Harmonic Inc (HLIT) 2012 Q1 法說會逐字稿

Good afternoon, my name is Salina and I will be your conference operator today.

At this time I would like to welcome everyone to the Harmonic first-quarter 2012 earnings conference call.

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

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions) Thank you.

I would now like to turn the call over to Carolyn Aver, Chief Financial Officer.

Ma'am, you may begin your conference.

Thank you, Diane.

Hello, everybody.

As Diane said, this is Carolyn Aver and I'm the CFO at Harmonic.

With me in our headquarters in San Jose, California is Patrick Harshman, our CEO.

I'd like to point out that, in addition to the audio portion of this call, we have also provided slides, which you can see, by going to harmonicinc.com and clicking on the first-quarter earnings call button on the events section of the homepage.

Now, turning to slide 2 let me remind you that during this call we will provide projections and other forward-looking statements regarding future events, or the future financial for performance of the Company.

We must caution you, that such statements are only current expectation and that actual events or results may differ materially.

We refer you to documents that Harmonic files with the SEC, including our recently-filed 10-K report, and the forward-looking statement section of today's earnings press release.

These documents identify important risk factors that could cause actual results to differ materially from those contained in our projections, or forward-looking statements.

Please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis.

These items, together with corresponding GAAP numbers and a reconciliation to GAAP, are contained in today's earnings press release, which we have posted on our website and filed with that 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 of the information will be available in a recorded version of this call on our website.

With that, let me turn the call over to Patrick.

Thank you, Carolyn, and thank you, everyone, for joining us today.

Turning now to our slide 3, today that we reported our results for the first quarter of 2012, which were in line with the preliminary estimates that we announced earlier this month.

We had disappointing first-quarter revenue of approximately $128 million, reflecting that we got off to an unusually slow start, and our European business remain soft throughout the quarter.

As one would expect, the weakness in Europe had the most significant impact on our revenue for the Video Processing and Production and Playout product categories.

On the other hand, we had a very strong quarter for our cable business, with particularly robust demand for our Edge and Access products.

Our first-quarter bookings tell a different story than revenue.

Our bookings were a record $142.5 million, up 8% from the first quarter last year, and generally in line with our original expectations.

Excluding the continued softness in Europe, we saw solid momentum across every other geography, and we had record Service and Support bookings.

Our operating performance was also disappointing relative to recent quarters, as gross margins slipped to 47%, reflecting an unusual product mix driven by the softer Video Processing and Production and Playout results in Europe and stronger Edge and Access sales.

As a result we realized non-GAAP earnings of $0.03 per share and we also generated approximately $7 million of cash during the period.

¶ Turning now to slide 4, our earnings call in January I laid out three areas of strategic focus for 2012; continuing to broaden our global customer base, extending our product leadership position, and achieving operational excellence.

We've remained very focused on these initiatives, so let's take a closer look at our progress over the past quarter.

Turning now to slide 5, we have indeed continued to broaden our global customer base through the first quarter.

Excluding the softness in Europe, our strong bookings growth demonstrates our solid competitive momentum in other regions worldwide.

In particular, we had record Latin America bookings and a strengthening Asia-Pacific business, as demand from Japan is bouncing back.

At the same time our global cable bookings were strong, up 13% from the first quarter last year.

As we did in 2011, we continue to expand our local footprint among broadcast and media customers, including our recent announcements of significant wins with Modern Video Film, NBC, and Home Depot.

We also continue to expand our global footprint with video service providers, driven by our broader portfolio of products and services.

We're both penetrating deeper into our long-standing service provider customers and winning over new customers, including a recently-won IPTB project with a major telco.

Turning to slide 6, while multiscreen video represents a relatively small portion of today's global video infrastructure spending, we're engaged in an increasing number of deployments involving new approaches to producing and delivering over-the-top and second-screen services.

This is spanning both on-demand and live broadcast.

We've seen several significant new wins in this area, including our recently-announced deployments of new high-definition mobile and web services for Swisscom, powered by a ProMedia live platform, and NBC Olympics use of our ProMedia and MediaGrid products, which will jointly enable content creation for NBColympics.com, modal video platform distributed and IPTV and DOD services in support of the upcoming London games.

We also closed our largest ever transcoding software deal with a major internet player.

More generally, during the quarter we had record bookings for our ProMedia product line, which is our Intel-based platform for multiscreen services that we launched last fall.

To capitalize on this building marketplace momentum, we've continued to invest and expand our multiscreen technology leadership.

Just last week we announced the introduction of our new ultra dense ProStream transcoding appliance, a very exciting new product that is raising the bar for efficient transcoding of HD services and generated quite a bit of interest at last week's NAB event.

We also recently demonstrated and announced the first multi-company MPEG DASH streaming video system in cooperation with Okami and Qualcomm.

In summary, we're pleased with our continuing progress and increasingly-strong competitive position in the multiscreen area.

Looking ahead, it's clear that consumption of premium video on the latest iPads, Internet-connected TVs, and other high-resolution screens is growing, and as they do HD over-the-top services will proliferate and the marketplace will continue to struggle with bandwidth caps.

And Harmonic's distinct technology leadership in video quality, compression and bandwidth management will become an increasingly important competitive advantage.

Turning now to slide 7, we've also continued to extend our market leadership in the broadcast and media segment with the introduction of important new video products that complement to the multiscreen products I just mentioned.

Our new channel port Playout server, which represents the most significant new Playout product release since our Omneon acquisition, was extremely well received at last week's NAB event, combining very innovative graphical channel branding and master control switching.

With our market-leading Omneon Playout server technology, our channel port enables broadcasters and media companies to speed the cost-effective deployment of new television channels by upgrading rather than replacing their existing infrastructure.

This is really important for a range of applications, including rolling out new international or targeted channels, and for infrastructure upgrades designed to reduce ongoing operational expense, which as you know is a key industry priority.

In a similar way, our new ProView 7100 incorporates very high-performance transcoding and receiver decoder functionality into a single integrated platform, further strengthening our growing content delivery portfolio.

With a strong pipeline of compelling new products that similarly integrate historically separate video functions into new high-performance and operationally-efficient appliances, coupled with expanding relationships with the world's leading media companies, we continue to see significant strategic opportunity and advantage for Harmonic in the broadcast and media area.

Turning now to slide 8, we've also continued to extend our leadership in cable Edge and Access.

During the first quarter, our Edge and Access revenue increased 18% from the same period in 2011, driven in large part by the fast-growing footprint of our new HectoQAM system, which spans VOD, modular CMTS, and switch digital video applications.

As you may recall, a study published in December by Infonetics reported that Harmonic's had a commanding market share leadership position with approximately 40% of the EdgeQAM market.

With the growing shipments of HectoQAM we believe we're continuing to gain market share.

And keep in mind, while initial chassis sales of this new HectoQAM carry lower gross margins, we expect future software license upgrades by our customers as their network traffic increases.

This license strategy worked well for us and for our customers with the prior generation EdgeQAM product and the model becomes even more powerful with our higher QAM-density HectoQAM product.

We're also moving forward with our closely-related strategic CCAP initiative, and we continue to receive very positive customer response to our CCAP architecture and approach.

Indeed, our expanding cable Edge footprint and market share gains in response to our latest product innovations speak clearly to fact that our largest cable customers see us as a long-term strategic partner is this cable Edge space.

Our first CCAP QAM shipments are planned for the first half of 2013.

Turning now to slide 9, the first quarter of 2012 also underscored how our broad and deep expertise in video infrastructure sets us apart in the marketplace.

Our services and support revenue represented 14% of our total revenue, and we have the highest Services and Support bookings in Company history, which will mostly be recognized as revenue in future periods.

Our depth of knowledge, experience, and service excellence is an increasingly important element of our value proposition as video infrastructure projects are more complex and fast moving and as our customers strive to reduce their operating expenses.

We believe that no other company knows more about delivering premium video over next-generation IP networks than Harmonic, and we're seeing an expanding opportunity to exploit this advantage.

And on that note I'll now turn the call back over to you, Carolyn, to talk more about the results of the quarter and our financial outlook and I'll then wrap things up with some final thoughts.

Okay.

On slide 10, our first-quarter results were in line with the preliminary estimates we gave earlier this month.

Our net revenue was $127.7 million, down 4% from the same period in 2011.

As previously announced, net revenue was adversely impacted by an expectedly slower order rate in the early part of the quarter and a decline in demand from European customers throughout the quarter.

As Patrick noted, our bookings show a somewhat brighter story.

Total bookings in the first quarter were a record $142.5 million, up 8% from the same period in 2011, with bookings strong across all markets and geographies except Europe.

As previously discussed, our gross margins for the first quarter of 2012 were impacted by the unusual revenue mix, with lower video processing and Production and Playout sales, and increased cable EdgeQAM sales.

Additionally, we continue to have a 25 to 50 basis-point impact from the Thailand floods on the cost of disk drives.

Non-GAAP gross margins were 47%, down approximately 400 basis points from the previous quarter and last year.

Lastly, as we experience with each new QAM product cycle, our new EdgeQAM products initially carry lower gross margins, but are expected to enable future sales of higher-margin software licenses.

Operating expenses for the first quarter of 2012 were $56.1 million, up 4% from the previous quarter and a year ago, and in line with our original expectations for the quarter.

The increase is largely due to an increase in R&D spending related to new product introductions and investment areas.

Our headcount was 1,164 at the end of the first quarter, up 19 from the end of the previous quarter, and up 43 from the end of Q1 in 2011.

In the near term we plan to carefully control our expense growth.

The unexpected revenue shortfall and lower gross margins clearly impacted our bottom line.

Non-GAAP net income for the first quarter of 2012 was $3.2 million, or $0.03 per diluted share, compared to $10.3 million, or $0.09 per diluted share for the first quarter of 2011.

Turning to slide 11, let's look at our quarterly revenue and backlog in more detail.

As noted, net revenue for the first quarter was $127.7 million, down 4% from that same period a year ago, and after several quarters of steady growth.

On the other hand, our backlog and deferred revenue at the end of Q1 2012 was $135.7 million, up 9% from the previous quarter and up 11% from the same period in 2011.

A large component of the increase in backlog is due to service bookings, which will be recognized over the next several quarters, and a smaller component was an increase in Production and Playout backlog due to the timing of orders received in the first quarter.

Moving to slide 12, while we have continued to expand our revenue base across different geographies, product categories, and markets, our revenue mix was unusual compared to recent quarters.

Our international revenue represented 52% of total revenue in the first quarter of 2012 compared to 56% in the same period of 2011.

This decline is primarily a result of softness in Europe.

Weakness in Europe particularly impacted our video processing and Production and Playout revenue.

For the first quarter, video processing represented 41% of our total revenue, and Production and Playout represented 16%, both down from recent quarters.

Our very positive area for the first quarter was that our Edge and Access revenue was up 18% from Q1 2011, and represented 29% of our total revenue, driven by the success of our HectoQAM edge product.

As Patrick mentioned, we also had record bookings for Services and Support, which represented 14% of our total revenue.

While most of these bookings will be recognized over -- as revenue in future periods, the strong service bookings indicate the growing activity levels surrounding complex deployment and the competitive importance of our unique experience.

While our largest customer for the quarter was again Comcast at 10% of revenue in the first quarter, none of our other customers were over 10% of revenue.

Our cable customers represented 46% of our business, reflecting our strong Edge and Access sales and relative softness in Europe, where cable represents a relatively smaller portion of our business.

Our satellite and telco customers represented 21% of sales, and our broadcast and media customers represented 31% of sales in the first quarter.

Despite quarter-to-quarter fluctuations in revenue mix, which was especially true in this first quarter, we believe our strategy of continuing to expand and diversify our customer base around different geographies and markets is succeeding.

As you can see on slide 13, we continue to maintain a strong balance sheet.

We ended the quarter with a cash balance of $168.5 million, up about $7 million from the end of the prior quarter and about $51 million from the first quarter in 2011.

Our receivables balance was $111.8 million and our DSOs were 80 days, reflecting the very backend-loaded nature of this particular quarter.

We're pleased to see our inventory at $65.5 million, down from the prior quarter.

As a result, our inventory turns were up slightly to 4.1.

Finally, our capital spending was $3.7 million in the first quarter and we expect CapEx for 2012 to be between $15 million and $20 million, comparable to last year.

Moving to slide 14, given our strong balance sheet, and confidence in our ability to continue to generate cash, Harmonic today announced a plan to repurchase up to $25 million of common stock.

We expect to make open market purchases based on a number of factors, including price, strategic priorities, and other market conditions.

These expected repurchases will be funded from available working capital and will counter dilution from incentive stock programs.

Turning to slide 15, while we are encouraged by the solid bookings and customer demand in most regions moving into Q2 and we do anticipate sequential growth in the second quarter, we still face uncertain near-term visibility regarding European business and our -- and many of our customers remain cautious regarding the global economic environment.

Taking all this into consideration, we expect net revenue to be in a range of $130 million to $140 million in Q2.

Non-GAAP gross margins in the second quarter are anticipated to be in the range of 49% to 51%.

This represents a rebound to more typical margins, but with the expectation that continued softness in Europe will continue to tilt the product mix toward cable Edge and Access products, which carry a somewhat lower margin.

Product and geographic mix will continue to influence whether we are on the high or low end of our estimated range for gross margin.

Additionally, we believe the 25 to 50 basis-point impact we've seen from the disk drive issue will continue for the next several quarters.

Our target for non-GAAP operating expense for the fir -- for the second quarter is $50 million to $57 million, reflecting our increased marketing activities in the second quarter offset by our plans to moderate near-term hiring and other expenses.

Finally, we currently anticipate our non-GAAP tax rate for 2012 will remain at approximately 25%, given the R&D tax credit has not yet been extended.

With that, I'll turn the call back over to Patrick for some closing comments.

Well, thanks, Carolyn, and turning to the last slide, slide 16.

In summary, the results of the first quarter do not dim our confidence in the fundamental opportunities before us, driven by the proliferation of video content and media outlets, the increasing demand for higher video quality in every format, and the challenges of internet and mobile bandwidth constraints.

Moving into 2012 we continue to strengthen our competitive position by extending our technology leadership, expanding our global footprint and continuing to invest in key strategic programs.

While our momentum is solid across most regions worldwide, we do face some near-term visibility challenges, particularly in Europe, and as a result we're confident in our competitive position and fundamental opportunity.

We plan to be cautious on our outlook for the second quarter.

All the while we will continue to execute our strategic initiatives and position the Company for sustained competitiveness, growth and profitability.

And with that we'll end the formal portion of the call and Carol and I would be pleased to answer any questions that you have.

Diane?

(Operator Instructions) Your first question comes from the line of Mark Sue with RBC Capital.

Your line is open, sir.

We'll go to our next question.

Our next question comes from James Kisner of Jefferies & Company.

Hi, can you hear me, guys?

Yes, we can.

Great, thank you.

I just wanted to clarify, just given all the discussion about Europe, could you help us perhaps quantify how much of your business overall is exposed to Europe and perhaps how much Europe was down either quarter-over-quarter or year-over-year?

Sure.

We haven't disclosed Europe specifically and we don't want to get into that.

Having said that, it's certainly a significant part of our international revenue, and it is the largest piece of everything, and probably approaches, in any given quarter, somewhere around half of international, I would say, without getting specific.

Again, I don't think we want to get into specifically how much it was down, but it was down significantly from a bookings perspective.

Okay, that's helpful.

Is there any way to characterize, I mean, does it feel that this is a one quarter push out or just the European operators have said, you know what, we just can't, given our revenue support expanding our channel counts or service offerings.

[Is there a way to characterize what kind of a dip in spending you're seeing, is it temporary, or longer term in nature in Europe?

James, I'll take that on.

We are calling it just poor visibility and the truth is, we don't know.

The first quarter is always a little bit of a strange quarter, it always gets off to a somewhat slower start, and so from that perspective the earlier part of the quarter wasn't a surprise.

What was a surprise is that spending in Europe, unlike elsewhere, didn't really start to pick up.

Now we had a record year in Europe last year, including a record fourth quarter, so it's a little bit strange from our perspective that things would really change on a dime that quickly.

On the other hand, there are some pretty well-known and documented macroeconomic things that are quite active over there.

Other companies in our [roth] for broader space have certainly had their own commentary on Europe.

And we also do a fair amount of business with the telecoms in Europe and apart from any global macroeconomic issues there's also some regulatory things that are playing out.

So, we see a number of possible reasons.

We're fundamentally optimistic that the media business, the pay TV business is a strong one in Europe and so we -- I'd say we're cautiously optimistic that this is not in any way a prolonged downturn but, frankly, it's not one we saw coming in the first quarter and, therefore, we're remaining somewhat cautious until we really see how that plays out and we hope to have better visibility as we go through the second quarter here.

Okay, thank you, and just one last question and then I'll pass it on.

I just want to turn to something more positive.

In terms of the growth drivers for the year, which regions or countries would be even more helpful do you think will be the biggest needle movers in terms of growth this year?

I heard you say Latin American bookings were strong, I don't know if that's off a small base, and are countries like India really important to your growth opportunity this year?

Could you just provide some additional texture sort of geographically where we should look for potential growth opportunities this year?

Yes, so let's -- grossly oversimplified let's just break the rest of the world into two regions.

Let's call one emerging markets, which I would include Latin America, places like India.

I wouldn't include Japan there, but Southeast Asia and China.

There we actually said last year that was a significant, albeit off a somewhat smaller base, we, I think on a previous call, said that grew double the overall international growth rate.

Our international growth rate you may remember last year on a pro forma basis was about 15%.

So we saw about 30% growth on what I'll call that broad emerging market arena and what we've seen so far leads us to suspect that's the kind of thing we can look forward to.

We've been continuing to invest in our go-to-market capabilities in those markets, Asia, as well as Latin America, that I mentioned in particular, and we're quite optimistic.

On the other hand, I would point out that last year was a mixed year for us with our overall international business, including Europe, being up 15% with our domestic business roughly flat.

What is encouraging about this first quarter is that we really have seen our domestic customers also bounce back from a spending point of view.

This past quarter was our strongest cable quarter in a couple years.

Of course, while we do business with cable operators all over the -- all around the globe, cable spending is generally driven by the large cable operators in the US.

And coming out of the recent NAB show, boy, we saw a ton of broadcasters and media companies, including from the US, and we're -- we see ourselves gaining momentum and we hope that's a more buoyant market than it was in 2011.

Early returns in terms from an order rate in the first quarter were encouraging in that regard, as well.

Okay, thank you very much.

Thank you.

Operator?

Diane, are you there?

Your next question comes from the line of Mark McKechnie from ThinkEquity.

I just have one question.

On the multiscreen front, can you comment on your competitive positioning versus Viveo?

They quoted some pretty broad coverage of cable and local operators in their recent S-1, and do you think they're the sole source provider for multiscreen at these accounts, or are you shipping products alongside them to these main carriers?

I prefer, Mark, not to comment on one specific company, but I would say as we've said in the past, that this is a busy space.

In addition to our traditional larger competitors there's a number of smaller companies.

The one you mentioned is one of them.

This market is characterized by a lot of experimentation and trials and so what we -- I'm not aware of any single source basically in any account.

That's perhaps too broad of a generalization but in general that's the case.

We see a lot of experimentation and trialing going on.

And particularly, as is often the case in a new market, there's different little niches that evolve and different companies really carve out their spots in the early days in one niche or another, and so there's a number of creative, smaller companies who are out there working hard.

And particularly, when they have less of an incumbency position or legacy customer base they can be very focused.

And I think we've been very candid about the fact that, out of the gate, a number of the small companies, in particular, got a number of the smaller initial trials.

What we really see is over the past 18 to 24 months we think we've been really coming on strong.

A couple things have happened.

We've significantly increased our focus in this area.

We started to leverage more and more of our video know how and expertise into products that address this space and I think that the wins that we've been having, including the ones that I mentioned here with mobile op telecom operators like Swisscom, with media companies like NBC and their over-the-top delivery of the Olympics, we see ourselves gaining more and more traction.

The other thing that's important to note is that the market itself is changing.

If you go back two years ago, multiscreen was kind of, perhaps, a grainy, YouTube kind of video on a small screen.

Now actually the applications that catch the imagination of the leading service providers are very high-quality video.

It's major league baseball to an iPad, it's very high-quality HD movie streaming over an Xbox to a wide-screen Samsung-connected TV.

The paradigm is no longer kind of a second-tier quality experience, it's a top-tier quality experience and this is really where Harmonic excels.

It's where we're deployed by the industry today and as we see more and more HD content flowing to these kind of screens over mobile networks, over the internet, our expertise is really starting to shine.

So we're excited about the direction of the market.

We think it's really coming to our core strength as a Company.

Thank you.

Thank you.

(Operator Instructions) And your next question comes from the line of Blair King from Avondale Partners.

Thank you for taking the call.

I have a question, I guess, Patrick, perhaps for you just broadly.

In terms of maybe -- obviously, Europe has been weak, but obviously the broadcast and media end market is a space you've spent some time today talking about some optimism around and clearly there's some market opportunities around some of these new products that you've introduced.

The ProView 7100 that's completely refreshed, the Omneon product line from quarters past and this channel-in-a-box product that have all recently been introduced.

And I know that the Omneon piece of the business has been heavily weighted towards Europe, but maybe you could talk about how the distribution channel outside of Europe is being penetrated and where you are in that stage and what the opportunity for some of these new products might look like for you guys this year?

Well, thanks for the question.

You're right., the Company does enjoy particularly strong broadcast and media presence in Europe.

But you're also right that one of the reasons why strategically Harmonic wanted to enter the broadcast and media space is because we see tremendous growth opportunity really right around the globe.

In fact, a fair amount of the demand and opportunity we see in Latin America is around new content, new media companies, new channels being put up, new content being produced.

I think the same can be said for much of Asia.

And as I mentioned just a moment ago, we actually see a resurgence of activity in -- among the broadcast and media companies in North America.

This NAB event that was held -- it was held last week was interesting.

Pretty good presence and pretty good excitement and discussion of projects from the domestic and the Canadian operators and so that was encouraging for us.

I think somewhat surprising was actually the strength of the presence from overseas.

I was really impressed by the amount of Latin America traffic we saw in the booth, the number of people who came from Asia who made the trip and I think that really -- we don't think that they do that just to -- this economy doesn't allow you to do that just for fun.

Really they were there to discuss real projects and so we do see growing opportunity broadcast to media really right around the globe.

We continue to get positive feedback on what we're doing at the product level.

But I think just as importantly, many of these companies are also just looking for a company that they can really partner with and part of our strategy is to bring not only great products, but service, support capabilities, local presence, whether that be out of Singapore, out of Hong Kong, out of Beijing, out of Mexico City, et cetera.

We feel as though that message, our focus on the market from both a technology, as well as a service and support perspective, is being well received by the broadcast and media industry and we think it's at the right time.

Is there any way we get a little more specific, though, on the success with the distribution channel?

Is it scratching the surface on the distribution channel, do you feel like you've established a distribution channel, is there still a lot of work to do?

I'm just trying to get a sense for where you are.

Yes, okay.

Actually the Omneon business we acquired a little over a year ago had a fairly well developed and a strong distribution channel.

One of our objectives was to leverage that channel to also bring historic Harmonic products to market and I would say that we've made real progress but there's still a lot of opportunity or ways to go.

Candidly or truthfully, Harmonic historically wasn't as good at leveraging the channel and it's something that we're learning.

And in fact, some of the people, the talent, the relationships that came in through Omneon have really helped that.

So indeed, some of the success that I spoke about in Latin America, the success in places like Southeast Asia, is definitely being driven in concert with reseller channels.

So we think it's going well.

I can't give you a specific numbers, but it's growing.

It's an important part of the growth strategy.

We are pleased with the progress, but candidly, there's also work to do and opportunity to be had.

Right.

And then just a couple other quick questions.

One was I just wanted -- you had mentioned that you had closed this large multiscreen order this quarter, I think you said the largest one ever and I suspect that's in your bookings number for the second quarter.

Can you give us a sense on when you think that closes and books into revenue, or do you book it in the second quarter do you think, or is it one of these projects that might leak out --?

No, this -- so I mentioned a project that for us in terms of a file-based on-demand transcoding project this was our largest deal ever.

It was booked in the first quarter and I don't know, Carolyn, I think you probably don't want to give any more color around it than that.

These deals have historically been more modest in size than the traditional pay television live encoding and transcoding deals, Blair, so what's interesting is to start to see the size of some of this file- based work start to grow to be comparable.

And I think it speaks to the fact that some of these internet services are now involved in not just a limited movie library but they're starting to get more and more involved with television series, et cetera, so the movie libraries are growing.

The amount of video processing to do there is still less than in the live television world where you're processing thousands and thousands of newly -- channels of newly produced content every day.

But the world is slowly moving toward more on-demand model and that means the video processing demands of the on-demand/file world are growing.

For us it's a good sanity check, reality check, to see that the size of our transactions in that area, although still in general smaller than the large live deals that we do, are starting to grow in concert with the market development.

So we'll keep you appraised on that trend, but we're pleased to be doing good business with the new internet guys, as well as the traditional pay television service provider people, as well, and that's really the core of our strategy.

It covers many different accounts, different business models, as possible and get the most leverage out of our technology.

Thanks, that's encouraging.

Carolyn, one last quick question on the stock buyback, can you give us a sense for how aggressive you guys might be on that plan, or how you chose the $25 million, or just some thoughts around how you guys plan to approach that?

Yes, I think that we aren't going to buy that all back this quarter.

I think we will be active this quarter in buying back.

I think we'll try to have a steady pace versus aggressive go out and buy it all at one time.

I think we looked at several factors for that amount that include the cash we've generated, it's approximately half the cash we've generated in the last four quarters.

The amount of our dilution, our future strategic objectives and opportunities.

So it's the first time we've done a buyback.

We think it allows us to take a meaningful bite of shares out, but at the same time leaves all our alternatives open to us, which was important to us.

Okay, thank you very much, appreciate your time.

Certainly, thanks.

Okay, thanks, Blair.

Your last question comes from the line of Blair King from Avondale Partners.

I'm all done.

Okay.

Well, it sounds like, Blair, you were last, thanks very much.

Let me just finish the call by again thanking everybody for participating.

I want to reiterate our confidence in the fundamental trends behind this market.

We're certainly frustrated and disappointed by the slowness we see in a certain geography.

At the same time, we're encouraged by the robust response, the momentum that we see in other geographies.

We're continuing to push the competitive advantage that we have, we're continuing to invest and we continue to see great opportunity for us to really make a difference in the marketplace, grow this business, grow our level of competitiveness, and grow a level of profitability.

Incredibly focused on growing a stronger, a healthy business, and getting back to even stronger revenue growth in the earnings and the operating margin targets that we've laid out to you before.

You can believe me that the Company is incredibly focused on that and we see every opportunity to broaden that vision.

Thanks very much, everybody.

This concludes today's call.

You may now disconnect.