Veraz Networks, Inc. Q4 2008 Earnings Call Transcript

Veraz Networks, Inc. (VRAZ)

Q4 2008 Earnings Call

February 17, 2009 4:30 pm ET

Executives

Ron Vidal – Investor Relations

Douglas Sabella - President and Chief Executive Officer

Albert J. Wood – Chief Financial Officer

Analysts

Greg Mesniaeff - Needham & Company

Ted Jackson - Cantor Fitzgerald

Analyst for George Notter – Jefferies and Co.

Todd Koffman - Raymond James

Presentation

Operator

Welcome to the Veraz Networks fourth quarter and full year 2008 financial results conference call. (Operator Instructions)

At this time I would like to turn the conference over to Mr. Ron Vidal.

Ron Vidal

Thank you, operator. With me on today’s call are Doug Sabella, Veraz’s President and Chief Executive Officer, and Al Wood, Veraz’s Chief Financial Officer. At approximately 4:05 pm Eastern time, Veraz issued a press release with the results of it’s fourth quarter ended December 31, 2008 on Business Wire. This text of this release is available on our website at www.veraznetworks.com.

We’d like to remind you that during the course of this conference call, Veraz management may make forward-looking statements including financial projections, statements as to the plans and objectives of management for future operations, and statements as to the company’s future economic performance, financial condition, or results of operations.

These forward-looking statements are not historical facts but rather are based on Veraz’s current expectations and beliefs and our based on information currently available to us. Words such as may, will, expect, intends, plans, beliefs, targets, and estimates and variations of these words are intended to identify forward-looking statements.

By discussing our current perception of the market and making these forward-looking statements, we are not undertaking obligations to provide updates in the future. Veraz’s actual results may differ materially from those projected in these forward-looking statements. No one should assume at a later date that these comments from today are still valid.

Please refer to Veraz’s recent SEC filings for more detailed discussion of these and other risk factors. Any future product, feature, or related specification that may be referenced in today’s call are for informational purposes only and are not commitments to deliver any technology or enhancement. Veraz also reserves the right to modify future product plans at any time.

I would now like to turn over the call to Veraz’s President and CEO, Doug Sabella.

Douglas Sabella

Thanks, Ron. Thank you for joining us on our fourth quarter and year end 2008 earnings call. With me today on the call is our CFO, Al Wood. I’ll begin the call by providing an overview of our business, customers, and products, then I will turn the call over to Al for a detailed description of our financial results and outlook.

This was our second consecutive quarter of growing revenue, gross margin, and decreasing operating expenses. In addition, the company returned to positive cash flow from operations and ended the year with $38.6 million in cash, cash equivalents, and investments or $0.91 per share and no debt.

We believe these results demonstrate to investors that our business is improving despite an ever-worsening global economy. Although we are not immune to the global economic crisis, having no debt and no need to raise capital allows us to devote all our energy to running the business.

The results of the third and fourth quarters show that the quick and decisive actions that we took midway through the year were the right actions to take for our business. At that time, we targeted a $25 million per quarter break even point and that will remain our target for 2009. We are encouraged by the positive order flow that we are experiencing.

The fourth quarter was the third consecutive quarter in which we had a positive book to bill ratio. We entered 2009 with near record IP backlogs as 2008 IP orders grew by 10% over 2007. These positive trends are evidenced by some recent contract wins in several regions with both wireless and wire lined service providers.

Both our switching and bandwidth optimization businesses had very solid quarters as did most of our regions. In Q4 we were awarded three new switching deals and we began large bandwidth optimization deployment in two of the largest wireless carriers in the world.

The near region continues its strong performance in Q4 and remained our best producing region. [Belta com] generated in excess of 10% of our revenue again this quarter. We were awarded our first switching contract in Poland, won a new switching deal in Germany, and received significant expansion orders from our existing customers.

[Calla] is our fastest growing region and we continue to build momentum with tier one carriers throughout the region. Brazil is becoming a particularly strong market for us and today our solutions are being deployed in the three largest wireless providers. Telecom Italia Mobile’s property in Brazil contributed more than 10% of our revenue in Q4 as they began a substantial deployment of our bandwidth optimization solutions. We anticipate more large revenue customers coming from this region in the coming quarter.

The Asia Pacific region made great progress in Q4 and is well positioned for a solid 2009. One of the largest mobile operators in Asia awarded a global Class 4 switching project to Veraz over several major competitors.

In addition, we continue to see solid bandwidth optimization orders from India and other countries in this region. We entered 2009 with 115 customers deployed in 80 countries around the world. These customers operate wireless, satellite, wire lined, calling card, retail, wholesale, enterprise, and government networks.

Clearly, one of the fastest growing segments in communications has been wireless networks. Today wireless subscribers exceed wire lined subscribers by a factor of 2:1. Many countries in emerging markets have embraced wireless networks as a way to leap frog generations of communication technologies that used copper lines as the only network for voice communications.

Our customers see the value in our IP solutions as they optimize bandwidth capacity for new subscribers and lower operating expense and offer new services with our IP switching products.

Our customers include thee of the top five and seven of the top 20 wireless networks in the world. We believe due to the complex nature of equipment selection that we have a substantial need over many companies which may try to compete in our markets. The process to sell and install equipment to a network operator varies by company but generally there is a selection, procurement, and implementation process that can be lengthy. Usually network operators issue requests for proposals or RFPs. We review the responses to those RFPs, select particular equipment, engage in lab trials, negotiate contracts, then field trial, and finally cut over to live traffic and production networks.

While individual customers vary, we have now completed that process for over 115 customers. Achieving these results is no small matter. Once we complete this process with a network operator, we can then market and sell to other geographic regions of the same customer with the confidence of having passed our selection criteria and having equipment in their live revenue bearing production network.

Our large customer base provides a measure of predictability to future orders and revenue. When certified into a network, customers purchase expansions and thus the revenue stream is multi year in nature. We continue to receive expansion orders from most of our customers.

Let me spend a few moments providing some statistics relating to our customers’ purchasing patterns. To date, four of our customers have purchased greater than $10 million of our IP solutions, nine have purchased greater than $5 million of our IP solutions, which is an increase of five from the end of 2007. Customers purchasing greater than $1 million increased year over year from 53 to 89 customers.

This is a clear indication that our customers continue to see great value in our solutions and it also enables us to build a plan with the knowledge that our install base creates greater predictability in our forecast model. In fact, we expect our large and diverse install base of customers to account for approximately 80% of our 2009 order flow.

Now we will spend a few moments on our products and solutions. Our solution are the result of substantial R&D investment that we have made. Although we brought our R&D costs back in line with forecasted revenue, we continue to innovate, develop new products, and participate in key industry technical forums.

I wanted to highlight some key accomplishments from Q4. In Q4 we announced the availability of Smart Link, and end to end bandwidth optimization solution that lowers operating expenses for wireless service providers utilizing Veraz I Gate 4000 family media gateways.

In Q4 we launched the I-Gate 4000 EDGE SIP Gateway, offering a migration path for IP networking without costly infrastructure change outs. We also announced deployments of our network adapted border controller, a next generation [touch and] border controller with Dollar Phone Corp. and Digicel Group. More recently, we announced the replacement of 18 Nortel DMS switches at Excel Communications. This replacement is a great example of the extensibility of our class force switching platform which enables the migration of TDM services to IP while also offering new IP services within the same switching platform.

We continue to actively participate in a key technical forum, the GSMA IPX forum, which we believe will define the future technical standards for the exchange of voice over IP traffic between mobile networks.

Finally, we see the continued growth of wireless devices and subscribers. Veraz bandwidth optimization solutions and switching products are well positioned to serve the wireless providers. We will continue to expand our geographic footprint as well as sell aggressively into our install base of customers. While we are not immune to the global economic crisis, we are diversified across geographic regions, types of network, and solutions.

Now I’d like to turn the call over to Al.

Albert J. Wood

Thanks, Doug, and good afternoon everyone. We are pleased to be reporting fourth quarter results. I’m going to start with the financial highlights of the fourth quarter and then I will provide an update on our outlook for the first quarter of 2009.

For Q4 FY 08, total revenues were $26.3 million, above the Q4 guidance range we previously provided of $22 million to $24 million. The Q4 revenues of $26.3 million were a 15% increase from Q3 FY 08 and a 25% decrease from Q4 FY 07. The 15% increase in sequential quarter over quarter revenues seen in Q4 was attributable to a combination of factors, including solid bookings in Q4, where book to bill ratio was above 1. This is the third consecutive quarter in which book to bill ratio was above 1, thus allowing us to grow our ending backlog at the same time we are posting solid quarterly revenues.

Improved bookings linearity within Q4 that allowed a substantial portion of the Q4 bookings to then convert into revenues in Q4 and capital spending by our customers in our markets. While still restrained as compared to what we have seen historically, we’re somewhat better than we had seen in Q3.

We continue to steadily expand the already diverse customer base from which our revenues are generated. We had two customers that each accounted for 10% or more of our Q4 revenues. [Belta com] had 17% and Telecom Italia Mobile or TIM in Brazil had 12%. Our top 10 customers accounted for 64% of our revenues and six customers each accounted for $1 million or more of Q4 ’08 revenues. We believe this lack of customer concentration has been and continues to be a significant advantage as we are not overly reliant on any particular customer, capital budget geography, or type of network operator.

On a geographic basis, our Q4 FY 08 revenues were 13% from North America and 87% international as compared to Q3 FY 08 revenues which were 19% from North America and 81% international. The geographic mix of revenues will vary significantly on a quarterly basis depending on the timing of the completion of the projects and other factors.

Our Q4 IP product revenues consisting of our media gateway and control switch family of products were $16.9 million, an increase of 12% from the $15.1 million of IP product revenues recognized in the preceding quarter and a 19% decrease from Q4 FY 07.

Our legacy DCME product revenues were $3.5 million for Q4 FY 08. While this is a substantial decline from the same quarter on a year over year basis, the Q4 DCME products sales reflects the decline we’ve been predicting for some time. As we have said previously, at this late stage of the product life cycle of this legacy product, the rate of decline of the DCME product revenues will vary from quarter to quarter. We still expect our DCME product sales to continue to decline over time while there will be some periods where the DCME sales are different than our expectations.

Our services revenues of $5.9 million is a 4% increase from the previous quarter and a 2% increase from the same quarter of last year. As expected, the mix of services revenues continues to steadily shift towards the IP business which offsets the expected decline in service revenues attributable to our DCME business.

Total growth margin was 60.1%, an increase from 58.6% in Q4 FY 07 and from 58.5% in Q3 FY 08. IP product gross margin was nearly 65%. This is the second quarter in a row where IP product margins were at such a high level. As we have stated previously, the percentage of total gross margin as well as the IP product margin will vary due to the mix of revenues as well as the characteristics of specific deals recognized within the period.

For Q4, the higher gross margin was attributable to higher margin expansion projects with existing customers along with better contract terms. We continue to strive to achieve the right balance between maintaining relatively high gross margins for our products and growing our market share.

Despite a challenging economic environment, we are pleased to be able to continue to maintain relatively strong gross margins. As we’ve stated in the past, while we are often not the low priced leader in competitive situations, our customers recognize the quality of our products, services, and our overall commitment to their success.

While there will be some variability in any given quarter, for our long term business model, we expect to have total gross margins of 55% to 60% and this quarter’s results are consistent with those goals.

For Q4, operating expenses were $16.1 million including $1 million of stock compensation expense and $200,000 in expenses related to the SEC investigation as compared to $19 million which included $600,000 in stock compensation expense for Q4 FY 07 and $18.1 million including $800,000 in stock compensation expense, $800,000 restructuring charge, and $200,000 in expense related to the SEC investigation for Q3 08.

On a non-GAAP basis, our Q4 operating expenses were $14.9 million as compared to $18.5 million for Q4 FY 07 and $16.3 million for Q3 FY 08. Immediately following our Q2 performance, and in anticipation of the developing global economic crisis, we stated that we would take immediate measures to streamline our operations and reduce our operating expenses.

At that time, we said that going forward we believed that such streamlining measures would reduce our quarterly non-GAAP operating expenses to $14 million to $15 million per quarter starting in Q4 FY 08. We stated that we expected that we would lower our break even and I am now pleased to report that we have either fully delivered upon or exceeded those previously stated objectives.

Specifically, since our Q4 revenues were above the roughly $25 million per quarter break even point, and our non-GAAP operating expenses were less than the targeted objective of $15 million per quarter, we delivered Q4 results that were significantly better than break even on non-GAAP operating income and cash flow.

For Q4 our non-GAAP operating income was $1.2 million. Cash provided by operations was $4.1 million. This solid financial performance is the result of efforts to quickly right size the business to reflect a difficult economic environment combined with continued acceptance by our customers of the Veraz solutions and services.

Going forward ,while results will vary on quarter to quarter basis, we intend to continue with our efforts to carefully manage Veraz to insure that we deliver a non-GAAP operating profit and positive cash flow on a long term basis.

Other income and expenses and income tax net $600,000 negative for Q4 which was driven primarily by foreign exchange losses on some balance sheet items that are denominated in foreign currency from our foreign subsidiaries.

Net loss for the period was $900,000 or $0.02 loss per share which was a smaller loss than our previous management guidance of $3 million to $2 million loss or $0.07 to $0.05 per share.

On a non-GAAP basis, net income was $600,000 or $0.01 earnings per share which was better than the previous management guidance of non-GAAP net loss of $2 million to $1 million loss or $0.05 to $0.02 loss per share.

Turning to the balance sheet, our cash and short term investments were $38.6 million, as compared to $35.0 million as of Q3 FY 08. For Q4 FY 08 we had positive cash flow from operations of $4.1 million which is better than the guidance previously provided of $2 million to $3 million negative operations cash flow.

After taking into account the cash flows from investing and financing activities in Q4, our total cash flow was $5.6 million positive. In Q4 we did not factor any of our accounts receivable. As compared to Q3 FY 08, in Q4 our deferred revenue remains flat at $17.2 million. We decreased our accounts receivable by $2 million to $31.7 million an we improved our DSO to 108 days as compared to 132 days. On a year to date basis, we have grown our deferred revenue by $2.8 million and we have reduced our accounts receivables by $9.1 million.

Let me close with a few forward-looking comments concerning an update to the outlook for Q FY 09. I remind you that the comments I am about to make are based on the current indications for our business which may change at any time. We undertake no obligation to update these comments.

As outlined in our press release issued earlier today, we expect Q1 revenues to be in the range of $21 million to $23 million and a loss of $4 million to $3 million or $0.10 to $0.07 loss per share on a GAAP basis. On a non-GAAP basis, a net loss of $3 million to $2 million or $0.07 to $0.05 loss per share after exclusion of approximately $1 million expenses related to stock compensation. We expect Q1 net cash use from operations to be approximately $3 million to $4 million.

In summary, while we still have many challenges in front of us, we are encouraged by the fact that we were able to swiftly trim expenses and take other measures to adjust to the difficult economic times that are now unfolding and at the same time continue to grow our business through increased bookings, higher revenues, new customer wins, and lower costs. We believe that although we are in a challenging economic environment, we are committed to taking the steps necessary to meet the challenges and deliver value to our customers and our shareholders.

We look forward to updating you with reports on our progress in future calls. We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Greg Mesniaeff - Needham & Company.

Greg Mesniaeff - Needham & Company

Question on the revenue break down. Can you give us some idea what percentage of total revenues were related to wireless versus wire lined?

Albert J. Wood

Wireless versus wire lined, it’s an ever-increasing percentage of wireless, although we don’t break that out for financial reporting purposes. That is a growing percentage for us.

Operator

Your next question comes from Ted Jackson.

Ted Jackson - Cantor Fitzgerald

Some model questions then some bigger picture stuff. On the model can you tell me what CapEx and depreciation were for the quarter and then relative to CapEx, can you give me an outlook for ’09?

Douglas Sabella

Let’s start with the first part which is CapEx for the quarter. It was a little over $100,000 for the quarter and as far as depreciation, it was about $800,000 for the quarter. Going forward we expect that CapEx will be on a quarterly basis a couple hundred thousand dollars a quarter and as far as depreciation, we’ll be $700,000 to $800,000 per quarter going forward.

Ted Jackson - Cantor Fitzgerald

Then looking into the first quarter relative to the balance sheet, I know you said you’d be operating cash flow negative. Can we expect to see your receivables or your inventory click up in the next quarter?

Douglas Sabella

Yes, that would be our expectation is that while we had what I consider to be very strong cash flow performance for this quarter, yet that will result in Q1 being a little bit more cash current and that’s going to be the result of a combination of factors including increase in A/R, increase in inventory.

Ted Jackson - Cantor Fitzgerald

Then going into the larger picture question which makes that probably a decent segue, you talked about this large Asian mobile Class 4 win and you talked a bit about a number of other strong bookings and opportunities that you saw coming forward. Can you provide… First of all, is some of the increase we’re going to see in receivables perhaps inventory a result of these larger projects and then can you give us some color relative to this talk about the Asian mobile Class 4 win, the size, the timing, and details around that?

Albert J. Wood

Let me answer the first part of that and then I’ll defer to Doug for the second part. With respect to the first part, and let me answer with a larger answer first than what you asked. We are growing our basically our bookings faster than our revenue. That’s what we have been doing for the past three quarters and that naturally does drive up our accounts receivable and inventory. Now as far as the second part of your question concerning our large win in Asia and the timing of those larger projects, I’ll defer to Doug on that one.

Douglas Sabella

The Asia win is in deployment now. It’ll actually be Q2 revenue, I think that’s where we think it will get acceptance and sign off everything we need to allow us to get revenue, so it will actually, to Al’s point, it will find its way into deferred revenue and into receivables and inventory etc.

Now on the positive side, it’s a first step. It’s a low seven figure deal but it’s also the first step in as I gave you the statistics, once you get in, the switching deals, the growth is significant in the following years going on, so again, it builds us another strong customer with a successful business model that will begin deploying.

In the South America, which you didn’t ask, but let me just answer, we actually are in the midst of major deployment with one of the Brazilian wireless providers and at the bandwidth optimization solution across their national network. It will likely become revenue in Q1 but it could obviously slip to Q2 also, just depending on how the acceptance goes, etc.

Operator

Your next question comes from George Notter from Jefferies.

Analyst for George Notter – Jefferies and Co.

This is actually James Kisner calling in for George. So I guess the first question I have is just regarding the DCME business. I mean it looks like it was a little more than we expected this quarter. What is your guidance in terms of the DCME business in Q1?

Albert J. Wood

We don’t break out the DCME product guidance per se because it is so difficult to predict because it gets to be relatively spotty. If you’ll look at our performance over the four quarters of FY 08, revenues range from a low of essentially $1 million to a high of this Q4 of nearly $4 million, just for the product. It moves around quite a bit but it’s now in a narrow range of sub $5 million. I do not expect any quarter to be above $5 million and I think they’ll be closer to $1 million to $2 million per quarter for each of the quarters.

Douglas Sabella

If you look at the trend from ’07 to ’08, we went from $24 million in ’07 down to $8.5 million for ’08 so it will probably settle into Al’s point at $1 million or so just from growth and things like that. But it’s fundamentally an end of life business.

Analyst for George Notter – Jefferies and Co.

That makes sense. Why does the gross margin, am I getting this right, gross margin has been turning down this business gradually?

Albert J. Wood

Yes, the reason while it should be on a relatively steady state of around 63%, it’s actually been slipping slightly and that has to do with the fact that you have the same fixed manufacturing overhead being allocated to an ever smaller DCME revenue base combined with the pricing for the DCME product declining to such a point that we reach a floor on the amount that we have to pay as a royalty to the supplier, ECI, and so we [reap to] minimum force. So those two combination factors are decreasing our DCME product margin slightly.

Analyst for George Notter – Jefferies and Co.

Okay. Sort of a broad question. So obviously carriers in this environment are being very careful with their CapEx. Some of you would argue the restructure is really an OpEx savings story. I guess I was sort of wondering in the overall priority of spending how do you feel about your position in the overall CapEx budgets, your customers, do you still see the deployment of your products as being high priority, or do you see some additional slowness or less appetite? Any color there?

Albert J. Wood

Obviously to say there’s slowness everywhere, I think that’s an understatement. We’re just part of the global economy. But that said, we actually have very specific value propositions that provide significant payback periods, so on the bandwidth optimization side, on the mobility side, our ability to give service providers payback of their investment in less than 6 months, sometimes 3 months, it’s a pretty compelling discussion when they’re given a choice between paying lease lines to incumbents versus that.

So between that and then on the switch side, being able to retire their legacy switches, and because of our distributed architecture, basically reduce their head count from their multiple switch sites into a single switch site, provides again a compelling story for them, and that’s why we feel like we’re continuing to win business. By the way, we’ve been invited into several other large tier one opportunities even on the switching front which we would have never been, pre-2008. So we’re finding ourselves getting looked at and the tires kicked more and more by the larger players because of the compelling value propositions we offer.

Analyst for George Notter – Jefferies and Co.

That was a good segue into my final question. I guess you obviously announced the program to help people transition from Nortel, is very gracious of you. Have you seen incremental interest since the bankruptcy of Nortel? Does additional activity?

Albert J. Wood

We definitely have seen some and people are querying. We have not closed any business associated with it. Obviously the excel solution was from previous years but it’s a great example, a good testimonial for what we can do.

Operator

Your next question comes from Todd Koffman from Raymond James.

Todd Koffman - Raymond James

Two quick questions, first on the overall market of your IP products, specifically the switch sub segment, it seems as though when you look at yourselves, but really also the other players in the market, the business sort of peaked about two years ago, 18, 24 months ago, something like that, and there’s been some thumbs up and down and whatnot. Why does it seem as though from an industry perspective that happened. Are we just hitting sort of a maturity level in the phase of these products?

Albert J. Wood

We don’t think it’s actually peaked so we’re seeing actually increased activity on the Class 4 side very specifically, and you kind of had two levels of adoption. You had adoption I would just say to your point 36 and 24 months ago from tier two, tier three carriers, and [inaudible] a good job of being successful in the wholesale market around tier two and tier three carriers, and if you look at that market, we probably have a 25% market share in that group.

Now if you go beyond that and you look at the tier ones, they really never began to replace their switches and only now are they actually beginning that process to move to their next generation of deployment and we feel like we’re in a very strong position and are being invited to a lot of RFPs in the tier one world outside the US that would allow us to hopefully participate and win some of these deals, so I actually think, and I don’t want to be an economist here, but in times when you’ve got downdrafts like this, it generally drives service providers to re-trend what I’ll call their traditional legacy investments and finally decide that it’s time to move on to the next one and save money so we’re hopeful that we are actually going to see the economy bottoms and the markets bottom is that service providers will then make the next leap and say, “Okay, it’s time to move to the next generation of switches.”

Todd Koffman - Raymond James

Just as a follow up, but it’s unrelated, on your surfaces revenue, you’ve been pretty consistently recognizing roughly $5 million plus or minus in revenue a quarter in services revenue but if you look back a couple years ago, you were consistently above $30 million in revenue. You’re still recognizing something like $5 million or $6 million on significantly lower revenue. Does any of that relate to service contracts you had signed that will eventually tail off or are the new contracts carrying, I don’t now, 25% of the purchase prices service?

Albert J. Wood

We don’t get 25% of the support and maintenance rate or even with installation but what we do have is the phenomenon that we had been living, if you roll back to let’s say ’06 and prior periods, is that we still had a lot of DCME services revenues that were still full boat, that was kind of a lagging indicator or lagging revenue before that would fall off, and it is declined in ’07 and again in ’08. This is the DCME services revenue but that is being replaced and now then some with the IP services revenue, so what you’re seeing is that there’s a nice gentle trend up in FY 08 and we expect to see an acceleration of that in ’09 a trend up in the services revenue as you have a lot of the DCME services revenue decline and the IP services revenue growth rate gets fully unmasked and you can see it in full.

Todd Koffman - Raymond James

Your IP revenues are down?

Albert J. Wood

It’s an ever-growing install –

Douglas Sabella

Yes, once of the things you have to look at is that the customers when they first sign up, the process to accept and etc., and until you get through all that process and they come online, you’re not getting the benefit of the maintenance revenue etc., so it continues to grow our maintenance revenue. So if you looked underneath our maintenance revenue for our IP business, it has grown substantially and it’s just over the last several years although it’s been as Al noted, masked by the decline in the DCME maintenance.

Operator

Your next question comes from Greg Mesniaeff from Needham & Company.

Greg Mesniaeff - Needham & Company

Just a quick follow up for Al. Any thoughts how you plan to address the share price currently being below $1 for an extended period of time?

Albert J. Wood

I’m not saying this tongue in cheek, we’re hoping that we continue to deliver these types of strong results that in one respect the share price will take care of itself, notwithstanding the macro economic conditions we are struggling with. Not to be coy about it, I think within your question is there any plans for a buyback or other efforts to help shore up the share price. There are no current plans to do so. We feel that while our share prices is at a bargain, we also are just a little bit less than $40 million in cash we’re reticent to be spending that cash cushion for share repurchases.

Operator

Your next question comes from George Notter from Jefferies.

Analyst for George Notter – Jefferies and Co.

Your statement regarding conserving cash in the balance sheet, is that true with respect to M&A as well or are you guys pretty much looking only very opportunistically and conservatively at M&A or is that something that you’re exploring?

Albert J. Wood

Obviously we’re always looking at things and we’re thinking about different strategic alternatives that my exist, but with our market cap the way it is, it puts is in a very limited factor, so we feel like at this point we’re going to stay very focused on our business and on growing our business. We think we’re in markets that will grow and we have a great competitive position and if we execute we have plenty of cash to continue and at some point if the opportunity lends itself we will do some selective activity.

Operator

I’m showing no additional questions. I would like to turn the call back over to management.

Albert J. Wood

On behalf of the company, we want to thank everyone for participating today. We understand that there’s some kind of weather related issues in a lot of places and people may be off on break, but thank you for your participation and we look forward to reporting future quarters.

Operator

Thank you all very much for participating in the Veraz Networks conference call. This concludes today’s event and you may now disconnect your telephone lines.

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