[June 11, 2013] ENVIVIO INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tweet (Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and elsewhere in this Quarterly Report on Form 10-Q, including those discussed in "Risk Factors." Overview We are a leading provider of software-based video processing and distribution solutions that enable the delivery of high-quality video to consumers. Based on our unique video compression and advanced IP video networking technologies, our solutions are designed to enable service providers and content providers to offer high-quality video anytime, anywhere across a broad array of video formats, networks, consumer devices and operating systems. Our software-based solution runs on industry-standard hardware and includes encoders, transcoders and network media processors, all controlled through our network management system. We were founded in January 2000 by a small group of talented software and electrical engineers from France Telecom. Since our inception, we have been focused on developing a software-based architecture for processing and distributing video to video-enabled devices at the highest video quality possible. At that time, our software-based approach was a novel strategy for addressing video processing and distribution as most existing technologies processed and distributed video by designing hardware products for the transfer of video over a fixed format to standard TVs. These hardware products generally focused on improving quality of video, but did not attempt to address multiple formats or the challenges created by multiple devices and different networks. Because of our founding team's software expertise and the challenge of delivering video to mobile devices, which utilizes multiple formats and has multiple delivery requirements, our solution was designed from the beginning to provide a flexible solution that could adapt quickly and cost-effectively to the rapidly changing landscape of technologies, formats and capabilities of mobile devices. While attempting to address the challenges of processing and distributing video across a rapidly changing landscape of formats, networks, devices and operating systems, we have maintained our focus on improving the quality of the video delivered by our solution. We originally focused on developing technologies supported by the MPEG-4 standard, which is an industry standard for a group of audio and video coding formats and related technology that is capable of providing the highest quality video in the marketplace today. When we initially developed this technology, the standard in the marketplace was MPEG-2, a previous similar standard available since 1992. Throughout our history, we believe we have made valuable contributions to the ISO/IEC Moving Picture Experts Group, or MPEG, including having several of our employees sit on the governing standards body and by contributing several technologies to the video community that fostered the development of MPEG-4 as an industry standard. We have since expanded our codecs to support MPEG-2 and the emerging HEVC (H.265) standard. We believe these contributions demonstrate our innovation and thought leadership in the video processing and distribution industry. Our software-based approach to developing a flexible solution while delivering high-quality video has led to the development of several key products throughout our history. In 2001, we completed our first product based on the MPEG-4 standard. In 2002, we developed our first MPEG-4 webcasting system, which allowed us to address the enterprise market. In 2003, we deployed a news video contribution system in MPEG-4, which allowed us to address the need to transmit low bitrate video for real-time news gathering. In 2004, our first H.264 live transmission over satellite was successful, which allowed us to address the needs of satellite providers looking to deliver low bitrate video over satellite. We focused on our expansion into Asia in 2005 by providing the IPTV system for a service provider in China and a mobile digital TV service provider in Japan. In 2007, we developed our first all IP-based headend, an innovative and cost-reducing design for consumer video distribution, and our first AVS encoder, which allowed us to address the expanding video services market in China. In 2008, we introduced the world's first three-screen convergence encoder, which enabled operators to deliver video to three screens (mobile, PC and TV) from a single product. In 2010, we introduced 3D TV support with multi-video encoding standard on our C4 encoder, as well as support for the expanding set of mobile and web streaming formats. In November 2010, we launched a new class of product, the Halo network media processor which enables the optimization of networks for distribution of multi-screen, multi-format video. In December 2011, we released Muse, our multi-screen software designed for live or file-based video transcoding and distribution to any device. In September 2012, we introduced the 4Caster G4 encoding appliance for the Muse software-based encoder family which offers more density compared to the previous platform, with the potential for further density improvements. 15-------------------------------------------------------------------------------- Table of Contents As a result of our close relationship with France Telecom, we initially focused on the telecommunications market both for broadband IPTV delivery and delivery of video to mobile devices. However, as consumer demands have evolved over time, our solution has become attractive to a larger set of customers. In reaction to telecommunications companies providing video content and services to multiple devices with IPTV as well as mobile video services, traditional cable TV service providers have launched innovative services that deliver video content to PCs and mobile devices. Most recently over-the-top, or OTT, providers have also gained market share by offering innovative and cost-effective video services to mobile devices, PCs and even TVs for consumers through the open Internet. This set of competing service offerings, when combined with increased consumer demand for video on multiple screens, led us to design a single solution that addresses the needs of a broader customer base of service providers and content providers. For example, one of our first major end-customers purchased our IPTV solution in 2008 to enable delivery of video to TVs over broadband networks. This same customer began providing OTT services in 2009, and purchased our OTT solution to enable its OTT services. Finally, in 2010, this customer began to offer mobile video content and purchased our solution to address this video delivery mode as well. We target several different types of video service providers and content providers, including telecommunications companies and cable, satellite and OTT providers. These target customers have unique characteristics, including their infrastructure, target consumer demands, scale, delivery models and business models. We focus on providing video delivery solutions to these customers that allow them to better target their growth markets, such as mobile TV, Pay-TV, IPTV and OTT. To date, our solution has been deployed by over 300 end-customers worldwide in over 50 different countries. We outsource the manufacturing of our products to a single manufacturer in California. In some cases, we rely on our manufacturer to procure the components for our equipment. For certain components, we contract directly with the supplier. We ship our solutions directly from our manufacturer. Our products and support services are sold worldwide, primarily through systems integrators, which serve as our channel partners. Our channel partners assist us with the sales process, systems integration, deployment and support. We employ a sales force that is responsible for managing our relationships with our channel partners within each geographic territory in which we market and sell our products. We also sell our products and support services directly to end-customers. In many cases, even when we sell our products through channel partners, we market and work directly with the end-customer to promote our products. Since inception, we have expended significant resources on our research and development operations. Our research and development activities are exclusively conducted in the metropolitan area of Rennes, France, which we believe provides us access to highly qualified engineers on a cost-effective basis located in what has traditionally been viewed as a top broadcast center of Europe. Factors Affecting Our Results of Operations The following are key factors that impact our results of operations: Consumer Demand and Infrastructure Capacity Most of our products are installed into networks operated by telecommunications, cable, satellite and OTT providers to deliver high-quality video to a consumer. The demand for our products is significantly impacted by the end consumer of video services and the demands these end consumers place on service providers and content providers to deliver high-quality video across disparate networks and to multiple devices. As this consumer demand increases, service providers respond by expanding or enhancing their infrastructure and equipment to address these needs. As the infrastructure capacity increases, high-quality video can be made available to more consumers over broadband and wireless IP networks, which we believe will also increase the number of global broadband users. Our solution is designed to address the infrastructure challenge of delivering massive amounts of content over different types of networks to consumers who are increasingly viewing video on a growing variety of devices, such as tablets, smartphones, laptops, and Internet-enabled TVs and media players. As consumer expectations of video delivery increase, the demand from telecommunications, cable, satellite and OTT providers for the type of video delivery solutions that we provide increases. Accordingly, we measure consumer demand for video services by monitoring a collection of key market metrics, including the introduction of new mobile devices, such as tablets, new access mediums that are emerging in the digital home, such as Internet-enabled TVs and new video applications, and enhanced product offerings, such as bundling on-demand video services with other traditional service offerings. 16-------------------------------------------------------------------------------- Table of Contents We believe the combination of increased availability of video-enabled connected devices combined with the evolution of the network infrastructure will, in turn, drive service providers and content providers to seek flexible solutions to deliver video to consumers that can continue to adapt to changing formats, networks and devices while maintaining the highest possible video quality. Competitive Environment and Geographic Mix The market for our products is competitive and our gross margin is impacted by the level of competition we face and the geographic mix of product sales worldwide. We face significant competition in selling our solution. In any given sales opportunity, the level of competition we face could impact our gross margin. In addition, our gross margin may be impacted by the location of our target customer as different geographic regions have different pricing environments based on customer expectation, business models and our customers' revenue opportunity from the services we enable. For example, we typically experience lower average sales prices in the Asia-Pacific region and higher average sales prices in North America. We anticipate that our geographic mix will continue to fluctuate in the future from quarter to quarter, which could impact our future gross margin. The geographic mix of our revenues during the three months ended April 30, 2013 reflects continued weakness in spending by our service provider customers in EMEA and Asia Pacific regions, which we attribute to the current global economic environment, while we saw improvement from the Americas We anticipate that our revenues will continue to be impacted by the economic environment, both globally and regionally, and our ability to improve our sales execution, particularly in North America. Average Sales Prices We may experience a decline in average sales prices as new competitive products are introduced into the marketplace. Changes in average sales prices cannot always be predicted with certainty. The average sales prices of our products may decline faster than we expect. Competitors may also anticipate our entry into a market and begin to lower their sales prices even before we introduce our product. Under certain circumstances, lower prices may increase our sales volume and thus our revenue, but a lower average sales price typically reduces our gross margin percentage. We expect to continue to face price pressure on our products as average sales prices may decline over time, and there is no assurance that our gross margins will not decline in the future. As we continue to innovate our software-based solution, we may be able to offset a decline in the average sales prices of the prior generation of our solutions. Evolution of Hardware Platform We utilize industry-standard hardware, and therefore, are able to leverage the evolutionary increase in computing power in each new generation of hardware. In the past, this has allowed us to increase the number of video streams at a given resolution with each new hardware platform, and we expect this to continue. This increase in performance may offset any potential decline in the average sales prices of the prior generation of our solutions. Components of Revenue, Cost of Revenue and Operating Expenses Revenue Our revenue is derived primarily from the sale of our video processing and distribution solutions, which consists of both hardware and software. Our proprietary software is an essential component in the products we sell and provides a key differentiator between us and our competitors. Our hardware generally consists of industry-standard components, which are readily available from third-party providers. To a lesser extent, we derive revenue from professional services as well as support and maintenance of our products. Our maintenance contracts may include future software upgrades depending on the level of maintenance purchased. Our support contracts typically include telephone and email access to technical support personnel. When we sell an enhanced support offering we provide our customers with rights to software upgrades as well as maintenance releases and patches released during the term of the support period. Cost of Revenue Our cost of revenue consists primarily of third-party manufacturing costs and component costs. Our cost of revenue also includes shipping costs, third-party logistics costs, personnel costs associated with our technical support and professional services teams and write-offs for excess and obsolete inventory. To a lesser extent, our cost of revenue includes personnel costs associated with our operations and logistics. 17 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest component of our operating expenses is personnel costs. Personnel costs consist of salaries and benefits for our employees. We expect to manage our operating expenses in both the near and long term to ensure that our expenses are in-line with our operating plan. However, our operating expenses may fluctuate as a percentage of revenue. Research and Development Expenses Research and development expenses primarily consist of personnel, engineering, testing and compliance, facilities and professional services costs. We expense research and development costs as incurred. Research and development expenses are presented net of French government research tax credits. We continue to closely manage our existing research and development resources as well as strategically invest in additional resources to add more functionality to our existing products and develop new products that support our overall company strategy. Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, sales commissions, travel costs, costs for marketing programs and facilities costs. We continue to closely monitor sales and marketing expenses and augment our sales force in key areas to further expand our strategic relationships with current and future channel partners and direct customers. General and Administrative Expenses General and administrative expenses primarily consist of personnel, professional services and facilities costs related to our executive, finance, human resource and information technology functions. Professional services costs consist of outside legal, accounting and information technology consulting costs. Interest Income (Expense), net Interest income (expense), net, consists primarily of interest expense related to our line of credit and interest income from our cash, cash equivalent and short term investment balances. Other Income (Expense), net Other income (expense), net, consists primarily of charges due to fluctuations in foreign exchange rates on receivables and payables denominated in currencies other than the U.S. dollar. The foreign currency transaction gains and losses relate to transactions that are in a different currency than the respective functional currency of the Company and its subsidiaries. Critical Accounting Policies, Judgments and Estimates There have been no material changes to our critical accounting policies, judgments and estimates during the three months ended April 30, 2013 from those disclosed in our 2013 Form 10-K. 18-------------------------------------------------------------------------------- Table of Contents Three Months Ended April 30, 2013 Compared to the Three Months Ended April 30, 2012 The following table presents our historical operating results and the changes in these results in dollars (in thousands) and as a percentage for the periods presented: Three Months Ended April 30, $ Change % Change 2013 2012 Revenues: Product $ 5,669 $ 11,652 (5,983 ) -51 % Professional services and support 1,793 1,764 29 2 % Total revenue 7,462 13,416 (5,954 ) -44 % Cost of revenue: Product 2,276 4,762 (2,486 ) -52 % Professional services and support 465 374 91 24 % Total cost of revenue 2,741 5,136 (2,395 ) -47 % Gross profit 4,721 8,280 (3,559 ) -43 % Expenses: Research and development 1,967 1,997 (30 ) -2 % Sales and marketing 5,063 5,744 (681 ) -12 % General and administrative 2,553 2,688 (135 ) -5 % Total operating expenses 9,583 10,429 (846 ) -8 % Loss from operations (4,862 ) (2,149 ) (2,713 ) 126 % Interest income (expense), net 19 (9 ) 28 -311 % Other income (expense), net (7 ) 27 (34 ) -126 % Loss before provision (benefit) for income taxes (4,850 ) (2,131 ) (2,719 ) 128 % Income tax provision (benefit) (111 ) 106 (217 ) -205 % Net loss (4,739 ) (2,237 ) (2,502 ) 112 % Revenue Our total revenue decreased by $5.9 million, or 44%, to $7.5 million for the quarter ended April 30, 2013 from $13.4 million for the quarter ended April 30, 2012, primarily due to a decrease of $6.0 million in product revenue. The decrease in product revenue was primarily due to decreased spending from our existing service provider customers for multi-screen video services, with a majority of the decline coming from EMEA and Asia Pacific regions. We attribute the slowdown in spending by our service provider customers to the weak global economic environment for the quarter ended April 30, 2013, continued lengthening of our sales cycle and the fact that the video industry continues to transition to a multi-screen video delivery model. Because many of our large target service provider customers purchase our products in connection with constructing and upgrading their architecture and systems, demand for our products depends on the magnitude and timing of capital spending by our customers. We believe the weak global environment, particularly in EMEA and Asia Pacific regions, has contributed to a lengthening of our sales cycle with these customers, thereby causing a decline in our revenue. Our decline in revenue was also due, in part, to challenges in our sales execution, primarily in North America. We believe that our future revenue will continue to be impacted by consumer demand for multi-screen video services, which in turn impacts the level of capital expenditures by our target end customers looking to upgrade their video processing and distribution capabilities to enable the delivery of these video services to consumers. Despite the decrease in product revenue, our professional services and support revenue remained even and reflects a consistent volume of professional services and support renewal sales with the same prior year period as well as timing of completion of customer projects. Cost of Revenue and Gross Profit Our total cost of revenue overall decreased by $2.4 million, or 47%, to $2.7 million for the quarter ended April 30, 2013 from $5.1 million for the quarter ended April 30, 2012, primarily due to the corresponding decline in product revenue. Our total gross margin percentage slightly increased from 63% for the quarter ended April 30, 2013 from 62% for the quarter ended April 30, 2012 primarily due to an increase in sales of our higher margin software-only products slightly offset by lower margin deals in non-U.S. geographies such as the Middle East and Asia Pacific. Cost of revenue for professional services and support increased by $0.1 million as headcount slightly increased within our professional services organization. 19-------------------------------------------------------------------------------- Table of Contents Operating Expenses Our operating expenses decreased by $0.8 million, or 8%, to $9.6 million during the three months ended April 30, 2013 from $10.4 million during the three months ended April 30, 2012. Research and Development Expenses Research and development expenses remained even at $2.0 million during the three months ended April 30, 2013 and 2012. Research and development expenses are presented net of French research tax credits, which amounted to $0.4 million and $0.3 million for the three months ended April 30, 2013 and 2012, respectively. Although we are devoting substantial resources to the development of additional functionality for our existing products and the development of new products, we are focusing on only deploying resources to activities that align with our overall corporate strategy. As we deploy such resources, we expect research and development expenses for the year ended January 31, 2014 to increase compared to the year ended January 31, 2013. Sales and Marketing Expenses Sales and marketing expenses decreased by $0.7 million, or 12%, to $5.1 million during the three months ended April 30, 2013 from $5.7 million during the three months ended April 30, 2012, primarily as a result of decreased headcount. Personnel related expenses such as commissions, travel and marketing expenses each decreased by $0.2 million. In addition, depreciation and amortization decreased by $0.2 million primarily due to less demo pool inventory and less personnel-related equipment purchased. We expect sales and marketing expenses for the year ended January 31, 2014 to remain even compared to the year ended January 31, 2013 as we continue to monitor our sales and marketing expenses to ensure they align with our overall corporate strategy. General and Administrative Expenses General and administrative expenses decreased by $0.1 million, or 5%, to $2.6 million during the three months ended April 30, 2013 from $2.7 million during the three months ended April 30, 2012, due to a decrease of $0.1 million in stock-based compensation expense, $0.1 million in accounting and auditing expenses resulting from improvements in operations as a public company and $0.1 million in business tax primarily due to a favorable property tax audit. The overall decrease was primarily offset by an increase of $0.2 million in legal expenses. We expect a decrease in general and administrative expenses for the year ended January 31, 2014 compared to the year ended January 31, 2013 as we continue to monitor our general and administrative expenses to ensure they align with our overall corporate strategy. Interest Income (Expense), net Interest income (expense), net, changed by $28,000, or 311%, from an expense of $9,000 during the three months ended April 30, 2012 to income of $19,000 during the three months ended April 30, 2013. The change was primarily due to interest income during the three months ended April 30, 2013 generated from the short-term investment account we established using existing cash and proceeds from our IPO in April 2012. In addition, we had less interest expense compared to the same prior year period as we had no debt during the three months ended April 30, 2013. Other Income (Expense), net Other income (expense), net, changed by $34,000, or 126%, from income of $27,000 during the three months ended April 30, 2012 to an expense of $7,000 during the three months ended April 30, 2013. This change was primarily due to foreign currency translation losses of $10,000 during the three months ended April 30, 2013 compared to the same prior year period and $18,000 of other income during the three months ended April 30, 2012 resulting from the re-measurement of our warrant liability during that period. Liquidity and Capital Resources On April 24, 2012, we sold 6,500,000 shares of common stock at a price to the public of $9.00 per share in an initial public offering, or IPO. The shares began trading on the NASDAQ Global Market on April 25, 2012. The $54.4 million in proceeds from the IPO, net of underwriters' discounts and commissions, but before deducting offering-related expenses payable by us of $5.8 million, were received on April 30, 2012, which was the closing date of the IPO. Immediately prior to the closing of the offering, all outstanding shares of convertible preferred stock converted into common stock on a one-for-one basis. 20-------------------------------------------------------------------------------- Table of Contents Prior to the IPO, we funded our operations primarily with proceeds from issuances of convertible preferred stock and borrowings under our credit facilities. We raised an aggregate of $95.1 million, net of issuance cost, from the sale of our convertible preferred stock, including the conversion of convertible promissory notes. We also funded purchases of equipment and other general corporate services with proceeds from our borrowings under our credit facilities. We believe that our existing cash and cash equivalents as of April 30, 2013 will be sufficient to fund our operations and capital expenditures for at least the next 12 months. However, management may in the future elect to finance operations by utilizing our credit facilities or selling equity securities. If additional funding is required, there can be no assurance that additional funds will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund our operating needs or sustain profitability. If we are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs. Doing so will likely have an unfavorable effect on our ability to execute on our business plan. Cash Requirements As of April 30, 2013, our cash, cash equivalents and short term investments totaled $49.9 million. We had not drawn on our revolving credit facility as April 30, 2013 and the availability under this facility was $10.0 million subject to a borrowing base. Financial Condition (Sources and Uses of Cash) Our cash and cash equivalents consisted of cash deposits and money market funds with a total amount of $48.8 million as of April 30, 2013. Our cash flows for fiscal 2011, fiscal 2012 and fiscal 2013 are summarized as follows: Three Months Ended April 30, 2013 2012 (in thousands) Net cash used in operating activities $ (4,642 ) $ (5,176 ) Net cash provided by (used in) investing activities 2,103 (4,275 ) Net cash provided by financing activities 45 54,087 Cash Flows from Operating Activities Our primary uses of cash from operating activities have been for personnel costs, purchases of inventory and costs related to our facilities. In the past, we experienced negative cash flows from operating activities as we expanded our business and generated operating losses. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we spend on personnel and sales and marketing activities as our business requires. Cash used in operating activities of $4.6 million during the three months ended April 30, 2013 reflected a net loss of $4.7 million, a decrease in net operating assets of $1.2 million and non-cash charges of $0.7 million for depreciation and amortization and $0.5 million for stock-based compensation. The decrease in net operating assets was primarily due to an increase of $0.6 million in accounts receivable, an increase of $0.4 million of prepaid expenses and other current assets, a decrease of $0.5 million in accounts payable, accrued liabilities and accrued compensation and an increase of $0.3 million in deferred revenue. The decrease in operating cash relating to accounts receivable was primarily due to a higher concentration of sales in regions where customary payment terms are often longer such as East Asia, India and the Middle East. The decrease in operating cash relating to accounts payable and accrued liabilities primarily resulted from lower revenue and thus, less amounts due to our third-party contract manufacturer. Cash used in operating activities of $5.2 million during the three months ended April 30, 2012 reflected a net loss of $2.2 million, non-cash charges of $0.6 million for depreciation and amortization and $0.7 million for stock-based compensation. Our net operating liabilities, excluding cash and cash equivalents, decreased from $8.2 million as of January 31, 2012 to $6.2 million as of April 30, 2012. The decrease in net operating liabilities was primarily due to a decrease of $3.1 million for deferred revenue and $1.1 million for accounts payable and accrued liabilities, partially offset by a decrease of $1.3 million for deferred inventory costs and an increase of $1.0 million for accounts receivable. Deferred revenue and deferred inventory costs decreased during the three months ended April 30, 2012 primarily due to timing of revenue recognition as previous deferred transactions were recognized during the current period and a majority of new revenue transactions are now subject to the new revenue recognition rules adopted during our 21-------------------------------------------------------------------------------- Table of Contents fiscal year 2012, and accordingly, are less likely to be subject to full deferral. The increase in accounts receivable was primarily the result of our increased consumer demand for multi-screen video services for both new and existing customers, resulting in higher overall sales volume of our IP video processing and distribution solution. Cash Flows from Investing Activities During the three months ended April 30, 2013, our investing activities consisted of net $2.5 million sales and maturities of corporate bonds investments in accordance with guidelines set forth in our investment policy and capital expenditures amounting to $0.4 million primarily for the purchase of equipment. During the three months ended April 30, 2012, our investing activities consisted of a $3.3 million investment in commercial paper and corporate bonds in accordance with guidelines set forth in our investment policy and capital expenditures amounting to $1.0 million primarily for the purchase of equipment. We did not make any short-term investments during the three months ended April 30, 2011. Cash Flows from Financing Activities During the three months ended April 30, 2013, cash provided by financing activities was $45,000, as a result of cash proceeds from the stock options exercised. During the three months ended April 30, 2012, we received aggregate proceeds of approximately $54.4 million from our IPO, net of underwriters' discounts and commissions, but before deduction of offering expenses of $5.8 million. Immediately prior to the closing of the IPO, all shares of our outstanding convertible preferred stock automatically converted into 6,988,120 shares of common stock, and outstanding warrants to purchase 36,000 shares of convertible preferred stock at $12.50 per share were contractually adjusted immediately prior to the closing of the IPO to purchase 36,000 shares of common stock at $12.50 per share. As of April 30, 2012, we had 26,912,728 shares of common stock issued and outstanding. Off-Balance Sheet Arrangements As of April 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Contractual Obligations and Commitments The following summarizes our contractual obligations as of April 30, 2013: Payments Due by Period Less Than More Than Contractual Obligations: 1 Year 1-3 Years 3-5 Years 5 Years Total (in thousands) Operating Lease obligations $ 860 $ 1,672 $ 1,196 $ 1,992 $ 5,720 French Governmental research grant repayments 210 360 - - 570 Uncertain tax positions 218 679 - - 897 Total $ 1,345 $ 2,654 $ 1,196 $ 1,992 $ 7,187 We outsource the manufacturing, assembly and testing of our encoding products to FutureQuest Incorporated ("FQ"). We generally do not use custom materials in our products and therefore, our obligation to FQ is limited to purchase orders. To the extent that we cancel a purchase order, we are only liable to the extent that FQ cannot otherwise utilize those components. To date, we have never been required to purchase any such components. Our outstanding purchase orders with FQ are not material as of April 30, 2013. 22-------------------------------------------------------------------------------- Table of Contents [ Back To TMCnet.com's Homepage ]