S1 Corporation (NASDAQ:SONE)
Q2 2008 Earnings Call
August 6, 2008 8:30 am ET
Johann Dreyer – President and Chief Executive Officer
Steve Dexter – Principal Accounting Officer
Brett Huff – Stephens, Inc.
Brendan Watkins -DA Davidson
George Sutton - Craig-Hallum
Bill Frerichs - Radnorwood Capital
Welcome to the S1 second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, Johann Dreyer.
Thank you everyone for joining us here today. I would like to remind you that we will be making forward-looking statements on today's call and that these forward-looking statements are based on our current expectations and are subject to a number of uncertainties and risks. Our actual results may differ materially and I would like you to refer to the risk factors identified in our Form 10K for the period ending December 31, 2007 and the subsequent filings with the Securities and Exchange Commission.
As you probably saw yesterday we announced that John Stone is leaving the company to focus his attention on a [inaudible] previously disclosed personal matter that's totally unrelated to the operations of the company. I would like to thank John for his hard work and his commitment to S1 and wish him all of the best of luck in his future endeavors. We have entered into a consulting agreement with John and he will be available to assist us as we transition to a new chief financial officer.
On the call with me today is Steve Dexter our [inaudible] principal accounting officer and I will now hand the call over to Steve to review our financial results.
First I would like to focus on the operating results. As the press release indicates, our total revenue increased 7% to $56.5 million during the 2008 second quarter compared to the 2007 second quarter, representing an 11% increase in the Enterprise segment and a 3% increase in the Postilion segment. Revenue from our largest customer, State Farm, increased $800,000 from $10.7 million in 2007 to $11.5 million in 2008.
Gross profit margins improved to 55% in the 2008 second quarter from 54% in the 2007 second quarter. Second quarter 2008 operating income was $6 million, a $900,000 improvement compared with the second quarter of 2007.
For the first half of 2008 our total revenue increased 11% to $111.2 million compared to $100.2 million during 2007, representing a 13% increase in the Enterprise segment and a 9% increase in the Postilion segment. State Farm revenue decreased $1 million from $23.1 million for the six months ended June 30, 2007 to $22.1 million for the same period in 2008.
For the first half of 2008 gross profit margins improved to 54% compared to 53% for the same period in 2007. For the first half of 2008 operating income was $12 million, a $4.5 million improvement compared to the same period in 2007.
I would like to emphasize that all the revenue growth we are achieving is organic growth as there were no acquisitions in these periods. Furthermore, excluding the State Farm relationship, revenue from all other customers increased 8% from the 2007 second quarter compared to the 2008 second quarter, and increased 15% for the first half of 2008 compared to the same period in 2007. We anticipate State Farm revenue will be between $40 million and $43 million in 2008. As we indicated last quarter, excluding State Farm you can deduce that we continue to expect double digit growth for the remainder of 2008.
Direct costs associated with professional services, support and maintenance increased $1.3 million in the 2008 second quarter compared to the prior year quarter. For the first half of 2008 direct costs associated with professional services, support and maintenance increased $2.8 million compared to the same period of 2007. These cost increases are in line with the growth of professional service projects and to provide additional customer support.
Sales and marketing costs increased as both segments increased sales staff and marketing activities to support growth. Product development expenses increased in the quarter and year-to-date comparisons as the Enterprise group continues to enhance solutions for all channels and applications for international customers.
General and administrative expenses decreased in the quarter and year-to-date comparisons as we have less professional consulting fees and we renegotiated the terms of the repayment obligation relating to an international development grant.
Depreciation has increased slightly for the quarter and year-to-date comparisons as our capital expenditures have increased since late 2007 due to capital improvements for our Norcross facility and data center upgrades.
Adjusted EBITDA increased to $11.1 million in the 2008 second quarter compared to $10.8 million in the 2007 second quarter. For the first half of 2008, adjusted EBITDA was $22 million compared to $18.2 million for the same period in 2007. Those figures exclude stock based compensation expense of $2.3 million in 2008 second quarter and $3.1 million in the 2007 second quarter, and $4.2 million for the first half of 2008 and $5 million for the same period in 2007.
Moving on to the segment results, focusing first on Enterprise on table 5, the Enterprise segments total revenue increased 11% to $32.1 million for the 2008 second quarter compared with the 2007 second quarter. Software license revenue includes a $600,000 settlement with an international customer previously written off as uncollectible in the 2007 second quarter, but was recovered during the 2008 second quarter.
Support and maintenance revenue increased $500,000 due primarily to increased licensing for Treasury Online Solutions and international business in 2007. Professional services revenue increased by $800,000 reflecting an increased number of implementations, particularly international and for our retail on-line solutions, and an increase in our revenue from our largest customer.
Data center revenue increased $800,000 due primarily to the migration of the Postilion community regional customer to Enterprise in 2007 and increase in transaction volumes for our existing Enterprise customers. For the first half of 2008, the Enterprise segments total revenue increased 13% to $61.6 million in 2008 as compared with the same period in 2007.
Support and maintenance revenue increased $800,000 due primarily to increased licensing for Treasury On-line Solutions and international business in 2007. Professional services revenue increased $2.4 million reflecting an increased number of implementations, particularly international and for our retail on-line solutions, partially offset by a decline in projects with our largest customer.
Data center revenue increased $2.2 million due primarily to the migration of the Postilion community and regional customer to Enterprise in 2007, and increase in transaction volumes for our existing Enterprise customers.
From the 2007 second quarter compared to the 2008 second quarter, excluding the $800,000 increase in revenue from State Farm, revenue from all other Enterprise customers increased nearly 14% for the first half of 2008 compared to same period 2007. Excluding the decline in State Farm revenues of $1 million, revenue from all other Enterprise customers increased nearly 25%. The Enterprise segment improved gross profit margins from 49% to 53% in the 2008 second quarter as compared with the prior year quarter, and from $48% to 51% for the first half of 2008 compared to the same period in 2007.
Enterprise generated $3.9 million in operating income in the 2008 second quarter as compared to $2.4 million in the same period in 2007. Likewise, Enterprise adjusted EBITDA increased $1 million to $6.4 million in the 2008 second quarter compared to the 2007 second quarter.
For the first half of 2008, Enterprise generated $5.8 million in operating income as compared to $3.4 million in the same period in 2007. Likewise, Enterprise adjusted EBITDA increased $2 million to $10.9 million in 2008 as compared to the same period in 2007. These increases in operating income and adjusted EBITDA were a result of higher revenues and gross margin improvements.
Continuing now to the Postilion segment as presented on table six, total revenue increased 3% to $24.4 million in the second quarter of 2008. This included a 13% decrease in license revenue when compared with the 2007 second quarter, primarily due to the high volume of additional seat licenses sold by our FSB business in the second quarter of 2007.
Postilion segment software license includes subscription revenue of $2.1 million in the 2008 second quarter by comparison to $1.5 million in the second quarter of 2007. As we have previously highlighted, this is long-term recurring revenue being generated by the subscription model even though it is appearing in the software license revenue line.
Support and maintenance revenue increased 11% and professional services revenue increased 27% reflecting Postilion’s continued strong licensing activity in the payment space. Postilion data center revenue is down 11% in the 2008 second quarter as compared to with the prior year quarter partly due to the conversion of customers to long-term subscription contracts, the migration of the Postilion community and regional customer to Enterprise and customer attrition in the community and regional space.
For the first half of 2008, the Postilion segments' total revenue increased 9% to $49.6 million. This includes a 21% increase in license revenue when compared with the same period in 2007 primarily due to increased licensing of our Postilion payment solution. The Postilion segment software license revenue includes subscription revenue of $4.2 million for the first half of 2008 by comparison to $2.8 million for the same period in 2007.
Support and maintenance revenue increased 12% and professional services revenue increased 14% reflecting Postilions continued strong licensing activity in the payment space. Postilion's data center revenue is down 12% for the first half of 2008 as compared with the same period in the prior year partly due to the conversion of customers to long-term subscription contracts, the migration of the Postilion community and regional customer to Enterprise and customer attrition in the community and regional space. Postilions data center revenue for 2008 also includes a host of payments customer that went live in late 2007.
We have described the Postilion subscription revenue on previous calls as including the right to use the software and the right to receive maintenance support and enhancements and in some cases, these subscriptions include data center services. The continued growth in subscription revenue reflects the broader acceptance of the Postilion product and the subscription model in the community and the regional space. Over time, we anticipate that growth in the subscription model will have a negative impact on support and maintenance revenue and data center revenue will have a positive impact on software license revenue.
Gross profit margins decreased to 57% in the 2008 second quarter from 60% in the 2007 second quarter driven mainly due to the high volume of additional seat licenses sold by our FSB business in the 2007 second quarter, and a decrease in data center margins as a portion of our data center costs for Postilion customers are fixed while data center revenues declined.
Professional services, support and maintenance costs increased to accommodate the growth in professional service projects and to provide additional customer support. Postilion operating income decreased $500,000 to $2.1 million in the second quarter of 2008 compared to the second quarter of 2007 as a result of decline in gross margins and increased sales and marketing costs.
Likewise, Postilions adjusted EBITDA decreased $700,000 to $4.7 million in 2008 second quarter as compared to the 2007 second quarter. Gross profit margins were unchanged at 59% for the first half of 2008 compared to the same period in 2007. For the first half of 2008, Postilion operating income increased $2.2 million to $6.2 million in 2008 compared to the same period in 2007 as a result of increasing revenue and while holding margins flat. Likewise, Postilions adjusted EBITDA increased $1.9 million to $11 million in 2008 as compared to the same period in 2007.
Turning now to the balance sheet on table two, cash and short term investments were up $7.5 million since the end of the first quarter to $80.7 million due to cash from operations of $11.5 million partially offset by capital expenditures of $2.5 million and $900,000 of debt payments for leased computer equipment. We have about $7.5 million of restructuring charges remaining to be paid after paying out approximately $1.1 million in the 2008 second quarter.
We expect to pay $2.7 million over the next 12 months and then approximately $2 million a year through the end of 2011. Accounts receivable increased $3.4 million primarily as a result of billings for annual support and maintenance related to Postilion payment customers.
Turning to income taxes, income tax expense relates to taxes paid in international jurisdictions where we do not have NOL's, state income taxes and alternative minimum tax in the U.S. This provision is primarily cash taxes and represents an effective tax rate of 15% for the quarter and 17% year-to-date, an increase over prior periods. We anticipate our cash taxes will remain in this range on a percentage basis throughout 2008.
As of June 30, 2008, S1 has approximately $218 million of domestic NOL's which are fully reserved. Of this amount, $201 million relates to stock option expense, the benefit of which would go directly to stockholders equity if ever used. So with about $17 million of domestic non-option related NOL's remaining, it is possible that we may begin recording a tax provision with an effective tax rate of perhaps 37% or more for GAAP purposes as early as the first half of 2009, even though a significant portion of this GAAP tax provision would be non cash due to the utilization of these non option related NOL's.
If we are successful implementing our operating plan for 2008, we will likely reach a point in the second half of this year when we will need to release a portion of the evaluation allowance against these domestic NOL's.
That concludes my discussion on the 2008 second quarter financial results.
I would like to start off by stating that I'm very pleased with the results of this quarter. Our pipeline visibility remains very strong and the sales opportunities that we are seeing around the world remain strong. Before I talk about the quarter, I would like to address the announcement that we will wind down our ten year relationship with State Farm. As we noted, we expect around $35 million to $39 million in revenue from State Farm in 2009, and that annual spend will continue to decrease thereafter as our work for State Farm concludes by the end of 2011.
Now there are a number of reasons behind it, a number of facts that I would like to discuss. And first is from the S1 perspective. We are a software products company, and over the past few years our products have matured and we believe that we should focus primarily on two things; licensing our self service and full service banking software to large friends in the U.S. and world wide to our Enterprise business and the community and regional banks and credit unions to our Postilion business and then secondly, licensing our payment software to financial institutions, retail and [inaudible] and processes also throughout our Postilion business worldwide.
State Farm has been a great customer for us and we still have an extremely positive working relationship with them, but we really have gone past the applications for State Farm. These applications are very specific to State Farm and we have not been successful in selling them to other insurance companies. State Farm has access and owns the code and can change it and can maintain it. State Farm's also our only non-bank customer currently using our Enterprise platform and their implementation is unlike any other implementation that we have.
Over the past several years our State Farm revenue has trended down as more and more of the custom applications were rolled out. And I see this is a purely and natural evolution of a material custom development business. We will not pursue other business opportunities at State Farm. We will definitely not pursue opportunities that not core to our business purely to maintain our registry with this one customer. I believe very strongly that we are software company that needs to license our product. We have to leverage off our product, and leverage by selling the same product to multiple customers and create depth in the market and dominate certain markets, and I don't believe that we should be a professional services body shop.
At the same time, because our products are more mature, certain other parts of our business have shown significant growth. In the financial report that Steve gave, he gave the example of S1 Enterprise, if you strip out the State Farm revenues, grew 25% year-over-year for the first six months of 2008 compared with the same period in 2007. We are obviously very excited about this growth trend. We have increased confidence about maintaining a high level of growth in that business as we see across selling and the maturity of the product picking up, we see additional cross-sell opportunities which I will touch on shortly.
By winding down our State Farm projects in a methodical way, it will enable us to focus on our core business of licensing software and dedicating 100% of our resources to pursue business with the Enterprise and Postilion market segments and both growth areas of our business.
We have very, very good people in our State Farm team. Our developers and professional services people have been with the company for quite a period of time, high quality people and since we've been growing so fast in other parts of our business, we believe that we will need more people to support the growth that we're expecting in those parts of the business. So instead of recruiting new employees, we would like to shift the employees and then manage the skilled people that we have in the State Frm business to support the growth that we're expecting in the other parts of the Enterprise business.
But only that does give us a head start in having fully trained and qualified and experienced people added to that business. Obviously it's also very cost effective from a recruiting perspective and it's also very cost effective not having to train people from scratch to get to know your products. So we believe that it will help us accelerate our growth in the Enterprise business if we can tap into this great body of resources and people that we have currently in the State Farm business. And then finally, by exiting this relationship in an orderly way, we believe that we will be able to manage through a customer concentration issue concern.
I would like reiterate our goals for 2008 as we stated on the first earnings call this year. On that earnings call we stated we would be targeting top line growth of 68% and we also said if we exclude State Farm that we would be targeting top line growth of 10% to 12%. Secondly, we said that we would like to achieve earnings growth of between 15% and 25% and then our third goal was to really increase our customer satisfaction to the point where you can exist this year as the company with the premier customer satisfaction in our space.
So what I would like to do is talk a little bit about the progress that we've made against those stated 2008 goals. The top line growth that we now expect is somewhere in the range of 8% to 11% opposed to the 6% to 8% that we targeted at the beginning of this year. If we exclude State Farm from that, our expected growth is 11% to 15%, so quite a bit higher.
We are investing a lot of this additional revenue in customer satisfaction. You might have seen what the product development area, there was increased in cost of product development area in the Enterprise segment. That was to address things such as defects, bring that way down, add significant monitoring and usability features to the product, all geared towards customer satisfaction.
And as a matter of fact, we measured our customers, our Enterprise customer satisfaction last year versus this year, second quarter to second quarter, and we've increased our Enterprise customer satisfaction score by 17%. It's still not where I want it to be. I think we can improve further, and we really want to exit this year as the premier customer satisfaction company in this space.
We are seeing some evidence of that increased customer satisfaction. We have put in the press release the fact that we've had two major cross sales into our Enterprise base where we sold our corporate banking application into existing Enterprise customers who are currently run other applications and channels of ours. This is always a good indication, if your customers come back and buy significant new license and significant new products from you.
On the Postilion payment side, we also conducted a customer satisfaction survey there in the second quarter. I'm particularly proud of the results here. One of the questions which is probably one of the most important questions in that survey is the one that says, "Would you recommend this product or this company to a friend, and family and your peers in the industry". And 79% of our Postilion international customers gave us an eight or better out of 10. I believe that's an extremely high score and I believe that part of our business probably has already achieved our goal of being the premier company in that space.
Let me turn to the segments. I would like to talk about the Enterprise segment first, and some of the significant milestones there. As I said before, we've licensed our S1 Enterprise corporate banking application to two of the top 25 banks in the United States. We are getting increasing attraction with our corporate banking product. It's now used by many, many of the U.S. top 15 financial institutions and also by some of the largest banks worldwide. I believe that that application is absolutely based in best of breed and it's very positive for me the fact that we can sell that into our existing customer base.
On the Enterprise product side, we've concluded our zero defect program for personal and business banking. That's where part of the product development investment went into. Our response times are now significantly shorter when any new customer issue arrives. We can turn it around in a significantly shorter period of time than we could do previously. And as the product matures, we are starting to leverage more and more of our applications in innovative ways.
To use an example here, what we're doing right now is we're taking some of our traditional business banking functionality to embrace some of the unique requirements of the affluent markets in the U.S. and worldwide. We believe that there's a niche for individuals in the U.S. to be able to do wires through their internet banking solution or ATH through their internet banking solution, and those functions were traditionally packaged by banks as part of their business banking functionality. We are now leveraging some of that functionality into our personal banking market and I'm very positive about that. We're getting back into the mode of innovating opposed to catch up.
On the Postilion segment side, some significant new key customers for the quarter. I'll first talk about the community financial side where we added two new community banks in the U.S. for internet banking. And then on the payment side, we added an ATM processor in the U.S.A. We also added a bank in Venezuela and we now have nine banks in Venezuela, customers of ours, very good traction in that market. And that's really where we want to get to, where we actually spread, not spread ourselves thinly across the globe, but placed into select market and then get dominance in that market.
We also added two customers in Mexico which we again view as very positive. Mexico is a good solid market. Up to now we've only had two customers in Mexico. We've now doubled that to four customers, and we see some significant growth opportunities in that country as well.
I would quickly like to address the licenses in the Postilion segment and just provide some color around the financial statements. One thing that you need to be aware of is that the Postilion licenses are fairly big in relation to the total license revenue, and therefore your revenue quarter by quarter might be slightly lumpy. And the way that we look at it is, typically market trading quarter to trading quarter, we typically look at it as a 12 month, trading 12 months. And we also look at it year-over-year, taking six months into consideration. So if you take the last 12 months, trading 12 months and you compare it to the 12 months from July 2006 to June 2007, the license revenue in that business has grown by 23%. And then if you take the first six months of this year and compare it to the first six months of last year, it has grown 21%.
We are seeing very, very strong growth, specifically in the payments business. We're selling a lot of new business there and we're also seeing a great expansion there internationally in our international revenues.
On the product side I would first like to talk about the payment side of the Postilion segment. There we have released our active solution for ATM's. It's a pretty unique offering in the marketplace in that it allows a customer to run multiple, concurrent systems and geographically dispersed so that you can provide extremely high availability 24X7. We've actually picked up this technology and had it in place at some of our large retail customers. And an example of that is Marks and Spencer in the U.K. They're the third largest retailer in the U.K.
They have been using our active, active solutions for retailers for the past four years and in those four years they have not had one instance where a customer couldn't pay with a debit or credit card. So 100% availability to the end customers for four years, and we have taken that technology and released that to be available for people that are using our software to drive ATM's.
On the community financial side of the Postilion segment, you will recall that we spoke numerous times in the past about taking our legacy voice and intimate banking products onto Postilion. We now have 16 customers live on voice banking, 2 customers live on internet banking and as we convert all these channels onto Postilion, we are getting closer to our goal of having an absolutely unique offering in this space by the end of this year.
Steve did mention some customer attrition in the community financial space. You are well aware that it's one of the issues that we had over the past several years. By having this product in the marketplace, we're getting extremely positive feedback from customers that have access to it, that have it installed and we see it as a key way of stemming and in turning around and then growing our community financial business.
A comment that I would like to make about both segments which I also view as very positive is that after all the investment that we did over the last two years, we are now at a point where we can start leveraging some of the capabilities between our Enterprise and Postilion segments, so we are now looking at innovative ways to play to the strengths of both these product ranges and make it accessible to the other product range.
An example of that is we have extremely strong monitoring capabilities in our Postilion product range because it grew up in the 24 by 7 high availability ATM and payments transaction business. We are now taking that monitoring technology and we are making it available and [inaudible] and bringing it into the Enterprise product. And likewise, we had extremely strong ATH capabilities in our corporate banking solution and we would like to see some of that be made available through our Postilion channel.
So as the products have matured, we are actually getting to the position where we can create very innovative solutions. So the last two years spent on stability, spent on getting back with our features and functions, restore our reputation in the marketplace, I believe that we are very close that the leadership role in innovation.
And closing from my side, we are very pleased with the quarter. Our pipelines are still looking very healthy. We have great visibility. We're excited about both 2008 and 2009 as we're getting closer to 2009, and I would like to reiterate the guidance that we gave last time. We expect to be at the higher end of our previous stated guidance which was revenues of $220 to $226, and EBITDA 41.5 to 43.5.
With that, thanks again for joining the call.
(Operator Instructions) Your first question comes from Brett Huff - Stephens Inc.
Brett Huff – Stephens Inc.
Can you tell us a little bit about when the revenue from these two big contracts that you're doing with corporate banking in the Enterprise segment, how that will roll on over time?
This is really dependant on the delivery of the professional services. We can't give you exact guidance on that on this call, but typically what we see with deals of that size is that the revenue rolls in over a year or two, 15 month period.
Brett Huff – Stephens Inc
You signed a deal this quarter. Have you already have teams on site?
We have taken very little revenue on those licenses and in one case, not any revenue at all.
Brett Huff – Stephens Inc
It's great that you've come in at the high end of the guidance that you've talked about. You talked about continuing doing some investments. Can you give us a sense of either both Enterprise and Postilion, could you focus on Enterprise, it sounds like you've made some of that investment already that showed up in some of the higher costs of this quarter. Incrementally going forward sequentially will that product development line continue to rise or is that a run rate kind of investment already, and the same kind of question on the Postilion side.
It's pretty much a run rate investment at this stage. It might go up slightly, but what we intend doing is as some of these programs that we're doing this year, specifically targeting at customer satisfaction, as those successfully complete, we are looking towards in 2009 taking some of that investment, some of the people and moving them into an area where they can actually help drive the professional, the license and professional services throughout. So what we see is the product investment. Part of that product investment will in al likelihood be converted to professional services costs in the next year.
Brett Huff – Stephens Inc
In looking at the $600,000 settlement that you called out, can you just tell us a little bit about that?
Basically what happened is that this was a customer sold through one of our resellers in our international division. There were some questions around the project and whether it would complete a year ago and whether the bank would go forward with that. That has now been fully resolved and we reversed that.
Your next question comes from Brendan Watkins - DA Davidson.
I was wondering if you had any more plans for repurchases going forward as I see you didn't make any in the quarter. If you could just elaborate on that, that would be great.
We are continuously looking at our options, what we can do with the cash, and obviously we can either buy back stock or we can look at being a little bit more causative. Obviously the whole market has been sensitive over the last six months. We're continuously looking at that and as the right opportunity arises, we will utilize the cash. There's no intent for us to hold any [inaudible] amounts of cash. We expect generating cash, significant cash going forward. So we will apply that cash but yes, we didn't buy anything this quarter, but having said that, we bought a significant amount of stock back prior to that.
I saw that Yodlee got some new financing, I believe it was about two months ago from some of the other investors in the company. If you could remind us of your ownership position in Yodlee, like what percentage do you still have of the company?
11% to 12%, in that range.
The next question comes from George Sutton - Craig-Hallum.
George Sutton – Craig-Hallum
You've suggested that your products are hitting areas where banks are still focused on spending. Can you just give us an update in terms of what you're hearing from the customer side?
Where we've seen traction is where we sell softly that actually generates business for banks and that is one of the prime reasons why we sold two fairly large corporate banking deals. Corporate banking is the one area where banks make money and therefore, that's the areas that we find they spend money.
Secondly, I do have to say that having significant international exposure, you've seen the growth figures internationally, we do have pretty good coverage worldwide and obviously we sell outside of financial institutions as well. So I think the diversification and the market diversification is helping us a lot, but again, let me reiterate, we've not seen a slow down. Our pipelines are growing and its high quality opportunities in the pot.
George Sutton – Craig-Hallum
You had mentioned that you're planning to take some of the people off of the State Farm implementations and move them into other areas. Can you just give us a sense of how well trained those people would be for the types of things you would like them to move towards? Would there be a big increase in your training costs or is it fairly fluid?
I think that is one of the actual big advantages, and part of the reason why we're not pursuing other potential opportunities within State Farm. At our current growth rates and what I'm seeing happening with the pipeline, we will need new people on the professional services side as we generate more business. The State Farm team, the State Farm people are very highly qualified. It's a good team. And one of the big advantages is that it would minimize the training of new people because many of them can come in and be very productive in a very short period of time.
George Sutton – Craig-Hallum
You mentioned leveraging capabilities between segments. How difficult is it for you to repurpose between groups?
It's quite interesting. We actually did some of that earlier this year. You might recall that we acquired a source code license on the mobile banking side, for mobile banking in the November time frame last year. This was our first experiment in taking that software and leveraging it across all our platforms, and as we speak today, that software is accessible to our Enterprise range as well as through our Postilion range.
And we're taking that model and we've taken select pieces of our software and we actually want to take that model forward where we can actually share it between the different groups. We have the advantage that both Enterprise and Postilion can run on IBM XP series and utilize the same data base, UB2, so a lot of the functionality is not that difficult to leverage. It's obviously not seamless, but if we apply our minds to it, I think there's a wealth of opportunity there and it will also benefit us in future to actually look at what the successes we've had in sharing functionality between those groups and keep that in mind if we build future software.
I'm pretty excited about it because if we can leverage off the strength of both these segments, that would be great. One of the main reasons why we segmented the company two years ago was to create visibility, to create ownership and so forth. That is working pretty well. It established the brand in the marketplace, and so I think we can move into the next phase to actually see what additional benefits we can get by, by exchanging ideas and even software between the two segments because those segments are really run as separate businesses..
Your next question comes from Bill Ferric - Radnorwood Capital.
Bill Frerichs - Radnorwood Capital
I have a question on the State Farm operation. I was wondering why you haven't or if you've contemplated throwing that operation into its own entity and carrying it as a discontinued operation in order to clear up the comps.
It might be something that we'd consider. At the end of the day, we focused first on getting the relationship and the commitments between the two companies and work out how we would wind this down over a period of time, and once we have clarity on that, we can potentially look at some structuring.
There are no further questions at this time.
Just to conclude then, thank you very much for joining the call. Again, we are pleased with the quarter. We are excited about the rest of the year. 2009 is shaping up very nicely and we look forward to speaking with you three months from now.
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