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Lionbridge Technologies Inc. (NASDAQ:LIOX)

Q2 2009 Earnings Call

August 04, 2009; 09:00 am ET

Executives

Rory Cowan - Chairman, President & Chief Executive Officer

Donald Muir - Chief Financial Officer

Sara Buda - Vice President Investor Relations

Analysts

Richard Baldry - Canaccord Adams

Sachin Jain - Jefferies & Co.

Bob Siles - Unidentified Company

Alan Maturney - Unidentified Company

Operator

Welcome, and thank you for standing by. At this time, all parties are in a listen-only mode until the question-and-answer session of today’s conference. (Operator Instructions).

I’d now like to turn the call over to Mr. Buda, Vice President, Investor Relations. Thank you ma’am, you may begin.

Sara Buda

Thank you and welcome to the Lionbridge investor call to discuss financial results for the second quarter of 2009.

During this call, we may make certain statements that maybe considered forward-looking statements under Federal Securities Laws, and which involve risks and uncertainties. Our actual future results may differ significantly from the matters discussed in any forward-looking statements. We have disclosed in greater detail in our Form-10-K filed with the Securities and Exchange Commission on March 13, 2009, the factors that may cause such differences.

Now I’ll turn the call over to Lionbridge Chairman and CEO, Rory Cowan.

Rory Cowan

Thank you, Sara and welcome everyone. Today I’ll talk about the solid Q2 results, which shows special revenue growth and margin expansion. I’ll also touch on the current demand environment, just sort of overseeing out there as you know. We sold many, many end markets.

Our cost reduction accomplishments and the future of our technology platform, but first let’s start with a quick review, overview of the quarter. Revenue for the quarter as you saw was by $98 million. This marked an 11% sequential growth from last quarter and this increase was largely driven by our GLC or translation business, where we saw improvements from large accounts and the benefit of new business, which began to ramp as well.

As you may remember, with our business you win a contract and it might take it two to six months before it actually begins to hit its stride depending upon the conversion and the transition into our systems. So, I’ll talk more about the demand environment shortly.

Total company gross margins improved to 33%. Well, that’s about 220 basis points better than Q1, and that of course was driven by both revenue volume and the benefits of our cost actions. Operating profit also improved quarter-on-quarter. In fact quarter-on-quarter, almost $10 million to $9.6 million of incremental revenue drove about $5 million of gross margin, and over $6 million of operating profit before restructuring.

As we’ve said, an incremental revenue should drive significant profit conversion and in Q2, we demonstrated this, we seem to be getting our business model to where we wanted to be. I’ll let Don detail the year-on-year compares, but in short, on $27 million of less revenue, we drove increased profits. This shows the benefit of our early and aggressive cost management actions at the end of last year and of course a more favorable currency environment.

Net income for the quarter is about $1.4 million or $0.02 per share X our restructuring expenses. Finally, we continue to generate strong cash flows. This quarter we generated about $12.5 million in cash flow from operations. One of our strongest quarters ever, and we continue to pay down our debt.

Our net debt is now under $9 million and this is remarkable progress in the phase of the current worldwide demand environment. We’ve now paid down almost $20 million of our debt year-to-date, and more than $32 million since last year’s Q2. So we continue to generate cash, reduce our debt, and so we are in a solid liquidity position.

All in all, I think we delivered positive results in the second quarter despite the global economy. Revenues strengthened, we are generating significant incremental profit as we execute our restructuring plan. We had positive net income, ex restructuring and we continue to generate cash and pay down debt.

So, let me provide some details of our demand environment, our cost management program and our strategy for evolving our Lionbridge, first demand. Nearly $10 million of sequential revenue growth was driven by three trends, and they are all trends you would like to see.

First, slow improvement from our large accounts, like the rest of the world the first quarter was very, very challenging for us, as large accounts almost instantaneously decreased their spend. As a reminder, we had a strong recurring relationships with our client; in fact over 80% of our revenue comes from customers that have been giving us work every quarter for 12 consecutive quarters or longer.

So, unlike other companies we didn’t lose customers during the down turn, they just reduced the amount of spend with us as they trimmed all the expenses they could to respond to their demand environment.

In the second quarter, we started to see some growth from our large accounts. While the expend levels are still now what they had been a year ago, we are seeing improvement. The only exception is classes in the education sector, which still seems to be a little challenged, and that primarily affects our GDT business, but generally, it seems the first quarter mark bottom for Lionbridge and in Q2 our large accounts slowly begin to spend again including Microsoft, HP, Google, Canon and others.

So, we are seeing positive signs for a slow recovery, and we are not swinging from the chandeliers yet, but at least the decline have stopped and we bumped along the bottom if not beginning to trend upward very gently.

Well, the second driver behind our sequential quarter growth was new accounts. As we mentioned, we have secured a number of large contracts with new customers such as, Rolls Royce, Dell, that’s Rolls Royce engine, the jet engine people not the car people. Dell and Aspen technology. These new clients started to ramp in the quarter, and we believe many of these accounts have the opportunity to grow even larger overtime, and this is where what we do well.

We begin within one group of an organization and we steadily expand to other divisions and offer other services. This is exactly what we did at Microsoft and Google which are now our top two accounts and the same store growth is what we expect to deliver the Rolls Royce, Dell and others.

The third hardening trend has been sort of our ability to increase the size and duration of our contracts. But we are clearly winning larger projects, larger deals with longer term. One of the lessons we learned in the last downturn was the importance of term. So as the company starts from racing outsourcing models and consolidates the number of translation providers or outsourcing partners, we are making sure that we negotiate well to ensure a long term commitments.

With better negotiation and the benefits of technology, we further increased the stickiness of our solution, extend the terms of these contract and truly deliver greater value for our customers. As we work together to deploy RSR [ph] solutions throughout their organization. So, longer term really benefits both our customers and ourselves.

So, demand seems to be coming back slowly for winning and growing new accounts, we are securing larger programs, longer term and all of this indicates a positive momentum for 2010 as the recovery takes shape.

Well, let’s talk about the other side, we talked about what we did to raise the bridge, now let’s talk about lowering the water. As you have said, we responded quickly to the global economic slow down began taking out cost immediately.

The cost reduction actions we put in place are starting to show through, in fact our SG&A expenses or down about $6 million from last year, about half of this reduction as currency. So in a cost and currency basis, we reduced our overhead expense by $3 million per quarter or about $12 million annually and we still have quite a long way to go.

Regarding headcount, year-to-date we reduced headcount by about 80 people at our corporate and our delivery functions. So, we are fairly making progress in our cost production programs in the overhead area, and you will begin to see that in the statements. We have more to do, particularly as our European restructuring which takes a little bit longer, given the issues of course with labor agreement and individual sort of country employment laws.

As a reminder, in March we announced that we are taking cost actions that we expect will total about $18 million to $20 million in annualized cost savings. We are continuing this cost reduction process and we plan to take as much restructuring expense as possible in 2009, although, some may continue to gribble into 2010 as we finalized the lengthy process of international restructuring and take the appropriate accounting treatments.

As you saw on Q2, this cost reduction means that as revenue returns, our profitability profile increases significantly. So, we are on track to enhance overall profitability as we take out cost and strengthen revenue.

Now, before I turn it over to Don I want to take a moment to talk about our vision for moving Lionbridge to the next stage as a company. I will just remind you, we certainly have three things that we do with our cash flow here, one is pay down debt, the other is fund restructuring and the third is accelerate the development of our technology platform.

As you know, we have a proven technology platform and a network of independent third party multilingual workers around the world that interact with the Lionbridge platform via the web. We call this our crowd in the clout. So, as we move forward we plan to do two things to accelerate the strategy.

First, we are opening our technology from being a proprietary internal application to assess or software at service model for buyers and suppliers of multilingual task, and this could be interpreters, this could be web search raiders, this could be translators, about all sorts of other multilingual activities.

The second piece is, we will find an employee additional multilingual workers around the world, who can both work for us and subscribe to our tools for their own activities. We aren’t ready to share all the detail at this point, but clearly this moves Lionbridge in a new direction from being a pure services company into a services company and a SAS technology company.

In the fourth quarter, we plan to make some announcements that will give you further details in this area, but in short, this is how we are evolving Lionbridge, we plan to become the world’s largest and more successful provider of services and technology for buyers and suppliers of multilingual tasks.

In today’s environment, blocking and tackling of cost reduction and sales execution is absolutely critical as this quarter shows. I think we are delivering on both of those fronts. But it’s equally important to make certain we are positioning the company for longer-term competitive advantage in this new cloud based computing environment, and that’s what our crowd and cloud strategy enables us to do.

So, now I will turn it over to Don to provide some details in our financials before I wrap things up.

Donald Muir

Thanks Rory. Good morning everyone. Today I will walk through the details of our second quarter results. But first, let me highlight our ongoing priorities and our financial achievements in the quarter.

Our number one ongoing company priority is to enhance profitability, and Q2 reflected our efforts in this area. Revenue strengthened sequentially from last quarter by about $9.6 million or 11%, this reflected two important trends.

One, customers resumed some, but certainly not all of the projects they delayed in Q1 and two, we began to ramp some of the new business we won early in the year. More importantly, with this revenue improvement we delivered significant profit conversion, more than 60% of the incremental revenue fell right to the operating profit line.

This is exactly the profit profile that we’ve been working to achieve. Our second priority is cost management, we continued to take out fixed cost during the quarter as part of our previously announced restructuring actions. The benefits of this are clear and we plan to continue our cost reduction efforts throughout the year in to 2010.

Our third priority is cash flow and working capital management. Our DSO is now 51 days down five days from Q1. This is impressive given our global customer base and the current economy, and we’ve been working with our one of our life customers to accelerate collections as well.

So, our working capital management continues to be successful, this helps us drive $12.5 million of cash flow from operations during the quarter among one of our highest quarters ever and finally, we continued to aggressively pay down our bank debt, we paid $5 million in Q2 and almost $20 million year-to-date. So our net debt is now under $9 million, which is $31 million, lower than it was a year ago. So I continued to be pleased with our cost reduction, working capital management, cash flow and debt management.

Now, let me get into the details of the quarter before discussing the outlook for Q3 and the second half. For the second quarter revenue was $98 million, this is up 11% from Q1 as you may remember in our last call, we indicated that March revenue had improved and that business was strengthening. As expected, this trend continued through Q2. So it appears that January and February marked the bottom for Lionbridge and that the demand environment improving.

On a year-over-year basis, revenue in Q2 declined 22% in total and about 17% in constant currency. While our large customers such as Microsoft, Google and HP are beginning to spend again, we are still far from the levels we saw a year ago. This is not a surprise, given the challenges these companies continue to face in this economy.

I will discuss our expectations for these customers and their expectations for new business in the second half shortly. Gross margin for the quarter was 33%, both the sequential and year-over-year improvement. So, despite the year-on-year revenue decline, our gross margin percentages actually improved due to our cost reduction efforts and the more favorable currency environment.

The margin improvements both year-on-year end sequentially, were driven by our GLC language business. GLC gross margins were 33.3% for the quarter, this is a 330 basis point higher than Q1 and driven by incremental revenue volume, continued cost management, and the benefits of our language technology.

We are pleased with the profit improvements in our core language segments as we continue to reduce our fixed cost. Gross margins in our GDT testing and developing business were 34%, one of our lowest margin quarters for GDT in recent history. This is due to lower revenue as our client in this segment managed their cost as well. As you know, GDT does not have the same variable cost model as our GLC language business.

In addition to our fixed cost reduction efforts in our core language business, we are also accelerating our cost reduction efforts in the GDT segment as well. This should help bring our GDT margins back towards prior levels as revenue returns, despite the well-publicized pricing pressures in this segment.

Regarding our cost structure, as I said, one of the most significant positive improvements in our P&L is our below the line operating expenses. SG&A expenses are down a $1 million from the first quarter.

On a year-over-year basis, our SG&A expenses are down over $6 million compared to last year’s second quarter, thanks to cost management efforts and currency. So, our cost actions are starting to show benefits. As Rory pointed out, in constant currency our expenses are down roughly $12 million annually.

Now on to tax and currency, you can see that we had about 700k of other expense in the P&L. As a reminder, this is largely related to the currency impact of the revaluation of inter-company balances. While we have made significant progress in this area, this quarter’s currency volatility still had a negative effect.

As I said, while this business will never be completely currency neutral, we’ve taken a number of steps to make sure that we are more currency protected. Right now, most forecasts show that the Euro to US dollar will trade within a few cents of where we are today.

So, going forward at these levels, I would expect this other expense item to be plus or minus 500K in any given quarter, which is a significant improvement from where we were at several quarters ago. Our tax provision is about $620,000 for the quarter, which is up slightly from Q1, but still consistent with where we expect to see our quarterly tax provision. So, we continue to execute our tax strategy successful.

Finally, let’s talk about net income. On a GAAP basis, EPS was essentially break-even. Excluding restructuring, we earned about $1.4 million or $0.02 per share in the second quarter. So, despite a $27 million drop in revenue year-over-year, we actually improved our bottom line X restructuring.

Again, this reflects the resilience of our business and our improving profitability model, and as you can see from our sequential quarter improvement, as the global economy slowly recovers, we should be in a favorable position. So I feel that we are very well positioned from a profitability perspective.

Moving to the balance sheet, remains very strong and our liquidity remains solid. We generated $12.5 million in cash flow from operations during the quarter, during the second quarter we continued to use our cash to fund restructuring and pay down debt.

Over the past 12 months, we’ve paid down $32 million of our long term debt, bringing our total bank debt to under $37 million. Our renting cash balance was about $28 million. So our net debt is now $8.7 million. This marks yet another significant quarterly debt reduction and yields the lowest net debt level since we acquired BGS.

We incurred about $1.6 million in restructuring expense during the quarter, and most of this was cash. As we’ve previously stated, we believe that our restructuring efforts will ultimately generate $18 million to $20 million of the annualized cost savings. As a result, we expect to incur about $5 million of restructuring charges in 2009 with the balance in 2010.

So, in summary, revenue strengthened as many customers solely began spending again. Gross margin and operating profit have improved as we continue to reduce costs. We continue to generate strong cash flows. We are efficiently managing our working capital and reducing debt and our profitability should continue to benefit from aggressive cost management.

Now, let me touch in our outlook for the second half. For Q3, we expect revenue of $93 million to $98 million. Traditionally, Q3 is anywhere from 2% to 5% lower than the second quarter sequentially. So, our range reflects that historical seasonality. With large customers in this environment, it is always challenging to predict the timing of a revenue rebound.

At this point for Q4, we expect revenue to be even with or slightly above Q3 levels. Depending on the timing of these large customer programs. At these revenue levels, we are targeting earnings to be roughly break-even, ex restructuring for the second half and we expect to continue to generate cash.

Rory Cowan

Thanks Don. Closing the Q2 was a significant improvement from the early part of the year, revenue strengthened, cost reduction actions are starting to show some benefit, gross margins improved, operating profits are accelerating, and we’re continuing to generate cash and pay down debt.

As Don indicated from our forecast, it’s a relief that clients are starting to talk about product releases again, but it’s a question of when the files drop and the actual deployment and production on these processes actually begins. Many of our customers are talking about significant product releases next year, but it’s a question of their timing and their marketing plans.

So, it feels as if our business is at the bottom or perhaps even firming or strengthening. As a result, we expect the revenue will stabilize and grow as the global recovery takes effect. Operating margins should improve overtime then all these positions as for a solid second half, and further revenue and profit acceleration in 2010.

So, now I will open the call for questions. I know we’ve tried to keep this call quick today because many of you’ve indicated there are a number of calls going on right now. So, we are open for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Richard Baldry - Canaccord Adams.

Richard Baldry - Canaccord Adams

Can you talk about the pricing environment in the quarter whether you think that’s getting more competitive or not given the volume reductions that we’ve seen?

Then can you talk about the pipeline of new deals, you have been signing some pretty good new deals in last couple of quarters. So I was just wondering how you feel that looks heading into second half.

Rory Cowan

As a question on pricing and on pipeline, we will take the second one first. Pipeline, actually seems to be quite firm. We have of course a worldwide sales force activity program and we are seeing as we saw during the last downturn is that many of our customers are really consolidating, if not, sole source, at least down to just two worldwide suppliers.

So we are seeing pipeline, actually is growing quite nicely. Now, it’s a question of, companies actually carrying out these vendor consolidations and actually winding its way through the global finance organization. So we are feeling pretty good. In addition, as I said, our existing customers are really talking again about when products are released, not if they are going to be released, a very subtle transition in discussion. So, I think that’s the first point.

Now, in terms of the pricing environment, pricing has always an issue, we are finding curiously as procurement gets more involved in these transactions, we tend to shine because our unique technology really allows the entire organization, not just one division to take advantage of our cost opportunities, of our productivity and efficiency. So yes, there is more price discussion than normal. But I think we are holding up pretty well compared to what I hear from other industries.

Richard Baldry - Canaccord Adams

Just to check a figure, can you talk about headcount and on the guidance to be roughly break even in the quarter, is that post charges or pre one time charges as I look at it and you are essentially breaking from operation this quarter, and still in cost cutting mode on a roughly flattish revenue performance, I would have thought that maybe you would be talking about a slight sequential increase in profitability?

Rory Cowan

To answer the second part of that question, we just indicated that we expect third quarter to be down sequentially as it typically is. So, historically anywhere from 2% to 5%. So we do see a downward pressure on revenue in Q3 and then backup sequentially in the fourth quarter. So that basically gets us to that approximately break even, actually structuring numbers in second half.

Donald Muir

Rich, remember August is a fairly slow month around the world given the European focus and then September, I don’t say the flood gates open up that maybe too big and too aggressive, but it really is a quarter that business picks up quite dramatically in September, and it’s a question of when you can get it recognized. Is that a September or October recognition process. So plus or minus $4 or $5 million almost too close to call during a Q3.

Richard Baldry - Canaccord Adams

In the headcount question, I think we indicated that we have done about 80 heads from where we were in the first quarter.

Rory Cowan

That 80 heads in the G&A and the high cost areas. Because we have been a hiring of course for some of our newer contract sort of Rolls Royce and some of the other things in India and China and Poland and elsewhere, those are the actual productive billable heads.

Operator

Your next question comes from Sachin Jain - Jefferies & Co.

Sachin Jain - Jefferies & Co.

So we saw some strong margin improvement this quarter. What kind of longer term margin profile are we targeting like, once we have done with this ongoing restructuring program?

Rory Cowan

Well, I think a couple of things, I remember our margin structure has two components to it, margin meaning gross margin. There is a fixed component, which is all of our program and project managers around the world and when they use our technology they are able to process more transaction. Then there is the variable component, which is words that we purchased from individual translators.

On the words that we purchase from individual translators, we are getting much more efficient and in fact we are seeing prices fall and procurement of words as we begin to use more and more of our technology to manage that process. Then in addition, we are getting more leverage from our program and project managers as they begin to put more and more of their programs into this worldwide infrastructure.

So, those are the two sort of margin levers on an operational standpoint. Then of course volume is perhaps the biggest driver, whatever you saw in this sequential quarter about 50% of each incremental dollar fell to the gross margin line, so that’s the model. So are we thinking that that sort of low 30s feels comfortable going on Don?

Donald Muir

Yes, I think in the second half based on the guidance that we have given, you should see second half gross margins to be approximately flat with what you saw in Q2, about 33%. We have got some pluses and minus obviously, sequentially revenue down a bit in Q3, coming back in the fourth quarter we are taking cost out and we may have a little bit of currency pressure here with the year, around 143 in Q3. So, I think that’s a fair estimate of where we think we are going to be for the second half.

Sachin Jain - Jefferies & Co.

Okay. That’s helpful, and then has some restructuring been pushed out? I think previously you were targeting $5 to $10 million restructuring charges in calendar ‘09 and now you are just targeting $5 million?

Rory Cowan

Yes, I think that we are finding that there is more opportunity if we are little bit thoughtful about it, just given the restructuring processes in Europe. So, we are putting together programs and moving more and more of our projects to our global development centers, meaning Poland, India and China and that takes some time to do that thoughtfully so you don’t lose customers.

At the same time, negotiating with works counsels and reconfiguring sort of labor agreements in each country is taking us a little bit longer than we have thought. So unfortunately, we would like to get it done sooner, but by taking a little bit more time we are seeing greater opportunities, and so, that’s why we push things out of quarter, so Don, anything you want to add to that?

Donald Muir

No, I think that’s a fair statement. I think we expect about $5 million this year, in the balance of the program that will be probably in the first half of 2010.

Sachin Jain - Jefferies & Co.

All right, and are you still targeting $385 to $400 revenues in calendar ‘09 or?

Rory Cowan

Given the guidance that we have just provided you the ranges with Q3 and Q4, we are just a little bit under that now.

Operator

Your next question comes from Bob Siles – Unidentified Company.

Bob Siles – Unidentified Company

On the guidance that you offered for Q4, I heard you say flat, but you said flat to what, sequentially?

Donald Muir

Yes, off of Q3 right. Up slightly off of the third quarter.

Bob Siles – Unidentified Company

Okay got you, secondly in the quarter just ended you disclose the cash flow from operations is $12.5 million, if I heard it correctly, but do you have a figure for free cash flow generated in the quarter I guess subtracting CapEx or anything else?

Donald Muir

Well CapEx in the quarter was, I will let you do the math, CapEx was under a million dollars roughly for the quarter, so that’s…

Bob Siles – Unidentified Company

Did you say under a million dollars?

Donald Muir

Yes, we’re kind of above $1.2 million year-to-date we had about 400k in Q2 and about 800k in Q1. So, 1.2 year-to-date.

Rory Cowan

And cash taxes Don?

Donald Muir

Cash taxes were actually slightly negative for the first half. So, we had some refunds that came in the quarter.

Bob Siles – Unidentified Company

Okay. Then just circling back to that Q4 figure, Q4 is just given that guidance seems a little bit lighter than how it expects, given the typical upward seasonality, am I right in the impression or am I wrong in the impression?

Rory Cowan

I think traditionally the company really Q2 and Q3 had been a package of somewhat strength and Q4 and Q1 have been a seasonal weaker period, sort of weaker in performance.

Actually the fact that we are thinking that Q4 has a feeling of being flat with Q3, we are viewing that as a positive sign, because traditionally with Christmas holidays around the world nobody is cutting POs, companies are trying to delay their purchase just to make their year. It’s generally pretty squirrelly the last three weeks of a year.

Bob Siles – Unidentified Company

Got you. Then on the Cloud strategy that you alluded to, and I recognize that it’s still under development, it sounds like, but can you help me understand if you move to, as you put it ‘crowd’ and the cloud strategy.

It strikes to me that some of the protectiveness of your business model, in other words, using your proprietary tools to deliver translation services, might not be as easy to protect if you let outside entities use the translation engine. So just kind of walk me through that thinking as far as the strategy goes, and that’s my last question.

Rory Cowan

That’s great, that’s a very insightful question. I think there are two things you want to talk about, two responses. First is, for a number of our customers you are absolutely right, they are comfortable sole sourcing with us. They will say, “We’ll give 100% percent of worldwide language spend, because you are far more efficient,” other of our customers don’t feel comfortable sole sourcing, but they have come to us and said, “It’s very clear your technology is the most sophisticated. Can we use it with some of your competitors?” So we’ve been saying no for couple of years now, but now I think by opening this and offering licenses to them with some other sort of performance capabilities around it.

I think it will be incremental to us that’s upstream to our enterprise customers. Now downstream of course the translation industry is about $10 billion worldwide industry, and there are lots and lots and lots of mom and pop translation agencies of $1 to $3 million, and in fact the statistic we found that at our research is that 80% of worldwide translators do not use any productivity tools at all.

So, by offering subscriptions to the smaller mom and pop shops that in fact we don’t compete with, we think that we will generate some significant revenue and build our community of translators registered that could then be suppliers for us as translators. So, this sort of virtuous circle of getting larger customers on the data and the cloud and having more and more participants in the crowd to respond to that, and so we will be acting as an intermediary if you will, between those, with both a subscription basis and a transaction management component.

Operator

No, we are showing no further questions at this time.

Rory Cowan

Well that’s terrific great, so thirty five minutes, you guys get to listen to your other calls. So, thanks very much everybody for your attendance today and of course as always if you have any questions, please call Sara and then she can round us up and respond to your further queries. We have one more question.

Operator

Your final question comes from [Alan Maturney] – Unidentified Company.

Alan Maturney – Unidentified Company

It seems like you are generating a lot of cash and your balance sheets about as clean as it’s ever been, well not ever been, but been in a few years, can you talk about use of cash in terms of stock buyback at some point I know you are funding restructuring, but it seems like paying off debt at such a low interest rate just doesn’t make any sense at this point.

Rory Cowan

Yeah. Well I think a couple of things first, buying back stock makes the math work, but we did that once before and that didn’t seem to be much advantage to it. So we are little gun-shy right now.

Secondly, I think that I would actually put, I would accelerate our technology investment before stock buyback because the indications are there that the returns will be very, very strong. Thirdly, I think the market sentiment for Microcaps right now is anything with debt on it; you have to be careful because the credit environment is still quite fragile.

So, I think that we probably have another quarter or two of paying down some debt get through this year and get some technology released. Then of course, we can revisit that, if the market doesn’t respond to all these good things, then of course, in discussions with our board we clearly have to consider something, like that we are not close to it, but I think I have some other priorities that will give us a bigger lift in the shorter term.

Operator

We are showing no further questions at this time.

Rory Cowan

Great. Thanks everyone.

Operator

And that does conclude today’s conference. Thank you for participating. You may disconnect at this time.

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