Universal Electronics Inc (UEIC) 2007 Q4 法說會逐字稿

Welcome to the Universal Electronics fourth-quarter and year-end 2007 earnings conference call.

At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded February 21, 2008.

I would now like to turn the conference over to Miss Kirsten Chapman. Please go ahead, ma'am.

Thank you, Eva, and good afternoon, everyone. Thank you for joining us for the Universal Electronics fourth-quarter and year-end 2007 earnings conference call.

By now, you should have received a copy of the press release. If you have not, please contact Lippert/Heilshorn and Associates at 415-433-3777 and we will forward a copy to you.

This call is being broadcast live over the Internet. A webcast replay will be available at www.UEI.com for one year. In addition, a telephone replay of this call will be made available for 48 hours beginning approximately two hours after the conclusion of this call. To listen to the replay, in the U.S., please dial 800-642-1687, and internationally 706-645-9291. Enter the access code 34123628.

Also, any additional updated material non-public information that might be discussed during this call will be provided on the Company's Web site at www.UEI.com shortly after the call, where it will be retained for at least one year. You may also access this information by listening to the webcast replay.

After reading a short Safe Harbor statement, I will turn the call over to management. During the course of this conference call, management may make projections or other forward-looking statements regarding future events and future financial performance of the Company, including the benefits the Company expects as a result of the development and success of products and technologies; new products and technologies, and the Company's home connectivity product line and software line; the recently announced new contracts with new and existing customers and new market penetration; the continued conversion to the Company's technologies and trends in upgrading digital media services such as DVR, IPTV, and HDTV; the Company's continued sales, operating income, net income and EPS growth; the ability to attract and obtain new customers, particularly in Asia; and the strength of the Company's financial position. Management wishes to caution you that these statements are just projections and actual events or results may differ materially. For further detail on risk, management refers you to the press release mentioned at the onset of this call and the documents the Company files from time to time with the SEC, including the annual report on Form 10-K for the year ended December 31, 2006 and the quarterly reports on Form 10-Q filed since that time. These documents contain and identify various factors that could cause actual results to differ materially from those contained in the management's projections or forward-looking statements.

On the call today are Paul Arling, Chief Executive Officer and Chairman, who will deliver an overview, and Bryan Hackworth, Chief Financial Officer, who will summarize the financials. Then Paul will return for vision on 2008. Now, I will turn the call over to Paul Arling.

Thank you, Kirsten, and welcome, everyone. In 2007, we delivered our strongest year ever with record revenues of $272.7 million, a year-over-year growth of over 15%. Full-year 2007 operating income was a record $26.5 million, representing a nearly 10% operating margin and a more than 40% growth over full-year 2006. Our strategy of building the world's best access and control technology within the home and brilliant execution of the UEI team worldwide delivered success over the past few years, which is represented by a three-year compound annual sales growth rate of 20% and EPS growth of 27%.

Looking forward, we expect to continue our strategy of converting new customers and expanding existing customers' use of our technology and products to fuel future growth.

In 2008, we are projecting to increase revenue by 12% to 18% and EPS by 15% to 23%, resulting in another record year in both sales and earnings for UEI.

While we're clearly aware of a more difficult economic environment and its uncertain affect on our industry going forward, we believe the global consumer transition to digital and the adoption of high-definition in DVRs will continue. In fact, we believe these trends are inevitable.

In January, DisplaySearch published a report showing that HDTVs of 26 inches or larger have penetrated 25% of U.S. households by the end of 2007, and predicted household penetration will reach 65% by the end of 2011. This translates into increasing from 52 millions units deployed by the end of 2007 to 169 million by the end of 2011, a compound annual growth rate of 34% over the next four years.

Current economic trends have certainly affected near-term customer ordering patterns, particularly in the fourth quarter of 2007 and into the first quarter of this year. However, we believe our new customer and new product development activities, as well as working with customers to garner a larger share of their forward purchasing plans, will yield results through the rest of 2008 and continue our long-term achievement of sales and earnings growth.

Our growth themes or goals for 2008 include increasing our share with existing customers, acquiring new customers and in historically strong regions and expanding into new regions, and developing new products and technologies. I'd like to explore each of these in a little more detail.

First, increasing our share with existing customers -- in our business category, our customers are the top consumer electronics companies, including share leaders, in the growth areas of AB receivers and plasma and LCD TVs, such as Panasonic, Polaroid, Hitachi, Vizio, Brillian, Sony, Dennon and Onkyo to name just a few. Our planning for 2008 includes discussions with our customers to expand their use of UEI technologies or products as part of their solution.

Consumer electronics companies literally have hundreds of products at different stages of the lifecycle at any given time, and we work with them on a variety of levels, supplying a portion of their chips and/or control devices for some or all of their products. Our goal is and has always been to earn more and more of their business. We start our relationships with a few successful projects and build on them to supply a more substantial portion of their business over time.

The same is true within our subscription broadcasting customers. We often do not have 100% of their business, and an opportunity exists to capture more of their business by demonstrating our technologically superior products and great service. It is our expectation that, through these numerous relationships and detailed discussions with these customers, that we can earn more of their business throughout 2008.

Second, acquiring new customers in historically strong regions, as well as expanding into new regions -- we have spoken previously of our entry into Asia by the establishment of offices in Hong Kong, Singapore in India, along with our continued presence in Japan. Almost all market experts have predicted that this region will experience significantly more growth than in any other region of the world over the next five to ten years.

Our newly established presence in this region is already beginning to produce results. Since late last year, we have added a number of new customers in Asia and will enjoy revenue from these relationships throughout 2008. Some of these customers have requested we withhold the award announcements to help them maintain privacy; and for other customers, we hope to release formal announcements soon. Regardless, we have successfully kicked off our relationship with PCCW, the largest and most comprehensive communications provider in Hong Kong. This is the first example of our customer wins, and we plan for there to be many more.

Additionally, our sales team has continued to focus on potential customers based in the U.S. and Europe, where UEI is long-established. These efforts have also paid off. We anticipate the announcement of some key sales wins during 2008.

Third, continuing to develop industry-leading technologies and products -- we still lead the industry in innovation, and we will continue to develop and bring to market new technologies and products that redefine ease of set up and ease-of-use. While I will not give out too many details of these products and the relationships that result from them just yet, I will say that they will provide a broader array of highly functional products that are easier to set up and use than any product on the market. Importantly, some of them will be able to achieve price points that will bring this unprecedented blend of functionality and ease-of-use to the widest possible market. We're entering the late stage of development on these products, and they have been presented to numerous potential customers for input. The reaction has been universally positive. These products will incorporate both wired and wireless technologies, and we will provide more details on them as the year progresses, particularly around important trade events in the May and August-September time frames.

Finally, as you may be aware, on January 11, we made an offer to acquire Zilog, Inc. Due to the confidential nature of these ongoing discussions, I am unable to provide you with details regarding this matter, including its status. Should you desire more information about this, I direct you to the public filings by Zilog itself and by one of the stockholders.

With that, I will turn the call over to Bryan Hackworth, our CFO, to lead us through the financial discussion. Bryan?

Thanks, Paul. Net sales for the fourth quarter were $66.2 million, compared to $69.7 million in the fourth quarter of 2006, and lower than our guidance of $70 million to $75 million, primarily due to a weak holiday retail season in Europe, driven by lower-than-expected reorders in the United Kingdom and a slight slowdown in reorders in our business category towards the end of the quarter due to the market conditions.

Business category revenue was $48.1 million, slightly lower than our guidance of $49 million to $52 million. Our consumer category revenue was $18.2 million, compared to our guidance of $20.5 million to $23.5 million.

Gross profit for the fourth quarter was $24.6 million or 37.2% of sales, compared to our guidance of 39% of sales, plus or minus 1 point, and fourth-quarter 2006 gross profit of 37.6% of sales. The gross profit percentage reflects the shortfall in the consumer category, which yields a higher gross profit percentage than the business category.

Total operating expenses were $16.6 million for the fourth quarter, below our guidance range of $19.9 million to $20.5 million and below fourth-quarter 2006 expenses of $19.5 million. The decrease is due to cost-control measures, in particular a reduction in management bonuses.

Research and development expense was $2.2 million, compared to $1.8 million for the fourth quarter of 2006, reflecting investments in our product pipeline.

The 2007 fourth-quarter employee stock-based compensation expense was $711,000, compared to $625,000 in the fourth quarter of 2006.

Operating income was $8 million, compared to $6.7 million in the fourth quarter of 2006. Interest income was $905,000 compared to interest income of $343,000 in the year-ago quarter.

The effective tax rate was 30.3%, better than our guidance of 31.5% to 33.5% due to additional R&D credits earned in the fourth quarter. Last year's fourth-quarter effective tax rate of 24.2% was exceptionally low because the federal R&D tax credit statute was reenacted by Congress during the fourth quarter of 2006, resulting in a cumulative full-year benefit recorded in the fourth quarter.

Net income was $6.1 million or $0.40 per diluted share, compared to $5.4 million or $0.37 per diluted share in the fourth quarter of 2006.

For the full year ended December 31, 2007, net sales were $272.7 million, up 15.6% from $235.8 million in 2006. Net income was $20.2 million or $1.33 per diluted share, compared to $13.5 million or $0.94 per diluted share in 2006. The growth in net income represents not only growth in our top line but operating margin expansion as well. We finished 2007 with an operating margin of 9.7% compared to 7.9% in 2006.

Turning to our balance sheet review, we ended the quarter with cash and cash equivalents of $86.6 million. We generated cash from operations of $3.3 million during the quarter and approximately $20 million during the year. We used approximately $5.1 million to repurchase 150,000 shares during the fourth quarter, bringing our total share repurchases for the year to approximately 470,000 shares for $14.5 million.

It's important to note, at current market prices, we intend to aggressively buy back shares in 2008.

DSOs on a rolling three-month basis were 82 days at December 31, 2007, compared to 67 days at December 31, 2006, reflecting weaker collections from certain significant customers. Net inventory turns, also on a rolling three-month basis, were 4.8 turns at December 31, 2007, compared to 6.6 turns at December 31, 2006, reflecting lower-than-expected sales volume in the fourth quarter of 2007.

Before I provide our 2008 guidance, I would like to point out that the revenue flow we experienced during 2007, with more than 50% of our revenue earned in the first half of the year, was an abnormality relative to historic trends. In many of the years prior to 2007, on a percentage basis, sales in the first half of the year ranged from the low 40s to the mid 40s, and in the second half of the year from the mid '50s to the high 50s. In 2008, we expect more traditional seasonality with our first-half revenue to represent 40% to 45% of annual sales and with the second half contributing 55% to 60% of annual sales.

Although we are currently unable to publicly announce certain customer wins and increased share for certain existing customers, these awards play an integral role in our optimism for 2008.

Now, for our guidance -- for the first quarter of 2008, we expect revenue to range between $62 million and $65 million, compared to $66 million for the first quarter of 2007. We expect business category sales to range from $47.5 million to $50.5 million, compared to $50.2 million in 2007, and consumer category sales to range from $13 million to $16 million, compared to $15.8 million in 2007. We anticipate margins will be approximately 35.5% of sales, plus or minus 1 point. The first-quarter operating expenses are expected to be between $18.9 million and $19.5 million, including employee stock-based compensation charges of $954,000. Last year's first-quarter operating expenses were $18.2 million and included employee stock-based compensation charges of $554,000.

The tax rate is expected to be between 33% and 35% of pre-tax income. This range is provided under the assumption that the federal R&D tax credit statute, which expired at the end of 2007, is not reenacted in 2008.

GAAP EPS is expected to range from $0.17 to $0.21 per diluted share.

For the full year 2008, we expect total revenue to increase 12% to 18% over 2007. Business category revenue is expected to increase 8% to 15%, and consumer category revenue is expected to increase 12% to 40%. Operating expenses are expected to be between $79 million and 84 million.

Our 2008 tax rate is expected to range from 33% to 35% of pre-tax income. Again, this range is provided under the assumption that the federal R&D tax credit statute, which expired at the end of 2007, is not reenacted in 2008.

We expect GAAP EPS to increase 15% to 23% on a diluted basis.

Now, back to Paul.

Thanks, Brian.

UEI has been successfully serving our business and consumer category customers for more than 20 years. Through various industry and economic cycles, our company has continued to thrive by focusing on building the world's best wireless access and control solutions, allowing the consumer to easily and affordably control the chaos in their ever-more-complex home. By focusing on this important part of everyday life, we have been able to earn long-term relationships with the leading companies in the industries we serve. Over the past nine years, we have grown our revenue at a compound annual growth rate of 12%, and for the past five years more than 20%.

While we are mindful of economic concerns, we are confident in our ability to continue to drive our business forward, earning more new customers, delivering breakthrough control solutions for our consumers, expanding our presence globally, and of course delivering on our financial metrics.

We realize this will be hard work, but in more difficult times, strong companies get stronger. The team of people we have at UEI has never been more talented, our market position in the industries we serve has never been better, and products and technologies we're working on, many times with the direct involvement of our customers, has never been more exciting.

In summary, we are continuing in our mission to provide everyone the ability to wirelessly connect, control and interact within their home. We are looking forward to a great 2008.

I would like to now open up the call to Q&A. Operator?

Thank you, sir. (OPERATOR INSTRUCTIONS). Steve Frankel, Canaccord.

Let's start with the guidance. It seems to me that it implies some gross margin improvement in the back half of the year. Could you tell us what's going to drive that?

I think the gross margin improvement in the back half is actually pretty small, Steve. (multiple speakers)

Or, we're going to get operating-margin improvement? Maybe you should tell us what op margins are implied.

It would be operating margin improvement because what's going to happen is we're going -- we're guiding towards a pretty big back half in terms of sales, so (inaudible) a high percentage of our cost structure is fixed so as the sales increase in the back half, we will gain operating margin expansion.

Okay. Could you give us a little bit of insight into what the inventories are like at the customer level on the subscription business? I know there were some issues in Q4. Where do you think you stand today?

Yes, Steve, this is Paul. I think we stand at pretty good levels today. The customers throughout last year did, through the front half, order quite a bit of product and then began to run the inventories down as the year progressed. But as we've often said, ultimately the purchases in have to equal the deployment out, so you can go through a period where, in one year, the peak will be in Q2 and another year, it will be Q3 or 4, but ultimately if you look at it over time, obviously the purchases in equal the deployment out. So it evens out over the long run.

All right, and your plan to get more market share out of some of these existing customers -- how did you go about that? Did it open the doors to new products, or it's just getting more market share with what you're already selling to those customers?

It's a good question. Actually, it did lead us to some new products, because what we do over time with customers is we learn about their new product development cycle and the new products they're bringing out. We get sometimes brought in at an earlier stage to discuss with them how we can improve the entire user experience. So it does lead to some new product developments with these customers. But it varies customer-to-customer. With consumer electronics companies, generally it's you start with a product or two or three, and then over time, you can earn more business. While the older product is still being sold, new products are brought on.

With subscription broadcasters, it's a little different but similar in that you start off with a percentage of the business and then, as you earn your stripes, as you build fantastic product that works in the field, deliver on time, you then are awarded more of their business.

All right, thank you. I will let somebody else ask a question.

Scot Ciccarelli, RBC Capital Markets.

I have a question regarding, you know, you guys have made a couple of references regarding all of these new unannounced customers. First of all, is it fair to assume most of those are on the business side? You're not talking about additional retail distribution, is my assumption. Tell me if I'm wrong on that.

Then the second one is related to the size of the contribution. How much of this is kind of opaque to us at this point, because it's just you guys have the information and we don't?

Well, first of all, most of the customers -- you would be correct. I would say the majority of new customers would be on the business category side of the ledger, although I wouldn't say that they are all there, but I would say the majority are.

Again, the other part of this is customers that we already have, some of which we may have announced months or years ago, that we now earn a greater percentage of their business, because often when we announce a customer, we do not have 100% of their business. Sometimes we have a very small percentage of it. Over time, again, as you earn more with that customer, you are awarded more of their business.

I guess what I'm trying to get to, Paul, is -- is there a number of new customers that are going to be a relatively material part of the overall revenue contribution to 2008, and it's just guys that we haven't even heard of or didn't know there was a current relationship with?

Yes, there are some of those, yes.

Can you help quantify that for us?

We don't have the exact number on that for this year off-hand.

Is it the bulk of the growth? So it's what -- consider it the existing business is kind of stable and the new customers adding to the growth, or is it some -- some sort of way to frame it if it is at all possible?

Yes, I think it's difficult to do that. I don't have the exact numbers in front of me, Scot. I guess it's important to note that the way our forecasts are built-up is first the front stage of the company talks to the customer about their plans, and we build the budget or the forecast one layer at a time, product-by-product, customer-by-customer. So again, in some of these cases, they are new products with existing customers; in some cases, they are new products with new customers. Some of them are new customer roll-outs. So, I don't have the exact number of the total growth this year, how much comes from new product or a new customer, or new products with new customers.

(multiple speakers)

But we are going to achieve growth in each of those areas this year.

Okay, that's helpful. Then the last question is, is there any contribution from the stock buyback figured into your earnings guidance? Because it sounds like you're going to be aggressive on that front, but I don't know if it's something you've factored in already.

Yes, we do factor it in, Scot, but we also have to factor in stock option, essential stock options exercises as well. So we factor in both components to come up with what we believe will be the diluted basis of stock options.

So your earnings guidance is based on a share base of what, Bryan?

It would be about, I think about 15. Hold on, I'll give you the exact number. It's about 14.8.

All right, that's helpful. Thanks, guys.

Murray Arenson, Ferris Baker Watts.

(technical difficulty) guidance question as well. In taking a look at the outlook for '08 where you've broken it down by consumer and by business, it seems like you've given us a little bit more to chew on, on the business side of things, with respect to announcements being withheld and working on forward purchasing plans and things like that, but yet I see a stronger growth curve expected on the consumer side. So I wonder if you can give is kind of little more meat on the bone on the consumer side.

Yes, we have a number of new products that are going to be launched on the consumer side, both in [Incidia] as well as retail, primarily European retail. So, consumer has a much lower base than does business, especially throughout the last few years where business has grown at a much faster pace. So in terms of percentages, the consumer -- we are expecting consumer to grow at a faster pace than business. But if you notice, we did put a pretty big range in there for consumer; we gave basically $65 million to $81 million for the year. That's probably because these new product launches that were coming out, you know, it's difficult to predict exactly how well they will be received. So if they are received very well, then we expect to be at the high end of the range. If they are not, then we expect to be towards the lower end.

Okay. Can I follow up on a previous question? You were talking about the number of SKUs that you do for a particular customer and how that grows. Can you just kind of give some color if there's a general rule as to, you know, does that grow from two SKUs to five SKUs from quarter to quarter, or does it grow from 2 to 20 all of a sudden? How should we expect that to work or is it different with every customer?

Yes, it is different with every customer, but usually the way it starts is you get one or more, maybe one or three, one to four maybe, depending on how many SKUs the customer has. Then over time, as they revisit their product cycle, they will introduce a new product a year after that, but the product they designed a year ago will still be on the market for another couple of years. So there is, over, say, a five-year period, a layering effect where, if you are earning more and more of their business over time, you'll be designed into three SKUs,. Then when they do three SKUs the next year, you have an opportunity to do those. But again, that may still only be 30% of their product line. So over time, most companies do not redesign all of their products all at once. In fact, I've never seen that happen. They usually do it one product or more at a time.

Okay, so you would characterize it almost as an inherently gradual kind of curve as opposed to something that is going to spike on this?

Correct.

Okay. Then I apologize; I missed it. I know, Bryan, you talked a little bit about operating expenses for the quarter and alluded to management businesses. The SG&A number was particularly low. Can you just kind of review what you said there?

Yes, I was just saying that the main reason for our operating expenses being favorable versus our guidance is because we didn't pay out management bonuses, and we had originally anticipated to do so.

Okay, so looking into '08, the plan is to -- I mean is there a catch-up or does that look -- you just go into a fresh year (multiple speakers)?

No, I wouldn't say it's a catch-up. You know, we always factor in what we think we are going to get for the year. Included in our guidance is a little bit of management bonus, but really we pay ourselves last, so we have to hit certain targets. If we hit those targets and we have to -- the bonus bowl is basically funded, inclusive of our guidance, so in other words, in Q4, we said we were going to do $0.38 to $0.42. We have to hit $0.38 to $0.42 after a bonus is paid out and if we don't, then we don't get paid.

I got you. Okay.

So, Murray, we have baked it into our plan this year. We do hope to be able to earn incentive.

Understood. Thank you very much.

Matt Kather, WR Hambrecht.

Maybe on the business front, on the cable and satellite, I'm not asking you to comment on any specific customer but if I look at the results from Comcast and DirecTV, certainly their subs are decelerating in the back half of last year. DirecTV had a pretty big marketing spend around their new initiatives and the subs, so the trends don't look all that great. So I guess, looking forward to next year, at least in the first half of the year, you know, what gives you confidence that some of these trends that we're seeing in the reported numbers from the cable and satellite guys are not going to continue and customers are going to either delay spending the extra $10 or what not for HD and deployments? What are you seeing on the order patterns and the demand pull-through there?

Well, what we normally do is, when we get our budgets, Matt, as we discussed before, we actually do a bottoms-up budgeting and forecasting process. So we have our sales reps speaking with the customers; they do it by account and sometimes even by product detail. So we do have a very extensive budgeting process and it funnels up to both Paul and I.

As we mentioned earlier, we have a number of customer wins and share increases with existing customers that, although we currently can't speak publicly and give specifics, these wins will positively impact 2008, especially the latter part of 2008.

To follow up on that, Bryan it was asked earlier but is there any way that you can quantify existing versus new, let's just say, in the business category? I mean, is 80% of the guidance that you are giving today coming from existing customers and 20% from new customer wins that you haven't announced yet? Is there any breakdown that you can give us?

Yes, I don't have that right now. As Paul said, we expect to increase in both categories.

Okay. I guess turning to the retail business for a minute, you know, I know you guys don't like to give this on the call, but the CEDIA numbers you guys are what, maybe, eight quarters into it, so I was certainly looking for a record CEDIA number and that's in your consumer revenues. So without you guys having to disclose that -- so the question goes to -- if that was around $4 million or maybe even higher in the quarter, how weak was UK, Italy, wherever else in Europe? What are the trends that you're seeing into the first quarter so far?

Yes, there was a number of questions there. I will try to address each of them.

In terms of CEDIA, we don't break it out separately within consumer. It has done well, but you know, we think it we do better there. We just introduced another product, the Q50, late in the year, really into this year. We have another product that's eminent there that we haven't talked a lot about. So we do expect results from that during the year.

In terms of the weakness in Q4, as many of you know, in retail, some of your performance depends on reorders as the quarter progresses. So what we saw during the quarter is that, in December, you have a planned amount of reorders and if the retail sell-through in general at the retailer is weak, typically that will mean reorders are weak even as the month progresses, as the month of December progress. We experienced that in Q4.

How about what you're seeing so far in the early part of '08, Paul?

Yes, I think the orders are now more far back to normal, but of course, once the holiday selling season is over, it's over, so we're back to normal Q1 pattern. We don't see this as a weakness in our business, per se, in that our share is still extremely strong. It just was a weak season in Europe.

One more back to the US for a second. I'm sorry I'm jumping around. Telco deployments, Verizon and some of the RBOCs I guess we still call them obviously doing okay, rolling out some of their services. Is it correct that, when we see Verizon talking about set-top box shortages and some of the wins in advance that they are having, that that's not a lost opportunity but given the fact that you guys are in the cable and satellite and not with the telco companies, is it fair to think of that as competition to your remote business?

Well, it wouldn't be really fair to say that. I will say, over time, the way the business works is there are suppliers to some of the telcos that we have worked with, so you shouldn't presume that we're not involved in some of those deployments. IPTV is an area for us. Frankly, a lot of the deployments that we're working on today are more global in nature, not U.S. in nature, but never presume that our unannounced customers aren't from the IPTV industry.

All right, thanks a lot. Sorry about the bonuses, just buy your stock and you'll make up for it in 2008 I hope.

Agreed.

(OPERATOR INSTRUCTIONS). Jonathan Goldberg, Deutsche Bank.

Just a housekeeping question -- in 2008, what were you guiding for stock comp expense?

We said I think it's $954,000.

No, for the full year?

Oh, for the full year? It will be about $3.5 million, $3.5 million to $4 million.

Most of my questions have been asked. I was just hoping to get a sense of what you think is going on with the cable operators in the U.S. right now? You mentioned that they are pulling orders. Do you think they are actually seeing weakness in demand, or are they just spooked because the media and guys like us are telling them that a recession is coming? What you said -- I mean, just any color you can give on their mindset would be helpful.

Yes, well I think you probably have it there that people in general, consumers and businesses alike, are a little spooked about what's going on in the world today.

But I will say this -- that, again as we said on the call, that these technologies, the implementation -- more and more programming is coming out in HD. More and more replacement televisions that are being sold are flat-panel televisions. We think the rollout of these technologies are inevitable. When people buy them and they call their operator globally and say "I want HDTV", I don't think I've ever heard of a case where a consumer calls and says they wish to upgrade their service and the operator says, "I'm sorry, we're under a capital constraint, so we're not going to install you for another six months."

I mean, I think that, again, as it's inevitable that these products are going to be sold and rolled out, and HD becomes more popular -- now, quarter-to-quarter, can ordering patterns change? Sure, but we think that the rollout of these, the digital technologies, whether it be cable, satellite or IPTV, doesn't matter as much to us. These technologies will get rolled out. The products will be sold, and our control technology will go along with them.

Sorry, I was going to say do you have any comparisons with some past economic downturns? I know we've never had quite this many upgrade cycles taking place at once. But could we look back like five or six years? How did ordering patterns -- how did the consumer behave as the economy went down in terms of making that decision to upgrade?

Yes, it's hard to compare to the past only because the digital upgrade cycle then was plain old digital, and now we're talking about a whole new tier of services. So I think it's difficult to compare it exactly, but if we do go back, I mean, in difficult times, it does slow down. I think it's a bit resistant to downturns only because, again, consumer behavior would be that I think one of the last things that people would cut back on is their entertainment. You know, as I've said before -- bread, water and television. I do think that, in the U.S. and particularly internationally, we are seeing consumer behavior has revolved around spending three to four hours -- in the U.S. it's more like four to five hours -- in front of their television set. So I think it is one of those basic needs in everyday life that people will support, even in a downturn.

Okay, thank you.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Okay. In closing, we achieved record annual revenues with strong margins and have built a solid market position. Our cash position remains strong and we're poised for growth. We are forging ahead with new products and targeting new markets, and we believe 2008 will be a great year. We look forward to talking to you all soon. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation, and ask that you please disconnect your lines.