Advent Software, Inc. Q1 2008 Earnings Call Transcript

Apr.30.08 | About: Advent Software, (ADVS)

Advent Software, Inc. (NASDAQ:ADVS)

Q1 2008 Earnings Call

April 29, 2008 5:00 pm ET


Heidi Flaherty – Vice President of Financial Planning and Investor Relations

Stephanie DiMarco - Chief Executive Officer

Craig Collins - Chief Financial Officer


Jonathan Majetta – Needham & Co.

Andrey Glukhov – Brean Murray, Carret & Co.

David Scharf – JMP Securities

Tim Fox – Deutsche Bank North America


Welcome everyone to the Q1 2008 Advent Software earnings conference call. (Operator Instructions) Ms. Flaherty you may begin your conference.

Heidi Flaherty

I am Heidi Flaherty, Vice President of Financial Planning and Investor Relations. Thank you for joining us today for Advent’s first quarter 2008 conference call. Hosting our call today are Stephanie DiMarco, Advent’s Chief Executive Officer and Craig Collins, Advent’s Chief Financial Officer.

To begin Stephanie will give a brief overview of the quarter and then Craig will review the financials. Stephanie will then return to discuss Advent’s recent business highlights after which we will open up the call for your questions.

On our Investor Relations home page you will find a presentation that summarizes our first quarter results and an updated summary of trended operating metrics to close from 2005 through the first quarter of 2008. We hope these two documents will assist you in understanding our business.

Most of you participating in this call are aware of the regulations regarding forward-looking statements. Accordingly we would like to note that during the course of this conference call we will make forward-looking statements regarding future events or the future performance of the company including estimated future operating results, market acceptance of our products and new product releases and our prospects in the general momentum of the business.

We wish to caution you that such statements are just predictions that involve risks and uncertainties and that actual results can differ materially. We discuss a number of these business risks in detail in the company’s SEC reports including our quarterly reports on form 10Q and our 2007 annual report on form 10-K. Any forward-looking statements must be considered in the context of such risks and uncertainties.

The company disclaims any intention or obligation to publicly update or review any forward-looking statements whether as the result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

I will now turn the call over to Stephanie.

Stephanie DiMarco

I am very pleased to report that Advent had a terrific first quarter. Quarterly revenues were a record $61.5 million, up 28% year-over-year. New term contract value totaled $15.7 million, an increase of 41% from the first quarter of 2007 and annual contract value totaled $5.5 million, an increase of 64% year-over-year.

We are particularly pleased with the growth in term and annual contract value since the first quarter can be a seasonally slower quarter in our business. In addition to an outstanding sales effort and growth in new customers, it is exciting to see the leverage from our term license model in this quarter’s results.

As a result of the success we have had converting to term license contracts, 80% of our revenue was from recurring sources. I’ll talk in greater detail about the first quarter and our accomplishments later in the call, but first let me turn the call over to Craig to review our financial results.

Craig Collins

As you just heard, Advent had another strong quarter posting record quarterly revenue and a very healthy growth for contract value over the first quarter of last year. There are four areas I will cover today.

First, term contracts and the composition of revenue. Second, expenses and profitability. Third, key balance sheet items. Finally, guidance for the second quarter and the full year of 2008.

We are adding non-GAAP reporting for the first time this quarter so the numbers I review will include both GAAP and non-GAAP information as appropriate. The reconciliation between the two is at the end of the press release and includes the five quarter trailing historicals.

First, we signed term contracts worth $15.7 million during the quarter, which was 41% higher than the first quarter of last year. With an average weighted term of 2.8 years, the contracts signed in the first quarter will add approximately $5.5 million in annual revenue once they are fully implemented, which is 64% higher than the first quarter of last year.

Generally speaking, the annual contract value approximates what will flow into our income statement over the ensuing twelve months, providing additional insight into term contract value.

Once again, the sales performance was strong across all of our products and geographies especially in Europe and the Middle East which included a term contract value of over $1 million. The balance of our term contract value is comprised of contracts worth under $1 million each, and the first quarter total revenue was $61.5 million, which is a 28% increase over the same period last year.

Term license, maintenance and other recurring revenue for the quarter was $49.1 million, up 30% from the first quarter of last year.

Perpetual license fees of $5.6 million were down 5% from the first quarter last year and assets under administration fees from perpetual licenses included in this caption were $2 million for the quarter or 8% over the same period last year.

As you know from our success in transitioning to a term licensing model, our focus is not particularly on growing perpetual license fees. However, we still have a large number of clients who license products on a perpetual basis and they continue to add additional seats which generates incremental perpetual license sales.

In addition, our MicroEdge subsidiary remains on a perpetual license business. We believe that perpetual license revenue will continue to gradually decline as we convert more of our installed base to term contracts.

Professional services and other revenue of $6.7 million was up 55% from the first quarter of last year, reflecting an increased volume of license sales. As we have mentioned in prior calls, we defer all term license and professional services revenue until we have substantially completed the implementation services. This adjustment fluctuates considerably from quarter to quarter depending upon project time lines.

In the first quarter we deferred revenue of $1.9 million comprised almost entirely of professional services revenue because the term license revenue deferral netted roughly zero in the period.

This compares to $3.3 million deferred in the first quarter of 2007 and that was comprised of $1.9 million of professional services and $1.4 million of term license revenue.

Direct professional services expense deferred in the first quarter was $100,000 and this was flat with the combined expense deferral of $800,000 in the first quarter of 2007.

As a reminder, we are disclosing a blended renewal rate that includes both perpetual maintenance and term contracts. We report our bundled renewal rate one quarter in year-over-year starting with this disclosure we are removing the Axys clients that are migrating to APX from the calculation.

For Q4 the blended renewal rate was 91%. The Q3 number that adjusts for Axys clients migrating to APX was also 91%. This is slightly up from the 90% reported last quarter. This rate is based on cash collections and has historically increased by several points after its initial disclosure as cash continues to be collected following the earnings release. When the cash has been collected and the renewal rate finalized, our four quarter trailing average is 95%.

We are adding a new metric this quarter, which is annual value of perpetual maintenance replaced with the APX term migrations. This is shown on slide three of the earnings slide presentation on our IR home page.

This metric basically tells you how much perpetual maintenance will decline on an annual basis due to clients migrating from Axys to APX during the quarter. For Q1 of 2008, this was approximately $400,000.

For the first time we are disclosing financial measures on a non-GAAP basis, which we will believe will supplement your overall understanding of our past financial performance and also our prospects for the future. These non-GAAP financial results are not meant to be considered in isolation or as a substitute for results prepared on a GAAP basis. Please refer to the tables entitled “Reconciliation of Selected GAAP Measures to Non-GAAP Measures” on our earnings release which is filed with the SEC on form 8K and posted on our website for a reconciliation of GAAP to non-GAAP financial measures.

On a non-GAAP basis, gross margins for the quarter were 69%, flat for the same period last year. While still negative we believe our professional service margins will continue to improve as the deferred professional services revenue and expense associated with our term license floats back into our operating results.

Non-GAAP cost of revenues for the first quarter excludes amortization from acquired developed technology of $200,000 and the following for stock compensation expense. $300,000 for cost of turn maintenance and recurring and $200,000 for costs of professional services.

Total non-GAAP Q1 operating expense which excludes the impact from stock based compensation expense, amortization and other acquired intangibles and restructuring charges was $34.6 million, up 21% from the same period in 2007.

Given our revenue growth of 28%, our operating model is continuing to exhibit operating leverage. The non-GAAP operating expense details for this quarter were as follows: Non-GAAP sales and marketing expense of $14.4 million for the quarter, up $2.4 million from the same period in 2007. This increase included a $1.4 million increase in payroll and $600,000 due to travel.

Sales and marketing expense was 23% of first quarter revenue, which is two points lower than the same period last year. Non-GAAP sales and marketing expense for the first quarter excludes stock compensation expense of $1 million.

Non-GAAP product development expense was $12 million for the quarter, up $2.9 million for the same period in 2007. This increase was due to $1.8 million in payroll and $900,000 of outside services.

Non-GAAP product development expense was 20% of Q1 revenue and this was up one percentage point from the same period in 2007. As a point of detail, we capitalized $200,000 of product development expense in the first quarter and this is compared to no capitalization in the same period last year.

Non-GAAP product development expense for the first quarter excluded stock compensation expense of $900,000.

For GNA, non-GAAP expense was $8.3 million for the quarter, up $600,000 for the same period in 2007. This increase was primarily due to a $500,000 increase in facilities expenses. Non-GAAP GNA expense was 13% of Q1 revenue and this is a full three points lower than the same period last year. Non-GAAP GNA expense for this quarter excludes stock comp expense of $1 million.

Depreciation for the first quarter was $2.1 million. This was up $100,000 from the same period last year.

Interest and other income from the first quarter was $227,000 compared with $518,000 in the same period last year. The decrease reflects lower interest income resulting from lower average interest rates and higher fees associated with our line of credit which we executed in February 2007.

We recorded a GAAP tax provision of $1.3 million in the first quarter and this equates to an effective tax rate of 33.3%. When we issued tax rate guidance in February we estimated that our effective tax rate for 2008 would be between 35-40%. Though the effective tax rate in a particular quarter may fluctuate outside of the range, we now estimate that our effective tax rate for 2008 will be in the range of 30-35%.

We recorded GAAP net income of $2.6 million, compared to $400,000 in the first quarter of 2007. GAAP diluted earnings per share was $0.09 for the first quarter which compares to $0.02 for the same period last year.

On a non-GAAP basis, we used an effective tax rate of 35% and net income for the quarter was $5.3 million with a diluted eps of $0.19. This compares to non-GAAP net income of $3.2 million and $0.11 per share in the same period last year.

Total company headcount at the end of March was 982, up from 946 at the end of December. We added 15 employees in client services, 13 in sales and a net increase of 8 employees in professional services, product development and GNA.

We will continue to invest in product development, sales implementation and client services capacity to support the bookings volume.

Turning to the balance sheet. As of March 31 we had $58 million in cash, cash equivalents and short term investments. This compares to $49.6 million one year ago. Other balance sheet highlights were as follows: Accounts receivables totaled $44 million and our DSO was 66 days compared with revenue and this was flat with the first quarter last year and down 7 days from last quarter due to seasonally large billing activity in the fourth quarter.

DSO’s based on billings, which include the effect of changes in deferred revenue were 63 days and this is up 8 days from Q4 DSO related to billings of 55 days. Fourth quarter of 2007 was a particularly strong collections quarter.

Net capital additions in the first quarter were $2.5 million. This is down slightly from the $2.6 million from the first quarter of last year and up $700,000 from the fourth quarter. Total deferred revenue was $122.9 million, up $31.7 million from the first quarter last year and up $2.5 million from the fourth quarter. The first quarter increase is primarily the result of $1.9 million of term implementation deferrals.

Our operating cash flow for the quarter was $9.3 million. This is down $4.5 million or 33% from the same period last year. Operating cash flow was lower in the first quarter due to two factors; first operating cash flow was $5.7 million lower due to the payment of annual bonuses and commissions which we had accrued for in the fourth quarter. Second, operating cash flow was lowered by approximately $6 million from the eight day increase in DSO’s related to billings.

Now turning to Q2 and the full year 2008. I will be making some forward-looking statements so I will remind you of the Safe Harbor statement in Heidi’s opening remarks.

In order to improve transparency to our business, we have decided to change the form of our guidance. Last quarter we issued profitability guidance in the form of GAAP operating margin, which we will replace with non-GAAP operating margin and non-GAAP diluted eps.

We believe this will lead to better estimates and increased visibility to our future expected profitability. We will also provide a non-GAAP effective tax rate to use for modeling purposes. All other guidance disclosures have no change in format.

For Q2 2008 we expect revenue to be between $61-63 million and the non-GAAP operating margin to be between 12-14% of revenue. This yields a non-GAAP diluted EPS range of $0.17 to $0.20 per share. We estimate that non-GAAP operating margin will be between 14-17% of revenue for the fiscal year 2008, which yields a non-GAAP diluted EPS range of $0.89 to $1.01 per share.

In 2008 we will continue to make the investments needed to support growth yet we expect to increase our non-GAAP operating margin by up to 3 percentage points. We believe our 2008 provisional tax rate will end up being in the range of 30-35%. This is reduced from our guidance last quarter as noted earlier. The expected tax rate used for non-GAAP calculations is 35%. We do not expect to pay cash taxes in 2008 as we will continue to benefit from our deferred tax assets.

In summary, we are extremely pleased with the first quarter results and the healthy start it gives us for the year.

At this point I will turn the call back to Stephanie.

Stephanie DiMarco

As you just heard the first quarter was very strong for Advent. We continued to add new clients and up sell additional solutions to existing clients. We were pleased to see strength across all areas of the business in the first quarter. We achieved a first quarter record for new clients in Geneva and APX. We signed seven new Geneva contracts and nineteen new APX contracts. We continue to extend our reach in Europe and the Middle East with both products.

In fact, Advent was recently named Leading Provider of Fund Accounting and Reporting Systems by the Hedge Fund Journal based on the strength of Geneva’s performance. The award recognizes the leading service providers for the European Hedge Fund industry.

In the Middle East we recently expanded our product footprint significantly with one of the region’s leading asset managers, Shuaa Capital. Shuaa’s new level of investment in the Advent suite is a strong affirmation of our ability to support the particular requirements of institutions in the Middle East.

The Middle East has seen tremendous expansion in total assets under management in recent years and we are well positioned to benefit from that trend. We made a strategic and focused investment of our resources in Dubai and the Emirates several years ago and we are now seeing excellent momentum in the region.

The industry is responding well to the major enhancements we made in 2007 to Moxy, our trade order management product, and we continue to invest in it. We are also expanding our alliance relationships so that Moxy clients have even greater access to liquidity.

Advent’s rules manager which works with Moxy to offer robust pre-trade and post-trade compliance already had twelve customers at quarter’s end after just three months on the market. We see growing interest in Advent Back Office Service (ABOS) which now delivers APX in a fully outsourced environment. We offer the solution directly to advisers as well as through our distribution partners which include Fidelity and Pershing.

Of our 270+ ABOS clients, more than 15 customers are already using APX through ABOS just a few months after launching the service. We remain dedicated to strengthening our existing product suite by continuing to make significant investments in research and development, spending 21% on a GAAP basis in the first quarter.

As a result of these investments we are looking forward to several significant releases including new versions of Geneva, APX, Moxy, Advent Partner and Advent Revenue Center. Our MicroEdge business also had a strong quarter with revenue growth of 14% from the prior year’s first quarter. The response to MicroEdge’s new comfort giving solution, Smart Change, which acquired last December, has been very positive and I am excited about the momentum I see in that business as the corporate social responsibility movement continues to gain ground.

Before we take your questions I would like to share with you my perspective on the current market environment and what it means for Advent. As our results this quarter demonstrate, Advent’s business continues to be strong despite the challenging economic conditions. I believe our results affirm the resilience and strength of our business model. In good times and bad our target market requires operational systems that are proven and produce a positive ROI.

It is worth noting, for example, that our project with Bear Stearns which we announced last quarter is proceeding as planned. We continue to work with them on a daily basis, we have already hit our initial milestones and several of our key project sponsors have been named to leadership roles within the combined JP Morgan organization.

It has been widely publicized that the Time Brokerage unit at Bear Stearns is considered a very attractive asset to JP Morgan. As a result, from the indications we are seeing today we expect them to continue to invest in their technology infrastructure. We have seen some areas of weakness in the market with some projects being delayed but these have been counterbalanced by growth in demand from other areas.

The financial services industry is highly nuanced and segmented and Advent’s business is derived from many different types of firms and many different geographies. Ultimately as global wealth and assets under management continues to rise, the need for systems to manage those assets continues to expand which makes ours truly a large and global opportunity.

When I reflect on the last market downturn six years ago, Advent was a very different company then. Our revenues were primarily derived from perpetual licenses which did not provide us the visibility our current business model provides. Six years ago we had very little international business. Today our international business represents 14% of revenue and is growing nicely.

Another important difference between today and the last market downturn lay in the depth and breadth of our product portfolio and the competitiveness of our products. We have invested a lot in R&D over the past five years and the benefit of that investment is evident in our win rates in the marketplace.

We remain highly optimistic about this business, the size and scale of our opportunities relative to the size of the Company today bode well for Advent. Our business model allows us to invest for the long term and we continue to build new solutions that improve the operational efficiency of the investment management business. Our recurring revenue model and the strength of our large installed customer base put Advent in the strongest financial and market position of our 25-year history.

2008 does mark Advent’s 25th Anniversary, a milestone that we are very proud to reach. While it is rewarding to look back and reflect on our success we are even more excited to deliver continued growth in the future which we will do through market expansions and enhanced product and service offerings to an asset management industry that is large and growing.

Once again, thank you for joining us and now I’d like to open up the call for questions.

Question-And-Answer Session


(Operator Instructions)Your first question comes from Jonathan Majetta – Needham & Co.

Jonathan Majetta – Needham & Co.

Stephanie as you look across your different customer segments as you talk about asset managers or wealth managers or banks or trust, so on and so forth, any particular pockets of strength or weakness? Anything of note?

Stephanie DiMarco

I don’t think we really have seen any differentiation. There is strength in the hedge fund market. There is strength in private clients. No particular market stands out.

Jonathan Majetta – Needham & Co.

If you can just comment on the quality and the coverage in the pipeline today versus last quarter and the quarter previous.

Stephanie DiMarco

We continue to feel very optimistic about the pipeline. The level of activity is very high. I just got back from a week, we have our sales incentive meeting in [Nevis] and I was with a lot of our top producers and there is a very high level of sales activity right now so that makes us feel good about the pipelines and the prospects for the year.


Your next question comes from Andrey Glukhov – Brean Murray, Carret & Co.

Andrey Glukhov – Brean Murray, Carret & Co.

Stephanie, the Geneva deal…the sort of number of the Geneva deals continue to be very strong. Is this a function here of increased acceptance of Geneva 7 or basically are people still buying the prior versions and Geneva 7 is a catalyst still to come?

Stephanie DiMarco

Geneva 7 is definitely a catalyst for the continued acceleration and acceptance of Geneva because it is such an attractive release so I think that is certainly helping us in the sales process. I think just broadly we are the go-to product in the marketplace and our win rates are very, very high in the segments where we compete with Geneva. So we are real bullish about that product.

Andrey Glukhov – Brean Murray, Carret & Co.

Are you seeing any changes on the competitive landscape? [Sungard] was trying to make a little more noise lately?

Stephanie DiMarco

It is a competitive marketplace and there is typically competition in most of our sales but our win rates remain very high relative to our competitors and we haven’t seen any fundamental change in any of the competitors.

Andrey Glukhov – Brean Murray, Carret & Co.

Craig, as far as the DSO’s are concerned, if you measure them on billings kind of directionally do you expect them to come down over the next couple of quarters?

Craig Collins

I think they will be back down. I think the 55 was abnormally low. In fact I think a lot of people sort of had a budget flush in Q4 and wanted to pay. So I expect them to come back down to the 60-63 range and that would be pretty standard for a company like ours. As we increase our European exposure that will inch up little by little but that is what we anticipate.


Your next question comes from David Scharf – JMP Securities.

David Scharf – JMP Securities

Stephanie I wonder if you can add a little more granularity to your take on the spending environment? In particular, as you look at the recent bookings, the bookings year-to-date for APX as well as what is in the pipeline, are you seeing kind of the same mix of the percentage split between new potentially larger mid-tier firms versus your existing installed base that is going to upgrade? Or are you potentially seeing the smaller Axys users are more apt to be a little more cautious on the spending this year?

Stephanie DiMarco

I think that is probably accurate. I don’t think I have the distribution of data necessarily that I studied, but anecdotally that is what I’m hearing from the sales reps. That is kind of what you would expect in a little bit of a softer market.

David Scharf – JMP Securities

So it is safe to assume for this year that we are probably going to see a larger proportion of APX coming from clients that are new to the company?

Stephanie DiMarco

I think that is probably…actually I don’t even want to speculate on it. I’m not seeing anything that would materially cause me to think it will be all that different from the past.

David Scharf – JMP Securities

I just want to clarify. You were referring to new product development, new versions or releases and I think your rattled off most of the major products. Are those all 2008 scheduled new releases for Geneva, APX, Partner, Revenue Center? Or are you actually recounting recent upgrades?

Stephanie DiMarco

I’m talking about future releases. Some will be in 2008. Some will probably spill over into 2009. I wasn’t specific because every product has its own release schedule and we just have…my point is we continue to invest in the next release, N+1 release of all those products. Importantly the way we think about N+1 releases is we are always looking to add functionality that will help our customers and satisfy demand from existing customers but importantly we are also looking to add functionality that will help us to sell to new segments.

Each of those tend to be very important releases across all product areas and there is a fair amount of investment being made in those kinds of releases.

David Scharf – JMP Securities

It sounds like certainly a lot of those are going to be occurring this year. The last couple of years you increased headcount between 100 and 120 in the first quarter. It looks like you are up about 35-40. Are you still hiring this year? As we think about product development costs and the like, are at kind of a steady state of staffing now or are we going to be adding another 60, 70 or 80 bodies this year?

Stephanie DiMarco

We’re going to continue to add headcount and I would say that the majority of the adds will be in the client facing function. Sales, services, implementations and support.

David Scharf – JMP Securities

Craig I wonder if you can just walk me through the map a little bit just to make sure I fully understand how backlog including those APX migrations is calculated. It looks like sequentially the backlog is roughly flat for the fourth quarter at about $73 million?

Craig Collins

The backlog works by…I assume by backlog you mean contracts that we have not yet invoiced?

David Scharf – JMP Securities

Right. Actually the disclosed metric on your…

Craig Collins

Depending…it could be flat depending upon what we invoice for that period and what the change is. When you come out of a stronger period you’re going to have more invoicing earlier on and that is gong to take it down a little bit and then if you are not adding the same amount in new contracts it could naturally go down or be flat.

Does that make sense?

David Scharf – JMP Securities

Yes. Obviously a lot was invoiced in the current period. Lastly, just to clarify on the cash flow from operations as we compare it to a year ago first quarter was there a difference in the timing of the accrual of the bonuses? Or does it usually always carry over into Q1?

Craig Collins

They always carry over. I would say that we had sort of a blow out quarter on the fourth quarter on the bookings side. That drove a lot of accelerated commissions, bonuses and things like that we had to add on to the accrual in the fourth quarter. We ended paying those down obviously in the first quarter when those were approved by the Board to get paid. You’ll see a pretty dramatic change in the accrued liabilities of roughly $5.7 million on the cash flow. That comprises most of that.

David Scharf – JMP Securities

In the context that tremendous fourth quarter, the $24 million of operating cash flow in Q4 arguably could [inaudible].

Craig Collins

You probably did to a normal activity.


Your next question comes from Tim Fox – Deutsche Bank of North America.

Tim Fox – Deutsche Bank North America

A question first for Stephanie. If you could talk a little bit about the pricing environment. You mentioned that there was some softness, obviously nothing significant given the bookings levels. Can you talk a little bit about pricing and the migration uplift that you were seeing last year? Did that continue through the first quarter?

Stephanie DiMarco

We certainly aren’t seeing any change in the pricing environment. There aren’t any fundamental changes that have occurred. In terms of the uplift, I think the numbers are consistent with what we have reported in the past; roughly 70% uplift.

Craig Collins

If I can jump in here, I think where we anticipate seeing things if we do is the smaller fund that has diminished in value is just going to push upgrades for awhile if they can’t afford it at the moment. New funds or places where they need software, they are going to buy either way because they basically have to have software of some sort to run it.

Tim Fox – Deutsche Bank North America

A follow-up to the new product releases this year. Do you have any plans for new product releases this year that you are going to develop internally for adjacent markets? If so would you care to share where you are targeting?

Stephanie DiMarco

We don’t have anything to announce yet, but we certainly have several pots stewing in the kitchen. There is a lot we are working on but nothing we are really ready to talk about publicly.

Tim Fox – Deutsche Bank North America

As far as the headcount you mentioned, you will still be hiring client facing. Could you just remind us at this point what the total number of quota-carrying sales that you have on board right now and where you may end up at the end of 2008?

Stephanie DiMarco

I would say the number is probably around 50. Those are direct quota carrying sales people. We also have a lot of people that are in customer facing roles that contribute a lot to revenue growth. We have a relationship management function. We have our renewals management team that is in contact with our renewals customers. So I would estimate that the total number of customer facing, revenue producing people is probably north of 200 in the organization.

Craig Collins

It is a little bit different than an enterprise software company in that we have a lot of in-bound calls buying software because there are not that many stores to go to for portfolio management software. So it is a little different metric than you may see in a regular enterprise software company.

Tim Fox – Deutsche Bank North America

Just a couple of quick ones, Craig. You mentioned that you won’t be paying any significant, if any, cash taxes in 2008. I’m just wondering looking forward how long will that last? Is it a couple of years still?

Craig Collins

Yes, definitely a couple of years. I posed that same question to our tax man, Bob. It depends on how the Company does, of course, but we’re probably looking at 2010 or later.

Tim Fox – Deutsche Bank North America

Before any cash taxes. I know this is a more complicated question and we can take it off line, but there are a lot of moving parts in the deferred revenue, but is there a way to think about growth in deferred revenue in any particular year visa vie the bookings growth? How can we think about modeling deferred as it is such a big part of the CFFO?

Craig Collins

Well I think in the big picture the increase in deferred revenue is going to be roughly related to the increase in the bookings rate. So you will see deferred revenue continue. The twist is it is hard to measure when things come out of deferred revenue because we have these implementation schedules and you might have 100 projects or more going on at one time and they get released at varying times. So that is what makes it difficult for us to predict when they come out as well. So it is not a straight forward algorithm I can give you but it should roughly grow at the rate of the top line growth.


There are no further questions at this time.

Stephanie DiMarco

I just want to thank everyone once again for joining us. We look forward to speaking with you next quarter.

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