Radware Ltd (RDWR) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fourth-quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given a that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, President and CEO, Mr. Roy Zisapel.

Good morning, everyone, and welcome to Radware's fourth-quarter 2007 earnings conference call. Joining me today are Chris McCleary, our Executive Chairman, and Meir Moshe, our Chief Financial Officer. Meir will start the call by reviewing the financial results and afterwards, I'll discuss the business highlights of the fourth quarter. After my comments, we will open the discussion for Q&A.

Thank you, Roy, and welcome, everyone, to our fourth-quarter conference call.

First, I would like to read you the Safe Harbor language. During the course of this conference call, we make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially, including, but are not limited to, general business conditions and our ability to address changes in our industry; changes in demand for products; the timing and amount of orders; and other risks detailed from time to time in Radware's filings. We refer you to documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's last filed Form 20-F, filed in June 2007.

Now, ladies and gentlemen, for the financials. We are very pleased to report record revenues for the quarter and for the year 2007. Moreover, we are very proud to report continued improvement in our American business. Revenues for the fourth quarter increased sequentially 6% and 16% year-over-year to a record of $24.4 million. Revenues for 2007 increased by 9% year-over-year to a record of $88.6 million. The deferred revenues for the end of the year increased to $18.4 million, an increase of $2.7 million in 2007.

The non-GAAP net loss this quarter was $0.1 million, or breakeven diluted earnings per share, an improvement from a loss of $1.2 million dollars, or $0.06, in the third quarter. The non-GAAP net loss for 2007 was $4.9 million, or $0.25, compared to a profit of $3.8 million, or $0.19, in 2006.

Gross margin for the fourth quarter remained at about 81%, the same as in the previous quarters of 2007 and in 2006. Non-GAAP operating expenses in the fourth quarter totaled to $21.9 million. As a reminder, $1.5 million per quarter of the operating expenses are a result of investment in business-smart networking, which includes the operating expenses in connection with the Covelight acquisition.

The DSOs for the quarter were 65 days, an improvement from 69 days last quarter. Inventory at the end of the year was $5.4 million. Our cash position, including long-term deposits and marketable securities, is approximately $155 million at the end of the year and we have no debt.

The headcount for this quarter was 593 employees. Shareholders equity remained at about $177 million.

Guidance, the first quarter of the year is usually affected by seasonality, therefore we prefer not to give guidance. However, we feel comfortable with the Street expectations for the quarter.

As you can see, ladies and gentlemen, in the fourth quarter revenues increased to a record of $24.4 million. Deferred revenues increased. We've maintained our high gross margins, improved our bottomline and together with our new product announcements, we look forward to having higher sales and better results next year.

Now, I would like to turn the call over to Roy.

Thank you, Meir. As Meir mentioned, our Q4 results reflect another quarter of record revenues for the Company. Our overall execution improved this quarter, resulting in record bookings and revenue numbers. We were pleased with the continuous improvement in our Americas business and the ongoing strength of our European and Asia-Pacific business.

We continued to see strong customer activity and coupled with the new product introductions we made in the last several months, as in specifically the announcement of the new products, AppXML and SIP Director, and our next generation platforms, the OnDemand Switches announced today. We believe that we are well-positioned for a record year in 2008.

During the quarter, we won significant sales in both carrier and enterprise accounts, including Petrobras, Telecom Italia, eBay, Hong Kong Stock Exchange, Booz Allen, [Cause Myers], Fujitsu Siemens, City University and many others. As evidenced from the customer list, we are doing very well in the high-end of the market, with strong growth in the fourth quarter sales of our high-end applications, (inaudible) applications, which five platforms. We believe that our next-generation platforms further extends our competitive advantages in the large enterprise and carrier markets.

In order to better serve our customers, we announced this month our new Solutions Lab. This lab is providing a cost-effective, quick and easy way for partners and customers to experience hands-on the deployment of router application, delivery and security solutions, combined with their mission-critical applications. The lab currently is over 20 customers set ups already running and more than 10 alliance partners, including IBM, Microsoft, BEA, Oracle, etc.

This month, we won another award for our products. Internet Telephony Magazine named AppDirector a product of the year. The magazine named other AppDirector 6000 for its best voice and video-over-IP and collaboration applications capability for application delivery. It joins a long list of awards for our technology innovation and excellence, such as the Info Security Magazine, who named our DefensePro product as a finalist for the 2008 Global Product Award, and the best load balancer award from IDG for the AppDirector switch, winning in a head-to-head test versus F5 BIG-IP and Coyote Equalizer. These awards are further testimonials to the strength and competitive advantage of our product portfolio.

As we discussed in previous calls, we are working on executing our vision for the business-smart network. The business-smart network is all about the network, understanding business events and in real time, aligning the network behavior according to the enterprise business policies. As a core element of our business-smart networking strategy, we are also engaging partners that through working together, we feel we can collectively offer a strong competitive and innovative business application to our customers. This past quarter, we announced a partnership with NorCom Technologies to help online businesses fight fraud and identity theft as well as money laundering. Through the integration of Radware's business-smart networking solution and NorCom's fraud and compliance detection, businesses will be able to fight fraud and identity theft as well as money laundering in real time. The alliance joins our announcement from the third quarter where we teamed with ArcSight and presented a real-time network-based data acquisition and logging for online user activity for compliance and forensics.

As we mentioned in the past quarterly calls, we are dedicating approximately $1.5 million per quarter in operational expenses for this initiative and we believe that this investment is critical order for us to lead a future multi-billion-dollar market and we are already executing on the strategy.

In this call, I would like to concentrate on our new solution and product strategy. In the past several months as we accelerated our new development introduction cycle, topped with this month's introduction of our new product, SIP Director, and today's announcement of our next-generation platform, the OnDemand Switches, as our customers are looking to address growing transaction numbers coupled with the more-complex application environment, there is a clear need for a stronger, more powerful application delivery solution. In addition, we are seeing next-generation applications being developed and deployed. Video streaming, such as YouTube, videoconferencing, presence and location-based services, instant messaging and collaboration applications are all rising very quickly. These applications are all based on the SIP protocol and create new challenges for application delivery.

While we were already leading the SIP application delivery market, as evident by the Internet Telephony award, we launched earlier this month our next-generation offering, the SIP Director, further enhancing our competitive advantages in this space. With the newly-introduced SIP Director, we are targeting the carrier and large enterprise market to serve the new wave of collaboration and messaging applications.

SIP Director is the first solution the market with full SIP awareness for application delivery. It is a major advancement over previous-generation solutions that provide only basic capabilities in this space. We're seeing strong interest from carriers and application vendors in this solution and believe it will help us to create key wins in this segment in the second half of 2008.

Speaking on-next generation applications, we are seeing in the financial services, carriers and government segments a growing adoption of service-oriented architecture as the underlying framework for developing new applications. Our newly-announced AppXML product helped customers tackle Web services in service-oriented architecture deployment challenges. AppXML provides enterprises with better security and performance acceleration for this rising application environment. This again positions Radware in the forefront of application delivery, answering the advanced needs of our target customers.

Another important new product introduction is our new application performance monitoring. Our APM module -- that is a new module of our APSolute OS that runs on all of our products -- provides customers with a fully-integrated solution to effectively ensure service level agreements and resolve performance issues. Today it is very difficult to decipher the source of performance issues that can derail SLA guarantees. Radware APM module provides proactive monitoring and measurement of real user traffic and end-to-end performance at the application level. This allows easier identification of specific bottlenecks along the application delivery path, which can span a myriad of network elements, servers, applications and databases.

We got excellent feedback from customers about the necessity of this capability in order to quickly and proactively detect and prevent application performance delays. This capability provides another strong differentiator for our application delivery solution.

Now for today news, today we announced our next-generation platforms, the OnDemand Switches. We believe this announcement is setting a new bar for application delivery products for the enterprise markets in terms of performance, scalability and operational simplicity. The OnDemand Switches are the first in the industry to offer throughput and service scalability on demand simply by applying a license upgrade. This allows end-users to increase throughput levels without the need to swap out existing IT [housing] infrastructure, eliminating any associated disruptive downtime. The OnDemand Switches' licenses starting at 200 meg and the customer can grow its capacity to 500 meg, one gig, two gig and four gig, all on the same outer platform with one simple command.

Similarly, our customers can now add intrusion prevention, bandwidth management, global load balancing and disaster recovery, denial of service protection and the newly-introduced application performance monitoring all on the same platform without any downtime or change in hardware configuration.

Key benefits of our next-generation platforms are, first of all, breakthrough performance. OnDemand Switch is a purpose-built hardware architecture with (inaudible) great reliability. It delivers between 250% to 10 times better performance than competitive offerings. Second, on demand throughput and service scalability. OnDemand Switch allows our customers to scale throughput and services on demand to meet their growing business needs. As mentioned, all they need is a software license key. Third, operational simplicity and optimal investment protection. No forklift upgrade of hardware is required. All the project cost that is associated with testing, staging, QAing, debugging a new hardware are eliminated and thus, we provide the best investment protection and total cost of ownership in the market.

It is clear that the these advantages -- breakthrough performance, scalability on demand, and full investment protection and operational simplicity -- are key to running a successful application delivery. We are very excited from this launch and we believe it will give us a tremendous edge in the marketplace.

We believe that our vision for business-smart networks executed through, one, the introduction of our next-generation platforms announced today; two, our leadership position in the next-generation application delivery for SIP, as evident by the SIP Director launch, and service-oriented architecture, as evident by our Q4 announcement of AppXML; three, our best-in-class advanced application services, such as our application performance monitoring; and fourth, the breadth and strength of our security offering. These four key introductions, all of them released in the last three months, are positioning Radware clearly as the strongest and most-advanced application delivery solution in the market.

I would like to thank the whole Radware team for the past 18 months of investment of our new solutions and product strategy, a strategy that will definitely fuel the growth of the Company for the coming years.

To summarize, we are executing according to our plan and continue to grow our business, finishing another record quarter and accelerated growth rates. As we have done in the past several quarters, we will continue to identify and secure partnerships that extend the value of our products and our market reach. We are excited with our newly-introduced product and solution strategy that dramatically enhances our competitive position. And we believe that our industry-leading solutions will enable us to continue to fuel the growth engine of our company, as we expect another year of record revenues in 2008.

With that, I would like to open the discussion for Q&A.

(OPERATOR INSTRUCTIONS) Stanley Kovler, Merrill Lynch.

My first question is related to cash flow and interest income. Meir, if you could please provide us with some of the cash flow statistics for the quarter, depreciation and CapEx, that would be great. I had a question about the increase in the financial income, $2.3 million this quarter. The cash balance was roughly flat, so I'm wondering if you can go over where the increase happened.

Okay, this quarter, actually, we burned $600,000 mainly due to increase our CapEx out of our plan, so introducing the new product and new lab that Roy mentioned. Also this is part of our investment.

As for the financial, first of all about the cash, our cash policy is -- our investment of our cash is based on our policy, limited only to high rate of investment and does not allow investment in creative investment and the financial income generated in the last quarter speaks for itself. That means that we invested the money very conservatively over the year and this quarter we enjoyed the results of higher rate based on those investments. I believe going forward, we can expect the same financial revenues that we had before, like $1.7 million per quarter.

Great, I had a follow-up just on the outlook. You talked about the outlook that your expectations for the quarter are in line with the Street. Can you just also remind us, specifically, on the operating expenses what typically happens in the first quarter, given that you're in a ramp-up phase with certain products and also trends in North America?

Actually, the expenses in the first quarter should remain the same as in the first -- as in the fourth quarter. We have to take into consideration maybe a slight increase due to salary review that we make for part of our international teams in this quarter. That's all.

Great, and as you always do, can you give us the breakdown of revenue by geography? And that's it for me, thank you.

Yes, the sales contributed by the U.S. team this quarter is 32%. Just to remind you, it is up from 30% a quarter ago. On international, of course this is the rest, 68%. 31%, this is the EMEA, and 37%, APAC.

Thank you.

Ittai Kidron, Oppenheimer.

Congratulations and good results. Roy, maybe you can talk a little bit about the new products. Very aggressive launch year. What does it do to your sales and marketing effort? How do you push all of those things at the same time? What does it require you to do in order to handle that introduction? What is the timeframe that you expect each and every one of those products to have meaningful contribution to your topline?

Okay, so, definitely we are preparing this launch for several months by now and so already we've started in middle of Q4 with our worldwide partner meeting, both for APAC and EMEA, that were done in Tel Aviv and Vietnam, respectively. Over there, we have launched the solutions for our AppXML and APM support. So we already trend our partners in the sales perspective. Beginning of this month, we had our global kickoff in Tel Aviv, where we have trained all of our field on all of the product introductions.

From a marketing point of view, obviously, we launched a new Web site that just went up on the 15th and I invite all the participants on the call to visit it. We believe it is a big upgrade from what we had before, with a specific explanation about our target markets and solutions. Going forward, obviously, now we're launching a marketing campaign across the world to push the OnDemand Switches, the full-spectrum security, as well as our other solutions.

Concerning timeliness, OnDemand Switches are available today and we believe we will start to recognize sales in Q1, albeit in a very low amount. The AppXML is shipping from the end of Q4 and, again, we believe will start seeing some revenues this quarter. But, as mentioned in our previous calls, a typical sales cycle in our industry is six months. The application performance monitoring module is available in both our DefensePro and newly-introduced OnDemand Switches and it, as mentioned, according to those platforms, the general availability, we will recognize sales. In SIP Director, the new solution for the SIP market, we are now entering a testing phase with some large carriers and software vendors in this collaboration space and we believe that the general availability will be the beginning of Q3 for the overall market.

Of all these products, which one are you most bullish on near-term that could make an impact versus long-term?

I believe the OnDemand Switches should make a very, very meaningful impact on the industry, as well as the application performance monitoring. The SIP Director and the AppXML are targeting more the next-generation software deployments and as a result, I believe that is a good place to partner, cooperate, OEM with large vendors that need these type of solutions in order to launch their applications.

Very good, and can you give us an update on Covelight, how's been the traction over there? Is the monitoring module all about Covelight? I'm just a little bit confused here. What kind of traction are you seeing with customers on that front?

Covelight, as mentioned before, is part of our business-smart network strategy, so the Covelight piece, the in-flight product, is an integral part that monitors the business events activity of the applications and forwards them to a back-end application. This back-end application that can be a customer experience monitoring application, a fraud detection application, a compliance application or any business intelligence engine like Tibco, Oracle, etc. that the customer might use, can then speak directly to our switches, for example, the new OnDemand Switches that we have announced today, and enforce a different business behavior. So the business-smart network concept is built on the inside product together with all of our existing switches.

As I have mentioned in my call, we are cooperate with other vendors, back-end application vendors, to push the business-smart network idea forward. This quarter we announced an alliance with NorCom for anti-fraud, anti-money laundering solutions. A quarter ago with ArcSight for compliance. And we believe future announcements of partnership will rise around those.

We're seeing very good traction in the financial segment for the in-flight product. We have several customers that are already running in production for both anti-fraud, compliance and user monitoring applications. We expect, if you just see, for example, what happened in the Societe Generale with the internal fraud case and so on, we believe that the business-smart network is a critical component in next generation financial services and government deployments.

Do you feel, then, more comfortable now that this business can be contributing to the bottomline within -- by the end of the year as you have guided to originally when you acquire the company, if I remember correctly?

We believe so.

Okay, good luck, guys.

Irit Jakoby, Susquehanna.

Can you talk more specifically about what you're seeing the carrier markets? Are you seeing more activity in North America or this an APAC market? How soon do you expect it to be meaningful?

We're seeing traction across the world for the carrier solutions. I believe -- when we speak about the carriers, we should look the mobile segment, the fixed and the cable operators. So while each geography has a bit of a different mix between those, I think one thing is common to all the carriers across the world. They understand that selling minutes or selling bandwidth has limited profitability for the long-term and by staying only with this business model, they are risking their future. So all around the world, we're seeing carriers where they are deploying or experimenting with new consumer and enterprise-based new services that they can charge premium money for.

So we are seeing a lot of traction in the mobile carriers as we're seeing them looking for, charging for over-the-top video, for example YouTube. They are trying to limit the usage of peer-to-peer applications over the network in order to save on the infrastructure buildout. We're seeing wireline carriers starting to deploy new advanced security services, for example, denial of service protection and intrusion prevention and so on.

So we are engaged currently in very large carrier offerings. The timeline is unpredictable in this environment, but they can materially impact our revenues and we believe that in '08, we will sign at least one Tier 1 carrier as a top customer for Radware.

In terms of geography, is there a leading geography or is it pretty consistent globally?

Currently it is pretty consistent. APAC traditionally is the leading in terms of the type of services and the amount of services deployed, but I would say that in the last six months, we're seeing also in the Americas a very, very active market in the carrier space. All the carriers, I believe, are embarking on new application and services initiatives to be delivered probably in '09.

Okay, great. Thank you and good luck.

Rohit Chopra, Wedbush Morgan.

I had a few questions, if you could help me out please? How much does the finance and banking sector represent as a whole, not just North America?

Around 5% of our total revenues.

5% total, okay. Has there been any thought to a buyback? A stock buyback?

This is Chris McCleary. We have fully analyzed the issue about the utilization of our cash assets and at this time, based on where we see the Company moving in the future relative to growth aspirations, we have decided at this point not to execute a buyback in the foreseeable future.

Okay, can you tell me what the average deal size was? Did that change from last quarter?

Yes, and it is slightly up. It went up form $80,000 last quarter to $82,000 this quarter. Just to remind you, in the first half of the year, it was $70,000 to $75,000 average deal. So we see continuing increase in the average deal, $70,000, $75,000, $80,000, $82,000. This is the last four quarters.

This is a question on the competitive environment in the United States. Has that -- or even globally. Has there been any change that you've seen over the last six months from pricing perspective or any anything else? I know that Juniper is sort of exiting one part of the market where they competed with you. Is there anything changing that you guys see?

In the last six months, the changes that we've seen are, basically, F5 introducing a high-end platform like a week ago. We've seen Cisco announcing an appliance that was out there, I think, in the market for even more than six months. As you've mentioned, we've seen Juniper announcing that they're exiting our market. They are not exiting the what market of application delivery, but our segment, they will be no longer a competitor.

So overall -- and given the introductions that we're doing -- we believe today we are the most focused vendor in application delivery and the one that progresses now the fastest, with the major new announcements. We believe that definitely we're improving our competitive positioning in the space. We have now huge benefits in terms of performance, scalability. investment protection and the capability to support existing and new advanced applications in the best form in the industry. So we're definitely seeing that in (technical difficulty) for us.

Roy, one last question. I just wanted to sort of get your sense on when you think you can get the overall Company's growth rate up to industry levels, let's say industry is somewhere around 20, 20-plus. With the onslaught of new products, when do you think you can do that?

First of all, we believe that the industry is not growing anymore in these rates. We think that it is more around 15%, 16. I think we are already now at industry rates, but I think we're also accelerating indefinitely our intention now with the new announcements is to continue the acceleration.

So if you look on our quarterly results so far, I think in Q2 we were growing 7% year-over-year. In Q3, it was already around 14 and this quarter, it is already 16 and definitely we're growing.

The other hand, I'm seeing some of our competitors slowing down in their growth rates. So I think we are trading -- we're trending in the right direction and that is before all the announcements that we've just discussed. Definitely we're optimistic about our growth rates and taking marketshare across the world.

Thank you.

Ittai Kidron, Oppenheimer.

Just a follow-up. Can you give us an update on that big project that you've announced? I think it was the largest contract in the Company's history. Where do you stand on that as far as flowing that through your P&L?

It is progressing well. Some of the revenues we have recognized over some quarters generally in Q2 and Q3. There is still under this agreement, there is a lot for us to ship in 2008 and we expect the revenue recognition to go together with that. So all is progressing well.

Okay, so is it fair to say that there is more revenue ahead of you rather than behind you with regards to this project?

I would not go to that extreme, but we have meaningful amount of revenues ahead of us and in Q4 we did not recognize any revenues from that project.

Very good, and my last question is to Chris. Chris, maybe can you does an overview of where do you stand right now as far as the Americas business, what you have managed to do, what is still to be done from your standpoint in getting the business to where you want it to be? How's traction been and what have been the key positives from your standpoint, but also key disappointments, things that are still not working to your satisfaction?

The key disappointment, I'll start with that first, is that we're still trading dramatically below are we should be from a valuation standpoint. And I'll put that back to you all. First of all, as you know we've gone through an extensive reconfiguration of our sales and support operation in the Americas. And at this point, we believe we have all the elements in place and now it is time to start dramatically improving our execution metrics. One of the tactical changes that we made is we created two overlay salesforces, one to approach the federal government market and also one to specifically go after some Tier 1 and Tier 2, as well as Tier 1 and Tier 2 cable companies and carriers. And those organizations now are in place, reporting to our VP of sales. We also have developed some other interesting distribution channels and brought on some more value-added resellers.

So we believe that '07 was our transitional year and '08, we believe that -- it is back to the business as usual, which is continuous training, continuous upgrade of our sales engineers and regional sales managers and stronger relations with our distribution and key customers. So all in all, we're pleased with the progress, but we will never really let up with our quest for continuing improvement.

Is the progress in line with where you hoped it would be at this point or is it lagging or ahead?

I would say it is at expectation.

At expectation, okay. Lastly, Roy, maybe just a general comment. Clearly there's a lot of concern around corporate spending and can you tell us, if anything, what are you hearing from your customers in aggregate, specifically here in the U.S.? Are you seeing any slowness, longer sales cycles, anything that would indicate some hesitation in spending?

So obviously, we're reading all the papers and opinions and so on, but I just think back Sunday for a U.S. visit with our top customers and I think we've discussed with roughly 10 to 15 of our top customers in the U.S. the introductions, the direction and their needs. And I think the feedback is extremely positive. So we don't see today any impact. It might be attributed to the fact that our equipment is a relatively small amount of the total budget of IT spend, but it is very critical to maintain the availability and the performance of their mission-critical applications. And like everything that's critical to your business, you don't stop investing that. You probably go to the peripherals and cut spendings out there.

So the fact that we are tied to mission-critical deployments, to CapEx and OpEx optimization, to improving the business agility and compliance I think will help us in going through this difficult times in the Americas. I think it is also evident by our progress in Q4 and also our expectation going forward.

Good luck, guys.

Mark Sue, RBC Capital Markets.

I was hoping maybe you could give us your thoughts on linearity for the current quarter, how things have started maybe by region and if you are kind of seeing normal seasonality within North America?

About Q4, actually about 57% of the revenue was recognized in the last month of the quarter and at the beginning of the quarter, it was the rest, 43%. Our expectation was to be 50 to 55% in the last months of the quarter, but due to a large (inaudible) schedule, this is the shift that we discovered in the fourth quarter.

Got it, and then for the current quarter, have things started off within the normal historic linear range?

Yes, this is the follow-up. For Q1 we expect the normal about 50% at the first two months of the quarter and the 50% in the last months of the quarter. So far, (inaudible) this is in line.

Got it. Roy, maybe a philosophical question. I think the last two years we have only seen single-digit revenue growth out of Radware, maybe if you could kind of give us your thoughts on what the benchmark might be for 2008 as you scale the organization, considering a lot of the improvements that you have put in place for yourself, Chris and the rest of the team?

Mark, I don't think it is a philosophical question, it is a guidance question, if I get it correctly. So basically we don't want to give guidance for the whole year, but from the trends point of view, definitely we're looking for a record year. We are now growing, in the last two quarters, 14 to 16%. So obviously from at least our inspirations -- and don't get me wrong, it is not guidance at all, by no means -- we would like to continue with this growth rate, maybe to accelerate it given the new products, but it is very early to say.

We have some issues in the Americas, macroeconomics may be contacting Europe. We want to take it quarter by quarter. At this point, as Meir mentioned, we feel comfortable with the Street expectation for Q1 and maybe in the end of Q1, also when we will have a better feel for the new product introductions, we will update you on that.

Got it. And it is safe to assume that you're targeting internally for a higher rate of revenue growth this year, particularly with the new products?

I would prefer not to comment on our internal expectations.

Okay, got it. With that, that's helpful. Thank you, gentlemen, and good luck.

Scott Searle, S Squared Technologies.

A couple questions on the carrier side of the equation. First off, what was carrier revenue in the quarter? And specifically, what was carrier revenue in North America?

Okay, carrier revenues this quarter it was about 30 to 35% of the revenues. This is very similar what we had before, around 35% of total revenues. And specifically by geography, we don't break out the carrier revenue.

Roy, you mentioned a tremendous amount of carrier activity that is going on right now. Could you give us some idea of magnitude in terms of dollars of what that pipeline looks like or at least what the potential deal size is? It sounds like you're targeting at least one deal this year. Is this $10-plus million per opportunity or is it a number different than that?

I think generally the carrier opportunities are obviously larger than what we're seeing in the enterprise, but they are also spread timewise for a longer period of time. So I would say today, on average, carrier opportunities is roughly one to $2 million. It can spread over a year or two years, where the large projects are, as you have mentioned, $10-plus million plus for the period of the contract.

So we are definitely seeing larger deal sizes there and some of them are tied to the success of the service being launched, so they might start with $300K project or $400K project, but it scales as the service grows. So if you have a mobile carrier with 50 million subscribers and they start with 50,000 subscriber capacity for the new service, if the service catches up, you grow nicely with this platform delivering.

So we are investing a lot. We're investing ahead of the cycle. We are optimistic, as I have mentioned, that we will close at least one Tier 1 carrier in '08 and we believe that would make a nice impact on our revenue.

Roy, could you just clarify how you guys compete or complement with traditional DPI solutions when you are looking at peer-to-peer applications and otherwise? Are you working with some of those solutions that are being marketed out there or are you -- would be the single solution?

Okay, so DPI, that stands for deep packet inspection, is a technological term. In the into the day, the carrier wants to achieve something. He might want to just shape or do better with management for peer-to-peer traffic. Then there are traditional vendors or other vendors to do that. Cisco is doing it, Sandvine, [a lot] and others.

But there are other opportunities in this space of added network intelligence for the carrier, for example, delivering new services on top of a common infrastructure. And then the additional capabilities like traffic redirection, load balancing and so on, if needed, and that's where we are playing. In those environments, we're generally the sole provider of the network solution. Obviously the carrier or the system integrator, in many cases, is coupling that with an application or a service, a new service that is being built.

Got you, and also on the strategic relationship front, Roy, if you could and you have talked a little bit about that. What are the goals for this year or the milestones that we should be thinking about in terms of additional distribution from OEM relationships or otherwise partnerships that we should be looking for?

We believe we're making some good progress in that front and we're seeing very nice opportunities also as the market shapes and vendors are going in out of the market for additional alliances. We will announce them once the time is right, but we are definitely working on that and we are seeing progress on that front.

Great, last item. Depreciation and CapEx in the quarter?

Okay, the CapEx, it was about $1.8 million and depreciation $1.1 million.

Thank you.

We have no further questions at this time. Please continue.

Okay, I would like to thank everyone for joining the call today. We strongly believe that the new product introductions that we have done over the last three months are really reshaping the competitive landscape for our Company, genetically improving our advantages and obviously the win rate for our business. We're looking forward for a record year in 2008 and we hope to see you soon in the next call. Thanks a lot, guys.

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