Saba Software F3Q07 (Qtr End 2/28/07) Earnings Call Transcript

TRANSCRIPT SPONSOR

Saba Software (SABA)
F3Q07 Earnings Call
March 29, 2007 5:00 pm ET

Executives:

Peter Williams - Chief Financial Officer
Bobby Yazdani - Chairman and CEO

Analysts:

Ariel Sokol - Wedbush Morgan Securities
Paul Kaump - Northland Securities
Joan Tong – Sidoti
Matt Hewitt – Craig-Hallum
Andrey Glukhov - Brean Murray, Carret & Co.
Matthew Weiss - Maxim Group
Michael Nemeroff - Wedbush Morgan Securities

Presentation:

Operator

Welcome to the Saba 3rd Quarter fiscal year 2007 financial results call. At this time it is a listen only mode and later we will conduct a question and answer session with instructions being given at that time.

If you should require assistance during your call then please press the star. As a reminder this conference is being recorded.

I will now turn this conference over to your host Mr. Pete Williams

Please go ahead sir.

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Peter Williams

Thank you and thanks for joining us today.

By now you should have received our press release. If not it is available at our website www.saba.com. I would like to remind you that this call is being taped and a replay will be available today after 5.30pm Pacific time by calling 320-365-3844 and using the access code 863719.

Joining me today to discuss 3rd quarter of fiscal 2007 results is Bobby Yazdani our CEO and Chairman.

Before we begin I would like to point out that certain statements made in the course of this conference call about the Company's intentions, hopes, goals, beliefs, projections plans and our corporate predictions of the future are forward looking statements.

Such statements include financial projection including Saba's anticipated 4th quarter GAAP revenue and GAAP and non-GAAP earnings data, non cash amortization of purchase intangibles, charges related to stock based compensation expense, the write-down of acquired deferred revenue to value, amortization of required backlog, professional services margins, and future period G&A expenses.

Statements regarding Saba's ability to close remaining 3rd quarter business, the strength of Saba's pipeline, Saba's belief that there is not a fundamental weakness in the market and business and continuing traction and growth in our on demand business.

Saba takes no responsibility to update such statements.

It is important to note that the company's actual results could differ materially from those projected in such forward looking statements. The factors that could cause the anticipated results not to occur include decline in demand or price for our product, Saba's dependence on growth in the market for our products, dependence on acceptance of our products by our customers and shadow partners, increased competition, and inability to retain key employees.

Additional information concerning factors that could cause actual results to differ materially from those of the forward looking statements is contained in our Annual Report of 10K for the year ended May 31, 2006 and similar disclosures in subsequent Saba periodic SEC reports

Copies of these reports may be obtained from the SEC.

I would also like to remind you that some of today's financial information will be non-GAAP. Non-GAAP results for the quarter are computed by injecting GAAP results to exclude the amortization of acquisition related intangibles, stock based competition expense, the write down of acquired deferred revenue to deferred value, the amortization of required backlog and the reversal of the restructuring charge.

Reconciliation of GAAP to non-GAAP results is included with the financial statements accompanying our earnings release.

As you know the exclusion of such items is not in accordance with generally accepted accounting principles and is not intended as a substitute for GAAP revenue, net income or any other GAAP measure that may not be consistent with similar measures used by other companies.

However, Saba's management believes that non-GAAP information is an additionally meaningful measure of operating performance because it measures the principle operating results that can be directly influenced by management and provides more consistent comparability to our financial results against historical results and the recorded results of other stock or companies.

Accordingly, it is used by management and the board of directors to measure our performance against our operational objectives.

I would now like to turn the call over to Bobby

Bobby Yazdani

Thanks Pete and thank you for joining us today.

As we announced two weeks ago and also in today's earnings announcement, our Q3 license bookings fell short of our earlier expectations.

Clearly we are not pleased with that result. What we believe is that the underlying reasons for the shortfall do not point to any fundamental weakness in the market or in our business.

The shortfall was caused by the fact that a handful of transactions in the US and Europe did not close by the end of the quarter. For a variety of reasons, time simply ran out before those transactions could be finalized

With the exception of only one of those transactions the rest has either already have been closed in Q4 or looking to be rapped up shortly. One of the transactions that slipped for instance was a deal with the US Department of Health and Human Services that was announced earlier today.

While there is no way ever to predict if a particular deal may be delayed we continue to see a strong pipeline.

It was the same management team forecasting last quarter as it was for the past few years and it was the same sales force executing last quarter as it was for the past few years.

So nothing fundamentally has changed either internally at the company or externally in the market.

It was just a perfect storm that came together with a few deals that slipped but we have no reason to expect this to be a recurring event.

Despite our disappointment with the license bookings shortfall in Q3, we saw many bright spots and positive developments in the quarter.

We saw continuing retraction in our on demand business and we hired a new executive Kerry Fullbright to focus on running our on-demand business unit.

Kerry brings 20 years of software industry experience with him. He was a senior executive from 2000 - 2004 including the company's first senior vice president of world wide marketing and he formed its own business unit.

So we are very excited to have Kerry on board as general manager of our on demand business which is significant for Saba.

We also saw continued success in acquiring new customers and expanding relationships with existing customers. Some of the new customers we acquired in the quarter include Standard Bank, Caplan, and Singapore Ministry of Finance. Some of our existing customers who added to this solid deployment include Bank of Tokyo, FedEx, Novartis, Nissan and (inaudible) world wide.

On the product front, we continue to invest in ongoing development and innovation. During the quarter we announced several significant enhancements to our solid central line of field time learning solutions including support for the Apple Macintosh platform and increase assisted technologies for disabled users.

These are particularly important enhancements in expanding our presence in the education market an area where we have already significant strength in customers like Harvard Medical School, Van de Burghs University, and the University of Tennessee.

With that view, I will now turn it over to Pete to discuss the GAAP and non-GAAP numbers in greater detail.

Peter Williams

Thanks Bobby.

Turning to the quarterly results. Total revenues in the third quarter of fiscal 2007 increased 36% to $24.9 million from $18.2 million in the third quarter of fiscal 2006.

On a non-GAAP basis, total revenues were $25.4 million compared to $19.5 million in the 3rd quarter of fiscal 2006.

We closed deals across all major geographies. 66% of total revenues in the third quarter of fiscal 2007 were from North America and 34% was international.

As Bobby indicated, we ran out of time closing a number of large license transactions in the third quarter. As a result license revenues in the third quarter decreased 25% to $4.5 million on a GAAP basis from $6 million of the third quarter of fiscal 2006.

As you may have seen we also announced today that HHF selected Saba for a large learning project. This is one of the deals that we were tracking for third quarter. We have closed other deals that pushed from last quarter into the 4th quarter and with the exception of one deal which has been put on hold, we can continue to work on a number of other opportunities.

In the quarter, on demand revenue increased 172% to $4.3 million from $1.6 million in the same quarter of the prior fiscal year.

On a non-GAAP basis, on demand revenue was $4.4 million compared to $1.9 million in the third quarter of fiscal 2006.

Combining license revenues and on demand revenues, solutions sales totaled $8.7 million in the third quarter of 2007, representing 35% of our total revenue in the quarter and a 16% increase over the same period last year.

On a non-GAAP basis, license revenue and on demand revenue totaled $8.9 million representing 35% of our total revenue in the quarter and a 12% increase over the same period last year.

We completed 153 license and on demand transactions in the quarter including Bank of Tokyo, Mitsubishi, IBM, Novartis, and Renault worldwide.

The average deal size with customers having a transaction value of $50,000 or more in the quarter was $241,000.

Our license updates and products support revenue in the third quarter of fiscal 2007 increased 60% to $8.3 million on a GAAP basis, from $5.2 million in the same quarter last year. On a non-GAAP basis, license updates and product support revenue was $8.5 million, compared to $6 million in the third quarter of fiscal 2006.

As indicated in our calls in prior quarters, our business strategy includes continued focus on growing our recurring revenue base. End-of-quarter, on-demand revenue license update and product support combined to represent 50% of total revenues on a GAAP basis, and 51% of total revenues on a non-GAAP basis.

Professional services revenue increased 42% in the third quarter of fiscal 2007, to $7.9 million from $5.5 million in the third quarter of fiscal 2006. On a non-GAAP basis, professional services revenue was $8 million, compared to $5.6 million in the third quarter of fiscal 2006.

On a GAAP basis, professional services gross margins were 31% in the quarter. This represents the second consecutive quarter of 30+% professional services gross margins.

We believe that these margins are sustainable going forward, and that they reflect the quality and maturity of the Saba products, as well as the experience of our professional services team.

Gross margins on a GAAP basis were 63% in the quarter, a decrease from 67% in the third quarter of fiscal 2006. GAAP margins were negatively impacted primarily by the license revenue shortfall, which resulted in a higher mix of services to licenses. To a lesser extent, gross margins were also affected by the amortization of acquired technology, and the costs incurred during the course of the quarter to deliver on-demand and professional services and license updates and product support, pursuant to contracts assumed in the Centra acquisition.

As a result of fair-value adjustments to center deferred revenue and amortization of acquired backlog in accordance with GAAP purchase accounting, Saba was unable to recognize approximately $504,000 of revenue that would have been recorded by Centra, had the acquisition not occurred. On a non-GAAP basis, gross margins in the quarter were 65%.

Total costs and expenses were $26 million in the third quarter of fiscal 2007, compared to $20 million in the third quarter of fiscal 2006. Total costs and expenses in the third quarter of fiscal 2007 included amortization of total purchase and tangible assets of $929,000 and stock-bases compensation of $550,000. These total costs and expenses were, in part, offset by a one-time expense reduction of $700,000, resulting from the reversal of prior-period bonus and restructuring accruals.

Going forward, we expect G&A expenses to return to historic run rates, and expect amortization of total purchase and assets to be approximately $930,000 per quarter, and stock-based compensation expense to be between $550,000 and $650,000 in the fourth quarter of fiscal 2007.

On a GAAP basis, our net loss for the quarter was $1.2 million, or $0.04 per share, compared to a net loss of $1.9 million, or $0.09 per share in the third quarter of fiscal 2006.

Non-GAAP net income in the quarter was $534,000, or $0.02 per share on a basic and diluted basis, compared to non-GAAP net income of $478,000, or $0.02 per share on a basic and diluted basis in the third quarter of fiscal 2006.

We entered the quarter with $29.1 million of deferred revenue, a $1.5 million increased above deferred revenue of $27.6 million at the end of last quarter, and a 25% increase from $23.2 million in the same quarter of the prior year.

In our second fiscal quarter we generated $3.1 million of cash, and on our last earnings call we guided that we would generate similar levels of cash from operations in the third quarter. I'm pleased to announce that we generated $4.2 million of cash from operations in the third quarter of fiscal 2007, making us cash-flow positive for the first three quarters of fiscal 2007. We entered the third quarter with $22.8 million cash and cash equivalents.

Our DSO for the quarter was 68 days, compared to 90 days in the same quarter last year. We expect DSOs to continue to flush away for the remainder of the fiscal year based on the number and size of transactions that closed in the last month of the quarter, and ranged from the 70s to 80s on a go-forward basis.

In summary, although we are disappointed that we were unable to kindly close a number of significant license transactions and meet our license revenue forecast, we believe that our business is still strong, as all other reported revenue streams grew sequentially over a very strong second quarter of fiscal 2007.

In the quarter we also generated record cash from operations and maintained 30+% gross margin in our professional services business. Looking forward to the fourth quarter of fiscal 2007, on a GAAP basis we are projecting $27.5-29.5 million in total revenues. We anticipate earnings per share in the fourth quarter to rage from break-even to $0.05, on a GAAP basis, and from $0.05 to $0.10 on a non-GAAP basis.

The non-GAAP projections exclude the estimated non-cash amortization of purchased intangibles, approximately $930,000. Charges were laid to stock-based compensation expense, approximately $550,000 to $650,000, and the write-down of acquired deferred revenue to fair value and amortization of acquired backlog, approximately $100,000.

This concludes our formal remarks. I will now turn the call over to the operator for Q&A. Thank you.

Question-and-Answer Session:

Operator

Thank you. Ladies and gentlemen, if you wish to ask a question, please press * then 1 on your phone. You will hear a tone indicating that you've been placed in cue, and you may remove yourself from cue at any time by pressing the # key. If you are using a speaker phone, please pick up your handset for pressing the numbers. Once again, if you have a question, please press *, then 1, at this time.

One moment please, for the first question.

Our first question will come from the line of Michael Nemeroff of Wedbush Morgan Securities. Please go ahead.

Ariel Sokol - Wedbush Morgan Securities

Hi, this is Ariel Sokol for Michael Nemeroff.

Bobby Yazdani

Hello.

Ariel Sokol - Wedbush Morgan Securities

Hi, a couple of questions. First question, could you break out the stock-option compensation by extent line on the income statement?

Bobby Yazdani

Why don't we hear your second question and then come back to this question.

Ariel Sokol - Wedbush Morgan Securities

OK, the second question was, 9n the last conference call, you guys talked about coming up with guidelines on how to report the sale of new products, including the Performance and the Talent Suite. And I just wanted to know if you are prepared to break those numbers out yet.

Bobby Yazdani

No, we're not prepared to do that. That's something that we are considering going into the next fiscal year. We would provide some guidance, as we are now bundling, and we are selling the total bundle more and more. That's part of our new deals.

You have to be see how were are going to be able to segregate, especially the Performance and the Talent management. It's easier to segregate the Learning management, but the Performance and Talent: it's harder to do that. So, no, we're not doing that at this point. But going into 2008, that's something we are looking to do.

Ariel Sokol - Wedbush Morgan Securities

OK, then, the third question, last time we talked about how the L&S market growing roughly 15-20%; do you think that this still holds, and where do you think you fit in that range for fiscal 2008...or just long-term?

Bobby Yazdani

You know, looking at our last quarter and the delays of these deals, we track the pipeline and the size of the funnel year-over-year by product and by region, and there is a significant increase year-over-year in the size of the pipeline. And going into the summer, summer of course is different, because that's just the nature of the time. But in terms of the growth of the market, in terms of the size of our pipeline year-over-year, we are quite pleased by the size of the pipeline.

Ariel Sokol - Wedbush Morgan Securities

Great. Well, then the last question, in the past we've talked about a non-GAAP EBITDA margin of roughly 10-15%. Do you think that's attainable in 2008?

Bobby Yazdani

Yes. Right now we are looking at, for Q4, the EBITDA margin for Q4 ranges based on the numbers that the forecast or the guidance that we provided, it ranges roughly between 8-11%. That's the run rate exiting out of '07. And going into '08, we believe that for us to have a north of a 10% EBITDA margin is absolutely attainable.

Ariel Sokol - Wedbush Morgan Securities

OK, thank you very much.

Bobby Yazdani

Before you go, let me give you the answers to your first question.

Ariel Sokol - Wedbush Morgan Securities

OK, thank you.

Bobby Yazdani

So the stock compensation expense in OpEx...so R&D was about $110,000. Sales and marketing was about $210,000. G&A is $150,000, and there is approximately $75,000 in the cogs lines, spread equally between support-on-demand and professional services.

Ariel Sokol - Wedbush Morgan Securities

OK, great. Thanks again, guys.

Bobby Yazdani

Thank you.

Operator

Thank you. And our next question will come from Paul Kaump of Northland Securities. Please go ahead.

Paul Kaump - Northland Securities

Good afternoon gentlemen. First I'm just curious if you could elaborate a little bit on your strategy within the middle market and on demand customers. You guys put out a pretty substantial release a couple weeks ago and I'm curious, what do you see as the opportunity and how does that extend what has been your addressable market within enterprise-level customers? If you could either quantify that or just talk about it on a qualitative basis that would be great.

Bobby Yazdani

There are three pieces of information. One, the definition of what the needs market is for us. When we refer to mid-market we are looking at companies north of a thousand employees or over $300 million in revenue, up to $1 billion in revenue and 5,000 employees. So that's the statement that we refer to as mid-market.

Our product strategy for that segment of the market, I'm talking broadly about all the products that we have, the learning performance talents management (inaudible) operation product we have, the go-to market strategy, and the marketing products for that market's only on-demand offering.

Our plan in North America, we have instruments in our field operation with a call center to be able to address that market the way we execute the sales essentially is internet based out of the call center based and sales in (inaudible) that's going to execute against that market.

We have looked at some numbers specifically in North America and Europe and we believe that they are somewhere in the range of 7-11,000 and that is an organization that could be qualified as potentially that market.

Now the product, for it to be available in initially about five languages that cover North America as well as key European markets, we have a leadership, you know we announced Kerry Fulbright who joined us, who's going to be our general manager responsible for our on-demand offering. We have also reorganized both the North America sales team as well as the European team to basically align the sales execution with that segment of the market and the product covering.

Operator

Thank you. Next we'll go to the line of Joan Tong of Sidoti. Please go ahead.

Joan Tong – Sidoti

Good afternoon. I had a couple questions here. First can you just clarify that you have a bunch of transactions out of the quarter and except for one, every single one has closed at this point, right?

Peter Williams

What we said was one transaction went on hold. More than 50% of the transactions that were on deck to be closers already closed. We have less than a handful, three or four more transactions that were on deck from last quarter that will be wrapped up – they're in legal right now, wrapping them up within weeks. But there are a few more things that we are working on right now that we are wrapping up.

Joan Tong – Sidoti

OK, great. Any seven figure transactions that closed as of today?

Peter Williams

Well I don't want to go into details on what number of deals we have closed but the transaction we announced today, the interesting significant transaction for us. There are two other transactions of seven figures that are on deck that we are wrapping up as we speak, in addition to the one that we announced today.

Joan Tong – Sidoti

And maybe just drill down a little bit more to your on demand market business that you are really focusing on right now. Is this like the on demand revenue has been growing at a nice high single digit or like a low double digit rate on a sequential basis in a past three to four quarters?

And with you now really trying to focus on the mid market, do you think that there will be acceleration in the on demand mid market or on demand business in general, going up as high as like a 20%, 25% rate on a sequential basis?

Peter Williams

That is our goal, that's why we organized internally to accommodate such growth. The organization wasn't scaling with the rate that we were hoping to grow that business. We have done essentially the top down hiring that we needed to do to grow that business. It is a new version of the product that was launched at the end of March, there would be a new (inaudible) again is going to be available at least by summer.

I would give six months for the organization and all the product operations to ramp. As we are executing both marketing programs and hiring more people on the sales front to address this market.

Bobby Yazdani

Joan that's a little bit trickier, as you know, it's rateable so to grow the higher mid-twenties sequentially is a bit challenging just from the amount when you're closing deals. Towards the end of the quarter you don't get a lot of revenue from those deals.

Joan Tong – Sidoti

That really gets to my next question. It seems like your on-demand is growing very fast and a lot of questions that I get recently have been regarding would that be a significant shift in your revenue model and if it is the case, how you think that you can grow your revenue in 2008 faster or on par with the market growth at 10-15 or 10-20% rate?

So I guess my question is really, your booking is growing very fast, but on the other hand it seems like your revenue model is shifting towards more on demand, and how would -that affect your year-over-year revenue growth in 2008?

Bobby Yazdani

You know that means looking at '07 versus '06, we experience significant growth. Of course the numbers were much smaller in '06. Going into '08, that's going to be the fastest growing in terms of the revenue line item for us.

In terms of the revenue mix, I'd like to have more and more focus on the profitability of these businesses and we'd like to get the gross margin and maintain a gross margin north of 68% for that business. So the growth is extremely important but we want growth profitably and we want to make sure that there is a deliberate plan so that we maintain the quality that needs to be in place servicing these customers.

Now in terms of the growth for next year, again, we have not provided any guidance for '08 but we maintain that the pipeline going into the next year is very strong and we are very bullish going to our '08, but not equipped with the broader product offering for the enterprise-class customers, plus we have no instrument class business to address this mid market with this new offering and we have already incurred all the costs that we needed to incur to get set up for this business going into '08. So we are very bullish going into '08.

Joan Tong – Sidoti

I guess one final question is for Pete. You might have talked about it already but I just want to understand your gross margin. Since you have about 200 and 300 basis-point decline on sequential basis compared to the November quarter, can you explain to me one more time what's going on there?

Peter Williams

Yeah. I think when we talked last quarter, 35% we thought was about as high as we're going to hold our professional services. It may fluctuate in the mid 31-35%. I think there's almost some seasonal weakness in our third quarter because Christmas and the holiday season is in late December and early January so I think that's the biggest contributor to the couple basis point shift.

Joan Tong – Sidoti

Alright, great. Thank you.

Operator

Thank you.

And next we'll go to the line of Matt Hewitt of Craig-Hallum. Please go ahead.

Matt Hewitt – Craig-Hallum

Hello, two quick questions. First of all could you tell me what the CapEx is for the quarter?

Peter Williams

Sure. CapEx was $700,000 in Q3.

Matt Hewitt – Craig-Hallum

Great. And then secondly, Eric specifically had spoken to last quarter and asked you about, can you give us a sense of what the contribution would be from the legacy Centra business? I know last quarter you had mentioned that it was 15-16% which was down from your original estimates of 20% but that you had expected that seeing as how you had exited some of the SMB area. I'm just trying to get a sense for where you're seeing things now.

Bobby Yazdani

Yeah as we outlined, we exited the Centra business market, and we took roughly 20% off the overall Centra revenue that was being contributed from the assembly market that we’re not realizing right now. In terms of the undergoing (inaudible) basis again, Centra now is an option that we bundled as an overall offering when we sell an enterprise learning project. So, more and more deals are being bundled as suite that we are selling to either existing customers as they operate, or new customers as we sell.

Now, the Centra offering is available on premise as well as on-demand. And you’re going to see this and this are segregating the Centra offering from Saba offering, because as far as the customer is concerned, they’re buying an enterprising learning solution. And they don’t look like, as a price option on the price list, they’re being sold more as a suite to the customer.

The standalone Centra bookings were pretty good, you know the year was pretty good. And we are hoping to actually expand the core business of the Centra that we want, which is the mid-market as well as the enterprised market…and we’re hoping to expand on that, and bond on that solution more and more as a part of the Saba offering going forward.

Matt Hewitt – Craig-Hallum

Thanks a lot.

Operator

Thank you. And next we’ll go to the line Andrey Glukhov of Brean Murray. Please go ahead.

Andrey Glukhov - Brean Murray, Carret & Co.

Yes thanks. First as far as your guidance is concerned, it sounds like those three tiered results were partially hit by the revenue mix shift to demand from perpetuals. In your Q4 revenue guidance, what are you assuming about the revenue mix?

Peter Williams

In terms of the booking, what we have traditionally experienced under it was, you know you’re looking at the Q1, Q2, over the year up to today up to Q2, but only 65% was coming from the license, and 35% was coming from the on demand as a percentage of the booking. In Q3, on-demand versus the license was mixed and it was higher.

One, because there was a number of large license contracts coming in. Secondly, it was because we had a higher level of on-demand bookings coming in. Now going into the Q4, I think we’re going to go back to the same mix of revenue that we had earlier in the year in terms of the percentage of the total revenue. Without giving you the exact numbers, I’m giving you the percentages that you did expect. It would be similar to percentages that you’ve seen in the first half of the year.

Andrey Glukhov - Brean Murray, Carret & Co.

For the revenue, what about the percentage bookings?

Peter Williams

That would be viewed as I said earlier, as very good and very strong bookings coming from the (inaudible). So it would be shifting, it started to be higher than what we’ve experienced earlier in the year.

Andrey Glukhov - Brean Murray, Carret & Co.

So far, you’ve had a pretty strong cash flow here in Q3, what is your expectation that the fourth quarter would be comparable and what is the thought process there?

Bobby Yazdani

I think the fourth quarter we’re going to burn a little bit to break even on the cash flow, because of the lower AR’s due to the license slippage, so there’s the timing of that and part of that has to do with the timing of the week and the closing of the quarter, and it may have some upside to the number, but that’s just starting with the lower base because of the mix.

Andrey Glukhov - Brean Murray, Carret & Co.

OK, and the actual mix, did it come more from a direct business or from some business with your BPO and HRO partners?

Bobby Yazdani

It was a mix, there were a number of things that were really direct and there were also deals that were indirect that got pushed.

Andrey Glukhov - Brean Murray, Carret & Co.

The stuff you closed after that was that mostly direct or indirect?

Bobby Yazdani

Both.

Andrey Glukhov - Brean Murray, Carret & Co.

OK. And then last question, since you probably obviously have every quarter, deals that get pushed out, if you just look at the deals that you were able to close, at the end of the last quarter, and that’s just driving you closed last quarter, would you have made the guidance?

Bobby Yazdani

Yes. We would have exceeded the guidance. We needed any number of combinations in the deals we were chasing to hit the guidance. We didn’t need all of them.

Andrey Glukhov - Brean Murray, Carret & Co.

OK, thank you.

Operator

Ladies and Gentleman, please press Star one for your questions. Our next question comes from the line of Matthew Weiss. Please go ahead.

Matthew Weiss - Maxim Group

Hey guys, thanks. My questions actually have all been answered.

Operator

Ladies and Gentleman, if there are any additional questions, please press Star one. We have a question from Michael Nemeroff. Please go ahead.

Michael Nemeroff - Wedbush Morgan Securities

What are the expectations for the tax rate for Q4 and for fiscal 2008?

Peter Williams

It’s incremental, just in terms of our (inaudible), I think we have just foreign country profits that are maybe $100,000-200,000 in quarters is what you should expect.

Michael Nemeroff - Wedbush Morgan Securities

OK thank you.

Operator

Thank you. And there are no further questions at this time. Please continue.

Peter Williams

Thank you for joining us today and we look forward to talking with you at our next quarter earnings announcements. Thanks very much.

Operator

Thank you. Ladies and Gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.

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