Ultimate Software Group, Inc. Q2 2010 Earnings Call Transcript

Jul.27.10 | About: Ultimate Software (ULTI)

Ultimate Software Group, Inc. (NASDAQ:ULTI)

Q2 2010 Earnings Call

July 27, 2010 5:00 PM ET

Executives

Scott Scherr – Chief Executive Officer, President and Founder

Mitchell Dauerman – Executive Vice President and CFO

Analysts

Laura Lederman – William Blair

Ajay Kasargod – Morgan Keegan

Michael Nemeroff – Wedbush Securities

Nathan Schneiderman – Roth Capital

Ilya Grozovsky – Morgan Joseph

Mark Marcon – Robert W. Baird

Brian Wallins – Gleacher & Company

Mike Marburg – Ramsey

Brad Reback – Oppenheimer

Operator

Welcome to Ultimate’s Second Quarter 2010 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Today’s conference is being recorded.

Your presenters today will be Mr. Scott Scherr, Chief Executive Officer, President and Founder of Ultimate; and Mr. Mitchell K. Dauerman, Executive Vice President and Chief Financial Officer.

We will begin with comments from Mitchell Dauerman.

Mitchell Dauerman

Thank you, Jill. Good afternoon. And thank you for your interest in Ultimate Software. Before we begin please be aware that we will be discussing our business outlook and will be making other forward-looking statements regarding our current expectations of future events and the future financial performance of the company.

These forward-looking statements are based on information available to us as of today’s date and are subject to risks and uncertainties. We encourage you to review our filings with the SEC at www.sec.gov for additional information on risk factors that could cause actual result to differ materially from our current expectations. We assume no duty or obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

I’m going to begin by reviewing our financial results for the second quarter of 2010 and then I’ll provide financial guidance for the third quarter. Unless otherwise noted, our discussion will be on a non-GAAP basis for all costs, gross margins, operating and net income, as well as EPS when comparing to the same period in the prior year.

The primary difference between GAAP and non-GAAP financial information is non-cash stock-based compensation. Please refer to the reconciliation of our financial information on a GAAP basis to that on a non-GAAP included in the press release, which is published on our website.

Now for the second quarter of 2010 Ultimate reported total revenues of $54.7 million and recurring revenues of $41.4 million. Non-GAAP net income for the second quarter of 2010 was $2.3 million or $0.09 per diluted share and GAAP net income for continuing operations was $300,000 or $0.01 per share.

For Q2 our recurring revenues were $41.4 million, representing a 27% increase over the same quarter in 2009. Recurring revenues represented 76% of total revenues this quarter compared to -- compared with 69% for the second quarter of last year.

The recurring revenue gross margin of 71.4% was slightly ahead of our expectation. The annualized retention rate remained at 96% for our recurring revenue customer base. Service revenues for Q2 were $13 million and our services gross margin was 11.3%, both were in line with our expectations. Our total gross margin rate for the quarter was 57.2%.

Operating expenses were $27.3 million, slightly better than our expectations. Our operating margins for the quarter of 7.2% were ahead of our expectations at 6%, driven mostly by higher revenues and slightly lower operating expenses than expected.

Excluding the impact of license revenue, total revenues for the first half of 2010 grew by 18% and the incremental operating margin was 26%. Our non-GAAP income tax rate for the quarter and the year-to-date was 41%.

Turning to the balance sheet. Total cash in investments and marketable securities were $32 million at June 30th. For the year, we’ve generated $10 million in cash from operations, we invested $3.8 million in total capital expenditures and free cash flow was $6.2 million or $0.23 per diluted share.

As part of our stock repurchase program, we used $9.3 million in the quarter to acquire 280,000 shares. For the year-to-date we used $13 million to acquire 400,000 -- 400,500 shares of our common stock. We have 614,075 shares authorized and available for repurchase as of today.

The accounts receivable increased to $42.1 million, compared with $38.5 million at the end of last year. DSOs were 70 days at the end of June 2010, compared with 68 days at the end of last year.

Deferred revenues were $69 million on June 30th, compared to $68.6 million at December 31st. As a reminder, deferred revenue in the first half of the year reflects the seasonality in annual maintenance billings, when it is typical that maintenance revenues recognized in the income statement will exceed the annual maintenance billings recorded as deferred revenue on the balance sheet.

In addition, deferred revenues also reflect the change in contractual implementation services, which tend to fluctuate from one period to the next, as well as the changes in our billing practices, which we have previously discussed.

Before I cover guidance, I want to point out that during the quarter we reported a loss from discontinued operations of our U.K. subsidiary. The loss was principally comprised of $900,000 from the realization of non-cash foreign currency translates adjustment.

Now turning to Q3 guidance. We expect recurring revenues will be approximately $43 million and total revenues will be approximately $57 million. We expect operating expenses to increase slightly from Q2. We expect operating margins will be approximately 8%.

Turning to our upcoming conference schedule. During the next quarter I will be at the Oppenheimer’s Annual Communications, Technology & Internet Conference on August 10th and Canaccord Genuity 30th Annual Global Conference on August 11th, both in Boston. On August 12th I’ll be at the Morgan Keegan Annual Technology Conference in New York and on September 14th I’ll be at Deutsche Bank’s 2010 Technology Conference in San Francisco. If you are available at those conferences to meet, please let know.

And now, I’ll turn the call over to Scott.

Scott Scherr

Thanks, Mitch. Thank you everyone for participating in our call this evening. As Mitch said, our recurring revenues were up 27% over those in last year’s second quarter and our total revenues were up 16%. Recurring revenues accounted for 76% of our total revenue.

We are pleased with our sales performance for the quarter. We closed more new business in the second quarter this year than in any previous quarter of our company’s history and our attach rates continue to rise.

In the Enterprise channel attach rates for our talent management products were more than 50%, and time and attendance was more than 40%. In the Workplace channel our talent management attach rates were greater than 65% and time management was more than 80%. To give you some color on new enterprise SAS sales for the quarter, I’m going to list a few of our new customers but will not explicitly name them for competitive reasons.

The first is a large retailer with more than 12,000 employees and stores in both the United States and Canada. They signed up for core UltiPro, recruitment, onboarding, performance management, learning management and Canadian HR and payroll.

The next is a chain of hospitals and medical centers with more than 30 facilities that selected core UltiPro as well as recruitment, onboarding, performance management and learning management. A wholesale distributor with 6,000 employees selected salary planning and budgeting, as well as core UltiPro. And last an airline company selected recruitment, onboarding, performance management, learning management and salary planning and budgeting in addition to core UltiPro.

Now turning to Workplace. Our team had the biggest quarter since we began offering UltiPro Workplace to the market and June was our biggest months ever, both record breaking in terms of number of units sold and value of the business.

In addition, the Workplace team’s prospecting activities increased steadily throughout Q2. They see an improving economic climate and a promising future for increasing new business. To give a little color on their Q2 success they brought in 20 healthcare organizations, 14 financial institutions, nine technology companies, a university, seven energy companies, eight professional services firms, several non-profits and more.

Our pipeline is strong and we’re all looking forward to executing on a 2010 goals. I just returned from our Enterprise and Workplace midyear sales meetings and their feedback on prospecting, activity levels and projected results for the year was very positive.

At the same time, we recorded our highest number ever of Q2 leads who said they are looking to purchase a new solution within the next 12 months. We also had the highest number ever of visitors to our company’s website in Q2, 250,000 visitors. And two of our Q2 e-mail campaigns were in our top five highest performing e-mail campaigns in our company’s history.

Some of the enterprise companies that went live on core UltiPro in Q2 were Revlon, the cosmetics company with more than 2,000 employees, Oakwood Worldwide, with 4,000 locations in North America, Alliant Insurance and the Portland Trail Blazers.

Some of the workplace companies that went live were Vermont Teddy Bear Company, a highly rated online store, Seafarers Vacation Plan, who manages a union work force in the United States, Guam, U.S. Virgin Islands and Puerto Rico, TQ Logistics, a trucking company and the Center for Creative Leadership, a global education organization.

We had 17 enterprise companies go live on UltiPro Onboarding in Q2. We are pleased to see the momentum of this solution and the positive feedback we’re getting from customers. Forrester Research, an independent research firm that advises global businesses, published a case study in late April about our customer, First Horizon National and its onboarding program without any participation from us.

According to analyst Claire Schooley, onboarding is an essential HR process that extends over many months and even up to the employee’s first anniversary and results in better employee retention, faster new employee ramp up, improved process consistency and efficiency, and better acculturation.

Referring specifically to First Horizon National, who has about 6,000 employees, Schooley says, First Horizon National’s onboarding saves money and benefits employees. The results show that the system is working even though it has been implemented for less than a year. Results include streamlining, worker productivity, more satisfied employees and onboarding cost savings.

She also notes that a major benefit is that onboarding integrated technology has brought cost savings, we agree. A major strength of UltiPro is that it is a unified end-to-end human capital management solution.

We are also happy with the traction we are getting with UltiPro in Canada. We brought seven organizations live on UltiPro Canada in the second quarter and we note -- now have a total of more than 200 companies live on that solution.

We believe that our competitive edge comes from a combination of product excellence and great service and we expect the power of word-of-mouth references to increase as our customer numbers there continue to build.

We finished the quarter with 1058 associates. Our culture of trust and excellence remains a cornerstone of what we do at Ultimate. Our commitment level is a constant. Over the last few years we have evolved into the leading provider of unified end-to-end human capital management staff solutions in North America.

Along the way we have modified pieces of our business strategy, but the essence of our business philosophy remains the same. At the close of our 2003 year end call we said from the beginning our culture has been one of commitment to our employees and to identifying our customers unmet needs and delivering what others do not.

We’ve stayed that course. We take care of our employees, they take care of our customers and together we built a strong reputable foundation on which to grow. Today in 2010, we still follow that same course as we continue to grow. Our associates will make that happen as they always have, with the industry’s best products and services.

Thank you everyone for your support. Let’s go to the Q&A.

Question-and-Answer Session

Operator

Yeah. Thank you. (Operator Instructions) Our first question today comes from Laura Lederman with William Blair.

Laura Lederman – William Blair

Thank you for the nice quarter. Can you talk a little bit about seminar attendance and how that’s been trending, always good to hear that more people say they intend to buy a solution in the next 12 months, but if you give us a sense of seminar attendance, if you provided that in the very first two minutes of the call, I apologize. I was a bit late coming to the call?

Also, on a longer term question, can you talk a little bit about kind of next gen development in the product and kind of some of the things that you’re doing, so we get a sense of what’s coming down the pipe? Thank you.

Scott Scherr

Again, on the seminars, as I said, we had 250,000 people have upside. I mean we do seminars all the time and we’re getting more people at our seminars than ever before.

Laura Lederman – William Blair

I meant the physical ones.

Scott Scherr

Say it again?

Laura Lederman – William Blair

The once where you actually have to be in person.

Scott Scherr

Yeah. I think on next gen, we’re always working on next gen stuff, from the beginning. I really don’t want to talk too much about it. But, I mean, our goal is to give our clients, what they ask for and what they need, and that involves next generation products, which is just part of the business, as it has always been.

Laura Lederman – William Blair

Let me shift gears a little bit. Can you give us a sense of what was better in the quarter than expected and what was worse in the quarter than expected, in terms of versus what you were looking for when you came into the quarter?

Scott Scherr

There was nothing worse.

Laura Lederman – William Blair

That’s wonderful to hear.

Scott Scherr

I think better, I think, I mean, I think, Workplace, number of units they sold and the number, I didn’t go into the quarter anticipating that we would have the best quarter ever in number of units and dollars. As well as, Enterprise came through. So, yeah, I didn’t go into the quarter thinking it would be the best quarter we ever had, so I’d say that was good.

Laura Lederman – William Blair

Thank you so much.

Scott Scherr

Thank you.

Operator

And our next question comes from Ajay Kasargod with Morgan Keegan.

Ajay Kasargod – Morgan Keegan

Good afternoon and congratulations on your quarter.

Mitchell Dauerman

Thank you.

Scott Scherr

Thanks, Ajay.

Ajay Kasargod – Morgan Keegan

Hi. Scott, I know you take tremendous pride in new business development. So one of the things I wanted to see is if you could help us understand what’s changed with the customers. What, in terms of their purchasing patterns and why it’s coming through now? So if you can you give us some perspective there. And what is your visibility on some of these trends continuing and then I have a quick follow-up?

Scott Scherr

I mean, I think our team just gets stronger, we started with Workplace, if we were talking three years ago, we might have had 30, 40 caring sales people, we have 65 now. So we have doubled our sales force. We created a whole different work sales force in Workplace and they’re getting better, every day and every month they’re getting better.

And I think, yeah, the good thing is that it’s showing, with -- and we had one Workplace salesperson who sold 10 units in the quarter, which if you would have asked me if that was possible, I would have said no. But somebody did it. So that sends a message to all the other salespeople that it could be done.

Ajay Kasargod – Morgan Keegan

And, Scott, not that you know, as many companies did, everybody who was challenged through the recession and everybody grew, but the growth was mitigated during that time. But it seems like you’re hitting a points of acceleration, so I just wanted to know, is there an inflection point with the customers? What you hearing from them? Why is their appetite possibly increasing or is it -- do you just kind of just think it’s your go-to market.

Scott Scherr

I think it’s our go-to market. I think its more people on the street, more people knowing about us. Up to this points and still I don’t believe we have hit a tipping point where everybody knows our name. In all our marketing efforts, the first question we ask when anyone has to write something to us or they come to one of our seminars is, have you heard about us and it’s about 50% of the people have heard about us.

Ajay Kasargod – Morgan Keegan

Right.

Scott Scherr

A tipping will be when maybe 80% of the people have heard about us. So I think right now it’s our people going out there and letting people know about us. The more clients we get, the more people you have in the HR business who know about us and gives us an opportunity if they change jobs.

Ajay Kasargod – Morgan Keegan

Right.

Scott Scherr

Maybe they look at us, but…

Ajay Kasargod – Morgan Keegan

Okay.

Scott Scherr

We’re waiting for that tipping point. So I would say we haven’t reached it yet and when that happens, I think that would be in inflection point.

Ajay Kasargod – Morgan Keegan

Okay. And then just last, to just Mitch, just on services, could you just provide us a perspective on what are the goals in terms of size of the revenue pie and the margin. Because clearly I think you guys explained that you want to focus on the annuity stream and getting the customer’s up and live and clearly that’s been impacting the revenue and the margins on services, so maybe just a little bit of perspective. Thanks for the time.

Mitchell Dauerman

Okay. Sure, Ajay. Just keep in mind, we have always looked at services as, if you will, the tail that wags the dog. We’ve always focused on adding new customers and trying to lower the cost for our customers for getting into the product solution. So we guided this year to 15% to 18% service margins. We’re staying with that range. We’ll continue to invest in our customers. And if you take a look at I think you said the pie, total revenues, plus or minus a single digit, it’s not much and that’s really our corporate goal and our corporate focus long term.

Ajay Kasargod – Morgan Keegan

Okay. Thank you.

Mitchell Dauerman

Thank you.

Operator

Our next question comes from Michael Nemeroff with Wedbush Securities.

Michael Nemeroff – Wedbush Securities

Hi, guys. Thanks for taking my questions. Just a couple. Mitch, I see on the income statement there is a discontinued ops line. Could you flush that out maybe a little bit more?

Mitchell Dauerman

Yeah. As we mentioned in the call, Mike, we had a U.K. subsidiary. We bought them in ‘06, the principal object of buying that was the technology. We discontinued that operation in the U.K. We’ve, if you will, integrated the technology into our product suite and so as a result we had to write-off the unrealized currency translation adjustment. It is a non-cash item and it had been sitting in the equity section.

Michael Nemeroff – Wedbush Securities

And that’s just a one time item?

Mitchell Dauerman

One time and it’s gone.

Michael Nemeroff – Wedbush Securities

Okay. And then it seems like you keep beating the margin guidance that you give, which is -- which we’re very happy about. Is it possible that Q4 -- by Q4, you could end up with an operating margin for the year north of 10% and under what circumstances could that happen?

Mitchell Dauerman

Mike, I think we’ve always been consistent and try to give people what we think is a realistic guidance, where we’re going, what the things that we’re investing in. But I think you’re talking about marginal differences, whether it’s marginally high or marginally lower, but it’s the direction. And I think Scott spoke about what’s important, what drives the business is growth in new sales, customer retention and then managing operating expenses, which I think we demonstrated over the last year and a half.

Michael Nemeroff – Wedbush Securities

Agreed. Okay. And then, Scott, on the Time to Live -- I didn’t hear it actually, joined the call a little bit late. I didn’t know if you mentioned anything and if you could maybe give us an update. I know about a year or two ago, you started to develop some software packs to streamline the implementation. I was just wondering if you could just maybe give us a little bit more color operationally how that’s been working.

Mitchell Dauerman

Mike, its Mitch. On the Enterprise Time to Live’s, we’ve seen, on the core products, them accelerating a little bit, a lot of focus in that area. We talked about the end of last year, some additional products taking a little bit longer. So overall I would say core going up a little bit faster but on average probably marginally better and then on Workplace, the difference there is where we try to work on getting customers to go live within a quarter, there seems to be a tendency where customers would prefer to go live on the beginning of the quarter and that’s the Workplace side of the business.

Michael Nemeroff – Wedbush Securities

Thanks, guys.

Operator

We’ll go next to Nathan Schneiderman with Roth Capital.

Nathan Schneiderman – Roth Capital

Hi, Scott and Mitch. Thanks in advance for taking my question. I have one for you on the guidance for the year. It is, I understand you’re holding the guidance for operating margin but given your Q3 guidance, it would seem to imply that you’re going to be, maybe above 16% on operating margin for Q4, which is a big rise from the Q3 level. So I was hoping you could share us with us -- correct me, if I’m wrong on the math, but how do you enjoy that kind of improvement? Do you see a significant build in gross margin in Q4 or maybe a sequential decline in operating expenses or just how do you get that magnitude of improvement?

Mitchell Dauerman

Okay. And just -- I guess to refresh everybody’s memory from when we talked about the last quarter as well. In the fourth quarter, I’d say there are probably three or four key things that happened, which is why we have confidence in the operating margin expanding in that quarter.

First is you tends to have seasonality in your employment so that will drive more times than not recurring revenue higher. Then you from the services side, clearly you have the most number of new starts on January 1st. So from the services side, you’re building significant revenue in the fourth quarter compared to the third quarter, quite frankly compared to almost any other quarter during the year, both of those items are highly leveragable. Then when you gets to operating expenses, you have two things. One is we do have team meetings and we have performance based events or clubs that happen during the third quarter.

They don’t happen in the fourth. So that will drive operating expenses down sequentially. And the last item is the way we accrue for vacation pay. We accrue throughout the year based on how somebody earns, netted off by what they take. But at the end of the year any under used vacation or sick time, they lose 50% of that. And that 50% comes through as a reduction of compensation expense.

So again, I think when you look back at prior years and prior trends, you will see a Q4 expense level being lower than Q3 for those reasons. Hopefully, that explains and answers your question.

Nathan Schneiderman – Roth Capital

Okay. And then just a quick one on the services gross margin too, I understand your guidance for the year, your level for the year, 15% to 18%. Is that approximately the level you see for 2011 as well?

Mitchell Dauerman

I think -- we’ll give our guidance after Q3 but we’re going to continue to look to invest in our customers. So I would say right now I would expect it to be in that range.

Nathan Schneiderman – Roth Capital

Thank you.

Operator

And we’ll go next to Ilya Grozovsky with Morgan Joseph.

Ilya Grozovsky – Morgan Joseph

Hi, guys. Thanks for taking the question, just wanted a little bit of clarification on the services gross margins. In the current quarter, what’s driving it to this level?

Mitchell Dauerman

Well, it’s consistent with the plan that we had. If you come out of last year, we had reductions in training attendance, we had reductions in certain discretionary expenses by customers and we maintained our cost because, again, we feel it’s important to train people well with experienced people and to implement customers well with experienced trainers.

So, again, I want to points you back to what’s important to our business model. It’s growing recurring revenue, managing operating expense growth and keeping our customers happy. And so the way we look at it, it’s a good investment and so we’re going to keep targeting -- as Nate was driving to, we’re going to target those 15% to 18% range for a year and we’re right where we expected to be.

Ilya Grozovsky – Morgan Joseph

Okay. And then also on the customer retention, so it used to be that up around 97%, not that 1% makes that much of a difference. But is there -- is that a function of businesses shuttering at thing their doors or was there some increased market share issues?

Mitchell Dauerman

Yeah. Again, last quarters that came up as when it dropped and the issue was around bankruptcies and acquisitions…

Mitchell Dauerman

….that’s the -- 97 to 96. I would tell you, we were marginally better this quarter. We didn’t see as many bankruptcies.

Ilya Grozovsky – Morgan Joseph

Okay. Thank you.

Operator

We’ll go next to Mark Marcon with Robert W. Baird.

Mark Marcon – Robert W. Baird

Hi. Good evening and congratulations on a nice quarter. I was wondering if you could talk a little bit about the differences that you’re seeing, particularly in terms of Workplace. How that’s ramping up now that the sales force is continuing to gain experience and traction. And how that may play out as the next 12 months flows along in terms of – obviously, you’ve had a very good quarter in terms of new clients sign ups, but just wondering, are you seeing consistent growth across all sales people or is it a few that are really driving it? How would you characterize that?

Scott Scherr

No. We have 35 quarter carries there, so it can’t be a few driving it. It is the majority driving it. I think it is just like our Enterprise team, which is also very important to us. I have used the word foundation in the past, but we built a team over time in Enterprise that we can count on. And now we’re building a team in Workplace that we can count on. It’s been like three years and now -- it’s like every quarter we get stronger because you have more tenure. They get more experience. We might manage them better.

But I think it just gets stronger as a team and its fun to see, quite frankly but that’s what’s happening. It’s a new team and I think because of the Enterprise team and their success, they also help the Workplace team. They’re in the same territories. Those guys help them and it’s just natural growth from tenure with good people going forward.

Mark Marcon – Robert W. Baird

And when we look at the bookings in the quarter, what percentage of the bookings are now coming from Workplace?

Scott Scherr

It might be around 60/40. 60 being Enterprise, 40 being -- 60/40, 65/35.

Mark Marcon – Robert W. Baird

Great. And then how would you characterize the pricing environment?

Scott Scherr

I characterize it that we have very good value for what we offer and our prices are holding based on what we have to offer. Our wholesale is proving value and if we can’t prove value, then people aren’t going to go with us.

Mark Marcon – Robert W. Baird

So no change in terms of competitive activity or anything like that?

Scott Scherr

Yeah. I said this before, our competition is us. I mean we have to prove value. Our competition, if they sell it for free then we have to prove value that we’re better than free at our price. And I think we’re good at doing that.

Mark Marcon – Robert W. Baird

Great. Thank you.

Operator

(Operator Instructions) And we’ll go next to Brad Whitt with Gleacher & Company.

Brian Wallins – Gleacher & Company

Thank you. This is Brian Wallins for Brad. Two questions for you. First, did you have any license conversions in the quarter and as a follow-up, when you do migrate licensed customer to subscription, what’s a typical uplift do you see in recurring revenue? Thanks.

Scott Scherr

It’s minimal the uptick and we’re always upgrading licensed customers. We have five client based sales people and their main priority is that, along with selling our other products. I would say it’s minimal in the recurring revenues. Did I answer it?

Brian Wallins – Gleacher & Company

Yeah. It did. Thanks.

Operator

And we’ll go next to Mike Marburg with Ramsey.

Mike Marburg – Ramsey

Hi, guys. Two quick questions, one has partially been addressed. So just on the services, when you look long term, one of the realities in folks with a SAS offering is there services revenues tend to be a lot lower as a percentage of total revenues. And right now, you guys are still pretty high. I think it’s around 35% or 40% and most of the SAS [closure] are in the 5 to 20% range. Do you see that normalizing down or is there something different about the model that you guys have?

Scott Scherr

I think one of the most exciting parts about this quarter was that our recurring revenue was 76% of total revenue. So our services was basically 24% or maybe a little less, because the drag from license was a little of that. But I see our recurring revenues going up and I see our services revenue going down.

Like Mitch said, our goal is to invest on the services side and that’s what we’ve been doing. So I think you’re going to see recurring revenue go up and services will be less of the total revenue as we go forward. Did I answer it?

Operator

And we will take one more question from Brad Reback with Oppenheimer.

Brad Reback – Oppenheimer

Hey, guys. How are you?

Scott Scherr

Hi, Brad. How are you?

Mitchell Dauerman

Hello, Brad.

Brad Reback – Oppenheimer

I’m not sure if I missed this or not. Any update on how Canada is going in?

Scott Scherr

Yeah. We said we have over 200 accounts live on Canada. We took seven accounts live in the quarter. I don’t want to -- well, I will say we have an unbelievable guy up there named Daniel Taylor. For our competitors on the call, don’t recruit him because he is not going to come. But, yeah, Canada is going great, exceeding our expectations.

Brad Reback – Oppenheimer

Thanks. And talking about recruiting salespeople maybe you can help -- can you help us understand how that pipeline looks and maybe plans on adding head count this over the next 18 months?

Scott Scherr

Yeah. I think we’re in the position of being able to recruit the best of the best as we’ve been in for a number of years. So I think the pipeline looks good and as openings come up, we’re always looking for great salespeople. So again if any great sales people are on this call, Greg Swick or [Chris Fenice].

Brad Reback – Oppenheimer

That’s great. Thanks a lot.

Scott Scherr

Take care.

Operator

That concludes our question-and-answer session.

Scott Scherr

Okay. Thank you all. We look forward to another great quarter. Take care. Good night.

Operator

This concludes today’s call. We thank you for your participation.

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