Margaret Boyce - Director of Investor Relations
Adam Gutstein - President and Chief Executive Officer
Karl Bupp - Chief Financial Officer
George Price - Stifel Nicolaus
Kevin Liu - B. Riley & Company
Devang Kothari - JMP Securities
Diamond Management & Technology Consultants, Inc. (DTPI) Q4 2008 Earnings Call May 8, 2008 9:00 AM ET
Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter Earnings Conference Call. During the presentation, all parties will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Thursday, May 8, 2008.
I would now like to turn the conference over to Miss. Margaret Boyce, Director of Investor Relations. Please go ahead, ma’am.
Margaret Boyce - Director of Investor Relations
Thank you, Jesse. Good morning everyone. This is Margaret Boyce, Director of Investor Relations for Diamond. This morning, we will discuss our financial results for our fourth quarter and fiscal year 2008 ended March 31, 2008.
With me today are Adam Gutstein, our President and CEO and Karl Bupp, our CFO. Adam will provide a few highlights on the fiscal year, the fourth quarter, and the current market environment. Karl will cover the financials in detail, after which Adam will give you an update on current initiatives. We will then open up the call for questions.
There are supporting slides available on our website that accompany our remarks today. You can advance the slides at your own pace and download them for future reference. I'd also like you to note that the financial results we will discuss today are related to continuing operations of the company unless otherwise noted.
As a reminder, during today’s call, we will make both historical and forward-looking statements in order to help you better understand our business. You should realize that our actual results may differ materially. Any forward-looking statements speak only as of today’s date, May 8, 2008, and we undertake no duty to update this information in the future. The risks and uncertainties associated with our business are highlighted in our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended March 31, 2007. Finally, I wanted to share with you that we are presenting at the JMP Seventh Annual Technology Conference in San Francisco on May 20.
With that, I’ll turn the call over to our President and CEO, Adam Gutstein. Adam?
Adam Gutstein - President and Chief Executive Officer
Thanks Margaret, and thank you all for joining us this morning. Fiscal year 2008 was a year of two parts. In the first half of the year, we generated 14% growth inline with our target growth rate. During the second half of the year, as the economy slowed, our business slowed and we finished the year growing 8% on a year-over-year basis.
We’ve seen lengthening sales cycles, project deferrals, and some cancellations as well. While we are seeing a slowing in spending, we continue to work with a set of core clients who are market leaders in their respective industries. Given the strength of our relationships and the quality of our work, we are pleased that this list has remained largely the same for the last several months, continuing on into our first fiscal quarter.
We believe the quality and impact of our work is even more important during these dynamic times and we are pleased that our clients believe that to be the case as well. We have a track record of helping companies create value whether in terms of growth or cost containment and in delivering projects on time and on budget.
Despite the softening environment, we completed our fiscal year 2008 with net revenues of $182 million. As you know, our business is driven by our clients’ investments in their own business, not surprisingly our business slowed in our financial services and insurance verticals, while at the same time we grew nicely in our enterprise vertical, which increased an impressive 47% and in our healthcare vertical, which increased 18% on a year-over-year basis.
We increased our full year pretax income by 35% and delivered EPS of $0.33 per diluted share, up 57% from $0.21 last fiscal year. Free cash flow remained strong at $23 million in fiscal year 2008.
When you look at our people, annualized voluntary attrition improved to 16% in fiscal year 2008, down from 18% in fiscal year 2007. Attracting, developing and retaining the very best people continues to be top of mind. It’s critical to delivering high impact client results, improved financial results and maintaining a strong culture. We continue to have a great deal of confidence in our business over the long term, which is reflected in our share repurchases in the open market.
In March 2008, we also completed a tender offer. As you know, we have been committed to our buyback program for some time, and this tender offer simply continued that program. In total, we repurchased 6.3 million shares of stock in 2008 and decreased our common shares outstanding by 15%. We also paid an annual dividend of $0.35 last December, recognizing the strength of our balance sheet and our confidence in our ability to generate strong cash flow.
While Karl will give you more details, I want to highlight a few numbers from our fourth quarter. In the fourth quarter, we delivered net revenue of $42.4 million, EPS of $0.02 per diluted share, and free cash flow from operations of over $1 million, all within our previous guidance. As we look at our business today with approximately 90% of the business based in North America and a large exposure to both the financial services and insurance sectors, we are clearly affected by a weak market environment.
We continue to see softness in our financial services and insurance verticals and we’re also seeing some slowing in our healthcare vertical as well. In assessing the situation, it's difficult to know how long it will last. We feel we are prepared to manage through this period given the quality of our client relationships, our track record of delivering value to our clients, the strength of our people, and a clear understanding of and commitment to manage our costs.
Our clients continue to use us and recognize the impact we’re having on their business. We’re pleased our Top 10 clients from the March quarter continue with us in the current quarter. Although our clients are spending less, it’s clear that our relationship is strong and that the value we deliver continues to be high. As far as new client opportunities and even opportunities with our core clients, we are seeing an increase in proposals for cost production initiatives and projects with a faster return on investment, which is typical during slower economic times.
As we look at the June quarter, we are anticipating net revenue to decline sequentially to be in the range of 36 to $38 million. Given the dynamic environment, we've decided to provide guidance on a quarterly basis going forward and we will update you on the September quarter on our next earnings call.
Our client list is an outstanding one and we continue to benefit by referrals and references from our clients both of which represent the highest praise a client can give a consulting firm. Our people continue to deliver results to our clients, enhancing our reputation for delivering high impact and high value work. Our economy runs in cycles, it always has and it always will. Diamond has strong fundamentals in place in terms of people, offerings, processes, and intellectual capital, all of which will allow us to successfully manage through this time. And we will be poised to resume our growth trajectory as we return to a stronger economic environment.
As we’ve seen in the past, we see economic softness reflected in our business sooner than most integrators or outsourcers. On the other hand, we tend to be among the first to benefit from the turnaround.
With that as a backdrop, let me turn the call over to Karl to take you through the financials for the quarter and for the fiscal year. Karl?
Karl Bupp - Chief Financial Officer
Thanks Adam. As Adam said, net revenue for the fourth quarter was $42.4 million, relatively flat from $42.9 million reported in the fourth quarter of last year. Project personnel costs before reimbursable expenses were $30.8 million in the fourth quarter, up from $29.3 million last year.
Gross margin was 27.2% in the fourth quarter compared with 31.7% in the fourth quarter of last year. Total other operating expenses were $11.3 million in the March quarter compared with $9.8 million in the March quarter last year. The increase in other operating expenses was primarily due to increased marketing costs associated with an online advertising campaign and the Diamond Exchange.
Income from operations before taxes was $1 million in the March quarter compared with $4.9 million reported last year primarily due to the decrease in gross margin. Pretax margin was 2.4% compared with 11.5% reported in the March quarter last year. Income after taxes in the fourth quarter was $576,000 compared with $2.6 million reported last year. Diluted earnings per share was $0.02 in the fourth quarter compared with $0.08 in the fourth quarter last year. This excludes any impact from discontinued operations.
Our effective tax rate was 44% compared with 48% effective tax rate in the same period last year. We did not reverse the $1.4 million international tax valuation allowance we had previously disclosed because we are waiting for confirmation of a favorable determination from the tax agency.
During the fourth quarter, we completed Dutch auction tender offer. We repurchased 2.6 million shares at $6 per share for a total payout of $16.5 million including fees. In the fourth quarter, the total shares repurchased was 3.1 million shares at an average price of $6.16 per share or payout of $19.4 million.
Our current stock repurchase authorization was just over $40 million as of March 31, and our intention is to continue to buyback shares in the open market. Diluted weighted average shares outstanding decreased 13% to 29.3 million from 33.6 million in the March quarter and our common shares outstanding decreased 15% from 31.7 million shares to 27.1 million shares. These decreases were result of our tender offer, our stock buyback program, and the reduced stock price during the quarter.
As you recall, in fiscal year 2007, we divested certain portions of our international operations. Under the terms of the agreement, we had the opportunity to receive up to an additional $7 million in proceeds if the divested business achieves certain objectives during the first 18 months following the closing of the transaction.
During the fourth quarter, we received $7 million payment and recorded an additional gain from the divestiture. In addition, we recorded income from discontinued operations of $4.6 million during the fourth quarter due to the reversal of a portion of the Spanish tax indemnification obligation accrual as a result of favorable rulings by the Spanish tax authorities on a portion of assessments that had previously been accrued and were under appeal. These recent decisions give us confidence that we will prevail in the other appeals and we will continue to monitor the process.
We ended the quarter with cash and cash equivalents balance of $53.3 million and no borrowings. Free cash flow was $1.2 million in the fourth quarter. Days billing outstanding was 26 days in the March quarter compared to 29 days in the March quarter last year and below our target of 30 days.
Turning to our client metrics, we served 63 clients in the fourth quarter compared with 65 clients served in both the prior quarter and the fourth quarter last fiscal year. We added 14 new clients in the fourth quarter, representing 8% of revenue. Our top five clients represented 39% of revenue compared with 37% in the March quarter last year.
We ended the fourth quarter with 510 consultants compared with 512 in the prior quarter and 507 in the year-ago period. Annualized revenue per professional was $332,000 compared with $363,000 in the prior quarter and $340,000 last year. Chargeability was 60% in the fourth quarter compared with 65% in prior quarter and 61% in the year ago period.
Our annualized voluntary attrition was 12% in the fourth quarter, an improvement from 13% in the fourth quarter last year. We expect to end the first quarter with 460 to 470 consultants as a result of seasonal turnover and moderated hiring.
Looking at revenue by industry vertical, we had only modest changes on the percentage basis from the prior quarter. During the fourth quarter, financial services represented 32% of revenue, insurance 20%, healthcare 23%, enterprise 16%, telecom 6%, and public sector 3%.
In the first quarter of fiscal year 2009, we will begin to provide adjusted EBITDA data, a supplemental information to help investors evaluate our business performance. We define adjusted EBITDA as income from continuing operations before interest, taxes, depreciation, amortization and stock-based compensation expense. We believe adjusted EBITDA is a useful indicator of the company’s financial and operating performance and our ability to generate cash flow from operations that are available for share repurchases and capital expenditures.
In first quarter 2009, we expect net revenue in the range of 36 to $38 million, a pretax loss of 1 million to $3 million, stock-based compensation expense of $3.9 million, depreciation and amortization expense of $500,000, and other income of $300,000. These result in GAAP EPS for the first quarter of negative $0.03 to negative $0.08 per share. We expect our reported tax rate to be in the range of 15 to 30% against the statutory tax rate of 42%.
The first quarter weighted average share count is expected to be approximately 28 million shares. As you know, free cash flow is generally negative in our first quarter as we pay out our annual variable compensation. In the first quarter, free cash flow is expected to be negative 1 million to negative $3 million including the payout of $5 million related to prior year’s annual bonus awards for staff. Adjusted EBITDA is expected to be 1 to $3 million positive in the first quarter. Going forward, in order to remain free cash flow positive, our revenue needs to be above $35 million per quarter.
Adam Gutstein - President and Chief Executive Officer
Thanks Karl. We feel good about our company and our ability to manage through this period. Even as we manage our costs, we also see this as an opportunity to strengthen the company for the anticipated economic recovery. History shows that firms that use down cycles to strengthen their business wind up closing the gap on those they trail and widening the gap on those they lead.
In fiscal year 2009, we will focus on three primary areas. First, new offerings and development of our people. We’ll implement our strategy to expand our execution services offering, therefore increasing our leverage to meet market demand and to improve partner productivity and firm economics. We’ll also continue to actively promote our data analytics capability out of Mumbai. As part of this, and as part of our overall strategy to attract, retain, and develop the very best people, we’ll also increase the training that we provide to our partners and staff.
Second, market focus; we’ll focus on strengthening and expanding our relationships with our core clients as we continue to deliver high quality and high impact work. At the same time, we’ll also strengthen our brand awareness amongst our target buyers and build new client relationships.
And third, business diversification; we’ll continue to diversify our revenue with a focus on industries such as healthcare and the public sector and we’ll continue to build our international operations in the UK, India and opportunistically, around the world. We can expect that when we exit the downturn given the actions we are taking that we’ll emerge a stronger company, with an improving caliber of staff, increased leverage, greater focus, and more relevant service offerings and development programs. We’ll be better positioned and have a stronger brand driven from consistent and targeted research and publishing.
We’ll continue to serve the best clients as we do today and will develop new relationships as well. With the seasoned management team in place, we’ll remain nimble and make the right decisions for the business over the long term.
We have a strong firm with a healthy balance sheet, outstanding people, and we work for the world’s leading companies. We have the right positioning as independent and objective practitioners working at the intersection of business and technology.
With that, we’ll open up the call for questions. Operator?
Thank you. (Operator instructions). And our first question comes from the line of George Price from Stifel Nicolaus. Please proceed with your question.
Good morning everyone. George Price from Stifel. I wanted to dig into what’s happening in the demand environment. In the last call, which I think was in late February, you said you are seeing the economy tighten, clients spend a bit more cautiously. The commentary now obviously has deteriorated a bit. Maybe you can walk us through how demand is kind of progressed over the last few months and what’s driving the incrementally cautious spending environment?
Hey, George. Adam speaking. I am not sure that there is anything new out there. I think you guys are aware of all the -- probably the same news that we see and read. It's clear that there is some softness, in particular, in the US economy. Our businesses as you know, predominantly in the US and about 50% of that business is focused in financial services and insurance. So, we see continued weakness in both those sectors. I suspect, you know, as well as I do that the former is driven largely by the credit issues and the latter is driven by some of the softness in pricing in insurance. As far as what's given rise to a sequentially lower forecast for us, we actually saw some project cancellations in our fourth fiscal quarter amounting to about 7 or 8% of our revenue, and as we look forward we have seen some cancellations already in our first quarter about the same amount and we are only about halfway through the quarter.
Now, I would say it’s a dynamic environment, so as much as we have seen some things on the down side, I have to admit we are seeing some interesting activity and interesting discussions. We are getting a sense that perhaps in financial services, things are beginning to firm up a bit. We’ll see. Time will tell. Our projects, as you know, tend to be relatively short in nature, which is both to the good and to the bad. To the bad, when it allows folks to cancel, but to the good it allows you to get started relatively quickly. So, we've got a lot of good activity going on right now, but it is a dynamic environment, and we see some puts and takes and so given that, our point of view is just to focus on the quarterly guidance rather than the long-term guidance.
Adam, could you expand a little bit maybe on the tail-end of your commentary there on the interesting activity and discussions and maybe financial services starting to firm up a bit. I mean, obviously one takeout there in the market, some maintain maybe financial services is kind of even if there remain challenges has maybe seen the worst of it. What are you seeing incrementally and over what timeframe that makes you, I don’t know, maybe somewhat cautiously optimistic?
Yeah, I think George that’s a good way to characterize it too. I definitely remain cautious. But my gut instinct when I’m out there talking to folks in the capital markets area in particular is that their tone, their perspective on their own business is not quite as negative as it once was. Getting a sense that they have a feeling that at least some of the worst may be behind them and that we may be returning to, I’m not going to say the same environment, because things have obviously changed, but perhaps returning to a more normal environment. Now over what period of time? That is a particularly difficult thing to say. Our general point of view is that we are not going to see a particularly steep decline as we did several years ago and our last downturn. We think it’s a bit more shallow and you can see that as our revenues declined about 10% sequentially. But we are not sure to be honest how long it's going to last and we are not sure if we are going to see some false starts. But, as I said, it is a dynamic environment and we’re seeing good conversations at the tops of organizations. We are seeing buying. We have had added some new clients here in our first quarter, which is a very positive sign. So, as you said, I think you characterized it properly, we remain cautiously optimistic. We’re certainly not ready to call a bottom. But my sense is that the tone is improving and we’re seeing some positive points of view out there.
Would like to if I could maybe dig in a little bit more, well, two more questions and I’ll turn it over. One, can you -- is there any distinction that’s relevant or meaningful between financial services and insurance in terms of trends, weakness, timing, anything like that? And then the second thing is you mentioned some concern in the healthcare environment. Is that mainly on the payer side given what we have seen from some of those companies or maybe if you give us a little bit more color there? Thank you.
Well, in terms of financial services and insurance, at least from our standpoint, I don’t think they are particularly linked. I think they’re really two separate issues. The one is really driven by the impact of the credit crunch, and what we’ve seen, I think, in terms of write-offs and layoffs and that sort of thing and the impact it has had on especially in capital markets on their business, but also in consumer credit. I think in insurance, there has clearly been some softness in the insurance pricing market. I think that is certainly well understood and as a result, insurance companies have pulled back a bit on their spending. That’s not to say that they’re not continuing with important initiatives. It’s not to say that they’re not considering new initiatives. We have, in fact, seen new initiatives start in insurance in the last several weeks but there clearly has been or had been some softness coming out of the end of last calendar year.
As far as healthcare goes, we are seeing some softness what you probably saw some of the pharma’s report and you saw, I suspect, some of you saw some of the large pharmas and they’re suffering a bit. And they are -- some of those pharmas are our clients, and as they we suffer, we suffer as well and some of them are focusing on reducing their cost and we are in part a casualty of that environment, but we’re seeing a bit of a pullback amongst our payer clients and amongst our pharma clients.
Great. Thank you.
Thanks for the questions, George.
Our next question comes from the line of Kevin Liu from B. Riley & Company. Please proceed with your question.
Hi, good morning. I guess first question, you kind of started to talk about this a little bit, but in terms of the project cancellations, can you just kind of give us a little bit more clarity and/or whether or not those are concentrated within certain verticals, also whether they’re related to projects that had already been underway entering Q4 versus stuff that you may have expected to get started and then just any sort of additional insight you can give behind those?
Kevin, it's Adam speaking. They were concentrated largely in the three industries that I talked about; financial services, insurance, and healthcare. We didn’t really have too many situations. I mean, the situations are typically where a client has agreed to a piece of work. We’ve closed the revenue, and then for one reason or another, perhaps a reshuffling of priorities, but more typically because of the condition of their business, they've decided not to go forward with the initiative. We did have at least a couple of cases in our fourth quarter where we had teams on the ground and literally we were asked to stop work as -- well, as priorities shifted and as costs became more of an issue in the short-term versus the longer term.
And is it your sense that any of this work could essentially come back as we move forward throughout the year?
Yeah, I think that’s, you never know for sure, but I think that’s part worth being in a dynamic environment really is all about. The truth is we don’t work on anything that isn’t ultimately a high impact initiative. So, I would expect that where we’ve actually had cancellations, there is a very high probability that those will turn out to be deferrals. But we’ll have to wait and see. We don’t know. We just don’t know what we don’t know at this point.
And then, what was the forced attrition rate during Q4 and then do you anticipate any sort of material change in that number as we kind of move into fiscal ‘09?
Yeah, our forced attrition, our end of the year involuntary attrition was about 8.5%. I think that we will typically -- typically what we do, Kevin, is at the end of each year, we do counsel out our lowest performers and we probably have not been as disciplined about that over the course of the company’s history. But the very best companies constantly raise the bar, and the very best companies create opportunities for their best performers, and they counsel out those who are weaker and we’ll continue to do that as we go forward, but we don’t have any plans to do anything especially different next year.
Okay. And then just lastly in terms of the utilization rates as we move through fiscal ‘09. I mean, would you expect any sort deterioration in that relative to Q4 at any point during ‘09?
Kevin, this is Karl. For the June quarter, we are looking at utilization somewhere in the mid 50%, 55, 57%. At this point, it's a little premature to call the rest of the year. One thing you keep in mind is that we have ample capacity. If we were at our target utilization, our revenue could be as high as 46 to $48 million a quarter. So we have that there. But looking ahead, I mean, we are going to watch that and it may just be a premature to make a call here.
Alright, thank you.
(Operator Instructions). Our next question comes from the line of George Price. Please proceed with your question.
Didn’t think I will get back in quite that quickly, but I wanted to come back and explore a couple of other things around what you guys are seeing in the demand environment. First, on the financial services side, is it as simple as just things got really bad post-Bear Stearns, or anything else out there that you could cite?
Well, it’s hard for me to be definitive, but I can give you a sense of what I’m feeling and what I’m sort of hearing and seeing anecdotally. First of all, I think that Bear Stearns, no doubt, had an impact on the psyche of the Street, but it also actually put a lot of large number of employees into play. And there is no doubt that it is some of our clients. Some of our clients in fact have seen Bear Stearns’ employees traipsing through and looking to arrange contracts, and there is no doubt that some of that has created some competition. But I think the bigger impact of that, George, has been simply to say that if that can happen, what else can happen? And I think you are just seeing continued caution. But I would say as I said before, it is a dynamic environment, and we have arranged new work even in capital markets. So, it may be slower, it may take longer, it may require more scrutiny, but the opportunities are there. And my sense is that this is not going to last forever. I don’t know how long it’s going to last, but this is not something that’s a permanent change. I fully expect to see us returning to a very vibrant capital markets base business and I expect to see us continue to grow in that area even if it's not right now at this moment.
Okay. I don’t want to focus solely on financial services, so maybe if you can talk about what you’re seeing more broadly and I know we talked about healthcare earlier as well. But maybe beyond that, how you are seeing the macro environment impacting other industries and other clients?
Well, we see and hear the same news that you hear. We read about CDO oil prices are up and gas, gasoline is up, we see the same for food. We know that those are factors affecting consumer buying and we know that those are factors affecting the inputs into consumer packaged goods companies. We know that it can affect travel and lodging. We know it can affect transportation companies. Having said that, our enterprise business, which encompasses really those three sectors, is up about 48% last year. As we move into this fiscal year, it continues to be strong. And so we feel pretty good about that part of the business. We know it could change. But if you spend your life worrying about what could happen instead of trying to make good things happen, it's difficult to come at work each day. So what we focus on, the opportunities in front of us and frankly we think that the US economy is going through some sorting out right now, but we have confidence in the economy over the long-term. We think we are in the right industries. We know that our services are quite relevant. We know that even where we are not working, we continue to be connected at the very tops of organizations. What we are talking about continues to be of interest and we fully expect to be working at those organizations. It's just matter of when not if. So overall, we are cognizant of the factors affecting the economy even outside of the services world, but we are still over the long term pretty confident.
Okay. Could you talk maybe a little bit about trends in how what clients are moving forward on, what the trends are and the mix of that? Obviously the kind of stuff you’re doing, but you also have an opportunity to see beyond just what you’re working on, what they’re spending on and moving forward on. So, there's lots of indications that there has been pressure on more discretionary project-based work, you guys would be a data point there. But what about things like trends in terms of doing it for outsourcing, sending things offshore. On the software implementation side, are there any particular strengths like around DRPs stuff like that will be interesting to hear about?
No doubt, George, you’re right. There is clearly pressure on what you put in the category of discretionary spending. When you’re in an uncertain environment, which is where we are, people tend to focus on the essentials and they’ll defer or cancel something that they might deem as discretionary. But let’s not forget that which is discretionary today often becomes essential tomorrow. As far as other trends, I think that my guess is you’re seeing this in your coverage area, but my guess is that most of the offshore firms are suggesting that the first half is going to be slower than they would have hoped and they expect to see things pick up in the second half. And I think that is reflective of an environment where while US and for that matter even European-based firms are certainly looking hard at continuing the offshoring and outsourcing trend. I think they’re being careful about what projects they undertake and what projects they don’t undertake. So I expect you will see some slowing. You will still see good growth, but you will see some slowing amongst outsourcers and the offshore firms in the first half. Of course, nobody really knows what the second half will be. It's hard to have perfect knowledge that far out. But I would say that I expect given time that we’ll see the economy firm up a bit and we’ll see the strong trends in offshoring and outsourcing continue.
As far as software goes, I think that what we’re seeing, and again we have a limited view, but when you look at software like ERP, we’re seeing -- we are still seeing some ERP programs. We’re also seeing a lot more in the way of clients trying to get more out of what they've bought; make better use of the information and make better use of the software components, make sure that they really get the productivity out of that. And I think that’s also normal in relatively-speaking slower economic times. People want to make sure that they good a return out of the investments they have already made. I also think that that's a trend that also is temporal. We will see continued innovation and we will see that from a competitive standpoint firms that take advantage of technology will jump ahead of those that don’t. And so as times firm up, we will see the leaders invest earlier or likely they will invest ahead of firming up, and we’ll see the laggards wait.
Last question for you, more specific to Diamond. Let's assume demand remains pretty challenged over the next, let's say maybe for the rest of the year, what can investors expect or how can investors expect you to manage the business from a financial standpoint in terms of earnings and particularly free cash flow and that kind of environment. And your comments on the relationship strengthening, the brand awareness, the international operations and stuff, it sounds like there is bit of incremental investment there. Clearly there is people are going to be scrutinizing the cash balance and the cash flow. What can you tell investors at this point?
Karl mentioned in his comments that in order to be cash flow positive, our revenue has to be greater than $35 million per quarter and so we understand our cost very well and our commitment has always been on an annual basis to be free cash flow positive. So investors can expect at least that. And so as we look forward, we believe we can continue to make certain investments in the business, which we will, certain investments in our clients and our people which we will because that's good for the business over the long haul, and that’s really what we are building for it. At the same time, we are not anticipating despite the comments about challenging environment, we are not anticipating it to be all bad news. As I said, it’s a dynamic environment, which means that one or two things move in the right way and all of a sudden you are looking at a very different picture. So, we do consider the downside but we also consider the upside as well.
Another thing George, this is Karl. We exited March with $53 million in cash. I think everyone at this -- between Adam and myself and I think the Board will say, that’s more than ample cash to run this business. The business even in the first quarter with reduced revenue of 36 to 38 million. When you back out the one-time cash bonus payment, we'll be free cash flow positive 2 to 4 million at 36 to 38. So that’s good news. I'll also tell you that one of the positive benefits of the ruling on the Spanish tax assessments is we have over $7 million in restricted cash in Spain that will be freed up over the next 12 months, so that’s additional capital for the firm to acquire or take advantage use of. And then finally, in March, we increased our credit facility from 10 to $20 million. We have never drawn on that facility, but we increased it because you don’t want to buy an umbrella on a rainy day. So I think we are in fine shape. I think investors shouldn't worry about that aspect before we got it under control.
Fair enough. Thank you for the time.
Thank you, George.
Our next question comes from the line of Devang Kothari from JMP Securities. Please proceed with your question.
Hi, good morning. Devang Kothari from JMP Securities. Most of my questions have been asked. My final question is, assuming your free cash flow positive for fiscal year ‘09, would you anticipate that your dividend would remain the same?
At the moment, we don’t have any plans to change our dividend. Obviously it's something that the Board has to approve as they did in prior years, and as they will, but we don’t anticipate any change there.
Okay, great. The rest of my questions have been asked. Thank you.
(Operator Instructions). There are no further questions at this time. Please continue with your presentation or closing remarks.
Thanks operator. We appreciate all of you taking the time to join us today. We look forward to speaking with you next time. Thanks.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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