Trintech CEO Discusses F2Q2011 Results - Earnings Call Transcript

About: Trintech Group plc (TTPA)
by: SA Transcripts

Trintech Group PLC (TTPA) F2Q2011 Earnings Call Transcript September 1, 2010 10:30 AM ET


Joe Seery – VP, Finance Group

Cyril McGuire – Chairman and CEO

Paul Byrne – President


Joshua Goldman – Davy Stockbrokers

Dan Cavanagh – Goodbody Stockbrokers


Thank you for standing by, and welcome to the Trintech second quarter fiscal 2011 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 1st of September, 2010. I'd now like to turn the conference over to our speaker today, Joe Seery. Please go ahead, sir.

Joe Seery

Thank you very much, and good afternoon, ladies and gentlemen. We'd like to welcome you all to Trintech's second quarter fiscal year 2011 earnings conference call. My name is Joe Seery, VP of Finance Group. And joining me on today's call are Cyril McGuire, chief executive officer of Trintech; and, Paul Byrne, president.

We will begin the call with prepared remarks, which will be followed by a question-and-answer session. A replay of this conference call will be available later this evening on the Investor Relations section of Trintech's Web site or by dialing 44 for the UK, then 1452-550-000. The pass code is 82714337#.

I would like to remind you that this conference call will contain forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. In particular, forward-looking statements will include, amongst other things, statements related to Trintech's revenue, including license and service revenue, gross margins, expenses and charges, interest income – US income, US GAAP operating results, adjusted EBITDA net income, cash flow, cash balance, DSO days, business momentum in our continuing operations, our business outlook, and our position for revenue and earnings growth, our product and sales capabilities, the future growth of our client base, the state of the macro environment and the broader global economy the needs of the corporate organization to improve financial transparency and efficiency, and the impact of the evolution of our growth in corporate and financial recognition and demand for greater visibility of risk and compliance by a company forward under demand for our Financial GRC platform and overall financial performance expectations for Q3 FY'11.

All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Factors that could cause or contribute to such differences include Trintech's ability to accurately predict future sales, its ability to accurately predict and meet customer needs and to successfully position itself in the market, its ability to ensure the performance of its products and services, and its ability to improve the performance of its organization and ensure the long term health of its business. Actual performance may also be affected by other factors more fully discussed in our Form 20F for the fiscal year 2009 and subsequent filings with the Securities and Exchange Commission, which are available on the SEC's EDGAR database and in the final paragraph of our earnings press release issued earlier today, which is available on our Web site

We will also comment on adjusted EBITDA results, which have been included, together with a reconciliation to US GAAP results in the earnings release. The release is also available on our Web site,, and can be downloaded in PDF format.

Due to the sale of the healthcare division to the Advisory Board Company, Trintech is required to present financial results on a continuing and discontinued basis. This requirement has resulted in the presentation of financial results showing fourth – fiscal half and second quarter for the continuing business, the financial covenants, risks, and compliance of our Financial GRC business. Unless otherwise stated in our presentation, all financial results discussed will be on a continuing operations basis.

And lastly, ladies and gentlemen, please understand the company undertakes no obligation to update information presented in this conference call or ensuing Q&A.

And with that, I would now like to hand over to Cyril McGuire to focus on our Q2 financial results.

Cyril McGuire

Thank you, Joe, and welcome to our Q2 and half year fiscal year 2011 earnings conference call. Paul, Joe, and I will provide you a brief summary of Q2 and half year financial performance and update on strategy, and lastly, an update on our outlook and management guidance for next quarter.

As Joe mentioned, from a reporting perspective for Q2 and half year results today, we will be referring primarily to our continuing business, our Financial GRC, in our press release, which now constitutes our entire group business. And our previously held healthcare division, which we sold in April 2010 will be reported as a discontinued business.

As we announced earlier today in our press release, Trintech's performance in Q2 and half year fiscal 2011 was solid, with underlying adjusted EBITDA earnings of $1.5 million being achieved in the quarter and $2.5 million being achieved for the second half year, representing 10% growth in Q2 and 17% growth for the half year, compared to the corresponding period last year despite operating in an challenging economic and global environment in recent times.

In revenue terms, Trintech generated Financial GRC revenues of $9.1 million in Q2 and $17.6 million for the half year FY'11, compared to $8.4 million and $16.1 million for the same periods last year, which represents a 9% growth performance in both Q2 and H1, compared to the corresponding periods last year. This solid performance reflects a more stable and growing demand among our customers, and indeed, our current markets for our products and solutions.

License revenue amounted to $5.9 million in Q2 and $11.2 million for the half year FY'11, compared to $5.3 million and $10.1 million for the same periods last year, representing a 10% and 11% growth over the same periods last year. In particular, our new license revenue business grew by 16% in Q2 and by an impressive 22% for the first half year. This impressive performance was primarily due to revenues generated from our new license business, for our integrated Unity Financial GRC suite, and good maintenance renewals for all our products.

During the last quarter, we continued to announce a number of significant new customers across the group. And our business continues to expand globally. We also expanded our relationship with HSBC, with additional follow-on sales and new geographies during the quarter. This is consistent with the trends we're experiencing with a large number of our clients, which are progressively moving from a single deployment of our solutions to a global deployment. We strongly feel that there is growing demand within organizations to improve operational efficiencies, manage ever-increasing corporate and financial regulations, and reduce costs by alternating and integrating their critical financial processes to improve overall business performance across their entire organization.

In summary, we expect to see continued good performance of our license offer revenues in the coming quarters as we continue to invest in product development and targeted sales and marketing campaigns as well as exploited good cross-sell opportunities in our existing client base globally.

Finally, service revenues came in at $3.3 million in Q2 and $6.4 million for the half year, compared to the $3.1 million and $6 million for the same periods last year, representing the 7% and the 6% growth performance on the corresponding periods last year. This result reflects a solid performance in generating additional professional services revenue as we grow our license business and sign new customers. This has resulted in the growing backlog of professional services business. Our underlying services business unit met its revenue target and continues to be a robust performer. In addition, our data flow transaction network, which currently processes transaction data for over 20,000 accounts in over 5,000 banks in the US who continues to perform to targets.

Finally, it is worth noting that recurring license and recurring transaction services revenue accounted for over 63% of our quarterly revenue in Q2 and 64% of our total revenue for the half year FY'11. Our business model provides strong visibility with a high level of recurring revenue and provides some protection from the swings in the general economy. It will continue to be a key focus for management as we grow our Financial GRC business moving forward.

During Q2, Trintech continued to make significant investments across all product lines, both in terms of research and development for new products and new client functionality and sales and marketing campaigns as we executed on our sales plans across a broad range of vertical markets and geographies, particularly international market opportunities, where we believe there are good prospects for growth. Our R&D efforts in Financial GRC are focused on delivering the best integrated Web-based platform of modular applications designed as a production platform for finance for the automation of financial processes and financial reporting for our clients, leading to better overall business performance.

We've continued to invest in our recently announced next generation Unity XFR financial reporting solution, with embedded support for XBRL, which enables detailed XBRL tagging and filing in-house. As global accounting standards like US GAAP and IFRS have started to converge, businesses are increasingly being required to understand and adopt XBRL as an enabling technology in enterprise-wide disclosure initiatives being mandated by global financial government bodies such as the SEC in the US and HMRC in the UK.

In this regard, Trintech recently became one of the first companies to file a fully XBRL compliant annual report with the US Securities and Exchange Commission, including, I might add, detailed Level-4 XBRL tagging using our own proprietary Unity XFR financial reporting solution.

On the sales and marketing front, we were continuing – we have continued to focus directly on large corporate organizations with complex financial operations as well as targeting high growth market segments. These market segments include, among others, financial services as an emergence from the banking crisis, IFRS introduction on XBRL compliance in the US and UK, and shared services opportunities.

In this regard, during the quarter, we have the number of customer forums and webinars in conjunction with Price Waterhouse Coopers in the UK and US, Forest Hill Research on XBRL requirements, and best practice in financial disclosure, compliance, and reporting. We also exhibited at other number of industry-trained events on finance and accounting in Chicago, CFSO Summit in Miami, and shared services and outsourcing in Edinburgh, just to mention a few.

There was also significant attendance and real participants' engagement at these product and case study webinars and industry events, which clearly demonstrates growing interest and demand within organizations for our solutions going forward. We also work closely with KPMG and WNS by investing business development and training resources targeted at (inaudible) our distribution network capabilities for our products and services, both in the US and internationally in key target markets.

We also celebrated our 2010 customer conference of Sharp [ph] in May, where over 230 people attended, representing over 100 of our top clients and partners in the US and globally, including recognized finance, accounting, especially professionals from leaving client organizations such as Intel, Hewlett-Packard, FedEx Office, Target, Sony Pictures, Sprint, Yahoo, Walmart, KPMG, and HSBC. The conference theme this year was, "The evolution of finance in a reset economy," with particular focus on the changing role of the office of finance in the ever-challenging regulatory economic environment for business.

At the conference, an executive circle of senior finance executives from different vertical markets and other GRC talk leaders discussed best practice, unique business experience and technology, and product roadmaps for the next generation of financial GRC solutions. Industry speakers from KPMG, Walmart, FedEx, and RR Donnelly participated in a roundtable discussion covering industry topics and financial closed automation, risk management, and recently developed XBRL and XBRL regulations and compliance. Trintech also presented its Unity Financial GRC roadmap, which is evolving to anticipate future market demand for back-forward business, smart controls, for greater visibility of risk and compliance, leading to an integrated suite of modular applications designed – direct to (inaudible) platform for finance.

We are confident that these technology and product investments and increased market expense in all of these research activities are substantially increasing our product and sales capability and generating a strong momentum in our sales pipeline for financial GRC solutions as the broader economy recovers.

Now, we'd like to turn it briefly to some key performance – operational performance metrics in our Q2 and half year financial results. During the quarter, the business performed to and exceeded guidance on the key performance metrics on revenues, gross margins, operating costs, cash generation, and adjusted EBITDA earnings and net income performance metrics. Gross margins amounted to $6.9 million for Q2, representing 75% of revenues, and $13.1 million, representing 74% of revenues for the half year F'11, compared to $6.3 million, which is 75% and $11.9 million, which is 74%, for the corresponding periods last year.

Our operating cost performance increased by 4% from $5.2 million to $5.5 million on an adjusted EBITDA basis in Q2, and by 8% from $10.1 million to $10.9 million in the six months ended 31st of July, 2010, compared to the prior year period, largely due to additional investment and product development and marketing tender costs, which I mentioned earlier.

The volatility of the US dollar against the euro and its entire (inaudible) on a euro-based cost in FY'11 generally has not helped. But we've continued to use FX hedge contracts for incremental exposure and does not naturally hedge for our euro and sterling revenue swings.

On a consolidated basis, Trintech reported adjusted EBITDA net income of $1.5 million in Q2 and $2.5 million for the half year FY'11, representing over 10% growth in Q2 and 17% growth in H1 compared to the corresponding periods last year. The Fiscal GRC business has an adjusted EBITDA net income margin of 24% during the quarter and 21% for the half year F'11. Our last quarter represented our 11th consecutive quarter that the company has been adjusted EBITDA possible.

On a full US GAAP basis, the group recorded a net income of $1 million in Q2 and a net income of $1.5 million for the half year, compared with a net income of $850,000 and a net income of $883,000 for the same periods from last year. Trintech's DSOs were 62 days for Q2. And net cash generated for the quarter was a $1.3 million number. Cash generation operations will continue to be a major focus for management as we gain to EBITDA possible in cash generated in every quarter in the remainder of FY'11. And finally, our balance sheet at the end of Q2 remains strong. We improved cash reserves of almost $49 million with no debt core borrowings.

Moving forward, our plan is to continue to grow our core Financial GRC business. The key components of our growth strategy moving forward are the following, one, continue to focus on organic growth by investing and targeting high growth markets that were implied technology, healthcare, optimized and services industries; two, extend relationships with existing clients by expanding the use of our Unity Financial GRC suite module in our customer base; and three, expand brand and sales footprint by broadening existing distribution and partner networks and expanding marketing channels and peer group influences like public accounting firms and consulting practices.

Our target is to grow our revenues and maintain sustainable growth and EBITDA possibilities. We also maintained a strong – we also maintain to have a strong focus on return revenue streams within our revenue mix for predictability and visibility in our business model. Our objective is to maintain recurring revenue between 60% and 70% of total revenue moving forward.

We also maintain that our significant investment and new product development and sales and marketing results as we expected benefit in the medium term from a market trend towards greater transparency and financial operations, increased regulatory compliance and risk aversion generally.

Looking specifically to second half of FY '11, while we are confident about our business in general, we feel it's only appropriate and prudent – to be prudent on our market guidance for the next quarter given the current economic uncertainty due to the early stage of the broader economic recovery. Specifically, we are targeting an $8.5 million to $9.3 million revenue range in Q3 FY '11 and a target EBITDA net income range of between $1 million and $1.5 million, with continued strong cash flow generation in the quarter.

With that, I would like to hand over back to Joe Seery, VP of Finance Group, who will summarize our Q2 and half year FY '11 for you in greater detail regarding our financial performance. Joe?

Joe Seery

Thanks, Cyril. In reporting the financial results for the second quarter ended July 31st, 2010, I am focusing on the US GAAP results detailed in our earnings press release, which was distributed this morning. I will also comment on adjusted EBITDA results, which have been included together with our reconciliation to US GAAP results in the earnings release.

Revenue for the second quarter and half year ended July 31st, 2010 increased by 9% to $9.1 million and $17.6 million, respectively, compared to $8.4 million and $16.1 million for the corresponding period for the prior year.

Software license revenue for the quarter at six months ended July 31st, 2010 was $5.8 million and $11.2 million, compared with $5.3 million and $10.1 million for the corresponding period in the prior year, an increase of 10% and 11%, respectively. The growth was primarily due to increased license business, which grew by 16% and 22%, compared to Q2 at H1 of the of the prior year.

Service revenue for the quarter ended July 31st, 2010 was $3.3 million, compared with $3.1 million for the corresponding quarter in the prior year, an increase of 7%. Service revenue for the six months ended July 31st, 2010 was $6.4 million, compared with $6 million for the corresponding quarter in the prior year, an increase of 6%. This growth was primarily due to an increase in professional service revenues from our (inaudible) products.

Total gross margin for the quarter and six months ended July 31st, 2010 was $6.9 million and $13.1 million, respectively, an increase of 9% and 10% when compared to the corresponding period in the prior year. Gross margin percentage remains flat at 75% for Q2 and 74% for the six months ended July 31st, 2010, compared to the same period to the prior year.

Total operating expenses for the second quarter ended July 31st, 2010 were $5.9 million, an increase of 4% from $5.6 million in the corresponding quarter in the prior year. Total operating expenses for the six months ended July 31st, 2010 was $11.6 million, an increase of 3% from 11.2% in the corresponding period in the prior year.

Adjusted EBITDA operating expenses for the quarter ended July 31st, 2010 were $5.5 million, an increase of 7%, compared to the prior period. Adjusted EBITDA operating expenses for the fiscal ended July 31st, 2010 were $10.9 million, an increase of 8%, compared to the adjusted EBITDA operating expenses of $10.1 million for its corresponding period in the prior year. These increases were largely due to an additional use of engineering contractors on product investment and marketing costs.

Adjusted EBITDA net income was $1.5 million and $2.5 million for the second quarter and the six months ended July 31st, 2010, respectively, compared to an adjusted EBITDA net income of $1.4 million and $2.2 million for the corresponding period in the prior year. A full reconciliation of our performance on a net income and adjusted EBITDA net income basis is contained in the press release issued earlier today.

Now, within the operating cost base for continuing operations, the depreciation charge for Q2 was $116,000 and $225,000 for H1. The amortization charge was $203,000 for the fourth quarter and $405,000 million for H1. We also incurred a share-based compensation charge of $150,000 in Q2 and $259,000 for H1. Interest income in the quarter amounts to $70,000 and $22,000 for H1.

There's also a foreign exchange gain of $88,000 in Q2 and $131,000 in H1 arising from realized and unrealized exchange gains. Basic and diluted net income per equivalent ADS from continuing operations for Q2 and H1 amounted to $0.02 and $0.09, respectively. Adjusted basic and diluted EBITDA net income per equivalent ADS for Q2 and H1 from continuing operations amounted to $0.09 and $0.15, respectively.

Net income from discontinued operations amounts to $50,000 in Q2 and $21.9 million in H1 was due to a $28.1 million gain on the sale of the healthcare business. This gain is due to the proceeds of $28 million, to (inaudible) costs of $2.6 million, and cost of (inaudible) of $3.6 million.

Now, turning to the balance sheet, at the end of July 2010, Trintech had total assets of $77.8 million. Net cash amounted to $48.9 million. Working capital was $42.8 million. And current liabilities were $12.3 million at 31st of July, 2010. Net cash generated for the combined continuing and discontinued operations for the three and six months ended July 31st, 2010 were $1.3 million and $28.9 million, respectively.

Cash collections were very good in the quarter, with DSO days at 62 days. AR provision was $120,000 at quarter end to account for any potential bad debt in the AR balance at the end of the quarter for the continuing business. Our total headcount from continuing operations was 169 at the end of Q2, which compared to 170 at the end of Q1 of this year and 202 at the end of Q2 in the prior year.

Now, looking ahead to Q3 of fiscal year 2011 let me preface my comments on our business outlook by stating that these comments are based on current expectations. These are forward-looking and involve a number of risks and uncertainties. Actual results may differ materially.

I'd like to draw your attention to the opening comments made at the start of this call and reference to the use of forward-looking statements during this call and factors which could adversely affect actual performance. Guidance for the third quarter of fiscal year 2011, Q2 guidance represents continued momentum in terms of significant year-on-year growth in adjusted EBITDA and net income. While revenue visibility remains unclear, we would expect, based on current pipelines, revenue for Q3 to be in the $8.5 million to $9.3 million range. We expect license revenue in Q3 to be in the $5.5 million to $6 million range. We expect service revenue to be in the $3 million to $3.3 million range. Based on the expected revenue mix, we expect Q3 gross margins to be in the 72% to 74% range. We expect adjusted EBITDA operating expenses will be between $5.4 million and $5.7 million for Q3.

These costs, excluding an expected depreciation charge of approximately $115,000 and expected charge for the amortization of $203,000, and expected share base compensation charge of $330,000, and an expected tax charge of $50,000 for Q3, we also expect to earn interest income of $20,000 for Q3.

Consequently, given the continued investment in our stated growth areas, we believe that our US GAAP net income for the business will be a profit of $500,000 to $800,000 in quarter three. Adjusted EBITDA net income would then be a range of $1 million to $1.5 million in Q3, representing a plus 16% net adjusted EBITDA net income margin. This can be calculated by adjusting net income for the expected interest, tax, depreciation, amortization, restructuring, and stock compensation charges.

Basic income per equivalent ADS is expected to be within a range of $0.03 to $0.05 in Q3, with basic adjusted EBITDA net income per equivalent ADS expected to be within the range of $0.06 to $0.09. We expect the net cash to increase for Q3 to be within a range of $800,000 to $1.2 million cash balance at the end of Q3 to be over $15 million.

We expect our DSO days range in Q3 to be between 60 days and 65 days.

And with that, I'd like to hand back to Cyril.

Cyril McGuire

Thank you, Joe for that detailed analysis on our financial Q2 performance. And with that, we'd like to open the call now to Q&A.

Heidi? Is Heidi there?

Question-and-Answer Session


We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Joshua Goldman from Davy. Please ask your question.

Joshua Goldman – Davy Stockbrokers

Hi, guys. Congratulations on a great quarter. I just was wondering if you could comment on service costs. It seems like they were a bit lower than I would expect based on previous quarters and whether or not this trend will continue going forward. And also going forward, can you comment on the seasonality of the business, if you expect typically Q3s to be weaker than Q4s? This would be very helpful in trying to model going forward. Thank you.

Paul Byrne

Hey Josh, Paul here. Thanks for that. And Josh, just to deal with your two questions in order, the services cost in Q2 were a little lower. That's mainly because we tend to run our services business on a very tight operating margin and utilization ratio. So consequently, there tends to be a lag in the cost as we only take people on when we absolutely know that the backlog is continuing to increase. So going forward, services cost will increase.

We are hiring people and the backlog for services thankfully has grown pretty quickly for us as the business is recovering from the economic downturn of last year. So we will be hiring more people in services to deliver the backlog. So consequently, in Q3 you'll probably see higher costs than Q2. And then moving to Q4 and next year, you should see higher revenues because there is a lead time between someone coming onboard and them being productive in terms of being able to book revenue for them. So you may see a slight tail-off in the margin in Q3, very slight. That should expand again in Q4 and revenue will grow in Q4 and into next year due to the growing pipeline.

On the seasonality challenge, you are right to point out that Q3 historically for us has been weaker than Q2, and Q4 has been significantly stronger than Q3. Last year, obviously, Q4 wasn't the strongest quarter for us but traditionally it is a very strong quarter. Looking to this year, Joe has given you the guidance. We think Q2 was a pretty solid quarter and expect to continue to grow over last year. We are expecting Q4 to be stronger than Q3 in line with historical trends.

Joshua Goldman – Davy

That's perfect. Thank you very much for that.


(Technical Difficulty) Dan Cavanagh from Goodbody Stockbrokers. Please (Technical Difficulty)

Dan Cavanagh – Goodbody Stockbrokers

Hi, guys. My first question is on the margin. The gross margin came in at 75% in this quarter and I know you are guiding down slightly to 72%, 74% range for the third quarter. But perhaps then in line with this – of course being the highest in recent history, perhaps you could give us some of your views on where you see it longer term. Secondly, on the R&D, it has picked up around 200K per quarter year on year to the $1.2 million, $1.3 million level. Again, where should we be pitching our expectations going forward? And then, finally, just on the sales pipeline, if you read through on some of the hardware and IT spend and Intel, particularly, you guided down some weakness there, could you perhaps give us your thoughts, a bit of granularity on how you see the markets over the next maybe 12 to 18 months as the economic recovery pans out?

Joe Seery

Okay. On the margin first, if you were – the margin was pretty strong this quarter and I think we would expect it to be trending around actually 73%, 74%. We expect strong gross margins in the business given the nature of the work – its high operating leverage, generally speaking. I think next quarter, as we said earlier, it will trend down slightly and then will recover in Q4. And I know going into next year, we are going to try and maintain gross margins as close to 75% as we can get them.

And basically as we continue to grow in a sense, obviously the net – the incremental margin on a new license deal for us is effectively 100% on the license side. The services margin going along with that, they tend to be the high – on a margin basis, in the high 20%, low 40%. And obviously, maintenance brings its own significant margin once the maintenance kicks in. So I think, over time, we would expect gross margins to be trending back at the 75% going into next year. And that's firstly.

Secondly, on the R&D, yes, we have increased R&D. We see significant opportunity particularly for the XFR product to – that's quite a significant market opportunity driven by changing regulations, so it is causing a discontinuity in financial reporting. It means everybody needs to do something to make a compliance requirement. We have a significant investment made there already. We will continue to invest there. Probably in Q3, we will invest more, but the R&D in Q3 will be higher than Q2. And again, in quarter four as we basically agree to market more and more modules, more functionality in relation to XBRL both for the US and for the UK.

I think when we last spoke on the earnings call, we were both committed to US markets in terms of an SEC-based solution. Obviously, now with the impending HMRC mandate in the UK for our XBRL, we have made investments there to bring forward a solution to meet the demand in the UK as well. And we see that opportunity as becoming global going into next year. We see Canada, Australia, for example and other continental European countries seeking to adopt XBRL as well.

I think we will be investing more and it opens up a great, new revenue stream for us as well over a period of time. They will allow us to continue to grow and accelerate growth in fact going into next year. And that brings me now to the pipeline. That XBRL opportunity is feeding into the pipeline. We have generated a lot of interest there. That is now starting to turn into sales opportunities. Our pipeline today is probably the strongest it's been for many years, in fact, probably the strongest we've ever had it.

So we don’t see the same trends that the hardware industry is seeing. We are seeing significant opportunities there for software, and primarily because we generate a lot of efficiencies for financial operations, financial executives. We help them obviously meet their compliance mandates, which is a most – you have to make an investment there whether you adopt a service approach or a software solution approach. You have to do something. It is not a discretionary spending area. That obviously helps feed our pipeline.

On a discretionary spending basis, due to the nature of the efficiency we generate for people, the strong ROI, and the fact that so many financial organizations are trying to cope with an economic recovery, but not hiring anybody. We have seen the jobless recovery in finance in the US in particular that people are gravitating towards solutions like the ones we have for them to automate and drive efficiency without having to hire people. And that's what's feeding into our pipeline. That and the compliance mandates – and the ever-changing compliance mandates particularly in financial services. So we are fortunate. We think we have a tailwind as opposed to a headwind and we expect to capitalize on that as we go into next year.

Cyril McGuire

Dan, I would just add to that. Generally, if you look back at our quarterly conference calls, we are generally conservative and however, that said, we do remain positive on outlook and that's reflected in our guidance here today. I think if we were to look at the positives, clearly, as Paul mentioned, we are very strong and growing business pipeline and indeed contractor backlog and as well as having thankfully our target market of regulations and compliance not as a discretionary spend, but a must spend. However, that said, we do accept that there are some negatives, there are some clouds on the horizon and it's fair to say that there's general economic uncertainty out there as the broader market recovers generally. So just a few cautious notes there and I think that's reflected in our comments here today.

Dan Cavanagh – Goodbody Stockbrokers

Yes, I think that level of caution is completely understandable. And these Q2s were very good, but I think is it wise to be a little bit cautious going into the seasonally weaker and third quarter. And just one final point and this is more for Joe. In the guidance figure, I missed the cash balance. Could you perhaps just read that out again, please?

Joe Seery

Yes, the cash generated in Q3, we are guiding between $800,000 and $1.2 million and we're saying that the cash balance will be over $50 million.

Dan Cavanagh – Goodbody Stockbrokers

Okay. That's great. Thanks, guys.


(Operator Instructions).

Cyril McGuire

Any final questions, Heidi?


There are no further questions at this time. Please continue.

Cyril McGuire

Okay. Well I would like to thank everybody for joining us today on the call and I look forward to updating everybody again on our progress on our next conference call for Q3 fiscal 2011. With that, good morning and good afternoon.


That does conclude our conference today. Thank you for participating. You may all disconnect.