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Arris Enterprises (NASDAQ:ARRS)

Q3 2013 Earnings Call

October 30, 2013 5:00 pm ET

Executives

Robert Puccini - Vice President of Investor Relations

Robert J. Stanzione - Chairman and Chief Executive Officer

David B. Potts - Chief Financial Officer, Chief Accounting Officer, Chief Information Officer and Executive Vice President

Bruce W. McClelland - Group President

Larry Robinson - Corporate Vice President and General Manager of Home Devices

Analysts

Joseph Wolf - Barclays Capital, Research Division

Simon M. Leopold - Raymond James & Associates, Inc., Research Division

Timothy J. Quillin - Stephens Inc., Research Division

Mark Sue - RBC Capital Markets, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2013 ARRIS Earnings Conference Call. My name is Jackie, and I will be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Bob Puccini, Vice President, Investor Relations. Please proceed.

Robert Puccini

Thank you, Jackie. Good afternoon, everyone, and welcome to the ARRIS conference call with management. This afternoon, we will be discussing our third quarter 2013 results, which were released after close of markets today. We will be using a series of slides during our webcast, which are also posted on the ARRIS website in the Investor Relations section.

With us here at the ARRIS headquarters are Bob Stanzione, ARRIS Chairman and CEO; David Potts, Executive Vice President and Chief Financial Officer; Bruce McClelland, President Network & Cloud; and Larry Robinson, President, Customer Premises Equipment.

There will be a replay of this entire call available several hours after the conclusion of the call, and a replay of the call and the slides will be available on our corporate website for the next 12 months.

Before we begin, please go to Chart 2. During this call, we will be making forward-looking statements, including our outlook and expectations for our industry in general, estimated revenue and earnings, certain financial operating metrics, the timing, introduction of new products and technologies, anticipated spending patterns by some of our customers and expected sales levels for various product categories.

It is important to note that actual results may differ materially from those suggested by any forward-looking statements, which may be made during today's call. For further information in this regard and for specific examples of risks that could cause actual results to differ materially from these forward-looking statements, please see our recent filings with the SEC.

Now, if we can go on to Chart 3. Bob and Dave will provide their comments on the quarter results, after which, we'll open up for questions. Bob?

Robert J. Stanzione

Thanks, Bob. I'm very pleased with the Q3 results that we're reporting this evening as well as the outlook for the fourth quarter. But before I comment on the results, I'd like to take a minute and give you a perspective on our progress over the past year. So let's turn to Chart 4 please.

So what a difference a year makes? As a result of our successful acquisition of -- and integration of Motorola Home, we're a larger, stronger and more relevant player. Our sales have tripled over the third quarter of 2012, and our profitability has grown significantly.

Along the way, we've achieved much of the synergy that we forecasted and are on track to do more. We significantly advanced our strategic objectives by diversifying our customer base and increased our international presence, and we've truly become a world leader in the delivery of video solutions. There's a lot more to do, and we're investing aggressively to further grow the company and enhance shareholder value.

So let's move on to Chart 5, please. On the day we close the transaction, back in April, I spoke by video conference to all of our employees worldwide, and I said that our performance over the first 6 months would set the tone for the future and that it was critical that we deliver on our commitments to both our shareholders and our customers, and they have certainly delivered. We're now at the 6-month point, and I can report to you that the business is on track, much of the integration effort is complete and the growth that we expected is beginning to happen as you'll see in the Q4 guidance.

The sales force integration was done ahead of schedule; much credit goes to Rob McLaughlin and Ron Coppock and their teams for a difficult job well done. Product roadmaps were rationalized and are essentially complete and were done without walking away from any customer commitments. Cost and expense synergy improvements are ahead of schedule, with more to come. And manufacturing and real estate consolidation is on track, although there's still more work to be done on the separation from the Google IT and back-office systems; that work is also well under way and will yield more efficiency as we enter 2014.

Okay. Now let's go to Chart 6, and we'll look at the quarter results. The Q3 results were solid with sales in the center of our guidance and EPS above the guidance range. Our cash position is strong, with several ins and outs that Dave will explain in a minute; and our operating statistics such as inventory turns, DSOs, et cetera, remained strong. Overall, I feel very good about what we've achieved in a short time and our prospects going forward. Much of the integration risk is behind us, and the scale and diversification that we've created are clearly paying off.

Let's go to Chart 7 and look at the CPE segment highlights. Sales and direct contribution were up sequentially due to strong demand for Digital Video and Telco CPE product lines. A few details surrounding the performance. Our cable set-top unit shipments were up around 13%, as compared to Q2. We're continuing to see industry interest around new in-home architectures and technologies for delivering advanced services to multiple screens. The momentum around video gateway devices is also continuing to grow.

During the quarter, we made good progress in the area of product development. We began the development of a new set-top with Charter, actually that was the deployment of a new set-top with Charter, and the Comcast XG1 product qualification process has progressed very nicely. And as we've previously discussed, there are further unannounced design wins that we're continuing to move forward with.

In the Telco CPE line, volumes increased due to strong demand for wireless video access points. And at IBC in Amsterdam last month, we announced an industry-leading portfolio of gateways and wireless set-tops, and we're selected by Telenor in Sweden to provide their next-generation IPTV set-tops.

DOCSIS device shipments were down somewhat from the record Q2 level, although they remained solid with 89% of the units that were shipped as DOCSIS 3.0 capable and 60% were Wi-Fi enabled. We also had a very successful introduction of a new 802.11 AC base data gateway into the retail channel. Overall, a good quarter for Larry Robinson and the CPE team with strong momentum entering Q4.

Let's go to Chart 9. The Network & Cloud segment sales weakened somewhat in the quarter. However, profitability improved, as Bruce and his team acted to aggressively deal with significant program overlaps. CMTS and A&T sales were down, while the video infrastructure sales came on quite strong.

Start with CMTS. We're pleased to report that the E6000 continues to perform well, approaching 1 million in service subscribers connected to the platform. This has been one of the smoothest product introductions we've ever had. And as you've seen in recent announcements, we continue to add more MSO customers with many more planned. As expected, operators are looking to future proof their network by deploying these new CCAP platforms or converge video and high-speed data services.

Market share wins now will translate into a future stream of high margin revenue as operators activate additional capacity via software upgrades. We're, therefore, competing very aggressively to gain new share and increase our overall footprint in this important area.

Our classic CMTS platforms will be in the network for years to come but, as expected, sales have reduced in favor of the new E6000 platform. We expect modest capacity expansions on these platforms in the next 12 to 18 months as well as a robust maintenance revenue stream.

On to Chart 10, please. In the Access and Transport product lines, sales were somewhat below the previous quarter as several key customers were focused on deployment of equipment that they already had in inventory. However, we are pursuing several significant projects that would be incremental to the business in 2014. Also, during the quarter, our supply chain group, led by Jim Brennan, initiated the consolidation of our 2 A&T manufacturing facilities into our Tijuana factory. The transfer of this manufacturing has gone very well and will translate into cost of goods savings in 2014.

The video infrastructure portfolio had a strong quarter, in particular the CherryPicker video processing platform had a record quarter as operators continue to invest in improving the reliability and flexibility of their video distribution networks. We also announced several new customer wins with our APEX 3000 QAM platform in the quarter. And at the SCTE Show here in Atlanta last week, the future of video compression was a significant topic, and we've demonstrated our new HEVC encoder platform. As consumer electronics manufacturers build momentum around Ultra HD, 4K and 8K TVs, the urgency for increased video compression will increase to counteract the additional bandwidth needed for distribution of this high-quality content. Finally, we've been working closely with lead customers to develop and deploy network DVR capabilities to augment in-home DVR functionality. We expect live deployments before year end, with larger scale service in 2014.

And although smaller in terms of revenue, our cloud business in the third quarter was down somewhat from the second quarter as several projects are now pushed out into the fourth quarter. We continued to see good growth in a number of subscribers using both the DreamGallery and the Moxi platforms. We've worked closely with customers to map out how these 2 complementary product lines come together to strengthen the overall solution even further.

We recently announced plans to work with EchoStar and their Sling team to integrate their play-shifting technology with our mobile TV efforts, with the initial deployments focused on our Moxi Whole Home customers. Feedback has been very positive, and we expect initial deployments in early 2014.

And finally to Chart 12. As you can see, the fourth quarter guidance is evidence that the momentum increased that we predicted last quarter is happening. It's driven by the introduction of new products that are just now emerging from our pipeline. We expect sales to increase about 8% to 10% sequentially, and earnings will continue to improve, even though we'll experience some new product startup costs in the quarter. And looking forward to 2014, we see the business continuing to improve.

Consumer behavior and technology are rapidly driving bandwidth consumption up and stressing new network capacity, and it's no secret that service providers are facing more competition not only among themselves, but also from increasingly strong over-the-top threats. So we believe that service providers will be investing more aggressively to deploy rich, next-generation video solutions supported by high-speed, high-bandwidth networks. And of course, we'll also continue to invest in these new technologies and work hard to lower our costs and refine our processes. We have the portfolio, we have the scale, and certainly, we have the talent in this organization to grow this business.

These factors, along with an improving macroeconomic climate, are leading to increasing opportunities and a tailwind for our business.

I'd also like you to be on the lookout for a press release, announcing our December 4 Investor Day in New York City. And I look forward to seeing many of you there. So now over to Dave Potts.

David B. Potts

Great. Thanks, Bob, and thanks, everyone, for joining us this afternoon. I'm very pleased to announce strong results for the third quarter.

So let's turn to financial highlights in Chart 13 please. And as a reminder, given that we closed the acquisition of Motorola Home during the last quarter, some comparisons to prior periods may be not as meaningful. So sales in the third quarter were $1.068 billion, in the middle of our guidance, and this compares to $358 million in the third quarter 2012. And of course, excludes Motorola Home. Gross margin was approximately $29.7 million in the third -- 29.7% in the third quarter, and non-GAAP EPS was $0.39 in the quarter, which compares to $0.22 in the third quarter 2012 and was above our guidance. Our third quarter 2013 GAAP EPS was $0.13, which compares to $0.15 in the third quarter of 2012. And as always, a reconciliation of our GAAP to non-GAAP results is attached in the press release and can be found on our website.

We ended the quarter with $695 million of cash resources. And we generated $28 million of cash from operating activities in the quarter. Our cash from operating activities includes 2 key items. First, post-closing cash settlements with Google of about $126 million and, secondly, $50 million of payments to settle previously disclosed litigation. Our short- and long-term debt was approximately $2.1 billion at the end of the quarter. We issued about $1.9 billion of new debt in the second quarter to complete the acquisition of Motorola Home, and we have $232 million of face value convertible debt that is due in November, and we've announced that we will redeem the notes in November. Our backlog at the end of the quarter was $524 million, and our book-to-bill ratio was 0.99.

All right. Let's turn to Slide 14, please. And let's take a look at some of the sales details. So, again, sales in the quarter were $1.068 billion; sales of our CPE segment were $748 million, while sales of Network & Cloud were $320 million. Sales to Comcast were $204 million or about 19% of our sales. Sales to Time Warner were $86 million or about 8% of our sales. And sales to Verizon were $118 million or about 11% of our sales. And our international sales were about 32% of the mix in the quarter.

Let's turn to Slide 15, please. On this chart, we break out sales and direct contribution in our new segment format. As a reminder, we have 2 segments: CPE and Network & Cloud. And certain costs that are not allocated to segments are captured in Corporate Other and include the sales organization and Central G&A. We also showed the purchase accounting impacts and the Corporate Other category. So sales of our Network & Cloud were $320 million in Q3, with a direct contribution of $59 million; and sales of CPE were $749 million in Q3, with a direct contribution of $150 million.

Let's move on to Slide 16, please. I'm very pleased with the progress we've made on OpEx post the close of the acquisition. SG&A and R&D totaled $228 million in the third quarter. Included in R&D and SG&A was $11 million of equity compensation expense.

In the third quarter 2013, we incurred acquisition cost of about $6 million. And we also incurred another $6 million of restructuring cost in the quarter. On the right, I show the estimated combined R&D and SG&A cost for multiple periods. Note that I've averaged where we thought it was more meaningful. In discussing our goals, we've stated there were aiming for annual operating expenses, again, R&D and SG&A of $930 million to $980 million. On a quarterly basis, that's a midpoint average of about $239 million. In the third quarter, our R&D and SG&A totaled $228 million. So we are at or below our target at this stage. Now we'll always have ups and downs, things related to things like prototypes, sales samples, shows, variable comp, equity comp, et cetera. And we do see some potential increase in Q4 from Q3. But we still are investigating other savings. We anticipate savings associated with the TSAs that we have with Google as we phase them out, and we continue to exit certain facilities. So we anticipate we'll continue to have opportunities to drive the run rate down with these and other actions. It is also very important to note that we are achieving synergies in our cost of good lines, and we also expect to achieve more. So all in all, our synergy work is on track.

Let's turn to Chart 17, please. So let me touch on cash and some of the key cash items. We ended the quarter with cash and investments of approximately $695 million, down $69 million from the end of the second quarter. Cash from operating activities was $28 million in the quarter, and on this chart, I've highlighted some key items related to it. We paid to Google approximately $126 million for post-close activities in Q3. This relates to vendor payments and other items which Google made on our behalf under the TSA in the second quarter. You might remember, and as I've pointed out last quarter, this boosted our cash from operating activities in Q2. We also paid $50 million net of indemnification payments received from Google to settle previously disclosed patent litigation. So this is essentially our $50 million maximum liability. And very importantly, the elements of earnings, which are cash-based, were approximately $104 million, and we also had some other net positive movement in working capital. So I'm very pleased with our cash generation.

In the third quarter, we trued up the opening working capital with Google. This resulted in a payment to them of about $48 million, and this, too, was expected. In the quarter, we had CapEx of approximately $26 million. And at this point, we're spending higher dollars in IT and facility integration related to the deal, and we also made mandatory debt repayments of approximately $16 million in the quarter. And looking forward, we will redeem the $232 million of convertible notes in November. And of course, we have ample liquidity to do so. So all in all, I'm pleased with our balance sheet position.

Let's move on to Slide 18, please. So guidance. At this point, we estimate that we'll have sales of $1.150 billion to $1.180 billion, and we anticipate that non-GAAP earnings will be in the range of $0.42 to $0.46 and GAAP earnings in a range of $0.00 to $0.04. We do anticipate some mix shift towards CPE which, of course, have lower gross margins. And as I mentioned, we also anticipate a slight increase in OpEx in Q4 relative to Q3. A reconciliation of GAAP to non-GAAP guidance is attached to the presentation can also be found in the website. We estimate our diluted share count will be about 142 million, and we estimate that our non-GAAP tax rate will be about 31%.

So with that, thanks. And back to you, Bob.

Robert Puccini

Thanks, Dave. With that, we'd like to open the lines up for questions. Jackie, would you come back on please to let our participants know how they could ask their questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Chris Reimer with Barclays.

Joseph Wolf - Barclays Capital, Research Division

It's Joseph Wolf here. I guess we dialed in with the wrong names. I guess I had a question on the -- if you look at the -- beyond the Google and the lawsuit and the convert in the fourth quarter, can we get some guidance on cash management and deleveraging for 2014?

David B. Potts

Yes, as we've mentioned along the way, deleveraging is indeed part of our capital allocation strategy, and we're sort of working right now with the board as to what actions we might be taking in the fourth quarter and beyond, Joseph.

Joseph Wolf - Barclays Capital, Research Division

Okay. And then I guess if you look at the international part of the business with the mix that you've got, could you go through any -- go through the opportunities as you see them on both sides of the business and focus on any similarities or differences compared to the U.S. with regard to momentum, growth, product that might be useful on the international side?

Robert J. Stanzione

Sure, I'll ask Bruce and Larry to comment individually on each of the product lines.

Bruce W. McClelland

This is Bruce here. So I think there's a lot of similarities certainly between South America and Europe in the momentum around just building more bandwidth. It continues to be very competitive between the different technologies, fiber, DSL, cable, et cetera. And so, I think, it's just a general theme across all of the footprint. Brazil is a good example and South America, where the infrastructure builds continued at a very aggressive pace in the HSE spectrum and drives momentum around a number of our products. That's probably the biggest theme. Another big theme, again, common between those 2 markets is evolution in video towards more advanced, more interactive user interfaces and more multi-screen video distributed across a variety of different platforms. So big theme on both those markets. Larry, if you want to comment on the CPE side?

Larry Robinson

Yes, sure. So this is Larry. On the CPE side, we're also seeing a lot of momentum around, particularly in the established markets around the migration for video gateways to support, as Bruce mentioned, multi-screen applications as well -- just in general, next generation software experiences. So that is I'd say a common theme, once again, that we're seeing in a lot of the established markets that have video services today.

Robert J. Stanzione

I would just add one thing, having recently been in Latin America as well as in Asia, the excitement over 4K and 8K TV is a little bit -- I would say a little bit more intense in those markets than it is in the U.S. And I think it's driven actually by government mandate in Korea and Japan. And with the games that are coming up at Brazil, there's a lot of interest in that very high-quality, high-def television, which should be an incentive for them to spend more money on compression technology and the like.

Operator

And your next question comes from the line of Simon Leopold with Raymond James.

Simon M. Leopold - Raymond James & Associates, Inc., Research Division

Just a couple of quick clarifications and then a trending question. You talked about operating expenses, potentially being up sequentially in the December quarter, but you did have lower OpEx in the most recent -- September quarter were lower than what we're expecting. So I guess I'm looking for a little bit more granularity around how you think about that longer term target for operating expenses, as well as the December quarter. And then the other question I wanted to go into was, you mentioned CMTS was down in the September quarter, and I'd like to get a better explanation as to what's influencing that? Where I'm thinking about issues such as priorities towards CPE versus the overlapping products from the acquisition versus the core ARRIS versus some other issues. So if you could help us understand the drivers and influencing factors on the CMTS market as well.

David B. Potts

Sure. So it's Dave, I'll take on the OpEx question. So in the Q4 quarter, I think there are some moving parts. We do have, of course, a trade show, which is not insignificant, which we just went through for the SCTE. We also do have some more sales samples that I think we'll find out the door for E6000 and whatnot, so those are kind of spiky. And there's also potentially some prototypes. At the same time, we are achieving synergies. So we'll see what occurs, but I think it could be up a little bit, but we'll see what ultimately happens. As we move into 2014, from the baseline that we've got, we know that ultimately we'll have our normal annual tranche of new equity compensation, which will go into the base probably starting in the second quarter; we'll have our normal inflation pieces, and then variable comp things. And we still are in the midst to trying to sort of some of the back-office pieces, and I'm adding people to be able to basically absorb what Google was doing. So there's a bit of state of flux with that. And so what we're trying to do, though, is to have a tight rein of expenses and try to work our way to not have OpEx grow if we gain, but we're prudently going at this. And hopefully, that gives you some color.

Bruce W. McClelland

I guess on the CMTS side question, really 2 things, I think, to point to. One, is clearly this was an area with one of the biggest overlaps that we had between the portfolios. And we knew as we combined those businesses that there's possibility of negative synergies as we combined that. So I think that was a part of the softness in third quarter. The other is certainly that transition to the new platform. And I think if you came to the show, you'll see a lot of discussions on CCAP and a strong desire to spend the dollars on the new platforms going forward, and you've seen a lot of the new customer announcements and a lot more in qualification at this stage. And I think that transition caused a little bit of softness in the quarter, but as you can tell by the numbers here, some really good momentum going into this quarter and the next year here.

Simon M. Leopold - Raymond James & Associates, Inc., Research Division

So CMTS should resume growth as we head into normal seasonal patterns? Are we kind of past the negative synergy? Or does that last another 1 or 2 quarters?

Bruce W. McClelland

Yes, I mean, we really think we're pretty well positioned here at this stage to grow share with the new platform. And I think that's a fair characterization.

Operator

[Operator Instructions] And your next question comes from the line of King Quillin (sic) [Tim Quillin] with Stephens Inc.

Timothy J. Quillin - Stephens Inc., Research Division

Tim Quillin here. I'm just wondering on the CCAP market, it seems the deployment seems to be going maybe a little bit faster than I would have thought or the decisions are coming a little bit faster. And I'm wondering if you're -- if you -- if that favors you in terms of having a product out there relatively early, and I'm just wondering what it also means in your QAM business and whether maybe there's some cannibalization there as you ramped up deliveries of the CCAP platform.

Bruce W. McClelland

So most of the priority on CCAP today is deploying the products for high-speed data bandwidth expansion. So, I think in the long run, certainly, there is cannibalization or a convergence because clearly that's the vision and the objective behind this new architecture. In the short-term, probably not a big -- it's hard to measure what the cannibalization is in the short term. Certainly in the long run, these things converge, so I don't know -- I think that's kind of how we view it at this stage. As far as going faster, I think we've got good momentum there. Clearly and certainly being first into the market with the new platforms is beneficial, no question. As Bob mentioned, the footprint allocation or wins at this stage are very important. The product we're shipping today only a portion of the capacity actually gets turned on initially, and the operators could come back through software licenses turning on more of the latent capacity that's in the platforms. So getting those wins now and getting the product out in the market is real important to the kind of longer term revenue stream on the product.

Timothy J. Quillin - Stephens Inc., Research Division

Okay. And then just one follow-up, Bruce, and then maybe a couple details for Dave. But first, on CCAP, how many service providers would you expect to be making their decisions on the timing of deployments over the next couple of quarters? And then, Dave, if you could say, one, do you have a new run-rate target on OpEx? And then, two, what is your outlook for cash taxes? I know you were able to identify some more favorable tax implications that you talked about last quarter, but if you can maybe talk about what's your outlook is for cash taxes for 2014 especially.

Bruce W. McClelland

So, on the first question, on number of operators. I mean it's literally dozens and dozens, of course, every quarter every operator is making a decision to add some amount of capacity. And so they have to decide do they spend $1 on a current platform that get deployed today or spend $1 on a more future-proofed platform. So I think every cable operator out there is making those decisions over the next 3 to 6 months as they spend their capital every quarter. So I mean, literally, every operator out there is looking at this at this stage.

David B. Potts

So on the taxes, again, the non-GAAP rate, which is not cash taxes, it's probably the 30%, 31% at this stage. The cash taxes, I need a little bit more time to be able to sort through some of how we'll actually be able to utilize those assets we're putting on our books. Obviously, both Google and ourselves are just filing returns. We need to get into a little bit more analysis on that, but our cash tax rate should -- has to be below what that non-GAAP rate is because we indeed will be able to get at some of those tax benefits, but I'm not quite there yet to be able to give you some good guidance. On the OpEx, I think we'll probably come back in the Analyst Day with some thoughts around that; but we are at that run rate of, call it, 230, which is 920, which is lower than indeed what we put in the model. I think there could be some pressure next year on things like equity comp, but we really are working away to try to see if we can kind of hold where we're at, but we're still work in progress. But hopefully, our track record is there. We've basically have gone off and try to get at the synergies and others staff to be able to drive that OpEx rate down.

Operator

And your next question comes from the line of Mark Sue with RBC Capital Markets.

Mark Sue - RBC Capital Markets, LLC, Research Division

It's Mark Sue. So investors are asking us how we should see the landscape for the changeover the next several year as it relates to the living room, with a lot of devices being promised to replace the set-top box. Clearly, there's a long tail to this and you're seeing upgrades. But perceptually, how you might be seeing some of the early changes and how that might impact the way you run your business. That would be helpful, just a longer term view.

Robert J. Stanzione

You want to take that Larry?

Larry Robinson

Sure, Mark. So this is Larry. I agree with your statement. I think this migration that we're seeing and the shift to IP is going to take several years to really achieve kind of ubiquity across the markets that we're serving. I mean, some of the big changes, obviously, and I think the way we view the evolution is, one, where operators and consumers alike are looking to experience services across multiple screens. And our view is the way that service is delivered to the home is through a gateway in the household, serving obviously, a variety of tablets and other devices, CE devices in some cases. But in addition to that, it will also serve IP client set-tops to support, obviously, a very large installed base of televisions that are out there today. So we see one where I would anticipate more and more devices showing up in the home and actually in some respects, the overall pie of video-capable devices continuing to increase over that period of time. So, in some respect, it's complementary of what we do today and kind of the architecture that we're seeing many of the operators migrate to as part of this much bigger shift to IP.

Mark Sue - RBC Capital Markets, LLC, Research Division

That's helpful. And then separately, if I look at the wireless world, where we went from a world of unlimited data plans to tiered services, there's some thought that we might start seeing that in the distant future in wired cable networks as well. Maybe your thoughts there? Are customers starting to contemplate maybe going away from unlimited data plans to wired [ph] networks?

Robert J. Stanzione

Yes, I think they are. I don't want to speak for our customers; but I believe that the days of unlimited data usage if not have already ended. Because I think if you read the fine print in some of the contracts, I believe that there are caps. They're just pretty high right now, and people aren't reaching them. But a larger and larger percentage, a growing percentage are approaching those caps. And so I think that we're just going to have to go that way.

Mark Sue - RBC Capital Markets, LLC, Research Division

Got it, that's helpful. Don't add too much capacity into your E6000.

Operator

At this time, we have no further questions. [Operator Instructions]

Robert J. Stanzione

All right. So if there's no questions, I guess I'll wrap it up, Bob. Please, put December 4 on your calendars. We will go into a lot more depth in terms of the products, in terms of the markets that we're addressing. And we can shed some light on some of these other questions that have come up tonight and probably will come up between now and December 4. Of course, we will be deeper into the fourth quarter then and can give you an update too. So with that, thank you for attending, and we will sign off.

Robert Puccini

Great. Thanks, everyone. Thanks, Jackie.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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