Symmetricom F4Q09 (Qtr End 6/30/09) Earnings Call Transcript

Call Start: 16:30

Call End: 17:13

Symmetricom, Inc. (SYMM)

F4Q09 (Qtr End 6/30/09) Earnings Call

August 11, 2009 8:30 am ET

Executives

Dan Madden - SVP Finance and Investor Relations

David G. Cote - President, Chief Executive Officer

Justin Spencer - Chief Financial Officer, Executive Vice President

James Armstrong - Executive Vice President, General Manager - TSD

Bruce Bromage - Executive Vice President, General Manager - Timing, Test and Measurement Division

Analysts

Jill Hanar - RBC Capital Markets

Mike Crawford - B. Riley & Co.

Ted Jackson - Cantor Fitzgerald

Simon Leopold - Morgan Keegan

Cris Blackman - Empirical Capital

Presentation

Operator

Good afternoon, and thank you for standing by. (Operator's Instructions) 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 Fourth Quarter Conference Call. With me today are Dave Cote, our new Chief Executive Officer, and Justin Spencer, our Chief Financial Officer. Justin and I are in New York for the Morgan Keegan Technology Conference, and Dave, along with James Armstrong, General Manager of our Telecom Solutions Division, and Bruce Bromage, General Manager of our Timing, Test, and Measurement Division, are at our headquarters in San Jose. James and Bruce will be available to answer questions during Q&A.

If you have not received today's news release, you may download it from our website. 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 concerning guidance for the first quarter and full year of fiscal 2010 and our operating performance expectations for fiscal 2010. 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 and for the year ended June 29^th, 2008, and subsequent filings with the SEC, as well as in today's news release.

I will now turn the call over to Dave.

David G. Cote

Thank you, Dan, and good afternoon, everyone. I'm very pleased to be here today and I'm excited to join Symmetricom. The company is the leader in high-performance precision timing and synchronization with both technical and market leadership in key network telecom, government, and military applications.

This leadership, along with the company's strong management team, solid financial and market position, and its aggressive efforts to tune its business model, convinced me that this would be a dynamic and opportunity-rich environment to work in.

My main objective will be to maximize our existing opportunities and drive the innovation and development of new ones to profitably grow the business, always with an eye towards leveraging the company's deep expertise and outstanding timing technologies and products. Symmetricom has a strong and diverse customer and market presence, which will be of great advantage as we seek to identify and pursue these additional opportunities for growth.

My style has enabled me to build strong leadership teams, make tough strategic decisions, and deliver a strong track record of results over my 25 years guiding growth-oriented high technology companies. I intend to bring to Symmetricom the same discipline that has enabled my success in the past, including the development of a clear corporate vision, a culture of urgency and transparency, and a focus on results.

My understanding of the communications equipment business in particular should help me quickly get assimilated to the business.

It's a pleasure to begin this new role just as the company finishes up such a great quarter and a solid year. Over the next few weeks I will be focused on getting to know the company, I'll be spending my time visiting all of our sites, meeting with the management team and employees, and starting to see customers and partners. Our worldwide sales conference is coming up so it's a great chance to visit with our sales reps who aren't ordinarily in the area.

All of this will allow me to get a good grounding in the business as we make decisions about the company's future.

With that, let me move into a review of the fourth quarter and full year highlights, followed by a summary of the divisional performance and an update on major strategic developments. Justin will then provide details on our financials followed by guidance, and a few remarks on our outlook before we take questions.

Let's get started with the fourth quarter results. Total revenue for the quarter was a record $60.4 million, up 6% from the previous year. Non-GAAP gross margins were 49%, continuing to reflect a favorable trend toward newer products and the benefits of reduced manufacturing costs.

Non-GAAP earnings were $0.08 per share, up $0.07 per share over the prior year.

Our new product initiatives continue to show progress and promise. Cable sales remain solid in the fourth quarter and once again contributed meaningfully to gross margin. Sales of Packet Time, though still emerging, are gaining tracking with nearly a dozen carriers and OEMs now customers.

The chip scale atomic clock, which we believe will be an important long-term growth driver for our timing, test, and measurement business, continues to make appreciable progress towards volume production.

For the full year we’ve reported record revenue and more than doubled non-GAAP earnings in the face of a challenging economic environment. Fiscal 2009 was a year of continuing innovation, progress on our growth investments and measurable gains across many markets. We are now the leading supplier of timing products to the cable market and have fortified our position in evolving wireless, wireline, government, and enterprise networks.

In fiscal 2009 we began to realize the benefits of out outsource manufacturing strategy as we completed the transfer of printed circuit board assemblies to Sanmina.

We made additional business model refinements during the year that further reduced costs in support of our near and long-term profitability objectives. Financial highlights for the year included record revenue of $221 million, up 6% from the previous year, on sales of our new cable-timing product and continued strength in the TTM business.

Non-GAAP earnings of $0.39 per share up $0.24 over the prior year. Free cash flow was $18 million, resulting in cash, cash equivalents, and short-term investments ending the year at nearly $113 million.

With that overall summary, let me turn to the results of our two divisions. The Telecom Solutions division posted fourth quarter revenue of roughly $37 million, down slightly from the prior year. For the full year, revenues were $137 million, up about 4% from a year ago. Quarterly revenue and bookings were both strong, with especially robust activity at quarter end. Softer sink modernization revenue from the sale of equipment to domestic carriers was offset by strong international shipments.

In cable, the deployment of modular CMTS drove strong sales of TimeCreator in both domestic and international markets. More than 80 cable operators worldwide, including the top six domestically, now use our precise timing product. By developing the right product at the right time and by aligning closely with Cisco, who is the modular CMTS market leader, we have ramped to full run rates in just over a year. We expect TimeCreator will continue to be a key revenue contributor as the build out of higher bandwidth cable infrastructure proceeds.

In wireless, our new PackeTime 1588 product family continues to gain traction. We've seen a consistent ramp in revenues since the products became available three quarters ago with cumulative sales now to about a dozen customers.

During the quarter we received orders from a European service provider for field deployment, marking our second customer to deploy our equipment in their network for Ethernet backhaul.

We're encouraged by the early signs of market acceptances of our 1588 products in a highly competitive environment. Given our expertise in timing and frequency, and the advantage of having an install base of synced equipment and provider networks, we believe we are well positioned to compete in this emerging market.

As the wireless industry transitions from 2G and 3G technologies to 3G and 4G networks such as LTE, UMTS, WCDMA, and WiMAX, we continue to expect a downward trend over the long term for our traditional OEM CDMA based business.

While OEM revenue is still down overall, OEM supplier consolidation enabled us to capture additional market share at Alcatel and Lucent. In addition, we are seeing a slight uptick in OEM revenues from Samsung for a WiMAX deployment. We believe it will allow us to maintain our OEM revenue at roughly current levels in the near term.

Our long-term success in wireless however, is tied to transitioning these relationships to our next generation technology, and we believe we are well positioned in this regard. Our PackeTime products help accelerate the migration to 3G and 4G wireless technologies, and our existing relationships with wireless plays are very strong, providing a significant opportunity for increasing the company’s wireless penetration while generating better gross margins than our traditional OEM CDMA technology.

Turning now to our Timing, Test, and Measurement division, revenues were $24 million in the fourth quartet, up approximately 22% over the prior year. Fiscal 2009 revenues were $84 million, up about 9% over fiscal 2008. In the quarter we saw continuing strength across a broad range of products including government communication systems, international programs, and NTP servers for enterprise.

Our Timing, Test, and Measurement division produces the world's most accurate clocks, positioning Symmetricom as the industry leader in time and frequency. To provide a little prospective, the International Bureau of Weights and Measures in Paris defines world standard time based on time references from over 200 national labs around the world. Our CZM atomic clocks contribute 88% of the time input used to develop world standard time. The remaining time references are predominantly hydrogen mazers, many of which are supplied by Symmetricom.

When nations need timescale systems they turn to Symmetricom. Earlier this year we booked our first orders for CZM clocks in India's regional satellite navigation system, which will consist of eight satellites to cover the Indian subcontinent. We are seeing further activity around the next phases of the program, and as the world's timing and frequency authority, we believe we are well positioned to win follow-on business for this next generation navigation system.

Our timing, test, and measurement business has a longstanding relationship with many government agencies as a trusted and important partner and supplier. Our fundamental research capabilities, coupled with strong engineering and development processes have been complimented by acquisitions which extended our technical breadth into additional areas critical to defense programs.

As a result of our market position and technical expertise, we are often approached, and receive funding, from the government, to research and develop emerging technologies. The most recent example of this is the Chip-Scale Atomic Clock program.

The government has funded several teams, including one from Symmetricom, to develop a next generation atomic clock running on dramatically lower power and in a much smaller form factor. We are one of two teams remaining in the fourth phase of one of the most successful DARPA programs ever launched. We have designed a high-performance clock that requires only 1/100^th of the power and is only one-fifth the size of technologies with comparable performance. And as I mentioned before, we are making progress towards moving the chip-scale atomic clock toward volume production.

With that overview I'd like to once again say how excited I am at the opportunity to lead the team here at Symmetricom. I'll now hand the call over to Justin who'll review the financial highlights.

Justin Spencer

Thanks, Dave. Here are the fourth quarter and full-year financial details. Revenue for the quarter was $60.4 million, 6% higher than prior revenue of $57 million. For the year, revenue was $221 million, also up 6% over the prior year. Fourth quarter Telecom Solutions revenue was $37 million, down 2% from last year.

For the year, Telecom Solutions revenue was $137 million, up $6 million or 4% over the prior year. Strong sales of our new cable timing product and international growth more than offset softness in sales of our traditional synchronization equipment and related services to our OEM and North American telco customers.

Timing, Test, and Measurement revenue for the quarter was $24 million, up 22% over the prior year. For the year, TTM revenue was $84 million, up $7 million or 9% over the prior year. This division saw growth in nearly every product category with particular strength in our classified solutions business.

Verizon represented more than 10% of our revenue in the fourth quarter; however, no single customer represented more than 10% of our revenue for the year, reflecting our increasing diversification across customers and markets.

Gross margin for the quarter increased to 45% and non-GAAP gross margin increased to 49%. For the year, gross margin improved by roughly six points to 47% and non-GAAP gross margins increased to nearly 50%.

GAAP gross margins for the fourth quarter and full year of fiscal 2008 reflect the write-off of our quality of experience in tangible assets. Our GAAP and non-GAAP improvement reflects and increased mix of new products and benefits from our recent cost-reduction effort.

Fourth quarter operating expenses were $26 million, down from $35 million in the prior year, which included $8.6 million related to the write-off of quality of experience, goodwill, and intangible assets.

For the year, operating expenses were $140 million compared to $104 million in 2008. Fiscal 2009 operating expenses included a $48 million goodwill write-off and $5.8 million in restructuring charges.

In fiscal 2010 we expect to incur an additional $3.5 million of restructuring charges, primarily accelerated depreciation and facilities charges related to the actions we announced this past year. Non-GAAP operating expenses were $23 million or 39% of revenue, down $1.6 million from the prior year.

For the year, non-GAAP operating expenses were $82 million or 37% of revenue, down from $88 million or 42% of revenue in the prior year, due to the cost reduction efforts implemented during fiscal 2009.

In fiscal 2010 we expect non-GAAP operating expenses to average roughly $20 million per quarter, likely varying a bit from one quarter to the next based on timing and seasonality.

GAAP net income was $1.9 million or $0.04 per share, compared to a net loss of $13.5 million or $0.31 per share last year. For the year, our GAAP net loss was $40.7 million or $0.93 per share compared to a loss of $14.5 million or $0.33 in the prior year. The net loss in each year reflects the goodwill and intangible asset impairment and the restructuring charges I mentioned earlier.

Non-GAAP net earnings for the quarter were $3.7 million or $0.08 per share, compared to $582,000 or $0.01 per share last year. For the full year, non-GAAP net earnings were $17.1 million or $0.39 per share, compared to $6.8 million or $0.15 per share in the prior year.

Ending backlog was $47 million, up $6 million over the prior quarter. We estimate that $42 million of our backlog is shippable within six months, $3 million is shippable within 6-12 months, and that $2 million will be shippable beyond one year.

Ending cash, cash equivalents, and short-term investment balances were $113 million, up $6 million from the prior quarter. Cash flow from operating activities was $6.6 million, and capital expenditures were approximately $1 million, resulting in free cash flow of $5.6 million.

For the year, cash flow from operating activities was $21.7 million, and we spent $3.7 million on capital equipment resulting in free cash flow of $18 million. Our 2009 free cash flow includes roughly $4 million in restructuring payments.

During the quarter we used $600,000 to repurchase roughly 116,000 shares of our commons tock. As of the end of the fourth quarter, we had outstanding authority to repurchase an additional 1.6 million shares of our commons tock.

Achieving growth and significantly improving non-GAAP operating results in such a challenging economy is an accomplishment for everyone to be proud of here at Symmetricom. As we enter fiscal 2010, we feel good about the market position we have filled through new product initiatives and expanded geographic focus and more streamlined cost structure.

While we will continue our focus on efficiency in fiscal 2010, our primary efforts will be focused on maximizing existing opportunities and bringing to market innovative new products. Under Dave's leadership, we also expect to identify and pursue additional new growth opportunities that leverage our strong technology platform and relationships.

The early traction we are seeing with some of our new products in a strong finish to the year, provides use with a level of optimism as we look to the future. However, we are mindful that we are still in an unpredictable economic environment and have limited visibility into our customer's capital spending plan.

Before I provide guidance I’d like to give you some insight into our expectations for the coming year. We expect our fiscal 2010 revenue to have a seasonal pattern similar to prior years with stronger revenues in our fiscal second half as telecommunications and cable service providers release their 2010 capital budgets.

In fiscal 2009, many of you will recall that revenue in gross margins for the first quarter were positively impacted as we met amped up demand for our new cable timing product.

Following our successful product launch, we now have the supply chain capabilities to meet market demand, and expect revenue for our cable timing product to more closely reflect cable infrastructure spending seasonality.

Profit is expected to be even more heavily weighted to the second half, due to the revenue seasonality, and as we realize the full benefit of the cost reductions we announced in fiscal 2009.

With that as a backdrop, we expect fiscal 2010 revenue to be between $210-$230 million, with GAAP earnings in the range of $0.22-$0.30 per share and non-GAAP earnings in the range of $0.35-$0.44 per share. The GAAP earnings guidance includes the remaining charges associated with the restructuring efforts initiated in fiscal 2009.

For the first quarter, we expect revenues to be between $48-$55 million. We expect the low mix of cable plus a high mix of OEM and services business, to result in lower gross margins than we have reported in recent quarters. We therefore estimate GAAP earnings to range from a loss of $0.03 to earnings of $0.01 per share, and non-GAAP earnings to be in the range of $0.01-$0.06 per share.

Before I move on, I'd like to point out that our GAAP EPS guidance does not include the non-cash interest expense charges we will record when we adopt new rules that govern the way companies account for convertible debt instruments. We are currently in the process of completing the valuation work necessary to implement the new rules, and estimate the related charges.

In summary, while we are still cautious with respect to the economic environment, our diversified positioning, financial health, and participation in the growing cable, wireless, and government markets, gives us confidence in our overall prospects for long-term growth and profitability.

This concludes the prepared portion of our presentation. We want to thank everyone for joining us today and we'd like to remind you that we will be presenting at the Morgan Keegan Technology Conference tomorrow at 8:35 a.m. Eastern Time. You will be able to access the webcast through the investor relations section of our website.

Question-and-Answer Session

We'll now open it up for Q&A, which Dave will moderate. Operator, you can poll the audience for questions.

Operator

Certainly. (Operator's Instructions) The first question comes from Mark Sue, RBC Capital Markets. Your line is open.

Jill Hanar - RBC Capital Markets

Hi. This is Jill Hanar for Mark Sue. In your guidance for the first quarter you stated because of product mix you expect gross profits to be down, is that sequentially and what can be modeled going forward?

David G. Cote

Justin, you want to take that?

Justin Spencer

Sure thing. So as I mentioned, our EPS guidance of $0.01-$0.06 does represent a sequentially down quarter from this quarter as well as year over year. That's primarily attributable to two factors. The first is the cable strength that we had in the first quarter of 2009 had a very significant impact in our first quarter '09 results, which was largely a reflection of the pent-up demand that we had exiting 2008. We don't expect that revenue — just to give you some perspective, our cable product margins are reasonably high and when we have a large mix of cable revenue, that has a significant impact on our overall margin structure.

We don't have that kind of pent-up demand because we're now able to meet the demand through our production capability.

The other thing that is going on is we have had some strength recently in our OEM and services revenue product lines. And these products tend to have slightly lower margins, and so that's one of the drivers of mix, which will result in lower gross margins in the first quarter of 2010.

What your model should likely reflect is a fairly significant amount of seasonality with less than the majority of revenues in the first half and even less waiting to profit in the first half, and then much more revenue in the second half. And given that revenue stream in the second half, more profit.

We also have some additional cost reductions which we announced, but have yet to fully realize, which will kick in, in the second half of fiscal 2010, and that will also drive a higher level of earnings in the back half of the year.

Jill Hanar - RBC Capital Markets

Okay. And if you can give us some color on what you are hearing from MSOs on CapEx?

Dan Madden

James?

James Armstrong

Right now we see CapEx. It's been down from last year about 10% in general in the MSOs, but a key initiative of there is DOCSIS 3.0, and our product is linked to the modular CMTS architecture, which kind of splits the role out of DOCSIS 3.0 about 50-50 with integrated. So we see that as continuing to be strong going into this year.

Jill Hanar - RBC Capital Markets

Okay. Thank you.

Operator

The next question comes from Mike Crawford, B. Riley & Co. Your line is open.

Mike Crawford - B. Riley & Co.

Thank you. You mentioned that you charged off all the V-Factor intangible assets, is that a business that is now cancelled or are you still awaiting trial outcomes and it's still something that might go forward and convert to revenues at some point?

Dan Madden

Justin, you want to take that to start?

Justin Spencer

Yeah. Hi, Mike. So the write-off that you were referring to occurred at the end of fiscal 2008. That was just a write-down of the goodwill and intangible assets associated with the QoE acquisition. As you probably noted also, last quarter we wrote off the remaining goodwill tied to other acquisitions so essentially we have no goodwill remaining on our balance sheet.

That write-off does not, in any way, reflect our commitment to the QoE space. It's a very important product line for us and we will continue to evaluate that product line, just like we do every other product line in our portfolio.

Mike Crawford - B. Riley & Co.

Okay. I mean, can you comment a little bit further on it? I think the last couple of calls there's been talk of the pickup was slower than expected and you were evaluating what to do, has there been a decision made?

James Armstrong

Mike, this is James Armstrong. We continue to invest in that product line. We are engaged with some major customers in the critical trials right now going forward and we are certainly watching that very carefully. But they are significant trials and we are actively engaged in those.

Mike Crawford - B. Riley & Co.

Okay, thanks. And then on Ethernet back on, have you seen any particular trends with a time provider for next year?

James Armstrong

Yeah. Pretty much every major service provider is evaluating 1588 as a technology to provide timing out for their bay station over Ethernet. We are engaged in most of those trials, using our time provided product that we're coming out with. We're also engaged very actively with the major network equipment manufacturers that are also evaluating it. It's in the early stages right now, both in terms of evaluating technology, and particularly in deployment.

So there's a lot of interest around it, but we're engaged with all these major players.

Mike Crawford - B. Riley & Co.

And would you give a second half fiscal 2010 timeline for meaningful revenues on that?

James Armstrong

Yeah. So we expect to increase our revenues this year in that product line, and particularly, like you said, in the second half.

Mike Crawford - B. Riley & Co.

Okay, great. And then last question, if you could just clarify about the Chip-Scale Atomic Clock. So I know that's been more of a 2011 kind of revenue story, but you mentioned that there were two companies still in the running — I mean is this something where you expect there to be two people awarded contracts?

Bruce Bromage

Hi. This is Bruce Bromage. There are two companies that made it to phase four or DARPA funding, ourselves and Teledyne, which purchased Rockwell Scientific. We both have viable designs and DARPA continues to fund both companies.

We are aggressively moving our product into production this year and to our knowledge, we will have the only CSAC in production this year.

Mike Crawford - B. Riley & Co.

Okay, thank you.

Operator

The next question comes from Ted Jackson, Cantor Fitzgerald. Your line is open.

Ted Jackson - Cantor Fitzgerald

Thanks very much. Congratulations on your quarter. A couple of questions on my front — sorry, I’m a little confused. One on V-Factor — I guess three things, is one could you just give us a number for what it contributed in the quarter, and then two and three are updates with regards to relationships at HP and at Microsoft? And then my follow-on question would be an update regarding China Mobile and trials for 1588. I'll step back in line, thanks.

Dan Madden

So why don't I take the contribution question and then I'll turn it over James for the questions about HP and Microsoft, as well as China Mobile. So with regard to V-Factor, the contribution is relatively small as it has been in prior quarters. We're not actually inclined to share the specific numbers here on this call, but it will be disclosed in our 10-K, which we'll file in early September.

The business, as you might be aware, is clearly an area of investment for us and as James alluded to earlier, we remain very much committed to it and focused on closing a number of maarquee accounts.

James Armstrong

Yeah, and I’ll just follow-up. In terms of HP, we are engaged in a number of opportunities in partnership with HP and so that relationship continues to be a strong one for us. We also have been granted access to the interfaces into the Microsoft TV solution to monitor quality of experience and so we're in a process now of adapting our product to support that.

In terms of China Mobile, we are involved in that trial. We are being evaluated. Our technology is being evaluated. Our Time Provider 1588 technology is being evaluated now by China Mobile.

I think that answers your questions, Ted.

Ted Jackson - Cantor Fitzgerald

Yes.

Operator

The next question comes from Simon Leopold, Morgan Keegan. Your line is open.

Simon Leopold - Morgan Keegan

Great, thank you very much. I wanted to start off with the sales. You exceeded your forecast by about $2 million on the top end. Could you sort of talk about what was the element of surprise for you, versus your forecast?

Justin Spencer

Hi, Simon. Yeah, so you may recall that when we announced the restructuring in June we came up with updated guidance of $53-$58 million and we actually ended up exceeding even that top end. We just had an exceptionally strong end to the quarter, particularly in the last four weeks, and there was strength across a number of our areas, across many of our different product lines, including some of our lower margin of products, the OEM and services, which will carry into the next fiscal quarter.

So there wasn't any one particular area, but we had a nice broad pickup in the last few weeks of the quarter that we were really excited to see.

Simon Leopold - Morgan Keegan

Great. And it looks like your operating expense also jumped up. You highlighted the year-over-year drop, but sort of in this macro environment. I'm looking at it in a sequential; that's up a pretty decent step. Now, you did say in 2010 you expected roughly $20 million a quarter — so maybe if you could help us understand part one, why was OPEX so high this quarter, and then how you’re getting to that level in 2010?

Justin Spencer

Sure. As you may recall in the third quarter, we reduced our operating expenses — I should say we reduced our employee incentive compensation that we had been accruing for the year. And this compensation is an incentive based-compensation for the entire employee base that is tied to performance against certain financial metrics or targets. And based on our outlook at that point we reduced that accrual or that expense pretty significantly in the third quarter. So you'll note in the third quarter results there was a significant reduction in operating expenses, but because of the strength of the fourth quarter and in particular the unexpected strength in the last four weeks of the quarter which resulted in higher revenue than we expected, we achieved a good portion of the target that we had set out for the full fiscal year, and as a result, increased our employee incentive compensation program.

Going forward, as I had mentioned, we expect our annual operating expenses. We don't expect that kind of fluctuation as we go forward into next year, and we expect our operating expenses to average about $20 million per quarter or $80 million for the year.

And as a reference for you, in 2008 the operating expenses were $88 million. They ended this year at about $82 million and they'll go down to about $80 million. So on average over a 12-18 month period we've dropped about $10 million of operating expense out of the P&L.

Simon Leopold - Morgan Keegan

So if I want to try to normalize this quarter and the third quarter, it's appropriate to sort of think about it as kind of already at the $20 million and this was just lumpiness between the two quarters?

Justin Spencer

Yeah. That is right.

Simon Leopold - Morgan Keegan

Okay. Now shifting over to your segments, certainly you've talked about some mix shifts affecting your gross margin. I think it would be helpful for us to be able to get a baseline of a little bit more detail in the Telecom Solutions business, in particular between your wireline, OEM, and services in terms of what mix they were of the total sales.

Justin Spencer

Sure, for the fourth quarter?

Simon Leopold - Morgan Keegan

Yes.

Justin Spencer

Yeah. So as I mentioned, we had a pretty significant amount of strength across wireline and cable, and as a result, our margins came in fairly strong for the quarter at about 49%. As you may recall, in the past we’ve talked about getting to a normal run rate target of about 50%. Our cable and wireline products have slightly higher margins than our corporate averages with cable being at the highest end and then moving down.

We also did have quite a bit of OEM and services revenue in the quarter, and those margins tend to be a little bit lower — actually the lowest of most of our products that we have in our product-line portfolio, but they still contribute.

Our timing, test, and measurement business had a great quarter. The financial characteristics of our TTM business are that they tend to have a little bit lower gross margins, but they also have lower operating expenses with that because the selling costs aren't as high so that business also contributes a nice healthy operating income margin.

So there really wasn't any one particular area of strength as it was pretty broad based and reflects a pretty healthy mix across all of our products.

Simon Leopold - Morgan Keegan

Would you be able to give us the breakdown within the Telecom Solutions division of what the dollar contribution was for the total of the 36.7?

Justin Spencer

That'll be disclosed in our 10-K when we file in early September.

Simon Leopold - Morgan Keegan

Okay. Is it fair to at least imagine that proportions are similar to historic levels or did you see some deviation?

Justin Spencer

Yeah.

Simon Leopold - Morgan Keegan

Okay, great. Thank you.

Operator

(Operator's Instructions) The next question comes from Cris Blackman, Empirical Capital. Your line is open.

Cris Blackman - Empirical Capital

Yeah, thank you. Justin, what percent of your revenues are you expecting to allocate towards R&D this next year?

Justin Spencer

It varies, but somewhere in the neighborhood of 12%-14% of our revenue, and that's fairly consistent with what we've done historically. R&D is a very important part of our overall business profile as we need to be continuing to innovate products, and we feel that that's a good solid ratio.

Cris Blackman - Empirical Capital

And what percent of that would be government funded?

Justin Spencer

We've said roughly — it depends on how you slice it up, but roughly 10% of Bruce's TTM business R&D is funded by the government. I think, Bruce, is that an accurate number?

Bruce Bromage

Yeah, that is pretty close. It depends on again, how you count it. We have funds that are for basic research for the government, and we also get a significant amount of NRE with our programs.

Cris Blackman - Empirical Capital

Okay. Bruce, would you speak on the bookings for TTM here this most recent quarter? I know going into September is historically a pretty good time for TTM, any comment on the bookings for that division?

Bruce Bromage

For this quarter?

Cris Blackman - Empirical Capital

Yeah, the most recent quarter, how the bookings came in.

Bruce Bromage

Well, our bookings were very close to planned for the year. They were pretty good for the quarter. Things have remained very, very strong for the government business and pretty consistent quarter to quarter.

Cris Blackman - Empirical Capital

Okay. Justin, it sounds like obviously we're going to have a year of pretty strong cash generation with you continuing to work down OpEx and the R&D remaining consistent, what are the company's plans for the cash that you're going to be generating?

Justin Spencer

Well, there are a few different, obviously, uses of cash, in the following order. Obviously we want to make sure that we're investing appropriately in the organic growth initiatives that we have identified, and we have the luxury of being able to generate a nice profit margin and cash flow that allows us to invest appropriately in those areas.

We don't anticipate buying any stock in the near term at the current prices. We don’t' think that's the best use of our cash even though we have a share amount that is still out there and authorized, but we will obviously play that by ear as we move through the fiscal year.

We do have also cash available for other types of investments in organic, but right now our real focus, and Dave can comment on this as well, our real focus is internally we're really focused on maximizing the organic investments that we got on the table at this stage.

Cris Blackman - Empirical Capital

Okay. Dave, do you care to comment on maybe any short-term opportunities internationally that you see that you may be able to bring to the table or even long-term opportunities?

David G. Cote

Well, in the short-term I'm completely in line with Justin's comments. I think that having a good strong cash position is critically important in helping to fund what we're doing today. In the mid to long-term as we look out in terms of what our opportunities are as a company, having the cash gives us the flexibility to look at opportunities that may represent, as Justin said, inorganic opportunities. I don't have anything immediately on the plate that I'm pursuing, but I have to tell you, it's nice to walk into an organization that has made some of the hard choices that this company has to get its business model in line, and generating cash is a good thing on multiple levels in terms of not only financial stability, but giving us options when we look at how we want to build and grow this business.

Cris Blackman - Empirical Capital

Okay. And finally, any anecdotal evidence of any shift towards modular versus integrated? I know the percentages are similar, what you've been saying all along, but are you seeing any other evidence that suggests that more is moving towards modular on the CMTS?

Bruce Bromage

Right now I think the division of modular and integrated seems to be holding pretty consistent. We haven't seen really a trend either way right now.

Cris Blackman - Empirical Capital

Okay, thank you.

Operator

There are no other questions in the queue at this time.

Dan Madden

Great. Then I want to thank all of you for joining us. We look forward to updating you on our progress during next quarter's conference call. Thank you.

Operator

This concludes today's conference call. You may go ahead and disconnect at this time.

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