Ixia F2Q08 Q2 2008 Earnings Call Transcript

Ixia (XXIA)

Q2 2008 Earnings Call

July 24, 2008 5:00 PM ET

Executives

Errol Ginsberg - Chairman of the Board, Chief Innovation Officer

Atul Bhatnagar - President, Chief Executive Officer, Director

Thomas B. Miller - Chief Financial Officer

[Brent Novak] - Vice President of Finance

Analysts

Ajit Pai - Thomas Weisel Partners

Analyst for Sam Wilson - JMP Securities

Joanna M. Makris - Brean Murray, Carret & Co.

[Andy Schacopic - Nutmeg Securities]

Presentation

Operator

Welcome to the Q2 2008 earnings call. (Operator Instructions) I’ll now turn the call over to Brent Novak, Ixia’s Vice President of Finance.

Brent Novak

Thank you for joining us on today’s conference call to discuss Ixia’s second quarter results. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of Ixia’s website at www.ixia.com for 90 days. With me on today’s call are Errol Ginsberg, Ixia’s Chairman and Chief Innovation Officer, Atul Bhatnagar, Ixia’s President and Chief Executive Officer, and Tom Miller, Ixia’s Chief Financial Officer.

After the market closed today Ixia issued a press release discussing the results for its second quarter ended June 30, 2008. We would like to remind you that during the course of this conference call Ixia’s management may make forward-looking statements including financial projections, statements as to the plans and objectives of management for future operations, and statements as to the company’s future economic performance, financial condition or results of operations. These forward-looking statements are not historical facts but rather are based on the company’s current expectations and beliefs. Words such as may, will, expects, intends, plans, believes, seeks, estimates, and variations of these words are intended to identify forward-looking statements. The company’s actual results may differ materially from those projected in these forward-looking statements.

With that said I’d like to now turn the call over to Ixia’s President and CEO, Atul Bhatnagar.

Atul Bhatnagar

During the second quarter we generated revenue of $45.9 million, non-GAAP earnings of $0.07 per diluted share, and GAAP earnings of $0.03 per diluted share. Overall we had a solid second quarter as we achieved record bookings in the quarter and rebounded from our seasonally down first quarter. As I will discuss fully later in the call, our second quarter results were characterized by improvements in all regions and across all major customer segments. We had another record booking quarter in Ixia in Asia Pacific as well as a record quarter for non-fiscal bookings on a worldwide basis.

Our improvements in Q2 were wide spread, spanning across many geographic regions and customer segments. And as a result we believe these improvements represent sustainable trends. We announced some exciting products during the quarter, namely the industry’s highest performance, highest density 10-gigabit Ethernet product, and the industry’s first 100-gigabit Ethernet testing proof of concept. We also continued to manage our business in a fiscally restrained and responsible manner, but more on those topics later.

I’m now going to ask our Chief Financial Officer, Tom Miller, to go through the second quarter financial results.

Thomas B. Miller

I should mention that unless specifically noted otherwise we are discussing all numbers on a non-GAAP or pro forma basis prior to non-cash charges for the impact of stock-based compensation and amortization of acquisition related intangible assets. These non-cash charges in the second quarter consist of $2.4 million related to stock-based compensation, $1.4 million for the amortization of acquired intangible assets, and a net tax benefit of $1.3 million related to these items. A full reconciliation of the non-GAAP measures covered in this call to the most directly comparable GAAP measures is available in the Investor Relations section of our website at www.ixia.com.

Total revenues for the second quarter of 2008 were $45.9 million which compares to $41.7 million in the first quarter of 2008 and $43.0 million in the second quarter of last year. Interface cards accounted for 70% of our revenues, software accounted for 15% of revenues, with the remaining 15% representing revenue from chassis, warranties and other products. From a geographic perspective, domestic revenues represented 63% of our total revenues with Canada representing 7%, EMEA 13%, and Asia Pac 17% of revenues.

From a customer perspective, 60% of our revenues in the second quarter came from network equipment manufacturers, 15% from carriers and service providers, a combined 9% from enterprise, university and government customers, and 16% from distributors, communication chip manufacturers and other accounts. Our top five non-distributor customers represented approximately 40% of revenues in Q2 and included Cisco, Alcatel, Lucent, Juniper, AT&T, and F5 Networks. Sales to Cisco our largest customer were $9.2 million representing 20% of revenues.

Non-GAAP gross margins were 79.0% up 70 basis points from 78.3% in the first quarter of 2008 and within our target range for non-GAAP gross margins of 78% to 80%. The higher sequential gross margins were due in part to an increase in margins on our interface cards including the new IxYukon 10 gigabit Ethernet card. We expect that our non-GAAP gross margins will remain in the 78% to 80% range for the third quarter of 2008.

Non-GAAP operating expenses in the second quarter of 2008 were up about $415,000 or 1% from the first quarter. As a percentage of revenue, operating expenses were 68.4% of sales in the second quarter compared to 74.4% in the immediately preceding first quarter. As we held operating expenses relatively flat the decrease in the operating expense percentage is primarily due to the sequential increase in revenue. We will continue to focus on controlling the growth of operating expenses in Q3 and hopefully get even more leverage out of our model.

R&D expenditures were 25.6% of revenues in the second quarter down slightly from 26.1% for the first quarter of 2008. In dollar terms, R&D expenses increased by $879,000 from the immediately preceding quarter due mainly to higher compensation costs as we saw the effect of our annual raises hit in Q2. Sales and marketing expenses represented 30.9% of revenues in the second quarter of 2008 down from the 33.1% in the first quarter of 2008. In dollar terms, sales and marketing expenses increased by $379,000 from the immediately preceding quarter.

Higher compensation and sales force training costs more than offset our lower meeting expenses as the annual sales conference occurs only in Q1. G&A expenses represented 11.9% of revenues in the second quarter of 2008 down from 15.1% for the immediately preceding first quarter of 2008. In dollar terms, G&A expense decreased by $842,000 sequentially from the first quarter due in part to lower professional fees related to audit and other projects which were incurred in the first quarter and to lower recruiting expenses.

On a year-over-year basis GAAP net income for the second quarter of 2008 which includes stock-based compensation charges and amortization of acquisition related intangible assets was $1.8 million or $0.03 per diluted share compared to a net income of $1.4 million or $0.02 per diluted share for the second quarter of 2007. Included in the second quarter of 2007 results was a $3.3 million impairment charge for the write-down of certain intangible assets. Second quarter 2008 non-GAAP net income excluding the effects of non-cash charges and the related tax effects was $4.3 million or $0.07 per diluted share. This compares to $5.4 million or $0.08 per diluted share for the same period last year.

The non-GAAP effective tax rate which is a ratio of the non-GAAP income tax expenses to non-GAAP free tax income decreased to 34.4% in the second quarter of 2008 from 36.2% in the first quarter of 2008. For the third quarter of 2008 we expect the non-GAAP effective tax rate to be at 32% or even lower due to the possible reversal of certain [thin (IXIA)] 48 reserves for uncertain tax positions.

Now turning to the balance sheet, cash in investments were approximately $221 million at June 30 down about $23.5 million from three months earlier due primarily to our share repurchase activity. During the second quarter we completed our $50 million share repurchase program by buying back approximately 4.3 million shares of our common stock at an average cost of $7.64 per share for a total of approximately $32.6 million in Q2. Over the life of the $50 million program we repurchased approximately 6.3 million shares of our common stock at an average cost of $7.99 per share.

Cash flows from operations for the second quarter of 2008 were $11 million compared to $6.2 million in the immediately preceding first quarter. Capital expenditures were $2.3 million for the second quarter of 2008 compared to $2.6 million in the immediately preceding first quarter. Accounts receivable increased from $33.9 million on March 31 to $35.9 million as of June 30. Based on trailing figures our day sales outstanding decreased to 71 days from the 74 days reported three months earlier. Inventory decreased on a sequential basis from $10.6 million to $9.7 million at June 30. This trailing inventory balance equates to a turnover of 4.0 times. The number of full-time employee equivalents as of June 30 was 786 as compared to 788 employees at the end of the first quarter.

Looking forward, while we are in the midst of uncertain economic times, we did have a very strong second quarter and our sales funnel for the third quarter is building nicely. At this time we expect third quarter revenues in the range of $46 million to $48 million and we expect third quarter revenues from Cisco to be $8 million to $10 million. We currently expect non-GAAP EPS of $0.07 to $0.08 per diluted share in the third quarter with comparable GAAP EPS estimates of $0.03 to $0.04 per diluted share. The difference between GAAP and non-GAAP results relates to the expected non-cash charges and the associated tax effects including non-cash charges relating to stock-based compensation. We estimate at this time that our stock-based compensation charges will be between $2.5 million and $3 million for the third quarter of 2008 on a pre-tax basis.

With that said I would now like to turn the call over to Atul.

Atul Bhatnagar

As I stated earlier overall we had a very good second quarter with regards to revenues, bookings and profitability. We saw incremental improvements in all geographies and across all customer segments. The IxYukon launch was very successful and we announced other significant product development in the quarter. The new members of our senior management team have gotten their bearings and are starting to make meaningful contributions. And we grew our gross margins and operating profits up from the first quarter level.

First I will discuss our second quarter sales results in detail and then I will address some of the near-term and longer-term product initiatives. I want to ensure our investors up front that we are dedicated to not just growing the top line but also to grow profitability and cash flow. Along those lines we will also address some of the spending controls that we have implemented to help us control costs and drive profitability while still meeting our customers’ future needs.

In the second quarter we had record bookings on a global basis with all geographic regions showing sequential increases from the first quarter. Ixia [Inaudible] of the record quarter with bookings in the greater China region hitting new highs of 36% from the bookings of a year ago. Our business in China split primarily between domestic equipment makers and US companies doing development in China. In India we also registered a record quarter with bookings up 28% from the same quarter a year earlier.

Although not at a record level, Japan recorded its strongest bookings quarter in over two years with purchasing activity won by both local carriers and local equipment makers. EMEA and Canada both bounced back from a soft first quarter and EMEA, Israel and Germany made solid contributions to the sequential uptake, while in Canada bookings trends derived from strong sales to equipment makers. The US also delivered a strong quarter with increasing US bookings more broadly based as we saw sequential increases across most customer segments.

We also saw a strong level of business from our non-Cisco accounts. With Cisco revenues at $9.2 million our non-Cisco accounts totaled a near record $26.7 million in revenue for the quarter. Once again we saw this as a validation of investment that we have put into the sales and marketing over the past few years. We have seen a greater divestiture of accounts, broader geographic successes, and a greater penetration of large non-Cisco equipment makers.

As you’ll recall from the earlier conference calls, normally having invested by hiring more sales and marketing personnel over the last two years we also greatly improved the quality of our sales management team hiring several new sales leaders in key regions and markets for the past six months. We are starting to see some of these new hires have an impact on the business and expect that they will continue to positively impact our growth in the future.

Another factor contributing to the strong performance in Q2 is investments we have made in marketing. In addition to hiring a new Vice President of Marketing in the first quarter we have initiated some very targeted marketing programs and we believe that our brand awareness and demand generation programs are starting the augment the sales funnel.

And to make sure that we have skilled sales people to close these deals, we have invested in sales training this year at a higher level than in previous years in an effort to boost the effectiveness and productivity of our sales force. In addition to novel internal product training we have conducted extensive external training focused on studying strategies and techniques that are geared to enhance the effectiveness of the sales team. We believe that we are now beginning to see the benefits of these investments in staffing, management, marketing, and sales training.

Similarly the investments that we have made in product development over the last few years are also bearing fruit. We made two highly significant product announcements during the second quarter that clearly delineate our leadership in the field of Ethernet testing. First we announced and started shipping our new high-density IxYukon 10 gigabit Ethernet card, the industry’s highest density 10-gigabit test solution. And second we demonstrated the industry’s first 100-gigabit Ethernet test solution. For a long time, while we have seen our 10 gigabit sales creep upward the bulk of our business has been 1 gigabit Ethernet. Most advanced IP services that are deployed today including the new [inaudible] converts services of voice, radio and data IP. They have been developed and tested on a 1-gigabit platform.

We believe that over the next 12 months we will see this relationship reverse with 10 gigabit Ethernet taking over as the leading product development area and as our number one product line. We are seeing more and more customers build higher density 10-gigabit Ethernet devices which require higher density 10-gigabit test solutions. Specifically we are aware of plans by equipment makers to build 10-gigabit test beds that are two [inaudible] or more ports. A year or two ago such high-density 10 gigabit test [enlargement] was unheard of. In the coming years they will become common in the lands of big equipment makers.

With our new IxYukon card we offer higher density 10-gigabit test platform available. The IxYukon is available with eight fully functioning 10-gigabit ports per card. With each port capable of generating a full load of [inaudible] two through seven-layer traffic. This density [inaudible] is staggering 96 ports of 10 gigabit Ethernet per chassis whereas our closest competitor can provide only up to 24 ports per chassis. This gives us a 4 to 1 density advantage. This density is valued by developers and quality assurance engineers as it leads to efficiencies in lab space utilization, power consumption, and test lab [inaudible]. Although we just started shipping the IxYukon in the last two weeks of June, it still accounted for 7% of revenues in the quarter and was shipped to a highly diverse set of customers reflecting our belief that this is the right product at the right time. We shipped IxYukon to 17 different accounts including equipment makers, government labs, chipmakers, and carriers in Europe, Asia and North America. The IxYukon enjoyed universal appeal on its launch and it could become our number one product line by early next year.

As we are extending our leadership in the 10-gigabit hemisphere, we have also distinguished ourselves as the first company in the world to demonstrate a 100-gigabit Ethernet test solution. In June at the Nexcom 2008 Show in Las Vegas we worked with Aravo Technologies and [Imphanera] to demonstrate live 100 gigabit Ethernet traffic over a long haul network between Las Vegas and Los Angeles. The growth of the new Rave voice, video and data network services and rapid advances in computer technology and network architecture are causing bandwidth bottlenecks.

To alleviate these bottlenecks network operators and large internet service providers have aspired to significantly boost data speeds with 100 gigabit Ethernet regulation and core networking applications and 10 gigabit Ethernet for server and storage applications. We believe that our demonstration of 100-gigabit Ethernet capability marks significant progress towards making 100 gigabit a commercial reality in the future. Also, by demonstrating clear market leadership in this area and by being first to market Ixia has secured a leading strategic position in the 100-gigabit Ethernet market as equipment makers start developing 100-gigabit solutions.

During the second quarter we also announced more progress on our IxRave and world service verification solution. Telenor a major international communications service provider headquartered in Norway has deployed IxRave verification platform to measure the true performance of its enterprise their L3 VPN networks and services. Telenor provides enterprise already converted services to business customers in Scandinavia and was looking for a solution to actively monitor its next simulation IP backbone network and new services such as IP telephony. IxRave permits Telenor to remotely perform end-to-end application testing to verify its customers quality of service and quality of experience. Inexpensive probes and virtual software endpoints enable Telenor to quickly identify any issues and determine if a fault is in the network or in the access segment and then verifying that corrective action has resolved an issue. Our current deployment of IxRave only covers a small portion of Telenor’s network and there is a possibility of more business in the future at Telenor. This was an important success story as we delivered a complete solution on time and on budget. We are currently working with several carriers on potential new deals and we look forward to announcing more such deals in the future.

Finally, I want to address some of the measures that we have placed on controlling costs. While growing the top line and providing for future growth at Ixia our number one objective is to control costs. We are fully aware that increased revenue has to be accompanied by increased profits. To this end we have enhanced the [inaudible] controls and processes designed to keep our operating and capital expenses in check. Since people related costs are by far our largest expense item we are committed to keeping headcount as flat as we can. Every new hire including backfills of existing positions has to be totally justified. Rather than increasing headcount to staff new initiatives, we look internally to see how we can shift existing resources or use normal attrition in existing areas or find new growth areas.

In the last six months we have reshifted our staffing profile with essentially the same headcount. I’ve also personally reviewed all of our major discretionary expenses to ensure that spending across departments is in sync and closely aligned with corporate objectives and that we are getting the maximum impact of each dollar spent. We have also implemented new capital expense targets designed to get our cap ex more in line with industry norms. I believe that these cost controls when coupled with top line growth will help drive Ixia’s profitability for the next several quarters.

In summary, we are very pleased with the results for the second quarter compared to the first quarter results. We saw top line performance coupled with very good expense controls. The result was a solid increase in operating margin and earnings. We are committed as a company to continue delivering industry-leading products and delight our customers. At the same time we are committed to delivering good returns to our investors. I believe that we have made most of the major investments that we need to make in our core business and that we have hired the key players that we need to grow the organization. Our mission now is to continue executing our plan in order to successfully grow the company.

With that said Errol, Tom and I would now be happy to answer any questions that you may have. Operator, you can now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ajit Pai - Thomas Weisel Partners.

Ajit Pai - Thomas Weisel Partners

[Inaudible] have been up sequentially as well as year-over-year. It’s still substantially below your levels in September and December. Can you give us some color as to after September and December what happened going into March and June and why that should change going forward?

When you’re looking at the carriers and ISP, just based on the percentage of revenue that you provided, you had about a $6.9 million in sales. While it’s up very nicely on a sequential basis and a year-over-year basis, it’s still substantially below the September and December quarters of 2007. Could you give us some color as to I think you sounded quite optimistic about carriers and ISP revenue on a go-forward basis and mentioned some examples, but can you tell us what happened to slow down the business in March and why we should be optimistic about that business in September and December?

Atul Bhatnagar

First of all we are very optimistic about ISP carrier business. I think the business in general is lumpy. It takes significant gestation, it takes proof of concept, and then it starts. So I think in last year’s Q3-Q4 we saw many deals culminate and I would say as we look at the funnel, as we look at what we have in terms of proof of concept, things are building very well. And we are very optimistic as we look at the next 12 to 18 month horizon with respect to the ISP carrier business.

Ajit Pai - Thomas Weisel Partners

Does the funnel right now look stronger than it did last year at the same time going into September and December as far as carriers and ISPs looked?

Atul Bhatnagar

Yes, absolutely, it looks good. But again as I said it’s a lumpy business, it takes time to burn the deals and as we said on the last conference call that our goal this year is really to establish some of our key products and solutions like IxRave in four or five very key accounts and clear success stories because we know with those success stories we will amplify in 09 and 10.

Thomas B. Miller

If I might just add one thing, when we’re talking about adding new sales leaders, the carrier space is one where we put in an experienced sales veteran and some new players and that could have a pretty good impact on the second half of the year.

Ajit Pai - Thomas Weisel Partners

Looking at Cisco, revenues have been bouncing along and in fact over a year-over-year basis it was down in June. Could you give us some color as to whether you need to believe that you’re not losing share at Cisco and it’s the spending that’s declining or whether there are some share shifts over there, and do you think that business has a potential to actually start reaccelerating our ports?

Atul Bhatnagar

If you look at Q2, revenue was $2.9 million. That was within our guidance of $8 million to $10 million and Q2 has historically been softer than Q1 at Cisco. So overall when I look at our market share, look at our positioning, look at our new products, they’re being very well received. In fact we worked very closely with them on [Larkson] platforms and future initiatives, so we are very very positive and overall as we said in the call that also our focus is to make sure our non-Cisco business is also very healthy. And we are striking that balance very well.

Ajit Pai - Thomas Weisel Partners

When you’re looking at the tax rate, it was down a little bit this quarter. On a go-forward basis what should we assume it to be?

Thomas B. Miller

I think as we indicated for the third quarter it’s going to be 32% or lower. And I think if you go back and look historically the rates tend to be a little bit lower in the third and fourth quarter, the effective tax rates. I think as we go forward into next year I would think 35% to 37% is a good place to start. There are some seasonal reasons why the third quarter might be a little bit lower though.

Ajit Pai - Thomas Weisel Partners

Are you prepared at this point at the percentage of your revenues to tell us what 10 gig is? The 10 gigabit, you talked about 10 gigabit products.

Thomas B. Miller

It’s about 26%. We normally give that number out and it’s about 26% of our revenues.

Operator

Your next question comes from Analyst for Sam Wilson - JMP Securities.

Analyst for Sam Wilson - JMP Securities

I saw that the enterprise business grew about 1%. I was wondering if you could give any color about your success in the enterprise.

Thomas B. Miller

Enterprise actually was not that strong for us. We were seeing better performance in the second quarter out of the carriers and out of the equipment makers. The enterprise has historically been an area where we’ve had selling initiatives in the past and we’ve never been real successful breaking into that. We think there’s a much better opportunity for us with the carriers on a worldwide basis and on the equipment makers. The government and the enterprise are still an important part of the business but I don’t know of any great insight that I can give you right now to the enterprise business. Atul, I don’t know if you want to add to that?

Atul Bhatnagar

I think Tom has pretty much said it all. As we are thinking about our future strategies, as we build new products, that may be a segment we might go after, but right now really government, defense, those are the key areas we still focus on. And also that business is also lumpy and seasonal. So I think you will in the next few quarters you may see one quarter where we come back and announce some very good deals on the defense but again it’s seasonal and lumpy.

Analyst for Sam Wilson - JMP Securities

We’ve seen a little bit of [NIMs] consolidation this week. I know that Foundry in the past has been of your top five. Do you have any view on further consolidation in NIMs and what that might do?

Atul Bhatnagar

Overall actually that is in our mind positive because it gives us another big account, Foundry the key account for Ixia, and it gives us another bigger account to work with. So next I think that’s possible.

Errol Ginsberg

If I could just add to that, in the acquisition of Foundry bought Brocade. It’s a little bit different because of consolidation. It’s not as if Cisco bought Foundry which would definitely reduce prospects potentially, where Brocade really I don’t know that we’ve ever sold anything to Brocade so it’s not like we’re losing two customers and getting it replaced by one here. If anything, it allows us to get into Brocade and perhaps sell them some storage related products going forward.

Thomas B. Miller

Yes, we wouldn’t expect and we don’t know much about it but we wouldn’t expect Foundry’s investment in cap ex spending to go down. We would think Brocade would want to keep that going.

Errol Ginsberg

Let me just clarify what I said when I said storage-related. What I’m talking about are things like fiber channel over Ethernet. We have some product in that area.

Atul Bhatnagar

Actually, fiber channel [reprint] at Ixia is one of the first lures and that’s a pretty good opportunity and has been very well received by the storage vendors, so we are hoping that with this move we can increase our business in Brocade.

Analyst for Sam Wilson - JMP Securities

The last thing I wanted to find out about was the growth in services and if there’s any color around what you’re doing there?

Thomas B. Miller

There’s a little bit of growth there in services. When we report services on the face of the income statement, a big piece of that is warranty. So when you’re talking about pro services that is still not a significant part of the business. It’s a part of the business that we’re focusing on and we’ve added some people to over the last year or year and a half and it’s an area where as we move into the carriers and even some of the government accounts we need service support, but with the NIMs it is not that important. So most of what you see on the P&L is actually warranty related revenue.

Operator

Your next question comes from Joanna M. Makris - Brean Murray, Carret & Co.

Joanna M. Makris - Brean Murray, Carret & Co.

Understanding that you’re not changing your gross margin guidance, but I am somewhat interested in your comments surrounding the improvement in margin off of the increase into interface cards and I’m wondering is there more leverage there? Clearly the [NIX] shift did move further toward interface cards. How much room could there be in terms of gross margin looking out over the next couple of quarters?

Atul Bhatnagar

I’ll let Tom also add some of his own color. As we design new products we always keep margin in mind but we also have a lot of pressure on pricing and there’s a lot of competitors in the market place, so while their improvements on one side, the pressures continue. So with that in mind we always like to give realistic expectations. Tom.

Thomas B. Miller

I don’t know that there’s a lot that we really want to guide above the 78% to 80%. Clearly in the fourth quarter of last year when carriers and software were very strong we had higher margins and you could always have a mixed quarter like that that drives margins up. I’ve got to say our R&D group has done a very good job on engineering products and trying to keep the costs down because we anticipate as Atul says the pricing pressures that we’ll see. So right now we had a good quarter with a mix on interface cards but really to bounce things back up over 80% we’re going to have to see a surge in software and maybe the carriers. We’re not anticipating that for the third and fourth quarters to the extent that it would push us up much above 80%.

Operator

Your next question comes from Andy Shacopic - Nutmeg Securities.

Andy Schacopic - Nutmeg Securities

Are there really any specific initiatives to revitalize growth in the key Cisco account because really that’s tended to be flat to down over a period of several years now? As a follow on to that, any strategies that you can discuss that would help to expand your market presence and market share around the world? And any comment on pricing on larger deals?

Atul Bhatnagar

With respect to Cisco, I think like any large NIMs everyone is evaluating their cap ex and spending money carefully given the global uncertain economic decline. So with that backdrop, we are working closely with them on again their next generation initiatives and we are as well plugged in as anybody can be with Cisco.

With respect to growing our business on a worldwide basis, there are many things in motion. As I said IxRave is a very global solution initiative. It’s carrier focused so a lot of its appeal is actually in many international accounts, not just domestic accounts, so there you will see the global expansion. And then as some of what a wireless functionality comes into our products like IxNetwork, IxLoad, these types of products which we are enhancing continuously, that’ll also give us more European presence especially in next generation wireless networks. So those are some of the key initiatives we have in motion and I think in the next several conference calls we will start to elaborate more as we achieve more and more substance there.

Andy Schacopic - Nutmeg Securities

Pricing on deals, can you just generally talk about the trends you’re seeing?

Atul Bhatnagar

Pricing as I said earlier we were pretty competitive but the way we are dealing with that is to innovate, to design the right features, to design the right performance and scaling. Customers pay for value and Ixia’s strategy is very simple: Keep increasing the value and convince the customers that they will pay for the value. And so far we’ve been successful doing that. And that’s our strategy.

Operator

We have no more questions.

Atul Bhatnagar

It looks like there are no more questions. I really would like to thank everybody for joining us and we’ll see you soon next quarter.

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