Netscout Systems Inc (NTCT) 2006 Q3 法說會逐字稿

Welcome to NetScout's third-quarter operating results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded. With us today is NetScout's President and CEO, Mr. Anil Singhal, and he is accompanied by NetScout's Chief Financial Officer, Mr. David Sommers. Also with Mr. Singhal is NetScout's Director of Investor Relations, Ms. Cathy Taylor. At this time for opening remarks, I would like to turn the call over to Mr. Singhal. Please go ahead sir.

Thank you and good afternoon, everyone. Welcome to NetScout's third quarter fiscal year 2006 conference call for the period ended December 31st. Our call today will begin with a brief overview of our financial results achieved this quarter, followed by a summary of our operating highlights for the recent quarter. Later, David will review our financial results and company performance in greater detail. At the conclusion, there will be an opportunity for questions and answers.

First let me introduce you to Cathy Taylor, Director of Investor Relations, who will read the Safe Harbor statement.

Thank you, Anil. During the course of this conference call, we will be providing you with a discussion of the factors we currently anticipate that may influence our results going forward. Before doing so, we want to emphasize that these forward-looking statements may involve judgments, and that individual judgments may vary. Forward-looking statements include expressed or implied statements regarding future economic and market conditions, the Company's revenues, profitability and growth, and delivery and market acceptance of NetScout products. It should be clearly understood that the projections on which we base our guidance, and our perception of the factors influencing those projections, are highly likely to change over time. Although those projections and the factors influencing them will likely change, we will not necessarily inform you when they do. Our company policy is to provide guidance only at certain points in the year, such as during the quarterly earnings call. We do not plan to otherwise update that guidance. Actual results may differ materially from what we say today, and no one should assume later in the quarter that the comments we make today are still valid. The risks and uncertainties that could cause our projections not to be achieved include the specific risks and uncertainties that are discussed in NetScout's Form 10-Q for the quarter ended September 30, 2005, on file with the Securities and Exchange Commission.

And I will now turn the call back over to Anil Singhal, our Chief Executive Officer.

Thank you, Cathy. We are very pleased with our results this quarter, achieving the top-end of our revenue guidance and exceeding our net profit per share guidance.

Our revenue for the third quarter was $24.9 million, and we achieved our tenth quarter of sequential revenue growth. Revenue was up 5% compared to revenue of $23.6 million in the previous quarter, and up 13% compared to revenue of $22 million in the third quarter of last year.

Net profit for the quarter on a GAAP basis was $1.9 million, or $0.06 per diluted share, compared to net profit of $1.5 million, or $0.05 per diluted share for the previous quarter, and compared to net profit of $906,000, or $0.03 per diluted share in the third quarter of fiscal year 2005. On an adjusted basis, our net profit for the third quarter was $2.2 million, or $0.07 per diluted share, versus $1.7 million, or $0.05 per diluted share a quarter ago.

Our growth continues to be driven by expanding marketplace demand for our product solutions. Looking ahead to the fourth quarter of our current fiscal year, we expect this demand to continue to grow, propelling us to another year of strong performance.

We are also pleased to have reached the 10% adjusted operating margin target which we announced at the beginning of this fiscal year a full quarter ahead of schedule. We generated this accelerated operating leverage through excellent sales execution, driving orders and revenue, and continued focus on expense management. We plan to maintain this momentum of revenue and EPS growth in our drive to maximize shareholder value.

Our strategic direction that will drive this momentum is being supported in numerous ways in the market. Customers are calling for more integrated and automated application management across their complex multi-vendor infrastructures. Enterprise management system vendors are responding by filling gaps in their product lines through acquisitions of network management companies.

Network infrastructure vendors are also belatedly coming to the realization that network management is a capability that they must focus on. Recent acquisitions of several network management companies by large EMS vendors and management-centric announcements from network infrastructure vendors further emphasize this trend.

This activity is very positive for NetScout because it validates a need for deeper insight into application performance from a network vantage point, which has been our forte for so many years. We feel that we are in the best position to leverage this increasing demand due to our technological superiority, comprehensive yet consolidated product set, and experienced sales team. Our product line is stronger than ever, as growing customer demand demonstrates.

We are well on the way toward adding sophisticated analytics to our nGenius solution based on the technology we acquired from Quantiva. Analytics will give nGenius an even larger competitive advantage in the market by dramatically reducing Mean-Time-To-Repair through increasing automation and pro activity.

The results for this quarter underscore the growing strength of our market position. Sales activity in the quarter increased significantly. Wireless telecommunications service providers are again our second-largest customer sector, after financial services, as adoption of our solution is spreading.

In addition to substantial business from existing service provider customers, we won five new wireless customers. These and other new customers drove new customer order volume to 13% of the orders for the quarter.

We continue to make inroads against the competition, particularly against Network General. And we are gaining new strategic relationships with the largest enterprises. This quarter, we signed new contracts with the top three companies of the Fortune 500. Overall, product revenue, which is the best indicator of the strength of our business, grew 23% year-over-year.

In summary, this was our tenth successive quarter of top line growth, and our fourth quarter of year-over-year product revenue growth exceeding 20%. Slowly but consistently over two years, we have grown from our negative operating margin to achieve a significant milestone, hitting our 10% adjusted operating margin target ahead of schedule. We think that we can grow operating margin to the 15% level by the end of next fiscal year. These achievements demonstrate that our flagship nGenius product set is a "must-have" for any enterprise focusing seriously on application and network management. Over the next few quarters, we intend to use this unique and strengthening position to gain market share, extend usage of our products within our existing customer base, develop strategic partnerships, and improve shareholder returns.

With that, I would like to turn the call over to David.

Thank you, Anil. Our quarterly financial results, which you can find in the financial statements included with our press release -- we report our results not only on a GAAP basis, but also on an adjusted basis, removing cost and expense resulting from our acquisition of Quantiva, and from stock-based compensation. I will give you some specifics about the difference between our adjusted earnings and our GAAP earnings in a few moments.

The expense amounts associated with these items are disclosed in parentheses on the face of the GAAP income statement in our press release, and summarized as supplemental information at the bottom of the statement. We believe these adjusted financial measures will enhance your overall understanding of our current financial performance and our prospects for the future. We use these adjusted financial measures internally for the purpose of analyzing and managing our business.

I won't repeat Anil's discussion of our revenue performance; however, our product revenue once again drove the overall growth, with a 23% increase from a year ago, and up 8% over last quarter. Service revenue increased 3% year-over-year and 1% over last quarter. Revenue from our direct sales force was 42% compared to 35% last quarter. Reseller revenue, correspondingly, was 58% of total compared to 65% last quarter.

During this quarter we added 39 new customers worldwide, representing 13% of total orders. Among some of our largest new customers are Telecom Italia, Telkom Austria, Taiwan Cellular, Virgin Mobile, and Jet Blue Airways.

We had 298 repeat customers this quarter, representing 87% of order volume. Some of our repeat customers include VoiceStream Wireless, Merrill Lynch, Lehman Brothers, the U.S. Air Force, the Federal Reserve, Pemex, Kaiser Permanente, and Oakwood Healthcare. We had 69 customers with order volume over $100,000 this quarter, including four customers with order volume greater than $1 million. Revenue from international sales was 22% of total revenue, up from 18% last quarter, with Asia representing 5 points and Europe 17 points of the total.

Turning now to our vertical markets. This quarter the financial services sector represented 34% of order dollar volume, followed by a strong showing from the telecom sector with 18% of orders. The government, healthcare, energy, and manufacturing sectors followed, each representing 8 to 10% of order volume.

During the quarter we saw a significant increase in competitive wins, involving 34 deals totaling approximately $6.4 million. The majority of the deals involved wins against Network General, and we are continuing to make inroads in winning business against their installed base. One of those wins was from a new customer, one of the world's largest car rental companies, for an initial large deployment of the nGenius solution. And that was a competitive replacement of Network General's Sniffer products.

Initially, the nGenius solution will be providing application visibility and monitoring of the WAN connections between two major U.S. data centers and a data center in the United Kingdom. Additionally, follow-on deployments of the nGenius solution will be monitoring Internet connectivity to retail branches, so that the company can manage the performance of their custom rental business applications that support customer service and sales.

As we mentioned before, we also continue to improve our penetration of the telecom and wireless carrier sector coming from customers in Asia, Europe and the U.S. In a number of these accounts, we are monitoring both the internal operational networks as well as the customer-facing service networks. We continue to displace competitors that provide traditional troubleshooting support with our nGenius solution that provides a more robust and unified system, using all data sources available on the network with more sophisticated troubleshooting and reporting, real-time analysis, and in some accounts, long-term packet capture and decode with our nGenius Flow Recorder.

The government sector was also strong in their first fiscal quarter. A lot of that was driven by expanding business with the U.S. Air Force. One deal was a new deployment of the nGenius solution that will support parts of the U.S. Air Force's Command and Control Constellation, whose mission is to coordinate air and space combat capabilities for joint military forces. The Air Force is replacing stovepipe legacy computer systems with interoperable systems that pull intelligence, surveillance and reconnaissance data from a common repository, and present a single picture on the screen of the military analyst, the commander, or the pilot that needs it. NetScout's products will be deployed at distributed ground stations at five military bases around the world.

Turning back to our financial picture, our adjusted gross profit for the quarter was $19.1 million, up 13% year-over-year and 4% sequentially. Adjusted gross profit is calculated by deducting non-cash expense of $104,000 of amortization of acquired software from the GAAP gross profit. Adjusted gross margin was 77% in the quarter, flat both year-over-year and sequentially, and above our gross margin target range of 73 to 76%.

Adjusted operating expenses in total were $16.6 million, up 5% year-over-year and up 2% from last quarter. Adjusted operating expenses are calculated by deducting non-cash expense of $146,000 of stock-based compensation, and $39,000 of amortization of intangible assets from the GAAP operating expenses of $16.7 million. Adjusted net profit for the quarter was $2.2 million versus a net profit of $1.7 million last quarter, and up from a net profit of $906,000 a year ago.

Now to key balance sheet measures. Cash and marketable securities are $77.3 million, a decrease of $166,000 from last quarter. Year-over-year cash decreased by $2 million. The decrease in year-over-year cash was driven by the acquisition of Quantiva.

Accounts Receivable net of allowances were $19 million, compared with $12.2 million last quarter and $13.2 million a year ago. Days sales outstanding were 70 days for the quarter, up from 47 in the prior quarter and above our target range of 45 to 55 days. The increase in DSO was due to the high volume of orders that were shipped at the end of the quarter. We expect DSO to return to the target range in the current quarter. Inventories were $4.1 million, down from $4.5 million in the prior quarter.

And now for our guidance. We are issuing detailed guidance only for the March quarter today. We expect fourth-quarter revenue to be in the range of 25 to $26 million. We expect earnings per share on a GAAP basis to be in the range of $0.04 to $0.05. On an adjusted basis, we expect earnings per share to be in the range of $0.05 to $0.06, as we experience normal seasonal pressures on expenses and earnings from payroll taxes and health benefits increases.

This is the conclusion of our guidance. We plan to provide further guidance at the end of each quarter in our succeeding conference calls. We do not plan to, and disclaim any obligation to provide updates to this information, even though our expectations may change during the quarter.

And now, Anil and I will take your questions. Lori, would you go ahead please?

(OPERATOR INSTRUCTIONS). Eric Martinuzzi, Craig-Hallum.

Congratulations on your successful December quarter. The question I have to start off is on the revenue guidance side. It looks like you posted year-on-year revenue growth in the December quarter of 13%. I realize the bulk of that came from product sales. I guess my first part of the question is why the services continue to be sort of basically flat or up maybe up single digits. And then based on your March guidance, it looks like we're expecting more of the same. Given the midpoint of the March guidance, it looks like another 13% growth expectation for March. Could you comment on that please?

Let me comment on the first question on maintenance. We have been going through for the first time in our history a significant end-of-life of existing installed probes, so that customers who have those probes were discontinuing support as we have gone through multiple iterations of new generations of probes. So for the first time -- so this is sort of an unusual wave for us. For the first time we've had customers discontinuing our maintenance on probes; in fact, they may still be, because they are offered, or they may still be using them or they may be taking them out of service.

Part of that end-of-life phenomenon is caused by upgrades, and so part of the product revenue growth that you see is caused as customers are moving from our older probes that they have installed for years, to the newer probes that are capable of such functions as high-definition, that we announced at the beginning of this fiscal year. So it's a normal phenomenon. It's depressing maintenance revenue at the moment, because -- more than you might expect, because it's sort of the first time we've gone through a major wave of this as a company.

But don't the new probe sales come with a maintenance obligation as well?

They do, but in the past when we've sold new probes, we have not end-of-lifed the old ones. So as -- in some cases customers are continuing to use them and not yet replacing them, even though they've discontinued maintenance on them. So this is an unusual phenomenon for us, but we are at the tail-end of the phenomenon. So although we do -- your assessment of maintenance revenue going forward in the fourth quarter is essentially correct, that we expect to see a continuation of the flattening, we don't expect that to continue like that after this immediately -- next period or so.

So without giving specifics on the March guidance then, it's fair to say it looks more -- as far as the break between the two, it looks more like December than similar numbers for both in March? Is that fair?

Yes, I think so. That's fair to say.

To follow-up on the operating margins, you got to the 10% adjusted operating margin target that you guys have been shooting for. Is the guidance that you have out there the adjusted -- I think it's $0.05, $0.06 for March. Does that assume a dipping back below the 10% now, given these additional expenses or the seasonality, I should say, of pay raises, benefits and payroll taxes?

We are holding to our target of 10% in the face of that. We knew about the seasonal expense growth when we made the original guidance, issued the original guidance in May of last calendar year. So we believe we can still hold that 10% operating margin, but I wouldn't expect much expansion of it because of the expense pressures.

In the past you had commented -- and this is probably six months ago -- growth of 15 to 20%. You then throttled that back to maybe more like 15. We have now just seen 13, and we are guiding for 13. What's causing -- is it simply the maintenance issue that's causing that, or is there something else going on?

It's principally the maintenance issue that we're -- it's difficult for us to assess some of the size of. But we think that 15% -- and I know your 13% for Q4 was you said in the middle of the guidance range. But if we were to achieve the high-end of the guidance range, I think we would be at the 15% range. And certainly we target to exceed our guidance. So I think when we gave 15 to 20% and then recognized that we were probably going to come in at the lower end of the range, that's not anything that we are concerned about. We think we've done a great job of hitting the guidance and exceeding the earnings guidance, profitability guidance.

That product sale, the 23% product sales growth is very substantial, and I do --

And that, clearly, as you -- as you know, will drive the continued maintenance growth, which will help us return to maintain the kind of revenue growth we think we've seen this year.

And I think that's -- just to support what David is saying, is I think as our maintenance income becomes higher, I think we can increase that 13% rate we had talked about which is largely driven by product revenue. So hopefully as that returns to the normal levels, that itself will drive the growth to higher levels.

Jeff Meyers, Intrepid Capital.

In terms of the telecom customers, I guess that's becoming a substantial portion of your business. Who do you see on the competitive front there? Is it the same Network General, or are there other competitors?

I think -- the service provider customers are still using our product like for internal use as enterprise customers. And in that sense, we have very similar competition in that space, which is a service provider customer as we have with financial and other enterprise businesses. It's the same set of players.

What about in cases where they're using you on the external network? Is that a different set of competitors?

That's not a very -- that's a very, very small portion of our business right now, so we don't track it that extensively.

I see.

At this point it's mostly on the vendor side.

Anil, this is a question for you; I've spoken with David on this point. What are you seeing from Cisco's NAPA initiative? I guess on the competitive side, do you have any products out there you had, and I guess how would your own products sort of stack up with what they're trying to do?

I think for that, I think first of all we already have products in that space, and Cisco is coming up and showing some of their initiative in that area. And I think several people have anxiety about how NAPA affects our business. So in light of that, we have reviewed their announcement and, like any vendor, any customer or any companies who are in the management space, have to be seriously looking at Cisco's initiative because of the sheer size and marketing muscle. In light of that, we have reviewed the announcement, talked to some of our large customers. And our conclusion is that this is not their attempt to go after our core business. We have -- it doesn't necessarily increase or decrease the competitive pressures we have coming from Cisco, which are -- we have already bundled into our existing plans. And we do compete with Cisco in certain areas, but this doesn't change that situation in any negative or positive way.

And finally, we think that this can in fact be a net positive for us, because these kind of announcements raise awareness of all network and application performance management solutions. And that allows a real technology leader like us to win. So we think it's overall a net positive, but we still need to make sure that we position strategically and educate the market about the differentiation of what we do versus what NAPA is trying to achieve.

(OPERATOR INSTRUCTIONS). Ted Levy, Excel Securities.

First of all, congratulations on an excellent quarter. I've been in the business 40 years as an analyst and all the rest of this stuff, and I really don't have any specific questions. The one thing that -- and we own quite a few shares, and we've been accumulating for a while here, because on a valuation basis with heavy cash position, strong GP margins basically, and a real product basically that seems to be winning some market share out there -- appeared very attractive. Just a question to management.

With all the high costs of Sarbanes-Oxley and investor relations and the quarterly reporting and -- don't you ever get tired of listening to some of these nitpicking questions, especially from the first guy that I heard on the call. And I've had 40 years in the business. I'm the strategic equity strategist, a pretty good strategist, telecom analyst and so forth, you know, who is only worried about the next quarter and this is the true value of the business, especially in light of the fact when MicroMuse was taken out at 18 times EBITDA and four times revenues and you were selling at half that basically and worried about -- that's number -- in light of those factors and Sarbanes-Oxley and all the rest of the stuff, and having to -- that does detract from the forward thrust of a business basically. Does it ever pass through your mind here basically to take the 77 million in cash and team up with a private equity capital group and just get out of this public trading atmosphere basically, and kiss that off basically, or else just basically make some sort of deal with a company the likes of an IBM -- not IBM and so forth? Because I listen to many of these conference calls, and if I were president I would just say this is ridiculous. Tremendous quarter; tremendous thrust in terms of the secular evolution of what's going on here basically; competition being bought up. Actually you're a freestanding company. I'm just wondering if that ever enters your mind. Otherwise, congratulations on a great quarter and we're quite excited about your company. Thank you.

I think you're making some good points, and we on and off talk about this. And these type of questions have come up in previous calls. And our answer always has been we are always open to the right opportunities and doing the right thing for the customer and the shareholder. So right now, I think we ought to just put up with some of these things. And that's the way of running -- that's part of running a business.

I understand. Thanks so much, and good luck in the future.

Let me add one thing to Anil's answer regarding the frustrations of Sarbanes-Oxley. We certainly have paid the price for Sarbanes, but I think we respect -- we have a healthy respect for the markets and the regulations and the things they're trying to accomplish, and our friends on Wall Street and what they're trying to do as well. So sometimes it is a burden for a small company that's maybe a little larger than for -- disproportionate than for larger companies. But I think on the whole, we are in support of the directions, as frustrating as they may be sometimes. Thank you.

Vincent Au, Avalon Partners.

Good evening, David. I'm just going to offer you a statement here, and I believe we've had private conversations about this before. I'm just curious, as of right now, today, the Company is sitting on right now about $75 million in cash, give or take. The market cap of the Company is $200 million. Do you guys have a game plan of what to do with that cash?

We examine that regularly at, obviously, the highest levels of the Company, and the Board examines that question. Right now, we are going to preserve our cash for, as we have been, for strategic opportunities. But we examine the issue of whether we should buy back shares as questions come up from investors like you. And it's always a possibility that we would decide that the time is right to do such a thing, but we haven't decided that today.

That being said, when you say strategic opportunity, could you elaborate on that possibly?

I think Anil said it a moment ago. We remain open to opportunities in the marketplace, which are both opportunities for us to ally with some other company or larger player, as well as to continue to do acquisitions as we did last spring with Quantiva.

So basically, just so I understand this, you guys are open to the possibility that if a bigger company came along, like with a CA or an IBM, you would be open to align yourself with them? Am I correct in saying that?

I think, as I just said in my reply to the previous question and in the previous call, I think we are wide open to acquiring companies or getting acquired, depending on the right opportunity for everyone.

So that being said, I'm assuming that -- on this conference call we somewhat agree that the Company is fairly under valued and if the right opportunity came along, you guys would be open to it. That being said, on the other side of the coin as far as opportunities you guys may have, in four years you guys have made two acquisitions, in four years. That being said also, in four years -- okay -- whereas some of your competitors or pseudo-competitors -- and if you wanted to use the NASDAQ or whatever index you want to use -- in four years have all performed, have all been on the upswing. They're all up. Let's just use that for general conversation's sake. And in four years, the stock has not only not gone up, it's gone down. So the question is that the Company is sitting on $77 million of cash, approximately $85 million in cash. I'm not exactly sure what opportunity are we all waiting for here? If you feel the stock is under valued, you said there might be opportunity for you to align yourself, the share price of this company is under valued. So why wouldn't you go out there and buy it? And if you feel that there's a better opportunity out there as far as alliances and other business, I'd like to ask, what do you envision, what is the game plan? Because in four years, the ROA has been not good -- let's just say that. The ROE hasn't been good, so the stock price has not been good. I would not even want to say to you the stock has been at $30 as it was five or six years ago, but it hasn't even been $10 in four years.

So I'd like to know what does the Company management plan on doing. And I disagree with the previous phone call, the previous person who called. We're the stockholders. We're the shareholders. You're managing the money on our behalf. I don't mind you managing the money if you have a game plan, but it seems like every quarter in and out I hear the same thing. The opportunities -- what is the opportunities? Do we need $75 million in the bank? Can we not do with 35 million, 30 million, 25 million?

Vincent, I understand your concerned, and --

I'm just not concerned -- it's not a concern, I'm just trying to find out from my management team what is the game plan here? (multiple speakers)

We've shared with you what we can share of your concern, and we do appreciate it. And I think if you'd like to discuss the past history and our prospects that we've talked about more deeply, we should take it off-line.

Since I'm here, if you can give me any broad stroke of a game plan, because it seems like if I go back the last two or three quarters, I listen to the conference calls -- pretty much the same hamster on the wheel routine I'm getting here. So I'm asking if you guys have a broad stroke here, I think all the other shareholders on this conference call, including myself, would like to hear it. Because it seems like your carrying 40% of the Company's market cap in cash seems a little excessive.

I think first of all, we have laid out a game plan. And either you don't like it or you don't understand the details of that, and we need to spend our time off-line to explain to you the details of that plan.

Actually, respectfully, sir, you really haven't given us a game plan of what you want to do with all the cash. Are you guys spending $40, $50 million on a new product outline, on a new -- are you ramping a new product we're not aware of? Because looking at SG&A, looking at all the expenses, you're pretty much in line. Okay? So it seems like that as a publicly traded company, and since I'm the stockholder and you're working for me, essentially, I'm a little confused what is your game plan.

I think the use of the cash is one part of the game plan, so we can't just look at that (multiple speakers)

Respectfully speaking, does your game plan envision you spending, say, $20 million, $30 million of the money this coming quarter, the next two quarters?

Vincent, we've said everything we can say about -- in answer to your question.

David, respectfully speaking, it seems like you guys didn't say anything again. So next quarter it's going to be we'll have $70 million in the bank, and I will hear about some grandiose plan or the same speech about how you guys think of doing something. And all I'm asking is that do you guys really need $77 million, or shouldn't the shareholders get some of their money back? I'm not saying you shouldn't give like all the money back, but shouldn't -- do you need $75 million-plus in the bank to operate the Company effectively?

I understand your point, and we do take it into account. And we have already, based on our prior conversations, and we will continue to. And I think that's really all we can say about it on this call.

Jonathan Rothenberg, Emancipation Capital.

Nice quarter. I wanted to ask you -- I guess it sort of falls along the lines of thematically at least the most previous question. One is, given that you've guided to 10% operating margins and now hit that, and looking to guide towards 15% by the end of next fiscal year, it seems like you guys are going to remain cash flow positive now for basically -- well, I don't know if we can say perpetuity, but at least the foreseeable future. Is that correct?

That's our plan, yes.

And given that, have your board discussions intensified at least, in terms of what to do with cash and one time return on capital, a dividend, a buyback, something like that, as the stock is viewed as too cheap to use as currency? And also, in terms of strategic opportunities going forward, can you give some sense at all as to at what point you think the stock is fairly valued to use as an acquisition currency?

We really can't comment on the details that you're asking, either on terms -- or internal -- excuse me -- internal decision making process, or exactly where we think fair value for the stock is to use as a currency. Obviously, we agree that the stock is undervalued today. And although it's moved some in the last few weeks, we still believe it's undervalued, based on our business prospects and our growth and our profitability, and increasing profitability. But as much as it would be satisfying perhaps for us to be able to give you more information about our internal decision process, and where we think we might use stock for strategic purposes, we can't really do that. I hope you understand.

Sure. But I guess the implication then for the market is that in addition to the enormous war chest you guys have, also the internally-generated cash flow that you're adding quarter after quarter, you guys view that as the minimum amount of cash you guys need in order to execute the strategy. Is that correct then?

Yes. That's the implication of our decision to hold the cash.

Ted Levy, Excel Securities.

I had two questions. The Quantiva -- has that left the beta test stage? And I was wondering if it hasn't, when is that scheduled? And then I have a follow-up.

I think it is still in beta, and currently we are exploring what's the best way to package it. But we are already seeing the positive impact of the technology and we're going to do with it on our existing business. So right now there are different -- we are looking at different ways of packaging and releasing it, and we are getting some good feedback from beta customers. And by the end of this quarter, we will have made that decision.

I don't have a follow-up. Actually, the other question was answered. Thanks a lot.

Mr. Singhal, I will turn it back to you for closing remarks.

Thank you for all your questions and this call, and we will talk to you again at the next quarter, our Q4 conference call.

Thank you. Ladies and gentlemen, this conference call will be made available for replay starting today, January 25th, at 8:00 PM Eastern Time. The replay of this conference will run until the date of February 8th at midnight Eastern Time. You may access the AT&T teleconference replay system by dialing 1-800-475-6701. Please enter the access code 814025. International participants may dial 320-365-3844. That does conclude our conference call for today. I'd like to thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.