Interactive Intelligence Q4 2008 Earnings Call Transcript

3PAR Inc. (NASDAQ:ININ)

Q4 2008 Earnings Call

January 29, 2009 at 4:30 pm ET

Executives

Don Brown - Chairman, President and Chief Executive Officer

Steve Head - Chief Financial Officer, Vice President of Finance and Administration, Secretary and Treasurer

Paul Weber - Vice President of Sales for North America

Analysts

David Eller - Raymond James

Tavis McCourt - Morgan Keegan & Co.

Michael Latimore - Northland Securities

[Gramy Rein] - Bears Capital

Operator

Welcome to the Interactive Intelligence fourth quarter 2008 earnings conference call. At this time, all lines are in a listen-only mode, later we will announce the opportunity for questions and instructions will be given to you at that time. (Operator instructions)

At this time, I would like to turn the conference over to Dr. Don Brown, President and CEO of Interactive Intelligence.

Don Brown

Okay thanks for joining us. Presenting with me on the call today is Steve Head, our CFO, and we are also joined by Paul Weber, our Vice President of Sales for North America. After our discussion and concluding remarks, we will have a Q&A session at which time we will available to answer your questions and for any of you not able to ask questions today, please follow up with Steve after the call.

I hope you have already received our fourth quarter earnings release by now. If not, it is available up on our website. Before we get any further into the call, Steve will present the standard legal disclaimer.

Steve Head

Thanks Don. Over the course of this conference call, we will make predictive statements about our results, performance, plans and objectives in an effort to assist you in understanding our Company. The enterprise software industry combined with the rapidly evolving uncertainties in the economic environment makes predictions challenging and problematic. These predictive statements are forward-looking statements under Federal Securities laws. Our actual results could differ materially as a result of a variety of potential risks and uncertainties. For more information, you should look to our 2007 Form 10-K and 2008 third quarter Form 10-Q, which we filed with the SEC and which describes factors, risks, and uncertainties that could cause our actual results to differ materially. The Company disclaims any obligation or undertaking to update or revise any forward-looking statements. Also, during this call, we may refer to non-GAAP financial measures. These non-GAAP results eliminate the impact of non-cash stock option expense and non-cash income tax expense and benefits. Management uses these non-GAAP financial measures in analyzing the business.

Now, Don will provide some overview comments on the quarter.

Don Brown

Thanks Steve. I will begin by providing an overview of our results for the quarter and Steve will then provide an added level of detail on the numbers and after Steve's comments, I will take a few minutes to update you on another Company items and outlook.

For the fourth quarter of 2008, we recognized revenues of $31.3 million, up 7% over the same quarter last year. We have received orders from 106 new customers during the quarter with one exceeding a million dollars and 13 others over a $0.25 million. In addition to the new customer orders, we saw an improvement as compared to the past couple of quarters in orders from current customers. We achieved record service revenues in the quarter of $15.9 million, an increase of 13% from the fourth quarter of 2007. We are reporting non GAAP income and the EPS in the earnings release.

On a non GAAP basis, earnings for the fourth quarter of 2008 were $3.2 million or $0.18 per diluted share compared to $3.1 million or $0.16 per diluted share for the fourth quarter of 2007. For the full year of 2008, we are reporting revenues of $121.4 million, an increase of 10.5% over the previous year. Our non GAAP earnings for the full year 2008 were $10.5 million with EPS of $0.56 which compares to $12.5 million and EPS of $0.65 last year.

I will now turn the call over to Steve for some more detail on the numbers.

Steve Head

As usual, I will comment on our operating performance, then the balance sheet and cash flows. I will start with three comments on three major items that impacted the information we will discuss.

First on the GAAP basis, we recorded income tax expense of $1.1 million in the fourth quarter, which compares to a benefit of $8.1 million in the same quarter last year. As we discussed in prior calls, we recorded a large tax credit in the fourth quarter of 2007 to recognize deferred tax assets related to tax operating losses and tax credit carry-forwards. As a result of recognizing net asset, we are now recording tax expense most of which does not require cash payments. On a non-GAAP basis, our tax expense was only $50,000 for the fourth quarter of 2008.

Second, we recorded non-cash stock-option expense of $651,000 for our fourth quarter of 2008 compared to $840,000 in the fourth quarter of 2007. Finally, cost of services, sales and marketing development and general and administrative expenses all benefited from the tax credit for settling a long-standing fringe tax dispute. As stated in the earnings release this credit or reduction of expenses was $577,000 for the quarter.

Our partners continue to generate the majority of orders with 68% of orders coming from the channel during the fourth quarter. For the full year, 67% of our orders were through partners compared to 65% in 2007. As Don stated, we signed a 106 new customers in the quarter for our contact center, enterprise messaging and IT PBX solution. The overall average new customer order in the quarter was $91,000 with an average new customer order of $95,000 for the contact center and large enterprise IT PBX licenses. For the fourth quarter, North America provided 59% of the orders while EMEA was 26% of the orders. For the full year, North America orders were 67% of the total and EMEA was 21% of the total.

The timing of revenue recognition for orders is dependent on a number of considerations and only a portion of orders were recognized in the quarter with some of the unrecognized amounts reflected in the balance sheet. For the fourth quarter of 2008, services revenues increased as the number of users and related support fees increased. Services revenue includes professional services and education services. Support revenues were 76% of services revenues for the quarter. Product margin was 69% in the fourth quarter of 2008, down from 74% in the fourth quarter a year ago. The product margin varies from quarter to quarter based on the number of media server gateway appliances, license, cost related to third party software and IP PBX handset sales.

In the fourth quarter we experienced a significant increase in orders for both our media server and our interaction gateway. Our services margin in the fourth quarter of 2008 was 65%, which is up from 61% in the fourth quarter of 2007. A portion of this improved margin is due to the fringe tax dispute settlement. Gross profit was $20.9 million in the fourth quarter of 2008 and the margin was 67% of revenues, the same is in the fourth quarter of last year. Total operating expenses on a GAAP basis for the fourth quarter of 2008 were $18.3 million, a sequential decrease of $678,000 over the third quarter this year. A contributor to this increase was $386,000 of the credit related to the fringe tax dispute. These operating expenses were 58% of total revenues for the fourth quarter of 2008 compared to 61% in the fourth quarter of 2007.

Non-GAAP operating income, which excludes stock option expense, was $3.3 million or 10.6% of revenues in the fourth quarter of 2008 compared to $2.8 million or 9.4% of revenues in the fourth quarter of 2007. Again, the settlement of the fringe tax dispute added 1.8% to the operating margin for the quarter. Interest income was $156,000 in the fourth quarter of 2008. This is a decrease primarily as the result of lower interest rates earned on cash and investments. Other expense was $216,000 in the fourth quarter of 2008 compared to $27,000 in the same quarter of 2007. This increase in expense was due to foreign currency exchange losses.

Non GAAP foreign and other taxes totaled $50,000 in the fourth quarter. For GAAP purposes, our effective income tax rate was 44% for the quarter and year. We expect the GAAP tax rate to be about 45% in 2009 but that will depend on the level of earnings achieved. We continue to have about $3 million of tax operating loss carry-forwards which will offset about $1.2 million of taxes, otherwise payable, plus various tax credit carry-forwards to offset an additional of $4.7 million of taxes. Now the tax effects of these amounts are included in the December 31, 2008 deferred tax asset of $11.1 million. Also because of stock-option exercises, there are additional compensation deductions per tax purposes of $24 million which will result in reduction of taxes, otherwise payable at approximately $9.6 million. The value of this compensation deductions are not recorded as an outset and will only be recognized in the financial statements when they are realized.

Our global staffing at December 31, 2008 totaled 599 people. Our outstanding shares for basic earnings per share calculations decreased because of stock repurchases. We repurchased about 850,000 shares in the quarter and 1.2 million for the year.

Turning to the balance sheet, at December 31, 2008, we have $45.5 million of cash and short-term investments. This compares to $49.3 million at September 30. This decrease in cash in the fourth quarter is primarily a result of treasury stock purchases and additions to equipment, partially offset by cash flows from operations and we continue to be debt free. Accounts receivable day sales outstanding at December 31, 2008 were 79 days, similar to other quarters this year. Totaled deferred revenues at December 31, 2008 were $43.1 million, an increase of $3.2 million since September 30.

Deferred service revenues had a sequential increase of $3.6 million. This reflects support renewals. We also received orders with multiple years of support which increased to non-current deferred revenue. Deferred product revenues decreased about $350,000 compared to September 30. These deferred revenues are primarily related to term-based licenses with long time customers.

We have included a statement of cash flows in the earnings release. I will make a couple of comments on those numbers. For the 2008 fourth quarter, cash flow from operations was $3.2 million. Major uses of cash in the quarter were the purchase of our common stock for $6.6 million and property and equipment totaling $650,000. For the year, operating cash flows were $14.6 million and we repurchase $10 million of our common stock and we spent $6.8 million on property and equipment. We completed the major expansion of our headquarter space in the fourth quarter and purchases of property and equipment will be significantly less in 2009 compared to what we incurred in 2008.

Don, that wraps up my comments on the financial results.

Don Brown

Thanks Steve. Before shifting to the Q&A, let me address some additional business items for the quarter. For the second in a row, we placed in a Leaders Quadrant in the all important Gartner Contact Center Magic Quadrant report. We surpassed Avaya on the completeness of vision access leading second only to Genesis. Interestingly, we have recently seen the RFPs that are made available only to those companies placed in the Leaders Quadrant. This absolutely has an effect on our competitive position. The full Gartner report is available on our website if you would like to download a copy.

One other analyst report I would like to mention comes from the firm Datamonitor. In this report, Datamonitor surveyed a 150 contact center managers and leaders across four verticals in North America and Western Europe. As part of the results for North America, Interactive Intelligence held the top spot when respondents were asked the names of vendor they most trusted to deliver a unified communication solution for their contact center. We are placed ahead of Microsoft, Avaya, Cisco, Nortel, Aspect, Genesis and all the others. Additionally, we placed first with large North American contact centers, those with more than 250 agents. We also received notice during the quarter that we had broken into the top 200 software firms in the world ranked at number 196 on Software Magazine's Software 500 list, up from 209th place a year ago.

In December, we signed a teaming agreement with IBM; specifically this is with the IBM [Load] Software Group. We agreed to work together to develop an integration between our interaction center platform and load at same time which is the IBM collaboration and unified communications platform. We also agreed to jointly pursue several go-to-market events and activities including trade shows, web presence, and lead generation and marketing to channel partners. We anticipate this integration will be available in the second quarter of this year, couple this with work we have done with Microsoft relative to our OCS integration and we think we are establishing some pretty powerful partnerships.

On the product front, we continue to make progress on our groundbreaking process automation product which had its first public demonstration in October. We continue to receive strong interest from our partners as well as existing and perspective customers. We are on track to release this new product near the middle of 2009. Since we last held an earnings call, we also released an interaction feedback our automated post-call customer satisfaction survey application as well as the latest version of our integration with Microsoft OCS. We certified our integration with Cisco unified communications manager and announced the addition of SMS as a new media type supported with CIC in the contact center; and we completed our JITC certification on our product which is an important security certification essential to sell network and telecommunications products to the Department of Defense and other federal government agencies.

Relative to guidance for this year, obviously there is tremendous global economic uncertainty and we are not going to make any specific predictions. We had a good fourth quarter under difficult circumstances. We feel good that the lion share of revenue comes from relatively stable sources, maintenance contracts, add-on orders from existing customers and various other services. We have always managed pretty conservatively and have taken additional steps to keep expenses under tight control including instituting a salary freeze for 2009. Our main focus is on maintaining profitability while positioning our Company to regain its rapid growth when the economy recovers. We are in this for the long haul and we will continue to invest in areas we believe will fuel that growth as we are able.

We start the year with a recognized brand, a good reputation in the market, a strong balance sheet, no debt, a broad product portfolio, a large and growing distribution channel, good geographic coverage and a great new product to be released during the year interaction process automation and with that, I will turn the call back over to the operator for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Shyam Patil - Raymond James.

David Eller - Raymond James

Hi, this is David Eller filling in for Shyam. Could you tell me about your level of visibility in product revenue for a quarter from now and a year from now and kind of what that is based on and then also how much of that product revenue, when you categorize, is recurring?

Don Brown

Well, I will let Steve answer some of the recurring portions, the numeric portions but just on a global level, we have a sales tracking system that we use. It is actually built on top of our products that allow us to see the forecast and pipeline for all of our sales people. That is not something that we announced, that we quantified publicly but we do keep a very close eye. We think we got a relatively good look at Q1 but obviously this as we go further into the year which is the reason that under the current circumstances, we elected not to provide any specific guidance.

Steve Head

As far as what comes from our current customers for the year this year about 56% of the orders were from current customers and that compares to 63% last year and 55% a year before. So, as we talk about the forward, it is a pretty steady part of our business. We did see softness especially in the second and third quarters but some improvement in the fourth quarter.

David Eller - Raymond James

Okay and then the next question I was just going to ask about increased competition, are you guys seeing competitors giving very aggressive more than usual in terms of pricing or with other factors?

Don Brown

Paul, you want to answer that from the field?

Paul Weber

Sure, we had seen some instances where people are dropping their prices significantly. I cannot say that is anything really new. A lot of the business we are doing, we are replacing existing systems and when those competitors signed out that they were in their shopping and the company is considering replacing us, one of the last moves they typically do is drop their price extremely low to try to keep the competition out. But other than that, I have not seen anything significantly changed in the last quarter or so.

David Eller - Raymond James

Okay and then were there any particular areas that maybe performed a little better than you guys thought that would perform this quarter, perhaps particular at the stationary or geographic region?

Don Brown

Paul, why do not you talk first about North America and then I can address the world?

Paul Weber

We did see some pretty significant new customer numbers coming on the enterprise IP PBX side in Q4. We also started to see and did some decent business replacing Nortel equipment. As far as the region by region, Canada continues to do very well, Central and East are also very strong and that has been the case for a while.

Don Brown

And then worldwide, we had some nice wins in Eastern Europe; in Poland in particular surprisingly in the financial services sector and we also did well in Australia, New Zealand and relatively well in Latin America.

David Eller - Raymond James

And then last question I have for you, guys, what was the order growth for this quarter?

Steve Head

It was at about 11% year over year so we have some nice order growth increase. It was primarily driven by new customer wins. We continue to see, again as I have mentioned the softness with current customers but we continue to win some significant new business.

Operator

Your next question comes from the line of Tavis McCourt - Morgan Keegan & Co.

Tavis McCourt - Morgan Keegan & Co.

A clarification, did you say the US was 59% of revenues or 69%?

Steve Head

Fifty nine percent of the orders in the quarter but when we look at it for the full year, which I also mentioned, it was pretty much in line with the typical split, 67% for the year which compares to 68% last year. So, every quarter does bounce around a little bit. Last quarter was 75%. When we looked at it on an annual basis though it is really the geographical split has had very minimal change over the last few years.

Tavis McCourt - Morgan Keegan & Co.

Yes and you mentioned some Nortel success, or I guess Paul mentioned it but can you talk bigger picture in terms of the financial issues Nortel is undergoing right now or maybe some of the other competitors. Our customer is asking about that now, is that becoming a real benefit in the marketplace or is too early to think about that?

Don Brown

I will let Paul take that.

Paul Weber

From an end-customer perspective, I think it is too early. From a partner perspective, we are seeing some activity from Nortel partners that carry Nortel that are now interested in engaging with us to carry our product but we have not, I think it is too early from an end-customer perspective to see much of anything. I am encouraged by the potential of being able to expand our channel coverage in areas where we have not previously been successful by recruiting some of these Nortel bars that are now open to other products.

Tavis McCourt - Morgan Keegan & Co.

It makes sense and Don, you have always been improving the product over the last couple of years to address the government's vertical which would seem like a pretty important vertical this year especially can you talk about kind of where you guys are in that process in terms of materiality of the business at this point attracting resellers for that vertical and so forth?

Don Brown

Well first of all on product level, yes we have done quite a bit. Our security is really strong and that is obviously one of the things that attract the government. We did obtain a very difficult JITC certification and so that is getting us more notice and then on the sales side, Paul and his guys had been proactively going after government accounts and, Paul do you want to go into any specifics?

Paul Weber

Yes, we did have some pretty good wins with new partners in the federal state this year. That, as you know, building our business takes a lot of focus on the large integrator type partners that work with the Fed before you really start seeing a lot of the revenue from the agencies and we did see a pretty significant increase in our federal business in 2008 over 2007. The JITC certification is extremely significant and we blew through that requirements test so it is not uncommon when you are talking to any type of government agency or system integrator these days. It used to be they talk about JSA, now they are talking about the certification on the security side and the fact that we have that really gives us a positive outlook for the federal space.

Tavis McCourt - Morgan Keegan & Co.

As early as this year?

Paul Weber

We absolutely plan to sell into the federal space this year.

Tavis McCourt - Morgan Keegan & Co.

Okay. And then my final question was I just want to try and understand the issue with France correctly. You got the French government to pay you money?

Steve Head

We kept saying we thought that they were incorrect. It was kind of interesting as it worked out. They had basically two different fringe tax authorities fighting each other; one was getting money, one has to give up stamps. So, as much as we have that, I guess it helped us. But yes, basically the bottom line was we disclosed for the last few years in our financials for several years, we had this contingent liability with the French tax dispute and we have been working at resolving it although things moved very slowly as with most things in France and we finally did get to a point where we did get a good portion of it resolved and we did get some cash.

Tavis McCourt - Morgan Keegan & Co.

Okay and the benefit to this quarter were? Can you say the number again?

Steve Head

It was $577,000 to operating income, part of it in services and the rest spread between development G&A and sales and marketing and we included the breakdown of the areas that were impacted in the supplement to the financial statement so that you can see where we spread it.

Tavis McCourt - Morgan Keegan & Co.

Okay and did you get the cash already as well?

Steve Head

Yes.

Tavis McCourt - Morgan Keegan & Co.

Great, well congratulations on a good quarter. All is being equal.

Operator

Your next question comes from the line of Michael Latimore - Northland Securities.

Michael Latimore - Northland Securities

On the services growth margin, Steve, what is kind of a more of a normalize run rate there you think, I mean 64% is a little bit, obviously benefited from the French benefit here but what is kind of a more of a normalize rate? Is it similar to what was on 2008 in prior quarters? Does that driven a normalized rate do you think going forward?

Steve Head

Well, we are taking steps to manage our expenses better across all the areas of the Company so I am hoping we can do a little bit better that we have done historically. I think 64% was probably better than we will be able to but we have been consistently around the 60 so 61, 62, we would hopefully be able to do for the next couple of quarters.

Michael Latimore - Northland Securities

Something you saw a positive change in your current customer base or in those installed-customer base, I mean what do you think is occurring there? Is it something that is sustainable? Maybe a little more color on why that has started to improve, where it was a little bit weaker last few quarters?

Don Brown

Paul, do you have any insight?

Paul Weber

Well, I mean it was significantly weak at the beginning of the year, the first two quarters. That is where we saw the pullback was on extension opportunities with existing customers or customers adding additional products. I think the add-on business, we did focused pretty hard on our customer base in Q4 and really trying to do a thorough job of trying to find out what type of software needs there we are going to have in the first half of 2009 and see if we could get them to step up to purchases in Q4. So we did see an increase over Q2 and Q3 but it is still in this economy, we are still feeling it on that expansion side.

Michael Latimore - Northland Securities

So it was more of your marketing and sales strategy as opposed to kind of any other sort of biodynamic within the base? Is that a fair secure assessment?

Paul Weber

I would agree with that, yes.

Michael Latimore - Northland Securities

Yes and Don, your IPA products are very interesting. Is that something that you think will flow through your current distribution network in channel or is there a different kind of marketing initiative that we will have to give on the IPA product this year?

Don Brown

Well, I think it is something that we will go over time. Certainly our current partners are very excited about IPA and IPA is a far-reaching product. It is something that can, we think our partners can start off with just the strength in their position in the contact center and so they can help them just do what they are doing today better and be even more competitive but we are excited over the long haul because we think it has potential to take us into entirely new areas and inevitably that will lead to new distribution possibilities as well. So I would expect to see any major changes in 2009 but in subsequent years, I think you could see significant evolution.

Michael Latimore - Northland Securities

You guys commented on pricing, what about just the sales cycle? Are there any changes in sales cycle at all?

Paul Weber

I think the one thing we have seen over the last couple of quarters is that the change is, we are going through the full sale cycle all the way through evaluation, through some, and a lot of these opportunities all the way to the terms and conditions of the contract only to see the contract set on the higher ups desk and not signed. So that is where it gets a little tougher to forecast because we really are having a very high level of activity but in the end, I think from the economic pressures, I think a lot of people are getting that part of the job completed but not actually ready to sign yet. So that is from a sale cycle perspective that is the one change we have seen.

Michael Latimore - Northland Securities

And then last, I have seen but I do not know if you report this breakout but what about to see some IP PBX versus call center revenue, what’s the next if you can report that and will that change at all in 2009, I guess?

Steve Head

Well, we always have a little bit of a difficulty showing exactly how much is IP PBX because customers use our software in so many different ways. I guess the one thing we can point to or talk about is the fact that we did see some significant increase with just fewer enterprise customers and we have the best quarter in our Company's history with that selling into that space in the quarter. So we seem to be getting some very good tractions, some very nice new customers we signed in the quarter and overall that made up better than 10% of our orders were just pure smaller enterprises adopting our technology.

Michael Latimore - Northland Securities

Okay but it sounds like that is going to continue to be part of the next but not real major change in 10% perhaps in the future.

Steve Head

We are still hopeful that we have some good opportunities there but we think we have got good opportunities in a number of areas.

Operator

(Operator's instruction) Your next question comes from the line of [Gramy Rein] - Bears Capital.

[Gramy Rein] - Bears Capital

I was just wondering if you could talk a little bit about kind of macro trend you are seeing out there, I mean in the past, you talked about the transition from digital to IP being 25% to 30%. Is that speeding up? Is that slowing down? Can you just kind of talk generally about that transition?

Don Brown

We are into the mainstream of that adoption now so I do think it has been moving along in about the same clip. Almost all the deals, certainly the new deals that we do these days are IP but there are still a lot of customers out there running TDM. I do not think we are just half way point by any means yet. So we are on that part of the curve for IP. The trend that we are frankly even more excited about is the movement from focusing on unified communications to process automation. We really see, actually today I am out in Denver and have been presenting to existing customers and prospects. We are all talking about IPA and it really is an eye opener to people to think about communications doing more than just increasing personal productivity. You see vendors have mainly focused on almost pre-build improvements being able to avoid a voicemail message because you can see if somebody is available or not.

That is nice, that is the stuff we have been doing for a long time. I know you see vendors have been doing for a long time. I think where there real excitement lies is in using these technologies to automate core business processes and improve efficiency and drive down cost and especially these days in the current climate, if you go in and talk to Steve or another CFO about soft increases in productivity, you are not going to get very far but if you can go in and quantify significant changes that you can make in shortening business processes, decreasing the expenses associated with selling of particular process then you can really get people's attention. So that is more the trend that we are focusing on now. We think we have kind of earned our stripes in IP communications and we are well positioned to help customers make that transition but we think there is a far more strategic transition to come.

[Gramy Rein] - Bears Capital

Okay. That is helpful and then what about the SaaS offering? Is that gaining more traction in this environment or not?

Don Brown

Yes, what we have done is we really doubled down on SaaS, so to speak. We have been able to leverage some advancements in our own and other technology, virtualization in particular to be able to decrease the cost model of our SaaS offering and thereby improve pricing while actually increasing the profitability so we are going after SaaS in a more vigorous way and seeing a fair amount of interest in the market, Paul, I do not know if you have any specifics you would like to contribute on this topic.

Paul Weber

Yes, I would say just in the last month, the number of opportunities with pretty significant revenue from that offering is definitely on the upswing. So, we had always had some opportunities in any given quarter will be cash related but I think just reviewing this quarter and the next quarter, the number is growing in a pretty decent rate. So I think companies are looking at that to avoid their CapEx.

[Gramy Rein] - Bears Capital

Okay. That is helpful. Congratulations. Steve, I just have one more thing. Do you have share account as of today in front of you?

Steve Head

I think it is 17 million, excuse me, it is 16,928,000.

Operator

You have a follow up question from the line of Michael Latimore - Northland Securities.

Michael Latimore - Northland Securities

Just one question on your new customer sales. Most of those are replacing installed systems and I am wondering, are you seeing a fair number of replacements of IP systems or is it pretty much also a TDM when you do replacement? I am wondering if there are some of the IP systems is actually kind of networking or outdated and you are replacing that as well.

Don Brown

Paul, do you want to deal with that one?

Paul Weber

Yes, I think most, I will not say that we are starting to see companies that had gone with an IP solution and have now have this system and long enough to know that the contact center space is not their strength, Cisco specifically. But a majority of the deals we do are probably replacing a TDM-base contact centers. So their IP enabling their contact center and at the same time obviously multimedia enabling it and going on third quality products, the different suites we have but I will say I think the one difference between now and maybe a couple of years ago is that when some of the larger companies first went with a company wide IP solution, that standard was pretty hard to get around by selling them a contact center application and that door started to open now because IP then they find out where it is strong and at the same time, they find out where these companies are not quite as strong as they could be and that is where we are getting into decent size contact center opportunities.

Operator

Thank you and with no further questions, I would like to turn the program back over to Dr. Brown for any additional or closing comments.

Don Brown

Alright, thanks everybody for coming and we will talk to you next time.

Operator

And that does conclude today's call. You may disconnect your line at this time.

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