TEKELEC Q1 2010 Earnings Call Transcript

May. 6.10 | About: Tekelec (TKLC)


Q1 2010 Earnings Call

May 6, 2010 8:00 am ET


Mike Gallentine - Director, Investor Relations

Frank Plastina - President, Chief Executive Officer

Greg Rush - Chief Financial Officer


Brian Modoff - Deutsche Bank

Amir Rozwadowski - Barclays Capital

Catherine Trebnick - Avian Securities

Michael Genovese - Soleil Securities

Todd Kaufman - Raymond James

Larry Harris - C.L. King


Good morning and welcome to Tekelec's first quarter 2010 earnings release call. At this time, all participants have been placed on a listen-only mode and the call will be opened for questions following the presentation. It is now my pleasure to turn the call over to Mike Gallentine. You may begin.

Mike Gallentine

Thank you. Today I'm joined by Frank Plastina, President and Chief Executive Officer and Greg Rush, Chief Financial Officer of Tekelec. Hopefully by now you have access to a copy of the slides of supplemental material posted on our website at tekelec.com. From there you can access the slides by selecting the investors tab, which will take you to the investor relations home page. From that location you can access the press release issued earlier today.

As a reminder there will be a telephone replay of this conference call available for seven days following the call. You may also listen to a rebroadcast on our website at any time during the next 90 days. All of this replay and rebroadcast information can be found in the investor relations section of Tekelec's website.

I would also remind you that during the course of this conference call we will make projections or other forward-looking statements regarding future events or the future financial performance of the company.

The actual events or results of the company may differ materially from these forward-looking statements as a result of important risk factors including those discussed in our 2009 10-K, the first quarter 2010 Form 10-Q, the press release issued earlier today and other documents the company periodically files with the Securities and Exchange Commission.

Also, unless explicitly noted, all financial results and metrics during our call today are non-GAAP results. Please see slides five through eight in the supplemental material posted on our website for information reconciling GAAP to non-GAPP measures. We will also post the transcripts of this call on the investor section of our website.

With that said, I'd like to turn the call over to Frank Plastina. Frank?

Frank Plastina

Thanks, Mike, and good morning to everyone on the call. Over the past three years we have evolved the company to one that focuses on building robust and scalable intelligent [control ware] solutions. We have established a global market-leading position by helping service providers handle the transition to next-gen networks.

This morning, I am pleased to announce that we have made significant strides in advanced our portfolio with the acquisitions of Camiant and Blueslice, two companies with leading portfolios in this network space.

With these acquisitions we expand our mobile data offering by adding policy control and subscriber data management to our leading session management portfolio. Tekelec will now evolve from influencing the direction of next-gen networks to defining these networks.

Tekelec is now the only player in the industry to uniquely blend and capture the synergies between session, policy, subscriber data management, network and business intelligence and mobile messaging. The combination of these solutions will enable our service provider customers to significantly enhance the user experience.

Turning to this morning's announcements, I would like to provide a bit more detail on Camiant and Blueslice. Camiant is the global mind share leader in real-time policy control solutions. Over 30 mobile and fixed service providers have selected Camiant for their policy needs. In fact, Verizon Wireless recently announced that the Camiant solutions will perform the policy function for their LTE and IMS deployments.

Additional customers include Vodafone, Sprint, Comcast and Cox. Since it was founded, Camiant has booked over $60 million in orders resulting in a clear leadership position. They have deployed over 150 systems that support more than 185 million broadband subscribers and multiple access technologies including UMTS HSPA, CDMA, cable DOCSIS, Fiber-to-the-Home and DSL networks and deployments in IMS and LTE are underway.

The Camiant multimedia policy engine applies business rules that determine, among other things, which customers and/or applications receive [them] with priority. This offers service providers the ability to manage broadband data traffic growth, provide cost controls and generate incremental revenue.

Camiant's initial success was enabling fixed broadband policy in US-based cable companies. Camiant estimates that today their solutions support 70% of all North American cable modem subscribers. Camiant's early policy deployments with Comcast became the de facto standard in the US cable space.

Their work with Vodafone and others is today defining policy in the 3G space and the Camiant policy solution win at Verizon Wireless will now shape the definition for LTE and IMS network deployments.

Camiant's leadership in the policy space has also been validated by various third parties. Camiant recently received the highest marks in seven of eight categories in an infonetic survey of current and potential policy management customers. Service providers rated it 30% to 40% higher than the nearest competitor on such factors and technology leadership, product roadmap and price-to-performance ratio.

Camiant also has built a large interoperability ecosystem in the policy control market having completed integration with more than 35 leading vendors, including Blueslice, another key addition to our portfolio also announced this morning.

Due to the high degree of interaction between subscriber data management and policy solutions, Camiant and Blueslice formed and announced their integration partnership earlier this year. Blueslice is leading next generation subscriber data management solutions nicely complement the rest of Tekelec's portfolio and will form the basis of our database oriented products moving forward such as number portability, ENUM and DNS.

Blueslice has 19 customers in the mobile voice-over-IP, fixed mobile convergence, machine-to-machine and MBNO markets. Blueslice's solutions logically and dynamically centralize cross domain subscriber information supporting multiple front-end applications, including next generation HLR, HSS, SIP Application Server and AAA Server.

The ability to manage and consolidate subscriber information is a critical component in improving the user experience. Service providers require new approaches to more efficiently manage the massive amounts of data currently stored in dozens of data silos around the network. Blueslice fulfills this need.

Camiant and Blueslice solutions are highly complementary to our current portfolio and we share common design philosophies. All three companies have established thought leadership and mind share in the control layer.

We all design best-in-breed solutions that support multi-generation and multi-vendor network deployments. Creating this business intelligence in the control plane allows service providers to have independence from the underlying network technology and to work with any vendor in the network. This is essential to helping service providers generate CapEx and OpEx savings.

These solutions will also enable new revenue opportunities for our customers. With these acquisitions we also move closer to the software-centric business model that we have referred to on our previous calls.

The Camiant and Blueslice software will be able to utilize the scale, scope and [hard-end] middleware now used by all of Tekelec's next generation solutions. Given their high software content, Camiant and Blueslice have historically enjoyed gross margins in the 70% plus range and we expect similar gross margin contributions going forward.

With Tekelec, service providers now have a single source for all their IP control layer needs. Our expanded portfolio will provide a unique layer of intelligence that enables service providers to dynamically manage their networks, prioritize traffic and prevent network disruption. For example, our solutions can enable real-time feedback from the network, service or customer in order to adjust policies and to ensure business rules are enforced.

Service providers will be able to tune or balance traffic flows to make certain that high-priority traffic or latency-sensitive traffic is delivered with a guaranteed quality of service. Our solutions will also allow service providers to adapt quickly to changing regulations on a country-by-country basis.

We can now deliver a comprehensive subscriber data management solution providing reliable data across networks and applications creating a unified subscriber profile. We will accelerate our time to market for a more robust EAGLE XG database solution that will include number portability, ENUM, next generation HLR, HSS, AAA and the SIP Application Server.

This unified subscriber profile capability can be leveraged across our entire portfolio. For example, the combination of dynamic subscriber database management and mobile messaging software will allow service providers to manage personal preferences and other applications such as presence, location-based services and network address books.

This capability becomes even more important as service providers migrate to RCS, or Rich Communications Suite, and converged IP messaging. The additions to our portfolio announced this morning will give us the ability to create numerous and exciting solutions for our customers.

Turning to the results for the first quarter, we generated orders of $56.7 million, revenue of $116 million, gross margins of 67%, operating margins of 24% and diluted EPS of $0.26 per share. In addition to typical first quarter seasonality, orders in the first quarter were adversely impacted in part by new regulations in India.

These new rules require equipment suppliers to receive a security clearance from the Indian government prior to receiving purchase orders from telecommunications carriers. These new regulations resulted in the delay of approximately $10 million of orders. We expect to receive these orders during the current quarter. Greg will provide more detail of our results later in the call.

We continue to gain traction with our emerging products. We booked a new European tier one EAGLE XG customer in the first quarter for our global number portability application. We now have 12 EAGLE XG customers, 10 of which are tier one service providers.

We continued to leverage our global installed base with two performance management wins into existing customers. Our recent moment with this product line moved Tekelec up two slots in market share to number three in the space, according to a soon-to-be published analysis Mason report.

We also continued to gain traction with our mobile messaging solutions with the addition of four new customers during the quarter. We now have 56 mobile messaging customers around the world.

Finally, we also added one new EAGLE 5 tier one customer during the quarter and our products are now installed in 108 countries around the world. The ongoing momentum of our new products supports our strategy of expanding our installed base beyond core session management. In other words, our goal is to penetrate all of our customers around the world with all of our solutions.

We expect the addition of Camiant and Blueslice to accelerate this strategy. Now I would like to introduce and welcome our new CFO Greg Rush. As announced April 22nd, Greg brings a wealth of high-tech public company experience to this role. He has been a key member of Tekelec's finance team for the past five years where he has been our Chief Accounting Officer and has served as the company's interim CFO following the retirement of Bill Everett.

He will now provide more details on our Q1 results. Greg?

Greg Rush

Thanks, Frank, and let me say welcome to everyone on the call and add that I look forward to meeting many of you in the coming months. As Mike mentioned earlier, unless otherwise stated, all of the financial metrics presented today are on a non-GAAP basis.

As we discussed on previous calls, new revenue accounting guidance would be issued in October '09. We elected to adopt this guidance in the first quarter of 2010 resulting in the majority of our products no longer being accounted for under SOP 97-2.

Adoption of these rules did not have a significant impact on our revenues for the quarter, nor do we anticipate a significant impact for the full year. Please refer to slides 12 to 15 for disclosures related to our revenue.

For the first quarter of 2010, revenues were $116 million, down 1% compared to the first quarter of '09. The decline was principally in our EAGLE side signaling revenues as our performance management revenues increased by 19% from last year.

AT&T was our only 10% customer in the first quarter and represented 14% of total revenues. Because number portability is increasingly becoming integrated with our signaling opportunities, we have combined our signaling and number portability product revenues, provide additional color related to our revenue.

We have chosen to begin providing product line information, [be telling] our total revenues that are inclusive of the related services and once related revenues. This information can be found on slides 12 to 13.

For the first quarter of 2010, signaling related revenues were $97.8 million, a decrease of 3% compared to $101.3 million in the first quarter of '09. This decrease is principally in international regions, particularly Central and South America, along with the decline of warranty-related revenues across multiple regions.

Total revenues from our performance management products increased 19% to $18.2 million in the first quarter of 2010, from $15.3 million in the first quarter of '09. The growth in performance management revenue reflect the continued market penetration of our next generation [care grade Linux] products which are now installed in over 40 customers around the world.

Next I would like to comment on the geographic breakdown of revenues. Given the ongoing wireless service provider consolidation, the result in global footprint, we now provide our geographic split of revenues between US and international. You'll see on slide 15 US revenues for the first quarter of 2010 were 31% compared to 32% in '09, essentially unchanged.

Turning to operating expenses, total operating expense for the first quarter of 2010 were $50.4 million, down 5% compared to the first quarter of last year. The decrease reflects our continued focus on operating expense management. Combined with our continued strong revenues and gross margins, we generated first quarter operating margins of 24%, compared to 20% in the first quarter of '09.

Net income increased to $18 million or $0.26 per share for the first quarter of 2010, from $16 million or $0.24 per share in the first quarter of '09. Foreign country fluctuations did not have a material impact on earnings in other period.

Our non-GAAP affected tax rate for the first quarter of 2010 was 32% compared to 31% in the first quarter of last year. The 2010 effective tax rate is higher due primarily to the federal research and development tax credit not being extended. During '09 our effective tax rate included this benefit. We expect congress will renew the credit sometime this year and will adjust our effective rate in the quarter it is renewed.

We exited the first quarter with a very strong balance sheet as shown on slide 16. We had cash and cash equivalents of $307.3 million at the end of the first quarter compared to $277.3 million at the end of the fourth quarter of '09. The increase is attributable primarily to the $14.9 million of cash flow from operations generated during the first quarter and a redemption of $13.4 million of our option rate securities.

In addition to our cash and cash equivalents we held $79.5 million of option rate securities and associated [the rights]. An additional $6 million of these securities were redeemed in April bringing the total down to approximately $74 million. We expect to convert these securities to cash at the end of second quarter under our settlement agreement with UBS.

We anticipate our cash, cash equivalent and short-term investments will be reduced by approximately $167 million during the second quarter as a result of the acquisition of Camiant and Blueslice.

Our working capital balance at the end of the first quarter was $463.6 million, up from $441.3 million at the end of the fourth quarter of '09. The increase is due primarily to earnings and associated cash flow from operations as well as proceeds from the exercise of stock options.

I would like to turn to our guidance for the year. Given the acquisition of Blueslice and soon to be completed acquisition of Camiant, I believe it will be very helpful if you refer to slide 17 as I discuss our current year guidance.

On a stand-alone basis, excluding the acquisitions, we expect orders to be essentially flat with '09 levels. Our current year reflects the continued cautiousness in capital spending in emerging markets.

From a product mix perspective, we continue to expect year-over-year gross from our EAGLE XG, performance management and mobile messaging products and flat to down a little for our EAGLE 5 product line.

Going forward, and particularly in line with the additions of Camiant and Blueslice, we expect our new products represent an increasing percentage of our overall orders and revenues. As an aside, I mentioned earlier that we had adopted a new revenue accounting rule in the first quarter.

While in the near term these rules will not have a significant impact on our revenue, over time we expect these rules may shorten the time between order received and revenue recognition. Therefore, we plan to revise only revenue guidance going forward.

Turning to the impacts of the acquisitions, we expect the additions of Camiant and Blueslice will be slightly diluted to our non-GAAP earnings at approximately $0.02 to $0.04 per share for 2010 and slightly accretive in 2011.

The 2010 dilution estimate excludes certain one-time items estimated at approximately $0.08 to $0.12 per share. But fiscally, as you may know, the purchase accounting requires the elimination of a significant portion of the acquired companies' deferred revenue.

We currently estimate this one-time reduction to be at most approximately $10 million. Further, we expect to incur certain integration-related costs totalling approximately $2 million. These expenses are of a non-recurring nature and are expected to be completed by the end of 2010.

Including the post-acquisition [inaudible] of Camiant and Blueslice, we expect our revenues to range between $465 million and $480 million. I would like to point out that there are an unusually large number of acceptances, particularly those associated with number portability in India, which could result in significant variability in our revenues between the second and third quarter.

Based on our current expectations, we believe our second quarter revenues will be our lowest of the year and lower than Q2 '09. We expect our combined book-to-bill ratio will be approximately one-to-one for the year.

We expect our non-GAAP EPS, excluding the previously mentioned one-time acquisition related items, to range between $0.95 and $1.10 per share. Including these one-time items we expect our non-GAAP EPS to be between $0.85 and $1 per share.

We have not completed the purchase accounting and related evaluation of intangible assets associated with the acquisition of Blueslice and planned acquisition of Camiant. Accordingly, the amount of the one-time acquisition related items may change.

Further, because we have not completed the evaluation of the intangibles attained in these acquisitions, we are not in a position to provide full-year GAAP and EPS guidance at this time. We expect to complete the purchase accounting during the second quarter.

I will now turn the call back to Frank for some closing comments. Frank?

Frank Plastina

In closing, Tekelec's portfolio now consists of an industry-leading set of products and expertise focused on helping service providers handle the continued explosive growth of mobile data. Our leadership in core session management is not complemented by an ability to dynamically manage subscriber data, apply desired and necessary policy controls, add value to mobile messaging traffic and surround all of this with a real-time performance management solution generating key performance indicators.

It's a powerful portfolio and one that will strongly resonate with our more than 300 service provider customers in 108 countries around the world. I thank you for your time today and will now open up the call for any questions. Operator?

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Brian Modoff - Deutsche Bank.

Brian Modoff - Deutsche Bank

Talk about the Camiant acquisition relative to your current product line. Obviously this would allow you to put their policy server products right on your core EAGLE XG. When do you think you'll have that up and running and what's the feedback, then, from your carrier customers on this acquisition?

Frank Plastina

In terms of the integration, realistically, Brian, that's probably something that's going to happen in 2011 because the good news with the Camiant deal is that we're at the heart of the initial LTE deployments at Verizon Wireless. So we're not going to [swap] that.

But the way they have designed their product, we see a very clear path at putting that product onto our existing middleware, building it up from that platform work that we've done over the last few years. So we see this as really just a software add on going forward. So that integration is going to be done probably next 12 months, 12 to 18 months or so but clearly that plan will pay off in terms of margin improvement from a cost perspective after that point in time.

In terms of the customer reaction, we -- .

Brian Modoff - Deutsche Bank

Can you also talk about used case when you're doing that as well, please, some of the used case ideas that you might have with this?

Frank Plastina

Yes, right now we're getting started in the policy world really the used case has been with prioritization. The initial deployments that Camiant has had - Vodafone, it's really a matter of bandwidth priority on their all-you-can-eat kinds of offers. It's really a way for Vodafone to manage the bandwidth utilization of the subscribers without the user really seeing any kind of management of service.

Then over time they can differentiate the plans and offer really different plans at different price points, which is really the end game. In the cable space, what the Camiant product has done is quality of service prioritization for music and video downloads for voice over IP. The initial deployments there have all been focused on that quality of service bundle.

Brian Modoff - Deutsche Bank

Isn't that where Camiant has really been strongest has been in the cable operator space?

Frank Plastina

Yes, that's where they first got started. So right now they estimate they've got over 70% of all cable modem subscribers in North America that flow through the Camiant policy product.

Brian Modoff - Deutsche Bank

Then turning to your business, the $6 million in orders, even if you add the $10 million in it was still weak. Is this really more of a softening demand trend for EAGLE 5? In other words, are we starting to see that product line starting to show its age a little bit before EAGLE XG pops up? What's your view on that?

Frank Plastina

Yes, it's a combination of things. It's really a slow down in the emerging markets is what we've seen. The aggressive buildup and extension and expansion plans have just been slowed down. We saw a pretty solid US business, including EAGLE 5. Year-over-year our book ship business was up in the quarter.

So it seems to be a bit of a regional thing in terms of the EAGLE 5 business. Going forward, the plan is always to start moving all of the expansion capabilities, including big trend and all the other core processing functionality onto EAGLE XG.

Brian Modoff - Deutsche Bank

Then you said EAGLE 5 book ship business is up year-on-year.

Frank Plastina



Your next question comes from the line of Amir Rozwadowski - Barclays Capital.

Amir Rozwadowski - Barclays Capital

Frank, I just wanted to turn to your guidance a bit here. If we take a look at sort of the organic guidance for the business, it seems to have come down a little bit from your prior expectations. I was wondering what the major puts and takes were there. I mean, is it sort of timing around some of the India-related issues that you have mentioned? Or how should we think about that?

Frank Plastina

It's a couple of things. It's really the cautiousness in emerging markets as I mentioned in the earlier question. What we're seeing is a more cautious spending tone in terms of expansion business in some of the bigger emerging markets and that includes India.

India then has the security issues that really delayed things by about 90 days in the first quarter. So there is a double whammy in India. Overall, we're still seeing some pretty good traction and expect growth in our non-EAGLE 5 business. So this is really an emerging market's EAGLE 5 related flatness, is the way I would categorize it.

So the order outlook has come down. The revenue has come down a bit and obviously now we've got the opportunity to upsale the new products and we expect some contribution from the new products this year.

Amir Rozwadowski - Barclays Capital

In thinking about these acquisitions sort of over the longer term, you mentioned in the prepared remarks that they would be accretive beyond 2010. Can you give us a sense in terms of where you see sort of the growth prospects for those two businesses?

Frank Plastina

We're actually quite optimistic about the growth prospects because if you look at the market sizes and the third party market growth prospects for the spaces that they play in it's pretty solid. You look at the policy space, we see reports anywhere from 20% to 25% growth in 2011 and beyond and a market size in 2011 of about $200 million to $300 million.

Camiant is extremely well positioned to become a market share leader. Then obviously as part of Tekelec with all of the core session management things that we do and some of the performance management and mobile messaging products that we can complement it with, we see some pretty good opportunities for growth in that area.

With the acquisition of Blueslice, we get that subscriber data management engine that is a very nice complement to not only the Camiant policy engine but the rest of Tekelec. So we see opportunities opening up there to build our business beyond the traditional number portability.

Now we'll be able to address ENUM, DNS, AAA, HSS, all of these data related control layer types of functionality that has a bundle, the interplay with the rest of the Tekelec portfolio is going to be pretty profound.


Your next question comes from the line of Catherine Trebnick - Avian Securities.

Catherine Trebnick - Avian Securities

Do you think with the 35 vendors that they have interoperability with such as Cisco and Juniper, any issues there or not?

Frank Plastina

We see all o their interop partners, their reseller agreements - this goes for both Camiant and Blueslice - as completely complementary to what we do. We have very littler overlap with the list of the resellers and the people they've done interop with. That was one of the more encouraging parts of the due diligence process is that we have no issues having Cisco or Juniper or Alcatel or Ericcson front deals for us because they obviously have a whole bunch more of the portfolio.

With our focus on that intelligent control layer we think we can become a very essential partner and we will play the situation, depending on how the customer prefers it. We will continue to go direct with customers if they prefer it that way or we'll go through an integration partner or a service partner if they choose to point us in that direction. I think it gives us a lot of flexibility.


Your next question comes from the line of Michael Genovese - Soleil Securities.

Michael Genovese - Soleil Securities

So when you talk about slowdown in the emerging markets I just want to be clear. You're talking about India and Latin America. Are there any other regions that are included in that?

Frank Plastina

Yes, Middle East and Africa would also be what would be under our emerging market definition.

Michael Genovese - Soleil Securities

Then last quarter you had a lot of wins that you talked about in mobile number portability deals in India. What's the outlook now for that actually for MNP to actually be implemented and for maybe orders in that area to come back? What's your current thinking?

Frank Plastina

The implementation is going on as we speak. I mean, we're ready to actually turn on several of the networks. As you heard in Greg's prepared remarks, we have some acceptance-based deals specifically related to the number portability work in India that we're not quite sure if it's going to be June or July and that's why we're going to have variability between Q2 and Q3. But we're pretty confident they're going to happen this year.

Michael Genovese - Soleil Securities

Then I think I just missed some of what you said about the EAGLE XG, if you could just update me in terms of the number of new customers in the quarter and some of the metrics you gave last quarter were around backlog for that product. Finally if there were any recognized EAGLE XG revenues in the first quarter.

Frank Plastina

Yes, EAGLE XG, there weren't any recognized revenues in the quarter. We added a tier one Western European based global wireless provider for global number portability, which is an interesting new application. It essentially does number portability at the origination country as opposed to the destination, so it kind of stays on roaming and helps with the billing. That application, we believe, every global wireless service provider is going to need at some point.

In terms of the backlog, last quarter we said we had $30 million plus of backlog for EAGLE XG and that continues to grow.

Michael Genovese - Soleil Securities

So does this mean that the total number of EAGLE XG customers is at 12? Is that right?

Frank Plastina

That's correct.


(Operator Instruction) Your next question comes from the line of Todd Kaufman - Raymond James.

Todd Kaufman - Raymond James

Yes, when you took down the core Tekelec full-year guidance you made a comment that it's largely related to some international issues. But I’m looking at your Q1 US revenue, which you cited as strong and it doesn't look like it was terribly spectacular. Can you give any more color on your US comment that you made earlier? Then I have a quick follow-up to that.

Frank Plastina

Yes, the US comment was more from an order perspective [than] prospective comment. So we see the order book moving to the right somewhat on emerging markets. The US business remains solid and the book ship actuals Q1 versus Q1 last year were up year-over-year, which is predominantly a US number.

Todd Kaufman - Raymond James

Unrelated, what were the 2009 annual revenue for Camiant and Blueslice?

Frank Plastina

We don't have the - we're not going to provide the revenue because they had different revenue recognition rules. So to give some color, we're actually acquiring about $15 million of backlog from the two and we've got some deferred revenues that obviously we're going to have to flow through and not claim but there's a bunch of deferred revenue on their balance sheets as well.

Greg Rush

I'd also like to add they had approximately $75 million order [slice] today. So they have a really strong customer base.

Todd Kaufman - Raymond James

Is it fair to say - I'm looking at slide 17. It looks like the six month full-year combined revenue that you're forecasting is $20 million. Is it fair to say that the first half of calendar 2010 would be a similar type number, so a combined go-forward number for these guys of about $40 million combined?

Frank Plastina

Well, we certainly expect growth. We're not going to provide a specific number for 2011 going forward. But you can see that the $20 million is what we see right now between obviously today and whenever we close the Camiant deal, which is shortly, and the rest of the year.

So the way to look at it - you're right - is $20 million. The $10 million adjustment is a one-time adjustment due to purchase accounting. But certainly we expect some very healthy growth going forward beyond this year's actuals.

Todd Kaufman - Raymond James

But just a clarification, that $20 million is a six month forward-looking -- .

Frank Plastina

It's prospect. It's seven months. It's from today on to the end of the year.


Your next question comes from the line of Larry Harris - C.L. King.

Larry Harris - C.L. King

Just a couple of items on the Camiant acquisition from a fundamental basis looks real positive. Looking at the chart on page 17 the second column acquisitions $20 million and the diluted EPS impact of $0.02 to $0.04. Is that due to loss of interest income or would the acquired businesses at least for this year maybe have a slightly negative operating profit?

Greg Rush

I think one of the bigger factors is the timing of when we're doing the acquisition. As you know, orders to revenue conversion about six to nine months based on the time when we're doing the acquisition. You're just not going to have the time to convert those orders to revenue.

Larry Harris - C.L. King

I understand but the businesses generate gross margins of 70% or better. Am I correct on that?

Frank Plastina

Yes, historically that has been their range.

Greg Rush

Both of them are cash flow positive over the last 12 months.


Thank you for participating in today's call. You may now disconnect.

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