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Operator
Good day ladies and gentlemen, and welcome to the third quarter 2006 Harmonic earnings conference call.
My name is Angela, and I will be your coordinator for today.
At this time all participants are in a listen-only mode.
We will be conducting a question-and-answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS].
As a reminder, this conference is being recorded for replay purposes.
And now, I would like to turn the presentation over to your host for today's conference, Mr. Patrick Harshman, President and CEO.
Please proceed, sir.
- President and CEO
Thank you, and good afternoon.
I'm Patrick Harshman, President and CEO of Harmonic.
With me in our headquarters in Sunnyvale, California, are Robin Dickson, our Chief Financial Officer; and Michael Newman, our Investor Relations spokesman.
Thank you all for joining us.
Today, we announced our results for the third quarter of 2006.
We're pleased with our sales growth, improved operating efficiencies, and solid profitability.
Fueled by our new products, we continue to see strong bookings across our customer base, the strengthening demand from cable, and continued new business in the IPTV and satellite markets.
We've made significant progress in realigning our resources in recent periods and have continued to extend our technology leadership, introducing next generation MPEG-4 encoders, innovative video stream processing solutions, and new high performance edge and access solutions.
We also announced a definitive agreement to acquire Entone Technologies, whose video networking software solutions will significantly add to our video-on-demand capability.
At this point, I'll ask Robin to cover the financial aspects of the quarter, and I'll then review some of progress during the quarter.
Robin?
- CFO
Thank you, Patrick.
Good afternoon, everyone.
During this call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company.
Such statements are only predictions and actual events or results may differ materially.
We refer you to documents that the Company files with the SEC, including our most recent 10-K and 10-Q reports.
These reports identify important risk factors that could cause actual results to differ materially from those contained in projections or forward-looking statements.
Please note that on this call we will provide you with financial metrics determined on a non-GAAP or pro forma basis.
These items, together with the corresponding GAAP numbers and the reconciliation to GAAP, are contained in today's press release, which we have posted on our website and filed with the SEC on Form 8-K.
We will also discuss historical financial and other statistical information regarding our business and operations.
Some of this information is included in the press release, and the remainder will be available in a recorded version of this call on our website.
Today we announced results for the quarter ended September 29th, 2006.
For the third quarter, we reported net sales of 62.9 million, up from 53.3 million in the previous quarter and up from 61 million in the third quarter of 2005.
The 18% sequential sales growth reflected increased shipments of a broad range of new video delivery solutions to domestic cable customers and new international telco and satellite customers.
During the quarter, we saw some continuing effects of the supply chain constraints which we experienced in the second quarter.
While we have caught up significantly, many shipments were made later in the quarter than planned.
In some instances, this limited our ability to recognize revenue, and it also resulted in higher receivables than normal.
We expect to have the supply chain constraints resolved in the fourth quarter.
We saw our revenue grow both domestically and internationally in the third quarter.
And we continued to expand our worldwide customer base.
International sales represented 53% of net sales for the third quarter of 2006 compared to 49% for the previous quarter and 44% in the third quarter of 2005.
Europe continues to be the biggest contributor, but we also had a very good quarter in Latin America and Canada.
By market segment, cable revenue in the third quarter was 62%, satellite customers represented 9%, and telcos all others were 29%.
Our largest customers were Cox and Comcast, representing 13% and 10% of our total revenue, respectively.
We saw encouraging increases in orders and revenue from our U.S. cable customers as we move forward on a variety of projects.
In the domestic telco market, we continued to wind down our FTTP activity, but we had a number of new customer wins in the international IPTV market.
Our satellite revenue during Q3 was relatively light but marked by new wins internationally for both MPEG-4 and MPEG-2 systems.
We're very pleased with our improved operating performance.
In the third quarter, our non-GAAP gross margins were 48%, up from 42% in the previous quarter and from 35% in the third quarter of 2005.
The sequential improvement was due to an increase in the proportion of net sales from video processing and software and services, more favorable gross margins from new products, and in particular a gross margin benefit arising from our successful progress on a major project.
You may recall that in the first quarter we said that the terms of one of our European telco contracts forced us to recognize project costs ahead of revenue in the first quarter hurting our gross margins in the process.
We also said at the time that this effect should reverse itself in a subsequent quarter.
This benefit came in the third quarter, contributing about 2 percentage points to our gross margins.
Now, while the product mix in the third quarter was particularly favorable from a gross margin perspective, this is not just accidental.
We are executing on a strategy of moving our business to higher margin products in the video processing arena and in software and services.
One specific example is our ProStream line of products, including our Mosaic software, which made a meaningful impact in Q3.
Our new Electra encoder family is also contributing to our stronger margins.
However, with that said, you should not expect our non-GAAP gross margins to be sustained at the Q3 level.
The margin benefit on the telco project will not repeat, and we consequently expect gross margins to be in the mid 40s in Q4.
Turning to operating expenses, our non-GAAP expenses in the third quarter were up slightly on a sequential basis, but down by $0.8 million from a year ago.
I believe that we are on track to hold our second half expenses relatively flat with the first half, notwithstanding some compensation pressures we are seeing as a result of the fairly robust job market in Silicon Valley, especially in our industry sector.
Our head count at end of September was 581, down by 13 from the end of June.
We expect to see reductions in our occupancy costs in the fourth quarter as a result of the plan we announced in July to make more efficient use of the buildings at our Sunnyvale campus.
This was completed in September, allowing us to release approximately 55,000 square feet and resulted in a net $2.1 million restructuring charge for the excess facilities.
Our higher revenue and improved gross margins have driven a return to profitability.
GAAP net income for the third quarter of 2006 was $4 million or $0.05 per share compared to a GAAP net loss of 2.9 million or $0.04 per share for the same period of 2005.
Excluding the charge for excess facilities, stock-based compensation expense, and the amortization of intangibles, the non-GAAP net income for the third quarter of 2006 was 7.5 million or $0.10 per share compared to a non-GAAP loss of 2.6 million or $0.04 per share for the same period of 2005.
Our balance sheet remains very solid.
As of September 29th, we had cash, cash equivalents, and short-term investments totaling 110.7 million, down slightly from 113.5 million as of June 30th and 110.8 million as of the end of last year.
Our receivables were 52.4 million with DSOs at 75 days, up from 60 days in Q2, reflecting the heavy concentration of shipments towards the end of the quarter.
Net inventory was 35.6 million, up from 31 million at the end of June.
This reflected initial builds for major new products, including our Electra 54 and 7000 and our NSG 9000.
Our capital spending was $3.7 million year-to-date, and we now expect CapEx to be in the range of 5 to $6 million for the full year.
During the third quarter, we also announced a definitive agreement to acquire the video networking software business of Entone Technologies, a privately held company headquartered in San Mateo, California, with its research and development facilities in Hong Kong.
The agreed upon purchase price of $45 million is comprised of cash and stock in approximately 60/40 mix.
In addition, we will assume liabilities of up to 1.5 million and invest 2.5 million in the form of a convertible note in Entone's consumer premise equipment business, which will be spun out to Entone's shareholders prior to the closing of the acquisition.
The transaction is subject to customary closing conditions, and we now expect it to close in November.
With respect to the outlook for the fourth quarter, we anticipate net sales in the range of 67 to $72 million based on strong Q3 bookings and an improving supply chain.
While we expect our fourth quarter gross margins to be in the mid 40s, lower than in the third quarter, we should again deliver solid profitability on a non-GAAP basis, excluding stock-based compensation, amortization of intangibles, and potential one-time charges related to the Entone acquisition.
In summary, our improving operating performance coupled with our strong cash position gives us plenty of operational and strategic flexibility.
Patrick?
- President and CEO
Thanks, Robin.
As you can see, we're pleased with our performance in the third quarter and the fundamental strengthening of our business.
We continue to have strong momentum across different market segments and geographies, improve our operating efficiencies, and extend our technology leadership position on many fronts.
In the emerging IPTV market, we've continued to be very successful in developing a strong leadership position.
We recently announced that Deutsche Telecom is using our MPEG-4 AVC encoders in the largest European IPTV deployment to date based on the Microsoft IPTV platform.
We also announced that Jazztel in Spain is deploying our MPEG-4 AVC encoders, and we announced new IPTV business with Telecom Austria.
And most recently we have announced that SES Americom is using our new stream processing products as part of their IP-PRIME IPTV distribution service here in the U.S.
With our strengthening leadership position in IPTV, our intimate and successful experience with the Microsoft platform, and our continuing fundamental innovations in MPEG-4 encoding, stream processing, and delivering video over an IP infrastructure, we expect to continue to win new telco business worldwide.
Turning now to the cable market, we saw a significant increase in demand as cable operators moved forward on new deployments of video-on-demand, high definition programming, and bandwidth enhancements to their HFC networks.
In VOD, we saw strong demand for our NSG edge solution and our new ProStream video processing solution that is being adopted for conditioning broadcast content for subsequent delivery of VOD, delay TV, and switched broadcast services.
Last quarter I spoke about our new MV 500 high-definition encoder and our new ProStream 8000 digital video mosaic solution.
And we're pleased with the market acceptance and new orders received for these products in Q3.
All of these new on-demand and high-definition services consume bandwidth, driving healthy Q3 demand for our HFC optical access products.
With our latest 1 gigahertz product offering and our continued market leadership in wavelength division multiplexing access and scalable [node] technology, we're well-positioned to benefit from continuing HFC network segmentation and bandwidth expansion projects.
In the satellite direct to home market, we continued to win new business with operators around the world with our new encoders and leadership position in IP networking enabling decisive competitive differentiation.
During the quarter, we announced that Telenor, the leading satellite operator in the Nordic region, is upgrading its network with our new Electra 5000 encoders, DiviTrackIP multiplexors, and ProStream software.
Boom TV in Romania is also deploying our encoders, DiviTrackIP, and NMX Digital Service Manager.
And more over, our new Electra 7000 MPEG-4 high definition encoders are currently being evaluated by a number of major satellite operators, and we expect important decisions in the coming months.
Across these different customer segments, a key theme is the extension of our technology leadership in both existing and new product areas.
And the corresponding expansion and diversification of our business.
Our customers continue to be very excited about our new MPEG-4 AVC high definition and standard definition encoder products, and the innovations we're driving around flexible and efficient IP networking and video services.
Beyond encoding, we've also been driving new innovations in the processing of already digitized video streams.
During the quarter, we made several new product announcements in this important growth area.
Our new ProStream 2000 is a flexible platform for seamless realtime splicing of standard and high-definition MPEG-4 video streams, an IP-based advertising insertion solution for IPTV, satellite, and cable operators.
We also enhanced our versatile ProStream 1000 stream processing platform with ProCipher scrambling technology, the new technology behind our recent announcement with SES Americom.
We also integrated our DiviTrackMX statistical multiplexing capabilities with the ProStream 1000 to increase channel capacity while preserving outstanding video quality.
In addition to strong customer validation, we're also pleased with the industry recognition of these new video stream processing solutions.
Our ProStream 8000 digital mosaic solution won Cable and Satellite International's Product of the Year for best interactive TV technology and the International Engineering Consortium recognized the ProStream 1000 with Mentor reencoding technology as the best new product in its class.
Another key theme driving our business is the growth opportunity presented by the delivery of new on-demand video services.
In addition to our innovative new products to take advantage of this opportunity, we're excited about our agreement to acquire the video networking software business of Entone.
By bringing together Harmonic's market-leading encoding, VOD stream processing, and VOD edge products, together with Entone's innovative software for managing and streaming personalized video content, we'll create a powerful and integrated solution for the emerging on-demand network.
So in summary, we're very encouraged by the fundamental strength of our business, the impact of our new products, the continued growth and diversification of our customer base worldwide, our improved operational efficiencies, and the strong market momentum going into the fourth quarter.
Going forward, we will continue our focus on profitable growth, while offering the most advanced and compelling solutions that enable our customers to provide more on-demand video services, more high-definition programming, and more multi-platform multi-service delivery of video.
This concludes the formal part of our presentation.
Now Robin and I will be pleased to entertain any questions you may have.
Operator
[OPERATOR INSTRUCTIONS].
Marcus Kupferschmidt, Lehman Brothers.
- Analyst
Hey, good afternoon, everyone.
- President and CEO
Hi, Marcus.
- Analyst
I was curious, your gross margin was outstanding.
Sounds like you had some sales continuing to Verizon which are not a great margin sale.
Can you give us a sense of if you weren't -- if you wouldn't have recognized any revenues to Verizon for the quarter, how much better do you think the gross margin could have been?
- CFO
We had some continuing sales of the FTTP product, at fairly modest levels.
It might have added -- oh, maybe up to half a percentage point, but not anymore than that.
So maybe 48 to 48.5, somewhere in that range.
It's pretty small now and we do have some continuing backlog we'll ship in Q4.
But it would not have had a very significant effect.
- Analyst
Okay.
And in terms of thinking forward.
If we normalize for the 2 percentage point help you got here for recognizing revenues on this project we already took the cost, your guiding gross margins to be, I guess -- sequentially flat to down 3 percentage points, yet it sounds like you guys see the opportunity for the new products getting better and better.
So I'm curious, why wouldn't the gross margin want to increase if your product mix is getting better?
- CFO
Well, I think, Marcus, overall -- I mean, I agree with you as I tried to say in the prepared commentary.
I think we are strategically moving our product mix in the right direction.
Nevertheless, in any given quarter they're always the inevitable quarterly fluctuations of mix, and while we've certainly seen some strength in the video processing area, I think it's also important to point out that we're -- our optics and access business is actually doing quite well.
I think Patrick hinted at that in his remarks, and so there's -- there's always a possibility that there's a percent or even more that's just the random -- the random movements that you'll see in any given quarter.
That's really why we wanted to provide a slightly wider range on the downside just in case that we saw some of those effects.
- Analyst
And if I could just ask one last one on the top line before I turn it over to someone else.
If I think about the new guidance for 4Q and I sum up the second half, if I'm right, you're guiding the second half revenues to around 130 to 135 before -- after the 2Q call we talked about roughly 130 to 140.
I'm wondering -- assuming this is right -- my math, are you guys expecting less shipments or orders from your customers than you thought before?
Or is this more a timing thing?
- CFO
I think it's mostly a timing thing.
We -- your math is right, by the way.
That is -- that is accurate.
I think it's a timing thing.
One of the things we've seen and we've commented on this in previous quarters and I think we saw some of it again in the third quarter is that in particular, some of the telco projects that we were involved with are taking longer than everyone expected -- everyone involved, the customer, the suppliers, and the alike.
So I think we've just -- again, maybe being hopefully a little cautious, but expecting that we will continue to see that as in some of the new business that we've recently won as those customers implement projects, we are perhaps reeling in a little bit our expectations on the timing of when we'll be able to complete the work and recognize revenue.
So it's not really anything to do with the fundamental order rate or the strength of the business, it's really more timing on the execution particularly in the telco area.
- Analyst
Super.
Thanks.
Operator
[Glenn Anderson], [Tabs World Markets].
- Analyst
Hi, thanks.
Good quarter, guys.
Congratulations.
Quick question on the Entone acquisition.
When do you expect that acquisition to be accretive to results?
And in terms of the integration activity going forward, what do you expect to be the hurdles to make sure that you gain value out of that acquisition?
Thanks.
- President and CEO
When we initially announced the deal, we anticipated that we'd be accretive Q1, now it's taking us a little bit longer than we initially anticipated to close the deal, but we're still -- we still believe that it can be and will be accretive in Q1.
While we haven't closed the deal, we've certainly had ample time to get our minds further around the technology and solutions and have exploratory discussions with our customers.
And this is technology, quite frankly, that we understood quite well going into this.
And a big of the theory was leveraging existing relationships, our strong position in VOD deployments and IPTV deployments that were already well-positioned.
And that basic theory is still in place.
So we expect to be able to hit the ground running pretty quickly.
And one of the things we like about this business, is the cost basis relatively low.
So we think -- we think the financial leverage comes quite quickly.
- Analyst
Okay.
One -- one follow-up question if I could.
Your sales on the satellite side, when do you expect some of those deals that you're working on right now on HD side to materialize?
Are we -- or should we be thinking about the fourth quarter or early into '07?
- President and CEO
For the biggest deals that we're pursuing, we expect decisions, and most likely the beginning product shipments to take place in this quarter, Q4, however we don't expect any revenue to take place until the systems are deployed and up and running.
So it's -- the revenue would be more of a Q1, Q2 kind of thing.
- Analyst
Great.
Thanks, guys.
Operator
Nikos Theodosopoulos, UBS.
- Analyst
Yes, thank you.
Just a couple of quick ones.
Back on the gross margin question, if you just look at the puts and takes in the quarter, the 2% positive, the 0.5% negative on FTTP, that would suggest a 46.5% kind of run rate on the gross margin.
And the guidance for next quarter 43 to 46 on a higher revenue.
I mean, that implies a significant change in the mix.
What do you think is -- what are your -- what are you basing that on?
Are you expecting a much stronger optical contribution in the fourth quarter?
I'm just trying to understand what's going to cause such a big sequential decline?
- CFO
Well, first of all, Nikos, we will -- as I think I said, we have some continuing FTTP business to deliver in the fourth quarter, and so the half point or so that I mentioned, you probably can't take that out at this point because we've got continuing commitments there.
I do think -- I mean, one of the things that -- it's not totally clear yet, but one of the things that often happens towards the end of the year is that there is a certain amount of budget flush that can happen, and I think it's much more probable that that will be around the products in our edge and access segment first of all.
And secondly that our ability to ship and recognize revenue in that space is generally simpler than it is around some of the more complex headend projects.
So I guess I -- we are allowing for the possibility that the mix will be a little richer in the typically lower margin edge and access products.
We -- and frankly, at this point it's just too hard to tell on the -- on what the budget flush is, if there is one is going to look like.
- Analyst
Okay.
Do you have the revenue break down per the three reporting segments?
- CFO
Yes.
I can -- yes.
I can give you that.
I mean, we've typically been putting that in our 10-Q, but I can -- I'm happy to give you the -- to give you the break down.
In dollars, the video processing area was 26.1 million. edge and access 25.1, and everything else, which is basically software and service and support is the difference, and then I don't actually have that number, but it is the difference, which is 10-point -- or 11-point -- 11.5 or 6.
We'll have the definite numbers again in the Q, but those are the numbers we expect to report.
- Analyst
Okay.
I may have missed it, did you give an operating expense level guidance or commentary on the fourth quarter?
- CFO
Not a specific number.
I think the -- but the implications of what I said was we may see expenses up slightly in the fourth quarter, but not significantly.
We've got -- with the highest -- we've projected the highest revenues of the quarter, we'll probably have a little bit higher variable compensation.
Offsetting that, we have lower occupancy costs as a result of the building moves that we made in the third quarter.
So all in all, I'm not looking for a great deal of movement in absolute dollars on the -- on the operating expenses.
- Analyst
Okay.
All right.
Thanks a lot.
- CFO
Thanks, Nikos.
Operator
Tim Savageaux, Merriman Curhan Ford.
- Analyst
Hi.
Good afternoon and congratulations on a nice quarter.
I'm hopping on late.
I don't know if you mentioned 10% customers, but I thought I'd just ask that quick and roll on to an actual question.
- CFO
Yes, we did mention that.
It was Cox was 13%, and Comcast was 10%.
- Analyst
Thanks.
Sorry about that.
More broadly, you guys have traveled sort of a lengthy round trip from the -- from Q1 '05 to Q4 '06.
Looks like they'll both be around $70 million.
And so as things begin to kind of straighten out a little bit for you here, I wonder if we can sort of talk about -- or you can give your opinion on overall growth rates for the business or what your expectations are or what ours should be with regard to -- as all of these stars align for you how fast this business should grow.
Because it's really sort of hard to come to any normalized conclusions given the degree of volatility you've seen over the last 8 quarters or so.
So as we look out to '07, and you're obviously growing double digits sequentially here over these next few quarters -- this one just reported and the one upcoming most likely -- which is off a pretty low base.
So I wonder if you could kind of re-address if you will overall thoughts about growth potential for the business and then maybe similar type thoughts about business models.
Obviously the gross margin's been bumping around here too, but you do seem to be stabilizing in the mid 40s.
We'll assume maybe there's upside to that as you get a little bit larger.
But if you could talk about at a high level growth rates and business model expectations that you guys might have for the business, maybe a little longer term.
- President and CEO
Well, there's a couple different ways to come at that.
You mentioned going back to 2005.
And I think maybe that's an interesting -- valuable place to start.
I think you may recall that we started a little bit of a restructuring and refocusing of our business right about a year ago in the fourth quarter of 2005.
And we decided at that time to really focus our business a little more tightly on video delivery and emerging and ongoing video delivery opportunities.
So I would say that one thing to think about and -- is that I think we've got a more focussed company.
And as we think about the growth drivers in the market, they're more tightly focussed around what's happening in the video delivery space.
And we, like you, I think probably read the various research analysis that's out there and typical research says the achieved number of digital subscribers, the growth of HD households, the growth of on demand transactions and households all grow at somewhere between a 10 and 25% rate over the next couple of years.
And we certainly tend to believe that.
And this is the kind of space that we're really focusing, I think, more tightly than before.
These are the kind of opportunities we're focussed our business upon.
The reality is is that the real market doesn't proceed in the way that these nice bar charts or the industry analysts predict, and it's really driven by the capital expenditure profiles and decisions that our large customers make.
So as we think about 2007, let us say, from a -- just a fundamental point of view, we think that this application services penetration of digital video grows at a fairly healthy clip.
North of 15% to really south of 25% as I said.
And we think we're very well-positioned to take advantage of all those -- those growth drivers, increasingly well-positioned, as a matter of fact.
On the other hand, we don't yet have insight into the real detailed capital budgets of our customers in 2007.
And it's certainly one of the things we'll be trying to get our arms around over the next quarter or so.
But from a macro point of view, Tim, we like this market very much, and we like the way we've really refocused our business, and the way we've really reasserted our leadership in these key areas that I think most industry watchers say will be growing at a fairly good rate over the next 24 months.
- Analyst
I appreciate that.
And if I could follow up a little bit on a couple of things you said there.
I mean, one thing that also seems to have change is your degree of visibility.
So we've gone from kind of no guidance at all to second half guidance to fourth quarter guidance and talking about growth rates and that does suggest a change and really in improvement over time.
I guess my question is, as you look at your business, where does that visibility, if indeed that's the case, where does that come from?
From a bookings and backlog standpoint, are you getting to a point where as you address a specific quarter you have a fair bit of backlog visibility into that quarter?
Are there any kind of book to bill sort of metrics that you're comfortable sharing with us that might sort of back up your view towards sort of continued double digit sequential growth and realizing -- as you said you can't really see into '07 with the carriers in the midst of their budget cycles.
If you could address the overall issue of visibility and how you're able to track your growth potential?
- CFO
Well, Tim, first of all, just on the business of guidance itself.
We have effectively given you fourth quarter guidance.
And to be quite honest, that's not something we're terribly excited about doing.
We have tried to move away to looking at somewhat longer periods of time, particularly 6 month chunks.
I think realistically, though, we're just at the time of the year when we have certainly decent visibility into Q4, but as Patrick said, we really just don't have a good handle yet on what all of our customers are planning to do in detail next year and where we can -- where we can be successful with them.
So we'd love to have given you first quarter guidance, we just don't feel comfortable doing it at this point.
I think our business has changed.
I think as we've moved towards, as Patrick said, towards this tighter focus on video delivery, we are selling more and more solutions.
And I think around those solutions, particularly in the IPTV and perhaps the satellite space as well, we do tend to get better visibility.
Our backlog and our deferred revenue numbers are higher than they've been for quite some time.
Nevertheless, there is still quite a bit of difficulty in forecasting the timing of -- particularly when revenue will be recognizable because it does depend on -- depending on the particular terms of the deal, it can depend on the variety of factors.
So slotting revenue into particular quarters is still quite a challenge.
But I think overall, at least, we do at least have a feel that we've got a better insight into the -- the pipeline of activity over the next -- the next few months.
- Analyst
Okay.
Well, thanks, guys, and congratulations on some fine results.
- President and CEO
Thanks, Tim.
Operator
Paul McWilliams, Indie Research.
- Analyst
Hi, guys.
Good quarter.
Thank you.
When do you think the U.S. satellite companies will initiate their next major round of purchases for headends?
- President and CEO
We believe that will be this quarter.
- Analyst
Okay.
Booking-wise?
- President and CEO
Yes.
- Analyst
Okay.
When do you see deployment on that?
- President and CEO
In the first half of the year.
Starting in the first quarter.
Maybe as early as the end of this quarter.
I mean, I -- I'm giving you my personal opinion rather than anything they've communicated to us.
But our sense is that there will be a decision later this quarter and depending on exactly what it is, that they could start taking product as soon as the end of the quarter.
- Analyst
And that would be both of them in activity at this time?
- President and CEO
I'm giving you a general perception.
I'm not -- I guess --
- Analyst
I don't mean to pin you down, I'm sorry.
How many Microsoft IPTV systems are actually live today?
Do you know?
- President and CEO
I forgot -- I don't know the absolute number.
Certainly, the two most prominent that we're a part of that we've announced is Deutsche Telecom, that we talked about.
We made a press release about it a month or six weeks ago, and they themselves had a press release within the last two weeks talking about that.
And then, of course, I think in June or maybe July we announced T-Online in France, both of which are Microsoft TV deployments that are active.
I think those are the two most high profile ones that we're involved with that are live.
- Analyst
Do you know of any others that are live?
- President and CEO
Not off the top of my head.
But my guys are probably going to kick me when I get out of here.
I'm sure there are, and I -- forgive me for not being sure.
- Analyst
Okay.
Well, I just hadn't heard of any of them actually up live and working other than those.
Will Entone strengthen your position in the small to medium size telcos?
- President and CEO
We think it will.
One of the things we liked about them above and beyond the technology and the R&D center in Hong Kong is the fact that they're quite strong in -- I mean, their business was really focussed on the telco market in general.
And well, they add some good traction with top tier players outside of the United States.
Within the United States, they were quite strong in the tier two and tier three market.
It's not a market we historically played in.
And so the intimacy a deployed product within that product space is another strategic benefit to the deal from our perspective.
- Analyst
Oh, it looked to me as though they had a very robust supply chain there.
Just a couple more quick ones here real fast.
When you announce a contract like the T-Online that you announced in July, at what's -- do you have a policy as to what stage that contract is at before you make an announcement?
In other words, is it up and running?
Is it taken financial?
Or will it be financial in two months, or do you get the gist of what I'm trying to get at here?
- CFO
Yes, I do, Paul.
It does vary, but I would say in the IPTV deployments in particular, we've seen generally a reluctance by customers to get too far ahead of themselves and in saying that, I mean by them letting their vendors get too far ahead of themselves in making announcements prior to launch.
So I think in most cases, and maybe Deutsche Telecom was an exception, but in most cases, the customer has launched service, at least partially in his geography.
Now that doesn't necessarily mean that we have recognized all of the revenue on that project.
And frankly those are at various stages depending on the specific terms of the contract.
But the IPTV stuff does tend to be a little later than we would like, certainly.
Again, simply because the customers like to be pretty close to their commercial launch before they get -- they allow their vendors to make a lot of noise, certainly smaller vendors like ourselves.
- Analyst
Okay.
I've got one more that I'd like to ask in the public forum -- just for full disclosure requirements, but then I do have some housekeeping stuff.
Would that be better if we get together after the call, Robin?
- CFO
Certainly I can deal with housekeeping later on, yes.
- Analyst
Okay.
Excellent.
The one that I need to ask now, though, gets back to that operating model the gentleman was talking about earlier.
And you talked a little bit about growth candidly as to what you see out there in the global market.
But if we're looking at, say, an average quarterly revenue of 70 to $75 million, at some point in time in the future, and I'm not saying when that will be, what sort of average GPM target would you have average OpEx and average, then, operating profit target model in that revenue range?
- CFO
Well, I think if you -- if you take out the, maybe, the particular benefit we got in this quarter, I think I can claim that we are now in -- comfortably in the mid 40s and obviously we hope to repeat that next quarter and thereafter.
And again, I think from a strategic perspective we are -- we are trying to push that number higher.
I mean the Entone acquisition, for example -- one of the reasons to do that was that it is a software -- it's a software company with the types of margins that typically go with that kind of software.
So what we're doing there and much of what we're doing internally in development is aimed at pushing, if possible, pushing margins higher, but certainly maintaining them where they are.
So I would like to see us in a ideally -- and I'm talking now future, and this is certainly not guidance.
But I would like to see us in a 45 to 50% range.
I think, frankly, the bigger challenge for us is our operating expenses are still running higher than any of us would like.
Even in this quarter we're still in the high 30s, and I think maybe that's a little bit of a tougher challenge for us as we support this type of business and maybe it's then almost inevitable that as we move towards this higher margin model, that we'll drag higher R&D and support expenses with it.
I -- to wrap all of that up, I'd say whatever the particular mix of gross margins and operating expenses are, I would like to see us move beyond the 10% where we are in this particular quarter and be much more into the mid teens.
We have been there in the past, and I do believe it's possible to do it again.
Again, that's not guidance, that's not Q4, it's not Q1, it's -- but I think strategically that's where we'd like to drive things.
- Analyst
Excellent.
I appreciate your candor, and I know that that's looking a long ways ahead and to some point in time we can't even specify.
So do you have my phone number on record, Robin, to where you could call me and Q later?
- CFO
Yes, sure.
Yes, I will, Paul.
- Analyst
Okay.
Thank you, and thank you very much for your hard work in the quarter, too.
- CFO
Thank you.
Operator
[OPERATOR INSTRUCTIONS] Daniel Ernst, Hudson Square Research.
- Analyst
Yes, good evening.
Thanks for taking the call.
A couple if I might.
First, can you talk a little bit about what the uptake of the Electra 7000 has been now that that's out and is that what's geared for the domestic satellite, should that opportunity arise?
And then secondly, taking the opportunity question a little bit different -- maybe focus on IPTV where there's been a lot of buzz, you've had a lot of design wins.
Assuming -- take a Deutsche Telecom or a T-Online, assuming that you were continue to win the same business as those networks progress, where -- where are you in the opportunity?
I mean, in other words, is the architecture such that the encoding and processing happens in one essential headend and they can replicate that across the IP network?
Or does it scale market by market as they're moving from one or two cities to 10, 20, 50 cities?
Does your -- does the opportunity in this IPTV networks scale as they launch it nationwide?
Thanks.
- President and CEO
Okay.
So I think the first one was about the Electra 7000, and we've basically executed according to our schedule.
You asked specifically, I think, about the domestic satellite operators.
As we've said before, the single biggest opportunity we see for high definition MPEG-4 encoding is indeed with the domestic satellite operators.
And as I mentioned earlier, we continue to anticipate some significant second wave buying decisions to be made sometime this quarter.
And we continue to feel quite well-positioned with this new 7000 product.
- Analyst
So is it -- to date you haven't secured any wins for the product?
- President and CEO
We have secured wins.
Relatively small volume compared to the larger deals that we're pursuing.
In fact, I think when we announced the product back in July, we at that time announced that we had already 5 orders on the books.
So we've continued to take orders and work with customers, but in all candor, it's been smaller volume stuff.
And as -- we continue to say that the real big opportunities are with the world's largest direct to home satellite operators.
And so far, we have yet to secure any of those big projects.
And in fact, there have been no significant decisions taken since the announcement of our product.
We feel very well-positioned for those opportunities, and, of course, we're continuing to pursue small opportunities with the product.
But the real revenue driver is with these big opportunities around this high definition MPEG-4 encoding.
- Analyst
Okay.
- President and CEO
Regarding IPTV, it's a little bit of a challenging question.
I mean, this is still very much a new and emerging market.
And we're still trying to get our arms around how fast it'll grow and exactly how it'll grow.
We see projections, we're now at a -- by most industry analysts, think they're somewhere south of 5 million worldwide -- a couple to 5 million worldwide IPTV subscribers out there.
And most analysts see that growing to over the next 3 or 4 years to something in the order of 30 to 40 to 50 million.
I think I saw something as high as 100 million out there.
So there's a kind of a wide range of speculation to how quickly that will grow.
For us in particular, we see the growth opportunity being associated with, number one, new operators getting into the game with the initial headends.
Of the headends that we've done, it's been relatively modest video offering, so we also see good opportunities for expansions of the headends where we are.
There's actually very little high definition encoding.
For example, it's almost exclusively standard definition encoding in these international IPTV deployments, so we see more standard definition channels.
The addition of high definition channels.
There's very little in terms of the video-on-demand.
We certainly see the video-on-demand being a -- an additional growth driver.
And then it's the expansion to new cities.
Very often, one of the -- an IPTV deployment takes place, it's really targeting an initial city.
So we see geographical expansion as well as these opportunities.
So we see good growth opportunities along those three different vectors that I've mentioned.
How exactly and how fast it will play out is something we're still -- we're still trying to get our arms around.
- Analyst
Great.
And so just to understand the last point, the new cities, does it truly scale by city or metro area or can the technology support a wider distribution -- super regional headends?
I'm just trying to get a sense of --
- President and CEO
In all honesty, it depends a little bit on the architecture.
And also, it translates in different opportunities for different classes of product for us.
In fact, this press release that we had two days ago with SES Americom, the idea there is there's one central encoding facility, it's beamed up to the satellite, but then the central broadcast signal encoded and encrypted is beamed down to, hopefully, hundreds of small to middle sized IPTV service providers.
At those locations, actually in that opportunity, the bigger opportunity is what happens with the turn around in each of those discrete IPTV reception sites.
So that's more of a stream processing opportunity, local channel encoding, local ad insertion that happens there, et cetera.
- Analyst
The last kind of drill down on that.
So with T-Online and Deutsche Telecom, how many cities have you been deployed in to date?
- President and CEO
We've not said that publicly and I don't think -- I'm not sure that they've said publicly how many that they've installed.
I guess maybe in more general -- at a slightly higher level, it's been good business for us so far, and if we understand the plans there correctly, there's good growth opportunity both geographic as well as service expansion.
- Analyst
Great.
Thanks for the answers.
Operator
Jason Ader, Thomas Weisel Partners.
- Analyst
Yes, hi.
Patrick, Robin, can you hear me?
- President and CEO
Yes.
- Analyst
This is actually Jason Kim on behalf of Jason Ader.
I just have a -- sort of a top down question for fiscal year '07.
If we look out at sort of the three verticals that you guys have, how would you sort of rank the opportunities there from a growth rate standpoint?
- President and CEO
From a growth rate standpoint, certainly the satellite opportunity is the biggest just because -- I mean, this has historically been for us a market that has waxed and waned as we mentioned in our press release and commentary in 2006, although we've had a number of international strategic wins.
We've expanded our footprint.
The revenue has been relatively small.
We see significant -- as we've discussed here on the call, we see significant new investment opportunities, particularly in HD.
So from just a pure growth rate percentage point of view, we see the biggest -- that satellite direct to home being the single biggest growth opportunity.
It's difficult between cable and IPTV.
Perhaps IPTV is somewhere in between.
We still feel like we're kind of a little bit tiger by the tail, or the beginning of this thing, exactly how fast and how big it grows we're not sure.
But it certainly seems to have a lot of momentum.
Cable on the other hand, it's certainly more mature and our biggest segment, 62% of our revenue this quarter.
But at the same time, we look out there and we just like the wide range of opportunities we see in cable.
I mean, we really believe that there's significant ongoing investment in 2007 and expansion of high -- excuse me, of high definition.
A roll out of traditional VOD infrastructure and a variance of the on-demand delayed -- start over TV kind of things, switch digital broadcast.
And then on top of all of that as I mentioned in my commentary, all of these things actually are consuming band width, and in an environment where not only do we -- do the cable operators need to accommodate these new video services, but the competition, particularly around bandwidth for high-speed data, is intensifying.
There's a lot of pressure on the bandwidth in those systems, so we also like the prospects for our edge and access business in cable.
But I'd say in cable actually maybe the -- that presents the broadest base and the most diverse array of growth drivers for us.
So we frankly like the fundamentals across all of them.
And it's a little bit apples and oranges to compare them, and we're -- one of the things that I think we find fortunate is the fact that we're looking at all three.
Historically for us it's been almost exclusively cable and satellite, and we know the CapEx have been up and down.
And the addition into the mix of IPTV is certainly something that we really like.
Not only the growth, but the diversification from a revenue perspective.
- Analyst
Okay.
That was pretty helpful.
And just my second question, this could be -- probably really quickly.
The MPEG-4 HD encoders, has that started to -- has that gone live yet anywhere with sort of the initial orders as that starts to ship?
- President and CEO
It's with -- the first units have shipped, we've not recognized any revenue yet.
But as I mentioned previously from a revenue point of view, the orders are relatively small to date and the biggest opportunities we're tracking -- I mean, absolutely the units have shipped there, we have a considerable amount of product sitting in labs, being tested and evaluated right now.
And we are -- we are looking forward to a decision-making process around those installations.
- Analyst
Okay.
Well, great.
Hey, thanks a lot, guys.
I appreciate it.
- President and CEO
Thank you.
Operator
Larry Solomon, Capital Guardian.
- Analyst
Thank you.
Two questions.
One, you mentioned the supply constraints in the third quarter.
And sometimes when you have supply constraints, you pay a gross margin penalty either because you're expediting things or paying more for particular components.
Was there anything like that in the quarter that may have actually depressed the gross margin even though it was terrific?
Is there anything like that that might go away in the fourth?
- CFO
No, Larry, I don't think there were any really significant effects of those kinds of penalties -- cost penalties.
I'm certainly not aware of any.
And I wouldn't think -- I don't think that has any -- any effect.
- Analyst
Okay.
And then secondly, Patrick talked about the growth for the industry.
You mentioned 10 to 25%, and then you talked about the growth in the industry in 2007 and said something like 15 to 25%.
And I'm just looking at -- your guidance for the fourth quarter is around 70 million.
And if you were to do that and then sustain it as a run rate in '07, that would be about 15% growth.
And I know the first quarter's normally down.
But are you thinking that we should assume growth for Harmonic in the 15 to 25% range next year with the difference between the low end and the high end being these satellite contracts?
And maybe incorporate in the answer the idea that if the satellite contracts -- one or both are, in fact, won, you talked about revenue recognition in the first and second quarter.
And would that imply that you could overcome the normal seasonal decline in the first quarter?
- President and CEO
Well, I -- let's see, I think it is premature for -- I mean, we wouldn't -- I think the valid question and questions we're asking ourselves -- it's just premature for us because we don't have sufficient insight into to -- into what our customers are really planning and thinking outside the satellite -- the specific satellite opportunities I've talked about.
To really give any more specific answer or outlook for 2007.
We like -- we've enjoyed strong bookings over the past two quarters.
As we look at Q4, we certainly -- we feel as though this is a level of business that can be sustain throughout 2007 to the best of our knowledge.
With incomplete knowledge.
And absolutely, yes, the satellite business will -- is a kind of a swinger that will add to the upside and, in fact, yes could positively impact as early as Q1.
And on the other hand, in the absence of that business, probably pulls us to the lower end of the range.
Whatever that range may be that we're looking at for 2007.
- Analyst
So the 15 to 25% range feels like one that is likely to be achieved by Harmonic, not just the industry?
- President and CEO
From -- from 30,000 feet at this juncture, it's certainly what we would be striving for.
But as I said, it's -- we don't have our 2007 plan formulated, we don't have sufficient information from our customers.
And certainly our hope is that in future communications like this we can give you more definitive guidance as we get a better feel for it.
- Analyst
Fair enough.
Thank you very much.
Operator
[OPERATOR INSTRUCTIONS] Brian Horey, Aurelian.
- Analyst
Thank you.
I had two questions.
Can you make any estimate as to what kind of market share change there's been since you introduced your MPEG-4 encoder product?
- President and CEO
I can't give you a quantitative number.
We -- by our own acknowledgement, we were late on the HD front and we still -- there's just significant [divima] business -- we don't think much business has been awarded in MPEG-4 HD since the announcement of our product.
Mostly what we've been doing, although we've closed some smaller deals, it's mostly around positioning ourselves for the bigger opportunity.
We've been, I think a player -- a strong player from the beginning on the standard definition MPEG-4 front, and not only by our own estimates, but by independent research we've seen out there, we think we've got a clear leadership position among deployments with tier one telcos around the world.
So we think we came out of the gates with good market share, and we think we've continue to hold very strong market share in MPEG-4 standard definition encoding, particular in telco TV.
How much that market share has shifted over the course of the year, I -- I just don't have a good number.
- Analyst
Okay.
Second question, you talked a bit about the market opportunity that you see in maybe what we'll call traditional digital video, which sounds like it's robust.
On the other hand, there's -- there's a new digital video phenomenon that's going on over the top of the network, so to speak, with companies like YouTube and others that are getting some pretty interesting traction in terms of activity.
Have you all figured out whether and what kind of opportunity there is for you to participate in that in the growth of digital video in that format?
- President and CEO
Our strategic focus so far has been on the traditional -- well, to the extent the telco guys are traditional -- the traditional service providers.
We -- and so it has not been an area of strategic focus for us to go after the so-called over the top opportunity.
We believe worst case, that the competitive pressure from the over the top stuff is going to drive the service providers to roll out innovative video services even more aggressively.
And let's say best case, most of the top companies in this area view themselves not just as deliverers of bandwidth and capacity, but also have a very strong business in terms of aggregation of content.
Look at the leading players out there, Comcast, Time Warner, DirecTV and their association with News Corporation, just to name a couple.
We think these are companies that have very strong connections to the traditional content business, and we think that they will continue to prevail no matter what the delivery model is.
So as we've strived to more tightly focus our business on digital video delivery, another part of that focus has really been to focus in on those operators where we see good investments and a clear investment path over the next couple of years.
- Analyst
Okay.
- President and CEO
Okay.
We perhaps -- Angela?
- CFO
Operator?
Operator
Brian Coyne, Friedman Billings Ramsey.
- Analyst
Hey, guys, I apologize if I'm covering old ground here.
So just -- we'll go on if this is already the case.
But if you could, I think just drill down a little bit more on the top line 3Q and 4Q and I remember from, again, last quarter, you talked pretty specifically around let's say $6 million of push outs into the second half as a result of some of the -- little bit of the component delays.
And given that there were a little bit more going on, I was wondering if you could just sort of try to break that down for us in terms of is that more or less than the 6 million that you already saw?
It seems like you took care of a little bit toward the end of the quarter, I think as you said earlier on, but, again, I apologize if this has already been covered.
But if you could just help me understand where that's going.
- CFO
Yes, I think, Brian, we've taken care of most of it.
As we said, there is some continuing impact.
And even though we -- in some cases we took care of it from a shipment perspective, that didn't always result in our ability to recognize revenue because of particular contract terms or acceptances or whatever.
And we'll see -- as I say, we'll see some continuation of that into Q4.
But we do expect this to get pretty much -- pretty much behind us.
The one element that I did refer to and I don't know if you were on the line at the time, but was -- and just thinking about the second half as a whole where we are today verses the beginning of the second half, the other phenomenon that's going on is the fact that many of the IPTV contracts are just taking longer to complete.
And when I say contracts, I mean our contracts and also the contracts of the other vendors who are involved.
Telco TV is new and therefore putting it all together just is a little bit more complicated for everyone than perhaps you might see with our traditional cable and satellite customers.
So I think one thing we have realized is that many of these projects take longer than we originally thought and our customers originally thought, and as a result of that, I think we're going to see some revenue pushed out the other end.
But that's a separate problem, mostly from the supply constraints that we -- that were the predominant issue at the end of the second quarter.
And those have, to a large extent, been taken care of.
- Analyst
Understood.
So again, at least in terms of dollar value, did you say anything specifically on that?
Thanks.
- CFO
No, we didn't try to put dollars on it.
- Analyst
Got it, understood.
All right.
Great.
Thank you.
Operator
[OPERATOR INSTRUCTIONS].
Tim Savageaux, Merriman Curhan Ford.
- Analyst
Hi, guys.
And I apologize for this, I'm sure you covered it.
But if you can just discuss the movement in receivables in the quarter and what drove that and what your expectations are.
Save us both some time later.
Thanks.
- CFO
I think to a large extent it just -- it derives from the fact that as we were working through our supply problems that we'd discussed in the second quarter, resolving those is an ongoing -- is an ongoing effort.
And it did -- it did result in some pretty backend loaded shipments in the third quarter from a shipment -- a shipment perspective.
And so in a lot of these cases, we just simply weren't able to collect from the customer in time.
I do hope and expect that we'll see a sizable correction of that in the fourth quarter.
I mean, other than that, I don't think there were any -- any particular issues with receivables.
I mean, as we pointed out, our international revenue is now and has been for the last few quarters at least 50/50, and in fact, actually this current quarter -- third quarter was 53% of revenue, and so it -- inevitably, with a more international mix, that does tend to put pressure on DSOs and push them out a little further.
But it's certainly no conscious effort on our part to -- to offer extended terms or any sort of credit relaxation on our part.
It really is mostly to do with the timing of -- timing of shipments.
- Analyst
Okay.
Thank you.
Operator
[OPERATOR INSTRUCTIONS] Alan Bezoza, Oppenheimer.
- Analyst
Hey, Patrick.
Hey, Robin.
How are you guys?
- President and CEO
Hi, Alan.
- Analyst
Better late than never, right?
So a question on the acquisition of Entone.
I mean, you look at the opportunity out there with IPTV and video-on-demand, using the product and software that it provides.
First, have you looked at -- have you -- first of all, is it in the guidance for the fourth quarter?
And secondly, I know you've talked about the accretion in the first quarter, but how big can this be as far as the global market?
And that -- can actually that drive sales of your NSG server -- is it a package deal?
How are you positioning it?
- President and CEO
Well, I'll start the last part first.
Yes.
Very much a part of the package deal.
We've been pursuing a strategy of taking advantage of the on-demand opportunity for quite some time, in terms of our own organic product development beyond encoding.
Certainly our NSG, we very much like our commanding market share position in cable associated with VOD there, and that's something we expect to continue to drive.
Also some of the new stream processing, the preprocessing, offline encoding, our CLEARcut product, et cetera.
We've been doing a number of things to support the delivery chain of on-demand services.
And this is not only traditional video-on-demand, but these catch up or delay TV things, as well as the switched broadcast architectures.
And now with our splicing product, that's also an advertising serving opportunity.
So from our perspective, we looked at the -- the whole -- the many chain of the data plain for the provisioning and delivery of on-demand services.
And this was just a clear missing block.
And so for us, this is not merely a case of incremental revenue, but in fact, even more so, it's actually plugging in a missing puzzle piece so that we really have, I think, a unique and compelling end-to-end solution for the preparation and delivery of on-demand content.
And we're -- that's definitely a story that we're excited about bringing to the cable industry as well as to the telco/IPTV industry.
And in fact, there's also opportunities and relevance in the satellite direct to home market.
- Analyst
And as far as your guidance for the fourth quarter, is that -- any Entone sales included in that there?
- President and CEO
I -- we're not including any at this point in time.
We still don't have a final date, we said it's in November.
And we haven't given a number and we're not projecting anything at this point in time.
- Analyst
Okay.
And if we look at the next year, maybe '07, have you gone out with a number of what you think you can do as far as the top line based on the acquisition?
And if you're not prepared to give that, can you kind of give a sense of where it's been?
- CFO
Not yet.
I think we might be able to give you a little bit more color on that next time around.
- Analyst
And how about -- maybe some trailing then?
Is there any way you can give us where they've been over the last couple of quarters?
- CFO
We're -- we'll get to that.
When we get the deal closed and get the requisite filings made, we'll give you the history at that point.
We just want to be sure of the data before we start talking about it publicly.
- Analyst
No, that's fair.
Great.
Okay.
Thanks, guys, appreciate it.
- CFO
Thanks, Alan.
- President and CEO
Thank you.
Operator
Nikos Theodosopoulos, UBS.
- Analyst
Oh, thank you.
Hey, Robin, I had a question.
If you don't have an answer now, we can follow-up later.
On your net operating loss carry forwards, I'm still a little confused on this.
In the 10-K, it shows a table saying it's 79 million at the end of '05 and then in the text in the 10-K it talks about 193 million for federal and 54 million for state and I'm trying to decipher, what is actually the amount you can use and will be using to not pay or defer taxes as now you return to profitability?
- CFO
The -- I don't have the numbers in front of me, Nikos, but in principal, what I believe we've got here is that the higher number, the 193 million is the amount of loss that could be offset against future income.
Now, that is subject to various limitations of time and other, and I probably shouldn't get into the details of that here.
But in essence, that number is the amount that's available for offset against future income.
- Analyst
Right.
And that's a U.S. number, so if I -- if you just take roughly speaking half your business is U.S., half your business is international, that would offset your U.S. profits, or -- is that the way to look at it?
- CFO
Not quite.
We actually -- although half of our business -- you're right -- is outside the United States, we actually do bill most of it from the U.S.
And so the vast majority of our revenue and income is generated in the U.S. and is subject to -- directly to U.S. tax.
And so I think you should look -- and I'm simplifying here, but you should look at our entire revenue and -- or our entire income, really, as the number against this 193 could be offset.
Now, again, that's a broad brush, but in essence, that's the way it works.
- Analyst
Okay.
Great.
That clarifies it.
Thank you.
Operator
And ladies and gentlemen, as there are no further questions within the queue, I would now like to turn the call back over to Patrick Harshman, President and CEO, for the closing remarks.
- President and CEO
Well, simply to say thank you very much for participating in today's conference call.
And we all look forward to speaking to you again.
Good day.
Operator
Ladies and gentlemen, we'd like to thank you for your participation again in today's conference.
This does conclude the presentation.
And you may now disconnect.
Have a wonderful day.