Longtop Financial Technologies Ltd., F3Q09 (Qtr End 12/31/08) Earnings Call Transcript

Feb.18.09 | About: Longtop Financial (LFT)

Longtop Financial Technologies Limited (NYSE:LFT)

F3Q09 (Qtr End 12/31/08) Earnings Call

February 18, 2009, 7:00 pm ET

Executives

Charles Zhang - Director, IR

Weizhou Lian - CEO

Derek Palaschuk - CFO

Analysts

Joseph Vafi - Jefferies

Donald Lu - Goldman Sachs

Jonathan Maietta - Needham & Company

Tim Fox - Deutsche Bank

Karl Keirstead - Kaufman Brothers

Sean Jackson - Avondale Partners

Joseph Vafi - Jefferies & Company

Operator

Welcome to today's Longtop Third Quarter Fiscal Year 2009 Results Announcement Conference Call. I'm pleased to present Mr. Charles Zhang, IR Director. For the first part of this call, all participants will be in listen-only mode and afterwards there will be a question-and answer session. Mr. Zhang, please begin.

Charles Zhang

Thanks, Wendy. Good morning, everyone. I am Charles Zhang Longtop's Investor Relations Director and welcome to our fiscal third quarter 2009 earnings conference call. Joining me on the call today are Weizhou Lian, Chief Executive Officer, and Derek Palaschuk, Chief Financial Officer.

For today's agenda, management will discuss some of the highlights from the quarter and then provide additional financial details. This will be followed by a Q&A session, during which management will answer any questions that you may have.

Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements.

Finally, please note that unless otherwise stated all figures mentioned during this conference call are in US dollars.

I would now like to turn the call over to our CEO, Weizhou Lian, for his opening statement and we will translate Mr. Lian's comments.

Weizhou Lian

[Foreign Language]

Okay. Thank you for joining us for Longtop's third quarter 2009 earnings release conference call. Similar to our last quarter's call given the challenging economic environment we are facing. The main point I want to make, is to reiterate (inaudible) and resilience of Longtop's business model.

Nothing has happened to nothing our November conference call that taught me to be less positive about our 2010 prospects.

We are not seeing our important customers cutting projects due to the economic crisis. We continue to remain confident that Longtop can achieve 2010 analysts consensus numbers.

[Foreign Language]

This morning I would like to briefly touch a couple of key economic factors that, and then spend the remaining time giving you some color on our fiscal 2010 strategy.

[Foreign Language]

Macro level while our larger bank customers will likely have lower net income in 2009 this will not result in declines in their IT service spending with us due to the long-term IT divestment plan.

The government also recently announced the realization plan for electronics and information industry will further give support to our industry.

Other recent economic factors that will work in our favor are China’s $600 billion stimulus package and the recent stimulus package underscoring that inflation is clearly under control.

[Foreign Language]

We are currently working on the final details of our 2010 operating plan. I would now like to give you some of my current thinking as regard to customer product and our acquisition strategy.

[Foreign Language]

We expect healthy growth in all of our customer segments in 2010. Since we have most of the major banking customer covered other than one of the Big Four, we will continue to improve revenue per customer through cross-selling of products and delivering quality solutions.

[Foreign Language]

Looking specifically at our customer segments, first Big Four Banks will continue to have healthy growth as they have had for the past 10 years. We have been working with them. This year for the Big Four Banks spending pattern may differ from year-to-year. But overall as a group, we have always seen healthy increases and we expect no change in our fiscal 2010.

The highest growth in the Big Four will come from the bank, which elected us as their number one IT strategic partner. We are also working hard on penetrating the one Big Four Bank, which is currently our customer.

[Foreign Language]

Plenty of our national commercial banks and the largest Citibank customers, which now accounts for approximately 35 of our software revenue are telling us, they will continue to spend aggressively on IT in 2010.

Some of them are considering replacing their existing core banking systems, which also drive the demand for our services. We will also look to deliver quality services to our first major and overseas bank in Thailand.

[Foreign Language]

Our Insurance segment will continue to grow at a healthy rate, because insurance company's IT investment lags a number of years behind banks, and they must continue to spend to manage their business effectively. I also see opportunity for acquisitions in the insurance space to supplement our customer base.

[Foreign Language]

Enterprise is still a small segment for us and represents a very exciting opportunity. While the sales cycle for enterprise is much longer than what we are accustomed. Enterprise will be our fastest growing segment in 2010.

Our first contract for the tobacco treasury project will be signed in fiscal 2010. Recently, we have been proposing to a number of large Chinese enterprises to implement treasury management and business intelligence solutions and also build core system for their financial companies.

[Foreign Language]

Our product strategy for 2010 will be continued to deliver the highest quality service to maintain our leadership position. We also need to invest more in R&D as our long-term objective is to able to market more standardize solution, spending specifically on our product lines.

[Foreign Language]

Data integration and the business intelligence continues to be in strong demand across all customer segments because of huge volumes of data and the relative early stages of their integration. Our strength also allows us to cross-sell CRM and enhance our risk management ability.

[Foreign Language]

Risk management is another area that represents exciting growth opportunities for our banking customers. We enhance our capabilities. We recently announced the joint establishment of our Financial Risk Management Laboratory with the Peking University. We are also discussing with non-Chinese companies partnerships to distribute their risk management solutions to China.

[Foreign Language]

We continued our leadership position in both channel and the management related solutions. We are also working on partnering with some non-Chinese companies to improve our channel solutions.

[Foreign Language]

Our recent acquisition of Jactus Labs will enhance our professional testing services and make us the leader in this space.

[Foreign Language]

While most of our growth will continue to be organic in 2010. we will selectively use our $236 million in cash to look for quality acquisition candidates.

[Foreign Language]

Before I pass the floor to Derek our CFO, I would like to take this opportunity to inform you that our price to sell are maximum of 500,000 shares of the company stocks in turning the 2009 in order to purchase [Longtop] in Beijing, where I want to move my family to better support the company’s business development. This is only a fraction of my total shareholding and it's the first times I have shared since I co-founded Longtop in 1996. I don’t plan outstanding additional shares during this period and it continued to be one of the largest shareholders of the company.

[Foreign Language]

I hope the above have been helpful to you in understanding our company's current situation and my optimism. I look forward to [outstanding year].

Now I would like to turn the call over to Derek, our CFO.

Derek Palaschuk

Thank you very much, Lian-xiong. Good day, everyone and thanks for joining us for our financial review. We are pleased once again to report a strong Q3 we had a gain, we have significantly exceeded our guidance.

Q3 software revenues were $28.9 million an increased 88.6% year-on-year giving us a robust first nine-month growth rate of 64.6% for our software business. After adjusting for the impact of the appreciation of the RMB, the software growth would have been approximately 50% for the first nine-month.

You will note that we have increased our software development Q4 '09 revenue guidance to $20 million from $19 million previously guided. This is due to strong demand and we have our healthy software backlog of $26 million at December 31 which is almost double the backlog we had a year ago.

Due to seasonality with Chinese New Year and this being the first quarter of the new budget year for our customers similar to last year you will see a very short fall in backlog this quarter and our investor should not be alarmed.

You may recall, we had backlog of $7 million at March 31, 2008 and we now estimate 2009 fiscal year software revenue to be slightly over $88 million up 58.5% year-on-year.

Our Q3 other services revenue was $4 million and included approximately $1 million in revenue from Huayuchang which we consolidated for the first time in Q2. Our adjusted software gross margins for the first nine-months our healthy 74.3% and are right on target. As Q4 revenue is seasonally down with no significant changes in our cost structure our Q4 '09 software gross margin will be around 70% which is comparable to Q4 '08 of 71% indicating our margin structure is stable.

We will end the year at a healthy 73% gross margin on our software business, which is where we said it would be at the beginning of the year. Our total gross margin this quarter was pulled down by other services gross margins of 34% and we expect the similar other services gross margin in Q4 '09. Adjusted other services gross margin declined due to an investment in headcount for our different service businesses and higher mix of ATM revenues resulting from the acquisition of Huayuchang which has a gross margin of around 25%.

Our other service business line primary function is to open additional sales channel for our software business as opposed to a profit revenue driver like our software business. For the full-year total adjusted gross margin will be around 69% which is 1% less than we had anticipated and a solely due to other services.

Our adjusted operating expenses are 19% of revenue for the first nine-month with Q4 '09 expected to be around 23% of revenue, we expect to end the full-year with OpEx at around 19% of revenue which is slightly less than 20% we estimated at the beginning of the year. Our Q3 operating income was $17.3 million and $1.1 million more than estimates.

Our Q3 revenue was $4 million more than guidance and the reason this didn’t translate into a 50% or $2 million increase in operating income was due to the following. Firstly, Huayuchang contributed almost $1 million of the revenue increase and is basically break-even so this does not contribute to operating income.

The balance is due to a number of factors including additional compensation costs with our busiest quarter having past, as well as additional investment in other services headcount and thirdly acquisition related due-diligence and legal expenses which under new accounting rules cannot be capitalized as part of the acquisition costs but rather must be recorded as an operating expense.

For the first nine-months the operating income has grown by a robust 47%. Our adjusted operating income guidance for Q4 '09 is unchanged at $10 million which will give us a healthy year-on-year growth of 47.5% after excluding a non-recurring gain of $652,000 on the disposal of fixed assets which added to the Q4 2008 adjusted operating income.

Our full-year adjusted operating income of $52 million will be closed to our 50% margin which is what we estimated at the beginning of the year. This will be translated into full-year operating income growth of 44% without adjusting for the $660,000 fixed asset gain in the previous year.

You will recall our original guidance for this year was $43 million in operating income and now we expect to deliver $52 million. Our Q3 '09 other income was about $500,000 less-than-expected due to a decline in interest income on our cash deposits. All of our cash is in bank deposits mainly in China and since we take a conservative approach to investment, we do not have any yield enhancement products. Thus, we are fully susceptible to the continued decline in interest rates.

We have modeled $900,000 in Q4 '09 interest income which is about $0.01 per share less than our earlier estimate. This is the only reason our Q4 '09 guidance of $0.18 is $0.01 less than the analyst consensus but it is equal to our previous guidance. Due solely to a decline in interest income, our net income margin for the full year will be around 48% as compared to our previous full year target of 50%.

On a positive note our tax status is clear now as our major operating subsidiary has received a formal approval to be a high-tech company which provides for a tax rate of 15%.

Secondly our major operating subsidiary has been listed as a key software company allowing us to refund 33% of our previous year taxes which will give us a full year tax rate of around 13% in 2009 and fiscal 2010.

We expect full year EPS of $0.96 up from $0.94 which we got at last quarter and up from $0.80 which was our guidance that we gave at the beginning of fiscal 2009.

Now turning to our 2010 guidance. We are currently preparing our 2010 budget and we will provide clear guidance including quarterly figures when we announce the results at the end of May.

Because this is our first year of going to the floor for audit process, it will take us longer to complete our year end closing process and that's the delay to the end of May in announcing our Q4 results.

Even without favorable exchange movements we are confident that we can achieve the First Call revenue consensus figure of $124 million and adjusted operating income of $61.4 million.

Our income tax rate will be around 13% we would not expect significant changes in the average share count of $53 million shares. The major unknown now is what our interest income will be given the Central Bank's move toward declining interest rates.

We will have more clarity on this at the end of May.

That concludes my presentation and I will now ask the moderator to open the floor for questions.

Question-and-Answer Session

Operator

We will now begin our question-and-answer session. (Operator Instructions) Our first question is from Joseph Vafi from Jefferies. Please go ahead.

Joseph Vafi - Jefferies

Yes, Weizhou and good morning, can you hear me okay.

Weizhou Lian

[Foreign Language]

Sure, good morning.

Joseph Vafi - Jefferies

Okay. Congratulations on other solid quarter. I was wondering if we could talk may be just a little bit about that preliminary guidance that you are providing for fiscal '10, obviously that number implies a pretty big slow down to overall growth. I know it's not quite your formal guidance you have not gone through your process, yet I was wondering though if preliminarily you are looking at kind of that magnitude of the slowdown to the business in fiscal '10 versus fiscal '09?

Derek Palaschuk

Hi Joe, let me answer that. So first of all as you said we are in the process of preparing our budget and we will give formal guidance in May. We are seeing very strong growth across all segments, we are saying that we are highly confident that we can achieve those numbers and based on the strength of our pipeline, our products and the demand in the market. And when we announced our fourth quarter results and we got a budget locked down and we can give more specifics on that.

Joseph Vafi - Jefferies

Okay. Fair enough. So you just kind of, I guess at this point preliminarily comfortable with where the consensus is and that's really what you are trying to say at this point?

Derek Palaschuk

Yes, we are saying we are very comfortable where the consensus is and then once we get through our budget process then we can give formal guidance.

Joseph Vafi - Jefferies

Okay. Fair enough. Maybe just high level question on the competitive landscape any real changes going on there as maybe potential competitor are seeing how well you are doing in the market place. And competing more with you and then following up to that any pricing pressure that you are seeing as maybe the overall economic environment softening little bit?

Weizhou Lian

[Foreign Language]

Joe, to address your first question regarding the competitive landscape and the current economic environment what we are seeing is actually the competition is getting less competition. And no new engines to the market and what we see is more corporation become bigger and larger players in this market. The market continues to consolidate.

Joseph Vafi - Jefferies

Okay. So, its fair to understand it sounds like that maybe incrementally weaker economic environment is meaning weaker competitors are less competitive now?

Weizhou Lian

[Foreign Language]

You are right generally speaking, the market overall is various people and their rationale and the current economic environment major players put more of their resource on R&D instead of involving in pricing loss. And also for us, we are also expanding into new product areas such as, for example, we just announced official launch of our e-banking product this quarter and also we acquired some of new customers.

Joseph Vafi - Jefferies

Okay. That’s helpful. Thank you very much.

Operator

Our next question is from Donald Lu from Goldman Sachs.

Donald Lu - Goldman Sachs

[Foreign Language]

Charles Zhang

Hi, Donald, would you mind to translate your question for everyone.

Donald Lu - Goldman Sachs

Sure, yeah my first question is on the Chinese Government's upcoming stimulus package for the IT industry. I will like to find out which area would the Longtop benefit from it?

Weizhou Lian

[Foreign Language]

A couple of areas, so our policy label, the government is encouraging the local government to give more support to local software and affiliates providers, for example, in government sponsored products, they encourage the local government to project more service and software products from local players, and also we see some potential tax incentive the government may lower the business tax and also give tax incentive to encourage to do more recruiting, training and also that to encourage government to purchase more products from local players.

[Foreign Language]

And more importantly, utilization will require the government and also big scale enterprises to spend more on IT to take this opportunity to get the government and the big enterprises more competitive during the during the economic downturn. So that way improved our IT spending in China.

Donald Lu - Goldman Sachs

My second question is on the progress with ICBC.

Weizhou Lian

[Foreign language]

The target that I mention is actually with one of the Big Four Banks, which is not our customer currently and this for the channel related solution, and actually we are in the process of negotiation. Because of the Chinese New Year, the negotiation process was disrupt, but I will say in the previous tightening space, we are rate number one. So the negotiation has not been renewed, but hopefully we will give some more colors in future.

Donald Lu - Goldman Sachs

Sure. Yeah, my last question is on recently I think VanceInfo announced that is during a software center with commerce bank of China just want to check whether this is going to be you a trend and what's the impact to Longtop?

Charles Zhang

Can you say that in Chinese?

Donald Lu - Goldman Sachs

[Foreign Language]

Charles Zhang

[Foreign Language]

Derek Palaschuk

So what Donald was asking about was VanceInfo recent announcements we are working with China Merchant Bank, and this is not the first type of cooperation announcement that has happened in our industry, but there is a very big difference between the services that VanceInfo or companies like VanceInfo is providing in ourselves.

VanceInfo was really just providing staffing and these are just technology people that have no industry experience. They have no product experience, but basically just to fill the various lowest level of service. But if you look at our business model, our business model is product and industry knowledge based, so we can add much more higher value.

Nevertheless, we also need to be aware of this increased competition, and we have also been preparing for this. If you are looking our other services business lines, one of the business lines that we have as we been investing in some of the non-industry experience technology people, so that we will also be able to provide this lower level staffing business if necessary.

So we are very confident that we can compete with the outsourcing companies, because we have a very strong confidence with industry knowledge, so for us to start at the lowest level and go up is much, much harder for them starting from the high level and trying to work down.

Donald Lu - Goldman Sachs

[Foreign Language]

Operator

The next question is from Jonathan Maietta from Needham & Company. Please go ahead.

Jonathan Maietta - Needham & Company

Hi, thank you. First question, Weizhou, regarding risk management. Given what's taken place in the financial services industry across the globe, do you think perhaps there is a greater opportunity for risk management and products and services in calendar '09 than we have seen previously?

Weizhou Lian

[Foreign Language]

Jon, you are right, the risk management area is a very important area and we see a tremendous amount of space for growth as well as opportunity. The government has mandated Chinese banks for 2011 our Basel II Compliant, insurance, they are talking about 2013 and then there is various product within the risk management in market risk, credit risk.

What happened is earlier or a year or still ago the Chinese banks were thinking whether they should use the western bank model because it was very matured, they had well-developed risk management system. But what happened in the last year the Chinese government is thinking really whether the western bank risk management systems are effective. So, that's one of the reasons as we partnered with the Beijing University is to develop a specific product that localize for the Chinese market.

Okay. And then also there is recently been announcement and discussion about Basel III so this will also add more requirement for our customers. So, for these reasons we are very confident that there is lot of room to grow over the next few years in this area. And Lian-xiong wants to add to that.

[Foreign Language]

I just made unofficial visit to one of the Big Four bank which is currently not our customers. They are telling us that they are considering to view to own models instead of adopting US banks amateur model in area of risk management.

Jonathan Maietta - Needham & Company

Interesting. Okay. Second question I had was with regard to Jactus Labs, what's the benefit for Longtop of bring QA testing, that functionality in house as oppose to partnering with somebody external?

Weizhou Lian

[Foreign Language]

We hope to build a third party professional testing team as we see all of our customers are building their own testing center focusing on what functionality and performance test to market the professional testing, outsourcing market is going very fast that’s what we have found during this year. And internally we have 100 people focused on testing, but we hope that acquiring objectives will give us some synergies, because all the banks require not only technical testing, but yes industry testing requiring lot of industrial knowledge. We believe that acquisition will supplement our existing solution allowing us to provide comprehensive the full line of total solution to our customers.

Derek Palaschuk

And Jon, just one other thing that Lian-xiong mentioned is that because Jactus was focused in the banking vertical, its much more efficient to acquire them because really there isn’t any, they were the largest player in this space and there is really no one to partner with who has experience in this area. So there are much more efficient ways for us to become the leader.

Jonathan Maietta - Needham & Company

Okay. And then Derek I am sorry I may have missed it, but the contract signed in the quarter, do you have that figure?

Derek Palaschuk

It was around $20 million, which is up about 70% from a year ago.

Jonathan Maietta - Needham & Company

Yeah.

Derek Palaschuk

And then I mentioned our backlog with $26 million, and that almost doubled from what it was a year ago.

Jonathan Maietta - Needham & Company

Got it. Okay. Thank you very much. Xie Xie.

Derek Palaschuk

Thank you.

Weizhou Lian

Xie Xie.

Operator

Our next question is from Tim Fox from Deutsche Bank. Please go ahead.

Tim Fox - Deutsche Bank

Hi, thank you, good morning.

Derek Palaschuk

Hi, Tim.

Tim Fox - Deutsche Bank

Derek, first question for you. I know it's early in looking on fiscal 2010, but just in light of the prepared remarks Lian-xiong mentioned, needed to invest more into R&D with all of the opportunities you have in front you and in light of the other services margins being a bit lighter. I am just wondering if you could talk to us directionally about where operating margins might go over the next year or two, we are still looking at sort of marginal decline or is there anything more needed there from investment perspective?

Derek Palaschuk

Sure. So one thing, there definitely won't be any significant declines in our margins. On the positive side the main thing that caused some reduction in our gross margin in 2009 was we have to give inflationary increases to our staff inflation was very high a year ago. So one thing we do have visibility into, now we haven't decide the exact amount for our salary increases. Last year we are almost 10% to 15%, that definitely won't be the case this year. So, that's the main really area that can cause margin pressure as Lian-xiong already said pricing is very stable, the Chinese government is encouraging companies to spend on IT. So, we are not going to see any pricing pressure.

So, stable margin, the other services gross margin, they are 34% now they are going to improve because as we said where we have been we talked about bank in-fall has the, they are starting to do some of it staffing business for banks, so we have added people in that area and we are going to be able to monetize that, so we basically have to build out a bench. In terms of investing in R&D, R&D its 4%-5% of our revenue that’s not going to change significantly.

So, overall very stable margin structure at the operating income line, our tax rate also very good, we have much better visibility then we get a year ago because we have already got the high tax status and then the only unknown is the interest income which is totally out of our control.

Tim Fox - Deutsche Bank

Got it, okay. That’s very helpful. And then for Lian-xiong, you spoke about the opportunity at the national and commercial and city bank level around core systems in considering some replacement there I just wonder if you could talk about the dynamics of that businesses, is that going to be more custom market those levels or will there be some of the standardize products bought into that that kind of core replacement market and do you see that starting to pick up in 2010?

Charles Zhang

Let me check later for an answer.

Tim Fox - Deutsche Bank

Thank you.

Weizhou Lian

[Foreign Language]

Let me try this Charles and you can add in.

Charles Zhang

Okay.

Derek Palaschuk

So thank you very much Tim good morning. So we first saw this opportunity over the last couple of years that we have been preparing for that and in terms of which products we would be able to sell is becoming a little bit clear where we can be the market leader. If you look historically none of the banks have been successful in basically converting their core banking systems using the foreign based products.

So a lot of our customers are asking us to partner with them to help select and help them study what's best. One thing is we started changing their strategy rather than trying to change the whole system they would only change, do it part by part or segment by segment.

And is much interested, much more interested in working with them because the risk of failure is much lower and obviously the risk of success is the higher if they are doing it in parts.

In terms of where is the opportunity between customized and standardized its difficult to give an exact number, but with the smaller banks it would be more standardized and with the larger you will say joint stock bank it would probably lean more to customize it. Charles.

Charles Zhang

And also try that and another thing Lian mentioned that the opportunity represented by core banking system in small middle sized bank is to replacement of the core banking system will drive the all the affiliate systems construction which we thought was.

Derek Palaschuk

Okay, Tim. Hello.

Tim Fox - Deutsche Bank

Thank you, I appreciate, that’s all from me.

Operator

Our next question is from Karl Keirstead from Kaufman Brothers. Please go ahead.

Karl Keirstead - Kaufman Brothers

Hi, thanks for taking my call. I’ve just got a question, it sounds like you are investing a little bit more into the services business, may be perhaps as a defensive measure against the staffing firms trying to get into the banks. Will the entire services business remain in fiscal '10 at around a 15% to 16% of the mix that it's been this year and last?

Derek Palaschuk

Yes Karl. We are not investing significantly in this we are making some investment but the absolute key part of our business software development will be growth drivers it has been in the past and I think that number that you mentioned somewhere around 15% is reasonable.

Karl Keirstead - Kaufman Brothers

Okay great. And then if I might ask another question about particular clients on your last earnings calls. You sounded particularly bullish about the Agricultural Bank of China. You had indicated the Bank of China was flattish and that China Construction Bank you were hoping for moderate growth in the back half of fiscal '09. Is that in fact how it panned out in the December quarter and how you expect it to finish in the March quarter?

Derek Palaschuk

Yeah, that’s basically how it played out, you are right. On Bank of China because of the Olympic and them having issues with their core banking system and Agricultural Bank and Construction, Agricultural Bank was the fastest growing and then Construction Bank had healthy growth but not quite high. And may be Lian-xiong can just update you on what's been happening with the agricultural bank or strategic corporation.

Weizhou Lian

[Foreign Language]

Okay. As I mentioned on our last call, we are very pleased that the Agricultural Bank selected us to be the number one IT vendor. And then also importantly is that number of our key competitors were not on their list.

This will allow us to increase our market share and grow our revenue just anecdotally to offset to basically have that same 200 people that we proposed to work on their project, and they were given exams and there was a 90% pass rate from our staff.

So, now that Chinese New year has past, we are spending a lot of time with them and understanding what their product, research and their budget, and what we are seeing is they want to invest a lot in past BI, risk management channel and CRM over the next year. What they will do is, they will use their own internal staff to maintain their core banking system. So, I'm very optimistic on the opportunities for this bank.

Karl Keirstead - Kaufman Brothers

Okay. Terrific, thanks for the color.

Weizhou Lian

Thank you.

Operator

There are currently no questions in queue. (Operator Instructions). Our next question is Sean Jackson from Avondale.

Sean Jackson - Avondale Partners

Yeah. Thank you. Zhang, can you comment on the backlog number as to how much of that backlog will typically flow into the income statement in the next quarter and the quarter after that and the following year?

Charles Zhang

Okay. So at this point of the year, a lot of it will flow into the next quarter. And again if you look in our last fiscal year, as we have about $13.5 million in backlog at the end of calendar year, December 31st and then we ended the fiscal year in the March, the backlog of around $7 million, so what that means is a lot of our backlog now will come into our income statement very, very quickly so that’s what all you have got, very good facility and we been able to actually increase our software revenue guidance by $1 million from $19 million to $20 million.

Then what will happen is that we start the fiscal year, the backlog, it won't look or won't come in a quarter. It might take two quarters to come off, but our contracts are fairly short-term, and everything comes of within in 6 to 9 months. We have a short contract cycle.

Sean Jackson - Avondale Partners

Comment again on how you define in backlog?

Charles Zhang

We define backlog as signed contract, and we never had contracts. What's been happening in the US is that some customers have been signing contract, but then delaying or deferring projects or canceling. We have never had cancellations or we haven't even had significant deferrals.

Sean Jackson - Avondale Partners

Okay. And in the calendar year '09, what do you expect to be business, I guess the customer mix, concerning Big Four Bank versus other banks?

Charles Zhang

So you're bit keen in our fiscal 2010?

Sean Jackson - Avondale Partners

Yeah. It's all 2010.

Charles Zhang

One thing that we will see is, we will see healthy growth in all customer segments. Where you will see the fastest growth is in our enterprise customers. And if you look for the first nine-months, our enterprises revenue was only been around 4% and at the beginning of the year we thought that number would be around 10% and what happened is that we found the contract negotiation cycle is just so long. But now we have good visibility for 2010, example the Tobacco project that will definitely come in, so we should see that enterprise number grow from 4% to hopefully double. And then with Big Four Banks and other banks and insurance there shouldn’t be major changes from what we are basically seeing now where Big Four Banks are somewhere around 50%, other banks are 35%.

What you will see in our fourth quarter of this year you will see the other banks will grow the quickest and the followed by new insurance in the Big Four Banks.

Sean Jackson - Avondale Partners

Okay, thanks. That was helpful. I appreciate it.

Derek Palaschuk

Thank you.

Operator

There are currently no questions in queue. (Operator Instructions) Our next question is from Joseph Vafi from Jefferies. Please go ahead.

Joseph Vafi - Jefferies & Company

Hi, guys, just one quick follow-up. It's on your current sales from shares, I was wondering what is your current share holdings and how much stock do you own currently?

Derek Palaschuk

Lian-xiong has about 10% of the company.

Joseph Vafi - Jefferies & Company

Okay, so roughly 5 million shares then?

Derek Palaschuk

Yes.

Joseph Vafi - Jefferies & Company

Okay, very good.

Derek Palaschuk

And then Joe, this in selling these share is going to be over the next year, it's not going to be dumping these shares on the market next week or the week after. It's basically over the next calendar year and it made a very big personnel sacrifice to move from a lovely city like Xiamen, to a big city like Beijing so he can be closer to it's customers.

Joseph Vafi - Jefferies & Company

Sure, make sense. Thank you very much. Xie Xie.

Derek Palaschuk

Xie Xie.

Operator

There are currently no more questions. (Operator Instructions). As there are no further questions, we will now begin closing comments. Please go ahead Mr. Zhang.

Charles Zhang

Okay. Thank you. The final question concludes our conference call. Thank you very much.

Weizhou Lian

Thank you.

Derek Palaschuk

Thank you.

Operator

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