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Ditech Networks, Inc. (NASDAQ:DITC)

Q4 2008 Earnings Call

May 23, 2008 4:30 pm ET

Executives

Marie Nelson – VP Finance

Todd Simpson – President & CEO

Bill Tamblyn - CFO

Analysts

Michael Coady – B. Riley & Co.

David Fondrie – Heartland Funds

Operator

Welcome to the Ditech fourth quarter fiscal year 2008 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Marie Nelson, Vice President of Finance; please go ahead.

Marie Nelson

Thank you for joining us for this conference call which will cover Ditech Networks’ announcement of results for its fiscal 2008 fourth quarter and full year ended April 30, 2008. Today’s conference call will cover our financial results for the quarter and fiscal year. We will also provide our outlook for the first quarter of fiscal 2009. Todd Simpson, Ditech’s President and CEO, will provide the business and strategic analysis and Bill Tamblyn, Ditech’s Chief Financial Officer, will provide a more detailed analysis on the financials. Following we will open up the call for Q&A.

Before we begin, let me state that this conference call is being held on May 22, 2008. Any sound recording or republishing of the contents of this conference call is expressly forbidden without the written approval of Ditech Networks.

Also we must point out that as with similar presentations, the following discussion contains forward-looking statements and in particular the financial projections of our first fiscal quarter of 2009 that involves risks and uncertainties. Our actual results may differ materially from those discussed here. We will attempt to identify such forward-looking statements with qualifying words such as: we intend, plan, believe, estimate or predict, or we may, could, or will, or other comparable language.

Factors that could cause results to differ include factors discussed today in this conference call and in our press release today, as well as those detailed in the section entitled Future Growth and Operating Results Subject To Risk of Ditech's Form 10-Q for the quarter ended January 31, 2008 filed March 11, 2008 with the Securities and Exchange Commission. We assume no obligation to update these projections or other forward-looking statements.

Today's announcement was released over the wire this afternoon in a press release, and you may also read it on Ditech’s website by going to the Investor Section of the website at ww.ditechnetworks.com.

Non-GAAP financial measures will be discussed on the call and a reconciliation of GAAP and non-GAAP financial measures is disclosed in our press release of today, as well as in our press release of February 21, 2008 with respect to our Q3 numbers, which is also located on our Ditech Networks’ website, www.ditechnetworks.com.

With that, I’d like to turn the call over to Todd to comment on the announcement and our strategy going forward.

Todd Simpson

Thanks Marie France, good afternoon and welcome. Today we announced our Q4 and fiscal year 2008 results. At $7.7 million in revenues for Q4 we were right in the middle of our projected range of $6 million to $9 million. For Q1 of our fiscal year 2009, we are projecting revenues to be in a similar range. As part of our year-end we are addressing tax credits and excess inventory. Bill Tamblyn, our CFO, will have more details on this in a few moments.

I would like to start this call by discussing some of the strategic areas in which we are investing over the next fiscal year. I will then circle back to a discussion of our current markets and opportunities.

In our ’09 fiscal year, we intend to accelerate our efforts to diversify our markets, our product opportunities, and thus our future potential. These efforts are intended to open up more opportunities for revenue as well as to help smooth out our traditional lumpy business. This will not happen over night but we have actively started several projects which we expect will pay dividends over time. We are funding these initiatives within our current spending envelope.

The first effort involves leveraging our voice quality expertise further. Today we do an excellent job of packaging voice quality into our network platforms and are increasing the market share and awareness of our voice quality measurement approach, EXi. In addition there are other areas in which voice quality is actively used and deployed. We have analyzed and prioritized several market opportunities as well as packaging and go-to-market strategies and are now actively working towards a product offering.

This is not a trivial undertaking and will take several quarters to materialize. Like we did with EXi, we need to extract our algorithms from the existing platforms and then streamline them for other uses.

Our second effort involves making more use of our network footprint and our access to large networks. At the highest level our platforms have the capability to run many different algorithms and applications on the voice stream. We have again identified and prioritized some of these based on market potential and are actively engaged in extending our software infrastructure so that we can start to add additional features in the future. Again this is not a short-term effort but represents an investment in generalizing and extending our capabilities. Over the next year we intend to build a technology foundation on which we can layer further product offerings.

Let me now discuss our current markets and opportunities. In the North American market we sell our TDM products based on hybrid echo cancellation and voice quality. We sell our IP product, the PVP, around voice quality and Codec transcoding. While the market for hybrid echo cancellation has matured, there are several factors driving residual business. First there are still some TDM network build-outs occurring in areas in which coverage is still not complete. Second many of the echo cancellers in North American markets are aging and may need to be replaced. Third as new IP networks interact with the TDM networks, the echo problem can become worse and go beyond the specifications of existing cancellers. We expect this residual business to ebb and flow for several more years.

For our PVP we continue to get interest in voice quality from vertical markets in which quality is a large differentiator, such as conferencing. We expect this need to arise in other market segments as more and more voice services are converted to IP networks. The combination of Codec transcoding and voice quality also applies at network interconnects or peering points, which now have robust signaling and [policy] logic.

This maturation should increase the focus on quality based SLAs and key performance indicators. These are exactly the services provided by our IP product. We have two areas of active market development in North America as we had mentioned previously. The first is to more precisely link voice quality to customer satisfaction and therefore a carrier’s bottom line. We are working on market trials with carriers to better establish this link. We made good progress towards this goal in Q4 and expect our first results in Q1 or Q2 of FY09.

Second we are actively working on cost reductions in our IP products so that we can deliver a compelling combination of transcoding and voice quality at a variety of price points that are tied to call volumes.

Moving on to Europe, Europe is a mature wireless market much like North America and our value proposition there is similar. There is the potential in certain European countries for spectrum [inaudible] where existing voice spectrum will be required for data services. If this happens, our ability to manage capacity versus quality can be leveraged.

In much of the rest of the world, we see two trends. The first is the aggressive use of high compression Codecs to increase call capacity on the network. This is a well-known strategy that causes a measurable degradation in voice quality which leads to customer dissatisfaction. Our TDM products are deployed to establish consistent voice service and allow carriers to support rapid subscriber growth at low cost. The second is the emergence of emergence of IP throughout the backbone of many networks.

IP networks can introduce additional voice issues such as packet loss, delay and jitter. Our PVP can mitigate many of these issues as well as providing transcoding services. We continue to actively pursue both applications.

Our international revenue in Q4 came from South America, the Middle East and Asia. These regions have significant further potential for us. The binary event that we disclosed in the previous call relied on some aggressive timing for product certification and installation. We collectively ran out of time on this specific opportunity. However throughout the process we established great creditability and relationships that could lead to further opportunities within the current fiscal year.

Our efforts to extract and circulate our EXi measurement capabilities continue to move forward. We partnered with Brix in Q4 which is one of the main providers of test and measurement solutions for the VoIP market. By displaying the cause and extent of impairments to voice quality caused by external variables, we expect to drive our platform sales. Thus we continue to focus on getting EXi widely used and deployed as apposed to using it as a primary source of revenue.

In summary we continue to push hard on our core voice quality and transcoding business. We have sized the company to ensure we can realize the upside potential of these opportunities while also applying some of our resources towards capitalizing on the new markets that I outlined earlier. With core technology that operates in the voice stream, we believe we are well positioned in our existing markets and look forward to applying these assets to new opportunities.

With that I will hand the call over to Bill Tamblyn to discuss our quarter and year-end financials.

Bill Tamblyn

Thanks Todd. I’d like to now share with you our fourth quarter of fiscal 2008 results as well as our outlook for the first quarter of fiscal 2009. Before doing so let me comment on our approach to governance and SEC compliance. Please allow me to mention that we have no off balance sheet entities or associations. We believe we have to the best of our knowledge, disclosed all other obligations and related party transactions as required. Our auditors do not perform consulting services for us such as system reviews, [inaudible] reviews or other forms of consulting services other than tax compliance services. We comply with all effective SEC and NASDAQ requirements related to audit committee compliance and independence. We continue to adhere to Sarbanes-Oxley compliance requirements.

Our discussion today of our operating results will be on non-GAAP basis. Our press release posted on our website includes the summary information from GAAP and related reconciliation for Q4. The primary charges are the elimination of approximately $1.6 million relative to amortization and impairment of intangibles from our Jasomi acquisition, $800,000 related to stock compensation under FAS 123R and $54 million for valuation allowance on deferred tax assets.

Moving on, the key points of the fourth quarter results are on a non-GAAP basis as noted in our press release and are as follows: revenues were $7.7 million, non-GAAP gross margin was $3.8 million which includes a $4.8 million inventory reserve in the period, non-GAAP loss from operations was $9.3 million, non-GAAP loss was $12.8 million, non-GAAP diluted loss per share was $0.49 per share, cash flow used in operation was within our range of $2 million to $3 million from the previous call which was $2.6 million.

The fourth quarter non-GAAP details are as follows: total revenue for the quarter was $7.7 million, up 16% from the prior quarter of $6.7 million, however down from the $19.2 million for the same quarter in fiscal 2007. Q4 revenues were in the middle of our projections we provided at our February call. International revenues were $3.1 million or 40% of total revenue. We had four greater than 10% customers in Q4 and they approximated 74% of revenues.

The non-GAAP gross profit for the quarter was $300,000 or approximately 3.8% of revenues; obviously less than our prior projections. This is a result of our product mix and a $4.8 million reserve established in Q4 for certain excess inventories primarily on our 2G Flex product and raw material inventories.

Non-GAAP operating expenses were approximately $9.6 million for the quarter, marginally more than our projections. The details of the operating expenses for each area are as follows: Non-GAAP sales and marketing expense was $4.4 million, this was an increase of $900,000 from the prior quarter due to increased Trade Shows internationally and domestically and it was as expected.

Non-GAAP R&D expense was $3.5 million supporting our sustaining activities, VoIP initiatives, and new activities. This was down marginally from our Q3 level by approximately $100,000. The non-GAAP G&A was $1.7 million, flat from the prior quarter and approximately in the levels we had expected. Other income loss was a net loss of $3.4 million in Q4 which includes a $4.1 million write-down of two auction rate preferreds that were classified as unrealized previously and were offset by $725,000 of interest income.

Non-GAAP pre-tax operating loss was approximately $12.7 million versus non-GAAP loss of $4 million for the last quarter. Our non-GAAP taxes were approximately $100,000; however the significant issue in the quarter is the GAAP income tax aspect which includes a valuation allowance on deferred tax assets which were approximately $53.8 million in the quarter. A key measure for GAAP guidelines is tied to a three-year look-back of profit or losses for [accessing] deferred taxes. As we are in a loss position on a three-year look-back effective in Q4, we had to access the tax assets therefore we put a valuation allowance on the assets. As we had commented previously this was something that was potentially to have occurred.

Our non-GAAP loss was $12.8 million which is $0.49 per share compared to a loss of $2.8 million or $0.11 per share in the prior quarter. To reiterate, all the operating and results that I have given you are on a non-GAAP basis. Please refer to our press release for the third and fourth quarters of fiscal 2008 and 2007 comparative results, GAAP results as well as reconciliations of the non-GAAP to our GAAP results.

Moving on to the balance sheet and cash flows which are on a GAAP basis, cash equivalents and short-term investments at quarter-end totaled $65.7 million, a $5.3 million reduction from the prior quarter. This reduction approximated the high end of our prior projections from our last call which gave a range of $3 million to $5 million. Cash used in operations was approximately $2.6 million for the quarter. This is in the middle of the range of our expectations from our prior call at $2 million to $3 million.

At quarter-end, accounts receivable approximated $5.3 million. This was a $1.6 million increase from the prior quarter. DSOs in Q4 approximated our long-term expectations of approximately 60 days compared to 50 days in the last quarter. As we stated last quarter and for several others, we would expect our long-term targets to be between 45 and 55 days. Let me emphasize that our DSO numbers are subject to change. The timing of sales and shipments in any given quarter is always subject to fluctuations.

Net inventory was $13.7 million at quarter-end, down $5.2 million from the prior quarter of $18.9 million. This decrease in inventory included a $4.8 million reserve for excess inventory on specific items. At quarter-end we believe the remaining inventory is still usable based on our forecasts. Gross deferred revenues at April 30, approximated $2.8 million, similar to our prior quarter-end. Capital spending approximated $600,000 in the quarter. Depreciation and amortization also approximated $600,000 in the quarter. We ended the quarter with 148 employees; this is down from 156 at the end of the prior quarter and 224 from the end of the prior year.

I will now review our GAAP projections for the first quarter of fiscal 2009, in this regard please note the cautionary statements regarding these forward-looking statements that we gave at the beginning of the call.

Our Q1 outlook is derived from existing backlog, deferred revenues and our bookings forecast. Based on these we project revenues to be between $6 million and $9 million, similar to what we’ve stated in our prior quarter. We believe gross margins will be approximately 62% to 65%. This may vary based on product and customer mix. Regarding operating expenses, we are continuing to maintain our TDM and packet platform businesses but are moving staff to new initiatives. Operating expense in the first quarter will be tied to ongoing business investment. Overall we would expect our GAAP operating expenses included and estimated $800,000 of stock-based compensation and acquisition-related expenses to approximate $9.3 million to $9.5 million.

This would be comparative to the $11.9 million in Q4 which included $1.6 million of amortization of intangibles and impairments of goodwill. Our tax rate should approximate the range of 5% to 7% due to our loss situation and paying only [inaudible] minimum tax and foreign taxes. Deferred revenues at the end of Q1 are expected to approximate the $3 million level similar to the past quarter.

A couple of other data points for you, weighted average shares should continue to be calculated on a basic basis due to our losses which we expect to be approximately 26 million shares. Based on the sources and uses of cash flows from operations which presumes utilization of inventory from current levels, we should see a use of cash from operations of approximately $1.5 million to $2 million and therefore cash at the end of Q1 may be down $2 million to $3 million.

Looking at Q4 as a whole, it is obviously impacted by several accounting treatments on assets that we had noted previously as possible. At the same time we remain positive and focused on adding to the breadth of our international and domestic opportunities. In looking at Q1 we still have short-term concerns on transaction timing which we addressed in our guidance. However, we are encouraged by the several areas for diversifying our product offering base in the next several quarters. Additionally we are very focused on running our business closer to a cash flow breakeven. We have our challenges and we continue to explore methods to improve the business for revenue growth and controlled expenses and deriving positive cash flows.

With that I’d like to turn it back over to Todd.

Todd Simpson

Thanks Bill. Obviously our accounting numbers from FY08 are not ideal. We do however enter our fiscal year ’09 with a fairly clean balance sheet. We did hit our guidance in Q4 and our use of cash was as expected. Traditionally Q4 is one of our higher quarters for expenses and we expect the use of cash in Q1 to be lower. We are excited about our future initiatives and look forward to building them out this year. We will of course give more details on these as they progress.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Michael Coady – B. Riley & Co.

Michael Coady – B. Riley & Co.

When you talk about, in the past you’ve talked about a number of engagements globally with carriers for 3G, some for TDM, some for IP, any one of these could be significant or a handful of which could be significant, can you talk about those opportunities now at a high level basis and or as low as you want to get and or are you kind of wiping the slate clean of those and saying, alright we need to go back to the drawing board, rethink things with our EXi, with our algorithms and come out with a new set of products that will be able to drive growth going forward?

Todd Simpson

No we’re certainly not wiping the slate clean. I think there are still significant opportunities in front of us that obviously continue to be a little frustrating bringing to closure. But we only really recently initiated that EXi Everywhere program and as well as getting some of these market surveys going and so we feel if we give those a little bit more time we can steward those opportunities forward. And then as we’ve said, a little more directly I guess in this call, in parallel we’re going to kick off some of these other initiatives that give us more breadth of product and market going forward.

Michael Coady – B. Riley & Co.

Taking a quick look at the gross margin, if you back out the inventory write-down, I guess first of all we had talked about the inventory on the last call I think, and you were pretty certain that the inventory that you had on the balance sheet was in fact sellable, what changed during the quarter that you felt like you needed to write that down and how confident are you that there won’t be further write-downs?

Bill Tamblyn

Basically you have a policy on how you access your inventory levels and obviously there’s certain aspects for inventory that had greater quantities on hand and based on projections and the way we look from a GAAP accounting perspective, you do certain calculations to project your needs and futures. All that we’ve taken the reserve for is still sellable product. It’s not obsolete. It’s not something we throw out. Its still there but based on the methodologies that we’ve utilized over the last seven years, there’s a certain methodology you must use. So we still think its still sellable product, its just based on GAAP. We had to reserve it because based on our forecast and the certain aspects of the mix and a lot of this was tied to the Flex product in the TDM space, you have to take certain reserves as deemed appropriate. So it’s still sellable. Obviously I’d still like to sell it and we’re going to always pursue to potentially sell it in the future but based on the forecast and the mix of products going forward, based on our methodology we had to take a reserve related to these items.

That’s the reason on the $4.8 million. And you’re correct that if you, that was approximately 50% of, the $4.8 million is about 50% of our revenue in the quarter.

Michael Coady – B. Riley & Co.

And if you back out gross margin its close to 66% which is a nice pick-up from the previous two quarters, to what would you attribute that?

Bill Tamblyn

Product mix, we have some support services, maintenance, the type of products that were sold in the quarter both domestically and international, were supportive of this gross margin.

Michael Coady – B. Riley & Co.

In terms of the marketing surveys and working with the carriers so they can directly assess the benefits of EXi, when do you anticipate the results of those, I missed your comment on the call and how significant do you think the results will be in terms of the carrier then presumably move forward with an implementation?

Todd Simpson

We said we made good progress in Q4 but don’t expect any final, final results out of those initiatives until Q1 or Q2. Obviously our expectation is that they are going to turn out to be very positive and we’ve worked closely with the carriers to set up those marketing surveys so that they are asked the appropriate questions in the appropriate ways to answer some of these difficult correlations that we’ve been trying to establish in the past. So we’re hopeful but of course we don’t have a crystal ball so we can’t say exactly what impact they will have on buying behavior but they’re great efforts on our part to accelerate the whole process.

Michael Coady – B. Riley & Co.

With Brix Networks and some other of the things you’re doing with EXi Everywhere, will you give any kind of an update on the progress that’s being made with some of these partnerships?

Todd Simpson

Yes, we certainly will give more details as it occurs. With that EXi, it’s a piece of software that has to then get integrated and distributed through these partners. So getting the partners signed up is the first stage and then it takes a little while to actually get it propagated out and have an impact and we’re in the middle of that process right now. But certainly, yes as we get details around those and as it starts to have an impact, we will update you with those.

Operator

Your next question comes from the line of David Fondrie – Heartland Funds

David Fondrie – Heartland Funds

Bill I may have missed it but did you talk about the charge for auction rate securities?

Bill Tamblyn

Yes I did. We took a charge for two auction rate securities that have been noted as an unrealized loss for the last two quarters. We did an independent third party valuation at the end of the fiscal year and based on current situation, the valuation came back and we took a charge through the P&L for about $4.1 million and these two specific auction rate preferreds. Both of them are tied to a hand-back, put-right situation so we don’t intend to sell them or liquidate them, but based on the GAAP accounting treatment and the independent valuation we took a charge related to them. We have moved our position on auction rates from about $54 million at the end of January, to at the end of April we were a net $30 million and actually based on further redemptions that have occurred in the month of May and which we anticipate through the first week of June, we should be down to a net $22 million in auction rate preferreds.

David Fondrie – Heartland Funds

Does that charge I presume went into other income.

Bill Tamblyn

That’s correct.

David Fondrie – Heartland Funds

And so if you hold these to maturity, or if your, when you have been moving these out of the auction rate, have you recognized realized losses or have you gotten them all off at par?

Bill Tamblyn

All of them have been off at par. We have taken no losses at this time.

David Fondrie – Heartland Funds

It certainly possible that if you hold them to maturity, that you could recoup the full amount and have a write-back of that $4 million.

Bill Tamblyn

That is correct. So if the credit markets improve and these things become more in favor and they would go off at par, you would have a $4 million pick-up for that. That’s correct.

David Fondrie – Heartland Funds

And are you saying, do you get higher interest as these, as parties, if counter parties do not accept these, do you get higher interest rates at all?

Bill Tamblyn

Yes, there’s a penalty rate on these versus standard market condition. It varies so we’re actually getting the interest rate on the full value, the $10 million worth is the total value of these two at par so we’re getting interest on the par value effectively at a, I think it’s a 20% to 30% premium over normal rate.

David Fondrie – Heartland Funds

Can you tell us what the dollar amount of your sales that were international?

Bill Tamblyn

It was $3.1 million I believe.

David Fondrie – Heartland Funds

So somewhat down from the third quarter?

Bill Tamblyn

Down about I believe about $400,000. I think it was $3.5 or $3.6 in the third quarter.

David Fondrie – Heartland Funds

And is there any better visibility on your legacy product, could Verizon come back into the market and start taking the, they still have portions of their systems presumably that they’re still building out and in the 2G, 2.5G type configuration?

Todd Simpson

I wouldn’t way we have great visibility into that but there are certainly some opportunities still there both with further build-outs of the 2G network and areas where they have not had coverage in the past or other carriers have not had coverage in the past. As well as this issue that we discussed where as our telephone calls traverse IP networks they tend to get a lot more delay and that delay can sort of defeat some of the echo cancellers that are currently in the network causing what we call echo leakage and if that problem becomes more severe, then that could lead to some upgrading activity as well.

David Fondrie – Heartland Funds

Is that in the 2.5G network or is that in the true 3G network?

Todd Simpson

That would be in sort of the 2G and 2.5G networks although our IP product as well address, or can address this echo leakage so we can actually solve it either in the 2G, 2.5G or 3G networks depending on specific customers.

David Fondrie – Heartland Funds

It seems Todd that there certainly is a lot more true 3G happening, Verizon has introduced some video stuff in certain markets where you can actually watch television programs and such, so we’re getting it seems to me at least, some of this true 3G is coming out. Are you seeing the carriers responding at all to concerns about quality in 3G?

Todd Simpson

The short answer is yes. Obviously they try and get these services running first and running reliably first and quality tends to come in second but certainly there are concerns and certainly carriers overall are very aware of issues moving from 2G network which in many respects is very well understood to the 3G network which is still proving itself out for voice services. And we often remind people that the build-out to the video and data is sometimes at a different rate then the build-out of 3G voice within some of the networks. So quite often you’ll see data and video come out under the umbrella of 3G before the voice traffic is transitioned to 3G networks. So it’s not always valid to correlate the market windows between those two.

David Fondrie – Heartland Funds

Do you have any trials going on, on 3G voice networks?

Todd Simpson

We have quite a few PVP trials ongoing as we’ve discussed before. It’s interesting in the IP networks because they all interconnect so whether you classify it as specifically a 3G application or whether 3G traffic is routed to it, I’d certainly say that we see some of that within some of our PVP trails.

David Fondrie – Heartland Funds

But there are in your PVP trails, at least, the fact that there are trials out there, that’s certainly a good indication that the carriers are taking a look at it.

Todd Simpson

Again it depends how the traffic is routed on the network is the answer to that question so that’s why we hesitated here a little bit. On the IP network it’s obviously, the traffic gets routed in many different ways that we [treat] see traffic from many different applications.

Operator

Your next question is a follow-up from the line of Michael Coady – B. Riley & Co.

Michael Coady – B. Riley & Co.

Could you talk about the applicability of your technology and your algorithms to video and data given that carriers, that’s where their RPU is, that’s really what their focus is as voice becomes more [quantized], obviously is still a killer app so-to-speak and important, but clearly the carriers are focusing more on the revenue generated by video and data so can you just address, if your technology is applicable to that and if you’re seeing any push-back toward voice quality optimization because of that fact?

Todd Simpson

The places that we put our platforms in the network are certainly amenable to, going forward, to both video and data applications. Today we are still primarily focused on voice, of course the interaction of voice and video is also coming together and so the total quality play of video often includes voice or audio streams. But today our platforms are primarily targeted at the voice market and are not yet, we don’t yet have video or data apps on them.

Michael Coady – B. Riley & Co.

Obviously they’re somewhat tied together but is it extensible to video and data, can the algorithms be tweaked or are they, are you talking about separate things?

Todd Simpson

Our core algorithms today are voice centric. There are similar algorithms in the video and in the data space that could be applied at the same network location but today our internally developed algorithms are voice centric.

Michael Coady – B. Riley & Co.

In terms of the breakeven level you’ve got OpEx coming down again, which is nice to see, do you think you can continue to bring OpEx in a little bit and what would be a target cash flow breakeven revenue level?

Bill Tamblyn

Obviously we’ve been focused on both ends of the revenue as well as the OpEx to try to get to cash flow breakeven. As my comments are, depending on working capital and how much inventory you could utilize in the first quarter impacts the trend towards cash flow breakeven. We will still look at operating expenses as to what we can do reasonably. So we may take some actions related to that as we go forward. I would tell you that the cash flow breakeven, from a cash flow, especially cash flow taking out depreciation and amortization and things like that, is somewhere in the, probably around the $10 million level based on the current OpEx. So obviously we’re going to push as much as we can on both revenue side and we will watch our expenses and may do some things here from an expense perspective to bring it down a little tighter. But as you can tell from Q4 to Q1 there will be a reduction and an OpEx of somewhere in the neighborhood of $800,000 to $1 million so we’re trying to do the right things for the business to reduce the cash burn as much as possible.

Operator

There are no further questions; please continue.

Todd Simpson

I’d like to thank everyone for joining us today and we look forward to talking to you again in about three months at the end of our first quarter. Thanks for joining us and have a good afternoon.

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Source: Ditech Networks, Inc. F4Q08 (Qtr End 04/30/08) Earnings Call Transcript

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