Juan Oscar Rodriguez - Chief Executive Officer, President and Director James T. Judson - Interim Chief Financial Officer and Interim Vice President

Sanjit Singh - Wedbush Securities Inc., Research Division Unknown Analyst -

Good day, ladies and gentlemen. Welcome to the Extreme Networks Fiscal Q1 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jim Judson, Interim CFO of Extreme Networks. You may begin. James T. Judson: Thank you, Latoya. Welcome to the Extreme Networks 2012 First Quarter Conference Call. [Operator Instructions] On the call today from Extreme Networks are Oscar Rodriguez, President and CEO; and myself, Jim Judson, the Interim CFO. As a reminder, this conference is being recorded today, November 2, 2011. This afternoon, Extreme Networks issued a press release announcing the company's financial results for the first quarter of fiscal 2012. A copy of this release and a slide presentation of the supporting financial materials are available in the Investor Relations section of the company's website at www.extremenetworks.com. This call is being broadcast live over the Internet and will be posted on the Extreme Networks' website for a replay shortly after the conclusion of the call. Extreme Networks wants to remind you that this conference call contains forward-looking statements that involve risks and uncertainties, including statements regarding the company's expectations regarding its financial performance, strategies, growth of customer demand, development of new products, customer acceptance of the company's products, customer buying and spending patterns, overall trends and economic conditions in the company's markets. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors including, but not limited to, a challenging macroeconomic environment worldwide, fluctuations in demand for the company's products and services, a highly competitive business environment for network switching equipment, the company's effectiveness in controlling expenses, including the company's cost restructuring efforts, the possibility that the company might experience delays in the development of new technology and product, customer response to its new technology and products, the timing of any recovery in the global economy, risks related to pending or future litigation and the dependency on third parties for certain components and for the manufacturing of the company's products. The company undertakes no obligation to update this information on the conference call. More information about potential factors that affect our business and financial results is included in the company's filings with the Securities and Exchange Commission. Throughout the conference call, the company will reference both GAAP and non-GAAP financial results. The company has provided a reconciliation table of GAAP to non-GAAP information in the tables that accompany the press release on its website. Please go to the Investor Relations section of the company's website at www.extremenetworks.com. I will start the call by doing a review of the Q1 fiscal 2012 results. I'll then turn the call over to Oscar for some comments on recent market developments and customers, and thoughts on the progress the company's making with its transformation. After Oscar's comments, I will provide guidance for our fiscal Q2 2012 quarter and the full year. We'll then open the call for questions. As a reminder, all of my comments will be non-GAAP except for revenue and a number of common shares. Non-GAAP results exclude stock-based compensation, restructuring charges and litigation settlements. There is a reconciliation of GAAP to non-GAAP financial results in the slide presentation as well under Investor Relations on our website that I mentioned previously. I'd like to start my discussion of the results by saying that we are pleased with our first quarter results and the progress the company has made in executing our transformation. The initial benefits of these actions can be seen in our results for the quarter. First quarter fiscal '12 revenue totaled $78.9 million, at the upper end of our guidance of $74 million to $80 million. While revenue for the quarter was down from both Q1 a year ago by 6% and our seasonally strong Q4 2011 by 12%, we performed well given the restructuring that was initiated in the first week of Q1, and the elimination of specific Metro products from our portfolio in Q3 fiscal 2011. he Americas had a second straight strong quarter with revenue of $33.4 million, up 4% from Q1 a year ago, but down 21% from the seasonally strong Q4 2011. The U.S. has a strong pipeline. It appears to have its transitions from mid -- FY '11 behind them. Latin America also had a strong Q1 after the consolidation of all the Americas south of the U.S. into 1 cohesive region under a single management team during the restructuring. EMEA revenue was $30.9 million, a decline of 9% from Q1 a year ago, primarily as a result of a large deal in the year-ago quarter that did not repeat and the strategic elimination of Metro Ethernet products from our portfolio. First is Q4 2011, EMEA is down 5%, which is slightly better than normal seasonality. In the U.K., the Nordic countries in Southern Europe, we experienced some anticipated weakness due to the economic conditions persisting in those regions. Elsewhere in EMEA, we are seeing some slowing of deals due to the uncertainties of the economy. However, our pipeline of business in EMEA is consistent with past levels, and we expect the normal seasonal strengthening of revenue in Q2. Asia Pac's revenue was $14.6 million, which was down 19% from Q1 a year ago, and down 2% sequentially from Q4 FY '11. Like EMEA, Asia Pac had a very large deal in the year-ago quarter. Our Asia Pac business tends to be driven by larger deals with our reseller partners in the region and can be lumpy depending on the timing of deals and when they close. Overall, we see a healthy pipeline of business going forward with Korea, India and Taiwan performing well in this past quarter. Gross margin in Q1 increased by 1.2 points to 55.5% versus Q4 2011. The improvement was primarily due to fewer deeply discounted large deals in the Q1 quarter. Lower overhead spending in the manufacturing and service operations, as a result of the restructuring, offset lower absorption of overhead due to lower volumes. Operating expense in Q1 declined $7.1 million to $39.2 million from Q4 2011 levels. Three primarily factors contributed to the decrease in expenses during Q1. Lower headcount, as a result of the restructuring in week 2 of the quarter, decreased expenses by $3.6 million. Sales commissions were lower by $2.5 million, due to lower Q1 revenues and the lack of the year end accelerators. Lower marketing and sales expenses for programs and other discretionary costs, such as travel associated with headcount reductions, contributed $900,000. Regarding progress with our restructuring plan announced at the start of the quarter, there are 116 positions eliminated and only a few remain to transition out in Q2. As a result of these transitions during the quarter, we recognized an additional restructuring charge of $955,000 in Q1, bringing the total charge for this event to $3.8 million. EPS for Q1 was $0.05 a share at the high end of our guidance at the start of the quarter of $0.02 to $0.05 a share. Turning to the balance sheet. Total cash and investments for the quarter [Audio Gap] to $140.7 million, primarily due to [Audio Gap] cost of $2.4 million, payment for past litigation settlements of $2 million and an increase of inventory of $1.5 million associated with the opening of our Hong Kong distribution warehouse. Looking at the other main components of working capital. Days sales outstanding were 33 days versus 38 a quarter ago helping offset decreases and accounts payable in accrued liabilities. At this point, I'll turn the call over to Oscar for an update on the progress the company is making with its transformation and some comments on recent market developments. I will be back after his comments to discuss guidance going forward. Oscar?

Thank you, Jim. And I want to thank all of our investors for joining this call. As we've discussed over the past 3 quarters, we're in the process of transforming Extreme. We have structured our business with the goal of consistently being able to achieve double-digit operating income without the need for significant revenue growth. We are focusing our resources to deliver high customer value through innovation in some of the highest growth multibillion verticals in the communications market. We have a laser focus on delivering what we believe is a best-of-breed product portfolio designed to position Extreme as a leading competitor in these targeted vertical markets. Overall, we expect new revenue growth to provide increasing leverage to the bottom line and increasing free cash flow. Last quarter, I highlighted the steps we've been taking to lower our operating costs and increase productivity, including focusing our software development work and services capability into 2 established lower cost venues, consolidating and aligning sales management to drive sales focus across our geographies, reducing corporate marketing spend and shifting those resources to field marketing to drive increased customer awareness, and simplifying our processes, systems and infrastructure to drive reduced company overhead and drive greater supply chain efficiencies. As of the end of Q1, most of the major transformational cost adjustments to the company are now behind us, and we expect the remaining changes to be completed at the end of Q2. I am pleased to report that our company strategy transformation is on track and remains on track. With our cost structure changes largely behind us, we are intently focused now on revenue growth as a basis for further leveraging our bottom line. We continue to deliver on our vertical market strategy, focused on data center cloud operators, the education market and mobile carriers. We continue to see increased revenue and customer traction in these verticals with about 30% of our revenue now increasingly coming from these specific vertical markets, as measured over a rolling 4 quarters. As we expect to see higher revenues in the market -- and we expect to see higher revenue rev growth in the verticals, as we deliver new and what we believe to be best-of-breed product portfolios designed to address their specific needs. We also remain focused on our traditional enterprise and data center customers. Enterprise customers are moving rapidly to meet the increasing mobile user data demand of tablets, laptops and smartphones. Both private and hosted data center cloud CIOs are moving to add the scale and the network intelligence needed to meet the needs of mobile enterprise users and are increasingly preparing to deliver a cloud-scale Virtual Desktop Infrastructure. We expect a trend of increased user mobility, data center virtualization and the need for secure and elastic VDI delivery, will together be a catalyst for infrastructure expansion and customer network upgrades in both enterprises and cloud service providers. According to The Dell'Oro Group, which measures the broader Ethernet switching market, by 2015, the data center market will grow to about $10 billion in vendor revenue. Further, they predict that Ethernet ports sold into data centers will constitute 10% of all ports shipped in the market, but will drive 40% of Ethernet revenues. Our new data center cloud solutions are tuned for hosted cloud and high-performance data center networks. We believe that cloud expansions and upgrades will be closely tied to 10 Gigabit Ethernet and 40 Gigabit Ethernet switch upgrades. And we are focused on delivering products that enable the highest productivity and the lowest cost of operations available. We believe our Open Fabric architecture and a high-density 10-gig and 40-gig product portfolio is well positioned to deliver the high performance required of cloud-scale network fabrics. In July, we delivered our X670 top-of-rack switch to drive high performance server connectivity at 10-gig with 40-gig trumping. The complementary next-generation data center core switch, the BlackDiamond X8, is on schedule and is expected be shipping to -- to key beta testing customers this quarter. We expect the BD X8 will deliver a world-class combination of what we intend to be the highest capacity, the lowest power consumption per port, lowest port-to-port latency and the highest density of any product in its class. Independent test conducted by the Lippis Report in a recent bake-off of Ethernet switching products corroborates our expected performance of the BD X8. The BD X8 is part of our Open Fabric architecture family of products and leverages the innovative intelligence, maturity and scalability of XOS, which is our modular and fault-tolerant single network operating system. All Open Fabric products are designed to address the cloud-scale efficiency needed by hosted cloud providers, mobile operators, high-performance computing facilities, Internet exchanges and large private enterprises. Our combined product portfolio and focused vertical marketing are helping to change the perception of Extreme among top industry analysts and influencers. In October, Gartner released its second report of data center vendors. It rated Extreme in the category of network specialist in due part to the strength of Extreme's products and a clear understanding of the data center space. In addition to Extreme, other competitors in the network specialist category were Juniper Networks and Brocade. The report also differentiated Extreme from what would be -- what would be niche start-up entrants and other traditional networking vendors. In November, a market report by Infotech Research rated Extreme as the only exemplary product for the data center, which is their highest ranking. Extreme's data center product capabilities were rated higher than 7 other vendors, including Cisco, HP, Juniper, Brocade, Dell Force and Avaya and Arista. The report further places Extreme in the highest category of data center champion, along with only Cisco and HP. This month, Dell'Oro will release its first report on the data center market, which measured total revenue and ports shipped in the 2010 calendar year. We expect Extreme to be ranked as a top 5 vendor in data center deployments based on our then-current products and customers. In August, Golden Sachs conducted their semiannual survey of U.S. enterprise CIOs. One survey finding noted that the percentage of CIOs who would consider buying vendors other than Cisco has increased from 51% to 68% over the prior 12 months. Further, according to the survey, 12% of participating CIOs said they would invite Extreme to bid for future network upgrades, and that's up from less than 5% just 6 months ago. We consider this to be a positive move in customer perception for Extreme, and I'm pleased with our progress in building our brand momentum. Beyond this and specific to the Asian market, MIS Asia selected Extreme recently as a top 75 global IT company in the Asia Pacific region. We're honored by all of this recent recognition and the increasing market awareness. We believe the increased market awareness in the data center and IT markets will drive added customer consideration and help drive revenue growth over time. In Q1, we saw significant new data center wins with customers, including Qatar Ports Management Company, Sabey Data Centers, the National Bank TRUST of Russia, SK Engineering & Construction in Korea and 2 U.S. federal agencies. We also saw recent network upgrades and expansions with several existing customers, including Halltech, Bell Canada, Lockheed Martin, NASA, Verticore and Wynn Resorts. In addition, we are continually deploying data centers for 2 of the largest silicon chip vendors in the world. Beyond the data center, our investments in the educational vertical and the demands of an increasingly mobile student population are driving growth in a market where we already have more than 700 customers today. Students, educators, faculty, researchers and healthcare professionals in the university environments increasingly demand mobile access to computing resources, and expanded support for multiple devices, such as tablets, laptops and smartphones. They require a secure and available network that supports advanced collaboration and web-based learning tools. Separately, education IT personnel are increasingly more budget and resource constrained. They require converged networks, automated configuration and secure identity management to support a broad range of increasingly mobile users and their devices. We see educational campus switch purchases being driven by upgrades of 802.11n wireless LANs. In mid-October, we launched our new Mobile Student architecture at EDUCAUSE, a significant educational market trade show in the U.S. This architecture has 3 key elements. First, it leverages our Extreme network switching portfolio. Second, it features advanced identity management with network automation. And third, it includes a single converged wired and wireless LAN data plane, which is optimized for next-generation wireless upgrades, enabling customers to scale their networks to meet the needs of the new mobile student population. A single data plane makes it easier for university IT managers to unify wireless and wired networks at a significantly lower cost. Through our work with our Wi-Fi OEM partner, Motorola Solutions, we are creating new product bundles, which have been well-received and are expected to drive new customer opportunities worldwide. In August, we launched our new snap-on Wi-Fi offering, which bundles enterprise switches from Extreme along with long-range wireless access points. The new wallplate access point is a compact device that snaps on to existing Ethernet wall jacks and leverages existing Ethernet cabling to significantly save on installation costs. These 802.11n devices provide 3 times the Wi-Fi range of similar devices delivering better coverage while lowering the numbers of devices needed and saving capital expense. We expect this solution will also provide value to our other multi-tenant Enterprise Campus customers, such as hotels and multiple dwelling units. In Q1, we signed 30 new customers in the educational vertical. New customers and large customer expansions in the quarter included John Hopkins University, Santa Fe Public Schools, Clark County Schools in Las Vegas, Prince of Wales Island International School in Malaysia, Roseville College in Australia. And in the U.K., we signed the University of Oxford as a new customer joining Cambridge University, Imperial College and other top U.K. schools as Extreme customers. Beyond campus-wide deployments, education customers are embracing our data center solutions as well. In the U.S., Johns Hopkins University is one of dozens of customers now embracing our new Summit X670 top-of-rack switch. The X670 is a part of our Open Fabric portfolio and offers the key features and low latency required for 10 Gigabit and 40 Gigabit cloud and high-performance computing network upgrades. Johns Hopkins is using Extreme gear for their Applied Physics lab as well as for a converged network throughout the entire school. In the mobile operating market, we believe Extreme is well positioned to deliver next-generation mobile packet backbone and mobile backhaul solutions. Extreme switches are deployed at the core of more than 160 mobile networks, including 19 of the top 20 mobile operators worldwide. In the most recent quarter, we had new mobile deployments in Africa, China, Europe, Korea, India and Latin America. Almost all of these mobile packet core deployments are part of larger solutions delivered by key partners and are a result of our reseller relationships with those top network equipment providers. In addition, as carriers upgrade from 3G to 4G, we believe Extreme will participate through our new E4G portfolio in next-generation mobility backhaul upgrades, which is an adjacent market opportunity. We have already begun beta testing for the E4G, our new cell site router product family, which was announced at the Mobile World Congress show -- trade show earlier this year. This Ethernet-based cell site router is targeted for high-performance deployments at the network edge near mobile cell towers. The E4G is designed to address the next-generation mobile backhaul market. We expect the E4G to be deployed through some of our network equipment providers over time and to be installed by mobile -- both mobile operators and wholesale fiber network service providers. In August, Extreme participated in an external industry test conducted by the EAMTC in Europe, where we successfully demonstrated the E4G's product interoperability with other vendors. We expect the E4G product family to be available for customers in the spring of 2012. For mobile operators, we believe network upgrades will be closely tied to increases in mobile data traffic and will drive mobile edge core and cloud deployments. Beyond the core products, we believe that Extreme is well positioned to address the upgrade market for the next generation of mobile backhaul solutions. We also believe we are well positioned to help mobile operators expand on the cloud services as they move to address enterprise business markets. We expect these new business models to drive the deployments of new hosted cloud service networks and that this will then drive 10-gig and 40-gig Open Fabric Ethernet upgrades. Our focused vertical market strategy is working. We are increasing recognition in the marketplace for our products, which we expect to be best of breed within our selected market verticals. We continue to focus on creating highly differentiated solutions for cloud providers, education customers and mobile operators. Our customer satisfaction remains high, and our product quality is exceeding industry norms. This is a result of the rising strength of our technology, the focus we have on process excellence and a clear customer acceptance of our new product offerings. In addition, our financial results are now beginning to demonstrate that we have the right cost structure to provide leverage in an increasingly competitive market. I want to take a moment to thank our dedicated employees worldwide for their hard work and their commitment to our transformation as a company. In summary, I believe our innovation remains strong, and that our products will continue to provide real value to customers. There is now increasing market recognition for our innovative product portfolio, and we remain focused on driving success in our vertical markets. As such, we believe we are well positioned to grow revenues and deliver increasing returns to our shareholders. We look forward to keeping you updated on our progress. And now, I'll turn the call back over to Jim, who will share details regarding our guidance for Q2 and FY '12. Jim? James T. Judson: Thank you, Oscar. As we discussed last quarter and mentioned briefly earlier, our restructuring plan announced at the start of Q1 is essentially complete. We have a handful of employees remaining whose divisions are being relocated to new locations. We will continue in incur some transition costs in Q2 as we replace headcount in service and operations in lower cost areas, replace and grow R&D headcount and consolidate labs and other resources in lower cost areas as well. We believe we are in track to have our cost target -- our target cost structure in place by the start of Q3. Turning to our guidance. For the second quarter, we expect revenue in the range of $81 million to $86 million and EPS in the range of $0.05 to $0.08 a share. Looking at the full year, we are reiterating our guidance of revenue for FY '12 in the range of $320 million to $340 million, and EPS of $0.28 to $0.35 per diluted share. With that, we'll open the call for questions. Latoya, if you would begin the polling.

[Operator Instructions] Our first question is from Rohit Chopra of Wedbush. Sanjit Singh - Wedbush Securities Inc., Research Division: This is Sanjit Singh for Rohit. A couple of questions, guys. Relative to visibility in general in the demand environment, are you seeing any weakness? You mentioned some signs of weakness in Europe. But if I could kind of tie it to your full year guidance, if I take the midpoint of Q2 and the midpoint of full year, it implies a ramp in the second half. What's giving you visibility that -- for that revenue to stretch in the ramp in the second half?

Sanjit, it's Oscar. We have new products that are coming online in the second half of the year. We're expecting some of these products to be available in the spring. The BD X8 will be then -- will be released to complement the X670 top-of-rack switch, which will give us more entry into larger, larger and higher scale cloud-scale data centers. We're expecting that we're going to see some revenue based on the BD X8. We're also expecting that we should see some revenue coming from the E4G family of mobile backhaul products. So we're expecting some level of ramp based on new products. Yes, there is some weakness that we're seeing in Southern Europe, and that's even creeping into a little bit in Central Europe. But for the most part, we're seeing the Americas to be strong with strong pipelines. And we don't see any weakness really developing in Asia at this point in time. So we believe that we've got a good visibility. And so far, what we were expecting is really what's being materialized so far. Jim, I don't know if you want to add anything to that? James T. Judson: Yes, the only thing I would add is that, we feel pretty comfortable with the range that we have out there. It's really, to your point, if you pick the midpoint of our revenue range for Q2, it's only modest revenue growth in the second half to get us to that midpoint of the range. So we're not counting on big blow-out numbers in the second half to meet our guidance. Sanjit Singh - Wedbush Securities Inc., Research Division: That's fair. If I think of the conversations in gross margin, a nice bump-up in service gross margin along with a little ramp in product gross margin. How much more is there to go on the product side? And is the bump-up in service gross margin sustainable? I assume it has a little bit to do with the restructuring because of the headcount reductions that were implemented over the last 2 quarters. James T. Judson: Yes. Actually on the service margin, it had a lot to do with the restructuring in the lower cost structure we put in place there. So yes, we believe it's very maintainable going forward. It did benefit a little bit this quarter by some retroactive vendor revenue from some contract renewals but not significant. On the product side, we actually think that there's some -- and if you model it out, some pretty good improvement in margins as we go forward. We didn't have a lot of benefit in the Q1 time frame from some of the actions and works that we did with our supply chain, primarily because of it basically being left in inventory, if you will, as you look at first-in, first-out of cost, so we do believe we're going to pick up some benefit as we move forward based on some of the actions that we've had in our supply chain and working with our supply base.

This is Oscar. Let me just add to that. So of course, margin's very dependent on what's happening out in the market place in terms of ASPs and discounting and things of that nature. What I want to also emphasize is, as Jim said, the cost reduction activities on the product side are intended for us to be able to proactively address those pieces. And we've got also on the second half of the year, cost reductions coming online that will help us do that. So if we don't see the extra discounts, we'll benefit the margin. If we do see expected discounts, then our margins would still be in line. Sanjit Singh - Wedbush Securities Inc., Research Division: Great. And then finally, as it relates to the operating margin targets. On the last call, you mentioned to get to double-digit operating margins, we're looking at a revenue level of approximately $80 million once we're fully -- once we fully implemented the restructuring plan. Is that still the case? And the $70 million is still your breakeven? James T. Judson: Yes. And we believe that by the time we get to the end of Q2 entering Q3, we'll have that cost structure in place. Those 2 metrics would still apply in terms of breakeven and where we think we could hit double-digit operating income.

Yes, I just want to remind us that we didn't say 80, we said low 80s, so just clarifying that.

[Operator Instructions] We have a follow-up question from Rohit. Sanjit Singh - Wedbush Securities Inc., Research Division: Yes, I might as well go ahead and continue if I'm the only one on. On the competitive environment, maybe give us any update there. What are you seeing maybe as it relates to domestic versus international competitors? What do you see in the competitive environment in discounting in general?

From a discounting standpoint, so if we flashback to Q3, it was showing in some of The Dell'Oro Market Research, it was a very price-competitive environment. At Q3. I think, volumes were -- core volumes were up 9%, and I think revenue was down 6% across the industry. In Q4, we saw that moderate, and I would say we saw that continue into the Q1 time frame in terms of any significant change in pricing and discounting. So the aggressive price reductions we saw back in Q3, we haven't seen that follow through, at least in our space, in Q4 and Q1. James T. Judson: I really want to mention also as well another aspect of the competitive environment. That's where we've been looking at lately is how our products have been doing against our competitors. So we just recently want to look who's testing, right? The Lippis Report was -- is out, right? And Nick Lippis will be talking about what they found at the report. And our BD X8 was shown to be the lowest power consumption best latency, and this is pretty significant, right? The best latency product in the marketplace now opens up the door to being able to drive into competitive spaces where Extreme has not been perceived to be a competitor in the past. So if you look at other competitors like Arista, they've been sort of the kings of the latency space. And now our latency significantly beats Arista's latency. And we think that, that's a sustainable position because of the design of the products and the amount of time -- the time it takes before somebody even to copy what we've done is going to be a significant level on beat it. So I've been paying a lot of attention to best-of-breed products, and we believe that we have a best-of-breed products set coming now into the marketplace, not only in the data center and the cloud-scale marketplace but also in the mobile backhaul marketplace where we think we're going to have really world beating products and best-of-breed products there. So I've been paying a lot of attention to products because at the end of the day, what customers buy is product and what they deploy is product, and the value that they get long term out of a dealing with the company that's innovative and nimble like Extreme, is to get great product. So I just want to just reiterate that. Sanjit Singh - Wedbush Securities Inc., Research Division: Got it. And if I -- if you look at the 3 main verticals that you've strategically focused on, mobile, the education and the cloud providers. Is any one of them gaining more traction than others? What areas of the business in terms of verticals is seeing the most strength? And then on the -- I'll call it the general enterprise business, what do the demand trends look like in that part of the business? James T. Judson: So let me just take that one, and let's talk about the 3 verticals. The 3 verticals clearly are educational vertical. And at the educational vertical, as you can see, we added 30 customers this quarter, and they're not small customers. These are marquee customers that are making key decisions for how they're going to run their networks. These are customers that value automation, so typically the university environment and school districts have few expert staff to run their networks. So they need networks that are much more automated, easier to configure, easy to deploy. All of those things are important in addition to having limited budgets and a great CapEx as well. So if we offer that right price performance, really what we call affordable rocket science, that we deliver to these customers, and by being able to really deploy -- show them what we can do, they're able to now deploy networks that they can rely on. On top of that, what we're doing now is we've just introduced a new product in our wireless LAN portfolio, which is through our OEM partner, Motorola Solutions. That new product is a wallplate AP that replaces the wallplate in a conference room that normally would have had Ethernet jacks that nobody connects into anymore, and enables that conference room to now have excellent coverage but we use the cables that are already there. One of the key aspects of -- and the key cost of deploying a new access point is running a new cable. So if you don't have to run a new cable and you cannot literally install this -- and we have a video on YouTube where you can see the installation of this product in 90 seconds. You can see there's a lot of value there. And when you couple that with the first switch that also needs, typically needs to be upgraded in a customer environment when you upgrade to wireless 802.11n, that enables us to effectively be able to offer a great bundle, and we're actually offering that as a promotional bundle this quarter. So the value as you get to use the network you already have, the cable you already have, and it leverages a lot of value. So educational environments are liking this, and they're liking our automation story and all the way around the intelligence, so we provided a really great price. So that's sort of the education vertical. And the cloud-scale vertical, right -- in the cloud-scale vertical, this is really -- we have a lot of medium-size clouds. And now with our new portfolio, we'll be able to address the very large clouds. And as result of that, we're seeing a little bit of traction. And we've got existing customers, such as Bell Canada and others that we've had that we've mentioned along the way, cloud operators, but we continue also to deploy lots of data centers because the verticals that we're addressing have halo effects on each other. So in the cloud-scale vertical, there's a halo effect on the high-performance computing. And we're also expecting Internet exchanges, et cetera, and large mobile operators as they move into the cloud. So as we have our new portfolio come online, really effectively coming online in its first incarnation in the spring, we're expecting that will open up the door to larger cloud deployments. And with larger cloud deployments then we'll see a lot more traction there in the larger cloud space. In the meantime, we're selling lots of data centers to enterprises and also lots of data centers to medium-size cloud operators. The third vertical, of course, is the mobile operator space. In the mobile operator space, we continue to have traction there. As you know, Ericsson has been a 10% customer of ours as of last year. We also do business with several other network equipment providers like Motorola as well, Motorola's spin-out which is now called Cambium. That Motorola spin-out is the public safety part of Motorola that's spinning out as an independent company, and we provide the backhaul for those networks as well. So as a result of that, we're seeing -- we're seeing not only good traction in mobile backbone, which is where we've been deployed in 19 out of the top 20 mobile operators in the world. Thanks to these big network equipment providers, we're part of the solution and a part of that -- all that backbone traffic. And now we're expanding our portfolio to be able to more readily address the mobile backhaul portion of the mobile network all the way to the cell site tower. So that's going to open up now in the spring with our new portfolio, a lot more addressable market for us in mobility. So if you -- and then if you look at what mobile operators are really doing, mobile operators are really telecom operators. And the telecom operators are expanding their revenue base by moving into cloud services, not only will they provide large data centers for their own use for mobile content and being able to provide better content and capability to their mobile users, but also a lot of them are beginning to talk about moving into being a cloud service provider in general to enterprises. And with our relationships with some of these network equipment providers as channels, we believe we can take advantage of some of these as well. Sanjit Singh - Wedbush Securities Inc., Research Division: Right. Also in terms of the mobile operator market, there's been a lot of concern about CapEx budgets going into Q4 FY 2012. What is your read on CapEx spending from mobile carriers over the next few quarters?

Well, I have to tell you that truth, that we're kind of a small part of that overall CapEx. Our share of wallet of what a mobile operator spends is a lot smaller than maybe other companies or even other ones of our competitors that are selling core routers and selling other things where they may see a lot more exposure. We have not necessarily seen anything specific, but remember, we're one step removed from the CapEx discussion because we're a key part of the solution. And in a lot of ways, we OEM a lot of those pieces, so I'm not ready to comment on what I see personally on CapEx in the mobility space.

Our next question is from Ryan Bartman [ph] of Pelagic. Unknown Analyst -: How do you stand on the CFO search? Or are you actively searching for a permanent CFO?

Ryan, it's Oscar. Jim is the Interim CFO, and I actually think he's been doing a good job. What we wanted to do was search for the best CFO we possibly can. And as went through our transformation, it occurred to me that we're going to be able to really attract a great CFO and put Jim back on the golf course where he preferred to be, I think. As soon as we get a lot of our transformations behind us, so I'm expecting that we will now pick that up more in earnest, but we want to right -- really find the right person, and so what we've done is extended Jim's contract through March. So that's really where we stand on, and I want a great -- get the best CFO we possibly can because I think this is a great company, and we're going to a lot of places, and we really the need to hire world-class talent. Unknown Analyst -: Okay. Great. Going forward, do you think that -- or will EBIT be a reasonable proxy for operating cash flow? I know there's a handful of balance sheet items this quarter. But kind of going forward, is that going to be a reasonable approximation?

This quarter's results, are you saying? Unknown Analyst -: No, I'm sorry -- yes, this quarter and kind of beyond. James T. Judson: So I would expect that as we move forward that our free cash flow will actually get better. I mean, we've -- we're fully expecting to return better earnings to the bottom line. We had a couple one-offs, this quarter was restructuring charges and some payments past litigation settlements. But we're relatively low CapEx and very low working capital kind of requirement, so I would expect it would improve as we go. Unknown Analyst -: Okay. And then, I guess, last quarter I asked a question about trying to value the IP. Has there been any thought given to that? Or is that still maybe way in the -- still maybe an absurd sort of question?

So actually, we listen to our shareholders very carefully every time they ask us a question. They usually ask for a reason, so we've taken that to heart, and we are going to be doing an internal assessment and even an evaluation of that as well. So thank you for that question the last time, and thank you for the prompting.

Thank you. There are no further questions at this time. I'll turn the call back over for closing remarks.

Okay. Well, thank you very much, everyone, for joining us today, and we look forward to talking with you one-on-one in follow-up calls afterwards. Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.