Trintech Group PLC F1Q10 (04/30/09) Earnings Call Transcript

Trintech Group PLC (TTPA)

F1Q10 Earnings Call

May 27, 2009 10:30 am ET

Executives

Cyril McGuire - Chief Executive Officer

Paul Byrne - President

Joe Seery - Vice President of Finance Group

Analysts

Ivan Skelly - Davy

Dan Cavanagh - Goodbody Stockbrokers

Presentation

Operator

Thank you for standing by and welcome to Trintech’s first quarter fiscal 2010 earnings call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions)

I’d now like to hand the conference over to your speaker today, Joe Seery. Please go ahead.

Joe Seery

Good afternoon ladies and gentlemen. I would like to welcome you all to Trintech’s first quarter and fiscal year 2010 earnings conference call. My name is Joe Seery, VP of Finance Group and joining me on today’s call are Cyril McGuire, CEO of Trintech; and Paul Byrne, President.

We will begin the call with prepared remarks, which will be followed by a question-and-answer session. A replay of this conference call will be available later this evening on the Investor Relations section of Trintech’s website or by dialing 44 for the UK, then 1452-550-000, the passcode is 82714337#.

I would like to remind you that this conference call will contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 as amended and Section 21E of the U.S. Securities Exchange Act of 1934 as amended.

In particular, forward-looking statements will include amongst other things statements related to Trintech’s revenues, gross margins, expenses and charges, interest income, U.S. GAAP net loss, adjusted EBITDA and net income, cash flows, cash balance, DSO days, growth opportunities presented by Trintech’s focus on new product investments and new market segments, management focus on EBITDA earnings and cash generation, increased opportunities for Trintech financial convenience, transaction rate for management and compliance solutions and expected impact of the US economic stimulus package on healthcare IT spending, management focus on the current revenues, plans to continue to have no debt or borrowings, business strategy, deposits on new business and overall financial performance in Q2 FY ‘10.

All forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stages. Factors that could cause or contribute to such differences include Trintech’s ability to accurately predict future sales; its ability to accurately predict and meet customer needs and to successfully position itself in the market; its ability to ensure the performance of its products and services; and its ability to improve the performance of its organization and ensure the long-term health of its business.

Actual performance may also be affected by other factors more fully discussed in our Form 20F for the year fiscal year 2008 and subsequent filings with the Securities and Exchange Commission which are available on the SEC’s EDGAR database and in the final paragraph of our earnings press release issued earlier today, which is available on our website www.trintech.com.

We will also comment on adjusted EBITDA results which have been included together with the reconciliation to US GAAP results in the earnings release. The release is also available on our website, www.trintech.com, can be downloaded in PDF format. Lastly, ladies and gentlemen, please understand the company undertakes no obligation to update information presented in this conference call or ensuing questions-and-answers.

With that, I would now like to hand over to Cyril McGuire to focus on our Q1 FY ‘10 results.

Cyril McGuire

Thank you, Joe and good afternoon ladies and gentlemen. As we announced earlier today in our press release Trintech’s performance in Q1 was solid and we achieved our market guidance despite the challenging global economic environment, with underlying adjusted EBITDA earnings growth of 71% to $693,000 and revenues of $9.2 million being achieved in the quarter.

Starting with our revenue performance, Trintech generated revenues of $9.2 million in Q1, compared to $9.6 million for the same periods in the prior year, which represented a solid decline of 5%. License revenue of $4.8 million in Q1 compared to $4.9 million for the same period last year, represented a modest decline of 2% on the corresponding periods in the prior year.

During Q1 we closed and announced a number of significant customers like Wal-Mart, Marriott International, Altera Corporation, Spotless and British American Shared Services. We also successfully signed our largest ever contract, which was a multi-million dollar, multi year agreement to license ClearContracts, our healthcare solution to one of the largest US healthcare providers. The significant contract and industry endorsement, underpins the strong position of our ClearContracts solution in the growing revenue cycle management marketplace.

Generally our markets performed reasonably well, with business holding up in the challenging condition. However, the continued economic uncertainty in the global market is impacting our normal sales cycle, with customers becoming cautious; procurement processes lengthening and general delays in budget approvals, which are creating many challenges to close new business.

Despite the trading conditions we continue to experience good pipelines and prospect opportunities for our governance, risk and compliance, GRC products both in the US and internationally, as there is still a growing need for organization to improve operational efficiencies by automating their financial processes, lowering costs and risks and strengthening financial visibility and controls in their organizations.

In healthcare, there is still robust demand for revenue cycle management solutions as hospitals and healthcare providers target greater efficiencies in claims reimbursement and maximizing the revenue recovery.

Moving onto service revenue; it came in as $4.4 million in Q1, compared to $4.7 million for the same period last year, representing a decrease of 8%. The decrease was primarily due to a fall in revenues from our GRC business in the US and the European markets, which was partially offset by increased SaaS service revenue in our Healthcare business in the US. Our on-demand services business unit met its quarterly revenue target and continues to be a robust performer as we build up our recurring revenue streams as a business.

Our healthcare division continues to grow its SaaS revenue based in the quarter, with a prospect pipeline continuing to grow, with some significant business opportunities being targeted. As mentioned earlier we also signed our largest ever contract, which is a multi million dollar contract with the leading US healthcare provider in March of this year 2009. We expect to start booking revenue from this contract in the next fiscal year following completion of a pilot program.

Finally, it is worth noting that recurring license and recurring transaction services revenue accounted for over 70% of our quarterly revenue in Q1 FY ‘10. Our business model provides good visibility with a high level of recurring revenue, which provides some protection from the swings in the general economy. It will continue to be a key focus for management as we grow our business moving forward.

During Q1, Trintech continue to make investments across all product lines, both in terms of research and development for new products and new client functionality, as well as sales and marketing campaigns as we executed on our sales plans, across the broad range of vertical and international market and healthcare opportunities, where we believe there are good prospects for growth.

Our R&D efforts are focused on unifying our product functionality into a single platform targeted at the office of the finance across multiple industries. The first phase of this development will be a common operational dashboard to facilitate management reporting for our combined product suite of applications.

The latest release of our GRC ReconNET, AssureNET and Unity Suites addresses the key challenges of providing customers with the tools they need to provide the visibility and financial transparency demanded by corporate officers, to manage and drive change in their business, as well as fully comply with the increasing regulatory requirements, while achieving a significant return on investment.

On the sales and marketing front, during the past year we focused on expanding our footprints in the shared services and the business process outsourcing or BPO industry, where we feel there is a trend by companies to outsource activities and processes to increase efficiencies into operating cost base to drive a measurable ROI and profitability.

In this regard, during Q1, we were a response and speaker at the IQPC Shared Services Event in Florida, which is the largest annual gathering of shared service professionals in the world, attracting over 600 attendees from over 22 countries. Trintech exhibited the GRC solutions and led an industry panel discussion with one of our key partners KPMG at the conference. We also produced during the quarter, a Financial Executive Institute Webinar on the topic of the Financial Close, which was jointly presented by Trintech and Hewlett-Packard, another key partner.

We are also boosting our channel partner capability by investing additional business development and training resources targeted at deepening our distribution network capability for our products and services, both in the U.S. and international, in key niche markets. In April we also launched a monthly customer webinar series for all our products. We also rolled out an extensive product training package to channel partners.

We are confident that these new product investments and increased focus on new market segment are generating good sales pipeline. While these investments will have a negative impact on earnings in the short term, we feel they will position Trintech in this emerging market opportunity, for growth in the medium to long term.

Now turning briefly to some key performance metrics in Q1’s results; during the quarter the business performed to market guidance on the key performance metrics of revenue, gross margin, operating costs, cash generation and more importantly adjusted EBITDA earnings performance.

Gross margin amounted to $6.1 million for Q1, representing 66% of revenue compared to $6.7 million representing 69% for the same period in the preceding year. The decrease in margin and margin percentage was due to lower service revenues and the resulting fall in service margin caused by lower utilization rates in our GRC service business in Q1.

Total operating costs were $6.5 million in Q1, compared to $7.5 million for the same periods in the prior year, representing a decline of 13% due mainly to realigning our operating cost base primarily by headcount reduction and maintaining a strict control on all expenditures globally.

The volatility of the US dollar against the Euro and its impact on our Euro based cost generally did not help, but we continue to use FX hedge contracts for our incremental exposure that is not naturally hedged by our Euro or Sterling revenue streams. In general, we are continuing to adjust our cost base globally, so as to achieve an efficient and productive operating business model, given the uncertain market outlook.

On a consolidated basis Trintech recorded adjusted EBITDA net income of $693,000 in Q1, representing an 8% adjusted EBITDA net income margin, compared to an adjusted EBITDA net income of $405,000 and a 4% margin for the corresponding periods in the prior year. Q1 represented the sixth consecutive quarter that the company has achieved adjusted EBITDA profitability.

On a full US GAAP basis the company recorded a net loss of $411,000 in Q1, compared to a net loss of $488,000 for the same period in the preceding year. Trintech’s DSOs were 52 days for Q1 and net cash generated from operations were strong at $1.3 million. Cash from operations will continue to be a major focus for management, as we aim to be EBITDA profitable every quarter during our fiscal year 2010.

Finally, our balance sheet at the end of Q1 remained strong, with group cash reserves of $17.1 million, including restricted cash of $170,000 and after final acquisition payments of $2.9 million were paid during Q1. We continue to have no debt or bank borrowings and with the current difficulty in the banking and credit markets, the company intends to continue with this prudent financial policy.

In summary, we continue to see opportunities for our financial governance, risk management and compliance solutions globally, as we expect the benefit in the medium term from a trend towards greater automation of financial processes, improved transparency in financial operations, increased regulatory compliance and the risk aversion, while ensuring an efficient operating cost base for our clients and partners.

In the expanding healthcare market we see the increased opportunities from our revenue cycle management software applications, which aimed to deliver improved revenue recovery and enhanced profitability for our healthcare clients. This is evidenced by our large multi-million dollar contract win during the quarter. In addition the $770 billion economic stimulus package for the healthcare sector is significantly increasing healthcare IT spending in the near future.

Our current concentrations in the various vertical markets are approximately corporate, including retail 75%, healthcare 15% and financial services 10%. This broad mix gives Trintech some protection against the challenging financial services marketplace at the moment.

Our operating plan is to drive sustainable growth in EBITDA profitability, with a strict control on our operating cost base, given the challenges of the economic environment. We will maintain a strong focus on our recurring revenue streams within our revenue mix for predictability and visibility in our business model. Our objective is to maintain the current revenue at between 60% and 70% of total revenues moving forward.

Looking briefly to the outlook for Q2, while we are confident about our business in general, we feel it is appropriate to be very realistic and prudent a market guidance, given the impact of the challenging economic environment. In this regard, we are targeting a $9 million to $9.5 million revenue range in Q2 and a target adjusted EBITDA net income range of between $600,000 and $800,000, representing a 7% to 9% net adjusted EBITDA income margin.

For the full year, we are focusing on growth in the EBITDA earnings and cash flow generations as the business aims to achieve sustainable EBITDA profitability. Management is also very focused on achieving continued sales execution given our strong position in our respective markets, by realizing our strategic and operating plans for our organic business in FY ‘10.

With that, I’d like to hand back to Joe Seery, VP of Finance Group, who will summarize the Q1 F’10 financial results for you in greater detail. Joe.

Joe Seery

Thanks Cyril. In reporting the financial results for the first quarter ended April 30, 2009, I am focusing on the U.S. GAAP results detailed in our earnings press release, which was distributed this morning. I will also comment on adjusted EBITDA results, which have been included together with the reconciliation to U.S. GAAP results in the earnings release.

Revenue for the first quarter ended April 30, 2009 was $9.2 million compared with $9.6 million in the corresponding quarter in the prior year, a decrease of 5%. Currency exchange movement accounts for approximately $150,000 or 1.5% of this decrease.

Software license revenue for the quarter ended April 30, 2009 was $4.8 million, compared with $4.9 million for the corresponding quarter in the prior year, a decrease of 2%. The decrease was primarily due to weaker GRC license sales in the quarter in the U.S. and European markets.

Due to economic uncertainty in these markets negatively impacted our normal sales cycles, the customers are becoming more cautious, with procurement processes lengthening and general uncertainty creating significant challenges to build new business. This fall in revenues was partially offset by stronger maintenance revenues from existing customers.

Service revenues for the quarter ended April 30, 2009 was $4.4 million, compared with $4.7 million for the corresponding quarter in the prior year, a decrease of 8%. The decrease was primarily due to a fall in revenues from our GRC business in the U.S. and European market, which is partially offset by increased SaaS services in our Healthcare business in the U.S.

Total gross margin for the first quarter ended April 30, 2009 was $6.1 million, a decrease of 9% from $6.7 million into the corresponding quarter in the prior year. Gross margin percentage decreased to 66% in Q1 of the 2010 fiscal year, compared to 69% in the same period of the prior year. The decrease in margin and margin percentage was due to lower service revenues and a resulting fall in service margin caused by lower utilization rates in our GRC service business in Q1 of the 2010 fiscal year.

Total operating expenses for the first quarter ended April 30, 2009 was $6.5 million, a decrease of 13% from $7.5 million in the corresponding quarter in the prior year. The decrease in cost was primarily due to headcount reductions and lower carrying costs, in addition to a reduction in discretionary expenditure in all areas over the last year, as the economic position worsened in US and Europe. The strengthening of the dollar versus the pound and the euro accounted for approximately $350,000 of this operating cost reduction compared to Q1 in the prior year.

Adjusted EBITDA, operating expenses for the quarter ended April 30, 2009 were $5.6 million, a decrease of 15%, compared to adjusted EBITDA operating expenses of $6.6 million for the corresponding period in the prior year. Restructuring expenses were $234,000 for the quarter ended April 30, 2009. These charges related primarily to employee termination costs as a result of the company realigning its cost base in the current difficult economic environment.

The provision for income taxes was $36,000 for the quarter ended April 30, 2009, which related to state taxes payable in the US. Adjusted EBITDA net income was $693,000 for the first quarter ended April 30, 2009 compared to an adjusted EBITDA net income of $405,000 for the corresponding period in the prior year.

A full reconciliation of our performance, our net income and adjusted EBITDA net income basis is contained in the press release issued earlier today. Within the operating cost base, the depreciation charge for Q1 was $157,000. The amortization charge was $593,000 for the first quarter.

We also encouraged share based compensation charge at $99,000 in the quarter. Interest income amounted to $25,000, and also a foreign exchange gain of $61,000 in Q1, arising from unrealized exchange gains. Basic and diluted net loss per equivalent ADS for Q1 amounted to $0.03, which was the same as Q1 in the prior year.

Now turning to the balance sheet, at the end of April 2009, Trintech had total assets of $54 million. Net cash amounted to $17.1 million, including restricted cash balances of $170,000. Working capital was $9.1 million and current liabilities were $14.4 million as of April 30, 2009. Net cash utilized including restricted cash for the three months ended April 30, 2009 was $1.6 million.

Cash connections were very good in the quarter with DSOs at 52 days. The AR provision has been increased to $327,000 at quarter end, to account for any potential bad debt in the AR balance at the end of the quarter under the current economic environment. However, we continue to experience a low level of bad debt due to our exposure to the larger company in our various markets. Our total headcount at the end of Q1 was 209 compared to 223 at the end of Q4 of fiscal 2009.

Looking ahead to Q2 of fiscal year 2010 let me preface my comments on our business outlook, while stating that these comments are based on the current expectations. These are forward-looking and involve a number of risks and uncertainties. Actual results may differ materially.

I’d like to draw your attention to the opening comments made at the start of this call in reference to the use of forward-looking statements during this call and factors which could adversely affect the actual performance. Guidance is for the second quarter of fiscal year 2010 only.

While its revenue visibility remains unclear we would expect based on current pipelines, current revenue for Q2 to be in the $9 million to $9.5 million. We expect license revenue for Q2 to be in the $4.7 million to $5 million range. We expect services revenues for Q2 to be in the $4.3 million to $4.5 million range. Based on the expected revenue mix, we expect Q2 gross margins to be in the 65% to 67% range. We expect adjusted EBITDA operating expenses will be between $5.5 million and $5.8 million for Q2.

These costs exclude an expected depreciation charge of approximately $170,000 and expected charge for the amortization of purchased intangible assets of $595,000, restructuring costs of $50,000, expected share-based compensation charge of $125,000 and an expected tax charge of $50,000. We also expect a year-end interest income of approximately $25,000 for Q2.

Consequently given the continued investment in our stated growth areas, we believe that our US GAAP net loss for the business will be between $100,000 and $300,000 in quarter two. Adjusted EBITDA net income will then be within a range of $600,000 to $800,000 in Q2. This can be calculated by adjusting net income for the expected interest tax depreciation, amortization, restructuring and stock compensation charges.

Due to our strong cash generation from operations in Q1, we expect our net cash movement for Q2 to be in the range of $500,000 to $800,000 cash outflow. The net cash balance at the end of Q2 is expected to be in the range of $16.3 million to $16.6 million. For the first half of the year, we expect cash from operations to be within a range $500,000 to $800,000 positive. We expect our DSO days range in Q2 to be between 60 to 65 days.

With that, I’d like to hand it back to Cyril.

Cyril Mcguire

Thank you. Joe and now I would like to open the call up for Q-and-A. Tony?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ivan Skelly - Davy.

Ivan Skelly - Davy

I just want to see on the expenses first and you’re R&D, you were talking about them basically inline with ’08. Are you expecting the effective R&D expense to remain where it is throughout the year or would we expect that to be a little varied over the quarter?

Then the sales and marketing, and general and administration expenses, would we expect to see them kind of level-off from where they were at the current run-rate or is there more to go; we see the benefit of the full year or the full quarter after we search for income going forward?

Paul Byrne

This is Paul here and on the expenses side, I think this is worth just noting that, our cost base has come down as you know I can point them. There are really three factors driving that; first, year-over-year has been the synergy, so cheap on the acquisition.

Quarter one last years was the first quarter we have the Movaris acquisition, so we didn’t restart the [Inaudible] after that, but that has a significant impact on the costs, particularly as said in the marketing area and probably it’s the biggest single reason why sales and marketing has come down year-over-year.

The second reason is that the services costs are down, because the service revenue is down and that’s one of the trends we are seeing in the market place generally. Lastly and obviously, general economic environment; it looks like everybody is approving our costs and that’s really where we tackled the G&A cost.

So from where we are now, moving forward we would think R&D and the finance will be flat to where it is now. In reality we will be recurring more R&D, but some of that will be capitalized for the specific Healthcare contract and then we’ll get munched off when the revenue gets recognized. So the net R&D spend, I think that would be the same, but the real dollars spend will be higher.

Sales and marketing should be where it is now. With a very efficient sales structure in place, we’ve got a very good team of people now and we’ve kept the best in every position and consequently we expect to run the division successfully on right about the current run rate and maybe we’re down quarter-to-quarter by a couple of percent, but the ballpark, it is where we are now.

G&A we think it’s the same thing. We flattened our G&A and are substantially not carrying any excess of leases anywhere out of the current company, specifically all the short term leases by one, which is the Dallas office and so consequently we are pretty efficient on the G&A side. So I think we can map out the current cost rate going forward as the run rate.

Ivan Skelly - Davy

Okay thanks. Another one if I can, on the healthcare sector, just you talked about the increased IT spend coming through from the U.S. stimulus package there. I was wondering if we could read through fairly obviously from that and we’ve expected that to continue to increase as we go forward.

I was just wondering does that change the revenue profile in anyway. I know you talked about recurring revenue previously maintaining more like 50% and mainly targeting 60%, 70%; do you get a bit more visibility with a different model on the healthcare side or what should we be looking at there?

Paul Byrne

Absolutely Ivan, we’ll get more visibility. I mean we won the healthcare business, totally on a SaaS basis. So what we do, we generally sign-up three year contracts, initiate the customers and we recognize the revenue monthly over the timeframe once they go into production and are liable to system.

So we do get significant visibilities on that and we are experiencing an upswing in interest there and another upswing in demand, primarily because like all companies, healthcare providers are struggling to maximize their revenues, where their costs are going up greater than general inflation. Like insurance companies are pushing for decreases in reinvestment schedules and medical inflation is running as hard as the general inflation.

So both customers and prospects are really looking at ways to drive more revenue out of the insurance contracts; this is where we come in. So there is like rising demand there, but from revenue and accounting perspective. Because its SaaS based it gradually goes up on a general incline or an artistic type incline, to cover the recurring nature.

Cyril McGuire

So I think it’s important to note the quality of those revenues i.e., 70%, and we’re just being cautious by telling the target as 60% to 70%, because it all depends on the revenue mix, but clearly management’s focus is to built robust size and recurring revenue streams where possible and as Paul mentioned, that by it’s nature means that there is a less of a upward ramp on revenue growth, because it’s obviously a smaller increment hitting the P&L on a recognition basis, but high quality.

Ivan Skelly - Davy

Okay. On that following up, I think you told about the performance; is it fair to say it’s a longer sales cycle, regardless of the economic conditions in the healthcare segment. I mean like compared to the resale where we can see more segments.

Paul Byrne

No, I think currently like in each sales cycle, the position rules in the sales cycle is if you can get back to going down the current economic climate. These sales cycles, we’re seeing very long ones and we’re seeing very short ones. These sales cycles are growing much, much more today by the immediately of the customer.

The customer has the ability to change the immediate need; you can have a very quickly sales cycle and we’ve seen that in some quite significant deals in the commercial role in the last quarter and in Q4 and we’ve also seen very long deals. Likewise we just recently signed a deal which is a very short sales cycle and we’re still negotiating one which had a very long cycle.

So I think Ivan, it’s very mixed; it totally boils down to the budgetary situation and immediately we trying for any point in time in the cycle. So we would say every client is a different cycle.

Ivan Skelly - Davy

Just one last quick one, just on interest income, I think it’s $25,000 for the period and you’re forecasting $25,000 again. I’m just looking back at the comparable there and it’s close to $120,000 for the same period last year. Other than falling interest rates is there anything else that I should be looking at on that?

Joe Seery

It’s Joe here. I think it’s just the reflection of which is used to profit balances for this time last year. We will have made some significant acquisition payments during the year. That’s probably the main reason why our balances have come down; obviously the interest rates have come down as well and we will obviously focus on preserving our principal balance and that’s our main objective. So, it’s really a reflection of falling balances and lower interest rates.

Operator

Your next question comes from Dan Cavanagh - Goodbody Stockbrokers.

Dan Cavanagh - Goodbody Stockbrokers

Just a couple of questions; on the last teleconference call we spoke about how the U.S. was rebounding and the Europe was following approximately six months behind in terms of that corporate cost cutting; is that still the case and how is that played out over the quarter?

Then secondly while I’ve got the floor, in terms of the maintenance revenue, you said that that was holding up reasonably well in the quarter, not increasing. Can you just put some light around the rational behind and also how much ended up playing down in that income statement?

Paul Byrne

Sure. Okay Dan, Paul here again. Yes, we did say that we talked to the U.S., we’ve considered Europe and we’ve actually seen that like in quarter one. We exceeded our expectations in the North American market for our new licenses revenue and we were behind expectations in Europe and we think given where we are today, looking out that Europe will start to pickup for us in our market in Q2 and we’ll get strong as we go into quarter three and we hope the U.S. will continue to perform in quarter two, similar to quarter one.

So, we are seeing our expectation play out in reality, in terms of revenue generation, but we are seeing funds now, the European community starting to invest. If you look at what we do, is we ultimately help CFO’s and specialists automate processes and increase efficiencies, which all drives that costs towards the organization and we’ve seen European companies just starting to embrace that message and its still likely we’re behind the U.S.

On the maintenance revenue Dan, basically we’ve had some cancellation. Obviously we have had some historical exposure to the U.S. retail markets and so net for the year, we’ve had about a 1% impact on total revenue and in terms of maintenance cancellations obviously that’s recognized quarterly, so in anyone quarter it’s a lot smaller number. For the year, we think we’re pretty solid. We may have some more, but we do keep a very close eye on the U.S. retail space and Joe mentioned on the conference script that the maintenance revenue is going up.

As new customers have come onboard and they start taking maintenance and they recognize the maintenance revenue, the incoming maintenance or new maintenance revenue has exceeded the cancellation. So we have had seen an increase in net maintenance revenue for us and that’s led us obviously to maintain pretty strong margins on the maintenance revenue.

Dan Cavanagh - Goodbody Stockbrokers

If I could just ask one more question, you did say on the call, in terms of your station period, in terms of signing-up contracts I accept the point that the normal rule book has gone out the window. Has that changed in anyway over the quarter and are we still seeing customers approach these contracts with an increased degree of caution?

Cyril McGuire

Dan it comes back to confidence in the market and it’s obviously very hard to predict in the current market. What we would say is and what we have said is that we are seeing definitely our pipeline and prospects growing right and as Paul just mentioned earlier, it can vary depending on the individual circumstances of the different various corporate clients as to how quickly to sale processes closes and some of them can be short, but more normally in choosing medium to long term, the sales cycle.

So, it can vary and I suppose the important thing is we are seeing growing demand. We are definitely seeing growing interest. We’re seeing some stabilization in some of the markets, in particular the U.S.; however that’s not begun to translate into increased revenue because there’s always a lag factor there. So we’re monitoring to buildup in pipeline and prospects, measuring that very carefully, but more importantly than checking and then verifying what our conversion rate is as well.

Paul Byrne

Dan, we have said in Florida one of the things we saw changing was as the point at which we selected to win a contract, the time between that point and closing had lengthened and I think that was in Q3 or Q4 last year and that hasn’t changed.

I think in general, if you average out the sales cycle timeline, it probably really hasn’t changed from quarter four and quarter one, but we are taking an average against a number of variables which can vary along with the length. So it’s very hard to say that it’s really six months or really three months, but the general trend we haven’t really changed.

Cyril McGuire

And the last point I will just say is that look, we all know that budgets are extremely tight and there is less money in the system. So we are as a company and certainly as a sales team getting very disciplined to identify is there actually a budget available here or are customers kicking tires or whatever for a later date.

That’s important from a forecasting perspective, because as I said it’s great to have a growing demand for a product in terms of pipeline and prospects, but unfortunately that doesn’t pay the salaries on a quarterly basis. So, we have to find out who has actually got some pain in the organization, who wants to save money, who wants to increase their profitability on the bottom line and most importantly, who has budgets to spend now.

Operator

We have no further questions at this time, please continue.

Cyril McGuire

Okay, I would like to thank everybody very much for joining us today on the call and I look forward to updating you again on our progress in our conference call for Q2 fiscal 2010 and with that, thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect.

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