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Nuance Communications, Inc. (NASDAQ:NUAN)

F2Q09 Earnings Call

May 11, 2009 5:00 pm ET

Executives

Paul Ricci – Chairman and Chief Executive Officer

Thomas L. Beaudoin – Chief Financial Officer

Analysts

Brent Thill - Citi

Jeff Van Rhee - Craig-Hallum Capital

Daniel Ives - FBR Capital Markets & Co.

Richard Davis - Needham & Company

Analyst for Derek Bingham – Goldman Sachs

Shyam Patil - Raymond James

Tom Roderick - Thomas Weisel Partners

Abhey Lambda - UBS

John Bright - Avondale Partners LLC

Scott Sutherland - Wedbush Morgan Securities Inc.

Mark Murphy - Piper Jaffray

Michael Latimore - Northland Securities

[David Dileo] – Canaccord Adams

Craig Nankervis - First Analysis Corporation

Operator

Ladies and gentlemen we thank you for standing by and welcome you to Nuance’s second quarter 2009 conference call. (Operator Instructions) As a reminder this conference is being recorded.

With us today are the Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci and CFO, Mr. Tom Beaudoin. At this time I would like to turn the call over to Mr. Ricci. Please go ahead sir.

Paul Ricci

Thank you and good afternoon. Before we begin I remind everyone that matters we discuss this afternoon include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings for a detailed list of risk factors.

As noted in our press release we issued along with our release a set of prepared remarks in advance of this call. Those remarks are intended to serve in place of extended formal comments and we will not repeat them here.

Before taking your questions I might though emphasize a few points. Despite continuing challenges in capital and consumer spending, we saw improved bookings and pipelines in our hosted and on-demand solutions in Healthcare and Enterprise. Design wins in Mobile continue to mitigate the decline in royalties associated with the reduced sales of cell phones, navigation devices in automobiles, cost discipline, integration synergies and improved services gross margins improved our profitability and will continue to be a focus for the remainder of the fiscal year. We achieved these cost improvements while continuing to invest in future revenue streams.

Geographically our North American Enterprise business proved somewhat more resilient than anticipated as our own direct solutions selling model continued to mitigate difficulties in our historical IVR channel. Weak European sales results, on the other hand, were further compounded by year-over-year adverse currency effects. As noted in the prepared remarks, we approach guidance with caution as market conditions remain challenging and less predictable than in the past.

We do want to emphasize, though, that despite the difficult environment we believe our competitive position has improved this year in all of our core markets. These competitive advantages will help us realize gains in revenue growth as we complete this fiscal year. Contributing to this growth will be a further strengthening of bookings in Healthcare and Enterprise, as well as new product launches in our Imaging business. These revenues, coupled with sustained cost and productivity discipline, will allow us to achieve our goals this year for improvements in operating margins and earnings.

We’ll now take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Brent Thill – Citi.

Brent Thill – Citi

Paul you cut your high end of your forecast from roughly 11% growth down from 24%. It looks like you took about $111 million out of the pipeline. Can you just walk through why that shift? Is that a shift towards on-demand? Is that a shift, just deals lengthening flying out of this year’s pipeline? What was the main cause from that reduction?

Paul Ricci

Well, as we’ve gone through the second quarter the range of potential revenue growth in each of our segments has obviously narrowed. The places where we saw the most significant contributions to the narrowing were those that are mentioned in the formal comment, in the prepared remarks. They do include a significant reduction in Windows-based application sales. As your question suggested a second important contributory fact has been a shift towards hosted revenues. And we have seen an elongation of the closing of sales cycles for on-premise capital purchases in both Healthcare and Enterprise.

Brent Thill – Citi

And can you just help remind us again what percent of the business is hosted in both Healthcare and Enterprise and how you think about each of these businesses?

Paul Ricci

We don’t break it out by the respective businesses but in aggregate hosted on-demand revenues are about 30% of the revenues of the company which is somewhat underweight the, of course, different rate of growth in those components of our revenue. And certainly the relative emphasis we’ve seen over the first half of this year in terms of customer interest.

Operator

Your next question comes from Jeff Van Rhee - Craig-Hallum Capital.

Jeff Van Rhee - Craig-Hallum Capital

In terms of, I guess as I look at the script and I look at the things sort of pros and cons by each segment this quarter’s script looks in many, many ways very similar to last quarter in terms of the pros and the cons. Can you just kind of elaborate if you would at the margin what surprised you? Because I know we’ve seen the shift on-demand, we’ve seen channel conflict in network, we’ve seen lower units and handsets. A lot of the absolute factors were in place before so I guess I’m just looking at the margin within each of those. Which in particular really accounted for, you know, the surprise this quarter and seemingly again to Brent’s question the reduction of the high end of the guidance?

Paul Ricci

I think your statement, the way you frame your question is correct, Jeff. I think it is a continuation and there are some areas where we’ve seen an accentuation, but I think it is continuous of last quarter. The, as we now are through half of the year we’ve tried in looking out at the second half to be quite prudent about where we think revenues are going to end up in view of the trends we’ve seen in the first half. There have been a couple things, some positive, some negative in the second quarter. One positive thing has been actually some greater resiliency in the Enterprise business than I think I had anticipated exiting the first quarter. On the other hand, I do think capital purchase sales cycles have slowed down. I think the approvals are being elongated even more than we saw a quarter ago. And that trend carried over to some extent in Healthcare, which we did not see as much of in the first quarter.

Jeff Van Rhee - Craig-Hallum Capital

And then I guess just one follow up on the Enterprise side. As you talk about the IVR or the channel partner transition weighing on results as well as Europe, can you just talk to where we are in the process relative to each of those? It sounds like you’re not entirely pleased with the execution on the sales side in Europe. And then also the channel conflict, seemingly it seemed like we were almost done with that but maybe you can just comment there.

Paul Ricci

Well on the latter question, I don’t think its channel conflict. We had moved towards a more direct selling proposition and because it is a solution sale it means the revenues will be recognized over time as the solutions are implemented. And that does by the way further protract revenue recognition in that business from, as compared to revenues that we get through the IVR channel which essentially are license royalties. I don’t think it’s a conflict issue. It’s been a steady migration over the last year. It has accelerated somewhat in the last couple of quarters as that channel itself has experienced structural difficulties as we talked about previously. And by structural difficulties I mean some companies such as Nortel have obviously been in a great deal of distress.

With respect to Europe, I don’t mean to imply it’s a sales execution issue. I should have included this and excuse me for not including it in the first question you asked. One thing that has changed substantially between the first and second quarter is our perception of the economic climate in Europe which got markedly worse in the second quarter. I, we just finished our operational review of our European operations and actually I think our execution there is going reasonably well but it’s a very adverse environment.

Operator

Your next question comes from Daniel Ives - FBR Capital Markets & Co.

Daniel Ives - FBR Capital Markets & Co.

I guess the question on the Enterprise side, what did you do in the quarter? Or at least talk about what you’re seeing [audio impairment] feel that shows improvement on the Enterprise and given that’s sustainable. That’s my first question.

Paul Ricci

Sorry, just say the second half of that question again?

Daniel Ives - FBR Capital Markets & Co.

On the Enterprise, you know, it improved sequentially right? In the tough environment which no doubt was the part of your business which maybe you were fearing was the worst, what happened kind of month-over-month that saw that business improving? Do you see that’s sustainable into the rest of the year?

Paul Ricci

Well, the nature of our Enterprise business now as a business that combines core technology, applications and services is that it involves longer term engagements that, with revenue that’s recognized over a longer period of time. I mean as we move towards that model and put more resources behind that model including more salespeople and more professional services people we have been able to build on that. And I think that will continue to happen. To some extent that aspect of our business is benefiting from the structural issues in the channel I mentioned as we’re moving in to fill something of a void there. And I think what we saw second quarter over first quarter was just a continuation of that work and effort, of the ground work we’ve been laying for the last several quarters there.

Daniel Ives - FBR Capital Markets & Co.

And just a final question. I mean, you put it in the press release so I could ask it, Apple? Could you kind of talk about that relationship and, you know, what’s happened there and the technology partnership?

Paul Ricci

I can’t say anything more than whatever the reference is. I apologize.

Operator

Your next question comes from Richard Davis - Needham & Company.

Richard Davis - Needham & Company

One, just kind of a general question, we’ve heard from several software companies that buyers, corporate buyers across multiple verticals will do deals if the intermediate or the short-term costs are low which would kind of reflect your growth and your subscription side of your business. But they will do so, and I don’t want to say in the negative way, but they will actually in subsequent years it will be more beneficial to the vendor, i.e., the software company than it is in the first year. Are you kind of seeing that happen and is that therefore reflected in your kind of outlook and guidance?

Paul Ricci

I think there’s no question at least in our experience that there is a heightened interest in on-demand solutions in significant part because they reduce expenses quickly without capital outlays or internal application development outlays at the target, at the buyer. And I do think they’re prepared to accept the sellers getting long-term economic benefits from those hosted models as part of that bargain, yes.

Operator

Your next question comes from Derek Bingham - Goldman Sachs.

Analyst for Derek Bingham – Goldman Sachs

Just a couple of questions. Healthcare Dictation, a small sequential decline on that line, $205. What is something different from what you expected in the first quarter moving into the second quarter?

Paul Ricci

Yes, and this ties back to a question I was asked earlier. The Healthcare Dictation line includes our non-medical dictation, a Dragon product in consumer, small business and business channels. And that particular revenue stream has been hit hard and did perform worse in the second quarter than we anticipated. And that’s the most significant difference in that line from the first quarter.

Analyst for Derek Bingham – Goldman Sachs

Could you give me an estimate of how much is the normal medical dictation on that line?

Paul Ricci

No, I can’t, because we don’t break it out. But it’s a small, it’s a minority part of that revenue stream.

Operator

Your next question comes from Shyam Patil - Raymond James.

Shyam Patil - Raymond James

Paul, could you give us a sense as to how you’re thinking about, you know, revenue growth for the three segments that you report? Or thinking about them as a percent of revenue, you know, relative to your ’09 guidance?

Paul Ricci

I don’t want to try and give you numbers, but I can speak to what I think the trends are going to be, the effects are going to be over the next couple of quarters. We do think, first of all talking briefly about Imaging that it will benefit from a couple of new product launches, product refreshes in that business over the balance of the year. That’s historically been the case and even if the current climate mitigates that somewhat I still think it will be a beneficial effect.

We’ve had strong bookings in both our Healthcare and our Enterprise. Speaking first about Healthcare, we are going to I believe see continued growth in our on-demand. We’ve historically been growing relatively steadily in our Dragon Medical Solution and we think that will continue particularly as its being used in conjunction with EMR Systems which is as you know getting a great deal of attention now. Our Philips business in Europe has also been performing quite well for us, so we expect that business to continue to grow based on the trends we’ve seen. We’re expecting that the sales cycle issues that I referenced in on premise will continue, although our pipeline projection right now does show it mitigating somewhat in the second half.

In Enterprise, I think it is largely a continuation of what we’ve seen. Strong performance of our on-demand business, steady growth, less growth but steady growth in our Solutions, driven by our professional service implementations in large customers primarily in North America.

Now in Mobility we have seen a market reduction in royalties because all of the underlying devices we’re shipping on are shipping far fewer units. You know those numbers yourself from what’s being published in the press and of course our royalties are affected adversely by that. We are going to see later this year some additional revenues in Mobile from some Mobile services that we’re doing in conjunction with partners. Those will be relatively modest in the overall picture.

Shyam Patil - Raymond James

When you look at the second half of your fiscal year and particularly your revenue, your revenue estimates, your revenue guidance, how much of that would you characterize as being backlog versus book and ship? Just trying to get a sense of your visibility heading into the back half of the fiscal year.

Paul Ricci

We’ve historically given some indications about those revenues that are booked and recognized intra-quarter, and that’s been in the range of 25 or 30%. And I think that’s the right number for the second half of the year as well. The proportion of our revenues which we refer to in Nuance as recurring or visible in advance of the quarter has gone up slightly, but I think that’s still a relatively good number.

Operator

Your next question comes from Tom Roderick - Thomas Weisel Partners.

Tom Roderick - Thomas Weisel Partners

So maybe turning to the margin side here a little bit, it looks like margins are up just about 700 basis points year-on-year. Can you give us a sense how much of this margin improvement came from synergies within the Healthcare acquisitions particularly eScription and Philips? And then when you look at that margin line, do you still think it can go higher? What’s the mid-term target from here?

Paul Ricci

With respect to your first question, I, the margin improvements have drawn from a number of things. We’ve been very aggressive on overall cost containment including reengineering processes. There’s been a lot of progress in the last year within our finance and operational organizations for streamlining Nuance’s back office infrastructure, insuring the complete integration of the administrative aspects of past acquisitions. So we’ve had some benefits there. We’ve, as I think you would expect we’ve constrained hiring beyond what we initially planned. We’ve seen terrific improvements in our gross margins and services which have to do with improved operational efficiencies in our hosted businesses, owing in part from volume and scale and in part to just operational productivity gains. And also improvement in margins in our professional services going to improved utilization rates. So it’s really been a factor of things. We also just as we have suffered from currency in our revenues, we’ve benefited from currency of course in our expenses as well.

Now with respect to improved margins, I think you can infer from the guidance some expectation on margin increases in the second half of the year but I do want to be cautious, I want to sound a note of caution here that at the same time we are making significant investments in our growing revenue streams and in particular in our Mobile Services initiatives which are very costly, in expanding our sales coverage for our hosted solutions, which is also costly. So I don’t want to build too much expectation of increased margin improvement as we look at the full year. I do think we’re going to deliver on the margin gains year-over-year that we had suggested we would achieve in the full year, but I want to be cautious in extrapolating out from there.

Tom Roderick - Thomas Weisel Partners

And turning to the Enterprise side here, you announced in the script two large Enterprise wins with Fortune 100 companies. Can you give us a sense, are both of these deals going to be on the hosted side of the Enterprise business? And with respect to, you know, these two deals and maybe some of the other pipeline wins you’ve talked about when can we expect that they’ll contribute to revenues and lead to a reacceleration in the revenue growth line?

Paul Ricci

They are both on-demand deals, and the nature of the implementation side of large hosted Enterprise deals is that it takes roughly a minimum of six months and sometimes longer. And they usually are implemented in phases. So we’ll see contributions from these deals in fiscal year ’10.

Operator

Your next question comes from Abhey Lambda – UBS.

Abhey Lambda – UBS

Paul, just [shouting] a little bit about your business in Europe. From a lot of our conversations people have been saying there’s about a six month lag between North America, Europe. Is that your experience and should we expect a similar type of lag in your business over there as well? And what are your assumptions for the European business for the rest of ’09?

Paul Ricci

Well, I don’t know how to characterize the six month lag. We saw our European business performed well throughout fiscal ’08. It had a so-so quarter in the first quarter of ’9 and a worse quarter in the second quarter of ’9. And we do, we are looking for the second half of the year for some improvement in that but only a modest improvement imbedded in our guidance. So that’s our general outlook right now.

Abhey Lambda – UBS

And can you quantify the impact of currency on revenue and earnings? And lastly, you mentioned some design wins on the Mobile side and it was the [text] area and all that. When will you be able to monetize those vendors? That also fiscal ’10 phenomena or do you expect any monetizing towards the end of this year?

Paul Ricci

On your latter question we’ll see some benefits from the mobile wins this year, and in the second half of this year and continuing benefits in fiscal ’10. And I don’t have a precise number on the currency effect.

Operator

Your next question comes from John Bright - Avondale Partners LLC.

John Bright - Avondale Partners LLC

Paul, where are we in the transition within the Healthcare Dictation segment of your business from on-premise solutions to on-demand solutions?

Paul Ricci

Well, the, within Healthcare on-demand is still less than half our business, but it is growing much faster than the other elements of our business. And I think that’s a trend that’s going to continue but I should emphasize that just as in the Enterprise segment there are going to be a large segment of our customers who conclude that on-premise implementation is the economically superior solution for them and they’re going to continue to do business that way. And that’s the way we’re going to serve them. But I think in our market we will see a continued evolution of a proportion of customers towards the hosted business and I think that’s going to continue for the next several years.

John Bright - Avondale Partners LLC

Are you baking in the assumption that capital budgets will remain tight going through the rest of this fiscal year?

Paul Ricci

Yes.

John Bright - Avondale Partners LLC

On Dragon Naturally Speaking, what if any impact will the upcoming Windows 7 upgrade have on the performance of Dragon Naturally Speaking during the quarter do you think?

Paul Ricci

I think it was imperceptible if any. I think it wasn’t consequential.

John Bright - Avondale Partners LLC

This stimulus, you talked about EMR records or EMR a moment ago. Connect the dots in how Nuance could benefit. I know you were talking with hospital leaders about this. Do you see this as being a meaningful potential driver for Nuance?

Paul Ricci

I think it is going to be a meaningful contributor but I think it’s going to take some time and I think it’s going to be a steady influence over the next 12 or 18 months, so I don’t want to suggest anything precipitous in that. But clearly there’s, as the actual implementation of the stimulus gets worked out and there will be incentives and I do think we will benefit along with other healthcare IT systems from implementations driven by that stimulus.

Operator

Your next question comes from Scott Sutherland - Wedbush Morgan Securities Inc.

Scott Sutherland - Wedbush Morgan Securities Inc.

A couple questions. First, you know, you started getting some revenue on this SNAPin acquisition in mobile care. Can you talk about how that is expected to ramp? Did you get meaningful revenue and is it going to ramp further from there? Or how is that trending?

Paul Ricci

Well, I think we, when we acquired SNAPin we gave some guidance on the revenues and I don’t have that guidance in front of me but I believe it was in the range of $25 million. And I think we’ll achieve, we’ll substantially achieve that guidance over the entirety of fiscal ’09.

Scott Sutherland - Wedbush Morgan Securities Inc.

The second part of my question was is it ramping further in Q3 from these levels?

Paul Ricci

I can’t give a product line estimate, guidance for this quarter.

Scott Sutherland - Wedbush Morgan Securities Inc.

My next question was I know you’re getting a lot of your revenue in Mobile from navigation and mobile phones, but what other type of device opportunities are you seeing out there? I know you’re on the Kindle and anything else out there?

Paul Ricci

Well, the preponderance of our revenues do come from phones, cars and navigation devices. There are a small but growing number of other devices and you referenced one of them, but they are a relatively small proportion of our revenues today.

Operator

Your next question comes from Mark Murphy - Piper Jaffray.

Mark Murphy - Piper Jaffray

What does the current guidance imply for an organic revenue growth rate for the June quarter and also for the year?

Paul Ricci

I don’t know. I don’t have that number.

Mark Murphy - Piper Jaffray

So far in April and May, you know, can you talk about whether anything feels different in terms of close rates, linearity early in the quarter, is there anything that might indicate to you a stabilization process or kind of a slower rate of deterioration?

Paul Ricci

I don’t have any quantitative data to share with you from the third quarter. I will tell you qualitatively that our sales organization does reflect more optimism in this quarter than we’ve seen in the past quarter.

Mark Murphy - Piper Jaffray

And then going back to and I know you’ve taken a question on this already, but the commentary about newer consumer electronics from Amazon, Apple, Samsung and Tom-Tom, could you maybe just, with the understanding that you can’t go into detail here, which of those cases are you referencing as something that’s currently shipping that’s visible to us versus something that’s a design win that we’ll learn about in the future?

Paul Ricci

I don’t have the data to tell you which of our references involve existing shipments and which, shipments currently and which involve shipments in the near future. Of the ones you mentioned, several of those are at least at some level shipping today. And I think all of those will involve future shipments over the next 12 months.

Mark Murphy - Piper Jaffray

And then also in the prepared remarks you referenced favorable bookings trends observed in Q2 and I’m just, I’m wondering is that occurring mostly off balance sheet? Because the on balance sheet deferred revenue declined sequentially, so I’m wondering if that’s a phenomena around the on-demand part of the business that’s occurring off balance sheet?

Paul Ricci

Well, I’m not sure quite what you mean with respect to bookings and the balance sheet. These are not deferred revenue. These are contracts we’ve won that will result in revenues in future quarters. So the answer is yes, I guess.

Operator

Your next question comes from Michael Latimore - Northland Securities.

Michael Latimore - Northland Securities

Just on the Healthcare and Dictation segment one more time. The sequential increase in the second quarter there, which had a more pronounced effect on that in terms of absolute dollars, the non-medical or the medical?

Paul Ricci

Can I just ask you to repeat the first half of the question? I didn’t quite hear it.

Michael Latimore - Northland Securities

Yes. In terms of the Healthcare and Dictation revenue segment it was down, you know, the sequential trend, which segment had a bigger sequential effect on that revenue line in absolute dollars? Was it the medical or the non-medical piece of that?

Paul Ricci

The Healthcare, within Healthcare Dictation the medical piece is the preponderant share of that, proportion of that revenues and really significantly swings the business. We did see because of the significant decline in non-healthcare dictation it did have a more meaningful effect in that number than it’s had in the past.

Michael Latimore - Northland Securities

And then in terms of the SNAPin revenues, if you look to the full year, you know, you sound like you’re on track in terms of the SNAPin business. Of the amount that you’re looking to get in 2009 here, what percent is sort of transaction based revenue versus maybe up front implementation type of service revenue?

Paul Ricci

Well, I don’t have that number. The Mobile care business involves a combination of licenses, services and royalties based on devices implemented, devices shipped. And I don’t know quite what the breakout is.

Michael Latimore - Northland Securities

In the on-demand segment is the split between Healthcare and Enterprise similar to last quarter?

Paul Ricci

Both are growing at about the same rate so I think the answer has to be yes.

Operator

Your next question comes from [David Dileo] – Canaccord Adams.

[David Dileo] – Canaccord Adams

Just a quick question here, guidance for Q3 and full year, if you could how much of that guidance includes acquisition activity? Are we looking at, obviously market’s kind of recovering here. What are you guys thoughts around acquisition activity going forward?

Paul Ricci

Well, we’re not assuming any acquisitions in the guidance that, we’re not assuming any additional acquisitions in the guidance we’ve given for the third and fourth quarter.

[David Dileo] – Canaccord Adams

And then just kind of high level speaking kind of directionally, are you seeing kind of a turnaround in the market? Is there anything you can talk about there? I know it’s not in the guidance but just kind of directionally is it starting to get better out there?

Paul Ricci

By the market do you mean the general climate that we’re selling into?

[David Dileo] – Canaccord Adams

Yes, and just kind of potentials for continued acquisition activity.

Paul Ricci

Well, those are two separate questions. Let me first of all speak to the general economic climate. I think our assumptions are reasonably similar to what you’re probably hearing from other people. We’re not assuming the economic climate’s improving, we’re just assuming it’s not going to get any worse.

With respect to the acquisition climate, it’s very difficult to speculate. Certainly assets are cheaper than they’ve been for some time. Whether sellers are willing to part with them at the prices that are appearing in the market right now is another matter and our view is to be patient and cautious.

Operator

Your last question comes from Craig Nankervis - First Analysis Corporation.

Craig Nankervis - First Analysis Corporation

With your favorable hosted color, Paul, are you willing to roughly project the percent of revenue in fiscal ’10 coming from hosted business overall versus the roughly 30% you’re at today? I think we’ll start there.

Paul Ricci

Well, I think I can only say to you it is going to be a larger proportion of revenues in fiscal ’10 than it’s going to be today. And it will be appreciably so, given just the fundamental arithmetic of the respective growth rates. I don’t want to get into right now estimates around fiscal ’10 so I think I can’t say anymore than that.

Craig Nankervis - First Analysis Corporation

On the cost cutting, this maybe overlaps with a question previously asked but so what? How much more cost cutting can you effect without cutting into the bone and starting to eat into your business growth objectives?

Paul Ricci

Well, we’re always looking for the right balance between cost and investment in growth. We will continue to, Nuance has hired significantly over the last year in certain technical areas and in certain sales operations around the world and we will continue to do that over the balance of this year. At the same time there remain opportunities for improvements in cost. We spend hundreds of millions of dollars a year with third party suppliers and we have little remorse about encouraging them to reduce their costs to us so that remains an opportunity and consolidation of some operations remain an opportunity. But I think your question speaks fairly to the point that at the margins we’re at now we’ll have to be careful that we’re balancing our growth investments of which we have many with any further reductions.

Craig Nankervis - First Analysis Corporation

And do you think a 30% plus operating margin is sustainable in a somewhat better environment for sort of forgetting can it grow from here but is it sustainable at 30% plus in sort of a more normal environment?

Paul Ricci

The answer’s yes. We have shown steady improvement in our operating margins during periods of relatively high growth and now in a period of relatively low growth, and I think there’s no reason to believe that we can’t sustain the, maintain the productivity gains we’ve built into the business now.

Operator

Thank you, and presenters I turn the call back to you.

Paul Ricci

Okay, well, then, thank you all very much for joining us again this quarter and we look forward to speaking to you next quarter. Take care.

Operator

Thank you, and ladies and gentlemen this conference is being made available for replay by your host and that will be from today at 7:00 PM through May 25 at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code 998061. International participants please dial 1-320-365-3844. Those numbers again are 1-800-475-6701. International 1-320-365-3844 and the access code 998061. That does then conclude our conference for today. We thank you for your participation as well as using AT&T’s Executive Teleconference Service. You may now disconnect.

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