Symmetricom, Inc. F1Q09 (Qtr End 09/28/08) Earnings Call Transcript

Symmetricom, Inc. (SYMM)

F1Q09 (Qtr End 09/28/08) Earnings Call Transcript

October 29, 2008 4:30 pm ET

Executives

Dan Madden – SVP, Finance and IR

Tom Steipp – President and CEO

Justin Spencer – CFO

Analysts

Michael Coady – B. Riley & Co.

Jess Beck [ph] – RBC Capital Markets

Ted Jackson – Cantor Fitzgerald

Cris Blackman – Empirical Capital

Michael Brown – ICM Asset Management

Dan Mendoza – Agincourt Capital

Scott Sural [ph] – Esquire Technologies [ph]

Presentation

Operator

Good afternoon, and thank you for standing by. All participants will be in a listen-only mode until the question-and-answer session of the conference. This conference is being recorded at the request of Symmetricom. If you have any objections, you may disconnect at this time. I would like to introduce the host for today's conference, Mr. Dan Madden. Mr. Madden, you may begin.

Dan Madden

Good afternoon. Welcome and thank you for attending Symmetricom's Fiscal 2009 First Quarter Conference Call. With me today are Tom Steipp, President and Chief Executive Officer, and Justin Spencer, Chief Financial Officer. If you have not received today's news release, you may download it at www.symmetricom.com.

During the course of this conference call we will make forward-looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934, including statements regarding guidance, revenue growth, gross margin improvements, operational efficiencies, and the impact of recessionary pressures.

Actual results could differ materially from those projected in the forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the Company's Form 10-K for the year-ended June 29, 2008, and subsequent filings with the SEC, as well as in today's news release.

I would like to remind you that we will host our first annual Analyst and Investor Day in New York on November 13. We will have a number of speakers from Symmetricom discussing the Company's markets and opportunities, and we'll showcase some of our new products. Special guest, Nick Hamilton-Piercy, who served as Chief Technology Officer of Rogers Communications for many years, and later as Senior Technology Advisor for Rogers on broadband, wireless, and video related technology issues, will also join us. We look forward to hosting you on November 13.

I will now turn the call over to Tom Steipp, CEO of Symmetricom.

Tom Steipp

Thanks, Dan. Good afternoon, everyone. Welcome to our review of Symmetricom's fiscal 2009 first quarter financial results. During today's call, I'll cover the first quarter highlights, strategic development, and performance of each of the business segments. I'll then turn the call over to Justin, who will provide details on our financials. Finally, I'll make some concluding remarks before taking questions.

First, I'd like to introduce Justin Spencer, Symmetricom's new Chief Financial Officer. Justin joined us a month ago and we are very fortunate to add his strong background and financial management, and depth of strategic leadership to the Symmetricom team. Most recently, Justin served as the CFO of Covad Communications. I know that some of you have already had the opportunity to talk with Justin, and we will make every effort to introduce him to all of you in the coming months.

Now, let's get started with the financial highlights of the quarter. I'm pleased to report that fiscal 2009 is off to a solid start. As I mentioned during last quarter's call, fiscal 2008 was a year of significant innovation, investment, and assessment. In the first quarter we began to see the benefits of those actions. And increasingly diverse portfolio of telecom, cable, and government business helped produce very positive financial results.

Revenues were $56 million, up 10% over the prior year on the strength of our new cable products. A favorable mix produced non-GAAP gross margins of 53%. This resulted in non-GAAP earnings of $0.10 per share.

Now I'll review the results of our business segments. You will note that historically we've reported five segments. However, going forward we will be reporting two. Telecom Solutions and Timing, Test and Measurement, which more accurately reflects how we manage our business.

Starting with Telecom Solutions, we posted record Q1 revenue of $39 million, up 28% from the prior year. Revenue was driven primarily by strong cable shipments and executing on the sync monetization initiatives. As we have discussed previously, diversification has been a major strategic focus and was an important accomplishment for Symmetricom during the last fiscal year.

I am pleased to report that as a result, no single customer contributed more than 10% of the Company's revenues. Although AT&T and Verizon as well as a few others continue to remain significant strategic accounts for Symmetricom, our ongoing focus is to grow and diversify our product, geographic and market bases.

In Cable, a robust wave of modular CMTS deployment led to strong shipments of TimeCreator, our new precise timing product for broadband cable networks. We shipped TimeCreator to more than 10 major MSOs domestically and internationally.

And for the first time, a major cable company was one of our top five customers. Precise timing is critical to rolling out DOCSIS 3.0 in modular CMTS solutions. Strong cable revenues had a positive impact on this quarter's gross margin as our new products typically have a higher gross margin than our Company average.

Also in Cable, active trials of our V-Factor. Quality of experience video monitoring solutions are underway at six major U.S. cable service providers. We expect these trials to conclude in the next couple of quarters, at which point we will have more insight into the demand profile within the cable industry.

In the meantime, we have fully integrated this product line into our Telecom Solutions Division and significantly reduced our operating expenses. We will adjust our investment as required based on the results of the trials and the overall demand profile of this product line going forward.

We continue to see digital video as a major driver in the evolution of next-generation networks. As market adoption for monitoring video quality increases, we believe our V-Factor solutions will provide our customers with a very clear value proposition.

Overall, the future growth of our TSD business segment will be driven by three key factors which are already evident today. First, the need for increased network capacity resulting from the exploding use of video. Second, the need for solutions to manage quad play services over multivendor IP networks. And third, the need to modernize communication infrastructures in emerging markets.

Our next-generation products are essential for meeting these needs and therefore we expect continued success in the cable industry from the adoption of our DOCSIS timing servers plus the added potential for sales of our next-generation sync, PackeTime and V-Factor products into this market. The quest for both increased capacity and flawless delivery of quad play services over evolving cable infrastructure are driving this opportunity.

We will see sync and timing modernization opportunities in countries which we have not historically targeted. Roughly, a third of our revenue comes from outside the United States, but new programs are underway in India, Japan, and China.

Finally, we expect global opportunities in the telecom and wireless market from our new product portfolio. Products such as PackeTime, PTP 1588 and NTP are critical to the new infrastructure which is being installed to boost capacity and to support new revenue generating opportunities. These expectations are based on the activity we see around our new products today. For example, our PackeTime, PTP 1588 products are currently being evaluated in a dozen trials with major service providers and equipment manufacturers.

At the recent Carrier Ethernet World Congress in Berlin, we successfully demonstrated the interoperability of our TimeProvider 5000, Grandmaster Clock solution over a live public network with equipment from multiple vendors including Nokia, Siemens. We also received the prestigious New Product Excellence Award from INTERNET TELEPHONY magazine.

Our PTP 1588 sync solution enables operators to accelerate their migration from TDM to Ethernet backhaul resulting in cost savings while boosting network capacity to handle bandwidth hungry applications such as voice, video and music download. We expect the first adopters of PTP 1588 begin field trials in the early calendar 2009 time frame.

Relative to wireless, we are pleased to report that our first OEM board design win for WiMax from a major service provider in the quarter. Interest in WiMax is growing among wireless carriers around the world, especially in Asia.

Turning now to Timing, Test and Measurement, revenues were $17 million in the first quarter, down about 17% from the prior year. Shipments were lower than expected, but we had record bookings at the end of the quarter. And, as a result, we anticipate reporting strong second quarter revenue.

TT&M revenues in the quarter came from a broad mix of products including high performance, timing and frequency products, Cesium clocks and network time servers.

In new business, we booked our first orders for Cesium clocks in India's regional satellite navigation system, which will consist of eight satellites to cover the Indian subcontent over the next one year to two years. We're also in an excellent position to win follow-on tenders.

TT&M is a solid business characterized by a stable, mature customer base representing approximately a third of the Company's revenue, and more than a third of our profits. This business is a critical part of Symmetricom and a great asset as we enter what could be a turbulent economic environment. Overall, the Company's strong financial performance in the quarter is due to our growing diversification and focused execution.

On the Commercial side, cable was a meaningful contributor. On the government side, record bookings provide ample evidence that government spending on our products is broad-based and stable. As we further diversify both our product portfolio and market presence, we expect to reap additional financial and strategic benefits.

Lastly, with consideration to the current economic environment, we remain committed to executing against our plan for the year. We believe that the diversity of our business as well as proactive management on our operating expenses will allow us to successfully achieve our profitability goal and as a result we are maintaining our annual guidance.

I'd like to now hand the call over to Justin for details on the financials and full year and second quarter guidance.

Justin Spencer

Thanks, Tom. Let me first say that I'm very pleased to join Symmetricom. I've been impressed by the Company's unique technology, its talented people, and the opportunities for growth that Symmetricom is aggressively pursuing in a very dynamic set of markets.

In addition to an expanding product portfolio and customer base, I'm pleased by the strength of Symmetricom's balance sheet, which is a great asset, as it provides flexibility and allows us to take advantage of opportunities unavailable to other companies of similar scale, especially in this current economic environment.

Let me now review the financial performance for the quarter. Revenue was $55.9 million, 10.2% higher than prior year revenue of $50.7 million. Telecom Solutions revenue in the quarter was $39 million, up $8.5 million, or 27.9% from the first quarter of fiscal 2008, on strong shipments of TimeCreator, our new precise timing product for broadband cable networks.

TTM revenue for the quarter was $16.9 million, down $3.3 million or 16.5% from the prior year. While shipments were down year-over-year, the division achieved record bookings in the quarter and we are anticipating a strong second quarter and first half.

Gross margin in the quarter was 51.7% compared with 43.2% in the same period of the prior year. On a non-GAAP basis, gross margin was 52.8% compared with 45.3% in the same period of the prior year. Gross margins in the first quarter were principally impacted by a favorable product mix led by our new cable product. We continue to expect non-GAAP gross margins for the full year to be between 47% to 49%.

Operating expenses were $23.7 million or 42.3% of revenue compared with $23.4 million or 46% of revenue in the first quarter of the prior year. Non-GAAP operating expenses were $22.2 million or 39.7% of revenue compared with $21.5 million or 42.3% of revenue in the prior year.

While we are off to a solid start for the fiscal year, we have taken action to control our operating costs over the next few quarters including implementing a holiday work furlough, tightening employee hiring controls, and carefully managing our discretionary expenses. As a result, we expect non-GAAP operating expenses to remain at or below our Q1 levels for the remainder of the fiscal year.

GAAP net income from continuing operations for the quarter was $2.6 million or $0.06 per share compared with a net loss of $300,000 or $0.01 per share for the prior year period. Non-GAAP net earnings for the quarter were $4.5 million or $0.10 per share compared to $1.8 million or $0.04 per share in the prior year.

Our backlog returned to normal levels, ending the quarter at $50.9 million, down from $58.4 million at the end of fiscal 2008. Strong government bookings were offset by softer orders in our Telecom Solutions division. Additionally, we ramped our supply capacity to meet pent-up demand and lowered lead times for our new cable timing product. We expect increased order levels in our Telecom Solutions division in the second half of our fiscal year consistent with our recent experience. We estimate that $37.4 million of our backlog is shippable within six months, $8 million is shippable within 6 months and 12 months and that $5.5 million will be shippable beyond one-year.

Cash and short-term investment balances were $106.4 million, at the end of the quarter, down $57.9 million from the end of June. During the quarter we used $62.5 million to purchase approximately 53% of our convertible bonds through a tender offer which we completed on July 30. Additionally, we used $1.8 million to repurchase 362,000 shares of our common stock under our buyback program at an average price of $4.99 per share.

Operating cash flows were $8.4 million and capital expenditures totaled $1.1 million, resulting in free cash flow of $7.3 million. We believe that our strong cash balance along with a consistent cash generating profile provides us with great flexibility to strengthen our market position and business model.

At the end of September, after our board authorized a 2 million share increase to our stock buyback program we had outstanding authority to repurchase a total of 2.5 million additional shares of our common stock.

Following a strong quarter, we are maintaining our full fiscal year guidance of revenues in the range of $230 million to $240 million, GAAP earnings per share of $0.20 to $0.26, and non-GAAP earnings per share of $0.35 to $0.41.

For the second quarter we are anticipating revenues in the range of $50 million to $57 million, GAAP results ranging from a loss of $0.01 per share to net income of $0.04 per share, and non-GAAP earnings per share in the range of $0.03 to $0.08.

I'd like to now hand the call back to Tom for his closing remarks.

Tom Steipp

Thanks, Justin. Our diversified position within wireline, wireless, cable, enterprise and government networks around the world provides us with a strong platform for profitable growth. Over the long-term we expect to benefit from the modernization initiatives of telecom carriers and cable operators worldwide as they transition to next-generation networks. In addition, we see strength ahead for our government business based on the continuing demand for our ultra precise instrumentation and secure timing products.

To reiterate, while we recognize the uncertainties relative to the current economic environment, including the uncertainty around telecom CapEx budgets we have factored this into our current outlook for the second quarter and fiscal year. As Justin mentioned, during his review, we are proactively managing our costs to mitigate any challenges we face in our business.

In conclusion, I'd like to remind you that we are hosting an Analyst and Investor Day in New York City on November 13. Please let us know if you would like to attend. We're looking forward to seeing you there.

I want to thank everyone for joining us today. This concludes the prepared portion of our presentation. Justin and I will now take questions. Mary, you can poll the audience for any questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Michael Coady with B. Riley & Co. Mr. Coady, your line is open.

Michael Coady – B. Riley & Co.

Thank you. Hi, Tom.

Tom Steipp

Hi.

Michael Coady – B. Riley & Co.

Welcome aboard, Justin. Nice quarter. Was there anything anomalous on the DTI side? You mentioned a wave of modular CMTS purchases or deployments in the quarter. Is that expected to be a steady ramp or was it a big blip in the quarter that might not repeat itself?

Tom Steipp

Yes, I think you need to take a look at the backlog we mentioned towards the end of last fiscal year. We built a pretty substantial backlog. We have been trying to work down the lead times on this product because it tends to be something that people want immediately. We were able to do a lot of that in Q1. So, while we have solid expectations for the product going forward, Q1, at least for the next several quarters, will probably be a high watermark, but we would expect over the course of the year, continued sales of our DTI products. The strongest time for us will probably be in the second half of our fiscal year as MSOs get new capital budgets.

Michael Coady – B. Riley & Co.

Okay. Thanks. And then on the sync upgrade activity with the RBOX, is that progressing as planned? And then as a second part to that, what do you see as the potential opportunity of India, Japan and China?

Tom Steipp

The first part of the question is, yes, we see the progression of things with AT&T and Verizon on the upgrade, pretty much along the lines of what we had put into our plan for the year. Just to reiterate, for the last three years, at least, the first half of our fiscal year has been the second half of their fiscal year, and it's clearly been lighter in terms of bookings and shipments. We don't see any change to that trend this year. Obviously, in light of the current economic environments, we're staying as close to those folks as we possibly can. In terms of opportunities in India, Japan and China, we see some near-term opportunities in India, but longer term, we see significant opportunities in both China and Japan as well. So as those come in, we'll be announcing those on the calls.

Michael Coady – B. Riley & Co.

Okay. Thanks.

Tom Steipp

(inaudible) we certainly have a lot in the mix.

Michael Coady – B. Riley & Co.

Got you. One more and then I'll jump back in the queue. When you're talking about V-Factor, you mentioned – your focus seemed to be on the MSOs and I think the cable market. How is the telco activity there?

Tom Steipp

The telco opportunity continues. I think what we learned during the first several quarters of our owning the products, the lead times in telco are substantially longer, we believe, than they are in the MSO cable side of the equation due, as near as we can tell at this point in time, to the fact that there's just more familiarity on the MSO side with what the problems are. And they are more prepared to make what we would say as meaningful investments to solve the video problems. Perhaps then what we see on the telco, where it's more in a startup mode and there's a mix of quality problems as well as just getting it to scale.

Michael Coady – B. Riley & Co.

Got you. And then if I may squeeze in one more, sorry. Do you have any plans that you can talk about to repurchase the rest of your notes?

Tom Steipp

We certainly are evaluating, keeping that as an option. The board and the management team constantly evaluates the balance between having cash on board, repurchasing notes, repurchasing stock, and accretive acquisitions.

Michael Coady – B. Riley & Co.

Got you. Thank you very much. I look forward to seeing you next week – or next month, excuse me.

Operator

And our next question comes from Mark Sue with RBC Capital Markets. Mr. Sue, your line is open.

Jess Beck – RBC Capital Markets

Hi, guys. This is actually Jess Beck [ph] calling for Mark. Congratulations and welcome, Justin. Just a point of clarification. I know you said you changed the segment rate. You guys are not reporting the telecom solutions – I mean, sorry, the wireline, wireless breakout anymore, or did I miss that?

Tom Steipp

That's correct. When we consolidated everything, the QoE plus the various segments of TSD, it became pretty clear that the way we were really managing the business is just through that channel. And as a result we will no longer be breaking those segments out.

Jess Beck – RBC Capital Markets

Okay. Maybe you could help me understand, can you sort of quantify, I guess, how much of the growth within Telecom Solutions, what percent of that growth was related to the TimeTrader product?

Tom Steipp

We're not going to break out the specific details, Jess, but we had substantial revenue in the quarter. Meaningful levels of revenue inside the quarter that came from cable. And I think it reflects, as we mentioned earlier, about a year's worth or a couple years worth of diversifying both our product offering new products like TimeCreator as well as focusing on the upgrades and some international business. So this was the first time we've had that much come from new products and we expect that to continue by the way, and we'll probably be adding revenue from the 1588 in the second half of our fiscal year as well.

Jess Beck – RBC Capital Markets

Okay. And then, finally, you guys seen any signs of some of the tier 3, tier 4 guys having issues with access to capital or making their payment terms?

Tom Steipp

We haven't seen anything at this point in time, but we have to be blind and deaf to not know that there are concerns about that, both in terms of the tier II, tier III guys as well as international business, where you got dollar and local currency fluctuations. So we're keeping a very close eye on that obviously, and felt as though and feel as though those were factored into the guidance we gave for the year.

Jess Beck – RBC Capital Markets

Okay. Great. Thanks, guys.

Tom Steipp

Okay.

Operator

And our next question comes from Ted Jackson with Cantor Fitzgerald. Mr. Jackson, your line is open.

Ted Jackson – Cantor Fitzgerald

Tom, Justin, congratulations on the quarter and the refreshing situation of maintaining your guidance. And, Justin, welcome to Symmetricom party.

Justin Spencer

Thanks.

Ted Jackson – Cantor Fitzgerald

Couple questions. One is I was wondering if you could talk a little bit about the tax rate why it was so high in the quarter?

Justin Spencer

Sure. So, the driver of the increase in the tax rate was we had a – we had a loss that we recognized associated with some of our short-term investments. These are relatively small amount of our cash is held in corporate debt – short-term debt securities. These are very good corporate names. But just because of the volatility in those securities we were required to recognize a loss, other-than-temporary loss, which hit our income statement. That is classified as a capital loss for purposes of tax and as a result it is not deductible. If those we're intended to hold those investments to maturity and if they're repaid at par, we would at that point recognize a gain to offset that loss. But that essentially raises the effective tax rate (inaudible).

Ted Jackson – Cantor Fitzgerald

You still own the securities; you just had to take a loss.

Justin Spencer

That's correct. That's an unrealized – it's an unrealized loss that flow through the income statement.

Ted Jackson – Cantor Fitzgerald

Okay. And then, Tom, I was wondering if you could give a little more color on the TTM business? I mean, it was a great quarter; the TTM business was a little soft. I understand bookings are good, but can you provide a little bit of color relative to maybe what caused things to shortfall and come back?

Tom Steipp

Yes. You'll recall that in past years we've had – we have a very broad base of business, Ted that we focus on in the government. So, programs are subject to extensions from time-to-time. The reason we talked about the bookings being strong is had we had a shift in the revenues without the bookings, it would have really reflected a concern on our part. But everything we've seen on the government side at this point in time says their appetite for our kind of products remain strong and the bookings that we got in came from a broad variety of programs. They were not aggregated in any one sector. So what we see in the government business for the coming year is a pretty solid business.

Ted Jackson – Cantor Fitzgerald

And then my last question and I'll step out of line. Just on your guidance for OpEx, Justin, you said that it would be flat going forward. Were you just talking about the next quarter or were you actually talking about both fiscal '09?

Justin Spencer

Yes, we're going to try and manage our full fiscal year, so the next three quarters to – flat to slightly down level on a dollar basis.

Ted Jackson – Cantor Fitzgerald

Okay. Well, congratulations on the quarter and I will leave the floor to someone else.

Operator

(Operator instructions) Our next question comes from Cris Blackman with Empirical Capital. Sir, your line is open.

Cris Blackman – Empirical Capital

Yes, hey, Tom, nice quarter. Congratulations, and Justin, it's nice to meet you and I'll look forward to talking to you in the future. First off, I guess just looking at some of you all is historic goals; I wanted to touch base maybe on what we could expect going forward. And let me do say congratulations on those numbers and great gross margin number, Tom. That was great. But, historically, I know you've been pushing for a gross margin number of 50%, which you've obviously exceeded this quarter. On the operating side, though, I think you've targeted an operating expense level of about 35%, and Justin, you just said you probably would expect that to run flat to this number to maybe down for the balance of the year?

Justin Spencer

Right.

Tom Steipp

On a dollar basis.

Justin Spencer

On a dollar basis.

Cris Blackman – Empirical Capital

On a dollar basis, yes.

Tom Steipp

We're looking –

Cris Blackman – Empirical Capital

I think as a percent of sales you have kind of targeted 35%, I mean, I'm just looking at the OpEx and the R&D, and they seem still high. I'm kind of curious if you still have goals of 35% in operating expense and 10% on R&D, Tom, and how you plan to achieve those levels?

Tom Steipp

Yes. Well, I think on the R&D side, we're well on our way to getting there. I mean, we have had some investments over the course of the last; I want to say three quarters to four quarters to five quarters, both in terms of accelerated investment on some of the features and functions of our installed base products to AT&T and Verizon. But also more importantly, the 1588 product that we are starting to see as significant potential in. We also had some acceleration, you recall, in terms of moving an R&D center to Beijing. That's in place, it's up and running, and we see the R&D cost, the actual R&D costs, we've got a potential to see that come down, certainly not increase. And the combination of those moves as well as ongoing government investment, government-funded R&D that comes into our TT&M business we think allows us to keep it in that kind of 9% to 10% range. So, obviously, we've still got some work to do in terms of getting to a longer term sustained 35% OpEx, but I think this business is capable of moving in that direction and sooner rather than later.

Cris Blackman – Empirical Capital

Excellent. I mean, based on my calculation, had we been at 35% in OpEx and 10% in R&D, or $0.10 GAAP number probably would have more like $0.20 GAAP. So certainly a lot of leverage (inaudible)

Tom Steipp

Don't rush ahead too quickly, Cris, but we're moving in that direction.

Cris Blackman – Empirical Capital

Well, I wanted that assurance and that certainly helps, and I appreciate that. Kind of following through on a couple of things here would you speak about Sanmina little bit? Your first components, I guess, for delivery happened in Q1. Can you say how that's gone and –

Tom Steipp

That's gone very well. Caveats, we have not moved all of our boards to Sanmina yet. We've taken the highest volume boards and put them out to Sanmina. Not all boards get the same level of cost reduction, but in general, we're seeing about a 20% reduction in our material cost on our high running boards. So, based on that, we are continuing to move as much, and we will continue to move as much content as we can to Sanmina. I think we are well aware of the fact that we are a high mix, low volume manufacturer. There are some things that we will never be able to send to Sanmina, things like our Cesium clocks and rubidium oscillators. But having said that, there are a number of things that we do that fall into pretty standard manufacturing processes. And to the extent we can get them to people who are world class at that, we'll probably have lower overhead and be able to reap the benefits of the processes that they already have in place and that we would probably not be able to institute inside the Company. So, this is going to be a couple year process, but we're off to a good start, and combination of a number of things, increasing amount of our business coming from new products as well as some more content coming from Sanmina. Both will have some amount of positive impact on our gross margin.

Cris Blackman – Empirical Capital

Okay. The inventory that you're currently stating on that you plan to ship to Sanmina, when would you expect to have 80% of that inventory at Sanmina?

Tom Steipp

I can't give you that number right now, Cris. We've got some plans in place and I'd be giving you a number off the top of my head and I can't give it to you right now.

Cris Blackman – Empirical Capital

Okay. If I may, any hard data on failure rates, Tom, with the telcos? I know you've been warning them to act. Have you had any validation from AT&T or Verizon or any independent source on failure rates and issues that they're having?

Tom Steipp

We have ongoing data. I think we've mentioned that the installed base is somewhere between two years old and 22 years old, and that the most easily identifiable component of failure is these oil filled capacitors, and that statistically they tend to – their peak failure rate is at about 20 years. So, we continue to give that information. That has been what has given us, I think, dialogue at higher levels with higher numbers of VP level folks. And those things factored into our guidance for the year. And perhaps coincidentally we did have a failure in New York City in the last quarter that was one of these kinds of failures. But that won't get them to move. They know they've got a problem, Cris, we know they've got a problem, it's just an issue with managing cash and have them – they're trying to conserve their cash as much as possible and we're trying to get them to a point where they don't get themselves painted into a corner.

Cris Blackman – Empirical Capital

Okay. And then, I guess I got to come back around on the expense side one more time. I really wanted to maybe get a little more clarity on QAD and at what point do you – or take a harder stance on the cost associated with continuing to pursue that product? I know you've taken some stance so far, but I know you were expecting to see orders maybe in the January-February '09 time.

Tom Steipp

You bet.

Cris Blackman – Empirical Capital

I'm sorry?

Tom Steipp

I was just agreeing with what you said, and the plan as it exists today is to follow through with the trials at the MSOs, because that's where we see the shortest sales cycles. We have very dramatically cut back on the expenses associated with these products. We would plan at this point in time, at least, to make a decision sometime around mid-year. Coming out of those trials the MSOs will either commit to spend money in their new fiscal year, which begins in January, or they will put that off. To the extent that they make commitments, we'll continue to spend, and to the extent that they put it off, we will continue to make reductions in our overall expense levels. So I would fully expect, subject to some changes, but fully expect to exit the year at a point where we're basically at break-even for that product – for that process.

Cris Blackman – Empirical Capital

Exit calendar '09 – calendar '08?

Tom Steipp

Fiscal – exit fiscal '09. So, it would be half way through next calendar year.

Cris Blackman – Empirical Capital

Okay, at break even at that point. Break even from a (inaudible) revenue – go ahead, I'm sorry?

Tom Steipp

Yes, from a rough standpoint. I mean, we don't manage the business based on that particular segment, because there is – there are expenses that go across multiple parts of our business. I mean, we've got marketing guys who cover both and sales and support guys who cover both. But I think we are clearly watching this product closely. We're excited about the short-term results in the trials, but the challenge is to make sure that we convert those trials to sustainable revenue and that is – that's the milestone that has not yet been accomplished.

Cris Blackman – Empirical Capital

Right. Well, thank you, and obviously there is a lot of positive signs we're seeing in here. I just wanted little or as few things dragging us down as possible, and certainly want to see success early there continue –

Tom Steipp

We have common goals on that, Cris.

Cris Blackman – Empirical Capital

Okay. Well, that's good. I do have two more questions, but I'll pop out and probably pop back in, if that's alright. Thank you.

Tom Steipp

Okay.

Operator

And our next question comes from Michael Brown with ICM Asset Management. Sir, your line is open.

Michael Brown – ICM Asset Management

Thank you. Can you hear me?

Tom Steipp

Fine, Michael.

Michael Brown – ICM Asset Management

Okay. Hey, Tom and Justin, welcome aboard, look forward to meeting you. Tom, when you and I spoke a few months ago, you talked about these QoS trials and right about now you would start having some visibility to about how they were unfolding. And then shortly after that you announced some impairment charges on the acquisitions in the QoS arena that made me infer that those opportunities were perhaps not unfolding positively. And from what I'm hearing you saying today, I'm thinking my inference is wrong. Can you help me understand what those impairment charges were from and where your attitude stands towards the QoS trials?

Tom Steipp

Yes. By the way, if anyone else had the same feeling, I'm glad you asked the question. What I related in this call and what I related to you last time we talked was the business results associated with QoE so operational results. The impairment was a function of our financial accounting. You get to the point where you do a very detailed assessment and if the amount of goodwill on your books is higher than some certain projections going out multiple years, then you take the impairment charge, and that's what we did. We followed the accounting rules to the T, and that resulted in a write-off. Having said that, we have trials going on at six MSOs, I think it is. Early indications that a couple of those are that our solution is better than some of the competitors, not all of the competitors. We haven't validated that with all competitors, but certainly, some of the competitors, our solution is better. That gives us reason for optimism. But referring back to what Cris Blackman raised on last call, we need to make sure that the long-term business model for QoE is sustainable before we take the spotlight off of it. Because right now the spotlight is on it in terms of both the trials and the revenues, as well as the structure we have wrapped around it to support it.

Michael Brown – ICM Asset Management

Okay, yes. I guess that's the part that I get a little bit confused about. You said you look at the cost of revenues projected out over several years. When you are looking at the impairment charges as opposed to looking at the operating expenses, like Cris just asked about, do you use a different standard for the revenue projections?

Tom Steipp

We don't use a different standard other than the fact that from an accounting standpoint we may be a bit more conservative. But the time frame for action, from my perspective on the products is the middle of this year to the end of this fiscal year.

Michael Brown – ICM Asset Management

Okay.

Tom Steipp

We will be taking appropriate actions to either support it and nurture it, and get it to a meaningful amount of new revenue for us, or we'll be taking steps to make sure we support what we've sold, but keep our cost structures under control. So you got a six month to nine month window versus what we did for the impairment, which I think was a five-year – about a five-year or more assessment. So, frankly, when you get out four years or five years, there's a lot of Kentucky vintage involved.

Michael Brown – ICM Asset Management

Yes, certainly. Okay. And then one other quick one. You talked about international sync opportunities. Are those in traditional telco networks, wireless, packet voice, or all of the above?

Tom Steipp

They're all of the above. The one difference in international business is that, for instance, India, we've publicly bid on a tender in India and we're encouraged by what we think might be the result there. But in India and China, and some of the other emerging countries, there is a wireless – most of the new communication is wireless. They don't put in wireline infrastructure. But we should point out that every wireless call comes back to a wireline backbone. So, whether it's a wireless bay station at CDMA and we put a GPS antenna in it, or it's a GSM bay station and it picks up the timing from the network. That backbone network has to be timed and even what I would call the most emerging of emerging countries has to have some amount of infrastructure in place. And from time to time those come up, we bid on them, and that's a big chunk of our international business. Our focus, though, to be clear is Japan, China and India.

Michael Brown – ICM Asset Management

Okay, great. And, actually, there is one more quick one. You talked about revenues from the 1588 product line in the second half. Would that include the 5000 series of products?

Tom Steipp

Yes, absolutely. Keep in mind that 1588 is a two part solution. There is a grandmaster server that goes in the backbone, in the infrastructure. And I think we are very well positioned for that, because we've got most of the GPS antennas, and we've got most of the shelves, and I think our solution looks good there. There is a client piece that goes out on the edge of the network, and we'll have some of that and other people will have some of that. So, what we are seeing today is a real upsurge in trials for those products, so along the lines of what we saw for cable a year ago. And based on that, we're pretty optimistic about calendar '09, second half of our fiscal '09. Starting to see noteworthy revenues from 1588, which again, I think if you look at it, we got a core business that's real solid. We need to get some of these new products in new countries to both increase the gross margins and keep the growth parameters.

Michael Brown – ICM Asset Management

Okay. Great. Well, that's it from me. Nice job, guys.

Tom Steipp

Thanks.

Operator

And our next question comes from Dan Mendoza with Agincourt Capital. Sir, your line is open.

Dan Mendoza – Agincourt Capital

Hi. I wanted to although extend my welcome to Justin and congratulations on a nice quarter. Handful of questions and I may have missed some of these in the presentation. Did you break out the new products as a percentage of revenue, Tom?

Tom Steipp

No, we didn't, and we won't. We'll just be having the TTM and TSD segments. Obviously, when there are significant shifts, we're going to give you indications of where that's from. But we won't be breaking out specific percentages or numbers from new products other than say, at this point in time, cable was helpful in our quarterly results.

Dan Mendoza – Agincourt Capital

Okay. And then, Justin, back to the – what's the maturity for the instrument that you had to take the write-off on the loss?

Justin Spencer

There were three securities and they're very high quality corporate debt securities. Short-term they mature, two of them mature in 2009, and one matures in 2010.

Dan Mendoza – Agincourt Capital

Okay. And what tax rate should we be using for the remainder of the year?

Justin Spencer

You should probably use something about 37%. Our effective tax rate will come down. We've got some R&D credit that we expect through the remainder of the year. So, use – probably use something around 37% would be the right number.

Dan Mendoza – Agincourt Capital

Okay. And remind me; is that up a couple hundred basis points from where it ran last year?

Justin Spencer

Yes, it is.

Dan Mendoza – Agincourt Capital

And what's driving that? Is that R&D tax credit related or something else?

Justin Spencer

Yes, that's part of it. There are some changes in our state tax configuration that are driving it as well, but it's fairly nominal.

Dan Mendoza – Agincourt Capital

Okay. And then I'm pretty sure I heard a question about this right as I was getting into the queue. But gross margin guidance for the rest of the year, can you kind of try to give us a little more color on the mix issue and why that might be down into 47%, 49% range going forward?

Justin Spencer

Sure. So, the gross margin on a non-GAAP basis this quarter was about 53% that was driven primarily by matters related to our strong sales in our TSD business. So in the first quarter you got a couple of things going on. First, we have at least couple things going on. First, the relative revenue mix of TSD to TTM is higher, and we expect that to balance out over the remainder of the fiscal year. TTM has, in an aggregate level has slightly lower margins than our TSD business. But another main driver was the cable sales. We had a strong cable sales quarter and those margins are much higher than our corporate averages. So as we – as have guided in the past, we expect our gross margins to come down from our first quarter levels and we'll probably normalize between 47% and 49% through the end of the year.

Dan Mendoza – Agincourt Capital

Okay. And then I guess, lastly, getting back to Cris's questions about operating expenses and what the model might look like there over time. Is that 35% number, Tom, is that a number that you could get to at kind of the current revenue run rates, or do you have to kind of grow that to grow into that number?

Tom Steipp

I think you probably have to grow into that number. But obviously, as we mentioned in the call, we're taking every opportunity to scrutinize expenses and in light of the current economic situations, we're going to continue to do that as we go forward.

Justin Spencer

And just to provide a little context on the OpEx, we're targeting an OpEx spend level for the year somewhere between $86 million and $90 million, so we did $22 million, if you just extend that out to the end of the year, that would put us right in the middle of that range. As Tom alluded to, we're going to try, we'll do everything we can to drive those down where it's prudent and appropriate. But that's probably the right level to think about for us at the guidance range that we're at for the year.

Dan Mendoza – Agincourt Capital

Okay. And then last question is another QAD follow-up question. I think also to Cris's, but I think you mentioned getting to a break even level by the end of the fiscal year?

Justin Spencer

Yes.

Dan Mendoza – Agincourt Capital

Can you just give us a little bit more color on how you get there and what the assumptions are, whether it's – what the –

Tom Steipp

Very straight forward, Dan. We've got trials that are underway throughout the remainder of this quarter. We will be meeting with senior executives from the cable operators who are completing those trials successfully. Based on – the questions we ask them, are you putting money in the budget for next year, next fiscal year, which for them is January to December? And to the extent that they say yes, we're more inclined to continue the level of investments we've got and support it on our ongoing basis. To the extent that we don't get commitments, we will be looking at reducing our expenses somewhere between the current level and a sustainability of the existing products that are out there, which would be much lower than we are today.

Dan Mendoza – Agincourt Capital

Okay. So, assuming that the trials go well and you get orders though, what's the revenue break even for QAD?

Tom Steipp

We don't – this is one of those things where I can't tell you because we don't break it out into segment, but by consolidating it with TSD, it's almost impossible to tell, because we have a lot of resources that are shared, we have some that are unique. So it doesn't – we don't have the same ability to do that, that we had –

Dan Mendoza – Agincourt Capital

Sure. But you did it on the back of the envelope basis in your head in answering the earlier question I mean –

Tom Steipp

Well, I don't know that I can answer necessarily as a break even, but I would certainly expect this business to be between $5 million and $10 million a year for it to be a viable product line.

Dan Mendoza – Agincourt Capital

Okay. That's helpful. Thanks. I'll let someone else on. Thank you.

Operator

And your next question comes from Scott Sural [ph] with Esquire Technologies [ph]. Sir, your line is open.

Scott Sural – Esquire Technologies

Hey, good afternoon. Nice job on the gross margin, guys. Couple of items. First, in terms of looking at the guidance for December quarter, it's pretty wide range out there; visibility is very difficult in telco land. Could you just give us an idea of what you guys currently have visibility to at the lower end of the range to give us some comfort? Or what's your comfort level at the lower end of the range at this point in time? I don't think based on the bookings here that you provided that you're booked through the low end of the range, but give us some sense of what you guys are seeing at the low end?

Tom Steipp

Yes, well, Scott, we're never booked through the low end of the range. At a high level, what we're seeing I think the salient points for you are that our TT&M business, very solid. We understand what it is, we've got – we built backlog in that during the quarter. Relative to the TSD portion of the guidance, we're looking at two or three relatively substantial deals that we believe will come in during the quarter. But having said that, there is – I've been here before, you always have risks in terms of either people expecting they would or trying to get some year-end money, or getting orders in from international that we are aware of both the fact that we think it's going to come in and the fact that there is some risk to it. That's why we gave a broader than normal guidance for this quarter.

Scott Sural – Esquire Technologies

Got you. So, at this point you think you're kind of fully incorporating some sort of probability that maybe one or two of those deals might not hit the quarter?

Tom Steipp

Yes, I mean, I think ordinarily, $5 million we figure would cover it, but just given the economics and the dollar moving around against international currencies and other things, we looked at all of the things that we thought had some increased level of uncertainty associated with it and factored it into this quarter's guidance, which, by the way, both the top and the low end of this quarter's guidance are above what we did a year ago.

Scott Sural – Esquire Technologies

Okay. And not to spend too much going back to QAD again, but to ask the question little bit of a different way. I think if we go back several quarters ago, the estimate you guys had of investment in QAD was $0.15 to $0.20 on an annualized basis. What is that number right now on a quarterly basis? You've taken a lot of the costs out through the integration with TSD, but there is still some direct cost there. So, is it $0.01 a quarter, is it $0.02 a quarter? Is it more than that? As we start to think out, then, to the second half of calendar '09 of what we should be seeing hit the bottom line one way or another.

Tom Steipp

Yes, Scott, I mean, I'm not trying to be evasive, really, but we don't really have that ability. I mean, we have totally integrated this into the other division. And as I said, probably the easiest way for me to answer that is that we have some level of investment that's going on for it to be a viable product line. We probably have to get into the $5 million to $10 million range, and we're not there today, otherwise we'd kind of tell you that.

Scott Sural – Esquire Technologies

And last item, Tom, in terms of looking at the fiscal year guidance, you're not backing off that number, which really implies that you're going to see a good first half of calendar '09, basically $60 plus million a quarter, somewhere along those lines. And taking that out through calendar '09, EPS is somewhere in the ballpark of $0.45 to $0.50. What gives you the confidence right now to be talking about that type of number? Is it because you've got some visibility of MSO spending coming back on the modular CMTS front? Is it 1588 contributing? And if so, can you give us some numbers there? Are you getting some visibility to AT&T and Verizon budgets as we get back into calendar first half '09? Just maybe if you could give us some color about why you're comfortable with relatively big numbers in the first half of next year?

Tom Steipp

Sure. And just a point of clarification. Our official guidance for fiscal '09 is I think it's $0.35 to $0.41, so I'm not quite sure –

Scott Sural – Esquire Technologies

Sorry, Tom, I was just calendarizing that.

Tom Steipp

Okay.

Scott Sural – Esquire Technologies

But, clearly, it's a very attractive run rate that you guys would be in.

Tom Steipp

Well, I think the one thing that we have to understand is that unlike the situation we were in probably four years or five years ago, by virtue of our biggest customers really managing their CapEx budget much differently, we have a pretty substantial seasonality between the first half of the year and the second half of the year. So, what's baked into our guidance is the results of a lot of very meaningful conversations with both AT&T and Verizon, having put people on the ground in China, Japan and India; looking at the fact that we've got new markets that we're selling into, cable being the strongest of those, and some new products that we think are going to start generating substantial revenues based on the number of trials we see, that's 1588. So two things driving the second half of the year, and again, to the extent we can, we've tried to factor in the economic circumstances. But the first and foremost, diversification of the markets, diversification of products, and a recognition that the first half of our business is always relatively weaker than the second – or at least the last three years it's been relatively weaker than the second half of our business. So we've put all of those things together and that's where we are. If that (inaudible) we go along, we'll let you know.

Scott Sural – Esquire Technologies

Just a quick follow-up on 1588, Tom. The gross margins might be a little bit early to comment on that, but should we be thinking about that along the same lines as you're seeing now with the modular CMTS products?

Tom Steipp

Here's the way I would characterize things. I think our DTI product; the cable product has the least amount of competition because it's very technologically sophisticated, hard to do. 1588, got a lot more competition, and when you get into the video V-Factor, there's even more competition. So, we've got hardware, software combinations there, but that should give you some indication. We probably wouldn't expect it to be quite as strong as cable, but certainly would expect it to be well in excess of what our corporate averages are today.

Scott Sural – Esquire Technologies

Great. Thanks so much.

Operator

And our next question comes from Cris Blackman with Empirical Capital. Sir, your line is open.

Cris Blackman – Empirical Capital

Yes, thank you. Couple more, if I may. Tom, on DTI, I know you're not breaking it down by product, you've made that clear and I can understand. But if I can ask another way. Is DTI still exceeding your expectations? Is it tracking your original expectations?

Tom Steipp

It is exceeding the expectations that we put forth in the business plan a year ago. Yes, that is safe to say.

Cris Blackman – Empirical Capital

Okay. Also, I think you mentioned that you shipped to 10 customers. Is that what you said in your prepared remarks, if I recall (inaudible)?

Tom Steipp

Yes, 10 MSOs, that was international as well as domestic.

Cris Blackman – Empirical Capital

How many domestic, if you could separate the 10?

Tom Steipp

I don't remember, but my rough order magnitude is five domestic and five international. I may be off one or two (inaudible).

Cris Blackman – Empirical Capital

Okay. If I ask for a little more granularity on that, if I may. If you look at the domestic MSOs, of the top five domestic MSOs, how many would you – have you shipped (inaudible)?

Tom Steipp

That would be three or four.

Cris Blackman – Empirical Capital

Is that right? Wow!

Tom Steipp

Yes. Now, not all of them are deploying at the same rate. So, just be clear about that there's one or two that clearly kicked off. This is a little bit like our upgrades on the sync business. Everybody toys with it; some have kicked off more strongly. And, just to be clear, it is tracking one-for-one with the shipments of Cisco modular CMTS solutions into those customers’ accounts.

Cris Blackman – Empirical Capital

Okay. And how is Cisco marketing that? How are they promoting the modular CMTS?

Tom Steipp

Domestically, they have direct sales and internationally they use a series of distributors, and we do the same thing. Domestically, we have direct sales coverage and internationally, we use the same distributors, frankly, that Cisco does because Cisco introduced us to the carriers because they have to ship our stuff along with their solution.

Cris Blackman – Empirical Capital

And then just to backtrack for one second, then. Two or three of the domestic – top five domestic MSOs – and, again, you said they're not all necessarily deploying at the same rate. But are you – can you comment maybe a little bit about integrated and modular and those domestic MSOs, what their stance is on which approach or a combination approach? Is there any consensus building?

Tom Steipp

I would say there is not a consensus building, but for the rest of the audience, we use – we default to say DOCSIS 3.0, more bandwidth, you need timing, but the precise explanation is that some solutions use a modular, multiple vendors for one solution, some use an integrated, typically, one vendor for the solution. Best example would be Comcast that has commented publicly that they are deploying some of each. The strongest integrated supplier of DOCSIS 3.0 is probably ARIS, and the strongest supplier of modular is certainly Cisco. Although there are others in both camps, but those would be the leading contenders. And I think there is still some uncertainty about exactly what the percentages will be. I think what we can say at this point in time is that both integrated and modular are flowing into the market at rates faster than anybody predicted a year ago, and that's being driven by the competitive juices that kind of exist between cable and telco competitors.

Cris Blackman – Empirical Capital

Okay. And so is it fair to say then that you haven't seen any shift away from modular in the trend?

Tom Steipp

No. We have – one thing I can say categorically is we haven't had anybody start to roll it out, get to the point where they say we're going to cap it. No, we have not seen that.

Cris Blackman – Empirical Capital

Excellent. So –

Tom Steipp

And I think it's worthy to say – I mean, it's noteworthy that 50% of the customers are outside the U.S., and 50% of the customers are inside the U.S. Typically in cable environments, you see a much stronger domestic component, but I think globally you're seeing a lot more competition between the cable operators and the telcos than we've seen historically, and we're benefiting on both sides of that equation.

Cris Blackman – Empirical Capital

Excellent. Excellent. So, since you're shipping – since you're shipped to 10 entities, would that suggest you've got 10 contracts?

Tom Steipp

Actually, we have contracts with the distributors internationally. Domestically, we only have contracts with one cable operator at this point in time, although we've been shipping on POS to the others. It takes a while to work out a volume discount agreement and we've got one down and working on others.

Cris Blackman – Empirical Capital

Okay. And can you comment on the number of contracts that you might have in negotiation currently?

Tom Steipp

Well, at one stage or another we've got five, but – well, four or five. We have discussions going on with five, but I'm not sure that we've actually got what you would classify or I would classify as a negotiation going on with all five.

Cris Blackman – Empirical Capital

Okay. That's very helpful. And then, finally, two more, if I may, and that will be it for me. You mentioned India, eight satellite orders on the Cesium product with follow-on tenders. Can you maybe go a little more into detail on that? And when you say follow-on tenders, how big could that be, and is this product that we could see with other countries also?

Tom Steipp

I think you'll see it with some bigger countries, but actually, let me backtrack from that. I think relative to GPS, you're going to see it with few countries, India being one of those. There are other countries, like the old Soviet Union, Russia, that's using GLONASS. The Chinese are talking about putting up a positioning satellite. The Europeans are putting up a positioning satellite called Galileo. So I think this will be a world superpower kind of dominated and some will use GPS, some will use their local and some will use things like 1588, where they've got time sources, but they don't want to use GPS and they want to deploy it throughout their network. So, again, I think we're well-positioned. We have not recently or over the last four years or five years, done much business in India. But since putting people on the ground there, we are certainly seeing opportunities in both our TSD and TTM business. If you look at our TTM business, I think over the last five years it's up about 20% compound annual growth. Much of that on acquisitions, but as – not insignificant amount of that is movement of existing products into the international markets. And we're going to continue to push that as much as we can.

Cris Blackman – Empirical Capital

Okay. And India, specifically, could the business that you're doing with India, could that right there be one of the pieces of business that could help you hit the top end of your guidance for the next quarter?

Tom Steipp

Well, certainly, India is an area that we have opportunities in for sure, yes.

Cris Blackman – Empirical Capital

Okay. And then, finally, your time period, to ask this earlier. What are the terms on your time period or how – I know there is some level of time as far as a few component parts, but what is the time –

Tom Steipp

Yes, we don't calculate terms by product, but the lead times on that have come down from 16 weeks to about one week to two weeks. And obviously, if you've got a customer who wants to ship – wants to install a Cisco product that they paid a lot of money for, they don't want to wait 16 weeks for this, which is why you've seen a real aggressive push on our part which to some extent, if you look at our inventory levels, they are higher than we want them to be or would like them to be. But part of that has been building inventory for things like getting, flushing the system for TimeCreator as well as making accommodations for year-end and first half calendar shipments into major accounts like AT&T and Verizon.

Cris Blackman – Empirical Capital

With such short lead time on that product, would that suggest if this momentum continues? I've heard phrases at conferences that I've attended that it's just unbelievable the amount of activity or the interest. It's almost beyond comprehension over how this has kind of taken hold. Not necessarily your product, but just the whole 3G. Is it possible that there could be some significant upside due to the rapid ability to turn that or the short lead time on that product?

Tom Steipp

That will be really driven by the success of the Cisco sales operations at this point in time. We stay in close – we have close contacts with the folks at Cisco and try to gauge our inventory buys based on information they give us. And frankly, Cris, they have proven to be very good in terms of their projections, and our year long numbers are based on what we've gotten from them over the last – over the quarters.

Cris Blackman – Empirical Capital

Okay. And then you had mentioned your inventory levels being a little higher than where you'd like them to be for the reasons you shared, which makes sense. And that kind of leads me to my final question on your cash generation, just looking at your working capital area. Nice cash generation during the quarter. Obviously, I assume, considering the recent stock buyback announcement and the shares trading where they are, we'll probably see some of that cash extended. But would you continue to expect to see cash generation similar to the levels you had this last quarter or is there any major changes in working capital that would prevent that?

Justin Spencer

Cris, I think if we execute against the guidance that we would see a cash generating profile consistent with what we reported this quarter. You're always going to have some fluctuation based on working capital, but we expect to be well positive on cash generation for this whole fiscal year.

Cris Blackman – Empirical Capital

Fantastic. Well, you're in great shape. Hey, thank you very much.

Tom Steipp

Thanks, Cris.

Operator

I'm not showing any further questions at this time.

Tom Steipp

Okay. I want to thank everyone for attending and look forward to seeing as many of you as possible in New York City on November 13. Thank you.

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