you can still get there in the foreseeable future?

We believe that we can get there. As we said, for the core business we expect it to get in a range that could get even higher, so a combined basis we can get there.

Okay good. When thinking about the R&D coming down here this quarter, it seems to be some of that related to the completion of Amdocs 6. Where geographically are those heads coming down from? And on an absolute level, given the increase in heads in India, are you finding yourself flat on a headcount level for R&D, up or down?

First of all, it's not that we're releasing people. We are just moving people from R&D -- very knowledgeable people, who were consumed with the development of Amdocs 6 -- to some of the our new projects and new initiatives. So it is moving from the R&D line to the cost of revenue line. And we do it across the board. We have R&D centers in Israel and in Cyprus and India and San Jose (ph) and we do it across the board.

Mr. Roderick, any further questions sir?

Yes. If I could be permitted one last question here. Just a question here on Cingular. It seems like the migration activity away from AT&T Wireless or one of your competitors who has been doing the billing has been going perhaps a bit faster than expected. Can you give us the scope of -- the current scope of your activities with Cingular now and how that looks going forward?

As we said in the past, we have a major role in the conversion of the AT&T Wireless subscribers to the Cingular system, and actually moving forward all the systems of Cingular. So we're very pleased with the progress. We're very pleased with our cooperation with Cingular. And we hope to see more activity and more growth moving forward.

Very good. Thanks very much.

Daniel Meron, RBC Capital Markets.

Thank you gentlemen. Congrats on the swift execution there. A couple of questions from me. First one, can you elaborate more on your activity within the OSS space and what kind of progress you've seen since you launched these integrated partnerships with some vendors in the space?

As we mentioned for quite some time, we see the expansion of OSS activity, specifically the service (indiscernible) which is the area that covers the functionality from capturing the order all the way to provisioning the order, as a natural expansion of our ICM activity and ICM vision.

We have activities in several areas, both in North America and in the rest of the world. And we did not specify specific names, but North America is with one of the RBOCs both on product and services. In the rest of the world we're talking about both wireless and wireline companies. So we see steady growth of this activity. And we hope to see more expansion as we expand our offering, both of the product and the services level.

Would that include some M&A down the road, or will you first look to integrate DST Innovis?

We think that -- we said several times that we're using M&A to support our strategy. And our strategy is to expand our business in OSS so we do not exclude anything of this regard. And in terms of pace and the digestion, it depends on what we need and what we can do and not necessarily with a predefined pace of activity. In other words, we can do things (indiscernible)

Last one from me. When you acquired Longshine you had some -- they were also servicing the utilities vertical in China. Are you going to port that activity or leverage that into other regions or leverage it within China?

It's a little bit too early to say for now. We're going to keep it as a separate subunit within Longshine to support the utility. They're very good at it and they are actually number one in China. We can use in later on, but for now we're not going to make any major changes yet.

Just to remind you, we announced the signing of the deal, but in opposed to DST Innovis we did not close it yet. We expect it to be in the next few weeks.

Thank you, and congrats again on the good execution.

That would conclude our question-and-answer session. I would like to turn the conference back to management for any additional or closing comments.

Thank you again and thanks to everyone for joining us on the call tonight. This concludes the call.